What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-10 · 207 added, 120 removed, 181 unchanged (64% of the section changed)

11 unchanged sentences

The Company does not assume any duty, and does not undertake, to update any forward-looking statements to reflect events or circumstances after the date of this statement.

Lakeland Bancorp, Inc.

Merger Agreement

On September 26, 2022, the Company entered into a definitive merger agreement pursuant to which it will merge (the “merger”) with Lakeland Bancorp, Inc.

("Lakeland"), and Lakeland Bank, a wholly owned subsidiary of Lakeland, will merge with and into Provident Bank, a wholly owned subsidiary of the Company.

The merger agreement has been unanimously approved by the boards of both companies and shareholder approval has also been received by both companies.

The actual value of the Company’s common stock to be recorded as consideration in the merger will be based on the closing price of Company’s common stock at the time of the merger completion date.

Under the merger agreement, each share of Lakeland common stock will be exchanged for 0.8319 shares of the Company's common stock plus cash in lieu of fractional shares.

Critical Accounting Policies

23 unchanged sentences

The contractual term excludes expected extensions, renewals and modifications unless either of the following applies at the reporting date:

management has a reasonable expectation that a TDR will be executed with an individual borrower;

management has a reasonable expectation that a modification will be executed with an individual borrower;

or when an extension or renewal option is included in the original contract and is not unconditionally cancellable by the Company.

3 unchanged sentences

One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast period.

As of March 31, 2023, the model incorporated Moody’s baseline economic forecast, as adjusted for qualitative factors, as well as an extensive review of classified loans and loans that were classified as impaired with a specific reserve assigned to those loans.

This baseline outlook reflected a worsening economic forecast and related deterioration in the projected commercial property price index over the expected life of the loan portfolio and resulted in a recorded provision of $6.0 million for the three months ended, March 31, 2023 and a coverage ratio of 91 basis points.

If the Company had used a more pessimistic forecast (“next-cycle recession”), the provision would have increased $10.7 million, with a coverage ratio of 101 basis points.

As of June 30, 2023, the model incorporated Moody’s baseline economic forecast, as adjusted for qualitative factors, as well as an extensive review of classified loans and loans that were classified as impaired with a specific reserve assigned to those loans.

This baseline outlook reflected a worsening economic forecast and related deterioration in the projected commercial property price index over the expected life of the loan portfolio and resulted in recorded provisions of $10.4 million and $16.4 million for the three and six months ended June 30, 2023, and a coverage ratio of 97 basis points.

If the Company had used a more pessimistic commercial

real estate property price index over the expected life of the loan portfolio, the provision would have increased $6.5 million, with a coverage ratio of 103 basis points.

Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses.

1 unchanged sentence

The segments have been combined or sub-segmented as needed to ensure loans of similar risk profiles are appropriately pooled.

As of March 31, 2023, the portfolio and class segments for the Company’s loan portfolio were:

As of June 30, 2023, the portfolio and class segments for the Company’s loan portfolio were:

• Mortgage Loans – Residential, Commercial Real Estate, Multi-Family and Construction

10 unchanged sentences

(1) non-accrual status;

(2) troubled debt restructured designation;

(2) modification designation;

(3) risk ratings of special mention, substandard or doubtful;

(4) watchlist credits;

and (5) delinquency status, including loans that are current on acquisition date,

but had been previously delinquent.

and (5) delinquency status, including loans that are current on acquisition date, but had been previously delinquent.

At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics.

13 unchanged sentences

Material changes to these and other relevant factors creates greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings.

For the three months ended March 31, 2023, the provision for credit losses on loans totaled $6.0 million, compared to a negative provision for credit losses of $6.4 million for the quarter ended March 31, 2022.

The increase in provision was attributable to a worsening economic forecast and related deterioration in the projected commercial property price index over the expected life of the loan portfolio, combined with an increase in total loans outstanding.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2023 AND DECEMBER 31, 2022

Total assets at March 31, 2023 were $13.78 billion, a $4.5 million decrease from December 31, 2022.

The Company’s loan portfolio decreased $24.7 million to $10.22 billion at March 31, 2023, from $10.25 billion at December 31, 2022.

For the three months ended March 31, 2023, loan funding, including advances on lines of credit, totaled $809.2 million, compared with $959.4 million for the same period in 2022.

During the three months ended March 31, 2023, the loan portfolio had net decreases of $56.6 million in construction loans, $23.3 million in commercial mortgage loans, $5.5 million in commercial loans, $3.7 million in residential mortgage loans and $3.1 million in consumer loans, partially offset by a net increase of $66.5 million in multi-family mortgage loans.

Commercial real estate, commercial and construction loans represented 85.6% of the total loan portfolio at March 31, 2023, unchanged from 85.6% at December 31, 2022.

For the three and six months ended June 30, 2023, the provision for credit losses on loans totaled $10.4 million and $16.4 million, compared to a $3.0 million provision for credit losses and a $3.4 million negative provision for credit losses for the three and six months ended June 30, 2022.

The increases in provision for

both periods was primarily attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices over the expected life of the loan portfolio within our CECL model, combined with an increase in total loans outstanding.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2023 AND DECEMBER 31, 2022

Total assets at June 30, 2023 were $14.03 billion, a $246.2 million increase from December 31, 2022.

The increase in total assets was primarily due to a $281.6 million increase in total loans, partially offset by a $37.8 million decrease in total investments.

The Company’s loan portfolio increased $281.6 million to $10.53 billion at June 30, 2023, from $10.25 billion at December 31, 2022.

For the six months ended June 30, 2023, loan funding, including advances on lines of credit, totaled $1.79 billion, compared with $2.15 billion for the same period in 2022.

During the six months ended June 30, 2023, the loan portfolio had net increases of $57.3 million in commercial mortgage loans, $132.0 million in multi-family loans and $114.8 million in commercial loans, partially offset by net decreases in residential mortgage, construction and consumer loans of $11.5 million $8.3 million and $3.5 million, respectively.

Commercial loans, consisting of commercial real estate, multi-family, commercial and construction loans, represented 86.1% of the loan portfolio at June 30, 2023, compared to 85.6% at December 31, 2022.

The Company participates in loans originated by other banks, including participations designated as Shared National Credits (“SNCs”).

The Company’s gross commitments and outstanding balances as a participant in SNCs were $211.3 million and $99.6 million, respectively, at March 31, 2023, compared to $203.9 million and $87.3 million, respectively, at December 31, 2022.

No SNC relationships were 90 days or more delinquent at March 31, 2023.

The Company had outstanding junior lien mortgages totaling $134.8 million at March 31, 2023.

Of this total, six loans totaling $153,753 were 90 days or more delinquent with an allowance for credit losses of $2,575.

The following table sets forth information regarding the Company’s non-performing assets as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

The Company’s gross commitments and outstanding balances as a participant in SNCs were $186.0 million and $87.0 million, respectively, at June 30, 2023, compared to $203.9 million and $87.3 million, respectively, at December 31, 2022.

One SNC relationship, with an outstanding balance of $7.3 million was 90 days or more delinquent at June 30, 2023.

The Company had outstanding junior lien mortgages totaling $135.2 million at June 30, 2023.

Of this total, three loans totaling $237,900 were 90 days or more delinquent with an allowance for credit losses of $4,675.

The following table sets forth information regarding the Company’s non-performing assets as of June 30, 2023 and December 31, 2022 (in thousands):

June 30, 2023 December 31, 2022

Mortgage loans:

9 unchanged sentences

Total non-performing assets $ 59,625 60,633

The following table sets forth information regarding the Company’s 60-89 day delinquent loans as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

The following table sets forth information regarding the Company’s 60-89 day delinquent loans as of June 30, 2023 and December 31, 2022 (in thousands):

June 30, 2023 December 31, 2022

Mortgage loans:

1 unchanged sentence

Commercial 1,137 412

Multi-family 785 —

Construction — 1,097

Total mortgage loans 2,308 2,623

2 unchanged sentences

Total 60-89 day delinquent loans $ 2,545 3,784

At March 31, 2023, the Company’s allowance for credit losses related to the loan portfolio was 0.91% of total loans, compared to 0.86% and 0.79% at December 31, 2022 and March 31, 2022, respectively.

The Company recorded a provision for credit losses on loans of $6.0 million for the three months ended March 31, 2023 compared with a benefit of $6.4 million for the three months ended March 31, 2022.

For the three months ended March 31, 2023, the Company had net charge-offs of $671,000, compared to net recoveries of $1.9 million for the same period in 2022.

The allowance for credit losses increased $4.7 million to $92.8 million at March 31, 2023 from $88.0 million at December 31, 2022.

The increase in the allowance for credit losses on loans was attributable to a worsening economic forecast and related deterioration in the projected commercial property price index over the expected life of the loan portfolio.

Total non-performing loans were $35.5 million, or 0.35% of total loans at March 31, 2023, compared to $58.5 million, or 0.57% of total loans at December 31, 2022.

The $23.1 million decrease in non-performing loans at March 31, 2023, compared to the trailing quarter, consisted of a $21.4 million decrease in non-performing commercial mortgage loans, a $1.1 million decrease in non-performing commercial loans, a $392,000 decrease in non-performing consumer loans and a $184,000 decrease in non-performing residential mortgage loans.

Within the $21.4 million decrease in non-performing commercial mortgage loans, one loan totaling $12.2 million was moved to foreclosed assets in the current quarter.

At March 31, 2023, December 31, 2022 and March 31, 2022, the Company held foreclosed assets of $13.7 million, $2.1 million and $8.6 million, respectively.

During the three months ended March 31, 2023, there were two additions to foreclosed assets with an aggregate carrying value of $12.3 million and three properties sold with an aggregate carrying value of $666,000.

Foreclosed assets at March 31, 2023 consisted primarily of commercial real estate.

Total non-performing assets at March 31, 2023 decreased $11.4 million to $49.2 million, or 0.36% of total assets, from $60.6 million, or 0.44% of total assets at December 31, 2022.

Total investments were $2.28 billion at March 31, 2023, a $23.6 million increase from December 31, 2022.

This increase was largely due to a $27.8 million decrease in unrealized losses on available for sale debt securities, combined with purchases of

mortgage-backed and municipal securities, partially offset by repayments of mortgage-backed securities and maturities and calls of certain municipal and agency bonds.

Total deposits decreased $265.7 million during the three months ended March 31, 2023, to $10.30 billion.

Total savings and demand deposit accounts decreased $452.9 million to $9.36 billion at March 31, 2023, while total time deposits increased $187.2 million to $938.6 million at March 31, 2023.

The decrease in savings and demand deposits was largely attributable to a $257.5 million decrease in money market deposits, a $153.2 million decrease in non-interest bearing demand deposits, and an $87.4 million decrease in savings deposits, partially offset by a $45.2 million increase in interest bearing demand deposits.

During the three months ended March 31, 2023, deposit balances from traditional non-interest and interest bearing demand deposits transitioned into our insured cash sweep ("ICS") product, as a method to increase the level of customers' deposit insurance in light of recent market turmoil.

The Bank's ICS deposits increased $139.9 million to $198.8 million at March 31, 2023, from $58.9 million at December 31, 2022.

At June 30, 2023, the Company’s allowance for credit losses related to the loan portfolio was 0.97% of total loans, compared to 0.79% at December 31, 2022 and June 30, 2022, respectively.

The Company recorded a provision for credit losses on loans of

$10.4 million and $16.4 million for the three and six months ended June 30, 2023, compared with a provision of $3.0 million and a negative provision of $3.4 million for the three and six months ended June 30, 2022, respectively.

For the three and six months ended June 30, 2023, the Company had net charge-offs of $1.1 million and $1.8 million, respectively, compared to net charge-offs of $259,000 and net recoveries of $1.7 million, respectively, for the same periods in 2022.

The allowance for credit losses increased $14.1 million to $102.1 million at June 30, 2023 from $88.0 million at December 31, 2022.

The increases in provision for both periods was primarily attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices over the expected life of the loan portfolio within our CECL model, combined with an increase in total loans outstanding.

Total non-performing loans were $45.9 million, or 0.44% of total loans at June 30, 2023, compared to $58.5 million, or 0.57% of total loans at December 31, 2022.

The $12.6 million decrease in non-performing loans consisted of a $20.9 million decrease in non-performing commercial mortgage loans and a $230,000 decrease in non-performing residential mortgage loans, partially offset by a $7.7 million increase in non-performing commercial loans and a $140,000 increase in non-performing consumer loans.

At June 30, 2023 and December 31, 2022, the Company held foreclosed assets of $13.7 million and $2.1 million, respectively.

During the six months ended June 30, 2023, there were three additions to foreclosed assets with an aggregate carrying value of $12.3 million and three properties sold with an aggregate carrying value of $768,000.

Foreclosed assets at June 30, 2023 consisted primarily of commercial real estate.

Total non-performing assets at June 30, 2023 decreased $1.0 million to $59.6 million, or 0.42% of total assets, from $60.6 million, or 0.44% of total assets at December 31, 2022.

Total investment securities were $2.22 billion at June 30, 2023, a $37.8 million decrease from December 31, 2022.

This decrease was primarily due to repayments of mortgage-backed securities and maturities and calls of certain municipal and agency bonds, partially offset by purchases of mortgage-backed and municipal securities and an improvement in unrealized losses on available for sale debt securities.

Total deposits decreased $301.9 million during the six months ended June 30, 2023, to $10.26 billion.

Total savings and demand deposit accounts decreased $570.8 million to $9.24 billion at June 30, 2023, while total time deposits increased $268.9 million to $1.02 billion at June 30, 2023.

The decrease in savings and demand deposits was largely attributable to a $285.5 million decrease in non-interest bearing demand deposits, a $269.5 million decrease in money market deposits and a $163.3 million decrease in savings deposits, partially offset by a $147.6 million increase in interest bearing demand deposits.

During the six months ended June 30, 2023, deposit balances from traditional non-interest and interest bearing demand deposits transitioned into our insured cash sweep ("ICS") product, as a method to increase the level of customers' deposit insurance in light of recent deposit turmoil in the banking industry.

The Bank's ICS deposits increased $324.0 million to $382.9 million at June 30, 2023, from $58.9 million at December 31, 2022.

The increase in time deposits consisted of a $258.3 million increase in retail time deposits and a $10.6 million increase in brokered time deposits.

Borrowed funds increased $247.4 million during the three months ended March 31, 2023, to $1.58 billion.

The increase in borrowings was largely due to the replacement of demand deposits with FHLB borrowings and asset funding requirements.

Borrowed funds represented 11.5% of total assets at March 31, 2023, an increase from 9.7% at December 31, 2022.

Stockholders’ equity increased $42.4 million during the three months ended March 31, 2023, to $1.64 billion, primarily due to a decrease in unrealized losses on available for sale debt securities and net income earned for the period, partially offset by dividends paid to stockholders and common stock repurchases.

For the three months ended March 31, 2023, common stock repurchases totaled 71,111 shares at an average cost of $23.35 per share, all of which were made in connection with withholding to cover income taxes on the vesting of stock-based compensation.

At March 31, 2023, approximately 1.1 million shares remained eligible for repurchase under the current stock repurchase authorization.

Borrowed funds increased $512.3 million during the six months ended June 30, 2023, to $1.85 billion.

The increase in borrowings was largely due to asset funding requirements, partially to replace the outflow of deposits.

Borrowed funds represented 13.2% of total assets at June 30, 2023, an increase from 9.7% at December 31, 2022.

Stockholders’ equity increased $44.8 million during the six months ended June 30, 2023, to $1.64 billion, primarily due to net income earned for the period and an improvement in unrealized losses on available for sale debt securities, partially offset by cash dividends paid to stockholders.

For the six months ended June 30, 2023, common stock repurchases totaled 71,357 shares at an average cost of $23.32 per share, all of which were made in connection with withholding to cover income taxes on the vesting of stock-based compensation.

At June 30, 2023, approximately 1.1 million shares remained eligible for repurchase under the current stock repurchase authorization.

Liquidity and Capital Resources.

3 unchanged sentences

Changes in interest rates, local economic conditions and the competitive marketplace can influence loan prepayments, prepayments on mortgage-backed securities and deposit flows.

For three months ended March 31, 2023 and 2022, loan repayments totaled $826.7 million and $883.1 million, respectively.

As deposits have declined, the Company has continued to monitor and focus on deposit behavior and borrowing capacity with the FHLBNY and FRBNY, with current borrowing capacity of $1.28 billion and $1.45 billion, respectively at March 31, 2023.

Our estimated uninsured and uncollateralized deposits at March 31, 2023 totaled $2.77 billion, which does not consider all of the benefit of different account titling conventions that may increase the insured balance for a particular account.

At March 31, 2023, Provident Bank held on balance sheet liquidity and borrowing capacity totaling $3.59 billion, representing 130% of estimated uninsured and uncollateralized deposits.

For six months ended June 30, 2023 and 2022, loan repayments totaled $1.50 billion and $1.70 billion, respectively.

As deposits have declined, the Company has continued to monitor and focus on deposit behavior and borrowing capacity with the FHLBNY and FRBNY, with current borrowing capacity of $1.31 billion and $1.69 billion, respectively at June 30, 2023.

Our estimated uninsured and uncollateralized deposits at June 30, 2023 totaled $2.72 billion.

At June 30, 2023, Provident Bank

had on balance sheet liquidity and borrowing capacity totaling $3.82 billion, representing 140% of estimated uninsured and uncollateralized deposits.

All borrowing capacity is immediately available.

1 unchanged sentence

Advances under the Program can be requested until March 11, 2024.

As of March 31, 2023, the Company has not taken any advances under the Program, but has this option as an available short term liquidity source.

As of March 31, 2023 our ICS deposits totaled $198.8 million, compared to $58.9 million at December 31, 2022.

As of June 30, 2023, the Company had not taken any advances under the Program, but has this option available as a short term liquidity source.

During the six months ended June 30, 2023, deposit balances from traditional non-interest and interest bearing demand deposits transitioned into our ICS product, as a method to increase the level of customers' deposit insurance in light of recent banking turmoil.

As of June 30, 2023, our ICS deposits totaled $382.9 million, compared to $58.9 million at December 31, 2022.

The Federal Deposit Insurance Corporation ("FDIC") and the other federal bank regulatory agencies issued a final rule that revised the 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, that were effective January 1, 2015.

1 unchanged sentence

The rule also required unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out was exercised.

The Company exercised the option to exclude

unrealized gains and losses from the calculation of regulatory capital.

The Company exercised the option to exclude unrealized gains and losses from the calculation of regulatory capital.

Additional constraints were also imposed on the inclusion in regulatory capital of mortgage-servicing assets, deferred tax assets and minority interests.

3 unchanged sentences

In connection with its adoption of CECL on January 1, 2020, the Company elected to utilize the five-year CECL transition.

At March 31, 2023, the Bank and the Company exceeded all current minimum regulatory capital requirements as follows:

March 31, 2023

At June 30, 2023, the Bank and the Company exceeded all current minimum regulatory capital requirements as follows:

June 30, 2023

Required Required with Capital Conservation Buffer Actual

14 unchanged sentences

and a total risk-based capital ratio of at least 10.00%.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

The Company reported net income of $40.5 million, or $0.54 per basic and diluted share for the three months ended March 31, 2023, compared to net income of $44.0 million, or $0.58 per basic and diluted share for the three months ended March 31, 2022.

Net income for the three months ended March 31, 2023 was negatively impacted by an increase in funding costs, an increase in the provision for credit losses due to a worsened economic forecast and an increase in non-interest expense attributable to increases in compensation and benefits expense and the increased cost of FDIC insurance, partially offset by an increase in non-interest income.

Non-tax deductible transaction costs related to our pending merger with Lakeland Bancorp, Inc.

(“Lakeland”) totaled $1.1 million in the current quarter, compared to $1.2 million for the trailing quarter.

Net Interest Income.

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities.

Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the rates of interest earned on such assets and paid on such liabilities.

The following table sets forth certain information for the quarters ended March 31, 2023 and March 31, 2022.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

The Company reported net income of $32.0 million, or $0.43 per basic and diluted share for the three months ended June 30, 2023, compared to net income of $39.2 million, or $0.53 per basic and diluted share, for the three months ended June 30, 2022.

For the six months ended June 30, 2023, the Company reported net income of $72.5 million, or $0.97 per basic share and diluted share, compared to net income of $83.2 million, or $1.11 per basic and diluted share, for the six months ended June 30, 2022.

Net income for the three and six months ended June 30, 2023, was negatively impacted by an increase in funding costs and an increase in the provision for credit losses due to a worsened economic forecast.

In addition, transaction costs related to our pending merger with Lakeland Bancorp, Inc.

(“Lakeland”) totaled $2.0 million and $3.1 million for the three and six months ended June 30, 2023, respectively.

The following tables sets forth certain information for the three and six months ended June 30, 2023.

For the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities is expressed both in dollars and rates.

2 unchanged sentences

For the three months ended

March 31, 2023 March 31, 2022

June 30, 2023 June 30, 2022

Average Balance Interest Average

42 unchanged sentences

(3) Annualized net interest income divided by average interest-earning assets.

Total net interest income increased $13.8 million to $108.3 million for the quarter ended March 31, 2023, from $94.5 million for the quarter ended March 31, 2022.

Interest income for the quarter ended March 31, 2023 increased $42.6 million to $143.6 million, from $101.0 million for the same period in 2022.

Interest expense increased $28.8 million to $35.2 million for the quarter ended March 31, 2023, from $6.5 million for the quarter ended March 31, 2022.

The increase in net interest income for the three months ended March 31, 2023, was primarily driven by an increase in the net interest margin resulting from the favorable repricing of adjustable rate loans, higher market rates on new loan originations and the investment of excess liquidity into higher-yielding loans, partially offset by the unfavorable repricing of both deposits and borrowings and a decrease in lower-costing deposits, which resulted in an increase in borrowings.

Additionally, fees related to the forgiveness of PPP loans, which are recognized in interest income, decreased $1.1 million for the three months ended March 31, 2023, compared to $1.1 million for the three months ended March 31, 2022.

For the three months ended March 31, 2023, the net interest margin increased 46 basis points to 3.48%, compared to 3.02% for the three months ended March 31, 2022.

The weighted average yield on interest earning assets increased 140 basis points to 4.63% for the three months ended March 31, 2023, compared to 3.23% for the three months ended March 31, 2022, while the weighted average cost of interest bearing liabilities increased 125 basis points to 1.54% for the three months ended March 31, 2023, compared to 0.29% for the same period last year.

The average cost of interest bearing deposits increased 114 basis points to 1.39% for the three months ended March 31, 2023, compared to 0.25% for the same period last year.

Average non-interest bearing demand deposits totaled $2.55 billion for the three months ended March 31, 2023, compared with $2.79 billion for the three months ended March 31, 2022.

The average cost of deposits, including non-interest bearing deposits, was 1.05% for the three months ended March 31, 2023, compared with 0.19% for the three months ended March 31, 2022.

The average cost of borrowings for the three months ended March 31, 2023 was 9.51%, compared to 0.86% for the same period last year.

Interest income on loans secured by real estate increased $32.2 million to $96.0 million for the three months ended March 31, 2023, from $63.8 million for the three months ended March 31, 2022.

Commercial loan interest income increased $5.9 million to $28.7 million for the three months ended March 31, 2023, from $22.8 million for the three months ended March 31, 2022.

Consumer loan interest income increased $1.1 million to $4.2 million for the three months ended March 31, 2023, from $3.1 million for the three months ended March 31, 2022.

For the three months ended March 31, 2023, the average balance of total loans increased $612.0 million to $10.09 billion, from $9.48 billion for the same period in 2022.

The average yield on total loans for the three months ended March 31, 2023, increased 132 basis points to 5.12%, from 3.80% for the same period in 2022.

Interest income on held to maturity debt securities decreased $228,000 to $2.4 million for the quarter ended March 31, 2023, compared to the same period last year.

Average held to maturity debt securities decreased $44.2 million to $383.9 million for the quarter ended March 31, 2023, from $428.1 million for the same period last year.

Interest income on available for sale debt securities and FHLBNY stock increased $3.5 million to $11.4 million for the three months ended March 31, 2023, from $8.0 million for the same period last year.

The average balance of available for sale debt securities and FHLBNY stock decreased $279.0 million to $1.87 billion for the three months ended March 31, 2023.

The average yield on total securities increased to 2.52% for the three months ended March 31, 2023, compared with 1.47% for the same period in 2022.

Interest expense on deposit accounts increased $22.3 million to $27.5 million for the quarter ended March 31, 2023, compared with $5.2 million for the quarter ended March 31, 2022.

The average cost of interest bearing deposits increased to 1.39% for the first quarter of 2023, from 0.25% for the three months ended March 31, 2022.

For the three months ended March 31, 2023, average interest bearing core deposits, which consist of total savings and demand deposits, decreased $595.2 million, to $7.17 billion, from $7.77 billion for the same period in 2022.

For the three months ended March 31, 2023, average time deposit account balances increased $179.0 million, to $859.8 million, from $680.8 million for the same period in 2022.

Interest expense on borrowed funds increased $6.3 million to $7.5 million for the quarter ended March 31, 2023, from $1.2 million for the quarter ended March 31, 2022.

The average cost of borrowings increased to 2.48% for the three months ended March 31, 2023, from 0.86% for the three months ended March 31, 2022.

Average borrowings increased $674.6 million to $1.22 billion for the quarter ended March 31, 2023, from $549.7 million for the quarter ended March 31, 2022.

For the six months ended

June 30, 2023 June 30, 2022

Average Balance Interest Average

Yield/Cost Average Balance Interest Average

(Dollars in Thousands) (Unaudited)

Interest Earning Assets:

Deposits $ 72,750 $ 1,791 4.97 % 175,341 298 0.34 %

Federal funds sold and other short-term investments 59 2 6.00 % 147,447 911 1.25 %

Available for sale debt securities 1,804,814 20,692 2.29 % 2,069,270 15,671 1.51 %

Held to maturity debt securities, net (1)

381,921 4,725 2.47 % 420,133 5,085 2.42 %

Equity securities, at fair value 999 — — % 1,055 — — %

Federal Home Loan Bank stock 70,702 2,170 6.14 % 31,296 735 4.70 %

Total mortgage loans 7,671,493 195,290 5.07 % 7,156,189 132,908 3.70 %

Total commercial loans 2,191,222 60,109 5.49 % 2,105,001 45,184 4.30 %

Total consumer loans 303,724 8,673 5.76 % 321,796 6,483 4.06 %

Total net loans 10,166,439 264,072 5.18 % 9,582,986 184,575 3.84 %

Total interest earning assets $ 12,497,684 $ 293,452 4.68 % 12,427,528 207,275 3.33 %

Non-Interest Earning Assets:

Cash and due from banks 136,431 126,423

Other assets 1,149,044 1,062,948

Total assets $ 13,783,159 13,616,899

Interest Bearing Liabilities:

Demand deposits $ 5,695,507 $ 50,533 1.79 % 6,238,860 8,653 0.28 %

Savings deposits 1,352,874 990 0.15 % 1,486,407 576 0.08 %

Time deposits 914,358 12,434 2.74 % 687,956 1,534 0.45 %

Total deposits 7,962,739 63,957 1.62 % 8,413,223 10,763 0.26 %

Borrowed funds 1,442,744 21,564 3.01 % 538,593 2,272 0.85 %

Subordinated debentures 10,537 501 9.58 % 10,328 239 4.66 %

Total interest bearing liabilities $ 9,416,020 86,022 1.84 % 8,962,144 13,274 0.30 %

Non-Interest Bearing Liabilities:

Non-interest bearing deposits $ 2,459,375 2,781,248

Other non-interest bearing liabilities 267,666 229,958

Total non-interest bearing liabilities 2,727,041 3,011,206

Total liabilities 12,143,061 11,973,350

Stockholders' equity 1,640,099 1,643,549

Total liabilities and stockholders' equity $ 13,783,160 13,616,899

Net interest income $ 207,430 194,001

Net interest rate spread 2.84 % 3.03 %

Net interest-earning assets $ 3,081,664 3,465,384

Net interest margin (3)

3.29 % 3.11 %

Ratio of interest-earning assets to total interest-bearing liabilities 1.33x 1.39x

(1) Average outstanding balance amounts shown are amortized cost, net of allowance for credit losses.

(2) Average outstanding balances are net of the allowance for loan losses, deferred loan fees and expenses, loan premiums and discounts and include non-accrual loans.

(3) Annualized net interest income divided by average interest-earning assets.

Net Interest Income .

Net interest income decreased $369,000 to $99.1 million for the three months ended June 30, 2023, from $99.5 million for same period in 2022.

For the six months ended June 30, 2023, total net interest income increased $13.4 million to $207.4 million, from $194.0 million for the same period in 2022.

The decrease in net interest income for the three months ended June 30, 2023, was primarily due to a decrease in lower-costing deposits and an increase in borrowings, combined with unfavorable repricing of both deposits and borrowings, partially offset by originations of new loans and the favorable repricing of adjustable-rate loans.

The increase in net interest income for the six months ended June 30, 2023, was primarily driven by an increase in the net interest margin resulting from the favorable repricing of adjustable-rate loans, higher market rates on new loan originations and the originations of higher-yielding loans, partially offset by the unfavorable repricing of both deposits and borrowings, a decrease in lower-costing deposits and an increase in borrowings.

Additionally, fees related to the forgiveness of PPP loans, which are recognized in interest income, were approximately $4,000 for the six months ended June 30, 2023, compared to $1.3 million for the six months ended June 30, 2022.

The net interest margin decreased 10 basis points to 3.11% for the quarter ended June 30, 2023, compared to 3.21% for the quarter ended June 30, 2022.

The weighted average yield on interest-earning assets increased 130 basis points to 4.73% for the quarter ended June 30, 2023, compared to 3.43% for the quarter ended June 30, 2022, while the weighted average cost of interest-bearing liabilities increased 182 basis points for the quarter ended June 30, 2023, to 2.13%, compared to the quarter ended June 30, 2022.

The average cost of interest-bearing deposits for the quarter ended June 30, 2023, was 1.85%, compared to 0.27% for the same period last year.

Average non-interest bearing demand deposits totaled $2.37 billion for the quarter ended June 30, 2023, compared to $2.78 billion for the quarter ended June 30, 2022.

The average cost of total deposits, including non-interest bearing deposits, was 1.42% for the quarter ended June 30, 2023, compared with 0.20% for the quarter ended June 30, 2022.

The average cost of borrowed funds for the quarter ended June 30, 2023, was 3.41%, compared to 0.84% for the same period last year.

For the six months ended June 30, 2023, the net interest margin increased 18 basis points to 3.29%, compared to 3.11% for the six months ended June 30, 2022.

The weighted average yield on interest-earning assets increased 135 basis points to 4.68% for the six months ended June 30, 2023, compared to 3.33% for the six months ended June 30, 2022, while the weighted average cost of interest-bearing liabilities increased 154 basis points to 1.84% for the six months ended June 30, 2023, compared to 0.30% for the same period last year.

The average cost of interest-bearing deposits increased 136 basis points to 1.62% for the six months ended June 30, 2023, compared to 0.26% for the same period last year.

Average non-interest bearing demand deposits totaled $2.46 billion for the six months ended June 30, 2023, compared with $2.78 billion for the six months ended June 30, 2022.

The average cost of total deposits, including non-interest bearing deposits, was 1.24% for the six months ended June 30, 2023, compared with 0.19% for the six months ended June 30, 2022.

The average cost of borrowings for the six months ended June 30, 2023, was 3.01%, compared to 0.85% for the same period last year.

Interest income on loans secured by real estate increased $30.2 million to $99.3 million for the three months ended June 30, 2023, from $69.1 million for the three months ended June 30, 2022.

Commercial loan interest income increased $9.1 million to $31.4 million for the three months ended June 30, 2023, from $22.4 million for the three months ended June 30, 2022.

Consumer loan interest income increased $1.1 million to $4.4 million for the three months ended June 30, 2023, from $3.3 million for the three months ended June 30, 2022.

For the three months ended June 30, 2023, the average balance of total loans increased $555.2 million to $10.24 billion, compared to the same period in 2022.

The average yield on total loans for the three months ended June 30, 2023, increased 135 basis points to 5.24%, from 3.89% for the same period in 2022.

Interest income on loans secured by real estate increased $62.4 million to $195.3 million for the six months ended June 30, 2023, from $132.9 million for the six months ended June 30, 2022.

Commercial loan interest income increased $14.9 million to $60.1 million for the six months ended June 30, 2023, from $45.2 million for the six months ended June 30, 2022.

Consumer loan interest income increased $2.2 million to $8.7 million for the six months ended June 30, 2023, from $6.5 million for the six months ended June 30, 2022.

For the six months ended June 30, 2023, the average balance of total loans was $10.17 billion, compared with $9.58 billion for the same period in 2022.

The average yield on total loans for the six months ended June 30, 2023, increased 134 basis points to 5.18%, from 3.84% for the same period in 2022.

Interest income on held to maturity debt securities decreased $132,000 to $2.4 million for the three months ended June 30, 2023, compared to the same period last year.

Average held to maturity debt securities decreased $32.3 million to $380.0 million for the three months ended June 30, 2023, from $412.2 million for the same period last year.

Interest income on held to maturity debt securities decreased $360,000 to $4.7 million for the six months ended June 30, 2023, compared to the same period in 2022.

Average held to maturity debt securities decreased $38.2 million to $381.9 million for the six months ended June 30, 2023, from $420.1 million for the same period last year.

Interest income on available for sale debt securities and FHLBNY stock increased $3.0 million to $11.4 million for the three months ended June 30, 2023, from $8.5 million for the three months ended June 30, 2022.

The average balance of available for sale debt securities and FHLBNY stock decreased $171.7 million to $1.88 billion for the three months ended June 30, 2023, compared to the same period in 2022.

Interest income on available for sale debt securities and FHLBNY stock increased $6.5 million to $22.9 million for the six months ended June 30, 2023, from $16.4 million for the same period last year.

The average balance of available for sale debt securities and FHLBNY stock decreased $225.1 million to $1.88 billion for the six months ended June 30, 2023.

The average yield on total securities increased to 2.53% for the three months ended June 30, 2023, compared with 1.74% for the same period in 2022.

For the six months ended June 30, 2023, the average yield on total securities increased to 2.52%, compared with 1.59% for the same period in 2022.

Interest expense on deposit accounts increased $30.9 million to $36.4 million for the three months ended June 30, 2023, compared with $5.6 million for the three months ended June 30, 2022.

For the six months ended June 30, 2023, interest expense on deposit accounts increased $53.2 million to $64.0 million, from $10.8 million for the same period last year.

The average cost of interest-bearing deposits increased to 1.85% and 1.62% for the three and six months ended June 30, 2023, respectively, from 0.27% and 0.26% for the three and six months ended June 30, 2022, respectively.

The average balance of interest-bearing core deposits, which consist of total savings and demand deposits, for the three months ended June 30, 2023, decreased $757.7 million to $6.93 billion.

For the six months ended June 30, 2023, average interest-bearing core deposits decreased $676.9 million, to $7.05 billion, from $7.73 billion for the same period in 2022.

Average time deposit account balances increased $273.3 million to $968.3 million for the three months ended June 30, 2023, from $695.0 million for the three months ended June 30, 2022.

For the six months ended June 30, 2023, average time deposit account balances increased $226.4 million to $914.4 million, from $688.0 million for the same period in 2022.

Interest expense on borrowed funds increased $13.0 million to $14.1 million for the three months ended June 30, 2023, from $1.1 million for the three months ended June 30, 2022.

For the six months ended June 30, 2023, interest expense on borrowed funds increased $19.3 million to $21.6 million, from $2.3 million for the six months ended June 30, 2022.

The average cost of borrowings increased to 3.41% for the three months ended June 30, 2023, from 0.84% for the three months ended June 30, 2022.

The average cost of borrowings increased to 3.01% for the six months ended June 30, 2023, from 0.85% for the same period last year.

Average borrowings increased $1.13 billion to $1.66 billion for the three months ended June 30, 2023, from $527.6 million for the three months ended June 30, 2022.

For the six months ended June 30, 2023, average borrowings increased $904.2 million to $1.44 billion, compared to $538.6 million for the six months ended June 30, 2022.

Provision for Credit Losses.

2 unchanged sentences

The amount of the allowance is based on estimates, and the ultimate losses may vary from such estimates as more information becomes available or later events change.

Management assesses the adequacy of the

allowance for credit losses on a quarterly basis and makes provisions for credit losses, if necessary, in order to maintain the valuation of the allowance.

The Company recorded a $6.0 million provision for credit losses on loans for the three months ended March 31, 2023 compared with a benefit of $6.4 million for the three months ended March 31, 2022.

The increase in provision was attributable to a worsening economic forecast and related deterioration in the projected commercial property price index over the expected life of the loan portfolio.

Management assesses the adequacy of the allowance for credit losses on a quarterly basis and makes provisions for credit losses, if necessary, in order to maintain the valuation of the allowance.

The Company recorded a $10.4 million and $16.4 million provision for credit losses on loans for the three and six months ended June 30, 2023, respectively, compared with a provision of $3.0 million and a negative provision of $3.4 million for the three and six months ended June 30, 2022, respectively.

The increase in the provision for credit losses for the three and six months ended June 30, 2023 was largely a function of a worsened economic forecast and related deterioration in the projected commercial property price indices over the expected life of the loan portfolio within our CECL model, combined with an increase in total loans outstanding.

Non-Interest Income.

Non-interest income totaled $22.2 million for the quarter ended March 31, 2023, an increase of $2.0 million, compared to the same period in 2022.

Other income increased $2.1 million to $3.3 million for the three months ended March 31, 2023, compared to $1.2 million for the same period in 2022, mainly due to an additional $2.0 million gain recognized from the September 2022 sale of a foreclosed commercial property, representing additional sale proceeds held in escrow pending the resolution of certain post-closing conditions, combined with an increase in the gains on sale of SBA loans, partially offset by a decrease in net fees on loan-level interest rate swap transactions.

Insurance agency income increased $682,000 to $4.1 million for the three months ended March 31, 2023, compared to the same period in 2022, resulting from an increase in business activity.

BOLI income increased $305,000 to $1.5 million, for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to higher equity valuations.

Partially offsetting these increases in non-interest income, wealth management income decreased $551,000 to $6.9 million for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to a decrease in the market value of assets under management, while fee income decreased $502,000 to $6.4 million for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to a decrease in commercial loan prepayment fees.

Non-interest income totaled $19.4 million for the quarter ended June 30, 2023, a decrease of $1.5 million, compared to the same period in 2022.

Fee income decreased $1.6 million to $5.8 million for the three months ended June 30, 2023, compared to the trailing quarter, primarily due to decreases in commercial loan prepayment fees and deposit fee income.

Other income decreased $647,000 to $1.3 million for the three months ended June 30, 2023, compared to the quarter ended June 30, 2022, primarily due to a decrease in net gains on sales of SBA loans.

Partially offsetting these decreases in non-interest income, insurance agency income increased $997,000 to $3.8 million for the three months ended June 30, 2023, compared to the quarter ended June 30, 2022, largely due to strong retention revenue and new business activity.

For the six months ended June 30, 2023, non-interest income totaled $41.5 million, an increase of $462,000, compared to the same period in 2022.

Insurance agency income increased $1.7 million to $8.0 million for the six months ended June 30, 2023, compared to $6.3 million for the same period in 2022, largely due to increases in contingent commissions, retention revenue

and new business activity.

Other income increased $1.4 million to $4.6 million for the six months ended June 30, 2023, compared to $3.1 million for the same period in 2022, mainly due to a $2.0 million gain related to the resolution of certain post-closing conditions following the September 2022 sale of a foreclosed commercial property, combined with an increase in the gains on sales of SBA loans, partially offset by a decrease in net fees on loan-level interest rate swap transactions.

Additionally, BOLI income increased $277,000 to $3.0 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to greater equity valuations, partially offset by a decrease in benefit claims recognized.

Partially offsetting these increases to non-interest income, fee income decreased $2.2 million to $12.2 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to a decrease in commercial loan prepayment fees, while wealth management income decreased $655,000 to $13.8 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to a decrease in the market value of assets under management.

Non-Interest Expense .

For the three months ended March 31, 2023, non-interest expense totaled $69.5 million, an increase of $7.6 million, compared to the three months ended March 31, 2022.

Non-interest expense for the current quarter included $1.1 million in professional fees related to our pending merger with Lakeland.

For the three months ended March 31, 2023, the Company recorded a $739,000 provision for credit losses for off-balance sheet credit exposures, compared to a $2.4 million negative provision for the same period in 2022.

The $3.1 million increase in provision was primarily due to the period over period decrease in line of credit utilization and an increase in projected loss factors as a result of a worsened economic forecast.

Other operating expenses increased $2.8 million to $12.2 million for the three months ended March 31, 2023, compared to the same period in 2022, largely due to increases professional fees related to our pending merger with Lakeland, combined with additional expenses related to foreclosed commercial real estate owned properties.

Compensation and benefits expense increased $1.7 million to $38.7 million for the three months ended March 31, 2023, compared to $37.1 million for the three months ended March 31, 2022, primarily due to an increase in stock-based compensation and an increase in salary expense associated with Company-wide annual merit increases.

In addition, FDIC insurance increased $732,000 to $1.9 million for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to the recent FDIC action to increase deposit insurance assessment rates uniformly beginning in the first quarter of 2023.

Partially offsetting these increases in non-interest expense, net occupancy expense decreased $920,000 to $8.4 million for the three months ended March 31, 2023, largely due to decreases in snow removal costs and rent expense.

For the three months ended June 30, 2023, non-interest expense totaled $64.5 million, an increase of $617,000, compared to the three months ended June 30, 2022.

Merger-related expenses totaled $2.0 million for the three months ended June 30, 2023, as a result of transaction costs related to our pending combination with Lakeland.

FDIC insurance expense increased $775,000 to $2.1 million for the three months ended June 30, 2023, compared to the same period in 2022, primarily due to an increase in the assessment rate.

The Company recorded a $647,000 negative provision for credit losses for off-balance sheet credit exposures, compared to a $973,000 negative provision for the same period in 2022.

The $326,000 reduction in the provision benefit was primarily the result of the period-over-period relative changes in line of credit utilization.

Partially offsetting these increases in non-interest expense, compensation and benefits expense decreased $2.2 million to $35.3 million for three months ended June 30, 2023, compared to $37.4 million for the same period in 2022.

The decrease was principally due to decreases in the accrual for incentive compensation and stock-based compensation, partially offset by an increase in salary expense.

Net occupancy expenses decreased $530,000 to $7.9 million for the three months ended June 30, 2023, compared to the same period in 2022, largely due to decreases in depreciation and maintenance expenses.

Non-interest expense totaled $134.0 million for the six months ended June 30, 2023, an increase of $8.2 million, compared to $125.7 million for the six months ended June 30, 2022.

The Company recorded a $92,000 provision for credit losses for off-balance sheet credit exposures for the six months ended June 30, 2023, compared to a $3.4 million negative provision for the same period in 2022.

The $3.5 million increase in the provision for credit losses for off-balance sheet credit exposures was primarily the result of the period-over-period relative change in line of credit utilization and an increase in projected loss factors as a result of a worsened economic forecast.

Merger-related expenses totaled $3.1 million for the six months ended June 30, 2023, as a result of transaction costs related to our pending combination with Lakeland.

Other operating expense increased $1.8 million to $21.0 million for the six months ended June 30, 2023, compared to $19.2 million for the six months ended June 30, 2022, primarily due to an increase in consulting fees and additional expenses related to foreclosed commercial real estate owned properties.

FDIC insurance expense increased $1.5 million to $4.1 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to an increase in the assessment rate.

Partially offsetting these increases, net occupancy expense decreased $1.5 million to $16.4 million for the six months ended June 30, 2023, compared to the same period in 2022, mainly due to decreases in maintenance and depreciation expenses.

Additionally, compensation and benefits expense decreased $482,000 to $74.0 million for the six months ended June 30, 2023, compared to $74.5 million for the six months ended June 30, 2022, primarily due to decreases in the accrual for incentive and stock-based compensation, partially offset by an increase in salary expense.

Income Tax Expense.

For the three months ended March 31, 2023, the Company’s income tax expense was $14.5 million with an effective tax rate of 26.3%, compared with income tax expense of $15.2 million with an effective tax rate of 25.7% for the three months ended March 31, 2022.

The decrease in tax expense for the three months ended March 31, 2023, compared with the same period last year was largely the result of a decrease in taxable income, while the increase in the effective tax rate was primarily due to non-deductible merger related transaction costs incurred in the 2023 period.

For the three months ended June 30, 2023, the Company's income tax expense was $11.6 million with an effective tax rate of 26.7%, compared with $14.3 million with an effective tax rate of 26.8% for the three months ended June 30, 2022.

The decrease in tax expense for the three months ended June 30, 2023, compared with the same period last year was largely the result of a decrease in taxable income, while the decrease in the effective tax rate for the three months ended June 30, 2023, compared with the three months ended June 30, 2022, was largely due to a decrease in the proportion of income derived from taxable sources.

For the six months ended June 30, 2023, the Company's income tax expense was $26.1 million with an effective tax rate of 26.4%, compared with $29.6 million with an effective tax rate of 26.2% for the six months ended June 30, 2022.

The decrease in tax expense for the six months ended June 30, 2023, compared with the same period last year was largely the result of a decrease in taxable income, while the increase in the effective tax rate for the six months ended June 30, 2023, compared with the prior year period was largely due to non-deductible merger related transaction costs recognized in the current year, partially offset by a decrease in the proportion of income derived from taxable sources.

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-Q

Item 2. Management’s Discussion and Analysis