PFS - Provident Financial Services Inc. Announces Increased First Quarter Earnings and Declares Quarterly Cash Dividend

ISELIN, N.J., April 26, 2019 (GLOBE NEWSWIRE) -- Provident Financial Services, Inc. (NYSE:PFS) (the “Company”) reported net income of $30.9 million, or $0.48 per basic and diluted share, for the three months ended March 31, 2019, compared to net income of $27.9 million, or $0.43 per basic and diluted share, for the three months ended March 31, 2018. 

The Company's earnings for the quarter ended March 31, 2019 were positively impacted by a lower provision for loan losses stemming from an improvement in asset quality and an increase in net interest income driven by the expansion of the net interest margin from the quarter ended March 31, 2018.  The improvement in the net interest margin was due to an increase in the yield on earning assets and a lagging increase 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 decrease in average loans outstanding.

Chairman, President and Chief Executive Officer Christopher Martin reflected: “Our first quarter's earnings continued to benefit from solid asset quality and diligent expense management.  Our loan pipelines have increased and corresponding pull-through levels remained strong.  Conversely, our increased deposit costs for the quarter reflect our efforts to acquire new customers and retain existing relationships.”  Martin continued, “We completed the acquisition of Tirschwell & Loewy, Inc., a Manhattan-based registered investment advisor with approximately $750 million in assets on April 1, 2019, which will bring talent and depth to our wealth management subsidiary, 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, 2019, to stockholders of record as of the close of business on May 15, 2019.

Balance Sheet Summary

Total assets at March 31, 2019 were $9.80 billion, a $76.8 million increase from December 31, 2018.  The increase in total assets was primarily due to a $55.2 million increase in cash and cash equivalents, a $37.8 million increase in other assets and a $13.0 million increase in total investments, partially offset by a $26.7 million decrease in total loans.  The increase in other assets was largely due to the Company's January 1, 2019 adoption of ASU 2016-02, "Leases (Topic 842).”  The Company recorded a right of use asset of $44.9 million, which was based on the present value of the expected remaining lease payments at January 1, 2019. 

The Company’s loan portfolio decreased $26.7 million to $7.22 billion at March 31, 2019, from $7.25 billion at December 31, 2018.  For the three months ended March 31, 2019, loan originations, excluding advances on lines of credit, totaled $293.9 million, compared with $280.3 million for the same period in 2018.  During the three months ended March 31, 2019, the loan portfolio had net decreases of $14.1 million in construction loans, $12.3 million in residential mortgage loans, $11.0 million in commercial mortgage loans and $10.1 million in consumer loans, partially offset by net increases of $17.4 million in multi-family mortgage loans and $3.1 million in commercial loans.  Commercial real estate, commercial and construction loans represented 79.1% of the loan portfolio at March 31, 2019, compared to 78.9% at December 31, 2018. 

At March 31, 2019, the Company’s unfunded loan commitments totaled $1.54 billion, including commitments of $693.7 million in commercial loans, $438.1 million in construction loans and $163.4 million in commercial mortgage loans.  Unfunded loan commitments at December 31, 2018 and March 31, 2018 were $1.49 billion and $1.56 billion, respectively.

The loan pipeline, consisting of work-in-process and loans approved pending closing, totaled $1.18 billion at March 31, 2019, compared to $973.4 million and $1.33 billion at December 31, 2018 and March 31, 2018, respectively.

Total investments were $1.62 billion at March 31, 2019, a $13.0 million increase from December 31, 2018.  This increase was largely due to purchases of mortgage-backed securities and an increase 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 increased $73.3 million during the three months ended March 31, 2019 to $6.90 billion, from $6.83 billion at December 31, 2018.  Total time deposits increased $54.1 million to $804.6 million at March 31, 2019, while total core deposits, consisting of savings and demand deposit accounts, increased $19.2 million to $6.10 billion at March 31, 2019.  The increase in time deposits was primarily the result of a $66.5 million increase in brokered deposits, partially offset by a $12.4 million decrease in retail time deposits primarily due to maturities of the Company's 13-month promotional certificate of deposit.  The increase in core deposits was largely attributable to a $96.2 million increase in money market deposits, partially offset by decreases of $47.1 million and $29.8 million in non-interest bearing demand deposits and interest bearing demand deposits, respectively.  Core deposits represented 88.3% of total deposits at March 31, 2019, compared to 89.0% at December 31, 2018.

Borrowed funds decreased $43.8 million during the three months ended March 31, 2019, to $1.40 billion.  The decrease in borrowings for the period was primarily a function of wholesale funding being partially replaced by the net inflows of deposits and lower asset funding requirements.  Borrowed funds represented 14.3% of total assets at March 31, 2019, a decrease from 14.8% at December 31, 2018.

Stockholders’ equity increased $14.8 million during the three months ended March 31, 2019, to $1.37 billion, primarily due to net income earned for the period and a decrease 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, 2019 totaled 78,000 shares at an average cost of $26.85. These common stock repurchases were largely made in connection with withholding to cover income taxes on the vesting of stock-based compensation.  At March 31, 2019, 2.4 million 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, 2019 were $20.66 and $14.38, respectively, compared with $20.49 and $14.18, respectively, at December 31, 2018.

Results of Operations

Net Interest Income and Net Interest Margin

For the three months ended March 31, 2019, net interest income increased $1.7 million to $75.0 million from $73.3 million for the same period in 2018.  The increase in net interest income was due to the expansion of the net interest margin from the quarter ended March 31, 2018, which was largely a function of an increase in the yield on earning assets and a lagging increase in the Company's cost of funds.  Also contributing to the improvement, growth 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, 2019, the net interest margin expanded 10 basis points to 3.40%, compared to 3.30% for the three months ended March 31, 2018.  The weighted average yield on interest earning assets increased 31 basis points to 4.20% for the three months ended March 31, 2019, compared to 3.89% for the three months ended March 31, 2018, while the weighted average cost of interest bearing liabilities increased 28 basis points to 1.04% for the three months ended March 31, 2019, compared to 0.76% for the same period last year.  The average cost of interest bearing deposits for the three months ended March 31, 2019 was 0.78%, compared to 0.47% for the same period last year.  Average non-interest bearing demand deposits totaled $1.44 billion for the three months ended March 31, 2019, compared with $1.42 billion for the three months ended March 31, 2018.  The average cost of borrowings for the three months ended March 31, 2019 was 2.07%, compared to 1.70% for the same period last year.

The Company’s net interest margin decreased four basis points to 3.40% for the quarter ended March 31, 2019, from 3.44% for the trailing quarter.  The weighted average yield on interest-earning assets increased one basis point to 4.20% for the quarter ended March 31, 2019, compared to 4.19% for the quarter ended December 31, 2018.  The weighted average cost of interest-bearing liabilities for the quarter ended March 31, 2019 increased seven basis points to 1.04%, compared to 0.97% for the quarter ended December 31, 2018.  The average cost of interest bearing deposits for the quarter ended March 31, 2019 increased eight basis points to 0.78%, from 0.70% for the quarter ended December 31, 2018.  Average non-interest bearing demand deposits totaled $1.44 billion for the quarter ended March 31, 2019, compared to $1.48 billion for the quarter ended December 31, 2018.  The average cost of borrowed funds for the quarter ended March 31, 2019 was 2.07%, compared to 1.99% for the quarter ended December 31, 2018.

Non-Interest Income

Non-interest income totaled $12.2 million for the quarter ended March 31, 2019, a decrease of $1.1 million, compared to the same period in 2018.  Other income decreased $687,000 to $316,000 for the three months ended March 31, 2019, compared to the quarter ended March 31, 2018, primarily due to a $762,000 decrease in net fees on loan-level interest rate swap transactions and a $139,000 decrease 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 decreased $542,000 to $6.1 million for the three months ended March 31, 2019, compared to the same period in 2018, largely due to a $223,000 decrease in commercial loan prepayment fee income, a $104,000 decrease in loan related fee income and a $100,000 decrease in deposit related fee income.  Also, wealth management income decreased $321,000 largely due to a change in the investment mix of assets under management.  Partially offsetting these decreases in non-interest income, income from Bank-owned life insurance ("BOLI") increased $432,000 to $1.7 million for the three months ended March 31, 2019, compared to $1.3 million for the same period in 2018, primarily due to an increase in benefit claims in the current period.

Non-Interest Expense

For the three months ended March 31, 2019, non-interest expense totaled $48.4 million, an increase of $1.5 million, compared to the three months ended March 31, 2018.  Other operating expenses increased $1.0 million to $7.1 million for the three months ended March 31, 2019, compared to the same period in 2018, primarily due to increases in consulting costs and attorney fees.  Compensation and benefits expense increased $500,000 to $28.4 million for the three months ended March 31, 2019, compared to $27.9 million for the same period in 2018.  This increase was principally due to increases in stock-based compensation and the accrual for incentive compensation.  Data processing expense increased $363,000 to $4.0 million for the three months ended March 31, 2019, primarily due to an increase in software maintenance expense, along with increases in mobile and on-line banking expenses.  Partially offsetting these increases in non-interest expense, FDIC insurance decreased $314,000 to $739,000 for the three months ended March 31, 2019, compared to the same period in 2018, primarily due to both a lower insurance assessment rate for the current quarter and a decrease in total average assets subject to assessment.

The Company’s annualized non-interest expense as a percentage of average assets⁽¹⁾ was 2.02% for the quarter ended March 31, 2019, compared to 1.95% for the same period in 2018.  The efficiency ratio (non-interest expense divided by the sum of net interest income and non-interest income)⁽¹⁾ was 55.53% for the quarter ended March 31, 2019, compared to 54.18% for the same period in 2018. 

Asset Quality

The Company’s total non-performing loans at March 31, 2019 were $24.8 million, or 0.34% of total loans, compared to $25.7 million, or 0.35% of total loans at December 31, 2018, and $45.9 million, or 0.63% of total loans at March 31, 2018.  The $893,000 decrease in non-performing loans at March 31, 2019, compared to the trailing quarter, was due to a $1.7 million decrease in non-performing commercial mortgage loans and a $606,000 decrease in non-performing commercial loans, partially offset by a $956,000 increase in non-performing residential loans and a $421,000 increase in non-performing consumer loans.  At March 31, 2019, impaired loans totaled $49.4 million with related specific reserves of $1.7 million, compared with impaired loans totaling $50.7 million with related specific reserves of $1.2 million at December 31, 2018.  At March 31, 2018, impaired loans totaled $68.3 million with related specific reserves of $4.5 million.

The Company’s allowance for loan losses at March 31, 2019 and December 31, 2018 was 0.77% of total loans and 0.86% of total loans at March 31, 2018.  The Company recorded a provision for loan losses of $200,000 for the three months ended March 31, 2019, compared with a provision of $5.4 million for the three months ended March 31, 2018.  For the three months ended March 31, 2019, the Company had net charge-offs of $409,000 compared to net charge-offs of $3.1 million for the same period in 2018.  The provision for loan losses and net charge-offs for the first quarter of 2018 were impacted by a deterioration in commercial credits in the quarter, including a $15.4 million credit to a commercial borrower that filed a Chapter 7 petition in bankruptcy for a liquidation of assets.  A specific reserve of $2.5 million was established in the prior year quarter for this impaired loan, and this credit was subsequently charged off in the second quarter of 2018.  The allowance for loan losses decreased $209,000 to $55.4 million at March 31, 2019 from $55.6 million at December 31, 2018.

At March 31, 2019 and December 31, 2018, the Company held $1.3 million and $1.6 million of foreclosed assets, respectively.  During the three months ended March 31, 2019, there was one addition to foreclosed assets with a carrying value of $227,000, and three properties sold with an aggregate carrying value of $528,000.  Foreclosed assets at March 31, 2019 consisted of $1.3 million of residential real estate.  Total non-performing assets at March 31, 2019 decreased $1.2 million, or 4.4%, to $26.1 million, or 0.27% of total assets, from $27.3 million, or 0.28% of total assets at December 31, 2018.

Income Tax Expense

For the three months ended March 31, 2019, the Company’s income tax expense was $7.7 million compared with $6.4 million for the three months ended March 31, 2018.  The Company’s effective tax rate was 19.9% for the three months ended March 31, 2019, compared to 18.6% for the three months ended March 31, 2018.  The increase in tax expense and the effective tax rate were largely the result of an increase in income derived from taxable sources.

About the Company

Provident Financial Services, Inc. is the holding company for Provident Bank, a community-oriented bank offering "commitment you can count on" since 1839.  Provident Bank provides a comprehensive array of financial products and services through its network of branches throughout northern and central New Jersey, as well as Bucks, Lehigh and Northampton counties in Pennsylvania.  The Bank also provides fiduciary and wealth management services through its wholly owned subsidiary, Beacon Trust Company.

Post Earnings Conference Call

Representatives of the Company will hold a conference call for investors on Friday, April 26, 2019 at 10:00 a.m. Eastern Time to discuss the Company’s financial results for the quarter ended March 31, 2019.  The call may be accessed by dialing 1-888-336-7149 (Domestic), 1-412-902-4175 (International) or 1-855-669-9657 (Canada).  Internet access to the call is also available (listen only) at Provident.Bank by going to Investor Relations and clicking on "Webcast."

Forward Looking Statements

Certain statements contained herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” "project," "intend," “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms.  Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those set forth in Item 1A of the Company's Annual Report on Form 10-K, as supplemented by its Quarterly Reports on Form 10-Q, and those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in accounting policies and practices that may be adopted by the regulatory agencies and the accounting standards setters, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

The Company cautions readers not to place undue reliance on any such forward-looking statements which speak only as of the date made.  The Company advises readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.  The Company does not have any obligation to update any forward-looking statements to reflect events or circumstances after the date of this statement.

Footnotes

⁽¹⁾ Tangible book value per share, annualized return on average tangible equity, annualized non-interest expense as a percentage of average assets and the efficiency ratio are non-GAAP financial measures.  Please refer to the Notes following the Consolidated Financial Highlights which contain the reconciliation of GAAP to non-GAAP financial measures and the associated calculations.

Notes and Reconciliation of GAAP and Non-GAAP Financial Measures
(Dollars in Thousands, except share data)

The Company has presented the following non-GAAP (Generally Accepted Accounting Principles) financial measures because it believes that these measures provide useful and comparative information to assess trends in the Company’s results of operations and financial condition.  Presentation of these non-GAAP financial measures is consistent with how the Company evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Company’s industry.  Investors should recognize that the Company’s presentation of these non-GAAP financial measures might not be comparable to similarly-titled measures of other companies.  These non-GAAP financial measures should not be considered a substitute for GAAP basis measures and the Company strongly encourages a review of its condensed consolidated financial statements in their entirety.

CONTACT:  Investor Relations, 1-732-590-9300