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Provident Financial Services, Inc. Announces Fourth Quarter And Full-Year Operating Results For 2009 And Declares Quarterly Cash Dividend

JERSEY CITY, N.J., Jan. 29 /PRNewswire-FirstCall/ -- Provident Financial Services, Inc. (NYSE: PFS) (the "Company") reported net income of $6.8 million, or $0.12 per basic and diluted share for the quarter ended December 31, 2009, compared to net income of $7.4 million, or $0.13 per basic and diluted share for the quarter ended December 31, 2008.  The Company reported operating income, excluding a goodwill impairment charge recorded in the first quarter of 2009, of $30.7 million, or $0.55 per basic and diluted share for the year ended December 31, 2009, compared to net income of $41.6 million, or $0.74 per basic and diluted share for the year ended December 31, 2008.

The Company previously 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 $121.8 million, or $2.16 per basic and diluted share for the year ended December 31, 2009.  The goodwill impairment charge was a non-cash accounting adjustment to the Company's financial statements which did not affect cash flows, liquidity, or tangible capital.  As goodwill is excluded from regulatory capital, the impairment charge did not impact the regulatory capital ratios of the Company or its wholly owned subsidiary, The Provident Bank, both of which remain "well-capitalized" under current regulatory requirements.

Compared with the three months and year ended December 31, 2008, earnings and per share data for the three months and year ended December 31, 2009 also reflect an increase in the provision for loan losses due to the following: an increase in non-performing loans; downgrades in credit risk ratings; an increase in commercial loans as a percentage of the total loan portfolio; and the impact of current macroeconomic conditions.  The provision for loan losses was $12.2 million and $30.3 million for the three months and year ended December 31, 2009, respectively, compared with $8.5 million and $15.1 million, respectively, for the same periods in 2008.  In addition, earnings and per share data for the year ended December 31, 2009 were impacted by a special assessment imposed on the banking industry by the FDIC as part of its plan to restore the deposit insurance fund.  The cost of this special assessment to the Company was $3.1 million, which resulted in a charge of $1.9 million, or $0.03 per basic and diluted share, net of tax, recognized during the second quarter of 2009.  

Christopher Martin, President and Chief Executive Officer, commented, "Despite the unsettled economic environment, our fourth quarter and annual results, excluding the first quarter goodwill impairment charge, were positive.  However, with unemployment at a 33-year high, the New Jersey economy remains under duress.  This continues to pressure our residential mortgage loan portfolio, where delinquencies on conventional mortgage loans continued to increase.  With the prolonged recession and expectations of a modest recovery in the future, we remain cautious, as reflected in our loan loss provision for the fourth quarter."

Martin added, "It bears reiterating that we did not accept government assistance in the form of TARP funds, due in part to our strong capital position.  We are encouraged by the sequential increase in our quarterly net interest income of over 7%, with expansion in our margin of 15 basis points during the quarter.  Furthermore, we are taking steps to reduce costs through the consolidation and sale of several underperforming branch locations and Bank-owned real estate, which resulted in pre-tax charges of $1.3 million, or $0.01 per basic and diluted share, net of tax, during the quarter.  These actions will result in improved efficiencies in the future."

Declaration of Quarterly Dividend

The Company's Board of Directors declared a quarterly cash dividend of $0.11 per common share payable on February 26, 2010, to stockholders of record as of the close of business on February 12, 2010.

Balance Sheet Summary

Total assets increased $287.4 million, or 4.4%, to $6.84 billion at December 31, 2009, from $6.55 billion at December 31, 2008, due primarily to increases in securities available for sale and cash and cash equivalents, partially offset by decreases in loans and intangible assets.

Cash and cash equivalents increased $55.2 million to $123.7 million at December 31, 2009, from $68.5 million at December 31, 2008, as a result of deposit inflows and proceeds from loan repayments and loan sales.  The Company will continue to deploy these cash balances to fund loan originations, investment purchases and the repayment of maturing borrowings.

Total investments increased $491.9 million, or 40.6%, during the year ended December 31, 2009.  The increase included $84.9 million of residential mortgage loan pools that were securitized by the Company in the first quarter of 2009, which are held as securities available for sale.  The loan securitization was undertaken to enhance the liquidity and risk-based capital treatment of the underlying loans.  Securities purchases for the year ended December 31, 2009 consisted primarily of U.S. Government Agency guaranteed mortgage-backed securities and obligations.

The Company's net loans decreased $155.6 million, or 3.5%, to $4.32 billion at December 31, 2009, from $4.48 billion at December 31, 2008.  This decrease was partially attributable to the securitization of $84.9 million of residential mortgage loans during the first quarter of 2009.  Loan originations totaled $1.14 billion and loan purchases totaled $55.1 million for the year ended December 31, 2009.  Compared with December 31, 2008, residential mortgage loans decreased $301.8 million, consumer loans decreased $37.8 million, and construction loans decreased $37.8 million, while commercial mortgage and multi-family loans increased $205.1 million and commercial loans increased $32.6 million.  In addition to the securitization of $84.9 million of loans, total residential mortgage loans decreased as a result of the sale of $98.7 million of primarily newly originated 30-year fixed-rate loans as part of the Company's interest rate risk management process.  Commercial real estate, construction and commercial loans represented 52.5% of the loan portfolio at December 31, 2009, compared to 46.5% at December 31, 2008.

At December 31, 2009, the Company's unfunded loan commitments totaled $767.9 million, including $312.0 million in commercial loan commitments, $95.7 million in commercial mortgage commitments, and $69.7 million in construction loan commitments.  Unfunded loan commitments at September 30, 2009 were $776.2 million.

Intangible assets decreased $156.6 million to $358.1 million at December 31, 2009, from $514.7 million at December 31, 2008, primarily due to a $152.5 million goodwill impairment charge recognized in the first quarter of 2009.

Total deposits increased $672.8 million, or 15.9%, during the year ended December 31, 2009, to $4.90 billion.  Core deposits, consisting of savings and demand deposit accounts, increased $697.7 million, or 25.9%, to $3.39 billion at December 31, 2009.  The majority of the core deposit increase was in municipal money market and retail checking deposits.  Time deposits decreased $24.9 million, or 1.6%, to $1.51 billion at December 31, 2009, with the majority of the decrease occurring in the 9-month and shorter maturity categories.  Core deposits represented 69.2% of total deposits at December 31, 2009, compared to 63.7% at December 31, 2008.

Borrowed funds were reduced by $248.4 million, or 19.9%, during the year ended December 31, 2009, to $999.2 million, as the Company deployed excess liquidity arising from the increase in core deposit funding.  Borrowed funds represented 14.6% of total assets at December 31, 2009, a reduction from 19.1% at December 31, 2008.

Common stock repurchases for the year ended December 31, 2009 totaled 11,000 shares at an average cost of $10.67 per share.  At December 31, 2009, 2.1 million shares remained eligible for repurchase under the current authorization.  At December 31, 2009, book value per share and tangible book value per share were $14.79 and $8.80, respectively, compared with $17.09 and $8.45, respectively, at December 31, 2008.  Tangible common equity as a percentage of tangible assets was 8.1% at December 31, 2009, compared with 8.4% at December 31, 2008.

Results of Operations

Net Interest Margin

The net interest margin increased 15 basis points to 3.16% for the quarter ended December 31, 2009, from 3.01% for the quarter ended September 30, 2009. The net interest margin for the quarter ended December 31, 2009 decreased 4 basis points from 3.20% for the quarter ended December 31, 2008.  The increase in the net interest margin for the three months ended December 31, 2009 versus the trailing quarter was primarily attributable to an increase in average securities available for sale, and a decrease in the average rates paid on interest-bearing liabilities.  The decrease in the net interest margin for the three months ended December 31, 2009 versus the same period in 2008 was primarily attributable to reductions in earning asset yields, an increase in the average balance of lower-yielding interest-bearing deposits and short-term investments, a decrease in average loans outstanding and an increase in the average balance of non-performing loans.  The weighted average yield on interest-earning assets was 4.79% for the three months ended December 31, 2009, compared with 4.84% for the trailing quarter and 5.38% for the three months ended December 31, 2008.  The weighted average cost of interest-bearing liabilities was 1.83% for the quarter ended December 31, 2009, compared with 2.07% for the trailing quarter and 2.47% for the fourth quarter of 2008.  The average cost of interest-bearing deposits for the three months ended December 31, 2009 was 1.47%, compared with 1.73% for the trailing quarter and 2.14% for the same period last year.  The average cost of borrowings for the three months ended December 31, 2009 was 3.43%, compared with 3.50% for the trailing quarter and 3.45% for the same period last year.  

For the year ended December 31, 2009, the net interest margin decreased 5 basis points to 3.06%, compared with 3.11% for the year ended December 31, 2008.  The decrease in the net interest margin for the year ended December 31, 2009 versus the same period in 2008 was primarily attributable to reductions in earning asset yields, an increase in the average balance of lower-yielding interest-bearing deposits and short-term investments, and an increase in the average balance of non-performing loans.  The weighted average yield on interest-earning assets declined 55 basis points to 4.95% for the year ended December 31, 2009, compared with 5.50% for the year ended December 31, 2008.  The weighted average cost of interest-bearing liabilities declined 59 basis points to 2.13% for the year ended December 31, 2009, compared with 2.72% for 2008.  The average cost of interest-bearing deposits for the year ended December 31, 2009 was 1.79%, compared with 2.40% for 2008.  The average cost of borrowings for the year ended December 31, 2009 was 3.50%, compared with 3.73% for 2008.

Non-Interest Income

Non-interest income totaled $7.0 million for the quarter ended December 31, 2009, an increase of $49,000 compared to the same period in 2008.  Fee income increased $770,000 for the quarter ended December 31, 2009, compared with the same period in 2008, primarily due to a year-over-year increase in the value of equity fund holdings.  In addition, income from the appreciation in the cash surrender value of Bank-owned life insurance increased $131,000 for the quarter ended December 31, 2009, compared with the same period in 2008.  Largely offsetting these improvements, the Company recognized other-than-temporary impairment charges of $529,000 in the fourth quarter of 2009 related to investments in two private-label mortgage-backed securities.  Other income also decreased $264,000 for the quarter ended December 31, 2009, compared with the same period in 2008.  In addition, net gains on securities transactions totaled $24,000 for the quarter ended December 31, 2009, compared with net gains of $83,000 for the same quarter in 2008.    

For the year ended December 31, 2009, non-interest income totaled $31.5 million, an increase of $1.2 million, or 4.1%, compared to the same period in 2008.  Fee income increased $830,000 for the year ended December 31, 2009, compared with 2008, primarily due to an increase in the value of equity fund holdings.  In addition, net gains on securities transactions increased $470,000 for the year ended December 31, 2009, compared with 2008. Other income increased $454,000 for the year ended December 31, 2009, compared with the same period in 2008, primarily due to an increase in gains on loan sales.  Income from the appreciation in the cash surrender value of Bank-owned life insurance increased $108,000 for the year ended December 31, 2009, compared with 2008.  Partially offsetting these improvements, the Company recognized other-than-temporary impairment charges on securities of $2.0 million during the year ended December 31, 2009, compared with other-than-temporary impairment charges of $1.4 million recognized in 2008.

Non-Interest Expense

For the three months ended December 31, 2009, non-interest expense increased $3.7 million, or 11.1%, to $37.1 million, compared to $33.4 million for the three months ended December 31, 2008.  FDIC insurance expense increased $3.8 million for the three months ended December 31, 2009, compared with the same period in 2008, as a result of deposit growth and increased premium rates.  In addition, other operating expenses increased $1.2 million for the quarter ended December 31, 2009, compared with the same period last year, as a result of $1.3 million in charges associated with the consolidation of two branch locations, the sale of deposits of a third leased branch location, and the pending sale of a Bank-owned building.  Partially offsetting these increases, compensation and benefits expense decreased $782,000 for the three months ended December 31, 2009, compared with the same period in 2008, primarily due to reduced incentive compensation accruals.  In addition, for the three months ended December 31, 2009, compared with the same period in 2008, the Company realized reductions in net occupancy expense totaling $283,000, and a $280,000 decrease in the amortization of intangibles as a result of scheduled reductions in core deposit amortization.

Excluding the $152.5 million goodwill impairment charge recorded in the first quarter of 2009, non-interest expense increased $13.9 million, or 10.7%, to $144.5 million for the year ended December 31, 2009, compared to $130.6 million for the year ended December 31, 2008.  FDIC insurance expense increased $11.1 million for the year ended December 31, 2009, compared with 2008, as a result of deposit growth, increased premium rates and the FDIC special assessment imposed on the industry as part of its plan to restore the deposit insurance fund.  The cost of the FDIC special assessment was $3.1 million.  Other operating expenses increased $3.1 million for the year ended December 31, 2009, compared with 2008, due primarily to $1.3 million of charges related to the consolidation and divestiture of premises and costs associated with the dissolution of a real estate development joint venture.  Compensation and benefits expense increased $968,000 for the year ended December 31, 2009, compared with 2008, primarily due to a $1.5 million increase in severance costs during the year ended December 31, 2009.  Severance included costs associated with the retirements of two senior executives in the third quarter of 2009.  These increases were partially offset by a $966,000 decrease in the amortization of intangibles as a result of scheduled reductions in core deposit amortization, and reductions in net occupancy expense totaling $639,000.

Asset Quality

Total non-performing loans at December 31, 2009 were $84.5 million, or 1.93% of total loans, compared with $78.2 million, or 1.81% of total loans at September 30, 2009, and $59.1 million, or 1.31% of total loans at December 31, 2008.  At December 31, 2009, impaired loans totaled $41.1 million with related specific reserves of $12.5 million.  The increase in non-performing loans at December 31, 2009, compared with the trailing quarter was due to a $6.7 million increase in non-performing commercial loans and a $6.0 million increase in non-performing residential mortgage loans, partially offset by reductions in non-performing construction and consumer loans.  The increase in non-performing commercial loans was primarily attributable to the addition of a $4.8 million relationship with a consumer products distributor and a $1.3 million relationship with an industrial supplies distributor.

At December 31, 2009, the Company's allowance for loan losses was 1.39% of total loans, compared with 1.29% of total loans at September 30, 2009, and 1.05% of total loans at December 31, 2008.  The Company recorded provisions for loan losses of $12.2 million and $30.3 million for the three months and year ended December 31, 2009, respectively, compared with provisions of $8.5 million and $15.1 million for the three months and year ended December 31, 2008, respectively.  For the three months and year ended December 31, 2009, the Company had net charge-offs of $7.1 million and $17.2 million, respectively, compared with net charge-offs of $4.1 and $8.2 million, respectively, for the same periods in 2008.   The allowance for loan losses increased $13.0 million to $60.7 million at December 31, 2009, from $47.7 million at December 31, 2008.  The increase in the loan loss provision for the three months and year ended December 31, 2009, compared with the same periods in 2008, 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 total loan portfolio to 52.5% at December 31, 2009, from 46.5% at December 31, 2008.  At December 31, 2009, the Company held $6.4 million of foreclosed assets, compared with $7.0 million at September 30, 2009 and $3.4 million at December 31, 2008.    

Income Tax Expense

For the three months ended December 31, 2009, the Company recorded an income tax benefit of $395,000, compared with an income tax expense of $2.6 million for the same period in 2008.  For the year ended December 31, 2009, the Company's income tax expense was $7.0 million, compared with $14.9 million for the same period in 2008.  The decrease in income tax expense was attributable to lower pre-tax income and a lower effective tax rate.  Excluding the impact of the goodwill impairment charge recognized in the first quarter of 2009, which is not tax deductible, the Company's effective tax rates were (6.2%) and 18.6%, respectively, for the three months and year ended December 31, 2009, compared with 26.0% and 26.4% for the three months and year ended December 31, 2008, respectively.  Fourth quarter and full-year 2009 pre-tax income was significantly lower than previously projected, primarily as a result of increased provisions for loan losses.  As a result, the Company recorded a tax benefit in the fourth quarter to reduce its previously recorded estimate of income tax liability.  The reduction in the effective tax rates was attributable to a larger proportion of the Company's income being derived from tax-exempt sources.  

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 82 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 January 29, 2010 regarding highlights of the Company's fourth quarter and full year 2009 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.

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