Provident Financial Services (PFS)

Liquidity and Capital Resources

Liquidity refers to the Company’s ability to generate adequate amounts of cash to meet financial obligations to its depositors, to fund loans and securities purchases, deposit outflows and operating expenses. Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of investments, cash flows from mortgage-backed securities and the ability to borrow funds from the FHLB of New York and approved broker dealers. The Bank has a $100.0 million overnight line of credit and a $100.0 million one-month overnight repricing line of credit with the FHLB of New York. These lines of credit are subject to annual renewal. As of December 31, 2008, $96.0 million in borrowings were outstanding against these lines of credit.

Cash flows from loan payments and maturing investment securities are a fairly predictable source of funds. Changes in interest rates, local economic conditions and the competitive marketplace can influence loan prepayments, prepayments on mortgage-backed securities and deposit flows. For each of the years ended December 31, 2008 and 2007, loan repayments totaled $1.29 billion and $1.17 billion, respectively.

One- to four-family residential loans, consumer loans, commercial real estate loans, multi-family loans and commercial and small business loans are the primary investments of the Company. Purchasing securities for the investment portfolio is a secondary use of funds and the investment portfolio is structured to complement and facilitate the Company’s lending activities and ensure adequate liquidity. Loan originations and purchases totaled $1.60 billion for the year ended December 31, 2008, compared to $1.37 billion for the year ended December 31, 2007. Purchases for the investment portfolio totaled $255.8 million for the year ended December 31, 2008, compared to $172.4 million for the year ended December 31, 2007.

At December 31, 2008, the Bank had outstanding loan commitments to borrowers of $699.6 million, including undisbursed home equity lines and personal credit lines of $225.0 million at December 31, 2008. Total deposits increased $1.5 million for the year ended December 31, 2008. Deposit activity is affected by changes in interest rates, competitive pricing and product offerings in the marketplace, local economic conditions, customer confidence and other factors such as stock market volatility. Certificate of deposit accounts that are scheduled to mature within one year totaled $1.17 billion at December 31, 2008. Based on its current pricing strategy and customer retention experience, the Bank expects to retain a significant share of these accounts. The Bank manages liquidity on a daily basis and expects to have sufficient cash to meet all of its funding requirements.

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As of December 31, 2008, the Bank exceeded all minimum regulatory capital requirements. At December 31, 2008, the Bank’s leverage (Tier 1) capital ratio was 6.64%. FDIC regulations require banks to maintain a minimum leverage ratio of Tier 1 capital to adjusted total assets of 4.00%. At December 31, 2008, the Bank’s total risk-based capital ratio was 10.65%. Under current regulations, the minimum required ratio of total capital to risk-weighted assets is 8.00%. A bank is considered to be well-capitalized if it has a leverage (Tier 1) capital ratio of at least 5.00% and a risk-based capital ratio of at least 10.00%.

Liquidity and Capital Resources

Liquidity and Capital Resources

Liquidity refers to the Company’s ability to generate adequate amounts of cash to meet financial obligations to its depositors, to fund loans and securities purchases, deposit outflows and operating expenses. Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of investments, cash flows from mortgage-backed securities and the ability to borrow funds from the FHLB of New York and approved broker dealers. The Bank has a $100.0 million overnight line of credit and a $100.0 million one-month overnight repricing line of credit with the FHLB of New York. As of December 31, 2007, $72.0 million in borrowings were outstanding against these lines of credit.

Cash flows from loan payments and maturing investment securities are a fairly predictable source of funds. Changes in interest rates, local economic conditions and the competitive marketplace can influence loan prepayments, prepayments on mortgage-backed securities and deposit flows. For each of the years ended December 31, 2007 and 2006, loan repayments totaled $1.17 billion.

One- to four-family residential loans, consumer loans, commercial real estate loans, multi-family loans and commercial and small business loans are the primary investments of the Company. Purchasing securities for the investment portfolio is a secondary use of funds and the investment portfolio is structured to complement and facilitate the Company’s lending activities and ensure adequate liquidity. Loan originations and purchases totaled $1.37 billion for the year ended December 31, 2007, compared to $1.24 billion for the year ended December 31, 2006. Purchases for the investment portfolio totaled $172.4 million for the year ended December 31, 2007, compared to $87.9 million for the year ended December 31, 2006.

At December 31, 2007, the Bank had outstanding loan commitments to borrowers of $767.5 million. Undisbursed home equity lines and personal credit lines were $216.5 million at December 31, 2007. Excluding deposits assumed through the acquisition of First Morris, total deposits decreased $110.6 million for the year ended December 31, 2007. Deposit activity is affected by changes in interest rates, competitive pricing and product offerings in the marketplace, local economic conditions and other factors such as stock market volatility. Certificate of deposit accounts that are scheduled to mature within one year totaled $1.43 billion at December 31, 2007. Based on its current pricing strategy and customer retention experience, the Bank expects to retain a

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significant share of these accounts. The Bank manages liquidity on a daily basis and expects to have sufficient cash to meet all of its funding requirements.

As of December 31, 2007, the Bank exceeded all minimum regulatory capital requirements. At December 31, 2007, the Bank’s leverage (Tier 1) capital ratio was 6.14%. FDIC regulations require banks to maintain a minimum leverage ratio of Tier 1 capital to adjusted total assets of 4.00%. At December 31, 2007, the Bank’s total risk-based capital ratio was 9.85%. Under current regulations, the minimum required ratio of total capital to risk-weighted assets is 8.00%. A bank is considered to be well-capitalized if it has a leverage (Tier 1) capital ratio of at least 5.00% and a risk-based capital ratio of at least 10.00%.

Liquidity and Capital Resources

Liquidity refers to the Company’s ability to generate adequate amounts of cash to meet financial obligations to its depositors, to fund loans and securities purchases, deposit outflows and operating expenses. Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of investments, cash flows from mortgage-backed securities and the ability to borrow funds from the FHLB of New York and approved broker dealers. The Bank has a $100.0 million overnight line of credit and a $100.0 million one-month overnight repricing line of credit with the FHLB of New York. As of December 31, 2006, there were $58.0 million outstanding borrowings against these lines of credit.

Cash flows from loan payments and maturing investment securities are a fairly predictable source of funds. Changes in interest rates, local economic conditions and the competitive marketplace can influence loan prepayments, prepayments on mortgage-backed securities and deposit flows. For the year ended December 31, 2006, loan repayments totaled $1.17 billion compared to $1.24 billion for the year ended December 31, 2005.

One- to four-family residential loans, consumer loans, commercial real estate loans, multi-family loans and commercial and small business loans are the primary investments of the Company. Purchasing securities for the investment portfolio is a secondary use of funds and the investment portfolio is structured to complement and facilitate the Company’s lending activities and ensure adequate liquidity. Loan originations and purchases totaled $1.24 billion for the year ended December 31, 2006, compared to $1.31 billion for the year ended December 31, 2005. Purchases for the investment portfolio totaled $87.9 million for the year-ended December 31, 2006, compared to $124.6 million for the year ended December 31, 2005.

At December 31, 2006, the Bank had outstanding loan commitments to borrowers of $772.6 million. Undisbursed home equity lines and personal credit lines were $159.1 million at December 31, 2006. Total deposits decreased $95.0 million for the year ended December 31, 2006. Deposit activity is affected by changes in interest rates, competitive pricing and product offerings in the marketplace, local economic conditions and other factors such as stock market volatility. Certificate of deposit accounts that are scheduled to mature within one year totaled $1.32 billion at December 31, 2006. Based on its current pricing strategy and customer retention experience, the Bank expects to retain a significant share of these accounts. The Bank manages liquidity on a daily basis and expects to have sufficient funds to meet all of its funding requirements.

As of December 31, 2006, the Bank exceeded all regulatory capital requirements. At December 31, 2006, the Bank’s leverage (Tier 1) capital ratio was 8.46%. FDIC regulations require banks to maintain a minimum leverage ratio of Tier 1 capital to adjusted total assets of 4.00%. At December 31, 2006, the Bank’s total risk-based capital ratio was 12.13%. Under current regulations, the minimum required ratio of total capital to risk-weighted assets is 8.00%. A bank is considered to be well-capitalized if it has a leverage (Tier 1) capital ratio of at least 5.00% and a risk-based capital ratio of at least 10.00%. As of December 31, 2006, the Bank exceeded the well-capitalized capital requirements.

Liquidity and Capital Resources

Liquidity refers to the Company’s ability to generate adequate amounts of cash to meet financial obligations to its depositors, to fund loans and securities purchases, deposit outflows and operating expenses. Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of investments, cash flows from mortgage-backed securities and the ability to borrow funds from the Federal Home Loan Bank of New York and approved broker dealers. The Bank has a $100.0 million overnight line of credit and a $100.0 million one-month overnight repricing line of credit with the Federal Home Loan Bank of New York. As of December 31, 2005, there were $48.0 million outstanding borrowings against these lines of credit.

Cash flows from loan payments and maturing investment securities are a fairly predictable source of funds. Changes in interest rates, local economic conditions and the competitive marketplace can influence loan prepayments, prepayments on mortgage-backed securities and deposit flows. For the year ended December 31, 2005, loan repayments, excluding mortgage warehouse activity, totaled $1.24 billion compared to $937.9 million for the year ended December 31, 2004.

One- to four-family residential loans, consumer loans, commercial real estate loans, multi-family loans and commercial and small business loans are the primary investments of the Company. Purchasing securities for the investment portfolio is a secondary use of funds and the investment portfolio is structured to complement and facilitate the Company’s lending activities and ensure adequate liquidity. Loan originations and purchases, excluding mortgage warehouse loans, totaled $1.31 billion for the year ended December 31, 2005, compared to $1.29 billion for the year ended December 31, 2004. Purchases for the investment portfolio totaled $124.6 million for the year-ended December 31, 2005, compared to $301.3 million for the year ended December 31, 2004.

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At December 31, 2005, the Bank had outstanding loan commitments to borrowers of $696.2 million. Undisbursed home equity lines and personal credit lines were $194.1 million at December 31, 2005. Total deposits decreased $129.0 million for the year ended December 31, 2005. Deposit activity is affected by changes in interest rates, competitive pricing and product offerings in our marketplace, local economic conditions and other factors such as stock market volatility. Certificate of deposit accounts that are scheduled to mature within one year totaled $1.08 billion at December 31, 2005. Based on current pricing strategy and customer retention experience, the Bank expects to retain a significant share of these accounts. The Bank manages liquidity on a daily basis and expects to have sufficient funds to meet all of its funding requirements.

As of December 31, 2005, the Bank exceeded all regulatory capital requirements. At December 31, 2005, the Bank’s leverage (Tier 1) capital ratio was 9.18%. FDIC regulations require banks to maintain a minimum leverage ratio of Tier 1 capital to adjusted total assets of 4.00%. At December 31, 2005, the Bank’s total risk-based capital ratio was 14.37%. Under current regulations, the minimum required ratio of total capital to risk-weighted assets is 8.00%. A bank is considered to be well-capitalized if it has a leverage (Tier 1) capital ratio of at least 5.00% and a risk-based capital ratio of at least 10.00%. As of December 31, 2005, the Bank exceeded the well-capitalized capital requirements.

Liquidity and Capital Resources

Liquidity refers to the Company’s ability to generate adequate amounts of cash to meet financial obligations to its depositors, to fund loans and securities purchases, deposit outflows and operating expenses. Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of investments, cash flows from mortgage-backed securities and the ability to borrow funds from the Federal Home Loan Bank of New York and approved broker dealers. The Bank has a $50.0 million overnight line of credit and a $50.0 million one-month overnight repricing line of credit with the Federal Home Loan Bank of New York. As of December 31, 2004, there were no outstanding borrowings against these lines of credit.

Cash flows from loan payments and maturing investment securities are a fairly predictable source of funds. Changes in interest rates, local economic conditions and the competitive marketplace can influence loan prepayments, prepayments on mortgage-backed securities and deposit flows. For the year ended December 31, 2004, loan repayments, excluding mortgage warehouse activity, totaled $937.9 million compared to $835.6 million for the year ended December 31, 2003.

One- to four-family residential loans, consumer loans, commercial real estate loans, multi-family loans and commercial and small business loans are the primary investments of the Company. Purchasing securities for the investment portfolio is a secondary use of funds and the investment portfolio is structured to complement and facilitate the Company’s lending activities and ensure adequate liquidity. Loan originations and purchases, excluding mortgage warehouse loans, totaled $1.29 billion for the year ended December 31, 2004, compared to $1.31 billion for the year ended December 31, 2003. Purchases for the investment portfolio totaled $301.3 million for the year ended December 31, 2004, compared to $1.70 billion for the year ended December 31, 2003. The large volume of securities purchases in 2003 was primarily attributable to the need to invest proceeds from the Company’s common stock offering and rapid turnover in the Company’s securities portfolio resulting from the historically low interest rate environment.

At December 31, 2004, the Bank had outstanding loan commitments to borrowers of $424.8 million. Undisbursed home equity lines and personal credit lines were $174.5 million at December 31, 2004. Excluding deposits assumed through the First Sentinel acquisition, total deposits decreased $4.7 million for the year ended December 31, 2004. Deposit inflows are affected by changes in interest rates, competitive pricing and product offerings in our marketplace, local economic conditions and other factors such as stock market volatility. Certificate of deposit accounts that are scheduled to mature within one year totaled $960.0 million at December 31, 2004. Based on current pricing strategy and customer retention experience, the Bank expects to retain a significant share of these accounts. The Bank manages liquidity on a daily basis and expects to have sufficient funds to meet all of its funding requirements.

As of December 31, 2004, The Provident Bank exceeded all regulatory capital requirements. At December 31, 2004, the Bank’s leverage (Tier 1) capital ratio was 8.33%. FDIC regulations currently require banks to maintain a minimum leverage ratio of Tier 1 capital to adjusted total assets of 4.00%. At December 31, 2004, the Bank’s total risk-based capital ratio was 14.21%. Under current regulations, the minimum required ratio of total capital to risk-weighted assets is 8.00%. A bank is considered to be well-capitalized if it has a leverage (Tier 1) capital ratio of at least 5.00% and a risk-based capital ratio of at least 10.00%. As of December 31, 2004, The Provident Bank exceeded the well-capitalized capital requirements.