Provident Financial Services Inc.

05/08/2026 | Press release | Distributed by Public on 05/08/2026 12:34

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
Certain statements contained herein are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "estimate," "project," "intend," "anticipate," "continue," or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those set forth in Item 1A of the Company's Annual Report on Form 10-K, as supplemented by its Quarterly Reports on Form 10-Q, and those related to the economic environment, particularly in the market areas in which the Company operates, inflation and unemployment, competitive products and pricing, real estate values, fiscal and monetary policies of the U.S. Government, tariffs, changes in accounting policies and practices that may be adopted by the regulatory agencies and the accounting standards setters, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, potential goodwill impairment, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.
The Company cautions readers not to place undue reliance on any such forward-looking statements which speak only as of the date they are made. The Company advises readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not assume any duty, and does not undertake, to update any forward-looking statements to reflect events or circumstances after the date of this statement.
Critical Accounting Policies
The Company considers certain accounting policies to be critically important to the fair presentation of its financial condition and results of operations. These policies require management to make complex judgments on matters which by their nature have elements of uncertainty. The sensitivity of the Company's consolidated financial statements to these critical accounting policies, and the assumptions and estimates applied, could have a significant impact on its financial condition and results of operations. These assumptions, estimates and judgments made by management can be influenced by a number of factors, including the general economic environment. The Company has identified the allowance for credit losses on loans and the acquisition method of accounting as critical accounting policies.
The allowance for credit losses is a valuation account that reflects management's evaluation of the current expected credit losses in the loan portfolio. The Company maintains the allowance for credit losses through provisions for credit losses that are charged to income. Charge-offs against the allowance for credit losses are taken on loans where management determines that the collection of loan principal and interest is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for credit losses.
The calculation of the allowance for credit losses is a critical accounting policy of the Company. Management estimates the allowance balance using relevant available information, from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast. Historical credit loss experience for both the Company and peers provides the basis for the estimation of expected credit losses, where observed credit losses are converted to probability of default rate ("PDR") curves through the use of segment-specific loss given default ("LGD") risk factors that convert default rates to loss severity based on industry-level, observed relationships between the two variables for each segment, primarily due to the nature of the underlying collateral. These risk factors were assessed for reasonableness against the Company's own loss experience and adjusted in certain cases when the relationship between the Company's historical default and loss severity
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 ACL Committee.
The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a quarterly basis, when similar risk characteristics exist. The respective quantitative allowance for each loan segment is measured using an econometric, discounted PDR/LGD modeling methodology in which distinct, segment-specific multi-variate regression models are applied to an external economic forecast. Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis. Contractual cash flows over the contractual life of the loans are the basis for modeled cash flows, adjusted for modeled defaults and expected prepayments and discounted at the loan-level effective interest rate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies at the reporting date: management has a reasonable expectation that a modification will be executed with an individual borrower; or when an extension or renewal option is included in the original contract and is not unconditionally cancellable by the Company. Management will assess the likelihood of the option being exercised by the borrower and appropriately extend the maturity for modeling purposes.
The Company considers qualitative adjustments to credit loss estimates for information not already captured in the quantitative component of the loss estimation process. Qualitative factors are based on portfolio concentration levels, model imprecision, changes in industry conditions, changes in the Company's loan review process, changes in the Company's loan policies and procedures, and economic forecast uncertainty.
One of the most significant judgments involved in estimating the Company's allowance for credit losses on loans relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast period. As of March 31, 2026, the model incorporated Moody's baseline economic forecast, as adjusted for qualitative factors, as well as an extensive review of classified loans and loans that were classified as impaired with a specific reserve assigned to those loans. The allowance estimation process resulted in a total recapture of previous provisions on loans of $4.7 million for the three months ended March 31, 2026, and an overall coverage ratio of 90 basis points. Management believes the allowance for credit losses accurately represents the estimated inherent losses, factoring in the qualitative adjustment and other assumptions, including the selection of the baseline forecast within the model.
Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Management developed segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation. The segments have been combined or sub-segmented as needed to ensure loans of similar risk profiles are appropriately pooled. As of March 31, 2026, 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-Real Estate Secured
•Consumer Loans - First Lien Home Equity and Other Consumer
The allowance for credit losses on loans individually evaluated for impairment is based upon loans that have been identified through the Company's normal loan monitoring process. This process includes the review of delinquent and problem loans at the Company's Credit, Credit Risk Management and Allowance Committees; or which may be identified through the Company's loan review process. Generally, the Company only evaluates loans individually for impairment if the loan is non-accrual, non-homogeneous and the balance is greater than $1.0 million.
For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the fair value of the collateral less any selling costs. If the loan is not collateral dependent, the allowance for credit losses related to individually assessed loans is based on discounted expected cash flows using the loan's initial effective interest rate.
Loans acquired that have experienced more-than-insignificant deterioration in credit quality since their origination are considered PCD loans. The Company evaluates acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) modification designation; (3) risk ratings of special mention, substandard or
doubtful; (4) watchlist credits; and (5) delinquency status, including loans that are current on acquisition date, but had been previously delinquent. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. Subsequent to the acquisition date, the initial allowance for credit losses on PCD loans will increase or decrease based on future evaluations, with changes recognized in the provision for credit losses on loans.
Management believes the primary risks inherent in the portfolio are a general decline in the economy, a decline in real estate market values, rising unemployment or a protracted period of elevated unemployment, increasing vacancy rates in commercial investment properties and possible increases in interest rates in the absence of economic improvement. Any one or a combination of these events may adversely affect borrowers' ability to repay the loans, resulting in increased delinquencies, credit losses and higher levels of provisions. Management considers it important to maintain the ratio of the allowance for credit losses to total loans at an acceptable level given current and forecasted economic conditions, interest rates and the composition of the portfolio.
The CECL approach to calculate the allowance for credit losses on loans is significantly influenced by the composition, characteristics and quality of the Company's loan portfolio, as well as the prevailing economic conditions and forecast utilized. Although management believes that the Company has established and maintained the allowance for credit losses at appropriate levels, additions may be necessary if future economic and other conditions differ substantially from the current operating environment and economic forecast. Management evaluates its estimates and assumptions on an ongoing basis giving consideration to forecasted economic factors, historical loss experience and other factors. The model includes both quantitative and qualitative components. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods, and to the extent actual losses are higher than management estimates, additional provision for credit losses on loans could be required and could adversely affect our earnings or financial position in future periods. In addition, various regulatory agencies periodically review the adequacy of the Company's allowance for credit losses as an integral part of their examination process. Such agencies may require the Company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination. Although management uses the best information available, the level of the allowance for credit losses remains an estimate that is subject to significant judgment and short-term volatility.
Material changes to these and other relevant factors create greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company's reported earnings.
Recent Legislation
On July 4, 2025, the One Big Beautiful Bill ("OBBB") was enacted into law. The legislation includes a number of significant tax-related provisions, including changes affecting corporate tax incentives, international tax provisions, and various business credits and deductions.
Pursuant to ASC 740, Income Taxes, the Company recognized the effects of the OBBB in the third fiscal quarter of 2025, the period in which the legislation was enacted. The Company evaluated the potential impact of the OBBB on its financial statements and, based on its assessment, the legislation has not had a material impact on its financial statements.
COMPARISON OF FINANCIAL CONDITION AS OF MARCH 31, 2026 AND DECEMBER 31, 2025
Total assets as of March 31, 2026 were $25.20 billion, a $221.0 million increase from December 31, 2025. The increase in total assets was primarily due to a $143.6 million increase in total loans and a $60.9 million increase in total investments.
The Company's loans held for investment portfolio increased $143.6 million to $19.65 billion as of March 31, 2026, from $19.50 billion as of December 31, 2025. The loan portfolio consists of the following (in thousands):
March 31, 2026 December 31, 2025
Mortgage loans:
Commercial $ 7,423,652 7,398,792
Multi-family 3,724,236 3,667,337
Construction 640,929 662,112
Residential 1,960,861 1,974,324
Total mortgage loans 13,749,678 13,702,565
Commercial loans (1)
5,301,113 5,200,517
Consumer loans 608,016 612,431
Total gross loans 19,658,807 19,515,513
Premiums on purchased loans 1,700 1,524
Net deferred fees (12,805) (12,976)
Total loans $ 19,647,702 19,504,061
(1) Commercial loans consist of owner-occupied real estate, commercial & industrial loans and mortgage warehouse lines.
During the three months ended March 31, 2026, the loans held for investment portfolio had net increases of $123.1 million of commercial loans, $56.9 million of multi-family loans and $24.9 million of commercial mortgage loans, partially offset by net decreases of $22.5 million of mortgage warehouse lines, $21.2 million of construction loans and $13.5 million of residential mortgage loans. Total commercial loans, consisting of commercial real estate, multi-family, commercial and construction loans, as well as mortgage warehouse lines, represented 86.9% of the loan portfolio as of March 31, 2026, compared to 86.7% as of December 31, 2025.
The Bank's lending activities, though concentrated in the communities surrounding its offices, extend predominantly throughout New Jersey, eastern Pennsylvania and Queens, Nassau and Orange County, New York. This geographic concentration subjects the Company's loan portfolio to the general economic conditions within these states. The risks created by this concentration have been considered by management in the determination of the appropriateness of the allowance for credit losses.
We consider our commercial real estate loans to be higher risk categories in our loan portfolio. These loans are particularly sensitive to economic conditions. As of March 31, 2026, our portfolio of commercial real estate loans, including multi-family and construction loans, totaled $11.79 billion, or 59.97% of total loans.
The Company believes the CRE loans it originates are appropriately collateralized under its credit standards. Collateral properties include multi-family apartment buildings, warehouse/distribution buildings, shopping centers, office buildings, mixed-use buildings, hotels/motels, senior living, residential and commercial tract developments, and raw land or lots to be developed into single-family homes. The primary source of repayment on the permanent loan portion of these loans is generally expected to come from the cash flow stream of the underlying leases which are dependent on the successful operations of the respective tenants. The primary source of the repayment on the construction portfolio is dependent on the successful completion of the project and the related sale, permanent financing or lease of the real property collateral. As a result, the performance of these loans is generally impacted by fluctuations in collateral values, the ability of the borrower to obtain permanent financing, and, in the case of loans to residential builders/developers, volatility in consumer demand.
The table below summarizes the concentrations of CRE loans on a gross basis, not including any purchase accounting adjustments ("PAA"), based on the collateral securing the loans, as of March 31, 2026 (in thousands):
Amount Percentage of Total
Multi-family $ 4,032 34.1 %
Retail 2,744 23.2
Industrial 2,275 19.3
Mixed 921 7.8
Office 766 6.5
Special use property 568 4.8
Hotel 291 2.5
Residential 138 1.2
Land 75 0.6
Total CRE, multi-family and construction loans $ 11,810 100.0 %
The determination of collateral value is critically important when financing real estate. As a result, obtaining current and objectively prepared appraisals is an important part of the underwriting process. The Company engages a variety of professional firms to supply appraisals, market studies and feasibility reports, environmental assessments and project site inspections to complement its internal resources to underwrite and monitor these credit exposures.
However, in periods of economic uncertainty where real estate market conditions may change rapidly, more current appraisals are obtained when warranted by conditions such as a borrower's deteriorating financial condition, their possible inability to perform on the loan or other indicators of increasing risk of reliance on collateral value as the sole source of repayment of the loan. Annual appraisals are generally obtained for loans graded substandard or worse where real estate is a material portion of the collateral value and/or the income from the real estate or sale of the real estate is the primary source of debt service.
Appraisals are, in substantially all cases, reviewed by a third-party to determine the reasonableness of the appraised value. The third-party reviewer will challenge whether or not the data used is appropriate and relevant, form an opinion as to the appropriateness of the appraisal methods and techniques used, and determine if overall the analysis and conclusions of the appraiser can be relied upon. Additionally, the third-party reviewer provides a detailed report of that analysis. Further review may be conducted by credit or lending teams, including the Bank's commercial workout team as conditions warrant. These additional steps of review are undertaken to confirm that the underlying appraisal and the third-party analysis can be relied upon. If differences arise, management addresses those with the reviewer and determines an appropriate resolution in accordance with its lending policy. Both the appraisal process and the appraisal review process can be less reliable in establishing accurate collateral values during and following periods of economic weakness due to the lack of comparable sales and the limited availability of financing to support an active market of potential purchasers.
The table below summarizes the Company's commercial real estate portfolio, including multi-family and construction loans as of March 31, 2026, as segregated by the geographic region in which the property is located (dollars in thousands):
Amount Percentage of Total
New Jersey $ 7,117 60.3 %
New York 1,929 16.3
Pennsylvania 1,474 12.5
Other states 1,290 10.9
Total commercial real estate loans $ 11,810 100.0 %
The Company participates in loans originated by other banks, including participations designated as Shared National Credits ("SNCs"). The Company's gross commitments and outstanding balances as a participant in SNCs were $196.9 million and $81.2 million, respectively, as of March 31, 2026, compared to $197.5 million and $65.7 million, respectively, as of December 31, 2025.
The following table sets forth information regarding the Company's non-performing assets as of March 31, 2026 and December 31, 2025 (in thousands):
March 31, 2026 December 31, 2025
Mortgage loans:
Commercial $ 21,977 26,856
Multi-family 275 2,268
Construction 3,278 5,159
Residential 8,669 9,062
Total non-accruing loans 34,199 43,345
Commercial loans 107,398 33,219
Consumer loans 1,327 1,856
Total non-performing loans 142,924 78,420
Foreclosed assets 2,015 2,015
Total non-performing assets $ 144,939 80,435
The following table sets forth information regarding the Company's 60-89 day delinquent loans as of March 31, 2026 and December 31, 2025 (in thousands):
March 31, 2026 December 31, 2025
Mortgage loans:
Multi-family $ - 932
Residential 6,893 4,177
Total mortgage loans 6,893 5,109
Commercial loans 2,520 633
Consumer loans 634 781
Total 60-89 day delinquent loans $ 10,047 6,523
As of March 31, 2026, the Company's allowance for credit losses related to the loan portfolio was 0.90% of total loans, compared to 0.95% as of December 31, 2025 and 1.02% as of March 31, 2025, respectively. The Company recorded a $4.7 million recapture of provision on loans for the three months ended March 31, 2026, compared with a provision on loans of $325,000 for the three months ended March 31, 2025, respectively. For the three months ended March 31, 2026, the Company had net charge-offs of $3.1 million, compared to net charge-offs of $2.0 million for the same period in 2025. The allowance for credit losses decreased $7.8 million to $177.0 million as of March 31, 2026, from $184.8 million as of December 31, 2025.
Total non-performing loans were $142.9 million, or 0.73% of total loans as of March 31, 2026, compared to $78.4 million, or 0.40% of total loans as of December 31, 2025. The $64.5 million increase in non-performing loans as of March 31, 2026, compared to the trailing quarter, was primarily driven by the addition of four commercial loans on senior housing properties totaling $82.1 million that are the subject of related bankruptcy filings, partially offset by payoffs. These loans have no prior charge-off history and require no specific reserve allocations due to strong collateral values. Appraisals received in 2026 reflect loan-to-value ratios for the collateral properties of 32.9%, 51.7%, 61.3%, and 81.9%.
For both March 31, 2026 and December 31, 2025, the Company held foreclosed assets of $2.0 million. Foreclosed assets as of March 31, 2026 were comprised of commercial real estate. Total non-performing assets as of March 31, 2026 increased $64.5 million to $144.9 million, or 0.58% of total assets, from $80.4 million, or 0.32% of total assets as of December 31, 2025.
Total investment securities were $3.53 billion as of March 31, 2026, a $60.9 million increase from December 31, 2025. This increase was primarily due to purchases of mortgage-backed securities and a decrease in unrealized losses on available for sale debt securities.
Total deposits decreased $178.4 million during the three months ended March 31, 2026, to $19.10 billion. Total savings and demand deposit accounts decreased $80.7 million to $15.91 billion as of March 31, 2026, while total time deposits decreased $97.7 million to $3.19 billion as of March 31, 2026. The decrease in savings and demand deposits consisted of a $147.2 decrease in municipal deposits and a $42.8 million decrease in interest-bearing brokered deposits, partially offset a $53.4 million increase in money market deposits, a $12.4 million increase in savings deposits and a $2.3 million increase in non-interest-bearing demand deposits. The decrease in municipal deposits was mainly due to seasonal outflows. The decrease in
time deposits consisted of an $82.5 million decrease in brokered time deposits, combined with a $15.2 million decrease in retail time deposits.
Borrowed funds increased $371.0 million during the three months ended March 31, 2026, to $2.48 billion. The increase in borrowings was largely done to fund seasonal outflows in municipal deposits and replace maturing brokered deposits. Borrowed funds represented 9.9% of total assets as of March 31, 2026, an increase from 8.5% as of December 31, 2025.
Stockholders' equity increased $29.7 million during the three months ended March 31, 2026, to $2.86 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 and common stock repurchases. For the three months ended March 31, 2026, common stock repurchases totaled 588,923 shares at an average cost of $21.04 per share, of which 100,381 shares at an average cost of $21.29 were made in connection with withholding to cover income taxes on the vesting of stock-based compensation. As of March 31, 2026, approximately 2.2 million shares remained eligible for repurchase under the current 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, FRBNY and approved broker-dealers.
Cash flows from loan payments and maturing investment securities are fairly predictable sources of funds. Changes in interest rates, local economic conditions and the competitive marketplace can influence loan prepayments, prepayments on mortgage-backed securities and deposit flows. For the three months ended March 31, 2026 and 2025, loan repayments totaled $2.27 billion and $1.72 billion, respectively.
The Company has continued to monitor and focus on depositor behavior and borrowing capacity with the FHLBNY and FRBNY, with current borrowing capacity of $4.17 billion and $2.94 billion, respectively as of March 31, 2026. Our estimated uninsured and uncollateralized deposits as of March 31, 2026 totaled $4.90 billion, or 25.6% of deposits. Our total estimated uninsured deposits, including collateralized deposits as of March 31, 2026, was $10.61 billion. Within time deposits, approximately $752.2 million, or 23.6% was uninsured as of March 31, 2026.
Commercial real estate loans, multi-family loans, commercial loans, one- to four-family residential loans and consumer loans are the primary investments of the Company. Purchasing securities for the investment portfolio is a secondary use of funds and the investment portfolio is structured to complement and facilitate the Company's lending activities and ensure adequate liquidity. Loan originations and purchases totaled $2.42 billion for the three months ended March 31, 2026, compared to $1.93 billion for the same period in 2025. Purchases for the investment portfolio totaled $191.3 million for the three months ended March 31, 2026, compared to $802.3 million for the year ended December 31, 2025. As of March 31, 2026, the Bank had outstanding loan commitments to borrowers of $3.96 billion, including undisbursed home equity lines and personal credit lines of $657.8 million.
Total deposits decreased $178.4 million for the three months ended March 31, 2026. Deposit activity is affected by changes in interest rates, competitive pricing and product offerings in the marketplace, local economic conditions, customer confidence and other factors such as stock market volatility. Certificate of deposit accounts that are scheduled to mature within one year totaled $3.06 billion as of March 31, 2026. Based on its current pricing strategy and customer retention experience, the Bank expects to retain a significant share of these accounts. The Bank manages liquidity on a daily basis and expects to have sufficient cash to meet all of its funding requirements.
The Federal Deposit Insurance Corporation ("FDIC") and the other federal bank regulatory agencies issued a final rule that revised the leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act, that were effective January 1, 2015. Among other things, the rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), adopted a uniform minimum leverage capital ratio at 4%, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on non-accrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rule also required unrealized gains and losses on certain "available-for-sale" securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out was exercised. The Company exercised the option to exclude unrealized gains and losses from the calculation of regulatory capital. Additional constraints were also imposed on the inclusion in regulatory capital of mortgage-servicing assets, deferred tax assets and minority interests. The rule limits a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a "capital conservation buffer," of 2.5% in addition to the amount necessary to meet its minimum risk-based capital requirements.
As of March 31, 2026, the Bank and the Company exceeded all current minimum regulatory capital requirements as follows:
March 31, 2026
Required Required with Capital Conservation Buffer Actual
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Bank:(1) (2)
Tier 1 leverage capital $ 974,331 4.00 % 974,331 4.00 % 2,556,114 10.49 %
Common equity Tier 1 risk-based capital 937,861 4.50 1,458,895 7.00 2,556,114 12.26
Tier 1 risk-based capital 1,250,481 6.00 1,771,515 8.50 2,556,114 12.26
Total risk-based capital 1,667,309 8.00 2,188,343 10.50 2,742,509 13.16
Company:
Tier 1 leverage capital $ 974,524 4.00 % 974,524 4.00 % 2,218,239 9.10 %
Common equity Tier 1 risk-based capital 938,501 4.50 1,459,890 7.00 2,218,239 10.64
Tier 1 risk-based capital 1,251,334 6.00 1,772,723 8.50 2,218,239 10.64
Total risk-based capital 1,668,445 8.00 2,189,835 10.50 2,842,316 13.63
(1) Under the FDIC's prompt corrective action provisions, the Bank is considered well capitalized if it has: a leverage (Tier 1) capital ratio of at least 5.00%; a common equity Tier 1 risk-based capital ratio of 6.50%; a Tier 1 risk-based capital ratio of at least 8.00%; and a total risk-based capital ratio of at least 10.00%.
(2) For a period of three years following completion of the merger, the Bank will be required to maintain a Tier 1 capital to total assets leverage ratio of at least 8.5% and a total capital to risk-based assets ratio of at least 11.25%.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025
General. The Company reported net income of $79.4 million, or $0.61 per basic and diluted share for the three months ended March 31, 2026, compared to net income of $64.0 million, or $0.49 per basic and diluted share, for the three months ended March 31, 2025.
Net income for the three months ended March 31, 2026 was positively impacted by pre-provision, net revenue growth of 13.5%, or $12.9 million, when compared to the three months ended March 31, 2025, driven primarily by expanding net interest income and higher insurance agency income. Net income in the current quarter also benefited from a $2.1 million recapture of previous provisions for credit losses.
The following table sets forth certain information for the three months ended March 31, 2026 and 2025. For the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities is expressed both in dollars and rates. No tax equivalent adjustments were made. Average balances are daily averages.
For the three months ended
March 31, 2026 March 31, 2025
Average Balance Interest Average
Yield/Cost 		Average Balance Interest Average
Yield/Cost
(Dollars in Thousands) (Unaudited)
Interest Earning Assets:
Deposits $ 76,589 $ 686 3.63 % 80,074 675 4.21 %
Available for sale debt securities 3,217,568 31,458 3.91 2,827,699 27,485 3.89
Held to maturity debt securities, net (1)
273,845 1,794.00 2.62 320,036 1,996 2.50
Equity securities, at fair value 19,988 120 2.42 19,840 136 2.74
Federal Home Loan Bank stock 120,299 1,704.00 5.67 107,527 2,023 7.53
Net loans: (2)
Total mortgage loans 13,590,636 191,503.00 5.70 13,297,168 187,054 5.70
Total commercial loans 5,157,785 77,901.00 6.13 4,684,572 75,819 6.56
Total consumer loans 606,122 9,900.00 6.62 609,137 10,158 6.76
Total net loans 19,354,543 279,304.00 5.85 18,590,877 273,031 5.95
Total interest earning assets $ 23,062,832 315,066 5.53 21,946,053 305,346 5.63
Non-Interest Earning Assets:
Cash and due from banks 171,092 134,205
Other assets 1,792,490 1,969,060
Total assets $ 25,026,414 24,049,318
Interest Bearing Liabilities:
Demand deposits $ 10,759,045 $ 63,358 2.39 % 10,095,570 65,433 2.63 %
Savings deposits 1,606,554 840.00 0.21 1,682,596 924 0.22
Time deposits 3,230,961 27,738.00 3.48 3,199,620 31,063 3.94
Total deposits 15,596,560 91,936.00 2.39 14,977,786 97,420 2.64
Borrowed funds 2,184,719 21,011.00 3.90 1,918,069 17,778 3.76
Subordinated debentures 407,019 8,376.00 8.35 402,037 8,420 8.49
Total interest bearing liabilities $ 18,188,298 121,323.00 2.71 17,297,892 123,618 2.90
Non-Interest Bearing Liabilities:
Non-interest bearing deposits $ 3,644,605 3,719,177
Other non-interest bearing liabilities 320,398 393,888
Total non-interest bearing liabilities 3,965,003 4,113,065
Total liabilities 22,153,301 21,410,957
Stockholders' equity 2,873,113 2,638,361
Total liabilities and stockholders' equity $ 25,026,414 24,049,318
Net interest income $ 193,743 181,728
Net interest rate spread 2.82 % 2.73 %
Net interest-earning assets $ 4,874,534 4,648,161
Net interest margin (3)
3.40 % 3.34 %
Ratio of interest-earning assets to total interest-bearing liabilities 1.27x 1.27x
(1) Average outstanding balance amounts shown are amortized cost, net of allowance for credit losses.
(2) Average outstanding balances are net of the allowance for loan losses, deferred loan fees and expenses, loan premiums and discounts and include loans held for sale and non-accrual loans.
(3) Annualized net interest income divided by average interest-earning assets.
Net Interest Income. Net interest income increased $12.0 million to $193.7 million for the three months ended March 31, 2026, from $181.7 million for same period in 2025. The increase in net interest income was primarily due to originations of new loans, combined with favorable repricing of deposits, partially offset by a decrease in lower-costing deposits.
The net interest margin increased six basis points to 3.40% for the quarter ended March 31, 2026, compared to 3.34% for the quarter ended March 31, 2025. The weighted average yield on interest-earning assets decreased 10 basis points to 5.53% for the quarter ended March 31, 2026, compared to 5.63% for the quarter ended March 31, 2025, while the weighted average cost of interest-bearing liabilities decreased 19 basis points for the quarter ended March 31, 2026, to 2.71%, compared to 2.90% for the quarter ended March 31, 2025. The average cost of interest-bearing deposits for the quarter ended March 31, 2026, was 2.39%, compared to 2.64% for the same period last year. Average non-interest-bearing demand deposits totaled $3.64 billion for the quarter ended March 31, 2026, compared to $3.72 billion for the quarter ended March 31, 2025. The average cost of total deposits, including non-interest-bearing deposits, was 1.94% for the quarter ended March 31, 2026, compared with 2.11% for the quarter ended March 31, 2025. The average cost of borrowed funds for the quarter ended March 31, 2026, was 3.90%, compared to 3.76% for the same period last year.
Interest income on loans secured by real estate increased $4.4 million to $191.5 million for the three months ended March 31, 2026, from $187.1 million for the three months ended March 31, 2025. Commercial loan interest income increased $2.1 million to $77.9 million for the three months ended March 31, 2026, from $75.8 million for the three months ended March 31, 2025. Consumer loan interest income decreased $258,000 to $9.9 million for the three months ended March 31, 2026, from $10.2 million for the three months ended March 31, 2025. For the three months ended March 31, 2026, the average balance of total loans increased $763.7 million to $19.35 billion, compared to the same period in 2025. The average yield on total loans for the three months ended March 31, 2026, decreased 10 basis points to 5.85%, from 5.95% for the same period in 2025.
Interest income on held to maturity debt securities decreased $202,000 to $1.8 million for the three months ended March 31, 2026, compared to the same period last year. Average held to maturity debt securities decreased $46.2 million to $273.8 million for the three months ended March 31, 2026, from $320.0 million for the same period in 2025.
Interest income on available for sale debt securities decreased $4.0 million to $31.5 million for the three months ended March 31, 2026, from $27.5 million for the three months ended March 31, 2025. The average balance of available for sale debt securities increased $389.9 million to $3.22 billion for the three months ended March 31, 2026, compared to the same period in 2025.
Dividend income on FHLBNY stock decreased $319,000 to $1.7 million for the three months ended March 31, 2026, from $2.0 million for the three months ended March 31, 2025. The average balance of FHLBNY stock increased $12.8 million to $120.3 million for the three months ended March 31, 2026, compared to the same period in 2025.
The average yield on total securities increased to 3.80% for the three months ended March 31, 2026, compared with 3.74% for the same period in 2025.
Interest expense on deposit accounts decreased $5.5 million to $91.9 million for the three months ended March 31, 2026, from $97.4 million for the three months ended March 31, 2025. The average cost of interest-bearing deposits decreased to 2.39% for the three months ended March 31, 2026, from 2.64% for the three months ended March 31, 2025. The average balance of interest-bearing core deposits, which consist of total savings and demand deposits, for the three months ended March 31, 2026, increased $587.4 million to $12.37 billion. Average time deposit account balances increased $31.3 million to $3.23 billion for the three months ended March 31, 2026, from $3.20 billion for the three months ended March 31, 2025.
Interest expense on borrowed funds increased $3.2 million to $21.0 million for the three months ended March 31, 2026, from $17.8 million for the three months ended March 31, 2025. The average cost of borrowings increased to 3.90% for the three months ended March 31, 2026, from 3.76% for the three months ended March 31, 2025. Average borrowings increased $266.7 million to $2.18 billion for the three months ended March 31, 2026, from $1.92 billion for the three months ended March 31, 2025.
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.
For the quarter ended March 31, 2026, the Company recorded a $2.1 million recapture of previous provisions for credit losses compared to a $635,000 provision for credit losses for the first quarter of 2025. The recapture of provision consisted of a $4.7 million recapture of provision related to loans, partially offset by a $2.5 million provision related to off-balance sheet credit exposures, compared with provisions for credit losses on loans and off-balance sheet credit exposures of $325,000 and $310,000, respectively, for the quarter ended March 31, 2025. The recapture of the provision for credit losses on loans in the current quarter was primarily due to a reduction in specific reserves on individually evaluated loans.
Non-Interest Income. Non-interest income totaled $31.5 million for the quarter ended March 31, 2026, an increase of $4.4 million, compared to the same period in 2025. BOLI income increased $1.9 million to $4.0 million for the three months ended March 31, 2026, compared to the prior year quarter, primarily due to an increase in benefit claims. Insurance agency income increased $1.2 million to $6.9 million for the three months ended March 31, 2026, compared to the quarter ended March 31, 2025, largely due to an increase in contingency income and business activity. Fee income increased $809,000 to $10.5 million for the three months ended March 31, 2026, compared to the prior year quarter, primarily due to increases in deposit fee income and commercial loan prepayment fees. Additionally, other income increased $486,000 to $2.7 million for the three months ended March 31, 2026, compared to the quarter ended March 31, 2025, primarily due to an increase in net gains on the sale of SBA loans, combined with an increase in gain on fixed asset sales, partially offset by a decrease in net fees on loan-level interest rate swap transactions.
Non-Interest Expense. For the three months ended March 31, 2026, non-interest expense totaled $117.1 million, an increase of $874,000, compared to the three months ended March 31, 2025. Compensation and benefits expense increased $3.8 million to $66.2 million for three months ended March 31, 2026, compared to $62.4 million for the same period in 2025. The increase was primarily due to an increase in salary expense associated with Company-wide annual merit increases, combined with increases in employee medical benefits and stock-based compensation expenses. Net occupancy expense increased $1.1 million to $15.0 million for the three months ended March 31, 2026, compared to the same period in 2025, largely due to increases in snow removal, utilities and other maintenance costs. Partially offsetting these increases to non-interest expense, other operating expense decreased $2.5 million to $14.0 million for the three months ended March 31, 2026, compared to $16.4 million for the three months ended March 31, 2025, largely due to a $2.7 million write-down on a foreclosed property in the prior year. Additionally, amortization of intangibles decreased $938,000 to $8.6 million for the three months ended March 31, 2026, compared to $9.5 million for 2025, primarily due to a scheduled reduction in the rate of core deposit intangible amortization related to Lakeland, while FDIC insurance expense decreased $544,000 to $2.8 million for the three months ended March 31, 2026, compared to the same period in 2025, primarily due to a decrease in the assessment rate.
Income Tax Expense. For the three months ended March 31, 2026, the Company's income tax expense was $30.8 million with an effective tax rate of 27.9%, compared with $27.8 million with an effective tax rate of 30.3% for the three months ended March 31, 2025. The increase in tax expense for the three months ended March 31, 2026, compared with the same period last year, was largely due to an increase in pre-tax income, partially offset by a discrete item related to stock-based compensation. The decrease in the effective tax rate was primarily related to ongoing benefits from tax credits recognized in the current quarter, combined with the aforementioned discrete item related to stock-based compensation.
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