Press Release

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

Company Release - 7/30/2020 8:00 AM ET

ISELIN, N.J., July 30, 2020 (GLOBE NEWSWIRE) -- Provident Financial Services, Inc. (NYSE:PFS) (the “Company”) reported net income of $14.3 million, or $0.22 per basic and diluted share, for the three months ended June 30, 2020, compared to net income of $24.4 million, or $0.38 per basic and diluted share, for the three months ended June 30, 2019. For the six months ended June 30, 2020, the Company reported net income of $29.2 million, or $0.45 per basic and diluted share, compared to net income of $55.3 million, or $0.85 per basic and diluted share, for the same period last year. 

The Company’s earnings for the three and six months ended June 30, 2020 were adversely impacted by elevated provisions for credit losses primarily related to the current weak economic forecast attributable to the COVID-19 pandemic, combined with 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”). For the three and six months ended June 30, 2020, provisions for credit losses and off-balance sheet credit exposures totaled $16.2 million and $31.9 million, respectively. The Company's earnings were further impacted by expenses related to the Company's pending acquisition of SB One Bancorp of $683,000 and $1.1 million, for the three and six months ended June 30, 2020, respectively, and by COVID-19 related costs which totaled $1.0 million for both the three and six months ended June 30, 2020.

Christopher Martin, Chairman, President and Chief Executive Officer commented: “While our markets continue to be impacted by the COVID-19 pandemic, our dedicated employees have worked diligently to deliver a high level of service to our customers in a caring and safe manner. Our second quarter results were adversely affected by an elevated provision for credit losses driven by a negative economic outlook and net interest margin pressure. Despite all this, we were able to deliver strong pre-provision net revenues, and asset quality improved during the quarter. Many of our borrowers granted principal and/or interest deferrals in the first quarter have resumed making full payments. Our strong capital base and favorable funding costs continue to be a source of strength.” Martin further noted: “The closing of our acquisition of SB One Bancorp is scheduled for tomorrow, and we look forward to capitalizing on the growth opportunities, scale and strong management that this strategic transaction affords us.”

Declaration of Quarterly Dividend

The Company’s Board of Directors declared a quarterly cash dividend of $0.23 per common share payable on August 28, 2020, to stockholders of record as of the close of business on August 14, 2020.

Balance Sheet Summary

Total assets at June 30, 2020 were $10.51 billion, a $705.0 million increase from December 31, 2019. The increase in total assets was primarily due to a $433.5 million increase in total loans inclusive of commercial loans made under the Paycheck Protection Program ("PPP"), a $267.0 million increase in cash and cash equivalents and a $73.0 million increase in other assets, partially offset by a $42.1 million decrease in total investments. 

The Company’s loan portfolio increased $433.5 million to $7.77 billion at June 30, 2020, from $7.33 billion at December 31, 2019. For the six months ended June 30, 2020, loan originations, including advances on lines of credit, totaled $1.75 billion, compared with $1.35 billion for the same period in 2019. During the six months ended June 30, 2020, the loan portfolio had net increases of $421.5 million in commercial loans, $98.0 million in commercial mortgage loans, $50.0 million in multi-family mortgage loans and $47.7 million in residential mortgage loans, partially offset by net decreases of $144.8 million in construction loans and $29.7 million in consumer loans. At June 30, 2020, the commercial loan portfolio included $400.3 million of PPP loans. Commercial real estate, commercial and construction loans represented 80.9% of the loan portfolio at June 30, 2020, compared to 80.0% at December 31, 2019. 

At June 30, 2020, the Company’s unfunded loan commitments totaled $1.66 billion, including commitments of $851.0 million in commercial loans, $386.3 million in construction loans and $177.1 million in commercial mortgage loans. Unfunded loan commitments at December 31, 2019 and June 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 $1.30 billion at June 30, 2020, compared to $905.9 million and $978.6 million at December 31, 2019 and June 30, 2019, respectively.

Cash and cash equivalents were $453.8 million at June 30, 2020, a $267.0 million increase from December 31, 2019 primarily as a result of increases in cash collateral pledged to counterparties to secure loan-level swaps and short-term investments.

Total investments were $1.45 billion at June 30, 2020, a $42.1 million decrease from December 31, 2019. This decrease was largely due to repayments of mortgage-backed securities, maturities and calls of certain municipal and agency bonds, partially offset by purchases of mortgage-backed and municipal securities and an increase in unrealized gains on available for sale debt securities.

Total deposits increased $557.5 million during the six months ended June 30, 2020 to $7.66 billion. Total core deposits, consisting of savings and demand deposit accounts, increased $680.0 million to $7.05 billion at June 30, 2020, while total time deposits decreased $122.6 million to $611.5 million at June 30, 2020. The increase in core deposits was largely attributable to a $388.1 million increase in non-interest bearing demand deposits, which benefited from deposits associated with PPP loans and stimulus funding, a $130.3 million increase in interest bearing demand deposits, a $94.5 million increase in money market deposits and a $67.1 million increase in savings deposits. The decrease in time deposits was primarily the result of a $73.7 million decrease in retail time deposits and a $48.9 million decrease in brokered deposits. Core deposits represented 92.0% of total deposits at June 30, 2020, compared to 89.7% at December 31, 2019.

Borrowed funds increased $50.1 million during the six months ended June 30, 2020, to $1.18 billion. The increase in borrowings for the period was driven by asset funding requirements. Borrowed funds represented 11.2% of total assets at June 30, 2020, a decrease from 11.5% at December 31, 2019.

Stockholders’ equity decreased $3.4 million during the six months ended June 30, 2020, to $1.41 billion, primarily due to 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 under the new accounting standard and common stock repurchases, partially offset by net income earned for the period and an increase in unrealized gains on available for sale debt securities. For the three months ended June 30, 2020, common stock repurchases totaled 98,978 shares at an average cost of $13.26, of which 378 shares, at an average cost of $13.66, were made in connection with withholding to cover income taxes on the vesting of stock-based compensation. For the six months ended June 30, 2020, common stock repurchases totaled 385,794 shares at an average cost of $18.79, of which 48,416 shares, at an average cost of $19.84, were made in connection with withholding to cover income taxes on the vesting of stock-based compensation. At June 30, 2020, approximately 1.2 million shares remained eligible for repurchase under the current stock repurchase authorization. Book value per share and tangible book value per share(1) at June 30, 2020 were $21.45 and $14.83, 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 June 30, 2020, net interest income decreased $6.7 million to $69.8 million, from $76.6 million for the same period in 2019. Net interest income for the six months ended June 30, 2020 decreased $9.7 million to $141.8 million, from $151.6 million for the same period in 2019. The decline in net interest income for the three and six months ended June 30, 2020, compared with the three and six months ended June 30, 2019, was primarily due to 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. Net interest income included $1.9 million in interest and fees on PPP loans at an average rate of 2.35% and 2.34%, respectively, for the three and six months ended June 30, 2020. Excluding the impact of PPP loans from both net interest income and average interest-earning assets would result in an increase in the net interest margin of two basis points and one basis point for the three and six months ended June 30, 2020, respectively. For the three and six months ended June 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. For the three and six months ended June 30, 2019, the recognition of this interest income resulted in a 10 and 5 basis point increase in the net interest margin, respectively.

The Company’s net interest margin decreased 23 basis points to 2.97% for the quarter ended June 30, 2020, from 3.20% for the trailing quarter. The yield on interest-earning assets and net interest margin for the three months ended June 30, 2020, was negatively impacted by the downward repricing of certain adjustable rate loans, combined with lower rates on newly originated loans which included PPP loans. The weighted average yield on interest-earning assets decreased 45 basis points to 3.47% for the quarter ended June 30, 2020, compared to 3.92% for the quarter ended March 31, 2020. The weighted average cost of interest-bearing liabilities for the quarter ended June 30, 2020 decreased 27 basis points to 0.68%, compared to 0.95% for the trailing quarter. The average cost of interest bearing deposits for the quarter ended June 30, 2020 was 0.54%, compared to 0.78% for the trailing quarter ended March 31, 2020. Average non-interest bearing demand deposits totaled $1.85 billion for the quarter ended June 30, 2020, compared with $1.50 billion for the trailing quarter ended March 31, 2020. The average cost of all deposits, including non-interest bearing deposits, was 41 basis points for the quarter ended June 30, 2020, compared with 62 basis points for the trailing quarter. The average cost of borrowed funds for the quarter ended June 30, 2020 was 1.31%, compared to 1.80% for the trailing quarter.

The net interest margin decreased 45 basis points to 2.97% for the quarter ended June 30, 2020, compared to 3.42% for the quarter ended June 30, 2019. The weighted average yield on interest-earning assets decreased 81 basis points to 3.47% for the quarter ended June 30, 2020, compared to 4.28% for the quarter ended June 30, 2019, while the weighted average cost of interest bearing liabilities decreased 44 basis points for the quarter ended June 30, 2020 to 0.68%, compared to the second quarter of 2019. The average cost of interest bearing deposits for the quarter ended June 30, 2020 was 0.54%, compared to 0.86% for the same period last year. Average non-interest bearing demand deposits totaled $1.85 billion for the quarter ended June 30, 2020, compared to $1.46 billion for the quarter ended June 30, 2019. The average cost of all deposits, including non-interest bearing deposits, was 41 basis points for the quarter ended June 30, 2020, compared with 68 basis points for the quarter ended June 30, 2019. The average cost of borrowed funds for the quarter ended June 30, 2020 was 1.31%, compared to 2.18% for the same period last year.

For the six months ended June 30, 2020, the net interest margin decreased 32 basis points to 3.09%, compared to 3.41% for the six months ended June 30, 2019. The weighted average yield on interest earning assets declined 54 basis points to 3.70% for the six months ended June 30, 2020, compared to 4.24% for the six months ended June 30, 2019, while the weighted average cost of interest bearing liabilities decreased 27 basis points to 0.81% for the six months ended June 30, 2020, compared to 1.08% for the same period last year. The average cost of interest bearing deposits decreased 16 basis points to 0.66% for the six months ended June 30, 2020, compared to 0.82% for the same period last year. Average non-interest bearing demand deposits totaled $1.67 billion for the six months ended June 30, 2020, compared with $1.45 billion for the six months ended June 30, 2019. The average cost of all deposits, including non-interest bearing deposits, was 51 basis points for the six months ended June 30, 2020, compared with 65 basis points for the six months ended June 30, 2019. The average cost of borrowings for the six months ended June 30, 2020 was 1.55%, compared to 2.12% for the same period last year.

Non-Interest Income

Non-interest income totaled $14.4 million for the quarter ended June 30, 2020, a decrease of $1.5 million, compared to the same period in 2019. Fee income decreased $2.0 million to $4.9 million for the three months ended June 30, 2020, compared to the same period in 2019, largely due to a $1.1 million decrease in deposit related fees, a $262,000 decrease in non-deposit investment fees and a $208,000 decrease in debit card revenue, partially offset by a $173,000 increase in commercial loan prepayment fees. Overall fee income for the quarter was adversely impacted by lower transaction volumes and reduced business opportunities related to the COVID outbreak and related mitigation efforts. Wealth management income decreased $266,000 to $6.0 million for the three months ended June 30, 2020. This decrease in income was largely a function of market declines in the value of assets under management and a decrease in managed mutual fund fees. Partially offsetting these decreases, income from Bank-owned life insurance ("BOLI") increased $574,000 to $1.9 million for the three months ended June 30, 2020, compared to the same period in 2019, primarily due to an increase in benefit claims and higher equity valuations. Also, other income increased $180,000 to $1.6 million for the three months ended June 30, 2020, compared to the quarter ended June 30, 2019, primarily due to a $387,000 increase in net gains on the sale of foreclosed real estate, partially offset by a $206,000 decrease in net fees on loan-level interest rate swap transactions.

For the six months ended June 30, 2020, non-interest income totaled $31.4 million, an increase of $3.3 million, compared to the same period in 2019. Other income increased $3.3 million to $5.0 million for the six months ended June 30, 2020, compared to $1.7 million for the same period in 2019, due to a $2.8 million increase in net fees on loan-level interest rate swap transactions and a $351,000 increase in net gains on the sale of foreclosed real estate. Wealth management income increased $1.9 million to $12.2 million for the six months ended June 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. Partially offsetting these increases, fee income decreased $1.5 million, primarily due to a $1.2 million decrease in deposit related fees, a $115,000 decrease in non-deposit investment fees and a $67,000 decrease in debit card income, all largely due to the effects of COVID-19 and related mitigation efforts, while BOLI income decreased $335,000 to $2.6 million for the six months ended June 30, 2020, compared to the same period in 2019, primarily due to a decrease in equity valuations.

Non-Interest Expense

For the three months ended June 30, 2020, non-interest expense totaled $55.3 million, an increase of $5.6 million, compared to the three months ended June 30, 2019. For the three months ended June 30, 2020, credit loss expense for off-balance sheet credit exposures under the CECL standard accounted for $5.3 million of the $5.6 million increase, due to an increase in loss factors associated with the current economic forecast, an increase in the pipeline of loans approved awaiting closing and an increase in availability on committed lines of credit due to below average utilization. Data processing expense increased $619,000 to $5.0 million for the three months ended June 30, 2020, compared with the same period in 2019, primarily due to increases in software subscription service expense and on-line banking costs. In addition, FDIC insurance increased $340,000 due to increases in both the insurance assessment rate and total assets subject to assessment, partially offset by the receipt of the small bank assessment credit for the first quarter of 2020. Compensation and benefits expense increased $210,000 to $29.2 million for the three months ended June 30, 2020, compared to $29.0 million for the same period in 2019, largely due to an increase in salary expense related to annual merit increases and COVID-19 supplemental pay for branch employees, partially offset by a decrease in stock-based compensation and the increased deferral of salary expense related to PPP loan originations. Partially offsetting these increases, other operating expenses decreased $113,000 to $7.5 million for the three months ended June 30, 2020, compared to the same period in 2019, largely due to decreases in business development and debit card expenses, partially offset by increases in legal and consulting expenses, which included $683,000 related to the pending acquisition of SB One Bancorp.

Non-interest expense totaled $109.4 million for the six months ended June 30, 2020, an increase of $11.3 million, compared to $98.1 million for the six months ended June 30, 2019. For the six months ended June 30, 2020, credit loss expense for off-balance sheet credit exposures was $6.3 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. Compensation and benefits expense increased $3.0 million to $60.4 million for the six months ended June 30, 2020, compared to $57.4 million for the six months ended June 30, 2019, primarily due to additional compensation expense associated with the acquisition of T&L, an increase in executive severance costs and COVID 19 supplemental pay for branch employees, partially offset by the increased deferral of salary expense related to PPP loan originations. Other operating expenses increased $1.9 million to $16.7 million for the six months ended June 30, 2020, compared to the same period in 2019, largely due to an increase in professional service expenses related to the SB One transaction and a market valuation adjustment on foreclosed real estate. Data processing expense increased $1.1 million to $9.4 million for the six months ended June 30, 2020, compared to $8.3 million for the same period in 2019, principally due to increases in software subscription service expense and on-line banking costs. Partially offsetting these increases, net occupancy expense decreased $847,000 to $12.4 million for the six months ended June 30, 2020, compared to the same period in 2019, due to reductions in snow removal and depreciation expenses.

The Company’s annualized adjusted non-interest expense as a percentage of average assets(1) was 1.86% for the quarter ended June 30, 2020, compared to 2.03% for the same period in 2019, with the 2020 improvement driven by the significant increase in average assets largely attributable to PPP loans. For the six months ended June 30, 2020, the Company’s annualized adjusted non-interest expense as a percentage of average assets(1) was 1.99%, compared to 2.03% 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 57.35% and 58.27% for the quarter and six months ended June 30, 2020, respectively, compared to 53.79% and 54.63% for the same respective periods in 2019. 

Asset Quality

The Company’s total non-performing loans at June 30, 2020 were $35.5 million, or 0.46% of total loans, compared to $35.3 million, or 0.48% of total loans at March 31, 2020, and $40.2 million, or 0.55% of total loans at December 31, 2019. The $128,000 increase in non-performing loans at June 30, 2020, compared to the trailing quarter, was due to a $661,000 increase in non-performing residential loans and a $350,000 increase in non-performing consumer loans, partially offset by a $667,000 decrease in non-performing commercial loans and a $216,000 decrease in non-performing commercial mortgage loans. At June 30, 2020, impaired loans totaled $63.1 million with related specific reserves of $3.6 million, compared with impaired loans totaling $65.7 million with related specific reserves of $5.7 million at March 31, 2020. At December 31, 2019, impaired loans totaled $70.6 million with related specific reserves of $5.1 million.

The balance of loans with short-term COVID-19 payment deferrals has been reduced from a peak level of $1.31 billion, or 16.8% of loans, to $394.7 million, or 5.1% of loans. Of the total original $1.31 billion of loans with payment deferrals, $51.5 million are still in the first 90-day deferral period, while $343.2 million have been, or are expected to be, granted a second 90-day deferral. $911.7 million of loans have completed their deferral period, with $380.2 million of those loans having resumed regular contractual payments, and the majority of the remainder expected to do so at their August 1, 2020 due date. Of the $394.7 million of loans granted or expected to be granted deferrals, $129.9 million are secured by hotels with a pre-COVID weighted average loan-to-value of 53%, $123.8 million are secured by retail properties with a pre-COVID weighted average loan-to-value of 66%, and $24.9 million are secured by restaurants with a pre-COVID weighted average loan-to-value of 59%.

At June 30, 2020, the Company’s allowance for credit losses related to the loan portfolio was 1.11% of total loans, compared to 1.02% and 0.76% at March 31, 2020 and December 31, 2019, respectively. The Company recorded provisions for credit losses of $10.9 million and $25.6 million for the three and six months ended June 30, 2020, respectively, compared with provisions of $9.5 million and $9.7 million for the three and six months ended June 30, 2019, respectively. For the three and six months ended June 30, 2020, the Company had net recoveries of $215,000 and net charge-offs of $2.8 million, respectively, compared to net charge-offs of $2.0 million and $2.5 million, respectively, for the same periods in 2019. The allowance for loan losses increased $30.7 million to $86.3 million at June 30, 2020 from $55.5 million at December 31, 2019. The three and six months ended June 30, 2020 included elevated provisions for credit losses primarily due to the current weak economic forecast attributable to the COVID-19 pandemic and the adoption of CECL. 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 June 30, 2020 and December 31, 2019, the Company held foreclosed assets of $3.3 million and $2.7 million, respectively. During the six months ended June 30, 2020, there were three additions to foreclosed assets with a carrying value of $2.5 million and six properties sold with a carrying value of $1.4 million and valuation charges of $548,000. Foreclosed assets at June 30, 2020 consisted of $1.7 million of commercial vehicles, $1.1 million of residential real estate and $449,000 of commercial real estate. Total non-performing assets at June 30, 2020 decreased $4.2 million to $38.7 million, or 0.37% 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 June 30, 2020, the Company’s income tax expense was $3.7 million with an effective tax rate of 20.6%, compared with income tax expense of $8.8 million with an effective tax rate of 26.5%, for the three months ended June 30, 2019. The decreases in tax expense and the effective tax rate for the current quarter compared with the same period last year were largely the result of a decrease in income derived from taxable sources. In addition, the 2019 quarter was impacted by the publication of a technical bulletin by the New Jersey Division of Taxation that specifies the treatment of real estate investment trusts in connection with combined reporting for New Jersey corporate business purposes.

For the six months ended June 30, 2020, the Company's income tax expense was $9.0 million with an effective tax rate of 23.5%, compared with $16.5 million with an effective tax rate of 23.0% for the six months ended June 30, 2019. The decrease in tax expense for the six months ended June 30, 2020 was largely the result of a decrease in income derived from taxable sources. The increase in the effective tax rate for the current year compared to the same period last year was attributable to a discrete item in the first quarter 2020 related to the vesting of stock awards at a market value below the fair value used for expense recognition.

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. The Bank also provides fiduciary and wealth management services through its wholly owned subsidiary, Beacon Trust Company.

Post Earnings Conference Call

Representatives of the Company will hold a conference call for investors on Thursday, July 30, 2020 at 10:00 a.m. Eastern Time to discuss the Company’s financial results for the quarter ended June 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 our business. 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, we 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 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
June 30, 2020 (Unaudited) and December 31, 2019
(Dollars in Thousands)
    
AssetsJune 30, 2020 December 31, 2019
    
Cash and due from banks$318,141  $131,555 
Short-term investments135,622  55,193 
Total cash and cash equivalents453,763  186,748 
    
Available for sale debt securities, at fair value948,614  976,919 
Held to maturity debt securities, net (fair value of $460,674 at June 30, 2020 (unaudited) and $467,966 at December 31, 2019)439,303  453,629 
Equity securities, at fair value806  825 
Federal Home Loan Bank Stock57,880  57,298 
Loans7,766,391  7,332,885 
Less allowance for credit losses86,259  55,525 
Net loans7,680,132  7,277,360 
Foreclosed assets, net3,272  2,715 
Banking premises and equipment, net54,548  55,210 
Accrued interest receivable33,809  29,031 
Intangible assets435,578  437,019 
Bank-owned life insurance196,552  195,533 
Other assets209,282  136,291 
Total assets$10,513,539  $9,808,578 
    
Liabilities and Stockholders' Equity   
    
Deposits:   
Demand deposits$5,997,792  $5,384,868 
Savings deposits1,050,813  983,714 
Certificates of deposit of $100,000 or more338,411  438,551 
Other time deposits273,050  295,476 
Total deposits7,660,066  7,102,609 
Mortgage escrow deposits30,960  26,804 
Borrowed funds1,175,289  1,125,146 
Other liabilities236,817  140,179 
Total liabilities9,103,132  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 65,741,182 shares outstanding at June 30, 2020 and 65,787,900 outstanding at December 31, 2019832  832 
Additional paid-in capital1,009,978  1,007,303 
Retained earnings685,509  695,273 
Accumulated other comprehensive income12,794  3,821 
Treasury stock(275,359) (268,504)
Unallocated common stock held by the Employee Stock Ownership Plan(23,347) (24,885)
Common Stock acquired by the Directors' Deferred Fee Plan(3,498) (3,833)
Deferred Compensation - Directors' Deferred Fee Plan3,498  3,833 
Total stockholders' equity1,410,407  1,413,840 
Total liabilities and stockholders' equity$10,513,539  $9,808,578 



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)
(Dollars in Thousands, except per share data)
        
 Three Months Ended Six Months Ended
 June 30, June 30,
 2020 2019 2020 2019
Interest income:       
Real estate secured loans$49,297  $55,643  $103,738  $110,649 
Commercial loans18,944  23,174  37,616  43,684 
Consumer loans3,547  4,785  7,719  9,568 
Available for sale debt securities, equity securities and Federal Home Loan Bank stock6,279  8,257  13,348  16,666 
Held to maturity debt securities2,885  3,171  5,825  6,333 
Deposits, federal funds sold and other short-term investments585  618  1,460  1,159 
Total interest income81,537  95,648  169,706  188,059 
        
Interest expense:       
Deposits7,641  11,716  18,599  22,210 
Borrowed funds4,068  7,377  9,258  14,287 
Total interest expense11,709  19,093  27,857  36,497 
Net interest income69,828  76,555  141,849  151,562 
Provision for credit losses10,900  9,500  25,617  9,700 
Net interest income after provision for credit losses58,928  67,055  116,232  141,862 
        
Non-interest income:       
Fees4,914  6,886  11,443  12,983 
Wealth management income5,977  6,243  12,228  10,322 
Bank-owned life insurance1,859  1,285  2,646  2,981 
Net gain on securities transactions44  29  55  29 
Other income1,571  1,391  4,984  1,707 
Total non-interest income14,365  15,834  31,356  28,022 
        
Non-interest expense:       
Compensation and employee benefits29,200  28,990  60,395  57,359 
Net occupancy expense6,166  6,359  12,369  13,216 
Data processing expense4,983  4,364  9,413  8,333 
FDIC Insurance768  428  768  1,167 
Amortization of intangibles711  844  1,455  1,334 
Advertising and promotion expense632  1,078  2,001  1,961 
Credit loss expense for off-balance sheet credit exposures5,289    6,289   
Other operating expenses7,518  7,631  16,684  14,740 
Total non-interest expense55,267  49,694  109,374  98,110 
Income before income tax expense18,026  33,195  38,214  71,774 
Income tax expense3,715  8,802  8,972  16,491 
Net income$14,311  $24,393  $29,242  $55,283 
        
Basic earnings per share$0.22  $0.38  $0.45  $0.85 
Average basic shares outstanding64,315,547 64,886,149 64,350,790 64,826,714
        
Diluted earnings per share$0.22  $0.38  $0.45  $0.85 
Average diluted shares outstanding64,400,548 65,016,724 64,428,854 64,965,062



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 June 30, Six months ended June 30,
 2020 2019 2020 2019
Statement of Income       
Net interest income$69,828  $76,555  $141,849  $151,562 
Provision for credit losses10,900  9,500  25,617  9,700 
Non-interest income14,365  15,834  31,356  28,022 
Non-interest expense55,267  49,694  109,374  98,110 
Income before income tax expense18,026  33,195  38,214  71,774 
Net income14,311  24,393  29,242  55,283 
Diluted earnings per share$0.22  $0.38  $0.45  $0.85 
Interest rate spread2.79% 3.16% 2.89% 3.16%
Net interest margin2.97% 3.42% 3.09% 3.41%
        
Profitability       
Annualized return on average assets0.55% 1.00% 0.58% 1.14%
Annualized return on average equity4.08% 7.03% 4.15% 8.06%
Annualized return on average tangible equity (2)5.91% 10.27% 6.01% 11.67%
Annualized non-interest expense to average assets (3)1.86% 2.03% 1.99% 2.03%
Efficiency ratio (4)57.35% 53.79% 58.27% 54.63%
        
Asset Quality       
Non-accrual loans    $35,467  $38,555 
90+ and still accruing       
Non-performing loans    35,467  38,555 
Foreclosed assets    3,272  1,688 
Non-performing assets    38,739  40,243 
Non-performing loans to total loans    0.46% 0.53%
Non-performing assets to total assets    0.37% 0.40%
Allowance for loan losses    $86,259  $62,810 
Allowance for loan losses to total non-performing loans    243.21% 162.91%
Allowance for loan losses to total loans    1.11 0.86%
Net loan (recoveries) charge-offs$(215) 2,043  $2,786  2,452 
Annualized net loan (recoveries) charge offs to average total loans(0.01)% 0.11% 0.07% 0.07%
        
Average Balance Sheet Data        
Assets$10,433,858  $9,811,981  $10,178,658  $9,766,477 
Loans, net7,588,015  7,172,944  7,423,061  7,153,421 
Earning assets9,357,520  8,892,213  9,124,989  8,857,523 
Core deposits6,920,905  6,127,033  6,655,886  6,110,359 
Borrowings1,249,741  1,360,235  1,203,723  1,356,481 
Interest-bearing liabilities6,929,323  6,830,849  6,875,951  6,806,425 
Stockholders' equity1,409,324  1,391,276  1,415,536  1,383,376 
Average yield on interest-earning assets3.47% 4.28% 3.70% 4.24%
Average cost of interest-bearing liabilities0.68% 1.12% 0.81% 1.08%
        
Loan Data       
Mortgage loans:       
Residential    $1,125,946  $1,076,441 
Commercial    2,676,513  2,362,859 
Multi-family    1,275,712  1,351,884 
Construction    284,980  383,233 
Total mortgage loans    5,363,152  5,174,417 
Commercial loans    2,056,213  1,713,127 
Consumer loans    361,653  410,993 
Total gross loans    7,781,018  7,298,537 
Premium on purchased loans    2,032  2,959 
Unearned discounts    (26) (33)
Net deferred    (16,632) (7,728)
Total loans    $7,766,392  $7,293,735 



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 June 30, At December 31,
   2020 2019 2019
Total stockholders' equity  $1,410,407  $1,391,446  $1,413,840 
Less: total intangible assets  435,578  437,606  437,019 
Total tangible stockholders' equity  $974,829  $953,840  $976,821 
        
Shares outstanding  65,741,182  66,405,320  65,787,900 
        
Book value per share (total stockholders' equity/shares outstanding)  $21.45  $20.95  $21.49 
Tangible book value per share (total tangible stockholders' equity/shares outstanding)  $14.83  $14.36  $14.85 
        
(2) Annualized Return on Average Tangible Equity       
 Three Months Ended Six Months Ended
 June 30, June 30,
 2020 2019 2020 2019
Total average stockholders' equity$1,409,324  $1,391,276  $1,415,536  $1,383,376 
Less: total average intangible assets436,021  438,269  436,389  428,190 
Total average tangible stockholders' equity$973,303  $953,007  $979,147  $955,186 
        
Net income$14,311  $24,393  $29,242  $55,283 
        
Annualized return on average tangible equity (net income/total average stockholders' equity)5.91% 10.27% 6.01% 11.67%
        
(3) Annualized Adjusted Non-Interest Expense to Average Assets       
 Three Months Ended Six Months Ended
 June 30, June 30,
 2020 2019 2020 2019
Reported non-interest expense$55,267  $49,694  $109,374  $98,110 
Adjustments to non-interest expense:       
Credit loss expense for off-balance sheet credit exposures5,289    6,289   
Merger-related transaction costs and COVID-19 expenses1,691    2,161   
Adjusted non-interest expense$48,287  $49,694  $100,924  $98,110 
Annualized adjusted non-interest expense$194,209  $199,322  $202,957  $197,846 
        
Average assets$10,433,858  $9,811,981  $10,178,658  9,766,477 
        
Annualized adjusted non-interest expense/average assets1.86% 2.03% 1.99% 2.03%
        
(4) Efficiency Ratio Calculation       
 Three Months Ended Six Months Ended
 June 30, June 30,
 2020 2019 2020 2019
Net interest income$69,828  $76,555  $141,849  $151,562 
Non-interest income14,365  15,834  31,356  28,022 
Total income$84,193  $92,389  $173,205  $179,584 
        
Adjusted non-interest expense$48,287  $49,694  $100,924  $98,110 
        
Efficiency ratio (adjusted non-interest expense/income)57.35% 53.79% 58.27% 54.63%





PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Net Interest Margin Analysis
Quarterly Average Balances
(Unaudited) (Dollars in Thousands)
            
 June 30, 2020 March 31, 2020
 Average   Average Average   Average
 Balance Interest Yield/Cost Balance Interest Yield/Cost
Interest-Earning Assets:           
Deposits$157,980  $98  0.25% $76,080  $269  1.42%
Federal funds sold and other short-term investments134,362 487  1.46% 104,050 606  2.34%
Available for sale debt securities970,639 5,417 2.23% 1,004,282 6,106 2.43%
Held to maturity debt securities, net (1)444,317 2,885 2.60% 449,107 2,940 2.62%
Equity Securities, at fair value746    % 806    %
Federal Home Loan Bank stock61,461 862 5.61% 58,455 963 6.59%
Net loans: (2)           
Total mortgage loans5,261,323 49,297 3.72% 5,263,048 54,441 4.11%
Total commercial loans1,960,322 18,944 3.85% 1,611,993 18,672 4.61%
Total consumer loans366,370 3,547 3.89% 383,064 4,172 4.38%
Total net loans7,588,015 71,788 3.76% 7,258,105 77,285 4.23%
Total interest-earning assets$9,357,520  $81,537  3.47% $8,950,885  $88,169  3.92%
            
Non-Interest Earning Assets:           
Cash and due from banks164,086     108,901    
Other assets912,252      863,671    
Total Assets$10,433,858      $9,923,457     
            
Interest-Bearing Liabilities:           
Demand deposits$4,047,493  $5,156  0.51% $3,901,940  7,399 0.76%
Savings deposits1,026,325 391 0.15% 991,750 368 0.15%
Time deposits605,764 2,095 1.39% 771,183 3,191 1.66%
Total Deposits5,679,582 7,642 0.54% 5,664,873 10,958 0.78%
            
Borrowed funds1,249,741 4,069 1.31% 1,157,705 5,190 1.80%
Total interest-bearing liabilities6,929,323 11,711 0.68% 6,822,578 16,148 0.95%
            
Non-Interest Bearing Liabilities:           
Non-interest bearing deposits1,847,087     1,497,177    
Other non-interest bearing liabilities248,124     181,954    
Total non-interest bearing liabilities2,095,211     1,679,131    
Total Liabilities9,024,534     8,501,709    
Stockholders' equity1,409,324     1,421,748    
Total Liabilities and Stockholders' Equity$10,433,858      $9,923,457     
            
Net interest income  $69,826      $72,021   
            
Net interest rate spread    2.79%     2.97%
Net interest-earning assets$2,428,197      $2,128,307     
            
Net interest margin (3)    2.97%     3.20%
            
Ratio of interest-earning assets to total interest-bearing liabilities1.35x     1.31x    
            


  
(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.  
          
 6/31/20 3/31/20 12/31/19 9/30/19 6/30/19
 3rd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
Interest-Earning Assets:         
Securities2.21 % 2.57 % 2.62 % 2.71 % 2.80 %
Net loans3.76 % 4.23 % 4.32 % 4.44 % 4.63 %
Total interest-earning assets3.47 % 3.92 % 3.99 % 4.09 % 4.28 %
          
Interest-Bearing Liabilities:         
Total deposits0.54 % 0.78 % 0.83 % 0.87 % 0.86 %
Total borrowings1.31 % 1.80 % 1.98 % 2.13 % 2.18 %
Total interest-bearing liabilities0.68 % 0.95 % 1.04 % 1.13 % 1.12 %
          
Interest rate spread2.79 % 2.97 % 2.95 % 2.96 % 3.16 %
Net interest margin2.97 % 3.20 % 3.21 % 3.23 % 3.42 %
          
Ratio of interest-earning assets to interest-bearing liabilities1.35x 1.31x 1.34x 1.31x 1.30x




PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Net Interest Margin Analysis
Average Year to Date Balances
(Unaudited) (Dollars in Thousands)
            
 June 30, 2020 June 30, 2019
 Average   Average Average   Average
 Balance Interest Yield/Cost Balance Interest Yield/Cost
Interest-Earning Assets:           
Deposits$87,814  $368  0.84% $17,953  $222  2.50%
Federal funds sold and other short term investments119,206  1,093  1.84% 57,835  937  3.27%
Available for sale debt securities987,461  11,522  2.33% 1,086,800  14,486  2.67%
Held to maturity debt securities, net (1)446,712  5,825  2.61% 473,993  6,333  2.67%
Equity securities, at fair value777    % 701    %
Federal Home Loan Bank stock59,958  1,825  6.09% 66,820  2,180  6.53%
Net loans: (2)           
Total mortgage loans5,262,186  103,738  3.91% 5,066,950  110,649  4.35%
Total commercial loans1,786,158  37,616  4.19% 1,663,910  43,684  5.25%
Total consumer loans374,717  7,719  4.14% 422,561  9,568  4.57%
Total net loans7,423,061  149,073  3.99% 7,153,421  163,901  4.57%
Total interest-earning assets$9,124,989  $169,706  3.70% $8,857,523  $188,059  4.24%
            
Non-Interest Earning Assets:           
Cash and due from banks165,710      92,010     
Other assets887,959      816,944     
Total Assets$10,178,658      $9,766,477     
            
Interest-Bearing Liabilities:           
Demand deposits$3,974,717  $12,556  0.64% $3,619,955  $14,483  0.81%
Savings deposits1,009,037  758  0.15% 1,040,204  900  0.17%
Time deposits688,474  5,285  1.54% 789,785  6,827  1.74%
Total Deposits5,672,228  18,599  0.66% 5,449,944  22,210  0.82%
Borrowed funds1,203,723  9,258  1.55% 1,356,481  14,287  2.12%
Total interest-bearing liabilities$6,875,951  $27,857  0.81% $6,806,425  $36,497  1.08%
            
Non-Interest Bearing Liabilities:           
Non-interest bearing deposits1,672,132      1,450,200     
Other non-interest bearing liabilities215,039      126,476     
Total non-interest bearing liabilities1,887,171      1,576,676     
Total Liabilities8,763,122      8,383,101     
Stockholders' equity1,415,536      1,383,376     
Total Liabilities and Stockholders' Equity$10,178,658      $9,766,477     
            
Net interest income  $141,849      $151,562   
            
Net interest rate spread    2.89%     3.16%
Net interest-earning assets$2,249,038      $2,051,098     
            
Net interest margin (3)    3.09%     3.41%
            
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.
      
 Six Months Ended
 June 30, 2020 June 30, 2019 June 30, 2018
Interest-Earning Assets:     
Securities2.42 % 2.84 % 2.67 %
Net loans3.99 % 4.57 % 4.22 %
Total interest-earning assets3.70 % 4.24 % 3.93 %
      
Interest-Bearing Liabilities:     
Total deposits0.66 % 0.82 % 0.50 %
Total borrowings1.55 % 2.12 % 1.76 %
Total interest-bearing liabilities0.81 % 1.08 % 0.79 %
      
Interest rate spread2.89 % 3.16 % 3.14 %
Net interest margin3.09 % 3.41 % 3.31 %
      
Ratio of interest-earning assets to interest-bearing liabilities1.33x 1.30x 1.28x


SOURCE: Provident Financial Services, Inc.

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

Web Site: http://www.Provident.Bank


 


Provident Financial Services, Inc. Logo

Source: Provident Financial Services, Inc.