Provident Financial Services, Inc

Good day and welcome to the Provident Financial Services Incorporated fourth quarter earnings call. All participants will be in a 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. Please note this event is being recorded. I would now like to turn the conference over to Mr. Leonard Gleason. Please go ahead, sir.

Thank you, Chuck. Good morning, ladies and gentlemen, and thank you for joining us for our fourth quarter earnings call. Today's presenters are Chris Martin, Chairman and CEO, Tony Labozzetta, President and Chief Operating Officer, 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 fourth quarter.

Chris. Thank you, Len, and good morning. Thank you for participating today. We sincerely hope that you and your families are healthy. Our fourth quarter earnings were strong as we successfully completed our systems integration of SB1 and met both our expense savings estimate of over 30% and came in under our projected one-time merger related charges. I would be extremely remiss if I did not recognize the Herculean effort by management and the staffs from both companies as they ably met the challenges presented during a pandemic. And Provident was one of only a few financial institutions that announced and completed a transaction and converted systems during this tumultuous time in our country. Fourth quarter earnings were strong at $40.6 million or 53 cents per share, including $3.2 million in merger-related charges. Net interest income was up 22% quarter over quarter. Total assets at December 31, 2020 stood at $12.9 billion, which resulted in an annualized return on average assets of 1.25% for the quarter and an annualized return on average tangible equity of 14.1%. Included in total assets were $473 million in PPP loans, which will continue to be submitted to the SBA for forgiveness throughout Q2 of this year. With only nominal GDP growth expected in Q2, we anticipate that loan growth will lag and businesses will rebound in the second half of 2021. Credit line usage is down to 41.6% at December 31st, 2020, versus 55.7% in 2019. Another issue is the deleveraging of consumer balances, which should begin to pick up once the vaccine is more widely distributed and people get back to more normalized behavior. With low interest rates, business clients with strong balance sheets and cash flows are able to refinance and or pay down their loans. Competition for loan growth remains extreme. and our loan pipeline is $1.2 billion with $295 million approved awaiting closing and a 47% pull-through rate expected on the remainder. Deposits for the year increased $2.7 billion including $1.76 billion acquired from SB1. Core deposit growth continued throughout the year and represented 88.9% of total deposits at December 31st. Deposit trends remained favorable during the quarter, and growth was robust and broad-based, supported by seasonal inflows and pandemic-related customer behavior. We ended the year with a loan-to-deposit ratio of 99.8%, and we continue to interact with our customers to further solidify deposit relationships. We also anticipate that with additional governance stimulus, deposits will increase or at least remain at these elevated levels, and then begin to gradually be drawn down during the second half of 2021. The bank also promotes the products and services available through SB1 Insurance, a new fee business line for us, along with wealth management offerings through Beacon Trust to further expand our client relationships. Despite the challenging industry environment, our core margin held up well during the quarter. Noninterest income was up $2.7 million versus the same quarter last year, which was primarily the result of $1.8 million contributed by our new fee revenue source from SB1 Insurance, accompanied by an increase in the net gain of sale of residential mortgage loans of $757,000 and wealth management income increasing $561,000. These increases were partially offset by decreases in prepayment fees of $882,000. Non-operating expenses increased $4.8 million for the quarter, which included $3.2 million of non-recurring costs related to the acquisition of SB1. Our operating expenses to average assets was 1.82% for the quarter, and our efficiency ratio was 54.12%. We continue to enhance our digital and online mobile banking platforms as client behavior has demonstrated a clear preference for these channels. As an example, we have seen an increase in Dell usage of 945% versus our previous person-to-person platform. We will seek to optimize our expanded business model with the driver being ROI and customer relationship expansion supported by analytics. And we consolidated three branch locations during the quarter and have another one planned later this quarter. Our reserve release this quarter primarily reflects Moody's improving macroeconomic outlook, although I would note we did add appropriate qualitative adjustments for economic uncertainty as the pace and shape of the recovery is still evolving. We're beginning to see the expected rise in non-accrual loans and charge-offs that may already be been reserved under for under our CECL methodology. We are working with all of our clients to provide hardship assistance whenever possible and prudent. If the vaccination and herd immunity can take hold, we estimate that it would reduce the lost content within our loan portfolio. And Tom will update the loan payment deferrals in more detail, but we have seen most of our clients come out of deferrals and return to full P&I payments. Our strong capital levels remain above well capitalized, which continues to support growth, a solid cash dividend, and an opportunity for stock repurchases that meet our internal return hurdles. We repurchased 1.3 million shares in 2020 at an average cost of $16.59 per share, which leaves PFS with only 262,000 shares remaining in our existing program. Yesterday, our board authorized the adoption of a new 5% repurchase program, which will commence upon the completion of the existing one. On the M&A front, despite the fact we just completed the SBO1 systems conversion in November, we remain open to those opportunities that expand our market and deliver solid returns to our stockholders. We remain disciplined buyers in terms of the financial profile that fits our strategic objectives and culture, and we will assess fee-based businesses along with whole bank acquisitions. Though there were improving economic indicators in the fourth quarter, we continue to see an uneven recovery and upticks in COVID cases towards the end of the quarter negatively impacted the road to recovery. Overall, our customers continue to be in a much stronger position than we would have anticipated when this crisis began. However, unemployment levels in the market remain high, inventory levels are lower than they were pre-pandemic, and the client confidence to invest in their business appears contingent upon the success of the vaccination distribution and the relaxation of government shutdowns. Despite all this, we believe there is a great potential for expanding economic activity in the second half of the year, especially if there is significant stimulus package. I'll let Tom go into further details. Tom?