PROVIDENT FINANCIAL SERVICES INC 10-Q

Item 1. FINANCIAL STATEMENTS. PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition September 30, 2023 (Unaudited) and December 31, 2022 (Dollars in Thousands) September 30, 2023 December 31, 2022 ASSETS Cash and due from banks $ 188,573 $ 186,490 Short-term investments 696 18 Total cash and cash equivalents 189,269 186,508 Available for sale debt securities, at fair value 1,656,305 1,803,548 Held to maturity debt securities, net (fair value of $ 343,082 at September 30, 2023 (unaudited) and $ 373,468 at December 31, 2022) 370,416 387,923 Equity securities, at fair value 1,210 1,147 Federal Home Loan Bank stock 101,250 68,554 Loans 10,667,612 10,248,883 Less allowance for credit losses 107,563 88,023 Net loans 10,560,049 10,160,860 Foreclosed assets, net 16,487 2,124 Banking premises and equipment, net 71,453 79,794 Accrued interest receivable 55,741 51,903 Intangible assets 458,663 460,892 Bank-owned life insurance 241,406 239,040 Other assets 364,576 341,143 Total assets $ 14,086,825 $ 13,783,436 LIABILITIES AND STOCKHOLDERS’ EQUITY Deposits: Demand deposits $ 7,872,901 $ 8,373,005 Savings deposits 1,200,377 1,438,583 Certificates of deposit of $100,000 or more 699,880 504,627 Other time deposits 368,241 246,809 Total deposits 10,141,399 10,563,024 Mortgage escrow deposits 41,319 35,705 Borrowed funds 2,022,249 1,337,370 Subordinated debentures 10,646 10,493 Other liabilities 248,242 239,141 Total liabilities 12,463,855 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 75,531,884 shares outstanding at September 30, 2023 and 76,169,196 outstanding at December 31, 2022 832 832 Additional paid-in capital 988,001 981,138 Retained earnings 964,802 918,158 Accumulated other comprehensive (loss) income ( 195,056 ) ( 165,045 ) Treasury stock ( 127,818 ) ( 127,154 ) Unallocated common stock held by the Employee Stock Ownership Plan ( 7,791 ) ( 10,226 ) Common stock acquired by deferred compensation plans ( 3,013 ) ( 3,427 ) Deferred compensation plans 3,013 3,427 Total stockholders’ equity 1,622,970 1,597,703 Total liabilities and stockholders’ equity $ 14,086,825 $ 13,783,436 See accompanying notes to unaudited consolidated financial statements. 3 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Income Three and nine months ended September 30, 2023 and 2022 (Unaudited) (Dollars in Thousands, except per share data) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Interest income: Real estate secured loans $ 104,540 $ 80,273 $ 299,830 $ 213,181 Commercial loans 33,806 25,201 93,915 70,385 Consumer loans 4,746 3,785 13,419 10,268 Available for sale debt securities, equity securities and Federal Home Loan Bank stock 11,886 9,560 34,748 25,966 Held to maturity debt securities 2,334 2,416 7,059 7,501 Deposits, Federal funds sold and other short-term investments 885 496 2,678 1,705 Total interest income 158,197 121,731 451,649 329,006 Interest expense: Deposits 44,923 9,560 108,880 20,322 Borrowed funds 16,765 2,518 38,329 4,790 Subordinated debt 273 164 774 403 Total interest expense 61,961 12,242 147,983 25,515 Net interest income 96,236 109,489 303,666 303,491 Provision charge for credit losses 11,009 8,413 27,407 5,004 Net interest income after provision charge for credit losses 85,227 101,076 276,259 298,487 Non-interest income: Fees 6,132 7,203 18,294 21,516 Wealth management income 6,992 6,785 20,826 21,274 Insurance agency income 3,224 2,865 11,175 9,135 Bank-owned life insurance 1,820 1,237 4,838 3,978 Net gains on securities transactions 13 ( 3 ) 37 154 Other income 1,139 10,358 5,691 13,466 Total non-interest income 19,320 28,445 60,861 69,523 Non-interest expense: Compensation and employee benefits 35,702 38,079 109,724 112,582 Net occupancy expense 8,113 8,452 24,474 26,262 Data processing expense 5,312 5,575 16,536 16,551 FDIC insurance 1,628 1,400 5,688 3,955 Amortization of intangibles 720 779 2,231 2,511 Advertising and promotion expense 1,133 1,366 3,722 3,692 Provision charge (benefit) for credit losses on off-balance sheet credit exposures 1,532 1,575 1,624 ( 1,788 ) Merger-related expenses 2,289 2,886 5,349 2,886 Other operating expenses 10,728 9,331 31,761 28,522 Total non-interest expense 67,157 69,443 201,109 195,173 Income before income tax expense 37,390 60,078 136,011 172,837 Income tax expense 8,843 16,657 34,925 46,224 Net income $ 28,547 $ 43,421 $ 101,086 $ 126,613 Basic earnings per share $ 0.38 $ 0.58 $ 1.35 $ 1.69 Weighted average basic shares outstanding 74,909,083 74,297,237 74,793,530 74,808,358 Diluted earnings per share $ 0.38 $ 0.58 $ 1.35 $ 1.69 Weighted average diluted shares outstanding 74,914,205 74,393,380 74,816,606 74,896,493 See accompanying notes to unaudited consolidated financial statements. 4 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Comprehensive Income Three and nine months ended September 30, 2023 and 2022 (Unaudited) (Dollars in Thousands) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Net income $ 28,547 $ 43,421 $ 101,086 $ 126,613 Other comprehensive (loss) income, net of tax: Unrealized gains and losses on available for sale debt securities: Net unrealized (losses) arising during the period ( 31,224 ) ( 67,293 ) ( 25,086 ) ( 197,997 ) Reclassification adjustment for gains included in net income — — — ( 42 ) Total ( 31,224 ) ( 67,293 ) ( 25,086 ) ( 198,039 ) Unrealized gains and losses on derivatives: Net unrealized gains arising during the period 2,352 5,998 5,385 18,225 Reclassification adjustment for (gains) included in net income ( 3,430 ) ( 1,157 ) ( 9,519 ) ( 788 ) Total ( 1,078 ) 4,841 ( 4,134 ) 17,437 Amortization related to post-retirement obligations ( 261 ) ( 236 ) ( 791 ) ( 748 ) Total other comprehensive (loss) ( 32,563 ) ( 62,688 ) ( 30,011 ) ( 181,350 ) Total comprehensive (loss) income $ ( 4,016 ) $ ( 19,267 ) $ 71,075 $ ( 54,737 ) See accompanying notes to unaudited consolidated financial statements. 5 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Changes in Stockholders’ Equity For the three and nine months ended September 30, 2022 (Unaudited) (Dollars in Thousands) For the three months ended September 30, 2022 COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME TREASURYSTOCK UNALLOCATED ESOP SHARES COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS DEFERRED COMPENSATION PLANS TOTAL STOCKHOLDERS’ EQUITY Balance at June 30, 2022 $ 832 $ 976,067 $ 860,977 $ ( 111,799 ) $ ( 127,091 ) $ ( 13,721 ) $ ( 3,705 ) $ 3,705 $ 1,585,265 Net income — — 43,421 — — — — — 43,421 Other comprehensive loss, net of tax — — — ( 62,688 ) — — — — ( 62,688 ) Cash dividends paid — — ( 18,066 ) — — — — — ( 18,066 ) Distributions from deferred comp plans — 47 — — — — 168 ( 168 ) 47 Purchases of treasury stock — — — — — — — — — Purchase of employee restricted shares to fund statutory tax withholding — — — — ( 54 ) — — — ( 54 ) Allocation of ESOP shares — 296 — — — 811 — — 1,107 Allocation of Stock Award Plan ("SAP") shares — 1,904 — — — — — — 1,904 Allocation of stock options — 49 — — — — — — 49 Balance at September 30, 2022 $ 832 $ 978,363 $ 886,332 $ ( 174,487 ) $ ( 127,145 ) $ ( 12,910 ) $ ( 3,537 ) $ 3,537 $ 1,550,985 For the nine months ended September 30, 2022 COMMONSTOCK ADDITIONAL PAID-IN CAPITAL 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 — — 126,613 — — — — — 126,613 Other comprehensive loss, net of tax — — — ( 181,350 ) — — — — ( 181,350 ) Cash dividends paid — — ( 54,814 ) — — — — — ( 54,814 ) Distributions from deferred comp plans — 133 — — — — 447 ( 447 ) 133 Purchases of treasury stock — — — — ( 46,529 ) — — — ( 46,529 ) Purchase of employee restricted shares to fund statutory tax withholding — — — — ( 1,013 ) — — — ( 1,013 ) Stock option exercises — — — — — — — — — Allocation of ESOP shares — 878 — — — 2,434 — — 3,312 Allocation of SAP shares — 7,389 — — — — — — 7,389 Allocation of stock options — 148 — — — — — — 148 Balance at September 30, 2022 $ 832 $ 978,363 $ 886,332 $ ( 174,487 ) $ ( 127,145 ) $ ( 12,910 ) $ ( 3,537 ) $ 3,537 $ 1,550,985 See accompanying notes to unaudited consolidated financial statements. 6 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Changes in Stockholders’ Equity For the three and nine months ended September 30, 2023 (Unaudited) (Dollars in Thousands) For the three months ended September 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 June 30, 2023 832 986,150 954,403 ( 162,493 ) ( 127,818 ) ( 8,603 ) ( 3,150 ) 3,150 1,642,471 Net income — — 28,547 — — — — — 28,547 Other comprehensive loss, net of tax — — — ( 32,563 ) — — — — ( 32,563 ) Cash dividends paid — — ( 18,148 ) — — — — — ( 18,148 ) Distributions from deferred comp plans — 36 — — — — 137 ( 137 ) 36 Purchases of treasury stock — — — — — — — — — Purchase of employee restricted shares to fund statutory tax withholding — — — — — — — — — Stock option exercises — — — — — — — — — Allocation of ESOP shares — ( 24 ) — — — 812 — — 788 Allocation of SAP shares — 1,805 — — — — — — 1,805 Allocation of stock options — 34 — — — — — — 34 Balance at September 30, 2023 $ 832 $ 988,001 $ 964,802 $ ( 195,056 ) $ ( 127,818 ) $ ( 7,791 ) $ ( 3,013 ) $ 3,013 $ 1,622,970 For the nine months ended September 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 — — 101,086 — — — — — 101,086 Other comprehensive loss, net of tax — — — ( 30,011 ) — — — — ( 30,011 ) Cash dividends paid — — ( 54,875 ) — — — — — ( 54,875 ) Cumulative effect of adopting Accounting Standards Update ("ASU") No. 2022-02, net of tax — — 433 — — — — — 433 Distributions from deferred comp plans — 115 — — — — 414 ( 414 ) 115 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 — 219 — — — 2,435 — — 2,654 Allocation of SAP shares — 6,635 — — — — — — 6,635 Allocation of stock options — 111 — — — — — — 111 Balance at September 30, 2023 $ 832 $ 988,001 $ 964,802 $ ( 195,056 ) $ ( 127,818 ) $ ( 7,791 ) $ ( 3,013 ) $ 3,013 $ 1,622,970 See accompanying notes to unaudited consolidated financial statements. 7 PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Nine months ended September 30, 2023 and 2022 (Unaudited) (Dollars in Thousands) Nine months ended September 30, 2023 2022 Cash flows from operating activities: Net income $ 101,086 $ 126,613 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangibles 8,835 9,845 Provision charge for credit losses on loans and securities 27,407 5,004 Provision charge (benefit) for credit losses on off-balance sheet credit exposures 1,624 ( 1,788 ) Deferred tax benefit ( 2,332 ) ( 222 ) Amortization of operating lease right-of-use assets 7,890 8,006 Income on Bank-owned life insurance ( 4,838 ) ( 3,978 ) Net amortization of premiums and discounts on securities 6,088 10,465 Accretion of net deferred loan fees ( 6,653 ) ( 7,095 ) Amortization of premiums on purchased loans, net 170 234 Originations of loans held for sale ( 12,227 ) ( 18,467 ) Proceeds from sales of loans originated for sale 13,056 16,978 ESOP expense 2,654 3,312 Allocation of stock award expense 6,635 7,389 Allocation of stock option expense 111 148 Net gain on sale of loans ( 1,071 ) ( 1,306 ) Net gain on securities transactions ( 37 ) ( 154 ) Net gain on sale of premises and equipment ( 197 ) ( 22 ) Net gain on sale of foreclosed assets ( 2,789 ) ( 8,590 ) Increase in accrued interest receivable ( 3,838 ) ( 3,130 ) Increase in other assets ( 23,596 ) ( 60,364 ) Increase in other liabilities 9,101 74,992 Net cash provided by operating activities 127,079 157,870 Cash flows from investing activities: Net increase in loans ( 420,331 ) ( 449,803 ) Purchases of loans ( 7,876 ) ( 4,326 ) Proceeds from sales of foreclosed assets 3,485 16,188 Proceeds from maturities, calls and paydowns of held to maturity debt securities 28,576 62,597 Purchases of investment securities held to maturity ( 11,978 ) ( 20,665 ) Proceeds from maturities, calls and paydowns of available for sale debt securities 146,965 227,975 Purchases of available for sale debt securities ( 40,089 ) ( 279,395 ) Proceeds from redemption of Federal Home Loan Bank stock 151,472 89,244 Purchases of Federal Home Loan Bank stock ( 184,168 ) ( 110,671 ) BOLI claim benefits received 2,347 — Proceeds from sales of premises and equipment 62 22 Purchases of premises and equipment ( 5,895 ) ( 7,879 ) Net cash used in investing activities ( 337,430 ) ( 476,713 ) Cash flows from financing activities: Net decrease in deposits ( 421,625 ) ( 548,407 ) Increase in mortgage escrow deposits 5,614 5,183 Cash dividends paid to stockholders ( 54,875 ) ( 54,814 ) 8 Nine months ended September 30, 2023 2022 Purchase of treasury stock — ( 46,529 ) Purchase of employee restricted shares to fund statutory tax withholding ( 1,671 ) ( 1,013 ) Stock options exercised 790 — Proceeds from long-term borrowings 508,805 2,274,000 Payments on long-term borrowings ( 58,443 ) ( 1,826,556 ) Net increase (decrease) in short-term borrowings 234,517 ( 10,616 ) Net cash provided by (used in) financing activities 213,112 ( 208,752 ) Net increase (decrease) in cash and cash equivalents 2,761 ( 527,595 ) 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 189,199 183,068 Restricted cash at end of period 70 1,800 Total cash, cash equivalents and restricted cash at end of period $ 189,269 $ 184,868 Cash paid during the period for: Interest on deposits and borrowings $ 143,223 $ 26,130 Income taxes $ 38,861 $ 25,650 Non-cash investing activities: Transfer of loans receivable to foreclosed assets $ 15,131 $ 1,120 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 nine months ended September 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. Additionally, certain comparative balances on the interim unaudited consolidated financial statements have been reclassified to conform to the current year’s presentation. These unaudited consolidated financial statements should be read in conjunction with the December 31, 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 nine months ended September 30, 2023 and 2022 (dollars in thousands, except per share amounts): Three months ended September 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 $ 28,547 $ 43,421 Basic earnings per share: Income available to common stockholders $ 28,547 74,909,083 $ 0.38 $ 43,421 74,297,237 $ 0.58 Dilutive shares 5,122 96,143 Diluted earnings per share: Income available to common stockholders $ 28,547 74,914,205 $ 0.38 $ 43,421 74,393,380 $ 0.58 10 Nine months ended September 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 $ 101,086 $ 126,613 Basic earnings per share: Income available to common stockholders $ 101,086 74,793,530 $ 1.35 $ 126,613 74,808,358 $ 1.69 Dilutive shares 23,076 88,135 Diluted earnings per share: Income available to common stockholders $ 101,086 74,816,606 $ 1.35 $ 126,613 74,896,493 $ 1.69 Anti-dilutive stock options and awards at September 30, 2023 and 2022, totaling 1.2 million shares and 921,834 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 nine months ended September 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 10 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 at least 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 September 30, 2023, the Company performed an analysis and concluded that no triggering events were identified 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. Upon completion of the transaction, which remains subject to regulatory approvals and other closing conditions, Provident shareholders will own approximately 58 % and Lakeland shareholders will own approximately 42 % of the combined company. The combined company is expected to have more than $ 25 billion in total assets, $ 18 billion in total loans and $ 20 billion in total deposits. 11 Note 3. Investment Securities At September 30, 2023, the Company had $ 1.66 billion and $ 370.4 million in available for sale debt securities and held to maturity debt securities, respectively. Many factors, including lack of liquidity in the secondary market for certain securities, variations in pricing information, changes in interest rates, regulatory actions, changes in the business environment or any changes in the competitive marketplace, could have an adverse effect on the Company’s investment portfolio. The total number of available for sale and held to maturity debt securities in an unrealized loss position at September 30, 2023 totaled 1,065 , compared with 914 at December 31, 2022. The increase in the number of securities in an unrealized loss position at September 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 September 30, 2023 and December 31, 2022 (in thousands): September 30, 2023 Amortized cost Gross unrealized gains Gross unrealized losses Fair value U.S. Treasury obligations $ 276,364 — ( 31,037 ) 245,327 Agency obligations 28,208 62 ( 22 ) 28,248 Mortgage-backed securities 1,503,545 8 ( 240,409 ) 1,263,144 Asset-backed securities 33,100 625 ( 211 ) 33,514 State and municipal obligations 64,697 — ( 12,657 ) 52,040 Corporate obligations 40,472 — ( 6,440 ) 34,032 $ 1,946,386 695 ( 290,776 ) 1,656,305 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 September 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. September 30, 2023 Amortized cost Fair value Due in one year or less $ 243,150 217,543 Due after one year through five years 83,964 70,558 Due after five years through ten years 54,419 43,298 Due after ten years — — $ 381,533 331,399 Investments which pay principal on a periodic basis totaling $ 1.56 billion at amortized cost and $ 1.32 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 nine months ended September 30, 2023 and 2022. For the three and nine months ended September 30, 2023, there were no proceeds from calls on 12 securities in the available for sale debt securities portfolio. For the three and nine months ended September 30, 2022, proceeds from calls on securities in the available for sale debt securities portfolio totaled $ 5.4 million with gains of $ 84,000 and $ 26,000 of losses recognized, respectively. The number of available for sale debt securities in an unrealized loss position at September 30, 2023 totaled 474 , compared with 475 at December 31, 2022. The decline in the number of securities in an unrealized loss position at September 30, 2023 was due to maturities and calls of securities in the quarter. All securities in an unrealized loss position were investment grade at September 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 September 30, 2023 and December 31, 2022 (in thousands): September 30, 2023 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Treasury Obligations $ 1,135 — — 1,135 Agency obligations 12,098 — ( 897 ) 11,201 State and municipal obligations 348,493 2 ( 25,905 ) 322,590 Corporate obligations 8,724 — ( 568 ) 8,156 $ 370,450 2 ( 27,370 ) 343,082 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 nine months ended September 30, 2023 and 2022. For the three and nine months ended September 30, 2023, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $ 3.2 million and $ 9.8 million, respectively. As to these calls on securities, for the three months ended September 30, 2023, there were gross gains of $ 16,000 and gross losses of $ 3,000 , while for the nine months ended September 30, 2023, gross gains totaled $ 45,000 , with gross losses of $ 8,000 . For the three and nine months ended September 30, 2022, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $ 10.3 million and $ 36.4 million, respectively. As to these calls on securities, for the three months ended September 30, 2022, gross gains totaled $ 26,000 , with gross losses of $ 29,000 , while for the nine months ended September 30, 2022, gross gains totaled $ 129,000 , with $ 33,000 of gross losses. The amortized cost and fair value of investment securities in the held to maturity debt securities portfolio at September 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. September 30, 2023 Amortized cost Fair value Due in one year or less $ 30,561 30,363 Due after one year through five years 169,008 162,284 Due after five years through ten years 143,478 130,086 Due after ten years 27,403 20,349 $ 370,450 343,082 The allowance for credit losses on held to maturity debt securities at September 30, 2023 and December 31, 2022 was $ 34,000 and $ 27,000 , respectively, and are excluded from amortized cost in the tables above. 13 The number of held to maturity debt securities in an unrealized loss position at September 30, 2023 totaled 591 , compared with 439 at December 31, 2022. The increase in the number of securities in an unrealized loss position at September 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: • 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 September 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 September 30, 2023 and December 31, 2022 (in thousands): September 30, 2023 Total Portfolio AAA AA A BBB Not Rated Total Treasury obligations $ 1,135 — — — — 1,135 Agency obligations 12,098 — — — — 12,098 State and municipal obligations 44,978 162,676 139,146 — 1,693 348,493 Corporate obligations 505 2,062 6,132 — 25 8,724 $ 58,716 164,738 145,278 — 1,718 370,450 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 September 30, 2023, the held to maturity debt securities portfolio was comprised of 16 % rated AAA, 44 % 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 September 30, 2023 and December 31, 2022 are summarized as follows (in thousands): September 30, 2023 December 31, 2022 Mortgage loans: Commercial $ 4,411,099 4,316,185 Multi-family 1,790,039 1,513,818 Construction 667,462 715,494 Residential 1,167,570 1,177,698 Total mortgage loans 8,036,170 7,723,195 Commercial loans 2,340,080 2,233,670 Consumer loans 302,769 304,780 Total gross loans 10,679,019 10,261,645 Premiums on purchased loans 1,413 1,380 Net deferred fees ( 12,820 ) ( 14,142 ) Total loans $ 10,667,612 10,248,883 The following tables summarize the aging of loans receivable by portfolio segment and class of loans (in thousands): September 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 $ — 587 11,667 — 12,254 4,398,845 4,411,099 8,676 Multi-family 5,473 — 2,258 — 7,731 1,782,308 1,790,039 2,258 Construction — — 1,868 — 1,868 665,594 667,462 1,868 Residential 1,588 936 1,329 — 3,853 1,163,717 1,167,570 1,329 Total mortgage loans 7,061 1,523 17,122 — 25,706 8,010,464 8,036,170 14,131 Commercial loans 1,959 228 21,912 — 24,099 2,315,981 2,340,080 14,504 Consumer loans 1,207 168 495 — 1,870 300,899 302,769 495 Total gross loans $ 10,227 1,919 39,529 — 51,675 10,627,344 10,679,019 29,130 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 $ 39.5 million and $ 58.5 million at September 30, 2023 and December 31, 2022, respectively. Included in non-accrual loans were $ 6.4 million and $ 42.9 million of loans which were less than 90 days past due at September 30, 2023 and December 31, 2022, respectively. There were no loans 90 days or greater past due and still accruing interest at September 30, 2023 and December 31, 2022. 15 The activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2023 and 2022 was as follows (in thousands): Three months ended September 30, Mortgage loans Commercial loans Consumer loans Total 2023 Balance at beginning of period $ 69,940 29,707 2,426 102,073 Provision charge (benefit) to operations 4,619 6,436 ( 55 ) 11,000 Recoveries of loans previously charged-off 101 405 88 594 Loans charged-off ( 3 ) ( 6,019 ) ( 82 ) ( 6,104 ) Balance at end of period $ 74,657 30,529 2,377 107,563 2022 Balance at beginning of period $ 55,064 21,387 2,566 79,017 Provision charge to operations 4,991 3,381 28 8,400 Recoveries of loans previously charged-off 167 1,421 129 1,717 Loans charged-off — ( 410 ) ( 91 ) ( 501 ) Balance at end of period $ 60,222 25,779 2,632 88,633 Nine months ended September 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 17,573 9,898 ( 71 ) 27,400 Recoveries of loans previously charged-off 107 706 347 1,160 Loans charged-off ( 731 ) ( 7,445 ) ( 250 ) ( 8,426 ) Balance at end of period $ 74,657 30,529 2,377 107,563 2022 Balance at beginning of period $ 52,104 26,343 2,293 80,740 Provision charge (benefit) charge to operations 8,589 ( 3,734 ) 145 5,000 Recoveries of loans previously charged-off 539 3,725 404 4,668 Loans charged-off ( 1,010 ) ( 555 ) ( 210 ) ( 1,775 ) Balance at end of period $ 60,222 25,779 2,632 88,633 For the three and nine months ended September 30, 2023, the Company recorded an $ 11.0 million and a $ 27.4 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 used in our CECL model. For the three months ended September 30, 2023, net charge-offs totaled $ 5.5 million, which was primarily attributable to one commercial loan. For the nine months ended September 30, 2023, net charge-offs totaled $ 7.3 million, which was primarily attributable to two commercial loans. 16 The following table summarizes the Company's gross charge-offs recorded during the three months ended September 30, 2023 by year of origination (in thousands): 2023 2022 2021 2020 2019 Prior to 2019 Total Loans Mortgage loans: Residential $ — — — — — 3 3 Total mortgage loans — — — — — 3 3 Commercial loans $ — — — 5,000 — 1,019 6,019 Consumer loans (1) 7 — — — — — 7 Total gross loans $ 7 — — 5,000 — 1,022 6,029 (1) During the three months ended September 30, 2023, charge-offs on consumer overdraft accounts totaled $ 75,000 , which are not included in the table above. The following table summarizes the Company's gross charge-offs recorded during the nine months ended September 30, 2023 by year of origination (in thousands): 2023 2022 2021 2020 2019 Prior to 2019 Total Loans Mortgage loans: Commercial $ — — — — — 707 707 Residential — — — — — 24 24 Total mortgage loans — — — — — 731 731 Commercial loans $ — — — 5,000 — 2,445 7,445 Consumer loans (1) 16 — — — — 13 29 Total gross loans $ 16 — — 5,000 — 3,189 8,205 (1) During the nine months ended September 30, 2023, charge-offs on consumer overdraft accounts totaled $ 221,000 , which are 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 September 30, 2023, there were 18 loans totaling $ 30.4 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 September 30, 2023, the Company had collateral-dependent loans with a fair value of $ 5.0 million secured by business assets and $ 2.0 million secured by commercial real estate. At December 31, 2022, the Company had collateral-dependent loans with a fair value of $ 21.3 million secured by commercial real estate, $ 1.9 million secured by business assets and $ 800,000 secured by residential real estate. 17 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 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. The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023 (in thousands): For the three months ended September 30, 2023 Term Extension Interest Rate Reduction Interest Rate Reduction and Term Extension % of Total Class of Loans and Leases Mortgage loans: Multi-family $ — — 1,508 0.08 % Total mortgage loans — — 1,508 0.02 % Total gross loans $ — — 1,508 0.01 % 18 For the nine months ended September 30, 2023 Term Extension Interest Rate Reduction Interest Rate Reduction and Term Extension % of Total Class of Loans and Leases Mortgage loans: Multi-family $ — — 1,508 0.08 % Total mortgage loans — — 1,508 0.02 % Commercial loans 3,771 — 1,250 0.21 % Total gross loans $ 3,771 — 2,758 0.06 % The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the three months ended September 30, 2023 (in thousands): Weighted-Average Months of Term Extension Weighted-Average Rate Increase Mortgage loans: Multi-family 2 2.23 % Total mortgage loans 2 2.23 % Total gross loans 2 2.23 % The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the nine months ended September 30, 2023 (in thousands): Weighted-Average Months of Term Extension Weighted-Average Rate Increase Mortgage loans: Multi-family 2 2.23 % Total mortgage loans 2 2.23 % Commercial loans 10 0.20 % Total gross loans 9 0.61 % There were no loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023, that subsequently defaulted. The following table presents the aging analysis of loan modifications made to borrowers experiencing financial difficulty during the three months ended September 30, 2023 (in thousands): Current 30-59 Days Past Due 60-89 Days Past Due 90 days or more Past Due Non- Accrual Total Mortgage loans: Multi-family $ 1,508 — — — — 1,508 Total mortgage loans 1,508 — — — — 1,508 Total gross loans $ 1,508 — — — — 1,508 19 The following table presents the aging analysis of loan modifications made to borrowers experiencing financial difficulty during the nine months ended September 30, 2023 (in thousands): Current 30-59 Days Past Due 60-89 Days Past Due 90 days or more Past Due Non- Accrual Total Mortgage loans: Multi-family $ 1,508 — — — — 1,508 Total mortgage loans 1,508 — — — — 1,508 Commercial loans 5,021 — — — — 5,021 Total gross loans $ 6,529 — — — — 6,529 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 tables present the number of loans modified as TDRs during the three and nine months ended September 30, 2022, along with their balances immediately prior to the modification date and post-modification as of September 30, 2022 (in thousands): For the three months ended September 30, 2022 Troubled Debt Restructurings Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Consumer loans 1 108 88 Total restructured loans 1 $ 108 88 For the nine months ended September 30, 2022 Troubled Debt Restructurings Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Mortgage loans: Residential 2 $ 265 $ 204 Multi-family 1 1,618 1,583 Total mortgage loans 3 1,883 1,787 Commercial loans 2 378 273 Consumer loans 1 108 88 Total restructured loans 6 $ 2,369 $ 2,148 Durin g the nine months ended September 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 September 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. 20 As allowed by CECL, loans acquired by the Company that experience more-than-insignificant deterioration in credit quality after origination, are classified as Purchased Credit Deteriorated ("PCD") loans. At September 30, 2023, the balance of PCD loans totaled $ 166.9 million with a related allowance for credit losses of $ 1.5 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 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 September 30, 2023, 2,054 PPP loans totaling $ 679.4 million were forgiven and repaid by the SBA. The balance of PPP loans at September 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 September 30, 2023 and December 31, 2022 (in thousands): Gross Loans Held for Investment by Year of Origination at September 30, 2023 2023 2022 2021 2020 2019 Prior to 2019 Revolving Loans Revolving loans to term loans Total Loans Commercial Mortgage Special mention $ — — — 2,693 7,829 30,424 4,985 — 45,931 Substandard — — — 804 — 7,663 1,086 — 9,553 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — 3,497 7,829 38,087 6,071 — 55,484 Pass/Watch 375,191 902,228 673,880 508,090 504,498 1,273,374 86,243 32,111 4,355,615 Total commercial mortgage $ 375,191 902,228 673,880 511,587 512,327 1,311,461 92,314 32,111 4,411,099 Multi-family Special mention $ — — — — — 9,555 — — 9,555 Substandard — — — — — 3,153 — — 3,153 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — — 12,708 — — 12,708 Pass/Watch 244,713 170,119 219,988 293,764 231,678 609,460 5,992 1,617 1,777,331 Total multi-family $ 244,713 170,119 219,988 293,764 231,678 622,168 5,992 1,617 1,790,039 Construction Special mention $ — — — — 5,084 — — — 5,084 Substandard — — — — 1,097 771 — — 1,868 Doubtful — — — — — — — — — 21 Gross Loans Held for Investment by Year of Origination at September 30, 2023 2023 2022 2021 2020 2019 Prior to 2019 Revolving Loans Revolving loans to term loans Total Loans Loss — — — — — — — — — Total criticized and classified — — — — 6,181 771 — — 6,952 Pass/Watch 16,828 303,723 250,777 70,086 3,652 13,434 2,010 660,510 Total construction $ 16,828 303,723 250,777 70,086 9,833 14,205 — 2,010 667,462 Residential (1) Special mention $ — — — — — 936 — — 936 Substandard — — — — — 1,768 — — 1,768 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — — — 2,704 — — 2,704 Pass/Watch 74,488 143,683 203,069 200,617 90,630 452,379 — — 1,164,866 Total residential $ 74,488 143,683 203,069 200,617 90,630 455,083 — — 1,167,570 Total Mortgage Special mention $ — — — 2,693 12,913 40,915 4,985 — 61,506 Substandard — — — 804 1,097 13,355 1,086 — 16,342 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — — 3,497 14,010 54,270 6,071 — 77,848 Pass/Watch 711,220 1,519,753 1,347,714 1,072,557 830,458 2,348,647 92,235 35,738 7,958,322 Total Mortgage $ 711,220 1,519,753 1,347,714 1,076,054 844,468 2,402,917 98,306 35,738 8,036,170 Commercial Special mention $ — — — 2,973 50 17,034 7,640 — 27,697 Substandard — — 28,166 9,504 1,783 9,797 23,178 524 72,952 Doubtful — — — 1,903 — — — — 1,903 Loss — — — — — — — — — Total criticized and classified — — 28,166 14,380 1,833 26,831 30,818 524 102,552 Pass/Watch 183,378 370,615 294,012 142,654 149,952 525,453 495,841 75,623 2,237,528 Total commercial $ 183,378 370,615 322,178 157,034 151,785 552,284 526,659 76,147 2,340,080 Consumer (1) Special mention $ — — 2 — — 102 63 — 167 Substandard — — — — — 4 400 90 494 Doubtful — — — — — — — — — Loss — — — — — — — — — Total criticized and classified — — 2 — — 106 463 90 661 Pass/Watch 23,096 27,445 19,110 3,464 14,940 89,132 111,567 13,354 302,108 Total consumer $ 23,096 27,445 19,112 3,464 14,940 89,238 112,030 13,444 302,769 Total Loans Special mention $ — — 2 5,666 12,963 58,051 12,688 — 89,370 Substandard — — 28,166 10,308 2,880 23,156 24,664 614 89,788 Doubtful — — — 1,903 — — — — 1,903 22 Gross Loans Held for Investment by Year of Origination at September 30, 2023 2023 2022 2021 2020 2019 Prior to 2019 Revolving Loans Revolving loans to term loans Total Loans Loss — — — — — — — — — Total criticized and classified — — 28,168 17,877 15,843 81,207 37,352 614 181,061 Pass/Watch 917,694 1,917,813 1,660,836 1,218,675 995,350 2,963,232 699,643 124,715 10,497,958 Total gross loans $ 917,694 1,917,813 1,689,004 1,236,552 1,011,193 3,044,439 736,995 125,329 10,679,019 (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 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 23 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 — — — — 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 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 24 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 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 September 30, 2023 and December 31, 2022 are summarized as follows (in thousands): September 30, 2023 December 31, 2022 Savings $ 1,200,377 1,438,583 Money market 2,217,493 2,542,160 NOW 3,467,712 3,186,926 Non-interest bearing 2,187,696 2,643,919 Certificates of deposit 1,068,121 751,436 Total deposits $ 10,141,399 10,563,024 Note 6. Borrowed Funds Borrowed funds at September 30, 2023 and December 31, 2022 are summarized as follows (in thousands): September 30, 2023 December 31, 2022 Securities sold under repurchase agreements $ 79,967 98,000 FHLB line of credit 400,000 486,000 FHLB advances 1,542,282 753,370 Total borrowed funds $ 2,022,249 1,337,370 At September 30, 2023, FHLB advances were at fixed rates and mature between October 2023 and September 2027, 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 September 30, 2023 are as follows (in thousands): 2023 Due in one year or less $ 1,133,477 Due after one year through two years 501,360 Due after two years through three years 82,445 Due after three years through four years 225,000 Thereafter — Total FHLB advances and overnight borrowings $ 1,942,282 25 Scheduled maturities of securities sold under repurchase agreements at September 30, 2023 are as follows (in thousands): 2023 Due in one year or less $ 79,967 Thereafter — Total securities sold under repurchase agreements $ 79,967 The following tables set forth certain information as to borrowed funds for the periods ended September 30, 2023 and December 31, 2022 (in thousands): Maximum balance Average balance Weighted average interest rate September 30, 2023 Securities sold under repurchase agreements $ 99,669 89,437 1.60 % FHLB overnight borrowings 500,000 243,943 5.16 FHLB advances 1,588,245 1,223,239 3.04 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 September 30, 2023 and December 31, 2022, available for sale debt securities pledged as collateral for repurchase agreements totaled $ 89.5 million and $ 116.5 million, respectively. Interest expense on borrowings for the three and nine months ended September 30, 2023 amounted to $ 16.8 million and $ 38.3 million, respectively. Interest expense on borrowings for the three and nine months ended September 30, 2022 amounted to $ 2.5 million and $ 4.8 million, respectively. Note 7. Components of Net Periodic Benefit Cost The Bank has a noncontributory defined benefit pension plan covering its full-time employees who had attained age 21 with at least one year of service as of April 1, 2003. The pension plan was frozen on April 1, 2003. All participants in the Plan are 100 % vested. The pension plan’s assets are invested in investment funds and group annuity contracts currently managed by the Principal Financial Group and Allmerica Financial. In addition to pension benefits, certain health care and life insurance benefits are currently made available to certain of the Bank’s retired employees. The costs of such benefits are accrued based on actuarial assumptions from the date of hire to the date the employee is fully eligible to receive the benefits. Effective January 1, 2003, eligibility for retiree health care benefits was frozen as to new entrants, and benefits were eliminated for employees with less than ten years of service as of December 31, 2002. Effective January 1, 2007, eligibility for retiree life insurance benefits was frozen as to new entrants and retiree life insurance benefits were eliminated for employees with less than ten years of service as of December 31, 2006. Net periodic (benefit) increase cost for pension benefits and other post-retirement benefits for the three and nine months ended September 30, 2023 and 2022 includes the following components (in thousands): 26 Three months ended September 30, Nine months ended September 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 $ — — 9 21 Interest cost 302 214 150 111 906 642 450 333 Expected return on plan assets ( 706 ) ( 864 ) — — ( 2,118 ) ( 2,592 ) — — Amortization of prior service cost — — — — — — — — Amortization of the net loss (gain) 177 — ( 532 ) ( 326 ) 531 — ( 1,598 ) ( 978 ) Net periodic (decrease) increase in benefit cost $ ( 227 ) ( 650 ) ( 379 ) ( 208 ) $ ( 681 ) ( 1,950 ) ( 1,139 ) ( 624 ) 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 September 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 nine months ended September 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. 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. In addition, in January 2021, the FASB issued ASU No. 2021-01 “Reference Rate Reform — Scope,” which clarified the scope of ASC 848 relating to contract modifications. The Company has reviewed all of its LIBOR-based products and all products have been adjusted to another index or are scheduled to be adjusted at their next repricing, as LIBOR ceased to be published after June 30, 27 2023. The Company adjusted its processes and procedures related to the amendments and it did not have a material impact to the Company’s financial position and results and operations. Note 9. Contingencies The Company is involved in various litigation and claims arising in the normal course of business. Liabilities for loss contingencies arising from such litigation and claims are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. On May 2, 2022, a purported class action complaint was filed against Provident Bank in the Superior Court of New Jersey, which alleges that Provident wrongfully assessed overdraft fees related to debit card transactions. The complaint asserts claims for breach of contract and breach of the covenant of good faith and fair dealing as well as an alleged violation of the New Jersey Consumer Fraud Act. Plaintiff seeks to represent a proposed class of all Provident Bank checking account customers who were charged overdraft fees on transactions that were authorized into a positive available balance. Plaintiff seeks unspecified damages, costs, attorneys’ fees, pre-judgment interest, an injunction, and other relief as the Court deems proper for the plaintiff and the proposed class. Provident Bank denies the allegations and is vigorously defending the matter. The parties had an initial mediation meeting on October 20, 2023, and the matter remains pending. Although we are vigorously defending the litigation, the ultimate outcome of this litigation described in this section, such as whether the likelihood of loss is remote, reasonably possible, or probable, or if and when the reasonably possible range of loss is estimable, is inherently uncertain. Therefore, if this matter was resolved against us, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be adversely affected. Note 10. 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 nine months ended September 30, 2023, the Company recorded a $ 1.5 million and a $ 1.6 million provision for credit losses for off-balance sheet credit exposures, respectively. For the three and nine months ended September 30, 2022, the Company recorded a $ 1.6 million provision for credit losses for off-balance sheet credit exposures and a $ 1.8 million provision benefit for credit losses for off-balance sheet credit exposures, respectively. The $ 43,000 decrease in the provision for the three months ended September 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 $ 3.4 million increase in the provision for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was primarily the result of the period-over-period relative change in line of credit utilization and an increase in loans approved and awaiting closing. The allowance for credit losses for off-balance sheet credit exposures was $ 4.8 million at September 30, 2023 and $ 3.2 million at December 31, 2022, and are included in other liabilities on the Consolidated Statements of Financial Condition. Note 11. 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. 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: 28 Level 1: Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The valuation techniques are based upon the unpaid principal balance only, and exclude any accrued interest or dividends at the measurement date. Interest income and expense and dividend income are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium. Assets and Liabilities Measured at Fair Value on a Recurring Basis The valuation techniques described below were used to measure fair value of financial instruments in the table below on a recurring basis as of September 30, 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 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. 29 Assets Measured at Fair Value on a Non-Recurring Basis The valuation techniques described below were used to estimate fair value of financial instruments measured on a non-recurring basis as of September 30, 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 September 30, 2023 or December 31, 2022. 30 The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair values as of September 30, 2023 and December 31, 2022, by level within the fair value hierarchy (in thousands): Fair Value Measurements at Reporting Date Using: September 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 $ 245,327 245,327 — — Agency obligations 28,248 — 28,248 — Mortgage-backed securities 1,263,144 — 1,263,144 — Asset-backed securities 33,514 — 33,514 — State and municipal obligations 52,040 — 52,040 — Corporate obligations 34,032 — 34,032 — Total available for sale debt securities 1,656,305 245,327 1,410,978 — Equity securities 1,210 1,210 — — Derivative assets 151,103 — 151,103 — $ 1,808,618 246,537 1,562,081 — Derivative liabilities $ 129,271 — 129,271 — Measured on a non-recurring basis: Loans measured for impairment based on the fair value of the underlying collateral $ 7,017 — — 7,017 Foreclosed assets 16,487 — — 16,487 $ 23,504 — — 23,504 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 into or out of Level 3 during the three and nine months ended September 30, 2023. 31 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 September 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. 32 Borrowed Funds The fair value of borrowed funds was estimated by discounting future cash flows using rates available for debt with similar terms and maturities and is classified by the Company as Level 2 within the fair value hierarchy. Commitments to Extend Credit and Letters of Credit The fair value of commitments to extend credit and letters of credit was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The Company classifies these commitments as Level 3 within the fair value hierarchy. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include goodwill and other intangibles, deferred tax assets and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The following tables present the Company’s financial instruments at their carrying and fair values as of September 30, 2023 and December 31, 2022. Fair values are presented by level within the fair value hierarchy. 33 Fair Value Measurements at September 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 $ 189,269 189,269 189,269 — — Available for sale debt securities: U.S. Treasury obligations 245,327 245,327 245,327 — — Agency obligations 28,248 28,248 — 28,248 — Mortgage-backed securities 1,263,144 1,263,144 — 1,263,144 — Asset-backed securities 33,514 33,514 — 33,514 — State and municipal obligations 52,040 52,040 — 52,040 — Corporate obligations 34,032 34,032 — 34,032 — Total available for sale debt securities $ 1,656,305 1,656,305 245,327 1,410,978 — Held to maturity debt securities, net of allowance for credit losses: U.S. Treasury obligations 1,135 1,135 1,135 — — Agency obligations 12,098 11,201 11,201 — — State and municipal obligations 348,466 322,590 — 322,590 — Corporate obligations 8,717 8,156 — 8,156 — Total held to maturity debt securities, net of allowance for credit losses $ 370,416 343,082 12,336 330,746 — FHLBNY stock 101,250 101,250 101,250 — — Equity Securities 1,210 1,210 1,210 — — Loans, net of allowance for credit losses 10,560,049 10,025,286 — — 10,025,286 Derivative assets 151,103 151,103 — 151,103 — Financial liabilities: Deposits other than certificates of deposits $ 9,073,278 9,073,278 9,073,278 — — Certificates of deposit 1,068,121 1,065,195 — 1,065,195 — Total deposits $ 10,141,399 10,138,473 9,073,278 1,065,195 — Borrowings 2,022,249 2,003,575 — 2,003,575 — Subordinated debentures 10,646 9,166 — 9,166 — Derivative liabilities 129,271 129,271 — 129,271 — 34 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 — 35 Note 12. Other Comprehensive (Loss) Income The following table presents the components of other comprehensive (loss), both gross and net of tax, for the three and nine months ended September 30, 2023 and 2022 (in thousands): Three months ended September 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) arising during the period $ ( 42,784 ) 11,560 ( 31,224 ) ( 91,930 ) 24,637 ( 67,293 ) Reclassification adjustment for gains included in net income — — — — — — Total ( 42,784 ) 11,560 ( 31,224 ) ( 91,930 ) 24,637 ( 67,293 ) Unrealized gains and losses on derivatives (cash flow hedges): Net unrealized gains arising during the period 3,223 ( 871 ) 2,352 8,194 ( 2,196 ) 5,998 Reclassification adjustment for (gains) included in net income ( 4,700 ) 1,270 ( 3,430 ) ( 1,580 ) 423 ( 1,157 ) Total ( 1,477 ) 399 ( 1,078 ) 6,614 ( 1,773 ) 4,841 Amortization related to post-retirement obligations ( 355 ) 94 ( 261 ) ( 326 ) 90 ( 236 ) Total other comprehensive (loss) $ ( 44,616 ) 12,053 ( 32,563 ) ( 85,642 ) 22,954 ( 62,688 ) Nine months ended September 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) arising during the period $ ( 34,271 ) 9,185 ( 25,086 ) ( 270,488 ) 72,491 ( 197,997 ) Reclassification adjustment for gains included in net income — — — ( 58 ) 16 ( 42 ) Total ( 34,271 ) 9,185 ( 25,086 ) ( 270,546 ) 72,507 ( 198,039 ) Unrealized gains and losses on derivatives (cash flow hedges): Net unrealized gains arising during the period 7,380 ( 1,995 ) 5,385 24,898 ( 6,673 ) 18,225 Reclassification adjustment for (gains) included in net income ( 13,043 ) 3,524 ( 9,519 ) ( 1,077 ) 289 ( 788 ) Total ( 5,663 ) 1,529 ( 4,134 ) 23,821 ( 6,384 ) 17,437 Amortization related to post-retirement obligations ( 1,067 ) 276 ( 791 ) ( 978 ) 230 ( 748 ) Total other comprehensive (loss) $ ( 41,001 ) 10,990 ( 30,011 ) ( 247,703 ) 66,353 ( 181,350 ) 36 The following tables present the changes in the components of accumulated other comprehensive (loss), net of tax, for the three and nine months ended September 30, 2023 and 2022 (in thousands): Changes in Accumulated Other Comprehensive (Loss) by Component, net of tax for the three months ended September 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 Losses on Available for Sale Debt Securities Post- Retirement Obligations Unrealized Gains on Derivatives (cash flow hedges) Accumulated Other Comprehensive (Loss) Balance at June 30, $ ( 180,476 ) 1,042 16,941 ( 162,493 ) ( 130,957 ) 2,469 16,689 ( 111,799 ) Current - period other comprehensive (loss) ( 31,224 ) ( 261 ) ( 1,078 ) ( 32,563 ) ( 67,293 ) ( 236 ) 4,841 ( 62,688 ) Balance at September 30, $ ( 211,700 ) 781 15,863 ( 195,056 ) ( 198,250 ) 2,233 21,530 ( 174,487 ) Changes in Accumulated Other Comprehensive (Loss) by Component, net of tax for the nine months ended September 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 Losses on Available for Sale Debt Securities Post- Retirement Obligations Unrealized Gains 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) ( 25,086 ) ( 791 ) ( 4,134 ) ( 30,011 ) ( 198,039 ) ( 748 ) 17,437 ( 181,350 ) Balance at September 30, $ ( 211,700 ) 781 15,863 ( 195,056 ) ( 198,250 ) 2,233 21,530 ( 174,487 ) 37 The following tables summarize the reclassifications from accumulated other comprehensive (loss) to the consolidated statements of income for the three and nine months ended September 30, 2023 and 2022 (in thousands): Reclassifications From Accumulated Other Comprehensive Income ("AOCI") Amount reclassified from AOCI for the three months ended September 30, Affected line item in the Consolidated Statement of Income 2023 2022 Details of AOCI: Available for sale debt securities: Realized net gains on the sale of securities available for sale $ — — Net gain on securities transactions — — Income tax expense $ — — Net of tax Cash flow hedges: Realized net gains on derivatives $ ( 4,700 ) ( 1,581 ) Interest expense 1,270 424 Income tax expense $ ( 3,430 ) ( 1,157 ) Post-retirement obligations: Amortization of actuarial gains $ ( 355 ) ( 326 ) Compensation and employee benefits (1) 94 90 Income tax expense Total reclassification $ ( 261 ) ( 236 ) Net of tax Total reclassifications $ ( 3,691 ) ( 1,393 ) Net of tax Reclassifications From Accumulated Other Comprehensive Income ("AOCI") Amount reclassified from AOCI for the nine months ended September 30, Affected line item in the Consolidated Statement of Income 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 $ ( 13,043 ) ( 1,077 ) Interest expense 3,524 289 Income tax expense $ ( 9,519 ) ( 788 ) Post-retirement obligations: Amortization of actuarial gains $ ( 1,067 ) ( 978 ) Compensation and employee benefits (1) 276 230 Income tax expense Total reclassification $ ( 791 ) ( 748 ) Net of tax Total reclassifications $ ( 10,310 ) ( 1,578 ) 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. 38 Note 13. Derivative and Hedging Activities The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through the management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. Non-designated Hedges. Derivatives not designated in qualifying hedging relationships are not speculative and result from a service the Company provides to certain qualified commercial borrowers in loan related transactions which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company may execute interest rate swaps with qualified commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. The interest rate swap agreement which the Company executes with the commercial borrower is collateralized by the borrower's commercial real estate financed by the Company. As the Company has not elected to apply hedge accounting and these interest rate swaps do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. At September 30, 2023 and December 31, 2022, the Company had 152 loan related interest rate swaps with aggregate notional amounts of $ 2.22 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 September 30, 2023 and December 31, 2022, the Company had 12 and 14 credit derivatives, respectively, with aggregate notional amounts of $ 143.3 million and $ 157.9 million, respectively, from participations in interest rate swaps as part of these loan participation arrangements. At September 30, 2023, the asset and liability positions of these fair value credit derivatives totaled $ 9,000 and $ 4,000 , 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 nine months ended September 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 $ 15.5 million will be reclassified as a reduction to interest expense. At September 30, 2023, the Company had 9 outstanding interest rate derivatives with an aggregate notional amount of $ 455.0 million that were each designated as a cash flow hedge of interest rate risk, compared to 11 outstanding interest rate derivatives with an aggregate notional amount of $ 460.0 million, at December 31, 2022. Assets and liabilities relating to certain financial instruments, including derivatives, may be eligible for offset in the Consolidated Statements of Financial Condition and/or subject to enforceable master netting arrangements or similar agreements. The Company does not offset asset and liabilities under such arrangements in the Consolidated Statements of Financial Condition. The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments that are eligible for offset in the Consolidated Statements of Condition at September 30, 2023 and December 31, 2022 (in thousands). 39 Fair Values of Derivative Instruments as of September 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 $ 1,108,504 Other assets $ 131,113 1,108,504 Other liabilities 131,203 Credit contracts 46,565 Other assets 9 96,708 Other liabilities 4 Total derivatives not designated as a hedging instrument 131,122 131,207 Derivatives designated as a hedging instrument: Interest rate products 455,000 Other assets 23,375 — Other liabilities — Total gross derivative amounts recognized on the balance sheet 154,497 131,207 Gross amounts offset on the balance sheet — — Net derivative amounts presented on the balance sheet $ 154,497 131,207 Gross amounts not offset on the balance sheet: Financial instruments - institutional counterparties $ — — Cash collateral - institutional counterparties (1) 154,311 — Net derivatives not offset $ 186 131,207 40 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 September 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 nine months ended September 30, 2023 and 2022 (in thousands). Gain (loss) recognized in income on derivatives for the three months ended Consolidated Statements of Income September 30, 2023 September 30, 2022 Derivatives not designated as a hedging instrument: Interest rate products Other income $ 192 259 Credit contracts Other income ( 8 ) ( 12 ) Total $ 184 247 Derivatives designated as a hedging instrument: Interest rate products Interest (benefit) expense $ ( 4,670 ) ( 1,581 ) Total $ ( 4,670 ) ( 1,581 ) 41 Gain (loss) recognized in income on derivatives for the nine months ended Consolidated Statements of Income September 30, 2023 September 30, 2022 Derivatives not designated as a hedging instrument: Interest rate products Other income $ 244 702 Credit contracts Other income ( 12 ) ( 47 ) Total $ 232 655 Derivatives designated as a hedging instrument: Interest rate products Interest (benefit) expense $ ( 13,043 ) ( 1,077 ) Total $ ( 13,043 ) ( 1,077 ) The Company has agreements with certain of its dealer counterparties which contain a provision that if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be deemed in default on its derivative obligations. In addition, the Company has agreements with certain of its dealer counterparties which contain a provision that if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. At September 30, 2023, the Company had four dealer counterparties. The Company had a net asset position with respect to all of its counterparties. 42 Note 14. Revenue Recognition The Company generates revenue from several business channels. The guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) does not apply to revenue associated with financial instruments, including interest income on loans and investments, which comprise the majority of the Company's revenue. For both the three and nine months ended September 30, 2023, the out-of-scope revenue related to financial instruments was 89.1 % and 88.1 % of the Company's total revenue, compared to 81.1 % and 82.56 % for the three and nine months ended September 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 nine months ended September 30, 2023 and 2022 (in thousands): Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Non-interest income In-scope of Topic 606: Wealth management fees $ 6,992 6,785 20,826 21,274 Insurance agency income 3,224 2,865 11,175 9,135 Banking service charges and other fees: Service charges on deposit accounts 3,234 3,288 9,647 9,321 Debit card and ATM fees 745 756 2,210 2,372 Total banking service charges and other fees 3,979 4,044 11,857 11,693 Total in-scope non-interest income 14,195 13,694 43,858 42,102 Total out-of-scope non-interest income 5,125 14,751 17,003 27,421 Total non-interest income $ 19,320 28,445 60,861 69,523 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 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. 43 Out-of-scope non-interest income primarily consists of Bank-owned life insurance and net fees on loan level interest rate swaps, along with gains and losses on the sale of loans and foreclosed real estate, loan prepayment fees and loan servicing fees. None of these revenue streams are subject to the requirements of Topic 606. Note 15. Leases The following table represents the consolidated statements of financial condition classification of the Company’s right-of use-assets and lease liabilities at September 30, 2023 and December 31, 2022 (in thousands): Classification September 30, 2023 December 31, 2022 Lease Right-of-Use Assets: Operating lease right-of-use assets Other assets $ 59,031 60,577 Lease Liabilities: Operating lease liabilities Other liabilities $ 62,184 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 September 30, 2023, the weighted-average remaining lease term and the weighted-average discount rate for the Company's operating leases were 8.1 years and 2.72 %, respectively. The following tables represent lease costs and other lease information for the Company's operating leases. The variable lease cost primarily represents variable payments such as common area maintenance and utilities (in thousands): Three months ended September 30, 2023 Three months ended September 30, 2022 Lease Costs Operating lease cost $ 2,633 2,613 Variable lease cost 778 667 Total lease cost $ 3,411 3,280 Nine months ended September 30, 2023 Nine months ended September 30, 2022 Lease Costs Operating lease cost $ 7,890 8,006 Variable lease cost 2,500 2,103 Total lease cost $ 10,390 10,109 Cash paid for amounts included in the measurement of lease liabilities: Nine months ended September 30, 2023 Nine months ended September 30, 2022 Operating cash flows from operating leases $ 7,346 6,328 44 Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2023, were as follows (in thousands): Operating leases Twelve months ended: Remainder of 2023 $ 2,558 2024 10,020 2025 9,540 2026 8,647 2027 7,813 Thereafter 30,775 Total future minimum lease payments 69,353 Amounts representing interest 7,169 Present value of net future minimum lease payments $ 62,184