Provident Financial Services(PFS) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net earnings of $83 million or $0.64 per share for Q4 2025, with an annualized return on average assets of 1.34% and an adjusted return on average tangible common equity of 17.6% [3][9] - Pre-provision net revenue reached a record $111 million, representing an ROA of 1.78%, and revenue increased to a record $226 million, driven by record net interest income of $197 million and non-interest income of $28.3 million [3][9][10] - Average earning assets increased by $307 million or an annualized 5.4% compared to the previous quarter, while the average yield on assets decreased by 10 basis points to 5.66% [10][12] Business Line Data and Key Metrics Changes - The commercial loan team generated total new loan production of $3.2 billion in 2025, with net commercial loan growth of 5.5% for the year [4][5] - Non-interest income increased to $28.3 million in Q4, with significant contributions from the insurance agency and SBA loan sales [6][13] - The company successfully resolved $22 million of non-performing loans, resulting in non-performing assets improving to 0.32% [5][12] Market Data and Key Metrics Changes - Average deposits increased by $786 million or an annualized 16.5% compared to the previous quarter, while period-end deposits increased by $182 million or an annualized 3.8% [12] - The deposit market remains competitive, with the company focusing on managing credit risk and generating top-quartile risk-adjusted returns [5][10] Company Strategy and Development Direction - The company plans to continue investing in revenue-producing talent across various platforms, including middle market banking, treasury management, SBA, wealth management, and insurance [7][8] - A core system conversion is scheduled for Labor Day weekend of 2026, aimed at enhancing scalability and digital capabilities [8][88] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining balance sheet growth momentum and anticipates loan payoff activity will normalize compared to 2025 [8] - The company expects loans and deposits to grow in the 4%-6% range for 2026, with a core return on average assets targeted in the 1.20%-1.30% range [16] Other Important Information - The company announced a new share repurchase authorization allowing for the buyback of an additional 2 million shares [7][15] - The effective tax rate is projected to be approximately 29% for 2026, with ongoing exploration of opportunities to purchase additional tax credits [15][16] Q&A Session Summary Question: Inquiry about the effective tax rate and tax credit investments - Management clarified that the $54 million tax credit investments will reduce the effective tax rate in 2026, with benefits spread throughout the year [21][23] Question: Priorities for deployment of excess capital - Management indicated that organic growth remains the primary objective, with potential considerations for dividends and investments in insurance and wealth platforms [24][25][26] Question: Competition in deposit markets - Management acknowledged heightened competition for deposits but emphasized their strong performance in core deposits and commercial deposits [35][36] Question: Trends in the CRE market - Management noted a healthier CRE market and expressed no interest in acquiring portfolios from competitors, focusing instead on relationship banking [40][41] Question: Potential for loan yields to increase - Management indicated that there is potential for yields to improve as the pipeline yield increases [45] Question: Plans for geographic expansion - Management expressed interest in expanding into adjacent geographies, particularly in Long Island and the Philly suburbs [52] Question: Initiatives to decrease deposit costs - Management stated that they are still repricing downward and expect further improvements in core margin with future Fed rate cuts [87] Question: Core systems conversion timeline - Management confirmed the core systems conversion is scheduled for Labor Day weekend of 2026, aimed at enhancing operational efficiency [88][89]