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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended 9/30/2022June 30, 2023
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  ý    NO  ¨

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  ý    NO  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated Filer
Non-Accelerated FilerSmaller 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 NovemberAugust 1, 20222023 there were 83,209,012 shares issued and 75,275,03875,614,511 shares outstanding of the Registrant’s Common Stock, par value $0.01 per share, including 104,12975,341 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 NumberItem NumberPage NumberItem NumberPage Number
111
Consolidated Statements of Financial Condition as of September 30, 2022 (unaudited) and December 31, 2021Consolidated Statements of Financial Condition as of June 30, 2023 (unaudited) and December 31, 2022
Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021 (unaudited)Consolidated Statements of Income for the three and six months ended June 30, 2023 and 2022 (unaudited)
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021 (unaudited)Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2023 and 2022 (unaudited)
Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022 (unaudited)
Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)
222
333
444
111
1A.1A.1A.
222
33Defaults Upon Senior Securities3Defaults Upon Senior Securities
444
555
66Exhibits6Exhibits



2


PART I—FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
SeptemberJune 30, 20222023 (Unaudited) and December 31, 20212022
(Dollars in Thousands)
 
September 30, 2022December 31, 2021June 30, 2023December 31, 2022
ASSETSASSETSASSETS
Cash and due from banksCash and due from banks$183,929 $506,270 Cash and due from banks$208,842 $186,490 
Short-term investmentsShort-term investments939 206,193 Short-term investments30 18 
Total cash and cash equivalentsTotal cash and cash equivalents184,868 712,463 Total cash and cash equivalents208,872 186,508 
Available for sale debt securities, at fair valueAvailable for sale debt securities, at fair value1,829,309 2,057,851 Available for sale debt securities, at fair value1,749,889 1,803,548 
Held to maturity debt securities, net (fair value of $368,668 at September 30, 2022 (unaudited) and $449,709 at December 31, 2021)393,069 436,150 
Held to maturity debt securities, net (fair value of $365,029 at June 30, 2023 (unaudited) and $373,468 at December 31, 2022)Held to maturity debt securities, net (fair value of $365,029 at June 30, 2023 (unaudited) and $373,468 at December 31, 2022)378,894 387,923 
Equity securities, at fair valueEquity securities, at fair value1,059 1,325 Equity securities, at fair value1,238 1,147 
Federal Home Loan Bank stockFederal Home Loan Bank stock55,717 34,290 Federal Home Loan Bank stock93,330 68,554 
LoansLoans10,046,529 9,581,624 Loans10,530,531 10,248,883 
Less allowance for credit lossesLess allowance for credit losses88,633 80,740 Less allowance for credit losses102,073 88,023 
Net loansNet loans9,957,896 9,500,884 Net loans10,428,458 10,160,860 
Foreclosed assets, netForeclosed assets, net2,053 8,731 Foreclosed assets, net13,697 2,124 
Banking premises and equipment, netBanking premises and equipment, net80,770 80,559 Banking premises and equipment, net70,602 79,794 
Accrued interest receivableAccrued interest receivable45,120 41,990 Accrued interest receivable53,845 51,903 
Intangible assetsIntangible assets461,673 464,183 Intangible assets459,383 460,892 
Bank-owned life insuranceBank-owned life insurance237,590 236,630 Bank-owned life insurance241,107 239,040 
Other assetsOther assets354,722 206,146 Other assets330,288 341,143 
Total assetsTotal assets$13,603,846 $13,781,202 Total assets$14,029,603 $13,783,436 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:Deposits:Deposits:
Demand depositsDemand deposits$8,503,639 $9,080,956 Demand deposits$7,965,529 $8,373,005 
Savings depositsSavings deposits1,501,857 1,460,541 Savings deposits1,275,262 1,438,583 
Certificates of deposit of $100,000 or moreCertificates of deposit of $100,000 or more410,003 368,277 Certificates of deposit of $100,000 or more666,276 504,627 
Other time depositsOther time deposits270,106 324,238 Other time deposits354,053 246,809 
Total depositsTotal deposits10,685,605 11,234,012 Total deposits10,261,120 10,563,024 
Mortgage escrow depositsMortgage escrow deposits39,623 34,440 Mortgage escrow deposits44,280 35,705 
Borrowed fundsBorrowed funds1,063,602 626,774 Borrowed funds1,849,714 1,337,370 
Subordinated debenturesSubordinated debentures10,442 10,283 Subordinated debentures10,596 10,493 
Other liabilitiesOther liabilities253,589 178,597 Other liabilities221,422 239,141 
Total liabilitiesTotal liabilities12,052,861 12,084,106 Total liabilities12,387,132 12,185,733 
Stockholders’ Equity:Stockholders’ Equity:Stockholders’ Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issuedPreferred 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, 83,209,012 shares issued and 75,162,357 shares outstanding at September 30, 2022 and 76,969,999 outstanding at December 31, 2021832 832 
Common stock, $0.01 par value, 200,000,000 shares authorized, 83,209,012 shares issued and 75,530,425 shares outstanding at June 30, 2023 and 75,169,196 outstanding at December 31, 2022Common stock, $0.01 par value, 200,000,000 shares authorized, 83,209,012 shares issued and 75,530,425 shares outstanding at June 30, 2023 and 75,169,196 outstanding at December 31, 2022832 832 
Additional paid-in capitalAdditional paid-in capital978,363 969,815 Additional paid-in capital986,150 981,138 
Retained earningsRetained earnings886,332 814,533 Retained earnings954,403 918,158 
Accumulated other comprehensive (loss) incomeAccumulated other comprehensive (loss) income(174,487)6,863 Accumulated other comprehensive (loss) income(162,493)(165,045)
Treasury stockTreasury stock(127,145)(79,603)Treasury stock(127,818)(127,154)
Unallocated common stock held by the Employee Stock Ownership PlanUnallocated common stock held by the Employee Stock Ownership Plan(12,910)(15,344)Unallocated common stock held by the Employee Stock Ownership Plan(8,603)(10,226)
Common stock acquired by deferred compensation plansCommon stock acquired by deferred compensation plans(3,537)(3,984)Common stock acquired by deferred compensation plans(3,150)(3,427)
Deferred compensation plansDeferred compensation plans3,537 3,984 Deferred compensation plans3,150 3,427 
Total stockholders’ equityTotal stockholders’ equity1,550,985 1,697,096 Total stockholders’ equity1,642,471 1,597,703 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$13,603,846 $13,781,202 Total liabilities and stockholders’ equity$14,029,603 $13,783,436 
See accompanying notes to unaudited consolidated financial statements.
3



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 (Unaudited)
(Dollars in Thousands, except per share data)
 
Three months ended September 30,Nine months ended September 30,
2022202120222021
Interest income:
Real estate secured loans$80,273 $62,470 $213,181 $187,363 
Commercial loans25,201 24,454 70,385 75,770 
Consumer loans3,785 3,345 10,268 10,249 
Available for sale debt securities, equity securities and Federal Home Loan Bank stock9,560 5,877 25,966 17,211 
Held to maturity debt securities2,416 2,638 7,501 8,122 
Deposits, Federal funds sold and other short-term investments496 810 1,705 1,954 
Total interest income121,731 99,594 329,006 300,669 
Interest expense:
Deposits9,560 6,295 20,322 20,495 
Borrowed funds2,518 1,768 4,790 7,130 
Subordinated debt164 303 403 912 
Total interest expense12,242 8,366 25,515 28,537 
Net interest income109,489 91,228 303,491 272,132 
Provision charge (benefit) for credit losses8,413 969 5,004 (24,736)
Net interest income after provision for credit losses101,076 90,259 298,487 296,868 
Non-interest income:
Fees7,203 6,963 21,516 22,623 
Wealth management income6,785 7,921 21,274 22,914 
Insurance agency income2,865 2,433 9,135 8,009 
Bank-owned life insurance1,237 1,880 3,978 5,970 
Net (losses) gains on securities transactions(3)27 154 257 
Other income (1)
10,358 4,138 13,466 6,383 
Total non-interest income28,445 23,362 69,523 66,156 
Non-interest expense:
Compensation and employee benefits38,079 37,554 112,582 107,737 
Net occupancy expense8,452 7,950 26,262 25,158 
Data processing expense5,599 4,827 16,575 14,629 
FDIC insurance1,400 1,575 3,955 4,915 
Amortization of intangibles779 883 2,511 2,773 
Advertising and promotion expense1,366 783 3,692 2,586 
Credit loss (benefit) expense for off-balance sheet credit exposures1,575 980 (1,788)2,155 
Other operating expenses12,193 8,888 31,384 28,036 
Total non-interest expense69,443 63,440 195,173 187,989 
Income before income tax expense60,078 50,181 172,837 175,035 
Income tax expense16,657 12,913 46,224 44,417 
Net income$43,421 $37,268 $126,613 $130,618 
Basic earnings per share$0.58 $0.49 $1.69 $1.71 
Weighted average basic shares outstanding74,297,237 76,604,653 74,808,358 76,588,549 
Diluted earnings per share$0.58 $0.49 $1.69 $1.70 
Weighted average diluted shares outstanding74,393,380 76,685,206 74,896,493 76,673,563 
(1) Included in other income, for the three and nine months ended September 30, 2022, is an $8.6 million gain realized on the sale of a foreclosed commercial office property.
Three months ended June 30,Six months ended June 30,
2023202220232022
Interest income:
Real estate secured loans$99,302 $69,073 $195,290 $132,908 
Commercial loans31,426 22,363 60,109 45,184 
Consumer loans4,431 3,344 8,673 6,483 
Available for sale debt securities, equity securities and Federal Home Loan Bank stock11,432 8,454 22,862 16,406 
Held to maturity debt securities2,357 2,489 4,725 5,085 
Deposits, Federal funds sold and other short-term investments948 562 1,793 1,209 
Total interest income149,896 106,285 293,452 207,275 
Interest expense:
Deposits36,447 5,576 63,957 10,763 
Borrowed funds14,088 1,104 21,564 2,272 
Subordinated debt255 130 501 239 
Total interest expense50,790 6,810 86,022 13,274 
Net interest income99,106 99,475 207,430 194,001 
Provision charge (benefit) for credit losses10,397 2,996 16,398 (3,409)
Net interest income after provision charge (benefit) for credit losses88,709 96,479 191,032 197,410 
Non-interest income:
Fees5,775 7,424 12,162 14,313 
Wealth management income6,919 7,024 13,834 14,489 
Insurance agency income3,847 2,850 7,950 6,270 
Bank-owned life insurance1,534 1,563 3,018 2,741 
Net gains on securities transactions29 141 24 157 
Other income1,283 1,930 4,552 3,108 
Total non-interest income19,387 20,932 41,540 41,078 
Non-interest expense:
Compensation and employee benefits35,283 37,437 74,021 74,503 
Net occupancy expense7,949 8,479 16,360 17,810 
Data processing expense5,716 5,632 11,224 10,976 
FDIC insurance2,125 1,350 4,061 2,555 
Amortization of intangibles749 873 1,511 1,732 
Advertising and promotion expense1,379 1,222 2,589 2,326 
Provision (benefit) charge for credit losses on off-balance sheet credit exposures(647)(973)92 (3,363)
Merger-related expenses1,960 — 3,060 — 
Other operating expenses9,949 9,826 21,032 19,191 
Total non-interest expense64,463 63,846 133,950 125,730 
Income before income tax expense43,633 53,565 98,622 112,758 
Income tax expense11,630 14,337 26,083 29,567 
Net income$32,003 $39,228 $72,539 $83,191 
Basic earnings per share$0.43 $0.53 $0.97 $1.11 
Weighted average basic shares outstanding74,823,272 74,328,632 74,734,795 75,068,154 
Diluted earnings per share$0.43 $0.53 $0.97 $1.11 
Weighted average diluted shares outstanding74,830,187 74,400,788 74,766,848 75,152,286 

See accompanying notes to unaudited consolidated financial statements.
4



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 (Unaudited)
(Dollars in Thousands)
 
Three months ended September 30,Nine months ended September 30,Three months ended June 30,Six months ended June 30,
20222021202220212023202220232022
Net incomeNet income$43,421 $37,268 $126,613 $130,618 Net income$32,003 $39,228 $72,539 $83,191 
Other comprehensive income, net of tax:
Other comprehensive income (loss), net of tax:Other comprehensive income (loss), net of tax:
Unrealized gains and losses on available for sale debt securities:Unrealized gains and losses on available for sale debt securities:Unrealized gains and losses on available for sale debt securities:
Net unrealized losses arising during the period(67,293)(7,990)(197,997)(14,569)
Net unrealized (losses) gains arising during the periodNet unrealized (losses) gains arising during the period(14,726)(45,733)6,138 (130,704)
Reclassification adjustment for gains included in net incomeReclassification adjustment for gains included in net income— — (42)(171)Reclassification adjustment for gains included in net income— (42)— (42)
TotalTotal(67,293)(7,990)(198,039)(14,740)Total(14,726)(45,775)6,138 (130,746)
Unrealized gains on derivatives4,841 1,768 17,437 5,165 
Unrealized gains and losses on derivatives:Unrealized gains and losses on derivatives:
Net unrealized gains arising during the periodNet unrealized gains arising during the period3,650 2,276 3,033 12,227 
Reclassification adjustment for (gains) losses included in net incomeReclassification adjustment for (gains) losses included in net income(3,010)(118)(6,089)369 
TotalTotal640 2,158 (3,056)12,596 
Amortization related to post-retirement obligationsAmortization related to post-retirement obligations(236)(103)(748)(323)Amortization related to post-retirement obligations(261)(236)(530)(512)
Total other comprehensive loss(62,688)(6,325)(181,350)(9,898)
Total comprehensive (loss) income$(19,267)$30,943 $(54,737)$120,720 
Total other comprehensive (loss) incomeTotal other comprehensive (loss) income(14,347)(43,853)2,552 (118,662)
Total comprehensive income (loss)Total comprehensive income (loss)$17,656 $(4,625)$75,091 $(35,471)

See accompanying notes to unaudited consolidated financial statements.

5



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
For the three and ninesix months ended SeptemberJune 30, 20212022 (Unaudited)
(Dollars in Thousands)
For the three months ended September 30, 2021COMMON STOCKADDITIONAL PAID-IN CAPITALRETAINED EARNINGSACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)TREASURYSTOCKUNALLOCATED ESOP SHARESCOMMON STOCK ACQUIRED BY DEFERRED COMP PLANSDEFERRED COMPENSATION PLANSTOTAL STOCKHOLDERS’ EQUITY
Balance at June 30, 2021$832 $965,470 $775,235 $14,082 $(59,307)$(18,678)$(4,213)$4,213 $1,677,634 
For the three months ended June 30, 2022For the three months ended June 30, 2022COMMON STOCKADDITIONAL PAID-IN CAPITALRETAINED EARNINGSACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOMETREASURYSTOCKUNALLOCATED ESOP SHARESCOMMON STOCK ACQUIRED BY DEFERRED COMP PLANSDEFERRED COMPENSATION PLANSTOTAL STOCKHOLDERS’ EQUITY
Balance at March 31, 2022Balance at March 31, 2022$832 $972,552 $839,807 $(67,946)$(109,581)$(14,533)$(3,844)$3,844 $1,621,131 
Net incomeNet income— — 37,268 — — — — — 37,268 Net income— — 39,228 — — — — — 39,228 
Other comprehensive loss, net of taxOther comprehensive loss, net of tax— — — (6,325)— — — — (6,325)Other comprehensive loss, net of tax— — — (43,853)— — — — (43,853)
Cash dividends paidCash dividends paid— — (17,790)— — — — — (17,790)Cash dividends paid— — (18,058)— — — — — (18,058)
Distributions from deferred comp plansDistributions from deferred comp plans— 38 — — — — 89 (89)38 Distributions from deferred comp plans— 41 — — — — 139 (139)41 
Purchases of treasury stockPurchases of treasury stock— — — — (13,865)— — — (13,865)Purchases of treasury stock— — — — (17,505)— — — (17,505)
Purchase of employee restricted shares to fund statutory tax withholdingPurchase of employee restricted shares to fund statutory tax withholding— — — — (5)— — — (5)
Allocation of ESOP sharesAllocation of ESOP shares— 225 — — — 769 — — 994 Allocation of ESOP shares— 250 — — — 812 — — 1,062 
Allocation of Stock Award Plan ("SAP") sharesAllocation of Stock Award Plan ("SAP") shares— 1,421 — — — — — — 1,421 Allocation of Stock Award Plan ("SAP") shares— 3,174 — — — — — — 3,174 
Allocation of stock optionsAllocation of stock options— 49 — — — — — — 49 Allocation of stock options— 50 — — — — — — 50 
Balance at September 30, 2021$832 $967,203 $794,713 $7,757 $(73,172)$(17,909)$(4,124)$4,124 $1,679,424 
Balance at June 30, 2022Balance at June 30, 2022$832 $976,067 $860,977 $(111,799)$(127,091)$(13,721)$(3,705)$3,705 $1,585,265 

For the nine months ended September 30, 2021COMMONSTOCKADDITIONAL
PAID-IN CAPITAL
RETAINEDEARNINGSACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)TREASURYSTOCKUNALLOCATED
 ESOP SHARES
COMMON STOCK ACQUIRED BY DEFERRED COMP PLANSDEFERRED COMPENSATION PLANSTOTAL
STOCKHOLDERS’ EQUITY
Balance at December 31, 2020$832 $962,453 $718,090 $17,655 $(59,018)$(20,215)$(4,549)$4,549 $1,619,797 
For the six months ended June 30, 2022For the six months ended June 30, 2022COMMONSTOCKADDITIONAL
PAID-IN CAPITAL
RETAINEDEARNINGSACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)TREASURYSTOCKUNALLOCATED
 ESOP SHARES
COMMON STOCK ACQUIRED BY DEFERRED COMP PLANSDEFERRED COMPENSATION PLANSTOTAL
STOCKHOLDERS’ EQUITY
Balance at December 31, 2021Balance at December 31, 2021$832 $969,815 $814,533 $6,863 $(79,603)$(15,344)$(3,984)$3,984 $1,697,096 
Net incomeNet income— — 130,618 — — — — — 130,618 Net income— — 83,191 — — — — — 83,191 
Other comprehensive loss, net of taxOther comprehensive loss, net of tax— — — (9,898)— — — — (9,898)Other comprehensive loss, net of tax— — — (118,662)— — — — (118,662)
Cash dividends paidCash dividends paid— — (53,995)— — — — — (53,995)Cash dividends paid— — (36,747)— — — — — (36,747)
Distributions from deferred comp plansDistributions from deferred comp plans— 107 — — — — 425 (425)107 Distributions from deferred comp plans— 86 — — — — 279 (279)86 
Purchases of treasury stockPurchases of treasury stock— — — — (13,913)— — — (13,913)Purchases of treasury stock— — — — (46,530)— — — (46,530)
Purchase of employee restricted shares to fund statutory tax withholdingPurchase of employee restricted shares to fund statutory tax withholding— — — — (961)— — — (961)Purchase of employee restricted shares to fund statutory tax withholding— — — — (958)— — — (958)
Stock option exercisesStock option exercises— (82)— — 720 — — — 638 Stock option exercises— — — — — — — — — 
Allocation of ESOP sharesAllocation of ESOP shares— 687 — — — 2,306 — — 2,993 Allocation of ESOP shares— 582 — — — 1,623 — — 2,205 
Allocation of SAP sharesAllocation of SAP shares— 3,887 — — — — — — 3,887 Allocation of SAP shares— 5,485 — — — — — — 5,485 
Allocation of stock optionsAllocation of stock options— 151 — — — — — — 151 Allocation of stock options— 99 — — — — — — 99 
Balance at September 30, 2021$832 $967,203 $794,713 $7,757 $(73,172)$(17,909)$(4,124)$4,124 $1,679,424 
Balance at June 30, 2022Balance at June 30, 2022$832 $976,067 $860,977 $(111,799)$(127,091)$(13,721)$(3,705)$3,705 $1,585,265 

See accompanying notes to unaudited consolidated financial statements.









6



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
For the three and ninesix months ended SeptemberJune 30, 20222023 (Unaudited)
(Dollars in Thousands)
For the three months ended September 30, 2022COMMON STOCKADDITIONAL PAID-IN CAPITALRETAINED EARNINGSACCUMULATED OTHER COMPREHENSIVE (LOSS)TREASURY STOCKUNALLOCATED ESOP SHARESCOMMON STOCK ACQUIRED BY DEFERRED COMP PLANSDEFERRED COMPENSATION PLANSTOTAL STOCKHOLDERS’ EQUITY
Balance at June 30, 2022832 976,067 860,977 (111,799)(127,091)(13,721)(3,705)3,705 1,585,265 
For the three months ended June 30, 2023For the three months ended June 30, 2023COMMON STOCKADDITIONAL PAID-IN CAPITALRETAINED EARNINGSACCUMULATED OTHER COMPREHENSIVE LOSSTREASURY STOCKUNALLOCATED ESOP SHARESCOMMON STOCK ACQUIRED BY DEFERRED COMP PLANSDEFERRED COMPENSATION PLANSTOTAL STOCKHOLDERS’ EQUITY
Balance at March 31, 2023Balance at March 31, 2023832 984,089 940,533 (148,146)(127,814)(9,414)(3,289)3,289 1,640,080 
Net incomeNet income— — 43,421 — — — — — 43,421 Net income— — 32,003 — — — — — 32,003 
Other comprehensive loss, net of taxOther comprehensive loss, net of tax— — — (62,688)— — — — (62,688)Other comprehensive loss, net of tax— — — (14,347)— — — — (14,347)
Cash dividends paidCash dividends paid— — (18,066)— — — — — (18,066)Cash dividends paid— — (18,133)— — — — — (18,133)
Distributions from deferred comp plansDistributions from deferred comp plans— 47 — — — — 168 (168)47 Distributions from deferred comp plans— 32 — — — — 139 (139)32 
Purchases of treasury stockPurchases of treasury stock— — — — — — — — — Purchases of treasury stock— — — — — — — — — 
Purchase of employee restricted shares to fund statutory tax withholdingPurchase of employee restricted shares to fund statutory tax withholding— — — — (54)— — — (54)Purchase of employee restricted shares to fund statutory tax withholding— — — — (4)— — — (4)
Stock option exercisesStock option exercises— — — — — — — — — Stock option exercises— — — — — — — — — 
Allocation of ESOP sharesAllocation of ESOP shares— 296 — — — 811 — — 1,107 Allocation of ESOP shares— (1)— — — 811 — — 810 
Allocation of SAP sharesAllocation of SAP shares— 1,904 — — — — — — 1,904 Allocation of SAP shares— 1,997 — — — — — — 1,997 
Allocation of stock optionsAllocation of stock options— 49 — — — — — — 49 Allocation of stock options— 33 — — — — — — 33 
Balance at September 30, 2022$832 $978,363 $886,332 $(174,487)$(127,145)$(12,910)$(3,537)$3,537 $1,550,985 
Balance at June 30, 2023Balance at June 30, 2023$832 $986,150 $954,403 $(162,493)$(127,818)$(8,603)$(3,150)$3,150 $1,642,471 
For the nine months ended September 30, 2022COMMONSTOCKADDITIONAL
PAID-IN
CAPITAL
RETAINED EARNINGSACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
TREASURY
STOCK
UNALLOCATED
ESOP
SHARES
COMMON STOCK ACQUIRED BY DEFERRED COMP PLANSDEFERRED COMPENSATION PLANSTOTAL STOCKHOLDERS’ EQUITY
Balance at December 31, 2021$832 $969,815 $814,533 $6,863 $(79,603)$(15,344)$(3,984)$3,984 $1,697,096 
For the six months ended June 30, 2023For the six months ended June 30, 2023COMMONSTOCKADDITIONAL
PAID-IN
CAPITAL
RETAINED EARNINGSACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TREASURY
STOCK
UNALLOCATED
ESOP
SHARES
COMMON STOCK ACQUIRED BY DEFERRED COMP PLANSDEFERRED COMPENSATION PLANSTOTAL STOCKHOLDERS’ EQUITY
Balance at December 31, 2022Balance at December 31, 2022$832 $981,138 $918,158 $(165,045)$(127,154)$(10,226)$(3,427)$3,427 $1,597,703 
Net incomeNet income— — 126,613 — — — — — 126,613 Net income— — 72,539 — — — — — 72,539 
Other comprehensive loss, net of tax— — — (181,350)— — — — (181,350)
Other comprehensive income, net of taxOther comprehensive income, net of tax— — — 2,552 — — — — 2,552 
Cash dividends paidCash dividends paid— — (54,814)— — — — — (54,814)Cash dividends paid— — (36,727)— — — — — (36,727)
Cumulative effect of adopting Accounting Standards Update ("ASU") No. 2022-02, net of taxCumulative effect of adopting Accounting Standards Update ("ASU") No. 2022-02, net of tax— — 433 — — — — — 433 
Distributions from deferred comp plansDistributions from deferred comp plans— 133 — — — — 447 (447)133 Distributions from deferred comp plans— 79 — — — — 277 (277)79 
Purchases of treasury stock— — — — (46,529)— — — (46,529)
Purchase of employee restricted shares to fund statutory tax withholdingPurchase of employee restricted shares to fund statutory tax withholding— — — — (1,013)— — — (1,013)Purchase of employee restricted shares to fund statutory tax withholding— — — — (1,671)— — — (1,671)
Stock option exercisesStock option exercises— — — — — — — — — Stock option exercises— (217)— — 1,007 — — — 790 
Allocation of ESOP sharesAllocation of ESOP shares— 878 — — — 2,434 — — 3,312 Allocation of ESOP shares— 243 — — — 1,623 — — 1,866 
Allocation of SAP sharesAllocation of SAP shares— 7,389 — — — — — — 7,389 Allocation of SAP shares— 4,830 — — — — — — 4,830 
Allocation of stock optionsAllocation of stock options— 148 — — — — — — 148 Allocation of stock options— 77 — — — — — — 77 
Balance at September 30, 2022$832 $978,363 $886,332 $(174,487)$(127,145)$(12,910)$(3,537)$3,537 $1,550,985 
Balance at June 30, 2023Balance at June 30, 2023$832 $986,150 $954,403 $(162,493)$(127,818)$(8,603)$(3,150)$3,150 $1,642,471 

See accompanying notes to unaudited consolidated financial statements.
7



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
NineSix months ended SeptemberJune 30, 20222023 and 20212022 (Unaudited)
(Dollars in Thousands)
 
Nine months ended September 30,Six months ended June 30,
2022202120232022
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net incomeNet income$126,613 $130,618 Net income$72,539 $83,191 
Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangiblesDepreciation and amortization of intangibles9,845 9,531 Depreciation and amortization of intangibles5,953 6,579 
Provision charge (benefit) for credit losses on loans and securitiesProvision charge (benefit) for credit losses on loans and securities5,004 (24,736)Provision charge (benefit) for credit losses on loans and securities16,398 (3,409)
Credit loss (benefit) charge for off-balance sheet credit exposure(1,788)2,155 
Provision charge (benefit) for credit losses on off-balance sheet credit exposuresProvision charge (benefit) for credit losses on off-balance sheet credit exposures92 (3,363)
Deferred tax (benefit) expenseDeferred tax (benefit) expense(222)5,323 Deferred tax (benefit) expense(2,332)3,393 
Amortization of operating lease right-of-use assetsAmortization of operating lease right-of-use assets8,006 7,559 Amortization of operating lease right-of-use assets5,257 5,393 
Income on Bank-owned life insuranceIncome on Bank-owned life insurance(3,978)(5,970)Income on Bank-owned life insurance(3,018)(2,741)
Net amortization of premiums and discounts on securitiesNet amortization of premiums and discounts on securities10,465 11,032 Net amortization of premiums and discounts on securities4,012 7,665 
Accretion of net deferred loan feesAccretion of net deferred loan fees(7,095)(5,019)Accretion of net deferred loan fees(4,691)(4,801)
Amortization of premiums on purchased loans, netAmortization of premiums on purchased loans, net234 536 Amortization of premiums on purchased loans, net120 154 
Originations of loans held for saleOriginations of loans held for sale(18,467)(25,016)Originations of loans held for sale(11,490)(16,197)
Proceeds from sales of loans originated for saleProceeds from sales of loans originated for sale16,978 26,056 Proceeds from sales of loans originated for sale11,938 9,881 
ESOP expenseESOP expense3,312 2,993 ESOP expense1,866 2,205 
Allocation of stock award expenseAllocation of stock award expense7,389 3,887 Allocation of stock award expense4,830 5,485 
Allocation of stock option expenseAllocation of stock option expense148 151 Allocation of stock option expense77 99 
Net gain on sale of loansNet gain on sale of loans(1,306)(1,040)Net gain on sale of loans(972)(824)
Net gain on securities transactionsNet gain on securities transactions(154)(257)Net gain on securities transactions(24)(157)
Net gain on sale of premises and equipmentNet gain on sale of premises and equipment(22)(35)Net gain on sale of premises and equipment(197)(22)
Net gain on sale of foreclosed assetsNet gain on sale of foreclosed assets(8,590)(528)Net gain on sale of foreclosed assets(2,789)(16)
(Increase) decrease in accrued interest receivable(3,130)5,584 
(Increase) decrease in other assets(60,364)10,596 
Increase (decrease) in other liabilities74,992 (31,000)
Increase in accrued interest receivableIncrease in accrued interest receivable(1,942)(868)
Decrease (increase) in other assetsDecrease (increase) in other assets7,490 (12,691)
(Decrease) increase in other liabilities(Decrease) increase in other liabilities(17,719)22,578 
Net cash provided by operating activitiesNet cash provided by operating activities157,870 122,420 Net cash provided by operating activities85,398 101,534 
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Proceeds from sales and paydowns of foreclosed assets16,188 1,368 
Net increase in loansNet increase in loans(285,500)(396,236)
Purchases of loansPurchases of loans(3,394)(3,422)
Proceeds from sales of foreclosed assetsProceeds from sales of foreclosed assets3,485 280 
Proceeds from maturities, calls and paydowns of held to maturity debt securitiesProceeds from maturities, calls and paydowns of held to maturity debt securities62,597 44,054 Proceeds from maturities, calls and paydowns of held to maturity debt securities17,545 37,009 
Purchases of held to maturity debt securities(20,665)(21,417)
Proceeds from sales of available for sale debt securities— 9,442 
Purchases of investment securities held to maturityPurchases of investment securities held to maturity(9,130)(12,369)
Proceeds from maturities, calls and paydowns of available for sale debt securitiesProceeds from maturities, calls and paydowns of available for sale debt securities227,975 288,699 Proceeds from maturities, calls and paydowns of available for sale debt securities92,681 166,855 
Purchases of available for sale debt securitiesPurchases of available for sale debt securities(279,395)(1,140,182)Purchases of available for sale debt securities(34,802)(241,725)
Proceeds from redemption of Federal Home Loan Bank stockProceeds from redemption of Federal Home Loan Bank stock89,244 29,197 Proceeds from redemption of Federal Home Loan Bank stock112,279 31,134 
Purchases of Federal Home Loan Bank stockPurchases of Federal Home Loan Bank stock(110,671)(3,752)Purchases of Federal Home Loan Bank stock(137,055)(51,680)
BOLI claim benefits receivedBOLI claim benefits received— 3,851 BOLI claim benefits received2,347 — 
Purchases of loans(4,326)(2,060)
Net (increase) decrease in loans(449,803)274,399 
Proceeds from sales of premises and equipmentProceeds from sales of premises and equipment22 35 Proceeds from sales of premises and equipment62 22 
Purchases of premises and equipmentPurchases of premises and equipment(7,879)(8,348)Purchases of premises and equipment(2,959)(5,944)
Net cash used in investing activitiesNet cash used in investing activities(476,713)(524,714)Net cash used in investing activities(244,441)(476,076)
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Net (decrease) increase in deposits(548,407)998,792 
Net decrease in depositsNet decrease in deposits(301,904)(359,788)
Increase in mortgage escrow depositsIncrease in mortgage escrow deposits5,183 3,266 Increase in mortgage escrow deposits8,575 7,906 
Cash dividends paid to stockholdersCash dividends paid to stockholders(36,727)(36,747)
8


Nine months ended September 30,Six months ended June 30,
20222021
Cash dividends paid to stockholders(54,814)(53,995)
20232022
Purchase of treasury stockPurchase of treasury stock(46,529)(13,913)Purchase of treasury stock— (46,530)
Purchase of employee restricted shares to fund statutory tax withholdingPurchase of employee restricted shares to fund statutory tax withholding(1,013)(961)Purchase of employee restricted shares to fund statutory tax withholding(1,671)(958)
Stock options exercisedStock options exercised— 638 Stock options exercised790 — 
Proceeds from long-term borrowingsProceeds from long-term borrowings2,274,000 727,985 Proceeds from long-term borrowings446,531 964,000 
Payments on long-term borrowingsPayments on long-term borrowings(1,826,556)(1,275,440)Payments on long-term borrowings(32,500)(579,111)
Net decrease in short-term borrowings(10,616)(11,142)
Net cash (used in) provided by financing activities(208,752)375,230 
Net decrease in cash and cash equivalents(527,595)(27,064)
Net increase (decrease) in short-term borrowingsNet increase (decrease) in short-term borrowings98,313 (9,161)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities181,407 (60,389)
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents22,364 (434,931)
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period685,163 418,083 Cash and cash equivalents at beginning of period186,438 685,163 
Restricted cash at beginning of periodRestricted cash at beginning of period27,300 114,270 Restricted cash at beginning of period70 27,300 
Total cash, cash equivalents and restricted cash at beginning of periodTotal cash, cash equivalents and restricted cash at beginning of period712,463 532,353 Total cash, cash equivalents and restricted cash at beginning of period186,508 712,463 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period183,068 457,744 Cash and cash equivalents at end of period208,802 277,462 
Restricted cash at end of periodRestricted cash at end of period1,800 47,545 Restricted cash at end of period70 70 
Total cash, cash equivalents and restricted cash at end of periodTotal cash, cash equivalents and restricted cash at end of period$184,868 $505,289 Total cash, cash equivalents and restricted cash at end of period$208,872 $277,532 
Cash paid during the period for:Cash paid during the period for:Cash paid during the period for:
Interest on deposits and borrowingsInterest on deposits and borrowings$26,130 $28,266 Interest on deposits and borrowings$81,490 $14,308 
Income taxesIncome taxes$25,650 $41,165 Income taxes$26,591 $7,760 
Non-cash investing activities:Non-cash investing activities:Non-cash investing activities:
Transfer of loans receivable to foreclosed assetsTransfer of loans receivable to foreclosed assets$1,120 $434 Transfer of loans receivable to foreclosed assets$12,341 $624 
Acquisitions:
Non-cash assets acquired at fair value:
Goodwill and other intangible assets$— $1,422 
Other assets— (1,422)
Total non-cash assets acquired at fair value$— $— 
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. (the "Company") and its wholly owned subsidiary, Provident Bank (the “Bank,” together with Provident Financial Services, Inc., the “Company”“Bank"). and its wholly owned subsidiaries.
In preparing the interim unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and the consolidated statements of income for the periods presented. Actual results could differ from these estimates. The allowance for credit losses and the valuation of deferred tax assets areis a material estimatesestimate that areis 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 ninesix months ended SeptemberJune 30, 20222023 are not necessarily indicative of the results of operations that may be expected for all of 2022.2023.
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. Additionally, certain comparative balances on the interim unaudited consolidated financial statements have been reclassified to conform to the current year’s presentation.
These unaudited consolidated financial statements should be read in conjunction with the December 31, 20212022 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 ninesix months ended SeptemberJune 30, 20222023 and 20212022 (dollars in thousands, except per share amounts):
Three months ended September 30,Three months ended June 30,
2022202120232022
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 incomeNet income$43,421 $37,268 Net income$32,003 $39,228 
Basic earnings per share:Basic earnings per share:Basic earnings per share:
Income available to common stockholdersIncome available to common stockholders$43,421 74,297,237 $0.58 $37,268 76,604,653 $0.49 Income available to common stockholders$32,003 74,823,272 $0.43 $39,228 74,328,632 $0.53 
Dilutive sharesDilutive shares96,143 80,553 Dilutive shares6,915 72,156 
Diluted earnings per share:Diluted earnings per share:Diluted earnings per share:
Income available to common stockholdersIncome available to common stockholders$43,421 74,393,380 $0.58 $37,268 76,685,206 $0.49 Income available to common stockholders$32,003 74,830,187 $0.43 $39,228 74,400,788 $0.53 
10


Nine months ended September 30,Six months ended June 30,
2022202120232022
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 incomeNet income$126,613 $130,618 Net income$72,539 $83,191 
Basic earnings per share:Basic earnings per share:Basic earnings per share:
Income available to common stockholdersIncome available to common stockholders$126,613 74,808,358 $1.69 $130,618 76,588,549 $1.71 Income available to common stockholders$72,539 74,734,795 $0.97 $83,191 75,068,154 $1.11 
Dilutive sharesDilutive shares88,135 85,014 Dilutive shares32,053 84,132 
Diluted earnings per share:Diluted earnings per share:Diluted earnings per share:
Income available to common stockholdersIncome available to common stockholders$126,613 74,896,493 $1.69 $130,618 76,673,563 $1.70 Income available to common stockholders$72,539 74,766,848 $0.97 $83,191 75,152,286 $1.11 
Anti-dilutive stock options and awards at SeptemberJune 30, 2023 and 2022, and 2021, totaling 921,8341.3 million shares and 830,6281.0 million shares, respectively, were excluded from the earnings per share calculations.
C. Loans Receivable and Allowance for Credit Losses
The impact of utilizing the current expected credit loss ("CECL") methodology approach to calculate the allowance for credit losses on loans is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings. The increaseFor the three and six months ended June 30, 2023, a worsened economic forecast and related deterioration in the provision expense forprojected commercial property price indices over the three months ended September 30, 2022 was largely a functionexpected life of the weakening economic forecast, combined with an increase in total loans outstanding. The decrease in the period-over-period provision benefit for the nine months ended September 30, 2022 was largely a function of growth in the loan portfolio within our CECL model led to increases to the relative change in the economic outlookprovisions for credit losses and the significant favorable impact of the post-pandemic recovery in the prior year period.off-balance sheet credit exposures. See NoteNotes 4 and 9 to the Consolidated Financial Statements for more information on the allowance for credit losses on loans.loans and off-balance sheet credit exposures.
D. Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired through business combinations.purchase acquisitions. In accordance with GAAP, goodwill with an indefinite useful life is not amortized, but is evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates. Goodwill is analyzed for impairment once a year. As permitted by GAAP, the Company prepares a qualitative assessment in determining whether goodwill may be impaired. The factors considered in the assessment include macroeconomic conditions, industry and market conditions and overall financial performance of the Company, among others. The Company completed its most recent annual goodwill impairment test as of July 1, 2022,2023. At June 30, 2023, the Company performed an interim goodwill impairment analysis and it isconcluded that no triggering considerations were met and therefore a test for impairment between annual tests was not more likely than not that the fair value of Provident Financial Services, Inc., the reporting unit, is below its carrying amount.required.
Note 2. Business Combinations
Lakeland Bancorp, Inc. - Merger Agreement
On September 26, 2022, the Company entered into a definitive merger agreement pursuant to which it will merge (the “merger”) with Lakeland Bancorp, Inc. ("Lakeland"), and Lakeland Bank, a wholly owned subsidiary of Lakeland, 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 ofboth companies and shareholder approval has also been received for 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 Lakeland common stock will be exchanged for 0.8319 shares of the Company's common stock plus cash in lieu of fractional shares. The merger is expected to close in the second quarter of 2023, subject to satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by the shareholders of both companies.


11


Note 3. Investment Securities
At SeptemberJune 30, 2022,2023, the Company had $1.83$1.75 billion and $393.1$378.9 million in available for sale debt securities and held to maturity debt securities, respectively. Many factors, including lack of liquidity in the secondary market for certain securities, variations in pricing information, changes in interest rates, regulatory actions, changes in the business environment or any changes in the
11


competitive marketplace could have an adverse effect on the Company’s investment portfolio. The total number of available for sale and held to maturity debt securities in an unrealized loss position at SeptemberJune 30, 20222023 totaled 1,053,937, compared with 166914 at December 31, 2021.2022. The increase in the number of securities in an unrealized loss position at SeptemberJune 30, 20222023 was due to higher current market interest rates compared to rates at December 31, 2021.2022.
Available for Sale Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for available for sale debt securities at June 30, 2023 and December 31, 2022 (in thousands):
June 30, 2023
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
U.S. Treasury obligations$276,106 — (29,039)247,067 
Agency obligations31,452 301 — 31,753 
Mortgage-backed securities1,549,842 84 (203,202)1,346,724 
Asset-backed securities34,351 379 (224)34,506 
State and municipal obligations64,939 — (9,214)55,725 
Corporate obligations40,495 — (6,381)34,114 
$1,997,185 764 (248,060)1,749,889 
December 31, 2022
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
U.S. Treasury obligations$275,620 — (29,804)245,816 
Mortgage-backed securities1,636,913 209 (209,983)1,427,139 
Asset-backed securities37,706 278 (363)37,621 
State and municipal obligations67,706 — (10,842)56,864 
Corporate obligations40,540 50 (4,482)36,108 
$2,058,485 537 (255,474)1,803,548 
The amortized cost and fair value of available for sale debt securities at June 30, 2023, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.
June 30, 2023
Amortized
cost
Fair
value
Due in one year or less$— — 
Due after one year through five years242,910 218,600 
Due after five years through ten years82,226 70,318 
Due after ten years56,404 47,988 
$381,540 336,906 
Investments which pay principal on a periodic basis totaling $1.62 billion at amortized cost and $1.41 billion at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.
There were no sales of securities from the available for sale debt securities portfolio for the three and six months ended June 30, 2023 and 2022. For the three and six months ended June 30, 2023, there were no proceeds from calls on securities in the available for sale debt securities portfolio. For the three and six months ended June 30, 2022, proceeds from calls on securities in the available for sale debt securities portfolio totaled $5.4 million with gains of $58,000 and no losses recognized.
12


The number of available for sale debt securities in an unrealized loss position at June 30, 2023 totaled 464, compared with 475 at December 31, 2022. The decline in the number of securities in an unrealized loss position at June 30, 2023 was due to maturities and calls of securities in the quarter. All securities in an unrealized loss position were investment grade at June 30, 2023.
Held to Maturity Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for held to maturity debt securities at June 30, 2023 and December 31, 2022 (in thousands):
June 30, 2023
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Agency obligations$12,096 — (929)11,167 
State and municipal obligations357,003 168 (12,510)344,661 
Corporate obligations9,820 — (619)9,201 
$378,919 168 (14,058)365,029 
December 31, 2022
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Agency obligations$9,997 — (1,033)8,964 
State and municipal obligations366,164 268 (13,015)353,417 
Corporate obligations11,789 (703)11,087 
$387,950 269 (14,751)373,468 
The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair value may fluctuate during the investment period. There were no sales of securities from the held to maturity debt securities portfolio for the three and six months ended June 30, 2023 and 2022. For the three and six months ended June 30, 2023, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $3.5 million and $6.6 million, respectively. As to these calls on securities, for the three months ended June 30, 2023, there were gross gains of $28,000 and no gross losses, while for the six months ended June 30, 2023, gross gains totaled $24,000, with no gross losses. For the three and six months ended June 30, 2022, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $10.3 million and $26.2 million, respectively. As to these calls on securities for the three and six months ended June 30, 2022, gross gains totaled $83,000 and $99,000, respectively, with no gross losses.
The amortized cost and fair value of investment securities in the held to maturity debt securities portfolio at June 30, 2023 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.
June 30, 2023
Amortized
cost
Fair
value
Due in one year or less$25,283 25,199 
Due after one year through five years169,684 166,605 
Due after five years through ten years153,491 148,121 
Due after ten years30,461 25,104 
$378,919 365,029 
The allowance for credit losses on held to maturity debt securities at June 30, 2023 and December 31, 2022 was $25,000 and $27,000, respectively, and are excluded from amortized cost in the tables above.
The number of held to maturity debt securities in an unrealized loss position at June 30, 2023 totaled 473, compared with 439 at December 31, 2022. The increase in the number of securities in an unrealized loss position at June 30, 2023, was due to higher current market interest rates compared to rates at December 31, 2022.
Management measures expected credit losses on held to maturity debt securities on a collective basis by security type. Management classifies the held to maturity debt securities portfolio into the following security types:
13


Agency obligations;
Mortgage-backed securities;
State and municipal obligations; and
Corporate obligations.

All of the agency obligations held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The majority of the state and municipal and corporate obligations carry no lower than Acredit ratings from the rating agencies at SeptemberJune 30, 20222023 no lower than A and the Company had one securityno securities rated BBB or worse by Moody’s Investors Service.
The Company adopted CECL using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of CECL.
Available for Sale Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for available for sale debt securities at September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
U.S. Treasury obligations$275,372 — (31,983)243,389 
Mortgage-backed securities1,675,759 25 (222,476)1,453,308 
Asset-backed securities39,495 508 (259)39,744 
State and municipal obligations67,955 — (12,561)55,394 
Corporate obligations41,562 59 (4,147)37,474 
$2,100,143 592 (271,426)1,829,309 
December 31, 2021
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
U.S. Treasury obligations$196,897 298 (866)196,329 
Mortgage-backed securities1,711,312 14,082 (16,563)1,708,831 
Asset-backed securities45,115 1,687 (5)46,797 
State and municipal obligations68,702 1,127 (122)69,707 
Corporate obligations36,109 425 (347)36,187 
$2,058,135 17,619 (17,903)2,057,851 
The amortized cost and fair value of available for sale debt securities at September 30, 2022, 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.
12


September 30, 2022
Amortized
cost
Fair
value
Due in one year or less$1,000 999 
Due after one year through five years175,445 157,244 
Due after five years through ten years144,884 126,701 
Due after ten years63,560 51,313 
$384,889 336,257 
Investments which pay principal on a periodic basis totaling $1.72 billion at amortized cost and $1.49 billion at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.
There were no sales of securities from the available for sale debt securities portfolio for the three months ended September 30, 2022 and 2021. For the nine months ended September 30, 2022, proceeds from calls on securities in the available for sale debt securities portfolio totaled $5.4 million with gains of $58,000 and no losses recognized. For the nine months ended September 30, 2021, proceeds from sales of securities in the available for sale debt securities portfolio totaled $9.4 million, with gains of $230,000 and no losses recognized.
The number of available for sale debt securities in an unrealized loss position at September 30, 2022 totaled 468, compared with 113 at December 31, 2021. The increase in the number of securities in an unrealized loss position at September 30, 2022 was due to higher current market interest rates compared to rates at December 31, 2021. At September 30, 2022, there were two unrated private label mortgage-backed securities in an unrealized loss position, with an amortized cost of $1.1 million and an unrealized loss of $38,000. Additionally, there were four private-label mortgage-backed securities in an unrealized loss position, with an amortized cost of $36.3 million and an unrealized loss of $2.4 million. At September 30, 2022, these private-label securities were all rated AAA.
Held to Maturity Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for held to maturity debt securities at September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Agency obligations$9,997 — (1,092)8,905 
Mortgage-backed securities— — 
State and municipal obligations372,293 101 (22,662)349,732 
Corporate obligations10,820 — (791)10,029 
$393,112 101 (24,545)368,668 
At September 30, 2022, the allowance for credit losses on held to maturity debt securities totaled $43,000.
December 31, 2021
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Agency obligations$9,996 — (175)9,821 
Mortgage-backed securities21 — — 21 
State and municipal obligations415,724 14,463 (635)429,552 
Corporate obligations10,448 19 (152)10,315 
$436,189 14,482 (962)449,709 
At December 31, 2021, the allowance for credit losses on held to maturity debt securities totaled $39,000, and is excluded from amortized cost in the table above.
13


The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair value may fluctuate during the investment period. There were no sales of securities from the held to maturity debt securities portfolio for the three and nine months ended September 30, 2022 and 2021. For the three and nine months ended September 30, 2022, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $10.3 million and $36.4 million, respectively. As to these calls on securities, for the three months ended September 30, 2022, there were no gross gains and gross losses totaled $3,000, while for the nine months ended September 30, 2022, gross gains totaled $96,000, with no gross losses. For the three and nine months ended September 30, 2021, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $21.1 million and $34.0 million, respectively. As to these calls on securities, for the three and nine months ended September 30, 2021, there were gross gains of $26,505 and no gross losses.
The amortized cost and fair value of investment securities in the held to maturity debt securities portfolio at September 30, 2022 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, 2022
Amortized
cost
Fair
value
Due in one year or less$16,160 16,105 
Due after one year through five years150,084 145,429 
Due after five years through ten years184,073 172,779 
Due after ten years42,793 34,353 
$393,110 368,666 
Mortgage-backed securities totaling $2,000 for both amortized cost and fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments. Additionally, the allowance for credit losses totaling $43,000 is excluded from the table above.
The number of held to maturity debt securities in an unrealized loss position at September 30, 2022 totaled 585, compared with 53 at December 31, 2021. The increase in the number of securities in an unrealized loss position at September 30, 2022, was due to higher current market interest rates compared to rates at December 31, 2021.
Credit Quality Indicators. The following table provides the amortized cost of held to maturity debt securities by credit rating at SeptemberJune 30, 20222023 and December 31, 2021 (in thousands):
September 30, 2022June 30, 2023
Total PortfolioTotal PortfolioAAAAAABBBNot RatedTotalTotal PortfolioAAAAAABBBNot RatedTotal
Agency obligationsAgency obligations$9,997 — — — — 9,997 Agency obligations$12,096 — — — — 12,096 
Mortgage-backed securities— — — — 
State and municipal obligationsState and municipal obligations49,176 179,741 141,315 770 1,291 372,293 State and municipal obligations47,125 166,596 142,830 — 452 357,003 
Corporate obligationsCorporate obligations532 3,110 7,178 — — 10,820 Corporate obligations505 2,073 6,146 — 1,096 9,820 
$59,707 182,851 148,493 770 1,291 393,112 $59,726 168,669 148,976 — 1,548 378,919 
December 31, 2021December 31, 2022
Total PortfolioTotal PortfolioAAAAAABBBNot RatedTotalTotal PortfolioAAAAAABBBNot RatedTotal
Agency obligationsAgency obligations$9,996 — — — — 9,996 Agency obligations$9,997 — — — — 9,997 
Mortgage-backed securities21 — — — — 21 
State and municipal obligationsState and municipal obligations54,583 314,396 44,392 945 1,408 415,724 State and municipal obligations48,453 171,934 143,829 770 1,178 366,164 
Corporate obligationsCorporate obligations510 2,634 7,279 — 25 10,448 Corporate obligations507 3,592 7,415 — 275 11,789 
$65,110 317,030 51,671 945 1,433 436,189 $58,957 175,526 151,244 770 1,453 387,950 
Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. At SeptemberJune 30, 2022,2023, the held to maturity debt securities portfolio was comprised of 15%16% rated AAA, 47%45% rated AA, 38%39% rated A, and less than 1% either below an A rating or not rated by Moody’s Investors Service or Standard and Poor’s. Securities not explicitly rated, such as U.S. Government mortgage-backed securities, were grouped where possible under the credit rating of the issuer of the security.


14


The allowance for credit losses on held to maturity debt securities at September 30, 2022 and December 31, 2021 were $43,000 and $39,000, respectively.
Note 4. Loans Receivable and Allowance for Credit Losses
Loans receivable at SeptemberJune 30, 20222023 and December 31, 20212022 are summarized as follows (in thousands):
September 30, 2022December 31, 2021June 30, 2023December 31, 2022
Mortgage loans:Mortgage loans:Mortgage loans:
Residential$1,169,368 1,202,638 
CommercialCommercial4,237,534 3,827,370 Commercial$4,373,436 4,316,185 
Multi-familyMulti-family1,478,402 1,364,397 Multi-family1,645,770 1,513,818 
ConstructionConstruction666,740 683,166 Construction707,234 715,494 
ResidentialResidential1,166,159 1,177,698 
Total mortgage loansTotal mortgage loans7,552,044 7,077,571 Total mortgage loans7,892,599 7,723,195 
Commercial loansCommercial loans2,190,584 2,188,866 Commercial loans2,348,447 2,233,670 
Consumer loansConsumer loans316,547 327,442 Consumer loans301,306 304,780 
Total gross loansTotal gross loans10,059,175 9,593,879 Total gross loans10,542,352 10,261,645 
Premiums on purchased loansPremiums on purchased loans1,376 1,451 Premiums on purchased loans1,374 1,380 
Net deferred feesNet deferred fees(14,022)(13,706)Net deferred fees(13,195)(14,142)
Total loansTotal loans$10,046,529 9,581,624 Total loans$10,530,531 10,248,883 
The following tables summarize the aging of loans receivable by portfolio segment and class of loans (in thousands):
September 30, 2022
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$2,922 302 3,120 — 6,344 1,163,024 1,169,368 3,120 
Commercial848 — 35,352 — 36,200 4,201,334 4,237,534 17,055 
Multi-family798 — 1,583 — 2,381 1,476,021 1,478,402 1,583 
Construction1,058 — 1,878 — 2,936 663,804 666,740 1,878 
Total mortgage loans5,626 302 41,933 — 47,861 7,504,183 7,552,044 23,636 
Commercial loans2,101 1,135 17,181 — 20,417 2,170,167 2,190,584 13,000 
Consumer loans401 379 387 — 1,167 315,380 316,547 387 
Total gross loans$8,128 1,816 59,501 — 69,445 9,989,730 10,059,175 37,023 
December 31, 2021
30-59 Days60-89 DaysNon-accrualRecorded
Investment
> 90 days
accruing
Total Past
Due
CurrentTotal Loans ReceivableNon-accrual loans with no related allowance
Mortgage loans:
Residential$7,229 1,131 6,072 — 14,432 1,188,206 1,202,638 6,072 
Commercial720 3,960 16,887 — 21,567 3,805,803 3,827,370 16,887 
Multi-family— — 439 — 439 1,363,958 1,364,397 439 
Construction— — 2,365 — 2,365 680,801 683,166 2,365 
Total mortgage loans7,949 5,091 25,763 — 38,803 7,038,768 7,077,571 25,763 
Commercial loans7,229 1,289 20,582 — 29,100 2,159,766 2,188,866 14,453 
Consumer loans649 228 1,682 — 2,559 324,883 327,442 1,682 
Total gross loans$15,827 6,608 48,027 — 70,462 9,523,417 9,593,879 41,898 
June 30, 2023
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:
Commercial$1,445 1,137 7,279 — 9,861 4,363,575 4,373,436 4,276 
Multi-family3,853 — 2,314 — 6,167 1,639,603 1,645,770 2,314 
Construction— — 1,874 — 1,874 705,360 707,234 1,874 
Residential1,427 1,171 1,698 — 4,296 1,161,863 1,166,159 1,698 
Total mortgage loans6,725 2,308 13,165 — 22,198 7,870,401 7,892,599 10,162 
Commercial loans3,021 90 31,885 — 34,996 2,313,451 2,348,447 19,504 
Consumer loans957 147 878 — 1,982 299,324 301,306 878 
Total gross loans$10,703 2,545 45,928 — 59,176 10,483,176 10,542,352 30,544 
December 31, 2022
30-59 Days60-89 DaysNon-accrualRecorded
Investment
> 90 days
accruing
Total Past
Due
CurrentTotal Loans ReceivableNon-accrual loans with no related allowance
Mortgage loans:
Commercial$2,300 412 28,212 — 30,924 4,285,261 4,316,185 22,961 
Multi-family790 — 1,565 — 2,355 1,511,463 1,513,818 1,565 
Construction905 1,097 1,878 — 3,880 711,614 715,494 1,878 
Residential1,411 1,114 1,928 — 4,453 1,173,245 1,177,698 1,928 
Total mortgage loans5,406 2,623 33,583 — 41,612 7,681,583 7,723,195 28,332 
Commercial loans964 1,014 24,188 — 26,166 2,207,504 2,233,670 21,156 
Consumer loans885 147 738 — 1,770 303,010 304,780 739 
Total gross loans$7,255 3,784 58,509 — 69,548 10,192,097 10,261,645 50,227 
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 $59.5$45.9 million and $48.0$58.5 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. Included in non-accrual loans were $39.3$17.4 million and $23.0$42.9 million
15


of loans which were less than 90 days past due at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. There were no loans 90 days or greater past due and still accruing interest at SeptemberJune 30, 20222023 and December 31, 2021.2022.
15


The activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):
Three months ended June 30,Mortgage loansCommercial loansConsumer loansTotal
2023
Balance at beginning of period$63,195 27,117 2,446 92,758 
Provision charge (benefit) to operations6,742 3,769 (111)10,400 
Recoveries of loans previously charged-off134 173 310 
Loans charged-off— (1,313)(82)(1,395)
Balance at end of period$69,940 29,707 2,426 102,073 
2022
Balance at beginning of period$50,096 23,799 2,380 76,275 
Provision charge (benefit) to operations5,593 (2,710)117 3,000 
Recoveries of loans previously charged-off361 443 109 913 
Loans charged-off(986)(145)(41)(1,172)
Balance at end of period$55,064 21,387 2,565 79,016 
Six months ended June 30,Mortgage loansCommercial loansConsumer loansTotal
2023
Balance at beginning of period$58,218 27,413 2,392 88,023 
Cumulative effect of adopting Accounting Standards Update ("ASU") No. 2022-02(510)(43)(41)(594)
Provision charge (benefit) to operations12,954 3,461 (15)16,400 
Recoveries of loans previously charged-off301 258 565 
Loans charged-off(728)(1,425)(168)(2,321)
Balance at end of period$69,940 29,707 2,426 102,073 
2022
Balance at beginning of period$52,104 26,343 2,293 80,740 
Provision charge (benefit) charge to operations3,599 (7,115)116 (3,400)
Recoveries of loans previously charged-off371 2,304 275 2,950 
Loans charged-off(1,010)(145)(119)(1,274)
Balance at end of period$55,064 21,387 2,565 79,016 
For the three and six months ended June 30, 2023, the Company recorded a $10.4 million and a $16.4 million provision for credit losses on loans, respectively. The increase in provision was attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices over the expected life of the loan portfolio within our CECL model.






16


The following table summarizes the Company's gross charge-offs recorded during the three months ended June 30, 2023 by year of origination (in thousands):
20232022202120202019Prior to 2019Total Loans
Commercial loans$— — — — — 1,313 1,313 
Consumer loans (1)
— — — — 
Total gross loans$— — — — 1,316 1,320 
(1) Duringthe three months ended June 30, 2023, charge-offs on consumer overdraft accounts totaled $75,000, which is not included in the table above.
The following table summarizes the Company's gross charge-offs recorded during the six months ended June 30, 2023 by year of origination (in thousands):
20232022202120202019Prior to 2019Total Loans
Mortgage loans:
Commercial$— — — — — 707 707 
Residential— — — — — 21 21 
Total mortgage loans— — — — — 728 728 
Commercial loans— — — — — 1,425 1,425 
Consumer loans (1)
— — — — 13 22 
Total gross loans$— — — — 2,166 2,175 
(1) Duringthe six months ended June 30, 2023, charge-offs on consumer overdraft accounts totaled $146,000, which is not included in the table above.
The Company defines an impaireda loan individually evaluated for impairment as a non-homogeneous loan greater than $1.0 million, for which, based on current information, it is not expected to collect all amounts due under the contractual terms of the loan agreement. ImpairedAt June 30, 2023, there were 17 loans also include alltotaling $37.1 million, compared to 10 loans modified as troubled debt restructurings (“TDRs”). An allowancetotaling $42.8 million at December 31, 2022, that were individually evaluated for collateral-dependent impaired loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs. The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral-dependent loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral-dependent loan and updated annually, or more frequently if required.impairment.
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 any selling costs. A specific allocation of the allowance for credit losses is established for each collateral-dependent loan with a carrying balance greater than the collateral’s fair value, less estimated selling costs. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less estimated selling costs. The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral-dependent loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral-dependent loan and updated annually, or more frequently if required. At each fiscal quarter end, if a loan is designated as collateral-dependent and the third-party appraisal has not yet been received, an evaluation of all available collateral is made using the best information available at the time, including rent rolls, borrower financial statements and tax returns, prior appraisals, management’s knowledge of the market and collateral, and internally prepared collateral valuations based upon market assumptions regarding vacancy and capitalization rates, each as and where applicable. Once the appraisal is received and reviewed, the specific reserves are adjusted to reflect the appraised value and evaluated for charge offs. The Company believes there have been no significant time lapses resulting from this process.
At SeptemberJune 30, 2022, there were 131 impaired loans totaling $65.7 million, of which 123 totaling $26.8 million were TDRs. Included in this total were 100 TDRs related to 97 borrowers totaling $17.2 million that were performing in accordance with their restructured terms and which continued to accrue interest at September 30, 2022. At December 31, 2021, there were 155 impaired loans totaling $52.3 million, of which 132 loans totaling $30.6 million were TDRs. Included in this total were 115 TDRs related to 111 borrowers totaling $21.9 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2021.
At September 30, 20222023 and December 31, 2021,2022, the Company had $29.3$14.6 million and $18.2$24.0 million related to the fair value of underlying collateral-dependent impaired loans individually evaluated for impairment, respectively. These collateral-dependent impaired loans at SeptemberJune 30, 20222023 consisted of $28.3$14.6 million in commercial loans, $895,000 in residential real estate loans, and $63,000 in consumer loans. The collateral for these impaired loans was primarily real estate.
The activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2022 and 2021 was as follows (in thousands):
Three months ended September 30,Mortgage loansCommercial loansConsumer loansTotal
2022
Balance at beginning of period$55,064 21,387 2,566 79,017 
Provision charge (benefit) to operations4,991 3,381 28 8,400 
Recoveries of loans previously charged-off167 1,421 129 1,717 
Loans charged-off— (410)(91)(501)
Balance at end of period$60,222 25,779 2,632 88,633 
2021
Balance at beginning of period$55,469 21,262 4,228 80,959 
Provision charge (benefit) to operations626 963 (589)1,000 
Recoveries of loans previously charged-off71 336 140 547 
Loans charged-off(2,110)(263)(100)(2,473)
Balance at end of period$54,056 22,298 3,679 80,033 
16


Nine months ended September 30,Mortgage loansCommercial loansConsumer loansTotal
2022
Balance at beginning of period$52,104 26,343 2,293 80,740 
Provision charge (benefit) to operations8,589 (3,734)145 5,000 
Recoveries of loans previously charged-off539 3,725 404 4,668 
Loans charged-off(1,010)(555)(210)(1,775)
Balance at end of period$60,222 25,779 2,632 88,633 
2021
Balance at beginning of period$68,307 27,084 6,075 101,466 
Provision benefit to operations(11,760)(10,319)(2,621)(24,700)
Recoveries of loans previously charged-off538 6,654 640 7,832 
Loans charged-off(3,029)(1,121)(415)(4,565)
Balance at end of period$54,056 22,298 3,679 80,033 
For the three and nine months ended September 30, 2022, the Company recorded an $8.4 million and a $5.0 million provision for credit losses on loans, respectively. The increase in the provision was largely a function of the weakened economic forecast, combined with an increase in total loans outstanding. The increase in the period-over-period provision for credit losses was largely a function of the significant favorable impact of the post-pandemic recovery resulting in a large negative provision taken in the prior year period, the current weakened economic forecast and an increase in total loans outstanding.
Loan modifications forto borrowers experiencing financial difficulties that are considered TDRs primarily involve lowering the monthly payments on such loans through either a reduction indifficulty may include 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 ofreductions, principal or accrued interest.interest forgiveness, forbearance, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. In addition, management attempts to obtain additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue
17


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 presentillustrates the most common loan modifications by loan classes offered by the Company that are required to be disclosed pursuant to the requirements of ASU 2022-02:
Loan ClassesModification types
CommercialTerm extension, interest rate reductions, payment delay, or combination thereof. These modifications extend the term of the loan, lower the payment amount, or otherwise delay payments during a defined period for the purpose of providing borrowers additional time to return to compliance with the original loan term.
Residential Mortgage/ Home EquityForbearance period greater than six months. These modifications require reduced or no payments during the forbearance period for the purpose of providing borrowers additional time to return to compliance with the original loan term. As well as, term extension and rate adjustment. These modifications extend the term of the loan and provides for an adjustment to the interest rate, which reduces the monthly payment requirement.
Automobile/ Direct InstallmentTerm extension greater than three months. These modifications extend the term of the loan, which reduces the monthly payment requirement.
Effective January 1, 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a modified retrospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for loan modifications to borrowers experiencing financial difficulty. Instead, these loan modifications are included in their respective pool and a historical loss rate is applied to the current loan balance to arrive at the quantitative and qualitative baseline portion of the allowance for credit losses. As a result, The Company recorded a $594,000 reduction to the allowance for credit losses, which resulted in a $433,000 cumulative effect adjustment increase, net of tax to retained earnings.
There were no loan modifications made to borrowers experiencing financial difficulty during the three months ended June 30, 2023.
The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during the six months ended June 30, 2023 (in thousands):
Term ExtensionInterest Rate ReductionInterest Rate Reduction and Term Extension% of Total Class of Loans and Leases
Commercial loans$3,771 — 1,250 0.21 %
Total gross loans$3,771 — 1,250 0.05 %

The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the six months ended June 30, 2023 (in thousands):
Weighted-Average Months of Term ExtensionWeight-Average Rate Change
Commercial loans100.28 %
Total gross loans100.28 %
There were no loan modifications made to borrowers experiencing financial difficulty during the three or six months ended June 30, 2023, that subsequently defaulted.
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The following table presents the aging analysis of loan modifications made to borrowers experiencing financial difficulty during the six months ended June 30, 2023 (in thousands):
Current30-59 Days Past Due60-89 Days Past Due90 days or more Past DueNon- AccrualTotal
Commercial loans$5,021 — — — — 5,021 
Total gross loans$5,021 — — — — 5,021 
Prior to our adoption of ASU 2022-02, we accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. However, our TDR accounting described herein was suspended for most of our loss mitigation activities through our election to account for certain eligible loss mitigation activities occurring between March 2020 and January 1, 2022 under the COVID-19 relief granted pursuant to the CARES Act and the Consolidated Appropriations Act of 2021. Effective January 1, 2023, we adopted ASU 2022-02, which eliminated TDR accounting prospectively for all restructurings occurring on or after January 1, 2023.
The following table presents the number of loans modified as TDRs during the three and ninesix months ended SeptemberJune 30, 2022, and 2021, along with their balances immediately prior to the modification date and post-modification as of SeptemberJune 30, 2022 and 2021 (in thousands):
For the three months endedFor the three and six months ended
September 30, 2022September 30, 2021June 30, 2022
Troubled Debt RestructuringsTroubled 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
Troubled Debt RestructuringsNumber of
Loans
Pre-Modification
Outstanding
Recorded 
Investment
Post-Modification
Outstanding
Recorded Investment
Mortgage loans:Mortgage loans:Mortgage loans:
ResidentialResidential— $— $— $375 $369 Residential$265 206 
Multi FamilyMulti Family1,618 1,601 
Total mortgage loansTotal mortgage loans1,883 1,807 
Commercial loansCommercial loans378 274 
Total mortgage loans— — — 375 369 
Consumer loans108 88 — — 
Total restructured loansTotal restructured loans$108 $88 $375 $369 Total restructured loans$2,261 2,081 
17


Durin
For the nine months ended
September 30, 2022September 30, 2021
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
Mortgage loans:
Residential$265 $204 $546 $538 
Multi-Family1,618 1,583 — — — 
Total mortgage loans1,883 1,787 546 538 
Commercial loans378 273 2,940 2,318 
Consumer loans108 88 — — — 
Total restructured loans$2,369 $2,148 $3,486 $2,856 
All TDRs are impaired loans, which are individually evaluated for impairment. Duringg the ninethree and six months ended SeptemberJune 30, 2022, $921,000 of charge-offs were recorded on collateral-dependent impaired loans. During the three and nine months ended September 30, 2021, $2.1 million and $3.5 million of charge-offs were recorded on collateral-dependent impaired loans.
For the three and nine months ended September 30, 2022, the TDRs presented in the preceding tables had a weighted average modified interest rate of 8.25% and 4.42%, respectively, compared to a weighted average rate of 6.75% and 4.41%, respectively, prior to modification.
There was one loan totaling $209,000 which had a payment default (90 days or more past due) which wasfor a loan modified as a TDR within the 12 month period ending SeptemberJune 30, 2022.2023. For TDRs that subsequently default,defaulted, the Company determinesdetermined the amount of the allowance for the respective loans in accordance with the accounting policy for the allowance for credit losses on loans individually evaluated for impairment.
As allowed by CECL, loans acquired by the Company that experience more-than-insignificant deterioration in credit quality after origination, are classified as Purchased Credit Deteriorated ("PCD") loans. At SeptemberJune 30, 2022,2023, the balance of PCD loans totaled $207.4$173.3 million with a related allowance for credit losses of $2.4$1.6 million. The balance of PCD loans at December 31, 20212022 was $246.9$193.0 million with a related allowance for credit losses of $2.8$1.7 million.

18


The following table presents loans individually evaluated for impairment by class and loan category (in thousands):
September 30, 2022December 31, 2021
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$10,047 7,755 — 8,134 281 12,326 9,814 — 9,999 423 
Commercial16,799 14,604 — 13,617 48 15,310 14,685 — 15,064 63 
Multi-family1,618 1,583 — 1,617 12 — — — — — 
Construction1,101 1,101 — 1,101 — 1,656 1,588 — 1,643 30 
Total29,565 25,043 — 24,469 341 29,292 26,087 — 26,706 516 
Commercial loans8,338 8,113 — 8,355 18 9,845 7,254 — 7,714 33 
Consumer loans1,310 760 — 880 38 1,389 853 — 1,613 115 
Total impaired loans$39,213 33,916 — 33,704 397 40,526 34,194 — 36,033 664 
Loans with an allowance recorded
Mortgage loans:
Residential$7,155 6,843 743 6,926 197 7,994 7,652 858 7,742 278 
Commercial19,143 19,143 2,134 19,162 35 871 871 17 894 48 
Multi-family— — — — — — — — — — 
Total26,298 25,986 2,877 26,088 232 8,865 8,523 875 8,636 326 
Commercial loans6,163 5,452 1,275 8,651 87 9,498 9,166 3,358 8,304 257 
Consumer loans325 306 46 312 391 371 51 379 18 
Total impaired loans$32,786 31,744 4,198 35,051 328 18,754 18,060 4,284 17,319 601 
Total impaired loans
Mortgage loans:
Residential$17,202 14,598 743 15,060 478 20,320 17,466 858 17,741 701 
Commercial35,942 33,747 2,134 32,779 83 16,181 15,556 17 15,958 111 
Multi-family1,618 1,583 — 1,617 12 — — — — — 
Construction1,101 1,101 — 1,101 — 1,656 1,588 — 1,643 30 
Total55,863 51,029 2,877 50,557 573 38,157 34,610 875 35,342 842 
Commercial loans14,501 13,565 1,275 17,006 105 19,343 16,420 3,358 16,018 290 
Consumer loans1,635 1,066 46 1,192 47 1,780 1,224 51 1,992 133 
Total impaired loans$71,999 65,660 4,198 68,755 725 59,280 52,254 4,284 53,352 1,265 
Specific allocations of the allowance for credit losses attributable to impaired loans totaled $4.2 million at September 30, 2022 and $4.3 million at December 31, 2021. At September 30, 2022 and December 31, 2021, impaired loans for which there was no related allowance for credit losses totaled $33.9 million and $34.2 million, respectively. The average balance of impaired loans for the nine months ended September 30, 2022 and the twelve months ended December 31, 2021 was $68.8 million and $53.4 million, respectively.
Management utilizes an internal nine-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal risk. Loans that are deemed to be of “questionable quality” are rated 5 (watch) or 6 (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated 7, 8 or 9, respectively. Commercial mortgage, commercial, multi-family and construction loans are rated individually, and each lending officer is responsible for risk rating loans in their portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Department. The risk ratings are also reviewed periodically through loan review examinations which are currently performed
19


by an independent third-party. Reports by the independent third-party are presented to the Audit Committee of the Board of Directors.
The Company participated in the Paycheck Protection Program (“PPP”) through the United States Department of the Treasury and Small Business Administration ("SBA"). TheAdministration. PPP loans arewere fully guaranteed by the SBA and may bewere eligible for forgiveness by the SBA to the extent that the proceeds arewere used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up
19


to 24 weeks after the loan was made as long as certain conditions arewere met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA willare to be repaid by the SBA to the Company. For bothEligibility ended for this program in May of 2021. PPP loans are included in our commercial loan portfolio. Under the initial round and second round of PPP, the Company had secured 2,067 PPP loans for its customers totaling $682.0 million. As of SeptemberJune 30, 2022, 2,0522023, 2,054 PPP loans totaling $676.4$679.4 million were forgiven. At September 30, 2022,forgiven and repaid by the SBA. The balance of PPP loans totaled $5.6 million, and are included in the commercial loan portfolio.at June 30, 2023 was $2.6 million.
The following table summarizes the Company's gross loans held for investment by year of origination and internally assigned credit grades as of SeptemberJune 30, 20222023 and December 31, 20212022 (in thousands):
Gross Loans Held by Investment by Year of Origination
at September 30, 2022
Gross Loans Held for Investment by Year of Origination
at June 30, 2023
20222021202020192018Prior to 2018Revolving LoansRevolving loans to term loansTotal Loans
Residential (1)
Special mention$— — — — — 302 — — 302 
Substandard— — — — 271 5,403 — — 5,674 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — — — 271 5,705 — — 5,976 
Pass/Watch120,003 215,512 215,111 98,249 59,352 455,165 — — 1,163,392 
Total residential$120,003 215,512 215,111 98,249 59,623 460,870 — — 1,169,368 
20232022202120202019Prior to 2019Revolving LoansRevolving loans to term loansTotal Loans
Commercial MortgageCommercial MortgageCommercial Mortgage
Special mentionSpecial mention$— — 827 28,404 47,425 14,639 — — 91,295 Special mention$— — — 2,713 2,346 33,436 485 — 38,980 
SubstandardSubstandard— — — — 25,552 18,782 720 — 45,054 Substandard— — — 376 — 7,785 434 — 8,595 
DoubtfulDoubtful— — — — — — — — — Doubtful— — — — — — — — — 
LossLoss— — — — — — — — — Loss— — — — — — — — — 
Total criticized and classifiedTotal criticized and classified— — 827 28,404 72,977 33,421 720 — 136,349 Total criticized and classified— — — 3,089 2,346 41,221 919 — 47,575 
Pass/WatchPass/Watch764,406 636,635 584,856 559,283 236,897 1,208,073 95,448 15,587 4,101,185 Pass/Watch290,713 910,869 670,781 511,239 513,150 1,318,607 96,163 14,339 4,325,861 
Total commercial mortgageTotal commercial mortgage$764,406 636,635 585,683 587,687 309,874 1,241,494 96,168 15,587 4,237,534 Total commercial mortgage$290,713 910,869 670,781 514,328 515,496 1,359,828 97,082 14,339 4,373,436 
Multi-familyMulti-familyMulti-family
Special mentionSpecial mention$— — — — — 1,654 — — 1,654 Special mention$— — — — — 9,608 — — 9,608 
SubstandardSubstandard— — — — — 2,381 — — 2,381 Substandard— — — — — 3,211 — — 3,211 
DoubtfulDoubtful— — — — — — — — — Doubtful— — — — — — — — — 
LossLoss— — — — — — — — — Loss— — — — — — — — — 
Total criticized and classifiedTotal criticized and classified— — — — — 4,035 — — 4,035 Total criticized and classified— — — — — 12,819 — — 12,819 
Pass/WatchPass/Watch125,035 150,711 283,823 201,311 188,765 522,717 854 1,151 1,474,367 Pass/Watch132,991 170,856 198,427 279,117 232,748 614,456 3,223 1,133 1,632,951 
Total multi-familyTotal multi-family$125,035 150,711 283,823 201,311 188,765 526,752 854 1,151 1,478,402 Total multi-family$132,991 170,856 198,427 279,117 232,748 627,275 3,223 1,133 1,645,770 
ConstructionConstructionConstruction
Special mentionSpecial mention$— — — — 19,466 905 — — 20,371 Special mention$— — — — — — — — — 
SubstandardSubstandard— — — 2,197 777 — — — 2,974 Substandard— — — — 1,097 777 — — 1,874 
DoubtfulDoubtful— — — — — — — — — Doubtful— — — — — — — — — 
LossLoss— — — — — — — — — Loss— — — — — — — — — 
Total criticized and classifiedTotal criticized and classified— — — — 1,097 777 — — 1,874 
Pass/WatchPass/Watch33,795 276,155 266,520 105,078 8,456 13,346 2,010 705,360 
Total constructionTotal construction$33,795 276,155 266,520 105,078 9,553 14,123 — 2,010 707,234 
Residential (1)
Residential (1)
Special mentionSpecial mention$— — — — — 1,172 — — 1,172 
SubstandardSubstandard— — — — — 2,142 — — 2,142 
DoubtfulDoubtful— — — — — — — — — 
LossLoss— — — — — — — — — 
Total criticized and classifiedTotal criticized and classified— — — — — 3,314 — — 3,314 
Pass/WatchPass/Watch42,524 147,449 205,949 205,123 92,537 469,263 — — 1,162,845 
Total residentialTotal residential$42,524 147,449 205,949 205,123 92,537 472,577 — — 1,166,159 
20


Gross Loans Held by Investment by Year of Origination
at September 30, 2022
20222021202020192018Prior to 2018Revolving LoansRevolving loans to term loansTotal Loans
Total criticized and classified— — — 2,197 20,243 905 — — 23,345 
Pass/Watch108,427 337,461 91,180 81,115 18,101 92 — 7,019 643,395 
Total construction$108,427 337,461 91,180 83,312 38,344 997 — 7,019 666,740 
Total Mortgage
Special mention$— — 827 28,404 66,891 17,500 — — 113,622 
Substandard— — — 2,197 26,600 26,566 720 — 56,083 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — 827 30,601 93,491 44,066 720 — 169,705 
Pass/Watch1,117,871 1,340,319 1,174,970 939,958 503,115 2,186,047 96,302 23,757 7,382,339 
Total Mortgage$1,117,871 1,340,319 1,175,797 970,559 596,606 2,230,113 97,022 23,757 7,552,044 
Commercial
Special mention$— 7,697 374 220 13,712 5,596 5,117 217 32,933 
Substandard— — 10,877 4,422 5,228 15,507 9,641 364 46,039 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— 7,697 11,251 4,642 18,940 21,103 14,758 581 78,972 
Pass/Watch286,447 321,957 177,100 167,784 109,828 542,716 472,645 33,135 2,111,612 
Total commercial$286,447 329,654 188,351 172,426 128,768 563,819 487,403 33,716 2,190,584 
Consumer (1)
Special mention$— — — — — 149 208 22 379 
Substandard— — — — 111 188 — 304 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — — — 111 337 213 22 683 
Pass/Watch26,454 21,940 2,494 17,411 16,861 91,749 124,067 14,888 315,864 
Total consumer$26,454 21,940 2,494 17,411 16,972 92,086 124,280 14,910 316,547 
Total Loans
Special mention$— 7,697 1,201 28,624 80,603 23,245 5,325 239 146,934 
Substandard— — 10,877 6,619 31,939 42,261 10,366 364 102,426 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— 7,697 12,078 35,243 112,542 65,506 15,691 603 249,360 
Pass/Watch1,430,772 1,684,216 1,354,564 1,125,153 629,804 2,820,512 693,014 71,780 9,809,815 
21


Gross Loans Held by Investment by Year of Origination
at September 30, 2022
20222021202020192018Prior to 2018Revolving LoansRevolving loans to term loansTotal Loans
Total gross loans$1,430,772 1,691,913 1,366,642 1,160,396 742,346 2,886,018 708,705 72,383 10,059,175 
Gross Loans Held for Investment by Year of Origination
at June 30, 2023
20232022202120202019Prior to 2019Revolving LoansRevolving loans to term loansTotal Loans
Total Mortgage
Special mention$— — — 2,713 2,346 44,216 485 — 49,760 
Substandard— — — 376 1,097 13,915 434 — 15,822 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — — 3,089 3,443 58,131 919 — 65,582 
Pass/Watch500,023 1,505,329 1,341,677 1,100,557 846,891 2,415,672 99,386 17,482 7,827,017 
Total Mortgage$500,023 1,505,329 1,341,677 1,103,646 850,334 2,473,803 100,305 17,482 7,892,599 
Commercial
Special mention$— 70 387 577 54 11,490 9,714 — 22,292 
Substandard— — 14,966 17,133 3,974 14,473 13,837 352 64,735 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— 70 15,353 17,710 4,028 25,963 23,551 352 87,027 
Pass/Watch154,852 379,855 308,290 148,648 151,902 552,747 538,651 26,475 2,261,420 
Total commercial$154,852 379,925 323,643 166,358 155,930 578,710 562,202 26,827 2,348,447 
Consumer (1)
Special mention$— — — — — 145 — 147 
Substandard— — — — — 709 90 803 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — — — — 149 709 92 950 
Pass/Watch14,243 29,064 19,513 3,328 15,341 93,900 112,425 12,542 300,356 
Total consumer$14,243 29,064 19,513 3,328 15,341 94,049 113,134 12,634 301,306 
Total Loans
Special mention$— 70 387 3,290 2,400 55,851 10,199 72,199 
Substandard— — 14,966 17,509 5,071 28,392 14,980 442 81,360 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— 70 15,353 20,799 7,471 84,243 25,179 444 153,559 
Pass/Watch669,118 1,914,248 1,669,480 1,252,533 1,014,134 3,062,319 750,462 56,499 10,388,793 
Total gross loans$669,118 1,914,318 1,684,833 1,273,332 1,021,605 3,146,562 775,641 56,943 10,542,352 
(1) For residential and consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan.

Gross Loans Held by Investment by Year of Origination
at December 31, 2021
20212020201920182017Prior to 2017Revolving LoansRevolving loans to term loansTotal Loans
Residential (1)
Special mention$— — — — 697 434 — — 1,131 
Substandard— — — 280 166 8,569 — — 9,015 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — — 280 863 9,003 — — 10,146 
Pass/Watch229,106 235,949 113,206 67,493 75,906 470,832 — — 1,192,492 
Total residential$229,106 235,949 113,206 67,773 76,769 479,835 — — 1,202,638 
Commercial Mortgage
Special mention$— 2,624 28,706 22,296 9,657 26,668 1,094 — 91,045 
Substandard— — 18 34,260 7,352 34,356 799 — 76,785 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— 2,624 28,724 56,556 17,009 61,024 1,893 — 167,830 
Pass/Watch655,105 600,030 589,578 298,665 430,947 952,746 101,618 30,851 3,659,540 
Total commercial mortgage$655,105 602,654 618,302 355,221 447,956 1,013,770 103,511 30,851 3,827,370 
Multi-family
Special mention$— — — — 3,053 271 — — 3,324 
Substandard— 439 — — 945 — — 1,384 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— 439 — — 3,053 1,216 — — 4,708 
Pass/Watch154,419 294,716 166,558 173,583 117,654 448,710 2,880 1,169 1,359,689 
Total multi-family$154,419 295,155 166,558 173,583 120,707 449,926 2,880 1,169 1,364,397 
Construction
Special mention$— 1,125 — — — — — — 1,125 
Substandard— — — 2,365 — — — — 2,365 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Gross Loans Held for Investment by Year of Origination
at December 31, 2022
20222021202020192018Prior to 2018Revolving LoansRevolving loans to term loansTotal Loans
Commercial Mortgage
Special mention$— — 3,071 26,809 52,509 14,740 — — 97,129 
21


Gross Loans Held for Investment by Year of Origination
at December 31, 2022
20222021202020192018Prior to 2018Revolving LoansRevolving loans to term loansTotal Loans
Substandard— — — — 18,020 11,774 434 — 30,228 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — 3,071 26,809 70,529 26,514 434 — 127,357 
Pass/Watch951,367 630,584 567,448 546,474 218,620 1,164,854 94,716 14,765 4,188,828 
Total commercial mortgage$951,367 630,584 570,519 573,283 289,149 1,191,368 95,150 14,765 4,316,185 
Multi-family
Special mention$— — — — — 9,730 — — 9,730 
Substandard— — — — — 2,356 — — 2,356 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — — — — 12,086 — — 12,086 
Pass/Watch142,550 150,293 282,228 234,953 187,499 502,177 887 1,145 1,501,732 
Total multi-family$142,550 150,293 282,228 234,953 187,499 514,263 887 1,145 1,513,818 
Construction
Special mention$— — — — 19,728 905 — — 20,633 
Substandard— — — 2,197 777 — — — 2,974 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — — 2,197 20,505 905 — — 23,607 
Pass/Watch168,674 362,542 103,067 38,639 16,917 62 1,986 691,887 
Total construction$168,674 362,542 103,067 40,836 37,422 967 — 1,986 715,494 
Residential (1)
Special mention$— — — — — 1,114 — — 1,114 
Substandard— — — — 264 4,417 — — 4,681 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — — — 264 5,531 — — 5,795 
Pass/Watch151,077 212,697 211,445 95,872 58,226 442,586 — — 1,171,903 
Total residential$151,077 212,697 211,445 95,872 58,490 448,117 — — 1,177,698 
Total Mortgage
Special mention$— — 3,071 26,809 72,237 26,489 — — 128,606 
Substandard— — — 2,197 19,061 18,547 434 — 40,239 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — 3,071 29,006 91,298 45,036 434 — 168,845 
22


Gross Loans Held by Investment by Year of Origination
at December 31, 2021
20212020201920182017Prior to 2017Revolving LoansRevolving loans to term loansTotal Loans
Total criticized and classified— 1,125 — 2,365 — — — — 3,490 
Pass/Watch173,843 176,182 219,331 94,363 9,604 103 6,250 679,676 
Total construction$173,843 177,307 219,331 96,728 9,604 103 — 6,250 683,166 
Total Mortgage
Special mention$— 3,749 28,706 22,296 13,407 27,373 1,094 — 96,625 
Substandard— 439 18 36,905 7,518 43,870 799 — 89,549 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— 4,188 28,724 59,201 20,925 71,243 1,893 — 186,174 
Pass/Watch1,212,473 1,306,877 1,088,673 634,104 634,111 1,872,391 104,498 38,270 6,891,397 
Total Mortgage$1,212,473 1,311,065 1,117,397 693,305 655,036 1,943,634 106,391 38,270 7,077,571 
Commercial
Special mention$1,232 2,662 2,816 3,263 24,418 40,561 8,389 2,155 85,496 
Substandard— 736 5,517 5,860 5,747 64,807 13,622 1,821 98,110 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified1,232 3,398 8,333 9,123 30,165 105,368 22,011 3,976 183,606 
Pass/Watch415,924 222,132 179,193 154,440 149,567 489,051 355,097 39,856 2,005,260 
Total commercial$417,156 225,530 187,526 163,563 179,732 594,419 377,108 43,832 2,188,866 
Consumer (1)
Special mention$— — — — — 109 25 94 228 
Substandard— — — 116 1,514 — 1,638 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — — 116 1,623 31 94 1,866 
Pass/Watch25,140 4,503 24,272 21,046 15,804 99,106 119,347 16,358 325,576 
Total consumer$25,140 4,503 24,272 21,162 15,806 100,729 119,378 16,452 327,442 
Total Loans
Special mention$1,232 6,411 31,522 25,559 37,825 68,043 9,508 2,249 182,349 
Substandard— 1,175 5,535 42,881 13,267 110,191 14,427 1,821 189,297 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified1,232 7,586 37,057 68,440 51,092 178,234 23,935 4,070 371,646 
Pass/Watch1,653,537 1,533,512 1,292,138 809,590 799,482 2,460,548 578,942 94,484 9,222,233 
23


Gross Loans Held by Investment by Year of Origination
at December 31, 2021
20212020201920182017Prior to 2017Revolving LoansRevolving loans to term loansTotal Loans
Total gross loans$1,654,769 1,541,098 1,329,195 878,030 850,574 2,638,782 602,877 98,554 9,593,879 

Gross Loans Held for Investment by Year of Origination
at December 31, 2022
20222021202020192018Prior to 2018Revolving LoansRevolving loans to term loansTotal Loans
Pass/Watch1,413,668 1,356,116 1,164,188 915,938 481,262 2,109,679 95,603 17,896 7,554,350 
Total Mortgage$1,413,668 1,356,116 1,167,259 944,944 572,560 2,154,715 96,037 17,896 7,723,195 
Commercial
Special mention$75 1,148 444 201 10,156 4,379 14,530 140 31,073 
Substandard— 7,605 10,230 4,391 3,561 13,734 7,604 364 47,489 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified75 8,753 10,674 4,592 13,717 18,113 22,134 504 78,562 
Pass/Watch377,662 320,334 162,175 161,150 87,396 522,798 492,717 30,876 2,155,108 
Total commercial$377,737 329,087 172,849 165,742 101,113 540,911 514,851 31,380 2,233,670 
Consumer (1)
Special mention$— — — — — 146 — — 146 
Substandard— — 109 332 209 — 658 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified— — — 109 478 209 — 804 
Pass/Watch30,132 20,671 2,909 16,682 16,156 88,173 115,777 13,476 303,976 
Total consumer$30,132 20,671 2,917 16,682 16,265 88,651 115,986 13,476 304,780 
Total Loans
Special mention$75 1,148 3,515 27,010 82,393 31,014 14,530 140 159,825 
Substandard— 7,605 10,238 6,588 22,731 32,613 8,247 364 88,386 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total criticized and classified75 8,753 13,753 33,598 105,124 63,627 22,777 504 248,211 
Pass/Watch1,821,462 1,697,121 1,329,272 1,093,770 584,814 2,720,650 704,097 62,248 10,013,434 
Total gross loans$1,821,537 1,705,874 1,343,025 1,127,368 689,938 2,784,277 726,874 62,752 10,261,645 
(1) For residential and consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan.
Note 5. Deposits
Deposits at SeptemberJune 30, 20222023 and December 31, 20212022 are summarized as follows (in thousands):
September 30, 2022December 31, 2021June 30, 2023December 31, 2022
SavingsSavings$1,501,857 1,460,541 Savings$1,275,262 1,438,583 
Money marketMoney market2,395,591 2,592,523 Money market2,272,648 2,542,160 
NOWNOW3,425,921 3,722,198 NOW3,334,509 3,186,926 
Non-interest bearingNon-interest bearing2,682,127 2,766,235 Non-interest bearing2,358,372 2,643,919 
Certificates of depositCertificates of deposit680,109 692,515 Certificates of deposit1,020,329 751,436 
Total depositsTotal deposits$10,685,605 11,234,012 Total deposits$10,261,120 10,563,024 


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Note 6. Borrowed Funds
Borrowed funds at SeptemberJune 30, 20222023 and December 31, 20212022 are summarized as follows (in thousands):
September 30, 2022December 31, 2021June 30, 2023December 31, 2022
Securities sold under repurchase agreementsSecurities sold under repurchase agreements$106,296 116,760 Securities sold under repurchase agreements$82,470 98,000 
FHLB overnight borrowings406,000 — 
FHLB line of creditFHLB line of credit179,000 486,000 
FHLB advancesFHLB advances551,306 510,014 FHLB advances1,588,244 753,370 
Total borrowed fundsTotal borrowed funds$1,063,602 626,774 Total borrowed funds$1,849,714 1,337,370 
At SeptemberJune 30, 2022,2023, FHLB advances were at fixed rates and mature between October 2022July 2023 and July 2025,September 2026, and at December 31, 2021,2022, FHLB advances were at fixed rates with maturities between January 20222023 and July 2025. These advances are secured by loans receivable under a blanket collateral agreement.
Scheduled maturities of FHLB advances and overnight borrowings at SeptemberJune 30, 20222023 are as follows (in thousands):
 20222023
Due in one year or less$544,5081,020,648 
Due after one year through two years138,538514,492 
Due after two years through three years249,260174,660 
Due after three years through four years25,00057,444 
Thereafter— 
Total FHLB advances and overnight borrowings$957,3061,767,244 
24


Scheduled maturities of securities sold under repurchase agreements at SeptemberJune 30, 20222023 are as follows (in thousands):
 20222023
Due in one year or less$106,29682,470 
Thereafter— 
Total securities sold under repurchase agreements$106,29682,470 
The following tables set forth certain information as to borrowed funds for the periods ended SeptemberJune 30, 20222023 and December 31, 20212022 (in thousands):
Maximum
balance
Average
balance
Weighted average
interest rate
Maximum
balance
Average
balance
Weighted average
interest rate
September 30, 2022
June 30, 2023June 30, 2023
Securities sold under repurchase agreementsSecurities sold under repurchase agreements$120,833 114,295 0.34 %Securities sold under repurchase agreements$99,669 93,066 1.41 %
FHLB overnight borrowingsFHLB overnight borrowings406,000 90,726 2.50 FHLB overnight borrowings402,000 223,980 4.87 
FHLB advancesFHLB advances625,763 458,344 0.82 FHLB advances1,588,245 1,125,698 2.78 
December 31, 2021
December 31, 2022December 31, 2022
Securities sold under repurchase agreementsSecurities sold under repurchase agreements$132,005 116,158 0.07 %Securities sold under repurchase agreements$125,506 113,550 0.38 %
FHLB overnight borrowingsFHLB overnight borrowings— 205 0.34 FHLB overnight borrowings486,000 139,012 3.32 
FHLB advancesFHLB advances941,939 673,014 1.27 FHLB advances753,370 503,713 0.85 
Securities sold under repurchase agreements include arrangements with deposit customers of the Bank to sweep funds into short-term borrowings. The Bank uses available for sale debt securities to pledge as collateral for the repurchase agreements.
At SeptemberJune 30, 20222023 and December 31, 2021,2022, available for sale debt securities pledged as collateral for repurchase agreements totaled $120.0$95.5 million and $136.0$116.5 million, respectively.
Interest expense on borrowings for the three and ninesix months ended SeptemberJune 30, 20222023 amounted to $2.5$14.1 million and $4.8$21.6 million, respectively. Interest expense on borrowings for the three and ninesix months ended SeptemberJune 30, 20212022 amounted to $1.8$1.1 million and $7.1$2.3 million, respectively.

Note 7. Components of Net Periodic Benefit Cost
24


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.
25


Net periodic (decrease)(benefit) increase in benefit cost for pension benefits and other post-retirement benefits for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 includes the following components (in thousands):
Three months ended September 30,Nine months ended September 30,
Pension benefitsOther post-retirement benefitsPension benefitsOther post-retirement benefits
20222021202220212022202120222021
Service cost$— — $— — 21 26 
Interest cost214 198 111 106 642 594 333 318 
Expected return on plan assets(864)(807)— — (2,592)(2,421)— — 
Amortization of prior service cost— — — — — — — — 
Amortization of the net loss (gain)— 118 (326)(267)— 354 (978)(803)
Net periodic (decrease) increase in benefit cost$(650)(491)(208)(153)$(1,950)(1,473)(624)(459)
Three months ended June 30,Six months ended June 30,
Pension benefitsOther post-retirement benefitsPension benefitsOther post-retirement benefits
20232022202320222023202220232022
Service cost$— — $— — 14 
Interest cost302 214 150 111 604 428 300 222 
Expected return on plan assets(706)(864)— — (1,412)(1,728)— — 
Amortization of prior service cost— — — — — — — — 
Amortization of the net loss (gain)177 — (533)(326)354 — (1,066)(652)
Net periodic (decrease) increase in benefit cost$(227)(650)(380)(208)$(454)(1,300)(760)(416)
In its consolidated financial statements for the year ended December 31, 2021,2022, the Company previously disclosed that it does not expect to contribute to the pension plan in 2022.2023. As of SeptemberJune 30, 2022,2023, no contributions have been made to the pension plan.
The changes in net periodic benefit cost for pension benefits and other post-retirement benefits for the three and ninesix months ended SeptemberJune 30, 20222023 were calculated using the January 1, 20222023 pension and other post-retirement benefits actuarial valuations.
Note 8. Impact of Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted This Year
In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, "Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures," which addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancing and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. For entities that have adopted ASU 2016-13, ASU 2022-02 iswas effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption iswas permitted if an entity hashad adopted ASU 2016-13. The Company continuesadopted this ASU on January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to assessbe recorded with previously applicable GAAP. The Company recorded a $594,000 reduction to the impact that this guidance will have on the Company’s consolidated financial statements.allowance for credit losses, which resulted in a $433,000 cumulative effect adjustment increase, net of tax, to retained earnings.
In March 2022, the FASB issued ASUAccounting Standards Update (ASU) 2022-01, "Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method." MethodThis ASU clarifies the. The purpose of this updated guidance in ASC 815 on fair valueis to further align risk management objectives with hedge accounting results on the application of interest rate risk for portfolios of financial assets. The ASU amends the guidancelast-of-layer method, which was first introduced in ASU 2017-12, that, among other things, established the “last-of-layer” methodDerivatives and Hedging (Topic 815): Targeted Improvements to Accounting for making the fair value hedge accounting for these portfolios more accessible. ASU 2022-01 renames that method the “portfolio layer” method and addresses feedback from stakeholders regarding its application. Under current guidance, the last-of-layer method enables an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets (or one or more beneficial interests secured by a portfolio of prepayable financial instruments) without having to consider prepayment risk or credit risk when measuring those assets. ASU 2022-01 expands the scope of this guidance to allow entities to apply the portfolio layer method to portfolios of all financial assets, including both prepayable and non prepayable financial assets. This scope expansion is consistent with the FASB’s efforts to simplify hedge accounting and allows entities to apply the same method to similar hedging strategies. Also, ASU 2022-01 expands the current model to explicitly allow entities to designate multiple layers in a single portfolio as individual hedged items. This allows entities to designate multiple hedging relationships with a single closed portfolio, and therefore a larger portion of the interest rate risk associated with such a portfolio is eligible to be hedged. ASU 2022-01 also addresses questions about the types of derivatives that could be used as the hedging instrument in potential multiple-layer hedges. Under ASU 2022-01, an entity has the flexibility to use any type of derivative or combination of derivatives (e.g., spot-starting constant-notional swaps with different term lengths, a combination of spot-starting and forward-starting constant-notional swaps, amortizing-notional swaps) by applying the multiple-layer model that aligns with its risk management strategy. ASU 2022-01 expands and clarifies the current guidance on accounting for fair value hedge basis adjustments under the portfolio layer method for both single-layer and multiple-layer hedges. For public business entities,Hedging Activities. ASU 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022, includingwith early adoption in the interim periods withinperiod permitted. The Company adopted this standard on January 1, 2023 on a prospective basis, with no impact to the consolidated financial statements.
2625


those fiscal years. Early adoption is permitted if an entity has adopted ASU 2017-12. This standard is not expected to have a material impact on the Company's consolidated financial statements.Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)," which 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 guidanceguidance: (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 amortizedamortized; and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or re-measurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company anticipates this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than the extinguishment of the old contract resulting in writing off unamortized fees/costs. In addition, in January 2021, the FASB issued ASU No. 2021-01 “Reference Rate Reform — Scope,” which clarified the scope of ASC 848 relating to contract modifications. In the fourth quarter of 2019, the Company formed a cross-functional team to develop transition plans for the LIBOR transitioncessation to address potential revisions to documentation, as well as customer management and communication, internal training, financial, operational and risk management implications, and legal and contract management. The working group is comprised of individuals from various functional areas including lending, risk management, finance and credit, among others. In addition, the Company has engaged with its regulators and with industry working groups and trade associations to develop strategies for transitioning away from LIBOR. The Company is currently in the process of transitioning from LIBOR and plans to move to the Secured Overnight Financing Rate ("SOFR") and no longer offers LIBOR as an option to customers. This standard isThe Company has determined that the LIBOR transition and this guidance will not expected to have a material impacteffect on the Company's business operations and consolidated financial statements.

Note 9. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
Management analyzes the Company's exposure to credit losses for both on-balance sheet and off-balance sheet activity using a consistent methodology for the quantitative framework as well as the qualitative framework. For purposes of estimating the allowance for credit losses for off-balance sheet credit exposures, the exposure atthat may default includes an estimated drawdown of unused credit based on historical credit utilization factors and current loss factors, resulting in a proportionate amount of expected credit losses.factors.
For the three and ninesix months ended SeptemberJune 30, 2022,2023, the Company recorded a $1.6 million$647,000 negative provision and a $1.8 million negative$92,000 provision for credit losses for off-balance sheet credit exposures, respectively. For the three and ninesix months ended SeptemberJune 30, 2021,2022, the Company recorded a $980,000$973,000 and $2.2a $3.4 million negative provision for credit losses for off-balance sheet credit exposures, respectively. The $595,000$326,000 increase in the provision for the three months ended SeptemberJune 30, 2022,2023, compared to the same period in 2021,2022, was primarily the result of the period-over-period relative change in projected loss factors.line of credit utilization. The $3.9$3.5 million decreaseincrease in the provision for the ninesix months ended SeptemberJune 30, 2022,2023, compared to the ninesix months ended SeptemberJune 30, 2021,2022, was mainly due to a decrease inprimarily the pipelineresult of loans approved and awaiting closing and an increasethe period-over-period relative change in line of credit utilization partially offset byand an increase in projected loss factors.factors as a result of a worsened economic forecast.
The allowance for credit losses for off-balance sheet credit exposures was $4.7 million and $6.5$3.2 million at SeptemberJune 30, 20222023 and December 31, 2021, respectively,2022, and are included in other liabilities on the Consolidated Statements of Financial Condition.
Note 10. Fair Value Measurements
The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. Where quoted market values in an active market are not readily available, management utilizes various valuation techniques to estimate fair value.
27


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.
26


GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1:Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2:Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3:Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The valuation techniques are based upon the unpaid principal balance only, and exclude any accrued interest or dividends at the measurement date. Interest income and expense and dividend income are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The valuation techniques described below were used to measure fair value of financial instruments in the table below on a recurring basis as of SeptemberJune 30, 20222023 and December 31, 2021.2022.
Available for Sale Debt Securities, at Fair Value
For available for sale debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third-party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, management compares the prices received from the pricing service to a secondary pricing source. Additionally, management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in an adjustment in the prices obtained from the pricing service.
Equity Securities, at Fair Value
The Company holds equity securities that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs.
Derivatives
The Company records all derivatives on the statements of financial condition at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company has interest rate derivatives resulting from a service provided to certain qualified borrowers in a loan related transaction which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. As such, all changes in fair value of the Company’s derivatives are recognized directly in earnings.
The Company also uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges, and which satisfy hedge accounting requirements, involve the receipt of variable amounts from a
28


counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. These derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits. The change in the fair value of these derivatives is recorded in accumulated other
27


comprehensive income (loss) income,, and is subsequently reclassified into earnings in the period that the forecasted transactions affect earnings.
The fair value of the Company's derivatives is determined using discounted cash flow analysis using observable market-based inputs, which are considered Level 2 inputs.
Assets Measured at Fair Value on a Non-Recurring Basis
The valuation techniques described below were used to estimate fair value of financial instruments measured on a non-recurring basis as of SeptemberJune 30, 20222023 and December 31, 2021.2022.
Collateral-Dependent Impaired Loans
For loans measured for impairment based on the fair value of the underlying collateral, fair value was estimated using a market approach. The Company measures the fair value of collateral underlying impaired loans primarily through obtaining independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case-by-case basis, to comparable assets based on the appraisers’ market knowledge and experience, as well as adjustments for estimated costs to sell between 5% and 10%. Management classifies these loans as Level 3 within the fair value hierarchy.
Foreclosed Assets
Assets acquired through foreclosure or deed in lieu of foreclosure are carried at fair value, less estimated selling costs, which range between 5% and 10%. Fair value is generally based on independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case basis, to comparable assets based on the appraisers’ market knowledge and experience, and are classified as Level 3. When an asset is acquired, the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for credit losses. A reserve for foreclosed assets may be established to provide for possible write-downs and selling costs that occur subsequent to foreclosure. Foreclosed assets are carried net of the related reserve. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned, are recorded as incurred.
There were no changes to the valuation techniques for fair value measurements as of SeptemberJune 30, 20222023 or December 31, 2021.2022.
2928


The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair values as of SeptemberJune 30, 20222023 and December 31, 2021,2022, by level within the fair value hierarchy (in thousands):
Fair Value Measurements at Reporting Date Using:Fair Value Measurements at Reporting Date Using:
September 30, 2022Quoted Prices in Active  Markets for Identical Assets (Level 1)Significant Other Observable  Inputs (Level 2)Significant Unobservable Inputs (Level 3)June 30, 2023Quoted 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:Measured on a recurring basis:
Available for sale debt securities:Available for sale debt securities:Available for sale debt securities:
U.S. Treasury obligationsU.S. Treasury obligations$243,389 243,389 — — U.S. Treasury obligations$247,067 247,067 — — 
Agency obligationsAgency obligations31,753 31,753 — — 
Mortgage-backed securitiesMortgage-backed securities1,453,308 — 1,453,308 — Mortgage-backed securities1,346,724 — 1,346,724 — 
Asset-backed securitiesAsset-backed securities39,744 — 39,744 — Asset-backed securities34,506 — 34,506 — 
State and municipal obligationsState and municipal obligations55,394 — 55,394 — State and municipal obligations55,725 — 55,725 — 
Corporate obligationsCorporate obligations37,474 — 37,474 — Corporate obligations34,114 — 34,114 — 
Total available for sale debt securitiesTotal available for sale debt securities1,829,309 243,389 1,585,920 — Total available for sale debt securities1,749,889 278,820 1,471,069 — 
Equity securitiesEquity securities1,059 1,059 — — Equity securities1,238 1,238 — — 
Derivative assetsDerivative assets158,319 — 158,319 — Derivative assets131,191 — 131,191 — 
$1,988,687 244,448 1,744,239 — $1,882,318 280,058 1,602,260 — 
Derivative liabilitiesDerivative liabilities$128,987 — 128,987 — Derivative liabilities$108,067 — 108,067 — 
Measured on a non-recurring basis:Measured on a non-recurring basis:Measured on a non-recurring basis:
Loans measured for impairment based on the fair value of the underlying collateralLoans measured for impairment based on the fair value of the underlying collateral$29,300 — — 29,300 Loans measured for impairment based on the fair value of the underlying collateral$14,582 — — 14,582 
Foreclosed assetsForeclosed assets2,053 — — 2,053 Foreclosed assets13,697 — — 13,697 
$31,353 — — 31,353 $28,279 — — 28,279 
Fair Value Measurements at Reporting Date Using:Fair Value Measurements at Reporting Date Using:
December 31, 2021Quoted Prices in Active  Markets for Identical Assets (Level 1)Significant Other Observable  Inputs (Level 2)Significant Unobservable Inputs (Level 3)December 31, 2022Quoted 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:Measured on a recurring basis:
Available for sale debt securities:Available for sale debt securities:Available for sale debt securities:
U.S. Treasury obligationsU.S. Treasury obligations$196,329 196,329 — — U.S. Treasury obligations$245,816 245,816 — — 
Mortgage-backed securitiesMortgage-backed securities1,708,831 — 1,708,831 — Mortgage-backed securities1,427,139 — 1,427,139 — 
Asset-backed securitiesAsset-backed securities46,797 — 46,797 — Asset-backed securities37,621 — 37,621 — 
State and municipal obligationsState and municipal obligations69,707 — 69,707 — State and municipal obligations56,864 — 56,864 — 
Corporate obligationsCorporate obligations36,187 — 36,187 — Corporate obligations36,108 — 36,108 — 
Total available for sale debt securitiesTotal available for sale debt securities2,057,851 196,329 1,861,522 — Total available for sale debt securities1,803,548 245,816 1,557,732 — 
Equity SecuritiesEquity Securities1,325 1,325 — — Equity Securities1,147 1,147 — — 
Derivative assetsDerivative assets65,903 — 65,903 — Derivative assets148,151 — 148,151 — 
$2,125,079 197,654 1,927,425 — $1,952,846 246,963 1,705,883 — 
Derivative liabilitiesDerivative liabilities$61,412 — 61,412 — Derivative liabilities$120,896 — 120,896 — 
Measured on a non-recurring basis:Measured on a non-recurring basis:Measured on a non-recurring basis:
Loans measured for impairment based on the fair value of the underlying collateralLoans measured for impairment based on the fair value of the underlying collateral$18,237 — — 18,237 Loans measured for impairment based on the fair value of the underlying collateral$23,988 — — 23,988 
Foreclosed assetsForeclosed assets8,731 — — 8,731 Foreclosed assets2,124 — — 2,124 
$26,968 — — 26,968 $26,112 — — 26,112 
There were no transfers between Level 1, Level 2 and Level 3 during the three and ninesix months ended SeptemberJune 30, 2022.2023.
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Other Fair Value Disclosures
The Company is required to disclose estimated fair value of financial instruments, both assets and liabilities on- and off- the balance sheet, for which it is practicable to estimate fair value. The following is a description of valuation methodologies used for those assets and liabilities.
Cash and Cash Equivalents
For cash and due from banks, federal funds sold and short-term investments, the carrying amount approximates fair value. IncludedAt June 30, 2023 and December 31, 2022, $70,000 was included in cash and cash equivalents, at September 30, 2022 and December 31, 2021 was $1.8 million and $27.3 million, respectively, representing cash collateral pledged to secure loan level swaps, risk participation agreements and reserves required by banking regulations.
Held to Maturity Debt Securities
For held to maturity debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. Management evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, management compares the prices received from the pricing service to a secondary pricing source. Additionally, management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in adjustment in the prices obtained from the pricing service. The Company also holds debt instruments issued by the U.S. government and U.S. government agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 within the fair value hierarchy.
Federal Home Loan Bank of New York ("FHLBNY") Stock
The carrying value of FHLBNY stock is its cost. The fair value of FHLBNY stock is based on redemption at par value. The Company classifies the estimated fair value as Level 1 within the fair value hierarchy.
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial mortgage, residential mortgage, commercial, construction and consumer. Each loan category is further segmented into fixed and adjustable rateadjustable-rate interest terms and into performing and non-performing categories. The fair value of performing loans was estimated using a combination of techniques, including a discounted cash flow model that utilizes a discount rate that reflects the Company’s current pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date (i.e. exit pricing). The rates take into account the expected yield curve, as well as an adjustment for prepayment risk, when applicable. The Company classifies the estimated fair value of its loan portfolio as Level 3.
The fair value for significant non-performing loans was based on recent external appraisals of collateral securing such loans, adjusted for the timing of anticipated cash flows. The Company classifies the estimated fair value of its non-performing loan portfolio as Level 3.
Deposits
The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits and savings deposits, was equal to the amount payable on demand and classified as Level 1. The estimated fair value of certificates of deposit was based on the discounted value of contractual cash flows. The discount rate was estimated using the Company’s current rates offered for deposits with similar remaining maturities. The Company classifies the estimated fair value of its certificates of deposit portfolio as Level 2.
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Borrowed Funds
The fair value of borrowed funds was estimated by discounting future cash flows using rates available for debt with similar terms and maturities and is classified by the Company as Level 2 within the fair value hierarchy.
Commitments to Extend Credit and Letters of Credit
The fair value of commitments to extend credit and letters of credit was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The Company classifies these commitments as Level 3 within the fair value hierarchy.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
Significant assets and liabilities that are not considered financial assets or liabilities include goodwill and other intangibles, deferred tax assets and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
The following tables present the Company’s financial instruments at their carrying and fair values as of SeptemberJune 30, 20222023 and December 31, 2021.2022. Fair values are presented by level within the fair value hierarchy.
31


Fair Value Measurements at June 30, 2023 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$208,872 208,872 208,872 — — 
Available for sale debt securities:
U.S. Treasury obligations247,067 247,067 247,067 — — 
Agency obligations31,753 31,753 31,753 — — 
Mortgage-backed securities1,346,724 1,346,724 — 1,346,724 — 
Asset-backed securities34,506 34,506 — 34,506 — 
State and municipal obligations55,725 55,725 — 55,725 — 
Corporate obligations34,114 34,114 — 34,114 — 
Total available for sale debt securities$1,749,889 1,749,889 278,820 1,471,069 — 
Held to maturity debt securities, net of allowance for credit losses:
Agency obligations12,096 11,167 11,167 — — 
State and municipal obligations356,987 344,661 — 344,661 — 
Corporate obligations9,811 9,201 — 9,201 — 
Total held to maturity debt securities, net of allowance for credit losses$378,894 365,029 11,167 353,862 — 
FHLBNY stock93,330 93,330 93,330 — — 
Equity Securities1,238 1,238 1,238 — — 
Loans, net of allowance for credit losses10,428,458 9,969,672 — — 9,969,672 
Derivative assets131,191 131,191 — 131,191 — 
Financial liabilities:
Deposits other than certificates of deposits$9,240,791 9,240,791 9,240,791 — — 
Certificates of deposit1,020,329 1,015,211 — 1,015,211 — 
Total deposits$10,261,120 10,256,002 9,240,791 1,015,211 — 
Borrowings1,849,714 1,832,814 — 1,832,814 — 
Subordinated debentures10,596 9,118 — 9,118 — 
Derivative liabilities108,067 108,067 — 108,067 — 
32


Fair Value Measurements at September 30, 2022 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$184,868 184,868 184,868 — — 
Available for sale debt securities:
U.S. Treasury obligations243,389 243,389 243,389 — — 
Mortgage-backed securities1,453,308 1,453,308 — 1,453,308 — 
Asset-backed securities39,744 39,744 — 39,744 — 
State and municipal obligations55,394 55,394 — 55,394 — 
Corporate obligations37,474 37,474 — 37,474 — 
Total available for sale debt securities$1,829,309 1,829,309 243,389 1,585,920 — 
Held to maturity debt securities, net of allowance for credit losses:
Agency obligations9,997 8,905 8,905 — — 
Mortgage-backed securities— — 
State and municipal obligations372,259 349,732 — 349,732 — 
Corporate obligations10,811 10,029 — 10,029 — 
Total held to maturity debt securities, net of allowance for credit losses$393,069 368,668 8,905 359,763 — 
FHLBNY stock55,717 55,717 55,717 — — 
Equity Securities1,059 1,059 1,059 — — 
Loans, net of allowance for credit losses9,957,896 9,542,609 — — 9,542,609 
Derivative assets158,319 158,319 — 158,319 — 
Financial liabilities:
Deposits other than certificates of deposits$10,005,496 10,005,496 10,005,496 — — 
Certificates of deposit680,109 674,933 — 674,933 — 
Total deposits$10,685,605 10,680,429 10,005,496 674,933 — 
Borrowings1,063,602 1,041,426 — 1,041,426 — 
Subordinated debentures10,442 9,688 — 9,688 — 
Derivative liabilities128,987 128,987 — 128,987 — 
33


Fair Value Measurements at December 31, 2021 Using:Fair Value Measurements at December 31, 2022 Using:
(Dollars in thousands)(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)(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:Financial assets:Financial assets:
Cash and cash equivalentsCash and cash equivalents$712,463 712,463 712,463 — — Cash and cash equivalents$186,508 186,508 186,508 — — 
Available for sale debt securities:Available for sale debt securities:Available for sale debt securities:
U.S. Treasury obligationsU.S. Treasury obligations196,329 196,329 196,329 — — U.S. Treasury obligations245,816 245,816 245,816 — — 
Agency obligations— — — — — 
Mortgage-backed securitiesMortgage-backed securities1,708,831 1,708,831 — 1,708,831 — Mortgage-backed securities1,427,139 1,427,139 — 1,427,139 — 
Asset-backed securitiesAsset-backed securities46,797 46,797 — 46,797 — Asset-backed securities37,621 37,621 — 37,621 — 
State and municipal obligationsState and municipal obligations69,707 69,707 — 69,707 — State and municipal obligations56,864 56,864 — 56,864 — 
Corporate obligationsCorporate obligations36,187 36,187 — 36,187 — Corporate obligations36,108 36,108 — 36,108 — 
Total available for sale debt securitiesTotal available for sale debt securities$2,057,851 2,057,851 196,329 1,861,522 — Total available for sale debt securities$1,803,548 1,803,548 245,816 1,557,732 — 
Held to maturity debt securities:Held to maturity debt securities:Held to maturity debt securities:
Agency obligationsAgency obligations$9,996 9,821 9,821 — — Agency obligations$9,997 8,964 8,964 — — 
Mortgage-backed securities21 21 — 21 — 
State and municipal obligationsState and municipal obligations415,699 429,552 — 429,552 — State and municipal obligations366,146 353,417 — 353,417 — 
Corporate obligationsCorporate obligations10,434 10,315 — 10,315 — Corporate obligations11,780 11,087 — 11,087 — 
Total held to maturity debt securitiesTotal held to maturity debt securities$436,150 449,709 9,821 439,888 — Total held to maturity debt securities$387,923 373,468 8,964 364,504 — 
FHLBNY stockFHLBNY stock34,290 34,290 34,290 — — FHLBNY stock68,554 68,554 68,554 — — 
Equity SecuritiesEquity Securities1,325 1,325 1,325 — — Equity Securities1,147 1,147 1,147 — — 
Loans, net of allowance for credit lossesLoans, net of allowance for credit losses9,500,884 9,607,225 — — 9,607,225 Loans, net of allowance for credit losses10,160,860 9,768,460 — — 9,768,460 
Derivative assetsDerivative assets65,903 65,903 — 65,903 — Derivative assets148,151 148,151 — 148,151 — 
Financial liabilities:Financial liabilities:Financial liabilities:
Deposits other than certificates of depositsDeposits other than certificates of deposits$10,541,497 10,541,497 10,541,497 — — Deposits other than certificates of deposits$9,811,588 9,811,588 9,811,588 — — 
Certificates of depositCertificates of deposit692,515 694,041 — 694,041 — Certificates of deposit751,436 745,155 — 745,155 — 
Total depositsTotal deposits$11,234,012 11,235,538 10,541,497 694,041 — Total deposits$10,563,024 10,556,743 9,811,588 745,155 — 
BorrowingsBorrowings626,774 625,636 — 625,636 — Borrowings1,337,370 1,324,578 — 1,324,578 — 
Subordinated debenturesSubordinated debentures10,283 9,750 — 9,750 — Subordinated debentures10,493 9,422 — 9,422 — 
Derivative liabilitiesDerivative liabilities61,412 61,412 — 61,412 — Derivative liabilities120,896 120,896 — 120,896 — 

3433


Note 11. Other Comprehensive (Loss) Income
The following table presents the components of other comprehensive (loss) income, both gross and net of tax, for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 (in thousands):
Three months ended September 30,Three months ended June 30,
2022202120232022
Before
Tax
Tax
Effect
After
Tax
Before
Tax
Tax
Effect
After
Tax
Before
Tax
Tax
Effect
After
Tax
Before
Tax
Tax
Effect
After
Tax
Components of Other Comprehensive Income:Components of Other Comprehensive Income:Components of Other Comprehensive Income:
Unrealized gains and losses on available for sale debt securities:Unrealized gains and losses on available for sale debt securities:Unrealized gains and losses on available for sale debt securities:
Net unrealized (losses) gains arising during the periodNet unrealized (losses) gains arising during the period$(91,930)24,637 (67,293)(10,765)2,775 (7,990)Net unrealized (losses) gains arising during the period$(20,178)5,452 (14,726)(62,477)16,744 (45,733)
Reclassification adjustment for gains included in net incomeReclassification adjustment for gains included in net income— — — — — — Reclassification adjustment for gains included in net income— — — (58)16 (42)
TotalTotal(91,930)24,637 (67,293)(10,765)2,775 (7,990)Total(20,178)5,452 (14,726)(62,535)16,760 (45,775)
Unrealized gains (losses) on derivatives (cash flow hedges)6,614 (1,773)4,841 2,382 (614)1,768 
Unrealized gains and losses on derivatives (cash flow hedges):Unrealized gains and losses on derivatives (cash flow hedges):
Net unrealized gains (losses) arising during the periodNet unrealized gains (losses) arising during the period5,002 (1,352)3,6503,110 (834)2,276 
Reclassification adjustment for gains included in net incomeReclassification adjustment for gains included in net income(4,124)1,114 (3,010)(162)44 (118)
TotalTotal878 (238)640 2,948 (790)2,158 
Amortization related to post-retirement obligationsAmortization related to post-retirement obligations(326)90 (236)(138)35 (103)Amortization related to post-retirement obligations(358)97 (261)(322)86 (236)
Total other comprehensive loss$(85,642)22,954 (62,688)(8,521)2,196 (6,325)
Total other comprehensive (loss) incomeTotal other comprehensive (loss) income$(19,658)5,311 (14,347)(59,909)16,056 (43,853)
Nine months ended September 30,Six months ended June 30,
2022202120232022
Before
Tax
Tax
Effect
After
Tax
Before
Tax
Tax
Effect
After
Tax
Before
Tax
Tax
Effect
After
Tax
Before
Tax
Tax
Effect
After
Tax
Components of Other Comprehensive Income:Components of Other Comprehensive Income:Components of Other Comprehensive Income:
Unrealized gains and losses on available for sale debt securities:Unrealized gains and losses on available for sale debt securities:Unrealized gains and losses on available for sale debt securities:
Net unrealized (losses) arising during the period$(270,488)72,491 (197,997)(19,630)5,061 (14,569)
Net unrealized gains (losses) arising during the periodNet unrealized gains (losses) arising during the period$7,641 (1,503)6,138 (178,558)47,854 (130,704)
Reclassification adjustment for gains included in net incomeReclassification adjustment for gains included in net income(58)16 (42)(230)59 (171)Reclassification adjustment for gains included in net income— — — (58)16 (42)
TotalTotal(270,546)72,507 (198,039)(19,860)5,120 (14,740)Total7,641 (1,503)6,138 (178,616)47,870 (130,746)
Unrealized gains (losses) on derivatives (cash flow hedges)23,821 (6,384)17,437 6,959 (1,794)5,165 
Unrealized gains and losses on derivatives (cash flow hedges):Unrealized gains and losses on derivatives (cash flow hedges):
Net unrealized gains (losses) arising during the periodNet unrealized gains (losses) arising during the period4,219 (1,186)3,033 16,703 (4,476)12,227 
Reclassification adjustment for (gains) losses included in net incomeReclassification adjustment for (gains) losses included in net income(8,343)2,254 (6,089)504 (135)369 
TotalTotal(4,124)1,068 (3,056)17,207 (4,611)12,596 
Amortization related to post-retirement obligationsAmortization related to post-retirement obligations(978)230 (748)(435)112 (323)Amortization related to post-retirement obligations(727)197 (530)(700)188 (512)
Total other comprehensive loss$(247,703)66,353 (181,350)(13,336)3,438 (9,898)
Total other comprehensive income (loss)Total other comprehensive income (loss)$2,790 (238)2,552 (162,109)43,447 (118,662)
3534


The following tables present the changes in the components of accumulated other comprehensive income,(loss), net of tax, for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 (in thousands):
Changes in Accumulated Other Comprehensive (Loss) Income by Component, net of tax
for the three months ended September 30,
20222021
Unrealized
Losses on
Available for Sale Debt Securities
Post- Retirement
Obligations
Unrealized Gains on Derivatives (cash flow hedges)Accumulated
Other
Comprehensive
Loss
Unrealized Gains on
 Available for Sale Debt Securities
Post-  Retirement
Obligations
Unrealized Losses on Derivatives (cash flow hedges)Accumulated
Other
Comprehensive Income
Balance at
June 30,
$(130,957)2,469 16,689 (111,799)16,940 (1,301)(1,557)14,082 
Current - period other comprehensive (loss) income(67,293)(236)4,841 (62,688)(7,990)(103)1,768 (6,325)
Balance at September 30,$(198,250)2,233 21,530 (174,487)8,950 (1,404)211 7,757 
Changes in Accumulated Other Comprehensive (Loss) by Component, net of tax
for the three months ended June 30,
20232022
Unrealized
Losses on
Available for Sale Debt Securities
Post- Retirement
Obligations
Unrealized Gains on Derivatives (cash flow hedges)Accumulated
Other
Comprehensive
Loss
Unrealized Gains on
 Available for Sale Debt Securities
Post-  Retirement
Obligations
Unrealized Losses on Derivatives (cash flow hedges)Accumulated
Other
Comprehensive Loss
Balance at
March 31,
$(165,750)1,303 16,301 (148,146)(85,182)2,705 14,531 (67,946)
Current - period other comprehensive (loss)(14,726)(261)640 (14,347)(45,775)(236)2,158 (43,853)
Balance at June 30,$(180,476)1,042 16,941 (162,493)(130,957)2,469 16,689 (111,799)
Changes in Accumulated Other Comprehensive Income (Loss) by Component, net of tax
for the nine months ended September 30,
20222021
Unrealized
Losses on
Available for Sale Debt Securities
Post-  Retirement
Obligations
Unrealized Gains on Derivatives (cash flow hedges)Accumulated
Other
Comprehensive
Income (Loss)
Unrealized Gains (Losses) on
 Available for Sale Debt Securities
Post- Retirement
Obligations
Unrealized Gains (Losses) on Derivatives (cash flow hedges)Accumulated
Other
Comprehensive Income
Balance at December 31,$(211)2,981 4,093 6,863 23,690 (1,081)(4,954)17,655 
Current - period other comprehensive (loss) income(198,039)(748)17,437 (181,350)(14,740)(323)5,165 (9,898)
Balance at September 30,$(198,250)2,233 21,530 (174,487)8,950 (1,404)211 7,757 
Changes in Accumulated Other Comprehensive (Loss) by Component, net of tax
for the six months ended June 30,
20232022
Unrealized
Losses on
Available for Sale Debt Securities
Post-  Retirement
Obligations
Unrealized Gains on Derivatives (cash flow hedges)Accumulated
Other
Comprehensive
Income (Loss)
Unrealized Gains (Losses) on
 Available for Sale Debt Securities
Post- Retirement
Obligations
Unrealized Gains (Losses) on Derivatives (cash flow hedges)Accumulated
Other
Comprehensive Income (Loss)
Balance at December 31,$(186,614)1,572 19,997 (165,045)(211)2,981 4,093 6,863 
Current - period other comprehensive income (loss)6,138 (530)(3,056)2,552 (130,746)(512)12,596 (118,662)
Balance at June 30,$(180,476)1,042 16,941 (162,493)(130,957)2,469 16,689 (111,799)
3635


The following tables summarize the reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of income for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 (in thousands):
Reclassifications From Accumulated Other Comprehensive
Income ("AOCI")
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
Amount reclassified from AOCI for the three months ended June 30,Affected line item in the Consolidated
Statement of Income
2022202120232022
Details of AOCI:Details of AOCI:Details of AOCI:
Available for sale debt securities:Available for sale debt securities:
Realized net gains on the sale of securities available for saleRealized net gains on the sale of securities available for sale$— (58)Net gain on securities transactions
— 16 Income tax expense
$— (42)Net of tax
Cash flow hedges:Cash flow hedges:Cash flow hedges:
Unrealized (gains) losses on derivatives(1,581)1,030 Interest expense
Realized net gains on derivativesRealized net gains on derivatives$(4,124)(162)Interest expense
424 (265)Income tax expense1,114 44 Income tax expense
(1,157)765 $(3,010)(118)
Post-retirement obligations:Post-retirement obligations:Post-retirement obligations:
Amortization of actuarial gainsAmortization of actuarial gains$(326)(149)
Compensation and employee benefits (1)
Amortization of actuarial gains$(356)(326)
Compensation and employee benefits (1)
90 38 Income tax expense96 84 Income tax expense
Total reclassificationTotal reclassification$(236)(111)Net of taxTotal reclassification$(260)(242)Net of tax
Total reclassificationsTotal reclassifications$(1,393)(111)Net of taxTotal reclassifications$(3,270)(402)Net of tax
Reclassifications From Accumulated Other Comprehensive
Income ("AOCI")
Reclassifications From Accumulated Other Comprehensive
Income ("AOCI")
Amount reclassified from AOCI for the nine months ended September 30,Affected line item in the Consolidated
Statement of Income
Amount reclassified from AOCI for the six months ended June 30,Affected line item in the Consolidated
Statement of Income
2022202120232022
Details of AOCI:Details of AOCI:Details of AOCI:
Available for sale debt securities:Available for sale debt securities:Available for sale debt securities:
Realized net gains on the sale of securities available for saleRealized net gains on the sale of securities available for sale$(58)(230)Net gain on securities transactionsRealized net gains on the sale of securities available for sale$— (58)Net gain on securities transactions
16 59 Income tax expense— 16 Income tax expense
(42)(171)Net of tax$— (42)Net of tax
Cash flow hedges:Cash flow hedges:Cash flow hedges:
Unrealized losses on derivatives(1,077)2,856 Interest expense
Realized net (gains) losses on derivativesRealized net (gains) losses on derivatives$(8,343)504 Interest expense
289 (736)Income tax expense2,254 (136)Income tax expense
(788)2,120 $(6,089)368 
Post-retirement obligations:Post-retirement obligations:Post-retirement obligations:
Amortization of actuarial gainsAmortization of actuarial gains$(978)(449)
Compensation and employee benefits (1)
Amortization of actuarial gains$(712)(652)
Compensation and employee benefits (1)
230 119 Income tax expense192 171 Income tax expense
Total reclassificationTotal reclassification$(748)(330)Net of taxTotal reclassification$(520)(481)Net of tax
Total reclassificationsTotal reclassifications$(1,578)(501)Net of taxTotal reclassifications$(6,609)(155)Net of tax
(1) This item is included in the computation of net periodic benefit cost. See Note 7. Components of Net Periodic Benefit Cost.

3736


Note 12. Derivative and Hedging Activities
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through the management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities.
Non-designated Hedges. Derivatives not designated in qualifying hedging relationships are not speculative and result from a service the Company provides to certain qualified commercial borrowers in loan related transactions which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company may execute interest rate swaps with qualified commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. The interest rate swap agreement which the Company executes with the commercial borrower is collateralized by the borrower's commercial real estate financed by the Company. As the Company has not elected to apply hedge accounting and these interest rate swaps do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. At SeptemberJune 30, 20222023 and December 31, 2021,2022, the Company had 164152 loan related interest rate swaps with aggregate notional amounts of $2.45$2.23 billion and $2.38$2.40 billion, respectively.
The Company periodically enters into risk participation agreements ("RPAs"), with the Company functioning as either the lead institution, or as a participant when another company is the lead institution on a commercial loan. These RPAs are entered into to manage the credit exposure on interest rate contracts associated with these loan participation agreements. Under the RPAs, the Company will either receive or make a payment in the event the borrower defaults on the related interest rate contract. The Company has minimum collateral posting thresholds with certain of its risk participation counterparties, and has posted collateral of $70,000 against the potential risk of default by the borrower under these agreements. For SeptemberJune 30, 20222023 and December 31, 2021,2022, the Company had 12 and 1314 credit derivatives, respectively, with aggregate notional amounts of $131.0$143.5 million and $144.8$157.9 million, respectively, from participations in interest rate swaps as part of these loan participation arrangements. At SeptemberJune 30, 2022,2023, the asset and liability positions of these fair value credit derivatives totaled $29,000$47,000 and $12,000,$11,000, respectively, compared to $109,000$26,000 and $46,000,$12,000, respectively, at December 31, 2021.2022.
Cash Flow Hedges of Interest Rate Risk. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable payment amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 
Changes in the fair value of derivatives designated and that qualify as cash flow hedges of interest rate risk are recorded in accumulated other comprehensive (loss) income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, such derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings or demand deposits. During the next twelve months, the Company estimates that $14.2$15.7 million will be reclassified as a reduction to interest expense. At SeptemberJune 30, 2022,2023, the Company had 11nine outstanding interest rate derivatives with an aggregate notional amount of $460.0$405.0 million that were each designated as a cash flow hedge of interest rate risk.
Assets and liabilities relating to certain financial instruments, including derivatives, may be eligible for offset in the Consolidated Statements of Financial Condition and/or subject to enforceable master netting arrangements or similar agreements. The Company does not offset asset and liabilities under such arrangements in the Consolidated Statements of Financial Condition.
The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments that are eligible for offset in the Consolidated Statements of Condition at SeptemberJune 30, 20222023 and December 31, 20212022 (in thousands).
37


Fair Values of Derivative Instruments as of June 30, 2023
Asset DerivativesLiability Derivatives
Notional AmountConsolidated Statements of Financial Condition
Fair
 value (2)
Notional AmountConsolidated Statements of Financial Condition
Fair
 value (2)
Derivatives not designated as a hedging instrument:
Interest rate products$1,114,765 Other assets$109,589 1,114,765 Other liabilities109,871 
Credit contracts46,768 Other assets47 96,764 Other liabilities11 
Total derivatives not designated as a hedging instrument109,636 109,882 
Derivatives designated as a hedging instrument:
Interest rate products405,000 Other assets24,769 — Other liabilities— 
Total gross derivative amounts recognized on the balance sheet134,405 109,882 
Gross amounts offset on the balance sheet— — 
Net derivative amounts presented on the balance sheet$134,405 109,882 
Gross amounts not offset on the balance sheet:
Financial instruments - institutional counterparties$— — 
Cash collateral - institutional counterparties (1)
129,021 — 
Net derivatives not offset$5,384 109,882 
38


Fair Values of Derivative Instruments as of September 30, 2022
Asset DerivativesLiability Derivatives
Notional AmountConsolidated Statements of Financial Condition
Fair
 value (2)
Notional AmountConsolidated Statements of Financial Condition
Fair
 value (2)
Derivatives not designated as a hedging instrument:
Interest rate products$1,226,285 Other assets$129,205 $1,226,285 Other liabilities$129,556 
Credit contracts47,260 Other assets29 83,772 Other liabilities12 
Total derivatives not designated as a hedging instrument129,234 129,568 
Derivatives designated as a hedging instrument:
Interest rate products460,000 Other assets30,528 — Other liabilities— 
Total gross derivative amounts recognized on the balance sheet159,762 129,568 
Gross amounts offset on the balance sheet— — 
Net derivative amounts presented on the balance sheet$159,762 $129,568 
Gross amounts not offset on the balance sheet:
Financial instruments - institutional counterparties$— $— 
Cash collateral - institutional counterparties (1)
155,553 — 
Net derivatives not offset$4,209 $129,568 
39


Fair Values of Derivative Instruments as of December 31, 2021Fair Values of Derivative Instruments as of December 31, 2022
Asset DerivativesLiability DerivativesAsset DerivativesLiability Derivatives
Notional AmountConsolidated Statements of Financial Condition
Fair
 value (2)
Notional AmountConsolidated Statements of Financial Condition
Fair
 value (2)
Notional AmountConsolidated Statements of Financial Condition
Fair
 value (2)
Notional AmountConsolidated Statements of Financial Condition
Fair
 value (2)
Derivatives not designated as a hedging instrument:Derivatives not designated as a hedging instrument:Derivatives not designated as a hedging instrument:
Interest rate productsInterest rate products$1,188,703 Other assets$59,110 $1,188,703 Other liabilities$60,163 Interest rate products$1,198,191 Other assets$122,047 $1,198,191 Other liabilities122,378 
Credit contractsCredit contracts47,599 Other assets109 97,213 Other liabilities46 Credit contracts47,143 Other assets26 110,714 Other liabilities12 
Total derivatives not designated as a hedging instrumentTotal derivatives not designated as a hedging instrument59,219 60,209 Total derivatives not designated as a hedging instrument122,073 122,390 
Derivatives designated as a hedging instrument:Derivatives designated as a hedging instrument:Derivatives designated as a hedging instrument:
Interest rate productsInterest rate products250,000 Other assets7,278 350,000 Other liabilities2,263 Interest rate products460,000 Other assets29,119 — Other liabilities— 
Total gross derivative amounts recognized on the balance sheetTotal gross derivative amounts recognized on the balance sheet66,497 62,472 Total gross derivative amounts recognized on the balance sheet151,192 122,390 
Gross amounts offset on the balance sheetGross amounts offset on the balance sheet— — Gross amounts offset on the balance sheet— — 
Net derivative amounts presented on the balance sheetNet derivative amounts presented on the balance sheet$66,497 $62,472 Net derivative amounts presented on the balance sheet$151,192 122,390 
Gross amounts not offset on the balance sheet:Gross amounts not offset on the balance sheet:Gross amounts not offset on the balance sheet:
Financial instruments - institutional counterpartiesFinancial instruments - institutional counterparties$18,618 $18,618 Financial instruments - institutional counterparties$— — 
Cash collateral - institutional counterparties (1)
Cash collateral - institutional counterparties (1)
— 26,566 
Cash collateral - institutional counterparties (1)
149,800 — 
Net derivatives not offsetNet derivatives not offset$47,879 $17,288 Net derivatives not offset$1,392 122,390 
(1) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess cash collateral, if any, is not reflected above.
(2) The fair values related to interest rate products in the above net derivative tables show the total value of assets and liabilities, which include accrued interest receivable and accrued interest payable for the periods ended SeptemberJune 30, 20222023 and December 31, 2021.2022.
The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income during the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 (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 IncomeSeptember 30, 2022September 30, 2021Consolidated Statements of IncomeJune 30, 2023June 30, 2022
Derivatives not designated as a hedging instrument:Derivatives not designated as a hedging instrument:Derivatives not designated as a hedging instrument:
Interest rate productsInterest rate productsOther income$259 191 Interest rate productsOther income$126 77 
Credit contractsCredit contractsOther income(12)(19)Credit contractsOther income(8)(18)
TotalTotal$247 172 Total$118 59 
Derivatives designated as a hedging instrument:Derivatives designated as a hedging instrument:Derivatives designated as a hedging instrument:
Interest rate productsInterest rate productsInterest (income) expense$(1,581)1,030 Interest rate productsInterest (income) expense$(4,124)(162)
TotalTotal$(1,581)1,030 Total$(4,124)(162)
4039


Gain (loss) recognized in income on derivatives for the nine months endedGain (loss) recognized in income on derivatives for the six months ended
Consolidated Statements of IncomeSeptember 30, 2022September 30, 2021Consolidated Statements of IncomeJune 30, 2023June 30, 2022
Derivatives not designated as a hedging instrument:Derivatives not designated as a hedging instrument:Derivatives not designated as a hedging instrument:
Interest rate productsInterest rate productsOther income$702 268 Interest rate productsOther income$52 443 
Credit contractsCredit contractsOther income(47)28 Credit contractsOther income(4)(35)
TotalTotal$655 296 Total$48 408 
Derivatives designated as a hedging instrument:Derivatives designated as a hedging instrument:Derivatives designated as a hedging instrument:
Interest rate productsInterest rate productsInterest (income) expense$(1,077)2,856 Interest rate productsInterest (income) expense$(8,343)504 
TotalTotal$(1,077)2,856 Total$(8,343)504 
The Company has agreements with certain of its dealer counterparties which contain a provision that if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be deemed in default on its derivative obligations. In addition, the Company has agreements with certain of its dealer counterparties which contain a provision that if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.
At SeptemberJune 30, 2022,2023, the Company had four dealer counterparties. The Company had a net asset position with respect to all of its counterparties.
4140


Note 13. Revenue Recognition
The Company generates revenue from several business channels. The guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) does not apply to revenue associated with financial instruments, including interest income on loans and investments, which comprise the majority of the Company's revenue. For both the three and ninesix months ended SeptemberJune 30, 2022,2023, the out-of-scope revenue related to financial instruments was 81.1%88.5% and 82.6%87.6% of the Company's total revenue, compared to 81.0% and 82.0%83.5% for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively. Revenue-generating activities that are within the scope of Topic 606, are components of non-interest income. These revenue streams are generally classified into three categories: wealth management revenue, insurance agency income and banking service charges and other fees.
The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 (in thousands):
Three months ended September 30,Nine months ended September 30,Three months ended June 30,Six months ended June 30,
20222021202220212023202220232022
Non-interest incomeNon-interest incomeNon-interest income
In-scope of Topic 606:In-scope of Topic 606:In-scope of Topic 606:
Wealth management feesWealth management fees$6,785 7,921 21,274 22,914 Wealth management fees$6,919 7,024 13,834 14,489 
Insurance agency incomeInsurance agency income2,865 2,433 9,135 8,009 Insurance agency income3,847 2,850 7,950 6,270 
Banking service charges and other fees:Banking service charges and other fees:Banking service charges and other fees:
Service charges on deposit accountsService charges on deposit accounts3,288 2,910 9,321 7,965 Service charges on deposit accounts3,050 3,068 6,413 6,031 
Debit card and ATM feesDebit card and ATM fees756 913 2,372 4,789 Debit card and ATM fees761 846 1,466 1,616 
Total banking service charges and other feesTotal banking service charges and other fees4,044 3,823 11,693 12,754 Total banking service charges and other fees3,811 3,914 7,879 7,647 
Total in-scope non-interest incomeTotal in-scope non-interest income13,694 14,177 42,102 43,677 Total in-scope non-interest income14,577 13,788 29,663 28,406 
Total out-of-scope non-interest incomeTotal out-of-scope non-interest income14,751 9,185 27,421 22,479 Total out-of-scope non-interest income4,810 7,144 11,877 12,672 
Total non-interest incomeTotal non-interest income$28,445 23,362 69,523 66,156 Total non-interest income$19,387 20,932 41,540 41,078 
Wealth management fee income represents fees earned from customers as consideration for asset management, investment advisory and trust services. The Company’s performance obligation is generally satisfied monthly and the resulting fees are recognized monthly. The fee is generally based upon the average market value of the assets under management ("AUM") for the month and the applicable fee rate. The monthly accrual of wealth management fees is recorded in other assets on the Company's Consolidated Statements of Financial Condition. Fees are received from the customer on a monthly basis. The Company does not earn performance-based incentives. To a lesser extent, optional services such as tax return preparation and estate settlement are also available to existing customers. The Company’s performance obligation for these transaction-based services are generally satisfied, and related revenue recognized, at either a point in time when the service is completed, or in the case of estate settlement, over a relatively short period of time, as each service component is completed.
Insurance agency income, consisting of commissions and fees, is generally recognized as of the effective date of the insurance policy. Commission revenues related to installment billings are recognized on the invoice date. Subsequent commission adjustments are recognized upon the receipt of notification from insurance companies concerning matters necessitating such adjustments. Profit-sharing contingent commissions are recognized when determinable, which is generally when such commissions are received from insurance companies, or when the Company receives formal notification of the amount of such payments.
Service charges on deposit accounts include overdraft service fees, account analysis fees and other deposit related fees. These fees are generally transaction-based, or time-based services. The Company's performance obligation for these services are generally satisfied, and revenue recognized, at the time the transaction is completed, or the service rendered. Fees for these services are generally received from the customer either at the time of transaction, or monthly. Debit card and ATM fees are generally transaction-based. Debit card revenue is primarily comprised of interchange fees earned when a customer's Company card is processed through a card payment network. ATM fees are largely generated when a Company cardholder uses a non-Company ATM, or a non-Company cardholder uses a Company ATM. The Company's performance obligation for these services is satisfied when the service is rendered. Payment is generally received at the time of transaction or monthly.
42


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.
41


Note 14. Leases
The following table represents the consolidated statements of financial condition classification of the Company’s right-of use-assets and lease liabilities at SeptemberJune 30, 20222023 and December 31, 2021 (in thousands):

ClassificationSeptember 30, 2022December 31, 2021ClassificationJune 30, 2023December 31, 2022
Lease Right-of-Use Assets:Lease Right-of-Use Assets:Lease Right-of-Use Assets:
Operating lease right-of-use assetsOperating lease right-of-use assetsOther assets$62,708 $48,808 Operating lease right-of-use assetsOther assets$60,749 60,577 
Lease Liabilities:Lease Liabilities:Lease Liabilities:
Operating lease liabilitiesOperating lease liabilitiesOther liabilities$65,300 $50,236 Operating lease liabilitiesOther liabilities$63,916 63,372 
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. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception based upon the term of the lease. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was applied.
All of the leases in which the Company is the lessee are classified as operating leases and are primarily comprised of real estate properties for branches and administrative offices with terms extending through 2040.
At SeptemberJune 30, 2022,2023, the weighted-average remaining lease term and the weighted-average discount rate for the Company's operating leases were 8.88.3 years and 2.57%2.71%, respectively.
The following tables represent lease costs and other lease information for the Company's operating leases. The variable lease cost primarily represents variable payments such as common area maintenance and utilities (in thousands):
Three months ended September 30, 2022Three months ended September 30, 2021Three months ended June 30, 2023Three months ended June 30, 2022
Lease CostsLease CostsLease Costs
Operating lease costOperating lease cost$2,613 $2,417 Operating lease cost$2,629 2,586 
Variable lease costVariable lease cost667 728 Variable lease cost842 718 
Total lease costTotal lease cost$3,280 $3,145 Total lease cost$3,471 3,304 

Nine months ended September 30, 2022Nine months ended September 30, 2021Six months ended June 30, 2023Six months ended June 30, 2022
Lease CostsLease CostsLease Costs
Operating lease costOperating lease cost$8,006 $7,559 Operating lease cost$5,257 5,393 
Variable lease costVariable lease cost2,103 2,247 Variable lease cost1,722 1,436 
Total lease costTotal lease cost$10,109 $9,806 Total lease cost$6,979 6,829 

Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities:Nine months ended September 30, 2022Nine months ended September 30, 2021Cash paid for amounts included in the measurement of lease liabilities:Six months ended June 30, 2023Six months ended June 30, 2022
Operating cash flows from operating leasesOperating cash flows from operating leases$6,328 $6,861 Operating cash flows from operating leases$4,776 4,060 

4342


During the nine months ended September 30, 2022, the Company added one new lease obligation related to the Company's new administrative office location in Iselin, New Jersey. The Company recorded a right-of-use asset and lease liability of $16.0 million for this lease obligation.
Future minimum payments for operating leases with initial or remaining terms of one year or more as of SeptemberJune 30, 2022,2023, were as follows (in thousands):
Operating leasesOperating leases
Twelve months ended:Twelve months ended:Twelve months ended:
Remainder of 2022Remainder of 2022$2,337 Remainder of 2022$5,094 
202320239,379 20239,971 
202420249,347 20249,488 
202520258,812 20258,518 
202620267,620 20267,667 
ThereafterThereafter35,708 Thereafter30,707 
Total future minimum lease paymentsTotal future minimum lease payments73,203 Total future minimum lease payments71,445 
Amounts representing interestAmounts representing interest7,903 Amounts representing interest7,529 
Present value of net future minimum lease paymentsPresent value of net future minimum lease payments$65,300 Present value of net future minimum lease payments$63,916 

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 the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” "project," "intend," “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those set forth in Item 1A of the Company's Annual Report on Form 10-K, as supplemented by its Quarterly Reports on Form 10-Q, and those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, the effects of the recent turmoil in the banking industry (including the closing of three financial institutions), 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, the availability of and costs associated with sources of liquidity, the ability to complete, or any delays in completing, the pending merger between the Company and Lakeland; any failure to realize the anticipated benefits of the transaction when expected or at all; certain restrictions during the pendency of the transaction that may impact the Company’s ability to pursue certain business opportunities or strategic transactions; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management’s attention from ongoing business operations and opportunities; and potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the merger and integration of the companies.
In addition, the effects of the COVID-19 pandemic continue to have an uncertain impact on the Company, its customers and the communities it serves. Given its ongoing and dynamic nature, including potential variants, it is difficult to predict the continuing impact of the pandemic on the Company's business, financial condition or results of operations. The extent of such impact will depend on future developments, which remain highly uncertain, including when the pandemic will be controlled and abated, and the extent to which the economy can remain open.
The Company cautions readers not to place undue reliance on any such forward-looking statements which speak only as of the date they are made. The Company advises readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not assume any duty, and does not undertake, to update any forward-looking statements to reflect events or circumstances after the date of this statement.
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Lakeland Bancorp, Inc. Merger Agreement
On September 26, 2022, the Company entered into a definitive merger agreement pursuant to which it will merge (the “merger”) with Lakeland Bancorp, Inc. ("Lakeland"), and Lakeland Bank, a wholly owned subsidiary of Lakeland, 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 ofboth companies and shareholder approval has also been received by 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 Lakeland common stock will be exchanged for 0.8319 shares of the Company's common stock plus cash in lieu of fractional shares. The merger is expected to close in the second quarter of 2023, subject to satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by the shareholders of both companies.
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Critical Accounting Policies
The Company considers certain accounting policies to be critically important to the fair presentation of its financial condition and results of operations. These policies require management to make complex judgments on matters which by their nature have elements of uncertainty. The sensitivity of the Company’s consolidated financial statements to these critical accounting policies, and the assumptions and estimates applied, could have a significant impact on its financial condition and results of operations. These assumptions, estimates and judgments made by management can be influenced by a number of factors, including the general economic environment. The Company has identified the following as critical accounting policies:
Adequacy of the allowance for credit losses; andlosses on loans as a critical accounting policy.
Valuation of deferred tax assets
On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaced the incurred loss methodology with the current expected credit loss (“CECL”) methodology. The allowance for credit losses is a valuation account that reflects management’s evaluation of the current expected credit losses in the loan portfolio. The Company maintains the allowance for credit losses through provisions for credit losses that are charged or credited to income. Charge-offs against the allowance for credit losses are taken on loans where management determines that the collection of loan principal and interest is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for credit losses.
The calculation of the allowance for credit losses is a critical accounting policy of the Company. Management estimates the allowance balance using relevant available information, from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast. Historical credit loss experience for both the Company and peers provides the basis for the estimation of expected credit losses, where observed credit losses are converted to probability of default rate (“PDR”) curves through the use of segment-specific loss given default (“LGD”) risk factors that convert default rates to loss severity based on industry-level, observed relationships between the two variables for each segment, primarily due to the nature of the underlying collateral. These risk factors were assessed for reasonableness against the Company’s own loss experience and adjusted in certain cases when the relationship between the Company’s historical default and loss severity deviatesdeviate from that of the wider industry. The historical PDR curves, together with corresponding economic conditions, establish a quantitative relationship between economic conditions and loan performance through an economic cycle.
Using the historical relationship between economic conditions and loan performance, management’s expectation of future loan performance is incorporated using an externally developed economic forecast. This forecast is applied over a period that management has determined to be reasonable and supportable. Beyond the period over which management can develop or source a reasonable and supportable forecast, the model will revert to long-term average economic conditions using a straight-line, time-based methodology. The Company's current forecast period is six quarters, with a four quarterfour-quarter reversion period to historical average macroeconomic factors. The Company's economic forecast is approved by the Company's Asset-Liability Committee.
The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a quarterly basis, when similar risk characteristics exist. The respective quantitative allowance for each loan segment is measured using an econometric, discounted PDR/LGD modeling methodology in which distinct, segment-specific multi-variate regression models are applied to an external economic forecast. Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis. Contractual cash flows over the contractual life of the loans are the basis for modeled cash flows, adjusted for modeled defaults and expected prepayments and discounted at the loan-level effective interest rate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies at the reporting date: management has a reasonable expectation that a troubled debt restructuring (“TDR”)modification will be executed with an individual borrower; or when an extension or renewal option is included in the original contract and is not
45


unconditionally cancellable by the Company. Management will assess the likelihood of anthe option being exercised by any giventhe borrower and appropriately extend the maturity of the portfolio for modeling purposes.
The Company considers qualitative adjustments to credit loss estimates for information not already captured in the quantitative component of the loss estimation process. Qualitative factors are based on portfolio concentration levels, model imprecision, changes in industry conditions, changes in the Company’s loan review process, changes in the Company’s loan policies and procedures, and economic forecast uncertainty.
One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast period. As of June 30, 2023, the model incorporated Moody’s baseline economic forecast, as adjusted for qualitative factors, as well as an extensive review of classified loans and loans that were classified as impaired with a specific reserve assigned to those loans. This baseline outlook reflected a worsening economic forecast and related deterioration in the projected commercial property price index over the expected life of the loan portfolio and resulted in recorded provisions of $10.4 million and $16.4 million for the three and six months ended June 30, 2023, and a coverage ratio of 97 basis points. If the Company had used a more pessimistic commercial
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real estate property price index over the expected life of the loan portfolio, the provision would have increased $6.5 million, with a coverage ratio of 103 basis points.
Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Management developed segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation. The segments have been combined or sub-segmented as needed to ensure loans of similar risk profiles are appropriately pooled. As of SeptemberJune 30, 2022,2023, the portfolio and class segments for the Company’s loan portfolio were:
Mortgage Loans – Residential, Commercial Real Estate, Multi-Family and Construction
Commercial Loans – Commercial Owner Occupied and Commercial Non-Owner Occupied
Consumer Loans – First Lien Home Equity and Other Consumer
The allowance for credit losses on loans individually evaluated for impairment is based upon loans that have been identified through the Company’s normal loan monitoring process. This process includes the review of delinquent and problem loans at the Company’s Delinquency, Credit, Credit Risk Management and Allowance Committees; or which may be identified through the Company’s loan review process. Generally, the Company only evaluates loans individually for impairment if the loan is non-accrual, non-homogeneous and the balance is at least $1.0 million, or if the loan was modified as a TDR.million.
For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the fair value of the collateral less any selling costs. If the loan is not collateral dependent, the allowance for credit losses related to individually assessed loans is based on discounted expected cash flows using the loan’s initial effective interest rate.
A loan for which the terms have been modified resulting in a concession by the Company, and for which the borrower is experiencing financial difficulties is considered to be a TDR. The allowance for credit losses on a TDR is measured using the same method as all other impaired loans, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.
For loans acquired that have experienced more-than-insignificant deterioration in credit quality since their origination are considered Purchased Credit Deteriorated ("PCD")PCD loans. The Company evaluates acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) troubled debt restructuredmodification designation; (3) risk ratings of special mention, substandard or doubtful; (4) watchlist credits; and (5) delinquency status, including loans that are current on acquisition date, but had been previously delinquent. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. Subsequent to the acquisition date, the initial allowance for credit losses on PCD loans will increase or decrease based on future evaluations, with changes recognized in the provision for credit losses.
Management believes the primary risks inherent in the portfolio are a general decline in the economy, a decline in real estate market values, rising unemployment or a protracted period of elevated unemployment, increasing vacancy rates in commercial investment properties and possible increases in interest rates in the absence of economic improvement. As the impact of COVID-19 continues, the effectiveness of medical advances, government programs and the resulting impact on consumer behavior and employment conditions will have a material bearing on future credit conditions. Any one or a combination of these events may adversely affect borrowers’ ability to repay the loans, resulting in increased delinquencies, credit losses and higher levels of provisions. Management considers it important to maintain the ratio of the allowance for credit losses to total loans at an acceptable level given current and forecasted economic conditions, interest rates and the composition of the portfolio.
Although management believes that the Company has established and maintained the allowance for credit losses at appropriate levels, additions may be necessary if future economic and other conditions differ substantially from the current operating environment and economic forecast. Management evaluates its estimates and assumptions on an ongoing basis giving consideration to forecasted economic factors, historical loss experience and other factors. Such estimates and assumptions are adjusted when facts and circumstances dictate. In addition to the ongoing impact of COVID-19, illiquid credit markets, volatile securities markets, and declines in the housing and commercial real estate markets and the economy in general may increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the
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economic environment will be reflected in the financial statements in future periods. In addition, various regulatory agencies periodically review the adequacy of the Company’s allowance for credit losses as an integral part of their examination process. Such agencies may require the Company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination. Although management uses the best information available, the level of the allowance for credit losses remains an estimate that is subject to significant judgment and short-term change.
The CECL approach to calculate the allowance for credit losses on loans is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized.
Material changes to these and other relevant factors creates greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings. Management considers different economic scenarios that may impactFor the allowance for credit losses on loans. Among other balance sheetthree and income statement changes, these scenarios could result in a significant increase tosix months ended June 30, 2023, the allowance for credit losses on loans. These scenarios include both the quantitative and qualitative components of the model and demonstrate how sensitive the allowance can be to key assumptions underlying the overall calculation. To the extent actual losses are higher than management estimates, additional provision for credit losses on loans could be requiredtotaled $10.4 million and could adversely affect our earnings or financial position in future periods. See Note 4$16.4 million, compared to the Consolidated Financial Statements for more information on the allowancea $3.0 million provision for credit losses on loans.and a $3.4 million negative provision for credit losses for the three and six months ended June 30, 2022. The increases in provision for
The determination
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both periods was primarily attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices over the expected life of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities and estimates of future taxable income. Such estimates are subject to management’s judgment. A valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items. The Company did not require a valuation allowance at September 30, 2022 or December 31, 2021.loan portfolio within our CECL model, combined with an increase in total loans outstanding.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBERJUNE 30, 20222023 AND DECEMBER 31, 20212022
Total assets at SeptemberJune 30, 20222023 were $13.60$14.03 billion, a $177.4$246.2 million decreaseincrease from December 31, 2021.2022. The decreaseincrease in total assets was primarily due to a $527.6$281.6 million decreaseincrease in cash and cash equivalents andtotal loans, partially offset by a $250.5$37.8 million decrease in total investments, partially offset by a $464.9 million increase in total loans.investments.
The Company’s loan portfolio increased $464.9$281.6 million to $10.05$10.53 billion at SeptemberJune 30, 2022,2023, from $9.58$10.25 billion at December 31, 2021.2022. For the ninesix months ended SeptemberJune 30, 2022,2023, loan funding, including advances on lines of credit, totaled $3.05$1.79 billion, compared with $2.54$2.15 billion for the same period in 2021. Total PPP loans outstanding, which are included in total commercial loans, decreased $89.3 million to $5.6 million at September 30, 2022, from $94.9 million at December 31, 2021. Excluding2022. During the decrease in PPP loans, during the ninesix months ended SeptemberJune 30, 2022,2023, the Company experiencedloan portfolio had net increases of $410.2$57.3 million in commercial mortgage loans, $114.0$132.0 million in multi-family loans and $91.0$114.8 million in commercial loans, partially offset by net decreases in residential mortgage, construction and consumer loans of $33.3$11.5 million $16.4$8.3 million and $10.9$3.5 million, respectively. Commercial loans, consisting of commercial real estate, multi-family, commercial and construction loans, represented 85.2%86.1% of the loan portfolio at SeptemberJune 30, 2022,2023, compared to 84.1%85.6% at December 31, 2021.2022.
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 $191.6$186.0 million and $105.6$87.0 million, respectively, at SeptemberJune 30, 2022,2023, compared to $167.1$203.9 million and $78.5$87.3 million, respectively, at December 31, 2021. No2022. One SNC relationships wererelationship, with an outstanding balance of $7.3 million was 90 days or more delinquent at SeptemberJune 30, 2022.2023.
The Company had outstanding junior lien mortgages totaling $138.7$135.2 million at SeptemberJune 30, 2022.2023. Of this total, three loans totaling $124,200$237,900 were 90 days or more delinquent with an allowance for credit losses of $2,300.
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$4,675.
The following table sets forth information regarding the Company’s non-performing assets as of SeptemberJune 30, 20222023 and December 31, 20212022 (in thousands):
September 30, 2022December 31, 2021June 30, 2023December 31, 2022
Mortgage loans:Mortgage loans:Mortgage loans:
ResidentialResidential$3,120 6,072 Residential$1,698 1,928 
CommercialCommercial35,352 16,887 Commercial7,279 28,212 
Multi-familyMulti-family1,583 439 Multi-family2,314 1,565 
ConstructionConstruction1,878 2,365 Construction1,874 1,878 
Total mortgage loansTotal mortgage loans41,933 25,763 Total mortgage loans13,165 33,583 
Commercial loansCommercial loans17,181 20,582 Commercial loans31,885 24,188 
Consumer loansConsumer loans387 1,682 Consumer loans878 738 
Total non-performing loansTotal non-performing loans59,501 48,027 Total non-performing loans45,928 58,509 
Foreclosed assetsForeclosed assets2,053 8,731 Foreclosed assets13,697 2,124 
Total non-performing assetsTotal non-performing assets$61,554 56,758 Total non-performing assets$59,625 60,633 
The following table sets forth information regarding the Company’s 60-89 day delinquent loans as of SeptemberJune 30, 20222023 and December 31, 20212022 (in thousands):
September 30, 2022December 31, 2021June 30, 2023December 31, 2022
Mortgage loans:Mortgage loans:Mortgage loans:
ResidentialResidential$302 1,131 Residential$1,171 1,114 
CommercialCommercial— 3,960 Commercial1,137 412 
Total mortgage loansTotal mortgage loans302 5,091 Total mortgage loans2,308 2,623 
Commercial loansCommercial loans1,135 1,289 Commercial loans90 1,014 
Consumer loansConsumer loans379 228 Consumer loans147 147 
Total 60-89 day delinquent loansTotal 60-89 day delinquent loans$1,816 6,608 Total 60-89 day delinquent loans$2,545 3,784 
At SeptemberJune 30, 2022,2023, the Company’s allowance for credit losses related to the loan portfolio was 0.88%0.97% of total loans, compared to 0.84%0.79% at December 31, 20212022 and SeptemberJune 30, 2021,2022, respectively. The Company recorded a provision for credit losses on loans of $8.4
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$10.4 million and $5.0$16.4 million for the three and ninesix months ended SeptemberJune 30, 2022,2023, compared with a provision of $1.0$3.0 million and a negative provision of $24.7$3.4 million for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively. For the three and ninesix months ended SeptemberJune 30, 2022,2023, the Company had net recoveriescharge-offs of $1.2$1.1 million and $2.9$1.8 million, respectively, compared to net charge-offs of $1.9 million$259,000 and net recoveries of $3.3$1.7 million, respectively, for the same periods in 2021.2022. The allowance for credit losses increased $7.9$14.1 million to $88.6$102.1 million at SeptemberJune 30, 20222023 from $80.7$88.0 million at December 31, 2021.2022. The increaseincreases in provision for both periods was primarily attributable to a worsened economic forecast and related deterioration in the period-over-period provision for credit losses was largely a functionprojected commercial property price indices over the expected life of the significant favorable impact of the post-pandemic recovery resulting in a large negative provision taken in the prior year period,loan portfolio within our CECL model, combined with the current weakening economic forecast and an increase in total loans outstanding.
Total non-performing loans were $59.5$45.9 million, or 0.59%0.44% of total loans at SeptemberJune 30, 2022,2023, compared to $48.0$58.5 million, or 0.50%0.57% of total loans at December 31, 2021.2022. The $11.5$12.6 million increasedecrease in non-performing loans consisted of an $18.5a $20.9 million increasedecrease in non-performing commercial mortgage loans and a $230,000 decrease in non-performing residential mortgage loans, partially offset by a $3.4$7.7 million decreaseincrease in non-performing commercial loans and a $3.0 million decrease in non-performing residential mortgage loans, a $1.3 million decrease$140,000 increase in non-performing consumer loans and a $487,000 decrease in non-performing construction loans.
At SeptemberJune 30, 20222023 and December 31, 2021,2022, the Company held foreclosed assets of $2.1$13.7 million and $8.7$2.1 million, respectively. During the ninesix months ended SeptemberJune 30, 2022,2023, there were fourthree additions to foreclosed assets with an aggregate carrying value of $1.1$12.3 million and three properties sold with an aggregate carrying value of $7.6 million and a valuation charge of $200,000.$768,000. Foreclosed assets at SeptemberJune 30, 20222023 consisted primarily of commercial real estate. Total non-performing assets at SeptemberJune 30, 2022 increased $4.82023 decreased $1.0 million to $61.6$59.6 million, or 0.45%0.42% of total assets, from $56.8$60.6 million, or 0.41%0.44% of total assets at December 31, 2021.2022.
Cash and cash equivalentsTotal investment securities were $184.9 million$2.22 billion at SeptemberJune 30, 2022,2023, a $527.6$37.8 million decrease from December 31, 2021, primarily due to the reinvestment of excess liquidity into higher yielding loans, combined with a decrease in short term investments.
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Total investments were $2.28 billion at September 30, 2022, a $250.5 million decrease from December 31, 2021.2022. This decrease was primarily due to an increase in unrealized losses on available for sale debt securities, repayments of mortgage-backed securities and maturities and calls of certain municipal and agency bonds, partially offset by purchases of mortgage-backed and municipal securities and an improvement in unrealized losses on available for sale debt securities.
Total deposits decreased $548.4$301.9 million during the ninesix months ended SeptemberJune 30, 2022,2023, to $10.69$10.26 billion. Total savings and demand deposit accounts decreased $536.0$570.8 million to $10.01$9.24 billion at SeptemberJune 30, 2022,2023, while total time deposits decreased $12.4increased $268.9 million to $680.1 million$1.02 billion at SeptemberJune 30, 2022.2023. The decrease in savings and demand deposits was largely attributable to a $296.3$285.5 million decrease in interestnon-interest bearing demand deposits, as the Company shifted $360.0 million of brokered demand deposits into lower-costing Federal Home Loan Bank of New York ("FHLB") borrowings, a $196.9$269.5 million decrease in money market deposits and an $84.1a $163.3 million decrease in non-interest bearing demandsavings deposits, partially offset by a $41.3$147.6 million increase in savingsinterest bearing demand deposits. During the six months ended June 30, 2023, deposit balances from traditional non-interest and interest bearing demand deposits transitioned into our insured cash sweep ("ICS") product, as a method to increase the level of customers' deposit insurance in light of recent deposit turmoil in the banking industry. The decreaseBank's ICS deposits increased $324.0 million to $382.9 million at June 30, 2023, from $58.9 million at December 31, 2022. The increase in time deposits was primarily due to maturitiesconsisted of longer-terma $258.3 million increase in retail time deposits partially offset by the inflow ofand a $10.6 million increase in brokered time deposits.
Borrowed funds increased $436.8$512.3 million during the ninesix months ended SeptemberJune 30, 2022,2023, to $1.06$1.85 billion. The increase in borrowings was largely due to asset funding requirements, partially to replace the maturity and replacementoutflow of brokered deposits into lower-costing FHLB borrowings.deposits. Borrowed funds represented 7.8%13.2% of total assets at SeptemberJune 30, 2022,2023, an increase from 4.5%9.7% at December 31, 2021.2022.
Stockholders’ equity decreased $146.1increased $44.8 million during the ninesix months ended SeptemberJune 30, 2022,2023, to $1.55$1.64 billion, primarily due to net income earned for the period and an increaseimprovement in unrealized losses on available for sale debt securities, partially offset by cash dividends paid to stockholders and common stock repurchases, partially offset by net income earned for the period.stockholders. For the ninesix months ended SeptemberJune 30, 2022,2023, common stock repurchases totaled 2,045,03771,357 shares at an average cost of $23.23$23.32 per share, all of which 17,746 shares, at an average cost of $23.52 per share, were made in connection with withholding to cover income taxes on the vesting of stock-based compensation. At SeptemberJune 30, 2022,2023, approximately 1.1 million shares remained eligible for repurchase under the current stock repurchase authorization.
Liquidity and Capital Resources. Liquidity refers to the Company’s ability to generate adequate amounts of cash to meet financial obligations to its depositors, to fund loans and securities purchases and operating expenses. Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of unpledged investments, cash flows from mortgage-backed securities and the ability to borrow funds from the FHLBNY and approved broker-dealers.
Cash flows from loan payments and maturing investment securities are fairly predictable sources of funds. Changes in interest rates, local economic conditions the COVID-19 pandemic and related government response and the competitive marketplace can influence loan prepayments, prepayments on mortgage-backed securities and deposit flows. For six months ended June 30, 2023 and 2022, loan repayments totaled $1.50 billion and $1.70 billion, respectively.
In response to the COVID-19 pandemic,
As deposits have declined, the Company escalated the monitoring ofhas continued to monitor and focus on deposit behavior utilization of credit lines, and borrowing capacity with the FHLBNY and FRBNY, with current borrowing capacity of $1.31 billion and continues$1.69 billion, respectively at June 30, 2023. Our estimated uninsured and uncollateralized deposits at June 30, 2023 totaled $2.72 billion. At June 30, 2023, Provident Bank
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had on balance sheet liquidity and borrowing capacity totaling $3.82 billion, representing 140% of estimated uninsured and uncollateralized deposits. All borrowing capacity is immediately available.
The Bank established the Bank Term Funding Program with the Federal Reserve Bank of New York in March and pledged approximately $521 million in unencumbered security collateral to enhancethe facility improving its collateral position with these funding sources.access to immediate funding. Advances under the Program can be requested until March 11, 2024. As of June 30, 2023, the Company had not taken any advances under the Program, but has this option available as a short term liquidity source.
During the six months ended June 30, 2023, deposit balances from traditional non-interest and interest bearing demand deposits transitioned into our ICS product, as a method to increase the level of customers' deposit insurance in light of recent banking turmoil. As of June 30, 2023, our ICS deposits totaled $382.9 million, compared to $58.9 million at December 31, 2022.
The Federal Deposit Insurance Corporation ("FDIC") and the other federal bank regulatory agencies issued a final rule that revised the leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act, that were effective January 1, 2015. Among other things, the rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), adopted a uniform minimum leverage capital ratio at 4%, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on non-accrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rule also required unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out was exercised. The Company exercised the option to exclude unrealized gains and losses from the calculation of regulatory capital. Additional constraints were also imposed on the inclusion in regulatory capital of mortgage-servicing assets, deferred tax assets and minority interests. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer,” of 2.5% in addition to the amount necessary to meet its minimum risk-based capital requirements.
In the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule providing banking institutions that adopted CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five yearfive-year transition in total). In connection with its adoption of CECL on January 1, 2020, the Company elected to utilize the five-year CECL transition.
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At SeptemberJune 30, 2022,2023, the Bank and the Company exceeded all current minimum regulatory capital requirements as follows:
September 30, 2022June 30, 2023
RequiredRequired with Capital Conservation BufferActualRequiredRequired with Capital Conservation BufferActual
AmountRatioAmountRatioAmountRatioAmountRatioAmountRatioAmountRatio
(Dollars in thousands)(Dollars in thousands)
Bank:(1)
Bank:(1)
Bank:(1)
Tier 1 leverage capitalTier 1 leverage capital$526,697 4.00 %$526,697 4.00 %$1,222,092 9.28 %Tier 1 leverage capital$535,118 4.00 %535,118 4.00 %1,316,418 9.84 %
Common equity Tier 1 risk-based capitalCommon equity Tier 1 risk-based capital525,767 4.50 817,860 7.00 1,222,092 10.46 Common equity Tier 1 risk-based capital528,994 4.50 822,880 7.00 1,316,418 11.20 
Tier 1 risk-based capitalTier 1 risk-based capital701,023 6.00 993,116 8.50 1,222,092 10.46 Tier 1 risk-based capital705,325 6.00 999,211 8.50 1,316,418 11.20 
Total risk-based capitalTotal risk-based capital934,697 8.00 1,226,790 10.50 1,302,104 11.14 Total risk-based capital940,434 8.00 1,234,320 10.50 1,411,146 12.00 
Company:Company:Company:
Tier 1 leverage capitalTier 1 leverage capital$526,913 4.00 %$526,913 4.00 %$1,288,635 9.78 %Tier 1 leverage capital$535,343 4.00 %535,343 4.00 %1,368,362 10.22 %
Common equity Tier 1 risk-based capitalCommon equity Tier 1 risk-based capital526,004 4.50 818,228 7.00 1,275,748 10.91 Common equity Tier 1 risk-based capital529,252 4.50 823,280 7.00 1,355,475 11.53 
Tier 1 risk-based capitalTier 1 risk-based capital701,338 6.00 993,562 8.50 1,288,635 11.02 Tier 1 risk-based capital705,669 6.00 999,698 8.50 1,368,362 11.63 
Total risk-based capitalTotal risk-based capital935,117 8.00 1,227,342 10.50 1,368,647 11.71 Total risk-based capital940,892 8.00 1,234,921 10.50 1,463,090 12.44 
(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 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20222023 AND 20212022
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General. The Company reported net income of $43.4$32.0 million, or $0.58$0.43 per basic and diluted share for the three months ended SeptemberJune 30, 2022,2023, compared to net income of $37.3$39.2 million, or $0.49$0.53 per basic and diluted share, for the three months ended SeptemberJune 30, 2021.2022. For the ninesix months ended SeptemberJune 30, 2022,2023, the Company reported net income of $126.6$72.5 million, or $1.69$0.97 per basic share and diluted share, compared to net income of $130.6$83.2 million, or $1.71$1.11 per basic share and $1.70 per diluted share, for the ninesix months ended SeptemberJune 30, 2021. Current quarter earnings were2022.
Net income for the three and six months ended June 30, 2023, was negatively impacted by $2.9 million of non-tax deductiblean increase in funding costs and an increase in the provision for credit losses due to a worsened economic forecast. In addition, transaction costs related to theour pending merger with Lakeland that was announcedBancorp, Inc. (“Lakeland”) totaled $2.0 million and $3.1 million for the three and six months ended June 30, 2023, respectively.
The following tables sets forth certain information for the three and six months ended June 30, 2023. For the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on September 27, 2022.average interest-bearing liabilities is expressed both in dollars and rates. No tax equivalent adjustments were made. Average balances are daily averages.
49


For the three months ended
June 30, 2023June 30, 2022
Average BalanceInterestAverage
Yield/Cost
Average BalanceInterestAverage
Yield/Cost
(Dollars in Thousands) (Unaudited)
Interest Earning Assets:
Deposits$73,470 $947 5.17 %77,761 191 0.98 %
Federal funds sold and other short-term investments88 6.75 %99,825 371 1.49 %
Available for sale debt securities1,801,050 10,2902.29 %2,023,199 53528,0931.60 %
Held to maturity debt securities, net (1)
379,958 2,3572.48 %412,229 2,4892.41 %
Equity securities, at fair value1,006 — — %1,019 — — %
Federal Home Loan Bank stock82,171 1,1425.56 %31,682 3614.55 %
Net loans: (2)
Total mortgage loans7,701,072 99,3025.11 %7,252,665 69,0733.78 %
Total commercial loans2,234,043 31,4265.59 %2,107,681 22,3634.22 %
Total consumer loans303,109 4,4315.86 %322,681 3,3444.16 %
Total net loans10,238,224 135,1595.24 %9,683,027 94,7803.89 %
Total interest earning assets$12,575,967 $149,896 4.73 %12,328,742 106,285 3.43 %
Non-Interest Earning Assets:
Cash and due from banks129,979 129,953 
Other assets1,127,109 1,082,514 
Total assets$13,833,055 13,541,209 
Interest Bearing Liabilities:
Demand deposits$5,620,268 $28,613 2.04 %6,189,722 4,458 0.29 %
Savings deposits1,307,830 5370.16 %1,496,064 2850.08 %
Time deposits968,344 7,2973.02 %695,015 8330.48 %
Total deposits7,896,442 36,4471.85 %8,380,801 5,5760.27 %
Borrowed funds1,658,809 14,0883.41 %527,630 1,1040.84 %
Subordinated debentures10,563 255 9.66 %10,355 130 5.05 %
Total interest bearing liabilities$9,565,814 50,7902.13 %8,918,786 6,8100.31 %
Non-Interest Bearing Liabilities:
Non-interest bearing deposits$2,368,960 2,776,507 
Other non-interest bearing liabilities244,604 244,671 
Total non-interest bearing liabilities2,613,564 3,021,178 
Total liabilities12,179,378 11,939,964 
Stockholders' equity1,653,677 1,601,245 
Total liabilities and stockholders' equity$13,833,055 13,541,209 
Net interest income$99,106 99,475 
Net interest rate spread2.60 %3.12 %
Net interest-earning assets$3,010,153 3,409,956 
Net interest margin (3)
3.11 %3.21 %
Ratio of interest-earning assets to total interest-bearing liabilities1.31x1.38x
(1)Average outstanding balance amounts shown are amortized cost, net of allowance for credit losses.
(2)Average outstanding balances are net of the allowance for loan losses, deferred loan fees and expenses, loan premiums and discounts and include non-accrual loans.
(3)Annualized net interest income divided by average interest-earning assets.

50



For the six months ended
June 30, 2023June 30, 2022
Average BalanceInterestAverage
Yield/Cost
Average BalanceInterestAverage
Yield/Cost
(Dollars in Thousands) (Unaudited)
Interest Earning Assets:
Deposits$72,750 $1,791 4.97 %175,341 298 0.34 %
Federal funds sold and other short-term investments59 6.00 %147,447 911 1.25 %
Available for sale debt securities1,804,814 20,6922.29 %2,069,270 15,6711.51 %
Held to maturity debt securities, net (1)
381,921 4,7252.47 %420,133 5,0852.42 %
Equity securities, at fair value999 — — %1,055 — — %
Federal Home Loan Bank stock70,702 2,1706.14 %31,296 7354.70 %
Net loans: (2)
Total mortgage loans7,671,493 195,2905.07 %7,156,189 132,9083.70 %
Total commercial loans2,191,222 60,1095.49 %2,105,001 45,1844.30 %
Total consumer loans303,724 8,6735.76 %321,796 6,4834.06 %
Total net loans10,166,439 264,0725.18 %9,582,986 184,5753.84 %
Total interest earning assets$12,497,684 $293,452 4.68 %12,427,528 207,275 3.33 %
Non-Interest Earning Assets:
Cash and due from banks136,431 126,423 
Other assets1,149,044 1,062,948 
Total assets$13,783,159 13,616,899 
Interest Bearing Liabilities:
Demand deposits$5,695,507 $50,533 1.79 %6,238,860 8,653 0.28 %
Savings deposits1,352,874 9900.15 %1,486,407 5760.08 %
Time deposits914,358 12,4342.74 %687,956 1,5340.45 %
Total deposits7,962,739 63,9571.62 %8,413,223 10,7630.26 %
Borrowed funds1,442,744 21,5643.01 %538,593 2,2720.85 %
Subordinated debentures10,537 501 9.58 %10,328 239 4.66 %
Total interest bearing liabilities$9,416,020 86,0221.84 %8,962,144 13,2740.30 %
Non-Interest Bearing Liabilities:
Non-interest bearing deposits$2,459,375 2,781,248 
Other non-interest bearing liabilities267,666 229,958 
Total non-interest bearing liabilities2,727,041 3,011,206 
Total liabilities12,143,061 11,973,350 
Stockholders' equity1,640,099 1,643,549 
Total liabilities and stockholders' equity$13,783,160 13,616,899 
Net interest income$207,430 194,001 
Net interest rate spread2.84 %3.03 %
Net interest-earning assets$3,081,664 3,465,384 
Net interest margin (3)
3.29 %3.11 %
Ratio of interest-earning assets to total interest-bearing liabilities1.33x1.39x
(1)Average outstanding balance amounts shown are amortized cost, net of allowance for credit losses.
(2)Average outstanding balances are net of the allowance for loan losses, deferred loan fees and expenses, loan premiums and discounts and include non-accrual loans.
(3)Annualized net interest income divided by average interest-earning assets.
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Net Interest Income. Total netNet interest income increased $18.3 milliondecreased $369,000 to $109.5$99.1 million for the three months ended SeptemberJune 30, 2022,2023, from $91.2$99.5 million for same period in 2022. For the threesix months ended SeptemberJune 30, 2021. For the nine months ended September 30, 2022,2023, total net interest income increased $31.4$13.4 million to $303.5$207.4 million, from $272.1$194.0 million for the same period in 2021. Interest income for the three months ended September 30, 2022 increased $22.1 million to $121.7 million, from $99.6 million for the same period in 2021. For the nine months ended September 30, 2022, interest income increased $28.3 million to $329.0 million, from $300.7 million for the nine months ended September 30, 2021. Interest expense increased $3.9 million to $12.2 million for the three months ended September 30, 2022, from $8.4 million for the three months ended September 30, 2021. For the nine months ended September 30, 2022, interest expense decreased $3.0 million to $25.5 million, from $28.5 million for the nine months ended September 30, 2021.2022. The increasedecrease in net interest income for the three months ended SeptemberJune 30, 2022,2023, was largelyprimarily due to a decrease in lower-costing deposits and an increase in borrowings, combined with unfavorable repricing of both deposits and borrowings, partially offset by originations of new loans and the period over periodfavorable repricing of adjustable-rate loans. The increase in net interest income for the six months ended June 30, 2023, was primarily driven by an increase in the net interest margin resulting from the favorable repricing of adjustable rateadjustable-rate loans, higher market rates on new loan originations and the reinvestmentoriginations of cash flows from investment securities into higher-yielding loans. This wasloans, partially offset by the more modest unfavorable repricing of interest-bearing liabilities. For the three months ended September 30, 2022,both deposits and borrowings, a decrease in lower-costing deposits and an increase in borrowings. Additionally, fees related to the forgiveness of PPP loans, decreased $2.4 million to $100,000,which are recognized in interest income, were approximately $4,000 for the six months ended June 30, 2023, compared to $2.5$1.3 million for the threesix months ended SeptemberJune 30, 2021. The increase in net interest income for the nine months ended September 30, 2022, was primarily driven by the favorable repricing of adjustable rate loans and an increase in rates on new loan originations. Net interest income was further enhanced by growth in lower-costing core and non-interest bearing deposits and increases in available for sale debt securities and total loans outstanding. This was partially offset by a reduction in fees related to the forgiveness of PPP loans. For the nine months ended September 30, 2022, fees related to the forgiveness of PPP loans decreased $7.9 million to $1.4 million, compared to $9.3 million for the nine months ended September 30, 2021.2022.
The net interest margin increased 57decreased 10 basis points to 3.51%3.11% for the quarter ended SeptemberJune 30, 2022,2023, compared to 2.94%3.21% for the quarter ended SeptemberJune 30, 2021.2022. The weighted average yield on interest-earning assets increased 69130 basis points to 3.90%4.73% for the quarter ended SeptemberJune 30, 2022,2023, compared to 3.21%3.43% for the quarter ended SeptemberJune 30, 2021,2022, while the weighted average cost of interest bearinginterest-bearing liabilities increased 17182 basis points for the quarter ended SeptemberJune 30, 20222023, to 0.54%2.13%, compared to the quarter ended SeptemberJune 30, 2021.2022. The average cost of interest bearinginterest-bearing deposits for the quarter ended
50


September June 30, 20222023, was 0.47%1.85%, compared to 0.30%0.27% for the same period last year. Average non-interest bearing demand deposits totaled $2.75$2.37 billion for the quarter ended SeptemberJune 30, 2022,2023, compared to $2.55$2.78 billion for the quarter ended SeptemberJune 30, 2021.2022. The average cost of total deposits, including non-interest bearing deposits, was 0.35%1.42% for the quarter ended SeptemberJune 30, 2022,2023, compared with 0.23%0.20% for the quarter ended SeptemberJune 30, 2021.2022. The average cost of borrowed funds for the quarter ended SeptemberJune 30, 20222023, was 1.11%3.41%, compared to 1.08%0.84% for the same period last year.
For the ninesix months ended SeptemberJune 30, 2022,2023, the net interest margin increased 2518 basis points to 3.24%3.29%, compared to 2.99%3.11% for the ninesix months ended SeptemberJune 30, 2021.2022. The weighted average yield on interest earninginterest-earning assets increased 20135 basis points to 3.51%4.68% for the ninesix months ended SeptemberJune 30, 2022,2023, compared to 3.31%3.33% for the ninesix months ended SeptemberJune 30, 2021,2022, while the weighted average cost of interest bearinginterest-bearing liabilities decreased fiveincreased 154 basis points to 0.38%1.84% for the ninesix months ended SeptemberJune 30, 2022,2023, compared to 0.43%0.30% for the same period last year. The average cost of interest bearinginterest-bearing deposits decreased oneincreased 136 basis pointpoints to 0.33%1.62% for the ninesix months ended SeptemberJune 30, 2022,2023, compared to 0.34%0.26% for the same period last year. Average non-interest bearing demand deposits totaled $2.77$2.46 billion for the ninesix months ended SeptemberJune 30, 2022,2023, compared with $2.47$2.78 billion for the ninesix months ended SeptemberJune 30, 2021.2022. The average cost of total deposits, including non-interest bearing deposits, was 0.25%1.24% for the ninesix months ended SeptemberJune 30, 2022,2023, compared with 0.26%0.19% for the ninesix months ended SeptemberJune 30, 2021.2022. The average cost of borrowings for the ninesix months ended SeptemberJune 30, 20222023, was 0.97%3.01%, compared to 1.13%0.85% for the same period last year.
Interest income on loans secured by real estate increased $17.8$30.2 million to $80.3$99.3 million for the three months ended SeptemberJune 30, 2022,2023, from $62.5$69.1 million for the three months ended SeptemberJune 30, 2021.2022. Commercial loan interest income increased $747,000$9.1 million to $25.2$31.4 million for the three months ended SeptemberJune 30, 2022,2023, from $24.5$22.4 million for the three months ended SeptemberJune 30, 2021.2022. Consumer loan interest income increased $440,000$1.1 million to $3.8$4.4 million for the three months ended SeptemberJune 30, 2022,2023, from $3.3 million for the three months ended SeptemberJune 30, 2021.2022. For the three months ended SeptemberJune 30, 2022,2023, the average balance of total loans increased $475.8$555.2 million to $9.91$10.24 billion, compared to the same period in 2021.2022. The average yield on total loans for the three months ended SeptemberJune 30, 2022,2023, increased 61135 basis points to 4.38%5.24%, from 3.77%3.89% for the same period in 2021.2022.
Interest income on loans secured by real estate increased $25.8$62.4 million to $213.2$195.3 million for the ninesix months ended SeptemberJune 30, 2022,2023, from $187.4$132.9 million for the ninesix months ended SeptemberJune 30, 2021.2022. Commercial loan interest income decreased $5.4increased $14.9 million to $70.4$60.1 million for the ninesix months ended SeptemberJune 30, 2022,2023, from $75.8$45.2 million for the ninesix months ended SeptemberJune 30, 2021.2022. Consumer loan interest income increased $19,000$2.2 million to $10.3$8.7 million for the ninesix months ended SeptemberJune 30, 2022,2023, from $10.2$6.5 million for the ninesix months ended SeptemberJune 30, 2021.2022. For the ninesix months ended SeptemberJune 30, 2022,2023, the average balance of total loans was $9.69$10.17 billion, compared with $9.58 billion for the same period in 2021.2022. The average yield on total loans for the ninesix months ended SeptemberJune 30, 2022,2023, increased 23134 basis points to 4.01%5.18%, from 3.78%3.84% for the same period in 2021.2022.
Interest income on held to maturity debt securities decreased $222,000$132,000 to $2.4 million for the three months ended SeptemberJune 30, 2022,2023, compared to the same period last year. Average held to maturity debt securities decreased $33.1$32.3 million to $399.4$380.0 million for the three months ended SeptemberJune 30, 2022,2023, from $432.5$412.2 million for the same period last year. Interest income on held to maturity debt securities decreased $621,000$360,000 to $7.5$4.7 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to the same period in 2021.2022. Average held to maturity debt securities decreased $27.1$38.2 million to $413.1$381.9 million for the ninesix months ended SeptemberJune 30, 2022,2023, from $440.3$420.1 million for the same period last year.
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Interest income on available for sale debt securities and FHLBNY stock increased $3.7$3.0 million to $9.6$11.4 million for the three months ended SeptemberJune 30, 2022,2023, from $5.9$8.5 million for the three months ended SeptemberJune 30, 2021.2022. The average balance of available for sale debt securities and FHLBNY stock increased $320.6decreased $171.7 million to $2.00$1.88 billion for the three months ended SeptemberJune 30, 2022,2023, compared to the same period in 2021.2022. Interest income on available for sale debt securities and FHLBNY stock increased $8.8$6.5 million to $26.0$22.9 million for the ninesix months ended SeptemberJune 30, 2022,2023, from $17.2$16.4 million for the same period last year. The average balance of available for sale debt securities and FHLBNY stock increased $626.5decreased $225.1 million to $2.07$1.88 billion for the ninesix months ended SeptemberJune 30, 2022.2023.
The average yield on total securities increased to 2.36%2.53% for the three months ended SeptemberJune 30, 2022,2023, compared with 1.32%1.74% for the same period in 2021.2022. For the ninesix months ended SeptemberJune 30, 2022,2023, the average yield on total securities increased to 1.72%2.52%, compared with 1.47%1.59% for the same period in 2021.2022.
Interest expense on deposit accounts increased $3.3$30.9 million to $9.6 million for the three month ended September 30, 2022, compared with $6.3$36.4 million for the three months ended SeptemberJune 30, 2021.2023, compared with $5.6 million for the three months ended June 30, 2022. For the ninesix months ended SeptemberJune 30, 2022,2023, interest expense on deposit accounts decreased $173,000increased $53.2 million to $20.3$64.0 million, from $20.5$10.8 million for the same period last year. The average cost of interest bearinginterest-bearing deposits increased to 0.47%1.85% and decreased to 0.33%1.62% for the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, from 0.30%0.27% and 0.34%0.26% for the three and ninesix months ended SeptemberJune 30, 2021,
51


2022, respectively. The average balance of interest bearinginterest-bearing core deposits, which consist of total savings and demand deposits, for the three months ended SeptemberJune 30, 2022 increased $13.42023, decreased $757.7 million to $7.42$6.93 billion. For the ninesix months ended SeptemberJune 30, 2022,2023, average interest bearinginterest-bearing core deposits increased $563.2decreased $676.9 million, to $7.62$7.05 billion, from $7.06$7.73 billion for the same period in 2021.2022. Average time deposit account balances decreased $135.3increased $273.3 million to $669.6$968.3 million for the three months ended SeptemberJune 30, 2022,2023, from $804.9$695.0 million for the three months ended SeptemberJune 30, 2021.2022. For the ninesix months ended SeptemberJune 30, 2022,2023, average time deposit account balances decreased $232.5increased $226.4 million to $681.8$914.4 million, from $914.3$688.0 million for the same period in 2021.2022.
Interest expense on borrowed funds increased $750,000$13.0 million to $2.5$14.1 million for the three months ended SeptemberJune 30, 2022,2023, from $1.8$1.1 million for the three months ended SeptemberJune 30, 2021.2022. For the ninesix months ended SeptemberJune 30, 2022,2023, interest expense on borrowed funds decreased $2.3increased $19.3 million to $4.8$21.6 million, from $7.1$2.3 million for the ninesix months ended SeptemberJune 30, 2021.2022. The average cost of borrowings increased to 1.11%3.41% for the three months ended SeptemberJune 30, 2022,2023, from 1.08%0.84% for the three months ended SeptemberJune 30, 2021.2022. The average cost of borrowings decreasedincreased to 0.97%3.01% for the ninesix months ended SeptemberJune 30, 2022,2023, from 1.13%0.85% for the same period last year. Average borrowings increased $256.4 million$1.13 billion to $908.8$1.66 billion for the three months ended June 30, 2023, from $527.6 million for the three months ended SeptemberJune 30, 2022, from $652.42022. For the six months ended June 30, 2023, average borrowings increased $904.2 million to $1.44 billion, compared to $538.6 million for the threesix months ended SeptemberJune 30, 2021. For the nine months ended September 30, 2022, average borrowings decreased $180.9 million to $663.4 million, compared to $844.2 million for the nine months ended September 30, 2021.2022.
Provision for Credit Losses. Provisions for credit losses are charged to operations in order to maintain the allowance for credit losses at a level management considers necessary to absorb projected credit losses that may arise over the expected term of each loan in the portfolio. In determining the level of the allowance for credit losses, management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable economic forecasts. The amount of the allowance is based on estimates, and the ultimate losses may vary from such estimates as more information becomes available or later events change. Management assesses the adequacy of the allowance for credit losses on a quarterly basis and makes provisions for credit losses, if necessary, in order to maintain the valuation of the allowance.
The Company recorded an $8.4a $10.4 million and $5.0$16.4 million provision for credit losses on loans for the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, compared with a provision of $1.0$3.0 million and a negative provision of $24.7$3.4 million for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively. The increase in the provision for credit losses infor the quarterthree and six months ended June 30, 2023 was largely a function of a weakeningworsened economic forecast combined with additional specific reserves on impaired commercial loans of $2.4 million. The increaseand related deterioration in the period-over-period provision for credit losses forprojected commercial property price indices over the nine months ended September 30, 2022 was largely a functionexpected life of the significant favorable impact of the post-pandemic recovery resulting in a large negative provision taken in the prior year period,loan portfolio within our CECL model, combined with the current weakening economic forecast and an increase in total loans outstanding.
Non-Interest Income. Non-interest income totaled $28.4$19.4 million for the quarter ended SeptemberJune 30, 2022, an increase2023, a decrease of $5.1$1.5 million, compared to the same period in 2021. Other2022. Fee income increased $6.2decreased $1.6 million to $10.4$5.8 million for the three months ended SeptemberJune 30, 2022,2023, compared to the trailing quarter, ended September 30, 2021, primarily due to an $8.6 million gain realized on the sale of a forecloseddecreases in commercial office propertyloan prepayment fees and deposit fee income. Other income decreased $647,000 to a purchaser who intends to reposition the property to industrial use in the current quarter, partially offset by the prior year $3.4 million reduction in the contingent consideration related to the earn-out provisions of the 2019 purchase of Tirschwell & Loewy, Inc. ("T&L"). Additionally, insurance agency income increased $432,000 to $2.9$1.3 million for the three months ended SeptemberJune 30, 2022,2023, compared to the quarter ended SeptemberJune 30, 2021, largely2022, primarily due to strong retention revenue.a decrease in net gains on sales of SBA loans. Partially offsetting these increasesdecreases in non-interest income, wealth managementinsurance agency income decreased $1.1 millionincreased $997,000 to $6.8$3.8 million for the three months ended SeptemberJune 30, 2023, compared to the quarter ended June 30, 2022, largely due to strong retention revenue and new business activity.
For the six months ended June 30, 2023, non-interest income totaled $41.5 million, an increase of $462,000, compared to the same period in 2021,2022. Insurance agency income increased $1.7 million to $8.0 million for the six months ended June 30, 2023, compared to $6.3 million for the same period in 2022, largely due to increases in contingent commissions, retention revenue
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and new business activity. Other income increased $1.4 million to $4.6 million for the six months ended June 30, 2023, compared to $3.1 million for the same period in 2022, mainly due to a $2.0 million gain related to the resolution of certain post-closing conditions following the September 2022 sale of a foreclosed commercial property, combined with an increase in the gains on sales of SBA loans, partially offset by a decrease in net fees on loan-level interest rate swap transactions. Additionally, BOLI income increased $277,000 to $3.0 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to greater equity valuations, partially offset by a decrease in benefit claims recognized. Partially offsetting these increases to non-interest income, fee income decreased $2.2 million to $12.2 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to a decrease in commercial loan prepayment fees, while wealth management income decreased $655,000 to $13.8 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to a decrease in the market value of assets under management, while BOLI income decreased $643,000 compared to the quarter ended September 30, 2021, to $1.2 million for the three months ended September 30, 2022, primarily due to a benefit claim recognized in the prior year.
For the nine months ended September 30, 2022, non-interest income totaled $69.5 million, an increase of $3.4 million, compared to the same period in 2021. Other income increased $7.1 million to $13.5 million for the nine months ended September 30, 2022, compared to $6.4 million for the same period in 2021, primarily due to an $8.6 million gain realized on the sale of a foreclosed commercial office property to a purchaser who intends to reposition the property to industrial use and an increase in fees on loan-level interest rate swap transactions, partially offset by income recognized from a $3.4 million reduction in the contingent consideration related to the earn-out provisions of the 2019 purchase of T&L which was recorded in the prior year. Insurance agency income increased $1.1 million to $9.1 million for the nine months ended September 30, 2022, compared to $8.0 million for the same period in 2021, largely due to increases in contingent commissions, retention revenue and new business activity. Partially offsetting these increases to non-interest income, BOLI income decreased $2.0 million to $4.0 million for the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to a decrease in benefit claims recognized and lower equity valuations. Wealth management income decreased $1.6 million to $21.3 million for the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to a decrease in the market
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value of assets under management, partially offset by new business generation. Additionally, fee income decreased $1.1 million to $21.5 million for the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to a decrease in debit card revenue, which was curtailed by the Durbin amendment beginning July 1, 2021, partially offset by an increase in deposit related fees.management.
Non-Interest Expense. For the three months ended SeptemberJune 30, 2022,2023, non-interest expense totaled $69.4$64.5 million, an increase of $6.0 million,$617,000, compared to the three months ended SeptemberJune 30, 2021. Other operating2022. Merger-related expenses increased $3.3 million to $12.2totaled $2.0 million for the three months ended SeptemberJune 30, 2022,2023, as a result of transaction costs related to our pending combination with Lakeland. FDIC insurance expense increased $775,000 to $2.1 million for the three months ended June 30, 2023, compared to the same period in 2021,2022, primarily due to $2.9an increase in the assessment rate. The Company recorded a $647,000 negative provision for credit losses for off-balance sheet credit exposures, compared to a $973,000 negative provision for the same period in 2022. The $326,000 reduction in the provision benefit was primarily the result of the period-over-period relative changes in line of credit utilization. Partially offsetting these increases in non-interest expense, compensation and benefits expense decreased $2.2 million of transaction costs related to $35.3 million for three months ended June 30, 2023, compared to $37.4 million for the recently announced pending merger with Lakeland. Data processing expense increased $772,000same period in 2022. The decrease was principally due to $5.6decreases in the accrual for incentive compensation and stock-based compensation, partially offset by an increase in salary expense. Net occupancy expenses decreased $530,000 to $7.9 million for the three months ended SeptemberJune 30, 2022,2023, compared to the same period in 20212022, largely due to increasesdecreases in software subscriptiondepreciation and maintenance expenses.
Non-interest expense and online banking costs. Credit loss expensetotaled $134.0 million for the six months ended June 30, 2023, an increase of $8.2 million, compared to $125.7 million for the six months ended June 30, 2022. The Company recorded a $92,000 provision for credit losses for off-balance sheet credit exposures increased $595,000 to $1.6 million for the threesix months ended SeptemberJune 30, 2022,2023, compared to a $980,000$3.4 million negative provision for the same period in 2021.2022. The $3.5 million increase in the provision for credit losses for off-balance sheet credit exposures was primarily the result of the period-over-period relative change in line of credit utilization and an increase in projected loss factors.factors as a result of a worsened economic forecast. Merger-related expenses totaled $3.1 million for the six months ended June 30, 2023, as a result of transaction costs related to our pending combination with Lakeland. Other operating expense increased $1.8 million to $21.0 million for the six months ended June 30, 2023, compared to $19.2 million for the six months ended June 30, 2022, primarily due to an increase in consulting fees and additional expenses related to foreclosed commercial real estate owned properties. FDIC insurance expense increased $1.5 million to $4.1 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to an increase in the assessment rate. Partially offsetting these increases, net occupancy expense decreased $1.5 million to $16.4 million for the six months ended June 30, 2023, compared to the same period in 2022, mainly due to decreases in maintenance and depreciation expenses. Additionally, compensation and benefits expense increased $525,000decreased $482,000 to $38.1 million for three months ended September 30, 2022, compared to $37.6$74.0 million for the same period in 2021. The increase was principallysix months ended June 30, 2023, compared to $74.5 million for the six months ended June 30, 2022, primarily due to increasesdecreases in salary expensethe accrual for incentive and stock-based compensation, partially offset by a decrease in the accrual for incentive compensation. Net occupancy expenses increased $502,000 to $8.5 million for the three months ended September 30, 2022, compared to the same period in 2021, largely due to increases in maintenance, depreciation and rent expenses.
Non-interest expense totaled $195.2 million for the nine months ended September 30, 2022, an increase of $7.2 million, compared to $188.0 million for the nine months ended September 30, 2021. Compensation and benefits expense increased $4.8 million to $112.6 million for the nine months ended September 30, 2022, compared to $107.7 million for the nine months ended September 30, 2021, primarily due to increases in stock-based compensation and salary expense, partially offset by a decreases in the accrual for incentive compensation and post-retirement benefit expenses. Other operating expense increased $3.3 million to $31.4 million for the nine months ended September 30, 2022, compared to $28.0 million for the nine months ended September 30, 2021, primarily due to $2.9 million of transaction costs related to the recently announced pending merger with Lakeland and valuation charges on foreclosed real estate. Data processing expense increased $1.9 million to $16.6 million for the nine months ended September 30, 2022, mainly due to an increase in software subscription expenses. Additionally, net occupancy expense increased $1.1 million to $26.3 million for the nine months ended September 30, 2022, compared to the same period in 2021, mainly due to increases in rent, depreciation and maintenance expenses. Partially offsetting these increases, credit loss expense for off-balance sheet credit exposures decreased $3.9 million to a negative provision of $1.8 million for the nine months ended September 30, 2022, compared to a $2.2 million provision for the same period last year. The decrease was primarily the result of a decrease in the pipeline of loans approved and awaiting closing and an increase in line of credit utilization, partially offset by an increase in projected loss factors.salary expense.
Income Tax Expense. For the three months ended SeptemberJune 30, 2022,2023, the Company’sCompany's income tax expense was $16.7$11.6 million with an effective tax rate of 27.7%26.7%, compared with income tax expense of $12.9$14.3 million with an effective tax rate of 25.7%26.8% for the three months ended SeptemberJune 30, 2021.2022. The increasedecrease in tax expense for the three months ended SeptemberJune 30, 2022,2023, compared with the same period last year was largely the result of a decrease in taxable income, while the decrease in the effective tax rate for the three months ended June 30, 2023, compared with the three months ended June 30, 2022, was largely due to a decrease in the proportion of income derived from taxable sources.
For the six months ended June 30, 2023, the Company's income tax expense was $26.1 million with an increaseeffective tax rate of 26.4%, compared with $29.6 million with an effective tax rate of 26.2% for the six months ended June 30, 2022. The decrease in tax expense for the six months ended June 30, 2023, compared with the same period last year was largely the result of a decrease in taxable income, while the increase in the effective tax rate for the threesix months ended SeptemberJune 30, 2022,2023, compared with the three months ended September 30, 2021,prior year period was largely due to non-deductible merger related transaction costs of $2.9 million recognized in the current quarter and an increase in the proportion of income derived from taxable sources.
For the nine months ended September 30, 2022, the Company's income tax expense was $46.2 million with an effective tax rate of 26.7%, compared with $44.4 million with an effective tax rate of 25.4% for the nine months ended September 30, 2021. The increase in tax expense for the nine months ended September 30, 2022, compared with the same period last year, was largely the result of an increase in taxable income, while the increase in the effective tax rate for the nine months ended September 30, 2022, compared with the prior year was largely due to non-deductible merger related transaction costs of $2.9 million recognized in the current period and an increasepartially offset by a decrease in the proportion of income derived from taxable sources.
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Qualitative Analysis. Interest rate risk is the exposure of a bank’s current and future earnings and capital arising from adverse movements in interest rates. The guidelines of the Company’s interest rate risk policy seek to limit the exposure to changes in
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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, LIBOR or LIBOR.
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SOFR. Investment securities purchases generally have maturities of five years or less, and mortgage-backed securities have weighted average lives between three and five years.
The Asset/Liability Committee meets at least monthly, or as needed, to review the impact of interest rate changes on net interest income, net interest margin, net income and the economic value of equity. The Asset/Liability Committee reviews a variety of strategies that project changes in asset or liability mix and the impact of those changes on projected net interest income and net income.
The Company’s strategy for liabilities has been to maintain a stable core-funding base by focusing on core deposit account acquisition and increasing products and services per household. The Company’s ability to retain maturing time deposit accounts is the result of its strategy to remain competitively priced within its marketplace. The Company’s pricing strategy may vary depending upon current funding needs and the ability of the Company to fund operations through alternative sources, primarily by accessing short-term lines of credit with the FHLBNY during periods of pricing dislocation.
Quantitative Analysis. Current and future sensitivity to changes in interest rates are measured through the use of balance sheet and income simulation models. The analysis captures changes in net interest income using flat rates as a base, a most likely rate forecast and rising and declining interest rate forecasts. Changes in net interest income and net income for the forecast period, generally twelve to twenty-four months, are measured and compared to policy limits for acceptable change. The Company periodically reviews historical deposit re-pricing activity and makes modifications to certain assumptions used in its income simulation model regarding the interest rate sensitivity of deposits without maturity dates. These modifications are made to more closely reflect the most likely results under the various interest rate change scenarios. Since it is inherently difficult to predict the sensitivity of interest bearinginterest-bearing deposits to changes in interest rates, the changes in net interest income due to changes in interest rates cannot be precisely predicted. There are a variety of reasons that may cause actual results to vary considerably from the predictions presented below which include, but are not limited to, the timing, magnitude, and frequency of changes in interest rates, interest rate spreads, prepayments, and actions taken in response to such changes.
Specific assumptions used in the simulation model include:
Parallel yield curve shifts for market rates;
Current asset and liability spreads to market interest rates are fixed;
Traditional savings and interest-bearing demand accounts move at 10% of the rate ramp in either direction;
Retail Money Market and Business Money Market accounts move at 25% and 75% of the rate ramp in either direction respectively, subject to certain interest rate floors; and
Higher-balance demand deposit tiers and promotional demand accounts move at 50% to 75% of the rate ramp in either direction, subject to certain interest rate floors.
The following table sets forth the results of a twelve-month net interest income projection model as of SeptemberJune 30, 20222023 (dollars in thousands):
Change in interest rates (basis points) - Rate RampChange in interest rates (basis points) - Rate RampNet Interest IncomeChange in interest rates (basis points) - Rate RampNet Interest Income
Dollar AmountDollar ChangePercent ChangeDollar AmountDollar ChangePercent Change
-200-200$401,744 $(3,242)(0.8)%
-100-100$459,444 $(5,259)(1.1)%-100403,524 (1,462)(0.4)
StaticStatic464,703 — — Static404,986 — — 
+100+100469,235 4,532 1.0 +100406,166 1,180 0.3 
+200+200473,394 8,691 1.9 +200406,954 1,968 0.5 
+300477,425 12,722 2.7 
The interest rate risk position of the Company remains moderately asset-sensitive notwithstanding the deployment of excess cash into fixed rate longer duration assets, including investment securities and loans.fairly neutral. As a result, the preceding table indicates that, as of SeptemberJune 30, 2022,2023, in the event of a 300200 basis point increase in interest rates, whereby rates ramp up evenly over a twelve-month period, net interest income would increase 2.7%0.5%, or $12.7$2.0 million. In the event of a 100200 basis point decrease in interest rates, whereby rates ramp downward evenly over a twelve-month period, net interest income would decrease 1.1%0.8%, or $5.3$3.2 million over the same period. In this downward rate scenario, rates on deposits have a repricing floor of zero.

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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
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September June 30, 20222023 (dollars in thousands):
Present Value of EquityPresent Value of Equity as Percent of Present Value of Assets Present Value of EquityPresent Value of Equity as Percent of Present Value of Assets
Change in interest rates (basis points)Change in interest rates (basis points)Dollar AmountDollar ChangePercent
Change
Present Value
 Ratio
Percent
Change
Change in interest rates (basis points)Dollar AmountDollar ChangePercent
Change
Present Value
 Ratio
Percent
Change
-200-200$1,752,473 $(59,795)(3.3)%12.3 %(8.0)%
-100-100$2,262,024 $(10,705)(0.5)%16.3 %(3.2)%-1001,794,579 (17,689)(1.0)12.9 (3.4)
FlatFlat2,272,729 — — 16.8 — Flat1,812,268 — — 13.4 — 
+100+1002,329,654 56,925 2.5 17.7 5.0 +1001,821,117 8,849 0.5 13.8 3.0 
+200+2002,353,262 80,533 3.5 18.3 8.7 +2001,826,912 14,644 0.8 14.1 5.8 
+3002,374,576 101,847 4.5 18.9 12.3 
The preceding table indicates that as of SeptemberJune 30, 2022,2023, in the event of an immediate and sustained 300200 basis point increase in interest rates, the present value of equity is projected to increase 4.5%0.8%, or $101.8$14.6 million. If rates were to decrease 100200 basis points, the present value of equity would decrease 0.5%3.3%, or $10.7$59.8 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.
 

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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.

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
The risk factors that were previously disclosed in the Company’s Annual Report on Form 10K for the year ended December 31, 2021, have been2022, were supplemented by the Company in its Form 10-Q for the quarter ended September 30, 2022 as follows:
Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company that results from the merger of the Company and Lakeland.
Before the merger of the Company and Lakeland (the “merger”) and the subsequent merger of Lakeland Bank with and into Provident Bank (the “bank merger”) may be completed, various approvals, consents and non-objections must be obtained from the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the FDIC, the New Jersey Department of Banking and Insurance (the “NJDOBI”) and other regulatory authorities in the United States. In determining whether to grant these approvals, such regulatory authorities consider a variety of factors, including the regulatory standing of each company. These approvals could be delayed or not obtained at all, including due to an adverse development in either company’s regulatory standing or in any other factors considered by regulators when granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally.
The approvals that are granted may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the merger agreement between the Company and Lakeland. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the merger agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or otherwise reducing the anticipated benefits of the merger if the merger were consummated successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the merger. Additionally, the completion of the merger is conditioned on the absence of certain orders, injunctions or decrees by any court or regulatory agency of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the merger agreement.
In addition, despite the companies’ commitments to using their reasonable best efforts to comply with conditions imposed by regulators, under the terms of the merger agreement, neither the Company nor Lakeland, nor any of their respective subsidiaries, is permitted (without the written consent of the other party), to take any action, or commit to take any action, or agree to any condition or restriction, in connection with obtaining the required permits, consents, approvals and authorizations of governmental entities that would reasonably be expected to have a material adverse effect on the combined company and its subsidiaries, taken as a whole, after giving effect to the merger and the bank merger.
Failure to complete the merger could negatively impact the Company.
If the merger is not completed for any reason, including as a result of the Company’s stockholders or Lakeland’s shareholders failing to approve certain matters in connection with the merger at each company’s respective special meeting, there may be various adverse consequences and the Company may experience negative reactions from the financial markets and from its customers and employees. For example, the Company’s business may have been impacted adversely by the failure to pursue
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other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of the Company’s common stock could decline to the extent that current market prices reflect a market assumption that the merger will be beneficial and will be completed. The Company also could be subject to litigation related to any failure to complete the merger or to proceedings commenced against the Company to perform its obligations under the merger agreement. If the merger agreement is terminated under certain circumstances, the Company may be required to pay a termination fee of $50 million to Lakeland.
Additionally, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of preparing, filing, printing and mailing of a joint proxy statement/prospectus in connection with the merger, and all filing and other fees paid in connection with the merger. If the merger is not completed, the Company would have to pay these expenses without realizing the expected benefits of the merger.
The current volatile interest rate environment may adversely impact the fair value adjustments of investments and loans acquired in the merger.
Upon the closing of the merger, we will need to adjust the fair value of Lakeland’s investment and loan portfolios. The rising interest rate environment could have the effect of increasing the magnitude of the purchase accounting marks relating to such fair value adjustments, thereby increasing initial tangible book value dilution, extending the tangible book value earn back period, and negatively impacting the Company’s capital ratios, which may result in the Company taking steps to strengthen its capital position.
Combining the Company and Lakeland may be more difficult, costly or time-consuming than expected, and the Company may fail to realize the anticipated benefits of the merger.
The success of the merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of the Company and Lakeland. To realize the anticipated benefits and cost savings from the merger, the Company and Lakeland must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized without adversely affecting current revenues and future growth. If the Company and Lakeland are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings of the merger could be less than anticipated, and integration may result in additional and unforeseen expenses.
An inability to realize the full extent of the anticipated benefits of the merger and the other transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results of the combined company following the completion of the merger, which may adversely affect the value of the common stock of the combined company following the completion of the merger.
The Company and Lakeland have operated and, until the completion of the merger, must continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. Integration efforts between the companies may also divert management attention and resources. These integration matters could have an adverse effect on the Company during this transition period and for an undetermined period after completion of the merger on the combined company.
Furthermore, the board of directors and executive leadership of the combined company will consist of former directors and executive officers from each of the Company and Lakeland. Combining the boards of directors and management teams of each company into a single board and a single management team could require the reconciliation of differing priorities and philosophies.
The combined company may be unable to retain personnel of the Company and/or Lakeland successfully after the merger is completed.
The success of the merger will depend in part on the combined company’s ability to retain the talent and dedication of key employees currently employed by the Company and Lakeland. It is possible that these employees may decide not to remain with the Company or Lakeland, as applicable, while the merger is pending or with the combined company after the merger is consummated. If the Company and Lakeland are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, the Company and Lakeland could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In addition, following the merger, if key employees terminate their employment, the combined company’s business
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activities may be adversely affected, and management’s attention may be diverted from successfully hiring suitable replacements, all of which may cause the combined company’s business to suffer. The Company and Lakeland also may not be able to locate or retain suitable replacements for any key employees who leave either company.
The Company will be subject to business uncertainties and contractual restrictions while the merger is pending.
Uncertainty about the effect of the merger on employees and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with the Company to seek to change existing business relationships with the Company. In addition, subject to certain exceptions, the Company has agreed to operate its business in the ordinary course in all material respects and to refrain from taking certain actions that may adversely affect its ability to consummate the transactions contemplated by the merger agreement on a timely basis without the consent of Lakeland. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the merger.
The Company has incurred and is expected to incur substantial costs related to the merger and integration.
The Company has incurred and expects to incur a number of non-recurring costs associated with the merger. These costs include legal, financial advisory, accounting, consulting and other advisory fees, retention, severance and employee benefit-related costs, public company filing fees and other regulatory fees, financial printing and other printing costs, closing, integration and other related costs. Some of these costs are payable by the Company regardless of whether or not the merger is completed.
Stockholder litigation related to the merger could prevent or delay the completion of the merger, result in the payment of damages or otherwise negatively impact the business and operations of the Company.
Stockholders may bring claims in connection with the proposed merger and, among other remedies, may seek damages or an injunction preventing the merger from closing. If any plaintiff were successful in obtaining an injunction prohibiting the Company or Lakeland from completing the merger or any other transactions contemplated by the merger agreement, then such injunction may delay or prevent the effectiveness of the merger and could result in costs to the Company, including costs in connection with the defense or settlement of any stockholder lawsuits filed in connection with the merger. Further, such lawsuits and the defense or settlement of any such lawsuits may have an adverse effect on the financial condition and results of operations of the Company.
The COVID-19 pandemic may delay and adversely affect the completion of the merger.
The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the business, financial condition, liquidity, capital and results of operations of the Company. If the effects of the COVID-19 pandemic cause a continued or extended decline in the economic environment and the financial results of the Company, or the business operations of the Company are further disrupted as a result of the COVID-19 pandemic, efforts to complete the merger and integrate the businesses of the Company and Lakeland may also be delayed and adversely affected. Additional time may be required to obtain the requisite regulatory approvals, and regulators may impose additional requirements on the Company or Lakeland that must be satisfied prior to completion of the merger, which could delay and adversely affect the completion of the merger.
The merger agreement may be terminated in accordance with its terms and the merger may not be completed.
The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger. Those conditions include, among other things: (i) approval by each of the Company’s stockholders and Lakeland’s shareholders of certain matters relating to the merger at each company’s respective special meeting; (ii) authorization for listing on the New York Stock Exchange of the shares of the Company’s common stock to be issued in the merger, subject to official notice of issuance, (iii) the receipt of required regulatory approvals, including the approval of the Federal Reserve Board, the FDIC and the NJDOBI; and (iv) the absence of any order, injunction, decree or other legal restraint preventing the completion of the merger, the bank merger or any of the other transactions contemplated by the merger agreement or making the completion of the merger, the bank merger or any of the other transactions contemplated by the merger agreement illegal. Each party’s obligation to complete the merger is also subject to certain additional customary conditions, including (a) subject to applicable materiality standards, the accuracy of the representations and warranties of the other party, (b) the performance in all material respects by the other party of its obligations under the merger agreement, (c) the receipt by each party of an opinion from its counsel to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986 and (d) the execution and delivery of the bank merger agreement in respect of the bank merger.
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These conditions to the closing may not be fulfilled in a timely manner or at all, and, accordingly, the merger may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, before or after the requisite stockholder and shareholder approvals, or the Company or Lakeland may elect to terminate the merger agreement in certain other circumstances.

March 31, 2023.

Item 2.Unregistered Sales of Equity Securities, and Use of Proceeds.Proceeds, and Issuer Purchases of Equity Securities.
ISSUER PURCHASES OF EQUITY SECURITIES
Period(a) Total Number of Shares
Purchased
(b) Average
Price Paid per Share
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
(d) Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (1)
July 1, 2022 through July 31, 2022351 $22.90 351 1,136,644 
August 1, 2022 through August 31, 20221,938 23.99 1,938 1,134,706 
September 1, 2022 through September 30, 2022— — — 1,134,706 
Total2,289 23.82 2,289 
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)
April 1, 2023 through April 30, 202338 $18.42 38 1,062,832 
May 1, 2023 through May 31, 2023208 15.15 208 1,062,624 
June 1, 2023 through June 30, 2023— — — 1,062,624 
Total246 15.66 246 
(1) On December 28, 2021, the Company’s Board of Directors approved the purchase of up to 3,900,000 shares of its common stock under a ninth general repurchase program to commence upon completion of the eighth repurchase program. The repurchase program has no expiration date.
Item 3.Defaults Upon Senior Securities.
Not Applicable 
Item 4.Mine Safety Disclosures
Not Applicable
Item 5.Other Information.
None(a) During the three months ended June 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement," as that term is used in SEC regulations.
(b) The information below is reported in lieu of information that would be reported pursuant to a Current Report on Form 8-K filed with the Commission during the period under Item 5.02.
On August 2, 2023, Provident Financial Services, Inc. (the “Company”), Provident Bank (the “Bank”) and John Kuntz, Senior Executive Vice President, General Counsel and Corporate Secretary of the Company (the “Executive”), entered into a Transition Agreement with General Release of Claims (the “Transition Agreement”) in connection with the transaction
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contemplated under the Agreement and Plan of Merger dated September 26, 2022 by and among the Company, NL 239 Corp. and Lakeland Bancorp, Inc. (the “Merger”) and related restructuring of the Company’s management team.
The Transition Agreement provides that the Executive’s employment with the Company and Bank will terminate as part of the management restructuring on the later of January 31, 2024 or 90 days after the closing date of the Merger (the “Separation Date”), unless (i) the Executive resigns his employment or dies prior to the Separation Date, or (ii) the Company or Bank terminates the Executive’s employment due to Disability (as defined in the Transition Agreement) or for Cause (as defined in the Transition Agreement) prior to the Separation Date (the Separation Date, or if applicable, Executive’s earlier termination date, is referred to as his “Termination Date”).
Pursuant to the Transition Agreement, as of the closing date of the merger (the “Transition Date”) and ending on the Termination Date, the Executive will serve as Special Advisor to the Company’s Chief Executive Offer in exchange for an annualized base salary of $550,000. In addition, unless the Executive dies, has his employment terminated due to Disability, resigns his employment or is terminated for Cause prior to the Separation Date, and in exchange for a release of claims, post-employment restrictions in favor of the Company and other valuable consideration, the Executive will receive a lump sum bonus payment of $875,000, less required withholding (the “Bonus”), in consideration of his contributions toward the successful integration of the pending Merger. If the Executive’s employment terminates for any reason prior to the closing date of the Merger, Executive shall not be entitled to the Bonus. If Executive dies or has his employment terminated due to Disability prior to the Separation Date, the Executive or his estate, as applicable, will receive a prorated amount of the Bonus.
Pursuant to the Transition Agreement, unless the Executive dies, has his employment terminated due to Disability, resigns his employment or is terminated for Cause prior to the Separation Date, and in exchange for a release of claims, post-employment restrictions in favor of the Company and other valuable consideration, the Executive will (i) receive a lump sum severance cash payment of $1,650,000, less required withholding (the “Severance”), and (ii) in accordance with the terms of the Company’s equity plan, the Executive’s continued service as a non-employee director of Beacon Trust Company shall entitle the Executive to continued vesting of all unvested and outstanding equity awards as of the Termination Date. If the Executive’s employment terminates for any reason prior to the closing date of the Merger, Executive shall not be entitled to the Severance.
This summary of the Agreement does not purport to be complete and is subject to and qualified in its entirety by reference to the text of the Agreement, included as Exhibit 10.1 to this filing.


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Item 6.Exhibits.
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The following exhibits are filed herewith:
2.1
3.1
3.2
4.1
10.1
31.1
31.2
32
101The following financial statements from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended SeptemberJune 30, 2022,2023, formatted in iXBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
101.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.SCHXBRL 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
104The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2022,2023, has been formatted in iXBRL.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
PROVIDENT FINANCIAL SERVICES, INC.
Date:November 9, 2022August 8, 2023By:/s/ Anthony J. Labozzetta
Anthony J. Labozzetta
President and Chief Executive Officer (Principal Executive Officer)
Date:November 9, 2022August 8, 2023By:/s/ Thomas M. Lyons
Thomas M. Lyons
Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Date:November 9, 2022August 8, 2023By:/s/ Frank S. MuzioAdriano M. Duarte
Frank S. MuzioAdriano M. Duarte
Executive Vice President and Chief Accounting Officer

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