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

ISELIN, N.J., Oct. 29, 2021 (GLOBE NEWSWIRE) -- Provident Financial Services, Inc. (NYSE:PFS) (the “Company”) reported net income of $37.3 million, or $0.49 per basic and diluted share, for the three months ended September 30, 2021, compared to net income of $27.1 million, or $0.37 per basic and diluted share, for the three months ended September 30, 2020. For the nine months ended September 30, 2021, the Company reported net income of $130.6 million, or $1.71 per basic and $1.70 per diluted share, compared to net income of $56.4 million, or $0.84 per basic and diluted share, for the same period last year.

Earnings for the three and nine months ended September 30, 2021 were aided by improved economic conditions and resulting lower credit loss allowance requirements, combined with growth in average interest earning assets including assets acquired in the July 31, 2020 merger with SB One Bancorp ("SB One") and the investment of increased deposits. For the three months ended September 30, 2021, the Company recorded a provision for credit losses on loans of $1.0 million, while for the nine months ended September 30, 2021, the Company recorded a negative provision for credit losses on loans of $24.7 million, compared with provisions of $6.4 million and $32.0 million for the respective 2020 periods.

Christopher Martin, Chairman and Chief Executive Officer commented, “We recorded strong results this quarter, with a return on average assets of 1.11% and a return on average assets of 1.55% on a pre-tax, pre-provision basis. Revenue growth was aided by our disciplined deployment of excess liquidity during the quarter, which supported growth in average interest earning assets. Excluding PPP loans, our quarter-end outstanding loans increased $153 million compared to the trailing quarter total, or an annualized increase of 6.4%. On the deposit side, we had another quarter of growth in average non-interest bearing deposits and our cost of deposits further improved to just 23 basis points.” Martin added, “I am pleased to announce that our Board of Directors approved an increase in our regular quarterly cash dividend. The dividend increase reflects confidence in our earnings outlook and our commitment to our shareholders."

Declaration of Quarterly Dividend

The Company’s Board of Directors declared a quarterly cash dividend of $0.24 per common share payable on November 26, 2021, to stockholders of record as of the close of business on November 12, 2021. This dividend is an increase of 4.3% from the prior quarter's regular cash dividend of $0.23 per common share.

Balance Sheet Summary

Total assets at September 30, 2021 were $13.39 billion, a $472.2 million increase from December 31, 2020. The increase in total assets was primarily due to a $763.9 million increase in total investments, partially offset by a $268.3 million decrease in total loans and a $27.1 million decrease in cash and cash equivalents.

The Company’s loan portfolio decreased $268.3 million to $9.55 billion at September 30, 2021, from $9.82 billion at December 31, 2020, despite strong originations, as prepayments, including Paycheck Protection Program ("PPP") loan forgiveness, were elevated. For the nine months ended September 30, 2021, loan funding, including advances on lines of credit, totaled $2.54 billion, compared with $2.63 billion for the same period in 2020. Originations under PPP programs totaled $208.7 million and $397.8 million for the nine month periods ended September 30, 2021 and 2020, respectively. Total PPP loans outstanding decreased $299.4 million to $173.8 million at September 30, 2021, from $473.2 million at December 31, 2020. Excluding the net decrease in PPP loans, during the nine months ended September 30, 2021, the Company experienced net increases in commercial mortgage loans and construction loans of $246.0 million and $143.9 million, respectively, partially offset by net decreases in consumer loans, multi-family loans, residential mortgage loans and commercial loans of $158.8 million, $104.7 million, $64.7 million and $34.1 million, respectively. Commercial real estate, commercial and construction loans represented 83.7% of the loan portfolio at September 30, 2021, compared to 81.8% at December 31, 2020.

At September 30, 2021, the Company’s unfunded loan commitments totaled $2.17 billion, including commitments of $999.4 million in commercial loans, $666.7 million in construction loans and $220.2 million in commercial mortgage loans. Unfunded loan commitments at December 31, 2020 and September 30, 2020 were $1.99 billion and $2.26 billion, respectively.

The loan pipeline, consisting of work-in-process and loans approved pending closing, totaled $1.61 billion at September 30, 2021, compared to $1.23 billion and $1.37 billion at December 31, 2020 and September 30, 2020, respectively.

Cash and cash equivalents were $505.3 million at September 30, 2021, a $27.1 million decrease from December 31, 2020, primarily as a result of decreases in cash collateral pledged to counterparties to secure loan-level swaps, partially offset by an increase in short term investments.

Total investments were $2.38 billion at September 30, 2021, a $763.9 million increase from December 31, 2020. This increase was primarily due to purchases of mortgage-backed and municipal securities, as the Company deployed excess liquidity driven by net inflow of deposits and loan repayments, portions of which were attributable to proceeds from PPP loan forgiveness and government stimulus programs. These purchases were partially offset by repayments of mortgage-backed securities, maturities and calls of certain municipal and agency bonds and a decrease in unrealized gains on available for sale debt securities.

Total deposits increased $998.8 million during the nine months ended September 30, 2021, to $10.84 billion. Total savings and demand deposit accounts increased $1.31 billion to $10.06 billion at September 30, 2021, while total time deposits decreased $313.7 million to $780.5 million at September 30, 2021. The increase in savings and demand deposits was largely attributable to a $750.2 million increase in interest bearing demand deposits, as the Company shifted $450.0 million from Federal Home Loan Bank of New York ("FHLB") borrowings into lower-costing brokered demand deposits, a $265.5 million increase in non-interest bearing demand deposits, which partially benefited from deposits retained from activity associated with PPP loans and stimulus funding, a $216.3 million increase in money market deposits and an $80.5 million increase in savings deposits. The decrease in time deposits was primarily due to the outflow of brokered time deposits, combined with additional maturities of longer-term retail time deposits.

Borrowed funds decreased $558.6 million during the nine months ended September 30, 2021, to $617.4 million. The decrease in borrowings for the period was largely due to the maturity and replacement of FHLB borrowings with lower-costing brokered deposits and the net inflow of retail deposits. Borrowed funds represented 4.6% of total assets at September 30, 2021, a decrease from 9.1% at December 31, 2020.

Stockholders’ equity increased $59.6 million during the nine months ended September 30, 2021, to $1.68 billion, primarily due to net income earned for the period, partially offset by dividends paid to stockholders, common stock repurchases and a decrease in unrealized gains on available for sale debt securities. For the three months ended September 30, 2021, common stock repurchases totaled 628,589 shares at an average cost of $22.04 per share. For the nine months ended September 30, 2021, common stock repurchases totaled 675,380 shares at an average cost of $22.00 per share, of which 44,078 shares, at an average cost of $21.81 per share, were made in connection with withholding to cover income taxes on the vesting of stock-based compensation. At September 30, 2021, approximately 3.4 million shares remained eligible for repurchase under the current stock repurchase authorization. Book value per share and tangible book value per share ^{( 1)} at September 30, 2021 were $21.75 and $15.72, respectively, compared with $20.87 and $14.86, respectively, at December 31, 2020.

Results of Operations

Net Interest Income and Net Interest Margin

For the three months ended September 30, 2021, net interest income increased $9.2 million to $91.2 million, from $82.0 million for the three months ended September 30, 2020. Net interest income for the nine months ended September 30, 2021 increased $48.3 million to $272.1 million, from $223.8 million for the same period in 2020. The increase in net interest income for both comparative periods was largely attributable to growth in average earning assets resulting from the net assets acquired from SB One, PPP loan originations and growth in the available for sale debt securities portfolio. Both periods were aided by the inflow of lower-costing core deposits, along with an increase in the accelerated recognition of fees related to the forgiveness of PPP loans in 2021. For the three and nine months ended September 30, 2021, the accelerated accretion of fees related to the forgiveness of PPP loans totaled $2.5 million and $9.3 million, respectively, which were recognized in interest income, compared to $1.4 million and $2.4 million for the three and nine months ended September 30, 2020.

The Company’s net interest margin decreased five basis points to 2.94% for the quarter ended September 30, 2021, from 2.99% for the trailing quarter, as the decline in the yield on interest earning assets outpaced the decline in interest bearing liabilities. The yield on average interest-earning assets and the net interest margin for the quarter ended September 30, 2021 were both negatively impacted by elevated liquidity levels, unfavorable asset repricing to lower current market rates and a decrease in average loans outstanding, as loan repayments were largely reinvested into lower yielding available for sale debt securities. Average loans outstanding were negatively impacted by PPP loan forgiveness and elevated loan payoffs. The weighted average yield on interest-earning assets decreased 10 basis points to 3.21% for the quarter ended September 30, 2021, compared to 3.31% for the quarter ended June 30, 2021. Partially offsetting this decline in asset yields, the weighted average cost of interest-bearing liabilities for the quarter ended September 30, 2021 decreased seven basis points to 0.37%, compared to 0.44% for the trailing quarter. The average cost of interest bearing deposits for the quarter ended September 30, 2021 was 0.30%, compared to 0.34% for the quarter ended June 30, 2021. Average non-interest bearing demand deposits totaled $2.55 billion for the quarter ended September 30, 2021, compared with $2.48 billion for the quarter ended June 30, 2021. The average cost of all deposits, including non-interest bearing deposits, was 0.23% for the quarter ended September 30, 2021, compared with 0.26% for the trailing quarter. The average cost of borrowed funds for the quarter ended September 30, 2021 was 1.08%, compared to 1.18% for the trailing quarter.

The net interest margin decreased three basis points to 2.94% for the quarter ended September 30, 2021, compared to 2.97% for the quarter ended September 30, 2020. The weighted average yield on interest-earning assets decreased 18 basis points to 3.21% for the quarter ended September 30, 2021, compared to 3.39% for the quarter ended September 30, 2020, while the weighted average cost of interest bearing liabilities decreased 20 basis points for the quarter ended September 30, 2021 to 0.37%, compared to 0.57% for the third quarter of 2020. The average cost of interest bearing deposits for the quarter ended September 30, 2021 was 0.30%, compared to 0.44% for the same period last year. Average non-interest bearing demand deposits totaled $2.55 billion for the quarter ended September 30, 2021, compared to $2.21 billion for the quarter ended September 30, 2020. The average cost of all deposits, including non-interest bearing deposits, was 0.23% for the quarter ended September 30, 2021, compared with 0.33% for the quarter ended September 30, 2020. The average cost of borrowed funds for the quarter ended September 30, 2021 was 1.08%, compared to 1.19% for the same period last year.

For the nine months ended September 30, 2021, the net interest margin decreased four basis points to 2.99%, compared to 3.03% for the nine months ended September 30, 2020. The weighted average yield on interest earning assets declined 25 basis points to 3.31% for the nine months ended September 30, 2021, compared to 3.56% for the nine months ended September 30, 2020, while the weighted average cost of interest bearing liabilities decreased 29 basis points to 0.43% for the nine months ended September 30, 2021, compared to 0.72% for the same period last year. The average cost of interest bearing deposits decreased 24 basis points to 0.34% for the nine months ended September 30, 2021, compared to 0.58% for the same period last year. Average non-interest bearing demand deposits totaled $2.47 billion for the nine months ended September 30, 2021, compared with $1.85 billion for the nine months ended September 30, 2020. The average cost of all deposits, including non-interest bearing deposits, was 0.26% for the nine months ended September 30, 2021, compared with 0.44% for the nine months ended September 30, 2020. The average cost of borrowings for the nine months ended September 30, 2021 was 1.13%, compared to 1.42% for the same period last year.

Non-Interest Income

Non-interest income totaled $23.4 million for the quarter ended September 30, 2021, an increase of $2.7 million, compared to the same period in 2020. Fee income increased $1.2 million to $7.0 million for the three months ended September 30, 2021, compared to the same period in 2020, largely due to a $1.2 million increase in commercial loan prepayment fees, a $455,000 increase in deposit related fees and a $226,000 increase in non-deposit investment fee income, partially offset by a $773,000 decrease in debit card revenue. The increases in fee income are partially attributable to the addition of the SB One customer base, as well as a recovering economy compared to the initial severe negative effects that COVID-19 had on consumer and business activities in the prior year. The decrease in debit card revenue was largely attributable to the impact of the Durbin amendment cap on the fee the Company receives on interchange transactions which first applied to the Company on July 1, 2021. Wealth management income increased $1.1 million to $7.9 million for the three months ended September 30, 2021, compared to the same period in 2020, primarily due to new business generation, increased market value of assets under management resulting from strong equity market performance and an increase in the level of managed mutual funds. Insurance agency income, a new revenue source resulting from the SB One acquisition, increased $722,000 to $2.4 million for the three months ended September 30, 2021, compared to the same period in 2020, primarily due to a full quarter of revenue in the current period, compared to two months in 2020. Additionally, income from Bank-owned life insurance ("BOLI") increased $236,000 to $1.9 million for the three months ended September 30, 2021, compared to the same period in 2020, primarily due to an increase in benefit claims, partially offset by lower equity valuations. Partially offsetting these increases in non-interest income, other income decreased $550,000 to $4.1 million for the three months ended September 30, 2021, compared to the quarter ended September 30, 2020, primarily due to a $3.7 million decrease in net fees on loan-level interest rate swap transactions and a $142,000 decrease in gains on the sale of loans, partially offset by income recognized from a $3.4 million reduction in the contingent consideration related to the earn-out provisions of the 2019 purchase of Tirschwell & Loewy, Inc. ("T&L").

For the nine months ended September 30, 2021, non-interest income totaled $66.2 million, an increase of $14.2 million, compared to the same period in 2020. Insurance agency income totaled $8.0 million, an increase of $6.3 million for the nine months ended September 30, 2021, compared to the same period in 2020, resulting from the prior year acquisition of SB One. Fee income increased $5.4 million to $22.6 million for the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to a $2.7 million increase in commercial loan prepayment fees, a $740,000 increase in late charges and other loan related fee income, a $569,000 increase in debit card revenue, which was curtailed by the Durbin amendment, a $572,000 increase in non-deposit investment fee income and a $396,000 increase in deposit related fees. The increases in fee income are partially attributable to the addition of the SB One customer base, as well as a recovering economy compared to the initial severe negative effects that COVID-19 had on consumer and business activities in the prior year. Wealth management income increased $3.8 million to $22.9 million for the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to an increase in the market value of assets under management as a result of strong equity market performance, new business generation and an increase in the level of managed mutual funds. Also, BOLI income increased $1.7 million to $6.0 million for the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to an increase in benefit claims, additional income related to the BOLI assets acquired from SB One and higher equity valuations. Partially offsetting these increases, other income decreased $3.3 million to $6.4 million for the nine months ended September 30, 2021, compared to $9.7 million for the same period in 2020, mainly due to a $6.5 million decrease in net fees on loan-level interest rate swap transactions, partially offset by income recognized from a $3.4 million reduction in the contingent consideration related to the earn-out provisions of the 2019 purchase of T&L.

Non-Interest Expense

For the three months ended September 30, 2021, non-interest expense totaled $63.4 million, an increase of $3.7 million, compared to the three months ended September 30, 2020. Compensation and benefits expense increased $1.9 million to $37.6 million for three months ended September 30, 2021, compared to $35.7 million for the same period in 2020. The increase was principally due to increases in the accrual for incentive compensation and stock-based compensation, partially offset by a decline in salary expense. Credit loss expense for off-balance sheet credit exposures increased $1.6 million to $980,000 for the three months ended September 30, 2020, compared to a negative provision of $575,000 for the same period in 2020. The increase was primarily the result of an increase in the pipeline of loans approved and awaiting closing. Net occupancy expenses increased $957,000 to $8.0 million for the three months ended September 30, 2021, compared to the same period in 2020, largely due to increases in rent, depreciation, utilities and maintenance expenses, which was largely due to an additional month of operating expenses in the current quarter associated with facilities acquired from SB One. FDIC insurance increased $390,000 due to an increase in the insurance assessment rate and an increase in total assets subject to assessment. Partially offsetting these increases in non-interest expense, other operating expenses decreased $875,000 to $8.9 million for the three months ended September 30, 2021, compared to the same period in 2020, principally due to merger related expenses incurred in the prior year quarter, partially offset by an increase in business development expenses. Data processing expense decreased $199,000 to $4.8 million for the three months ended September 30, 2021, compared with the same period in 2020, primarily due to a decrease in core system processing costs, partially offset by an increase in software subscription service expense.

Non-interest expense totaled $188.0 million for the nine months ended September 30, 2021, an increase of $18.8 million, compared to $169.2 million for the nine months ended September 30, 2020. Compensation and benefits expense increased $11.6 million to $107.7 million for the nine months ended September 30, 2021, compared to $96.1 million for the nine months ended September 30, 2020, primarily due increases in salary expense and employee medical benefits associated with the addition of former SB One employees, combined with an increase in the accrual for incentive compensation, company-wide annual merit increases and an increase in stock-based compensation, partially offset by a decrease in severance expense. Net occupancy expense increased $5.8 million to $25.2 million for the nine months ended September 30, 2021, compared to the same period in 2020, mainly due to increases in rent, depreciation, utilities and maintenance expenses related to the facilities acquired from SB One, along with an increase in snow removal costs incurred earlier in the year. FDIC insurance increased $3.0 million for the nine months ended September 30, 2021, primarily due to an increase in the insurance assessment rate and an increase in total assets subject to assessment, including assets acquired from SB One, along with the receipt of the small bank assessment credit in the prior year that was not available in 2021. Other operating expenses increased $1.6 million to $28.0 million for the nine months ended September 30, 2021, compared to the same period in 2020. The increase in other operating expense was largely due to a valuation adjustment on foreclosed assets and increases in debit card maintenance, insurance and business development expenses, as a result of the addition of SB One, partially offset by non-recurring merger related expenses incurred in the prior year. In addition, amortization of intangibles increased $400,000 as a result of increased amortization related to the acquisition of SB One. Partially offsetting these increases, credit loss expense for off-balance sheet credit exposures decreased $3.6 million to $2.2 million for the nine months ended September 30, 2021. The decrease was primarily a function of an improved economic forecast resulting in a decline in projected loss factors, partially offset by an increase in the pipeline of loans approved and awaiting closing.

The Company’s annualized adjusted non-interest expense as a percentage of average assets ^{( 1)} was 1.85% for the quarter ended September 30, 2021, compared to 1.92% for the same period in 2020. For the nine months ended September 30, 2021, the Company’s annualized adjusted non-interest expense as a percentage of average assets ⁽¹⁾ was 1.88%, compared to 1.97% for the same period in 2020. The efficiency ratio (adjusted non-interest expense divided by the sum of net interest income and non-interest income) ⁽¹⁾ was 54.51% and 54.93% for the quarter and nine months ended September 30, 2021, respectively, compared to 56.72% and 57.69% for the same respective periods in 2020.

Asset Quality

The Company’s total non-performing loans at September 30, 2021 were $66.2 million, or 0.69% of total loans, compared to $80.1 million, or 0.84% of total loans at June 30, 2021 and $87.1 million, or 0.89% of total loans at December 31, 2020. The $13.9 million decrease in non-performing loans at September 30, 2021, compared to the trailing quarter, consisted of a $10.6 million decrease in non-performing commercial loans, a $3.7 million decrease in non-performing commercial mortgage loans and a $404,000 decrease in non-performing consumer loans, partially offset by a $388,000 increase in non-performing residential mortgage loans. At September 30, 2021, impaired loans totaled $68.0 million with related specific reserves of $5.2 million, compared with impaired loans totaling $82.0 million with related specific reserves of $7.6 million at June 30, 2021. At December 31, 2020, impaired loans totaled $86.0 million with related specific reserves of $9.0 million.

At September 30, 2021, the Company’s allowance for credit losses related to the loan portfolio was 0.84% of total loans, compared to 0.85% and 1.03% at June 30, 2021 and December 31, 2020, respectively. The Company recorded a provision for credit losses of $1.0 million for the three months ended September 30, 2021 and a negative provision for credit losses of $24.7 million for the nine months ended September 30, 2021, compared with provisions of $6.4 million and $32.0 million for the three and nine months ended September 30, 2020, respectively. For the three and nine months ended September 30, 2021, the Company had net charge-offs of $1.9 million and net recoveries of $3.3 million, respectively, compared to net recoveries of $58,000 and net charge-offs of $5.5 million, respectively, for the same periods in 2020. The allowance for credit losses decreased $21.4 million to $80.0 million at September 30, 2021 from $101.5 million at December 31, 2020. The reduction in provision for credit losses for three and nine months ended September 30, 2021, compared to the same period in the prior year, was primarily the result of improved asset quality, an improved economic forecast and the resultant favorable impact on expected credit losses, compared to the prior year where the provision for credit losses was based upon a weak economic forecast and a more uncertain outlook attributable to the COVID-19 pandemic. The net recoveries realized for the nine months ended September 30, 2021 further contributed to the negative provision for credit losses in the period.

At September 30, 2021 and December 31, 2020, the Company held foreclosed assets of $1.6 million and $4.5 million, respectively. During the nine months ended September 30, 2021, there were three additions to foreclosed assets with an aggregate carrying value of $513,000, nine properties sold with an aggregate carrying value of $2.3 million and valuation charges of $1.1 million. Foreclosed assets at September 30, 2021 consisted primarily of commercial real estate. Total non-performing assets at September 30, 2021 decreased $23.7 million to $67.8 million, or 0.51% of total assets, from $91.6 million, or 0.71% of total assets at December 31, 2020.

Income Tax Expense

For the three months ended September 30, 2021, the Company’s income tax expense was $12.9 million with an effective tax rate of 25.7%, compared with income tax expense of $9.3 million with an effective tax rate of 25.5% for the three months ended September 30, 2020. The increases in tax expense and the effective tax rate for the three months ended September 30, 2021, compared with the same period last year were largely the result of an increase in taxable income and the proportion of income derived from taxable sources.

For the nine months ended September 30, 2021, the Company's income tax expense was $44.4 million with an effective tax rate of 25.4%, compared with $18.3 million with an effective tax rate of 24.5% for the nine months ended September 30, 2020. The increases in tax expense and the effective tax rate for the nine months ended September 30, 2021, compared with the same period last year were largely the result of an increase in taxable income and the proportion of 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 and Queens County, New York. The Bank also provides fiduciary and wealth management services through its wholly owned subsidiary, Beacon Trust Company and insurance services through its wholly owned subsidiary, SB One Insurance Agency, Inc.

Post Earnings Conference Call

Representatives of the Company will hold a conference call for investors on Friday, October 29, 2021 at 10:00 a.m. Eastern Time to discuss the Company’s financial results for the quarter ended September 30, 2021. 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.

In addition, the COVID-19 pandemic continues to have an uncertain impact on the Company, its customers and the communities it serves. Given its ongoing and dynamic nature, including potential variants, it is difficult to predict the continuing impact of the pandemic on the Company's business, financial condition or results of operations. The extent of such impact will depend on future developments, which remain highly uncertain, including when the pandemic will be controlled and abated, and the extent to which the economy can remain open. As the result of the pandemic and the related adverse local and national economic consequences, the Company could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to remain substantially open, and higher levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for credit losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our wealth management revenues may decline with continuing market turmoil; we may face the risk of a goodwill write-down due to stock price decline; and our cyber security risks are increased as the result of an increased number of employees working remotely.

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 adjusted 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 (U.S. 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.

Note: The previously reported average balances of the interest bearing cash and non-interest bearing cash for the prior periods in the preceding table were recalculated. These recalculations resulted in the previously reported net interest margin changing from 3.10% to 3.05% for the quarter ended March 31,2021, from 3.04% to 3.01% for the quarter ended December 31, 2020, and from 3.01% to 2.97% for the quarter ended September 30, 2020.