PROVIDENT FINANCIAL SERVICES INC 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Forward-Looking Statements Certain statements contained herein are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 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. The Company advises readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not assume any duty, and does not undertake, to update any forward-looking statements to reflect events or circumstances after the date of this statement. Lakeland Bancorp, Inc. Merger 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. 48 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 The Company considers certain accounting policies to be critically important to the fair presentation of its financial condition and results of operations. These policies require management to make complex judgments on matters which by their nature have elements of uncertainty. The sensitivity of the Company’s consolidated financial statements to these critical accounting policies, and the assumptions and estimates applied, could have a significant impact on its financial condition and results of operations. These assumptions, estimates and judgments made by management can be influenced by a number of factors, including the general economic environment. The Company has identified the allowance for credit losses on loans as a critical accounting policy. The allowance for credit losses is a valuation account that reflects management’s evaluation of the current expected credit losses in the loan portfolio. The Company maintains the allowance for credit losses through provisions for credit losses that are charged to income. Charge-offs against the allowance for credit losses are taken on loans where management determines that the collection of loan principal and interest is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for credit losses. The calculation of the allowance for credit losses is a critical accounting policy of the Company. Management estimates the allowance balance using relevant available information, from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast. Historical credit loss experience for both the Company and peers provides the basis for the estimation of expected credit losses, where observed credit losses are converted to probability of default rate (“PDR”) curves through the use of segment-specific loss given default (“LGD”) risk factors that convert default rates to loss severity based on industry-level, observed relationships between the two variables for each segment, primarily due to the nature of the underlying collateral. These risk factors were assessed for reasonableness against the Company’s own loss experience and adjusted in certain cases when the relationship between the Company’s historical default and loss severity deviate from that of the wider industry. The historical PDR curves, together with corresponding economic conditions, establish a quantitative relationship between economic conditions and loan performance through an economic cycle. Using the historical relationship between economic conditions and loan performance, management’s expectation of future loan performance is incorporated using an externally developed economic forecast. This forecast is applied over a period that management has determined to be reasonable and supportable. Beyond the period over which management can develop or source a reasonable and supportable forecast, the model will revert to long-term average economic conditions using a straight-line, time-based methodology. 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 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. The respective quantitative allowance for each loan segment is measured using an econometric, discounted PDR/LGD modeling methodology in which distinct, segment-specific multi-variate regression models are applied to an external economic forecast. Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis. Contractual cash flows over the contractual life of the loans are the basis for modeled cash flows, adjusted for modeled defaults and expected prepayments and discounted at the loan-level effective interest rate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies at the reporting date: management has a reasonable expectation that a modification will be executed with an individual borrower; or when an extension or renewal option is included in the original contract and is not unconditionally cancellable by the Company. Management will assess the likelihood of the option being exercised by the borrower and appropriately extend the maturity for modeling purposes. 49 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 on loans relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast period. 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. Management developed segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation. The segments have been combined or sub-segmented as needed to ensure loans of similar risk profiles are appropriately pooled. 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 • Commercial Loans – Commercial Owner-Occupied and Commercial Non-Owner Occupied • Consumer Loans – First Lien Home Equity and Other Consumer 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 Credit, Credit Risk Management and Allowance Committees; 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 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. 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. 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: (1) non-accrual status; (2) modification designation; (3) risk ratings of special mention, substandard or doubtful; (4) watchlist credits; and (5) delinquency status, including loans that are current on acquisition date, but had been previously delinquent. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. Subsequent to the acquisition date, the initial allowance for credit losses on PCD loans will increase or decrease based on future evaluations, with changes recognized in the provision for credit losses. Management believes the primary risks inherent in the portfolio are a general decline in the economy, a decline in real estate market values, rising unemployment or a protracted period of elevated unemployment, increasing vacancy rates in commercial investment properties and possible increases in interest rates in the absence of economic improvement. Any one or a combination of these events may adversely affect borrowers’ ability to repay the loans, resulting in increased delinquencies, credit losses and higher levels of provisions. 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. 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. 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. 50 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 volatility. 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: Commercial $ 7,337,742 4,512,411 Multi-family 3,189,808 1,812,500 Construction 970,244 653,246 Residential 2,024,027 1,164,956 Total mortgage loans 13,521,821 8,143,113 Commercial loans (1) 4,617,232 2,440,621 Consumer loans 626,016 299,164 Total gross loans 18,765,069 10,882,898 Premiums on purchased loans 1,410 1,474 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. 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. 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 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. 51 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 June 30, 2024 (in thousands): Amount Percentage of Total Multi-family (1) $ 3,767,678 32.2 % Retail 2,602,125 22.3 % Industrial 2,215,910 19.0 % Office 1,132,471 9.7 % Mixed 898,678 7.7 % Special use property 436,296 3.7 % 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 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. Approximately $113.6 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 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): 52 Amount Percentage of Total New Jersey $ 7,210,805 61.7 % Pennsylvania 1,636,857 14.0 % New York 1,775,051 15.2 % Other states 1,064,924 9.1 % 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 $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 Multi-family 7,276 744 Construction 11,698 771 Total mortgage loans 27,009 7,519 Commercial loans 39,715 41,487 Consumer loans 1,144 633 Total non-performing loans 67,868 49,639 Foreclosed assets 11,119 11,651 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 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 Construction — — Total mortgage loans 3,424 2,843 Commercial loans 1,146 198 Consumer loans 648 275 Total 60-89 day delinquent loans $ 5,218 3,316 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. 53 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, FRBNY 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 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. 54 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 $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. 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. Among other things, the rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), adopted a uniform minimum leverage capital ratio at 4%, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on non-accrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rule also required unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out was exercised. The Company exercised the option to exclude unrealized gains and losses from the calculation of regulatory capital. Additional constraints were also imposed on the inclusion in regulatory capital of mortgage-servicing assets, deferred tax assets and minority interests. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer,” of 2.5% in addition to the amount necessary to meet its minimum risk-based capital requirements. In the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule providing banking institutions that adopted CECL during the 2020 calendar year with the option to delay, for two years, the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with its adoption of CECL on January 1, 2020, the Company elected to utilize the five-year CECL transition. 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 Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) Bank: (1) (2) Tier 1 leverage capital $ 957,132 4.00 % 957,132 4.00 % 2,239,149 9.36 % Common equity Tier 1 risk-based capital 931,776 4.50 1,449,430 7.00 2,239,149 10.81 Tier 1 risk-based capital 1,242,368 6.00 1,760,022 8.50 2,239,149 10.81 Total risk-based capital 1,656,491 8.00 2,174,145 10.50 2,426,242 11.72 Company: Tier 1 leverage capital $ 958,169 4.00 % 958,169 4.00 % 1,913,818 7.99 % Common equity Tier 1 risk-based capital 932,598 4.50 1,450,707 7.00 1,913,818 9.23 Tier 1 risk-based capital 1,243,464 6.00 1,761,573 8.50 1,913,818 9.23 Total risk-based capital 1,657,951 8.00 2,176,061 10.50 2,538,592 12.25 (1) Under the FDIC's prompt corrective action provisions, the Bank is considered well capitalized if it has: a leverage (Tier 1) capital ratio of at least 5.00%; a common equity Tier 1 risk-based capital ratio of 6.50%; a Tier 1 risk-based capital ratio of at least 8.00%; and a total risk-based capital ratio of at least 10.00%. (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 General. 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 55 30, 2023. 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. No tax equivalent adjustments were made. Average balances are daily averages. 56 For the three months ended June 30, 2024 June 30, 2023 Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost (Dollars in Thousands) (Unaudited) Interest Earning Assets: Deposits $ 40,228 $ 1,859 5.38 % 73,470 947 5.17 % Federal funds sold and other short-term investments — — — % 88 1 6.75 % Available for sale debt securities 2,244,725 17,646 3.14 % 1,801,050 10,290 2.29 % Held to maturity debt securities, net (1) 352,216 2,357 2.68 % 379,958 2,357 2.48 % Equity securities, at fair value 10,373 — — % 1,006 — — % Federal Home Loan Bank stock 88,864 2,747 12.36 % 82,171 1,142 5.56 % Net loans: (2) Total mortgage loans 10,674,109 156,318 5.81 % 7,701,072 99,302 5.11 % Total commercial loans 3,514,602 58,532 6.62 % 2,234,043 31,426 5.59 % Total consumer loans 460,702 8,351 7.29 % 303,109 4,431 5.86 % Total net loans 14,649,413 223,201 6.05 % 10,238,224 135,159 5.24 % Total interest earning assets $ 17,385,819 $ 247,810 5.67 % 12,575,967 149,896 4.73 % Non-Interest Earning Assets: Cash and due from banks 37,621 129,979 Other assets 1,773,601 1,127,109 Total assets $ 19,197,041 13,833,055 Interest Bearing Liabilities: Demand deposits $ 7,935,543 $ 58,179 2.95 % 5,620,268 28,613 2.04 % Savings deposits 1,454,784 832 0.23 % 1,307,830 537 0.16 % Time deposits 2,086,433 22,047 4.25 % 968,344 7,297 3.02 % Total deposits 11,476,760 81,058 2.84 % 7,896,442 36,447 1.85 % Borrowed funds 2,158,193 20,565 3.83 % 1,658,809 14,088 3.41 % Subordinated debentures 221,086 4,681 8.52 % 10,563 255 9.66 % Total interest bearing liabilities $ 13,856,039 106,304 3.09 % 9,565,814 50,790 2.13 % Non-Interest Bearing Liabilities: Non-interest bearing deposits $ 2,866,917 2,368,960 Other non-interest bearing liabilities 346,616 244,604 Total non-interest bearing liabilities 3,213,533 2,613,564 Total liabilities 17,069,572 12,179,378 Stockholders' equity 2,127,469 1,653,677 Total liabilities and stockholders' equity $ 19,197,041 13,833,055 Net interest income $ 141,506 99,106 Net interest rate spread 2.58 % 2.60 % Net interest-earning assets $ 3,529,780 3,010,153 Net interest margin (3) 3.21 % 3.11 % Ratio of interest-earning assets to total interest-bearing liabilities 1.25x 1.31x (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. 57 For the six months ended June 30, 2024 June 30, 2023 Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost (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 % Net loans: (2) 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 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. 58 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. 59 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. Provisions for credit losses are charged to operations in order to maintain the allowance for credit losses at a level management considers necessary to absorb projected credit losses that may arise over the expected term of each loan in the portfolio. In determining the level of the allowance for credit losses, management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable economic forecasts. 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 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 $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. 60 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 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 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.