PFS Provident Financial Services Inc

Provident Financial Services, Inc. (NYSE:PFS) (the “Company”) reported net income of $28.5 million, or $0.38 per basic and diluted share for the three months ended September 30, 2023, compared to $32.0 million, or $0.43 per basic and diluted share, for the three months ended June 30, 2023 and $43.4 million, or $0.58 per basic and diluted share, for the three months ended September 30, 2022. For the nine months ended September 30, 2023, net income totaled $101.1 million, or $1.35 per basic and diluted share, compared to $126.6 million, or $1.69 per basic and diluted share, for the nine months ended September 30, 2022. Compared with the prior year period, net income for the three months ended September 30, 2023 was negatively impacted by a decrease in net interest income attributable to a decrease in lower-costing deposits, as well as increased funding costs and resulting net interest spread compression. Net income for the three and nine months ended September 30, 2023 was further impacted by increased provisions for credit losses due to a worsened economic forecast. Transaction costs related to our pending merger with Lakeland Bancorp, Inc. (“Lakeland”) totaled $2.3 million and $5.3 million for the three and nine months ended September 30, 2023, respectively, compared with transaction costs totaling $2.9 million for the respective 2022 periods. In addition, prior year earnings for the three and nine months ended September 30, 2022, included an $8.6 million gain on the sale of a foreclosed property.

Performance Highlights for the Third Quarter of 2023

• The Company’s total loan portfolio increased $137.1 million, or 5.2% annualized, to $10.67 billion at September 30, 2023, from $10.53 billion at June 30, 2023.
• At September 30, 2023, the Company's loan pipeline, consisting of work-in-process and loans approved pending closing, totaled $1.70 billion, with a weighted average interest rate of 7.62%, compared to $1.74 billion, with a weighted average interest rate of 7.23% at June 30, 2023.
• The average yield on total loans increased 13 basis points compared to the trailing quarter, to 5.37% for the quarter ended September 30, 2023, while the average cost of deposits, including non-interest bearing deposits, increased 32 basis points from the trailing quarter, to 1.74% for the quarter ended September 30, 2023.
• Net interest income decreased $2.9 million to $96.2 million for the three months ended September 30, 2023, from $99.1 million for the trailing quarter as a result of higher funding costs, which more than offset the benefits of favorable loan repricing and loan growth.
• The net interest margin decreased 15 basis points to 2.96% for the quarter ended September 30, 2023, from 3.11% for the trailing quarter. The weighted average yield on interest-earning assets for the quarter ended September 30, 2023 increased 16 basis points to 4.89%, compared to the trailing quarter, while the weighted average cost of interest-bearing liabilities for the quarter ended September 30, 2023 increased 37 basis points to 2.50%, compared to the trailing quarter. The increase in funding costs reflected a decrease in lower-costing deposits, an increase in borrowings and unfavorable repricing in both deposits and borrowings.
• During the three months ended September 30, 2023, additional balances from traditional non-interest and interest bearing demand deposits transitioned into our insured cash sweep ("ICS") product, as a method to increase the level of customers' deposit insurance in light of recent banking turmoil. As of September 30, 2023 our ICS deposits totaled $500.7 million, compared to $382.9 million at June 30, 2023. Our estimated uninsured and uncollateralized deposits at September 30, 2023 totaled $2.49 billion, or 25% of deposits. At September 30, 2023, our total on-balance sheet liquidity and borrowing capacity was $3.59 billion, representing 144% of estimated uninsured and uncollateralized deposits. All borrowing capacity is immediately available.
• At September 30, 2023, CRE loans related to office properties totaled $483.3 million, compared to $487.9 million at June 30, 2023. This portfolio constitutes 4.5% of total loans. Approximately 35% of our office loans are to medical offices and we do not have significant central business district exposure. Delinquencies in the office portfolio at September 30, 2023 were limited to one loan totaling $250,000. The portfolio is granular, with an average size of $1.8 million and just three relationships greater than $10.0 million.
• Asset quality improved in the quarter, as non-performing loans at September 30, 2023 declined to $39.5 million, or 0.37% of total loans, compared to $45.9 million, or 0.44% of total loans at June 30, 2023.
• The Company recorded an $11.0 million provision for credit losses for the quarter ended September 30, 2023, compared to a $10.4 million provision for the trailing quarter. The provision for credit losses in the quarter was primarily attributable to a weakened economic forecast within our CECL model. The allowance for credit losses as a percentage of loans increased to 1.01% at September 30, 2023, from 0.97% at June 30, 2023.
• Tangible book value per share(1) decreased $0.25 to $15.41 at September 30, 2023, compared to the trailing quarter, as unrealized losses on available for sale debt securities increased $31.2 million for the quarter.
• Annualized returns on average assets, average equity and average tangible equity were 0.81%, 6.84% and 9.47%, respectively for the three months ended September 30, 2023, compared with 0.93%, 7.76% and 10.75%, respectively for the trailing quarter.
• The Company's annualized adjusted pre-tax, pre-provision ("PTPP") return on average assets(1) was 1.48% for the quarter ended September 30, 2023, compared to 1.60% for the quarter ended June 30, 2023.

Anthony J. Labozzetta, President and Chief Executive Officer commented, “Provident produced good financial results this quarter, despite challenging market conditions. We had another strong quarter of growth in our loan portfolio, our loan pipeline remains robust and we saw solid performance from our fee businesses. Expenses were well managed and, while increases in interest rates and a shift in the funding mix continued to impact our net interest margin, our interest rate risk management remains sound. While our asset quality remained strong and stable, we built loan loss reserves largely due to changes in our CECL forecast.”

Regarding the Company's pending merger with Lakeland, Mr. Labozzetta added, “Provident continues to engage in productive discussions with our regulators and we look forward to closing our transaction as soon as we receive the required regulatory approvals.”

Declaration of Quarterly Dividend

The Company’s Board of Directors declared a quarterly cash dividend of $0.24 per common share payable on November 24, 2023 to stockholders of record as of the close of business on November 10, 2023.

Results of Operations

Three months ended September 30, 2023 compared to the three months ended June 30, 2023

For the three months ended September 30, 2023, net income was $28.5 million, or $0.38 per basic and diluted share, compared to net income of $32.0 million, or $0.43 per basic and diluted share, for the three months ended June 30, 2023. Transaction costs related to our pending merger with Lakeland totaled $2.3 million and $2.0 million for the three months ended September 30, 2023 and June 30, 2023, respectively.

Net Interest Income and Net Interest Margin

Net interest income decreased $2.9 million to $96.2 million for the three months ended September 30, 2023, from $99.1 million for the trailing quarter. The decrease in net interest income was primarily due to a decrease in lower-costing deposits and an increase in borrowings, combined with unfavorable repricing of both deposits and borrowings, partially offset by originations of new loans at current market rates and the favorable repricing of adjustable-rate loans.

The Company’s net interest margin decreased 15 basis points to 2.96% for the quarter ended September 30, 2023, from 3.11% for the trailing quarter. The weighted average yield on interest-earning assets for the quarter ended September 30, 2023 increased 16 basis points to 4.89%, compared to the trailing quarter. The weighted average cost of interest-bearing liabilities for the quarter ended September 30, 2023 increased 37 basis points from the trailing quarter, to 2.50%. The average cost of interest-bearing deposits for the quarter ended September 30, 2023 increased 37 basis points to 2.22%, compared to 1.85% for the trailing quarter. The average cost of total deposits, including non-interest-bearing deposits, was 1.74% for the quarter ended September 30, 2023, compared to 1.42% for the trailing quarter. The average cost of borrowed funds for the quarter ended September 30, 2023 was 3.74%, compared to 3.41% for the quarter ended June 30, 2023.

Provision for Credit Losses

For the quarter ended September 30, 2023, the Company recorded an $11.0 million provision for credit losses, compared with a provision for credit losses of $10.4 million for the quarter ended June 30, 2023. The provision for credit losses in the quarter was primarily attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices used in our CECL model. For the three months ended September 30, 2023, net charge-offs totaled $5.5 million, or an annualized 21 basis points of average loans, which was primarily attributable to one commercial loan.

Non-Interest Income and Expense

For the three months ended September 30, 2023, non-interest income totaled $19.3 million, a decrease of $67,000, compared to the trailing quarter. Insurance agency income decreased $623,000 to $3.2 million for the three months ended September 30, 2023, compared to the trailing quarter, mainly due to additional new business activity in the prior quarter. Other income decreased $144,000 to $1.1 million for the three months ended September 30, 2023, compared to the trailing quarter, primarily due to a reduction in gains on the sale of SBA loans. Partially offsetting these decreases to non-interest income, fee income increased $357,000 to $6.1 million for the three months ended September 30, 2023, compared to the trailing quarter, primarily due to increases in commercial loan prepayment fees and deposit fee income, partially offset by a decrease in non-deposit investment fee income. Additionally, BOLI income increased $286,000 for the three months ended September 30, 2023, compared to the trailing quarter, primarily due to an increase in benefit claims recognized, partially offset by lower equity valuations.

Non-interest expense totaled $67.2 million for the three months ended September 30, 2023, an increase of $2.7 million, compared to $64.5 million for the trailing quarter. For the three months ended September 30, 2023, the Company recorded a $1.5 million provision for credit losses for off-balance sheet credit exposures, compared to a $647,000 provision benefit for the trailing quarter. The $2.2 million increase in the provision for credit losses for off-balance sheet exposures for the quarter was primarily due to an increase in loans approved and awaiting closing, combined with a decrease in line of credit utilization. Compensation and benefits expense increased $419,000 to $35.7 million for the three months ended September 30, 2023, compared to $35.3 million for the trailing quarter. The increase in compensation and benefit expense was primarily attributable to increases in the accrual for incentive compensation and salary expense, partially offset by a decrease in stock-based compensation. Additionally, merger expenses related to our pending combination with Lakeland increased $329,000 to $2.3 million for the three months ended September 30, 2023, compared to the trailing quarter. Partially offsetting these increases in non-interest expense, FDIC insurance decreased $497,000 to $1.6 million for the three months ended September 30, 2023, compared to the trailing quarter, primarily due to a quarterly adjustment related to a decrease in the assessment rate.

The Company’s annualized adjusted non-interest expense as a percentage of average assets(1) was 1.80% for the quarter ended September 30, 2023, compared to 1.83% for the trailing quarter. The efficiency ratio (adjusted non-interest expense divided by the sum of net interest income and non-interest income)(1) was 54.81% for the three months ended September 30, 2023, compared to 53.29% for the trailing quarter.

Income Tax Expense

For the three months ended September 30, 2023, the Company's income tax expense was $8.8 million with an effective tax rate of 23.7%, compared with income tax expense of $11.6 million with an effective tax rate of 26.7% for the trailing quarter. The decrease in tax expense for the three months ended September 30, 2023, compared with the trailing quarter was largely due to a decrease in taxable income, while the decrease in the effective tax rate was due to a decrease in the proportion of income derived from taxable sources.

Three months ended September 30, 2023 compared to the three months ended September 30, 2022

For the three months ended September 30, 2023, net income was $28.5 million, or $0.38 per basic and diluted share, compared to net income of $43.4 million, or $0.58 per basic and diluted share, for the three months ended September 30, 2022. Transaction costs related to our pending merger with Lakeland totaled $2.3 million and $2.9 million for the three months ended September 30, 2023 and September 30, 2022, respectively.

Net Interest Income and Net Interest Margin

Net interest income decreased $13.3 million to $96.2 million for the three months ended September 30, 2023, from $109.5 million for same period in 2022. The decrease in net interest income was primarily due to a decrease in lower-costing deposits and an increase in borrowings, combined with unfavorable repricing of both deposits and borrowings, partially offset by originations of new loans and the favorable repricing of adjustable-rate loans.

The Company’s net interest margin decreased 55 basis points to 2.96% for the quarter ended September 30, 2023, from 3.51% for the same period last year. The weighted average yield on interest-earning assets for the quarter ended September 30, 2023 increased 99 basis points to 4.89%, compared to 3.90% for the quarter ended September 30, 2022. The weighted average cost of interest-bearing liabilities increased 196 basis points for the quarter ended September 30, 2023 to 2.50%, compared to 0.54% for the third quarter of 2022. The average cost of interest-bearing deposits for the quarter ended September 30, 2023 was 2.22%, compared to 0.47% for the same period last year. Average non-interest-bearing demand deposits decreased $520.5 million to $2.23 billion for the quarter ended September 30, 2023, compared to $2.75 billion for the quarter ended September 30, 2022. The average cost of total deposits, including non-interest-bearing deposits, was 1.74% for the quarter ended September 30, 2023, compared with 0.35% for the quarter ended September 30, 2022. The average cost of borrowed funds for the quarter ended September 30, 2023 was 3.74%, compared to 1.11% for the same period last year.

Provision for Credit Losses

For the quarter ended September 30, 2023, the Company recorded an $11.0 million provision for credit losses, compared with an $8.4 million provision for credit losses for the quarter ended September 30, 2022. The increase in the allowance for credit losses on loans was primarily attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices used in our CECL model. For the three months ended September 30, 2023, net charge-offs totaled $5.5 million, or an annualized 21 basis points of average loans, which was primarily attributable to one commercial loan.

Non-Interest Income and Expense

Non-interest income totaled $19.3 million for the quarter ended September 30, 2023, a decrease of $9.1 million, compared to the same period in 2022. Other income decreased $9.2 million to $1.1 million for the three months ended September 30, 2023, compared to the quarter ended September 30, 2022, primarily due to an $8.6 million gain realized in the prior year on the sale of a foreclosed commercial office property, combined with a decrease in the gains on sales of SBA loans. Fee income decreased $1.1 million to $6.1 million for the three months ended September 30, 2023, compared to the prior year quarter, primarily due to decreases in commercial loan prepayment fees and deposit fee income. Partially offsetting these decreases in non-interest income, BOLI income increased $583,000 to $1.8 million three months ended September 30, 2023, compared to the prior year quarter, primarily due to an increase in benefit claims recognized. Additionally, insurance agency income increased $359,000 to $3.2 million for the three months ended September 30, 2023, compared to the quarter ended September 30, 2022, largely due to strong retention revenue and new business activity.

For the three months ended September 30, 2023, non-interest expense totaled $67.2 million, a decrease of $2.3 million, compared to the three months ended September 30, 2022. Compensation and benefits expense decreased $2.4 million to $35.7 million for three months ended September 30, 2023, compared to $38.1 million for the same period in 2022. The decrease was principally due to decreases in the accrual for incentive compensation, employee medical expense and stock-based compensation, partially offset by an increase in salary expense. Additionally, merger-related expenses related to our pending combination with Lakeland decreased $597,000 to $2.3 million for the three months ended September 30, 2023, compared to the same period in 2022. Partially offsetting these decreases in non-interest expense, FDIC insurance expense increased $228,000 to $1.6 million for the three months ended September 30, 2023, compared to the same period in 2022, primarily due to an increase in the assessment rate.

The Company’s annualized adjusted non-interest expense as a percentage of average assets(1) was 1.80% for the quarter ended September 30, 2023, compared to 1.89% for the same period in 2022. The efficiency ratio (adjusted non-interest expense divided by the sum of net interest income and non-interest income)(1) was 54.81% for the three months ended September 30, 2023 compared to 47.11% for the same respective period in 2022.

Income Tax Expense

For the three months ended September 30, 2023, the Company's income tax expense was $8.8 million with an effective tax rate of 23.7%, compared with $16.7 million with an effective tax rate of 27.7% for the three months ended September 30, 2022. The decrease in tax expense for the three months ended September 30, 2023, compared with the same period last year was largely the result of a decrease in taxable income, while the decrease in the effective tax rate for the three months ended September 30, 2023, compared with the three months ended September 30, 2022, was largely due to a decrease in the proportion of income derived from taxable sources.

Nine Months Ended September 30, 2023 compared to the nine months ended September 30, 2022

For the nine months ended September 30, 2023, net income totaled $101.1 million, or $1.35 per basic and diluted share, compared to net income of $126.6 million, or $1.69 per basic and diluted share, for the nine months ended September 30, 2022. Transaction costs related to our pending merger with Lakeland totaled $5.3 million and $2.9 million for the nine months ended September 30, 2023 and 2022, respectively.

Net Interest Income and Net Interest Margin

Net interest income increased $175,000 to $303.7 million for the nine months ended September 30, 2023, from $303.5 million for same period in 2022. The increase in net interest income for the nine months ended September 30, 2023 was primarily driven by the favorable repricing of adjustable rate loans, higher market rates on new loan originations and the originations of higher-yielding loans, partially offset by the unfavorable repricing of both deposits and borrowings, a decrease in lower-costing deposits and an increase in borrowings. Additionally, fees related to the forgiveness of PPP loans, which are recognized in interest income, were approximately $77,000 for the nine months ended September 30, 2023, compared to $1.4 million for the nine months ended September 30, 2022.

For the nine months ended September 30, 2023, the net interest margin decreased five basis points to 3.19%, compared to 3.24% for the nine months ended September 30, 2022. The weighted average yield on interest earning assets increased 125 basis points to 4.76% for the nine months ended September 30, 2023, compared to 3.51% for the nine months ended September 30, 2022, while the weighted average cost of interest-bearing liabilities increased 169 basis points to 2.07% for the nine months ended September 30, 2023, compared to 0.38% for the same period last year. The average cost of interest-bearing deposits increased 149 basis points to 1.82% for the nine months ended September 30, 2023, compared to 0.33% for the same period last year. Average non-interest-bearing demand deposits decreased $388.8 million to $2.38 billion for the nine months ended September 30, 2023, compared with $2.77 billion for the nine months ended September 30, 2022. The average cost of total deposits, including non-interest-bearing deposits, was 1.40% for the nine months ended September 30, 2023, compared with 0.25% for the nine months ended September 30, 2022. The average cost of borrowings for the nine months ended September 30, 2023 was 3.29%, compared to 0.97% for the same period last year.

Provision for Credit Losses

For the nine months ended September 30, 2023, the Company recorded a $27.4 million provision for credit losses related to loans, compared with a provision for credit losses of $5.0 million for the nine months ended September 30, 2022. The increase in the allowance for credit losses on loans was primarily attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices used in our CECL model. For the nine months ended September 30, 2023, net charge-offs totaled $7.3 million, or an annualized 9 basis points of average loans, which was primarily attributable to two commercial loans.

Non-Interest Income and Expense

For the nine months ended September 30, 2023, non-interest income totaled $60.9 million, a decrease of $8.7 million, compared to the same period in 2022. Other income decreased $7.8 million to $5.7 million for the nine months ended September 30, 2023, compared to $13.5 million for the same period in 2022, primarily due to an $8.6 million gain realized in the prior year on the sale of a foreclosed commercial office property, a decrease in net fees on loan-level interest rate swap transactions and a decrease in the gains on sales of SBA loans, partially offset by a $2.0 million gain related to the resolution of certain post-closing conditions following the September 2022 sale of a foreclosed commercial property. Fee income decreased $3.2 million to $18.3 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to a decrease in commercial loan prepayment fees, while wealth management income decreased $448,000 to $20.8 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to a decrease in the market value of assets under management. Partially offsetting these decreases to non-interest income, insurance agency income increased $2.0 million to $11.2 million for the nine months ended September 30, 2023, compared to $9.1 million for the same period in 2022, largely due to increases in contingent commissions, retention revenue and new business activity. Additionally, BOLI income increased $860,000 to $4.8 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to greater equity valuations.

Non-interest expense totaled $201.1 million for the nine months ended September 30, 2023, an increase of $5.9 million, compared to $195.2 million for the nine months ended September 30, 2022. The Company recorded a $1.6 million provision for credit losses for off-balance sheet credit exposures for the nine months ended September 30, 2023, compared to a $1.8 million provision benefit for the same period in 2022. The $3.4 million increase in the provision for credit losses for off-balance sheet credit exposures was primarily the result of the period-over-period relative change in line of credit utilization and an increase in projected loss factors as a result of a worsened economic forecast. Other operating expense increased $3.2 million to $31.8 million for the nine months ended September 30, 2023, compared to $28.5 million for the nine months ended September 30, 2022, largely due to increases in professional fees, combined with an increase in debit card expense. Merger-related expenses increased $2.4 million to $5.3 million for the nine months ended September 30, 2023, compared to $2.9 million for the nine months ended September 30, 2022. FDIC insurance expense increased $1.7 million to $5.7 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to an increase in the assessment rate. Partially offsetting these increases, compensation and benefits expense decreased $2.9 million to $109.7 million for the nine months ended September 30, 2023, compared to $112.6 million for the nine months ended September 30, 2022, primarily due to decreases in the accrual for incentive compensation, employee medical expenses and stock-based compensation, partially offset by an increase in salary expense. Additionally, net occupancy expense decreased $1.8 million to $24.5 million for the nine months ended September 30, 2023, compared to the same period in 2022, mainly due to decreases in maintenance and depreciation expenses.

Income Tax Expense

For the nine months ended September 30, 2023, the Company's income tax expense was $34.9 million with an effective tax rate of 25.7%, compared with $46.2 million with an effective tax rate of 26.7% for the nine months ended September 30, 2022. The decrease in tax expense for the nine months ended September 30, 2023, compared with the same period last year was largely the result of a decrease in taxable income, while the decrease in the effective tax rate for the nine months ended September 30, 2023, compared with the prior year period was largely due to a decrease in the proportion of income derived from taxable sources.

Asset Quality

The Company’s total non-performing loans at September 30, 2023 were $39.5 million, or 0.37% of total loans, compared to $45.9 million, or 0.44% of total loans at June 30, 2023 and $58.5 million, or 0.57% of total loans at December 31, 2022. The $6.4 million decrease in non-performing loans at September 30, 2023, compared to the trailing quarter, consisted of a $10.0 million decrease in non-performing commercial loans, a $383,000 decrease in non-performing consumer loans, a $369,000 decrease in non-performing residential mortgage loans and a $56,000 decrease in non-performing multi-family loans, partially offset by a $4.4 million increase in non-performing commercial mortgage loans. At September 30, 2023, impaired loans totaled $30.4 million with related specific reserves of $3.4 million, compared with impaired loans totaling $37.1 million with related specific reserves of $4.5 million at June 30, 2023. At December 31, 2022, impaired loans totaled $42.8 million with related specific reserves of $2.4 million.

At September 30, 2023, the Company’s allowance for credit losses related to the loan portfolio was 1.01% of total loans, compared to 0.97% and 0.86% at June 30, 2023 and December 31, 2022, respectively. The allowance for credit losses increased $19.5 million to $107.6 million at September 30, 2023, from $88.0 million at December 31, 2022. The increase in the allowance for credit losses on loans at September 30, 2023 compared to December 31, 2022 was due to a $27.4 million provision for credit losses, partially offset by net charge-offs of $7.3 million and a gross reduction of the allowance for credit losses of $594,000 which was recorded against equity upon the January 1, 2023 adoption of ASU 2022-02, related to troubled debt restructurings. The increase in the allowance for credit losses on loans was primarily attributable to a worsened economic forecast and related deterioration in the projected commercial property price indices used in our CECL model, combined with an increase in total loans outstanding.

The following table sets forth accruing past due loans and non-accrual loans on the dates indicated, as well as certain asset quality ratios.

		September 30, 2023						June 30, 2023						December 31, 2022
		Number of Loans		PrincipalBalanceof Loans				Number of Loans		PrincipalBalanceof Loans				Number of Loans		PrincipalBalanceof Loans
		(Dollars in thousands)
Accruing past due loans:
30 to 59 days past due:
Commercial mortgage loans		—		$	—			2		$	1,445			2		$	2,300
Multi-family mortgage loans		2			5,473			1			3,853			1			790
Construction loans		—			—			—			—			1			905
Residential mortgage loans		9			1,588			11			1,427			10			1,411
Total mortgage loans		11			7,061			14			6,725			14			5,406
Commercial loans		6			1,959			10			3,021			5			964
Consumer loans		27			1,207			15			957			18			885
Total 30 to 59 days past due		44		$	10,227			39		$	10,703			37		$	7,255
60 to 89 days past due:
Commercial mortgage loans		2		$	587			2		$	1,137			2		$	412
Multi-family mortgage loans		—			—			—			—			—			—
Construction loans		—			—			—			—			1			1,097
Residential mortgage loans		7			936			6			1,171			9			1,114
Total mortgage loans		9			1,523			8			2,308			12			2,623
Commercial loans		4			228			2			90			5			1,014
Consumer loans		4			168			3			147			4			147
Total 60 to 89 days past due		17			1,919			13			2,545			21			3,784
Total accruing past due loans		61		$	12,146			52		$	13,248			58		$	11,039
Non-accrual:
Commercial mortgage loans		9		$	11,667			7		$	7,279			10		$	28,212
Multi-family mortgage loans		2			2,258			2			2,314			1			1,565
Construction loans		2			1,868			2			1,874			2			1,878
Residential mortgage loans		11			1,329			12			1,698			14			1,928
Total mortgage loans		24			17,122			23			13,165			27			33,583
Commercial loans		27			21,912			30			31,885			34			24,188
Consumer loans		7			495			8			878			10			738
Total non-accrual loans		58		$	39,529			61		$	45,928			71		$	58,509
Non-performing loans to total loans					0.37	%					0.44	%					0.57	%
Allowance for loan losses to total non-performing loans					272.11	%					222.25	%					150.44	%
Allowance for loan losses to total loans					1.01	%					0.97	%					0.86	%

At September 30, 2023 and December 31, 2022, the Company held foreclosed assets of $16.5 million and $2.1 million, respectively. During the nine months ended September 30, 2023, there were four additions to foreclosed assets with an aggregate carrying value of $15.1 million, and three properties sold with an aggregate carrying value of $768,000. Foreclosed assets at September 30, 2023 consisted primarily of commercial real estate. Total non-performing assets at September 30, 2023 decreased $4.6 million to $56.0 million, or 0.40% of total assets, from $60.6 million, or 0.44% of total assets at December 31, 2022.

Balance Sheet Summary

Total assets at September 30, 2023 were $14.09 billion, a $303.4 million increase from December 31, 2022. The increase in total assets was primarily due to a $418.7 million increase in total loans, partially offset by a $132.0 million decrease in total investments.

The Company’s loan portfolio totaled $10.67 billion at September 30, 2023 and $10.25 billion at December 31, 2022. The loan portfolio consisted of the following:

	September 30, 2023				June 30, 2023				December 31, 2022
	(Dollars in thousands)
Mortgage loans:
Commercial	$	4,411,099			$	4,373,436			$	4,316,185
Multi-family		1,790,039				1,645,770				1,513,818
Construction		667,462				707,234				715,494
Residential		1,167,570				1,166,159				1,177,698
Total mortgage loans		8,036,170				7,892,599				7,723,195
Commercial loans		2,340,080				2,348,447				2,233,670
Consumer loans		302,769				301,306				304,780
Total gross loans		10,679,019				10,542,352				10,261,645
Premiums on purchased loans		1,413				1,374				1,380
Net deferred fees and unearned discounts		(12,820	)			(13,195	)			(14,142	)
Total loans	$	10,667,612			$	10,530,531			$	10,248,883

During the nine months ended September 30, 2023, the loan portfolio had net increases of $276.2 million in multi-family loans, $106.4 million in commercial loans and $94.9 million in commercial mortgage loans, partially offset by net decreases in construction, residential mortgage and consumer loans of $48.0 million, $10.1 million and $2.0 million, respectively. Commercial loans, consisting of commercial real estate, multi-family, commercial and construction loans, represented 86.2% of the loan portfolio at September 30, 2023, compared to 85.6% at December 31, 2022.

For the nine months ended September 30, 2023, loan funding, including advances on lines of credit, totaled $2.53 billion, compared with $3.05 billion for the same period in 2022.

At September 30, 2023, the Company’s unfunded loan commitments totaled $2.18 billion, including commitments of $1.21 billion in commercial loans, $533.9 million in construction loans and $105.7 million in commercial mortgage loans. Unfunded loan commitments at December 31, 2022 and September 30, 2022 were $2.06 billion and $2.17 billion, respectively.

The loan pipeline, consisting of work-in-process and loans approved pending closing, totaled $1.70 billion at September 30, 2023, compared to $1.29 billion and $1.46 billion at December 31, 2022 and September 30, 2022, respectively.

Total investment securities were $2.13 billion at September 30, 2023, a $132.0 million decrease from December 31, 2022. This decrease was primarily due to repayments of mortgage-backed securities, an increase in unrealized losses on available for sale debt securities and maturities and calls of certain municipal and agency bonds, partially offset by purchases of mortgage-backed and municipal securities.

Total deposits decreased $421.6 million during the nine months ended September 30, 2023, to $10.14 billion. Total savings and demand deposit accounts decreased $738.3 million to $9.07 billion at September 30, 2023, while total time deposits increased $316.7 million to $1.07 billion at September 30, 2023. The decrease in savings and demand deposits was largely attributable to a $456.2 million decrease in non-interest bearing demand deposits, a $324.7 million decrease in money market deposits and a $238.2 million decrease in savings deposits, partially offset by a $280.8 million increase in interest bearing demand deposits. During the nine months ended September 30, 2023, deposit balances from traditional non-interest and interest bearing demand deposits transitioned into our ICS product, as a method to increase the level of customers' deposit insurance in light of recent bank deposit turmoil. The Bank's ICS deposits increased $441.8 million to $500.7 million at September 30, 2023, from $58.9 million at December 31, 2022. The increase in time deposits consisted of a $322.4 million increase in retail time deposits, partially offset by a $5.7 million decrease in brokered time deposits.

Borrowed funds increased $684.9 million during the nine months ended September 30, 2023, to $2.02 billion. The increase in borrowings was largely due to asset funding requirements. Borrowed funds represented 14.4% of total assets at September 30, 2023, an increase from 9.7% at December 31, 2022.

Stockholders’ equity increased $25.3 million during the nine months ended September 30, 2023, to $1.62 billion, primarily due to net income earned for the period, partially offset by an increase in unrealized losses on available for sale debt securities and cash dividends paid to stockholders. For the three months ended September 30, 2023, the Company did not repurchase shares under its stock repurchase program. For the nine months ended September 30, 2023, common stock repurchases totaled 71,357 shares at an average cost of $23.32 per share, all of which were made in connection with withholding to cover income taxes on the vesting of stock-based compensation. At September 30, 2023, approximately 1.1 million shares remained eligible for repurchase under the current stock repurchase authorization. Book value per share and tangible book value per share(1) at September 30, 2023 were $21.49 and $15.41, respectively, compared with $21.25 and $15.12, respectively, at December 31, 2022. The Company completed its most recent annual goodwill impairment test as of July 1, 2023. At September 30, 2023, the Company performed an interim goodwill impairment analysis and concluded that no triggering considerations were met and therefore a test for impairment between annual tests was not required.

About the Company

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

Post Earnings Conference Call

Representatives of the Company will hold a conference call for investors on Friday, October 27, 2023 at 10:00 a.m. Eastern Time to discuss the Company’s financial results for the quarter ended September 30, 2023. The call may be accessed by dialing 1-888-412-4131 (United States Toll Free) and 1-646-960-0134 (United States Local). Speakers will need to enter conference ID code (3610756) before being met by a live operator. Internet access to the call is also available (listen only) at provident.bank by going to Investor Relations and clicking on "Webcast."

Forward Looking Statements

Certain statements contained herein are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” "project," "intend," “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those set forth in Item 1A of the Company's Annual Report on Form 10-K, as supplemented by its Quarterly Reports on Form 10-Q, and those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, the effects of the recent turmoil in the banking industry (including the closing of three financial institutions), changes in accounting policies and practices that may be adopted by the regulatory agencies and the accounting standards setters, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, potential goodwill impairment, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets, the availability of and costs associated with sources of liquidity, the ability to complete, or any delays in completing, the pending merger between the Company and Lakeland; any failure to realize the anticipated benefits of the transaction when expected or at all; certain restrictions during the pendency of the transaction that may impact the Company’s ability to pursue certain business opportunities or strategic transactions; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management’s attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the merger and integration of the companies; and the impact of a potential shutdown of the federal government.

The Company cautions readers not to place undue reliance on any such forward-looking statements which speak only as of the date they are 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 assume any duty, and does not undertake, to update any forward-looking statements to reflect events or circumstances after the date of this statement.

Footnotes

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

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Financial Highlights
(Dollars in Thousands, except share data) (Unaudited)
	At or for the Three months ended												At or for the Nine Months Ended
	September 30,				June 30,				September 30,				September 30,				September 30,
		2023				2023				2022				2023				2022
Statement of Income
Net interest income	$	96,236			$	99,106			$	109,489			$	303,666			$	303,491
Provision for credit losses		11,009				10,397				8,413				27,407				5,004
Non-interest income		19,320				19,387				28,445				60,861				69,523
Non-interest expense		67,157				64,463				69,443				201,109				195,173
Income before income tax expense		37,390				43,633				60,078				136,011				172,837
Net income		28,547				32,003				43,421				101,086				126,613
Diluted earnings per share	$	0.38			$	0.43			$	0.58			$	1.35			$	1.69
Interest rate spread		2.39	%			2.60	%			3.36	%			2.69	%			3.13	%
Net interest margin		2.96	%			3.11	%			3.51	%			3.19	%			3.24	%
Profitability
Annualized return on average assets		0.81	%			0.93	%			1.26	%			0.98	%			1.24	%
Annualized return on average equity		6.84	%			7.76	%			10.68	%			8.22	%			10.36	%
Annualized return on average tangible equity(1)		9.47	%			10.75	%			14.96	%			11.40	%			14.46	%
Annualized adjusted non-interest expense to average assets(3)		1.80	%			1.83	%			1.89	%			1.87	%			1.91	%
Efficiency ratio(4)		54.81	%			53.29	%			47.11	%			53.26	%			52.03	%
Asset Quality
Non-accrual loans					$	45,928							$	39,529			$	59,501
90+ and still accruing						—								—				—
Non-performing loans						45,928								39,529				59,501
Foreclosed assets						13,697								16,487				2,053
Non-performing assets						59,625								56,016				61,554
Non-performing loans to total loans						0.44	%							0.37	%			0.59	%
Non-performing assets to total assets						0.42	%							0.40	%			0.45	%
Allowance for loan losses					$	102,073							$	107,563			$	88,633
Allowance for loan losses to total non-performing loans						222.25	%							272.11	%			148.96	%
Allowance for loan losses to total loans						0.97	%							1.01	%			0.88	%
Net loan charge-offs (recoveries)	$	5,510			$	1,085			$	(1,216	)		$	7,266			$	(2,893	)
Annualized net loan charge-offs (recoveries) to average total loans		0.21	%			0.04	%		(0.05)%					0.09	%		(0.04)%
Average Balance Sheet Data
Assets	$	13,976,610			$	13,833,055			$	13,622,554			$	13,848,351			$	13,618,804
Loans, net		10,470,843				10,238,224				9,914,831				10,269,022				9,694,816
Earning assets		12,735,938				12,575,967				12,390,107				12,574,437				12,414,917
Core deposits		9,212,202				9,297,058				10,173,351				9,408,156				10,394,240
Borrowings		1,780,655				1,658,809				908,841				1,556,619				663,366
Interest-bearing liabilities		9,826,064				9,565,814				9,011,492				9,554,204				8,978,775
Stockholders' equity		1,654,920				1,653,677				1,613,522				1,645,093				1,633,430
Average yield on interest-earning assets		4.89	%			4.73	%			3.90	%			4.76	%			3.51	%
Average cost of interest-bearing liabilities		2.50	%			2.13	%			0.54	%			2.07	%			0.38	%

Notes and Reconciliation of GAAP and Non-GAAP Financial Measures(Dollars in Thousands, except share data)

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

(1) Book and Tangible Book Value per Share
														September 30,				At December 31,
															2023				2022
Total stockholders' equity														$	1,622,970			$	1,597,703
Less: total intangible assets															458,663				460,892
Total tangible stockholders' equity														$	1,164,307			$	1,136,811
Shares outstanding															75,531,884				75,169,196
Book value per share (total stockholders' equity/shares outstanding)														$	21.49			$	21.25
Tangible book value per share (total tangible stockholders' equity/shares outstanding)														$	15.41			$	15.12
(2) Annualized Return on Average Tangible Equity
		Three Months Ended												Nine Months Ended
		September 30,				June 30,				September 30,				September 30,				September 30,
			2023				2023				2022				2023				2022
Total average stockholders' equity		$	1,654,920			$	1,653,677			$	1,613,522			$	1,645,093			$	1,633,430
Less: total average intangible assets			459,133				459,865				462,180				459,871				463,030
Total average tangible stockholders' equity		$	1,195,787			$	1,193,812			$	1,151,342			$	1,185,222			$	1,170,400
Net income		$	28,547			$	32,003			$	43,421			$	101,086			$	126,613
Annualized return on average tangible equity (net income/total average tangible stockholders' equity)			9.47	%			10.75	%			14.96	%			11.40	%			14.46	%
(3) Annualized Pre-Tax, Pre-Provision ("PTPP") Return on Average Assets
		Three Months Ended												Nine Months Ended
		September 30,				June 30,				September 30,				September 30,				September 30,
			2023				2023				2022				2023				2022
Net income		$	28,547			$	32,003			$	43,421			$	101,086			$	126,613
Adjustments to net income:
Provision for credit losses			11,009				10,397				8,413				27,407				5,004
Credit loss (benefit) expense for off-balance sheet credit exposure			1,532				(647	)			1,575				1,624				(1,788	)
Merger-related transaction costs			2,289				1,961				2,886				5,349				2,886
Income tax expense			8,843				11,630				16,657				34,925				46,224
PTPP income		$	52,220			$	55,344			$	72,952			$	170,391			$	178,939
Annualized PTPP income		$	207,177			$	221,984			$	289,429			$	227,812			$	239,241
Average assets		$	13,976,610			$	13,833,055			$	13,622,554			$	13,848,351			$	13,618,804
Annualized PTPP return on average assets			1.48	%			1.60	%			2.12	%			1.65	%			1.76	%
(4) Annualized Adjusted Non-Interest Expense to Average Assets
		Three Months Ended												Nine Months Ended
		September 30,				June 30,				September 30,				September 30,				September 30,
			2023				2023				2022				2023				2022
Reported non-interest expense		$	67,157			$	64,463			$	69,443			$	201,109			$	195,173
Adjustments to non-interest expense:
Credit loss (benefit) expense for off-balance sheet credit exposures			1,532				(647	)			1,575				1,624				(1,788	)
Merger-related transaction costs			2,289				1,961				2,886				5,349				2,886
Adjusted non-interest expense		$	63,336			$	63,149			$	64,982			$	194,136			$	194,075
Annualized adjusted non-interest expense		$	251,279			$	253,290			$	257,809			$	259,559			$	259,478
Average assets		$	13,976,610			$	13,833,055			$	13,622,554			$	13,848,351			$	13,618,804
Annualized adjusted non-interest expense/average assets			1.80	%			1.83	%			1.89	%			1.87	%			1.91	%
(5) Efficiency Ratio Calculation
		Three Months Ended												Nine Months Ended
		September 30,				June 30,				September 30,				September 30,				September 30,
			2023				2023				2022				2023				2022
Net interest income		$	96,236			$	99,106			$	109,489			$	303,666			$	303,491
Non-interest income			19,320				19,387				28,445				60,861				69,523
Total income		$	115,556			$	118,493			$	137,934			$	364,527			$	373,014
Adjusted non-interest expense		$	63,336			$	63,149			$	64,982			$	194,136			$	194,075
Efficiency ratio (adjusted non-interest expense/income)			54.81	%			53.29	%			47.11	%			53.26	%			52.03	%

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, 2023 (Unaudited) and December 31, 2022
(Dollars in Thousands)
Assets	September 30, 2023				December 31, 2022
Cash and due from banks	$	188,573			$	186,490
Short-term investments		696				18
Total cash and cash equivalents		189,269				186,508
Available for sale debt securities, at fair value		1,656,305				1,803,548
Held to maturity debt securities, net (fair value of $343,082 at September 30, 2023 (unaudited) and $373,468 at December 31, 2022)		370,416				387,923
Equity securities, at fair value		1,210				1,147
Federal Home Loan Bank stock		101,250				68,554
Loans		10,667,612				10,248,883
Less allowance for credit losses		107,563				88,023
Net loans		10,560,049				10,160,860
Foreclosed assets, net		16,487				2,124
Banking premises and equipment, net		71,453				79,794
Accrued interest receivable		55,741				51,903
Intangible assets		458,663				460,892
Bank-owned life insurance		241,406				239,040
Other assets		364,576				341,143
Total assets	$	14,086,825			$	13,783,436
Liabilities and Stockholders' Equity
Deposits:
Demand deposits	$	7,872,901			$	8,373,005
Savings deposits		1,200,377				1,438,583
Certificates of deposit of $100,000 or more		699,880				504,627
Other time deposits		368,241				246,809
Total deposits		10,141,399				10,563,024
Mortgage escrow deposits		41,319				35,705
Borrowed funds		2,022,249				1,337,370
Subordinated debentures		10,646				10,493
Other liabilities		248,242				239,141
Total liabilities		12,463,855				12,185,733
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, 83,209,012 shares issued and 75,531,884 shares outstanding at September 30, 2023 and 76,169,196 outstanding at December 31, 2022.		832				832
Additional paid-in capital		988,001				981,138
Retained earnings		964,802				918,158
Accumulated other comprehensive loss		(195,056	)			(165,045	)
Treasury stock		(127,818	)			(127,154	)
Unallocated common stock held by the Employee Stock Ownership Plan		(7,791	)			(10,226	)
Common Stock acquired by the Directors' Deferred Fee Plan		(3,013	)			(3,427	)
Deferred Compensation - Directors' Deferred Fee Plan		3,013				3,427
Total stockholders' equity		1,622,970				1,597,703
Total liabilities and stockholders' equity	$	14,086,825			$	13,783,436

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Three months ended September 30, 2023, June 30, 2023 and September 30, 2022, and nine months ended September 30, 2023 and 2022 (Unaudited)
(Dollars in Thousands, except per share data)
	Three Months Ended											Nine Months Ended
	September 30,			June 30,				September 30,				September 30,			September 30,
		2023			2023				2022				2023			2022
Interest income:
Real estate secured loans	$	104,540		$	99,302			$	80,273			$	299,830		$	213,181
Commercial loans		33,806			31,426				25,201				93,915			70,385
Consumer loans		4,746			4,431				3,785				13,419			10,268
Available for sale debt securities, equity securities and Federal Home Loan Bank stock		11,886			11,432				9,560				34,748			25,966
Held to maturity debt securities		2,334			2,357				2,416				7,059			7,501
Deposits, federal funds sold and other short-term investments		885			948				496				2,678			1,705
Total interest income		158,197			149,896				121,731				451,649			329,006
Interest expense:
Deposits		44,923			36,447				9,560				108,880			20,322
Borrowed funds		16,765			14,088				2,518				38,329			4,790
Subordinated debt		273			255				164				774			403
Total interest expense		61,961			50,790				12,242				147,983			25,515
Net interest income		96,236			99,106				109,489				303,666			303,491
Provision charge for credit losses		11,009			10,397				8,413				27,407			5,004
Net interest income after provision for credit losses		85,227			88,709				101,076				276,259			298,487
Non-interest income:
Fees		6,132			5,775				7,203				18,294			21,516
Wealth management income		6,992			6,919				6,785				20,826			21,274
Insurance agency income		3,224			3,847				2,865				11,175			9,135
Bank-owned life insurance		1,820			1,534				1,237				4,838			3,978
Net gain on securities transactions		13			29				(3	)			37			154
Other income		1,139			1,283				10,358				5,691			13,466
Total non-interest income		19,320			19,387				28,445				60,861			69,523
Non-interest expense:
Compensation and employee benefits		35,702			35,283				38,079				109,724			112,582
Net occupancy expense		8,113			7,949				8,452				24,474			26,262
Data processing expense		5,312			5,716				5,575				16,536			16,551
FDIC Insurance		1,628			2,125				1,400				5,688			3,955
Amortization of intangibles		720			749				779				2,231			2,511
Advertising and promotion expense		1,133			1,379				1,366				3,722			3,692
Credit loss expense (benefit) for off-balance sheet exposures		1,532			(647	)			1,575				1,624			(1,788	)
Merger-related expenses		2,289			1,960				2,886				5,349			2,886
Other operating expenses		10,728			9,949				9,331				31,761			28,522
Total non-interest expense		67,157			64,463				69,443				201,109			195,173
Income before income tax expense		37,390			43,633				60,078				136,011			172,837
Income tax expense		8,843			11,630				16,657				34,925			46,224
Net income	$	28,547		$	32,003			$	43,421			$	101,086		$	126,613
Basic earnings per share	$	0.38		$	0.43			$	0.58			$	1.35		$	1.69
Average basic shares outstanding		74,909,083			74,823,272				74,297,237				74,793,530			74,808,358
Diluted earnings per share	$	0.38		$	0.43			$	0.58			$	1.35		$	1.69
Average diluted shares outstanding		74,914,205			74,830,187				74,393,380				74,816,606			74,896,493

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Net Interest Margin Analysis
Quarterly Average Balances
(Dollars in Thousands) (Unaudited)
	September 30, 2023									June 30, 2023									September 30, 2022
	Average Balance			Interest			Average Yield/Cost			Average Balance			Interest			Average Yield/Cost			Average Balance			Interest			Average Yield/Cost
Interest-Earning Assets:
Deposits	$	74,183		$	884		4.73	%		$	73,470		$	947		5.17	%		$	30,231		$	201		2.67	%
Federal funds sold and other short-term investments		57			1		4.00	%			88			1		6.75	%			46,707			295		2.54	%
Available for sale debt securities		1,724,833			10,127		2.35	%			1,801,050			10,290		2.29	%			1,948,721			9,115		2.42	%
Held to maturity debt securities, net (1)		373,681			2,334		2.50	%			379,958			2,357		2.48	%			399,370			2,416		1.87	%
Equity securities, at fair value		1,068			—		—	%			1,006			—		—	%			949			—		—	%
Federal Home Loan Bank stock		91,273			1,759		7.71	%			82,171			1,142		5.56	%			49,298			445		3.61	%
Net loans: (2)
Total mortgage loans		7,881,193			104,540		5.21	%			7,701,072			99,302		5.11	%			7,443,268			80,273		4.28	%
Total commercial loans		2,289,267			33,806		5.81	%			2,234,043			31,426		5.59	%			2,151,512			25,201		4.66	%
Total consumer loans		300,383			4,746		6.27	%			303,109			4,431		5.86	%			320,051			3,785		4.74	%
Total net loans		10,470,843			143,092		5.37	%			10,238,224			135,159		5.24	%			9,914,831			109,259		4.38	%
Total interest-earning assets	$	12,735,938		$	158,197		4.89	%		$	12,575,967		$	149,896		4.73	%		$	12,390,107		$	121,731		3.90	%
Non-Interest Earning Assets:
Cash and due from banks		82,522									129,979									126,330
Other assets		1,158,150									1,127,109									1,106,117
Total assets	$	13,976,610								$	13,833,055								$	13,622,554
Interest-Bearing Liabilities:
Demand deposits	$	5,741,052		$	35,290		2.44	%		$	5,620,268		$	28,613		2.04	%		$	5,906,679		$	7,990		0.54	%
Savings deposits		1,240,951			592		0.19	%			1,307,830			537		0.16	%			1,515,926			296		0.08	%
Time deposits		1,052,793			9,041		3.41	%			968,344			7,297		3.02	%			669,639			1,274		0.76	%
Total Deposits		8,034,796			44,923		2.22	%			7,896,442			36,447		1.85	%			8,092,244			9,560		0.47	%
Borrowed funds		1,780,655			16,765		3.74	%			1,658,809			14,088		3.41	%			908,841			2,518		1.11	%
Subordinated debentures		10,613			273		10.24	%			10,563			255		9.66	%			10,407			164		6.35	%
Total interest-bearing liabilities		9,826,064			61,961		2.50	%			9,565,814			50,790		2.13	%			9,011,492			12,242		0.54	%
Non-Interest Bearing Liabilities:
Non-interest bearing deposits		2,230,199									2,368,960									2,750,746
Other non-interest bearing liabilities		265,427									244,604									246,794
Total non-interest bearing liabilities		2,495,626									2,613,564									2,997,540
Total liabilities		12,321,690									12,179,378									12,009,032
Stockholders' equity		1,654,920									1,653,677									1,613,522
Total liabilities and stockholders' equity	$	13,976,610								$	13,833,055								$	13,622,554
Net interest income				$	96,236								$	99,106								$	109,489
Net interest rate spread							2.39	%								2.60	%								3.36	%
Net interest-earning assets	$	2,909,874								$	3,010,153								$	3,378,615
Net interest margin (3)							2.96	%								3.11	%								3.51	%
Ratio of interest-earning assets to total interest-bearing liabilities	1.30x									1.31x									1.37x

(1	)	Average outstanding balance amounts shown are amortized cost, net of allowance for credit losses.
(2	)	Average outstanding balances are net of the allowance for loan losses, deferred loan fees and expenses, loan premiums and discounts and include non-accrual loans.
(3	)	Annualized net interest income divided by average interest-earning assets.

The following table summarizes the quarterly net interest margin for the previous five quarters.
	9/30/23			6/30/23			3/31/23			12/31/22			9/30/22
	3rd Qtr.			2nd Qtr.			1st Qtr.			4th Qtr.			3rd Qtr.
Interest-Earning Assets:
Securities	2.67	%		2.53	%		2.52	%		2.32	%		2.36	%
Net loans	5.37	%		5.24	%		5.12	%		4.82	%		4.38	%
Total interest-earning assets	4.89	%		4.73	%		4.63	%		4.36	%		3.90	%
Interest-Bearing Liabilities:
Total deposits	2.22	%		1.85	%		1.39	%		0.90	%		0.47	%
Total borrowings	3.74	%		3.41	%		2.48	%		1.74	%		1.11	%
Total interest-bearing liabilities	2.50	%		2.13	%		1.54	%		1.00	%		0.54	%
Interest rate spread	2.39	%		2.60	%		3.09	%		3.36	%		3.36	%
Net interest margin	2.96	%		3.11	%		3.48	%		3.62	%		3.51	%
Ratio of interest-earning assets to interest-bearing liabilities	1.30	x		1.31	x		1.34	x		1.35	x		1.37	x

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Net Interest Margin Analysis
Average Year to Date Balances
(Dollars in Thousands) (Unaudited)
	September 30, 2023									September 30, 2022
	Average						Average			Average						Average
	Balance			Interest			Yield/Cost			Balance			Interest			Yield/Cost
Interest-Earning Assets:
Deposits	$	69,696		$	2,676		5.13	%		$	126,439		$	499		0.53	%
Federal funds sold and other short term investments		58			2		5.34	%			113,498			1,206		1.42	%
Available for sale debt securities		1,777,861			30,819		2.31	%			2,028,645			24,786		1.63	%
Held to maturity debt securities, net (1)		379,144			7,059		2.48	%			413,136			7,501		2.42	%
Equity securities, at fair value		1,022			—		—	%			1,020			—		—	%
Federal Home Loan Bank stock		77,634			3,929		6.75	%			37,363			1,180		4.21	%
Net loans: (2)
Total mortgage loans		7,740,591			299,830		5.12	%			7,253,822			213,181		3.89	%
Total commercial loans		2,225,725			93,915		5.60	%			2,119,637			70,385		4.40	%
Total consumer loans		302,706			13,419		5.93	%			321,357			10,268		4.27	%
Total net loans		10,269,022			407,164		5.25	%			9,694,816			293,834		4.01	%
Total interest-earning assets	$	12,574,437		$	451,649		4.76	%		$	12,414,917		$	329,006		3.51	%
Non-Interest Earning Assets:
Cash and due from banks		121,801									126,392
Other assets		1,152,113									1,077,495
Total assets	$	13,848,351								$	13,618,804
Interest-Bearing Liabilities:
Demand deposits	$	5,710,855		$	85,822		2.01	%		$	6,126,916		$	16,643		0.36	%
Savings deposits		1,315,157			1,582		0.16	%			1,496,355			871		0.08	%
Time deposits		961,010			21,476		2.99	%			681,783			2,808		0.55	%
Total deposits		7,987,022			108,880		1.82	%			8,305,054			20,322		0.33	%
Borrowed funds		1,556,619			38,329		3.29	%			663,366			4,790		0.97	%
Subordinated debentures		10,563			774		9.80	%			10,355			403		5.21	%
Total interest-bearing liabilities	$	9,554,204		$	147,983		2.07	%		$	8,978,775		$	25,515		0.38	%
Non-Interest Bearing Liabilities:
Non-interest bearing deposits		2,382,144									2,770,969
Other non-interest bearing liabilities		266,910									235,630
Total non-interest bearing liabilities		2,649,054									3,006,599
Total liabilities		12,203,258									11,985,374
Stockholders' equity		1,645,093									1,633,430
Total liabilities and stockholders' equity	$	13,848,351								$	13,618,804
Net interest income				$	303,666								$	303,491
Net interest rate spread							2.69	%								3.13	%
Net interest-earning assets	$	3,020,233								$	3,436,142
Net interest margin (3)							3.19	%								3.24	%
Ratio of interest-earning assets to total interest-bearing liabilities	1.32x									1.38x
(1) Average outstanding balance amounts shown are amortized cost, net of allowance for credit losses.
(2) Average outstanding balance are net of the allowance for loan losses, deferred loan fees and expenses, loan premium and discounts and include non-accrual loans.
(3) Annualized net interest income divided by average interest-earning assets.

The following table summarizes the year-to-date net interest margin for the previous three years.
	Nine Months Ended
	September 30, 2023			September 30, 2022			September 30, 2021
Interest-Earning Assets:
Securities	2.57	%		1.72	%		1.47	%
Net loans	5.25	%		4.01	%		3.78	%
Total interest-earning assets	4.76	%		3.51	%		3.31	%
Interest-Bearing Liabilities:
Total deposits	1.82	%		0.33	%		0.34	%
Total borrowings	3.29	%		0.97	%		1.13	%
Total interest-bearing liabilities	2.07	%		0.38	%		0.43	%
Interest rate spread	2.69	%		3.13	%		2.88	%
Net interest margin	3.19	%		3.24	%		2.99	%
Ratio of interest-earning assets to interest-bearing liabilities	1.32	x		1.38	x		1.36	x