This is a summary of the second quarter fiscal year 2008 earnings call as presented by Provident Financial Services, Inc. (PFS) on July 24, 2008
Management
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CEO: Paul Pantozzi
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President and COO: Chris Martin
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CFO: Linda Niro
Key Investors Issues
- Earnings declined 18% to $10.4 million or 18 cents from $13.6 million or 22 cents per share in 2007.
- Net interest margin increased 23 basis points to 3.10% compared to 2.87% in the prior period.
- The firm declared a quarterly dividend of 11 cents per common share.
Second Quarter Highlights
Net income came in at $10.4 million or 18 cents a share, down 18% from $13.6 million or 22 cents a share in 2007 despite ongoing efforts to increase net interest income while managing overhead cost and credit risk.
- The Federal Reserve''s rate cutting actions have resulted in among other things, the return to a positively sloped yield curve.
- Provident Financial Services has been managing its balance sheet to benefit from this as the interest cost of liabilities has fallen faster than the yield on earning assets.
- As a consequence, the net interest margin expanded 23 basis points to 3.10%.
Competition for deposits has remained intense, but the firm has held to its course of rationally pricing time deposits and focusing efforts on core deposit relationships.
- As of June 30, 2008, 63% of total deposits were core deposits with over 11% in non-interest bearing demand deposits.
- This has helped fund continuing loan growth at favorable spreads.
New loan production remained fairly robust in every category as Provident Financial Services continued to meet the demands of quality borrowers while maintaining conservative underwriting standards.
- Its unfounded loan pipeline also increased by 14% to 763 million, as compared to 672 million at the end of the previous quarter.
- The ratio of non-interest expense to average assets increased to 2.11%, up from 2.03% in the first quarter.
- This was largely attributable to the nearly $800,000 in employee severance expense as the firm continue to manage its cost structure for improved efficiency and productivity.
Non-performing assets were 0.67% of total assets, up from 0.48% at the end of the first quarter.
- The majority of non-performing assets are comprised primarily of a few commercial real estate credits that are being actively managed to resolution and no notable deterioration in the residential or home equity loan portfolios has been noted.
- Total assets increased to $6.38 billion, compared to $6.36 billion at December 31, 2007, due primarily to an increase in securities available for sale.
Net interest margin increased 23 basis points to 3.10% compared to 2.87% due primarily to a decrease of 46 basis points in the average cost of deposit to 2.41% from 2.87% in the trailing quarter.
- The cost of borrowed funds also decreased 22 basis points sequentially, resulting in an overall reduction in the cost of interest bearing liabilities of 40 basis points to 2.74%.
- The average yield on net loans decreased 14 basis points to 5.76% from 5.90%, reflecting decreases in short-term interest rates and the composition of the commercial portfolio, which is approximately 52% floating or adjustable rates.
- Average yields on interest earning assets decreased 13 basis points to 5.5% from 5.63% in the trailing quarter.
Total investments increased 884,000 to $1.26 billion and represented 20% of total assets.
- The investment portfolio consists primarily of agency guaranteed mortgage backed securities and bank qualified municipal bonds.
- There are no preferred or trust preferred equities in the portfolio.
- The portfolio had a weighted average life of 5.2 years and duration of four years at June 3rd.
Total loans increased $21.5 million or five-tenths of 1% sequentially, with the largest increase coming from residential mortgage loans, which increased by $79.8 million.
- Commercial mortgage and multifamily loans increased 47 million or 4.8%.
- Construction loans decreased 63.7 million and commercial loans decreased 29.2 million sequentially.
- Commercial loans as a percentage of total loans were 45.1%.
