Q1 2024 Provident Financial Services Inc Earnings Call
Operator: Thank you for standing by. My name is Alex.
Thank you for standing by my name is Alex I will be your conference operator today at this time I would like to welcome everyone to the Provident financial services incorporated first quarter 'twenty 'twenty four earnings conference call. All lines have been placed on mute to prevent any background noise.
Operator: I will be your conference operator today. At this time, I would like to welcome everyone to the Provident Financial Services Inc. first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Adriano Duarte, Investor Relations Officer. Please go ahead.
British speakers remark there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star One again I would now like to turn the call over to Adriana Duarte Investor Relations Officer. Please go ahead.
Adriano M. Duarte: Thank you, Alex. Good morning, everyone, and thank you for joining us for our first quarter earnings call. Today's presenters are President and CEO Tony Labozzetta and Senior Executive Vice President and Chief Financial Officer Tom Lyons. Before beginning their review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today's call. Our full disclaimer is contained in yesterday evening's earnings release, which has been posted to the investor relations page on our website, Provident. Bank. Now it's my pleasure to introduce Tony Labozzetta, who will offer his perspective on the first quarter.
Adriano M. Duarte: Thank you Alex.
Adriano M. Duarte: Everyone and thank you for joining us for our first quarter earnings call. Today's presenters are president and CEO, Tony why was that.
Adriano M. Duarte: And senior Executive Vice President and Chief Financial Officer, and Tom lives.
Adriano M. Duarte: Beginning their review of our financial results. We ask that you. Please take note of our standard question.
Adriano M. Duarte: Forward looking statements that may be made.
Adriano M. Duarte: During the course of today's call. Our full disclaimer is contained in yesterday evening's earnings release, which has been posted.
Mr Relations page on our website Provident Bank now, it's my pleasure to introduce Tony loves that who will offer his perspective on our first quarter Tony.
Anthony J. Labozzetta: Thank you, Adriano. Good morning, everyone, and welcome to the Provident Financial Services Earnings Call. Before I go on to discuss the results for the quarter, I am delighted to say that as of the 11th of April, we have received all regulatory approvals to complete our merger with Lakeland Bank Corp. We are grateful for the efforts of the members of our team and the Lakeland team who worked tirelessly to achieve this milestone and who continue to work diligently to plan for the merger and integration of our two exceptional banks.
Tony: Thank you Adriana good morning, everyone and welcome to the Provident financial services earnings call.
Tony: Before I go on to discuss the results for the quarter I am delighted to say that as the 11th of April we have received all regulatory approvals to complete our merger with <unk> Bancorp.
Tony: We are grateful for the efforts of the members of our team and the Lakeland team, who worked tirelessly to achieve this milestone and we will continue to work diligently to plan for the merger and integration of our two exceptional thanks.
Anthony J. Labozzetta: We expect to complete the merger this quarter, properly following the subordinated debt raise that is a condition to close. This merger will bring together two high-performing institutions with like-minded cultures, an unwavering commitment to the employee and customer experience, and a dedication to excellence. The scale and strong financial performance of our combined organizations will allow us to better invest in our future, compete for market share in the highly attractive and densely populated New Jersey, New York, and Pennsylvania markets, and serve our customers and communities while creating value for our shareholders, which will further aid us in attracting and retaining top talent and providing even better technological solutions for our customers and employees.
Tony: We expect to complete the merger this quarter promptly following the subordinated debt raise.
Tony: As a condition to close.
Tony: This merger will bring together two high performing institutions with like minded cultures, and unwavering commitment to the employee and customer experience and a dedication to excellence.
Tony: Our scale and strong financial performance of our combined organizations will allow us to better invest in our future compete for market share in the highly attractive in densely populated New Jersey, New York, and Pennsylvania markets and serve our customers and communities, while creating value for our shareholders.
Tony: And we will further aid us in attracting and retaining top talent and providing even better technological solutions for our customers and employees.
Anthony J. Labozzetta: We expect that Provident's two fee-based business lines, Insurance and Wealth Management, will augment the broad product and service offerings available to Lakeland Bank customers. Provident will also bring its strength in treasury management, while Lapland brings its capabilities in health care and asset-based lending to our combined institutions. Both institutions have talented management teams and boards and important past experience navigating mergers whose combined skill sets will bring even greater strength to our combined talent pool.
Tony: We expect that Providence to fee based business lines insurance and wealth management will augment the product with a broad product and service offerings available to the Lakeland Bank customers.
Tony: Provident will also bring in strength in Treasury management, while Lakewood brings its capabilities in health care and asset based lending through our combined institutions.
Tony: Both institutions have talented management teams and boards and important past experience navigating mergers and who's joined skill sets will bring even greater strength to our combined talent pool.
Anthony J. Labozzetta: Moving on to our quarterly results, the first quarter was characterized by continued economic growth, subverting high interest rates and a persistently difficult environment for the banking sector. Thanks to the efforts of the Provident team, our customer-centric culture, and robust risk management, we have performed very well. Provident produced strong financial results this quarter, which once again demonstrates the strength and discipline of our management team. We reported earnings of $0.43 per share, an annualized return on average asset of.92%, and a return on average tangible equity of 10.4%. Excluding merger-related charges, our pre-tax, pre-provision return on average assets was 1.28% for the first quarter.
Tony: Moving onto our quarterly results. The first quarter was characterized by continued economic growth stubbornly high interest rates and persistently difficult environment for banking for the banking sector.
Tony: Thanks to the efforts of the Providence team, our customer centric culture and robust risk management, we have performed very well.
Tony: Provident produced strong financial results this quarter, which once again demonstrates the strength and discipline of our management team. We reported earnings of 43 <unk> per share and annualized return on average assets of <unk>.
Tony: 92% and our return on average tangible equity of 10, 4% excluding merger related charges, our pretax pre provision return on average assets was $1 two 8% for the first quarter.
Anthony J. Labozzetta: At quarter end, our capital is strong and exceeded levels deemed to be well capitalized. Tangible book value per share remains steady at $16.30, and our tangible common equity ratio improved to 9.05%. As such, our board of directors approved a quarterly cash dividend of $0.24 per share, payable on May 31. During the quarter, our average deposits, excluding broker deposits, increased approximately 3% annualized as compared to the trim quarter, and our total cost of deposits was impressive at 2.07%. The total cost of funds grew 9 basis points to 2.32%, which compressed our net interest margin by 5 basis points.
Tony: At quarter end, our capital is strong and exceeded levels deemed to be well capitalized tangible book value per share remained steady at $16 30.
Tony: And our tangible common equity ratio improved two nine points year of 5%.
Tony: As such our board of directors approved a quarterly cash dividend of 24 per share payable on May 31.
Tony: During the quarter, our average deposits, excluding broker deposits increased approximately 3% annualized as compared to the trailing quarter.
Tony: And our total cost of deposits was impressive at 2.07%.
Tony: Total cost of funds grew nine basis points to three 2%, which compressed our net interest margin five basis points.
Anthony J. Labozzetta: Our commercial lending team closed approximately $275 million in commercial loans during the first quarter. As expected, commercial loan payoffs increased $77 million to $173 million when compared to the trailing quarter. Our credit metrics continued to improve in the first quarter, and the economic forecast in our CECL model modestly improved, resulting in a reduced provision for credit loss. We continue to maintain prudent underwriting and portfolio management standards, particularly in our CRE lending portfolio. Furthermore, our CRE portfolio is comprised of well-diversified exposure levels concentrated within favorable asset classes. Overall, our total commercial loan portfolio remained relatively flat.
Tony: Our commercial lending team closed approximately $275 million of commercial loans during the first quarter as expected commercial loan payoffs increased $77 million to 173 million when compared to the trailing quarter.
Tony: Our credit metrics continue to improve in the first quarter and the economic forecast and our seasonal model modestly improved.
<unk> and a reduced provision for credit for credit losses.
Tony: We continue to maintain prudent underwriting and portfolio management standards, particularly in our creative lending portfolio.
Tony: Furthermore, our credit portfolios comprised of well diversified exposure levels concentrated within favorable asset classes.
Overall, our total commercial loan portfolio remained relatively flat. However, we had good productivity in our C&I lending, which grew approximately $72 1 million or 11, 5% annualized for the quarter. In addition, our construction loans grew approximately $15 2 million or eight 9% annualized.
Anthony J. Labozzetta: However, we had good productivity in our C&I lending, which grew approximately $72.1 million, or 11.5% annualized for the quarter. In addition, our construction loans grew approximately 58.2 million, or 8.9% annualized due to funding of existing commitments. The pull-through in our commercial loan pipeline during the first quarter was in line with our expectations, and the gross pipeline remains steady at approximately $1.1 billion. The pull-through adjusted pipeline, including loans pending closing, is approximately $561 million, and our projected pipeline rate is 7.46 percent.
Tony: Due to funding of existing commitments.
Tony: The pull through in our commercial loan pipeline during the first quarter was in line with our expectations and the gross pipeline remains steady at approximately $1 1 billion.
Tony: The pull through adjusted pipeline, including loans pending closing is approximately $561 million and our projected pipeline rate is 746%.
Anthony J. Labozzetta: We remain optimistic regarding the strength and quality of our pipeline. Our fee-based businesses perform exceedingly well. Despite the continuation of the hard insurance market, P&P Plus had a strong first quarter, which resulted in a 17.4% increase in operating profit as compared to the same quarter last year. Better market conditions helped increase Beacon Trust assets under management to about $4 billion at quarter end, which helped grow fee income 9.4% as compared to the trailing quarter.
Tony: We remain optimistic regarding the strength and quality of our pipeline.
Tony: Our fee based business businesses performed exceedingly well.
Tony: Spike the continuation of the art insurance market Provident protection, plus had a strong first quarter, which resulted in a 17, 4% increase in operating profit as compared to the same quarter last year.
Tony: Better market conditions helped to increase Beacon trust assets under management to about $4 billion at quarter end, which helped grow fee income nine 4% as compared to the trailing quarter.
Anthony J. Labozzetta: As we move forward further into 2024, our attention will, of course, be on completing all aspects of the merger and becoming the preeminent community bank in our market. We will also focus on growing our business lines with an emphasis on deposits. Achieving operational synergies and other revenue enhancement opportunities resulting from our mergers. Now, I will turn the call over to Tom for his comments on our financial performance. Tom? Thank you.
Tony: As we move forward further into 2024 hour intention will of course be on completing all aspects of the merger and becoming the preeminent community bank in our market.
Tony: We will also focus on growing our business lines with an emphasis on deposit growth.
Tony: <unk> operational synergies and other revenue enhancement opportunities, resulting from our merger.
Tony: Now I will turn the call over to Tom for his comments on our financial performance.
Thomas M. Lyons: Thank you, Tony. Good morning, everyone.
Speaker Change: Thank you Tony and good morning, everyone.
Thomas M. Lyons: As Tony noted, our net income for the quarter was $32.1 million, or $0.43 per share, compared to $27.3 million, or $0.36 per share for the trailing quarter and $40.5 million, or $0.54 per share, for the first quarter of 2023. Transaction charges related to our pending merger with Lakeland Bancorp totaled $2.2 million in the current quarter, or approximately $0.03 per share, and $2.5 million in the trailing quarter. Including these merger-related charges, pre-tax, pre-provision earnings for the current quarter were $44.9 million, or an annualized 1.28% of average assets.
Tony: And as Tony noted our net income for the quarter was $32 1 million or 43 per share compared with $27 3 million or <unk> 36 per share for the trailing quarter and $45 million or <unk> 54 per share for the first quarter of 2023.
Tony: Transaction charges related to our pending merger with Lakeland Bancorp totaled $2 2 million in the current quarter or approximately <unk> <unk> per share and $2 5 million in the trailing quarter.
Excluding these merger related charges pretax pre provision earnings for the current quarter were $44 9 million.
Tony: Or an annualized $1 two 8% of average assets.
Thomas M. Lyons: Revenue totaled $114.5 million for the quarter, consistent with $114.7 million for the trailing quarter, but a decrease from $130.5 million for the first quarter of 2023. Our net interest margin decreased 5 basis points in the trailing quarter to 2.87%. The yield on earning assets improved by two basis points versus the trailing quarter. However, this was more than offset by an increase in interest-bearing funding costs. The increased interest expense reflected current market conditions and funding requirements, which resulted in an increase in average borrowings and increased deposits. The average total cost of deposits increased 12 basis points in the trailing quarter to 2.07%.
Tony: Revenue totaled $114 5 million for the quarter consistent with $114 7 million for the trailing quarter, but a decrease of $135 million for the first quarter of 2023.
Tony: Our net interest margin decreased five basis points from the trailing quarter to 287%.
Tony: The yield on earning assets improved by two basis points versus the June quarter. However, this was more than offset by an increase in the interest bearing funding costs.
Tony: Increased interest expense, reflecting current market conditions and funding requirements, which resulted in an increase in average borrowings and increased deposit costs.
The average total cost of deposits increased 12 basis points from the trailing quarter to 2.07%.
Thomas M. Lyons: This is a further deceleration from 21 basis points in the trailing quarter, but the increased broader rising rate cycle to date totals a positive cost beta of 35.8 percent. The average cost of total interest-bearing liabilities also increased nine basis points in the trailing quarter to 2.80%. As the prolonged inverted yield curves and ongoing profit competition continue to impact funding costs, we expect deposit costs to continue to stabilize over the next several quarters.
Tony: This is a further deceleration from 21 basis points in the trailing quarter, but the increase brought our rising rate cycle to date total deposit cost data to 35, 8%.
Tony: The average cost of total interest bearing liabilities also increased nine basis points in the trailing quarter to 280 present.
Tony: As the prolonged inverted yield curve and unknowns about the competition continued to impact funding cost.
Tony: We expect deposit costs to continue to stabilize over the next several quarters.
Thomas M. Lyons: Period end total loans decreased $31 million as increases in C&I, construction, and multifamily mortgage loans were more than offset by decreases in CRA, residential mortgage, and consumer loans. This was an expected decline from strong growth in the trailing quarter, as several loan repayments originally expected to occur last year were pushed out into the current quarter. Our pull-through adjusted loan pipeline at quarter end was $561 million with a weighted average rate of 7.46% versus our current portfolio yield of 5.51%, and we continue to project full-year net loan growth of 4 to 5%.
Tony: Period end total loans decreased $31 million as increases in C&I and construction and multifamily mortgage loans were more than offset by decreases in CRE residential mortgage and consumer loans.
Tony: This was an expected decline from strong growth in the trailing quarter as several loan repayments originally expected to occur last year were pushed out into the current quarter.
Tony: Our pull through adjusted loan pipeline at quarter end was $561 million with a weighted average rate of 746% versus our current portfolio yield of five 1%.
Tony: And we continue to project full year net loan growth of 4% to 5%.
Thomas M. Lyons: Asset quality remains strong, with non-performing loans declining to 44 basis points of total loans and criticized and classified loans representing 2.1% of total loans. Net charge-offs were just $971,000 on an annualized four basis points of average loans this quarter. The provision for credit losses on loans decreased to $200,000 for the quarter due to a modestly improved economic forecast within our CISO model. As a result, the allowance for credit losses on loans decreased to 98 basis points of total loans as of March 31st from 99 basis points as of December 31st.
Tony: Asset quality remains strong with nonperforming loans declined 44 basis points of total loans and criticized and classified loans, representing two 1% of total loans.
Tony: Net charge offs were just $971000 or an annualized four basis points of average loans this quarter.
Tony: The provision for credit losses on loans decreased to $200000 for the quarter due to a modestly improved economic forecast within our seasonal model.
As a result, the allowance for credit losses on loans decreased 98 basis points of total loans as of March 31 from 99 basis points as of December 31.
Thomas M. Lyons: Non-interest income increased to $21 million this quarter. Insurance agency income increased $2 million versus the trailing quarter as a result of new business growth and the cyclical first quarter recognition of contingency income. Wealth management income also increased $645,000 versus the trailing quarter as assets under management grew to $4 billion. Excluding provisions for credit losses on commitments to extend credit and merger-related charges, non-interest expense decreased to $69.6 million for the quarter, even after including an additional $195,000 special FDIC assessment.
Tony: Noninterest income increased to $21 million this quarter insurance agency income increased $2 million versus the trailing quarter as a result of new business growth and the cyclical first quarter recognition of contingency income.
Tony: Wealth management income also increased $645000 versus the trailing quarter as assets under management grew to $4 billion.
Tony: Excluding provisions for credit losses on commitments to extend credit and merger related charges non interest expense decreased to $69 6 million for the quarter, even after including an additional $195000 special FDIC assessment.
Operator: Our effective tax rate was 25.3% for the quarter, aided by the lapse of the New Jersey Corporation business tax surcharge. We currently project our 2024 effective tax rate to approximate 25.5%. Regarding post-Lakeland merger projected financial performance, we will provide enhanced estimates and additional pro forma and projected combined company financial metrics in the coming week. As I'm sure you can appreciate, we are somewhat limited in our disclosures ahead of the upcoming subordinated debt offering.
Our effective tax rate was 25, 3% for the quarter aided by the lapse of the New Jersey Corporation business tax surcharge we.
Tony: We currently project, our 2024 effective tax rate to approximate 25, 5%.
Tony: Regarding post Lakeland merger projected financial performance, we will provide enhanced estimates an additional pro forma projected combined company financial metrics in the coming weeks.
Tony: As I'm sure you can appreciate we are somewhat limited in our disclosures ahead of the upcoming subordinated debt offering. However, we can offer the following general insights into the combined company's expected performance.
Operator: However, we can offer the following general insights into the combined company's expected performance. Total combined company merger charges of $95 million and projected cost saves of 35% remain unchanged from the deal announcement. Increases in interest rates have brought the estimated net interest mark to approximately $540 million and increased estimated core deposit intangibles to 3.25% of core deposits. As a result, we currently project a combined company net interest margin of approximately 3.25%, including approximately 65 basis points of purchase accounting depreciation.
Tony: Total combined company merger charges of $95 million in projected cost saves of 35% remain unchanged from deal announcement.
Tony: Increases in interest rates have brought the estimated net interest margin of approximately $540 million an increase.
<unk> estimated core deposit intangibles to three 5% before deposits.
Tony: As a result, we currently project combined company net interest margin of approximately three 5%, including approximately 65 basis points of purchase accounting accretion.
Operator: With fully phased-in cost saves, we estimate 2025 return on average assets of approximately 1.10 percent and return on tangible equity of approximately 15.25 percent, with an operating expense ratio of approximately 1.75% and an efficiency ratio of approximately 52%. That concludes our prepared remarks; we'd be happy to respond to questions.
Tony: With fully phased in cost saves, we estimate 2025% return on average assets of approximately 110% and return on tangible equity of approximately 15, 5%.
With an operating expense ratio of approximately 175% and.
Tony: And an efficiency ratio of approximately 52%.
Speaker Change: That concludes our prepared remarks, we'd be happy to respond to questions.
Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handphone and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue, and your first question comes from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead.
Speaker Change: Thank you we will now begin the question and answer session. If you about and would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star. One again, if you are called upon to ask your question in a listening.
Speaker Change: By a loud speaker on your device.
Speaker Change: Pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Again press star one to join the queue and your first question comes from the line of Mark Fitzgibbon with Piper with Piper Sandler. Please go ahead.
Mark Thomas Fitzgibbon: Tom, just to clarify, you said once the deal is closed, you're going to sort of provide an update with deal marks and accretion numbers. Are you planning to do a call for that, or are you planning to put that out in a slide presentation, or what's your plan?
Mark Thomas Fitzgibbon: Guys good morning.
Mark Thomas Fitzgibbon: Mark.
Mark Thomas Fitzgibbon: Tom just to clarify so you said once the deal is closed youre going to youre going to sort of provide an update with deal marks an accretion numbers are you planning to do a call for that or are you planning to put that out in our slide presentation or whats your plan.
Thomas M. Lyons: I think both of those will happen, Mark. The expectations will come in some form of investor day post-deal to describe the forward-looking performance expectations.
Mark Thomas Fitzgibbon: I think both of those will happen Mark that the expectation is we'll do some form of Investor day post deal to describe the forward looking performance expectations, Okay and any updated on on timing now that you've gotten all the approvals.
Thomas M. Lyons: Okay. And any update at all on the timing now that you've gotten all the approvals?
Thomas M. Lyons: I think the timing right now is probably between the 10th and the 15th of May. That's when we're aiming to get the deal closed.
Yes, I think the timing right now is probably between the 10th and 15th of May.
Mark Thomas Fitzgibbon: Aiming to get the deal closed.
Thomas M. Lyons: Okay, great. And then, could you share with us AUM and AUA at quarter end and maybe, you know, how flows looked in Wealth Management at Beacon?
Speaker Change: Okay great.
Thomas M. Lyons: AUM was $4 billion, $30 million at the end of the quarter. Flows were actually a little bit negative; we had about $77 million in new inflows and about $83 million in net outflows, so market appreciation drove the rest of the increase.
So market appreciation drove the rest of the increase.
Anthony J. Labozzetta: Okay, great. And then... It looked like you closed about 57% of your pipeline as of 12-31. Is that sort of what we should sort of expect going forward from a pull-through rate, Tony?
Speaker Change: Okay, Great and then.
Speaker Change: It looks like you closed about 57% of your pipeline as of 12 31 is that sort of what we should sort of expect going forward from a pull through rate Tony.
Speaker Change: Yeah.
Anthony J. Labozzetta: I would suspect so. I think you can still aim at that 4-5% loan growth for the year. I think we had a good closing in the fourth quarter, which obviously drained some of that activity, and the pipeline is starting to rebuild now. I think it's still safe to say that about 50-60% of pull-through rates. Well, actually, we were a little conservative in the estimates here. We pulled back the expected closing pipeline. That's where you get the $561 million versus the $1.09 billion or $1.08 billion, I think, in gross pipeline. So we're down to a projection for the current quarter of about 39%. But longer term, you're right, Clint, that's typically where we are in the 50 pound range.
Tony: I would suspect so I think you can still aim at that four 5%.
Tony: Loan growth for the year.
Speaker Change: I think we are.
Speaker Change: A good closing in the fourth quarter, which obviously.
And some of that activity in the pipeline is starting to rebuild now I think it's still safe to say that about 50% to 60% pull through rate well actually we were a little conservative estimates here, we pulled back the expected closing pipeline, that's where you get the $561 million versus the $1 billion <unk> 1 billion of late I think in gross pipeline. So we're down to our projections for the current quarter of about 30.
Speaker Change: 9% this quarter, yes.
Speaker Change: But longer term you referenced this is typically where we are in the 50% range.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Billy Young with RBC.
Operator: Your next question comes from the line of Billy Young with RBC. Please go ahead.
Bill Young: Please go ahead.
Bill Young: Hey, good morning, guys how are you.
Bill Young: Hey, good morning guys. How are you? First, just to clarify, Tom, the comment on the combined company NIM of 325. Is that what we should be expecting for the first full run rate quarter in 3Q?
Bill Young: Good morning Ali.
Bill Young: First just just to clarify.
Bill Young: Tom to comment on the combined company NIM of 325 is that what we should be expecting for the first full run rate quarter.
And <unk>.
Thomas M. Lyons: You know, every number I gave is a preliminary estimate, all very dependent on where the marks land at deal closing. So that assumed the marks that I disclosed, and yeah, that would be the first quarter of full closing, I guess Q3, if the assumptions hold true.
Bill Young: You know every every number I gave us a preliminary estimate and all are very dependent on where the mark Flynn at deal closing so that assume the marks that I disclosed.
Tom: And yes that would be the first quarter of full closing I guess Q3.
Tom: If the assumptions ultra.
Speaker Change: Got it understood. Thank you.
Speaker Change: And then is that I.
Bill Young: I got it understood. Thank you.
Thomas M. Lyons: And then just, I know you've commented that you expect deposit costs to stabilize over the next few quarters, but can you just give us a comment on maybe what you're seeing in the deposit pricing environment today across your markets? You know, we've heard a few mixed messages from your peers about pricing getting a little more competitive as of late. Is that kind of what you're seeing? And what are your expectations if rates stay higher for longer as we progress through 2024?
Speaker Change: I know you had commented.
Speaker Change: Commented that you expect deposit cost to stabilize over the next few quarters, but can you just give us a comment on maybe what you're seeing in the deposit pricing environment.
Today across your markets you know we've heard a few mixed messages from your peers about pricing getting a little more competitive as of late is that kind of what youre seeing and what are your expectations if rates stay higher for longer as we progressed through 2024.
Thomas M. Lyons: Yeah, we're not feeling that same pressure right now. The through-the-cycle-to-date beta is about 35.8 percent. We modeled the terminal beta of about 37.1 ahead of the first rate cut. So we feel like the margin is going to continue to be the stand-alone company margin, which continues to stabilize in the three, in the 285 to 290 range.
Speaker Change: Yeah, we're not feeling that same pressure right now.
Speaker Change: The through the cycle to date beta is about 35.88% or we model the terminal beta of about $37. One ahead of the first rate cut.
Speaker Change: So we feel like the margin is going to continue to earn a standalone company margin, which continued to stabilize in the three.
Speaker Change:
Speaker Change: And the $2 85 to 290 range.
Thomas M. Lyons: Yeah, so far, we've been holding steady on our pricing. We haven't seen those competitive, and we've been holding steady in terms of our deposit flows. I mean, if you look at our activity, we haven't seen, we see very few deposit account closures. More of our deposit... I would characterize it as we're seeing non-interest-bearing deposits moving into the interest-bearing classes, which is affecting our cost of deposits more so than deposits leaving and having to be replaced with external funds. So I think that's why we're saying we think it's going to hold steady.
Speaker Change: Yeah, so far we've been holding steady on our pricing we haven't seen those competitive.
Speaker Change: You know pressures and and we've been we've been holding steady in terms of our deposit flows I mean, if you look at our activity. We haven't seen a we've seen very little deposit account closures more more of our deposit.
Speaker Change: I would characterize it that we're seeing noninterest bearing moving into into the interest bearing classes, which is affecting our cost.
Speaker Change: Closets more so than a positive.
Positive, leaving and having to be replaced with our external funds.
Speaker Change: So.
Speaker Change: I think that's why we're saying we think it's going to hold steady in terms of higher for longer billing I don't think it has a dramatic impact that honest I know youre aware and we've managed through a pretty neutral interest rate risk position slightly asset sensitive at this point.
Thomas M. Lyons: Yeah, and in terms of higher for longer, Billy, I don't think it has a dramatic impact on us. I know you're aware that we've vanished into a pretty neutral interest rate risk position, slightly asset sensitive at this point. And given that about 27% of our deposit base is sub-350, we don't see a lot of benefit in the initial rate cuts, at least we're conservatively modeling that way. So I think the effective beta we're modeling is about 10% on the overall deposit base for the first couple of cuts. So we shouldn't see a dramatic shift if rates hold.
Speaker Change: It doesn't and given that about 27% of our deposit base is sub $3 50, we don't see a lot of benefit in the initial rate cuts at least we are conservatively modeling that way. So I think the effective beta we're modeling is about 10% on the overall deposit base for the first couple of cuts. So we shouldnt see dramatic shift if rates hold.
Bill Young: Got it. Thank you for that.
Speaker Change: Got it.
Thomas M. Lyons: And just moving to a separate topic, I know, you know, obviously, credit quality has been, you know, relatively pristine for you guys over the last several quarters. But do you have any updated thoughts on, you know, kind of where you'd like to maintain reserve levels moving forward, particularly following the Lakeland close? Do you see the need to build ratios longer term, you know, with a bigger balance sheet?
Speaker Change: You for that and just moving to a separate topic.
Speaker Change: I know, obviously credit quality has been.
Speaker Change: Relatively pristine for you guys over last several quarters, but do you have any updated thoughts on kind of where you'd like to maintain reserve levels moving forward.
Speaker Change: Particularly following the the Lakeland close do you see the need to build ratios longer term with a bigger balance sheet. Thanks.
Thomas M. Lyons: Thanks.
Thomas M. Lyons: are really all model driven. I don't expect a change. If anything, I would think that the coverage ratio would come in a bit post-acquisition.
Speaker Change: Really all model driven I don't expect a change if anything I would think they'd coverage ratio would come into in a bit post acquisition.
Thomas M. Lyons: I mean, you know, when we're looking at Lakeland's portfolio, it kind of emulates ours, so in terms of credit quality, there's that expectation that we would remain constant.
You know what we're looking at Lakeland portfolio would kind of emulators are so in terms of the correct credit quality.
Speaker Change: Those are the expectations that we would remain constant.
Bill Young: Got it. Thank you for taking my questions, guys. Thank you.
Speaker Change: Got it thank you for taking my questions guys.
Speaker Change: Thank you.
Operator: Your next question comes from the line of Tim Switzer with KBW. Please go ahead. Hello, team. I think your line is unmuted.
Speaker Change: The next question comes from the line of Tim Switzer with K B W. Please go ahead.
Tim Switzer: Hello team I think your line is on unit.
Operator: Morning, Tim. You might be on mute.
Tim Switzer: Good morning, Jeremy might be on mute.
Operator: All right, since we're not hearing anything, we will now move to the next question. So the next question we have comes from the line of Manuel Navas with DA Davidson. Please go ahead.
Tim Switzer: Alright, since we're not hearing anything we will now move to the next question. So the next question. We have is comes from the line of Manuel Novice wed D. A Davidson. Please go ahead.
Manuel Antonio Navas: Hey, good morning. Could you speak a little bit about the balance side of or the volume side of deposit growth channels? Just kind of where you're going to see improvement there. You talked about in the quarter that there was some payoff from the brokered deposits, and there were some beauty outflows. But just kind of where are you expected to see deposit inflows going forward?
Manuel Antonio Navas: Hey, good morning.
Could you speak a little bit about the.
Manuel Antonio Navas: Balance side of our or the volume side of deposit growth channels, just kind of where youre going to see improvement there.
Manuel Antonio Navas: During the quarter that there was some pay off of brokered and there was some beauty outflows, but just kind of where you expect it to.
Manuel Antonio Navas: See deposit inflows going forward.
Thomas M. Lyons: So, if you look at this quarter, I think, like I mentioned earlier, there wasn't any account closure activity that was of note. Most of the dynamics were normal activity in our non-expiring accounts, which is cash flowing out for whatever business purposes, and some disintermediation going into other accounts. Where we're seeing growth moving forward, and we're experiencing some of that, and we're observing it, is largely on the business banking side.
Manuel Antonio Navas: So if you look at this quarter I think the I guess.
Manuel Antonio Navas: Like I mentioned earlier, the there wasn't any account closure activity there was no most of the.
Dynamics were normal normal activity in our in our noninterest bearing accounts, which is cash cash growing flowing out or whatever business purposes, and some disintermediation going into other accounts, where we're seeing the growth moving forward and we're experiencing some of that work. We're observing it is largely in <unk>.
Thomas M. Lyons: So, we're seeing a lot of, you know, compensating balances and things of that nature. We're also, you know, the municipal accounts should flow back in as we move forward. And we have other targeted activities that we're doing to deepen our share with our existing customers as well as attract new ones as well. So, there's, that's where we expect it to be. However, I do think it'll still represent a challenge for us moving forward because we expect the loan, and lending growth levels to go back to their normal course. And so, you'll have that little bit of a gap as we move forward.
Manuel Antonio Navas: The business banking side, so we're seeing a lot of comp.
Manuel Antonio Navas: Compensating balances.
Manuel Antonio Navas: Things of that nature were also up.
Municipal accounts should flow back in as we move forward and we have other targeted activities that we're doing to deepen.
Manuel Antonio Navas: We share with our existing customers as well as.
Manuel Antonio Navas: Painting, new ones as well so there's there's natural we expect it to be.
Manuel Antonio Navas: However, I do think it will still represent a challenge for us moving forward because we expect the loan lender lending growth levels to go back to their normal.
Manuel Antonio Navas: Of course, and so you'll have that a little bit of a gap as we move forward.
Thomas M. Lyons: I appreciate that. And just on a separate topic, I just wanted to confirm that the numbers so far with the deal do not include revenue synergies at the moment. That's correct. And that would be helpful with the insurance business and with ABL and the things you highlighted at the beginning.
I appreciate that and just a separate topic I just wanted to confirm.
Manuel Antonio Navas: The the numbers at the at so far with the deal did not include revenue synergies at the moment.
Speaker Change: That's correct right.
Speaker Change: And that would be helpful with the insurance business and with the ABL and the things you highlighted at the beginning.
Thomas M. Lyons: Yeah, we're excited about the opportunities there, but we have not included those in our model. That's great. That's great.
Speaker Change: Yeah, we're excited about the opportunities there, but we have not included those in our modeling.
Manuel Antonio Navas: That's great. That's great. Looking forward to hearing that update. Thank you.
Speaker Change: That's great that's great looking forward to hearing that update thank you.
Speaker Change: Thanks.
Speaker Change: Okay.
Operator: All right, for the last question, we have Tim Switzer with KBW. Please go ahead.
Speaker Change: Alright first for the last question, we have Tim Switzer with K B W. Please go ahead.
Operator: Hey, sorry about that, guys. My headset messed up.
Tim Switzer: Hey, sorry about that guys my headset messed up.
Operator: Hey, good morning.
Tim Switzer: Hey, good morning.
Operator: Good morning. Thank you for all the updated financial impact. Do you guys have a projection on where capital levels will end up at the end of Q2 once you guys close the deal, particularly TCE and the total regulatory capital ratio?
Tim Switzer: Good morning.
Tim Switzer: Thank you for all the the updated financials impact.
Do you guys have a projection on where capital levels well end up at the end of Q2. Once you guys closed the deal.
Tim Switzer: Particularly TCE and the total regulatory capital ratio.
Thomas M. Lyons: Yeah, I don't know if we can go into much more detail than we already disclosed, Tim. But I can assure you that there will be a comfortable cushion over the required limits that we agreed to as part of the non-standard condition.
Speaker Change: Yeah, I don't know if we can go into much more detail than we already disclosed Tim I can assure you that there'll be a comfortable cushion over the required limits that we agreed to as part of the nonstandard conditions.
Thomas M. Lyons: Okay, are you able to provide any kind of framing around if rates continue to rise, how that would impact capital levels, and then maybe some of the other, you know, the NIM purchase accounting you provided?
Speaker Change: Okay or are you able to provide any kind of.
Speaker Change: Framing around if rates continue to rise how that would impact capital levels and then maybe some of the other the NIM purchase accounting you provided.
Thomas M. Lyons: Yeah, I guess all I can say is I don't have a sensitivity analysis in front of me, but rates are up. The five-year is about 60 basis points higher than the deal announcement, and you can kind of do a ratio and figure out what changed versus there. I think we were about $400 million at the deal announcement; we're up to $540 million now. You could straight line it that way. Okay, and that purchase accounting, the 60...
Yeah, I guess, all I can I can say is I don't have a sensitivity analysis in front of me, but rates are up the five years about 60 basis points higher than than deal announcement, and you can kind of do a ratio and figure out what changed versus the I think we were about 400 million at deal announcement up to 540 now.
Speaker Change: <unk>.
Speaker Change: You could straight line it though.
Speaker Change: Okay and that purchase accounting that 65 basis points was that the number at with rates at the end of the quarter or as of like this week.
Thomas M. Lyons: Okay, and that purchase accounting, the 65 basis points, was that the number with rates at the end of the quarter or as of this week? Okay. Okay. Okay. And have you guys gotten any indications yet on where pricing on the sub-debt raise could fall, a range or something?
Speaker Change: Current rates.
Speaker Change: Okay, Great and do you have you guys gotten any indications yet on where pricing on the sub debt raise could fall, yeah, a range or something.
Thomas M. Lyons: We really can't speak on anything about the offering until it's there.
Speaker Change: Yes, we really cant speak on anything on the offering until its there us happens to them.
Thomas M. Lyons: Okay, that's understood. And the last question I have is, you know, historically, you guys have done a really good job of keeping your efficiency ratio pretty low compared to the industry, 52% efficiency ratio in 2025 over the long term. As you combine these two companies, where do you think the efficiency ratio could land over the long term?
Speaker Change: Okay. That's understood and the last question I have is you know historically you guys have done a really good job of keeping your efficiency ratio ratio pretty low.
Speaker Change: Compared to the industry, you know, 52% efficiency ratio in 2025 over over the long term.
Speaker Change: As you combine these two companies.
Speaker Change: Where do you think the efficiency ratio could lando over the long term.
Speaker Change: Well that efficiency ratio just combines our current earning power right I think if you look at what happened to the efficiency ratio over the last 12 months to 18 months, there's been more of the compression in NIM and the revenue drivers. So as those things get back to normal we expect that that efficiency ratio will continue.
Thomas M. Lyons: Well, that efficiency ratio just combines our current earning power, right? I think if you look at what happened to the efficiency ratio over the last 12 to 18 months, it's been more the compression in NIM and the revenue drivers. So as those things get back to normal, we expect that that efficiency ratio will continue to improve downward from where it is on a pro forma basis. Yeah, I guess.
Speaker Change: To improve downward from where it is on a pro forma basis.
Thomas M. Lyons: Yeah, I guess you'd have to figure out what the projected margin expansion is beyond the $325,000 and continue to maintain that roughly $175,000 expense ratio to average assets.
Speaker Change: Yes, I guess you'd have to figure what the margin projected margin margin expansion is beyond the 325 and continue to maintain that roughly 175 expense ratio to average assets.
Operator: Okay, great. Thanks for taking my questions and congrats on getting the final approvals.
Speaker Change: Okay, great. Thanks for taking my questions and congrats on getting the final approvals.
Anthony J. Labozzetta: That concludes our Q&A session. I will now turn the conference back over to Tony Labozzetta for closing remarks.
Speaker Change: Thank you very much.
Speaker Change: Okay.
Speaker Change: That concludes our Q&A session I will now turn the conference back over to Tony <unk> for closing remarks.
Operator: Thank you everyone for your questions and for joining the call. I'd like to once again thank the Provident and Lakeland teams for the successful merger approval. And I think I speak for everyone when I say that we can move forward into 2024 with optimism and vigor. We look forward to talking to you all throughout the quarter and speaking to you all again next time. Have a great weekend.
Tony: Well. Thank you everyone for your questions and for joining the call.
Like to once again, thank the provident in Lakeland teams on a successful merger approval and I think I speak for everyone. When I say that we can move forward into 2020 for where the optimism and vigor. We look forward to talking to you all throughout the quarter and speaking to you. All again next time have a great weekend.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].