Q1 2025 Provident Financial Services Inc Earnings Call
Thank you for standing by. My name is Kate and I will be your conference operator today. At this time, I would like to welcome everyone to the Provident Financial Services Inc. First quarter, 2025 earnings conference call.
All lights have been placed on you to prevent any background noise.
After the speaker is remarks, there will be a question and answer session.
If you would like to ask a question during this time, simply press star, follow with the number one on your telephone keypad.
Speaker Change: If you would like to endure your question, press star one again. Thank you. I would no like to turn the call over to Adriano Duarte, investor relations officer, please go ahead.
Adriano Duarte: Thank you, Kate. Good morning, everyone. And thank you for joining us for our first quarter earnings call. Today's presenters are President, CEO , Tony Labozzetta, and Senior Executive Vice President and Chief Financial Officer, Tom Lyons.
Adriano Duarte: 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.
Speaker Change: Our full disclaimers contain the last 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 respect up on our first quarter. Tony?
Tony Labozzetta: Thank you, Adriano, and welcome to the Provident Financial Services earnings call.
Tony Labozzetta: We are proud of the excellent performance the Provident team delivered this quarter.
Tony Labozzetta: We saw expanded margins, increased top line revenue, solid earnings, and tangible book value growth, as we've begun to fully realize the benefits of last year's merger.
Tony Labozzetta: Our adjusted pre-tax pre-provision return on average assets was 1.61% for the first quarter.
Tony Labozzetta: These core financial results improved from the trailing quarter and the same quarter last year. And we are confident in our ability to continue our strong performance throughout 2025.
Tony Labozzetta: Our capital position improved and continues to comfortably exceed levels deemed to be well capitalized.
Our tangible book value per share, Group $0.69. $0.00.
Tony Labozzetta: to $14.15, and our changeable common equity ratio expanded from the trailing quarter to 7.9%. As such, our Board of Directors approved a quarterly cash dividend of $0.24 per share payable on May 30.
Tony Labozzetta: During the quarter, our deposits declined 175 million or 0.94% in large part due to seasonal outflow of municipal deposits.
Tony Labozzetta: We did, however, continue to have an improvement in our average cost of total deposits, which decreased 14 basis points to an impressive 2.11 percent, and the average cost of interest bearing deposits was decreased 17 basis points.
Tony Labozzetta: Our total cost of funds decreased nine basis points to a very solid 2.39%
Tony Labozzetta: As a result of our report, as a result, our report in net interest margin increased 6 basis points to 3.34%. And more notably, our core net interest margin grew 9 basis points.
Tony Labozzetta: During the first quarter, our commercial lending team closed approximately 600 million in new loans, and our commercial loan portfolio increased 3.8%.
Tony Labozzetta: This quarter's production consisted of a 30% commercial real estate and 70% commercial and industrial loans
Tony Labozzetta: In addition to the production mix, our strong capital formation has driven our CRE ratio down to 450%.
Tony Labozzetta: Additionally, we have seen a substantial increase in our total loan pipeline to approximately 2.8 billion this quarter.
Tony Labozzetta: The weighted average interest rate is 6.31% compared to 6.91% in the trailing quarter.
Tony Labozzetta: The pull-through adjusted pipeline, including loans pending closing, is approximately 1.8 billion compared to the 1 billion in the previous quarter.
Tony Labozzetta: We congratulate the lending team for these results, and we are optimistic about the strength of our pipeline.
Tony Labozzetta: Our credit quality remains strong relative to our peer group, despite an increase in our non-performing loan ratio to 0.54%. Primarily attributable to two well-secured loans with no prior charge off history.
Tony Labozzetta: Our net charge will have decreased to 2 million from 5.5 million in the trailing water, which is also impressive relative to the peer group.
as well as the Quality War Portfolio.
Overall, Provident's fee-based businesses performed well this quarter.
Tony Labozzetta: However, due largely to market conditions, beacon trust assets on the management and fee income
Tony Labozzetta: This quarter was the first, which featured no transaction costs related to our merger with Lakeland, and we are proud of our performance.
Tony Labozzetta: We have used our Solid Foundation to excel in our core businesses and create value for stockholders and customers despite the uncertainties in the market and the economy.
Tony Labozzetta: We believe that we can carry this momentum forward throughout the rest of 2025.
Tony Labozzetta: Now, I'll turn the call over to Tom for his comments on our financial performance. Tom? Thank you, Tony, and good morning, everyone. As Tony noted, we reported net income of $64 million or $49 cents for share for the quarter.
Tom Lyons: Excluding a $2.7 million right-town associated with the pending sale of foreclosed commercial property, for earnings were 65.9 million or 51 cents per share, with a corer away of 1.11 percent.
Tom Lyons: Further adjusting for the amortization of intangibles, our core return on average tangible equity was 16.15% for the quarter.
Tom Lyons: Excluding this right-down, pre-tax pre-provision earnings for the current quarter were $95.2 million or an annualized 1.61% of average assets.
Tom Lyons: Revenue increased to $208.8 million for the quarter, and our Coronet interest margin increased to these nine basis points in the trailing quarter to 2.94%.
Tom Lyons: Including 40 basis points of purchase to county increase, our net interest margin was 3.34% for the first quarter.
Tom Lyons: We currently project a NIM in the 335-3.45% range for the remainder of 2025.
Tom Lyons: Our projections include 25 basis point rate reductions in July , September and December 2025.
Tom Lyons: Period and loan sales for investment increased $133.4 million, or an annualized 2.8% of the quarter, driven by growth in multi-family, commercial and commercial real estate loans, partially offset by reductions in construction and residential mortgage loans.
Tom Lyons: C&I loans grew in annualized 6.5% paces, while total commercial loans grew by an annualized 3.8% for the quarter.
Tom Lyons: Our pull-through adjusted loan pipeline in quarter-angles $1.8 billion with the weighted average rate of 6.31% versus our current portfolio yield of 5.95%.
Tom Lyons: The posits decreased $175 million for the quarter, with much of that decline attributable to seasonal and lack of clothes and municipal deposits.
Tom Lyons: Average deposits for the quarter decrease 72 million or an annualized 1.5% versus the trailing quarter.
Tom Lyons: The average cost of total deposits decreased 14 basis points to 2.11% this quarter.
Tom Lyons: As that quality remains strong, despite a $31.2 million increase in non-performing loans attributable to two credits
Tom Lyons: A $20.3 million commercial real estate loan secured by a mixed-use property with a current loan to value of 53%.
Tom Lyons: and an $11.5 million construction loan secured by a nearly completed warehouse facility with a current loan-to-value of 62 percent.
Tom Lyons: These loans have no prior charge of history and carry no specific reserve allocations.
Tom Lyons: Non-performing loans represented 54 basis points of total loans at quarter-end, with NPAs to assets totaling 45 basis points.
Tom Lyons: Netcharge Offs, which is $2 million or an annualized four basis points of average loans this quarter.
Tom Lyons: The provision for loan losses decreased to $325,000 this quarter, reflecting stable specific reserve requirements, and a reduction in required reserves on the pooled credits within our
Tom Lyons: This brought our allowance coverage ratio to 1.02% of loans at March 31st.
Tom Lyons: Non-interesting income increased to $27 million this quarter driven by seasonally strong performance from our insurance agency and an increase in other income.
Tom Lyons: Non-interested expenses, excluding the previously discussed right down on foreclosed assets, were $113.6 million, with adjusted expenses to average assets totaling 1.92%, and the efficiency ratio improving to 54.4% for the quarter.
Tom Lyons: We currently project quarterly core operating expenses of approximately $112 to $115 million for the remainder of 2025.
Tom Lyons: Our effective tax rate for the quarter increased to 30.3% due to a discreet expense associated with the
Tom Lyons: We currently expect our effective tax rate to approximate 29.5% for the remainder of 2025.
Tom Lyons: Regarding projected 2025 financial performance, we currently estimate return on average assets of approximately 1.15%, return on tangible equity of approximately 16% with an operating expense ratio of approximately 1.85% and an efficiency ratio of approximately 52%.
Tom Lyons: That concludes our prepared remarks. We'd be happy to respond to questions.
Speaker Change: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.
Tom Lyons: Your first question comes from the line of Tim Switzer with KBW, please go ahead.
Tim Switzer: Hey, good morning. Thank you for taking my question. But the first question I have is, how do you guys are a few quarters and two?
Deintegration and you guys have been investing.
Tim Switzer: In a few different areas, I think, in wealth management, also making some new hires. Can you provide some updates there on how many other bankers or other personnel you've brought in over the last few months and when we should start to see an active growth from that?
Tim Switzer: I think pretty much everything is behind us at this point. I don't think most of us, I don't think anybody in the company
Tim Switzer: Talks about it in a legacy format anymore, I think. We're just—
Tim Switzer: When it comes to hiring folks, I think it wasn't the well group that we were talking about specifically last quarter. I think we've talked about
Bringing in more teams in the Pennsylvania and Westchester markets.
which we've done.
Tim Switzer: Our new reintroduction into that market, if you will, we're seeing great activity in that space and it's helping boost the pipeline and we're starting to see some of that in Westchester as well.
Tim Switzer: Other business lines, whether it's Walter Insurance, they're just continuing to add to the complement, but I don't think there was any outlier hires in that space.
Tim Switzer: Okay, got it. That's helpful. And I know it might still be a little bit early, but could you guys discuss, you know, how conversations customers have been going in regards to the macro outlook and the impact of tariffs?
Tim Switzer: You know, are you starting to see them pull back at all or be a little bit more cautious on investment spending? And then could you also review, you know,
Tim Switzer: The new slides you guys have put out there are great reviewing the different areas of your long book. Could you highlight any specific industries that you think would be particularly impacted by terrorists within your portfolio?
Thank you.
Yeah, I am.
Speaker Change: I tend to not be as as dour as many but I'm trying to be cautious in terms of my statements. So if you look, I'm speaking Provident specific.
Speaker Change: When you look at our position, we have the highest pipeline in our history, 2.8 billion.
Speaker Change: The pipeline is stout and the pull-through percentage is looking strong. When you look at the committees and the loan closings that we've seen over the last, you know, month or so, going into April has been pretty strong.
Speaker Change: So, yeah, we've also undertaken initiatives to look throughout our portfolio and determine where some of the policies might have some ripple effects in, and we've done so in different sectors and we haven't spotted anything to this point that is a...
even to be talked about, however.
Speaker Change: One of the comments the more the way I can frame it would be that we've been now for some time talking to our customers initially informally through conversation and then we converted it to formality with questionnaires so that we can gather more intelligence. Thank you very much.
and to take away at this point.
Speaker Change: is more about the uncertainty. We have not seen any clients decay out of the pipeline as a byproduct of this.
Speaker Change: It's more about pausing in certain areas, particularly in the ABL sector.
Speaker Change: that it is, you know, absolutely shutting down from the transaction. So we see this as we're productive now and hopefully if some of the timing shifts
You know, perhaps it moves into the summer.
We're not polyionic, we're cautious about what can happen.
Speaker Change: But right now we're not seeing anything or segments in the portfolio that will give us pause [inaudible]
or alarmed in any way.
Speaker Change: and we looked at government, any things that are affected by government contracts.
Uh, anything of that nature. Now-
Speaker Change: I just want to be cautious in my statement because I'm sounding very optimistic and maybe others have not [inaudible]
Speaker Change: But I just want to say there is uncertainty and that uncertainty would apply even to some of my statements so as time moves forward things can change but right now we're not seeing
Speaker Change: Things that would impact our particular portfolio in a very negative way, Tom? Yeah, it only had that potential for uncertainty, Tim, that's what was reflected in those guys, that guidance slide that we published, where we went from a straight 3% and 5% expected growth on deposits and loans to arrange recognizing the lower bound to 1 to 3 on deposits and 3 to 5 on loans.
Speaker Change: And that's based purely on that uncertainty. It's not based on what we're seeing in the pipeline today. Yeah, I think like the broader economy It's more soft data than hard data at this point So sentiment is certainly up in the air a little bit from uncertainty, but we're not really seeing any any outright affection this yet
Tony Labozzetta: And as Tony indicated, we did evaluate the portfolio for any significant exposures to supply chain issues from the Far East. I think people did a nice job diversifying their supply chains as a result of COVID, and we haven't identified any guarantees of great concern.
Speaker Change: But we're still working on it to get a little bit more granular.
Speaker Change: Okay, got it. That was great. Thank you for all the details.
Got it.
Speaker Change: Your next question comes from the line of Mark Fitzgibbon with Piper Sandler, please go ahead.
Mark Fritz-Gibbon: Hey guys, good morning. First question, I wondered if you could share with us any color on those two large loans that went on non-accrual. You know, when you might see some resolution or any updates on those post-quarter-end.
Mark Fritz-Gibbon: Don't have a lot of certainty around the two non-accruals, Mark. They are part of a process still working with the borrowers to try and get to a positive resolution. The comfort level there is just in the recent appraisals, 1st quarter of 25, and the favorable loans to values that we have as is.
Speaker Change: Okay, fair enough. I would add one more dimension to that. One thing we can never promise is a long won't go bad, but I think we can promise or release what we can see is what happens if it goes bad. I think we take some solace here in the very...
Low LTVUs in the space of this time.
Speaker Change: And hopefully as time moves on, our root can resolve these Yeah, I think that's reflected in Provident's long history of traditionally outperforming in terms of ultimate loss content on these things that that's a tribute to the underwriting at origination and the low leverage lending that we do.
Speaker Change: Okay. And then, Tony, you mentioned the fact that this area concentration had gotten down to 450, and I know you're comfortable being north of that 300% level, but was curious, you know, where you're targeting and how long it takes to get there.
Well, um...
Speaker Change: I don't I think just I would characterize it like we're not targeting a specific number we usually are in a range just just for
Speaker Change: It may be a long-winded answer. I think in our forecast, we're targeting about 5% growth in the crease space.
Speaker Change: So I want to make sure that I lead with that because that'll take us with a capital formation eventually we should get down to the four twenties
Speaker Change: Now, if it's 4.30 or if it's 4.40, I'm more comfortable with that. I think our regulatory colleagues are very comfortable.
Speaker Change: with the level of Cree, given the program that we have to manage our concentration. They're very comfortable with it. They have no problem with us being in this space as long as we can demonstrate the things that we have been.
Speaker Change: So, I think we as an organization don't mind that, but as I mentioned in my written notes, you know, we're starting to see a lot of activities since we diversified our commercial portfolio as a byproduct of the merger.
Speaker Change: We're starting to see good lending in the areas of the specialty groups in the CNI side, which doesn't make us so creed dependent. And if our creed keeps up at the 5%, because I think it was about 1% this quarter, maybe 1.0 something.
Thank you.
Speaker Change: You know, so I just want to be careful that it's not a targeted initiative for us to reduce our pre-exposure. What is a targeted initiative is to grow those other sectors.
and that makes, along with the Capitol, gives us...
Speaker Change: The projections that we're looking to aim at, which is roughly in F420's.
Speaker Change: Again, range to answer your question. Very long-winded way, but Mark, that's the answer. Yeah, I will get that a good piece of the pipeline is in the crease space.
Speaker Change: So, I wouldn't be surprised to see that number move up a little bit in the interim term too. As Tony said, that 420 kind of number is a longer term intermediate term target right.
Speaker Change: Okay, and in the last couple of days, we've seen some M&A activity back in the bank space. I guess I'm curious if A, you think it's likely we'll see a bunch of, you know, consolidation in the metropolitan New York market over the next couple of quarters. And B, you know, now that Lakeland is comfortably in the rear view mirror, you know, what characteristics would you be looking for in potential acquisition candidates, you know, down the road?
Speaker Change: Well, I would, I'm going to give you an awkward answer. I said, the first one, given where our stock is trading, you know, buying our own stock back will be the greatest M&A that we can do. I think that, that just points to the valuation that we're not getting recognized for at this time given that we just came off the heels of our merger. [inaudible]
Speaker Change: Um, I think once that normalizes and our stock trades at a point where we don't feel like we're given it away, I think we look for the for the number one is always culture culture culture
Speaker Change: Groups that fit in because this this merger has made like if you were here today you could see the the way the teams work this dynamic leadership team It's something I'm very proud of and we don't want to do a merger that kind of changed that so we want to have that same culture
Speaker Change: Dynamic, and then we want to have something that would be additive, whether it's a deposit element, whether it's a new line of business for us. Obviously there's always just a financial transactions, but the stock has to be in a good place for us to pull up financial transactions.
Um...
Speaker Change: So I think the market will consolidate further. I just think that valuations have to be in the right spot before I think it takes off the way people think of them.
Thank you.
Well,
Speaker Change: Again, before going to the next question, if you would like to ask a question, press star one on your telephone keypad. Your next question comes from the law of Feddie's Strickland Woodhofter Group, please go ahead.
Speaker Change: Hey, did Morton appreciate the overall expense guide and I think last quarter we talked a little bit about timing that maybe expenses a little higher earlier in the year and then kind of
Speaker Change: Go down in the back part of the year. Is that so sort of the expectation throughout the course of 2025, or can you just generally explain how you see expenses playing out over the course of the year?
Speaker Change: Yeah, that's accurate, Feddie. We left the guidance at 113 to 115 to give us a little room in case something unexpected shows up, but I would probably forecast on the lower end of that range.
Speaker Change: Theoretically as low as a 112 number could be possible, but which would be a little bit conservative there.
Speaker Change: Perfect. And then I saw that insurance commissions were particularly strong in the quarter. I think you mentioned it in your opinion comments. Is there any, you know, seasonality in there? Or, I suppose, you know, what sort of growth could we maybe see on a year-over-year basis in the second quarter?
Speaker Change: I think the business is very seasonal. It tends to run the first quarter being the best second quarter.
Feels right behind that summer.
tends to be the weakest quarter.
Speaker Change: Not the weakest, but the lowest, and then the fourth quarter starts to interrupt again. So it's kind of that season alley. The way I would characterize it is to look at. [inaudible]
Speaker Change: Comparing same quarter last year, I think the business has been running at somewhere close to 20% growth over the comparable period on a compounded annual growth rate.
Speaker Change: Great. And the last question, you mentioned something about, you know, potential...
Speaker Change: Thinking about buybacks here, and I was just going to ask how you think about capital, you know, as you're back in a bit of a capital bill mode at this point. I mean, you know, our repurchases something we could potentially see in the next couple quarters, if share price kind of stays at these levels.
Speaker Change: Yeah, we didn't want to foreclose the probability, like to have the flexibility to do that opportunistically, that said, you see the strength of the pipeline. There's a lot of good, profitable, high return growth available to us, and that tends to be our first, our first option.
We're evaluating them.
Great. Thanks for taking my questions. Thank you.
Speaker Change: I will now turn the call back to Anthony Labozzetta for closing remarks.
Speaker Change: Thank you, everyone, for your questions and for joining the call. We are excited for the rest of the year and look forward to speaking with you soon. Thank you very much. Have a great day.
Speaker Change: Ladies and gentlemen, that concludes today's call. You can now disconnect. Thank you and have a great day.
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