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xbrli:shares isbc:interest_rate_swap
Table of Contents

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: March 31, 2020
☐
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 May 1, 2020, the registrant had 361,869,872 shares of common stock, par value $0.01 per share, issued and 250,166,371 outstanding. 

Table of Contents

INVESTORS BANCORP, INC.
FORM 10-Q

Index

Part I. Financial Information
 
 
Page
Item 1.
Financial Statements
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II. Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 


Table of Contents


Part I Financial Information
ITEM 1.
FINANCIAL STATEMENTS
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2020 (Unaudited) and December 31, 2019  
 
March 31,
2020
 
December 31,
2019
 
(In thousands)
ASSETS
 
 
 
Cash and cash equivalents
$
672,020

 
174,915

Equity securities
6,140

 
6,039

Debt securities available-for-sale, at estimated fair value
2,575,446

 
2,695,390

Debt securities held-to-maturity, net (estimated fair value of $1,169,054 and $1,190,104 at March 31, 2020 and December 31, 2019, respectively)
1,111,525

 
1,148,815

Loans receivable, net
21,050,096

 
21,476,056

Loans held-for-sale
36,311

 
29,797

Federal Home Loan Bank stock
269,127

 
267,219

Accrued interest receivable
78,451

 
79,313

Other real estate owned and other repossessed assets
9,551

 
13,538

Office properties and equipment, net
167,200

 
169,614

Operating lease right-of-use assets
170,549

 
175,143

Net deferred tax asset
83,992

 
64,220

Bank owned life insurance
219,913

 
218,517

Goodwill and intangible assets
97,635

 
97,869

Other assets
129,588

 
82,321

Total assets
$
26,677,544

 
26,698,766

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities:
 
 
 
Deposits
$
18,184,626

 
17,860,338

Borrowed funds
5,466,663

 
5,827,111

Advance payments by borrowers for taxes and insurance
149,561

 
121,719

Operating lease liabilities
181,917

 
185,827

Other liabilities
100,019

 
81,821

Total liabilities
24,082,786

 
24,076,816

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; 359,070,852 issued at March 31, 2020 and December 31, 2019; 247,404,464 and 247,439,902 outstanding at March 31, 2020 and December 31, 2019, respectively
3,591

 
3,591

Additional paid-in capital
2,826,288

 
2,822,364

Retained earnings
1,247,028

 
1,245,793

Treasury stock, at cost; 111,666,388 and 111,630,950 shares at March 31, 2020 and December 31, 2019, respectively
(1,353,246
)
 
(1,352,910
)
Unallocated common stock held by the employee stock ownership plan
(77,517
)
 
(78,266
)
Accumulated other comprehensive loss
(51,386
)
 
(18,622
)
Total stockholders’ equity
2,594,758

 
2,621,950

Total liabilities and stockholders’ equity
$
26,677,544

 
26,698,766

See accompanying notes to consolidated financial statements.

1
Table of Contents

INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
 
(Dollars in thousands, except per share data)
Interest and dividend income:
 
 
 
Loans receivable and loans held-for-sale
$
224,529

 
224,890

Securities:
 
 
 
Equity
33

 
37

Government-sponsored enterprise obligations
306

 
266

Mortgage-backed securities
22,584

 
23,630

Municipal bonds and other debt
3,375

 
2,522

Interest-bearing deposits
840

 
535

Federal Home Loan Bank stock
4,432

 
4,337

Total interest and dividend income
256,099

 
256,217

Interest expense:
 
 
 
Deposits
53,179

 
65,422

Borrowed funds
29,637

 
28,117

Total interest expense
82,816

 
93,539

Net interest income
173,283

 
162,678

Provision for credit losses
31,226

 
3,000

Net interest income after provision for credit losses
142,057

 
159,678

Non-interest income
 
 
 
Fees and service charges
6,026

 
5,335

Income on bank owned life insurance
1,396

 
1,577

Gain on loans, net
1,846

 
433

Gain on securities, net
202

 
64

Gain on sale of other real estate owned, net
740

 
224

Other income
4,450

 
3,561

Total non-interest income
14,660

 
11,194

Non-interest expense
 
 
 
Compensation and fringe benefits
60,392

 
60,998

Advertising and promotional expense
2,363

 
3,612

Office occupancy and equipment expense
15,951

 
16,171

Federal deposit insurance premiums
4,401

 
3,300

General and administrative
534

 
484

Professional fees
3,983

 
2,940

Data processing and communication
7,792

 
7,999

Other operating expenses
7,142

 
7,905

Total non-interest expenses
102,558

 
103,409

Income before income tax expense
54,159

 
67,463

Income tax expense
14,647

 
19,305

Net income
$
39,512

 
48,158

Basic earnings per share
$
0.17

 
0.18

Diluted earnings per share
$
0.17

 
0.18

Weighted average shares outstanding

 
 
Basic
233,262,860

 
267,664,063

Diluted
233,632,841

 
268,269,730

See accompanying notes to consolidated financial statements.

2
Table of Contents

INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Unaudited)
 
For the Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
Net income
$
39,512

 
48,158

Other comprehensive (loss) income, net of tax:
 
 
 
Change in funded status of retirement obligations
20

 
13

Unrealized gains on debt securities available-for-sale
37,628

 
16,239

Accretion of loss on debt securities reclassified to held to maturity
56

 
113

Other-than-temporary impairment accretion on debt securities
180

 
180

Net losses on derivatives
(70,648
)
 
(15,651
)
Total other comprehensive (loss) income
(32,764
)
 
894

Total comprehensive income
$
6,748

 
49,052



See accompanying notes to consolidated financial statements.

3
Table of Contents

INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders’ Equity
Three Months Ended March 31, 2020 and 2019
(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, 2018
$
3,591

 
2,805,423

 
1,173,897

 
(884,750
)
 
(81,262
)
 
(11,569
)
 
3,005,330

Net income
—

 
—

 
48,158

 
—

 
—

 
—

 
48,158

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
—

 
894

 
894

Purchase of treasury stock (6,208,379 shares)
—

 
—

 
—

 
(73,732
)
 
—

 
—

 
(73,732
)
Treasury stock allocated to restricted stock plan (119,663 shares)
—

 
(1,511
)
 
50

 
1,461

 
—

 
—

 
—

Compensation cost for stock options and restricted stock
—

 
4,573

 
—

 
—

 
—

 
—

 
4,573

Exercise of stock options
—

 
(65
)
 
—

 
233

 
—

 
—

 
168

Restricted stock forfeitures (137,066 shares)
—

 
1,731

 
(94
)
 
(1,637
)
 
—

 
—

 
—

Cash dividend paid ($0.11 per common share)
—

 
—

 
(30,991
)
 
—

 
—

 
—

 
(30,991
)
ESOP shares allocated or committed to be released
—

 
681

 
—

 
—

 
749

 
—

 
1,430

Balance at March 31, 2019
$
3,591

 
2,810,832

 
1,191,020

 
(958,425
)
 
(80,513
)
 
(10,675
)
 
2,955,830

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2019
$
3,591

 
2,822,364

 
1,245,793

 
(1,352,910
)
 
(78,266
)
 
(18,622
)
 
2,621,950

Cumulative effect of adopting ASU No. 2016-13
—

 
—

 
(8,491
)
 
—

 
—

 
—

 
(8,491
)
Net income
—

 
—

 
39,512

 
—

 
—

 
—

 
39,512

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
(32,764
)
 
(32,764
)
Purchase of treasury stock (84,389 shares)
—

 
—

 
—

 
(932
)
 
—

 
—

 
(932
)
Treasury stock allocated to restricted stock plan (64,923 shares)
—

 
(700
)
 
(90
)
 
790

 
—

 
—

 
—

Compensation cost for stock options and restricted stock
—

 
3,896

 
—

 
—

 
—

 
—

 
3,896

Exercise of stock options
—

 
—

 
—

 
—

 
—

 
—

 
—

Restricted stock forfeitures (15,973 shares)
—

 
197

 
(3
)
 
(194
)
 
—

 
—

 
—

Cash dividend paid ($0.12 per common share)
—

 
—

 
(29,693
)
 
—

 
—

 
—

 
(29,693
)
ESOP shares allocated or committed to be released
—

 
531

 
—

 
—

 
749

 
—

 
1,280

Balance at March 31, 2020
$
3,591

 
2,826,288

 
1,247,028

 
(1,353,246
)
 
(77,517
)
 
(51,386
)
 
2,594,758

See accompanying notes to consolidated financial statements.


4
Table of Contents

INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
39,512

 
48,158

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
ESOP and stock-based compensation expense
5,176

 
6,003

Amortization of premiums and accretion of discounts on securities, net
2,204

 
1,822

Amortization of premiums and accretion of fees and costs on loans, net
(316
)
 
(2,063
)
Amortization of other intangible assets
286

 
399

Amortization of debt modification costs
591

 
—

Provision for credit losses
31,226

 
3,000

Depreciation and amortization of office properties and equipment
5,279

 
4,667

Gain on securities, net
(202
)
 
(64
)
Mortgage loans originated for sale
(90,738
)
 
(27,556
)
Proceeds from mortgage loan sales
85,802

 
25,226

Gain on sales of mortgage loans, net
(1,579
)
 
(423
)
Gain on sale of other real estate owned
(740
)
 
(224
)
Income on bank owned life insurance
(1,396
)
 
(1,577
)
Amortization of lease right-of-use assets
4,830

 
3,180

Decrease (increase) in accrued interest receivable
862

 
(4,916
)
Deferred tax (benefit) expense
(829
)
 
3,637

Increase in other assets
(47,339
)
 
(11,152
)
Decrease in other liabilities
(100,282
)
 
(31,565
)
Net cash (used in) provided by operating activities
(67,653
)
 
16,552

Cash flows from investing activities:
 
 
 
Purchases of loans receivable
(60,000
)
 
(91,265
)
Net payoffs (originations) of loans receivable
450,712

 
(36,517
)
Proceeds from disposition of loans receivable
12,896

 
636

Gain on disposition of loans receivable
(267
)
 
(10
)
Gain on disposition of leased equipment
(266
)
 
—

Net proceeds from sale of other real estate owned
4,510

 
1,308

Proceeds from principal repayments/calls/maturities of debt securities available for sale
167,284

 
69,023

Proceeds from principal repayments/calls/maturities of debt securities held to maturity
68,414

 
57,219

Purchases of equity securities
(23
)
 
(23
)
Purchases of debt securities available for sale
—

 
(83,282
)
Purchases of debt securities held to maturity
(33,807
)
 
(18,501
)
Proceeds from redemptions of Federal Home Loan Bank stock
58,134

 
71,276

Purchases of Federal Home Loan Bank stock
(60,042
)
 
(69,991
)
Purchases of office properties and equipment
(2,865
)
 
(4,700
)
Net cash provided by (used in) investing activities
604,680

 
(104,827
)
Cash flows from financing activities:
 
 
 
Net increase in deposits
324,288

 
49,730

Repayments of principal under finance leases
(388
)
 
—

Net (decrease) increase in borrowed funds
(361,000
)
 
113,906

Principal applied on affordable housing project advance
(39
)
 
—

Net increase in advance payments by borrowers for taxes and insurance
27,842

 
18,386

Dividends paid
(29,693
)
 
(30,991
)
Exercise of stock options
—

 
168


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Purchase of treasury stock
(932
)
 
(73,732
)
Net cash (used in) provided by financing activities
(39,922
)
 
77,467

Net increase (decrease) in cash and cash equivalents
497,105

 
(10,808
)
Cash and cash equivalents at beginning of period
174,915

 
196,891

Cash and cash equivalents at end of period
$
672,020

 
186,083

Supplemental cash flow information:
 
 
 
Non-cash investing activities:
 
 
 
Real estate acquired through foreclosure and other assets repossessed
$
—

 
1,245

Cash paid during the year for:
 
 
 
Interest
83,725

 
95,114

Income taxes
3,100

 
3,921

Significant non-cash transactions:
 
 
 
Initial recognition of operating lease right-of-use assets
—

 
193,290

Initial recognition of operating lease liabilities
—

 
200,694

Right-of-use assets obtained in exchange for new lease liabilities
558

 
18

See accompanying notes to consolidated financial statements.

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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”). 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 months ended March 31, 2020 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, 2019 Annual Report on Form 10-K. Certain
reclassifications have been made in the consolidated financial statements to conform with current year classifications.

Adoption of New Accounting Standards
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 current expected credit loss (CECL) methodology. The Company adopted ASU 2016-13 using a modified retrospective approach. Results for reporting periods beginning after January 1, 2020 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. At adoption, the Company increased its allowance for credit losses by $11.7 million, comprised of $12.7 million and $2.6 million, respectively, for unfunded commitments and held-to-maturity debt securities, partially offset by a decrease of $3.6 million for loans. Upon adoption the Company recorded a cumulative effect adjustment that reduced stockholders’ equity by $8.5 million, net of tax.
Allowance for Credit Losses    
The allowance for credit losses includes both the allowance for loan and lease losses and the reserve for unfunded lending commitments and 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.
Allowance for Credit Losses On Loans Receivable
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.

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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 typically using a probability of default and loss given default quantitative model methodology. The point in time probability of default and loss given default are then conditioned by macroeconomic scenarios to incorporate reasonable and supportable forecasts that affect the collectability of the reported amount. 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.
The Company estimates the allowance for credit losses on loans using relevant available information from internal and external sources related to past events and current conditions as well as the incorporation of reasonable and supportable 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 depend on a variety of factors including third party economists and firms, industry trends and other available published economic information.
After the reasonable and supportable forecast period, the Company reverts to average historical losses. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. 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 other. Furthermore, the Company considers the inherent uncertainty in quantitative models that are built on historical data.
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, 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.
Acquired assets
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 or not 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.

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Table of Contents

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 residential securities, municipal 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. Other securities consist primarily of investments in pooled trust preferred securities.
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 residential securities and municipal 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, prepayment assumptions 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 expected commitment balance and the expected funded commitment in determining the allowance for credit loss on off-balance sheet credit exposures.
Troubled Debt Restructuring
The Company has 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 has elected to not apply troubled debt restructuring classification to any COVID-19 related loan modifications that were performed after March 1, 2020 to borrowers who were current as of December 31, 2019. Accordingly, these restructurings would not be classified as TDRs. In addition, for loans modified in response to the COVID-19 pandemic that do not meet the above criteria (e.g., current payment status at December 31, 2019), the Company is applying the guidance included in an interagency statement issued by the bank regulatory agencies. This guidance states that loan modifications performed in light of the COVID-19 pandemic, including loan payment deferrals that are up to six months in duration, that were granted to borrowers who were current as of the implementation date of a loan modification program or modifications granted under government mandated modification programs, are not TDRs. For loan modifications that include a payment deferral and are not TDRs, the borrower’s past due and non-accrual status will not be impacted during the deferral period. Interest income will continue to be recognized over the contractual life of the loan.

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 and remains the Company’s current program as of March 31, 2020.
During the three months ended March 31, 2020, the Company purchased 84,389 shares at a cost of approximately $932,000, or $11.04 per share. All shares purchased during the three months ended March 31, 2020 were 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.


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3.     Business Combinations
Gold Coast Bancorp    
On July 24, 2019, the Company and Gold Coast Bancorp, Inc. (“Gold Coast”) signed a definitive merger agreement under which the Company will acquire Gold Coast. Consideration will be paid to Gold Coast stockholders in a combination of stock and cash. Under the terms of the merger agreement, 50% of the common shares of Gold Coast will be converted into Investors Bancorp common stock and the remaining 50% will be exchanged for cash. For each share of Gold Coast Bancorp common stock, Gold Coast shareholders will have the 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 is subject to proration to ensure that, in the aggregate, 50% of Gold Coast’s shares will be converted into Investors Bancorp common stock. The transaction is not reflected in the Consolidated Financial Statements as the transaction was completed in April 2020. See Note 18 - Subsequent Events for more information on this transaction.
    
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 March 31,
 
2020
 
2019
 
(Dollars in thousands, except per share data)
Earnings for basic and diluted earnings per common share
 
 
 
Earnings applicable to common stockholders
$
39,512

 
$
48,158

 
 
 
 
Shares
 
 
 
Weighted-average common shares outstanding - basic
233,262,860

 
267,664,063

Effect of dilutive common stock equivalents (1)
369,981

 
605,667

Weighted-average common shares outstanding - diluted
233,632,841

 
268,269,730

 
 
 
 
Earnings per common share
 
 
 
Basic
$
0.17

 
$
0.18

Diluted
$
0.17

 
$
0.18


(1) For the three months ended March 31, 2020 and 2019, there were 5,798,379 and 10,278,975 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 $6.1 million and $6.0 million as of March 31, 2020 and December 31, 2019, 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 on equity securities reported in the Consolidated Statements of Income:
 
For the Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
Net gains recognized on equity securities
$
78

 
64

Less: Net gains recognized on equity securities sold
—

 
—

Unrealized gains recognized on equity securities
$
78

 
64



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Debt Securities
The following tables present the carrying value, 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 March 31, 2020
 
Carrying value
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair value
 
(In thousands)
Available-for-sale:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
$
1,145,187

 
37,179

 
3,150

 
1,179,216

Federal National Mortgage Association
1,085,924

 
45,411

 
19

 
1,131,316

Government National Mortgage Association
256,245

 
8,669

 
—

 
264,914

Total debt securities available-for-sale
$
2,487,356

 
91,259

 
3,169

 
2,575,446

 
At March 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
$
42,195

 
—

 
42,195

 
2,796

 
—

 
44,991

Municipal bonds
164,196

 
—

 
164,196

 
5,311

 
365

 
169,142

Corporate and other debt securities
87,702

 
14,535

 
73,167

 
16,641

 
1,867

 
87,941

Total debt securities held-to-maturity
294,093

 
14,535

 
279,558

 
24,748

 
2,232

 
302,074

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
251,101

 
117

 
250,984

 
8,617

 
—

 
259,601

Federal National Mortgage Association
519,444

 
316

 
519,128

 
20,484

 
—

 
539,612

Government National Mortgage Association
64,850

 
—

 
64,850

 
2,917

 
—

 
67,767

Total mortgage-backed securities held-to-maturity
835,395

 
433

 
834,962

 
32,018

 
—

 
866,980

Total debt securities held-to-maturity
$
1,129,488

 
14,968

 
1,114,520

 
56,766

 
2,232

 
1,169,054

Allowance for credit losses
 
 
 
 
2,995

 
 
 
 
 
 
Total debt securities held-to-maturity, net of allowance for credit losses
 
 
 
 
1,111,525

 
 
 
 
 
 

(1) Net unrealized losses of held-to-maturity corporate and other debt securities represent the previously recorded other than temporary charge related to other non-credit factors and 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, 2019
 
Carrying value
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair value
 
(In thousands)
Available-for-sale:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
$
1,223,587

 
17,528

 
736

 
1,240,379

Federal National Mortgage Association
1,159,446

 
18,917

 
314

 
1,178,049

Government National Mortgage Association
273,676

 
3,333

 
47

 
276,962

Total debt securities available-for-sale
$
2,656,709

 
39,778

 
1,097

 
2,695,390


 
At December 31, 2019
 
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
$
58,624

 
—

 
58,624

 
188

 
500

 
58,312

Municipal bonds
143,151

 
—

 
143,151

 
3,797

 
43

 
146,905

Corporate and other debt securities
87,322

 
14,785

 
72,537

 
26,158

 
—

 
98,695

Total debt securities held-to-maturity
289,097

 
14,785

 
274,312

 
30,143

 
543

 
303,912

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
262,079

 
134

 
261,945

 
3,533

 
129

 
265,349

Federal National Mortgage Association
542,583

 
373

 
542,210

 
7,959

 
307

 
549,862

Government National Mortgage Association
70,348

 
—

 
70,348

 
633

 
—

 
70,981

Total mortgage-backed securities held-to-maturity
875,010

 
507

 
874,503

 
12,125

 
436

 
886,192

Total debt securities held-to-maturity
$
1,164,107

 
15,292

 
1,148,815

 
42,268

 
979

 
1,190,104



(1) Net unrealized losses of held-to-maturity corporate and other debt securities represent the other than temporary charge related to other non-credit factors and 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.

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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 March 31, 2020 and December 31, 2019, were as follows:
 
March 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
$
192,879

 
3,150

 
—

 
—

 
192,879

 
3,150

Federal National Mortgage Association
12,447

 
19

 
—

 
—

 
12,447

 
19

Total debt securities available-for-sale
205,326

 
3,169

 
—

 
—

 
205,326

 
3,169

Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Municipal bonds
34,049

 
365

 
—

 
—

 
34,049

 
365

Corporate and other debt securities
26,507

 
1,867

 
—

 
—

 
26,507

 
1,867

Total debt securities held-to-maturity
60,556

 
2,232

 
—

 
—

 
60,556

 
2,232

Total
$
265,882

 
5,401

 
—

 
—

 
265,882

 
5,401


 
December 31, 2019
 
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
$
215,160

 
736

 
—

 
—

 
215,160

 
736

Federal National Mortgage Association
80,298

 
297

 
12,972

 
17

 
93,270

 
314

Government National Mortgage Association
20,078

 
47

 
—

 
—

 
20,078

 
47

Total debt securities available-for-sale
315,536

 
1,080

 
12,972

 
17

 
328,508

 
1,097

Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises
31,696

 
500

 
—

 
—

 
31,696

 
500

Municipal bonds
23,596

 
43

 
—

 
—

 
23,596

 
43

Total debt securities held-to-maturity
55,292

 
543

 
—

 
—

 
55,292

 
543

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
20,860

 
64

 
11,065

 
65

 
31,925

 
129

Federal National Mortgage Association
7,911

 
52

 
37,316

 
255

 
45,227

 
307

Total mortgage-backed securities held-to-maturity
28,771

 
116

 
48,381

 
320

 
77,152

 
436

Total debt securities held-to-maturity
84,063

 
659

 
48,381

 
320

 
132,444

 
979

Total
$
399,599

 
1,739

 
61,353

 
337

 
460,952

 
2,076


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. Refer to Note 1, Summary of Significant Accounting Principles, for additional information. 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 related to credit factors would be recorded through an allowance for credit losses. The allowance is limited to the amount by which the security’s amortized cost basis exceeds the fair value. An impairment that has not been recorded through an allowance for credit losses shall be

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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, FGLMC 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 FGLMC 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 March 31, 2020, our held-to-maturity debt securities portfolio had an allowance for credit losses of $3.0 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 trust preferred securities (“TruPs”), principally issued by banks and to a lesser extent insurance companies and real estate investment trusts. At March 31, 2020, the TruPs had a carrying value before allowance for credit losses and estimated fair value of $48.2 million and $63.1 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.
At March 31, 2020, the entire available-for-sale debt securities portfolio was 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 March 31, 2020, 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.
For additional information about the review of securities under previous other-than-temporary impairment guidance, refer to page 82 in Note 4 to the consolidated financial statements included under Item 15. Exhibits and Financial Statement Schedules in the Company’s December 31, 2019 Form 10-K.
Debt securities with a carrying value before allowance for credit losses of $1.08 billion and an estimated fair value of $1.11 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 March 31, 2020, by contractual maturity, are shown below. 
 
March 31, 2020
 
Carrying
value
 
Estimated
fair value
 
(In thousands)
Due in one year or less
$
3,079

 
3,079

Due after one year through five years
—

 
—

Due after five years through ten years
38,853

 
40,250

Due after ten years
237,626

 
258,745

Total
$
279,558

 
302,074


Realized Gains and Losses
Gains and losses on the sale of all securities are determined using the specific identification method. For the three months ended March 31, 2020, there were no sales of equity or debt securities; however, the Company received proceeds of $16.5 million from the call of a held-to-maturity security which resulted in a gain of $124,000. The Company recognized net unrealized gains on equity securities of $78,000 for the three months ended March 31, 2020.
For the three months ended March 31, 2019, there were no sales of equity or debt securities. The Company recognized net unrealized gains on equity securities of $64,000 for the three months ended March 31, 2019.


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6.    Loans Receivable, Net
The Company adopted the CECL methodology for measuring credit losses as of January 1, 2020. All disclosures as of and for the three months ended March 31, 2020 are presented in accordance with Topic 326. The Company did not recast comparative financial periods and has presented those disclosures under previously applicable GAAP. The detail of the loan portfolio as of March 31, 2020 and December 31, 2019 was as follows:

 
March 31,
2020
 
December 31,
2019
 
(In thousands)
Multi-family loans
$
7,619,676

 
7,813,236

Commercial real estate loans
4,682,009

 
4,831,347

Commercial and industrial loans
3,055,501

 
2,951,306

Construction loans
274,588

 
262,866

Total commercial loans
15,631,774

 
15,858,755

Residential mortgage loans
4,955,755

 
5,144,718

Consumer and other loans
698,580

 
699,796

Total loans
21,286,109

 
21,703,269

Deferred fees, premiums and other, net (1)
7,275

 
907

Allowance for credit losses
(243,288
)
 
(228,120
)
Net loans
$
21,050,096

 
21,476,056


(1) Included in deferred fees and premiums are accretable purchase accounting adjustments in connection with loans acquired and an adjustment to the carrying amount of the residential loans hedged.
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 Topic 326 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.
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.



15
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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”).
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.


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The following tables presents the risk category of loans as of March 31, 2020 and December 31, 2019 by class of loan:
 
Term Loans by Origination Year
 
 
 
 
 
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
Revolving Loans
 
Total
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multi-family
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
219,004

 
767,974

 
1,410,733

 
815,118

 
1,375,990

 
2,265,686

 
12,434

 
6,866,939

Watch
7,160

 
18,773

 
70,644

 
106,416

 
52,957

 
178,850

 
202

 
435,002

Special mention
—

 
—

 
7,497

 
6,526

 
45,627

 
31,035

 
—

 
90,685

Substandard
—

 
—

 
—

 
6,281

 
48,824

 
171,448

 
497

 
227,050

Total Multi-family
226,164

 
786,747

 
1,488,874

 
934,341

 
1,523,398

 
2,647,019

 
13,133

 
7,619,676

Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
128,867

 
853,834

 
759,383

 
517,293

 
619,812

 
1,445,920

 
22,391

 
4,347,500

Watch
5,750

 
—

 
4,528

 
18,170

 
35,002

 
27,939

 
—

 
91,389

Special mention
—

 
—

 
—

 
6,072

 
12,784

 
59,914

 
—

 
78,770

Substandard
—

 
1,000

 
2,357

 
15,568

 
13,897

 
131,528

 
—

 
164,350

Total Commercial real estate
134,617

 
854,834

 
766,268

 
557,103

 
681,495

 
1,665,301

 
22,391

 
4,682,009

Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
213,051

 
844,283

 
416,862

 
186,638

 
203,740

 
488,618

 
251,751

 
2,604,943

Watch
10,728

 
45,596

 
35,063

 
79,411

 
16,460

 
51,367

 
11,360

 
249,985

Special mention
—

 
—

 
35,899

 
22,932

 
—

 
37,997

 
4,438

 
101,266

Substandard
212

 
4,047

 
24,000

 
3,752

 
26,335

 
24,787

 
16,174

 
99,307

Total Commercial and industrial
223,991

 
893,926

 
511,824

 
292,733

 
246,535

 
602,769

 
283,723

 
3,055,501

Construction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
13,096

 
40,974

 
75,642

 
20,264

 
—

 
8,975

 
80,445

 
239,396

Watch
8,560

 
—

 
—

 
—

 
—

 
—

 
8,321

 
16,881

Special mention
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Substandard
—

 
—

 
—

 
—

 
—

 
—

 
18,311

 
18,311

Construction
21,656

 
40,974

 
75,642

 
20,264

 
—

 
8,975

 
107,077

 
274,588

Residential mortgage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
82,520

 
640,248

 
687,947

 
760,168

 
512,627

 
2,200,254

 
—

 
4,883,764

Watch
—

 
703

 
—

 
1,946

 
782

 
13,832

 
—

 
17,263

Special mention
—

 
—

 
520

 
—

 
1,114

 
4,053

 
—

 
5,687

Substandard
—

 
—

 
399

 
458

 
780

 
47,299

 
105

 
49,041

Total residential mortgage
82,520

 
640,951

 
688,866

 
762,572

 
515,303

 
2,265,438

 
105

 
4,955,755

Consumer and other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
1,210

 
10,751

 
7,683

 
10,126

 
12,471

 
74,615

 
568,994

 
685,850

Watch
—

 
—

 
—

 
—

 
184

 
463

 
7,402

 
8,049

Special mention
—

 
—

 
—

 
—

 
128

 
—

 
1,984

 
2,112

Substandard
—

 
—

 
—

 
—

 
—

 
1,921

 
648

 
2,569

Consumer and other
1,210

 
10,751

 
7,683

 
10,126

 
12,783

 
76,999

 
579,028

 
698,580

Total
$
690,158

 
3,228,183

 
3,539,157

 
2,577,139

 
2,979,514

 
7,266,501

 
1,005,457

 
21,286,109


17
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December 31, 2019
 
Pass
 
Watch
 
Special  Mention
 
Substandard
 
Doubtful
 
Loss
 
Total
 
(In thousands)
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Multi-family
$
6,326,412

 
942,438

 
167,748

 
376,638

 
—

 
—

 
7,813,236

Commercial real estate
4,023,642

 
489,514

 
118,426

 
199,765

 
—

 
—

 
4,831,347

Commercial and industrial
2,031,148

 
693,397

 
111,389

 
115,372

 
—

 
—

 
2,951,306

Construction
169,236

 
75,319

 
—

 
18,311

 
—

 
—

 
262,866

Total commercial loans
12,550,438

 
2,200,668

 
397,563

 
710,086

 
—

 
—

 
15,858,755

Residential mortgage
5,074,334

 
14,414

 
5,429

 
50,541

 
—

 
—

 
5,144,718

Consumer and other
687,302

 
9,157

 
1,174

 
2,163

 
—

 
—

 
699,796

Total
$
18,312,074

 
2,224,239

 
404,166

 
762,790

 
—

 
—

 
21,703,269


The following tables present the payment status of the recorded investment in past due loans as of March 31, 2020 and December 31, 2019 by class of loans:
 
March 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
$
59,157

 
—

 
22,206

 
81,363

 
7,538,313

 
7,619,676

Commercial real estate
23,871

 
322

 
3,698

 
27,891

 
4,654,118

 
4,682,009

Commercial and industrial
6,119

 
5,176

 
7,792

 
19,087

 
3,036,414

 
3,055,501

Construction
—

 
—

 
—

 
—

 
274,588

 
274,588

Total commercial loans
89,147

 
5,498

 
33,696

 
128,341

 
15,503,433

 
15,631,774

Residential mortgage
19,043

 
6,187

 
27,449

 
52,679

 
4,903,076

 
4,955,755

Consumer and other
8,050

 
2,112

 
1,786

 
11,948

 
686,632

 
698,580

Total
$
116,240

 
13,797

 
62,931

 
192,968

 
21,093,141

 
21,286,109

 
 
December 31, 2019
 
30-59 Days
 
60-89 Days
 
Greater
than 90
Days
 
Total Past
Due
 
Current
 
Total
Loans
Receivable
 
(In thousands)
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
$
45,606

 
1,946

 
22,055

 
69,607

 
7,743,629

 
7,813,236

Commercial real estate
7,958

 
525

 
3,787

 
12,270

 
4,819,077

 
4,831,347

Commercial and industrial
7,774

 
2,767

 
5,053

 
15,594

 
2,935,712

 
2,951,306

Construction
—

 
—

 
—

 
—

 
262,866

 
262,866

Total commercial loans
61,338

 
5,238

 
30,895

 
97,471

 
15,761,284

 
15,858,755

Residential mortgage
16,980

 
6,195

 
27,729

 
50,904

 
5,093,814

 
5,144,718

Consumer and other
9,157

 
1,174

 
1,330

 
11,661

 
688,135

 
699,796

Total
$
87,475

 
12,607

 
59,954

 
160,036

 
21,543,233

 
21,703,269



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Table of Contents

The following table presents non-accrual loans at the date indicated:
 
March 31, 2020
 
# of loans
 
Amount
 
(Dollars in thousands)
Non-accrual:
 
 
 
Multi-family
9

 
$
23,432

Commercial real estate
21

 
11,385

Commercial and industrial
22

 
17,007

Total commercial loans
52

 
51,824

Residential mortgage and consumer
258

 
46,587

Total non-accrual loans
310

 
$
98,411



The Company recognized $444,000 of interest income on non-accrual loans during the three months ended March 31, 2020.
Loans which meet certain criteria 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 15, 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 date indicated:

 
March 31, 2020
 
Real Estate
 
Other
 
Total
 
(Dollars in thousands)
Multi-family
$
22,081

 
—

 
22,081

Commercial real estate
7,592

 
—

 
7,592

Commercial and industrial
4,319

 
11,182

 
15,501

Construction
—

 
—

 
—

Total commercial loans
33,992

 
11,182

 
45,174

Residential mortgage and consumer
26,168

 
120

 
26,288

Total collateral-dependent loans
$
60,160

 
11,302

 
71,462

The following table presents non-accrual loans at the date indicated:
 
December 31, 2019
 
# of loans
 
Amount
 
(Dollars in thousands)
Non-accrual:
 
 
 
Multi-family
8

 
$
23,322

Commercial real estate
22

 
11,945

Commercial and industrial
18

 
12,482

Total commercial loans
48

 
47,749

Residential mortgage and consumer
260

 
47,566

Total non-accrual loans
308

 
$
95,315



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Table of Contents

Included in the non-accrual tables 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 March 31, 2020 and December 31, 2019, these loans are comprised of the following:
 
March 31, 2020
 
December 31, 2019
 
# of loans
 
Amount
 
# of loans
 
Amount
 
(Dollars in thousands)
TDR with payment status current classified as non-accrual:
 
 
 
 
 
 
 
Commercial real estate
2

 
$
2,347

 
2

 
$
2,360

Residential mortgage and consumer
26

 
4,325

 
25

 
4,218

Total TDR with payment status current classified as non-accrual
28

 
$
6,672

 
27

 
$
6,578

The following table presents TDR loans which were also 30-89 days delinquent and classified as non-accrual at the dates indicated:
 
March 31, 2020
 
December 31, 2019
 
# of loans
 
Amount
 
# of loans
 
Amount
 
(Dollars in thousands)
TDR 30-89 days delinquent classified as non-accrual:
 
 
 
 
 
 
 
Residential mortgage and consumer
15

 
$
2,281

 
18

 
$
3,331

Total TDR 30-89 days delinquent classified as non-accrual
15

 
$
2,281

 
18

 
$
3,331


The Company has no loans past due 90 days or more delinquent that are still accruing interest.
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 there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.

The following tables present the total TDR loans at March 31, 2020 and December 31, 2019:
 
 
March 31, 2020
 
Accrual
 
Non-accrual
 
Total
 
# of loans
 
Amount
 
# of loans
 
Amount
 
# of loans
 
Amount
 
(Dollars in thousands)
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
—

 
$
—

 
2

 
$
2,347

 
2

 
$
2,347

Commercial and industrial
3

 
2,730

 
2

 
4,207

 
5

 
6,937

Total commercial loans
3

 
2,730

 
4

 
6,554

 
7

 
9,284

Residential mortgage and consumer
52

 
10,103

 
78

 
16,184

 
130

 
26,287

Total
55

 
$
12,833

 
82

 
$
22,738

 
137

 
$
35,571




20
Table of Contents

 
December 31, 2019
 
Accrual
 
Non-accrual
 
Total
 
# of loans
 
Amount
 
# of loans
 
Amount
 
# of loans
 
Amount
 
(Dollars in thousands)
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
—

 
$
—

 
3

 
$
2,362

 
3

 
$
2,362

Commercial and industrial
3

 
2,535

 
2

 
4,682

 
5

 
7,217

Total commercial loans
3

 
2,535

 
5

 
7,044

 
8

 
9,579

Residential mortgage and consumer
54

 
10,549

 
78

 
16,458

 
132

 
27,007

Total
57

 
$
13,084

 
83

 
$
23,502

 
140

 
$
36,586



The following tables present information about TDRs that occurred during the three months ended March 31, 2020 and 2019:

 
Three Months Ended March 31,
 
2020
 
2019
 
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 and industrial
1

 
$
933

 
$
933

 
—

 
$
—

 
$
—

Residential mortgage and consumer
—

 
—

 
—

 
6

 
1,664

 
1,664


    
 

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 no charge-offs for collateral dependent TDRs during the three months ended March 31, 2020. There were $477,000 in charge-offs for a TDR of an unsecured commercial and industrial loan during the three months ended March 31, 2019. The allowance for loan losses associated with the TDRs presented in the above tables totaled $1.4 million and $1.8 million as of March 31, 2020 and December 31, 2019, respectively.
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. All residential loans deemed to be TDRs were modified to reflect a reduction in interest rates to current market rates. The commercial loan modification which qualified as a TDR in the three months ended March 31, 2020 had its maturity extended. There were no commercial loan modifications in the three months ended March 31, 2019.
The Company began entering into loan modifications with borrowers in response to the COVID-19 pandemic, which have not been classified as TDR, and therefore are not included in the discussion below. For more information on the criteria for classifying loans as TDRs, see Note 1, Summary of Significant Accounting Principles.

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Table of Contents

The following tables present information about pre and post modification interest yield for TDRs which occurred during the three months ended March 31, 2020 and 2019:
 
Three Months Ended March 31,
 
2020
 
2019
 
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 and industrial
1

 
4.75
%
 
4.75
%
 
—

 
—
%
 
—
%
Residential mortgage and consumer
—

 
—
%
 
—
%
 
6

 
5.26
%
 
4.90
%

 

Payment defaults for loans modified as a TDR in the previous 12 months to March 31, 2020 consisted of 2 residential loans with a recorded investment of $149,000 at March 31, 2020. Payment defaults for loans modified as a TDR in the previous 12 months to March 31, 2019 consisted of 1 residential loan with a recorded investment of $270,000 at March 31, 2019.
The following table presents, under previously applicable GAAP, loans individually evaluated for impairment by portfolio segment as of December 31, 2019:
 
December 31, 2019
 
Recorded
Investment
 
Unpaid Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(In thousands)
With no related allowance:
 
 
 
 
 
 
 
 
 
Multi-family
$
22,169

 
23,581

 
—

 
23,298

 
47

Commercial real estate
7,875

 
10,913

 
—

 
8,127

 
199

Commercial and industrial
12,476

 
21,090

 
—

 
14,860

 
351

Construction
—

 
—

 
—

 
—

 
—

Total commercial loans
43

 
56

 
—

 
46

 
1

Residential mortgage and consumer
13,783

 
18,066

 
—

 
13,811

 
267

With an allowance recorded:
 
 
 
 
 
 
 
 
 
Multi-family
—

 
—

 
—

 
—

 
—

Commercial real estate
—

 
—

 
—

 
—

 
—

Commercial and industrial
—

 
—

 
—

 
—

 
—

Construction
—

 
—

 
—

 
—

 
—

Total commercial loans
—

 
—

 
—

 
—

 
—

Residential mortgage and consumer
13,220

 
13,881

 
1,763

 
13,321

 
153

Total:
 
 
 
 
 
 
 
 
 
Multi-family
22,169

 
23,581

 
—

 
23,298

 
47

Commercial real estate
7,875

 
10,913

 
—

 
8,127

 
199

Commercial and industrial
12,476

 
21,090

 
—

 
14,860

 
351

Construction
—

 
—

 
—

 
—

 
—

Total commercial loans
43

 
56

 
—

 
46

 
1

Residential mortgage and consumer
27,003

 
31,947

 
1,763

 
27,132

 
420

Total impaired loans
$
69,523

 
87,531

 
1,763

 
73,417

 
1,017


The average recorded investment is the annual average calculated based upon the ending quarterly balances. The interest income recognized is the year to date interest income recognized on a cash basis.


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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 current expected credit loss (CECL) methodology. See Note 1, Summary of Significant Accounting Principles.
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 March 31,
 
2020
 
2019
 
(In thousands)
Balance at beginning of the period
$
228,120

 
235,817

Impact of adopting ASC 326
(3,551
)
 
—

Gross charge offs
(10,930
)
 
(5,445
)
Recoveries
2,897

 
1,345

Net charge-offs
(8,033
)
 
(4,100
)
Provision for credit loss expense
26,752

 
3,000

Balance at end of the period
$
243,288

 
234,717


Accrued interest receivable on loans, reported as a component of accrued interest receivable on the balance sheet, totaled $68.0 million at March 31, 2020 and is excluded from the estimate of credit losses.

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.  As of January 1, 2020, the Company’s economic outlook was weighted to include a moderate potential of a recession with some expectation of tail risk similar to the severely adverse scenario used in stress testing. For the three months ended March 31, 2020, there was a significant change in the economic outlook impacting the allowance for credit losses, with key economic factors such as the unemployment rate and gross domestic product projected to deteriorate sharply in the second quarter of 2020 driven by the impact of COVID-19. In response to these changes, the Company reassessed the selection and probability weightings of the economic scenarios.  All scenarios utilized by the Company at March 31, 2020, assume recessionary environments of varying degrees resulting from the COVID-19 pandemic.  In addition, the allowance for credit losses at March 31, 2020 included 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 recently implemented payment deferral programs, and the Company will continue to evaluate the allowance for credit losses and the related economic outlook each quarter.
The following tables present the balance in the allowance for credit losses for loans by portfolio segment as of March 31, 2020 and December 31, 2019:
 
March 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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance-December 31, 2019
$
74,099

 
50,925

 
74,396

 
6,816

 
17,391

 
2,548

 
1,945

 
228,120

Impact of adopting ASC 326
(9,741
)
 
(4,631
)
 
(7,511
)
 
(1,901
)
 
20,089

 
2,089

 
(1,945
)
 
(3,551
)
Charge-offs
(126
)
 
(169
)
 
(9,966
)
 
—

 
(657
)
 
(12
)
 
—

 
(10,930
)
Recoveries
—

 
36

 
2,589

 
—

 
169

 
103

 
—

 
2,897

Provision for credit loss expense
11,870

 
(2,843
)
 
15,793

 
1,710

 
(834
)
 
1,056

 
—

 
26,752

Ending balance-March 31, 2020
$
76,102

 
43,318

 
75,301

 
6,625

 
36,158

 
5,784

 
—

 
243,288


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December 31, 2019
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance-December 31, 2018
$
82,876

 
48,449

 
71,084

 
7,486

 
20,776

 
3,102

 
2,044

 
235,817

Charge-offs
(2,973
)
 
(151
)
 
(6,833
)
 
—

 
(2,241
)
 
(934
)
 
—

 
(13,132
)
Recoveries
1,244

 
2,204

 
1,203

 
—

 
1,448

 
336

 
—

 
6,435

Provision for credit loss expense
(7,048
)
 
423

 
8,942

 
(670
)
 
(2,592
)
 
44

 
(99
)
 
(1,000
)
Ending balance-December 31, 2019
$
74,099

 
50,925

 
74,396

 
6,816

 
17,391

 
2,548

 
1,945

 
228,120

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 March 31,
 
2020
 
(In thousands)
Balance at beginning of the period
$
—

Impact of adopting ASC 326
2,564

Provision for credit losses
431

Balance at end of the period
$
2,995


The following tables present the balance in the allowance for credit losses for debt securities held-to-maturity by portfolio segment as of March 31, 2020:

 
March 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
—

 
431

 
431

Ending balance-March 31, 2020
17

 
2,978

 
2,995


Accrued interest receivable on debt securities held-to-maturity totaled $10.4 million at March 31, 2020 and is excluded from the estimate of credit losses.

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Table of Contents

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 March 31,
 
2020
 
(In thousands)
Balance at beginning of the period
$
425

Impact of adopting ASC 326
12,674

Provision for credit losses
4,043

Balance at end of the period
$
17,142



8.     Deposits
Deposits are summarized as follows:

 
March 31, 2020
 
December 31, 2019
 
(In thousands)
Non-interest bearing:
 
 
 
Checking accounts
$
2,422,891

 
2,472,232

Interest bearing:
 
 
 
Checking accounts
5,435,066

 
5,512,979

Money market deposits
4,046,257

 
3,817,718

Savings
2,092,846

 
2,050,101

Certificates of deposit
4,187,566

 
4,007,308

Total deposits
$
18,184,626

 
17,860,338




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Table of Contents

9.    Goodwill and Other Intangible Assets
The following table summarizes goodwill and intangible assets at March 31, 2020 and December 31, 2019:
 
 
March 31, 2020
 
December 31, 2019
 
 
(In thousands)
Mortgage servicing rights
 
$
12,200

 
12,125

Core deposit premiums
 
2,243

 
2,530

Other
 
646

 
668

Total other intangible assets
 
15,089

 
15,323

Goodwill
 
82,546

 
82,546

Goodwill and intangible assets
 
$
97,635

 
97,869



The following table summarizes other intangible assets as of March 31, 2020 and December 31, 2019:
 
 
Gross Intangible Asset
 
Accumulated Amortization
 
Valuation Allowance
 
Net Intangible Assets
 
 
(In thousands)
March 31, 2020
 
 
 
 
 
 
 
 
Mortgage servicing rights
 
$
19,740

 
(7,237
)
 
(303
)
 
12,200

Core deposit premiums
 
20,561

 
(18,318
)
 
—

 
2,243

Other
 
1,150

 
(504
)
 
—

 
646

Total other intangible assets
 
$
41,451

 
(26,059
)
 
(303
)
 
15,089

 
 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
Mortgage servicing rights
 
$
19,368

 
(7,140
)
 
(103
)
 
12,125

Core deposit premiums
 
20,561

 
(18,031
)
 
—

 
2,530

Other
 
1,150

 
(482
)
 
—

 
668

Total other intangible assets
 
$
41,079

 
(25,653
)
 
(103
)
 
15,323


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. Loans that were sold on this basis had an unpaid principal balance of $1.68 billion and $1.67 billion at March 31, 2020 and December 31, 2019, respectively, all of which relate to mortgage loans. At March 31, 2020 and December 31, 2019, the servicing asset, included in other intangible assets, had an estimated fair value of $11.5 million and $14.1 million, respectively. At March 31, 2020, fair value was based on expected future cash flows considering a weighted average discount rate of 12.04%, a weighted average constant prepayment rate on mortgages of 17.64% and a weighted average life of 4.4 years. See Note 15 for additional details.
Core deposit premiums are amortized using an accelerated method and having a weighted average amortization period of 10 years.


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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 16 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. 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:
 
March 31, 2020
 
December 31, 2019
 
(Dollars in thousands)
Operating lease right-of-use assets
$
170,549

 
175,143

Operating lease liabilities
181,917

 
185,827

Weighted average remaining lease term
9.5 years

 
9.7 years

Weighted average discount rate
2.74
%
 
2.74
%

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 March 31,
 
2020
 
2019
 
(In thousands)
Included in office occupancy and equipment expense:
 
 
 
Operating lease cost
$
6,280

 
6,320

Short-term lease cost
86

 
83

Variable lease cost
—

 
—

Included in other income:
 
 
 
Sublease income
67

 
67

The following table presents supplemental cash flow information related to operating leases:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases
$
5,707

 
6,138

Operating lease liabilities arising from obtaining right-of-use assets (non-cash):
Operating leases
558

 
18



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Table of Contents

Future minimum operating lease payments and reconciliation to operating lease liabilities at March 31, 2020 and December 31, 2019:
 
March 31, 2020
 
December 31, 2019
 
(In thousands)
2020
$
18,281

 
24,013

2021
23,988

 
23,888

2022
22,390

 
22,270

2023
21,347

 
21,227

2024
21,282

 
21,162

Thereafter
100,802

 
100,662

Total lease payments
208,090

 
213,222

Less: Imputed interest
(26,173
)
 
(27,395
)
Total operating lease liabilities
$
181,917

 
185,827



The Company also has finance leases for certain equipment. The Company’s right-of-use assets and lease liabilities for finance leases were both $3.4 million at March 31, 2020. 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 three months ended March 31, 2020 and March 31, 2019, the Company granted 64,923 and 119,663 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 three months ended March 31, 2020 and March 31, 2019, the Company granted no stock options and 25,000 stock options under the 2015 Plan, respectively.
The fair value of stock options granted as part of the 2015 Plan was estimated utilizing the Black-Scholes option pricing model using the following assumptions for the periods presented below:
 
Three Months Ended March 31,
 
2019
Weighted average expected life (in years)
6.50

Weighted average risk-free rate of return
2.55
%
Weighted average volatility
18.59
%
Dividend yield
3.49
%
Weighted average fair value of options granted
$
1.65

Total stock options granted
25,000


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,

28
Table of Contents

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.
The following table presents the share-based compensation expense for the three months ended March 31, 2020 and 2019:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
Stock option expense
$
988

 
1,302

Restricted stock expense
2,901

 
3,271

Total share-based compensation expense
$
3,889

 
4,573



The following is a summary of the Company’s stock option activity and related information for the three months ended March 31, 2020:
 
 
Number of
Stock
Options
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining
Contractual
Life (in years)
 
Aggregate
Intrinsic Value
Outstanding at December 31, 2019
 
5,654,461

 
$
12.46

 
5.5

 
$
363

Granted
 
—

 
—

 
—

 
 
Exercised
 
—

 
—

 
—

 
 
Forfeited
 
(8,802
)
 
12.55

 
 
 
 
Expired
 
(27,427
)
 
12.54

 
 
 
 
Outstanding at March 31, 2020
 
5,618,232

 
12.46

 
5.3

 
—

Exercisable at March 31, 2020
 
2,936,353

 
$
12.39

 
5.2

 
$
—


Expected future expense relating to the non-vested options outstanding as of March 31, 2020 is $8.4 million over a weighted average period of 1.85 years.
The following is a summary of the status of the Company’s restricted shares as of March 31, 2020 and changes therein during the three months ended:
 
 
Number of Shares Awarded
 
Weighted Average Grant Date Fair Value
Outstanding at December 31, 2019
 
2,894,352

 
$
12.57

Granted
 
64,923

 
10.78

Vested
 
(186,411
)
 
13.25

Forfeited
 
(15,973
)
 
12.34

Outstanding and non-vested at March 31, 2020
 
2,756,891

 
$
12.49


Expected future expense relating to the non-vested restricted shares outstanding as of March 31, 2020 is $25.3 million over a weighted average period of 2.67 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.

29
Table of Contents

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 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 March 31,
 
2020
 
2019
 
(In thousands)
Interest cost
$
324

 
397

Amortization of:
 
 
 
Net loss
8

 
—

Total net periodic benefit cost
$
332

 
397


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 three months ended March 31, 2020.
The Company also maintains the Pentegra DB Plan. Since it is a multi-employer plan, costs of the pension plan are based on contributions required to be made to the pension 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 eliminates all future benefit accruals and each participant’s frozen accrued benefit was determined as of December 31, 2016 and no further benefits will accrue beyond such date. There was no contribution required during the three months ended March 31, 2020. We anticipate contributing funds to the plan to meet any minimum funding requirements for the remainder of 2020.

13.    Derivatives and Hedging Activities
The Company is exposed to certain risk 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 borrowings 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 borrowings.
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 $35.6 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 fixed- and adjustable-rate assets due to changes in benchmark interest rates. The Company uses 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 over the life of

30
Table of Contents

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- and adjustable-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 three interest rate swaps with an aggregate notional amount of $1.00 billion during the year ended December 31, 2019. The terminated swaps were due to mature in February 2020.
Derivatives Not Designated as Hedges
The Company has credit derivatives resulting from participations 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
 
Asset Derivatives
 
Liability Derivatives
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
 
December 31, 2019
 
Notional Amount
Balance
Sheet
Location
Fair Value
 
Notional Amount
Balance
Sheet
Location
Fair Value
 
Notional Amount
Balance
Sheet
Location
Fair Value
 
Notional Amount
Balance
Sheet
Location
Fair Value
 
(in millions)
 
(In thousands)
 
(in millions)
 
(In thousands)
 
(in millions)
 
(In thousands)
 
(in millions)
 
(In thousands)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swaps
$
—

Other assets
$
—

 
$
2,675

Other assets
$
559

 
$
3,200

Other liabilities
$
798

 
$
—

Other liabilities
$
—

Total derivatives designated as hedging instruments

 
$
—

 

 
$
559

 
 
 
$
798

 
 
 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swaps
$
361

Other assets
$
33,028

 
$
652

Other assets
$
5,430

 
$
361

Other liabilities
$
207

 
$
—

Other liabilities
$
—

Other Contracts
—

Other assets
—

 
—

Other assets
—

 
22

Other liabilities
254

 
22

Other liabilities
125

Total derivatives not designated as hedging instruments

 
$
33,028

 

 
$
5,430

 
 
 
$
461

 
 
 
$
125



The Chicago Mercantile Exchange (“CME”) legally characterizes the variation margin posted between counterparties as settlements of the outstanding derivative contracts instead of cash collateral.


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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 months ended March 31, 2020 and 2019.
 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
Cash Flow Hedges - Interest rate swaps
 
 
 
Amount of loss recognized in other comprehensive income (loss)
$
(100,361
)
 
(19,681
)
Amount of (loss) gain reclassified from accumulated other comprehensive income (loss) to interest expense
(2,089
)
 
2,090


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 March 31, 2020 and 2019.
 
 
For the Three Months Ended March 31,
 
 
2020
 
2019
The effects of fair value and cash flow hedging:
Income statement location
(In thousands)
Gain or (loss) on fair value hedging relationships in Subtopic 815-20
 
 
 
 
Interest contracts
 
 
 
 
Hedged items
Interest income on loans
$
6,769

 
922

Derivatives designated as hedging instruments
Interest income on loans
(7,188
)
 
(1,021
)
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20
 
 
 
 
Interest contracts
 
 
 
 
Amount of (loss) gain reclassified from accumulated other comprehensive income (loss)
Interest expense on borrowings
(2,089
)
 
2,090

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
Interest expense on borrowings
—

 
—

Total amounts of income and expense line items presented in the income statement in which the effects of fair value are recorded
 
$
(2,508
)
 
1,991



As of March 31, 2020 and December 31, 2019, the following amounts were recorded on the Consolidated Balance Sheets related to cumulative basis adjustment for fair value hedges:
Balance sheet location
Carrying Amount of the Hedged Assets/(Liabilities)
 
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
 
December 31, 2019
 
(In thousands)
Loans receivable, net (1)(2)
$
484,889

 
478,120

 
$
13,042

 
6,426

(1) At March 31, 2020, the amortized cost basis of the closed portfolios used in these hedging relationships was $1.34 billion; the cumulative basis adjustments associated with these hedging relationships was $13.0 million; and the amounts of the designated hedged items were $484.9 million.
(2) The balance of Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities) as of March 31, 2020 includes $3.1 million of hedging adjustment on discontinued hedging relationships.


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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 March 31, 2020:
 
Consolidated Statements of Income location
Amount of Gain or (Loss) Recognized in Income on Derivative
 
 
For the Three Months Ended March 31,
 
 
2020
 
2019
 
 
(In thousands)
Other Contracts
Other income / (expense)
$
(129
)
 
29

Total
 
$
(129
)
 
29


Offsetting Derivatives
The following table presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives in the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019. The net amounts of derivative assets and liabilities can be reconciled to the tabular disclosure of the fair value hierarchy, see Note 15, Fair Value Measurements. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Company’s Consolidated Balance Sheets.
 
 
 
 
 
 
 
Gross Amounts Not Offset
 
 
 
Gross Amounts Recognized
 
Gross Amounts Offset
 
Net Amounts Presented
 
Financial Instruments
 
Cash Collateral Posted
 
Net Amount
 
(In thousands)
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
Derivative contracts
$
—

 
—

 
—

 
—

 
—

 
—

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative contracts
1,259

 
—

 
1,259

 
—

 
—

 
1,259

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
Derivative contracts
$
821

 
—

 
821

 
—

 
—

 
821

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative contracts
$
125

 
—

 
125

 
—

 
—

 
125



14.    Comprehensive Income

 The components of comprehensive income, gross and net of tax, are as follows:
 
Three Months Ended March 31,
 
2020
 
2019
 
Gross
 
Tax
 
Net
 
Gross
 
Tax
 
Net
 
(Dollars in thousands)
Net income
$
54,159

 
(14,647
)
 
39,512

 
67,463

 
(19,305
)
 
48,158

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
 
 
Change in funded status of retirement obligations
28

 
(8
)
 
20

 
18

 
(5
)
 
13

Unrealized gains on debt securities available-for-sale
49,409

 
(11,781
)
 
37,628

 
21,514

 
(5,275
)
 
16,239

Accretion of loss on debt securities reclassified to held-to-maturity from available-for-sale
74

 
(18
)
 
56

 
157

 
(44
)
 
113

Other-than-temporary impairment accretion on debt securities recorded prior to January 1, 2020
250

 
(70
)
 
180

 
251

 
(71
)
 
180

Net losses on derivatives
(98,272
)
 
27,624

 
(70,648
)
 
(21,771
)
 
6,120

 
(15,651
)
Total other comprehensive (loss) income
(48,511
)
 
15,747

 
(32,764
)
 
169

 
725

 
894

Total comprehensive income
$
5,648

 
1,100

 
6,748

 
67,632

 
(18,580
)
 
49,052



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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 three months ended March 31, 2020 and 2019:

 
Change in
funded status of
retirement
obligations
 
Accretion of loss on debt securities reclassified to held-to-maturity
 
Unrealized gains (losses) on debt securities
available-for-sale and gains included in net income
 
Other-than-
temporary
impairment
accretion on debt
securities
 
Unrealized (losses) gains on derivatives
 
Total
accumulated
other
comprehensive
loss
 
(Dollars in thousands)
Balance - December 31, 2019
$
(6,690
)
 
(386
)
 
29,456

 
(10,629
)
 
(30,373
)
 
(18,622
)
Net change
20

 
56

 
37,628

 
180

 
(70,648
)
 
(32,764
)
Balance - March 31, 2020
$
(6,670
)
 
(330
)
 
67,084

 
(10,449
)
 
(101,021
)
 
(51,386
)
 
 
 
 
 
 
 
 
 
 
 
 
Balance - December 31, 2018
$
(3,018
)
 
(921
)
 
(8,884
)
 
(11,397
)
 
12,651

 
(11,569
)
Net change
13

 
113

 
16,239

 
180

 
(15,651
)
 
894

Balance - March 31, 2019
$
(3,005
)
 
(808
)
 
7,355

 
(11,217
)
 
(3,000
)
 
(10,675
)

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 March 31,
 
2020
 
2019
 
(In thousands)
Change in funded status of retirement obligations
 
 
 
Amortization of net loss (gain)
8

 
(2
)
Interest expense
 
 
 
Reclassification adjustment for unrealized losses (gains) on derivatives
2,090

 
(2,090
)
Total before tax
2,098

 
(2,092
)
Income tax (expense) benefit
(567
)
 
599

Net of tax
$
1,531

 
(1,493
)


15.    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 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.
•
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

34
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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 based upon quoted prices for similar instruments in active markets (Level 2). The pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. 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, it performs quarterly analyses on the prices received from the pricing service 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 and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in adjustment in the prices obtained from the pricing service.

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Table of Contents

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 provide the level of valuation assumptions used to determine the carrying value of our assets and liabilities measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019.
 
Carrying Value at March 31, 2020
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Equity securities
$
6,140

 
6,140

 
—

 
—

Debt securities available for sale:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
$
1,179,216

 
—

 
1,179,216

 
—

Federal National Mortgage Association
1,131,316

 
—

 
1,131,316

 
—

Government National Mortgage Association
264,914

 
—

 
264,914

 
—

Total debt securities available-for-sale
$
2,575,446

 
—

 
2,575,446

 
—

Interest rate swaps
$
33,028

 
—

 
33,028

 
—

Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
Interest rate swaps
$
1,005

 
—

 
1,005

 
—

Other contracts
254

 
—

 
254

 
—

Total derivatives
$
1,259

 
—

 
1,259

 
—

 
Carrying Value at December 31, 2019
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Equity securities
$
6,039

 
6,039

 
—

 
—

Debt securities available for sale:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
$
1,240,379

 
—

 
1,240,379

 
—

Federal National Mortgage Association
1,178,049

 
—

 
1,178,049

 
—

Government National Mortgage Association
276,962

 
—

 
276,962

 
—

Total debt securities available-for-sale
$
2,695,390

 
—

 
2,695,390

 
—

Interest rate swaps
$
5,989

 
—

 
5,989

 
—

Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
Other contracts
125

 
—

 
125

 
—

Total derivatives
$
125

 
—

 
125

 
—


There have been no changes in the methodologies used at March 31, 2020 from December 31, 2019, and there were no transfers between Level 1 and Level 2 during the three months ended March 31, 2020.
There were no Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2020 and December 31, 2019.

36
Table of Contents

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 March 31, 2020, the fair value model used prepayment speeds ranging from 9.18% to 28.92% and a discount rate of 12.04% for the valuation of the mortgage servicing rights. At December 31, 2019, the fair value model used prepayment speeds ranging from 6.60% to 29.10% and a discount rate of 12.05% 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/Impaired Loans Receivable
With the adoption of ASU 2016-13, loans which meet certain criteria are individually evaluated as part of the process of calculating the allowance for credit losses. Prior to adoption, such loans were evaluated for impairment. However, the valuation method remains unchanged. A loan is individually evaluated when it is a commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, loans modified in a troubled debt restructuring, and other commercial loans 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%. 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. Fair value of foreclosed real estate property 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.
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.

37
Table of Contents

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 at March 31, 2020 and December 31, 2019. For the three months ended March 31, 2020, there was no change to the carrying value of loans held for sale. For the three months ended December 31, 2019, there was no change to the carrying value of impaired loans or loans held for sale.
 Security Type
Valuation Technique
Unobservable Input
Range
Weighted Average Input
 
Carrying Value at March 31, 2020
 
 
 
Minimum
Maximum
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
(In thousands)
MSR, net
Estimated cash flow
Prepayment speeds
9.2%
28.9%
17.64%
 
$
10,227

 
—

 
—

 
10,227

Collateral-dependent loans
Market comparable and estimated cash flow
Lack of marketability and probability of default
0.06%
6.80%
29.33%
 
2,889

 
—

 
—

 
2,889

Other real estate owned
Market comparable
Lack of marketability
0.0%
25.0%
9.08%
 
1,407

 
—

 
—

 
1,407

 
 
 
 
 
 
 
$
14,523

 
—

 
—

 
14,523

 
 Security Type
Valuation Technique
Unobservable Input
Range
Weighted Average Input
 
Carrying Value at December 31, 2019
 
 
 
Minimum
Maximum
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
(In thousands)
MSR, net
Estimated cash flow
Prepayment speeds
6.6%
29.1%
11.04%
 
$
10,409

 
—

 
—

 
10,409

Other real estate owned
Market comparable
Lack of marketability
0.0%
25.0%
2.70%
 
262

 
—

 
—

 
262

 
 
 
 
 
 
 
$
10,671

 
—

 
—

 
10,671


Other Fair Value Disclosures
Fair value estimates, methods and assumptions for the Company’s financial instruments not recorded at fair value on a recurring or non-recurring basis are set forth below.
Cash and Cash Equivalents
For cash and due from banks, the carrying amount approximates fair value.
Debt Securities Held-to-Maturity
Our debt securities held-to-maturity portfolio, consisting primarily of 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. Management utilizes various inputs to determine the fair value of the portfolio. The Company obtains one price for each security primarily from a third-party pricing service, which generally uses quoted or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. 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. In the absence of quoted prices and in an illiquid market, 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, rate of return, adjustments for nonperformance and liquidity, and liquidation values. As the Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, 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 and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in adjustment in the prices obtained from the pricing service.

38
Table of Contents

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 this stock and the Bank is required to hold a minimum investment based upon the balance of mortgage related assets held by the member and or FHLB advances outstanding.
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. They 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.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as savings, checking accounts 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 the rates which approximate currently offered for 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 contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.

39
Table of Contents

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.
 
March 31, 2020
 
Carrying
 
Estimated Fair Value
 
value
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
672,020

 
672,020

 
672,020

 
—

 
—

Equities
6,140

 
6,140

 
6,140

 
—

 
—

Debt securities available-for-sale
2,575,446

 
2,575,446

 
—

 
2,575,446

 
—

Debt securities held-to-maturity, net
1,111,525

 
1,169,054

 
—

 
1,105,915

 
63,139

FHLB stock
269,127

 
269,127

 
269,127

 
—

 
—

Loans held for sale
36,311

 
36,311

 
—

 
36,311

 
—

Net loans
21,050,096

 
21,481,376

 
—

 
—

 
21,481,376

Derivative financial instruments
33,028

 
33,028

 
—

 
33,028

 
—

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits, other than time deposits
$
13,997,060

 
13,997,060

 
13,997,060

 
—

 
—

Time deposits
4,187,566

 
4,322,322

 
—

 
4,322,322

 
—

Borrowed funds
5,466,663

 
5,542,288

 
—

 
5,542,288

 
—

Derivative financial instruments
1,259

 
1,259

 
—

 
1,259

 
—

 
December 31, 2019
 
Carrying
 
Estimated Fair Value
 
value
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
174,915

 
174,915

 
174,915

 
—

 
—

Equities
6,039

 
6,039

 
6,039

 
—

 
—

Debt securities available-for-sale
2,695,390

 
2,695,390

 
—

 
2,695,390

 
—

Debt securities held-to-maturity
1,148,815

 
1,190,104

 
—

 
1,116,771

 
73,333

FHLB stock
267,219

 
267,219

 
267,219

 
—

 
—

Loans held for sale
29,797

 
29,797

 
—

 
29,797

 
—

Net loans
21,476,056

 
21,563,627

 
—

 
—

 
21,563,627

Derivative financial instruments
5,989

 
5,989

 
—

 
5,989

 
—

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits, other than time deposits
$
13,853,030

 
13,853,030

 
13,853,030

 
—

 
—

Time deposits
4,007,308

 
4,007,342

 
—

 
4,007,342

 
—

Borrowed funds
5,827,111

 
5,834,895

 
—

 
5,834,895

 
—

Derivative financial instruments
125

 
125

 
—

 
125

 
—


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

40
Table of Contents

financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets 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.

16.    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 March 31,
 
2020
 
2019
 
(Dollars in thousands)
Revenue from contracts with customers included in:
 
 
 
Fees and service charges
$
3,950

 
3,283

Other income
3,019

 
2,223

Total revenue from contracts with customers
$
6,969

 
5,506


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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17.    Recent Accounting Pronouncements
Standard
Description
Required date of adoption
Effect on Consolidated Financial Statements
Standards Adopted in 2020
Measurement of Credit Losses on Financial Instruments
This ASU changes how entities report credit losses for financial assets held at amortized cost and available-for-sale debt securities. The amendments replace the “incurred loss” approach with a methodology that incorporates macroeconomic forecast assumptions and management judgments applicable to and through the expected life of the portfolios based on relevant information about past events, including historical loss experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. The amendments apply to financial assets such as loans, leases and held-to-maturity investments; and certain off-balance sheet credit exposures. The amendments expand credit quality disclosure requirements.
January 1, 2020
The Company adopted the standard’s provisions and all of its related updates on January 1, 2020. The amendments were applied on a modified retrospective basis. See Note 1 - Summary of Significant Accounting Principles for information on the impact of the adoption of ASU 2016-13 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 is evaluating its financial instruments indexed to USD-LIBOR for which the amendments provide expedients and administrative relief. The adoption of reference rate reform did not immediately impact the Company’s Consolidated Financial Statements.
Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)
This new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Specifically, where a cloud computing arrangement includes a license to internal-use software, the software license is accounted for by the customer in accordance with Subtopic 350-40, “Intangibles- Goodwill and Other-Internal-Use Software”.
January 1, 2020

Early adoption permitted
The Company will apply the amendments in this Update prospectively to all implementation costs incurred after January 1, 2020. The adoption of ASU No. 2018-15 did not have an impact on the Company’s Consolidated Financial Statements.
Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement
The amendments remove the requirement to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of such transfers and the valuation processes for Level 3 fair value measurements. The ASU modifies the disclosure requirements for investments in certain entities that calculate net asset value and clarify the purpose of the measurement uncertainty disclosure. The ASU adds disclosure requirements about the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.
January 1, 2020

Early adoption permitted to any removed or modified disclosures and delay of adoption of additional disclosures until the effective date
Changes should be applied retrospectively to all periods presented upon the effective date with the exception of the following, which should be applied prospectively: disclosures relating to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the disclosures for uncertainty measurement. The adoption of ASU 2018-13 did not have an impact on the Company’s Consolidated Financial Statements.


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Standard
Description
Required date of adoption
Effect on Consolidated Financial Statements
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
This ASU simplifies subsequent measurement of goodwill by eliminating Step 2 of the impairment test while retaining the option to perform the qualitative assessment for a reporting unit to determine whether the quantitative impairment test is necessary. The ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units.
January 1, 2020

Early adoption permitted for interim or annual goodwill impairment testing dates beginning after January 1, 2017
The Company is applying the amendments in ASU 2017-04 prospectively for goodwill impairment testing conducted after January 1, 2020.
Standards Not Yet Adopted
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

Early adoption permitted
The update is to be applied prospectively. The Company does not expect ASU 2020-01 to have a material impact on its 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

Early adoption permitted

This update will be effective for the Company January 1, 2021 with early adoption permitted. The Company does not expect ASU No. 2019-12 to have a 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

Early adoption permitted
The update is to be applied on a retrospective basis. The Company will evaluate the effect of ASU 2018-14 on disclosures with regard to employee benefit plans but does not expect a material impact on the Company’s Consolidated Financial Statements.


18.    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 April 29, 2020, the Company declared a cash dividend of $0.12 per share. The $0.12 dividend per share will be paid to stockholders on May 26, 2020, with a record date of May 11, 2020.

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Gold Coast Acquisition
As of the close of business on April 3, 2020, the Company completed its acquisition of 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. As the merger had not been completed as of March 31, 2020, the transaction is not reflected in the consolidated financial statements at and for the periods presented.

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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 and the availability of and costs associated with sources of liquidity. 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, 2019 and the additional risk factor 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 March 31, 2020, we consider the following to be our critical accounting policies.
Allowance for Credit Losses. The allowance for credit losses includes both the allowance for loan and lease losses and the reserve for unfunded lending commitments and 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.
Allowance for Credit Losses On Loans Receivable
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.

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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 typically using a probability of default and loss given default quantitative model methodology. The point in time probability of default and loss given default are then conditioned by macroeconomic scenarios to incorporate reasonable and supportable forecasts that affect the collectability of the reported amount. 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.
The Company estimates the allowance for credit losses on loans using relevant available information from internal and external sources related to past events and current conditions as well as the incorporation of reasonable and supportable 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 depend on a variety of factors including third party economists and firms, industry trends and other available published economic information.
After the reasonable and supportable forecast period, the Company reverts to average historical losses. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. 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 other. Furthermore, the Company considers the inherent uncertainty in quantitative models that are built on historical data.
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, 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.
Acquired assets
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 or not 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.

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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
COVID-19 Pandemic
During the first quarter of 2020, the impacts of the COVID-19 pandemic, including social distancing guidelines, closure of non-essential businesses and shelter-at-home mandates, have caused a global economic downturn. The economic downturn has included a decline in gross domestic product, an increase in unemployment and stock market volatility. The COVID-19 pandemic and its impact on the economy have led to actions including the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), including the establishment of the Paycheck Protection Program (“PPP”) administered by the Small Business Administration (“SBA”). In addition, the Federal Reserve reduced the federal funds target rate by 150 basis points.
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. We have responded to support our employees, customers and communities during these challenging times. The majority of our corporate workforce has transitioned to working remotely and we have successfully transitioned to a “limited service” branch model including drive-thru operations and ATM services, as well as in-branch services available by appointment only. In addition to these changes, we have worked with our healthcare provider to eliminate costs associated with COVID-19 diagnostic testing and are offering zero co-pay telemedicine visits for any reason.
We are supporting our customers by deferring payments for those experiencing hardship because of the pandemic, waiving or refunding certain fees, offering increased mobile deposit limits and increased customer support through our call center and bankers, and we are not reporting COVID-19 related deferrals to credit bureaus. In addition, we are participating in the SBA’s PPP program and have secured approximately $335 million of approvals from the SBA.
We continue to provide support to our communities through grants from the Investors Foundation, as well as through the actions of our employees. In April 2020, the Investors Foundation granted $100,000 to Stony Brook University Hospital Foundation on Long Island to support its treatment of patients suffering from COVID-19. The Investors Foundation also distributed over $1.1 million in grants during the first quarter of 2020. In addition, our employees have provided meals and other support to healthcare workers and their families through the New York metro area.
The CARES Act provides temporary relief from the accounting and disclosure requirements for troubled debt restructuring (“TDRs”) under ASC 310-40 in certain situations. The CARES Act applies this relief to loan modifications in response to the COVID-19 pandemic if the borrower was current as of December 31, 2019 and the modifications are related to the deferral of payment of principal or interest, or a change in the interest rate of the loan. In addition, six government agencies, based on consultation with the FASB Staff, issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (the “Joint Statement”). The Joint Statement announced that short-term modifications (e.g., for six months) made in good faith in response to the coronavirus to borrowers that were current prior to such relief, should not be accounted for as TDRs. The Joint Statement also stated that if the deferral or modification is mandated by the federal government or a state government, these modifications should also not be accounted for as TDRs.

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The following table presents the Company’s borrower loan deferral requests by portfolio segment as of May 4, 2020:
($ in millions)
 
Loan Balance at March 31, 2020
 
Loan Balance of Deferral Requests(1)
 
Percentage of Portfolio
Commercial and industrial
 
$
3,056

 
609

 
20
%
Commercial real estate
 
4,682

 
1,559

 
33
%
Multi-family
 
7,620

 
1,413

 
19
%
Construction
 
274

 
—

 
0
%
Residential and Consumer
 
5,654

 
704

 
12
%
Total loans
 
21,286

 
4,285

 
20
%
(1) As of May 4, 2020. For approximately 35% of deferral requests, the borrower will continue to pay interest, while 65% of deferral requests were for both principal and interest.
Given the unprecedented uncertainty and rapidly 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 current economic conditions persist or continue to deteriorate, we expect that this macroeconomic environment will have a continued adverse effect on our business and results of operations, including additional borrower deferral requests. For more information on how the risks related to COVID-19 may adversely affect our business, results of operations and financial condition, see the additional risk factor included in Part II, Item 1A of this Quarterly Report on Form 10-Q.
First Quarter of 2020 Results Summary
During the first quarter of 2020, we demonstrated financial strength and operational resilience, despite a significant deterioration in economic conditions late in the quarter due to the rapidly evolving COVID-19 pandemic and while protecting the health, safety and welfare of our employees and supporting our customers and communities. 
•
We reported net income of $39.5 million, or $0.17 per diluted share, for the three months ended March 31, 2020 as compared to $48.7 million, or $0.19 per diluted share, for the three months ended December 31, 2019 and $48.2 million, or $0.18 per diluted share, for the three months ended March 31, 2019.
•
Net income for the three months ended March 31, 2020 was impacted by a provision for credit losses of $31.2 million under the Current Expected Credit Losses (“CECL”) accounting standard effective January 1, 2020, as compared to a provision for credit losses of $1.5 million for the three months ended December 31, 2019 and $3.0 million for the three months ended March 31, 2019. The primary drivers of the increase in our provision for credit losses were the adoption of CECL and the economic forecasts that include the estimated impact of the COVID-19 pandemic.
•
Earnings before income taxes and provision for credit losses were $85.4 million for the three months ended March 31, 2020, an increase of $3.0 million, or 3.6%, compared to the three months ended December 31, 2019 and an increase of $14.9 million, or 21.2%, compared to the three months ended March 31, 2019.
•
Net interest margin increased 10 basis points to 2.71% for the three months ended March 31, 2020 compared to the three months ended December 31, 2019.
•
The cost of interest-bearing deposits decreased 20 basis points to 1.39% for the three months ended March 31, 2020 compared to the three months ended December 31, 2019. The Federal Reserve reduced the federal funds target rate by 150 basis points during March 2020.
•
Total deposits increased $324.3 million, or 1.8%, to $18.2 billion at March 31, 2020 from $17.9 billion at December 31, 2019. The loan to deposit ratio declined from 122% at December 31, 2019 to 117% at March 31, 2020.
•
Cash and cash equivalents increased by $497.1 million to $672.0 million at March 31, 2020 from December 31, 2019 as a result of management’s focus on strong liquidity in light of the COVID-19 pandemic.
•
Net loans decreased $426.0 million, or 2.0%, to $21.1 billion at March 31, 2020 from $21.5 billion at December 31, 2019. Commercial and industrial loans increased $104.2 million, or 3.5%, during the three months ended March 31, 2020.
•
Non-accrual loans were $98.4 million, or 0.46% of total loans, at March 31, 2020 as compared to $95.2 million, or 0.44% of total loans, at December 31, 2019 and $117.7 million, or 0.54% of total loans, at March 31, 2019.

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•
Total non-interest expenses were $102.6 million for the three months ended March 31, 2020, a decrease of $4.3 million, or 4.0%, compared to the three months ended December 31, 2019. The efficiency ratio declined to 54.57% for the three months ended March 31, 2020 from 56.45% for the three months ended December 31, 2019.
•
Tier 1 Leverage, Common Equity Tier 1 Risk-Based, Tier 1 Risk-Based and Total Risk-Based Capital Ratios were 9.72%, 13.05%, 13.05% and 14.30%, respectively, at March 31, 2020.
Comparison of Operating Results for the Three Months Ended March 31, 2020 and 2019
Net Income. Net income for the three months ended March 31, 2020 was $39.5 million compared to net income of $48.2 million for the three months ended March 31, 2019.
Net Interest Income. Net interest income increased by $10.6 million, or 6.5%, to $173.3 million for the three months ended March 31, 2020 from $162.7 million for the three months ended March 31, 2019. The net interest margin increased 16 basis points to 2.71% for the three months ended March 31, 2020 from 2.55% for the three months ended March 31, 2019.
Total interest and dividend income decreased by $118,000, or 0.1%, to $256.1 million for the three months ended March 31, 2020. Interest income on loans decreased by $361,000, or 0.2%, to $224.5 million for the three months ended March 31, 2020 as a result of a $225.6 million decrease in the average balance of net loans to $21.23 billion, primarily as a result of paydowns and payoffs, partially offset by loan originations. The weighted average yield on net loans increased 4 basis points to 4.23%. Prepayment penalties, which are included in interest income, totaled $7.6 million for the three months ended March 31, 2020 compared to $3.7 million for the three months ended March 31, 2019. Interest income on all other interest-earning assets, excluding loans, increased by $243,000, or 0.8%, to $31.6 million for the three months ended March 31, 2020 which is attributed to an increase of $268.9 million in the average balance of all other interest-earning assets, excluding loans, to $4.36 billion. The weighted average yield on interest-earning assets, excluding loans, decreased 17 basis points to 2.90% for the three months ended March 31, 2020.
Total interest expense decreased by $10.7 million, or 11.5%, to $82.8 million for the three months ended March 31, 2020. Interest expense on interest-bearing deposits decreased $12.2 million, or 18.7%, to $53.2 million for the three months ended March 31, 2020. The weighted average cost of interest-bearing deposits decreased 31 basis points to 1.39% for the three months ended March 31, 2020. In addition, the average balance of total interest-bearing deposits decreased $62.2 million, or 0.4%, to $15.34 billion for the three months ended March 31, 2020. Interest expense on borrowed funds increased by $1.5 million, or 5.4%, to $29.6 million for the three months ended March 31, 2020. The average balance of borrowed funds increased $451.7 million, or 8.6%, to $5.68 billion for the three months ended March 31, 2020. In addition, the weighted average cost of borrowings decreased 6 basis points to 2.09% for the three months ended March 31, 2020.
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, including the inherent credit risk in these financial instruments, the growth and composition of our portfolios of these financial instruments, and the level of charge-offs. At March 31, 2020, our allowance for credit losses and related quarterly provision were significantly impacted by the adoption of CECL and the impact of COVID-19 on the current and forecasted economic conditions. For the three months ended March 31, 2020, our provision for credit losses was $31.2 million, compared to $3.0 million for the three months ended March 31, 2019. For the three months ended March 31, 2020, net charge-offs were $8.0 million compared to $4.1 million for the three months ended March 31, 2019.
Non-Interest Income. Total non-interest income increased $3.5 million, or 31.0%, to $14.7 million for the three months ended March 31, 2020. This increase was primarily due to an increase of $1.4 million in gain on loans, an increase of $889,000 in other income primarily attributed to non-depository investment products, and an increase of $691,000 in fees and service charge income.
Non-Interest Expenses. Total non-interest expenses were $102.6 million for the three months ended March 31, 2020, a decrease of $851,000, or 0.8%, compared to the three months ended March 31, 2019. The decrease was primarily due to decreases of $1.2 million, $650,000 and $606,000 in advertising and promotional expense, other operating expense and compensation and benefit expense, respectively, partially offset by increases of $1.1 million and $1.0 million in federal insurance premiums and professional fees, respectively.
Income Taxes. Income tax expense for the first quarter of 2020 was $14.6 million compared to $19.3 million for the first quarter 2019.  The effective tax rate was 27.0% for the three months ended March 31, 2020 and 28.6% for the three months ended March 31, 2019. 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.

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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.

 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
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
 
$
368,027

 
$
840

 
0.91
%
 
$
175,281

 
$
535

 
1.22
%
Equity securities
 
6,090

 
33

 
2.17
%
 
5,811

 
37

 
2.55
%
Debt securities available-for-sale
 
2,581,874

 
17,271

 
2.68
%
 
2,111,832

 
15,416

 
2.92
%
Debt securities held-to-maturity
 
1,128,119

 
8,994

 
3.19
%
 
1,532,764

 
11,002

 
2.87
%
Net loans
 
21,227,295

 
224,529

 
4.23
%
 
21,452,923

 
224,890

 
4.19
%
Stock in FHLB
 
271,043

 
4,432

 
6.54
%
 
260,543

 
4,337

 
6.66
%
Total interest-earning assets
 
25,582,448

 
256,099

 
4.00
%
 
25,539,154

 
256,217

 
4.01
%
Non-interest-earning assets
 
956,423

 
 
 
 
 
942,523

 
 
 
 
Total assets
 
$
26,538,871

 
 
 
 
 
$
26,481,677

 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Savings deposits
 
$
2,033,761

 
$
3,908

 
0.77
%
 
$
2,039,919

 
$
4,370

 
0.86
%
Interest-bearing checking
 
5,565,365

 
16,660

 
1.20
%
 
4,975,209

 
22,082

 
1.78
%
Money market accounts
 
3,819,098

 
14,224

 
1.49
%
 
3,630,708

 
14,246

 
1.57
%
Certificates of deposit
 
3,918,133

 
18,387

 
1.88
%
 
4,752,700

 
24,724

 
2.08
%
Total interest-bearing deposits
 
15,336,357

 
53,179

 
1.39
%
 
15,398,536

 
65,422

 
1.70
%
Borrowed funds
 
5,681,344

 
29,637

 
2.09
%
 
5,229,663

 
28,117

 
2.15
%
Total interest-bearing liabilities
 
21,017,701

 
82,816

 
1.58
%
 
20,628,199

 
93,539

 
1.81
%
Non-interest-bearing liabilities
 
2,889,098

 
 
 
 
 
2,868,166

 
 
 
 
Total liabilities
 
23,906,799

 
 
 
 
 
23,496,365

 
 
 
 
Stockholders’ equity
 
2,632,072

 
 
 
 
 
2,985,312

 
 
 
 
Total liabilities and stockholders’ equity
 
$
26,538,871

 
 
 
 
 
$
26,481,677

 
 
 
 
Net interest income
 
 
 
$
173,283

 
 
 
 
 
$
162,678

 
 
Net interest rate spread(1)
 
 
 
 
 
2.42
%
 
 
 
 
 
2.20
%
Net interest-earning assets(2)
 
$
4,564,747

 
 
 
 
 
$
4,910,955

 
 
 
 
Net interest margin(3)
 
 
 
 
 
2.71
%
 
 
 
 
 
2.55
%
Ratio of interest-earning assets to total interest-bearing liabilities
 
1.22

 
 
 
 
 
1.24

 
 
 
 

(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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Table of Contents

Comparison of Financial Condition at March 31, 2020 and December 31, 2019
Total Assets. Total assets decreased by $21.2 million, or 0.1%, to $26.68 billion at March 31, 2020 from December 31, 2019. Net loans decreased by $426.0 million, or 2.0%, to $21.05 billion at March 31, 2020 from December 31, 2019 and total securities decreased by $157.1 million, or 4.1%, to $3.69 billion at March 31, 2020 from December 31, 2019. Cash and cash equivalents increased by $497.1 million to $672.0 million at March 31, 2020 from December 31, 2019 as a result of management’s focus on strong liquidity in light of the COVID-19 pandemic.
Net Loans. Net loans decreased by $426.0 million, or 2.0%, to $21.05 billion at March 31, 2020 from $21.48 billion at December 31, 2019. The detail of the loan portfolio is below:

 
March 31, 2020
 
December 31, 2019
 
(Dollars in thousands)
Commercial loans:
 
 
 
Multi-family loans
$
7,619,676

 
7,813,236

Commercial real estate loans
4,682,009

 
4,831,347

Commercial and industrial loans
3,055,501

 
2,951,306

Construction loans
274,588

 
262,866

Total commercial loans
15,631,774

 
15,858,755

Residential mortgage loans
4,955,755

 
5,144,718

Consumer and other
698,580

 
699,796

Total loans
21,286,109

 
21,703,269

Deferred fees, premiums and other, net
7,275

 
907

Allowance for loan losses
(243,288
)
 
(228,120
)
Net loans
$
21,050,096

 
21,476,056

The following tables present the Company’s commercial real estate loan portfolio and commercial and industrial loan portfolio at March 31, 2020 by industry sector:

Commercial real estate loans
 
 
 
 
 
 
 
Industry
 
Loan Balance
(in millions)
 
Percentage of CRE Loans
 
Percentage of Total Loans
Accommodation and Food Service
 
$
109

 
2
%
 
1
%
Arts, Entertainment, and Recreation
 
18

 
0
%
 
0
%
Health Care and Social Assistance
 
42

 
1
%
 
0
%
Mixed Use Property
 
426

 
9
%
 
2
%
Office
 
1,179

 
25
%
 
6
%
Retail Store
 
939

 
20
%
 
4
%
Shopping Center
 
835

 
18
%
 
4
%
Warehouse
 
789

 
17
%
 
4
%
Other
 
345

 
7
%
 
2
%
Total Commercial Real Estate
 
$
4,682

 
100
%
 
22
%

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Table of Contents

Commercial and industrial loans
 
 
 
 
 
 
 
Industry
 
Loan Balance
(in millions)
 
Percentage of C&I Loans
 
Percentage of Total Loans
Accommodation and Food Service
 
$
278

 
9
%
 
1
%
Administrative and Support and Waste Management
 
113

 
4
%
 
1
%
Agriculture, Forestry, Fishing and Hunting
 
20

 
1
%
 
0
%
Arts, Entertainment, and Recreation
 
47

 
2
%
 
0
%
Construction
 
208

 
7
%
 
1
%
Educational Service
 
80

 
3
%
 
0
%
Finance and Insurance
 
199

 
7
%
 
1
%
Health Care and Social Assistance
 
653

 
21
%
 
3
%
Information
 
29

 
1
%
 
0
%
Management of Companies and Enterprises
 
2

 
0
%
 
0
%
Manufacturing
 
213

 
7
%
 
1
%
Mining, Quarrying, and Oil and Gas Extraction
 
61

 
2
%
 
0
%
Professional, Scientific, and Technical Services
 
79

 
3
%
 
0
%
Public Administration
 
1

 
0
%
 
0
%
Real Estate and Rental
 
511

 
17
%
 
2
%
Retail Trade - clothing, home, gasoline, health
 
83

 
3
%
 
0
%
Retail Trade - sporting, hobby, vending, e-commerce
 
7

 
0
%
 
0
%
Transportation - air, rail, truck, water, pipeline
 
196

 
6
%
 
1
%
Utilities
 
2

 
0
%
 
0
%
Wholesale Trade
 
101

 
3
%
 
0
%
Other
 
173

 
6
%
 
1
%
Total Commercial and Industrial
 
$
3,056

 
100
%
 
14
%
During the three months ended March 31, 2020, we originated or funded $225.9 million in multi-family loans, $217.0 million in commercial and industrial loans, $139.6 million in commercial real estate loans, $87.2 million in residential loans, $26.2 million in construction loans and $15.0 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. At March 31, 2020, interest-only residential and consumer loans totaled $18.5 million, which represented less than 1% of the residential and consumer portfolios. We no longer originate residential mortgage loans without verifying income. At March 31, 2020, these loans totaled $132.8 million. From time to time and for competitive purposes, we originate interest-only commercial real estate and multi-family loans. At March 31, 2020, these loans totaled $1.32 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.

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The following table sets forth non-accrual loans (excluding loans held-for-sale) on the dates indicated as well as certain asset quality ratios:
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
# of Loans
 
Amount
 
# of Loans
 
Amount
 
# of Loans
 
Amount
 
# of Loans
 
Amount
 
# of Loans
 
Amount
 
(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multi-family
9

 
$
23.4

 
8

 
$
23.3

 
6

 
$
19.6

 
14

 
$
34.1

 
14

 
$
34.1

Commercial real estate
21

 
11.4

 
22

 
12.0

 
30

 
12.3

 
27

 
8.1

 
32

 
9.8

Commercial and industrial
22

 
17.0

 
18

 
12.5

 
16

 
12.0

 
13

 
18.0

 
14

 
17.2

Construction
—

 
—

 
—

 
—

 
—

 
—

 
1

 
0.2

 
1

 
0.2

Total commercial loans
52

 
51.8

 
48

 
47.8

 
52

 
43.9

 
55

 
60.4

 
61

 
61.3

Residential and consumer
258

 
46.6

 
255

 
47.4

 
261

 
48.2

 
275

 
51.2

 
296

 
56.4

Total non-accrual loans
310

 
$
98.4

 
303

 
$
95.2

 
313

 
$
92.1

 
330

 
$
111.6

 
357

 
$
117.7

Accruing troubled debt restructured loans
55

 
$
12.8

 
57

 
$
13.1

 
58

 
$
12.5

 
56

 
$
12.2

 
54

 
$
13.6

Non-accrual loans to total loans
 
 
0.46
%
 
 
 
0.44
%
 
 
 
0.42
%
 
 
 
0.51
%
 
 
 
0.54
%
Allowance for loan losses as a percent of non-accrual loans
 
 
247.22
%
 
 
 
239.66
%
 
 
 
247.62
%
 
 
 
207.83
%
 
 
 
199.44
%
Allowance for loan losses as a percent of total loans
 
 
1.14
%
 
 
 
1.05
%
 
 
 
1.05
%
 
 
 
1.05
%
 
 
 
1.08
%
Total non-accrual loans were $98.4 million at March 31, 2020 compared to $95.2 million at December 31, 2019 and $117.7 million at March 31, 2019. At March 31, 2020 there were $5.5 million of commercial and industrial loans and $3.7 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 3.94% at March 31, 2020 from 5.36% at December 31, 2019. We continue to proactively and diligently work to resolve our troubled loans.
At March 31, 2020, there were $35.6 million of loans deemed as TDRs, of which $26.3 million were residential and consumer loans, $6.9 million were commercial and industrial loans and $2.4 million were commercial real estate loans. TDRs of $12.8 million were classified as accruing and $22.8 million were classified as non-accrual at March 31, 2020.
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 March 31, 2020, the Company has deemed potential problem loans totaling $91.9 million, which is comprised of 6 commercial real estate loans totaling $23.5 million, 10 multi-family loans totaling $58.0 million and 25 commercial and industrial loans totaling $10.4 million. Management is actively monitoring all of these loans.
The ratio of non-accrual loans to total loans was 0.46% at March 31, 2020 compared to 0.44% at December 31, 2019. The allowance for loan losses as a percentage of non-accrual loans was 247.54% at March 31, 2020 compared to 239.66% at December 31, 2019. At March 31, 2020, our allowance for loan losses as a percentage of total loans was 1.14% compared to 1.05% at December 31, 2019.
The allowance for loan losses increased by $15.2 million to $243.3 million at March 31, 2020 from $228.1 million at December 31, 2019. The increase reflects a decrease of $3.6 million upon CECL adoption, a decrease of $8.0 million resulting from net charge-offs and an increase of $26.8 million from the provision for credit losses related to our loan portfolio. Our allowance for loan losses at March 31, 2020 was significantly impacted by the adoption of CECL and the impact of COVID-19

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Table of Contents

on current and forecasted economic conditions. Future increases in the allowance for loan losses may be necessary based on the growth and composition of the loan portfolio, the level of loan delinquency and the reasonable and supportable forecasted economic condition over the life of our loans.
The following table sets forth the allowance for loan losses at March 31, 2020 and December 31, 2019 allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
 
 
March 31, 2020
 
December 31, 2019
 
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
$
76,102

 
35.8
%
 
$
74,099

 
36.0
%
Commercial real estate loans
43,318

 
22.0
%
 
50,925

 
22.3
%
Commercial and industrial loans
75,301

 
14.3
%
 
74,396

 
13.6
%
Construction loans
6,625

 
1.3
%
 
6,816

 
1.2
%
Residential mortgage loans
36,158

 
23.3
%
 
17,391

 
23.7
%
Consumer and other loans
5,784

 
3.3
%
 
2,548

 
3.2
%
Unallocated
—

 
—

 
1,945

 
—

Total allowance
$
243,288

 
100.0
%
 
$
228,120

 
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, investment grade corporate debt instruments, and mutual funds. In addition, the Company may invest in equity securities subject to certain limitations. Purchase decisions are based upon a thorough analysis of each security 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 March 31, 2020, our securities portfolio represented 13.8% of our total assets. Securities, in the aggregate, decreased by $157.1 million, or 4.1%, to $3.69 billion at March 31, 2020 from December 31, 2019. This decrease was primarily a result of paydowns, partially offset by purchases and an increase in unrealized gains. At March 31, 2020, our allowance for credit losses on held-to-maturity debt securities was $3.0 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 $1.9 million, or 0.7%, to $269.1 million at March 31, 2020 from $267.2 million at December 31, 2019. 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 $219.9 million at March 31, 2020 and $218.5 million at December 31, 2019. Other assets were $129.6 million at March 31, 2020 and $82.3 million at December 31, 2019.
Deposits.  At March 31, 2020, deposits totaled $18.18 billion, representing 75.5% of our total liabilities. Our long-term 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 remain committed to our plan of attracting more core deposits because core deposits represent a more stable source of low cost funding and may be less sensitive to changes in market interest rates.
We have a suite of commercial deposit products, designed to appeal to small and mid-sized businesses and non-profit organizations. 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, competitive forces and growth goals. 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 $324.3 million, or 1.8%, to $18.18 billion at March 31, 2020 from $17.86 billion at December 31, 2019 primarily driven by increases in money market accounts and time deposits, partially offset by a decrease in checking accounts.

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Table of Contents

Checking accounts decreased $127.3 million to $7.86 billion at March 31, 2020 from $7.99 billion at December 31, 2019. Core deposits represented approximately 77% of our total deposit portfolio at March 31, 2020 compared to 78% at December 31, 2019.
The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated:
 
March 31, 2020
 
December 31, 2019
 
Balance
 
Percent of Total Deposit
 
Balance
 
Percent of Total Deposit
 
(Dollars in thousands)
Non-interest bearing:
 
 
 
 
 
 
 
Checking accounts
$
2,422,891

 
13.3
%
 
$
2,472,232

 
13.8
%
Interest-bearing:
 
 
 
 
 
 
 
Checking accounts
5,435,066

 
29.9
%
 
5,512,979

 
30.9
%
Money market deposits
4,046,257

 
22.3
%
 
3,817,718

 
21.4
%
Savings
2,092,846

 
11.5
%
 
2,050,101

 
11.5
%
Certificates of deposit
4,187,566

 
23.0
%
 
4,007,308

 
22.4
%
Total Deposits
$
18,184,626

 
100.0
%
 
$
17,860,338

 
100.0
%
Borrowed Funds.  Borrowings are primarily with the FHLB and are collateralized by our residential and commercial mortgage portfolios. Borrowed funds decreased by $360.4 million, or 6.2%, to $5.47 billion at March 31, 2020 from $5.83 billion at December 31, 2019 primarily driven by the increase in deposits.
Other Liabilities. Other liabilities increased by $18.2 million, or 22.2%, to $100.0 million at March 31, 2020 from $81.8 million at December 31, 2019 primarily driven by our allowance for credit losses on unfunded commitments resulting from the adoption of CECL. At March 31, 2020, our allowance for credit losses on unfunded commitments was $17.1 million.
Stockholders’ Equity. Stockholders’ equity decreased by $27.2 million to $2.59 billion at March 31, 2020 from $2.62 billion at December 31, 2019. The decrease was primarily attributed to other comprehensive loss of $32.8 million and cash dividends paid of $0.12 per share totaling $29.7 million during the three months ended March 31, 2020. In addition, stockholders’ equity decreased by $8.5 million on January 1, 2020 in connection with the adoption of CECL. These reductions to stockholders’ equity were partially offset by net income of $39.5 million and share-based plan activity of $5.2 million for the three months ended March 31, 2020.
Liquidity and Capital Resources
The Company’s primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, FHLB 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 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 borrowings from correspondent banks. Available borrowing capacity and other available liquidity sources totaled approximately $9.2 billion at March 31, 2020. 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 that began in the first quarter of 2020 from the COVID-19 pandemic. For more information on the effects of the pandemic, see Executive Summary- COVID-19 Pandemic.
At March 31, 2020, the Company had no overnight borrowings outstanding. The Company had $461.0 million of overnight borrowings outstanding at December 31, 2019. The Company borrows directly from the FHLB and various financial institutions. The Company had total borrowings of $5.47 billion at March 31, 2020, a decrease of $360.4 million from $5.83 billion at December 31, 2019.
In the normal course of business, the Company routinely enters into various commitments, primarily relating to the origination of loans. At March 31, 2020, outstanding commitments to originate loans totaled $476.9 million; outstanding unused lines of credit totaled $1.63 billion; standby letters of credit totaled $32.3 million and outstanding commitments to sell loans totaled $87.9 million. 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 $3.82 billion at March 31, 2020. Based upon historical experience, management estimates that a significant portion of such deposits will remain with the Company.

55
Table of Contents

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 4, 2020, S&P revised our rating outlook to negative due to economic downturn from COVID-19.
Regulatory Capital and Developments.
CECL. 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. For more information, see Note 1, Summary of Significant Accounting Principles. 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 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 Plan. 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.
Minimum Capital Requirements. In July 2013, the Federal Deposit Insurance Corporation and the other federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The Final Capital Rules also revised the quantity and quality of required minimum risk-based and leverage capital requirements, consistent with the Reform Act and the Third Basel Accord adopted by the Basel Committee on Banking Supervision, or Basel III capital standards. In doing so, the Final Capital Rules:
•
Established a new minimum Common equity tier 1 risk-based capital ratio (common equity tier 1 capital to total risk-weighted assets) of 4.5% and increased the minimum Tier 1 risk-based capital ratio from 4.0% to 6.0%, while maintaining the minimum Total risk-based capital ratio of 8.0% and the minimum Tier 1 leverage capital ratio of 4.0%.
•
Revised the rules for calculating risk-weighted assets to enhance their risk sensitivity.
•
Phased out trust preferred securities and cumulative perpetual preferred stock as Tier 1 capital.
•
Added a requirement to maintain a minimum Conservation Buffer, composed of Common equity tier 1 capital, of 2.5% of risk-weighted assets, to be applied to the new Common equity tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio and the Total risk-based capital ratio, which means that banking organizations, on a fully phased in basis as of January 1, 2019, must maintain a minimum Common equity tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5% and a minimum Total risk-based capital ratio of 10.5% or have restrictions imposed on capital distributions and discretionary cash bonus payments.
•
Changed the definitions of capital categories for insured depository institutions for purposes of the Federal Deposit Insurance Corporation Improvement Act of 1991 prompt corrective action provisions. Under these revised definitions, to be considered well-capitalized, an insured depository institution must have a Tier 1 leverage capital ratio of at least 5.0%, a Common equity tier 1 risk-based capital ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least 8.0% and a Total risk-based capital ratio of at least 10.0%.
The new minimum regulatory capital ratios and changes to the calculation of risk-weighted assets became effective for the Bank and Company on January 1, 2015. The required minimum Conservation Buffer commenced on January 1, 2016 at 0.625% and increased in annual increments to 2.5% on January 1, 2019, which is the fully phased in Conservation Buffer. The rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the minimum Conservation Buffer is not met. As of March 31, 2020, the Company and the Bank met the required Conservation Buffer of 2.5%.

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As of March 31, 2020, the Bank and the Company were considered “well capitalized” under applicable regulations and exceeded all regulatory capital requirements as follows:
 
As of March 31, 2020 (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
$
2,246,202

 
8.49
%
 
$
1,057,718

 
4.00
%
 
$
1,322,147

 
5.00
%
Common Equity Tier 1 Risk-Based Capital
2,246,202

 
11.43
%
 
1,376,059

 
7.00
%
 
1,277,769

 
6.50
%
Tier 1 Risk Based Capital
2,246,202

 
11.43
%
 
1,670,929

 
8.50
%
 
1,572,639

 
8.00
%
Total Risk-Based Capital
2,491,969

 
12.68
%
 
2,064,089

 
10.50
%
 
1,965,799

 
10.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Investors Bancorp, Inc.:
 
 
 
 
 
 
 
 
 
 
 
Tier 1 Leverage Ratio
$
2,574,162

 
9.72
%
 
$
1,059,193

 
4.00
%
 
n/a
 
n/a
Common Equity Tier 1 Risk-Based Capital
2,574,162

 
13.05
%
 
1,380,811

 
7.00
%
 
n/a
 
n/a
Tier 1 Risk Based Capital
2,574,162

 
13.05
%
 
1,676,699

 
8.50
%
 
n/a
 
n/a
Total Risk-Based Capital
2,820,767

 
14.30
%
 
2,071,217

 
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.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
In the ordinary course of its operations, the Company engages in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in the financial statements.
The following table shows the contractual obligations of the Company by expected payment period as of March 31, 2020:
Contractual Obligations
 
Total
 
Less than One Year
 
One-Two Years
 
Two-Three Years
 
More than Three Years
 
 
(In thousands)
Debt obligations (excluding capitalized leases)
 
$
5,466,663

 
950,000

 
625,000

 
1,299,964

 
2,591,699

Commitments to originate and purchase loans
 
$
476,912

 
476,912

 
—

 
—

 
—

Commitments to sell loans
 
$
87,900

 
87,900

 
—

 
—

 
—


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 March 31, 2020. Additionally, at March 31, 2020, the Company’s commitments to fund unused lines of credit totaled $1.63 billion. Commitments to originate loans, commitments to fund unused lines of credit and standby letters of credit are agreements to lend additional funds to customers as long as there have been no violations of any of the conditions established in the agreements. Commitments generally have a fixed expiration or other termination clauses which may or may not require a payment of a fee. Since some of these loan commitments are expected to expire without being drawn upon, total commitments do not necessarily represent future cash requirements.
In addition to the contractual obligations previously discussed, we have other liabilities which includes $181.9 million of operating lease liabilities and $3.4 million of finance lease liabilities. These contractual obligations as of March 31, 2020 have not changed significantly from December 31, 2019.
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.
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 months ended March 31, 2020, such derivatives were used (i) to hedge the variability in

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cash flows associated with borrowings and (ii) to hedge changes in the fair value of certain pools of prepayable fixed- and adjustable-rate assets. These derivatives had an aggregate notional amount of $3.20 billion as of March 31, 2020. The fair value of derivatives designated as hedging activities as of March 31, 2020 was a liability of $798,000, inclusive of accrued interest and variation margin posted in accordance with the Chicago Mercantile Exchange.
The Company has credit derivatives resulting from participations 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.
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, 2019 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 (i.e., loan commitments); the effect of loan prepayments, deposit activity; 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 amount and rate of new loan originations, the ability of borrowers to repay variable rate loans, the volume of loan prepayments and the mix and flow of deposits.
The general objective of our interest rate risk management process is to determine the appropriate level of risk given our business model and then to manage that risk in a manner consistent with that risk appetite. Our Asset Liability Committee, which consists of senior management and executives, evaluates the interest rate risk inherent in our balance sheet, the operating environment and capital and liquidity requirements and may 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. As of March 31, 2020 and December 31, 2019, the Company had cash flow and fair value hedges with aggregate notional amounts of $3.20 billion and $2.68 billion, respectively. Included in the fair value hedges are $475.0 million in asset swap transactions where fixed rate loan payments are exchanged for variable rate payments. These transactions were executed in an effort to reduce the Company’s exposure to rising rates. During the year ended December 31, 2019, the Company terminated three interest rate swaps with an aggregate notional amount of $1.00 billion which had been included in asset swap transactions.
We actively evaluate interest rate risk in connection with our lending, investing and deposit activities and our off-balance sheet positions. At March 31, 2020, 23.3% of our total loan portfolio was comprised of residential mortgages, of which approximately 27.9% was in variable rate products, while 72.1% was in fixed rate products. Our variable rate and short 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.
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

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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, reinvestment rates and deposit decay rates.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative 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 $5.00 billion in financial instruments which are indexed to USD-LIBOR for which it is monitoring the activity and evaluating the related risks.
Quantitative Analysis. The table below sets forth, as of March 31, 2020, 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) (2)
 
Net Interest Income (3)
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
 
$
2,760,216

 
(230,698
)
 
(7.7
)%
 
$
696,407

 
(40,164
)
 
(5.5
)%
0bp
 
$
2,990,914

 
—

 
—

 
$
736,571

 
—

 
—

-100bp
 
$
2,270,601

 
(720,313
)
 
(24.1
)%
 
$
740,503

 
3,932

 
0.5
 %
(1)
Assumes an instantaneous and parallel shift in interest rates at all maturities.
(2)
EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3)
Assumes a gradual change in interest rates over a one year period at all maturities.
The table above indicates that at March 31, 2020, in the event of a 200 basis point increase in interest rates, we would be expected to experience a 7.7% decrease in EVE and a $40.2 million, or 5.5%, decrease in net interest income. In the event of a 100 basis point decrease in interest rates, we would be expected to experience a 24.1% decrease in EVE and a $3.9 million, or 0.5%, 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.
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 in the above interest rate risk measurements. Modeling EVE and net interest income sensitivity requires certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The EVE and net interest income table presented above assumes 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 table also assumes a particular change in interest rates is reflected uniformly across the yield curve. Accordingly, although the EVE and net interest income table provide an indication of our sensitivity to interest rate changes at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effects of changes in market interest rates on our EVE and net interest income.

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.

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There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2020 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 factor represents 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, 2019 as filed with the Securities and Exchange Commission. To the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement 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 economic impact of the COVID-19 outbreak may have an adverse impact on our business and results of operations.
In December 2019, a novel coronavirus was reported in China, and, in March 2020, the World Health Organization declared COVID-19 a pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments, including New Jersey and New York, have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak, more than 30 million people nationwide have filed claims for unemployment, and stock markets have declined in value and in particular, bank stocks have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark federal funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Additionally, in many states in which we do business or in which our borrowers and loan collateral are located, temporary bans on evictions and foreclosures are in effect and could remain in effect for an extended period of time. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we may be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, results of operations, risk-weighted assets and regulatory capital:

•
because the incidence of reported COVID-19 cases and related hospitalizations and deaths have been higher in the New York metropolitan area compared to other areas of the country, the economic downturn caused by the pandemic may be deeper and more sustained in the New York metropolitan area relative to other areas of the country;
•
demand for our products and services may decline, making it difficult to grow assets and income;
•
if the economy is unable to substantially reopen, and high levels of unemployment continue, for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
•
collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
•
our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

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•
an increase in non-performing loans due to the COVID-19 pandemic would result in a corresponding increase in the risk-weighting of assets and therefore an increase in required regulatory capital;
•
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
•
as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;
•
deposits, including municipal deposits, could decline if customers need to draw on available balances as a result of the economic downturn;
•
a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;
•
our cyber security risks are increased due to expanded reliance on our information technology systems as the result of an increase in the number of employees working remotely;
•
we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and
•
as a result of the COVID-19 pandemic, there may be unexpected developments in financial markets, regulations and consumer and customer behavior.
    
The Company is not a traditional SBA lender however, we are an active participant in the SBA’s Paycheck Protection Program (PPP) established under the CARES Act. The PPP authorizes financial institutions to make federally-guaranteed loans to qualifying small businesses and non-profits organizations. These loans carry a maturity of two years and an interest rate of 1% per annum. The PPP provides that such loans may be forgiven if the borrowers meet certain requirements with respect to maintaining employee headcount and payroll and the use of the loan proceeds after the loan is originated. If not forgiven, these loans will be guaranteed by the SBA under the SBA’s section 7(a) program. We have secured approximately $335 million of approvals from the SBA. In light of the speed at which the PPP was implemented, particularly due to the “first come first served” nature of the program, the loans originated under this program may present potential fraud risk and operational risk, increasing the risk that loan forgiveness may not be obtained by the borrowers and that the guaranty may not be honored. In addition, there is risk that the borrowers may not qualify for the loan forgiveness feature due to the conduct of the borrower after the loan is originated. These factors may result in us having to hold a significant amount of these low-yield loans on our books for a significant period of time.

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability. Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

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 March 31, 2020 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)
January 1, 2020 through January 31, 2020
—

 
$
—

 
—

 
14,607,794

February 1, 2020 through February 29, 2020
70,303

 
11.35

 
—

 
14,607,794

March 1, 2020 through March 31, 2020
14,086

 
9.45

 
—

 
14,607,794

Total
84,389

 
$
11.04

 
—

 
14,607,794

(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 14,607,794 shares yet to be repurchased as of March 31, 2020.

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(2) 84,389 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:
 

  
 
 
 

  
 
 
 

  
 
 
 

  
 
 
 

  
 
 
 
101.INS

  
The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
101.SCH

 
Inline XBRL Taxonomy Extension Schema Document
101.CAL

 
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF

 
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB

 
Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE

 
Inline XBRL Taxonomy Presentation Linkbase Document
104

 
Inline XBRL Cover Page Interactive Data File
 
(1)
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: May 8, 2020
 
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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