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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Fiscal Year Ended December 31, 2003

OR

For the transaction period from                      to                     

Commission File Number: 1-31566

PROVIDENT FINANCIAL SERVICES, INC.

(Exact Name of Registrant as Specified in its Charter)

(201) 333-1000

(Registrant’s Telephone Number including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Common Stock, par value $.01 per share

(Title of Class)

Securities Registered Pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file reports) and (2) has been subject to such requirements for the past 90 days.

YES x NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

YES x NO ¨

As of March 1, 2004, there were 60,328,600 shares of the Registrant’s Common Stock outstanding. The aggregate value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Common Stock as of March 1, 2004, as quoted by the NYSE, was $1.1 billion.

PROVIDENT FINANCIAL SERVICES, INC.

INDEX TO FORM 10-K

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Certain statements contained herein are not based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the economic environment, particularly in the market areas in which the company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake and specifically declines any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

PART I

Provident Financial Services, Inc.

Provident Financial Services, Inc. (the “Company”) is a Delaware corporation which, on January 15, 2003, became the holding company for The Provident Bank (the “Bank”), following the completion of the conversion of The Provident Bank to a stock chartered savings bank. On January 15, 2003, Provident Financial Services, Inc. issued an aggregate of 59,618,300 shares of its common stock, par value $0.01 per share in a subscription offering and contributed cash and 1,920,000 shares of its common stock to The Provident Bank Foundation, a charitable foundation established by The Provident Bank. As a result of the conversion and our related stock offering, the Company raised $586.2 million in net proceeds, of which $293.1 million was infused into The Provident Bank and $293.1 million was retained by the Company. Provident Financial Services, Inc. owns all of the outstanding common stock of The Provident Bank, and as such, is a bank holding company subject to regulation by the Federal Reserve Board.

At December 31, 2003, the Company had total assets of $4.3 billion, net loans of $2.2 billion, total deposits of $2.7 billion, and total stockholder’s equity of $817.1 million. Our mailing address is 830 Bergen Avenue, Jersey City, New Jersey 07306-4599, and our telephone number is (201) 333-1000.

On December 22, 2003, Provident Financial Services, Inc. entered into an agreement and plan of merger under which First Sentinel Bancorp, Inc. (“First Sentinel”) will merge into Provident Financial Services, Inc. and First Savings Bank, the wholly owned subsidiary of First Sentinel, will merge into The Provident Bank. Consideration will be paid to First Sentinel stockholders in a combination of stock and cash. The transaction is subject to regulatory and stockholder approvals.

The Provident Bank

Originally established in 1839, The Provident Bank is a New Jersey chartered capital stock savings bank headquartered in Jersey City, New Jersey. The Provident Bank is a community- and customer-oriented bank operating 54 full-service branch offices in the New Jersey counties of Hudson, Bergen, Essex, Mercer, Middlesex, Monmouth, Morris, Ocean, Somerset and Union, which we consider our primary market area. As part of its “Customer-Centric Strategy,” The Provident Bank emphasizes personal service and customer convenience in serving the financial needs of the individuals, families and businesses residing in our markets. The Provident Bank attracts deposits from the general public in the areas surrounding its banking offices and uses those funds, together with funds generated from operations and borrowings, to originate commercial real estate loans, residential mortgage loans, commercial business loans and consumer loans. The Provident Bank also invests in mortgage-backed securities and other permissible investments.

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The following are highlights of The Provident Bank’s operations:

Diversified Loan Portfolio. In order to improve asset yields and reduce its exposure to interest rate risk, The Provident Bank diversifies its loan portfolio by emphasizing the origination of commercial mortgage and commercial business loans. These loans generally have adjustable interest rates that initially are higher than the rates applicable to one- to four-family residential mortgage loans. However, these loans also generally have a higher risk of loss than single-family residential mortgage loans.

Asset Quality. As of December 31, 2003, non-performing assets were $6.2 million or 0.14% of total assets compared to $8.5 million or 0.22% of total assets at December 31, 2002. The Provident Bank’s asset quality reflects its focus on underwriting criteria and on aggressive collection and charge off efforts. The levels of commercial mortgage and commercial business loans, the limited seasoning of these portfolios and the relatively large credit concentrations, increase The Provident Bank’s credit risk.

Emphasis on Relationship Banking and Core Deposits. The Provident Bank emphasizes growth in core deposit accounts, such as checking and savings accounts, and expanding customer relationships. Core deposit accounts totaled $1.76 billion at December 31, 2003, representing 65.39% of total deposits. The Provident Bank has also focused on increasing the number of households and businesses served and the number of bank products per customer through our commitment to its brand promise — “Hassle-Free Banking for Busy People.”

Increasing Non-Interest Income. The Provident Bank’s emphasis on transaction accounts and expanded products and services has enabled the Bank to generate non-interest income. A primary source of our non-interest income is derived from fees on core deposit accounts. While total non-interest income decreased to $23.8 million for the year ended December 31, 2003 from $24.1 million for the year ended December 31, 2002, fee income on deposit accounts increased to $16.3 million for the year ended December 31, 2003 from $15.1 million for the year ended December 31, 2002. The Provident Bank has also focused on expanding products and services to generate additional non-interest income. In addition to offering investment products, estate management and trust services, The Provident Bank is a member of a joint venture to sell title insurance.

Managing Interest Rate Risk. Although The Provident Bank’s liabilities are more sensitive to changes in interest rates than its assets, The Provident Bank manages its exposure to interest rate risk by emphasizing the origination and retention of adjustable rate and shorter term loans. In addition, The Provident Bank uses its investments in securities to manage interest rate risk. At December 31, 2003, 44.99% of our loan portfolio had a term to maturity of one year or less or had an adjustable interest rate. Moreover, at December 31, 2003, The Provident Bank’s securities portfolio totaled $1.67 billion and had an average expected life of 3.96 years (excluding equity securities).

Expansion of Retail Banking Franchise. During 2003, The Provident Bank expanded its retail banking franchise by acquiring three branches with deposits from another depository institution and opening two de novo branches.

Available Information. Provident Financial Services, Inc. is a public company, and files interim, quarterly and annual reports with the Securities and Exchange Commission (SEC). These respective reports are on file and a matter of public record with the SEC and may be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov). All filed SEC reports and interim filings can also be obtained from the Bank’s website, www.providentnj.com, under investor information, without charge from the Company.

MARKET AREA

The Company and the Bank are headquartered in Jersey City, which is located in Hudson County, New Jersey. At December 31, 2003, The Bank operated a network of fifty-four (54) branch offices throughout ten (10) counties in northern and central New Jersey, comprised of fifteen (15) offices in Hudson County, four (4) in Bergen, six (6) in Essex, one (1) in Mercer, five (5) in Middlesex, eight (8) in Monmouth, two (2) in Morris, six (6) in Ocean, five (5) in Somerset and two (2) in Union Counties. The Provident Bank’s lending activities, though concentrated in the communities surrounding its offices, extend predominantly throughout the State of New Jersey.

The Provident Bank’s ten (10) county primary market area includes a mix of urban and suburban communities and has a diversified mix of industries including pharmaceutical and other manufacturing companies, network communications, insurance and financial services, and retail. According to the U.S. Census Bureau data as of 2000, New Jersey has the highest population density of

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any state in the United States, and our ten-county market area has a population of 5.8 million, which is 69.0% of the state’s total population. Because of the diversity of industries in The Provident Bank’s market area and, to a lesser extent, because of its proximity to the New York City financial markets, the area’s economy can be significantly affected by changes in national and international economies. Whereas near-term economic growth in our area has shown strength as the result of renewed business investment and continued real estate development, growth in new employment has been lacking for the nation as a whole. This trend is expected to reverse itself in 2004.

Within its ten (10) county market area The Bank has an approximate 1.70% share of bank deposits as of June 30, 2003, the latest date for which statistics are available, and an approximate 1.37% deposit share of the New Jersey market statewide.

COMPETITION

The Company and the Bank face intense competition both in originating loans and attracting deposits. The Northern and Central New Jersey market area has a high concentration of financial institutions, including large money center and regional banks, community banks, credit unions, investment brokerage firms and insurance companies. We face direct competition for loans from each of these institutions as well as from the mortgage companies, mortgage brokers and other loan origination firms operating in our market area. The Provident Bank’s most direct competition for deposits has come from the several commercial banks and savings banks in the market area, especially large regional banks which have obtained a major share of the available deposit market due in part to acquisitions and consolidations. Many of these banks have substantially greater financial resources than The Provident Bank and offer services, such as private banking, that the Bank does not provide. In addition, the Bank faces significant competition for deposits from the mutual fund industry and from investors’ direct purchase of short-term money market securities and other corporate and government securities.

The Provident Bank expects to compete in this environment by maintaining a diversified product line, including mutual funds, annuities and other investment services made available through our investment subsidiary. Relationships with customers are built and maintained through The Provident Bank’s branch network, its deployment of branch and off-site ATMs, and continuing development of its telephone and web-based banking services.

LENDING ACTIVITIES

Historically, The Bank’s principal lending activity has been the origination of fixed-rate and adjustable-rate mortgage loans collateralized by one- to four-family residential real estate located within our primary market area. Since 1997, the Bank has taken a more balanced approach to the composition of the loan portfolio by increasing its emphasis on originating commercial real estate loans and commercial business loans. During the third quarter of 2003, the Bank made a strategic decision to de-emphasize mortgage warehouse lending. In the fourth quarter, substantially all of the mortgage warehouse loans were sold to another financial institution and the proceeds were temporarily invested in residential mortgages.

Residential mortgage loans are primarily underwritten to standards that allow the sale of the loans to the secondary markets, primarily to Fannie Mae and Freddie Mac. To manage interest rate risk, The Bank generally sells the 20 year and 30 year fixed-rate residential mortgages that it originates. The Bank retains a majority of the originated adjustable rate mortgages for its portfolio.

The Bank originates commercial real estate loans that are secured by income-producing properties such as multi-family residences, office buildings, retail and industrial properties. In order to limit exposure to interest rate risk, The Bank generally adjusts the interest rate following the initial five-year period in the majority of the real estate loans it originates.

The Bank provides construction loans for both single family and condominium projects intended for sale and projects that will be retained as investments by the borrower. The Bank 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 Bank recognizes that there is higher risk in construction lending than permanent lending. As such, we take 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/condominium projects we manage our 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.

The Bank 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 primarily secured by a second mortgage lien on the borrower’s residence comprise the largest category of The Bank’s consumer loan portfolio. The Bank’s consumer loan portfolio also includes marine loans that are secured by a first lien on recreation boats. The marine loans we finance are generated by boat dealers located on the Atlantic Coast of the United States. In addition we also finance auto loans, which are generated by dealers in the New York metropolitan area. To a lesser extent, The Bank

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originates personal unsecured loans, primarily as an accommodation to customers. All loans, whether originated directly or purchased, are underwritten to The Bank’s lending standards.

Commercial loans are loans to businesses of varying size and type to borrowers in our market. The Bank’s underwriting standards for commercial loans less than $100,000 utilize an industry recognized automated credit scoring system. The Bank lends to established businesses, and the loans are generally secured by business assets such as equipment, receivables, inventory, real estate or marketable securities. On occasion The Bank makes unsecured commercial loans. Most commercial loans are made on a floating interest rate basis and fixed interest rates are rarely offered for more than five years.

Loan Portfolio Composition. Set forth below is selected information concerning the composition of our loan portfolio in dollar amounts and in percentages (before deductions for deferred fees and costs, unearned discounts and premiums and allowances for losses) as of the dates indicated.

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Loan Maturity Schedule. The following table sets forth certain information as of December 31, 2003, regarding the maturities of loans in our loan portfolio. Demand loans having no stated schedule of repayment and no stated maturity, and overdrafts are reported as due in one year or less.

Fixed- and Adjustable-Rate Loan Schedule. The following table sets forth at December 31, 2003, the dollar amount of all fixed-rate and adjustable-rate loans due after December 31, 2004. Adjustable and floating rate loans are included based on contractual maturities.

Residential Mortgage Lending. A principal lending activity of The Provident Bank is to originate loans secured by first mortgages on one-to-four family residences in the State of New Jersey. We originate residential mortgages primarily through commissioned mortgage representatives and our branch offices. The Provident Bank originates both fixed-rate and adjustable-rate mortgages. Residential mortgage lending represents the largest single component of our total loan portfolio. As of December 31, 2003, $1.04 billion or 47.13% of the total portfolio consisted of one- to four-family real estate loans. Of the one-to-four family loans at that date, 74.94% were fixed-rate and 25.06% were adjustable rate loans.

The Provident Bank originates fixed-rate fully amortizing residential mortgage loans, with the principal and interest due each month, that have maturities ranging from 10 to 30 years. We also originate fixed-rate residential mortgage loans with maturities of 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. Adjustable rate mortgage loans are offered with a fixed-rate period of 1, 3, 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 2¾%, adjusting annually with a 2% maximum annual adjustment and a 6% maximum adjustment over the life of the loan.

The residential mortgage portfolio is primarily underwritten to Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) standards. The Provident Bank’s standard loan to value ratio is 80%. However, working through mortgage insurance companies, we underwrite loans for sale to Freddie Mac or Fannie Mae programs that will finance up to 100% of the value of the residence. Generally all fixed-rate loans with terms of 20 years or more, as well as loans with a loan to value ratio of 97% or more, are sold into the secondary market with servicing rights retained. Fixed-rate residential mortgage loans retained in our portfolio generally include loans with a term of 15 years or less and biweekly payment loans with a term of 20 years or less. We retain the majority of the originated adjustable rate mortgages for our portfolio.

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The percentage of loans sold into the secondary market will vary depending upon interest rates and our strategies for reducing our exposure to interest rate risk. In 2003, approximately $16.1 million or 4.05% of residential real estate loans originated were sold into the secondary market. All of the loans sold in 2003 were long-term fixed-rate mortgages. Generally it is our policy to retain all adjustable-rate mortgages and 10 and 15 year fixed-rate loans in portfolio and sell all 20 and 30 year fixed-rate mortgages. For loans that are sold, they are sold without recourse and we usually retain servicing on these loans.

The retention of adjustable rate mortgages, as opposed to longer term, fixed-rate residential mortgage loans, in our loan portfolio helps reduce our 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. In order to minimize this risk, borrowers of one-to-four family one year adjustable-rate loans are qualified at the maximum rate which would be in effect after the first interest rate adjustment, if that rate is higher than the initial rate. We believe that these risks, which have not had a material adverse effect on The Provident Bank to date, generally are less onerous than the interest rate risks associated with holding 20-30 year fixed-rate loans in our loan portfolio.

The Bank has for many years offered discounted rates for low- to moderate-income individuals. Loans originated in this category over the last five years have totaled $77.2 million. The Bank also offers a special rate program for first time homebuyers and this activity has totaled over $68.3 million for the past five years.

Commercial Real Estate Loans. The Bank originates loans secured by mortgages on various commercial income producing properties, including office buildings, retail and industrial properties. Commercial real estate and construction loans have decreased to 28.60% of the portfolio at December 31, 2003 from 30.38% of the portfolio at December 31, 2002. A substantial majority of The Bank’s commercial real estate loans are secured by properties located in the State of New Jersey.

The Bank originates adjustable rate loans and loans with fixed interest rates for a period that is generally five or fewer years, which then adjust after the initial period. Typically the loans are written for maturities of 10 years or less and have an amortization schedule of 20 or 25 years. As a result, the typical amortization schedule will result in a substantial principal payment upon maturity. The Bank generally underwrites commercial real estate loans to a 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 Bank 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 Bank typically lends to experienced owners or developers who have knowledge and contacts in the commercial real estate market.

Among the reasons for The Bank’s continued emphasis on commercial real estate lending is our desire to invest in assets bearing interest rates, which are generally higher than interest rates on residential mortgage loans and are more rate sensitive to changes in market interest rates. Commercial real estate loans, however, entail significant additional credit risk as compared with one- to four-family residential mortgage lending, 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 Bank performs more extensive diligence in underwriting commercial real estate loans than loans secured by owner occupied one- to four-family residential properties due to the larger loan amounts and the riskier nature of such loans. We attempt to understand and control 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. If applicable, a tenant analysis and market analysis are part of the underwriting. For commercial real estate secured loans in excess of $750,000 and for all other commercial real estate loans where it is appropriate, we employ environmental experts to inspect the property and ascertain any environmental risks.

The Bank requires a full independent appraisal for commercial real estate. The appraiser must be selected from The Provident Bank’s approved list. The Bank also employs an independent review appraiser to verify that the appraisal meets our standards. The underwriting guidelines provide that generally the loan to value ratio shall not exceed 75% of the appraised value and the debt service coverage should be at least 1.20 times. In addition, financial statements are required annually and reviewed by us. The Bank’s policy also requires that a property inspection of commercial mortgages over $1,000,000 be completed at least every 18 months.

The Bank’s largest commercial real estate loan at December 31, 2003 was a $25.0 million loan, with $22.5 million outstanding, secured by an established 378 room, full service hotel in Elizabeth, New Jersey. The loan was performing in accordance with its terms and conditions as of December 31, 2003.

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Multi-family Lending. The Provident Bank underwrites loans secured by apartment buildings that have five or more units. We classify multi-family lending as a component of the commercial real estate lending portfolio. The underwriting standards and procedures that are used to underwrite commercial real estate loans are used to underwrite multi-family loans.

Mortgage Warehouse Loans. In the third quarter of 2003, the Bank made a strategic decision to de-emphasize mortgage warehouse lending and in November 2003, sold a significant portion of the mortgage warehouse loan portfolio to another financial institution.

Commercial Loans. The Provident Bank underwrites commercial loans to corporations, partnerships and other businesses. The majority of our commercial loan customers are local businesses with revenues of less than $50.0 million. The Provident Bank offers commercial loans for equipment purchases, lines of credit or letters of credit as well as loans where the borrower is the sole occupant of the property. Most commercial loans are originated on a floating rate basis and the majority of fixed-rate commercial loans are fully amortized over a five-year period.

The Provident Bank also underwrites Small Business Administration guaranteed loans and guaranteed or assisted loans through various state, county and municipal programs. We typically utilize these governmental guarantees in cases where the borrower requires additional credit support.

The underwriting of a commercial loan is based upon a review of the financial statements of the prospective borrower and guarantors. In most cases we obtain a general lien on accounts receivable and inventory, along with the specific collateral such as real estate or equipment, as appropriate.

For commercial loans less than $100,000, we use an automated underwriting system, which includes a nationally recognized credit scorecard to assist in our decision-making process. For larger commercial loans a traditional approach of reviewing all the financial information and collateral in greater detail by seasoned lenders is utilized.

Commercial business loans generally bear higher interest rates than residential loans, but they also involve a higher risk of default since their repayment is generally dependent on the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself and the general economic environment. Our largest commercial loan was a $25.0 million participation in a $400.0 million syndicated line of credit which was secured by an assignment of residential mortgage loans. As of December 31, 2003, Provident Bank’s outstanding balance was $14.3 million and it was performing in accordance with its terms and conditions.

Construction Loans. Over the last five years The Provident Bank has expanded its activities in commercial construction lending. Commercial construction lending includes both new construction of residential and commercial real estate projects and the reconstruction of existing structures.

Our commercial construction financing takes two forms: projects for sale (single family/condominiums) and projects that are constructed for investment purposes (rental property). We attempt to mitigate the speculative nature of construction loans by generally requiring significant pre-leases on rental properties and a percentage of the single-family residences or condominiums to be under contract to support construction loan advances.

The Provident Bank underwrites most construction loans for a term of three years or less. The majority of The Provident Bank’s construction loans are floating rate loans and we utilize a procedure to attempt to insure that the maximum 75% loan to value ratio of the completed project is not exceeded. We employ 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.

Construction lending generally involves a greater degree of risk than other one-to-four family mortgage lending. Repayment of a construction loan is, to a great degree, dependent upon the successful and timely completion of the construction of the subject project and the successful marketing of the sale or lease of the project. Construction delays or the financial impairment of the builder may further impair the borrower’s ability to repay the loan.

For all construction loans, we require an independent appraisal, which includes information on market rents and/or comparable sales and competing projects. We also attempt to procure personal guarantees and conduct environmental due diligence as appropriate.

The Provident Bank also attempts to control the risk of the construction lending process by other means. For single family/condominium financing, The Provident Bank generally requires payment for the release of a unit that exceeds the amount of the loan advance attributable to such unit. On commercial construction projects that the developer holds for rental, we typically hold back funds for tenant improvements until a signed lease is executed.

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Our largest construction loan as of December 31, 2003 was a commitment to lend up to $28.6 million for a new 414 unit residential project consisting of townhouses and condominium units located in Lopatcong, New Jersey. As of December 31, 2003, the loan had an outstanding balance of $14.8 million and was performing in accordance with its terms and conditions.

Consumer Loans. The Provident Bank offers a variety of consumer loans to individuals. Home equity loans and home equity lines of credit constituted 60.66% of the consumer loan portfolio as of December 31, 2003. Marine loans comprised 31.38% of the consumer loan portfolio as of December 31, 2003. The remainder of the consumer loan portfolio includes personal loans and unsecured lines of credit, automobile loans and recreational vehicle loans.

Interest rates on our home equity loans are fixed for a term not to exceed 20 years and the maximum loan amount is $500,000. A portion of the home equity loan portfolio includes “first lien product loans,” under which we have offered special rates to borrowers who refinance first mortgage loans on the home equity (first lien) basis. The Provident Bank’s home equity lines are made at floating interest rates and we provide lines of credit up to $350,000. The approved home equity lines and utilization amounts as of December 31, 2003 were $109.8 million and $39.5 million respectively.

The Provident Bank originates a majority of its home equity loans and lines directly. We also originate loans through established relationships with brokers, using our underwriting standards. The Provident Bank purchases marine and auto loans from established dealers and brokers. The maximum loan for boats is $1,000,000, with a maximum advance of 80% against the appraised value. All marine loans are collateralized by a first lien on the vessel. Marine loans must be secured by a recreational boat that is maintained on the Atlantic Coast of the United States. The maximum loan for automobiles is $60,000, with a maximum advance rate of 115% against the NADA value of the automobile. All automobile loans are collaterized by a first lien on the automobile.

The Provident Bank’s consumer loan portfolio contains other type of loans such as loans on motorcycles, recreational vehicles and personal loans, which represents 7.96% of the portfolio. Personal unsecured loans are originated primarily as an accommodation to existing customers.

Consumer loans generally entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or that are secured by assets that tend to depreciate, such as automobiles, boats and recreational vehicles. Collateral repossessed by us for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency may warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower’s continued financial stability, and this is more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

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Loan Originations, Purchases, and Repayments. The following table sets forth our loan origination, purchase and repayment activities for the periods indicated.

Loan Approval Procedures and Authority. The Provident Bank’s Board of Directors approves the Loan Policy and Procedures Manual on an annual basis as well as on an interim basis as modifications are warranted. The loan policy sets The Provident Bank’s lending authority for each type of loan. The Provident Bank’s individual lending officers are assigned dollar authority limits based upon their experience and expertise.

The largest individual lending authority is $5.0 million, which only our Chief Executive Officer and President and Chief Lending Officer have. Loans in excess of $5.0 million or when combined with existing credits of the borrower or related borrowers exceeds $5.0 million are presented to the Credit Committee. The Credit Committee consists of six senior officers and requires a majority vote for credit approval. The Credit Committee has a $12.5 million approval authority and the Executive Committee of the Board of Directors of The Provident Bank has approval authority exceeding $12.5 million. All credit approvals by the Executive Committee are reported to the Board of Directors of The Provident Bank.

        The Provident Bank has adopted a risk rating system as part of the risk assessment of the loan portfolio. Our commercial real estate and commercial lending officers are required to assign a risk rating to each loan in their portfolio at origination. When the lender learns of important financial developments, the risk rating is reviewed accordingly. Similarly, the Credit Committee can adjust a risk rating. Quarterly, the Loan Quality and Risk Rating Committee meets to review and change, where appropriate, all loans rated a watch or worse. In addition, the Loan Review Department, which is independent of the lending areas, validates the risk ratings. The risk ratings play an important role in the establishment of the loan loss provision and to confirm the adequacy of the allowance for loan losses.

Loans to One Borrower. The Provident Bank’s regulatory limit on total loans to any borrower or attributed to any one borrower is fifteen percent (15%) of unimpaired capital. As of December 31, 2003, the regulatory lending limit was $86.5 million. The Bank’s internal policy limit on total loans to a borrower or related borrowers that constitute a group exposure is up to $50.0 million for loans with a risk rating of 2 or better, $45.0 million for loans with a risk rating of 3 and $35.0 million for loans with a risk rating of 4. We review these group exposures on a quarterly basis. We also set additional limits on size of loans by loan type. At December 31, 2003, our largest client relationship with an individual borrower and related entities was $52.4 million, consisting of commercial real estate loans to a real estate investor based in the State of New Jersey. This relationship was performing in accordance with its terms and conditions as of December 31, 2003.

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As of December 31, 2003, The Provident Bank had $471.1 million in loans outstanding to its 50 largest borrowers and their related entities.

ASSET QUALITY

General. One of our key objectives has been and continues to be to maintain a high level of asset quality. In addition to maintaining sound credit standards for new loan originations, we employ proactive collection and workout processes in dealing with delinquent or problem loans. We actively market properties that we may acquire through foreclosure or otherwise in the loan collection process.

Collection Procedures. In the case of residential mortgage and consumer loans the collections personnel in our Special Loan Department are responsible for collection activities from the sixteenth day of delinquency. Collection efforts include automated notices of delinquency generated by our system, telephone calls, letters and other notices to the delinquent borrower. Foreclosure proceedings and other appropriate collection activities such as repossession of collateral are commenced within at least 90 to 120 days after the loan is delinquent. Periodic inspections of real estate and other collateral are conducted throughout the collection process. The collection procedures for Federal Housing Association (FHA) and Veteran’s Administration (VA) one- to four-family mortgage loans follow the collection guidelines outlined by those agencies.

Real estate taken by foreclosure or in connection with a loan workout is held as other real estate owned. We carry other real estate owned at its fair market value less estimated selling costs. We attempt to sell the property at foreclosure sale or as soon as practical after the foreclosure sale through a proactive marketing effort.

The collection procedures for commercial real estate and commercial loans include our sending periodic late notices and letters to a borrower once a loan is past due. The Bank attempts to make direct contact with a borrower once a loan is 16 days past due, usually by telephone. The Chief Lending Officer reviews all commercial real estate and commercial loan delinquencies on a weekly basis. Delinquent commercial real estate and commercial loans will be transferred to the Special Loan Department for further action if the delinquency is not cured within a reasonable period of time, typically 60 to 90 days. The Chief Lending Officer has the authority to transfer performing commercial real estate or commercial loans to the Special Loan Department if, in his opinion, a credit problem exists or is likely to occur.

Loans deemed uncollectible are proposed for charge-off on a monthly basis. The recommendation is then submitted to the Chief Lending Officer and Chief Executive Officer for approval.

Delinquent Loans and Non-performing Loans and Assets. The Bank’s policies require that the Chief Lending Officer continuously monitor the status of the loan portfolios and report to the Board of Directors on a monthly basis. These reports include information on impaired loans, delinquent loans, criticized and classified assets, and foreclosed real estate. An impaired loan is defined as a loan for which it is probable, based on current information, that the Bank will not collect amounts due under the contractual terms of the loan agreement. Impaired loans are individually identified and reviewed to determine that each loan’s carrying value is not in excess of the fair value of the related collateral or the present value of the expected future cash flows. As of December 31, 2003, there were no impaired loans.

Accruing income is stopped on loans when interest or principal payments are 90 days in arrears or earlier when the timely collectibility of such interest or principal is doubtful. When accruing has stopped, loans are designated as non-accrual loans and the outstanding interest previously credited is reversed. A non-accrual loan is returned to accrual status when factors indicating doubtful collection no longer exist and the loan has been brought current.

Federal and state regulations as well as our policy require that we utilize an internal asset classification system as a means of reporting problem and potential problem assets. Under this internal risk rating system, we currently classify problem and potential problem assets as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that we will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose The Provident Bank to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated “special mention.”

General valuation allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When we classify one or more assets, or portions thereof, as “substandard” or “doubtful,” we determine that a specific allowance for loan losses be

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established for loan losses in an amount deemed prudent by management. When we classify one or more assets, or portions thereof, as “loss,” we are required either to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount.

The Bank’s determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the FDIC and the New Jersey Department of Banking and Insurance which can order the establishment of additional general or specific loss allowances. The FDIC, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management has analyzed all significant factors that affect the collectibility of the portfolio in a reasonable manner; and that management has established acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. In July 2001, the SEC issued Staff Accounting Bulletin, referred to as SAB, No. 102, “Selected Loan Loss Allowance Methodology and Documentation Issues.” The guidance contained in the SAB is effective immediately and focuses on the documentation the SEC staff normally expects registrants to prepare and maintain in support of the allowance for loan and lease losses. Concurrent with the SEC’s issuance of SAB No. 102, the federal banking agencies, represented by the Federal Financial Institutions Examination Council, referred to as FFIEC, issued an interagency policy statement entitled “Allowance for Loan and Lease Losses Methodologies and Documentation for Bank and Savings Institutions” (Policy Statement). We believe that our documentation relating to the allowance for loan loss is consistent with these pronouncements. Although we believe that, based on information currently available to us at this time, our allowance for loans losses is adequate, actual losses are dependent upon future events and, as such, further additions to the level of allowances for loan losses may become necessary.

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Assets are classified in accordance with the management guidelines described above. At December 31, 2003, $14.7 million of assets were classified as “substandard” which consisted of $3.6 million in residential loans, $3.7 million in commercial mortgage loans, $5.6 million in commercial loans, $1.1 million in consumer loans and $618,000 in multi-family loans. At that same date $350,000 in commercial loans were classified as “doubtful” and no loans were classified as “loss”. In addition, as of December 31, 2003 $15.6 million of loans were designated “special mention.”

The following table sets forth delinquencies in the loan portfolio as of the dates indicated.

Non-Accrual Loans and Non-Performing Assets. The following table sets forth information regarding our non-accrual loans and other non-performing assets. There were no troubled debt restructuring as defined in SFAS 114 at any of the dates indicated.

Loans generally are placed on non-accrual status when they become 90 days or more past due or if they have been identified as presenting uncertainty with respect to the collectibility of interest or principal.

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If the non-accrual loans had performed in accordance with their original terms, interest income would have increased by $588,628 during the year ended December 31, 2003. At December 31, 2003, there were no commitments to lend additional funds to borrowers whose loans were on non-accrual status.

Allowance for Loan Losses. The allowance for loan losses is a valuation account that reflects our evaluation of the probable incurred losses in the loan portfolio. The allowance for loan losses is maintained through provisions for loan losses that are charged to income. Charge-offs against the allowance for loan losses are taken on loans where it is determined the collection of loan principal is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for loan losses.

Our evaluation of the adequacy of the allowance for loan losses includes the review of all loans on which the collectibility of principal may not be reasonably assured. For residential mortgage and consumer loans this is determined primarily by delinquency and collateral values. For commercial real estate and commercial loans an extensive review of financial performance, payment history and collateral values is conducted on a quarterly basis.

As part of the evaluation of the adequacy of the allowance for loan losses, each quarter we prepare a worksheet. This worksheet categorizes the entire loan portfolio by certain risk characteristics such as loan type (residential mortgage, commercial mortgage, construction, commercial, etc.) and loan risk rating. The factors considered in assessing loan risk ratings include the following:

When assigning a risk rating to a loan, management utilizes The Provident Bank’s internal risk rating system which is a nine point rating system. Loans deemed to be “acceptable quality” are rated one through four, with a rating of one established for loans with minimal risk. Loans that are deemed to be of “questionable quality” are rated five (watch) or six (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated seven, eight or nine, respectively. Commercial mortgage, commercial, multi-family and construction loans are rated individually and each lending officer is responsible for risk rating loans in his or her portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Administration Department. The risk ratings are then confirmed by the Loan Review Department of the Finance Division and they are periodically reviewed by the Credit Committee in the credit renewal or approval process.

Each quarter the lending groups prepare individual Loan Quality and Risk Reports (LQRR) for the Credit Administration Department. These reports review all commercial loans and commercial mortgage loans that have been determined to involve above average risk (risk rating of five or worse). The LQRR reports contain the reason for the risk rating assigned to each loan, status of the loan and any current developments. These reports are submitted to a committee chaired by the Credit Administration Officer. Each loan officer reviews the loan and the corresponding LQRR report with the committee and the risk rating is evaluated for appropriateness.

Based upon market conditions and The Provident Bank’s historical experience dealing with problem credits, the reserve factor for each risk rating by type of loan is established based on estimates of probable losses in the loan portfolio. In addition reserve factors are established for unused lines and anticipated closings and projected growth. We use a five-year moving average of charge-off and recovery experience as a tool to assist in the development of the reserve factors in determining the provision for loan losses.

The reserve factors applied to each loan risk rating are inherently subjective in nature. Reserve factors are assigned to each of the risk rating categories. Our methodology permits adjustments to the allowance for loan losses in the event that, in management’s judgment, significant conditions impacting the credit quality and collectibility of the loan portfolio as of the evaluation date are not otherwise adequately reflected in the analysis.

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The provision for loan losses are established after considering the allowance for loan loss worksheet, the amount of the allowance for loan losses in relation to the total loan balance, loan portfolio growth, loan delinquency trends and peer group analysis. As a result of this process, management has established an unallocated portion of the allowance for loan losses. The unallocated portion of the allowance for loan losses is warranted based on factors such as the geographic concentration of our loan portfolio and the losses inherent in commercial lending, as these types of loans are typically riskier than residential mortgages.

The Loan Review Department of the Finance Division also uses an historic model from the early 1990’s when there were severe problems in the New Jersey commercial real estate markets. This tool applies the problem loan reserve percentages from our own portfolio for these prior years to the current portfolio. The Loan Review Department of the Finance Division continuously reviews the risk ratings.

Based on the composition of the loan portfolio, we believe the primary risks inherent in the portfolio are possible increases in interest rates, a possible decline in the economy and a possible decline in real estate market values. Management will continue to review the entire loan portfolio to determine the extent, if any, to which further additional loan loss provisions may be deemed necessary. The allowance for loan losses is maintained at a level that represents management’s best estimate of inherent losses in the loan portfolio. There can be no assurance that the allowance for loan losses will be adequate to cover all losses that may in fact be realized in the future or that additional provisions for loan losses will be required.

Analysis of the Allowance for Loan Losses. The following table sets forth the analysis of the allowance for loan losses for the periods indicated.