Provident Financial Services, Inc

Thank you Monday. Good morning everyone and thank you for joining us for our 4th quarter earnings call. Today's presenters are president and CEO and senior executive vice president and chief financial officer Tom lines. Before beginning the review of our financial results, we ask that you please take note of our standard caution as to any forward looking statements. That may be made during the course of today's call our disclaimer. This is contained in last evening's earnings release, which has been posted to the investor relations page on our website, provident.bank. Now, it's my pleasure to introduce Tony Labazzotta, who will offer his perspective on the quarter. Thank you, Tony.

Thank you, Adriano. Good morning, everyone, and welcome to the Provident Financial Services earnings call. The fourth quarter was characterized by moderate economic growth, fluctuating interest rates, and continued industry-wide funding challenges. resulting in reduced profits for many regional banks. Provident has navigated these complexities with resilience, fostered by a commitment to our robust risk management and customer-centric approach. Provident produced good core financial results this quarter, which once again demonstrates the stability of our franchise and the strength of our management team. As such, we reported earnings of 36 cents per share, an annualized return on average assets of 0.77%, and a return on average tangible equity of 9.47%. Excluding merger-related charges and contingent litigation reserves, our pre-tax pre-provision return on average assets was 1.25% for the fourth quarter. At quarter end, our capital was strong and exceeded well-capitalized. Tangible book value per share increased 5.9%, to $16.32. Our tangible common equity ratio was 8.96%. As such, our board of directors approved a quarterly cash dividend of 24 cents per share, payable on February 23rd. During the quarter, our average core deposits remained very stable. Our rising rate cycle to date deposit beta was approximately 33.5%. which is well below the average based on available data, and we believe is among the best in our peer group. Our deposit beta and steady deposit levels reflect the quality of our deposit base. Our total cost of deposits increased as expected given market trends, but remained among the best in our peer group. The total cost of funds grew 19 basis points to 2.23%, compressing our net interest margin for basis points to 2.92%. We expect a continued easing in the rate of increase in our total cost of funds, which should stabilize the net interest margin. Our commercial lending team closed approximately $450 million of new commercial loans during the fourth quarter. Payoffs remain relatively low at about $95 million, which is consistent with the trailing quarter. Our credit metrics continue to be strong in the fourth quarter, and we are maintaining prudent underwriting standards, particularly in our CRE lending portfolio. As a result of our production and low level of prepayments, our commercial loans grew approximately 212 million or 9.2% annualized for the quarter. For the year, we grew 641 million or 7.3%. The pull through in our commercial loan pipeline during the fourth quarter was in line with our expectations. And the gross pipeline remains strong at approximately $1.1 billion. The pull-through adjusted pipeline, including loans pending closing, is approximately $671 million. And our projected pipeline rate is 7.17%. And we remain optimistic regarding the strength and quality of our pipeline. Our fee-based businesses performed well. Despite a hardened insurance market, Profit and Protection Plus has strong fourth quarter with 81% organic growth, which resulted in a 19.7% increase in revenue and a 4.1% increase in operating profit as compared to the same quarter last year. Fee income at Beacon Trust remains stable. Improved market conditions drove an increase in assets under management to $3.9 billion at year end. which should drive improved fee income in the first quarter of 2024. With regard to our prospective merger with Lakeland Bancorp, we are continuing our engagement with the regulators and await final approval of the merger. While regulatory approval is not within our control and is not guaranteed, preparations for our merger with Lakeland continues to progress as both companies eagerly await approval. As we move into 2024, our focus will be on growing our business lines with an emphasis on deposit growth. In addition, we will continue to strengthen the fundamentals of our business with a particular attention towards operational efficiency, pricing discipline, and risk management. Now, I will turn the call over to Tom for his comments on our financial performance. Tom? Thank you, Tony, and good morning, everyone.

As Tony noted, our net income for the quarter was $27.3 million, or $0.36 per share. compared with $28.5 million, or $0.38 per share, for the trailing quarter, and $49 million, or $0.66 per share, for the fourth quarter of 2022. Transaction charges related to our pending merger with Lakeland Bancorp totaled $2.5 million in the current quarter, or approximately $0.03 per share, and $2.3 million in the trailing quarter. Excluding these merger-related charges and a $3 million charge for contingent litigation reserves, pre-tax pre-provision earnings, the quarter with 44.4 million dollars or an annualized 1.25 percent of average assets revenue total 115 million dollars for the quarter compared to 116 million for the trailing quarter and 132 million for the fourth quarter of 2022. our net interest margin decreased four basis points from the trailing quarter to 2.92 percent the yield on earning assets improved by 15 basis points versus the trailing quarter as floating and adjustable rate loans repriced favorably and new loan originations reflected higher market rates. This improvement in asset yields, however, was more than offset by an increase in interest-bearing funding costs. Increased interest expense reflected current market conditions and funding requirements, which resulted in an increase in average borrowings despite an increase in average deposits. Average non-interest-bearing balances also decreased as some balances moved to earn interest-bearing insured cash suite product in the trailing quarter in order to obtain increased deposit insurance. The shift from non-interest-bearing to the ICS product has greatly diminished in the fourth quarter. In addition, both average balances and rates paid on interest-bearing demand and time deposits increased during the quarter. The average total cost of deposits increased 21 basis points in the trailing quarter to 1.95%. This is a deceleration from the trailing quarter, but the increase brought our rising rate cycle to date total deposit cost data to 33.5%. The average cost of total interest-bearing liabilities also increased 21 basis points in the trailing quarter to 2.71%. The prolonged inverted yield curve and ongoing deposit competition continue to impact funding costs. This is expected to largely offset future improvements in asset yields, and we currently project the margin will stabilize in the 2.85% to 2.90% range. Period end total loans grew $206 million driven by C&I, CRE, and multifamily mortgage loans. Our pull-through adjusted loan pipeline at year end was $671 million with a weighted average rate of 7.17% versus our current portfolio yield of 5.5%. Asset quality remains strong with non-performing loans totaling 46 basis points of total loans and criticized and classified loans representing 2.2% of total loans. Net charge-offs were $863,000 on an annualized three basis points of average loans this quarter, bringing our full-year net charge-offs to just eight basis points. The provision for credit losses on loans decreased to $500,000 for the quarter due to a modestly improved economic forecast within our CECL model. As a result, the allowance for credit losses on loans decreased to 99 basis points of total loans at December 31st from 1.01% at September 30th. Non-interest incomes remained steady this quarter at $19 million. Excluding provisions for credit losses on commitments to extend credit, merger-related charges, and the establishment of a $3 million contingent litigation reserve related to a previously disclosed matter, non-interest expense increased to $70.4 million for the quarter and included two additional notable items that are not expected to recur. These items consisted of a $2 million write-down of an REO property and a $775,000 special FDIC assessment. Our effective tax rate was also impacted by an unusual discrete item this quarter, as a deferred tax asset related to performance-based stock compensation was written down by $1.9 million. We currently project our 2024 effective tax rate to return to approximately 26.5%. That concludes our prepared remarks. We'd be happy to respond to questions.