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

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.

SOURCE Provident Financial Services, Inc.