Provident Financial Services Q3 Core Profit Rises as Margin Expands

Provident Financial Services reported stronger core profitability for the third quarter of 2026 as record net interest income, margin expansion and higher earning assets lifted revenue. GAAP net income declined to $69.2 million from $78.1 million in the previous quarter, largely reflecting a $17.5 million loss on debt extinguishment, while core net income rose to $84.3 million from $79.8 million.

The parent of Provident Bank posted core diluted earnings of $0.65 per share. Core return on average assets increased to 1.30% from 1.16% a year earlier, and core return on average tangible common equity rose to 16.57% from 16.01%. Core pre-provision net revenue increased $10.8 million, or 10%, year over year to $119.5 million, producing a core PPNR return on average assets of 1.85%.

Quarterly revenue was approximately $239 million. Net interest income reached $208.0 million, up 7% from a year earlier, as average interest-earning assets grew and maturing loans repriced at higher rates. Reported net interest margin was 3.50%, while core margin widened to 3.16% from 3.09% in the second quarter and 3.01% a year earlier.

Commercial lending and deposits grow

Total gross loans ended the quarter at $20.18 billion. Commercial originations totaled $546.6 million, supporting annualized net commercial loan growth of 3.3%. Loan payoffs declined to $268.4 million from $342.9 million in the second quarter and $348.5 million a year earlier.

Provident’s loan pipeline stood at $3.03 billion on September 30, compared with $3.09 billion in the previous quarter, with a weighted average rate approaching 6.50%. Commercial-and-industrial line utilization declined to 43.46% from 47.28%.

Total deposits were $19.8 billion, with the presentation indicating annualized quarterly growth of more than 5%, led by non-interest-bearing, core business and municipal balances. Core business deposits increased $212 million, or 13.73% on an annualized basis. The average cost of deposits, including non-interest-bearing funds, increased 10 basis points sequentially to 2.02%, highlighting continued funding-cost pressure even as the bank expands its deposit base.

Fee income rises from a year earlier

Non-interest income, excluding securities gains, totaled $30.4 million, up $3.1 million year over year but down $1.8 million from the second quarter. Bank-owned life insurance income increased to $6.5 million from $2.7 million a year earlier, while wealth-management revenue rose to $7.8 million from $7.3 million.

Insurance income increased $803,000 year over year to $4.7 million, reflecting retention and new business activity. Provident Protection Plus reported 20% year-over-year revenue growth. Beacon Trust had $4.4 billion of assets under management, and the bank said it had a strong pipeline of additional Small Business Administration loan sales for the remainder of 2026.

Reported non-interest expense rose to $140.7 million from $119.3 million in the second quarter. The increase primarily reflected the $17.5 million debt-extinguishment charge and $3.7 million of core-system conversion expense. Excluding specified noncore items, adjusted non-interest expense was $119.1 million, equal to 1.84% of average assets on an annualized basis. The adjusted efficiency ratio was 49.93%.

Credit remains stable as nonperforming loans edge higher

Nonperforming loans increased by $3.2 million from the prior quarter to $140.1 million, representing 0.69% of total loans. Accruing past-due loans rose by $900,000 to $22.4 million, although commercial past-due loans declined by $3.8 million to $2.4 million. Net charge-offs were $2.4 million, or an annualized 0.05% of loans, while the allowance for credit losses equaled 0.97% of total loans.

Commercial real estate remains a significant balance-sheet exposure. The adjusted CRE concentration ratio was 399.4%, and the CRE investment portfolio totaled $11.3 billion, excluding purchase-accounting adjustments and construction loans. Multifamily properties represented 33.79% of that portfolio, followed by retail at 23.87% and industrial properties at 19.05%. The $745.7 million office portfolio had no significant central-business-district exposure, according to the presentation.

Capital and liquidity remained above regulatory thresholds. The common equity Tier 1 ratio was 12.5%, the total risk-based capital ratio was 13.4% and the tangible common equity ratio was 8.40%. Provident reported $8.8 billion of available liquid funds and borrowing capacity. Insured and collateralized deposits totaled $13.7 billion, or 69.4% of deposits, while brokered deposits represented 6.1%.

2026 outlook

Management expects annualized loan and deposit growth of 5% to 6% for 2026. For the fourth quarter, the company projects a reported net interest margin of 3.45% to 3.50% and one to two basis points of core margin expansion.

Provident expects fourth-quarter non-interest income of $29 million and operating expense of $118 million to $120 million, excluding nonrecurring system-conversion costs. It is targeting an operating expense ratio of approximately 1.85% and an efficiency ratio near 50%.

The company expects its 2026 net charge-off ratio to remain between five and 10 basis points, with provisioning driven by balance-sheet growth and the economic forecast. Its forward-looking expectations remain subject to interest-rate and liquidity conditions, deposit pricing, credit performance, commercial real estate values, regulatory changes, inflation, tariffs and broader economic conditions in its markets.