Q2 2026 Provident Financial Services Inc Earnings Call

July 30, 2026

Operator 3: Hello, everyone. Thank you for joining us, and welcome to the Provident Financial Services Q2 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference call over to Michael Perito, Head of Investor Relations. Michael, please go ahead.

Operator: Hello, everyone. Thank you for joining us, and welcome to the Provident Financial Services Q2 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference call over to Michael Perito, Head of Investor Relations. Michael, please go ahead.

Speaker #1: If you would like to ask a question, please press *1 to raise your question. Press *1 again to lower your hand. I will now hand the conference call over to Michael Perito, Head of Investor Relations.

Speaker #1: Michael, please go ahead.

Speaker #2: Thank you. Good morning, everyone, and thank you for joining us for our Q2 2026 earnings call. Today's presenters are President and CEO Anthony Labozzetta and Executive Vice President and Chief Financial Officer Adriano Duarte.

Michael Perito: Thank you. Good morning, everyone, and thank you for joining us for our Q2 2026 earnings call. Today's presenters are President and CEO, Tony Labozzetta, and Executive Vice President and Chief Financial Officer, Adriano Duarte. Before beginning their review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today's call. Our full disclaimer is contained in last evening's earnings release, which has been posted to the investor relations page on our website, provident.bank. Now I'd like to hand it off to Tony Labozzetta, who will offer his perspective on our Q2. Tony?

Michael Perito: Thank you. Good morning, everyone, and thank you for joining us for our Q2 2026 Earnings Call. Today's presenters are President and CEO, Tony Labozzetta, and Executive Vice President and Chief Financial Officer, Adriano Duarte. Before beginning their review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today's call. Our full disclaimer is contained in last evening's earnings release, which has been posted to the investor relations page on our website, provident.bank. Now I'd like to hand it off to Tony Labozzetta, who will offer his perspective on our Q2. Tony?

Speaker #2: Before beginning their review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today's call.

Speaker #2: Our full disclaimer is contained in last evening's earnings release, which has been posted to the Investor Relations page on our website, provident.bank. Now, I'd like to hand it off to Tony Lobazzetta, who will offer his perspective on our Q2.

Speaker #2: Tony.

Speaker #3: Thank you, Michael, and good morning, everyone. I appreciate you joining us today. Discuss our Q2 2026 results. I am pleased to report another outstanding quarter performance that validates the momentum we've built across our business.

Anthony J. Labozzetta: Thank you, Michael, and good morning, everyone. I appreciate you joining us today to discuss our Q2 2026 results. I am pleased to report another outstanding quarter of performance that validates the momentum we've built across our business. Through H1 2026, we have grown earnings per share by 17% as compared to the same period last year, while also significantly improving our profitability. More specifically, in Q2, we delivered net earnings of $78 million or $0.60 per diluted share, and core net earnings of $80 million or $0.61 per share. Our annualized adjusted return on average assets was 1.27%, and our adjusted return on average tangible common equity was over 16%. This quarter's results were highlighted by record revenues driven by expanding net interest income and non-interest income.

Tony Labozzetta: Thank you, Michael, and good morning, everyone. I appreciate you joining us today to discuss our Q2 2026 results. I am pleased to report another outstanding quarter of performance that validates the momentum we've built across our business. Through H1 2026, we have grown earnings per share by 17% as compared to the same period last year, while also significantly improving our profitability. More specifically, in Q2, we delivered net earnings of $78 million or $0.60 per diluted share, and core net earnings of $80 million or $0.61 per share. Our annualized adjusted return on average assets was 1.27%, and our adjusted return on average tangible common equity was over 16%. This quarter's results were highlighted by record revenues driven by expanding net interest income and non-interest income.

Speaker #3: Through the first half of 2026, we have grown earnings per share by 17% as compared to the same period last year while also significantly improving our profitability.

Speaker #3: More specifically, in the Q2, we delivered net earnings of $78 million or $0.60 per diluted share. And core net earnings of $80 million or $0.61 per share.

Speaker #3: Our annualized adjusted return on average assets was 1.27%, and our adjusted return on average tangible common equity was over 16%. This quarter's results were highlighted by record revenues, driven by expanding net interest income and non-interest income.

Speaker #3: Our adjusted pre-provision net revenue reached a record $118 million, representing $0.90 per share and an annualized core PPNR return on average assets of 1.87%.

Anthony J. Labozzetta: Our adjusted pre-provision net revenue reached a record $118 million, representing $0.90 per share at an annualized core PPNR return on average assets of 1.87%. This represents a 23 basis points improvement compared to the same quarter last year and underscores the positive operating leverage that we've generated as we continue to grow. Speaking of growth, our commercial loan team delivered exceptional results in Q2, demonstrating the strength and depth of its capabilities. In Q2, we funded $700 million in new commercial loans, bringing our year-to-date commercial loan fundings to over $1.1 billion. On a net basis, total commercial loans grew 10% annualized, driven primarily by 20% growth in our C&I group. We ended the quarter with a record pipeline of $3.2 billion.

Tony Labozzetta: Our adjusted pre-provision net revenue reached a record $118 million, representing $0.90 per share at an annualized core PPNR return on average assets of 1.87%. This represents a 23 basis points improvement compared to the same quarter last year and underscores the positive operating leverage that we've generated as we continue to grow. Speaking of growth, our commercial loan team delivered exceptional results in Q2, demonstrating the strength and depth of its capabilities. In Q2, we funded $700 million in new commercial loans, bringing our year-to-date commercial loan fundings to over $1.1 billion. On a net basis, total commercial loans grew 10% annualized, driven primarily by 20% growth in our C&I group. We ended the quarter with a record pipeline of $3.2 billion.

Speaker #3: This represents a 23-basis-point improvement compared to the same quarter last year and underscores the positive operating leverage that we've generated as we continue to grow.

Speaker #3: Speaking of growth, our commercial loan team delivered exceptional results in the Q2. Demonstrating the strength and depth of its capabilities. In the Q2, we funded $700 million in new commercial loans, bringing our year-to-date commercial loan fundings to over $1.1 billion.

Speaker #3: On a net basis, total commercial loans grew 10% annualized. Driven primarily by 20% growth in our C&I group. We ended the quarter with a record pipeline of $3.2 billion.

Speaker #3: This represents our second consecutive quarter with both our pre and C&I pipelines exceeding $1 billion. A significant milestone that demonstrates the balanced, diversified nature of our growth strategy.

Anthony J. Labozzetta: This represents our second consecutive quarter with both our CRE and C&I pipelines exceeding $1 billion, a significant milestone that demonstrates the balanced, diversified nature of our growth strategy. As a result of our strong production and pipeline, we believe our loan growth expectations for the full year should be guided towards the high end of the range. Shifting to deposits, the operating environment has become very competitive for incremental funding, particularly in consumer and municipal segments. Core deposits adjusted for normal seasonality in our municipal portfolio increased $67 million in Q2, representing a 2% annualized growth rate. This was largely driven by growth in commercial deposits, including in our treasury management group. Despite the competitive environment, we remain encouraged by some of the deposit growth opportunities the bank is generating, particularly within our commercial and small business customer segments.

Tony Labozzetta: This represents our second consecutive quarter with both our CRE and C&I pipelines exceeding $1 billion, a significant milestone that demonstrates the balanced, diversified nature of our growth strategy. As a result of our strong production and pipeline, we believe our loan growth expectations for the full year should be guided towards the high end of the range. Shifting to deposits, the operating environment has become very competitive for incremental funding, particularly in consumer and municipal segments. Core deposits adjusted for normal seasonality in our municipal portfolio increased $67 million in Q2, representing a 2% annualized growth rate. This was largely driven by growth in commercial deposits, including in our treasury management group. Despite the competitive environment, we remain encouraged by some of the deposit growth opportunities the bank is generating, particularly within our commercial and small business customer segments.

Speaker #3: As a result of our strong production and pipeline, we believe our loan growth expectations for the full year should be guided towards the high end of the range.

Speaker #3: Shifting to deposits, the operating environment has become very competitive for incremental funding. Particularly in consumer and municipal segments. Core deposits adjusted for normal seasonality in our municipal portfolio increased $0.67 million in the Q2.

Speaker #3: Representing a 2% annualized growth rate. This was largely driven by growth in commercial deposits, including in our Treasury Management Group. Despite the competitive environment, we remain encouraged by some of the deposit growth opportunities the bank has generated, particularly within our commercial and small business customer segments.

Speaker #3: We remain committed to driving sustainable core funding growth through continued strategic investments in our people, products, and capabilities. So far in 2026, we've added several senior deposit-focused bankers who have built a nearly $150 million deposit pipeline as of June 30.

Anthony J. Labozzetta: We remain committed to driving sustainable core funding growth through continued strategic investments in our people, products, and capabilities. So far in 2026, we've added several senior deposit-focused bankers who have built a nearly $150 million deposit pipeline as of 30 June. We also continue to make investments in deposit initiatives within digital, small business, and municipal banking. Asset quality metrics all improved when compared to the prior quarter, a trend we expect to continue in H2 2026. With respect to the senior housing commercial relationship which migrated to non-accrual last quarter, the bankruptcy process is proceeding as expected. We have increased visibility towards final resolution and still expect all four credits to be settled by year-end with no material loss to the bank. Excluding this relationship, which totaled $82 million, our non-performing loans would be just 27 basis points of total loans as of 30 June.

Tony Labozzetta: We remain committed to driving sustainable core funding growth through continued strategic investments in our people, products, and capabilities. So far in 2026, we've added several senior deposit-focused bankers who have built a nearly $150 million deposit pipeline as of 30 June. We also continue to make investments in deposit initiatives within digital, small business, and municipal banking. Asset quality metrics all improved when compared to the prior quarter, a trend we expect to continue in H2 2026. With respect to the senior housing commercial relationship which migrated to non-accrual last quarter, the bankruptcy process is proceeding as expected. We have increased visibility towards final resolution and still expect all four credits to be settled by year-end with no material loss to the bank. Excluding this relationship, which totaled $82 million, our non-performing loans would be just 27 basis points of total loans as of 30 June.

Speaker #3: We also continue to make investments in deposit initiatives within digital, small business, and municipal banking. Asset quality metrics all improved when compared to the prior quarter.

Speaker #3: A trend we expect to continue in the second half of 2026. With respect to the senior housing and commercial relationship, which migrated to non-accrual last quarter, the bankruptcy process is proceeding as expected.

Speaker #3: We have increased visibility towards final resolution and still expect all four credits to be settled by year-end, with no material loss to the bank.

Speaker #3: Excluding this relationship, which totaled $82 million, our non-performing loans would be just 27 basis points of total loans as of June 30. Overall, we continue to feel good about our asset quality and the discipline that we've maintained in building our loan portfolio.

Anthony J. Labozzetta: Overall, we continue to feel good about our asset quality and the discipline that we've maintained building our loan portfolio. In addition to the strong top-line results and improved credit metrics, we achieved record non-interest income of $32 million in Q2. Year to date, our non-interest income has reached $64 million or 14% of total revenue, which is up from 12.5% in H1 2025. We are proud of the progress we've made towards our goal of having non-spread income exceed 20% of our revenues, even as our net interest income continues to grow. Provident Protection Plus continues to be a standout performer and a differentiator for our franchise. Top-line revenues are up 18% in H1 2026 versus the comparable period in 2025. This strong performance is driven by both industry-leading customer retention and new client acquisition.

Tony Labozzetta: Overall, we continue to feel good about our asset quality and the discipline that we've maintained building our loan portfolio. In addition to the strong top-line results and improved credit metrics, we achieved record non-interest income of $32 million in Q2. Year to date, our non-interest income has reached $64 million or 14% of total revenue, which is up from 12.5% in H1 2025. We are proud of the progress we've made towards our goal of having non-spread income exceed 20% of our revenues, even as our net interest income continues to grow. Provident Protection Plus continues to be a standout performer and a differentiator for our franchise. Top-line revenues are up 18% in H1 2026 versus the comparable period in 2025. This strong performance is driven by both industry-leading customer retention and new client acquisition.

Speaker #3: In addition to the strong top-line results and improved credit metrics, we achieved record non-interest income of $32 million in the Q2. Year-to-date, our non-interest income has reached $64 million or 14% of total revenue, which is up from $12.5% in the first 6 months of 2025.

Speaker #3: We are proud of the progress we've made towards our goal of having non-spread income exceed 20% of our revenues, even as our net interest income continues to grow.

Speaker #3: Provident Protection Plus continues to be a standout performer, and a differentiator for our franchise. Top-line revenues are up 18% in the first half of 2026 versus a comparable period in 2025.

Speaker #3: This strong performance is driven by both industry-leading customer retention and new client acquisition. The pipeline for our insurance business heading into the second half of 2026 remains robust.

Anthony J. Labozzetta: The pipeline for our insurance business heading into H2 2026 remains robust. Similarly, we're encouraged by Beacon Trust's recent performance. With revenues in H1 2026 up 5% when compared to last year, Beacon Trust assets under management grew to $4.5 billion during Q2, benefiting from market appreciation and improved client retention. Our SBA group had another good quarter of originations and loan sale activity, with gain-on-sale revenues up 16% in H1 2026 when compared to 2025. The momentum we've established across all of our fee-based businesses gives us confidence that non-interest income will continue to be a significant driver of our financial performance moving forward. Lastly, I just wanted to comment on a couple of important enterprise initiatives which will be critical to our long-term success.

Tony Labozzetta: The pipeline for our insurance business heading into H2 2026 remains robust. Similarly, we're encouraged by Beacon Trust's recent performance. With revenues in H1 2026 up 5% when compared to last year, Beacon Trust assets under management grew to $4.5 billion during Q2, benefiting from market appreciation and improved client retention. Our SBA group had another good quarter of originations and loan sale activity, with gain-on-sale revenues up 16% in H1 2026 when compared to 2025. The momentum we've established across all of our fee-based businesses gives us confidence that non-interest income will continue to be a significant driver of our financial performance moving forward. Lastly, I just wanted to comment on a couple of important enterprise initiatives which will be critical to our long-term success.

Speaker #3: Similarly, we're encouraged by Beacon Trust's recent performance. With revenues in the first half of 2026 up 5% when compared to last year. Beacon Trust's assets under management grew to $4.5 billion during the Q2, benefiting from market appreciation and improved client retention.

Speaker #3: Our SBA group had another good quarter of originations and loan sale activity, with gain on sale revenues up 16% in the first half of 2026 when compared to 2025.

Speaker #3: The momentum we've established across all of our fee-based businesses gives us confidence that non-interest income will continue to be a significant driver of our financial performance moving forward.

Speaker #3: Lastly, I just wanted to comment on a couple of important enterprise initiatives, which will be critical to our long-term success. Our previously disclosed core conversion continues to track well towards our Labor Day target.

Anthony J. Labozzetta: Our previously disclosed core conversion continues to track well towards our Labor Day target. Despite our intense focus on the conversion, we also continue to make progress on other technology initiatives ranging from digital capabilities to AI. Our team has built an internal AI agent to be utilized by employees following conversion to help quickly provide answers to customer inquiries. This project is a great example of how people can utilize technology to efficiently deliver a differentiated customer experience. I'm incredibly proud of the hard work of our employees. Our strong performance is the direct result of the culture we've built at Provident. Now, I'd like to turn the call over to Adriano for his comments on our financial performance. Adriano?

Tony Labozzetta: Our previously disclosed core conversion continues to track well towards our Labor Day target. Despite our intense focus on the conversion, we also continue to make progress on other technology initiatives ranging from digital capabilities to AI. Our team has built an internal AI agent to be utilized by employees following conversion to help quickly provide answers to customer inquiries. This project is a great example of how people can utilize technology to efficiently deliver a differentiated customer experience. I'm incredibly proud of the hard work of our employees. Our strong performance is the direct result of the culture we've built at Provident. Now, I'd like to turn the call over to Adriano for his comments on our financial performance. Adriano?

Speaker #3: Despite our intense focus on the conversion, we also continue to make progress on other technology initiatives ranging from digital capabilities to AI. Our team has built an internal AI agent to be utilized by employees following conversion.

Speaker #3: To help quickly provide answers to customer inquiries, this project is a great example of how people can utilize technology to efficiently deliver a differentiated customer experience.

Speaker #3: I'm incredibly proud of the hard work of our employees. Our strong performance is the direct result of the culture we've built at Provident. Now, I'd like to turn the call over to Adriano for his comments on our financial performance.

Speaker #3: Adriano?

Speaker #2: Thank you, Tony. And good morning, everyone. As Tony noted, our adjusted net income increased 11% versus the Q2 of 2025 to $80 million or $0.61 per share, with a return on average assets of $1.27%.

Adriano Duarte: Thank you, Tony, and good morning, everyone. As Tony noted, our adjusted net income increased 11% versus the Q2 2025 to $80 million or $0.61 per share, with a return on average assets of 1.27%. Adjusting for the amortization of intangibles, our core return on average tangible common equity was 16.2%. Core PPNR was $118 million or an annualized 1.87% of average assets, an 18% increase from the $100 million or 1.64% of average assets reported for the Q2 2025. Our record revenue of $235 million was driven by record net interest income of $203 million and record non-interest income of $32 million. Average earning assets increased by $272 million or an annualized 4.7% versus the trailing quarter, with an average yield on assets increasing eight basis points to 5.61%.

Speaker #2: Adjusting for the amortization of intangibles, our core return on average tangible common equity was $16.2%. Core pre-provision, net revenue was $118 million, or an annualized $1.87% of average assets.

Speaker #2: An 18% increase from the $100 million or $1.64% of average assets reported for the Q2 of 2025. Our record revenue of $235 million was driven by record net interest income of $203 million, and record non-interest income of $32 million.

Speaker #2: Average earning assets increased by $272 million or an annualized $4.7% versus a trailing quarter with an average yield on assets increasing 8 basis points to $5.61%.

Speaker #2: Interest-bearing deposit costs fell 2 basis points versus a trailing quarter to $2.37%, while total deposit costs also declined 2 basis points to $1.92%. Our reported net interest margin expanded 8 basis points versus a trailing quarter to $3.48%, which included a 2.2 million interest income recovery on resolved non-performing loans equating to a 4 basis point benefit.

Adriano Duarte: Interest-bearing deposit costs fell two basis points versus the trailing quarter to 2.37%, while total deposit costs also declined two basis points to 1.92%. Our reported net interest margin expanded eight basis points versus the trailing quarter to 3.48%, which included a $2.2 million interest income recovery on resolved non-performing loans, equating to a four basis point benefit. Core net interest margin expanded five basis points to 3.09%. We are currently modeling no further Federal Reserve rate actions for the remainder of 2026 and project approximately one to two basis points of core NIM expansion in the Q3 and Q4. Overall, we expect reported NIM inclusive of purchase accounting accretion to come in at approximately 3.45% to 3.50% for the remainder of 2026. Period end loans held for investment increased $398 million or an annualized 8% for the quarter.

Speaker #2: Core net interest margin expanded 5 basis points to 3.09%. We are currently modeling no further Federal Reserve rate actions for the remainder of 2026, and project approximately 1 to 2 basis points of core NIM expansion in the third and fourth quarters. Overall, we expect reported NIM, inclusive of purchase accounting accretion, to come in at approximately 3.45% to 3.50% for the remainder of 2026.

Speaker #2: Period-end loans held for investment increased $398 million, or an annualized 8% for the quarter. Our pull-through adjusted loan pipeline at quarter-end was $1.8 billion.

Adriano Duarte: Our pull-through adjusted loan pipeline at quarter end was $1.8 billion. The pipeline rate of 6.33% is accretive relative to our current portfolio yield of 5.9%. Year-end deposits increased $445 million for the quarter or an annualized 9%, driven by higher broker deposit balances and growing commercial deposits. As a reminder, we elected to utilize lower-cost FHLB borrowings in the Q1 to offset seasonal outflows in the municipal deposit portfolio due to the elevated pricing in the broker deposit market. This quarter, we returned to utilizing broker deposits, which was the largest driver of the linked quarter increase. Our loan-to-deposit ratio improved slightly quarter-over-quarter to 102.6%, and we continue to target a 97% to 103% range on this ratio. Asset quality remains strong, with non-performing assets representing 54 basis points of total assets.

Speaker #2: The pipeline rate of 6.33% is accretive relative to our current portfolio yield of 5.9%. Period N deposits increased $445 million for the quarter, or an annualized 9%, driven by higher broker deposit balances and growing commercial deposits.

Speaker #2: As a reminder, we elected to utilize lower-cost FHLB borrowings in the first quarter to offset seasonal outflows in the municipal deposit portfolio. Due to the elevated pricing in the broker deposit market.

Speaker #2: This quarter, we returned to utilizing broker deposits, which was the largest driver of the LINQ quarter increase. Our loan-to-deposit ratio improved slightly quarter over quarter to 102.6%, and we continue to target a 97 to 103% range on this ratio.

Speaker #2: Asset quality remained strong with non-performing assets representing 54 basis points of total assets. Net charge-ups were $1.9 million, or an annualized 4 basis points of average loans this quarter.

Adriano Duarte: Net charge-offs were $1.9 million or an annualized four basis points of average loans this quarter. We recorded a provision of credit losses of $9.3 million for the quarter, as loan growth required specific reserves on individually evaluated impaired credits increase and changes in our portfolio mix warranted higher pool reserves. This brought our allowance coverage ratio up two basis points from the trailing quarter to 92 basis points of loans on 30 June. Non-interest income increased to $32 million this quarter, with solid performance from our insurance and wealth management division, as well as year-over-year increases in core banking fees and gains on SBA loan sales. Core non-interest expense decreased slightly to $116.9 million when adjusted for non-operating expense items related to our systems conversion of $1.5 million and severance costs of $900,000.

Speaker #2: We recorded a provision of credit losses of $9.3 million for the quarter as loan growth required specific reserves on individually evaluated impaired credits increase and changes in our portfolio mix, warranted higher pooled reserves.

Speaker #2: This brought our allowance coverage ratio up 2 basis points from the trailing quarter, to 92 basis points of loans as of June 30th. Non-interest income increased $32 million this quarter, with solid performance from our insurance and wealth management divisions, as well as year-over-year increases in core banking fees and gains on SBA loan sales.

Speaker #2: Core non-interest expense decreased slightly to $116.9 million when adjusted for non-operating expense items related to our systems conversion of $1.5 million, and severance costs of $900,000.

Speaker #2: Core expenses to average assets and the efficiency ratio both improved from the trailing quarter to 1.85% and 49.8%, respectively, we continue to project quarterly operating expenses of approximately $117 to $119 million.

Adriano Duarte: Core expenses to average assets and the efficiency ratio both improved from the trailing quarter to 1.85% and 49.8%, respectively. We continue to project quarterly operating expenses of approximately $117 to $119 million. As we noted last quarter, in addition to normal expenses, we will be upgrading our core systems in Q3 of 2026 and expect additional non-recurring charges of approximately $4.5 million over the remainder of 2026. Our continued sound financial performance supported earning asset growth and again drove strong capital formation. Tangible book value per share increased $0.39 or 2.4% this quarter to $16.42, and our tangible common equity ratio increased to 8.6% from 8.03% year over year. Our CRE concentration ratio was 399%, adjusted for purchase accounting marks at quarter end. There were no buybacks during Q2, and we have over 2 million shares remaining on our share repurchase authorization.

Speaker #2: As we noted last quarter, in addition to normal expenses, we will be upgrading our core systems in Q3 of 2026 and expect additional non-recurring charges of approximately $4.5 million over the remainder of 2026.

Speaker #2: Our continued sound financial performance supported earning asset growth and again drove strong capital formation. Tangible book value per share increased $39 cents or $2.4% this quarter to $16.42, and our tangible common equity ratio increased to 8.6% from 8.03% year over year.

Speaker #2: Our pre-concentration ratio was 399%, adjusted for purchase accounting marks at quarter-end. There were no buybacks during Q2, and we have over 2 million shares remaining on our share repurchase authorization.

Speaker #2: Lastly, I'd like to share a couple of updates to our guidance following the strong start to 2026. We expect loan and deposit growth to be at the high end of our initial range now expecting 5 to 6% full-year growth.

Adriano Duarte: Lastly, I'd like to share a couple of updates to our guidance following the strong start to 2026. We expect loan and deposit growth to be at the high end of our initial range, now expecting 5% to 6% full-year growth. We also are raising our non-interest income guide for Q3 and Q4 to $29 million per quarter versus $28.5 million previously. We expect full-year effective tax rate of approximately 28% to 28.25%, and we continue to target a core ROA of 1.2% to 1.3% with a mid-teens return on average tangible common equity. That concludes our prepared remarks. We would be happy to respond to questions.

Speaker #2: We also are raising our non-interest income guide for the third and fourth quarters to $29 million, per quarter versus $28.5 million, previously. We expect full-year effective tax rate of approximately 28 to 28.25%, and we continue to target a core ROA of 1.2 to 1.3% with a mid-teens return on average tangible common equity.

Speaker #2: That concludes our prepared remarks. We would be happy to respond to questions.

Speaker #1: We will now begin the question-and-answer session. If you would like to ask a question, please press *1 to raise your hand.

Operator 3: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the roster. Your first question comes from Feddie Strickland with Hovde Group. Your line is open. Please go ahead.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the roster. Your first question comes from Feddie Strickland with Hovde Group. Your line is open. Please go ahead.

Speaker #1: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the roster. Your first question comes from Fetty Strickland with HUFTY.

Speaker #1: Your line is open. Please go ahead.

Feddie Strickland: Hey, good morning.

Speaker #3: Hey, good morning. I wanted to ask about deposits. Morning. It seems like really good momentum in the back half of the year here. And you mentioned favorable repricing of deposits and the release.

Adriano Duarte: Morning, Fetty.

Adriano Duarte: Morning, Feddie.

Feddie Strickland: Morning. Seems like really good momentum in the back H2 of the year here. You mentioned favorable repricing of deposits and the relief. Is there much more to go there on the time deposit side, just in terms of maturities coming up that can maybe reprice lower to offset some competitive pressures on new deposits? Or do we kind of see costs start to tick up from here?

Speaker #3: Is there much more to go there on the time deposit side, just in terms of maturities coming up that could maybe reprice lower to offset some competitive pressures on new deposits?

Speaker #3: Or do we kind of see costs start to tick up from here?

Adriano Duarte: This is AJ. We expect costs to actually go up 1 or 2 basis points over the next couple of quarters, mainly on pressures, as you've mentioned, on CDs and competitive nature in our market at this point. The pickup on the net interest margin is going to be mainly driven by the back book repricing and some impact from cash flows on the securities portfolio.

Speaker #2: This is AJ. We expect costs to actually go up 1 or 2 basis points over the next couple of quarters, mainly on pressures, as you've mentioned, on CDs and probably in competitive nature in our market at this point.

Speaker #2: The pickup on the net interest margin is going to be mainly driven by the backbook repricing and some impact from cash flows on the securities portfolio.

Feddie Strickland: Got it. Just one other question on the loan yield. Did purchase accounting accretion step up some in the quarter? Was some of the difference between core and GAAP NIM caused by some interest recoveries as well?

Speaker #3: Got it. And then just one other question on the loan yield. Did purchase accounting accretion step up some in the quarter, or was some of the difference between core and gap NIM caused by some interest recoveries as well?

Adriano Duarte: Mainly interest recoveries, Fetty. For the quarter, it was pretty stable versus the prior quarter. It was really driven by back book repricing and core NIM expansion.

Adriano Duarte: Mainly interest recoveries, Feddie. For the quarter, it was pretty stable versus the prior quarter. It was really driven by back book repricing and core NIM expansion.

Speaker #2: Mainly interest recoveries, Fetty. For the quarter, it was pretty stable versus the prior quarter. It was really driven by backbook repricing and core NIM expansion.

Speaker #3: Got it. And just one last question for me, just on credit. I noticed you didn't change the guide on charge-offs for the year, but the first-half charge-offs are pretty meaningfully below that 10 to 15 basis point range.

Feddie Strickland: Got it. Just one last question from me just on credit. I noticed you didn't change the guide on charge-offs for the year, but the H1 charge-offs are pretty meaningfully below that 10 to 15 basis point range. Is that just conservatism as you work through some of these larger credits in the H2 of the year?

Speaker #3: Is that just conservatism as you work through some of these larger credits in the back half of the year?

Adriano Duarte: I think that the charge-off expectation is in line with the risk profile that we take, right?

Tony Labozzetta: I think that the charge-off expectation is in line with the risk profile that we take, right? If you look at what we can't promise is that a loan won't go NPA, but what we can promise is what the outlook looks like. In terms of recovery, our team has done a wonderful job in terms of working out the credits. We just don't have a ton in there.

Speaker #2: I think that the charge-off expectation is in line with the risk profile that we take, right? I think our—if you look at what we can't promise is that a loan won't go NPA, but what we can promise is what the outlook looks like.

Anthony J. Labozzetta: If you look at what we can't promise is that a loan won't go NPA, but what we can promise is what the outlook looks like. In terms of recovery, our team has done a wonderful job in terms of working out the credits. We just don't have a ton in there. As I mentioned in my prepared remarks, we do have that one relationship as an example that went into NPA in the Q1, and we see that resolving by the Q4 with no real material loss or any loss whatsoever for us. Again, I think we expect to see charge-offs remain low based on the nature of how we underwrite and the risks that we're willing to take as an organization. I'll stop there.

Speaker #2: So in terms of recovery, our team has done a wonderful job in terms of working out the credits. We just don't have a ton in there, but as I mentioned in my prepared remarks, we do have that one relationship that, as an example, that went into NPA in the first quarter.

Tony Labozzetta: As I mentioned in my prepared remarks, we do have that one relationship as an example that went into NPA in the Q1, and we see that resolving by the Q4 with no real material loss or any loss whatsoever for us. Again, I think we expect to see charge-offs remain low based on the nature of how we underwrite and the risks that we're willing to take as an organization. I'll stop there.

Speaker #2: And we see that resolving by the fourth quarter with no real material loss or any loss whatsoever. For us, so again, I think we expect to see charge-offs remain low based on the nature of how we underwrite and the risks that we're willing to take as an organization.

Speaker #2: So I'll stop there.

Speaker #3: All right. Great. That's helpful. Thanks for taking my questions. I'll step back.

Feddie Strickland: All right, great. That's helpful. Thanks for taking my questions. I'll step back.

Speaker #2: Yep. Thank you.

Anthony J. Labozzetta: Yep. Thank you.

Tony Labozzetta: Yep. Thank you.

Speaker #1: Your next question comes from the line of Tim Switzer with KBW. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Tim Switzer with KBW. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Tim Switzer with KBW. Your line is open. Please go ahead.

Anthony J. Labozzetta: Morning, Tim.

Tony Labozzetta: Morning, Tim.

Speaker #2: All right, Tim.

Speaker #4: On the loan side, along with NIM expansion, it's kind of rare to see this quarter. Can you talk about what you're seeing from a competitive standpoint, particularly on lending?

Tim Switzer: On the loan side, along with NIM expansion, it's kind of rare to see this quarter. Can you talk about what you're seeing from a competitive standpoint, particularly on lending, and are there any pressures from maybe the larger banks in your area or anything on pricing?

Speaker #4: And are there any pressures from maybe the larger banks in your area, or anything on pricing?

Anthony J. Labozzetta: I would say on the loan side, from our vantage point, we're not seeing what I would call irrational yet. Kind of my definition of irrational would be structural breakdowns in the underwriting component where we're seeing too big of a spread to be competitive against. There is competition, no doubt. I just don't see it on the irrational side yet. I see competition heightening more on the funding side of the balance sheet than I do on the lending side, which is supported by the $3.2 billion pipeline that we have both and it's split, I would say, larger towards C&I, which can become more competitive in today's environment. Everybody's chasing that. Again, I would say from our vantage point, I know others might feel differently, but we're seeing competition, but not irrational or something.

Tony Labozzetta: I would say on the loan side, from our vantage point, we're not seeing what I would call irrational yet. Kind of my definition of irrational would be structural breakdowns in the underwriting component where we're seeing too big of a spread to be competitive against. There is competition, no doubt. I just don't see it on the irrational side yet. I see competition heightening more on the funding side of the balance sheet than I do on the lending side, which is supported by the $3.2 billion pipeline that we have both and it's split, I would say, larger towards C&I, which can become more competitive in today's environment. Everybody's chasing that. Again, I would say from our vantage point, I know others might feel differently, but we're seeing competition, but not irrational or something.

Speaker #2: I would say on the loan side, from our vantage point, we're not seeing what I would call irrational yet. And kind of sort of my definition of irrational would be structural breakdowns in the underwriting component.

Speaker #2: Where we're seeing too big of a spread to be competitive against. There is competition, no doubt. I just don't see it on the irrational side yet.

Speaker #2: I see competition heightening more on the funding side of the balance sheet than I do on the lending side, which is supported by the 3.2 billion pipeline that we have both in a split I would say larger towards CNI, which can become more competitive in today's environment.

Speaker #2: Everybody's chasing that. So again, I would say from our vantage point, I know others might feel differently, but we're seeing competition but not irrational.

Speaker #2: I'll stop there.

Speaker #4: Okay. Yeah, it's good to hear. And given your guys' expectations for the NIM to continue to move higher, how much of that is driven by some of the loan backbook repricing?

Tim Switzer: Okay. Yeah, it's good to hear. Given your guys' expectation for the NIM to continue to move higher, how much of that is driven by some of the loan back book repricing, and what's the gap on new loan yields versus old?

Speaker #4: And what's the gap on new loan yields versus old?

Anthony J. Labozzetta: I'll speak specifically to the fixed rate portion of the loan portfolio, which has about $3 billion in cash flows coming in for the next 12 months. The weighted average yields, including purchase accounting marks, is about 5.6 on that. We should be picking up about four basis points just on that back book repricing. The spread between that and the pipeline, you're talking about 70 basis points, Tim.

Speaker #2: So I'll speak specifically to the fixed portion, the fixed-rate portion of the loan portfolio, which has about $3 billion in cash flows coming in for the next 12 months.

Adriano Duarte: I'll speak specifically to the fixed rate portion of the loan portfolio, which has about $3 billion in cash flows coming in for the next 12 months. The weighted average yields, including purchase accounting marks, is about 5.6 on that. We should be picking up about four basis points just on that back book repricing. The spread between that and the pipeline, you're talking about 70 basis points, Tim.

Speaker #2: The weighted average yield, including purchase accounting marks, is about 5.6 on that. So we should be picking up about 4 basis points just on that backbook repricing.

Speaker #2: So the spread between that and the pipeline—you're talking about 70 basis points. Tim?

Speaker #4: Okay. And then the last one for me. Can you update us on your thoughts on M&A and how active you might be in participating in any discussions in your markets right now?

Tim Switzer: Okay. The last one for me. Can you update us on your thoughts on M&A and how active you might be in participating in any discussions in your markets right now?

Speaker #2: Sure. M&A is certainly part of our strategy, but I'd just like to go back and say that our number one focus and priority as an organization remains organic growth across our businesses, which we're experiencing.

Anthony J. Labozzetta: Sure. M&A is certainly part of our strategy, I'd just like to go back to and say that our number one focus and priority as an organization remains organic growth across our businesses, which we're experiencing. A lot of focus on the funding side of the balance sheet, which we're feeling pretty good about the H2 of the year as we move forward. However, the M&A environment, which was sort of picking up a bunch of steam, has sort of settled out a little bit. What I can say is that we're still of the same kind of perspective that cultural alignment is critical, ensuring that the pro formas, the deliverables, value adds, what strategic objectives we look to meet. There are a bunch of kind of things that we have to check off in these as we approach M&A.

Tony Labozzetta: Sure. M&A is certainly part of our strategy, I'd just like to go back to and say that our number one focus and priority as an organization remains organic growth across our businesses, which we're experiencing. A lot of focus on the funding side of the balance sheet, which we're feeling pretty good about the H2 of the year as we move forward. However, the M&A environment, which was sort of picking up a bunch of steam, has sort of settled out a little bit. What I can say is that we're still of the same kind of perspective that cultural alignment is critical, ensuring that the pro formas, the deliverables, value adds, what strategic objectives we look to meet. There are a bunch of kind of things that we have to check off in these as we approach M&A.

Speaker #2: And there's a lot of focus on the funding side of the balance sheet, which we're feeling pretty good about for the second half of the year as we move forward.

Speaker #2: However, the M&A environment, which was sort of picking up a bunch of steam, has sort of settled out a little bit. What I can say is that we're still of the same kind of perspective that cultural alignment is critical, ensuring that the pro formas, the deliverables, value-adds is what's strategic objectives we look to meet.

Speaker #2: So, there are a bunch of things that we have to check off as we approach M&A. But again, M&A is not something that we're just going to do haphazardly.

Anthony J. Labozzetta: Again, M&A is not something that we're just going to do haphazardly. It's going to be very selective.

Tony Labozzetta: Again, M&A is not something that we're just going to do haphazardly. It's going to be very selective.

Speaker #2: It's going to be very, very selective.

Speaker #4: Awesome. Thank you very much.

Tim Switzer: Awesome. Thank you very much.

Adriano Duarte: Thanks, Tim.

Speaker #3: Thanks, Tim.

Adriano Duarte: Thanks, Tim.

Tony Labozzetta: Thanks, Tim.

Speaker #2: Thanks, Tim.

Speaker #1: Your next question comes from the line of Steve Moss with Raymond James. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Steve Moss with Raymond James. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Steve Moss with Raymond James. Your line is open. Please go ahead.

Speaker #5: Good morning. Tony, starting with you on more than on loan growth here, you guys got into the high end of the range, the pipeline is above last quarter.

Steve Moss: Good morning.

Anthony J. Labozzetta: Morning.

Tony Labozzetta: Morning.

Steve Moss: Tony, maybe starting with you on loan growth here. You guys guiding to the high end of the range. The pipeline is above last quarter. Just kind of curious, why not increase maybe the guidance here a little bit? Seems like you could go over the high end of the range there.

Speaker #5: Just kind of curious, why not increase maybe the guidance here a little bit? It seems like you could go over the high end of the range there.

Speaker #2: Well, it's true. We can. What we can't predict is the level of prepayments that we might see. This quarter, we had 340, which is I think there's a possibility that we could come a little higher.

Anthony J. Labozzetta: Well, it's true. We can. What we can't predict is the level of prepayments that we might see. This quarter we had $340. I think there's a possibility that we could come a little higher, but we're also being more selective on loans that come in with large deposit balances. Some of the verticals that we're paying attention to that are important to us is like the middle market segments and areas that produce the strong deposits. However, if prepayments come in a little lighter, there's a chance that we can break the high end of the range. Again, it's a managed process for us, right? I think right now internally, we're guiding ourselves to the high end of that range. If we break it'll be because of situations like low prepayments or asset classes that are highly desirable that we want to be in.

Tony Labozzetta: Well, it's true. We can. What we can't predict is the level of prepayments that we might see. This quarter we had $340. I think there's a possibility that we could come a little higher, but we're also being more selective on loans that come in with large deposit balances. Some of the verticals that we're paying attention to that are important to us is like the middle market segments and areas that produce the strong deposits. However, if prepayments come in a little lighter, there's a chance that we can break the high end of the range. Again, it's a managed process for us, right? I think right now internally, we're guiding ourselves to the high end of that range. If we break it'll be because of situations like low prepayments or asset classes that are highly desirable that we want to be in.

Speaker #2: But we're also being more selective on loans that come in with large deposit balances. So some of the verticals that we're paying attention to that are important to us is like the middle market segments and areas that produce the strong deposits.

Speaker #2: However, if prepayments come in a little lighter, there's a chance that we can break the high end of the range. Again, but it's a managed process for us, right?

Speaker #2: So I think right now, internally, we're guiding ourselves to the high end of that range. And if we break it, it'll be because of situations like low prepayments or asset classes that are highly desirable that we want to be in.

Speaker #5: Yeah. Also takes into account a little bit lower level of production in the third quarter, Steve.

Adriano Duarte: Yeah. Also takes into account a little bit lower level of production in Q3, Steve. Yeah, the summer's always a little slower.

Speaker #2: Yeah. The summer is always a little slower.

Speaker #5: Yep. Okay. So I hear you guys there. And then on purchase account increase, just kind of curious, what's the what are your expectations for accretion in 2027?

Steve Moss: Yep. Okay. I hear you guys there. Then on purchase accounting accretion, just kind of curious, what are your expectations for accretion in 2027?

Adriano Duarte: On the loan book, it should be coming in at about $36 million, Steve.

Speaker #2: On the loan book? It should be coming in at about $36 million, Steve.

Speaker #5: For the full year?

Steve Moss: For the full year?

Adriano Duarte: Just for this year, we estimated around $48 million. For 2027, we expect around $36 million. Now, prepays are definitely going to play a part in that. As rates go down, that should go up. Not significantly, but it should go up.

Speaker #2: Just for this year, we estimated around 48. But for 2027, we expect around 36. Now, prepays are definitely going to play a part in that.

Speaker #2: If rates go down, that should go up. Not significantly, but it should go up.

Speaker #5: Okay. You guys are running, let's call it $22 million—$22 million—for the quarter right now. So it's going to step down to about half that next year, if I hear you correctly, AD?

Steve Moss: Okay. You guys were running, let's call it $22 million for a quarter right now. It's going to step down to about half that next year if I hear you correct, AD?

Adriano Duarte: The adjustment really is, so when we do the calculation for getting back to the core NIM, we adjust the assets as well. I think that's why there's a discrepancy between the number that you guys calculate versus what we come up with. The true dollar amount for the quarter is about 45. Sorry, 15. About $15 million. Yeah.

Speaker #2: So the adjustment really is so when we do the calculation for to getting back to the core NIM, we adjust the assets as well.

Speaker #2: I think that's why there's a discrepancy between the number that you guys calculate versus what we come up with. But the true dollar amount for the quarter is about hold on.

Speaker #2: About 45—sorry, 15. About $15 million, yeah.

Speaker #5: Got it. Okay. That's helpful. And then in terms of just thinking about the investment securities book, you kind of touched on a little bit, I think, obviously, yields went up there.

Steve Moss: Got it. Okay, that's helpful. In terms of just thinking about the investment securities book, you kind of touched on a little bit, I think obviously yields went up there, are you guys going to think about running it down here, just given the more competitive environment on deposits?

Speaker #5: But are you guys going to think about running it down here, just given the more competitive environment on deposits?

Adriano Duarte: We still think there's an opportunity there. With cash flowing about half a billion dollars annually with a yield of 3.90% being replaced with a coupon or a yield of 5.25%. I think there's still an opportunity there, still a spread between that and wholesale funding. We'll still be active in that market, Steve.

Speaker #2: We still think there's an opportunity there. So with cash flow in about half a billion dollars annually, with a yield of 390 being replaced with a coupon or a yield of 5 and a quarter, I think there's still an opportunity there.

Speaker #2: Still not a spread between that and the wholesale funding. So we'll still be active in that market, Steve.

Speaker #5: Okay. Great. I appreciate all that color. I'll step back here.

Steve Moss: Okay, great. I appreciate all that color there. I'll step back here.

Speaker #2: Thanks, Steve.

Adriano Duarte: Thanks, Steve.

Speaker #1: Your next question comes from the line of Matthew Brees with Stevens, Inc. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Matthew Breese with Stephens Inc. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Matthew Breese with Stephens. Your line is open. Please go ahead.

Speaker #6: Hey, good morning. And Matt? AD, I just wanted to go back to accretion because I was a little bit the numbers were a little bit all over the place.

Matthew Breese: Hey, good morning.

Anthony J. Labozzetta: Hey, Matt.

Tony Labozzetta: Hey, Matt.

Matthew Breese: AD, I just wanted to go back to accretion because the numbers were a little bit all over the place. I think I've been modeling $20 million a quarter or thereabouts with a slight decline from here until year-end 2027. I'm just not sure what you were referencing in terms of the average balance sheet adjustments. Could you kind of reframe for us what accretable yield impacts are supposed to be at least through year-end and early 2027?

Speaker #6: I think I've been modeling $20 million a quarter. We're there and about, with a slight decline from here until year-end '27. I'm just not sure what you were referencing in terms of the average balance sheet adjustments.

Speaker #6: Could you kind of reframe for us what accretable yield impacts are supposed to be, at least through year-end and early 2027?

Adriano Duarte: Yeah. Top level, Matt, I would use 35 basis points as the adjuster, right? The difference between the 309 and the adjusted reported NIM, which would have been 344. It'd actually be consistent throughout.

Speaker #2: Yeah. Top level, Matt, I would use 35 basis points as the adjuster, right? So the difference between the 309 and the adjusted reported NIM, which would have been 344.

Speaker #2: And that should be consistent throughout.

Matthew Breese: Okay.

Speaker #6: Okay.

Speaker #2: Yeah. So what we do that calculation, we use the outstanding purchase accounting marks and reduce the sorry, increase the loan balance by that. And that's why there's a little bit of a discrepancy between true P&L dollars and the actual NIM difference.

Adriano Duarte: Yeah. When we did our calculation, we used the outstanding purchase accounting marks and increased the loan balance by that. That's why there's a little bit of a discrepancy between true P&L dollars and the actual NIM difference.

Matthew Breese: Okay. All right. Thank you. I wanted to focus on deposits for a second. Just thinking about the updated kind of outlook for deposit growth and some of the drivers this quarter. There was a little bit more time deposit growth. Money market growth was 5%. I'm curious if those are going to be similar kind of representations of growth through the end of the year. Considering kind of intensifying deposit competition, what's the cost to bring new money market or new CDs in the door in your market? What are kind of promo rates from Provident these days?

Speaker #6: Okay, all right. Thank you. So, I want to focus on deposits for a second. Just thinking about the updated outlook for deposit growth and some of the drivers this quarter—there was a little bit more time deposit growth; money market growth was 5%.

Speaker #6: I'm curious, if those are going to be similar kind of representations of growth through the end of the year, and considering kind of intensifying deposit competition, what's the cost to bring new money market or new CDs in the door in your market?

Speaker #6: What are kind of promo rates from Providence these days?

Speaker #2: Well, I think if you're going down the promo rate scenario, you're looking at probably a four-handle, right? Four percent. Kind of, if you look at—as I mentioned on the call—this is one of the areas that has, I think, the heightened competition.

Anthony J. Labozzetta: Well, I think if you're going down the promo rate scenario, you're looking at probably a four handle. 4%. If you look at, as I mentioned on the call, this is one of the areas that has I think heightened competition. I think we have good eyesight into what the H2 will look like. We expect our municipal deposits to roll in at a good clip to represent about 5% back-end growth annualized. We have a bunch of new capacities that we put in place in terms of our TM capabilities that are producing some good growth and other verticals. The reason I mention that, Matt, is because we're not trying to fund our balance sheet with all these promo rates.

Tony Labozzetta: Well, I think if you're going down the promo rate scenario, you're looking at probably a four handle. 4%. If you look at, as I mentioned on the call, this is one of the areas that has I think heightened competition. I think we have good eyesight into what the H2 will look like. We expect our municipal deposits to roll in at a good clip to represent about 5% back-end growth annualized. We have a bunch of new capacities that we put in place in terms of our TM capabilities that are producing some good growth and other verticals. The reason I mention that, Matt, is because we're not trying to fund our balance sheet with all these promo rates.

Speaker #2: I think we have good eyes. I’ll segue into what the second half will look like. We expect our municipal deposits to roll in at a good clip, to represent about 5% back-end growth annualized.

Speaker #2: We have a bunch of new capacities that we put in place in terms of TM capabilities that are producing some good growth. In other verticals—the reason I mention that, Matt—is because we're not trying to fund our balance sheet with all these promo rates.

Speaker #2: I think some of this stuff we're very careful in terms of the process that we use. So we don't create a lot of incremental cost pricing on our balance sheet and destroy the funding base that we have now.

Anthony J. Labozzetta: I think some of this stuff we're very careful in terms of the process that we use, so we don't create a lot of incremental cost pricing on our balance sheet and destroy the funding base that we have now. We see the capacity to grow, but we're not chasing the hot money. I'll stop there unless you have a follow-up.

Tony Labozzetta: I think some of this stuff we're very careful in terms of the process that we use, so we don't create a lot of incremental cost pricing on our balance sheet and destroy the funding base that we have now. We see the capacity to grow, but we're not chasing the hot money. I'll stop there unless you have a follow-up.

Speaker #2: So we see the capacity to grow, but we're not chasing the hot money. And I'll stop there unless you have a follow-up.

Speaker #6: Yeah. No, that was all very helpful. Don't get me wrong. Just thinking about some of AD's comments on deposit cost outlook as well. Maybe one or two basis points of increase I'm just curious if up until now, either average cost in June or spot cost in June, if that's already started to take place.

Matthew Breese: Yeah. No, that was all very helpful. Don't get me wrong. Just thinking about some of AD's comments on deposit cost outlook as well. Maybe one or two basis points of increase. I'm just curious if up until now, either average cost in June or spot cost in June, if that's already started to take place. Are you seeing it above the 191 or 192 we saw this Q2?

Speaker #6: Are you seeing it above the 191 or 192 we saw this quarter?

Adriano Duarte: It's up a couple of basis points. What we'll see, though, in the H2 of the year is the benefit of the municipal inflows that are typically at the trough as of 30 June, and those should come in at a lower rate than the competitive pricing that you're seeing on the CDs. Those usually come in around three and a half to three and three quarters. That should offset some of that incremental cost.

Speaker #2: It's up a couple of basis points. What we'll see, though, in the second half of the year is the benefit of the municipal inflows.

Speaker #2: Those are typically at the trough as of June 30th, and those should come in at a lower rate than the competitive pricing that you're seeing on the CDs.

Speaker #2: So those usually come in around 3 and a half to 3 and three-quarters. So that should offset some of that incremental cost.

Adriano Duarte: Those usually come in around three and a half to three and three quarters. That should offset some of that incremental cost.

Speaker #3: Yeah, so I would also add that some of the growth we're seeing now that's been offset by some of the consumer and CDs has largely come into our treasury management area.

Anthony J. Labozzetta: Yeah. Also I would add that some of the growth we're seeing now that's been offset by some of the consumer and CDs has largely come into our treasury management area, our business banking and small business banking, which tend to be the lower cost funds, which gives us a little firepower if we want to do promos in H2 as needed. We'll balance that thinking against the wholesale side depending on the funding gaps that we may have in H2 of the broker market versus promos. Again, if we have the inflows that we expect on the munis plus the other sectors continue, that should bode well for profitability.

Tony Labozzetta: Yeah. Also I would add that some of the growth we're seeing now that's been offset by some of the consumer and CDs has largely come into our treasury management area, our business banking and small business banking, which tend to be the lower cost funds, which gives us a little firepower if we want to do promos in H2 as needed. We'll balance that thinking against the wholesale side depending on the funding gaps that we may have in H2 of the broker market versus promos. Again, if we have the inflows that we expect on the munis plus the other sectors continue, that should bode well for profitability.

Speaker #3: Our business banking and small business banking, which tend to be the lower-cost funds, which gives us a little firepower if we want to do promos in the second half as needed.

Speaker #3: So we'll balance that thing against the wholesale side depending on our funding gaps that we may have in the second half, the broker market versus promos.

Speaker #3: But again, if we have the inflows that we expect on the munis plus the other sectors continue, that should go well for profitability.

Speaker #6: Okay. I wanted to turn to fee income. Just to step down and kind of the quarterly pace from QQ. And I was curious what areas you're expecting kind of fee income reductions in, the ones that stand out to me would be kind of insurance because of seasonal factors, Boli looked a little elevated.

Matthew Breese: Okay. I wanted to turn to fee income, just to step down in kind of the quarterly pace from Q2. I was curious what areas you're expecting fee income reductions in. The ones that stand out to me would be insurance because of seasonal factors. BOLI looked a little elevated. I'm curious what the right level is there. Other income looked a little high this quarter as well, and I'm wondering if anything is unsustainably high there.

Speaker #6: I'm curious what the right level is there. And then other income looked a little high this quarter as well. And I'm wondering if anything is unsustainably high there.

Adriano Duarte: Insurance definitely, Matt, just because that's very seasonal based on the premiums underwritten for each quarter. Year-over-year, that's how I would compare it. At least double-digit growth versus the prior year for the same period. BOLI, we're probably running between $800,000 and $900,000 on a monthly basis. Obviously, there's some death benefits there that happened in Q2 and Q1 that were unplanned for. We're seeing some pickup on the fee income side that should bode well. That's where the main driver for the guidance change was.

Speaker #2: Insurance definitely, Matt, just because that's very seasonal, based on the premiums underwritten for each quarter. So, year over year, that's how I would compare it.

Speaker #2: At least double-digit growth versus the prior year for the same period. But Boli, we're probably running between 800 and 900 thousand dollars on a monthly basis.

Speaker #2: Obviously, there's some benefits there that happened in the second and first quarter that were unplanned for. But we're seeing some pickup on the fee income side.

Speaker #2: That should bode well. We're the main driver for the guidance change was.

Anthony J. Labozzetta: Yeah. Beacon is obviously AUM. It's growing there. We still see the SBA sales, the secondary market business we're amplifying. Those are other areas that will contribute to that, Matt.

Tony Labozzetta: Yeah. Beacon is obviously AUM. It's growing there. We still see the SBA sales, the secondary market business we're amplifying. Those are other areas that will contribute to that, Matt.

Speaker #3: Yeah. So Beacon is obviously AUM. It's growing there. We still see the SBA sale into the secondary market business. We're amplifying. So those are other areas that will contribute to that, Matt.

Speaker #6: Yeah. Yeah. Yeah. On the banking side, sorry. Go ahead. No, I stepped on your toes. I'm sorry. You go ahead, AD.

Adriano Duarte: Yeah. On the banking side. Sorry. Go ahead.

Matthew Breese: No, I stepped on your toes. I'm sorry. You go ahead, AD.

Speaker #2: That's okay, Matt.

Adriano Duarte: Okay, Matt. No, I was just going to say on the banking fee side, we did see some prepayment income come in from loan payoffs. It was up about $300,000 quarter-over-quarter.

Speaker #6: Now, I was just going to say on the banking fee side, we did see some prepayment income come in from loan payoffs. It was up about $300,000 quarter over quarter, so.

Speaker #6: Okay. Just one follow-up there, and then I'm done. You made some recent hires in the wealth management effort. Tony, I think you were hinting at that.

Matthew Breese: Okay. Just one follow-up there and then I'm done. You made some recent hires in a wealth management effort. Tony, I think you were hinting at that. Maybe update us on what you expect out of that fee income line, AUM growth or fee income growth over the next year. I guess I'm wondering if you anticipate some acceleration there.

Speaker #6: Maybe update us on what you expect out of that fee income line—AUM growth or fee income growth—over the next year. I guess I'm wondering if you anticipate some acceleration there.

Speaker #3: Yeah. What I certainly expect is a heightened we're making a good deal of investments in the sales and service sides of that business. So my expectation and also on the advisory capacity, right?

Anthony J. Labozzetta: Yeah. What I certainly expect is, we're making a good deal of investments in the sales and service sides of that business. My expectation and also on the advisory capacity, right? I'm expecting enhanced retention beyond the normal outflows that clients need to live on. I'm expecting new AUM to the bank. We're already seeing a good pickup in new AUM to existing clients. That's been really good this quarter. We're also seeing a pipeline of new clients build with these new positions that I mentioned, and we're looking to hire more. We're seeing an increased dynamic between our commercial bank, our retail bank, and the wealth group. We're seeing a lot more referrals going into that because of the capabilities that we have on the advisory functions with our wealth clients. I'm pretty excited to see this.

Tony Labozzetta: Yeah. What I certainly expect is, we're making a good deal of investments in the sales and service sides of that business. My expectation and also on the advisory capacity, right? I'm expecting enhanced retention beyond the normal outflows that clients need to live on. I'm expecting new AUM to the bank. We're already seeing a good pickup in new AUM to existing clients. That's been really good this quarter. We're also seeing a pipeline of new clients build with these new positions that I mentioned, and we're looking to hire more. We're seeing an increased dynamic between our commercial bank, our retail bank, and the wealth group. We're seeing a lot more referrals going into that because of the capabilities that we have on the advisory functions with our wealth clients. I'm pretty excited to see this.

Speaker #3: So I'm expecting enhanced retention beyond the normal outflows that clients need to live on. I'm expecting new AUM to the bank. We're already seeing a good pickup in new AUM to existing clients.

Speaker #3: That's been really good this quarter. So we're also seeing a pipeline of new clients build with these new positions that I mentioned. And we're looking to hire more.

Speaker #3: We're seeing an increased dynamic between our commercial bank and our retail bank and the wealth group, where you're seeing a lot more referrals going into that because of the capabilities that we have on the advisory functions with our wealth clients.

Speaker #3: So, I'm pretty excited to see this as we're building out. I don't want to be too premature on this, but that's my expectation—that we see greater integration and greater results. So, we have high hopes for Beacon moving forward.

Anthony J. Labozzetta: We're building out, so I don't want to be too premature on this, but that's my expectation, that we see a greater integration and greater results. We have high hopes for Beacon moving forward.

Tony Labozzetta: We're building out, so I don't want to be too premature on this, but that's my expectation, that we see a greater integration and greater results. We have high hopes for Beacon moving forward.

Speaker #6: I know I asked a lot of questions. Appreciate it. Thank you.

Matthew Breese: I know I ask a lot of questions. Appreciate it. Thank you.

Speaker #3: Thanks. Thanks, Matt.

Adriano Duarte: Thanks, Matt.

Speaker #1: Your next question comes from the line of Manuel Navas with Piper Sandler. Your line is open. Please go ahead. A reminder that if you are muted locally, please unmute.

Operator 3: Your next question comes from the line of Manuel Navas with Piper Sandler. Your line is open. Please go ahead. A reminder that if you are muted locally to please unmute.

Operator: Your next question comes from the line of Manuel Navas with Piper Sandler. Your line is open. Please go ahead. A reminder that if you are muted locally to please unmute.

Speaker #5: Oh, sorry, guys. Good morning. How much of the deposit how much of the deposit pipeline do you kind of expect to come from non-interest bearing?

Manuel Navas: Oh, sorry, guys. Good morning.

Anthony J. Labozzetta: Good morning.

Tony Labozzetta: Good morning.

Manuel Navas: How much of the deposit pipeline do you kind of expect to come from non-interest bearing? It was nice growth this quarter. Just kind of speaking to how that should progress going forward. I think some of the Treasury Management initiatives are helping there. If you could add color on how you're generating that non-interest bearing growth.

Speaker #3: It was nice growth this quarter. I was just kind of speaking to how that should progress going forward. I think some of the treasury management initiatives are helping there, but if you could add color on how you're generating that non-interest-bearing growth.

Speaker #3: Yeah, I don't have a clear number on the pipeline of just purely non-interest-bearing. I think it's a big focus for us, but I would also say the non-interest-bearing sector is the harder one to grow in this market.

Anthony J. Labozzetta: Yeah. I don't have a clear number on a pipeline of just purely non-interest bearing. I think it's a big focus for us. I would also say the non-interest bearing sector is the harder one to grow in this market. What I can give you is a general statement on overall lower cost business checking and non-interest that comes in from the TM efforts. The deepening of relationships, we changed some of the structure internally that you're seeing with our commercial relationship managers. I don't have a direct number of pipeline, but what we are seeing is, I'll give you a small pipeline that we're tracking is if you look at our TM new business development folks in there. Just three of them that have nearly 150 million pipeline as of June and they're relevant to the organization.

Tony Labozzetta: Yeah. I don't have a clear number on a pipeline of just purely non-interest bearing. I think it's a big focus for us. I would also say the non-interest bearing sector is the harder one to grow in this market. What I can give you is a general statement on overall lower cost business checking and non-interest that comes in from the TM efforts. The deepening of relationships, we changed some of the structure internally that you're seeing with our commercial relationship managers. I don't have a direct number of pipeline, but what we are seeing is, I'll give you a small pipeline that we're tracking is if you look at our TM new business development folks in there. Just three of them that have nearly 150 million pipeline as of June and they're relevant to the organization.

Speaker #3: What we are, what I can give you as a general statement on overall lower-cost business checking and non-interest that comes in from the TM efforts, the deepening of relationships we changed some of the structure internally that you're seeing with our commercial relationship managers.

Speaker #3: So, I don't have a direct number for the pipeline, but what we are seeing is—I'll give you a small pipeline that we're tracking. If you look at our TM new business development folks in there...

Speaker #3: We have just three of them that have nearly $150 million in pipeline as of June, and they're new to the organization. And we see that the expectation is $25 to $50 million in production.

Anthony J. Labozzetta: We see that the expectation is 25 to 50 million in production. While I don't have a gross number for you, there are a lot that we're looking low cost space.

Tony Labozzetta: We see that the expectation is 25 to 50 million in production. While I don't have a gross number for you, there are a lot that we're looking low cost space.

Speaker #3: So while I don't have a gross number for you, there are a lot that we're looking low-cost space.

Manuel Navas: I appreciate that color. In thinking about the NIM, just kind of switching over, how responsive is it to a rate hike or a rate cut?

Speaker #5: I appreciate that color. In thinking about 'over,' how responsive is it to a rate hike or a rate cut?

Speaker #3: Yeah. So, meaning on the short end of the curve, it probably compresses slope a little bit. So it'll be a reduction of about 2 basis points, Manuel.

Adriano Duarte: Meaning on the short end of the curve, it probably compresses both a little bit. It'll be a reduction of about 2 basis points, Manuel, for a 25 basis point rate hike. Meaning that you're holding the five-year part of the curve steady and you just.

Speaker #3: For a 25 basis point rate hike, meaning that you're holding the five-year part of the curve steady, and you just...

Manuel Navas: Thank you for the commentary.

Speaker #5: Thank you for the commentary.

Operator 3: This concludes today's Q&A session.

Operator: This concludes today's Q&A session.

Speaker #1: This concludes today's Q&A session.

Adriano Duarte: Thank you.

Speaker #3: Thank you.

Speaker #1: I will now hand the call back over to Tony Labozzetta for closing remarks.

Operator 3: I will now hand the call back over to Tony Labozzetta for closing remarks.

Operator: I will now hand the call back over to Tony Labozzetta for closing remarks.

Speaker #3: So, thank you, everyone. I'd like to mention again that we are very excited about Providence Future. We appreciate you joining us on today's call, and we look forward to speaking with you again soon.

Anthony J. Labozzetta: Thank you, everyone. I'd like to mention again that we are very excited about Provident's future. We appreciate you joining us on today's call, and we look forward to speaking with you again soon.

Tony Labozzetta: Thank you, everyone. I'd like to mention again that we are very excited about Provident's future. We appreciate you joining us on today's call, and we look forward to speaking with you again soon.

Operator 3: This concludes today's call. Thank you for attending. You may now disconnect.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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