Provident Financial Services Profile
Provident Financial Services, Inc. operates as a holding company for The Provident Bank that provides banking services to individuals, families and businesses residing primary in the United States.
The company has offices in New Jersey, Queens and Nassau Counties, New York and eastern Pennsylvania. The company operates a network of full-service banking offices throughout counties in northern and central New Jersey, as well as counties in Pennsylvania and two counties in New York. The comopany maintains satellite loan production offices in Convent Station, Flemington, Paramus and Sea Girt, New Jersey, as well as in Bethlehem, Newtown and Plymouth Meeting, Pennsylvania and Nassau and Queens County, New York. The Bank’s lending activities, though concentrated in the communities surrounding its offices, extend predominantly throughout New Jersey, eastern Pennsylvania and Nassau and Queens County, New York. The company’s primary market area includes a mix of urban and suburban communities, and has a diversified mix of industries, including pharmaceutical, manufacturing companies, network communications, insurance and financial services, healthcare, and retail.
Lending Activities
The company originates commercial real estate loans, commercial business loans, fixed-rate and adjustable-rate mortgage loans collateralized by one- to four-family residential real estate and other consumer loans, for borrowers generally located within its primary market area.
Residential mortgage loans are primarily underwritten to standards that allow the sale of the loans to the secondary markets, primarily to the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). To manage interest rate risk, the company generally sells fixed-rate residential mortgages that it originates with terms greater than 15 years. The company commonly retains biweekly payment fixed-rate residential mortgage loans with a maturity of 30 years or less and a majority of the originated adjustable-rate mortgages for its portfolio.
The company originates commercial real estate loans that are secured by income-producing properties, such as multi-family apartment buildings, office buildings, and retail and industrial properties. Generally, these loans have maturities of either 5 or 10 years.
The company has historically provided construction loans for both single family and condominium projects intended for sale and commercial projects, including residential rental and industrial projects, that will be retained as investments by the borrower. The company underwrites most construction loans for a term of three years or less. The majority of these loans are underwritten on a floating rate basis. The company recognizes that there is higher risk in construction lending than permanent lending. As such, the company takes certain precautions to mitigate this risk, including the retention of an outside engineering firm to perform plan and cost reviews, and to review all construction advances made against work in place, and a limitation on how and when loan proceeds are advanced. In most cases, for the single family and condominium projects, the company limits its exposure against houses or units that are not under contract. Similarly, commercial construction loans usually have commitments for significant pre-leasing, or funds are held back until the leases are finalized. Funding requirements and loan structure for residential rental projects vary depending on whether such projects are vertical or horizontal construction.
Commercial loans are made to businesses of varying size and type within the company’s market. The company lends to established businesses, and the loans are generally secured by business assets, such as equipment, receivables, inventory, real estate or marketable securities. On a limited basis, the company makes unsecured commercial loans. Most commercial lines of credit are made on a floating interest rate basis and most term loans are made on a fixed interest rate basis, usually with terms of five years or less.
The company originates consumer loans that are secured, in most cases, by a borrower’s assets. Home equity loans and home equity lines of credit that are secured by a first or second mortgage lien on the borrower’s residence comprise the largest category of its consumer loan portfolio.
Residential Mortgage Loans: The comopany originates residential mortgage loans secured by first mortgages on one- to four-family residences, generally located in the states of New Jersey, New York and the eastern part of Pennsylvania. The company originates residential mortgages primarily through commissioned mortgage representatives. The company originates both fixed-rate and adjustable-rate mortgages.
The company originates fixed-rate fully amortizing residential mortgage loans with the principal and interest payments due each month, that typically have maturities ranging from 10 to 30 years. The company also originates fixed-rate residential mortgage loans with maturities of 10, 15, 20 and 30 years that require the payment of principal and interest on a biweekly basis. Fixed-rate jumbo residential mortgage loans (loans over the maximum that one of the government-sponsored agencies will purchase) are originated with maturities of up to 30 years. The company offers adjustable-rate mortgage loans with a fixed-rate period of 5, 7 or 10 years prior to the first annual interest rate adjustment. The standard adjustment formula is the one-year constant maturity Treasury rate plus 2.75%, adjusting annually after its first re-set period, with a 2% maximum annual adjustment and a 6% maximum adjustment over the life of the loan.
Residential mortgage loans are primarily underwritten to Freddie Mac standards. The company’s standard maximum loan to value ratio is 80%. However, working through mortgage insurance companies, it underwrites loans for sale to Freddie Mac programs that will finance up to 97% of the value of the residence. Generally all fixed-rate loans with terms of 20 years or more are sold into the secondary market with servicing rights retained. Fixed-rate residential mortgage loans retained in the company’s portfolio generally include loans with a term of 15 years or less and biweekly payment residential mortgage loans with a term of 30 years or less. The company retains the majority of the originated adjustable-rate mortgages for its portfolio.
Loans are sold without recourse, generally with servicing rights retained by the company. The percentage of loans sold into the secondary market will vary depending upon interest rates and the company’s strategies for reducing exposure to interest rate risk. In 2022, no residential real estate loans originated were sold into the secondary market.
The retention of adjustable-rate mortgages, as opposed to longer-term, fixed-rate residential mortgage loans, helps reduce the company’s exposure to interest rate risk. However, adjustable-rate mortgages generally pose credit risks different from the credit risks inherent in fixed-rate loans primarily because as interest rates rise, the underlying debt service payments of the borrowers rise, thereby increasing the potential for default.
The company offers discounted rates on residential mortgage loans to low- to moderate-income individuals. The company also offers a special rate program for first-time homebuyers under which originations have totaled over $75.2 million for the past five years. The company does not originate or purchase sub-prime or option ARM loans.
Commercial Real Estate Loans: The company originates loans secured by mortgages on various commercial income producing properties, including office buildings and retail and industrial properties. Commercial real estate loans were 42.5% of the total loan portfolio at December 31, 2022. A substantial majority of the company’s commercial real estate loans are secured by properties located in New Jersey, New York and Pennsylvania.
The company originates commercial real estate loans with adjustable rates and with fixed interest rates for a period that is generally five to ten years or less, which may adjust after the initial period. Typically these loans are written for maturities of ten years or less and generally have an amortization schedule of 25 or 30 years. As a result, the typical amortization schedule will result in a substantial principal payment upon maturity. The company generally underwrites commercial real estate loans to a maximum 75% advance against either the appraised value of the property, or its purchase price (for loans to fund the acquisition of real estate), whichever is less. The company generally requires minimum debt service coverage of 1.20 times. There is a potential risk that the borrower may be unable to pay off or refinance the outstanding balance at the loan maturity date. The company typically lends to experienced owners or developers who have knowledge and expertise in the commercial real estate market.
Among the reasons for the company continued emphasis on commercial real estate lending is the desire to invest in assets bearing interest rates that are generally higher than interest rates on residential mortgage loans and more sensitive to changes in market interest rates. Commercial real estate loans, however, entail significant additional credit risk as compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on commercial real estate loans secured by income-producing properties is typically dependent on the successful operation of the related real estate project, and thus may be more significantly impacted by adverse conditions in the real estate market or in the economy generally.
The company performs extensive due diligence in underwriting commercial real estate loans due to the larger loan amounts and the riskier nature of such loans. The company assesses and mitigates the risk in several ways, including inspection of all such properties and the review of the overall financial condition of the borrower and guarantors, which may include, for example, the review of the rent rolls and the verification of income.
In accordance with regulatory guidelines, the company requires a full independent appraisal for commercial real estate properties. The appraiser must be selected from its approved list, or otherwise approved by the Chief Credit Officer in instances, such as an out-of-state or special use property. The company also employs an independent review appraiser to ensure that the appraisal meets its standards.
Multi-family Loans: The company underwrites loans secured by multi-family properties that have five or more units. The company considers multi-family lending a component of the commercial real estate lending portfolio. Multi-family loans were 14.9% of the total loan portfolio at December 31, 2022.
Construction Loans: The company originates commercial construction loans. Commercial construction lending includes both new construction of residential and commercial real estate projects and the rehabilitation of existing structures.
The company’s commercial construction financing includes projects constructed for investment purposes (rental property), projects for sale (single family/condominiums) and to a lesser extent, owner-occupied business properties. To mitigate the speculative nature of construction loans, the company generally requires significant pre-leasing on rental properties; requires that a percentage of the for-sale single-family residences or condominiums be under contract to support construction loan advances; and requires other covenants on residential for rental projects depending on whether the project is vertical or horizontal construction.
The company generally underwrites construction loans for a term of three years or less. The majority of the company’s construction loans are floating-rate loans with a maximum 75% loan-to-value ratio for the completed project. The company employs professional engineering firms to assist in the review of construction cost estimates and make site inspections to determine if the work has been completed prior to the advance of funds for the project.
For all construction loans, the company requires an independent appraisal, which includes information on market rents and/or comparable sales for competing projects. The company also obtains personal guarantees, where appropriate, and conducts environmental due diligence as appropriate.
The company also employs other means to mitigate the risk of the construction lending process. On commercial construction projects that the developer maintains for rental, the company typically holds back funds for tenant improvements until a lease is executed. For single family and condominium financing, the company generally requires payment for the release of a unit that exceeds the amount of the loan advance attributable to such unit.
Commercial Loans: The company underwrites commercial loans to corporations, partnerships and other businesses. The majority of the company’s commercial loan customers are local businesses with revenues of less than $50.0 million. The company primarily offers commercial loans for equipment purchases, lines of credit for working capital purposes, letters of credit and real estate loans where the borrower is the primary occupant of the property. Most commercial loans are originated on a floating-rate basis and the majority of fixed-rate commercial term loans are fully amortized over a five-year period. Owner-occupied commercial real estate loans are generally underwritten to terms consistent with those utilized for commercial real estate; however, the maximum loan-to-value ratio for owner-occupied commercial real estate loans is generally 80%.
The company also underwrites Small Business Administration (SBA) guaranteed loans and guaranteed or assisted loans through various state, county and municipal programs. These governmental guarantees are typically used in cases where the borrower requires additional credit support. The company has Preferred Lender status with the SBA, allowing a more streamlined application and approval process.
The company participated in the Paycheck Protection Program (PPP) through the United States Department of the Treasury and Small Business Administration.
Consumer Loans: The company offers a variety of consumer loans on a direct basis to individuals. Home equity loans and home equity lines of credit constituted 93.9% of the consumer loan portfolio and indirect marine loans constituted 0.6% of the consumer loan portfolio at December 31, 2022. The remaining 5.5% of the consumer loan portfolio includes personal loans and unsecured lines of credit, direct auto loans and recreational and marine vehicle loans. The comopany no longer purchases or originates indirect auto, marine or recreational vehicle loans.
Investment Portfolio
As of December 31, 2022, the company’s investment portfolio included U.S. Treasury obligations; mortgage-backed securities; asset-backed securities; state and municipal obligations; and corporate obligations.
Deposits
The company offers a variety of deposits for retail and business accounts. Deposit products include savings accounts, checking accounts, interest-bearing checking accounts, money market deposit accounts and certificate of deposit accounts at varying interest rates and terms. The company also offers investment, insurance and IRA products. Business customers are offered several checking account and savings plans, cash management services, remote deposit capture services, payroll origination services, escrow account management and business credit cards. The company focuses on relationship banking for retail and business customers to enhance the customer experience. Deposits are primarily obtained from the areas surrounding the company’s branch locations. To attract and retain deposits, the company offers competitive rates, quality customer service and a wide variety of products and services that meet customers’ needs, including online and mobile banking.
Wealth Management Services
As part of the company’s strategy to increase fee related income, the bank’s wholly owned subsidiary, Beacon Trust Company and its registered investment advisor subsidiary, Beacon Investment Advisory Services, Inc., (Beacon) are engaged in providing wealth management services. Those services include investment management, trust and estate administration, financial planning, tax compliance and planning, and private banking. These services are offered to existing customers through the Bank’s extensive branch, lending and insurance networks.
Beacon focuses on delivering personalized solutions based on the needs and objectives for each client. The majority of the fee income generated by Beacon is based on total assets under management.
Insurance Agency Operations
Provident Protection Plus, Inc. is a retail insurance broker operating in the state of New Jersey. The insurance agency’s primary source of revenue is commission income, which is earned by placing insurance coverage for its customers with various insurance underwriters. The insurance agency places basic property and casualty, life and health coverage with about twenty different insurance carriers. There are two main billing processes, direct billing and agency billing.
Subsidiary Activities
PFS Insurance Services, Inc. is a wholly owned subsidiary of the Bank, and a New Jersey licensed insurance producer that sells insurance and investment products, including annuities to customers through a third-party networking arrangement.
Dudley Investment Corporation is a wholly owned subsidiary of the bank which operates as a New Jersey Investment Company. Dudley Investment Corporation owns all of the outstanding common stock of Gregory Investment Corporation.
Gregory Investment Corporation is a wholly owned subsidiary of Dudley Investment Corporation. Gregory Investment Corporation operates as a Delaware Investment Company. Gregory Investment Corporation owns all of the outstanding common stock of PSB Funding Corporation.
PSB Funding Corporation is a majority owned subsidiary of Gregory Investment Corporation. It was established as a New Jersey corporation to engage in the business of a real estate investment trust for the purpose of acquiring mortgage loans and other real estate related assets from the bank.
Beacon Trust Company, a New Jersey limited purpose trust company, is a wholly owned subsidiary of the bank.
Beacon Investment Advisory Services, Inc. is a wholly owned subsidiary of Beacon Trust Company, incorporated under Delaware law and is a registered investment advisor.
Provident Protection Plus, Inc., a full service insurance agency, offering both commercial and personal lines of insurance, is a wholly owned subsidiary of the bank.
Sussex Capital Trust II is a Delaware statutory business trust and a non-consolidated subsidiary of the company.
The bank has the following active subsidiaries formed to manage and sell real estate acquired through foreclosure:
Bergen Avenue Realty, LLC, a New Jersey limited liability company;
Bergen Avenue Realty II, LLC, a New Jersey limited liability company;
Bergen Avenue Realty PA, LLC, a Pennsylvania limited liability company; and
490 Boulevard Realty Corp, a New Jersey corporation.
Strategy
The company’s strategy is to grow through a commitment to credit quality and expanding market share by acquiring, retaining and expanding customer relationships, while managing interest rate risk.
Regulations
As a bank holding company controlling the bank, the company is subject to the Bank Holding Company Act of 1956, as amended (BHCA), and the rules and regulations of the Federal Reserve Board under the BHCA. The company is also subject to the provisions of the New Jersey Banking Act of 1948 (the New Jersey Banking Act) and the accompanying regulations of the Commissioner of the New Jersey Department of Banking and Insurance (Commissioner) applicable to bank holding companies. The company and the bank are required to file reports with, and otherwise comply with, the rules and regulations of the Federal Reserve Board and the Commissioner. The Federal Reserve Board and the Commissioner conduct periodic examinations to assess the company’s compliance with various regulatory requirements. Additionally, the company files certain reports with, and otherwise complies with, the rules and regulations of the Securities and Exchange Commission (SEC) under the federal securities laws and the listing requirements of the New York Stock Exchange.
The bank is a New Jersey chartered savings bank, and its deposit accounts are insured up to applicable limits by the Federal Deposit Insurance Corporation (FDIC). The bank is subject to regulation, examination and supervision by the Commissioner as the issuer of its charter, and by the FDIC as its deposit insurer.
The bank received a ‘Satisfactory’ Community Reinvestment Act rating in its recently completed federal examination, which was conducted by the FDIC, as of July 2018.
The company’s common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended. It is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.
Beacon Investment Advisory Services, Inc. is an investment adviser registered with the SEC. As such, it is required to make certain filings with and is subject to periodic examination by, the SEC.
History
Provident Financial Services, Inc. was founded in 1839.
