EXHIBIT 99.2
PROVIDENT FINANCIAL SERVICES, INC. AND FIRST SENTINEL BANCORP, INC.
Unaudited Combined Condensed Consolidated Pro Forma Statement of
Financial Condition
As of June 30, 2004
(in thousands)
Provident Financial First Sentinel
Services, Inc. Bancorp, Inc. Pro Forma Adjustments Pro Forma
Historical Historical Debit Credit Combined
---------- ---------- ----- ------ --------
ASSETS
Cash and cash equivalents 142,047 50,861 9,974 2(C) 36,571 2(E),3 166,311
Federal funds sold 66,000 46,600 - - 112,600
Securities available for sale 1,025,938 792,269 - 251,863 2(A),4 1,566,344
- - - 2,701 2(F) (2,701)
Securities held to maturity 471,471 - - - 471,471
Loans, net 2,360,782 1,186,501 2,851 2(F) - 3,550,134
Premises and fixed assets 47,297 14,526 1,724 2(F) - 63,547
Goodwill 19,908 - 393,169 2 - 413,077
Core deposit intangible 2,372 3,310 33,013 2(G) 3,310 2(C) 35,385
Other intangibles 1,295 - - - 1,295
Other assets 159,284 70,124 19,769 2 11,555 2 237,622
---------- ------- -------- ------- ----------
Total assets 4,296,394 2,164,191 460,500 306,000 6,615,085
========== ========== ======== ======= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES
Deposits and mortgage escrow accounts 2,756,510 1,343,197 - 3,787 2(F) 4,103,494
Federal funds purchased and securities
sold under agreements to repurchase 56,100 420,000 - 14,921 2(F) 491,021
Borrowed funds 638,156 125,414 - 6,165 2(F) 769,735
Subordinated debentures - 25,774 - 1,674 2(F) 27,448
Other liabilities 29,375 20,865 - 2,953 53,193
---------- ---------- -------- ------- ----------
Total liabilities 3,480,141 1,935,250 - 29,500 5,444,891
STOCKHOLDERS' EQUITY
Common stock 615 430 430 2(C) 185 2(B) 800
Additional paid in capital 608,281 214,408 214,408 2(C) 353,756 2(B) 962,037
Retained earnings 336,418 171,031 171,031 2(C) - 336,418
Treasury stock (6,706) (149,931) - 149,931 2(C) (6,706)
Common stock held by the ESOP (77,257) (8,027) - 8,027 2(C) (77,257)
Common stock acquired by stock award plan (42,944) - - - (42,944)
Common stock acquired by the Directors'
Deferred Fee Plan (DDFP) - (2,488) 10,891 2(C),2(D) - (13,379)
DDFP Transition differential - (7,674) - 7,674 2(C),2(D) -
Deferred compensation - DDFP - 12,561 - 818 2(C),2(D) 13,379
Accumulated other comprehensive income, net of tax effect (2,154) (1,369) - 1,369 2(C) (2,154)
---------- ---------- -------- ------- ----------
Total stockholders' equity 816,253 228,941 396,760 521,760 1,170,194
---------- -------- -------- ------- ----------
Total liabilities and stockholders' equity 4,296,394 2,164,191 396,760 551,260 6,615,085
========== ========== ======== ======= ==========
Provident Financial First Sentinel
Services, Inc. Bancorp, Inc. Pro Forma
Historical Historical Combined
---------- ---------- --------
Capital Ratios:
Regulatory Tier 1 leverage capital 18.82% 11.41% 12.56%
Tier 1 risk-based capital 29.30% 22.05% 19.79%
Total risk-based capital 30.11% 23.21% 20.72%
See "Notes to the Unaudited Combined Condensed Consolidated Pro Forma Financial
Statements"
PROVIDENT FINANCIAL SERVICES, INC. AND FIRST SENTINEL BANCORP, INC.
Unaudited Combined Condensed Consolidated Pro Forma Statement of Income
for the six months ended June 30, 2004
(in thousands)
Provident Financial First Sentinel
Services, Inc. Bancorp, Inc. Pro Forma Adjustments Pro Forma
Historical Historical Debits Credits Combined
---------- ---------- ------ ------- --------
Interest income:
Loans 63,727 35,264 380 (5) - 98,611
Securities 28,577 16,533 4,256 (4) 450 (5) 41,304
---------- ---------- ------ ------- ----------
Total interest income 92,304 51,797 4,636 450 139,915
Interest expense:
Deposits 15,802 8,737 - 631 (5) 23,908
Borrowed funds 9,604 14,115 - 2,444 (5) 21,275
---------- ---------- ------ ------- ----------
Total interest expense 25,406 22,852 - 3,075 45,183
Provision for loan losses 1,650 150 - - 1,800
---------- ---------- ------ ------- ----------
Net income after provision for loan losses 65,248 28,795 4,636 3,525 92,932
Non interest income
Net gain on sale of loans and securities 2,047 805 - - 2,852
Fee and other 12,325 2,893 - - 15,218
---------- ---------- ------ ------- ----------
Total non interest income 14,372 3,698 - - 18,070
Non interest expense
General and administrative expense
Compensation and benefits 28,482 10,611 - - 39,093
Occupancy and equipment 7,518 2,154 - - 9,672
Other 16,133 3,456 35 (5) - 19,624
Amortization of core deposit intangible 610 419 2,973 (5) - 4,002
---------- ---------- ------ ------- ----------
Total non interest expense 52,743 16,640 3,008 - 72,391
Income before income tax expense 26,877 15,853 7,644 3,525 38,611
Income tax expense 8,002 5,625 2,675 1,234 12,185
---------- ---------- ------ ------- ----------
Net income from continuing operations 18,875 10,228 4,969 2,291 26,426
========== ========== ====== ======= ==========
Income from continuing operations per share:
Basic 0.34 0.39 - - 0.36
Diluted 0.34 0.37 - - 0.36
Weighted average common shares:
Basic 54,791,399 26,365,109 (8) 73,332,061
Diluted 55,092,056 27,911,699 (8) 73,632,718
See "Notes to the Unaudited Combined Condensed Consolidated Pro Forma Financial
Statements"
PROVIDENT FINANCIAL SERVICES, INC. AND FIRST SENTINEL BANCORP, INC.
Unaudited Combined Condensed Consolidated Pro Forma Statement of Income
for the year ended December 31, 2003
(in thousands)
Provident Financial First Sentinel
Services, Inc. Bancorp, Inc. Pro Forma Adjustments Pro Forma
Historical Historical Debits Credits Combined
---------- ---------- ------ ------- --------
Interest income:
Loans 123,450 73,333 950 (5) - 195,833
Securities 61,056 35,626 9,672 (4) 901 (5) 87,911
---------- ---------- ------ ------- ----------
Total interest income 184,506 108,959 10,622 901 283,744
Interest expense:
Deposits 39,171 21,533 - 1,894 (5) 58,810
Borrowed funds 15,462 28,860 - 4,887 (5) 39,435
---------- ---------- ------ ------- ----------
Total interest expense 54,633 50,393 - 6,781 98,245
Provision for loan losses 1,160 - - - 1,160
---------- ---------- ------ ------- ----------
Net income after provision for loan losses 128,713 58,566 10,622 7,682 184,339
Non interest income
Net gain on sale of loans and securities 2,351 825 - - 3,176
Net gain on sale of branch and deposits - 2,442 - - 2,442
Fee and other 21,483 6,436 - - 27,919
---------- ---------- ------ ------- ----------
Total non interest income 23,834 9,703 - - 33,537
Non interest expense
General and administrative expense
Compensation and benefits 54,683 21,152 - - 75,835
Occupancy and equipment 14,157 4,023 - - 18,180
Other 56,790 (7) 11,722 69 (5) - 68,581
Amortization of core deposit intangible 1,149 839 6,704 (5) - 8,692
---------- ---------- ------ ------- ----------
Total non interest expense 126,779 37,736 6,773 - 171,288
Income before income tax expense 25,768 30,533 17,395 7,682 46,588
Income tax expense 7,024 12,197 6,088 2,689 15,821
---------- ---------- ------ ------- ----------
Net income from continuing operations 18,744 18,336 11,307 4,993 30,767
========== ========== ====== ======= ==========
Income from continuing operations per share:
Basic 0.31 0.71 0.40
Diluted 0.31 0.69 0.40
Weighted average common shares:
Basic 57,835,726 25,706,054 (8) 76,376,388
Diluted 57,965,640 26,698,962 (8) 76,506,302
See "Notes to the Unaudited Combined Condensed Consolidated Pro Forma
Financial Statements"
Notes to the Unaudited
Combined Condensed Consolidated Pro Forma Financial Statements
The preceding Unaudited Combined Condensed Consolidated Pro Forma Statement of
Condition ("Pro Forma Statement of Condition") combines the historical
statements of condition of Provident and First Sentinel giving effect to the
consummation of the merger as of June 30, 2004. The preceding Unaudited Combined
Condensed Consolidated Pro Forma Statements of Income ("Pro Forma Income
Statements") for the year ended December 31, 2003 and the six months ended June
30, 2004 give effect to the consummation of the merger as if such transaction
was effective on January 1, 2003. The merger will be accounted for using the
purchase method of accounting and giving effect to the related pro forma
adjustments described in the accompanying notes to the Unaudited Combined
Condensed Consolidated Pro Forma Financial Statements ("Pro Forma Financial
Statements")
The Pro Forma Financial Statements included herein are presented for information
purposes only. They include various estimates and may not necessarily be
indicative of the financial position or results of operations that would have
occurred if the merger had taken effect on the date or at the beginning of the
periods indicated or which may be obtained in the future. These statements and
the accompanying notes should be read in conjunction with the historical
financial statements, including the notes thereto, of Provident and First
Sentinel that have been presented in prior filings with the Securities and
Exchange Commission.
It is anticipated that the merger will provide the combined companies with
financial benefits that include reduced operating expenses and additional
revenue opportunities. The pro forma information, while helpful in illustrating
the financial characteristics of the combined company under one set of
assumptions does not reflect the benefits of expected cost savings or
opportunities to earn additional revenue and, accordingly, does not attempt to
predict or suggest future results. It also does not necessarily reflect what the
historical results of the combined company would have been had the companies
been combined during these periods.
Note (1) Basis of Presentation
The merger of First Sentinel with and into Provident was completed on July 14,
2004, through the exchange of 60% of First Sentinel common stock into Provident
common stock at an exchange rate of 1.092 and the conversion of 40% of First
Sentinel stock into cash at $22.25 per share. The aggregate consideration paid
in the merger consisted of $251.9 million in cash and 18,540,662 shares of the
Provident's common stock.
First Sentinel's actual fair value adjustments for loans, securities, premises
and equipment, deposits and borrowings were determined by the management of
Provident with the assistance of certain investment banking and independent
valuation firms. The resulting premiums and discounts for the purposes of the
Pro Forma Financial Statements, where appropriate, are being amortized and
accreted into income as more fully described in Notes 5 and 6.
Deferred tax assets and liabilities were recorded to reflect the tax
consequences associated with differences between the tax basis of the assets
acquired and the liabilities assumed, using an effective tax rate of 35%.
Provident's and First Sentinel's historical effective tax rates for the twelve
months ended December 31, 2003 and for the six months ended June 30, 2004 were
27.26% and 29.77% and 39.95% and 35.48%, respectively.
First Sentinel's Pro Forma Adjustments
Note (2)
A reconciliation of the excess consideration paid by Provident over First
Sentinel's net assets acquired ("Goodwill") is as follows (in thousands):
Cost to acquire First Sentinel:
Note
Cash 2(A) $ 251,863
Provident common stock issued 2(B) 353,941
Cash paid for transaction costs, net of taxes (1) 3 17,182
-----------
Consideration paid for First Sentinel 622,986
First Sentinel Net Assets at Fair Value:
First Sentinel stockholders' equity at June 30, 2004 2(C) $ 228,941
Adjustment to DDFP assets 2(D) 818
Write off of identifiable intangibles 2(C) (3,310)
Termination of First Sentinel ESOP 2(C) 9,974
Cash consideration paid for stock options, net of taxes (1) 2(E) (11,495)
-----------
Subtotal: $ 224,928
Fair Value Adjustments:
Loans 2(F) (2,851)
Securities available for sale 2(F) 2,701
Premises and fixed assets 2(F) (1,724)
Deposits 2(F) 3,787
Borrowed funds 2(F) 6,165
Repurchase agreements 2(F) 14,921
Subordinated debentures 2(F) 1,674
DDFP 2(D) 818
-----------
Fair Value Adjustments: 25,491
Tax effect of fair value adjustments (1) (8,922)
-----------
Total adjustments to net assets acquired 16,569
-----------
Adjusted net assets acquired 208,359
-----------
Subtotal 414,627
Core deposit intangible 2(G) 33,013
Tax effect of core deposit intangible (1) (11,555)
-----------
Net core deposit intangible 21,458
-----------
Estimated Goodwill Recognized 393,169
- ----------------------------------------------------------------------
(1) Assumed effective tax rate of 35%
(2) Purchase accounting adjustments were estimated as follows:
(A) Cash portion of the merger consideration paid for 40% of the
28,299,255 outstanding shares of First Sentinel as of July 14, 2004
at a price of $22.25 per share.
(B) Issuance of 18,540,662 shares of Provident's common stock at $19.09
(Provident's average closing price from December 21, 2003 to December
26, 2003) at an exchange rate of 1.092 Provident shares for each
share of First Sentinel.
(C) Elimination of First Sentinel's stockholders' equity at June 30,
2004, including accumulated other comprehensive income, which
represents the reversal of the unrealized loss on available for sale
securities, the write off of First Sentinel's existing core deposit
intangible and the termination of First Saving's ESOP.
(D) Reflects the adjustment to record the DDFP at market value ($818,000)
and to adjust the DDFP plan assets to market value ($3.2 million) and
the elimination of the DDFP transitional differential ($7.7 million).
(E) Cash consideration paid, net of taxes, for the 1,248,848 First
Sentinel stock options, based on the difference between $22.25 and
the exercise price of the options at the date of grant. This assumes
that all First Sentinel stock options were exchanged for cash at the
merger date. The weighted average exercise price at the date of the
merger was $8.09.
(F) Actual fair value adjustments reflect the allocation of the
acquisition cost of assets acquired and liabilities assumed, based on
their fair value.
(G) Provident retained an independent valuation firm to perform the core
deposit intangible valuation. The related core deposit intangible
premium is being amortized over its estimated useful life of 8.8
years on an accelerated basis.
Note (3)
Transaction and acquisition costs associated with the First Sentinel merger were
$17.2 million, net of taxes. Transaction and acquisition costs have been
determined in accordance with the criteria specified in the EITF 95-3:
Recognition of Liabilities in Connection with a Purchase Business Combination,
and included in the Pro Forma Balance Sheet as a component of Goodwill (See Note
(2)). A summary of these costs are as follows:
Professional fees $ 8,532
Merger related compensation and benefits 10,828
Facilities and systems 2,327
Other merger related expenses 152
--------
Total pre-tax transaction costs 21,839
Less: Related tax benefit 4,657
--------
Estimated transaction costs, net of taxes $ 17,182
========
Professional fees include investment banking, legal and other professional fees
and expenses associated with stockholder and customer notifications. Merger
related compensation and and benefits costs include employee severance,
compensation arrangements, transitional staffing and related employee benefit
expenses. Facilities and system costs include lease termination charges and
equipment write-offs resulting from the consolidation of duplicate facilities.
Other merger related costs include: (a) costs associated with the termination of
First Sentinel's computer systems and programs that will be discontinued and (b)
the write off of certain other assets (e.g., prepaid expenses) which will
provide no continuing benefit to the combined entity upon consummation of the
merger. These expenses will be funded by the cash of the combined organization.
Merger-related costs incurred by First Sentinel were expensed as incurred and
totaled $4.3 million and $639,000 for the periods ended December 31, 2003 and
June 30, 2004, respectively. These costs have not been included in the above
table. All other expenses incurred by Provident were capitalized or expensed as
incurred, based on the nature of the costs and Provident's accounting policies
for these costs.
Note (4)
Interest income for the twelve months ended December 31, 2003 is reduced
approximately $9.7 million, on a pretax basis, related to the portion of the
purchase price that was paid in cash ($251.9 million). These funds were assumed
to have yielded a pretax rate of 3.84% for the year ended December 31, 2003,
which represents the actual yield earned on Provident's available for sale
portfolio for the period. Interest income for the six months ended June 30, 2004
is reduced approximately $4.3 million, on a pretax basis, related to the portion
of the purchase price that was paid in cash ($251.9 million). These funds were
assumed to have yielded a pretax rate of 3.38% for the six months ended June 30,
2004, which represents the actual yield earned on Provident's available for sale
portfolio for the period.
Note (5)
The following table summarizes the estimated full year impact of the
amortization/(accretion) of the purchase accounting adjustments on the Pro Forma
Balance Sheet and the impact of amortizing and/or accreting the respective
adjustments into income over their estimated useful lives:
Twelve Months Six Months
Ended Ended
December 31, 2003 June 30, 2004
Premium/ Estimated Amortization/ Amortization/
Category (Discounts) Life In Years (Accretion) (Accretion)
- ------------------------------------------------------------------------------------------------------------------------------------
Securities $ (2,701) 3 (901) (450)
Loans 2,851 5 950 380
Premises and fixed assets 1,724 25 69 35
Time deposits (3,787) 3 (1,894) (631)
Borrowed funds (6,165) 5 (1,233) (617)
Repurchase agreements (14,921) 5 (2,984) (1,492)
Subordinated debentures (1,674) 2.5 (670) (335)
Core deposit intangible 33,013 8.8 6,704 2,973
---------- ---------------- -------------
Net Total 8,340 41 (137)
========== ================ =============
The sum of the years digits and straight line methods have been utilized in
preparing the pro forma statements of income for amortizing and/or accreting the
related purchase accounting adjustments.
Note (6)
The following table summarizes the impact of the amortization/(accretion) of the
purchase accounting adjustments made in connection with the First Sentinel
merger on Provident's results of operations for the following years, assuming
the transaction had become effective on January 1, 2003:
Net (Increase)/
Projected Future Amounts Decrease In
for the Years Core Deposit Net (Accretion)/ Income
Ended December 31, Intangible Amortization Before Taxes
---------- ------------ ------------
2003....................................... 6,704 (6,663) 41
2004....................................... 5,945 (6,220) (275)
2005....................................... 5,186 (5,444) (258)
2006....................................... 4,427 (3,768) 659
2007....................................... 3,668 (3,957) (289)
2008 and Thereafter........................ 7,083 1,379 8,462
- ----------------------------------------------------------------------
The average useful life of the core deposit intangible was 8.8 years and is
being amortized utilizing the accelerated basis determined in preparing the
valuation analysis.
Note (7)
Provident recorded a one time expense of $15.6 million, net of tax, as a result
of the $24.0 million contribution to The Provident Bank Foundation, made in the
first quarter of 2003.
Note (8)
For the twelve months ended December 31, 2003, basic and fully diluted weighted
average common stock outstanding were determined by adding Provident's
historical weighted average number of shares of common stock and the 18,540,662
shares that were issued to First Sentinel's stockholders under the terms of the
merger agreement.
For the six months ended June 30, 2004, basic and fully diluted weighted average
common stock outstanding were determined by adding Provident's historical
weighted average number of shares of common stock and the 18,540,662 shares that
were issued to First Sentinel's stockholders under the terms of the merger
agreement.