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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: __________ to ___________
Commission file number: 001-36441 
Investors Bancorp , Inc.
(Exact name of registrant as specified in its charter)
Delaware   46-4702118
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer
Identification Number)
101 JFK Parkway, Short Hills, New Jersey   07078
(Address of Principal Executive Offices)   Zip Code
(973) 924-5100
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common ISBC The NASDAQ Stock Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days.    Yes  ☑    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer   ☑      Accelerated filer ☐
Non-accelerated filer   ☐      Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐ No  ☑
As of October 29, 2021, the registrant had 361,869,872 shares of common stock, par value $0.01 per share, issued and 247,746,235 outstanding. 

INVESTORS BANCORP, INC.
FORM 10-Q

Index
Part I. Financial Information
    Page
Item 1. Financial Statements
1
2
3
4
5
7
Item 2.
49
Item 3.
66
Item 4.
68
Part II. Other Information
Item 1.
69
Item 1A.
69
Item 2.
71
Item 3.
71
Item 4.
71
Item 5.
71
Item 6.
72
73



Part I Financial Information
ITEM 1. FINANCIAL STATEMENTS
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)  
September 30,
2021 		December 31,
2020
  (In thousands)
ASSETS
Cash and cash equivalents $ 670,295  170,432 
Equity securities 7,673  36,000 
Debt securities available-for-sale, at estimated fair value 2,531,573  2,758,437 
Debt securities held-to-maturity, net (estimated fair value of $1,336,957 and $1,320,872 at September 30, 2021 and December 31, 2020, respectively)
1,272,683  1,247,853 
Loans receivable, net 21,624,728  20,580,451 
Loans held-for-sale 397  30,357 
Federal Home Loan Bank stock 177,058  159,829 
Accrued interest receivable 81,549  79,705 
Other real estate owned and other repossessed assets 5,849  7,115 
Office properties and equipment, net 132,259  139,663 
Operating lease right-of-use assets 203,522  199,981 
Net deferred tax asset 109,588  116,805 
Bank owned life insurance 227,822  223,714 
Goodwill and intangible assets 133,237  109,633 
Other assets 139,561  163,184 
Total assets $ 27,317,794  26,023,159 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits $ 20,400,424  19,525,419 
Borrowed funds 3,534,536  3,295,790 
Advance payments by borrowers for taxes and insurance 152,407  115,729 
Operating lease liabilities 216,374  212,559 
Other liabilities 161,494  163,659 
Total liabilities 24,465,235  23,313,156 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 authorized shares; none issued
—  — 
Common stock, $0.01 par value, 1,000,000,000 shares authorized; 361,869,872 issued at September 30, 2021 and December 31, 2020; 247,684,887 and 247,929,216 outstanding at September 30, 2021 and December 31, 2020, respectively
3,619  3,619 
Additional paid-in capital 2,867,057  2,856,935 
Retained earnings 1,454,309  1,339,003 
Treasury stock, at cost; 114,184,985 and 113,940,656 shares at September 30, 2021 and December 31, 2020, respectively
(1,379,014) (1,375,996)
Unallocated common stock held by the employee stock ownership plan (71,144) (73,542)
Accumulated other comprehensive loss (22,268) (40,016)
Total stockholders’ equity 2,852,559  2,710,003 
Total liabilities and stockholders’ equity $ 27,317,794  26,023,159 
See accompanying notes to consolidated financial statements.
1
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
  (Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable and loans held-for-sale $ 211,189  215,221  621,462  657,483 
Securities:
Equity 65  45  394  110 
Government-sponsored enterprise obligations 567  378  1,666  994 
Mortgage-backed securities 13,321  18,095  42,738  61,251 
Municipal bonds and other debt 3,601  3,277  10,596  9,928 
Interest-bearing deposits 268  233  367  1,367 
Federal Home Loan Bank stock 2,234  3,452  6,417  11,881 
Total interest and dividend income 231,245  240,701  683,640  743,014 
Interest expense:
Deposits 15,683  34,109  52,868  126,279 
Borrowed funds 20,960  24,970  60,725  79,843 
Total interest expense 36,643  59,079  113,593  206,122 
Net interest income 194,602  181,622  570,047  536,892 
Provision for credit losses (13,015) 8,336  (25,677) 72,840 
Net interest income after provision for credit losses 207,617  173,286  595,724  464,052 
Non-interest income
Fees and service charges 5,196  5,579  15,937  12,981 
Income on bank owned life insurance 1,508  2,067  5,012  5,059 
Gain on loans, net 1,698  5,285  6,819  10,688 
(Loss) gain on securities, net (931) (8) 3  249 
Gain on sale of other real estate owned, net 34  133  86  784 
Other income 8,447  6,870  21,172  14,965 
Total non-interest income 15,952  19,926  49,029  44,726 
Non-interest expense
Compensation and fringe benefits 60,231  59,896  184,043  176,079 
Advertising and promotional expense 3,111  2,344  7,737  6,906 
Office occupancy and equipment expense 23,535  16,882  58,683  49,303 
Federal deposit insurance premiums 2,950  2,925  9,550  10,726 
General and administrative 706  551  1,630  1,678 
Professional fees 12,925  4,097  20,896  12,386 
Data processing and communication 9,985  8,998  29,313  26,698 
Debt extinguishment 10,159  965  10,159  1,291 
Other operating expenses 8,424  7,402  22,814  21,571 
Total non-interest expenses 132,026  104,060  344,825  306,638 
Income before income tax expense 91,543  89,152  299,928  202,140 
Income tax expense 24,609  24,840  80,912  55,705 
Net income $ 66,934  64,312  219,016  146,435 
Basic earnings per share $ 0.28  0.27  0.93  0.62 
Diluted earnings per share $ 0.28  0.27  0.93  0.62 
Weighted average shares outstanding
Basic 235,602,277  236,833,099  235,106,490  235,453,133 
Diluted 236,413,268  236,872,505  236,088,254  235,550,801 
See accompanying notes to consolidated financial statements.
2
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
  (In thousands)
Net income $ 66,934  64,312  219,016  146,435 
Other comprehensive income (loss), net of tax:
Change in funded status of retirement obligations 120  300  363  619 
Unrealized (losses) gains on debt securities available-for-sale (8,423) (1,606) (30,451) 35,025 
Accretion of loss on debt securities reclassified to held-to-maturity 26  48  87  160 
Reclassification adjustment for security gains included in net income —  —  (299) — 
Other-than-temporary impairment accretion on debt securities recorded prior to January 1, 2020 178  184  550  641 
Net gains (losses) on derivatives 8,197  9,242  47,498  (68,891)
Total other comprehensive income (loss) 98  8,168  17,748  (32,446)
Total comprehensive income $ 67,032  72,480  236,764  113,989 


See accompanying notes to consolidated financial statements.
3
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders’ Equity
Nine Months Ended September 30, 2021 and 2020
(Unaudited)
Common
stock 		Additional
paid-in
capital 		Retained
earnings 		Treasury
stock 		Unallocated
common stock
held by ESOP 		Accumulated
other
comprehensive
loss 		Total
stockholders’
equity
  (In thousands)
Balance at December 31, 2019 $ 3,591  2,820,837  1,245,793  (1,352,910) (76,739) (18,622) 2,621,950 
Cumulative effect of adopting ASU No. 2016-13
—  —  (8,491) —  —  —  (8,491)
Balance at January 1, 2020 3,591  2,820,837  1,237,302  (1,352,910) (76,739) (18,622) 2,613,459 
Net income —  —  146,435  —  —  —  146,435 
Other comprehensive loss, net of tax —  —  —  —  —  (32,446) (32,446)
Common stock issued to finance acquisitions 28  20,853  —  —  —  —  20,881 
Purchase of treasury stock (390,712 shares)
—  —  —  (3,418) —  —  (3,418)
Treasury stock allocated to restricted stock plan (90,067 shares)
—  (903) (195) 1,098  —  —  — 
Compensation cost for stock options and restricted stock —  11,329  —  —  —  —  11,329 
Restricted stock forfeitures (18,860 shares)
—  230  (1) (229) —  —  — 
Cash dividend paid ($0.36 per common share)
—  —  (89,701) —  —  —  (89,701)
ESOP shares allocated or committed to be released —  820  —  —  2,398  —  3,218 
Balance at September 30, 2020 $ 3,619  2,853,166  1,293,840  (1,355,459) (74,341) (51,068) 2,669,757 
Balance at December 31, 2020 $ 3,619  2,856,935  1,339,003  (1,375,996) (73,542) (40,016) 2,710,003 
Net income —  —  219,016  —  —  —  219,016 
Other comprehensive income, net of tax —  —  —  —  —  17,748  17,748 
Purchase of treasury stock (970,866 shares)
—  —  —  (12,054) —  —  (12,054)
Treasury stock allocated to restricted stock plan (251,634 shares)
—  (3,323) 204  3,119  —  —  — 
Compensation cost for stock options and restricted stock —  10,739  —  —  —  —  10,739 
Exercise of stock options —  (125) —  6,235  —  —  6,110 
Restricted stock forfeitures (26,267 shares)
—  310  8  (318) —  —  — 
Cash dividend paid ($0.42 per common share)
—  —  (103,922) —  —  —  (103,922)
ESOP shares allocated or committed to be released —  2,521  —  —  2,398  —  4,919 
Balance at September 30, 2021 $ 3,619  2,867,057  1,454,309  (1,379,014) (71,144) (22,268) 2,852,559 

See accompanying notes to consolidated financial statements.

4
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
  Nine Months Ended September 30,
  2021 2020
  (In thousands)
Cash flows from operating activities:
Net income $ 219,016  146,435 
Adjustments to reconcile net income to net cash provided by operating activities:
ESOP and stock-based compensation expense 15,658  14,547 
Amortization of premiums and accretion of discounts on securities, net 7,088  8,449 
Amortization of premiums and accretion of fees and costs on loans, net 707  1,933 
Amortization of other intangible assets 825  1,077 
Amortization of debt modification costs and premium on borrowings 1,746  1,679 
Provision for credit losses (25,677) 72,840 
Loss from extinguishment of debt 10,159  1,291 
Depreciation and amortization of office properties and equipment 16,066  16,130 
Gain on securities, net (3) (249)
Mortgage loans originated for sale (144,180) (410,486)
Proceeds from mortgage loan sales 178,996  430,618 
Gain on sales of mortgage loans, net (4,856) (10,320)
Gain on sale of other real estate owned (86) (784)
Income on bank owned life insurance (5,012) (5,059)
Amortization of lease right-of-use assets 19,139  15,430 
Increase in accrued interest receivable (836) (3,721)
Deferred tax benefit (900) (29,675)
Decrease (increase) in other assets 21,624  (87,985)
Increase in other liabilities 51,690  1,021 
Net cash provided by operating activities 361,164  163,171 
Cash flows from investing activities:
Purchases of loans receivable (79,697) (90,000)
Net (originations) payoffs of loans receivable (803,725) 1,191,116 
Proceeds from disposition of loans receivable 78,703  51,623 
Gain on disposition of loans receivable (1,963) (368)
Gain on disposition of leased equipment (3,075) (1,842)
Net proceeds from sale of other real estate owned 1,421  6,255 
Proceeds from sales of equity securities 33,983  — 
Proceeds from principal repayments/calls/maturities of debt securities available for sale 748,586  709,764 
Proceeds from sales of debt securities available for sale 8,171  — 
Proceeds from principal repayments/calls/maturities of debt securities held to maturity 246,305  191,011 
Purchases of equity securities (6,051) (2,565)
Purchases of debt securities available for sale (575,860) (753,011)
Purchases of debt securities held to maturity (270,091) (273,416)
Proceeds from redemptions of Federal Home Loan Bank stock 83,621  113,627 
Purchases of Federal Home Loan Bank stock (100,850) (60,042)
Purchases of office properties and equipment (8,298) (10,251)
Death benefit proceeds from bank owned life insurance, net 904  — 
Cash received, net of cash consideration paid for acquisitions 391,640  7,274 
Net cash (used in) provided by investing activities (256,276) 1,079,175 
5
Cash flows from financing activities:
Net increase in deposits 242,616  753,316 
Repayments of principal under finance leases (1,191) (1,182)
Net proceeds (repayments) of borrowed funds 837,000  (1,136,118)
Payments related to extinguishment of debt (610,159) (401,291)
Net increase in advance payments by borrowers for taxes and insurance 36,575  18,882 
Dividends paid (103,922) (89,701)
Exercise of stock options 6,110  — 
Purchase of treasury stock (12,054) (3,418)
Net cash provided by (used in) financing activities 394,975  (859,512)
Net increase in cash and cash equivalents 499,863  382,834 
Cash and cash equivalents at beginning of period 170,432  174,915 
Cash and cash equivalents at end of period $ 670,295  557,749 
Supplemental cash flow information:
Non-cash investing activities:
Real estate acquired through foreclosure and other assets repossessed $ 69  1,050 
Cash paid during the year for:
Interest 116,390  212,889 
Income taxes 96,025  12,518 
Significant non-cash transactions:
Investment in low income housing tax credit 10,000  — 
Right-of-use assets obtained in exchange for new lease liabilities 13,234  9,050 
Acquisitions:
Non-cash assets acquired:
Debt securities available-for-sale —  51,524 
Debt securities held to maturity —  8,402 
Loans receivable, net 212,538  443,499 
Office properties and equipment, net 364  485 
Accrued interest receivable 1,008  1,283 
Right of use assets - leases 9,310  3,697 
Deferred tax asset 1,212  3,915 
Intangible assets, net 25,291  14,491 
Other assets 509  705 
Total non-cash assets acquired 250,232  528,001 
Liabilities assumed:
Deposits 632,389  489,881 
Borrowed funds —  14,851 
Advance payment by borrowers 103  3,611 
Other liabilities 9,380  6,051 
Total liabilities assumed 641,872  514,394 
Net non-cash (liabilities) assets acquired (391,640) 13,607 
Common stock issued for acquisitions —  20,881 
See accompanying notes to consolidated financial statements.
6
INVESTORS BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
 
1.     Summary of Significant Accounting Principles

Basis of Presentation
The consolidated financial statements are comprised of the accounts of Investors Bancorp, Inc. and its wholly owned subsidiary, Investors Bank (the “Bank”) and the Bank’s wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany transactions have been eliminated in consolidation. In the opinion of management, all the adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the three and nine months ended September 30, 2021 are not necessarily indicative of the results of operations that may be expected for subsequent periods or the full year results.
Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the preparation of the Form 10-Q. The consolidated financial statements presented should be read in conjunction with the Company’s audited consolidated financial statements and notes to the audited consolidated financial statements included in the Company’s December 31, 2020 Annual Report on Form 10-K. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.
The accounting and reporting policies of the Company conform to U.S. GAAP and to general practice within the financial services industry. A discussion of these policies can be found in Note 1, Summary of Significant Accounting Policies, included in the Company’s 2020 Annual Report on Form 10-K. There have been no changes to the Company’s significant accounting policies since December 31, 2020.

2.     Stock Transactions
Stock Repurchase Program
    On October 25, 2018, the Company announced its fourth share repurchase program, which authorized the purchase of 10% of its publicly-held outstanding shares of common stock, or 28,886,780 shares. The fourth program commenced immediately upon completion of the third program on December 10, 2018. This program has no expiration date and has 12,000,202 shares yet to be repurchased as of September 30, 2021.
    During the nine months ended September 30, 2021, the Company purchased approximately 1.0 million shares at a cost of $12.1 million, or $12.42 per share. During the nine months ended September 30, 2021, shares repurchased include 345,866 shares purchased in connection with the vesting of shares of restricted stock under our 2015 Equity Incentive Plan and the withholding of shares to pay income taxes. These shares are repurchased pursuant to the terms of the 2015 Equity Incentive Plan and therefore are not part of the Company’s repurchase program.

7
3.     Business Combinations
Citizens Financial Group, Inc. Merger Agreement
On July 28, 2021, Citizens Financial Group, Inc. (“Citizens”) and Investors Bancorp, Inc. (“Investors”) announced that they entered into a definitive agreement and plan of merger under which Citizens will acquire all of the outstanding shares of Investors for a combination of stock and cash. Under the terms of the agreement and plan of merger, shareholders of Investors will receive 0.297 of a share of Citizens common stock and $1.46 in cash for each share of Investors they own. Following completion of the transaction, former shareholders of Investors will collectively own approximately 14% of the combined company. The implied total transaction value based on closing prices on July 27, 2021 is approximately $3.5 billion. The agreement and plan of merger has been unanimously approved by the boards of directors of each company and the transaction is expected to close in the first half of 2022, subject to approval by the shareholders of Investors, receipt of required regulatory approvals and other customary closing conditions.
Berkshire Bank Branch Acquisition
As of the close of business on August 27, 2021, the Company completed its acquisition of eight New Jersey and eastern Pennsylvania branches of Berkshire Bank, the wholly-owned subsidiary of Berkshire Hills Bancorp, Inc. pursuant to the definitive purchase and assumption agreement dated as of December 2, 2020 by and between the Company and Berkshire Bank. The acquisition included the assumption and acquisition of $632 million of deposits and $219 million of consumer and commercial loans, together with the related operations. The Company assumed a net liability of $413.0 million and received consideration of $391.3 million from Berkshire Bank.
The acquisition was accounted for under the acquisition method of accounting as prescribed by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”, as amended. Under this method of accounting, the purchase price has been allocated to the respective assets acquired based on their estimated fair values, net of applicable income tax effects. The excess cost over fair value of assets and liabilities acquired, or $21.7 million, has been recorded as goodwill.
The acquired loans and deposits were fair valued on the date of acquisition based on guidance from ASC 820-10 which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The valuation methods utilized took into consideration adjustments for interest rate risk, funding cost, servicing cost, residual risk, credit and liquidity risk.
As the Company finalizes its analysis of these assets, there may be adjustments to the recorded carrying values. Any adjustments to carrying values will be recorded in goodwill. The calculation of goodwill is subject to change for up to one year after closing date of the transaction as additional information relative to closing date estimates and uncertainties becomes available.
Financial assets acquired in a business combination after January 1, 2020 are recorded in accordance with ASC Topic 326, after which acquired assets are separated into two types. PCD assets are acquired assets that, as of the acquisition date, have experienced a more-than-insignificant deterioration in credit quality since origination. Non-PCD assets are acquired assets that have experienced no or insignificant deterioration in credit quality since origination. To distinguish between the two types of acquired assets, the Company evaluates risk characteristics that have been determined to be indicators of deteriorated credit quality. In the case of loans, the determining criteria may involve general characteristics, such as loan payment history or changes in creditworthiness since the loan was originated, while others are relevant to recent economic conditions, such as borrowers in industries impacted by the pandemic.
In its acquisition of the eight branches of Berkshire Bank, the Company has purchased loans which have been determined to be PCD. The carrying amount of those loans was as follows:
At August 27, 2021
(In millions)
Purchase price of loans at acquisition $ 90.0 
Allowance for credit losses at acquisition 1.0 
Accretable fair value marks at acquisition 3.8 
Par value of acquired loans at acquisition $ 94.8 
8
Fair Value Measurement of Assets Acquired and Liabilities Assumed
    Described below are the methods used to determine the fair values of the assets acquired and liabilities assumed in the Berkshire Bank branch acquisition based on guidance from ASC 820-10 which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
Loans. The estimated fair values of the loan portfolio generally consider adjustments for interest rate risk, required equity return, servicing costs, credit and liquidity risk. Level 3 inputs were utilized to determine the fair value of the acquired loan portfolio and included the use of present value techniques employing cash flow estimates and incorporated assumptions that market participants would use in estimating fair values. In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine fair value. The primary approach to determining the fair value of the loan portfolio was a discounted cash flow methodology that considered factors including the type of loan, underlying collateral, classification status or grade, interest rate structure (fixed or variable interest rate), and remaining term. For the non-credit component, loans were grouped together according to similar characteristics when applying the various valuations techniques. For the credit component, loans were also grouped based on whether they had more than insignificant deterioration in credit since origination (purchase credit deteriorated “PCD” as defined by ASC 326-20). The estimated lifetime loan losses were calculated based on an annual loss rate developed by using the historical annual average charge-off percentages for Mid-Atlantic institutions as a proxy for how a market participant acquirer would value the portfolio.
Deposits / Core Deposit Intangible. The core deposit intangible represents the value assigned to the stable and below market rate funding sources within the acquired deposit base; typically demand deposits, interest checking, money market and savings accounts. The core deposit intangible value represents the value of the relationships with deposit customers as a below market rate funding source. The fair value was based on a discounted cash flow methodology that gave appropriate consideration to expected deposit attrition rates, net maintenance costs of the deposit base, projected interest costs and alternative funding costs. Certificates of deposit (time deposits) are not considered to be core deposits as they typically are less stable and generally do not have an “all-in” favorable funding advantage to alternative funding costs. The fair value of certificates of deposit represents the present value of the certificates’ expected contractual payments discounted by market rates for similar certificates and is determined utilizing Level 2 inputs.
Gold Coast Bancorp    
    As of the close of business on April 3, 2020, the Company completed its acquisition of Gold Coast Bancorp (“Gold Coast”) pursuant to the Agreement and Plan of Merger, dated as of July 24, 2019 by and between the Company and Gold Coast. As a result of the completion of the acquisition, the Company issued approximately 2.8 million shares to the former stockholders of Gold Coast and paid approximately $31.0 million in cash to the former stockholders of Gold Coast. Under the terms of the merger agreement, 50% of the common shares of Gold Coast were converted into Investors Bancorp common stock and the remaining 50% were exchanged for cash. For each share of Gold Coast Bancorp common stock, Gold Coast shareholders were given an option to receive either (i) 1.422 shares of Investors Bancorp common stock, $0.01 par value per share, (ii) a cash payment of $15.75, or (iii) a combination of Investors Bancorp common stock and cash. The foregoing was subject to proration to ensure that, in the aggregate, 50% of Gold Coast’s shares would be converted into Investors Bancorp common stock.
    The acquisition was accounted for under the acquisition method of accounting as prescribed by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”, as amended. Under this method of accounting, the purchase price has been allocated to the respective assets acquired based on their estimated fair values, net of applicable income tax effects. The excess cost over fair value of assets acquired, or $12.0 million, has been recorded as goodwill.
    The acquired portfolio was fair valued on the date of acquisition based on guidance from ASC 820-10 which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The valuation methods utilized took into consideration adjustments for interest rate risk, funding cost, servicing cost, residual risk, credit and liquidity risk. The accounting for the acquisition of Gold Coast is complete and is reflected in our Consolidated Financial Statements.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for Gold Coast, net of cash consideration paid:
9
At April 3, 2020
(In millions)
Cash and cash equivalents $ 7.3 
Debt securities available-for-sale 51.5 
Debt securities held to maturity 8.4 
Loans receivable, net 443.5 
Accrued interest receivable 1.3 
Right-of-use assets 3.7 
Net deferred tax asset 3.9 
Intangible assets 14.5 
Other assets 1.2 
Total assets acquired 535.3 
Deposits 489.9 
Borrowed funds 14.9 
Other liabilities 9.7 
Total liabilities assumed 514.5 
Net assets acquired $ 20.8 
    Financial assets acquired in a business combination after January 1, 2020 are recorded in accordance with ASC Topic 326, after which acquired assets are separated into two types. PCD assets are acquired assets that, as of the acquisition date, have experienced a more-than-insignificant deterioration in credit quality since origination. Non-PCD assets are acquired assets that have experienced no or insignificant deterioration in credit quality since origination. To distinguish between the two types of acquired assets, the Company evaluates risk characteristics that have been determined to be indicators of deteriorated credit quality. In the case of loans, the determining criteria may involve general characteristics, such as loan payment history or changes in creditworthiness since the loan was originated, while others are relevant to recent economic conditions, such as borrowers in industries impacted by the pandemic.
In its acquisition of Gold Coast, the Company has purchased loans which have been determined to be PCD. The carrying amount of those loans was as follows:
At April 3, 2020
(In millions)
Purchase price of loans at acquisition $ 244.7 
Allowance for credit losses at acquisition 4.2 
Accretable fair value marks at acquisition 2.6 
Par value of acquired loans at acquisition $ 251.5 

Fair Value Measurement of Assets Acquired and Liabilities Assumed
    Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Gold Coast acquisition based on guidance from ASC 820-10 which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
Securities. The securities acquired are bought and sold in active markets. The estimated fair values of securities were calculated using external third party broker opinions of the market values. Due to the instability of the market at the time of acquisition as well as the odd lot position sizes of the securities, the Company reviewed the data and assumptions used in pricing the securities by third-parties and made qualitative adjustments to reflect the then current market conditions and the characteristics of each position.
Loans. The estimated fair values of the loan portfolio generally consider adjustments for interest rate risk, required funding costs, servicing costs, prepayments, credit and liquidity. Level 3 inputs were utilized to determine the fair value of the acquired loan portfolio and included the use of present value techniques employing cash flow estimates and incorporated assumptions that market participants would use in estimating fair values. In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine fair value. The primary approach to determining the fair value
10
of the loan portfolio was a discounted cash flow methodology that considered factors including the type of loan, underlying collateral, classification status or grade, interest rate structure (fixed or variable interest rate), and remaining term. For the non-credit component, loans were grouped together according to similar characteristics when applying the various valuations techniques. For the credit component, loans were also grouped based on whether they had more than insignificant deterioration in credit since origination (purchase credit deteriorated “PCD” as defined by ASC 326-20). The estimated lifetime loan losses were calculated based on an annual loss rate developed by using the historical annual average charge-off percentages for New York institutions as a proxy for how a market participant acquirer would value the portfolio. Additionally, a qualitative credit adjustment was applied to the historical annual loss rates, due to COVID-19 and the uncertainty of future losses.
Deposits / Core Deposit Intangible. The core deposit intangible represents the value assigned to the stable and below market rate funding sources within the acquired deposit base; typically demand deposits, interest checking, money market and savings accounts. The core deposit intangible value represents the value of the relationships with deposit customers as a below market rate funding source. The fair value was based on a discounted cash flow methodology that gave appropriate consideration to expected deposit attrition rates, net maintenance costs of the deposit base, projected interest costs and alternative funding costs. Certificates of deposit (time deposits) are not considered to be core deposits as they typically are less stable and generally do not have an “all-in” favorable funding advantage to alternative funding costs. The fair value of certificates of deposit represents the present value of the certificates’ expected contractual payments discounted by market rates for similar certificates and is determined utilizing Level 2 inputs.
Borrowed Funds. A discounted cash flow approach was used to determine the fair value of the debt acquired. The fair value of the liability represents the present value of the expected payments discounted using a risk adjusted discount rate. The discount rate was developed based on comparable rated securities, as that backed by companies with similar credit ratings as the Company.

4.     Earnings Per Share
The following is a summary of our earnings per share calculations and reconciliation of basic to diluted earnings per share.

  For the Three Months Ended September 30,
  2021 2020
  (Dollars in thousands, except per share data)
Earnings for basic and diluted earnings per common share
Earnings applicable to common stockholders $ 66,934  $ 64,312 
Shares
Weighted-average common shares outstanding - basic 235,602,277  236,833,099 
Effect of dilutive common stock equivalents (1)
810,991  39,406 
Weighted-average common shares outstanding - diluted 236,413,268  236,872,505 
Earnings per common share
Basic $ 0.28  $ 0.27 
Diluted $ 0.28  $ 0.27 
(1) For the three months ended September 30, 2021 and 2020, there were 44,367 and 7,504,227 equity awards, respectively, that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented.

11
  For the Nine Months Ended September 30,
  2021 2020
  (Dollars in thousands, except per share data)
Earnings for basic and diluted earnings per common share
Earnings applicable to common stockholders $ 219,016  $ 146,435 
Shares
Weighted-average common shares outstanding - basic 235,106,490  235,453,133 
Effect of dilutive common stock equivalents (1)
981,764  97,668 
Weighted-average common shares outstanding - diluted 236,088,254  235,550,801 
Earnings per common share
Basic $ 0.93  $ 0.62 
Diluted $ 0.93  $ 0.62 
(1) For the six months ended September 30, 2021 and 2020, there were 219,597 and 7,433,286 equity awards, respectively, that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented.

5.     Securities
Equity Securities
    Equity securities are reported at fair value on the Company’s Consolidated Balance Sheets. The Company’s portfolio of equity securities had an estimated fair value of $7.7 million and $36.0 million as of September 30, 2021 and December 31, 2020, respectively. Realized gains and losses from sales of equity securities, as well as changes in fair value of equity securities still held at the reporting date are recognized in the Consolidated Statements of Income.
The following table presents the disaggregated net gains and losses on equity securities reported in the Consolidated Statements of Income:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Unrealized (losses) gains recognized on equity securities $ (931) (8) (147) 99 
Net losses recognized on equity securities sold —  —  (248) — 
Net (losses) gains recognized on equity securities $ (931) (8) (395) 99 
12
Debt Securities
The following tables present the amortized cost, gross unrealized gains and losses, and estimated fair value for available-for-sale debt securities and the amortized cost, net unrealized losses, carrying value, gross unrecognized gains and losses, estimated fair value and allowance for credit losses for held-to-maturity debt securities as of the dates indicated.
  At September 30, 2021
  Amortized
cost 		Gross
unrealized
gains 		Gross
unrealized
losses 		Estimated
fair value
  (In thousands)
Available-for-sale:
Debt securities:
Government-sponsored enterprises $ 3,636  175  —  3,811 
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 1,260,933  19,507  4,597  1,275,843 
Federal National Mortgage Association 1,099,289  24,632  6,661  1,117,260 
Government National Mortgage Association 132,978  2,294  613  134,659 
Total mortgage-backed securities available-for-sale 2,493,200  46,433  11,871  2,527,762 
Total debt securities available-for-sale $ 2,496,836  46,608  11,871  2,531,573 

  At September 30, 2021
  Amortized cost
Net unrealized losses (1)
Carrying value
Gross
unrecognized
gains (2)
Gross
unrecognized
losses (2)
Estimated
fair value
  (In thousands)
Held-to-maturity:
Debt securities:
Government-sponsored enterprises $ 133,358  —  133,358  2,295  2,777  132,876 
Municipal bonds 215,463  —  215,463  10,908  908  225,463 
Corporate and other debt securities 140,985  12,879  128,106  35,678  277  163,507 
Total debt securities held-to-maturity 489,806  12,879  476,927  48,881  3,962  521,846 
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 354,446  36  354,410  5,689  3,636  356,463 
Federal National Mortgage Association 418,020  92  417,928  14,991  628  432,291 
Government National Mortgage Association 25,417  —  25,417  940  —  26,357 
Total mortgage-backed securities held-to-maturity 797,883  128  797,755  21,620  4,264  815,111 
Total debt securities held-to-maturity $ 1,287,689  13,007  1,274,682  70,501  8,226  1,336,957 
Allowance for credit losses 1,999 
Total debt securities held-to-maturity, net of allowance for credit losses 1,272,683 

(1) Net unrealized losses of held-to-maturity corporate and other debt securities represent the other than temporary impairment related to other non-credit factors recorded prior to the adoption of the current expected credit losses accounting standard on January 1, 2020 that is being amortized through accumulated other comprehensive income over the remaining life of the securities. For mortgage-backed securities, it represents the net loss on previously designated available-for-sale debt securities transferred to held-to-maturity at fair value and is being amortized through accumulated other comprehensive income over the remaining life of the securities.
(2) Unrecognized gains and losses of held-to-maturity debt securities are not reflected in the financial statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as held-to-maturity; or (ii) the date that an other than temporary impairment charge is recognized on a held-to-maturity security, through the date of the balance sheet. Effective January 1, 2020, held-to-maturity debt securities are evaluated for credit losses to determine if an allowance is necessary. Any allowance required is recorded through the provision for credit losses.
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  At December 31, 2020
  Amortized
cost 		Gross
unrealized
gains 		Gross
unrealized
losses 		Estimated
fair value
  (In thousands)
Available-for-sale:
Debt securities:
Government-sponsored enterprises $ 4,260  222  —  4,482 
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 1,286,195  30,930  73  1,317,052 
Federal National Mortgage Association 1,167,057  38,568  199  1,205,426 
Government National Mortgage Association 225,810  5,700  33  231,477 
Total mortgage-backed securities available-for-sale 2,679,062  75,198  305  2,753,955 
Total debt securities available-for-sale $ 2,683,322  75,420  305  2,758,437 

  At December 31, 2020
  Amortized cost
Net unrealized losses (1)
Carrying
value
Gross
unrecognized
gains (2)
Gross
unrecognized
losses (2)
Estimated
fair value
  (In thousands)
Held-to-maturity:
Debt securities:
Government-sponsored enterprises $ 109,016  —  109,016  4,107  709  112,414 
Municipal bonds 246,601  —  246,601  14,990  —  261,591 
Corporate and other debt securities 144,209  13,644  130,565  20,033  885  149,713 
Total debt securities held-to-maturity 499,826  13,644  486,182  39,130  1,594  523,718 
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 308,285  66  308,219  9,733  266  317,686 
Federal National Mortgage Association 413,601  175  413,426  20,905  —  434,331 
Government National Mortgage Association 43,290  —  43,290  1,847  —  45,137 
Total mortgage-backed securities held-to-maturity 765,176  241  764,935  32,485  266  797,154 
Total debt securities held-to-maturity $ 1,265,002  13,885  1,251,117  71,615  1,860  1,320,872 
Allowance for credit losses 3,264 
Total debt securities held-to-maturity, net of allowance for credit losses 1,247,853 

(1) Net unrealized losses of held-to-maturity corporate and other debt securities represent the other than temporary impairment related to other non-credit factors recorded prior to the adoption of the current expected credit losses accounting standard on January 1, 2020 that is being amortized through accumulated other comprehensive income over the remaining life of the securities. For mortgage-backed securities, it represents the net loss on previously designated available-for-sale debt securities transferred to held-to-maturity at fair value and is being amortized through accumulated other comprehensive income over the remaining life of the securities.
(2) Unrecognized gains and losses of held-to-maturity debt securities are not reflected in the financial statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as held-to-maturity; or (ii) the date that an other than temporary impairment charge is recognized on a held-to-maturity security, through the date of the balance sheet. Effective January 1, 2020, held-to-maturity debt securities are evaluated for credit losses to determine if an allowance is necessary. Any allowance required is recorded through the provision for credit losses.

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Gross unrealized losses on debt securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2021 and December 31, 2020, were as follows:
  September 30, 2021
  Less than 12 months 12 months or more Total
  Estimated
fair value 		Unrealized
losses 		Estimated
fair value 		Unrealized
losses 		Estimated
fair value 		Unrealized
losses
  (In thousands)
Available-for-sale:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation $ 261,325  4,597  —  —  261,325  4,597 
Federal National Mortgage Association 368,423  6,623  98,283  38  466,706  6,661 
Government National Mortgage Association 30,203  613  —  —  30,203  613 
Total debt securities available-for-sale 659,951  11,833  98,283  38  758,234  11,871 
Held-to-maturity:
Debt securities:
Government-sponsored enterprises 89,242  2,777  —  —  89,242  2,777 
Municipal bonds 19,412  908  —  —  19,412  908 
Corporate and other debt securities 6,750  277  —  —  6,750  277 
Total debt securities held-to-maturity 115,404  3,962  —  —  115,404  3,962 
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 176,957  2,954  11,366  682  188,323  3,636 
Federal National Mortgage Association 66,647  628  —  —  66,647  628 
Total mortgage-backed securities held-to-maturity 243,604  3,582  11,366  682  254,970  4,264 
Total debt securities held-to-maturity 359,008  7,544  11,366  682  370,374  8,226 
Total $ 1,018,959  19,377  109,649  720  1,128,608  20,097 

  December 31, 2020
  Less than 12 months 12 months or more Total
  Estimated
fair value 		Unrealized
losses 		Estimated
fair value 		Unrealized
losses 		Estimated
fair value 		Unrealized
losses
  (In thousands)
Available-for-sale:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation $ 60,502  73  —  —  60,502  73 
Federal National Mortgage Association 123,329  199  —  —  123,329  199 
Government National Mortgage Association 9,062  33  —  —  9,062  33 
Total debt securities available-for-sale 192,893  305  —  —  192,893  305 
Held-to-maturity:
Debt securities:
Government-sponsored enterprises 66,558  709  —  —  66,558  709 
Corporate and other debt securities 15,038  885  —  —  15,038  885 
Total debt securities held-to-maturity 81,596  1,594  —  —  81,596  1,594 
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 40,013  266  —  —  40,013  266 
Total debt securities held-to-maturity 121,609  1,860  —  —  121,609  1,860 
Total $ 314,502  2,165  —  —  314,502  2,165 
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    We conduct periodic reviews of individual securities to assess whether an allowance for credit loss is required. Held-to-maturity debt securities are evaluated for expected credit loss utilizing a historical loss methodology, or a discounted cash flows approach which is assessed against the book value of the investment security excluding accrued interest. Available-for-sale debt securities are evaluated to determine if a decline in fair value below the amortized cost basis has resulted from a credit loss or other factors. An impairment on available-for-sale securities related to credit factors would be recorded through an allowance for credit losses. The allowance would be limited to the amount by which the security’s amortized cost basis exceeds the fair value. An impairment on available-for-sale securities that has not been recorded through an allowance for credit losses shall be recorded through other comprehensive income, net of applicable taxes. Investment securities will be written down to fair value through the consolidated statement of income when management intends to sell (or may be required to sell) the securities before they recover in value.
    The majority of our held-to-maturity debt securities portfolio is comprised of agency mortgage-backed securities. For agency (FNMA, FHLMC and GNMA) mortgage-backed securities, and other agency debt instruments, the expectation of non-payment is zero. The timely payment of principal and interest on FNMA and FHLMC securities is guaranteed by each corporation. As each of these corporations is in conservatorship with the federal government, the payment guarantees are considered implicit obligations of the US government. GNMA securities carry the full faith and credit guarantee of the federal government. Because of the existence of government guarantees of timely payment of principal and interest, expected losses on agency securities are assumed to be zero. Changes in the fair value of agency securities in this portfolio are primarily driven by changes in interest rates and other non-credit related factors. At September 30, 2021, our held-to-maturity debt securities portfolio had an allowance for credit losses of $2.0 million. The allowance is related to non-agency corporate and other debt securities. The majority of the allowance is related to a portfolio of collateralized debt obligations backed by pooled TruPS, principally issued by banks and to a lesser extent insurance companies and real estate investment trusts. At September 30, 2021, the TruPS had a carrying value before allowance for credit losses and estimated fair value of $50.6 million and $82.8 million, respectively. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost. Refer to Note 7, Allowance for Credit Losses, for additional information on the Company’s allowance for credit losses.
    At September 30, 2021, the available-for-sale debt securities portfolio was almost entirely comprised of agency securities. As such, the unrealized losses in this portfolio are primarily driven by changes in interest rates and other non-credit related factors. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost. As of September 30, 2021, there is no allowance for credit losses related to the Company’s available-for-sale debt securities as the decline in fair value did not result from credit issues.
    Debt securities with a carrying value before allowance for credit losses of $1.91 billion and an estimated fair value of $1.95 billion are pledged to secure borrowings and municipal deposits. The contractual maturities of the Bank’s mortgage-backed securities are generally less than 20 years with effective lives expected to be shorter due to prepayments. Expected maturities may differ from contractual maturities due to underlying loan prepayments or early call privileges of the issuer; therefore, mortgage-backed securities are not included in the following table. Excluding the allowance for credit losses, the amortized cost and estimated fair value of debt securities other than mortgage-backed securities at September 30, 2021, by contractual maturity, are shown below. 
  September 30, 2021
  Carrying
value 		Estimated
fair value
  (In thousands)
Due in one year or less $ 10,490  10,503 
Due after one year through five years 10,367  10,549 
Due after five years through ten years 158,622  161,926 
Due after ten years 301,084  342,679 
Total $ 480,563  525,657 
Gains and Losses
    Gains and losses are determined using the specific identification method. The Company recognized net unrealized losses on equity securities of $931,000 and $147,000, respectively, for the three and nine months ended September 30, 2021. For the three months ended September 30, 2021, the Company received proceeds of $1.1 million from the sale of equity securities which resulted in no net gain. For the nine months ended September 30, 2021, the Company received proceeds of
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$34.0 million from the sale of equity securities which resulted in a net loss of $248,000 and received proceeds of $8.2 million from the sale of available-for-sale debt securities which resulted in gains of $398,000.
    For the three and nine months ended September 30, 2020, there were no sales of securities; however, the Company received proceeds of $16.5 million from the call of a held-to-maturity debt security which resulted in a gain of $124,000 and received a principal payment of $26,000 on a held-to-maturity debt security during the nine months ended September 30, 2020. The Company recognized net unrealized losses on equity securities of $8,000 and net unrealized gains of $99,000, respectively, for the three and nine months ended September 30, 2020.

6.    Loans Receivable, Net
On January 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments- Credit Losses (Topic 326)” that is referred to as the current expected credit loss methodology, (“CECL”) for measuring credit losses. Refer to Note 7, Allowance for Credit Losses, for further details. All disclosures as of and for the nine months ended September 30, 2021 and December 31, 2020 are presented in accordance with Topic 326.
The detail of the loan portfolio as of September 30, 2021 and December 31, 2020 was as follows:
September 30,
2021 		December 31,
2020
  (In thousands)
Multi-family loans $ 7,655,135  7,122,840 
Commercial real estate loans 5,135,123  4,947,212 
Commercial and industrial loans 3,933,926  3,575,641 
Construction loans 509,620  404,367 
Total commercial loans 17,233,804  16,050,060 
Residential mortgage loans 3,930,683  4,119,894 
Consumer and other loans 740,827  702,801 
Total loans 21,905,314  20,872,755 
Deferred fees, premiums and accretable purchase accounting adjustments, net (17,071) (9,318)
Allowance for credit losses (263,515) (282,986)
Net loans $ 21,624,728  20,580,451 

Credit Quality Indicators
    The Company has lending policies and procedures that provide target market, underwriting and other criteria for identified lending segments to codify the level of credit risk the Company is willing to accept. Approval authority levels are delegated to qualified individuals and approval bodies for the extension of credit within the guidance of these policies and procedures. In addition, the Company maintains an independent loan review department that reviews and validates risk assessment on a continual basis.
    The Company assigns ratings to borrowers and transactions based on the assessment of a borrower’s ability to service their debt based on relevant information such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors.
    In connection with the adoption of CECL on January 1, 2020, the Company implemented new risk rating models for borrowers and transactions within its commercial loan portfolio. The risk rating methodology transitioned to a dual risk rating framework which bifurcates ratings into probability of default (PD) and loss given default (LGD). Relevant risks are evaluated prior to approving a transaction to determine if the transaction is within the Company’s risk appetite and the appropriate rating. Strong credit analysis requires current, reliable financial information and documented assessment of the customer’s:
•ability to perform in accordance with the terms of the credit, including adherence to covenants;
•assets and liabilities, liquidity, net worth, and contingent and other off-balance sheet items;
•tax liabilities;
•cash reserves and ability to convert assets to cash;
•income statement and the sources, level, stability, and quality of earnings;
•projected performance, sensitized for stressed circumstances; and
•industry performance relative to peers and industry.
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    Each commercial credit facility is assigned a PD and LGD rating for the purpose of informing a credit decision, facilitating the determination of the expected level of credit loss and other portfolio management activities (as well as relationship profitability). The dual risk rating framework and risk rating methodologies allow for consistent determination of risk across the Commercial business as indicated by the risk rating assigned. The methodology used by the Bank applies the same criteria for identification of a credit as for the regulatory definitions of risk ratings:
Pass - “Pass” assets are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.
Watch - A “Watch” asset has all the characteristics of a Pass asset but warrants more than the normal level of supervision. These loans may require more detailed reporting to management because some aspects of underwriting may not conform to policy or adverse events may have affected or could affect the cash flow or ability to continue operating profitably, provided, however, the events do not constitute an undue credit risk. Residential and consumer loans delinquent 30-59 days are considered watch if not a troubled debt restructuring (“TDR”). In addition, any residential or consumer loan currently on deferment in accordance with the CARES Act or the interagency statement issued by bank regulatory agencies are considered watch.
Special Mention - A “Special Mention” asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Residential and consumer loans delinquent 60-89 days are considered special mention if not a TDR.
Substandard - A “Substandard” asset is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Residential and consumer loans delinquent 90 days or greater as well as TDRs are considered substandard.
Doubtful - An asset classified “Doubtful” has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.
Loss - An asset or portion thereof, classified “Loss” is considered uncollectible and of such little value that its continuance on the institution’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur. As such, it is not practical or desirable to defer the write-off.

18
The following table presents the risk category of loans as of September 30, 2021 by class of loan and vintage year:
  Term Loans by Origination Year
  2021 2020 2019 2018 2017 Prior Revolving Loans Total
  (In thousands)
Multi-family
Pass $ 1,840,359  959,801  482,833  800,467  496,385  1,558,078  7,205  6,145,128 
Watch 28,466  17,514  87,446  271,270  100,945  359,263  1,001  865,905 
Special mention —  —  —  21,715  14,935  154,572  —  191,222 
Substandard —  —  7,255  13,857  20,064  409,813  1,891  452,880 
Total Multi-family
1,868,825  977,315  577,534  1,107,309  632,329  2,481,726  10,097  7,655,135 
Commercial real estate
Pass 572,305  528,024  673,703  579,294  457,991  1,377,149  35,790  4,224,256 
Watch 10,042  73,215  108,599  114,693  52,897  162,973  3,527  525,946 
Special mention —  383  7,029  24,476  15,035  103,961  1,646  152,530 
Substandard —  —  —  26,453  31,810  174,128  —  232,391 
Total Commercial real estate
582,347  601,622  789,331  744,916  557,733  1,818,211  40,963  5,135,123 
Commercial and industrial
Pass 597,479  785,048  663,076  337,196  155,281  435,335  287,367  3,260,782 
Watch 45,851  18,324  84,845  28,194  22,940  41,026  41,320  282,500 
Special mention —  15,136  134,373  58,237  10,442  79,931  1,500  299,619 
Substandard —  3,862  5,499  3,500  49,827  24,263  4,074  91,025 
Total Commercial and industrial
643,330  822,370  887,793  427,127  238,490  580,555  334,261  3,933,926 
Construction
Pass 71,295  121,996  38,310  12,000  —  —  212,034  455,635 
Watch —  —  2,543  —  —  —  —  2,543 
Special mention —  —  —  —  —  —  28,067  28,067 
Substandard —  —  —  23,375  —  —  —  23,375 
Total Construction
71,295  121,996  40,853  35,375  —  —  240,101  509,620 
Residential mortgage
Pass 981,933  519,062  281,213  270,561  336,506  1,441,290  —  3,830,565 
Watch —  608  6,751  5,163  10,601  27,468  —  50,591 
Special mention —  —  119  300  —  1,795  —  2,214 
Substandard —  —  1,523  2,508  1,737  41,455  90  47,313 
Total residential mortgage
981,933  519,670  289,606  278,532  348,844  1,512,008  90  3,930,683 
Consumer and other
Pass 5,655  3,202  4,685  4,847  9,746  44,532  658,524  731,191 
Watch —  —  37  137  111  204  7,061  7,550 
Special mention —  —  —  —  106  —  164  270 
Substandard —  —  —  —  299  1,113  404  1,816 
Total Consumer and other
5,655  3,202  4,722  4,984  10,262  45,849  666,153  740,827 
All classes
Pass 4,069,026  2,917,133  2,143,820  2,004,365  1,455,909  4,856,384  1,200,920  18,647,557 
Watch 84,359  109,661  290,221  419,457  187,494  590,934  52,909  1,735,035 
Special mention —  15,519  141,521  104,728  40,518  340,259  31,377  673,922 
Substandard —  3,862  14,277  69,693  103,737  650,772  6,459  848,800 
Total loans $ 4,153,385  3,046,175  2,589,839  2,598,243  1,787,658  6,438,349  1,291,665  21,905,314 
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The following table presents the risk category of loans as of December 31, 2020 by class of loan and vintage year:
Term Loans by Origination Year
2020 2019 2018 2017 2016 Prior Revolving Loans Total
(In thousands)
Multi-family
Pass $ 1,002,259  515,446  912,910  601,440  850,781  1,199,133  6,986  5,088,955 
Watch 21,366  153,404  374,363  135,348  299,413  220,668  —  1,204,562 
Special mention 4,560  —  86,119  32,506  48,020  205,916  —  377,121 
Substandard —  7,285  8,436  17,580  139,975  277,535  1,391  452,202 
Total Multi-family
1,028,185  676,135  1,381,828  786,874  1,338,189  1,903,252  8,377  7,122,840 
Commercial real estate
Pass 529,244  684,807  646,708  461,097  495,822  1,081,512  32,509  3,931,699 
Watch 87,137  132,932  117,598  74,379  61,794  165,702  3,428  642,970 
Special mention 375  6,988  5,279  13,295  51,880  71,745  250  149,812 
Substandard —  —  8,212  40,024  29,488  144,758  249  222,731 
Total Commercial real estate
616,756  824,727  777,797  588,795  638,984  1,463,717  36,436  4,947,212 
Commercial and industrial
Pass 1,007,949  619,275  328,917  156,596  176,557  348,278  203,302  2,840,874 
Watch 49,208  115,888  43,791  48,230  28,708  34,697  31,931  352,453 
Special mention 16,813  111,399  48,887  14,770  14,102  76,554  798  283,323 
Substandard —  6,128  8,236  42,297  4,341  22,707  15,282  98,991 
Total Commercial and industrial 1,073,970  852,690  429,831  261,893  223,708  482,236  251,313  3,575,641 
Construction
Pass 85,915  58,041  23,375  —  —  —  197,437  364,768 
Watch 6,891  5,350  —  —  —  —  —  12,241 
Special mention —  —  15,228  —  —  —  —  15,228 
Substandard —  —  —  —  —  —  12,130  12,130 
Total Construction
92,806  63,391  38,603  —  —  —  209,567  404,367 
Residential mortgage
Pass 556,761  450,363  425,617  530,676  407,201  1,601,457  —  3,972,075 
Watch 809  12,929  13,465  14,704  8,517  44,299  —  94,723 
Special mention —  —  584  —  —  3,402  —  3,986 
Substandard —  1,523  1,972  1,336  246  43,936  97  49,110 
Total residential mortgage
557,570  464,815  441,638  546,716  415,964  1,693,094  97  4,119,894 
Consumer and other
Pass 5,031  6,853  5,693  7,448  6,692  57,103  601,481  690,301 
Watch —  39  137  56  156  440  7,655  8,483 
Special mention —  —  —  —  —  292  1,184  1,476 
Substandard —  —  —  —  —  1,796  745  2,541 
Total Consumer and other
5,031  6,892  5,830  7,504  6,848  59,631  611,065  702,801 
All classes
Pass 3,187,159  2,334,785  2,343,220  1,757,257  1,937,053  4,287,483  1,041,715  16,888,672 
Watch 165,411  420,542  549,354  272,717  398,588  465,806  43,014  2,315,432 
Special mention 21,748  118,387  156,097  60,571  114,002  357,909  2,232  830,946 
Substandard —  14,936  26,856  101,237  174,050  490,732  29,894  837,705 
Total loans $ 3,374,318  2,888,650  3,075,527  2,191,782  2,623,693  5,601,930  1,116,855  20,872,755 

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Delinquent and Non-Accrual Loans
In the absence of other intervening factors, loans on active payment deferral status related to COVID-19 are not reported as past due or placed on non-accrual status in accordance with the CARES Act and Interagency Guidance.
The following tables present the payment status of the recorded investment in past due loans as of September 30, 2021 and December 31, 2020 by class of loans:
  September 30, 2021
  30-59 Days 60-89 Days Greater
than 90
Days 		Total Past
Due 		Current Total
Loans
Receivable
  (In thousands)
Commercial loans:
Multi-family $ 13,659  9,429  15,193  38,281  7,616,854  7,655,135 
Commercial real estate 19,658  364  3,455  23,477  5,111,646  5,135,123 
Commercial and industrial 2,289  993  445  3,727  3,930,199  3,933,926 
Construction —  —  —  —  509,620  509,620 
Total commercial loans 35,606  10,786  19,093  65,485  17,168,319  17,233,804 
Residential mortgage 5,693  2,726  29,245  37,664  3,893,019  3,930,683 
Consumer and other 7,089  270  1,329  8,688  732,139  740,827 
Total $ 48,388  13,782  49,667  111,837  21,793,477  21,905,314 
 
  December 31, 2020
  30-59 Days 60-89 Days Greater
than 90
Days 		Total Past
Due 		Current Total
Loans
Receivable
  (In thousands)
Commercial loans:
Multi-family $ 7,421  —  32,884  40,305  7,082,535  7,122,840 
Commercial real estate 12,805  2,450  6,356  21,611  4,925,601  4,947,212 
Commercial and industrial 986  3,116  1,769  5,871  3,569,770  3,575,641 
Construction —  —  —  —  404,367  404,367 
Total commercial loans 21,212  5,566  41,009  67,787  15,982,273  16,050,060 
Residential mortgage 13,768  4,258  29,124  47,150  4,072,744  4,119,894 
Consumer and other 5,645  1,476  1,984  9,105  693,696  702,801 
Total $ 40,625  11,300  72,117  124,042  20,748,713  20,872,755 

The following table presents non-accrual loans at the dates indicated:
  September 30, 2021 December 31, 2020
  # of loans Amount # of loans Amount
  (Dollars in thousands)
Non-accrual:
Multi-family 15  $ 19,860  15  $ 35,567 
Commercial real estate 22  9,836  29  15,894 
Commercial and industrial 16  3,320  21  9,212 
Construction —  —  —  — 
Total commercial loans 53  33,016  65  60,673 
Residential mortgage and consumer 231  43,451  246  46,452 
Total non-accrual loans 284  $ 76,467  311  $ 107,125 

The Company recognized $844,000 of interest income on non-accrual loans during the nine months ended September 30, 2021.
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Individually Evaluated Loans
    Loans which do not share common risk characteristics with other loans are individually evaluated as part of the process of calculating the allowance for credit losses. The evaluation is determined on an individual basis using the present value of expected cash flows or the fair value of the collateral as of the reporting date. When management determines that the fair value of collateral securing a collateral dependent loan inadequately covers the balance of net principal, the net principal balance is written down to the fair value of the collateral, net of estimated selling costs as applicable, rather than assigning an allowance. See Note 16, Fair Value Measurements, for information regarding the valuation process for collateral dependent loans.
The following table presents individually evaluated collateral-dependent loans by class of loans at the dates indicated:

  September 30, 2021 December 31, 2020
  Real Estate Other Total Real Estate Other Total
  (Dollars in thousands)
Multi-family $ 13,800  —  13,800  $ 31,484  —  31,484 
Commercial real estate 4,366  —  4,366  8,758  —  8,758 
Commercial and industrial —  —  2,994  3,549  6,543 
Construction —  —  —  —  —  — 
Total commercial loans 18,166  —  18,166  43,236  3,549  46,785 
Residential mortgage and consumer 21,961  87  22,048  25,158  103  25,261 
Total collateral-dependent loans $ 40,127  87  40,214  $ 68,394  3,652  72,046 
For leases, the Company records a residual value of the equipment based on an estimate of the equipment’s value at the end of the lease. On at least an annual basis, the Company reviews the residual values of leased assets and assets off-lease and recognizes an impairment charge if the equipment’s current market value has declined below the estimated value. For the year ended December 31, 2019, the Company recorded an impairment charge of $2.6 million as the fair value of certain equipment decreased at a rate greater than originally projected. An additional impairment charge of $2.2 million was recorded on the same equipment class during the year ended December 31, 2020 given the extended downturn in the market for these assets. For the nine months ended September 30, 2021, the Company recognized an impairment charge of $150,000 on the value of equipment coming off lease in the third quarter of 2021.
TDR Loans Included in Non-Accrual
Included in the non-accrual table above are TDR loans whose payment status is current but the Company has classified as non-accrual as the loans have not maintained their current payment status for six consecutive months under the restructured terms and therefore do not meet the criteria for accrual status. As of September 30, 2021 and December 31, 2020, these loans are comprised of the following:
September 30, 2021 December 31, 2020
# of loans Amount # of loans Amount
(Dollars in thousands)
TDR with payment status current classified as non-accrual:
Commercial real estate 2  $ 2,580  3  $ 3,907 
Residential mortgage and consumer 29  4,840  32  5,634 
Total TDR with payment status current classified as non-accrual 31  $ 7,420  35  $ 9,541 
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The following table presents TDR loans which were also 30-89 days delinquent and classified as non-accrual at the dates indicated:
September 30, 2021 December 31, 2020
# of loans Amount # of loans Amount
(Dollars in thousands)
TDR 30-89 days delinquent classified as non-accrual:
Commercial real estate 1  $ 166  1  $ 1,780 
Residential mortgage and consumer 5  808  10  942 
Total TDR 30-89 days delinquent classified as non-accrual 6  $ 974  11  $ 2,722 
    The Company has no loans past due 90 days or more delinquent that are still accruing interest.
Guidance on Non-TDR Loan Modifications due to COVID-19
The Company implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of COVID-19. In accordance with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Company elected to not apply troubled debt restructuring classification to any COVID-19 related loan modifications that occurred after March 1, 2020 to borrowers who were current as of December 31, 2019. Accordingly, these modifications are exempt from troubled debt restructuring classification under U.S. generally accepted accounting principles (“U.S. GAAP”) and were not classified as troubled debt restructurings (“TDRs”). The Consolidated Appropriations Act of 2021 extends this provision of the CARES Act to January 1, 2022. In addition, for loans modified in response to the COVID-19 pandemic that did not meet the above criteria (e.g., current payment status at December 31, 2019), the Company applied the guidance included in an interagency statement issued by the bank regulatory agencies. For loan modifications that include a payment deferral and are not TDRs, the borrower’s past due and non-accrual status have not been impacted during the deferral period. Interest income has continued to be recognized over the contractual life of the loan.
Troubled Debt Restructurings    
    On a case-by-case basis, the Company may agree to modify the contractual terms of a borrower’s loan to remain competitive and assist customers who may be experiencing financial difficulty, as well as preserve the Company’s position in the loan. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a TDR.
    Substantially all of our TDR loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan, or a combination of these two methods. These modifications rarely result in the forgiveness of principal or accrued interest. In addition, we frequently obtain additional collateral or guarantor support when modifying commercial loans. Restructured loans remain on non-accrual status until payment is reasonably assured (generally six consecutive months of payments) and both principal and interest are deemed collectible.
    Consistent with the CARES Act and interagency guidance which allows temporary relief for current borrowers affected by COVID-19, we have worked with borrowers and granted certain modifications through programs related to COVID-19 relief. At September 30, 2021, loans with an aggregate outstanding balance of approximately $496.0 million have been granted payment deferment as a result of financial disruptions associated with the COVID-19 pandemic. Such modifications that met the criteria are not included in our TDR totals and discussion below.

The following tables present the total TDR loans at September 30, 2021 and December 31, 2020:
 
September 30, 2021
  Accrual Non-accrual Total
  # of loans Amount # of loans Amount # of loans Amount
  (Dollars in thousands)
Commercial real estate —  $ —  4  $ 4,366  4  $ 4,366 
Residential mortgage and consumer 47  8,072  72  13,976  119  22,048 
Total 47  $ 8,072  76  $ 18,342  123  $ 26,414 

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December 31, 2020
  Accrual Non-accrual Total
  # of loans Amount # of loans Amount # of loans Amount
  (Dollars in thousands)
Commercial loans:
Commercial real estate —  $ —  4  $ 5,687  4  $ 5,687 
Commercial and industrial 2  630  2  2,919  4  3,549 
Total commercial loans 2  630  6  8,606  8  9,236 
Residential mortgage and consumer 45  8,602  83  16,659  128  25,261 
Total 47  $ 9,232  89  $ 25,265  136  $ 34,497 

The following tables present information about TDRs that occurred during the three and nine months ended September 30, 2021 and 2020:
  Three Months Ended September 30,
2021 2020
  Number of
Loans 		Pre-modification
Recorded
Investment 		Post-
modification
Recorded
Investment 		Number of
Loans 		Pre-modification
Recorded
Investment 		Post-
modification
Recorded
Investment
  (Dollars in thousands)
Troubled Debt Restructurings:
Commercial real estate —  $ —  $ —  1  $ 1,780  $ 1,780 
Residential mortgage and consumer —  —  —  7  1,813  1,813 

  Nine Months Ended September 30,
2021 2020
  Number of
Loans 		Pre-modification
Recorded
Investment 		Post-
modification
Recorded
Investment 		Number of
Loans 		Pre-modification
Recorded
Investment 		Post-
modification
Recorded
Investment
  (Dollars in thousands)
Troubled Debt Restructurings:
Commercial real estate 1  $ 170  $ 170  2  $ 3,110  $ 3,110 
Commercial and industrial —  —  —  1  933  933 
Residential mortgage and consumer 4  226  226  7  1,813  1,813 
    Post-modification recorded investment represents the net book balance immediately following modification.
    Collateral dependent loans classified as TDRs were written down to the estimated fair value of the collateral. There were $160,000 in charge offs of TDRs of collateral dependent commercial loans during the three months ended September 30, 2021. There were $171,000 in charge offs of TDRs of collateral dependent residential and commercial loans during the nine months ended September 30, 2021. There were no charge offs for TDRs during the three months ended September 30, 2020. There were $163,000 in charge-offs for a TDR of an unsecured commercial and industrial loan during the nine months ended September 30, 2020. The allowance for credit losses associated with the TDRs presented in the above tables totaled $1.4 million as of September 30, 2021 and December 31, 2020.
    Loan modifications generally involve the reduction in loan interest rate and/or extension of loan maturity dates and also may include step up interest rates in their modified terms which will impact their weighted average yield in the future. The commercial loan modification which qualified as a TDR in the nine months ended September 30, 2021 resulted from a forbearance agreement. The residential loan modifications which qualified as TDRs in the nine months ended September 30, 2021 had their maturity extended and/or interest rate reduced to current market terms. Residential loans modified in the nine months ended September 30, 2020 and deemed to be TDRs were granted a payment deferral related to COVID-19 but did not meet the criteria to be excluded from TDR under the CARES Act. Two of the commercial loan modifications which qualified as a TDR in the nine months ended September 30, 2020 were loans which had already been on non-accrual status and were
24
granted a deferral of payment due to circumstances related to COVID-19. Another commercial loan modification which qualified as a TDR in the first quarter of 2020 had its maturity extended.
The following table presents information about pre and post modification interest yield for TDRs which occurred during the three and nine months ended September 30, 2021 and 2020:
  Three Months Ended September 30,
2021 2020
  Number of
Loans 		Pre-modification
Interest Yield 		Post-
modification
Interest Yield 		Number of
Loans 		Pre-modification
Interest Yield 		Post-
modification
Interest Yield
Troubled Debt Restructurings:
Commercial real estate —  —  % —  % 1  4.25  % 4.25  %
Residential mortgage and consumer —  —  % —  % 7  5.94  % 5.94  %

  Nine Months Ended September 30,
2021 2020
  Number of
Loans 		Pre-modification
Interest Yield 		Post-
modification
Interest Yield 		Number of
Loans 		Pre-modification
Interest Yield 		Post-
modification
Interest Yield
Troubled Debt Restructurings:
Commercial real estate 1  6.00  % 6.00  % 2  4.09  % 4.09  %
Commercial and industrial —  —  % —  % 1  4.75  % 4.75  %
Residential mortgage and consumer 4  6.82  % 3.07  % 7  5.94  % 5.94  %
    Payment defaults for loans modified as a TDR in the previous 12 months to September 30, 2021 consisted of one commercial real estate loan with a recorded investment of $166,000. There were no payment defaults for loans modified as a TDR in the previous 12 months to September 30, 2020.
Non-Performing Loan Sales
During the nine months ended September 30, 2021, the Company sold three non-performing multi-family loans with a net book balance of $19.9 million. The Company recognized a recovery of $1.4 million in the allowance for credit losses on the sale of one of the loans. Also during the nine months ended September 30, 2021, the Company sold a non-performing commercial real estate loan with a net book balance of $762,000.

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7.    Allowance for Credit Losses
    On January 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology.
An analysis of the provision for credit losses is summarized as follows:
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
  (In thousands)
Provision for loan losses $ (7,345) 14,859  (22,758) 71,535 
Provision for debt securities held-to-maturity (80) (149) (1,265) 531 
Provision for off-balance sheet credit exposures (5,590) (6,374) (1,654) 774 
Total provision for credit losses $ (13,015) 8,336  (25,677) 72,840 
Allowance for Credit Losses on Loans Receivable
An analysis of the allowance for credit losses for loans receivable is summarized as follows:
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
  (In thousands)
Balance at beginning of period $ 270,114  273,319  282,986  228,120 
Adjustment for adoption of ASC 326
—  —  —  (3,551)
Gross charge offs (1,106) (1,472) (2,484) (17,459)
Recoveries 855  805  4,774  4,686 
Net charge-offs (251) (667) 2,290  (12,773)
Allowance at acquisition on loans purchased with credit deterioration 997  —  997  4,180 
Provision for credit loss expense (7,345) 14,859  (22,758) 71,535 
Balance at end of the period $ 263,515  287,511  263,515  287,511 
    Accrued interest receivable on loans, reported as a component of accrued interest receivable on the balance sheet, totaled $73.0 million at September 30, 2021 and is excluded from credit losses. For the nine months ended September 30, 2021 loans in payment deferral with accrued interest and deferred escrow are included in credit losses.
    The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The lifetime estimate considers multiple economic scenarios, including recessionary scenarios that assume deterioration in key economic variables such as gross domestic product, unemployment rate and real estate prices.  The Company assesses the selection and probability weightings of each economic scenario.  In estimating the allowance for credit losses, multiple economic outlooks are used that include a base or consensus case, a downside recessionary case and an upside scenario to reflect the potential for continued improvement in the economic outlook.  In addition, the allowance for credit losses includes qualitative reserves for certain segments that may not be fully recognized through its quantitative models.  There are still many unknowns including the duration of the impact of COVID-19 on the economy and the results of the government fiscal and monetary actions along with payment deferral programs. The Company will continue to evaluate the allowance for credit losses and the related economic outlook each quarter.
26
The following tables present the balance in the allowance for credit losses for loans by portfolio segment as of September 30, 2021 and December 31, 2020:
  September 30, 2021
  Multi-
Family Loans 		Commercial
Real Estate Loans 		Commercial
and Industrial
Loans 		Construction
Loans 		Residential
Mortgage Loans 		Consumer
and Other
Loans 		Unallocated Total
  (Dollars in thousands)
Allowance for credit losses:
Balance as of December 31, 2020
$ 56,731  115,918  79,327  7,267  19,941  3,802  —  282,986 
Charge-offs (644) (322) (694) —  (427) (397) —  (2,484)
Recoveries 1,928  296  1,488  —  982  80  —  4,774 
Allowance at acquisition on loans purchased with credit deterioration 149  730  17  46  41  14  —  997 
Provision for credit loss expense 1,005  (29,606) 4,898  2,046  (1,209) 108  —  (22,758)
Ending balance-September 30, 2021
$ 59,169  87,016  85,036  9,359  19,328  3,607  —  263,515 
  December 31, 2020
  Multi-
Family Loans 		Commercial
Real Estate Loans 		Commercial
and Industrial
Loans 		Construction
Loans 		Residential
Mortgage Loans 		Consumer
and Other
Loans 		Unallocated Total
  (Dollars in thousands)
Allowance for credit losses:
Balance as of December 31, 2019
$ 74,099  50,925  74,396  6,816  17,391  2,548  1,945  228,120 
Adjustment for adoption of ASC 326
(9,741) (4,631) (7,511) (1,901) 20,089  2,089  (1,945) (3,551)
Balance as of
January 1, 2020 		64,358  46,294  66,885  4,915  37,480  4,637  —  224,569 
Charge-offs (4,631) (521) (12,005) —  (1,190) (41) —  (18,388)
Recoveries 1,965  412  4,459  —  677  222  —  7,735 
Allowance at acquisition on loans purchased with credit deterioration 209  3,208  287  127  344  5  —  4,180 
Provision for credit loss expense (5,170) 66,525  19,701  2,225  (17,370) (1,021) —  64,890 
Ending balance-December 31, 2020
$ 56,731  115,918  79,327  7,267  19,941  3,802  —  282,986 
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Allowance for Credit Losses on Debt Securities
An analysis of the allowance for credit losses for debt securities held-to-maturity is summarized as follows:
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
  (In thousands)
Balance at beginning of the period $ 2,079  3,244  3,264  — 
Impact of adopting ASC 326
—  —  —  2,564 
Provision for credit losses (80) (149) (1,265) 531 
Balance at end of the period $ 1,999  3,095  1,999  3,095 

The following tables present the balance in the allowance for credit losses for debt securities held-to-maturity by portfolio segment as of September 30, 2021 and December 31, 2020:
  September 30, 2021
  Municipal Bonds Corporate and Other Debt Securities Total
  (Dollars in thousands)
Allowance for credit losses:
Beginning balance-December 31, 2020
$ 34  3,230  3,264 
Provision for credit loss (9) (1,256) (1,265)
Ending balance-September 30, 2021
$ 25  1,974  1,999 

December 31, 2020
Municipal Bonds Corporate and Other Debt Securities Total
(Dollars in thousands)
Allowance for credit losses:
Beginning balance - December 31, 2019
$ —  —  — 
Impact of adopting ASC 326
17  2,547  2,564 
Provision for credit loss 17  683  700 
Ending balance - December 31, 2020
$ 34  3,230  3,264 

Accrued interest receivable on debt securities held-to-maturity totaled $4.9 million at September 30, 2021 and is excluded from the estimate of credit losses.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
An analysis of the allowance for credit losses for off-balance sheet credit exposures is as follows:
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
  (In thousands)
Balance at beginning of the period $ 21,603  20,247  17,667  425 
Impact of adopting ASC 326
—  —  —  12,674 
Provision for credit losses (5,590) (6,374) (1,654) 774 
Balance at end of the period $ 16,013  13,873  16,013  13,873 

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8.     Deposits
Deposits are summarized as follows:
September 30, 2021 December 31, 2020
  (In thousands)
Non-interest bearing:
Checking accounts $ 4,345,871  3,663,073 
Interest bearing:
Checking accounts 6,917,964  6,043,393 
Money market deposits 4,768,986  5,037,327 
Savings 2,052,819  2,063,447 
Certificates of deposit 2,314,784  2,718,179 
Total deposits $ 20,400,424  19,525,419 

9.    Goodwill and Other Intangible Assets
The following table summarizes goodwill and intangible assets at September 30, 2021 and December 31, 2020:
September 30, 2021 December 31, 2020
(In thousands)
Mortgage servicing rights $ 10,147  10,957 
Core deposit premiums 6,333  3,560 
Other 529  581 
Total other intangible assets 17,009  15,098 
Goodwill 116,228  94,535 
Goodwill and intangible assets $ 133,237  109,633 

For the nine months ended September 30, 2021, the increase in goodwill reflects the Berkshire Bank branch acquisition. See Note 3, Business Combinations.
The following table summarizes other intangible assets as of September 30, 2021 and December 31, 2020:
Gross Intangible Asset Accumulated Amortization Valuation Allowance Net Intangible Assets
(In thousands)
September 30, 2021
Mortgage servicing rights $ 15,560  (5,330) (83) 10,147 
Core deposit premiums 26,661  (20,328) —  6,333 
Other 850  (321) —  529 
Total other intangible assets $ 43,071  (25,979) (83) 17,009 
December 31, 2020
Mortgage servicing rights $ 17,559  (5,592) (1,010) 10,957 
Core deposit premiums 23,063  (19,503) —  3,560 
Other 1,150  (569) —  581 
Total other intangible assets $ 41,772  (25,664) (1,010) 15,098 
    
Mortgage servicing rights are accounted for using the amortization method. Under this method, the Company amortizes the loan servicing asset in proportion to, and over the period of, estimated net servicing revenues. The Company sells loans on a servicing-retained basis. The unpaid principal balance of these loans were $1.42 billion and $1.69 billion at September 30, 2021 and December 31, 2020, respectively, all of which relate to mortgage loans. At September 30, 2021 and
29
December 31, 2020, the servicing asset, included in other intangible assets, had an estimated fair value of $11.3 million and $11.2 million, respectively. At September 30, 2021, fair value was based on expected future cash flows considering a weighted average discount rate of 11.32%, a weighted average constant prepayment rate on mortgages of 13.74% and a weighted average life of 5.3 years. Based on an analysis of fair values as of September 30, 2021, the Company determined that a $83,000 valuation allowance for mortgage servicing rights was required, an increase of approximately $10,000 from the previous quarter. See Note 16, Fair Value Measurements, for additional details.
    Core deposit premiums are amortized using an accelerated method and having a weighted average amortization period of 10 years. For the nine months ended September 30, 2021, the Company recorded $3.6 million in core deposit premiums resulting from the Berkshire Bank branch acquisition. For the year ended December 31, 2020, the Company recorded $2.5 million in core deposit premiums resulting from the acquisition of Gold Coast.

10.     Leases
    The Company has operating leases for corporate offices, branch locations and certain equipment. For these operating leases, the Company recognizes a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. The Company’s leases have remaining lease terms of up to 15 years, some of which include options to extend the leases for up to 10 years. Certain of our operating leases for branch locations contain variable lease payments related to consumer price index adjustments.
The following table presents the balance sheet information related to our operating leases:
September 30, 2021 December 31, 2020
(Dollars in thousands)
Operating lease right-of-use assets $ 203,522  199,981 
Operating lease liabilities 216,374  212,559 
Weighted average remaining lease term 8.7 years 9.4 years
Weighted average discount rate 2.41  % 2.49  %
    In determining the present value of lease payments, the discount rate used for each individual lease is the rate implicit in the lease, unless that rate cannot be readily determined, in which case the Company is required to use its incremental borrowing rate based on the information available at commencement date. For its incremental borrowing rate, the Company uses the borrowing rates offered to the Company by the Federal Home Loan Bank, which reflects the rates a lender would charge the Company to obtain a collateralized loan.
The following table presents the components of total operating lease cost recognized in the Consolidated Statements of Income:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Included in office occupancy and equipment expense:
Operating lease cost $ 7,534  6,589  21,963  19,396 
Short-term lease cost 227  104  657  293 
Included in other income:
Sublease income 39  67  125  185 
The following table presents supplemental cash flow information related to operating leases:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases $ 7,372  6,419  21,905  17,998 
Operating lease liabilities arising from obtaining right-of-use assets (non-cash):
Operating leases 9,310  4,909  22,544  12,746 
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    Future minimum operating lease payments and reconciliation to operating lease liabilities at September 30, 2021 and December 31, 2020:
September 30, 2021 December 31, 2020
(In thousands)
2021 $ 7,634  28,844 
2022 30,431  27,448 
2023 29,317  26,354 
2024 29,009  26,300 
2025 28,345  25,496 
Thereafter 115,765  104,729 
Total lease payments 240,501  239,171 
Less: Imputed interest (24,127) (26,612)
Total operating lease liabilities $ 216,374  $ 212,559 

    The Company also has finance leases for certain equipment. The Company’s right-of-use assets and lease liabilities for finance leases were both $1.2 million at September 30, 2021. The finance lease right-of-use assets and finance lease liabilities are included within Other assets and Other liabilities, respectively, on the Consolidated Balance Sheet.

11.     Equity Incentive Plan
    At the annual meeting held on June 9, 2015, stockholders of the Company approved the Investors Bancorp, Inc. 2015 Equity Incentive Plan (“2015 Plan”) which provides for the issuance or delivery of up to 30,881,296 shares (13,234,841 restricted stock awards and 17,646,455 stock options) of Investors Bancorp, Inc. common stock.
    Restricted shares granted under the 2015 Plan vest in equal installments, over the service period generally ranging from 5 to 7 years beginning one year from the date of grant. Additionally, certain restricted shares awarded are performance vesting awards, which may or may not vest depending upon the attainment of certain corporate financial targets. The vesting of restricted stock may accelerate in accordance with the terms of the 2015 Plan. The product of the number of shares granted and the grant date closing market price of the Company’s common stock determine the fair value of restricted shares under the 2015 Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period. For the nine months ended September 30, 2021 and September 30, 2020, the Company granted 251,634 and 90,067 shares of restricted stock awards under the 2015 Plan, respectively.
    Stock options granted under the 2015 Plan vest in equal installments, over the service period generally ranging from 5 to 7 years beginning one year from the date of grant. The vesting of stock options may accelerate in accordance with the terms of the 2015 Plan. Stock options were granted at an exercise price equal to the fair value of the Company’s common stock on the grant date based on the closing market price and have an expiration period of 10 years. For the nine months ended September 30, 2021 and September 30, 2020, the Company granted no stock options under the 2015 Plan.
    The fair value of stock options granted as part of the 2015 Plan are estimated utilizing the Black-Scholes option pricing model. The weighted average expected life of the stock option represents the period of time that stock options are expected to be outstanding and is estimated using historical data of stock option exercises and forfeitures. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the historical volatility of the Company’s stock. The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards. Upon exercise of vested options, management expects to draw on treasury stock as the source for shares.
    
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    The following table presents the share-based compensation expense for the three and nine months ended September 30, 2021 and 2020:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Stock option expense $ 927  941  2,783  2,940 
Restricted stock expense 2,645  2,539  7,956  8,383 
Total share-based compensation expense $ 3,572  3,480  10,739  11,323 
    
The following is a summary of the Company’s stock option activity and related information for the nine months ended September 30, 2021:
Number of
Stock
Options 		Weighted Average
Exercise Price 		Weighted Average
Remaining
Contractual
Life (in years) 		Aggregate
Intrinsic Value
Outstanding at December 31, 2020 5,570,858  $ 12.46  4.5 $ 191 
Granted —  —  — 
Exercised (501,173) 12.19  3.7
Forfeited (32,144) 12.54 
Expired (14,297) 12.54 
Outstanding at September 30, 2021 5,023,244  12.49  3.8 13,184 
Exercisable at September 30, 2021 4,126,295  $ 12.48  3.8 $ 10,872 
    Expected future expense relating to the non-vested options outstanding as of September 30, 2021 is $2.8 million over a weighted average period of 0.66 years.
    The following is a summary of the status of the Company’s restricted shares as of September 30, 2021 and changes therein during the nine months ended:
Number of Shares Awarded Weighted Average Grant Date Fair Value
Outstanding at December 31, 2020 1,974,235  $ 12.44 
Granted 251,634  13.20 
Vested (793,115) 12.36 
Forfeited (26,267) 11.79 
Outstanding and non-vested at September 30, 2021 1,406,487  $ 12.50 
    Expected future expense relating to the non-vested restricted shares outstanding as of September 30, 2021 is $12.7 million over a weighted average period of 2.03 years.
    
12.     Net Periodic Benefit Plan Expense
    The Company has an Executive Supplemental Retirement Wage Replacement Plan (“SERP II”) and the Supplemental ESOP and Retirement Plan (“SERP I”) (collectively, the “SERPs”). The SERP II is a nonqualified, defined benefit plan which provides benefits to certain executives as designated by the Compensation and Benefits Committee of the Board of Directors. More specifically, the SERP II was designed to provide participants with a normal retirement benefit equal to an annual benefit of 60% of the participant’s highest annual base salary and cash incentive (over a consecutive 36-month period within the participant’s credited service period) reduced by the sum of the benefits provided under the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”) and the SERP I. Effective as of the close of business of December 31, 2016, the SERP II was amended to freeze future benefit accruals subsequent to the 2016 year of service.
    The SERP I compensates certain executives (as designated by the Compensation and Benefits Committee of the Board of Directors) participating in the ESOP whose contributions are limited by the Internal Revenue Code. The Company also maintains the Amended and Restated Director Retirement Plan (“Directors’ Plan”) for certain directors, which is a nonqualified, defined benefit plan. The Directors’ Plan was frozen on November 21, 2006 such that no new benefits accrued under, and no
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new directors were eligible to participate in the plan. The SERPs and the Directors’ Plan are unfunded and the costs of the plans are recognized over the period that services are provided.
The components of net periodic benefit cost for the Directors’ Plan and the SERP II are as follows:
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
(In thousands)
Interest cost $ 250  325  750  973 
Amortization of:
Net loss 142  298  426  896 
Total net periodic benefit cost $ 392  623  1,176  1,869 
    Due to the unfunded nature of the SERPs and the Directors’ Plan, no contributions have been made or were expected to be made during the nine months ended September 30, 2021.
    The Company also maintains the Pentegra DB Plan. As of December 31, 2016, the annual benefit provided under the Pentegra DB plan was frozen by an amendment to the plan. Freezing the plan eliminated all future benefit accruals and each participant’s frozen accrued benefit was determined as of December 31, 2016 and no further benefits accrued subsequent to December 31, 2016. Since it is a multi-employer plan, costs of the pension plan are based on contributions required to be made to the pension plan. There was no contribution required during the nine months ended September 30, 2021. We anticipate contributing funds to the plan to meet any minimum funding requirements for the remainder of 2021.

13.    Derivatives 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 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 and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s floating rate wholesale fundings and pools of fixed-rate assets.

Cash Flow Hedges of Interest Rate Risk
    The Company’s objectives in using interest rate derivatives are primarily to reduce cost and add stability to interest expense in an effort to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of amounts subject to variability caused by changes in interest rates 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 are initially recorded in other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Such derivatives were used to hedge the variability in cash flows associated with wholesale funding. The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of sixteen months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).
During the year ended December 31, 2020, the Company terminated four interest rate swaps with an aggregate notional of $400.0 million. Upon termination, the Company accelerated the reclassification of amounts in other comprehensive income to earnings as a result of the hedged forecasted transactions becoming probable not to occur.
    Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate borrowings. During the next twelve months, the Company estimates that an additional $41.4 million will be reclassified as an increase to interest expense.

Fair Value Hedges of Interest Rate Risk
    The Company is exposed to changes in the fair value of certain of its pools of fixed-rate assets due to changes in benchmark interest rates. The Company may use interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments
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over the life of the agreements without the exchange of the underlying notional amount. Such derivatives were used to hedge the changes in fair value of certain of its pools of prepayable fixed-rate assets.
    For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.
    The Company terminated two interest rate swaps with an aggregate notional of $475.0 million during the year ended December 31, 2020. The terminated swaps were due to mature in April and May 2021. The remaining balance of the fair value hedging adjustment included in the carrying amount of the assets previously hedged is being amortized into interest income on a straight-line basis over the remaining lives of the assets previously hedged.

Derivatives Not Designated as Hedges
    The Company has credit derivatives resulting from participation in interest rate swaps provided to external lenders as part of loan participation arrangements which are, therefore, not used to manage interest rate risk in the Company’s assets or liabilities. Additionally, the Company provides interest rate risk management services to commercial customers, primarily interest rate swaps. The Company’s market risk from unfavorable movements in interest rates related to these derivative contracts is economically hedged by concurrently entering into offsetting derivative contracts that have identical notional values, terms and indices.
    Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain lenders which participate in loans and commercial customers.

Fair Values of Derivative Instruments on the Balance Sheet
Amounts included in the Consolidated Balance Sheet related to the fair value of the Company’s derivative instruments are shown below. Asset derivatives depicted below represent derivatives with a positive fair value position, while liability derivatives represent derivatives with a negative fair value position.
September 30, 2021
Asset Derivatives Liability Derivatives
Notional Amount Fair Value Notional Amount Fair Value
(in millions) (In thousands) (in millions) (In thousands)
Derivatives designated as hedging instruments:
Interest Rate Swaps $ 1,150  $ 26,703  $ 2,425  $ 74,844 
Total derivatives designated as hedging instruments $ 26,703  $ 74,844 
Derivatives not designated as hedging instruments:
Interest Rate Swaps $ 883  $ 26,251  $ 883  $ 26,251 
Other Contracts —  —  34  128 
Total derivatives not designated as hedging instruments $ 26,251  $ 26,379 
Netting Adjustments (1) 34,529  91,957 
Net Derivatives on the Balance Sheet $ 18,425  $ 9,266 
Cash Collateral (2) —  — 
Net Derivative Amounts $ 18,425  $ 9,266 

(1) Netting adjustments represents the amounts recorded to convert derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance on the settle to market rules for cleared derivatives. The Chicago Mercantile Exchange (“CME”) legally characterizes the variation margin posted between counterparties as settlements of the outstanding derivative contracts instead of cash collateral.
(2) 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 collateral cannot reduce the net derivative position below zero. Therefore, excess collateral, if any, is not reflected above.
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December 31, 2020
Asset Derivatives Liability Derivatives
Notional Amount Fair Value Notional Amount Fair Value
(in millions) (In thousands) (in millions) (In thousands)
Derivatives designated as hedging instruments:
Interest Rate Swaps $ 400  $ 1,419  $ 2,925  $ 115,166 
Total derivatives designated as hedging instruments $ 1,419  $ 115,166 
Derivatives not designated as hedging instruments:
Interest Rate Swaps $ 641  $ 34,155  $ 641  $ 34,155 
Other Contracts —  —  34  217 
Total derivatives not designated as hedging instruments $ 34,155  $ 34,372 
Netting Adjustments (1) 997  149,046 
Net Derivatives on the Balance Sheet $ 34,577  $ 492 
Cash Collateral (2) —  237 
Net Derivative Amounts $ 34,577  $ 255 
    
(1) Netting adjustments represents the amounts recorded to convert derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance on the settle to market rules for cleared derivatives. The Chicago Mercantile Exchange (“CME”) legally characterizes the variation margin posted between counterparties as settlements of the outstanding derivative contracts instead of cash collateral.
(2) 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 collateral cannot reduce the net derivative position below zero. Therefore, excess collateral, if any, is not reflected above.

Effect of Derivative Instruments on Accumulated Other Comprehensive Income (Loss)
The following table presents the effect of the Company’s derivative financial instruments on the Accumulated Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020.
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Cash Flow Hedges - Interest rate swaps
Amount of gain (loss) recognized in other comprehensive income (loss) $ 486  1,698  34,667  (115,703)
Amount of loss reclassified from accumulated other comprehensive income (loss) to interest expense (10,917) (11,158) (31,404) (19,875)

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Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
The following table presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income as of September 30, 2021 and 2020.
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
The effects of fair value and cash flow hedging: Income statement location (In thousands)
Fair Value Hedges - Gain or (loss) on relationships in Subtopic 815-20
Interest contracts
Hedged items Interest income $ 15  —  (35) 4,529 
Derivatives designated as hedging instruments Interest income (22) (411) 35  (7,734)
Cash Flow Hedges - Gain or (loss) on relationships in Subtopic 815-20
Interest contracts
Amount of loss reclassified from accumulated other comprehensive income (loss) Interest expense (10,917) (11,158) (31,404) (19,875)
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) as a result that a forecasted transaction is no longer probable of occurring Other expense —  —  —  — 
Total amounts of income and expense line items presented in the income statement in which the effects of fair value are recorded $ (10,924) (11,569) (31,404) (23,080)

There was $4.3 million of fee income related to derivative interest rate swaps executed with commercial loan customers for the three months ended September 30, 2021. Fee income related to derivative interest rate swaps executed with commercial loan customers totaled $3.1 million for the three months ended September 30, 2020. Fee income related to derivative interest rate swaps executed with commercial loan customers totaled $6.1 million and $4.1 million for the nine months ended September 30, 2021 and September 30, 2020, respectively.

As of September 30, 2021 and December 31, 2020, the following amounts were recorded on the Consolidated Balance Sheets related to cumulative basis adjustment for fair value hedges:
Carrying Amount of the Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
Balance sheet location September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020
(In thousands)
Loans receivable, net (1)(2)
$ 149,966  —  $ 5,134  8,798 
(1) At September 30, 2021, the amortized cost basis of the closed portfolios used in these hedging relationships was $390.0 million; the cumulative basis adjustments associated with these hedging relationships was $5.1 million; and the amounts of the designated hedged items were $150.0 million.
(2) The balance of Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities) as of September 30, 2021 includes $5.2 million of hedging adjustment on discontinued hedging relationships.

Location and Amount of Gain or (Loss) Recognized in Income on Derivatives Not Designated as Hedging Instruments
The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements of Income as of September 30, 2021:
Consolidated Statements of Income location Amount of Gain (Loss) Recognized in Income on Derivative
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Other Contracts Other income / (expense) $ 18  19  89  (106)
Total $ 18  19  89  (106)
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14.    Comprehensive Income

 The components of comprehensive income, gross and net of tax, are as follows:
  Three Months Ended September 30,
2021 2020
  Gross Tax Net Gross Tax Net
(Dollars in thousands)
Net income $ 91,543  (24,609) 66,934  89,152  (24,840) 64,312 
Other comprehensive income:
Change in funded status of retirement obligations 167  (47) 120  417  (117) 300 
Unrealized losses on debt securities available-for-sale (11,061) 2,638  (8,423) (2,115) 509  (1,606)
Accretion of loss on debt securities reclassified to held-to-maturity from available-for-sale 34  (8) 26  63  (15) 48 
Other-than-temporary impairment accretion on debt securities recorded prior to January 1, 2020 248  (70) 178  257  (73) 184 
Net gains on derivatives 11,403  (3,206) 8,197  12,856  (3,614) 9,242 
Total other comprehensive income 791  (693) 98  11,478  (3,310) 8,168 
Total comprehensive income $ 92,334  (25,302) 67,032  100,630  (28,150) 72,480 

Nine Months Ended September 30,
2021 2020
  Gross Tax Net Gross Tax Net
(Dollars in thousands)
Net income $ 299,928  (80,912) 219,016  202,140  (55,705) 146,435 
Other comprehensive income (loss):
Change in funded status of retirement obligations 505  (142) 363  861  (242) 619 
Unrealized (losses) gains on debt securities available-for-sale (39,980) 9,529  (30,451) 46,078  (11,053) 35,025 
Accretion of loss on securities reclassified to held-to-maturity from available-for-sale 114  (27) 87  210  (50) 160 
Reclassification adjustment for security gains included in net income (398) 99  (299) —  —  — 
Other-than-temporary impairment accretion on debt securities recorded prior to January 1, 2020 765  (215) 550  892  (251) 641 
Net gains (losses) on derivatives 66,071  (18,573) 47,498  (95,828) 26,937  (68,891)
Total other comprehensive income (loss) 27,077  (9,329) 17,748  (47,787) 15,341  (32,446)
Total comprehensive income $ 327,005  (90,241) 236,764  154,353  (40,364) 113,989 
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The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the nine months ended September 30, 2021 and 2020:
Change in
funded status of
retirement
obligations 		Accretion of loss on debt securities reclassified to held-to-maturity Unrealized gains on debt securities
available-for-sale and gains included in net income 		Other-than-
temporary
impairment
accretion on debt
securities 		Unrealized losses on derivatives Total
accumulated
other
comprehensive
loss
(Dollars in thousands)
Balance - December 31, 2020 $ (9,485) (184) 57,204  (9,809) (77,742) (40,016)
Net change 363  87  (30,750) 550  47,498  17,748 
Balance - September 30, 2021 $ (9,122) (97) 26,454  (9,259) (30,244) (22,268)
Balance - December 31, 2019 $ (6,690) (386) 29,456  (10,629) (30,373) (18,622)
Net change 619  160  35,025  641  (68,891) (32,446)
Balance - September 30, 2020 $ (6,071) (226) 64,481  (9,988) (99,264) (51,068)

The following table presents information about amounts reclassified from accumulated other comprehensive loss to the consolidated statements of income and the affected line item in the statement where net income is presented.

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Reclassification adjustment for gains included in net income
Gain on securities, net $ —  —  (398) — 
Change in funded status of retirement obligations
Amortization of net loss 168  299  505  898 
Compensation and fringe benefits 168  299  505  898 
Reclassification adjustment for unrealized losses on derivatives
Interest expense 10,917  11,158  31,404  19,875 
Total before tax 11,085  11,457  31,511  20,773 
Income tax expense (2,980) (3,192) (8,509) (5,725)
Net of tax $ 8,105  8,265  23,002  15,048 

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15.    Stockholders’ Equity

 The changes in the components of stockholders’ equity for the three months ended September 30, 2021 and 2020 are as follows:

Common
stock 		Additional
paid-in
capital 		Retained
earnings 		Treasury
stock 		Unallocated
common
stock held
by ESOP 		Accumulated
other
comprehensive
loss 		Total
stockholders’
equity
  (In thousands)
Balance at June 30, 2020 $ 3,619  2,849,678  1,259,605  (1,355,626) (75,140) (59,236) 2,622,900 
Net income —  —  64,312  —  —  —  64,312 
Other comprehensive income, net of tax —  —  —  —  —  8,168  8,168 
Purchase of treasury stock (7,346 shares)
—  —  —  (57) —  —  (57)
Treasury stock allocated to restricted stock plan (21,144 shares)
—  (167) (92) 259  —  —  — 
Compensation cost for stock options and restricted stock —  3,479  —  —  —  —  3,479 
Restricted stock forfeitures (2,887 shares)
—  33  2  (35) —  —  — 
Cash dividend paid ($0.12 per common share)
—  —  (29,987) —  —  —  (29,987)
ESOP shares allocated or committed to be released —  143  —  —  799  —  942 
Balance at September 30, 2020 $ 3,619  2,853,166  1,293,840  (1,355,459) (74,341) (51,068) 2,669,757 
Balance at June 30, 2021 $ 3,619  2,862,730  1,422,029  (1,380,042) (71,943) (22,366) 2,814,027 
Net income —  —  66,934  —  —  —  66,934 
Other comprehensive income, net of tax —  —  —  —  —  98  98 
Purchase of treasury stock (6,752 shares)
—  —  —  (96) —  —  (96)
Treasury stock allocated to restricted stock plan (12,468 shares)
—  (174) 19  155  —  —  — 
Compensation cost for stock options and restricted stock —  3,572  —  —  —  —  3,572 
Exercise of stock options —  8  —  1,040  —  —  1,048 
Restricted stock forfeitures (5,700 shares)
—  69  2  (71) —  —  — 
Cash dividend paid ($0.14 per common share)
—  —  (34,675) —  —  —  (34,675)
ESOP shares allocated or committed to be released —  852  —  —  799  —  1,651 
Balance at September 30, 2021 $ 3,619  2,867,057  1,454,309  (1,379,014) (71,144) (22,268) 2,852,559 

16.    Fair Value Measurements
    We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Our debt securities available-for-sale and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets or liabilities on a non-recurring basis, such as held-to-maturity debt securities, mortgage servicing rights (“MSR”), loans receivable and other real estate owned. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets. Additionally, in connection with our mortgage banking activities we may have commitments to fund loans held-for-sale and commitments to sell loans, which are considered free-standing derivative instruments, the fair values of which are not material to our financial condition or results of operations.
    In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, we group our assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:
•Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
•Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
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•Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.
    We base our fair values on 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. ASC 820 requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Assets Measured at Fair Value on a Recurring Basis
Equity securities
    Our equity securities portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses recognized in the Consolidated Statements of Income. The fair values of equity securities are based on quoted market prices (Level 1).
Debt securities available-for-sale
    Our debt securities available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income (loss) in stockholders’ equity. The fair values of debt securities available-for-sale are provided by a third-party pricing service. The pricing service may use quoted market prices of comparable instruments or a variety of other forms of analysis, incorporating inputs that are currently observable in the markets for similar securities (Level 2). Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes. As the Company is responsible for the determination of fair value, a quarterly analysis of the prices received from the pricing service is performed to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and the review of the fair value methodology documentation provided by the independent pricing services has not resulted in material adjustments in the prices obtained from the pricing services.
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Derivatives
    Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of interest rate swap and risk participation agreements are based on a valuation model that uses primarily observable inputs, such as benchmark yield curves and interest rate spreads.
The following tables present our assets and liabilities measured at fair value on a recurring basis by level within the valuation hierarchy at September 30, 2021 and December 31, 2020.
  At September 30, 2021
  Total Level 1 Level 2 Level 3
  (In thousands)
Assets:
Equity securities $ 7,673  7,673  —  — 
Debt securities available for sale:
Government-sponsored enterprises $ 3,811  —  3,811  — 
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 1,275,843  —  1,275,843  — 
Federal National Mortgage Association 1,117,260  —  1,117,260  — 
Government National Mortgage Association 134,659  —  134,659  — 
Total debt securities available-for-sale $ 2,531,573  —  2,531,573  — 
Interest rate swaps $ 18,425  —  18,425  — 
Liabilities:
Derivatives:
Interest rate swaps $ 9,138  —  9,138  — 
Other contracts 128  —  128  — 
Total derivatives $ 9,266  —  9,266  — 
  At December 31, 2020
  Total Level 1 Level 2 Level 3
  (In thousands)
Assets:
Equity securities $ 36,000  36,000  —  — 
Debt securities available for sale:
Debt securities:
Government-sponsored enterprises 4,482  —  4,482  — 
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation $ 1,317,052  —  1,317,052  — 
Federal National Mortgage Association 1,205,426  —  1,205,426  — 
Government National Mortgage Association 231,477  —  231,477  — 
Total debt securities available-for-sale $ 2,758,437  —  2,758,437  — 
Interest rate swaps $ 34,577  —  34,577  — 
Liabilities:
Derivatives:
Interest rate swaps $ 275  —  275  — 
Other contracts 217  —  217  — 
Total derivatives $ 492  —  492  — 
    There have been no changes in the methodologies used at September 30, 2021 from December 31, 2020, and there were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2021.
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    There were no Level 3 assets measured at fair value on a recurring basis for the nine months ended September 30, 2021 and December 31, 2020.
Assets Measured at Fair Value on a Non-Recurring Basis
Mortgage Servicing Rights, Net
    Mortgage servicing rights are carried at the lower of cost or estimated fair value. The estimated fair value of MSR is obtained through independent third-party valuations through an analysis of future cash flows, incorporating assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements. The prepayment speed and the discount rate are considered two of the most significant inputs in the model.  At September 30, 2021, the fair value model used prepayment speeds ranging from 4.61% to 31.62% and a discount rate of 11.32% for the valuation of the mortgage servicing rights. At December 31, 2020, the fair value model used prepayment speeds ranging from 14.46% to 23.58% and a discount rate of 12.03% for the valuation of the mortgage servicing rights. A significant degree of judgment is involved in valuing the mortgage servicing rights using Level 3 inputs. The use of different assumptions could have a significant positive or negative effect on the fair value estimate.
Collateral Dependent Loans
    A collateral dependent loan is a loan for which repayment is expected to be provided substantially through the operation or sale of the collateral. A loan is individually evaluated when it is a collateral dependent commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, a loan modified in a troubled debt restructuring, or is a commercial loan with $1.0 million in outstanding principal if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. Collateral-dependent loans secured by property are carried at the estimated fair value of the collateral less estimated selling costs. Estimated fair value is calculated using an independent third-party appraiser. In the event the most recent appraisal does not reflect the current market conditions due to the passage of time and other factors, management will obtain an updated appraisal or make downward adjustments to the existing appraised value based on their knowledge of the property, local real estate market conditions, recent real estate transactions, and for estimated selling costs, if applicable. Appraisals were generally discounted in a range of 0% to 25%. Collateral securing a loan may consist of real estate or other property such as equipment or inventory. Collateral securing commercial and industrial loans may include real estate, other property or the operating results of the business. For non-collateral dependent loans, management estimates the fair value using discounted cash flows based on inputs that are largely unobservable and instead reflect management’s own estimates of the assumptions as a market participant would in pricing such loans.
Other Real Estate Owned and Other Repossessed Assets
    Other Real Estate Owned and Other Repossessed Assets are recorded at estimated fair value, less estimated selling costs when acquired, thus establishing a new cost basis. Repossessed assets that are available for lease are included in operating lease equipment reviewed below. Fair value of foreclosed real estate property and other repossessed assets is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are discounted an additional 0% to 25% for estimated costs to sell. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If further declines in the estimated fair value of the asset occur, a writedown is recorded through expense. The valuation of foreclosed and repossessed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions. Operating costs after acquisition are generally expensed.
Operating Lease Equipment
    On at least an annual basis, the Company reviews the lease residuals and off-lease equipment for potential impairment. Repossessed assets are also available for lease and are included in operating lease equipment reviewed. Operating lease equipment is recorded at estimated fair value, generally determined by independent appraisal. If declines in the estimated fair value of the asset occur, a writedown is recorded through expense.

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The following tables provide the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis that have changed for the periods ended September 30, 2021 and December 31, 2020. For the three months ended September 30, 2021, there was no change to the carrying value of other real estate owned. For the three months ended December 31, 2020, there was no change to the carrying value of other real estate owned or collateral dependent loans.
 Security Type Valuation Technique Unobservable Input Range Weighted Average Input Carrying Value at September 30, 2021
Minimum Maximum Total Level 1 Level 2 Level 3
  (In thousands)
MSR, net Estimated cash flow Prepayment speeds 4.6% 31.6% 13.74% $ 8,561  —  —  8,561 
Collateral-dependent loans Market comparable Lack of marketability 0.8% 4.7% 8.98% 1,620  —  —  1,620 
Operating lease equipment Market comparable Lack of marketability 0.0% 10.4% 0.99% 342  —  —  342 
$ 10,523  —  —  10,523 
 
 Security Type Valuation Technique Unobservable Input Range Weighted Average Input Carrying Value at December 31, 2020
Minimum Maximum Total Level 1 Level 2 Level 3
  (In thousands)
MSR, net Estimated cash flow Prepayment speeds 14.5% 23.6% 17.76% $ 10,663  —  —  10,663 
Operating lease equipment Market comparable Lack of marketability 0.0% 10.4% 10.41% 15,007  —  —  15,007 
$ 25,670  —  —  25,670 
Other Fair Value Disclosures
    Fair value estimates, methods and assumptions for the Company’s financial instruments that are not recorded at fair value on a recurring or non-recurring basis are set forth below.
Cash and Cash Equivalents
    For cash, short-term U.S. Treasury securities and due from banks, the carrying amount approximates fair value.
Debt Securities Held-to-Maturity, net
    Our debt securities held-to-maturity portfolio, consisting primarily of agency mortgage-backed securities and other debt securities for which we have a positive intent and ability to hold to maturity, is carried at amortized cost less any allowance for credit losses. The fair values of for the majority of debt securities held-to-maturity are provided by a third-party pricing service. The pricing service may use quoted market prices of comparable instruments or a variety of other forms of analysis, incorporating inputs that are currently observable in the markets for similar securities (Level 2). Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes. As the Company is responsible for the determination of fair value, a quarterly analysis of the prices received from the pricing service is performed to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and the review of the fair value methodology documentation provided by the independent pricing services has not resulted in material adjustments in the prices obtained from the pricing services. For certain held-to-maturity debt securities that trade in illiquid markets, valuation techniques, which require inputs that are both significant to the fair value measurement and unobservable, are used to determine fair value of the investment. Valuation techniques are based on various assumptions, including, but not limited to forecasted cash flows, discount rates, required rate of return, adjustments for nonperformance and liquidity, and liquidation values (Level 3).
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FHLB Stock
    The fair value of the Federal Home Loan Bank of New York (“FHLB”) stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for FHLB stock. The Bank is required to hold and purchase FHLB stock based upon the balance of mortgage related assets held by the member and the amount of outstanding FHLB advances.
Loans
    Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories.
    The fair value estimates are made at a specific point in time based on relevant market information. The fair value estimates do not reflect any premium or discount that could result from offering for sale a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties, and cannot be determined with precision.
Loans Held for Sale
    Residential mortgage loans held for sale are recorded at the lower of cost or fair value and are therefore measured at fair value on a non-recurring basis. When available, the Company uses observable secondary market data, including pricing on recent closed market transactions for loans with similar characteristics.
Deposit Liabilities
    The fair value of deposits with no stated maturity, such as savings, checking and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using rates for currently offered deposits of similar remaining maturities.
Borrowings
    The fair value of borrowings are based on securities dealers’ estimated fair values, when available, or estimated using discounted cash flow analysis. The discount rates used approximate the rates offered for similar borrowings of similar remaining terms.
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Commitments to Extend Credit
    The fair value of commitments to extend credit is 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 commitments to originate fixed rate loans, fair value also considers the difference between current levels of interest rates and the committed rates. Due to the short-term nature of our outstanding commitments, the fair values of these commitments are immaterial to our financial condition.
The carrying values and estimated fair values of the Company’s financial instruments are presented in the following table.
  September 30, 2021
  Carrying Estimated Fair Value
  value Total Level 1 Level 2 Level 3
  (In thousands)
Financial assets:
Cash and cash equivalents $ 670,295  670,295  670,295  —  — 
Equities 7,673  7,673  7,673  —  — 
Debt securities available-for-sale 2,531,573  2,531,573  —  2,531,573  — 
Debt securities held-to-maturity, net 1,272,683  1,336,957  —  1,254,192  82,765 
FHLB stock 177,058  177,058  177,058  —  — 
Loans held for sale 397  397  —  397  — 
Net loans 21,624,728  21,688,163  —  —  21,688,163 
Derivative financial instruments 18,425  18,425  —  18,425  — 
Financial liabilities:
Deposits, other than time deposits $ 18,085,640  18,085,640  18,085,640  —  — 
Time deposits 2,314,784  2,315,906  —  2,315,906  — 
Borrowed funds 3,534,536  3,571,056  —  3,571,056  — 
Derivative financial instruments 9,266  9,266  —  9,266  — 
  December 31, 2020
  Carrying Estimated Fair Value
  value Total Level 1 Level 2 Level 3
  (In thousands)
Financial assets:
Cash and cash equivalents $ 170,432  170,432  170,432  —  — 
Equities 36,000  36,000  36,000  —  — 
Debt securities available-for-sale 2,758,437  2,758,437  —  2,758,437  — 
Debt securities held-to-maturity, net 1,247,853  1,320,872  —  1,253,566  67,306 
FHLB stock 159,829  159,829  159,829  —  — 
Loans held for sale 30,357  30,357  —  30,357  — 
Net loans 20,580,451  20,787,917  —  —  20,787,917 
Derivative financial instruments 34,577  34,577  —  34,577  — 
Financial liabilities:
Deposits, other than time deposits $ 16,807,240  16,807,240  16,807,240  —  — 
Time deposits 2,718,179  2,726,230  —  2,726,230  — 
Borrowed funds 3,295,790  3,367,491  —  3,367,491  — 
Derivative financial instruments 492  492  —  492  — 
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 portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience,
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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 that are not considered financial assets include deferred tax assets, premises and equipment and bank owned life insurance. Liabilities for pension and other postretirement benefits are not considered financial liabilities. 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.

17.    Revenue Recognition
    The Company’s contracts with customers in the scope of Topic 606, Revenue from Contracts with Customers, are contracts for deposit accounts and contracts for non-deposit investment accounts through a third-party service provider.  Both types of contracts result in non-interest income being recognized.  The revenue resulting from deposit accounts, which includes fees such as insufficient funds fees, wire transfer fees and out-of-network ATM transaction fees, is included as a component of fees and service charges on the Consolidated Statements of Income.  The revenue resulting from non-deposit investment accounts is included as a component of other income on the Consolidated Statements of Income. 
Revenue from contracts with customers included in fees and service charges and other income was as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(Dollars in thousands)
Revenue from contracts with customers included in:
Fees and service charges $ 3,854  3,369  11,185  10,227 
Other income 3,740  3,444  12,943  8,428 
Total revenue from contracts with customers $ 7,594  6,813  24,128  18,655 
    For our contracts with customers, we satisfy our performance obligations each day as services are rendered.  For our deposit account revenue, we receive payment on a daily basis as services are rendered and for our non-deposit investment account revenue, we receive payment on a monthly basis from our third-party service provider as services are rendered.


























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18.    Recent Accounting Pronouncements
Standard
Description Required date of adoption Effect on Consolidated Financial Statements
Standards Adopted in 2021
Codification Improvements The amendments include all disclosure guidance in the Disclosure Section to reduce the potential that disclosure requirements would be missed. January 1, 2021 The amendments in ASU 2020-10 do not change current GAAP. The update did not impact the Company’s Consolidated Financial Statements.
Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs The amendments in this update clarify guidance as to whether a callable debt security with multiple call dates is within the scope of paragraph 310-20-35-33. January 1, 2021 The amendments in ASU 2020-08 will be applied under a prospective approach. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.
Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force) This update clarifies the application of the alternative provided in ASU 2016-01 to measure certain equity securities without a readily determinable fair value. The amendments in this update clarify that a company should consider observable transactions that require it to either apply or discontinue the equity method of accounting under Topic 323 for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments further provide clarification related to the accounting for certain forward contracts and purchased options. January 1, 2021 The amendments in ASU 2020-01 will be applied prospectively. The Company does not currently apply the measurement alternative in Topic 321 to any of its investments and the update did not have a material impact on the Company’s Consolidated Financial Statements.
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes The amendments simplify the accounting for income taxes by removing certain exceptions to general principles in Topic 740 and also clarify and amend existing guidance. January 1, 2021 The Company adopted ASU 2019-12 with no material impact on its Consolidated Financial Statements.
Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing disclosures that no longer are considered cost beneficial, clarifying the specific requirements of disclosures, and adding disclosure requirements identified as relevant. January 1, 2021 ASU 2018-14 will be applied under a retrospective approach to disclosures with regard to the Company’s employee benefit plans. The adoption of this update did not have a material impact on the Company’s Consolidated Financial Statements.
Standards Not Yet Adopted
Lessors – Certain Leases with Variable Lease Payments
The update affects lessors with lease contracts that have variable lease payments that do not depend on a reference index or a rate and where the lessor would have recognized a selling loss at lease commencement if classified as sales-type or direct financing even if the lessor expects the arrangement to be profitable. To reduce the risk of recognizing losses at lease commencement in such circumstances, the update requires lessors to classify and account for such leases as operating.
January 1, 2022

Early adoption permitted
The amendments may be applied either retrospectively or prospectively. The update is not expected to have a material impact on the Company’s Consolidated Financial Statements.
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Standard
Description Required date of adoption Effect on Consolidated Financial Statements
Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
The amendments simplify the accounting for certain financial instruments with the characteristics of liabilities and equity by reducing the number of models for convertible debt instruments and convertible preferred stock and amends how convertible instruments and equity contracts with an option to be settled in cash or shares affect the EPS calculation.
January 1, 2022

Early adoption permitted not earlier than fiscal years beginning 2021
The amendments are to be applied under either a modified retrospective or a fully retrospective approach. The update is not expected to have a material impact on the Company’s Consolidated Financial Statements.
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting The amendments provide expedients and exceptions for applying GAAP to contracts or hedging relationships affected by the discontinuance of LIBOR as a benchmark rate to alleviate the burden and cost of such modifications. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments also provide a one-time election to sell and/or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform. Effective for a limited time as of March 12, 2020 through December 31, 2022
The Company continues to evaluate its financial instruments indexed to USD-LIBOR for which Topic 848 provides expedients, exceptions and elections. The Company has established a crossfunctional team to develop transition plans to address potential revisions to documentation, as well as customer management and communication, internal training, financial, operational and risk management implications, and legal and contract management. In addition, the Company has engaged with its regulators and with industry working groups and trade associations to develop strategies for transitioning away from LIBOR.
Reference Rate Reform (Topic 848)
The update specifically addresses whether Topic 848 applies to derivative instruments that do not reference a rate that is expected to be discontinued but that instead use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform, commonly referred to as the “discounting transition.” This ASU extends certain optional expedients provided in Topic 848 to contract modifications and derivatives affected by the discounting transition.
Effective for a limited time as of March 12, 2020 through December 31, 2022 The amendments in ASU 2021-01 may be applied under a retrospective approach as of any date from the beginning of an interim period that includes or is after March 12, 2020 or prospectively to new modifications made on or after any date within the interim period including January 7, 2021. The Update is not expected to have a material impact on the Company’s Consolidated Financial Statements.

19.    Subsequent Events
    As defined in FASB ASC 855, “Subsequent Events”, subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Financial statements are considered issued when they are widely distributed to stockholders and other financial statement users for general use and reliance in a form and format that complies with U.S. GAAP.
Dividend
    On October 27, 2021, the Company declared a cash dividend of $0.14 per share. The $0.14 dividend per share will be paid to stockholders on November 26, 2021, with a record date of November 10, 2021.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
    Certain statements contained herein are not based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the economic environment, particularly in the market areas in which Investors Bancorp, Inc. (the “Company”) operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations or interpretations of regulations affecting financial institutions, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets, the availability of and costs associated with sources of liquidity, expenses related to our proposed merger with Citizens Financial Group, Inc., unexpected delays relating to the merger, or the inability to obtain shareholder or regulatory approvals or satisfy the other closing conditions required to complete the merger. In addition, the COVID-19 pandemic is having an adverse impact on us, our customers and the communities we serve. The adverse effect of the COVID-19 pandemic on us, our customers and the communities where we operate may adversely affect our business, results of operations and financial condition for an indefinite period of time. Reference is made to Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and subsequent additional risk factors included in Part II, Item 1A of our Quarterly Reports on Form 10-Q.
    The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake and specifically declines any obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events except as may be required by law.

Critical Accounting Policies
We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. As of September 30, 2021, we consider the following to be our critical accounting policies.
Allowance for Credit Losses. The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through the provision for credit losses that is charged against income. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. The allowance for loan and security losses is reported separately as contra-assets to loans and securities on the consolidated balance sheet. The expected credit loss for unfunded lending commitments and unfunded loan commitments is reported on the consolidated balance sheet in other liabilities. The provision for credit losses related to loans, unfunded commitments and debt securities is reported on the consolidated statement of income.
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Allowance for Credit Losses on Loans Receivable
Collectively evaluated. The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected. Expected losses are evaluated and calculated on a collective basis for those loans which share similar risk characteristics. At each reporting period, the Company evaluates whether the loans in a pool continue to exhibit similar risk characteristics as the other loans in the pool. If the risk characteristics of a loan change, such that they are no longer similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics. If the loan does not share risk characteristics with other loans, the Company will evaluate the allowance on an individual basis. The Company evaluates the segmentation at least annually to determine whether loans continue to share similar risk characteristics. Loans are charged off against the allowance when the Company believes the loan balances become uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off.
    The Company has chosen to segment its portfolio consistent with the manner in which it manages the risk of the type of credit. The Company’s segments for loans include multi-family, commercial real estate, commercial and industrial, construction, residential and consumer.
    The Company calculates estimated credit loss on its loan portfolio primarily using quantitative methodologies that consider a variety of factors such as historical loss experience, loan characteristics, the current credit quality of the portfolio as well as an economic outlook over the life of the loan. The expected credit losses are the product of multiplying the Company’s estimates of probability of default (PD), loss given default (LGD) and individual loan level exposure at default on an undiscounted basis. For a small portion of the loan portfolio, i.e. unsecured consumer loans, small business loans and loans to individuals, the Company utilizes a loss rate method to calculate the expected credit loss of that asset segment.
    Included in the Company’s framework for estimating credit losses, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over a two-year reasonable and supportable forecast period, after which, the Company reverts to average historical losses on a straight line basis over a two-year period. These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses and include, but are not limited to, unemployment rates, real estate prices, gross domestic product levels, corporate bond spreads and long-term interest rate forecasts. The Company evaluates the use of multiple economic scenarios and the weighting of those scenarios on a quarterly basis. The scenarios that are chosen and the amount of weighting given to each scenario consider a variety of factors including third party economists and firms, industry trends and other available published economic information.
    Expected credit losses are estimated over the contractual term of each loan taking into consideration expected prepayments which are developed using industry standard estimation techniques. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by the Company.
    Also included in the allowance for loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative method or the economic assumptions described above. For example, factors that the Company considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and non-accrual loans, the effect of external factors such as competition, and the legal and regulatory requirements, among others.
Individually evaluated. On a case-by-case basis, the Company may conclude a loan should be evaluated on an individual basis based on its disparate risk characteristics. The Company individually evaluates loans that meet the following criteria for expected credit loss, as the Company has determined that these loans generally do not share similar risk characteristics with other loans in the portfolio:
•Commercial loans with an outstanding balance greater than $1.0 million and on non-accrual status;
•Troubled debt restructured loans; and
•Other commercial loans with greater than $1.0 million in outstanding principal, if management has specific information that it is probable they will not collect all principal amounts due under the contractual terms of the loan agreement.
    When the Company determines that the loan no longer shares similar risk characteristics of other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable, to ensure that the credit loss is not delayed until actual loss. If the fair value of the collateral is less than the amortized cost basis of the loan,
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the Company will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.
In determining the fair value for collateral-dependent loans, the Company reviews whether there has been an adverse change in the collateral value supporting the loan. As a substantial amount of the Company’s loan portfolio is collateralized by real estate, appraisals of the underlying value of property are used. The Company utilizes information from its commercial lending officers and its credit department and special assets department’s knowledge of changes in real estate conditions to identify if possible deterioration has occurred. Based on the severity of the changes in market conditions, management determines if an updated appraisal is warranted or if downward adjustments to the previous appraisal are warranted.
For residential mortgage loans, the Company’s policy is to obtain an appraisal upon the origination of the loan and an updated appraisal in the event a loan becomes 90 days delinquent. Thereafter, the appraisal is updated every two years if the loan remains in non-performing status and the foreclosure process has not been completed. Management adjusts the appraised value of residential loans to reflect estimated selling costs and declines in the real estate market.
Management believes the potential risk for outdated appraisals has been mitigated due to the fact that the loans are individually assessed to determine that the loan’s carrying value is not in excess of the fair value of the collateral. Loans are generally charged off after an analysis is completed which indicates that collectability of the full principal balance is in doubt.
Consistent with the CARES Act, modifications that met the criteria as discussed in Note 6, Loans Receivable, Net, are not included in individually evaluated loans discussed above.
Acquired assets. Subsequent to the adoption of CECL, acquired assets are included in the Company's calculation of the allowance for credit losses. How the allowance on an acquired asset is recorded depends on whether it has been classified as a Purchased Financial Asset with Credit Deterioration (“PCD”). PCD assets are assets acquired at a discount that is due, in part, to credit quality. PCD assets are accounted for in accordance with ASC Subtopic 326-20 and are initially recorded at fair value as determined by the sum of the present value of expected future cash flows and an allowance for credit losses at acquisition. The allowance for PCD assets is recorded through a gross-up effect, while the allowance for acquired non-PCD assets such as loans is recorded through provision expense, consistent with originated loans. Thus, the determination of which assets are PCD and non-PCD can have a significant effect on the accounting for these assets.
    Subsequent to acquisition, the allowance for PCD loans will generally follow the same estimation, provision and charge-off process as non-PCD acquired and originated loans. Additionally, TDR identification for acquired loans (PCD and non-PCD) will be consistent with the TDR identification for originated loans.
Allowance for Credit Losses on Debt Securities
Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Management classifies the held-to-maturity portfolio into the following major security types: mortgage-backed securities, municipal and corporate bonds, trust preferred securities (“TruPS”) and other. Nearly all of the mortgage-backed securities in the Company's portfolio are issued by U.S. government agencies and 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 and therefore the expectation of non-payment is zero.
At each reporting period, the Company evaluates whether the securities in a segment continue to exhibit similar risk characteristics as the other securities in the segment. If the risk characteristics of a security change, such that they are no longer similar to other securities in the segment, the Company will evaluate the security with a different segment that shares more similar risk characteristics.
In estimating the net amount expected to be collected for mortgage-backed securities and municipal and corporate bonds, a range of historical losses method is utilized. In estimating the net amount expected to be collected for TruPS, the Company employs a single scenario forecast methodology. The scenario is informed by historical industry default data as well as current and near term operating conditions for the banks and other financial institutions that are the underlying issuers. In addition, expected prepayments are included in the analysis of the individually assessed TruPS applied at the collateral level.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company is required to include the unfunded commitment that is expected to be funded in the future within the allowance calculation. The Company participates in lending that results in an off-balance sheet unfunded commitment balance. The Company currently underwrites funding commitments with conditionally cancelable language. To determine the expected funding balance remaining, the Company uses a historical utilization rate for each of the segments to calculate the expected commitment balance. The reserve percentage for each respective loan portfolio is applied to the remaining unused portion of the
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expected commitment balance and the expected funded commitment in determining the allowance for credit loss on off-balance sheet credit exposures.
Derivative Financial Instruments. As required by ASC 815, the Company records all derivatives on the balance sheet 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. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.  Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.  The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.  
Executive Summary
During 2020 and 2021, the entire country has been negatively impacted by the COVID-19 pandemic. Beginning in March 2020, the impacts of the COVID-19 pandemic, including social distancing guidelines, closure of non-essential businesses and shelter-at-home mandates, caused a global economic downturn. The economic downturn included an increase in unemployment and a decline in gross domestic product. Since April 2020, the unemployment rate has declined but remains elevated above the pre-pandemic unemployment rate. Gross domestic product has grown each quarter beginning with the third quarter of 2020 after declining in the first and second quarters of 2020.
We continue to monitor developments related to COVID-19, including, but not limited to, its impact on our employees, customers, communities and results of operations. All of our branches have normal operating hours and all lobbies have re-opened for our clients. In addition, the majority of our corporate workforce has returned to our corporate offices in some capacity while the remainder continue to work remotely in an effective manner. Proper protocols have been put in place in our branches and corporate offices to ensure the continued safety of our employees and customers.
As a result of the pandemic, certain borrowers are currently unable to meet their contractual payment obligations. While we have continued to support our customers by granting payment deferrals for those experiencing continued hardship because of the pandemic, we have also worked diligently with our customers to ensure a return to current payment status for a significant portion of our clients who have ended their deferral period. At October 19, 2021, loans with an aggregate outstanding balance of approximately $410 million, or 1.9% of loans, were in COVID-19 related deferment.
Citizens Financial Group, Inc. Merger Agreement
On July 28, 2021, Citizens Financial Group, Inc. (“Citizens”) and Investors Bancorp, Inc. (“Investors”) announced that they entered into a definitive agreement and plan of merger under which Citizens will acquire all of the outstanding shares of Investors for a combination of stock and cash. Under the terms of the agreement and plan of merger, shareholders of Investors will receive 0.297 of a share of Citizens common stock and $1.46 in cash for each share of Investors they own. Following completion of the transaction, former shareholders of Investors will collectively own approximately 14% of the combined company. The implied total transaction value based on closing prices on July 27, 2021 is approximately $3.5 billion. The agreement and plan of merger has been unanimously approved by the boards of directors of each company and the transaction is expected to close in the first half of 2022, subject to approval by the shareholders of Investors, receipt of required regulatory approvals and other customary closing conditions. A special meeting of Investors shareholders is scheduled to be held on November 19, 2021.
Third Quarter of 2021 Results Summary
•We reported net income of $66.9 million, or $0.28 per diluted share, for the three months ended September 30, 2021 as compared to $79.8 million, or $0.34 per diluted share, for the three months ended June 30, 2021 and $64.3 million, or $0.27 per diluted share, for the three months ended September 30, 2020.
•Net income for the three months ended September 30, 2021 included approximately $10.9 million, or $0.05 per diluted share, of after-tax costs associated with our pending merger with Citizens and completed Berkshire Bank branch acquisition and approximately $7.4 million, or $0.03 per diluted share, of after-tax costs in connection with our extinguishment of $600 million of FHLB borrowings announced in August 2021.
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•Net interest margin decreased 12 basis points to 2.99% for the three months ended September 30, 2021 compared to the three months ended June 30, 2021 as a result of lower prepayment penalties and an elevated average cash position.
•Provision for credit losses was a negative $13.0 million for the three months ended September 30, 2021 compared with a negative $9.7 million for the three months ended June 30, 2021. We recorded net charge-offs of $251,000 during the quarter ended September 30, 2021 compared to net recoveries of $807,000 during the quarter ended June 30, 2021. The allowance for loan losses as a percent of total loans was 1.20% at September 30, 2021 compared to 1.26% at June 30, 2021.
•Total non-interest income was $16.0 million for the three months ended September 30, 2021, an increase of $2.9 million compared to the three months ended June 30, 2021 and a decrease of $4.0 million compared to the three months ended September 30, 2020.
•Total non-interest expenses were $132.0 million for the three months ended September 30, 2021, an increase of $23.6 million compared to the three months ended June 30, 2021 and an increase of $28.0 million compared to the three months ended September 30, 2020. Included in non-interest expenses for the third quarter of 2021 were $10.2 million of costs associated with our extinguishment of $600 million of FHLB borrowings and $14.9 million of merger and acquisition related costs resulting from the Berkshire Bank branch acquisition and Citizens proposed merger transaction, inclusive of $6.6 million of occupancy costs resulting from anticipated branch closures related to branch rationalization plans connected with the Berkshire Bank branch acquisition.
•Non-interest-bearing deposits increased $176.1 million, or 4.2%, during the three months ended September 30, 2021. The cost of interest-bearing deposits decreased 3 basis points to 0.40% for the three months ended September 30, 2021 compared to the three months ended June 30, 2021.
•Total loans increased $539.3 million, or 2.5%, to $21.91 billion during the three months ended September 30, 2021. C&I loans increased $167.4 million, or 4.4%, during the three months ended September 30, 2021.
•Non-accrual loans decreased to $76.5 million, or 0.35% of total loans, at September 30, 2021 as compared to $77.6 million, or 0.36% of total loans, at June 30, 2021 and $132.0 million, or 0.63% of total loans, at September 30, 2020.
•At September 30, 2021, COVID-19 related loan deferrals totaled $496 million, or 2.3% of loans, compared to $599 million, or 2.8% of loans, as of June 30, 2021. Approximately 90% of borrowers with a loan payment deferral are making interest payments as of September 30, 2021. As of October 19, 2021, COVID-19 related loan deferrals totaled $410 million, or 1.9% of loans.
•Tier 1 Leverage, Common Equity Tier 1 Risk-Based, Tier 1 Risk-Based and Total Risk-Based Capital Ratios were 10.24%, 12.83%, 12.83% and 14.11%, respectively, at September 30, 2021.
•On July 28, 2021, Citizens and the Company announced that they entered into a definitive agreement and plan of merger under which Citizens will acquire all of the outstanding shares of the Company. The agreement and plan of merger has been unanimously approved by the boards of directors of each company and the transaction is expected to close in the first half of 2022, subject to approval by the shareholders of the Company, receipt of required regulatory approvals and other customary closing conditions.
•On August 27, 2021, we completed the acquisition of Berkshire Bank’s New Jersey and eastern Pennsylvania branches including $219 million of loans and $632 million of deposits.
Comparison of Operating Results for the Three and Nine Months Ended September 30, 2021 and 2020
    Net Income. Net income for the three months ended September 30, 2021 was $66.9 million compared to net income of $64.3 million for the three months ended September 30, 2020. Net income for the nine months ended September 30, 2021 was $219.0 million compared to net income of $146.4 million for the nine months ended September 30, 2020.
    Net Interest Income. Net interest income increased by $13.0 million, or 7.1%, to $194.6 million for the three months ended September 30, 2021 from $181.6 million for the three months ended September 30, 2020. Net interest margin increased 20 basis points to 2.99% for the three months ended September 30, 2021 from 2.79% for the three months ended September 30, 2020.
Net interest income increased by $33.2 million, or 6.2%, to $570.0 million for the nine months ended September 30, 2021 from $536.9 million for the nine months ended September 30, 2020. Net interest margin increased 26 basis points to 3.00% for the nine months ended September 30, 2021 from 2.74% for the nine months ended September 30, 2020.
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Total interest and dividend income decreased by $9.5 million, or 3.9%, to $231.2 million for the three months ended September 30, 2021 from $240.7 million for the three months ended September 30, 2020. Interest income on loans decreased by $4.0 million, or 1.9%, to $211.2 million for the three months ended September 30, 2021, primarily attributed to the weighted average yield on net loans which decreased 15 basis points to 3.97%. Partially offsetting this decrease, the average balance of net loans increased $404.6 million to $21.28 billion, driven by loan originations and $219 million of loans acquired from Berkshire Bank, reduced by paydowns and payoffs. Prepayment penalties, which are included in interest income, totaled $5.3 million for the three months ended September 30, 2021 compared to $7.4 million for the three months ended September 30, 2020. Interest income on all other interest-earning assets, excluding loans, decreased by $5.4 million, or 21.3%, to $20.1 million for the three months ended September 30, 2021 which is attributed to the weighted average yield on interest-earning assets, excluding loans, which decreased 27 basis points to 1.70% for the three months ended September 30, 2021. In addition, the average balance of all other interest-earning assets, excluding loans, decreased $447.1 million to $4.72 billion for the three months ended September 30, 2021.
Total interest and dividend income decreased by $59.4 million, or 8.0%, to $683.6 million for the nine months ended September 30, 2021 from $743.0 million for the nine months ended September 30, 2020. Interest income on loans decreased by $36.0 million, or 5.5%, to $621.5 million for the nine months ended September 30, 2021, primarily as a result of a 17 basis point decrease in the weighted average yield on net loans to 3.97%. In addition, the average balance of net loans decreased $302.9 million to $20.85 billion, mainly from paydowns and payoffs, partially offset by loan originations, $219 million of loans acquired from Berkshire Bank and $453.3 million of loans acquired from Gold Coast in April 2020. Prepayment penalties, which are included in interest income, totaled $18.4 million for the nine months ended September 30, 2021 compared to $23.2 million for the nine months ended September 30, 2020. Interest income on all other interest-earning assets, excluding loans, decreased by $23.4 million, or 27.3%, to $62.2 million for the nine months ended September 30, 2021 which is attributed to the weighted average yield on interest-earning assets, excluding loans, which decreased 44 basis points to 1.86%. In addition, the average balance of all other interest-earning assets, excluding loans, decreased $481.4 million to $4.47 billion for the nine months ended September 30, 2021.
Total interest expense decreased by $22.4 million, or 38.0%, to $36.6 million for the three months ended September 30, 2021 from $59.1 million for the three months ended September 30, 2020. Interest expense on interest-bearing deposits decreased $18.4 million, or 54.0%, to $15.7 million for the three months ended September 30, 2021. The weighted average cost of interest-bearing deposits decreased 44 basis points to 0.40% for the three months ended September 30, 2021. In addition, the average balance of total interest-bearing deposits decreased $576.4 million, or 3.6%, to $15.63 billion for the three months ended September 30, 2021. Interest expense on borrowed funds decreased by $4.0 million, or 16.1%, to $21.0 million for the three months ended September 30, 2021. The average balance of borrowed funds decreased $630.1 million, or 14.0%, to $3.86 billion for the three months ended September 30, 2021. In addition, the weighted average cost of borrowings decreased 5 basis points to 2.17% for the three months ended September 30, 2021.
Total interest expense decreased by $92.5 million, or 44.9%, to $113.6 million for the nine months ended September 30, 2021 from $206.1 million for the nine months ended September 30, 2020. Interest expense on interest-bearing deposits decreased $73.4 million, or 58.1%, to $52.9 million for the nine months ended September 30, 2021. The weighted average cost of interest-bearing deposits decreased 59 basis points to 0.46% for the nine months ended September 30, 2021. In addition, the average balance of total interest-bearing deposits decreased $758.1 million, or 4.7%, to $15.32 billion for the nine months ended September 30, 2021. Interest expense on borrowed funds decreased by $19.1 million, or 23.9%, to $60.7 million for the nine months ended September 30, 2021. The average balance of borrowed funds decreased $1.29 billion, or 25.5%, to $3.77 billion for the nine months ended September 30, 2021. Partially offsetting this decrease, the weighted average cost of borrowings increased 5 basis points to 2.15% for the nine months ended September 30, 2021.
    Provision for Credit Losses. Our provision for credit losses is primarily a result of the expected credit losses on our loans, unfunded commitments and held-to-maturity debt securities over the life of these financial instruments based on historical experience, current conditions, and reasonable and supportable forecasts. Our provision for credit losses is also impacted by the inherent credit risk in these financial instruments, the composition of and changes in our portfolios of these financial instruments, and the level of charge-offs. At September 30, 2021, our allowance for credit losses continued to be affected by the impact of the COVID-19 pandemic on the current and forecasted economic conditions. For the three months ended September 30, 2021, our provision for credit losses was impacted by improving economic conditions and commercial real estate prices. For the three months ended September 30, 2021, our provision for credit losses was negative $13.0 million, compared to $8.3 million for the three months ended September 30, 2020. For the three months ended September 30, 2021, net loan charge-offs were $251,000 compared to $667,000 for the three months ended September 30, 2020. For the nine months ended September 30, 2021, our provision for credit losses was negative $25.7 million, compared to $72.8 million for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, net loan recoveries were $2.3 million compared to net loan charge-offs of $12.8 million for the nine months ended September 30, 2020.
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    Non-Interest Income. Total non-interest income decreased $4.0 million to $16.0 million for the three months ended September 30, 2021 from $19.9 million for the three months ended September 30, 2020. The decrease was due primarily to a decrease of $3.6 million in gain on loans due to a lower volume of mortgage banking loan sales to third parties and a $931,000 unrealized loss on equity securities during the three months ended September 30, 2021, partially offset by an increase of $1.2 million in customer swap fee income.
Total non-interest income increased $4.3 million to $49.0 million for the nine months ended September 30, 2021 from $44.7 million for the nine months ended September 30, 2020. The increase in non-interest income was due primarily to an increase of $3.0 million in fees and service charges predominately related to our mortgage servicing rights valuation, an increase of $2.8 million in income from our wealth and investment products and an increase of $2.0 million in customer swap fee income, partially offset by a decrease of $3.9 million in gain on loans due to a lower volume of mortgage banking loan sales to third parties.
    Non-Interest Expenses. Total non-interest expenses were $132.0 million for the three months ended September 30, 2021, an increase of $28.0 million, or 26.9%, compared to the three months ended September 30, 2020. The increase was primarily driven by $10.2 million of costs associated with our extinguishment of $600 million of FHLB borrowings and $14.9 million of merger and acquisition related costs resulting from the Berkshire Bank and Citizens transactions inclusive of $6.6 million of occupancy costs resulting from anticipated branch closures related to branch rationalization plans connected with the Berkshire Bank branch acquisition.
Total non-interest expenses were $344.8 million for the nine months ended September 30, 2021, an increase of $38.2 million, or 12.5%, compared to the nine months ended September 30, 2020. This increase was driven by an increase of $8.9 million in debt extinguishment costs, an increase of $8.5 million in professional fees driven by acquisition-related fees, an increase of $8.0 million in compensation and fringe benefit expense primarily related to incentive compensation and medical expenses and $6.6 million of occupancy costs resulting from anticipated branch closures related to branch rationalization plans connected with the Berkshire Bank branch acquisition. Included in non-interest expenses for the nine months ended September 30, 2021 were $10.0 million of acquisition-related costs.
    Income Taxes. Income tax expense for the third quarter of 2021 was $24.6 million compared to $24.8 million for the third quarter 2020.  The effective tax rate was 26.9% for the three months ended September 30, 2021 and 27.9% for the three months ended September 30, 2020. Income tax expense for the nine months ended September 30, 2021 was $80.9 million compared to $55.7 million for the nine months ended September 30, 2020.  The effective tax rate was 27.0% for the nine months ended September 30, 2021 and 27.6% for the nine months ended September 30, 2020. The effective tax rate is affected by the level of income earned that is exempt from tax relative to the overall level of pre-tax income and the level of expenses not deductible for tax purposes relative to the overall level of pre-tax income. In addition, the effective tax rate is affected by the level of income allocated to the various state and local jurisdictions where we operate, because tax rates differ among such jurisdictions.
Analysis of Net Interest Income
Net interest income represents the difference between income we earn on our interest-earning assets and the expense we pay on interest-bearing liabilities. Net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned on such assets and paid on such liabilities.
Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, however interest receivable on these loans have been fully reserved for and not included in interest income. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

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  Three Months Ended September 30,
  2021 2020
  Average
Outstanding
Balance 		Interest
Earned/
Paid 		Average
Yield/
Rate 		Average
Outstanding
Balance 		Interest
Earned/
Paid 		Average
Yield/
Rate
  (Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits $ 844,365  $ 268  0.13  % $ 978,037  $ 233  0.10  %
Equity securities 8,747  65  2.97  % 7,177  45  2.51  %
Debt securities available-for-sale 2,501,016  9,683  1.55  % 2,758,679  13,473  1.95  %
Debt securities held-to-maturity, net 1,174,563  7,806  2.66  % 1,200,933  8,277  2.76  %
Net loans 21,284,262  211,189  3.97  % 20,879,661  215,221  4.12  %
Stock in FHLB 192,111  2,234  4.65  % 223,032  3,452  6.19  %
Total interest-earning assets 26,005,064  231,245  3.56  % 26,047,519  240,701  3.70  %
Non-interest-earning assets 1,151,571  1,157,358 
Total assets $ 27,156,635  $ 27,204,877 
Interest-bearing liabilities:
Savings deposits $ 2,060,893  $ 1,381  0.27  % $ 2,033,495  $ 2,690  0.53  %
Interest-bearing checking 6,658,248  6,833  0.41  % 5,901,759  8,658  0.59  %
Money market accounts 4,613,066  4,475  0.39  % 4,349,536  8,520  0.78  %
Certificates of deposit 2,299,850  2,994  0.52  % 3,923,651  14,241  1.45  %
Total interest-bearing deposits 15,632,057  15,683  0.40  % 16,208,441  34,109  0.84  %
Borrowed funds 3,863,460  20,960  2.17  % 4,493,591  24,970  2.22  %
Total interest-bearing liabilities 19,495,517  36,643  0.75  % 20,702,032  59,079  1.14  %
Non-interest-bearing liabilities 4,827,551  3,856,553 
Total liabilities 24,323,068  24,558,585 
Stockholders’ equity 2,833,567  2,646,292 
Total liabilities and stockholders’ equity $ 27,156,635  $ 27,204,877 
Net interest income $ 194,602  $ 181,622 
Net interest rate spread(1)
2.81  % 2.56  %
Net interest-earning assets(2)
$ 6,509,547  $ 5,345,487 
Net interest margin(3)
2.99  % 2.79  %
Ratio of interest-earning assets to total interest-bearing liabilities 1.33 1.26

(1)Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)Net interest margin represents net interest income divided by average total interest-earning assets.
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  Nine Months Ended September 30,
  2021 2020
  Average
Outstanding
Balance 		Interest
Earned/
Paid 		Average
Yield/
Rate 		Average
Outstanding
Balance 		Interest
Earned/
Paid 		Average
Yield/
Rate
  (Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits $ 496,273  $ 367  0.10  % $ 880,015  $ 1,367  0.21  %
Equity securities 19,074  394  2.75  % 6,480  110  2.26  %
Debt securities available-for-sale 2,578,106  31,538  1.63  % 2,657,564  46,371  2.33  %
Debt securities held-to-maturity 1,189,302  23,462  2.63  % 1,158,357  25,802  2.97  %
Net loans 20,854,173  621,462  3.97  % 21,157,077  657,483  4.14  %
Stock in FHLB 185,520  6,417  4.61  % 247,260  11,881  6.41  %
Total interest-earning assets 25,322,448  683,640  3.60  % 26,106,753  743,014  3.79  %
Non-interest-earning assets 1,137,556  1,080,136 
Total assets $ 26,460,004  $ 27,186,889 
Interest-bearing liabilities:
Savings deposits $ 2,028,057  $ 4,265  0.28  % $ 2,039,596  $ 9,505  0.62  %
Interest-bearing checking 6,328,197  20,397  0.43  % 5,786,659  34,191  0.79  %
Money market accounts 4,557,672  16,136  0.47  % 4,172,144  32,624  1.04  %
Certificates of deposit 2,408,527  12,070  0.67  % 4,082,118  49,959  1.63  %
Total interest-bearing deposits 15,322,453  52,868  0.46  % 16,080,517  126,279  1.05  %
Borrowed funds 3,774,346  60,725  2.15  % 5,066,253  79,843  2.10  %
Total interest-bearing liabilities 19,096,799  113,593  0.79  % 21,146,770  206,122  1.30  %
Non-interest-bearing liabilities 4,574,136  3,402,930 
Total liabilities 23,670,935  24,549,700 
Stockholders’ equity 2,789,069  2,637,189 
Total liabilities and stockholders’ equity $ 26,460,004  $ 27,186,889 
Net interest income $ 570,047  $ 536,892 
Net interest rate spread(1)
2.81  % 2.49  %
Net interest-earning assets(2)
$ 6,225,649  $ 4,959,983 
Net interest margin(3)
3.00  % 2.74  %
Ratio of interest-earning assets to total interest-bearing liabilities 1.33 1.23

(1)Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)Net interest margin represents net interest income divided by average total interest-earning assets.
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Comparison of Financial Condition at September 30, 2021 and December 31, 2020
    Total Assets. Total assets increased by $1.29 billion, or 5.0%, to $27.32 billion at September 30, 2021 from December 31, 2020. Cash and cash equivalents increased by $499.9 million to $670.3 million at September 30, 2021 from December 31, 2020. Net loans increased by $1.04 billion, or 5.1%, to $21.62 billion at September 30, 2021 from December 31, 2020. Securities decreased by $230.4 million, or 5.7%, to $3.81 billion at September 30, 2021 from December 31, 2020.
    Net Loans. Net loans increased by $1.04 billion to $21.62 billion at September 30, 2021 from $20.58 billion at December 31, 2020. The detail of the loan portfolio is below:
September 30, 2021 December 31, 2020
(Dollars in thousands)
Commercial loans:
Multi-family loans $ 7,655,135  7,122,840 
Commercial real estate loans 5,135,123  4,947,212 
Commercial and industrial loans 3,933,926  3,575,641 
Construction loans 509,620  404,367 
Total commercial loans 17,233,804  16,050,060 
Residential mortgage loans 3,930,683  4,119,894 
Consumer and other 740,827  702,801 
Total loans 21,905,314  20,872,755 
Deferred fees, premiums and other, net (17,071) (9,318)
Allowance for loan losses (263,515) (282,986)
Net loans $ 21,624,728  20,580,451 
    During the nine months ended September 30, 2021, we originated or funded $1.87 billion in multi-family loans, $1.01 billion in residential loans, $858.0 million in commercial and industrial loans, $580.0 million in commercial real estate loans, $101.6 million in construction loans and $86.1 million in consumer and other loans. Our originations reflect our continued focus on diversifying our loan portfolio. In addition, we acquired $219 million of loans from Berkshire Bank. A significant portion of our commercial loan portfolio, including commercial and industrial loans, are secured by commercial real estate and are primarily on properties and businesses located in New Jersey and New York.
    One of our key operating objectives has been, and continues to be, maintaining a high level of asset quality. We maintain sound credit standards for new loan originations and purchases. We do not originate or purchase sub-prime loans, negative amortization loans or option ARM loans. Our portfolio contains interest-only and no income verification residential mortgage loans. We have not originated residential mortgage loans without verifying income in recent years. As of September 30, 2021, these loans totaled $87.8 million. As of September 30, 2021, interest-only residential and consumer loans totaled $21.6 million, which represented less than 1% of the residential and consumer portfolio. Although it is not a standard product offering for commercial real estate and multi-family loans, we originate interest-only in addition to amortizing loans in these segments. As of September 30, 2021, these loans totaled $2.11 billion. As part of our underwriting, these loans are evaluated as fully amortizing for risk classification purposes, with the interest-only period ranging from one to ten years. In addition, we evaluate our policy limits on a regular basis. We believe these criteria adequately control the potential risks of such loans and that adequate provisions for loan losses are provided for all known and inherent risks. Since April 2020, we have, at the request of commercial borrowers experiencing financial difficulty resulting from the pandemic, temporarily deferred the payment of principal and/or interest for an agreed-upon period of time. Although a significant portion of these loans are paying interest-only during the deferral period, they are not included in the amount of interest-only loans disclosed in this section.
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Loan Deferrals. While we have continued to support our customers by granting payment deferrals for those experiencing continued hardship because of the pandemic, we have also worked diligently with our customers to ensure a return to current payment status for a significant portion of our clients who have ended their initial deferral period. At May 4, 2020, loans with an aggregated outstanding balance of $4.3 billion, or 20.1% of total loans, were in COVID-19 related deferment. Since then, customers representing approximately $3.9 billion in loan balances have ended their COVID-19 related deferrals and as of October 19, 2021, loans with an aggregate outstanding balance of approximately $410.0 million, or 1.9% of total loans, were in COVID-19 related deferment.
The following table presents the balance of deferred loans in the Company’s loan portfolio by loan segment, industry sector and type of deferral as of October 19, 2021.
Segment and industry sector Principal and Interest Deferral Principal
Deferral 		Total
Deferred Loan % of Total Loans (1)
(Dollars in millions)
Commercial and industrial
Accommodation and food service $ —  170  170  0.8  %
Arts, entertainment and recreation —  23  23  0.1  %
Real estate and rental —  1  1  —  %
Total deferred commercial and industrial —  194  194  0.9  %
Commercial real estate
Accommodation and food service —  61  61  0.3  %
Other —  7  7  —  %
Total deferred commercial real estate —  68  68  0.3  %
Construction —  —  —  —  %
Multi-family —  99  99  0.5  %
Total deferred commercial loans —  361  361  1.7  %
Residential and consumer 49  —  49  0.2  %
Total deferred loans (2)
$ 49  361  410  1.9  %
(1) Percentage calculated using total loan balance as of September 30, 2021.
(2) Of the total deferred loans, approximately 35% of the deferments expire in the fourth quarter of 2021 with the remainder expiring in January 2022.
Given the unprecedented uncertainty and continually evolving economic effects and social impacts of the COVID-19 pandemic, the future direct and indirect impact on our business, results of operations and financial condition are highly uncertain. Should economic conditions deteriorate the macroeconomic environment may have an adverse effect on our business and results of operations, including additional borrower deferral requests, delinquent loans and non-accrual loans. For more information on how the risks related to COVID-19 may adversely affect our business, results of operations and financial condition, reference is made to Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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The following table presents the Company’s loan portfolio at September 30, 2021 by industry sector:
Segment/Industry
Loan Balance
(in millions)
% of Total Segment
Commercial and industrial:
Accommodation and food service $ 285  7  %
Administrative and support and waste management 149  4  %
Agriculture, forestry, fishing and hunting 23  1  %
Arts, entertainment, and recreation 101  3  %
Construction 307  8  %
Educational service 134  3  %
Finance and insurance 267  7  %
Health care and social assistance 622  16  %
Information 136  3  %
Management of companies and enterprises 6  0  %
Manufacturing 216  5  %
Mining, quarrying, and oil and gas extraction 48  1  %
Professional, scientific, and technical services 125  3  %
Public administration 1  0  %
Real estate and rental 619  16  %
Retail trade - clothing, home, gasoline, health 167  4  %
Retail trade - sporting, hobby, vending, e-commerce 7  0  %
Transportation - air, rail, truck, water, pipeline 265  7  %
Utilities 2  0  %
Wholesale trade 223  6  %
Other 231  6  %
Total commercial and industrial $ 3,934  100  %
Commercial real estate:
Accommodation and food service $ 113  2  %
Arts, entertainment, and recreation 17  0  %
Health care and social assistance 159  3  %
Mixed use property 504  10  %
Office 1,244  24  %
Retail store 926  18  %
Shopping center 1,000  20  %
Warehouse 698  14  %
Other 474  9  %
Total commercial real estate $ 5,135  100  %
Multi-family 7,655  100  %
Construction 510  100  %
Residential and consumer 4,671  100  %
Total loans $ 21,905  100  %
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Non-Performing Loans. The following table sets forth non-accrual loans (excluding loans held-for-sale) and accruing troubled debt restructured loans on the dates indicated as well as certain asset quality ratios:
  September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020
  # of Loans Amount # of Loans Amount # of Loans Amount # of Loans Amount # of Loans Amount
(dollars in millions)
 
Multi-family 15  $ 19.9  11 $ 16.6  13 $ 19.2  15 $ 35.6  13 $ 51.1 
Commercial real estate 22  9.8  24 13.0  25 14.0  29 15.9  28 17.8 
Commercial and industrial 16  3.3  13 5.2  15 4.4  21 9.2  19 10.9 
Construction —  —  —  —  —  —  —  —  —  — 
Total commercial loans 53  33.0  48 34.8  53 37.6  65 60.7  60 79.8 
Residential and consumer 231  43.5  232 42.8  239 45.7  246 46.4  250 52.2 
Total non-accrual loans 284  $ 76.5  280 $ 77.6  292 $ 83.3  311 $ 107.1  310 $ 132.0 
Accruing troubled debt restructured loans 47  $ 8.1  49 $ 9.3  45 $ 9.1  47 $ 9.2  51 $ 9.8 
Non-accrual loans to total loans 0.35  % 0.36  % 0.40  % 0.51  % 0.63  %
Allowance for loan losses as a percent of non-accrual loans 344.61  % 348.05  % 340.60  % 264.17  % 217.75  %
Allowance for loan losses as a percent of total loans 1.20  % 1.26  % 1.36  % 1.36  % 1.37  %
    Total non-accrual loans were $76.5 million at September 30, 2021 compared to $77.6 million at June 30, 2021 and $132.0 million at September 30, 2020. At September 30, 2021, there were $4.7 million of multi-family loans, $2.9 million of commercial and industrial loans and $1.9 million of commercial real estate loans that were classified as non-accrual which were performing in accordance with their contractual terms. Criticized and classified loans as a percent of total loans decreased to 6.95% at September 30, 2021 from 7.99% at December 31, 2020. We continue to proactively and diligently work to resolve our troubled loans.
During the nine months ended September 30, 2021, we sold three non-performing multi-family loans totaling $19.9 million and recognized a recovery of $1.4 million in the allowance for credit losses on the sale of one of the loans. During the nine months ended September 30, 2021, we also sold a $762,000 non-performing commercial real estate loan.
    At September 30, 2021, there were $26.4 million of loans deemed as TDRs, of which $22.0 million were residential and consumer loans and $4.4 million were commercial real estate loans. TDRs of $8.1 million were classified as accruing and $18.3 million were classified as non-accrual at September 30, 2021. Included were $1.3 million of residential loans deemed to be TDRs as the borrower was granted a payment deferral related to COVID-19 but did not meet the criteria to be excluded from TDR as described in Note 6, Loans Receivable, Net.
    In addition to non-accrual loans, we continue to monitor our portfolio for potential problem loans. Potential problem loans are defined as loans about which we have concerns as to the ability of the borrower to comply with the current loan repayment terms and which may cause the loan to be placed on non-accrual status. As of September 30, 2021, we have deemed potential problem loans totaling $81.1 million, which is comprised of 14 multi-family loans totaling $57.4 million, 12 commercial real estate loans totaling $21.3 million and 13 commercial and industrial loans totaling $2.4 million. In addition, we continue to support our customers by deferring payments for borrowers experiencing hardship because of the COVID-19 pandemic. As of October 19, 2021, $410.0 million, or 1.9%, of loans were deferring principal and/or interest payments. For further information, please refer to the Loan Deferrals disclosure above. Management is actively monitoring all of these loans.
    The ratio of non-accrual loans to total loans was 0.35% at September 30, 2021 compared to 0.51% at December 31, 2020. The allowance for loan losses as a percentage of non-accrual loans was 344.61% at September 30, 2021 compared to
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264.17% at December 31, 2020. At September 30, 2021, our allowance for loan losses as a percentage of total loans was 1.20% compared to 1.36% at December 31, 2020.
    Allowance for Credit Losses on Loans. The allowance for loan losses decreased by $19.5 million to $263.5 million at September 30, 2021 from $283.0 million at December 31, 2020. The decrease reflects a negative provision for loan losses of $22.8 million, partially offset by an increase of $2.3 million resulting from net loan recoveries and an increase of approximately $1.0 million from the initial allowance on loans identified as PCD which were acquired from Berkshire Bank. Our allowance for loan losses at September 30, 2021 was affected by the improving current and forecasted economic conditions and commercial real estate prices. Future increases in the allowance for loan losses may be necessary based on the composition of and change in the loan portfolio, the level of loan delinquency and the current and forecasted economic condition over the life of our loans.
The following table sets forth the allowance for credit losses on loans allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for credit losses allocated to each category is the estimated amount considered necessary to cover lifetime expected credit losses inherent in any particular category as of the balance sheet date and does not restrict the use of the allowance to absorb losses in other categories.
 
  September 30, 2021 December 31, 2020
  Allowance for
Loan Losses 		Percent of Loans
in Each Category
to Total Loans 		Allowance for
Loan Losses 		Percent of Loans
in Each Category
to Total Loans
  (Dollars in thousands)
End of period allocated to:
Multi-family loans $ 59,169  35.0  % $ 56,731  34.1  %
Commercial real estate loans 87,016  23.4  % 115,918  23.7  %
Commercial and industrial loans 85,036  18.0  % 79,327  17.1  %
Construction loans 9,359  2.3  % 7,267  2.0  %
Residential mortgage loans 19,328  17.9  % 19,941  19.7  %
Consumer and other loans 3,607  3.4  % 3,802  3.4  %
Total allowance $ 263,515  100.0  % $ 282,986  100.0  %
Securities. Securities are held primarily for liquidity, interest rate risk management and yield enhancement. Our Investment Policy requires that investment transactions conform to Federal and State investment regulations. Our investments purchased may include, but are not limited to, U.S. Treasury obligations, securities issued by various Federal Agencies, State and Municipal subdivisions, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, corporate debt instruments, and mutual funds. In addition, we may invest in equity securities subject to certain limitations. Purchase and sale decisions are based upon a thorough pre-transaction analysis of each instrument to determine if it conforms to our overall asset/liability management objectives. The analysis must consider its effect on our risk-based capital measurement, prospects for yield and/or appreciation and other risk factors. Debt securities are classified as held-to-maturity or available-for-sale when purchased.
    At September 30, 2021, our securities portfolio represented 14.0% of our total assets. Securities, in the aggregate, decreased by $230.4 million, or 5.7%, to $3.81 billion at September 30, 2021 from December 31, 2020. This decrease was primarily a result of paydowns and sales, partially offset by purchases. At September 30, 2021, our allowance for credit losses on held-to-maturity debt securities was $2.0 million.
Stock in the Federal Home Loan Bank, Bank Owned Life Insurance and Other Assets. The amount of stock we own in the FHLB increased by $17.2 million, or 10.8%, to $177.1 million at September 30, 2021 from $159.8 million at December 31, 2020. The amount of stock we own in the FHLB is primarily related to the balance of our outstanding borrowings from the FHLB. Bank owned life insurance was $227.8 million at September 30, 2021 and $223.7 million at December 31, 2020. Other assets were $139.6 million at September 30, 2021 and $163.2 million at December 31, 2020. The decrease in other assets was primarily driven by hedge-related assets.
Deposits.  At September 30, 2021, deposits totaled $20.40 billion, representing 83.4% of our total liabilities. Our deposit strategy is focused on attracting core deposits (savings, checking and money market accounts), resulting in a deposit mix of lower cost core products. We are committed to our plan of attracting more core deposits because they represent a more stable source of low cost funds and may be less sensitive to changes in market interest rates.
We have a suite of commercial deposit and treasury management products, designed to appeal to small and mid-sized businesses and non-profit organizations including electronic deposit services such as mobile and remote deposit capture.
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Interest rates, maturity terms, service fees and withdrawal penalties are all reviewed on a periodic basis. Deposit rates and terms are based primarily on our current operating strategies, market rates, liquidity requirements and competitive forces. We also rely on personalized customer service, long-standing relationships with customers and an active marketing program to attract and retain deposits.
Deposits increased by $875.0 million, or 4.5%, to $20.40 billion at September 30, 2021 from $19.53 billion at December 31, 2020 primarily driven by an increase in checking account deposits, partially offset by decreases in time deposits and money market deposits. Checking account deposits increased $1.56 billion to $11.26 billion at September 30, 2021 from $9.71 billion at December 31, 2020. Core deposits represented approximately 89% of our total deposit portfolio at September 30, 2021 compared to 86% at December 31, 2020. We acquired $632 million of deposits from Berkshire Bank during the quarter ended September 30, 2021.
The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated:
September 30, 2021 December 31, 2020
Balance Percent of Total Deposits Balance Percent of Total Deposits
(Dollars in thousands)
Non-interest bearing:
Checking accounts $ 4,345,871  21.3  % $ 3,663,073  18.8  %
Interest-bearing:
Checking accounts 6,917,964  33.9  % 6,043,393  30.9  %
Money market deposits 4,768,986  23.4  % 5,037,327  25.8  %
Savings 2,052,819  10.1  % 2,063,447  10.6  %
Certificates of deposit 2,314,784  11.3  % 2,718,179  13.9  %
Total Deposits $ 20,400,424  100.0  % $ 19,525,419  100.0  %
Borrowed Funds.  Borrowings are primarily with the FHLB and are collateralized by our residential and commercial mortgage portfolios. Borrowed funds increased by $238.7 million, or 7.2%, to $3.53 billion at September 30, 2021 from $3.30 billion at December 31, 2020 to support balance sheet growth.
Stockholders’ Equity. Stockholders’ equity increased by $142.6 million to $2.85 billion at September 30, 2021 from $2.71 billion at December 31, 2020. The increase was primarily attributed to net income of $219.0 million, share-based plan activity of $21.8 million and other comprehensive income of $17.7 million for the nine months ended September 30, 2021. These increases were partially offset by cash dividends paid of $0.42 per share totaling $103.9 million and the repurchase of approximately 1.0 million shares of common stock for $12.1 million during the nine months ended September 30, 2021.
Liquidity and Capital Resources
    The Company’s primary sources of funds are deposits, principal and interest payments on loans and securities, FHLB advances and other borrowings and, to a lesser extent, proceeds from the sale of loans and investment maturities. While scheduled amortization of loans is usually a predictable source of funds, deposit flows and mortgage and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company has other sources of liquidity, including unsecured overnight lines of credit, brokered deposits and other types of borrowings. The Company’s total borrowing capacity from the FHLB and other borrowing sources was approximately $22.77 billion at September 30, 2021. Excluding outstanding borrowings and encumbered collateral, available borrowing capacity and other available liquidity sources totaled approximately $12.89 billion at September 30, 2021. Our Asset Liability Committee is responsible for establishing and monitoring our liquidity targets and strategies to ensure that sufficient liquidity exists for meeting the needs of our customers as well as unanticipated contingencies. These liquidity risk management practices have allowed us to effectively manage the market stress related to the COVID-19 pandemic that began in the first quarter of 2020.
    At September 30, 2021, the Company had no overnight borrowings outstanding. The Company had $188.0 million of overnight borrowings outstanding at December 31, 2020. The Company borrows directly from the FHLB and various financial institutions. The Company had total borrowings of $3.53 billion at September 30, 2021, an increase of $238.7 million from $3.30 billion at December 31, 2020.
    In the normal course of business, the Company routinely enters into various commitments, primarily relating to the origination of loans. At September 30, 2021, commitments to originate loans totaled $266.7 million; unused home equity lines of credit and undisbursed business and construction loans totaled approximately $2.48 billion; and outstanding standby letters of credit totaled $45.3 million. There were no outstanding commitments to sell loans. The Company expects to have sufficient
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funds available to meet current commitments in the normal course of business. Time deposits scheduled to mature in one year or less totaled $2.01 billion at September 30, 2021. Based upon historical experience, management estimates that a significant portion of such deposits will remain with the Company.
    Credit ratings and outlooks are opinions expressed by rating agencies on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings, preferred stock and other securities. On July 30, 2021 our rating was placed on positive after the acquisition agreement with Citizens Financial Group was announced. On May 24, 2021 S&P revised our rating outlook to stable from negative to reflect decreasing economic risks. In May 2020, S&P had revised our rating outlook to negative due to economic downturn from COVID-19.
Regulatory Capital and Developments.
Capital Requirements. Federal regulations require FDIC insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.
Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of accumulated other comprehensive income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). The Bank exercised its AOCI opt-out election. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one to four- family residential real estate loans, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was phased in beginning January 1, 2016 until fully implemented at 2.5% on January 1, 2019.    
CECL Capital Implications. On January 1, 2020, the Company adopted the new accounting standard that requires the measurement of the allowance for credit loss to be based on the best estimate of lifetime expected credit losses inherent in the Company’s relevant financial asset. On March 27, 2020, in response to the COVID-19 pandemic, U.S. banking regulators issued an interim final rule that the Company adopted to delay for two years the initial adoption impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during 2020 and 2021 (i.e. a five-year transition period). During the two-year delay, the Company will add back to common equity tier 1 capital (“CET1”) 100% of the initial adoption impact of CECL plus 25% of the cumulative quarterly changes in the allowance for credit losses (i.e., quarterly transitional amounts). After two years, starting on January 1, 2022, the quarterly transitional amounts along with the initial adoption impact of CECL will be phased out of CET1 capital over the three-year period.
    Paycheck Protection Program. On April 9, 2020, in response to the economic impact of the COVID-19 pandemic, the Federal Reserve, OCC and FDIC issued an interim final rule that excludes loans pledged as collateral to the Federal Reserve’s PPP Lending Facility from supplemental leverage ratio exposure, average total consolidated assets and Advanced and Standardized risk-weighted assets. Additionally, PPP loans, which are guaranteed by the Small Business Administration, will receive a zero percent risk weight under the Basel 3 Advanced and Standardized approaches regardless of whether they are
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pledged as collateral to the PPP Lending Facility. On December 27, 2020, the Consolidated Appropriations Act, 2021, was enacted and included a reopening of the PPP. The majority of the Company’s PPP loans were sold in the fourth quarter of 2020 with the remainder being forgiven by the Small Business Administration in the second quarter of 2021.
As of September 30, 2021, the Bank and the Company were considered “well capitalized” under applicable regulations and exceeded all regulatory capital requirements as follows:
 
As of September 30, 2021 (1)
  Actual Minimum Capital Requirement with Conservation Buffer
To be Well Capitalized under Prompt Corrective Action Provisions (2)
  Amount Ratio Amount Ratio Amount Ratio
  (Dollars in thousands)
Bank:
Tier 1 Leverage Ratio $ 2,435,271  9.02  % $ 1,079,893  4.00  % $ 1,349,866  5.00  %
Common Equity Tier 1 Risk-Based Capital 2,435,271  11.32  % 1,506,273  7.00  % 1,398,682  6.50  %
Tier 1 Risk Based Capital 2,435,271  11.32  % 1,829,046  8.50  % 1,721,455  8.00  %
Total Risk-Based Capital 2,697,950  12.54  % 2,259,409  10.50  % 2,151,818  10.00  %
Investors Bancorp, Inc.:
Tier 1 Leverage Ratio $ 2,769,611  10.24  % $ 1,081,515  4.00  % n/a n/a
Common Equity Tier 1 Risk-Based Capital 2,769,611  12.83  % 1,510,878  7.00  % n/a n/a
Tier 1 Risk Based Capital 2,769,611  12.83  % 1,834,637  8.50  % n/a n/a
Total Risk-Based Capital 3,045,823  14.11  % 2,266,317  10.50  % n/a n/a
(1) For purposes of calculating Tier 1 leverage ratio, assets are based on adjusted total average assets. In calculating Tier 1 risk-based capital and Total risk-based capital, assets are based on total risk-weighted assets.
(2) Prompt corrective action provisions do not apply to the bank holding company.
Contractual Obligations and Off-Balance Sheet Arrangements
    Contractual Obligations and Commitments. In the ordinary course of business, we routinely enter into various financial obligations, including contractual obligations that may require future cash payments. As a financial provider, we routinely enter into commitments to extend credit, including loan commitments, standby and commercial letters of credit as well as unused lines of credit as discussed above in Liquidity and Capital Resources. While these contractual obligations represent our potential future cash requirements, a significant portion of our commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval processes that we use for loans that we originate.
The following table shows the contractual obligations of the Company by expected payment period as of September 30, 2021:
Contractual Obligations Total Less than One Year One-Two Years Two-Three Years More than Three Years
  (In thousands)
Debt obligations (excluding finance leases) $ 3,534,536  2,350,000  348,965  821,019  14,552 
Commitments to originate and purchase loans $ 266,741  266,741  —  —  — 
Commitments to sell loans $ —  —  —  —  — 

    Debt obligations include borrowings from the FHLB and other borrowings. The borrowings have defined terms, and none of the borrowings were callable at the option of the lender as of September 30, 2021. Additionally, at September 30, 2021, the Company’s commitments to fund unused lines of credit totaled $2.48 billion. Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
    In addition to the contractual obligations previously discussed, we have other liabilities which include $216.4 million of operating lease liabilities of which $9.3 million was acquired in the Berkshire Bank acquisition during the nine months ended September 30, 2021 and $3.6 million was acquired from Gold Coast during the year ended December 31, 2020. We have $1.2 million of finance lease liabilities. These contractual obligations as of September 30, 2021 have not changed significantly from December 31, 2020.
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    In the normal course of business, the Company sells residential mortgage loans to third parties. These loan sales are subject to customary representations and warranties. In the event that we are found to be in breach of these representations and warranties, we may be obligated to repurchase certain of these loans.
Derivative Instruments and Hedging Activities. The Company has entered into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings and loans. During the three and nine months ended September 30, 2021, such derivatives were used (i) to hedge the variability in cash flows associated with borrowings and (ii) to hedge changes in the fair value of certain pools of prepayable fixed rate assets. These derivatives had an aggregate notional amount of $3.58 billion as of September 30, 2021. During the year ended December 31, 2020, the Company terminated two interest rate swaps with an aggregate notional amount of $475.0 million that had been used to hedge changes in the fair value of certain pools of prepayable fixed- and adjustable-rate assets. Also during the year ended December 31, 2020, the Company terminated four interest rate swaps with an aggregate notional of $400.0 million that had been designated as cash flow hedges on wholesale funding.
    The Company has credit derivatives resulting from participation in interest rate swaps provided to external lenders as part of loan participation arrangements which are, therefore, not used to manage interest rate risk in the Company’s assets or liabilities. Additionally, the Company provides interest rate risk management services to commercial customers, primarily interest rate swaps. The Company’s market risk from unfavorable movements in interest rates related to these derivative contracts is minimized by concurrently entering into offsetting derivative contracts that have identical notional values, terms and indices.
    For further information regarding our off-balance sheet arrangements and contractual obligations, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our December 31, 2020 Annual Report on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    Qualitative Analysis. One significant form of market risk is interest rate risk. Interest rate risk results from timing differences in the cash flow or re-pricing of our assets, liabilities and off-balance sheet contracts (e.g., loan commitments); the effect of loan and securities prepayments, deposit activity; “basis risk” arising from potential differences in the behavior of lending and funding rates arising from the use of different indices; and “yield curve risk” arising from changes in the term structure of interest rates. Changes in market interest rates can affect net interest income by influencing the volume and pricing of new loan originations and securities purchases, the ability of borrowers to repay variable rate loans, the volume of loan and securities prepayments and the mix and flow of deposits.
    The general objective of our interest rate risk management process is to align and manage forecasted interest rate risk with our business model and risk appetite. Our Asset Liability Committee, which consists of senior management and executives, evaluates the interest rate risk inherent in our balance sheet and operating environment to assess capital and liquidity requirements and modify our lending, investing and deposit gathering strategies accordingly. On a quarterly basis, our Board of Directors reviews various Asset Liability Committee reports that estimate the sensitivity of the economic value of equity and net interest income under various interest rate scenarios.
    Our tactics and strategies may include the use of various financial instruments, including derivatives, to manage our exposure to interest rate risk. Certain derivatives are designated as hedging instruments in a qualifying hedge accounting relationship (fair value or cash flow hedge). Hedged items can be either assets or liabilities. Given the historically low interest rate environment during 2020 and continuing into 2021, the Company proactively positioned the balance sheet in an effort to better protect against rising rates.
As of September 30, 2021, the Company had cash flow and fair value hedges with aggregate notional amounts of $3.58 billion. As of December 31, 2020, the Company had cash flow hedges with aggregate notional amounts of $3.33 billion. During the year ended December 31, 2020, the Company terminated cash flow hedges with an aggregate notional of $400.0 million. Also during the year ended December 31, 2020, the Company terminated fair value hedges with an aggregate notional of $475.0 million, and the Company had no interest rate swaps designated as fair value hedges as of December 31, 2020.
    We actively evaluate interest rate risk in connection with our lending, investing and deposit activities and our off-balance sheet positions. At September 30, 2021, 17.9% of our total loan portfolio was comprised of residential mortgages, of which approximately 24.6% was in variable rate products, while 75.4% was in fixed rate products. Our variable rate and short
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term fixed rate mortgage related assets have helped to reduce our exposure to interest rate fluctuations. Long term fixed-rate products may adversely impact our net interest income in a rising rate environment. The origination of commercial loans, particularly commercial and industrial loans, commercial real estate loans and multi-family loans, which have outpaced the growth in the residential portfolio in recent years, generally help reduce our interest rate risk due to their shorter term compared to fixed rate residential mortgage loans. In addition, we primarily invest in securities which display relatively conservative interest rate risk characteristics.
In July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calibration of LIBOR to the administrator of LIBOR after 2021. In November 2020, the LIBOR administrator announced plans to consult on easing publication of USD LIBOR on December 31, 2021 for only the one-week and two-month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. The United States banking regulators concurrently issued a joint statement advising banks to stop new USD LIBOR issuances by the end of 2021. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the recommended alternative rate to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. The ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. The Company has approximately $8.47 billion in financial instruments which are indexed to USD-LIBOR for which it is monitoring the activity and evaluating the related risks.
    We use an internally managed and implemented industry standard asset/liability model to complete our quarterly interest rate risk reports. The model projects net interest income based on various interest rate scenarios and horizons. We use a combination of analyses to monitor our exposure to changes in interest rates.
    Our net interest income sensitivity analysis determines the relative balance between the repricing of assets, liabilities and off-balance sheet positions over various horizons. This asset and liability analysis includes expected cash flows from loans and securities, using forecasted prepayment rates, reinvestment rates, as well as contractual and forecasted liability cash flows. This analysis identifies mismatches in the timing of asset and liability cash flows but does not necessarily provide an accurate indicator of interest rate risk because the rate forecasts and assumptions used in the analysis may not reflect actual experience. The economic value of equity (“EVE”) analysis estimates the change in the net present value (“NPV”) of assets and liabilities and off-balance sheet contracts over a range of immediate rate shock interest rate scenarios. In calculating changes in EVE, for the various scenarios we forecast loan and securities prepayment rates and deposit decay rates.
    Quantitative Analysis. The table below sets forth, as of September 30, 2021, the estimated changes in our EVE and our net interest income that would result from the designated changes in interest rates. Such changes to interest rates are calculated as an immediate and permanent change for the purposes of computing EVE and a gradual change over a one-year period for the purposes of computing net interest income. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. The following table reflects management’s expectations of the changes in EVE and net interest income for an interest rate decrease of 100 basis points and increase of 200 basis points.
 
EVE (1)
Net Interest Income (2)
Change in
Interest Rates
(basis points) 		Estimated
EVE 		Estimated Increase (Decrease) Estimated
Net
Interest
Income 		Estimated Increase (Decrease)
Amount Percent Amount Percent
  (Dollars in thousands)
+ 200bp $ 4,292,312  (217,356) (4.8) % $ 763,046  (21,606) (2.8) %
0bp $ 4,509,668  —  —  $ 784,652  —  — 
-100bp $ 4,270,157  (239,511) (5.3) % $ 787,255  2,603  0.3  %
(1)EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(2)Assumes a gradual change in interest rates over a one year period at all maturities.
    The table above indicates that at September 30, 2021, in the event of a 200 basis point increase in interest rates, we would be expected to experience a 4.8% decrease in EVE and a $21.6 million, or 2.8%, decrease in net interest income. In the event of a 100 basis point decrease in interest rates, we would be expected to experience a 5.3% decrease in EVE and a $2.6 million, or 0.3%, increase in net interest income. This data does not reflect any future actions we may take in response to changes in interest rates, such as changing the mix in or growth of our assets and liabilities, which could change the results of the EVE and net interest income calculations.
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    As mentioned above, we use an internally developed asset liability model to compute our quarterly interest rate risk reports. Certain shortcomings are inherent in any methodology used to calculate interest rate risk. Modeling EVE and net interest income sensitivity requires certain assumptions that may or may not reflect the manner in which actual yields and market values respond to changes in market interest rates. The EVE and net interest income results presented above assume no balance sheet growth and that generally the composition of our interest-rate sensitive assets and liabilities existing at the beginning of the analysis remains constant over the period being measured and, accordingly, the data does not reflect any actions we may take in response to changes in interest rates. The EVE and net interest income results presented in the table above provide an indication of our sensitivity to interest rate changes at a point in time.

ITEM 4. CONTROLS AND PROCEDURES
    Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
    There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II Other Information

ITEM 1. LEGAL PROCEEDINGS
    The Company, the Bank and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

ITEM 1A. RISK FACTORS
In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factors relating to the Company’s proposed merger (“Merger”) with Citizens Financial Group, Inc. (“Citizens”) represent a material update and addition to the risk factors previously disclosed in our Annual Report on Form 10- K for the fiscal year ended December 31, 2020, as filed with the Securities and Exchange Commission, as updated by our Quarterly Reports on Form 10-Q. To the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us. The following risk factors are consistent with the risk factors previously disclosed in our Quarterly Report on Form 10-Q for the period ended June 30, 2021, as filed with the Securities and Exchange Commission.
There is no assurance when or even if the Merger will be completed.
Completion of the Merger is subject to satisfaction or waiver of a number of conditions. There can be no assurance that the Company and Citizens will be able to satisfy the closing conditions or that closing conditions beyond their control will be satisfied or waived. Additionally, the Company and/or Citizens can terminate the merger agreement under specified circumstances. Moreover, the Company could face stockholder litigation relating to the Merger, which could prevent or delay the consummation of the Merger.
Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.
Before the Merger may be completed, Citizens and the Company must obtain approvals (or waivers) from the Federal Reserve and the Office of the Comptroller of the Currency. Other approvals, waivers or consents from regulators may also be required. In determining whether to grant these approvals the regulators consider a variety of factors, including the regulatory standing of each party. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain approval or delay their receipt. These regulators may impose conditions on the completion of the Merger or require changes to the terms of the Merger. Such conditions or changes could have the effect of delaying or preventing completion of the Merger or imposing additional costs on or limiting the revenues of the combined company following the Merger, any of which might have an adverse effect on the combined company following the Merger.
Failure to complete the Merger could negatively impact the Company’s stock price, business and financial results.
If the Merger is not completed, the ongoing business of the Company may be adversely affected and the Company may be subject to a number of risks, including the following:
•the Company will be required to pay certain costs relating to the Merger, whether or not the Merger is completed, such as legal, accounting, financial advisor, proxy solicitation and printing fees;
•under the Merger agreement, the Company is subject to certain restrictions on the conduct of its business before completing the Merger, which may adversely affect its ability to execute certain of its business strategies if the Merger is terminated; and
•matters relating to the Merger may require substantial commitments of time and resources by the Company’s management, which could otherwise have been devoted to other opportunities that may have been beneficial to the Company as an independent company.
In addition, if the Merger is not completed, the Company may experience negative reactions from the financial markets and from its customers and employees. The Company could be subject to litigation related to any failure to complete the Merger, or to proceedings commenced by Citizens seeking damages or to compel the Company to perform its obligations under the merger agreement. These factors and similar risks could have an adverse effect on the Company’s results of operation, business and stock price.
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Combining the Company and Citizens may be more difficult, costly or time consuming than expected and the Company and Citizens may fail to realize the anticipated benefits of the Merger.
The success of the Merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of the Company and Citizens. To realize the anticipated benefits and cost savings from the Merger, the Company and Citizens must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized. If the Company and Citizens are not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings and anticipated benefits of the Merger could be less than anticipated, and integration may result in additional unforeseen expenses.
The Company and Citizens have operated and, until the completion of the Merger, must continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the Merger. Integration efforts between the two companies may also divert management attention and resources. These integration matters could have an adverse effect on the Company during this transition period and for an undetermined period after completion of the Merger on the combined company.
The Company’s shareholders will have significantly reduced ownership and voting interests after the Merger and will exercise less influence over management of the combined organization.
The Company’s shareholders currently have the right to vote in the election of the Company’s board of directors and on various other matters affecting the Company. Upon the completion of the Merger, the Company’s shareholders will become shareholders of Citizens with ownership of approximately 14% of the combined company. Therefore, the Company’s shareholders will have significantly reduced ownership and voting interests after the Merger.
The Company will be subject to business uncertainties and contractual restrictions while the Merger is pending.
Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others who deal with the Company to seek to change existing business relationships with the Company. Employee retention and recruitment may be particularly challenging prior to the effective time of the Merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company.
The pursuit of the Merger and the preparation for the integration may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect our financial results. In addition, the Merger Agreement requires that the Company operate in the ordinary course of business and restricts the Company from taking certain actions prior to the effective time of the Merger or termination of the Merger Agreement without Citizen’s consent. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Merger.
The combined company may be unable to retain the Company’s or Citizens’ personnel successfully after the Merger is completed.
The success of the Merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees currently employed by the Company and Citizens. It is possible that these employees may decide not to remain with the Company or Citizens, as applicable, while the Merger is pending or with the combined company after the Merger is consummated. If the Company and Citizens are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, the Company could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In addition, if key employees terminate their employment, the combined company’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating the Company and Citizens to hiring suitable replacements, all of which may cause the combined company’s business to suffer. In addition, the Company and Citizens may not be able to locate or retain suitable replacements for any key employees who leave either company.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) The following table reports information regarding repurchases of our common stock during the quarter ended September 30, 2021 and the stock repurchase plans approved by our Board of Directors.
Period
Total Number of Shares Purchased (1)(2)
Average Price paid Per Share As part of Publicly Announced Plans or Programs
Yet to be Purchased Under the Plans or Programs (1)
July 1, 2021 through July 31, 2021 588  $ 14.33  —  12,000,202 
August 1, 2021 through August 31, 2021 2,344  13.82  —  12,000,202 
September 1, 2021 through September 30, 2021 3,820  14.43  —  12,000,202 
Total 6,752  $ 14.21  —  12,000,202 
(1) On October 25, 2018, the Company announced its fourth share repurchase program, which authorized the purchase of 10% of its publicly-held outstanding shares of common stock, or approximately 28,886,780 shares. The plan commenced upon the completion of the third repurchase plan on December 10, 2018. This program has no expiration date and has 12,000,202 shares yet to be repurchased as of September 30, 2021.
(2) 6,752 shares were withheld to cover income taxes related to restricted stock vesting under our 2015 Equity Incentive Plan. Shares withheld to pay income taxes are repurchased pursuant to the terms of the 2015 Equity Incentive Plan and not under our share repurchase program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5. OTHER INFORMATION
Not applicable.

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ITEM 6. EXHIBITS
The following exhibits are either filed as part of this report or are incorporated herein by reference:
 
2.1
2.2
3.1
  
3.2
  
  
  
  
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(1) Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Investors Bancorp, Inc. (Commission File no. 001-36441), originally filed with the Securities and Exchange Commission on July 30, 2019.
(2) Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Investors Bancorp, Inc. (Commission File no. 001-36441), originally filed with the Securities and Exchange Commission on July 30, 2021.
(3) Incorporated by reference to the Registration Statement on Form S-1 of Investors Bancorp, Inc. (Commission File no. 333-192966), originally filed with the Securities and Exchange Commission on December 20, 2013.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
        INVESTORS BANCORP, INC.
Date: November 5, 2021   By:   /s/  Kevin Cummings
    Kevin Cummings
Chief Executive Officer
(Principal Executive Officer)
By:   /s/  Sean Burke
  Sean Burke
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


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