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Item 1A. Risk Factors

2022-03-01 compared with 2021-03-01 · 81 added, 106 removed, 168 unchanged (53% of the section changed)

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If any of the following conditions or events actually occur, our business, financial condition or results of operations could be negatively affected, the market price of your investment in the Company’s common stock could decline, and you could lose all or a part of your investment in the Company’s common stock.

The Company's risk factors are categorized as follows:

• Risks Related to the Economy, Financial Markets, and Interest Rates

• Risks Related to Regulatory, Compliance, Environmental and Legal Matters

• Risks Related to Business Environment and Operations.

• Risks Related to Technology and Security

Risks Related to the Economy, Financial Markets, and Interest Rates

Changes to the underlying drivers of our net interest income could adversely affect our results of operations and financial condition.

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In addition, the effect of rising rates could be compounded if deposit customers move funds into higher yielding accounts or are lost to competitors offering higher rates on their deposit products.

In the event of a 300 basis point increase in interest rates, whereby rates ramp up evenly over a twelve-month period, and assuming management took no actions to mitigate the effect of such change, we are projecting that our net interest income for such period would increase 2.6% or $8.8 million.

Conversely, should market interest rates fall below current levels, our net interest income could also be negatively affected if competitive pressures prevented us from reducing rates on our deposits, while the yields on our assets decrease through loan prepayments and interest rate adjustments.

Conversely, should market interest rates fall below current levels, our net interest income could also be negatively affected if competitive pressures prevent us from reducing rates on our deposits, while the yields on our assets decrease through loan prepayments and interest rate adjustments.

Changes in interest rates also affect the value of our interest-earning assets and in particular our securities portfolio.

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Unrealized gains and losses on securities available for sale are reported as a separate component of stockholders’ equity.

Decreases in the fair value of securities available for sale resulting from increases in interest rates therefore could have a temporary adverse effect on stockholders’ equity.

Therefore, decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders’ equity.

Volatility and uncertainty related to inflation and the effects of inflation, which may lead to increased costs for businesses and consumers and potentially contribute to poor business and economic conditions generally, may also enhance or contribute to some of the risks discussed herein.

For example, higher inflation, or volatility and uncertainty related to inflation, could reduce demand for the Company’s products, adversely affect the creditworthiness of the Company’s borrowers or result in lower values for the Company’s investment securities and other interest-earning assets.

Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including escalating military tension between Russia and Ukraine, terrorism or other geopolitical events.

If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings could decrease.

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In determining the amount of the allowance for credit losses, we rely on our loan monitoring program, our loan quality reviews, our credit risk rating process, loan portfolio trends, our experience, our evaluation of economic conditions and our selection of a reasonable and supportable forecast, among other factors.

Furthermore, on January 1, 2020 the Company adopted CECL which requires us to measure projected credit losses over the estimated life of the asset by applying quantitative and qualitative loss factors we derive using a macroeconomic forecast that we deem most likely to occur.

This new standard may increase not only the amount of allowance for credit losses, but also the volatility of our provisions for credit losses.

The Company measures projected credit losses over the estimated life of the asset by applying quantitative and qualitative loss factors we derive using a macroeconomic forecast that we deem most likely to occur.

If our assumptions prove to be incorrect, or if delinquencies or non-accrual and non-performing loans increase, the allowance for credit losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our allowance.

Material additions to the allowance would materially decrease our net income.

In addition, bank regulators periodically review our allowance for credit losses and may require us to increase our provision for loan losses or recognize further loan charge-offs.

Commercial real estate, commercial & industrial and construction loans expose us to increased risk and earnings volatility.

In addition, bank regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize further loan charge-offs.

Commercial real estate, commercial and industrial and construction loans expose us to increased risk and earnings volatility.

We consider our commercial real estate loans, commercial and industrial loans and construction loans to be higher risk categories in our loan portfolio.

These loans are particularly sensitive to economic conditions.

At December 31, 2020, our portfolio of commercial real estate loans, including multi-family loans, totaled $4.94 billion, or 50.8% of total loans, our commercial & industrial loans totaled $2.57 billion, or 26.4% of portfolio loans, and our construction loans totaled $541.9 million, or 5.6% of total loans.

At December 31, 2021, our portfolio of commercial real estate loans, including multi-family loans, totaled $5.19 billion, or 54.6% of total loans, our commercial and industrial loans totaled $2.19 billion, or 23.0% of portfolio loans, and our construction loans totaled $683.2 million, or 7.2% of total loans.

We plan to continue to emphasize the origination of these types of loans.

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This type of collateral typically does not yield substantial recovery in the event we need to foreclose on it and may rapidly deteriorate, disappear, or be misdirected in advance of foreclosure.

This adds to the potential that our charge-offs will be more volatile than we have experienced in the past, which could significantly negatively affect our earnings in any quarter.

In addition, some of our construction loans pose higher risk levels than the levels expected at origination, as projects may stall, absorption may be slower than projected or sell at prices lower than expected.

In addition, many of our borrowers also have more than one commercial real estate or construction loan outstanding with us.

Consequently, an adverse development with respect to one loan or one credit relationship may expose us to significantly greater risk of loss.

This adds to the potential that our charge-offs will be volatile, which could significantly negatively affect our earnings in any quarter.

In addition, some of our construction loans may pose higher risk than the levels expected at origination, as projects may stall, absorption may be slower than projected or sales prices may be lower than forecasted.

In addition, many of our borrowers have more than one commercial real estate or construction loan outstanding with us.

Consequently, an adverse development with respect to one loan or one credit relationship may expose the Company to significantly greater risk of loss.

Risks Related to Regulatory, Compliance, Environmental and Legal Matters

We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.

We are subject to the extensive regulation, supervision and examination of various regulatory authorities, but primarily by the New Jersey Department of Banking and Insurance, our chartering authority, and by the FDIC, as insurer of our deposits.

We are subject to extensive regulation, supervision and examination of various regulatory authorities, but primarily by the New Jersey Department of Banking and Insurance, our chartering authority, and by the FDIC, as insurer of our deposits.

As a bank holding company, we are subject to regulation and oversight by the Federal Reserve Board.

Such regulation and supervision govern the activities in which a bank and its holding company may engage and are intended primarily for the protection of the insurance fund and depositors.

These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the requirement for additional capital, the imposition of restrictions on our operations, the classification of our assets, the adequacy of our allowance for credit losses, and our management of risks posed by our reliance on third party vendors.

Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, could have a material impact on our operations.

The potential exists for additional federal or state laws and regulations regarding capital requirements, lending and funding practices, liquidity standards, and bank regulatory agencies are expected to remain active in responding to concerns and trends that may be identified in our examinations, which may include the potential for the issuance of formal enforcement orders.

Such regulation and supervision governs the activities in which a bank and its holding company may engage and is intended primarily for the protection of the insurance fund and depositors.

These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to require that we hold additional capital, restrict our operations,

modify the classification of our assets, increase our allowance for credit losses, and strengthen the management of risks posed by our reliance on third party vendors.

Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, could have a material impact on the Company's operations.

The potential exists for additional federal or state laws and regulations regarding capital requirements, lending and funding practices and, liquidity standards, and bank regulatory agencies are expected to remain active in responding to concerns and trends that may be identified in our examinations, which may include the potential for the issuance of formal enforcement orders.

Further, actions taken to date, as well as potential actions, may not provide the level of beneficial effects necessary to offset their cost to us.

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New laws, regulations, and other regulatory changes, may also significantly affect the markets in which we do business, the markets for and value of our loans and investments, and our ongoing operations, costs and profitability.

Further, with a new Congress taking office in January 2021, Democrats have retained control of the U.S.

House of Representatives, and have gained control of the U.S.

With unified control of the Executive Branch and both chambers of Congress, one party now has complete control of the legislative and executive agendas.

We expect that Democratic-led Congressional committees will pursue greater oversight and will also pay increased attention to the banking sector’s role in providing COVID-19-related assistance.

The prospects for the enactment of major banking reform legislation under the new Congress are unclear.

Also, the new Administration has and will likely continue to change leadership and senior staff positions at the federal regulatory agencies, the CFPB, the SEC and the Treasury Department.

Also, the Board of Governors of the Federal Reserve and the FDIC Board of Directors may experience significant turnover within the next several years.

These changes will likely impact the rulemaking supervision, examination and enforcement priorities and policies of the agencies.

As a financial institution with assets greater than $10 Billion, we are subject to additional regulation and increased supervision, including by the CFPB.

Provident's total assets were $13.78 billion at December 31, 2021.

Banks with assets in excess of $10 billion are subject to requirements imposed by the Dodd-Frank Act and its implementing regulations including being subject to the examination authority of the Consumer Financial Protection Bureau to assess our compliance with federal consumer financial laws, imposition of higher FDIC premiums, reduced debit card interchange fees, and enhanced risk management frameworks, all of which increase operating costs and reduce earnings.

Banks with assets in excess of $10 billion are subject to requirements imposed by the Dodd-Frank Act and its implementing regulations including being subject to the examination authority of the Consumer Financial Protection Bureau to assess our compliance with federal consumer financial laws, the imposition of higher FDIC premiums, reduced debit card interchange fees, and enhanced risk management frameworks, all of which increase operating costs and reduce earnings.

We may be required to invest more significant management attention and resources to make further changes necessary to comply with enhanced regulatory expectations.

While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be material.

While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations may have on us, these changes could be material.

We face regulatory scrutiny based on our commercial real estate lending.

The FDIC, the OCC and the FRB (collectively, the “Agencies”) have issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”).

Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate and construction and land loans (“CRE Loans”), represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the CRE Loan portfolio has increased by 50% or more during the preceding 36 months.

Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by multi-family buildings, investor commercial real estate and construction and land loans (“CRE Loans”), represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the CRE Loan portfolio has increased by 50% or more during the preceding 36 months.

While our level of CRE Loans equaled 471.4% of total risk-based capital at December 31, 2021, our CRE Loan portfolio has not increased by 50% or more during the preceding 36 months.

In December 2015, the Agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”).

In December 2015, the Agencies released a statement on prudent risk management for commercial real estate lending (the “2015 Statement”).

In the 2015 Statement, the Agencies express concerns about easing commercial real estate underwriting standards, direct financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks, and indicate that the Agencies will continue “to pay special attention” to commercial real estate lending activities and concentrations going forward.

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We may fail to pursue or complete strategic and competitively significant acquisition opportunities as a result of our inability, or perceived or anticipated inability, to obtain regulatory approvals in a timely manner, under reasonable conditions or at all.

The regulatory approvals may contain conditions on the completion of the merger which would adversely affect our business following the closing, or which were not anticipated or cannot be met.

The regulatory approvals may contain conditions on the completion of a merger which would adversely affect our business following the closing, or which were not anticipated or cannot be met.

Difficulties associated with potential acquisitions that may result from these factors could have a material adverse impact on our business, and, in turn, our financial condition and results of operations.

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As of December 31, 2021, our consolidated balance sheet included goodwill of $444.4 million and other intangible assets of $19.8 million.

Our business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense.

We make estimates and assumptions in valuing such

intangible assets that affect our consolidated financial statements.

In accordance with GAAP, our goodwill and indefinite-lived intangible assets are not amortized, but are tested for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired.

Our business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future amortization expense and potential impairment expense.

We make estimates and assumptions in valuing such intangible assets that affect our consolidated financial statements.

In accordance with GAAP, our goodwill and indefinite-lived intangible assets are not amortized, but are tested for impairment annually, or more frequently if events or changes in circumstances indicate that an asset might be impaired.

Impairment testing incorporates the current market price of our common stock, the estimated fair value of our assets and liabilities, and certain information of similar companies.

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There are inherent uncertainties related to these factors and our judgment in applying them to the impairment analyses.

It is possible that future impairment testing could result in a decline in fair value of our goodwill or other intangible assets, which may be less than the carrying value, and, as a result may adversely affect our financial condition.

It is possible that future impairment testing could result in the identification of a decline in the fair value of our goodwill or other intangible assets, which may be less than the carrying value.

If we determine that impairment exists at a given point in time, our earnings and the book value of goodwill or other related intangible asset will be reduced by the amount of the impairment.

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Notwithstanding the foregoing, the results of impairment testing on our goodwill or other intangible assets have no impact on our tangible book value or regulatory capital levels.

The establishment of a State Bank in New Jersey could be disruptive to our overall strategies and potentially reduce the level of public funds held on deposit with us.

We maintain a large and relatively stable level of deposits from local government entities, primarily through relationships we have cultivated with New Jersey municipalities.

These deposits are a relatively low-cost source used to fund our loans and investments and we also provide related ancillary services.

The State of New Jersey is exploring a State Bank, whose purpose would be to promote small businesses, fair educational lending, housing, infrastructure improvements, community development, economic development, commerce and industry in the State.

As currently proposed, it intends to permit State funds, including funds from State institutions and any State public source, to be held by the State Bank.

There can be no assurance that legislation to further the establishment of a State Bank will occur as currently proposed.

Given the degree of our funding reliance on many New Jersey-based public entities and the potential scope of the proposed State Bank’s lending activities, we are uncertain of the impact this proposal may have on us.

If we are unable to retain the current level of public funds on deposit, we may need to increase the costs associated with our funding needs, which could have a negative impact on our net income.

Climate change and related governmental action may materially affect the Company’s business and results of operations.

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Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives to supplement the global effort to combat climate change.

Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors, and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change.

Similar and even more expansive initiatives are expected, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors, and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change.

The lack of empirical data surrounding the credit and other financial risks posed by climate change render it impossible to predict specifically how climate change may impact the financial condition and operations of the Company;

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Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and impact our ability to raise and invest capital in potentially impacted communities.

The effects of changing strategies, policies, and investments as the global community transitions to a lower-carbon economy will impose additional operational and compliance burdens, and may result in market trends that alter business opportunities.

Overall, climate change, its effects, and the resulting, unknown impact could have a material adverse impact on our financial condition and results of operations.

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The economic impact of the COVID-19 outbreak has adversely affected, and is likely to continue to adversely affect, the Company's business and results of operations.

The COVID-19 pandemic has caused significant economic dislocation which has resulted in prolonged stress on economic activity and a related increase in unemployment.

Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry.

While portions of the national economy have reopened,significant uncertainty remains concerning the breadth and duration of business disruptions related to the COVID-19 pandemic, as well as their impact on the U.S.

Moreover, although multiple COVID-19 vaccines have received regulatory approval and are being distributed to certain population groups, it is too early to know how quickly these vaccines

can be distributed to the general population and how effective they will be in mitigating the adverse social and economic effects of the COVID-19 pandemic.

Finally, the spread of COVID-19 has caused the Company to modify its business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.

The Company continues to have many employees working remotely.

The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which remain highly uncertain and cannot be predicted, including the level of infections, efficacy and availability of therapeutics, the speed, strength and extent of an economic recovery, and any adverse economic impact from future actions that may be taken by governmental authorities and other third parties in response to the pandemic.

The COVID-19 pandemic caused significant economic dislocation which resulted in prolonged stress on economic activity and a related increase in unemployment.

Certain industries were particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry.

While much of the national economy has reopened, significant uncertainty remains concerning the breadth and duration of business disruptions related to the COVID-19 pandemic, as well as their longer-term impact on the U.S.

The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which remain highly uncertain and cannot be predicted, including the emergence of variants and level of infections, efficacy and availability of therapeutics, the speed, strength and extent of a full economic recovery, and any adverse economic impact from future actions that may be taken by governmental authorities and other third parties in response to the pandemic.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 pandemic on the Company's business.

The extent of such impact will depend on future developments, which are highly uncertain, including when the outbreak 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, the Company could be subject to any of the following risks, any of which could have a material adverse effect on our respective business, financial condition, liquidity, and results of operations:

The extent of such impact will depend on future developments, which are highly uncertain.

As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Company could be subject to the following risks, any of which could have a material adverse effect on our respective business, financial condition, liquidity, and results of operations:

• 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 charge-offs and reduced loan repayments impacting cash flows and liquidity;

• if the economy is unable to fully reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charge-offs and reduced loan repayments impacting cash flows and liquidity;

• collateral for loans, especially real estate, may decline in value, which could cause credit losses to increase;

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• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

• as a result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on the Company's assets may decline to a greater extent than the decline in the cost of interest-bearing liabilities, reducing net interest margin and spread and reducing net income;

• 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;

• the Company’s investment portfolio may suffer a substantial decrease in value;

• the Company’s wealth management revenues may decline with continuing market turmoil;

• the Company’s wealth management revenues may decline with market turmoil;

• the Company’s cyber security risks are increased as the result of an increase in the number of employees working remotely;

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Governmental and regulatory actions to mitigate the impact of the COVID-19 pandemic could result in a material decline in

our earnings.

There have been several regulatory and legislative actions intended to help mitigate the adverse economic impact of COVID-19 on individuals, including mandates requiring financial institutions to work constructively with borrowers affected by COVID-19 and mandatory loan forbearances.

our earnings and pose additional risks.

There have been several regulatory and legislative actions intended to help mitigate the adverse economic impact of COVID-19 on individuals and businesses, including mandates requiring financial institutions to work constructively with borrowers affected by COVID-19, mandatory loan forbearances and to participate in the SBA Paycheck Protection Program ("PPP").

In addition, the governors of many states in which we do business or in which our borrowers and loan collateral are located have issued temporary bans on evictions and foreclosures.

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Further, there have been several other bank regulatory actions and legislative changes intended to help mitigate the adverse impact of COVID-19.

There continues to be mounting pressure on federal and state officials to take further action.

These regulatory and legislative actions may be expanded, extended and amended as the pandemic and its economic impact continue.

Please see the Company's discussion on the CARES Act on page 26 in the Regulation and Supervision section.

The Company has offered, and may continue to offer, payment deferrals, forbearances, and other forms of assistance to commercial, small business and consumer customers that have been impacted by the COVID-19 pandemic.

If these customers are unable to repay their loans in a timely manner when payment deferrals, forbearances or other forms of assistance end, delinquency levels may increase, the Company may be required to reverse the accrual of interest during the deferral or forbearance period, and the Corporation may need to provide additional reserves for credit losses.

The Company has offered, and if necessary may once again offer, payment deferrals, forbearances, and other forms of assistance to commercial, small business and consumer customers that have been impacted by the COVID-19 pandemic.

If these customers are unable to repay their loans in a timely manner when payment deferrals, forbearances or other forms of assistance end, delinquency levels may increase, the Company may be required to reverse the accrual of interest during the deferral or forbearance period, and there may be a need to provide additional reserves for credit losses.

The Company’s participation in PPP could expose us to the risk of civil litigation or regulatory scrutiny regarding the processing and forgiveness of PPP loans.

Our continuing concentration of business in a relatively confined region may increase our risk .

Our success is significantly affected by general economic conditions in our market area.

Unlike some larger banks that are more geographically diversified, we provide banking, financial, and wealth management services to customers mostly located in our primary markets.

Unlike some larger banks that are more geographically diversified, we provide banking, financial, and wealth management services to customers mostly

located in our primary markets.

Consequently, a downturn in economic conditions in our local markets would have a significant impact on our loan portfolios, the ability of borrowers to meet their loan payment obligations and the value of the collateral securing our loans.

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At December 31, 2021, loans utilizing the LIBOR rate totaled $1.94 billion.

The marketplace that sets the LIBOR rate has announced that it will no longer support LIBOR after 2021.

Provident has not yet determined which alternative rate is most applicable, and there can be no assurances on which benchmark rate(s) may replace LIBOR or how LIBOR will be determined for purposes of financial instruments that are currently referencing LIBOR if and when it ceases to exist.

If LIBOR is discontinued after 2021 as expected, there may be uncertainty or differences in the calculation of the applicable interest rate or payment amount depending on the terms of the governing instruments, and such discontinuation may increase operational and other risks to the Company and the industry.

Acts of terrorism, severe weather, natural disasters, public health issues and other external events could impact our ability to conduct business.

The marketplace that sets the LIBOR rate no longer supports certain tenors (e.g.

overnight, 1 month, 3 month, etc.) of LIBOR as of December 31, 2021 and has announced that it will no longer support the remaining tenors after June 2023.

The Bank was not impacted by the partial LIBOR cessations as of December 31, 2021.

If LIBOR is completely discontinued after June 2023 as expected, there may be uncertainty or differences in the calculation of the applicable interest rate or payment amount depending on the terms of the governing instruments, and such discontinuation may increase operational and other risks to the Company and the industry.

The Company is in the process of selecting an alternative rate that is most applicable.

Acts of terrorism, severe weather, natural disasters, public health issues, geopolitical and other external events could impact our ability to conduct business.

Our business is subject to risk from external events that could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause us to incur additional expenses.

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The metropolitan New York and Philadelphia areas remain central targets for potential acts of terrorism, including cyber terrorism, which could affect not only our operations but those of our customers.

Additionally, there could be sudden increases in customer transaction volume, electrical, telecommunications or other major physical infrastructure outages, natural disasters, events arising from local or larger scale political or social matters, including terrorist acts, and cyber attacks.

The emergence of widespread health emergencies or pandemics, such as the spread of COVID-19, could lead to regional quarantines, business shutdowns, labor shortages, disruptions to supply chains, and overall economic instability.

Events such as these may become more common in the future and could cause significant damage such as disrupt power and communication services, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing the repayment of our loans, which could result in the loss of revenue.

Additionally, there could be sudden increases in customer transaction volume, electrical, telecommunications or other major physical infrastructure outages, natural disasters, events arising from local or larger scale geopolitical, political or social matters, including terrorist acts, and cyber-attacks.

The emergence of widespread health emergencies or pandemics, similar to the spread of COVID-19, could lead to regional quarantines, business shutdowns, labor shortages, disruptions to supply chains, and overall economic instability.

Events such as these may become more common in the future and could cause significant damage such as disruption of power and communication services, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing the repayment of our loans, which could result in the loss of revenue.

While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition.

Additionally, financial markets may be adversely affected by any current or anticipated impact of military conflict, including escalating military tension between Russia and Ukraine, terrorism or other geopolitical events.

A general economic slowdown or uncertainty that produces either reduced returns or excessive market volatility could adversely impact our overall profitability, including our wealth management fee income.

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Headwinds facing the U.S.

economy continued during 2020, even as the economy recovered from the COVID-19 induced recession, noting in particular the unemployment rate remains well above its pre-pandemic level.

The projected forecast has the economy continuing its recovery from the recession brought about by the pandemic, largely due to unprecedented fiscal support and monetary stimulus.

economy continued during 2021, even as the economy recovered from the COVID-19 induced recession, noting in particular that the New Jesrey unemployment rate remains above its pre-pandemic level.

The consensus forecast has the economy continuing its recovery from the recession brought about by the pandemic, largely due to unprecedented fiscal support and monetary stimulus.

Adverse changes in the economy could negatively affect the ability of our borrowers to repay their loans or force us to offer lower interest rates to encourage new borrowing activity.

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While we have adopted policies and procedures aimed at detecting and preventing the use of our banking network for money laundering and related activities, those policies and procedures may not completely eliminate instances in which we may be used by customers to engage in money laundering and other illegal or improper activities.

To the extent we fail to fully comply with applicable laws and regulations, the FDIC, along with other banking agencies, has the authority to impose fines and other penalties and sanctions on us.

To the extent we fail to fully comply with applicable laws and regulations, the FDIC, along with other banking agencies, has the authority to impose fines and other penalties and sanctions on us, including restricting our ability to grow through acquisition.

In addition, our business and reputation could suffer if customers use our banking network for money laundering or illegal or improper purposes.

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Our ability to borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry.

As a participating lender in the SBA Paycheck Protection Program (“PPP”), we are subject to additional risks of litigation from our customers or other parties regarding our processing of loans for the PPP which could have a significant adverse impact on our business, financial position, results of operations, and prospects.

The PPP authorizes financial institutions to make federally-guaranteed loans to qualifying small businesses and non-profits organizations.

These loans carry an interest rate of 1% per annum and a maturity of two years if originated before June 5, 2020 and five years if originated on or after June 5, 2020.

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.

The initial phase of PPP, after being extended multiple times by Congress, expired on August 8, 2020.

However, on January 11, 2021, the PPP was reopened for First Draw PPP loans to small business and non-profit organizations that did not receive a loan through the initial PPP phase.

Further, on January 13, 2021, the SBA reopened the PPP for Second Draw loans to small businesses and non-profit organizations that did not receive a loan through the initial PPP phase.

We had approximately $473.2 million of PPP outstanding as of December 31, 2020.

Since the initiation of the PPP, several banks have been subject to litigation or threatened litigation regarding the process and procedures that such banks used in processing applications for the PPP.

We may be exposed to the risk of litigation, from both clients and non-clients that approached us regarding PPP loans.

If any such litigation is filed or threatened against us and is not resolved in a manner favorable to us, it may result in significant cost or adversely affect our reputation.

Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial position, results of operations and prospects.

Strong competition within our market area may limit our growth and profitability.

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Furthermore, key components of the financial services value chain have been replicated by digital innovation, commonly referred to as Fintech.

As customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.

As customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.

In addition, some of the largest technology firms are engaging in joint ventures with the largest banks to provide and or expand financial service offerings with a technological sophistication and breadth of marketing that smaller institutions do not have.

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The adoption of these Fintech solutions within our market area may cause greater and faster disruption to our business model if we are unable to keep pace with, or invest wisely in, these enabling technologies.

In July 2018, the OCC announced that it will begin accepting applications from Fintechs to become special purpose national banks.

Although the OCC’s authority to issue special purpose bank charters to nonbank Fintechs continues to be subject to ongoing litigation, similar developments are likely to result in even greater competition within all areas of our operations.

In July 2018, the OCC announced that it will

begin accepting applications from Fintechs to become special purpose national banks.

Although the OCC’s authority to issue special purpose bank charters to non-bank Fintechs continues to be subject to ongoing litigation, similar developments are likely to result in even greater competition within all areas of our operations.

Risks Related to Technology & Security

A cyber-attack, data breach, or a technology failure of ours could adversely affect our ability to conduct our business or manage our exposure to risk, result in the disclosure or misuse of confidential or proprietary information, increase our costs to maintain and update our operational and security systems and infrastructure, and adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm.

Our business is highly dependent on the security and efficacy of our infrastructure, computer and data management systems.

Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors.

Our operations rely on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and data management systems and networks.

We rely on digital technologies, computer, database and email systems, software, and networks to conduct our operations.

Our business is highly dependent on the security and efficacy of our infrastructure, computer and data management systems to provide secure processing, transmission, storage and retrieval of confidential and proprietary information.

Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies and the use of the Internet and telecommunications technologies to conduct financial transactions.

Financial institutions have been subject to, and are likely to continue to be the target of, cyber-attacks, including computer viruses, malicious or destructive code, phishing attacks, denial of service or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of the institution, its employees, customers or third parties, or otherwise materially disrupt network access or business operations.

For example, denial of service attacks have been launched against a number of large financial institutions and several large retailers have disclosed substantial cyber security breaches affecting debit and credit card accounts of their customers.

We have experienced cyber security incidents in the past, although not material, and we anticipate that, as a larger bank, we could experience further incidents.

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In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions from customer accounts.

Although the Bank has policies and procedures in place to verify the authenticity of its customers, the Bank cannot assure that such policies and procedures will prevent all fraudulent transfers.

Although we have policies and procedures in place to verify the authenticity of our customers, there can be no assurance that such policies and procedures will prevent all fraudulent transfers.

Such activity could result in financial liability and harm to our reputation.

Misconduct of our technology by our employees could also result in fraudulent, improper or unauthorized activities on behalf of customers or improper use of confidential information.

The Bank may not be able to prevent employee errors or misconduct, and the precautions the Bank takes to detect these types of activity might not be effective in all cases.

Employee errors or misconduct could subject the Bank to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business.

Misuse of our technology by our employees could also result in fraudulent, improper or unauthorized activities on behalf of customers or improper use of confidential information.

We may not be able to prevent employee errors or misconduct, and the precautions we take to detect these types of activity might not be effective in all cases.

Employee errors or misconduct could subject us to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business.

As cyber threats and other fraudulent activity continues to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures, or to investigate and remediate any information security vulnerabilities or incidents.

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A breach, failure, interruption, cessation of an important service by any third party could have a material adverse effect on our business, as well as cause reputational harm.

We are dependent for the majority of our technology, including our core operating system, on third-party providers.

We are dependent for most of our technology, including our core operating system, on third-party providers.

The Bank collects, processes and stores sensitive consumer data by utilizing computer systems and telecommunications networks operated by third-party service providers, which are integral to our business.

We handle a substantial volume of customer and other financial transactions every day.

Our financial, accounting, data processing, check processing, electronic funds transfer, loan processing, online and mobile banking, automated teller machines, or ATMs, backup or other operating or security systems and infrastructure may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control.

Our financial, accounting, data processing, check processing, electronic funds transfer, loan processing, online and mobile banking, automated teller machines, or ATMs, backup or other operating or security systems and infrastructure may fail to operate properly or become disabled or damaged because of a number of factors including events that are wholly or partially beyond our control.

We have taken measures to implement backup systems and other safeguards to support our operations, but our ability to conduct business may be adversely affected by any significant disruptions to third-parties with whom we interact.

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In addition, each of these third-parties faces the risk of cyber-attack, information breach or loss, or technology failure.

If any of our third-party service providers experience such difficulties, or if there is any other disruption in our relationships with them, we may be required to find alternative sources of such services.

We are dependent on these third-party providers securing their information systems, over which we have limited control, and a breach of their information systems could adversely affect our ability to process transactions, service our clients or manage our exposure to risk and could result in the disclosure of sensitive, personal customer information, which could have a material adverse impact on our business through damage to our reputation, loss of business, remedial costs, additional regulatory scrutiny or exposure to civil litigation and possible financial liability.

If any of our third-party service providers experience such difficulties, or if there is any other disruption in our

relationships with them, we may be required to find alternative sources of such services.

If any of our third-party service providers experience a breach or cyber-attack of their information systems it could adversely affect our ability to process transactions, service our clients or manage our exposure to risk and could result in the disclosure of sensitive, personal customer information, which could have a material adverse impact on our business through damage to our reputation, loss of business, remedial costs, additional regulatory scrutiny or exposure to civil litigation and possible financial liability.

Assurance cannot be provided that we could negotiate terms with alternative service sources that are as favorable or could obtain services with similar functionality as found in existing systems without the need to expend substantial resources, if at all, thereby resulting in a material adverse impact on our business and results of operations.

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Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits.

This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity.

While we maintain a risk management program that is designed to minimize risk, we could suffer losses, face regulatory action, and suffer damage to our reputation as a result of our failure to properly anticipate and manage these risks.

This risk of loss also includes the potential legal actions that could arise because of an operational deficiency or because of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity.

While we maintain a risk management program that is designed to minimize risk, we could suffer losses, face regulatory action, and suffer damage to our reputation because of our failure to properly anticipate and manage these risks.

Failure to keep pace with technological changes could adversely affect our business.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.

The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.

The effective use of technology increases efficiency and enables financial institutions to better serve customers, reduce costs and create capacity.

Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors