PFS Provident Financial Services Inc

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the registration statement (No. 333-275213) on Form S-3 of Provident Financial Services, Inc. of our reports dated February 28, 2024, with respect to the consolidated financial statements of Lakeland Bancorp, Inc., and the effectiveness of internal control over financial reporting, which reports appear in the Form 8-K of Provident Financial Services, Inc. dated May 6, 2024.

/s/ KPMG LLP

Short Hills, New Jersey

May 5, 2024

Exhibit 99.1

RISK FACTORS

The following risks and uncertainties could have a material adverse effect on our business, financial condition and results of operations. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operation, financial condition or results.

Unless otherwise stated or the context otherwise indicates, references in these Risk Factors to “Provident,” the “Company,” “we,” “us” or “our” refer to Provident Financial Services, Inc. and its consolidated subsidiaries, references to “Lakeland” refer to Lakeland Bancorp, Inc. and its consolidated subsidiaries, references to the “merger agreement” refer to that certain Agreement Plan of Merger, dated as of September 26, 2022, as amended, by and among Provident, NL 239 Corp., a Delaware corporation and a direct, wholly owned subsidiary of Provident (the “Merger Sub”), and Lakeland.

Under the merger agreement, the Merger Sub will merge with and into Lakeland, with Lakeland as the surviving entity (the “merger”), and as soon as reasonably practicable following the merger, Lakeland will merge with and into Provident, with Provident as the surviving entity (the “holdco merger”). At a date and time following the holdco merger as determined by Provident, Lakeland Bank, a New Jersey state-charted commercial bank and a wholly owned subsidiary of Lakeland (“Lakeland Bank”), will merge with and into Provident Bank, a New Jersey state-chartered savings bank and a wholly owned subsidiary of Provident (“Provident Bank”), with Provident Bank as the surviving bank (the “bank merger” and, together with the merger and the holdco merger, the “mergers”).

Risks Relating to the Consummation of the Merger and Provident Following the Merger

Because the market price of Provident common stock may fluctuate, Lakeland shareholders cannot be certain of the market value of the merger consideration they will receive.

In the merger, each share of Lakeland common stock issued and outstanding immediately prior to the effective time, except for shares of Lakeland common stock owned by Lakeland as treasury stock or owned by Lakeland or Provident (in each case, other than shares of Lakeland common stock (i) held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity that are beneficially owned by third parties, or (ii) held, directly or indirectly, by Lakeland or Provident in respect of debts previously contracted), will be converted into 0.8319 of a share of Provident common stock. This exchange ratio is fixed and will not be adjusted for changes in the market price of either Provident common stock or Lakeland common stock. Changes in the price of Provident common stock between now and the time of the merger will affect the value that Lakeland shareholders will receive in the merger. Neither Provident nor Lakeland is permitted to terminate the merger agreement as a result of any increase or decrease in the market price of Provident common stock or Lakeland common stock.

Stock price changes may result from a variety of factors, including general market and economic conditions, changes in Provident’s and Lakeland’s businesses, operations and prospects, the recent volatility in the prices of securities in global financial markets, including market prices of Provident, Lakeland and other banking companies, the effects of regulatory considerations and tax laws, many of which are beyond Provident’s and Lakeland’s control. Therefore, at the time of the Provident special meeting and the Lakeland special meeting, Provident stockholders and Lakeland shareholders will not know the market value of the consideration that Lakeland shareholders will receive at the effective time. You should obtain current market quotations for shares of Provident common stock (NYSE: PFS) and for shares of Lakeland common stock (NASDAQ: LBAI).

The market price of Provident common stock after the merger may be affected by factors different from those currently affecting the shares of Provident common stock or Lakeland common stock.

In the merger, Lakeland shareholders will become Provident stockholders. Provident’s business differs from that of Lakeland and certain adjustments may be made to Provident’s business as a result of the merger. Accordingly, the results of operations of the combined company and the market price of Provident common stock after the completion of the merger may be affected by factors different from those currently affecting the independent results of operations of each of Provident and Lakeland.

Provident and Lakeland are expected to incur substantial costs related to the merger and integration.

Provident and Lakeland have incurred and expect to incur a number of non-recurring costs associated with the merger. These costs include legal, financial advisory, accounting, consulting and other advisory fees, severance/employee benefit-related costs, public company filing fees and other regulatory fees, financial printing and other printing costs and other related costs. Some of these costs are payable by either Provident or Lakeland regardless of whether the merger is completed.

Provident and Lakeland have incurred and expect to incur significant, non-recurring costs in connection with negotiating the merger agreement and closing the merger. In addition, the combined company will incur integration costs following the completion of the merger as Provident and Lakeland integrate their businesses, including facilities and systems consolidation costs and employment-related costs. Provident and Lakeland may also incur additional costs to maintain employee morale and to retain key employees. There are a large number of processes, policies, procedures, operations, technologies and systems that may need to be integrated, including purchasing, accounting and finance, payroll, compliance, treasury management, branch operations, vendor management, risk management, lines of business, pricing and benefits. While Provident and Lakeland have assumed that a certain level of costs will be incurred, there are many factors beyond their control that could affect the total amount or the timing of the integration costs. Moreover, many of the costs that will be incurred are, by their nature, difficult to estimate accurately. These integration costs may result in the combined company taking charges against earnings following the completion of the merger, and the amount and timing of such charges are uncertain at present. There can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction and integration costs over time.

Combining Provident and Lakeland may be more difficult, costly or time-consuming than expected, and Provident and Lakeland may fail to realize the anticipated benefits of the merger.

This is a merger transaction combining two (2) financial institutions of relatively similar asset size. The success of the merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of Provident and Lakeland. To realize the anticipated benefits and cost savings from the merger, Provident and Lakeland must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized, without adversely affecting current revenues and future growth. If Provident and Lakeland are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings of the merger could be less than anticipated, and integration may result in additional and unforeseen expenses.

An inability to realize the full extent of the anticipated benefits of the merger and the other transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results of the combined company following the completion of the merger, which may adversely affect the value of the common stock of the combined company following the completion of the merger.

Provident and Lakeland have operated and, until the completion of the merger, must continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. Integration efforts between the two (2) companies may also divert management attention and resources. These integration matters could have an adverse effect on each of Provident and Lakeland during this transition period and for an undetermined period after completion of the merger on the combined company.

Furthermore, the board of directors and executive leadership of the combined company will consist of former directors and executive officers from each of Provident and Lakeland. Combining the boards of directors and management teams of each company into a single board and a single management team could require the reconciliation of differing priorities and philosophies.

Litigation related to the merger has been filed against Provident, the Provident board of directors, Lakeland and the Lakeland board of directors, and additional litigation may be filed against Lakeland, the Lakeland board of directors, Provident and the Provident board of directors in the future, which could prevent or delay the completion of the merger, result in the payment of damages or otherwise negatively impact the business and operations of Provident and Lakeland.

Litigation related to the merger has been filed against Provident, the Provident board of directors, Lakeland and the Lakeland board of directors, and additional litigation may be filed against Provident, the Provident board of directors, Lakeland and the Lakeland board of directors in the future. The outcome of any litigation is uncertain. One of the conditions to the closing is that no order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint preventing the consummation of the merger, the holdco merger, the bank merger or any of the other transactions contemplated by the merger agreement be in effect. If any plaintiff were successful in obtaining an injunction prohibiting Provident or Lakeland from completing the merger, the holdco merger, the bank merger or any of the other transactions contemplated by the merger agreement, then such injunction may delay or prevent the effectiveness of the merger and could result in significant costs to Provident and/or Lakeland, including costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with the merger and costs associated with the indemnification of directors and officers of each company. Further, such lawsuits and the defense or settlement of any such lawsuits may have an adverse effect on the financial condition and results of operations of Provident and Lakeland and could prevent or delay the completion of the merger.

The future results of the combined company following the merger may suffer if the combined company does not effectively manage its expanded operations.

Following the merger, the size of the business of the combined company will increase beyond the current size of either Provident’s or Lakeland’s business. The combined company’s future success will depend, in part, upon its ability to manage this expanded business, which may pose challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. The combined company may also face increased scrutiny from governmental authorities as a result of the increased size of its business. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, revenue enhancement or other benefits currently anticipated from the merger.

The combined company may be unable to retain Provident and/or Lakeland personnel successfully after the merger is completed.

The success of the merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees currently employed by Provident and Lakeland. It is possible that these employees may decide not to remain with Provident or Lakeland, as applicable, while the merger is pending or with the combined company after the merger is consummated. If Provident and Lakeland are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, Provident and Lakeland could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In addition, following the merger, if key employees terminate their employment, the combined company’s business activities may be adversely affected, and management’s attention may be diverted from successfully hiring suitable replacements, all of which may cause the combined company’s business to suffer. Provident and Lakeland also may not be able to locate or retain suitable replacements for any key employees who leave either company.

As a result of the mergers, the combined company will become subject to additional requirements and restrictions imposed by the DOJ.

On September 28, 2022, Lakeland Bank entered into a consent order with the DOJ to resolve allegations of violations of the Fair Housing Act and Equal Credit Opportunity Act within the Newark, NJ-PA Metro Division, as constituted in 2015 (the “DOJ Consent Order”). The DOJ Consent Order was approved by the U.S. District Court for the District of New Jersey on September 29, 2022. The DOJ Consent Order requires Lakeland Bank to, among other things, invest $12 million over five years in a loan subsidy fund to increase credit opportunities to residents of majority-Black and Hispanic census tracts in Essex, Morris, Somerset, Sussex and Union Counties, New Jersey (the “Newark Lending Area”), and devote a minimum of $400,000 over five years toward community development partnership contributions in the Newark Lending Area and $150,000 per year over five years toward advertising, community outreach, and credit repair and education in the Newark Lending Area. Pursuant to the terms of the consent order, Lakeland Bank will also establish two new full-service branches in majority-Black and Hispanic census tracts: one in Newark, New Jersey and one in the Newark Lending Area. In addition, Lakeland Bank must continue to maintain its full-time Community Development Officer position to oversee these efforts throughout the term of the consent order.

As required by the terms of the DOJ Consent Order, Provident Bank, as the resulting institution in the bank merger, has agreed to and will assume all obligations under the DOJ Consent Order in connection with the bank merger. Both Provident Bank and Lakeland Bank are committed to full compliance with the DOJ Consent Order. However, achieving such compliance could require Lakeland Bank, prior to the completion of the merger, to expend significant management attention and incur unanticipated costs and expenses. The combined bank could similarly be required to expend significant management attention and incur unanticipated costs and expenses to achieve compliance with the DOJ Consent Order. Actions taken to achieve compliance with the DOJ Consent Order may affect Lakeland Bank’s and the combined bank’s business or financial performance and may require Lakeland Bank or the combined bank to reallocate resources away from existing businesses or to undertake significant changes to their respective businesses, operations, products and services and risk management practices. In addition, although the DOJ Consent Order resolved all claims by the DOJ against Lakeland Bank, Lakeland and its subsidiaries or, following the mergers, the combined company and its subsidiaries, could be subject to other enforcement actions relating to the alleged violations resolved by the DOJ Consent Order.

The unaudited pro forma condensed combined financial information included in this Current Report on Form 8-K is preliminary and the actual consideration to be issued in the merger as well as the actual financial condition and results of operations of the combined company after the merger may differ materially.

The unaudited pro forma condensed combined financial information in this Current Report on Form 8-K is presented for illustrative purposes only and is not necessarily indicative of what the combined company’s actual financial condition or results of operations would have been had the merger been completed on the dates indicated. The unaudited pro forma condensed combined financial information reflects adjustments, which are based upon preliminary estimates, to record the Lakeland identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The merger consideration value allocation reflected in this document is preliminary, and the final allocation thereof will be based upon the value of the actual merger consideration and the fair value of the assets and liabilities of Lakeland as of the date of the completion of the merger. Accordingly, the actual value of the merger consideration may vary significantly from the value used in preparing the unaudited pro forma condensed combined financial information in this document. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this document.

Certain of Provident’s and Lakeland’s directors and executive officers may have interests in the merger that may differ from, or are in addition to, the interests of Provident stockholders and Lakeland shareholders.

Provident stockholders and Lakeland shareholders should be aware that some of Provident’s and Lakeland’s directors and executive officers may have interests in the merger and have arrangements that are different from, or in addition to, those of Provident stockholders and Lakeland shareholders. These interests and arrangements may create potential conflicts of interest. The Provident and Lakeland boards of directors were aware of these respective interests and considered these interests, among other matters, when making their decisions to approve the merger agreement, and in recommending that, in the case of the Provident board of directors, Provident stockholders vote to approve the issuance of Provident common stock to Lakeland shareholders pursuant to the merger agreement and, in the case of the Lakeland board of directors, Lakeland shareholders vote to approve the merger agreement.

The merger agreement may be terminated in accordance with its terms and the merger may not be completed.

The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger. Those conditions include: (i) approval by Provident stockholders of the Provident share issuance proposal and approval by Lakeland shareholders of the Lakeland merger proposal; (ii) authorization for listing on the NYSE of the shares of Provident common stock to be issued in the merger, subject to official notice of issuance; (iii) the receipt of the requisite regulatory approvals, including the approval of the Federal Reserve Board, the FDIC and the NJDOBI; (iv) effectiveness of the registration statement on Form S-4 ; and (v) the absence of any order, injunction, decree or other legal restraint preventing the completion of the merger, the holdco merger, the bank merger or any of the other transactions contemplated by the merger agreement or making the completion of the merger, the holdco merger, the bank merger or any of the other transactions contemplated by the merger agreement illegal. Each party’s obligation to complete the merger is also subject to certain additional customary conditions, including (a) subject to applicable materiality standards, the accuracy of the representations and warranties of the other party, (b) the performance in all material respects by the other party of its obligations under the merger agreement, (c) the receipt by each party of an opinion from its counsel to the effect that the merger and the holdco merger, taken together, will qualify as a reorganization within the meaning of Section 368(a) of the Code and (d) the execution and delivery by Provident Bank or Lakeland Bank, as applicable, of the bank merger agreement.

These conditions to the closing may not be fulfilled in a timely manner or at all, and, accordingly, the merger may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, before or after the requisite stockholder and shareholder approvals, or Provident or Lakeland may elect to terminate the merger agreement in certain other circumstances.

Failure to complete the merger could negatively impact Provident or Lakeland.

If the merger is not completed for any reason there may be various adverse consequences and Provident and/or Lakeland may experience negative reactions from the financial markets and from their respective customers and employees. For example, Provident’s or Lakeland’s businesses may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of Provident common stock or Lakeland common stock could decline to the extent that current market prices reflect a market assumption that the merger will be beneficial and will be completed. Provident and/or Lakeland also could be subject to litigation related to any failure to complete the merger or to proceedings commenced against Provident or Lakeland to perform their respective obligations under the merger agreement. If the merger agreement is terminated under certain circumstances, either Provident or Lakeland may be required to pay a termination fee of $50 million to the other party.

Additionally, each of Provident and Lakeland has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of preparing, filing, printing and mailing this joint proxy statement/prospectus, and all filing and other fees paid in connection with the merger. If the merger is not completed, Provident and Lakeland would have to pay these expenses without realizing the expected benefits of the merger.

In connection with the merger, Provident will assume Lakeland’s outstanding debt obligations, and the combined company’s level of indebtedness following the completion of the merger could adversely affect the combined company’s ability to raise additional capital and to meet its obligations under its existing indebtedness.

In connection with the merger, Provident will assume Lakeland’s outstanding indebtedness. Provident’s existing debt, together with any future incurrence of additional indebtedness, and the assumption of Lakeland’s outstanding indebtedness, could have important consequences for the combined company’s creditors and the combined company’s stockholders. For example, it could:

Provident and Lakeland will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Provident and Lakeland. These uncertainties may impair Provident’s or Lakeland’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with Provident or Lakeland to seek to change existing business relationships with Provident or Lakeland. In addition, subject to certain exceptions, Provident and Lakeland have each agreed to operate its business in the ordinary course in all material respects and to refrain from taking certain actions that may adversely affect its ability to consummate the transactions contemplated by the merger agreement on a timely basis without the consent of the other party. These restrictions may prevent Provident and/or Lakeland from pursuing attractive business opportunities that may arise prior to the completion of the merger.

The announcement of the proposed merger could disrupt Provident’s and Lakeland’s relationships with their customers, suppliers, business partners and others, as well as their operating results and businesses generally.

Whether or not the merger is ultimately consummated, as a result of uncertainty related to the proposed transactions, risks relating to the impact of the announcement of the merger on Provident’s and Lakeland’s businesses include the following:

If any of the aforementioned risks were to materialize, they could lead to significant costs which may impact each party’s results of operations and financial condition.

The current volatile interest rate environment may adversely impact the fair value adjustments of investments and loans acquired in the merger.

Upon the closing of the merger, the combined company will need to adjust the fair value of Lakeland’s investment and loan portfolios. The persistently high interest rate environment could have the effect of increasing the magnitude of the purchase accounting marks relating to such fair value adjustments, thereby increasing initial tangible book value dilution, extending the tangible book value earn-back period, and negatively impacting the combined company’s capital ratios, which may result in the combined company taking steps to strengthen its capital position.

The Merger Agreement contains provisions granting both the Company and Lakeland the right to terminate the Merger Agreement in certain circumstances.

The Merger Agreement contains certain termination rights, including the right, subject to certain exceptions, of either party to terminate the Merger Agreement if the merger is not completed on or prior to June 30, 2024. If the merger is not completed, the ongoing business of the Company could be adversely affected.

The merger is subject to certain closing conditions that, if not satisfied or waived, will result in the merger not being completed, which may adversely affect the Company.

The merger is subject to customary conditions to closing, including the receipt of the final regulatory approvals. If any condition to the merger is not satisfied or waived, to the extent permitted by law, the merger will not be completed. In addition, the Company and Lakeland may terminate the Merger Agreement under certain circumstances even though the Merger Agreement has been approved by Lakeland’s shareholders and the share issuance has been approved by the Company’s shareholders. If the Company and Lakeland do not complete the merger, neither company would realize any of the expected benefits of having completed the merger. In addition, the market price of the Company’s common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed. If the merger is not completed, additional risks could materialize, which could materially and adversely affect the business, financial condition and results of the Company.

The merger agreement limits Provident’s and Lakeland’s respective abilities to pursue alternatives to the merger and may discourage other companies from trying to acquire Provident or Lakeland.

The merger agreement contains “no shop” covenants that restrict each of Provident’s and Lakeland’s ability to, directly or indirectly, among other things, initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by Provident’s and Lakeland’s respective board of directors, engage in any negotiations concerning, or provide any confidential or non-public information or data relating to, any alternative acquisition proposals. These provisions, which include a $50 million termination fee payable under certain circumstances, may discourage a potential third-party acquirer that might have an interest in acquiring all or a significant part of Provident or Lakeland from considering or proposing that acquisition.

The shares of Provident common stock to be received by Lakeland shareholders as a result of the merger will have different rights from the shares of Lakeland common stock.

In the merger, Lakeland shareholders will become Provident stockholders and their rights as stockholders will be governed by Delaware law and the governing documents of the combined company following the merger. The rights associated with Provident common stock are different from the rights associated with Lakeland common stock.

Provident stockholders and Lakeland shareholders will have reduced ownership and voting interest in the combined company after the consummation of the merger and will exercise less influence over management.

Provident stockholders and Lakeland shareholders currently have the right to vote in the election of the board of directors and on other matters affecting Provident and Lakeland, respectively. When the merger is completed, each Provident stockholder and each Lakeland shareholder will become a holder of common stock of the combined company, with a percentage ownership of the combined company that is smaller than the holder’s percentage ownership of either Provident or Lakeland individually, as applicable, prior to the consummation of the merger. Because of this, Lakeland shareholders may have less influence on the management and policies of the combined company than they now have on the management and policies of Lakeland, and Provident stockholders may have less influence on the management and policies of the combined company than they now have on the management and policies of Provident.

Issuance of shares of Provident common stock in connection with the merger may adversely affect the market price of Provident common stock.

In connection with the payment of the merger consideration, Provident expects to issue approximately 54.5 million shares of Provident common stock to Lakeland shareholders. The issuance of these new shares of Provident common stock may result in fluctuations in the market price of Provident common stock, including a stock price decrease.

Provident stockholders and Lakeland shareholders will not have appraisal rights or dissenters’ rights in the merger.

Appraisal rights (also known as dissenters’ rights) are statutory rights that, if applicable under law, enable stockholders or shareholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction.

Under Section 262 of the DGCL, Provident stockholders will not be entitled to appraisal rights in connection with the merger. If the merger is completed, Provident stockholders will not receive any consideration, and their shares of Provident common stock will remain outstanding and will constitute shares of Provident following the completion of the merger. Accordingly, Provident stockholders are not entitled to any appraisal rights in connection with the merger.

Under Title 14A, Chapter 11 of the NJBCA, shareholders have the right to dissent from any plan of merger or consolidation to which the corporation is a party, and to demand payment for the fair value of their shares. However, unless the corporation’s certificate of incorporation otherwise provides, dissenters’ rights of appraisal do not apply to any plan of merger or consolidation with respect to shares (i) of a class or series which is listed on a national securities exchange or is held of record by not less than one thousand (1,000) holders or (ii) for which, pursuant to the plan of merger or consolidation, such shareholder will receive (a) cash, (b) shares, obligations or other securities

which, upon consummation of the merger or consolidation, will either be listed on a national securities exchange or held of record by not less than one thousand (1,000) holders, or (c) cash and such securities. The Lakeland certificate of incorporation is silent as to dissenters’ rights of appraisal. Lakeland common stock is currently listed on NASDAQ, a national securities exchange, and is expected to continue to be so listed until the occurrence of the merger. In addition, Lakeland shareholders will receive as consideration in the merger shares of Provident common stock, which shares are currently listed on the NYSE, a national securities exchange, and are expected to be so listed at the effective time, and cash in lieu of fractional shares. Accordingly, Lakeland shareholders are not entitled to any dissenters’ rights of appraisal in connection with the merger.

Exhibit 99.2

Index to Consolidated Financial Statements

of Lakeland Bancorp, Inc.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Lakeland Bancorp, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Lakeland Bancorp, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for credit losses for loans evaluated on a collective basis

As discussed in Notes 1 and 6 to the consolidated financial statements, the Company’s total allowance for credit losses on loans as of December 31, 2023 was $77.2 million, of which $74.9 million related to the allowance for credit losses for loans evaluated on a collective basis (collective ACL). Loans that share similar risk characteristics are grouped into respective portfolio segments for collective assessment, and as such make up the collective ACL. The Company uses an open pool loss-rate methodology that considers relevant information about past and current economic conditions, as well as a single economic forecast over a reasonable and supportable period. The Company’s historical loss rate is adjusted for changes in the economic forecast over the reasonable and supportable forecast period. The expected credit losses are the product of multiplying the Company’s adjusted loss rate by the amortized cost basis of each asset taking into consideration amortization, prepayment and defaults. After the reasonable and supportable forecast period, the adjusted loss rate reverts on a straight-line basis to the historical loss rate. The reasonable and supportable and the reversion periods are established for each portfolio segment. A portion of the collective ACL is comprised of qualitative adjustments designed to address risks that are not previously captured in the open pool loss-rate model.

We identified the assessment of the collective ACL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ACL due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ACL methodology, including methods and models used to estimate the (1) adjusted loss rate and its significant assumptions, comprising the economic forecast and macroeconomic variables, the reasonable and supportable forecast period including the reversion period, and estimated prepayments, and (2) the qualitative adjustments. The assessment also included an evaluation of of the conceptual soundness and performance of the open pool loss-rate model. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL estimate, including controls over the:

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We evaluated the Company’s process to develop the collective ACL estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:

We also assessed the sufficiency of the audit evidence obtained related to the collective ACL by evaluating the:

/s/ KPMG LLP

We have served as the Company’s auditor since 2013.

Short Hills, New Jersey

February 28, 2024

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

The accompanying notes are an integral part of these statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

The accompanying notes are an integral part of these statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

The accompanying notes are an integral part of these statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2023, 2022 and 2021

The accompanying notes are an integral part of these statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

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The accompanying notes are an integral part of these statements.

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Lakeland Bancorp, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Lakeland Bancorp, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and management of its wholly owned subsidiary, Lakeland Bank (“Lakeland”). Lakeland operates under a state bank charter and provides full banking services and, as a state bank, is subject to regulation by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. Lakeland generates commercial, mortgage and consumer loans and receives deposits from customers located primarily in northern and central New Jersey and the metropolitan New York area. Lakeland also provides non-deposit products, such as securities brokerage services including mutual funds, variable annuities and insurance.

Lakeland operates as a commercial bank offering a wide variety of commercial loans and, to a lesser degree, consumer credits. Its primary strategic aim is to establish a reputation and market presence as the “small and middle market business bank” in its principal markets. Lakeland funds its loans primarily by offering demand deposit, savings and money market, and time deposit accounts to commercial enterprises, individuals and municipalities in the communities we serve. Additionally, it originates residential mortgage loans and services such loans which are owned by other investors. Lakeland also has an equipment finance division which provides loans to finance equipment primarily to small and medium-sized business clients and an asset-based lending department which specializes in utilizing particular assets to fund the working capital needs of borrowers. The Company also provides warehouse lines of credit used by mortgage bankers to originate one-to-four family residential mortgage loans that are pre-sold into the secondary mortgage market, which includes state and national banks, national mortgage banking firms, insurance companies and government-sponsored enterprises, including the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and others.

The Company and Lakeland are subject to regulations of certain state and federal agencies and, accordingly, are periodically examined by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, Lakeland’s business is particularly susceptible to being affected by state and federal legislation and regulations.

Basis of Financial Statement Presentation

The accounting and reporting policies of the Company and its subsidiaries conform with U.S. generally accepted accounting principles (“U.S. GAAP”) and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company, Lakeland, Lakeland NJ Investment Corp., Lakeland Investment Corp., Lakeland Equity, Inc. and Lakeland Preferred Equity, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The principal estimate that is particularly susceptible to significant change in the near term relates to the allowance for credit losses on loans. The policies regarding this estimate are discussed below.

The Company’s chief operating decision maker is its Chief Executive Officer. All of the Company’s financial services activities are interrelated and each activity is dependent and assessed based on how each of the activities of the Company supports the others. For example, commercial lending is dependent upon the ability of the Company to fund itself with deposits and other borrowings and to manage interest rate and credit risk. The situation is also similar for consumer and residential mortgage lending. Moreover, the Company primarily operates in one market area, northern and central New Jersey, metropolitan New York and contiguous areas. Therefore, all significant operating decisions are based upon analysis of the Company as one operating segment or unit. Accordingly, the Company has determined that it has one operating segment and thus one reporting segment.

Cash and cash equivalents

Cash and cash equivalents are defined as cash on hand, cash items in the process of collection, amounts due from banks and federal funds sold with an original maturity of three months or less. A portion of Lakeland’s cash on hand and on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.

Securities

Debt investment securities are classified as held to maturity or available for sale. Management determines the appropriate classification of securities at the time of purchase. Investments in securities, for which management has both the ability and intent to hold to maturity, are classified as held to maturity and carried at cost, adjusted for the amortization of premiums and accretion of discounts computed by the effective interest method. Investments in debt securities, which management believes may be sold prior to maturity due to changes in interest rates, prepayment risk, liquidity requirements or other factors, are classified as available for sale. Net unrealized gains and losses for such securities, net of tax effect, are reported as other comprehensive income or loss in stockholders’ equity and excluded from the determination of net income. Gains or losses on disposition of securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method.

For securities available for sale, the Company incorporates both qualitative and quantitative information when determining if impairment is related to credit loss or non-credit loss. Management may consider the extent to which fair value is less than amortized cost, adverse changes to the rating of the security by a rating agency, a security’s market yield as compared to similar securities and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows is less than the amortized cost basis, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis. Subsequent activity related to the credit loss component in the form of write-offs or recoveries is recognized as part of the allowance for credit losses on securities available for sale.

The allowance for credit losses on held-to-maturity debt securities is initially recognized upon acquisition of the securities, and subsequently remeasured on a recurring basis. Held-to-maturity securities are reviewed upon acquisition to determine whether it has experienced a more-than-insignificant deterioration in credit quality since its original issuance date, i.e., if they meet the definition of a purchased credit impaired asset (“PCDs”). Non-PCD held-to-maturity securities are carried at cost and adjusted for amortization of premiums or accretion of discounts. Expected credit losses on held-to-maturity debt securities through the life of the financial instrument are estimated and recognized as an allowance for credit losses on the balance sheet with a corresponding adjustment to current earnings. Subsequent favorable or adverse changes in expected cash flow will first decrease or increase the allowance for credit losses.

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Management measures expected credit losses on held to maturity securities on a collective basis by major security type. The held to maturity portfolio is classified into the following major security types: U.S. government agencies, mortgage-backed securities-residential, collateralized mortgage obligations-residential, mortgage-backed securities-multi-family, collateralized mortgage obligations-multi-family, obligations of states and political subdivisions and debt securities. All of the mortgage-backed securities are issued by U.S. government agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses and, therefore, the expectation of non-payment is zero.

At each reporting period, the Company evaluates whether the securities in a segment continue to exhibit similar risk characteristics as the other securities in the segment. If the risk characteristics of a security change, such that they are no longer similar to other securities in the segment, the Company will evaluate the security with a different segment that shares more similar risk characteristics. A range of historical losses method is utilized in estimating the net amount expected to be collected for mortgage-backed securities, collateralized mortgage obligations and obligations of states and political subdivisions.

A debt security, either available for sale or held to maturity, is designated as non-accrual if the payment of interest is past due and unpaid for 30 days or more. Once a security is placed on non-accrual, accrued interest receivable is reversed and further interest income recognition is ceased. Since the non-accrual policy results in a timely reversal of interest receivable, the Company does not record an allowance for credit losses on interest receivable. The security will not be restored to accrual status until the security has been current on interest payments for a sustained period, i.e., a consecutive period of six months or two quarters; and the Company expects repayment of the remaining contractual principal and interest. However, if the security continues to be in deferral status, or the Company does not expect to collect the remaining interest payments and the contractual principal, charge-off is to be assessed. Upon charge-off, the allowance is written off and the loss represents a permanent write-down of the cost basis of the security. The Company made the election to exclude accrued interest receivable on securities from the estimate of credit losses. Accrued interest receivable totaled $8.1 million and $8.7 million on investment securities at December 31, 2023 and 2022, respectively.

The Company has an equity securities portfolio which consists of investments in Community Reinvestment funds. Net unrealized gains and losses for this portfolio are recognized through net income.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are carried at the amount of unpaid principal and are net of unearned discount, unearned loan fees and an allowance for credit losses. The Company elected to exclude accrued interest receivable balances from the amortized cost basis. Interest receivable is included as a separate line item on the consolidated balance sheets. The Company also elected not to estimate an allowance on interest receivable balances because it has policies in place that provide for the accrual of interest to cease on a timely basis when all contractual amounts due are not expected and accrued and unpaid interest is reversed.

Interest income is accrued as earned on a simple interest basis, adjusted for prepayments. All unamortized fees and costs related to the loan are amortized over the life of the loan using the interest method. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that full collection of interest and principal is doubtful. When a loan is placed on such non-accrual status, all accumulated accrued interest receivable is reversed out of current period income.

The Company’s loan portfolio of collectively evaluated loans includes nine portfolio segments, taking into consideration common loan attributes and risk characteristics, as well as historical reporting metrics and data availability. Loan attributes and risk characteristics considered in segmentation include: borrower type, repayment source, collateral type, product type, purpose or nature of financing, typical contractual maturity and repayment terms, interest rate structure, credit management metrics, lending policies and procedures, and personnel responsible for underwriting, approval, monitoring, and collections. The close alignment of the portfolio segments is consistent with shared drivers of credit loss (e.g., unemployment, interest rates, property values, etc.) expected among loans within the various segments.

The nine segments include:

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Commercial loans are placed on non-accrual status with all accrued interest and unpaid interest reversed if (a) because of the deterioration in the financial position of the borrowers they are maintained on a cash basis (which means payments are applied when and as received rather than on a regularly scheduled basis), (b) payment in full of interest or principal is not expected, or (c) principal and interest have been in default for a period of 90 days or more unless the obligation is both well-secured and in process of collection. Residential mortgage loans and closed-end consumer loans are placed on non-accrual status at the time principal and interest have been in default for a period of 90 days or more, except where there exists sufficient collateral to cover the defaulted principal and interest payments, and the loans are well-secured and in the process of collection. Open-end consumer loans secured by real estate are generally placed on non-accrual and reviewed for charge-off when principal and interest payments are four months in arrears unless the obligations are well-secured and in the process of collection. Interest thereafter on such charged-off loans is taken into income when received only after full recovery of principal. As a general rule, a non-accrual asset may be restored to accrual status when none of its principal or interest is due and unpaid, satisfactory payments have been received for a sustained period (usually six months), or when it otherwise becomes well-secured and in the process of collection.

Loans acquired in a business combination that have experienced a more-than-significant deterioration in credit quality since origination are considered PCD loans. Management evaluates acquired loans for deterioration in credit quality based on the following: (a) non-accrual status; (b) troubled debt restructured designation; (c) risk rating lower than “Pass,” and (d) delinquency status. 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. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial allowance for credit losses is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium, which is recognized through interest income on a level-yield basis over the lives of the related loans. All loans considered to be purchased credit-impaired (“PCI”) prior to the adoption of ASU 2016-13 were converted to PCD upon adoption.

For acquired loans not deemed to be PCD at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. At the acquisition date, an initial allowance for expected credit losses is estimated and recorded as credit loss expense. The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.

Allowance for Credit Losses

With the adoption of ASU 2016-13, the allowance for credit losses reserve including the allowance for the funded portion and the reserve for the unfunded portion, represents management’s estimate of current expected credit losses in the Company’s loan portfolio over its expected life, which is the contract term adjusted for expected prepayments and options to extend the contractual term that are not unconditionally cancellable by us. Management’s measurement of expected credit losses is based on relevant information about past events, current conditions, prepayments and reasonable and supportable forecasts of future economic conditions. It is presented as an offset to the amortized cost basis or as a separate liability in the case of off-balance-sheet credit exposures. The Company uses an open pool loss-rate method to calculate an institution-specific historical loss rate based on historical loan level loss experience for collectively assessed loans with similar risk characteristics. The Company’s methodology considers relevant information about past and current economic conditions, as well as a single economic forecast over a reasonable and supportable period. The loss rate is applied over the remaining life of loans to develop a “baseline lifetime loss.” The baseline lifetime loss is adjusted for changes in macroeconomic variables, including but not limited to interest rates, housing prices, GDP and unemployment, over the reasonable and supportable forecast period. After the reasonable and supportable forecast period, the adjusted loss rate reverts on a straight-line basis to the historical loss rate. The reasonable and supportable forecast and the reversion periods are established for each portfolio segment. The Company measures expected credit losses of financial assets by multiplying the adjusted loss rates to the amortized cost basis of each asset taking into consideration amortization, prepayment and defaults. Changes in any of these factors, assumptions or the availability of new information, could require that the allowance be adjusted in future periods, perhaps materially.

Qualitative Adjustments: The Company considers five standard qualitative general reserve factors (“qualitative adjustments”): nature and volume of loans, lending management, policy and procedures, independent review and changes in environment. Qualitative adjustments are designed to address risks that are not captured in the quantitative reserves (“quantitative reserve”). Other qualitative adjustments or model overlays may also be recorded based on expert credit judgment in circumstances where, in the Company’s view, the standard qualitative reserve factors do not capture all relevant risk factors. The use of qualitative reserves may require significant judgment that may impact the amount of allowance recognized.

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When an individual loan no longer demonstrates the similar credit risk characteristics as other loans within its current segment, the Company evaluates each for expected credit losses on an individual basis. All non-accrual loans $500,000 and above and all loans designated as modifications to borrowers experiencing financial difficulties are individually evaluated. For collateral-dependent loans, the Company considers the fair value of the collateral, net of anticipated selling costs and other adjustments. For non collateral-dependent individually evaluated loans, the impairment will be measured using the present value of expected future cash flows discounted at the loan’s effective interest rate. Shortfalls in collateral or cash flows are charged-off or specifically reserved for in the period the short-fall is identified. Charge-offs are recommended by the Chief Credit Officer and approved by the Company’s Board of Directors.

The Company adopted ASU 2022-02, “Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”) in the first quarter of 2023. ASU 2022-02 eliminates the recognition and measurement guidance of Troubled Debt Restructurings (“TDRs”) so that creditors will apply the same guidance to all modifications when determining whether a modification results in a new receivable or continuation of an existing receivable. ASU 2022-02 replaces the disclosures of TDRs with disclosures of modifications of receivables to debtors experiencing financial difficulty. Loan modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearance, term extensions, and other actions intended to minimize economic loss or to avoid foreclosure or repossession of collateral.

To identify loans which meet the definition of a potential modification to a borrower experiencing financial difficulty, the Company has determined the following criteria to be used in assessing whether a loan is considered a reasonably expected TDR:

The methods for estimating expected credit losses on reasonably expected modifications to borrowers experiencing financial difficulty are the same as other individually evaluated loans. Modifications to borrowers experiencing financial difficulty $500,000 and above that are anticipated to remain on accrual status will normally have their reserves determined using the discounted cash flow method, while those below $500,000 will be included in, and be assessed as part of, the population of collectively evaluated pooled loans. Modifications to borrowers experiencing financial difficulty that are anticipated to be placed on non-accrual status will be considered collateral-dependent.

Off-Balance Sheet Credit Exposures

The Company is required to include the unfunded commitment that is expected to be funded in the future within the allowance calculation. The Company participates in lending that results in an off-balance-sheet unfunded commitment balance. Funding commitments are currently underwritten with conditionally cancellable language by the Company. To determine the expected funding balance remaining, the Company uses a historical utilization rate for each of the segments to calculate the expected commitment balance and determines the expected credit loss based on the same method used to calculate the quantitative reserve for funded loans, applied to the expected balance over the remaining life of the loan, taking into consideration amortization, prepayments and defaults. The allowance for credit reserve for unfunded lending commitments is recorded in other liabilities in the consolidated balance sheets and the corresponding provision is included in the provision for credit losses.

Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. Gains and losses on sales of loans are specifically identified and accounted for in accordance with U.S. GAAP which requires that an entity engaged in mortgage banking activities classify the retained mortgage-backed security or other interest, which resulted from the securitization of a mortgage loan held for sale, based upon its ability and intent to sell or hold these investments.

Premises and Equipment, Net

Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Depreciation expense is computed on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the improvements or the terms of the related leases.

Other Real Estate Owned and Other Repossessed Assets

Other real estate owned (“OREO”) and other repossessed assets, representing property acquired through foreclosure (or deed-in-lieu-of-foreclosure), are carried at fair value less estimated disposal costs of the acquired property. Costs relating to holding the assets are charged to expense. An allowance for OREO or other repossessed assets is established, through charges to expense, to maintain properties at fair value less estimated costs to sell. Operating results of OREO and other repossessed assets, including rental income and operating expenses, are included in other expenses.

Mortgage Servicing

Lakeland performs various servicing functions on loans owned by others. A fee, usually based on a percentage of the outstanding principal balance of the loan, is received for these services. At December 31, 2023 and 2022, Lakeland was servicing approximately $32.5 million and $31.7 million, respectively, of loans for others.

Lakeland originates certain mortgages under a definitive plan to sell those loans and service the loans owned by the investor. Upon the transfer of the mortgage loans in a sale, Lakeland records the servicing assets retained. Lakeland records mortgage servicing rights and the loans based on relative fair values at the date of origination and evaluates the mortgage servicing rights for impairment at each reporting period. Lakeland also originates loans that it sells to other banks and investors and does not retain the servicing rights.

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Mortgage Servicing Rights

When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. As of December 31, 2023 and 2022, Lakeland had originated mortgage servicing rights of $144,000 and $149,000, respectively.

Under the amortization measurement method, Lakeland subsequently measures servicing rights at fair value at each reporting date and records any impairment in value of servicing assets in earnings in the period in which the impairment occurs. The fair values of servicing rights are subject to fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses. Servicing fee income, which is reported on the income statement as commissions and fees, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan, and are recorded as income when earned.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, put presumptively beyond the reach of the transferor and its creditors even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Derivatives

Lakeland enters into interest rate swaps (“swaps”) with loan customers to provide a facility to mitigate the fluctuations in the variable rate on the respective loans. These swaps are matched in offsetting terms to swaps that Lakeland enters into with an outside third party. The swaps are reported at fair value in other assets or other liabilities. Lakeland’s swaps qualify as derivatives, but are not designated as hedging instruments, thus any net gain or loss resulting from changes in the fair value is recognized in swap income.

The credit risk associated with derivatives executed with customers is similar as that involved in extending loans and is subject to normal credit policies. Collateral is obtained based on management’s assessment of the customer. The positions of customer derivatives are recorded at fair value.

Cash flow hedges are used primarily to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by interest rate fluctuations. Changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income (loss) and are reclassified into the line item in the income statement in which the hedged item is recorded in the same period the hedged item affects earnings. Hedge ineffectiveness and gains and losses on the component of a derivative excluded in assessing hedge effectiveness are recorded in the same income statement line item.

Further discussion of Lakeland’s financial derivatives is set forth in Note 20 to the Consolidated Financial Statements.

Earnings Per Share

Earnings per share is calculated on the basis of the weighted average number of common shares outstanding during the year. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

Employee Benefit Plans

The Company has certain employee benefit plans covering substantially all employees. The Company accrues such costs as incurred. We recognize the overfunded or underfunded status of pension and postretirement benefit plans in accordance with U.S. GAAP. Actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations are recognized as a component of accumulated other comprehensive income (loss), net of tax effects, until they are amortized as a component of net periodic benefit cost.

Comprehensive Income (Loss)

The Company reports comprehensive income (loss) in addition to net income from operations. Other comprehensive income or loss includes items recorded directly in equity such as unrealized gains or losses on securities available for sale, net gain on securities transferred from available for sale to held to maturity and unrealized gains or losses recorded on derivatives and benefit plans.

Goodwill and Other Identifiable Intangible Assets

Intangible assets resulting from acquisitions under the purchase method of accounting consist of goodwill and other intangible assets. Under ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” companies assess qualitative factors to determine whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value, commonly referred to as the qualitative assessment or step zero. Goodwill is allocated to Lakeland’s one reporting unit at the date goodwill is actually recorded.

As of December 31, 2023, the carrying value of goodwill totaled $271.8 million. The Company performed its annual goodwill impairment test, as of November 30, 2023, and determined that the fair value of the Company’s single reporting unit to be in excess of its carrying value. The Company qualitatively assessed the current economic environment, including the estimated impact of inflationary conditions and geopolitical events on macroeconomic variables and economic forecasts, and on the Company’s stock price, considering how these might impact the fair value of its reporting unit. After consideration of these items, the Company determined that it was more-likely-than-not that the fair value of its reporting unit was above its book value as of our goodwill impairment test date. The Company will test goodwill for impairment between annual test dates if an event occurs or circumstances change that would indicate the fair value of the reporting unit is below its carrying amount. No events have occurred and no circumstances have changed since the annual impairment test date that would indicate the fair value of the reporting unit is below its carrying amount.

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Bank Owned Life Insurance

Lakeland invests in bank owned life insurance (“BOLI”). BOLI involves the purchasing of life insurance by Lakeland on a chosen group of employees. Lakeland is the owner and beneficiary of the policies. At December 31, 2023 and 2022, Lakeland had $159.9 million and $157.0 million, respectively, in BOLI. Income earned on BOLI was $3.5 million, $4.0 million and $2.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. Included in income for 2023, 2022 and 2021 are death benefit proceeds of $220,000, $855,000 and $126,000, respectively. BOLI is accounted for using the cash surrender value method and is recorded at its net realizable value.

Income Taxes

The Company accounts for income taxes under the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. The principal types of differences between assets and liabilities for financial statement and tax return purposes are allowance for credit losses, core deposit intangibles, deferred loan fees, unrealized gains or losses on investment securities, tax exempt securities and deferred compensation.

Variable Interest Entities

Management has determined that Lakeland Bancorp Capital Trust II, Lakeland Bancorp Capital Trust IV and 1st Constitution Capital Trust II (collectively, “the Trusts”) qualify as variable interest entities. The Trusts issued mandatorily redeemable preferred stock to investors and loaned the proceeds to the Company. The Trusts hold, as their sole asset, subordinated debentures issued by the Company. The Company is not considered the primary beneficiary of the Trusts, therefore the Trusts are not consolidated in the Company’s financial statements.

The Company’s maximum exposure to the Trusts is $48.0 million at December 31, 2023, which is the Company’s liability to the Trusts and includes the Company’s investment in the Trusts.

The Federal Reserve has issued guidance on the regulatory capital treatment for the trust preferred securities issued by the Trusts. The rule retains the current maximum percentage of total capital permitted for trust preferred securities at 25%, but enacts other changes to the rules governing trust preferred securities that affect their use as part of the collection of entities known as “restricted core capital elements.” The rule allows bank holding companies to continue to count trust preferred securities as Tier 1 Capital. The Company’s capital ratios continue to be categorized as “well-capitalized” under the regulatory framework for prompt corrective action. Under the Collins Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, any new issuance of trust preferred securities by the Company would not be eligible as regulatory capital.

Note 2 - Business Combinations

Provident Financial Services, Inc.

On September 26, 2022, the Company entered into definitive merger agreement with Provident Financial Services, Inc. (“Provident”) pursuant to which the companies will combine in an all-stock merger. Under the terms of the merger agreement, the Company will merge with and into Provident, with Provident as the surviving corporation, and Lakeland Bank will merge with and into Provident Bank, with Provident Bank as the surviving bank. Following the closing of the transaction, Lakeland shareholders will receive 0.8319 shares of Provident common stock for each share of Lakeland common stock they own.

The transaction has been approved by the boards of directors of both companies and on February 1, 2023, shareholders of each company approved the proposed merger. The closing of the merger remains subject to satisfaction of customary closing conditions, including receipt of customary regulatory approvals.

The Company incurred merger-related expenses on the anticipated transaction with Provident of $864,000 and $4.0 million during 2023 and 2022, respectively.

1st Constitution Bancorp

On January 6, 2022, the Company completed its acquisition of 1st Constitution Bancorp (“1st Constitution”), a bank holding company headquartered in Cranbury, New Jersey. 1st Constitution was the parent of 1st Constitution Bank, which operated 25 branches in Bergen, Mercer, Middlesex, Monmouth, Ocean and Somerset Counties in New Jersey. This acquisition enabled the Company to broaden its presence in those counties. Effective as of the close of business on January 6, 2022, 1st Constitution merged into the Company and 1st Constitution Bank merged into Lakeland. Pursuant to the merger agreement, the shareholders of 1st Constitution received for each outstanding share of 1st Constitution common stock that they owned at the effective time of the merger, 1.3577 shares of Lakeland Bancorp, Inc. common stock. The Company issued 14,020,495 shares of its common stock in the merger. Outstanding 1st Constitution options were paid out in cash at the difference between $25.55 and an average strike price of $15.95 for a total cash payment of $559,000.

The acquisition was accounted for under the acquisition method of accounting and accordingly, the assets acquired and liabilities assumed in the acquisition were recorded at their estimated fair values as of the acquisition date. 1st Constitution’s assets were recorded at their preliminary estimated fair values as of January 6, 2022 and 1st Constitution’s results of operations have been included in the Company’s Consolidated Statements of Income from that date forward.

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The assets acquired and liabilities assumed in the acquisition were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition, including the use of a third-party valuation specialist. The calculation of goodwill was subject to change for up to one year after the closing date of the transaction as additional information relative to closing date estimates and uncertainties becomes available. No adjustments were made in the year after the close of the acquisition and all accounting is considered final. 1st Constitution’s results of operations have been included in the Company’s Consolidated Statements of Income from January 6, 2022.

The following table summarizes the estimated fair value of the acquired assets and liabilities assumed at the date of acquisition for 1st Constitution.

Direct costs related to the 1st Constitution acquisition were expensed as incurred. The Company recorded $4.6 million and $1.8 million in merger-related expenses related to the 1st Constitution acquisition in 2022 and 2021, respectively.

Note 3 - Earnings Per Share

The Company uses the two class method to compute earnings per common share. Participating securities include non-vested restricted stock and non-vested restricted stock units. The following tables present the computation of basic and diluted earnings per share for the periods presented.

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There were no antidilutive options to purchase common stock to be excluded from the above computations.

Note 4 - Securities

The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company’s investment securities available for sale are as follows:

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The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company’s investment securities held to maturity are as follows:

The following table lists contractual maturities of investment securities classified as available for sale and held to maturity as of December 31, 2023. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

For the years ended December 31, 2023 and 2022, there were no sales of available for sale securities. There were $4.4 million sales of securities for the year ended December 31, 2021 with gross gains on sales of securities of $9,000 and no gross losses on sales of securities. Gains or losses on sales of securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method.

Securities with a carrying value of approximately $1.57 billion and $1.34 billion at December 31, 2023 and December 31, 2022, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.

The following tables indicate the length of time individual securities have been in a continuous unrealized loss position for the periods presented.