INVESTORS BANCORP, INC.

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INVESTORS BANCORP : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/06/2021 | 02:05pm EDT

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
the additional risk factors included in Part II, Item 1A of this Quarterly
Report 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 June 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 continuing into 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 grew in the third and fourth quarters of 2020 and first quarter
of 2021 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 June 30, 2021, loans
with an aggregate outstanding balance of approximately $599 million 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 have 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 or second quarter of 2022, subject
to approval by the shareholders of Investors, receipt of required regulatory
approvals and other customary closing conditions.
Second Quarter of 2021 Results Summary
•We reported net income of $79.8 million, or $0.34 per diluted share, for the
three months ended June 30, 2021 as compared to $72.3 million, or $0.31 per
diluted share, for the three months ended March 31, 2021 and $42.6 million, or
$0.18 per diluted share, for the three months ended June 30, 2020.
•Return on average assets and return on average equity were 1.22% and 11.42%,
respectively, for the three months ended June 30, 2021.
•Net interest margin increased 21 basis points to 3.11% for the three months
ended June 30, 2021 compared to the three months ended March 31, 2021 driven by
higher prepayment penalties and the lower cost of interest-bearing liabilities.
Net interest margin excluding prepayment penalties increased 8 basis points.
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•Provision for credit losses was a negative $9.7 million for the three months
ended June 30, 2021 compared with a negative $3.0 million for the three months
ended March 31, 2021. The Company recorded net recoveries of $806,000 during the
quarter ended June 30, 2021 compared to net recoveries of $1.7 million during
the quarter ended March 31, 2021. The allowance for loan losses as a percent of
total loans was 1.26% at June 30, 2021 compared to 1.36% at March 31, 2021.
•Total non-interest income was $13.1 million for the three months ended June 30,
2021, a decrease of $6.9 million compared to the three months ended March 31,
2021 and an increase of $2.9 million compared to the three months ended June 30,
2020.
•Total non-interest expenses were $108.4 million for the three months ended June
30, 2021, an increase of $4.1 million compared to the three months ended March
31, 2021. Included in non-interest expenses for the second quarter of 2021 were
$1.7 million of acquisition-related costs.
•Non-interest-bearing deposits increased $332.5 million, or 8.7%, during the
three months ended June 30, 2021. The cost of interest-bearing deposits
decreased 11 basis points to 0.43% for the three months ended June 30, 2021
compared to the three months ended March 31, 2021.
•Total loans increased $494.8 million, or 2.4%, to $21.37 billion at June 30,
2021 from $20.87 billion at March 31, 2021. Multi-family loans increased $335.6
million, or 4.6%, and C&I loans increased $124.4 million, or 3.4%, during the
three months ended June 30, 2021.
•At June 30, 2021, COVID-19 related loan deferrals totaled $599.0 million, or
2.8% of loans, compared to $693.0 million, or 3.3% of loans, as of March 31,
2021. Approximately 87% of borrowers with a loan payment deferral are making
interest payments.
•Non-accrual loans decreased to $77.6 million, or 0.36% of total loans, at June
30, 2021 as compared to $83.3 million, or 0.40% of total loans, at March 31,
2021 and $126.8 million, or 0.59% of total loans, at June 30, 2020.
•Tier 1 Leverage, Common Equity Tier 1 Risk-Based, Tier 1 Risk-Based and Total
Risk-Based Capital Ratios were 10.60%, 13.17%, 13.17% and 14.48%, respectively,
at June 30, 2021.
•During July 2021, we received approval from the FDIC for the previously
announced purchase of Berkshire Bank's New Jersey and eastern Pennsylvania
branches. We expect to complete the transaction on August 27, 2021.
Comparison of Operating Results for the Three and Six Months Ended June 30, 2021
and 2020

Net Income. Net income for the three months ended June 30, 2021 was $79.8 million compared to net income of $42.6 million for the three months ended June 30, 2020. Net income for the six months ended June 30, 2021 was $152.1 million compared to net income of $82.1 million for the six months ended June 30, 2020.

  Net Interest Income. Net interest income increased by $12.7 million, or 7.0%,
to $194.7 million for the three months ended June 30, 2021 from $182.0 million
for the three months ended June 30, 2020. Net interest margin increased 38 basis
points to 3.11% for the three months ended June 30, 2021 from 2.73% for the
three months ended June 30, 2020.
Net interest income increased by $20.2 million, or 5.7%, to $375.4 million for
the six months ended June 30, 2021 from $355.3 million for the six months ended
June 30, 2020. Net interest margin increased 29 basis points to 3.01% for the
six months ended June 30, 2021 from 2.72% for the six months ended June 30,
2020.
  Total interest and dividend income decreased by $14.4 million, or 5.8%, to
$231.9 million for the three months ended June 30, 2021. Interest income on
loans decreased by $6.2 million, or 2.9%, to $211.5 million for the three months
ended June 30, 2021, primarily attributed to the average balance of net loans
which decreased $589.4 million to $20.78 billion, driven by paydowns and
payoffs, partially offset by loan originations. In addition, the weighted
average yield on net loans decreased 1 basis point to 4.07%. Prepayment
penalties, which are included in interest income, totaled $10.8 million for the
three months ended June 30, 2021 compared to $8.1 million for the three months
ended June 30, 2020. Interest income on all other interest-earning assets,
excluding loans, decreased by $8.2 million, or 28.6%, to $20.3 million for the
three months ended June 30, 2021 which is attributed to the average balance of
all other interest-earning assets, excluding loans, which decreased $1.09
billion to $4.23 billion for the three months ended June 30, 2021. In addition,
the weighted average yield on interest-earning assets, excluding loans,
decreased 22 basis points to 1.92% for the three months ended June 30, 2021.
Total interest and dividend income decreased by $49.9 million, or 9.9%, to
$452.4 million for the six months ended June 30, 2021. Interest income on loans
decreased by $32.0 million, or 7.2%, to $410.3 million for the six months ended
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June 30, 2021, primarily as a result of a 17 basis point decrease in the
weighted average yield on net loans to 3.98%. In addition, the average balance
of net loans decreased $661.7 million to $20.64 billion, mainly from paydowns
and payoffs, partially offset by loan originations and $453.3 million of loans
acquired from Gold Coast in April 2020. Prepayment penalties, which are included
in interest income, totaled $13.1 million for the six months ended June 30, 2021
compared to $15.8 million for the six months ended June 30, 2020. Interest
income on all other interest-earning assets, excluding loans, decreased by $17.9
million, or 29.9%, to $42.1 million for the six months ended June 30, 2021 which
is attributed to the weighted average yield on interest-earning assets,
excluding loans, which decreased 54 basis points to 1.94%. In addition, the
average balance of all other interest-earning assets, excluding loans, decreased
$499.5 million to $4.34 billion for the six months ended June 30, 2021.
  Total interest expense decreased by $27.1 million, or 42.2%, to $37.1 million
for the three months ended June 30, 2021. Interest expense on interest-bearing
deposits decreased $23.0 million, or 59.0%, to $16.0 million for the three
months ended June 30, 2021. The weighted average cost of interest-bearing
deposits decreased 50 basis points to 0.43% for the three months ended June 30,
2021. In addition, the average balance of total interest-bearing deposits
decreased $1.98 billion, or 11.9%, to $14.71 billion for the three months ended
June 30, 2021. Interest expense on borrowed funds decreased by $4.1 million, or
16.2%, to $21.1 million for the three months ended June 30, 2021. The average
balance of borrowed funds decreased $1.01 billion, or 20.1%, to $4.02 billion
for the three months ended June 30, 2021. Partially offsetting this decrease,
the weighted average cost of borrowings increased 9 basis points to 2.10% for
the three months ended June 30, 2021.
Total interest expense decreased by $70.1 million, or 47.7%, to $77.0 million
for the six months ended June 30, 2021. Interest expense on interest-bearing
deposits decreased $55.0 million, or 59.7%, to $37.2 million for the six months
ended June 30, 2021. The weighted average cost of interest-bearing deposits
decreased 66 basis points to 0.49% for the six months ended June 30, 2021. In
addition, the average balance of total interest-bearing deposits decreased
$850.8 million, or 5.3%, to $15.17 billion for the six months ended June 30,
2021. Interest expense on borrowed funds decreased by $15.1 million, or 27.5%,
to $39.8 million for the six months ended June 30, 2021. The average balance of
borrowed funds decreased $1.63 billion, or 30.4%, to $3.73 billion for the six
months ended June 30, 2021. Partially offsetting this decrease, the weighted
average cost of borrowings increased 8 basis points to 2.13% for the six months
ended June 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 June 30, 2021, our allowance for credit losses and related
provision continued to be affected by the impact of the COVID-19 pandemic on the
current and forecasted economic conditions. During the three months ended
June 30, 2021, there was continued improvement in the U.S. and global
macroeconomic consensus outlooks, which resulted in an improvement in the
economic outlook used to determine the provision for credit losses when compared
to June 30, 2020. For the three months ended June 30, 2021, our provision for
credit losses was negative $9.7 million, compared to $33.3 million for the three
months ended June 30, 2020. For the three months ended June 30, 2021, net loan
recoveries were $806,000 compared to net loan charge-offs of $4.1 million for
the three months ended June 30, 2020. For the six months ended June 30, 2021,
our provision for credit losses was negative $12.7 million, compared to $64.5
million for the six months ended June 30, 2020. For the six months ended
June 30, 2021, net loan recoveries were $2.5 million compared to net loan
charge-offs of $12.1 million for the six months ended June 30, 2020.
  Non-Interest Income. Total non-interest income increased $2.9 million to $13.1
million for the three months ended June 30, 2021. The increase was due primarily
to an increase of $3.5 million in fees and service charges primarily related to
our mortgage servicing rights valuation and an increase of $2.1 million in
income from our wealth and investment products, partially offset by a decrease
of $2.3 million in gain on loans due to a lower volume of mortgage banking loan
sales to third parties.
Total non-interest income increased $8.3 million to $33.1 million for the six
months ended June 30, 2021. The increase in non-interest income was due
primarily to an increase of $3.3 million in fees and service charges related to
our mortgage servicing rights valuation, an increase of $2.8 million in income
from our wealth and investment products, an increase of $1.1 million in PPP
referral income and an increase of $819,000 in customer swap fee income.
  Non-Interest Expenses. Total non-interest expenses were $108.4 million for the
three months ended June 30, 2021, an increase of $8.4 million, or 8.4%, compared
to the three months ended June 30, 2020. The increase was driven by an increase
of $5.6 million in compensation and fringe benefit expense primarily related to
medical expenses and incentive compensation. Included in non-interest expenses
for the second quarter of 2021 were $1.7 million of acquisition-related costs.
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Total non-interest expenses were $212.8 million for the six months ended
June 30, 2021, an increase of $10.2 million, or 5.0%, compared to the six months
ended June 30, 2020. This increase was driven by an increase of $7.6 million in
compensation and fringe benefit expense primarily related to medical expenses
and incentive compensation.
  Income Taxes. Income tax expense for the second quarter of 2021 was $29.2
million compared to $16.2 million for the second quarter 2020. The effective tax
rate was 26.8% for the three months ended June 30, 2021 and 27.6% for the three
months ended June 30, 2020. Income tax expense for the six months ended June 30,
2021 was $56.3 million compared to $30.9 million for the six months ended
June 30, 2020. The effective tax rate was 27.0% for the six months ended
June 30, 2021 and 27.3% for the six months ended June 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 June 30,
                                                                             2021                                                          2020
                                                        Average             Interest            Average               Average             Interest            Average
                                                      Outstanding           Earned/              Yield/             Outstanding           Earned/              Yield/
                                                        Balance               Paid                Rate                Balance               Paid                Rate
                                                                                                   (Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits                           $    264,693          $      38                 0.06  %       $  1,292,904          $     294                 0.09  %
Equity securities                                         13,225                 63                 1.91  %              6,166                 32                 2.08  %
Debt securities available-for-sale                     2,585,131             10,587                 1.64  %          2,631,028             15,627                 2.38  %
Debt securities held-to-maturity, net                  1,171,317              7,657                 2.61  %          1,145,553              8,531                 2.98  %
Net loans                                             20,777,927            211,523                 4.07  %         21,367,323            217,733                 4.08  %
Stock in FHLB                                            194,845              1,983                 4.07  %            247,971              3,997                 6.45  %
Total interest-earning assets                         25,007,138            231,851                 3.71  %         26,690,945            246,214                 3.69  %
Non-interest-earning assets                            1,121,153                                                     1,125,776
Total assets                                        $ 26,128,291                                                  $ 27,816,721
Interest-bearing liabilities:
Savings deposits                                    $  2,008,855          $   1,404                 0.28  %       $  2,051,599          $   2,907                 0.57  %
Interest-bearing checking                              6,044,766              6,536                 0.43  %          5,891,587              8,873                 0.60  %
Money market accounts                                  4,365,351              4,501                 0.41  %          4,345,850              9,880                 0.91  %
Certificates of deposit                                2,291,616              3,552                 0.62  %          4,406,310             17,331                 1.57  %
Total interest-bearing deposits                       14,710,588             15,993                 0.43  %         16,695,346             38,991                 0.93  %
Borrowed funds                                         4,019,587             21,148                 2.10  %          5,030,118             25,236                 2.01  %
Total interest-bearing liabilities                    18,730,175             37,141                 0.79  %         21,725,464             64,227                 1.18  %
Non-interest-bearing liabilities                       4,603,486                                                     3,458,409
Total liabilities                                     23,333,661                                                    25,183,873
Stockholders' equity                                   2,794,630                                                     2,632,848
Total liabilities and stockholders' equity          $ 26,128,291                                                  $ 27,816,721
Net interest income                                                       $ 194,710                                                     $ 181,987
Net interest rate spread(1)                                                                         2.92  %                                                       2.51  %
Net interest-earning assets(2)                      $  6,276,963                                                  $  4,965,481
Net interest margin(3)                                                                              3.11  %                                                       2.73  %
Ratio of interest-earning assets to total
interest-bearing liabilities                                   1.34                                                          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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                                                                                                  Six Months Ended June 30,
                                                                             2021                                                          2020
                                                        Average             Interest            Average               Average             Interest            Average
                                                      Outstanding           Earned/              Yield/             Outstanding           Earned/              Yield/
                                                        Balance               Paid                Rate                Balance               Paid                Rate
                                                                                                   (Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits                           $    319,342          $      99                 0.06  %       $    830,466          $   1,134                 0.27  %
Equity securities                                         24,324                329                 2.71  %              6,128                 65                 2.12  %
Debt securities available-for-sale                     2,617,290             21,855                 1.67  %          2,606,451             32,898                 2.52  %
Debt securities held-to-maturity                       1,196,793             15,656                 2.62  %          1,136,836             17,525                 3.08  %
Net loans                                             20,635,564            410,273                 3.98  %         21,297,309            442,262                 4.15  %
Stock in FHLB                                            182,170              4,183                 4.59  %            259,507              8,429                 6.50  %
Total interest-earning assets                         24,975,483            452,395                 3.62  %         26,136,697            502,313                 3.84  %
Non-interest-earning assets                            1,130,432                                                     1,041,099
Total assets                                        $ 26,105,915                                                  $ 27,177,796
Interest-bearing liabilities:
Savings deposits                                    $  2,011,367          $   2,884                 0.29  %       $  2,042,680          $   6,815                 0.67  %
Interest-bearing checking                              6,160,437             13,564                 0.44  %          5,728,476             25,533                 0.89  %
Money market accounts                                  4,529,517             11,661                 0.51  %          4,082,474             24,104                 1.18  %
Certificates of deposit                                2,463,766              9,076                 0.74  %          4,162,221             35,718                 1.72  %
Total interest-bearing deposits                       15,165,087             37,185                 0.49  %         16,015,851             92,170                 1.15  %
Borrowed funds                                         3,729,050             39,765                 2.13  %          5,355,731             54,873                 2.05  %
Total interest-bearing liabilities                    18,894,137             76,950                 0.81  %         21,371,582            147,043                 1.38  %
Non-interest-bearing liabilities                       4,445,327                                                     3,173,754
Total liabilities                                     23,339,464                                                    24,545,336
Stockholders' equity                                   2,766,451                                                     2,632,460
Total liabilities and stockholders' equity          $ 26,105,915                                                  $ 27,177,796
Net interest income                                                       $ 375,445                                                     $ 355,270
Net interest rate spread(1)                                                                         2.81  %                                                       2.46  %
Net interest-earning assets(2)                      $  6,081,346                                                  $  4,765,115
Net interest margin(3)                                                                              3.01  %                                                       2.72  %
Ratio of interest-earning assets to total
interest-bearing liabilities                                   1.32                                                          1.22



(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 June 30, 2021 and December 31, 2020
  Total Assets. Total assets increased by $779.0 million, or 3.0%, to $26.80
billion at June 30, 2021 from December 31, 2020. Cash and cash equivalents
increased by $600.0 million to $770.4 million at June 30, 2021 from December 31,
2020. Net loans increased by $502.1 million, or 2.4%, to $21.08 billion at
June 30, 2021 from December 31, 2020. Securities decreased by $309.4 million, or
7.7%, to $3.73 billion at June 30, 2021 from December 31, 2020.
  Net Loans. Net loans increased by $502.1 million to $21.08 billion at June 30,
2021 from $20.58 billion at December 31, 2020. The detail of the loan portfolio
is below:
                                                June 30, 2021      December 31, 2020
                                                       (Dollars in thousands)
    Commercial loans:
    Multi-family loans                         $   7,566,131         7,122,840
    Commercial real estate loans                   4,968,393         

4,947,212

    Commercial and industrial loans                3,766,551         3,575,641
    Construction loans                               464,887           404,367
    Total commercial loans                        16,765,962        16,050,060
    Residential mortgage loans                     3,887,917         4,119,894
    Consumer and other                               712,147           702,801
    Total loans                                   21,366,026        20,872,755
    Deferred fees, premiums and other, net           (13,391)           

(9,318)

    Allowance for loan losses                       (270,114)         (282,986)
    Net loans                                  $  21,082,521        20,580,451


  During the six months ended June 30, 2021, we originated or funded $1.25
billion in multi-family loans, $658.8 million in residential loans, $572.4
million in commercial and industrial loans, $412.5 million in commercial real
estate loans, $47.2 million in construction loans and $33.4 million in consumer
and other loans. Our originations reflect our continued focus on diversifying
our loan portfolio. 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 June 30, 2021, these loans totaled $94.1 million. As of June 30, 2021,
interest-only residential and consumer loans totaled $21.9 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 June 30, 2021, these loans totaled $1.91 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 over $3.7 billion have
ended their COVID-19 related deferrals and as of June 30, 2021, loans with an
aggregate outstanding balance of approximately $599.0 million, or 2.8% 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 June 30,
2021.
                                                  Principal and             Principal                                Deferred Loan % of
Segment and industry sector                     Interest Deferral            Deferral               Total             Total Loans (1)
                                                                    (Dollars in millions)
Commercial and industrial
Accommodation and food service                 $              2                  173                   175                       0.8  %
Arts, entertainment and recreation                            -                   32                    32                       0.2  %
Real estate and rental                                        -                    1                     1                         -  %

Total deferred commercial and industrial                      2                  206                   208                       1.0  %
Commercial real estate
Office                                                        -                   40                    40                       0.2  %
Accommodation and food service                                2                   70                    72                       0.3  %
Other                                                         -                    3                     3                         -  %
Total deferred commercial real estate                         2                  113                   115                       0.5  %
Construction                                                  -                    -                     -                         -  %
Multi-family                                                  -                  201                   201                       0.9  %
Total deferred commercial loans                               4                  520                   524                       2.4  %
Residential and consumer                                        75                 -                    75                       0.4  %
Total deferred loans (2)                       $             79                  520                   599                       2.8  %


(1) Percentage calculated using total loan balance as of June 30, 2021.
(2) Of the total deferred loans, approximately 23% of the deferments expire in
the third quarter of 2021, 35% 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 June 30, 2021 by
industry sector:
                                                                    Loan Balance
Segment/Industry                                                   (in millions)           % of Total Segment
Commercial and industrial:
Accommodation and food service                                   $           290                           8  %
Administrative and support and waste management                              149                           4  %
Agriculture, forestry, fishing and hunting                                    23                           1  %
Arts, entertainment, and recreation                                           70                           2  %
Construction                                                                 298                           8  %
Educational service                                                          126                           3  %
Finance and insurance                                                        251                           7  %
Health care and social assistance                                            636                          17  %
Information                                                                  132                           4  %
Management of companies and enterprises                                        5                           0  %
Manufacturing                                                                196                           5  %
Mining, quarrying, and oil and gas extraction                                 49                           1  %
Professional, scientific, and technical services                             115                           3  %
Public administration                                                          1                           0  %
Real estate and rental                                                       605                          16  %
Retail trade - clothing, home, gasoline, health                              149                           4  %
Retail trade - sporting, hobby, vending, e-commerce                            9                           0  %
Transportation - air, rail, truck, water, pipeline                           215                           6  %
Utilities                                                                      2                           0  %
Wholesale trade                                                              218                           6  %
Other                                                                        228                           6  %
Total commercial and industrial                                  $         3,767                         100  %

Commercial real estate:
Accommodation and food service                                   $           105                           2  %
Arts, entertainment, and recreation                                           14                           0  %
Health care and social assistance                                            144                           3  %
Mixed use property                                                           503                          10  %
Office                                                                     1,216                          24  %
Retail store                                                                 900                          18  %
Shopping center                                                              987                          20  %
Warehouse                                                                    690                          14  %
Other                                                                        409                           8  %
Total commercial real estate                                     $         4,968                         100  %

Multi-family                                                               7,566                         100  %
Construction                                                                 465                         100  %
Residential and consumer                                                   4,600                         100  %
Total loans                                                      $        21,366                         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:
                                   June 30, 2021                            March 31, 2021                         December 31, 2020                        September 30, 2020                          June 30, 2020
                            # of Loans            Amount             # of Loans            Amount             # of Loans            Amount             # of Loans              Amount            # of Loans            Amount
                                                                                                                 (dollars in millions)

Multi-family                     11             $   16.6                        13       $   19.2                        15       $  35.6              
            13       $  51.1                        14       $  48.3
Commercial real estate           24                 13.0                        25           14.0                        29          15.9                           28          17.8                        22          12.3
Commercial and
industrial                       13                  5.2                        15            4.4                        21           9.2                           19          10.9                        29          15.6
Construction                      -                    -                   -                    -                   -                   -                         -                -                   -                   -
Total commercial loans           48                 34.8                        53           37.6                        65          60.7              
            60          79.8                        65          76.2
Residential and consumer        232                 42.8                       239           45.7                       246          46.4                          250          52.2                       255          50.6
Total non-accrual loans         280             $   77.6                       292       $   83.3                       311       $ 107.1                          310       $ 132.0                       320       $ 126.8
Accruing troubled debt
restructured loans               49             $    9.3                        45       $    9.1                        47       $   9.2                           51       $   9.8                        52       $  12.2
Non-accrual loans to
total loans                                         0.36  %                                  0.40  %                                 0.51  %                                    0.63  %                                 0.59  %
Allowance for loan
losses as a percent of
non-accrual loans                                 348.05  %                                340.60  %                               264.17  %                                  217.75  %                               215.48  %
Allowance for loan
losses as a percent of
total loans                                         1.26  %                                  1.36  %                                 1.36  %                                    1.37  %                                 1.28  %


  Total non-accrual loans were $77.6 million at June 30, 2021 compared to $83.3
million at March 31, 2021 and $126.8 million at June 30, 2020. At June 30, 2021,
there were $2.2 million of multi-family loans, $2.1 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 7.66% at June 30, 2021 from 7.99% at December 31, 2020. We continue
to proactively and diligently work to resolve our troubled loans.
During the six months ended June 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. Also
during the six months ended June 30, 2021, we sold a $762,000 non-performing
commercial real estate loan.
  At June 30, 2021, there were $28.3 million of loans deemed as TDRs, of which
$23.4 million were residential and consumer loans, $4.5 million were commercial
real estate loans and $430,000 were commercial and industrial loans. TDRs of
$9.3 million were classified as accruing and $19.0 million were classified as
non-accrual at June 30, 2021. Included were $1.4 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 June 30, 2021, we have deemed potential problem loans
totaling $81.7 million, which is comprised of 13 multi-family loans totaling
$64.1 million, 5 commercial and industrial loans totaling $15.5 million and 4
commercial real estate loans totaling $2.1 million. In addition, we continue to
support our customers by deferring payments for borrowers experiencing hardship
because of the COVID-19 pandemic. As of June 30, 2021, $599 million, or 2.8%, 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 0.36% at June 30, 2021 compared to 0.51% at December 31, 2020. The allowance for loan losses as a percentage of non-accrual loans was 348.05% at June 30, 2021 compared to 264.17% at

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Table of Contents December 31, 2020. At June 30, 2021, our allowance for loan losses as a percentage of total loans was 1.26% compared to 1.36% at December 31, 2020.

  Allowance for Credit Losses on Loans. The allowance for loan losses decreased
by $12.9 million to $270.1 million at June 30, 2021 from $283.0 million at
December 31, 2020. The decrease reflects a negative provision for loan losses of
$15.4 million, partially offset by an increase of $2.5 million resulting from
net loan recoveries. Our allowance for loan losses at June 30, 2021 was affected
by the improving current and forecasted economic conditions. 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.

                                                              June 30, 2021                                            December 31, 2020
                                                                        Percent of Loans                                            Percent of Loans
                                             Allowance for              in Each Category                Allowance for               in Each Category
                                              Loan Losses                to Total Loans                  Loan Losses                 to Total Loans
                                                                                       (Dollars in thousands)
End of period allocated to:
Multi-family loans                         $       61,711                              35.4  %       $         56,731                              34.1  %
Commercial real estate loans                       93,453                              23.3  %                115,918                              23.7  %
Commercial and industrial loans                    82,841                              17.6  %                 79,327                              17.1  %
Construction loans                                 12,820                               2.2  %                  7,267                               2.0  %
Residential mortgage loans                         16,189                              18.2  %                 19,941                              19.7  %
Consumer and other loans                            3,100                               3.3  %                  3,802                               3.4  %
Total allowance                            $      270,114                             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 June 30, 2021, our securities portfolio represented 13.9% of our total
assets. Securities, in the aggregate, decreased by $309.4 million, or 7.7%, to
$3.73 billion at June 30, 2021 from December 31, 2020. This decrease was
primarily a result of paydowns and sales, partially offset by purchases. At
June 30, 2021, our allowance for credit losses on held-to-maturity debt
securities was $2.1 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 $40.0 million, or 25.0%, to
$199.8 million at June 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 $226.3
million at June 30, 2021 and $223.7 million at December 31, 2020. Other assets
were $145.2 million at June 30, 2021 and $163.2 million at December 31, 2020.
The decrease in other assets was primarily driven by hedge-related assets.
Deposits.  At June 30, 2021, deposits totaled $19.44 billion, representing 81.0%
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.
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
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also rely on personalized customer service, long-standing relationships with
customers and an active marketing program to attract and retain deposits.
Deposits decreased by $86.5 million, or 0.4%, to $19.44 billion at June 30, 2021
from $19.53 billion at December 31, 2020 primarily driven by decreases in money
market and time deposits, offset by an increase in checking account deposits.
Checking accounts increased $817.7 million to $10.52 billion at June 30, 2021
from $9.71 billion at December 31, 2020. Core deposits represented approximately
88% of our total deposit portfolio at June 30, 2021 compared to 86% at
December 31, 2020.
The following table sets forth the distribution of total deposit accounts, by
account type, at the dates indicated:
                                                     June 30, 2021                                     December 31, 2020
                                                               Percent of Total                                      Percent of Total
                                          Balance                  Deposits                   Balance                    Deposits
                                                                           (Dollars in thousands)
Non-interest bearing:
Checking accounts                     $   4,169,816                       21.4  %       $       3,663,073                       18.8  %
Interest-bearing:
Checking accounts                         6,354,368                       32.7  %               6,043,393                       30.9  %
Money market deposits                     4,551,806                       23.4  %               5,037,327                       25.8  %
Savings                                   2,076,711                       10.7  %               2,063,447                       10.6  %

Certificates of deposit                   2,286,265                       11.8  %               2,718,179                       13.9  %
Total Deposits                        $  19,438,966                      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 $738.1 million, or 22.4%, to $4.03 billion at June 30, 2021 from $3.30
billion at December 31, 2020 to support balance sheet growth.
Stockholders' Equity. Stockholders' equity increased by $104.0 million to $2.81
billion at June 30, 2021 from $2.71 billion at December 31, 2020. The increase
was primarily attributed to net income of $152.1 million, other comprehensive
income of $17.7 million and share-based plan activity of $15.5 million for the
six months ended June 30, 2021. These increases were partially offset by cash
dividends paid of $0.28 per share totaling $69.2 million and the repurchase of
1.0 million shares of common stock for $12.0 million during the six months ended
June 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 $22.69
billion, which includes outstanding borrowings at June 30, 2021. Excluding
outstanding borrowings, available borrowing capacity and other available
liquidity sources totaled approximately $12.57 billion at June 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 June 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 $4.03 billion at June 30,
2021, an increase of $738.1 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 June 30, 2021,
commitments to originate loans totaled $259.1 million; unused home equity lines
of credit and undisbursed business and construction loans totaled approximately
$2.29 billion; and outstanding standby letters of credit totaled $47.9 million.
There were no outstanding commitments to sell loans. The Company expects to have
sufficient 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 June 30, 2021. Based upon historical experience, management estimates
that a significant portion of such deposits will remain with the Company.
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  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 May 24,
2021 S&P revised our rating outlook to stable from negative to reflect
decreasing economic risks and on July 30, 2021 our rating was placed on positive
after the acquisition agreement with Citizens Financial Group was announced. 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 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
Company does not have a material concentration of PPP loans for which
risk-weighted assets will be impacted.
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As of June 30, 2021, the Bank and the Company were considered "well capitalized"
under applicable regulations and exceeded all regulatory capital requirements as
follows:
                                                                                        As of June 30, 2021 (1)
                                                   Actual                        Minimum Capital Requirement with            To be Well Capitalized 

under Prompt

                                                                                       Conservation Buffer                    Corrective Action Provisions (2)
                                         Amount               Ratio                 Amount                 Ratio                 Amount                  Ratio
                                                                                        (Dollars in thousands)

Bank:

Tier 1 Leverage Ratio                $ 2,440,375                9.39  %       $     1,039,813                4.00  %       $      1,299,766                5.00  %
Common Equity Tier 1 Risk-Based
Capital                                2,440,375               11.67  %             1,463,983                7.00  %              1,359,412                6.50  %
Tier 1 Risk Based Capital              2,440,375               11.67  %             1,777,693                8.50  %              1,673,123                8.00  %
Total Risk-Based Capital               2,701,929               12.92  %             2,195,974               10.50  %              2,091,404               10.00  %

Investors Bancorp, Inc.:
Tier 1 Leverage Ratio                $ 2,759,117               10.60  %       $     1,041,652                4.00  %               n/a                    n/a
Common Equity Tier 1 Risk-Based
Capital                                2,759,117               13.17  %             1,466,857                7.00  %               n/a                    n/a
Tier 1 Risk Based Capital              2,759,117               13.17  %             1,781,184                8.50  %               n/a                    n/a
Total Risk-Based Capital               3,034,679               14.48  %             2,200,286               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 June 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)                                   $ 4,033,864              2,549,830                   648,813                   547,899                     287,322
Commitments to originate and
purchase loans                            $   259,087                259,087                         -                         -                           -
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 June 30, 2021. Additionally, at June 30, 2021, the
Company's commitments to fund unused lines of credit totaled $2.29 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 $213.1 million of operating lease liabilities of which
$3.6 million was acquired from Gold Coast during the year ended December 31,
2020. We have $1.6 million of finance lease liabilities. These contractual
obligations as of June 30, 2021 have not changed significantly from December 31,
2020.
  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.
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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 six months ended June 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 June 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.

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