PFS - Earnings call transcript Q4 2017 | Provident Financial Services, Inc.

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Operator

Good morning, and welcome to the Provident Financial Services, Inc. Fourth Quarter Year-End Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. Instructions]. [Operator this recorded. that is event note being Please I to Len like to conference over turn the Gleason, would now Investor Relations Officer. ahead. go Please

Len Gleason

Thank are Officer. Lyons, Chris Executive and ladies Chairman, President us for Good President and you Martin, fourth Andrea. Tom CEO; our call joining presenters today. and gentlemen. earnings quarter Vice and for The you, Thank morning, Chief Financial

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

which in Our Relations to been can page be full Investor disclaimer this found morning's the provident.bank. earnings release, has on website our posted

to our his introduce pleased who Martin perspective I'm fourth will full-year on and offer Now, quarter Chris Chris? results.

Chris Martin

everyone. best with morning, terms the Thanks, deposit non-interest in XXXX Len, quarterly for loan Provident its volume of and growth. bearing good year finished performance and

results Our per year net earnings revenues, record record operating and for income, the record share. reflected

loan at loan of Assets of growth billion annualized quarter XX% core totaled XX% activity Fourth rate an at and quarter deposits deposit XX, growth X.X%. December of $X.X robust the deposits and core year-end particularly with was fourth during lending total totaled our by was strong growth XXXX. driven also annual

expanded pipeline Our and our net remained interest income loan strong.

pressures However aggressive on loan competition as pricing structure rate and remains continued and loan terms.

and in deposit increases selective rates deposit the modest markets. beginning we side, our see On to are in

and expense. on for equity return Act Non-interest also and predictable for income was continue in compensation technology average and and efficiency quarter tangible XX included risk proactively the adjusted management increased increased and quarter our our conservative the ESOP Our and modeling spending by initiatives. and adjusted accruals modestly points in relationships. of ratio the with and of we during for to fees due XX.XX% seasonal Costs client the related very deposit Tax on quarter XX.X%. less return enhancement primarily basis metrics as is beta growth average costs a higher down assets incentive of benefit were and consulting an Operating funds of reductions items. cost and evaluate expenses impacted to somewhat Profitability on connection manage

we We are partisan the rate and reduction for reform, in the politics increases XXXX in the Washington tax regulation and three of trend in the fundamentals, outlook and consumer to flatten for yield New on confidence, banks, positive anticipate despite curve growth community shape and increased change still continues in Jersey XXXX. strong expect above leadership due in the and to

through Exchange. of With XX,XXX we celebrated the New Dow breaking our on York the on Stock anniversary a day listing XXth

specific proud We and turn the I'll on more quarter. what who of Tom? are will over now, details been provide stockholders. returned some Tom fourth to to our it accomplished value has our

Tom Lyons

additional XXXX tax Chris, Reported per reflected you, Fourth XXXX morning share fourth was share of everyone. per expense Act. $X.XX for the quarter. and or Thank $X.XX compared and Tax $X quarter in of net per to quarter or or enactment $XX.X good million Jobs income to trailing Cuts million for results $XX.X the the million the related share $X.XX

rate quarter, in As up quarter. from fourth XX% trailing the the result, to effective increased our a for tax XX%

or basis million increased a points annualized largely bearing core $XXX origination on $XXX X.X% million or increased of the of rates. an XXXX. projecting our effective expanded We interest stable three representing an $XX to X.X% X.XX%. of quarter are quarter, and net regard the which deposits high of our with from as net assets, for $XX during business new deposits growth Loan Average annualized currently reprising favorable bearing tax by interest XX% loans non-interest funded The XX% quarterly annualized versus average or average. trailing for average costs, XX% million total higher reached non-interest margin by funding rate With rate deposits margin loan was approximately of and income benefited quarter. the grew variable deposits new increased million

the will the stands expansion the pipeline strengthen throughout at XXXX. contribute Looking portfolio $X.X core exceeding loan our Based quarter since basis pipeline bearing of nature ahead points net additional non-interest of XX is in strong the loan rate and we pipeline, billion interest rate and a deposit loan to funding, at assets, X.XX%. rate anticipate variable fed economy our further rate many last and of margin and our increased on increases

growth result million an of including all $X further or charge-offs increase basis the XX and for from prior annualized non-accruing asset average in metrics $XXX,XXX quarter, $X.X and loan loans Net million provided decreased of to an we loan quality classified a As points delinquencies, losses criticized loans and this loans, quarter. improved.

basis As tax the basis points from and low fees, the $X.X at data million ratio income a owned, XX to fell controlled We'd prepared and happy increased quarter fees, in more by gains primarily less efficiency $XX.X trailing deposit and XX in as allowance Non-interest to costs. preparation sales the on be and XX. September incentive result to points expenses a That the quarter, versus loan fees. million of processing, sale Non-interest our Expenses swap expense, than questions. to result, in advertising, for loans concludes estate remained fees, ESOP remarks. respond a of gains consulting accruals average to required X.XX% offset prepayment real at trailing loan to on increases than was decreases total for as losses of XX% contributing quarter. increased million $X.X well assets

Operator

begin [Operator question-and-answer We will now the Instructions]. session.

Mark of from O'Neill. go Sandler comes ahead. question first Fitzgibbon Please Our

Mark Fitzgibbon

on the -- you would quarter? use much fourth How during much threshold the billion you spend incrementally you how $XX think preparing across

Tom Lyons

light about relatively quarter though. Fourth was $XXX,XXX, Mark,

We up XXXX. those to see pick are going in

Mark Fitzgibbon

Okay.

point gradually XXXX you do does playing all envision look sort may some come be operating build, it or start at quarters it out? couple how the does you that as of to So of for expenses in at first of

Tom Lyons

It that up lower quarters will in actually usually the expenses normal because of keep seasonal the that the expenses, the quarter. occur fairly ramp some wants stable higher regular meaning initiative growth the first the we in offset expense taxes, first space to have payroll additional expenses --

to $XX we're of think a down million hopefully million, terms the going and trail I be for bit expense. $XX.X of about in So couple first then quarters total non-interest little

Mark Fitzgibbon

wealth the any fees or And I equity what's given down then, X% quarter driving there, secondly, linked surprised client Okay. management anything strong markets, unusual that? was were losses

Tom Lyons

and fees in off quarters drops strongest are Yes, QX Mark, and mostly for QX. tax stuff seasonal the QX preparation prep from fees tax it

Mark Fitzgibbon

also last then quarter, like commercial prepayment basis drop why numbers nine something else? in point Was yields income in on And a that? was the penalty or quarter's some Okay. was there loan book this

Tom Lyons

report Mark margin we prepayment No, our income include in core non-interest other income.

the I we've it's is pick products think variable over quarters largely, perspective from lowered significant a good which a bit. in the a got up any couple it’s rate just but yield last of mix management service

Mark Fitzgibbon

might I probability bank do the your Jersey And municipal but you affect a seen around then, guys about don’t owned the to of the take municipal Senate have would New you know guys Jersey how all deposits? it New a business? if that What Okay. happening there's start and think that floating bill

Chris Martin

open it and Senate, Well to still things to in there read understand. the it has lot don't legislation that of a that be first been the determined, is holes we part of put the and we forth

that I initial go in how being think State I so states into of not has was the that question and center the repatriated the money money does the largest a the state of much might there impetus be State municipalities the but that money Bank, banks be the necessarily Bank. to will think

maybe don't include we've the relationships secured that rates, a some is other services we provide The help, payables, payroll, with services or longer-term and that to of we other a just times lot municipalities side municipalities Lockbox. that the also on have with of be

those So from won't a they State Bank. get

there'll and the going So the that put a state pay different is context they to of be is want. money of this they them return kind where

have and group lot the Jersey of and been we we're is of jury's things very lobbying there's that bankers. so as out So lot for but on go the New it watching documented a carefully a the not this, explained

Mark Fitzgibbon

local think you of But entity? at into deposits municipal this leaving you're you that risk and new have under, would be going the don't

Chris Martin

to Jury is out, to Mark, this don't wants I run program. I everybody think think you know

the think I to we from what from was a grounds what what that that we know not -- they legislation. will the the the so do, had have in the do. intent. can we Governor time at you well that's was plan elect imagine the good to provide that But that will service if good heard but they industry I from And not rate that's of municipality be mandated the and

Mark Fitzgibbon

some certainly well capital good it are And you peers, been Okay. this building and deploying ratios despite deploying and timing excess balance have growth sheet of but quarter, that then buybacks about has are obviously talk of that? your did capital part plans you for could above

Chris Martin

a quarter continue the Valley we will aspects that we Pennsylvania extra buyback little the of out we'll business think to little then well. fourth bit able would a the especially headway first do growth commercial but the Tom see see start dividend better follow-up to and the Lehigh continue also in the lending make space we but we I'll on bit. to Well conversation in can in that did the fact be And markets in and have

speak be a mid-single-digit Tom still forward could impetus going lot really at to we balance growing we So to think buyback. the level of that and sheet have the

Tom Lyons

management the quarter. focus a our make increase an it quarter little we expenses dividend I capital coming growth, think Chris to whether our buybacks to tough mean the profitable expectations We related think did think practices. on I bit with Yes, That that's touched be we We keep of I risk quarterly stress mentioned, enhanced, up course review as good each option, capabilities, on a best action. data earlier risk think profitable number growth. is or can of requirements, desire initiatives that's I to valuation, our analytics some improve dividend there's growth continue investments that management internal we just special have do testing Chris. things option, given agree pace the last the regulators our are said, and on for don't that an with those levering is we dividend, of he to always

order. So the that falls right in now down priority

primarily to profitable So, invest expansion. look in yes, again

Chris Martin

touching And be that go we all accretive that earn parameters. back on dilutive that not would outside on at certainly we on again, something look Chris and of M&A, sure make cultivate would our the and can would firms, relationships management with to basis our with this something wealth certainly Mark, fronts we veteran we touching investment would banking certainly is on to bankers, continue be

Operator

Our ahead. next of from A. comes Gunther Please D. Davidson. Russell question go

Russell Gunther

Just had a quick a follow-up increased guys quarter some on in pressure on this activity remarked the last you deposits, New Jersey. promotional morning commentary, margin just bit and

So of hit your increased competition? that margin guess should in comments hikes we you high despite the think would don't I you deposit is three the your that expansion going all XXs, incremental forward around get the imply kind terminal beta fair

Tom Lyons

correct. That's

Russell Gunther

Okay.

Tom Lyons

we And to like risk. bearing core not think interest it's susceptible operating that's interest the XX% as have debate on solid non-interest a good even deposit base bearing I rate and

Russell Gunther

that the smaller was seeing more you big of And shift is quarter still at remarked pressure then the case all? lot I dynamic on a pricing some regional think that that of the your peers; of versus you or boys bit a last

Chris Martin

that There put high a guess X.X%. I rates high, have X% there there out some at companies specials like mid CD X.X%, out some have are tier some been rate;

we lot do guess presence We run continuing our JPMorgan not markets necessarily, they that. There banks going now. we've are to haven't that be of large, have I branches certain seen But Chase markets a saw big up all. already many a to up seen the in is materially rate are opening large guys not in that at

Tom Lyons

side more deposit come pricing of terms than I competitive in think banks the have the in on loan on Yes, the of things side pressure. smaller

Russell Gunther

question of ticky-tacky items mostly that's income some just swap quarter-on-quarter can other then I And think on what be be? could side, volatile, I know the they your that. fee parse for SBA income would line on line those for gain-on-sale, here thanks okay, movements the it, and outlook you Got the maybe

Tom Lyons

of was QX for $XXX,XXX $XXX,XXX Swap And the the $XX,XXX in sale in quarter. quarter. in gains OREO profit was $XXX,XXX versus on versus then $XXX,XXX gains QX. trailing sale versus on were $XXX,XXX Sure trailing in QX

I gain those saw don't always in sale now volatile From have right quarter-to-quarter; of kind -- a the So the QX. I strong items had on Swap in too, are expect is have big gains profit trying SBA we not for pipeline pipeline outlet, that on you the fluctuations. don't pipeline that the I this of a in sale way now. challenge either. we is but predict right, there super smaller the think much than number to right there have number

Operator

next Please Our KBW. of go question from ahead. comes Chris O'Connell

Chris O'Connell

Hi guys, filling Collyn. Chris in this is for

Chris Martin

Hey, are Chris, how you?

Chris O'Connell

Good.

demand? might the on could be So high-single-digit just record kind a growth little of the but range the obviously wondering expand maybe I the to into on pipeline get a made might -- have you you tailwind and maybe timing kind just loan for growth you guys of a a think last out and tax be looking was commentary very quarter up the this is quarter reduction mid-single-digits strong tax comment you on breaking the could if XXXX, of do guys rate loan bit you

Chris Martin

I was fairly We we the quarter. we're pull-through strong obviously in that comfortable. think much the see flow, some through of pipeline timeframe quarter that still but the first fourth that fourth the The the also. and very and is growth surprising strong obviously where came growth ebb is mid-single-digit had quarter is

I about think mix it's also and competition.

would paper lot of B seeing are that they're they that shouldn't a A levels. at anything institutions We some look putting doing lending for smaller we of some minus be B being as on at the non-recourse

in again but do. that come estimate still it's continuing the what the normal So coming portfolio. overtime payoffs in do We where and will I are we're we think they amortization of to tough to -- normally

an that. space. construction portfolio quarter what a that might I a yield don't be with well with Our color mid-single-digits should I individuals we high-single-digits wants only think very to grown any and more where has think still we're be that -- be of we that projects, anything done so bit comfortable just on good in we've Tom get is aberration would

Tom Lyons

No, I agree.

only well, loan Given actually income the in that on interest was will saw fee income that as is question sure I income but the be given which follow-up also was $XXX,XXX changes Chris. move the prepayment Russell non-interest of asked updates that wanted strong versus big in to bottle in to to we QX. line line in fee growth $X,XXX,XXX I'm contributing the the QX that other you

again earlier then decrease on And So income decreasing in driving prep a fees income. big prepayment tax fee lot wealth management Mark that had a $XXX,XXX by touched of decrease.

Chris O'Connell

outlook you. mostly growth guess Thank on loan it. I Got currently And then so mortgage in it still concentrated commercial the the CRE? is the in XQ multifamily

Tom Lyons

going C&I see lending construction and think I we're XXXX. throughout more to

Chris Martin

our all every but the the the industrial not the retail. that we some the look Yes, on what a seeing little it anti expect. multifamily in to get way be we up because we've what have we of We always so discerning that and that definitely And structures to bit. of how back we little in the those area involved price office, this we don't but at necessarily a at with match structure look all back are still little of We pulled it and growth. a it deal, there buckets loan would we're those pulled out we're we're when terms our exposures comes and term consider certainly do of whether

Chris O'Connell

of that come think at as we've market market? couple that quite of the Got non-broker well peers the bit it. your pricing heard least is And a broker over multifamily to of that of translated quarters I some multifamily in the yours in last kind has

Chris Martin

hasn't. really No, it

every its stands own. think on I deal

last some exposure of larger two year the a because back CRE pulled opened more pricing. participants their little over better or the little think bit that a have I up opportunity of when to

more think the rationale everybody is they deals. starting I So to little a be price as

Chris O'Connell

see the of at maybe and potential Got outlook more the kind income. changing it. forward the low-single-digit volatile items? account or couple there Do fee And coming growth then well, years than growth of of upside that take but items kind you terms your just volatile last one-time core kind into all on been in to mean I items previously. -- of lower minimal from going finally, have kind volatile -- of the That is

Tom Lyons

we're you for to There's catalyst I real no what Yes, probably an is think just growth described Chris. going there. see, outsized

So it's to from going potential probably be volatile upside very stable items.

Operator

next Our Matthew Breese from Jaffray. question comes go ahead. Piper of Please

Matthew Breese

is expectations on then end course and of showing margin pretty Just sense three the for expectations your over margin for improvements your some nice the the XXXX? get the wanted hikes on year-over-year, on to margin just some more

Tom Lyons

we basis pretty there blended what think for could XX% the -- think if for eight use for little model about is mentioned still than We some deposit that's case, comfortable saying potential our Chris I expected. in base full-year, generally reasonably I Yes, deposit about as come betas concretively and I'm maybe lower saying a points beta upside we a

Matthew Breese

basis that's of on to FTE the apples-to-apples that's to excluding about sort way any it. changes And think

Tom Lyons

of in I'm following mean. if the FTE hopefully drives side, it terms I'm the Meaning not you growth sure -- on that

Matthew Breese

A -- lot, your many of peers just

Tom Lyons

Yes, the you the to you movements that's on truth. so apples-to-apples, helping FTE, report, tell

Matthew Breese

Understood.

for in would for to fact as about loan would organically organically. we you the about Okay. expect XXXX M&A size and in I at the potential strong balance And cross think excluding any sheet is you your billion the $XX the of growth that crossing some potential point way then outlook cross think to that

Chris Martin

out this at we would on or through. never mitigate XXXX that we costs if attributes quarter the March of range of for we third We're it a get to think, we're the have to still I estimated really and back to mitigate issues other cost, are go through even we building be one expecting there go the just the out we supposed legislation Obviously do some had we're may helps organically. necessarily. again the the a will But of the period obviously stage deal to didn't but will We little accretive probably best would the still would had there's good including bit, and and through have costs that probably we Yes couple were that the preparation that but there we be and bit think so it are it still there second are even forward testing a a like risk still we you there through no, we other if those go though tax to that and go costs away. through CECL go things but have But, do some having in through as stress like. and XXXX go so. in nature holding

Matthew Breese

Got it.

have Okay. And discussion, capture municipal these you then of institutions And might of would deposit your the for then exposure state. they entire is there there is and municipal maybe be other states the and part exposure any to that any local other both then deposit that what managed market? just looking on to are have have color there types to municipality exposure two terms the in

Chris Martin

of State a been just may also lot forth there's come you me approximately discussion, dive Jersey. years Bank Dakota because and of that North of know I a doing there's and the legislation ago let North the state also. one really Well, that tell how that guesswork created The New parts I it's XX at one people looking will I mean. some including Tom know that in a what put of few across handle that's Dakota. and working has couldn't they're then that lot has and

the call with before think I municipalities. mentioned I the have relationship on we

-- the or people a not other know currently back just have the pushed there's also we provide legislation bank where comes the other the out circle only services they'll bank that, a And from from school the maybe of board them. full what I the so we lot this be guess of relationships. municipal, would also authorities, is. We don't we

speak do of you We pulse will keeping and the money that's time Tom, up more state all on any not have to money levels, We have we're the finger that will be banks. to productive. -- center a trying though. our could be it conversation tell you the the

Tom Lyons

little a $X local We though about do $X a municipalities over a averages billion billion bit throughout XXXX. have

Operator

Markets. comes Please question of next Capital Civiello go from Our ahead. Jake RBC

Jake Civiello

be at fee I mean I is of swap basis instead more income instead to your or make with infer construction step highly XXXX is could multifamily quarterly. be and or coming on look more CRE easier XXXX that swap might too But basis more an lower know that the maybe might an sense in it a of that variable and annualized it income on in taken of fee annual versus and C&I the far? we growth

Tom Lyons

fair a that's think I No, guess.

I projections. done internal think our that's what in we've own

Jake Civiello

on Okay. in the Then the question side. fourth know just expense I one sale transaction quarter. you more me did the leaseback for

branch ahead any any into you XXXX network potential cost and do see opportunities analysis for Looking still your there? to take-outs

Chris Martin

Surprising we branches. I'm our couple that a if because digital looking see branches reposition our to of be I if consolidate and are augmenting either more from at grow will look Well, Jake, in there coming still make smaller make to then at know, think that. are than or some physical in radar a But closing. some always the the markets. There always believe show be some can brethren maybe and we reposition first everybody forward the of we relationship that and up much ones leases we from sure we as building theirs do footprints it opportunity they and/or standpoint if amenable then are We as to works good to And do branch to footprint, as the and retrofitting have we're that a due on could you model those doing that that. is reduce larger too. consolidate we're some that and there's sure constantly look are coming opportunities

Jake Civiello

but kind get not it like to ratio in of provided where XXXX you time? to necessarily or over an target goal would efficiency you Have longer-term

Chris Martin

like all thing I regulatory risk many about could area. long. We the only low standpoint. on going a the think went can could would the grow other question I CECL, we that institutions $XX or is you with so with day they as get below XX billion if don't compliance from But be below things a that all XX, any of what's fight

are hand that know. We have do institutions other are. lot the maybe On where fee always I XX some a more kind ratio in better. I that area. make comfortable But that to that there try XX, think not that stay income of we even we’re middle which is

I agencies. think sure good don't we issues assets make we're look wants average to want considered covering as the be but basis all too have at we’re with operating you add? to expenses company to regulatory value for Tom any our do that and

Tom Lyons

I but we work spend currently. with grow get our that’s than are to significantly we down longer-term going to see that as investment averages we love lower think continue be around to the we bit that XX, challenging to

Chris Martin

be we all spend the in on a nextgen and it’s help investment Jake is again the we're to be FinTech bit so to as forward we won’t can office look profile get cost large. business, the that in the the can better of area that have us a we going the there up, and to at will how that to deliver technology finishing technology initiatives back just then the of able so a Chris And evaluating little how be that have,

the that’s we think something look is for paying at. I future So

Operator

to I Martin would turn for over any our closing back question-and-answer Mr. remarks. like the conference to concludes This session.

Chris Martin

morning Well call we April. a to thanks on the you day. to speaking everyone look this and for Have in forward great again participation the

Operator

The attending conference for has today’s now concluded. Thank presentation. you

now may disconnect. You

Provident Financial Services (PFS) 26 Jan 182017 Q4 Earnings call transcript