Provident Financial Services(PFS) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Earnings per share increased to $0.37 from $0.22 in the previous quarter, including merger-related expenses of $2 million [7][22] - Total assets rose to $12.9 billion, with loan deferral levels decreasing to 3.2% of loans as of October 16 [8][9] - Net income for the quarter was $27.1 million compared to $14.3 million in the trailing quarter [22] Business Line Data and Key Metrics Changes - The loan portfolio increased by $1.77 billion due to the SB One acquisition and organic growth of $218 million [13][26] - Non-interest income rose by $6.3 million to $21 million, driven by increased swap fee income and contributions from SB One Insurance Agency [30] - Core deposits represented 88% of total deposits, with a total cost of deposits falling to 33 basis points from 41 basis points [15][24] Market Data and Key Metrics Changes - The pipeline of loan opportunities improved, increasing to $1.4 billion, with the pipeline rate rising to 3.55% [26] - Non-performing assets slightly increased to 42 basis points of total assets from 37 basis points [28] - The allowance for credit losses on loans included $13.6 million recorded as part of the amortized cost of PCD loans acquired from SB One [28] Company Strategy and Development Direction - The company aims to utilize its strong capital position for stock repurchases, viewing it as an effective use of capital [17] - The integration of SB One is expected to enhance non-interest income and operational efficiencies [19][21] - The company is focusing on disciplined credit risk management and proactive identification of potential credit issues [12][12] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the economic recovery and its impact on credit quality, noting that the first half of 2021 will be critical [10][12] - The company is monitoring the potential impact of government assistance on troubled businesses and consumers [9] - Management highlighted the importance of maintaining underwriting discipline and conservative loan structures [12] Other Important Information - The company anticipates a decrease in operating expenses following the integration of SB One into its data systems [21] - The effective tax rate increased to 25.5% from 20.6% in the previous quarter, with a projection of approximately 24% for the remainder of 2020 [31] Q&A Session Summary Question: What percentage of the $199 million of loans that have completed their initial deferral period are making partial payments? - Approximately two-thirds of the deferred loans are currently paying interest [37] Question: How long will it take to deploy the $500 million liquidity? - The company aims to deploy the liquidity into the highest earning assets, preferably loans [38] Question: What are the expectations for the margin pressure? - The margin is expected to face pressure, but there are levers available to mitigate this, with an estimated impact of one to three basis points per quarter [43][44] Question: When will operating expenses normalize post-SB One acquisition? - The company expects operating expenses to be in the low 60s per quarter, around 62% to 64% [46] Question: What is the target payout ratio for dividends? - The company targets a payout ratio between 50% and 55% [51] Question: What is the expected fee growth outlook? - Fee growth is expected to be in the range of $17 million to $20 million, with contributions from the insurance business [92]