Provident Financial Services, Inc. (PFS) Q2 2010 Earnings Call Transcript July 30, 2010 10:00 am ET Executives Christopher Martin – Chairman, President and CEO Tom Lyons – SVP and CFO Analysts 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 Presentation Operator
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. Read the rest of this transcript for free on seekingalpha.com