PROVIDENT FINANCIAL SERVICES INC 10-Q

Item 1. FINANCIAL STATEMENTS. PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition June 30, 2023 (Unaudited) and December 31, 2022 (Dollars in Thousands) June 30, 2023 December 31, 2022 ASSETS Cash and due from banks $ 208,842 $ 186,490 Short-term investments 30 18 Total cash and cash equivalents 208,872 186,508 Available for sale debt securities, at fair value 1,749,889 1,803,548 Held to maturity debt securities, net (fair value of $ 365,029 at June 30, 2023 (unaudited) and $ 373,468 at December 31, 2022) 378,894 387,923 Equity securities, at fair value 1,238 1,147 Federal Home Loan Bank stock 93,330 68,554 Loans 10,530,531 10,248,883 Less allowance for credit losses 102,073 88,023 Net loans 10,428,458 10,160,860 Foreclosed assets, net 13,697 2,124 Banking premises and equipment, net 70,602 79,794 Accrued interest receivable 53,845 51,903 Intangible assets 459,383 460,892 Bank-owned life insurance 241,107 239,040 Other assets 330,288 341,143 Total assets $ 14,029,603 $ 13,783,436 LIABILITIES AND STOCKHOLDERS’ EQUITY Deposits: Demand deposits $ 7,965,529 $ 8,373,005 Savings deposits 1,275,262 1,438,583 Certificates of deposit of $100,000 or more 666,276 504,627 Other time deposits 354,053 246,809 Total deposits 10,261,120 10,563,024 Mortgage escrow deposits 44,280 35,705 Borrowed funds 1,849,714 1,337,370 Subordinated debentures 10,596 10,493 Other liabilities 221,422 239,141 Total liabilities 12,387,132 12,185,733 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 75,530,425 shares outstanding at June 30, 2023 and 75,169,196 outstanding at December 31, 2022 832 832 Additional paid-in capital 986,150 981,138 Retained earnings 954,403 918,158 Accumulated other comprehensive (loss) income ( 162,493 ) ( 165,045 ) Treasury stock ( 127,818 ) ( 127,154 ) Unallocated common stock held by the Employee Stock Ownership Plan ( 8,603 ) ( 10,226 ) Common stock acquired by deferred compensation plans ( 3,150 ) ( 3,427 ) Deferred compensation plans 3,150 3,427 Total stockholders’ equity 1,642,471 1,597,703 Total liabilities and stockholders’ equity $ 14,029,603 $ 13,783,436 See accompanying notes to unaudited consolidated financial statements. 3 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Income Three and six months ended June 30, 2023 and 2022 (Unaudited) (Dollars in Thousands, except per share data) Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Interest income: Real estate secured loans $ 99,302 $ 69,073 $ 195,290 $ 132,908 Commercial loans 31,426 22,363 60,109 45,184 Consumer loans 4,431 3,344 8,673 6,483 Available for sale debt securities, equity securities and Federal Home Loan Bank stock 11,432 8,454 22,862 16,406 Held to maturity debt securities 2,357 2,489 4,725 5,085 Deposits, Federal funds sold and other short-term investments 948 562 1,793 1,209 Total interest income 149,896 106,285 293,452 207,275 Interest expense: Deposits 36,447 5,576 63,957 10,763 Borrowed funds 14,088 1,104 21,564 2,272 Subordinated debt 255 130 501 239 Total interest expense 50,790 6,810 86,022 13,274 Net interest income 99,106 99,475 207,430 194,001 Provision charge (benefit) for credit losses 10,397 2,996 16,398 ( 3,409 ) Net interest income after provision charge (benefit) for credit losses 88,709 96,479 191,032 197,410 Non-interest income: Fees 5,775 7,424 12,162 14,313 Wealth management income 6,919 7,024 13,834 14,489 Insurance agency income 3,847 2,850 7,950 6,270 Bank-owned life insurance 1,534 1,563 3,018 2,741 Net gains on securities transactions 29 141 24 157 Other income 1,283 1,930 4,552 3,108 Total non-interest income 19,387 20,932 41,540 41,078 Non-interest expense: Compensation and employee benefits 35,283 37,437 74,021 74,503 Net occupancy expense 7,949 8,479 16,360 17,810 Data processing expense 5,716 5,632 11,224 10,976 FDIC insurance 2,125 1,350 4,061 2,555 Amortization of intangibles 749 873 1,511 1,732 Advertising and promotion expense 1,379 1,222 2,589 2,326 Provision (benefit) charge for credit losses on off-balance sheet credit exposures ( 647 ) ( 973 ) 92 ( 3,363 ) Merger-related expenses 1,960 — 3,060 — Other operating expenses 9,949 9,826 21,032 19,191 Total non-interest expense 64,463 63,846 133,950 125,730 Income before income tax expense 43,633 53,565 98,622 112,758 Income tax expense 11,630 14,337 26,083 29,567 Net income $ 32,003 $ 39,228 $ 72,539 $ 83,191 Basic earnings per share $ 0.43 $ 0.53 $ 0.97 $ 1.11 Weighted average basic shares outstanding 74,823,272 74,328,632 74,734,795 75,068,154 Diluted earnings per share $ 0.43 $ 0.53 $ 0.97 $ 1.11 Weighted average diluted shares outstanding 74,830,187 74,400,788 74,766,848 75,152,286 See accompanying notes to unaudited consolidated financial statements. 4 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Comprehensive Income Three and six months ended June 30, 2023 and 2022 (Unaudited) (Dollars in Thousands) Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Net income $ 32,003 $ 39,228 $ 72,539 $ 83,191 Other comprehensive income (loss), net of tax: Unrealized gains and losses on available for sale debt securities: Net unrealized (losses) gains arising during the period ( 14,726 ) ( 45,733 ) 6,138 ( 130,704 ) Reclassification adjustment for gains included in net income — ( 42 ) — ( 42 ) Total ( 14,726 ) ( 45,775 ) 6,138 ( 130,746 ) Unrealized gains and losses on derivatives: Net unrealized gains arising during the period 3,650 2,276 3,033 12,227 Reclassification adjustment for (gains) losses included in net income ( 3,010 ) ( 118 ) ( 6,089 ) 369 Total 640 2,158 ( 3,056 ) 12,596 Amortization related to post-retirement obligations ( 261 ) ( 236 ) ( 530 ) ( 512 ) Total other comprehensive (loss) income ( 14,347 ) ( 43,853 ) 2,552 ( 118,662 ) Total comprehensive income (loss) $ 17,656 $ ( 4,625 ) $ 75,091 $ ( 35,471 ) See accompanying notes to unaudited consolidated financial statements. 5 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Changes in Stockholders’ Equity For the three and six months ended June 30, 2022 (Unaudited) (Dollars in Thousands) For the three months ended June 30, 2022 COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME TREASURYSTOCK UNALLOCATED ESOP SHARES COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS DEFERRED COMPENSATION PLANS TOTAL STOCKHOLDERS’ EQUITY Balance at March 31, 2022 $ 832 $ 972,552 $ 839,807 $ ( 67,946 ) $ ( 109,581 ) $ ( 14,533 ) $ ( 3,844 ) $ 3,844 $ 1,621,131 Net income — — 39,228 — — — — — 39,228 Other comprehensive loss, net of tax — — — ( 43,853 ) — — — — ( 43,853 ) Cash dividends paid — — ( 18,058 ) — — — — — ( 18,058 ) Distributions from deferred comp plans — 41 — — — — 139 ( 139 ) 41 Purchases of treasury stock — — — — ( 17,505 ) — — — ( 17,505 ) Purchase of employee restricted shares to fund statutory tax withholding — — — — ( 5 ) — — — ( 5 ) Allocation of ESOP shares — 250 — — — 812 — — 1,062 Allocation of Stock Award Plan ("SAP") shares — 3,174 — — — — — — 3,174 Allocation of stock options — 50 — — — — — — 50 Balance at June 30, 2022 $ 832 $ 976,067 $ 860,977 $ ( 111,799 ) $ ( 127,091 ) $ ( 13,721 ) $ ( 3,705 ) $ 3,705 $ 1,585,265 For the six months ended June 30, 2022 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, 2021 $ 832 $ 969,815 $ 814,533 $ 6,863 $ ( 79,603 ) $ ( 15,344 ) $ ( 3,984 ) $ 3,984 $ 1,697,096 Net income — — 83,191 — — — — — 83,191 Other comprehensive loss, net of tax — — — ( 118,662 ) — — — — ( 118,662 ) Cash dividends paid — — ( 36,747 ) — — — — — ( 36,747 ) Distributions from deferred comp plans — 86 — — — — 279 ( 279 ) 86 Purchases of treasury stock — — — — ( 46,530 ) — — — ( 46,530 ) Purchase of employee restricted shares to fund statutory tax withholding — — — — ( 958 ) — — — ( 958 ) Stock option exercises — — — — — — — — — Allocation of ESOP shares — 582 — — — 1,623 — — 2,205 Allocation of SAP shares — 5,485 — — — — — — 5,485 Allocation of stock options — 99 — — — — — — 99 Balance at June 30, 2022 $ 832 $ 976,067 $ 860,977 $ ( 111,799 ) $ ( 127,091 ) $ ( 13,721 ) $ ( 3,705 ) $ 3,705 $ 1,585,265 See accompanying notes to unaudited consolidated financial statements. 6 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Changes in Stockholders’ Equity For the three and six months ended June 30, 2023 (Unaudited) (Dollars in Thousands) For the three months ended June 30, 2023 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 March 31, 2023 832 984,089 940,533 ( 148,146 ) ( 127,814 ) ( 9,414 ) ( 3,289 ) 3,289 1,640,080 Net income — — 32,003 — — — — — 32,003 Other comprehensive loss, net of tax — — — ( 14,347 ) — — — — ( 14,347 ) Cash dividends paid — — ( 18,133 ) — — — — — ( 18,133 ) Distributions from deferred comp plans — 32 — — — — 139 ( 139 ) 32 Purchases of treasury stock — — — — — — — — — Purchase of employee restricted shares to fund statutory tax withholding — — — — ( 4 ) — — — ( 4 ) Stock option exercises — — — — — — — — — Allocation of ESOP shares — ( 1 ) — — — 811 — — 810 Allocation of SAP shares — 1,997 — — — — — — 1,997 Allocation of stock options — 33 — — — — — — 33 Balance at June 30, 2023 $ 832 $ 986,150 $ 954,403 $ ( 162,493 ) $ ( 127,818 ) $ ( 8,603 ) $ ( 3,150 ) $ 3,150 $ 1,642,471 For the six months ended June 30, 2023 COMMONSTOCK 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 December 31, 2022 $ 832 $ 981,138 $ 918,158 $ ( 165,045 ) $ ( 127,154 ) $ ( 10,226 ) $ ( 3,427 ) $ 3,427 $ 1,597,703 Net income — — 72,539 — — — — — 72,539 Other comprehensive income, net of tax — — — 2,552 — — — — 2,552 Cash dividends paid — — ( 36,727 ) — — — — — ( 36,727 ) Cumulative effect of adopting Accounting Standards Update ("ASU") No. 2022-02, net of tax — — 433 — — — — — 433 Distributions from deferred comp plans — 79 — — — — 277 ( 277 ) 79 Purchase of employee restricted shares to fund statutory tax withholding — — — — ( 1,671 ) — — — ( 1,671 ) Stock option exercises — ( 217 ) — — 1,007 — — — 790 Allocation of ESOP shares — 243 — — — 1,623 — — 1,866 Allocation of SAP shares — 4,830 — — — — — — 4,830 Allocation of stock options — 77 — — — — — — 77 Balance at June 30, 2023 $ 832 $ 986,150 $ 954,403 $ ( 162,493 ) $ ( 127,818 ) $ ( 8,603 ) $ ( 3,150 ) $ 3,150 $ 1,642,471 See accompanying notes to unaudited consolidated financial statements. 7 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Six months ended June 30, 2023 and 2022 (Unaudited) (Dollars in Thousands) Six months ended June 30, 2023 2022 Cash flows from operating activities: Net income $ 72,539 $ 83,191 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangibles 5,953 6,579 Provision charge (benefit) for credit losses on loans and securities 16,398 ( 3,409 ) Provision charge (benefit) for credit losses on off-balance sheet credit exposures 92 ( 3,363 ) Deferred tax (benefit) expense ( 2,332 ) 3,393 Amortization of operating lease right-of-use assets 5,257 5,393 Income on Bank-owned life insurance ( 3,018 ) ( 2,741 ) Net amortization of premiums and discounts on securities 4,012 7,665 Accretion of net deferred loan fees ( 4,691 ) ( 4,801 ) Amortization of premiums on purchased loans, net 120 154 Originations of loans held for sale ( 11,490 ) ( 16,197 ) Proceeds from sales of loans originated for sale 11,938 9,881 ESOP expense 1,866 2,205 Allocation of stock award expense 4,830 5,485 Allocation of stock option expense 77 99 Net gain on sale of loans ( 972 ) ( 824 ) Net gain on securities transactions ( 24 ) ( 157 ) Net gain on sale of premises and equipment ( 197 ) ( 22 ) Net gain on sale of foreclosed assets ( 2,789 ) ( 16 ) Increase in accrued interest receivable ( 1,942 ) ( 868 ) Decrease (increase) in other assets 7,490 ( 12,691 ) (Decrease) increase in other liabilities ( 17,719 ) 22,578 Net cash provided by operating activities 85,398 101,534 Cash flows from investing activities: Net increase in loans ( 285,500 ) ( 396,236 ) Purchases of loans ( 3,394 ) ( 3,422 ) Proceeds from sales of foreclosed assets 3,485 280 Proceeds from maturities, calls and paydowns of held to maturity debt securities 17,545 37,009 Purchases of investment securities held to maturity ( 9,130 ) ( 12,369 ) Proceeds from maturities, calls and paydowns of available for sale debt securities 92,681 166,855 Purchases of available for sale debt securities ( 34,802 ) ( 241,725 ) Proceeds from redemption of Federal Home Loan Bank stock 112,279 31,134 Purchases of Federal Home Loan Bank stock ( 137,055 ) ( 51,680 ) BOLI claim benefits received 2,347 — Proceeds from sales of premises and equipment 62 22 Purchases of premises and equipment ( 2,959 ) ( 5,944 ) Net cash used in investing activities ( 244,441 ) ( 476,076 ) Cash flows from financing activities: Net decrease in deposits ( 301,904 ) ( 359,788 ) Increase in mortgage escrow deposits 8,575 7,906 Cash dividends paid to stockholders ( 36,727 ) ( 36,747 ) 8 Six months ended June 30, 2023 2022 Purchase of treasury stock — ( 46,530 ) Purchase of employee restricted shares to fund statutory tax withholding ( 1,671 ) ( 958 ) Stock options exercised 790 — Proceeds from long-term borrowings 446,531 964,000 Payments on long-term borrowings ( 32,500 ) ( 579,111 ) Net increase (decrease) in short-term borrowings 98,313 ( 9,161 ) Net cash provided by (used in) financing activities 181,407 ( 60,389 ) Net increase (decrease) in cash and cash equivalents 22,364 ( 434,931 ) Cash and cash equivalents at beginning of period 186,438 685,163 Restricted cash at beginning of period 70 27,300 Total cash, cash equivalents and restricted cash at beginning of period 186,508 712,463 Cash and cash equivalents at end of period 208,802 277,462 Restricted cash at end of period 70 70 Total cash, cash equivalents and restricted cash at end of period $ 208,872 $ 277,532 Cash paid during the period for: Interest on deposits and borrowings $ 81,490 $ 14,308 Income taxes $ 26,591 $ 7,760 Non-cash investing activities: Transfer of loans receivable to foreclosed assets $ 12,341 $ 624 See accompanying notes to unaudited consolidated financial statements. 9 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies A. Basis of Financial Statement Presentation The accompanying unaudited consolidated financial statements include the accounts of Provident Financial Services, Inc. (the "Company") and its wholly owned subsidiary, Provident Bank (the “Bank") and its wholly owned subsidiaries. In preparing the interim unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and the consolidated statements of income for the periods presented. Actual results could differ from these estimates. The allowance for credit losses is a material estimate that is 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 six months ended June 30, 2023 are not necessarily indicative of the results of operations that may be expected for all of 2023. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements should be read in conjunction with the December 31, 2022 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 six months ended June 30, 2023 and 2022 (dollars in thousands, except per share amounts): Three months ended June 30, 2023 2022 Net Income Weighted Average Common Shares Outstanding Per Share Amount Net Income Weighted Average Common Shares Outstanding Per Share Amount Net income $ 32,003 $ 39,228 Basic earnings per share: Income available to common stockholders $ 32,003 74,823,272 $ 0.43 $ 39,228 74,328,632 $ 0.53 Dilutive shares 6,915 72,156 Diluted earnings per share: Income available to common stockholders $ 32,003 74,830,187 $ 0.43 $ 39,228 74,400,788 $ 0.53 10 Six months ended June 30, 2023 2022 Net Income Weighted Average Common Shares Outstanding Per Share Amount Net Income Weighted Average Common Shares Outstanding Per Share Amount Net income $ 72,539 $ 83,191 Basic earnings per share: Income available to common stockholders $ 72,539 74,734,795 $ 0.97 $ 83,191 75,068,154 $ 1.11 Dilutive shares 32,053 84,132 Diluted earnings per share: Income available to common stockholders $ 72,539 74,766,848 $ 0.97 $ 83,191 75,152,286 $ 1.11 Anti-dilutive stock options and awards at June 30, 2023 and 2022, totaling 1.3 million shares and 1.0 million shares, respectively, were excluded from the earnings per share calculations. C. Loans Receivable and Allowance for Credit Losses The impact of utilizing the current expected credit loss ("CECL") methodology approach to calculate the allowance for credit losses on loans is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings. For the three and six months ended June 30, 2023, a worsened economic forecast and related deterioration in the projected commercial property price indices over the expected life of the loan portfolio within our CECL model led to increases to the provisions for credit losses and off-balance sheet credit exposures. See Notes 4 and 9 to the Consolidated Financial Statements for more information on the allowance for credit losses on loans and off-balance sheet credit exposures. D. Goodwill Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired through purchase acquisitions. In accordance with GAAP, goodwill with an indefinite useful life is not amortized, but is evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates. Goodwill is analyzed for impairment once a year. As permitted by GAAP, the Company prepares a qualitative assessment in determining whether goodwill may be impaired. The factors considered in the assessment include macroeconomic conditions, industry and market conditions and overall financial performance of the Company, among others. The Company completed its most recent annual goodwill impairment test as of July 1, 2023. At June 30, 2023, the Company performed an interim goodwill impairment analysis and concluded that no triggering considerations were met and therefore a test for impairment between annual tests was not required. Note 2. Business Combinations Lakeland Bancorp, Inc. - Merger Agreement On September 26, 2022, the Company entered into a definitive merger agreement pursuant to which it will merge (the “merger”) with Lakeland Bancorp, Inc. ("Lakeland"), and Lakeland Bank, a wholly owned subsidiary of Lakeland, will merge with and into Provident Bank, a wholly owned subsidiary of the Company. The merger agreement has been unanimously approved by the boards of both companies and shareholder approval has also been received for both companies. The actual value of the Company’s common stock to be recorded as consideration in the merger will be based on the closing price of Company’s common stock at the time of the merger completion date. Under the merger agreement, each share of Lakeland common stock will be exchanged for 0.8319 shares of the Company's common stock plus cash in lieu of fractional shares. Note 3. Investment Securities At June 30, 2023, the Company had $ 1.75 billion and $ 378.9 million in available for sale debt securities and held to maturity debt securities, respectively. Many factors, including lack of liquidity in the secondary market for certain securities, variations in pricing information, changes in interest rates, regulatory actions, changes in the business environment or any changes in the 11 competitive marketplace could have an adverse effect on the Company’s investment portfolio. The total number of available for sale and held to maturity debt securities in an unrealized loss position at June 30, 2023 totaled 937 , compared with 914 at December 31, 2022. The increase in the number of securities in an unrealized loss position at June 30, 2023 was due to higher current market interest rates compared to rates at December 31, 2022. Available for Sale Debt Securities The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for available for sale debt securities at June 30, 2023 and December 31, 2022 (in thousands): June 30, 2023 Amortized cost Gross unrealized gains Gross unrealized losses Fair value U.S. Treasury obligations $ 276,106 — ( 29,039 ) 247,067 Agency obligations 31,452 301 — 31,753 Mortgage-backed securities 1,549,842 84 ( 203,202 ) 1,346,724 Asset-backed securities 34,351 379 ( 224 ) 34,506 State and municipal obligations 64,939 — ( 9,214 ) 55,725 Corporate obligations 40,495 — ( 6,381 ) 34,114 $ 1,997,185 764 ( 248,060 ) 1,749,889 December 31, 2022 Amortized cost Gross unrealized gains Gross unrealized losses Fair value U.S. Treasury obligations $ 275,620 — ( 29,804 ) 245,816 Mortgage-backed securities 1,636,913 209 ( 209,983 ) 1,427,139 Asset-backed securities 37,706 278 ( 363 ) 37,621 State and municipal obligations 67,706 — ( 10,842 ) 56,864 Corporate obligations 40,540 50 ( 4,482 ) 36,108 $ 2,058,485 537 ( 255,474 ) 1,803,548 The amortized cost and fair value of available for sale debt securities at June 30, 2023, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer. June 30, 2023 Amortized cost Fair value Due in one year or less $ — — Due after one year through five years 242,910 218,600 Due after five years through ten years 82,226 70,318 Due after ten years 56,404 47,988 $ 381,540 336,906 Investments which pay principal on a periodic basis totaling $ 1.62 billion at amortized cost and $ 1.41 billion at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments. There were no sales of securities from the available for sale debt securities portfolio for the three and six months ended June 30, 2023 and 2022. For the three and six months ended June 30, 2023, there were no proceeds from calls on securities in the available for sale debt securities portfolio. For the three and six months ended June 30, 2022, proceeds from calls on securities in the available for sale debt securities portfolio totaled $ 5.4 million with gains of $ 58,000 and no losses recognized. 12 The number of available for sale debt securities in an unrealized loss position at June 30, 2023 totaled 464 , compared with 475 at December 31, 2022. The decline in the number of securities in an unrealized loss position at June 30, 2023 was due to maturities and calls of securities in the quarter. All securities in an unrealized loss position were investment grade at June 30, 2023. Held to Maturity Debt Securities The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for held to maturity debt securities at June 30, 2023 and December 31, 2022 (in thousands): June 30, 2023 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Agency obligations $ 12,096 — ( 929 ) 11,167 State and municipal obligations 357,003 168 ( 12,510 ) 344,661 Corporate obligations 9,820 — ( 619 ) 9,201 $ 378,919 168 ( 14,058 ) 365,029 December 31, 2022 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Agency obligations $ 9,997 — ( 1,033 ) 8,964 State and municipal obligations 366,164 268 ( 13,015 ) 353,417 Corporate obligations 11,789 1 ( 703 ) 11,087 $ 387,950 269 ( 14,751 ) 373,468 The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair value may fluctuate during the investment period. There were no sales of securities from the held to maturity debt securities portfolio for the three and six months ended June 30, 2023 and 2022. For the three and six months ended June 30, 2023, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $ 3.5 million and $ 6.6 million, respectively. As to these calls on securities, for the three months ended June 30, 2023, there were gross gains of $ 28,000 and no gross losses, while for the six months ended June 30, 2023, gross gains totaled $ 24,000 , with no gross losses. For the three and six months ended June 30, 2022, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $ 10.3 million and $ 26.2 million, respectively. As to these calls on securities for the three and six months ended June 30, 2022, gross gains totaled $ 83,000 and $ 99,000 , respectively, with no gross losses. The amortized cost and fair value of investment securities in the held to maturity debt securities portfolio at June 30, 2023 by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer. June 30, 2023 Amortized cost Fair value Due in one year or less $ 25,283 25,199 Due after one year through five years 169,684 166,605 Due after five years through ten years 153,491 148,121 Due after ten years 30,461 25,104 $ 378,919 365,029 The allowance for credit losses on held to maturity debt securities at June 30, 2023 and December 31, 2022 was $ 25,000 and $ 27,000 , respectively, and are excluded from amortized cost in the tables above. The number of held to maturity debt securities in an unrealized loss position at June 30, 2023 totaled 473 , compared with 439 at December 31, 2022. The increase in the number of securities in an unrealized loss position at June 30, 2023, was due to higher current market interest rates compared to rates at December 31, 2022. Management measures expected credit losses on held to maturity debt securities on a collective basis by security type. Management classifies the held to maturity debt securities portfolio into the following security types: 13 • Agency obligations; • Mortgage-backed securities; • State and municipal obligations; and • Corporate obligations. All of the agency obligations held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The majority of the state and municipal and corporate obligations carry credit ratings from the rating agencies at June 30, 2023 no lower than A and the Company had no securities rated BBB or worse by Moody’s Investors Service. Credit Quality Indicators. The following table provides the amortized cost of held to maturity debt securities by credit rating at June 30, 2023 and December 31, 2021 (in thousands): June 30, 2023 Total Portfolio AAA AA A BBB Not Rated Total Agency obligations $ 12,096 — — — — 12,096 State and municipal obligations 47,125 166,596 142,830 — 452 357,003 Corporate obligations 505 2,073 6,146 — 1,096 9,820 $ 59,726 168,669 148,976 — 1,548 378,919 December 31, 2022 Total Portfolio AAA AA A BBB Not Rated Total Agency obligations $ 9,997 — — — — 9,997 State and municipal obligations 48,453 171,934 143,829 770 1,178 366,164 Corporate obligations 507 3,592 7,415 — 275 11,789 $ 58,957 175,526 151,244 770 1,453 387,950 Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. At June 30, 2023, the held to maturity debt securities portfolio was comprised of 16 % rated AAA, 45 % rated AA, 39 % rated A, and less than 1 % either below an A rating or not rated by Moody’s Investors Service or Standard and Poor’s. Securities not explicitly rated, such as U.S. Government mortgage-backed securities, were grouped where possible under the credit rating of the issuer of the security. 14 Note 4. Loans Receivable and Allowance for Credit Losses Loans receivable at June 30, 2023 and December 31, 2022 are summarized as follows (in thousands): June 30, 2023 December 31, 2022 Mortgage loans: Commercial $ 4,373,436 4,316,185 Multi-family 1,645,770 1,513,818 Construction 707,234 715,494 Residential 1,166,159 1,177,698 Total mortgage loans 7,892,599 7,723,195 Commercial loans 2,348,447 2,233,670 Consumer loans 301,306 304,780 Total gross loans 10,542,352 10,261,645 Premiums on purchased loans 1,374 1,380 Net deferred fees ( 13,195 ) ( 14,142 ) Total loans $ 10,530,531 10,248,883 The following tables summarize the aging of loans receivable by portfolio segment and class of loans (in thousands): June 30, 2023 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: Commercial $ 1,445 1,137 7,279 — 9,861 4,363,575 4,373,436 4,276 Multi-family 3,853 — 2,314 — 6,167 1,639,603 1,645,770 2,314 Construction — — 1,874 — 1,874 705,360 707,234 1,874 Residential 1,427 1,171 1,698 — 4,296 1,161,863 1,166,159 1,698 Total mortgage loans 6,725 2,308 13,165 — 22,198 7,870,401 7,892,599 10,162 Commercial loans 3,021 90 31,885 — 34,996 2,313,451 2,348,447 19,504 Consumer loans 957 147 878 — 1,982 299,324 301,306 878 Total gross loans $ 10,703 2,545 45,928 — 59,176 10,483,176 10,542,352 30,544 December 31, 2022 30-59 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: Commercial $ 2,300 412 28,212 — 30,924 4,285,261 4,316,185 22,961 Multi-family 790 — 1,565 — 2,355 1,511,463 1,513,818 1,565 Construction 905 1,097 1,878 — 3,880 711,614 715,494 1,878 Residential 1,411 1,114 1,928 — 4,453 1,173,245 1,177,698 1,928 Total mortgage loans 5,406 2,623 33,583 — 41,612 7,681,583 7,723,195 28,332 Commercial loans 964 1,014 24,188 — 26,166 2,207,504 2,233,670 21,156 Consumer loans 885 147 738 — 1,770 303,010 304,780 739 Total gross loans $ 7,255 3,784 58,509 — 69,548 10,192,097 10,261,645 50,227 Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The principal amounts of these non-accrual loans were $ 45.9 million and $ 58.5 million at June 30, 2023 and December 31, 2022, respectively. Included in non-accrual loans were $ 17.4 million and $ 42.9 million of loans which were less than 90 days past due at June 30, 2023 and December 31, 2022, respectively. There were no loans 90 days or greater past due and still accruing interest at June 30, 2023 and December 31, 2022. 15 The activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands): Three months ended June 30, Mortgage loans Commercial loans Consumer loans Total 2023 Balance at beginning of period $ 63,195 27,117 2,446 92,758 Provision charge (benefit) to operations 6,742 3,769 ( 111 ) 10,400 Recoveries of loans previously charged-off 3 134 173 310 Loans charged-off — ( 1,313 ) ( 82 ) ( 1,395 ) Balance at end of period $ 69,940 29,707 2,426 102,073 2022 Balance at beginning of period $ 50,096 23,799 2,380 76,275 Provision charge (benefit) to operations 5,593 ( 2,710 ) 117 3,000 Recoveries of loans previously charged-off 361 443 109 913 Loans charged-off ( 986 ) ( 145 ) ( 41 ) ( 1,172 ) Balance at end of period $ 55,064 21,387 2,565 79,016 Six months ended June 30, Mortgage loans Commercial loans Consumer loans Total 2023 Balance at beginning of period $ 58,218 27,413 2,392 88,023 Cumulative effect of adopting Accounting Standards Update ("ASU") No. 2022-02 ( 510 ) ( 43 ) ( 41 ) ( 594 ) Provision charge (benefit) to operations 12,954 3,461 ( 15 ) 16,400 Recoveries of loans previously charged-off 6 301 258 565 Loans charged-off ( 728 ) ( 1,425 ) ( 168 ) ( 2,321 ) Balance at end of period $ 69,940 29,707 2,426 102,073 2022 Balance at beginning of period $ 52,104 26,343 2,293 80,740 Provision charge (benefit) charge to operations 3,599 ( 7,115 ) 116 ( 3,400 ) Recoveries of loans previously charged-off 371 2,304 275 2,950 Loans charged-off ( 1,010 ) ( 145 ) ( 119 ) ( 1,274 ) Balance at end of period $ 55,064 21,387 2,565 79,016 For the three and six months ended June 30, 2023, the Company recorded a $ 10.4 million and a $ 16.4 million provision for credit losses on loans, respectively. The increase in provision was attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices over the expected life of the loan portfolio within our CECL model. 16 The following table summarizes the Company's gross charge-offs recorded during the three months ended June 30, 2023 by year of origination (in thousands): 2023 2022 2021 2020 2019 Prior to 2019 Total Loans Commercial loans $ — — — — — 1,313 1,313 Consumer loans (1) 4 — — — — 3 7 Total gross loans $ 4 — — — — 1,316 1,320 (1) During the three months ended June 30, 2023, charge-offs on consumer overdraft accounts totaled $ 75,000 , which is not included in the table above. The following table summarizes the Company's gross charge-offs recorded during the six months ended June 30, 2023 by year of origination (in thousands): 2023 2022 2021 2020 2019 Prior to 2019 Total Loans Mortgage loans: Commercial $ — — — — — 707 707 Residential — — — — — 21 21 Total mortgage loans — — — — — 728 728 Commercial loans — — — — — 1,425 1,425 Consumer loans (1) 9 — — — — 13 22 Total gross loans $ 9 — — — — 2,166 2,175 (1) During the six months ended June 30, 2023, charge-offs on consumer overdraft accounts totaled $ 146,000 , which is not included in the table above. The Company defines a loan individually evaluated for impairment as a non-homogeneous loan greater than $ 1.0 million, for which, based on current information, it is not expected to collect all amounts due under the contractual terms of the loan agreement. At June 30, 2023, there were 17 loans totaling $ 37.1 million, compared to 10 loans totaling $ 42.8 million at December 31, 2022, that were individually evaluated for impairment. A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the collateral’s fair value less any selling costs. A specific allocation of the allowance for credit losses is established for each collateral-dependent loan with a carrying balance greater than the collateral’s fair value, less estimated selling costs. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less estimated selling costs. The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral-dependent loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral-dependent loan and updated annually, or more frequently if required. At each fiscal quarter end, if a loan is designated as collateral-dependent and the third-party appraisal has not yet been received, an evaluation of all available collateral is made using the best information available at the time, including rent rolls, borrower financial statements and tax returns, prior appraisals, management’s knowledge of the market and collateral, and internally prepared collateral valuations based upon market assumptions regarding vacancy and capitalization rates, each as and where applicable. Once the appraisal is received and reviewed, the specific reserves are adjusted to reflect the appraised value and evaluated for charge offs. The Company believes there have been no significant time lapses resulting from this process. At June 30, 2023 and December 31, 2022, the Company had $ 14.6 million and $ 24.0 million related to the fair value of collateral-dependent loans individually evaluated for impairment, respectively. These loans at June 30, 2023 consisted of $ 14.6 million in commercial loans. Loan modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearance, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. In addition, management attempts to obtain additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue 17 interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible. The following illustrates the most common loan modifications by loan classes offered by the Company that are required to be disclosed pursuant to the requirements of ASU 2022-02: Loan Classes Modification types Commercial Term extension, interest rate reductions, payment delay, or combination thereof. These modifications extend the term of the loan, lower the payment amount, or otherwise delay payments during a defined period for the purpose of providing borrowers additional time to return to compliance with the original loan term. Residential Mortgage/ Home Equity Forbearance period greater than six months. These modifications require reduced or no payments during the forbearance period for the purpose of providing borrowers additional time to return to compliance with the original loan term. As well as, term extension and rate adjustment. These modifications extend the term of the loan and provides for an adjustment to the interest rate, which reduces the monthly payment requirement. Automobile/ Direct Installment Term extension greater than three months. These modifications extend the term of the loan, which reduces the monthly payment requirement. Effective January 1, 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a modified retrospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for loan modifications to borrowers experiencing financial difficulty. Instead, these loan modifications are included in their respective pool and a historical loss rate is applied to the current loan balance to arrive at the quantitative and qualitative baseline portion of the allowance for credit losses. As a result, The Company recorded a $ 594,000 reduction to the allowance for credit losses, which resulted in a $ 433,000 cumulative effect adjustment increase, net of tax to retained earnings. There were no loan modifications made to borrowers experiencing financial difficulty during the three months ended June 30, 2023. The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during the six months ended June 30, 2023 (in thousands): Term Extension Interest Rate Reduction Interest Rate Reduction and Term Extension % of Total Class of Loans and Leases Commercial loans $ 3,771 — 1,250 0.21 % Total gross loans $ 3,771 — 1,250 0.05 % The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the six months ended June 30, 2023 (in thousands): Weighted-Average Months of Term Extension Weight-Average Rate Change Commercial loans 10 0.28 % Total gross loans 10 0.28 % There were no loan modifications made to borrowers experiencing financial difficulty during the three or six months ended June 30, 2023, that subsequently defaulted. 18 The following table presents the aging analysis of loan modifications made to borrowers experiencing financial difficulty during the six months ended June 30, 2023 (in thousands): Current 30-59 Days Past Due 60-89 Days Past Due 90 days or more Past Due Non- Accrual Total Commercial loans $ 5,021 — — — — 5,021 Total gross loans $ 5,021 — — — — 5,021 Prior to our adoption of ASU 2022-02, we accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. However, our TDR accounting described herein was suspended for most of our loss mitigation activities through our election to account for certain eligible loss mitigation activities occurring between March 2020 and January 1, 2022 under the COVID-19 relief granted pursuant to the CARES Act and the Consolidated Appropriations Act of 2021. Effective January 1, 2023, we adopted ASU 2022-02, which eliminated TDR accounting prospectively for all restructurings occurring on or after January 1, 2023. The following table presents the number of loans modified as TDRs during the three and six months ended June 30, 2022, along with their balances immediately prior to the modification date and post-modification as of June 30, 2022 (in thousands): For the three and six months ended June 30, 2022 Troubled Debt Restructurings Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Mortgage loans: Residential 2 $ 265 206 Multi Family 1 1,618 1,601 Total mortgage loans 3 1,883 1,807 Commercial loans 2 378 274 Total restructured loans 5 $ 2,261 2,081 Durin g the three and six months ended June 30, 2022, $ 921,000 of charge-offs were recorded on collateral-dependent impaired loans. There was one loan totaling $ 209,000 which had a payment default (90 days or more past due) for a loan modified as a TDR within the 12 month period ending June 30, 2023. For TDRs that subsequently defaulted, the Company determined 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 June 30, 2023, the balance of PCD loans totaled $ 173.3 million with a related allowance for credit losses of $ 1.6 million. The balance of PCD loans at December 31, 2022 was $ 193.0 million with a related allowance for credit losses of $ 1.7 million. Management utilizes an internal nine-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal risk. Loans that are deemed to be of “questionable quality” are rated 5 (watch) or 6 (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated 7, 8 or 9, respectively. Commercial mortgage, commercial, multi-family and construction loans are rated individually, and each lending officer is responsible for risk rating loans in their portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Department. The risk ratings are also reviewed periodically through loan review examinations which are currently performed by an independent third-party. Reports by the independent third-party are presented 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. PPP loans were fully guaranteed by the SBA and were eligible for forgiveness by the SBA to the extent that the proceeds were used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up 19 to 24 weeks after the loan was made as long as certain conditions were met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA are to be repaid by the SBA to the Company. Eligibility ended for this program in May of 2021. PPP loans are included in our commercial loan portfolio. Under the PPP, the Company secured 2,067 PPP loans for its customers totaling $ 682.0 million. As of June 30, 2023, 2,054 PPP loans totaling $ 679.4 million were forgiven and repaid by the SBA. The balance of PPP loans at June 30, 2023 was $ 2.6 million. The following table summarizes the Company's gross loans held for investment by year of origination and internally assigned credit grades as of June 30, 2023 and December 31, 2022 (in thousands): Gross Loans Held for Investment by Year of Origination at June 30, 2023 2023 2022 2021 2020 2019 Prior to 2019 Revolving Loans Revolving loans to term loans Total Loans Commercial Mortgage Special mention $ — — — 2,713 2,346 33,436 485 — 38,980 Substandard — — — 376 — 7,785 434 — 8,595 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — 3,089 2,346 41,221 919 — 47,575 Pass/Watch 290,713 910,869 670,781 511,239 513,150 1,318,607 96,163 14,339 4,325,861 Total commercial mortgage $ 290,713 910,869 670,781 514,328 515,496 1,359,828 97,082 14,339 4,373,436 Multi-family Special mention $ — — — — — 9,608 — — 9,608 Substandard — — — — — 3,211 — — 3,211 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — — 12,819 — — 12,819 Pass/Watch 132,991 170,856 198,427 279,117 232,748 614,456 3,223 1,133 1,632,951 Total multi-family $ 132,991 170,856 198,427 279,117 232,748 627,275 3,223 1,133 1,645,770 Construction Special mention $ — — — — — — — — — Substandard — — — — 1,097 777 — — 1,874 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — 1,097 777 — — 1,874 Pass/Watch 33,795 276,155 266,520 105,078 8,456 13,346 2,010 705,360 Total construction $ 33,795 276,155 266,520 105,078 9,553 14,123 — 2,010 707,234 Residential (1) Special mention $ — — — — — 1,172 — — 1,172 Substandard — — — — — 2,142 — — 2,142 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — — 3,314 — — 3,314 Pass/Watch 42,524 147,449 205,949 205,123 92,537 469,263 — — 1,162,845 Total residential $ 42,524 147,449 205,949 205,123 92,537 472,577 — — 1,166,159 20 Gross Loans Held for Investment by Year of Origination at June 30, 2023 2023 2022 2021 2020 2019 Prior to 2019 Revolving Loans Revolving loans to term loans Total Loans Total Mortgage Special mention $ — — — 2,713 2,346 44,216 485 — 49,760 Substandard — — — 376 1,097 13,915 434 — 15,822 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — 3,089 3,443 58,131 919 — 65,582 Pass/Watch 500,023 1,505,329 1,341,677 1,100,557 846,891 2,415,672 99,386 17,482 7,827,017 Total Mortgage $ 500,023 1,505,329 1,341,677 1,103,646 850,334 2,473,803 100,305 17,482 7,892,599 Commercial Special mention $ — 70 387 577 54 11,490 9,714 — 22,292 Substandard — — 14,966 17,133 3,974 14,473 13,837 352 64,735 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — 70 15,353 17,710 4,028 25,963 23,551 352 87,027 Pass/Watch 154,852 379,855 308,290 148,648 151,902 552,747 538,651 26,475 2,261,420 Total commercial $ 154,852 379,925 323,643 166,358 155,930 578,710 562,202 26,827 2,348,447 Consumer (1) Special mention $ — — — — — 145 — 2 147 Substandard — — — — — 4 709 90 803 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — — 149 709 92 950 Pass/Watch 14,243 29,064 19,513 3,328 15,341 93,900 112,425 12,542 300,356 Total consumer $ 14,243 29,064 19,513 3,328 15,341 94,049 113,134 12,634 301,306 Total Loans Special mention $ — 70 387 3,290 2,400 55,851 10,199 2 72,199 Substandard — — 14,966 17,509 5,071 28,392 14,980 442 81,360 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — 70 15,353 20,799 7,471 84,243 25,179 444 153,559 Pass/Watch 669,118 1,914,248 1,669,480 1,252,533 1,014,134 3,062,319 750,462 56,499 10,388,793 Total gross loans $ 669,118 1,914,318 1,684,833 1,273,332 1,021,605 3,146,562 775,641 56,943 10,542,352 (1) For residential and consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan. Gross Loans Held for Investment by Year of Origination at December 31, 2022 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Revolving loans to term loans Total Loans Commercial Mortgage Special mention $ — — 3,071 26,809 52,509 14,740 — — 97,129 21 Gross Loans Held for Investment by Year of Origination at December 31, 2022 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Revolving loans to term loans Total Loans Substandard — — — — 18,020 11,774 434 — 30,228 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — 3,071 26,809 70,529 26,514 434 — 127,357 Pass/Watch 951,367 630,584 567,448 546,474 218,620 1,164,854 94,716 14,765 4,188,828 Total commercial mortgage $ 951,367 630,584 570,519 573,283 289,149 1,191,368 95,150 14,765 4,316,185 Multi-family Special mention $ — — — — — 9,730 — — 9,730 Substandard — — — — — 2,356 — — 2,356 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — — 12,086 — — 12,086 Pass/Watch 142,550 150,293 282,228 234,953 187,499 502,177 887 1,145 1,501,732 Total multi-family $ 142,550 150,293 282,228 234,953 187,499 514,263 887 1,145 1,513,818 Construction Special mention $ — — — — 19,728 905 — — 20,633 Substandard — — — 2,197 777 — — — 2,974 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — 2,197 20,505 905 — — 23,607 Pass/Watch 168,674 362,542 103,067 38,639 16,917 62 1,986 691,887 Total construction $ 168,674 362,542 103,067 40,836 37,422 967 — 1,986 715,494 Residential (1) Special mention $ — — — — — 1,114 — — 1,114 Substandard — — — — 264 4,417 — — 4,681 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — 264 5,531 — — 5,795 Pass/Watch 151,077 212,697 211,445 95,872 58,226 442,586 — — 1,171,903 Total residential $ 151,077 212,697 211,445 95,872 58,490 448,117 — — 1,177,698 Total Mortgage Special mention $ — — 3,071 26,809 72,237 26,489 — — 128,606 Substandard — — — 2,197 19,061 18,547 434 — 40,239 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — 3,071 29,006 91,298 45,036 434 — 168,845 22 Gross Loans Held for Investment by Year of Origination at December 31, 2022 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Revolving loans to term loans Total Loans Pass/Watch 1,413,668 1,356,116 1,164,188 915,938 481,262 2,109,679 95,603 17,896 7,554,350 Total Mortgage $ 1,413,668 1,356,116 1,167,259 944,944 572,560 2,154,715 96,037 17,896 7,723,195 Commercial Special mention $ 75 1,148 444 201 10,156 4,379 14,530 140 31,073 Substandard — 7,605 10,230 4,391 3,561 13,734 7,604 364 47,489 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified 75 8,753 10,674 4,592 13,717 18,113 22,134 504 78,562 Pass/Watch 377,662 320,334 162,175 161,150 87,396 522,798 492,717 30,876 2,155,108 Total commercial $ 377,737 329,087 172,849 165,742 101,113 540,911 514,851 31,380 2,233,670 Consumer (1) Special mention $ — — — — — 146 — — 146 Substandard — 8 — 109 332 209 — 658 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — 8 — 109 478 209 — 804 Pass/Watch 30,132 20,671 2,909 16,682 16,156 88,173 115,777 13,476 303,976 Total consumer $ 30,132 20,671 2,917 16,682 16,265 88,651 115,986 13,476 304,780 Total Loans Special mention $ 75 1,148 3,515 27,010 82,393 31,014 14,530 140 159,825 Substandard — 7,605 10,238 6,588 22,731 32,613 8,247 364 88,386 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified 75 8,753 13,753 33,598 105,124 63,627 22,777 504 248,211 Pass/Watch 1,821,462 1,697,121 1,329,272 1,093,770 584,814 2,720,650 704,097 62,248 10,013,434 Total gross loans $ 1,821,537 1,705,874 1,343,025 1,127,368 689,938 2,784,277 726,874 62,752 10,261,645 (1) For residential and consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan. Note 5. Deposits Deposits at June 30, 2023 and December 31, 2022 are summarized as follows (in thousands): June 30, 2023 December 31, 2022 Savings $ 1,275,262 1,438,583 Money market 2,272,648 2,542,160 NOW 3,334,509 3,186,926 Non-interest bearing 2,358,372 2,643,919 Certificates of deposit 1,020,329 751,436 Total deposits $ 10,261,120 10,563,024 23 Note 6. Borrowed Funds Borrowed funds at June 30, 2023 and December 31, 2022 are summarized as follows (in thousands): June 30, 2023 December 31, 2022 Securities sold under repurchase agreements $ 82,470 98,000 FHLB line of credit 179,000 486,000 FHLB advances 1,588,244 753,370 Total borrowed funds $ 1,849,714 1,337,370 At June 30, 2023, FHLB advances were at fixed rates and mature between July 2023 and September 2026, and at December 31, 2022, FHLB advances were at fixed rates with maturities between January 2023 and July 2025. These advances are secured by loans receivable under a blanket collateral agreement. Scheduled maturities of FHLB advances and overnight borrowings at June 30, 2023 are as follows (in thousands): 2023 Due in one year or less $ 1,020,648 Due after one year through two years 514,492 Due after two years through three years 174,660 Due after three years through four years 57,444 Thereafter — Total FHLB advances and overnight borrowings $ 1,767,244 Scheduled maturities of securities sold under repurchase agreements at June 30, 2023 are as follows (in thousands): 2023 Due in one year or less $ 82,470 Thereafter — Total securities sold under repurchase agreements $ 82,470 The following tables set forth certain information as to borrowed funds for the periods ended June 30, 2023 and December 31, 2022 (in thousands): Maximum balance Average balance Weighted average interest rate June 30, 2023 Securities sold under repurchase agreements $ 99,669 93,066 1.41 % FHLB overnight borrowings 402,000 223,980 4.87 FHLB advances 1,588,245 1,125,698 2.78 December 31, 2022 Securities sold under repurchase agreements $ 125,506 113,550 0.38 % FHLB overnight borrowings 486,000 139,012 3.32 FHLB advances 753,370 503,713 0.85 Securities sold under repurchase agreements include arrangements with deposit customers of the Bank to sweep funds into short-term borrowings. The Bank uses available for sale debt securities to pledge as collateral for the repurchase agreements. At June 30, 2023 and December 31, 2022, available for sale debt securities pledged as collateral for repurchase agreements totaled $ 95.5 million and $ 116.5 million, respectively. Interest expense on borrowings for the three and six months ended June 30, 2023 amounted to $ 14.1 million and $ 21.6 million, respectively. Interest expense on borrowings for the three and six months ended June 30, 2022 amounted to $ 1.1 million and $ 2.3 million, respectively. Note 7. Components of Net Periodic Benefit Cost 24 The Bank has a noncontributory defined benefit pension plan covering its full-time employees who had attained age 21 with at least one year of service as of April 1, 2003. The pension plan was frozen on April 1, 2003. All participants in the Plan are 100 % vested. The pension plan’s assets are invested in investment funds and group annuity contracts currently managed by the Principal Financial Group and Allmerica Financial. In addition to pension benefits, certain health care and life insurance benefits are currently made available to certain of the Bank’s retired employees. The costs of such benefits are accrued based on actuarial assumptions from the date of hire to the date the employee is fully eligible to receive the benefits. Effective January 1, 2003, eligibility for retiree health care benefits was frozen as to new entrants, and benefits were eliminated for employees with less than ten years of service as of December 31, 2002. Effective January 1, 2007, eligibility for retiree life insurance benefits was frozen as to new entrants and retiree life insurance benefits were eliminated for employees with less than ten years of service as of December 31, 2006. Net periodic (benefit) increase cost for pension benefits and other post-retirement benefits for the three and six months ended June 30, 2023 and 2022 includes the following components (in thousands): Three months ended June 30, Six months ended June 30, Pension benefits Other post-retirement benefits Pension benefits Other post-retirement benefits 2023 2022 2023 2022 2023 2022 2023 2022 Service cost $ — — 3 7 $ — — 6 14 Interest cost 302 214 150 111 604 428 300 222 Expected return on plan assets ( 706 ) ( 864 ) — — ( 1,412 ) ( 1,728 ) — — Amortization of prior service cost — — — — — — — — Amortization of the net loss (gain) 177 — ( 533 ) ( 326 ) 354 — ( 1,066 ) ( 652 ) Net periodic (decrease) increase in benefit cost $ ( 227 ) ( 650 ) ( 380 ) ( 208 ) $ ( 454 ) ( 1,300 ) ( 760 ) ( 416 ) In its consolidated financial statements for the year ended December 31, 2022, the Company previously disclosed that it does not expect to contribute to the pension plan in 2023. As of June 30, 2023, no contributions have been made to the pension plan. The changes in net periodic benefit cost for pension benefits and other post-retirement benefits for the three and six months ended June 30, 2023 were calculated using the January 1, 2023 pension and other post-retirement benefits actuarial valuations. Note 8. Impact of Recent Accounting Pronouncements Accounting Pronouncements Adopted This Year In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, "Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures," which addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancing and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. For entities that have adopted ASU 2016-13, ASU 2022-02 was effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption was permitted if an entity had adopted ASU 2016-13. The Company adopted this ASU on January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be recorded with previously applicable GAAP. The Company recorded a $ 594,000 reduction to the allowance for credit losses, which resulted in a $ 433,000 cumulative effect adjustment increase, net of tax, to retained earnings. In March 2022, the FASB issued Accounting Standards Update (ASU) 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method . The purpose of this updated guidance is to further align risk management objectives with hedge accounting results on the application of the last-of-layer method, which was first introduced in ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022, with early adoption in the interim period permitted. The Company adopted this standard on January 1, 2023 on a prospective basis, with no impact to the consolidated financial statements. 25 Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)," which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope 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 cessation 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. The Company has determined that the LIBOR transition and this guidance will not have a material effect on the Company's business operations and consolidated financial statements. Note 9. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures Management analyzes the Company's exposure to credit losses for both on-balance sheet and off-balance sheet activity using a consistent methodology for the quantitative framework as well as the qualitative framework. For purposes of estimating the allowance for credit losses for off-balance sheet credit exposures, the exposure that may default includes an estimated drawdown of unused credit based on historical credit utilization factors and current loss factors. For the three and six months ended June 30, 2023, the Company recorded a $ 647,000 negative provision and a $ 92,000 provision for credit losses for off-balance sheet credit exposures, respectively. For the three and six months ended June 30, 2022, the Company recorded a $ 973,000 and a $ 3.4 million negative provision for credit losses for off-balance sheet credit exposures, respectively. The $ 326,000 increase in the provision for the three months ended June 30, 2023, compared to the same period in 2022, was primarily the result of the period-over-period relative change in line of credit utilization. The $ 3.5 million increase in the provision for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, was primarily the result of the period-over-period relative change in line of credit utilization and an increase in projected loss factors as a result of a worsened economic forecast. The allowance for credit losses for off-balance sheet credit exposures was $ 3.2 million at June 30, 2023 and December 31, 2022, and are included in other liabilities on the Consolidated Statements of Financial Condition. Note 10. Fair Value Measurements The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. Where quoted market values in an active market are not readily available, management utilizes various valuation techniques to estimate fair value. Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. However, in many instances fair value estimates may not be substantiated by comparison to independent markets and may not be realized in an immediate sale of the financial instrument. 26 GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1: Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The valuation techniques are based upon the unpaid principal balance only, and exclude any accrued interest or dividends at the measurement date. Interest income and expense and dividend income are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium. Assets and Liabilities Measured at Fair Value on a Recurring Basis The valuation techniques described below were used to measure fair value of financial instruments in the table below on a recurring basis as of June 30, 2023 and December 31, 2022. Available for Sale Debt Securities, at Fair Value For available for sale debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third-party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, management compares the prices received from the pricing service to a secondary pricing source. Additionally, management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in an adjustment in the prices obtained from the pricing service. Equity Securities, at Fair Value The Company holds equity securities that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs. Derivatives The Company records all derivatives on the statements of financial condition at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company has interest rate derivatives resulting from a service provided to certain qualified borrowers in a loan related transaction which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. As such, all changes in fair value of the Company’s derivatives are recognized directly in earnings. The Company also uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges, and which satisfy hedge accounting requirements, involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. These derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits. The change in the fair value of these derivatives is recorded in accumulated other 27 comprehensive income (loss), 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 June 30, 2023 and December 31, 2022. Collateral-Dependent Impaired Loans For loans measured for impairment based on the fair value of the underlying collateral, fair value was estimated using a market approach. The Company measures the fair value of collateral underlying impaired loans primarily through obtaining independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case-by-case basis, to comparable assets based on the appraisers’ market knowledge and experience, as well as adjustments for estimated costs to sell between 5 % and 10 %. Management classifies these loans as Level 3 within the fair value hierarchy. Foreclosed Assets Assets acquired through foreclosure or deed in lieu of foreclosure are carried at fair value, less estimated selling costs, which range between 5 % and 10 %. Fair value is generally based on independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case basis, to comparable assets based on the appraisers’ market knowledge and experience, and are classified as Level 3. When an asset is acquired, the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for credit losses. A reserve for foreclosed assets may be established to provide for possible write-downs and selling costs that occur subsequent to foreclosure. Foreclosed assets are carried net of the related reserve. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned, are recorded as incurred. There were no changes to the valuation techniques for fair value measurements as of June 30, 2023 or December 31, 2022. 28 The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair values as of June 30, 2023 and December 31, 2022, by level within the fair value hierarchy (in thousands): Fair Value Measurements at Reporting Date Using: June 30, 2023 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 $ 247,067 247,067 — — Agency obligations 31,753 31,753 — — Mortgage-backed securities 1,346,724 — 1,346,724 — Asset-backed securities 34,506 — 34,506 — State and municipal obligations 55,725 — 55,725 — Corporate obligations 34,114 — 34,114 — Total available for sale debt securities 1,749,889 278,820 1,471,069 — Equity securities 1,238 1,238 — — Derivative assets 131,191 — 131,191 — $ 1,882,318 280,058 1,602,260 — Derivative liabilities $ 108,067 — 108,067 — Measured on a non-recurring basis: Loans measured for impairment based on the fair value of the underlying collateral $ 14,582 — — 14,582 Foreclosed assets 13,697 — — 13,697 $ 28,279 — — 28,279 Fair Value Measurements at Reporting Date Using: December 31, 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 $ 245,816 245,816 — — Mortgage-backed securities 1,427,139 — 1,427,139 — Asset-backed securities 37,621 — 37,621 — State and municipal obligations 56,864 — 56,864 — Corporate obligations 36,108 — 36,108 — Total available for sale debt securities 1,803,548 245,816 1,557,732 — Equity Securities 1,147 1,147 — — Derivative assets 148,151 — 148,151 — $ 1,952,846 246,963 1,705,883 — Derivative liabilities $ 120,896 — 120,896 — Measured on a non-recurring basis: Loans measured for impairment based on the fair value of the underlying collateral $ 23,988 — — 23,988 Foreclosed assets 2,124 — — 2,124 $ 26,112 — — 26,112 There were no transfers between Level 1, Level 2 and Level 3 during the three and six months ended June 30, 2023. 29 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. At June 30, 2023 and December 31, 2022, $ 70,000 was included in cash and cash equivalents, 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. 30 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 June 30, 2023 and December 31, 2022. Fair values are presented by level within the fair value hierarchy. 31 Fair Value Measurements at June 30, 2023 Using: (Dollars in thousands) Carrying 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 $ 208,872 208,872 208,872 — — Available for sale debt securities: U.S. Treasury obligations 247,067 247,067 247,067 — — Agency obligations 31,753 31,753 31,753 — — Mortgage-backed securities 1,346,724 1,346,724 — 1,346,724 — Asset-backed securities 34,506 34,506 — 34,506 — State and municipal obligations 55,725 55,725 — 55,725 — Corporate obligations 34,114 34,114 — 34,114 — Total available for sale debt securities $ 1,749,889 1,749,889 278,820 1,471,069 — Held to maturity debt securities, net of allowance for credit losses: Agency obligations 12,096 11,167 11,167 — — State and municipal obligations 356,987 344,661 — 344,661 — Corporate obligations 9,811 9,201 — 9,201 — Total held to maturity debt securities, net of allowance for credit losses $ 378,894 365,029 11,167 353,862 — FHLBNY stock 93,330 93,330 93,330 — — Equity Securities 1,238 1,238 1,238 — — Loans, net of allowance for credit losses 10,428,458 9,969,672 — — 9,969,672 Derivative assets 131,191 131,191 — 131,191 — Financial liabilities: Deposits other than certificates of deposits $ 9,240,791 9,240,791 9,240,791 — — Certificates of deposit 1,020,329 1,015,211 — 1,015,211 — Total deposits $ 10,261,120 10,256,002 9,240,791 1,015,211 — Borrowings 1,849,714 1,832,814 — 1,832,814 — Subordinated debentures 10,596 9,118 — 9,118 — Derivative liabilities 108,067 108,067 — 108,067 — 32 Fair Value Measurements at December 31, 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 $ 186,508 186,508 186,508 — — Available for sale debt securities: U.S. Treasury obligations 245,816 245,816 245,816 — — Mortgage-backed securities 1,427,139 1,427,139 — 1,427,139 — Asset-backed securities 37,621 37,621 — 37,621 — State and municipal obligations 56,864 56,864 — 56,864 — Corporate obligations 36,108 36,108 — 36,108 — Total available for sale debt securities $ 1,803,548 1,803,548 245,816 1,557,732 — Held to maturity debt securities: Agency obligations $ 9,997 8,964 8,964 — — State and municipal obligations 366,146 353,417 — 353,417 — Corporate obligations 11,780 11,087 — 11,087 — Total held to maturity debt securities $ 387,923 373,468 8,964 364,504 — FHLBNY stock 68,554 68,554 68,554 — — Equity Securities 1,147 1,147 1,147 — — Loans, net of allowance for credit losses 10,160,860 9,768,460 — — 9,768,460 Derivative assets 148,151 148,151 — 148,151 — Financial liabilities: Deposits other than certificates of deposits $ 9,811,588 9,811,588 9,811,588 — — Certificates of deposit 751,436 745,155 — 745,155 — Total deposits $ 10,563,024 10,556,743 9,811,588 745,155 — Borrowings 1,337,370 1,324,578 — 1,324,578 — Subordinated debentures 10,493 9,422 — 9,422 — Derivative liabilities 120,896 120,896 — 120,896 — 33 Note 11. Other Comprehensive (Loss) Income The following table presents the components of other comprehensive (loss) income, both gross and net of tax, for the three and six months ended June 30, 2023 and 2022 (in thousands): Three months ended June 30, 2023 2022 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 $ ( 20,178 ) 5,452 ( 14,726 ) ( 62,477 ) 16,744 ( 45,733 ) Reclassification adjustment for gains included in net income — — — ( 58 ) 16 ( 42 ) Total ( 20,178 ) 5,452 ( 14,726 ) ( 62,535 ) 16,760 ( 45,775 ) Unrealized gains and losses on derivatives (cash flow hedges): Net unrealized gains (losses) arising during the period 5,002 ( 1,352 ) 3,650 3,110 ( 834 ) 2,276 Reclassification adjustment for gains included in net income ( 4,124 ) 1,114 ( 3,010 ) ( 162 ) 44 ( 118 ) Total 878 ( 238 ) 640 2,948 ( 790 ) 2,158 Amortization related to post-retirement obligations ( 358 ) 97 ( 261 ) ( 322 ) 86 ( 236 ) Total other comprehensive (loss) income $ ( 19,658 ) 5,311 ( 14,347 ) ( 59,909 ) 16,056 ( 43,853 ) Six months ended June 30, 2023 2022 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 gains (losses) arising during the period $ 7,641 ( 1,503 ) 6,138 ( 178,558 ) 47,854 ( 130,704 ) Reclassification adjustment for gains included in net income — — — ( 58 ) 16 ( 42 ) Total 7,641 ( 1,503 ) 6,138 ( 178,616 ) 47,870 ( 130,746 ) Unrealized gains and losses on derivatives (cash flow hedges): Net unrealized gains (losses) arising during the period 4,219 ( 1,186 ) 3,033 16,703 ( 4,476 ) 12,227 Reclassification adjustment for (gains) losses included in net income ( 8,343 ) 2,254 ( 6,089 ) 504 ( 135 ) 369 Total ( 4,124 ) 1,068 ( 3,056 ) 17,207 ( 4,611 ) 12,596 Amortization related to post-retirement obligations ( 727 ) 197 ( 530 ) ( 700 ) 188 ( 512 ) Total other comprehensive income (loss) $ 2,790 ( 238 ) 2,552 ( 162,109 ) 43,447 ( 118,662 ) 34 The following tables present the changes in the components of accumulated other comprehensive (loss), net of tax, for the three and six months ended June 30, 2023 and 2022 (in thousands): Changes in Accumulated Other Comprehensive (Loss) by Component, net of tax for the three months ended June 30, 2023 2022 Unrealized Losses on Available for Sale Debt Securities Post- Retirement Obligations Unrealized Gains on Derivatives (cash flow hedges) Accumulated Other Comprehensive Loss Unrealized Gains on Available for Sale Debt Securities Post- Retirement Obligations Unrealized Losses on Derivatives (cash flow hedges) Accumulated Other Comprehensive Loss Balance at March 31, $ ( 165,750 ) 1,303 16,301 ( 148,146 ) ( 85,182 ) 2,705 14,531 ( 67,946 ) Current - period other comprehensive (loss) ( 14,726 ) ( 261 ) 640 ( 14,347 ) ( 45,775 ) ( 236 ) 2,158 ( 43,853 ) Balance at June 30, $ ( 180,476 ) 1,042 16,941 ( 162,493 ) ( 130,957 ) 2,469 16,689 ( 111,799 ) Changes in Accumulated Other Comprehensive (Loss) by Component, net of tax for the six months ended June 30, 2023 2022 Unrealized Losses on Available for Sale Debt Securities Post- Retirement Obligations Unrealized Gains on Derivatives (cash flow hedges) Accumulated Other Comprehensive Income (Loss) Unrealized Gains (Losses) on Available for Sale Debt Securities Post- Retirement Obligations Unrealized Gains (Losses) on Derivatives (cash flow hedges) Accumulated Other Comprehensive Income (Loss) Balance at December 31, $ ( 186,614 ) 1,572 19,997 ( 165,045 ) ( 211 ) 2,981 4,093 6,863 Current - period other comprehensive income (loss) 6,138 ( 530 ) ( 3,056 ) 2,552 ( 130,746 ) ( 512 ) 12,596 ( 118,662 ) Balance at June 30, $ ( 180,476 ) 1,042 16,941 ( 162,493 ) ( 130,957 ) 2,469 16,689 ( 111,799 ) 35 The following tables summarize the reclassifications from accumulated other comprehensive (loss) to the consolidated statements of income for the three and six months ended June 30, 2023 and 2022 (in thousands): Reclassifications From Accumulated Other Comprehensive Income ("AOCI") Amount reclassified from AOCI for the three months ended June 30, Affected line item in the Consolidated Statement of Income 2023 2022 Details of AOCI: Available for sale debt securities: Realized net gains on the sale of securities available for sale $ — ( 58 ) Net gain on securities transactions — 16 Income tax expense $ — ( 42 ) Net of tax Cash flow hedges: Realized net gains on derivatives $ ( 4,124 ) ( 162 ) Interest expense 1,114 44 Income tax expense $ ( 3,010 ) ( 118 ) Post-retirement obligations: Amortization of actuarial gains $ ( 356 ) ( 326 ) Compensation and employee benefits (1) 96 84 Income tax expense Total reclassification $ ( 260 ) ( 242 ) Net of tax Total reclassifications $ ( 3,270 ) ( 402 ) Net of tax Reclassifications From Accumulated Other Comprehensive Income ("AOCI") Amount reclassified from AOCI for the six months ended June 30, Affected line item in the Consolidated Statement of Income 2023 2022 Details of AOCI: Available for sale debt securities: Realized net gains on the sale of securities available for sale $ — ( 58 ) Net gain on securities transactions — 16 Income tax expense $ — ( 42 ) Net of tax Cash flow hedges: Realized net (gains) losses on derivatives $ ( 8,343 ) 504 Interest expense 2,254 ( 136 ) Income tax expense $ ( 6,089 ) 368 Post-retirement obligations: Amortization of actuarial gains $ ( 712 ) ( 652 ) Compensation and employee benefits (1) 192 171 Income tax expense Total reclassification $ ( 520 ) ( 481 ) Net of tax Total reclassifications $ ( 6,609 ) ( 155 ) Net of tax (1) This item is included in the computation of net periodic benefit cost. See Note 7. Components of Net Periodic Benefit Cost. 36 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 June 30, 2023 and December 31, 2022, the Company had 152 loan related interest rate swaps with aggregate notional amounts of $ 2.23 billion and $ 2.40 billion, respectively. The Company periodically enters into risk participation agreements ("RPAs"), with the Company functioning as either the lead institution, or as a participant when another company is the lead institution on a commercial loan. These RPAs are entered into to manage the credit exposure on interest rate contracts associated with these loan participation agreements. Under the RPAs, the Company will either receive or make a payment in the event the borrower defaults on the related interest rate contract. The Company has minimum collateral posting thresholds with certain of its risk participation counterparties, and has posted collateral of $ 70,000 against the potential risk of default by the borrower under these agreements. For June 30, 2023 and December 31, 2022, the Company had 12 and 14 credit derivatives, respectively, with aggregate notional amounts of $ 143.5 million and $ 157.9 million, respectively, from participations in interest rate swaps as part of these loan participation arrangements. At June 30, 2023, the asset and liability positions of these fair value credit derivatives totaled $ 47,000 and $ 11,000 , respectively, compared to $ 26,000 and $ 12,000 , respectively, at December 31, 2022. Cash Flow Hedges of Interest Rate Risk. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable payment amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Changes in the fair value of derivatives designated and that qualify as cash flow hedges of interest rate risk are recorded in accumulated other comprehensive (loss) income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and six months ended June 30, 2023 and 2022, such derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings or demand deposits. During the next twelve months, the Company estimates that $ 15.7 million will be reclassified as a reduction to interest expense. At June 30, 2023, the Company had nine outstanding interest rate derivatives with an aggregate notional amount of $ 405.0 million that were each designated as a cash flow hedge of interest rate risk. Assets and liabilities relating to certain financial instruments, including derivatives, may be eligible for offset in the Consolidated Statements of Financial Condition and/or subject to enforceable master netting arrangements or similar agreements. The Company does not offset asset and liabilities under such arrangements in the Consolidated Statements of Financial Condition. The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments that are eligible for offset in the Consolidated Statements of Condition at June 30, 2023 and December 31, 2022 (in thousands). 37 Fair Values of Derivative Instruments as of June 30, 2023 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 $ 1,114,765 Other assets $ 109,589 1,114,765 Other liabilities 109,871 Credit contracts 46,768 Other assets 47 96,764 Other liabilities 11 Total derivatives not designated as a hedging instrument 109,636 109,882 Derivatives designated as a hedging instrument: Interest rate products 405,000 Other assets 24,769 — Other liabilities — Total gross derivative amounts recognized on the balance sheet 134,405 109,882 Gross amounts offset on the balance sheet — — Net derivative amounts presented on the balance sheet $ 134,405 109,882 Gross amounts not offset on the balance sheet: Financial instruments - institutional counterparties $ — — Cash collateral - institutional counterparties (1) 129,021 — Net derivatives not offset $ 5,384 109,882 38 Fair Values of Derivative Instruments as of December 31, 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 $ 1,198,191 Other assets $ 122,047 $ 1,198,191 Other liabilities 122,378 Credit contracts 47,143 Other assets 26 110,714 Other liabilities 12 Total derivatives not designated as a hedging instrument 122,073 122,390 Derivatives designated as a hedging instrument: Interest rate products 460,000 Other assets 29,119 — Other liabilities — Total gross derivative amounts recognized on the balance sheet 151,192 122,390 Gross amounts offset on the balance sheet — — Net derivative amounts presented on the balance sheet $ 151,192 122,390 Gross amounts not offset on the balance sheet: Financial instruments - institutional counterparties $ — — Cash collateral - institutional counterparties (1) 149,800 — Net derivatives not offset $ 1,392 122,390 (1) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess cash collateral, if any, is not reflected above. (2) The fair values related to interest rate products in the above net derivative tables show the total value of assets and liabilities, which include accrued interest receivable and accrued interest payable for the periods ended June 30, 2023 and December 31, 2022. The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income during the three and six months ended June 30, 2023 and 2022 (in thousands). Gain (loss) recognized in income on derivatives for the three months ended Consolidated Statements of Income June 30, 2023 June 30, 2022 Derivatives not designated as a hedging instrument: Interest rate products Other income $ 126 77 Credit contracts Other income ( 8 ) ( 18 ) Total $ 118 59 Derivatives designated as a hedging instrument: Interest rate products Interest (income) expense $ ( 4,124 ) ( 162 ) Total $ ( 4,124 ) ( 162 ) 39 Gain (loss) recognized in income on derivatives for the six months ended Consolidated Statements of Income June 30, 2023 June 30, 2022 Derivatives not designated as a hedging instrument: Interest rate products Other income $ 52 443 Credit contracts Other income ( 4 ) ( 35 ) Total $ 48 408 Derivatives designated as a hedging instrument: Interest rate products Interest (income) expense $ ( 8,343 ) 504 Total $ ( 8,343 ) 504 The Company has agreements with certain of its dealer counterparties which contain a provision that if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be deemed in default on its derivative obligations. In addition, the Company has agreements with certain of its dealer counterparties which contain a provision that if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. At June 30, 2023, the Company had four dealer counterparties. The Company had a net asset position with respect to all of its counterparties. 40 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 six months ended June 30, 2023, the out-of-scope revenue related to financial instruments was 88.5 % and 87.6 % of the Company's total revenue, compared to 83.5 % for the three and six months ended June 30, 2022, respectively. Revenue-generating activities that are within the scope of Topic 606, are components of non-interest income. These revenue streams are generally classified into three categories: wealth management revenue, insurance agency income and banking service charges and other fees. The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six months ended June 30, 2023 and 2022 (in thousands): Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Non-interest income In-scope of Topic 606: Wealth management fees $ 6,919 7,024 13,834 14,489 Insurance agency income 3,847 2,850 7,950 6,270 Banking service charges and other fees: Service charges on deposit accounts 3,050 3,068 6,413 6,031 Debit card and ATM fees 761 846 1,466 1,616 Total banking service charges and other fees 3,811 3,914 7,879 7,647 Total in-scope non-interest income 14,577 13,788 29,663 28,406 Total out-of-scope non-interest income 4,810 7,144 11,877 12,672 Total non-interest income $ 19,387 20,932 41,540 41,078 Wealth management fee income represents fees earned from customers as consideration for asset management, investment advisory and trust services. The Company’s performance obligation is generally satisfied monthly and the resulting fees are recognized monthly. The fee is generally based upon the average market value of the assets under management ("AUM") for the month and the applicable fee rate. The monthly accrual of wealth management fees is recorded in other assets on the Company's Consolidated Statements of Financial Condition. Fees are received from the customer on a monthly basis. The Company does not earn performance-based incentives. To a lesser extent, optional services such as tax return preparation and estate settlement are also available to existing customers. The Company’s performance obligation for these transaction-based services are generally satisfied, and related revenue recognized, at either a point in time when the service is completed, or in the case of estate settlement, over a relatively short period of time, as each service component is completed. Insurance agency income, consisting of commissions and fees, is generally recognized as of the effective date of the insurance policy. Commission revenues related to installment billings are recognized on the invoice date. Subsequent commission adjustments are recognized upon the receipt of notification from insurance companies concerning matters necessitating such adjustments. Profit-sharing contingent commissions are recognized when determinable, which is generally when such commissions are received from insurance companies, or when the Company receives formal notification of the amount of such payments. Service charges on deposit accounts include overdraft service fees, account analysis fees and other deposit related fees. These fees are generally transaction-based, or time-based services. The Company's performance obligation for these services are generally satisfied, and revenue recognized, at the time the transaction is completed, or the service rendered. Fees for these services are generally received from the customer either at the time of transaction, or monthly. Debit card and ATM fees are generally transaction-based. Debit card revenue is primarily comprised of interchange fees earned when a customer's Company card is processed through a card payment network. ATM fees are largely generated when a Company cardholder uses a non-Company ATM, or a non-Company cardholder uses a Company ATM. The Company's performance obligation for these services is satisfied when the service is rendered. Payment is generally received at the time of transaction or monthly. Out-of-scope non-interest income primarily consists of Bank-owned life insurance and net fees on loan level interest rate swaps, along with gains and losses on the sale of loans and foreclosed real estate, loan prepayment fees and loan servicing fees. None of these revenue streams are subject to the requirements of Topic 606. 41 Note 14. Leases The following table represents the consolidated statements of financial condition classification of the Company’s right-of use-assets and lease liabilities at June 30, 2023 and December 31, 2021 (in thousands): Classification June 30, 2023 December 31, 2022 Lease Right-of-Use Assets: Operating lease right-of-use assets Other assets $ 60,749 60,577 Lease Liabilities: Operating lease liabilities Other liabilities $ 63,916 63,372 The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception based upon the term of the lease. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was applied. All of the leases in which the Company is the lessee are classified as operating leases and are primarily comprised of real estate properties for branches and administrative offices with terms extending through 2040. At June 30, 2023, the weighted-average remaining lease term and the weighted-average discount rate for the Company's operating leases were 8.3 years and 2.71 %, respectively. The following tables represent lease costs and other lease information for the Company's operating leases. The variable lease cost primarily represents variable payments such as common area maintenance and utilities (in thousands): Three months ended June 30, 2023 Three months ended June 30, 2022 Lease Costs Operating lease cost $ 2,629 2,586 Variable lease cost 842 718 Total lease cost $ 3,471 3,304 Six months ended June 30, 2023 Six months ended June 30, 2022 Lease Costs Operating lease cost $ 5,257 5,393 Variable lease cost 1,722 1,436 Total lease cost $ 6,979 6,829 Cash paid for amounts included in the measurement of lease liabilities: Six months ended June 30, 2023 Six months ended June 30, 2022 Operating cash flows from operating leases $ 4,776 4,060 42 Future minimum payments for operating leases with initial or remaining terms of one year or more as of June 30, 2023, were as follows (in thousands): Operating leases Twelve months ended: Remainder of 2022 $ 5,094 2023 9,971 2024 9,488 2025 8,518 2026 7,667 Thereafter 30,707 Total future minimum lease payments 71,445 Amounts representing interest 7,529 Present value of net future minimum lease payments $ 63,916