What changed in this filing

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Item 1. Business

2022-03-01 compared with 2021-03-01 · 223 added, 245 removed, 1107 unchanged (30% of the section changed)

Provident Financial Services, Inc.

The Company is a Delaware corporation which became the holding company for Provident Bank (the “Bank”) on January 15, 2003, following the completion of the Bank's conversion to a New Jersey-chartered capital stock savings bank.

The Company is a Delaware corporation which became the holding company for Provident Bank (the “Bank”) on January 15, 2003, following the completion of the Banks conversion to a New Jersey-chartered capital stock savings bank.

On January 15, 2003, the Company issued an aggregate of 59,618,300 shares of its common stock, par value $0.01 per share in a subscription offering, and contributed $4.8 million in cash and 1,920,000 shares of its common stock to The Provident Bank Foundation, a charitable foundation established by the Bank.

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allows the Company to expand its products offerings to its customers to include an array of commercial and personal lines of insurance.

Under the merger agreement, each share of outstanding SB One common stock was exchanged for 1.357 shares of the Company's common stock.

Under the merger agreement, each share of outstanding SB One common stock was exchanged for 1.357 shares of the Companys common stock.

The Company issued 12.8 million shares of common stock from treasury stock, plus cash in lieu of fractional shares in the acquisition of SB One.

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Capital Management.

The Company paid cash dividends totaling $65.8 million and repurchased 1.3 million shares of its common stock at an average cost of $16.59, which totaled $22.1 million in 2020.

At December 31, 2020, 262,927 shares remained eligible for repurchase under the board approved stock repurchase program.

The Company’s Board of Directors authorized the Company’s ninth stock repurchase program to commence upon completion of the existing authorization.

Under the new authorization, the Company may repurchase up to 5% of the number of shares of common stock currently outstanding, or approximately 3.9 million shares.

Completion of the repurchase program will not be limited to a specific time period.

The Company paid cash dividends totaling $71.5 million and repurchased 965,223 shares of its common stock at an average cost of $22.43 per share, which totaled $21.6 million in 2021.

At December 31, 2021, 3.2 million shares remained eligible for repurchase under the board approved stock repurchase program.

The Company and the Bank were “well capitalized” at December 31, 2021 under current regulatory standards.

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As of December 31, 2021, non-performing assets were $56.8 million or 0.41% of total assets, compared to $91.6 million or 0.71% of total assets at December 31, 2020.

The increase in non-performing loans in 2020 reflects the effects of the protracted duration of the pandemic and related government response, and the attendant increased uncertainty of affected borrowers’ ability to repay all contractually due principal and interest.

The decrease in non-performing loans in 2021 reflects the ongoing economic recovery from the depths of the pandemic recession as improving economic conditions and historically low interest rates positively affected borrowers’ ability to repay contractually due principal and interest payments.

The Bank continues to focus on conservative underwriting criteria and on active and timely collection efforts.

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The Bank’s focus on transaction accounts and expanded products and services has enabled the Bank to generate increased non-interest income.

Fees derived from core deposit accounts are a primary source of non-interest

Fees derived from core deposit accounts are a primary source of non-interest income.

The Bank also offers investment, insurance, wealth and asset management services through its subsidiaries to generate non-interest income.

Total non-interest income was $72.4 million for the year ended December 31, 2020, compared with $63.8 million for the year ended December 31, 2019, of which fee income and wealth management income were $23.8 million and $25.7 million, respectively, for the year ended December 31, 2020, compared with $28.3 million and $22.5 million, respectively, for the year ended December 31, 2019.

Total non-interest income was $86.8 million for the year ended December 31, 2021, compared with $72.4 million for the year ended December 31, 2020, of which fee income and wealth management income were $30.0 million and

$30.8 million, respectively, for the year ended December 31, 2021, compared with $23.8 million and $25.7 million, respectively, for the year ended December 31, 2020.

Managing Interest Rate Risk.

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At December 31, 2021, the Bank operated a network of 96 full-service banking offices throughout fourteen counties in northern and central New Jersey, as well as three counties in Pennsylvania and one county in New York.

The Bank maintains its administrative offices in Iselin, New Jersey and satellite loan production offices in Convent Station, Flemington, Paramus and Sea Girt, New Jersey, as well as in Bethlehem, Newtown and Wayne, Pennsylvania and Queens, New York.

The Bank’s lending activities, though concentrated in the communities surrounding its offices, extend predominantly throughout New Jersey, eastern Pennsylvania and Queens County, New York.

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According to the U.S.

Bureau of Labor Statistics, the unemployment rate in New Jersey was 7.6% at December 31, 2020, an increase from 3.5% at December 31, 2019.

The unemployment rate in Pennsylvania was 6.7% for December 31, 2020, an increase from 4.5% at December 31, 2019.

The unemployment rate in New York was 8.2% for December 31, 2020, an increase from 3.9% at December 31, 2019.

Bureau of Labor Statistics, the unemployment rate in New Jersey was 6.3% at December 31, 2021, a decrease from 7.6% at December 31, 2020.

The unemployment rate in Pennsylvania was 5.4% at December 31, 2021, a decrease from 6.7% at December 31, 2020.

The unemployment rate in New York was 6.2% at December 31, 2021, a decrease from 8.2% at December 31, 2020.

Within its primary market areas in New Jersey, Pennsylvania and New York, the Bank had an approximate 2.64%, 0.76% and 0.14% share of bank deposits as of June 30, 2021, respectively, the latest date for which statistics are available.

These figures include SB One Bank market areas.

The Bank faces significant competition in originating and retaining loans and attracting deposits as its market areas have a high concentration of financial institutions, including large money center and regional banks, community banks, credit unions, investment brokerage firms and insurance companies.

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The Bank originates commercial real estate loans, commercial business loans, fixed-rate and adjustable-rate mortgage loans collateralized by one- to four-family residential real estate and other consumer loans, for borrowers generally located within its primary market area.

Residential mortgage loans are primarily underwritten to standards that allow the sale of the loans to the secondary markets, primarily to the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”), the Federal National Mortgage Association (“FNMA” or “Fannie Mae”) and the FHLBNY.

To manage interest rate risk, the Bank generally sells fixed-rate residential mortgages that it originates with terms greater than 15 years.

The Bank commonly retains biweekly payment fixed-rate residential mortgage loans with a maturity of 30 years or less and a majority of the originated adjustable-rate mortgages for its portfolio.

commonly retains biweekly payment fixed-rate residential mortgage loans with a maturity of 30 years or less and a majority of the originated adjustable-rate mortgages for its portfolio.

The Bank originates commercial real estate loans that are secured by income-producing properties such as multi-family apartment buildings, office buildings, and retail and industrial properties.

Generally, these loans have maturities of either 5 or 10 years.

For loans greater than $15.0 million originated with maturities in excess of 7 years, the Bank generally requires loan-level interest rate swaps for qualified borrowers.

The Bank has historically provided construction loans for both single family and condominium projects intended for sale and commercial projects, including residential rental projects, that will be retained as investments by the borrower.

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Set forth below is selected information concerning the composition of the loan portfolio by type (after deductions for deferred fees and costs, unearned discounts and premiums and allowances for credit losses) at the dates indicated.

The allowance for credit losses for 2020 was based upon the adoption of the current expected credit loss ("CECL") guidance, while the prior year credit losses were based upon the incurred loss methodology:

The allowance for credit losses for 2021 and 2020 were based upon the adoption of the current expected credit loss ("CECL") guidance, while the prior year's credit losses were based upon the incurred loss methodology:

At December 31,

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Total loans, net $ 9,500,884 100.00 % $ 9,721,424 100.00 % $ 7,277,360 100.00 % $ 7,195,026 100.00 % $ 7,265,523 100.00 %

The Company participated in the Paycheck Protection Program (“PPP”) through the United States Department of the Treasury and Small Business Administration.

As of December 31, 2020, the Company secured 1,287 PPP loans for its customers totaling $473.2 million.

Loan Maturity Schedule.

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The standard adjustment formula is the one-year constant maturity Treasury rate plus 2.75%, adjusting annually after its first re-set period, with a 2% maximum annual adjustment and a 6% maximum adjustment over the life of the loan.

Residential mortgage loans are primarily underwritten to Freddie Mac and Fannie Mae standards.

Residential mortgage loans are primarily underwritten to Freddie Mac standards.

The Bank’s standard maximum loan to value ratio is 80%.

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The Bank originates loans secured by mortgages on various commercial income producing properties, including office buildings and retail and industrial properties.

Commercial real estate loans were 35.6% of

the total loan portfolio at December 31, 2020.

A substantial majority of the Bank’s commercial real estate loans are secured by properties located in the State of New Jersey.

Commercial real estate loans were 40.3% of the total loan portfolio at December 31, 2021.

A substantial majority of the Bank’s commercial real estate loans are secured by properties located in New Jersey and New York.

The Bank originates commercial real estate loans with adjustable rates and with fixed interest rates for a period that is generally five to ten years or less, which may adjust after the initial period.

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In addition, the payment experience on commercial real estate loans secured by income-producing properties is typically dependent on the successful operation of the related real estate project, and thus may be more significantly impacted by adverse conditions in the real estate market or in the economy generally.

The Bank performs more extensive due diligence in underwriting commercial real estate loans than loans secured by owner-occupied one- to four-family residential properties due to the larger loan amounts and the riskier nature of such loans.

The Bank performs extensive due diligence in underwriting commercial real estate loans due to the larger loan amounts and the riskier nature of such loans.

The Bank assesses and mitigates the risk in several ways, including inspection of all such properties and the review of the overall financial condition of the borrower and guarantors, which may include, for example, the review of the rent rolls and the verification of income.

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Multi-family Loans.

The Bank underwrites loans secured by apartment buildings that have five or more units.

The Bank underwrites loans secured by multi-family properties that have five or more units.

The Bank considers multi-family lending a component of the commercial real estate lending portfolio.

Mult-family loans were 15.3% of the total loan portfolio at December 31, 2020.

Multi-family loans were 14.4% of the total loan portfolio at December 31, 2021.

The underwriting standards and procedures that are used to underwrite commercial real estate loans are used to underwrite multi-family loans, except the loan-to-value ratio generally should not exceed 80% of the appraised value of the property, the debt-service coverage should be a minimum of 1.15 times and an amortization period of up to 30 years may be used.

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For single family and condominium financing, the Bank generally requires payment for the release of a unit that exceeds the amount of the loan advance attributable to such unit.

The Bank’s largest construction loan at December 31, 2020 was a $34.5 million commitment secured by a first mortgage lien on property and improvements related to the construction of a 189,889 square foot industrial building on 13.9 acres located in Logan Township, NJ.

The Bank’s largest construction loan at December 31, 2021 was a $37.0 million commitment secured by a first mortgage lien on property and improvements related to the construction of a 195,000 square foot industrial building on 9.9 acres located in Bayonne, NJ.

The loan had an outstanding balance of $8.6 million at December 31, 2021.

This loan closed in 2020 with construction completion expected by the end of 2021.

This project is 100% pre-leased.

This loan closed in 2021 with construction completion and lease-up expected by the end of 2022.

The project sponsor is an experienced and long standing real estate owner and developer with a successful track record in the development and management of commercial real estate.

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The Company participated in the Paycheck Protection Program (“PPP”) through the United States Department of the Treasury and Small Business Administration.

At December 31, 2020, the Company had 1,287 PPP loans, which totaled $473.2 million.

The PPP loans are fully guaranteed by the Small Business Administration and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan was made as long as certain conditions are met regarding employee retention and compensation levels.

PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan was made as long as certain conditions are met regarding employee retention and compensation levels.

PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company.

PPP loans are included in the commercial loan portfolio.

As of December 31, 2021, the Company secured 2,066 PPP loans for its customers totaling $681.9 million, which includes both the initial round and the second round of PPP.

As of December 31, 2021, 1,810 PPP loans totaling $587.0 million were forgiven.

The balance of PPP loans at December 31, 2021 was $94.9 million.

The underwriting of a commercial loan is based upon a review of the financial statements of the prospective borrower and guarantors.

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As a result, the availability of funds for the repayment of commercial loans may be substantially dependent on the success of the business itself and the general economic environment.

The Bank’s largest commercial loan as of December 31, 2020 was a $30.0 million working capital and bonding line of credit to a large and long standing general contractor specializing in heavy bridge and highway construction.

The loan, which is annually renewable at the Bank’s option, is unsecured and primarily used for working capital and bonding purposes.

The loan has a risk rating of “5” (loans rated 1-4 are deemed “acceptable quality”, while loans rated 5 are deemed "pass/watch" – see discussion of the Bank’s nine-point risk rating system for loans under “allowance for credit losses” in the “Asset Quality” section).

At December 31, 2020, there was an $800,000 outstanding balance under the line.

The Bank’s largest commercial loan as of December 31, 2021 was a $60.0 million working capital line of credit to a large New Jersey based automobile leasing company.

The loan, which was originated in late 2021, has a four-year term and is secured by lease contracts and underlying vehicles.

Funding is limited to the aggregate net book value of eligible leases pledged at any time.

The loan has a risk rating of “3” (loans rated 1-4 are deemed “acceptable quality” – see discussion of the Bank’s nine-point risk rating system for loans under “allowance for credit losses” in the “Asset Quality” section).

At December 31, 2021, there was a $5.5 million outstanding balance under the line.

(For the Bank’s largest group borrower exposure —see discussion on “Loans to One Borrower”)

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Consumer loans represented 3.5% of the total loan portfolio at December 31, 2021.

Home equity loans and home equity lines of credit constituted 96.5% of the consumer loan portfolio and indirect marine loans constituted 0.8% of the consumer loan portfolio as of December 31, 2020.

The remaining 2.7% of the consumer loan portfolio includes personal loans and unsecured lines of credit, direct auto loans and recreational vehicle loans.

Home equity loans and home equity lines of credit constituted 93.7% of the consumer loan portfolio at December 31, 2021.

The remaining 6.3% of the consumer loan portfolio includes personal loans and unsecured lines of credit, direct auto loans and recreational and marine vehicle loans.

The Bank no longer purchases or originates indirect auto, marine or recreational vehicle loans.

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All commercial loan approvals require dual signature authority.

The largest individual lending authority is $10.0 million, which is only available to the Chief Executive Officer, the Chief Operating Officer, the Chief Lending Officer, the Lending Chief of Staff and the Chief Credit Officer.

The authority of the Chief Lending Officer and Chief Credit Officer may be increased to $15.0 million for permanent commercial real estate loans acting jointly.

The largest individual lending authority is $15.0 million for unsecured loans and $20.0 million for secured loans, which is only available to the Chief Executive Officer, the Chief Lending Officer and the Chief Credit Officer.

Loans in excess of these limits, or which when combined with existing credits of the borrower or related borrowers exceed these limits, are presented to the management Credit Committee for approval.

The Credit Committee currently consists of eleven senior officers including the Chief Executive Officer, the Chief Operating Officer, the Chief Lending Officer, the Chief Financial Officer, the Chief Credit Officer, the Chief Administrative Officer, the Credit Risk Manager and the Lending Chief of Staff, and requires a majority vote for credit approval.

The Credit Committee currently consists of nine senior officers including the Chief Executive Officer, the Chief Lending Officer, the Chief Financial Officer, the Chief Credit Officer, the Chief Administrative Officer, the Director of Credit Risk and the Lending Chief of Staff, and requires a majority vote for credit approval.

While the Bank discourages loan policy exceptions, based upon reasonable business considerations exceptions to the policy may be warranted.

The business reason and mitigants for the exception must be noted on the loan approval document.

The policy exception requires the approval of the Chief Lending Officer, Chief of Staff or the Department Manager of the lending department responsible for the underlying loan, if it is within his or her approval authority limit.

All other policy exceptions must be approved by the Credit Committee.

The Credit Administration Department reports the type and frequency of loan policy exceptions to the Board of Directors on a quarterly basis, or more frequently if necessary.

The Credit Administration Department reports the type and frequency of loan policy exceptions to the Risk Committee of the Board of Directors on a quarterly basis, or more frequently if necessary.

The Bank has adopted a risk rating system as part of the credit risk assessment of its loan portfolio.

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Loan review examinations are performed by an independent third party which validates the risk ratings on a sample basis.

In addition, a risk rating can be adjusted at the weekly Credit Committee meeting and quarterly at management’s Credit Risk Management Committee, which meets to review all loans rated a “Pass/Watch” ("5") or worse.

In addition, a risk rating can be adjusted at the weekly Credit Committee meeting and quarterly at management’s Credit Risk Management Committee, which meets to review loans rated a “Pass/Watch” ("5") or worse.

The Bank requires an annual review be performed for commercial and commercial real estate loans above certain dollar thresholds, depending on loan type, to help determine the appropriate risk ratings.

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As of December 31, 2021, the regulatory lending limit was $186.6 million.

The Bank’s current internal policy limit on total loans to a borrower or related borrowers that constitute a group exposure is up to $100.0 million for loans with a risk rating of "2" or better, up to $90.0 million for loans with a risk rating of "3", and up to $65.0 million for loans with a risk rating of "4".

For a select group of the most credit-worthy and diversified borrowers, the maximum group exposure limit is up to $130.0 million.

Maximum group exposure limits may be lower depending on the type of loans involved.

The Bank’s current internal policy limit on total loans to a borrower or related borrowers that constitute a group exposure is up to 80% of regulatory lending limit for commercial real estate and 50% of regulatory lending limit for commercial and industrial loans.

The Bank reviews these group exposures on a quarterly basis.

The Bank also sets additional limits on size of loans by loan type.

At December 31, 2020, the Bank’s largest group exposure with an individual borrower and its related entities was $119.2 million, consisting of seven commercial real estate loans totaling $97.6 million, secured by five retail properties and two office buildings located in New Jersey and Pennsylvania, one construction loan totaling $5.3 million, secured by a retail and office building project located in Pennsylvania, an $8.4 million land loan secured by 31 acres in New Jersey, a $6.0 million unsecured line of credit, $500,000 under letters of credit, $400,000 under ACH facilities and $1.0 million in interest rate swap exposure.

At December 31, 2021, the Bank’s largest group exposure with an individual borrower and its related entities was $124.6 million.

This group exposure consisted of two multi-family commercial real estate loans totaling $51.5 million, secured by two properties in New Jersey and Pennsylvania, two construction loans totaling $45.0 million, secured by an industrial and a multi-family property in New Jersey, five commercial real estate loans totaling $10.9 million, secured by three industrial and two office properties in New Jersey and Pennsylvania, a $7.3 million unsecured line of credit, $1.6 million in letters of credit, $300,000 under ACH facilities, and $8.2 million in interest rate swap exposure.

The loans have an average risk rating of “4”.

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Delinquent Loans and Non-performing Loans and Assets.

Bank policy requires that the Chief Credit Officer to continuously monitor the status of the loan portfolios and report to the Board of Directors on at least a quarterly basis.

Bank policy requires that the Chief Credit Officer continuously monitor the status of the loan portfolios and report to the Board of Directors on at least a quarterly basis.

These reports include information on impaired loans, delinquent loans, criticized and classified assets, and foreclosed assets.

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The majority of our deferrals initially consisted of 90-day principal and interest deferrals with additional deferral periods granted on a case by case basis at the Bank’s option.

Interest income has continued to be recognized over the contractual life of the loan.

As of December 31, 2020, there were 169 impaired loans totaling $86.0 million, of which 135 loans totaling $39.6 million were TDRs.

At December 31, 2021, there are no material deferrals related to the CARES Act.

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.

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For each segment, this approach compares each loan’s amortized cost to the present value of its contractual cash flows adjusted for projected credit losses, prepayments and curtailments to determine the appropriate reserve for that loan.

Quantitative loss factors will be evaluated at least annually.

Management completed its initial development and evaluation of its quantitative loss factors in the first quarter of 2020.

Quantitative loss factors are evaluated at least annually.

Management completed its most recent development and evaluation of its quantitative loss factors in the fourth quarter of 2021.

Qualitative adjustments give consideration to other qualitative factors such as trends in industry conditions, effects of changes in credit concentrations, changes in the Company’s loan review process, changes in the Company's loan policies and procedures, economic forecast uncertainty and model imprecision.

Qualitative adjustments reflect risks in the loan portfolio not captured by the quantitative loss factors.

The Company considers qualitative adjustments to credit loss estimates for information not already captured in the quantitative component of the loss estimation process.

Qualitative adjustments are recalibrated at least annually and evaluated quarterly.

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Loans are classified in accordance with the risk rating system described previously.

At December 31, 2020, $265.3 million of loans were classified as “substandard,” which consisted of $127.1 million in commercial loans, $99.9 million in commercial and multi-family mortgage loans, $26.7 million in residential loans and $6.7 million in consumer loans.

At December 31, 2021, $189.3 million of loans were classified as “substandard,” which consisted of $98.1 million in commercial loans, $80.5 in commercial mortgage, construction and multi-family mortgage loans, $9.0 million in residential loans and $1.6 million in consumer loans.

Within the substandard classification, $23.7 million were PCD loans.

At that same date, there were $52,000 in loans classified as “doubtful.” Also, there were no loans classified as “loss” at December 31, 2020.

There were no loans classified as "doubtful" or “loss” at December 31, 2021.

As of December 31, 2021, $182.5 million of loans were designated “special mention.” Within the special mention classification, $2.7 million were PCD loans.

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Total non-performing loans to total loans 0.50 % 0.89 % 0.55 % 0.35 % 0.48 %

Non-performing commercial mortgage loans increased $26.7 million to $32.0 million at December 31, 2020, from $5.3 million at December 31, 2019.

Non-performing commercial mortgage loans decreased $15.1 million to $16.9 million at December 31, 2021, from $32.0 million at December 31, 2020.

Non-performing commercial mortgage loans consisted of 14 loans at December 31, 2021.

Of these 14 loans, 7 loans totaling $9.0 million were PCD loans.

The largest non-performing commercial mortgage loan was an $11.5 million loan secured by a first mortgage on a property located in Hasbrouck Heights, New Jersey.

The largest non-performing commercial mortgage loan was a $6.7 million loan secured by a first mortgage on a property located in Woodside, New York.

This loan is currently paying in accordance with its restructured terms.

Non-performing commercial loans increased $17.0 million, to $42.1 million at December 31, 2020, from $25.2 million at December 31, 2019.

Non-performing commercial loans decreased $21.5 million, to $20.6 million at December 31, 2021, from $42.1 million at December 31, 2020.

Non-performing commercial loans at December 31, 2021 consisted of 51 loans, of which 31 loans were under 90 days accruing.

Of these non-performing commercial loans, 21 were PCD loans totaling $6.4 million.

The largest non-performing commercial loan relationship was a Shared National Credit ("SNC") relationship, which consisted of three loans to a restaurant group with total outstanding balances of $10.4 million at December 31, 2020.

The largest non-performing commercial loan relationship consisted of four loans with total outstanding balances of $3.2 million at

December 31, 2021.

All of these loans are unsecured/non-real estate secured.

These loans are currently not paying in accordance with their restructured terms.

A new modification/forbearance agreement is currently being negotiated.

Non-performing construction loans totaled $1.4 million at December 31, 2020.

These loans are currently paying in accordance with their restructured terms.

Non-performing construction loans increased $973,000 to $2.4 million at December 31, 2021, from $1.4 million at December 31, 2020.

Non-performing construction loans at December 31, 2021 consisted of two PCD loans.

There were no non-performing construction loans at 2019.

There were $1.4 million non-performing construction loans at 2020.

Non-performing multi-family mortgage loans totaled $439,000 at December 31, 2021.

There were no non-performing multi-family mortgage loans at December 31, 2020.

At December 31, 2021, the Company held $8.7 million of foreclosed assets, compared with $4.5 million at December 31, 2020.

Foreclosed assets at December 31, 2021 are carried at fair value based on recent appraisals and valuation estimates, less estimated selling costs.

During the year ended December 31, 2020, there were three additions to foreclosed assets with an aggregate carrying value of $2.6 million and 12 properties sold with an aggregate carrying value of $2.5 million and valuation charges of $693,000.

Foreclosed assets acquired from SB One totaled $2.4 million.

During the year ended December 31, 2021, there were four additions to foreclosed assets with an aggregate carrying value of $8.0 million and ten properties sold with an aggregate carrying value of $2.6 million and valuation charges of $1.2 million.

Non-performing assets totaled $56.8 million, or 0.41% of total assets at December 31, 2021, compared to $91.6 million, or 0.71% of total assets at December 31, 2020.

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Allowance for Credit Losses.

On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

It also applies to off-balance sheet credit exposures, including loan

commitments and lines of credit.

On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with the current expected credit loss (“CECL”) methodology.

It also applies to off-balance sheet credit exposures, including loan commitments and lines of credit.

The adoption of the new standard resulted in the Company recording a $7.9 million increase to the allowance for credit losses and a $3.2 million liability for off-balance sheet credit exposures.

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The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a quarterly basis, when similar risk characteristics exist.

The respective quantitative allowance for each segment is measured using an econometric, discounted PD/LGD modeling methodology in which distinct, segment-specific multi-variate regression models are applied to an external economic forecast.

The respective quantitative allowance for each 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.

Contractual cash flows over the contractual life of the loans are the basis for modeled cash flows, adjusted for modeled defaults and expected prepayments and discounted at the loan-level effective

interest rate.

The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

management has a reasonable expectation at the reporting date that a troubled debt restructuring (“TDR”) will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

After quantitative considerations, management applies additional qualitative adjustments so that the allowance for credit loss is reflective of the estimate of lifetime losses that exist in the loan portfolio at the balance sheet date.

Qualitative considerations include limitations inherent in the quantitative model;

portfolio concentrations that may affect loss experience across one or more components of the portfolio;

changes in industry conditions;

changes in the Company’s loan review process;

changes in the Company's loan policies and procedures, economic forecast uncertainty and model imprecision.

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.

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 and have been combined or sub-segmented as needed to ensure loans of similar risk profiles are appropriately pooled.

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 December 31, 2021, the portfolio and class segments for the Company’s loan portfolio were:

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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;

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 in a Troubled Debt Restructuring (“TDR”).

When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Generally, the Company only evaluates loans individually for impairment if the loan is non-accrual, non-homogeneous and the balance is at least $1.0 million, or if the loan was modified as a TDR.

For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the fair value of the collateral less any selling costs.

If the loan is not collateral dependent, the allowance for credit losses related to individually assessed loans is based on discounted expected cash flows using the loan’s initial effective interest rate.

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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.

As previously noted, in accordance with the CARES Act, the Company elected to not apply troubled debt restructuring classification to any COVID-19 related loan modifications that occurred after March 1, 2020 to borrowers who were current as of December 31, 2019.

Accordingly, these modifications were not classified as TDRs.

In addition, for loans modified in response to the COVID-19 pandemic that did not meet the above criteria (e.g., current payment status at December 31, 2019), the Company applied the guidance included in an interagency statement issued by the bank regulatory agencies.

This guidance states that loan modifications performed in light of the COVID-19 pandemic, including loan payment deferrals that are up to six months in duration, that were granted to borrowers who were current as of the implementation date of a loan modification program or modifications granted under government mandated modification programs, are not TDRs.

Loans that have been or are expected to be granted COVID-19 related deferrals or modifications decreased from a peak level of $1.31 billion, or 16.8% of loans, to $207.4 million, or 2.1% of loans.

This $207.4 million of loans consists of $9.1 million in a first 90-day deferral period, $51.3 million in a second 90-day deferral period, $121.2 million that required additional payment relief and $25.8 million that have completed their initial deferral periods, but are expected to require ongoing assistance.

Included in the $207.4 million of loans, $49.2 million are secured by hotels, $35.9 million are secured by retail properties, $30.4 million are secured by multi-family properties, of which $21.1 million are student housing related, $29.7 million are secured by residential mortgages and $4.9 million are secured by restaurants, with the balance comprised of diverse commercial loans.

For loans acquired that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans.

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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 the COVID-19 pandemic continues to unfold, the effectiveness of medical advances, government programs, and the resulting impact on consumer behavior and employment conditions will have a material bearing on future credit conditions.

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, accelerated inflation, 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 and related variants 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.

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Such estimates and assumptions are adjusted when facts and circumstances dictate.

In addition to the ongoing impact of the COVID-19 pandemic, 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.

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.

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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.

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.

Going forward, the impact of utilizing the CECL approach to calculate the allowance for credit losses on loans will be significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized.

Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings.

For the year ended, December 31, 2020, changing economic forecasts attributable to the COVID-19 pandemic and projected economic recovery led to provisions for credit losses and off-balance sheet credit exposures.

See Note 7 to the Consolidated Financial Statements and the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) for more information on the allowance for credit losses on loans.

The CECL approach to calculate the allowance for credit losses on loans is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized.

Material changes to these and other relevant factors creates greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings.

For the year ended December 31, 2021, the changing economic forecasts attributable to COVID-19 and the projected economic recovery led the Company to record a negative provision for credit losses, compared to last year.

See Note 7 to the Consolidated Financial Statements for more information on the allowance for credit losses on loans.

Analysis of the Allowance for Credit Losses on Loans.

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Total 9,030 2,637 1,895 1,685 1,653

Net charge-offs 5,276 13,137 28,333 7,288 4,941

Provision for loan losses 29,711 13,100 23,700 5,600 5,400

Net (recoveries) charge-offs (3,574) 5,276 13,137 28,333 7,288

Provision (benefit) charge to operations (24,300) 29,711 13,100 23,700 5,600

Initial allowance related to PCD loans — 13,586 — — —

Balance at end of period $ 80,740 $ 101,466 $ 55,525 $ 55,562 $ 60,195

Ratio of net charge-offs to average loans outstanding during the period 0.06 % 0.18 % 0.39 % 0.10 % 0.07 %

Ratio of net (recoveries) charge-offs to average loans outstanding during the period (0.04) % 0.06 % 0.18 % 0.39 % 0.10 %

Allowance for credit losses to total loans 0.84 % 1.03 % 0.76 % 0.77 % 0.82 %

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The following table sets forth the allowance for credit losses by loan category for the periods indicated.

The allowance for credit losses for 2021 and 2020 were based upon the adoption of the current expected credit loss ("CECL") guidance, while the prior year credit losses were based upon the incurred loss methodology.

This is based on management’s assessment as of a given point in time.

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Management believes these securities may represent attractive alternatives relative to other investments due to the wide variety of maturity, repayment and interest rate options available.

At December 31, 2020, the Bank held $16,000 in privately-issued CMOs in the investment portfolio.

At December 31, 2021, the Bank held $3.6 million in privately-issued CMOs in the investment portfolio.

The Bank and the Company do not invest in collateralized debt obligations, mortgage-related securities secured by sub-prime loans, or any preferred equity securities.

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2021 2020 2019

Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value

Value Amortized

(Dollars in thousands)

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Total held-to-maturity debt securities $ 436,189 $ 449,709 $ 451,043 $ 472,529 $ 453,629 $ 467,966

$ 451,043 $ 472,451 $ 453,629 $ 467,966 $ 479,425 $ 479,740

Available for Sale Debt Securities:

U.S Treasury obligations $ 196,898 $ 196,329 $ — $ — $ — $ —

Mortgage-backed securities 1,711,312 1,708,831 910,393 938,413 936,196 947,430

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(1) Average expected life is based on prepayment assumptions utilizing prevailing interest rates as of the reporting dates and excludes equity securities.

(2) At December 31, 2020, excludes $78,000 allowance for credit losses on held to maturity debt securities.

(2) At December 31, 2021and 2020, excludes allowance for credit losses on held to maturity debt securities of $39,000 and $78,000, respectively.

The aggregate carrying values and fair values of securities by issuer, where the aggregate book value of such securities exceeds ten percent of stockholders’ equity are as follows (in thousands):

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(2) At December 31, 2021, excludes $39,000 allowance for credit losses on held to maturity debt securities.

(3) Totals exclude $971,000 equity securities at fair value.

(3) Totals exclude $1.3 million equity securities, at fair value.

SOURCES OF FUNDS

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Deposit activity is influenced by state and local economic conditions, changes in interest rates, internal pricing decisions and competition.

Deposits are primarily obtained from the areas surrounding the Bank’s branch locations.

Deposits are primarily obtained from the areas

surrounding the Bank’s branch locations.

To attract and retain deposits, the Bank offers competitive rates, quality customer service and a wide variety of products and services that meet customers’ needs, including online and mobile banking.

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When setting deposit pricing, the Bank considers competitive market rates, FHLBNY advance rates and rates on other sources of funds.

Core deposits, defined as savings accounts, interest and non-interest bearing checking accounts and money market deposit accounts, represented 88.9% of total deposits at December 31, 2020 and 89.7% of total deposits at December 31, 2019.

Savings accounts, interest and non-interest bearing checking accounts and money market deposit accounts, represented 93.8% of total deposits at December 31, 2021 and 88.9% of total deposits at December 31, 2020.

As of December 31, 2021 and 2020, time deposits maturing in less than one year amounted to $534.5 million and $886.0 million, respectively.

The following table indicates the amount of certificates of deposit by time remaining until maturity at December 31, 2020.

The following table indicates the amount of certificates of deposit at December 31, 2021 by time remaining to maturity.

Maturity Total

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Borrowed Funds.

At December 31, 2020, the Bank had $1.18 billion of borrowed funds.

At December 31, 2021, the Bank had $626.8 million of borrowed funds.

Borrowed funds consist primarily of FHLBNY advances and repurchase agreements.

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Sussex Capital Trust II, a non-consolidated subsidiary of the Company acquired as part of the SB One acquisition and a Delaware statutory business trust established on June 28, 2007, issued $12.5 million of variable rate capital trust pass-through securities to investors.

Concurrently, the Trust purchased $12.9 million of variable rate subordinated deferrable interest debentures from the former SB One Bancorp and issued $387,000 of Common Securities in consideration for payment of the assets of the Trust in the same amount.

The subordinated debentures are the sole asset of the Trust and their terms are the same as the terms of the capital securities.

The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities.

The interest rate is based on the three-month LIBOR plus 144 basis points and adjusts quarterly.

The rate at December 31, 2020 was 1.66%.

The capital trust pass-through securities are currently redeemable by the Company at par in whole or in part.

These capital trust pass-through securities must be redeemed upon final maturity on September 15, 2037.

The proceeds of these trust preferred securities, which have been contributed to the Bank, are included in the Bank’s capital ratio calculations and treated as Tier I capital.

In accordance with FASB ASC 810, Consolidation, Sussex Capital Trust II, is not included in our consolidated financial statements.

For regulatory reporting purposes, capital trust pass-through securities qualify as Tier I capital subject to specified limitations.

As part of the acquisition of SB One, the Company assumed a $15.0 million private placement of fixed to-floating rate subordinated notes to an institutional investor on December 22, 2016.

The subordinated notes have a maturity date of December 22, 2026 and bear interest at the rate of 5.75% per annum, payable quarterly, for the first five years of the term, and then at a variable rate that will reset quarterly to a level equal to the then current 3-month LIBOR plus 350 basis points over the remainder of the term.

In addition, the Company assumed a $15.0 million private placement of fixed to-floating rate subordinated notes to an institutional investor on December 22, 2016.

The proceeds of these trust preferred securities, which have been contributed to the Bank, are included in the Bank’s capital ratio calculations and treated as Tier I capital.

The subordinated notes had an initial call date at par of December 22, 2021 which the Company exercised.

Subordinated debentures at December 31, 2021 and 2020 totaled $10.3 million and $25.1 million, respectively.

WEALTH MANAGEMENT SERVICES

As part of the Company’s strategy to increase fee related income, the Bank’s wholly owned subsidiary, Beacon Trust Company and its registered investment advisor subsidiary, Beacon Investment Advisory Services, Inc., (“Beacon”) are engaged in providing wealth management services.

Those services include investment management, trust and estate administration, financial planning, tax compliance and planning, and private banking.

These services may be introduced to existing customers through the Bank’s extensive branch and lending network.

Those services include investment management, trust and estate administration,

financial planning, tax compliance and planning, and private banking.

These services are offered to existing customers through the Bank’s extensive branch, lending and insurance networks.

Beacon focuses on delivering personalized solutions based on the needs and objectives for each client.

The majority of the fee income generated by Beacon is based on assets under management.

On April 1, 2019, Beacon Trust Company ("Beacon") completed its acquisition of certain assets of Tirschwell & Loewy, Inc.

On April 1, 2019, Beacon completed its acquisition of certain assets of Tirschwell & Loewy, Inc.

("T&L"), a New York City-based registered investment adviser.

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It was established as a New Jersey corporation to engage in the business of a real estate investment trust for the purpose of acquiring mortgage loans and other real estate related assets from the Bank.

Bergen Avenue Realty, LLC, a New Jersey limited liability company is a wholly owned subsidiary of the Bank formed to manage and sell real estate acquired through foreclosure.

Bergen Avenue Realty PA, LLC, a Pennsylvania limited liability company is a wholly owned subsidiary of the Bank formed to manage and sell real estate acquired through foreclosure in Pennsylvania.

Beacon Trust Company, a New Jersey limited purpose trust company, is a wholly owned subsidiary of the Bank.

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is a wholly owned subsidiary of Beacon Trust Company, incorporated under Delaware law and is a registered investment advisor.

SB One Insurance Company Inc., a full service insurance agency offering both commercial and personal lines of insurance, is a wholly owned subsidiary of the Bank.

SB One Insurance Company Inc., a full service insurance agency offering both commercial and personal lines of insurance, is a wholly owned subsidiary of the Bank, which also conducts business as Protection Plus Associates Inc.

Sussex Capital Trust II is a Delaware statutory business trust and a non-consolidated subsidiary of the Company.

The Bank has the following active subsidiaries formed to manage and sell real estate acquired through foreclosure:

• Bergen Avenue Realty, LLC, a New Jersey limited liability company;

• Bergen Avenue Realty II, LLC, a New Jersey limited liability company;

• Bergen Avenue Realty PA, LLC, a Pennsylvania limited liability company;

• 490 Boulevard Realty Corp, a New Jersey corporation.

Human Capital Resources

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We offer our employees paid time off to assist in their chosen charitable and community-based endeavors.

Our Company is committed to fostering a safe working environment, that promotes diversity, and is free from harassment or discrimination of any kind.

Our Company is committed to fostering an inclusive working environment that promotes a social and cultural diversity, and is free from harassment or discrimination of any kind.

We are proud of our diverse workforce, including women holding 63% of managerial positions.

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and (3) generally is subject to higher FDIC assessment rates.

Certain enhanced prudential standards also now become applicable such as additional risk management requirements, both from a framework and corporate governance perspective.

Certain enhanced prudential standards also now are applicable such as additional risk management requirements, both from a framework and corporate governance perspective.

These and other supervisory and regulatory implications of crossing the $10 billion threshold have and will likely continue to result in increased regulatory costs, though the Company has incurred increased regulatory costs in connection with its preparations over the last several years for exceeding the $10 billion asset threshold.

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• Raising the total asset threshold from $10 billion to $50 billion at which publicly traded bank holding companies are required to establish risk committees for the oversight of the enterprise-wide risk management practices of the institution.

Now that the Company has exceeded $10 billion in assets, the Company no longer qualifies for certain regulatory relief provided under the Economic Growth Act, but the Company has and expects to continue to benefit from the above amendments which raised the above asset thresholds for conducting annual company-run stress tests.

Now that the Company exceeds $10 billion in assets, the Company no longer qualifies for certain regulatory relief provided under the Economic Growth Act, but the Company has and expects to continue to benefit from the above amendments which raised the above asset thresholds for conducting annual company-run stress tests.

However, notwithstanding this regulatory relief, the Company intends to continue to employ stress testing protocols commensurate with the risk of the institution as part of its enterprise risk management framework.

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Legislative and Regulatory Responses to the COVID-19 Pandemic

The COVID-19 pandemic has and continues to create disruptions to the global economy, businesses, and to the lives of individuals throughout the world.

There have been a number of regulatory actions intended to help mitigate the adverse economic impact of COVID-19 on individuals, including several mandates from the federal bank regulatory agencies, requiring financial institutions to work constructively with borrowers affected by COVID-19.

In addition, the governors of many states in which we do business or in which our borrowers and loan collateral are located have issued temporary bans on evictions and foreclosures.

In New Jersey, Governor Philip Murphy has, barring rare circumstances, suspended evictions and foreclosures throughout the state at least until April 19, 2021.

Similar provisions have been enacted by the New York General Assembly and signed into law by Governor Cuomo through May 1, 2021.

Also, the New Jersey Department of Banking and Insurance issued a bulletin encouraging entities regulated by the Department to work with and assist customers who have been adversely affected by COVID-19-related issues.

There continues to be mounting pressure on governors and localities to take further relief action.

The COVID-19 pandemic has continued to cause extensive disruptions to the global economy, to businesses, and to the lives of individuals throughout the world.

On March 27, 2020, the CARES Act was signed into law.

The CARES Act is a $2.2 trillion economic stimulus bill that was intended to provide relief in the wake of the COVID-19 pandemic.

Several provisions within the CARES Act led to action from the bank regulatory agencies and there were also separate provisions within the legislation that directly impacts financial institutions.

Section 4022 of the CARES Act allows, until the earlier of December 31, 2020, or the date the national emergency declared by the President terminates, borrowers with federally-backed one-to-four family mortgage loans experiencing a financial hardship due to COVID-19 to request forbearance, regardless of delinquency status, for up to 360 days.

Section 4022 also prohibited servicers of federally-backed mortgage loans from initiating foreclosures during the 60-day period beginning March 18, 2020.

Further, on December 21, 2020, the Federal Housing Finance Agency (“FHFA”) announced that Fannie Mae and Freddie Mac would extend their single-family moratorium on foreclosures and evictions through February 28, 2021.

The FHA also extended through February 28, 2021, the deadline for single family borrowers with FHA-insured mortgages to request an initial COVID-19 forbearance from their mortgage servicer to defer or reduce their mortgage payments for up to six months, which can be extended for an additional six months.

In addition, President Biden requested that the federal agencies discussed above continue to extend the moratorium on foreclosures on federally-guaranteed mortgages until at least March 31, 2021.

In addition, under Section 4023 of the CARES Act, until the earlier of December 31, 2020 and the date the national emergency declared by the President terminates, borrowers with federally-backed multi-family mortgage loans whose payments were current as of February 1, 2020, but who have since experienced financial hardship due to COVID-19, may request a forbearance for up to 90 days.

Borrowers receiving such forbearance may not evict or charge late fees to tenants for its duration.

On December 23, 2020, the FHFA announced an extension of forbearance programs for qualifying multifamily properties through March 31, 2021.

These regulatory and legislative actions may be expanded, extended and amended as the pandemic and its economic impact continues and the new administration has recently announced extensions of the foreclosure moratorium through at least June 30, 2021.

The bank regulatory agencies have ensured that adequate flexibility will be given to financial institutions who work with borrowers affected by COVID-19, and have indicated that they will not criticize institutions who do so in a safe and sound manner.

Further, the federal bank regulatory agencies have encouraged financial institutions to report accurate information to credit bureaus regarding relief provided to borrowers and have urged the importance of financial institutions to continue to assist those borrowers impacted by COVID-19.

The CARES Act was a $2.2 trillion economic stimulus bill that was intended to provide relief in the wake of the COVID-19 pandemic.

There have also been a number of regulatory actions intended to help mitigate the adverse economic impact of COVID-19 on individuals, including several mandates from the federal bank regulatory agencies, requiring financial institutions to work constructively with borrowers affected by the COVID-19 pandemic.

The bank regulatory agencies have ensured that adequate flexibility will be given to financial institutions who work with borrowers affected by the COVID-19 pandemic, and have indicated that they will not criticize institutions who do so in a safe and sound manner.

The federal bank regulatory agencies have also encouraged financial institutions to report accurate information to credit bureaus regarding relief provided to borrowers and have urged the importance of financial institutions to continue to assist those borrowers impacted by the COVID-19 pandemic.

On April 2, 2020, the bank regulatory agencies issued a joint policy statement to facilitate mortgage servicers’ ability to place consumers in short-term payment forbearance programs.

This policy statement was followed by a final rule, on June 23, 2020, that makes it easier for consumers to transition out of financial hardship caused by COVID-19.

The rule makes it clear that servicers do not violate Regulation X (which places restrictions and requirements upon lenders, mortgage brokers, or servicers of home loans related to consumers when they apply and receive mortgage loans) by offering certain COVID-19-related loss mitigation options based on an evaluation of limited application information collected from the borrower.

Also, in an attempt to allow individuals and businesses to more quickly access real estate equity, on September 29, 2020, the bank regulatory agencies issued a rule that deferred appraisal and evaluation requirements after the closing of certain residential and commercial real estate transactions through December 31, 2020.

On January 20, 2021, upon the inauguration of President Biden, the incoming Administration issued an Executive Order extending the federal eviction moratorium issued through the Centers for Disease Control and Prevention, which was recently extended by Congress through January 31, 2021, through March 31, 2021.

Separately, as part of the COVID-19 relief package proposed by the Administration, this eviction moratorium would be further extended through September 30, 2021 if adopted as proposed.

Further additional actions by the Administration may be taken in the future.

Further, on December 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 was signed into law, which also contains provisions that could directly impact financial institutions.

The Act directs financial regulators to support community development financial institutions and minority depository institutions and directs Congress to re-appropriate $429 billion in unobligated CARES Act funds.

The Paycheck Protection Program (“PPP”), originally established under the CARES Act and extended under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, authorizes financial institutions to make federally-guaranteed loans to qualifying small businesses and non-profit organizations.

These loans carry an interest rate of 1% per annum and a maturity of 2 years for loans originated prior to June 5, 2020 and 5 years for loans originated on or after June 5th.

This policy statement was followed by an interim final rule, on June 23, 2020, that makes it easier for consumers to transition out of financial hardship caused by the COVID-19 pandemic.

The rule makes it clear that servicers do not violate Regulation X (which places restrictions and requirements upon lenders, mortgage brokers, or servicers of home loans related to consumers when they apply for and receive mortgage loans) by offering certain COVID-19-related loss mitigation options based on an evaluation of limited application information collected from the borrower.

A final rule issued by the federal bank regulatory agencies on June 28, 2021 permits servicers to also offer certain COVID-19-related loan modification options based on the evaluation of an incomplete application.

Federal and state moratoria on evictions and foreclosures that were implemented during 2020 in response to COVID-19 were extended late into 2021.

Although these programs generally have expired, governmental authorities may take additional actions in the future to limit the adverse impact of COVID-19 on borrowers and tenants.

The Paycheck Protection Program (“PPP”), originally established under the CARES Act and extended under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, authorized financial institutions to make federally-guaranteed loans to qualifying small businesses and non-profit organizations.

These loans carry an interest rate of 1% per annum and a maturity of 2 years for loans originated prior to June 5, 2020 and 5 years for loans originated on or after June 5, 2020.

The PPP provides that such loans may be forgiven if the borrowers meet certain requirements with respect to maintaining employee headcount and payroll and the use of the loan proceeds after the loan is originated.

The initial phase of the PPP, after being extended multiple times by Congress, expired on August 8, 2020.

However, on January 11, 2021, the SBA reopened the PPP for First Draw PPP loans to small business and non-profit organizations that did not receive a loan through the initial PPP phase.

Further, on January 13, 2021, the SBA reopened the PPP for Second Draw loans to small businesses and non-profit organizations that did receive a loan through the initial PPP phase.

At least $25 billion has been set aside for Second Draw PPP loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods.

Generally speaking, business with more than 300 employees and/or less than a 25 percent reduction in gross receipts between comparable quarters in 2019 and 2020 are not eligible for Second Draw loans.

Further, maximum loan amounts have been increased for accommodation and food service businesses.

Further, the federal bank regulatory agencies issued several interim final rules throughout the course of 2020 to neutralize the regulatory capital and liquidity effects for banks that participate in the Federal Reserve liquidity facilities.

The interim final rule issued on April 9, 2020, clarifies that a zero percent risk weight applies to loans covered by the PPP for capital purposes and the interim final rule issued on May 15, 2020, permits depository institutions to choose to exclude U.S.

Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio.

These interim final rules were finalized on September 29, 2020.

Although the PPP ended in accordance with its terms on May 31, 2021, outstanding PPP loans continue to go through the process of either obtaining forgiveness from the SBA or pursuing claims under the SBA guaranty.

New Jersey Banking Regulation

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A savings bank may also invest pursuant to a “leeway” power that permits investments not otherwise permitted by the New Jersey Banking Act, subject to certain restrictions imposed by the FDIC.

“Leeway” investments must comply with a number of limitations on the individual and aggregate amounts of such investments.

“Leeway” investments must comply with a

number of limitations on the individual and aggregate amounts of such investments.

A savings bank may also exercise trust powers upon the approval of the Commissioner.

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Federal regulations require federally insured depository institutions to meet several minimum capital standards:

a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.

a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.

In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset.

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In addition to establishing the minimum regulatory capital requirements, federal regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements.

On July 15, 2019, the federal banking agencies adopted a final rule simplifying certain aspects of the capital rules, the key elements of which apply solely to banking organizations that are not subject to the advanced approaches capital rule (i.e., banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures).

In July 2019, the federal banking agencies adopted a final rule simplifying certain aspects of the capital rules, the key elements of which apply solely to banking organizations that are not subject to the advanced approaches capital rule (i.e., banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures).

Under the rule, non-advanced approaches banking organizations such as the Bank will apply a simpler regulatory capital treatment for mortgage servicing assets (“MSAs”);

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and capital issued by a consolidated subsidiary of a banking organization and held by third parties (often referred to as minority interest) that is includable in regulatory capital.

Specifically, the rule eliminates:

In addition, certain general requirements of the capital rules have been eliminated in respect of non-advanced approaches institutions, including:

(i) the capital rule’s 10 percent common equity tier 1 capital deduction threshold that applies individually to MSAs, temporary difference DTAs, and significant investments in the capital of unconsolidated financial institutions in the form of common stock;

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and (iv) the deduction treatment for significant investments in the capital of unconsolidated financial institutions not in the form of common stock.

The capital rule no longer has distinct treatments for significant and non-significant investments in the capital of unconsolidated financial institutions, but instead require that non-advanced approaches banking organizations deduct from common equity tier 1 capital any amount of MSAs, temporary difference DTAs, and investments in the capital of unconsolidated financial institutions that individually exceeds 25 percent of common equity tier 1 capital.

Additionally, in December 2019, the federal banking agencies issued a final rule on the capital treatment of High Volatility Commercial Real Estate ("HVCRE") exposures which brought the regulatory definition of HVCRE exposure in line with the statutory definition of HVCRE ADC in the Economic Growth Act.

The final rule also clarifies the capital treatment for loans that finance the development of land under the revised HVCRE exposure definition and establishes the requirements for certain exclusions from HVCRE exposure capital treatment.

In the first quarter of 2020, U.S.

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

Accordingly, non-advanced approaches banking organizations deduct from common equity tier 1 capital any amount of MSAs, temporary difference DTAs, and investments in the capital of unconsolidated financial institutions that individually exceeds 25 percent of common equity tier 1 capital.

On August 26, 2020, the federal bank regulatory authorities issued a final rule providing banking institutions that adopted the Current Expected Credit Loss ("CECL") accounting standard in the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five year transition in total).

In connection with its adoption of CECL on January 1, 2020, the Company elected to utilize the five-year CECL transition.

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The Volcker Rule.

A provision of the Dodd-Frank Act (known as the “Volcker Rule”) prohibits insured depository institutions and their holding companies from engaging in proprietary trading except in limited circumstances, and it prohibits them from owning equity interests in excess of three percent of Tier 1 Capital in private equity and hedge funds.

On December 10, 2013, five U.S.

financial regulators, including the Federal Reserve and the OCC, adopted regulations implementing the Volcker Rule.

Those regulations prohibit banking entities from (1) engaging in short-term proprietary trading for their own accounts, and (2) having certain ownership interests in and relationships with hedge funds or private equity funds, which are referred to as “covered funds.” The regulations also require each regulated entity to establish an internal compliance program that is consistent with the extent to which it engages in activities covered by the Volcker Rule.

Historically, this meant that reporting requirements were tied to a bank’s total assets, where banks with assets at or below $10 billion had less stringent reporting requirements and banks with more than $10 billion had increasingly more stringent requirements as the size of the bank increased.

However, in November 2019, five federal banking agencies issued a final rule revising certain aspects of the Volcker Rule.

The final rule simplifies and streamlines compliance requirements for firms that do not have significant trading activities and enhances requirements for firms that do.

Under the new rule, compliance requirements are based on the amount of assets and liabilities that a bank trades.

A provision of the Dodd-Frank Act prohibits insured depository institutions and their holding companies from engaging in proprietary trading except in limited circumstances, and it prohibits them from owning equity interests in excess of three percent of Tier 1 Capital in private equity and hedge funds (known as the “Volcker Rule”).

The Volcker Rule and its implementing regulations prohibit banking entities from (1) engaging in short-term proprietary trading for their own accounts, and (2) having certain ownership interests in and relationships with hedge funds or private equity funds, which are referred to as “covered funds.” Banking entities also are required to establish internal compliance programs that are consistent with the extent to which an entity engages in activities covered by the Volcker Rule.

In November 2019, the five federal regulatory agencies with jurisdiction over the Volcker Rule (the “Volcker Rule Agencies”) issued a final rule revising certain aspects of the Volcker Rule’s implementing regulations.

The final rule simplified

and streamlined compliance requirements for firms that do not have significant trading activities and enhances requirements for firms that do.

Under the amended regulations, compliance requirements are based on the amount of assets and liabilities that a bank trades.

Firms with significant trading activities (i.e., those with $20 billion or more in trading assets and liabilities), have heightened compliance obligations.

The new rule became effective on January 1, 2020, but banking entities were not be required to comply with the new rules until January 1, 2021.

Further, on June 25, 2020, the five U.S.

financial regulators issued a final rule that modifies the rule's prohibition on banking entities investing in or sponsoring “covered funds.” The new rule (1) streamlines the covered funds portion of the rule;

(2) addresses the extraterritorial treatment of certain foreign funds;

and (3) permits banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker rule was intended to address.

Although we will benefit from significantly reduced compliance obligations due to the level of our trading assets being below the $20 billion threshold, we will remain subject to the modified rules and requirements related to covered funds.

Accordingly, we expect that the revised rule will reduce some of our compliance costs, but in the short term we may experience some costs in developing and implementing changes in conformance with the new rule.

Compliance with the amended regulations was required by January 1, 2021.

Further, in June 2020, Volcker Rule Agencies issued a final rule modifying the Volcker rule's prohibition on banking entities' investing in or sponsoring “covered funds.” The final rule (1) streamlined the covered funds portion of the rule;

(2) addressed the extraterritorial treatment of certain foreign funds;

and (3) permitted banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address.

Although we have benefited from significantly reduced compliance obligations due to the level of our trading assets being below the $20 billion threshold, we remain subject to the modified rules and requirements related to covered funds.

Current Expected Credit Loss ("CECL") Treatment.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaced the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model.

Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans and leases held for investment and held-to-maturity debt securities, at the net amount expected to be collected.

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Further information regarding the impact of CECL can be found in Note 5 “Held to Maturity Debt Securities”, Note 7 “Loans Receivable and Allowance for Credit Losses”, and Note 17 “Allowance for Credit Losses on Off-Balance Sheet Credit Exposures”.

On May 8, 2020, four federal banking agencies issued an interagency policy statement on the new CECL methodology.

The policy statement seeks to harmonize the agencies' policies on allowance for credit losses with the FASB's new accounting standards.

Specifically, the statement (1) updates concepts and practices from prior policy statements issued in December 2006 and July 2001 and specifies which prior guidance documents are no longer relevant;

(2) describes the appropriate CECL methodology, in light of Topic 326, for determining an allowance for credit loss ("ACL") on financial assets measured at amortized cost, net investments in leases, and certain off-balance sheet credit exposures;

and (3) describes how to estimate an ACL for an impaired available-for-sale debt security in line with Topic 326.

The proposed policy statement becomes effective at the time that each institution adopts the new standards required by the FASB.

Activity Restrictions on State-Chartered Banks.

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The Bank currently meets all conditions necessary to establish and engage in permitted activities through financial subsidiaries.

Federal Home Loan Bank System.

Federal Home Loan Bank ("FHLB") System.

The Bank is a member of the FHLB system which consists of eleven regional FHLBs, each subject to supervision and regulation by the FHFA.

The FHLB provides a central credit facility primarily for member institutions.

As a member of the FHLB of New York, the Bank is required to purchase and hold shares of capital stock in that FHLB in an amount as required by that FHLB’s capital plan and minimum capital requirements.

As a member of the FHLB of New York, the Bank is required to purchase and hold shares of

capital stock in that FHLB in an amount as required by that FHLB’s capital plan and minimum capital requirements.

The Bank is in compliance with these requirements.

The Bank has received dividends on its FHLBNY stock, although no assurance can be

given that these dividends will continue to be paid.

The Bank has received dividends on its FHLBNY stock, although no assurance can be given that these dividends will continue to be paid.

For the year ended December 31, 2021, dividends paid by the FHLBNY to the Bank totaled $2.3 million.

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The Dodd-Frank Act required the FDIC to revise its procedures to base its assessments upon each insured institution’s total assets less tangible equity instead of deposits.

The FDIC finalized a rule, effective April 1, 2011, that set the assessment range (inclusive of possible adjustments) at 2.5 to 45 basis points of total assets less tangible equity.

However, as described below, there have been changes to both the FDIC’s assessment range and its risk-based assessment procedures.

Under current FDIC rules, the assessment range (inclusive of possible adjustments) is for institutions with greater than $12.0 billion of total assets established at 1.0 to 40 basis points.

The FDIC established a long range target size for the DIF of 2% of insured deposits.

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The FDIC indicated that those credits were completely remitted as of September 30, 2020.

Most institutions are now assessed based on financial ratios derived from statistical models that estimate the probability of a bank’s failure within three years.

Most institutions are currently assessed based on financial ratios derived from statistical models that estimate the probability of a bank’s failure within three years.

Banks of greater than $10 billion are assessed based on a rate derived from a scorecard which assesses certain factors such as examination ratings and financial measures related to the bank’s ability to withstand stress and measures of loss severity to the DIF if the bank should fail.

When the Bank exceeds $10 billion in assets for four consecutive calendar quarters, which will occur in the first quarter of 2021, it will be classified as a large institution for deposit insurance assessment purposes, which is likely to result in a higher FDIC insurance premium.

On December 15, 2020, the FDIC issued a final rule on brokered deposits.

The rule aims to clarify and modernize the FDIC’s existing regulatory framework for brokered deposits.

Notable aspects of the rule include (1) the establishment of bright-line standards for determining whether an entity meets the statutory definition of "deposit broker";

(2) the identification of a number of business relationships (“designated exceptions”) to which the “primary purpose” exception is automatically applicable;

(3) the establishment of a “transparent” application process for entities that seek a “primary purpose” exception, but do not qualify as a “designated exception”;

and (4) the clarification that third parties that have an exclusive deposit-placement arrangement with only one IDI is not considered a “deposit broker.” We are currently evaluating the impact of this change in the FDIC’s regulatory framework with respect to brokered deposits, which could result in a change in our DIF assessment rate.

The Bank has exceeded $10 billion in assets for four consecutive calendar quarters and is now classified as a large institution for deposit insurance assessment purposes, resulting in a higher FDIC insurance premium.

Brokered Deposits.

The Federal Deposit Insurance Act and FDIC regulations thereunder limit the ability of banks to accept, renew or rollover brokered deposits unless the institution is well capitalized under the prompt corrective action framework discussed in greater detail below, or unless it is adequately capitalized and obtains a waiver from the FDIC.

Less-than-well-capitalized banks also are subject to restrictions on the interest rates that they may pay on deposits.

The characterization of deposits as “brokered” may result in the imposition of higher deposit assessments on such deposits.

In December 2020, the FDIC issued a final rule amending its regulations governing brokered deposits.

The rule sought to clarify and modernize the FDIC’s regulatory framework for brokered deposits.

Notable aspects of the rule include:

(1) the establishment of bright-line standards for determining whether an entity meets the statutory definition of “deposit broker”;

(2) the identification of a number of business relationships in which the agent or nominee is automatically not deemed to be a “deposit broker” because their primary purpose is not the placement of funds with depository institutions (the “primary purpose exception”);

(3) the establishment of a more transparent application process for entities that seek the “primary purpose exception,” but do not qualify as one of the identified business relationships to which the exception is automatically applicable;

and (4) the clarification that third parties that have an exclusive deposit-placement arrangement with only one IDI is not considered a “deposit broker.” The final rule took effect on April 1, 2021 and full compliance is required by January 1, 2022.

Further, as mandated by the Economic Growth Act, the FDIC’s brokered deposit regulations provide a limited exception for reciprocal deposits for banks that are well managed and well capitalized (or adequately capitalized and have obtained a waiver from the FDIC as mentioned above).

Under the limited exception, qualified banks are able to except from treatment as “brokered” deposits up to $5 billion or 20 percent of the institution’s total liabilities in reciprocal deposits (which is defined as deposits received by a financial institution through a deposit placement network with the same maturity (if any) and in the same aggregate amount as deposits placed by the institution in other network member banks.

The FDIC has extensive enforcement authority over insured savings banks, including the Bank.

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In many jurisdictions, including every state of the United States, consumers must be notified in the event of a data breach.

The changing privacy laws in the United States, Europe and elsewhere, including the California Consumer Privacy Act, which became effective in January 2020, create new individual privacy rights and impose increased obligations on companies handling personal data.

The changing privacy laws in the United States, Europe and elsewhere, including the California Consumer Privacy Act create new individual privacy rights and impose increased obligations on companies handling personal data.

In addition, multiple states, Congress and regulators outside the United States are considering similar laws or regulations which could create new individual privacy rights and impose increased obligations on companies handling personal data.

For example, on December 18, 2020, the federal financial regulatory agencies announced a proposal that would require supervised banking organizations to promptly notify their primary federal regulator in the event of a computer security incident.

If adopted without substantial change, the proposed rule would require banking organizations to notify their primary federal regulator promptly, and not later than 36 hours after, the discovery of such incidents, termed "computer-security incidents" that are "notification incidents."

Community Reinvestment Act and Fair Lending Laws.

All FDIC insured institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their entire communities, including low- and moderate-income neighborhoods and borrowers (i.e.

For example, on November 23, 2021, the federal financial regulatory agencies published a final rule that will impose upon banking organizations and their service providers new notification requirements for significant cybersecurity incidents.

Specifically, the final rule requires banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the final rule.

Banks’ service providers are required under the final rule to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.

The final rule will take effect on April 1, 2022 and banks and their service providers must be in compliance with the requirements of the rule by May 1, 2022.

Community Reinvestment Act ("CRA") and Fair Lending Laws.

All FDIC insured institutions have a responsibility under the CRA and related regulations to help meet the credit needs of their entire communities, including low- and moderate-income neighborhoods and borrowers (i.e.

assessment(s)).

In connection with its examination of a state chartered savings bank, the FDIC is required to assess the institution’s record of compliance with the Community Reinvestment Act ("CRA").

In connection with its examination of a state chartered savings bank, the FDIC is required to assess the institution’s record of compliance with the CRA.

Among other things, the current CRA regulations rate an institution based upon its actual performance in meeting community needs.

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The Bank received a “Satisfactory” CRA rating in its most recently completed federal examination, which was conducted by the FDIC as of July 2018.

In December 2019, the OCC and FDIC released a notice of proposed rulemaking seeking to revise the federal interagency CRA regulations, which had not been substantively updated in nearly 25 years.

On June 5, 2020, the OCC issued a final rule that is generally consistent with the proposed rule.

The FDIC, however, did not join in the final rule and has indicated it is not

ready to adopt a final rule at this time, particularly in light of the ongoing pandemic.

Specifically, the rule (1) clarifies which activities qualify for CRA credit and (2) requires banks to identify an additional assessment area based on where they receive a significant portion of their domestic retail deposits, thus creating two assessment areas:

a deposit-based assessment area and a facility-based assessment area.

Members of Congress and community groups have expressed hostility to the new rule, and have raised the possibility of repealing it through legislative action.

In light of this uncertainty, and the fact that the FDIC has not yet taken action on new rule, it is not possible to predict the substance and timing of a revised CRA rule.

The federal banking agencies have expressed interest in and have taken certain steps toward reform of the CRA’s implementing regulations, and have indicated that a joint notice of proposed rulemaking to modify and enhance such regulations may be issued in 2022.

However, the prospects for and timing of any such rulemaking, as well as the content and scope of any proposed regulations, cannot be predicted at this time.

In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of the borrower’s characteristics as specified in those statutes.

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The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal stockholder.

The Dodd Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines for specified entities, such as us, having at least $1 billion in total assets (including the Company and the Bank), to prohibit incentive-based payment arrangements that encourage inappropriate risk-taking by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity.

In addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements.

The agencies have not yet finalized these rules;

however, on October 14, 2021, the SEC signaled a renewed interest in this rulemaking initiative by re-opening the comment period on a proposed rule issued originally in 2015 regarding “clawbacks” of incentive-based executive compensation.

On January 27, 2022, the SEC extended this comment period until March 4, 2022.

The scope and content of the federal banking agencies’ policies on executive compensation may continue to evolve in the near future.

In addition, FDIC regulations require a bank that is given notice by the FDIC that it is not satisfying any of such safety and soundness standards to submit a compliance plan to the FDIC.

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Failure to comply with these and similar statutes and regulations can result in the Corporation and its bank subsidiaries becoming subject to formal or informal enforcement actions, the imposition of civil money penalties and consumer litigation.

Under TILA, as implemented by Regulation Z, mortgage lenders are required to make a reasonable and good faith determination, based on verified and documented information, that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms.

ability to repay the loan according to its terms.

Alternatively, the mortgage lender can originate “qualified mortgages,” which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements.

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In addition, to be a QM the points and fees paid by a consumer cannot exceed 3% of the total loan amount.

In December 2020, the CFPB issued two final rules related to QM loans.

The first rule replaces the strict debt-to-income (“DTI”) threshold for QM loans and provides that, in addition to existing requirements, a loan receives a conclusive presumption that the consumer had the ability to repay if the annual percentage rate ("APR") does not exceed the average prime offer rate for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set.

Further, a loan receives a rebuttable presumption that the consumer had the ability to repay if the APR exceeds the average prime offer rate for a comparable transaction by 1.5 percentage points or more but by less than 2.25 percentage points.

The second rule creates a new category of "seasoned" QM loans for those that meet certain performance requirements.

Specifically, that rule allows a non-QM loan or a "rebuttable presumption" QM loan to receive a safe harbor from APR liability at the end of a "seasoning" period of at least 36 months as a "seasoned QM" if it satisfies certain product restrictions, points-and-fees limits, and underwriting requirements, and the loan meets the designated performance and portfolio requirements during the "seasoning period." The mandatory compliance date under the first final rule initially was July 1, 2021, but was subsequently delayed by the CFPB to October 1, 2022.

The second final rule will apply to covered transactions for which institutions receive an application after the compliance date for the first final rule.

The CFPB has exclusive examination and primary enforcement authority with respect to compliance with federal consumer financial protection laws and regulations by institutions under its supervision and is authorized, individually or jointly with the federal bank regulatory agencies, to conduct investigations to determine whether any person is, or has, engaged in conduct that violates such laws or regulations.

The CFPB may bring an administrative enforcement proceeding or civil action in Federal district court.

In addition, in accordance with a memorandum of understanding entered into between the CFPB and the Department of Justice (DOJ), the two agencies have agreed to coordinate efforts related to enforcing the fair lending laws, which includes information sharing and conducting joint investigations.

In addition, in accordance with a memorandum of understanding entered into between the CFPB and the Department of Justice, the two agencies have agreed to coordinate efforts related to enforcing the fair lending laws, which includes information sharing and conducting joint investigations.

Now that the Company has exceeded $10 billion in assets in 2020, it is subject to the supervisory and enforcement authority of the CFPB.

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and (5) expanded duties and powers of FinCEN.

Many of the amendments, including those with respect to beneficial ownership, require the Department of Treasury and FinCEN to promulgate rules.

Many of the amendments require the Department of Treasury and FinCEN to promulgate rules.

On December 8, 2021 FINCEN issued proposed regulations to further implement the amendments with respect to beneficial ownership.

Loans to a Bank’s Insiders.

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The Bank does not, as a matter of policy, make loans to its directors or to their immediate family members and related interests.

Climate-Related Risk Management and Regulation.

In recent years the federal banking agencies have increased their focus on climate-related risks impacting the operations of banks, the communities they serve and the broader financial system.

Accordingly, the agencies have begun to enhance their supervisory expectations regarding the climate risk management practices of larger banking organizations, including by encouraging such banks to:

ensure that management of climate-related risk exposures has been incorporated into existing governance structures;

evaluate the potential impact of climate-related risks on the bank’s financial condition, operations and business objectives as part of its strategic planning process;

account for the effects of climate change in stress testing scenarios and systemic risk assessments;

revise expectations for credit portfolio concentrations based on climate-related factors;

consider investments in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change;

evaluate the impact of climate change on the bank’s borrowers and consider possible changes to underwriting criteria to account for climate-related risks to mortgaged properties;

incorporate climate-related financial risk into the bank’s internal reporting, monitoring and escalation processes;

and prepare for the transition risks to the bank associated with the adjustment to a low-carbon economy and related changes in laws, regulations, governmental policies, technology, and consumer behavior and expectations.

On October 21, 2021, the Financial Stability Oversight Council published a report identifying climate-related financial risks as an “emerging threat” to financial stability.

On December 16, 2021, the Office of the Comptroller of the Currency (“OCC”), which supervises national banks and federal savings associations, issued proposed principles for climate-related financial risk management for institutions with more than $100 billion in total assets.

The agencies have also indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent management.

The federal banking agencies, either independently or on an interagency basis, are expected to adopt a more formal climate risk management framework for larger banking organizations in the coming months.

As climate-related supervisory guidance is formalized, and relevant risk areas and corresponding control expectations are further refined, we may be required to expend significant capital and incur compliance, operating, maintenance and remediation costs in order to conform to such requirements.

In addition, states are considering taking similar actions on climate-related financial risks, including certain states in which we operate.

For example, Pennsylvania Governor, Tom Wolf, has announced the Pennsylvania Climate Action Plan of 2021, which will, in part, focus on the negative impact businesses have on greenhouse gas emissions.

State and local climate-related legislative and regulatory initiatives may also require us to expend capital to conform to applicable requirements.

Federal Reserve System

Under Federal Reserve Board regulations, the Bank is required to maintain non-interest earning reserves against its transaction accounts.

For 2020, the Federal Reserve Board regulations generally required that reserves of 3% be maintained against aggregate transaction accounts over $16.9 million and up to $127.5 million, and 10% against that portion of total transaction accounts in excess of up to $127.5 million.

The Federal Reserve Board regulations generally required that reserves of 3% be maintained against aggregate transaction accounts over $16.9 million and up to $127.5 million, and 10% against that portion of total transaction accounts in excess of up to $127.5 million.

The first $16.9 million of otherwise reservable balances were exempted from the reserve requirements.

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Income on Interchange Fees

Now that the Company exceeded $10 billion in assets in 2020, the Company is subject to the interchange fee cap mandated by the Dodd-Frank Act.

The Company exceeded $10 billion in assets in 2020 and became subject to the interchange fee cap mandated by the Dodd-Frank Act on July 1, 2021.

As such, the fees the Company may receive for an electronic debit transaction are capped at the statutory limit.

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Under federal law and under the New Jersey Banking Act, no person may acquire control of the Company or the Bank without first obtaining approval of such acquisition of control from the Federal Reserve Board and the Commissioner.

On January 30, 2020, the Federal Reserve finalized a rule to codify and simplify its interpretations and opinions regarding regulatory presumptions of control.

The rule’s original effective date, April 1, 2020, was delayed on March 31, 2020, and became effective September 30, 2020.

The rule has and will likely continue to have a meaningful impact on control determinations related to investments in banks and bank holding companies and investments by bank holding companies in nonbank companies.

Effective September 30, 2020, the Federal Reserve finalized a rule to codify and simplify its interpretations and opinions regarding regulatory presumptions of control.

The amended control rule has had, and will likely continue to have a meaningful impact on control determinations related to investments in banks and bank holding companies and investments by bank holding companies in nonbank companies.

Federal Securities Laws.

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The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to the Company.

On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act") was enacted.

Included as part of the law, was a permanent reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018.

Based upon the change in the tax rate, the Company revalued its net deferred tax asset at December 31, 2017 to reflect the reduced rate that will apply in future periods when theses deferred taxes are settled or realized.

On March 27, 2020 in response to COVID-19 and it’s detrimental impact to the global economy, President Trump signed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) into law, which provides stimulus to the US economy in the form of various individual and business assistance programs as well as temporary changes to existing law.

On March 27, 2020 in response to COVID-19 and its detrimental impact to the global economy, President Trump signed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) into law, which provides stimulus to the US economy in the form of various individual and business assistance programs as well as temporary changes to existing law.

The CARES Act of 2020 includes tax provision that temporarily modified the taxable income limitations for NOL usage to offset future taxable income, NOL carryback provisions and other related income and non-income based laws.

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The Company and the Bank file New Jersey Corporation Business Tax returns.

Generally, the income of financial institutions in New Jersey, which is calculated based on federal taxable income subject to certain

adjustments, is subject to New Jersey tax.

The Company and the Bank are subject to the corporation business tax at 9% of apportioned taxable income.

Generally, the income of financial institutions in New Jersey, which is calculated based on federal taxable income subject to certain adjustments, is subject to New Jersey tax.

The Company and the Bank are subject to the corporation business tax at 9% of

apportioned taxable income.

Certain entities can qualify as a NJ investment company which taxes income at 3.6% plus NJ surcharge.

This election is an annual election and if elected, the entity is not included in the unitary group.

As a result of legislation that New Jersey enacted on July 1, 2018 and an extension passed on September 29, 2020, the Company and the Bank are subject to an additional temporary surtax effective for tax years 2018 through 2023, and are required to file combined tax returns beginning 2019.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business