Provident Financial Services, Inc. Q2 2010 Earnings Call Transcript

Provident Financial Services, Inc. Q2 2010 Earnings Call Transcript
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Provident Financial Services, Inc. (PFS)

Q2 2010 Earnings Call Transcript

July 30, 2010 10:00 am ET


Christopher Martin – Chairman, President and CEO

Tom Lyons – SVP and CFO


Mark Fitzgibbon – Sandler O'Neill & Partners

Rick Weiss – Janney Montgomery Scott

Jason O'Donnell – Boenning & Scattergood

Collyn Gilbert – Stifel Nicolaus

Timur Braziler – KBW

Matthew Kelley – Sterne, Agee



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Good morning and welcome to the Provident Financial Services second quarter 2010 earnings conference call. All participants will be in a listen-only mode. (Operator instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Christopher Martin. Please go ahead, sir.

Christopher Martin

Thank you. Good morning, everyone. Before we discuss our second quarter 2010 results, we ask that you please review our standard cautions as to any forward-looking statements that may be made during today’s review of our financial performance.

A full disclosure and disclaimer can be found in the text of our earnings release and you may also obtain a copy of that and all of our SEC filings by accessing our Web site or by calling our Investor Relations Department at 201 915 5344.

For today’s discussion, I am joined by Tom Lyons, our CFO.

Our earnings of $12.9 million or $0.23 a share represent an improvement of more than double of the same quarter last year. And actually, we are pleased with these results as our net interest income before the loan loss provision increased $9 million from the same quarter last year.

Our earnings and margin improvement continues to be driven by the funding area, specifically the cost of deposits. During the quarter, we further reduced our pricing and level of CDs while sustaining the growth in our core deposits, which now represents 71.9% of total deposits.

Core deposits increased $76.2 million during the quarter, while time deposits declined $130.5 million with many of these exiting CD customers being single-product based.

We continue to price deposits lower, albeit at a declining rate as we approach implied floors, but expect that a more competitive deposit pricing will ensue as banks replace borrowings that will be assessed by the FDIC under the recently enacted financial legislation.

And on a related note, we are continuing our analysis of the Dodd-Frank Wall Street Reform & Consumer Protection Act. The voluminous regulations that will eventually follow will take several government agencies months to promulgate, and even longer for financial institutions and regulators to fully understand and implement.

We continually strive to build relationships and keep reaching to increase our share of our customers’ business. Overall, our cost of deposits has declined to 1.13% from 1.93% in the second quarter of 2009. The improvement in our efficiency ratio can be traced to improved net interest income and our relentless pursuit of lower costs.

We remain well capitalized as currently defined by our regulators and are pleased to continue to pay our quarterly cash dividend of $0.11 a share, which is not reduced or suspended during the period of economic turmoil.

As you all know, the challenges of this recession, however, continue to stretch many businesses and our customers. Asset quality remains a primary focus and challenge as we navigate the myriad changes on the horizon, and despite not being a TARP recipient we are not immune from the issues affecting the New Jersey and US economies.

The provision for loan losses of $9 million was an increase of $3.2 million from the same period in 2009 and continues to represent our view that New Jersey economy is stagnant and the markets in general remain under stress. Evidence of this ongoing strength can be found in the residential loan portfolio, where we continue to experience delinquencies from prime borrowers, as these households continue to struggle with protracted unemployment and reduced real estate values.

We have strengthened our outreach to residential borrowers with preemptive collection efforts in an attempt to minimize future delinquencies. Some early signs of stabilization in residential home valuations have appeared during the first half of the year. While some of our competitors continue to be aggressive in their credit offerings and large money center banks reenter the market, we are seeing our share of lending opportunities that meet our credit standards.

Our loan pipeline remains steady as we attempt to keep up with normal loan amortization and prepayments.

We realized net increases of $116.6 million in commercial and multifamily mortgages in the first half of 2010. And this asset class has performed well for us so far. Conversely, our construction loan portfolio has decreased over $52 million since the first of the year and now represents approximately 3.3% of the total loan portfolio.

The majority of our residential mortgage demand has remained primarily in the 30-year fixed category, most of which we continue to sell at origination to minimize our interest-rate risk.

Consumer lending, particularly home equity and HELOCs, has remained sluggish as most applicants have little equity in their homes along with higher levels of debt to income.

With that I would like Tom to take us through some of the second quarter results. Tom?

Tom Lyons

Thank you, Chris, and good morning everyone. Net income for the second quarter 2010 was $12.9 million or $0.23 per share compared to $11.2 million or $0.20 per share for the first quarter of 2009. Compared with the trailing quarter, second quarter results benefitted from a $1.4 million increase in net interest income, driven by reductions in the cost of funds as we continue to emphasis core deposit generation and favorably re-priced interest bearing liabilities.

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