What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-26 compared with 2023-11-08 · 210 added, 222 removed, 175 unchanged (71% 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, 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;

Government, the effects of the recent turmoil in the banking industry, 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 pending merger 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 pending merger transaction may be more expensive to complete than anticipated, including as a result of conditions imposed by regulators, unexpected conditions, factors or events, diversion of management’s attention from ongoing business operations and opportunities;

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

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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 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.

The Company received all regulatory approvals for its previously announced acquisition of Lakeland Bancorp, Inc.

("Lakeland"), subject to certain conditions and commitments (referred to as the “Regulatory Conditions”).

The Regulatory Conditions include, but are not limited to:

prior to consummation of the merger, the Company must complete the issuance of $200 million of Tier 2 qualifying subordinated debt;

for three years following consummation of the merger, Provident Bank must maintain regulatory capital ratios at or above 8.50% for Tier 1 Leverage Capital and 11.25% for Total Risk Based Capital;

and Provident Bank must maintain its commercial real estate concentrations (as a percent of capital and reserves) at levels at or below those forecasted in the pro forma financial projections that Provident Bank submitted to the FDIC.

In connection with

the acquisition, Lakeland Bank, a wholly owned subsidiary of Lakeland, will be merged with and into Provident Bank, a wholly owned subsidiary of the Company.

As of March 31, 2024, Lakeland had, on a consolidated basis, $11.00 billion in total assets, which included $8.30 billion in total loans and $8.50 billion in total deposits, and operated 67 full-service banking offices in New Jersey.

Under the merger agreement, each share of Lakeland common stock will be exchanged for 0.8319 shares, or approximately 55 million shares, of the Company's common stock plus cash in lieu of fractional shares.

Provident stockholders will own approximately 58% and Lakeland shareholders will own approximately 42% of the combined company.

The combined company is expected to have approximately $25 billion in total assets, $19.2 billion in total loans and $18.6 billion in total deposits.

Merger-related expenses, which is a separate line in non-interest expense on the Consolidated Statements of Income, totaled $2.2 million for the three months ended March 31, 2024.

Critical Accounting Policies

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The Company's current forecast period is six quarters, with a four-quarter reversion period to historical average macroeconomic factors.

The Company's economic forecast is approved by the Company's Asset-Liability Committee.

The Company's economic forecast is approved by the Company's ACL Committee.

The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a quarterly basis, when similar risk characteristics exist.

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The Company considers qualitative adjustments to credit loss estimates for information not already captured in the quantitative component of the loss estimation process.

Qualitative factors are based on portfolio concentration levels, model imprecision, changes in industry conditions, changes in the Company’s loan review process, changes in the Company’s loan policies and procedures, and economic forecast uncertainty.

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 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.

Qualitative factors are based on portfolio concentration levels, model imprecision,

changes in industry conditions, changes in the Company’s loan review process, changes in the Company’s loan policies and procedures, and economic forecast uncertainty.

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

As of March 31, 2024, 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.

For example, the commercial property price index used in the model has a higher proportion of office exposure relative to that of the Bank.

This baseline outlook reflected a worsened economic forecast and related deterioration in the projected commercial property price index used in our CECL model.

The Company made qualitative adjustments to the projected commercial real estate property price index, considering the differences in portfolio collateral composition versus the commercial property price index used in our CECL models.

The allowance estimation process resulted in a total provision of $200,000 for the three months ended March 31, 2024, and an overall coverage ratio of 98 basis points.

Management believes the allowance for credit losses allocated to the commercial real estate non-owner occupied portfolio segment accurately represents the estimated inherent losses, factoring in the qualitative adjustment and other assumptions, including the selection of the baseline forecast within the model.

If the Company used the unadjusted baseline outlooks for the commercial property price index over the expected lives of Commercial Real Estate Non-Owner Occupied and Owner-Occupied loan portfolios, the provision would have risen by approximately $6.2 million, leading to an overall coverage ratio of approximately 104 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 September 30, 2023, the portfolio and class segments for the Company’s loan portfolio were:

As of March 31, 2024, 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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or which may be identified through the Company’s loan review process.

Generally, the Company only evaluates loans individually for impairment if the loan is non-accrual, non-homogeneous and the balance is at least $1.0 million.

Generally, the Company only evaluates loans individually for impairment if the loan is non-accrual, non-homogeneous and the balance is greater than $1.0 million.

For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the fair value of the collateral less any selling costs.

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Management considers it important to maintain the ratio of the allowance for credit losses to total loans at an acceptable level given current and forecasted economic conditions, interest rates and the composition of the portfolio.

Although management believes that the Company has established and maintained the allowance for credit losses at appropriate levels, additions may be necessary if future economic and other conditions differ substantially from the current operating environment and economic forecast.

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.

environment and economic forecast.

Management evaluates its estimates and assumptions on an ongoing basis giving consideration to forecasted economic factors, historical loss experience and other factors.

The model includes both quantitative and qualitative components.

Such estimates and assumptions are adjusted when facts and circumstances dictate.

As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods, and to the extent actual losses are higher than management estimates, additional provision for credit losses on loans could be required and could adversely affect our earnings or financial position in future periods.

In addition, various regulatory agencies periodically review the adequacy of the Company’s allowance for credit losses as an integral part of their examination process.

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 volatility.

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 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.

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 used in our CECL model.

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 $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 $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

For the three months ended March 31, 2024, the increase in provision was primarily attributable to an increase in specific reserves on impaired credits, partially offset by an improved economic forecast for the current quarter within our CECL model.

COMPARISON OF FINANCIAL CONDITION AS OF MARCH 31, 2024 AND DECEMBER 31, 2023

Total assets as of March 31, 2024 were $14.13 billion, a $79.9 million decrease from December 31, 2023.

The decrease in total assets was primarily due to a $33.6 million decrease in total investments and a $31.0 million decrease in total loans.

The Company’s loan portfolio decreased $31.0 million to $10.84 billion as of March 31, 2024, from $10.87 billion as of December 31, 2023.

The loan portfolio consists of the following:

March 31, 2024 December 31, 2023

Mortgage loans:

Commercial $ 4,353,799 4,512,411

Multi-family 1,825,888 1,812,500

Construction 711,417 653,246

Residential 1,152,185 1,164,956

Total mortgage loans 8,043,289 8,143,113

Commercial loans (1)

2,514,550 2,442,406

Consumer loans 295,125 299,164

Total gross loans 10,852,964 10,884,683

Premiums on purchased loans 1,439 1,474

Net deferred fees (11,696) (12,456)

Total loans $ 10,842,707 10,873,701

(1) Commercial loans consist of owner-occupied real estate and commercial & industrial loans.

During the three months ended March 31, 2024, the loan portfolio had net decreases of $158.6 million in commercial mortgage loans, $12.8 million in residential mortgage loans and $4.0 million in consumer loans, partially offset by net increases of $72.1 million in commercial loans, $58.2 million in construction loans and $13.4 million in multi-family loans.

Commercial real estate, multi-family, commercial and construction loans represented 86.7% of the loan portfolio as of March 31, 2024, compared to 86.5% as of December 31, 2023.

The Bank’s lending activities, though concentrated in the communities surrounding its offices, extend predominantly throughout New Jersey, eastern Pennsylvania and Nassau and Queens County, New York.

This geographic concentration subjects the Company’s loan portfolio to the general economic conditions within these states.

The risks created by this concentration have been considered by management in the determination of the appropriateness of the allowance for credit losses.

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

These loans are particularly sensitive to economic conditions.

As of March 31, 2024, our portfolio of commercial real estate loans, including multi-family and construction loans, totaled $6.89 billion, or 63.50% of total gross loans.

The Company believes the CRE loans it originates are appropriately collateralized under its credit standards.

Collateral properties include multi-family apartment buildings, warehouse/distribution buildings, shopping centers, office buildings, mixed-use buildings, hotels/motels, senior living, residential and commercial tract developments, and raw land or lots to be developed into single-family homes.

The primary source of repayment on the permanent loan portion of these loans is generally expected to come from the cash flow stream of the underlying leases which are dependent on the successful operations of the respective tenants.

The primary source of the repayment on the construction portfolio is dependent on the successful completion of the project and the related sale, permanent financing or lease of the real property collateral.

As a result, the performance of these loans is generally impacted by fluctuations in collateral values, the ability of the borrower to obtain permanent financing, and, in the case of loans to residential builder/developers, volatility in consumer demand.

The table below summarizes the concentrations of CRE loans on a gross basis, not including any purchase accounting adjustments, based on the collateral securing the loans, as of March 31, 2024 (in thousands):

Amount Percentage of Total

Multi-family (1)

$ 2,289,230 33.2 %

Retail 1,714,689 24.9 %

Industrial 1,400,915 20.3 %

Office 511,826 7.4 %

Mixed 432,853 6.3 %

Special use property 217,862 3.2 %

Hotel 156,853 2.3 %

Residential 140,030 2.0 %

Land 33,144 0.5 %

Total CRE, multi-family and construction loans $ 6,897,402 100.0 %

(1) As of March 31, 2024, Multi-family CRE loans on New York City properties totaled $192.4 million.

This portfolio constitutes only 1.8% of total loans and has an average loan size of $2.8 million.

Approximately $118.0 million of these loans are collateralized by rent stabilized apartments and all are performing.

The determination of collateral value is critically important when financing real estate.

As a result, obtaining current and objectively prepared appraisals is a major part of the underwriting process.

The Company engages a variety of professional firms to supply appraisals, market studies and feasibility reports, environmental assessments and project site inspections to complement its internal resources to underwrite and monitor these credit exposures.

However, in periods of economic uncertainty where real estate market conditions may change rapidly, more current appraisals are obtained when warranted by conditions such as a borrower’s deteriorating financial condition, their possible inability to perform on the loan or other indicators of increasing risk of reliance on collateral value as the sole source of repayment of the loan.

Annual appraisals are generally obtained for loans graded substandard or worse where real estate is a material portion of the collateral value and/or the income from the real estate or sale of the real estate is the primary source of debt service.

Appraisals are, in substantially all cases, reviewed by a third party to determine the reasonableness of the appraised value.

The third-party reviewer will challenge whether or not the data used is appropriate and relevant, form an opinion as to the appropriateness of the appraisal methods and techniques used, and determine if overall the analysis and conclusions of the appraiser can be relied upon.

Additionally, the third-party reviewer provides a detailed report of that analysis.

Further review may be conducted by credit or lending teams, including the Bank’s commercial workout team as conditions warrant.

These additional steps of review are undertaken to confirm that the underlying appraisal and the third-party analysis can be relied upon.

If differences arise, management addresses those with the reviewer and determines an appropriate resolution in accordance with its lending policy.

Both the appraisal process and the appraisal review process can be less reliable in establishing accurate collateral values during and following periods of economic weakness due to the lack of comparable sales and the limited availability of financing to support an active market of potential purchasers.

The table below summarizes the Company’s commercial real estate portfolio, including multi-family and construction loans as of March 31, 2024, as segregated by the geographic region in which the property is located (dollars in thousands):

Amount Percentage of Total

New Jersey $ 3,714,820 53.9 %

Pennsylvania 1,288,613 18.7 %

New York 989,620 14.3 %

Other states 904,350 13.1 %

Total commercial real estate loans $ 6,897,402 100.0 %

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 $135.4 million and $53.8 million, respectively, as of March 31, 2024, compared to $140.5 million and $54.9 million, respectively, as of December 31, 2023.

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 as of March 31, 2024.

The Company had outstanding junior lien mortgages totaling $142.1 million as of March 31, 2024.

Of this total, four loans totaling $507,000 were 90 days or more delinquent.

The following table sets forth information regarding the Company’s non-performing assets as of March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024 December 31, 2023

Mortgage loans:

Commercial $ 5,938 5,151

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Construction — 771

Residential 1,647 853

Total mortgage loans 9,940 7,519

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Total non-performing assets $ 58,916 61,290

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

The following table sets forth information regarding the Company’s 60-89 day delinquent loans as of March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024 December 31, 2023

Mortgage loans:

Residential $ 936 1,114

Commercial $ 1,148 —

Multi-family — 1,635

Residential 804 1,208

Total mortgage loans 1,952 2,843

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Total 60-89 day delinquent loans $ 3,039 3,316

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.

As of March 31, 2024, the Company’s allowance for credit losses related to the loan portfolio was 0.98% of total loans, compared to 0.99% as of December 31, 2023 and 0.91% as of March 31, 2023, respectively.

The Company recorded a provision for credit losses on loans of $200,000 for the three months ended March 31, 2024, compared with a provision of $6.0 million for the three months ended March 31, 2023, respectively.

For the three months ended March 31, 2024, the Company had net charge-offs of $971,000 compared to net charge-offs of $671,000 for the same period in 2023.

The allowance for credit losses decreased $771,000 to $106.4 million as of March 31, 2024 from $107.2 million as of December 31, 2023.

The decrease in the provision for credit losses for the quarter was primarily attributable to an improved economic forecast for the current quarter within our CECL model, partially offset by an increase in specific reserves on impaired credits.

Total non-performing loans were $47.6 million, or 0.44% of total loans as of March 31, 2024, compared to $49.6 million, or 0.46% of total loans as of December 31, 2023.

The $2.0 million decrease in non-performing loans as of March 31, 2024, compared to the trailing quarter, consisted of a $4.6 million decrease in non-performing commercial loans and a $771,000 decrease in non-performing construction loans, partially offset by a $1.6 million increase in non-performing multi-family loans, a $794,000 increase in non-performing residential mortgage loans, a $787,000 increase in non-performing commercial mortgage loans and a $127,000 increase in non-performing consumer loans.

As of March 31, 2024 and December 31, 2023, the Company held foreclosed assets of $11.3 million and $11.7 million, respectively.

During the three months ended March 31, 2024, there were two properties sold with an aggregate carrying value of $327,000.

Foreclosed assets as of March 31, 2024 consisted primarily of commercial real estate.

Total non-performing assets as of March 31, 2024, decreased $2.4 million to $58.9 million, or 0.42% of total assets, from $61.3 million, or 0.43% of total assets as of December 31, 2023.

Total investment securities were $2.10 billion as of March 31, 2024, a $33.6 million decrease from December 31, 2023.

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 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.

Total deposits decreased $193.6 million during the three months ended March 31, 2024, to $10.10 billion.

The decrease in total deposits was primarily due to a decrease in brokered deposits of $90.0 million and a decrease in municipal deposits of $57.0 million.

Total savings and demand deposit accounts decreased $129.7 million to $9.07 billion as of March 31, 2024, while total time deposits decreased $64.0 million to $1.03 billion as of March 31, 2024.

The decrease in savings and demand deposits consisted of a $149.1 million decrease in non-interest-bearing demand deposits and a $14.7 million decrease in savings deposits, partially offset by a $28.6 million increase in interest bearing demand deposits and a $5.5 million increase in money market deposits.

The decrease in time deposits consisted of a $90.0 million decrease in brokered time deposits, partially offset by a $26.0 million increase in retail time deposits.

Within total deposits, brokered deposits totaled $75.7 million as of March 31, 2024.

Our estimated uninsured and uncollateralized deposits as of March 31, 2024 totaled $2.49 billion, or 24.7% of deposits.

Our total estimated uninsured deposits, including collateralized deposits as of March 31, 2024 was $5.25 billion.

Within time deposits, approximately $96.7 million, or 9.4% was uninsured as of March 31, 2024.

Borrowed funds increased $88.1 million during the three months ended March 31, 2024, to $2.06 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.

Borrowed funds represented 14.6% of total assets as of March 31, 2024, an increase from 13.9% as of December 31, 2023.

Stockholders’ equity increased $4.6 million during the three months ended March 31, 2024, to $1.70 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.

For the three months ended March 31, 2024, common stock repurchases totaled 86,325 shares at an average cost of $14.84 per share, all of which were made in connection with withholding to cover income taxes on the vesting of stock-based compensation.

As of March 31, 2024, approximately 1.0 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 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 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.

For the three months ended March 31, 2024 and 2023, loan repayments totaled $648.8 million and $826.7 million, 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 $1.72 billion and $1.33 billion, respectively as of March 31, 2024.

Our estimated uninsured and uncollateralized deposits as of March 31, 2024 totaled $2.49 billion, or 24.7% of deposits.

Our total estimated uninsured deposits, including collateralized deposits as of March 31, 2024, was $5.25 billion.

In March 2023, the Bank established a facility under the BTFP with the FRBNY.

As of March 31, 2024, the Company had $550.0 million of advances under the Program.

We elected to participate in the BTFP program due to significant cost savings compared to other wholesale funding sources.

The funding was used to pay off existing wholesale borrowings.

The ability to prepay at any time without penalty also enhances our ability to manage our interest rate risk position.

Total deposits decreased $193.6 million for the three months ended March 31, 2024.

Deposit activity is affected by changes in interest rates, competitive pricing and product offerings in the marketplace, local economic conditions, customer confidence and other factors such as stock market volatility.

Certificate of deposit accounts that are scheduled to mature within one year totaled $881.1 million as of March 31, 2024.

Based on its current pricing strategy and customer retention experience, the Bank expects to retain a significant share of these accounts.

The Bank manages liquidity on a daily basis and expects to have sufficient cash to meet all of its funding requirements.

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

September 30, 2023

As of March 31, 2024, the Bank and the Company exceeded all current minimum regulatory capital requirements as follows:

March 31, 2024

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 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.

(2) For a period of three years following completion of the merger, Provident Bank will be required to maintain a Tier 1 capital to total assets leverage ratio of at least 8.5% and a total capital to risk-based assets ratio of at least 11.25%.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

The Company reported net income of $32.1 million, or $0.43 per basic and diluted share for the three months ended March 31, 2024, compared to net income of $40.5 million, or $0.54 per basic and diluted share, for the three months ended March 31, 2023.

Transaction costs related to our pending merger with Lakeland totaled $2.2 million for the three months ended March 31, 2024, compared with $1.1 million for the respective 2023 period.

In addition, prior year earnings for the three months ended March 31, 2023, included a $2.0 million gain recognized from the sale of a foreclosed commercial property.

The following tables sets forth certain information for the three months ended March 31, 2024 and 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

September 30, 2023 September 30, 2022

Average Balance Interest Average

Yield/Cost Average Balance Interest Average

(Dollars in Thousands) (Unaudited)

Interest Earning Assets:

Deposits $ 74,183 $ 884 4.73 % 30,231 201 2.67 %

Federal funds sold and other short-term investments 57 1 4.00 % 46,707 295 2.54 %

Available for sale debt securities 1,724,833 10,127 2.35 % 1,948,721 9,115 2.42 %

Held to maturity debt securities, net (1)

373,681 2,334 2.50 % 399,370 2,416 1.87 %

Equity securities, at fair value 1,068 — — % 949 — — %

Federal Home Loan Bank stock 91,273 1,759 7.71 % 49,298 445 3.61 %

Total mortgage loans 7,881,193 104,540 5.21 % 7,443,268 80,273 4.28 %

Total commercial loans 2,289,267 33,806 5.81 % 2,151,512 25,201 4.66 %

Total consumer loans 300,383 4,746 6.27 % 320,051 3,785 4.74 %

Total net loans 10,470,843 143,092 5.37 % 9,914,831 109,259 4.38 %

Total interest earning assets $ 12,735,938 $ 158,197 4.89 % 12,390,107 121,731 3.90 %

Non-Interest Earning Assets:

Cash and due from banks 82,522 126,330

Other assets 1,158,150 1,106,117

Total assets $ 13,976,610 13,622,554

Interest Bearing Liabilities:

Demand deposits $ 5,741,052 $ 35,290 2.44 % 5,906,679 7,990 0.54 %

Savings deposits 1,240,951 592 0.19 % 1,515,926 296 0.08 %

Time deposits 1,052,793 9,041 3.41 % 669,639 1,274 0.76 %

Total deposits 8,034,796 44,923 2.22 % 8,092,244 9,560 0.47 %

Borrowed funds 1,780,655 16,765 3.74 % 908,841 2,518 1.11 %

Subordinated debentures 10,613 273 10.24 % 10,407 164 6.35 %

Total interest bearing liabilities $ 9,826,064 61,961 2.50 % 9,011,492 12,242 0.54 %

Non-Interest Bearing Liabilities:

Non-interest bearing deposits $ 2,230,199 2,750,746

Other non-interest bearing liabilities 265,427 246,794

Total non-interest bearing liabilities 2,495,626 2,997,540

Total liabilities 12,321,690 12,009,032

Stockholders' equity 1,654,920 1,613,522

Total liabilities and stockholders' equity $ 13,976,610 13,622,554

Net interest income $ 96,236 109,489

Net interest rate spread 2.39 % 3.36 %

Net interest-earning assets $ 2,909,874 3,378,615

Net interest margin (3)

2.96 % 3.51 %

Ratio of interest-earning assets to total interest-bearing liabilities 1.30x 1.37x

(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.

For the nine months ended

September 30, 2023 September 30, 2022

March 31, 2024 March 31, 2023

Average Balance Interest Average

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Net Interest Income .

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.

Net interest income decreased $14.7 million to $93.7 million for the three months ended March 31, 2024, from $108.3 million for same period in 2023.

The decrease in net interest income 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 net interest margin decreased 61 basis points to 2.87% for the quarter ended March 31, 2024, compared to 3.48% for the quarter ended March 31, 2023.

The weighted average yield on interest-earning assets increased 43 basis points to 5.06% for the quarter ended March 31, 2024, compared to 4.63% for the quarter ended March 31, 2023, while the weighted average cost of interest-bearing liabilities increased 126 basis points for the quarter ended March 31, 2024, to 2.80%, compared to 1.54% for the quarter ended March 31, 2023.

The average cost of interest-bearing deposits for the quarter ended March 31, 2024, was 2.60%, compared to 1.39% for the same period last year.

Average non-interest-bearing demand deposits totaled $2.07 billion for the quarter ended March 31, 2024, compared to $2.55 billion for the quarter ended March 31, 2023.

The average cost of total deposits, including non-interest-bearing deposits, was 2.07% for the quarter ended March 31, 2024, compared with 1.05% for the quarter ended March 31, 2023.

The average cost of borrowed funds for the quarter ended March 31, 2024, was 3.60%, compared to 2.48% for the same period last year.

Interest income on loans secured by real estate increased $11.5 million to $107.5 million for the three months ended March 31, 2024, from $96.0 million for the three months ended March 31, 2023.

Commercial loan interest income increased $7.4 million to $36.1 million for the three months ended March 31, 2024, from $28.7 million for the three months ended March 31, 2023.

Consumer loan interest income increased $0.3 million to $4.5 million for the three months ended March 31, 2024, from $4.2 million for the three months ended March 31, 2023.

For the three months ended March 31, 2024, the average balance of total loans increased $575.1 million to $10.67 billion, compared to the same period in 2023.

The average yield on total loans for the three months ended March 31, 2024, increased 39 basis points to 5.51%, from 5.12% for the same period in 2023.

Interest income on held to maturity debt securities decreased $100,000 to $2.3 million for the three months ended March 31, 2024, compared to the same period last year.

Average held to maturity debt securities decreased $26.7 million to $357.2 million for the three months ended March 31, 2024, from $383.9 million for the same period in 2023.

Interest income on available for sale debt securities decreased $380,000 to $10.0 million for the three months ended March 31, 2024, from $10.4 million for the three months ended March 31, 2023.

The average balance of available for sale debt securities decreased $134.7 million to $1.67 billion for the three months ended March 31, 2024, compared to the same period in 2023.

Dividend income on FHLBNY stock increased $1.3 million to $2.3 million for the three months ended March 31, 2024, from $1.0 million for the three months ended March 31, 2023.

The average balance of FHLBNY stock increased $14.6 million to $73.8 million for the three months ended March 31, 2024, compared to the same period in 2023.

The average yield on total securities increased to 2.87% for the three months ended March 31, 2024, compared with 2.52% for the same period in 2023.

Interest expense on deposit accounts increased $25.0 million to $52.5 million for the three months ended March 31, 2024, compared with $27.5 million for the three months ended March 31, 2023.

The average cost of interest-bearing deposits increased to 2.60% for the three months ended March 31, 2024, from 1.39% for the three months ended March 31, 2023.

The average balance of interest-bearing core deposits, which consist of total savings and demand deposits, for the three months ended March 31, 2024, decreased $112.8 million to $7.06 billion.

Average time deposit account balances increased $205.4 million to $1.07 billion for the three months ended March 31, 2024, from $859.8 million for the three months ended March 31, 2023.

Interest expense on borrowed funds increased $9.9 million to $17.4 million for the three months ended March 31, 2024, from $7.5 million for the three months ended March 31, 2023.

The average cost of borrowings increased to 3.60% for the three months ended March 31, 2024, from 2.48% for the three months ended March 31, 2023.

Average borrowings increased $716.7 million to $1.94 billion for the three months ended March 31, 2024, from $1.22 billion for the three months ended March 31, 2023.

Provision for Credit Losses.

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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 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.

The Company recorded a $200,000 provision for credit losses on loans, compared with a $6.0 million provision for credit losses for the quarter ended March 31, 2023.

The decrease in the provision for credit losses was largely a function of the period-over-period improvement in the economic forecast.

Non-Interest Income.

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 income totaled $20.8 million for the quarter ended March 31, 2024, a decrease of $1.3 million, compared to the same period in 2023.

Other income decreased $2.5 million to $798,000 for the three months ended March 31, 2024, compared to the quarter ended March 31, 2023, primarily due to a $2.0 million gain from the sale of a foreclosed commercial property which was recorded in the prior year, combined with a decrease in gains on sales of SBA loans.

Fee income decreased $475,000 to $5.9 million for the three months ended March 31, 2024, 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, insurance agency income increased $691,000 to $4.8 million for the three months ended March 31, 2024, compared to the quarter ended March 31, 2023, largely due to an increase in business activity.

Wealth management income increased $573,000 to $7.5 million for the three months ended March 31, 2024, compared to the quarter ended March 31, 2023, mainly due to an increase in the average market value of assets under management during the period, combined with an increase in mutual fund fees.

Additionally, BOLI income increased $333,000 to $1.8 million for the three months ended March 31, 2024, compared to the prior year quarter, primarily due a benefit claim recognized in the current quarter, combined with an increase in equity valuations.

Non-Interest Expense .

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.

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.

For the three months ended March 31, 2024, non-interest expense totaled $71.3 million, an increase of $1.8 million, compared to the three months ended March 31, 2023.

Compensation and benefits expense increased $1.3 million to $40.0 million for three months ended March 31, 2024, compared to $38.7 million for the same period in 2023.

The increase was primarily due to an increase in salary expense associated with Company-wide annual merit increases, combined with increases in the accrual for incentive compensation, payroll taxes and employee insurance, partially offset by a decrease in stock-based compensation.

Data processing expense increased $1.3 million to $6.8 million for three months ended March 31, 2024, compared to $5.5 million for the same period in 2023.

The increase in data processing expense was primarily due to increases in software service, telecommunication and electronic business banking expenses.

Merger-related expenses related to our pending combination with Lakeland increased $1.1 million to $2.2 million for the three months ended March 31, 2024, compared to the same period in 2023.

Additionally, FDIC insurance expense increased $335,000 to $2.3 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to a current quarter FDIC special assessment of $195,000, combined with an increase in the assessment rate.

Partially offsetting these increases in non-interest expense, other operating expense decreased $729,000 to $10.3 million for the three months ended March 31, 2024, compared to $11.1 million for the three months ended March 31, 2023, largely due to a decrease in professional fees, partially offset by additional expenses related to foreclosed commercial real estate properties.

For the three months ended March 31, 2024, the Company recorded a $506,000 provision benefit for credit losses on off-balance sheet credit exposures, compared to a $739,000 provision charge for the same period in 2023.

The $1.2 million decrease in the provision for credit losses on off-balance sheet credit exposures for the current quarter was primarily due to a decrease in loans approved and awaiting closing.

Income Tax Expense.

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.

For the three months ended March 31, 2024, the Company's income tax expense was $10.9 million with an effective tax rate of 25.3%, compared with $14.5 million with an effective tax rate of 26.3% for the three months ended March 31, 2023.

The decrease in tax expense for the three months ended March 31, 2024, compared with the same period last year was largely the result of a decrease in taxable income and the 2024 sunset of the 2.5% NJ Corporate Business Tax surcharge, while the decrease in the effective tax rate for the three months ended March 31, 2024, compared with the three months ended March 31, 2023, was largely due to the 2024 sunset of the 2.5% NJ Corporate Business Tax surcharge and 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