Provident Financial Services(PFS) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record interest income and non-net interest income, resulting in earnings of $0.66 per share, an increase from$ 0.58 per share in the previous quarter and $0.49 per share in Q4 2021 [3][16] - Net interest income increased by 4.2% over the trailing quarter, with a net interest margin expansion to 3.62% [4][17] - The annualized return on average assets was 1.42% and return on average tangible equity was 17.51% [4] Business Line Data and Key Metrics Changes - The company closed approximately$ 574 million in new commercial loans in Q4, leading to total commercial loan production of $2.4 billion for the year [4][6] - The commercial loan portfolio, excluding PPP loans, grew at an annualized rate of 9.7% for the quarter and 10.1% for the year [6][22] - Fee-based businesses showed mixed results, with the insurance agency revenue increasing by 4.5% and operating profit by 24%, while Beacon Trust experienced a decline in fee income [9][12] Market Data and Key Metrics Changes - The average balance of core deposits increased by$ 76 million, or 3.1% annualized, while spot core deposits decreased by $89 million, or 3.6% annualized [8] - The total cost of deposits increased by 32 basis points to 67 basis points, with a deposit beta of 26% for the quarter [8][18] Company Strategy and Development Direction - The company remains focused on delivering a best-in-class customer experience and emphasizes commercial lending as a key area of growth [4][14] - The ongoing merger with Lakeland Bancorp is expected to create a stronger community bank, with efforts focused on obtaining necessary approvals and integrating operations [14][15][68] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding potential economic challenges, including liquidity, funding costs, and credit quality [12][14] - The company anticipates stable net interest margins in the range of 3.50% to 3.60% for 2023, with expectations of continued loan growth despite rising interest rates [22][42] Other Important Information - The efficiency ratio improved to 46.88% from 47.11% in the previous quarter, indicating better cost management [25] - The allowance for credit losses on loans decreased by$ 600,000, reflecting stable asset quality [22][23] Q&A Session Summary Question: Can you explain the reversal of the provision for off-balance sheet credit exposure? - Management indicated that the reversal was due to strong closing activity and a decrease in the pipeline, leading to lesser commitments subject to reserve [19] Question: What is the outlook for expenses and effective tax rate? - Expenses are expected to be in the $66 million to$ 67 million range in the first part of the year, with an effective tax rate around 26% [30][32] Question: What are the assumptions for margin outlook and Fed actions? - The company expects the Fed funds rate to stabilize after potential hikes, with a margin outlook of 3.50% to 3.60% for the year [35][42] Question: Any trends in charge-offs this quarter? - Management noted no concerning trends in asset quality, with charge-offs related to specific credits previously reserved [43] Question: What is the expected cash flow from the securities portfolio? - Cash flows from the securities portfolio are currently around $12 million to$ 15 million per month, with expectations of fluctuations based on market conditions [57]