Provident Financial Services(PFS) - 2022 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements This section presents Provident Financial Services, Inc.'s unaudited consolidated financial statements for Q3 and nine months ended September 30, 2022, covering financial condition, income, comprehensive income, equity, and cash flows Consolidated Statements of Financial Condition Total assets decreased to $13.60 billion from $13.78 billion at year-end 2021, driven by reduced cash and investments, offset by loan growth, while stockholders' equity declined due to unrealized losses on securities Consolidated Statements of Financial Condition (Unaudited) | (Dollars in Thousands) | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $13,603,846 | $13,781,202 | | Total cash and cash equivalents | $184,868 | $712,463 | | Net loans | $9,957,896 | $9,500,884 | | Total investments (AFS & HTM) | $2,222,378 | $2,494,001 | | Total Liabilities | $12,052,861 | $12,084,106 | | Total deposits | $10,685,605 | $11,234,012 | | Borrowed funds | $1,063,602 | $626,774 | | Total Stockholders' Equity | $1,550,985 | $1,697,096 | Consolidated Statements of Income Net income for Q3 2022 increased to $43.4 million from $37.3 million year-over-year, driven by higher net interest income, while the nine-month net income slightly decreased due to a shift in credit loss provision Key Income Statement Data (Unaudited) | (Dollars in Thousands, except per share data) | Three months ended Sep 30, 2022 | Three months ended Sep 30, 2021 | Nine months ended Sep 30, 2022 | Nine months ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $109,489 | $91,228 | $303,491 | $272,132 | | Provision (benefit) for credit losses | $8,413 | $969 | $5,004 | $(24,736) | | Non-interest income | $28,445 | $23,362 | $69,523 | $66,156 | | Non-interest expense | $69,443 | $63,440 | $195,173 | $187,989 | | Net income | $43,421 | $37,268 | $126,613 | $130,618 | | Diluted earnings per share | $0.58 | $0.49 | $1.69 | $1.70 | - Other income for the three and nine months ended September 30, 2022, includes an $8.6 million gain from the sale of a foreclosed commercial office property[10] Consolidated Statements of Comprehensive Income The company reported a total comprehensive loss of $19.3 million for Q3 2022 and $54.7 million for the nine months, primarily due to significant net unrealized losses on available-for-sale debt securities Comprehensive (Loss) Income (Unaudited) | (Dollars in Thousands) | Three months ended Sep 30, 2022 | Three months ended Sep 30, 2021 | Nine months ended Sep 30, 2022 | Nine months ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income | $43,421 | $37,268 | $126,613 | $130,618 | | Total other comprehensive loss | $(62,688) | $(6,325) | $(181,350) | $(9,898) | | Total comprehensive (loss) income | $(19,267) | $30,943 | $(54,737) | $120,720 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased from $1.70 billion at year-end 2021 to $1.55 billion at September 30, 2022, primarily due to comprehensive loss, dividends, and treasury stock purchases, partially offset by net income - For the nine months ended September 30, 2022, total stockholders' equity decreased by $146.1 million, driven by a net comprehensive loss of $181.4 million, cash dividends of $54.8 million, and treasury stock purchases of $46.5 million, partially offset by net income of $126.6 million[20] Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $527.6 million for the nine months ended September 30, 2022, due to net cash used in investing and financing activities, partially offset by operating activities Net Cash Flows (Unaudited) | (Dollars in Thousands) | Nine months ended Sep 30, 2022 | Nine months ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $157,870 | $122,420 | | Net cash used in investing activities | $(476,713) | $(524,714) | | Net cash (used in) provided by financing activities | $(208,752) | $375,230 | | Net decrease in cash and cash equivalents | $(527,595) | $(27,064) | Notes to Unaudited Consolidated Financial Statements The notes detail accounting policies and financial activities, including a pending merger with Lakeland Bancorp, increased unrealized losses on securities, loan portfolio growth, and a higher provision for credit losses - On September 26, 2022, the Company entered into a definitive merger agreement with Lakeland Bancorp, Inc., expected to close in Q2 2023, subject to approvals[35] - Gross unrealized losses on available-for-sale debt securities significantly increased to $271.4 million at September 30, 2022, from $17.9 million at December 31, 2021, due to higher market interest rates[39] - The provision for credit losses on loans was $8.4 million for Q3 2022, a substantial increase from $1.0 million in Q3 2021, driven by a weakened economic forecast and increased total loans[57][58] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operations, highlighting the pending merger, slight asset decrease, loan portfolio growth, increased net interest income, higher credit loss provision, and rising non-performing loans - The company entered into a definitive merger agreement with Lakeland Bancorp, Inc. on September 26, 2022, expected to close in Q2 2023[164] - Total assets decreased by $177.4 million to $13.60 billion, primarily due to a $527.6 million decrease in cash and a $250.5 million decrease in investments, offset by a $464.9 million increase in total loans[180] Net Interest Margin Comparison | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Margin | 3.51% | 2.94% | 3.24% | 2.99% | | Avg. Yield on Interest-Earning Assets | 3.90% | 3.21% | 3.51% | 3.31% | | Avg. Cost of Interest-Bearing Liabilities | 0.54% | 0.37% | 0.38% | 0.43% | - Non-performing loans increased to $59.5 million (0.59% of total loans) at September 30, 2022, up from $48.0 million (0.50% of total loans) at year-end 2021[186] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk through loan origination and sales, showing moderate asset sensitivity, with simulations projecting increased net interest income and economic value of equity from rising interest rates Net Interest Income Sensitivity Analysis (as of Sep 30, 2022) | Change in Interest Rates (bps) | Dollar Change (in thousands) | Percent Change | | :--- | :--- | :--- | | +300 | $12,722 | 2.7% | | +200 | $8,691 | 1.9% | | +100 | $4,532 | 1.0% | | Static | $0 | 0.0% | | -100 | $(5,259) | (1.1)% | Economic Value of Equity Sensitivity Analysis (as of Sep 30, 2022) | Change in Interest Rates (bps) | Dollar Change (in thousands) | Percent Change | | :--- | :--- | :--- | | +300 | $101,847 | 4.5% | | +200 | $80,533 | 3.5% | | +100 | $56,925 | 2.5% | | Flat | $0 | 0.0% | | -100 | $(10,705) | (0.5)% | Controls and Procedures Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022 - The Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective as of September 30, 2022[231] PART II—OTHER INFORMATION Legal Proceedings The company is involved in various legal actions in the normal course of business, which management does not expect to have a material adverse impact on its financial condition - Ongoing legal actions are not expected to have a material adverse impact on the Company's financial condition[233] Risk Factors This section supplements previously disclosed risk factors with new risks related to the pending merger with Lakeland Bancorp, Inc., including regulatory approvals, integration challenges, and personnel retention - New risk factors have been added related to the pending merger with Lakeland Bancorp, Inc.[234] - Key merger-related risks include: - Failure to receive regulatory approvals in a timely manner or at all[234] - Failure to complete the merger could negatively impact stock price and business operations[237] - Integration of the two companies may be more difficult, costly, or time-consuming than expected[241] - Potential inability to retain key personnel from both companies after the merger[245] - Business uncertainties and contractual restrictions while the merger is pending[247] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2022, the company repurchased 2,289 shares of common stock at an average price of $23.82 per share, with approximately 1.1 million shares remaining available under the current authorization Issuer Purchases of Equity Securities (Q3 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2022 | 351 | $22.90 | | August 2022 | 1,938 | $23.99 | | September 2022 | 0 | N/A | | Total | 2,289 | $23.82 | - As of September 30, 2022, 1,134,706 shares may yet be purchased under the company's current stock repurchase program[254] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to Sarbanes-Oxley and financial statements formatted in iXBRL