UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FORM 10-Q

ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2020
or
¨
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)
Delaware42-1547151
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
239 Washington StreetJersey CityNew Jersey07302
(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
CommonPFSNew 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  Yes  ý    NO  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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  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 Fileraccelerated filerýAccelerated 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 NovemberMay 1, 20172020 there were 83,209,293 shares issued and 66,773,464 sharesand 65,909,039 shares outstanding of the Registrant’s Common Stock, par value $0.01 per share, including 296,049200,089 shares held by the First Savings Bank Directors’ Deferred Fee Plan not otherwise considered outstanding under U.S. generally accepted accounting principles.


1



PROVIDENT FINANCIAL SERVICES, INC.
INDEX TO FORM 10-Q
 
Item NumberPage Number
1
Consolidated Statements of Financial Condition as of March 31, 2020 (unaudited) and December 31, 2019
Consolidated Statements of Income for the three months ended March 31, 2020 and 2019 (unaudited)
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019 (unaudited)
Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019 (unaudited)
Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)
2
3
4
1
1A.
2
3Defaults Upon Senior Securities
4
5
6Exhibits



2
Item NumberPage Number
 
   
1. 
   
 Consolidated Statements of Financial Condition as of September 30, 2017 (unaudited) and December 31, 2016
   
 Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016 (unaudited)
   
 Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016 (unaudited)
   
 Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2017 and 2016 (unaudited)
   
 Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (unaudited)
   
 
   
2.
   
3.
   
4.
 
   
1.
   
1A.
   
2.
   
3.Defaults Upon Senior Securities
   
4.
   
5.
   
6.
  




PART I—FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, 2017March 31, 2020 (Unaudited) and December 31, 20162019
(Dollars in Thousands)
 
 September 30, 2017 December 31, 2016March 31, 2020December 31, 2019
ASSETS    ASSETS
Cash and due from banks $97,298
 $92,508
Cash and due from banks$237,083  $131,555  
Short-term investments 51,485
 51,789
Short-term investments133,494  55,193  
Total cash and cash equivalents 148,783
 144,297
Total cash and cash equivalents370,577  186,748  
Securities available for sale, at fair value 1,028,305
 1,040,386
Investment securities held to maturity (fair value of $490,425 at September 30, 2017 (unaudited) and $489,287 at December 31, 2016) 481,845
 488,183
Available for sale debt securities, at fair valueAvailable for sale debt securities, at fair value989,833  976,919  
Held to maturity debt securities, net (fair value of $459,224 at March 31, 2020 (unaudited) and $467,966 at December 31, 2019)Held to maturity debt securities, net (fair value of $459,224 at March 31, 2020 (unaudited) and $467,966 at December 31, 2019)445,444  453,629  
Equity securities, at fair valueEquity securities, at fair value685  825  
Federal Home Loan Bank stock 70,896
 75,726
Federal Home Loan Bank stock61,198  57,298  
Loans 7,028,052
 7,003,486
Loans7,372,044  7,332,885  
Less allowance for loan losses 60,276
 61,883
Less allowance for credit lossesLess allowance for credit losses75,143  55,525  
Net loans 6,967,776
 6,941,603
Net loans7,296,901  7,277,360  
Foreclosed assets, net 5,703
 7,991
Foreclosed assets, net4,219  2,715  
Banking premises and equipment, net 78,567
 84,092
Banking premises and equipment, net54,350  55,210  
Accrued interest receivable 27,398
 27,082
Accrued interest receivable27,799  29,031  
Intangible assets 420,877
 422,937
Intangible assets436,278  437,019  
Bank-owned life insurance 188,123
 188,527
Bank-owned life insurance195,459  195,533  
Other assets 76,873
 79,641
Other assets202,143  136,291  
Total assets $9,495,146
 $9,500,465
Total assets$10,084,886  $9,808,578  
    
LIABILITIES AND STOCKHOLDERS’ EQUITY    LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:    Deposits:
Demand deposits $4,880,133
 $4,803,426
Demand deposits$5,523,150  $5,384,868  
Savings deposits 1,083,215
 1,099,020
Savings deposits990,844  983,714  
Certificates of deposit of $100,000 or more 296,172
 290,295
Certificates of deposit of $100,000 or more406,122  438,551  
Other time deposits 331,696
 360,888
Other time deposits290,644  295,476  
Total deposits 6,591,216
 6,553,629
Total deposits7,210,760  7,102,609  
Mortgage escrow deposits 25,186
 24,452
Mortgage escrow deposits28,470  26,804  
Borrowed funds 1,525,560
 1,612,745
Borrowed funds1,213,777  1,125,146  
Other liabilities 53,012
 57,858
Other liabilities219,290  140,179  
Total liabilities 8,194,974
 8,248,684
Total liabilities8,672,297  8,394,738  
Stockholders’ Equity:    Stockholders’ Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued—  —  
Common stock, $0.01 par value, 200,000,000 shares authorized, 83,209,293 shares issued and 66,467,819 shares outstanding at September 30, 2017 and 66,082,283 outstanding at December 31, 2016 832
 832
Common stock, $0.01 par value, 200,000,000 shares authorized, 83,209,293 shares issued and 65,770,728 shares outstanding at March 31, 2020 and 65,787,900 outstanding at December 31, 2019Common stock, $0.01 par value, 200,000,000 shares authorized, 83,209,293 shares issued and 65,770,728 shares outstanding at March 31, 2020 and 65,787,900 outstanding at December 31, 2019832  832  
Additional paid-in capital 1,010,247
 1,005,777
Additional paid-in capital1,008,582  1,007,303  
Retained earnings 586,575
 550,768
Retained earnings686,397  695,273  
Accumulated other comprehensive loss (708) (3,397)
Accumulated other comprehensive incomeAccumulated other comprehensive income14,938  3,821  
Treasury stock (260,910) (264,221)Treasury stock(274,044) (268,504) 
Unallocated common stock held by the Employee Stock Ownership Plan (35,864) (37,978)Unallocated common stock held by the Employee Stock Ownership Plan(24,116) (24,885) 
Common stock acquired by the Directors’ Deferred Fee Plan (5,343) (5,846)Common stock acquired by the Directors’ Deferred Fee Plan(3,666) (3,833) 
Deferred compensation – Directors’ Deferred Fee Plan 5,343
 5,846
Deferred compensation – Directors’ Deferred Fee Plan3,666  3,833  
Total stockholders’ equity 1,300,172
 1,251,781
Total stockholders’ equity1,412,589  1,413,840  
Total liabilities and stockholders’ equity $9,495,146
 $9,500,465
Total liabilities and stockholders’ equity$10,084,886  $9,808,578  
See accompanying notes to unaudited consolidated financial statements.

3



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Three and nine months ended September 30, 2017March 31, 2020 and 20162019 (Unaudited)
(Dollars in Thousands, except per share data)
 
 Three months ended September 30, Nine months ended September 30,Three months ended March 31,
 2017 2016 2017 201620202019
Interest income:        Interest income:
Real estate secured loans $47,692
 $45,262
 $140,712
 $134,411
Real estate secured loans$54,441  $55,006  
Commercial loans 18,964
 16,093
 53,884
 46,419
Commercial loans18,672  20,510  
Consumer loans 5,083
 5,627
 15,293
 16,657
Consumer loans4,172  4,783  
Securities available for sale and Federal Home Loan Bank Stock 6,540
 5,576
 19,651
 17,074
Investment securities held to maturity 3,272
 3,349
 9,812
 10,011
Available for sale debt securities, equity securities and Federal Home Loan Bank StockAvailable for sale debt securities, equity securities and Federal Home Loan Bank Stock7,069  8,409  
Held to maturity debt securitiesHeld to maturity debt securities2,940  3,162  
Deposits, Federal funds sold and other short-term investments 343
 138
 898
 252
Deposits, Federal funds sold and other short-term investments875  541  
Total interest income 81,894
 76,045
 240,250
 224,824
Total interest income88,169  92,411  
Interest expense:        Interest expense:
Deposits 4,988
 4,441
 14,093
 12,397
Deposits10,958  10,494  
Borrowed funds 6,694
 6,633
 19,855
 20,477
Borrowed funds5,190  6,910  
Total interest expense 11,682
 11,074
 33,948
 32,874
Total interest expense16,148  17,404  
Net interest income 70,212
 64,971
 206,302
 191,950
Net interest income72,021  75,007  
Provision for loan losses 500
 1,000
 3,700
 4,200
Net interest income after provision for loan losses 69,712
 63,971
 202,602
 187,750
Provision for credit lossesProvision for credit losses14,717  200  
Net interest income after credit loss expenseNet interest income after credit loss expense57,304  74,807  
Non-interest income:        Non-interest income:
Fees 7,680
 6,137
 20,940
 19,309
Fees6,529  6,097  
Wealth management income 4,592
 4,262
 13,314
 13,084
Wealth management income6,251  4,079  
Bank-owned life insurance 1,353
 1,382
 5,291
 4,083
Bank-owned life insurance787  1,696  
Net gain (loss) on securities transactions 36
 (43) 47
 54
Net gain on securities transactionsNet gain on securities transactions11  —  
Other income 1,451
 2,328
 2,804
 4,378
Other income3,413  316  
Total non-interest income 15,112
 14,066
 42,396
 40,908
Total non-interest income16,991  12,188  
Non-interest expense:        Non-interest expense:
Compensation and employee benefits 27,328
 26,725
 81,086
 78,496
Compensation and employee benefits31,195  28,369  
Net occupancy expense 6,105
 6,227
 19,255
 18,729
Net occupancy expense6,203  6,857  
Data processing expense 3,314
 3,328
 10,302
 9,845
Data processing expense4,430  3,969  
FDIC insurance 967
 1,117
 3,065
 3,732
FDIC insurance—  739  
Amortization of intangibles 632
 767
 2,079
 2,628
Amortization of intangibles744  490  
Advertising and promotion expense 907
 787
 2,709
 2,567
Advertising and promotion expense1,369  883  
Provision for credit losses for off-balance sheet credit exposureProvision for credit losses for off-balance sheet credit exposure1,000  —  
Other operating expenses 7,027
 6,899
 21,248
 20,628
Other operating expenses9,166  7,109  
Total non-interest expense 46,280
 45,850
 139,744
 136,625
Total non-interest expense54,107  48,416  
Income before income tax expense 38,544
 32,187
 105,254
 92,033
Income before income tax expense20,188  38,579  
Income tax expense 11,969
 9,281
 30,788
 26,798
Income tax expense5,257  7,689  
Net income $26,575
 $22,906
 $74,466
 $65,235
Net income$14,931  $30,890  
Basic earnings per share $0.41
 $0.36
 $1.16
 $1.03
Basic earnings per share$0.23  $0.48  
Weighted average basic shares outstanding 64,454,684
 63,728,393
 64,327,640
 63,545,065
Weighted average basic shares outstanding64,386,138  64,766,619  
Diluted earnings per share $0.41
 $0.36
 $1.15
 $1.02
Diluted earnings per share$0.23  $0.48  
Weighted average diluted shares outstanding 64,645,278
 63,934,886
 64,519,710
 63,727,723
Weighted average diluted shares outstanding64,457,263  64,912,738  
See accompanying notes to unaudited consolidated financial statements.

4



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Three and nine months ended September 30, 2017March 31, 2020 and 20162019 (Unaudited)
(Dollars in Thousands)
 
Three months ended March 31,
20202019
Net income$14,931  $30,890  
Other comprehensive income (loss), net of tax:
Unrealized gains on available for sale debt securities:
Net unrealized gains arising during the period16,746  7,578  
Reclassification adjustment for gains included in net income—  —  
Total16,746  7,578  
Unrealized losses on derivatives(5,713) (314) 
Amortization related to post-retirement obligations84  (12) 
Total other comprehensive income11,117  7,252  
Total comprehensive income$26,048  $38,142  
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Net income $26,575
 $22,906
 $74,466
 $65,235
Other comprehensive income, net of tax:        
Unrealized gains and losses on securities available for sale:        
Net unrealized gains (losses) arising during the period 479
 (1,541) 2,478
 8,533
Reclassification adjustment for gains included in net income 
 26
 
 (32)
Total 479
 (1,515) 2,478
 8,501
Unrealized gains (losses) on derivatives 54
 230
 106
 (361)
Amortization related to post-retirement obligations 36
 141
 105
 380
Total other comprehensive income (loss) 569
 (1,144) 2,689
 8,520
Total comprehensive income $27,144
 $21,762
 $77,155
 $73,755

See accompanying notes to unaudited consolidated financial statements.




5


PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
NineFor the three months ended September 30, 2017 and 2016March 31, 2019 (Unaudited)
(Dollars in Thousands)
For the three months ended March 31, 2019COMMON STOCKADDITIONAL PAID-IN CAPITALRETAINED EARNINGSACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOMETREASURYSTOCKUNALLOCATED ESOP SHARESCOMMON STOCK ACQUIRED BY DDFPDEFERRED COMPENSATION DDFPTOTAL STOCKHOLDERS’ EQUITY
Balance at December 31, 2018$832  $1,021,533  $651,099  $(12,336) $(272,470) $(29,678) $(4,504) $4,504  $1,358,980  
Net income—  —  30,890  —  —  —  —  —  30,890  
Other comprehensive income, net of tax—  —  7,252  —  —  —  —  7,252  
Cash dividends paid—  —  (28,964) —  —  —  —  —  (28,964) 
Effect of adopting Accounting Standards Update ("ASU") No. 2016-02—  —  4,350  —  —  —  —  —  4,350  
Distributions from Deferred directors fee plan ("DDFP")—  42  —  —  —  —  167  (167) 42  
Purchases of treasury stock—  —  —  —  (180) —  —  —  (180) 
Purchase of employee restricted shares to fund statutory tax withholding—  —  —  (1,914) —  —  —  (1,914) 
Shares issued dividend reinvestment plan—  307  —  —  533  —  —  —  840  
Stock option exercises—  (11) —  —  26  —  —  —  15  
Allocation of ESOP shares—  370  —  —  —  705  —  —  1,075  
Allocation of Stock Award Plan ("SAP") shares—  1,388  —  —  —  —  —  —  1,388  
Allocation of stock options—  42  —  —  —  —  —  —  42  
Balance at March 31, 2019$832  $1,023,671  $657,375  $(5,084) $(274,005) $(28,973) $(4,337) $4,337  $1,373,816  
  
COMMON
STOCK
 
ADDITIONAL
PAID-IN
CAPITAL
 
RETAINED
EARNINGS
 
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
 
TREASURY
STOCK
 
UNALLOCATED
ESOP
SHARES
 
COMMON
STOCK
ACQUIRED
BY DDFP
 
DEFERRED
COMPENSATION
DDFP
 
TOTAL
STOCKHOLDERS’
EQUITY
Balance at December 31, 2015 $832
 $1,000,810
 $507,713
 $(2,546) $(269,014) $(41,730) $(6,517) $6,517
 $1,196,065
Net income 
 
 65,235
 
 
 
 
 
 65,235
Other comprehensive income, net of tax 
 
 
 8,520
 
 
 
 
 8,520
Cash dividends declared 
 
 (35,141) 
 
 
 
 
 (35,141)
Effect of adopting Accounting Standards Update ("ASU") No. 2016-09 
 (622) 622
 
 
 
 
 
 
Distributions from DDFP 
 91
 
 
 
 
 503
 (503) 91
Purchases of treasury stock 
 
 
 
 (1,557) 
 
 
 (1,557)
Purchase of employee restricted shares to fund statutory tax withholding 
 
 
 
 (1,161) 
 
 
 (1,161)
Shares issued dividend reinvestment plan 
 180
 
 
 996
 
 
 
 1,176
Stock option exercises 
 (60) 
 
 5,658
 
 
 
 5,598
Allocation of ESOP shares 
 325
 
 
 
 2,016
 
 
 2,341
Allocation of SAP shares 
 2,982
 
 
 
 
 
 
 2,982
Allocation of stock options 
 131
 
 
 
 
 
 
 131
Balance at September 30, 2016 $832
 $1,003,837
 $538,429
 $5,974
 $(265,078) $(39,714) $(6,014) $6,014
 $1,244,280

See accompanying notes to unaudited consolidated financial statements.

















6






PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
NineFor the three months ended September 30, 2017 and 2016March 31, 2020 (Unaudited) (Continued)
(Dollars in Thousands)


 
COMMON
STOCK
 
ADDITIONAL
PAID-IN
CAPITAL
 
RETAINED
EARNINGS
 
ACCUMULATED
OTHER
COMPREHENSIVE
(LOSS) INCOME
 
TREASURY
STOCK
 
UNALLOCATED
ESOP
SHARES
 
COMMON
STOCK
ACQUIRED
BY DDFP
 
DEFERRED
COMPENSATION
DDFP
 
TOTAL
STOCKHOLDERS’
EQUITY
Balance at December 31, 2016 $832
 $1,005,777
 $550,768
 $(3,397) $(264,221) $(37,978) $(5,846) $5,846
 $1,251,781
For the three months ended March 31, 2020For the three months ended March 31, 2020COMMON STOCKADDITIONAL PAID-IN CAPITALRETAINED EARNINGSACCUMULATED OTHER COMPREHENSIVE INCOMETREASURY STOCKUNALLOCATED ESOP SHARESCOMMON STOCK ACQUIRED BY DDFPDEFERRED COMPENSATION DDFPTOTAL STOCKHOLDERS’ EQUITY
Balance at December 31, 2019Balance at December 31, 2019832  1,007,303  695,273  3,821  (268,504) (24,885) (3,833) 3,833  1,413,840  
Net income 
 
 74,466
 
 
 
 
 
 74,466
Net income—  —  14,931  —  —  —  —  —  14,931  
Other comprehensive income, net of tax 
 
 
 2,689
 
 
 
 
 2,689
Other comprehensive income, net of tax—  —  —  11,117  —  —  —  —  11,117  
Cash dividends declared 
 
 (38,659) 
 
 
 
 
 (38,659)
Cash dividends paidCash dividends paid—  —  (15,496) —  —  —  —  —  (15,496) 
Effect of adopting ASU No. 2016-13 ("CECL")Effect of adopting ASU No. 2016-13 ("CECL")—  —  (8,311) —  —  —  —  —  (8,311) 
Distributions from DDFP 
 172
 
 
 
 
 503
 (503) 172
Distributions from DDFP—  37  —  —  —  —  167  (167) 37  
Purchases of treasury stock 
 
 
 
 (443) 
 
 
 (443)Purchases of treasury stock—  —  —  —  (4,985) —  —  —  (4,985) 
Purchase of employee restricted shares to fund statutory tax withholding 
 

 
 
 (726) 
 
 
 (726)Purchase of employee restricted shares to fund statutory tax withholding—  —  —  —  (956) —  —  —  (956) 
Shares issued dividend reinvestment plan 
 417
 
 
 922
 
 
 
 1,339
Shares issued dividend reinvestment plan—  50  —  —  401  —  —  —  451  
Stock option exercises 
 (1,024) 
 
 3,558
 
 
 
 2,534
Stock option exercises—  —  —  —  —  —  —  —  —  
Allocation of ESOP shares 
 1,053
 
 
 
 2,114
 
 
 3,167
Allocation of ESOP shares—  152  —  —  —  769  —  —  921  
Allocation of SAP shares 
 3,702
 
 
 
 
 
 
 3,702
Allocation of SAP shares—  993  —  —  —  —  —  —  993  
Allocation of stock options 
 150
 
 
 
 
 
 
 150
Allocation of stock options—  47  —  —  —  —  —  —  47  
Balance at September 30, 2017 $832
 $1,010,247
 $586,575
 $(708) $(260,910) $(35,864) $(5,343) $5,343
��$1,300,172
Balance at March 31, 2020Balance at March 31, 2020$832  $1,008,582  $686,397  $14,938  $(274,044) $(24,116) $(3,666) $3,666  $1,412,589  

See accompanying notes to unaudited consolidated financial statements.

7




PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
NineThree months ended September 30, 2017March 31, 2020 and 20162019 (Unaudited)
(Dollars in Thousands)
 
Three months ended March 31,
20202019
Cash flows from operating activities:
Net income$14,931  $30,890  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangibles2,494  2,454  
Provision for credit losses on loans and securities14,717  200  
Provision for credit loss for off-balance sheet credit exposure1,000  —  
Deferred tax (benefit) expense(1,492) 3,184  
Amortization of operating lease right-of-use assets2,130  2,050  
Income on Bank-owned life insurance(787) (1,696) 
Net amortization of premiums and discounts on securities1,913  1,756  
Accretion of net deferred loan fees(1,521) (1,220) 
Amortization of premiums on purchased loans, net192  160  
Net increase in loans originated for sale(4,022) (3,942) 
Proceeds from sales of loans originated for sale4,335  4,215  
Proceeds from sales and paydowns of foreclosed assets256  585  
ESOP expense921  1,075  
Allocation of stock award shares993  1,388  
Allocation of stock options47  42  
Net gain on sale of loans(313) (273) 
Net gain on securities transactions(11) —  
Net gain on sale of premises and equipment(641) —  
Net gain on sale of foreclosed assets(29) (57) 
Decrease in accrued interest receivable1,232  295  
(Increase) decrease in other assets(82,099) 4,042  
Decrease (increase) in other liabilities79,111  (13,780) 
Net cash provided by operating activities33,357  31,368  
Cash flows from investing activities:
Proceeds from maturities, calls and paydowns of held to maturity debt securities17,225  11,432  
Purchases of held to maturity debt securities(9,674) (5,780) 
Proceeds from maturities and paydowns of available for sale debt securities64,466  40,258  
Purchases of available for sale debt securities(56,172) (50,384) 
Proceeds from redemption of Federal Home Loan Bank stock28,549  31,536  
Purchases of Federal Home Loan Bank stock(32,449) (31,357) 
BOLI claim benefits received1,985  —  
Net (increase) decrease in loans(39,897) 27,579  
Proceeds from sales of premises and equipment641  —  
Purchases of premises and equipment(1,664) (593) 
Net cash (used in) provided by investing activities(26,990) 22,691  
Cash flows from financing activities:
Net increase in deposits108,151  73,334  
Increase in mortgage escrow deposits1,666  1,795  
Cash dividends paid to stockholders(15,496) (28,964) 
Shares issued dividend reinvestment plan451  840  
Purchase of treasury stock(4,985) (180) 
Purchase of employee restricted shares to fund statutory tax withholding(956) (1,914) 
8


  Nine months ended September 30,
  2017 2016
Cash flows from operating activities:    
Net income $74,466
 $65,235
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization of intangibles 8,864
 9,711
Provision for loan losses 3,700
 4,200
Deferred tax expense 640
 323
Income on Bank-owned life insurance (5,291) (4,083)
Net amortization of premiums and discounts on securities 7,504
 7,908
Accretion of net deferred loan fees (3,673) (2,500)
Amortization of premiums on purchased loans, net 800
 936
Net increase in loans originated for sale (18,386) (32,734)
Proceeds from sales of loans originated for sale 19,149
 34,709
Proceeds from sales and paydowns of foreclosed assets 4,883
 3,717
ESOP expense 3,167
 2,341
Allocation of stock award shares 3,702
 2,982
Allocation of stock options 150
 131
Net gain on sale of loans (763) (1,975)
Net gain on securities transactions (47) (54)
Net gain on sale of premises and equipment (8) (14)
Net gain on sale of foreclosed assets (768) (652)
(Increase) decrease in accrued interest receivable (316) 461
Increase in other assets (2,407) (17,108)
(Decrease) increase in other liabilities (4,846) 10,942
Net cash provided by operating activities 90,520
 84,476
Cash flows from investing activities:    
Proceeds from maturities, calls and paydowns of investment securities held to maturity 42,382
 49,245
Purchases of investment securities held to maturity (38,074) (54,059)
Proceeds from sales of securities 
 3,401
Proceeds from maturities, calls and paydowns of securities available for sale 160,436
 146,958
Purchases of securities available for sale (149,647) (209,666)
Proceeds from redemption of Federal Home Loan Bank stock 96,040
 46,757
Purchases of Federal Home Loan Bank stock (91,210) (39,595)
Death benefit proceeds from bank-owned life insurance 4,428
 
Purchases of loans 
 (28,590)
Net increase in loans (23,888) (325,838)
Proceeds from sales of premises and equipment 8
 14
Purchases of premises and equipment (1,690) (3,757)
Net cash used in investing activities (1,215) (415,130)
Cash flows from financing activities:    
Net increase in deposits 37,587
 603,511
Increase in mortgage escrow deposits 734
 940
Cash dividends paid to stockholders (38,659) (35,141)
Shares issued through the dividend reinvestment plan 1,339
 1,176


Three months ended March 31,
 Nine months ended September 30,20202019
 2017 2016
Purchases of treasury stock (443) (1,557)
Purchase of employee restricted shares to fund statutory tax withholding (726) (1,161)
Stock options exercised 2,534
 5,598
Stock options exercised—  15  
Proceeds from long-term borrowings 248,220
 291,653
Proceeds from long-term borrowings632,554  85,000  
Payments on long-term borrowings (345,387) (395,405)Payments on long-term borrowings(300,159) (213,360) 
Net increase (decrease) in short-term borrowings 9,982
 (81,512)
Net cash (used in) provided by financing activities (84,819) 388,102
Net (decrease) increase in short-term borrowingsNet (decrease) increase in short-term borrowings(243,764) 84,568  
Net cash provided by financing activitiesNet cash provided by financing activities177,462  1,134  
Net increase in cash and cash equivalents 4,486
 57,448
Net increase in cash and cash equivalents183,829  55,193  
Cash and cash equivalents at beginning of period 144,297
 102,226
Cash and cash equivalents at beginning of period186,748  142,661  
Cash and cash equivalents at end of period $148,783
 $159,674
Cash and cash equivalents at end of period$370,577  $197,854  
Cash paid during the period for:    Cash paid during the period for:
Interest on deposits and borrowings $34,127
 $33,088
Interest on deposits and borrowings$15,819  $17,377  
Income taxes $27,411
 $25,546
Income taxes$115  $100  
Non-cash investing activities:    Non-cash investing activities:
Initial recognition of operating lease right-of-use assetsInitial recognition of operating lease right-of-use assets$—  $44,946  
Initial recognition of operating lease liabilitiesInitial recognition of operating lease liabilities$—  $46,050  
Transfer of loans receivable to foreclosed assets $2,195
 $3,081
Transfer of loans receivable to foreclosed assets$2,067  $227  
See accompanying notes to unaudited consolidated financial statements.

9



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 loancredit losses the valuation of securities available for sale 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, 2017March 31, 2020 are not necessarily indicative of the results of operations that may be expected for all of 2017.2020.
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. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.
These unaudited consolidated financial statements should be read in conjunction with the December 31, 20162019 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, 2017March 31, 2020 and 20162019 (dollars in thousands, except per share amounts):
  Three months ended September 30, 
  2017 2016 
  
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net income $26,575
     $22,906
     
Basic earnings per share:             
Income available to common stockholders $26,575
 64,454,684
 $0.41
 $22,906
 63,728,393
 $0.36
 
Dilutive shares   190,594
     206,493
   
Diluted earnings per share:             
Income available to common stockholders $26,575
 64,645,278
 $0.41
 $22,906
 63,934,886
 $0.36
 


 Nine months ended September 30, Three months ended March 31,
 2017 2016 20202019
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 Net
Income
Weighted
Average
Common
Shares
Outstanding
Per
Share
Amount
Net
Income
Weighted
Average
Common
Shares
Outstanding
Per
Share
Amount
Net income $74,466
     $65,235
     Net income$14,931  $30,890  
Basic earnings per share:             Basic earnings per share:
Income available to common stockholders $74,466
 64,327,640
 $1.16
 $65,235
 63,545,065
 $1.03
 Income available to common stockholders$14,931  64,386,138  $0.23  $30,890  64,766,619  $0.48  
Dilutive shares   192,070
     182,658
   Dilutive shares71,125  146,119  
Diluted earnings per share:             Diluted earnings per share:
Income available to common stockholders $74,466
 64,519,710
 $1.15
 $65,235
 63,727,723
 $1.02
 Income available to common stockholders$14,931  64,457,263  $0.23  $30,890  64,912,738  $0.48  
Anti-dilutive stock options and awards at September 30, 2017March 31, 2020 and 2016,2019, totaling 405,958905,673 shares and 528,205688,655 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
replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss
(“CECL”) methodology. 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, while prior period amounts continue to be recorded with previously applicable GAAP. Further information regarding the impact of CECL can be found in Note 3. Investment Securities, Note 4. Loans Receivable and Note 8. Off-balance sheet credit exposures.

10



Note 2. Business Combinations
SB One Bancorp Acquisition
On March 11, 2020, the Company entered into a definitive merger agreement pursuant to which SB One Bancorp ("SB One") will merge with and into the Company, and SB One Bank, a wholly owned subsidiary of SB One, will merge with and into Provident Bank, a wholly owned subsidiary of the Company. The merger agreement has been unanimously approved by the boards of directors of both companies. The actual value of the Company’s common stock to be recorded as consideration in the Merger will be based on the closing price of the Company’s common stock at the time of the Merger completion date. Under the Merger Agreement, each share of SB One common stock will be exchanged for 1.357 shares of the Company's common stock plus cash in lieu of fractional shares. The merger is expected to close in the third quarter of 2020, subject to satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by the shareholders of SB One. At December 31, 2019, SB One had $2.0 billion in assets and operated 18 full-service banking offices in New Jersey and New York.
Acquisition of Tirschwell & Loewy, Inc.
On April 1, 2019, Beacon Trust Company ("Beacon") completed its acquisition of certain assets of Tirschwell & Loewy, Inc. ("T&L"), a New York City-based independent registered investment adviser. Beacon is a wholly owned subsidiary of Provident Bank. This acquisition expanded the Company’s wealth management business by $822.4 million of assets under management at the time of acquisition.
The T&L acquisition was accounted for under the acquisition method of accounting. The Company recorded goodwill of $8.2 million, a customer relationship intangible of $12.6 million and $800,000 of other identifiable intangibles related to the acquisition. In addition, the Company recorded a contingent consideration liability at its fair value of $6.6 million. The contingent consideration arrangement requires the Company to pay additional cash consideration to T&L's former stakeholders over a three-year period after the closing date of the acquisition if certain financial and business retention targets are met. The acquisition agreement limits the total additional payment to a maximum of $11.0 million, to be determined based on actual future results. The total cost of the T&L acquisition was $21.6 million, which included cash consideration of $15.0 million and contingent consideration with a fair value of $6.6 million. Tangible assets acquired were nominal, and no liabilities were assumed in the T&L acquisition. The goodwill recorded in the transaction is deductible for tax purposes.
In the fourth quarter of 2019, the Company recognized a $2.8 million increase in the estimated fair value of the contingent consideration liability. While performance of the acquired business has been adversely impacted in the first quarter of 2020 due to worsening economic conditions and declining asset valuations attributable to the COVID-19 pandemic, management has not identified a reduction in assets under management due to a declining customer base. Therefore, the $9.4 million fair value of the contingent liability was unchanged at March 31, 2020, from December 31, 2019, with maximum potential future payments totaling $11.0 million.
Note 2.3. Investment Securities
At September 30, 2017,March 31, 2020, the Company had $1.03 billion$989.8 million and $481.8$445.4 million in available for sale debt securities and held to maturity investmentdebt 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 which could result in other-than-temporary impairment ("OTTI") in future periods.portfolio. The total number of available for sale and held to maturity and available for saledebt securities in an unrealized loss position as of September 30, 2017at March 31, 2020 totaled 253,41, compared with 41985 at December 31, 2016. All2019.
On January 1, 2020, the Company adopted CECL which replaces the incurred loss methodology with an expected loss methodology. The adoption of the new standard resulted in the Company recording a $70,000 increase to the allowance for credit losses on held to maturity debt securities with unrealizeda 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 at September 30, 2017 were analyzed for other-than-temporary impairment. Based upon this analysis,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
11


Corporate obligations.

All of the agency obligations held by the Company believes that asare 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 September 30, 2017, suchno credit losses. The majority of the state and municipal, and corporate obligations carry no lower than A ratings. At March 31, 2020, the Company had one security rated with a triple-B by Moody’s Investors Service.
The Company adopted CECL using the prospective transition approach for debt securities with unrealized losses do not represent impairments that are other-than-temporary.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.
Securities Available for Sale Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for securities available for sale debt securities at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
March 31, 2020
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Mortgage-backed securities$926,561  34,130  (514) 960,177  
State and municipal obligations3,894  155  —  4,049  
Corporate obligations25,030  614  (37) 25,607  
$955,485  34,899  (551) 989,833  
 
September 30, 2017
 
Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses
 Fair
value
U.S. Treasury obligations $5,995
 
 (1) 5,994
Agency obligations
28,031

15

(11) 28,035
Mortgage-backed securities
965,863

7,477

(4,928) 968,412
State and municipal obligations
3,695

112


 3,807
Corporate obligations 21,049
 420
 (10) 21,459
Equity securities
397

201


 598
 
$1,025,030

8,225

(4,950) 1,028,305

December 31, 2019
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Mortgage-backed securities$936,196  12,367  (1,133) 947,430  
State and municipal obligations3,907  172  —  4,079  
Corporate obligations25,032  393  (15) 25,410  
$965,135  12,932  (1,148) 976,919  
  December 31, 2016
  Amortized
cost
 Gross
unrealized
gains
 Gross
unrealized
losses
 Fair
value
U.S. Treasury obligations $7,995
 13
 
 8,008
Agency obligations 57,123
 90
 (25) 57,188
Mortgage-backed securities 952,992
 7,249
 (8,380) 951,861
State and municipal obligations 3,727
 19
 (3) 3,743
Corporate obligations 19,013
 35
 (11) 19,037
Equity securities 397
 152
 
 549
  $1,041,247
 7,558
 (8,419) 1,040,386


The amortized cost and fair value of securities available for sale debt securities at September 30, 2017,March 31, 2020, 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, 2017March 31, 2020
 
Amortized
cost
 
Fair
value
Amortized
cost
Fair
value
Due in one year or less $35,452
 35,445
Due in one year or less$—  —  
Due after one year through five years 2,423
 2,471
Due after one year through five years3,002  3,040  
Due after five years through ten years 20,895
 21,379
Due after five years through ten years25,922  26,616  
Due after ten years 
 
Due after ten years—  —  
 $58,770
 59,295
$28,924  29,656  
Mortgage-backed securities totaling $965.9$926.6 million at amortized cost and $968.4$960.2 million at fair value are excluded from the table above as their expected lives are likelyanticipated to be shorter than the contractual maturity date due to principal prepayments. Also excluded from the table above are equity securities of $397,000 at amortized cost and $598,000 at fair value.
For the three month periods ended March 31, 2020 and nine months ended September 30, 2017,2019, no securities were sold or called from the securities available for sale portfolio. For the three months ended September 30, 2016, proceeds from sales ondebt securities available for sale totaled $1.2 million resulting in no gross gains and $45,000 of gross losses. Proceeds from the sale of securities available for sale, for the nine months ended September 30, 2016, totaled $3.4 million, resulting in gross gains of $95,000 and gross losses of $45,000. There were no calls of available for sale securities for the three and nine months ended September 30, 2016.portfolio.
The Company did not incur an OTTI charge on securities in the available for sale portfolio for the three and nine months ended September 30, 2017 and 2016.
12


The following tables present the fair valuevalues and gross unrealized losses for securities available for sale with temporary impairment at September 30, 2017 and December 31, 2016 (in thousands):
 
September 30, 2017 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
U.S. Treasury obligations $5,994
 (1) 
 
 5,994
 (1)
Agency obligations
16,008
 (11) 
 
 16,008
 (11)
Mortgage-backed securities
424,627
 (3,956) 50,881
 (972) 475,508
 (4,928)
Corporate obligations 
 
 991
 (10) 991
 (10)


$446,629
 (3,968) 51,872
 (982) 498,501
 (4,950)
 
December 31, 2016 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 $14,000
 (25) 
 
 14,000
 (25)
Mortgage-backed securities 553,629
 (8,377) 65
 (3) 553,694
 (8,380)
State and municipal obligations 661
 (3) 
 
 661
 (3)
Corporate obligations 
 
 990
 (11) 990
 (11)


$568,290
 (8,405) 1,055
 (14) 569,345
 (8,419)
The temporary loss position associated with securities available for sale was the result of changes in market interest rates relative to the coupon of the individual security and changes in credit spreads. The Company does not have the intent to sell securities in a temporary loss position at September 30, 2017, nor is it more likely than not that the Company will be required to sell the securities before their prices recover.
The number of available for saledebt securities in an unrealized loss position at September 30, 2017 totaled 82, compared with 87 atMarch 31, 2020 and December 31, 2016. At September 30, 2017, there were two private label mortgage-backed2019 (in thousands):
March 31, 2020
Less than 12 months12 months or longerTotal
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Mortgage-backed securities$45,567  (510) 14  (4) 45,581  (514) 
Corporate obligations1,990  (37) —  —  1,990  (37) 
$47,557  (547) 14  (4) 47,571  (551) 

December 31, 2019
Less than 12 months12 months or longerTotal
Fair
value
 Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Mortgage-backed securities$136,270  (629) 46,819  (504) 183,089  (1,133) 
Corporate obligations2,013  (15) —  —  2,013  (15) 
$138,283  (644) 46,819  (504) 185,102  (1,148) 
The number of available for sale debt securities in an unrealized loss position


at March 31, 2020 totaled 14, compared with 50 at December 31, 2019. The decrease in the number of securities in an unrealized loss position at March 31, 2020 was due to lower current market interest rates compared to rates at December 31, 2019. At March 31, 2020, there was 1 private label mortgage-backed security in an unrealized loss position, with an amortized cost of $50,000$18,000 and an unrealized loss of $2,000. Neither of these private label mortgage-backed securities were below investment grade at September 30, 2017.$4,000.
The Company estimates the loss projections for each security by stressing the individual loans collateralizing the security and applying a range of expected default rates, loss severities, and prepayment speeds in conjunction with the underlying credit enhancement for each security. Based on specific assumptions about collateral and vintage, a range of possible cash flows was identified to determine whether OTTI existed during the nine months ended September 30, 2017. The Company believes that no OTTI of the securities available for sale portfolio existed for the three and nine months ended September 30, 2017.
Investment Securities Held to Maturity Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit losses and the estimated fair value for investment securities held to maturity debt securities at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
March 31, 2020
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Allowance for credit lossesFair
value
Agency obligations$7,417  15  —  —  7,432  
Mortgage-backed securities104   —  —  108  
State and municipal obligations428,691  13,876  (121) (80) 442,366  
Corporate obligations9,319  45  (39) (7) 9,318  
Total held to maturity debt securities$445,531  13,940  (160) (87) 459,224  
  September 30, 2017
  
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
Agency obligations
$4,307
 
 (55) 4,252
Mortgage-backed securities
475
 17
 
 492
State and municipal obligations
467,113
 10,407
 (1,761) 475,759
Corporate obligations
9,950
 6
 (34) 9,922
 
$481,845
 10,430
 (1,850) 490,425
         

 December 31, 2016December 31, 2019
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Allowance for credit lossesFair
value
Agency obligations $4,306
 2
 (83) 4,225
Agency obligations$6,599  11  (9) —  6,601  
Mortgage-backed securities 893
 31
 
 924
Mortgage-backed securities118   —  —  122  
State and municipal obligations 473,653
 6,635
 (5,436) 474,852
State and municipal obligations437,074  14,394  (115) —  451,353  
Corporate obligations 9,331
 7
 (52) 9,286
Corporate obligations9,838  58  (6) —  9,890  
 $488,183
 6,675
 (5,571) 489,287
Total held to maturity debt securitiesTotal held to maturity debt securities$453,629  14,467  (130) —  467,966  
The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair values 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, 2017March 31, 2020 and 2016.2019. For the three and nine months ended September 30, 2017,March 31, 2020, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $8.1$13.3 million and $28.7 million, respectively, with gross gains totaling $39,000of $11,000 and $50,000, respectively and0 gross losses of $3,000 in both the three and nine month periods.losses. For the three and nine months ended September 30, 2016,March 31, 2019, proceeds from calls of securities in the held to maturity debt securities portfolio totaled $20.3$9.3 million and $35.2 million, respectively, with 0 gross gains totaling $2,000 and $4,000, respectively and no gross losses recognized in either period.losses.
13


The gross amortized cost and gross fair value of investment securities in the held to maturity debt securities portfolio at September 30, 2017March 31, 2020 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, 2017March 31, 2020
 
Amortized
cost
 
Fair
value
Amortized
cost
Fair
value
Due in one year or less
$14,723
 14,755
Due in one year or less$9,461  9,477  
Due after one year through five years
65,170
 66,276
Due after one year through five years115,043  117,204  
Due after five years through ten years
254,191
 259,908
Due after five years through ten years240,321  248,418  
Due after ten years
147,286
 148,994
Due after ten years80,602  84,104  


$481,370
 489,933
$445,427  459,203  
Mortgage-backed securities totaling $475,000$104,000 at amortized cost and $492,000$108,000 at fair value are excluded from the table above as their expected lives are likelyanticipated to be shorter than the contractual maturity date due to principal prepayments. Additionally, allowance for credit losses totaling $87,000 is excluded from the table above.
The following table illustrates the impact of the January 1, 2020 adoption of CECL on held to maturity debt securities (in thousands):
January 1, 2020
As reported under CECLPrior to CECLImpact of CECL adoption
Held to Maturity Debt Securities
Allowance for credit losses on corporate securities$ —   
Allowance for credit losses on municipal securities64  —  64  
Allowance for credit losses on held to maturity securities$70  —  70  
For the three months ended March 31, 2020, the Company recorded a $17,000 provision for credit losses on held to maturity debt securities.
The following tables present the fair value and gross unrealized losses for investment securities held to maturity with temporary impairment at September 30, 2017 and December 31, 2016 (in thousands):
  September 30, 2017 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
$3,853
 (55) 
 
 3,853
 (55)
State and municipal obligations
62,881
 (938) 22,251
 (823) 85,132
 (1,761)
Corporate obligations
6,646
 (34) 
 
 6,646
 (34)
 
$73,380
 (1,027) 22,251
 (823) 95,631
 (1,850)
  December 31, 2016 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 $3,525
 (83) 
 
 3,525
 (83)
State and municipal obligations 172,152
 (5,132) 6,617
 (304) 178,769
 (5,436)
Corporate obligations 4,697
 (52) 
 
 4,697
 (52)
  $180,374
 (5,267) 6,617
 (304) 186,991
 (5,571)
Based upon the review of the held to maturity securities portfolio, the Company believes that as of September 30, 2017, securities with unrealized loss positions shown above do not represent impairments that are other-than-temporary. The review of the portfolio for OTTI considers the percentage and length of time the fair value of an investment is below book value, as well as general market conditions, changes in interest rates, credit risks, whether the Company has the intent to sell the securities and whether it is more likely than not that the Company would be required to sell the securities before their prices recover.
The number of held to maturitydebt securities in an unrealized loss position at September 30, 2017March 31, 2020 and December 31, 2019 (in thousands):
March 31, 2020
Less than 12 months12 months or longerTotal
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
State and municipal obligations$10,143  (103) 407  (18) 10,550  (121) 
Corporate obligations3,516  (39) —  —  3,516  (39) 
$13,659  (142) 407  (18) 14,066  (160) 

December 31, 2019
Less than 12 months12 months or longerTotal
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Agency obligations$3,601  (9) —  —  3,601  (9) 
State and municipal obligations7,675  (42) 2,093  (73) 9,768  (115) 
Corporate obligations3,254  (6) —  —  3,254  (6) 
$14,530  (57) 2,093  (73) 16,623  (130) 
The number of held to maturity debt securities in an unrealized loss position at March 31, 2020 totaled 171,27, compared with 33235 at December 31, 2016.2019. The decrease in the number of securities in an unrealized loss position at September 30, 2017,March 31, 2020 was due to a slight decrease inlower current market interest rates fromcompared to rates at December 31, 20162019.
14


Credit Quality Indicators. The following table provides the amortized cost of held to maturity debt securities by credit rating as of March 31, 2020 (in thousands):
March 31, 2020
Total PortfolioAAAAAABBBNot RatedTotal
Agency obligations$7,417  —  —  —  —  7,417  
Mortgage-backed securities104  —  —  —  —  104  
State and municipal obligations46,868  326,291  54,414  1,118  —  428,691  
Corporate obligations—  3,121  5,423  750  25  9,319  
$54,389  329,412  59,837  1,868  25  445,531  
December 31, 2019
Total PortfolioAAAAAABBBNot RatedTotal
Agency obligations$6,599  —  —  —  —  6,599  
Mortgage-backed securities118  —  —  —  —  118  
State and municipal obligations49,316  330,322  56,317  1,119  —  437,074  
Corporate obligations—  3,128  6,335  350  25  9,838  
$56,033  333,450  62,652  1,469  25  453,629  
Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. At March 31, 2020, the held to maturity debt securities portfolio was comprised of 12% rated triple-A, 74% rated double-A, 13% rated single-A, and less than 1% either below a tighteningsingle-A rating or not rated by Moody’s Investors Service or Standard and Poor’s. Securities not explicitly rated were grouped where possible under the credit rating of spreads in the municipal bond sector. All temporarily impaired investmentissuer of the security.
At March 31, 2020, the allowance for credit losses on held to maturity debt securities were investment grade at September 30, 2017.

was $87,000.

15


Note 3.4. Loans Receivable and Allowance for LoanCredit Losses on Loans
On January 1, 2020, the Company adopted CECL, which replaces 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, 2017March 31, 2020 and December 31, 20162019 are summarized as follows (in thousands):
 September 30, 2017 December 31, 2016March 31, 2020December 31, 2019
Mortgage loans:    Mortgage loans:
Residential $1,157,311
 1,211,672
Residential$1,106,670  1,077,689  
Commercial 2,022,576
 1,978,569
Commercial2,555,091  2,578,393  
Multi-family 1,334,984
 1,402,054
Multi-family1,222,313  1,225,551  
Construction 324,692
 264,814
Construction408,944  429,812  
Total mortgage loans 4,839,563
 4,857,109
Total mortgage loans5,293,018  5,311,445  
Commercial loans 1,708,842
 1,630,444
Commercial loans:Commercial loans:
Commercial owner occupiedCommercial owner occupied935,669  853,269  
Commercial non-owner occupiedCommercial non-owner occupied719,780  732,277  
Other commercial loansOther commercial loans48,220  49,213  
Total commercial loansTotal commercial loans1,703,669  1,634,759  
Consumer loans 481,262
 516,755
Consumer loans379,597  391,360  
Total gross loans 7,029,667
 7,004,308
Total gross loans7,376,284  7,337,564  
Purchased credit-impaired ("PCI") loans 991
 1,272
Purchased credit-deteriorated ("PCD") loansPurchased credit-deteriorated ("PCD") loans737  746  
Premiums on purchased loans 4,229
 4,968
Premiums on purchased loans2,300  2,474  
Unearned discounts (36) (39)Unearned discounts(26) (26) 
Net deferred fees (6,799) (7,023)Net deferred fees(7,251) (7,873) 
Total loans $7,028,052
 7,003,486
Total loans$7,372,044  7,332,885  
The following tables summarize the aging of loans receivable by portfolio segment and class of loans, excluding PCIPCD loans (in thousands):
March 31, 2020
30-59 Days60-89 DaysNon-accrualRecorded
Investment
> 90 days
accruing
Total Past
Due
CurrentTotal Loans
Receivable
Non-accrual loans with no related allowance
Mortgage loans:
Residential$6,240  4,075  6,145  —  16,460  1,090,210  1,106,670  1,522  
Commercial424  —  5,264  —  5,688  2,549,403  2,555,091  —  
Multi-family—  —  —  —  —  1,222,313  1,222,313  —  
Construction—  —  —  —  —  408,944  408,944  —  
Total mortgage loans6,664  4,075  11,409  —  22,148  5,270,870  5,293,018  1,522  
Commercial loans13,793   23,086  —  36,880  1,666,789  1,703,669  1,344  
Consumer loans1,707  661  844  —  3,212  376,385  379,597  664  
Total gross loans$22,164  4,737  35,339  —  62,240  7,314,044  7,376,284  3,530  

16


 September 30, 2017December 31, 2019
 
30-59
Days
 
60-89
Days
 Non-accrual Recorded
Investment
> 90 days
accruing
 
Total Past
Due
 Current 
Total Loans
Receivable
30-59 Days60-89 DaysNon-accrualRecorded
Investment
> 90 days
accruing
Total Past
Due
CurrentTotal Loans ReceivableNon-accrual loans with no related allowance
Mortgage loans:              Mortgage loans:
Residential $5,973
 3,525
 8,820
 
 18,318
 1,138,993
 1,157,311
Residential$5,905  2,579  8,543  —  17,027  1,060,662  1,077,689  2,989  
Commercial 608
 292
 8,070
 
 8,970
 2,013,606
 2,022,576
Commercial—  —  5,270  —  5,270  2,573,123  2,578,393  —  
Multi-family 
 
 
 
 
 1,334,984
 1,334,984
Multi-family—  —  —  —  —  1,225,551  1,225,551  —  
Construction 
 
 
 
 
 324,692
 324,692
Construction—  —  —  —  —  429,812  429,812  —  
Total mortgage loans 6,581
 3,817
 16,890
 
 27,288
 4,812,275
 4,839,563
Total mortgage loans5,905  2,579  13,813  —  22,297  5,289,148  5,311,445  2,989  
Commercial loans 1,870
 244
 17,523
 
 19,637
 1,689,205
 1,708,842
Commercial loans2,383  95  25,160  —  27,638  1,607,121  1,634,759  3,238  
Consumer loans 2,307
 1,080
 2,035
 
 5,422
 475,840
 481,262
Consumer loans1,276  337  1,221  —  2,834  388,526  391,360  569  
Total gross loans $10,758
 5,141
 36,448
 
 52,347
 6,977,320
 7,029,667
Total gross loans$9,564  3,011  40,194  —  52,769  7,284,795  7,337,564  6,796  

  December 31, 2016
  
30-59
Days
 
60-89
Days
 Non-accrual Recorded
Investment
> 90 days
accruing
 Total Past
Due
 Current 
Total Loans
Receivable
Mortgage loans:              
Residential $5,891
 6,563
 12,021
 
 24,475
 1,187,197
 1,211,672
Commercial 
 80
 7,493
 
 7,573
 1,970,996
 1,978,569
Multi-family 
 
 553
 
 553
 1,401,501
 1,402,054
Construction 
 
 2,517
 
 2,517
 262,297
 264,814
Total mortgage loans 5,891
 6,643
 22,584
 
 35,118
 4,821,991
 4,857,109
Commercial loans 1,656
 357
 16,787
 
 18,800
 1,611,644
 1,630,444
Consumer loans 2,561
 1,199
 3,030
 
 6,790
 509,965
 516,755
Total gross loans $10,108
 8,199
 42,401
 
 60,708
 6,943,600
 7,004,308


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 $36.4$35.3 million and $42.4$40.2 million at September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. Included in non-accrual loans were $9.1$16.0 million and $7.3$13.1 million of loans which were less than 90 days past due at September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. There were no0 loans 90 days or greater past due and still accruing interest at September 30, 2017March 31, 2020 or December 31, 2016.2019.

Management has elected not to measure an allowance for credit losses for accrued interest receivables related to its loan portfolio as its policy is to write-off uncollectible accrued interest receivable balances in a timely manner. 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, it is probable, based on current information, the Bank does not expect to collect all amounts due under the contractual terms of the loan agreement will not be collected.agreement. Impaired loans also include all loans modified as troubled debt restructurings (“TDRs”). A loan is deemed to beAn allowance for impaired loans that have been modified in a TDR when a loan modification resulting in a concession is made in an effort to mitigate potential loss arising from a borrower’s financial difficulty. Smaller balance homogeneous loans, including residential mortgages and other consumer loans, are evaluated collectively for impairment and are excluded from the definition of impaired loans, unless modified as TDRs. The Company separately calculates the reserve for loan lossesmeasured based on impaired loans. The Company may recognize impairment of a loan based upon: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) if a loan is collateral dependent,rate, the fair value of collateral;loan’s observable market price, or (3) the estimated fair value of the loan. Additionally,collateral, less any selling costs, if impaired loans have risk characteristics in common, those loans may be aggregated and historical statistics may be used as a means of measuring those impaired loans.
the loan is collateral-dependent. The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral dependent impairedcollateral-dependent loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral dependent impairedcollateral-dependent loan and is 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 collateral’s fair value less cost to sell. A specific allocation of the allowance for loancredit losses is established for each collateral dependent impairedcollateral-dependent loan with a carrying balance greater than the collateral’s fair value, less estimated costs to sell. Charge-offs are generally taken forIn most cases, the amount ofCompany records a partial charge-off to reduce the specific allocation when operations associated withloan’s carrying value to the respective property cease and it is determined that collection of amounts due will be derived primarily from the disposition of the collateral.collateral’s fair value less cost to sell. At each fiscal quarter end, if a loan is designated as a collateral dependent impaired loancollateral-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. The Company believes there have been no significant time lapses in the recognition of changes in collateral values as a result of this process.
At September 30, 2017,March 31, 2020, there were 145158 impaired loans totaling $50.2$65.7 million. Included in this total were 126129 TDRs related to 122125 borrowers totaling $31.7$39.1 million that were performing in accordance with their restructured terms and which continued to accrue interest at September 30, 2017.March 31, 2020. At December 31, 2016,2019, there were 141158 impaired loans totaling $52.0$70.6 million,. of which 147 loans totaling $48.3 million were TDRs. Included in this total were 114133 TDRs related to 110128 borrowers totaling $29.9$42.7 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2016.2019.
At March 31, 2020 and December 31, 2019, the Company had $15.9 million and $20.4 million of collateral-dependent impaired loans, respectively. The collateral-dependent impaired loans at March 31, 2020 consisted of $12.8 million in commercial loans, $3.0 million in residential real estate loans, and $174,000 in consumer loans. The collateral for these impaired loans was primarily real estate.
17


The activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2020 and 2019 was as follows (in thousands):
Three months ended March 31,Mortgage loansCommercial loansConsumer loansTotal Portfolio Segments
2020
Balance at beginning of period$25,511  28,263  1,751  55,525  
Retained earnings (due to initial CECL adoption)14,188  (9,974) 3,706  7,920  
Provision charged (credited) to operations7,710  7,619  (629) 14,700  
Recoveries of loans previously charged-off93  313  123  529  
Loans charged-off(2) (3,380) (149) (3,531) 
Balance at end of period$47,500  22,841  4,802  75,143  
2019
Balance at beginning of period$27,678  25,693  2,191  55,562  
Provision (credited) charged to operations(982) 1,282  (100) 200  
Recoveries of loans previously charged-off230  52  130  412  
Loans charged-off—  (676) (145) (821) 
Balance at end of period$26,926  26,351  2,076  55,353  
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 months ended March 31, 2020, the Company recorded a $14.7 million provision for credit losses on loans. The increase in provision for credit losses for the quarter resulted primarily from the impact of reserve build related to the COVID-19 pandemic, with the largest increase in the commercial loans and commercial real estate portfolios.
The following table summarizesillustrates the impact of the January 1, 2020 adoption of CECL on the loan portfolio:
January 1, 2020
As reported under CECLPrior to CECLImpact of CECL adoption
Loans
Residential$8,950  3,411  5,539  
Commercial17,118  12,885  4,233  
Multi-family9,519  3,370  6,149  
Construction4,152  5,885  (1,733) 
Total mortgage loans39,739  25,551  14,188  
Commercial loans18,254  28,228  (9,974) 
Consumer loans5,452  1,746  3,706  
Allowance for credit losses on loans$63,445  55,525  7,920  
The following tables summarize loans receivable by portfolio segment and impairment method excluding PCI loansat March 31, 2020 and December 31, 2019 (in thousands):
March 31, 2020
Mortgage
loans
Commercial
loans
Consumer
loans
Total Portfolio
Segments
Individually evaluated for impairment$39,592  24,026  2,114  65,732  
Collectively evaluated for impairment5,253,426  1,679,643  377,483  7,310,552  
Total gross loans$5,293,018  1,703,669  379,597  7,376,284  

18


 
September 30, 2017
 
Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments
Individually evaluated for impairment
$28,578
 19,393
 2,210
 50,181
Collectively evaluated for impairment
4,810,985
 1,689,449
 479,052
 6,979,486
Total gross loans
$4,839,563
 1,708,842
 481,262
 7,029,667

December 31, 2016December 31, 2019

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments
Mortgage
loans
Commercial
loans
Consumer
loans
Total Portfolio
Segments
Individually evaluated for impairment
$29,551
 20,255
 2,213
 52,019
Individually evaluated for impairment$39,910  28,357  2,374  70,641  
Collectively evaluated for impairment
4,827,558
 1,610,189
 514,542
 6,952,289
Collectively evaluated for impairment5,271,535  1,606,402  388,986  7,266,923  
Total gross loans
$4,857,109
 1,630,444
 516,755
 7,004,308
Total gross loans$5,311,445  1,634,759  391,360  7,337,564  
The allowance for loancredit losses is summarized by portfolio segment and impairment classification as follows (in thousands):
March 31, 2020
Mortgage
loans
Commercial loansConsumer loansTotal
Individually evaluated for impairment$1,590  4,073  36  5,699  
Collectively evaluated for impairment45,910  18,768  4,766  69,444  
Total gross loans$47,500  22,841  4,802  75,143  
 
September 30, 2017
 
Mortgage
loans

Commercial
loans

Consumer
loans

Total
Individually evaluated for impairment
$1,773
 1,028
 71
 2,872
Collectively evaluated for impairment
24,724
 30,423
 2,257
 57,404
Total gross loans
$26,497
 31,451
 2,328
 60,276


December 31, 2016December 31, 2019

Mortgage
loans

Commercial
loans

Consumer
loans

TotalMortgage
loans
Commercial loansConsumer
loans
Total
Individually evaluated for impairment
$1,986
 268
 80
 2,334
Individually evaluated for impairment$1,580  3,462  25  5,067  
Collectively evaluated for impairment
27,640
 28,875
 3,034
 59,549
Collectively evaluated for impairment23,931  24,801  1,726  50,458  
Total gross loans
$29,626
 29,143
 3,114
 61,883
Total gross loans$25,511  28,263  1,751  55,525  
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, the Companymanagement 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, 2017March 31, 2020 and 2016,2019, along with their balances immediately prior to the modification date and post-modification as of September 30, 2017March 31, 2020 and 2016. There were no loans modified as TDRs during the three and nine months ended September 30, 2016.2019 (dollars in thousands):
 
For the three months ended
 
September 30, 2017
September 30, 2016
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
 
($ in thousands)
Mortgage loans:











Residential
2
 $632
 $470
 
 $
 $
Total mortgage loans
2
 632
 470
 
 
 
Total restructured loans
2
 $632
 $470
 
 $
 $


 For the nine months endedFor the three months ended
 September 30, 2017 September 30, 2016March 31, 2020March 31, 2019
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
Troubled Debt RestructuringsNumber 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
 ($ in thousands)($ in thousands)
Mortgage loans:            Mortgage loans:
Residential 7
 $3,436
 $3,202
 
 $
 $
CommercialCommercial—  $—  —   $14,010  14,010  
Total mortgage loans 7
 3,436
 3,202
 
 
 
Total mortgage loans—  —  —   14,010  14,010  
Commercial loans 1
 1,300
 1,210
 
 
 
Commercial loans 746  731   2,013  2,013  
Consumer loans 1
 70
 68
 
 
 
Total restructured loans 9
 $4,806
 $4,480
 
 $
 $
Total restructured loans $746  $731   $16,023  $16,023  
All TDRs are impaired loans, which are individually evaluated for impairment, as previously discussed.impairment. During the three and nine months ended September 30, 2017, $3.2 million and $4.4March 31, 2020 $2.7 million of charge-offs were recorded on collateral dependentcollateral-dependent impaired loans. There were no charge-offs recorded on collateral dependent impaired loans for the same periods last year. For the three and nine months ended September 30, 2017, March 31, 2020,
19


the allowance for loan losses associated with the TDRs presented in the preceding tables totaled $0$448,000 and $120,000, respectively, and werewas included in the allowance for loan losses for loans individually evaluated for impairment.
For the three and nine months ended September 30, 2017, theThe TDRs presented in the preceding tables had a weighted average modified interest rate of approximately 4.36% and 4.02%, respectively,6.99% compared to a weighted average rate of 4.33% and 3.93%7.19% prior to modification, respectively.for the three months ended March 31, 2020.
The following table presents loans modified as TDRs within the previous 12 months from March 31, 2020 and 2019, and for which there was a payment default (90 days or more past due) at the quarter ended March 31, 2020 and 2019.
March 31, 2020March 31, 2019
Troubled Debt Restructurings Subsequently DefaultedNumber of LoansOutstanding Recorded InvestmentNumber of LoansOutstanding Recorded 
Investment
($ in thousands)
Commercial loans—  $—   $540  
Total restructured loans—  $—   $540  
There were no0 loans which had a payment defaultsdefault (90 days or more past due) for loans modified as TDRs within the 12 month periodsperiod ending September 30, 2017and 2016.March 31, 2020. There were 3 payment defaults (90 days or more past due) to one borrower for loans modified as TDRs within the 12 month period endingMarch 31, 2019. For TDR’s that subsequently default, are considered collateral dependent impairedthe Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for credit losses on loans and areindividually evaluated for impairment based onimpairment.
As allowed by CECL, the estimated fair valueCompany elected to maintain pools of loans accounted for under ASC 310-30. At December 31, 2019, 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 underlying collateral less expected selling costs.
PCIdate of adoption. All loans are loans acquired at a discount primarily due to deteriorated credit quality. As part of the May 30, 2014 acquisition of Team Capital, $5.2 million of the loans acquired were determinedconsidered to be PCI loans. At the date of acquisition, PCIprior to January 1, 2020 were converted to purchased credit deteriorated ("PCD") loans were accounted for at fair value, based upon the then present value of expected future cash flows, with no related allowance for loan losses. PCIon that date. PCD loans totaled $1.0 million$737,000 at September 30, 2017 and $1.3 million at DecemberMarch 31, 2016.
The following table summarizes2020. Subsequent to January 1, 2020, should the changesCompany acquire loans that experience more-than-insignificant deterioration in the accretable yield for PCIcredit quality since origination, these loans during the three and nine months ended September 30, 2017 and 2016 (in thousands):will be classified as PCD.
20
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Beginning balance$158
 328
 200
 676
Accretion(154) (225) (299) (1,065)
Reclassification from non-accretable discount99
 209
 202
 701
Ending balance$103
 312
 103
 312


The activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2017 and 2016 was as follows (in thousands):


Three months ended September 30,
Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments

Unallocated
Total
2017











Balance at beginning of period
$28,826
 31,085
 2,951
 62,862
 
 62,862
Provision charged (credited) to operations
(2,301) 3,446
 (645) 500
 
 500
Recoveries of loans previously charged-off
4
 140
 291
 435
 
 435
Loans charged-off
(32) (3,220) (269) (3,521) 
 (3,521)
Balance at end of period
$26,497
 31,451
 2,328
 60,276
 
 60,276
             
2016











Balance at beginning of period
$31,634
 26,299
 3,000
 60,933
 
 60,933
Provision charged (credited) to operations
(1,599) 2,378
 221
 1,000
 
 1,000
Recoveries of loans previously charged-off
2
 68
 160
 230
 
 230
Loans charged-off
(383) (506) (186) (1,075) 
 (1,075)
Balance at end of period
$29,654
 28,239
 3,195
 61,088
 
 61,088
Nine months ended September 30, Mortgage
loans
 Commercial
loans
 Consumer
loans
 Total Portfolio
Segments
 Unallocated Total
2017            
Balance at beginning of period $29,626
 29,143
 3,114
 61,883
 
 61,883
Provision charged (credited) to operations (2,724) 6,840
 (416) 3,700
 
 3,700
Recoveries of loans previously charged-off 65
 671
 692
 1,428
 
 1,428
Loans charged-off (470) (5,203) (1,062) (6,735) 
 (6,735)
Balance at end of period $26,497
 31,451
 2,328
 60,276
 
 60,276
             
2016            
Balance at beginning of period $32,094
 25,829
 3,501
 61,424
 
 61,424
Provision charged (credited) to operations (2,294) 6,647
 (153) 4,200
 
 4,200
Recoveries of loans previously charged-off 575
 351
 697
 1,623
 
 1,623
Loans charged-off (721) (4,588) (850) (6,159) 
 (6,159)
Balance at end of period $29,654
 28,239
 3,195
 61,088
 
 61,088



The following table presents loans individually evaluated for impairment by class and loan category, excluding PCIPCD loans (in thousands):
March 31, 2020December 31, 2019
Unpaid Principal BalanceRecorded InvestmentRelated AllowanceAverage Recorded InvestmentInterest Income RecognizedUnpaid Principal BalanceRecorded InvestmentRelated AllowanceAverage Recorded InvestmentInterest Income Recognized
Loans with no related allowance
Mortgage loans:
Residential$12,644  10,187  —  10,257  118  13,478  10,739  —  10,910  533  
Commercial14,295  14,180  —  14,183  128  —  —  —  —  —  
Multi-family—  —  —  —  —  —  —  —  —  —  
Construction—  —  —  —  —  —  —  —  —  —  
Total26,939  24,367  —  24,440  246  13,478  10,739  —  10,910  533  
Commercial loans3,943  2,135  —  3,417  18  3,927  3,696  —  4,015  17  
Consumer loans1,661  1,128  —  1,139  17  2,086  1,517  —  1,491  86  
Total impaired loans$32,543  27,630  —  28,996  281  19,491  15,952  —  16,416  636  
Loans with an allowance recorded
Mortgage loans:
Residential$10,777  10,273  876  10,308  112  10,860  10,326  829  10,454  428  
Commercial4,828  4,828  694  4,832  14  18,845  18,845  751  18,862  569  
Multi-family182  124  20  124  —  —  —  —  —  —  
Construction—  —  —  —  —  —  —  —  —  —  
Total15,787  15,225  1,590  15,264  126  29,705  29,171  1,580  29,316  997  
Commercial loans24,763  21,891  4,073  24,152  104  27,762  24,661  3,462  27,527  444  
Consumer loans997  986  36  8,560  11  868  857  25  878  46  
Total impaired loans$41,547  38,102  5,699  47,976  241  58,335  54,689  5,067  57,721  1,487  
Total impaired loans
Mortgage loans:
Residential$23,421  20,460  876  20,565  230  24,338  21,065  829  21,364  961  
Commercial19,123  19,008  694  19,015  142  18,845  18,845  751  18,862  569  
Multi-family182  124  20  124  —  —  —  —  —  —  
Total42,726  39,592  1,590  39,704  372  43,183  39,910  1,580  40,226  1,530  
Commercial loans28,706  24,026  4,073  27,569  122  31,689  28,357  3,462  31,542  461  
Consumer loans2,658  2,114  36  9,699  28  2,954  2,374  25  2,369  132  
Total impaired loans$74,090  65,732  5,699  76,972  522  77,826  70,641  5,067  74,137  2,123  
  September 30, 2017 December 31, 2016
  
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 $13,035
 10,277
 
 10,391
 340
 10,691
 7,881
 
 8,027
 484
Commercial 4,600
 4,472
 
 4,496
 
 1,556
 1,556
 
 1,586
 40
Construction 
 
 
 
 
 2,553
 2,517
 
 2,514
 
Total 17,635
 14,749
 
 14,887
 340
 14,800
 11,954
 
 12,127
 524
Commercial loans 17,505
 13,884
 
 13,954
 280
 21,830
 18,874
 
 13,818
 259
Consumer loans 1,606
 1,067
 
 1,186
 51
 1,493
 981
 
 1,026
 59
Total impaired loans $36,746
 29,700
 
 30,027
 671
 38,123
 31,809
 
 26,971
 842
                     
Loans with an allowance recorded                    
Mortgage loans:                    
Residential $13,803
 12,759
 1,633
 12,873
 374
 14,169
 13,520
 1,716
 13,705
 519
Commercial 1,071
 1,070
 140
 1,083
 40
 4,138
 4,077
 270
 4,111
 55
Construction 
 
 
 
 
 
 
 
 
 
Total 14,874
 13,829
 1,773
 13,956
 414
 18,307
 17,597
 1,986
 17,816
 574
Commercial loans 6,158
 5,509
 1,028
 6,045
 52
 1,381
 1,381
 268
 5,956
 4
Consumer loans 1,154
 1,143
 71
 1,170
 47
 1,242
 1,232
 80
 1,259
 66
Total impaired loans $22,186
 20,481
 2,872
 21,171
 513
 20,930
 20,210
 2,334
 25,031
 644
                     
Total impaired loans                    
Mortgage loans:                    
Residential $26,838
 23,036
 1,633
 23,264
 714
 24,860
 21,401
 1,716
 21,732
 1,003
Commercial 5,671
 5,542
 140
 5,579
 40
 5,694
 5,633
 270
 5,697
 95
Construction 
 
 
 
 
 2,553
 2,517
 
 2,514
 
Total 32,509
 28,578
 1,773
 28,843
 754
 33,107
 29,551
 1,986
 29,943
 1,098
Commercial loans 23,663
 19,393
 1,028
 19,999
 332
 23,211
 20,255
 268
 19,774
 263
Consumer loans 2,760
 2,210
 71
 2,356
 98
 2,735
 2,213
 80
 2,285
 125
Total impaired loans $58,932
 50,181
 2,872
 51,198
 1,184
 59,053
 52,019
 2,334
 52,002
 1,486
Specific allocations of the allowance for loancredit losses attributable to impaired loans totaled $2.9$5.7 million at September 30, 2017March 31, 2020 and $2.3$5.1 million at December 31, 2016.2019. At September 30, 2017March 31, 2020 and December 31, 2016,2019, impaired loans for which there was no related allowance for loancredit losses totaled $29.7$27.6 million and $31.8$16.0 million, respectively. The average balance of impaired loans for the ninethree months ended September 30, 2017March 31, 2020 and December 31, 2019 was $51.2 million.$77.0 million and $74.1 million, respectively.
The CompanyManagement 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
21


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.
Loans receivableIn response to the COVID-19 pandemic and its adverse economic impact on both our commercial and retail borrowers, we implemented a short-term modification program to defer principal or principal and interest payments for up to 90 days to borrowers directly impacted by the pandemic and who were not more than 30 days past due as of December 31, 2019 all in accordance with the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.As of April 28, 2020, deferred payment relief had been provided to 638 borrowers representing total principal loan balances of $889.0 million.
In addition, the Company participated in the Paycheck Protection Program (“PPP”) through the United States Department of the Treasury and Small Business Administration.As of April 28, 2020 the Company secured 820 PPP loans for its customers totaling$377.5 million.
The following table summarizes the Company's gross loans held for investment by year of origination and internally assigned credit quality risk rating indicator, excluding PCI loans, are as follows (in thousands):grades:
Total Portfolio as of March 31, 2020
ResidentialCommercial mortgageMulti-familyConstructionTotal
mortgages
CommercialConsumerTotal loans
Special mention$4,075  19,848  —  —  23,923  114,858  661  139,442  
Substandard9,050  12,722  124  6,181  28,077  51,689  1,032  80,798  
Doubtful—  —  —  —  —  732  —  732  
Loss—  —  —  —  —  —  —  —  
Total classified and criticized13,125  32,570  124  6,181  52,000  167,279  1,693  220,972  
Pass/Watch1,093,545  2,522,521  1,222,189  402,763  5,241,018  1,536,390  377,904  7,155,312  
Total gross loans$1,106,670  2,555,091  1,222,313  408,944  5,293,018  1,703,669  379,597  7,376,284  
2020
Special mention$—  —  —  —  —  —  —  —  
Substandard—  —  —  —  —  —  —  —  
Doubtful—  —  —  —  —  —  —  
Loss—  —  —  —  —  —  —  —  
Total classified and criticized—  —  —  —  —  —  —  —  
Pass/Watch67,775  99,722  34,785  2,005  204,287  59,721  8,587  272,595  
Total gross loans$67,775  99,722  34,785  2,005  204,287  59,721  8,587  272,595  
2019
Special mention$—  —  —  —  —  1,231  —  1,231  
Substandard—  —  —  —  —  228  —  228  
Doubtful—  —  —  —  —  —  —  
Loss—  —  —  —  —  —  —  —  
Total classified and criticized—  —  —  —  —  1,459  —  1,459  
Pass/Watch155,718  505,804  141,727  143,297  946,546  231,465  55,899  1,233,910  
Total gross loans$155,718  505,804  141,727  143,297  946,546  232,924  55,899  1,235,369  
2018
Special mention$—  —  —  —  —  4,656  —  4,656  
Substandard—  —  —  —  —  757  —  757  
22


DoubtfulDoubtful—  —  —  —  —  —  —  
LossLoss—  —  —  —  —  —  —  —  
Total classified and criticizedTotal classified and criticized—  —  —  —  —  5,413  —  5,413  
Pass/WatchPass/Watch96,683  357,530  115,282  188,523  758,018  195,828  48,203  1,002,049  
Total gross loansTotal gross loans$96,683  357,530  115,282  188,523  758,018  201,241  48,203  1,007,462  
20172017
Special mentionSpecial mention$—  220  —  —  220  3,204  —  3,424  
SubstandardSubstandard568  995  —  —  1,563  8,264  —  9,827  
DoubtfulDoubtful—  —  —  —  —  —  —  
LossLoss—  —  —  —  —  —  —  —  
Total classified and criticizedTotal classified and criticized568  1,215  —  —  1,783  11,468  —  13,251  
Pass/WatchPass/Watch92,471  399,107  136,620  68,938  697,136  207,256  38,057  942,449  
Total gross loansTotal gross loans$93,039  400,322  136,620  68,938  698,919  218,724  38,057  955,700  
2016 and prior2016 and prior
Special mentionSpecial mention$4,075  19,628  —  —  23,703  105,767  661  130,131  
SubstandardSubstandard8,482  11,727  124  6,181  26,514  42,440  1,032  69,986  
DoubtfulDoubtful—  —  —  —  732  —  732  
LossLoss—  —  —  —  —  —  —  —  
Total classified and criticizedTotal classified and criticized12,557  31,355  124  6,181  50,217  148,939  1,693  200,849  
Pass/WatchPass/Watch680,898  1,160,358  793,775  —  2,635,031  842,120  227,158  3,704,309  
Total gross loansTotal gross loans$693,455  1,191,713  793,899  6,181  2,685,248  991,059  228,851  3,905,158  

At September 30, 2017Total Portfolio as of December 31, 2019

Residential
Commercial
mortgage

Multi-
family

Construction
Total
mortgages

Commercial
Consumer
Total loansResidentialCommercial mortgageMulti-familyConstructionTotal
mortgages
CommercialConsumerTotal loans
Special mention
$3,525
 19,437
 16
 
 22,978
 26,156
 1,080
 50,214
Special mention$2,402  46,758  —  —  49,160  79,248  286  128,694  
Substandard
8,820
 25,633
 
 
 34,453
 30,361
 2,034
 66,848
Substandard10,204  13,458  —  6,181  29,843  57,015  1,668  88,526  
Doubtful

 
 
 
 
 771
 
 771
Doubtful—  —  —  —  —  836  —  836  
Loss

 
 
 
 
 
 
 
Loss—  —  —  —  —  —  —  —  
Total classified and criticized
12,345
 45,070
 16
 
 57,431
 57,288
 3,114
 117,833
Total classified and criticized12,606  60,216  —  6,181  79,003  137,099  1,954  218,056  
Pass/Watch
1,144,966
 1,977,506
 1,334,968
 324,692
 4,782,132
 1,651,554
 478,148
 6,911,834
Pass/Watch1,065,083  2,518,177  1,225,551  423,631  5,232,442  1,497,660  389,406  7,119,508  
Total
$1,157,311
 2,022,576
 1,334,984
 324,692
 4,839,563
 1,708,842
 481,262
 7,029,667
                
                

At December 31, 2016

Residential
Commercial
mortgage

Multi-
family

Construction
Total
mortgages

Commercial
Consumer
Total loans
Special mention
$6,563
 25,329
 563
 
 32,455
 14,840
 1,242
 48,537
Substandard
12,021
 23,011
 553
 2,517
 38,102
 47,255
 2,940
 88,297
Doubtful

 
 
 
 
 
 
 
Loss

 
 
 
 
 
 
 
Total classified and criticized
18,584
 48,340
 1,116
 2,517
 70,557
 62,095
 4,182
 136,834
Pass/Watch
1,193,088
 1,930,229
 1,400,938
 262,297
 4,786,552
 1,568,349
 512,573
 6,867,474
Total
$1,211,672
 1,978,569
 1,402,054
 264,814
 4,857,109
 1,630,444
 516,755
 7,004,308
Total gross loansTotal gross loans$1,077,689  2,578,393  1,225,551  429,812  5,311,445  1,634,759  391,360  7,337,564  

Note 4.5. Deposits
Deposits at September 30, 2017March 31, 2020 and December 31, 20162019 are summarized as follows (in thousands):
March 31, 2020December 31, 2019
Savings$990,844  983,714  
Money market1,782,445  1,738,202  
NOW2,164,779  2,092,413  
Non-interest bearing1,575,926  1,554,253  
Certificates of deposit696,766  734,027  
Total deposits$7,210,760  7,102,609  
23


  September 30, 2017 December 31, 2016
Savings $1,083,215
 1,099,020
Money market 1,539,064
 1,582,750
NOW 1,972,220
 1,871,298
Non-interest bearing 1,368,849
 1,349,378
Certificates of deposit 627,868
 651,183
Total deposits $6,591,216
 6,553,629

Note 5.6. 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 (increase)(decrease) increase in benefit cost for pension benefits and other post-retirement benefits for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 includes the following components (in thousands):

Three months ended September 30,
Nine months ended September 30,Three months ended March 31,

Pension
benefits

Other post-
retirement
benefits

Pension
benefits

Other post-
retirement
benefits
Pension benefitsOther post-retirement benefits

2017
2016
2017
2016
2017
2016
2017
20162020201920202019
Service cost
$
 
 26
 37
 $
 
 78
 112
Service cost$—  —  20  20  
Interest cost
306
 312
 218
 285
 920
 936
 654
 854
Interest cost250  300  178  210  
Expected return on plan assets
(637) (612) 
 
 (1,913) (1,836) 
 
Expected return on plan assets(737) (641) —  —  
Amortization of prior service cost

 
 
 
 
 
 
 
Amortization of prior service cost—  —  —  —  
Amortization of the net loss
230
 236
 (169) 
 690
 708
 (507) 
Net periodic (increase) benefit cost
$(101) (64) 75
 322
 $(303) (192) 225
 966
Amortization of the net loss (gain)Amortization of the net loss (gain)174  254  (62) (207) 
Net periodic (decrease) increase in benefit costNet periodic (decrease) increase in benefit cost$(313) (87) 136  23  
In its consolidated financial statements for the year ended December 31, 2016,2019, the Company previously disclosed that it does not expect to contribute to the pension plan in 2017.2020. As of September 30, 2017, noMarch 31, 2020, 0 contributions have been made to the pension plan.
The net periodic (increase)(decrease) increase in benefit cost for pension benefits and other post-retirement benefits for the three and nine months ended September 30, 2017 wereMarch 31, 2020 was calculated using the actual January 1, 20172020 pension and other post-retirement benefits actuarial valuations.
Note 6.7. Impact of Recent Accounting Pronouncements

Accounting Pronouncements Adopted in 2020
In August 2017,May 2019, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update ("ASU") 2017-12, DerivativesASU No. 2019-05, “Financial Instruments - Credit Losses (Topic 326); Targeted Transition Relief.” This ASU allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and Hedging: Targeted Improvements(2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to Accounting for Hedging Activities (ASU 2017-12)held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019-05 had the same effective date as ASU 2016-13 (i.e., the first quarter of 2020). The purposeadoption of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The Company is currently assessing thehad no impact that the guidance will have on the Company’s consolidated financial statements.
In May 2017,April 2019, the FASBFinancial Accounting Standards Board ("FASB") issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): ScopeNo. 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments" which clarifies and improves areas of Modification Accounting”. This update provides guidance about changes to terms or conditions of a share-based payment award which would require modification accounting. In particular, an entity is required to account for the effects of a modification if the fair value, vesting condition or the equity/liability classification of the modified award is not the same immediately before and after a changerelated to the termsrecently issued standards on credit losses, hedging, recognition and conditionsmeasurement. The most significant provisions of the award.this ASU 2017-09 is effective on a prospective basis for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company does not expect ASU 2017-09relate to have a significant impact on the Company's consolidatedhow companies will estimate expected credit losses under Topic 326 by incorporating (1) expected recoveries of financial statements.
In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the amortization period for premiums on callable debt securities by requiring that premiums be amortized to the first (or earliest) call date insteadassets, including recoveries of as an adjustment to the yield over the contractual life. This change more closely aligns the accounting with the economics of a callable debt security and the amortization period with expectations that already are included in market pricing on callable debt securities. This ASU does not change the accounting for discounts on callable debt securities, which will continueamounts expected to be amortized to the maturity date. This guidance includes only instrumentswritten off and those previously written off, and (2) clarifying that are held at a premium and have explicit call features. It does not include instruments that contain prepayment features, such as mortgage backed securities; nor does it include callcontractual extensions or renewal options that are contingent upon future events or innot unconditionally cancellable by the lender are considered when determining the contractual term over which the timing or amountexpected credit losses are measured. ASU No. 2019-04 is effective for reporting periods beginning January 1, 2020. The adoption of this guidance had no impact related to be paid is not fixed. The effective date for this ASU is fiscal years beginning after December 15, 2018, including interim periods within the reporting period, with early adoption permitted. Transition is on a


modified retrospective basis with an adjustment to retained earnings as of the beginning of the period of adoption. If early adopted in an interim period, adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently assessing the impact that the guidance will haveTopic 815, Derivatives and Hedging, and Topic 825, Financial Instruments on the Company’s consolidated financial statements. At January 1, 2020, a $1.3 million allowance was recorded related to extensions on construction loans and is reflected below in the ASU 2016-13 calculation.
24


In March 2017,August 2018, the FASB issued ASU 2017-07, "CompensationNo. 2018-13, “Disclosure Framework - Retirement Benefits (Topic 715): ImprovingChanges to the Presentation of Net Periodic Pension CostDisclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and Net Periodic Post-retirement Benefit Cost", which requires that companies disaggregatemodifies certain disclosure requirements for fair value measurements. Among the service cost component from other components of net benefit cost. This update calls for companies that offer post-retirement benefitschanges, entities will no longer be required to present the service cost, which isdisclose the amount an employer has to set aside each quarter or fiscal year to coverof and reasons for transfers between Level 1 and Level 2 of the benefits, in the same line item with other current employee compensation costs. Other components of net benefit costfair value hierarchy, but will be presented inrequired to disclose the income statement separately from the service cost componentrange and outside the subtotal of income from operations, if one is presented.weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2017-07No. 2018-13 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect ASU 2017-07 to have a significant impact on the Company's consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” The main objective of this ASU is to simplify the accounting for goodwill impairment by requiring that impairment charges be based upon the first step in the current two-step impairment test under Accounting Standards Codification (ASC) 350. Currently, if the fair value of aand annual reporting unit is lower than its carrying amount (Step 1), an entity calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). The implied fair value of goodwill is calculated by deducting the fair value of all assets and liabilities of the reporting unit from the reporting unit’s fair value as determined in Step 1. To determine the implied fair value of goodwill, entities estimate the fair value of any unrecognized intangible assets and any corporate-level assets or liabilities that were included in the determination of the carrying amount and fair value of the reporting unit in Step 1. Under ASU 2017-04, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. This standard eliminates the requirement to calculate a goodwill impairment charge using Step 2. ASU 2017-04 does not change the guidance on completing Step 1 of the goodwill impairment test. Under ASU 2017-04, an entity will still be able to perform the current optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early2019; early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company does not expect ASU 2017-04permitted. Entities are also allowed to have a significant impact on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," a new standard which addresses diversity in practice related to eight specific cash flow issues: debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rateelect early adoption of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactionseliminated or modified disclosure requirements and separately identifiable cash flows and applicationdelay adoption of the predominance principle. ASU 2016-15 isnew disclosure requirements until their effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities will apply the standard’s provisions using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for somedate. The adoption of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently assessing thethis guidance had no impact that the guidance will have on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments by a reporting entity at each reporting date. The amendments in this ASU require financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses would represent a valuation account that would be deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement would reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses would be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity will be required to use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Furthermore, ASU 2016-13 will necessitate establishing an allowance for expected credit losses on held to maturity debt securities. This also applies to off-balance sheet credit exposures, which includes loan commitments, unused lines of credit and other similar instruments. The amendments in ASU 2016-13 are effective for fiscal years, including interim periods, beginning after December 15, 2019. Early adoption of this ASU iswas permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating the potential impactadoption of ASU 2016-13 on the consolidated financial statements. In that regard, the Company has formed a cross-functional working group, under the direction of the Chief Credit Officer, Chief Financial Officer and Chief Risk Officer. The working group is comprised of individuals from various functional areas including credit, risk management, finance and information technology, among others. The Company is currently developing an implementation plan


to include assessment of processes, portfolio segmentation, model development, system requirements and the identification of data and resource needs, among other things. Also, the Company is currently evaluating third-party vendor solutions to assist us in the application of the ASU 2016-13. The adoption of the ASU 2016-13 may result in an increase in the allowance for loan losses as a result ofinvolves changing from an "incurred loss" model, which encompasses allowances for current known and inherent losses within the portfolio, to an "expected loss" model (“CECL”), which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate establishing anThe Company adopted CECL on January 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet ("OBS") credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be recorded with previously applicable GAAP. The Company recorded a $7.9 million increase to the allowance for credit losses and a $3.2 million liability for off-balance sheet credit exposures, which resulted in an $8.3 million cumulative effect adjustment decrease, net of tax to retained earnings. With regard to regulatory capital, the Company has elected to utilize the five-year CECL transition, which gives the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay.
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. The Company is evaluating the impacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on the Company's business operations and consolidated financial statements.
25


Note 8. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
On January 1, 2020, the Company adopted CECL, which replaces the incurred loss methodology with an expected loss methodology and 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 debt securities. The Company is currently unableoff-balance sheet credit exposures with a corresponding cumulative effect adjustment to reasonably estimatedecrease retained earnings $2.4 million, net of income taxes.
Management analyzes the impact of adopting ASU 2016-13, it is expected thatCompany's exposure to credit losses for both on-balance sheet and off-balance sheet activity using a consistent methodology for the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfoliosquantitative framework as well as the prevailing economic conditionsqualitative 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 forecasts ascurrent loss factors, resulting in a proportionate amount of expected credit losses.
The following table illustrates the impact of the January 1, 2020 adoption date.of CECL on off-balance sheet credit exposures:
In February 2016,
January 1, 2020
As reported under CECLPrior to CECLImpact of CECL adoption
Liabilities
Allowance for credit losses on off-balance sheet credit exposure$3,206  —  3,206  
For the FASB issued ASU 2016-02, "Leases (Topic 842).” This ASU requires all lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. Lessor accounting remains largely unchanged under the new guidance. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period, with early adoption permitted. A modified retrospective approach must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently assessing the impact that the guidance will have on the Company's consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Liabilities." This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This amendment supersedes the guidance to classify equity securities with readily determinable fair values into different categories, requires equity securities, except equity method investments, to be measured at fair value with changes in the fair value recognized through net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The amendment requires public business entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The amendment requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. The amendment requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. The amendment reduces diversity in current practice by clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendment by means of a cumulative-effect adjustment as of the beginning of the fiscal year of adoption, with the exception of the amendment related to equity securities without readily determinable fair values, which should be applied prospectively to equity investments that exist as of the date of adoption. The Company is currently evaluating the impact that the guidance will have on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are in the scope of other standards. The ASU is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2017, and early adoption is permitted. Subsequently, the FASB issued the following standards related to ASU 2014-09: ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations;” ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;” ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at thethree months ended March 3, 2016 EITF Meeting;” and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” These amendments are intended to improve and clarify the implementation guidance of ASU 2014-09 and have the same effective date as the original standard. The Company's revenue is comprised of net interest income on interest earning assets and liabilities and non-interest income. The scope of guidance explicitly excludes net interest income as well as other revenues associated with financial assets and liabilities, including loans, leases, securities and derivatives. Accordingly, the majority of the Company's revenues will not be affected. The Company has formed a working group to guide implementation efforts including the identification of revenue within the scope of the guidance, as well as the evaluation of revenue contracts and the respective performance obligations within those contracts.  While31, 2020, the Company has not identified any material changes related to the timing or amount of revenue recognition, the Company will continue to evaluate disaggregationrecorded a $1.0 million provision for significant categories of revenue in the scope of the guidance and the need for additional disclosures. The Company will adopt the standard in the first quarter of 2018 with a cumulative effect adjustment to opening retained earnings, if such adjustment is deemed to be significant.credit losses on off-balance sheet credit exposures.
26


Note 7.9. 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, the Company 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 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, 2017March 31, 2020 and December 31, 2016.2019.
Securities Available for Sale Debt Securities, at Fair Value
For securities 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 which 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 or 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 the Company 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, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company 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 not historically resulted in an adjustment in the prices obtained from the pricing service.
Equity Securities, at Fair Value
The Company also may holdholds equity securities and debt instruments issued by the U.S. government and U.S. government-sponsored agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs.
27


Derivatives
The Company records all derivatives on the statementstatements 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 and, 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. The effective portion of changeschange in the fair value of these derivatives areis recorded in accumulated other comprehensive income, and areis subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of these derivatives are recognized directly in earnings.
The fair value of the Company's derivatives areis 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, 2017March 31, 2020 and December 31, 2016.2019.
Collateral DependentCollateral-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%. The Company 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 loancredit 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, 2017March 31, 2020 and December 31, 2016.2019.

28


The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair values as of September 30, 2017March 31, 2020 and December 31, 2016,2019, by level within the fair value hierarchy:
Fair Value Measurements at Reporting Date Using:
(In thousands)March 31, 2020Quoted 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:
Mortgage-backed securities$960,177  —  960,177  —  
State and municipal obligations4,049  —  4,049  —  
Corporate obligations25,607  —  25,607  —  
Total available for sale debt securities$989,833  —  989,833  —  
Equity securities685  685  —  —  
Derivative assets111,608  —  111,608  —  
$1,102,126  685  1,101,441  —  
Derivative liabilities$120,176  —  120,176  —  
Measured on a non-recurring basis:
Loans measured for impairment based on the fair value of the underlying collateral$15,895  —  —  15,895  
Foreclosed assets4,219  —  —  4,219  
$20,114  —  —  20,114  
 
Fair Value Measurements at Reporting Date Using:
(In thousands)
September 30, 2017
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:







Securities available for sale:
       
U.S. Treasury obligations $5,994
 5,994
 
 
Agency obligations
28,035
 28,035
 
 
Mortgage-backed securities
968,412
 
 968,412
 
State and municipal obligations
3,807
 
 3,807
 
Corporate obligations 21,459
 
 21,459
 
Equity securities
598
 598
 
 
Total securities available for sale
1,028,305
 34,627
 993,678
 
 Derivative assets 8,035
 
 8,035
 
  $1,036,340
 34,627
 1,001,713
 
         
Derivative liabilities $7,595
 
 7,595
 
         
Measured on a non-recurring basis:
       
Loans measured for impairment based on the fair value of the underlying collateral
$5,525
 
 
 5,525
Foreclosed assets
5,703
 
 
 5,703


$11,228
 
 
 11,228


Fair Value Measurements at Reporting Date Using:Fair Value Measurements at Reporting Date Using:
(In thousands)
December 31, 2016
Quoted Prices in
Active  Markets for
Identical Assets
(Level 1)

Significant Other
Observable  Inputs
(Level 2)

Significant
Unobservable
Inputs (Level 3)
(In thousands)December 31, 2019Quoted 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:







Measured on a recurring basis:
Securities available for sale:







U.S. Treasury obligations $8,008
 8,008
 
 
Agency obligations
57,188
 57,188
 
 
Available for sale debt securities:Available for sale debt securities:
Mortgage-backed securities
951,861
 
 951,861
 
Mortgage-backed securities$947,430  —  947,430  —  
State and municipal obligations
3,743
 
 3,743
 
State and municipal obligations4,079  —  4,079  —  
Corporate obligations 19,037
 
 19,037
 
Corporate obligations25,410  —  25,410  —  
Equity securities
549
 549
 
 
Total securities available for sale
$1,040,386
 65,745
 974,641
 
Total available for sale debt securitiesTotal available for sale debt securities$976,919  —  976,919  —  
Equity SecuritiesEquity Securities825  825  —  —  
Derivative assets 7,441
 
 7,441
 
Derivative assets39,305  —  39,305  —  
 $1,047,827
 65,745
 982,082
 
$1,017,049  825  1,016,224  —  
        
Derivative liabilities $6,750
 
 6,750
 
Derivative liabilities$39,356  —  39,356  —  
        
Measured on a non-recurring basis:
       Measured on a non-recurring basis:
Loans measured for impairment based on the fair value of the underlying collateral
$11,001
 
 
 11,001
Loans measured for impairment based on the fair value of the underlying collateral$20,403  —  —  20,403  
Foreclosed assets
7,991
 
 
 7,991
Foreclosed assets2,715  —  —  2,715  


$18,992
 
 
 18,992
$23,118  —  —  23,118  
There were no transfers between Level 1, Level 2 and Level 3 during the three and ninethree months ended September 30, 2017.

March 31, 2020.
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.
29


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 March 31, 2020 and December 31, 2019 was $128.7 million and $77.0 million, respectively, representing cash collateral pledged to secure loan level swaps and reserves required by banking regulations.
Investment Securities Held to Maturity Debt Securities, Net of Allowance for Credit Losses
For investment securities 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 which 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 or 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 the Company is responsible for the determination of fair value, it performs quarterly analyses onanalysis of the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company 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 not historically 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 was 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. 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
30


counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value estimates of commitments to extend credit and letters of credit are deemed immaterial.
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, 2017March 31, 2020 and December 31, 2016.2019. Fair values are presented by level within the fair value hierarchy.
Fair Value Measurements at March 31, 2020 Using:
(Dollars in thousands)Carrying valueFair valueQuoted 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$370,577  370,577  370,577  —  —  
Available for sale debt securities:
Mortgage-backed securities960,177  960,177  —  960,177  —  
State and municipal obligations4,049  4,049  —  4,049  —  
Corporate obligations25,607  25,607  —  25,607  —  
Total available for sale debt securities$989,833  989,833  —  989,833  —  
Held to maturity debt securities, net of allowance for credit losses
Agency obligations7,417  7,432  7,432  —  —  
Mortgage-backed securities104  108  —  108  —  
State and municipal obligations428,611  442,366  —  442,366  —  
Corporate obligations9,312  9,318  —  9,318  —  
Total held to maturity debt securities, net of allowance for credit losses$445,444  459,224  7,432  451,792  —  
FHLBNY stock61,198  61,198  61,198  —  —  
Equity Securities685  685  685  —  —  
Loans, net of allowance for credit losses7,296,901  7,513,881  —  —  7,513,881  
Derivative assets111,608  111,608  —  111,608  —  
Financial liabilities:
Deposits other than certificates of deposits$6,513,994  6,513,994  6,513,994  —  —  
Certificates of deposit696,766  696,151  —  696,151  —  
Total deposits$7,210,760  7,210,145  6,513,994  696,151  —  
Borrowings1,213,777  1,223,866  —  1,223,866  —  
Derivative liabilities120,176  120,176  —  120,176  —  
31


    Fair Value Measurements at September 30, 2017 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 $148,783
 148,783
 148,783
 
 
Securities available for sale:          
U.S. Treasury obligations 5,994
 5,994
 5,994
 
 
Agency obligations 28,035
 28,035
 28,035
 
 
Mortgage-backed securities 968,412
 968,412
 
 968,412
 
State and municipal obligations 3,807
 3,807
 
 3,807
 
Corporate obligations 21,459
 21,459
 
 21,459
 
Equity securities 598
 598
 598
 
 
Total securities available for sale $1,028,305
 1,028,305
 34,627
 993,678
 
Investment securities held to maturity:          
Agency obligations 4,307
 4,252
 4,252
 
 
Mortgage-backed securities 475
 492
 
 492
 
State and municipal obligations 467,113
 475,759
 
 475,759
 
Corporate obligations 9,950
 9,922
 
 9,922
 
Total securities held to maturity $481,845
 490,425
 4,252
 486,173
 
FHLBNY stock 70,896
 70,896
 70,896
 
 
Loans, net of allowance for loan losses 6,967,776
 6,955,183
 
 
 6,955,183
Derivative assets 8,035
 8,035
 
 8,035
 
           
Financial liabilities:          
Deposits other than certificates of deposits $5,963,348
 5,963,348
 5,963,348
 
 
Certificates of deposit 627,868
 628,523
 
 628,523
 
Total deposits $6,591,216
 6,591,871
 5,963,348
 628,523
 
Borrowings 1,525,560
 1,530,444
 
 1,530,444
 
Derivative liabilities 7,595
 7,595
 
 7,595
 


Fair Value Measurements at December 31, 2019 Using:
(Dollars in thousands)Carrying valueFair valueQuoted 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$186,748  186,748  186,748  —  —  
Available for sale debt securities:
Mortgage-backed securities947,430  947,430  —  947,430  —  
State and municipal obligations4,079  4,079  —  4,079  —  
Corporate obligations25,410  25,410  —  25,410  —  
Total available for sale debt securities$976,919  976,919  —  976,919  —  
Held to maturity debt securities:
Agency obligations$6,599  6,601  6,601  —  —  
Mortgage-backed securities118  122  —  122  —  
State and municipal obligations437,074  451,353  —  451,353  —  
Corporate obligations9,838  9,890  —  9,890  —  
Total held to maturity debt securities$453,629  467,966  6,601  461,365  —  
FHLBNY stock57,298  57,298  57,298  —  —  
Equity Securities825  825  825  —  —  
Loans, net of allowance for credit losses7,277,360  7,296,744  —  —  7,296,744  
Derivative assets39,305  39,305  —  39,305  —  
Financial liabilities:
Deposits other than certificates of deposits$6,368,582  6,368,582  6,368,582  —  —  
Certificates of deposit734,027  734,047  —  734,047  —  
Total deposits$7,102,609  7,102,629  6,368,582  734,047  —  
Borrowings1,125,146  1,127,569  —  1,127,569  —  
Derivative liabilities39,356  39,356  —  39,356  —  

32
    Fair Value Measurements at December 31, 2016 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 $144,297
 144,297
 144,297
 
 
Securities available for sale:          
U.S. Treasury obligations 8,008
 8,008
 8,008
 
 
Agency obligations 57,188
 57,188
 57,188
 
 
Mortgage-backed securities 951,861
 951,861
 
 951,861
 
State and municipal obligations 3,743
 3,743
 
 3,743
 
Corporate obligations 19,037
 19,037
 
 19,037
 
Equity securities 549
 549
 549
 
 
Total securities available for sale $1,040,386
 1,040,386
 65,745
 974,641
 
Investment securities held to maturity:          
Agency obligations $4,306
 4,225
 4,225
 
 
Mortgage-backed securities 893
 924
 
 924
 
State and municipal obligations 473,653
 474,852
 
 474,852
 
Corporate obligations 9,331
 9,286
 
 9,286
 
Total securities held to maturity $488,183
 489,287
 4,225
 485,062
 
FHLBNY stock 75,726
 75,726
 75,726
 
 
Loans, net of allowance for loan losses 6,941,603
 6,924,440
 
 
 6,924,440
Derivative assets 7,441
 7,441
 
 7,441
 
           
Financial liabilities:          
Deposits other than certificates of deposits $5,902,446
 5,902,446
 5,902,446
 
 
Certificates of deposit 651,183
 653,772
 
 653,772
 
Total deposits $6,553,629
 6,556,218
 5,902,446
 653,772
 
Borrowings 1,612,745
 1,617,023
 
 1,617,023
 
Derivative liabilities 6,750
 6,750
 
 6,750
 


Note 8.10. Other Comprehensive Income (Loss)
The following table presents the components of other comprehensive income, (loss), both gross and net of tax, for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
Three months ended March 31,
20202019
Before
Tax
Tax
Effect
After
Tax
Before
Tax
Tax
Effect
After
Tax
Components of Other Comprehensive Income:
Unrealized gains on available for sale debt securities:
Net unrealized gains arising during the period$22,563  (5,817) 16,746  10,417  (2,839) 7,578  
Reclassification adjustment for gains included in net income—  —  —  —  —  —  
Total22,563  (5,817) 16,746  10,417  (2,839) 7,578  
Unrealized losses on derivatives (cash flow hedges)(7,697) 1,984  (5,713) (432) 118  (314) 
Amortization related to post-retirement obligations112  (28) 84  (16)  (12) 
Total other comprehensive income$14,978  (3,861) 11,117  9,969  (2,717) 7,252  
  Three months ended September 30,
  2017 2016
  
Before
Tax
 
Tax
Effect
 
After
Tax
 
Before
Tax
 
Tax
Effect
 
After
Tax
Components of Other Comprehensive Income:            
Unrealized gains and losses on securities available for sale:            
Net gains (losses) arising during the period $799
 (320) 479
 (2,575) 1,034
 (1,541)
Reclassification adjustment for gains included in net income 
 
 
 43
 (17) 26
Total 799
 (320) 479
 (2,532) 1,017
 (1,515)
Unrealized gains on derivatives (cash flow hedges) 90
 (36) 54
 384
 (154) 230
Amortization related to post-retirement obligations 61
 (25) 36
 236
 (95) 141
Total other comprehensive income (loss) $950
 (381) 569
 (1,912) 768
 (1,144)

  Nine months ended September 30,
  2017 2016
  Before
Tax
 Tax
Effect
 After
Tax
 Before
Tax
 Tax
Effect
 After
Tax
Components of Other Comprehensive Income:            
Unrealized gains and losses on securities available for sale:            
Net gains arising during the period $4,136
 (1,658) 2,478
 14,260
 (5,727) 8,533
Reclassification adjustment for gains included in net income 
 
 
 (54) 22
 (32)
Total 4,136
 (1,658) 2,478
 14,206
 (5,705) 8,501
Unrealized gains (losses) on derivatives (cash flow hedges) 177
 (71) 106
 (603) 242
 (361)
Amortization related to post-retirement obligations 183
 (78) 105
 635
 (255) 380
Total other comprehensive income $4,496
 (1,807) 2,689
 14,238
 (5,718) 8,520


The following tables present the changes in the components of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
Changes in Accumulated Other Comprehensive Income (Loss) by Component, net of tax
for the three months ended March 31,
20202019
Unrealized
Gains on
Available for Sale Debt Securities
Post- Retirement
Obligations
Unrealized (Losses) Gains on Derivatives (cash flow hedges)Accumulated
Other
Comprehensive
Income
Unrealized
(Losses) Gains on
Available for Sale Debt Securities
Post-  Retirement
Obligations
Unrealized Gains (Losses) on Derivatives (cash flow hedges)Accumulated
Other
Comprehensive
Loss
Balance at
December 31,
$8,746  (5,240) 315  3,821  (9,605) (3,625) 894  (12,336) 
Current - period other comprehensive income (loss)16,746  84  (5,713) 11,117  7,578  (12) (314) 7,252  
Balance at March 31,$25,492  (5,156) (5,398) 14,938  (2,027) (3,637) 580  (5,084) 








33


  
Changes in Accumulated Other Comprehensive Income (Loss) by Component, net of tax
for the three months ended September 30,
  2017 2016
  
Unrealized
Gains on Securities
Available for 
Sale
 Post- Retirement
Obligations
 Unrealized gains on Derivatives (cash flow hedges) Accumulated
Other
Comprehensive
Income (Loss)
 
Unrealized
Gains on Securities
Available
 for 
Sale
 Post-  Retirement
Obligations
 Unrealized (losses) on Derivatives (cash flow hedges) Accumulated
Other
Comprehensive
Income (Loss)
Balance at
June 30,
 $1,489
 (2,987) 221
 (1,277) 13,967
 (6,185) (664) 7,118
Current period other comprehensive income (loss) 479
 36
 54
 569
 (1,515) 141
 230
 (1,144)
Balance at September 30, $1,968
 (2,951) 275
 (708) 12,452
 (6,044) (434) 5,974
  
Changes in Accumulated Other Comprehensive Income (Loss) by Component, net of tax
for the nine months ended September 30,
  2017 2016
  
Unrealized
Gains on Securities
Available for 
Sale
 Post-  Retirement
Obligations
 Unrealized gains on Derivatives (cash flow hedges) Accumulated
Other
Comprehensive
Income (Loss)
 
Unrealized
Gains on Securities
Available
 for 
Sale
 Post- Retirement
Obligations
 Unrealized (losses) on Derivatives (cash flow hedges) Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, $(510) (3,056) 169
 (3,397) 3,951
 (6,424) (73) (2,546)
Current period other comprehensive income (loss) 2,478
 105
 106
 2,689
 8,501
 380
 (361) 8,520
Balance at September 30, $1,968
 (2,951) 275
 (708) 12,452
 (6,044) (434) 5,974
The following tables summarize the reclassifications out offrom accumulated other comprehensive income (loss) to the consolidated statements of income for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
Reclassifications From Accumulated Other Comprehensive
Income ("AOCI")
Amount reclassified from AOCI for the three months ended March 31,Affected line item in the Consolidated
Statement of Income
20202019
Details of AOCI:
Post-retirement obligations:
Amortization of actuarial losses$112  47  Compensation and employee benefits (1)
(28) (13) Income tax expense
Total reclassification$84  34  Net of tax
(1) This item is included in the computation of net periodic benefit cost. See Note 6. Components of Net Periodic Benefit Cost.

  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
  2017 2016 
Details of AOCI:      
Securities available for sale:      
Realized net losses on the sale of securities available for sale $
 (43) Net gain on securities transactions
  
 17
 Income tax expense
  
 (26) Net of tax
       
Post-retirement obligations:      
Amortization of actuarial losses 61
 236
 
Compensation and employee benefits (1)
  (25) (95) Income tax expense
  36
 141
 Net of tax
Total reclassifications $36
 115
 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
  2017 2016 
Details of AOCI:      
Securities available for sale:      
Realized net gains on the sale of securities available for sale $
 54
 Net gain on securities transactions
  
 (22) Income tax expense
  
 32
 Net of tax
       
Post-retirement obligations:      
Amortization of actuarial losses 183
 708
 
Compensation and employee benefits (1)
  (78) (284) Income tax expense
  105
 424
 Net of tax
Total reclassifications $105
 456
 Net of tax
(1)
This item is included in the computation of net periodic benefit cost. See Note 5. Components of Net Periodic Benefit Cost.



Note 9.11. 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 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 and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company executes 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,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. The collateral exceeds the maximum potential amount of future payments under the credit derivative. As the Company has not elected to apply hedge accounting and these interest rate swaps associated with this program 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, 2017March 31, 2020 and December 31, 2016,2019, the Company had 46116 and 92 interest rate swaps, respectively, with an aggregate notional amountamounts of $698.5$1.97 billion and $1.61 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 RPA's are entered into to manage the credit exposure on interest rate contracts associated with these loan participation agreements. Under the RPA's, the Company will either receive or make a payment if a borrower defaults on the related interest rate contract. At March 31, 2020 and December 31, 2019, the Company had 13 credit derivatives, with aggregate notional amounts of $106.8 million and 36 interest rate swaps with an aggregate notional amount of $582.2$106.0 million, respectively, related to this program. The Company has credit derivatives resulting from participations in interest rate swaps provided to external lenders as part of these loan participation arrangements; therefore, they are not used to manage interest rate risk inarrangements. At March 31, 2020 and December 31, 2019, the Company's assets or liabilities.fair value of these credit derivatives were $90,000 and $47,000, 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 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. 
The effective portion of changesChanges 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, 2017March 31, 2020 and 2016,2019, such derivatives were used to hedge the variable cash outflows associated with Federal Home Loan Bank borrowings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three and nine months ended September 30, 2017 and 2016, the Company did not record any hedge ineffectiveness.
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 debt.borrowings. During the next twelve months, the Company estimates that $52,400$2.1 million will be reclassified as an increase to interest expense. As of September 30, 2017,March 31, 2020, the Company had two 9
34


outstanding interest rate derivatives with an aggregate notional amount of $60.0$290.0 million that waswere designated as a cash flow hedge of interest rate risk.
The tabletables 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, 2017March 31, 2020 and December 31, 20162019 (in thousands):
At March 31, 2020
Asset DerivativesLiability Derivatives
Consolidated Statements of Financial ConditionFair
Value
Consolidated Statements of Financial ConditionFair
Value
Derivatives not designated as a hedging instrument:
Interest rate productsOther assets$118,787  Other liabilities120,176  
Credit contractsOther assets90  Other liabilities—  
Total derivatives not designated as a hedging instrument$118,877  120,176  
Derivatives designated as a hedging instrument:
Interest rate productsOther assets$(7,269) Other liabilities—  
Total derivatives designated as a hedging instrument$(7,269) —  
  At September 30, 2017
  Asset Derivatives Liability Derivatives
  Consolidated Statements of Financial Condition 
Fair
Value
 Consolidated Statements of Financial Condition 
Fair
Value
Derivatives not designated as a hedging instrument:        
Interest rate products Other assets $7,575
 Other liabilities $7,595
Credit contracts Other assets 2
 Other liabilities 
Total derivatives not designated as a hedging instrument   $7,577
   $7,595
         
Derivatives designated as a a hedging instrument:       
Interest rate products Other assets $458
 Other liabilities $
Total derivatives designated as a hedging instrument   $458
   $



 At December 31, 2016At December 31, 2019
 Asset Derivatives Liability DerivativesAsset DerivativesLiability Derivatives
 Consolidated Statements of Financial Condition 
Fair
Value
 Consolidated Statements of Financial Condition 
Fair
Value
Consolidated Statements of Financial ConditionFair
Value
Consolidated Statements of Financial ConditionFair
Value
Derivatives not designated as a hedging instrument:    Derivatives not designated as a hedging instrument:
Interest rate products Other assets $7,156
 Other liabilities $6,750
Interest rate productsOther assets$38,830  Other liabilities39,356  
Credit contracts Other assets 3
 Other liabilities 
Credit contractsOther assets47  Other liabilities—  
Total derivatives not designated as a hedging instrument $7,159
 $6,750
Total derivatives not designated as a hedging instrument$38,877  39,356  
    
Derivatives designated as a a hedging instrument:    
Derivatives designated as a hedging instrument:Derivatives designated as a hedging instrument:
Interest rate products Other assets $282
 Other liabilities $
Interest rate productsOther assets$428  Other liabilities—  
Total derivatives designated as a hedging instrument $282
 $
Total derivatives designated as a hedging instrument$428  —  
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, 2017March 31, 2020 and 20162019 (in thousands).
 Gain (loss) recognized in Income on derivatives for the three months endedGain (loss) recognized in income on derivatives for the three months ended
 Consolidated Statements of Income September 30, 2017 September 30, 2016Consolidated Statements of IncomeMarch 31, 2020March 31, 2019
Derivatives not designated as a hedging instrument:    Derivatives not designated as a hedging instrument:
Interest rate products Other income (expense) $(36) $(95)Interest rate productsOther income$(819) (673) 
Credit contracts Other income (expense) 
 5
Credit contractsOther income(1) (4) 
Total $(36) $(90)Total$(820) (677) 
    
Derivatives designated as a hedging instrument:    Derivatives designated as a hedging instrument:
Interest rate products Other income (expense) $(59) $(129)Interest rate productsInterest expense$106  162  
Total $(59) $(129)Total$106  162  
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    Gain (loss) recognized in Income on derivatives for the nine months ended
  Consolidated Statements of Income September 30, 2017 September 30, 2016
Derivatives not designated as a hedging instrument:      
Interest rate products Other income (expense) $(428) $(1,060)
Credit contracts Other income (expense) 1
 103
Total   $(427) $(957)
       
Derivatives designated as a hedging instrument:      
Interest rate products Other income (expense) $(166) $(366)
Total   $(166) $(366)


The Company has agreements with certain of its derivativedealer counterparties that contain a provision that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.
In addition, the Company has agreements with certain of its derivativedealer counterparties that contain a provision that if the Company fails to maintain its status as a well/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.


AsAt March 31, 2020, the Company had 4 dealer counterparties. The Company had a net liability position with respect to all 4 of September 30, 2017, the counterparties. The termination value of derivatives in afor this net liability position, which includes accrued interest, was $2.5 million.$127.7 million at March 31, 2020. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $3.1$128.7 million against its obligations under these agreements. If the Company had breached any of these provisions at September 30, 2017,March 31, 2020, it could have been required to settle its obligations under the agreements at the termination value.
Note 12. 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 ended March 31, 2020 and 2019, the out-of-scope revenue related to financial instruments was 84% and 88% of the Company's total revenue, respectively. Revenue-generating activities that are within the scope of Topic 606, are components of non-interest income. These revenue streams can generally be classified into wealth management revenue 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 months ended March 31, 2020 and 2019:
Three months ended March 31,
(in-thousands)20202019
Non-interest income
In-scope of Topic 606:
Wealth management fees$6,251  4,079  
Banking service charges and other fees:
Service charges on deposit accounts2,977  3,191  
Debit card and ATM fees1,210  1,307  
Total banking service charges and other fees4,187  4,498  
Total in-scope non-interest income10,438  8,577  
Total out-of-scope non-interest income6,553  3,611  
Total non-interest income$16,991  12,188  
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. For customers acquired in the April 1, 2019, T&L transaction, the fee is based upon AUM at the end of the preceding quarter 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 either on a quarterly or 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.
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
36


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 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 13. Leases
On January 1, 2019, the Company adopted ASU 2016-02, "Leases" (Topic 842) and all subsequent ASU's that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. The Company elected the modified retrospective transition option effective with the period of adoption, elected not to recast comparative periods presented when transitioning to the new leasing standard and adjustments, if required, are made at the beginning of the period through a cumulative-effect adjustment to opening retained earnings. The Company also elected practical expedients, which allowed the Company to forego a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the initial direct costs for any existing leases. The adoption of the new standard resulted in the Company recording a right-of-use asset and an operating lease liability of $44.9 million and $46.1 million, respectively, based on the present value of the expected remaining lease payments at January 1, 2019.
Also, on January 1, 2019, the Company had $5.9 million of net deferred gains associated with several sale and leaseback transactions executed prior to the adoption of ASU 2016-02. In accordance with the guidance, these net deferred gains were adjusted, net of income tax, as a cumulative-effect adjustment to opening retained earnings.
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.
The following table represents the consolidated statements of financial condition classification of the Company’s right-of use-assets and lease liabilities at March 31, 2020 (in thousands):
ClassificationMarch 31, 2020December 31, 2019
Lease Right-of-Use Assets:
Operating lease right-of-use assetsOther assets$40,110  $41,754  
Lease Liabilities:
Operating lease liabilitiesOther liabilities$41,144  $42,815  
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.
At March 31, 2020, the weighted-average remaining lease term and the weighted-average discount rate for the Company's operating leases were 9.4 years and 3.48%, respectively.
The following table represents 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):
37


(in-thousands)Three months ended March 31, 2020Three months ended March 31, 2019
Lease Costs:
Operating lease cost$2,130  $2,050  
Variable lease cost607  760  
Total Lease Cost$2,737  $2,810  

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$2,125  $2,044  
During the three months ended March 31, 2020, the Company did not enter into any new lease obligations.
Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2020 were as follows:
(in-thousands)Operating Leases
Twelve months ended:
Remainder of 2020$6,274  
20216,085  
20225,257  
20234,747  
20244,346  
Thereafter22,195  
Total future minimum lease payments48,904  
Amounts representing interest7,760  
Present value of net future minimum lease payments$41,144  


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, oras 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 is having an adverse impact on the Company, its customers and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we 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 substantially
38


reopen, and high 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 credit 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 a decline in our stock price; and our cyber security risks are increased as the result of an increase in the 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 also advises readers that the factors listed above could affect the Company’sCompany's financial performance and could cause the Company’sCompany'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 any subsequent events or circumstances after the date of this statement.
Acquisition
SB One Bancorp Acquisition
On March 11, 2020, the Company entered into a definitive merger agreement pursuant to which SB One Bancorp ("SB One") will merge with and into the Company, and SB One Bank, a wholly owned subsidiary of SB One, will merge with and into Provident Bank, a wholly owned subsidiary of the Company. The merger agreement has been unanimously approved by the boards of directors of both companies. The actual value of the Company’s common stock to be recorded as consideration in the Merger will be based on the closing price of Company’s common stock at the time of the Merger completion date. Under the Merger Agreement, each share of SB One common stock will be exchanged for 1.357 shares of the Company's common stock plus cash in lieu of fractional shares. The merger is expected to close in the third quarter of 2020, subject to satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by the shareholders of SB One. At December 31, 2019, SB One had $2.0 billion in assets and operated 18 full-service banking offices in New Jersey and New York.
Acquisition of Tirschwell & Loewy, Inc.
On April 1, 2019, Beacon Trust Company ("Beacon") completed its acquisition of certain assets of Tirschwell & Loewy, Inc. ("T&L"), a New York City-based independent registered investment adviser. Beacon is a wholly owned subsidiary of Provident Bank. This acquisition expanded the Company’s wealth management business by $822.4 million of assets under management at the time of acquisition.
The T&L acquisition was accounted for under the acquisition method of accounting. The Company recorded goodwill of $8.2 million, a customer relationship intangible of $12.6 million and $800,000 of other identifiable intangibles related to the acquisition. In addition, the Company recorded a contingent consideration liability at its fair value of $6.6 million. The contingent consideration arrangement requires the Company to pay additional cash consideration to T&L's former stakeholders over a three-year period after the closing date of the acquisition if certain financial and business retention targets are met. The acquisition agreement limits the total additional payment to a maximum of $11.0 million, to be determined based on actual future results. The total cost of the T&L acquisition was $21.6 million, which included cash consideration of $15.0 million and contingent consideration with a fair value of $6.6 million. Tangible assets acquired were nominal, and no liabilities were assumed in the T&L acquisition. The goodwill recorded in the transaction is deductible for tax purposes.
In the fourth quarter of 2019, the Company recognized a $2.8 million increase in the estimated fair value of the contingent consideration liability. While performance of the acquired business has been adversely impacted in the first quarter of 2020 due to worsening economic conditions and declining asset valuations attributable to the COVID-19 pandemic, management has not identified a reduction in assets under management due to a declining customer base. Therefore, the $9.4 million fair value of the contingent liability was unchanged at March 31, 2020, from December 31, 2019, with maximum potential future payments totaling $11.0 million.
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
39


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 loan lossescredit losses; and
Goodwill valuation and analysis for impairment
Valuation of securities available for sale and impairment analysis
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 an expected loss methodology that is referred to as 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 calculation of the allowance for loancredit losses is a critical accounting policy of the Company. CECL requires the use of projected macroeconomic factors. The Company's current forecast period is six quarters, with a four quarter reversion period to macroeconomic variables’ means. The Company's economic forecast is approved by the Company's Asset-Liability Committee. The allowance for loancredit losses is a valuation account that reflects management’s evaluation of the probablecurrent expected credit losses in the loan portfolio. The Company maintains the allowance for loancredit losses through provisions for loancredit losses that are charged to income. Charge-offs against the allowance for loancredit losses are taken on loans where management determines that the collection of loan principal is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for loancredit losses.
Management'sManagement performs a quarterly evaluation of the adequacy of the allowance for loancredit losses. The analysis of the allowance for credit losses includes a review of allhas two elements: loans on which the collectability of principal may not be reasonably assured. For residential mortgagecollectively evaluated for impairment and consumer loans this is determined primarily by delinquency status. For commercial real estate and commercial loans, an extensive review of financial performance, payment history and collateral values is conducted on a quarterly basis.
individually evaluated for impairment. As part of theits evaluation of the adequacy of the allowance for loancredit losses, each quarter managementManagement prepares an analysis that categorizessegments the entire loan portfolio by certain risk characteristics such as loan type (residential mortgage, commercial mortgage, construction, commercial, etc.into groups of loans that share common attributes and risk characteristics. The allowance for credit losses collectively evaluated for impairment consists of a quantitative loss factor and a qualitative adjustment component. Management estimates the quantitative component by segmenting the loan portfolio and employing a discounted cash flow ("DCF") model framework to estimate the allowance for credit losses on the loan portfolio. The CECL estimate incorporates life-of-loan aspects through this DCF approach. For each segment, this approach compares each loan’s amortized cost to the present value of its contractual cash flows adjusted for projected credit losses, prepayments and loan risk rating.
When assigning a risk ratingcurtailments to a loan, management utilizes a nine point internal risk rating system. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal risk. Loans 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 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 the Credit Department. The risk ratings are also confirmed through periodic loan review examinations, which are currently performed by an independent third party, and periodically by the Credit Committee in the credit renewal or approval process. In addition, the Bank requires an annual review be performed for commercial and commercial real estate loans above certain dollar thresholds, depending on loan type, to help determine the appropriate risk rating.
Management estimates the amount of loan lossesreserve for groups of loans by applying quantitative loss factors to loan segments at the risk rating level, and applying qualitative adjustments to each loan segment at the portfolio level.that loan. Quantitative loss factors give consideration to historical loss experience by loan type based upon an appropriate look back period and adjusted for a loss emergence period. Quantitative loss factors arewill be evaluated at least annually. Management completed its annualinitial development and evaluation of theits quantitative loss factors for the quarter ended September 30, 2017.at January 1, 2020. Qualitative adjustments give consideration to other qualitative or environmental factors such as trends in industry conditions, effects of changes in credit concentrations, changes in the Company’s loan review process, changes in the Company's loan policies and levels of delinquencies, impaired loans, charge-offs, recoveriesprocedures, economic forecast uncertainty and loan volumes, as well as national and local economic trends and conditions.model imprecision. Qualitative adjustments reflect risks in the loan portfolio not captured by the quantitative loss factors and, as such, are evaluated from a risk level perspective relative to the risk levels present over the look back period. factors. Qualitative adjustments are evaluatedrecalibrated at least annually and evaluated quarterly. The reserves resulting from the application of both of these sets of loss factors are combined to arrive at the allowance for credit losses on loans collectively evaluated for impairment.
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 losses.review process. This process includes the review of delinquent and problem loans at the Company’s Delinquency, Credit, Credit Risk Management and Allowance Committees. 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 in a troubled debt restructuring.
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. Any one or a combination of these events may adversely affect borrowers’ ability to repay the loans, resulting in increased delinquencies, loancredit losses and futurehigher levels of provisions. Accordingly, the Company has provided for loancurrent expected credit losses at the current expected level to address the current risk in its loan portfolio. Management considers it important to maintain the ratio of the allowance for loancredit 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 loancredit losses at appropriate levels, additions may be necessary if future economic and other conditions differ substantially from the current operating environment.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, including the current economic environment, which management believes to be reasonable under the circumstances.factors. Such estimates and assumptions are
40


adjusted when facts and circumstances dictate. Illiquid credit markets, volatile securities markets, and declines in the housing and commercial real estate markets and the economy generally have combinedin general can combine to 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 loancredit 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 loancredit losses remains an estimate that is subject to significant judgment and short-term change.
Additional critical accounting policies relate to judgments about other asset impairments, including goodwill, investment securities and deferred tax assets. Goodwill is evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates.
Management qualitatively determines whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing Step 1 of the goodwill impairment test. If an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity would be required to perform Step 1 of the assessment and then, if needed, Step 2 to determine whether goodwill is impaired. However, if it is more likely than not that the fair value of the reporting unit is more than its carrying amount, the entity does not need to apply the two-step impairment test. For this analysis, the Reporting Unit is defined as the Bank, which includes all core and retail banking operations of the Company but excludes the assets, liabilities, equity, earnings and operations held exclusively at the Company level. The guidance provides certain factors an entity should consider in its qualitative assessment in determining whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. The factors include:
Macroeconomic conditions, such as deterioration in economic condition and limited access to capital.
Industry and market considerations, such as increased competition, regulatory developments and decline in market-dependent multiples.


Cost factors, such as increased labor costs, cost of materials and other operating costs.
Overall financial performance, such as declining cash flows and decline in revenue or earnings.
Other relevant entity-specific events, such as changes in management, strategy or customers, litigation and contemplation of bankruptcy.
Reporting unit events, such as selling or disposing a portion of a reporting unit and a change in composition of assets.
Management may, based upon its qualitative assessment, or at its option, perform the two-step process to evaluate the potential impairment of goodwill. If, based upon Step 1, the fair value of the Reporting Unit exceeds its carrying amount, goodwill of the Reporting Unit is considered not impaired. However, if the carrying amount of the Reporting Unit exceeds its fair value, an additional test must be performed. The second step test compares the implied fair value of the Reporting Unit’s goodwill with the carrying amount of that goodwill. An impairment loss would be recorded to the extent that the carrying amount of goodwill exceeds its implied fair value.
The Company completed its annual goodwill impairment test as of September 30, 2017. Based upon its qualitative assessment of goodwill, the Company concluded it is more likely than not that the fair value of the reporting unit exceeds its carrying amount, goodwill was not impaired and no further quantitative analysis (Step 1) was warranted.
The Company’s available for sale securities portfolio is carried at estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in Stockholders’ Equity. Estimated fair values are based on market quotations or matrix pricing as discussed in Note 7 to the consolidated financial statements. Securities which the Company has the positive intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost. Management conducts a periodic review and evaluation of the securities portfolio to determine if any declines in the fair values of securities are other-than-temporary. In this evaluation, if such a decline were deemed other-than-temporary, management would measure the total credit-related component of the unrealized loss, and recognize that portion of the loss as a charge to current period earnings. The remaining portion of the unrealized loss would be recognized as an adjustment to accumulated other comprehensive income. The fair value of the securities portfolio is significantly affected by changes in interest rates. In general, as interest rates rise, the fair value of fixed-rate securities decreases and as interest rates fall, the fair value of fixed-rate securities increases. The Company determines if it has the intent to sell these securities or if it is more likely than not that the Company would be required to sell the securities before the anticipated recovery. If either exists, the entire decline in value is considered other-than-temporary and would be recognized as an expense in the current period. In its evaluations, the Company did not recognize an other-than-temporary impairment charge on securities for the three and nine months ended September 30, 2017 and 2016.
The determination of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities utilization against carryback years 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, 2017 andMarch 31, 2020 or December 31, 2016.2019.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2017MARCH 31, 2020 AND DECEMBER 31, 20162019
Total assets at September 30, 2017 totaled $9.50March 31, 2020 were $10.08 billion, a $5.3$276.3 million decreaseincrease from December 31, 2016.2019. The declineincrease in total assets was primarily due to a $23.2$183.8 million decreaseincrease in total investments,cash and cash equivalents, a $5.5$65.9 million decreaseincrease in premises and equipment andother assets, a $2.3 million decrease in foreclosed assets, partially offset by a $24.6$39.2 million increase in total loans.loans and an $8.5 million increase in total investments. The increase in other assets was largely due to an increase in the valuation of the Company's derivative portfolio.
Total loansThe Company’s loan portfolio increased $24.6$39.2 million or 0.4%, to $7.03$7.37 billion at September 30, 2017,March 31, 2020, from $7.00$7.33 billion at December 31, 2016.2019. For the ninethree months ended September 30, 2017,March 31, 2020, loan originations, includingexcluding advances on lines of credit, totaled $2.56 billion.$354.9 million, compared with $293.9 million for the same period in 2019. During the ninethree months ended September 30, 2017,March 31, 2020, the loan portfolio had net increases of $78.1$68.9 million in commercial loans $59.9and $29.0 million in construction loans and $44.0 million in commercialresidential mortgage loans, partially offset by net decreases of $67.1$23.3 million in commercial mortgage loans, $20.9 million in construction loans, $11.8 million in consumer loans and $3.2 million in multi-family mortgage loans, $54.4 million in residential mortgage loans and $35.5 million in consumer loans. Commercial real estate, commercial and construction loans represented 76.7%79.8% of the loan portfolio at September 30, 2017,March 31, 2020, compared to 75.3%80.0% at December 31, 2016.2019.
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 $311.3$219.5 million and $214.1$115.9 million, respectively, at September 30, 2017.March 31, 2020, compared to $213.2 million and $105.3 million, respectively, at December 31, 2019. No SNCs were 90 days or more delinquent at September 30, 2017.March 31, 2020.
The Company had outstanding junior lien mortgages totaling $209.2$140.5 million at September 30, 2017.March 31, 2020. Of this total, 227 loans totaling $1.3 million$182,000 were 90 days or more delinquent. These loans were allocated total loss reserves of $238,000.$32,000.


The following table sets forth information regarding the Company’s non-performing assets as of September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
March 31, 2020December 31, 2019
Mortgage loans:
Residential$6,145  8,543  
Commercial5,264  5,270  
Total mortgage loans11,409  13,813  
Commercial loans23,086  25,160  
Consumer loans844  1,221  
Total non-performing loans35,339  40,194  
Foreclosed assets4,219  2,715  
Total non-performing assets$39,558  42,909  
41



September 30, 2017
December 31, 2016
Mortgage loans:



Residential
$8,820
 12,021
Commercial
8,070
 7,493
Multi-family

 553
Construction

 2,517
Total mortgage loans
16,890
 22,584
Commercial loans
17,523
 16,787
Consumer loans
2,035
 3,030
Total non-performing/non-accrual loans
36,448
 42,401
Total non-performing/accruing loans - 90 days or more delinquent 
 
Total non-performing loans 36,448
 42,401
Foreclosed assets
5,703
 7,991
Total non-performing assets
$42,151
 50,392

The following table sets forth information regarding the Company’s 60-89 day delinquent loans as of September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 September 30, 2017 December 31, 2016March 31, 2020December 31, 2019
Mortgage loans:    Mortgage loans:
Residential $3,525
 6,563
Residential$4,075  2,579  
Commercial 292
 80
Total mortgage loans 3,817
 6,643
Total mortgage loans4,075  2,579  
Commercial loans 244
 357
Commercial loans 95  
Consumer loans 1,080
 1,199
Consumer loans661  337  
Total 60-89 day delinquent loans $5,141
 8,199
Total 60-89 day delinquent loans$4,737  3,011  
At September 30, 2017,March 31, 2020, the allowance for loancredit losses totaled $60.3$75.1 million, or 0.86%1.02% of total loans, compared with $61.9to $55.5 million, or 0.88%0.76% of total loans, prior to the adoption of CECL at December 31, 2019. Total non-performing loans were $35.3 million, or 0.48% of total loans at March 31, 2020, compared to $40.2 million, or 0.55% of total loans at December 31, 2016. Total non-performing loans were $36.4 million, or 0.52% of total loans at September 30, 2017, compared to $42.4 million, or 0.61% of total loans at December 31, 2016.2019. The $6.0$4.9 million decrease in non-performing loans consisted of a $3.2$2.4 million decrease in non-performing residential mortgage loans, a $995,000$2.1 million decrease in non-performing consumer loans and a $553,000 decrease in non-performing multi-family loans, partially offset by a $736,000 increase in non-performing commercial loans and a $577,000 increase$377,000 decrease in non-performing commercial mortgageconsumer loans. Non-performing loans do not include $1.0 million$737,000 of purchased credit impaireddeteriorated ("PCI"PCD") loans acquired from Team Capital.Capital Bank in 2014.
At September 30, 2017March 31, 2020 and December 31, 2016,2019, the Company held $5.7$4.2 million and $8.0$2.7 million of foreclosed assets, respectively. During the ninethree months ended September 30, 2017,March 31, 2020, there were 12two additions to foreclosed assets with aan aggregate carrying value of $2.2$2.1 million, valuation charges of $353,000 and 23 propertiesone property sold with a carrying value of $3.8 million.$227,000. Foreclosed assets at September 30, 2017 consistedMarch 31, 2020 consisted of $3.4$2.0 million of residential real estate, $500,000 of commercial real estate and $2.3$1.8 million of residential real estate.commercial vehicles.
Non-performing assets totaled $42.2$39.6 million, or 0.39% of total assets at March 31, 2020, compared to $42.9 million, or 0.44% of total assets at September 30, 2017, compared to $50.4 million, or 0.53% of total assets at December 31, 2016.2019.
Cash and cash equivalents were $370.6 million at March 31, 2020, a $183.8 million increase from December 31, 2019 as a result of increases in cash collateral pledged to secure loan level swaps and short-term investments.
Total investments decreased $23.2 million, or 1.4%, to $1.58were $1.50 billion at September 30, 2017,March 31, 2020, an $8.5 million increase from $1.60 billion at December 31, 2016,2019. This increase was largely due to principalpurchases of mortgage-backed and municipal securities and an increase in unrealized gains on available for sale debt securities, partially offset by repayments onof mortgage-backed securities, and maturities and calls of certain municipal and agency bonds, partially offset by purchases of mortgage-backed and municipal securities, along with an increase in unrealized gains on securities available for sale.bonds.
Total deposits increased $37.6$108.2 million or 0.6%, during the ninethree months ended September 30, 2017,March 31, 2020 to $6.59 billion from $6.55 billion at December 31, 2016.$7.21 billion. Total core deposits, which consistconsisting of savings and demand deposit accounts,deposits, increased $60.9$145.4 million to $5.96$6.51 billion at September 30, 2017, from $5.90 billion at DecemberMarch 31, 2016,2020, while total time deposits decreased $23.3$37.3 million to $627.9$696.8 million at September 30, 2017, from $651.2 million at DecemberMarch 31, 2016.2020. The increase in core deposits was largely attributable to a $100.9$72.4 million increase in interest bearing demand deposits, and a $19.5$44.2 million increase in money market deposits, a $21.7 million increase in non-interest bearing


demand deposits partially offset byand a $43.7$7.1 million increase in savings deposits. The decrease in time deposits was the result of a $23.1 million decrease in money marketretail time deposits and a $15.8$14.2 million decrease in savingsbrokered deposits. Core deposits represented 90.5%90.3% of total deposits at September 30, 2017,March 31, 2020, compared to 90.1%89.7% at December 31, 2016.2019.
Borrowed funds decreased $87.2increased $88.6 million or 5.4%, during the ninethree months ended September 30, 2017,March 31, 2020, to $1.53 billion, as wholesale funding was replaced by net inflows of deposits and capital formation$1.21 billion. The increase in borrowings for the period.period was a function of asset funding requirements. Borrowed funds represented 16.1%12.0% of total assets at September 30, 2017,March 31, 2020, a decreaseincrease from 17.0%11.5% at December 31, 2016.2019.
Stockholders’ equity increased $48.4decreased $1.3 million or 3.9%, during the ninethree months ended September 30, 2017,March 31, 2020, to $1.30$1.41 billion, primarily due to dividends paid to stockholders, the adoption of CECL on January 1, 2020 and the related charge to equity of $8.3 million, net of tax, to establish initial allowances against credit losses and off-balance sheet credit exposures under the new accounting standard and common stock repurchases, partially offset by net income earned for the period and an increase in unrealized gains on securities available for sale partially offset by dividends paid to stockholders. Commondebt securities. For the three months ended March 31, 2020, common stock repurchases totaled 286,816 shares at an average cost of $20.72, of which 48,038 shares, at an average cost of $19.89, were made in connection with withholding to cover income taxes on the vesting of stock-based compensation for the nine months ended September 30, 2017 totaled 43,090 shares at an average cost of $27.13.compensation. At September 30, 2017, 3.1March 31, 2020, 1.3 million shares remained eligible for repurchase under the current stock repurchase authorization.
Book value per share and tangible book value per share at September 30, 2017March 31, 2020 were $19.56$21.48 and $13.23,$14.84, respectively, compared with $18.94$21.49 and $12.54,$14.85, respectively, at December 31, 2016.2019. Tangible book value per share is a non-GAAP financial measure.
42


The following table reconciles book value per share to tangible book value per share and the associated calculations (in thousands, except per share data):
March 31, 2020December 31, 2019
Total stockholders' equity$1,412,589  1,413,840  
Less: Total intangible assets436,278  437,019  
Total tangible stockholders' equity$976,311  976,821  
Shares outstanding at March 31, 2020 and December 31, 201965,770,728  65,787,900  
Book value per share (total stockholders' equity/shares outstanding)$21.48  21.49  
Tangible book value per share (total tangible stockholders' equity/shares outstanding)$14.84  14.85  
  
September 30,
2017
December 31,
2016

Total stockholders' equity $1,300,172
 $1,251,781
Less: Total intangible assets 420,877
 422,937
Total tangible stockholders' equity $879,295
 $828,844
     
Shares outstanding at September 30, 2017 and December 31, 2016 66,467,819
 66,082,283
     
Book value per share (total stockholders' equity/shares outstanding) 
$19.56
 
$18.94
Tangible book value per share (total tangible stockholders' equity/shares outstanding) 
$13.23
 
$12.54
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 generally fairly predictable sources of funds. Changes in interest rates, local economic conditions and the competitive marketplace can influence the repayment of loan principal, loan prepayments, prepayments on mortgage-backed securities and deposit flows.

In response to the COVID-19 pandemic, the Company has escalated the monitoring of deposit behavior, utilization of credit lines, and borrowing capacity with the FHLBNY and FRBNY, and is maximizing its collateral position with these funding sources.
The Federal Deposit Insurance Corporation 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 waswere 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 assignsassigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrualnon-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,” which when fully phased-in will consist of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The
In the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital conservation buffer was effectiveas compared to regulatory capital determined under the prior incurred loss methodology, 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, 2016, with a 0.625% requirement in that year, and will continue2020, the Company has elected to be phased in through January 1, 2019, whenutilize the full capital requirement will be effective. For 2017, the capital conservation buffer requirement is 1.25%.five-year CECL transition.

43




As of September 30, 2017,March 31, 2020, the Bank and the Company exceeded all current minimum regulatory capital requirements as follows:

September 30, 2017March 31, 2020

Required
Required with Capital Conservation Buffer ActualRequiredRequired with Capital Conservation BufferActual

Amount
Ratio
Amount Ratio Amount
RatioAmountRatioAmountRatioAmountRatio

(Dollars in thousands)(Dollars in thousands)
Bank:(1)





    


Bank:(1)
Tier 1 leverage capital $363,062
 4.00% $363,062
 4.00% $828,349
 9.13%Tier 1 leverage capital$379,792  4.00 %$379,792  4.00 %$880,226  9.27 %
Common equity Tier 1 risk-based capital
326,026
 4.50
 416,588
 5.75
 828,349
 11.43
Common equity Tier 1 risk-based capital354,583  4.50  551,573  7.00  880,226  11.17  
Tier 1 risk-based capital
434,701
 6.00
 525,264
 7.25
 828,349
 11.43
Tier 1 risk-based capital472,777  6.00  669,768  8.50  880,226  11.17  
Total risk-based capital
579,601
 8.00
 670,164
 9.25
 888,777
 12.27
Total risk-based capital630,370  8.00  827,360  10.50  944,310  11.98  
            
Company:
           Company:
Tier 1 leverage capital $363,072
 4.00% $363,072
 4.00% $880,995
 9.71%Tier 1 leverage capital$379,831  4.00 %$379,831  4.00 %$969,965  10.21 %
Common equity Tier 1 risk-based capital
326,037
 4.50
 416,603
 5.75
 880,995
 12.16
Common equity Tier 1 risk-based capital354,622  4.50  551,634  7.00  969,965  12.31  
Tier 1 risk-based capital
434,716
 6.00
 525,282
 7.25
 880,995
 12.16
Tier 1 risk-based capital472,829  6.00  669,841  8.50  969,965  12.31  
Total risk-based capital
579,622
 8.00
 670,187
 9.25
 941,271
 12.99
Total risk-based capital630,438  8.00  827,451  10.50  1,033,910  13.12  
(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, 2017MARCH 31, 2020 AND 20162019
General. The Company reported net income of $26.6$14.9 million, or $0.41$0.23 per basic and diluted share for the three months ended September 30, 2017,March 31, 2020, compared to net income of $22.9$30.9 million, or $0.36$0.48 per basic and diluted share for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the Company reported net income of $74.5 million, or $1.16 per basic share and $1.15 per diluted share, compared to net income of $65.2 million, or $1.03 per basic share and $1.02 per diluted share, for the same period last year.March 31, 2019.
The increases in the Company’s earnings for the three and nine months ended September 30, 2017March 31, 2020 were drivenadversely impacted by elevated provisions for credit losses primarily due to the adoption of CECL, the new accounting standard that requires the current recognition of allowances for losses expected to be incurred over the life of covered assets. These provisions were exacerbated by the period-over-period growth in average loans outstanding, growth in both average non-interest bearingcurrent weak economic forecast attributable to the COVID-19 pandemic. For the three months ended March 31, 2020, provisions for credit losses and interest bearing core deposits, expansionoff-balance sheet credit exposures totaled $15.7 million. Current quarter earnings were further impacted by $463,000 of costs related to the net interest margin and an increase in non-interest income. The improvement in the net interest margin was largely the resultCompany's planned acquisition of an increase in the yield on earning assets, combined with a relatively stable cost of funds.SB One Bancorp.
Net Interest Income. Total net interest income increased $5.2decreased $3.0 million to $70.2$72.0 million for the quarter ended September 30, 2017,March 31, 2020, from $65.0$75.0 million for the quarter ended September 30, 2016. ForMarch 31, 2019. Interest income for the nine monthsquarter ended September 30, 2017, total net interest income increased $14.4March 31, 2020 decreased $4.2 million or 7.5%, to $206.3$88.2 million, from $192.0$92.4 million for the same period in 2016.2019. Interest income for the quarter ended September 30, 2017 increased $5.8expense decreased $1.3 million to $81.9 million, from $76.0 million for the same period in 2016. For the nine months ended September 30, 2017, interest income increased $15.4 million to $240.3 million, from $224.8 million for the nine months ended September 30, 2016. Interest expense increased $608,000, or 5.5%, to $11.7$16.1 million for the quarter ended September 30, 2017,March 31, 2020, from $11.1$17.4 million for the quarter ended September 30, 2016. ForMarch 31, 2019. The decline in net interest income for the ninethree months ended September 30, 2017, interest expense increased $1.1 million to $33.9 million, from $32.9 million forMarch 31, 2020, compared with the ninethree months ended September 30, 2016.March 31, 2019, was primarily due to period-over-period compression in the net interest margin resulting from a decline in the yields on interest-earning assets. This was tempered by growth in lower-costing average interest-bearing and non-interest bearing core deposits. Borrowing volume and rates were also lower, which further reduced the Company’s cost of funds.
The net interest margin increased 17decreased 20 basis points to 3.22%3.20% for the quarter ended September 30, 2017,March 31, 2020, compared with 3.05%to 3.40% for the quarter ended September 30, 2016.March 31, 2019. The weighted average yield on interest-earning assets increased 18decreased 28 basis points to 3.75%3.92% for the quarter ended September 30, 2017,March 31, 2020, compared with 3.57%4.20% for the quarter ended September 30, 2016,March 31, 2019, while the weighted average cost of interest bearing liabilities increased threedecreased 9 basis points to 0.68%0.95% for the quarter ended September 30, 2017,March 31, 2020, compared to 1.04% for the third quarter of 2016.ended March 31, 2019. The average cost of interest bearing deposits for the quarter ended September 30, 2017March 31, 2020 was 0.38%0.78%, compared with 0.34% forunchanged from the same period last year.first quarter of 2019. Average non-interest bearing demand deposits totaled $1.36$1.50 billion for the quarter ended September 30, 2017,March 31, 2020, compared with $1.25to $1.44 billion for the quarter ended September 30, 2016.at March 31, 2019. The average cost of borrowed funds for the quarter ended September 30, 2017March 31, 2020 was 1.71%, compared with 1.70% for the same period last year.


For the nine months ended September 30, 2017, the net interest margin increased nine basis points to 3.19%, compared with 3.10% for the nine months ended September 30, 2016. The weighted average yield on interest earning assets increased nine basis points to 3.72% for the nine months ended September 30, 2017, compared with 3.63% for the nine months ended September 30, 2016, while the weighted average cost of interest bearing liabilities increased one basis point for the nine months ended September 30, 2017 to 0.67%1.80%, compared to the nine months ended September 30, 2016. The average cost of interest bearing deposits for the nine months ended September 30, 2017 was 0.36%, compared with 0.33% for the same period last year. Average non-interest bearing demand deposits totaled $1.34 billion for the nine months ended September 30, 2017, compared with $1.22 billion for the nine months ended September 30, 2016. The average cost of borrowings for the nine months ended September 30, 2017 was 1.67%, compared with 1.71%2.07% for the same period last year.
Interest income on loans secured by real estate increased $2.4 milliondecreased $565,000 to $47.7$54.4 million for the three months ended September 30, 2017,March 31, 2020, from $45.3$55.0 million for the three months ended September 30, 2016.March 31, 2019. Commercial loan interest income increased $2.9decreased $1.8 million to $19.0$18.7 million for the three months ended September 30, 2017,March 31, 2020, from $16.1$20.5 million for the three months ended September 30, 2016.March 31, 2019. Consumer loan interest income decreased $544,000$611,000 to $5.1$4.2 million for the three months ended September 30, 2017, compared toMarch 31, 2020, from $4.8
44


million for the three months ended September 30, 2016.March 31, 2019. For the three months ended September 30, 2017,March 31, 2020, the average balance of total loans increased $206.6$124.4 million to $6.94$7.26 billion, compared to the same period in 2019. The average yield on total loans for the three months ended March 31, 2020 decreased 28 basis points to 4.23%, from $6.73 billion4.51% for the same period in 2016. The average loan yield for the three months ended September 30, 2017 increased 15 basis points to 4.08%, from 3.93% for the same period in 2016.2019.
Interest income on loans secured by real estate increased $6.3 million to $140.7 million for the nine months ended September 30, 2017, from $134.4 million for the nine months ended September 30, 2016. Commercial loan interest income increased $7.5 million to $53.9 million for the nine months ended September 30, 2017, from $46.4 million for the nine months ended September 30, 2016. Consumer loan interest income decreased $1.4 million to $15.3 million for the nine months ended September 30, 2017, from $16.7 million for the nine months ended September 30, 2016. For the nine months ended September 30, 2017, the average balance of total loans increased $328.5 million to $6.94 billion, from $6.61 billion for the same period in 2016. The average loan yield for the nine months ended September 30, 2017 increased five basis point to 4.01%, from 3.96% for the same period in 2016.
Interest income on investment securities held to maturity debt securities decreased $77,000, or 2.3%,$222,000 to $3.3$2.9 million for the quarter ended September 30, 2017,March 31, 2020, compared to the same period last year. Average investment securities held to maturity increased $8.1debt securities decreased $24.7 million to $490.1$449.1 million for the quarter ended September 30, 2017,March 31, 2020, from $482.0 million for the same period last year. Interest income on investment securities held to maturity decreased $199,000, or 2.0%, to $9.8 million for the nine months ended September 30, 2017, compared to the same period in 2016. Average investment securities held to maturity increased $12.4 million to $490.0 million for the nine months ended September 30, 2017, from $477.6$473.8 million for the same period last year.
Interest income on securities available for sale debt securities, equity securities and FHLBNY stock increased $964,000, or 17.3%,decreased $1.3 million to $6.5$7.1 million for the quarter ended September 30, 2017,March 31, 2020, from $5.6$8.4 million for the quarter ended September 30, 2016.March 31, 2019. The average balance of securities available for sale debt securities, equity securities and FHLBNY stock increased $18.7decreased $81.1 million to $1.12$1.06 billion for the three months ended September 30, 2017,March 31, 2020, compared to the same period in 2016. Interest income on securities available for sale and FHLBNY stock increased $2.6 million, or 15.1%, to $19.7 million for the nine months ended September 30, 2017, from $17.1 million for the same period last year. The average balance of securities available for sale and FHLBNY stock increased $51.8 million to $1.12 billion for the nine months ended September 30, 2017, from $1.07 billion for the same period in 2016.2019.
The average yield on total securities increaseddecreased to 2.41%2.57% for the three months ended September 30, 2017,March 31, 2020, compared with 2.14%2.87% for the same period in 2016. For the nine months ended September 30, 2017, the average yield on total securities was 2.53%, compared with 2.28% for the same period in 2016.2019.
Interest expense on deposit accounts increased $547,000, or 12.3%,$464,000 to $5.0$11.0 million for the quarter ended September 30, 2017, from $4.4March 31, 2020, compared with $10.5 million for the quarter ended September 30, 2016. For the nine months ended September 30, 2017, interest expense on deposit accounts increased $1.7 million, or 13.7%, to $14.1 million, from $12.4 million for the same period last year.March 31, 2019. The average cost of interest bearing deposits increased to 0.38%was 0.78% for the thirdfirst quarter of 2017 and 0.36% for2020, unchanged from the ninethree months ended September 30, 2017, from 0.34% and 0.33% for the three and nine months ended September 30, 2016.March 31, 2019. The average balance of interest bearing core deposits for the quarter ended September 30, 2017March 31, 2020 increased $78.0$242.1 million to $4.57 billion, from $4.49 billion for the same period in 2016. For the nine months ended September 30, 2017, average interest bearing core deposits increased $298.3 million, to $4.56 billion, from $4.26 billion for the same period in 2016.$4.89 billion. Average time deposit account balances decreased $63.2$6.2 million, to $639.9$771.2 million for the quarter ended September 30, 2017,March 31, 2020, from $703.0$777.4 million for the quarter ended September 30, 2016. For the nine months ended September 30, 2017, average time deposit account balances decreased $87.9 million, to $658.2 million, from $746.1 million for the same period in 2016.March 31, 2019.
Interest expense on borrowed funds increased $61,000, or 0.9%,decreased $1.7 million to $6.7$5.2 million for the quarter ended September 30, 2017,March 31, 2020, from $6.6$6.9 million for the quarter ended September 30, 2016. For the nine months ended September 30, 2017, interest expense on borrowed funds decreased $622,000 to $19.9 million, from $20.5 million for the nine months ended September 30, 2016. The


average cost of borrowings increased to 1.71% for the three months ended September 30, 2017, from 1.70% for the three months ended September 30, 2016.March 31, 2019. The average cost of borrowings decreased to 1.67%1.80% for the ninethree months ended September 30, 2017,March 31, 2020, from 1.71%2.07% for the same period last year.three months ended March 31, 2019. Average borrowings increased $3.2decreased $195.0 million or 0.2%, to $1.55$1.16 billion for the quarter ended September 30, 2017,March 31, 2020, from $1.55$1.35 billion for the quarter ended September 30, 2016. For the nine months ended September 30, 2017, average borrowings decreased $5.8 million to $1.59 billion, compared to $1.60 billion for the nine months ended September 30, 2016.March 31, 2019.
Provision for LoanCredit Losses. Provisions for loancredit losses are charged to operations in order to maintain the allowance for loancredit losses at a level management considers necessary to absorb probableprojected credit losses inherentthat may arise over the expected term of each loan in the loan portfolio. In determining the level of the allowance for loancredit losses, management considersestimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and current loss experience, evaluations of real estate collateral, current economic conditions, volumereasonable and type of lending, adverse situations that may affect a borrower’s ability to repay the loan and the levels of non-performing and other classified loans.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 loancredit losses on a quarterly basis and makes provisions for loancredit losses, if necessary, in order to maintain the adequacy of the allowance.
The Company recorded provisions for loancredit losses of $500,000 and $3.7$14.7 million under CECL for the three and nine months ended September 30, 2017, respectively.March 31, 2020. This compared with provisions for loancredit losses of $1.0 million and $4.2 million recorded$200,000 for the three and nine months ended September 30, 2016, respectively.March 31, 2019 under the incurred loss model. For the three and nine months ended September 30, 2017,March 31, 2020, the Company had net charge-offs of $3.1$3.0 million, and $5.3 million, respectively, compared withto net charge-offs of $845,000 and $4.5 million, respectively,$409,000, for the same periodsperiod in 2016.2019. At September 30, 2017,March 31, 2020, the Company’s allowance for loancredit losses was $60.3$75.1 million, or 0.86%1.02% of total loans, compared with $61.9$55.5 million, or 0.88%0.76% of total loans at December 31, 2016.2019. The first quarter of 2020 included elevated provisions for credit losses primarily due to the current weak economic forecast attributable to the COVID-19 pandemic. In addition, a gross allowance for credit losses of $7.9 million and a related deferred tax asset were recorded against equity upon the January 1, 2020 adoption of CECL. Future credit loss provisions are subject to significant uncertainty given the undetermined nature of prospective changes in economic conditions, as the impact of COVID-19 unfolds. 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 and reserve requirements.
Non-Interest Income.Income. Non-interest income totaled $15.1$17.0 million for the quarter ended September 30, 2017,March 31, 2020, an increase of $1.0$4.8 million, or 7.4%, compared to the same period in 2016. Fee2019. Other income increased $1.5$3.1 million to $7.7$3.4 million for the three months ended September 30, 2017, compared to the same period in 2016, largely due to a $1.3 million increase in commercial loan prepayment fee income and a $218,000 increase in debit card revenue, partially offset by a $56,000 decrease in income from non-deposit investment products. Also contributing to the increase in non-interest income, wealth management income increased $330,000 to $4.6 million for the three months ended September 30, 2017, compared to the same period in 2016, due to stronger market conditions which positively impacted fees earned from assets under management and an increase in tax preparation fees. Net gains on securities transactions increased $79,000 for the three months ended September 30, 2017, compared to the same period in 2016. Partially offsetting these increases in non-interest income, other income decreased $877,000 to $1.5 million for the three months ended September 30, 2017,March 31, 2020, compared to the quarter ended September 30, 2016,March 31, 2019, primarily due to an $853,000 decrease in net gains on the sale of loans and a $143,000 decrease in net gains on the sale of foreclosed real estate, partially offset by a $116,000$3.0 million increase in net fees on loan-level interest rate swap transactions.
For Wealth management income increased $2.2 million to $6.3 million for the ninethree months ended September 30, 2017, non-interest income totaled $42.4 million, an increase of $1.5 million, or 3.6%,March 31, 2020, compared to the same period in 2016.2019, primarily due to fees earned from assets under management acquired in the April 1, 2019 Tirschwell & Loewy ("T&L") transaction. Fee income increased $1.6$432,000 to $6.5 million for the ninethree months ended September 30, 2017,March 31, 2020, compared to the same period in 2016, primarily2019, largely due to a $1.3 million$352,000 increase in commercial loan prepayment fee income,fees and a $259,000$150,000 increase in deposit related fee income and a $139,000 increase in merchant fee income, partially offset by a $168,000 decrease in incomerevenue from sales of non-deposit investment products and an $86,000 decrease in debit card revenue. Incomeproducts. Partially offsetting these increases, income from Bank-owned life insurance increased $1.2 million("BOLI") decreased $909,000 to $5.3 million$787,000 for the ninethree months ended September 30, 2017,March 31, 2020, compared to the same period in 2016,2019, primarily due to a decrease in benefit claims and lower equity valuations.
45


Non-Interest Expense. For the recognitionthree months ended March 31, 2020, non-interest expense totaled $54.1 million, an increase of death benefit claims. Wealth management income$5.7 million, compared to the three months ended March 31, 2019. Compensation and benefits expense increased $230,000$2.8 million to $13.3$31.2 million for the ninethree months ended September 30, 2017, due to stronger market conditions which positively impacted fees earned from assets under management and an increase in tax preparation fees. Partially offsetting these increases in non-interest income, other income decreased $1.6 million to $2.8 million for the nine months ended September 30, 2017,March 31, 2020, compared to $4.4$28.4 million for the same period in 2016, principally due to a $1.2 million decrease in net gains on loan sales and a $335,000 gain recognized on the sale of deposits resulting from a strategic branch divestiture in the prior year.
Non-Interest Expense. For the three months ended September 30, 2017, non-interest expense totaled $46.3 million, an increase of $430,000, or 0.9%, compared to the three months ended September 30, 2016. Compensation and benefits expense increased $603,000 to $27.3 million for the three months ended September 30, 2017, compared to $26.7 million for the same period in 2016.2019. This increase was principally due to additional salarycompensation expense related to annual merit increases, an increase inassociated with the accrual for incentive compensationT&L acquisition and an increase in stock-based compensation, partially offset by a decrease in retirement benefitexecutive severance costs. Other operating expenses increased $128,000$2.1 million to $7.0$9.2 million for the three months ended September 30, 2017,March 31, 2020, compared to the same period in 2016,2019, largely due to an increaseincreases in consulting costs, partially offset by decreases in loan collectionand legal expenses, which included $463,000 related to the pending acquisition of SB One Bancorp, and a market valuation adjustment on foreclosed real estate. Credit loss expense and debit card maintenance expense. Advertising and promotion expenses increased $120,000for off-balance sheet credit exposures related to $907,000the adoption of CECL was $1.0 million for the three months ended September 30, 2017, comparedMarch 31, 2020. Data processing expense increased $461,000 to the same period in 2016, largely due to the timing of the Company's advertising campaigns. Partially offsetting these increases in non-interest expense, amortization of intangibles decreased $135,000$4.4 million for the three months ended September 30, 2017,March 31, 2020, primarily due to increases in software subscription service expense and online banking costs, while the amortization of intangibles increased $254,000 for the three months ended March 31, 2020, compared with the same period in 2016, as a result of scheduled reductions in amortization. Additionally,


net occupancy costs decreased $122,000, to $6.1 million for three months ended September 30, 2017, compared to the same period in 2016, largely due to a decrease in depreciation expense.
Non-interest expense totaled $139.7 million for the nine months ended September 30, 2017, an increase of $3.1 million, or 2.3%, compared to $136.6 million for the nine months ended September 30, 2016. Compensation and benefits expense increased $2.6 million to $81.1 million for the nine months ended September 30, 2017, compared to $78.5 million for the nine months ended September 30, 2016, primarily due to additional salary expense related to annual merit increases, an increase in the accrual for incentive compensation and an increase in stock-based compensation, partially offset by a decrease in retirement benefit costs. Net occupancy costs increased $526,000 to $19.3 million for the nine months ended September 30, 2017, compared to the same period in 2016, principally2019, mainly due to an increase in snow removal costs, incurred earlier in the year, combined with an increase in facilities maintenance costs. Data processing expense increased $457,000 to $10.3 million for the nine months ended September 30, 2017, compared to $9.8 million for the same period in 2016, primarily due to increases in telecommunication costs and software maintenance expense. In addition, other operating expenses increased $620,000 to $21.2 million for the nine months ended September 30, 2017, comparedamortization of customer relationship intangibles attributable to the same period in 2016, largely due to increases in legal, consulting and debit card maintenance expenses, partially offset by a decrease in loan collection expense.acquisition of T&L. Partially offsetting these increases, in non-interest expense, FDIC insurance expense decreased $667,000 to $3.1 million for the nine months ended September 30, 2017, compared to $3.7 million for the same period in 2016. This decrease was$739,000 due to the FDIC's reductionreceipt of the small bank assessment rates for depository institutions with less than $10.0 billion in total assets that became effectivecredit for the fourth quarter ended September 30, 2016. Additionally, amortization of intangibles2019. Also, net occupancy expense decreased $549,000 for the nine months ended September 30, 2017, compared with the same period$654,000 largely due to a reduction in 2016, as a result of scheduled reductions in amortization.snow removal expense.
Income Tax Expense.For the three and nine months ended September 30, 2017,March 31, 2020, the Company’s income tax expense was $12.0$5.3 million, and $30.8 million, respectively, compared with $9.3 million and $26.8$7.7 million, for the three and nine months ended September 30, 2016, respectively.March 31, 2019. The Company’s effective tax rates were 31.1% and 29.3%rate was 26.0% for the three and nine months ended September 30, 2017, respectively,March 31, 2020, compared to 28.8% and 29.1%19.9% for the three and nine months ended September 30, 2016, respectively, asMarch 31, 2019. The increase in the Company's effective tax rate for the three months ended March 31, 2020 was attributable to the effects of a greater proportiontechnical bulletin published by the New Jersey Division of incomeTaxation in the second quarter of 2019 that specifies the tax treatment of real estate investment trusts in connection with combined reporting for New Jersey corporate business tax purposes. In addition, the effective tax rate in the current year periodsquarter was derived from taxable sources. The Company adopted ASU 2016-09, "Compensation - Stock Compensation (Topic 718)" inimpacted by a discrete item related to the third quartervesting of 2016. Under this guidance, all excess tax benefits and tax deficiencies associated with share-based compensation are recognized as income taxstock awards at a market value below the fair value used for expense or benefit in the income statement. For the nine months ended September 30, 2017 and 2016, the application of this guidance resulted in decreases in income tax expense of $1.2 million and $158,000, respectively.recognition.

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 on at least a monthly basis 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.
46


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;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, 2017March 31, 2020 (dollars in thousands):
Change in Interest Rates in
Basis Points (Rate Ramp)
 Net Interest Income
Dollar
Amount
 
Dollar
Change
 
Percent
Change
Change in interest rates (basis points) - Rate RampChange in interest rates (basis points) - Rate RampNet Interest Income
Dollar AmountDollar ChangePercent Change
-100 $267,114
 $(13,416) (4.8)%-100$262,245  $(8,214) (3.0)%
Static 280,530
 
 
Static270,459  —  — %
+100 279,080
 (1,450) (0.5)+100271,097  638  0.2 %
+200 277,373
 (3,157) (1.1)+200271,636  1,177  0.4 %
+300 276,840
 (3,690) (1.3)+300271,848  1,389  0.5 %
The preceding table indicates that, as of September 30, 2017,March 31, 2020, in the event of a 300 basis point increase in interest rates, whereby rates ramp up evenly over a twelve-month period, net interest income would decrease 1.3%increase 0.5%, or $3.7$1.4 million. In the event of a 100 basis point decrease in interest rates, net interest income would decrease 4.8%3.0%, or $13.4$8.2 million over the same period.


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, 2017March 31, 2020 (dollars in thousands):
  Present Value of EquityPresent Value of Equity as Percent of Present Value of Assets
Change in interest rates (basis points)Dollar AmountDollar ChangePercent
Change
Present Value
 Ratio
Percent
Change
-100$1,302,785  $(173,052) (11.7)%13.0 %(13.5)%
Flat1,475,837  —  — %15.0 %— %
+1001,508,401  32,564  2.2 %15.7 %4.4 %
+2001,518,524  42,687  2.9 %16.2 %7.6 %
+3001,509,395  33,558  2.3 %16.4 %9.4 %
  
 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 $1,488,974
 $74,351
 5.3 % 15.3% 4.2 %
Flat 1,414,623
 
 
 14.7
 
+100 1,379,158
 (35,465) (2.5) 14.4
 (1.9)
+200 1,332,652
 (81,971) (5.8) 14.0
 (4.5)
+300 1,293,224
 (121,399) (8.6) 13.7
 (6.7)

The preceding table indicates that as of September 30, 2017,March 31, 2020, in the event of an immediate anda sustained increase of 300 basis point, increase in interest rates, the present valuePresent Value of equityEquity is projected to decrease 8.6%increase 2.3%, or $121.4$33.6 million. If rates were to decreaseIn the event of a sustained 100 basis points the model forecasts a 5.3%decrease in rates, Present Value of Equity would decrease 11.7%, or $74.4 million, increase in the present value of equity.$173.1 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.
 
47



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. There has been no change in theThe Company’s internal control over financial reporting duringwas modified due to the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

January 1, 2020 adoption of CECL, while all other controls remained unchanged.


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 have been no material changes to theThe risk factors that were previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2019, have been supplemented by the Company for the quarter ended March 31, 2020, as follows:


The economic impact of the COVID-19 outbreak has adversely affected, and is likely to continue to adversely affect, the Company's business and results of operations.
In December 2019, a coronavirus was reported in China, and, in March 2020, the World Health Organization declared COVID-19 a pandemic. On March 12, 2020 the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak, more than 30 million people have filed claims for unemployment, and stock markets have declined in value and in particular bank stocks have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused the Company to modify their business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. The Company has many employees working remotely, and may take further actions if required by government authorities that are in the best interests of its employees, customers and business partners.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on the Company's business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 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 its respective business, financial condition, liquidity, and results of operations:
demand for our products and services may decline, making it difficult to grow assets and income;
if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charge-offs and reduced loan repayments impacting cash flows and liquidity;
collateral for loans, especially real estate, may decline in value, which could cause credit losses to increase;
our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
48


the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
as a result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on the Company's assets may decline to a greater extent than the decline in the cost of interest-bearing liabilities, reducing net interest margin and spread and reducing net income;
a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;
the Company’s investment portfolio may suffer a substantial decrease in value;
the Company’s wealth management revenues may decline with continuing market turmoil;
the Company’s cyber security risks are increased as the result of an increase in the number of employees working remotely; and
the Company's reliance on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on the Company.
These factors, among others, together or in combination with other events or occurrences not yet known or anticipated, could adversely affect the operations of the Company.
We may fail to realize the anticipated benefits of the proposed merger of SB One Bank into Provident Bank.
On March 11, 2020, we announced the proposed merger of SB One Bancorp with the Company, and the merger of SB One Bank, a wholly owned subsidiary of SB One Bancorp, with and into Provident Bank, the Company’s wholly owned subsidiary. The proposed merger remains subject to regulatory approvals, as well as approval by the stockholders of SB One Bancorp. We anticipate completing the merger in the third quarter of 2020. The success of the proposed merger will depend on, among other things, our ability to realize anticipated cost savings and to combine the businesses of SB One Bank and Provident Bank in a manner that does not materially disrupt the customer relationships of both banks. If we are unable to successfully achieve these objectives, the anticipated benefits of the proposed merger may not be realized fully or at all or may take longer to realize than expected.
The Company and SB One Bancorp have operated and, until completion of the merger, will continue to operate, independently. It is possible that the integration process related to the proposed merger may result in the loss of key personnel, the disruption of our business or inconsistencies in standards, controls, procedures and policies that may adversely impact our ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the proposed merger.


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)
January 1, 2020 through January 31, 202040,178  $22.79  40,178  1,554,553  
February 1, 2020 through February 29, 2020161,200  22.45  161,200  1,393,353  
March 1, 2020 through March 31, 202085,438  16.39  85,438  1,307,915  
Total286,816  20.69  286,816  
(1) On December 20, 2012, the Company’s Board of Directors approved the purchase of up to 3,017,770 shares of its common stock under an eighth general repurchase program which commenced upon completion of the previous repurchase program. The repurchase program has no expiration date.

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)(2)
July 1, 2017 through July 31, 2017 
 
 
 3,149,237
August 1, 2017 through August 31, 2017 711
 $24.54
 711
 3,148,526
September 1, 2017 through September 30, 2017 
 
 
 3,148,526
Total 711
 
 711
  
(1)On October 24, 2007, the Company’s Board of Directors approved the purchase of up to 3,107,077 shares of its common stock under a seventh general repurchase program which commenced upon completion of the previous repurchase program. The repurchase program has no expiration date.
(2)On December 20, 2012, the Company’s Board of Directors approved the purchase of up to 3,017,770 shares of its common stock under an eighth general repurchase program which will commence upon completion of the previous 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
49




Item 6.Exhibits.
The following exhibits are filed herewith:
3.12.1 
3.1 
3.2
4.1
31.1
31.1 
31.2
32
101The following materialsfinancial statements from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended September 30, 2017,March 31, 2020, formatted in XBRL (ExtensibleiXBRL (Inline 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.INSXBRL 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.INS XBRL Instance Document
101.SCH
101.SCH XBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Labels Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 has been formatted in iXBRL.



50




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:May 11, 2020PROVIDENT FINANCIAL SERVICES, INC.
By:
Date:November 9, 2017By:/s/ Christopher Martin
Christopher Martin
Chairman, President and Chief Executive Officer
(Principal (Principal Executive Officer)
Date:November 9, 2017May 11, 2020By:/s/ Thomas M. Lyons
Thomas M. Lyons
Senior Executive Vice President and Chief Financial Officer
(Principal (Principal Financial Officer)
Date:November 9, 2017May 11, 2020By:/s/ Frank S. Muzio
Frank S. Muzio
SeniorExecutive Vice President and Chief Accounting Officer



Exhibit Index
51
3.1
3.2
4.1
31.1
31.2
32
101The following materials from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (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
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


49