PROVIDENT FINANCIAL SERVICES INC. MANAGEMENT REPORT ON FINANCIAL POSITION AND RESULTS OF OPERATIONS. (Form 10-Q)

Forward-looking statements


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

In addition, the effects of the COVID-19 pandemic continue to have an uncertain
impact on the Company, its customers and the communities it serves. Given its
ongoing and dynamic nature, including potential variants, it is difficult to
predict the continuing impact of the pandemic on the Company's business,
financial condition or results of operations. The extent of such impact will
depend on future developments, which remain highly uncertain, including when the
pandemic will be controlled and abated, and the extent to which the economy can
remain open.

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


On September 26, 2022, the Company entered into a definitive merger agreement
pursuant to which it will merge (the "merger") with Lakeland Bancorp, Inc.
("Lakeland"), and Lakeland Bank, a wholly owned subsidiary of Lakeland, will
merge with and into Provident Bank, a wholly owned subsidiary of the Company.
The merger agreement has been unanimously approved by the boards of directors of
both companies. The actual value of the Company's common stock to be recorded as
consideration in the merger will be based on the closing price of Company's
common stock at the time of the merger completion date. Under the merger
agreement, each share of Lakeland common stock will be exchanged for 0.8319
shares of the Company's common stock plus cash in lieu of fractional shares. The
merger is expected to close in the second quarter of 2023, subject to
satisfaction of customary closing conditions, including receipt of required
regulatory approvals and approval by the shareholders of both companies.

Critical accounting policies


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

• Adequacy of provision for credit losses; and

• Valuation of deferred tax assets


On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit
Losses on Financial Instruments," which replaced the incurred loss methodology
with the current expected credit loss ("CECL") methodology. The allowance for
credit losses is a valuation account that reflects management's evaluation of
the current expected credit losses in the loan portfolio. The Company maintains
the allowance for credit losses through provisions for credit losses that are
charged, or credited to income. Charge-offs against the allowance for credit
losses are taken on loans where management determines that the collection of
loan principal and interest is unlikely. Recoveries made on loans that have been
charged-off are credited to the allowance for credit losses.

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

Using the historical relationship between economic conditions and loan
performance, management's expectation of future loan performance is incorporated
using an externally developed economic forecast. This forecast is applied over a
period that management has determined to be reasonable and supportable. Beyond
the period over which management can develop or source a reasonable and
supportable forecast, the model will revert to long-term average economic
conditions using a straight-line, time-based methodology. The Company's current
forecast period is six quarters, with a four quarter reversion period to
historical average macroeconomic factors. The Company's economic forecast is
approved by the Company's Asset-Liability Committee.

The allowance for credit losses is measured on a collective (pool) basis, with
both a quantitative and qualitative analysis that is applied on a quarterly
basis, when similar risk characteristics exist. The respective quantitative
allowance for each loan segment is measured using an econometric, discounted
PDR/LGD modeling methodology in which distinct, segment-specific multi-variate
regression models are applied to an external economic forecast. Under the
discounted cash flows methodology, expected credit losses are estimated over the
effective life of the loans by measuring the difference between the net present
value of modeled cash flows and amortized cost basis. Contractual cash flows
over the contractual life of the loans are the basis for modeled cash flows,
adjusted for modeled defaults and expected prepayments and discounted at the
loan-level effective interest rate. The contractual term excludes expected
extensions, renewals and modifications unless either of the following applies at
the reporting date: management has a reasonable expectation that a troubled debt
restructuring ("TDR") will be executed with an individual borrower; or when an
extension or renewal option is included in the original contract and is not
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unconditionally terminable by the Company. Management will assess the likelihood of an option being exercised by a given borrower and appropriately extend the maturity of the portfolio for modeling purposes.

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


Portfolio segment is defined as the level at which an entity develops and
documents a systematic methodology to determine its allowance for credit losses.
Management developed segments for estimating loss based on type of borrower and
collateral which is generally based upon federal call report segmentation. The
segments have been combined or sub-segmented as needed to ensure loans of
similar risk profiles are appropriately pooled. As of September 30, 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. This process includes the review of delinquent and problem
loans at the Company's Delinquency, Credit, Credit Risk Management and Allowance
Committees; or which may be identified through the Company's loan review
process. Generally, the Company only evaluates loans individually for impairment
if the loan is non-accrual, non-homogeneous and the balance is at least $1.0
million, or if the loan was modified as a TDR.

For all classes of loans deemed collateral-dependent, the Company estimates
expected credit losses based on the fair value of the collateral less any
selling costs. If the loan is not collateral dependent, the allowance for credit
losses related to individually assessed loans is based on discounted expected
cash flows using the loan's initial effective interest rate.

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

For loans acquired that have experienced more-than-insignificant deterioration
in credit quality since their origination are considered Purchased Credit
Deteriorated ("PCD") loans. The Company evaluates acquired loans for
deterioration in credit quality based on any of, but not limited to, the
following: (1) non-accrual status; (2) troubled debt restructured designation;
(3) risk ratings of special mention, substandard or doubtful; (4) watchlist
credits; and (5) delinquency status, including loans that are current on
acquisition date, but had been previously delinquent. At the acquisition date,
an estimate of expected credit losses is made for groups of PCD loans with
similar risk characteristics and individual PCD loans without similar risk
characteristics. Subsequent to the acquisition date, the initial allowance for
credit losses on PCD loans will increase or decrease based on future
evaluations, with changes recognized in the provision for credit losses.

Management believes the primary risks inherent in the portfolio are a general
decline in the economy, a decline in real estate market values, rising
unemployment or a protracted period of elevated unemployment, increasing vacancy
rates in commercial investment properties and possible increases in interest
rates in the absence of economic improvement. As the impact of COVID-19
continues, the effectiveness of medical advances, government programs and the
resulting impact on consumer behavior and employment conditions will have a
material bearing on future credit conditions. Any one or a combination of these
events may adversely affect borrowers' ability to repay the loans, resulting in
increased delinquencies, credit losses and higher levels of provisions.
Management considers it important to maintain the ratio of the allowance for
credit losses to total loans at an acceptable level given current and forecasted
economic conditions, interest rates and the composition of the portfolio.

Although management believes that the Company has established and maintained the
allowance for credit losses at appropriate levels, additions may be necessary if
future economic and other conditions differ substantially from the current
operating environment and economic forecast. Management evaluates its estimates
and assumptions on an ongoing basis giving consideration to forecasted economic
factors, historical loss experience and other factors. Such estimates and
assumptions are adjusted when facts and circumstances dictate. In addition to
the ongoing impact of COVID-19, illiquid credit markets, volatile securities
markets, and declines in the housing and commercial real estate markets and the
economy in general may increase the uncertainty inherent in such estimates and
assumptions. 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
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economic environment will be reflected in the financial statements in future
periods. In addition, various regulatory agencies periodically review the
adequacy of the Company's allowance for credit losses as an integral part of
their examination process. Such agencies may require the Company to recognize
additions to the allowance or additional write-downs based on their judgments
about information available to them at the time of their examination. Although
management uses the best information available, the level of the allowance for
credit losses remains an estimate that is subject to significant judgment and
short-term change.

The CECL approach to calculate the allowance for credit losses on loans is
significantly influenced by the composition, characteristics and quality of the
Company's loan portfolio, as well as the prevailing economic conditions and
forecast utilized. Material changes to these and other relevant factors creates
greater volatility to the allowance for credit losses, and therefore, greater
volatility to the Company's reported earnings. Management considers different
economic scenarios that may impact the allowance for credit losses on loans.
Among other balance sheet and income statement changes, these scenarios could
result in a significant increase to the allowance for credit losses on loans.
These scenarios include both the quantitative and qualitative components of the
model and demonstrate how sensitive the allowance can be to key assumptions
underlying the overall calculation. To the extent actual losses are higher than
management estimates, additional provision for credit losses on loans could be
required and could adversely affect our earnings or financial position in future
periods. See Note 4 to the Consolidated Financial Statements for more
information on the allowance for credit losses on loans.

The determination of whether deferred tax assets will be realizable is
predicated on the reversal of existing deferred tax liabilities and estimates of
future taxable income. Such estimates are subject to management's judgment. A
valuation allowance is established when management is unable to conclude that it
is more likely than not that it will realize deferred tax assets based on the
nature and timing of these items. The Company did not require a valuation
allowance at September 30, 2022 or December 31, 2021.

COMPARISON OF THE FINANCIAL SITUATION AT SEPTEMBER 30, 2022 AND DECEMBER 31, 2021


Total assets at September 30, 2022 were $13.60 billion, a $177.4 million
decrease from December 31, 2021. The decrease in total assets was primarily due
to a $527.6 million decrease in cash and cash equivalents and a $250.5 million
decrease in total investments, partially offset by a $464.9 million increase in
total loans.

The Company's loan portfolio increased $464.9 million to $10.05 billion at
September 30, 2022, from $9.58 billion at December 31, 2021. For the nine months
ended September 30, 2022, loan funding, including advances on lines of credit,
totaled $3.05 billion, compared with $2.54 billion for the same period in 2021.
Total PPP loans outstanding, which are included in total commercial loans,
decreased $89.3 million to $5.6 million at September 30, 2022, from $94.9
million at December 31, 2021. Excluding the decrease in PPP loans, during the
nine months ended September 30, 2022, the Company experienced net increases of
$410.2 million in commercial mortgage loans, $114.0 million in multi-family
loans and $91.0 million in commercial loans, partially offset by net decreases
in residential mortgage, construction and consumer loans of $33.3 million $16.4
million and $10.9 million, respectively. Commercial loans, consisting of
commercial real estate, multi-family, commercial and construction loans,
represented 85.2% of the loan portfolio at September 30, 2022, compared to 84.1%
at December 31, 2021.

The Company participates in loans originated by other banks, including
participations designated as Shared National Credits ("SNCs"). The Company's
gross commitments and outstanding balances as a participant in SNCs were $191.6
million and $105.6 million, respectively, at September 30, 2022, compared to
$167.1 million and $78.5 million, respectively, at December 31, 2021. No SNC
relationships were 90 days or more delinquent at September 30, 2022.

The Company had outstanding junior lien mortgages totaling $138.7 million at
September 30, 2022. Of this total, three loans totaling $124,200 were 90 days or
more delinquent with an allowance for credit losses of $2,300.
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The following table sets forth information regarding the Company's
non-performing assets as of September 30, 2022 and December 31, 2021 (in
thousands):

                                  September 30, 2022       December 31, 2021
Mortgage loans:
Residential                      $             3,120             6,072
Commercial                                    35,352            16,887
Multi-family                                   1,583               439
Construction                                   1,878             2,365
Total mortgage loans                          41,933            25,763
Commercial loans                              17,181            20,582
Consumer loans                                   387             1,682

Total non-performing loans                    59,501            48,027
Foreclosed assets                              2,053             8,731
Total non-performing assets      $            61,554            56,758


The following table sets forth information regarding the Company's 60-89 day
delinquent loans as of September 30, 2022 and December 31, 2021 (in thousands):

                                        September 30, 2022       December 31, 2021
Mortgage loans:
Residential                            $               302             1,131
Commercial                                               -             3,960

Total mortgage loans                                   302             5,091
Commercial loans                                     1,135             1,289
Consumer loans                                         379               228
Total 60-89 day delinquent loans       $             1,816             

6,608



At September 30, 2022, the Company's allowance for credit losses related to the
loan portfolio was 0.88% of total loans, compared to 0.84% at December 31, 2021
and September 30, 2021, respectively. The Company recorded a provision for
credit losses on loans of $8.4 million and $5.0 million for the three and nine
months ended September 30, 2022, compared with a provision of $1.0 million and a
negative provision of $24.7 million for the three and nine months ended
September 30, 2021, respectively. For the three and nine months ended September
30, 2022, the Company had net recoveries of $1.2 million and $2.9 million,
respectively, compared to net charge-offs of $1.9 million and net recoveries of
$3.3 million, respectively, for the same periods in 2021. The allowance for
credit losses increased $7.9 million to $88.6 million at September 30, 2022 from
$80.7 million at December 31, 2021. The increase in the period-over-period
provision for credit losses was largely a function of the significant favorable
impact of the post-pandemic recovery resulting in a large negative provision
taken in the prior year period, combined with the current weakening economic
forecast and an increase in total loans outstanding.

Total non-performing loans were $59.5 million, or 0.59% of total loans at
September 30, 2022, compared to $48.0 million, or 0.50% of total loans at
December 31, 2021. The $11.5 million increase in non-performing loans consisted
of an $18.5 million increase in non-performing commercial mortgage loans,
partially offset by a $3.4 million decrease in non-performing commercial loans,
a $3.0 million decrease in non-performing residential mortgage loans, a $1.3
million decrease in non-performing consumer loans and a $487,000 decrease in
non-performing construction loans.

At September 30, 2022 and December 31, 2021, the Company held foreclosed assets
of $2.1 million and $8.7 million, respectively. During the nine months ended
September 30, 2022, there were four additions to foreclosed assets with an
aggregate carrying value of $1.1 million, three properties sold with an
aggregate carrying value of $7.6 million and a valuation charge of $200,000.
Foreclosed assets at September 30, 2022 consisted primarily of commercial real
estate. Total non-performing assets at September 30, 2022 increased $4.8 million
to $61.6 million, or 0.45% of total assets, from $56.8 million, or 0.41% of
total assets at December 31, 2021.

Cash and cash equivalents were $184.9 million at September 30, 2022, a $527.6
million decrease from December 31, 2021, primarily due to the reinvestment of
excess liquidity into higher yielding loans, combined with a decrease in short
term investments.
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Total investments were $2.28 billion at September 30, 2022, a $250.5 million
decrease from December 31, 2021. This decrease was primarily due to an increase
in unrealized losses on available for sale debt securities, repayments of
mortgage-backed securities and maturities and calls of certain municipal and
agency bonds, partially offset by purchases of mortgage-backed and municipal
securities.

Total deposits decreased $548.4 million during the nine months ended September
30, 2022, to $10.69 billion. Total savings and demand deposit accounts decreased
$536.0 million to $10.01 billion at September 30, 2022, while total time
deposits decreased $12.4 million to $680.1 million at September 30, 2022. The
decrease in savings and demand deposits was largely attributable to a $296.3
million decrease in interest bearing demand deposits, as the Company shifted
$360.0 million of brokered demand deposits into lower-costing Federal Home Loan
Bank of New York ("FHLB") borrowings, a $196.9 million decrease in money market
deposits and an $84.1 million decrease in non-interest bearing demand deposits,
partially offset by a $41.3 million increase in savings deposits. The decrease
in time deposits was primarily due to maturities of longer-term retail time
deposits, partially offset by the inflow of brokered time deposits.

Borrowed funds increased $436.8 million during the nine months ended September
30, 2022, to $1.06 billion. The increase in borrowings was largely due to the
maturity and replacement of brokered deposits into lower-costing FHLB
borrowings. Borrowed funds represented 7.8% of total assets at September 30,
2022, an increase from 4.5% at December 31, 2021.

Stockholders' equity decreased $146.1 million during the nine months ended
September 30, 2022, to $1.55 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 earned for the period.
For the nine months ended September 30, 2022, common stock repurchases totaled
2,045,037 shares at an average cost of $23.23 per share, of which 17,746 shares,
at an average cost of $23.52 per share, were made in connection with withholding
to cover income taxes on the vesting of stock-based compensation. At
September 30, 2022, approximately 1.1 million shares remained eligible for
repurchase under the current stock repurchase authorization.

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

Cash flows from loan repayments and maturing investment securities are fairly predictable sources of funds. Changes in interest rates, local economic conditions, the COVID-19 pandemic and related government response and market competition may influence loan prepayments, mortgage-backed securities prepayments and cash flows. deposits.


In response to the COVID-19 pandemic, the Company escalated the monitoring of
deposit behavior, utilization of credit lines, and borrowing capacity with the
FHLBNY and FRBNY, and continues to enhance its collateral position with these
funding sources.

The Federal Deposit Insurance Corporation ("FDIC") and the other federal bank
regulatory agencies issued a final rule that revised the leverage and risk-based
capital requirements and the method for calculating risk-weighted assets to make
them consistent with agreements that were reached by the Basel Committee on
Banking Supervision and certain provisions of the Dodd-Frank Act, that were
effective January 1, 2015. Among other things, the rule established a new common
equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets),
adopted a uniform minimum leverage capital ratio at 4%, increased the minimum
Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted
assets) and assigned a higher risk weight (150%) to exposures that are more than
90 days past due or are on non-accrual status and to certain commercial real
estate facilities that finance the acquisition, development or construction of
real property. The rule also required unrealized gains and losses on certain
"available-for-sale" securities holdings to be included for purposes of
calculating regulatory capital unless a one-time opt-out was exercised. The
Company exercised the option to exclude unrealized gains and losses from the
calculation of regulatory capital. Additional constraints were also imposed on
the inclusion in regulatory capital of mortgage-servicing assets, deferred tax
assets and minority interests. The rule limits a banking organization's capital
distributions and certain discretionary bonus payments if the banking
organization does not hold a "capital conservation buffer," of 2.5% in addition
to the amount necessary to meet its minimum risk-based capital requirements.

In the first quarter of 2020, U.S. federal regulatory authorities issued an
interim final rule providing banking institutions that adopted CECL during the
2020 calendar year with the option to delay for two years the estimated impact
of CECL on regulatory capital, followed by a three-year transition period to
phase out the aggregate amount of the capital benefit provided during the
initial two-year delay (i.e., a five year transition in total). In connection
with its adoption of CECL on January 1, 2020, the Company elected to utilize the
five-year CECL transition.
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To September 30, 2022the Bank and the Company have exceeded all current minimum regulatory capital requirements as follows:

                                                                                           September 30, 2022
                                                                                 Required with Capital Conservation
                                                    Required                                   Buffer                                     Actual
                                            Amount             Ratio                 Amount                 Ratio               Amount               Ratio
                                                                                         (Dollars in thousands)

Bank:(1)

Tier 1 leverage capital                  $ 526,697               4.00  %       $       526,697                4.00  %       $ 1,222,092                 9.28  %
Common equity Tier 1 risk-based
capital                                    525,767               4.50                  817,860                7.00            1,222,092                10.46
Tier 1 risk-based capital                  701,023               6.00                  993,116                8.50            1,222,092                10.46
Total risk-based capital                   934,697               8.00                1,226,790               10.50            1,302,104                11.14

Company:
Tier 1 leverage capital                  $ 526,913               4.00  %       $       526,913                4.00  %       $ 1,288,635                 9.78  %
Common equity Tier 1 risk-based
capital                                    526,004               4.50                  818,228                7.00            1,275,748                10.91
Tier 1 risk-based capital                  701,338               6.00                  993,562                8.50            1,288,635                11.02
Total risk-based capital                   935,117               8.00                1,227,342               10.50            1,368,647                11.71


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

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021


General. The Company reported net income of $43.4 million, or $0.58 per basic
and diluted share for the three months ended September 30, 2022, compared to net
income of $37.3 million, or $0.49 per basic and diluted share, for the three
months ended September 30, 2021. For the nine months ended September 30, 2022,
the Company reported net income of $126.6 million, or $1.69 per basic share and
diluted share, compared to net income of $130.6 million, or $1.71 per basic
share and $1.70 per diluted share, for the nine months ended September 30, 2021.
Current quarter earnings were impacted by $2.9 million of non-tax deductible
transaction costs related to the pending merger with Lakeland that was announced
on September 27, 2022.

Net Interest Income. Total net interest income increased $18.3 million to $109.5
million for the three months ended September 30, 2022, from $91.2 million for
the three months ended September 30, 2021. For the nine months ended
September 30, 2022, total net interest income increased $31.4 million to $303.5
million, from $272.1 million for the same period in 2021. Interest income for
the three months ended September 30, 2022 increased $22.1 million to $121.7
million, from $99.6 million for the same period in 2021. For the nine months
ended September 30, 2022, interest income increased $28.3 million to $329.0
million, from $300.7 million for the nine months ended September 30, 2021.
Interest expense increased $3.9 million to $12.2 million for the three months
ended September 30, 2022, from $8.4 million for the three months ended September
30, 2021. For the nine months ended September 30, 2022, interest expense
decreased $3.0 million to $25.5 million, from $28.5 million for the nine months
ended September 30, 2021. The increase in net interest income for the three
months ended September 30, 2022, was largely due to the period over period
increase in the net interest margin resulting from the favorable repricing of
adjustable rate loans and the reinvestment of cash flows from investment
securities into higher-yielding loans. This was partially offset by the more
modest unfavorable repricing of interest-bearing liabilities. For the three
months ended September 30, 2022, fees related to the forgiveness of PPP loans
decreased $2.4 million to $100,000, compared to $2.5 million for the three
months ended September 30, 2021. The increase in net interest income for the
nine months ended September 30, 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 growth in
lower-costing core and non-interest bearing deposits and increases in available
for sale debt securities and total loans outstanding. This was partially offset
by a reduction in fees related to the forgiveness of PPP loans. For the nine
months ended September 30, 2022, fees related to the forgiveness of PPP loans
decreased $7.9 million to $1.4 million, compared to $9.3 million for the nine
months ended September 30, 2021.

The net interest margin increased 57 basis points to 3.51% for the quarter ended
September 30, 2022, compared to 2.94% for the quarter ended September 30, 2021.
The weighted average yield on interest-earning assets increased 69 basis points
to 3.90% for the quarter ended September 30, 2022, compared to 3.21% for the
quarter ended September 30, 2021, while the weighted average cost of interest
bearing liabilities increased 17 basis points for the quarter ended
September 30, 2022 to 0.54%, compared to the quarter ended September 30, 2021.
The average cost of interest bearing deposits for the quarter ended
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September 30, 2022 was 0.47%, compared to 0.30% for the same period last year.
Average non-interest bearing demand deposits totaled $2.75 billion for the
quarter ended September 30, 2022, compared to $2.55 billion for the quarter
ended September 30, 2021. The average cost of total deposits, including
non-interest bearing deposits, was 0.35% for the quarter ended September 30,
2022, compared with 0.23% for the quarter ended September 30, 2021. The average
cost of borrowed funds for the quarter ended September 30, 2022 was 1.11%,
compared to 1.08% for the same period last year.

For the nine months ended September 30, 2022, the net interest margin increased
25 basis points to 3.24%, compared to 2.99% for the nine months ended September
30, 2021. The weighted average yield on interest earning assets increased 20
basis points to 3.51% for the nine months ended September 30, 2022, compared to
3.31% for the nine months ended September 30, 2021, while the weighted average
cost of interest bearing liabilities decreased five basis points to 0.38% for
the nine months ended September 30, 2022, compared to 0.43% for the same period
last year. The average cost of interest bearing deposits decreased one basis
point to 0.33% for the nine months ended September 30, 2022, compared to 0.34%
for the same period last year. Average non-interest bearing demand deposits
totaled $2.77 billion for the nine months ended September 30, 2022, compared
with $2.47 billion for the nine months ended September 30, 2021. The average
cost of total deposits, including non-interest bearing deposits, was 0.25% for
the nine months ended September 30, 2022, compared with 0.26% for the nine
months ended September 30, 2021. The average cost of borrowings for the nine
months ended September 30, 2022 was 0.97%, compared to 1.13% for the same period
last year.

Interest income on loans secured by real estate increased $17.8 million to $80.3
million for the three months ended September 30, 2022, from $62.5 million for
the three months ended September 30, 2021. Commercial loan interest income
increased $747,000 to $25.2 million for the three months ended September 30,
2022, from $24.5 million for the three months ended September 30, 2021. Consumer
loan interest income increased $440,000 to $3.8 million for the three months
ended September 30, 2022, from $3.3 million for the three months ended September
30, 2021. For the three months ended September 30, 2022, the average balance of
total loans increased $475.8 million to $9.91 billion, compared to the same
period in 2021. The average yield on total loans for the three months ended
September 30, 2022, increased 61 basis points to 4.38%, from 3.77% for the same
period in 2021.

Interest income on loans secured by real estate increased $25.8 million to
$213.2 million for the nine months ended September 30, 2022, from $187.4 million
for the nine months ended September 30, 2021. Commercial loan interest income
decreased $5.4 million to $70.4 million for the nine months ended September 30,
2022, from $75.8 million for the nine months ended September 30, 2021. Consumer
loan interest income increased $19,000 to $10.3 million for the nine months
ended September 30, 2022, from $10.2 million for the nine months ended September
30, 2021. For the nine months ended September 30, 2022, the average balance of
total loans was $9.69 billion, compared with $9.58 billion for the same period
in 2021. The average yield on total loans for the nine months ended September
30, 2022, increased 23 basis points to 4.01%, from 3.78% for the same period in
2021.

Interest income on held to maturity debt securities decreased $222,000 to $2.4
million for the three months ended September 30, 2022, compared to the same
period last year. Average held to maturity debt securities decreased $33.1
million to $399.4 million for the three months ended September 30, 2022, from
$432.5 million for the same period last year. Interest income on held to
maturity debt securities decreased $621,000 to $7.5 million for the nine months
ended September 30, 2022, compared to the same period in 2021. Average held to
maturity debt securities decreased $27.1 million to $413.1 million for the nine
months ended September 30, 2022, from $440.3 million for the same period last
year.

Interest income on available for sale debt securities and FHLBNY stock increased
$3.7 million to $9.6 million for the three months ended September 30, 2022, from
$5.9 million for the three months ended September 30, 2021. The average balance
of available for sale debt securities and FHLBNY stock increased $320.6 million
to $2.00 billion for the three months ended September 30, 2022, compared to the
same period in 2021. Interest income on available for sale debt securities and
FHLBNY stock increased $8.8 million to $26.0 million for the nine months ended
September 30, 2022, from $17.2 million for the same period last year. The
average balance of available for sale debt securities and FHLBNY stock increased
$626.5 million to $2.07 billion for the nine months ended September 30, 2022.

The average yield on total securities increased to 2.36% for the three months
ended September 30, 2022, compared with 1.32% for the same period in 2021. For
the nine months ended September 30, 2022, the average yield on total securities
increased to 1.72%, compared with 1.47% for the same period in 2021.

Interest expense on deposit accounts increased $3.3 million to $9.6 million for
the three month ended September 30, 2022, compared with $6.3 million for the
three months ended September 30, 2021. For the nine months ended September 30,
2022, interest expense on deposit accounts decreased $173,000 to $20.3 million,
from $20.5 million for the same period last year. The average cost of interest
bearing deposits increased to 0.47% and decreased to 0.33% for the three and
nine months ended September 30, 2022, respectively, from 0.30% and 0.34% for the
three and nine months ended September 30, 2021,
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respectively. The average balance of interest bearing core deposits for the
three months ended September 30, 2022 increased $13.4 million to $7.42 billion.
For the nine months ended September 30, 2022, average interest bearing core
deposits increased $563.2 million, to $7.62 billion, from $7.06 billion for the
same period in 2021. Average time deposit account balances decreased $135.3
million to $669.6 million for the three months ended September 30, 2022, from
$804.9 million for the three months ended September 30, 2021. For the nine
months ended September 30, 2022, average time deposit account balances decreased
$232.5 million to $681.8 million, from $914.3 million for the same period in
2021.

Interest expense on borrowed funds increased $750,000 to $2.5 million for the
three months ended September 30, 2022, from $1.8 million for the three months
ended September 30, 2021. For the nine months ended September 30, 2022, interest
expense on borrowed funds decreased $2.3 million to $4.8 million, from $7.1
million for the nine months ended September 30, 2021. The average cost of
borrowings increased to 1.11% for the three months ended September 30, 2022,
from 1.08% for the three months ended September 30, 2021. The average cost of
borrowings decreased to 0.97% for the nine months ended September 30, 2022, from
1.13% for the same period last year. Average borrowings increased $256.4 million
to $908.8 million for the three months ended September 30, 2022, from $652.4
million for the three months ended September 30, 2021. For the nine months ended
September 30, 2022, average borrowings decreased $180.9 million to $663.4
million, compared to $844.2 million for the nine months ended September 30,
2021.

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

The Company recorded an $8.4 million and $5.0 million provision for credit
losses on loans for the three and nine months ended September 30, 2022,
respectively, compared with a provision of $1.0 million and a negative provision
of $24.7 million for the three and nine months ended September 30, 2021,
respectively. The provision for credit losses in the quarter was largely a
function of a weakening economic forecast, combined with additional specific
reserves on impaired commercial loans of $2.4 million. The increase in the
period-over-period provision for credit losses for the nine months ended
September 30, 2022 was largely a function of the significant favorable impact of
the post-pandemic recovery resulting in a large negative provision taken in the
prior year period, combined with the current weakening economic forecast and an
increase in total loans outstanding.

Non-Interest Income. Non-interest income totaled $28.4 million for the quarter
ended September 30, 2022, an increase of $5.1 million, compared to the same
period in 2021. Other income increased $6.2 million to $10.4 million for the
three months ended September 30, 2022, compared to the quarter ended
September 30, 2021, primarily due to an $8.6 million gain realized on the sale
of a foreclosed commercial office property to a purchaser who intends to
reposition the property to industrial use in the current quarter, partially
offset by the prior year $3.4 million reduction in the contingent consideration
related to the earn-out provisions of the 2019 purchase of Tirschwell & Loewy,
Inc. ("T&L"). Additionally, insurance agency income increased $432,000 to $2.9
million for the three months ended September 30, 2022, compared to the quarter
ended September 30, 2021, largely due to strong retention revenue. Partially
offsetting these increases in non-interest income, wealth management income
decreased $1.1 million to $6.8 million for the three months ended September 30,
2022, compared to the same period in 2021, primarily due to a decrease in the
market value of assets under management, while BOLI income decreased $643,000
compared to the quarter ended September 30, 2021, to $1.2 million for the three
months ended September 30, 2022, primarily due to a benefit claim recognized in
the prior year.

For the nine months ended September 30, 2022, non-interest income totaled $69.5
million, an increase of $3.4 million, compared to the same period in 2021. Other
income increased $7.1 million to $13.5 million for the nine months ended
September 30, 2022, compared to $6.4 million for the same period in 2021,
primarily due to an $8.6 million gain realized on the sale of a foreclosed
commercial office property to a purchaser who intends to reposition the property
to industrial use and an increase in fees on loan-level interest rate swap
transactions, partially offset by income recognized from a $3.4 million
reduction in the contingent consideration related to the earn-out provisions of
the 2019 purchase of T&L which was recorded in the prior year. Insurance agency
income increased $1.1 million to $9.1 million for the nine months ended
September 30, 2022, compared to $8.0 million for the same period in 2021,
largely due to increases in contingent commissions, retention revenue and new
business activity. Partially offsetting these increases to non-interest income,
BOLI income decreased $2.0 million to $4.0 million for the nine months ended
September 30, 2022, compared to the same period in 2021, primarily due to a
decrease in benefit claims recognized and lower equity valuations. Wealth
management income decreased $1.6 million to $21.3 million for the nine months
ended September 30, 2022, compared to the same period in 2021, primarily due to
a decrease in the market
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value of assets under management, partially offset by new business generation.
Additionally, fee income decreased $1.1 million to $21.5 million for the nine
months ended September 30, 2022, compared to the same period in 2021, primarily
due to a decrease in debit card revenue, which was curtailed by the Durbin
amendment beginning July 1, 2021, partially offset by an increase in deposit
related fees.

Non-Interest Expense. For the three months ended September 30, 2022,
non-interest expense totaled $69.4 million, an increase of $6.0 million,
compared to the three months ended September 30, 2021. Other operating expenses
increased $3.3 million to $12.2 million for the three months ended September 30,
2022, compared to the same period in 2021, primarily due to $2.9 million of
transaction costs related to the recently announced pending merger with
Lakeland. Data processing expense increased $772,000 to $5.6 million for the
three months ended September 30, 2022, compared to the same period in 2021
largely due to increases in software subscription expense and online banking
costs. Credit loss expense for off-balance sheet credit exposures increased
$595,000 to $1.6 million for the three months ended September 30, 2022, compared
to a $980,000 for the same period in 2021. The increase in the provision was
primarily the result of the period-over-period relative change in projected loss
factors. Additionally, compensation and benefits expense increased $525,000 to
$38.1 million for three months ended September 30, 2022, compared to $37.6
million for the same period in 2021. The increase was principally due to
increases in salary expense and stock-based compensation, partially offset by a
decrease in the accrual for incentive compensation. Net occupancy expenses
increased $502,000 to $8.5 million for the three months ended September 30,
2022, compared to the same period in 2021, largely due to increases in
maintenance, depreciation and rent expenses.

Non-interest expense totaled $195.2 million for the nine months ended September
30, 2022, an increase of $7.2 million, compared to $188.0 million for the nine
months ended September 30, 2021. Compensation and benefits expense increased
$4.8 million to $112.6 million for the nine months ended September 30, 2022,
compared to $107.7 million for the nine months ended September 30, 2021,
primarily due to increases in stock-based compensation and salary expense,
partially offset by a decreases in the accrual for incentive compensation and
post-retirement benefit expenses. Other operating expense increased $3.3 million
to $31.4 million for the nine months ended September 30, 2022, compared to $28.0
million for the nine months ended September 30, 2021, primarily due to $2.9
million of transaction costs related to the recently announced pending merger
with Lakeland and valuation charges on foreclosed real estate. Data processing
expense increased $1.9 million to $16.6 million for the nine months ended
September 30, 2022, mainly due to an increase in software subscription expenses.
Additionally, net occupancy expense increased $1.1 million to $26.3 million for
the nine months ended September 30, 2022, compared to the same period in 2021,
mainly due to increases in rent, depreciation and maintenance expenses.
Partially offsetting these increases, credit loss expense for off-balance sheet
credit exposures decreased $3.9 million to a negative provision of $1.8 million
for the nine months ended September 30, 2022, compared to a $2.2 million
provision for the same period last year. The decrease was primarily the result
of a decrease in the pipeline of loans approved and awaiting closing and an
increase in line of credit utilization, partially offset by an increase in
projected loss factors.

Income Tax Expense. For the three months ended September 30, 2022, the Company's
income tax expense was $16.7 million with an effective tax rate of 27.7%,
compared with income tax expense of $12.9 million with an effective tax rate of
25.7% for the three months ended September 30, 2021. The increase in tax expense
for the three months ended September 30, 2022, compared with the same period
last year was largely the result of an increase in taxable income, while the
increase in the effective tax rate for the three months ended September 30,
2022, compared with the three months ended September 30, 2021, was largely due
to non-deductible merger related transaction costs of $2.9 million recognized in
the current quarter and an increase in the proportion of income derived from
taxable sources.

For the nine months ended September 30, 2022, the Company's income tax expense
was $46.2 million with an effective tax rate of 26.7%, compared with $44.4
million with an effective tax rate of 25.4% for the nine months ended September
30, 2021. The increase in tax expense for the nine months ended September 30,
2022, compared with the same period last year was largely the result of an
increase in taxable income, while the increase in the effective tax rate for the
nine months ended September 30, 2022, compared with the prior year was largely
due to non-deductible merger related transaction costs of $2.9 million
recognized in the current period and an increase in the proportion of income
derived from taxable sources.

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