Q3 2024 Provident Financial Services Inc Earnings Call
Unknown Executive: Thank you for standing by.
Thank you for standing by.
Unknown Executive: I would like to welcome everyone to the Provident Financial Services Inc. Third Quarter Earnings Conference Call.
Speaker Change: I would like to welcome everyone to the Provident Financial Services, Inc. Third quarter earnings Conference call.
Adriano Duarte: I would now like to turn the call over to Adriano Duarte, the Investor Relations Officer.
Speaker Change: I would now like to turn the call over to Dorothy.
Unknown Executive: Please go ahead, Adriano. Thank you, Dustin.
Speaker Change: Investor Relations Officer. Please go ahead Sir.
Dorothy: Thank you Doug Good morning, everyone and thank you for joining us for our third quarter earnings call. Today's presenters are president and CEO, Tony Labs and.
Adriano Duarte: Good morning, everyone, and thank you for joining us for our third quarter earnings call.
Adriano Duarte: Today's presenters are President and CEO Tony Labozzetta and Senior Executive Vice President and Chief Financial Officer Tom Lyons. Before beginning the 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.
Dorothy: And senior Executive Vice President and Chief Financial Officer, Tom Lyons.
Dorothy: We're beginning to review of our financial results. We ask that you. Please take note of our standard question as to any forward looking statements that may be made during the course of today's call are full disclaimers contained in yesterday evening's earnings release, which has been posted to the Investor Relations page on our website Provident that back now it's my pleasure to introduce.
Unknown Executive: Providence.Bank.
Adriano Duarte: Now it's my pleasure to introduce Tony Labozzetta, who will offer his perspective on the third quarter.
Speaker Change: Tony <unk>, who will offer his perspective on the third quarter Tony.
Anthony Labozzetta: Tony. Thank you, Adriano, and welcome everyone to the Provident Financial Services earnings call.
Tony Labs: Thank you Adrianne and welcome everyone to the Provident financial services earnings call.
Anthony Labozzetta: Before we discuss our quarterly results, I am pleased to announce that as of September 3rd, the conversion of Lakeland Bank's core system was completed and we are now operating as a fully united organization. Our cultures are combining well, and we have successfully retained virtually all legacy Lakeland customers. We are grateful to all the team members whose hard work and diligent preparation allowed us to have a smooth systems integration. We are already seeing the benefits of the merger through cost savings, expansion in our margin, and more revenue enhancement opportunities. and we are excited to carry this momentum into 2025.
Tony Labs: Before we discuss our quarterly results I am pleased to announce that as of September 3rd the conversion of Lakeland Bank's core system was completed and we are now operating as a fully United organization.
Tony Labs: Our cultures are combining well and we have successfully retain virtually all legacy Lakeland customers.
We are grateful to all the team members, whose hard work and diligent preparation allowed us to have a smooth systems integration.
Tony Labs: We are already seeing the benefits of the merger through cost savings expansion in our margin and more revenue enhancement opportunities and we are excited to carry this momentum into 2025.
Anthony Labozzetta: Moving on to our quarterly results, the third quarter was characterized by stronger-than-expected economic growth, the first interest rate cut in more than four years, and an optimistic outlook for the banking sector, despite weak loan demand and higher deposit costs. The Provident team achieved solid core profitability, highlighted by core margin expansion, growth in the loan pipeline, significant contributions from our fee-based businesses, and improved operating efficiency. During the quarter, we reported net earnings of $46.4 million, or $0.36 per share, on an annualized adjusted return on average assets of 0.95%, and a return on average tangible equity of 14.53%.
Tony Labs: Moving on to our quarterly results. The third quarter was characterized by stronger than expected economic growth. The first interest rate cut in more than four years and an optimistic outlook for the banking sector, despite weak loan demand and higher deposit cost.
Tony Labs: The Providence team achieved solid core profitability highlighted by core margin expansion growth in the loan pipeline significant contributions from our fee based businesses and improved operating efficiency.
Tony Labs: During the quarter, we reported net earnings of $46 4 million or <unk> 36 per share on an annualized adjusted return on average assets of <unk>, 95% and our return on average tangible equity of 14 five 3%.
Anthony Labozzetta: Our adjusted pre-tax, pre-provision return on average assets was 1.48% for the third quarter. As we move forward, we expect to continue to leverage synergies and further enhance earnings going into 2025. At quarter end, our capital was healthy and exceeded levels deemed to be well capitalized. Our tangible book value per share increased 4.5% to 13.66%. and our tangible common equity ratio was 7.68%. compared to 7.34 for the trailing quarter.
Tony Labs: Our adjusted pre tax pre provision return on average assets was one 4% and 8% for the third quarter.
Tony Labs: As we move forward, we expect to continue to leverage synergies and further enhance earnings going into 2025.
Tony Labs: At quarter end, our capital was healthy and exceeded levels deemed to be well capitalized.
Tony Labs: Our tangible book value per share increased four 5% to $13 six six.
Tony Labs: And our tangible common equity ratio was 376, 8%.
Tony Labs: Compared to 734 for the trailing quarter.
Anthony Labozzetta: As such, our Board of Directors approved a quarterly cash dividend of $0.24 per share payable on November 29. During the quarter, our average cost of total deposits increased nine basis points to 2.36 percent. Our deposits grew by $22 million this quarter, largely in short-term certificates of deposit. Our total cost of funds increased six basis points to 2.62% and remains favorable relative to our period. Overall, our net interest margin increased 10 basis points to 3.31% and we expect to see continued improvement over the next several quarters.
Tony Labs: As such our board of directors approved a quarterly cash dividend of <unk> 24 per share payable on November 29.
Tony Labs: During the quarter, our average cost of total deposits increased nine basis points to 236%.
Tony Labs: Our deposits grew by $22 million this quarter largely in short term certificates of deposits.
Tony Labs: Our total cost of funds increased six basis points to 262% and remains favorable relative to our peer group.
Tony Labs: Overall, our net interest margin increased 10 basis points to 331% and we expect to see continued improvement over the next several quarters.
Anthony Labozzetta: During the third quarter, our commercial lending team closed approximately $489 million of new commercial loans. We experienced approximately $227 million in loan payoffs, resulting in a net growth of about $39 million. This quarter's production consisted of 35% commercial real estate, 43% in commercial and industrial lending, and 22% in specialty lending. Despite a slight deterioration in non-performing loans, primarily due to one commercial real estate credit, for which we anticipate a near-term resolution with no expected loss, our credit quality remains strong for the third quarter, as evidenced by our non-performing loan ratio of 47 basis. We do not see any systemic weakness in our loan portfolio and remain confident in our underwriting and portfolio management standards.
Tony Labs: During the third quarter, our commercial lending teams closed approximately $489 million of new commercial law.
We experienced approximately $227 million and loan pay offs, resulting in a net growth of about $39 million.
This quarter's production consisted of 35% commercial real estate, 43% and commercial and industrial lending and 22% and specialty lending.
Tony Labs: Despite a slight deterioration in nonperforming loans, primarily due to one commercial real estate credit for which we anticipate a near term resolution with no expected loss, our credit quality remains strong for the third quarter as evidenced by our nonperforming loan ratio of 47 basis.
Tony Labs: <unk>.
Tony Labs: We do not see any systemic weakness in our loan portfolio and remain confident in our underwriting and portfolio management standards. This is further supported by lower levels of net charge offs relative to our peer group.
Anthony Labozzetta: This is further supported by lower levels of net charge-offs relative to our peer group.
Anthony Labozzetta: We have seen an increase in our total loan pipeline, which grew during the third quarter to approximately $2 billion. The weighted average interest rate is 7.18% compared to 7.53% in the trailing quarter. The pull-through adjusted pipeline, including loans pending closing, is approximately $1.2 billion. We are optimistic regarding the strength and quality of our pipeline, and as such, we expect good growth over the next two quarters.
Tony Labs: We have seen an increase in our total loan pipeline, which grew during the third quarter to approximately $2 billion.
Tony Labs: The weighted average interest rate of seven 8% compared to 753% in the trailing quarter.
Tony Labs: The pull through adjusted pipeline, including loans pending closing is approximately $1 2 billion. We are optimistic regarding the strength and quality of our pipeline and as such we expect good growth over the next two quarters.
Anthony Labozzetta: This quarter, Providence fee-based businesses performed very well. Provident Protection Plus had 13% organic growth in the third quarter as compared to the same quarter last year, which was the highest third quarter growth rate in its history. In addition, it had 16% organic growth year to date, and its retention rate was 99%, even as insurance rates continue to rise. Beacon Trust Assets under management grew by 4% for the quarter to a record high $4.2 billion, which represents a 10% year to date growth. This growth was driven largely by good investment performance. And as a result, fee income improved 9% as compared to the third quarter of 2023.
Tony Labs: This quarter Providence fee based businesses performed very well profit and protection plus had 13% organic growth in the third quarter as compared to the same quarter last year, which was the highest third quarter growth rate in its history.
Tony Labs: In addition, it had 16% organic growth year to date and its retention rate was 99% even as insurance rates continue to rise.
Tony Labs: Beacon Trust assets under management grew by 4% for the quarter to a record high $4 2 billion, which represents a 10% year to date growth.
Tony Labs: This growth was driven largely by good investment performance and as a result fee income improved 9% as compared to the third quarter of 2023.
Anthony Labozzetta: As we move towards the end of the year, we are increasingly optimistic about the prospects for future performance. As we anticipate a more favorable operating environment, growth in our business line Continue Revenue Enhancement Opportunities, Strong Credit Quality, and Improving Operating Efficiency. which will help us deliver even more value to our customers, employees and stock.
Tony Labs: As we move towards the end of the year, we are increasingly optimistic about the prospects for future performance as we anticipate a more favorable operating environment growth in our business lines.
Tony Labs: Continued revenue revenue enhancement opportunities strong credit quality and improve improving operating efficiency, which will help us deliver even more value to our customers employees and stockholders.
Tom Lyons: Now I will turn the call over to Tom for his comments on our financial performance. Tom.
Tony Labs: Now I will turn the call over to Tom for his comments on our financial performance, Tom. Thank you Tony and good morning, everyone.
Tom Lyons: Thank you, Tony. And good morning, everyone. As Tony noted, we reported net income of $46.4 million or $0.36 per share for the quarter. Excluding charges related to our merger with Lakeland Bancorp, core earnings were $57.7 million in the current quarter, or $0.44 per share, with a core ROA of 95 basis points. Further adjusting to the amortization of intangibles, our core return on average tangible equity was 14.53% for the quarter. Excluding merger-related charges, pre-tax preprovision earnings for the current quarter were $90.1 million, or an annualized 1.48% of average assets. Revenue increased to $210.6 million for the quarter, reflecting our first full quarter combined with Lakeland, and our net interest margin increased 10 basis points in the trailing quarter to 3.31%.
Tom Lyons: As Tony noted, we reported net income of $46 4 million or <unk> 36 per share for the quarter.
Tom Lyons: Excluding charges related to our merger with Lakeland Bancorp or earnings were $57 $7 million in the current quarter or <unk> 44 per share with a core ROA of 95 basis points.
Tom Lyons: Further adjusting for the amortization of intangibles, our core return on average tangible equity was 14, 53% for the quarter.
Tom Lyons: Excluding merger related charges pretax pre provision earnings for the current quarter were $90 $1 million or an annualized $1, 48% of average assets.
Tom Lyons: Revenue increased to $210 $6 million for the quarter, reflecting our first full quarter combined with Lakeland and our net interest margin increased 10 basis points from the trailing quarter to 331%.
Tom Lyons: For the quarter, our margin included 53 basis points of purchase accounting increase. Excluding purchase accounting from both periods, our core margin expanded four basis points versus the trailing quarter to 2.78%. We projected them in the 3.3 to 3.35% range for the remainder of 2024, increasing to around 3.45% over the course of 2025. Our projections include two additional 25 basis point rate reductions in 2024 and another three rate cuts in 2025. Period and total loans were essentially flat for the quarter. Within the portfolio, C&I loans increased by $94 million, and multifamily loans increased by $37 million, while construction loans decreased by $97 million.
Tom Lyons: For the quarter, our margin included 53 basis points of purchase accounting accretion.
Tom Lyons: Excluding purchase accounting from both periods, our core margin expanded four basis points versus the trailing quarter to $2 78%.
Tom Lyons: We projected NIM in the three 3% to 335% range for the remainder of 2024, increasing to around 345% over the course of 2025.
Tom Lyons: Our projections include two additional 25 basis point rate reductions in 2024, and another three rate cuts in 2025.
Tom Lyons: Period end total loans were essentially flat for the quarter within the portfolio C&I loans increased by $94 million and multifamily loans increased by $37 million, while construction loans decreased by $97 million.
Tom Lyons: Our pull-through adjusted loan pipeline at quarter end has increased to $1.2 billion with a weighted average rate of 7.24% versus our current portfolio yield of 6.21%. Deposits totaled $18.4 billion on September 30th, consistent with the trailing quarter. Our loans to deposits ratio remains stable at 102%. The average cost of total deposits increased to 2.36% this quarter, reflecting a full period combined with late loans. We expect that this represents the cyclical peak in deposit costs. While metrics worsen slightly during the quarter, overall asset quality remains strong, with non-performing loans representing just 47 basis points of total loans, NPAs to assets at 41 basis points, Total delinquencies at 56 basis points of loans, and criticized and classified loans totaling 2.74% of loans.
Tom Lyons: Our pull through adjusted loan pipeline at quarter end has increased to $1 2 billion with a weighted average rate of seven 4% versus our current portfolio yield of six 1%.
Tom Lyons: Deposits totaled $18 4 billion at September 30, consistent with the trailing quarter.
Tom Lyons: Our loans to deposits ratio remained stable at 102%.
Tom Lyons: The average cost of total deposits increased to 236% this quarter, reflecting a full period combined with Lakeland.
Tom Lyons: We expect that this represents the cyclical peak in deposit costs.
Tom Lyons: While metrics worsened slightly during the quarter overall asset quality remains strong with nonperforming loans, representing just 47 basis points of total loans NPA assets at 41 basis points.
Tom Lyons: Total delinquencies at 56 basis points of loans and criticized and classified loans totaling $2 74% of loans.
Tom Lyons: The increase in non-performing loans this quarter was largely driven by one $19.7 million credit secured by an industrial property that has a current loan-to-value ratio of approximately 39%. There is an active near-term resolution plan, and we expect to incur no loss on this credit. Net charge-offs were $6.8 million, or an annualized 14 basis points of average loans this quarter. Charge-offs were primarily driven by one commercial credit, which carried a specific reserve of $4.4 million at June 30. The remaining collateral securing this relationship is scheduled to be auctioned in November, with full resolution expected in the fourth quarter.
Tom Lyons: The increase in nonperforming loans this quarter was largely driven by $119 $7 million credit secured by an industrial property that has a current loan to value ratio of approximately 39%.
Tom Lyons: There is an active near term resolution plan and we expect to incur no loss on this credit.
Tom Lyons: Net charge offs were $6 $8 million or an annualized 14 basis points of average loans this quarter.
Tom Lyons: Charge offs were primarily driven by one commercial credit, which carried a specific reserve of $4 4 million at June 30.
Tom Lyons: The remaining collateral securing this relationship is scheduled to be auctioned in November with full resolution expected in the fourth quarter.
Tom Lyons: The provision for loan loss has increased to $9.6 million this quarter, reflecting specific reserve requirements and some deterioration in the macroeconomic variables that drive our CECLF. This increased our coverage ratio to 1.02% of loans at September 30th. Non-interest income increased to $27 million this quarter, reflecting the Lakeland combination, strong performance from our Wealth Management and Insurance Agency subsidiaries, and an increase in BOLI income. Non-interest expenses, excluding merger-related charges, were in line with our expectations at $120 million, with expenses to assets at 1.98% and the efficiency ratio at 57.2% for the quarter. We have currently realized the majority of our targeted merchant cost saves, and we project non-interest expenses of approximately $110 million for the fourth quarter of 2024.
Tom Lyons: The provision for loan losses increased to $9 $6 million this quarter, reflecting specific reserve requirements and some deterioration in the macroeconomic variables that drive our seasonal estimate this increased our coverage ratio to 1.0% to 2% of loans at September 30.
Tom Lyons: Noninterest income increased to $27 million this quarter, reflecting the combined the Lakeland combination strong performance from our wealth management and insurance agency subsidiaries and an increase in bully income.
Tom Lyons: Noninterest expenses, excluding merger related charges were in line with our expectations at $120 million with expenses to assets at 198% and the efficiency ratio at 57, 2% for the quarter.
Tom Lyons: We have currently realized the majority of our targeted merger cost saves and we project noninterest expenses of approximately $110 million for the fourth quarter of 2024.
Tom Lyons: We currently project our effective tax rate for the remainder of 2024 and 2025 to approximate 29.5%.
We currently project our effective tax rate for the remainder of 2024 and 2025 to approximate 29, 5%.
Unknown Executive: Regarding projected 2025 financial performance with fully phased-in cost saves, we currently estimate 2025 return on average assets of approximately 1.15% and return on tangible equity of approximately 16% with an operating expense ratio of approximately 1.8% and an efficiency ratio of approximately 52%. That concludes our prepared remarks. We'd be happy to respond to questions. Thank you. As a reminder, if you'd like to ask a question, please press star and the number one on your telephone keypad. We will pause for just a moment to compile our slides. Thank you. We will begin the question and answer session.
Tom Lyons: Regarding projected 2025 financial performance with fully phased in cost saves. We currently estimate 2025% return on average assets of approximately 1.15% and return on tangible equity of approximately 16% with an operating expense ratio of approximately one 8% and an efficiency ratio of <unk>.
Tom Lyons: Proximately, 52%.
Tom Lyons: That concludes our prepared remarks, we'd be happy to respond to questions.
Tom Lyons: Okay.
Tom Lyons: Thank you.
Speaker Change: As a reminder, if you'd like to ask a question.
Speaker Change: Please press star and the number one on your telephone keypad.
Speaker Change: You bet.
Speaker Change: Cost for just a moment to compile the roster.
Speaker Change: Thank you we will begin the question and answer session.
Mark Fitzgibbon: And our first question comes from the line of Mark Fitzgibbon from Piper Sandler. The line is open.
Speaker Change: And our first question comes from the line of Mark Fitzgibbon from Piper Sandler.
Speaker Change: Your line is open.
Greg Zingo: Hey guys, it's Greg Zingo and stepping in for Mark at the moment. How are you? Hey, good morning. Very good. How are you? Good.
Speaker Change: Hey, guys, it's Greg <unk> stepping in for Mark at the moment and how are you.
Speaker Change: Hey, good morning, Greg very good how are you.
Greg Zingo: First question. One of your competitors just announced it was selling a large pool of commercial real estate loans to drive their concentration down.
First question one of your competitors, just announced that we're selling a large pool of commercial real estate loans to drive their concentration down is this something that you guys would also consider doing.
Anthony Labozzetta: Is this something that you guys would also consider doing?
Anthony Labozzetta: No, it's not even in our discussions here. We don't have a lot of transactional accounts, you know, relationship-oriented institution. We like our book. There's no systemic deterioration in there. It's all within our concentration risk levels that meet our tolerances from a risk, concentration risk perspective. So there's no business or strategic reason for us to entertain that at this time.
Speaker Change: No it's not even in our discussions here.
Speaker Change: We don't have a lot of transactional accounts relationship oriented institution, we like our book there is no there is no.
Systemic deterioration in there it's all within our concentration risk levels that meet our tolerances from a risk on a concentration risk perspective. So.
There is no no business or strategic reason for us to entertain that at this time.
Greg Zingo: Okay.
Anthony Labozzetta: And then lastly, what are your thoughts on a securities portfolio restructuring? Again, none anticipated at this time. We're happy with the quality content and performance of the securities portfolio as well. We did a minor reshift. We did when we bought Lakeland, as you know, it was about 550 million dollars that we restructured out and paid down and reinvented some of that.
Speaker Change: Okay, and then lastly, what are your thoughts on our securities portfolio restructuring.
Speaker Change: Again not anticipated at this time, we're happy with the quality content performance in the securities portfolio as well.
Speaker Change: We did a minor reshaped or than we did when we bought Lakeland as you know we it was about $550 million that we restructured out and pay down and reinvest some of that yet.
Greg Zingo: Awesome. Thanks, guys.
Awesome, Thanks, guys I'll step back to the hip.
Greg Zingo: I'll step back to the queue. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Billy Young: Our next question comes from the line of Billy Young from RBC Capital. The line is open.
Speaker Change: Our next question comes from the line of Billy Young from RBC capital.
Speaker Change: Your line is open.
Billy Young: Hey, good morning, guys. How are you? Hi, how are you? Doing well, doing well. Thank you. I'm just kind of looking at next year's margin guide to 335 to 340. Can you just maybe comment on, you know, what type of said rate actions you would need to see to kind of get to the upper end of that range. I guess to fall onto that is does that matter or do you have enough natural repricing ability on the deposit book to kind of get there? Yeah, but I think it's less about the Fed's actions, as we've discussed, we're pretty neutral in terms of interest rate risk, and more about the repricing of the organic book.
Billy Young: Hey, good morning, guys how are you.
Speaker Change: Good how are you.
Billy Young: Doing well doing well thank you Jim.
Billy Young: Just kind of looking at next year's margin guide to $3 35 to $3 40 can you just maybe comment on.
Billy Young: What type of.
Speaker Change: Fed rate actions, you would need to see to kind of get to the upper end of that range I guess follow on to that as it does that matter or do you have enough natural repricing ability on the deposit book to kind of get there.
Speaker Change: Yes, but I think it's less about the fed's actions as we've discussed we're pretty neutral in terms of interest rate risk and more about the repricing of the.
Speaker Change: The organic book.
Tom Lyons: So I think we're looking at probably quarter margin expansion in the three to five basis points range per quarter over the course of the next several quarters. And that 54, 55 kind of purchase accounting that we saw this quarter is probably representative of the future, subject to some volatility, depending on the cash flows that you know, that underlie that. So depending on the loan prepayments, So I think we're moving towards like a 345 number closer to the end of the year.
Speaker Change: So I think we're looking at probably core margin expansion in the three to five basis points range per quarter over the course of the next several quarters and that $54 55 kind of that purchase accounting that we saw this quarter is probably representative of the future subject to some volatility depending on the cash flows that underlie that depending on the loan prepayments.
Speaker Change: So I think we're moving towards like a $3 45 number closer to the end of the year.
Speaker Change: Yeah.
Tom Lyons: the year 2025. Maybe you want to share the core margin movement, some of the betas that we had on our deposits that we worked a little bit better than what we thought. And in terms of repricing with the Fed's rate moves? Yeah. So again, a lot of what goes into the quality of the of the margin expansion is how effectively and aggressively we can manage deposit funding costs or or. Our stated rates are typically pretty low relative to the peer group, so that's the concern. There's not a lot of room for movement there, but there's a fair amount of exception pricing in the book as well as there is with most institutions.
Speaker Change: The year 2025.
Speaker Change: Maybe you want to share that the core margin movements. Some of the beta. So we had our deposits that we worked a little bit better than what we thought.
Speaker Change: In terms of repricing with the fed's rate moves, yes. So again a lot of what goes into the quality of the of the margin expansion is how effectively and aggressively we can manage deposit funding costs.
Speaker Change: Our.
Speaker Change: Our stated rates are typically pretty low relative to the peer group. So that's the concern is not a lot of room for movement, there, but there's a fair amount of exception pricing in the book as well as there is with most institutions.
Tom Lyons: We're very successful in this first round, and you'll see it effective with the October 1st rate of repricing some of those down about $2.3 billion worth of deposits at an average of about 37, 38 basis points reduction that we saw effective October 1st. So again, that's what's going to influence our ability to outperform going forward is how effectively we're able to manage those funding costs while retaining the balance.
Speaker Change: Very successful in this first round then youll see it effective with the October one rate of repricing. Some of those down about 2.2 dollars $3 billion worth of deposits at an average of about 37 38 basis points.
Speaker Change: Reduction that we saw so effective October one so again, that's what's going to influence our ability to outperform going forward is how effectively we're able to manage those funding costs, while retaining the deposit balances.
Billy Young: Thank you for all that. I appreciate it.
Speaker Change: Got it. Thank you for all that I appreciate it doesn't.
Billy Young: Just moving on to a different topic, your updated expense guide is tracking a little higher than the 107 you previously guided to, so can you just maybe elaborate what areas you might be seeing incremental expense pressure? And I apologize if I missed this, but can you just kind of help clarify what you're kind of assuming in terms of the expense growth run rate target for next year? Yeah, the 110, I think we talked about a 107 last quarter for Q4. Some of that's just a little bit of the timing on the realization of the remaining cost saves from the merger.
Speaker Change: Just moving on to a different topic.
Speaker Change: Your your updated expense guide is tracking a little higher than that.
Speaker Change: The 170 <unk> previously guided to so can you just.
Speaker Change: Maybe elaborate what areas you might be seeing incremental expense pressure.
Speaker Change: And I apologize if I missed this but can you just kind of help clarify what youre kind of assuming in terms of the expense growth run rate target for next year.
Speaker Change: Yes, the one thing I think we talked about a 107 last quarter for Q4, some of that just a little bit of the timing on the realization of the remaining cost saves from the merger.
Billy Young: So that's what's given us a little bit more A little bit more of a delay in fully realizing that those benefits for next year. I'm thinking the first first couple of quarters, at least it'll probably pick up a little bit from there. As you know, there's typically seasonal expenses. Compensation increases payroll taxes on the employer side and whatever weather related costs that come into play. So I'm thinking of something like a 112 to 115 for the first quarter or two.
Speaker Change: That's what's given us a little bit more.
A little bit more of a delay and fully realizing that those benefits for next year I'm thinking the first first couple of quarters at least we will probably pick up a little bit from there as you know there is typically seasonal expenses.
Speaker Change: Compensation increases payroll taxes on the employer side and whatever weather related costs that come into play so I'm thinking something like a 112 to $1 15 for the first quarter chip.
Billy Young: Got it. Thanks.
Speaker Change: Got it. Thanks, Thanks, and just my last question I guess is just just to touch on your positive commentary on kind of loan pipelines. They do seem to be kind of gaining momentum here. So can you I guess can you just just a broader comment are you starting to see that inflection point.
Billy Young: And just my last question, I guess, is just just to touch on your positive commentary on kind of loan pipelines. They do seem to be kind of gaining momentum here. So can you, I guess, can you just just a broader comment? Are you starting to see that inflection point in terms of underlying demand and client activity? You know, we've talked about some of the macro headwinds that have kind of plagued the industry for the last couple of quarters. Are you starting to see that inflect now that we're kind of getting some of that behind us?
Speaker Change: In terms of.
Speaker Change: Underlying demand and client activity, we've talked about some of the.
Speaker Change: Macro headwinds that kind of plagued the industry for the last couple of quarters are you starting to see that inflect now that we're kind of getting some of that behind us I know we have the election next week, but.
Billy Young: I know we have the election next week, but are you are you starting to see any change in sentiment here?
Speaker Change: Are you are you starting to see any change in sentiment here.
Billy Young: Yes, that's a good question. There's a couple of things. I think we had a dynamic that affected Provident that is just outside of normal rates and market conditions.
Speaker Change: Hello.
Speaker Change: Yes, that's a good question. There's a couple of things I think we had a dynamic that affected provident that.
Speaker Change: Outside of normal rates and market conditions, we had a merger integration happening and.
Anthony Labozzetta: We had a merger integration happening and as hard as you try, there's always going to be a little bit of a disruptive factor there. So it's hard to gauge what percentage that was, but suffice to say that as we got through, you know, the merger got approved and we got through our conversion, the momentum picked up on both sides of the legacy organizations. And we are seeing a great deal of activity. The sentiment from the clients today is great that rates went down and it's starting to trigger more activity. I think we're in a space now where people are being active with projects, because the specter of rising rates isn't there.
Speaker Change: As hard as you try there is always going to be a little bit of a disruptive factor there. So it's.
Speaker Change: It's hard to gauge what percentage that was but suffice to say that as we got through the merger got approved and we got through our conversion the momentum picked up on both sides of the legacy organizations.
Speaker Change: And we are seeing a great deal of activity the sentiment from the clients today is great that rates went down and is starting to trigger more activity.
Speaker Change: I think we're in a space now where people are being active with projects.
Speaker Change: Because the specter of rising rates isn't there so they can say okay.
Anthony Labozzetta: So they can say, okay, we don't have to worry about variable rates continuing to move. And I can do this project over the short term and three years from now I can refinance it at a lower cost. So there's that sentiment.
Speaker Change: Have to worry about variable rates continuing to move and I can do this project over the short term and three years from now I can refinance it at a lower cost. So theres that sediment. There is also the discussions out there in certain industrial sectors that people are waiting for what happens with this election, depending on on policy changes and how it might affect our <unk>.
Anthony Labozzetta: There's also the discussions out there in certain industrial sectors that people are waiting for what happens with this election, depending on policy changes and how it might affect their business. For Provident, we're also seeing a little bit of a pull down from the bigger banks. There's been a little disruption in the market and we're getting a lot more activity coming in from the top banks on down. So suffice to say that I think there's some guarded optimism out there. We do expect, we see the pipeline building and a lot of activity. And as we're more focused now that the conversion is behind us, despite what the market is, I think we'll fare better.
Business.
Speaker Change: For Provident, we're also seeing a little bit of a pull down from from the bigger banks theres been a little disruption in the market and we're getting a lot more activity coming in from the top banks on down.
Speaker Change: So suffice to say that I think there is some guarded optimism out there. We do expect we see the pipeline building and a lot of activity and as we're more focused now that the conversion is behind behind us.
Speaker Change: Despite what the market is I think we'll fare better but if market conditions improve we will be I think we'll be able to exceed our normal projected loan growth and I think the fourth quarter is looking nice right now for us.
Anthony Labozzetta: But if market conditions improve, I think we'll be able to exceed our normal projected loan growth. And I think the fourth quarter is looking nice right now for us. And we want to keep that momentum going into 2025.
Speaker Change: And we want to keep that momentum going into 2025.
Unknown Executive: Great, thank you guys for taking my question. Thank you. Very good.
Speaker Change: Great. Thank you guys for taking my questions.
Thank you.
Tim Switzer: Our next question comes from the line of Tim Switzer from KBW.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of tens is that Sir from K B W.
Tim Switzer: The line is open.
Speaker Change: Lines open.
Tim Switzer: Hey, good morning, guys. Hope you're doing well. We are, thank you, too. I have a follow up on the margin outlook here. The purchase accounting accretion, you know, didn't move up much versus the previous quarter. And, you know, I'm kind of curious on what the dynamics were there. And I know there's a lot that kind of goes into the estimates and calculations for that. But could you kind of walk us through the, you know, why I guess it wasn't higher given the Q2 number and then do you expect it to be stable over the near term instead of like kind of slowly moving down?
Speaker Change: Hey, good morning, good morning, Hope Youre doing well.
Speaker Change: Thanks, you too.
Speaker Change: I Havent follow up on the margin outlook here the purchase accounting accretion.
Speaker Change: At move up much versus the previous quarter.
Speaker Change: And I'm kind of curious on what the dynamics were there I know, there's a lot that kind of goes into the.
Speaker Change: The estimates and calculations for that but could you kind of walk us through why I guess it was higher given the.
Speaker Change: The Q2 number and then do you expect it to be stable over the near term instead of like kind of slowly moving down how should we model that out.
Tom Lyons: How should we model that out? Yes, I think the primary driver was just the assumptions we were using around cash flows on the loan. So the prepayments on the loans came in lesser, lower than expected. And I think that is a reasonable run rate to use going forward. I would keep it stable. I mean, I ultimately there'll be some some decrease in that over time, but I don't see a dramatic decrease in the first first year or so. I think it's important to point out that the core margin also improved, and that's without consideration for this rate cut and the benefits that we'll see in October.
Speaker Change: Yes, So I think the primary driver was just the assumptions were using around cash flows on the loan. So the prepayments on the loans came in lesser lower than expected.
Speaker Change: And I think that is a reasonable run rate to use going forward I would keep it stable I mean, ultimately there'll be some some decrease in that over time, but I don't see a dramatic decrease in the first year or so.
Speaker Change: I think it's important to point out that the core margin also improved and thats without consideration for this rate card and the benefits that we'll see in October so the core operating.
Tom Lyons: So the core operating margin, Tim, has improved, and it's nothing more, nothing further to look at in that margin change than prepayment speeds that we anticipated. So in essence, if those speeds pick up as rates continue to come down, we could actually see it go higher than what Tom and A.D. are guiding to, but I think Tom's guidance is to just keep it stable because it's the right thing to... It's an appropriate baseline.
Speaker Change: Margin.
Speaker Change: Tim has improved and it's nothing more nothing further to look at it in that margin change than prepayment speeds that we anticipated. So in essence, if those speeds pick up as rates continue to come down we could actually see it go higher than comdata.
Speaker Change: Dominated you're guiding to but I think Tom's guidance is to just keep it stable because just it's the right thing to right at between appropriate baseline correct.
Tim Switzer: Yeah, no, that makes total sense.
Speaker Change: Yes, no that makes total sense and then.
Tim Switzer: And then another quick one on the run rate for amortization expenses around $12 million this quarter. Is that a good run rate going forward? And also, is that included in your ROTCE? It is added back to the ROTC and it is a good run rate. Okay, okay.
Speaker Change: Another quick one on the run rate for amortization expenses around $12 million. This quarter is that a good run rate going forward and also is that included in your Io TCE projections.
Speaker Change: It is added back to the <unk> and it is a good run rate.
Speaker Change: Okay. Okay. That's helpful.
Tom Lyons: Um And then could you maybe provide just a quick review of, you know, what's the impact of, you know, more aggressive Fed cuts or, you know, less aggressive Fed cuts to your margin in IIF? I think you picked up a little bit on the margin because I think we will be able to be effective in the in the funding quest and there's a fair amount of, let me see what the number is. Um We have $4.5 billion worth of maturing funding over the next 12 months at a rate of about $4.26. So to the extent we get to reprice that down, that'll certainly help us quite a bit.
Speaker Change: <unk>.
Speaker Change: And then could you maybe provide just a preview of what's the impact of more aggressive fed cuts or.
Speaker Change: Less aggressive fed cuts to your margin and NII outlook.
Speaker Change: Okay.
Speaker Change: I think you pick up a little bit on the margin because I think we will be able to be effective in the in the funding cost and Theres a fair amount of let me see what the number is.
Speaker Change: We have $4 $5 billion worth of maturing funding over the next 12 months at a rate of about 426, so to the extent, we get to reprice that down that will certainly help us quite a bit.
Tom Lyons: Slope of the yield curve will help as well in terms of reinvesting those funds. So there's greater opportunities with more dramatic decreases. That said, we are fairly neutral from an industry at risk perspective. So regardless, we should be just fine.
Speaker Change: Slope of the yield curve will help as well in terms of re re investing those funds, so theres opportunity greater opportunities with them more dramatic decreases.
Speaker Change: That said, we are fairly neutral from interest rate risk perspective, so regardless, we should be.
Speaker Change: Just fine.
Tim Switzer: Okay, perfect. Thank you, guys. Thank you.
Speaker Change: Okay perfect. Thank you guys.
Speaker Change: Thank you.
Speaker Change: Thank you and our last question comes from the line of Michael I don't know boss from D. A Davidson.
Manuel Navas: And our last question comes from the line of Manuel Navas from D.A. Davidson. The line is open. Morning. Good morning. That's great about the deposit cost declines in October. Is that similar deposit beta is expected across 25? You're extending that out? And has there been any pushback at the moment to those?
Speaker Change: Your line is open.
Speaker Change: Good morning, Hey, good morning, good morning.
Speaker Change: Okay, that's great about the deposit cost declines in October is that.
Speaker Change: Similar to.
Speaker Change: Deposit beta is expected across 25, youre extending that out.
Speaker Change: There has there been any pushback at the moment to those cuts.
Anthony Labozzetta: I think, I think, you know, our team did an outstanding job prepping the customers, we didn't just do it and let the customer find out there was a lot of outreach, a lot of communication and, and they were able to successfully get about 38 basis points of the 50 base point cut, we've conditioned our customers on expectation as we move forward, there's always those relationships that produce a lot of value, as you know, that you make accommodations for. But I think, I think the team is, along with the treasury group is doing a fine job of preparing in advance of rate cuts in terms of customer communication.
Speaker Change: I think our team did an outstanding job prepping the customers, we didn't just do it and let the customers find out there was a lot of outreach.
Speaker Change: A lot of communication.
They were able to successfully get about 38 basis points, a 50 basis point cut we've conditioned our customers an expectation as we move forward, there's always those relationships to produce a lot of value.
Speaker Change: That you make accommodations for.
Speaker Change: I think I think the team along with the Treasury group is doing a fine job of preparing in advance of rate cuts in terms of customer communications. So.
Tom Lyons: So I really expect. that we should get similar betas, but it's really hard to predict how far, but I would say I'm pretty comfortable that it should be relatively close. Yeah, and I could share what we're modeling. Recognizing the timing of the maturing funding. So in our in our modeling for next year, we have a weighted average interest, I'm sorry, weighted average beta on the interest bearing deposits of a little over 31%. And on total deposits about 24%, so including the non-interest bearing. So that also includes the CDs, again, repricing as they come to maturity.
Speaker Change: I really expect.
Speaker Change: That we should get similar betas, but it's but it's really hard to predict what the next any how far.
Speaker Change: I'd say.
Speaker Change: Pretty comfortable that it should be relatively close to make sure what we're modeling.
Speaker Change: Recognizing the timing of the maturing funding so in arc.
Speaker Change: Im modeling for next year, we have a weighted average interest sorry weighted average based on the interest bearing deposits of a little over 31% and on total deposits about 24%, so including the noninterest bearing.
Speaker Change: So that also includes the Cds again repricing as they come to maturity.
Manuel Navas: That's by year end next year, the right process. Yeah, that's over the course of the year next year. Yes. Okay.
Speaker Change: That's by year end next year.
Speaker Change: The right top Brussels.
Speaker Change: Yes, that's over the course of the year next year, yes, Okay I appreciate that clarity.
Anthony Labozzetta: I appreciate that clarity. And can you just Speak to potential fee revenue synergies. You've talked about it a bit already, but just kind of now that the deal is closed, where can insurance, wealth management all kind of be stronger together than where it was before? Well, that's a great question. I did mention that in my written notes. And if we had a great deal of time, I will give you a lot of the the factual or anecdotal information that we're seeing. Suffice to say that there's been a great reception in across the two legacy organization in terms of the businesses that we contributed.
Speaker Change: And <unk>.
Speaker Change: Can you just.
Speaker Change: Speak to potential fee revenue synergies, you've talked about it a bit already.
Speaker Change: But just kind of.
Speaker Change: Now that the deal is closed.
Speaker Change: <unk> insurance wealth management all.
Speaker Change: Kind of.
Speaker Change: The stronger together than.
Where it was before.
Speaker Change: That's a great question I did mentioned that in my written notes.
Speaker Change: We had a great deal of time I will give you a lot of the factual or anecdotal information that we're seeing suffice to say that.
Speaker Change: There has been a great reception.
Speaker Change: Across the two legacy organization in terms of the businesses that we contributed a for instance, we're seeing a lot of commercial.
Anthony Labozzetta: For instance, you know, we're seeing a lot of commercial activity going into our insurance from the legacy Lakeland side. You know, we've actually had even our in wealth business for for a commercial client over to our bank, we're seeing insurance refer, where the activity has picked up tremendously. And I think part of that is the excitement as we go in, I think we're just touching the beginning stages of, you know, what we do is called as a culture working on an integrated basis. But the storylines are there. So in addition to how we're referring business across the channels, you also have what we mentioned earlier on a few calls ago, that as a large organization, we're able to accommodate certain transactions that we were not.
Speaker Change: Activity going into our insurance from a legacy Lakeland side, we've actually had even our wealth business refer a commercial clients over to our bank. We're seeing insurance refer Where's the activity has picked up tremendously and I think part of that is the excitement as we go in I think we're just touching the begin.
Stages of.
Speaker Change: What we do is as a culture working on an integrated basis, but the story lines are there.
Speaker Change: In addition to how we're referring business across the channels. You also have what we mentioned earlier on a few calls ago that is a large organization, we're able to accommodate.
Anthony Labozzetta: So I mean, just this quarter alone, I can point to about two or three transaction that the legacy Provident couldn't have done unless we had the combined scale. And, and it gave us the capacity to do more treasury management business and other activity and insurance as a byproduct of that. So all of those are the revenue enhancement things that we refer to, and just watching that customer experience that goes back and forth between the teams. It's pretty exciting for me, we just have to keep that momentum going.
Speaker Change: Certain transactions that we were not so I mean, just this quarter alone I can point to about two or three transaction that the legacy Provident couldn't have done unless we had the combined scale and.
Speaker Change: And it gave us the capacity to do more treasury management business and other activity in insurance as a byproduct of that.
Speaker Change: So all of those are the revenue enhancement things that we referred to and just watching that that customer experience that goes back and forth between the teams.
Speaker Change: It's pretty exciting for me, we just have to keep that momentum going.
Manuel Navas: I appreciate that. Thanks for the color. Thanks for the commentary. Perfect. Thank you.
Speaker Change: I appreciate that thanks for the color thanks for the color commentary.
Speaker Change: Perfect.
Speaker Change: Thank you.
Anthony Labozzetta: That now concludes our question and answer session. I will now turn the call over back to our CEO, Anthony Labozzetta for closing remarks. Well, thank you, everyone, for your questions and for joining the call. You know, it has been a very productive and eventful quarter for us. And we hope that you all have a great rest of the year and holiday season. We look forward to speaking to all of you in the new year. Thank you very much.
Speaker Change: That now concludes our question and answer session I will now turn the call over back to our CEO Anthony levels that are for closing remarks.
Anthony levels: Well. Thank you everyone for your questions and for joining the call.
Anthony levels: It has been a very productive and eventful quarter for us and we hope that you all have a great rest of the year and holiday season, we look forward to speaking to all of you in the new year. Thank you very much.
Unknown Executive: Ladies and Gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Goodbye.
Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Anthony levels: Goodbye.
Okay.
Anthony levels: Okay.