UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended 3/31/2023

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from              to

Commission File Number: 001-31566

PROVIDENT FINANCIAL SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)  

Delaware			42-1547151
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)
239 Washington Street	Jersey City	New Jersey	07302
(Address of Principal Executive Offices)	(City)	(State)	(Zip Code)

(732) 590-9200

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol Symbol(s)	Name of each exchange on which registered
Common	PFS	New York Stock Exchange

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    NO  ¨

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  ý    NO  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ☐    NO  ý

As of May 1, 2023 there were 83,209,012 shares issued and 75,560,382 shares outstanding of the Registrant’s Common Stock, par value $0.01 per share, including 84,937 shares held by the First Savings Bank Directors’ Deferred Fee Plan not otherwise considered outstanding under U.S. generally accepted accounting principles.

1

PROVIDENT FINANCIAL SERVICES, INC.

INDEX TO FORM 10-Q

 

Item Number		Page Number
PART I—FINANCIAL INFORMATION
1	Financial Statements:
	Consolidated Statements of Financial Condition as of March 31, 2023 (unaudited) and December 31, 2022	3
	Consolidated Statements of Income for the three months ended March 31, 2023 and 2022 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022 (unaudited)	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (unaudited)	7
	Notes to Unaudited Consolidated Financial Statements	9
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
3	Quantitative and Qualitative Disclosures About Market Risk	48
4	Controls and Procedures	50
PART II—OTHER INFORMATION
1	Legal Proceedings	50
1A.	Risk Factors	50
2	Unregistered Sales of Equity Securities and Use of Proceeds	52
3	Defaults Upon Senior Securities	52
4	Mine Safety Disclosures	52
5	Other Information	52
6	Exhibits	52
Signatures		54

2

PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Financial Condition

March 31, 2023 (Unaudited) and December 31, 2022

(Dollars in Thousands)

 

	March 31, 2023		December 31, 2022
ASSETS
Cash and due from banks	$	233,759	$	186,490
Short-term investments	94		18
Total cash and cash equivalents	233,853		186,508
Available for sale debt securities, at fair value	1,821,563		1,803,548
Held to maturity debt securities, net (fair value of $371,397 and $373,468 at March 31, 2023 and December 31, 2022, respectively).	381,461		387,923
Equity securities, at fair value	1,197		1,147
Federal Home Loan Bank stock	80,521		68,554
Loans	10,224,214		10,248,883
Less allowance for credit losses	92,758		88,023
Net loans	10,131,456		10,160,860
Foreclosed assets, net	13,743		2,124
Banking premises and equipment, net	72,470		79,794
Accrued interest receivable	52,040		51,903
Intangible assets	460,132		460,892
Bank-owned life insurance	239,573		239,040
Other assets	290,902		341,143
Total assets	$	13,778,911	$	13,783,436
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand deposits	$	8,007,544	$	8,373,005
Savings deposits	1,351,184		1,438,583
Certificates of deposit of $100,000 or more	605,938		504,627
Other time deposits	332,691		246,809
Total deposits	10,297,357		10,563,024
Mortgage escrow deposits	43,160		35,705
Borrowed funds	1,584,818		1,337,370
Subordinated debentures	10,544		10,493
Other liabilities	202,952		239,141
Total liabilities	12,138,831		12,185,733
Stockholders’ Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued	—		—
Common stock, $0.01 par value, 200,000,000 shares authorized, 83,209,012 shares issued and 75,467,890 shares outstanding at March 31, 2023, and 83,209,012 shares issued and 75,169,196 shares outstanding at December 31, 2022, respectively.	832		832
Additional paid-in capital	984,089		981,138
Retained earnings	940,533		918,158
Accumulated other comprehensive loss	(148,146)		(165,045)
Treasury stock	(127,814)		(127,154)
Unallocated common stock held by the Employee Stock Ownership Plan	(9,414)		(10,226)
Common stock acquired by the Directors' Deferred Fee Plan ("DDFP")	(3,289)		(3,427)
Deferred Compensation - Directors' Deferred Fee Plan	3,289		3,427
Total stockholders’ equity	1,640,080		1,597,703
Total liabilities and stockholders’ equity	$	13,778,911	$	13,783,436

See accompanying notes to unaudited consolidated financial statements.

3

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Income

Three months ended March 31, 2023 and 2022 (Unaudited)

(Dollars in Thousands, except per share data)

 

	Three months ended March 31,
	2023		2022
Interest income:
Real estate secured loans	$	95,988	$	63,835
Commercial loans	28,683		22,821
Consumer loans	4,242		3,139
Available for sale debt securities, equity securities and Federal Home Loan Bank stock	11,430		7,951
Held to maturity debt securities	2,368		2,596
Deposits, Federal funds sold and other short-term investments	845		647
Total interest income	143,556		100,989
Interest expense:
Deposits	27,510		5,187
Borrowed funds	7,476		1,168
Subordinated debt	246		108
Total interest expense	35,232		6,463
Net interest income	108,324		94,526
Provision charge (benefit) for credit losses	6,001		(6,405)
Net interest income after provision charge (benefit) for credit losses	102,323		100,931
Non-interest income:
Fees	6,387		6,889
Wealth management income	6,915		7,466
Insurance agency income	4,102		3,420
Bank-owned life insurance	1,484		1,179
Net (losses) gains on securities transactions	(5)		16
Other income	3,269		1,178
Total non-interest income	22,152		20,148
Non-interest expense:
Compensation and employee benefits	38,737		37,067
Net occupancy expense	8,410		9,330
Data processing expense	5,508		5,344
FDIC insurance	1,937		1,205
Amortization of intangibles	762		859
Advertising and promotion expense	1,232		1,104
Provision charge (benefit) for credit losses on off-balance sheet credit exposures	739		(2,390)
Other operating expenses	12,160		9,367
Total non-interest expense	69,485		61,886
Income before income tax expense	54,990		59,193
Income tax expense	14,454		15,231
Net income	$	40,536	$	43,962
Basic earnings per share	$	0.54	$	0.58
Weighted average basic shares outstanding	74,645,336		75,817,971
Diluted earnings per share	$	0.54	$	0.58
Weighted average diluted shares outstanding	74,702,527		75,914,079

See accompanying notes to unaudited consolidated financial statements.

4

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

Three months ended March 31, 2023 and 2022 (Unaudited)

(Dollars in Thousands)

 

	Three months ended March 31,
	2023		2022
Net income	$	40,536	$	43,962
Other comprehensive income (loss), net of tax:
Unrealized gains and losses on available for sale debt securities:
Net unrealized gains (losses) arising during the period	20,864		(84,971)
Reclassification adjustment for gains included in net income	—		—
Total	20,864		(84,971)
Unrealized (losses) gains on derivatives	(3,696)		10,438
Amortization related to post-retirement obligations	(269)		(276)
Total other comprehensive income (loss)	16,899		(74,809)
Total comprehensive income (loss)	$	57,435	$	(30,847)

See accompanying notes to unaudited consolidated financial statements.

5

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

For the three months ended March 31, 2022 (Unaudited)

(Dollars in Thousands)

For the three months ended March 31, 2022	COMMON STOCK		ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		TREASURYSTOCK		UNALLOCATED ESOP SHARES		COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS		DEFERRED COMPENSATION PLANS		TOTAL STOCKHOLDERS’ EQUITY
Balance at December 31, 2021	$	832	$	969,815	$	814,533	$	6,863	$	(79,603)	$	(15,344)	$	(3,984)	$	3,984	$	1,697,096
Net income	—		—		43,962		—		—		—		—		—		43,962
Other comprehensive loss, net of tax	—		—		—		(74,809)		—		—		—		—		(74,809)
Cash dividends paid	—		—		(18,688)		—		—		—		—		—		(18,688)
Distributions from DDFP	—		45		—		—		—		—		140		(140)		45
Purchases of treasury stock	—		—		—		—		(29,025)		—		—		—		(29,025)
Purchase of employee restricted shares to fund statutory tax withholding	—		—		—		—		(953)		—		—		—		(953)
Stock option exercises	—		—		—		—		—		—		—		—		—
Allocation of ESOP shares	—		332		—		—		—		811		—		—		1,143
Allocation of Stock Award Plan ("SAP") shares	—		2,311		—		—		—		—		—		—		2,311
Allocation of stock options	—		49		—		—		—		—		—		—		49
Balance at March 31, 2022	$	832	$	972,552	$	839,807	$	(67,946)	$	(109,581)	$	(14,533)	$	(3,844)	$	3,844	$	1,621,131

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

For the three months ended March 31, 2023 (Unaudited)

(Dollars in Thousands)

For the three months ended March 31, 2023	COMMON STOCK		ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		TREASURY STOCK		UNALLOCATED ESOP SHARES		COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS		DEFERRED COMPENSATION PLANS		TOTAL STOCKHOLDERS’ EQUITY
Balance at December 31, 2022	$	832	$	981,138	$	918,158	$	(165,045)	$	(127,154)	$	(10,226)	$	(3,427)	$	3,427	$	1,597,703
Net income	—		—		40,536		—		—		—		—		—		40,536
Other comprehensive loss, net of tax	—		—		—		16,899		—		—		—		—		16,899
Cash dividends paid	—		—		(18,594)		—		—		—		—		—		(18,594)
Cumulative effect of adopting Accounting Standards Update ("ASU") No. 2022-02, net of tax	—		—		433		—		—		—		—		—		433
Distributions from DDFP	—		47		—		—		—		—		138		(138)		47
Purchase of employee restricted shares to fund statutory tax withholding	—		—		—		—		(1,667)		—		—		—		(1,667)
Stock option exercises	—		(217)		—		—		1,007		—		—		—		790
Allocation of ESOP shares	—		244		—		—		—		812		—		—		1,056
Allocation of SAP shares	—		2,833		—		—		—		—		—		—		2,833
Allocation of stock options	—		44		—		—		—		—		—		—		44
Balance at March 31, 2023	$	832	$	984,089	$	940,533	$	(148,146)	$	(127,814)	$	(9,414)	$	(3,289)	$	3,289	$	1,640,080

See accompanying notes to unaudited consolidated financial statements.

6

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

Three months ended March 31, 2023 and 2022 (Unaudited)

(Dollars in Thousands)

 

	Three months ended March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	40,536	$	43,962
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangibles	3,044		3,247
Provision charge (benefit) for credit losses on loans and securities	6,001		(6,405)
Provision charge (benefit) for credit losses on off-balance sheet credit exposures	739		(2,390)
Deferred tax expense	357		10,625
Amortization of operating lease right-of-use assets	2,628		2,807
Income on Bank-owned life insurance	(1,484)		(1,179)
Net amortization of premiums and discounts on securities	1,824		3,844
Accretion of net deferred loan fees	(2,739)		(2,438)
Amortization of premiums on purchased loans, net	48		71
Originations of loans held for sale	(6,776)		—
Proceeds from sales of loans originated for sale	9,377		—
ESOP expense	1,056		1,143
Allocation of stock award shares	2,833		2,311
Allocation of stock options	44		49
Net gain on sale of loans	(778)		—
Net loss (gain) on securities transactions	5		(16)
Net gain on sale of premises and equipment	(62)		(8)
Net gain on sale of foreclosed assets	(2,280)		—
(Increase) decrease in accrued interest receivable	(137)		957
Decrease (increase) in other assets	40,019		(6,718)
(Decrease) increase in other liabilities	(36,189)		1,073
Net cash provided by operating activities	58,066		50,935
Cash flows from investing activities:
Net decrease (increase) in loans	14,278		(71,108)
Purchases of loans	(1,026)		(2,610)
Proceeds from sales of foreclosed assets	2,946		200
Proceeds from maturities, calls and paydowns of held to maturity debt securities	12,164		16,694
Purchases of investment securities held to maturity	(6,006)		(2,941)
Proceeds from maturities and paydowns of available for sale debt securities	43,081		84,128
Purchases of securities available for sale	(34,802)		(218,082)
Proceeds from redemption of Federal Home Loan Bank stock	70,285		10,317
Purchases of Federal Home Loan Bank stock	(82,252)		—
BOLI claim benefits received	1,397		—
Proceeds from sales of premises and equipment	62		8
Purchases of premises and equipment	(613)		(8,843)
Net cash provided by (used in) investing activities	19,514		(192,237)
Cash flows from financing activities:
Net (decrease) increase in deposits	(265,667)		132,075
Increase in mortgage escrow deposits	7,455		5,744
Cash dividends paid to stockholders	(18,594)		(18,688)
Purchase of treasury stock	$	—	$	(29,025)

7

	Three months ended March 31,
	2023		2022
Purchase of employee restricted shares to fund statutory tax withholding	(1,667)		(953)
Stock options exercised	790		—
Proceeds from long-term borrowings	482,445		—
Payments on long-term borrowings	(13,500)		(229,111)
Net (decrease) increase in short-term borrowings	(221,497)		1,943
Net cash used in financing activities	(30,235)		(138,015)
Net increase (decrease) in cash and cash equivalents	47,345		(279,317)
Cash and cash equivalents at beginning of period	186,438		685,163
Restricted cash at beginning of period	70		27,300
Total cash, cash equivalents and restricted cash at beginning of period	186,508		712,463
Cash and cash equivalents at end of period	233,783		428,326
Restricted cash at end of period	70		4,820
Total cash, cash equivalents and restricted cash at end of period	$	233,853	$	433,146
Cash paid during the period for:
Interest on deposits and borrowings	$	33,809	$	7,084
Income taxes	$	960	$	560
Non-cash investing activities:
Transfer of loans receivable to foreclosed assets	$	12,285	$	47

See accompanying notes to unaudited consolidated financial statements.

8

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

A. Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements include the accounts of Provident Financial Services, Inc. and its wholly owned subsidiary, Provident Bank (the “Bank,” together with Provident Financial Services, Inc., the “Company”).

In preparing the interim unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and the consolidated statements of income for the periods presented. Actual results could differ from these estimates. The allowance for credit losses and the valuation of deferred tax assets are estimates that are particularly susceptible to change.

The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations that may be expected for all of 2023.

Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

These unaudited consolidated financial statements should be read in conjunction with the December 31, 2022 Annual Report to Stockholders on Form 10-K.

B. Earnings Per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations for the three months ended March 31, 2023 and 2022 (dollars in thousands, except per share amounts):

	Three months ended March 31,
	2023					2022
	Net Income		Weighted Average Common Shares Outstanding	Per Share Amount		Net Income		Weighted Average Common Shares Outstanding	Per Share Amount
Net income	$	40,536				$	43,962
Basic earnings per share:
Income available to common stockholders	$	40,536	74,645,336	$	0.54	$	43,962	75,817,971	$	0.58
Dilutive shares			57,191					96,108
Diluted earnings per share:
Income available to common stockholders	$	40,536	74,702,527	$	0.54	$	43,962	75,914,079	$	0.58

Anti-dilutive stock options and awards at March 31, 2023 and 2022, totaling 984,877 shares and 971,452 shares, respectively, were excluded from the earnings per share calculations.

C. Loans Receivable and Allowance for Credit Losses

The impact of utilizing the current expected credit loss ("CECL") methodology approach to calculate the allowance for credit losses on loans is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings. For the three months ended March 31, 2023, a worsening economic forecast and related deterioration in the projected commercial property price index over the expected life of the loan portfolio led to increases to the provisions for credit losses and off-balance sheet credit exposures. See Note 3 to the Consolidated Financial Statements for more information on the allowance for credit losses on loans.

9

D. Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired through purchase acquisitions. In accordance with GAAP, goodwill with an indefinite useful life is not amortized, but is evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates. Goodwill is analyzed for impairment once a year. As permitted by GAAP, the Company prepares a qualitative assessment in determining whether goodwill may be impaired. The factors considered in the assessment include macroeconomic conditions, industry and market conditions and overall financial performance of the Company, among others. The Company completed its most recent annual goodwill impairment test as of July 1, 2022. At March 31, 2023, the Company performed an interim goodwill impairment analysis and concluded that no triggering considerations were met and therefore a test for impairment between annual tests was not required.

Note 2. Investment Securities

At March 31, 2023, the Company had $1.82 billion and $381.5 million in available for sale debt securities and held to maturity debt securities, respectively. Many factors, including lack of liquidity in the secondary market for certain securities, variations in pricing information, regulatory actions, changes in the business environment or any changes in the competitive marketplace could have an adverse effect on the Company’s investment portfolio. The total number of available for sale and held to maturity debt securities in an unrealized loss position at March 31, 2023 totaled 755, compared with 914 at December 31, 2022. The decline in the number of securities in an unrealized loss position at March 31, 2023 was due to lower current market treasury rates compared to rates at December 31, 2022.

Management classifies the held to maturity debt securities portfolio into the following security types:

•Agency obligations;

•Mortgage-backed securities;

•State and municipal obligations; and

•Corporate obligations.

All of the agency obligations held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The majority of the state and municipal, and corporate obligations carry no lower than A ratings from the rating agencies at March 31, 2023 and the Company had one security rated BBB by Moody’s Investors Service.

Available for Sale Debt Securities

The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for available for sale debt securities at March 31, 2023 and December 31, 2022 (in thousands):

	March 31, 2023
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
U.S. Treasury obligations	$	275,859	$	—	$	(25,012)	$	250,847
Agency obligations	34,795		6		—		34,801
Mortgage-backed securities	1,594,435		240		(188,279)		1,406,396
Asset-backed securities	35,619		303		(249)		35,673
State and municipal obligations	67,454		1		(8,813)		58,642
Corporate obligations	40,518		—		(5,314)		35,204
	$	2,048,680	$	550	$	(227,667)	$	1,821,563

10

	December 31, 2022
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
U.S. Treasury obligations	$	275,620	$	—	$	(29,804)	$	245,816
Mortgage-backed securities	1,636,913		209		(209,983)		1,427,139
Asset-backed securities	37,706		278		(363)		37,621
State and municipal obligations	67,706		—		(10,842)		56,864
Corporate obligations	40,540		50		(4,482)		36,108
	$	2,058,485	$	537	$	(255,474)	$	1,803,548

The amortized cost and fair value of available for sale debt securities at March 31, 2023, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.

	March 31, 2023
	Amortized cost		Fair value
Due in one year or less	$	—	$	—
Due after one year through five years	195,154		179,097
Due after five years through ten years	127,765		113,531
Due after ten years	60,912		52,065
	$	383,831	$	344,693

Investments which pay principal on a periodic basis totaling $1.66 billion at amortized cost and $1.48 billion at fair value are excluded from the table above, as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.

For the three months ended March 31, 2023, no securities were sold or called from the available for sale debt securities portfolio. For the three months ended March 31, 2022, no securities were sold or called from the available for sale debt securities portfolio.

The number of available for sale debt securities in an unrealized loss position at March 31, 2023 totaled 458, compared with 475 at December 31, 2022. The decline in the number of securities in an unrealized loss position at March 31, 2023 was due to lower current market treasury rates compared to rates at December 31, 2022. All securities in an unrealized loss position were investment grade at March 31, 2023.

Held to Maturity Debt Securities

The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for held to maturity debt securities at March 31, 2023 and December 31, 2022 (in thousands):

	March 31, 2023
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Agency obligations	$	11,036	$	1	$	(825)	$	10,212
State and municipal obligations	359,689		813		(9,481)		351,021
Corporate obligations	10,764		—		(600)		10,164
	$	381,489	$	814	$	(10,906)	$	371,397

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	December 31, 2022
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Agency obligations	$	9,997	$	—	$	(1,033)	$	8,964
State and municipal obligations	366,164		268		(13,015)		353,417
Corporate obligations	11,789		1		(703)		11,087
	$	387,950	$	269	$	(14,751)	$	373,468

The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair value may fluctuate during the investment period. There were no sales of securities from the held to maturity debt securities portfolio for each of the three months ended March 31, 2023 and 2022. For the three months ended March 31, 2023, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $3.1 million with no gross gains and gross losses of $5,000. For the three months ended March 31, 2022, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $15.8 million with gross gains of $16,000 and no gross losses.

The amortized cost and fair value of investment securities in the held to maturity debt securities portfolio at March 31, 2023 by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.

	March 31, 2023
	Amortized cost		Fair value
Due in one year or less	$	24,817	$	24,742
Due after one year through five years	163,230		161,334
Due after five years through ten years	159,389		156,165
Due after ten years	34,053		29,156
	$	381,489	$	371,397

The allowance for credit losses on held to maturity debt securities at March 31, 2023 and December 31, 2022 was $28,000 and $27,000, respectively, and are excluded from amortized cost in the tables above.

The number of held to maturity debt securities in an unrealized loss position at March 31, 2023 totaled 297, compared with 439 at December 31, 2022. The decline in the number of securities in an unrealized loss position at March 31, 2023, was due to lower current market treasury rates compared to rates at December 31, 2022.

Credit Quality Indicators. The following table provides the amortized cost of held to maturity debt securities by credit rating as of March 31, 2023 (in thousands):

	March 31, 2023
Total Portfolio	AAA		AA		A		BBB		Not Rated		Total
Agency obligations	$	11,036	$	—	$	—	$	—	$	—	$	11,036
State and municipal obligations	47,611		168,826		141,159		770		1,323		359,689
Corporate obligations	506		2,083		5,910		—		2,265		10,764
	$	59,153	$	170,909	$	147,069	$	770	$	3,588	$	381,489
	December 31, 2022
Total Portfolio	AAA		AA		A		BBB		Not Rated		Total
Agency obligations	$	9,997	$	—	$	—	$	—	$	—	$	9,997
State and municipal obligations	48,453		171,934		143,829		770		1,178		366,164
Corporate obligations	507		3,592		7,415		—		275		11,789
	$	58,957	$	175,526	$	151,244	$	770	$	1,453	$	387,950

Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. At March 31, 2023, the held to maturity debt securities portfolio was comprised of 16% rated AAA, 45% rated AA, 39% rated A, and less than 1% either

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below an A rating or not rated by Moody’s Investors Service or Standard and Poor’s. Securities not explicitly rated, such as U.S. Government mortgage-backed securities, were grouped where possible under the credit rating of the issuer of the security.

Note 3. Loans Receivable and Allowance for Credit Losses

Loans receivable at March 31, 2023 and December 31, 2022 are summarized as follows (in thousands):

	March 31, 2023		December 31, 2022
Mortgage loans:
Commercial	$	4,292,853	$	4,316,185
Multi-family	1,580,297		1,513,818
Construction	658,902		715,494
Residential	1,174,035		1,177,698
Total mortgage loans	7,706,087		7,723,195
Commercial loans	2,228,207		2,233,670
Consumer loans	301,672		304,780
Total gross loans	10,235,966		10,261,645
Premiums on purchased loans	1,364		1,380
Net deferred fees and unearned discounts	(13,116)		(14,142)
Total loans	$	10,224,214	$	10,248,883

The following tables summarize the aging of loans receivable by portfolio segment and class of loans (in thousands):

	March 31, 2023
	30-59 Days		60-89 Days		Non-accrual		Recorded Investment > 90 days accruing		Total Past Due		Current		Total Loans Receivable		Non-accrual loans with no specific allowance
Mortgage loans:
Commercial	$	3,000	$	1,528	$	6,815	$	—	$	11,343	$	4,281,510	$	4,292,853	$	3,812
Multi-family	3,875		785		1,548		—		6,208		1,574,089		1,580,297		1,548
Construction	—		—		1,874		—		1,874		657,028		658,902		1,874
Residential	2,064		639		1,744		—		4,447		1,169,588		1,174,035		1,744
Total mortgage loans	8,939		2,952		11,981		—		23,872		7,682,215		7,706,087		8,978
Commercial loans	1,070		3,028		23,129		—		27,227		2,200,980		2,228,207		20,270
Consumer loans	2,106		150		346		—		2,602		299,070		301,672		346
Total gross loans	$	12,115	$	6,130	$	35,456	$	—	$	53,701	$	10,182,265	$	10,235,966	$	29,594

	December 31, 2022
	30-59 Days		60-89 Days		Non-accrual		Recorded Investment > 90 days accruing		Total Past Due		Current		Total Loans Receivable		Non-accrual loans with no specific allowance
Mortgage loans:
Commercial	$	2,300	$	412	$	28,212	$	—	$	30,924	$	4,285,261	$	4,316,185	$	22,961
Multi-family	790		—		1,565		—		2,355		1,511,463		1,513,818		1,565
Construction	905		1,097		1,878		—		3,880		711,614		715,494		1,878
Residential	1,411		1,114		1,928		—		4,453		1,173,245		1,177,698		1,928
Total mortgage loans	5,406		2,623		33,583		—		41,612		7,681,583		7,723,195		28,332
Commercial loans	964		1,014		24,188		—		26,166		2,207,504		2,233,670		21,156
Consumer loans	885		147		738		—		1,770		303,010		304,780		739
Total gross loans	$	7,255	$	3,784	$	58,509	$	—	$	69,548	$	10,192,097	$	10,261,645	$	50,227

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Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The principal amounts of these non-accrual loans were $35.5 million and $58.5 million at March 31, 2023 and December 31, 2022, respectively. Included in non-accrual loans were $11.9 million and $42.9 million of loans which were less than 90 days past due at March 31, 2023 and December 31, 2022, respectively. There were no loans 90 days or greater past due and still accruing interest at March 31, 2023 and December 31, 2022. Generally, accrued interest is written off by reversing interest income during the quarter the loan is moved from an accrual to a non-accrual status.

The activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2023 and 2022 was as follows (in thousands):

Three months ended March 31,	Mortgage loans		Commercial loans		Consumer loans		Total
2023
Balance at beginning of period	$	58,218	$	27,413	$	2,392	$	88,023
Cumulative effect of adopting Accounting Standards Update ("ASU") No. 2022-02	(510)		(43)		(41)		(594)
Provision charge (benefit) to operations	6,212		(308)		96		6,000
Recoveries of loans previously charged-off	3		168		85		256
Loans charged-off	(728)		(113)		(86)		(927)
Balance at end of period	$	63,195	$	27,117	$	2,446	$	92,758
2022
Balance at beginning of period	$	52,104	$	26,343	$	2,293	$	80,740
Provision benefit to operations	(1,995)		(4,404)		(1)		(6,400)
Recoveries of loans previously charged-off	10		1,860		166		2,036
Loans charged-off	(23)		—		(78)		(101)
Balance at end of period	$	50,096	$	23,799	$	2,380	$	76,275

For the three months ended March 31, 2023, the Company recorded a $6.0 million provision for credit losses on loans, compared to a $6.4 million benefit for credit losses for the same period in 2022. The increase in provision was attributable to a worsening economic forecast and related deterioration in the projected commercial property price index over the expected life of the loan portfolio.

The following table summarizes the Company's gross charge-offs recorded during the three months ended March 31, 2023 by year of origination (in thousands):

	2023		2022		2021		2020		2019		Prior to 2019		Total Loans
Mortgage loans:
Commercial	$	—	$	—	$	—	$	—	$	—	$	707	$	707
Residential	—		—		—		—		—		21		21
Total mortgage loans	—		—		—		—		—		728		728
Commercial loans	—		—		—		—		—		113		113
Consumer loans (1)	5		—		—		—		—		10		15
Total gross loans	$	5	$	—	$	—	$	—	$	—	$	850	$	855

(1) During the three months ended March 31, 2023, charge-offs on consumer overdraft accounts totaled $72,000, which is not included in the table above.

The Company defines an impaired loan as a non-homogeneous loan greater than $1.0 million, for which, based on current information, it is not expected to collect all amounts due under the contractual terms of the loan agreement. At March 31, 2023, there were 15 impaired loans totaling $27.5 million, compared to 10 impaired loans totaling $42.8 million at December 31, 2022.

A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans deemed collateral-dependent, the

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Company estimates expected credit losses based on the collateral’s fair value less any selling costs. A specific allocation of the allowance for credit losses is established for each collateral-dependent loan with a carrying balance greater than the collateral’s fair value, less estimated selling costs. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less estimated selling costs. The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral-dependent loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral-dependent loan and updated annually, or more frequently if required. At each fiscal quarter end, if a loan is designated as collateral-dependent and the third-party appraisal has not yet been received, an evaluation of all available collateral is made using the best information available at the time, including rent rolls, borrower financial statements and tax returns, prior appraisals, management’s knowledge of the market and collateral, and internally prepared collateral valuations based upon market assumptions regarding vacancy and capitalization rates, each as and where applicable. Once the appraisal is received and reviewed, the specific reserves are adjusted to reflect the appraised value and evaluated for charge offs. The Company believes there have been no significant time lapses resulting from this process.

At March 31, 2023 and December 31, 2022, the fair value of the assets securing collateral-dependent impaired loans totaled $5.2 million and $24.0 million, respectively. These collateral-dependent impaired loans at March 31, 2023 consisted of $5.2 million in commercial loans.

Loan modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearance, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. In addition, management attempts to obtain additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.

The following illustrates the most common loan modifications by loan classes offered by the Company that are required to be disclosed pursuant to the requirements of ASU 2022-02:

Loan Classes	Modification types
Commercial	Term extension, interest rate reductions, payment delay, or combination thereof. These modifications extend the term of the loan, lower the payment amount, or otherwise delay payments during a defined period for the purpose of providing borrowers additional time to return to compliance with the original loan term.
Residential Mortgage/ Home Equity	Forbearance period greater than six months. These modifications require reduced or no payments during the forbearance period for the purpose of providing borrowers additional time to return to compliance with the original loan term. As well as, term extension and rate adjustment. These modifications extend the term of the loan and provides for an adjustment to the interest rate, which reduces the monthly payment requirement.
Automobile/ Direct Installment	Term extension greater than three months. These modifications extend the term of the loan, which reduces the monthly payment requirement.

Effective January 1, 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a modified retrospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for loan modifications to borrowers experiencing financial difficulty. Instead, these loan modifications are included in their respective pool and a historical loss rate is applied to the current loan balance to arrive at the quantitative and qualitative baseline portion of the allowance for credit losses. As a result, The Company recorded a $594,000 reduction to the allowance for credit losses, which resulted in a $433,000 cumulative effect adjustment increase, net of tax to retained earnings.

The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2023 (in thousands):

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	As of March 31, 2023
	Term Extension		Interest Rate Reduction		Interest Rate Reduction and Term Extension		% of Total Class of Loans and Leases
Commercial loans	$	3,771	$	—	$	1,250	0.23	%
Total gross loans	$	3,771	$	—	$	1,250	0.05	%

The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2023 (in thousands):

	As of March 31, 2023
	Weighted-Average Months of Term Extension	Weight-Average Rate Change
Commercial loans	10	0.28	%
Total gross loans	10	0.28	%

There were no loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2023, that subsequently defaulted.

The following table presents the aging analysis of loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2023 (in thousands):

	As of March 31, 2023
	Current		30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due		Non- Accrual		Total
Commercial loans	$	5,021	$	—	$	—	$	—	$	—	$	5,021
Total gross loans	$	5,021	$	—	$	—	$	—	$	—	$	5,021

Prior to our adoption of ASU 2022-02, we accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. However, our TDR accounting described herein was suspended for most of our loss mitigation activities through our election to account for certain eligible loss mitigation activities occurring between March 2020 and January 1, 2022 under the COVID-19 relief granted pursuant to the CARES Act and the Consolidated Appropriations Act of 2021. Effective January 1, 2023, we adopted ASU 2022-02, which eliminated TDR accounting prospectively for all restructurings occurring on or after January 1, 2023.

There were no loans modified as TDRs during the three months ended March 31, 2022. During the three months ended March 31, 2022, no charge-offs were recorded on collateral-dependent impaired loans. There were no loans which had a payment default (90 days or more past due) for loans modified as TDRs within the 12 month period ending March 31, 2022. For TDRs that subsequently default, the Company determines the amount of the allowance for the respective loans in accordance with the accounting policy for the allowance for credit losses on loans individually evaluated for impairment.

As allowed by CECL, loans acquired by the Company that experience more-than-insignificant deterioration in credit quality after origination, are classified as Purchased Credit Deteriorated ("PCD") loans. At March 31, 2023, the balance of PCD loans totaled $176.8 million with a related allowance for credit losses of $1.6 million. The balance of PCD loans at December 31, 2022 was $193.0 million with a related allowance for credit losses of $1.7 million.

Management utilizes an internal nine-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal risk. Loans that are deemed to be of “questionable quality” are rated 5 (watch) or 6 (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated 7, 8 or 9, respectively. Commercial mortgage, commercial, multi-family and construction loans are rated individually, and each lending officer is responsible for risk rating loans in their portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Department. The risk ratings

16

are also reviewed periodically through loan review examinations which are currently performed by an independent third-party. Reports by the independent third-party are presented to the Audit Committee of the Board of Directors.

The Company participated in the Paycheck Protection Program (“PPP”) through the United States Department of the Treasury and Small Business Administration. PPP loans were fully guaranteed by the SBA and were eligible for forgiveness by the SBA to the extent that the proceeds were used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan was made as long as certain conditions were met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA are to be repaid by the SBA to the Company. Eligibility ended for this program in May of 2021. PPP loans are included in our commercial loan portfolio. Under the PPP, the Company secured 2,067 PPP loans for its customers totaling $682.0 million. As of March 31, 2023, 2,054 PPP loans totaling $679.3 million were forgiven and repaid by the SBA. The balance of PPP loans at March 31, 2023 was $2.7 million.

The following table summarizes the Company's gross loans held for investment by year of origination and internally assigned credit grades as of March 31, 2023 and December 31, 2022 (in thousands):

	Gross Loans Held for Investment by Year of Origination at March 31, 2023
	2023		2022		2021		2020		2019		Prior to 2019		Revolving Loans		Revolving loans to term loans		Total Loans
Commercial Mortgage
Special mention	$	—	$	—	$	—	$	—	$	2,362	$	62,927	$	—	$	—	$	65,289
Substandard	—		—		—		3,368		—		9,284		434		—		13,086
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		—		—		3,368		2,362		72,211		434		—		78,375
Pass/Watch	93,927		947,705		685,431		517,967		529,292		1,330,651		94,820		14,685		4,214,478
Total commercial mortgage	93,927		947,705		685,431		521,335		531,654		1,402,862		95,254		14,685		4,292,853
Multi-family
Special mention	—		—		—		—		—		9,675		—		—		9,675
Substandard	—		—		—		—		—		3,235		—		—		3,235
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		—		—		—		—		12,910		—		—		12,910
Pass/Watch	52,704		171,433		191,861		280,615		233,866		634,852		917		1,139		1,567,387
Total multi-family	52,704		171,433		191,861		280,615		233,866		647,762		917		1,139		1,580,297
Construction
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		1,097		777		—		—		1,874
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		—		—		—		1,097		777		—		—		1,874
Pass/Watch	537		219,556		278,128		110,832		32,349		13,616				2,010		657,028
Total construction	537		219,556		278,128		110,832		33,446		14,393		—		2,010		658,902
Residential (1)
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		639		—		—		639

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	Gross Loans Held for Investment by Year of Origination at March 31, 2023
	2023		2022		2021		2020		2019		Prior to 2019		Revolving Loans		Revolving loans to term loans		Total Loans
Doubtful	—		—		—		—		—		3,481		—		—		3,481
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		—		—		—		—		4,120		—		—		4,120
Pass/Watch	20,826		149,479		209,468		208,443		94,377		487,322		—		—		1,169,915
Total residential	20,826		149,479		209,468		208,443		94,377		491,442		—		—		1,174,035
Total Mortgage
Special mention	—		—		—		—		2,362		72,602		—		—		74,964
Substandard	—		—		—		3,368		1,097		13,935		434		—		18,834
Doubtful	—		—		—		—		—		3,481		—		—		3,481
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		—		—		3,368		3,459		90,018		434		—		97,279
Pass/Watch	167,994		1,488,173		1,364,888		1,117,857		889,884		2,466,441		95,737		17,834		7,608,808
Total Mortgage	$	167,994	$	1,488,173	$	1,364,888	$	1,121,225	$	893,343	$	2,556,459	$	96,171	$	17,834	$	7,706,087
Commercial
Special mention	—		73		839		449		187		14,616		14,587		129		30,880
Substandard	—		—		15,318		10,734		3,994		14,440		13,356		364		58,206
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		73		16,157		11,183		4,181		29,056		27,943		493		89,086
Pass/Watch	75,026		371,929		310,565		158,684		156,110		568,436		470,309		28,062		2,139,121
Total commercial	75,026		372,002		326,722		169,867		160,291		597,492		498,252		28,555		2,228,207
Consumer (1)
Special mention	—		—		—		—		—		—		150		—		150
Substandard	—		—		—		—		—		260		6		3		269
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		—		—		—		—		260		156		3		419
Pass/Watch	8,096		29,746		20,155		2,955		16,029		98,746		112,826		12,700		301,253
Total consumer	8,096		29,746		20,155		2,955		16,029		99,006		112,982		12,703		301,672
Total Loans
Special mention	—		73		839		449		2,549		87,218		14,737		129		105,994
Substandard	—		—		15,318		14,102		5,091		28,635		13,796		367		77,309
Doubtful	—		—		—		—		—		3,481		—		—		3,481
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		73		16,157		14,551		7,640		119,334		28,533		496		186,784

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	Gross Loans Held for Investment by Year of Origination at March 31, 2023
	2023		2022		2021		2020		2019		Prior to 2019		Revolving Loans		Revolving loans to term loans		Total Loans
Pass/Watch	251,116		1,889,848		1,695,608		1,279,496		1,062,023		3,133,623		678,872		58,596		10,049,182
Total gross loans	$	251,116	$	1,889,921	$	1,711,765	$	1,294,047	$	1,069,663	$	3,252,957	$	707,405	$	59,092	$	10,235,966

(1) For residential and consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan.

	Gross Loans Held for Investment by Year of Origination at December 31, 2022
	2022		2021		2020		2019		2018		Prior to 2018		Revolving Loans		Revolving loans to term loans		Total Loans
Commercial Mortgage
Special mention	$	—	$	—	$	3,071	$	26,809	$	52,509	$	14,740	$	—	$	—	$	97,129
Substandard	—		—		—		—		18,020		11,774		434		—		30,228
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		—		3,071		26,809		70,529		26,514		434		—		127,357
Pass/Watch	951,367		630,584		567,448		546,474		218,620		1,164,854		94,716		14,765		4,188,828
Total commercial mortgage	951,367		630,584		570,519		573,283		289,149		1,191,368		95,150		14,765		4,316,185
Multi-family
Special mention	—		—		—		—		—		9,730		—		—		9,730
Substandard	—		—		—		—		—		2,356		—		—		2,356
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		—		—		—		—		12,086		—		—		12,086
Pass/Watch	142,550		150,293		282,228		234,953		187,499		502,177		887		1,145		1,501,732
Total multi-family	142,550		150,293		282,228		234,953		187,499		514,263		887		1,145		1,513,818
Construction
Special mention	—		—		—		—		19,728		905		—		—		20,633
Substandard	—		—		—		2,197		777		—		—		—		2,974
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		—		—		2,197		20,505		905		—		—		23,607
Pass/Watch	168,674		362,542		103,067		38,639		16,917		62				1,986		691,887
Total construction	168,674		362,542		103,067		40,836		37,422		967		—		1,986		715,494
Residential (1)
Special mention	—		—		—		—		—		1,114		—		—		1,114
Substandard	—		—		—		—		264		4,417		—		—		4,681
Doubtful	—		—		—		—		—		—		—		—		—

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	Gross Loans Held for Investment by Year of Origination at December 31, 2022
	2022		2021		2020		2019		2018		Prior to 2018		Revolving Loans		Revolving loans to term loans		Total Loans
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		—		—		—		264		5,531		—		—		5,795
Pass/Watch	151,077		212,697		211,445		95,872		58,226		442,586		—		—		1,171,903
Total residential	151,077		212,697		211,445		95,872		58,490		448,117		—		—		1,177,698
Total Mortgage
Special mention	$	—	—		3,071		26,809		72,237		26,489		—		—		128,606
Substandard	—		—		—		2,197		19,061		18,547		434		—		40,239
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		—		3,071		29,006		91,298		45,036		434		—		168,845
Pass/Watch	1,413,668		1,356,116		1,164,188		915,938		481,262		2,109,679		95,603		17,896		7,554,350
Total Mortgage	$	1,413,668	$	1,356,116	$	1,167,259	$	944,944	$	572,560	$	2,154,715	$	96,037	$	17,896	$	7,723,195
Commercial
Special mention	75		1,148		444		201		10,156		4,379		14,530		140		31,073
Substandard	—		7,605		10,230		4,391		3,561		13,734		7,604		364		47,489
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	75		8,753		10,674		4,592		13,717		18,113		22,134		504		78,562
Pass/Watch	377,662		320,334		162,175		161,150		87,396		522,798		492,717		30,876		2,155,108
Total commercial	377,737		329,087		172,849		165,742		101,113		540,911		514,851		31,380		2,233,670
Consumer (1)
Special mention	—		—		—		—		—		146		—		—		146
Substandard	—				8		—		109		332		209		—		658
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	—		—		8		—		109		478		209		—		804
Pass/Watch	30,132		20,671		2,909		16,682		16,156		88,173		115,777		13,476		303,976
Total consumer	30,132		20,671		2,917		16,682		16,265		88,651		115,986		13,476		304,780
Total Loans
Special mention	75		1,148		3,515		27,010		82,393		31,014		14,530		140		159,825
Substandard	—		7,605		10,238		6,588		22,731		32,613		8,247		364		88,386
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total criticized and classified	75		8,753		13,753		33,598		105,124		63,627		22,777		504		248,211
Pass/Watch	1,821,462		1,697,121		1,329,272		1,093,770		584,814		2,720,650		704,097		62,248		10,013,434

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	Gross Loans Held for Investment by Year of Origination at December 31, 2022
	2022		2021		2020		2019		2018		Prior to 2018		Revolving Loans		Revolving loans to term loans		Total Loans
Total gross loans	$	1,821,537	$	1,705,874	$	1,343,025	$	1,127,368	$	689,938	$	2,784,277	$	726,874	$	62,752	$	10,261,645

(1) For residential and consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan.

Note 4. Deposits

Deposits at March 31, 2023 and December 31, 2022 are summarized as follows (in thousands):

	March 31, 2023		December 31, 2022
Savings	$	1,351,184	$	1,438,583
Money market	2,284,653		2,542,160
NOW	3,232,175		3,186,926
Non-interest bearing	2,490,716		2,643,919
Certificates of deposit	938,629		751,436
Total deposits	$	10,297,357	$	10,563,024

Note 5. Borrowed Funds

Borrowed funds at March 31, 2023 and December 31, 2022 are summarized as follows (in thousands):

	March 31, 2023		December 31, 2022
Securities sold under repurchase agreements	$	92,538	$	98,000
FHLB line of credit	—		486,000
FHLB advances	1,492,280		753,370
Total borrowed funds	$	1,584,818	$	1,337,370

At March 31, 2023, FHLB advances were at fixed rates and mature between April 2023 and September 2026, and at December 31, 2022, FHLB advances were at fixed rates with maturities between January 2023 and July 2025. These advances are secured by loans receivable under a blanket collateral agreement.

Scheduled maturities of FHLB advances at March 31, 2023 are as follows (in thousands):

	2023
Due in one year or less	$	624,968
Due after one year through two years	610,207
Due after two years through three years	249,660
Due after three years through four years	7,445
Thereafter	—
Total FHLB advances	$	1,492,280

Scheduled maturities of securities sold under repurchase agreements at March 31, 2023 are as follows (in thousands):

	2023
Due in one year or less	$	92,538
Thereafter	—
Total securities sold under repurchase agreements	$	92,538

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The following tables set forth certain information as to borrowed funds for the periods ended March 31, 2023 and December 31, 2022 (in thousands):

	Maximum balance		Average balance	Weighted average interest rate
March 31, 2023
Securities sold under repurchase agreements	$	99,669	98,313	1.32	%
FHLB line of credit	402,000		300,755	3.47
FHLB advances	1,492,280		825,211	3.29
December 31, 2022
Securities sold under repurchase agreements	$	125,506	113,550	0.38	%
FHLB line of credit	486,000		139,012	3.32
FHLB advances	753,370		503,713	0.85

Securities sold under repurchase agreements include arrangements with deposit customers of the Bank to sweep funds into short-term borrowings. The Bank uses available for sale debt securities to pledge as collateral for the repurchase agreements.

At March 31, 2023 and December 31, 2022, available for sale debt securities pledged as collateral for repurchase agreements totaled $104.2 million and $116.5 million, respectively.

Interest expense on borrowings for the three months ended March 31, 2023 and 2022 was $7.5 million and $1.2 million, respectively.

Note 6. Components of Net Periodic Benefit Cost

The Bank has a noncontributory defined benefit pension plan covering its full-time employees who had attained age 21 with at least one year of service as of April 1, 2003. The pension plan was frozen on April 1, 2003. All participants in the Plan are 100% vested. The pension plan’s assets are invested in investment funds and group annuity contracts currently managed by the Principal Financial Group and Allmerica Financial.

In addition to pension benefits, certain health care and life insurance benefits are currently made available to certain of the Bank’s retired employees. The costs of such benefits are accrued based on actuarial assumptions from the date of hire to the date the employee is fully eligible to receive the benefits. Effective January 1, 2003, eligibility for retiree health care benefits was frozen as to new entrants, and benefits were eliminated for employees with less than ten years of service as of December 31, 2002. Effective January 1, 2007, eligibility for retiree life insurance benefits was frozen as to new entrants and retiree life insurance benefits were eliminated for employees with less than ten years of service as of December 31, 2006.

Net periodic (benefit) increase cost for pension benefits and other post-retirement benefits for the three months ended March 31, 2023 and 2022, includes the following components (in thousands):

	Three months ended March 31,
	Pension benefits				Other post-retirement benefits
	2023		2022		2023		2022
Service cost	$	—	$	—	$	3	$	7
Interest cost	302		214		150		111
Expected return on plan assets	(706)		(864)		—		—
Amortization of the net loss (gain)	177		—		(533)		(326)
Net periodic (benefit) cost	$	(227)	$	(650)	$	(380)	$	(208)

In its consolidated financial statements for the year ended December 31, 2022, the Company previously disclosed that it does not expect to contribute to the pension plan in 2023. As of March 31, 2023, no contributions have been made to the pension plan.

The changes in net periodic benefit cost for pension benefits and other post-retirement benefits for the three months ended March 31, 2023 were calculated using the January 1, 2023 pension and other post-retirement benefits actuarial valuations.

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Note 7. Impact of Recent Accounting Pronouncements

Accounting Pronouncements Adopted this year

In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, "Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures," which addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancing and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. For entities that have adopted ASU 2016-13, ASU 2022-02 was effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption was permitted if an entity has adopted ASU 2016-13. The Company adopted this ASU on January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be recorded with previously applicable GAAP. The Company recorded a $594,000 reduction to the allowance for credit losses, which resulted in a $433,000 cumulative effect adjustment increase, net of tax to retained earnings.

In March 2022, the FASB issued Accounting Standards Update (ASU) 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method. The purpose of this updated guidance is to further align risk management objectives with hedge accounting results on the application of the last-of-layer method, which was first introduced in ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022, with early adoption in the interim period, permitted. The Company adopted this standard on January 3, 2023 on a prospective basis; with no impact to the consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)," which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or re-measurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company anticipates this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than the extinguishment of the old contract resulting in writing off unamortized fees/costs. In addition, in January 2021 the FASB issued ASU No. 2021-01 “Reference Rate Reform — Scope,” which clarified the scope of ASC 848 relating to contract modifications. In the fourth quarter of 2019 the Company formed, a cross-functional team to develop transition plans for the LIBOR cessation to address potential revisions to documentation, as well as customer management and communication, internal training, financial, operational and risk management implications, and legal and contract management. The working group is comprised of individuals from various functional areas including lending, risk management, finance and credit, among others. In addition, the Company has engaged with its regulators and with industry working groups and trade associations to develop strategies for transitioning away from LIBOR. The Company is currently in the process of transitioning from LIBOR and plans to move to the Secured Overnight Financing Rate ("SOFR") and no longer offers LIBOR as an option to customers. The Company has determined that the LIBOR transition and this guidance will not have a material effect on the Company's business operations and consolidated financial statements.

Note 8. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Management analyzes the Company's exposure to credit losses for both on-balance sheet and off-balance sheet activity using a consistent methodology for the quantitative framework as well as the qualitative framework. For purposes of estimating the allowance for credit losses for off-balance sheet credit exposures, the exposure at default includes an estimated drawdown of

23

unused credit based on historical credit utilization factors and current loss factors, resulting in a proportionate amount of expected credit losses.

For the three months ended March 31, 2023, the Company recorded a $739,000 provision for credit losses for off-balance sheet credit exposures compared to an $2.4 million benefit to the provision for credit losses for off-balance sheet credit exposures for the same period in 2022. The increase in provision was primarily due to the period over period decrease in line of credit utilization and an increase in projected loss factors as a result of a worsened economic forecast.

The allowance for credit losses for off-balance sheet credit exposures was $3.9 million and $3.2 million at March 31, 2023 and December 31, 2022, respectively, and are included in other liabilities on the Consolidated Statements of Financial Condition.

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Note 9. Fair Value Measurements

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. Where quoted market values in an active market are not readily available, Management utilizes various valuation techniques to estimate fair value.

Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. However, in many instances fair value estimates may not be substantiated by comparison to independent markets and may not be realized in an immediate sale of the financial instrument.

GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1:	Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2:	Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3:	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The valuation techniques are based upon the unpaid principal balance only, and exclude any accrued interest or dividends at the measurement date. Interest income and expense and dividend income are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The valuation techniques described below were used to measure fair value of financial instruments in the table below on a recurring basis as of March 31, 2023 and December 31, 2022.

Available for Sale Debt Securities, at Fair Value

For available for sale debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third-party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, management compares the prices received from the pricing service to a secondary pricing source. Additionally, management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in an adjustment in the prices obtained from the pricing service.

Equity Securities, at Fair Value

The Company holds equity securities that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs.

Derivatives

The Company records all derivatives on the statements of financial condition at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company has interest rate derivatives resulting from a service provided to certain qualified borrowers in a loan related

25

transaction which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. As such, all changes in fair value of the Company’s derivatives are recognized directly in earnings.

The Company also uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges, and which satisfy hedge accounting requirements, involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. These derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits. The change in the fair value of these derivatives is recorded in accumulated other comprehensive income (loss), and is subsequently reclassified into earnings in the period that the forecasted transactions affect earnings.

The fair value of the Company's derivatives is determined using discounted cash flow analysis using observable market-based inputs, which are considered Level 2 inputs.

Assets Measured at Fair Value on a Non-Recurring Basis

The valuation techniques described below were used to estimate fair value of financial instruments measured on a non-recurring basis as of March 31, 2023 and December 31, 2022.

Collateral-Dependent Impaired Loans

For loans measured for impairment based on the fair value of the underlying collateral, fair value was estimated using a market approach. The Company measures the fair value of collateral underlying impaired loans primarily through obtaining independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case-by-case basis, to comparable assets based on the appraisers’ market knowledge and experience, as well as adjustments for estimated costs to sell between 5% and 10%. Management classifies these loans as Level 3 within the fair value hierarchy.

Foreclosed Assets

Assets acquired through foreclosure or deed in lieu of foreclosure are carried at the lower of the outstanding loan balance at the time of foreclosure or fair value, less estimated selling costs, which range between 5% and 10%. Fair value is generally based on independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case basis, to comparable assets based on the appraisers’ market knowledge and experience, and are classified as Level 3. When an asset is acquired, the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for credit losses. A reserve for foreclosed assets may be established to provide for possible write-downs and selling costs that occur subsequent to foreclosure. Foreclosed assets are carried net of the related reserve. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned, are recorded as incurred.

There were no changes to the valuation techniques for fair value measurements as of March 31, 2023 and December 31, 2022.

The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair values as of March 31, 2023 and December 31, 2022, by level within the fair value hierarchy (in thousands):

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	Fair Value Measurements at Reporting Date Using:
	March 31, 2023		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Measured on a recurring basis:
Available for sale debt securities:
U.S. Treasury obligations	$	250,847	$	250,847	$	—	$	—
Agency obligations	34,801		34,801		—		—
Mortgage-backed securities	1,406,396		—		1,406,396		—
Asset-backed securities	35,673		—		35,673		—
State and municipal obligations	58,642		—		58,642		—
Corporate obligations	35,204		—		35,204		—
Total available for sale debt securities	1,821,563		285,648		1,535,915		—
Equity securities	1,197		1,197		—		—
Derivative assets	109,990		—		109,990		—
	$	1,932,750	$	286,845	$	1,645,905	$	—
Derivative liabilities	$	87,862			$	87,862
Measured on a non-recurring basis:
Loans measured for impairment based on the fair value of the underlying collateral	$	5,185	$	—	$	—	$	5,185
Foreclosed assets	13,743		—		—		13,743
	$	18,928	$	—	$	—	$	18,928

	Fair Value Measurements at Reporting Date Using:
	December 31, 2022		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Measured on a recurring basis:
Available for sale debt securities:
U.S. Treasury obligations	$	245,816	$	245,816	$	—	$	—
Mortgage-backed securities	1,427,139		—		1,427,139		—
Asset-backed securities	37,621		—		37,621		—
State and municipal obligations	56,864		—		56,864		—
Corporate obligations	36,108		—		36,108		—
Total available for sale debt securities	1,803,548		245,816		1,557,732		—
Equity Securities	1,147		1,147		—		—
Derivative assets	148,151		—		148,151		—
	$	1,952,846	$	246,963	$	1,705,883	$	—
Derivative liabilities	$	120,896	$	—	$	120,896	$	—
Measured on a non-recurring basis:
Loans measured for impairment based on the fair value of the underlying collateral	$	23,988	$	—	$	—	$	23,988
Foreclosed assets	2,124		—		—		2,124
	$	26,112	$	—	$	—	$	26,112

There were no transfers between Level 1, Level 2 and Level 3 during the three months ended March 31, 2023.

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Other Fair Value Disclosures

The Company is required to disclose estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. The following is a description of valuation methodologies used for those assets and liabilities.

Cash and Cash Equivalents

For cash and due from banks, federal funds sold and short-term investments, the carrying amount approximates fair value. Included in cash and cash equivalents at March 31, 2023 and December 31, 2022 was $70,000, respectively, representing cash collateral pledged to secure loan level swaps and reserves required by banking regulations.

Held to Maturity Debt Securities

For held to maturity debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. Management evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, management compares the prices received from the pricing service to a secondary pricing source. Additionally, management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in adjustment in the prices obtained from the pricing service. The Company also holds debt instruments issued by the U.S. government and U.S. government agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 within the fair value hierarchy.

Federal Home Loan Bank of New York ("FHLBNY") Stock

The carrying value of FHLBNY stock is its cost. The fair value of FHLBNY stock is based on redemption at par value. The Company classifies the estimated fair value as Level 1 within the fair value hierarchy.

Loans

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial mortgage, residential mortgage, commercial, construction and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and into performing and non-performing categories. The fair value of performing loans was estimated using a combination of techniques, including a discounted cash flow model that utilizes a discount rate that reflects the Company’s current pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date (i.e. exit pricing). The rates take into account the expected yield curve, as well as an adjustment for prepayment risk, when applicable. The Company classifies the estimated fair value of its loan portfolio as Level 3.

The fair value for significant non-performing loans was based on recent external appraisals of collateral securing such loans, adjusted for the timing of anticipated cash flows. The Company classifies the estimated fair value of its non-performing loan portfolio as Level 3.

Deposits

The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits and savings deposits, was equal to the amount payable on demand and classified as Level 1. The estimated fair value of certificates of deposit was based on the discounted value of contractual cash flows. The discount rate was estimated using the Company’s current rates offered for deposits with similar remaining maturities. The Company classifies the estimated fair value of its certificates of deposit portfolio as Level 2.

Borrowed Funds

The fair value of borrowed funds was estimated by discounting future cash flows using rates available for debt with similar terms and maturities and is classified by the Company as Level 2 within the fair value hierarchy.

Commitments to Extend Credit and Letters of Credit

The fair value of commitments to extend credit and letters of credit was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed

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rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The Company classifies these commitments as Level 3 within the fair value hierarchy.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

Significant assets and liabilities that are not considered financial assets or liabilities include goodwill and other intangibles, deferred tax assets and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The following tables present the Company’s financial instruments at their carrying and fair values as of March 31, 2023 and December 31, 2022. Fair values are presented by level within the fair value hierarchy.

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	Fair Value Measurements at March 31, 2023 Using:
(Dollars in thousands)	Carrying value		Fair value		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	233,853	$	233,853	$	233,853	$	—	$	—
Available for sale debt securities:
U.S. Treasury obligations	250,847		250,847		250,847		—		—
Agency obligations	34,801		34,801		34,801		—		—
Mortgage-backed securities	1,406,396		1,406,396		—		1,406,396		—
Asset-backed securities	35,673		35,673		—		35,673		—
State and municipal obligations	58,642		58,642		—		58,642		—
Corporate obligations	35,204		35,204		—		35,204		—
Total available for sale debt securities	$	1,821,563	$	1,821,563	$	285,648	$	1,535,915	$	—
Held to maturity debt securities, net of allowance for credit losses:
Agency obligations	$	11,036	$	10,212	$	10,212	$	—	$	—
Mortgage-backed securities	—		—		—		—		—
State and municipal obligations	359,673		351,021		—		351,021		—
Corporate obligations	10,752		10,164		—		10,164		—
Total held to maturity debt securities, net of allowance for credit losses	$	381,461	$	371,397	$	10,212	$	361,185	$	—
FHLBNY stock	80,521		80,521		80,521		—		—
Equity Securities	1,197		1,197		1,197		—		—
Loans, net of allowance for credit losses	10,131,456		9,802,005		—		—		9,802,005
Derivative assets	109,990		109,990		—		109,990		—
Financial liabilities:
Deposits other than certificates of deposits	$	9,358,728	$	9,358,727	$	9,358,727	$	—	$	—
Certificates of deposit	938,629		931,219		—		931,219		—
Total deposits	$	10,297,357	$	10,289,946	$	9,358,727	$	931,219	$	—
Borrowings	1,584,818		1,572,640		—		1,572,640		—
Subordinated debentures	10,544		9,536		—		9,536		—
Derivative liabilities	87,862		87,862		—		87,862		—

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	Fair Value Measurements at December 31, 2022 Using:
(Dollars in thousands)	Carrying value		Fair value		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	186,508	$	186,508	$	186,508	$	—	$	—
Available for sale debt securities:
U.S. Treasury obligations	245,816		245,816		245,816		—		—
Mortgage-backed securities	1,427,139		1,427,139		—		1,427,139		—
Asset-backed securities	37,621		37,621		—		37,621		—
State and municipal obligations	56,864		56,864		—		56,864		—
Corporate obligations	36,108		36,108		—		36,108		—
Total available for sale debt securities	$	1,803,548	$	1,803,548	$	245,816	$	1,557,732	$	—
Held to maturity debt securities:
Agency obligations	$	9,997	$	8,964	$	8,964	$	—	$	—
State and municipal obligations	366,146		353,417		—		353,417		—
Corporate obligations	11,780		11,087		—		11,087		—
Total held to maturity debt securities	$	387,923	$	373,468	$	8,964	$	364,504	$	—
FHLBNY stock	68,554		68,554		68,554		—		—
Equity Securities	1,147		1,147		1,147		—		—
Loans, net of allowance for credit losses	10,160,860		9,768,460		—		—		9,768,460
Derivative assets	148,151		148,151		—		148,151		—
Financial liabilities:
Deposits other than certificates of deposits	$	9,811,588	$	9,811,588	$	9,811,588	$	—	$	—
Certificates of deposit	751,436		745,155		—		745,155		—
Total deposits	$	10,563,024	$	10,556,743	$	9,811,588	$	745,155	$	—
Borrowings	1,337,370		1,324,578		—		1,324,578		—
Subordinated debentures	10,493		9,422		—		9,422		—
Derivative liabilities	120,896		120,896		—		120,896		—

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Note 10. Other Comprehensive Income (Loss)

The following table presents the components of other comprehensive income (loss), both gross and net of tax, for the three months ended March 31, 2023 and 2022 (in thousands):

	Three months ended March 31,
	2023						2022
	Before Tax		Tax Effect		After Tax		Before Tax		Tax Effect		After Tax
Components of Other Comprehensive Income:
Unrealized gains and losses on available for sale debt securities:
Net unrealized gains (losses) arising during the period	$	28,588	$	(7,724)	$	20,864	$	(116,081)	31,110		(84,971)
Reclassification adjustment for gains included in net income	—		—		—		—		—		—
Total	28,588		(7,724)		20,864		(116,081)		31,110		(84,971)
Unrealized gains (losses) on derivatives (cash flow hedges)	(5,065)		1,369		(3,696)		14,260		(3,822)		10,438
Amortization related to post-retirement obligations	(369)		100		(269)		(378)		102		(276)
Total other comprehensive income (loss)	$	23,154	$	(6,255)	$	16,899	$	(102,199)	$	27,390	$	(74,809)

The following tables present the changes in the components of accumulated other comprehensive (loss), net of tax, for the three months ended March 31, 2023 and 2022 (in thousands):

	Changes in Accumulated Other Comprehensive (Loss) by Component, net of tax for the three months ended March 31,
	2023								2022
	Unrealized Losses on Available for Sale Debt Securities		Post- Retirement Obligations		Unrealized Gains on Derivatives (cash flow hedges)		Accumulated Other Comprehensive (Loss)		Unrealized Losses on  Available for Sale Debt Securities		Post-  Retirement Obligations		Unrealized Gains on Derivatives (cash flow hedges)		Accumulated Other Comprehensive Income (Loss)
Balance at December 31,	$	(186,614)	$	1,572	$	19,997	$	(165,045)	$	(211)	$	2,981	$	4,093	$	6,863
Current - period other comprehensive income (loss)	20,864		(269)		(3,696)		16,899		(84,971)		(276)		10,438		(74,809)
Balance at March 31,	$	(165,750)	$	1,303	$	16,301	$	(148,146)	$	(85,182)	$	2,705	$	14,531	$	(67,946)

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The following tables summarize the reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of income for the three and three months ended March 31, 2023 and 2022 (in thousands):

	Reclassifications From Accumulated Other Comprehensive Income ("AOCI")
	Amount reclassified from AOCI for the three months ended March 31,				Affected line item in the Consolidated Statement of Income
	2023		2022
Details of AOCI:
Available for sale debt securities:
Realized net gains on the sale of securities available for sale	$	—	$	—	Net gain on securities transactions
	—		—		Income tax expense
	$	—	$	—	Net of tax
Cash flow hedges:
Unrealized (gains) losses on derivatives	$	(4,220)	$	666	Interest expense
	1,140		(178)		Income tax expense
	$	(3,080)	$	488
Post-retirement obligations:
Amortization of actuarial gains	$	(356)	$	(326)	Compensation and employee benefits (1)
	96		87		Income tax expense
	$	(260)	$	(239)	Net of tax
Total reclassifications	$	(3,340)	$	249	Net of tax

(1) This item is included in the computation of net periodic benefit cost. See Note 6. Components of Net Periodic Benefit Cost.

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Note 11. Derivative and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through the management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities.

Non-designated Hedges. Derivatives not designated in qualifying hedging relationships are not speculative and result from a service the Company provides to certain qualified commercial borrowers in loan related transactions which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company may execute interest rate swaps with qualified commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. The interest rate swap agreement which the Company executes with the commercial borrower is collateralized by the borrower's commercial real estate financed by the Company. As the Company has not elected to apply hedge accounting and these interest rate swaps do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. At March 31, 2023 and December 31, 2022, the Company had 156 and 162 loan related interest rate swaps, with an aggregate notional amount of $2.28 billion and $2.40 billion, respectively.

The Company periodically enters into risk participation agreements ("RPAs"), with the Company functioning as either the lead institution, or as a participant when another company is the lead institution on a commercial loan. These RPAs are entered into to manage the credit exposure on interest rate contracts associated with these loan participation agreements. Under the RPAs, the Company will either receive or make a payment in the event the borrower defaults on the related interest rate contract. The Company has minimum collateral posting thresholds with certain of its risk participation counterparties, and has posted collateral of $70,000 against the potential risk of default by the borrower under these agreements. At March 31, 2023 and December 31, 2022, the Company had 12 and 14 credit derivatives, with aggregate notional amounts of $143.4 million and $157.9 million, respectively, from participations in interest rate swaps as part of these loan participation arrangements. At March 31, 2023, the asset and liability positions of these fair value credit derivatives totaled $32,000 and $15,000, respectively, compared to $26,000 and $12,000, respectively, at December 31, 2022.

Cash Flow Hedges of Interest Rate Risk. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable payment amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 

Changes in the fair value of derivatives designated and that qualify as cash flow hedges of interest rate risk are recorded in accumulated other comprehensive (loss) income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2023 and 2022, such derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits.

Amounts reported in accumulated other comprehensive (loss) income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings or demand deposits. During the next twelve months, the Company estimates that $14.1 million will be reclassified as a reduction to interest expense. As of March 31, 2023, the Company had 8 outstanding interest rate derivatives with an aggregate notional amount of $355.0 million that were each designated as a cash flow hedge of interest rate risk.

Assets and liabilities relating to certain financial instruments, including derivatives, may be eligible for offset in the Consolidated Statements of Financial Condition and/or subject to enforceable master netting arrangements or similar agreements. The Company does not offset asset and liabilities under such arrangements in the Consolidated Statements of Financial Condition.

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments that are eligible for offset in the Consolidated Statements of Financial Condition at March 31, 2023 and December 31, 2022 (in thousands).

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	Fair Values of Derivative Instruments as of March 31, 2023
	Asset Derivatives					Liability Derivatives
	Notional Amount		Consolidated Statements of Financial Condition	Fair  value (2)		Notional Amount		Consolidated Statements of Financial Condition	Fair  value (2)
Derivatives not designated as a hedging instrument:
Interest rate products	$	1,140,601	Other assets	$	89,068	$	1,140,601	Other liabilities	$	89,473
Credit contracts	46,970		Other assets	32		96,436		Other liabilities	15
Total derivatives not designated as a hedging instrument				89,100					89,488
Derivatives designated as a hedging instrument:
Interest rate products	355,000		Other assets	23,802				Other liabilities	—
Total gross derivative amounts recognized on the balance sheet				112,902					89,488
Gross amounts offset on the balance sheet				—					—
Net derivative amounts presented on the balance sheet				$	112,902				$	89,488
Gross amounts not offset on the balance sheet:
Financial instruments - institutional counterparties				$	—				$	—
Cash collateral - institutional counterparties (1)				112,870					—
Net derivatives not offset				$	32				$	89,488

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	Fair Values of Derivative Instruments as of December 31, 2022
	Asset Derivatives					Liability Derivatives
	Notional Amount		Consolidated Statements of Financial Condition	Fair  value (2)		Notional Amount		Consolidated Statements of Financial Condition	Fair  value (2)
Derivatives not designated as a hedging instrument:
Interest rate products	$	1,198,191	Other assets	$	122,047	$	1,198,191	Other liabilities	$	122,378
Credit contracts	47,143		Other assets	26		110,714		Other liabilities	12
Total derivatives not designated as a hedging instrument				122,073					122,390
Derivatives designated as a hedging instrument:
Interest rate products	460,000		Other assets	29,119		—		Other liabilities	—
Total gross derivative amounts recognized on the balance sheet				151,192					122,390
Gross amounts offset on the balance sheet				—					—
Net derivative amounts presented on the balance sheet				$	151,192				$	122,390
Gross amounts not offset on the balance sheet:
Financial instruments - institutional counterparties				$	—				$	—
Cash collateral - institutional counterparties (1)				149,800					—
Net derivatives not offset				$	1,392				$	122,390

(1) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess cash collateral, if any, is not reflected above.

(2) The fair values related to interest rate products in the above net derivative tables show the total value of assets and liabilities, which include accrued interest receivable and accrued interest payable for the periods ended March 31, 2023 and December 31, 2022.

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income during the three months ended March 31, 2023 and 2022 (in thousands).

		(Loss) gain recognized in income on derivatives for the three months ended
	Consolidated Statements of Income	March 31, 2023		March 31, 2022
Derivatives not designated as a hedging instrument:
Interest rate products	Other income	$	(74)	$	366
Credit contracts	Other income	3		(17)
Total		$	(71)	$	349
	Consolidated Statements of Income	(Gain) loss recognized in expense on derivatives for the three months ended
		March 31, 2022		March 31, 2022
Derivatives designated as a hedging instrument:
Interest rate products	Interest expense	$	(4,219)	$	666
Total		$	(4,219)	$	666

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The Company has agreements with certain of its dealer counterparties which contain a provision that if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be deemed in default on its derivative obligations. In addition, the Company has agreements with certain of its dealer counterparties which contain a provision that if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

At March 31, 2023, the Company had four dealer counterparties. The Company had a net asset position with respect to all of its counterparties.

Note 12. Revenue Recognition

The Company generates revenue from several business channels. The guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) does not apply to revenue associated with financial instruments, including interest income on loans and investments, which comprise the majority of the Company's revenue. For the three months ended March 31, 2023, and 2022 the out-of-scope revenue related to financial instruments was 86.6% and 83.4%, respectively, of the Company's total revenue. Revenue-generating activities that are within the scope of Topic 606, are components of non-interest income. These revenue streams are generally classified into three categories: wealth management revenue, insurance agency income and banking service charges and other fees.

The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2023 and 2022 (in thousands):

	Three months ended March 31,
	2023		2022
Non-interest income
In-scope of Topic 606:
Wealth management fees	$	6,915	$	7,466
Insurance agency income	4,102		3,420
Banking service charges and other fees:
Service charges on deposit accounts	3,362		2,960
Debit card and ATM fees	706		770
Total banking service charges and other fees	4,068		3,730
Total in-scope non-interest income	15,085		14,616
Total out-of-scope non-interest income	7,067		5,532
Total non-interest income	$	22,152	$	20,148

Wealth management fee income represents fees earned from customers as consideration for asset management, investment advisory and trust services. The Company’s performance obligation is generally satisfied monthly and the resulting fees are recognized monthly. The fee is generally based upon the average market value of the assets under management ("AUM") for the month and the applicable fee rate. The monthly accrual of wealth management fees is recorded in other assets on the Company's Consolidated Statements of Financial Condition. Fees are received from the customer on a monthly basis. The Company does not earn performance-based incentives. To a lesser extent, optional services such as tax return preparation and estate settlement are also available to existing customers. The Company’s performance obligation for these transaction-based services is generally satisfied, and related revenue recognized, at either a point in time when the service is completed, or in the case of estate settlement, over a relatively short period of time, as each service component is completed.

Insurance agency income, consisting of commissions and fees, is generally recognized as of the effective date of the insurance policy. Commission revenues related to installment billings are recognized on the invoice date. Subsequent commission adjustments are recognized upon the receipt of notification from insurance companies concerning matters necessitating such adjustments. Profit-sharing contingent commissions are recognized when determinable, which is generally when such commissions are received from insurance companies, or when the Company receives formal notification of the amount of such payments.

Service charges on deposit accounts include overdraft service fees, account analysis fees and other deposit related fees. These fees are generally transaction-based, or time-based services. The Company's performance obligation for these services are generally satisfied, and revenue recognized, at the time the transaction is completed, or the service rendered. Fees for these services are generally received from the customer either at the time of transaction, or monthly. Debit card and ATM fees are generally transaction-based. Debit card revenue is primarily comprised of interchange fees earned when a customer's Company card is processed through a card payment

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network. ATM fees are largely generated when a Company cardholder uses a non-Company ATM, or a non-Company cardholder uses a Company ATM. The Company's performance obligation for these services is satisfied when the service is rendered. Payment is generally received at the time of transaction or monthly.

Out-of-scope non-interest income primarily consists of Bank-owned life insurance and net fees on loan level interest rate swaps, along with gains and losses on the sale of loans and foreclosed real estate, loan prepayment fees and loan servicing fees. None of these revenue streams are subject to the requirements of Topic 606.

Note 13. Leases

The following table represents the consolidated statements of financial condition classification of the Company’s right-of use-assets and lease liabilities at March 31, 2023 and December 31, 2022 (in thousands):

	Classification	March 31, 2023		December 31, 2022
Lease Right-of-Use Assets:
Operating lease right-of-use assets	Other assets	$	59,553	$	60,577
Lease Liabilities:
Operating lease liabilities	Other liabilities	$	62,610	$	63,372

The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. Generally, the Company considers the first renewal option to be reasonably certain and includes it in the calculation of the right-of use asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception based upon the term of the lease. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was applied.

All of the leases in which the Company is the lessee are classified as operating leases and are primarily comprised of real estate properties for branches and administrative offices with terms extending through 2040.

At March 31, 2023, the weighted-average remaining lease term and the weighted-average discount rate for the Company's operating leases were 8.5 years and 2.63%, respectively.

The following tables represent lease costs and other lease information for the Company's operating leases. The variable lease cost primarily represents variable payments such as common area maintenance and utilities (in thousands):

	For the Three Months Ended
	March 31, 2023		December 31, 2022
Lease Costs:
Operating lease cost	$	2,628	$	2,807
Variable lease cost	880		718
Total lease cost	$	3,508	$	3,525

	For the Three Months Ended
	March 31, 2023		December 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,349	$	1,939

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Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2023, were as follows (in thousands):

	Operating leases
Twelve months ended:
Remainder of 2023	$	7,146
2024	9,437
2025	8,945
2026	7,966
2027	7,106
Thereafter	29,358
Total future minimum lease payments	69,958
Amounts representing interest	7,348
Present value of net future minimum lease payments	$	62,610

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

Certain statements contained herein are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” "project," "intend," “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those set forth in Item 1A of the Company's Annual Report on Form 10-K, as supplemented by its Quarterly Reports on Form 10-Q, and those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, the effects of the recent turmoil in the banking industry (including the closing of three financial institutions), changes in accounting policies and practices that may be adopted by the regulatory agencies and the accounting standards setters, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets, the availability of and costs associated with sources of liquidity, the ability to complete, or any delays in completing, the pending merger between the Company and Lakeland; any failure to realize the anticipated benefits of the transaction when expected or at all; certain restrictions during the pendency of the transaction that may impact the Company’s ability to pursue certain business opportunities or strategic transactions; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management’s attention from ongoing business operations and opportunities; and potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the merger and integration of the companies.

The Company cautions readers not to place undue reliance on any such forward-looking statements which speak only as of the date they are made. The Company advises readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not assume any duty, and does not undertake, to update any forward-looking statements to reflect events or circumstances after the date of this statement.

Critical Accounting Policies

The Company considers certain accounting policies to be critically important to the fair presentation of its financial condition and results of operations. These policies require management to make complex judgments on matters which by their nature have elements of uncertainty. The sensitivity of the Company’s consolidated financial statements to these critical accounting policies, and the assumptions and estimates applied, could have a significant impact on its financial condition and results of operations. These assumptions, estimates and judgments made by management can be influenced by a number of factors, including the general economic environment. The Company has identified the allowance for credit losses on loans as a critical accounting policy

The allowance for credit losses is a valuation account that reflects management’s evaluation of the current expected credit losses in the loan portfolio. The Company maintains the allowance for credit losses through provisions for credit losses that are charged to income. Charge-offs against the allowance for credit losses are taken on loans where management determines that the collection of loan principal and interest is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for credit losses.

The calculation of the allowance for credit losses is a critical accounting policy of the Company. Management estimates the allowance balance using relevant available information, from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast. Historical credit loss experience for both the Company and peers provides the basis for the estimation of expected credit losses, where observed credit losses are converted to probability of default rate (“PDR”) curves through the use of segment-specific loss given default (“LGD”) risk factors that convert default rates to loss severity based on industry-level, observed relationships between the two variables for each segment, primarily due to the nature of the underlying collateral. These risk factors were assessed for reasonableness against the Company’s own loss experience and adjusted in certain cases when the relationship between the Company’s historical default and loss severity deviate from that of the wider industry. The historical PDR curves, together with corresponding economic conditions, establish a quantitative relationship between economic conditions and loan performance through an economic cycle.

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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 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 at the reporting date: management has a reasonable expectation that a TDR 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 March 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. This baseline outlook reflected a worsening economic forecast and related deterioration in the projected commercial property price index over the expected life of the loan portfolio and resulted in a recorded provision of $6.0 million for the three months ended, March 31, 2023 and a coverage ratio of 91 basis points. If the Company had used a more pessimistic forecast (“next-cycle recession”), the provision would have increased $10.7 million, with a coverage ratio of 101 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 March 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 through the Company’s loan review process. Generally, the Company only evaluates loans individually for impairment if the loan is non-accrual, non-homogeneous and the balance is at least $1.0 million.

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) 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,

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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.

Material changes to these and other relevant factors creates greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings. For the three months ended March 31, 2023, the provision for credit losses on loans totaled $6.0 million, compared to a negative provision for credit losses of $6.4 million for the quarter ended March 31, 2022. The increase in provision was attributable to a worsening economic forecast and related deterioration in the projected commercial property price index over the expected life of the loan portfolio, combined with an increase in total loans outstanding.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2023 AND DECEMBER 31, 2022

Total assets at March 31, 2023 were $13.78 billion, a $4.5 million decrease from December 31, 2022.

The Company’s loan portfolio decreased $24.7 million to $10.22 billion at March 31, 2023, from $10.25 billion at December 31, 2022. For the three months ended March 31, 2023, loan funding, including advances on lines of credit, totaled $809.2 million, compared with $959.4 million for the same period in 2022. During the three months ended March 31, 2023, the loan portfolio had net decreases of $56.6 million in construction loans, $23.3 million in commercial mortgage loans, $5.5 million in commercial loans, $3.7 million in residential mortgage loans and $3.1 million in consumer loans, partially offset by a net increase of $66.5 million in multi-family mortgage loans. Commercial real estate, commercial and construction loans represented 85.6% of the total loan portfolio at March 31, 2023, unchanged from 85.6% at December 31, 2022.

The Company participates in loans originated by other banks, including participations designated as Shared National Credits (“SNCs”). The Company’s gross commitments and outstanding balances as a participant in SNCs were $211.3 million and $99.6 million, respectively, at March 31, 2023, compared to $203.9 million and $87.3 million, respectively, at December 31, 2022. No SNC relationships were 90 days or more delinquent at March 31, 2023.

The Company had outstanding junior lien mortgages totaling $134.8 million at March 31, 2023. Of this total, six loans totaling $153,753 were 90 days or more delinquent with an allowance for credit losses of $2,575.

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

	March 31, 2023		December 31, 2022
Mortgage loans:
Residential	$	1,744	$	1,928
Commercial	6,815		28,212
Multi-family	1,548		1,565
Construction	1,874		1,878
Total mortgage loans	11,981		33,583
Commercial loans	23,129		24,188
Consumer loans	346		738
Total non-performing loans	35,456		58,509
Foreclosed assets	13,743		2,124
Total non-performing assets	$	49,199	$	60,633

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

	March 31, 2023		December 31, 2022
Mortgage loans:
Residential	$	639	$	1,114
Commercial	1,528		412
Multi-family	785		—
Construction	—		1,097
Total mortgage loans	2,952		2,623
Commercial loans	3,028		1,014
Consumer loans	150		147
Total 60-89 day delinquent loans	$	6,130	$	3,784

At March 31, 2023, the Company’s allowance for credit losses related to the loan portfolio was 0.91% of total loans, compared to 0.86% and 0.79% at December 31, 2022 and March 31, 2022, respectively. The Company recorded a provision for credit losses on loans of $6.0 million for the three months ended March 31, 2023 compared with a benefit of $6.4 million for the three months ended March 31, 2022. For the three months ended March 31, 2023, the Company had net charge-offs of $671,000, compared to net recoveries of $1.9 million for the same period in 2022. The allowance for credit losses increased $4.7 million to $92.8 million at March 31, 2023 from $88.0 million at December 31, 2022. The increase in the allowance for credit losses on loans was attributable to a worsening economic forecast and related deterioration in the projected commercial property price index over the expected life of the loan portfolio.

Total non-performing loans were $35.5 million, or 0.35% of total loans at March 31, 2023, compared to $58.5 million, or 0.57% of total loans at December 31, 2022. The $23.1 million decrease in non-performing loans at March 31, 2023, compared to the trailing quarter, consisted of a $21.4 million decrease in non-performing commercial mortgage loans, a $1.1 million decrease in non-performing commercial loans, a $392,000 decrease in non-performing consumer loans and a $184,000 decrease in non-performing residential mortgage loans. Within the $21.4 million decrease in non-performing commercial mortgage loans, one loan totaling $12.2 million was moved to foreclosed assets in the current quarter.

At March 31, 2023, December 31, 2022 and March 31, 2022, the Company held foreclosed assets of $13.7 million, $2.1 million and $8.6 million, respectively. During the three months ended March 31, 2023, there were two additions to foreclosed assets with an aggregate carrying value of $12.3 million and three properties sold with an aggregate carrying value of $666,000. Foreclosed assets at March 31, 2023 consisted primarily of commercial real estate. Total non-performing assets at March 31, 2023 decreased $11.4 million to $49.2 million, or 0.36% of total assets, from $60.6 million, or 0.44% of total assets at December 31, 2022.

Total investments were $2.28 billion at March 31, 2023, a $23.6 million increase from December 31, 2022. This increase was largely due to a $27.8 million decrease in unrealized losses on available for sale debt securities, combined with purchases of

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mortgage-backed and municipal securities, partially offset by repayments of mortgage-backed securities and maturities and calls of certain municipal and agency bonds.

Total deposits decreased $265.7 million during the three months ended March 31, 2023, to $10.30 billion. Total savings and demand deposit accounts decreased $452.9 million to $9.36 billion at March 31, 2023, while total time deposits increased $187.2 million to $938.6 million at March 31, 2023. The decrease in savings and demand deposits was largely attributable to a $257.5 million decrease in money market deposits, a $153.2 million decrease in non-interest bearing demand deposits, and an $87.4 million decrease in savings deposits, partially offset by a $45.2 million increase in interest bearing demand deposits. During the three months ended March 31, 2023, deposit balances from traditional non-interest and interest bearing demand deposits transitioned into our insured cash sweep ("ICS") product, as a method to increase the level of customers' deposit insurance in light of recent market turmoil. The Bank's ICS deposits increased $139.9 million to $198.8 million at March 31, 2023, from $58.9 million at December 31, 2022. The increase in time deposits consisted of a $134.2 million increase in retail time deposits and a $53.0 million increase in brokered time deposits.

Borrowed funds increased $247.4 million during the three months ended March 31, 2023, to $1.58 billion. The increase in borrowings was largely due to the replacement of demand deposits with FHLB borrowings and asset funding requirements. Borrowed funds represented 11.5% of total assets at March 31, 2023, an increase from 9.7% at December 31, 2022.

Stockholders’ equity increased $42.4 million during the three months ended March 31, 2023, to $1.64 billion, primarily due to a decrease in unrealized losses on available for sale debt securities and net income earned for the period, partially offset by dividends paid to stockholders and common stock repurchases. For the three months ended March 31, 2023, common stock repurchases totaled 71,111 shares at an average cost of $23.35 per share, all of which were made in connection with withholding to cover income taxes on the vesting of stock-based compensation. At March 31, 2023, approximately 1.1 million shares remained eligible for repurchase under the current stock repurchase authorization.

Liquidity and Capital Resources. Liquidity refers to the Company’s ability to generate adequate amounts of cash to meet financial obligations to its depositors, to fund loans and securities purchases and operating expenses. Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of unpledged investments, cash flows from securities and the ability to borrow funds from the FHLBNY and approved broker-dealers.

Cash flows from loan payments and maturing investment securities are fairly predictable sources of funds. Changes in interest rates, local economic conditions and the competitive marketplace can influence loan prepayments, prepayments on mortgage-backed securities and deposit flows. For three months ended March 31, 2023 and 2022, loan repayments totaled $826.7 million and $883.1 million, respectively.

As deposits have declined, the Company has continued to monitor and focus on deposit behavior and borrowing capacity with the FHLBNY and FRBNY, with current borrowing capacity of $1.28 billion and $1.45 billion, respectively at March 31, 2023. Our estimated uninsured and uncollateralized deposits at March 31, 2023 totaled $2.77 billion, which does not consider all of the benefit of different account titling conventions that may increase the insured balance for a particular account. At March 31, 2023, Provident Bank held on balance sheet liquidity and borrowing capacity totaling $3.59 billion, representing 130% of estimated uninsured and uncollateralized deposits. All borrowing capacity is immediately available.

The Bank established the Bank Term Funding Program with the Federal Reserve Bank of New York in March and pledged approximately $521 million in unencumbered security collateral to the facility improving its access to immediate funding. Advances under the Program can be requested until March 11, 2024. As of March 31, 2023, the Company has not taken any advances under the Program, but has this option as an available short term liquidity source.

During the three months ended March 31, 2023, deposit balances from traditional non-interest and interest bearing demand deposits transitioned into our insured cash sweep ("ICS") product, as a method to increase the level of customers' deposit insurance in light of recent market turmoil. As of March 31, 2023 our ICS deposits totaled $198.8 million, compared to $58.9 million at December 31, 2022.

The Federal Deposit Insurance Corporation ("FDIC") and the other federal bank regulatory agencies issued a final rule that revised the leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act, that were effective January 1, 2015. Among other things, the rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), adopted a uniform minimum leverage capital ratio at 4%, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on non-accrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rule also required unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out was exercised. The Company exercised the option to exclude

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unrealized gains and losses from the calculation of regulatory capital. Additional constraints were also imposed on the inclusion in regulatory capital of mortgage-servicing assets, deferred tax assets and minority interests. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer,” of 2.5% in addition to the amount necessary to meet its minimum risk-based capital requirements.

In the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule providing banking institutions that adopted CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five year transition in total). In connection with its adoption of CECL on January 1, 2020, the Company elected to utilize the five-year CECL transition.

At March 31, 2023, the Bank and the Company exceeded all current minimum regulatory capital requirements as follows:

	March 31, 2023
	Required				Required with Capital Conservation Buffer				Actual
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Bank:(1)
Tier 1 leverage capital	$	531,077	4.00	%	$	531,077	4.00	%	$	1,296,273	9.76	%
Common equity Tier 1 risk-based capital	516,011		4.50		802,684		7.00		1,296,273		11.30
Tier 1 risk-based capital	688,015		6.00		974,688		8.50		1,296,273		11.30
Total risk-based capital	917,353		8.00		1,204,026		10.50		1,382,338		12.06
Company:
Tier 1 leverage capital	$	531,299	4.00	%	$	531,299	4.00	%	$	1,350,890	10.17	%
Common equity Tier 1 risk-based capital	516,255		4.50		803,063		7.00		1,338,003		11.66
Tier 1 risk-based capital	688,340		6.00		975,148		8.50		1,350,890		11.78
Total risk-based capital	917,787		8.00		1,204,595		10.50		1,436,955		12.53

(1) Under the FDIC's prompt corrective action provisions, the Bank is considered well capitalized if it has: a leverage (Tier 1) capital ratio of at least 5.00%; a common equity Tier 1 risk-based capital ratio of 6.50%; a Tier 1 risk-based capital ratio of at least 8.00%; and a total risk-based capital ratio of at least 10.00%.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

General. The Company reported net income of $40.5 million, or $0.54 per basic and diluted share for the three months ended March 31, 2023, compared to net income of $44.0 million, or $0.58 per basic and diluted share for the three months ended March 31, 2022.

Net income for the three months ended March 31, 2023 was negatively impacted by an increase in funding costs, an increase in the provision for credit losses due to a worsened economic forecast and an increase in non-interest expense attributable to increases in compensation and benefits expense and the increased cost of FDIC insurance, partially offset by an increase in non-interest income. Non-tax deductible transaction costs related to our pending merger with Lakeland Bancorp, Inc. (“Lakeland”) totaled $1.1 million in the current quarter, compared to $1.2 million for the trailing quarter.

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.

The following table sets forth certain information for the quarters ended March 31, 2023 and March 31, 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 is expressed both in dollars and rates. No tax equivalent adjustments were made. Average balances are daily averages.

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	For the three months ended
	March 31, 2023						March 31, 2022
	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
	(Dollars in Thousands) (Unaudited)
Interest Earning Assets:
Deposits	$	72,022	$	845	4.76	%	$	274,004	$	107	0.16	%
Federal funds sold and other short-term investments	29		—		3.70	%	195,598		540		1.12	%
Available for sale debt securities	1,808,619		10,402		2.30	%	2,115,852		7,577		1.43	%
Held to maturity debt securities, net (1)	383,907		2,368		2.47	%	428,125		2,596		2.43	%
Equity securities, at fair value	991		—		—	%	1,092		—		—	%
Federal Home Loan Bank stock	59,106		1,028		6.96	%	30,907		374		4.85	%
Net loans: (2)
Total mortgage loans	7,643,140		95,988		5.02	%	7,061,657		63,835		3.62	%
Total commercial loans	2,146,658		28,683		5.37	%	2,099,145		22,821		4.38	%
Total consumer loans	304,058		4,242		5.66	%	321,029		3,139		3.97	%
Total net loans	10,093,856		128,913		5.12	%	9,481,831		89,795		3.80	%
Total interest earning assets	$	12,418,530	$	143,556	4.63	%	$	12,527,409	$	100,989	3.23	%
Non-Interest Earning Assets:
Cash and due from banks	142,953						122,856
Other assets	1,171,225						1,043,164
Total assets	$	13,732,708					$	13,693,429
Interest Bearing Liabilities:
Demand deposits	$	5,771,582	$	21,920	1.54	%	$	6,288,544	$	4,195	0.27	%
Savings deposits	1,398,419		453		0.13	%	1,476,643		291		0.08	%
Time deposits	859,773		5,137		2.42	%	680,818		701		0.42	%
Total deposits	8,029,774		27,510		1.39	%	8,446,005		5,187		0.25	%
Borrowed funds	1,224,279		7,476		2.48	%	549,679		1,168		0.86	%
Subordinated debentures	10,511		246		9.51	%	10,301		108		4.27	%
Total interest bearing liabilities	$	9,264,564	35,232		1.54	%	$	9,005,985	6,463		0.29	%
Non-Interest Bearing Liabilities:
Non-interest bearing deposits	$	2,550,796					$	2,786,042
Other non-interest bearing liabilities	290,978						215,078
Total non-interest bearing liabilities	2,841,774						3,001,120
Total liabilities	12,106,338						12,007,105
Stockholders' equity	1,626,370						1,686,324
Total liabilities and stockholders' equity	$	13,732,708					$	13,693,429
Net interest income			$	108,324					$	94,526
Net interest rate spread					3.09	%					2.94	%
Net interest-earning assets	$	3,153,966					$	3,521,424
Net interest margin (3)					3.48	%					3.02	%
Ratio of interest-earning assets to total interest-bearing liabilities	1.34x						1.39x

(1)	Average outstanding balance amounts shown are amortized cost, net of allowance for credit losses.
(2)	Average outstanding balances are net of the allowance for loan losses, deferred loan fees and expenses, loan premiums and discounts and include non-accrual loans.
(3)	Annualized net interest income divided by average interest-earning assets.

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Total net interest income increased $13.8 million to $108.3 million for the quarter ended March 31, 2023, from $94.5 million for the quarter ended March 31, 2022. Interest income for the quarter ended March 31, 2023 increased $42.6 million to $143.6 million, from $101.0 million for the same period in 2022. Interest expense increased $28.8 million to $35.2 million for the quarter ended March 31, 2023, from $6.5 million for the quarter ended March 31, 2022. The increase in net interest income for the three months ended March 31, 2023, was primarily driven by an increase in the net interest margin resulting from the favorable repricing of adjustable rate loans, higher market rates on new loan originations and the investment of excess liquidity into higher-yielding loans, partially offset by the unfavorable repricing of both deposits and borrowings and a decrease in lower-costing deposits, which resulted in an increase in borrowings. Additionally, fees related to the forgiveness of PPP loans, which are recognized in interest income, decreased $1.1 million for the three months ended March 31, 2023, compared to $1.1 million for the three months ended March 31, 2022.

For the three months ended March 31, 2023, the net interest margin increased 46 basis points to 3.48%, compared to 3.02% for the three months ended March 31, 2022. The weighted average yield on interest earning assets increased 140 basis points to 4.63% for the three months ended March 31, 2023, compared to 3.23% for the three months ended March 31, 2022, while the weighted average cost of interest bearing liabilities increased 125 basis points to 1.54% for the three months ended March 31, 2023, compared to 0.29% for the same period last year. The average cost of interest bearing deposits increased 114 basis points to 1.39% for the three months ended March 31, 2023, compared to 0.25% for the same period last year. Average non-interest bearing demand deposits totaled $2.55 billion for the three months ended March 31, 2023, compared with $2.79 billion for the three months ended March 31, 2022. The average cost of deposits, including non-interest bearing deposits, was 1.05% for the three months ended March 31, 2023, compared with 0.19% for the three months ended March 31, 2022. The average cost of borrowings for the three months ended March 31, 2023 was 9.51%, compared to 0.86% for the same period last year.

Interest income on loans secured by real estate increased $32.2 million to $96.0 million for the three months ended March 31, 2023, from $63.8 million for the three months ended March 31, 2022. Commercial loan interest income increased $5.9 million to $28.7 million for the three months ended March 31, 2023, from $22.8 million for the three months ended March 31, 2022. Consumer loan interest income increased $1.1 million to $4.2 million for the three months ended March 31, 2023, from $3.1 million for the three months ended March 31, 2022. For the three months ended March 31, 2023, the average balance of total loans increased $612.0 million to $10.09 billion, from $9.48 billion for the same period in 2022. The average yield on total loans for the three months ended March 31, 2023, increased 132 basis points to 5.12%, from 3.80% for the same period in 2022.

Interest income on held to maturity debt securities decreased $228,000 to $2.4 million for the quarter ended March 31, 2023, compared to the same period last year. Average held to maturity debt securities decreased $44.2 million to $383.9 million for the quarter ended March 31, 2023, from $428.1 million for the same period last year.

Interest income on available for sale debt securities and FHLBNY stock increased $3.5 million to $11.4 million for the three months ended March 31, 2023, from $8.0 million for the same period last year. The average balance of available for sale debt securities and FHLBNY stock decreased $279.0 million to $1.87 billion for the three months ended March 31, 2023.

The average yield on total securities increased to 2.52% for the three months ended March 31, 2023, compared with 1.47% for the same period in 2022.

Interest expense on deposit accounts increased $22.3 million to $27.5 million for the quarter ended March 31, 2023, compared with $5.2 million for the quarter ended March 31, 2022. The average cost of interest bearing deposits increased to 1.39% for the first quarter of 2023, from 0.25% for the three months ended March 31, 2022. For the three months ended March 31, 2023, average interest bearing core deposits, which consist of total savings and demand deposits, decreased $595.2 million, to $7.17 billion, from $7.77 billion for the same period in 2022. For the three months ended March 31, 2023, average time deposit account balances increased $179.0 million, to $859.8 million, from $680.8 million for the same period in 2022.

Interest expense on borrowed funds increased $6.3 million to $7.5 million for the quarter ended March 31, 2023, from $1.2 million for the quarter ended March 31, 2022. The average cost of borrowings increased to 2.48% for the three months ended March 31, 2023, from 0.86% for the three months ended March 31, 2022. Average borrowings increased $674.6 million to $1.22 billion for the quarter ended March 31, 2023, from $549.7 million for the quarter ended March 31, 2022.

Provision for Credit Losses. Provisions for credit losses are charged to operations in order to maintain the allowance for credit losses at a level management considers necessary to absorb projected credit losses that may arise over the expected term of each loan in the portfolio. In determining the level of the allowance for credit losses, management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable economic forecasts. The amount of the allowance is based on estimates, and the ultimate losses may vary from such estimates as more information becomes available or later events change. Management assesses the adequacy of the

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

The Company recorded a $6.0 million provision for credit losses on loans for the three months ended March 31, 2023 compared with a benefit of $6.4 million for the three months ended March 31, 2022. The increase in provision was attributable to a worsening economic forecast and related deterioration in the projected commercial property price index over the expected life of the loan portfolio.

Non-Interest Income. Non-interest income totaled $22.2 million for the quarter ended March 31, 2023, an increase of $2.0 million, compared to the same period in 2022. Other income increased $2.1 million to $3.3 million for the three months ended March 31, 2023, compared to $1.2 million for the same period in 2022, mainly due to an additional $2.0 million gain recognized from the September 2022 sale of a foreclosed commercial property, representing additional sale proceeds held in escrow pending the resolution of certain post-closing conditions, combined with an increase in the gains on sale of SBA loans, partially offset by a decrease in net fees on loan-level interest rate swap transactions. Insurance agency income increased $682,000 to $4.1 million for the three months ended March 31, 2023, compared to the same period in 2022, resulting from an increase in business activity. BOLI income increased $305,000 to $1.5 million, for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to higher equity valuations. Partially offsetting these increases in non-interest income, wealth management income decreased $551,000 to $6.9 million for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to a decrease in the market value of assets under management, while fee income decreased $502,000 to $6.4 million for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to a decrease in commercial loan prepayment fees.

Non-Interest Expense. For the three months ended March 31, 2023, non-interest expense totaled $69.5 million, an increase of $7.6 million, compared to the three months ended March 31, 2022. Non-interest expense for the current quarter included $1.1 million in professional fees related to our pending merger with Lakeland. For the three months ended March 31, 2023, the Company recorded a $739,000 provision for credit losses for off-balance sheet credit exposures, compared to a $2.4 million negative provision for the same period in 2022. The $3.1 million increase in provision was primarily due to the period over period decrease in line of credit utilization and an increase in projected loss factors as a result of a worsened economic forecast. Other operating expenses increased $2.8 million to $12.2 million for the three months ended March 31, 2023, compared to the same period in 2022, largely due to increases professional fees related to our pending merger with Lakeland, combined with additional expenses related to foreclosed commercial real estate owned properties. Compensation and benefits expense increased $1.7 million to $38.7 million for the three months ended March 31, 2023, compared to $37.1 million for the three months ended March 31, 2022, primarily due to an increase in stock-based compensation and an increase in salary expense associated with Company-wide annual merit increases. In addition, FDIC insurance increased $732,000 to $1.9 million for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to the recent FDIC action to increase deposit insurance assessment rates uniformly beginning in the first quarter of 2023. Partially offsetting these increases in non-interest expense, net occupancy expense decreased $920,000 to $8.4 million for the three months ended March 31, 2023, largely due to decreases in snow removal costs and rent expense.

Income Tax Expense. For the three months ended March 31, 2023, the Company’s income tax expense was $14.5 million with an effective tax rate of 26.3%, compared with income tax expense of $15.2 million with an effective tax rate of 25.7% for the three months ended March 31, 2022. The decrease in tax expense for the three months ended March 31, 2023, compared with the same period last year was largely the result of a decrease in taxable income, while the increase in the effective tax rate was primarily due to non-deductible merger related transaction costs incurred in the 2023 period.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Qualitative Analysis. Interest rate risk is the exposure of a bank’s current and future earnings and capital arising from adverse movements in interest rates. The guidelines of the Company’s interest rate risk policy seek to limit the exposure to changes in interest rates that affect the underlying economic value of assets and liabilities, earnings and capital. To minimize interest rate risk, the Company generally sells all 20- and 30-year fixed-rate residential mortgage loans at origination. The Company retains residential fixed rate mortgages with terms of 15 years or less and biweekly payment residential mortgages with a term of 30 years or less. Commercial real estate loans generally have interest rates that reset in five years, and other commercial loans such as construction loans and commercial lines of credit reset with changes in the Prime rate, the Federal Funds rate, LIBOR or SOFR. Investment securities purchases generally have maturities of five years or less, and mortgage-backed securities have weighted average lives between three and five years.

The Asset/Liability Committee meets at least monthly, or as needed, to review the impact of interest rate changes on net interest income, net interest margin, net income and the economic value of equity. The Asset/Liability Committee reviews a variety of

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strategies that project changes in asset or liability mix and the impact of those changes on projected net interest income and net income.

The Company’s strategy for liabilities has been to maintain a stable core-funding base by focusing on core deposit account acquisition and increasing products and services per household. The Company’s ability to retain maturing time deposit accounts is the result of its strategy to remain competitively priced within its marketplace. The Company’s pricing strategy may vary depending upon current funding needs and the ability of the Company to fund operations through alternative sources, primarily by accessing short-term lines of credit with the FHLBNY during periods of pricing dislocation.

Quantitative Analysis. Current and future sensitivity to changes in interest rates are measured through the use of balance sheet and income simulation models. The analysis captures changes in net interest income using flat rates as a base, a most likely rate forecast and rising and declining interest rate forecasts. Changes in net interest income and net income for the forecast period, generally twelve to twenty-four months, are measured and compared to policy limits for acceptable change. The Company periodically reviews historical deposit re-pricing activity and makes modifications to certain assumptions used in its income simulation model regarding the interest rate sensitivity of deposits without maturity dates. These modifications are made to more closely reflect the most likely results under the various interest rate change scenarios. Since it is inherently difficult to predict the sensitivity of interest bearing deposits to changes in interest rates, the changes in net interest income due to changes in interest rates cannot be precisely predicted. There are a variety of reasons that may cause actual results to vary considerably from the predictions presented below which include, but are not limited to, the timing, magnitude, and frequency of changes in interest rates, interest rate spreads, prepayments, and actions taken in response to such changes.

Specific assumptions used in the simulation model include:

•Parallel yield curve shifts for market rates;

•Current asset and liability spreads to market interest rates are fixed;

•Traditional savings and interest-bearing demand accounts move at 10% of the rate ramp in either direction;

•Retail Money Market and Business Money Market accounts move at 25% and 75% of the rate ramp in either direction respectively, subject to certain interest rate floors; and

•Higher-balance demand deposit tiers and promotional demand accounts move at 50% to 75% of the rate ramp in either direction, subject to certain interest rate floors.

The following table sets forth the results of a twelve-month net interest income projection model as of March 31, 2023 (dollars in thousands):

Change in interest rates (basis points) - Rate Ramp	Net Interest Income
	Dollar Amount		Dollar Change		Percent Change
-100	$	414,995	$	(3,987)	(1.0)	%
Static	418,982		—		—
+100	422,666		3,684		0.9
+200	426,220		7,238		1.7
+300	429,362		10,380		2.5

The interest rate risk position of the Company remains slightly asset-sensitive. As a result, the preceding table indicates that, as of March 31, 2023, in the event of a 300 basis point increase in interest rates, whereby rates ramp up evenly over a twelve-month period, net interest income would increase 2.5%, or $10.4 million. In the event of a 100 basis point decrease in interest rates, whereby rates ramp downward evenly over a twelve-month period, net interest income would decrease 1.0%, or $4.0 million over the same period. In this downward rate scenario, rates on deposits have a repricing floor of zero.

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Another measure of interest rate sensitivity is to model changes in economic value of equity through the use of immediate and sustained interest rate shocks. The following table illustrates the result of the economic value of equity model as of March 31, 2023 (dollars in thousands):

	Present Value of Equity						Present Value of Equity as Percent of Present Value of Assets
Change in interest rates (basis points)	Dollar Amount		Dollar Change		Percent Change		Present Value  Ratio		Percent Change
-100	$	2,016,688	$	(32,850)	(1.6)	%	14.6	%	(8.8)	%
Flat	2,049,538		—		—		15.2		—
+100	2,069,079		19,541		1.0		15.8		5.7
+200	2,084,611		35,073		1.7		16.3		10.2
+300	2,098,537		48,999		2.4		16.8		14.8

The preceding table indicates that as of March 31, 2023, in the event of an immediate and sustained 300 basis point increase in interest rates, the present value of equity is projected to increase 2.4%, or $49.0 million. If rates were to decrease 100 basis points, the present value of equity would decrease 1.6%, or $32.9 million.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes in net interest income requires the use of certain assumptions regarding prepayment and deposit decay rates, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. While management believes such assumptions are reasonable, there can be no assurance that assumed prepayment rates and decay rates will approximate actual future loan prepayment and deposit withdrawal activity. Moreover, the net interest income table presented assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on the Company’s net interest income and will differ from actual results.

Item 4. CONTROLS AND PROCEDURES.

Under the supervision and with the participation of management, including the Principal Executive Officer and the Principal Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) were evaluated at the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various legal actions and claims arising in the normal course of business. In the opinion of management, these legal actions and claims are not expected to have a material adverse impact on the Company’s financial condition.

Item 1A. Risk Factors

The risk factors that were previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, have been supplemented by the Company for the quarter ended March 31, 2023, as follows:

Our stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions. Further, if the public loses confidence in how we manage our liquidity, deposits, capital levels and interest rate risk, which have come under greater scrutiny in light of recent bank failures, it may have a material adverse effect on our financial condition and results of operations.

On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations. On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California

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Department of Financial Protection and Innovation, on March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services, and on May 1, 2023 First Republic Bank, San Francisco, California, was closed by the FDIC and sold to JPMorgan Chase & Co. In each case, the FDIC was named receiver after each of these banks lost credibility with its depositors and experienced massive deposit outflows. These banks also had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.

These events have led to a greater focus by institutions, investors, regulators and depositors on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management. If we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, it may have a material adverse effect on our financial condition and results of operations.

Our funding sources may prove insufficient or costly to support our future growth. A lack of liquidity could adversely affect our financial condition and results of operations and result in regulatory limits being placed on the Company.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been our primary source of funding for our lending and investment activities. We also receive funds from loan repayments, investment maturities and income on other interest-earning assets. While we emphasize the generation of low-cost core deposits as a source of funding, there is strong competition for such deposits in our market area. Additionally, deposit balances can decrease if customers perceive alternative investments as providing a better risk/return tradeoff. Accordingly, as a part of our liquidity management, we must use several funding sources in addition to deposits and repayments and maturities of loans and investments. As we continue to grow, we may become more dependent on these sources, which may include Federal Home Loan Bank of New York advances, federal funds purchased and brokered certificates of deposit. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources.

Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Further, if we are required to rely more heavily on more expensive funding sources to support liquidity and future growth, our revenues may not increase proportionately to cover our increased costs. Our net interest margin a nd profitability would also be adversely affected. Alternatively, we may need to sell a portion of our investment and/or loan portfolio to raise funds, which, depending upon market conditions, could result in us realizing a loss on the sale of such assets.

Any decline in available funding could adversely impact our ability to originate loans, invest in securities, pay our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations. A lack of liquidity could also attract increased regulatory scrutiny and potential restrictions imposed on us by regulators.

The premiums of the FDIC’s deposit insurance program are expected to increase, and banking regulators have signaled further review of regulatory requirements and the potential for changes to laws or regulations governing banks and bank holding companies. Changes resulting from these events could include increased regulatory oversight, higher capital requirements or changes in the way regulatory capital is calculated, and the impositions of additional restrictions through regulatory changes or supervisory or enforcement activities, each of which could have a material impact on our business.

The Failure to Address the Federal Debt Ceiling in a Timely Manner, Downgrades of the U.S. Credit Rating and Uncertain Credit and Financial Market Conditions May Affect the Stability of Securities Issued or Guaranteed by the Federal Government, which May Affect the Valuation or Liquidity of our Investment Securities Portfolio and Increase Future Borrowing Costs.

As a result of uncertain political, credit and financial market conditions, including the potential consequences of the federal government defaulting on its obligations for a period of time due to federal debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose credit default and liquidity risks. Given that future deterioration in the U.S. credit and financial markets is a possibility, no assurance can be made that losses or significant deterioration in the fair value of our U.S. government issued or guaranteed investments will not occur. At March 31, 2023, we had approximately $250.8 million, $81.5 million and $1.22 billion invested in U.S. Treasury securities, U.S. government agency securities, and residential mortgage-backed securities issued or guaranteed by government-sponsored enterprises and programs, respectively. Downgrades to the U.S. credit rating could affect the stability of securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio of such investment securities, and could result in our counterparties requiring additional collateral for our borrowings. Further, unless and until U.S. political, credit and financial market conditions have been sufficiently resolved or stabilized, it may increase our future borrowing costs.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

ISSUER PURCHASES OF EQUITY SECURITIES

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	(d) Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (1)
January 1, 2023 through January 31, 2023	—	$	—	—	1,133,981
February 1, 2023 through February 28, 2023	—	—		—	1,133,981
March 1, 2023 through March 31, 2023	71,111	23.35		71,111	1,062,870
Total	71,111	23.35		71,111

(1) On December 28, 2020, the Company’s Board of Directors approved the purchase of up to 3,900,000 shares of its common stock under a ninth general repurchase program to commence upon completion of the eighth repurchase program. The repurchase program has no expiration date.

Item 3. Defaults Upon Senior Securities.

Not Applicable 

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information.

None

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Item 6. Exhibits.

The following exhibits are filed herewith:

2.1	Agreement and Plan of Merger by and between Provident Financial Services, Inc. and Lakeland Bancorp, Inc. (Filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 27, 2022/File No. 001-31566)
3.1	Certificate of Incorporation of Provident Financial Services, Inc. (Filed as an exhibit to the Company’s Registration Statement on Form S-1, and any amendments thereto, with the Securities and Exchange Commission/Registration No. 333-98241.)
3.2	Amended and Restated Bylaws of Provident Financial Services, Inc. (Filed as an exhibit to the Company’s December 31, 2011 Annual Report to Stockholders on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012/File No. 001-31566.)
4.1	Form of Common Stock Certificate of Provident Financial Services, Inc. (Filed as an exhibit to the Company’s Registration Statement on Form S-1, and any amendments thereto, with the Securities and Exchange Commission/Registration No. 333-98241.)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial statements from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended March 31, 2023, formatted in iXBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, has been formatted in iXBRL.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		PROVIDENT FINANCIAL SERVICES, INC.
Date:	May 10, 2023	By:	/s/ Anthony J. Labozzetta
			Anthony J. Labozzetta
			President and Chief Executive Officer (Principal Executive Officer)
Date:	May 10, 2023	By:	/s/ Thomas M. Lyons
			Thomas M. Lyons
			Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Date:	May 10, 2023	By:	/s/ Adriano M. Duarte
			Adriano M. Duarte
			Executive Vice President and Chief Accounting Officer

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