PFS Provident Financial Services Inc

RISK FACTORS

In addition to the other information contained in or incorporated by reference into this Proxy Statement/Prospectus, including the matters addressed under the section titled “Cautionary Statement About Forward-Looking Statements,” you should consider carefully the risk factors described below in deciding how to vote. You should also read and consider the other information in this Proxy Statement/Prospectus and the other Provident Financial documents incorporated by reference into this Proxy Statement/Prospectus. For more information, see “Where You Can Find More Information,” beginning on page [●].

The economic impact of the COVID-19 outbreak has adversely affected, and is likely to continue to adversely affect, the business and results of operations for each of Provident Financial and SB One and the combined company following the completion of the Merger.

In December 2019, a coronavirus was reported in China, and, in March 2020, the World Health Organization declared COVID-19 a pandemic. On March 12, 2020 the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak, more than 22 million people have filed claims for unemployment, and stock markets have declined in value and in particular bank stocks have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused Provident Financial and SB One to modify their business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. Both Provident Financial and SB One have many employees working remotely and each may take further actions as may be required by government authorities or that each determines is in the best interests of their employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on Provident Financial’s and SB One’s businesses. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, Provident Financial, SB One and the combined company could be subject to any of the following risks, any of which could have a material, adverse effect on its respective business, financial condition, liquidity, and results of operations:

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These factors, among others, together or in combination with other events or occurrences not yet known or anticipated, could adversely affect the operations of the combined company. The Merger and efforts to integrate the businesses of Provident Financial and SB One may also be delayed and adversely affected by the COVID-19 pandemic and become more costly.

Because the price of Provident Financial common stock will fluctuate, SB One shareholders cannot be certain of the market value of the merger consideration.

Upon completion of the Merger, each share of SB One common stock will be converted into the right to receive 1.357 shares of Provident Financial common stock. The dollar value of the Provident Financial common stock that SB One shareholders will receive upon completion of the Merger will depend upon the market value of Provident Financial common stock at the time of completion of the Merger, which may be lower or higher than the closing price of Provident Financial common stock on the last full trading day preceding public announcement that Provident Financial and SB One entered into the Merger Agreement, the last full trading day prior to the date this Proxy Statement/Prospectus was mailed or the date of the SB One annual meeting. The market values of Provident Financial common stock and SB One common stock have varied since Provident Financial and SB One entered into the Merger Agreement and will continue to vary in the future due to changes in the business, operations or prospects of Provident Financial and SB One, market assessments of the Merger, regulatory considerations, market and economic considerations, and other factors, most of which are beyond Provident Financial’s and SB One’s control. Accordingly, at the time of the SB One annual meeting, SB One shareholders will not necessarily know or be able to calculate the value of the merger consideration they would be entitled to receive upon completion of the Merger. You should obtain current market quotations for shares of Provident Financial common stock and for shares of SB One common stock.

SB One 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 SB One. These uncertainties may impair SB One’s ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others who deal with SB One to seek to change existing business relationships with SB One. SB One employee retention and recruitment may be particularly challenging prior to the effective time of the Merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company.

The pursuit of the Merger and the preparation for the integration may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect SB One’s and Provident Financial’s financial results. In addition, the Merger Agreement requires that SB One operate in the usual, regular and ordinary course of business and restricts SB One from taking certain actions prior to the effective time of the Merger or termination of the Merger Agreement without Provident Financial’s consent in

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writing. These restrictions may prevent SB One from pursuing attractive business opportunities that may arise prior to the completion of the Merger.

Failure to complete the Merger could negatively impact the stock price and future business and financial results of Provident Financial and SB One.

The Merger Agreement is subject to a number of conditions which must be fulfilled in order to complete the Merger. Please see the section entitled “The Merger—Conditions to Complete the Merger.” These conditions to complete the Merger may not be fulfilled and, accordingly, the mergers may not be completed. In addition, if the Merger is not completed by January 31, 2021, either Provident Financial or SB One may choose to terminate the Merger Agreement at any time after such date if the failure to consummate the transactions contemplated by the Merger Agreement is not caused by any breach of the Merger Agreement by the party electing to terminate the Merger Agreement, before or after SB One shareholders approval of the Merger Proposal.

If the Merger is not consummated, the ongoing business, financial condition and results of operations of each party may be materially adversely affected and the market prices of Provident Financial common stock and SB One common stock may decline significantly, particularly to the extent that the current market prices reflects a market assumption that the Merger will be consummated. If the consummation of the Merger is delayed, including by the receipt of a competing acquisition proposal, the business, financial condition and results of operations of each party may be materially adversely affected.

In addition, each party 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 filing, printing and mailing this Proxy Statement/Prospectus and all filing and other fees paid to the SEC and other regulatory agencies in connection with the Merger. If the Merger is not completed, the parties would have to recognize these expenses without realizing the expected benefits of the Merger. Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the Merger, including the diversion of management attention from pursuing other opportunities and the constraints in the Merger Agreement on the ability to make significant changes to each party’s ongoing business during the pendency of the Merger, could have a material adverse effect on each party’s business, financial condition and results of operations.

Additionally, Provident Financial’s or SB One’s business may have been adversely impacted 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, and the market price of Provident Financial common stock might decline to the extent that the current market price reflects a market assumption that the Merger will be completed. If the Merger Agreement is terminated and a party’s board of directors seeks another merger or business combination, such party’s shareholders cannot be certain that such party will be able to find a party willing to engage in a transaction on more attractive terms than the Merger.

Provident Financial may be unable to successfully integrate SB One’s operations or otherwise realize the expected benefits from the Merger, which could adversely affect Provident Financial’s results of operations and financial condition.

The Merger involves the integration of two companies that have previously operated independently. The difficulties of combining the operations of the two companies include:

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The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the business and the loss of key personnel. The integration of the two companies will require the experience and expertise of certain key employees of SB One who are expected to be retained by Provident Financial. Provident Financial may not be successful in retaining these employees for the time period necessary to successfully integrate SB One’s operations with those of Provident Financial. The diversion of management’s attention and any delay or difficulty encountered in connection with the Merger and the integration of the two companies’ operations could have an adverse effect on the business and results of operations of Provident Financial following the Merger.

The success of the Merger will depend, in part, on Provident Financial’s ability to realize the anticipated benefits and cost savings from combining the business of SB One with Provident Financial. If Provident Financial is unable to successfully integrate SB One, the anticipated benefits and cost savings of the Merger may not be realized fully or may take longer to realize than expected. For example, Provident Financial may fail to realize the anticipated increase in earnings and cost savings anticipated to be derived from the Merger. In addition, as with regard to any merger, a significant decline in asset valuations or cash flows may also cause Provident Financial not to realize expected benefits.

The termination fee and the restrictions on solicitation contained in the Merger Agreement may discourage other companies from trying to acquire SB One.

Until the completion of the Merger, with some exceptions, SB One is prohibited from soliciting, initiating, knowingly encouraging or participating in any discussion of or otherwise considering any inquiry or proposal that may lead to an acquisition proposal, such as a merger or other business combination transaction, with any person other than Provident Financial. In addition, SB One has agreed to pay a $9.0 million termination fee to Provident Financial in specified circumstances. These provisions could discourage other companies that may have an interest in acquiring SB One from considering or proposing such an acquisition even though those other companies might be willing to offer greater value to SB One’s shareholders than Provident Financial has offered in the Merger. The payment of the termination fee could also have a material adverse effect on SB One’s financial condition.

SB One’s directors and executive officers have interests that are different from, or in addition to, interests of SB One shareholders generally.

You should be aware that certain directors and executive officers of SB One have interests in the Merger that are different from, or in addition to, the interests of SB One shareholders generally. These include: (i) certain directors and executive officers of SB One hold outstanding SB One equity awards and pursuant to the Merger Agreement will receive both accelerated vesting thereof and payments with respect thereto in connection with the Merger; (ii) three current SB One board members will be joining the Provident Financial board of directors upon completion of the Merger; (iii) all current SB One board members (excluding the directors who are appointed to the Provident Financial and Provident Bank boards of directors) will be invited to join a Provident Financial advisory board to serve for an initial term of two years; (iv) continued employment has been offered by Provident Bank to SB One’s President and Chief Executive Officer; (v) severance or other payments that certain executive officers may receive under existing employment or change-in-control agreements; and (vi) provisions in the Merger Agreement relating to indemnification of directors and officers and insurance for directors and officers of SB One for events occurring before the Merger. For a more detailed discussion of these interests, see “The Merger—Interests of Certain Persons in the Merger that are Different from Yours.”

SB One shareholders will have a reduced ownership and voting interest after the Merger and will exercise less influence over management of the combined organization.

SB One shareholders currently have the right to vote in the election of the SB One board of directors and on various other matters affecting SB One. Upon the completion of the Merger, each SB One shareholder will

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become a shareholder of Provident Financial with a percentage ownership of the combined organization that is significantly smaller than the shareholder’s percentage ownership of SB One. It is expected that the former shareholders of SB One as a group will receive shares in the Merger constituting approximately     % of the outstanding shares of Provident Financial common stock immediately after the Merger, representing less than a majority of the ownership and voting power of Provident Financial. As a result, SB One shareholders will have significantly less influence on the management and policies of Provident Financial than they now have on the management and policies of SB One.

The shares of Provident Financial common stock to be received by SB One shareholders as a result of the Merger will have different rights from shares of SB One common stock.

Following completion of the Merger, SB One shareholders who receive the merger consideration will no longer be shareholders of SB One but will instead be stockholders of Provident Financial. There will be differences between the current rights of SB One shareholders and the rights of Provident Financial stockholders that may be important to SB One shareholders. See “Comparison of Shareholder Rights” for a discussion of the different rights associated with Provident Financial common stock and SB One common stock.

The opinion received by SB One’s board of directors from SB One’s financial advisor prior to the signing of the Merger Agreement does not reflect changes in circumstances subsequent to the date of the opinion.

KBW, SB One’s financial advisor in connection with the Merger, delivered to the board of directors of SB One an opinion dated March 11, 2020 as to the fairness, from a financial point of view, of the exchange ratio in the Merger. The opinion does not speak as of the time the Merger will be completed or any date other than the date of such opinion. The opinion does not reflect changes that may occur or may have occurred after the date of the opinion, including changes to the operations and prospects of Provident Financial or SB One, changes in general market and economic conditions or regulatory or other factors such as the worsening COVID-19 pandemic. Any such changes may materially alter or affect the relative values of Provident Financial and SB One.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated.

Before the Merger may be completed, various approvals and consents must be obtained from regulatory entities. These regulators may impose conditions on the completion of the Merger or require changes to the terms of the Merger. Any such conditions or changes could have the effect of delaying completion of the Merger or imposing additional costs on or limiting the revenues of Provident Financial following the Merger.

Either Provident Financial or SB One may terminate the Merger Agreement if the Merger has not been completed by January 31, 2021, unless the failure of the Merger to be completed has resulted from the failure of the party seeking to terminate the Merger Agreement to perform its obligations under the Merger Agreement.

Goodwill incurred in the Merger may negatively affect Provident Financial’s financial condition.

To the extent that the value of the shares of Provident Financial common stock issued or to be issued in the Merger exceeds the fair value of the net assets of SB One, including identifiable intangibles, that amount will be reported as goodwill by Provident Financial. In accordance with current accounting guidance, goodwill will not be amortized but will be evaluated for impairment annually. A failure to realize expected benefits of the Merger could adversely impact the carrying value of the goodwill recognized in the Merger, and in turn negatively affect Provident Financial’s financial condition.

The price of Provident Financial common stock might decrease after the Merger.

Upon completion of the Merger, holders of SB One common stock will become shareholders of Provident Financial. Provident Financial common stock could decline in value after the Merger. For example, during the

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twelve-month period ending on                     , 2020              (the most recent practicable date before the printing of this Proxy Statement/Prospectus), the closing price of Provident Financial common stock varied from a low of $         to a high of $         and ended that period at $        . The market value of Provident Financial common stock fluctuates based upon general market conditions, Provident Financial’s business and prospects and other factors. Further, the market price of Provident Financial common stock after the Merger may be affected by factors different from those currently affecting the common stock of Provident Financial or SB One. The businesses of SB One and Provident Financial differ and, accordingly, the results of operations of the combined company and the market price of the combined company’s shares of common stock may be affected by factors different from those currently affecting the independent results of operations and market prices of common stock of each of SB One and Provident Financial. For a discussion of the businesses of SB One and Provident Financial and of certain factors to consider in connection with those businesses, see the documents incorporated by reference in this Proxy Statement/Prospectus and referred to under “Where You Can Find More Information” beginning on page     .

The unaudited pro forma condensed combined financial statements included in this document are preliminary and the actual financial condition and results of operations of Provident Financial after the Merger may differ materially.

The unaudited pro forma condensed combined financial statements in this document are presented for illustrative purposes only and are not necessarily indicative of what Provident Financial’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 data, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings or opportunities to earn additional revenue and, accordingly, does not attempt to predict or suggest future results. The unaudited pro forma condensed combined financial statements reflect adjustments, which are based upon preliminary estimates, to record the SB One identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The purchase price allocation reflected in this document is preliminary, and final allocation of the purchase price will be based on the actual purchase price and the fair value of the assets and liabilities of SB One as of the date of the completion of the Merger. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this document.

SB One shareholders do not have appraisal or dissenters’ rights in the Merger.

Appraisal or dissenters’ rights are statutory rights that, if applicable under law, enable 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 shareholders in that extraordinary transaction. Under the New Jersey law, holders of SB One common stock are not entitled to appraisal rights in the Merger with respect to their shares of SB One common stock because SB One common stock is listed on a national securities exchange.

Risks Relating to SB One’s Business

If the bank regulators impose limitations on SB One’s commercial real estate lending activities, SB One’s earnings could be adversely affected.

In 2006, the FDIC, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System (collectively, the “Agencies”) issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”). Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate and construction and land loans, represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months. SB One’s level of non-owner occupied commercial real estate equaled 247% of SB One Bank’s total risk-based capital at December 31, 2019.

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In December 2015, the Agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”). In the 2015 Statement, the Agencies express concerns about easing commercial real estate underwriting standards, direct financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks, and indicate that the Agencies will continue “to pay special attention” to commercial real estate lending activities and concentrations going forward. If the FDIC, SB One Bank’s primary federal regulator were to impose restrictions on the amount of commercial real estate loans SB One can hold in its portfolio, or require higher capital ratios as a result of the level of commercial real estate loans SB One holds, SB One’s earnings would be adversely affected.

SB One’s allowance for loan losses may not be adequate to cover actual losses.

Like all financial institutions, SB One maintains an allowance for loan losses to provide for loan defaults and nonperformance. SB One’s allowance for loan losses may not be adequate to cover actual losses, and future provisions for loan losses could materially and adversely affect the results of SB One’s operations. In addition to periodic reviews by an independent loan review function, risks within the loan portfolio are analyzed on a continuous basis by management and by the SB One board of directors. A risk system, consisting of multiple-grading categories, is utilized as an analytical tool to assess risk and the appropriate level of loss reserves. Along with the risk system, management further evaluates risk characteristics of the loan portfolio under current economic conditions and considers such factors as the financial condition of the borrowers, past and expected loan loss experience and other factors management feels deserve recognition in establishing an adequate reserve. This risk assessment process is performed at least quarterly and any necessary adjustments are realized in the periods in which they become known. The amount of future losses is susceptible to changes in economic, operating and other conditions, including impacts of the COVID-19 pandemic and changes in interest rates that may be beyond SB One’s control, and these losses may exceed current estimates. State and federal regulatory agencies, as an integral part of their examination process, review SB One’s loans and allowance for loan losses and have in the past required an increase in its allowance for loan losses. Although SB One believes that its allowance for loan losses is adequate to cover probable and reasonably estimated losses, SB One cannot assure you that it will not further increase the allowance for loan losses, including as a result of the COVID-19 pandemic and the related adverse local and national economic consequences or otherwise, or that its regulators will not require SB One to increase this allowance. Either of these occurrences could adversely affect SB One’s earnings.

If SB One’s non-performing assets increase, its earnings will be negatively impacted.

At December 31, 2019, SB One’s non-performing assets (“NPAs”) (which consist of non-accrual loans, loans 90 days or more delinquent, performing troubled debt restructurings and foreclosed real estate assets) totaled $16.7 million, which was a decrease of $9.1 million or 35.3% from December 31, 2018. However, SB One can give no assurance that its NPAs will decrease and SB One may experience further increases in NPAs in the future, including as a result of the COVID-19 pandemic and the related adverse local and national economic consequences or otherwise. SB One’s NPAs adversely affect its net income in various ways. SB One does not record interest income on non-accrual loans or real estate owned. SB One must reserve for estimated credit losses, which are established through a current period charge to the provision for loan losses, and from time to time, if appropriate, SB One must write down the value of properties in the other real estate owned portfolio to reflect changing market values. Additionally, there are legal fees associated with the resolution of problem assets as well as carrying costs, including taxes, insurance and maintenance related to SB One’s other real estate owned. Further, the resolution of NPAs requires the active involvement of management, potentially distracting them from the overall supervision of SB One’s operations and other income-producing activities.

SB One’s earnings may not grow if SB One is unable to successfully attract core deposits and lending opportunities and exploit opportunities to generate fee-based income.

SB One has experienced growth, and its future business strategy is to continue to expand. Historically, the growth of SB One’s loans and deposits has been the principal factor in the increase in its net-interest income. In the event that SB One is unable to execute its business strategy of continued growth in loans and deposits, SB One’s earnings could be adversely impacted. SB One’s ability to continue to grow depends, in part, upon its

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ability to expand its market share, to successfully attract core deposits and identify loan and investment opportunities, as well as opportunities to generate fee-based income. SB One’s ability to manage growth successfully will also depend on whether it can continue to efficiently fund asset growth and maintain asset quality and cost controls, as well as on factors beyond SB One’s control, such as economic conditions and interest-rate trends.

SB One does not have any control over the commissions its insurance business expects to earn on the sale of insurance products, which are based on premiums and commission rates set by insurers and the conditions prevalent in the insurance market.

The revenues of SB One’s fee-based insurance business are derived primarily from commissions from the sale of insurance policies, which commissions are generally calculated as a percentage of the policy premium. Commission rates and premiums can change based on the prevailing economic and competitive factors that affect insurance underwriters, including as a result of the COVID-19 pandemic and the related adverse local and national economic consequences or otherwise. In addition, the insurance industry has been characterized by periods of intense price competition due to excessive underwriting capacity and periods of favorable premium levels due to shortages of capacity. SB One cannot predict the timing or extent of future changes in commission rates or premiums or the effect any of these changes will have on the operations of its insurance business.

Changes in interest rates could adversely affect SB One’s results of operations and financial condition.

SB One’s profitability, like that of most financial institutions, depends substantially on its net interest income, which is the difference between the interest income earned on SB One’s interest-earning assets and the interest expense paid on SB One’s interest-bearing liabilities. Increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay adjustable rate loans. In addition, as market interest rates rise, SB One will have competitive pressures to increase the rates it pays on deposits, which will result in a decrease of SB One’s net interest income.

SB One also is subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and mortgage-related securities. Decreases in interest rates can result in increased prepayments of loans and mortgage-related securities as borrowers refinance to reduce borrowing costs. Under these circumstances, SB One is subject to reinvestment risk to the extent that it is unable to reinvest the cash received from such prepayments at rates that are comparable to the rates on existing loans and securities.

SB One may experience impairments of goodwill or other intangible assets in the future.

As of December 31, 2019, SB One’s consolidated balance sheet included goodwill of $27.3 million and other intangible assets of $1.7 million. SB One’s business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense. SB One makes estimates and assumptions in valuing such intangible assets that affect SB One’s consolidated financial statements. In accordance with GAAP, SB One’s goodwill and indefinite-lived intangible assets are not amortized, but are tested for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired. Impairment testing incorporates the current market price of SB One’s common stock, the estimated fair value of its assets and liabilities, and certain information of similar companies. Impairment testing may be based on valuation models that estimate fair value. In preparing the valuation models, SB One considers a number of factors, including operating results, business plans, economic conditions, future cash flows, and transactions and market data. There are inherent uncertainties related to these factors and SB One’s judgment in applying them to the impairment analyses, including as a result of the COVID-19 pandemic and the related adverse local and national economic consequences or otherwise. It is possible that future impairment testing could result in a decline in fair value of SB One’s goodwill or other intangible assets, which may be less than the carrying value, and, as a result may adversely affect SB One’s financial condition. If SB One determines that impairment exists at a given point in time, its earnings and the book value of goodwill or other related intangible asset will be reduced by the amount of the impairment. If SB One records an impairment loss related to its goodwill or other intangible assets, it could have a material adverse effect on SB One’s

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business, financial condition, results of operations, cash flows and the trading price of SB One’s securities. Notwithstanding the foregoing, the results of impairment testing on SB One’s goodwill or other intangible assets have no impact on SB One’s tangible book value or regulatory capital levels.

SB One operates in a highly-regulated environment and are subject to extensive government supervision and regulation that affects its operations and may adversely impact its business.

SB One is subject to extensive federal and state supervision and regulation that govern nearly all aspects of its operations and can have a material impact on its business. Financial regulatory authorities have significant discretion regarding the supervision, regulation and enforcement of banking laws and regulations.

Banking and insurance laws, regulations and policies are subject to amendment by Congress, the State of New Jersey and federal and state financial regulatory agencies. Changes to statutes, regulations or policies, including changes in the administrative interpretation of regulations or policies, could materially impact SB One’s business. These changes could impose additional costs on SB One and limit the types of financial products and services that SB One may offer its customers. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose significant compliance costs. Failure to comply with any laws, regulations or policies could result in sanctions by financial regulatory agencies, including civil money penalties, private lawsuits or reputational damage, any of which could adversely affect SB One’s business or results of operations. While SB One has policies and procedures designed to prevent such violations, there can be no assurance that violations will not occur.

Since the 2008 global financial crisis, financial institutions have been subject to increased scrutiny from Congress, state legislatures and federal and state financial regulatory agencies. The Dodd-Frank Act, among other laws and regulations, has increased SB One’s costs of doing business and resulted in decreased revenues and net income. Several mandates of the Dodd-Frank Act are still subject to further rulemaking and could have adverse implications on the financial industry, the competitive environment and SB One’s ability to conduct business. SB One cannot provide assurance that future changes in laws, regulations and policies will not adversely affect its business.

State and federal financial regulatory agencies periodically conduct examinations of SB One’s business, including for compliance with laws and regulations, and SB One’s failure to comply with any supervisory actions to which SB One is or becomes subject as a result of such examinations may adversely affect its business.

Federal and state financial regulatory agencies periodically conduct examinations of SB One’s business, including SB One’s compliance with laws and regulations. If, as a result of an examination, an agency were to determine that the financial, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of any of SB One’s operations had become unsatisfactory, or violates any law or regulation, federal financial agencies may take several different remedial or enforcement actions it deems appropriate to correct any deficiency. Such actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in the bank’s capital, to restrict the bank’s growth, to assess civil monetary penalties against the bank’s officers or directors, to remove officers and directors and, if the FDIC concludes that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate SB One’s deposit insurance. The Department, as the supervisory and regulatory authority for state-chartered banks, has similar enforcement powers with respect to SB One’s banking business and insurance agency. The CFPB has the authority to take enforcement actions, including cease-and-desist orders or civil monetary penalties against SB One if it finds that SB One offers consumer financial products and services in violation of federal consumer financial protection laws.

If SB One were unable to comply with future regulatory directives, or if SB One were unable to comply with the terms of any future supervisory requirements to which it may become subject, then SB One could

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become subject to a variety of supervisory actions and orders, including cease and desist orders, prompt corrective actions, MOUs, and/or other regulatory enforcement actions. If SB One’s financial regulators were to take such supervisory actions, then SB One could, among other things, become subject to greater restrictions on its ability to develop any new business, as well as restrictions on its existing business, and SB One could be required to raise additional capital, dispose of certain assets and liabilities within a prescribed period of time, or both. Failure to implement remedial measures as required by financial regulatory agencies could result in additional orders or penalties from federal and state regulators, which could result in one or more of the remedial actions described above. The terms of any supervisory action and associated consequences with any failure to comply with any supervisory action could have a material negative effect on SB One’s business, operating flexibility and overall financial condition.

There is a risk that SB One may not be repaid in a timely manner, or at all, for loans it makes.

The risk of non-payment (or deferred or delayed payment) of loans is inherent in commercial banking. Such non-payment, or delayed or deferred payment of loans to SB One, if they occur, may have a material adverse effect on SB One’s earnings and overall financial condition. Additionally, in compliance with applicable banking laws and regulations, SB One maintains an allowance for loan losses created through charges against earnings. As of December 31, 2019, SB One’s allowance for loan losses was $10.3 million. As a result of the impact of the COVID-19 outbreak, SB One may have to increase its allowance for loan losses if borrowers experience financial difficulties beyond deferment periods, which will adversely SB One’s net income. SB One’s marketing focus on small to medium-size businesses may result in the assumption by SB One of certain lending risks that are different from or greater than those which would apply to loans made to larger companies. SB One seeks to minimize its credit risk exposure through credit controls, which include evaluation of potential borrowers’ available collateral, liquidity and cash flow. However, there can be no assurance that such procedures will actually reduce loan losses.

Uncertainty surrounding the elimination of LIBOR and the proposed transition to SOFR may adversely affect SB One’s business.

The U.S. dollar-denominated London Interbank Offered Rate (“LIBOR”) is used to calculate interest rates for numerous types of debt obligations. The U.K. Financial Conduct Authority (“FCA”) has determined that LIBOR should no longer be used as a benchmark rate. In anticipation of the elimination of LIBOR, the U.S. Federal Reserve established Alternative Reference Rates Committee (“ARRC”) to select a replacement for U.S. Dollar LIBOR. ARRC, comprised of a group of large domestic banks and regulators, has voted to use a benchmark, known as the Secured Overnight Financing Rate (“SOFR”). SOFR is based on short-term loans backed by Treasury securities, known as repurchase agreements or “repo” trades. ARRC has announced a paced transition plan for this new rate, including specific steps and timeliness designed to encourage adoption of SOFR. As of December 31, 2019, the Company has exposure of $417.7 million in notional amount of financial assets and liabilities in investments and derivatives, including off-balance sheet instruments, which are LIBOR-based. The Company has not determined the extent to which the elimination of LIBOR and the transition to SOFR will have any material impact on these instruments.

SB One is in competition with many other financial service providers, including larger commercial banks which have greater resources than SB One.

The banking industry within SB One’s trade area is highly competitive. SB One’s principal market area is also served by branch offices of large commercial banks and thrift institutions. In addition, the Gramm-Leach-Bliley Financial Modernization Act of 1999 permits other financial entities, such as insurance companies and securities firms, to acquire or form financial institutions, thereby further increasing competition. A number of SB One’s competitors have substantially greater resources than SB One does to expend upon advertising and marketing, and their substantially greater capitalization enables them to make much larger loans. SB One’s success depends upon its ability to serve small business clients in a more responsive manner than the large and mid-size financial institutions against whom SB One competes in its principal market area. In addition to competition from larger institutions, SB One also faces competition for individuals and small businesses from

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recently formed banks seeking to compete as “home town” institutions. Most of these new institutions have focused their marketing efforts on the smaller end of the small business market SB One serves

SB One depends on its executive officers and key personnel to continue the implementation of SB One’s long-term business strategy and could be harmed by the loss of their services.

SB One believes that its continued growth and future success will depend in large part upon the skills of its management team. The competition for qualified personnel in the financial services industry is intense, and the loss of SB One’s key personnel or an inability to continue to attract, retain and motivate key personnel could adversely affect its business. SB One cannot assure you that it will be able to retain its existing key personnel or attract additional qualified personnel. SB One has employment agreements and/or change in control agreements with its Chief Executive Officer, Chief Financial Officer, Chief Banking Officer, Chief Operating Officer, Senior Executive Vice President of Regional Banking, Market Executive and Chief Executive Officer of SB One Insurance, and the loss of the services of one or more of SB One’s executive officers and key personnel could impair its ability to continue to develop its business strategy.

Changes in local economic conditions could adversely affect SB One’s loan portfolio.

SB One’s success depends to a great extent upon the general economic conditions of the local markets that it serves. Unlike larger banks that are more geographically diversified, SB One provides banking and financial services primarily to customers in the New Jersey and New York markets in which SB One has branches, so any decline in the economy of this specific region could have an adverse impact on SB One.

The ability of SB One’s borrowers to repay their loans, SB One’s financial results, the credit quality of SB One’s existing loan portfolio, and the ability to generate new loans with acceptable yield and credit characteristics has been and may continue to be adversely affected by changes in prevailing economic conditions, including impacts of the COVID-19 outbreak, declines in real estate values, changes in interest rates, adverse employment conditions and the monetary and fiscal policies of the federal government. SB One cannot assure you that negative trends or developments would not have a significant adverse effect on SB One.

SB One cannot predict how changes in technology will impact SB One’s business.

The financial services market, including banking services, is increasingly affected by advances in technology, including developments in telecommunications, data processing, automation, internet-based banking, telephone banking, and debit cards and so-called “smart cards.”

SB One’s ability to compete successfully in the future will depend on whether SB One can anticipate and respond to technological changes. To develop these and other new technologies, SB One will likely have to make additional capital investments. Although SB One continually invests in new technology, SB One cannot assure you that it will have sufficient resources or access to the necessary proprietary technology to remain competitive in the future.

The risks presented by acquisitions could adversely affect SB One’s financial condition and results of operations.

From time to time SB One may pursue growth through strategic acquisitions of assets or companies. Acquisitions are subject to many risks, including potential loss of significant customers or key personnel of the acquired business as a result of the change in ownership, difficulty integrating the operations of the acquired business or achieving targeted efficiencies, the incurrence of substantial costs and expenses related to the acquisition effort, and diversion of management’s attention from other aspects of SB One’s business operations. For example, SB One may face integration challenges as it continues to fully integrate the operations of Community Bank of Bergen County, NY and Enterprise Bank NJ, both of which were acquired in 2018.

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Acquisitions may also cause SB One to incur debt or result in dilutive issuances of its equity securities. SB One’s acquisitions may cause large one-time expenses or create goodwill or other intangible assets that could result in significant impairment charges in the future. SB One also makes various estimates and assumptions in order to determine purchase price allocation and estimate the fair value of assets acquired and liabilities assumed. If SB One’s estimates or assumptions used to value these assets and liabilities vary from actual or future projected results, SB One may be exposed to losses, including impairment losses, which could be material.

SB One does not provide any assurance that it will be able to successfully integrate the operations of any acquired businesses into its operations or achieve the expected benefits of any acquisitions. The failure to successfully integrate newly acquired businesses or achieve the expected benefits of strategic acquisitions in the future could have an adverse effect on SB One’s financial condition, results of operations or cash flows. SB One may not complete a potential acquisition for a variety of reasons, but it may nonetheless incur material costs in the preliminary stages of evaluating and pursuing such an acquisition that it cannot recover.

SB One faces cybersecurity risks and risks associated with security breaches which have the potential to disrupt its operations, cause material harm to its financial condition, result in misappropriation of assets, compromise confidential information and/or damage its business relationships and can provide no assurance that the steps SB One and its service providers take in response to these risks will be effective.

SB One faces cybersecurity risks and risks associated with security breaches or disruptions such as those through cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, social engineering and phishing schemes or persons inside SB One’s organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, nation-state affiliated actors, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. These incidents may result in disruption of SB One’s operations, material harm to its financial condition, cash flows and the market price of its common stock, misappropriation of assets, compromise or corruption of confidential information collected in the course of conducting its business, liability for stolen information or assets, increased cybersecurity protection and insurance costs, regulatory enforcement, litigation and damage to its stakeholder relationships. These risks require continuous and likely increasing attention and other resources from SB One to, among other actions, identify and quantify these risks, upgrade and expand its technologies, systems and processed to adequately address them and provide periodic training for its employees to assist them in detecting phishing, malware and other schemes. Such attention diverts time and other resources from other activities and there is no assurance that SB One’s efforts will be effective.

In the normal course of business, SB One collects and retains certain personal information provided by its customers, employees and vendors. SB One also relies extensively on computer systems to process transactions and manage its business. SB One can provide no assurance that the data security measures designed to protect confidential information on its systems established by SB One will be able to prevent unauthorized access to this personal information. There can be no assurance that SB One’s efforts to maintain the security and integrity of the information SB One and its service providers collect and its and their computer systems will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not be detected and, in fact, may not be detected. Accordingly, SB One may be unable to anticipate these techniques to implement adequate security barriers or other preventative measures, and thus it is impossible for SB One to entirely mitigate this risk.

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