PROVIDENT FINANCIAL SERVICES INC (PFS)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The Company conducts business through its subsidiary, the Bank, a community- and customer-oriented bank currently operating full-service branches and loan production offices throughout New Jersey, as well as in Bethlehem, Philadelphia and Plymouth Meeting, Pennsylvania and Nassau and Orange County, New York. The Bank also provides fiduciary and wealth management services through its wholly owned subsidiary, Beacon Trust Company and insurance services through its wholly owned subsidiary, Provident Protection Plus, Inc.

Strategy

Established in 1839, the Bank is the oldest New Jersey-chartered bank in the state. The Bank offers a full range of commercial and retail loan and deposit products and emphasizes personal service and convenience.

The Bank’s strategy is to grow profitably through a commitment to credit quality and expanding market share by acquiring, retaining, and expanding customer relationships, while carefully managing interest rate risk.

The Bank continues to maintain a diversified loan portfolio with an emphasis on commercial mortgage, multi-family, construction, and commercial loans in its efforts to reduce interest rate risk. These types of loans generally have adjustable rates that initially are higher than residential mortgage loans and generally have a higher rate of credit risk. The Bank’s lending policy focuses on quality underwriting standards and close monitoring of the loan portfolio. As of December 31, 2024, these commercial loan types accounted for 85.9% of the loan portfolio and retail loans accounted for 14.1%. The Company intends to continue to focus on commercial mortgage, multi-family, construction, and commercial lending relationships.

The Company’s relationship banking strategy focuses on increasing core accounts and expanding relationships through its branch network, mobile banking, online banking and other digital services. The Company continues to evaluate opportunities to increase market share by expanding within existing and contiguous markets. Savings and demand deposit accounts are generally a stable, relatively inexpensive source of funds. As of December 31, 2024, savings and demand deposits were 83.0% of total deposits.

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The Company’s results of operations are primarily dependent upon net interest income, the difference between interest earned on interest-earning assets and the interest paid on interest-bearing liabilities. In a rapidly rising interest rate environment, changes in interest rates have an adverse effect on net interest income as the Company’s interest-bearing assets and interest-bearing liabilities reprice or mature at different times or relative interest rates. The Company generates non-interest income such as income from retail and business account fees, loan servicing fees, loan origination fees, loan level swap fees, appreciation in the cash surrender value of Bank-owned life insurance, income from loan or securities sales, fees from wealth management services, investment product sales, insurance brokerage fees and other fees. The Company’s operating expenses consist primarily of compensation and benefits expense, occupancy and equipment expense, data processing expense, the amortization of intangible assets, marketing and advertising expense and other general and administrative expenses. The Company’s results of operations are also affected by general economic conditions, changes in market interest rates, changes in asset quality, changes in asset values, actions of regulatory agencies and government policies.

Acquisitions

Lakeland Bancorp

On May 16, 2024, the Company completed its merger with Lakeland Bancorp, Inc. ("Lakeland"), which added $10.59 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 closed 13 of the acquired Lakeland banking offices and 9 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.

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 and the acquisition method of accounting as critical accounting policies.

Allowance for Credit Losses on Loans

On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with the CECL methodology. It also applies to off-balance sheet credit exposures, including loan commitments and lines of credit. The adoption of the new standard resulted in the Company recording a $7.9 million increase to the allowance for credit losses and a $3.2 million liability for off-balance sheet credit exposures. The adoption of the standard did not result in a change to the Company's results of operations upon adoption as it was recorded as an $8.3 million cumulative effect adjustment, net of income taxes, to retained earnings.

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.

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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.

The Company considers qualitative adjustments to credit loss estimates for information not already captured in the quantitative component of the loss estimation process. Qualitative factors are based on portfolio concentration levels, model imprecision, changes in industry conditions, changes in the Company’s loan review process, changes in the Company’s loan policies and procedures, and economic forecast uncertainty.

One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast period. As of December 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. The allowance estimation process resulted in a total provision of $83.6 million for the year ended December 31, 2024, and an overall coverage ratio of 104 basis points. Of the $83.6 million provision for the year, $60.1 million was recorded as part of the Lakeland merger in accordance with GAAP requirements for accounting for business combinations. 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 $16.0 million, leading to an overall coverage ratio of approximately 112 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 December 31, 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

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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. 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 year ended December 31, 2024, the increase in provision was primarily attributable to an initial CECL provision for credit losses on loans of $60.1 million, recorded as part of the Lakeland merger.

Acquisition Method of Accounting

The acquisition method of accounting requires that acquired assets and liabilities in a business combination be recorded at their fair values as of the acquisition date. This method often involves estimates, all of which are inherently subjective. ASC 805 provides for a period of time during which the acquirer may adjust provisional amounts recognized at the acquisition date to their subsequently determined acquisition-date fair values, referred to as the "measurement period." Adjustments during the measurement period are not limited to just those relating to assets acquired and liabilities assumed but apply to all aspects of business combination accounting (e.g., the consideration transferred). Measurement-period adjustments are calculated as if they were known at the acquisition date but are recognized in the reporting period in which they are determined. For further information, see Note 2 on business combinations.

Analysis of Net Interest Income

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

Average Balance Sheet. The following table sets forth certain information for the years ended December 31, 2024, 2023 and 2022. 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 are expressed both in dollars and rates. No tax equivalent adjustments were made. Average balances are daily averages.

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(1) Average outstanding balance amounts are at amortized cost.

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

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

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Rate/Volume Analysis. The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

There were no out-of-period items and/or adjustments that had a material impact on the rate/volume analysis for the periods aforementioned in the table above.

Comparison of Financial Condition as of December 31, 2024 and December 31, 2023

Total assets as of December 31, 2024 were $24.05 billion, a $9.84 billion increase from December 31, 2023. The increase in total assets was primarily due to the addition of Lakeland.

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The Company’s loan held for investment portfolio totaled $18.66 billion as of December 31, 2024 and $10.87 billion as of December 31, 2023. The loan portfolio consists of the following (dollars in thousands):

(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. For the year ended December 31, 2024, the Company experienced net increases of $1.57 billion in multi-family loans, $2.17 billion in commercial loans and $2.72 billion in commercial mortgage loans, partially offset by net decreases of $170.3 million in construction loans and net decreases in residential mortgage and consumer loans of $845.7 million and $314.7 million, respectively. Commercial loans, consisting of commercial real estate, multi-family, commercial and construction loans, represented 85.9% of the loan portfolio at December 31, 2024, compared to 86.5% at December 31, 2023. Retail loans, which consist of one- to four-family residential mortgage and consumer loans, such as fixed-rate home equity loans and lines of credit, totaled $2.62 billion and accounted for 14.1% of the loan portfolio as of December 31, 2024, compared to $1.46 billion, or 13.5%, of the loan portfolio as of December 31, 2023. For the year ended December 31, 2024, loan fundings, including advances on lines of credit, totaled $4.82 billion, compared with $3.34 billion for 2023.

The Bank’s lending activities, though concentrated in the communities surrounding its offices, extend predominantly throughout New Jersey, eastern Pennsylvania and Nassau and Orange County, New York. This geographic concentration subjects the Company’s loan portfolio to the general economic conditions within these states. The risks created by this concentration have been considered by management in the determination of the appropriateness of the allowance for credit losses.

We consider our commercial real estate loans to be higher risk categories in our loan portfolio. These loans are particularly sensitive to economic conditions. As of December 31, 2024, our portfolio of commercial real estate loans, including multi-family and construction loans, totaled $11.43 billion, or 61.92% of total loans.

The Company believes the CRE loans it originates are appropriately collateralized under its credit standards. Collateral properties include multi-family apartment buildings, warehouse/distribution buildings, shopping centers, office buildings, mixed-use buildings, hotels/motels, senior living, apartment buildings, 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.

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

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 as of December 31, 2024, as segregated by the geographic region in which the property is located (dollars in thousands):

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 $168.4 million and $86.8 million, respectively, as of December 31, 2024.

As of December 31, 2024, the Company’s allowance for credit losses related to the loan portfolio was 1.04% of total loans, compared to 0.99% of total loans as of December 31, 2023. For the year ended December 31, 2024, the Company recorded a provision of $83.6 million for credit losses related to loans, compared to $28.2 million for the year ended December

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31, 2023. The Company had net charge-offs of $14.6 million for the year ended December 31, 2024, compared to net charge-offs of $8.1 million in 2023. The increase in the allowance for credit losses on loans was due to an $83.6 million provision for credit losses on loans, which included an initial CECL provision of $60.1 million on loans acquired from Lakeland, and a $17.2 million allowance recorded through goodwill related to PCD loans acquired from Lakeland, partially offset by net charge-offs of $14.6 million.

Total non-performing loans as of December 31, 2024 were $72.1 million, or 0.39% of total loans, compared with $49.6 million, or 0.46% of total loans as of December 31, 2023. As of December 31, 2024, impaired loans totaled $55.4 million with related specific reserves of $7.5 million, compared with impaired loans totaling $42.3 million with related specific reserves of $2.9 million as of December 31, 2023. Within total impaired loans, there were $39.0 million of loans for which the present value of expected future cash flows or current collateral valuations exceeded the carrying amounts of the loans and for which no specific reserves were required in accordance with GAAP.

Non-performing commercial mortgage loans increased $15.7 million to $20.9 million as of December 31, 2024, from $5.2 million as of December 31, 2023. As of December 31, 2024, non-performing commercial mortgage loans consisted of 17 loans. Of these 17 loans, nine loans totaling $5.9 million were PCD loans. The largest non-performing commercial mortgage loan was a $7.3 million loan secured by a first mortgage on a retail building located in Atlantic City, New Jersey.

Non-performing commercial loans decreased $17.2 million, to $24.2 million as of December 31, 2024, from $41.5 million as of December 31, 2023. Non-performing commercial loans as of December 31, 2024 consisted of 65 loans, of which 16 loans were under 90 days past-due. Of these non-performing commercial loans, 37 were PCD loans totaling $4.9 million. The largest non-performing commercial loan relationship consisted of three loans with aggregate outstanding balances of $4.1 million as of December 31, 2024. These loans are secured by all business assets.

Non-performing construction loans increased $12.5 million to $13.2 million as of December 31, 2024, from $771,000 as of December 31, 2023. Non-performing construction loans as of December 31, 2024 consisted of two loans, of which one was a PCD loan. There were two non-performing construction loans in 2023. The largest non-performing construction loan was a $12.3 million loan residential development project in Jackson, New Jersey secured by a first mortgage on the land and completed and to-be completed housing units.

Non-performing multi-family mortgage loans consisted of six loans totaling $7.5 million as of December 31, 2024, compared to one non-performing multi-family mortgage loan totaling $744,000 as of December 31, 2023. Of these six loans, four loans totaling $2.1 million were PCD loans. The largest non-performing multi-family mortgage loan was a $3.7 million loan secured by a first mortgage on residential condominium units in Brooklyn, New York.

As of December 31, 2024, the Company held $9.5 million of foreclosed assets, compared with $11.7 million as of December 31, 2023. Foreclosed assets are carried at the lower of the outstanding loan balance at the time of foreclosure or fair value, less estimated costs to sell. During the year ended December 31, 2024, there were four properties sold with an aggregate carrying value of $861,000 and one write-down of a foreclosed commercial property of $1.3 million. Foreclosed assets at December 31, 2024 consisted primarily of commercial real estate.

Non-performing assets totaled $81.5 million, or 0.34% of total assets as of December 31, 2024, compared to $61.3 million, or 0.43% of total assets as of December 31, 2023. If the non-accrual loans had performed in accordance with their original terms, interest income would have increased by $2.8 million during the year ended December 31, 2024. The amount of cash basis interest income that was recognized on impaired loans during the year ended December 31, 2024 was not material.

Total deposits increased $8.33 billion during the year ended December 31, 2024, to $18.62 billion. As part of the merger with Lakeland, we acquired $8.62 billion in total deposits. Total savings and demand deposit accounts increased $6.26 billion to $15.46 billion as of December 31, 2024, while total time deposits increased $2.07 billion to $3.17 billion as of December 31, 2024. The increase in savings and demand deposits was largely attributable to a $3.13 billion increase in interest-bearing demand deposits, a $1.59 billion increase in non-interest-bearing demand deposits, a $1.04 billion increase in money market deposits and a $504.0 million increase in savings deposits. The increase in time deposits consisted of a $1.98 billion increase in retail time deposits and a $91.1 million increase in brokered time deposits. During the year ended December 31, 2024, our Certificate of Deposit Account Registry Services ("CDARS") product increased $51.7 million to $215.6 million as of December 31, 2024, from $163.9 million as of December 31, 2023.

Within total deposits, brokered deposits totaled $1.40 billion as of December 31, 2024, compared to $689.3 million as of December 31, 2023. Our brokered deposits are made up primarily of ICS deposits and CDARS. Both of these services are provided by the bank to increase the level of customers' deposit insurance. Our estimated uninsured and uncollateralized deposits at December 31, 2024 totaled $4.42 billion, or 23.7%. Our total estimated uninsured deposits, including collateralized deposits as of December 31, 2024 was $9.87 billion. Within time deposits, $637.2 million or 20.1% was uninsured as of December 31, 2024.

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Borrowed funds increased $50.4 million during the year ended December 31, 2024, to $2.02 billion. The increase in borrowings was largely due to the addition of Lakeland. Borrowed funds represented 8.4% of total assets at December 31, 2024, a decrease from 13.9% at December 31, 2023.

Stockholders’ equity increased $910.6 million during the year ended December 31, 2024 to $2.60 billion, primarily due to common stock issued for the purchase of Lakeland, net income earned for the period and a slight improvement in unrealized losses on available for sale debt securities, partially offset by cash dividends paid to stockholders. For the year ended December 31, 2024, common stock repurchases totaled 89,569 shares at an average cost of $14.90 per share, all of which were made in connection with withholding to cover income taxes on the vesting of stock-based compensation. At December 31, 2024, approximately 3.1 million shares remained eligible for repurchase under the current stock repurchase authorization.

Comparison of Operating Results for the Years Ended December 31, 2024 and December 31, 2023

General. Net income for the year ended December 31, 2024 totaled $115.5 million, or $1.05 per basic and diluted share, compared to $128.4 million, or $1.72 per basic and $1.71 per diluted share, for the year ended December 31, 2023.

Earnings for the year ended December 31, 2024 reflect the impact of the May 16, 2024 merger with Lakeland, which added $10.59 billion to total assets, $7.91 billion to loans, and $8.62 billion to deposits, net of purchase accounting adjustments. The merger with Lakeland significantly impacted provisions for credit losses in 2024 due to the initial Current Expected Credit Loss ("CECL") provisions recorded on acquired loans in the second quarter. Transaction costs related to our merger with Lakeland totaled $20.2 million and $56.9 million, for the three months and year ended December 31, 2024, respectively, compared with transaction costs of $2.5 million and $7.8 million for the respective 2023 periods. Additionally, the Company realized a $2.8 million loss related to the sale of subordinated debt issued by Lakeland from the Provident investment portfolio, during the second quarter of 2024.

Net Interest Income. Net interest income increased $201.2 million to $600.6 million for 2024, from $399.5 million for 2023. The net interest margin increased 10 basis points to 3.26% for 2024, compared to 3.16% for 2023. Net interest income for the year ended December 31, 2024 was favorably impacted by the net assets acquired from Lakeland, combined with the favorable repricing of adjustable rate loans and higher market rates on new loan originations, partially offset by the unfavorable repricing of both deposits and borrowings.

Interest income increased $430.3 million to $1.05 billion for 2024, compared to $615.8 million for 2023. The increase in interest income was primarily driven by assets acquired from Lakeland, combined with favorable repricing of adjustable-rate loans and an increase in rates on new loan originations. Average interest-earning assets increased $5.75 billion to $18.40 billion for 2024, compared to $12.64 billion for 2023. The increase in average earning assets was primarily due to a $5.23 billion increase in average outstanding loan balances to $15.60 billion for 2024, combined with a $578.1 million increase in average available for sale debt securities. The yield on interest-earning assets increased 81 basis points to 5.68% for 2024, from 4.87% for 2023. The weighted average yield on total loans increased 68 basis points to 6.05% for 2024 and the weighted average yield on available for sale debt securities increased 99 basis points to 3.32% for 2024, from 2.33% for 2023. The weighted average yield on FHLBNY stock increased to 9.70% for 2024, compared to 7.47% for 2023.

Interest expense increased $229.2 million to $445.5 million for 2024, from $216.4 million for 2023. The increase in interest expense was primarily attributable to liabilities acquired from Lakeland, combined with an increase in the cost of interest-bearing liabilities. The average rate paid on interest-bearing liabilities increased 81 basis points to 3.05% for 2024, compared to 2023. The average rate paid on interest-bearing deposits increased 84 basis points to 2.83% for 2024, from 1.99% for 2023. The average rate paid on borrowings increased 30 basis points to 3.71% for 2024, from 3.41% for 2023. The average balance of interest-bearing liabilities increased $4.92 billion to $14.60 billion for 2024, compared to $9.67 billion for 2023. Average outstanding borrowings increased $347.1 million to $1.98 billion for 2024, compared to 2023. Average non-interest bearing demand deposits increased $792.0 million to $3.12 billion for 2024, from $2.33 billion for 2023. Average interest-bearing deposits increased $4.33 billion to $12.35 billion for 2024, from $8.02 billion for 2023. Within average interest-bearing deposits, average interest-bearing core deposits increased $2.95 billion to $9.98 billion for 2024, while average time deposits increased $1.37 billion to $2.37 billion for 2024.

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 a reasonable and supportable forecast. 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.

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For the year ended December 31, 2024, the Company recorded an $83.6 million provision for credit losses on loans, compared to a $28.2 million provision for 2023. The Company, for the year ended December 31, 2024, had net loan charge-offs of $14.6 million, compared to net charge-offs of $8.1 million for 2023. Total charge-offs for the year ended December 31, 2024 were $17.8 million, compared to $10.4 million for the year ended December 31, 2023. Recoveries for the year ended December 31, 2024, were $3.3 million, compared to $2.3 million for the year ended December 31, 2023. The increased provision for credit losses on loans for the year ended December 31, 2024 was 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, combined with some economic forecast deterioration over the current twelve-month period within our CECL model, compared to last year.

Non-Interest Income. For the year ended December 31, 2024, non-interest income totaled $94.1 million, an increase of $14.3 million, compared to 2023. Fee income increased $9.7 million to $34.1 million for the year ended December 31, 2024, compared to 2023, primarily due to the addition of Lakeland. BOLI income increased $5.2 million to $11.7 million for the year ended December 31, 2024, compared to 2023, primarily due to an increase in benefit claims, combined with an increase in income related to the addition of Lakeland's BOLI, while wealth management income increased $2.9 million to $30.5 million for the year ended December 31, 2024, compared to 2023, mainly due to an increase in the average market value of assets under management during the period. Additionally, insurance agency income increased $2.3 million to $16.2 million for the year ended December 31, 2024, compared to $13.9 million for 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 year ended December 31, 2024, primarily due to a $2.8 million loss related to the sale from the Provident investment portfolio of subordinated debt issued by Lakeland. Additionally, other income decreased $2.8 million to $4.5 million for the year ended December 31, 2024, compared to $7.3 million for 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 in the current year.

Non-Interest Expense. Non-interest expense totaled $457.5 million for the year ended December 31, 2024, an increase of $182.2 million, compared to $275.3 million for the year ended December 31, 2023. Compensation and benefits expense increased $69.8 million to $218.3 million for the year ended December 31, 2024, compared to $148.5 million for 2023. The increase in compensation and benefits expense was primarily attributable to the addition of Lakeland. Merger-related expenses increased $49.0 million to $56.9 million for the year ended December 31, 2024, compared to $7.8 million for 2023. Amortization of intangibles increased $26.0 million to $28.9 million for the year ended December 31, 2024, compared to $3.0 million for 2023, largely due to core deposit intangible amortization related to the addition of Lakeland. Net occupancy expense increased $12.7 million to $45.0 million for the year ended December 31, 2024, compared to 2023, primarily due to increases in depreciation and maintenance expense related to the addition of Lakeland, while data processing expense increased $12.6 million to $35.6 million for the year ended December 31, 2024, compared to $23.0 million for 2023, primarily due to additional software and hardware expenses related to the addition of Lakeland. Other operating expenses increased $7.3 million to $54.7 million for the year ended December 31, 2024, compared to $47.4 million for 2023, primarily due to increases in consulting and other professional service expenses, while FDIC insurance increased $4.4 million to $13.0 million for the year ended December 31, 2024, primarily due to the addition of Lakeland.

Income Tax Expense. For the year ended December 31, 2024, the Company's income tax expense was $34.1 million with an effective tax rate of 22.8%, compared with $47.4 million with an effective tax rate of 27.0% for the year ended December 31, 2023. The decrease in tax expense for the year ended December 31, 2024, compared with last year was largely due to a $10.0 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 the initial CECL provision for credit losses on loans of $60.1 million recorded in accordance with GAAP requirements for accounting for business combinations and additional expenses from the Lakeland merger.

Comparison of Operating Results for the Years Ended December 31, 2023 and December 31, 2022

General. Net income for the year ended December 31, 2023 was $128.4 million, compared to $175.6 million for the year ended December 31, 2022. For the year ended December 31, 2023, basic and diluted earnings per share were $1.72 and $1.71 per share, respectively, compared to basic and diluted earnings per share of $2.35, for the year ended December 31, 2022.

Earnings for the year ended December 31, 2023 was largely impacted by a decrease in net interest income, primarily attributable to a decrease in lower-costing deposits and an increase in borrowings, combined with unfavorable repricing of both deposits and borrowings, in addition to increased provisions for credit losses primarily due to a worsened economic forecast compared to the prior year. Transaction costs related to our pending merger with Lakeland totaled $7.8 million, for the year ended December 31, 2023, compared with transaction costs of $4.1 million for the respective 2022 period. In addition, prior year earnings for the year ended December 31, 2022, included an $8.6 million gain on the sale of a foreclosed property.

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Net Interest Income. Net interest income decreased $18.1 million to $399.5 million for 2023, from $417.6 million for 2022. The interest rate spread decreased 59 basis points to 2.63% for 2023, from 3.22% for 2022. The net interest margin decreased 21 basis points to 3.16% for 2023, compared to 3.37% for 2022. The decrease in net interest income for the year ended December 31, 2023, was primarily due to a decrease in lower-costing deposits and an increase in borrowings, combined with unfavorable repricing of both deposits and borrowings, partially offset by originations of new loans and the favorable repricing of adjustable-rate loans. For the year ended December 31, 2023, fees related to the forgiveness of PPP loans decreased $1.4 million to $7,000, compared to $1.4 million for the year ended December 31, 2022.

Interest income increased $149.6 million to $615.8 million for 2023, compared to $466.2 million for 2022. The increase in interest income was primarily driven by the favorable repricing of adjustable-rate loans and an increase in rates on new loan originations. Average interest-earning assets increased $224.4 million to $12.64 billion for 2023, compared to $12.41 billion for 2022. The increase in average earning assets was primarily due to a $568.8 million increase in average outstanding loan balances to $10.37 billion for 2023, which was largely attributable to commercial loan originations, partially offset by a $230.5 million decrease in average available for sale debt securities. The yield on interest-earning assets increased 111 basis points to 4.87% for 2023, from 3.76% for 2022. The weighted average yield on total loans increased 111 basis points to 5.37% for 2023 and the weighted average yield on available for sale debt securities increased 58 basis points to 2.33% for 2023, from 1.75% for 2022. The weighted average yield on FHLBNY stock increased to 7.47% for 2023, compared to 4.71% for 2022.

Interest expense increased $167.7 million to $216.4 million for 2023, from $48.6 million for 2022. The increase in interest expense was primarily attributable to an increase in the cost of interest-bearing liabilities, along with an increase in average interest-bearing liabilities. The average rate paid on interest-bearing liabilities increased 170 basis points to 2.24% for 2023, compared to 2022. The average rate paid on interest-bearing deposits increased 152 basis points to 1.99% for 2023, from 0.47% for 2022. The average rate paid on borrowings increased 218 basis points to 3.41% for 2023, from 1.23% for 2022. The average balance of interest-bearing liabilities increased $646.3 million to $9.67 billion for 2023, compared to $9.03 billion for 2022. Average outstanding borrowings increased $880.3 million to $1.64 billion for 2023, compared to 2022. Average non-interest bearing demand deposits decreased $421.0 million to $2.33 billion for 2023, from $2.75 billion for 2022. Average interest-bearing deposits decreased $234.2 million to $8.02 billion for 2023, from $8.26 billion for 2022. Within average interest-bearing deposits, average interest-bearing core deposits decreased $539.0 million to $7.03 billion for 2023, while average time deposits increased $304.8 million to $994.9 million for 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 a reasonable and supportable forecast. 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.

For the year ended December 31, 2023, the Company recorded a $27.9 million provision for credit losses on loans, compared to a $8.4 million provision for 2022. The Company, for the year ended December 31, 2023, had net loan charge-offs of $8.1 million, compared to net charge-offs of $1.1 million for 2022. Total charge-offs for the year ended December 31, 2023 were $10.4 million, compared to $6.5 million for the year ended December 31, 2022. Recoveries for the year ended December 31, 2023, were $2.3 million, compared to $5.4 million for the year ended December 31, 2022. The increase in the year-over-year provision for credit losses was primarily attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices used in our CECL model.

Non-Interest Income. For the year ended December 31, 2023, non-interest income totaled $79.8 million, a decrease of $8.0 million, compared to the same period in 2022. Other income decreased $6.9 million to $7.3 million for the year ended December 31, 2023, compared to $14.2 million for the same period in 2022, primarily due to an $8.6 million gain realized in the prior year on the sale of a foreclosed commercial office property, partially offset by an increase in gains on sales of SBA loans. Additionally, fee income decreased $3.7 million to $24.4 million for the year ended December 31, 2023, compared to the same period in 2022, primarily due to a decrease in commercial loan prepayment fees. Partially offsetting these decreases in non-interest income, insurance agency income increased $2.5 million to $13.9 million for the year ended December 31, 2023, compared to $11.4 million for the same period in 2022, largely due to increases in retention revenue and new business activity. BOLI income increased $494,000 to $6.5 million for the year ended December 31, 2023, compared to the same period in 2022, largely due to greater equity valuations, partially offset by a decrease in benefit claims recognized.

Non-Interest Expense. Non-interest expense totaled $275.6 million for the year ended December 31, 2023, an increase of $18.8 million, compared to $256.8 million for the year ended December 31, 2022. Other operating expense increased $8.5

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million to $47.4 million for the year ended December 31, 2023, compared to $38.9 million for the year ended December 31, 2022. The increase in other operating expenses was largely due to a $3.0 million charge for contingent litigation reserves, combined with a $2.0 million write-down of a foreclosed property and an increase in professional fees. Merger-related expense increased $3.7 million to $7.8 million for the year ended December 31, 2023, compared to 2022. The Company recorded a $264,000 provision for credit losses for off-balance sheet credit exposures, compared to a $3.4 million negative provision last year. The $3.6 million increase in the provision for credit losses for off-balance sheet credit exposures for the year was primarily due to a period over period decrease in line of credit utilization, combined with a period over period increase in loans approved and awaiting closing. FDIC insurance expense increased $3.4 million to $8.6 million for the year ended December 31, 2023, compared to $5.2 million for the trailing year, primarily due to an increase in the assessment rate and the FDIC special assessment. Data processing expense increased $1.3 million to $23.0 million for the year ended December 31, 2023, mainly due to an increase in software service and core processing expenses. Compensation and benefits expense increased $1.3 million to $148.5 million for the year ended December 31, 2023, compared to $147.2 million for the year ended December 31, 2022, primarily due to increases in salary expense, employee medical benefits and post-retirement benefit expense, partially offset by decreases in the accrual for incentive compensation and stock-based compensation. Partially offsetting these increases, net occupancy expense decreased $2.3 million to $32.3 million for the year ended December 31, 2023, compared to the same period in 2022, mainly due to decreases in depreciation and maintenance expenses.

Income Tax Expense. For the year ended December 31, 2023, the Company's income tax expense was $47.4 million with an effective tax rate of 27.0%, compared with $64.5 million with an effective tax rate of 26.8% for the year ended December 31, 2022. The decrease in tax expense for the year ended December 31, 2023, compared with the same period last year was largely the result of a decrease in taxable income.

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 mortgage-backed 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 each of the years ended December 31, 2024 and 2023, loan repayments totaled $4.88 billion and $2.68 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 $2.57 billion and $3.79 billion, respectively at December 31, 2024. Our estimated uninsured and uncollateralized deposits at December 31, 2024 totaled $4.42 billion, or 23.7% of deposits. Our total estimated uninsured deposits, including collateralized deposits as of December 31, 2024 was $9.87 billion.

Commercial real estate loans, multi-family loans, commercial loans, one- to four-family residential loans and consumer loans are the primary investments of the Company. Purchasing securities for the investment portfolio is a secondary use of funds and the investment portfolio is structured to complement and facilitate the Company’s lending activities and ensure adequate liquidity. Loan originations and purchases totaled $4.82 billion for the year ended December 31, 2024, compared to $3.34 billion for the year ended December 31, 2023. Purchases for the investment portfolio totaled $422.4 million for the year ended December 31, 2024, compared to $57.2 million for the year ended December 31, 2023. As of December 31, 2024, the Bank had outstanding loan commitments to borrowers of $2.73 billion, including undisbursed home equity lines and personal credit lines of $382.1 million.

Total deposits increased $8.33 billion for the year ended December 31, 2024. Deposit activity is affected by changes in interest rates, competitive pricing and product offerings in the marketplace, local economic conditions, customer confidence and other factors such as stock market volatility. Certificate of deposit accounts that are scheduled to mature within one year totaled $3.05 billion as of December 31, 2024. Based on its current pricing strategy and customer retention experience, the Bank expects to retain a significant share of these accounts. The Bank manages liquidity on a daily basis and expects to have sufficient cash to meet all of its funding requirements.

As of December 31, 2024, the Bank exceeded all minimum regulatory capital requirements. As of December 31, 2024, the Bank’s leverage (Tier 1) capital ratio was 9.72%. FDIC regulations require banks to maintain a minimum leverage ratio of Tier 1 capital to adjusted total assets of 4.00%. As of December 31, 2024, the Bank’s total risk-based capital ratio was 12.40%. A bank is considered to be well-capitalized if it has a leverage (Tier 1) capital ratio of at least 5.00% and a total risk-based capital ratio of at least 10.00%. The total capital to risk-weighted assets requirement, taking into account the capital conservation buffer, is 10.50%.

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Off-balance sheet commitments consist of unused commitments to borrowers for term loans, unused lines of credit and outstanding letters of credit. Total off-balance sheet obligations were $2.73 billion as of December 31, 2024, an increase of $644.7 million, from $2.09 billion as of December 31, 2023.

Contractual obligations consist of certificate of deposit liabilities. Total certificate of deposits as of December 31, 2024 were $3.17 billion, an increase of $2.07 billion, compared to $1.10 billion as of December 31, 2023. There were no security purchases in 2024 and 2023 which settled in January 2025 or January 2024, respectively.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The Company conducts business through its subsidiary, the Bank, a community- and customer-oriented bank currently operating full-service branches and loan production offices throughout northern and central New Jersey, as well as Bucks, Lehigh and Northampton counties in Pennsylvania and Nassau and Queens counties in New York. The Bank also provides fiduciary and wealth management services through its wholly owned subsidiary, Beacon Trust Company and insurance services through its wholly owned subsidiary, Provident Protection Plus, Inc.

Strategy

Established in 1839, the Bank is the oldest New Jersey-chartered bank in the state. The Bank offers a full range of commercial and retail loan and deposit products and emphasizes personal service and convenience.

The Bank’s strategy is to grow profitably through a commitment to credit quality and expanding market share by acquiring, retaining, and expanding customer relationships, while carefully managing interest rate risk.

The Bank continues to maintain a diversified loan portfolio with an emphasis on commercial mortgage, multi-family, construction, and commercial loans in its efforts to reduce interest rate risk. These types of loans generally have adjustable rates that initially are higher than residential mortgage loans and generally have a higher rate of credit risk. The Bank’s lending policy focuses on quality underwriting standards and close monitoring of the loan portfolio. As of December 31, 2023, these commercial loan types accounted for 86.5% of the loan portfolio and retail loans accounted for 13.5%. The Company intends to continue to focus on commercial mortgage, multi-family, construction, and commercial lending relationships.

The Company’s relationship banking strategy focuses on increasing core accounts and expanding relationships through its branch network, mobile banking, online banking and other digital services. The Company continues to evaluate opportunities to increase market share by expanding within existing and contiguous markets. Savings and demand deposit accounts are generally a stable, relatively inexpensive source of funds. As of December 31, 2023, savings and demand deposits were 89.4% of total deposits.

The Company’s results of operations are primarily dependent upon net interest income, the difference between interest earned on interest-earning assets and the interest paid on interest-bearing liabilities. In a rapidly rising interest rate environment, changes in interest rates have an adverse effect on net interest income as the Company’s interest-bearing assets

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and interest-bearing liabilities reprice or mature at different times or relative interest rates. The Company generates non-interest income such as income from retail and business account fees, loan servicing fees, loan origination fees, loan level swap fees, appreciation in the cash surrender value of Bank-owned life insurance, income from loan or securities sales, fees from wealth management services, investment product sales, insurance brokerage fees and other fees. The Company’s operating expenses consist primarily of compensation and benefits expense, occupancy and equipment expense, data processing expense, the amortization of intangible assets, marketing and advertising expense and other general and administrative expenses. The Company’s results of operations are also affected by general economic conditions, changes in market interest rates, changes in asset quality, changes in asset values, actions of regulatory agencies and government policies.

Pending Acquisitions

Lakeland Bancorp

On September 26, 2022, the Company, the Merger Sub, and Lakeland entered into the merger agreement, pursuant to which the Company and Lakeland have agreed to combine their respective businesses in two mergers.

Under the merger agreement, Merger Sub will merge with and into Lakeland, with Lakeland as the surviving entity (the “merger”), and as soon as reasonably practicable following the merger, Lakeland will merge with and into the Company, with the Company as the surviving entity (the “holdco merger”). At a date and time following the holdco merger as determined by the Company, Lakeland Bank, a New Jersey state-charted commercial bank and a wholly owned subsidiary of Lakeland (“Lakeland Bank”), will conduct a bank merger with and into the Bank, with the Bank as the surviving bank (together, the “mergers”). The Company as the surviving institution will have approximately $25 billion in total assets and $20 billion in total deposits with banking locations across northern and central New Jersey and in surrounding areas of New York and Pennsylvania.

In the merger, Lakeland shareholders will receive 0.8319 of a share of the Company’s common stock for each share of Lakeland common stock they own.

The Company has received stockholder approval to proceed with the merger at a special meeting of stockholders held on February 1, 2023. Lakeland has received shareholder approval to proceed with the merger at a special meeting of shareholders held on February 1, 2023. The completion of the merger remains subject to receipt of the requisite bank regulatory approvals and other customary closing conditions. On December 20, 2023, the Company, along with Lakeland, agreed to extend their merger agreement to March 31, 2024, to provide additional time to obtain the required regulatory approvals.

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.

On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with the CECL methodology. It also applies to off-balance sheet credit exposures, including loan commitments and lines of credit. The adoption of the new standard resulted in the Company recording a $7.9 million increase to the allowance for credit losses and a $3.2 million liability for off-balance sheet credit exposures. The adoption of the standard did not result in a change to the Company's results of operations upon adoption as it was recorded as an $8.3 million cumulative effect adjustment, net of income taxes, to retained earnings.

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

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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.

The Company considers qualitative adjustments to credit loss estimates for information not already captured in the quantitative component of the loss estimation process. Qualitative factors are based on portfolio concentration levels, model imprecision, changes in industry conditions, changes in the Company’s loan review process, changes in the Company’s loan policies and procedures, and economic forecast uncertainty.

One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast period. As of December 31, 2023, the model incorporated Moody’s baseline economic forecast, as adjusted for qualitative factors, as well as an extensive review of classified loans and loans that were classified as impaired with a specific reserve assigned to those loans. 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. This resulted in a total provision of $27.9 million for the year ended December 31, 2023, and an overall coverage ratio of 99 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 $6.5 million, leading to an overall coverage ratio of 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 December 31, 2023, 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 Delinquency, Credit, Credit Risk Management and Allowance Committees; or which may be identified

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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.

For 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. 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 creates greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings. For the year ended December 31, 2023, the increase in provision was primarily attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices used in our CECL model.

Analysis of Net Interest Income

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

Average Balance Sheet. The following table sets forth certain information for the years ended December 31, 2023, 2022 and 2021. 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 are expressed both in dollars and rates. No tax equivalent adjustments were made. Average balances are daily averages.

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(1) Average outstanding balance amounts are at amortized cost.

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

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

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Rate/Volume Analysis. The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

There were no out-of-period items and/or adjustments that had a material impact on the rate/volume analysis for the periods aforementioned in the table above.

Comparison of Financial Condition as of December 31, 2023 and December 31, 2022

Total assets as of December 31, 2023 were $14.21 billion, a $427.4 million increase from December 31, 2022. The increase in total assets was primarily due to a $624.8 million increase in total loans, partially offset by a $127.5 million decrease in total investments.

The Company’s loan portfolio totaled $10.87 billion as of December 31, 2023 and $10.25 billion as of December 31, 2022. The loan portfolio consists of the following:

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

For the year ended December 31, 2023, the Company experienced net increases of $298.7 million in multi-family loans, $208.7 million in commercial loans and $196.2 million in commercial mortgage loans, partially offset by net decreases of $62.2 million in construction loans and net decreases in residential mortgage and consumer loans of $12.7 million and $5.6 million, respectively. All commercial loans, consisting of commercial real estate, multi-family, commercial and construction loans, represented 86.5% of the loan portfolio as of December 31, 2023, compared to 85.6% as of December 31, 2022. Retail loans, which consist of one- to four-family residential mortgage and consumer loans, such as fixed-rate home equity loans and lines of credit, totaled $1.46 billion and accounted for 13.5% of the loan portfolio as of December 31, 2023, compared to $1.48 billion, or 14.4%, of the loan portfolio as of December 31, 2022. For the year ended December 31, 2023, loan fundings, including advances on lines of credit, totaled $3.34 billion, compared with $3.95 billion for 2022.

The Bank’s lending activities, though concentrated in the communities surrounding its offices, extend predominantly throughout New Jersey, eastern Pennsylvania and Nassau and Queens County, New York. This geographic concentration subjects the Company’s loan portfolio to the general economic conditions within these states. The risks created by this concentration have been considered by management in the determination of the appropriateness of the allowance for credit losses.

We consider our commercial real estate loans to be higher risk categories in our loan portfolio. These loans are particularly sensitive to economic conditions. As of December 31, 2023, our portfolio of commercial real estate loans, including multi-family and construction loans, totaled $6.98 billion, or 64.81% of total loans.

The Company believes the CRE loans it originates are appropriately collateralized under its credit standards. Collateral properties include multi-family apartment buildings, warehouse/distribution buildings, shopping centers, office buildings, mixed-use buildings, hotels/motels, senior living, apartment buildings, 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, approximately 93.4%, 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 collateral concentrations of CRE loans on a gross basis, not including any purchase accounting adjustments ("PAA") as of December 31, 2023 (in thousands):

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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 as of December 31, 2023, as segregated by the geographic region in which the property is located (dollars in thousands):

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 $140.5 million and $54.9 million, respectively, as of December 31, 2023. As of December 31, 2023, one commercial relationship was classified as substandard with a commitment and balance totaling $7.0 million. This relationship was 90 days or more delinquent as of December 31, 2023.

As of December 31, 2023, the Company’s allowance for credit losses related to the loan portfolio was 0.99% of total loans, compared to 0.86% of total loans as of December 31, 2022. For the year ended December 31, 2023, the Company recorded a provision of $27.9 million for credit losses related to loans, compared to $8.4 million for the year ended December

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31, 2022. The Company had net charge-offs of $8.1 million for the year ended December 31, 2023, compared to net charge-offs of $1.1 million in 2022. The increase in the allowance for credit losses on loans was primarily due to the weakened economic forecast used in our CECL model, combined with an increase in total loans outstanding.

Total non-performing loans as of December 31, 2023 were $49.6 million, or 0.46% of total loans, compared with $58.5 million, or 0.57% of total loans as of December 31, 2022. As of December 31, 2023, impaired loans totaled $42.3 million with related specific reserves of $2.9 million, compared with impaired loans totaling $68.8 million with related specific reserves of $2.4 million as of December 31, 2022. Within total impaired loans, there were $37.1 million of loans for which the present value of expected future cash flows or current collateral valuations exceeded the carrying amounts of the loans and for which no specific reserves were required in accordance with GAAP.

Non-performing commercial mortgage loans decreased $23.1 million to $5.2 million as of December 31, 2023, from $28.2 million as of December 31, 2022. As of December 31, 2023, non-performing commercial mortgage loans consisted of seven loans. Of these seven loans, one loan totaling $95,600 was a PCD loan. The largest non-performing commercial mortgage loan was a $3.0 million loan secured by a first mortgage on a retail building located in Wayne, New Jersey.

Non-performing commercial loans increased $17.3 million to $41.5 million as of December 31, 2023, from $24.2 million as of December 31, 2022. Non-performing commercial loans as of December 31, 2023 consisted of 26 loans, of which 14 loans were under 90 days accruing. Of these non-performing commercial loans, four were PCD loans totaling $1.2 million. The largest non-performing commercial loan relationship consisted of three loans with aggregate outstanding balances of $19.7 million as of December 31, 2023. These loans are secured by real estate and all business assets. These loans have matured and the borrower is in the process of an orderly wind-down of their operations.

Non-performing construction loans decreased $1.1 million to $771,000 as of December 31, 2023. Non-performing construction loans as of December 31, 2023 consisted of one PCD loan. There were two non-performing construction loans in 2022.

Non-performing multi-family mortgage loans consisted of one loan totaling $744,000 as of December 31, 2023, compared to two non-performing multi-family mortgage loans totaling $1.6 million as of December 31, 2022.

As of December 31, 2023, the Company held $11.7 million of foreclosed assets, compared with $2.1 million as of December 31, 2022. Foreclosed assets are carried at the lower of the outstanding loan balance at the time of foreclosure or fair value, less estimated costs to sell. During the year ended December 31, 2023, there were four additions to foreclosed assets with an aggregate carrying value of $15.1 million, four properties sold with an aggregate carrying value of $3.7 million and one write-down of $2.0 million.

Non-performing assets totaled $61.3 million, or 0.43% of total assets as of December 31, 2023, compared to $60.6 million, or 0.44% of total assets as of December 31, 2022. If the non-accrual loans had performed in accordance with their original terms, interest income would have increased by $1.6 million during the year ended December 31, 2023. The amount of cash basis interest income that was recognized on impaired loans during the year ended December 31, 2023 was not material.

Total deposits decreased $270.5 million during the year ended December 31, 2023, to $10.29 billion. Total savings and demand deposit accounts decreased $615.0 million to $9.20 billion as of December 31, 2023, while total time deposits increased $344.5 million to $1.10 billion as of December 31, 2023. The decrease in savings and demand deposits was largely attributable to a $440.6 million decrease in non-interest-bearing demand deposits, a $262.9 million decrease in savings deposits and a $216.8 million decrease in money market deposits, partially offset by a $305.3 million increase in interest-bearing demand deposits. During the year ended December 31, 2023, our insured cash sweep ("ICS") product increased $461.3 million to $520.2 million as of December 31, 2023, from $58.9 million as of December 31, 2022. The increase in time deposits consisted of a $366.4 million increase in retail time deposits, partially offset by a $21.9 million decrease in brokered time deposits. During the year ended December 31, 2023, our Certificate of Deposit Account Registry Services ("CDARS") product decreased $21.9 million to $163.9 million as of December 31, 2023, from $185.8 million as of December 31, 2022.

Within total deposits, brokered deposits totaled $689.3 million as of December 31, 2023. Our brokered deposits are made up primarily of ICS deposits and CDARS. Both of these services are provided by the bank to increase the level of customers' deposit insurance. Our estimated uninsured and uncollateralized deposits at December 31, 2023 totaled $2.52 billion, or 24.5% of deposits. Our total estimated uninsured deposits, including collateralized deposits as of December 31, 2023 was $5.16 billion. Within time deposits, $100.0 million or 9.1% was uninsured as of December 31, 2023.

Borrowed funds increased $632.7 million during the year ended December 31, 2023, to $1.97 billion. The increase in borrowings was largely due to asset funding requirements. Borrowed funds represented 13.9% of total assets as of December 31, 2023, an increase from 9.7% as of December 31, 2022.

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Stockholders’ equity increased $92.9 million during the year ended December 31, 2023 to $1.69 billion, primarily due to net income earned for the period and a decrease in unrealized losses on available for sale debt securities, partially offset by cash dividends paid to stockholders. For the year ended December 31, 2023, common stock repurchases totaled 71,781 shares at an average cost of $23.28 per share, all of which were made in connection with withholding to cover income taxes on the vesting of stock-based compensation. As of December 31, 2023, approximately 1.1 million shares remained eligible for repurchase under the current stock repurchase authorization.

Comparison of Operating Results for the Years Ended December 31, 2023 and December 31, 2022

General. Net income for the year ended December 31, 2023 was $128.4 million, compared to $175.6 million for the year ended December 31, 2022. For the year ended December 31, 2023, basic and diluted earnings per share were $1.72 and $1.71 per share, respectively, compared to basic and diluted earnings per share of $2.35, for the year ended December 31, 2022.

Earnings for the year ended December 31, 2023 was largely impacted by a decrease in net interest income, primarily attributable to a decrease in lower-costing deposits and an increase in borrowings, combined with unfavorable repricing of both deposits and borrowings, in addition to increased provisions for credit losses primarily due to a worsened economic forecast compared to the prior year. Transaction costs related to our pending merger with Lakeland totaled $7.8 million, for the year ended December 31, 2023, compared with transaction costs of $4.1 million for the respective 2022 period. In addition, prior year earnings for the year ended December 31, 2022, included an $8.6 million gain on the sale of a foreclosed property.

Net Interest Income. Net interest income decreased $18.1 million to $399.5 million for 2023, from $417.6 million for 2022. The interest rate spread decreased 59 basis points to 2.63% for 2023, from 3.22% for 2022. The net interest margin decreased 21 basis points to 3.16% for 2023, compared to 3.37% for 2022. The decrease in net interest income for the year ended December 31, 2023, was primarily due to a decrease in lower-costing deposits and an increase in borrowings, combined with unfavorable repricing of both deposits and borrowings, partially offset by originations of new loans and the favorable repricing of adjustable-rate loans. For the year ended December 31, 2023, fees related to the forgiveness of PPP loans decreased $1.4 million to $7,000, compared to $1.4 million for the year ended December 31, 2022.

Interest income increased $149.6 million to $615.8 million for 2023, compared to $466.2 million for 2022. The increase in interest income was primarily driven by the favorable repricing of adjustable-rate loans and an increase in rates on new loan originations. Average interest-earning assets increased $224.4 million to $12.64 billion for 2023, compared to $12.41 billion for 2022. The increase in average earning assets was primarily due to a $568.8 million increase in average outstanding loan balances to $10.37 billion for 2023, which was largely attributable to commercial loan originations, partially offset by a $230.5 million decrease in average available for sale debt securities. The yield on interest-earning assets increased 111 basis points to 4.87% for 2023, from 3.76% for 2022. The weighted average yield on total loans increased 111 basis points to 5.37% for 2023 and the weighted average yield on available for sale debt securities increased 58 basis points to 2.33% for 2023, from 1.75% for 2022. The weighted average yield on FHLBNY stock increased to 7.47% for 2023, compared to 4.71% for 2022.

Interest expense increased $167.7 million to $216.4 million for 2023, from $48.6 million for 2022. The increase in interest expense was primarily attributable to an increase in the cost of interest-bearing liabilities, along with an increase in average interest-bearing liabilities. The average rate paid on interest-bearing liabilities increased 170 basis points to 2.24% for 2023, compared to 2022. The average rate paid on interest-bearing deposits increased 152 basis points to 1.99% for 2023, from 0.47% for 2022. The average rate paid on borrowings increased 218 basis points to 3.41% for 2023, from 1.23% for 2022. The average balance of interest-bearing liabilities increased $646.3 million to $9.67 billion for 2023, compared to $9.03 billion for 2022. Average outstanding borrowings increased $880.3 million to $1.64 billion for 2023, compared to 2022. Average non-interest bearing demand deposits increased $421.0 million to $2.33 billion for 2023, from $2.75 billion for 2022. Average interest-bearing deposits decreased $234.2 million to $8.02 billion for 2023, from $8.26 billion for 2022. Within average interest-bearing deposits, average interest-bearing core deposits decreased $539.0 million to $7.03 billion for 2023, while average time deposits increased $304.8 million to $994.9 million for 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 a reasonable and supportable forecast. 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.

For the year ended December 31, 2023, the Company recorded a $27.9 million provision for credit losses on loans, compared to a $8.4 million provision for 2022. The Company, for the year ended December 31, 2023, had net loan charge-offs

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of $8.1 million, compared to net charge-offs of $1.1 million for 2022. Total charge-offs for the year ended December 31, 2023 were $10.4 million, compared to $6.5 million for the year ended December 31, 2022. Recoveries for the year ended December 31, 2023, were $2.3 million, compared to $5.4 million for the year ended December 31, 2022. The increase in the year-over-year provision for credit losses was primarily attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices used in our CECL model.

Non-Interest Income. For the year ended December 31, 2023, non-interest income totaled $79.8 million, a decrease of $8.0 million, compared to the same period in 2022. Other income decreased $6.9 million to $7.3 million for the year ended December 31, 2023, compared to $14.2 million for the same period in 2022, primarily due to an $8.6 million gain realized in the prior year on the sale of a foreclosed commercial office property, partially offset by an increase in gains on sales of SBA loans. Additionally, fee income decreased $3.7 million to $24.4 million for the year ended December 31, 2023, compared to the same period in 2022, primarily due to a decrease in commercial loan prepayment fees. Partially offsetting these decreases in non-interest income, insurance agency income increased $2.5 million to $13.9 million for the year ended December 31, 2023, compared to $11.4 million for the same period in 2022, largely due to increases in retention revenue and new business activity. BOLI income increased $494,000 to $6.5 million for the year ended December 31, 2023, compared to the same period in 2022, largely due to greater equity valuations, partially offset by a decrease in benefit claims recognized.

Non-Interest Expense. Non-interest expense totaled $275.6 million for the year ended December 31, 2023, an increase of $18.8 million, compared to $256.8 million for the year ended December 31, 2022. Other operating expense increased $8.5 million to $47.4 million for the year ended December 31, 2023, compared to $38.9 million for the year ended December 31, 2022. The increase in other operating expenses was largely due to a $3.0 million charge for contingent litigation reserves, combined with a $2.0 million write-down of a foreclosed property and an increase in professional fees. Merger-related expense increased $3.7 million to $7.8 million for the year ended December 31, 2023, compared to 2022. The Company recorded a $264,000 provision for credit losses for off-balance sheet credit exposures, compared to a $3.4 million negative provision last year. The $3.6 million increase in the provision for credit losses for off-balance sheet credit exposures for the year was primarily due to a period over period decrease in line of credit utilization, combined with a period over period increase in loans approved and awaiting closing. FDIC insurance expense increased $3.4 million to $8.6 million for the year ended December 31, 2023, compared to $5.2 million for the trailing year, primarily due to an increase in the assessment rate and the FDIC special assessment. Data processing expense increased $1.3 million to $23.0 million for the year ended December 31, 2023, mainly due to an increase in software service and core processing expenses. Compensation and benefits expense increased $1.3 million to $148.5 million for the year ended December 31, 2023, compared to $147.2 million for the year ended December 31, 2022, primarily due to increases in salary expense, employee medical benefits and post-retirement benefit expense, partially offset by decreases in the accrual for incentive compensation and stock-based compensation. Partially offsetting these increases, net occupancy expense decreased $2.3 million to $32.3 million for the year ended December 31, 2023, compared to the same period in 2022, mainly due to decreases in depreciation and maintenance expenses.

Income Tax Expense. For the year ended December 31, 2023, the Company's income tax expense was $47.4 million with an effective tax rate of 27.0%, compared with $64.5 million with an effective tax rate of 26.8% for the year ended December 31, 2022. The decrease in tax expense for the year ended December 31, 2023, compared with the same period last year was largely the result of a decrease in taxable income.

Comparison of Operating Results for the Years Ended December 31, 2022 and December 31, 2021

General. Net income for the year ended December 31, 2022 was $175.6 million, compared to $167.9 million for the year ended December 31, 2021. Basic and diluted earnings per share were $2.35 per share, compared to basic and diluted earnings per share of $2.20 and $2.19, respectively, for the year ended December 31, 2021.

Earnings for the year ended December 31, 2022 were impacted by $4.1 million of non-tax deductible transaction costs related to the pending merger with Lakeland that was announced on September 27, 2022. The Company recorded an $8.4 million provision for the year ended December 31, 2022, compared to a $24.3 million negative provision for credit losses for 2022.

Net Interest Income. Net interest income increased $51.5 million to $417.6 million for 2022, from $366.0 million for 2021. The interest rate spread increased 33 basis points to 3.22% for 2022, from 2.89% for 2021. The net interest margin increased 37 basis points to 3.37% for 2022, compared to 3.00% for 2021. The increase in net interest income for the year ended December 31, 2022, was primarily driven by the favorable repricing of adjustable-rate loans and an increase in rates on new loan originations. Net interest income was further enhanced by increases in available for sale debt securities and total loans outstanding, along with growth in lower-costing core and non-interest bearing deposits. This was partially offset by a reduction in fees related to the forgiveness of PPP loans. For the year ended December 31, 2022, fees related to the forgiveness of PPP loans decreased $9.9 million to $1.4 million, compared to $11.3 million for the year ended December 31, 2021.

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Interest income increased $63.8 million to $466.2 million for 2022, compared to $402.3 million for 2021. The increase in interest income was primarily driven by the favorable repricing of adjustable-rate loans and an increase in rates on new loan originations. Average interest-earning assets increased $231.8 million to $12.41 billion for 2022, compared to $12.18 billion for 2021. The increase in average earning assets was primarily due to a $242.1 million increase in average outstanding loan balances to $9.80 billion for 2022, which was largely attributable to commercial loan originations. The yield on interest-earning assets increased 46 basis points to 3.76% for 2022, from 3.30% for 2021. The weighted average yield on total loans increased 44 basis points to 4.26% for 2022 and the weighted average yield on available for sale debt securities increased 35 basis points to 1.75% for 2022, from 1.40% for 2021. The weighted average yield on FHLBNY stock decreased to 4.71% for 2022, compared to 5.48% for 2021.

Interest expense increased $12.3 million to $48.6 million for 2022, from $36.3 million for 2021. The increase in interest expense was primarily attributable to an increase in the cost of interest-bearing liabilities, along with an increase in average interest-bearing liabilities. The average rate paid on interest-bearing liabilities increased 13 basis points to 0.54% for 2022, compared to 2021. The average rate paid on interest-bearing deposits increased 14 basis points to 0.47% for 2022, from 0.33% for 2021. The average rate paid on borrowings increased 14 basis points to 1.23% for 2022, from 1.09% for 2021. The average balance of interest-bearing liabilities increased $133.7 million to $9.03 billion for 2022, compared to $8.89 billion for 2021. Average interest-bearing deposits increased $181.7 million to $8.26 billion for 2022, from $8.08 billion for 2021. Within average interest-bearing deposits, average interest-bearing core deposits increased $359.7 million to $7.57 billion for 2022, compared with 2021. Average non-interest bearing demand deposits increased $206.3 million to $2.75 billion for 2022, from $2.54 billion for 2021. Average outstanding borrowings decreased $33.6 million to $756.3 million for 2022, compared to 2021. Average outstanding subordinated debentures decreased $14.4 million to $10.4 million for 2022, compared to 2021.

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 a reasonable and supportable forecast. 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.

For the year ended December 31, 2022, the Company recorded an $8.4 million provision for credit losses on loans, compared to a $24.3 million negative provision for 2021. The Company, for the year ended December 31, 2022, had net loan charge-offs of $1.1 million, compared to net recoveries of $3.6 million for 2021. Total charge-offs for the year ended December 31, 2022 were $6.5 million, compared to $5.5 million for the year ended December 31, 2021. Recoveries for the year ended December 31, 2022, were $5.4 million, compared to $9.0 million for the year ended December 31, 2021. The increase in the year-over-year provision for credit losses was largely a function of the significant favorable impact of the post-pandemic recovery resulting in a large negative provision taken in the prior year and an increase in total loans outstanding.

Non-Interest Income. For the year ended December 31, 2022, non-interest income totaled $87.8 million, an increase of $980,000, compared to the same period in 2021. Other income increased $6.5 million to $14.2 million for the year ended December 31, 2022, compared to $7.7 million for the same period in 2021, primarily due to an $8.6 million gain realized on the sale of a foreclosed commercial office property and an increase in fees on loan-level interest rate swap transactions, partially offset by income recognized from a $3.4 million reduction in the contingent consideration related to the earn-out provisions of the 2019 purchase of Tirschwell & Loewy, Inc. by Beacon Trust Company, recorded in the prior year. Insurance agency income increased $1.2 million to $11.4 million for the year ended December 31, 2022, compared to $10.2 million for the same period in 2021, largely due to increases in contingent commissions, retention revenue and new business activity. Partially offsetting these increases in non-interest income, wealth management income decreased $2.9 million to $27.9 million for the year ended December 31, 2022, compared to the same period in 2021, primarily due to a decrease in the market value of assets under management, partially offset by new business generation. BOLI income decreased $1.9 million to $6.0 million for the year ended December 31, 2022, compared to the same period in 2021, largely due to a decrease in benefit claims recognized and lower equity valuations. Additionally, fee income decreased $1.8 million to $28.1 million for the year ended December 31, 2022, compared to the same period in 2021, primarily due to a decrease in debit card revenue, which was curtailed by the application of the Durbin amendment to the Company's operations beginning July 1, 2021 and a decrease in commercial loan prepayment fees, partially offset by an increase in deposit related fees.

Non-Interest Expense. Non-interest expense totaled $256.8 million for the year ended December 31, 2022, an increase of $6.8 million, compared to $250.1 million for the year ended December 31, 2021. Other operating expense increased $4.4 million to $43.0 million for the year ended December 31, 2022, compared to $38.6 million for the year ended December 31, 2021, primarily due to $4.1 million of transaction costs related to the pending merger with Lakeland. Compensation and

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benefits expense increased $3.8 million to $147.2 million for the year ended December 31, 2022, compared to $143.4 million for the year ended December 31, 2021, primarily due to increases in stock-based compensation and salary expense, partially offset by a decrease in the accrual for incentive compensation. Data processing expense increased $2.0 million to $21.8 million for the year ended December 31, 2022, mainly due to an increase in software subscription and maintenance expenses. Additionally, net occupancy expense increased $1.6 million to $34.6 million for the year ended December 31, 2022, compared to the same period in 2021, mainly due to increases in rent, depreciation and maintenance expenses, a portion of which were attributable to the Company's new administrative offices. Partially offsetting these increases, the Company recorded a $3.4 million negative provision for credit losses for off-balance sheet credit exposures, compared to a $1.5 million provision last year. The $4.9 million decrease in the provision for credit losses for off-balance sheet credit exposures for the year was primarily due to an increase in line of credit utilization, combined with a decrease in loans approved and awaiting closing.

Income Tax Expense. For the year ended December 31, 2022, the Company's income tax expense was $64.5 million with an effective tax rate of 26.8%, compared with $59.2 million with an effective tax rate of 26.1% for the year ended December 31, 2021. The increase in tax expense for the year ended December 31, 2022, compared with the same period last year was largely the result of an increase in taxable income, while the increase in the effective tax rate for the year ended December 31, 2022, compared with the prior year was largely due to non-deductible merger related transaction costs of $4.1 million in the current year.

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 mortgage-backed 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 each of the years ended December 31, 2023 and 2022, loan repayments totaled $2.68 billion and $3.24 billion, respectively.

As deposits have declined, the Company has continued to monitor and focus on depositor behavior and borrowing capacity with the FHLBNY and FRBNY, with current borrowing capacity of $1.48 billion and $1.22 billion, respectively as of December 31, 2023. Our estimated uninsured and uncollateralized deposits at December 31, 2023 totaled $2.52 billion, or 24.5% of deposits. Our total estimated uninsured deposits, including collateralized deposits as of December 31, 2023 was $5.16 billion.

Commercial real estate loans, multi-family loans, commercial loans, one- to four-family residential loans and consumer loans are the primary investments of the Company. Purchasing securities for the investment portfolio is a secondary use of funds and the investment portfolio is structured to complement and facilitate the Company’s lending activities and ensure adequate liquidity. Loan originations and purchases totaled $3.34 billion for the year ended December 31, 2023, compared to $3.95 billion for the year ended December 31, 2022. Purchases for the investment portfolio totaled $57.2 million for the year ended December 31, 2023, compared to $317.5 million for the year ended December 31, 2022. As of December 31, 2023, the Bank had outstanding loan commitments to borrowers of $2.09 billion, including undisbursed home equity lines and personal credit lines of $273.0 million.

Total deposits decreased $270.5 million for the year ended December 31, 2023. 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 $1.02 billion as of December 31, 2023. 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.

As of December 31, 2023, the Bank exceeded all minimum regulatory capital requirements. As of December 31, 2023, the Bank’s leverage (Tier 1) capital ratio was 9.84%. FDIC regulations require banks to maintain a minimum leverage ratio of Tier 1 capital to adjusted total assets of 4.00%. As of December 31, 2023, the Bank’s total risk-based capital ratio was 11.95%. A bank is considered to be well-capitalized if it has a leverage (Tier 1) capital ratio of at least 5.00% and a total risk-based capital ratio of at least 10.00%. The total capital to risk-weighted assets requirement, taking into account the capital conservation buffer, is 10.50%.

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Off-balance sheet commitments consist of unused commitments to borrowers for term loans, unused lines of credit and outstanding letters of credit. Total off-balance sheet obligations were $2.09 billion as of December 31, 2023, an increase of $32.4 million, from $2.06 billion as of December 31, 2022.

Contractual obligations consist of certificate of deposit liabilities. Total certificate of deposits as of December 31, 2023 were $1.10 billion, an increase of $344.5 million, compared to $751.4 million as of December 31, 2022. There were no security purchases in 2023 and 2022 which settled in January 2024 or January 2023, respectively.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

On January 15, 2003, the Company became the holding company for the Bank, following the completion of the conversion of the Bank to a New Jersey-chartered capital stock savings bank. The Company issued an aggregate of 59,618,300 shares of its common stock in a subscription offering to eligible depositors. Concurrent with the conversion, the Company contributed an additional 1,920,000 shares of its common stock and $4.8 million in cash to The Provident Bank Foundation, a charitable foundation established by the Bank.

The Company conducts business through its subsidiary, the Bank, a community- and customer-oriented bank currently operating full-service branches and loan production offices throughout northern and central New Jersey, as well as Bucks, Lehigh and Northampton counties in Pennsylvania and Queens County, New York. The Bank also provides fiduciary and wealth management services through its wholly owned subsidiary, Beacon Trust Company and insurance services through its wholly owned subsidiary, Provident Protection Plus, Inc.

Strategy

Established in 1839, the Bank is the oldest New Jersey-chartered bank in the state. The Bank offers a full range of commercial and retail loan and deposit products, and emphasizes personal service and convenience.

The Bank’s strategy is to grow profitably through a commitment to credit quality and expanding market share by acquiring, retaining and expanding customer relationships, while carefully managing interest rate risk.

The Bank continues to maintain a diversified loan portfolio with an emphasis on commercial mortgage, multi-family, construction and commercial loans in its efforts to reduce interest rate risk. These types of loans generally have adjustable rates that initially are higher than residential mortgage loans and generally have a higher rate of credit risk. The Bank’s lending policy focuses on quality underwriting standards and close monitoring of the loan portfolio. At December 31, 2022, these commercial loan types accounted for 85.6% of the loan portfolio and retail loans accounted for 14.4%. The Company intends to continue to focus on commercial mortgage, multi-family, construction and commercial lending relationships.

The Company’s relationship banking strategy focuses on increasing core accounts and expanding relationships through its branch network, mobile banking, online banking and other digital services. The Company continues to evaluate opportunities to increase market share by expanding within existing and contiguous markets. Savings and demand deposit accounts, are

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generally a stable, relatively inexpensive source of funds. At December 31, 2022, savings and demand deposits were 92.9% of total deposits.

The Company’s results of operations are primarily dependent upon net interest income, the difference between interest earned on interest-earning assets and the interest paid on interest-bearing liabilities. Changes in interest rates could have an adverse effect on net interest income to the extent the Company’s interest-bearing assets and interest-bearing liabilities reprice or mature at different times or relative interest rates. The Company believes based upon its current balance sheet mix that assets may reprice more quickly than liabilities. The Company generates non-interest income such as income from retail and business account fees, loan servicing fees, loan origination fees, loan level swap fees, appreciation in the cash surrender value of Bank-owned life insurance, income from loan or securities sales, fees from wealth management services, investment product sales, insurance brokerage fees and other fees. The Company’s operating expenses consist primarily of compensation and benefits expense, occupancy and equipment expense, data processing expense, the amortization of intangible assets, marketing and advertising expense and other general and administrative expenses. The Company’s results of operations are also affected by general economic conditions, changes in market interest rates, changes in asset quality, changes in asset values, actions of regulatory agencies and government policies.

Acquisitions

SB One Bancorp

On July 31, 2020, the Company completed its acquisition of SB One Bancorp ("SB One"), which added $2.20 billion to total assets, $1.77 billion to total loans, which included PCD loans totaling $294.2 million, and $1.76 billion to total deposits, and added 18 full-service banking offices in New Jersey and New York. As part of the acquisition, the addition of Provident Protection Plus, Inc., formerly SB One Insurance Agency, Inc., allowed the Company to expand its products offerings to its customers to include an array of commercial and personal insurance products.

Under the merger agreement, each share of SB One common stock was exchanged for 1.357 shares of the Company's common stock. The Company issued 12.8 million shares of common stock from treasury stock, plus cash in lieu of fractional shares in the acquisition of SB One. The total consideration paid in the acquisition of SB One was $180.8 million. In connection with the acquisition, SB One Bank, a wholly owned subsidiary of SB One, was merged with and into Provident Bank, a wholly owned subsidiary of the Company.

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 was recorded as goodwill. After finalizing certain estimates, goodwill totaled $23.9 million.

Pending Acquisitions

Lakeland Bancorp

On September 26, 2022, the Company, NL 239 Corp., a direct, wholly owned subsidiary of the Company (“Merger Sub”), and Lakeland Bancorp, Inc. entered into an Agreement and Plan of Merger (as may be amended, modified or supplemented from time to time in accordance with its terms, the “merger agreement”), pursuant to which Provident and Lakeland have agreed to combine their respective businesses in two mergers.

Under the merger agreement, Merger Sub will merge with and into Lakeland, with Lakeland as the surviving entity (the “merger”), and as soon as reasonably practicable following the merger, Lakeland will merge with and into the Company, with the Company as the surviving entity (the “holdco merger”). At a date and time following the holdco merger as determined by the Company, Lakeland Bank, a New Jersey state-charted commercial bank and a wholly owned subsidiary of Lakeland (“Lakeland Bank”), will merge with and into Provident Bank, a New Jersey state-chartered savings bank and a wholly owned subsidiary of the Company (“Provident Bank”), with Provident Bank as the surviving bank (the “bank merger” and, together with the merger and the holdco merger, the “mergers”). The Company as the surviving institution will have approximately $25 billion in total assets and $20 billion in total deposits with banking locations across northern and central New Jersey and in surrounding areas of New York and Pennsylvania.

In the merger, Lakeland shareholders will receive 0.8319 of a share of the Company’s common stock for each share of Lakeland common stock they own. Based on the closing price of the Company’s common stock on the New York Stock Exchange on September 26, 2022, the last trading day before the public announcement of the merger, the exchange ratio represented approximately $19.27 in value for each share of Lakeland common stock, representing a merger consideration of approximately $1.3 billion on an aggregate basis.

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The Company has received stockholder approval to proceed with the merger at a special meeting of stockholders held on February 1, 2023. Lakeland has received shareholder approval to proceed with the merger at a special meeting of shareholders held on February 1, 2023. The completion of the merger remains subject to receipt of the requisite bank regulatory approvals and other customary closing conditions.

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.

On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with the current expected credit loss (“CECL”) methodology. It also applies to off-balance sheet credit exposures, including loan commitments and lines of credit. The adoption of the new standard resulted in the Company recording a $7.9 million increase to the allowance for credit losses and a $3.2 million liability for off-balance sheet credit exposures. The adoption of the standard did not result in a change to the Company's results of operations upon adoption as it was recorded as an $8.3 million cumulative effect adjustment, net of income taxes, to retained earnings.

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 Asset-Liability 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: management has a reasonable expectation at the reporting date that a troubled debt restructuring (“TDR”) will be executed with an individual borrower, or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

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

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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.

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 December 31, 2022, 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 specific reserves 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; or which may be identified through the Company’s loan review process. Generally, the Company only evaluates loans individually for specific reserves if the loan is non-accrual, non-homogeneous and the balance is at least $1.0 million, or if the loan was modified as a TDR.

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.

A loan for which the terms have been modified resulting in a concession by the Company, and for which the borrower is experiencing financial difficulties is considered to be a TDR. The allowance for credit losses on a TDR is measured using the same method as all other impaired loans, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.

For 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) troubled debt restructured 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.

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. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. In addition, various regulatory agencies periodically review the adequacy of the Company’s allowance for credit losses as an integral part of their examination process. Such agencies may require the Company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination. Although management uses the best information available, the level of the allowance for credit losses remains an estimate that is subject to significant judgment and short-term change.

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.

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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 year ended December 31, 2022, the provision for credit losses on loans totaled $8.4 million, compared to a negative provision of $24.3 million in 2021. The increase in the year-over-year provision for credit losses was largely a function of the significant favorable impact of the post-pandemic recovery resulting in a large negative provision taken in the prior year and an increase in total loans outstanding in 2022.

Analysis of Net Interest Income

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

Average Balance Sheet. The following table sets forth certain information for the years ended December 31, 2022, 2021 and 2020. 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.

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