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

Oct 29, 2010, 07:45 ET from Provident Financial Services, Inc.

JERSEY CITY, N.J., Oct. 29 /PRNewswire-FirstCall/ -- Provident Financial Services, Inc. (NYSE: PFS) (the "Company") reported net income of $13.5 million, or $0.24 per basic and diluted share for the quarter ended September 30, 2010, compared to net income of $8.7 million, or $0.15 per basic and diluted share for the quarter ended September 30, 2009.  

For the nine months ended September 30, 2010, the Company reported net income of $37.6 million, or $0.66 per basic and diluted share.  Excluding a non-cash goodwill impairment charge recorded in the first quarter of 2009, net operating income for the nine months ended September 30, 2009 was $23.9 million, or $0.43 per basic and diluted share.  The Company recognized a $152.5 million, or $2.71 per share goodwill impairment charge during the quarter ended March 31, 2009.  This accounting charge resulted in a net loss of $128.6 million, or $2.29 per basic and diluted share for the nine months ended September 30, 2009.

The third quarter and year-to-date results for the period ended September 30, 2010 benefitted from lower funding costs, with net interest income increasing $7.7 million and $23.5 million, respectively, as compared with the same periods in 2009.  This improvement was partially offset by increases in the provision for loan losses of $2.1 million and $8.5 million for the three and nine months ended September 30, 2010, respectively, compared with the same periods in 2009, due to increases in non-performing loans, downgrades in credit risk ratings, and an increase in commercial loans as a percentage of the total loan portfolio.  In addition, prior year earnings and per share data for the nine months ended September 30, 2009, were impacted by an industry-wide special assessment imposed by the FDIC as part of a plan to restore the deposit insurance fund.  The cost of this special assessment to the Company in the second quarter of 2009 was $1.9 million, or $0.03 per basic and diluted share, net of tax.    

Christopher Martin, Chairman, President and Chief Executive Officer, commented, "Our solid third quarter results are attributable to the continued improvement in our net interest income, modest expansion of our net interest margin and our ongoing management of funding costs and expenses."  Martin added, "As the national and local economic outlook remains weak and the pace of the recovery continues to lag, we increased our allowance for loan losses during the third quarter, while further strengthening our capital position."

Declaration of Quarterly Dividend

The Company's Board of Directors declared a quarterly cash dividend of $0.11 per common share payable on November 30, 2010, to stockholders of record as of the close of business on November 15, 2010.

Balance Sheet Summary

Total assets at September 30, 2010 were $6.78 billion, a decrease of $53.9 million from $6.84 billion at December 31, 2009, due primarily to decreases in loans, other assets, cash and cash equivalents, partially offset by an increase in securities available for sale.

Cash and cash equivalents decreased $16.3 million to $107.4 million at September 30, 2010, from $123.7 million at December 31, 2009.  The Company utilized these funds to purchase securities available for sale and repay maturing borrowings.

Total investments increased $42.3 million, or 2.5%, during the nine months ended September 30, 2010.  The increase was primarily due to purchases of Agency-guaranteed mortgage-backed securities.  The Company sold $18.1 million of Agency-guaranteed mortgage-backed securities as part of its interest rate risk management process during the first quarter of 2010, resulting in net gains of $817,000.      

The Company's net loans decreased $47.6 million, or 1.1%, to $4.28 billion at September 30, 2010, from $4.32 billion at December 31, 2009.  Loan originations totaled $759.8 million and loan purchases totaled $69.1 million for the nine months ended September 30, 2010.  Compared with December 31, 2009, residential mortgage loans decreased $77.5 million, construction loans decreased $61.9 million, commercial loans decreased $46.1 million, and consumer loans decreased $17.9 million, while commercial mortgage and multi-family mortgage loans increased $85.9 and $78.2 million, respectively.  The decrease in residential mortgage loans was due in part to the sale of $12.4 million of newly originated 30-year fixed-rate loans as part of the Company's ongoing interest rate risk management process.  Commercial real estate, commercial and construction loans represented 54.3% of the loan portfolio at September 30, 2010, compared to 52.5% at December 31, 2009.

At September 30, 2010, the Company's unfunded loan commitments totaled $823.7 million, including $317.3 million in commercial loan commitments, $133.9 million in commercial mortgage commitments, and $74.6 million in construction loan commitments.  Unfunded loan commitments at June 30, 2010 were $745.1 million.

Other assets decreased $25.8 million, or 29.4%, to $61.8 million at September 30, 2010, from $87.6 million at December 31, 2009, primarily due to the settlement of equity fund redemptions that were pending as of December 31, 2009, the amortization of prepaid FDIC insurance, and income tax accruals.

Total deposits at September 30, 2010 were $4.90 billion, an increase of $5.4 million from December 31, 2009.  Core deposits, consisting of savings and demand deposit accounts, increased $183.2 million, or 5.4%, to $3.57 billion at September 30, 2010, compared with December 31, 2009.  The majority of the core deposit increase occurred in retail and business checking deposits.  Time deposits decreased $177.8 million, or 11.8%, to $1.33 billion at September 30, 2010, with the majority of the decrease occurring in the 15-month and shorter maturity categories.  The Company remains focused on cultivating core deposit relationships, while strategically permitting the run-off of certain higher-cost, single-service time deposits.  Core deposits represented 72.9% of total deposits at September 30, 2010, compared to 69.2% at December 31, 2009.  

Borrowed funds were reduced by $95.6 million, or 9.6%, during the nine months ended September 30, 2010, to $903.6 million, as the Company deployed excess liquidity arising from increased core deposit funding, and cash inflows from the loan portfolio.  Borrowed funds represented 13.3% of total assets at September 30, 2010, a reduction from 14.6% at December 31, 2009.

Common stock repurchases for the nine months ended September 30, 2010 totaled 17,600 shares at an average cost of $10.86 per share.  At September 30, 2010, 2.1 million shares remained eligible for repurchase under the current Board authorization.  At September 30, 2010, book value per share and tangible book value per share were $15.37 and $9.45, respectively, compared with $14.79 and $8.80, respectively, at December 31, 2009.  

Results of Operations

Net Interest Margin

The net interest margin for the quarter ended September 30, 2010 was 3.50%, an increase of 2 basis points from 3.48% for the quarter ended June 30, 2010, and a 49 basis point increase from 3.01% for the quarter ended September 30, 2009.  The increase in the net interest margin for the three months ended September 30, 2010, versus the trailing quarter and the quarter ended September 30, 2009, was primarily attributable to decreases in the cost of interest-bearing liabilities.  The weighted average yield on interest-earning assets was 4.74% for the three months ended September 30, 2010, compared with 4.81% for the trailing quarter and 4.84% for the three months ended September 30, 2009.  The weighted average cost of interest-bearing liabilities was 1.42% for the quarter ended September 30, 2010, compared with 1.51% for the trailing quarter and 2.07% for the third quarter of 2009.  The average cost of deposits for the three months ended September 30, 2010 was 1.05%, compared with 1.13% for the trailing quarter and 1.73% for the same period last year.  The average cost of borrowings for the three months ended September 30, 2010 was 3.15%, compared with 3.27% for the trailing quarter and 3.50% for the same period last year.  

For the nine months ended September 30, 2010, the net interest margin increased 43 basis points to 3.45%, compared with 3.02% for the nine months ended September 30, 2009.  The weighted average yield on interest-earning assets declined 22 basis points to 4.78% for the nine months ended September 30, 2010, compared with 5.00% for the nine months ended September 30, 2009.  However, the weighted average cost of interest-bearing liabilities declined 72 basis points to 1.52% for the nine months ended September 30, 2010, compared with 2.24% for the same period in 2009.  The average cost of deposits for the nine months ended September 30, 2010 was 1.15%, compared with 1.90% for the same period last year.  The average cost of borrowings for the nine months ended September 30, 2010 was 3.26%, compared with 3.52% for the same period last year.

Non-Interest Income

Non-interest income totaled $7.8 million for the quarter ended September 30, 2010, a decrease of $785,000 compared to the same period in 2009.  Fee income for the quarter ended September 30, 2010 decreased $635,000, or 9.5%, compared to the same period in 2009, primarily as a result of a decrease in equity fund income due to the redemption of equity fund holdings in late 2009.  In addition, net gains on securities transactions declined $179,000 for the quarter ended September 30, 2010, compared with the same quarter in 2009.  Other income for the quarter ended September 30, 2010 totaled $482,000, a decrease of $522,000 compared to the same period in 2009.  The decrease in other income was primarily attributable to a reduction in gains resulting from fewer loan sales.  Income related to Bank-owned life insurance decreased $150,000 for the three month period ended September 30, 2010, compared to the same period in 2009, as a result of reductions in crediting rates.  Partially offsetting these decreases for the current quarter ended September 30, 2010, the Company did not incur an other-than-temporary impairment charge on investment securities, while a $701,000 charge was recognized in the third quarter of 2009.

For the nine months ended September 30, 2010, non-interest income totaled $23.8 million, a decrease of $634,000, or 2.6%, compared to the same period in 2009.  Other income declined $1.3 million for the nine months ended September 30, 2010, compared with the same period in 2009, primarily as a result of a reduction in gains resulting from fewer loan sales and a non-recurring gain recognized on the sale of a Bank-owned parcel of land in 2009.  Fee income for the nine months ended September 30, 2010 decreased $710,000, or 3.9%, compared to the same period in 2009, primarily as a result of a decrease in equity fund income due to the redemption of equity fund holdings in late 2009.  In addition, net gains on securities transactions declined $541,000 for the nine months ended September 30, 2010, compared with the same period in 2009.  These net gains on securities transactions totaled $833,000 for the nine months ended September 30, 2010, compared with net gains of $1.4 million for the same period in 2009.  The Company recognized other-than-temporary impairment charges on securities of $170,000 and $1.5 million during the nine months ended September 30, 2010 and 2009, respectively.  Income related to Bank-owned life insurance increased $557,000 for the nine month period ended September 30, 2010, compared to the same period in 2009, as a result of appreciation in the cash surrender value and the receipt of policy claim proceeds in the second quarter of 2010.    

Non-Interest Expense

For the three months ended September 30, 2010, non-interest expense decreased $1.9 million, or 5.3%, to $34.1 million, compared to $36.0 million for the three months ended September 30, 2009.  FDIC insurance expense decreased $617,000 for the three months ended September 30, 2010, compared with the same period in 2009.  Compensation and benefits expense decreased $493,000 for the three months ended September 30, 2010, compared with the same period in 2009, due to costs associated with the retirement of two senior executives in the prior year quarter.  This reduction was partially offset by an increase in the accrual for incentive compensation in the quarter ended September 30, 2010.  Amortization of intangibles decreased $273,000 for the three months ended September 30, 2010, compared with the same period of 2009, as a result of scheduled reductions in core deposit intangible amortization.  In addition, data processing expense decreased $180,000 for the three months ended September 30, 2010, compared with the same period in 2009, and other operating expenses decreased $166,000 for the quarter ended September 30, 2010, compared with the same period last year.

Non-interest expense for the nine months ended September 30, 2010 was $102.8 million.  Excluding the $152.5 million non-cash goodwill impairment charge recorded in the first quarter of 2009, non-interest expense decreased $4.6 million, or 4.3%, from $107.4 million for the nine months ended September 30, 2009.  FDIC insurance expense decreased $2.1 million for the nine months ended September 30, 2010, compared with the same period in 2009.  In the prior year period, a special assessment was imposed on the Company as part of an industry-wide plan to restore the deposit insurance fund.  The FDIC special assessment of $3.1 million was accrued during the quarter ended June 30, 2009 and paid September 30, 2009.  The decrease was partially offset by an increase in expense resulting from an increase in FDIC premium rates and a larger deposit base subject to assessment.  In addition, amortization of intangibles decreased $1.1 million for the nine months ended September 30, 2010, compared with the same period of 2009, as a result of scheduled reductions in core deposit intangible amortization and the non-recurring acceleration in core deposit intangible amortization related to the sale of branches in 2009.  Other operating expenses totaled $17.0 million for the nine months ended September 30, 2010, a decrease of $656,000 from the same prior year period.  This reduction was primarily due to non-recurring costs incurred in the nine months ended September 30, 2009 related to the dissolution of a real estate joint venture.

Asset Quality

Total non-performing loans at September 30, 2010 were $103.5 million, or 2.38% of total loans, compared with $93.2 million, or 2.15% of total loans at June 30, 2010, $84.5 million, or 1.93% of total loans at December 31, 2009, and $78.2 million, or 1.81% of total loans at September 30, 2009.  The $10.3 million increase in non-performing loans at September 30, 2010, compared with the trailing quarter, was attributable to a $10.6 million increase in non-performing commercial loans.  The increase was primarily due to a single relationship with a manufacturing entity that totaled $9.7 million, which is secured by real estate and business assets.  At September 30, 2010, impaired loans totaled $50.1 million with related specific reserves of $7.8 million, compared with impaired loans totaling $38.8 million with related specific reserves of $4.4 million at June 30, 2010.  At September 30, 2010, the Company's allowance for loan losses was 1.58% of total loans, compared with 1.42% of total loans at June 30, 2010, 1.39% of total loans at December 31, 2009 and 1.29% of total loans at September 30, 2009.  

The Company recorded provisions for loan losses of $8.6 million and $26.6 million for the three and nine months ended September 30, 2010, respectively, compared with provisions of $6.5 million and $18.1 million for the three and nine months ended September 30, 2009, respectively.  For the three and nine months ended September 30, 2010, the Company had net charge-offs of $1.3 million and $18.6 million, respectively, compared with net charge-offs of $2.8 and $10.1 million, respectively, for the same periods in 2009.  The allowance for loan losses increased $8.0 million to $68.8 million at September 30, 2010, from $60.7 million at December 31, 2009.  The increase in the loan loss provision for the three and nine months ended September 30, 2010, compared with the same periods in 2009, was attributable to an increase in non-performing loans, downgrades in credit risk ratings and an increase in commercial loans as a percentage of the loan portfolio to 54.3% at September 30, 2010, from 50.9% at September 30, 2009.  At September 30, 2010, the Company held $5.7 million of foreclosed assets, compared with $6.4 million at December 31, 2009.      

Income Tax Expense

For the three months ended September 30, 2010, the Company's income tax expense was $4.7 million, compared with $2.8 million for the same period in 2009.  For the nine months ended September 30, 2010, the Company's income tax expense was $12.8 million, compared with $7.4 million for the same period in 2009.  The increase in income tax expense was attributable to higher pre-tax income and a higher effective tax rate. The Company's effective tax rates were 25.9% and 25.4%, respectively, for the three and nine months ended September 30, 2010, compared with 24.1% and 23.6%, excluding the impact of the goodwill impairment charge recognized in the first quarter of 2009, which was not tax deductible, for the three and nine months ended September 30, 2009, respectively.  The increase in the effective tax rate is attributable to a higher projection of taxable income for the full year 2010.

About the Company

Provident Financial Services, Inc. is the holding company for The Provident Bank, a community-oriented bank offering a full range of retail and commercial loan and deposit products.  The Bank currently operates 81 full service branches throughout northern and central New Jersey.

Post Earnings Conference Call

Representatives of the Company will hold a conference call for investors at 10:00 a.m. Eastern Time on October 29, 2010 regarding highlights of the Company's third quarter 2010 financial results.  The call may be accessed by dialing 1-800-860-2442 (Domestic) or 1-412-858-4600 (International).  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 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 undertake and specifically declines any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Condition

September 30, 2010 (Unaudited) and December 31, 2009

(Dollars in Thousands)

Assets

September 30, 2010

December 31, 2009

Cash and due from banks

$

106,754

$

120,823

Short-term investments

650

2,920

               Total cash and cash equivalents

107,404

123,743

Investment securities held to maturity (fair value of

   $350,664 at September 30, 2010 (unaudited) and    $344,385 at  December 31, 2009)

334,405

335,074

Securities available for sale, at fair value

1,375,781

1,333,163

Federal Home Loan Bank stock

34,629

34,276

Loans

4,344,657

4,384,194

       Less allowance for loan losses

68,764

60,744

               Net loans

4,275,893

4,323,450

Foreclosed assets, net

5,682

6,384

Banking premises and equipment, net

72,539

76,280

Accrued interest receivable

23,787

25,797

Intangible assets

355,028

358,058

Bank-owned life insurance

135,334

132,346

Other assets

61,813

87,601

               Total assets

$

6,782,295

$

6,836,172

Liabilities and Stockholders' Equity

Deposits:

       Demand deposits

$

2,687,168

$

2,522,732

       Savings deposits

887,606

868,835

       Certificates of deposit of $100,000 or more

423,441

469,313

       Other time deposits

906,341

1,038,297

               Total deposits

4,904,556

4,899,177

Mortgage escrow deposits

18,639

18,713

Borrowed funds

903,610

999,233

Other liabilities

34,442

34,494

               Total liabilities

5,861,247

5,951,617

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 59,922,431    shares outstanding at September 30, 2010, and    59,821,850 shares outstanding at December 31, 2009

832

832

Additional paid-in capital

1,016,659

1,014,856

Retained earnings

325,408

307,751

Accumulated other comprehensive income

22,825

7,731

Treasury stock at cost

(385,109)

(384,973)

Unallocated common stock held by Employee Stock

 Ownership Plan

(59,567)

(61,642)

Common stock acquired by the Directors' Deferred Fee Plan

(7,505)

(7,575)

Deferred compensation – Directors' Deferred Fee Plan

7,505

7,575

               Total stockholders' equity

921,048

884,555

               Total liabilities and stockholders'

                 equity

$

6,782,295

$

6,836,172

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2010 and 2009 (Unaudited)

(Dollars in Thousands, Except Per Share Data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2010

2009

2010

2009

(Unaudited)

(Unaudited)

Interest income:

Real estate secured loans

$

40,426

$

39,286

$

120,360

$

119,566

Commercial loans

10,457

11,108

30,964

32,176

Consumer loans

7,085

7,722

21,487

23,819

Investment securities

3,166

3,327

9,633

10,119

Securities available for sale and FHLB stock

10,683

11,497

33,649

32,876

Other short-term investments

1

13

Deposits

80

98

222

215

Federal funds sold

24

Total interest income

71,897

73,039

216,315

218,808

Interest expense:

Deposits

11,571

18,807

37,341

58,136

Borrowed funds

7,291

8,922

23,030

28,266

Total interest expense

18,862

27,729

60,371

86,402

Net interest income

53,035

45,310

155,944

132,406

Provision for loan losses

8,600

6,500

26,600

18,100

Net interest income after

provision for loan losses

44,435

38,810

129,344

114,306

Non-interest income:

Fees

6,017

6,652

17,637

18,347

Bank-owned life insurance

1,288

1,438

4,514

3,957

Net gain on securities transactions

16

195

833

1,374

Other-than-temporary impairment losses on securities

(701)

(3,116)

(6,167)

 Portion of loss recognized in other comprehensive income (before taxes)

2,946

4,665

 Net impairment losses on securities recognized in earnings

(701)

(170)

(1,502)

Other income

482

1,004

971

2,243

Total non-interest income

7,803

8,588

23,785

24,419

Non-interest expense:

Goodwill impairment

152,502

Compensation and employee benefits

17,764

18,257

52,589

52,518

Net occupancy expense

4,884

4,966

14,942

15,270

Data processing expense

2,174

2,354

6,699

7,010

FDIC Insurance

1,833

2,450

5,667

7,810

Advertising and promotion

1,037

1,117

2,923

3,147

Amortization of intangibles

842

1,115

2,966

4,020

Other operating expenses

5,547

5,713

16,988

17,644

Total non-interest expense

34,081

35,972

102,774

259,921

Income (loss) before income tax    expense

18,157

11,426

50,355

(121,196)

Income tax expense

4,694

2,750

12,765

7,402

Net income (loss)

$

13,463

$

8,676

$

37,590

$

(128,598)

Basic earnings (loss) per share

$

0.24

$

0.15

$

0.66

$

(2.29)

Average basic shares outstanding

56,610,647

56,311,141

56,533,545

56,240,746

Diluted earnings (loss) per share

$

0.24

$

0.15

$

0.66

$

(2.29)

Average diluted shares outstanding

56,610,647

56,311,141

56,533,545

56,240,746

PROVIDENT FINANCIAL SERVICES, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS

(Dollars in thousands, except share data) (Unaudited)

At or for the Three Months Ended September 30,

At or for the Nine Months Ended September 30,

2010

2009

2010

2009

STATEMENTS OF OPERATIONS:

Net interest income

$53,035

$45,310

$155,944

$132,406

Provision for loan losses

8,600

6,500

26,600

18,100

Non-interest income

7,803

8,588

23,785

24,419

Non-interest expense (1)

34,081

35,972

102,774

107,419

Operating income before income tax expense (2)

18,157

11,426

50,355

31,306

Operating income (2)

13,463

8,676

37,590

23,904

Goodwill impairment charge

152,502

Net income (loss)

13,463

8,676

37,590

(128,598)

Operating basic and diluted earnings per share (1)

$0.24

$0.15

$0.66

$0.43

Per share impact of goodwill impairment charge

$(2.71)

Basic and diluted earnings (loss) per share

$0.24

$0.15

$0.66

$(2.29)

Interest rate spread

3.32%

2.77%

3.26%

2.76%

Net interest margin

3.50%

3.01%

3.45%

3.02%

PROFITABILITY:

Annualized return on average assets (1)

0.79%

0.51%

0.74%

0.48%

Annualized return on average equity (1)

5.81%

3.92%

5.55%

3.46%

Annualized non-interest expense to average assets (1)

2.00%

2.12%

2.03%

2.17%

Efficiency ratio (1), (3)

56.02%

66.74%

57.18%

68.50%

ASSET QUALITY:

Non-accrual loans

$103,510

$78,232

90+ and still accruing loans

Non-performing loans

103,510

78,232

Foreclosed assets

5,682

7,044

Non-performing loans to

total loans

2.38%

1.81%

Non-performing assets to

total assets

1.61%

1.25%

Allowance for loan losses

$68,764

$55,731

Allowance for loan losses to

non-performing loans

66.43%

71.24%

Allowance for loan losses to

total loans

1.58%

1.29%

AVERAGE BALANCE SHEET DATA:

Assets

$6,768,690

$6,727,683

$6,769,162

$6,605,478

Loans, net

4,252,198

4,285,034

4,266,402

4,308,987

Earning assets

6,044,710

6,007,418

6,040,489

5,841,099

Core deposits

3,520,564

3,122,561

3,468,413

2,909,058

Borrowings

917,076

1,012,184

943,390

1,072,858

Interest-bearing liabilities

5,271,933

5,318,038

5,299,019

5,162,803

Stockholders' equity

919,077

877,875

905,150

923,357

Average yield on interest-earning assets

4.74%

4.84%

4.78%

5.00%

Average cost of interest-bearing liabilities

1.42%

2.07%

1.52%

2.24%

Notes

(1) Excluding a $152.2 million non-cash goodwill impairment charge for the nine months ended September 30, 2009.

(2) Operating Income Reconciliation

Three Months Ended

September 30,

Nine Months Ended

September 30,

2010

2009

2010

2009

Net income (loss)

$13,463

$8,676

$37,590

$(128,598)

Goodwill impairment

152,502

Operating income

$13,463

$8,676

$37,590

$23,904

(3) Efficiency Ratio Calculation

Three Months Ended

September 30,

Nine Months Ended

September 30,

2010

2009

2010

2009

Net interest income

$53,035

$45,310

$155,944

$132,406

Non-interest income

7,803

8,588

23,785

24,419

Total income

$60,838

$53,898

$179,729

$156,825

Non-interest expense (1)

$34,081

$35,972

$102,774

$107,419

Expense/Income:

56.02%

66.74%

57.18%

68.50%

Average Quarterly Balance

NET INTEREST MARGIN ANALYSIS

(Unaudited) (Dollars in thousands)

September 30, 2010

June 30, 2010

Average

Average

Average

Average

Balance

Interest

Yield/Cost

Balance

Interest

Yield/Cost

Interest-Earning Assets:

   Deposits

$

126,661

$

80

0.25

%

$

115,592

$

72

0.25

%

   Federal Funds Sold and

        Other Short-Term Investments

1,772

-

0.01

2,682

0.01

   Investment Securities (1)

332,888

3,166

3.80

333,329

3,218

3.86

   Securities Available for Sale

1,295,983

10,289

3.18

1,250,489

10,843

3.47

   Federal Home Loan Bank Stock

35,208

394

4.44

34,329

362

4.23

   Net Loans (2)

           Total Mortgage Loans

2,982,551

40,426

5.40

2,978,512

40,220

5.41

           Total Commercial Loans

705,135

10,457

5.88

712,443

10,170

5.73

           Total Consumer Loans

564,512

7,085

4.96

570,335

7,126

5.01

           Total Interest-Earning Assets

6,044,710

71,897

4.74

5,997,711

72,011

4.81

Non-Interest-Earning Assets:

   Cash and Due from Banks

87,488

94,960

   Other Assets

636,492

651,756

           Total Assets

$

6,768,690

$

6,744,427

Interest-Bearing Liabilities:

   Demand Deposits

$

2,096,265

4,476

0.85

%

$

2,065,300

4,798

0.93

%

   Savings Deposits

894,724

1,014

0.45

889,736

1,050

0.47

   Time Deposits

1,363,868

6,081

1.77

1,392,841

6,416

1.85

           Total Deposits

4,354,857

11,571

1.05

4,347,877

12,264

1.13

           Total Borrowings

917,076

7,291

3.15

931,795

7,606

3.27

           Total Interest-Bearing Liabilities

5,271,933

18,862

1.42

5,279,672

19,870

1.51

Non-Interest-Bearing Liabilities

577,680

562,532

           Total Liabilities

5,849,613

5,842,204

Stockholders' Equity

919,077

902,223

           Total Liabilities & Stockholders'              Equity

$

6,768,690

$

6,744,427

Net interest income

$

53,035

$

52,141

Net interest rate spread

3.32

%

3.30

%

Net interest-earning assets

$

772,777

$

718,039

Net interest margin (3)

3.50

%

3.48

%

Ratio of interest-earning assets to

interest-bearing liabilities

1.15

x

1.14

x

(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 net interest margin for the previous year, inclusive.

9/30/10

6/30/10

3/31/10

12/31/09

9/30/09

3rd Qtr.

2nd Qtr.

1st Qtr.

4th Qtr.

3rd Qtr.

Interest-Earning Assets:

Securities

3.11%

3.34%

3.37%

3.40%

3.47%

Net Loans

5.42%

5.41%

5.40%

5.39%

5.40%

   Total Interest-Earning Assets

4.74%

4.81%

4.80%

4.79%

4.84%

Interest-Bearing Liabilities:

Total Deposits

1.05%

1.13%

1.26%

1.47%

1.73%

Total Borrowings

3.15%

3.27%

3.36%

3.43%

3.50%

   Total Interest-Bearing Liabilities

1.42%

1.51%

1.64%

1.83%

2.07%

Interest Rate Spread

3.32%

3.30%

3.16%

2.96%

2.77%

Net Interest Margin

3.50%

3.48%

3.35%

3.16%

3.01%

Ratio of Interest-Earning Assets to

Interest-Bearing Liabilities

1.15x

1.14x

1.14x

1.13x

1.13x

Average YTD Balance

NET INTEREST MARGIN ANALYSIS

(Unaudited) (Dollars in thousands)

September 30, 2010

September 30, 2009

Average

Average

Average

Average

Balance

Interest

Yield/Cost

Balance

Interest

Yield/Cost

Interest-Earning Assets:

   Deposits

$

118,380

$

222

0.25

%

$

115,006

$

215

0.25

%

   Federal Funds Sold and

   Other Short-Term Investments

2,384

0.01

33,258

37

0.15

   Investment Securities (1)

333,367

9,633

3.85

340,032

10,119

3.97

   Securities Available for Sale

1,285,272

32,405

3.36

1,007,469

31,520

4.17

   Federal Home Loan Bank Stock

34,684

1,244

4.80

36,347

1,356

4.99

   Net Loans (2)

           Total Mortgage Loans

2,978,981

120,360

5.39

2,975,721

119,566

5.36

           Total Commercial Loans

716,370

30,964

5.78

729,263

32,176

5.90

           Total Consumer Loans

571,051

21,487

5.03

604,003

23,819

5.27

           Total Interest-Earning Assets

6,040,489

216,315

4.78

5,841,099

218,808

5.00

Non-Interest-Earning Assets:

   Cash and Due from Banks

78,556

87,762

   Other Assets

650,117

676,617

           Total Assets

$

6,769,162

$

6,605,478

Interest-Bearing Liabilities:

   Demand Deposits

$

2,063,915

14,172

0.92

%

$

1,561,951

17,012

1.46

%

   Savings Deposits

885,575

3,172

0.48

875,710

5,119

0.78

   Time Deposits

1,406,139

19,997

1.90

1,652,284

36,005

2.91

           Total Deposits

4,355,629

37,341

1.15

4,089,945

58,136

1.90

           Total Borrowings

943,390

23,030

3.26

1,072,858

28,266

3.52

           Total Interest-Bearing Liabilities

5,299,019

60,371

1.52

5,162,803

86,402

2.24

Non-Interest-Bearing Liabilities

564,993

519,318

           Total Liabilities

5,864,012

5,682,121

           Stockholders' Equity

905,150

923,357

           Total Liabilities & Stockholders'              Equity

$

6,769,162

$

6,605,478

Net interest income

$

155,944

$

132,406

Net interest rate spread

3.26

%

2.76

%

Net interest-earning assets

$

741,470

$

678,296

Net interest margin (3)

3.45

%

3.02

%

Ratio of interest-earning assets to

interest-bearing liabilities

1.14

x

1.13

x

(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 andinclude non-accrual loans.

(3)  Annualized net interest income divided by average interest-earning assets

The following table summarizes the YTD net interest margin for the previous three years, inclusive.

Nine Months Ended

9/30/10

9/30/09

9/30/08

Interest-Earning Assets:

Securities

3.27%

3.76%

4.64%

Net Loans

5.41%

5.44%

5.81%

Total Interest-Earning Assets

4.78%

5.00%

5.54%

Interest-Bearing Liabilities:

Total Deposits

1.15%

1.90%

2.49%

Total Borrowings

3.26%

3.52%

3.83%

Total Interest-Bearing Liabilities

1.52%

2.24%

2.80%

Interest Rate Spread

3.26%

2.76%

2.74%

Net Interest Margin

3.45%

3.02%

3.08%

Ratio of Interest-Earning Assets to

Total Interest-Bearing Liabilities

1.14x

1.13x

1.14x

SOURCE Provident Financial Services, Inc.



RELATED LINKS

http://www.providentnj.com