Provident Financial Services, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with fiscal 2021. The company is a New Jersey-based bank holding company operating Provident Bank, with wealth-management and insurance businesses. The filing reports annual results, not a standalone fourth-quarter summary.
Key financial results
| Metric | 2022 | 2021 |
|---|---|---|
| Total assets, year-end | $13.78 billion | $13.78 billion |
| Net income | $175.6 million | $167.9 million |
| Diluted earnings per share | $2.35 | $2.19 |
| Net interest income | $417.6 million | $366.0 million |
| Net interest margin | 3.37% | 3.00% |
| Non-interest income | $87.8 million | $86.8 million |
| Non-interest expense | $256.8 million | $250.1 million |
| Provision for loan credit losses | $8.4 million | Benefit of $24.3 million |
Net income rose about 4.6%. Net interest income increased $51.5 million, mainly from higher yields on adjustable-rate loans and new originations, alongside loan growth. The effective tax rate increased to 26.8% from 26.1%.
- Loans: Net loans were $10.16 billion at year-end, up from $9.50 billion. Commercial real estate, multifamily, construction, and commercial loans together represented 85.6% of the portfolio.
- Credit quality: Non-performing assets were $60.6 million, or 0.44% of assets, versus $56.8 million, or 0.41%, in 2021. Non-performing loans were $58.5 million; the allowance for loan losses was $88.0 million, or 0.86% of loans. Net charge-offs were $1.1 million, compared with net recoveries of $3.6 million.
- Deposits and borrowings: Deposits declined $671.0 million to $10.56 billion. Core savings and demand deposits were 92.9% of deposits. Borrowed funds increased $710.6 million to $1.34 billion, partly reflecting the replacement of $450 million in brokered demand deposits with FHLB funding.
- Cash flow: Operating cash flow was $200.3 million; investing cash flow was negative $647.6 million and financing cash flow was negative $78.7 million. Cash and cash equivalents ended the year at $186.5 million.
- Capital and securities: The Bank reported a 9.51% Tier 1 leverage ratio and 11.58% total risk-based capital ratio and was considered well capitalized. Available-for-sale securities were $1.80 billion at fair value; accumulated other comprehensive loss was $165.0 million, driven primarily by unrealized securities losses.
Material changes and notable items
- Loan growth and repricing contributed to improved net interest income and margin, while loan-loss provisioning reversed from a large 2021 benefit to an expense in 2022.
- Non-interest income was broadly stable. Wealth-management income declined to $27.9 million from $30.8 million, while other income included an $8.6 million gain on sale of a foreclosed commercial property.
- Non-interest expense increased 2.7%; it included $4.1 million of non-deductible costs related to the pending Lakeland Bancorp merger.
- Stockholders’ equity declined to $1.60 billion from $1.70 billion, principally reflecting the decline in securities values, dividends, and share repurchases. Dividends paid totaled $72.0 million; repurchases totaled approximately $47.5 million.
Outlook, risks, and contingencies
- Lakeland merger: Stockholders of both companies approved the transaction on February 1, 2023, but regulatory approvals and customary closing conditions remained outstanding when the filing was made. The announced exchange ratio is 0.8319 Provident shares per Lakeland share; the filing estimated combined assets of about $25 billion. Risks include approval delays or failure, integration costs, and failure to achieve anticipated benefits. A $50 million termination fee may apply in specified circumstances.
- Merger-related obligation: The combined bank is expected to assume Lakeland Bank’s Department of Justice consent order obligations, including a $12 million loan subsidy fund over five years and other community-lending, branch, and outreach requirements.
- Credit and concentration risk: Commercial real estate loans, including multifamily, were 57.4% of loans. CRE exposure was 490.9% of risk-based capital, and the CRE portfolio had grown 52.2% over three years—levels the filing identifies as a significant concentration under supervisory guidance. Management identifies economic weakness, falling real estate values, unemployment, vacancies, and higher rates as potential drivers of losses.
- Interest rates and funding: Management describes the balance sheet as moderately asset-sensitive. Its model projects a 1.9% increase in 12-month net interest income under a gradual 300-basis-point rate increase, but a 0.8% decline under a 100-basis-point decrease. These are model estimates, not guidance. Deposit outflows, higher funding costs, securities valuation changes, and liquidity access are risks.
- Other risks and contingencies: The filing discusses regulatory and compliance costs, cybersecurity and third-party service-provider risks, climate-related risks, LIBOR transition, and ongoing legal claims. Management does not expect ordinary-course legal matters to materially affect results. No formal earnings guidance is provided; the filing notes an external consensus expectation of a slowing economy in 2023, while acknowledging uncertainty.
KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified the collective allowance for credit losses as a critical audit matter because of estimation uncertainty and model assumptions.
Important facts for investors to verify
- Progress, regulatory conditions, costs, and expected benefits of the Lakeland merger, including compliance with Lakeland’s DOJ consent order.
- Trends in commercial real estate concentrations, criticized and non-performing loans, collateral values, and the allowance for credit losses.
- Whether deposits stabilize and how reliance on FHLB advances and other borrowings affects funding costs and liquidity.
- Effects of interest-rate changes on net interest income, available-for-sale securities, accumulated other comprehensive loss, and capital.
- Reconciliation of share-repurchase disclosures: the filing reports approximately 2.05 million shares repurchased in 2022, with differing exact share counts in separate sections.