Provident Financial Services(PFS) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net income for Q2 2020 was $14.3 million or $0.22 per share, down from $24.4 million or $0.38 per share in Q2 2019 and $14.9 million or $0.23 per share in the trailing quarter [19][20] - Net interest margin decreased by 23 basis points linked quarter to 2.97% and decreased by 45 basis points compared to the same period last year [7][22] - The provision for credit losses was $10.9 million for the current quarter, down from $14.7 million in the trailing quarter [27] Business Line Data and Key Metrics Changes - The loan portfolio saw a peak of 90-day deferrals at approximately $1.3 billion or 16.8% of loans, which has since reduced to $395 million or 5.1% of loans [13][29] - Noninterest income decreased by $2.6 million versus the trailing quarter to $14 million, impacted by reduced deposit and wealth fees [31] - Noninterest-bearing deposits averaged $1.8 billion or 25% of total average deposits for the quarter, an increase from $1.5 billion in the trailing quarter [24] Market Data and Key Metrics Changes - The average cost to borrow funds decreased by 49 basis points versus the trailing quarter to 1.31% [24] - The loan pipeline remained robust at $1.3 billion, with loan originations excluding line of credit advances totaling $774 million for the quarter [10][26] - The allowance for credit losses on loans to total loans increased to 1.11% from 1.02% in the trailing quarter [28] Company Strategy and Development Direction - The company is focused on managing liability costs as the rate environment evolves and is placing interest rate floors on most commercial loans [10][24] - The planned acquisition of SB One is expected to enhance long-term growth and stockholder value, with cost savings anticipated from the merger [6][18] - The company is adapting to the new work environment with increased residential mortgage originations due to historically low rates [11] Management's Comments on Operating Environment and Future Outlook - Management anticipates continued pressure on credit due to the pandemic and is closely monitoring exposures to vulnerable sectors such as hotels and retail [16][18] - The economic recovery is expected to be uneven, with some industries taking years to recover, while others may not survive [95] - Management expressed confidence in the capital structure and balance sheet strength, maintaining a strong capital ratio [6] Other Important Information - The company incurred costs related to COVID-19 response, including supplemental pay for customer-facing employees and PPE equipment [20] - The effective tax rate decreased to 20.6% from 26% for the trailing quarter, with a projected rate of approximately 23% for the remainder of 2020 [33][34] Q&A Session Summary Question: Update on asset flows in wealth management - AUM at March 31 was $2.8 billion and at the end of June was $3.2 billion, indicating recovery [39] Question: Expectations for loan mark and CECL assumptions with SB One transaction - No updates were available on loan mark and CECL assumptions at this time [54] Question: Current occupancy rates for hotel loans - Occupancies are averaging in the 30% to 50% range, with a mix of business and leisure [61] Question: Strategy for loans needing accommodation post-deferral - Loans are being risk-rated appropriately, with potential TDRs for those unable to return to normal status [65] Question: Economic activity with reopening - Retail exposure is supported by essential businesses, but restaurants and hotels continue to struggle [84]