Q2 2025 Provident Financial Services Inc Earnings Call
Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today.
At this time, I would like to welcome everyone to The Provident Financial Services. Second quarter earnings, call all lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number 1 on your telephone keypad.
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Adriano Duarte, investor relations officer you may begin.
Speaker Change: Thank you, Abby. Good afternoon, everyone and thank you for joining us for our second quarter earnings. Call today's presenters are president and CEO, Tony laiza, and Senior Executive Vice, President and Chief Financial Officer. Tom Lyons
Speaker Change: Before beginning, their 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. Our full disclaimer, is contained in this morning's earnings release which has been posted to the investor relations page on our website providentbank. Now, it's my pleasure to introduce Tony laiza who will offer his perspective on our second quarter, Tony
Tony Laiza: Thank you Adriana, and welcome, everyone to the prophet and financial services earnings call.
Tony Laiza: The Provident team delivered, an impressive performance this quarter.
Tony Laiza: Our team gained momentum with solid earning asset growth improved, margins, and asset quality.
Tony Laiza: Record earnings and expansion of tangible Book value.
Tony Laiza: During the quarter, we reported net earnings of 72 million or 555 cents per share.
Tony Laiza: Our annualized return on average assets was 1.19, 1.19% and our adjusted return on average. Tangible Equity was 16.79%.
Tony Laiza: For the second quarter pre-tax pre-provision return on, average assets was 1.64%.
Tony Laiza: These core Financial results improved from the trailing quarter.
Tony Laiza: And the same quarter last year.
And we are confident in our ability to sustain this momentum throughout the remainder of 2025.
Tony Laiza: We continue to build our Capital position, which comfortably exceeds levels deemed to be well capitalized.
Tony Laiza: For the quarter, our tangible book value per share. Grew 45 cents to 14.60.
Tony Laiza: And our tangible common equity ratio expanded to 8.03%.
Tony Laiza: As such this morning, our our board of directors approved a quarterly cash dividend, 24 cents, per share payable on August 29th.
During the quarter, our deposits increased 260 million.
Tony Laiza: Our annual on annualized, growth rate of 5.6%.
Tony Laiza: We continue to improve our average cost of total deposits, which decreased to 2.1%.
Tony Laiza: During the second quarter, our commercial lending team closed approximately 764 million in new loans.
Tony Laiza: Bringing our production to a record 1.4 billion for the first half of the year.
Tony Laiza: As a result, our commercial loan portfolio grew at an annualized rate of 8%.
Tony Laiza: This quarter's production, consisted of 20%, commercial real estate and 80% commercial and Industrial loans.
Our strong Capital formation combined with our production. Mix has reduced our Cree ratio to 444%
Adjusting for merger related purchase accounting marks, the C ratio is actually 48%.
Tony Laiza: Notwithstanding the high level of loan closing is this quarter. Our loan pipeline remains robust at approximately 2.6 billion. And the weighted average interest rate is stable at 6.3%
Tony Laiza: to pull through adjusted pipeline, including loans. Pending closing is approximately 1.6 billion.
We've remained confident about the strength of our Pipeline and our ability to achieve our commercial loan growth, expectations for the rest of the year.
Our credit quality is strong relative to our peer group, with a modest Improvement, and our non-performing assets and a decline in delinquencies and classified loans.
Tony Laiza: Our net charge offs decreased this quarter to just 1.2 million or 3 basis points of average loans.
Tony Laiza: These numbers demonstrate our commitment to prudent on the writing and portfolio management standards.
Tony Laiza: Overall, Providence fee based businesses perform, while this quarter.
Provident Protection Plus maintained, its strong performance with an 11.3%, increase in revenue for the second quarter. And its income was up 10.1% compared to the same period in 2024.
Tony Laiza: Given market conditions early in the quarter Beacon. Trust Revenue declined 5.2% due to a decrease in average market value of assets under management.
Tony Laiza: However, asset valuations have recovered and Beacon closed a quarter with 4.1 billion in AUM.
Which is consistent with the trailing quarter.
Tony Laiza: With a projected start date late in the third quarter.
Tony Laiza: Overall, we are proud of our performance this quarter. We have a dynamic team and a solid foundation to grow our core businesses. Expand profitability and create even more value for our stockholders and customers.
Tony Laiza: Building our strong results, we believe we will continue this momentum and Achieve our desired goals for the remainder of 2025.
Tony Laiza: Now I will turn the call over to Tom for his comments on our financial performance. Tom thank you, Tony and good afternoon. Everyone as Tony noted, we reported net income of 72 million or 555 cents per share for the quarter with an Roa of 1.19%.
Tony Laiza: Adjusting to the amortization of intangibles, our return on. Average tangible Equity was 16.79% for the quarter.
Tony Laiza: Pre-tax pre-provision earnings for the current quarter were 99.6 million or an annualized 1.64% of average assets.
Tony Laiza: Revenue increased to a record 214 million, for the quarter driven by record, net, interest income of 187 million and not interesting come of 27 million.
Tony Laiza: Average earning assets increased by 383 million or an annualized 7% versus the trailing quarter with the average yield on assets. Increasing 5 basis points to 5.68%
Tony Laiza: A reported net, interest margin increased 2 basis points versus the trailing quarter to 3.36%.
While our coordinate interest margin remains stable.
We currently project the Nim in the 335 to 3.45% range for the remainder of 2025.
Tony Laiza: Our projections include 25 basis point rate, reductions in September, and November.
Tony Laiza: Period end loans held for investment, increased 318 million or an annualized. 6.8% for the quarter driven by growth in commercial multi-family and commercial real estate loans.
Tony Laiza: Partially offset by reductions in construction and Residential Mortgage Loans.
Tony Laiza: Can ions grew at an annualized. 21% Pace while total commercial loans grew by an annualized, 8% for the quarter.
Tony Laiza: Our pull through adjusted loan pipeline at quarter end was 1.6 billion.
Tony Laiza: The pipeline rate of 6.3% is a Creed of relative to our current portfolio yield of 6.05%.
Tony Laiza: Period end deposits. Increase. 260 million for the quarter. However, average deposits decrease to 278 million versus the trailing quarter.
The average cost of total deposits decreased to 2.10% this quarter.
Tony Laiza: As a quality remains strong with non-performing assets, declining to 44 basis, points of total assets. Net charge offs were just 1.2 million or an annualized 3 basis points of average loans. This quarter
In addition, total delinquencies declined to 65 basis, points of loans, and criticized, and classified loans fell to 2.97% of loans.
Tony Laiza: This strong and stable asset quality coupled with an improved economic forecast used in our Cecil model, drove a 2.9 Million Reserve release this quarter.
Tony Laiza: this for our allowance coverage ratio, to 98 basis points of loans at June 30th,
Not interesting income was steady at 27 million, this quarter with solid performance realized from core banking, fees insurance and wealth management as well as gains on SBA loan sales.
Tony Laiza: Not interest expenses or 114.6 million, with annualized expenses to average assets totaling 1.89%.
Tony Laiza: and the efficiency ratio improving to 53.5% for the quarter,
Tony Laiza: We reaffirm our previous guidance of quarterly for operating expenses of approximately 112 to 115 million for 2025.
Tony Laiza: Our effective tax rate for the quarter was 29.7% and we currently expect our effective tax rate to approximate 29.5% for the remainder of 2025.
Tony Laiza: Our sound financial performance supported asset growth and drove strong Capital formation.
Tony Laiza: Tangible book value per share. Increased 45 cents, or 3.2% to 14.60 and our tangible common equity ratio improved to 8.03% from 7.9% last quarter.
Tony Laiza: That concludes our prepared remarks. We would be happy to respond to questions.
And thank you.
Tony Laiza: We'll now begin the question and answer session.
Tony Laiza: 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 questions, simply press star 1 again.
Tony Laiza: If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Tony Laiza: Again, it's star 1 to join the queue.
Speaker Change: And our first question comes from the line of Mark Fitzgibbon with Piper Sandler. Your line is open.
Hey guys, good afternoon.
Speaker Change: Hey, Mark, how are you?
Speaker Change: Comments about, you know, growth starting to ramp with some new people. I I guess I was curious. Is there any change in strategy or is it just simply you brought in some new people that will go out and Market aggressively and grow the business? Uh, or are you trying to to to kind of Market to a different audience?
Speaker Change: Uh, great question. I I I really don't think I would call it much of a strategy change. I think our Focus has been growing the AUM. Um, Beacon is a, is a really strong platform. I think 1 of the things that we're looking to enhance, is the sales and service, then more to sales side, right? I think we're trying to build a bigger force that could that could easily work with our business line Partners on the other uh commercial retail treasury uh insurance. So that we could penetrate not only our existing business, but we can also get new to bank, uh, or new to Beacon clients as well. So it's it's a forward strategy with with and also a focus on retention and so integrating it better into our businesses is what we're trying to do. And I think uh, the individual we hire for this for this role is going to be key to to that initiative.
Speaker Change: Okay. And then a couple questions around provisioning you mentioned in the release that, you know, part of the reason for the reserve release was, um, improved sort of the economic forecast, I assume is that Moody's their assumptions changed
That's correct. Mark Moody's Baseline and, and primarily in our case, the, the main driver in terms of macroeconomic variables is the commercial property price index that drove most of the release.
Speaker Change: Okay.
And then kind of related, I guess. I was curious your your bottom line Roa and Roe estimates kind of imply, that provisioning will be pretty modest in the back, half of the Year. Am I thinking about it the right way? Because you, you've given really good guidance on most of the other items and that's the 1 that kind of sticks out. Um, I think that's the case. Mark, if you look at, if you look at asset quality, we saw some nice Improvement in terms of criticizing classified and you don't see it in the release, but the watch list credits have have improved as well. Um, and for good economic reasons, we saw improved Lisa in both the retail uh, commercial real estate space as well as the multifamily space. So feeling pretty good about credit quality. Overall barring any shift in market conditions or some Global event. I think that's a a good outlook. Yeah and I will know Mark even though you saw a small increase in dollars of npls there's no virtually no loss content in in the driver of the increase. There was 1, 1 Loan in excess of 10 million dollars. That was really almost, I guess a technical non- maturity.
In the sense that there's some ownership uh concerns among the owners of that business as to what the disposition of the property, but really strong. Um, valuation. So we're not concerned about losses there.
Okay, and then last question Tony, um, last quarter, I had asked you about sort of m&a and you you said your focus on organic growth but open to m&a, however, your stock price wasn't, you know, didn't fully reflect the strength of the company, Etc. You your stock is up maybe 10 12%. Since then. Um, do do you feel like the currency gives you capacity to be able to seriously consider m&a at this point?
Speaker Change: Well I you know, just say, you know, if I wasn't clear last time, I think I think we're always in, in, in a place where we have to evaluate our strategic options um, and we continue to do that. Um, I think right now our main focus is on organic growth but we're not we're not closing the door to m&a at all. In fact, if if there was right opportunity to met the Strategic things that I talked about, last quarter came came up, we would have to entertain observe it and, and evaluate it to what it means for our shareholders as we go forward. Um, but I think the, the the price is is starting to, you know, reflect a little bit more of what we think Provident is. And I think there's still some more room that we can, we can move there.
Speaker Change: Great. Thank you.
Speaker Change: And our next question comes from the line of Steve Moss with Raymond James, your line is open.
Hey guys, this is Thomas on for Steve, thanks for taking my question. Just want to start it off, uh, with loans here. Cni growth was really strong. You know, what was driving that right now is a more line utilization or is it, you know, new originations and and maybe what what additional hiring opportunities are you seeing for for C? And Islanders these days?
Very diverse products today that we didn't have 3 years ago. We have the abl healthcare lending, mortgage warehousing. Uh, sba's ramping up. So we have all these businesses. They've all contributed nicely to our production. This year, uh, this quarter and and our pipeline shows that they'll continue to contribute nicely. Um, but our our focus is not away from Cree. I just want to be careful. Uh, and not to express that we're growing our prebook. We're we're we're doing it. It's just that those other lines are moving at a much faster pace and so we're pleased with that, they're bringing in some great deposits with it. Um we do have the capacity but we'll just keep going when we need to and we have a good plan on expansion both from a capacity numbers and and GE geography. So um, I think I'm pretty pleased with the general direction of U of where we are with the commercial Banks and I and I would agree with Tony that it was primarily driven by origination but we did see increased line usage.
Over the last number of months, we're kind of we call it normalization. We were, we're traveling in a low territory for a long time, as I guess was much of the industry. We're back up around 45% line utilization. Um, and I, I had also in terms of the pipeline and Tony talked a little bit about the mix. Going forward about 40% of the full through adjusted pipeline, is increased about 55% is in the commercial categories and about 5% consumer.
I I just would like to round out that comment by saying, um, it's not accidental. I think part of our strategic objective was to um,
Speaker Change: Kind of diversify our commercial books. So we're not create heavy. And as you can see by the reported number that if you adjust for the merger related charge, where 408, um, that's a pretty solid number and, and, and it'll continue to improve, as we continue to build our, our other lines of business, especially when you consider we were at 475 a year ago. Correct.
Speaker Change: That's that's all great color. I really appreciate that. And if I can get 1 more in, um, you know, wealth management fee, fees did feel a little light at, you know, 68 basis points of EOP AUM was that driven by maybe lower average AUM from Market, volatility, or or maybe something else
Yes, uh, that that is the case for the quarter like as as Tony noted, I think in his opening comments, the average balance was down. It impacted revenue for the quarter, but we did see, uh, Market recovery. And we're back up actually a little bit ahead of where we were at the end of period, uh, at the first quarter.
So client count has remained constant. We're actually a plus 3 on the client account. The Au Parc client has gone up a little bit. So nice recovery by the end of the period.
Okay, great. That makes sense. All right, that's all for me. Thanks guys.
Speaker Change: Thank you. Thank you.
And our next question comes from the line of City, Strickland with hope to group your line is open.
Speaker Change: Hey, good afternoon. Um just wanted to start on the expense guide last quarter. I think you mentioned, you might be able to come in potentially at the lower end of the range. Um do you still feel like maybe that's achievable and we could see the quarterly expense line even come down a little bit in the back half of the year.
Speaker Change: And I do fetty I you know, so there was a little bit of unanticipated, what I would consider non-recurring costs in terms of some savings charges about 750,000 to a million dollars, let's say in non-recurring there. Um, that said, the back half of the year is usually, when we take a closer look at some of our incentive approvals, for the current period, as we get greater visibility into where we might end the year. So, the various incentive programs throughout the different disciplines in the bank, we try to um, get a a finer point on a little more precise and that can affect the approvals either positively or negatively.
Speaker Change: So that's why we're giving a range of 112 to 115.
Speaker Change: Got it, appreciate that and just wanted to talk through the municipal deposit flow, seasonality, kind of what your expectations are there. And and my thinking about that correctly, that maybe the the increase in Burger deposits is really to replace some of that outflow and then we can maybe see those Burger deposits come back down. Uh, as you maybe have some
Speaker Change: Seasonal inflows in Municipal deposits.
But you also are now seeing um a the pipeline of Municipal potential, new Municipal businesses also there so that that that should come along nicely. If uh as we achieve um those wins. You are correct though that the municipal deposits, the trough is the deepest in the second quarter historically.
All right, great. Thanks for the caller.
Speaker Change: Thanks.
Speaker Change: And our next question comes from the line of Tim Switzer with KBW. Your line is open.
Hey, good afternoon. Thanks for taking my questions. Um, with you guys a little bit less interested in m&a right now. Do you have like a Target? Capital level? You're trying to get to and um, how does that play into? Um,
your appetite for more share repurchases.
Um I don't think it's a significant strength. I kind of like around 11 and a quarter for the C1.
Speaker Change: Okay, okay.
Speaker Change: And uh, sorry if this has already been asked but for the Nim trajectory, you guys took up the high end of the guide a little bit. Um, can you talk about what's helping drive that and you know, how would Fed rate Cuts impact your uh, your margin?
Speaker Change: Um, the balance sheet fairly neutral. So I mean, the 2 cuts to 25 basis points are built into that margin expectation.
You know, there's we run a whole number of models. I'm working off the most likely though, but it looks like around a 340 in Q3 maybe exiting as high as 345 at 347, even at the end of the year. But you know, again, just exercise a little Caution in that, um,
And again, that's 2 rate, Cuts in September and November.
Speaker Change: Great. Okay. That's good to hear. Um, and the last 1 for me, um, the loan pipeline moved down, just slightly lower, but you obviously said pretty good growth in Q2. Um, is there any like slowdown or uncertainty causing borrowers to be more cautious at all? Or um, you know, everything still looks pretty pretty good. People aren't too concerned about tariffs or anything like that.
Yeah, actually, I that that's 1 of the real, uh, bright spots. Um you know a lot of the pipeline went down. It did go down because of some what I would call very strong loan closings in the quarter, right? And I think the key is we scrub our pipeline incredibly well? So the stuff that's in there we feel pretty good about it. Um and uh, so we also uh, in all the conversations with our verticals, don't see any signs of anything slowing down immediately the the replenishment appears to be happening. Um, we we do expect to have a nice pull through in the third quarter and continue to replenish it. And so,
Speaker Change: Um again I I don't see anything right now that I'm concerned. I think it's a bright spot for us moving forward.
Speaker Change: Okay, great. Thank you guys.
And our final question comes from the line of manual novice with da Davidson your line is open.
Speaker Change: hey, I appreciate that commentary on on
In the back after the year or is the main drivers there. Uh, the accretive uh new Loan Production with the positives kind of being more flat or could you see some deposit costs declines as well? I guess you do include 2 Cuts so that that's part of it as well. Yeah I would put more emphasis on, on the the asset repricing though you got about 6 billion of the existing back book repricing over the next 12 months. Um, you know about 5.1 billion is floating so, you know, as the rates move you should see that benefit and then the new 1 production coming on at a decree of levels as well. I would be cautious about taking too much credit even with the rate cuts on the funding side, just because the competitive environment I think is a little bit more challenged now uh deposits are a high commodity. Yeah I I I would I would characterize I would add 1 Dimension to that. I think uh certainly there's a lot of a creative Loan Production. Um, I think where whether we're in the high end of the range or low end of the range is going to be dictated by the funding side. But I I also want to preface us that while we
We make managerial decision, we're focusing a lot of our energy around the knee. So uh we'll be, we'll be willing to give away 1 or 2 basis points, if our knee knee can grow. Um so I just want to
You guys to remember that for the next earnings call, that'll be management decisions that will make to drive better earnings, um, and and, and that's part of the management game, right? So, that's a really good point and you saw some of that even on the Investment Portfolio side. I, I think I mentioned last quarter, I'd be very comfortable taking the Investments back up to, about 15% of of assets. We're still a little bit under that now, but the leverage growth, obviously gives you a little bit less spread, but, but good income with, with very little credit losses, because we're buying high quality, treasuries, and, and agency security.
That we're seeing. And if that manifests along with the Loan Production, it should
be well in the range of what Tom is saying.
Speaker Change: I definitely sense the optimism uh, on on knee growth. So could you speak a little bit more to that competition? You're seeing just uh in some of that commentary. I mean that's also
Speaker Change: Because there's more demand out there but just uh could just speak to that for a moment.
Yeah, I think a lot of the competition we're seeing now um and Tom can jump in at any moment. We're on on the consumer deposit side, we're seeing more of of the stress, right? Whether they're the, the deposit accounts moving into money markets or other banks are starting to get a little bit more competitive for the space particularly with CD products. Um, our our business deposits are stable and growing, um, just a back point for for, for everybody on this call, um, we're probably funding about 30% of our of our commercial production. Uh, commercial funding is being done with business deposits, and that, that's a pretty good ratio. And so, the, like I said, the, if we can have the municipals come back, we're not seeing a lot of stress there. In terms of competition, we're seeing the competition more on the consumer side. Uh, not that the municipals don't have it but the biggest level of competition is happening on the consumer deposits.
How would you like to add on that? I I think you covered it just to to accentuate that. It's not just Banks. It's the the availability of viable investment alternatives for folks, as well, they can get an a decent return, right?
Speaker Change: I I really appreciate the commentary. Thank you.
You're welcome.
Speaker Change: Question and answer session.
Speaker Change: To Mr. Tony Lopez for closing remarks.
Speaker Change: Well, thank you everyone for your questions and joining the call.
We hope everyone has an enjoyable summer and a great rest of the year we look forward to speaking with you soon. Thank you very much.
Speaker Change: Call when we thank you for your participation. You may now disconnect