What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-08 · 162 added, 153 removed, 235 unchanged (57% of the section changed)

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Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those set forth in Item 1A of the Company's Annual Report on Form 10-K, as supplemented by its Quarterly Reports on Form 10-Q, and those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S.

Government, the effects of the recent turmoil in the banking industry (including the closing of three financial institutions), changes in accounting policies and practices that may be adopted by the regulatory agencies and the accounting standards setters, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets, the availability of and costs associated with sources of liquidity, the ability to complete, or any delays in completing, the pending merger between the Company and Lakeland;

Government, the effects of the recent turmoil in the banking industry (including the closing of three financial institutions), changes in accounting policies and practices that may be adopted by the regulatory agencies and the accounting standards setters, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, potential goodwill impairment, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets, the availability of and costs associated with sources of liquidity, the ability to complete, or any delays in completing, the pending merger between the Company and Lakeland;

any failure to realize the anticipated benefits of the transaction when expected or at all;

certain restrictions during the pendency of the transaction that may impact the Company’s ability to pursue certain business opportunities or strategic transactions; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management’s attention from ongoing business operations and opportunities;

and potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the merger and integration of the companies.

potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the merger and integration of the companies;

and the impact of a potential shutdown of the federal government.

The Company cautions readers not to place undue reliance on any such forward-looking statements which speak only as of the date they are made.

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

Upon completion of the transaction, which remains subject to regulatory approvals and other closing conditions, Provident shareholders will own approximately 58% and Lakeland shareholders will own approximately 42% of the combined company.

The combined company is expected to have more than $25 billion in total assets, $18 billion in total loans and $20 billion in total deposits.

Critical Accounting Policies

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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 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.

As of September 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 worsened economic forecast and related deterioration in the projected commercial property price indices used in our CECL model and resulted in recorded provisions of $11.0 million and $27.4 million for the three and nine months ended September 30, 2023, and a coverage ratio of 101 basis points.

The Company applied qualitative adjustments to the projected commercial property price indices to account for differences in portfolio collateral composition versus the commercial real estate index and regional performance differences compared with the national multi-family index used in our CECL model.

Had the Company used the unadjusted baseline outlooks for the commercial property and multi-family property price indices over the expected lives of Commercial Real Estate and Multi-family loan portfolios, the provision would have increased by $8.5 million, resulting in a coverage ratio of 109 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.

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

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

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

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

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Such agencies may require the Company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination.

Although management uses the best information available, the level of the allowance for credit losses remains an estimate that is subject to significant judgment and short-term change.

Although management uses the best information

available, the level of the allowance for credit losses remains an estimate that is subject to significant judgment and short-term change.

The CECL approach to calculate the allowance for credit losses on loans is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized.

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 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.

For the three and nine months ended September 30, 2023, the provision for credit losses on loans totaled $11.0 million and $27.4 million, compared to an $8.4 million and a $5.0 million provision for credit losses for the three and nine months ended September 30, 2022.

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

Total assets at September 30, 2023 were $14.09 billion, a $303.4 million increase from December 31, 2022.

The increase in total assets was primarily due to a $418.7 million increase in total loans, partially offset by a $132.0 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’s loan portfolio increased $418.7 million to $10.67 billion at September 30, 2023, from $10.25 billion at December 31, 2022.

For the nine months ended September 30, 2023, loan funding, including advances on lines of credit, totaled $2.53 billion, compared with $3.05 billion for the same period in 2022.

During the nine months ended September 30, 2023, the loan portfolio had net increases of $276.2 million in multi-family loans, $106.4 million in commercial loans and $94.9 million in commercial mortgage loans, partially offset by net decreases in construction, residential mortgage and consumer loans of $48.0 million, $10.1 million and $2.0 million, respectively.

Commercial loans, consisting of commercial real estate, multi-family, commercial and construction loans, represented 86.2% of the loan portfolio at September 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 $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

The Company’s gross commitments and outstanding balances as a participant in SNCs were $172.7 million and $67.0 million, respectively, at September 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 (which represents approximately a 6% share of the total facility commitment) was 90 days or more delinquent at September 30, 2023.

The Company had outstanding junior lien mortgages totaling $140.1 million at September 30, 2023.

Of this total, two loans totaling $237,900 were 90 days or more delinquent with an allowance for credit losses of $4,633.

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

September 30, 2023 December 31, 2022

Mortgage loans:

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Total non-performing assets $ 56,016 60,633

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

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

September 30, 2023 December 31, 2022

Mortgage loans:

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Total 60-89 day delinquent loans $ 1,919 3,784

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.

At September 30, 2023, the Company’s allowance for credit losses related to the loan portfolio was 1.01% of total loans, compared to 0.88% at December 31, 2022 and September 30, 2022, respectively.

The Company recorded a provision for credit losses on loans of $11.0 million and $27.4 million for the three and nine months ended September 30, 2023, compared with a provision of $8.4 million and $5.0 million for the three and nine months ended September 30, 2022, respectively.

For the three and nine months ended September 30, 2023, the Company had net charge-offs of $5.5 million and $7.3 million, respectively, compared to net recoveries of $1.2 million and net recoveries of $2.9 million, respectively, for the same periods in 2022.

The allowance for credit losses increased $19.5 million to $107.6 million at September 30, 2023 from $88.0 million at December 31, 2022.

Total non-performing loans were $39.5 million, or 0.37% of total loans at September 30, 2023, compared to $58.5 million, or 0.57% of total loans at December 31, 2022.

The $19.0 million decrease in non-performing loans consisted of a $16.5 million decrease in non-performing commercial mortgage loans, a $2.3 million decrease in non-performing commercial loans, a $599,000 decrease in non-performing residential mortgage loans and a $243,000 decrease in non-performing consumer loans, partially offset by a $693,000 increase in non-performing multi-family loans.

At September 30, 2023 and December 31, 2022, the Company held foreclosed assets of $16.5 million and $2.1 million, respectively.

During the nine months ended September 30, 2023, there were four additions to foreclosed assets with an aggregate carrying value of $15.1 million, and three properties sold with an aggregate carrying value of $768,000.

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

Total non-performing assets at September 30, 2023 decreased $4.6 million to $56.0 million, or 0.40% of total assets, from $60.6 million, or 0.44% of total assets at December 31, 2022.

Total investment securities were $2.13 billion at September 30, 2023, a $132.0 million decrease from December 31, 2022.

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

Total deposits decreased $421.6 million during the nine months ended September 30, 2023, to $10.14 billion.

Total savings and demand deposit accounts decreased $738.3 million to $9.07 billion at September 30, 2023, while total time deposits increased $316.7 million to $1.07 billion at September 30, 2023.

The decrease in savings and demand deposits was largely attributable to a $456.2 million decrease in non-interest bearing demand deposits, a $324.7 million decrease in money market deposits and a $238.2 million decrease in savings deposits, partially offset by a $280.8 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 $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.

During the nine months ended September 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 $441.8 million to $500.7 million at September 30, 2023, from $58.9 million at December 31, 2022.

The increase in time deposits consisted of a $322.4 million increase in retail time deposits, partially offset by a $5.7 million decrease in brokered time deposits.

The increase in time deposits was largely attributable to balances from lower-costing deposits transitioning into higher-costing certificates of deposits.

Borrowed funds increased $684.9 million during the nine months ended September 30, 2023, to $2.02 billion.

The increase in borrowings was largely due to asset funding requirements.

Borrowed funds represented 14.4% of total assets at September 30, 2023, an increase from 9.7% at December 31, 2022.

Stockholders’ equity increased $25.3 million during the nine months ended September 30, 2023, to $1.62 billion, primarily due to net income earned for the period, partially offset by an increase in unrealized losses on available for sale debt securities and cash dividends paid to stockholders.

During the three months ended September 30, 2023, the Company did not repurchase shares under its stock repurchase program.

During the nine months ended September 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 September 30, 2023, approximately 1.1 million shares remained eligible for repurchase under the current stock repurchase authorization.

Liquidity and Capital Resources.

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

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.

For the nine months ended September 30, 2023 and 2022, loan repayments totaled $2.09 billion and $2.34 billion, respectively.

As deposits have declined, the Company has continued to monitor and focus on depositor behavior and borrowing capacity with the FHLBNY and FRBNY, with current borrowing capacity of $1.14 billion and $1.69 billion, respectively at September 30, 2023.

Our estimated uninsured and uncollateralized deposits at September 30, 2023 totaled $2.49 billion, representing 25% of our total deposits.

At September 30, 2023, Provident Bank had on balance sheet liquidity and borrowing capacity totaling $3.59 billion, representing 144% of estimated uninsured and uncollateralized deposits.

The Bank established the Bank Term Funding Program with the Federal Reserve Bank of New York in March 2023 and pledged approximately $521 million in unencumbered security collateral to the facility improving its access to immediate funding.

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

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.

As of September 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 nine months ended September 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 September 30, 2023, our ICS deposits totaled $500.7 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.

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

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

June 30, 2023

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

September 30, 2023

Required Required with Capital Conservation Buffer Actual

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

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.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

The Company reported net income of $28.5 million, or $0.38 per basic and diluted share for the three months ended September 30, 2023, compared to net income of $43.4 million, or $0.58 per basic and diluted share, for the three months ended September 30, 2022.

For the nine months ended September 30, 2023, the Company reported net income of $101.1 million, or $1.35 per basic share and diluted share, compared to net income of $126.6 million, or $1.69 per basic and diluted share, for the nine months ended September 30, 2022.

Compared with the prior year periods, net income for the three months ended September 30, 2023 was negatively impacted by decrease in net interest income attributable to increased funding costs and resulting net interest spread compression.

Net income for the three nine months ended September 30, 2023 was further impacted by increased provisions for credit losses due to a worsened economic forecast.

Transaction costs related to our pending merger with Lakeland Bancorp, Inc.

(“Lakeland”) totaled $2.3 million and $5.3 million for the three and nine months ended September 30, 2023, respectively, compared with transaction costs totaling $2.9 million for the respective 2022 periods.

In addition, prior year earnings for the three and nine months ended September 30, 2022, included an $8.6 million gain on the sale of a foreclosed property.

The following tables sets forth certain information for the three and nine months ended September 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.

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For the three months ended

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

Average Balance Interest Average

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

For the six months ended

June 30, 2023 June 30, 2022

For the nine months ended

September 30, 2023 September 30, 2022

Average Balance Interest Average

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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.

Net interest income decreased $13.3 million to $96.2 million for the three months ended September 30, 2023, from $109.5 million for same period in 2022.

For the nine months ended September 30, 2023, total net interest income increased $175,000 to $303.7 million, from $303.5 million for the same period in 2022.

The decrease in net interest income for the comparative quarters 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 at higher market rates and the favorable repricing of adjustable-rate loans.

The increase in net interest income for the nine months ended September 30, 2023 was primarily driven by 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 $77,000 for the nine months ended September 30, 2023, compared to $1.4 million for the nine months ended September 30, 2022.

The net interest margin decreased 55 basis points to 2.96% for the quarter ended September 30, 2023, compared to 3.51% for the quarter ended September 30, 2022.

The weighted average yield on interest-earning assets increased 99 basis points to 4.89% for the quarter ended September 30, 2023, compared to 3.90% for the quarter ended September 30, 2022, while the weighted average cost of interest-bearing liabilities increased 196 basis points for the quarter ended September 30, 2023, to 2.50%, compared to 0.54% for the quarter ended September 30, 2022.

The average cost of interest-bearing deposits for the quarter ended September 30, 2023, was 2.22%, compared to 0.47% for the same period last year.

Average non-interest-bearing demand deposits totaled $2.23 billion for the quarter ended September 30, 2023, compared to $2.75 billion for the quarter ended September 30, 2022.

The average cost of total deposits, including non-interest-bearing deposits, was 1.74% for the quarter ended September 30, 2023, compared with 0.35% for the quarter ended September 30, 2022.

The average cost of borrowed funds for the quarter ended September 30, 2023, was 3.74%, compared to 1.11% for the same period last year.

For the nine months ended September 30, 2023, the net interest margin decreased five basis points to 3.19%, compared to 3.24% for the nine months ended September 30, 2022.

The weighted average yield on interest-earning assets increased 125 basis points to 4.76% for the nine months ended September 30, 2023, compared to 3.51% for the nine months ended September 30, 2022, while the weighted average cost of interest-bearing liabilities increased 169 basis points to 2.07% for the nine months ended September 30, 2023, compared to 0.38% for the same period last year.

The average cost of interest-bearing deposits increased 149 basis points to 1.82% for the nine months ended September 30, 2023, compared to 0.33% for the same period last year.

Average non-interest-bearing demand deposits totaled $2.38 billion for the nine months ended September 30, 2023, compared with $2.77 billion for the nine months ended September 30, 2022.

The average cost of total deposits, including non-interest-bearing deposits, was 1.40% for the nine months ended September 30, 2023, compared with 0.25% for the nine months ended September 30, 2022.

The average cost of borrowings for the nine months ended September 30, 2023, was 3.29%, compared to 0.97% for the same period last year.

Interest income on loans secured by real estate increased $24.3 million to $104.5 million for the three months ended September 30, 2023, from $80.3 million for the three months ended September 30, 2022.

Commercial loan interest income increased $8.6 million to $33.8 million for the three months ended September 30, 2023, from $25.2 million for the three months ended September 30, 2022.

Consumer loan interest income increased $1.0 million to $4.7 million for the three months ended September 30, 2023, from $3.8 million for the three months ended September 30, 2022.

For the three months ended September 30, 2023, the average balance of total loans increased $556.0 million to $10.47 billion, compared to the same period in 2022.

The average yield on total loans for the three months ended September 30, 2023, increased 99 basis points to 5.37%, from 4.38% for the same period in 2022.

Interest income on loans secured by real estate increased $86.6 million to $299.8 million for the nine months ended September 30, 2023, from $213.2 million for the nine months ended September 30, 2022.

Commercial loan interest income increased $23.5 million to $93.9 million for the nine months ended September 30, 2023, from $70.4 million for the nine months ended September 30, 2022.

Consumer loan interest income increased $3.2 million to $13.4 million for the nine months ended September 30, 2023, from $10.3 million for the nine months ended September 30, 2022.

For the nine months ended September 30, 2023, the average balance of total loans increased $574.2 million to $10.27 billion, compared with $9.69 billion for the same period in 2022.

The average yield on total loans for the nine months ended September 30, 2023, increased 124 basis points to 5.25%, from 4.01% for the same period in 2022.

Interest income on held to maturity debt securities decreased $82,000 to $2.3 million for the three months ended September 30, 2023, compared to the same period last year.

Average held to maturity debt securities decreased $25.7 million to $373.7 million for the three months ended September 30, 2023, from $399.4 million for the same period last year.

Interest income on held to maturity debt securities decreased $442,000 to $7.1 million for the nine months ended September 30, 2023, compared to

the same period in 2022.

Average held to maturity debt securities decreased $34.0 million to $379.1 million for the nine months ended September 30, 2023, from $413.1 million for the same period last year.

Interest income on available for sale debt securities increased $1.0 million to $10.1 million for the three months ended September 30, 2023, from $9.1 million for the three months ended September 30, 2022.

The average balance of available for sale debt securities decreased $223.9 million to $1.72 billion for the three months ended September 30, 2023, compared to the same period in 2022.

Interest income on available for sale debt securities increased $6.0 million to $30.8 million for the nine months ended September 30, 2023, from $24.8 million for the same period last year.

The average balance of available for sale debt securities decreased $250.8 million to $1.78 billion for the nine months ended September 30, 2023.

Interest income on FHLBNY stock increased $1.3 million to $1.8 million for the three months ended September 30, 2023, from $445,000 for the three months ended September 30, 2022.

The average balance of FHLBNY stock increased $42.0 million to $91.3 million for the three months ended September 30, 2023, compared to the same period in 2022.

Interest income on FHLBNY stock increased $8.8 million to $34.7 million for the nine months ended September 30, 2023, from $26.0 million for the same period last year.

The average balance of FHLBNY stock increased $40.3 million to $77.6 million for the nine months ended September 30, 2023.

The average yield on total securities increased to 2.67% for the three months ended September 30, 2023, compared with 2.36% for the same period in 2022.

For the nine months ended September 30, 2023, the average yield on total securities increased to 2.57%, compared with 1.72% for the same period in 2022.

Interest expense on deposit accounts increased $35.4 million to $44.9 million for the three months ended September 30, 2023, compared with $9.6 million for the three months ended September 30, 2022.

For the nine months ended September 30, 2023, interest expense on deposit accounts increased $88.6 million to $108.9 million, from $20.3 million for the same period last year.

The average cost of interest-bearing deposits increased to 2.22% and 1.82% for the three and nine months ended September 30, 2023, respectively, from 0.47% and 0.33% for the three and nine months ended September 30, 2022, respectively.

The average balance of interest-bearing core deposits, which consist of total savings and demand deposits, for the three months ended September 30, 2023, decreased $440.6 million to $6.98 billion.

For the nine months ended September 30, 2023, average interest-bearing core deposits decreased $597.3 million, to $7.03 billion, from $7.62 billion for the same period in 2022.

Average time deposit account balances increased $383.2 million to $1.05 billion for the three months ended September 30, 2023, from $669.6 million for the three months ended September 30, 2022.

For the nine months ended September 30, 2023, average time deposit account balances increased $279.2 million to $961.0 million, from $681.8 million for the same period in 2022.

Interest expense on borrowed funds increased $14.2 million to $16.8 million for the three months ended September 30, 2023, from $2.5 million for the three months ended September 30, 2022.

For the nine months ended September 30, 2023, interest expense on borrowed funds increased $33.5 million to $38.3 million, from $4.8 million for the nine months ended September 30, 2022.

The average cost of borrowings increased to 3.74% for the three months ended September 30, 2023, from 1.11% for the three months ended September 30, 2022.

The average cost of borrowings increased to 3.29% for the nine months ended September 30, 2023, from 0.97% for the same period last year.

Average borrowings increased $0.87 billion to $1.78 billion for the three months ended September 30, 2023, from $908.8 million for the three months ended September 30, 2022.

For the nine months ended September 30, 2023, average borrowings increased $893.3 million to $1.56 billion, compared to $663.4 million for the nine months ended September 30, 2022.

Provision for Credit Losses.

3 unchanged sentences

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.

The Company recorded an $11.0 million and $27.4 million provision for credit losses on loans for the three and nine months ended September 30, 2023, respectively, compared with a provision of $8.4 million and a negative provision of $5.0 million for the three and nine months ended September 30, 2022, respectively.

The increase in the provision for credit losses for the three and nine months ended September 30, 2023 was largely a function of a worsened economic forecast and related deterioration in the projected commercial property price indices used in our CECL model.

Non-Interest Income.

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 income totaled $19.3 million for the quarter ended September 30, 2023, a decrease of $9.1 million, compared to the same period in 2022.

Other income decreased $9.2 million to $1.1 million for the three months ended September 30, 2023, compared to the quarter ended September 30, 2022, primarily due to an $8.6 million gain realized in the prior year on the sale of a foreclosed commercial office property, combined with a decrease in the gains on sales of SBA loans.

Fee income decreased $1.1 million to $6.1 million for the three months ended September 30, 2023, compared to the prior year quarter, primarily due to decreases in commercial loan prepayment fees and deposit fee income.

Partially offsetting these decreases in non-interest income, BOLI income increased $583,000 to $1.8 million three months ended September 30, 2023, compared to the prior year quarter, primarily due to an increase in benefit claims recognized.

Additionally, insurance agency income increased $359,000 to $3.2 million for the three months ended September 30, 2023, compared to the quarter ended September 30, 2022, largely due to strong retention revenue and new business activity.

For the nine months ended September 30, 2023, non-interest income totaled $60.9 million, a decrease of $8.7 million, compared to the same period in 2022.

Other income decreased $7.8 million to $5.7 million for the nine months ended September 30, 2023, compared to $13.5 million for the same period in 2022, primarily due to an $8.6 million gain realized in the prior year on the sale of a foreclosed commercial office property, a decrease in net fees on loan-level interest rate swap transactions and a decrease in the gains on sales of SBA loans, partially offset by a $2.0 million gain related to the resolution of certain post-closing conditions following the September 2022 sale of a foreclosed commercial property.

Fee income decreased $3.2 million to $18.3 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to a decrease in commercial loan prepayment fees, while wealth management income decreased $448,000 to $20.8 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to a decrease in the market value of assets under management.

Partially offsetting these decreases to non-interest income, insurance agency income increased $2.0 million to $11.2 million for the nine months ended September 30, 2023, compared to $9.1 million for the same period in 2022, largely due to increases in contingent commissions, retention revenue and new business activity.

Additionally, BOLI income increased $860,000 to $4.8 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to greater equity valuations.

Non-Interest 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.

For the three months ended September 30, 2023, non-interest expense totaled $67.2 million, a decrease of $2.3 million, compared to the three months ended September 30, 2022.

Compensation and benefits expense decreased $2.4 million to $35.7 million for three months ended September 30, 2023, compared to $38.1 million for the same period in 2022.

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

Additionally, merger-related expenses related to our pending merger with Lakeland decreased $597,000 to $2.3 million for the three months ended September 30, 2023, compared to the same period in 2022.

Partially offsetting these decreases in non-interest expense, FDIC insurance expense increased $228,000 to $1.6 million for the three months ended September 30, 2023, compared to the same period in 2022, primarily due to an increase in the assessment rate.

Non-interest expense totaled $201.1 million for the nine months ended September 30, 2023, an increase of $5.9 million, compared to $195.2 million for the nine months ended September 30, 2022.

The Company recorded a $1.6 million provision for credit losses for off-balance sheet credit exposures for the nine months ended September 30, 2023, compared to a $1.8 million provision benefit for the same period in 2022.

The $3.4 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.

Other operating expense increased $3.2 million to $31.8 million for the nine months ended September 30, 2023, compared to $28.5 million for the nine months ended September 30, 2022, largely due to increases in professional fees, combined with an increase in debit card expense.

Merger-related expenses increased $2.4 million to $5.3 million for the nine months ended September 30, 2023, compared to $2.9 million for the nine months ended September 30, 2022.

FDIC insurance expense increased $1.7 million to $5.7 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to an increase in the assessment rate.

Partially offsetting these increases, compensation and benefits expense decreased $2.9 million to $109.7 million for the nine months ended September 30, 2023, compared to $112.6 million for the nine months ended September 30, 2022, primarily due to decreases in the accrual for incentive compensation, employee medical expenses and stock-based compensation, partially offset by an increase in salary expense.

Additionally, net occupancy expense decreased $1.8 million to $24.5 million for the nine months ended September 30, 2023, compared to the same period in 2022, mainly due to decreases in maintenance and depreciation expenses.

Income Tax Expense.

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.

For the three months ended September 30, 2023, the Company's income tax expense was $8.8 million with an effective tax rate of 23.7%, compared with $16.7 million with an effective tax rate of 27.7% for the three months ended September 30, 2022.

The decrease in tax expense for the three months ended September 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 September 30, 2023, compared with the three months ended September 30, 2022, was largely due to a decrease in the proportion of income derived from taxable sources.

For the nine months ended September 30, 2023, the Company's income tax expense was $34.9 million with an effective tax rate of 25.7%, compared with $46.2 million with an effective tax rate of 26.7% for the nine months ended September 30, 2022.

The decrease in tax expense for the nine months ended September 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 nine months ended September 30, 2023, compared with the prior year period was largely due to 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