Provident Financial Services, Inc

Good morning and welcome to the Providence Financial Services first quarter conference call. All participants will be in listen-only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then then one on your telephone keypad. To withdraw your question, please press Start and 2. Please note this event is being recorded. I would now like to turn the conference over to Mr. Leonard Gleason, SVP and IRO of Provident Financial Services. Please go ahead.

Thank you, Sabrina. Good morning, ladies and gentlemen. Thank you for joining us on our first quarter earnings call. Today's presenters are Chris Martin, Chairman, President, and CEO, and Tom Lyons, Senior Executive Vice President and Chief Financial Officer. 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 this morning's earnings release, which has been posted to the Investor Relations page on our website, provident.bank. Now it's my pleasure to introduce Chris Martin, who will offer his perspective on our first quarter.

Chris? Thank you, Len, and good morning. And we hope that you and your families are well and coping with this most unusual environment. First, I would like to applaud our employees who continue to provide exceptional service to our customers under difficult conditions. We have continued to deliver on our brand promise, commitment to the customer, while conducting our business in a safe and sound manner. I'm extremely proud of the way our team members from various disciplines have met the challenge from the onslaught of requests for Paycheck Protection Program loans. We have directly secured 820 PPP loans for a total of $378 million and also afforded customers the opportunity to apply through a FinTech option. This was a great team effort. Like most companies in our industry, our first quarter financial results were adversely impacted by the shutdown of our economy due to the pandemic and our adoption as of January 1 of CECL. We reported earnings of 23 cents per share with a core pre-tax, pre-provision return on average assets of 1.47% for the quarter, excluding $463,000 in merger-related professional fees. We announced our planned merger with SP1 Bank Corp in March and have already filed our applications with the bank's regulatory agencies. The integration teams from both banks have been meeting virtually and planning for an anticipated third quarter closing. Total assets at March 31st, 2020 increased to $10.1 billion as we finally crossed the $10 billion in asset threshold. Our outstanding loan balances at March 31st were $7.37 billion with loan originations of $355 million for the quarter. We believe our loan portfolio is solid, but there are some commercial customers in industries that have been hit hard by COVID-19. We are keeping a close eye on loan customers in the retail, hotel, and restaurant industries where our combined exposures were approximately $995 million, $234 million, and $65 million at March 31, 2020, respectively. The level of requests for deferrals of principal or P&I rose quickly after the economy shut down in mid-March. We required detailed documentation of the hardship before agreeing to any deferrals, none of which were granted for longer than 90 days. To date, we have processed and documented 363 payment deferral requests on commercial loans totaling $820 million in principal balances. These are loans to good customers and are, for the most part, secured by real estate and other business assets which should mitigate losses in the event a borrower cannot recover. Turning to our residential mortgage and consumer loan portfolio, we had approved hardship payment deferrals to 275 borrowers who have been impacted by job losses due to COVID-19 for loans totaling $69 million in principal balances. Regulators have encouraged banks to work with borrowers and have afforded greater flexibility In terms of being able to make payment referrals and modifications without triggering TDR accounting or other adverse consequences. On the funding side, deposit growth continued and our core deposits as a percentage of total deposits remained strong at over 90% while we priced down our cost of borrowings and extend their duration. We believe we still have the ability to incrementally lower costs over the next quarter on our core and time deposit accounts. Liquidity remains satisfactory, and there has been no deposit runoff, although growth from the PPP and stimulus checks will likely inflate balances in the near term. On the margin outlook, we expect to see some pressure over the next couple of quarters, primarily due to the timing and extent of changes in interest rates late in the first quarter. The rapid decline in rates to zero has impacted loan pricing, and we continue to require floors on many loans. A major impact to our earnings in Q1 was our adoption of CECL as of January 1. The $15.7 million provision for credit losses in the first quarter is a reflection of the negative economic outlook as impacted by the pandemic. We can expect that the economic forecast used in our CECL model will likely worsen in the second quarter. Non-interest income increased $4.8 million from the same period in 2019, with the T&L acquisition having been completed on April 1st, 2019 along with higher loan level swap fees in the current quarter. However, several fee items, income items will likely come under pressure due to the economic slowdown. Our wealth management fees, largely driven by assets under management, will likely decrease in the near term as asset values decline in the current market. Overdraft fees and interchange fee income may also continue to compress as consumers comply with shelter-in-place orders and limit their spending to essential services. On the expense side, there were costs related to the acquisition and executive severance expense recognized in the first quarter. Tom will provide more detail on our financial results.