PROVIDENT FINANCIAL SERVICES INC 10-Q

Item 1. FINANCIAL STATEMENTS. PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition September 30, 2022 (Unaudited) and December 31, 2021 (Dollars in Thousands) September 30, 2022 December 31, 2021 ASSETS Cash and due from banks $ 183,929 $ 506,270 Short-term investments 939 206,193 Total cash and cash equivalents 184,868 712,463 Available for sale debt securities, at fair value 1,829,309 2,057,851 Held to maturity debt securities, net (fair value of $ 368,668 at September 30, 2022 (unaudited) and $ 449,709 at December 31, 2021) 393,069 436,150 Equity securities, at fair value 1,059 1,325 Federal Home Loan Bank stock 55,717 34,290 Loans 10,046,529 9,581,624 Less allowance for credit losses 88,633 80,740 Net loans 9,957,896 9,500,884 Foreclosed assets, net 2,053 8,731 Banking premises and equipment, net 80,770 80,559 Accrued interest receivable 45,120 41,990 Intangible assets 461,673 464,183 Bank-owned life insurance 237,590 236,630 Other assets 354,722 206,146 Total assets $ 13,603,846 $ 13,781,202 LIABILITIES AND STOCKHOLDERS’ EQUITY Deposits: Demand deposits $ 8,503,639 $ 9,080,956 Savings deposits 1,501,857 1,460,541 Certificates of deposit of $100,000 or more 410,003 368,277 Other time deposits 270,106 324,238 Total deposits 10,685,605 11,234,012 Mortgage escrow deposits 39,623 34,440 Borrowed funds 1,063,602 626,774 Subordinated debentures 10,442 10,283 Other liabilities 253,589 178,597 Total liabilities 12,052,861 12,084,106 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 75,162,357 shares outstanding at September 30, 2022 and 76,969,999 outstanding at December 31, 2021 832 832 Additional paid-in capital 978,363 969,815 Retained earnings 886,332 814,533 Accumulated other comprehensive (loss) income ( 174,487 ) 6,863 Treasury stock ( 127,145 ) ( 79,603 ) Unallocated common stock held by the Employee Stock Ownership Plan ( 12,910 ) ( 15,344 ) Common stock acquired by deferred compensation plans ( 3,537 ) ( 3,984 ) Deferred compensation plans 3,537 3,984 Total stockholders’ equity 1,550,985 1,697,096 Total liabilities and stockholders’ equity $ 13,603,846 $ 13,781,202 See accompanying notes to unaudited consolidated financial statements. 3 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Income Three and nine months ended September 30, 2022 and 2021 (Unaudited) (Dollars in Thousands, except per share data) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Interest income: Real estate secured loans $ 80,273 $ 62,470 $ 213,181 $ 187,363 Commercial loans 25,201 24,454 70,385 75,770 Consumer loans 3,785 3,345 10,268 10,249 Available for sale debt securities, equity securities and Federal Home Loan Bank stock 9,560 5,877 25,966 17,211 Held to maturity debt securities 2,416 2,638 7,501 8,122 Deposits, Federal funds sold and other short-term investments 496 810 1,705 1,954 Total interest income 121,731 99,594 329,006 300,669 Interest expense: Deposits 9,560 6,295 20,322 20,495 Borrowed funds 2,518 1,768 4,790 7,130 Subordinated debt 164 303 403 912 Total interest expense 12,242 8,366 25,515 28,537 Net interest income 109,489 91,228 303,491 272,132 Provision charge (benefit) for credit losses 8,413 969 5,004 ( 24,736 ) Net interest income after provision for credit losses 101,076 90,259 298,487 296,868 Non-interest income: Fees 7,203 6,963 21,516 22,623 Wealth management income 6,785 7,921 21,274 22,914 Insurance agency income 2,865 2,433 9,135 8,009 Bank-owned life insurance 1,237 1,880 3,978 5,970 Net (losses) gains on securities transactions ( 3 ) 27 154 257 Other income (1) 10,358 4,138 13,466 6,383 Total non-interest income 28,445 23,362 69,523 66,156 Non-interest expense: Compensation and employee benefits 38,079 37,554 112,582 107,737 Net occupancy expense 8,452 7,950 26,262 25,158 Data processing expense 5,599 4,827 16,575 14,629 FDIC insurance 1,400 1,575 3,955 4,915 Amortization of intangibles 779 883 2,511 2,773 Advertising and promotion expense 1,366 783 3,692 2,586 Credit loss (benefit) expense for off-balance sheet credit exposures 1,575 980 ( 1,788 ) 2,155 Other operating expenses 12,193 8,888 31,384 28,036 Total non-interest expense 69,443 63,440 195,173 187,989 Income before income tax expense 60,078 50,181 172,837 175,035 Income tax expense 16,657 12,913 46,224 44,417 Net income $ 43,421 $ 37,268 $ 126,613 $ 130,618 Basic earnings per share $ 0.58 $ 0.49 $ 1.69 $ 1.71 Weighted average basic shares outstanding 74,297,237 76,604,653 74,808,358 76,588,549 Diluted earnings per share $ 0.58 $ 0.49 $ 1.69 $ 1.70 Weighted average diluted shares outstanding 74,393,380 76,685,206 74,896,493 76,673,563 (1) Included in other income, for the three and nine months ended September 30, 2022, is an $ 8.6 million gain realized on the sale of a foreclosed commercial office property. See accompanying notes to unaudited consolidated financial statements. 4 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Comprehensive Income Three and nine months ended September 30, 2022 and 2021 (Unaudited) (Dollars in Thousands) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Net income $ 43,421 $ 37,268 $ 126,613 $ 130,618 Other comprehensive income, net of tax: Unrealized gains and losses on available for sale debt securities: Net unrealized losses arising during the period ( 67,293 ) ( 7,990 ) ( 197,997 ) ( 14,569 ) Reclassification adjustment for gains included in net income — — ( 42 ) ( 171 ) Total ( 67,293 ) ( 7,990 ) ( 198,039 ) ( 14,740 ) Unrealized gains on derivatives 4,841 1,768 17,437 5,165 Amortization related to post-retirement obligations ( 236 ) ( 103 ) ( 748 ) ( 323 ) Total other comprehensive loss ( 62,688 ) ( 6,325 ) ( 181,350 ) ( 9,898 ) Total comprehensive (loss) income $ ( 19,267 ) $ 30,943 $ ( 54,737 ) $ 120,720 See accompanying notes to unaudited consolidated financial statements. 5 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Changes in Stockholders’ Equity For the three and nine months ended September 30, 2021 (Unaudited) (Dollars in Thousands) For the three months ended September 30, 2021 COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) TREASURYSTOCK UNALLOCATED ESOP SHARES COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS DEFERRED COMPENSATION PLANS TOTAL STOCKHOLDERS’ EQUITY Balance at June 30, 2021 $ 832 $ 965,470 $ 775,235 $ 14,082 $ ( 59,307 ) $ ( 18,678 ) $ ( 4,213 ) $ 4,213 $ 1,677,634 Net income — — 37,268 — — — — — 37,268 Other comprehensive loss, net of tax — — — ( 6,325 ) — — — — ( 6,325 ) Cash dividends paid — — ( 17,790 ) — — — — — ( 17,790 ) Distributions from deferred comp plans — 38 — — — — 89 ( 89 ) 38 Purchases of treasury stock — — — — ( 13,865 ) — — — ( 13,865 ) Allocation of ESOP shares — 225 — — — 769 — — 994 Allocation of Stock Award Plan ("SAP") shares — 1,421 — — — — — — 1,421 Allocation of stock options — 49 — — — — — — 49 Balance at September 30, 2021 $ 832 $ 967,203 $ 794,713 $ 7,757 $ ( 73,172 ) $ ( 17,909 ) $ ( 4,124 ) $ 4,124 $ 1,679,424 For the nine months ended September 30, 2021 COMMONSTOCK ADDITIONAL PAID-IN CAPITAL RETAINEDEARNINGS ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) TREASURYSTOCK UNALLOCATED ESOP SHARES COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS DEFERRED COMPENSATION PLANS TOTAL STOCKHOLDERS’ EQUITY Balance at December 31, 2020 $ 832 $ 962,453 $ 718,090 $ 17,655 $ ( 59,018 ) $ ( 20,215 ) $ ( 4,549 ) $ 4,549 $ 1,619,797 Net income — — 130,618 — — — — — 130,618 Other comprehensive loss, net of tax — — — ( 9,898 ) — — — — ( 9,898 ) Cash dividends paid — — ( 53,995 ) — — — — — ( 53,995 ) Distributions from deferred comp plans — 107 — — — — 425 ( 425 ) 107 Purchases of treasury stock — — — — ( 13,913 ) — — — ( 13,913 ) Purchase of employee restricted shares to fund statutory tax withholding — — — — ( 961 ) — — — ( 961 ) Stock option exercises — ( 82 ) — — 720 — — — 638 Allocation of ESOP shares — 687 — — — 2,306 — — 2,993 Allocation of SAP shares — 3,887 — — — — — — 3,887 Allocation of stock options — 151 — — — — — — 151 Balance at September 30, 2021 $ 832 $ 967,203 $ 794,713 $ 7,757 $ ( 73,172 ) $ ( 17,909 ) $ ( 4,124 ) $ 4,124 $ 1,679,424 See accompanying notes to unaudited consolidated financial statements. 6 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Changes in Stockholders’ Equity For the three and nine months ended September 30, 2022 (Unaudited) (Dollars in Thousands) For the three months ended September 30, 2022 COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS ACCUMULATED OTHER COMPREHENSIVE (LOSS) TREASURY STOCK UNALLOCATED ESOP SHARES COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS DEFERRED COMPENSATION PLANS TOTAL STOCKHOLDERS’ EQUITY Balance at June 30, 2022 832 976,067 860,977 ( 111,799 ) ( 127,091 ) ( 13,721 ) ( 3,705 ) 3,705 1,585,265 Net income — — 43,421 — — — — — 43,421 Other comprehensive loss, net of tax — — — ( 62,688 ) — — — — ( 62,688 ) Cash dividends paid — — ( 18,066 ) — — — — — ( 18,066 ) Distributions from deferred comp plans — 47 — — — — 168 ( 168 ) 47 Purchases of treasury stock — — — — — — — — — Purchase of employee restricted shares to fund statutory tax withholding — — — — ( 54 ) — — — ( 54 ) Stock option exercises — — — — — — — — — Allocation of ESOP shares — 296 — — — 811 — — 1,107 Allocation of SAP shares — 1,904 — — — — — — 1,904 Allocation of stock options — 49 — — — — — — 49 Balance at September 30, 2022 $ 832 $ 978,363 $ 886,332 $ ( 174,487 ) $ ( 127,145 ) $ ( 12,910 ) $ ( 3,537 ) $ 3,537 $ 1,550,985 For the nine months ended September 30, 2022 COMMONSTOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) TREASURY STOCK UNALLOCATED ESOP SHARES COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS DEFERRED COMPENSATION PLANS TOTAL STOCKHOLDERS’ EQUITY Balance at December 31, 2021 $ 832 $ 969,815 $ 814,533 $ 6,863 $ ( 79,603 ) $ ( 15,344 ) $ ( 3,984 ) $ 3,984 $ 1,697,096 Net income — — 126,613 — — — — — 126,613 Other comprehensive loss, net of tax — — — ( 181,350 ) — — — — ( 181,350 ) Cash dividends paid — — ( 54,814 ) — — — — — ( 54,814 ) Distributions from deferred comp plans — 133 — — — — 447 ( 447 ) 133 Purchases of treasury stock — — — — ( 46,529 ) — — — ( 46,529 ) Purchase of employee restricted shares to fund statutory tax withholding — — — — ( 1,013 ) — — — ( 1,013 ) Stock option exercises — — — — — — — — — Allocation of ESOP shares — 878 — — — 2,434 — — 3,312 Allocation of SAP shares — 7,389 — — — — — — 7,389 Allocation of stock options — 148 — — — — — — 148 Balance at September 30, 2022 $ 832 $ 978,363 $ 886,332 $ ( 174,487 ) $ ( 127,145 ) $ ( 12,910 ) $ ( 3,537 ) $ 3,537 $ 1,550,985 See accompanying notes to unaudited consolidated financial statements. 7 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Nine months ended September 30, 2022 and 2021 (Unaudited) (Dollars in Thousands) Nine months ended September 30, 2022 2021 Cash flows from operating activities: Net income $ 126,613 $ 130,618 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangibles 9,845 9,531 Provision charge (benefit) for credit losses on loans and securities 5,004 ( 24,736 ) Credit loss (benefit) charge for off-balance sheet credit exposure ( 1,788 ) 2,155 Deferred tax (benefit) expense ( 222 ) 5,323 Amortization of operating lease right-of-use assets 8,006 7,559 Income on Bank-owned life insurance ( 3,978 ) ( 5,970 ) Net amortization of premiums and discounts on securities 10,465 11,032 Accretion of net deferred loan fees ( 7,095 ) ( 5,019 ) Amortization of premiums on purchased loans, net 234 536 Originations of loans held for sale ( 18,467 ) ( 25,016 ) Proceeds from sales of loans originated for sale 16,978 26,056 ESOP expense 3,312 2,993 Allocation of stock award expense 7,389 3,887 Allocation of stock option expense 148 151 Net gain on sale of loans ( 1,306 ) ( 1,040 ) Net gain on securities transactions ( 154 ) ( 257 ) Net gain on sale of premises and equipment ( 22 ) ( 35 ) Net gain on sale of foreclosed assets ( 8,590 ) ( 528 ) (Increase) decrease in accrued interest receivable ( 3,130 ) 5,584 (Increase) decrease in other assets ( 60,364 ) 10,596 Increase (decrease) in other liabilities 74,992 ( 31,000 ) Net cash provided by operating activities 157,870 122,420 Cash flows from investing activities: Proceeds from sales and paydowns of foreclosed assets 16,188 1,368 Proceeds from maturities, calls and paydowns of held to maturity debt securities 62,597 44,054 Purchases of held to maturity debt securities ( 20,665 ) ( 21,417 ) Proceeds from sales of available for sale debt securities — 9,442 Proceeds from maturities, calls and paydowns of available for sale debt securities 227,975 288,699 Purchases of available for sale debt securities ( 279,395 ) ( 1,140,182 ) Proceeds from redemption of Federal Home Loan Bank stock 89,244 29,197 Purchases of Federal Home Loan Bank stock ( 110,671 ) ( 3,752 ) BOLI claim benefits received — 3,851 Purchases of loans ( 4,326 ) ( 2,060 ) Net (increase) decrease in loans ( 449,803 ) 274,399 Proceeds from sales of premises and equipment 22 35 Purchases of premises and equipment ( 7,879 ) ( 8,348 ) Net cash used in investing activities ( 476,713 ) ( 524,714 ) Cash flows from financing activities: Net (decrease) increase in deposits ( 548,407 ) 998,792 Increase in mortgage escrow deposits 5,183 3,266 8 Nine months ended September 30, 2022 2021 Cash dividends paid to stockholders ( 54,814 ) ( 53,995 ) Purchase of treasury stock ( 46,529 ) ( 13,913 ) Purchase of employee restricted shares to fund statutory tax withholding ( 1,013 ) ( 961 ) Stock options exercised — 638 Proceeds from long-term borrowings 2,274,000 727,985 Payments on long-term borrowings ( 1,826,556 ) ( 1,275,440 ) Net decrease in short-term borrowings ( 10,616 ) ( 11,142 ) Net cash (used in) provided by financing activities ( 208,752 ) 375,230 Net decrease in cash and cash equivalents ( 527,595 ) ( 27,064 ) Cash and cash equivalents at beginning of period 685,163 418,083 Restricted cash at beginning of period 27,300 114,270 Total cash, cash equivalents and restricted cash at beginning of period 712,463 532,353 Cash and cash equivalents at end of period 183,068 457,744 Restricted cash at end of period 1,800 47,545 Total cash, cash equivalents and restricted cash at end of period $ 184,868 $ 505,289 Cash paid during the period for: Interest on deposits and borrowings $ 26,130 $ 28,266 Income taxes $ 25,650 $ 41,165 Non-cash investing activities: Transfer of loans receivable to foreclosed assets $ 1,120 $ 434 Acquisitions: Non-cash assets acquired at fair value: Goodwill and other intangible assets $ — $ 1,422 Other assets — ( 1,422 ) Total non-cash assets acquired at fair value $ — $ — See accompanying notes to unaudited consolidated financial statements. 9 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies A. Basis of Financial Statement Presentation The accompanying unaudited consolidated financial statements include the accounts of Provident Financial Services, Inc. and its wholly owned subsidiary, Provident Bank (the “Bank,” together with Provident Financial Services, Inc., the “Company”). In preparing the interim unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and the consolidated statements of income for the periods presented. Actual results could differ from these estimates. The allowance for credit losses and the valuation of deferred tax assets are material estimates that are particularly susceptible to near-term change. The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results of operations that may be expected for all of 2022. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Additionally, certain comparative balances on the interim unaudited consolidated financial statements have been reclassified to conform to the current year’s presentation. These unaudited consolidated financial statements should be read in conjunction with the December 31, 2021 Annual Report to Stockholders on Form 10-K. B. Earnings Per Share The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations for the three and nine months ended September 30, 2022 and 2021 (dollars in thousands, except per share amounts): Three months ended September 30, 2022 2021 Net Income Weighted Average Common Shares Outstanding Per Share Amount Net Income Weighted Average Common Shares Outstanding Per Share Amount Net income $ 43,421 $ 37,268 Basic earnings per share: Income available to common stockholders $ 43,421 74,297,237 $ 0.58 $ 37,268 76,604,653 $ 0.49 Dilutive shares 96,143 80,553 Diluted earnings per share: Income available to common stockholders $ 43,421 74,393,380 $ 0.58 $ 37,268 76,685,206 $ 0.49 10 Nine months ended September 30, 2022 2021 Net Income Weighted Average Common Shares Outstanding Per Share Amount Net Income Weighted Average Common Shares Outstanding Per Share Amount Net income $ 126,613 $ 130,618 Basic earnings per share: Income available to common stockholders $ 126,613 74,808,358 $ 1.69 $ 130,618 76,588,549 $ 1.71 Dilutive shares 88,135 85,014 Diluted earnings per share: Income available to common stockholders $ 126,613 74,896,493 $ 1.69 $ 130,618 76,673,563 $ 1.70 Anti-dilutive stock options and awards at September 30, 2022 and 2021, totaling 921,834 shares and 830,628 shares, respectively, were excluded from the earnings per share calculations. C. Loans Receivable and Allowance for Credit Losses The impact of utilizing the current expected credit loss ("CECL") methodology approach to calculate the allowance for credit losses on loans is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings. The increase in the provision expense for the three months ended September 30, 2022 was largely a function of the weakening economic forecast, combined with an increase in total loans outstanding. The decrease in the period-over-period provision benefit for the nine months ended September 30, 2022 was largely a function of growth in the loan portfolio, the relative change in the economic outlook and the significant favorable impact of the post-pandemic recovery in the prior year period. See Note 4 to the Consolidated Financial Statements for more information on the allowance for credit losses on loans. D. Goodwill Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired through business combinations. In accordance with GAAP, goodwill with an indefinite useful life is not amortized, but is evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates. Goodwill is analyzed for impairment once a year. As permitted by GAAP, the Company prepares a qualitative assessment in determining whether goodwill may be impaired. The factors considered in the assessment include macroeconomic conditions, industry and market conditions and overall financial performance of the Company, among others. The Company completed its annual goodwill impairment test as of July 1, 2022, and it is not more likely than not that the fair value of Provident Financial Services, Inc., the reporting unit, is below its carrying amount. Note 2. Business Combinations Lakeland Bancorp, Inc. - Merger Agreement On September 26, 2022, the Company entered into a definitive merger agreement pursuant to which it will merge (the “merger”) with Lakeland Bancorp, Inc. ("Lakeland"), and Lakeland Bank, a wholly owned subsidiary of Lakeland, will merge with and into Provident Bank, a wholly owned subsidiary of the Company. The merger agreement has been unanimously approved by the boards of directors of both companies. The actual value of the Company’s common stock to be recorded as consideration in the merger will be based on the closing price of Company’s common stock at the time of the merger completion date. Under the merger agreement, each share of Lakeland common stock will be exchanged for 0.8319 shares of the Company's common stock plus cash in lieu of fractional shares. The merger is expected to close in the second quarter of 2023, subject to satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by the shareholders of both companies. 11 Note 3. Investment Securities At September 30, 2022, the Company had $ 1.83 billion and $ 393.1 million in available for sale debt securities and held to maturity debt securities, respectively. Many factors, including lack of liquidity in the secondary market for certain securities, variations in pricing information, changes in interest rates, regulatory actions, changes in the business environment or any changes in the competitive marketplace could have an adverse effect on the Company’s investment portfolio. The total number of available for sale and held to maturity debt securities in an unrealized loss position at September 30, 2022 totaled 1,053 , compared with 166 at December 31, 2021. The increase in the number of securities in an unrealized loss position at September 30, 2022 was due to higher current market interest rates compared to rates at December 31, 2021. Management measures expected credit losses on held to maturity debt securities on a collective basis by security type. Management classifies the held to maturity debt securities portfolio into the following security types: • Agency obligations; • Mortgage-backed securities; • State and municipal obligations; and • Corporate obligations. All of the agency obligations held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The majority of the state and municipal and corporate obligations carry no lower than A ratings from the rating agencies at September 30, 2022 and the Company had one security rated BBB by Moody’s Investors Service. The Company adopted CECL using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of CECL. Available for Sale Debt Securities The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for available for sale debt securities at September 30, 2022 and December 31, 2021 (in thousands): September 30, 2022 Amortized cost Gross unrealized gains Gross unrealized losses Fair value U.S. Treasury obligations $ 275,372 — ( 31,983 ) 243,389 Mortgage-backed securities 1,675,759 25 ( 222,476 ) 1,453,308 Asset-backed securities 39,495 508 ( 259 ) 39,744 State and municipal obligations 67,955 — ( 12,561 ) 55,394 Corporate obligations 41,562 59 ( 4,147 ) 37,474 $ 2,100,143 592 ( 271,426 ) 1,829,309 December 31, 2021 Amortized cost Gross unrealized gains Gross unrealized losses Fair value U.S. Treasury obligations $ 196,897 298 ( 866 ) 196,329 Mortgage-backed 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 The amortized cost and fair value of available for sale debt securities at September 30, 2022, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer. 12 September 30, 2022 Amortized cost Fair value Due in one year or less $ 1,000 999 Due after one year through five years 175,445 157,244 Due after five years through ten years 144,884 126,701 Due after ten years 63,560 51,313 $ 384,889 336,257 Investments which pay principal on a periodic basis totaling $ 1.72 billion at amortized cost and $ 1.49 billion at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments. There were no sales of securities from the available for sale debt securities portfolio for the three months ended September 30, 2022 and 2021. For the nine months ended September 30, 2022, proceeds from calls on securities in the available for sale debt securities portfolio totaled $ 5.4 million with gains of $ 58,000 and no losses recognized. For the nine months ended September 30, 2021, proceeds from sales of securities in the available for sale debt securities portfolio totaled $ 9.4 million, with gains of $ 230,000 and no losses recognized. The number of available for sale debt securities in an unrealized loss position at September 30, 2022 totaled 468 , compared with 113 at December 31, 2021. The increase in the number of securities in an unrealized loss position at September 30, 2022 was due to higher current market interest rates compared to rates at December 31, 2021. At September 30, 2022, there were two unrated private label mortgage-backed securities in an unrealized loss position, with an amortized cost of $ 1.1 million and an unrealized loss of $ 38,000 . Additionally, there were four private-label mortgage-backed securities in an unrealized loss position, with an amortized cost of $ 36.3 million and an unrealized loss of $ 2.4 million. At September 30, 2022, these private-label securities were all rated AAA. Held to Maturity Debt Securities The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for held to maturity debt securities at September 30, 2022 and December 31, 2021 (in thousands): September 30, 2022 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Agency obligations $ 9,997 — ( 1,092 ) 8,905 Mortgage-backed securities 2 — — 2 State and municipal obligations 372,293 101 ( 22,662 ) 349,732 Corporate obligations 10,820 — ( 791 ) 10,029 $ 393,112 101 ( 24,545 ) 368,668 At September 30, 2022, the allowance for credit losses on held to maturity debt securities totaled $ 43,000 . December 31, 2021 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Agency obligations $ 9,996 — ( 175 ) 9,821 Mortgage-backed 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. 13 The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair value may fluctuate during the investment period. There were no sales of securities from the held to maturity debt securities portfolio for the three and nine months ended September 30, 2022 and 2021. For the three and nine months ended September 30, 2022, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $ 10.3 million and $ 36.4 million, respectively. As to these calls on securities, for the three months ended September 30, 2022, there were no gross gains and gross losses totaled $ 3,000 , while for the nine months ended September 30, 2022, gross gains totaled $ 96,000 , with no gross losses. For the three and nine months ended September 30, 2021, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $ 21.1 million and $ 34.0 million, respectively. As to these calls on securities, for the three and nine months ended September 30, 2021, there were gross gains of $ 26,505 and no gross losses. The amortized cost and fair value of investment securities in the held to maturity debt securities portfolio at September 30, 2022 by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer. September 30, 2022 Amortized cost Fair value Due in one year or less $ 16,160 16,105 Due after one year through five years 150,084 145,429 Due after five years through ten years 184,073 172,779 Due after ten years 42,793 34,353 $ 393,110 368,666 Mortgage-backed securities totaling $ 2,000 for both amortized cost and fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments. Additionally, the allowance for credit losses totaling $ 43,000 is excluded from the table above. The number of held to maturity debt securities in an unrealized loss position at September 30, 2022 totaled 585 , compared with 53 at December 31, 2021. The increase in the number of securities in an unrealized loss position at September 30, 2022, was due to higher current market interest rates compared to rates at December 31, 2021. Credit Quality Indicators. The following table provides the amortized cost of held to maturity debt securities by credit rating at September 30, 2022 and December 31, 2021 (in thousands): September 30, 2022 Total Portfolio AAA AA A BBB Not Rated Total Agency obligations $ 9,997 — — — — 9,997 Mortgage-backed securities 2 — — — — 2 State and municipal obligations 49,176 179,741 141,315 770 1,291 372,293 Corporate obligations 532 3,110 7,178 — — 10,820 $ 59,707 182,851 148,493 770 1,291 393,112 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 Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. At September 30, 2022, the held to maturity debt securities portfolio was comprised of 15 % rated AAA, 47 % rated AA, 38 % rated A, and less than 1 % either below an A rating or not rated by Moody’s Investors Service or Standard and Poor’s. Securities not explicitly rated, such as U.S. Government mortgage-backed securities, were grouped where possible under the credit rating of the issuer of the security. 14 The allowance for credit losses on held to maturity debt securities at September 30, 2022 and December 31, 2021 were $ 43,000 and $ 39,000 , respectively. Note 4. Loans Receivable and Allowance for Credit Losses Loans receivable at September 30, 2022 and December 31, 2021 are summarized as follows (in thousands): September 30, 2022 December 31, 2021 Mortgage loans: Residential $ 1,169,368 1,202,638 Commercial 4,237,534 3,827,370 Multi-family 1,478,402 1,364,397 Construction 666,740 683,166 Total mortgage loans 7,552,044 7,077,571 Commercial loans 2,190,584 2,188,866 Consumer loans 316,547 327,442 Total gross loans 10,059,175 9,593,879 Premiums on purchased loans 1,376 1,451 Net deferred fees ( 14,022 ) ( 13,706 ) Total loans $ 10,046,529 9,581,624 The following tables summarize the aging of loans receivable by portfolio segment and class of loans (in thousands): September 30, 2022 30-59 Days 60-89 Days Non-accrual Recorded Investment > 90 days accruing Total Past Due Current Total Loans Receivable Non-accrual loans with no related allowance Mortgage loans: Residential $ 2,922 302 3,120 — 6,344 1,163,024 1,169,368 3,120 Commercial 848 — 35,352 — 36,200 4,201,334 4,237,534 17,055 Multi-family 798 — 1,583 — 2,381 1,476,021 1,478,402 1,583 Construction 1,058 — 1,878 — 2,936 663,804 666,740 1,878 Total mortgage loans 5,626 302 41,933 — 47,861 7,504,183 7,552,044 23,636 Commercial loans 2,101 1,135 17,181 — 20,417 2,170,167 2,190,584 13,000 Consumer loans 401 379 387 — 1,167 315,380 316,547 387 Total gross loans $ 8,128 1,816 59,501 — 69,445 9,989,730 10,059,175 37,023 December 31, 2021 30-59 Days 60-89 Days Non-accrual Recorded Investment > 90 days accruing Total Past Due Current Total Loans Receivable Non-accrual loans with no related allowance Mortgage loans: Residential $ 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 Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The principal amounts of these non-accrual loans were $ 59.5 million and $ 48.0 million at September 30, 2022 and December 31, 2021, respectively. Included in non-accrual loans were $ 39.3 million and $ 23.0 million 15 of loans which were less than 90 days past due at September 30, 2022 and December 31, 2021, respectively. There were no loans 90 days or greater past due and still accruing interest at September 30, 2022 and December 31, 2021. The Company defines an impaired loan as a non-homogeneous loan greater than $ 1.0 million, for which, based on current information, it is not expected to collect all amounts due under the contractual terms of the loan agreement. 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 September 30, 2022, there were 131 impaired loans totaling $ 65.7 million, of which 123 totaling $ 26.8 million were TDRs. Included in this total were 100 TDRs related to 97 borrowers totaling $ 17.2 million that were performing in accordance with their restructured terms and which continued to accrue interest at September 30, 2022. At December 31, 2021, there were 155 impaired loans totaling $ 52.3 million, of which 132 loans totaling $ 30.6 million were TDRs. Included in this total were 115 TDRs related to 111 borrowers totaling $ 21.9 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2021. At September 30, 2022 and December 31, 2021, the Company had $ 29.3 million and $ 18.2 million related to the fair value of underlying collateral-dependent impaired loans, respectively. These collateral-dependent impaired loans at September 30, 2022 consisted of $ 28.3 million in commercial loans, $ 895,000 in residential real estate loans, and $ 63,000 in consumer loans. The collateral for these impaired loans was primarily real estate. The activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2022 and 2021 was as follows (in thousands): Three months ended September 30, Mortgage loans Commercial loans Consumer loans Total 2022 Balance at beginning of period $ 55,064 21,387 2,566 79,017 Provision charge (benefit) to operations 4,991 3,381 28 8,400 Recoveries of loans previously charged-off 167 1,421 129 1,717 Loans charged-off — ( 410 ) ( 91 ) ( 501 ) Balance at end of period $ 60,222 25,779 2,632 88,633 2021 Balance at beginning of period $ 55,469 21,262 4,228 80,959 Provision charge (benefit) to operations 626 963 ( 589 ) 1,000 Recoveries of loans previously charged-off 71 336 140 547 Loans charged-off ( 2,110 ) ( 263 ) ( 100 ) ( 2,473 ) Balance at end of period $ 54,056 22,298 3,679 80,033 16 Nine months ended September 30, Mortgage loans Commercial loans Consumer loans Total 2022 Balance at beginning of period $ 52,104 26,343 2,293 80,740 Provision charge (benefit) to operations 8,589 ( 3,734 ) 145 5,000 Recoveries of loans previously charged-off 539 3,725 404 4,668 Loans charged-off ( 1,010 ) ( 555 ) ( 210 ) ( 1,775 ) Balance at end of period $ 60,222 25,779 2,632 88,633 2021 Balance at beginning of period $ 68,307 27,084 6,075 101,466 Provision benefit to operations ( 11,760 ) ( 10,319 ) ( 2,621 ) ( 24,700 ) Recoveries of loans previously charged-off 538 6,654 640 7,832 Loans charged-off ( 3,029 ) ( 1,121 ) ( 415 ) ( 4,565 ) Balance at end of period $ 54,056 22,298 3,679 80,033 For the three and nine months ended September 30, 2022, the Company recorded an $ 8.4 million and a $ 5.0 million provision for credit losses on loans, respectively. The increase in the provision was largely a function of the weakened economic forecast, combined with an increase in total loans outstanding. The increase in the period-over-period provision for credit losses was largely a function of the significant favorable impact of the post-pandemic recovery resulting in a large negative provision taken in the prior year period, the current weakened economic forecast and an increase in total loans outstanding. Loan modifications for borrowers experiencing financial difficulties that are considered TDRs primarily involve lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. These modifications generally do not result in the forgiveness of principal or accrued interest. In addition, management attempts to obtain additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible. The following tables present the number of loans modified as TDRs during the three and nine months ended September 30, 2022 and 2021, along with their balances immediately prior to the modification date and post-modification as of September 30, 2022 and 2021 (in thousands): For the three months ended September 30, 2022 September 30, 2021 Troubled Debt Restructurings Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Mortgage loans: Residential — $ — $ — 2 $ 375 $ 369 Total mortgage loans — — — 2 375 369 Consumer loans 1 108 88 — — Total restructured loans 1 $ 108 $ 88 2 $ 375 $ 369 17 For the nine months ended September 30, 2022 September 30, 2021 Troubled Debt Restructurings Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Mortgage loans: Residential 2 $ 265 $ 204 3 $ 546 $ 538 Multi-Family 1 1,618 1,583 — — — Total mortgage loans 3 1,883 1,787 3 546 538 Commercial loans 2 378 273 4 2,940 2,318 Consumer loans 1 108 88 — — — Total restructured loans 6 $ 2,369 $ 2,148 7 $ 3,486 $ 2,856 All TDRs are impaired loans, which are individually evaluated for impairment. During the nine months ended September 30, 2022, $ 921,000 of charge-offs were recorded on collateral-dependent impaired loans. During the three and nine months ended September 30, 2021, $ 2.1 million and $ 3.5 million of charge-offs were recorded on collateral-dependent impaired loans. For the three and nine months ended September 30, 2022, the TDRs presented in the preceding tables had a weighted average modified interest rate of 8.25 % and 4.42 %, respectively, compared to a weighted average rate of 6.75 % and 4.41 %, respectively, prior to modification. There was one loan totaling $ 209,000 which had a payment default (90 days or more past due) which was modified as a TDR within the 12 month period ending September 30, 2022. 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, loans acquired by the Company that experience more-than-insignificant deterioration in credit quality after origination, are classified as Purchased Credit Deteriorated ("PCD") loans. At September 30, 2022, the balance of PCD loans totaled $ 207.4 million with a related allowance for credit losses of $ 2.4 million. The balance of PCD loans at December 31, 2021 was $ 246.9 million with a related allowance for credit losses of $ 2.8 million. 18 The following table presents loans individually evaluated for impairment by class and loan category (in thousands): September 30, 2022 December 31, 2021 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 $ 10,047 7,755 — 8,134 281 12,326 9,814 — 9,999 423 Commercial 16,799 14,604 — 13,617 48 15,310 14,685 — 15,064 63 Multi-family 1,618 1,583 — 1,617 12 — — — — — Construction 1,101 1,101 — 1,101 — 1,656 1,588 — 1,643 30 Total 29,565 25,043 — 24,469 341 29,292 26,087 — 26,706 516 Commercial loans 8,338 8,113 — 8,355 18 9,845 7,254 — 7,714 33 Consumer loans 1,310 760 — 880 38 1,389 853 — 1,613 115 Total impaired loans $ 39,213 33,916 — 33,704 397 40,526 34,194 — 36,033 664 Loans with an allowance recorded Mortgage loans: Residential $ 7,155 6,843 743 6,926 197 7,994 7,652 858 7,742 278 Commercial 19,143 19,143 2,134 19,162 35 871 871 17 894 48 Multi-family — — — — — — — — — — Total 26,298 25,986 2,877 26,088 232 8,865 8,523 875 8,636 326 Commercial loans 6,163 5,452 1,275 8,651 87 9,498 9,166 3,358 8,304 257 Consumer loans 325 306 46 312 9 391 371 51 379 18 Total impaired loans $ 32,786 31,744 4,198 35,051 328 18,754 18,060 4,284 17,319 601 Total impaired loans Mortgage loans: Residential $ 17,202 14,598 743 15,060 478 20,320 17,466 858 17,741 701 Commercial 35,942 33,747 2,134 32,779 83 16,181 15,556 17 15,958 111 Multi-family 1,618 1,583 — 1,617 12 — — — — — Construction 1,101 1,101 — 1,101 — 1,656 1,588 — 1,643 30 Total 55,863 51,029 2,877 50,557 573 38,157 34,610 875 35,342 842 Commercial loans 14,501 13,565 1,275 17,006 105 19,343 16,420 3,358 16,018 290 Consumer loans 1,635 1,066 46 1,192 47 1,780 1,224 51 1,992 133 Total impaired loans $ 71,999 65,660 4,198 68,755 725 59,280 52,254 4,284 53,352 1,265 Specific allocations of the allowance for credit losses attributable to impaired loans totaled $ 4.2 million at September 30, 2022 and $ 4.3 million at December 31, 2021. At September 30, 2022 and December 31, 2021, impaired loans for which there was no related allowance for credit losses totaled $ 33.9 million and $ 34.2 million, respectively. The average balance of impaired loans for the nine months ended September 30, 2022 and the twelve months ended December 31, 2021 was $ 68.8 million and $ 53.4 million, respectively. Management utilizes an internal nine-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal risk. Loans that are deemed to be of “questionable quality” are rated 5 (watch) or 6 (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated 7, 8 or 9, respectively. Commercial mortgage, commercial, multi-family and construction loans are rated individually, and each lending officer is responsible for risk rating loans in their portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Department. The risk ratings are also reviewed periodically through loan review examinations which are currently performed 19 by an independent third-party. Reports by the independent third-party are presented to the Audit Committee of the Board of Directors. The Company participated in the Paycheck Protection Program (“PPP”) through the United States Department of the Treasury and Small Business Administration ("SBA"). The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan was made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. For both the initial round and second round of PPP, the Company had secured 2,067 PPP loans for its customers totaling $ 682.0 million. As of September 30, 2022, 2,052 PPP loans totaling $ 676.4 million were forgiven. At September 30, 2022, PPP loans totaled $ 5.6 million, and are included in the commercial loan portfolio. The following table summarizes the Company's gross loans held for investment by year of origination and internally assigned credit grades as of September 30, 2022 and December 31, 2021 (in thousands): Gross Loans Held by Investment by Year of Origination at September 30, 2022 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Revolving loans to term loans Total Loans Residential (1) Special mention $ — — — — — 302 — — 302 Substandard — — — — 271 5,403 — — 5,674 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — 271 5,705 — — 5,976 Pass/Watch 120,003 215,512 215,111 98,249 59,352 455,165 — — 1,163,392 Total residential $ 120,003 215,512 215,111 98,249 59,623 460,870 — — 1,169,368 Commercial Mortgage Special mention $ — — 827 28,404 47,425 14,639 — — 91,295 Substandard — — — — 25,552 18,782 720 — 45,054 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — 827 28,404 72,977 33,421 720 — 136,349 Pass/Watch 764,406 636,635 584,856 559,283 236,897 1,208,073 95,448 15,587 4,101,185 Total commercial mortgage $ 764,406 636,635 585,683 587,687 309,874 1,241,494 96,168 15,587 4,237,534 Multi-family Special mention $ — — — — — 1,654 — — 1,654 Substandard — — — — — 2,381 — — 2,381 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — — 4,035 — — 4,035 Pass/Watch 125,035 150,711 283,823 201,311 188,765 522,717 854 1,151 1,474,367 Total multi-family $ 125,035 150,711 283,823 201,311 188,765 526,752 854 1,151 1,478,402 Construction Special mention $ — — — — 19,466 905 — — 20,371 Substandard — — — 2,197 777 — — — 2,974 Doubtful — — — — — — — — — Loss — — — — — — — — — 20 Gross Loans Held by Investment by Year of Origination at September 30, 2022 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Revolving loans to term loans Total Loans Total criticized and classified — — — 2,197 20,243 905 — — 23,345 Pass/Watch 108,427 337,461 91,180 81,115 18,101 92 — 7,019 643,395 Total construction $ 108,427 337,461 91,180 83,312 38,344 997 — 7,019 666,740 Total Mortgage Special mention $ — — 827 28,404 66,891 17,500 — — 113,622 Substandard — — — 2,197 26,600 26,566 720 — 56,083 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — 827 30,601 93,491 44,066 720 — 169,705 Pass/Watch 1,117,871 1,340,319 1,174,970 939,958 503,115 2,186,047 96,302 23,757 7,382,339 Total Mortgage $ 1,117,871 1,340,319 1,175,797 970,559 596,606 2,230,113 97,022 23,757 7,552,044 Commercial Special mention $ — 7,697 374 220 13,712 5,596 5,117 217 32,933 Substandard — — 10,877 4,422 5,228 15,507 9,641 364 46,039 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — 7,697 11,251 4,642 18,940 21,103 14,758 581 78,972 Pass/Watch 286,447 321,957 177,100 167,784 109,828 542,716 472,645 33,135 2,111,612 Total commercial $ 286,447 329,654 188,351 172,426 128,768 563,819 487,403 33,716 2,190,584 Consumer (1) Special mention $ — — — — — 149 208 22 379 Substandard — — — — 111 188 5 — 304 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — 111 337 213 22 683 Pass/Watch 26,454 21,940 2,494 17,411 16,861 91,749 124,067 14,888 315,864 Total consumer $ 26,454 21,940 2,494 17,411 16,972 92,086 124,280 14,910 316,547 Total Loans Special mention $ — 7,697 1,201 28,624 80,603 23,245 5,325 239 146,934 Substandard — — 10,877 6,619 31,939 42,261 10,366 364 102,426 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — 7,697 12,078 35,243 112,542 65,506 15,691 603 249,360 Pass/Watch 1,430,772 1,684,216 1,354,564 1,125,153 629,804 2,820,512 693,014 71,780 9,809,815 21 Gross Loans Held by Investment by Year of Origination at September 30, 2022 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Revolving loans to term loans Total Loans Total gross loans $ 1,430,772 1,691,913 1,366,642 1,160,396 742,346 2,886,018 708,705 72,383 10,059,175 (1) For residential and consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan. Gross Loans Held by Investment by Year of Origination at December 31, 2021 2021 2020 2019 2018 2017 Prior to 2017 Revolving Loans Revolving loans to term loans Total Loans Residential (1) Special mention $ — — — — 697 434 — — 1,131 Substandard — — — 280 166 8,569 — — 9,015 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — 280 863 9,003 — — 10,146 Pass/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 — — — — — — — — — 22 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 — 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 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 68,043 9,508 2,249 182,349 Substandard — 1,175 5,535 42,881 13,267 110,191 14,427 1,821 189,297 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified 1,232 7,586 37,057 68,440 51,092 178,234 23,935 4,070 371,646 Pass/Watch 1,653,537 1,533,512 1,292,138 809,590 799,482 2,460,548 578,942 94,484 9,222,233 23 Gross Loans Held by Investment by Year of Origination at December 31, 2021 2021 2020 2019 2018 2017 Prior to 2017 Revolving Loans Revolving loans to term loans Total Loans Total gross loans $ 1,654,769 1,541,098 1,329,195 878,030 850,574 2,638,782 602,877 98,554 9,593,879 (1) For residential and consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan. Note 5. Deposits Deposits at September 30, 2022 and December 31, 2021 are summarized as follows (in thousands): September 30, 2022 December 31, 2021 Savings $ 1,501,857 1,460,541 Money market 2,395,591 2,592,523 NOW 3,425,921 3,722,198 Non-interest bearing 2,682,127 2,766,235 Certificates of deposit 680,109 692,515 Total deposits $ 10,685,605 11,234,012 Note 6. Borrowed Funds Borrowed funds at September 30, 2022 and December 31, 2021 are summarized as follows (in thousands): September 30, 2022 December 31, 2021 Securities sold under repurchase agreements $ 106,296 116,760 FHLB overnight borrowings 406,000 — FHLB advances 551,306 510,014 Total borrowed funds $ 1,063,602 626,774 At September 30, 2022, FHLB advances were at fixed rates and mature between October 2022 and July 2025, and at December 31, 2021, FHLB advances were at fixed rates with maturities between January 2022 and July 2025. These advances are secured by loans receivable under a blanket collateral agreement. Scheduled maturities of FHLB advances and overnight borrowings at September 30, 2022 are as follows (in thousands): 2022 Due in one year or less $ 544,508 Due after one year through two years 138,538 Due after two years through three years 249,260 Due after three years through four years 25,000 Thereafter — Total FHLB advances and overnight borrowings $ 957,306 24 Scheduled maturities of securities sold under repurchase agreements at September 30, 2022 are as follows (in thousands): 2022 Due in one year or less $ 106,296 Thereafter — Total securities sold under repurchase agreements $ 106,296 The following tables set forth certain information as to borrowed funds for the periods ended September 30, 2022 and December 31, 2021 (in thousands): Maximum balance Average balance Weighted average interest rate September 30, 2022 Securities sold under repurchase agreements $ 120,833 114,295 0.34 % FHLB overnight borrowings 406,000 90,726 2.50 FHLB advances 625,763 458,344 0.82 December 31, 2021 Securities sold under repurchase agreements $ 132,005 116,158 0.07 % FHLB overnight borrowings — 205 0.34 FHLB advances 941,939 673,014 1.27 Securities sold under repurchase agreements include arrangements with deposit customers of the Bank to sweep funds into short-term borrowings. The Bank uses available for sale debt securities to pledge as collateral for the repurchase agreements. At September 30, 2022 and December 31, 2021, available for sale debt securities pledged as collateral for repurchase agreements totaled $ 120.0 million and $ 136.0 million, respectively. Interest expense on borrowings for the three and nine months ended September 30, 2022 amounted to $ 2.5 million and $ 4.8 million, respectively. Interest expense on borrowings for the three and nine months ended September 30, 2021 amounted to $ 1.8 million and $ 7.1 million, respectively. Note 7. Components of Net Periodic Benefit Cost The Bank has a noncontributory defined benefit pension plan covering its full-time employees who had attained age 21 with at least one year of service as of April 1, 2003. The pension plan was frozen on April 1, 2003. All participants in the Plan are 100 % vested. The pension plan’s assets are invested in investment funds and group annuity contracts currently managed by the Principal Financial Group and Allmerica Financial. In addition to pension benefits, certain health care and life insurance benefits are currently made available to certain of the Bank’s retired employees. The costs of such benefits are accrued based on actuarial assumptions from the date of hire to the date the employee is fully eligible to receive the benefits. Effective January 1, 2003, eligibility for retiree health care benefits was frozen as to new entrants, and benefits were eliminated for employees with less than ten years of service as of December 31, 2002. Effective January 1, 2007, eligibility for retiree life insurance benefits was frozen as to new entrants and retiree life insurance benefits were eliminated for employees with less than ten years of service as of December 31, 2006. 25 Net periodic (decrease) increase in benefit cost for pension benefits and other post-retirement benefits for the three and nine months ended September 30, 2022 and 2021 includes the following components (in thousands): Three months ended September 30, Nine months ended September 30, Pension benefits Other post-retirement benefits Pension benefits Other post-retirement benefits 2022 2021 2022 2021 2022 2021 2022 2021 Service cost $ — — 7 8 $ — — 21 26 Interest cost 214 198 111 106 642 594 333 318 Expected return on plan assets ( 864 ) ( 807 ) — — ( 2,592 ) ( 2,421 ) — — Amortization of prior service cost — — — — — — — — Amortization of the net loss (gain) — 118 ( 326 ) ( 267 ) — 354 ( 978 ) ( 803 ) Net periodic (decrease) increase in benefit cost $ ( 650 ) ( 491 ) ( 208 ) ( 153 ) $ ( 1,950 ) ( 1,473 ) ( 624 ) ( 459 ) In its consolidated financial statements for the year ended December 31, 2021, the Company previously disclosed that it does not expect to contribute to the pension plan in 2022. As of September 30, 2022, no contributions have been made to the pension plan. The changes in net periodic benefit cost for pension benefits and other post-retirement benefits for the three and nine months ended September 30, 2022 were calculated using the January 1, 2022 pension and other post-retirement benefits actuarial valuations. Note 8. Impact of Recent Accounting Pronouncements Accounting Pronouncements Not Yet Adopted In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, "Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures," which addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancing and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. For entities that have adopted ASU 2016-13, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted if an entity has adopted ASU 2016-13. The Company continues to assess the impact that this guidance will have on the Company’s consolidated financial statements. In March 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method." This ASU clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. The ASU amends the guidance in ASU 2017-12 that, among other things, established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible. ASU 2022-01 renames that method the “portfolio layer” method and addresses feedback from stakeholders regarding its application. Under current guidance, the last-of-layer method enables an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets (or one or more beneficial interests secured by a portfolio of prepayable financial instruments) without having to consider prepayment risk or credit risk when measuring those assets. ASU 2022-01 expands the scope of this guidance to allow entities to apply the portfolio layer method to portfolios of all financial assets, including both prepayable and non prepayable financial assets. This scope expansion is consistent with the FASB’s efforts to simplify hedge accounting and allows entities to apply the same method to similar hedging strategies. Also, ASU 2022-01 expands the current model to explicitly allow entities to designate multiple layers in a single portfolio as individual hedged items. This allows entities to designate multiple hedging relationships with a single closed portfolio, and therefore a larger portion of the interest rate risk associated with such a portfolio is eligible to be hedged. ASU 2022-01 also addresses questions about the types of derivatives that could be used as the hedging instrument in potential multiple-layer hedges. Under ASU 2022-01, an entity has the flexibility to use any type of derivative or combination of derivatives (e.g., spot-starting constant-notional swaps with different term lengths, a combination of spot-starting and forward-starting constant-notional swaps, amortizing-notional swaps) by applying the multiple-layer model that aligns with its risk management strategy. ASU 2022-01 expands and clarifies the current guidance on accounting for fair value hedge basis adjustments under the portfolio layer method for both single-layer and multiple-layer hedges. For public business entities, ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, including interim periods within 26 those fiscal years. Early adoption is permitted if an entity has adopted ASU 2017-12. This standard is not expected to have a material impact on the Company's consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)," which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope 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. In the fourth quarter of 2019 the Company formed, a cross-functional team to develop transition plans for the LIBOR transition to address potential revisions to documentation, as well as customer management and communication, internal training, financial, operational and risk management implications, and legal and contract management. The working group is comprised of individuals from various functional areas including lending, risk management, finance and credit, among others. In addition, the Company has engaged with its regulators and with industry working groups and trade associations to develop strategies for transitioning away from LIBOR. The Company is currently in the process of transitioning from LIBOR and plans to move to the Secured Overnight Financing Rate ("SOFR") and no longer offers LIBOR as an option to customers. This standard is not expected to have a material impact on the Company's consolidated financial statements. Note 9. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures Management analyzes the Company's exposure to credit losses for both on-balance sheet and off-balance sheet activity using a consistent methodology for the quantitative framework as well as the qualitative framework. For purposes of estimating the allowance for credit losses for off-balance sheet credit exposures, the exposure 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. For the three and nine months ended September 30, 2022, the Company recorded a $ 1.6 million provision and a $ 1.8 million negative provision for credit losses for off-balance sheet credit exposures, respectively. For the three and nine months ended September 30, 2021, the Company recorded a $ 980,000 and $ 2.2 million provision for credit losses for off-balance sheet credit exposures, respectively. The $ 595,000 increase in the provision for the three months ended September 30, 2022, compared to the same period in 2021, was primarily the result of the period-over-period relative change in projected loss factors. The $ 3.9 million decrease in the provision for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was mainly due to a decrease in the pipeline of loans approved and awaiting closing and an increase in line of credit utilization, partially offset by an increase in projected loss factors. The allowance for credit losses for off-balance sheet credit exposures was $ 4.7 million and $ 6.5 million at September 30, 2022 and December 31, 2021, respectively, and are included in other liabilities on the Consolidated Statements of Financial Condition. Note 10. Fair Value Measurements The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. Where quoted market values in an active market are not readily available, management utilizes various valuation techniques to estimate fair value. 27 Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. However, in many instances fair value estimates may not be substantiated by comparison to independent markets and may not be realized in an immediate sale of the financial instrument. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1: Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The valuation techniques are based upon the unpaid principal balance only, and exclude any accrued interest or dividends at the measurement date. Interest income and expense and dividend income are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium. Assets and Liabilities Measured at Fair Value on a Recurring Basis The valuation techniques described below were used to measure fair value of financial instruments in the table below on a recurring basis as of September 30, 2022 and December 31, 2021. Available for Sale Debt Securities, at Fair Value For available for sale debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third-party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, management compares the prices received from the pricing service to a secondary pricing source. Additionally, management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in an adjustment in the prices obtained from the pricing service. Equity Securities, at Fair Value The Company holds equity securities that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs. Derivatives The Company records all derivatives on the statements of financial condition at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company has interest rate derivatives resulting from a service provided to certain qualified borrowers in a loan related transaction which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. As such, all changes in fair value of the Company’s derivatives are recognized directly in earnings. The Company also uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges, and which satisfy hedge accounting requirements, involve the receipt of variable amounts from a 28 counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. These derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits. The change in the fair value of these derivatives is recorded in accumulated other comprehensive (loss) income, and is subsequently reclassified into earnings in the period that the forecasted transactions affect earnings. The fair value of the Company's derivatives is determined using discounted cash flow analysis using observable market-based inputs, which are considered Level 2 inputs. Assets Measured at Fair Value on a Non-Recurring Basis The valuation techniques described below were used to estimate fair value of financial instruments measured on a non-recurring basis as of September 30, 2022 and December 31, 2021. Collateral-Dependent Impaired Loans For loans measured for impairment based on the fair value of the underlying collateral, fair value was estimated using a market approach. The Company measures the fair value of collateral underlying impaired loans primarily through obtaining independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case-by-case basis, to comparable assets based on the appraisers’ market knowledge and experience, as well as adjustments for estimated costs to sell between 5 % and 10 %. Management classifies these loans as Level 3 within the fair value hierarchy. Foreclosed Assets Assets acquired through foreclosure or deed in lieu of foreclosure are carried at fair value, less estimated selling costs, which range between 5 % and 10 %. Fair value is generally based on independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case basis, to comparable assets based on the appraisers’ market knowledge and experience, and are classified as Level 3. When an asset is acquired, the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for credit losses. A reserve for foreclosed assets may be established to provide for possible write-downs and selling costs that occur subsequent to foreclosure. Foreclosed assets are carried net of the related reserve. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned, are recorded as incurred. There were no changes to the valuation techniques for fair value measurements as of September 30, 2022 or December 31, 2021. 29 The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair values as of September 30, 2022 and December 31, 2021, by level within the fair value hierarchy (in thousands): Fair Value Measurements at Reporting Date Using: September 30, 2022 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 $ 243,389 243,389 — — Mortgage-backed securities 1,453,308 — 1,453,308 — Asset-backed securities 39,744 — 39,744 — State and municipal obligations 55,394 — 55,394 — Corporate obligations 37,474 — 37,474 — Total available for sale debt securities 1,829,309 243,389 1,585,920 — Equity securities 1,059 1,059 — — Derivative assets 158,319 — 158,319 — $ 1,988,687 244,448 1,744,239 — Derivative liabilities $ 128,987 — 128,987 — Measured on a non-recurring basis: Loans measured for impairment based on the fair value of the underlying collateral $ 29,300 — — 29,300 Foreclosed assets 2,053 — — 2,053 $ 31,353 — — 31,353 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 There were no transfers between Level 1, Level 2 and Level 3 during the three and nine months ended September 30, 2022. 30 Other Fair Value Disclosures The Company is required to disclose estimated fair value of financial instruments, both assets and liabilities on- and off- the balance sheet, for which it is practicable to estimate fair value. The following is a description of valuation methodologies used for those assets and liabilities. Cash and Cash Equivalents For cash and due from banks, federal funds sold and short-term investments, the carrying amount approximates fair value. Included in cash and cash equivalents at September 30, 2022 and December 31, 2021 was $ 1.8 million and $ 27.3 million, respectively, representing cash collateral pledged to secure loan level swaps, risk participation agreements and reserves required by banking regulations. Held to Maturity Debt Securities For held to maturity debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. Management evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, management compares the prices received from the pricing service to a secondary pricing source. Additionally, management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in adjustment in the prices obtained from the pricing service. The Company also holds debt instruments issued by the U.S. government and U.S. government agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 within the fair value hierarchy. Federal Home Loan Bank of New York ("FHLBNY") Stock The carrying value of FHLBNY stock is its cost. The fair value of FHLBNY stock is based on redemption at par value. The Company classifies the estimated fair value as Level 1 within the fair value hierarchy. Loans Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial mortgage, residential mortgage, commercial, construction and consumer. Each loan category is further segmented into fixed and adjustable 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. 31 Borrowed Funds The fair value of borrowed funds was estimated by discounting future cash flows using rates available for debt with similar terms and maturities and is classified by the Company as Level 2 within the fair value hierarchy. Commitments to Extend Credit and Letters of Credit The fair value of commitments to extend credit and letters of credit was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The Company classifies these commitments as Level 3 within the fair value hierarchy. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include goodwill and other intangibles, deferred tax assets and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The following tables present the Company’s financial instruments at their carrying and fair values as of September 30, 2022 and December 31, 2021. Fair values are presented by level within the fair value hierarchy. 32 Fair Value Measurements at September 30, 2022 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 $ 184,868 184,868 184,868 — — Available for sale debt securities: U.S. Treasury obligations 243,389 243,389 243,389 — — Mortgage-backed securities 1,453,308 1,453,308 — 1,453,308 — Asset-backed securities 39,744 39,744 — 39,744 — State and municipal obligations 55,394 55,394 — 55,394 — Corporate obligations 37,474 37,474 — 37,474 — Total available for sale debt securities $ 1,829,309 1,829,309 243,389 1,585,920 — Held to maturity debt securities, net of allowance for credit losses: Agency obligations 9,997 8,905 8,905 — — Mortgage-backed securities 2 2 — 2 — State and municipal obligations 372,259 349,732 — 349,732 — Corporate obligations 10,811 10,029 — 10,029 — Total held to maturity debt securities, net of allowance for credit losses $ 393,069 368,668 8,905 359,763 — FHLBNY stock 55,717 55,717 55,717 — — Equity Securities 1,059 1,059 1,059 — — Loans, net of allowance for credit losses 9,957,896 9,542,609 — — 9,542,609 Derivative assets 158,319 158,319 — 158,319 — Financial liabilities: Deposits other than certificates of deposits $ 10,005,496 10,005,496 10,005,496 — — Certificates of deposit 680,109 674,933 — 674,933 — Total deposits $ 10,685,605 10,680,429 10,005,496 674,933 — Borrowings 1,063,602 1,041,426 — 1,041,426 — Subordinated debentures 10,442 9,688 — 9,688 — Derivative liabilities 128,987 128,987 — 128,987 — 33 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 — — Agency obligations — — — — — 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: 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 $ 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 — 34 Note 11. Other Comprehensive Income The following table presents the components of other comprehensive income, both gross and net of tax, for the three and nine months ended September 30, 2022 and 2021 (in thousands): Three months ended September 30, 2022 2021 Before Tax Tax Effect After Tax Before Tax Tax Effect After Tax Components of Other Comprehensive Income: Unrealized gains and losses on available for sale debt securities: Net unrealized (losses) gains arising during the period $ ( 91,930 ) 24,637 ( 67,293 ) ( 10,765 ) 2,775 ( 7,990 ) Reclassification adjustment for gains included in net income — — — — — — Total ( 91,930 ) 24,637 ( 67,293 ) ( 10,765 ) 2,775 ( 7,990 ) Unrealized gains (losses) on derivatives (cash flow hedges) 6,614 ( 1,773 ) 4,841 2,382 ( 614 ) 1,768 Amortization related to post-retirement obligations ( 326 ) 90 ( 236 ) ( 138 ) 35 ( 103 ) Total other comprehensive loss $ ( 85,642 ) 22,954 ( 62,688 ) ( 8,521 ) 2,196 ( 6,325 ) Nine months ended September 30, 2022 2021 Before Tax Tax Effect After Tax Before Tax Tax Effect After Tax Components of Other Comprehensive Income: Unrealized gains and losses on available for sale debt securities: Net unrealized (losses) arising during the period $ ( 270,488 ) 72,491 ( 197,997 ) ( 19,630 ) 5,061 ( 14,569 ) Reclassification adjustment for gains included in net income ( 58 ) 16 ( 42 ) ( 230 ) 59 ( 171 ) Total ( 270,546 ) 72,507 ( 198,039 ) ( 19,860 ) 5,120 ( 14,740 ) Unrealized gains (losses) on derivatives (cash flow hedges) 23,821 ( 6,384 ) 17,437 6,959 ( 1,794 ) 5,165 Amortization related to post-retirement obligations ( 978 ) 230 ( 748 ) ( 435 ) 112 ( 323 ) Total other comprehensive loss $ ( 247,703 ) 66,353 ( 181,350 ) ( 13,336 ) 3,438 ( 9,898 ) 35 The following tables present the changes in the components of accumulated other comprehensive income, net of tax, for the three and nine months ended September 30, 2022 and 2021 (in thousands): Changes in Accumulated Other Comprehensive (Loss) Income by Component, net of tax for the three months ended September 30, 2022 2021 Unrealized Losses on Available for Sale Debt Securities Post- Retirement Obligations Unrealized Gains on Derivatives (cash flow hedges) Accumulated Other Comprehensive Loss Unrealized Gains on Available for Sale Debt Securities Post- Retirement Obligations Unrealized Losses on Derivatives (cash flow hedges) Accumulated Other Comprehensive Income Balance at June 30, $ ( 130,957 ) 2,469 16,689 ( 111,799 ) 16,940 ( 1,301 ) ( 1,557 ) 14,082 Current - period other comprehensive (loss) income ( 67,293 ) ( 236 ) 4,841 ( 62,688 ) ( 7,990 ) ( 103 ) 1,768 ( 6,325 ) Balance at September 30, $ ( 198,250 ) 2,233 21,530 ( 174,487 ) 8,950 ( 1,404 ) 211 7,757 Changes in Accumulated Other Comprehensive Income (Loss) by Component, net of tax for the nine months ended September 30, 2022 2021 Unrealized Losses on Available for Sale Debt Securities Post- Retirement Obligations Unrealized Gains on Derivatives (cash flow hedges) Accumulated Other Comprehensive Income (Loss) Unrealized Gains (Losses) on Available for Sale Debt Securities Post- Retirement Obligations Unrealized Gains (Losses) on Derivatives (cash flow hedges) Accumulated Other Comprehensive Income Balance at December 31, $ ( 211 ) 2,981 4,093 6,863 23,690 ( 1,081 ) ( 4,954 ) 17,655 Current - period other comprehensive (loss) income ( 198,039 ) ( 748 ) 17,437 ( 181,350 ) ( 14,740 ) ( 323 ) 5,165 ( 9,898 ) Balance at September 30, $ ( 198,250 ) 2,233 21,530 ( 174,487 ) 8,950 ( 1,404 ) 211 7,757 36 The following tables summarize the reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of income for the three and nine months ended September 30, 2022 and 2021 (in thousands): Reclassifications From Accumulated Other Comprehensive Income ("AOCI") Amount reclassified from AOCI for the three months ended September 30, Affected line item in the Consolidated Statement of Income 2022 2021 Details of AOCI: Cash flow hedges: Unrealized (gains) losses on derivatives ( 1,581 ) 1,030 Interest expense 424 ( 265 ) Income tax expense ( 1,157 ) 765 Post-retirement obligations: Amortization of actuarial gains $ ( 326 ) ( 149 ) Compensation and employee benefits (1) 90 38 Income tax expense Total reclassification $ ( 236 ) ( 111 ) Net of tax Total reclassifications $ ( 1,393 ) ( 111 ) Net of tax Reclassifications From Accumulated Other Comprehensive Income ("AOCI") Amount reclassified from AOCI for the nine months ended September 30, Affected line item in the Consolidated Statement of Income 2022 2021 Details of AOCI: Available for sale debt securities: Realized net gains on the sale of securities available for sale $ ( 58 ) ( 230 ) Net gain on securities transactions 16 59 Income tax expense ( 42 ) ( 171 ) Net of tax Cash flow hedges: Unrealized losses on derivatives ( 1,077 ) 2,856 Interest expense 289 ( 736 ) Income tax expense ( 788 ) 2,120 Post-retirement obligations: Amortization of actuarial gains $ ( 978 ) ( 449 ) Compensation and employee benefits (1) 230 119 Income tax expense Total reclassification $ ( 748 ) ( 330 ) Net of tax Total reclassifications $ ( 1,578 ) ( 501 ) Net of tax (1) This item is included in the computation of net periodic benefit cost. See Note 7. Components of Net Periodic Benefit Cost. 37 Note 12. Derivative and Hedging Activities The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through the management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. Non-designated Hedges. Derivatives not designated in qualifying hedging relationships are not speculative and result from a service the Company provides to certain qualified commercial borrowers in loan related transactions which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company may execute interest rate swaps with qualified commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. The interest rate swap agreement which the Company executes with the commercial borrower is collateralized by the borrower's commercial real estate financed by the Company. As the Company has not elected to apply hedge accounting and these interest rate swaps do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. At September 30, 2022 and December 31, 2021, the Company had 164 loan related interest rate swaps with aggregate notional amounts of $ 2.45 billion and $ 2.38 billion, respectively. The Company periodically enters into risk participation agreements ("RPAs"), with the Company functioning as either the lead institution, or as a participant when another company is the lead institution on a commercial loan. These RPAs are entered into to manage the credit exposure on interest rate contracts associated with these loan participation agreements. Under the RPAs, the Company will either receive or make a payment in the event the borrower defaults on the related interest rate contract. The Company has minimum collateral posting thresholds with certain of its risk participation counterparties, and has posted collateral of $ 70,000 against the potential risk of default by the borrower under these agreements. For September 30, 2022 and December 31, 2021, the Company had 12 and 13 credit derivatives, respectively, with aggregate notional amounts of $ 131.0 million and $ 144.8 million, respectively, from participations in interest rate swaps as part of these loan participation arrangements. At September 30, 2022, the asset and liability positions of these fair value credit derivatives totaled $ 29,000 and $ 12,000 , respectively, compared to $ 109,000 and $ 46,000 , respectively, at December 31, 2021. Cash Flow Hedges of Interest Rate Risk. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable payment amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Changes in the fair value of derivatives designated and that qualify as cash flow hedges of interest rate risk are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and nine months ended September 30, 2022 and 2021, such derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings or demand deposits. During the next twelve months, the Company estimates that $ 14.2 million will be reclassified as a reduction to interest expense. At September 30, 2022, the Company had 11 outstanding interest rate derivatives with an aggregate notional amount of $ 460.0 million that were each designated as a cash flow hedge of interest rate risk. Assets and liabilities relating to certain financial instruments, including derivatives, may be eligible for offset in the Consolidated Statements of Financial Condition and/or subject to enforceable master netting arrangements or similar agreements. The Company does not offset asset and liabilities under such arrangements in the Consolidated Statements of Financial Condition. The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments that are eligible for offset in the Consolidated Statements of Condition at September 30, 2022 and December 31, 2021 (in thousands). 38 Fair Values of Derivative Instruments as of September 30, 2022 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 $ 1,226,285 Other assets $ 129,205 $ 1,226,285 Other liabilities $ 129,556 Credit contracts 47,260 Other assets 29 83,772 Other liabilities 12 Total derivatives not designated as a hedging instrument 129,234 129,568 Derivatives designated as a hedging instrument: Interest rate products 460,000 Other assets 30,528 — Other liabilities — Total gross derivative amounts recognized on the balance sheet 159,762 129,568 Gross amounts offset on the balance sheet — — Net derivative amounts presented on the balance sheet $ 159,762 $ 129,568 Gross amounts not offset on the balance sheet: Financial instruments - institutional counterparties $ — $ — Cash collateral - institutional counterparties (1) 155,553 — Net derivatives not offset $ 4,209 $ 129,568 39 Fair Values of Derivative Instruments as of December 31, 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 47,599 Other assets 109 97,213 Other liabilities 46 Total derivatives not designated as a hedging instrument 59,219 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 66,497 62,472 Gross amounts offset on the balance sheet — — Net derivative amounts presented on the balance sheet $ 66,497 $ 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 $ 47,879 $ 17,288 (1) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess cash collateral, if any, is not reflected above. (2) The fair values related to interest rate products in the above net derivative tables show the total value of assets and liabilities, which include accrued interest receivable and accrued interest payable for the periods ended September 30, 2022 and December 31, 2021. The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income during the three and nine months ended September 30, 2022 and 2021 (in thousands). Gain (loss) recognized in income on derivatives for the three months ended Consolidated Statements of Income September 30, 2022 September 30, 2021 Derivatives not designated as a hedging instrument: Interest rate products Other income $ 259 191 Credit contracts Other income ( 12 ) ( 19 ) Total $ 247 172 Derivatives designated as a hedging instrument: Interest rate products Interest (income) expense $ ( 1,581 ) 1,030 Total $ ( 1,581 ) 1,030 40 Gain (loss) recognized in income on derivatives for the nine months ended Consolidated Statements of Income September 30, 2022 September 30, 2021 Derivatives not designated as a hedging instrument: Interest rate products Other income $ 702 268 Credit contracts Other income ( 47 ) 28 Total $ 655 296 Derivatives designated as a hedging instrument: Interest rate products Interest (income) expense $ ( 1,077 ) 2,856 Total $ ( 1,077 ) 2,856 The Company has agreements with certain of its dealer counterparties which contain a provision that if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be deemed in default on its derivative obligations. In addition, the Company has agreements with certain of its dealer counterparties which contain a provision that if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. At September 30, 2022, the Company had four dealer counterparties. The Company had a net asset position with respect to all of its counterparties. 41 Note 13. Revenue Recognition The Company generates revenue from several business channels. The guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) does not apply to revenue associated with financial instruments, including interest income on loans and investments, which comprise the majority of the Company's revenue. For both the three and nine months ended September 30, 2022, the out-of-scope revenue related to financial instruments was 81.1 % and 82.6 % of the Company's total revenue, compared to 81.0 % and 82.0 % for the three and nine months ended September 30, 2021, respectively. Revenue-generating activities that are within the scope of Topic 606, are components of non-interest income. These revenue streams are generally classified into three categories: wealth management revenue, insurance agency income and banking service charges and other fees. The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2022 and 2021 (in thousands): Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Non-interest income In-scope of Topic 606: Wealth management fees $ 6,785 7,921 21,274 22,914 Insurance agency income 2,865 2,433 9,135 8,009 Banking service charges and other fees: Service charges on deposit accounts 3,288 2,910 9,321 7,965 Debit card and ATM fees 756 913 2,372 4,789 Total banking service charges and other fees 4,044 3,823 11,693 12,754 Total in-scope non-interest income 13,694 14,177 42,102 43,677 Total out-of-scope non-interest income 14,751 9,185 27,421 22,479 Total non-interest income $ 28,445 23,362 69,523 66,156 Wealth management fee income represents fees earned from customers as consideration for asset management, investment advisory and trust services. The Company’s performance obligation is generally satisfied monthly and the resulting fees are recognized monthly. The fee is generally based upon the average market value of the assets under management ("AUM") for the month and the applicable fee rate. The monthly accrual of wealth management fees is recorded in other assets on the Company's Consolidated Statements of Financial Condition. Fees are received from the customer on a monthly basis. The Company does not earn performance-based incentives. To a lesser extent, optional services such as tax return preparation and estate settlement are also available to existing customers. The Company’s performance obligation for these transaction-based services are generally satisfied, and related revenue recognized, at either a point in time when the service is completed, or in the case of estate settlement, over a relatively short period of time, as each service component is completed. Insurance agency income, consisting of commissions and fees, is generally recognized as of the effective date of the insurance policy. Commission revenues related to installment billings are recognized on the invoice date. Subsequent commission adjustments are recognized upon the receipt of notification from insurance companies concerning matters necessitating such adjustments. Profit-sharing contingent commissions are recognized when determinable, which is generally when such commissions are received from insurance companies, or when the Company receives formal notification of the amount of such payments. Service charges on deposit accounts include overdraft service fees, account analysis fees and other deposit related fees. These fees are generally transaction-based, or time-based services. The Company's performance obligation for these services are generally satisfied, and revenue recognized, at the time the transaction is completed, or the service rendered. Fees for these services are generally received from the customer either at the time of transaction, or monthly. Debit card and ATM fees are generally transaction-based. Debit card revenue is primarily comprised of interchange fees earned when a customer's Company card is processed through a card payment network. ATM fees are largely generated when a Company cardholder uses a non-Company ATM, or a non-Company cardholder uses a Company ATM. The Company's performance obligation for these services is satisfied when the service is rendered. Payment is generally received at the time of transaction or monthly. 42 Out-of-scope non-interest income primarily consists of Bank-owned life insurance and net fees on loan level interest rate swaps, along with gains and losses on the sale of loans and foreclosed real estate, loan prepayment fees and loan servicing fees. None of these revenue streams are subject to the requirements of Topic 606. Note 14. Leases The following table represents the consolidated statements of financial condition classification of the Company’s right-of use-assets and lease liabilities at September 30, 2022 and December 31, 2021 (in thousands): Classification September 30, 2022 December 31, 2021 Lease Right-of-Use Assets: Operating lease right-of-use assets Other assets $ 62,708 $ 48,808 Lease Liabilities: Operating lease liabilities Other liabilities $ 65,300 $ 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. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception based upon the term of the lease. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was applied. All of the leases in which the Company is the lessee are classified as operating leases and are primarily comprised of real estate properties for branches and administrative offices with terms extending through 2040. At September 30, 2022, the weighted-average remaining lease term and the weighted-average discount rate for the Company's operating leases were 8.8 years and 2.57 %, respectively. The following tables represent lease costs and other lease information for the Company's operating leases. The variable lease cost primarily represents variable payments such as common area maintenance and utilities (in thousands): Three months ended September 30, 2022 Three months ended September 30, 2021 Lease Costs Operating lease cost $ 2,613 $ 2,417 Variable lease cost 667 728 Total lease cost $ 3,280 $ 3,145 Nine months ended September 30, 2022 Nine months ended September 30, 2021 Lease Costs Operating lease cost $ 8,006 $ 7,559 Variable lease cost 2,103 2,247 Total lease cost $ 10,109 $ 9,806 Cash paid for amounts included in the measurement of lease liabilities: Nine months ended September 30, 2022 Nine months ended September 30, 2021 Operating cash flows from operating leases $ 6,328 $ 6,861 43 During the nine months ended September 30, 2022, the Company added one new lease obligation related to the Company's new administrative office location in Iselin, New Jersey. The Company recorded a right-of-use asset and lease liability of $ 16.0 million for this lease obligation. Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2022, were as follows (in thousands): Operating leases Twelve months ended: Remainder of 2022 $ 2,337 2023 9,379 2024 9,347 2025 8,812 2026 7,620 Thereafter 35,708 Total future minimum lease payments 73,203 Amounts representing interest 7,903 Present value of net future minimum lease payments $ 65,300