Provident Financial Services, Inc. (NYSE:PFS), Declares Raised 1st Quarter Earnings and Declares Quarterly Cash Dividend

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Provident Financial Services, Inc. (NYSE:PFS) (the “Company”) stated net income of $30.9M, or $0.48 per basic and diluted share, for the three months ended March 31, 2k19, difference to net income of $27.9M, or $0.43 per basic and diluted share, for the three months ended March 31, 2k18. 

The Company’s earnings for the quarter ended March 31, 2k19 were positively influenced by a lower provision for loan losses stemming from an improvement in asset quality and a boost in net interest income driven by the expansion of the net interest margin from the quarter ended March 31, 2k18. 

The improvement in the net interest margin was because of a boost in the yield on earning assets and a lagging raise in the Company’s cost of funds.  The net inflow of average deposits in the period also contributed to the improvement in net interest income allowing the Company to favorably shift from higher-costing sources of funds. The improvement in net interest income for the period was partially offset by a decline in average loans outstanding.

Chairman, President, and Chief Executive Officer Christopher Martin reflected: “Our 1st quarter’s earnings continued to benefit from solid asset quality and diligent expense administration.  Our loan pipelines have raised and corresponding pull-through levels remained strong. 

Conversely, our raised deposit costs for the quarter reflect our efforts to acquire new customers and retain existing relationships.”  Martin continued, “We accomplished the acquisition of Tirschwell & Loewy, Inc., a Manhattan-based registered investment advisor with about $750M in assets on April 1, 2k19, which will bring talent and depth to our wealth administration partner, Beacon Trust, and provide a physical presence in New York City.”

Declaration of Quarterly Dividend

The Company’s Board of Directors declared a quarterly cash dividend of $0.23 per common share payable on May 31, 2k19, to stockholders of record as of the close of business on May 15, 2k19.

Balance Sheet Summary

Total assets at March 31, 2k19 were $9.80B, a $76.8M raise from December 31, 2k18.  The raise in total assets was mainly because of a $55.2M raise in cash and cash equivalents, a $37.8M raise in other assets and a $13.0M raise in total investments, partially offset by a $26.7M decline in total loans.  The raise in other assets was mostly because of the Company’s January 1, 2k19 adoption of ASU 2k16-02, “Leases (Topic 842).”  The Company recorded a right of use asset of $44.9M, which was based on the present value of the expected remaining lease payments at January 1, 2k19. 

The Company’s loan portfolio reduced $26.7M to $7.22B at March 31, 2k19, from $7.25B at December 31, 2k18.  For the three months ended March 31, 2k19, loan originations, apart from advances on lines of credit, totaled $293.9M, difference with $280.3M for the similar period in 2k18. 

Throughout the three months ended March 31, 2k19, the loan portfolio had net declines of $14.1M in construction loans, $12.3M in residential mortgage loans, $11.0M in commercial mortgage loans and $10.1M in consumer loans, partially offset by net raises of $17.4M in multi-family mortgage loans and $3.1M in commercial loans.  Commercial real estate, commercial and construction loans represented 79.1 percent of the loan portfolio at March 31, 2k19, difference to 78.9 percent at December 31, 2k18. 

At March 31, 2k19, the Company’s unfunded loan commitments totaled $1.54B, counting commitments of $693.7M in commercial loans, $438.1M in construction loans and $163.4M in commercial mortgage loans.  Unfunded loan commitments at December 31, 2k18 and March 31, 2k18 were $1.49B and $1.56B, respectively.

The loan pipeline, consisting of work-in-process and loans approved pending closing, totaled $1.18B at March 31, 2k19, difference to $973.4M and $1.33B at December 31, 2k18 and March 31, 2k18, respectively.

Total investments were $1.62B at March 31, 2k19, a $13.0M raise from December 31, 2k18.  This raise was mostly because of purchases of mortgage-backed securities and a boost in unrealized gains on available for sale debt securities, partially offset by repayments of mortgage-backed securities and maturities and calls of certain municipal and agency bonds.

Total deposits raised $73.3M throughout the three months ended March 31, 2k19 to $6.90B, from $6.83B at December 31, 2k18.  Total time deposits raised $54.1M to $804.6M at March 31, 2k19, while total core deposits, consisting of savings and demand deposit accounts, raised $19.2M to $6.10B at March 31, 2k19.  The raise in time deposits was mainly the result of a $66.5M raise in brokered deposits, partially offset by a $12.4M decline in retail time deposits mainly because of maturities of the Company’s 13-month promotional certificate of deposit. 

The raise in core deposits was mostly attributable to a $96.2M raise in money market deposits, partially offset by declines of $47.1M and $29.8M in non-interest bearing demand deposits and interest-bearing demand deposits, respectively.  Core deposits represented 88.3 percent of total deposits at March 31, 2k19, difference to 89.0 percent at December 31, 2k18.

Borrowed funds reduced $43.8M throughout the three months ended March 31, 2k19, to $1.40B.  The decline in borrowings for the period was mainly a function of wholesale funding being partially replaced by the net inflows of deposits and lower asset funding requirements.  Borrowed funds represented 14.3 percent of total assets at March 31, 2k19, a decline from 14.8 percent at December 31, 2k18.

Stockholders’ equity raised $14.8M throughout the three months ended March 31, 2k19, to $1.37B, mainly because of net income earned for the period and a decline in unrealized losses on available for sale debt securities, partially offset by dividends paid to stockholders and common stock repurchases.  Common stock repurchases for the three months ended March 31, 2k19 totaled 78,000 shares at an average cost of $26.85.

These common stock repurchases were mostly made in connection with withholding to cover income taxes on the vesting of stock-based compensation.  At March 31, 2k19, 2.4M shares remained eligible for repurchase under the current stock repurchase authorization.  Book value per share and tangible book value per share(1) at March 31, 2k19 were $20.66 and $14.38, respectively, difference with $20.49 and $14.18, respectively, at December 31, 2k18.

Results of Operations

Net Interest Income and Net Interest Margin

For the three months ended March 31, 2k19, net interest income raised $1.7M to $75.0M from $73.3M for the similar period in 2k18.  The raise in net interest income was because of the expansion of the net interest margin from the quarter ended March 31, 2k18, which was mostly a function of a boost in the yield on earning assets and a lagging raise in the Company’s cost of funds.  Also contributing to the improvement, development in average interest and non-interest bearing deposits mitigated the Company’s use of higher-cost sources of funds.

For the three months ended March 31, 2k19, the net interest margin expanded 10 basis points to 3.40 percent, difference to 3.30 percent for the three months ended March 31, 2k18.  The weighted average yield on interest-earning assets raised 31 basis points to 4.20 percent for the three months ended March 31, 2k19, difference to 3.89 percent for the three months ended March 31, 2k18, while the weighted average cost of interest-bearing liabilities raised 28 basis points to 1.04 percent for the three months ended March 31, 2k19, difference to 0.76 percent for the similar period last year. 

The average cost of interest-bearing deposits for the three months ended March 31, 2k19 was 0.78 percent, difference to 0.47 percent for the similar period last year.  Average non-interest bearing demand deposits totaled $1.44B for the three months ended March 31, 2k19, difference with $1.42B for the three months ended March 31, 2k18.  The average cost of borrowings for the three months ended March 31, 2k19 was 2.07 percent, difference to 1.70 percent for the similar period last year.

The Company’s net interest margin reduced four basis points to 3.40 percent for the quarter ended March 31, 2k19, from 3.44 percent for the trailing quarter.  The weighted average yield on interest-earning assets raised one basis point to 4.20 percent for the quarter ended March 31, 2k19, difference to 4.19 percent for the quarter ended December 31, 2k18. 

The weighted average cost of interest-bearing liabilities for the quarter ended March 31, 2k19 raised seven basis points to 1.04 percent, difference to 0.97 percent for the quarter ended December 31, 2k18.  The average cost of interest-bearing deposits for the quarter ended March 31, 2k19 raised eight basis points to 0.78 percent, from 0.70 percent for the quarter ended December 31, 2k18.  Average non-interest bearing demand deposits totaled $1.44B for the quarter ended March 31, 2k19, difference to $1.48B for the quarter ended December 31, 2k18. 

The average cost of borrowed funds for the quarter ended March 31, 2k19 was 2.07 percent, difference to 1.99 percent for the quarter ended December 31, 2k18.

Non-Interest Income

Non-interest income totaled $12.2M for the quarter ended March 31, 2k19, a decline of $1.1M, difference to the similar period in 2k18.  Other income reduced $687,000 to $316,000 for the three months ended March 31, 2k19, difference to the quarter ended March 31, 2k18, mainly because of a $762,000 decline in net fees on loan-level interest rate swap transactions and a $139,000 decline in net gains on the sale of loans, partially offset by a $211,000 insurance recovery of ATM losses from the prior year. 

Fee income reduced $542,000 to $6.1M for the three months ended March 31, 2k19, difference to the similar period in 2k18, mostly because of a $223,000 decline in commercial loan prepayment fee income, a $104,000 decline in loan related fee income and a $100,000 decline in deposit related fee income.  Also, wealth administration income reduced $321,000 mostly because of a change in the investment mix of assets under administration. 

Partially offsetting these declines in non-interest income, income from Bank-owned life insurance (“BOLI”) raised $432,000 to $1.7M for the three months ended March 31, 2k19, difference to $1.3M for the similar period in 2k18, mainly because of a boost in benefit claims in the current period.

Non-Interest Expense

For the three months ended March 31, 2k19, non-interest expense totaled $48.4M, a boost of $1.5M, difference to the three months ended March 31, 2k18.  Other operating costs raised $1.0M to $7.1M for the three months ended March 31, 2k19, difference to the similar period in 2k18, mainly because of raises in consulting costs and attorney fees.  Compensation and benefits expense raised $500,000 to $28.4M for the three months ended March 31, 2k19, difference to $27.9M for the similar period in 2k18. 

This raise was principally because of raises in stock-based compensation and the accrual for incentive compensation.  Data processing expense raised $363,000 to $4.0M for the three months ended March 31, 2k19, mainly because of a boost in software maintenance expense, together with raises in mobile and online banking costs.  Partially offsetting these raises in non-interest expense, FDIC insurance reduced $314,000 to $739,000 for the three months ended March 31, 2k19, difference to the similar period in 2k18, mainly because of both a lower insurance assessment rate for the current quarter and a decline in total average assets subject to assessment.

The Company’s annualized non-interest expense as a percentage of average assets(1) was 2.02 percent for the quarter ended March 31, 2k19, difference to 1.95 percent for the similar period in 2k18.  The efficiency ratio (non-interest expense divided by the sum of net interest income and non-interest income)(1) was 55.53 percent for the quarter ended March 31, 2k19, difference to 54.18 percent for the similar period in 2k18. 

Asset Quality

The Company’s total non-performing loans at March 31, 2k19 were $24.8M, or 0.34 percent of total loans, difference to $25.7M, or 0.35 percent of total loans at December 31, 2k18, and $45.9M, or 0.63 percent of total loans at March 31, 2k18. 

The $893,000 decline in non-performing loans at March 31, 2k19, difference to the trailing quarter, was because of a $1.7M decline in non-performing commercial mortgage loans and a $606,000 decline in non-performing commercial loans, partially offset by a $956,000 raise in non-performing residential loans and a $421,000 raise in non-performing consumer loans. 

At March 31, 2k19, impaired loans totaled $49.4M with related specific reserves of $1.7M, difference with impaired loans totaling $50.7M with related specific reserves of $1.2M at December 31, 2k18.  At March 31, 2k18, impaired loans totaled $68.3M with related specific reserves of $4.5M.

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