Provident Financial Services, Inc

Thank you Adriano, and welcome everyone to the Provident Financial Services fourth quarter earnings call. The Provident team delivered another strong quarter driven by record revenues, favorable credit metrics, and expanding core profitability. Throughout 2025, we built organic growth momentum on both sides of the balance sheet, which combined with positive operating leverage resulted in notable improvement in our financial performance. Accordingly, in the fourth quarter, we reported net earnings of 83 million, or 64 cents per share. Our annualized return on average assets was 1.34%, and our adjusted return on average tangible common equity was 17.6%. Pre-provision net revenue was a record 111 million, or an ROA of 1.78%. Since closing the Lakeland transaction, we have grown poor pre-provisioned net revenue every quarter. Turning to our balance sheet, our commercial loan team generated total new loan production of $3.2 billion in 2025. Elevated loan payoffs of $1.3 billion, which were primarily in our CREE portfolio, partially offset our strong production, resulting in net commercial loan growth of 5.5% for the year. We remain focused on generating high quality diversified loan growth. At year end, our pipeline remains solid at 2.7 billion with a weighted average rate of 6.22%. Our loan pipeline has consistently been north of 2.5 billion for the last four quarters. And more importantly, our originations have grown every quarter in 2025, peaking at over 1 billion in the fourth quarter. On the funding side, Core deposits grew $260 million, or 6.6% annualized, compared to the link quarter. Favorable trends in our commercial and consumer segments contributed to growth in our average non-interest-bearing deposits of 2% annualized. The deposit market remains competitive, but we continue to invest in our capabilities to drive meaningful growth in our core funding. Providence commitment to managing credit risk and generating top quartile risk-adjusted returns has remained unchanged. During the quarter, we successfully resolved 22 million of non-performing loans while experiencing just 1.3 million in associated net charge-offs. As a result, non-performing assets improved nine basis points to a favorable 0.32%. The business environment in our market continues to be healthy. And as a reminder, our exposure to rent-stabilized multifamily properties in New York City is less than 1% of total loans, all of which are performing. Growing our non-interest income remains a strategic priority. We generated record fee revenue of $28.3 million in the quarter. I want to take a minute to highlight the momentum and diversity of our non-interest income. Profit and Protection Plus continues to drive consistent growth in our insurance agency income. New business and over 90% customer retention helped grow pre-tax income 13% year over year. Profit and Protection Plus has a strong pipeline at the start of 2026, and I'm encouraged by the increased collaboration with both the bank and Beacon Trust, which should strengthen further in 2026. Beacon Trust saw revenue growth again in the fourth quarter. increasing to 7.6 million on approximately 4.2 billion of AUM. Beacon remains focused on both growth and retention, and we continue to make investments in talent to help achieve these goals. We also continue to invest in our SBA capabilities, which have been a more significant contributor to non-interest income in 2025, generating 946,000 of gains on sale in the fourth quarter. For the full year, we have generated 2.8 million of SBA gains on sale, which is up from 905,000 in 2024. While total assets grew nearly $1 billion in 2025, our strong profitability helped further build Providence Capital position, which comfortably exceeds well-capitalized levels. As such, earlier this week, we announced a new share repurchase authorization that will allow us to buy back an additional 2 million shares. I'd like to conclude my remarks by discussing our strategic priorities for 2026. We expect to continue investing in revenue-producing talent across our middle market banking, treasury management, SBA, wealth management, and insurance platforms. We expect recent balance sheet growth momentum to be sustained and that loan payoff activity will normalize when compared to 2025. Finally, we are preparing for a core system conversion in the fall of 2026, an important investment that will enhance scalability and our digital capabilities. I'm confident in our team's ability to successfully complete this conversion, particularly given how seamlessly we integrated Lakeland Bank in 2024. I'm incredibly proud of the efforts and production of our employees. We are pleased with our organic growth momentum and improved profitability, and we continue to target sustained top quartile performance. Now I'd like to turn the call over to Tom for his comments on our financial performance and to discuss our 2026 guidance. Tom? Thank you, Tony, and good morning, everyone.

As Tony noted, we reported net income of $83 million, or 64 cents per share, for the quarter, with a return on average assets of 1.34%. Adjusting for the amortization of intangibles, our core return on average tangible equity was 17.58%. Pre-provision net revenue increased 2% over the trailing quarter to a record $111 million or an annualized 1.78% of average assets. Revenue increased to a record for a third consecutive quarter at $226 million driven by record net interest income of $197 million and record non-interest income of $28.3 million. Average earning assets increased by $307 million or an annualized 5.4% versus the trailing quarter with the average yield on assets decreasing 10 basis points to 5.66%. This reduction in asset yield was more than offset by a 13 basis point decrease in the cost of interest-bearing liabilities to 2.83%. While a reduction in net purchase accounting accretion limited our reported net interest margin expansion to one basis point versus the trailing quarter at 3.44%, our core net interest margin increased by seven basis points to 3.01%. The company continues to maintain a largely neutral interest rate risk position, but anticipates future benefit to the core margin from recent Fed rate cuts and expected steepening of the yield curve. The core margin for the month of December continued to trend upward at 3.05%. We currently project continued core NIM expansion of three to five basis points for the next two quarters, with reported NIM estimated in the 3.4 to 3.5% range for 2026. Period end loan sales for investment increased $218 million, or an annualized 4.5% for the quarter, driven by growth in multifamily, commercial mortgage, and commercial loans, partially offset by reductions in construction and residential mortgage loans. Total commercial loans grew by an annualized 5.4% for the quarter. Our pull-through adjusted loan pipeline at quarter end was $1.5 billion. The pipeline rate of 6.22% is accretive relative to our current portfolio yield of 5.98%. Period end deposits increased $182 million for the quarter, or an annualized 3.8%, while average deposits increased $786 million, or an annualized 16.5% versus the trailing quarter. The average cost of total deposits decreased four basis points to 2.1% this quarter, while the total cost of funds decreased 10 basis points to 2.34%. Asset quality remains strong with non-performing assets declining $22 million, or 22%, to 32 basis points of total assets. Net charge-offs were 4.2 million, or an annualized nine basis points of average loans this quarter, while full-year 2025 net charge-offs were just seven basis points of average loans. Current quarter charge-offs reflected the disposition of several non-performing and underperforming loans and the write-off of related specific reserves. We recorded a net negative provision for credit losses of $1.2 million for the quarter, as year-end loan closings drove a decrease in approved commitments pending closing, asset quality improved, and there was modest improvement in our CECL economic forecast. This brought our allowance coverage ratio down two basis points from the trailing quarter to 95 basis points of loans at December 31st. Non-interest income increased to $28.3 million this quarter, with gains realized on calls of corporate securities and solid performance from our wealth management and insurance divisions, as well as gains on SBA loan sales and increased board banking fees. Non-interest expense increased to $114.7 million this quarter, as strong operating results drove increased performance-based incentive accruals, while expenses to average assets and the efficiency ratio were consistent with the trailing quarter at 1.84%, and 51% respectively. Excluding the amortization of intangibles and the related average balance, these ratios were 1.76% and 48.15% respectively. We project quarterly core operating expenses of approximately $118 to $120 million for 2026, with the second half of the year run rate being slightly higher than the first half. In addition to normal expenses, as Tony mentioned, we will be upgrading our core systems in Q3 of 2026 and expect additional non-recurring charges of approximately $5 million in connection with this investment, largely to be recognized in the third and fourth quarter. Our sound financial performance supported earning asset growth and drove strong capital formation. Tangible book value per share increased 57 cents, or 3.8% this quarter, to $15.70, and our tangible common equity ratio increased to 8.48%, from 8.22% last quarter. We realized the $3.4 million benefit to our income tax expense from the purchase of energy production tax credits for the 2025 tax year. We are exploring opportunities to purchase additional similar tax credits for the 2026 year and open carryback years. Excluding the discrete benefit of any tax credit carrybacks, we currently project an effective tax rate of approximately 29% for 2026. Regarding additional 2026 guidance, we are expecting loans and deposits to grow in the 4% to 6% range, non-interest income to average $28.5 million per quarter, and are targeting a core return on average assets in the 120% to 130% range with a mid-teens return on average tangible common equity. That concludes our prepared remarks. We'd be happy to respond to questions.

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