Provident Financial Services, Inc. Announces Third Quarter Earnings and Declares Quarterly Cash Dividend

10/30/2020, 1:00 PM (Source: GlobeNewswire)

ISELIN, N.J., Oct. 30, 2020 (GLOBE NEWSWIRE) -- Provident Financial Services, Inc. (NYSE:PFS) (the “Company”) reported net income of $27.1 million, or $0.37 per basic and diluted share, for the three months ended September 30, 2020, compared to net income of $31.4 million, or $0.49 per basic and diluted share, for the three months ended September 30, 2019.  For the nine months ended September 30, 2020, the Company reported net income of $56.4 million, or $0.84 per basic and diluted share, compared to net income of $86.7 million, or $1.34 per basic and diluted share, for the same period last year. 

On July 31, 2020, the Company completed its acquisition of SB One Bancorp ("SB One"), which added $2.19 billion to total assets, $1.77 billion to loans, and $1.76 billion to deposits. The results of operations for the three and nine months ended September 30, 2020 included pre-tax non-recurring charges related to the acquisition of SB One totaling $2.0 million and $3.1 million, respectively.

The Company’s earnings for the three and nine months ended September 30, 2020 were also impacted by the January 1, 2020 adoption of a new accounting standard that requires the current recognition of allowances for losses expected to be incurred over the life of covered assets (“CECL”).  The acquisition of SB One and changing economic forecasts attributable to the COVID-19 pandemic and projected economic recovery drove provisions for credit losses and off-balance sheet credit exposures totaling $6.7 million and $38.6 million for the three and nine months ended September 30, 2020, respectively.  The Company's earnings were further impacted by COVID-19 related costs which totaled $200,000 and $1.2 million for the three and nine months ended September 30, 2020, respectively.

Christopher Martin, Chairman and Chief Executive Officer commented: “We look forward to the opportunities that our merger with SB One Bancorp provides our combined company, and we welcome our new colleagues who joined us in the transaction.  Our team did a great job getting the acquisition completed on a timely basis in a challenging operating environment.”  Martin added, “We continue to work with our borrowers who have been impacted by this stressed economic environment and we are heartened by the number of customers who have rebounded and resumed making their full loan payments.  In addition, our investments in enhancing digital delivery channels have provided our customers with a widely accepted and convenient platform for remote access to their accounts and other services.” 

Declaration of Quarterly Dividend

The Company’s Board of Directors declared a quarterly cash dividend of $0.23 per common share payable on November 27, 2020, to stockholders of record as of the close of business on November 13, 2020.

Balance Sheet Summary

Total assets at September 30, 2020 were $12.87 billion, a $3.06 billion increase from December 31, 2019.  The increase in total assets was primarily due to $2.19 billion of assets acquired from SB One, which includes $22.4 million of goodwill and $10.0 million of other intangible assets,  as well as an increase of $474.8 million related to commercial loans made under the Paycheck Protection Program ("PPP").

The Company’s loan portfolio increased $2.42 billion to $9.76 billion at September 30, 2020, from $7.33 billion at December 31, 2019, which included $1.77 billion of loans acquired from SB One and $474.8 million of commercial PPP loans.  For the nine months ended September 30, 2020, loan originations, including advances on lines of credit, totaled $2.63 billion, compared with $2.04 billion for the same period in 2019.  During the nine months ended September 30, 2020, the loan portfolio had net increases of $1.17 billion in commercial mortgage loans, $655.4 million in commercial loans, $319.2 million in multi-family mortgage loans, $242.0 million in residential mortgage loans, $32.3 million in construction loans and $15.1 million in consumer loans.    Commercial real estate, commercial and construction loans represented 82.3% of the loan portfolio at September 30, 2020, compared to 80.0% at December 31, 2019. 

At September 30, 2020, the Company’s unfunded loan commitments totaled $2.26 billion, including commitments of $967.3 million in commercial loans, $697.4 million in construction loans and $307.9 million in commercial mortgage loans.  Unfunded loan commitments at December 31, 2019 and September 30, 2019 were $1.47 billion and $1.65 billion, respectively.

The loan pipeline, consisting of work-in-process and loans approved pending closing, totaled $1.37 billion at September 30, 2020, compared to $905.9 million and $1.09 billion at December 31, 2019 and September 30, 2019, respectively.

Cash and cash equivalents were $510.1 million at September 30, 2020, a $323.4 million increase from December 31, 2019, largely due to increases in cash collateral pledged to counterparties to secure loan-level swaps and short-term investments and $78.1 million of cash and cash equivalents acquired from SB One.

Total investments were $1.62 billion at September 30, 2020, a $129.2 million increase from December 31, 2019.  This increase was mainly attributable to investment securities acquired from SB One, partially offset by repayments of mortgage-backed securities, maturities and calls of certain municipal and agency bonds.

Banking premises and equipment increased $17.7 million for the nine months ended September 30, 2020, to $72.9 million, primarily due to assets acquired from SB One at a fair value of $16.6 million.

Total deposits increased $2.46 billion during the nine months ended September 30, 2020 to $9.56 billion.  The increase in total deposits consisted of $1.76 billion of deposits acquired from SB One and additional net deposit growth of $698.9 million. Total core deposits, consisting of savings and demand deposit accounts, increased $2.05 billion to $8.41 billion at September 30, 2020, while total time deposits increased $410.7 million to $1.14 billion at September 30, 2020.  The increase in core deposits was largely attributable to an $821.6 million increase in non-interest bearing demand deposits, which partially benefited from deposits retained from activity associated with PPP loans and stimulus funding, a $511.1 million increase in interest bearing demand deposits, a $386.7 million increase in money market deposits and a $326.5 million increase in savings deposits.  The increase in time deposits was largely the result of $577.3 million acquired from SB One, partially offset by the outflow of time deposits totaling $166.6 million.  Core deposits represented 88.0% of total deposits at September 30, 2020, compared to 89.7% at December 31, 2019.

Borrowed funds increased $287.9 million during the nine months ended September 30, 2020, to $1.41 billion.  The increase in borrowings for the period was primarily due to $201.6 million acquired from SB One and asset funding requirements.  Borrowed funds represented 11.0% of total assets at September 30, 2020, a decrease from 11.5% at December 31, 2019.

Stockholders’ equity increased $187.7 million during the nine months ended September 30, 2020, to $1.60 billion, primarily due to common stock issued for the purchase of SB One, net income earned for the period and an increase in unrealized gains on available for sale debt securities, partially offset by dividends paid to stockholders, the adoption of CECL on January 1, 2020 and the related charge to equity of $8.3 million, net of tax, to establish initial allowances against credit losses and off-balance sheet credit exposures, and common stock repurchases.  The Company issued 12,788,370 shares of common stock from treasury stock in the acquisition of SB One.  For the three months ended September 30, 2020, common stock repurchases totaled 69,549 shares at an average cost of $13.90, of which 1,045 shares, at an average cost of $12.86, were made in connection with withholding to cover income taxes on the vesting of stock-based compensation.  For the nine months ended September 30, 2020, common stock repurchases totaled 455,343 shares at an average cost of $18.04, of which 49,461 shares, at an average cost of $19.69, were made in connection with withholding to cover income taxes on the vesting of stock-based compensation.  At September 30, 2020, approximately 1.1 million shares remained eligible for repurchase under the current stock repurchase authorization.  Book value per share and tangible book value per share(1) at September 30, 2020 were $20.41 and $14.45, respectively, compared with $21.49 and $14.85, respectively, at December 31, 2019.

Results of Operations

Net Interest Income and Net Interest Margin

For the three months ended September 30, 2020, net interest income increased $8.5 million to $82.0 million, from $73.5 million for the same period in 2019.  Net interest income for the nine months ended September 30, 2020 decreased $1.3 million to $223.8 million, from $225.1 million for the same period in 2019.  Both comparative periods were favorably impacted by the net assets acquired from SB One, partially offset by period-over-period compression in the net interest margin as the decrease in the yield on interest-earning assets outpaced the decline in the Company's cost of interest-bearing liabilities.  This decline was tempered by growth in both average loans outstanding and lower-costing average interest-bearing and non-interest bearing core deposits.  For the nine months ended September 30, 2019, the Company recognized the acceleration of accretion of $2.2 million in interest income upon the prepayment of loans which had been non-accruing. 

The Company’s net interest margin increased four basis points to 3.01% for the quarter ended September 30, 2020, from 2.97% for the trailing quarter, primarily due to decreases in funding costs and growth in non-interest bearing deposits.  The weighted average yield on interest-earning assets decreased three basis points to 3.44% for the quarter ended September 30, 2020, compared to 3.47% for the quarter ended June 30, 2020.  The weighted average cost of interest-bearing liabilities for the quarter ended September 30, 2020 decreased 11 basis points to 0.57%, compared to 0.68% for the trailing quarter.  The average cost of interest bearing deposits for the quarter ended September 30, 2020 was 0.44%, compared to 0.54% for the trailing quarter ended June 30, 2020.  Average non-interest bearing demand deposits totaled $2.21 billion for the quarter ended September 30, 2020, compared with $1.85 billion for the trailing quarter ended June 30, 2020.  The average cost of all deposits, including non-interest bearing deposits, was 33 basis points for the quarter ended September 30, 2020, compared with 41 basis points for the trailing quarter. The average cost of borrowed funds for the quarter ended September 30, 2020 was 1.19%, compared to 1.31% for the trailing quarter.

The net interest margin decreased 22 basis points to 3.01% for the quarter ended September 30, 2020, compared to 3.23% for the quarter ended September 30, 2019.  The weighted average yield on interest-earning assets decreased 65 basis points to 3.44% for the quarter ended September 30, 2020, compared to 4.09% for the quarter ended September 30, 2019, while the weighted average cost of interest bearing liabilities decreased 56 basis points for the quarter ended September 30, 2020 to 0.57%, compared to the third quarter of 2019.  The average cost of interest bearing deposits for the quarter ended September 30, 2020 was 0.44%, compared to 0.87% for the same period last year.  Average non-interest bearing demand deposits totaled $2.21 billion for the quarter ended September 30, 2020, compared to $1.51 billion for the quarter ended September 30, 2019.  The average cost of all deposits, including non-interest bearing deposits, was 33 basis points for the quarter ended September 30, 2020, compared with 68 basis points for the quarter ended September 30, 2019.  The average cost of borrowed funds for the quarter ended September 30, 2020 was 1.19%, compared to 2.13% for the same period last year.  

For the nine months ended September 30, 2020, the net interest margin decreased 29 basis points to 3.06%, compared to 3.35% for the nine months ended September 30, 2019.  The weighted average yield on interest earning assets declined 59 basis points to 3.60% for the nine months ended September 30, 2020, compared to 4.19% for the nine months ended September 30, 2019, while the weighted average cost of interest bearing liabilities decreased 38 basis points to 0.72% for the nine months ended September 30, 2020, compared to 1.10% for the same period last year.  The average cost of interest bearing deposits decreased 26 basis points to 0.58% for the nine months ended September 30, 2020, compared to 0.84% for the same period last year.  Average non-interest bearing demand deposits totaled $1.85 billion for the nine months ended September 30, 2020, compared with $1.47 billion for the nine months ended September 30, 2019.  The average cost of all deposits, including non-interest bearing deposits, was 44 basis points for the nine months ended September 30, 2020, compared with 61 basis points for the nine months ended September 30, 2019.  The average cost of borrowings for the nine months ended September 30, 2020 was 1.42%, compared to 2.13% for the same period last year.

Non-Interest Income

Non-interest income totaled $20.6 million for the quarter ended September 30, 2020, an increase of $2.6 million, compared to the same period in 2019.  Insurance agency income, a new revenue opportunity for the Company resulting from the SB One acquisition, totaled $1.7 million for the three months ended September 30, 2020.  Other income increased $1.6 million to $4.7 million for the three months ended September 30, 2020, compared to the quarter ended September 30, 2019, primarily due to a $1.2 million increase in net fees on loan-level interest rate swap transactions, a $171,000 increase in net gains on the sale of foreclosed real estate and a $159,000 increase in net gains on the sale of fixed assets.  Wealth management income increased $763,000 to $6.8 million for the three months ended September 30, 2020.  The increase was largely a function of market improvements in the value of assets under management and an increase in managed mutual fund fees.  Also, income from Bank-owned life insurance ("BOLI") increased $372,000 to $1.6 million for the three months ended September 30, 2020, compared to the same period in 2019, primarily due to an increase in benefit claims, partially offset by lower equity valuations.  Partially offsetting these increases, fee income decreased $1.9 million to $5.7 million for the three months ended September 30, 2020, compared to the same period in 2019, largely due to a $1.0 million decrease in commercial loan prepayment fees and an $850,000 decrease in deposit related fees.  The decrease in fee income is largely due to the effects of COVID-19 on consumer and business activities.

For the nine months ended September 30, 2020, non-interest income totaled $52.0 million, an increase of $5.9 million, compared to the same period in 2019.  Other income increased $4.9 million to $9.7 million for the nine months ended September 30, 2020, compared to $4.8 million for the same period in 2019, due to a $3.9 million increase in net fees on loan-level interest rate swap transactions, an $800,000 increase in net gains on the sale of fixed assets and a $684,000 increase in net gains on the sale of foreclosed real estate, partially offset by a $300,000 decrease in net gains from the sale of loans.  Wealth management income increased $2.7 million to $19.1 million for the nine months ended September 30, 2020, compared to the same period in 2019, primarily due to fees earned on assets under management acquired in the April 1, 2019 Tirschwell & Loewy ("T&L") acquisition, partially offset by a decrease in managed mutual fund fees.  Also, insurance agency income totaled $1.7 million derived from the July 31, 2020 acquisition of SB One.  Partially offsetting these increases, fee income decreased $3.4 million, primarily due to a $2.1 million decrease in deposit related fees, an $838,000 decrease in commercial loan prepayment fees and a $100,000 decrease in non-deposit investment fee income, all largely due to the effects of COVID-19 on consumer and business activities.

Non-Interest Expense

For the three months ended September 30, 2020, non-interest expense totaled $59.8 million, an increase of $10.0 million, compared to the three months ended September 30, 2019.  Non-interest expense for the three months ended September 30, 2020, included non-recurring costs related to the acquisition of SB One and two months of expenses associated with the operation of the former SB One franchise.  Compensation and benefits expense increased $6.3 million to $35.7 million for the three months ended September 30, 2020, compared to $29.4 million for the same period in 2019.  This increase was principally due to an increase in salary expense associated with the addition of former SB One employees, COVID-19 supplemental pay for branch employees and an increase in severance expense, partially offset by a decrease in stock-based compensation.  Other operating expenses increased $1.9 million to $9.8 million for the three months ended September 30, 2020, compared to the same period in 2019, largely due to increases in legal and consulting expenses, which included $1.8 million related to the acquisition of SB One.  FDIC insurance increased $1.2 million due to the addition of SB One, along with increases in both the insurance assessment rate and total assets subject to assessment.  Data processing expense increased $912,000 to $5.0 million for the three months ended September 30, 2020, compared with the same period in 2019, primarily due to increases in software subscription service expense and on-line banking costs.  Partially offsetting these increases, credit loss expense for off-balance sheet credit exposures under the CECL standard was reduced $575,000 in the quarter, due to a decrease in loss factors associated with the current economic forecast, partially offset by an increase in the pipeline of loans approved awaiting closing, largely due to the addition of the SB One loan pipeline.

Non-interest expense totaled $169.2 million for the nine months ended September 30, 2020, an increase of $21.3 million, compared to $147.8 million for the nine months ended September 30, 2019.  Compensation and benefits expense increased $9.4 million to $96.1 million for the nine months ended September 30, 2020, compared to $86.7 million for the nine months ended September 30, 2019, primarily due to an increase in salary expense associated with the addition of former SB One and T&L employees, an increase in severance expense and COVID 19 supplemental pay for branch employees, partially offset by the increased deferral of salary expense related to PPP loan originations.  For the nine months ended September 30, 2020, credit loss expense for off-balance sheet credit exposures was $5.7 million related to the January 1, 2020 adoption of CECL, and the subsequent increase in loss factors due to the current economic forecast, increase in the pipeline of loans approved awaiting closing and an increase in availability on committed lines of credit due to below average utilization.  Other operating expenses increased $3.8 million to $26.4 million for the nine months ended September 30, 2020, compared to the same period in 2019, largely due to an increase in legal and consulting expenses related to the SB One transaction and a market valuation adjustment on foreclosed real estate.  Data processing expense increased $2.0 million to $14.4 million for the nine months ended September 30, 2020, compared to $12.4 million for the same period in 2019, principally due to increases in software subscription service expense and on-line banking costs.  FDIC insurance increased $786,000 for the nine months ended September 30, 2020, primarily due to the addition of SB One and increases in both the insurance assessment rate and total assets subject to assessment.  Partially offsetting these increases, net occupancy expense decreased $267,000 to $19.4 million for the nine months ended September 30, 2020, compared to the same period in 2019, due to reductions in snow removal, depreciation expenses and branch closures, partially offset by additional occupancy expense related to SB One.  

The Company’s annualized adjusted non-interest expense as a percentage of average assets(1) was 1.92% for the quarter ended September 30, 2020, compared to 1.99% for the same period in 2019, with the 2020 improvement driven by the significant increase in average assets largely attributable to assets acquired from SB One and PPP loans.  For the nine months ended September 30, 2020, the Company’s annualized adjusted non-interest expense as a percentage of average assets(1) was 1.97%, compared to 2.01% for the same period in 2019.  The efficiency ratio (adjusted non-interest expense divided by the sum of net interest income and non-interest income)(1) was 56.72% and 57.69% for the quarter and nine months ended September 30, 2020, respectively, compared to 54.31% and 54.52% for the same respective periods in 2019. 

Asset Quality

The Company’s total non-performing loans at September 30, 2020 were $49.0 million, or 0.50% of total loans, compared to $35.5 million, or 0.46% of total loans at June 30, 2020, and $40.2 million, or 0.55% of total loans at December 31, 2019.  The $13.5 million increase in non-performing loans at September 30, 2020, compared to the trailing quarter, included $11.5 million of non-performing loans acquired from SB One and consisted of an $11.5 million increase in non-performing commercial mortgage loans, a $2.6 million increase in non-performing residential loans and a $347,000 increase in non-performing consumer loans, partially offset by a $1.2 million decrease in non-performing commercial loans.  At September 30, 2020, impaired loans totaled $65.8 million with related specific reserves of $3.3 million, compared with impaired loans totaling $63.1 million with related specific reserves of $3.6 million at June 30, 2020.  At December 31, 2019, impaired loans totaled $70.6 million with related specific reserves of $5.1 million.

Loans that have been or are expected to be granted COVID-19 related deferrals or modifications have decreased from a peak level of $1.31 billion, or 16.8% of loans, to $310.8 million, or 3.2% of loans as of October 16, 2020.  This $310.8 million of loans includes $47.5 million acquired from SB One and consists of $27.0 million in a first 90-day deferral period, $84.9 million in a second 90-day deferral period, and $198.9 million that have completed their initial deferral periods, but are expected to require ongoing assistance.   Included in the $310.8 million of loans, $92.4 million are secured by hotels, $43.7 million are secured by retail properties, $31.4 million are secured by restaurants, $15.1 million are secured by suburban office space, and $42.7 million are secured by residential mortgages, with the balance comprised of diverse commercial loans.

At September 30, 2020, the Company’s allowance for credit losses related to the loan portfolio was 1.09% of total loans, compared to 1.11% and 0.76% at June 30, 2020 and December 31, 2019, respectively.  The Company recorded provisions for credit losses of $6.4 million and $32.0 million for the three and nine months ended September 30, 2020, respectively, compared with provisions of $500,000 and $10.2 million for the three and nine months ended September 30, 2019, respectively.  For the three and nine months ended September 30, 2020, the Company had net recoveries of $59,000 and net charge-offs of $2.7 million, respectively, compared to net charge-offs of $6.0 million and $8.4 million, respectively, for the same periods in 2019.  The allowance for loan losses increased $50.8 million to $106.3 million at September 30, 2020 from $55.5 million at December 31, 2019.  The increase in the allowance for credit losses was attributable to elevated provisions for credit losses primarily due to the current weak economic forecast attributable to the COVID-19 pandemic and the adoption of CECL, along with $15.5 million and $13.6 million additions to the allowance for credit losses for loans and purchased credit deteriorated ("PCD") loans, respectively, related to the acquisition of the SB One loan portfolio.  In addition, a gross allowance for credit losses of $7.9 million and a related deferred tax asset were recorded against equity upon the January 1, 2020 adoption of CECL.  Future credit loss provisions are subject to significant uncertainty given the undetermined nature of prospective changes in economic conditions, as the impact of the COVID-19 pandemic continues to unfold.  The effectiveness of medical advances, government programs, and the resulting impact on consumer behavior and employment conditions will have a material bearing on future credit conditions and reserve requirements.

At September 30, 2020 and December 31, 2019, the Company held foreclosed assets of $4.7 million and $2.7 million, respectively.  During the nine months ended September 30, 2020, there were three additions to foreclosed assets with a carrying value of $2.6 million and 11 properties sold with a carrying value of $2.5 million and valuation charges of $556,000.  Foreclosed assets acquired from SB One totaled $2.4 million.  Foreclosed assets at September 30, 2020 consisted of $2.8 million of commercial real estate, $1.5 million of commercial vehicles and $400,000 of residential real estate.  Total non-performing assets at September 30, 2020 increased $10.8 million to $53.7 million, or 0.42% of total assets, from $42.9 million, or 0.44% of total assets at December 31, 2019.

Income Tax Expense

For the three months ended September 30, 2020, the Company’s income tax expense was $9.3 million with an effective tax rate of 25.5%, compared with income tax expense of $9.9 million with an effective tax rate of 24.0% for the three months ended September 30, 2019.  For the nine months ended September 30, 2020, the Company's income tax expense was $18.3 million with an effective tax rate of 24.5%, compared with $26.4 million with an effective tax rate of 23.4% for the nine months ended September 30, 2019.  The decreases in tax expense for the three and nine months ended September 30, 2020 compared with the same periods in 2019 were largely the result of decreases in taxable income, while the increases in the effective tax rates for the three and nine months ended September 30, 2020 compared with the same periods in 2019 were primarily due to increased projections of taxable income for the remainder of the year and decreases in the proportion of income derived from tax exempt sources to total pre-tax income.

About the Company

Provident Financial Services, Inc. is the holding company for Provident Bank, a community-oriented bank offering "commitment you can count on" since 1839.  Provident Bank provides a comprehensive array of financial products and services through its network of branches throughout northern and central New Jersey, as well as Bucks, Lehigh and Northampton counties in Pennsylvania and Queens County, New York.  The Bank also provides fiduciary and wealth management services through its wholly owned subsidiary, Beacon Trust Company and insurance brokerage services through its wholly owned subsidiary, SB One Insurance Agency, Inc.

Post Earnings Conference Call

Representatives of the Company will hold a conference call for investors on Friday, October 30, 2020 at 10:00 a.m. Eastern Time to discuss the Company’s financial results for the quarter ended September 30, 2020.  The call may be accessed by dialing 1-888-336-7149 (Domestic), 1-412-902-4175 (International) or 1-855-669-9657 (Canada).  Internet access to the call is also available (listen only) at provident.bank by going to Investor Relations and clicking on "Webcast."

Forward Looking Statements

Certain statements contained herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” "project," "intend," “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms.  Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those set forth in Item 1A of the Company's Annual Report on Form 10-K, as supplemented by its Quarterly Reports on Form 10-Q, and those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in accounting policies and practices that may be adopted by the regulatory agencies and the accounting standards setters, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

In addition, the COVID-19 pandemic is having an adverse impact on the Company, its customers and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on the Company's business, financial condition or results of operations.  The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated, and the extent to which the economy can remain open. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Company could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to remain substantially open, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our wealth management revenues may decline with continuing market turmoil; we may face the risk of a goodwill write-down due to stock price decline; and our cyber security risks are increased as the result of an increase in the number of employees working remotely.

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

Footnotes

(1) Tangible book value per share, annualized return on average tangible equity, annualized adjusted non-interest expense as a percentage of average assets and the efficiency ratio are non-GAAP financial measures.  Please refer to the Notes following the Consolidated Financial Highlights which contain the reconciliation of GAAP to non-GAAP financial measures and the associated calculations.

    
PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, 2020 (Unaudited) and December 31, 2019
(Dollars in Thousands)
    
AssetsSeptember 30, 2020 December 31, 2019
    
Cash and due from banks$382,014  $131,555 
Short-term investments128,124  55,193 
Total cash and cash equivalents510,138  186,748 
    
Available for sale debt securities, at fair value1,100,391  976,919 
Held to maturity debt securities, net (fair value of $467,769 at September 30, 2020 (unaudited) and $467,966 at December 31, 2019)446,591  453,629 
Equity securities, at fair value869  825 
Federal Home Loan Bank stock69,975  57,298 
Loans9,756,809  7,332,885 
Less allowance for credit losses106,314  55,525 
Net loans9,650,495  7,277,360 
Foreclosed assets, net4,720  2,715 
Banking premises and equipment, net72,909  55,210 
Accrued interest receivable43,967  29,031 
Intangible assets467,128  437,019 
Bank-owned life insurance234,410  195,533 
Other assets269,729  136,291 
Total assets$12,871,322  $9,808,578 
    
Liabilities and Stockholders' Equity   
    
Deposits:   
Demand deposits$7,104,322  $5,384,868 
Savings deposits1,310,231  983,714 
Certificates of deposit of $100,000 or more627,041  438,551 
Other time deposits517,647  295,476 
Total deposits9,559,241  7,102,609 
Mortgage escrow deposits27,510  26,804 
Borrowed funds1,413,029  1,125,146 
Subordinated debentures25,099   
Other liabilities244,874  140,179 
Total liabilities11,269,753  8,394,738 
    
Stockholders' equity:   
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued   
Common stock, $0.01 par value, 200,000,000 shares authorized, 83,209,293 shares issued and 78,481,159 shares outstanding at September 30, 2020 and 65,787,900 outstanding at December 31, 2019832  832 
Additional paid-in capital960,863  1,007,303 
Retained earnings694,240  695,273 
Accumulated other comprehensive income13,331  3,821 
Treasury stock(45,118) (268,504)
Unallocated common stock held by the Employee Stock Ownership Plan(22,579) (24,885)
Common Stock acquired by the Directors' Deferred Fee Plan(3,330) (3,833)
Deferred Compensation - Directors' Deferred Fee Plan3,330  3,833 
Total stockholders' equity1,601,569  1,413,840 
Total liabilities and stockholders' equity$12,871,322  $9,808,578 


PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)
(Dollars in Thousands, except per share data)
        
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2020 2019 2020 2019
Interest income:       
Real estate secured loans$58,897  $56,402  $162,635  $167,051 
Commercial loans20,622  20,104  58,238  63,788 
Consumer loans4,305  4,648  12,024  14,216 
Available for sale debt securities, equity securities and Federal Home Loan Bank stock6,321  7,918  19,669  24,584 
Held to maturity debt securities2,836  3,075  8,661  9,408 
Deposits, federal funds sold and other short-term investments472  879  1,932  2,038 
Total interest income93,453  93,026  263,159  281,085 
        
Interest expense:       
Deposits7,400  11,730  26,000  33,940 
Borrowed funds3,862  7,768  13,120  22,055 
Subordinated debt206    206   
Total interest expense11,468  19,498  39,326  55,995 
Net interest income81,985  73,528  223,833  225,090 
Provision for credit losses6,400  500  32,017  10,200 
Net interest income after provision for credit losses75,585  73,028  191,816  214,890 
        
Non-interest income:       
Fees5,736  7,634  17,179  20,617 
Wealth management income6,847  6,084  19,075  16,406 
Insurance agency income1,711    1,711   
Bank-owned life insurance1,644  1,272  4,290  4,253 
Net gain on securities transactions    55  29 
Other income4,688  3,057  9,672  4,764 
Total non-interest income20,626  18,047  51,982  46,069 
        
Non-interest expense:       
Compensation and employee benefits35,700  29,376  96,095  86,735 
Net occupancy expense6,993  6,413  19,362  19,629 
Data processing expense5,026  4,114  14,439  12,447 
FDIC Insurance1,185    1,953  1,167 
Amortization of intangibles918  827  2,373  2,161 
Advertising and promotion expense773  1,098  2,774  3,059 
Credit loss (benefit) expense for off-balance sheet credit exposures(575)   5,714   
Other operating expenses9,763  7,910  26,447  22,650 
Total non-interest expense59,783  $49,738  169,157  147,848 
Income before income tax expense36,428  $41,337  74,641  113,111 
Income tax expense9,285  9,938  18,257  26,429 
Net income$27,143  $31,399  $56,384  $86,682 
        
Basic earnings per share$0.37  $0.49  $0.84  $1.34 
Average basic shares outstanding72,519,123  64,511,956  67,093,442  64,720,642 
        
Diluted earnings per share$0.37  $0.49  $0.84  $1.34 
Average diluted shares outstanding72,604,298  64,632,285  67,173,876  64,852,983 


PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Financial Highlights
(Dollars in Thousands, except share data) (Unaudited)
    
 At or for the At or for the
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
Statement of Income       
Net interest income$81,985   $73,528  $223,833   $225,090  
Provision for credit losses6,400   500  32,017   10,200  
Non-interest income20,626   18,047  51,982   46,069  
Non-interest expense59,783   49,738  169,157   147,848  
Income before income tax expense36,428   41,337  74,641   113,111  
Net income27,143   31,399  56,384   86,682  
Diluted earnings per share$0.37   $0.49  $0.84   $1.34  
Interest rate spread2.87 % 2.96% 2.88 % 3.09 %
Net interest margin3.01 % 3.23% 3.06 % 3.35 %
        
Profitability       
Annualized return on average assets0.90 % 1.26% 0.70 % 1.18 %
Annualized return on average equity7.04 % 8.90% 5.18 % 8.34 %
Annualized return on average tangible equity (2)10.05 % 12.97% 7.45 % 12.11 %
Annualized non-interest expense to average assets (3)1.92 % 1.99% 1.97 % 2.01 %
Efficiency ratio (4)56.72 % 54.31% 57.69 % 54.52 %
        
Asset Quality       
Non-accrual loans    $48,953   $39,981  
90+ and still accruing         
Non-performing loans    48,953   39,981  
Foreclosed assets    4,720   1,534  
Non-performing assets    53,673   41,515  
Non-performing loans to total loans    0.50 % 0.55 %
Non-performing assets to total assets    0.42 % 0.42 %
Allowance for loan losses    $106,314   $57,344  
Allowance for loan losses to total non-performing loans    217.18 % 143.43 %
Allowance for loan losses to total loans    1.09 % 0.79 %
Net loan (recoveries) charge-offs$(59)  5,966  $2,727   8,418  
Annualized net loan (recoveries) charge offs to average total loans % 0.33% 0.05 % 0.16 %
        
Average Balance Sheet Data        
Assets$12,063,681   $9,899,693  $10,811,585   $9,811,371  
Loans, net8,931,927   7,199,945  7,929,687   7,169,099  
Earning assets10,749,395   8,955,859  9,672,290   8,889,786  
Core deposits7,988,166   6,067,107  7,103,221   6,095,784  
Borrowings1,292,646   1,445,112  1,233,580   1,386,349  
Interest-bearing liabilities8,046,751   6,825,203  7,269,066   6,812,752  
Stockholders' equity1,533,771   1,399,583  1,455,235   1,388,838  
Average yield on interest-earning assets3.44 % 4.09% 3.60 % 4.19 %
Average cost of interest-bearing liabilities0.57 % 1.13% 0.72 % 1.10 %
        
Loan Data       
Mortgage loans:       
Residential    $1,320,222   $1,072,701  
Commercial    3,750,639   2,437,210  
Multi-family    1,544,924   1,298,754  
Construction    462,161   399,501  
Total mortgage loans    7,077,947   5,208,166  
Commercial loans    2,290,196   1,659,965  
Consumer loans    406,451   403,576  
Total gross loans    9,774,593   7,271,707  
Premium on purchased loans    1,514   2,716  
Unearned discounts    (26)  (26) 
Net deferred    (19,272)  (7,403) 
Total loans    $9,756,809   $7,266,994  

Notes and Reconciliation of GAAP and Non-GAAP Financial Measures

(Dollars in Thousands, except share data)

The Company has presented the following non-GAAP (U.S. Generally Accepted Accounting Principles) financial measures because it believes that these measures provide useful and comparative information to assess trends in the Company’s results of operations and financial condition.  Presentation of these non-GAAP financial measures is consistent with how the Company evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Company’s industry.  Investors should recognize that the Company’s presentation of these non-GAAP financial measures might not be comparable to similarly-titled measures of other companies.  These non-GAAP financial measures should not be considered a substitute for GAAP basis measures and the Company strongly encourages a review of its condensed consolidated financial statements in their entirety.

(1) Book and Tangible Book Value per Share        
   At September 30, At December 31, 
   2020 2019 2019 
Total stockholders' equity  $1,601,569  $1,397,833  $1,413,840  
Less: total intangible assets  467,128  437,585  437,019  
Total tangible stockholders' equity  $1,134,441  $960,248  $976,821  
         
Shares outstanding  78,481,159  65,760,468  65,787,900  
         
Book value per share (total stockholders' equity/shares outstanding)  $20.41  $21.26  $21.49  
Tangible book value per share (total tangible stockholders' equity/shares outstanding)  $14.45  $14.60  $14.85  
         
(2) Annualized Return on Average Tangible Equity        
 Three Months Ended Nine Months Ended 
 September 30, September 30, 
 2020 2019 2020 2019 
Total average stockholders' equity$1,533,771   $1,399,583  $1,455,235  $1,388,838  
Less: total average intangible assets459,002   438,906  443,975  431,802  
Total average tangible stockholders' equity$1,074,769   $960,677  $1,011,260  $957,036  
         
Net income$27,143   $31,399  $56,384  $86,682  
         
Annualized return on average tangible equity (net income/total average stockholders' equity)10.05 % 12.97% 7.45% 12.11% 
         
(3) Annualized Adjusted Non-Interest Expense to Average Assets        
 Three Months Ended Nine Months Ended 
 September 30, September 30, 
 2020 2019 2020 2019 
Reported non-interest expense$59,783   $49,738  $169,157  $147,848  
Adjustments to non-interest expense:        
Credit loss expense for off-balance sheet credit exposures(575)    5,714    
Merger-related transaction costs and COVID-19 expenses2,157     4,318    
Adjusted non-interest expense$58,201   $49,738  $159,125  $147,848  
Annualized adjusted non-interest expense$231,539   $197,330  $212,554  $197,672  
         
Average assets$12,063,681   $9,899,693  $10,811,585  9,811,371  
         
Annualized adjusted non-interest expense/average assets1.92 % 1.99% 1.97% 2.01% 
         
(4) Efficiency Ratio Calculation        
 Three Months Ended Nine Months Ended 
 September 30, September 30, 
 2020 2019 2020 2019 
Net interest income$81,985   $73,528  $223,833  $225,090  
Non-interest income20,626   18,047  51,982  46,069  
Total income$102,611   $91,575  $275,815  $271,159  
         
Adjusted non-interest expense$58,201   $49,738  $159,125  $147,848  
         
Efficiency ratio (adjusted non-interest expense/income)56.72 % 54.31% 57.69% 54.52% 


PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Net Interest Margin Analysis
Quarterly Average Balances
(Dollars in Thousands) (Unaudited)
            
 September 30, 2020 June 30, 2020
 Average   Average Average   Average
 Balance Interest Yield/Cost Balance Interest Yield/Cost
Interest-Earning Assets:                      
Deposits$80,120  $50  0.25% $157,980  $98  0.25% 
Federal funds sold and other short-term investments134,319  421  1.25% 134,362  487  1.46% 
Available for sale debt securities1,091,524  5,299  1.94% 970,639  5,417  2.23% 
Held to maturity debt securities, net  (1)444,240  2,836  2.55% 444,317  2,885  2.60% 
Equity securities, at fair value845    % 746    % 
Federal Home Loan Bank stock66,420  1,023  6.16% 61,461  862  5.61% 
Net loans:   (2)                      
Total mortgage loans6,392,105  58,897  3.64% 5,261,323  49,297  3.72% 
Total commercial loans2,150,787  20,622  3.78% 1,960,322  18,944  3.85% 
Total consumer loans389,035  4,305  4.40% 366,370  3,547  3.89% 
Total net loans8,931,927  83,824  3.71% 7,588,015  71,788  3.76% 
Total interest-earning assets$10,749,395  $93,453  3.44% $9,357,520  $81,537  3.47% 
                       
Non-Interest Earning Assets:                      
Cash and due from banks301,500         164,086         
Other assets1,012,786         912,252         
Total assets$12,063,681         $10,433,858         
                       
Interest-Bearing Liabilities:                      
Demand deposits$4,557,172  $5,065  0.44% $4,047,493  5,156  0.51% 
Savings deposits1,223,004  439  0.14 % 1,026,325  391  0.15 % 
Time deposits957,512  1,896  0.79 % 605,764  2,095  1.39 % 
Total Deposits6,737,688  7,400  0.44 % 5,679,582  7,642  0.54 % 
                       
Borrowed funds1,292,646  3,862  1.19 % 1,249,741  4,069  1.31 % 
Subordinated debentures16,417   206   4.99 % —   —   — % 
Total interest-bearing liabilities8,046,751  11,468  0.57 % 6,929,323  11,711  0.68 % 
                       
Non-Interest Bearing Liabilities:                      
Non-interest bearing deposits2,207,990         1,847,087         
Other non-interest bearing liabilities275,169         248,124         
Total non-interest bearing liabilities2,483,159         2,095,211         
Total liabilities10,529,910         9,024,534         
Stockholders' equity1,533,771         1,409,324         
Total liabilities and stockholders' equity$12,063,681          $10,433,858          
                       
Net interest income    $81,985          $69,826      
                       
Net interest rate spread        2.87 %         2.79 % 
Net interest-earning assets$2,702,644          $2,428,197          
                       
Net interest margin    (3)        3.01 %         2.97 % 
            
Ratio of interest-earning assets to total interest-bearing liabilities1.34x         1.35x     
   
(1) Average outstanding balance amounts shown are amortized cost, net of allowance for credit losses. 
(2) Average outstanding balances are net of the allowance for loan losses, deferred loan fees and expenses, loan premiums and discounts and include non-accrual loans. 
(3) Annualized net interest income divided by average interest-earning assets. 


The following table summarizes the quarterly net interest margin for the previous five quarters.  
          
 9/30/20 6/31/20 3/31/20 12/31/19 9/30/19
 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
Interest-Earning Assets:         
Securities2.12% 2.21% 2.57% 2.62% 2.71%
Net loans3.71% 3.76% 4.23% 4.32% 4.44%
Total interest-earning assets3.44% 3.47% 3.92% 3.99% 4.09%
          
Interest-Bearing Liabilities:         
Total deposits0.44% 0.54% 0.78% 0.83% 0.87%
Total borrowings1.19% 1.31% 1.80% 1.98% 2.13%
Total interest-bearing liabilities0.57% 0.68% 0.95% 1.04% 1.13%
          
Interest rate spread2.87% 2.79% 2.97% 2.95% 2.96%
Net interest margin3.01% 2.97% 3.20% 3.21% 3.23%
          
Ratio of interest-earning assets to interest-bearing liabilities1.34x  1.35x  1.31x  1.34x  1.31x 


PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Net Interest Margin Analysis
Average Year to Date Balances
(Dollars in Thousands) (Unaudited)
            
 September 30, 2020 September 30, 2019
 Average   Average Average   Average
 Balance Interest Yield/Cost Balance Interest Yield/Cost
Interest-Earning Assets:           
Deposits$87,111  $418  0.64% $29,089  $527  2.42%
Federal funds sold and other short term investments124,280  1,514  1.63% 64,086  1,511  3.15%
Available for sale debt securities1,022,402  16,821  2.19% 1,087,683  21,337  2.62%
Held to maturity debt securities, net  (1)445,882  8,661  2.59% 470,814  9,408  2.66%
Equity securities, at fair value800    % 717    %
Federal Home Loan Bank stock62,128  2,848  6.11% 68,298  3,247  6.34%
Net loans:   (2)           
Total mortgage loans5,641,574  162,635  3.81% 5,094,641  167,051  4.34%
Total commercial loans1,908,588  58,238  4.04% 1,657,138  63,788  5.10%
Total consumer loans379,525  12,024  4.23% 417,320  14,216  4.55%
Total net loans7,929,687  232,897  3.88% 7,169,099  245,055  4.53%
Total interest-earning assets$9,672,290  $263,159  3.60% $8,889,786  $281,085  4.19%
            
Non-Interest Earning Assets:           
Cash and due from banks209,423      96,914     
Other assets929,872      824,671     
Total assets$10,811,585      $9,811,371     
            
Interest-Bearing Liabilities:           
Demand deposits$4,170,286  $17,621  0.56% $3,599,349  $21,944  0.82%
Savings deposits1,080,880  1,197  0.15% 1,024,693  1,287  0.17%
Time deposits778,808  7,182  1.23% 802,361  10,709  1.78%
Total Deposits6,029,974  26,000  0.58% 5,426,403  33,940  0.84%
Borrowed funds1,233,580  13,120  1.42% 1,386,349  22,055  2.13%
Subordinated debentures$5,512  $206  4.99% $  $  %
Total interest-bearing liabilities$7,269,066  $39,326  0.72% $6,812,752  $55,995  1.10%
            
Non-Interest Bearing Liabilities:           
Non-interest bearing deposits1,852,055      1,471,742     
Other non-interest bearing liabilities235,229      138,039     
Total non-interest bearing liabilities2,087,284      1,609,781     
Total liabilities9,356,350      8,422,533     
Stockholders' equity1,455,235      1,388,838     
Total liabilities and stockholders' equity$10,811,585      $9,811,371     
            
Net interest income  $223,833      $225,090   
            
Net interest rate spread    2.88%     3.09%
Net interest-earning assets$2,403,224      $2,077,034     
            
Net interest margin    (3)    3.06%     3.35%
            
Ratio of interest-earning assets to total interest-bearing liabilities1.33x      1.30x     
            
            
(1)  Average outstanding balance amounts shown are amortized cost, net of allowance for credit losses.
(2)  Average outstanding balance are net of the allowance for loan losses, deferred loan fees and expenses, loan premium and discounts and include non-accrual loans.
(3)  Annualized net interest income divided by average interest-earning assets.


The following table summarizes the year-to-date net interest margin for the previous three years.
       
 Nine Months Ended 
 September 30, 2020 September 30, 2019 September 30, 2018 
Interest-Earning Assets:      
Securities2.31% 2.80% 2.69% 
Net loans3.88% 4.53% 4.27% 
Total interest-earning assets3.60% 4.19% 3.98% 
       
Interest-Bearing Liabilities:      
Total deposits0.58% 0.84% 0.53% 
Total borrowings1.42% 2.13% 1.81% 
Total interest-bearing liabilities0.72% 1.10% 0.83% 
       
Interest rate spread2.88% 3.09% 3.15% 
Net interest margin3.06% 3.35% 3.33% 
       
Ratio of interest-earning assets to interest-bearing liabilities1.33x  1.30x  1.29x  
          

 CONTACT: Investor Relations, 1-732-590-9300

Web Site: http://www.Provident.Bank

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