PROVIDENT FINANCIAL SERVICES INC 10-K

Item 8. Financial Statements and Supplementary Data The following are included in this item: A. Report of Independent Registered Public Accounting Firm B. Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting C. Consolidated Financial Statements: (1) Consolidated Statements of Financial Condition as of December 31, 2021 and 2020 (2) Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 (3) Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019 (4) Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021, 2020 and 2019 (5) Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 (6) Notes to Consolidated Financial Statements D. Provident Financial Services, Inc., Condensed Financial Statements: (1) Condensed Statement of Financial Condition as of December 31, 2021 and 2020 (2) Condensed Statement of Income for the years ended December 31, 2021, 2020 and 2019 (3) Condensed Statement of Cash Flows for the years ended December 31, 2021, 2020 and 2019 The supplementary data required by this Item is provided in Note 20 of the Notes to Consolidated Financial Statements. 66 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Provident Financial Services, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial condition of Provident Financial Services Inc. and subsidiary (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of Accounting Standards Codification Topic 326, Financial Instruments - Credit Losses. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Assessment of the allowance for credit losses for loans evaluated on a collective basis As discussed in Notes 1 and 7 to the consolidated financial statements, the Company’s allowance for credit losses on loans evaluated on a collective basis (the collective ACL on loans) was $76.5 million of a total allowance for credit losses of $80.7 million as of December 31, 2021. The collective ACL on loans includes the measure of expected credit losses on a collective basis for loans that share similar risk characteristics. The Company uses a discounted cash flow methodology where the respective quantitative allowance for each loan segment is measured by comparing the present value of expected principal and interest cash flows projected using an econometric, probability of default (PD) and loss given default (LGD) modeling methodology to the amortized cost. The Company uses regression models to develop the 67 PD and LGD assumptions, which are derived from historical credit loss experience for both the Company and selected peers and incorporate an external economic forecast over a reasonable and supportable forecast period. After the reasonable and supportable forecast period, the Company reverts to the long-term average of selected economic factors on a straight-line basis over a reversion period. 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 Company considers qualitative adjustments to credit loss estimates for information not already captured in the quantitative component of the loss estimation process. We identified the assessment of the collective ACL on loans as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ACL on loans due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ACL on loans methodology, including the methods and models used to estimate (1) the PD and LGD and their significant assumptions, including the relationship between PD and LGD, the selected external economic forecast and selected macroeconomic factors, and (2) qualitative adjustments and their significant assumptions. The assessment also included an evaluation of the conceptual soundness of the PD and LGD models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL on loans estimate, including controls over the: • development of the collective ACL on loans methodology • development of the PD and LGD models • identification and determination of the significant assumptions used in the PD and LGD models • development of the qualitative adjustments, including the significant assumptions used in the measurement of the qualitative adjustments • analysis of the collective ACL on loan results, trends, and ratios. We evaluated the Company’s process to develop the collective ACL on loans estimate by testing certain sources of data and assumptions that the Company used, and considered the relevance and reliability of such data and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in: • evaluating the Company’s collective ACL on loans methodology for compliance with U.S. generally accepted accounting principles • evaluating judgments made by the Company relative to the development of the PD and LGD models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices • assessing the conceptual soundness and design of the PD and LGD models by inspecting the Company’s model documentation to determine whether the models are suitable for their intended use • assessing the selected economic forecast used by comparing it to the Company’s business environment and relevant industry practices • evaluating the methodology used to develop the qualitative adjustments and the effect of those adjustments on the collective ACL on loans compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative model. We also evaluated the cumulative results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the collective ACL on loans by evaluating the: • cumulative results of the audit procedures • qualitative aspects of the Company's accounting practices • potential bias in the accounting estimate. /s/ KPMG LLP We have not been able to determine the specific year that we began serving as the Company’s auditor; however, we are aware that we have served as the Company’s auditor since at least 1997. Short Hills, New Jersey March 1, 2022 68 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting To the Stockholders and Board of Directors Provident Financial Services, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Provident Financial Services Inc. and subsidiary's' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2021 and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2022 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Short Hills, New Jersey March 1, 2022 69 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition December 31, 2021 and 2020 (Dollars in Thousands, except share data) December 31, 2021 December 31, 2020 ASSETS Cash and due from banks $ 506,270 $ 404,355 Short-term investments 206,193 127,998 Total cash and cash equivalents 712,463 532,353 Available for sale debt securities, at fair value 2,057,851 1,105,489 Held to maturity debt securities, net (fair value of $ 449,709 and $ 472,529 at December 31, 2021 and December 31, 2020, respectively). 436,150 450,965 Equity securities, at fair value 1,325 971 Federal Home Loan Bank stock 34,290 59,489 Loans 9,581,624 9,822,890 Less allowance for credit losses 80,740 101,466 Net loans 9,500,884 9,721,424 Foreclosed assets, net 8,731 4,475 Banking premises and equipment, net 80,559 75,946 Accrued interest receivable 41,990 46,450 Intangible assets 464,183 466,212 Bank-owned life insurance 236,630 234,607 Other assets 206,146 221,360 Total assets $ 13,781,202 $ 12,919,741 LIABILITIES AND STOCKHOLDERS’ EQUITY Deposits: Demand deposits $ 9,080,956 $ 7,395,508 Savings deposits 1,460,541 1,348,147 Certificates of deposit of $100 thousand or more 368,277 717,216 Other time deposits 324,238 376,958 Total deposits 11,234,012 9,837,829 Mortgage escrow deposits 34,440 34,298 Borrowed funds 626,774 1,175,972 Subordinated debentures 10,283 25,135 Other liabilities 178,597 226,710 Total liabilities 12,084,106 11,299,944 Stockholders’ Equity: Preferred stock, $ 0.01 par value, 50,000,000 shares authorized, none issued — — Common stock, $ 0.01 par value, 200,000,000 shares authorized, 83,209,012 shares issued and 76,969,999 shares outstanding at December 31, 2021, and 83,209,012 shares issued and 76,111,107 shares outstanding at December 31, 2020, respectively. 832 832 Additional paid-in capital 969,815 962,453 Retained earnings 814,533 718,090 Accumulated other comprehensive income, net of tax 6,863 17,655 Treasury stock ( 79,603 ) ( 59,018 ) Unallocated common stock held by the Employee Stock Ownership Plan ( 15,344 ) ( 20,215 ) Common stock acquired by deferred compensation plans ( 3,984 ) ( 4,549 ) Deferred compensation plans 3,984 4,549 Total stockholders’ equity 1,697,096 1,619,797 Total liabilities and stockholders’ equity $ 13,781,202 $ 12,919,741 See accompanying notes to consolidated financial statements. 70 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Income Years Ended December 31, 2021, 2020 and 2019 (Dollars in Thousands, except share data) Years ended December 31, 2021 2020 2019 Interest income: Real estate secured loans $ 252,336 $ 224,925 $ 223,361 Commercial loans 99,163 82,157 82,540 Consumer loans 13,574 16,922 18,579 Available for sale debt securities and Federal Home Loan Bank stock 23,798 25,446 31,842 Held to maturity debt securities 10,743 11,461 12,424 Deposits, federal funds sold and other short-term investments 2,725 2,398 2,724 Total interest income 402,339 363,309 371,470 Interest expense: Deposits 26,513 33,589 45,494 Borrowed funds 8,614 16,638 28,003 Subordinated debentures 1,189 512 — Total interest expense 36,316 50,739 73,497 Net interest income 366,023 312,570 297,973 Provision (benefit) charge for credit losses ( 24,339 ) 29,719 13,100 Net interest income after provision for credit losses 390,362 282,851 284,873 Non-interest income: Fees 29,967 23,847 28,321 Wealth management income 30,756 25,733 22,503 Insurance agency income 10,216 3,513 — Bank-owned life insurance 7,930 6,491 6,297 Net gain on securities transactions 255 81 72 Other income 7,685 12,766 6,601 Total non-interest income 86,809 72,431 63,794 Non-interest expense: Compensation and employee benefits 143,366 130,868 116,849 Net occupancy expense 32,932 27,142 25,895 Data processing expense 19,755 20,767 16,836 FDIC Insurance 6,260 3,116 1,316 Advertising and promotion expense 3,951 4,400 4,115 Credit loss expense for off-balance sheet credit exposures 1,515 1,814 — Amortization of intangibles 3,664 3,425 2,740 Other operating expenses 38,610 36,196 33,828 Total non-interest expenses 250,053 227,728 201,579 Income before income tax expense 227,118 127,554 147,088 Income tax expense 59,197 30,603 34,455 Net income $ 167,921 $ 96,951 $ 112,633 Basic earnings per share $ 2.20 $ 1.39 $ 1.74 Average basic shares outstanding 76,471,933 69,548,499 64,604,224 Diluted earnings per share $ 2.19 $ 1.39 $ 1.74 Average diluted shares outstanding 76,560,840 69,625,958 64,734,591 See accompanying notes to consolidated financial statements. 71 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Comprehensive Income Years Ended December 31, 2021, 2020 and 2019 (Dollars in Thousands) Years ended December 31, 2021 2020 2019 Net income $ 167,921 $ 96,951 $ 112,633 Other comprehensive (loss) income, net of tax: Unrealized gains and losses on available for sale debt securities: Net unrealized (losses) gains arising during the period ( 23,730 ) 14,944 18,351 Reclassification adjustment for gains included in net income ( 171 ) — — Total ( 23,901 ) 14,944 18,351 Unrealized gains (losses) on derivatives 9,047 ( 5,269 ) ( 579 ) Amortization related to post-retirement obligations 4,062 4,159 ( 1,615 ) Total other comprehensive (loss) income, net of tax ( 10,792 ) 13,834 16,157 Total comprehensive income $ 157,129 $ 110,785 $ 128,790 See accompanying notes to consolidated financial statements. 72 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 (Dollars in Thousands) COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) TREASURY STOCK UNALLOCATED ESOP SHARES COMMON STOCK ACQUIRED BY DDFP DEFERRED COMPENSATION DDFP TOTAL STOCKHOLDERS’ EQUITY Balance at December 31, 2018 $ 832 $ 1,021,533 $ 651,099 $ ( 12,336 ) $ ( 272,470 ) $ ( 29,678 ) $ ( 4,504 ) $ 4,504 $ 1,358,980 Net income — — 112,633 — — — — — 112,633 Other comprehensive income, net of tax — — — 16,157 — — — — 16,157 Cash dividends paid ($ 1.12 per share) — — ( 72,809 ) — — — — — ( 72,809 ) Reclassification due to adopting Accounting Standards Update ("ASU") No. 2016-02 — — 4,350 — — — — — 4,350 Distributions from DDFP — 164 — — — — 671 ( 671 ) 164 Purchases of treasury stock — — — — ( 19,867 ) — — — ( 19,867 ) Purchase of employee restricted shares to fund statutory tax withholding — — — — ( 1,985 ) — — — ( 1,985 ) Shares issued dividend reinvestment plan — 671 — — 1,559 — — — 2,230 Reclass of stock award shares — ( 24,024 ) — — 24,024 — — — — Option exercises — ( 96 ) — — 235 — — — 139 Allocation of ESOP shares — 2,203 — — — 4,793 — — 6,996 Allocation of SAP shares — 6,671 — — — — — — 6,671 Allocation of stock options — 181 — — — — — — 181 Balance at December 31, 2019 $ 832 $ 1,007,303 $ 695,273 $ 3,821 $ ( 268,504 ) $ ( 24,885 ) $ ( 3,833 ) $ 3,833 $ 1,413,840 73 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 (Continued) (Dollars in Thousands) COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS ACCUMULATED OTHER COMPREHENSIVE INCOME TREASURY STOCK UNALLOCATED ESOP SHARES COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS DEFERRED COMPENSATION PLANS TOTAL STOCKHOLDERS’ EQUITY Balance at December 31, 2019 $ 832 $ 1,007,303 $ 695,273 $ 3,821 $ ( 268,504 ) $ ( 24,885 ) $ ( 3,833 ) $ 3,833 $ 1,413,840 Net income — — 96,951 — — — — — 96,951 Other comprehensive income, net of tax — — — 13,834 — — — — 13,834 Effect of adopting ASU No. 2016-13 ("CECL") — — ( 8,311 ) — — — — — ( 8,311 ) Cash dividends paid ($ 0.92 per share) — — ( 65,823 ) — — — — — ( 65,823 ) Distributions from deferred comp plans — 84 — — — — 620 ( 620 ) 84 Purchases of treasury stock — — — — ( 21,161 ) — — — ( 21,161 ) Purchase of employee restricted shares to fund statutory tax withholding — — — — ( 969 ) — — — ( 969 ) Shares issued dividend reinvestment plan — 50 — — 401 — — — 451 Treasury shares issued due to acquisition — ( 50,387 ) — — 231,215 — — — 180,828 Allocation of ESOP shares — ( 116 ) — — — 4,670 — — 4,554 Allocation of SAP shares — 5,330 — — — — — — 5,330 Allocation of stock options — 189 — — — — — — 189 Balance at December 31, 2020 $ 832 $ 962,453 $ 718,090 $ 17,655 $ ( 59,018 ) $ ( 20,215 ) $ ( 4,549 ) $ 4,549 $ 1,619,797 74 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 (Continued) (Dollars in Thousands) COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) TREASURY STOCK UNALLOCATED ESOP SHARES COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS DEFERRED COMPENSATION PLANS TOTAL STOCKHOLDERS’ EQUITY Balance at December 31, 2020 $ 832 $ 962,453 $ 718,090 $ 17,655 $ ( 59,018 ) $ ( 20,215 ) $ ( 4,549 ) $ 4,549 $ 1,619,797 Net income — — 167,921 — — — — — 167,921 Other comprehensive loss, net of tax — — — ( 10,792 ) — — — — ( 10,792 ) Cash dividends paid ($ 0.94 per share) — — ( 71,478 ) — — — — — ( 71,478 ) Distributions from deferred comp plans — 154 — — — — 565 ( 565 ) 154 Purchases of treasury stock — — — — ( 20,711 ) — — — ( 20,711 ) Purchase of employee restricted shares to fund statutory tax withholding — — — — ( 961 ) — — — ( 961 ) Option exercises — ( 200 ) — — 1,087 — — — 887 Allocation of ESOP shares — 1,757 — — — 4,871 — — 6,628 Allocation of SAP shares — 5,451 — — — — — — 5,451 Allocation of stock options — 200 — — — — — — 200 Balance at December 31, 2021 $ 832 $ 969,815 $ 814,533 $ 6,863 $ ( 79,603 ) $ ( 15,344 ) $ ( 3,984 ) $ 3,984 $ 1,697,096 See accompanying notes to consolidated financial statements. 75 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Years Ended December 31, 2021, 2020 and 2019 (Dollars in Thousands) Years Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net income $ 167,921 $ 96,951 $ 112,633 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangibles 12,656 11,012 10,395 Provision (benefit) charge for credit losses ( 24,339 ) 29,719 13,100 Credit loss expense for off-balance sheet credit exposure 1,515 1,814 — Deferred tax expense (benefit) 12,413 ( 7,929 ) 1,674 Amortization of operating lease right-of-use assets 10,074 9,012 8,433 Income on Bank-owned life insurance ( 7,930 ) ( 6,491 ) ( 6,297 ) Net amortization of premiums and discounts on securities 15,841 10,058 7,789 Accretion of net deferred loan fees ( 7,763 ) ( 9,492 ) ( 5,643 ) Amortization of premiums on purchased loans, net 604 1,032 845 Net increase in loans originated for sale ( 47,675 ) ( 87,413 ) ( 16,212 ) Proceeds from sales of loans originated for sale 49,530 89,126 17,202 Proceeds from sales and paydowns of foreclosed assets 1,368 3,610 1,354 ESOP expense 4,318 2,401 4,533 Allocation of stock award shares 5,451 5,330 6,671 Allocation of stock options 200 189 181 Net gain on sale of loans ( 1,855 ) ( 1,713 ) ( 990 ) Net gain on securities transactions ( 255 ) ( 81 ) ( 72 ) Net gain on sale of premises and equipment ( 42 ) ( 947 ) — Net gain on sale of foreclosed assets ( 461 ) ( 821 ) ( 190 ) Decrease in accrued interest receivable 4,460 8,472 2,444 Decrease (increase) in other assets 10,264 ( 106,811 ) ( 46,237 ) (Decrease) increase in other liabilities ( 48,113 ) 59,883 25,312 Net cash provided by operating activities 158,182 106,911 136,925 Cash flows from investing activities: Proceeds from maturities, calls and paydowns of held to maturity debt securities 47,637 62,051 42,696 Purchases of held to maturity debt securities ( 34,599 ) ( 49,228 ) ( 20,303 ) Proceeds from sales of available for sale debt securities 9,442 13,905 — Proceeds from maturities, calls and paydowns of available for sale debt securities 393,173 350,335 223,806 Purchases of available for sale debt securities ( 1,400,980 ) ( 248,863 ) ( 117,022 ) Proceeds from redemption of Federal Home Loan Bank stock 30,870 115,630 172,293 Purchases of Federal Home Loan Bank stock ( 5,671 ) ( 106,605 ) ( 160,778 ) BOLI claim benefits received 7,964 6,527 1,891 Cash received, net of cash consideration paid for acquisition — 78,089 ( 15,022 ) Purchases of loans ( 5,230 ) — — Net decrease (increase) in loans 253,221 ( 717,947 ) ( 79,812 ) Proceeds from sales of premises and equipment 42 947 — Purchases of premises and equipment ( 13,805 ) ( 12,825 ) ( 4,882 ) Net cash (used in) provided by investing activities ( 717,936 ) ( 507,984 ) 42,867 Cash flows from financing activities: Net increase in deposits 1,396,183 977,442 272,487 Increase in mortgage escrow deposits 142 7,494 1,236 Purchase of treasury stock ( 20,711 ) ( 21,161 ) ( 19,867 ) Purchase of employee restricted shares to fund statutory tax withholding ( 961 ) ( 969 ) ( 1,985 ) Cash dividends paid to stockholders ( 71,478 ) ( 65,823 ) ( 72,809 ) Shares issued to dividend reinvestment plan — 451 2,230 Stock options exercised 887 — 139 Proceeds from long-term borrowings 913,685 2,429,999 1,243,000 Payments on long-term borrowings ( 1,454,440 ) ( 2,286,722 ) ( 1,549,551 ) Net decrease in short-term borrowings ( 8,443 ) ( 294,033 ) ( 10,585 ) Repayment of subordinated debentures ( 15,000 ) — — Net cash provided by (used in) financing activities 739,864 746,678 ( 135,705 ) Net increase in cash and cash equivalents 180,110 345,605 44,087 Cash and cash equivalents at beginning of period 418,053 109,748 104,681 Restricted cash at beginning of period 114,300 77,000 37,980 Total cash, cash equivalents and restricted cash at beginning of period 532,353 186,748 142,661 Cash and cash equivalents at end of period 685,163 418,053 109,748 Restricted cash at end of period 27,300 114,300 77,000 Total cash, cash equivalents and restricted cash at end of period $ 712,463 532,353 186,748 Cash paid during the period for: Interest on deposits and borrowings $ 35,910 49,419 73,664 Income taxes $ 57,471 36,514 34,494 Non cash investing activities: Initial recognition of operating lease right-of-use assets $ — — 44,946 Initial recognition of operating lease liabilities $ — — 46,050 Transfer of loans receivable to foreclosed assets $ 434 2,516 2,314 Acquisitions: Non-cash assets acquired at fair value: Investment securities — 255,242 — Loans, net — 1,752,529 — Bank-owned life insurance — 37,237 — Goodwill and other intangible assets — 32,404 21,562 Bank premises and equipment — 16,620 — Other assets — 23,587 71 Total non-cash assets acquired at fair value $ — 2,117,619 21,633 Liabilities assumed: Deposits — 1,757,777 — Borrowings and subordinated debt — 226,656 — Other liabilities — 30,447 — Total liabilities assumed $ — 2,014,880 — Common stock issued for acquisitions $ — $ 180,828 — See accompanying notes to consolidated financial statements. 76 (1) Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Provident Financial Services, Inc. (the “Company”), Provident Bank (the “Bank”) and their wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications. Business The Company, through the Bank, provides a full range of banking services to individual and business customers through branch offices in New Jersey, Queens County, New York and eastern Pennsylvania. The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies, and undergoes periodic examinations by those regulatory authorities. Basis of Financial Statement Presentation The consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). In preparing the consolidated financial statements, management is required to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities and disclosures about contingent assets and liabilities as of the dates of the consolidated statements of financial condition, and revenues and expenses for the periods then ended. Such estimates are used in connection with the determination of the allowance for credit losses, evaluation of goodwill for impairment, evaluation of the need for valuation allowances on deferred tax assets, and determination of liabilities related to retirement and other post-retirement benefits, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the currently forecasted economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. Illiquid credit markets, volatile securities markets, and declines in the housing market and the economy generally have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates will be reflected in the financial statements in future periods. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, Federal funds sold and commercial paper with original maturity dates less than 90 days. Securities Securities include held to maturity debt securities and available for sale debt securities. The available for sale debt securities portfolio is carried at estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in Stockholders’ Equity. Estimated fair values are provided by reputable and widely used pricing services who maintain pricing methodologies appropriate for varying security classes using valuation techniques that are in accordance with U.S. GAAP. Securities which the Company has the positive intent and ability to hold to maturity are classified as held to maturity debt securities and carried at amortized cost. On January 1, 2020, the Company adopted CECL which replaces the incurred loss methodology with an expected loss methodology. Management measures expected credit losses on held to maturity debt securities on a collective basis by security type. Management classifies the held to maturity debt securities portfolio into the following security types: • Agency obligations; • Mortgage-backed securities; • State and municipal obligations; and • Corporate obligations. 77 All of the agency obligations held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The majority of the state and municipal, and corporate obligations carry no lower than A ratings from the rating agencies at December 31, 2021 and the Company had one security rated with a triple-B by Moody’s Investors Service. Premiums on securities are amortized to income using a method that approximates the interest method over the remaining period to the earliest call date or contractual maturity, adjusted for anticipated prepayments. Discounts on securities are accreted to income over the remaining period to the contractual maturity, adjusted for anticipated prepayments. Interest income is recognized on an accrual basis, while dividend income is recognized when earned. Realized gains and losses are recognized when securities are sold or called based on the specific identification method. Equity Securities The Company holds equity securities that are traded in active markets with readily accessible quoted market prices. Fair Value of Financial Instruments GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Federal Home Loan Bank of New York Stock The Bank, as a member of the Federal Home Loan Bank of New York (“FHLBNY”), is required to hold shares of capital stock of the FHLBNY at cost based on a specified formula. The Bank carries this investment at cost, which approximates fair value. Loans Loans receivable are carried at unpaid principal balances plus unamortized premiums, purchase accounting mark-to-market adjustments, certain deferred direct loan origination costs and deferred loan origination fees and discounts, less the allowance for credit losses. The Bank defers loan origination fees and certain direct loan origination costs and accretes or amortizes such amounts as an adjustment to the yield over the contractual lives of the related loans using the interest method. Premiums and discounts on loans purchased are amortized or accreted as an adjustment of yield over the contractual lives of the related loans, adjusted for prepayments when applicable, using methodologies which approximate the interest method. Loans are generally placed on non-accrual status when they are past due 90 days or more as to contractual obligations or when other circumstances indicate that collection is questionable. When a loan is placed on non-accrual status, any interest accrued but not received is reversed against interest income. Payments received on a non-accrual loan are either applied to the outstanding principal balance or recorded as interest income, depending on an assessment of the ability to collect the loan. A non-accrual loan is restored to accrual status when principal and interest payments become less than 90 days past due and its future collectability is reasonably assured. An impaired loan is defined as a loan for which it is probable, based on current information, that the Bank will not collect all amounts due under the contractual terms of the loan agreement. Impaired loans are individually assessed to determine that each loan’s carrying value is not in excess of the fair value of the related collateral or the present value of the expected future cash flows. Residential mortgage and consumer loans are deemed smaller balance homogeneous loans which are evaluated collectively for impairment and are therefore excluded from the population of impaired loans. Purchased credit deteriorated (“PCD”) loans are loans acquired that have experienced more-than-insignificant deterioration in credit quality since origination. Allowance for Credit Losses on Loans The allowance for credit losses is a valuation account that reflects management’s evaluation of the current expected credit losses in the loan portfolio. The Company maintains the allowance for credit losses through provisions for credit losses that are 78 charged to income. Charge-offs against the allowance for credit losses are taken on loans where management determines that the collection of loan principal and interest is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for credit losses. On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. It also applies to off-balance sheet credit exposures, including loan commitments and lines of credit. The adoption of the new standard resulted in the Company recording a $ 7.9 million increase to the allowance for credit losses and a $ 3.2 million liability for off-balance sheet credit exposures. The adoption of the standard did not result in a change to the Company's results of operations upon adoption as it was recorded as an $ 8.3 million cumulative effect adjustment, net of income taxes, to retained earnings. The calculation of the allowance for credit losses is a critical accounting policy of the Company. Management estimates the allowance balance using relevant available information, from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast. Historical credit loss experience for both the Company and peers provides the basis for the estimation of expected credit losses, where observed credit losses are converted to probability of default rate (“PDR”) curves through the use of segment-specific loss given default (“LGD”) risk factors that convert default rates to loss severity based on industry-level, observed relationships between the two variables for each segment, primarily due to the nature of the underlying collateral. These risk factors were assessed for reasonableness against the Company’s own loss experience and adjusted in certain cases when the relationship between the Company’s historical default and loss severity deviate from that of the wider industry. The historical PDR curves, together with corresponding economic conditions, establish a quantitative relationship between economic conditions and loan performance through an economic cycle. Using the historical relationship between economic conditions and loan performance, management’s expectation of future loan performance is incorporated using an externally developed economic forecast. This forecast is applied over a period that management has determined to be reasonable and supportable. Beyond the period over which management can develop or source a reasonable and supportable forecast, the model will revert to long-term average economic conditions using a straight-line, time-based methodology. The Company's current forecast period is six quarters, with a four quarter reversion period to historical average macroeconomic factors. The Company's economic forecast is approved by the Company's Asset-Liability Committee. The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a quarterly basis, when similar risk characteristics exist. The respective quantitative allowance for each segment is measured using an econometric, discounted PDR/LGD modeling methodology in which distinct, segment-specific multi-variate regression models are applied to an external economic forecast. Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis. Contractual cash flows over the contractual life of the loans are the basis for modeled cash flows, adjusted for modeled defaults and expected prepayments and discounted at the loan-level effective interest rate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: 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. 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. 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: • Mortgage Loans – Residential, Commercial Real Estate, Multi-Family and Construction • Commercial Loans – Commercial Owner Occupied and Commercial Non-Owner Occupied • Consumer Loans – First Lien Home Equity and Other Consumer 79 The allowance for credit losses on loans individually evaluated for impairment is based upon loans that have been identified through the Company’s normal loan monitoring process. This process includes the review of delinquent and problem loans at the Company’s Delinquency, Credit, Credit Risk Management and Allowance Committees; or which may be identified through the Company’s loan review process. Generally, the Company only evaluates loans individually for impairment if the loan is non-accrual, non-homogeneous and the balance is at least $1.0 million, or if the loan was modified as a TDR. For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the fair value of the collateral less any selling costs. If the loan is not collateral dependent, the allowance for credit losses related to individually assessed loans is based on discounted expected cash flows using the loan’s initial effective interest rate. A loan for which the terms have been modified resulting in a concession by the Company, and for which the borrower is experiencing financial difficulties is considered to be a TDR. The allowance for credit losses on a TDR is measured using the same method as all other impaired loans, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring. Loans acquired that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans. The Company evaluates acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) troubled debt restructured designation; (3) risk ratings of special mention, substandard or doubtful; (4) watchlist credits; and (5) delinquency status, including loans that are current on acquisition date, but had been previously delinquent. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This allowance for credit loss is calculated using management's best estimate of projected losses over the remaining life of the loans in accordance with ASC 326-20. This represents the portion of the loan balances that has been deemed uncollectible based on the Company’s expectations of future cash flows for each respective PCD loan pool. 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, 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. Management considers it important to maintain the ratio of the allowance for credit losses to total loans at an acceptable level given current and forecasted economic conditions, interest rates and the composition of the portfolio. Although management believes that the Company has established and maintained the allowance for credit losses at appropriate levels, additions may be necessary if future economic and other conditions differ substantially from the current operating environment and economic forecast. Management evaluates its estimates and assumptions on an ongoing basis giving consideration to forecasted economic factors, historical loss experience and other factors. Such estimates and assumptions are adjusted when facts and circumstances dictate. In addition to the ongoing impact of COVID-19, illiquid credit markets, volatile securities markets, and declines in the housing and commercial real estate markets and the economy in general may increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. In addition, various regulatory agencies periodically review the adequacy of the Company’s allowance for credit losses as an integral part of their examination process. Such agencies may require the Company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination. Although management uses the best information available, the level of the allowance for credit losses remains an estimate that is subject to significant judgment and short-term change. The CECL approach to calculate the allowance for credit losses on loans is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized. Material changes to these and other relevant factors creates greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings. For the 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 80 losses, compared to the same periods last year. See Note 7 to the Consolidated Financial Statements for more information on the allowance for credit losses on loans. Allowance for Loan Losses - Incurred Loss Method Prior to the adoption of CECL on January 1, 2020, the Company calculated the allowance for loan losses using the incurred loss method. Using this method, the allowance represented management's best estimate of probable incurred losses inherent in the current loan portfolio. While management used information to recognize losses on loans, additions and reductions of the allowance for loan losses may fluctuate from one reporting period to another based on changes in economic conditions or changes in the values of properties securing loans in the process of foreclosure. The evaluation of the various components of the allowance for loan losses required considerable judgement in order to estimate inherent loss exposures. Each quarter, the lending group prepared individual Credit Risk Management Reports for the Credit Administration Department. These reports review all commercial loans and commercial mortgage loans that have been determined to involve above-average risk (risk rating of 5 or worse). The Credit Risk Management Reports contain the reason for the risk rating assigned to each loan, status of the loan and any current developments. These reports are submitted to a committee chaired by the Chief Credit Officer. Each loan officer reviews the loan and the corresponding Credit Risk Management Report with the committee and the risk rating is evaluated for appropriateness. Management estimated the amount of loan losses for groups of loans by applying quantitative loss factors to loan segments at the risk rating level, and applying qualitative adjustments to each loan segment at the portfolio level. Quantitative loss factors give consideration to historical loss experience by loan type based upon an appropriate look-back period and adjusted for a loss emergence period; these factors are evaluated at least annually. Qualitative adjustments give consideration to other qualitative or environmental factors such as: a. levels of and trends in delinquencies and impaired loans; b. levels of and trends in charge-offs and recoveries; c. trends in volume and terms of loans; d. effects of any changes in lending policies, procedures and practices; e. changes in the quality or results of the Bank’s loan review system; f. experience, ability, and depth of lending management and other relevant staff; g. national and local economic trends and conditions; h. industry conditions; i. effects of changes in credit concentration; and j. changes in collateral values. 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 at least quarterly. The reserves resulting from the application of both of these sets of loss factors are combined to arrive at the general allowance for loan losses. The reserve factors applied to each loan risk rating are inherently subjective in nature. Reserve factors are assigned to each of the risk rating categories. This methodology permits adjustments to the allowance for loan losses in the event that, in management’s judgment, significant conditions impacting the credit quality and collectability of the loan portfolio as of the evaluation date are not otherwise adequately reflected in the analysis. The provision for loan losses is established after considering the allowance for loan loss analysis, the amount of the allowance for loan losses in relation to the total loan balance, loan portfolio growth, loan portfolio composition, loan delinquency and non-performing loan trends and peer group analysis. 81 Foreclosed Assets Assets acquired through foreclosure or deed in lieu of foreclosure are carried at the lower of the outstanding loan balance at the time of foreclosure or fair value, less estimated costs to sell. Fair value is generally based on recent appraisals. When an asset is acquired, the excess of the loan balance over fair value, less estimated costs to sell, is charged to the allowance for credit losses. A reserve for foreclosed assets may be established to provide for possible write-downs and selling costs that occur subsequent to foreclosure. Foreclosed assets are carried net of the related reserve. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned, are recorded as incurred. Banking Premises and Equipment Land is carried at cost. Banking premises, furniture, fixtures and equipment are carried at cost, less accumulated depreciation, computed using the straight-line method based on their estimated useful lives. Leasehold improvements, carried at cost, net of accumulated depreciation, are amortized over the terms of the leases or the estimated useful lives of the assets, whichever are shorter, using the straight-line method. Maintenance and repairs are charged to expense as incurred. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in tax expense in the period that includes the enactment date. Deferred tax assets and liabilities are reported as a component of Other Assets on the Consolidated Statements of Financial Condition. The determination of whether deferred tax assets will be realizable is predicated on estimates of future taxable income. Such estimates are subject to management’s judgment. A valuation reserve is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes. Trust Assets Trust assets consisting of securities and other property (other than cash on deposit held by the Bank in fiduciary or agency capacities for customers of the Bank’s wholly owned subsidiary, Beacon) are not included in the accompanying consolidated statements of financial condition because such properties are not assets of the Bank. Intangible Assets Intangible assets of the Bank consist of goodwill, core deposit premiums, customer relationship premium and mortgage servicing rights. Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired through purchase acquisitions. In accordance with GAAP, goodwill with an indefinite useful life is not amortized, but is evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates. Goodwill is analyzed for impairment once a year. As permitted by GAAP, the Company prepares a qualitative assessment in determining whether goodwill may be impaired. The factors considered in the assessment include macroeconomic conditions, industry and market conditions and overall financial performance of the Company, among others. The Company completed its annual qualitative assessment of goodwill as of July 1, 2021. Based upon its assessment of goodwill, the Company concluded that no further quantitative analysis was warranted. Core deposit premiums represent the intangible value of depositor relationships assumed in previous purchase acquisitions and are amortized on an accelerated basis over 8.8 years, while the core deposit premium related to SB One is amortized over its estimated useful life of 10.0 years. Customer relationship premiums represent the intangible value of customer relationships assumed in the purchase acquisitions of Beacon Trust Company ("Beacon"), The MDE Group, Inc. ("MDE"), Tirschwell & Loewy, Inc. ("T&L"), and SB One Bank and are amortized on an accelerated basis over 12.0 years, 10.4 years, 10.0 years, and 13.0 years respectively. Mortgage servicing rights are recorded when purchased or when originated mortgage loans are sold, with servicing rights retained. Mortgage servicing rights are amortized on an accelerated method based upon the estimated lives of the related loans, adjusted for prepayments. Mortgage servicing rights are carried at the lower of amortized cost or fair value. 82 Bank-owned Life Insurance Bank-owned life insurance is accounted for using the cash surrender value method and is recorded at its realizable value. Employee Benefit Plans The Bank maintains a pension plan which covers full-time employees hired prior to April 1, 2003, the date on which the pension plan was frozen. The Bank’s policy is to fund at least the minimum contribution required by the Employee Retirement Income Security Act of 1974. GAAP requires an employer to: (a) recognize in its statement of financial condition the over-funded or under-funded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation; (b) measure a plan’s assets and its obligations that determine its funded status at the end of the employer’s fiscal year (with limited exceptions); and (c) recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period. The Bank has a 401(k) plan covering substantially all employees of the Bank. The Bank may match a percentage of the first 6 % contributed by participants. The Bank’s matching contribution, if any, is determined by the Board of Directors in its sole discretion. The Bank has an Employee Stock Ownership Plan (“ESOP”). The funds borrowed by the ESOP from the Company to purchase the Company’s common stock are being repaid from the Bank’s contributions and dividends paid on unallocated ESOP shares over a period of up to 30 years. The Company’s common stock not allocated to participants is recorded as a reduction of stockholders’ equity at cost. Compensation expense for the ESOP is based on the average price of the Company’s stock during each quarter and the amount of shares allocated during the quarter. The Bank has an Equity Plan designed to provide competitive compensation for demonstrated performance and to align the interests of participants directly to increases in shareholder value. The Equity Plan provides for performance-vesting grants as well as time-vesting grants. Time-vesting stock awards, stock options and performance vesting stock awards that are based on a performance condition, such as return on average assets, are valued on the closing stock price on the date of grant. Performance-vesting stock awards and options that are based on a market condition, such as total shareholder return, would be valued using a generally accepted statistical technique to simulate future stock prices for Provident and the components of the peer group which Provident would be measured against. Expense related to time-vesting stock awards and stock options is based on the fair value of the common stock on the date of the grant and on the fair value of the stock options on the date of the grant, respectively, and is recognized ratably over the vesting period of the awards. Performance vesting stock awards and stock options are either dependent upon a market condition or a performance condition. A market condition performance metric is tied to a stock price, either on an absolute basis, or a relative basis against peers, while a performance-condition is based on internal operations, such as earnings per share. The expense related to a market condition performance-vesting stock award or stock option requires an initial Monte Carlo simulation to determine grant date fair value, which will be recognized as a compensation expense regardless of actual payout, assuming that the executive is still employed at the end of the requisite service period. If pre-vesting termination (forfeiture) occurs, then any expense recognized to date can be reversed. The grant date fair value is recognized ratably over the performance period. The expense related to a performance condition stock award or stock option is based on the fair value of the award on the date of grant, adjusted periodically based upon the number of awards or options expected to be earned, recognized over the performance period. In connection with the First Sentinel acquisition in July 2004, the Company assumed the First Savings Bank Directors’ Deferred Fee Plan (the “DDFP”). The DDFP was frozen prior to the acquisition. The Company recorded a deferred compensation equity instrument and corresponding contra-equity account for the value of the shares held by the DDFP at the July 14, 2004 acquisition date. These accounts will be liquidated as shares are distributed from the DDFP in accordance with the plan document. At December 31, 2021, there were 142,513 shares held by the DDFP. The Bank maintains a non-qualified plan that provides supplemental benefits to certain executives who are prevented from receiving the full benefits contemplated by the 401(k) Plan’s and the ESOP’s benefit formulas under tax law limits for tax-qualified plans. 83 Post-retirement Benefits Other Than Pensions The Bank provides post-retirement health care and life insurance plans to certain of its employees. The life insurance coverage is noncontributory to the participant. Participants contribute to the cost of medical coverage based on the employee’s length of service with the Bank. The costs of such benefits are accrued based on actuarial assumptions from the date of hire to the date the employee is fully eligible to receive the benefits. On December 31, 2002, the Bank eliminated postretirement healthcare benefits for employees with less than 10 years of service. GAAP requires an employer to: (a) recognize in its statement of financial condition the over-funded or under-funded status of a defined benefit post-retirement plan measured as the difference between the fair value of plan assets and the benefit obligation; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period. Derivatives The Company records all derivatives on the statements of financial condition at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company has interest rate derivatives resulting from a service provided to certain qualified borrowers in a loan related transaction which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. As such, all changes in fair value of the Company’s derivatives are recognized directly in earnings. The Company also uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges, and which satisfy hedge accounting requirements, involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. These derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits. The change in the fair value of these derivatives is recorded in accumulated other comprehensive income, and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The fair value of the Company's derivatives is determined using discounted cash flow analysis using observable market-based inputs, which are considered Level 2 inputs. Comprehensive Income Comprehensive income is divided into net income and other comprehensive income (loss). Other comprehensive income (loss) includes items previously recorded directly to equity, such as unrealized gains and losses on available for sale debt securities, unrealized gains and losses on derivatives and amortization related to post-retirement obligations. Comprehensive income is presented in a separate Consolidated Statement of Comprehensive Income. Segment Reporting The Company’s operations are solely in the financial services industry and include providing traditional banking and other financial services to its customers. The Company operates primarily in the geographical regions of northern and central New Jersey, Queens County, New York and eastern Pennsylvania. The Company has a single reporting segment for financial reporting purposes. Earnings Per Share Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options) were exercised or resulted in the issuance of common stock. These potentially dilutive shares would then be included in the weighted average number of shares outstanding for the period using the treasury stock method. Shares issued and shares reacquired during the period are weighted for the portion of the period that they were outstanding. 84 Impact of Recent Accounting Pronouncements Accounting Pronouncements Not Yet Adopted ASU 2020-04, "Reference Rate Reform (Topic 848)" ("ASU 2020-04") provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or re-measurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company anticipates this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than the extinguishment of the old contract resulting in writing off unamortized fees/costs. In addition, in January 2021 the FASB issued ASU No. 2021-01 “Reference Rate Reform — Scope,” which clarified the scope of ASC 848 relating to contract modifications. The Company is evaluating the impacts of this guidance and has not determined whether LIBOR transition and this guidance will have material effects on the Company's business operations and consolidated financial statements. (2) Stockholders’ Equity On January 15, 2003, the Bank completed its plan of conversion, and the Bank became a wholly owned subsidiary of the Company. The Company sold 59.6 million shares of common stock (par value $ 0.01 per share) at $ 10.00 per share. The Company received net proceeds in the amount of $ 567.2 million. In connection with the Bank’s commitment to its community, the plan of conversion provided for the establishment of a charitable foundation. Provident donated $ 4.8 million in cash and 1.92 million of authorized but unissued shares of common stock to the foundation, which amounted to $ 24.0 million in aggregate. The Company recognized an expense, net of income tax benefit, equal to the cash and fair value of the stock during 2003. Conversion costs were deferred and deducted from the proceeds of the shares sold in the offering. Upon completion of the plan of conversion, a “liquidation account” was established in an amount equal to the total equity of the Bank as of the latest practicable date prior to the conversion. The liquidation account was established to provide a limited priority claim to the assets of the Bank to “eligible account holders” and “supplemental eligible account holders” as defined in the Plan, who continue to maintain deposits in the Bank after the conversion. In the unlikely event of a complete liquidation of the Bank, and only in such event, each eligible account holder and supplemental eligible account holder would receive a liquidation distribution, prior to any payment to the holder of the Bank’s common stock. This distribution would be based upon each eligible account holder's and supplemental eligible account holder’s proportionate share of the then total remaining qualifying deposits. At December 31, 2021, the liquidation account, which is an off-balance sheet memorandum account, amounted to $ 8.2 million. (3) Business Combinations SB One Bancorp Acquisition On July 31, 2020, the Company completed its acquisition of SB One Bancorp ("SB One"), which added $ 2.20 billion to total assets, $ 1.77 billion to total loans, which included PCD loans totaling $ 294.2 million, and $ 1.76 billion to total deposits, and added 18 full-service banking offices in New Jersey and New York. As part of the acquisition, the addition of SB One Insurance Agency allows the Company to expand its products offerings to its customers to include an array of commercial and personal insurance products. 85 Under the merger agreement, each share of SB One common stock was exchanged for 1.357 shares of the Company's common stock. The Company issued 12.8 million shares of common stock from treasury stock, plus cash in lieu of fractional shares in the acquisition of SB One. The total consideration paid in the acquisition of SB One was $ 180.8 million. In connection with the acquisition, SB One Bank, a wholly owned subsidiary of SB One, was merged with and into Provident Bank, a wholly owned subsidiary of the Company. The acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the respective assets acquired and liabilities assumed were recorded at their estimated fair value. The excess of consideration paid over the estimated fair value of the net assets acquired initially totaled $ 22.4 million and was recorded as goodwill. The calculation of goodwill was subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. (see Goodwill section for further details). The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition from SB One (in thousands): At July 31, 2020 Assets acquired: Cash and cash equivalents, net $ 78,089 Available for sale debt securities 231,645 Held to maturity debt securities 12,381 Federal Home Loan Bank stock 11,216 Loans 1,766,115 Allowance for credit losses on PCD loans ( 13,586 ) Loans, net 1,752,529 Bank-owned life insurance 37,237 Banking premises and equipment 16,620 Accrued interest receivable 8,947 Goodwill 22,439 Other intangibles assets 9,965 Foreclosed assets, net 2,441 Other assets 12,199 Total assets acquired $ 2,195,708 Liabilities assumed: Deposits 1,757,777 Mortgage escrow deposits — Borrowed funds 201,582 Subordinated debentures 25,074 Other liabilities 30,447 Total liabilities assumed $ 2,014,880 Net assets acquired $ 180,828 Fair Value Measurement of Assets Assumed and Liabilities Assumed The methods used to determine the fair value of the assets acquired and liabilities assumed in the SB One acquisition were as follows: 86 Securities Available for Sale The estimated fair values of the available for sale debt securities, primarily comprised of U.S. Government agency mortgage-backed securities and U.S. government agencies and municipal bonds carried on SB One's balance sheet was confirmed using open market pricing provided by multiple independent securities brokers. Management reviewed the open market quotes used in pricing the securities and a fair value adjustment was not recorded on the investments. Held to Maturity Debt Securities The estimated fair values of the held to maturity debt securities, primarily comprised of municipal bonds, were determined using open market pricing provided by multiple independent securities brokers. Management reviewed the open market quotes used in pricing the securities. A fair value premium of $ 133,000 was recorded on the investments. Loans Loans acquired in the SB One acquisition were recorded at fair value, and there was no carryover related allowance for credit losses. The fair values of loans acquired from SB One were estimated using the discounted cash flow method based on the remaining maturity and repricing terms. Cash flows were adjusted for expected losses and prepayments. Projected cash flows were then discounted to present value based on: the relative risk of the cash flows, taking into account the loan type, liquidity risk, the maturity of the loans, servicing costs, and a required return on capital; and monthly principal and interest cash flows were discounted to present value and summed to arrive at the calculated value of the loans. The fair value of the acquired loans receivable was $ 1.77 billion. For loans acquired without evidence of more-than-insignificant deterioration in credit quality since origination, the Company prepared the interest rate loan fair value and credit fair value adjustments. Loans were grouped into pools based on similar characteristics, such as loan type, fixed or adjustable interest rates, payment type, index rate and caps/floors, and non-accrual status. The loans were valued at the sub-pool level and were pooled at the summary level based on loan type. Market rates for similar loans were obtained from various internal and external data sources and reviewed by management for reasonableness. The average of these market rates was used as the fair value interest rate that a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value premium of $ 8.4 million. Loans acquired that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans. The Company evaluated acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) troubled debt restructured designation; (3) risk ratings of special mention, substandard or doubtful; (4) watchlist credits; and (5) delinquency status, including loans that were current on acquisition date, but had been previously delinquent. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. Additionally for PCD loans, an allowance for credit losses was calculated using management's best estimate of projected losses over the remaining life of the loans in accordance with ASC 326-20. This represents the portion of the loan balances that has been deemed uncollectible based on the Company’s expectations of future cash flows for each respective PCD loan pool, given the outlook and forecast inclusive of the impact of the COVID-19 pandemic and related fiscal and regulatory interventions. The expected lifetime losses were calculated using historical losses observed at the Bank, SB One and peer banks. A $ 13.6 million allowance for credit losses was recorded on PCD loans. The interest rate fair value adjustment related to PCD loans will be substantially recognized as interest income on a level yield amortization or straight line method over the expected life of the loans. Subsequent to the acquisition date, the initial allowance for credit losses on PCD loans will increase or decrease based on future evaluations, with changes recognized in the provision for credit losses. The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired (in thousands): 87 Gross amortized cost basis at July 31, 2020 $ 1,787,057 Interest rate fair value adjustment on all loans 455 Credit fair value adjustment on non-PCD loans ( 21,397 ) Fair value of acquired loans at July 31, 2020 1,766,115 Allowance for credit losses on PCD loans ( 13,586 ) Fair value of acquired loans, net at July 31, 2020 $ 1,752,529 The table below is a summary of the PCD loans accounted for in accordance with ASC 310-26 that were acquired in the SB One acquisition as of the closing date (in thousands): Gross amortized cost basis at July 31, 2020 $ 315,784 Interest component of expected cash flows (accretable difference) ( 7,988 ) Allowance for credit losses on PCD loans ( 13,586 ) Net PCD loans $ 294,210 Banking Premises and Equipment The Company acquired 18 branches from SB One, eight of which were owned premises. The fair value of properties acquired was derived by valuations prepared by an independent third party utilizing the sales comparison approach to value the property as improved. Leases As part of the SB One acquisition the Company added ten lease obligations. The Company recorded a $ 3.8 million right-of-use asset and lease liability for these lease obligations. Core Deposit Intangible and Customer Relationship Intangible The fair value of the core deposit intangible was determined based on a discounted cash flow analysis using a discount rate commensurate with market participants. To calculate cash flows, deposit account servicing costs (net of deposit fee income) and interest expense on deposits were compared to the cost of alternative funding sources available through national brokered CD offering rates. The projected cash flows were developed using projected deposit attrition rates. The fair value of the customer relationship intangible was determined based on a discounted cash flow analysis using the excess of the future cash inflows (i.e., revenue from existing customer relationships) over the related cash outflows (i.e., operating costs) generated over the useful life of the acquired customer base. These cash flows were discounted to present value using an asset-specific risk-adjusted discount rate. The projected cash flows were developed using projected customer revenue retention rates. The core deposit intangible totaled $ 3.2 million and is being amortized over its estimated useful life of approximately 10 years based on dollar weighted deposit runoff on an annualized basis. The insurance agency customer relationship intangible totaled $ 6.8 million and is being amortized over its estimated useful life of approximately 13 years based on customer revenue attrition on an annualized basis. Goodwill As noted above, the acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax. The excess of consideration paid over the estimated fair value of the net assets acquired was recorded as goodwill, and initially totaled $ 22.4 million. The calculation of goodwill was subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. The Company updated certain estimates used in the purchase price allocation, primarily with respect to the marginal tax rate of deferred tax assets (“DTA”). As a result, the fair value of the net assets acquired decreased by $ 1.4 million. The impact of these measurement period adjustments increased goodwill to $ 23.9 million. The Company has finalized the purchase price 88 allocation and these measurement period adjustments are recorded as current period adjustments in accordance with ASU 2015-16. Goodwill is not deductible for tax purposes and will be evaluated annually for impairment. Bank Owned Life Insurance ("BOLI") SB One's BOLI cash surrender value was $ 37.2 million with no fair value adjustment. Time Deposits The fair value adjustment for time deposits represents a discount from the value of the contractual repayments of fixed-maturity deposits using prevailing market interest rates for similar-term time deposits. The time deposit discount of approximately $ 4.3 million is being amortized into income on a level yield amortization method over the contractual life of the deposits. Borrowings The fair value of Federal Home Loan Bank of New York ("FHLBNY") advances was determined based on a discounted cash flow analysis using a discount rate commensurate with FHLBNY rates as of July 31, 2020. The cash flows of the advances were projected based on the scheduled payments of the fixed rate of each advance. Subordinated Debentures At the valuation date, SB One had one outstanding Trust Preferred and one subordinated debt issuance with an aggregate balance of $ 27.5 million. The fair value of Trust Preferred and subordinated debt issuances was determined based on a discounted cash flow analysis using a discount rate commensurate with yields and terms of comparable issuances. The cash flows were projected through the remaining contractual term of the Trust Preferred issuance and based on the call date for the subordinated debt issuance. Acquisition of Tirschwell & Loewy, Inc. On April 1, 2019, Beacon Trust Company ("Beacon") completed its acquisition of certain assets of Tirschwell & Loewy, Inc. ("T&L"), a New York City-based independent registered investment adviser. Beacon is a wholly owned subsidiary of Provident Bank. This acquisition expanded the Company’s wealth management business by $ 822.4 million of assets under management at the time of acquisition. The acquisition was accounted for under the acquisition method of accounting. The Company recorded goodwill of $ 8.2 million, a customer relationship intangible of $ 12.6 million and $ 800,000 of other identifiable intangibles related to the acquisition. In addition, the Company recorded a contingent consideration liability at its fair value of $ 6.6 million. The contingent consideration arrangement requires the Company to pay additional cash consideration to T&L's former stakeholders over a three-year period after the closing date of the acquisition if certain financial and business retention targets are met. The acquisition agreement limits the total additional payment to a maximum of $ 11.0 million, to be determined based on actual future results. Total cost of the acquisition was $ 21.6 million, which included cash consideration of $ 15.0 million and contingent consideration with a fair value of $ 6.6 million. Tangible assets acquired in the transaction were nominal. No liabilities were assumed in the acquisition. The goodwill recorded in the transaction is deductible for tax purposes. In the fourth quarter of 2019, the Company recognized a $ 2.8 million increase in the estimated fair value of the contingent consideration liability. In May of 2021, a $ 4.0 million earn out was paid as certain acquisition agreement limits were satisfied in year two of the acquisition. Additionally, in September of 2021, as a result of declining asset valuations, a $ 3.4 million reduction in the contingent consideration related to possible future earn-out provisions was recorded. As a result, the estimated fair value of the contingent consideration liability at December 31, 2021 was $ 2.0 million . (4) Restrictions on Cash and Due from Banks Included in cash on hand and due from banks at December 31, 2021 and 2020 was $ 27.3 million and $ 114.3 million, respectively, representing cash collateral pledged to secure loan level swaps and reserves required by banking regulations. 89 (5) Held to Maturity Debt Securities On January 1, 2020, the Company adopted CECL which replaces the incurred loss methodology with an expected loss methodology. The Company recorded a $ 70,000 increase to the allowance for credit losses on held to maturity debt securities with a corresponding cumulative effect adjustment to decrease retained earnings by $ 52,000 , net of income taxes. (See Adoption of CECL table below for additional detail.) Management measures expected credit losses on held to maturity debt securities on a collective basis by security type. Management classifies the held to maturity debt securities portfolio into the following security types: • Agency obligations; • Mortgage-backed securities; • State and municipal obligations; and • Corporate obligations. All of the agency obligations held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The majority of the state and municipal, and corporate obligations carry no lower than A ratings from the rating agencies at December 31, 2021 and the Company had one security rated with a triple-B by Moody’s Investors Service. The Company adopted CECL using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of CECL. Held to maturity debt securities at December 31, 2021 and 2020 are summarized as follows (in thousands): 2021 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Agency obligations $ 9,996 — ( 175 ) 9,821 Mortgage-backed securities 21 — — 21 State and municipal obligations 415,724 14,463 ( 635 ) 429,552 Corporate obligations 10,448 19 ( 152 ) 10,315 $ 436,189 14,482 ( 962 ) 449,709 At December 31, 2021, the allowance for credit losses on held to maturity debt securities totaled $ 39,000 and is excluded from amortized cost in the table above. 2020 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Agency obligations $ 7,600 6 ( 5 ) 7,601 Mortgage-backed securities 62 2 — 64 State and municipal obligations 433,655 21,442 ( 58 ) 455,039 Corporate obligations 9,726 101 ( 2 ) 9,825 $ 451,043 21,551 ( 65 ) 472,529 At December 31, 2020, the allowance for credit losses on held to maturity debt securities totaled $ 78,000 and is excluded from amortized cost in the table above. 90 The Company generally purchases securities for long-term investment purposes, and differences between carrying and fair values may fluctuate during the investment period. Held to maturity debt securities having a carrying value of $ 414.2 million and $ 416.1 million at December 31, 2021 and 2020, respectively, were pledged to secure municipal deposits. The amortized cost and fair value of held to maturity debt securities at December 31, 2021 by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer. 2021 Amortized cost Fair value Due in one year or less $ 15,601 15,698 Due after one year through five years 152,162 155,087 Due after five years through ten years 200,482 209,666 Due after ten years 67,923 69,237 $ 436,168 449,688 Mortgage-backed securities totaling $ 21,000 at amortized cost and $ 21,000 at fair value are excluded from the table above as their expected lives are anticipated to be shorter than the contractual maturity date due to principal prepayments. Additionally, the allowance for credit losses totaling 39,000 is excluded from the table above. During 2021, the Company recognized gains of $ 25,000 and no losses related to calls on securities in the held to maturity debt securities portfolio, with total proceeds from the calls totaling $ 36.0 million. There were no sales of securities from the held to maturity debt securities portfolio for the year ended December 31, 2021. For 2020, the Company recognized gains of $ 81,000 and no losses related to calls on securities in the held to maturity debt securities portfolio, with total proceeds from the calls totaling $ 49.3 million. There were no sales of securities from the held to maturity debt securities portfolio for the year ended December 31, 2020. For the 2019 period, the Company recognized gains of $ 72,000 and no losses related to calls on certain securities in the held to maturity debt securities portfolio, with total proceeds from the calls totaling $ 33.9 million. There were no sales of securities from the held to maturity debt securities portfolio for the year ended December 31, 2019. 91 The following table illustrates the impact of the January 1, 2020 adoption of CECL on held to maturity debt securities (in thousands): January 1, 2020 As reported under CECL Prior to CECL Impact of CECL adoption Held to Maturity Debt Securities Allowance for credit losses on corporate securities $ 6 — 6 Allowance for credit losses on municipal securities 64 — 64 Allowance for credit losses on held to maturity debt securities $ 70 — 70 The following tables represent the Company's disclosure on held to maturity debt securities in an unrealized loss position (in thousands): December 31, 2021 Unrealized Losses Less than 12 months 12 months or longer Total Fair value Gross unrealized losses Fair value Gross unrealized losses Fair value Gross unrealized losses Agency obligations $ 9,821 ( 175 ) — — 9,821 ( 175 ) State and municipal obligations 27,350 ( 471 ) 5,022 ( 164 ) 32,372 ( 635 ) Corporate obligations 7,649 ( 152 ) — — 7,649 ( 152 ) $ 44,820 ( 798 ) 5,022 ( 164 ) 49,842 ( 962 ) December 31, 2020 Unrealized Losses Less than 12 months 12 months or longer Total Fair value Gross unrealized losses Fair value Gross unrealized losses Fair value Gross unrealized losses Agency obligations $ 1,995 ( 5 ) — — 1,995 ( 5 ) State and municipal obligations 4,846 ( 41 ) 406 ( 17 ) 5,252 ( 58 ) Corporate obligations 786 ( 2 ) — — 786 ( 2 ) $ 7,627 ( 48 ) 406 ( 17 ) 8,033 ( 65 ) The number of securities in an unrealized loss position as of December 31, 2021 totaled 53 , compared with 7 at December 31, 2020. The increase in the number of securities in an unrealized loss position at December 31, 2021 was due to higher current market interest rates compared to rates at December 31, 2020. Credit Quality Indicators. The following table provides the amortized cost of held to maturity debt securities by credit rating as of December 31, 2021 (in thousands): 92 December 31, 2021 Total Portfolio AAA AA A BBB Not Rated Total Agency obligations $ 9,996 — — — — 9,996 Mortgage-backed securities 21 — — — — 21 State and municipal obligations 54,583 314,396 44,392 945 1,408 415,724 Corporate obligations 510 2,634 7,279 — 25 10,448 $ 65,110 317,030 51,671 945 1,433 436,189 December 31, 2020 Total Portfolio AAA AA A BBB Not Rated Total Agency obligations $ 7,600 — — — — 7,600 Mortgage-backed securities 62 — — — — 62 State and municipal obligations 57,830 311,155 53,302 1,115 10,253 433,655 Corporate obligations — 3,255 6,446 — 25 9,726 $ 65,492 314,410 59,748 1,115 10,278 451,043 Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. At December 31, 2021, the held to maturity debt securities portfolio was comprised of 15 % rated AAA, 73 % rated AA, 12 % rated A, and less than 1 % either below an A rating or not rated by Moody’s Investors Service or Standard and Poor’s. Securities not explicitly rated, such as U.S. Government mortgage-backed securities, were grouped where possible under the credit rating of the issuer of the security. At December 31, 2021, the allowance for credit losses on held to maturity debt securities was 39,000 , a decrease from $ 78,000 at December 31, 2020. (6) Available for Sale Debt Securities On January 1, 2020, the Company adopted CECL which replaces the incurred loss methodology with an expected loss methodology. The Company did not record an allowance for credit losses on available for sale debt securities as this portfolio consisted primarily of agency securities that carry no credit risk. The impact going forward will depend on the composition, characteristics, and credit quality of the securities portfolio as well as the economic conditions at future reporting periods. The Company adopted CECL using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of CECL. 93 Available for sale debt securities at December 31, 2021 and 2020 are summarized as follows (in thousands): 2021 Amortized cost Gross unrealized gains Gross unrealized losses Fair value U.S. Treasury obligations $ 196,897 298 ( 866 ) 196,329 Mortgage-backed securities 1,711,312 14,082 ( 16,563 ) 1,708,831 Asset-backed securities 45,115 1,687 ( 5 ) 46,797 State and municipal obligations 68,702 1,127 ( 122 ) 69,707 Corporate obligations 36,109 425 ( 347 ) 36,187 $ 2,058,135 17,619 ( 17,903 ) 2,057,851 2020 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Agency obligations $ 1,001 8 — 1,009 Mortgage-backed securities 910,393 28,872 ( 852 ) 938,413 Asset-backed securities 52,295 1,535 — 53,830 State and municipal obligations 69,687 1,666 ( 95 ) 71,258 Corporate obligations 40,194 809 ( 24 ) 40,979 $ 1,073,570 32,890 ( 971 ) 1,105,489 Available for sale debt securities having a carrying value of $ 1.56 billion and $ 618.0 million at December 31, 2021 and 2020, respectively, are pledged to secure securities sold under repurchase agreements and municipal deposits. The amortized cost and fair value of available for sale debt securities at December 31, 2021, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer. 2021 Amortized cost Fair value Due in one year or less $ 2,997 3,022 Due after one year through five years 102,612 102,039 Due after five years through ten years 130,827 130,932 Due after ten years 65,272 66,230 $ 301,708 302,223 Investments which pay principal on a periodic basis totaling $ 1.76 billion at amortized cost and fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments. During 2021, proceeds from calls on securities in the available for sale debt securities portfolio totaled $ 9.4 million, with gains of $ 230,000 and no loss recognized. For 2020, proceeds from calls on securities in the available for sale debt securities portfolio totaled $ 13.9 million, with no gain or loss recognized. 94 The following tables represent the Company's disclosure on available for sale debt securities in an unrealized loss position (in thousands): December 31, 2021 Unrealized Losses Less than 12 months 12 months or longer Total Fair value Gross unrealized losses Fair value Gross unrealized losses Fair value Gross unrealized losses U.S. Treasury obligations $ 98,621 ( 866 ) — — 98621 ( 866 ) Mortgage-backed securities $ 1,147,403 ( 15,176 ) 33,850 ( 1,387 ) 1,181,253 ( 16,563 ) Asset-backed securities 1,930 ( 5 ) — — 1,930 ( 5 ) State and municipal obligations 10,732 ( 122 ) — — 10,732 ( 122 ) Corporate obligations 18,474 ( 347 ) — — 18,474 ( 347 ) $ 1,277,160 ( 16,516 ) 33,850 ( 1,387 ) 1,311,010 ( 17,903 ) December 31, 2020 Unrealized Losses Less than 12 months 12 months or longer Total Fair value Gross unrealized losses Fair value Gross unrealized losses Fair value Gross unrealized losses Mortgage-backed securities $ 127,600 ( 824 ) 8,007 ( 28 ) 135,607 ( 852 ) State and municipal obligations 5,275 ( 95 ) — — 5,275 ( 95 ) Corporate obligations — — 2,000 ( 24 ) 2,000 ( 24 ) $ 132,875 ( 919 ) 10,007 ( 52 ) 142,882 ( 971 ) The number of securities in an unrealized loss position as of December 31, 2021 totaled 113 , compared with 42 at December 31, 2020. The increase in the number of securities in an unrealized loss position at December 31, 2021 was due to higher current market interest rates compared to rates at December 31, 2020. All securities in an unrealized loss position were investment grade at December 31, 2021. There were two private-label mortgage-backed securities in an unrealized loss position at December 31, 2021, with an amortized cost of $ 2.1 million, with an unrealized loss of $ 105,700 . This private-label mortgage-backed security was investment grade at December 31, 2021. 95 (7) Loans Receivable and Allowance for Credit Losses On January 1, 2020, the Company adopted CECL, which replaced the incurred loss methodology with an expected loss methodology. The adoption of the new standard resulted in the Company recording a $ 7.9 million increase to the allowance for credit losses on loans with a corresponding cumulative effect adjustment to decrease retained earnings by $ 5.9 million, net of income taxes. (See Adoption of CECL table below for additional detail.) Loans receivable at December 31, 2021 and 2020 are summarized as follows (in thousands): 2021 2020 Mortgage loans: Residential $ 1,202,638 1,294,702 Commercial 3,827,370 3,458,666 Multi-family 1,364,397 1,484,515 Construction 683,166 541,939 Total mortgage loans 7,077,571 6,779,822 Commercial loans 2,188,866 2,567,470 Consumer loans 327,442 492,566 Total gross loans 9,593,879 9,839,858 Premiums on purchased loans 1,451 1,566 Unearned discounts ( 6 ) ( 12 ) Net deferred fees ( 13,700 ) ( 18,522 ) Total loans $ 9,581,624 9,822,890 In the first quarter of 2021, $ 101.7 million of loans acquired in the SB One transaction that were previously classified as consumer loans were classified as commercial mortgage loans, following further analysis of the underwriting documents and operational intent of the borrower. These loans are comprised of term loans and lines of credit secured by 1-4 family residential properties that are held by borrowers to generate rental income. Premiums and discounts on purchased loans are amortized over the lives of the loans as an adjustment to yield. Required reductions due to loan prepayments are charged against interest income. For the years ended December 31, 2021, 2020 and 2019, $ 604,000 , $ 1.0 million and $ 845,000 decreased interest income, respectively, as a result of prepayments and normal amortization. The following tables summarize the aging of loans receivable by portfolio segment and class of loans (in thousands): At December 31, 2021 30-59 Days 60-89 Days Non-accrual 90 days or more past due and accruing Total Past Due Current Total Loans Receivable Non-accrual loans with no related allowance Mortgage loans: Residential $ 7,229 1,131 6,072 — 14,432 1,188,206 1,202,638 6,072 Commercial 720 3,960 16,887 — 21,567 3,805,803 3,827,370 16,887 Multi-family — — 439 — 439 1,363,958 1,364,397 439 Construction — — 2,365 — 2,365 680,801 683,166 2,365 Total mortgage loans 7,949 5,091 25,763 — 38,803 7,038,768 7,077,571 25,763 Commercial loans 7,229 1,289 20,582 — 29,100 2,159,766 2,188,866 14,453 Consumer loans 649 228 1,682 — 2,559 324,883 327,442 1,682 Total gross loans $ 15,827 6,608 48,027 — 70,462 9,523,417 9,593,879 41,898 96 At December 31, 2020 30-59 Days 60-89 Days Non-accrual 90 days or more past due and accruing Total Past Due Current Total Loans Receivable Non-accrual loans with no related allowance Mortgage loans: Residential $ 15,789 8,852 9,315 — 33,956 1,260,746 1,294,702 9,315 Commercial 761 113 31,982 — 32,856 3,425,810 3,458,666 20,482 Multi-family 206 585 — — 791 1,483,724 1,484,515 — Construction — — 1,392 — 1,392 540,547 541,939 1,392 Total mortgage loans 16,756 9,550 42,689 — 68,995 6,710,827 6,779,822 31,189 Commercial loans 1,658 1179 42,118 — 44,955 2,522,515 2,567,470 15,541 Consumer loans 4,348 4,519 2,283 — 11,150 481,416 492,566 2,283 Total gross loans $ 22,762 15,248 87,090 — 125,100 9,714,758 9,839,858 49,013 Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. Generally, accrued interest is written off by reversing interest income during the quarter the loan is moved from an accrual to a non-accrual status. The principal amount of non-accrual loans was $ 48.0 million and $ 87.1 million at December 31, 2021 and 2020, respectively. There were no loans 90-days or greater past due and still accruing interest at December 31, 2021 and 2020. 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. If the non-accrual loans had performed in accordance with their original terms, interest income would have increased by $ 1.2 million, $ 3.2 million and $ 1.7 million, for the years ended December 31, 2021, 2020 and 2019, respectively. The amount of cash basis interest income that was recognized on impaired loans during the years ended December 31, 2021, 2020 and 2019 was $ 1.3 million, $ 1.9 million and $ 2.1 million respectively. The Company defines an impaired loan as a non-homogeneous loan greater than $ 1.0 million, for which, based on current information, the Bank does not expect to collect all amounts due under the contractual terms of the loan agreement. Impaired loans also include all loans modified as troubled debt restructurings (“TDRs”). An allowance for collateral-dependent impaired loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs. The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral-dependent loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral-dependent loan and updated annually, or more frequently if required. A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the collateral’s fair value less any selling costs. A specific allocation of the allowance for credit losses is established for each collateral-dependent loan with a carrying balance greater than the collateral’s fair value, less estimated selling costs. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less estimated selling costs. At each fiscal quarter end, if a loan is designated as collateral-dependent and the third-party appraisal has not yet been received, an evaluation of all available collateral is made using the best information available at the time, including rent rolls, borrower financial statements and tax returns, prior appraisals, management’s knowledge of the market and collateral, and internally prepared collateral valuations based upon market assumptions regarding vacancy and capitalization rates, each as and where applicable. Once the appraisal is received and reviewed, the specific reserves are adjusted to reflect the appraised value and evaluated for charge offs. The Company believes there have been no significant time lapses resulting from this process. At December 31, 2021, there were 155 impaired loans totaling $ 52.3 million, of which 132 loans totaling $ 30.6 million were TDRs. Included in this total were 115 TDRs related to 111 borrowers totaling $ 21.9 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2021. At December 31, 2020, there were 169 impaired loans totaling $ 86.0 million, of which 135 loans totaling $ 39.6 million were TDRs. Included in this total were 112 TDRs related to 110 borrowers totaling $ 23.1 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2020. 97 At December 31, 2021 and December 31, 2020, the Company had $ 18.2 million and $ 26.3 million of collateral-dependent impaired loans, respectively. The collateral-dependent impaired loans at December 31, 2021 consisted of $ 1.6 million in residential real estate loans, $ 16.7 million in commercial loans and $ 3,500 in consumer loans. The collateral for these impaired loans was primarily real estate. The activity in the allowance for credit losses for the years ended December 31, 2021, 2020 and 2019 is as follows (in thousands): Years Ended December 31, 2021 2020 2019 Balance at beginning of period $ 101,466 55,525 55,562 Provision charged to operations ( 24,300 ) 29,712 13,100 Increase due to the initial adoption of CECL — 7,920 — Initial allowance related to PCD loans — 13,586 — Recoveries of loans previously charged off 9,030 2,636 1,895 Loans charged off ( 5,456 ) ( 7,913 ) ( 15,032 ) Balance at end of period $ 80,740 101,466 55,525 The activity in the allowance for credit losses by portfolio segment for the years ended December 31, 2021 and 2020 are as follows (in thousands): For the Year Ended December 31, 2021 Mortgage loans Commercial loans Consumer loans Total Portfolio Segments Balance at beginning of period $ 68,307 27,084 6,075 101,466 Provision charged to operations ( 13,720 ) ( 6,313 ) ( 4,267 ) ( 24,300 ) Recoveries of loans previously charged off 859 7,169 1,002 9,030 Loans charged off ( 3,342 ) ( 1,597 ) ( 517 ) ( 5,456 ) Balance at end of period $ 52,104 26,343 2,293 80,740 For the Year Ended December 31, 2020 Mortgage loans Commercial loans Consumer loans Total Portfolio Segments Balance at beginning of period $ 25,511 28,263 1,751 55,525 Provision charged to operations 18,945 10,199 568 29,712 Increase (decrease) due to the initial adoption of CECL - Retained earnings 14,188 ( 9,974 ) 3,706 7,920 Initial allowance on credit loans related to PCD loans 11,984 1,582 20 13,586 Recoveries of loans previously charged off 396 1,776 464 2,636 Loans charged off ( 2,717 ) ( 4,762 ) ( 434 ) ( 7,913 ) Balance at end of period $ 68,307 27,084 6,075 101,466 For the year ended December 31, 2021, the Company recorded a $ 24.3 million negative provision for credit losses on loans. The reduction in provision for credit losses for the year ended December 31, 2021, compared to the prior year, was primarily the result of improved asset quality, an improved economic forecast and the resultant favorable impact on expected credit losses, compared to the prior year where the provision for credit losses was based upon a weak economic forecast and a more uncertain outlook attributable to the COVID-19 pandemic. As a result of the January 1, 2020 adoption of CECL, the Company recorded a $ 7.9 million increase to the allowance for credit losses on loans. 98 The following table illustrates the impact of the January 1, 2020 adoption of CECL on the allowance for credit losses related to the loan portfolio (in thousands): January 1, 2020 As reported under CECL Prior to CECL Impact of CECL adoption Loans Residential $ 8,950 3,414 5,536 Commercial 17,118 12,831 4,287 Multi-family 9,519 3,374 6,145 Construction 4,152 5,892 ( 1,740 ) Total mortgage loans 39,739 25,511 14,228 Commercial loans 18,254 28,263 ( 10,009 ) Consumer loans 5,452 1,751 3,701 Allowance for credit losses on loans $ 63,445 55,525 7,920 The following tables summarize loans receivable by portfolio segment and impairment method (in thousands): At December 31, 2021 Mortgage loans Commercial loans Consumer loans Total Portfolio Segments Individually evaluated for impairment $ 34,610 16,420 1,224 52,254 Collectively evaluated for impairment 7,042,961 2,172,446 326,218 9,541,625 Total gross loans $ 7,077,571 2,188,866 327,442 9,593,879 At December 31, 2020 Mortgage loans Commercial loans Consumer loans Total Portfolio Segments Individually evaluated for impairment $ 48,783 35,832 1,431 86,046 Collectively evaluated for impairment 6,731,039 2,531,638 491,135 9,753,812 Total gross loans $ 6,779,822 2,567,470 492,566 9,839,858 99 The allowance for credit losses is summarized by portfolio segment and impairment classification as follows (in thousands): At December 31, 2021 Mortgage loans Commercial loans Consumer loans Total Portfolio Segments Individually evaluated for impairment $ 875 3,358 51 4,284 Collectively evaluated for impairment 51,229 22,985 2,242 76,456 Total allowance for credit losses $ 52,104 26,343 2,293 80,740 At December 31, 2020 Mortgage loans Commercial loans Consumer loans Total Portfolio Segments Individually evaluated for impairment $ 4,220 4,715 39 8,974 Collectively evaluated for impairment 64,087 22,369 6,036 92,492 Total allowance for credit losses $ 68,307 27,084 6,075 101,466 Loan modifications to borrowers experiencing financial difficulties that are considered TDRs primarily involve lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. These modifications generally do not result in the forgiveness of principal or accrued interest. In addition, management attempts to obtain additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible. 100 The following tables present the number of loans modified as TDRs during the years ended December 31, 2021 and 2020 and their balances immediately prior to the modification date and post-modification as of December 31, 2021 and 2020. Year Ended December 31, 2021 Troubled Debt Restructurings Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment ($ in thousands) Mortgage loans: Residential 7 $ 1,274 1,142 Commercial 3 3,086 2,902 Total mortgage loans 10 4,360 4,044 Commercial loans 4 2,940 2,287 Total restructured loans 14 $ 7,300 6,331 Year Ended December 31, 2020 Troubled Debt Restructurings Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment ($ in thousands) Mortgage loans: Residential 2 $ 434 360 Total mortgage loans 2 434 360 Commercial loans 4 2,715 2,646 Total restructured loans 6 $ 3,149 3,006 All TDRs are impaired loans, which are individually evaluated for impairment, as previously discussed. During the years ended December 31, 2021 and 2020, there were $ 3.8 million and $ 7.3 million of charge-offs recorded on collateral dependent impaired loans, respectively. The allowance for credit losses associated with the TDRs presented in the preceding tables totaled $ 80,000 and $ 362,000 at December 31, 2021 and 2020, respectively, and were included in the allowance for credit losses for loans individually evaluated for impairment. The TDRs presented in the preceding tables had a weighted average modified interest rate of approximately 4.12 % and 5.43 %, compared to a yield of 5.74 % and 5.44 % prior to modification for the years ended December 31, 2021 and 2020, respectively. There were no payment defaults (90 days or more past due) for loans modified as TDRs within the 12 month periods ending December 31, 2021 and December 31, 2020. For TDRs that subsequently default, the Company determines the amount of the allowance for the respective loans in accordance with the accounting policy for the allowance for credit losses on loans individually evaluated for impairment. As allowed by CECL, the Company elected to maintain pools of loans accounted for under ASC 310-30. At December 31, 2020, purchased credit impaired (“PCI”) loans totaled $ 746,000 . In accordance with the CECL standard, management did not reassess whether modifications of individually acquired financial assets accounted for in pools were TDRs as of the date of adoption. Loans considered to be PCI prior to January 1, 2020 were converted to PCD loans on that date. For loans acquired by the Company after January 1, 2020, that experience more-than-insignificant deterioration in credit quality after origination are classified as PCD loans. The table below is a summary of the PCD loans accounted for in accordance with ASC 310-26 that were acquired in the SB One acquisition at the July 31, 2020 closing date (in thousands): 101 Gross amortized cost basis at July 31, 2020 $ 315,784 Interest component of expected cash flows (accretable difference) ( 7,988 ) Fair value of PCD loans 307,796 Allowance for credit losses on PCD loans ( 13,586 ) Net PCD loans $ 294,210 At December 31, 2021, the balance of PCD loans totaled $ 246.9 million with a related allowance for credit losses of $ 2.8 million. The balance of PCD loans at December 31, 2020 was $ 296.6 million with a related allowance for credit losses of $ 13.1 million. The following table presents loans individually evaluated for impairment by class and loan category (in thousands): At December 31, 2021 At December 31, 2020 Unpaid Principal Balance Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized Unpaid Principal Balance Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized Loans with no related allowance Mortgage loans: Residential $ 12,326 9,814 — 9,999 423 $ 13,981 11,380 — 11,587 511 Commercial 15,310 14,685 — 15,064 63 17,414 17,414 — 16,026 60 Multi-family — — — — — — — — — — Construction 1,656 1,588 — 1,643 30 — — — — — Total 29,292 26,087 — 26,706 516 31,395 28,794 — 27,613 571 Commercial loans 9,845 7,254 — 7,714 33 15,895 14,009 — 12,791 46 Consumer loans 1,389 853 — 1,613 115 1,382 880 — 7 50 Total loans $ 40,526 34,194 — 36,033 664 $ 48,672 43,683 — 40,411 667 Loans with an allowance recorded Mortgage loans: Residential $ 7,994 7,652 858 7,742 278 $ 7,950 7,506 806 7,604 307 Commercial 871 871 17 894 48 14,993 12,483 3414 123 570 Multi-family — — — — — — — — — — Construction — — — — — — — — — — Total 8,865 8,523 875 8,636 326 22,943 19,989 4,220 7,727 877 Commercial loans 9,498 9,166 3,358 8,304 257 24,947 21,823 4715 18,620 311 Consumer loans 391 371 51 379 18 565 551 39 5 20 Total loans $ 18,754 18,060 4,284 17,319 601 $ 48,455 42,363 8,974 26,352 1,208 Total Mortgage loans: Residential $ 20,320 17,466 858 17,741 701 $ 21,931 18,886 806 19,191 818 Commercial 16,181 15,556 17 15,958 111 32,407 29,897 3414 16,149 630 Multi-family — — — — — — — — — — Construction 1,656 1,588 — 1,643 30 — — — — — Total 38,157 34,610 875 35,342 842 54,338 48,783 4,220 35,340 1,448 Commercial loans 19,343 16,420 3,358 16,018 290 40,842 35,832 4715 31,411 357 Consumer loans 1,780 1,224 51 1,992 133 1,947 1,431 39 12 70 Total loans $ 59,280 52,254 4,284 53,352 1,265 $ 97,127 86,046 8,974 66,763 1,875 At December 31, 2021, impaired loans consisted of 155 residential, commercial, commercial mortgage and consumer loans totaling $ 52.3 million, of which 40 loans totaling $ 30.3 million were included in non-accrual loans. At December 31, 2020, impaired loans consisted of 169 residential, commercial, commercial mortgage and consumer loans totaling $ 86.0 million, of which 55 loans totaling $ 61.4 million were included in non-accrual loans. Specific allocations of the allowance for credit losses attributable to impaired loans totaled $ 4.3 million and $ 9.0 million at December 31, 2021 and 2020, respectively. At December 31, 2021 and 2020, impaired loans for which there was no related allowance for credit losses totaled $ 34.2 102 million and $ 43.7 million, respectively. The average balances of impaired loans during the years ended December 31, 2021 and 2020 were $ 53.4 million and $ 66.8 million, respectively. In the normal course of conducting its business, the Bank extends credit to meet the financing needs of its customers through commitments. Commitments and contingent liabilities, such as commitments to extend credit (including loan commitments of $ 2.05 billion and $ 1.99 billion at December 31, 2021 and 2020, respectively, and undisbursed home equity and personal credit lines of $ 252.4 million and $ 241.2 million, at December 31, 2021 and 2020, respectively, are not reflected in the accompanying consolidated financial statements. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. The Bank uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance sheet loans. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the borrower. The Bank grants residential real estate loans on single- and multi-family dwellings to borrowers primarily in New Jersey. Its borrowers’ abilities to repay their obligations are dependent upon various factors, including the borrowers’ income and net worth, cash flows generated by the underlying collateral, value of the underlying collateral, and priority of the Bank’s lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the Bank’s control; the Bank is therefore subject to risk of loss. The Bank believes that its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan losses are provided for all known and inherent risks. Collateral and/or guarantees are required for virtually all loans. Management utilizes an internal nine-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal risk. Loans that are deemed to be of “questionable quality” are rated 5 (watch) or 6 (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated 7, 8 or 9, respectively. Commercial mortgage, commercial, multi-family and construction loans are rated individually, and each lending officer is responsible for risk rating loans in their portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Department. The risk ratings are also reviewed periodically through loan review examinations which are currently performed by an independent third-party. Reports by the independent third-party are presented directly to the Audit Committee of the Board of Directors. In addition, the Company participated in the Paycheck Protection Program (“PPP”) through the United States Department of the Treasury and Small Business Administration ("SBA"). 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 2,067 PPP loans for its customers totaling $ 682.0 million, which includes both the initial round and the second round of PPP. As of December 31, 2021, 1,823 PPP loans totaling $ 587.0 million were forgiven. The balance at December 31, 2021 for PPP loans was $ 94.9 million. The following table summarizes the Company's gross loans held for investment by year of origination and internally assigned credit grades (in thousands): Gross Loans Held by Investment by Year of Origination at December 31, 2021 2021 2020 2019 2018 2017 Prior to 2017 Revolving Loans Revolving loans to term loans Total Loans Residential Special mention $ — — — — 697 434 — — 1,131 Substandard — — — 280 166 8,569 — — 9,015 Doubtful — — — — — — — — — Loss — — — — — — — — — 103 Gross Loans Held by Investment by Year of Origination at December 31, 2021 2021 2020 2019 2018 2017 Prior to 2017 Revolving Loans Revolving loans to term loans Total Loans Total criticized and classified — — — 280 863 9,003 — — 10,146 Pass/Watch 229,106 235,949 113,206 67,493 75,906 470,832 — — 1,192,492 Total residential $ 229,106 235,949 113,206 67,773 76,769 479,835 — — 1,202,638 Commercial Mortgage Special mention $ — 2,624 28,706 22,296 9,657 26,668 1,094 — 91,045 Substandard — — 18 34,260 7,352 34,356 799 — 76,785 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — 2,624 28,724 56,556 17,009 61,024 1,893 — 167,830 Pass/Watch 655,105 600,030 589,578 298,665 430,947 952,746 101,618 30,851 3,659,540 Total commercial mortgage $ 655,105 602,654 618,302 355,221 447,956 1,013,770 103,511 30,851 3,827,370 Multi-family Special mention $ — — — — 3,053 271 — — 3,324 Substandard — 439 — — 945 — — 1,384 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — 439 — — 3,053 1,216 — — 4,708 Pass/Watch 154,419 294,716 166,558 173,583 117,654 448,710 2,880 1,169 1,359,689 Total multi-family $ 154,419 295,155 166,558 173,583 120,707 449,926 2,880 1,169 1,364,397 Construction Special mention $ — 1,125 — — — — — — 1,125 Substandard — — — 2,365 — — — — 2,365 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — 1,125 — 2,365 — — — — 3,490 Pass/Watch 173,843 176,182 219,331 94,363 9,604 103 6,250 679,676 Total construction $ 173,843 177,307 219,331 96,728 9,604 103 — 6,250 683,166 Total Mortgage Special mention $ — 3,749 28,706 22,296 13,407 27,373 1,094 — 96,625 Substandard — 439 18 36,905 7,518 43,870 799 — 89,549 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — 4,188 28,724 59,201 20,925 71,243 1,893 — 186,174 Pass/Watch 1,212,473 1,306,877 1,088,673 634,104 634,111 1,872,391 104,498 38,270 6,891,397 104 Gross Loans Held by Investment by Year of Origination at December 31, 2021 2021 2020 2019 2018 2017 Prior to 2017 Revolving Loans Revolving loans to term loans Total Loans Total Mortgage $ 1,212,473 1,311,065 1,117,397 693,305 655,036 1,943,634 106,391 38,270 7,077,571 Commercial Special mention $ 1,232 2,662 2,816 3,263 24,418 40,561 8,389 2,155 85,496 Substandard — 736 5,517 5,860 5,747 64,807 13,622 1,821 98,110 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified 1,232 3,398 8,333 9,123 30,165 105,368 22,011 3,976 183,606 Pass/Watch 415,924 222,132 179,193 154,440 149,567 489,051 355,097 39,856 2,005,260 Total commercial $ 417,156 225,530 187,526 163,563 179,732 594,419 377,108 43,832 2,188,866 Consumer (1) Special mention $ — — — — — 109 25 94 228 Substandard — — — 116 2 1,514 6 — 1,638 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — 116 2 1,623 31 94 1,866 Pass/Watch 25,140 4,503 24,272 21,046 15,804 99,106 119,347 16,358 325,576 Total consumer $ 25,140 4,503 24,272 21,162 15,806 100,729 119,378 16,452 327,442 Total Loans Special mention $ 1,232 6,411 31,522 25,559 37,825 68,044 9,508 2,249 182,350 Substandard — 1,175 5,535 42,881 13,267 110,191 14,427 1,821 189,297 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified 1,232 7,586 37,057 68,440 51,092 178,235 23,935 4,070 371,647 Pass/Watch 1,653,537 1,533,512 1,292,138 809,590 799,482 2,460,547 578,942 94,484 9,222,232 Total gross loans $ 1,654,769 1,541,098 1,329,195 878,030 850,574 2,638,782 602,877 98,554 9,593,879 (1) For consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan. Gross Loans Held by Investment by Year of Origination at December 31, 2020 2020 2019 2018 2017 2016 Prior to 2016 Revolving Loans Revolving loans to term loans Total Loans Residential Special mention $ — — — — 123 2,759 — — 2,882 Substandard 164 3,375 1,669 2,221 2,184 17,039 — — 26,652 Doubtful — — — — — — — — — 105 Gross Loans Held by Investment by Year of Origination at December 31, 2020 2020 2019 2018 2017 2016 Prior to 2016 Revolving Loans Revolving loans to term loans Total Loans Loss — — — — — — — — — Total criticized and classified 164 3,375 1,669 2,221 2,307 19,798 — — 29,534 Pass/Watch 271,858 152,117 93,588 101,943 119,563 526,099 — — 1,265,168 Total residential $ 272,022 155,492 95,257 104,164 121,870 545,897 — — 1,294,702 Commercial Mortgage Special mention $ — 29,268 33,446 22,838 3,041 34,992 — 1,045 124,630 Substandard — 1,905 3,687 21,095 10,185 61,441 — — 98,313 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — 31,173 37,133 43,933 13,226 96,433 — 1,045 222,943 Pass/Watch 596,364 600,904 395,280 432,590 302,034 809,779 68,650 30,122 3,235,723 Total commercial mortgage $ 596,364 632,077 432,413 476,523 315,260 906,212 68,650 31,167 3,458,666 Multi-family Special mention $ — 682 19,837 3,117 5,558 300 — 288 29,782 Substandard — — — — — 1,568 — — 1,568 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — 682 19,837 3,117 5,558 1,868 — 288 31,350 Pass/Watch 291,995 180,271 187,880 169,310 131,297 486,649 3,418 2,346 1,453,165 Total multi-family $ 291,995 180,953 207,717 172,427 136,855 488,517 3,418 2,633 1,484,515 Construction Special mention $ 1,991 14,508 7,877 — — — — — 24,376 Substandard — — 4,309 615 — — — — 4,924 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified 1,991 14,508 12,186 615 — — — — 29,300 Pass/Watch 88,777 236,021 138,190 43,224 1,568 512 — 4,347 512,639 Total construction $ 90,768 250,529 150,376 43,839 1,568 512 — 4,347 541,939 Total Mortgage Special mention $ 1,991 44,458 61,160 25,955 8,722 38,051 — 1,333 181,670 Substandard 164 5,280 9,665 23,931 12,369 80,048 — — 131,457 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified 2,155 49,738 70,825 49,886 21,091 118,099 — 1,333 313,127 106 Gross Loans Held by Investment by Year of Origination at December 31, 2020 2020 2019 2018 2017 2016 Prior to 2016 Revolving Loans Revolving loans to term loans Total Loans Pass/Watch 1,248,994 1,169,313 814,938 747,067 554,462 1,823,039 72,067 36,815 6,466,695 Total Mortgage $ 1,251,149 1,219,051 885,763 796,953 575,553 1,941,138 72,067 38,148 6,779,822 Commercial Special mention $ — 6,295 6,038 27,251 9,779 81,355 22,745 3,617 157,080 Substandard — 7,324 2,527 16,139 40,512 41,831 16,738 2,018 127,090 Doubtful — — — — — — 52 — 52 Loss — — — — — — — — — Total criticized and classified — 13,619 8,565 43,390 50,291 123,186 39,536 5,635 284,222 Pass/Watch 695,125 207,400 205,892 179,068 141,925 415,729 397,408 40,700 2,283,247 Total commercial $ 695,125 221,019 214,457 222,458 192,216 538,915 436,944 46,335 2,567,470 Consumer (1) Special mention $ — 3 — 70 28 299 1,304 163 1,867 Substandard 25 49 14 — 2,912 1,230 1,236 1,278 6,744 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified 25 52 14 70 2,940 1,529 2,540 1,441 8,611 Pass/Watch 12,746 50,605 54,962 45,698 25,539 143,685 135,839 14,881 483,955 Total consumer $ 12,771 50,657 54,976 45,768 28,479 145,214 138,378 16,323 492,566 Total Loans Special mention $ 1,991 50,756 67,198 53,276 18,529 119,705 24,049 5,113 340,617 Substandard 189 12,653 12,206 40,070 55,793 123,109 17,975 3,296 265,291 Doubtful — — — — — — 52 — 52 Loss — — — — — — — — — Total criticized and classified 2,180 63,409 79,404 93,346 74,322 242,814 42,076 8,410 605,960 Pass/Watch 1,956,865 1,427,318 1,075,792 971,833 721,926 2,382,453 605,314 92,396 9,233,898 Total gross loans $ 1,959,045 1,490,727 1,155,196 1,065,179 796,248 2,625,267 647,390 100,806 9,839,858 (1) For consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan. 107 (8) Banking Premises and Equipment A summary of banking premises and equipment at December 31, 2021 and 2020 is as follows (in thousands): 2021 2020 Land $ 14,474 13,631 Banking premises 75,143 72,362 Furniture, fixtures and equipment 54,860 52,128 Leasehold improvements 47,379 37,756 Construction in progress 4,775 9,669 196,631 185,546 Less accumulated depreciation and amortization 116,072 109,600 Total banking premises and equipment $ 80,559 75,946 Depreciation expense for the years ended December 31, 2021, 2020 and 2019 amounted to $ 9.0 million, $ 7.6 million and $ 7.7 million, respectively. (9) Intangible Assets Intangible assets at December 31, 2021 and 2020 are summarized as follows (in thousands): 2021 2020 Goodwill $ 444,423 443,001 Core deposit premiums 3,175 4,092 Customer relationship and other intangibles 15,890 18,486 Mortgage servicing rights 695 633 Total intangible assets $ 464,183 466,212 The Company updated certain estimates used in the purchase price allocation related to the SB One acquisition, primarily with respect to the marginal tax rate of deferred tax assets (“DTA”). As a result, the fair value of the net assets acquired decreased by $ 1.4 million and the impact of these measurement period adjustments increased goodwill to $ 23.9 million. Amortization expense of intangible assets for the years ended December 31, 2021, 2020 and 2019 is as follows (in thousands): 2021 2020 2019 Core deposit premiums $ 917 824 786 Customer relationship and other intangibles 2,597 2,457 1,869 Mortgage servicing rights 150 144 85 Total amortization expense of intangible assets $ 3,664 3,425 2,740 Scheduled amortization of core deposit premiums and customer relationship and other intangibles for each of the next five years is as follows (in thousands): Year ended December 31, Scheduled Amortization 2022 $ 3,143 2023 2,771 2024 2,432 2025 2,206 2026 2,096 108 (10) Deposits Deposits at December 31, 2021 and 2020 are summarized as follows (in thousands): 2021 Weighted average interest rate 2020 Weighted average interest rate Savings deposits $ 1,460,541 0.10 % $ 1,348,147 0.11 % Money market accounts 2,592,523 0.27 2,245,412 0.45 NOW accounts 3,722,198 0.20 2,808,637 0.42 Non-interest bearing deposits 2,766,235 — 2,341,459 — Certificates of deposit 692,515 0.58 1,094,174 0.89 Total deposits $ 11,234,012 $ 9,837,829 Scheduled maturities of certificates of deposit accounts at December 31, 2021 and 2020 are as follows (in thousands): 2021 2020 Within one year $ 534,459 886,018 One to three years 115,833 153,114 Three to five years 41,987 54,544 Five years and thereafter 236 498 $ 692,515 1,094,174 Interest expense on deposits for the years ended December 31, 2021, 2020 and 2019 is summarized as follows (in thousands): Years ended December 31, 2021 2020 2019 Savings deposits $ 1,604 1,689 1,681 NOW and money market accounts 20,458 22,762 29,542 Certificates of deposits 4,451 9,138 14,271 $ 26,513 33,589 45,494 (11) Borrowed Funds Borrowed funds at December 31, 2021 and 2020 are summarized as follows (in thousands): 2021 2020 Securities sold under repurchase agreements $ 116,760 99,936 FHLB line of credit — 25,000 FHLB advances 510,014 1,051,036 Total borrowed funds $ 626,774 1,175,972 At December 31, 2021, FHLB advances were at fixed rates and mature between January 2022 and July 2025, and at December 31, 2020, FHLB advances were at fixed rates and mature between January 2020 and May 2022. These advances are secured by loans receivable under a blanket collateral agreement. 109 Scheduled maturities of FHLB advances at December 31, 2021 are as follows (in thousands): 2021 Due in one year or less $ 318,602 Due after one year through two years 58,569 Due after two years through three years 58,583 Due after three years through four years 74,260 Thereafter — Total FHLB advances $ 510,014 Scheduled maturities of securities sold under repurchase agreements at December 31, 2021 are as follows (in thousands): 2021 Due in one year or less $ 116,760 Thereafter — Total securities sold under repurchase agreements $ 116,760 The following tables set forth certain information as to borrowed funds for the years ended December 31, 2021 and 2020 (in thousands): Maximum balance Average balance Weighted average interest rate 2021 Securities sold under repurchase agreements $ 132,005 116,158 0.07 % FHLB line of credit — 205 .34 FHLB advances 941,939 673,014 1.27 2020 Securities sold under repurchase agreements $ 115,233 86,194 0.28 % FHLB line of credit 422,000 97,853 1.09 FHLB advances 1,177,083 1,045,282 1.49 Securities sold under repurchase agreements include arrangements with deposit customers of the Bank to sweep funds into short-term borrowings. The Bank uses available for sale debt securities to pledge as collateral for the repurchase agreements. At December 31, 2021 and December 31, 2020, available for sale debt securities pledged as collateral for repurchase agreements totaled $ 136.0 million and $ 105.1 million, respectively. Interest expense on borrowings for the years ended December 31, 2021, 2020 and 2019 amounted to $ 8.6 million, $ 16.6 million and $ 28.0 million, respectively. (12) Subordinated Debentures As part of the July 31, 2020 acquisition of SB One, the Company assumed subordinated debentures with a total outstanding balance of $ 27.9 million and a net fair value of $ 25.1 million. The outstanding balance consisted of $ 12.9 million of subordinated deferrable interest debentures sold by the former SB One Bancorp to Sussex Capital Trust II (the “Trust”) and $ 15 million of private placement of fixed to-floating rate subordinated notes to an institutional investor. 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. 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. 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. 110 Subordinated debentures at December 31, 2021 and 2020 totaled $ 10.3 million and $ 25.1 million, respectively, while interest expense on these subordinated debentures for the year ended December 31, 2021 and 2020 totaled $ 1.2 million and $ 512,000 , respectively. (13) Benefit Plans Pension and Post-retirement Benefits The Bank has a noncontributory defined benefit pension plan covering its full-time employees who had attained age 21 with at least one year of service as of April 1, 2003. The pension plan was frozen on April 1, 2003. All participants in the pension plan are 100 % vested. The pension plan’s assets are invested in investment funds and group annuity contracts currently managed by the Principal Financial Group and Allmerica Financial. Based on the measurement date of December 31, 2021, no contributions will be made to the pension plan in 2022. In addition to pension benefits, certain health care and life insurance benefits are currently made available to certain of the Bank’s retired employees. The costs of such benefits are accrued based on actuarial assumptions from the date of hire to the date the employee is fully eligible to receive the benefits. Effective January 1, 2003, eligibility for retiree health care benefits was frozen as to new entrants and benefits were eliminated for employees with less than ten years of service as of December 31, 2002. Effective January 1, 2007, eligibility for retiree life insurance benefits was frozen as to new entrants and retiree life insurance benefits were eliminated for employees with less than ten years of service as of December 31, 2006. The following table sets forth information regarding the pension plan and post-retirement healthcare and life insurance plans (in thousands): Pension Post-retirement 2021 2020 2019 2021 2020 2019 Change in benefit obligation: Benefit obligation at beginning of year $ 35,170 33,058 28,878 18,805 23,323 20,028 Service cost — — — 34 78 80 Interest cost 790 1,000 1,198 424 712 837 Actuarial (gain) loss ( 294 ) 381 63 ( 412 ) ( 169 ) — Benefits paid ( 1,656 ) ( 1,630 ) ( 1,493 ) ( 584 ) ( 627 ) ( 600 ) Change in actuarial assumptions ( 1,493 ) 2,361 4,412 ( 1,519 ) ( 4,512 ) 2,978 Benefit obligation at end of year $ 32,517 35,170 33,058 16,748 18,805 23,323 Change in plan assets: Fair value of plan assets at beginning of year $ 54,617 49,932 43,449 — — — Actual return on plan assets 5,490 6,315 7,976 — — — Employer contributions — — — 584 627 600 Benefits paid ( 1,656 ) ( 1,630 ) ( 1,493 ) ( 584 ) ( 627 ) ( 600 ) Fair value of plan assets at end of year 58,451 54,617 49,932 — — — Funded status at end of year $ 25,934 19,447 16,874 ( 16,748 ) ( 18,805 ) ( 23,323 ) For the years ended December 31, 2021 and 2020, the Company, in the measurement of its pension plan and post-retirement obligations updated its mortality assumptions to the RP 2014 mortality table with the fully generational projection scale MP 2021 and MP 2020 issued by The Society of Actuaries ("SOA") in October 2021 and 2020, respectively. The prepaid pension benefits of $ 25.9 million and the unfunded post-retirement healthcare and life insurance benefits of $ 16.7 million at December 31, 2021 are included in other assets and other liabilities, respectively, in the Consolidated Statements of Financial Condition. The components of accumulated other comprehensive loss (gain) related to the pension plan and other post-retirement benefits, on a pre-tax basis, at December 31, 2021 and 2020 are summarized in the following table (in thousands): 111 Pension Post-retirement 2021 2020 2021 2020 Unrecognized prior service cost $ — — — — Unrecognized net actuarial loss (gain) 4,504 9,026 ( 8,915 ) ( 8,055 ) Total accumulated other comprehensive loss (gain) $ 4,504 9,026 ( 8,915 ) ( 8,055 ) Net periodic (benefit) increase cost for the years ending December 31, 2021, 2020 and 2019, included the following components (in thousands): Pension Post-retirement 2021 2020 2019 2021 2020 2019 Service cost $ — — — 34 78 80 Interest cost 790 1,000 1,198 424 712 837 Return on plan assets ( 3,227 ) ( 2,949 ) ( 2,562 ) — — — Amortization of: Net loss (gain) 472 696 1,015 ( 1,070 ) ( 248 ) ( 825 ) Unrecognized prior service cost — — — — — — Net periodic (benefit) increase cost $ ( 1,965 ) ( 1,253 ) ( 349 ) ( 612 ) 542 92 The weighted average actuarial assumptions used in the plan determinations at December 31, 2021, 2020 and 2019 were as follows: Pension Post-retirement 2021 2020 2019 2021 2020 2019 Discount rate 2.70 % 2.30 % 3.10 % 2.70 % 2.30 % 3.10 % Rate of compensation increase — — — — — — Expected return on plan assets 6.00 6.00 6.00 — — — Medical and life insurance benefits cost rate of increase — — — 6.00 6.00 6.00 The Company provides its actuary with certain rate assumptions used in measuring the benefit obligation. The most significant of these is the discount rate used to calculate the period-end present value of the benefit obligations, and the expense to be included in the following year’s financial statements. A lower discount rate will result in a higher benefit obligation and expense, while a higher discount rate will result in a lower benefit obligation and expense. The discount rate assumption was determined based on a cash flow-yield curve model specific to the Company’s pension and post-retirement plans. The Company compares this rate to certain market indices, such as long-term treasury bonds, or the Citigroup pension liability indices, for reasonableness. A discount rate of 2.70 % was selected for the December 31, 2021 measurement date. Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A 1% change in the assumed health care cost trend rate would have had the following effects on post-retirement benefits at December 31, 2021 (in thousands): 1% increase 1% decrease Effect on total service cost and interest cost $ 70 50 Effect on post-retirement benefits obligation $ 2,200 1,800 Estimated future benefit payments, which reflect expected future service, as appropriate for the next five years, are as follows (in thousands): 112 Pension Post-retirement 2022 $ 1,745 736 2023 1,777 773 2024 1,788 782 2025 1,785 813 2026 1,784 804 The weighted-average asset allocation of pension plan assets at December 31, 2021 and 2020 were as follows: Asset Category 2021 2020 Domestic equities 39 % 39 % Foreign equities 11 % 12 % Fixed income 48 % 47 % Real estate 2 % 2 % Cash — % — % Total 100 % 100 % The Company’s expected return on pension plan assets assumption is based on historical investment return experience and evaluation of input from the Plan's Investment Consultant and the Company's Benefits Committee which manages the pension plan’s assets. The expected return on pension plan assets is also impacted by the target allocation of assets, which is based on the Company’s goal of earning the highest rate of return while maintaining risk at acceptable levels. Management strives to have pension plan assets sufficiently diversified so that adverse or unexpected results from one security class will not have a significant detrimental impact on the entire portfolio. The target allocation of assets and acceptable ranges around the targets are as follows: Asset Category Target Allowable Range Domestic equities 37 % 30 - 41 % Foreign equities 11 % 5 - 13 % Fixed income 50 % 40 - 65 % Real estate 2 % 0 - 4 % Cash 0 % 0 % Total 100 % The Company anticipates that the long-term asset allocation on average will approximate the targeted allocation. Actual asset allocations are the result of investment decisions by a third-party investment manager. The following tables present the assets that are measured at fair value on a recurring basis by level within the U.S. GAAP fair value hierarchy as reported on the statements of net assets available for Plan benefits at December 31, 2021 and 2020, respectively. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. 113 Fair value measurements at December 31, 2021 (in thousands) Total (Level 1) (Level 2) (Level 3) Group annuity contracts $ 88 — 88 — Mutual funds: Fixed income 28,042 28,042 — — International equity 6,153 6,153 — — Large U.S. equity 1,834 1,834 — — Small/Mid U.S. equity 1,183 1,183 — — Total mutual funds 37,212 37,212 — — Pooled separate accounts 21,151 — 21,151 — Total Plan assets $ 58,451 37,212 21,239 — Fair value measurements at December 31, 2020 (in thousands) Total (Level 1) (Level 2) (Level 3) Group annuity contracts $ 64 — 64 — Mutual funds: Fixed income 25,418 25,418 — — International equity 6,581 6,581 — — Large U.S. equity 1,677 1,677 — — Small/Mid U.S. equity 1,225 1,225 — — Total mutual funds 34,901 34,901 — — Pooled separate accounts 19,652 — 19,652 — Total Plan assets $ 54,617 34,901 19,716 — 401(k) Plan The Bank has a 401(k) plan covering substantially all employees of the Bank. For 2021, 2020 and 2019, the Bank matched 25 % of the first 6 % contributed by the participants. The contribution percentage is determined by the Board of Directors in its sole discretion. The Bank’s aggregate contributions to the 401(k) Plan for 2021, 2020 and 2019 were $ 1.2 million, $ 1.0 million and $ 981,000 , respectively. Supplemental Executive Retirement Plan The Bank maintains a non-qualified supplemental retirement plan for certain senior officers of the Bank. This unfunded plan, which was frozen as of April 1, 2003 provides benefits in excess of the benefits permitted to be paid by the pension plan under provisions of the tax law. Amounts expensed under this supplemental retirement plan amounted to $ 74,000 , $ 80,000 and $ 85,000 for the years 2021, 2020 and 2019, respectively. At December 31, 2021 and 2020, $ 1.8 million and $ 1.8 million, respectively, were recorded in other liabilities on the Consolidated Statements of Financial Condition for this supplemental retirement plan. In connection with this supplemental retirement plan, an increase of $ 68,000 , an increase of $ 89,000 , and an increase of $ 187,000 , net of tax, were recorded in other comprehensive income (loss) for 2021, 2020 and 2019, respectively. Retirement Plan for the Board of Directors of Provident Bank The Bank maintains a Retirement Plan for the Board of Directors of the Bank, a non-qualified plan that provides cash payments for up to 10 years to eligible retired board members based on age and length of service requirements. The maximum payment under this plan to a board member, who terminates service on or after the age of 72 with at least ten years of service on the board, is forty quarterly payments of $ 1,250 . The Bank may suspend payments under this plan if it does not meet Federal Deposit Insurance Corporation or New Jersey Department of Banking and Insurance minimum capital requirements. The Bank may terminate this plan at any time although such termination may not reduce or eliminate any benefit previously accrued to a board member without his or her consent. The plan was amended in December 2005 to terminate benefits under this plan for any directors who had less than ten years of service on the board of directors of the Bank as of December 31, 2006. 114 The plan further provides that, in the event of a change in control (as defined in the plan), the undistributed balance of a director’s accrued benefit will be distributed to him or her within 60 days of the change in control. The Bank paid $ 6,250 , $ 10,000 , and $ 15,000 to former board members under this plan for each of the years ended December 31, 2021, 2020 and 2019, respectively. At December 31, 2021 and 2020, $ 123,000 and $ 127,000 , respectively, were recorded in other liabilities on the Consolidated Statements of Financial Condition for this retirement plan. Increases of $ 689 , $ 6,334 and $ 730 , net of tax, were recorded in other comprehensive income (loss) for 2021, 2020 and 2019, respectively, in connection with this plan. Employee Stock Ownership Plan The ESOP is a tax-qualified plan designed to invest primarily in the Company’s common stock that provides employees with the opportunity to receive a funded retirement benefit from the Bank, based primarily on the value of the Company’s common stock. The ESOP purchased 4,769,464 shares of the Company’s common stock at an average price of $ 17.09 per share with the proceeds of a loan from the Company to the ESOP. The outstanding loan principal at December 31, 2021, was $ 19.6 million. Shares of the Company’s common stock pledged as collateral for the loan are released from the pledge for allocation to participants as loan payments are made. For the years ending December 31, 2021 and 2020, 285,107 shares and 273,307 shares from the ESOP were released, respectively. Unallocated ESOP shares held in suspense totaled 898,073 at December 31, 2021, and had a fair value of $ 21.8 million. ESOP compensation expense for the years ended December 31, 2021, 2020 and 2019 was $ 4.3 million, $ 2.4 million and $ 4.5 million, respectively. Non-Qualified Supplemental Defined Contribution Plan (“the Supplemental Employee Stock Ownership Plan”) Effective January 1, 2004, the Bank established a deferred compensation plan for executive management and key employees of the Bank, known as Provident Bank Non-Qualified Supplemental Employee Stock Ownership Plan (the “Supplemental ESOP”). The Supplemental ESOP was amended and restated as the Non-Qualified Supplemental Defined Contribution Plan (the “Supplemental DC Plan”), effective January 1, 2010. The Supplemental DC Plan is a non-qualified plan that provides additional benefits to certain executives whose benefits under the 401(k) Plan and ESOP are limited by tax law limitations applicable to tax-qualified plans. The Supplemental DC Plan requires a contribution by the Bank for each participant who also participates in the 401(k) Plan and ESOP equal to the amount that would have been contributed under the terms of the 401(k) Plan and ESOP but for the tax law limitations, less the amount actually contributed under the 401(k) Plan and ESOP. The Supplemental DC Plan provides for a phantom stock allocation for qualified contributions that may not be accrued in the qualified ESOP and for matching contributions that may not be accrued in the qualified 401(k) Plan due to tax law limitations. Under the Supplemental 401(k) provision, the estimated expense for the years ending December 31, 2021, 2020 and 2019 was $ 25,000 , $ 25,000 and $ 22,000 , respectively, and included the matching contributions plus interest credited at an annual rate equal to the ten-year bond-equivalent yield on U.S. Treasury securities. Under the Supplemental ESOP provision, the estimated expense for the years ending December 31, 2021, 2020 and 2019 was $ 180,000 , $ 180,000 and $ 140,000 , respectively. The phantom equity is treated as equity awards (expensed at the time of allocation) and not liability awards which would require periodic adjustment to market, as participants do not have an option to take their distribution in cash. 2019 Long-Term Equity Incentive Plan Upon stockholders’ approval of the 2019 Long-Term Equity Incentive Plan on April 25, 2019, shares available for stock awards and stock options under the Amended and Restated Long-Term Incentive Plan were reserved for issuance under the new 2019 Long-Term Equity Incentive Plan. No additional grants of stock awards and stock options will be made under the Amended and Restated Long-Term Incentive Plan. The new plan authorized the issuance of up to 1,350,000 shares of Company common stock to be issued as stock awards. Shares previously awarded under prior equity incentive plans that are subsequently forfeited or expire may also be issued under this new plan. Stock Awards As a general rule, restricted stock grants are held in escrow for the benefit of the award recipient until vested. Awards outstanding generally vest in three annual installments, commencing one year from the date of the award. Additionally, certain awards are three-year performance-vesting awards, which may or may not vest depending upon the attainment of certain 115 corporate financial targets. Expense attributable to stock awards amounted to $ 5.5 million, $ 5.4 million and $ 6.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. A summary status of the granted but unvested stock awards as of December 31, and changes during the year, is presented below: Restricted Stock Awards 2021 2020 2019 Outstanding at beginning of year 785,181 668,826 651,099 Granted 500,892 429,122 291,034 Forfeited ( 144,476 ) ( 59,938 ) ( 46,914 ) Vested ( 241,114 ) ( 252,829 ) ( 226,393 ) Outstanding at the end of year 900,483 785,181 668,826 As of December 31, 2021, unrecognized compensation cost relating to unvested restricted stock totaled $ 7.5 million. This amount will be recognized over a remaining weighted average period of 1.8 years. Stock Options Each stock option granted entitles the holder to purchase one share of the Company’s common stock at an exercise price not less than the fair value of a share of the Company’s common stock at the date of grant. Options generally vest over a five-year period from the date of grant and expire no later than 10 years following the grant date. Additionally, certain options are three-year performance-vesting options, which may or may not vest depending upon the attainment of certain corporate financial targets. A summary of the status of the granted but unexercised stock options as of December 31, 2021 2020 and 2019, and changes during the year is presented below: 2021 2020 2019 Number of stock options Weighted average exercise price Number of stock options Weighted average exercise price Number of stock options Weighted average exercise price Outstanding at beginning of year 596,441 $ 17.96 499,201 $ 19.32 470,979 $ 18.36 Granted 56,605 20.66 107,240 20.62 41,685 27.25 Exercised ( 86,593 ) 14.69 — — ( 13,463 ) 10.35 Forfeited — — ( 10,000 ) 14.68 — — Expired — — — — — — Outstanding at the end of year 566,453 $ 18.73 596,441 $ 17.96 499,201 $ 19.32 The total fair value of options vesting during 2021, 2020 and 2019 was $ 190,000 , $ 185,000 and $ 193,000 , respectively. Compensation expense of approximately $ 142,000 , $ 77,000 and $ 11,000 is projected for 2022, 2023 and 2024, respectively, on stock options outstanding at December 31, 2021. The following table summarizes information about stock options outstanding at December 31, 2021: Options Outstanding Options Exercisable Range of exercise prices Number of options outstanding Average remaining contractual life Weighted average exercise price Number of options exercisable Weighted average exercise price $ 15.23 - 18.70 274,942 2.7 $ 17.28 274,942 $ 17.28 $ 20.62 - 27.25 291,511 7.5 $ 23.15 149,518 $ 24.91 116 The stock options outstanding and stock options exercisable at December 31, 2021 have an aggregate intrinsic value of $ 2.0 million and $ 2.5 million, respectively. The expense related to stock options is based on the fair value of the options at the date of the grant and is recognized ratably over the vesting period of the options. Compensation expense related to the Company’s stock option plan totaled $ 200,000 , $ 190,000 and $ 181,000 for 2021, 2020 and 2019, respectively. The estimated fair values were determined on the dates of grant using the Black-Scholes Option pricing model. The fair value of the Company’ stock option awards are expensed on a straight-line basis over the vesting period of the stock option. The risk-free rate is based on the implied yield on a U.S. Treasury bond with a term approximating the expected term of the option. The expected volatility computation is based on historical volatility over a period approximating the expected term of the option. The dividend yield is based on the annual dividend payment per share, divided by the grant date stock price. The expected option term is a function of the option life and the vesting period. The fair value of the option grants was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: For the year ended December 31, 2021 2020 2019 Expected dividend yield 4.45 % 4.46 % 3.38 % Expected volatility 30.75 % 20.33 % 22.01 % Risk-free interest rate 0.73 % 0.75 % 2.53 % Expected option life 8 years 8 years 8 years The weighted average fair value of options granted during 2021, 2020 and 2019 was $ 3.52 , $ 1.83 and $ 4.57 per option, respectively. (14) Income Taxes The current and deferred amounts of income tax expense (benefit) for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands): Years ended December 31, 2021 2020 2019 Current: Federal $ 28,798 27,143 22,427 State 17,986 11,389 10,354 Total current 46,784 38,532 32,781 Deferred: Federal 10,548 ( 5,908 ) 1,650 State 1,865 ( 2,021 ) 24 Total deferred 12,413 ( 7,929 ) 1,674 $ 59,197 30,603 34,455 The Company recorded a deferred tax (benefit) expense of ($ 8.3 ) million, $ 5.2 million and $ 6.6 million during 2021, 2020 and 2019, respectively, related to the unrealized gains (losses) on available for sale debt securities, which is reported in accumulated other comprehensive income (loss), net of tax. Additionally, the Company recorded a deferred tax expense (benefit) of $ 1.4 million, $ 1.4 million and ($ 561,000 ) in 2021, 2020 and 2019, respectively, related to the amortization of post-retirement benefit obligations, which is reported in accumulated other comprehensive income (loss), net of tax. 117 A reconciliation between the amount of reported total income tax expense and the amount computed by multiplying the applicable statutory income tax rate is as follows (in thousands): Years ended December 31, 2021 2020 2019 Tax expense at statutory rates $ 47,695 26,786 30,889 Increase (decrease) in taxes resulting from: State tax, net of federal income tax benefit 15,682 7,400 8,197 Tax-exempt interest income ( 2,690 ) ( 2,609 ) ( 3,082 ) Bank-owned life insurance ( 1,665 ) ( 1,363 ) ( 1,322 ) Other, net 175 389 ( 227 ) $ 59,197 30,603 34,455 118 The net deferred tax asset is included in other assets in the Consolidated Statements of Financial Condition. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020 are as follows (in thousands): 2021 2020 Deferred tax assets: Allowance for credit losses on loans $ 21,640 26,156 Allowance for credit loss on off-balance sheet ("OBS") credit exposure 1,763 1,295 Post-retirement benefit 6,908 6,924 Deferred compensation 743 839 Contingent consideration — 714 Purchase accounting adjustments 1,145 3,099 Depreciation 425 331 SERP 1,013 733 ESOP 1,145 1,377 Stock-based compensation 4,753 4,481 Payroll Protection Program fees 411 2,268 Non-accrual interest 232 225 Federal Net Operating Loss ("NOL") 239 280 Unrealized loss on securities 501 — Net unrealized loss on hedging activities — 1,717 Pension liability adjustments — 376 Lease liability 13,464 10,838 Other 1,196 693 Total gross deferred tax assets 55,578 62,346 Deferred tax liabilities: Pension expense 8,158 7,340 Contingent consideration 56 — Deferred loan costs 7,104 4,532 Investment securities, principally due to accretion of discounts 94 79 Intangibles 2,121 1,723 Originated mortgage servicing rights 184 160 Unrealized gain on available for sale debt securities — 7,802 Pension liability adjustments 1,036 — Net unrealized gain on hedging activities 788 — Lease right-of-use asset 13,082 10,606 Total gross deferred tax liabilities 32,623 32,242 Net deferred tax asset $ 22,955 30,104 Retained earnings at December 31, 2021 includes approximately $ 51.8 million for which no provision for income tax has been made. This amount represents an allocation of income to bad debt deductions for tax purposes only. Events that would result in taxation of these reserves include the failure to qualify as a bank for tax purposes, distributions in complete or partial liquidation, stock redemptions and excess distributions to stockholders. At December 31, 2021, the Company had an unrecognized tax liability of $ 13.4 million with respect to this reserve. As a result of the Beacon acquisition in 2011, the Company acquired federal net operating loss carryforwards. There are approximately $ 1.1 million of NOL carryforwards available to offset future taxable income as of December 31, 2021. If not 119 utilized, these carryforwards will expire in 2031. The federal NOLs are subject to a combined annual Code Section 382 limitation in the amount of approximately $ 197,000 . Management has determined that it is more likely than not that it will realize the net deferred tax asset based upon the nature and timing of the items listed above. In order to fully realize the net deferred tax asset, the Company will need to generate future taxable income. Management has projected that the Company will generate sufficient taxable income to utilize the net deferred tax asset; however, there can be no assurance that such levels of taxable income will be generated. The Company’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company did not have any liabilities for uncertain tax positions or any known unrecognized tax benefits at December 31, 2021 and 2020. The Company and its subsidiaries file a consolidated U.S. Federal income tax return. For tax periods prior to December 31, 2018, New Jersey tax law does not and has not allowed for a taxpayer to file a tax return on a combined or consolidated basis with another member of the affiliated group where there is common ownership . As a result of this enacted legislation that New Jersey effectuated on July 1, 2018, beginning in 2019, the Company and its subsidiaries is required to file a combined New Jersey state income tax return on apportioned and allocated income. Also, the Company and its subsidiaries file a combined New York State income tax return on apportioned and allocated income. The Company, through its bank subsidiary, files a Pennsylvania Mutual Thrift Institution Tax return. The Company's Federal and Pennsylvania Mutual Thrift Institutions tax returns are open for examination from 2018. The Company's 2017 and 2018 New York State returns are currently under audit and tax years after 2018 are still subject to examination for New York State. The Company's 2015 through 2018 New Jersey State returns are currently under audit and tax years after 2018 are still subject to examination for New Jersey. (15) Commitments, Contingencies and Concentrations of Credit Risk In the normal course of business, various commitments and contingent liabilities are outstanding which are not reflected in the accompanying consolidated financial statements. In the opinion of management, the consolidated financial position of the Company will not be materially affected by the outcome of such commitments or contingent liabilities. The Company is involved in various legal actions and claims arising in the normal course of its business. In the opinion of management, these legal actions and claims are not expected to have a material adverse impact on the Company’s financial condition or results of operations. A substantial portion of the Bank’s loans are to borrowers operating in or, are secured by real estate located in New Jersey, our primary market area. Accordingly, the collectability of a substantial portion of the Bank’s loan portfolio may be susceptible to changes in local real estate market conditions and the regional business environment. (16) Regulatory Capital Requirements FDIC regulations require banks to maintain minimum levels of regulatory capital. Under the regulations in effect at December 31, 2021, the Bank is required to maintain: (1) a Tier 1 capital to total assets leverage ratio of 4.0 %; (2) a common equity Tier 1 capital to risk-based assets ratio of 4.5 %; (3) a Tier 1 capital to risk-based assets ratio of 6.0 %; and (4) a total capital to risk-based assets ratio of 8.0 %. In addition to establishing the minimum regulatory capital requirements, the 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. Under its prompt corrective action regulations, the FDIC is required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on an institution’s financial statements. The regulations establish a framework for the classification of savings institutions into five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Generally, an institution is considered well capitalized if it has: a leverage (Tier 1) capital ratio of at least 5.00 %; a common equity Tier 1 risk-based capital ratio of 6.50 %; a Tier 1 risk-based capital ratio of at least 8.00 %; and a total risk-based capital ratio of at least 10.00 %. 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 120 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. The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the FDIC about capital components, risk weightings and other factors. As of December 31, 2021 and 2020, the Bank exceeded all minimum capital adequacy requirements to which it is subject. Further, the most recent FDIC notification categorized the Bank as a well-capitalized institution under the prompt corrective action regulations. There have been no conditions or events since that notification that management believes have changed the Bank’s capital classification. The Company is regulated as a bank holding company, and as such, is subject to examination, regulation and periodic reporting under the Bank Holding Company Act, as administered by the Federal Reserve Board (“FRB”). The FRB has adopted capital adequacy guidelines for bank holding companies on a consolidated basis substantially similar to those of the FDIC for the Bank. As of December 31, 2021 and 2020, the Company was “well capitalized” under FRB guidelines. Regulations of the FRB provide that a bank holding company must serve as a source of strength to any of its subsidiary banks and must not conduct its activities in an unsafe or unsound manner. Under the prompt corrective action provisions discussed above, a bank holding company parent of an undercapitalized subsidiary bank would be directed to guarantee, within limitations, the capital restoration plan that is required of such an undercapitalized bank. If the undercapitalized bank fails to file an acceptable capital restoration plan or fails to implement an accepted plan, the FRB may prohibit the bank holding company parent of the undercapitalized bank from paying any dividend or making any other form of capital distribution without the prior approval of the FRB. The following table shows the Company’s actual capital amounts and ratios as of December 31, 2021 and 2020, compared to the FRB minimum capital adequacy requirements and the FRB requirements for classification as a well-capitalized institution (dollars in thousands). Actual capital FRB minimum capital adequacy requirements FRB minimum capital adequacy requirements with capital conservation buffer To be well-capitalized under prompt corrective action provisions Amount Ratio Amount Ratio Amount Ratio Amount Ratio As of December 31, 2021 Tier 1 leverage capital $ 1,252,925 9.45 % $ 530,602 4.00 % $ 530,602 4.00 % $ 663,252 5.00 % Common equity Tier 1 risk-based capital 1,240,038 11.47 486,382 4.50 756,595 7.00 702,552 6.50 Tier 1 risk-based capital 1,252,925 11.59 648,510 6.00 918,722 8.50 864,680 8.00 Total risk-based capital 1,324,032 12.25 864,680 8.00 1,134,892 10.50 1,080,850 10.00 Actual capital FRB minimum capital adequacy requirements FRB minimum capital adequacy requirements with capital conservation buffer To be well-capitalized under prompt corrective action provisions Amount Ratio Amount Ratio Amount Ratio Amount Ratio As of December 31, 2020 Tier 1 leverage capital $ 1,157,505 9.30 % $ 497,794 4.00 % $ 497,794 4.00 % $ 622,243 5.00 % Common equity Tier 1 risk-based capital 1,144,618 10.46 492,359 4.50 765,892 7.00 711,185 6.50 Tier 1 risk-based capital 1,157,505 10.58 656,478 6.00 930,011 8.50 875,305 8.00 Total risk-based capital 1,306,494 11.94 875,305 8.00 1,148,837 10.50 1,094,131 10.00 121 The following table shows the Bank’s actual capital amounts and ratios as of December 31, 2021 and 2020, compared to the FDIC minimum capital adequacy requirements and the FDIC requirements for classification as a well-capitalized institution (dollars in thousands). Actual capital FDIC minimum capital adequacy requirements FDIC minimum capital adequacy requirements with capital conservation buffer To be well-capitalized under prompt corrective action provisions Amount Ratio Amount Ratio Amount Ratio Amount Ratio As of December 31, 2021 Tier 1 leverage capital $ 1,174,495 8.86 % $ 530,275 4.00 % $ 530,275 4.00 % $ 662,844 5.00 % Common equity Tier 1 risk-based capital 1,174,495 10.87 486,122 4.50 756,190 7.00 702,177 6.50 Tier 1 risk-based capital 1,174,495 10.87 648,163 6.00 918,231 8.50 864,217 8.00 Total risk-based capital 1,245,602 11.53 864,217 8.00 1,134,285 10.50 1,080,272 10.00 Actual capital FDIC minimum capital adequacy requirements FRB minimum capital adequacy requirements with capital conservation buffer To be well-capitalized under prompt corrective action provisions Amount Ratio Amount Ratio Amount Ratio Amount Ratio As of December 31, 2020 Tier 1 leverage capital $ 1,086,589 8.75 % $ 496,908 4.00 % $ 496,908 4.00 % $ 621,135 5.00 % Common equity Tier 1 risk-based capital 1,086,589 9.96 491,135 4.50 763,988 7.00 709,417 6.50 Tier 1 risk-based capital 1,086,589 9.96 654,847 6.00 927,700 8.50 873,129 8.00 Total risk-based capital 1,223,469 11.21 873,129 8.00 1,145,982 10.50 1,091,411 10.00 122 Note 17. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures On January 1, 2020, the Company adopted CECL, which replaced the incurred loss methodology with an expected loss methodology. This new methodology applies to off-balance sheet credit exposures, including loan commitments and lines of credit. The adoption of this new standard resulted in the Company recording a $ 3.2 million increase to the allowance for credit losses on off-balance sheet credit exposures with a corresponding cumulative effect adjustment to decrease retained earnings $ 2.4 million, net of income taxes. Management analyzes the Company's exposure to credit losses for both on-balance sheet and off-balance sheet activity using a consistent methodology for the quantitative framework as well as the qualitative framework. For purposes of estimating the allowance for credit losses for off-balance sheet credit exposures, the exposure at default includes an estimated drawdown of unused credit based on historical credit utilization factors and current loss factors, resulting in a proportionate amount of expected credit losses. The following table illustrates the impact of the January 1, 2020 adoption of CECL on OBS credit exposures (dollars in thousands): January 1, 2020 As reported under CECL Prior to CECL Impact of CECL adoption Liabilities Allowance for credit losses on off-balance sheet credit exposure $ 3,206 — 3,206 For the years ended December 31, 2021 and 2020, the provision for credit losses for off-balance sheet credit exposures totaled $ 1.5 million and $ 1.8 million. The allowance for credit losses for OBS credit exposures was $ 6.5 million and $ 5.0 million at December 31, 2021 and 2020, respectively, and included in other liabilities on the Consolidated Statements of Financial Condition. 123 (18) Fair Value Measurements The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. Where quoted market values in an active market are not readily available, the Company utilizes various valuation techniques to estimate fair value. Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. However, in many instances fair value estimates may not be substantiated by comparison to independent markets and may not be realized in an immediate sale of the financial instrument. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of fair value hierarchy are as follows: Level 1: Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The valuation techniques are based upon the unpaid principal balance only, and exclude any accrued interest or dividends at the measurement date. Interest income and expense and dividend income are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium. Assets Measured at Fair Value on a Recurring Basis The valuation techniques described below were used to measure fair value of financial instruments in the table below on a recurring basis as of December 31, 2021 and December 31, 2020. Available for Sale Debt Securities, at Fair Value For available for sale debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third-party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As Management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, Management compares the prices received from the pricing service to a secondary pricing source. Additionally, Management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in an adjustment in the prices obtained from the pricing service. Equity Securities, at Fair Value The Company holds equity securities that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs. 124 Derivatives The Company records all derivatives on the statements of financial condition at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company has interest rate derivatives resulting from a service provided to certain qualified borrowers in a loan related transaction which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. As such, all changes in fair value of the Company’s derivatives are recognized directly in earnings. The Company also uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges, and which satisfy hedge accounting requirements, involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. These derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits. The change in the fair value of these derivatives is recorded in accumulated other comprehensive income, and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The fair value of the Company's derivatives is determined using discounted cash flow analysis using observable market-based inputs, which are considered Level 2 inputs. Assets Measured at Fair Value on a Non-Recurring Basis The valuation techniques described below were used to estimate fair value of financial instruments measured on a non-recurring basis as of December 31, 2021 and 2020. Collateral Dependent Impaired Loans For loans measured for impairment based on the fair value of the underlying collateral, fair value was estimated using a market approach. The Company measures the fair value of collateral underlying impaired loans primarily through obtaining independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case-by-case basis, to comparable assets based on the appraisers’ market knowledge and experience, as well as adjustments for estimated costs to sell between 5 % and 10 %. Management classifies these loans as Level 3 within the fair value hierarchy. Foreclosed Assets Assets acquired through foreclosure or deed in lieu of foreclosure are carried at fair value, less estimated selling costs, which range between 5 % and 10 %. Fair value is generally based on independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case basis, to comparable assets based on the appraisers’ market knowledge and experience, and are classified as Level 3. When an asset is acquired, the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for credit losses. A reserve for foreclosed assets may be established to provide for possible write-downs and selling costs that occur subsequent to foreclosure. Foreclosed assets are carried net of the related reserve. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned, are recorded as incurred. There were no changes to the valuation techniques for fair value measurements during the years ended December 31, 2021 and 2020. The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair value as of December 31, 2021 and 2020, by level within the fair value hierarchy (in thousands). 125 Fair Value Measurements at Reporting Date Using: December 31, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Measured on a recurring basis: Available for sale debt securities: U.S. Treasury obligations $ 196,329 $ 196,329 — — Mortgage-backed securities 1,708,831 — 1,708,831 — Asset-backed securities 46,797 46,797 State and municipal obligations 69,707 — 69,707 — Corporate obligations 36,187 — 36,187 — Total available for sale debt securities $ 2,057,851 196,329 1,861,522 — Equity Securities 1,325 1,325 — — Derivative assets 65,903 — 65,903 $ 2,125,079 197,654 1,927,425 — Derivative liabilities $ 61,412 — 61,412 — Measured on a non-recurring basis: Loans measured for impairment based on the fair value of the underlying collateral $ 18,237 — — 18,237 Foreclosed assets 8,731 — — 8,731 $ 26,968 — — 26,968 Fair Value Measurements at Reporting Date Using: December 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Measured on a recurring basis: Available for sale debt securities: Agency obligations $ 1,009 1,009 — — Mortgage-backed securities 938,413 — 938,413 — Asset-backed securities 53,830 53,830 State and municipal obligations 71,258 — 71,258 — Corporate obligations 40,979 — 40,979 — Total available for sale debt securities $ 1,105,489 1,009 1,104,480 — Equity Securities 971 971 — — Derivative assets 101,079 — 101,079 — $ 1,207,539 1,980 1,205,559 — Derivative liabilities $ 109,148 — 109,148 — Measured on a non-recurring basis: Loans measured for impairment based on the fair value of the underlying collateral $ 26,250 — — 26,250 Foreclosed assets 4,475 — — 4,475 $ 30,725 — — 30,725 There were no transfers between Level 1, Level 2 and Level 3 during the years ended December 31, 2021 and 2020. 126 Other Fair Value Disclosures The Company is required to disclose estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. The following is a description of valuation methodologies used for those assets and liabilities. Cash and Cash Equivalents For cash and due from banks, federal funds sold and short-term investments, the carrying amount approximates fair value. Included in cash and cash equivalents at December 31, 2021 and December 31, 2020 was $ 27.3 million and $ 114.3 million, respectively, representing cash collateral pledged to secure loan level swaps and reserves required by banking regulations. Held to Maturity Debt Securities, Net of Allowance for Credit Losses For held to maturity debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. Management evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, management compares the prices received from the pricing service to a secondary pricing source. Additionally, management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in adjustment in the prices obtained from the pricing service. The Company also holds debt instruments issued by the U.S. government and U.S. government agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 within the fair value hierarchy. FHLBNY Stock The carrying value of FHLBNY stock is its cost. The fair value of FHLBNY stock is based on redemption at par value. The Company classifies the estimated fair value as Level 1 within the fair value hierarchy. Loans Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial mortgage, residential mortgage, commercial, construction and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and into performing and non-performing categories. The fair value of performing loans was estimated using a combination of techniques, including a discounted cash flow model that utilizes a discount rate that reflects the Company’s current pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date (i.e. exit pricing). The rates take into account the expected yield curve, as well as an adjustment for prepayment risk, when applicable. The Company classifies the estimated fair value of its loan portfolio as Level 3. The fair value for significant non-performing loans was based on recent external appraisals of collateral securing such loans, adjusted for the timing of anticipated cash flows. The Company classifies the estimated fair value of its non-performing loan portfolio as Level 3. Deposits The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits and savings deposits, was equal to the amount payable on demand and classified as Level 1. The estimated fair value of certificates of deposit was based on the discounted value of contractual cash flows. The discount rate was estimated using the Company’s current rates offered for deposits with similar remaining maturities. The Company classifies the estimated fair value of its certificates of deposit portfolio as Level 2. 127 Borrowed Funds The fair value of borrowed funds was estimated by discounting future cash flows using rates available for debt with similar terms and maturities and is classified by the Company as Level 2 within the fair value hierarchy. Commitments to Extend Credit and Letters of Credit The fair value of commitments to extend credit and letters of credit was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The Company classifies these commitments as Level 3 within the fair value hierarchy. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include goodwill and other intangibles, deferred tax assets and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The following tables present the Company’s financial instruments at their carrying and fair values as of December 31, 2021 and December 31, 2020. Fair values are presented by level within the fair value hierarchy. 128 Fair Value Measurements at December 31, 2021 Using: (Dollars in thousands) Carrying value Fair value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets: Cash and cash equivalents $ 712,463 712,463 712,463 — — Available for sale debt securities: U.S. Treasury obligations 196,329 196,329 196,329 — — Mortgage-backed securities 1,708,831 1,708,831 — 1,708,831 — Asset-backed securities 46,797 46,797 — 46,797 — State and municipal obligations 69,707 69,707 — 69,707 — Corporate obligations 36,187 36,187 — 36,187 — Total available for sale debt securities $ 2,057,851 2,057,851 196,329 1,861,522 — Held to maturity debt securities, net of allowance for credit losses: Agency obligations $ 9,996 9,821 9,821 — — Mortgage-backed securities 21 21 — 21 — State and municipal obligations 415,699 429,552 — 429,552 — Corporate obligations 10,434 10,315 — 10,315 — Total held to maturity debt securities, net of allowance for credit losses $ 436,150 449,709 9,821 439,888 — FHLBNY stock 34,290 34,290 34,290 — — Equity Securities 1,325 1,325 1,325 — — Loans, net of allowance for credit losses 9,500,884 9,607,225 — — 9,607,225 Derivative assets 65,903 65,903 — 65,903 — Financial liabilities: Deposits other than certificates of deposits $ 10,541,497 10,541,497 10,541,497 — — Certificates of deposit 692,515 694,041 — 694,041 — Total deposits $ 11,234,012 11,235,538 10,541,497 694,041 — Borrowings 626,774 625,636 — 625,636 — Subordinated Debentures 10,283 9,750 — 9,750 — Derivative liabilities 61,412 61,412 — 61,412 — 129 Fair Value Measurements at December 31, 2020 Using: (Dollars in thousands) Carrying value Fair value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets: Cash and cash equivalents $ 532,353 532,353 532,353 — — Available for sale debt securities: Agency obligations 1,009 1,009 1,009 — — Mortgage-backed securities 938,413 938,413 — 938,413 — Asset-backed securities 53,830 53,830 — 53,830 — State and municipal obligations 71,258 71,258 — 71,258 — Corporate obligations 40,979 40,979 — 40,979 — Total available for sale debt securities $ 1,105,489 1,105,489 1,009 1,104,480 — Held to maturity debt securities: Agency obligations $ 7,600 7,601 7,601 — — Mortgage-backed securities 62 64 — 64 — State and municipal obligations 433,589 455,039 — 455,039 — Corporate obligations 9,714 9,825 — 9,825 — Total held to maturity debt securities, net of allowance for credit losses $ 450,965 472,529 7,601 464,928 — FHLBNY stock 59,489 59,489 59,489 — — Equity Securities 971 971 971 — — Loans, net of allowance for credit losses 9,721,424 9,969,330 — — 9,969,330 Derivative assets 101,079 101,079 — 101,079 — Financial liabilities: Deposits other than certificates of deposits $ 8,743,655 8,743,655 8,743,655 — — Certificates of deposit 1,094,174 1,097,993 — 1,097,993 — Total deposits $ 9,837,829 9,841,648 8,743,655 1,097,993 — Borrowings 1,175,972 1,193,024 — 1,193,024 — Subordinated Debentures 25,135 24,375 — 24,375 — Derivative liabilities 109,148 109,148 — 109,148 — 130 (19) Earnings Per Share The following is a reconciliation of the outstanding shares used in the basic and diluted earnings per share calculations. For the Year Ended December 31, 2021 2020 2019 (In thousands, except per share data) Net income $ 167,921 96,951 112,633 Basic weighted average common shares outstanding 76,471,933 69,548,499 64,604,224 Plus: Dilutive shares 88,907 77,459 130,367 Diluted weighted average common shares outstanding 76,560,840 69,625,958 64,734,591 Earnings per share: Basic $ 2.20 1.39 1.74 Diluted $ 2.19 1.39 1.74 Anti-dilutive stock options and awards totaling 769,458 shares, 999,718 shares and 646,457 shares at December 31, 2021, 2020 and 2019, respectively, were excluded from the earnings per share calculations. 131 (20) Parent-only Financial Information The condensed financial statements of Provident Financial Services, Inc. (parent company only) are presented below: Condensed Statements of Financial Condition (Dollars in Thousands) December 31, 2021 December 31, 2020 Assets Cash and due from banks $ 12,498 10,634 Available for sale debt securities, at fair value 1,138 971 Investment in subsidiary 1,631,554 1,561,769 Due from subsidiary—SAP 38,286 42,347 ESOP loan 19,615 25,555 Other assets 4,643 4,023 Total assets $ 1,707,734 1,645,299 Liabilities and Stockholders’ Equity Other liabilities 355 367 Subordinated Debentures 10,283 25,135 Total stockholders’ equity 1,697,096 1,619,797 Total liabilities and stockholders’ equity $ 1,707,734 1,645,299 Condensed Statements of Operations (Dollars in Thousands) For the Years Ended December 31, 2021 2020 2019 Dividends from subsidiary $ 71,478 65,823 72,809 Interest income 1,022 1,245 1,470 Investment gain 167 147 162 Total income 72,667 67,215 74,441 Subordinated debentures 1,189 512 — Non-interest expense 1,292 1,196 1,192 Total expense 2,481 1,708 1,192 Income before income tax expense 70,186 65,507 73,249 Income tax expense — — 127 Income before undistributed net income of subsidiary 70,186 65,507 73,122 Earnings in excess of dividends (equity in undistributed net income) of subsidiary 97,735 31,444 39,511 Net income $ 167,921 96,951 112,633 132 Condensed Statements of Cash Flows (Dollars in Thousands) For the Years Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net income $ 167,921 96,951 112,633 Adjustments to reconcile net income to net cash provided by operating activities Earnings in excess of dividends (equity in undistributed net income) of subsidiary ( 97,735 ) ( 31,444 ) ( 39,511 ) ESOP allocation 4,318 2,401 4,533 SAP allocation 5,451 5,330 6,671 Stock option allocation 200 189 181 Increase in due to subsidiary—SAP ( 4,061 ) 54,088 3,745 Decrease (increase) in other assets 27,106 ( 138,256 ) 21,285 (Decrease) increase in other liabilities ( 12 ) ( 4,493 ) ( 734 ) Net cash provided by (used in) operating activities 103,188 ( 15,234 ) 108,803 Cash flows from investing activities: Cash received, net of cash consideration paid for acquisition — 78,089 — Net decrease in ESOP loan 5,939 5,558 5,643 Net cash provided by investing activities 5,939 83,647 5,643 Cash flows from financing activities: Purchases of treasury stock ( 20,711 ) ( 21,161 ) ( 19,867 ) Purchase of employee restricted shares to fund statutory tax withholding ( 961 ) ( 969 ) ( 1,985 ) Cash dividends paid ( 71,478 ) ( 65,823 ) ( 72,809 ) Repayment of subordinated debentures ( 15,000 ) — — Shares issued dividend reinvestment plan — 451 2,230 Stock options exercised 887 — 139 Net cash used in financing activities ( 107,263 ) ( 87,502 ) ( 92,292 ) Net increase (decrease) in cash and cash equivalents 1,864 ( 19,089 ) 22,154 Cash and cash equivalents at beginning of period 10,634 29,723 7,569 Cash and cash equivalents at end of period $ 12,498 10,634 29,723 133 (21) Other Comprehensive Income (Loss) The following table presents the components of other comprehensive income (loss) both gross and net of tax, for the years ended December 31, 2021, 2020 and 2019 (in thousands): For the Years Ended December 31, 2021 2020 2019 Before Tax Tax Effect After Tax Before Tax Tax Effect After Tax Before Tax Tax Effect After Tax Components of Other Comprehensive Income ( Loss): Unrealized losses on available for sale debt securities: Net (losses) gains arising during the period $ ( 31,972 ) 8,242 ( 23,730 ) 20,134 ( 5,190 ) 14,944 24,987 ( 6,636 ) 18,351 Reclassification adjustment for gains included in net income ( 230 ) 59 ( 171 ) — — — — — — Total ( 32,202 ) 8,301 ( 23,901 ) 20,134 ( 5,190 ) 14,944 24,987 ( 6,636 ) 18,351 Unrealized gains (losses) on derivatives (cash flow hedges) 12,189 ( 3,142 ) 9,047 ( 7,099 ) 1,830 ( 5,269 ) ( 780 ) 201 ( 579 ) Amortization related to post-retirement obligations 5,474 ( 1,412 ) 4,062 5,604 ( 1,445 ) 4,159 ( 2,176 ) 561 ( 1,615 ) Total other comprehensive (loss) income $ ( 14,539 ) 3,747 ( 10,792 ) 18,639 ( 4,805 ) 13,834 22,031 ( 5,874 ) 16,157 The following table presents the changes in the components of accumulated other comprehensive loss, net of tax, for the years ended December 31, 2021 and 2020 (in thousands): Changes in Accumulated Other Comprehensive Income by Component, net of tax For the Years Ended December 31, 2021 2020 Unrealized (Losses) Gains on Available for Sale Debt Securities Post-Retirement Obligations Unrealized Gains (Losses) on Derivatives (cash flow hedges) Accumulated Other Comprehensive Income (Loss) Unrealized Gains on Available for Sale Debt Securities Post-Retirement Obligations Unrealized Gains (Losses) on Derivatives (cash flow hedges) Accumulated Other Comprehensive Income Balance at the beginning of the period $ 23,690 ( 1,081 ) ( 4,954 ) 17,655 8,746 ( 5,240 ) 315 3,821 Current period change in other comprehensive (loss) income ( 23,901 ) 4,062 9,047 ( 10,792 ) 14,944 4,159 ( 5,269 ) 13,834 Balance at the end of the period $ ( 211 ) 2,981 4,093 6,863 23,690 ( 1,081 ) ( 4,954 ) 17,655 134 The following table summarizes the reclassifications out of accumulated other comprehensive (loss) income for the years ended December 31, 2021, 2020 and 2019 (in thousands): Reclassifications Out of Accumulated Other Comprehensive Income (Loss) Amount reclassified from AOCI for the years ended December 31, Affected line item in the Consolidated Statement of Income 2021 2020 2019 Details of AOCI: Available for sale debt securities: Realized net gains on the sale of securities available for sale $ ( 230 ) — — Net gain on securities transactions 59 — — Income tax expense ( 171 ) — — Net of tax Cash flow hedges: Unrealized losses (gains) on derivatives 3,878 1,741 ( 624 ) Interest expense ( 1,000 ) ( 449 ) 161 Income tax expense 2,878 1,292 ( 463 ) Post-retirement obligations: Amortization of actuarial (gains) losses ( 598 ) 448 190 Compensation and employee benefits (1) 154 ( 115 ) ( 50 ) Income tax expense ( 444 ) 333 140 Net of tax Total reclassifications $ 2,263 1625 ( 323 ) Net of tax (1) This item is included in the computation of net periodic benefit cost. See Note 13. Benefit Plans 135 (22) Derivative and Hedging Activities The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through the management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. Non-designated Hedges. Derivatives not designated in qualifying hedging relationships are not speculative and result from a service the Company provides to certain qualified commercial borrowers in loan related transactions which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company executes interest rate swaps with qualified commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. The interest rate swap agreement which the Company executes with the commercial borrower is collateralized by the borrower's commercial real estate financed by the Company. As the Company has not elected to apply hedge accounting and these interest rate swaps do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. At December 31, 2021 and 2020, the Company had 166 and 172 interest rate swaps with an aggregate notional amount of $ 2.42 billion and $ 2.63 billion, respectively. The Company periodically enters into risk participation agreements ("RPAs"), with the Company functioning as either the lead institution, or as a participant when another company is the lead institution on a commercial loan. These RPAs are entered into to manage the credit exposure on interest rate contracts associated with these loan participation agreements. Under the RPAs, the Company will either receive or make a payment in the event the borrower defaults on the related interest rate contract. The Company has minimum collateral posting thresholds with certain of its risk participation counterparties, and has posted collateral of $ 650,000 against the potential risk of default by the borrower under these agreements. At December 31, 2021 and 2020, the Company had 13 credit derivatives, respectively, with aggregate notional amounts of $ 144.8 million and $ 121.7 million, respectively, from participations in interest rate swaps as part of these loan participation arrangements. At December 31, 2021 and December 31, 2020, the fair value of these credit derivatives were $ 108,800 and $ 97,000 , respectively. Cash Flow Hedges of Interest Rate Risk. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable payment amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Changes in the fair value of derivatives designated and that qualify as cash flow hedges of interest rate risk are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2021, 2020 and 2019, such derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings and brokered demand deposits. During the next twelve months, the Company estimates that $ 1.3 million will be reclassified as an increase to interest expense. As of December 31, 2021, the Company had 14 outstanding interest rate derivatives with an aggregate notional amount of $ 600.0 million that was designated as a cash flow hedge of interest rate risk. Assets and liabilities relating to certain financial instruments, including derivatives, may be eligible for offset in the Consolidated Statements of Condition and/or subject to enforceable master netting arrangements or similar agreements. The Company does not offset asset and liabilities under such arrangements in the Consolidated Statements of Condition. The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments that are eligible for offset in the Consolidated Statements of Condition at December 31, 2021 and December 31, 2020 (in thousands). 136 Fair Values of Derivative Instruments as of December 31, 2021 Asset Derivatives Liability Derivatives Notional Amount Consolidated Statements of Financial Condition Fair value (2) Notional Amount Consolidated Statements of Financial Condition Fair value (2) Derivatives not designated as a hedging instrument: Interest rate products $ 1,188,703 Other assets $ 59,110 $ 1,188,703 Other liabilities $ 60,163 Credit contracts 33,683 Other assets 76 97,213 Other liabilities 46 Total derivatives not designated as a hedging instrument 59,186 60,209 Derivatives designated as a hedging instrument: Interest rate products 250,000 Other assets 7,278 350,000 Other liabilities 2,263 Total gross derivative amounts recognized on the balance sheet 66,464 62,472 Gross amounts offset on the balance sheet — — Net derivative amounts presented on the balance sheet $ 66,464 $ 62,472 Gross amounts not offset on the balance sheet: Financial instruments - institutional counterparties $ 18,618 $ 18,618 Cash collateral - institutional counterparties (1) — 26,566 Net derivatives not offset $ 47,846 $ 17,288 137 Fair Values of Derivative Instruments as of December 31, 2020 Asset Derivatives Liability Derivatives Notional Amount Consolidated Statements of Financial Condition Fair value (2) Notional Amount Consolidated Statements of Financial Condition Fair value (2) Derivatives not designated as a hedging instrument: Interest rate products $ 1,316,163 Other assets $ 108,519 $ 1,316,163 Other liabilities $ 109,957 Credit contracts 47,745 Other assets 97 73,954 Other liabilities 58 Total derivatives not designated as a hedging instrument 108,616 110,015 Derivatives designated as a hedging instrument: Interest rate products 175,000 Other assets 498 425,000 Other liabilities 7,582 Total gross derivative amounts recognized on the balance sheet 109,114 117,597 Gross amounts offset on the balance sheet — — Net derivative amounts presented on the balance sheet $ 109,114 $ 117,597 Gross amounts not offset on the balance sheet: Financial instruments - institutional counterparties $ 928 $ 928 Cash collateral - institutional counterparties (1) — 113,620 Net derivatives not offset $ 108,186 $ 3,049 (1) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess cash collateral, if any, is not reflected above. (2) The fair values related to interest rate products in the above net derivative tables show the total value of assets and liabilities, which include accrued interest receivable and accrued interest payable for the periods ended December 31, 2021 and December 31, 2020. 138 The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 (in thousands). Gain (loss) recognized in Income on derivatives For the Year Ended December 31, Consolidated Statements of Income 2021 2020 2019 Derivatives not designated as a hedging instruments: Interest rate products Other income $ 384 ( 950 ) ( 64 ) Credit contracts Other income 29 30 ( 53 ) Total derivatives not designated as hedging instruments $ 413 ( 920 ) ( 117 ) Derivatives designated as a hedging instruments: Loss (gain) recognized in Expense on derivatives Interest rate products Interest expense $ 3,878 1,741 ( 624 ) Total derivatives designated as a hedging instruments $ 3,878 1,741 ( 624 ) The Company has agreements with certain of its dealer counterparties which contain a provision that if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be deemed in default on its derivative obligations. In addition, the Company has agreements with certain of its dealer counterparties which contain a provision that if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. As of December 31, 2021, the Company had four dealer counterparties. The Company had a net liability position with respect to three of the counterparties. The termination value for this net liability position, which includes accrued interest, was $ 26.0 million at December 31, 2021. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $ 26.7 million against its obligations under these agreements. If the Company had breached any of these provisions at December 31, 2021, it could have been required to settle its obligations under the agreements at the termination value 139 (23) Revenue Recognition The Company generates revenue from several business channels. The guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) does not apply to revenue associated with financial instruments, including interest income on loans and investments, which comprise the majority of the Company's revenue. For the years ended December 31, 2021, 2020 and 2019 the out-of-scope revenue related to financial instruments were 82 %, 83 % and 85 % of the Company's total revenue, respectively. Revenue-generating activities that are within the scope of Topic 606, are components of non-interest income. These revenue streams can generally be classified into wealth management revenue, insurance agency income and banking service charges and other fees. The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended December 31, 2021, 2020 and 2019: December 31, (in-thousands) 2021 2020 2019 Non-interest income In-scope of Topic 606: Wealth management fees $ 30,756 25,733 22,503 Insurance agency income 10,216 3,513 — Banking service charges and other fees: Service charges on deposit accounts 10,921 10,312 13,117 Debit card and ATM fees 5,665 5,974 5,734 Total banking service charges and other fees 16,586 16,286 18,851 Total in-scope non-interest income 57,558 45,532 41,354 Total out-of-scope non-interest income 29,251 26,899 22,440 Total non-interest income $ 86,809 72,431 63,794 Wealth management fee income represents fees earned from customers as consideration for asset management, investment advisory and trust services. The Company’s performance obligation is generally satisfied monthly and the resulting fees are recognized monthly. The fee is generally based upon the average market value of the assets under management ("AUM") for the month and the applicable fee rate. The monthly accrual of wealth management fees is recorded in other assets on the Company's Consolidated Statements of Financial Condition. Fees are received from the customer on a monthly basis. The Company does not earn performance-based incentives. To a lesser extent, optional services such as tax return preparation and estate settlement are also available to existing customers. The Company’s performance obligation for these transaction-based services are generally satisfied, and related revenue recognized, at either a point in time when the service is completed, or in the case of estate settlement, over a relatively short period of time, as each service component is completed. Insurance agency income, consisting of commissions and fees, is generally recognized as of the effective date of the insurance policy. Commission revenues related to installment billings are recognized on the invoice date. Subsequent commission adjustments are recognized upon the receipt of notification from insurance companies concerning matters necessitating such adjustments. Profit-sharing contingent commissions are recognized when determinable, which is generally when such commissions are received from insurance companies, or when the Company receives formal notification of the amount of such payments. Service charges on deposit accounts include overdraft service fees, account analysis fees and other deposit related fees. These fees are generally transaction-based, or time-based services. The Company's performance obligation for these services are generally satisfied, and revenue recognized, at the time the transaction is completed, or the service rendered. Fees for these services are generally received from the customer either at the time of transaction, or monthly. Debit card and ATM fees are generally transaction-based. Debit card revenue is primarily comprised of interchange fees earned when a customer's Company card is processed through a card payment network. ATM fees are largely generated when a Company cardholder uses a non-Company ATM, or a non-Company cardholder uses a Company ATM. The Company's performance obligation for these services is satisfied when the service is rendered. Payment is generally received at time of transaction or monthly. 140 Out-of-scope non-interest income primarily consists of Bank-owned life insurance and net fees on loan level interest rate swaps, along with gains and losses on the sale of loans and foreclosed real estate, loan prepayment fees and loan servicing fees. None of these revenue streams are subject to the requirements of Topic 606. 141 (24) Leases On January 1, 2019, the Company adopted ASU 2016-02, "Leases" (Topic 842) and all subsequent ASU's that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. The Company elected the modified retrospective transition option effective with the period of adoption, elected not to recast comparative periods presented when transitioning to the new leasing standard and adjustments, if required, are made at the beginning of the period through a cumulative-effect adjustment to opening retained earnings. The Company also elected practical expedients, which allowed the Company to forego a reassessment of: (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; and (3) the initial direct costs for any existing leases. The adoption of the new standard resulted in the Company recording a right-of-use asset and an operating lease liability of $ 44.9 million and $ 46.1 million, respectively, based on the present value of the expected remaining lease payments at January 1, 2019. Also, on January 1, 2019, the Company had $ 5.9 million of net deferred gains associated with several sale and leaseback transactions executed prior to the adoption of ASU 2016-02. In accordance with the guidance, these net deferred gains were adjusted, net of tax, as a cumulative-effect adjustment to opening retained earnings. All of the leases in which the Company is the lessee are classified as operating leases and are primarily comprised of real estate property for branches and administrative offices with terms extending through 2040. The following table represents the consolidated statements of financial condition classification of the Company’s right-of use-assets and lease liabilities at December 31, 2021 (in thousands): Classification December 31, 2021 Lease Right-of-Use Assets: Operating lease right-of-use assets Other assets $ 48,808 Lease Liabilities: Operating lease liabilities Other liabilities $ 50,236 The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. Generally, the Company considers the first renewal option to be reasonably certain and includes it in the calculation of the right-of use asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception based upon the term of the lease. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was applied. At December 31, 2021, the weighted-average remaining lease term and the weighted-average discount rate for the Company's operating leases were 8.9 years and 2.77 %, respectively. The following table represents lease costs and other lease information for the Company's operating leases. The variable lease cost primarily represents variable payments such as common area maintenance and utilities (in thousands): Year ended December 31, 2021 Year ended December 31, 2020 Lease Costs Operating lease cost $ 10,074 9,012 Variable lease cost 2,899 2,756 Total Lease Cost $ 12,973 11,768 142 Cash paid for amounts included in the measurement of lease liabilities (in thousands): Year ended December 31, 2021 Year ended December 31, 2020 Operating cash flows from operating leases $ 9,255 8,863 For the year ended December 31, 2021, the Company added one new lease obligation related to the Company's new operations office located in Woodbridge, New Jersey. The Company recorded a $ 10.0 million right-of-use asset and lease liability for this lease obligation. Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2021 were as follows (in thousands): Operating Leases Years ended: 2022 $ 7,657 2023 7,414 2024 7,039 2025 6,481 2026 5,247 Thereafter 23,400 Total future minimum lease payments 57,238 Amounts representing interest 7,002 Present value of net future minimum lease payments $ 50,236 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.