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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-04-26 · 234 added, 156 removed, 229 unchanged (63% of the section changed)

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Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” "project," "intend," “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms.

Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those 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, 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;

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

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 Current Reports on Form 8-K, and those related to the economic environment, particularly in the market areas in which the Company operates, inflation and unemployment, competitive products and pricing, real estate values, fiscal and monetary policies of the U.S.

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

and the possibility that the transaction may be more expensive to complete than anticipated, including those resulting from the completion of the merger and integration of the companies.

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 Bancorp, Inc.

Merger Agreement

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.

On May 16, 2024, the Company completed its merger with Lakeland Bancorp, Inc.

("Lakeland"), which added $10.91 billion to total assets, $7.91 billion to total loans, $8.62 billion to total deposits and 68 full-service banking offices in New Jersey and New York.

The Company expects to close 13 of the acquired Lakeland banking offices and nine legacy Bank branches in the third quarter of 2024 due to geographic overlap.

Under the merger agreement, each share of Lakeland common stock was converted into the right to receive 0.8319 shares of the Company's common stock, a total of 54,356,954 shares converted, plus cash in lieu of fractional shares.

The total consideration paid for the acquisition of Lakeland was $876.8 million.

In connection with the acquisition, Lakeland Bank, a wholly owned subsidiary of Lakeland, was merged with and into the Bank.

The acquisition was accounted for under the acquisition method of accounting.

Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax.

The excess of consideration paid over the estimated fair value of the net assets acquired totaled $190.9 million and was recorded as goodwill.

Merger-related expenses, which is a separate line in non-interest expense on the Consolidated Statements of Income, totaled $18.9 million and $21.1 million and for the three and six months ended June 30, 2024, respectively.

Critical Accounting Policies

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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.

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.

As of June 30, 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.

The allowance estimation process resulted in a total provision of $66.1 million and $66.3 million for the three and six months ended June 30, 2024, and an overall coverage ratio of 100 basis points.

Management believes the allowance for credit losses 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 a more severe outlook, the provision would have risen by approximately $8.0 million, leading to an overall coverage ratio of approximately 105 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 March 31, 2024, the portfolio and class segments for the Company’s loan portfolio were:

As of June 30, 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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The allowance for credit losses on loans individually evaluated for impairment is based upon loans that have been identified through the Company’s normal loan monitoring process.

This process includes the review of delinquent and problem loans at the Company’s Delinquency, Credit, Credit Risk Management and Allowance Committees;

This process includes the review of delinquent and problem loans at the Company’s Credit, Credit Risk Management and Allowance Committees;

or which may be identified through the Company’s loan review process.

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If the loan is not collateral dependent, the allowance for credit losses related to individually assessed loans is based on discounted expected cash flows using the loan’s initial effective interest rate.

For loans acquired that have experienced more-than-insignificant deterioration in credit quality since their origination are considered PCD loans.

Loans acquired that have experienced more-than-insignificant deterioration in credit quality since their origination are considered PCD loans.

The Company evaluates acquired loans for deterioration in credit quality based on any of, but not limited to, the following:

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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.

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.

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

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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 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

Material changes to these and other relevant factors create 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, 2024, the provision for credit losses on loans totaled $66.1 million and $66.3 million, compared to an $9.8 million and a $16.4 million provision for credit losses for the three and six months ended June 30, 2023, respectively.

The increases in provision for both periods was primarily attributable to an initial CECL provision for credit losses on loans of $60.1 million, recorded as part of the Lakeland merger.

COMPARISON OF FINANCIAL CONDITION AS OF JUNE 30, 2024 AND DECEMBER 31, 2023

Total assets as of June 30, 2024 were $24.07 billion, a $9.86 billion increase from December 31, 2023.

The increase in total assets was primarily due to the addition of Lakeland.

The Company’s loan portfolio totaled $18.76 billion as of June 30, 2024 and $10.87 billion as of December 31, 2023.

The loan portfolio consisted of the following:

June 30, 2024 December 31, 2023

Mortgage loans:

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Premiums on purchased loans 1,410 1,474

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

Net deferred fees and unearned discounts (7,149) (12,456)

Total loans $ 18,759,330 10,871,916

(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.

As part of the merger with Lakeland, we acquired $7.91 billion in loans, net of purchase accounting adjustments.

As of June 30, 2024, the acquired Lakeland loan portfolio, net of fair value marks, totaled $7.97 billion, which included $3.02 billion in commercial mortgage loans, $1.49 billion in commercial loans, $1.36 billion in multi-family loans, $878.2 million in residential loans, $564.5 million in specialty lending, $327.3 million in construction loans and $327.2 million in consumer loans.

Commercial loans, consisting of commercial real estate, multi-family, commercial and construction loans, represented 85.9% of the loan portfolio as of June 30, 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 Orange, Nassau and Queens Counties, New York.

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

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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.

As of June 30, 2024, our portfolio of commercial real estate loans, including multi-family and construction loans, totaled $11.50 billion, or 61.3% of total gross loans.

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

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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

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Special use property 436,296 3.7 %

Hotel 156,853 2.3 %

Residential 402,911 3.5 %

Hotel 191,865 1.6 %

Land 39,703 0.3 %

Total CRE, multi-family and construction loans $ 11,687,637 100.0 %

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

(1) As of June 30, 2024, multi-family CRE loans on New York City properties totaled $227.7 million.

This portfolio constitutes only 1.2% of total loans and has an average loan size of $2.6 million.

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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):

The table below summarizes the Company’s commercial real estate portfolio, including multi-family and construction loans on a gross basis, not including any purchase accounting adjustments as of June 30, 2024, as segregated by the geographic region in which the property is located (dollars in thousands):

Amount Percentage of Total

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Other states 1,064,924 9.1 %

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

Total CRE, multi-family and construction loans $ 11,687,637 100.0 %

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

The Company’s gross commitments and outstanding balances as a participant in SNCs were $202.0 million and $109.1 million, respectively, as of June 30, 2024, compared to $140.5 million and $54.9 million, respectively, as of December 31, 2023.

One SNC relationship, with an outstanding balance of $6.8 million (which represents approximately a 10.4% share of the total facility commitment) was 90 days or more delinquent as of June 30, 2024.

The Company had outstanding junior lien mortgages totaling $334.7 million as of June 30, 2024.

Of this total, two loans totaling $667,000 were 90 days or more delinquent.

The following table sets forth information regarding the Company’s non-performing assets as of June 30, 2024 and December 31, 2023 (in thousands):

June 30, 2024 December 31, 2023

Mortgage loans:

Residential $ 4,447 853

Commercial 3,588 5,151

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Construction 11,698 771

Residential 1,647 853

Total mortgage loans 27,009 7,519

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Total non-performing assets $ 78,987 61,290

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

The following table sets forth information regarding the Company’s 60-89 day delinquent loans as of June 30, 2024 and December 31, 2023 (in thousands):

June 30, 2024 December 31, 2023

Mortgage loans:

Residential $ 2,193 1,208

Commercial 1,231 —

Multi-family — 1,635

Residential 804 1,208

Construction — —

Total mortgage loans 3,424 2,843

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Total 60-89 day delinquent loans $ 5,218 3,316

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 $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 14.6% 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.

As of June 30, 2024, the Company’s allowance for credit losses related to the loan portfolio was 1.00% of total loans, compared to 0.97% as of December 31, 2023 and June 30, 2023, respectively.

The Company recorded provisions for credit losses on loans of $66.1 million and $66.3 million for the three and six months ended June 30, 2024, compared with provisions of $10.4 million and $16.4 million for the three and six months ended June 30, 2023, respectively.

For the three and six months ended June 30, 2024, the Company had net charge-offs of $1.3 million and $2.3 million, respectively, compared to net charge-offs of $1.1 million and $1.8 million, respectively, for the same periods in 2023.

The allowance for credit losses increased $81.1 million to $188.3 million as of June 30, 2024 from $107.2 million as of December 31, 2023.

The increases in provision for both periods were primarily attributable to an initial CECL provision for credit losses on loans of $60.1 million recorded as part of the Lakeland merger in accordance with GAAP requirements for accounting for business combinations.

Total non-performing loans were $67.9 million, or 0.36% of total loans as of June 30, 2024, compared to $49.6 million, or 0.46% of total loans as of December 31, 2023.

The $18.2 million increase in non-performing loans, which was primarily attributable to the addition of Lakeland, consisted of a $10.9 million increase in non-performing construction loans, a $6.5 million increase in non-performing multi-family loans, a $3.6 million increase in non-performing residential mortgage loans and a $511,000 increase in non-performing consumer loans, partially offset by a $1.8 million decrease in non-performing commercial loans and a $1.6 million decrease in non-performing commercial mortgage loans.

As of June 30, 2024 and December 31, 2023, the Company held foreclosed assets of $11.1 million and $11.7 million, respectively.

During the six months ended June 30, 2024, there were three properties sold with an aggregate carrying value of $532,000.

Foreclosed assets as of June 30, 2024 consisted primarily of commercial real estate.

Total non-performing assets as of June 30, 2024 increased $17.7 million to $79.0 million, or 0.33% of total assets, from $61.3 million, or 0.43% of total assets as of December 31, 2023.

Total investment securities were $3.10 billion as of June 30, 2024, a $963.0 million increase from December 31, 2023.

This increase was primarily due to the addition of Lakeland.

Total deposits increased $8.06 billion during the six months ended June 30, 2024, to $18.35 billion, due to the addition of Lakeland.

Total savings and demand deposit accounts increased $6.07 billion to $15.27 billion as of June 30, 2024, while total time deposits increased $1.99 billion to $3.08 billion as of June 30, 2024.

The increase in savings and demand deposits was largely attributable to a $2.88 billion increase in interest bearing demand deposits, a $1.51 billion increase in non-interest bearing demand deposits, a $1.12 billion increase in money market deposits and a $569.5 million increase in savings deposits.

The Company's Insured Cash Sweep deposits increased $619.8 million to $1.14 billion as of June 30, 2024, from $520.2 million as of December 31, 2023.

The increase in time deposits consisted of a $2.09 billion increase in retail time deposits, partially offset by a $100.5 million decrease in brokered time deposits.

Within total deposits, brokered deposits totaled $149.8 million and $165.7 million as of June 30, 2024 and December 31, 2023, respectively.

Our estimated uninsured and uncollateralized deposits as of June 30, 2024 totaled $4.98 billion, or 27.1% of deposits.

Our total estimated uninsured deposits, including collateralized deposits, as of June 30, 2024, were $6.34 billion.

Within time deposits, approximately $414.7 million, or 13.5% was uninsured as of June 30, 2024.

Borrowed funds increased $332.0 million during the six months ended June 30, 2024, to $2.30 billion.

The increase in deposits and borrowings was largely due to the addition of Lakeland.

Borrowed funds represented 9.6% of total assets as of June 30, 2024, a decrease from 13.9% as of December 31, 2023.

Stockholders’ equity increased $865.1 million during the six months ended June 30, 2024, to $2.56 billion, primarily due to common stock issued for the purchase of Lakeland and 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 and six months ended June 30, 2024, common stock repurchases totaled 527 shares at an average cost of $15.17 per share and 86,852 shares at an average cost of $14.84 per share, respectively, all of which were made in connection with withholding to cover income taxes on the vesting of stock-based compensation.

As of June 30, 2024, approximately 1.0 million shares remained eligible for repurchase under the current stock repurchase authorization.

Liquidity and Capital Resources.

Liquidity refers to the Company’s ability to generate adequate amounts of cash to meet financial obligations to its depositors, to fund loans and securities purchases and operating expenses.

Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of unpledged investments, cash flows from securities and the ability to borrow funds from the FHLBNY and approved broker-dealers.

Cash flows from loan payments and maturing investment securities are fairly predictable sources of funds.

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 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.

For the six months ended June 30, 2024 and 2023, loan repayments totaled $1.54 billion and $1.50 billion, respectively.

The Company has continued to monitor and focus on depositor behavior and borrowing capacity with the FHLBNY and FRBNY, with current borrowing capacity of $3.46 billion and $1.30 billion, respectively, as of June 30, 2024.

Our estimated uninsured and uncollateralized deposits as of June 30, 2024 totaled $4.98 billion, or 27.1% of deposits.

Our total estimated uninsured deposits, including collateralized deposits as of June 30, 2024, were $6.34 billion.

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

As of June 30, 2024, the Company had $550.0 million of advances under the Program.

The Company 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.

Total deposits increased $8.06 billion for the six months ended June 30, 2024, due to the addition of Lakeland.

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.

Certificate of deposit accounts that are scheduled to mature within one year totaled $2.82 billion as of June 30, 2024.

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

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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.

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

March 31, 2024

As of June 30, 2024, the Bank and the Company exceeded all current minimum regulatory capital requirements as follows:

June 30, 2024

Required Required with Capital Conservation Buffer Actual

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

(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.

(2) For a period of three years following completion of the merger, the 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 AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

The Company reported a net loss of $11.5 million, or $0.11 per basic and diluted share for the three months ended June 30, 2024, compared to net income of $32.0 million, or $0.43 per basic and diluted share, for the three months ended June

For the six months ended June 30, 2024, the Company reported net income of $20.6 million, or $0.23 per basic share and diluted share, compared to net income of $72.5 million, or $0.97 per basic and diluted share, for the six months ended June 30, 2023.

On May 16, 2024, the Company completed its merger with Lakeland, which added $10.91 billion to total assets, $7.91 billion to loans, and $8.62 billion to deposits, net of purchase accounting adjustments.

The Company’s earnings for the three and six months ended June 30, 2024 were impacted by an initial CECL provision for credit losses on loans and commitments to extend credit of $65.2 million recorded as part of the Lakeland merger in accordance with GAAP requirements for accounting for business combinations.

The results of operations for the three and six months ended June 30, 2024 also included other transaction costs related to the merger with Lakeland totaling $18.9 million and $21.1 million, respectively, compared with transaction costs totaling $2.0 million and $3.1 million for the respective 2023 periods.

Additionally, the Company realized a $2.8 million loss related to the sale in the current quarter of subordinated debt issued by Lakeland from its investment portfolio.

The following tables sets forth certain information for the three and six months ended June 30, 2024.

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

2 unchanged sentences

For the three months ended

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

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, 2024 June 30, 2023

Average Balance Interest Average

Yield/Cost Average Balance Interest Average

(Dollars in Thousands) (Unaudited)

Interest Earning Assets:

Deposits $ 32,901 $ 3,041 5.38 % 72,750 1,791 4.97 %

Federal funds sold and other short-term investments — — — % 59 2 6.00 %

Available for sale debt securities 1,959,549 27,669 2.82 % 1,804,814 20,692 2.29 %

Held to maturity debt securities, net (1)

354,731 4,625 2.61 % 381,921 4,725 2.47 %

Equity securities, at fair value 5,525 — — % 999 — — %

Federal Home Loan Bank stock 81,309 5,055 12.43 % 70,702 2,170 6.14 %

Total mortgage loans 9,326,838 263,774 5.61 % 7,671,493 195,290 5.07 %

Total commercial loans 2,953,842 94,632 6.39 % 2,191,222 60,109 5.49 %

Total consumer loans 378,522 12,874 6.84 % 303,724 8,673 5.76 %

Total net loans 12,659,202 371,280 5.83 % 10,166,439 264,072 5.18 %

Total interest earning assets $ 15,093,217 $ 411,670 5.43 % 12,497,684 293,452 4.68 %

Non-Interest Earning Assets:

Cash and due from banks 108,229 136,431

Other assets 1,443,958 1,149,044

Total assets $ 16,645,404 13,783,159

Interest Bearing Liabilities:

Demand deposits $ 6,914,802 $ 99,745 2.90 % 5,695,507 50,533 1.79 %

Savings deposits 1,308,983 1469 0.23 % 1,352,874 990 0.15 %

Time deposits 1,575,801 32,378 4.13 % 914,358 12,434 2.74 %

Total deposits 9,799,586 133,592 2.74 % 7,962,739 63,957 1.62 %

Borrowed funds 2,049,587 37,949 3.75 % 1,442,744 21,564 3.01 %

Subordinated debentures 115,899 4,953 8.59 % 10,537 501 9.58 %

Total interest bearing liabilities $ 11,965,072 176,494 2.97 % 9,416,020 86,022 1.84 %

Non-Interest Bearing Liabilities:

Non-interest bearing deposits $ 2,469,459 2,459,375

Other non-interest bearing liabilities 298,053 267,666

Total non-interest bearing liabilities 2,767,512 2,727,041

Total liabilities 14,732,584 12,143,061

Stockholders' equity 1,912,820 1,640,099

Total liabilities and stockholders' equity $ 16,645,404 13,783,160

Net interest income $ 235,176 207,430

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.

Net interest rate spread 2.46 % 2.84 %

Net interest-earning assets $ 3,128,145 3,081,664

Net interest margin (3)

3.08 % 3.29 %

Ratio of interest-earning assets to total interest-bearing liabilities 1.26x 1.33x

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

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

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

Net Interest Income .

Net interest income increased $42.4 million to $141.5 million for the three months ended June 30, 2024, from $99.1 million for same period in 2023.

Net interest income increased $27.7 million to $235.2 million for the six months ended June 30, 2024, from $207.4 million for same period in 2023.

Net interest income for the three and six months ended June 30, 2024 were favorably impacted by the net assets acquired from Lakeland, partially offset by unfavorable repricing of both deposits and borrowings.

Additionally, the six months ended June 30, 2024 were further benefited by favorable repricing of adjustable rate loans and the originations of higher-yielding loans.

The net interest margin increased 10 basis points to 3.21% for the quarter ended June 30, 2024, compared to 3.11% for the quarter ended June 30, 2023.

The weighted average yield on interest-earning assets increased 94 basis points to 5.67% for the quarter ended June 30, 2024, compared to 4.73% for the quarter ended June 30, 2023, while the weighted average cost of interest-bearing liabilities increased 96 basis points for the quarter ended June 30, 2024, to 3.09%, compared to 2.13% for the quarter ended June 30, 2023.

The average cost of interest-bearing deposits for the quarter ended June 30, 2024, was 2.84%, compared to 1.85% for the same period last year.

Average non-interest-bearing demand deposits totaled $2.87 billion for the quarter ended June 30, 2024, compared to $2.37 billion for the quarter ended June 30, 2023.

The average cost of total deposits, including non-interest-bearing deposits, was 2.27% for the quarter ended June 30, 2024, compared with 1.42% for the quarter ended June 30, 2023.

The average cost of borrowed funds for the quarter ended June 30, 2024, was 3.83%, compared to 3.41% for the same period last year.

For the six months ended June 30, 2024, the net interest margin decreased 21 basis points to 3.08%, compared to 3.29% for the six months ended June 30, 2023.

The weighted average yield on interest-earning assets increased 75 basis points to 5.43% for the six months ended June 30, 2024, compared to 4.68% for the six months ended June 30, 2023, while the weighted average cost of interest-bearing liabilities increased 113 basis points to 2.97% for the six months ended June 30, 2024, compared to 1.84% for the same period last year.

The average cost of interest-bearing deposits increased 112 basis points to 2.74% for the six months ended June 30, 2024, compared to 1.62% for the same period last year.

Average non-interest-bearing demand deposits totaled $2.47 billion for the six months ended June 30, 2024, compared with $2.46 billion for the six months ended June 30, 2023.

The average cost of total deposits, including non-interest-bearing deposits, was 2.19% for the six months ended June 30, 2024, compared with 1.24% for the six months ended June 30, 2023.

The average cost of borrowings for the six months ended June 30, 2024, was 3.75%, compared to 3.01% for the same period last year.

Interest income on loans secured by real estate increased $57.0 million to $156.3 million for the three months ended June 30, 2024, from $99.3 million for the three months ended June 30, 2023.

Commercial loan interest income increased $27.1 million to $58.5 million for the three months ended June 30, 2024, from $31.4 million for the three months ended June 30, 2023.

Consumer loan interest income increased $3.9 million to $8.4 million for the three months ended June 30, 2024, from $4.4 million for the three months ended June 30, 2023.

For the three months ended June 30, 2024, the average balance of total loans increased $4.41 billion to $14.65 billion, compared to the same period in 2023.

The average yield on total loans for the three months ended June 30, 2024, increased 81 basis points to 6.05%, from 5.24% for the same period in 2023.

Interest income on loans secured by real estate increased $68.5 million to $263.8 million for the six months ended June 30, 2024, from $195.3 million for the six months ended June 30, 2023.

Commercial loan interest income increased $34.5 million to $94.6 million for the six months ended June 30, 2024, from $60.1 million for the six months ended June 30, 2023.

Consumer loan interest income increased $4.2 million to $12.9 million for the six months ended June 30, 2024, from $8.7 million for the six months ended June 30, 2023.

For the six months ended June 30, 2024, the average balance of total loans increased $2.49 billion to $12.66 billion, compared with $10.17 billion for the same period in 2023.

The average yield on total loans for the six months ended June 30, 2024, increased 65 basis points to 5.83%, from 5.18% for the same period in 2023.

Interest income on held to maturity debt securities totaled $2.4 million for the three months ended June 30, 2024, compared to the same period last year.

Average held to maturity debt securities decreased $27.7 million to $352.2 million for the three months ended June 30, 2024, from $380.0 million for the same period last year.

Interest income on held to maturity debt securities decreased $100,000 to $4.6 million for the six months ended June 30, 2024, compared to the same period in 2023.

Average held to maturity debt securities decreased $27.2 million to $354.7 million for the six months ended June 30, 2024, from $381.9 million for the same period last year.

Interest income on available for sale debt securities increased $7.4 million to $17.6 million for the three months ended June 30, 2024, from $10.3 million for the three months ended June 30, 2023.

The average balance of available for sale debt securities increased $443.7 million to $2.24 billion for the three months ended June 30, 2024, compared to the same period in 2023.

Interest income on available for sale debt securities increased $7.0 million to $27.7 million for the six months ended June 30, 2024, from $20.7 million for the same period last year.

The average balance of available for sale debt securities increased $154.7 million to $1.96 billion for the six months ended June 30, 2024.

Interest income on FHLBNY stock increased $1.6 million to $2.7 million for the three months ended June 30, 2024, from $1.14 million for the three months ended June 30, 2023.

The average balance of FHLBNY stock increased $6.7 million to $88.9 million for the three months ended June 30, 2024, compared to the same period in 2023.

Interest income on FHLBNY stock increased $9.9 million to $32.7 million for the six months ended June 30, 2024, from $22.9 million for the same period last year.

The average balance of FHLBNY stock increased $10.6 million to $81.3 million for the six months ended June 30, 2024.

The average yield on total securities increased to 3.40% for the three months ended June 30, 2024, compared with 2.53% for the same period in 2023.

For the six months ended June 30, 2024, the average yield on total securities increased to 3.14%, compared with 2.52% for the same period in 2023.

Interest expense on deposit accounts increased $44.6 million to $81.1 million for the three months ended June 30, 2024, compared with $36.4 million for the three months ended June 30, 2023.

For the six months ended June 30, 2024, interest expense on deposit accounts increased $69.6 million to $133.6 million, from $64.0 million for the same period last year.

The average cost of interest-bearing deposits increased to 2.84% and 2.74% for the three and six months ended June 30, 2024, respectively, from 1.85% and 1.62% for the three and six months ended June 30, 2023, respectively.

The average balance of interest-bearing core deposits, which consist of total savings and demand deposits, for the three months ended June 30, 2024, increased $2.46 billion to $9.39 billion.

For the six months ended June 30, 2024, average interest-bearing core deposits increased $1.18 billion, to $8.22 billion, from $7.05 billion for the same period in 2023.

Average time deposit account balances increased $1.12 billion to $2.09 billion for the three months ended June 30, 2024, from $968.3 million for the three months ended June 30, 2023.

For the six months ended June 30, 2024, average time deposit account balances increased $661.4 million to $1.58 billion, from $914.4 million for the same period in 2023.

Interest expense on borrowed funds increased $6.5 million to $20.6 million for the three months ended June 30, 2024, from $14.1 million for the three months ended June 30, 2023.

For the six months ended June 30, 2024, interest expense on borrowed funds increased $16.4 million to $37.9 million, from $21.6 million for the six months ended June 30, 2023.

The average cost of borrowings increased to 3.83% for the three months ended June 30, 2024, from 3.41% for the three months ended June 30, 2023.

The average cost of borrowings increased to 3.75% for the six months ended June 30, 2024, from 3.01% for the same period last year.

Average borrowings increased $499.4 million to $2.16 billion for the three months ended June 30, 2024, from $1.66 billion for the three months ended June 30, 2023.

For the six months ended June 30, 2024, average borrowings increased $606.8 million to $2.05 billion, compared to $1.44 billion for the six months ended June 30, 2023.

Provision for Credit Losses.

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

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

The Company recorded a $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.

Management assesses the adequacy of the allowance for credit losses on a quarterly basis and makes provisions for credit losses as necessary.

The Company recorded provisions for credit losses on loans of a $66.1 million and $66.3 million for the three and six months ended June 30, 2024, respectively, compared with provisions of $10.4 million and $16.4 million for the three and six months ended June 30, 2023, respectively.

The increases in provisions for both periods were primarily attributable to an initial CECL provision for credit losses on loans of $60.1 million recorded as part of the Lakeland merger in accordance with GAAP requirements for accounting for business combinations.

Non-Interest Income.

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 income totaled $22.3 million for the quarter ended June 30, 2024, an increase of $2.9 million, compared to the same period in 2023.

Fee income increased $2.9 million to $8.7 million for the three months ended June 30, 2024, compared to the prior year quarter, primarily due to increases in deposit fee income, debit card related fee income and commercial loan prepayment fees, resulting from the Lakeland merger.

BOLI income increased $1.8 million to $3.3 million for the three months ended June 30, 2024, compared to the prior year quarter, primarily due to an increase in benefit claims recognized, combined with an increase in income related to the addition of Lakeland's BOLI.

Wealth management fees increased $850,000 to $7.8 million for the three months ended June 30, 2024, compared to the quarter ended June 30, 2023, mainly due to an increase in the average market value of assets under management during the period, while insurance agency income increased $641,000 to $4.5 million for the three months ended June 30, 2024, compared to the quarter ended June 30, 2023, largely due to an increase in business activity.

Partially offsetting these increases in non-interest income, net gains on securities transactions decreased $3.0 million for the three months ended June 30, 2024, compared to the quarter ended June 30, 2023, primarily due to a loss on the sale of subordinated debt issued by Lakeland from the Company investment portfolio prior to the merger.

Additionally, other income decreased $314,000 to $969,000 for the three months ended June 30, 2024, compared to the quarter ended June 30, 2023, primarily due to a decrease in gains on the sales of foreclosed real estate.

For the six months ended June 30, 2024, non-interest income totaled $43.1 million, an increase of $1.5 million, compared to the same period in 2023.

Fee income increased $2.4 million to $14.6 million for the six months ended June 30, 2024, compared to the same period in 2023, primarily due to increases in deposit fee income, debit card related fee income and commercial loan prepayment fees, resulting from the Lakeland merger.

BOLI income increased $2.1 million to $5.1 million for the six months ended June 30, 2024, compared to the same period in 2023, primarily due to an increase in benefit claims recognized, combined with an increase in income related to the addition of Lakeland's BOLI, while wealth management income increased $1.4 million to $15.3 million for the six months ended June 30, 2024, compared to the same period in 2023, mainly due to an increase in the average market value of assets under management during the period.

Insurance agency income increased $1.3 million to $9.3 million for the six months ended June 30, 2024, compared to $8.0 million for the same period in 2023, largely due to increases in contingent commissions, retention revenue and new business activity.

Partially offsetting these increases in non-interest income, net gains on securities transactions decreased $3.0 million for the six months ended June 30, 2024, primarily due to a $2.8 million loss on the sale of subordinated debt issued by Lakeland from the Company investment portfolio prior to the merger.

Other income decreased $2.8 million to $1.8 million for the six months ended June 30, 2024, compared to $4.6 million for the same period in 2023, primarily due to a $2.0 million gain from the sale of a foreclosed commercial property recorded in the prior year, combined with a decrease in gains on sales of SBA loans.

Non-Interest Expense .

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.

For the three months ended June 30, 2024, non-interest expense totaled $115.4 million, an increase of $50.3 million, compared to the three months ended June 30, 2023.

Compensation and benefits expense increased $19.6 million to $54.9 million for three months ended June 30, 2024, compared to $35.3 million for the same period in 2023.

The increase in compensation and benefits expense was primarily attributable to the addition of Lakeland.

Additionally, merger-related expenses increased $17.0 million to $18.9 million for the three months ended June 30, 2024, compared to the same period in 2023.

Amortization of intangibles increased $5.7 million to $6.5 million for the three months ended June 30, 2024, compared to $749,000 for the same period in 2023, largely due to purchase accounting adjustments.

Data processing expense increased $2.7 million to $8.4 million for three months ended June 30, 2024, compared to $5.7 million for the same period in 2023, primarily due to additional software and hardware expenses needed for the addition of Lakeland.

Net occupancy expense increased $3.2 million to $11.1 million for three months ended June 30, 2024, compared to $7.9 million for the same period in 2023, primarily due to an increase in depreciation and maintenance expenses because of the addition of Lakeland.

Non-interest expense totaled $187.2 million for the six months ended June 30, 2024, an increase of $53.4 million, compared to $133.9 million for the six months ended June 30, 2023.

Compensation and benefits expense increased $20.9 million to $94.9 million for the six months ended June 30, 2024, compared to $74.0 million for the six months ended June 30, 2023.

The increase in compensation and benefits expense was primarily attributable to the addition of Lakeland.

Merger-related expenses increased $18.1 million to $21.1 million for the six months ended June 30, 2024, compared to $3.1 million for the six months ended June 30, 2023.

Amortization of intangibles increased $5.7 million to $7.2 million for the six months ended June 30, 2024, compared to $1.5 million for the six months ended June 30, 2023, largely due to purchase accounting adjustments related to Lakeland.

Additionally, net occupancy expense increased $3.3 million to $19.7 million for the six months ended June 30, 2024, compared to the same period in 2023, primarily due to increased depreciation and maintenance expenses because of the addition of Lakeland.

Income Tax Expense.

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.

For the three months ended June 30, 2024, the Company's income tax benefit was $9.8 million, compared with an income tax expense of $11.6 million for the three months ended June 30, 2023.

The decrease in tax expense for the three months ended June 30, 2024, compared with the same period last year was largely due to a $5.3 million tax benefit related to the revaluation of deferred tax assets to reflect the imposition by the State of New Jersey of a 2.5% Corporate Transit Fee, effective January 1, 2024, combined with a decrease in taxable income in the quarter as a result of additional expenses from the Lakeland merger.

For the six months ended June 30, 2024, the Company's income tax expense was $1.1 million, compared with $26.1 million for the six months ended June 30, 2023.

The decrease in tax expense for the six months ended June 30, 2024, compared with the same period last year was largely due to a $5.3 million tax benefit related to the revaluation of deferred tax assets to reflect the imposition by the State of New Jersey of a 2.5% Corporate Transit Fee, effective January 1, 2024, combined with a decrease in taxable income as a result of additional expenses from the Lakeland merger.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis