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What changed in PROVIDENT FINANCIAL SERVICES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PROVIDENT FINANCIAL SERVICES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+617 added−590 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-01)

Top changes in PROVIDENT FINANCIAL SERVICES INC's 2023 10-K

617 paragraphs added · 590 removed · 456 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

253 edited+68 added−72 removed210 unchanged
Biggest changeYears Ended December 31, 2022 2021 2020 2019 2018 (Dollars in thousands) Balance at beginning of period $ 80,740 $ 101,466 $ 55,525 $ 55,562 $ 60,195 Initial allowance due to the adoption of CECL — — 7,920 — — Charge offs: Residential mortgage loans 21 74 69 44 277 Commercial mortgage loans 5,471 3,234 2,647 222 — Multi-family mortgage loans 66 34 — — — Construction loans — — — — — Commercial loans 633 1,597 4,763 14,023 28,986 Consumer loans 357 517 434 743 755 Total 6,548 5,456 7,913 15,032 30,018 Recoveries: Residential mortgage loans 386 457 109 46 58 Commercial mortgage loans 198 378 177 376 431 Multi-family mortgage loans — 4 — — — Construction loans — 20 110 — — Commercial loans 4,193 7,169 1,776 665 428 Consumer loans 654 1,002 465 808 768 Total 5,431 9,030 2,637 1,895 1,685 Net charge-offs (recoveries) 1,117 (3,574) 5,276 13,137 28,333 Provision charge (benefit) to operations 8,400 (24,300) 29,711 13,100 23,700 Initial allowance related to PCD loans — — 13,586 — — Balance at end of period $ 88,023 $ 80,740 $ 101,466 $ 55,525 $ 55,562 Ratio of net charge-offs (recoveries) to average loans outstanding during the period 0.01 % (0.04) % 0.06 % 0.18 % 0.39 % Allowance for credit losses to total loans 0.86 % 0.84 % 1.03 % 0.76 % 0.77 % Allowance for credit losses to non-performing loans 150.44 % 168.11 % 116.51 % 138.14 % 216.28 % Allowance for Credit Losses on Loans by Loan Category.
Biggest changeYears Ended December 31, 2023 2022 2021 2020 2019 (Dollars in thousands) Balance at beginning of period $ 88,023 $ 80,740 $ 101,466 $ 55,525 $ 55,562 Adjustments as a result of adopted ASUs (1) (594) — — 21,506 — Charge offs: Commercial mortgage loans 1,700 5,471 3,234 2,647 222 Multi-family mortgage loans — 66 34 — — Construction loans — — — — — Residential mortgage loans 24 21 74 69 44 Commercial loans 8,363 633 1,597 4,763 14,023 Consumer loans 334 357 517 434 743 Total 10,421 6,548 5,456 7,913 15,032 Recoveries: Commercial mortgage loans 412 198 378 177 376 Multi-family mortgage loans — — 4 — — Construction loans — — 20 110 — Residential mortgage loans 134 386 457 109 46 Commercial loans 1,309 4,193 7,169 1,776 665 Consumer loans 437 654 1,002 465 808 Total 2,292 5,431 9,030 2,637 1,895 Net charge-offs (recoveries) 8,129 1,117 (3,574) 5,276 13,137 Provision charge (benefit) to operations 27,900 8,400 (24,300) 29,711 13,100 Balance at end of period $ 107,200 $ 88,023 $ 80,740 $ 101,466 $ 55,525 Ratio of net charge-offs (recoveries) to average loans outstanding during the period 0.08 % 0.01 % (0.04) % 0.06 % 0.18 % Allowance for credit losses to total loans 0.99 % 0.86 % 0.84 % 1.03 % 0.76 % Allowance for credit losses to non-performing loans 215.96 % 150.44 % 168.11 % 116.51 % 138.14 % (1) On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with the CECL methodology.
Also, the Bank provides fiduciary and wealth management services through its wholly owned subsidiary, Beacon Trust Company and insurance brokerage services through its wholly owned subsidiary, Provident Protection Plus, Inc. The following are highlights of Provident Bank’s operations: Diversified Loan Portfolio.
The Bank also provides fiduciary and wealth management services through its wholly owned subsidiary, Beacon Trust Company and insurance brokerage services through its wholly owned subsidiary, Provident Protection Plus, Inc. The following are highlights of the Bank’s operations: Diversified Loan Portfolio.
The Bank originates fixed-rate fully amortizing residential mortgage loans with the principal and interest payments due each month, that typically have maturities ranging from 10 to 30 years. The Bank also originates fixed-rate residential mortgage loans with maturities of 10, 15, 20 and 30 years that require the payment of principal and interest on a biweekly basis.
The Bank originates fixed-rate fully amortizing residential mortgage loans with principal and interest payments due each month, that typically have maturities ranging from 10 to 30 years. The Bank also originates fixed-rate residential mortgage loans with maturities of 10, 15, 20 and 30 years that require the payment of principal and interest on a biweekly basis.
Fixed-rate residential mortgage loans retained in the Bank’s portfolio generally include loans with a term of 15 years or less and biweekly payment residential mortgage loans with a term of 30 years or less. The Bank retains the majority of the originated adjustable-rate mortgages for its portfolio. Loans are sold without recourse, generally with servicing rights retained by the Bank.
Fixed-rate residential mortgage loans retained in the Bank’s portfolio generally include loans with a term of 15 years or less and biweekly payment residential mortgage loans with a term of 30 years or less. The Bank retains the majority of originated adjustable-rate mortgages for its portfolio. Loans are sold without recourse, generally with servicing rights retained by the Bank.
The Bank believes that these credit risks, which have not had a material adverse effect on the Bank to date, generally are less onerous than the interest rate risk associated with holding 20- and 30-year fixed-rate loans in its loan portfolio. For many years, the Bank has offered discounted rates on residential mortgage loans to low- to moderate-income individuals.
The Bank believes that these credit risks, which have not had a material adverse effect on the Bank to date, generally are less onerous than the interest rate risk associated with holding 20- and 30-year fixed-rate loans in its loan portfolio. For many years, the Bank has offered discounted rates on residential mortgage loans to low- and moderate-income individuals.
Certain enhanced prudential standards also now are applicable such as additional risk management requirements, both from a framework and corporate governance perspective. These and other supervisory and regulatory implications of crossing the $10 billion threshold have and will likely continue to result in increased regulatory costs.
Certain enhanced prudential standards are also now applicable such as additional risk management requirements, both from a framework and corporate governance perspective. These and other supervisory and regulatory implications of crossing the $10 billion threshold have and will likely continue to result in increased regulatory costs.
Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.
Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a Tier 1 capital to total assets leverage ratio of 4.0%.
Further, in June 2020, Volcker Rule Agencies issued a final rule modifying the Volcker Rule's prohibition on banking entities' investing in or sponsoring “covered funds.” The final rule (1) streamlined the covered funds portion of the rule; (2) addressed the extraterritorial treatment of certain foreign funds; and (3) permitted banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address.
Further, in June 2020, the Volcker Rule Agencies issued a final rule modifying the Volcker Rule's prohibition on banking entities' investing in or sponsoring “covered funds.” The final rule (1) streamlined the covered funds portion of the rule; (2) addressed the extraterritorial treatment of certain foreign funds; and (3) permitted banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address.
An institution’s failure to comply with the Equal Credit Opportunity Act and/or the Fair Housing Act could result in enforcement actions by the FDIC, and CFPB, as well as other federal regulatory agencies and the Department of Justice. Safety and Soundness Standards.
An institution’s failure to comply with the Equal Credit Opportunity Act and/or the Fair Housing Act could result in enforcement actions by the FDIC, or the CFPB, as well as other federal regulatory agencies and the Department of Justice. Safety and Soundness Standards.
The FDIC may also appoint a conservator or receiver for an insured state bank on the basis of the institution’s financial condition or upon the occurrence of certain events, including: • Insolvency, or when the assets of the bank are less than its liabilities to depositors and others; • Substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; • Existence of an unsafe or unsound condition to transact business; • Likelihood that the bank will be unable to meet the demands of its depositors or to pay its obligations in the normal course of business; and 32 • Insufficient capital, or the incurring or likely incurring of losses that will substantially deplete all of the institution’s capital with no reasonable prospect of replenishment of capital without federal assistance.
The FDIC may also appoint a conservator or receiver for an insured state bank on the basis of the institution’s financial condition or upon the occurrence of certain events, including: • Insolvency, or when the assets of the bank are less than its liabilities to depositors and others; • Substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; 32 • Existence of an unsafe or unsound condition to transact business; • Likelihood that the bank will be unable to meet the demands of its depositors or to pay its obligations in the normal course of business; and • Insufficient capital, or the incurring or likely incurring of losses that will substantially deplete all of the institution’s capital with no reasonable prospect of replenishment of capital without federal assistance.
Notable aspects of the rule include: (1) the establishment of bright-line standards for determining whether an entity meets the statutory definition of “deposit broker”; (2) the identification of a number of business relationships in which the agent or nominee is automatically not deemed to be a “deposit broker” because their primary purpose is not the placement of funds with depository institutions (the “primary purpose 29 exception”); (3) the establishment of a more transparent application process for entities that seek the “primary purpose exception,” but do not qualify as one of the identified business relationships to which the exception is automatically applicable; and (4) the clarification that third parties that have an exclusive deposit-placement arrangement with only one IDI is not considered a “deposit broker.” The final rule took effect in April 2021 and full compliance with the rule has been required since January 1, 2022.
Notable aspects of the rule include: (1) the establishment of bright-line standards for determining whether an entity meets the statutory definition of “deposit broker”; (2) the identification of a number of business relationships in which the agent or nominee is automatically not deemed to be a “deposit broker” because their primary purpose is not the placement of funds with depository institutions (the “primary purpose exception”); (3) the establishment of a more transparent application process for entities that seek the “primary purpose exception,” but do not qualify as one of the identified business relationships to which the exception is automatically applicable; and (4) the clarification that third parties that have an exclusive deposit-placement arrangement with only one IDI is not considered a “deposit broker.” The final rule took effect in April 2021 and full compliance with the rule has been required since January 1, 2022.
Federal Reserve Board guidance sets forth the supervisory expectation that bank holding companies will inform and consult with Federal Reserve Board staff in advance of issuing a dividend that exceeds earnings for the quarter and should inform the Federal Reserve Board and should eliminate, defer or significantly reduce dividends if: (i) net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
Federal Reserve Board guidance sets forth the supervisory expectation that bank holding companies will inform and consult with Federal Reserve Board staff in advance of issuing a dividend that exceeds earnings for the quarter, 35 and should inform the Federal Reserve Board and should eliminate, defer or significantly reduce dividends if: (i) net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
On October 18 2022, the FDIC also adopted a final rule, effective January 1, 2023, to incorporate updated accounting standards into deposit insurance assessments applicable to all large insured depository institutions that have adopted FASB’s Accounting Standards Update ("ASU") 2022-02, "Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures," , as defined and further described in Note 1 to the Consolidated Financial Statements.
On October 18, 2022, the FDIC also adopted a final rule, effective January 1, 2023, to incorporate updated accounting standards into deposit insurance assessments applicable to all large insured depository institutions that have adopted FASB’s ASU 2022-02, "Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures," , as defined and further described in Note 1 to the Consolidated Financial Statements.
In addition, consumer loan collections are dependent upon the borrower’s continued financial stability, which is more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount the Bank can recover on such loans. 9 Loan Originations, Purchases, and Repayments.
In addition, consumer loan collections are dependent upon the borrower’s continued financial stability, which is more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount the Bank can recover on such loans. Loan Originations, Purchases, and Repayments.
These reports include information on impaired loans, delinquent loans, criticized and classified assets, and foreclosed assets. An impaired loan is defined as a non-homogeneous loan greater than $1.0 million for which it is probable, based on current information, that the Bank will not collect all amounts due under the contractual terms of the loan agreement.
These reports include information on impaired loans, delinquent loans, criticized and classified assets, and foreclosed assets. An impaired loan is defined as a non-homogeneous loan greater than $1.0 million for which it is probable, based on current 10 information, that the Bank will not collect all amounts due under the contractual terms of the loan agreement.
In connection with its adoption of CECL on January 1, 2020, the Company elected to utilize the five-year CECL transition. Further information regarding the impact of CECL can be found in Note 5 "Held to Maturity Debt Securities", Note 7 "Loans Receivable and Allowance for Credit Losses", and Note 17 "Allowance for Credit Losses on Off-Balance Sheet Credit Exposures".
In connection with its adoption of CECL on 27 January 1, 2020, the Company elected to utilize the five-year CECL transition. Further information regarding the impact of CECL can be found in Note 5 "Held to Maturity Debt Securities", Note 7 "Loans Receivable and Allowance for Credit Losses", and Note 17 "Allowance for Credit Losses on Off-Balance Sheet Credit Exposures".
To attract and retain deposits, the Bank offers competitive rates, quality customer service and a wide variety of products and services that meet customers’ needs, including online and mobile banking. 21 Deposit pricing strategy is monitored monthly by the management Asset/Liability Committee and Pricing Committee. Deposit pricing is set weekly by the Bank’s Treasury Department.
To attract and retain deposits, the Bank offers competitive rates, quality customer service and a wide variety of products and services that meet customers’ needs, including online and mobile banking. Deposit pricing strategy is monitored monthly by the management Asset/Liability Committee and Pricing Committee. Deposit pricing is set weekly by the Bank’s Treasury Department.
With certain exceptions, loans to an executive officer, other than loans for the education of the officer’s children and certain loans secured by the officer’s residence may not exceed at any one time the higher of 2.5% of the bank’s unimpaired capital and unimpaired surplus or $25,000, but in no event more than $100,000.
With certain exceptions, loans to an executive officer, other than loans for the education of the officer’s children and certain loans secured by the officer’s residence may not exceed at any one time the higher of 2.5% of the bank’s unimpaired capital and unimpaired surplus or $25,000, but in no event may be more than $100,000.
Generally, for commercial real estate secured loans in excess of $1.0 million and for all other commercial real estate loans where it is deemed appropriate, the Bank requires environmental professionals to inspect the property and ascertain any potential environmental risks. In accordance with regulatory guidelines, the Bank requires a full independent appraisal for commercial real estate properties.
Generally, for commercial real estate secured loans in excess of $1.0 million and for all other commercial real 5 estate loans where it is deemed appropriate, the Bank requires environmental professionals to inspect the property and ascertain any potential environmental risks. In accordance with regulatory guidelines, the Bank requires a full independent appraisal for commercial real estate properties.
For all construction loans, the Bank requires an independent appraisal, which includes information on market rents and/or comparable sales for competing projects. The Bank also obtains personal guarantees, where appropriate, and conducts environmental due diligence as appropriate. The Bank also employs other means to mitigate the risk of the construction lending process.
For all construction loans, the Bank requires an independent appraisal, which includes information on market rents and/or comparable sales for competing projects. The Bank also obtains personal guarantees, where appropriate, and conducts environmental due diligence as appropriate. 6 The Bank also employs other means to mitigate the risk of the construction lending process.
The Bank has adopted a risk rating system as part of the credit risk assessment of its loan portfolio. The Bank’s commercial real estate and commercial lending officers are required to maintain an appropriate risk rating for each loan in their 10 portfolio. When the lender learns of important financial developments, the risk rating is reviewed accordingly.
The Bank has adopted a risk rating system as part of the credit risk assessment of its loan portfolio. The Bank’s commercial real estate and commercial lending officers are required to maintain an appropriate risk rating for each loan in their portfolio. When the lender learns of important financial developments, the risk rating is reviewed accordingly.
Any charge-off recommendation of $500,000 or greater is submitted to executive management. 11 Delinquent Loans and Non-performing Loans and Assets. Bank policy requires that the Chief Credit Officer continuously monitor the status of the loan portfolios and report to the Board of Directors on at least a quarterly basis.
Any charge-off recommendation of $500,000 or greater is submitted to executive management. Delinquent Loans and Non-performing Loans and Assets. Bank policy requires that the Chief Credit Officer continuously monitor the status of the loan portfolios and report to the board of directors on at least a quarterly basis.
Management completed its most recent development and evaluation of its quantitative loss factors in the fourth quarter of 2022. Qualitative adjustments give consideration to other qualitative factors such as trends in industry conditions, effects of changes in credit concentrations, changes in the Company’s loan review process, changes in the Company's loan policies and procedures, economic forecast uncertainty and model imprecision.
Management completed its most recent development and evaluation of its quantitative loss factors in the fourth quarter of 2022. Qualitative adjustments give consideration to factors such as trends in industry conditions, effects of changes in credit concentrations, changes in the Company’s loan review process, changes in the Company's loan policies and procedures, economic forecast uncertainty and model imprecision.
In addition, various regulatory agencies periodically review the adequacy of the Company’s allowance for credit losses as an integral part of their examination 16 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.
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.
Owner-occupied commercial real estate loans are generally underwritten to terms consistent with those utilized for commercial real estate; however, the maximum loan-to-value ratio for owner-occupied commercial real estate loans is generally 80%. The Bank also underwrites Small Business Administration (“SBA”) guaranteed loans and guaranteed or assisted loans through various state, county and municipal programs.
Owner-occupied commercial real estate loans are generally underwritten to terms consistent with those utilized for commercial real estate; however, the maximum loan-to-value ratio for owner-occupied commercial real estate loans is generally 80%. 7 The Bank also underwrites Small Business Administration (“SBA”) guaranteed loans and guaranteed or assisted loans through various state, county and municipal programs.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or written agreement entered into with the FDIC.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or condition imposed by the FDIC or written agreement entered into with the FDIC.
In particular, the current examination and evaluation process focuses on three tests: • A lending test, to evaluate the institution’s record of making home mortgage, small business, small farm, and consumer loans, if applicable, in its assessment area(s), with consideration given towards, amongst other factors, borrower characteristics and geographic distribution; • An investment test, to evaluate the institution’s record of helping to meet the credit needs of its assessment area(s) through qualified investments characterized as a lawful investment, deposit, membership share, or grant that has as its primary purpose community development; and • A service test, to evaluate the institution’s systems for delivering retail banking services through its branches, ATMs and other offices and access facilities, including the distribution of its branches, ATMs and other offices/access facilities, and the institution’s record of opening and closing branches.
In particular, the current examination and evaluation process focuses on three tests: • A lending test, to evaluate the institution’s record of making home mortgage, small business, small farm, and consumer loans, if applicable, in its assessment area(s), with consideration given towards, among other factors, borrower characteristics and geographic distribution; • An investment test, to evaluate the institution’s record of helping to meet the credit needs of its assessment area(s) through qualified investments characterized as a lawful investment, deposit, membership share, or grant that has as its primary purpose community development; and • A service test, to evaluate the institution’s systems for delivering retail banking services through its branches, ATMs and other offices and access facilities, including the distribution of its branches, ATMs and other offices/access facilities, and the institution’s record of opening and closing branches.
The final rules direct stock exchanges to require listed companies to implement clawback policies to recover incentive-based compensation from current or former executive officers in the event of 31 material noncompliance with any financial reporting requirement under the securities law and to disclose their clawback policies and their actions under those policies.
The final rules direct stock exchanges to require listed companies to implement clawback policies to recover incentive-based compensation from current or former executive officers in the event of material noncompliance with any financial reporting requirement under the securities law and to disclose their clawback policies and their actions under those policies.
Alternatively, the mortgage lender can originate “qualified mortgages,” which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a qualified mortgage (“QM”) is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years.
Alternatively, the mortgage lender can originate “qualified mortgages,” which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a qualified mortgage is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years.
This amount represents an allocation of income to bad debt deductions for tax purposes only. Events that would result in taxation of these reserves include failure to qualify as a bank for tax purposes, distributions in complete or partial liquidation, stock redemptions and excess distributions to shareholders.
This amount represents an allocation of income to bad debt deductions for tax purposes only. Events that would result in taxation of these reserves include failure to qualify as a bank for tax purposes, 37 distributions in complete or partial liquidation, stock redemptions and excess distributions to shareholders.
For each segment, this approach compares 12 each loan’s amortized cost to the present value of its contractual cash flows adjusted for projected credit losses, prepayments and curtailments to determine the appropriate reserve for that loan. Quantitative loss factors are evaluated at least annually.
For each segment, this approach compares each loan’s amortized cost to the present value of its contractual cash flows adjusted for projected credit losses, prepayments and curtailments to determine the appropriate reserve for that loan. Quantitative loss factors are evaluated at least annually.
Although we have benefited from significantly reduced compliance obligations due to the level of our trading assets being below the $20 billion threshold, we remain subject to the modified rules and requirements related to covered funds. Activity Restrictions on State-Chartered Banks.
Although we have benefited from significantly reduced compliance obligations due to the level of our trading assets being below the $20 billion threshold, we remain subject to the modified rules and requirements related to covered funds. 28 Activity Restrictions on State-Chartered Banks.
The legislation resulted in significant changes to the method of calculating 39 income taxes for banks, including changes to future period tax rates, rules relating to the sourcing of income, and the elimination of the banking corporation tax so that banking corporations are taxed under New York State’s corporate franchise tax.
The legislation resulted in significant changes to the method of calculating income taxes for banks, including changes to future period tax rates, rules relating to the sourcing of income, and the elimination of the banking corporation tax so that banking corporations are taxed under New York State’s corporate franchise tax.
The Bank faces direct competition for loans from each of these 3 institutions as well as from mortgage companies, online lenders and other loan origination firms operating in its market area. The Bank’s most direct competition for deposits comes from several commercial banks and savings banks in its market area.
The Bank faces direct competition for loans from each of these institutions as well as from mortgage companies, online lenders and other loan origination firms operating in its market area. The Bank’s most direct competition for deposits comes from several commercial banks and savings banks in its market area.
Commercial construction lending includes both new construction of residential and commercial real estate projects and the rehabilitation of existing structures. 7 The Bank’s commercial construction financing includes projects constructed for investment purposes (rental property), projects for sale (single family/condominiums) and to a lesser extent, owner-occupied business properties.
Commercial construction lending includes both new construction of residential and commercial real estate projects and the rehabilitation of existing structures. The Bank’s commercial construction financing includes projects constructed for investment purposes (rental property), owner-occupied business properties and to a lesser extent, projects for sale (single family/condominiums).
Notwithstanding these regulatory amendments, the federal banking agencies indicated through interagency guidance that the capital planning and risk management practices of institutions with total assets less than $100 billion would continue to be reviewed through the regular supervisory process.
Notwithstanding these amendments, the federal banking agencies indicated through interagency guidance that the capital planning and risk management practices of institutions with total assets less than $100 billion would continue to be reviewed through the regular supervisory process.
This law would potentially be applicable to the Company if it ever acquired as a separate subsidiary, a depository institution in addition to the Bank. New Jersey Regulation. Under the New Jersey Banking Act, a company owning or controlling a savings bank is regulated as a bank holding company.
This law would potentially be applicable to the Company if it ever acquired as a separate subsidiary a depository institution in addition to the Bank. 36 New Jersey Regulation. Under the New Jersey Banking Act, a company owning or controlling a savings bank is regulated as a bank holding company.
A non-accrual loan is returned to accrual status when factors indicating doubtful collection no longer exist, the loan has been brought current and the borrower demonstrates some period (generally six months) of timely contractual payments.
A non-accrual loan is 11 returned to accrual status when factors indicating doubtful collection no longer exist, the loan has been brought current and the borrower demonstrates some period (generally six months) of timely contractual payments.
The respective quantitative allowance for each 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.
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.
The Bank’s primary market area includes a mix of urban and suburban communities, and has a diversified mix of industries including pharmaceutical, manufacturing companies, network communications, insurance and financial services, healthcare, and retail. According to the U.S.
The Bank’s primary market area includes a mix of urban and suburban communities, and has a diversified mix of industries including pharmaceutical, manufacturing, network communications, insurance and financial services, healthcare, and retail. According to the U.S.
Census Bureau’s most recent population data, the Bank’s New Jersey market area has a population of approximately 7.4 million, which was 79.7% of the state’s total population. The Bank’s Pennsylvania market area has a population of approximately 1.3 million, which was 10.3% of that state’s total population.
Census Bureau’s most recent population data, the Bank’s New Jersey market area has a population of approximately 7.4 million, which was 79.2% of the state’s total population. The Bank’s Pennsylvania market area has a population of approximately 1.3 million, which was 10.4% of that state’s total population.
In addition, a risk rating can be adjusted at the weekly Credit Committee meeting and quarterly at management’s Credit Risk Management Committee, which meets to review loans rated a “Pass/Watch” ("5") or worse.
In addition, a risk 9 rating can be adjusted at the weekly Credit Committee meeting and quarterly at management’s Credit Risk Management Committee, which meets to review loans rated a “Pass/Watch” ("5") or worse.
A subsidiary of a bank that is not also a depository institution, financial subsidiary or other entity defined by the regulation generally is not treated as an affiliate of the bank for purposes of Sections 23A and 23B.
A subsidiary of a bank that is not also a depository institution, financial subsidiary or other entity defined by the regulation generally is not treated as an affiliate of the bank for purposes of Sections 23A and 23B and Regulation W.
Managing Interest Rate Risk. The Bank manages its exposure to interest rate risk through the origination and retention of adjustable rate and shorter-term loans, and its investments in securities. In addition, the Bank uses interest rate swaps as part of its interest rate risk management strategy.
The Bank manages its exposure to interest rate risk through the origination and retention of adjustable rate and shorter-term loans, and its investments in securities. In addition, the Bank uses interest rate swaps as part of its interest rate risk management strategy.
As of December 31, 2022, the portfolio and class segments for the Company’s loan portfolio were: • Mortgage Loans – Residential, Commercial Real Estate, Multi-Family and Construction • Commercial Loans – Commercial Owner Occupied and Commercial Non-Owner Occupied • Consumer Loans – First Lien Home Equity and Other Consumer The allowance for credit losses on loans individually evaluated for impairment is based upon loans that have been identified through the Company’s normal loan monitoring process.
As of December 31, 2023, the portfolio and class segments for the Company’s loan portfolio were: • Mortgage Loans – Residential, Commercial Real Estate, Multi-Family and Construction • Commercial Loans – Commercial Owner Occupied and Commercial Non-Owner Occupied • Consumer Loans – First Lien Home Equity and Other Consumer The allowance for credit losses on loans individually evaluated for impairment is based upon loans that have been identified through the Company’s normal loan monitoring process.
Information on our website should not be considered a part of this Annual Report on Form 10-K. Provident Bank Established in 1839, the Bank is a New Jersey-chartered capital stock savings bank operating full-service branch offices throughout northern and central New Jersey, as well as Bucks, Lehigh and Northampton counties in Pennsylvania and Queens County, New York.
Information on our website should not be considered a part of this Annual Report on Form 10-K. Provident Bank Established in 1839, the Bank is a New Jersey-chartered capital stock savings bank operating full-service branch offices throughout northern and central New Jersey, Bucks, Lehigh and Northampton counties in Pennsylvania, as well as Queens and Nassau Counties in New York.
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 15 interest rate.
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.
See Note 7 to the Consolidated Financial Statements for more information on the allowance for credit losses on loans. Analysis of the Allowance for Credit Losses on Loans. The following table sets forth the analysis of the allowance for credit losses for the periods indicated.
See Note 7 to the Consolidated Financial Statements for more information on the allowance for credit losses on loans. 16 Analysis of the Allowance for Credit Losses on Loans. The following table sets forth the analysis of the allowance for credit losses for the periods indicated.
While management believes that on the basis of information currently available to it, the allowance for credit losses is adequate as of December 31, 2022, actual losses are dependent upon future events and, as such, further additions to the level of allowances for credit losses may become necessary. Loans are classified in accordance with the risk rating system described previously.
While management believes that on the basis of information currently available to it, the allowance for credit losses is adequate as of December 31, 2023, actual losses are dependent upon future events and, as such, further additions to the level of allowances for credit losses may become necessary. Loans are classified in accordance with the risk rating system described previously.
The Company has received stockholder approval to proceed with the merger at a special meeting of stockholders held on February 1, 2023. Lakeland has received shareholder approval to proceed with the merger at a special meeting of shareholders held on February 1, 2023.
The Company received stockholder approval to proceed with the merger at a special meeting of stockholders held on February 1, 2023. Lakeland received shareholder approval to proceed with the merger at a special meeting of shareholders held on February 1, 2023.
As a result, the availability of funds for the repayment of commercial loans may be substantially dependent on the success of the business itself and the general economic environment. The Bank’s largest commercial loan commitment as of December 31, 2022 was a $60.0 million working capital line of credit to a large New Jersey based automobile leasing company.
As a result, the availability of funds for the repayment of commercial loans may be substantially dependent on the success of the business itself and the general economic environment. The Bank’s largest commercial loan commitment as of December 31, 2023 was a $60.0 million working capital line of credit to a large New Jersey based automobile leasing company.
We sponsor and support programs like ProvidentWomen which advances personal and 24 professional growth of women in business through education, networking events and volunteer opportunities.
We sponsor and support programs like ProvidentWomen which advances personal and professional growth of women in business through education, networking events and volunteer opportunities.
In addition to establishing the minimum regulatory capital requirements, federal regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements.
In addition to establishing the minimum regulatory capital requirements, federal regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
Loans originated in this category over the last five years have totaled $35.7 million. The Bank also offers a special rate program for first-time homebuyers under which originations have totaled over $75.2 million for the past five years. The Bank does not originate or purchase sub-prime or option ARM loans. Commercial Real Estate Loans.
Loans originated in this category over the last five years have totaled $35.7 million. The Bank also offers a special rate program for first-time homebuyers under which originations have totaled over $75.2 million for the past five years. The Bank does not originate or purchase sub-prime or option ARM loans. Commercial Loans.
Under the general rule, for tax periods ending December 31, 2017 and prior a financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. At December 31, 2018, the Company had approximately $1.1 million of Federal Net Operating Losses ("NOLs").
Under the general rule, for tax periods ending December 31, 2017 and prior, a financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. As of December 31, 2018, the Company had approximately $1.1 million of Federal Net Operating Losses ("NOLs").
This group exposure consisted of three multi-family commercial real estate loans totaling $45.9 million, secured by three properties in Delaware, two construction loans totaling $87.5 million, secured by two multi-family properties in Delaware and Pennsylvania, and $1.7 million in interest rate swap exposure. The loans have an average risk rating of “4”.
This group exposure consisted of three multi-family commercial real estate loans totaling $45.3 million, secured by three properties in Delaware, two construction loans totaling $87.5 million, secured by two multi-family properties in Delaware and Pennsylvania, and $1.7 million in interest rate swap exposure. The loans have an average risk rating of “4”.
Specifically, the final rule requires 30 banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the final rule.
The final rule requires banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the final rule.
In connection with its adoption of CECL on January 1, 2020, the Company elected to utilize the five-year CECL transition. The following table shows the Company’s Tier 1 leverage capital ratio, common equity Tier 1 risk-based capital ratio, Tier 1 risk-based capital ratio and the total risk-based capital ratio as of December 31, 2022.
In connection with its adoption of CECL on January 1, 2020, the Company elected to utilize the five-year CECL transition. The following table shows the Company’s Tier 1 leverage capital ratio, common equity Tier 1 risk-based capital ratio, Tier 1 risk-based capital ratio and the total risk-based capital ratio as of December 31, 2023.
The Credit Committee currently consists of nine senior officers including the Chief Executive Officer, the Chief Lending Officer, the Chief Financial Officer, the Chief Credit Officer, the Chief Administrative Officer, the Director of Credit Risk and the Lending Chief of Staff. While the Bank discourages loan policy exceptions, based upon reasonable business considerations exceptions to the policy may be warranted.
The Credit Committee currently consists of eight senior officers including the Chief Executive Officer, the Chief Lending Officer, the Chief Financial Officer, the Chief Credit Officer, the Chief Administrative Officer, the Director of Credit Risk and the Lending Chief of Staff. While the Bank discourages loan policy exceptions, based upon reasonable business considerations exceptions to the policy may be warranted.
The Bank’s focus on transaction accounts and expanded products and services has enabled the Bank to generate increased non-interest income. In addition to traditional depository and lending fees, the Bank generates non-interest income from investment, insurance, wealth and asset management services it offers to generate non-interest income.
The Bank’s focus on transaction accounts and expanded products and services has enabled it to generate significant non-interest income. In addition to traditional depository and lending fees, the Bank generates non-interest income from investment, insurance, wealth and asset management services it offers to generate non-interest income.
On September 26, 2022, the Company, NL 239 Corp., a direct, wholly owned subsidiary of the Company (“Merger Sub”), and Lakeland Bancorp, Inc. entered into an Agreement and Plan of Merger (as may be amended, modified or supplemented from time to time in accordance with its terms, the “merger agreement”), pursuant to which Provident and Lakeland have agreed to combine their respective businesses.
On September 26, 2022, the Company, NL 239 Corp., a direct, wholly owned subsidiary of the Company (“Merger Sub”), and Lakeland entered into an Agreement and Plan of Merger (as may be amended, modified or supplemented from time to time in accordance with its terms, the “merger agreement”), pursuant to which the Company and Lakeland have agreed to combine their respective businesses.
Under the limited exception, qualified banks are able to be exempt from treatment as “brokered” deposits up to $5 billion or 20 percent of the institution’s total liabilities in reciprocal deposits (which is defined as deposits received by a financial institution through a deposit placement network with the same maturity (if any) and in the same aggregate amount as deposits placed by the institution in other network member banks.
Under the limited exception, qualified banks can be exempt from treatment as “brokered” deposits up to $5 billion or 20 percent of the institution’s total liabilities in reciprocal deposits (which are defined as deposits received by a financial institution through a deposit placement network with the same maturity (if any) and in the same aggregate amount as deposits placed by the institution in other network member banks).
The borrower, headquartered in Pennsylvania, is an experienced real estate owner and developer in the states of Delaware and Pennsylvania. As of December 31, 2022, all of the loans in this lending relationship were performing in accordance with their respective terms and conditions.
The borrower, headquartered in Pennsylvania, is an experienced real estate owner and developer in the states of Delaware and Pennsylvania. As of December 31, 2023, all of the loans in this lending relationship were performing in accordance with their respective terms and conditions.
Privacy and Data Security Standards. Applicable regulations require the Bank to disclose its privacy policies, including identifying with whom it shares “non-public personal information” to customers at the time of establishing the customer relationship and annually thereafter.
Privacy and Data Security Standards. Applicable regulations require the Bank to disclose its privacy policies, including identifying with whom it shares customers' “non-public personal information” at the time of establishing the customer relationship and annually thereafter.
Holding Company Regulation Federal Regulation. The Company is regulated as a bank holding company, and as such, is subject to examination, regulation and periodic reporting under the Bank Holding Company Act, as administered by the Federal Reserve Board. The Federal Reserve Board has adopted capital adequacy guidelines for bank holding companies on a consolidated basis.
Holding Company Regulation Federal Regulation. The Company is regulated as a bank holding company, and as such, is subject to examination, regulation and periodic reporting under the BHCA, as administered by the Federal Reserve Board. The Federal Reserve Board has adopted capital adequacy guidelines for bank holding companies on a consolidated basis.
The Bank must comply with the anti-money laundering (“AML”) provisions of the Bank Secrecy Act (“BSA”) as amended by the USA PATRIOT Act and implementing regulations issued by the FDIC and the Financial Crimes Enforcement Network (“FinCEN”) of the U.S.
The Bank must comply with the anti-money laundering (“AML”) provisions of the Bank Secrecy Act (“BSA”) as amended by the USA PATRIOT Act and implementing regulations issued by the FDIC and the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury.
In calculating common equity Tier 1 risk-based capital, Tier 1 risk-based capital and total risk-based capital, assets are based on total risk-weighted assets. As of December 31, 2022, the Bank was considered “well capitalized” under FDIC guidelines. Stress Testing.
In calculating common equity Tier 1 risk-based capital, Tier 1 risk-based capital and total risk-based capital, assets are based on total risk-weighted assets. As of December 31, 2023, the Bank was considered “well capitalized” under FDIC guidelines. Stress Testing.
In calculating common equity tier 1 capital, Tier 1 risk-based capital and total risk-based capital, assets are based on total risk-weighted assets. As of December 31, 2022, the Company was “well capitalized” under Federal Reserve Board guidelines.
In calculating common equity Tier 1 capital, Tier 1 risk-based capital and total risk-based capital, assets are based on total risk-weighted assets. As of December 31, 2023, the Company was “well capitalized” under Federal Reserve Board guidelines.
To improve asset yields and reduce its exposure to interest rate risk, the Bank continues to emphasize the origination of commercial real estate loans, multi-family loans and commercial business loans. These loans generally have adjustable rates or shorter fixed terms and interest rates that are higher than the rates applicable to one-to four- 2 family residential mortgage loans.
To improve asset yields and manage its exposure to interest rate risk, the Bank continues to emphasize the origination of commercial real estate loans, multi-family loans and commercial business loans. These loans generally have adjustable rates or shorter fixed terms and interest rates that are higher than the rates applicable to one-to four-family residential mortgage loans.
The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934. Investment Adviser Regulation. Beacon Investment Advisory Services, Inc. is an investment adviser registered with the SEC. As such, it is required to make certain filings with and is subject to periodic examination by, the SEC. Delaware Corporate Law.
The Company is subject to information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934. Investment Adviser Regulation. Beacon is an investment adviser registered with the SEC. As such, it is required to make certain filings with and is subject to periodic examination by the SEC. Delaware Corporate Law.
FHLBNY advances are available pursuant to several credit programs, each of which has its own interest rate and range of maturities. 22 The following table sets forth the maximum month-end balance and average balance of FHLBNY advances and securities sold under agreements to repurchase for the periods indicated.
FHLBNY advances are available pursuant to several credit programs, each of which has its own interest rate and range of maturities. 22 The following table sets forth the maximum month-end balance and average balance of FHLBNY advances, FED BTFP borrowings and securities sold under agreements to repurchase for the periods indicated.
In August 2020, the federal bank regulatory authorities issued a final rule providing banking institutions that had adopted the Current Expected Credit Loss ("CECL") accounting standard in 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 August 2020, the federal bank regulatory authorities issued a final rule providing banking institutions that had adopted the CECL accounting standard in 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).
The rule sought to clarify and modernize the FDIC’s regulatory framework for brokered deposits.
The rule sought to clarify 29 and modernize the FDIC’s regulatory framework for brokered deposits.
The Commissioner and the FDIC conduct periodic examinations to assess the Bank’s compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which a savings bank can engage and is intended primarily for the protection of the deposit insurance fund and depositors.
The Commissioner and the FDIC conduct periodic examinations to assess the Bank’s compliance with various regulatory requirements. This regulation and supervision establish a comprehensive framework of activities in which a savings bank can engage and is intended primarily for the protection of the Deposit Insurance Fund ("DIF") and depositors.
In addition, for loans modified in response to the COVID-19 pandemic that did not meet the above criteria (e.g., current payment status at December 31, 2019), the Company applied the guidance included in an interagency statement issued by the bank regulatory agencies.
In addition, for loans modified in response to the COVID-19 pandemic that did not meet the above criteria (e.g., current payment status as of December 31, 2019), the Company applied the guidance included in an interagency statement issued by the bank regulatory agencies.
The Company evaluates acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) troubled debt restructured designation; (3) risk ratings of special mention, substandard or doubtful; (4) watchlist credits; and (5) delinquency status, including loans that are current on acquisition date, but had been previously delinquent.
The Company evaluates acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) modification designation; (3) risk ratings of special mention, substandard or doubtful; (4) watchlist credits; and (5) delinquency status, including loans that are current on acquisition date, but had been previously delinquent.
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.
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.
The Economic Growth Act also provided that bank holding companies under $100 billion in assets were no longer subject to stress testing requirements. The amended regulations also provide the Federal Reserve with discretion to subject bank holding companies with more than $100 billion in total assets to enhanced supervision.
The Economic Growth Act also provided that bank holding companies with under $100 billion in assets were no longer subject to stress testing requirements. The amendments also provide the Federal Reserve with discretion to subject bank holding companies with more than $100 billion in total assets to enhanced supervision.
Generally, loans to insiders must be made on substantially the same terms as, and follow credit underwriting procedures that are not less stringent than, those prevailing at the time for, comparable transactions with other persons, and not involve more than the normal risk of payment or present other unfavorable features.
Generally, loans to insiders and their related interests must be made on substantially the same terms as, and follow credit underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions with other persons, and may not involve more than the normal risk of payment or present other unfavorable features.
The Bank's New York market area has a population of approximately 3.7 million, which was 18.8% of the state's total population. Because of the diversity of industries within the Bank’s market area and, to a lesser extent, its proximity to the New York City financial markets, the area’s economy can be significantly affected by changes in national and international economies.
The Bank's New York market area has a population of approximately 3.6 million, which was 18.4% of the state's total population. Because of the diversity of industries within the Bank’s market area and, to a lesser extent, its proximity to the New York City financial markets, the area’s economy can be significantly affected by changes in national and international economies.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe have experienced cyber security incidents in the past, although not material, and we anticipate that, as a larger bank, we could experience further incidents. There can be no assurance that we will not suffer material losses or other material adverse consequences relating to technology failure, cyber-attacks or other information or security breaches.
Biggest changeFinancial institutions have been subject to, and are likely to continue to be the target of, cyber-attacks and supply chain attacks which could materially disrupt network access or business operations or create regulatory compliance risks. We have experienced cyber security events in the past, although not material, and we anticipate that, as a larger bank, we could experience further events.
These costs include legal, financial advisory, accounting, consulting and other advisory fees, retention, severance and employee benefit-related costs, public company filing fees and other regulatory fees, financial printing and other printing costs, closing, integration and other related costs. Some of these costs are payable by the Company regardless of whether or not the merger is completed.
These costs include legal, financial advisory, accounting, consulting and other advisory fees, retention, severance and employee benefit-related costs, public company filing fees and other regulatory fees, financial printing and other printing costs, and closing, integration and other related costs. Some of these costs are payable by the Company regardless of whether or not the merger is completed.
We are subject to extensive regulation, supervision and examination of various regulatory authorities, but primarily by the New Jersey Department of Banking and Insurance, our chartering authority, and by the FDIC, as insurer of our deposits. As a bank holding company, we are subject to regulation and oversight by the Federal Reserve Board.
We are subject to extensive regulation, supervision and examination by various regulatory authorities, but primarily by the New Jersey Department of Banking and Insurance, our chartering authority, and by the FDIC, as insurer of our deposits. As a bank holding company, we are subject to regulation and oversight by the Federal Reserve Board.
For example, it could: • limit the combined company’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; • restrict the combined company from making strategic acquisitions or cause the combined company to make non-strategic divestitures; • restrict the combined company from paying dividends to its stockholders; • increase the combined company’s vulnerability to general economic and industry conditions; and 42 • require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on the combined company’s indebtedness, thereby reducing the combined company’s ability to use cash flows to fund its operations, capital expenditures and future business opportunities.
For example, it could: • limit the combined company’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; • restrict the combined company from making strategic acquisitions or cause the combined company to make non-strategic divestitures; • restrict the combined company from paying dividends to its stockholders; • increase the combined company’s vulnerability to general economic and industry conditions; and • require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on the combined company’s indebtedness, thereby reducing the combined company’s ability to use cash flows to fund its operations, capital expenditures and future business opportunities.
Any of these matters could result in our loss of customers and business opportunities, significant disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our customers’ computers or systems, and could result in a violation of applicable privacy laws and 50 other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs.
Any of these matters could result in our loss of customers and business opportunities, significant disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our customers’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs.
These approvals could be delayed or not obtained at all, including due to an adverse development in either company’s regulatory standing or in any other factors considered by regulators when granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally.
These approvals could continue to be delayed or not obtained at all, including due to an adverse development in either company’s regulatory standing or in any other factors considered by regulators when granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally.
The Company also could be subject to litigation related to any failure to complete the merger or to proceedings commenced against the Company to perform its obligations under the merger agreement. If the merger agreement is terminated under certain circumstances, the Company may be required to pay a termination fee of $50 million to Lakeland.
The Company also could be subject to litigation related to any failure to complete the merger or to proceedings commenced against the Company to perform its obligations under the merger agreement. If the merger agreement is terminated under certain limited circumstances, the Company may be required to pay a termination fee of $50 million to Lakeland.
If any of the following conditions or events actually occur, our business, financial condition or results of operations could be negatively affected, the market price of your investment in the Company’s common stock could decline, and you could lose all or a part of your investment in the Company’s common stock.
If any of the following conditions or events actually occur, our business, financial condition or results of operations could be negatively 38 affected, the market price of your investment in the Company’s common stock could decline, and you could lose all or a part of your investment in the Company’s common stock.
If these third-parties were to discontinue providing services to us, we may experience significant disruption to our business. In addition, each of these third-parties faces the risk of cyber-attack, information breach or loss, or technology failure.
If these third-parties were to discontinue providing services to us, we may experience significant disruption to 49 our business. In addition, each of these third-parties faces the risk of cyber-attack, information breach or loss, or technology failure.
Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by multi-family buildings, investor commercial real estate and construction and land loans (“CRE Loans”), represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the CRE Loan portfolio has increased by 50% or more during the preceding 36 months.
Although the CRE Guidance does not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by multi-family buildings, investor commercial real estate and construction and land loans (“CRE Loans”), represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the CRE Loan portfolio has increased by 50% or more during the preceding 36 months.
Those conditions include, among other things: (i) authorization for listing on the New York Stock Exchange of the shares of the Company’s common stock to be issued in the merger, subject to official notice of issuance, (ii) the receipt of required regulatory approvals, including the approval of the Federal Reserve Board, the FDIC and the NJDOBI; and (iii) the absence of any order, injunction, decree or other legal restraint preventing the completion of the merger, the bank merger or any of the other transactions contemplated by the merger agreement or making the completion of the merger, the bank merger or any of 43 the other transactions contemplated by the merger agreement illegal.
Those conditions include, among other things: (i) authorization for listing on the New York Stock Exchange of the shares of the Company’s common stock to be issued in the merger, subject to official notice of issuance; (ii) the receipt of required regulatory approvals, including the approval of the Federal Reserve Board, the FDIC and the NJDOBI, and (iii) the absence of any order, injunction, decree or other legal restraint preventing the completion of the merger, the bank merger or any of the 39 other transactions contemplated by the merger agreement or making the completion of the merger, the bank merger or any of the other transactions contemplated by the merger agreement illegal.
As required by the terms of the DOJ Consent Order, Provident Bank, as the resulting institution in the bank merger, has agreed to and will assume all obligations under the DOJ Consent Order in connection with the bank merger.
As required by the terms of the DOJ Consent Order, the Bank, as the resulting institution in the bank merger, has agreed to and will assume all obligations under the DOJ Consent Order in connection with the bank merger.
In particular, over the past decade, our local markets have experienced the effects of substantial banking consolidation, and large out-of-state competitors have grown significantly. Many of these competitors have substantially greater resources and lending limits than we do, and may offer certain deposit and loan pricing, services or credit criteria that we do not or cannot provide.
Over the past decade, our local markets have experienced the effects of substantial banking consolidation, and large out-of-state competitors have grown significantly. Many of these competitors have substantially greater resources and lending limits than we do, and may offer certain deposit and loan pricing, services or credit criteria that we do not or cannot provide.
There are also a number of strong locally-based competitors with large capital positions in our market who may deploy aggressive strategies to drive growth, take our customers and win market share. Furthermore, key components of the financial services value chain have been replicated by digital innovation.
There are also a number of strong, locally-based competitors with large capital positions in our market who may deploy aggressive strategies to drive growth, acquire our customers and win market share. Furthermore, key components of the financial services value chain have been replicated by digital innovation.
As of December 31, 2022, our consolidated balance sheet included goodwill of $443.6 million and other intangible assets of $16.5 million. Our business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future amortization expense and potential impairment expense. We make estimates and assumptions in valuing such intangible assets that affect our consolidated financial statements.
As of December 31, 2023, our consolidated balance sheet included goodwill of $443.6 million and other intangible assets of $16.5 million. Our business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future amortization expense and potential impairment expense. We make estimates and assumptions in valuing such intangible assets that affect our consolidated financial statements.
Difficulties associated with potential acquisitions that may result from these factors could have a material adverse impact on our business, and, in turn, our financial condition and results of operations. 46 We may experience impairments of goodwill or other intangible assets in the future.
Difficulties associated with potential acquisitions that may result from these factors could have a material adverse impact on our business, and, in turn, our financial condition and results of operations. 45 We may experience impairments of goodwill or other intangible assets in the future.
In addition, following the merger, if key employees terminate their employment, the combined company’s business activities may be adversely affected, and management’s attention may be diverted from successfully hiring suitable replacements, all of which may cause the combined company’s business to suffer.
In addition, following the merger, if key employees terminate their employment, the combined company’s human capital and business activities may be adversely affected, and management’s attention may be diverted from successfully hiring suitable replacements, all of which may cause the combined company’s business to suffer.
Although both Provident Bank and Lakeland Bank are committed to full compliance with the DOJ Consent Order, achieving such compliance will require significant management attention from Lakeland Bank and, following the mergers, the combined bank and may cause Lakeland Bank and, following the mergers, the combined bank to incur unanticipated costs and expenses.
Although both the Bank and Lakeland Bank are committed to full compliance with the DOJ Consent Order, achieving such compliance will require significant management attention from Lakeland Bank and, following the mergers, the combined bank and may cause Lakeland 41 Bank and, following the mergers, the combined bank to incur unanticipated costs and expenses.
Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives to supplement the global effort to combat climate change.
Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives, legislation, and regulations to supplement the global effort to combat climate change.
Additionally, there could be sudden increases in customer transaction volume, electrical, telecommunications or other major physical infrastructure outages, natural disasters, events arising from local or larger scale geopolitical, political or social matters, including terrorist acts, and cyber-attacks.
Additionally, there could be sudden increases in customer transaction volume, electrical, telecommunications or other major physical infrastructure outages, natural disasters, events arising from local or larger scale geopolitical, political or social matters, including terrorist acts, and cyber-attacks from both private and state actors.
The Company's risk factors are categorized as follows: • Risks Related to the Pending Merger with Lakeland Bancorp, Inc. • Risks Related to the Economy, Financial Markets, and Interest Rates • Risks Related to Regulatory, Compliance, Environmental and Legal Matters • Risks Related to the Business Environment and Operations. • Risks Related to Technology and Security Risks Related to the Pending Merger with Lakeland Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company that results from the merger of the Company and Lakeland.
The Company's risk factors are categorized as follows: • Risks Related to the Pending Merger with Lakeland • Risks Related to the Economy, Financial Markets, and Interest Rates • Risks Related to Regulatory, Compliance, Environmental and Legal Matters • Risks Related to the Business Environment and Operations. • Risks Related to Technology and Security Risks Related to the Pending Merger with Lakeland Receipt of regulatory approvals has taken longer than expected and may not be received in the future, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company that results from the merger of the Company and Lakeland.
Commercial real estate loans generally involve a higher degree of credit risk because they typically have larger balances and are more affected by adverse conditions in the economy.
Commercial real estate loans generally involve a higher degree of credit risk because they typically have larger balances and are more affected by adverse conditions in the economy, such as vacancy rates and changes in rental rates.
The combined company may be unable to retain personnel of the Company and/or Lakeland successfully after the merger is completed. The success of the merger will depend in part on the combined company’s ability to retain the talent and dedication of key employees currently employed by the Company and Lakeland.
The combined company's human capital may be affected by inability to retain personnel of the Company and/or Lakeland successfully after the merger is completed. The success of the merger will depend in part on the combined company’s ability to manage its human capital and retain the talent and dedication of key employees currently employed by the Company and Lakeland.
Conditions that produce extended market volatility could affect our ability to provide our clients with an adequate return, thereby impacting our ability to attract new clients or causing existing clients to seek more stable investment opportunities with alternative wealth advisors.
Conditions that produce extended market volatility could affect our ability to provide our clients with an adequate return, thereby impacting our ability to attract new clients or causing existing clients to seek more stable investment opportunities with alternative wealth advisors. Furthermore, market volatility could adversely impact our access to capital and liquidity.
In addition, the actual cost savings of the merger could be less than anticipated, and integration may result in additional and unforeseen expenses. 41 An inability to realize the full extent of the anticipated benefits of the merger and the other transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results of the combined company following the completion of the merger, which may adversely affect the value of the common stock of the combined company following the completion of the merger.
An inability to realize the full extent of the anticipated benefits of the merger and the other transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results of the combined company following the completion of the merger, which may adversely affect the value of the common stock of the combined company following the completion of the merger.
In addition, the effect of rising rates could be compounded if deposit customers move funds into higher yielding accounts or are lost to competitors offering higher rates on their deposit products.
In addition, the effect of high rates continue to be compounded as deposit customers move funds into higher yielding accounts or are lost to competitors offering higher rates on their deposit products.
Before the merger of the Company and Lakeland (the “merger”) and the subsequent merger of Lakeland Bank with and into Provident Bank (the “bank merger”) may be completed, various approvals, consents and non-objections must be obtained from the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the FDIC, the New Jersey Department of Banking and Insurance (the “NJDOBI”) and other regulatory authorities in the United States.
Before the merger and bank merger may be completed, various approvals, consents and non-objections must be obtained from the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the FDIC, the New Jersey Department of Banking and Insurance (the “NJDOBI”) and other regulatory authorities in the United States.
In connection with the merger, Provident will assume Lakeland’s outstanding debt obligations, and the combined company’s level of indebtedness following the completion of the merger could adversely affect the combined company’s ability to raise additional capital and to meet its obligations under its existing indebtedness. In connection with the merger, Provident will assume Lakeland’s outstanding indebtedness.
In connection with the merger, the Company will assume Lakeland’s outstanding debt obligations and may need to issue additional debt in order to comply with capital requirements, and the combined company’s level of indebtedness following the completion of the merger could adversely affect the combined company’s ability to raise additional capital and to meet its obligations under its existing indebtedness.
In addition, any of the matters described above could adversely impact our results of operations and financial condition. We rely on third-party providers and other suppliers for a number of services that are important to our business.
In addition, any of the matters described above could adversely impact our results of operations and financial condition. For information on our cybersecurity risk management, strategy and governance, see Item 1C – Cybersecurity. We rely on third-party providers and other suppliers for a number of services that are important to our business.
Additionally, if the merger agreement is terminated, the market price of the Company’s common stock could decline to the extent that current market prices reflect a market assumption that the merger will be beneficial and will be completed.
Additionally, if the merger agreement is terminated, the market price of the Company’s common stock could decline to the extent that current market prices reflect a market assumption 40 that the merger would have been beneficial and should have been completed.
Conversely, should market interest rates fall below current levels, our net interest income could also be negatively affected if competitive pressures prevent us from reducing rates on our deposits, while the yields on our assets decrease through loan prepayments and interest rate adjustments.
Should market interest rates fall below current levels, our net interest income could also be negatively affected if competitive pressures prevent us from reducing rates on our deposits, while the yields on our assets decrease through loan prepayments and interest rate adjustments. Changes in interest rates also affect the value of our interest-earning assets, and particularly our securities portfolio.
New laws, regulations, and other regulatory changes, may also significantly affect the markets in which we do business, the markets for and value of our loans and investments, and our ongoing operations, costs and profitability. 45 As a financial institution with assets greater than $10 Billion, we are subject to additional regulation and increased supervision, including by the CFPB.
New laws, regulations, and other regulatory changes, may also significantly affect the markets in which we do business, the markets for and value of our loans and investments, and our ongoing operations, costs and profitability. As a larger financial institution, we are subject to additional regulation and increased supervision.
Additionally, the Company has incurred and will incur additional substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of preparing, filing, printing and mailing of a joint proxy statement/prospectus in connection with the merger, and all filing and other fees paid in connection with the merger.
Additionally, the Company has incurred and will incur additional substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, compliance with requests or requirements from the regulatory agencies, the preparing, filing, printing and mailing of a joint proxy statement/prospectus in connection with the merger, and all filing and other fees paid in connection with the merger.
The Company’s models used for business planning purposes could perform poorly or provide inadequate information. 49 We use quantitative models to assist in measuring risks and estimating or predicting certain financial values, among other uses. These models are used throughout many of our business lines, and we rely on them, along with our business judgment, for many decision-making processes.
We use quantitative models to assist in measuring risks and estimating or predicting certain financial values, among other uses. These models are used throughout many of our business lines, and we rely on them, along with our business judgment, for many decision-making processes.
We face regulatory scrutiny based on our commercial real estate lending. The FDIC, the OCC and the FRB (collectively, the “Agencies”) have issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”).
The FDIC, the OCC and the FRB (collectively, the “Agencies”) have issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”).
If short-term rates increase rapidly, we may have to increase the rates we pay on our deposits and borrowed funds more quickly than we can increase the interest rates we earn on our loans and investments, resulting in a negative effect on interest spreads and net interest income.
Persistent elevated short-term rates continue to require us to increase the rates we pay on our deposits and borrowed funds more quickly than we can increase the interest rates we earn on our loans and investments, resulting in a negative effect on interest spreads and net interest income.
Adverse local economic conditions caused by inflation, recession, unemployment, state or local 47 government action, or other factors beyond our control would impact these local economic conditions and could negatively affect the financial results of our business. We have a significant amount of real estate loans.
Adverse local economic conditions caused by inflation, recession, unemployment, state or local government action, or other factors beyond our control would impact these local economic conditions and could negatively affect the financial results of our business.
For example, the Company’s business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger.
For example, the Company’s business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger or the financial impact of complying with requirements imposed by regulatory agencies, without realizing any of the anticipated benefits of completing the merger.
We compete with commercial banks, savings institutions, mortgage banking firms, credit unions, finance companies, investment advisers, wealth managers, mutual funds, insurance companies, online lenders, large non-bank participants, and brokerage and investment banking firms operating both locally and elsewhere.
Our profitability depends upon our continued ability to successfully compete in our market area. We compete with commercial banks, savings institutions, mortgage banking firms, credit unions, finance companies, investment advisers, wealth managers, mutual funds, insurance companies, online lenders, large non-bank participants, and brokerage and investment banking firms operating both locally and elsewhere.
Our business is subject to risk from external events that could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause us to incur additional expenses.
Acts of terrorism, severe weather, natural disasters, public health issues, geopolitical and other external events could impact our ability to conduct business. 46 Our business is subject to risk from external events that could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause us to incur additional expenses.
The adoption of these Fintech solutions within our market area may cause greater and faster disruption to our business model if we are unable to keep pace with, or invest wisely in, these enabling technologies.
The adoption of these Fintech solutions within our market area may cause greater and faster disruption to our business model if we are unable to keep pace with, or invest wisely in, these enabling technologies. The Company’s models used for business planning purposes could perform poorly or provide inadequate information.
As the Federal Reserve continues to raise interest rates, our interest-bearing liabilities may be subject to repricing or maturing more quickly than our interest-earning assets.
As the Federal Reserve raised and has maintained higher interest rates, our interest-bearing liabilities may continue to be subject to repricing or maturing more quickly than our interest-earning assets.
Our success is significantly affected by general economic conditions in our market area. Unlike some larger banks that are more geographically diversified, we provide banking, financial, and wealth management services to customers mostly located in our primary markets.
Unlike some larger banks that are more geographically diversified, we provide banking, financial, and wealth management services to customers mostly located in our primary markets.
If any plaintiff were successful in obtaining an injunction prohibiting the Company or Lakeland from completing the merger or any other transactions contemplated by the merger agreement, then such injunction may delay or prevent the effectiveness of the merger and could result in costs to the Company, including costs in connection with the defense or settlement of any stockholder lawsuits filed in connection with the merger.
If any plaintiff were successful in obtaining an injunction prohibiting the Company or the Bank from completing the merger or any of the other transactions contemplated by the merger agreement, then such injunction may delay or prevent the effectiveness of the merger and could result in significant costs to the Company and/or the Bank, including costs associated with the indemnification of directors and officers of each entity.
Risks Related to Technology & Security A cyber-attack, data breach, or a technology failure of ours could adversely affect our ability to conduct our business or manage our exposure to risk, result in the disclosure or misuse of confidential or proprietary information, increase our costs to maintain and update our operational and security systems and infrastructure, and adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm.
Some of the decisions that our regulators make, including those related to capital distributions to our stockholders, could be adversely affected due to their perception that the quality of the models used to generate the relevant information is insufficient. 48 Risks Related to Technology and Security A cyber-attack, data breach, or a technology failure of ours could adversely affect our ability to conduct our business or manage our exposure to risk, result in the disclosure or misuse of confidential or proprietary information, increase our costs to maintain and update our operational and security systems and infrastructure, and adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm.
Banks with assets in excess of $10 billion are subject to requirements imposed by the Dodd-Frank Act and its implementing regulations including being subject to the examination authority of the Consumer Financial Protection Bureau to assess our compliance with federal consumer financial laws, the imposition of higher FDIC premiums, reduced debit card interchange fees, and enhanced risk management frameworks, all of which increase operating costs and reduce earnings.
Banks with assets in excess of $10 billion are subject to requirements imposed by the Dodd-Frank Act and its implementing regulations including being subject to the examination authority of the Consumer Financial Protection Bureau to assess our compliance with federal consumer financial laws, the imposition of higher FDIC premiums, reduced debit card interchange fees, and enhanced risk management frameworks, all of which increase operating costs and reduce earnings. 44 As we continue to grow in size, we can expect greater regulatory scrutiny and expectations requiring us to invest significant management attention and make additional investments in staff and other resources to comply with applicable regulatory expectations.
Unrealized gains and losses on securities available for sale are reported as a separate component of stockholders’ equity. Therefore, decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders’ equity.
Therefore, decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on our stockholders’ equity.
We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.
If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings could decrease. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.
Our results of operations substantially depend on our net interest income, which is the difference between the interest income we earn on our interest earning assets and the interest expense we pay on our interest-bearing liabilities. A flattening yield curve, or one that inverts, could negatively impact our net interest margin and earnings.
Our results of operations substantially depend on our net interest income, which is the difference between the interest income we earn on our interest earning assets and the interest expense we pay on our interest-bearing liabilities. An inverted yield curve, which has persisted throughout 2023, has and may continue to negatively impact our net interest margin and earnings.
Lakeland depends on models for, the allowance for credit losses, among other things, and we may have to rely on Lakeland's models post-closing prior to integrating Lakeland's data into our models. These models may be designed or implemented in a manner different than the models used by the Company.
The Company may have to rely on Lakeland's models post-closing until Lakeland's data can be integrated into the Company's models. Lakeland depends on models for the allowance for credit losses, among other things, and we may have to rely on Lakeland's models post-closing prior to integrating Lakeland's data into our models.
Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies and the use of the Internet and telecommunications technologies to conduct financial transactions.
Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of technologies to conduct financial transactions, and coordinated efforts by nation-states to use cyber-attacks to obtain information or disrupt financial institutions in rival states.
In addition, some of our construction loans may pose higher risk than the levels expected at origination, as projects may stall, absorption may be slower than projected or sales prices may be lower than forecasted. In addition, many of our borrowers have more than one commercial real estate or construction loan outstanding with us.
In addition, some of our construction loans may pose higher risk than the levels expected at origination, as projects may stall, interest reserves may be inadequate, absorption may be slower than projected or sales prices or rents may be lower than forecasted.
Also, the Company or Lakeland may elect to terminate the merger agreement in certain other circumstances. Risks Related to the Economy, Financial Markets, and Interest Rates Changes to the underlying drivers of our net interest income could adversely affect our results of operations and financial condition.
Risks Related to the Economy, Financial Markets, and Interest Rates Changes to the underlying drivers of our net interest income could adversely affect our results of operations and financial condition.
Combining the Company and Lakeland may be more difficult, costly or time-consuming than expected, and the Company may fail to realize the anticipated benefits of the merger. The success of the merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of the Company and Lakeland.
The success of the merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of the Company and Lakeland.
The Company and Lakeland also may not be able to locate or retain suitable replacements for any key employees who leave either company. The Company will be subject to business uncertainties and contractual restrictions while the merger is pending. Uncertainty about the effect of the merger on employees and customers may have an adverse effect on the Company.
The Company will be subject to business uncertainties and contractual restrictions while the merger is pending. Uncertainty about the effect of the merger on employees and customers may have an adverse effect on the Company.
Provident’s existing debt, together with any future incurrence of additional indebtedness, and the assumption of Lakeland’s outstanding indebtedness, could have important consequences for the combined company’s creditors and the combined company’s stockholders.
In connection with the merger, the Company will assume Lakeland’s outstanding indebtedness and may need to issue additional debt in order to raise capital. The Company’s existing debt, together with any future incurrence of additional indebtedness, and the assumption of Lakeland’s outstanding indebtedness, could have important consequences for the combined company’s creditors and the combined company’s stockholders.
These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the merger. The Company has incurred and is expected to incur substantial costs related to the merger and integration. The Company has incurred and expects to incur a number of non-recurring costs associated with the merger.
The Company has incurred and is expected to incur substantial costs related to the merger and integration. The Company has incurred and expects to incur a number of non-recurring costs associated with the merger.
Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements.
Adaptation to the current cybersecurity landscape requires resilience, flexibility, and collaboration in the face of increased threats enabled by technological advances. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.
As a result, incorporation of Lakeland's data into our models could materially impact our results of operations or financial position to the extent that our estimates based on Lakeland''s models prove to be inaccurate. The merger agreement may be terminated in accordance with its terms and the merger may not be completed.
These models may be designed or implemented in a manner different than the models used by the Company. As a result, incorporation of Lakeland's data into our models could materially impact our results of operations or financial position to the extent that our estimates based on Lakeland's models prove to be inaccurate.
These conditions to the closing may not be fulfilled in a timely manner or at all, and, accordingly, the merger may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, even after the requisite stockholder and shareholder approvals.
In addition, the parties can mutually decide to terminate the merger agreement at any time, even after the requisite stockholder and shareholder approvals.
In the case of commercial and industrial loans, although we strive to maintain high credit standards and limit exposure to any one borrower, the collateral for these loans often consists of accounts receivable, inventory and equipment.
In our CRE Multi-family portfolio, we hold loans collateralized by rent stabilized properties that totaled $117.4 million as of December 31, 2023. In the case of commercial and industrial loans, although we strive to maintain high credit standards and limit exposure to any one borrower, the collateral for these loans often consists of accounts receivable, inventory and equipment.
The effects of changing strategies, policies, and investments as the global community transitions to a lower-carbon economy will impose additional operational and compliance burdens, and may result in market trends that alter business opportunities. Overall, climate change, its effects, and the resulting, unknown impact could have a material adverse impact on our financial condition and results of operations.
The effects of changing strategies, policies, and investments as the global community transitions to a lower-carbon economy will impose additional operational and compliance burdens, and may result in market trends that alter business opportunities. Compliance with expected disclosure rules will require additional resources.
Such regulation and supervision governs the activities in which a bank and its holding company may engage and is intended primarily for the protection of the insurance fund and depositors.
Such regulation and supervision governs the activities in which a bank and its holding company may engage and is intended primarily for the protection of the insurance fund and depositors. Following the bank failures in early 2023, regulators have increasingly focused on banks’ sources of liquidity, deposit mixes and concentration within certain sectors.
Borrowers with floating rate debt or looming interest rate resets are also expected to be negatively impacted in the coming year. Adverse changes in the economy could negatively affect the ability of our borrowers to repay their loans or force us to offer lower interest rates to encourage new borrowing activity.
Despite improved projections, unforeseen adverse changes in the economy and a possible recession could negatively affect the ability of our borrowers to repay their loans or force us to offer lower interest rates to encourage new borrowing activity.
Stockholder litigation related to the merger could prevent or delay the completion of the merger, result in the payment of damages or otherwise negatively impact the business and operations of the Company.
Although previously filed litigation related to the merger against the Company, the Company’s board of directors, the Bank, and the Bank’s board of directors has been settled, additional litigation may be filed against the Company, the Company’s board of directors, the Bank, and the Bank’s board of directors in the future, which could prevent or delay the completion of the merger, result in the payment of damages, or otherwise negatively impact the business and operations of the Company and the Bank.
We may be required to invest more significant management attention and resources to make further changes necessary to comply with enhanced regulatory expectations. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations may have on us, these changes could be material.
While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations may have on us, these changes could be material. Bank regulators have signaled further review of regulatory requirements and the potential for changes to laws or regulations governing banks and bank holding companies.
In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions from customer accounts.
Nevertheless, there can be no assurance that we will not suffer material losses or other material adverse consequences relating to technology failure, cyber-attacks or other information or security breaches. In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions from customer accounts.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations
Failure to successfully keep pace with technological change affecting the financial services industry and sustain a robust information security program through talent and human capital could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition. Additionally, financial markets may be adversely affected by any current or 48 anticipated impact of military conflict, including continuing military tension between Russia and Ukraine, terrorism or other geopolitical events.
While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition.
Further, such lawsuits and the defense or settlement of any such lawsuits may have an adverse effect on the financial condition and results of operations of the Company. The Company may have to rely on Lakeland's models post-closing until Lakeland's data can be integrated into the Company's models.
Further, such lawsuits and the defense or settlement of any such lawsuits may have an adverse effect on the financial condition and results of operations of the Company and the Bank and could prevent or delay the completion of the merger.
Changes in interest rates also affect the value of our interest-earning assets and in particular our securities portfolio. Generally, the value of securities fluctuates inversely with changes in interest rates. At December 31, 2022, our available for sale debt securities portfolio totaled $1.80 billion.
Generally, the value of securities fluctuates inversely with changes in interest rates. As of December 31, 2023, our available for sale debt securities portfolio totaled $1.69 billion. Unrealized gains and losses on securities available for sale are reported as a separate component of stockholders’ equity.
Furthermore, these loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulation.
Furthermore, these loans may be affected 43 by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy, declining rents, tenant defaults, or changes in government regulation. As of December 31, 2023, our CRE office portfolio totaled $483.1 million dollars, with approximately 16% being loans in New York.
Our level of CRE Loans equaled 490.9% of total risk-based capital at December 31, 2022, while our CRE Loan portfolio has increased by 52.2% during the preceding 36 months. Based on regulatory guidelines, the Company is now considered to have a significant concentration in its CRE Loan Portfolio.
Our level of CRE Loans equaled 489.6% of total risk-based capital as of December 31, 2023, while our CRE Loan portfolio has increased by 30.4% during the preceding 36 months. Based on the size of our CRE Loan portfolio as a percentage of capital, regulatory oversight of our management of this CRE concentration is elevated.
At December 31, 2022, our portfolio of commercial real estate loans, including multi-family loans, totaled $5.83 billion, or 57.4% of total loans, our commercial and industrial loans totaled $2.23 billion, or 22.0% of portfolio loans, and our construction loans totaled $715.5 million, or 7.0% of total loans. We plan to continue to emphasize the origination of these types of loans.
As of December 31, 2023, our portfolio of commercial real estate loans, including multi-family loans, totaled $6.32 billion, or 58.7% of total loans, our commercial and industrial loans totaled $2.44 billion, or 22.7% of portfolio loans, and our construction loans totaled $653.2 million, or 6.1% of total loans.
In determining 40 whether to grant these approvals, such regulatory authorities consider a variety of factors, including the regulatory standing of each company.
In determining whether to grant these approvals, such regulatory authorities consider a variety of factors, including the regulatory standing of each company. Receipt of these approvals has taken longer than expected and, as a result, the Company and Lakeland have extended the merger deadline to March 31, 2024 to allow additional time to obtain the necessary regulatory approvals.
The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger.
These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the merger. The merger agreement may be terminated in accordance with its terms and the merger may not be completed. The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger.
Headwinds facing the U.S. economy continued during 2022, as the Federal Reserve rapidly tightened monetary policy through a series of interest rate hikes. The consensus forecast has the economy slowing considerably in 2023, although avoiding recession. Certain sectors of the economy, notably residential housing, have already been impacted by rising interest rates.
The economy as a whole grew in 2023 and the consensus forecast has the economy maintaining growth and avoiding recession in 2024. Certain sectors of the economy, notably residential housing, have already been impacted by high interest rates, although conditions have improved as interest rates declined slightly in the latter half of 2023.
Competition in the banking and financial services industry is intense and expanding with entrants into our market providing new and innovative technology-driven financial solutions. Our profitability depends upon our continued ability to successfully compete in our market area.
A lack of liquidity could also result in increased regulatory scrutiny and potential restrictions imposed on us by regulators. Strong competition within our market area may limit our growth and profitability. Competition in the banking and financial services industry is intense and increasing with entrants into our market providing new and innovative technology-driven financial solutions.
If the merger is not completed, the Company would have to pay these expenses without realizing the expected benefits of the merger. The current volatile interest rate environment may adversely impact the fair value adjustments of investments and loans acquired in the merger.
If the merger is not completed, the Company would have to pay these expenses without realizing the expected benefits of the merger. Combining the Company and Lakeland may be more difficult, costly or time-consuming than expected, and the Company may fail to realize the anticipated benefits of the merger.
In addition, our business and reputation could suffer if customers use our banking network for money laundering or illegal or improper purposes. We are subject to liquidity risk.
In addition, our business and reputation could suffer if customers use our banking network for money laundering or illegal or improper purposes. 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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company’s executive offices are located in a leased facility at 239 Washington Street, Jersey City, New Jersey, which is also the Bank’s Main Office. The Company's and Bank’s administrative offices are located in a leased facility at 111 Wood Avenue South, Iselin, New Jersey.
Biggest changeThe Company's and Bank’s administrative offices are located in a leased facility at 111 Wood Avenue South, Iselin, New Jersey. 53
Item 2. Properties Property At December 31, 2022, the Bank conducted business through 95 full-service branch offices located throughout northern and central New Jersey, as well as Bucks, Lehigh and Northampton counties in Pennsylvania and Nassau and Queens counties in New York.
Item 2. Properties Property As of December 31, 2023, the Bank conducted business through 94 full-service branch offices located throughout northern and central New Jersey, as well as Bucks, Lehigh and Northampton counties in Pennsylvania and Nassau and Queens counties in New York.
The Bank maintains satellite loan production offices in Convent Station, Flemington, Paramus, and Sea Girt, New Jersey, as well as in Bethlehem, Newtown and Plymouth Meeting, Pennsylvania and Nassau and Queens County, New York. The aggregate net book value of premises and equipment was $79.8 million at December 31, 2022.
The Bank maintains satellite loan production offices in Convent Station, Flemington, Paramus, and Sea Girt, New Jersey, as well as in Bethlehem, Newtown and Plymouth Meeting, Pennsylvania and Nassau and Queens County, New York.
Added
The aggregate net book value of premises and equipment was $71.0 million as of December 31, 2023. 52 The Company’s executive offices are located in a leased facility at 239 Washington Street, Jersey City, New Jersey, which is also the Bank’s Main Office.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings The Company is involved in various legal actions and claims arising in the normal course of its 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 and results of operations.
Biggest changeItem 3. Legal Proceedings The Company is involved in various legal actions and claims arising in the normal course of its business. Liabilities for loss contingencies arising from such litigation and claims are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Added
On May 2, 2022, a purported class action complaint was filed against the Bank in the Superior Court of New Jersey, which alleges that the Bank wrongfully assessed overdraft fees related to debit card transactions.
Added
The complaint asserts claims for breach of contract and breach of the covenant of good faith and fair dealing as well as an alleged violation of the New Jersey Consumer Fraud Act.
Added
Plaintiff seeks to represent a proposed class of all the Bank's checking account customers who were charged overdraft fees on transactions that were authorized into a positive available balance. Plaintiff seeks unspecified damages, costs, attorneys’ fees, pre-judgment interest, an injunction, and other relief as the Court deems proper for the plaintiff and the proposed class.
Added
The Bank denies the allegations and is vigorously defending the matter. The parties had an initial mediation meeting on October 20, 2023, and the matter remains pending.
Added
Although we are vigorously defending the litigation, the ultimate outcome of this litigation described in this section, such as whether the likelihood of loss is remote, reasonably possible, or probable, or if and when the reasonably possible range of loss is estimable, is inherently uncertain.
Added
As a result of this, a $3.0 million charge was recorded in the fourth quarter of 2023 for estimated contingent litigation reserves.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs (1) Maximum Number of Shares that May Yet Be Purchased Under the Programs (1) October 1, 2022 through October 31, 2022 — $ — — 1,134,706 November 1, 2022 through November 30, 2022 — — — 1,134,706 December 1, 2022 through December 31, 2022 725 21.72 725 1,133,981 Total 725 $ 21.72 725 (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.
Biggest changePeriod Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs (1) Maximum Number of Shares that May Yet Be Purchased Under the Programs (1) October 1, 2023 through October 31, 2023 58 $ 15.21 58 1,062,566 November 1, 2023 through November 30, 2023 104 15.77 104 1,062,462 December 1, 2023 through December 31, 2023 262 16.08 262 1,062,200 Total 424 $ 15.88 424 (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.
Item 5. Market For Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities. 51 The Company’s common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “PFS.” Trading in the Company’s common stock commenced on January 16, 2003.
Item 5. Market For Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities. The Company’s common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “PFS.” Trading in the Company’s common stock commenced on January 16, 2003.
The Company’s Board of Directors intends to review the payment of dividends quarterly and plans to continue to maintain a regular quarterly cash dividend in the future, subject to financial condition, results of operations, tax considerations, industry standards, economic conditions, regulatory restrictions, including those that affect the payment of dividends by the Bank to the Company; and other relevant factors. 52 Stock Performance Graph Set forth below is a stock performance graph comparing (a) the cumulative total return on the Company’s common stock for the period December 31, 2017 through December 31, 2022, (b) the cumulative total return on stocks included in the Russell 2000 Index over such period, and (c) the cumulative total return of the S&P Composite Thrift Index over such period.
The Company’s board of directors intends to review the payment of dividends quarterly and plans to continue to maintain a regular quarterly cash dividend in the future, subject to financial condition, results of operations, tax considerations, industry standards, economic conditions, regulatory restrictions, including those that affect the payment of dividends by the Bank to the Company; and other relevant factors. 54 Stock Performance Graph Set forth below is a stock performance graph comparing (a) the cumulative total return on the Company’s common stock for the period December 31, 2018 through December 31, 2023, (b) the cumulative total return on stocks included in the Russell 2000 Index over such period, and (c) the cumulative total return of the S&P U.S.
This Index, produced by S&P Global, contains all thrift institutions traded on the NYSE and NASDAQ stock exchange. Cumulative return assumes the reinvestment of dividends and is expressed in dollars based on an assumed investment of $100 on December 31, 2017.
SmallCap Banks Index over such period. This Index, produced by S&P Global, contains all thrift institutions traded on the NYSE and NASDAQ stock exchange. Cumulative return assumes the reinvestment of dividends and is expressed in dollars based on an assumed investment of $100 on December 31, 2018.
On January 27, 2023, the Board of Directors declared a quarterly cash dividend of $0.24 per common share which was paid on February 24, 2023, to common stockholders of record as of the close of business on February 10, 2023.
On January 25, 2024, the board of directors declared a quarterly cash dividend of $0.24 per common share which was paid on February 23, 2024, to common stockholders of record as of the close of business on February 9, 2024.
As of February 1, 2023, there were 83,209,012 shares of the Company’s common stock issued and 75,325,206 shares outstanding, and approximately 4,636 stockholders of record.
As of February 1, 2024, there were 83,209,012 shares of the Company’s common stock issued and 75,601,505 shares outstanding, and approximately 4,523 stockholders of record.
The Company repurchased 2,054,762 shares of its common stock at a cost of $47.5 million in 2022. At December 31, 2022, 1.1 million shares were eligible for repurchase under the board approved stock repurchase program.
The Company repurchased 71,781 shares of its common stock at a cost of $1.7 million in 2023. As of December 31, 2023, 1.1 million shares were eligible for repurchase under the board approved stock repurchase program.
Removed
Period Ending Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Provident Financial Services, Inc. 100.00 92.39 98.60 76.38 107.29 98.67 Russell 2000 Index 100.00 88.99 111.70 134.00 153.85 122.41 S&P Composite 1500 Thrifts & Mortgage Finance Index 100.00 81.15 110.27 104.12 128.42 106.34 53 The following table reports information regarding purchases of the Company’s common stock during the fourth quarter of 2022 under the stock repurchase plan approved by the Company’s Board of Directors: ISSUER PURCHASES OF EQUITY SECURITIES The Company repurchased 725 shares of its common stock at a cost of $16,000 during the fourth quarter of 2022 under the stock repurchase program approved by the Company’s Board of Directors.
Added
Period Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Provident Financial Services, Inc. 100.00 106.72 82.67 116.13 106.80 95.28 Russell 2000 Index 100.00 125.53 150.58 172.90 137.56 160.85 S&P U.S.
Added
SmallCap Banks Index 100.00 125.46 113.94 158.62 139.85 140.55 55 The following table reports information regarding purchases of the Company’s common stock during the fourth quarter of 2023 under the stock repurchase plan approved by the Company’s board of directors: ISSUER PURCHASES OF EQUITY SECURITIES The Company repurchased 424 shares of its common stock at a cost of $6,735 during the fourth quarter of 2023 under the stock repurchase program approved by the Company’s board of directors.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

95 edited+47 added−31 removed55 unchanged
Biggest changeAverage balances are daily averages. 58 For the Years Ended December 31, 2022 2021 2020 Average Outstanding Balance Interest Earned/ Paid Average Yield/ Cost Average Outstanding Balance Interest Earned/ Paid Average Yield/ Cost Average Outstanding Balance Interest Earned/ Paid Average Yield/ Cost (Dollars in thousands) Interest-earning assets: Deposits $ 102,505 $ 809 0.79 % $ 421,898 $ 533 0.13 % $ 199,234 $ 478 0.24 % Federal funds sold and short-term investments 84,969 1,208 1.42 181,982 2,192 1.20 124,979 1,920 1.54 Held to maturity debt securities, net 407,236 9,894 2.43 437,994 10,743 2.45 446,666 11,461 2.57 Available for sale debt securities 1,975,641 34,612 1.75 1,539,811 21,515 1.40 1,043,799 21,736 2.08 Equity Securities, At Fair Value 999 — — 1,063 — — 822 — — Federal Home Loan Bank NY stock 42,658 2,008 4.71 41,671 2,283 5.48 61,824 3,710 6.00 Net loans (2) 9,798,822 417,650 4.26 9,556,702 365,073 3.82 8,367,663 324,004 3.87 Total interest-earning assets 12,412,830 466,181 3.76 12,181,121 402,339 3.30 10,244,987 363,309 3.55 Non-interest earning assets 1,230,019 1,157,790 1,092,153 Total assets $ 13,642,849 $ 13,338,911 $ 11,337,140 Interest-bearing liabilities: Savings deposits $ 1,492,046 $ 1,276 0.09 % $ 1,414,560 $ 1,604 0.11 % $ 1,143,381 $ 1,689 0.15 % Demand deposits 6,076,653 32,047 0.53 5,794,398 20,458 0.35 4,364,257 22,763 0.52 Time deposits 690,140 5,381 0.78 868,185 4,451 0.51 868,161 9,137 1.05 Borrowed funds 756,275 9,310 1.23 789,838 8,614 1.09 1,227,894 16,638 1.36 Subordinated debentures 10,381 615 5.92 24,794 1,189 4.79 10,439 512 4.90 Total interest-bearing liabilities 9,025,495 48,629 0.54 8,891,775 36,316 0.41 7,614,132 50,739 0.67 Non-interest bearing liabilities: Non-interest bearing deposits 2,749,562 2,543,287 1,984,420 Other non-interest bearing liabilities 249,702 230,134 244,025 Total non-interest bearing liabilities 2,999,264 2,773,421 2,228,445 Total liabilities 12,024,759 11,665,196 9,842,577 Stockholders’ equity 1,618,090 1,673,715 1,494,563 Total liabilities and equity $ 13,642,849 $ 13,338,911 $ 11,337,140 Net interest income $ 417,552 $ 366,023 $ 312,570 Net interest rate spread 3.22 % 2.89 % 2.88 % Net interest earning assets $ 3,387,335 $ 3,289,346 $ 2,506,423 Net interest margin (3)(4) 3.37 % 3.00 % 3.05 % Ratio of interest-earning assets to total interest-bearing liabilities 1.38x 1.37x 1.33x (1) Average outstanding balance amounts are at amortized cost.
Biggest changeAverage balances are daily averages. 59 For the Years Ended December 31, 2023 2022 2021 Average Outstanding Balance Interest Earned/ Paid Average Yield/ Cost Average Outstanding Balance Interest Earned/ Paid Average Yield/ Cost Average Outstanding Balance Interest Earned/ Paid Average Yield/ Cost (Dollars in thousands) Interest-earning assets: Deposits $ 65,991 $ 3,421 5.18 % $ 102,505 $ 809 0.79 % $ 421,898 $ 533 0.13 % Federal funds sold and short-term investments 255 12 4.55 84,969 1,208 1.42 181,982 2,192 1.20 Held to maturity debt securities, net 375,436 9,362 2.49 407,236 9,894 2.43 437,994 10,743 2.45 Available for sale debt securities 1,745,105 40,678 2.33 1,975,641 34,612 1.75 1,539,811 21,515 1.40 Equity Securities, At Fair Value 1,020 — — 999 — — 1,063 — — Federal Home Loan Bank NY stock 81,797 6,112 7.47 42,658 2,008 4.71 41,671 2,283 5.48 Net loans (2) 10,367,620 556,235 5.37 9,798,822 417,650 4.26 9,556,702 365,073 3.82 Total interest-earning assets 12,637,224 615,820 4.87 12,412,830 466,181 3.76 12,181,121 402,339 3.30 Non-interest earning assets 1,278,243 1,230,019 1,157,790 Total assets $ 13,915,467 $ 13,642,849 $ 13,338,911 Interest-bearing liabilities: Savings deposits $ 1,282,062 $ 2,184 0.17 % $ 1,492,046 $ 1,276 0.09 % $ 1,414,560 $ 1,604 0.11 % Demand deposits 5,747,671 125,471 2.18 6,076,653 32,047 0.53 5,794,398 20,458 0.35 Time deposits 994,901 31,804 3.20 690,140 5,381 0.78 868,185 4,451 0.51 Borrowed funds 1,636,572 55,856 3.41 756,275 9,310 1.23 789,838 8,614 1.09 Subordinated debentures 10,588 1,051 9.92 10,381 615 5.92 24,794 1,189 4.79 Total interest-bearing liabilities 9,671,794 216,366 2.24 9,025,495 48,629 0.54 8,891,775 36,316 0.41 Non-interest bearing liabilities: Non-interest bearing deposits 2,328,557 2,749,562 2,543,287 Other non-interest bearing liabilities 270,587 249,702 230,134 Total non-interest bearing liabilities 2,599,144 2,999,264 2,773,421 Total liabilities 12,270,938 12,024,759 11,665,196 Stockholders’ equity 1,644,529 1,618,090 1,673,715 Total liabilities and equity $ 13,915,467 $ 13,642,849 $ 13,338,911 Net interest income $ 399,454 $ 417,552 $ 366,023 Net interest rate spread 2.63 % 3.22 % 2.89 % Net interest earning assets $ 2,965,430 $ 3,387,335 $ 3,289,346 Net interest margin (3) 3.16 % 3.37 % 3.00 % Ratio of interest-earning assets to total interest-bearing liabilities 1.31x 1.38x 1.37x (1) Average outstanding balance amounts are at amortized cost.
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.
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 57 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.
The Company’s relationship banking strategy focuses on increasing core accounts and expanding relationships through its branch network, mobile banking, online banking and other digital services. The Company continues to evaluate opportunities to increase market share by expanding within existing and contiguous markets. Savings and demand deposit accounts, are 54 generally a stable, relatively inexpensive source of funds.
The Company’s relationship banking strategy focuses on increasing core accounts and expanding relationships through its branch network, mobile banking, online banking and other digital services. The Company continues to evaluate opportunities to increase market share by expanding within existing and contiguous markets. Savings and demand deposit accounts are generally a stable, relatively inexpensive source of funds.
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 62 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 amount of the allowance is based on estimates, and the ultimate losses may vary from such estimates as more information becomes available or later events change. Management assesses the adequacy of the allowance for credit losses on a quarterly basis and makes provisions for credit losses, if necessary, in order to maintain the valuation of the allowance.
Compensation and benefits expense increased $3.8 million to $147.2 million for the year ended December 31, 2022, compared to $143.4 million for the year ended December 31, 2021, primarily due to increases in stock-based compensation and salary expense, partially offset by a decrease in the accrual for incentive compensation.
Compensation and 67 benefits expense increased $3.8 million to $147.2 million for the year ended December 31, 2022, compared to $143.4 million for the year ended December 31, 2021, primarily due to increases in stock-based compensation and salary expense, partially offset by a decrease in the accrual for incentive compensation.
Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of unpledged investments, cash flows from mortgage-backed securities and the ability to borrow funds from the FHLBNY and approved broker-dealers. Cash flows from loan payments and maturing investment securities are fairly predictable sources of funds.
Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of unpledged investments, cash flows from mortgage-backed securities and the ability to borrow funds from the FHLBNY, FRBNY and approved broker-dealers. Cash flows from loan payments and maturing investment securities are fairly predictable sources of funds.
For the year ended December 31, 2022, fees related to the forgiveness of PPP loans decreased $9.9 million to $1.4 million, compared to $11.3 million for the year ended December 31, 2021. Interest income increased $63.8 million to $466.2 million for 2022, compared to $402.3 million for 2021.
For the year ended December 31, 2022, fees related to the forgiveness of PPP loans decreased $9.9 million to $1.4 million, compared to $11.3 million for the year ended December 31, 2021. 66 Interest income increased $63.8 million to $466.2 million for 2022, compared to $402.3 million for 2021.
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.
Beyond the period over which management can develop or source a reasonable and supportable forecast, the model will revert to long-term average economic conditions using a straight-line, time-based methodology. The Company's current forecast period is six quarters, with a four-quarter reversion period to historical average macroeconomic factors. The Company's economic forecast is approved by the Company's ACL Committee.
The Company evaluates acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) troubled debt restructured designation; (3) risk ratings of special mention, substandard or doubtful; (4) watchlist credits; and (5) delinquency status, including loans that are current on acquisition date, but had been previously delinquent.
The Company evaluates acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) modification designation; (3) risk ratings of special mention, substandard or doubtful; (4) watchlist credits; and (5) delinquency status, including loans that are current on acquisition date, but had been previously delinquent.
As of December 31, 2022, the portfolio and class segments for the Company’s loan portfolio were: • Mortgage Loans – Residential, Commercial Real Estate, Multi-Family and Construction • Commercial Loans – Commercial Owner Occupied and Commercial Non-Owner Occupied • Consumer Loans – First Lien Home Equity and Other Consumer The allowance for credit losses on loans individually evaluated for specific reserves is based upon loans that have been identified through the Company’s normal loan monitoring process.
As of December 31, 2023, the portfolio and class segments for the Company’s loan portfolio were: • Mortgage Loans – Residential, Commercial Real Estate, Multi-Family and Construction • Commercial Loans – Commercial Owner-Occupied and Commercial Non-Owner Occupied • Consumer Loans – First Lien Home Equity and Other Consumer The allowance for credit losses on loans individually evaluated for impairment is based upon loans that have been identified through the Company’s normal loan monitoring process.
Purchasing securities for the investment portfolio is a secondary use of funds and the investment portfolio is structured to complement and facilitate the Company’s lending activities and ensure adequate liquidity. Loan originations and purchases totaled $3.95 billion for the year ended December 31, 2022, compared to $3.52 billion for the year ended December 31, 2021.
Purchasing securities for the investment portfolio is a secondary use of funds and the investment portfolio is structured to complement and facilitate the Company’s lending activities and ensure adequate liquidity. Loan originations and purchases totaled $3.34 billion for the year ended December 31, 2023, compared to $3.95 billion for the year ended December 31, 2022.
Within total impaired loans, there were $40.8 million of loans for which the present value of expected future cash flows or current collateral valuations exceeded the carrying amounts of the loans and for which no specific reserves were required in accordance with GAAP.
Within total impaired loans, there were $37.1 million of loans for which the present value of expected future cash flows or current collateral valuations exceeded the carrying amounts of the loans and for which no specific reserves were required in accordance with GAAP.
Changes in interest rates, local economic conditions and the competitive marketplace can influence loan prepayments, prepayments on mortgage-backed securities and deposit flows. For each of the years ended December 31, 2022 and 2021, loan repayments totaled $3.24 billion and $3.69 billion, respectively.
Changes in interest rates, local economic conditions and the competitive marketplace can influence loan prepayments, prepayments on mortgage-backed securities and deposit flows. For each of the years ended December 31, 2023 and 2022, loan repayments totaled $2.68 billion and $3.24 billion, respectively.
There were no security purchases in 2022 and 2021, which settled in January 2023 or January 2022, respectively.
There were no security purchases in 2023 and 2022 which settled in January 2024 or January 2023, respectively.
The Bank manages liquidity on a daily basis and expects to have sufficient cash to meet all of its funding requirements. As of December 31, 2022, the Bank exceeded all minimum regulatory capital requirements. At December 31, 2022, the Bank’s leverage (Tier 1) capital ratio was 9.51%.
The Bank manages liquidity on a daily basis and expects to have sufficient cash to meet all of its funding requirements. As of December 31, 2023, the Bank exceeded all minimum regulatory capital requirements. As of December 31, 2023, the Bank’s leverage (Tier 1) capital ratio was 9.84%.
Total deposits decreased $671.0 million for the year ended December 31, 2022. Deposit activity is affected by changes in interest rates, competitive pricing and product offerings in the marketplace, local economic conditions, customer confidence 65 and other factors such as stock market volatility.
Total deposits decreased $270.5 million for the year ended December 31, 2023. Deposit activity is affected by changes in interest rates, competitive pricing and product offerings in the marketplace, local economic conditions, customer confidence and other factors such as stock market volatility.
At a date and time following the holdco merger as determined by the Company, Lakeland Bank, a New Jersey state-charted commercial bank and a wholly owned subsidiary of Lakeland (“Lakeland Bank”), will merge with and into Provident Bank, a New Jersey state-chartered savings bank and a wholly owned subsidiary of the Company (“Provident Bank”), with Provident Bank as the surviving bank (the “bank merger” and, together with the merger and the holdco merger, the “mergers”).
At a date and time following the holdco merger as determined by the Company, Lakeland Bank, a New Jersey state-charted commercial bank and a wholly owned subsidiary of Lakeland (“Lakeland Bank”), will conduct a bank merger with and into the Bank, with the Bank as the surviving bank (together, the “mergers”).
Non-performing assets totaled $60.6 million, or 0.44% of total assets at December 31, 2022, compared to $56.8 million, or 0.41% of total assets at December 31, 2021. If the non-accrual loans had performed in accordance with their original terms, interest income would have increased by $1.0 million during the year ended December 31, 2022.
Non-performing assets totaled $61.3 million, or 0.43% of total assets as of December 31, 2023, compared to $60.6 million, or 0.44% of total assets as of December 31, 2022. If the non-accrual loans had performed in accordance with their original terms, interest income would have increased by $1.6 million during the year ended December 31, 2023.
It also applies to off-balance sheet credit exposures, including loan commitments and lines of credit. The adoption of the new standard resulted in the Company recording a $7.9 million increase to the allowance for credit losses and a $3.2 million liability for off-balance sheet credit exposures.
The adoption of the new standard resulted in the Company recording a $7.9 million increase to the allowance for credit losses and a $3.2 million liability for off-balance sheet credit exposures.
The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring (“TDR”) will be executed with an individual borrower, or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
The contractual term excludes expected extensions, renewals and modifications unless either of the following applies at the reporting date: management has a reasonable expectation that a modification will be executed with an individual borrower; or when an extension or renewal option is included in the original contract and is not unconditionally cancellable by the Company.
At December 31, 2022, savings and demand deposits were 92.9% of total deposits. The Company’s results of operations are primarily dependent upon net interest income, the difference between interest earned on interest-earning assets and the interest paid on interest-bearing liabilities.
As of December 31, 2023, savings and demand deposits were 89.4% of total deposits. The Company’s results of operations are primarily dependent upon net interest income, the difference between interest earned on interest-earning assets and the interest paid on interest-bearing liabilities.
At December 31, 2022, the Company’s allowance for credit losses related to the loan portfolio was 0.86% of total loans, compared to 0.84% of total loans at December 31, 2021.
As of December 31, 2023, the Company’s allowance for credit losses related to the loan portfolio was 0.99% of total loans, compared to 0.86% of total loans as of December 31, 2022.
Certificate of deposit accounts that are scheduled to mature within one year totaled $584.2 million at December 31, 2022. Based on its current pricing strategy and customer retention experience, the Bank expects to retain a significant share of these accounts.
Certificate of deposit accounts that are scheduled to mature within one year totaled $1.02 billion as of December 31, 2023. Based on its current pricing strategy and customer retention experience, the Bank expects to retain a significant share of these accounts.
The Bank’s lending policy focuses on quality underwriting standards and close monitoring of the loan portfolio. At December 31, 2022, these commercial loan types accounted for 85.6% of the loan portfolio and retail loans accounted for 14.4%. The Company intends to continue to focus on commercial mortgage, multi-family, construction and commercial lending relationships.
The Bank’s lending policy focuses on quality underwriting standards and close monitoring of the loan portfolio. As of December 31, 2023, these commercial loan types accounted for 86.5% of the loan portfolio and retail loans accounted for 13.5%. The Company intends to continue to focus on commercial mortgage, multi-family, construction, and commercial lending relationships.
The amount of cash basis interest income that was recognized on impaired loans during the year ended December 31, 2022 was not material. Total deposits decreased $671.0 million for the year ended December 31, 2022 to $10.56 billion.
The amount of cash basis interest income that was recognized on impaired loans during the year ended December 31, 2023 was not material. Total deposits decreased $270.5 million during the year ended December 31, 2023, to $10.29 billion.
The Company conducts business through its subsidiary, the Bank, a community- and customer-oriented bank currently operating full-service branches and loan production offices throughout northern and central New Jersey, as well as Bucks, Lehigh and Northampton counties in Pennsylvania and Queens County, New York.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations General The Company conducts business through its subsidiary, the Bank, a community- and customer-oriented bank currently operating full-service branches and loan production offices throughout northern and central New Jersey, as well as Bucks, Lehigh and Northampton counties in Pennsylvania and Nassau and Queens counties in New York.
The interest rate spread increased 33 basis points to 3.22% for 2022, from 2.89% for 2021. The net interest margin increased 37 basis points to 3.37% for 2022, compared to 3.00% for 2021.
Net Interest Income. Net interest income increased $51.5 million to $417.6 million for 2022, from $366.0 million for 2021. The interest rate spread increased 33 basis points to 3.22% for 2022, from 2.89% for 2021. The net interest margin increased 37 basis points to 3.37% for 2022, compared to 3.00% for 2021.
Purchases for the investment portfolio totaled $317.5 million for the year ended December 31, 2022, compared to $1.44 billion for the year ended December 31, 2021. At December 31, 2022, the Bank had outstanding loan commitments to borrowers of $2.06 billion, including undisbursed home equity lines and personal credit lines of $279.2 million.
Purchases for the investment portfolio totaled $57.2 million for the year ended December 31, 2023, compared to $317.5 million for the year ended December 31, 2022. As of December 31, 2023, the Bank had outstanding loan commitments to borrowers of $2.09 billion, including undisbursed home equity lines and personal credit lines of $273.0 million.
At December 31, 2022, impaired loans totaled $68.8 million with related specific reserves of $2.4 million, compared with impaired loans totaling $52.3 million with related specific reserves of $4.3 million at December 31, 2021.
As of December 31, 2023, impaired loans totaled $42.3 million with related specific reserves of $2.9 million, compared with impaired loans totaling $68.8 million with related specific reserves of $2.4 million as of December 31, 2022.
For the year ended December 31, 2022, the Company recorded a provision of $8.4 million for credit losses related to loans, compared to a $24.3 million negative provision for the year ended December 31, 2021. The Company had net charge-offs of $1.1 million for the year ended December 31, 2022, compared to net recoveries of $3.6 million in 2021.
For the year ended December 31, 2023, the Company recorded a provision of $27.9 million for credit losses related to loans, compared to $8.4 million for the year ended December 63 31, 2022. The Company had net charge-offs of $8.1 million for the year ended December 31, 2023, compared to net charge-offs of $1.1 million in 2022.
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 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.
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. 57 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.
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.
The following table sets forth certain information for the years ended December 31, 2022, 2021 and 2020. For the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities is expressed both in dollars and rates. No tax equivalent adjustments were made.
For the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities are expressed both in dollars and rates. No tax equivalent adjustments were made.
Basic and diluted earnings per share were $2.20 and $2.19 per share, respectively, compared to basic and diluted earnings per share of $1.39 for the year ended December 31, 2020.
For the year ended December 31, 2023, basic and diluted earnings per share were $1.72 and $1.71 per share, respectively, compared to basic and diluted earnings per share of $2.35, for the year ended December 31, 2022.
FDIC regulations require banks to maintain a minimum leverage ratio of Tier 1 capital to adjusted total assets of 4.00%. At December 31, 2022, the Bank’s total risk-based capital ratio was 11.58%. Under current regulations, the minimum required ratio of total capital to risk-weighted assets is 10.50%.
FDIC regulations require banks to maintain a minimum leverage ratio of Tier 1 capital to adjusted total assets of 4.00%. As of December 31, 2023, the Bank’s total risk-based capital ratio was 11.95%.
(2) Average outstanding balances are net of the allowance for credit losses, deferred loan fees and expenses, and loan premiums and discounts and include non-accrual loans. (3) Net interest income divided by average interest-earning assets. (4) The previously reported average balances of the interest bearing cash and non-interest bearing cash for the year ended December 31, 2020 were recalculated.
(2) Average outstanding balances are net of the allowance for credit losses, deferred loan fees and expenses, and loan premiums and discounts and include non-accrual loans. (3) Net interest income divided by average interest-earning assets. 60 Rate/Volume Analysis.
Total off-balance sheet obligations were $2.06 billion at December 31, 2022, an increase of $1.6 million, from $2.05 billion at December 31, 2021. Contractual obligations consist of certificate of deposit liabilities. Total certificate of deposits at December 31, 2022 were $751.4 million, an increase of $58.9 million, compared to $692.52 million at December 31, 2021.
Total off-balance sheet obligations were $2.09 billion as of December 31, 2023, an increase of $32.4 million, from $2.06 billion as of December 31, 2022. Contractual obligations consist of certificate of deposit liabilities. Total certificate of deposits as of December 31, 2023 were $1.10 billion, an increase of $344.5 million, compared to $751.4 million as of December 31, 2022.
A bank is considered to be well-capitalized if it has a leverage (Tier 1) capital ratio of at least 5.00% and a total risk-based capital ratio of at least 10.00%. Off-balance sheet commitments consist of unused commitments to borrowers for term loans, unused lines of credit and outstanding letters of credit.
A bank is considered to be well-capitalized if it has a leverage (Tier 1) capital ratio of at least 5.00% and a total risk-based capital ratio of at least 10.00%.
Although management uses the best information available, the level of the allowance for credit losses remains an estimate that is subject to significant judgment and short-term change.
Although management uses the best information available, the level of the allowance for credit losses remains an estimate that is subject to significant judgment and short-term volatility. Material changes to these and other relevant factors creates greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings.
During the year ended December 31, 2022, there were five additions to foreclosed assets with an aggregate carrying value of $1.2 million, four properties sold with an aggregate carrying value of $7.6 million and a valuation charge of $200,000.
During the year ended December 31, 2023, there were four additions to foreclosed assets with an aggregate carrying value of $15.1 million, four properties sold with an aggregate carrying value of $3.7 million and one write-down of $2.0 million.
Total charge-offs for the year ended December 31, 2021 were $5.5 million, compared to $7.9 million for the year ended December 31, 2020. Recoveries for the year ended December 31, 2021, were $9.0 million, compared to $2.6 million for the year ended December 31, 2020.
Total charge-offs for the year ended December 31, 2023 were $10.4 million, compared to $6.5 million for the year ended December 31, 2022. Recoveries for the year ended December 31, 2023 , were $2.3 million, compared to $5.4 million for the year ended December 31, 2022.
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.
The model includes both quantitative and qualitative components. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.
At December 31, 2022, the Company held $2.1 million of foreclosed assets, compared with $8.7 million at December 31, 2021. Foreclosed assets are carried at the lower of the outstanding loan balance at the time of foreclosure or fair value, less estimated costs to sell.
Foreclosed assets are carried at the lower of the outstanding loan balance at the time of foreclosure or fair value, less estimated costs to sell.
The increase in net interest income for the year ended December 31, 2022, was primarily driven by the favorable repricing of adjustable rate loans and an increase in rates on new loan originations.
The increase in net interest income for the year ended December 31, 2022, was primarily driven by the favorable repricing of adjustable-rate loans and an increase in rates on new loan originations. Net interest income was further enhanced by increases in available for sale debt securities and total loans outstanding, along with growth in lower-costing core and non-interest bearing deposits.
Comparison of Operating Results for the Years Ended December 31, 2021 and December 31, 2020 General. Net income for the year ended December 31, 2021 was $167.9 million, compared to $97.0 million for the year ended December 31, 2020.
Comparison of Operating Results for the Years Ended December 31, 2023 and December 31, 2022 General. Net income for the year ended December 31, 2023 was $128.4 million, compared to $175.6 million for the year ended December 31, 2022.
These recalculations resulted in the previously reported net interest margin of 2020 changing from 3.09% to 3.05%. 59 Rate/Volume Analysis. The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated.
The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated.
For the year ended December 31, 2022, common stock repurchases totaled 2,045,762 shares at an average cost of $23.23 per share, of which 18,471 shares, at an average cost of $23.45 per share, were made in connection with withholding to cover income taxes on the vesting of stock-based compensation.
For the year ended December 31, 2023, common stock repurchases totaled 71,781 shares at an average cost of $23.28 per share, all of which were made in connection with withholding to cover income taxes on the vesting of stock-based compensation. As of December 31, 2023, approximately 1.1 million shares remained eligible for repurchase under the current stock repurchase authorization.
Retail loans, which consist of one- to four-family residential mortgage and consumer loans, such as fixed-rate home equity loans and lines of credit, totaled $1.48 billion and accounted for 14.4% of the loan portfolio at December 31, 2022, compared to $1.53 billion, or 15.9%, of the loan portfolio at December 31, 2021. 60 The Company participates in loans originated by other banks, including participations designated as Shared National Credits (“SNC”).
Retail loans, which consist of one- to four-family residential mortgage and consumer loans, such as fixed-rate home equity loans and lines of credit, totaled $1.46 billion and accounted for 13.5% of the loan portfolio as of December 31, 2023, compared to $1.48 billion, or 14.4%, of the loan portfolio as of December 31, 2022.
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.
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.
The Company’s gross commitments and outstanding balances as a participant in SNCs were $203.9 million and $87.3 million, respectively, at December 31, 2022. At December 31, 2022, one commercial relationship was classified as substandard with a commitment and balance totaling $8.3 and $7.6 respectively.
The Company’s gross commitments and outstanding balances as a participant in SNCs were $140.5 million and $54.9 million, respectively, as of December 31, 2023. As of December 31, 2023, one commercial relationship was classified as substandard with a commitment and balance totaling $7.0 million. This relationship was 90 days or more delinquent as of December 31, 2023.
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 56 imprecision, changes in industry conditions, changes in the Company’s loan review process, changes in the Company’s loan policies and procedures, and economic forecast uncertainty.
Qualitative factors are based on portfolio concentration levels, model imprecision, changes in industry conditions, changes in the Company’s loan review process, changes in the Company’s loan policies and procedures, and economic forecast uncertainty.
For the year ended December 31, 2021, the Company recorded a $24.3 million negative provision for credit losses on loans, compared to a $29.7 million provision for 2020. The Company, f or the year ended December 31, 2021, had net loan recoveries of $3.6 million, compared to net charge-offs of $5.3 million for 2020.
For the year ended December 31, 2023, the Company recorded a $27.9 million provision for credit losses on loans, compared to a $8.4 million provision for 2022. The Company, f or the year ended December 31, 2023, had net loan charge-offs 65 of $8.1 million, compared to net charge-offs of $1.1 million for 2022.
Years Ended December 31, 2022 vs. 2021 2021 vs. 2020 Increase/(Decrease) Due to Total Increase/ (Decrease) Increase/(Decrease) Due to Total Increase/ (Decrease) Volume Rate Volume Rate (In thousands) Interest-earning assets: Deposits, Federal funds sold and short-term investments $ (10,187) $ 9,479 $ (708) $ 5,335 $ (5,008) $ 327 Investment securities (749) (100) (849) (219) (499) (718) Securities available for sale 6,905 6,192 13,097 8,321 (8,542) (221) Federal Home Loan Bank Stock 53 (328) (275) (1,126) (301) (1,427) Loans 9,444 43,133 52,577 45,467 (4,398) 41,069 Total interest-earning assets 5,466 58,376 63,842 57,778 (18,748) 39,030 Interest-bearing liabilities: Savings deposits 84 (412) (328) 353 (439) (86) Demand deposits 1,041 10,548 11,589 6,240 (8,544) (2,304) Time deposits (1,047) 1,977 930 — (4,686) (4,686) Borrowed funds (378) 1,074 696 (5,187) (2,837) (8,024) Subordinated debentures (807) 233 (574) 689 (12) 677 Total interest-bearing liabilities (1,107) 13,420 12,313 2,095 (16,518) (14,423) Net interest income $ 6,573 $ 44,956 $ 51,529 $ 55,683 $ (2,230) $ 53,453 There were no out-of-period items and/or adjustments that had a material impact on the rate/volume analysis for the periods aforementioned in the table above.
Years Ended December 31, 2023 vs. 2022 2022 vs. 2021 Increase/(Decrease) Due to Total Increase/ (Decrease) Increase/(Decrease) Due to Total Increase/ (Decrease) Volume Rate Volume Rate (In thousands) Interest-earning assets: Deposits, Federal funds sold and short-term investments $ (8,646) $ 10,061 $ 1415 $ (10,187) $ 9,479 $ (708) Investment securities (787) 254 (533) (749) (100) (849) Securities available for sale (4,387) 10,454 6,067 6,905 6,192 13,097 Federal Home Loan Bank Stock 2,501 1604 4,105 53 (328) (275) Loans 25,394 113,191 138,585 9,444 43,133 52,577 Total interest-earning assets 14,075 135,564 149,639 5,466 58,376 63,842 Interest-bearing liabilities: Savings deposits (202) 1110 908 84 (412) (328) Demand deposits (1,827) 95,250 93,423 1,041 10,548 11,589 Time deposits 3,294 23,130 26,424 (1,047) 1,977 930 Borrowed funds 18,450 28,096 46,546 (378) 1,074 696 Subordinated debentures 13 423 436 (807) 233 (574) Total interest-bearing liabilities 19,728 148,009 167,737 (1,107) 13,420 12,313 Net interest income $ (5,653) $ (12,445) $ (18,098) $ 6,573 $ 44,956 $ 51,529 There were no out-of-period items and/or adjustments that had a material impact on the rate/volume analysis for the periods aforementioned in the table above.
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.
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 58 through the Company’s loan review process. Generally, the Company only evaluates loans individually for impairment if the loan is non-accrual, non-homogeneous and the balance is greater than $1.0 million.
Stockholders’ equity decreased $99.4 million during the year ended December 31, 2022 to $1.60 billion, primarily due to an increase in unrealized losses on available for sale debt securities, dividends paid to stockholders and common stock repurchases, partially offset by net income.
Borrowed funds represented 13.9% of total assets as of December 31, 2023, an increase from 9.7% as of December 31, 2022. 64 Stockholders’ equity increased $92.9 million during the year ended December 31, 2023 to $1.69 billion, primarily due to net income earned for the period and a decrease in unrealized losses on available for sale debt securities, partially offset by cash dividends paid to stockholders.
Excluding the decrease in PPP loans, for the year ended December 31, 2022, the Company experienced net increases of $488.8 million in commercial mortgage loans, $149.4 million in multi-family loans, $136.9 million in commercial loans and $32.3 million in construction loans, partially offset by net decreases in residential mortgage and consumer loans of $24.9 million and $22.7 million, respectively.
For the year ended December 31, 2023, the Company experienced net increases of $298.7 million in multi-family loans, $208.7 million in commercial loans and $196.2 million in commercial mortgage loans, partially offset by net decreases of $62.2 million in construction loans and net decreases in residential mortgage and consumer loans of $12.7 million and $5.6 million, respectively.
In the merger, Lakeland shareholders will receive 0.8319 of a share of the Company’s common stock for each share of Lakeland common stock they own.
In the merger, Lakeland shareholders will receive 0.8319 of a share of the Company’s common stock for each share of Lakeland common stock they own. The Company has received stockholder approval to proceed with the merger at a special meeting of stockholders held on February 1, 2023.
Commercial loans, consisting of commercial real estate, multi-family, construction and commercial loans, totaled $8.78 billion, accounting for 85.6% of the loan portfolio at December 31, 2022, compared to $8.06 billion, or 84.1% of the loan portfolio at December 31, 2021.
All commercial loans, consisting of commercial real estate, multi-family, commercial and construction loans, represented 86.5% of the loan portfolio as of December 31, 2023, compared to 85.6% as of December 31, 2022.
Analysis of Net Interest Income Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the rates of interest earned on such assets and paid on such liabilities. Average Balance Sheet.
Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the rates of interest earned on such assets and paid on such liabilities. Average Balance Sheet. The following table sets forth certain information for the years ended December 31, 2023, 2022 and 2021.
Basic and diluted earnings per share were $2.35 per share, compared to basic and diluted earnings per share of $2.20 and $2.19, respectively, for the year ended December 31, 2021. Earnings for the year ended December 31, 2022 were impacted by $4.1 million of non-tax deductible transaction costs related to the pending merger with Lakeland Bancorp, Inc.
Net income for the year ended December 31, 2022 was $175.6 million, compared to $167.9 million for the year ended December 31, 2021. Basic and diluted earnings per share were $2.35 per share, compared to basic and diluted earnings per share of $2.20 and $2.19, respectively, for the year ended December 31, 2021.
Changes in interest rates could have an adverse effect on net interest income to the extent the Company’s interest-bearing assets and interest-bearing liabilities reprice or mature at different times or relative interest rates. The Company believes based upon its current balance sheet mix that assets may reprice more quickly than liabilities.
In a rapidly rising interest rate environment, changes in interest rates have an adverse effect on net interest income as the Company’s interest-bearing assets 56 and interest-bearing liabilities reprice or mature at different times or relative interest rates.
Total savings and demand deposit accounts decreased $729.9 million to $9.81 billion at December 31, 2022, while total time deposits increased $58.9 million to $751.4 million at December 31, 2022.
Total savings and demand deposit accounts decreased $615.0 million to $9.20 billion as of December 31, 2023, while total time deposits increased $344.5 million to $1.10 billion as of December 31, 2023.
(“Lakeland”) that was announced on September 27, 2022. The Company recorded an $8.4 million provision for the year ended December 31, 2022, compared to a $24.3 million negative provision for credit losses for 2021. Net Interest Income. Net interest income increased $51.5 million to $417.6 million for 2022, from $366.0 million for 2021.
Earnings for the year ended December 31, 2022 were impacted by $4.1 million of non-tax deductible transaction costs related to the pending merger with Lakeland that was announced on September 27, 2022. The Company recorded an $8.4 million provision for the year ended December 31, 2022, compared to a $24.3 million negative provision for credit losses for 2022.
The increase in the allowance for credit losses on loans was primarily due to the weakened economic forecast, combined with an increase in total loans outstanding. Total non-performing loans at December 31, 2022 were $58.5 million, or 0.57% of total loans, compared with $48.0 million, or 0.50% of total loans at December 31, 2021.
The increase in the allowance for credit losses on loans was primarily due to the weakened economic forecast used in our CECL model, combined with an increase in total loans outstanding.
This decrease was partially offset by the inflow of lower-costing core deposits, along with an increase in the accelerated recognition of fees related to the forgiveness of PPP loans in 2021.
This was partially offset by a reduction in fees related to the forgiveness of PPP loans.
Pending Acquisitions Lakeland Bancorp On September 26, 2022, the Company, NL 239 Corp., a direct, wholly owned subsidiary of the Company (“Merger Sub”), and Lakeland Bancorp, Inc. entered into an Agreement and Plan of Merger (as may be amended, modified or supplemented from time to time in accordance with its terms, the “merger agreement”), pursuant to which Provident and Lakeland have agreed to combine their respective businesses in two mergers.
Pending Acquisitions Lakeland Bancorp On September 26, 2022, the Company, the Merger Sub, and Lakeland entered into the merger agreement, pursuant to which the Company and Lakeland have agreed to combine their respective businesses in two mergers.
The Company’s effective tax rate was 26.1% for the year ended December 31, 2021, compared with 24.0% for the year ended December 31, 2020.
For the year ended December 31, 2023, the Company's income tax expense was $47.4 million with an effective tax rate of 27.0%, compared with $64.5 million with an effective tax rate of 26.8% for the year ended December 31, 2022.
The Company has identified the allowance for credit losses on loans as a critical accounting policy. On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with the current expected credit loss (“CECL”) methodology.
On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with the CECL methodology. It also applies to off-balance sheet credit exposures, including loan commitments and lines of credit.
Non-performing construction loans decreased $487,000 to $1.9 million at December 31, 2022. Non-performing construction loans at December 31, 2022 consisted of two PCD loans. There were $2.4 million non-performing construction loans at December 31, 2021. Non-performing multi-family mortgage loans totaled $1.6 million at December 31, 2022. There were no non-performing multi-family mortgage loans at December 31, 2021.
There were two non-performing construction loans in 2022. Non-performing multi-family mortgage loans consisted of one loan totaling $744,000 as of December 31, 2023, compared to two non-performing multi-family mortgage loans totaling $1.6 million as of December 31, 2022. As of December 31, 2023, the Company held $11.7 million of foreclosed assets, compared with $2.1 million as of December 31, 2022.
The increase in interest income was attributable to interest income from the SB One loan portfolio, partially offset by the downward repricing of certain adjustable rate assets and lower rates on newly originated loans. Average interest-earning assets increased $1.94 billion to $12.18 billion for 2021, compared to $10.24 billion for 2020.
The increase in interest income was primarily driven by the favorable repricing of adjustable-rate loans and an increase in rates on new loan originations. Average interest-earning assets increased $224.4 million to $12.64 billion for 2023, compared to $12.41 billion for 2022.
FDIC insurance expense increased $3.1 million to $6.3 million for year ended December 31, 2021, compared to $3.1 million for 2020, primarily due to an increase in the insurance assessment rate and an increase in total assets subject to assessment, including assets acquired from SB One, along with the receipt of the small bank assessment credit in the prior year that was not available in 2021.
FDIC insurance expense increased $3.4 million to $8.6 million for the year ended December 31, 2023, compared to $5.2 million for the trailing year, primarily due to an increase in the assessment rate and the FDIC special assessment.
For the year ended December 31, 2021, fees related to the forgiveness of PPP loans totaled $11.3 million, which was recognized in interest income, compared to $3.8 million for the year ended December 31, 2020. Interest income increased $39.0 million to $402.3 million for 2021, compared to $363.3 million for 2020.
For the year ended December 31, 2023, fees related to the forgiveness of PPP loans decreased $1.4 million to $7,000, compared to $1.4 million for the year ended December 31, 2022. Interest income increased $149.6 million to $615.8 million for 2023, compared to $466.2 million for 2022.
Non-performing commercial mortgage loans increased $11.3 million to $28.2 million at December 31, 2022, from $16.9 million at December 31, 2021. At December 31, 2022, non-performing commercial mortgage loans consisted of 10 loans at December 31, 2022. Of these 10 loans, four loans totaling $6.9 million were PCD loans.
Non-performing commercial mortgage loans decreased $23.1 million to $5.2 million as of December 31, 2023, from $28.2 million as of December 31, 2022. As of December 31, 2023, non-performing commercial mortgage loans consisted of seven loans. Of these seven loans, one loan totaling $95,600 was a PCD loan.
The weighted average yield on total loans decreased five basis points to 3.82% for 2021 and the weighted average yield on available for sale debt securities decreased 68 basis points to 1.40% for 2021, from 2.08% for 2020. The weighted average yield on FHLBNY stock decreased to 5.48% for 2021, compared to 6.00% for 2020.
The yield on interest-earning assets increased 111 basis points to 4.87% for 2023, from 3.76% for 2022. The weighted average yield on total loans increased 111 basis points to 5.37% for 2023 and the weighted average yield on available for sale debt securities increased 58 basis points to 2.33% for 2023, from 1.75% for 2022.
For the year ended December 31, 2021, the decrease in net interest margin was primarily attributable to increases in the average balance of both lower-yielding cash and available for sale debt securities portfolios, combined with the downward repricing of certain adjustable rate loans.
The decrease in net interest income for the year ended December 31, 2023, was primarily due to a decrease in lower-costing deposits and an increase in borrowings, combined with unfavorable repricing of both deposits and borrowings, partially offset by originations of new loans and the favorable repricing of adjustable-rate loans.
Net interest income increased $53.5 million to $366.0 million for 2021, from $312.6 million for 2020. The interest rate spread increased one basis point to 2.89% for 2021, from 2.88% for 2020. The net interest margin decreased five basis points to 3.00% for 2021, compared to 3.05% for 2020.
Net interest income decreased $18.1 million to $399.5 million for 2023, from $417.6 million for 2022. The interest rate spread decreased 59 basis points to 2.63% for 2023, from 3.22% for 2022. The net interest margin decreased 21 basis points to 3.16% for 2023, compared to 3.37% for 2022.
Non-Interest Expense. Non-interest expense for the year ended December 31, 2021 was $250.1 million, an increase of $22.3 million from 2020. Compensation and benefits expense increased $12.5 million to $143.4 million for the year ended December 31, 2021, compared to $130.9 million for the year ended December 31, 2020.
Non-interest expense totaled $275.6 million for the year ended December 31, 2023, an increase of $18.8 million, compared to $256.8 million for the year ended December 31, 2022. Other operating expense increased $8.5 million to $47.4 million for the year ended December 31, 2023, compared to $38.9 million for the year ended December 31, 2022.
The largest non-performing commercial mortgage loan was a $12.3 million loan secured by a first mortgage on a property located in Collegeville, PA. Subsequent to December 31, 2022, the underlying real estate securing the loan was acquired in a negotiated settlement and recorded as a foreclosed asset.
The largest non-performing commercial mortgage loan was a $3.0 million loan secured by a first mortgage on a retail building located in Wayne, New Jersey. Non-performing commercial loans increased $17.3 million to $41.5 million as of December 31, 2023, from $24.2 million as of December 31, 2022.
Comparison of Financial Condition at December 31, 2022 and December 31, 2021 Total assets at December 31, 2022 were $13.8 billion, a $2.2 million increase from December 31, 2021.
Comparison of Financial Condition as of December 31, 2023 and December 31, 2022 Total assets as of December 31, 2023 were $14.21 billion, a $427.4 million increase from December 31, 2022. The increase in total assets was primarily due to a $624.8 million increase in total loans, partially offset by a $127.5 million decrease in total investments.
The increase in tax expense and the effective tax rate for the year ended December 31, 2021, compared with the same period in 2020, was partially attributable to increases in taxable income and the reduced proportion of income derived from tax exempt sources to total pre-tax income.
The decrease in tax expense for the year ended December 31, 2023, compared with the same period last year was largely the result of a decrease in taxable income. Comparison of Operating Results for the Years Ended December 31, 2022 and December 31, 2021 General.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeCertificate of deposit accounts as a percentage of total deposits were 7.1% at December 31, 2022, compared to 6.2% at December 31, 2021. Certificate of deposit accounts are generally short-term. As of December 31, 2022, 77.7% of all certificates of deposit had maturities of one year or less compared to 77.2% at December 31, 2021.
Biggest changeAs of December 31, 2023, 93.1% of all certificates of deposit had maturities of one year or less compared to 77.7% as of December 31, 2022. The Company’s ability to retain maturing time deposit accounts is the result of its strategy to remain competitively priced within its marketplace.
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.
These modifications are made to reflect more closely 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.
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.
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 more often 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.
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. 67
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. 70
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 economic value of equity model results as of December 31, 2022.
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 economic value of equity model results as of December 31, 2023.
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.
Current and future sensitivity to changes in interest rates are measured through the use of balance sheet and income simulation models. The analysis estimates changes in net interest income using flat rates as a base, a most likely rate forecast and rising and declining interest rate forecasts.
In the event of a 100 basis point decrease in interest rates, whereby rates ramp down evenly over a twelve-month period, the Company would experience a 0.8%, or $3.6 million decrease in net interest income. In this downward rate scenario, rates on deposits have a repricing floor of zero.
In the event of a 300 basis point decrease in interest rates, whereby rates ramp down evenly over a twelve-month period, the Company would experience a 2.6%, or $10.3 million decrease in net interest income. In this downward rate scenario, rates on deposits have a repricing floor of zero.
Item 7A. 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.
Item 7A. 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 to changes in interest rates.
As a result, the preceding table indicates that, as of December 31, 2022, in the event of a 300 basis point increase in interest rates, whereby rates ramp up evenly over a twelve-month period, there would be a 1.9% or $8.8 million increase to net interest income.
The preceding table indicates that, as of December 31, 2023, in the event of a 100 basis point increase in interest rates, whereby rates ramp up evenly over a twelve-month period, there would be a 0.4% or $1.6 million increase to net interest income.
Specific assumptions used in the simulation model include: • Parallel yield curve shifts for market rates; 66 • 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; and • Higher-balance demand deposit tiers and promotional demand accounts move at 50% to 75% of the rate ramp in either direction.
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; and • Higher-balance demand deposit tiers and promotional demand accounts move at 50% to 75% of the rate ramp in either direction. 69 The following table sets forth the results of the twelve month projected net interest income model as of December 31, 2023.
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.
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.
If rates were to decrease 100 basis points, the Company would experience a $925,000 decrease in the present value of equity. Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements.
If rates were to decrease 300 basis points, the present value of equity would decrease 18.1% or $315.1 million. Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements.
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.
Modeling changes in net interest income requires the use of certain assumptions regarding prepayment and deposit decay rates, which may or may not reflect future loan prepayment and deposit withdrawal activity. 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.
Change in Interest Rates in Basis Points Present Value of Equity Present Value of Equity as Percent of Present Value of Assets Amount Change Percent Change Present Value Ratio Percent Change (Dollars in thousands) -100 $ 2,256,492 $ (925) — % 16.4 % (2.8) % Flat 2,257,417 — — 16.9 — 100 2,306,571 49,154 2.2 17.7 4.5 200 2,325,061 67,644 3.0 18.2 7.9 300 2,341,275 83,858 3.7 18.8 11.2 The preceding table indicates that as of December 31, 2022, in the event of an immediate and sustained 300 basis point increase in interest rates, the Company would experience an 3.7%, or $83.9 million increase in the present value of equity.
Change in Interest Rates in Basis Points Present Value of Equity Present Value of Equity as Percent of Present Value of Assets Amount Change Percent Change Present Value Ratio Percent Change (Dollars in thousands) -300 $ 1,423,320 $ (315,089) (18.1) % 9.7 % (24.0) % -200 1,563,756 (174,653) (10.0) 11.0 (14.4) -100 1,669,286 (69,123) (4.0) 12.0 (6.4) Flat 1,738,409 — — 12.8 — +100 1,759,732 21,323 1.2 13.3 3.8 The preceding table indicates that as of December 31, 2023, in the event of an immediate and sustained 100 basis point increase in interest rates, the Company would experience a 1.2%, or $21.3 million increase in the present value of equity.
The Asset/Liability Committee reviews a variety of 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 Asset/Liability Committee reviews a variety of strategies that project changes in asset or liability mix and the impact of those changes on projected net interest income, net income and the economic value of equity.
Change in Interest Rates in Basis Points (Rate Ramp) Net Interest Income Amount Change Percent Change (Dollars in thousands) -100 $ 451,756 $ (3,602) (0.8) % Static 455,358 — — 100 458,572 3,214 0.7 200 461,391 6,033 1.3 300 464,125 8,767 1.9 The interest rate risk position of the Company remains moderately asset-sensitive notwithstanding the deployment of excess cash into fixed rate longer duration assets, including investment securities and loans.
Change in Interest Rates in Basis Points - (Rate Ramp) Net Interest Income Amount Change Percent Change (Dollars in thousands) -300 $ 382,222 $ (10,274) (2.6) % -200 385,863 (6,633) (1.7) -100 388,948 (3,548) (0.9) Static 392,496 — — +100 394,098 1,602 0.4 The interest rate risk position of the Company remains slightly asset sensitive.
Removed
The following table sets forth the results of the twelve month projected net interest income model as of December 31, 2022.
Added
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. Certificate of deposit accounts as a percentage of total deposits were 10.6% as of December 31, 2023, compared to 7.1% as of December 31, 2022. Certificate of deposit accounts are generally short-term.
Removed
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.

Other PFS 10-K year-over-year comparisons