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

ISELIN, N.J., Oct. 30, 2015 (GLOBE NEWSWIRE) — Provident Financial Services, Inc. (NYSE:PFS) (the “Company”) reported net income of $20.6 million, or $0.33 per basic and diluted share for the three months ended September 30, 2015, compared to net income of $19.0 million, or $0.30 per basic and diluted share for the three months ended September 30, 2014.  For the nine months ended September 30, 2015, the Company reported net income of $62.2 million, or $0.99 per basic and diluted share, compared to net income of $52.4 million, or $0.88 per basic and diluted share for the same period last year. 

Earnings for the three and nine months ended September 30, 2015 were favorably impacted by year-over-year growth in both average loans outstanding and average non-interest bearing deposits, growth in wealth management income and further improvement in asset quality.  These factors helped mitigate the impact of compression in the net interest margin.

During the nine months ended September 30, 2015, the Company incurred non-recurring items associated with the April 1, 2015 acquisition of The MDE Group and the equity interests of Acertus Capital Management, LLC (together “MDE”), and during the three and nine months ended September 30, 2014, the Company incurred non-recurring items associated with the May 30, 2014 acquisition of Team Capital Bank (“Team Capital”).  The nine months ended September 30, 2014 were further impacted by a non-cash charge resulting from the recognition of a pro rata portion of unrealized losses related to lump sum distributions from the Company’s frozen pension plan.  Excluding these non-recurring items, core earnings(1) for the three and nine months ended September 30, 2015 were $20.6 million, or $0.33 per diluted share, and $62.5 million, or $0.99 per diluted share, respectively, compared to $21.2 million, or $0.34 per diluted share, and $56.7 million, or $0.95 per diluted share for the three and nine months ended September 30, 2014, respectively.

Christopher Martin, Chairman, President and Chief Executive Officer commented: “While the benefits of certain less predictable non-interest income items such as loan-level interest rate swap and prepayment fees that we experienced in the second quarter did not extend to the current period, other elements of our core business performed admirably in the third quarter.  Average loans increased at an annualized 8.5% pace, while average non-interest bearing deposits grew 19%, annualized for the quarter.  As a result, our quarterly net interest income increased despite the continued margin pressure our industry faces in this prolonged low rate environment.” Martin continued: “Asset quality also continued to improve, with non-performing loans decreasing to 0.62% of loans, and annualized net charge-offs amounting to just four basis points of average loans.”

Declaration of Quarterly Dividend

The Company’s Board of Directors declared a quarterly cash dividend of $0.17 per common share payable on November 27, 2015, to stockholders of record as of the close of business on November 13, 2015.  The dividend is an increase of 6.3% from the prior quarter’s regular cash dividend of $0.16 per common share.

Balance Sheet Summary

Total assets increased $335.2 million to $8.86 billion at September 30, 2015, from $8.52 billion at December 31, 2014, primarily due to a $345.4 million increase in total loans and a $24.6 million increase in intangible assets, partially offset by a $68.2 million decrease in total investments.

The Company’s loan portfolio increased $345.4 million, or 5.7%, to $6.43 billion at September 30, 2015, from $6.09 billion at December 31, 2014.  Loan originations totaled $1.98 billion and loan purchases totaled $76.5 million for the nine months ended September 30, 2015.  The loan portfolio had net increases of $151.5 million in multi-family mortgage loans, $81.4 million in commercial mortgage loans, $81.2 million in construction loans, $61.5 million in commercial loans and $5.5 million in residential mortgage loans, partially offset by a $35.9 million net decrease in consumer loans.  Commercial real estate, commercial and construction loans represented 71.5% of the loan portfolio at September 30, 2015, compared to 69.4% at December 31, 2014. 

At September 30, 2015, the Company’s unfunded loan commitments totaled $1.20 billion, including commitments of $543.5 million in commercial loans, $257.9 million in construction loans and $83.7 million in commercial mortgage loans.  Unfunded loan commitments at December 31, 2014 and September 30, 2014 were $1.21 billion and $1.26 billion, respectively.

Total investments decreased $68.2 million, or 4.2%, to $1.55 billion at September 30, 2015, from $1.61 billion at December 31, 2014, largely due to principal repayments on mortgage-backed securities, maturities of municipal and agency bonds and sales of certain mortgage-backed securities, partially offset by purchases of mortgage-backed and municipal securities.

For the nine months ended September 30, 2015, intangible assets increased $24.6 million, primarily related to the acquisition of MDE, partially offset by scheduled amortization.

Total deposits increased $33.1 million during the nine months ended September 30, 2015, to $5.83 billion.  Total core deposits, which consist of savings and demand deposit accounts, increased $99.7 million to $5.07 billion at September 30, 2015, while time deposits decreased $66.6 million to $759.1 million at September 30, 2015.  The increase in core deposits was largely attributable to a $93.6 million increase in non-interest bearing demand deposits and a $22.1 million increase in interest bearing demand deposits.  These increases were partially offset by a $12.5 million decrease and a $3.5 million decrease in savings and money market deposits, respectively.  At September 30, 2015, non-interest bearing deposits totaled $1.14 billion, compared to $1.05 billion at December 31, 2014.  Core deposits represented 87.0% of total deposits at September 30, 2015, compared to 85.7% at December 31, 2014.

Borrowed funds increased $250.8 million, or 16.6% during the nine months ended September 30, 2015, to $1.76 billion.  Borrowed funds represented 19.9% of total assets at September 30, 2015, an increase from 17.7% at December 31, 2014.

Stockholders’ equity increased $39.9 million, or 3.5% for the nine months ended September 30, 2015, to $1.18 billion, due to net income earned for the period and an increase in unrealized gains on securities available for sale, partially offset by dividends paid to stockholders.  For the nine months ended September 30, 2015, common stock repurchases made in connection with withholding to cover income taxes on stock-based compensation totaled 106,521 shares at an average cost of $18.28 per share.  At September 30, 2015, 3.3 million shares remained eligible for repurchase under the current authorization.  Book value per share and tangible book value per share(1) at September 30, 2015 were $18.11 and $11.55, respectively, compared with $17.63 and $11.40, respectively, at December 31, 2014.

Results of Operations

Net Interest Income and Net Interest Margin

For the three months ended September 30, 2015, net interest income decreased $422,000 to $62.5 million, from $63.0 million for the same period in 2014.  The decline in net interest income for the quarter ended September 30, 2015 was primarily due to compression in the net interest margin, which outpaced the impact of growth in earning assets.  Net interest income for the nine months ended September 30, 2015 increased $10.6 million, to $186.1 million, from $175.6 million for the same period in 2014.  The improvement in net interest income for the nine months ended September 30, 2015 was primarily attributable to growth in average loans outstanding resulting from loans acquired from Team Capital and organic originations and increases in average non-interest bearing demand deposits, partially offset by period-over-period compression in the net interest margin. 

The Company’s net interest margin decreased 4 basis points to 3.13% for the quarter ended September 30, 2015, from 3.17% for the trailing quarter.  The weighted average yield on interest-earning assets decreased 5 basis points to 3.66% for the quarter ended September 30, 2015, compared with 3.71% for the quarter ended June 30, 2015.  The weighted average cost of interest-bearing liabilities for the quarter ended September 30, 2015 was 0.65%, a 2 basis point decrease from the trailing quarter.  The average cost of interest bearing deposits for the quarter ended September 30, 2015 was 0.31%, unchanged from the quarter ended June 30, 2015.  Average non-interest bearing demand deposits totaled $1.15 billion for the quarter ended September 30, 2015, compared with $1.10 billion for the quarter ended June 30, 2015.  The average cost of borrowed funds for the quarter ended September 30, 2015 was 1.61%, compared with 1.77% for the trailing quarter.

The net interest margin decreased 17 basis points to 3.13% for the quarter ended September 30, 2015, compared with 3.30% for the quarter ended September 30, 2014.  The weighted average yield on interest-earning assets decreased 20 basis points to 3.66% for the quarter ended September 30, 2015, compared with 3.86% for the quarter ended September 30, 2014, while the weighted average cost of interest bearing liabilities decreased 3 basis points to 0.65% for the quarter ended September 30, 2015, compared with 0.68% for the third quarter of 2014.  The average cost of interest bearing deposits for the quarter ended September 30, 2015 was 0.31%, compared with 0.34% for the same period last year.  Average non-interest bearing demand deposits totaled $1.15 billion for the quarter ended September 30, 2015, compared with $1.03 billion for the quarter ended September 30, 2014.  The average cost of borrowed funds for the quarter ended September 30, 2015 was 1.61%, compared with 1.87% for the same period last year.

For the nine months ended September 30, 2015, the net interest margin decreased 9 basis points to 3.18%, compared with 3.27% for the nine months ended September 30, 2014.  The weighted average yield on interest earning assets declined 12 basis points to 3.72% for the nine months ended September 30, 2015, compared with 3.84% for the nine months ended September 30, 2014, while the weighted average cost of interest bearing liabilities decreased 3 basis points to 0.66% for the nine months ended September 30, 2015, compared with 0.69% for the nine months ended September 30, 2014.  The average cost of interest bearing deposits for the nine months ended September 30, 2015 was 0.31%, compared with 0.34% for the same period last year.  Average non-interest bearing demand deposits totaled $1.10 billion for the nine months ended September 30, 2015, compared with $0.9344 million for the nine months ended September 30, 2014.  The average cost of borrowings for the nine months ended September 30, 2015 was 1.73%, compared with 1.90% for the same period last year. 

Non-Interest Income

Non-interest income totaled $12.1 million for the quarter ended September 30, 2015, an increase of $801,000, or 7.1%, compared to the same period in 2014.  Wealth management income increased $2.4 million, to $4.8 million  for the three months ended September 30, 2015, compared to $2.4 million for the same period in 2014.  The increase in wealth management income was primarily attributable to fees earned from assets under management acquired in the MDE transaction.  Other income decreased $1.1 million for the three months ended September 30, 2015, compared to the same period in 2014, primarily due to an $809,000 decrease in fees associated with loan-level interest rate swap transactions, combined with a $209,000 decrease in net gains recognized on loan sales.  In addition, net gains on securities transactions decreased $482,000 for the three months ended September 30, 2015, compared to the same period in 2014.

For the nine months ended September 30, 2015, non-interest income totaled $39.4 million, an increase of $9.6 million, or 32.3%, compared to the same period in 2014.  Wealth management income increased $5.4 million to $12.4 million for the nine months ended September 30, 2015, largely due to $4.7 million of fees resulting from assets under management acquired in the MDE transaction, combined with $675,000 of increased fee income from the Company’s existing wealth management business.  Fee income increased $3.5 million to $19.5 million for the nine months ended September 30, 2015, compared with the same period in 2014, largely due to a $1.8 million increase in prepayment fees on commercial loans, an $822,000 increase in ATM and debit card revenue and a $631,000 increase in overdraft fees.  Also contributing to the increase in non-interest income, other income increased $631,000 for the nine months ended September 30, 2015, compared with the same period in 2014, primarily due to a $1.5 million increase in net fees recognized on loan-level interest rate swaps, partially offset by a non-recurring $486,000 net gain recognized on the prepayment of FHLB borrowings acquired from Team Capital in the prior year period and a $261,000 decrease in net gains recognized on the sale of foreclosed real estate.  Net gains on securities transactions for the nine months ended September 30, 2015 increased $403,000 compared to the same period in 2014.

Non-Interest Expense

For the three months ended September 30, 2015, non-interest expense decreased $2.2 million to $43.6 million, compared to the three months ended September 30, 2014.  Data processing expense decreased $1.8 million to $3.2 million for the three months ended September 30, 2015, compared to $5.0 million for the same period in 2014, principally due to $2.1 million of non-recurring core system contract termination costs related to the Team Capital acquisition recognized in the third quarter of 2014, partially offset by increased software maintenance costs in the current quarter.  Advertising and promotion expense decreased $683,000 to $598,000 for the quarter ended September 30, 2015, compared to $1.3 million for the same quarter in 2014, largely due to post-merger promotional activities within markets served by Team Capital in the third quarter of 2014.  In addition, compensation and benefits expense decreased $163,000 to $24.8 million for the three months ended September 30, 2015, compared to the three months ended September 30, 2014, primarily due to $922,000 of severance and retention expense associated with the Team Capital acquisition in the third quarter of 2014 and a decrease in stock-based compensation expense.  These decreases were partially offset by increases in salary expense associated with the addition of former MDE employees, annual merit increases and increased employee medical and retirement benefit costs.  Partially offsetting these decreases in non-interest expense, net occupancy costs increased $236,000 to $6.2 million for the quarter ended September 30, 2015, compared to same quarter in 2014, due to increases in depreciation expense and real estate taxes, partially offset by lower facility maintenance costs.  Also, FDIC insurance costs increased $132,000 to $1.3 million for the three months ended September 30, 2015, compared to the same period in 2014, due to an increase in total assets subject to assessment.

The Company’s annualized core non-interest expense as a percentage of average assets(1) was 1.97% for the quarter ended September 30, 2015, compared with 1.99% for the same period in 2014.  The efficiency ratio (core non-interest expense divided by the sum of net interest income and core non-interest income)(1) was 58.42% for the quarter ended September 30, 2015, compared with 56.70% for the same period in 2014. 

Non-interest expense for the nine months ended September 30, 2015 was $133.2 million, an increase of $5.5 million from the nine months ended September 30, 2014.  Compensation and benefits expense increased $3.5 million to $73.4 million for the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014, due to increased salary expense associated with new employees from both Team Capital and MDE, additional salary expense associated with annual merit increases, and an increase in the accrual for incentive compensation, partially offset by lower stock based compensation, severance and pension costs.  Net occupancy costs increased $2.3 million, to $19.9 million for the nine months ended September 30, 2015, compared to same period in 2014, principally due to additional costs related to facilities acquired in the Team Capital acquisition and increased depreciation expense.  The amortization of intangibles increased $1.3 million for the nine months ended September 30, 2015, compared with the same period in 2014, primarily due to increases in both the core deposit intangible and customer relationship intangible amortization related to the Team Capital and MDE acquisitions, respectively.  Partially offsetting these increases in non-interest expense, data processing expense decreased $1.2 million to $9.4 million for the nine months ended September 30, 2015, compared to $10.6 million for the same period in 2014, principally due to $2.1 million of non-recurring core system contract termination costs related to the Team Capital acquisition in 2014, partially offset by increased software maintenance costs and telecommunication expenses.  Advertising and promotion expense decreased $687,000 to $2.7 million for the nine months ended September 30, 2015, compared to $3.4 million for the same period in 2014, largely due to post-merger promotional activities within the former Team Capital markets in 2014.

Asset Quality

The Company’s total non-performing loans at September 30, 2015 were $39.6 million, or 0.62% of total loans, compared with $46.1 million, or 0.73% of total loans at June 30, 2015 and $64.1 million, or 1.07% of total loans at September 30, 2014.  The $6.4 million decrease in non-performing loans at September 30, 2015, compared with the trailing quarter, was due to a $14.7 million decrease in non-performing commercial mortgage loans and an $85,000 decrease in non-performing residential mortgages, partially offset by a $6.1 million increase in non-performing commercial loans, a $2.1 million increase in non-performing construction loans and a $165,000 increase in non-performing consumer loans.  At September 30, 2015, impaired loans totaled $67.9 million with related specific reserves of $2.4 million, compared with impaired loans totaling $83.0 million with related specific reserves of $2.7 million at June 30, 2015.  At September 30, 2014, impaired loans totaled $93.5 million with related specific reserves of $8.3 million.  Non-performing loans do not include purchased credit impaired (“PCI”) loans acquired from Team Capital.  At September 30, 2015, PCI loans totaled $3.7 million, compared to $3.8 million at June 30, 2015.

At September 30, 2015, the Company’s allowance for loan losses was 0.94% of total loans, a decrease from 0.95% at June 30, 2015, and a decrease from 1.06% of total loans at September 30, 2014.  The decline in this ratio from the quarter ended September 30, 2014, was the result of an overall improvement in asset quality, including continued declines in non-performing and delinquent loans.  The Company recorded provisions for loan losses of $1.4 million and $3.1 million for the three and nine months ended September 30, 2015, respectively, compared with provisions of $1.5 million and $3.4 million for the three and nine months ended September 30, 2014, respectively.  For the three and nine months ended September 30, 2015, the Company had net charge-offs of $560,000 and $4.4 million, respectively, compared with net charge-offs of $2.0 million and $4.7 million, respectively, for the same periods in 2014.  The allowance for loan losses decreased $1.3 million to $60.5 million at September 30, 2015, from $61.7 million at December 31, 2014.

At September 30, 2015, the Company held $10.1 million of foreclosed assets, compared with $5.1 million at December 31, 2014.  Foreclosed assets at September 30, 2015 consisted primarily of $5.4 million of commercial real estate and $4.6 million of residential real estate.  Total non-performing assets at September 30, 2015 declined $9.2 million, or 15.6%, to $49.8 million, or 0.56% of total assets, from $59.0 million, or 0.69% of total assets at December 31, 2014.

Income Tax Expense

For the three and nine months ended September 30, 2015, the Company’s income tax expense was $9.0 million and $27.0 million, respectively, compared with $7.9 million and $21.8 million, for the three and nine months ended September 30, 2014, respectively.  The increase in income tax expense was a function of growth in pre-tax income for the three and nine months ended September 30, 2015.  The Company’s effective tax rates were 30.5% and 30.3% for the three and nine months ended September 30, 2015, respectively, compared with 29.4% for both the three and nine months ended September 30, 2014, as a greater proportion of income was derived from taxable sources in the current year periods. 

About the Company

Provident Financial Services, Inc. is the holding company for The Provident Bank, a community-oriented bank offering “commitment you can count on” since 1839.  The 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 at 10:00 a.m. Eastern Time on Friday, October 30, 2015 regarding highlights of the Company’s third quarter financial results.  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 www.providentnj.com 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,” “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, or 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 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.

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) Core earnings, tangible book value per share, return on average tangible equity, annualized core non-interest expense as a percentage of average assets and the efficiency ratio are non-GAAP financial measures.  Please refer to the Notes on pages  10 and 11 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, 2015 (Unaudited) and December 31, 2014
(Dollars in Thousands)
       
Assets September 30, 2015   December 31, 2014
       
Cash and due from banks $ 127,105     $ 102,484  
Short-term investments 1,328     1,278  
Total cash and cash equivalents 128,433     103,762  
Securities available for sale, at fair value 994,771     1,074,395  
           
Investment securities held to maturity (fair value of $482,495 at September 30, 2015 (unaudited) and $482,473 at December 31, 2014) 471,723     469,528  
Federal Home Loan Bank Stock 78,974     69,789  
Loans 6,430,944     6,085,505  
Less allowance for loan losses 60,464     61,734  
Net loans 6,370,480     6,023,771  
Foreclosed assets, net 10,128     5,098  
Banking premises and equipment, net 90,395     92,990  
Accrued interest receivable 24,234     25,228  
Intangible assets 429,001     404,422  
Bank-owned life insurance 181,625     177,712  
Other assets 78,824     76,682  
Total assets $ 8,858,588     $ 8,523,377  
       
Liabilities and Stockholders’ Equity      
       
Deposits:      
Demand deposits $ 4,083,741     $ 3,971,487  
Savings deposits 982,815     995,347  
Certificates of deposit of $100,000 or more 328,734     342,072  
Other time deposits 430,323     483,617  
Total deposits 5,825,613     5,792,523  
Mortgage escrow deposits 24,120     21,649  
Borrowed funds 1,760,628     1,509,851  
Other liabilities 64,254     55,255  
Total liabilities 7,674,615     7,379,278  
       
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 65,378,205 outstanding at September 30, 2015 and 64,905,905 outstanding at December 31, 2014 832     832  
Additional paid-in capital 999,236     995,053  
Retained earnings 495,673     465,276  
Accumulated other comprehensive income 2,098     29  
Treasury stock (270,502 )   (271,779 )
Unallocated common stock held by the Employee Stock Ownership Plan (43,364 )   (45,312 )
Common Stock acquired by the Directors’ Deferred Fee Plan (6,708 )   (7,113 )
Deferred Compensation – Directors’ Deferred Fee Plan 6,708     7,113  
Total stockholders’ equity 1,183,973     1,144,099  
Total liabilities and stockholders’ equity $ 8,858,588     $ 8,523,377  

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited)
(Dollars in Thousands, except per share data)
               
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
Interest income:              
Real estate secured loans $ 44,541     $ 43,837     $ 131,424     $ 122,770  
Commercial loans 13,767     13,961     40,875     36,056  
Consumer loans 5,646     6,106     17,234     17,637  
Securities available for sale and Federal Home Loan Bank stock 5,672     6,410     17,708     20,155  
Investment securities held to maturity 3,368     3,323     10,150     8,899  
Deposits, federal funds sold and other short-term investments 19     15     41     44  
Total interest income 73,013     73,652     217,432     205,561  
               
Interest expense:              
Deposits 3,639     4,054     10,851     11,479  
Borrowed funds 6,827     6,629     20,432     18,511  
Total interest expense 10,466     10,683     31,283     29,990  
Net interest income 62,547     62,969     186,149     175,571  
Provision for loan losses 1,400     1,500     3,100     3,400  
Net interest income after provision for loan losses 61,147     61,469     183,049     172,171  
               
Non-interest income:              
Fees 6,230     6,126     19,465     16,002  
Wealth management income 4,750     2,386     12,405     6,984  
Bank-owned life insurance 1,247     1,349     3,913     4,228  
Net gain on securities transactions 5     487     650     247  
Other income (122 )   961     2,922     2,291  
Total non-interest income 12,110     11,309     39,355     29,752  
               
Non-interest expense:              
Compensation and employee benefits 24,784     24,947     73,399     69,921  
Net occupancy expense 6,186     5,950     19,935     17,662  
Data processing expense 3,239     5,029     9,425     10,587  
FDIC Insurance 1,273     1,141     3,763     3,421  
Amortization of intangibles 1,012     976     3,063     1,778  
Advertising and promotion expense 598     1,281     2,740     3,427  
Other operating expenses 6,522     6,509     20,845     20,898  
Total non-interest expense 43,614     45,833     133,170     127,694  
Income before income tax expense 29,643     26,945     89,234     74,229  
Income tax expense 9,034     7,913     27,027     21,817  
Net income $ 20,609     $ 19,032     $ 62,207     $ 52,412  
               
Basic earnings per share $ 0.33     $ 0.30     $ 0.99     $ 0.88  
Average basic shares outstanding   63,034,185       62,440,310       62,868,745       59,670,773  
               
Diluted earnings per share $ 0.33     $ 0.30     $ 0.99     $ 0.88  
Average diluted shares outstanding   63,198,299       62,559,207       63,029,389       59,804,205  

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   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
STATEMENTS OF INCOME:              
Net interest income $ 62,547       $ 62,969       $ 186,149       $ 175,571    
Provision for loan losses   1,400         1,500         3,100         3,400    
Non-interest income   12,110         11,309         39,355         29,752    
Non-interest expense   43,614         45,833         133,170         127,694    
Income before income tax expense   29,643         26,945         89,234         74,229    
Net income   20,609         19,032         62,207         52,412    
Diluted earnings per share $ 0.33       $ 0.30       $ 0.99       $ 0.88    
Interest rate spread   3.01       3.18       3.06       3.15  
Net interest margin   3.13       3.30       3.18       3.27  
               
PROFITABILITY:              
Annualized return on average assets   0.93       0.90       0.96       0.89  
Annualized return on average equity   6.93       6.68       7.11       6.53  
Annualized return on average tangible equity (3)   10.93       10.42       11.12       10.08  
Annualized core non-interest expense to average assets (4)   1.97       1.99       2.05       2.03  
Efficiency ratio (5)   58.42       56.70       58.87       58.76  
               
ASSET QUALITY:              
Non-accrual loans         $ 39,634       $ 64,072    
90+ and still accruing                          
Non-performing loans           39,634         64,072    
Foreclosed assets           10,128         6,334    
Non-performing assets           49,762         70,406    
Non-performing loans to total loans           0.62 %       1.07  
Non-performing assets to total assets           0.56 %       0.86  
Allowance for loan losses         $ 60,464       $ 63,330    
Allowance for loan losses to total non-performing loans           152.56       98.84  
Allowance for loan losses to total loans           0.94 %       1.06  
               
AVERAGE BALANCE SHEET DATA:              
Assets $ 8,776,667       $ 8,409,821       $ 8,640,000       $ 7,907,902    
Loans, net   6,282,018         5,872,538         6,154,229         5,483,627    
Earning assets   7,890,101         7,555,954         7,769,306         7,117,805    
Core deposits   5,067,217         4,960,764         5,029,289         4,658,496    
Borrowings   1,684,659         1,402,791         1,580,080         1,300,310    
Interest-bearing liabilities   6,377,944         6,191,876         6,302,058         5,840,237    
Stockholders’  equity   1,180,426         1,130,232         1,169,134         1,073,487    
Average yield on interest-earning assets   3.66 %       3.86       3.72       3.84  
Average cost of interest-bearing liabilities   0.65 %       0.68 %       0.66       0.69  
               
LOAN DATA:              
Mortgage loans:              
Residential         $ 1,258,009       $ 1,237,629    
Commercial           1,777,193         1,687,520    
Multi-family           1,193,730         942,666    
Construction           302,302         236,533    
Total mortgage loans           4,531,234         4,104,348    
Commercial loans           1,325,077         1,250,921    
Consumer loans           575,715         612,748    
Total gross loans           6,432,026         5,968,017    
Premium on purchased loans           5,711         4,895    
Unearned discounts           (44       (54 )  
Net deferred           (6,749       (6,660  
Total loans         $ 6,430,944       $ 5,966,198    

Notes – Reconciliation of GAAP to Non-GAAP               
Financial Measures – (Dollars in Thousands, except share data)               
               
(1) Core Earnings              
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
               
Net interest income $ 62,547     $ 62,969     $ 186,149       $ 175,571    
Provision for loan losses 1,400     1,500       3,100         3,400    
Net interest income after provision for loan losses 61,147     61,469       183,049         172,171    
               
Non-interest income 12,110     11,309       39,355         29,752    
Less: Gain on prepayment of acquired borrowings                     486    
Core non-interest income 12,110     11,309       39,355         29,266    
               
Non-interest expense 43,614     45,833       133,170         127,694    
Less: Acquisition expense     3,714       413         5,996    
Less: Lump sum pension distribution costs                     1,336    
Core non-interest expense 43,614     42,119       132,757         120,362    
               
Income taxes 9,034     7,913       27,027         21,817    
Income tax effect of non-core items     1,517       166         2,553    
Core earnings $ 20,609     $ 21,229     $ 62,454       $ 56,705    
Core diluted earnings per share $ 0.33     $ 0.34     $ 0.99       $ 0.95    
               
(2) Book and Tangible Book Value per Share              
          At September 30,
          2015   2014
Total stockholders’ equity         $ 1,183,973       $ 1,129,042    
Less: total intangible assets           429,001         404,948    
Total tangible stockholders’ equity         $ 754,972       $ 724,094    
               
Shares outstanding           65,378,205         64,887,339    
               
Book value per share (total stockholders’ equity/shares outstanding)         $ 18.11       $ 17.40    
Tangible book value per share (total tangible stockholders’ equity/shares outstanding)         $ 11.55       $ 11.16    
               
(3) Return on Average Tangible Equity              
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
Total average stockholders’ equity $ 1,180,426     $ 1,130,232     $ 1,169,134       $ 1,073,487    
Less: total average intangible assets 432,472     405,345       421,418         378,621    
Total average tangible stockholders’ equity $ 747,954     $ 724,887     $ 747,716       $ 694,866    
               
Net income $ 20,609     $ 19,032     $ 62,207       $ 52,412    
Annualized return on average tangible equity (net income/total average stockholders’ equity) 10.93 %   10.42 %     11.12       10.08  
               

               
Notes – Reconciliation of GAAP to Non-GAAP               
Financial Measures – Continued  (Dollars in Thousands, except share data)               
               
(4) Annualized Core Non-Interest Expense/Average Assets Calculation              
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
               
Annualized core non-interest expense $ 173,034     $ 167,103     $ 177,496     $ 160,924  
Average assets 8,776,667     8,409,821     8,640,000     7,907,902  
Core non-interest expense/average assets 1.97 %   1.99 %   2.05 %   2.03 %
               
(5) Efficiency Ratio Calculation              
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
Net interest income $ 62,547     $ 62,969     $ 186,149     $ 175,571  
Core non-interest income 12,110     11,309     39,355     29,266  
Total core income 74,657     74,278     225,504     204,837  
               
Core non-interest expense 43,614     42,119     132,757     120,362  
Core expense/core income 58.42 %   56.70 %   58.87 %   58.76 %
               
               
PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Net Interest Margin Analysis
Quarterly Average Balances
(Unaudited) (Dollars in Thousands)
                       
  September 30, 2015   June 30, 2015
  Average       Average   Average       Average
  Balance   Interest   Yield/Cost   Balance   Interest   Yield/Cost
Interest-Earning Assets:                      
Deposits $ 30,006   $ 19     0.25 %   $ 17,374   $ 10     0.25 %
Federal funds sold and other short-term investments 1,532       0.05 %   1,512       0.03 %
Investment securities  (1) 473,371   3,368     2.85 %   473,954   3,386     2.86 %
Securities available for sale 1,028,918   4,927     1.92 %   1,037,516   5,036     1.94 %
Federal Home Loan Bank stock 74,256   745     3.98 %   72,758   699     3.85 %
Net loans:  (2)                      
Total mortgage loans 4,451,332   44,541     3.95 %   4,326,843   43,594     4.01 %
Total commercial loans 1,250,172   13,767     4.34 %   1,228,062   13,669     4.44 %
Total consumer loans 580,514   5,646     3.86 %   594,708   5,794     3.90 %
Total net loans 6,282,018   63,954     4.02 %   6,149,613   63,057     4.08 %
Total Interest-Earning Assets $ 7,890,101   $ 73,013     3.66 %   $ 7,752,727   $ 72,188     3.71 %
                       
Non-Interest Earning Assets:                      
Cash and due from banks   84,571             78,868        
Other assets 801,995             798,484        
Total Assets $ 8,776,667             $ 8,630,079        
                       
Interest-Bearing Liabilities:                      
Demand deposits $ 2,930,631   $ 2,033     0.28 %   $ 2,953,559   $ 1,993     0.27 %
Savings deposits 989,188   264     0.11 %   988,415   259     0.11 %
Time deposits 773,466   1,342     0.69 %   794,336   1,372     0.69 %
Total Deposits 4,693,285   3,639     0.31 %   4,736,310   3,624     0.31 %
                       
Borrowed funds 1,684,659   6,827     1.61 %   1,560,757   6,890     1.77 %
Total Interest-Bearing Liabilities 6,377,944   10,466     0.65 %   6,297,067   10,514     0.67 %
                       
Non-Interest Bearing Liabilities:                      
Non-interest bearing deposits 1,147,398           1,096,114        
Other non-interest bearing liabilities 70,899           67,257        
Total non-interest bearing liabilities 1,218,297           1,163,371        
Total Liabilities 7,596,241           7,460,438        
Stockholders’ equity 1,180,426           1,169,641        
Total Liabilities and Stockholders’ Equity $ 8,776,667           $ 8,630,079        
                       
Net interest income     $ 62,547           $ 61,674    
                       
Net interest rate spread           3.01 %             3.04 %
Net interest-earning assets $ 1,512,157           $ 1,455,660        
                       
Net interest margin   (3)           3.13 %             3.17 %
Ratio of interest-earning assets to                      
total interest-bearing liabilities 1.24x           1.23x        
                       

   
  (1 ) Average outstanding balance amounts shown are amortized cost.
  (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.    
                   
  9/30/15   6/30/15   3/31/15   12/31/14   9/30/14
  3rd Qtr.   2nd Qtr.   1st Qtr.   4th Qtr.   3rd Qtr.
Interest-Earning Assets:                  
Securities 2.26 %   2.28 %   2.38 %   2.35 %   2.32 %
Net loans 4.02 %   4.08 %   4.16 %   4.27 %   4.30 %
Total interest-earning assets 3.66 %   3.71 %   3.78 %   3.85 %   3.86 %
                   
Interest-Bearing Liabilities:                  
Total deposits 0.31 %   0.31 %   0.31 %   0.32 %   0.34 %
Total borrowings 1.61 %   1.77 %   1.82 %   1.81 %   1.87 %
Total interest-bearing liabilities 0.65 %   0.67 %   0.67 %   0.67 %   0.68 %
                   
Interest rate spread 3.01 %   3.04 %   3.11 %   3.18 %   3.18 %
Net interest margin 3.13 %   3.17 %   3.24 %   3.30 %   3.30 %
                   
Ratio of interest-earning assets to interest-bearing liabilities 1.24 x   1.23 x   1.23 x   1.22 x   1.22 x

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Net Interest Margin Analysis
Average Year to Date Balances
(Unaudited) (Dollars in Thousands)
                       
  September 30, 2015   September 30, 2014
  Average       Average   Average       Average
  Balance   Interest   Yield/Cost   Balance   Interest   Yield/Cost
Interest-Earning Assets:                      
Deposits $ 22,114     $ 41       0.25 %   $ 23,310     $ 44       0.25 %
Federal funds sold and other short term investments 1,399           0.04 %   1,382           0.02 %
Investment securities  (1) 473,566     10,150       2.86 %   404,556     8,899       2.93 %
Securities available for sale 1,045,938     15,401       1.96 %   1,142,296     18,353       2.14 %
Federal Home Loan Bank stock 72,060     2,307       4.28 %   62,634     1,802       3.85 %
Net loans:  (2)                      
Total mortgage loans 4,330,326     131,424       4.02 %   3,850,929     122,770       4.23 %
Total commercial loans 1,230,402     40,875       4.41 %   1,041,135     36,056       4.60 %
Total consumer loans 593,501     17,234       3.88 %   591,563     17,637       3.99 %
Total net loans 6,154,229     189,533       4.09 %   5,483,627     176,463       4.27 %
Total Interest-Earning Assets $ 7,769,306     $ 217,432       3.72 %   $ 7,117,805     $ 205,561       3.84 %
                       
Non-Interest Earning Assets:                      
Cash and due from banks 79,853             70,031          
Other assets 790,841             720,066          
Total Assets $ 8,640,000             $ 7,907,902          
                       
Interest-Bearing Liabilities:                      
Demand deposits $ 2,942,981     $ 5,937       0.27 %   $ 2,767,987     $ 5,717       0.28 %
Savings deposits 986,756     768       0.10 %   956,109     677       0.09 %
Time deposits 792,241     4,146       0.70 %   815,831     5,085       0.83 %
Total Deposits 4,721,978     10,851       0.31 %   4,539,927     11,479       0.34 %
Borrowed funds 1,580,080     20,432       1.73 %   1,300,310     18,511       1.90 %
Total Interest-Bearing Liabilities $ 6,302,058     $ 31,283       0.66 %   $ 5,840,237     $ 29,990       0.69 %
                       
Non-Interest Bearing Liabilities:                      
Non-interest bearing deposits 1,099,552             934,400          
Other non-interest bearing liabilities 69,256             59,778          
Total non-interest bearing liabilities 1,168,808             994,178          
Total Liabilities 7,470,866             6,834,415          
Stockholders’ equity 1,169,134             1,073,487          
Total Liabilities and Stockholders’ Equity $ 8,640,000             $ 7,907,902          
                       
Net interest income     $ 186,149             $ 175,571      
                       
Net interest rate spread           3.06 %             3.15 %
Net interest-earning assets $ 1,467,248             $ 1,277,568          
                       
Net interest margin   (3)           3.18 %             3.27 %
Ratio of interest-earning assets to                      
total interest-bearing liabilities   1.23x               1.22x          
                       
(1)  Average outstanding balance amounts shown are amortized cost.
                       
(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
  9/30/15   9/30/14   9/30/13
Interest-Earning Assets:          
Securities 2.33 %   2.37 %   2.22 %
Net loans 4.09 %   4.27 %   4.41 %
Total interest-earning assets 3.72 %   3.84 %   3.86 %
           
Interest-Bearing Liabilities:          
Total deposits 0.31 %   0.34 %   0.41 %
Total borrowings 1.73 %   1.90 %   2.08 %
Total interest-bearing liabilities 0.66 %   0.69 %   0.68 %
           
Interest rate spread 3.06 %   3.15 %   3.18 %
Net interest margin 3.18 %   3.27 %   3.30 %
           
Ratio of interest-earning assets to interest-bearing liabilities 1.23 x   1.22 x   1.21 x

 

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