Good morning and welcome everyone to the Provident Financial Services Inc. fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Adriano Duarte, Head and Investor Relations Officer. Please go ahead, sir.

Thank you, Christophe. Good morning, everyone, and thank you for joining us for our fourth quarter earnings call. Today's presenters are President and CEO, Tony Lavazeta, and Senior Executive Vice President and Chief Financial Officer, Tom Lyons. Before beginning the review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today's call. Our full disclaimer contained in last evening's earnings release, which has been posted to the Investor Relations page of our website, Provident.Bank. Now, it's my pleasure to introduce Tony Labazzetta, who will offer his perspective on our fourth quarter. Tony.

Thank you, Adriano. Happy New Year, everyone, and welcome to the Provident Financial Services Earnings Call. The fourth quarter of 2024 was characterized by a more favorable macroeconomic environment with continued growth, additional interest rate cuts, improved performance in the banking sector, and an optimistic outlook. The Provident team maintains solid core performance and profitability thanks to the excellent asset quality, good deposit growth, and the increasing contributions of our fee-based businesses. During the quarter, we reported net earnings of $48.5 million for 37 cents per share our annualized adjusted return on average assets was 1.05 percent and our adjusted return on average tangible equity was 15.39 percent our adjusted pre-tax pre-provision return on average assets was 1.53 percent for the fourth quarter we are pleased with our core financial results and are confident in our ability to build on this momentum going into 2025. At the end of 2024, our capital levels remained healthy and comfortably exceeded levels deemed to be well capitalized. Normalizing for changes in AOCI, our tangible book value per share grew 34 cents to $14.71, and our tangible common equity ratio was consistent with a trailing quarter at 7.67 percent as such our board of directors approved a quarterly cash dividend 24 cents per share payable on february 28th during the quarter our deposits grew 248 million or 5.4 percent annualized the average cost of total deposits decreased 11 basis points to 2.25 5%, and the average cost of interest-bearing deposits decreased 15 basis points. Our total cost of funds decreased 14 basis points to 2.48%, which remains favorable relative to our peer group. As a result, our core net interest margin expanded 4 basis points. However, our reported margin compressed 3 basis points to 3.28% due to a decrease in purchase accounting accretion. During the fourth quarter, our commercial lending team closed approximately 713 million of new commercial loans. However, we experienced approximately 328 million in loan payoffs, resulting in a modest growth in our portfolio. This quarter's production consisted of 53% commercial real estate, 47% commercial and industrial loans, roughly one half of the C&I production was in our specialty lending group. While on the topic of lending, we are excited to announce that as of Monday, Bill Fink has joined us as our new Chief Lending Officer following the retirement of John Rath. Bill is responsible for leading our commercial lending growth strategy and brings with him over 30 years of experience in commercial banking, credit administration, and an impressive track record in credit risk management and operational strategy. In the past 20 years bill worked at td in numerous leadership positions and most recently spearheaded its middle market and asset-based lending businesses with responsibility for a 24 billion dollar portfolio i'm very confident that he will succeed in driving responsible growth in our commercial lending group in addition to hiring bill we have added more resources to our lending teams and have expanded our lending presence in Pennsylvania and Westchester. Our credit quality is strong and for the quarter continued to improve as our non-performing loan ratio decreased 8 basis points to 39 basis points. This ratio compares favorably relative to our peer group. Our net charge-offs also decreased to $5.5 million from $6.8 million in the trailing quarter, which is also low relative to our peer group. we are confident in our underwriting and portfolio management standards as well as the quality of our portfolio we have seen a modest decrease in our total loan pipeline to approximately 1.8 billion in the fourth quarter from approximately 2 billion in the preceding quarter the weighted average interest rate is 6.91 compared to 7.18 in the trailing quarter the pull through adjusted pipeline including loans pending closing is approximately 1 billion this quarter providence feed-based businesses continue to excel provident protection plus had 19 organic growth in the fourth quarter as compared to the same period last year in addition it had over 16 organic growth over the last 12 months and its retention rate was 100 percent beacon trust assets under management grew to 4.2 billion which represents a 7.5 percent growth relative to last year income improved 12 percent relative to the last quarter of 2023 and was driven by good investment performance as we enter 2025 we are pleased that the merger is now behind us the fundamentals of our company

are strong and we have built a solid foundation for growth we are optimistic about the operating environment and our ability to build our business which will help us produce even more value for our customers employees and stockholders now i'll turn the call over to tom for his comments on our financial performance tom thank you tony good morning everyone as tony noted we reported net income of 48.5 million dollars or 37 cents per share for the quarter excluding charges related to our merger with lakeland bancorp for earnings with 62.9 million dollars in the current quarter for 48 cents per share with a core roa of 1.05 percent further adjusting for the amortization of intangibles our core return on average tangible equity was 15.39 percent for the quarter note that all merger related charges have now been recognized with no further merger expense to be recorded in 2025. excluding merger related charges pre-tax pre-provision earnings for the the current quarter were $91.8 million or an annualized 1.53% of average assets. Revenue totaled $205.9 million for the quarter, and our core net interest margin increased four basis points from the trailing quarter to 2.85%. Including 43 basis points of purchase accounting accretion, our net interest margin was 3.28% for the fourth quarter. We currently projected them in the 335 to 3.45% range for 2025. Our projections include two additional 25 basis point rate reductions in September and December 2025. During the quarter, we reclassified 151.3 million dollars of non-relationship equipment lease loans to held for sale. Excluding this transfer, period and total loans were essentially flat for the quarter, as growth in multifamily and commercial loans was largely offset by reductions in CRE, construction, residential, and consumer loans. December closings were strong, however, and our pull-through adjusted loan pipeline at quarter-end was $1 billion with a weighted average rate of 6.98% versus our current portfolio yield of 5.99%. Deposits increased to $148 million or an annualized 5.4% from the trailing quarter to $18.6 billion at December 31st, with growth driven by municipal and consumer non-interest bearing and money market balances. As a result, our loans-to-deposit ratio decreased slightly to 101%. The average cost of total deposits decreased 11 basis points to 2.25% this quarter. Asset quality remains strong, with non-performing loans representing just 39 basis points of total loans, NPAs to assets declining to 34 basis points, total delinquencies at 57 basis points of loans, and criticized and classified loans totaling 2.67% of loans. Net charge-offs were $5.5 million or an annualized 12 basis points of average loans this quarter. The provision for loan loss has decreased to $7.8 million this quarter, reflecting specific reserve requirements, and some deterioration in the macroeconomic variables that drive our CECL estimate. This increased our coverage ratio to 1.04% of loans at December 31st. Non-interest income decreased to $24 million this quarter, mainly due to fewer boldly benefit claims and a seasonal reduction in insurance agency income. Non-interest expenses, excluding Merger-related charges were $114 million, with expenses to average assets declining to 1.90% and the efficiency ratio improving to 55.4% for the quarter. Non-interest expenses for the quarter included certain items that are not expected to recur in the 2025 run rate, including a $1.4 million litigation reserve charge and approximately $1.6 million of year-end adjustments to incentive accruals. we currently project quarterly core operating expenses of approximately 112 to 115 million dollars for 2025. our effective tax rate for the quarter fell to 22.6 percent due to a 4.2 million dollar benefit reported on the revaluation of certain deferred tax assets we currently expect our 2025 effective tax rate to approximate 29.5 percent regarding projected 2025 financial performance, we currently estimate return on average assets of approximately 1.15% and return on tangible equity of approximately 16% with an operating expense ratio of approximately 1.80% and an efficiency ratio of approximately 52%. That concludes our prepared remarks. We'd be happy to respond to questions.

At this time, I would like to remind everyone in order to ask a question, simply press star than the number one on your telephone keypad. I'll pause for just a moment to compile the Q&A roster. And your first question comes from the line of Mark Fitzgibbon with Piper Sandler. Mark, please go ahead.

Hey, guys. Good morning. First question I had, Tom, you know, I guess I'm curious how you hit that $26 million fee projection in like the third and fourth quarter when insurance revenues decline seasonally what what's kind of the offset there i mean what are some of the other items that you anticipate being higher um to to mitigate that uh seasonal decline in insurance yes that's that's an average over the course of the year mark so we're going to see seasonal improvement in the first half of 2025. in addition there's some volatile items in there as you know regarding um gains on loan sales swap fee income um sba loan sales insurance contingency in the first quarter which makes it higher than 26 million right and also boley death benefit claims uh you know we don't model those but there's the actuarial component to that where we see some recognition of income there so overall we expect the 26 million a quarter is a reasonable number so is it for the bully number um is it a normal run rate excluding death benefits sort of two and a quarter 2.3 billion is that a the right number um is that on top what we recorded yeah mark i think so that's correct yeah this quarter had none so that's a typical run rate mark yep okay great um and then i guess your expense guide looks like it assumes some pretty heavy lifting, I guess, you know, what are some of the bigger pieces of that? You know, where do we have cost synergies coming? Is it, you know, residual stuff from the Lakeland deal? Or is there other things where you think you can sort of reduce expenses on?

Yeah, I mean, we kind of worked off of the beginning reported expense for this quarter, Mark, backed out that the non-recurring items, and I mentioned a few of them in the comments, took into account the additional payroll, employer payroll taxes in the first quarter, worked through the full cost savings, which were realized at the end of Q4, so we took full benefit for that in Q1. I'm getting about $113,000 or $114 million for the first quarter, so the $112 to $115 guide seems reasonable. We'd expect to see that stabilize, maybe even trail off a little bit in the back half of the year.

Okay, and I think you said you're assuming 225 basis point cuts in rates. What does each 25 basis point cut mean for NII or the margin?

To be honest, not a whole lot. The balance sheet is so neutral that we ran a number of scenarios, both with growth and different rate cut environments, and very tightly clustered in terms of NIM. And the difference in net interest income is at most a couple of million dollars up or down, a couple hundred basis points even.

Okay. And lastly, Tony, I guess I'm curious from your perspective, you know, what are sort of the top two or three priorities for the company right now?

So a few of you, no profit. We're pretty good at the risk management and our balance sheet is pretty strong. So as we move into 2025 and beyond this year, in no particular order, I would probably say the, you know, continuing to build on our culture and nurture the team dynamics of bringing two companies together. Growth, growth and growth are still going to be our biggest focus for this year in all sectors. I think some of the things that we're excited about is the changes that are happening in our commercial bank and treasury management and seeing some good dynamic growth there in deposits. Our fee-based businesses are still dry. And lastly, I would say huge focus about deepening share across the channels. That's big, and I think with the Lakeland merger, being able to deploy some of that is also going to be very creative for us. And we want to do this while, and I know you mentioned it, while we're maintaining operational efficiency. So that's really the focus for me and the team as we move into 2025.

Thank you.

Welcome. Thanks, Mark. And your next question comes from the line of Billy Yong with RBC Capital Markets. Billy, please go ahead. Hey, guys. How are you?

Good morning, Billy and Bill.

Good. I guess for us, just kind of like a bigger picture question, looking at your adjusted returns for the quarter and your 2025 return targets, how do you think those returns kind of stack against your longer-term franchise goals?

Do you see room to kind of optimize and do better than that longer term? i think there's the continued ability to gain efficiencies and scale um which should continue to improve the returns metrics overall yeah i would add to that that you know we've we've done uh yeoman's job a lot of effort this year in building the foundation for an organization that could be some good strong growth uh we've we've done much and i think we're prepared and i think as we continue to build we won't have to scale up at the same level so we can take advantage of that um we put we put some good dynamics for for loan growth in this coming year um and we'll continue to look at at areas to become even more efficient so i think uh it's really growing our

businesses and being able to handle the scale without adding to the the operating expenses got it thank you for that uh and then just uh switching to loan growth a little bit um you know I think we've spent the last couple of quarters talking about kind of improving, um, activity and, um, you know, better, uh, customer sentiment hasn't really shown up in the bottom line of numbers yet, but, you know, I kind of understand there's some moving parts this quarter. Um, it feels like, you know, payoff activity was a little bit elevated this quarter. It's been a little bit of a headwind kind of, do you need to see that moderate a little bit to kind of get to your 5% growth target for 2025, or what is it that gives you confidence that you'll get there?

Well, I think if you remember last quarter, we gave a little bit of caution that we might see some creep prepayments, and we saw some of that. This quarter, we also had about 50% of the 328 million that I mentioned was just maturities and loans and sale of the underlying property. so that's just something that you can't really gauge um and about half was uh refinancing away from us so the way i i feel comfortable about it is you know we've made some good dynamic changes in our commercial bank we have good leadership team there that across all our segments that can really build our business we're seeing activity um if the operating environment cooperates like and and the rate cycle i think that we're going to really jump ahead right so there's there's those small headwinds that i mentioned but we have the appropriate complement to be able to produce growth in excess of the numbers that we're guiding you guys on and if if you know just to give you a sense the 712 million that we closed this quarter we really need to be somewhere at the size of the bank that we are now between 24 and 25 billion we need to be closer to about eight eight to 900 million of production and then you take about 40 percent of that and that's what really affects, goes to your outstandings. That's sort of the algorithm or calculus that we do. And so we're able to see that, that 712 in this environment. So again, the only thing I would caution is the operating environment. In terms of providence capacity and having the right complement, the right leadership, the right go-to-market strategy, enhancing our treasury management, I'm pretty excited about that. And I think 25 is going to demonstrate that. But we've had some headwinds of change. Obviously, John retired, our CLO. We've got new changes there. We see opportunities coming from even the legacy organizations that some of those change agents have come to us from.

So long-winded answer to say, I know it hasn't showed up in our results in the last couple of three quarters, but we're feeling pretty good about the foundation to build as we move forward yeah if i could just add a couple of thoughts tony i i think our market position currently is very strong i know some of our competitors have some other internal issues that they're dealing with and so i think we have the ability to be a real dominant player in the over the next year i think tony referenced a little bit some of the distractions we saw with integration and core systems conversion all that's behind us now so i think there's a full focus on on moving forward and then in tony's prepared comments he did reference uh bill fink joining us as chief lending officer and some other ads on the revenue producing side that we expect to see

really generate some growth so pretty optimistic yeah so so i would answer i would say one last thing if you if you you know on that we've been historically very strong on growing the crease side of the business if you look at at the under the real underlying uh sort of silver lining in our commercial growth in our production is that most of the growth we've seen has come in the cni space and our specialty lending businesses which have done really well if our cream which i think we could amp up you know we had some some noise around creed this year if we could amp up our creed to this traditional levels which i think that's probably easier for us to do than the other size that we should achieve the numbers that uh that we're going to and maybe overachieve

appreciate it thank you for taking my questions and your next question come from the line of tim switzer with kbw tim please go ahead hey good morning thank you for taking my questions um my first one is on kind of looking for a little bit more clarity on the expense outlook it's kind of a wide range there and um you know you're talking about 113 to 114 million for the first quarter but then maybe trails down a little bit in the back half of the year what would be driving um that improvement later in 25 is that like seasonality or um some initiatives you have that would maybe be coming

offline yeah typical seasonality tim with the employer payroll tax thresholds being achieved and some of the um utility maintenance kind of costs that you see in the colder months of the year being a little bit more elevated in the first quarter okay and what would maybe drive you i I guess, to the higher end of your range, if you're thinking 113, 114 Q1, and then down from there. You know, only additional investments in terms of core operating expense. I mean, things that come, that I consider to be outside of operations would be decisions made around resolutions of non-performing assets, as an example, where you might take a loss that's not reflected in these core projections. And sorry if I missed this earlier, but is this quarter a good level for purchase accounting accretion going forward yeah i think it's a good base tim uh it's a little bit unpredictable because of the volatilities and the cash flows i mean what happened to us this quarter is we saw fewer prepayments of loans that had acquisition discounts and we actually saw some prepayments of loans that had acquisition premiums in the sba book that was acquired there's not a lot of premium loans left in there it's about total of about 2.4 million dollars um but that was about eight hundred thousand dollars of the reduction in the current quarter oh wow okay um and i think we've asked this before but you know are you guys considering a securities destruction just given the change in the yield curve and with some of your lower yielding assets it seems like it could give you a nice earned back uh relatively quick no tim i think we continue to feel that it's appropriate to hold the assets we don't see the again in an efficient market we don't see the earn back in a short enough time frame to warrant that we did do the restructuring in connection with the acquisition of about 650 about 550 million dollars at the lakeland acquisition because there it made sense the the hit to equity was already baked in through the purchase accounting you might want to add that we're thinking about this thoroughly since we we've made the announcement on the leasing you might want to expand on that oh that's true we i mean we did decide as you saw in the orange release to exit the non-relationship portion of the equipment lease financing business, so I consider that a restructure. It's not a big spread business, and we think it's just not attractive from a building-the-franchise point of view and better use of capital.

Yeah. That makes sense. Thank you, guys. Thank you.

And your next question comes from the line of Fetty Strickland with the Huffday Group. Fetty, just go ahead.

Hey, good morning.

I was wondering if you can update us on the opportunity with upcoming CD maturities and what you're seeing on repricing CDs today.

Yeah, CDs repricing over the next 12 months total about $3 billion, $1.2 billion in the first quarter. About 57 basis points of pickup in the first quarter. When I talked about how neutral our balance sheet is, it's funny. if you look at floating rate loans are about 4.8 billion dollars and the maturing cds and uh and borrowings are about 4.3 billion dollars over the next 12 months um and then the flexibility on the rest of the other liability side of things we also have a slight repricing downward on some of the specialty pricing deposits that are non-cds coming yeah that makes up the rest of the difference why i say that no regardless of the rate environment really the the impact on the nim is fairly minimal And then I wanted to dig into fees, really wealth in particular.

You know, two questions on that. Number one, is there an opportunity to move that average fee higher from that 73 basis points or so? And then the second portion of that is, do you see what are the opportunities to go to the non-advisory portions of the wealth business?

I don't think that there's a lot of ability to up the fee rate. The 73 is pretty strong relative to the industry and the peer group. Exactly.

I think the game for us is to up the AUM. And if we can keep the fee at that relative level, I think that will be the success in that space. The second part of that question was with the, is that the, I didn't get the second part. Could you repeat it, Fetty? The non-advisory portions?

What do you mean like- Just grow the non-advisory portions of the business.

Yeah, I think that's been growing. For us, I think we, this year, I think we did, I think 300 and something million dollars of new mostly outside bank growth in that business it's not a what i would call a material segment of our space um but it's a good contributor and ultimately i think we i would love to see more graduation and from that space and into as assets build and into more of our beacon wealth business you know so having more of a synergy there but ideally i think from my perspective i see the The greatest promise for us is to continue to synergize across the channels and have our AUM growth on the Beacon side is going to be the greatest path for improved profitability.

Yeah, I'm not sure if we understood, but let me just check the question. I think Tony was referring to the non-deposit investment products outside of Beacon, but I think you might have been asking about non-advisory services provided by Beacon. Is that correct? Things like the tax estate, that kind of?

That's correct. i was just wondering whether that you know i guess the the pie grows a little bit for those sections relative to the non-advisory or relative to the advisory part of the business it does but it's a relatively small portion really the the money at deacon is made through the advisory services got it uh and just last question uh wanted to touch on credit i know there's not a pond in terms of mpas but could you talk about potential opportunities to resolve uh some of the non-performing loans over the course of 2025?

We continue to work with the customers. We look at note sales to see where they make sense. On the REO side, we're trying to work through a couple of resolutions. On the remaining, I think it's about $9.6 million left in real estate-owned. We expect to see some of that continue to move. We do a pretty good job of retaining those non-performing assets for a relatively short period of time.

I think we have a good group in the resolution area and they have good active strategies on the best path out for all the things that are moving into so we're pretty comfortable um but things don't stay in there forever and there's a good exit strategy all right great thanks for taking my questions thank you and our final question comes from the line of manuel navas with the a davison manual please go ahead hey good morning could you speak a little bit more to the good morning um can you speak a bit more to the kind of the wild cards around the NIM range, what could get you to the top and what could get you to the bottom?

Really the biggest driver is the shape of the curve. So long as the longer end stays somewhat anchored on the 10-year side of things, especially that's where we see a little bit of a pickup rates down versus rate up. Rates up is that we see more benefit to the wholesale funding cost and a little bit on deposits. But at deposits, you get to a level where I think the beta starts to drop more. that's really the primary challenge there is just that the shape of the church the curve changes materially the other thing would be uh the accretion which has volatility and and growth overall right we talked about um last quarter i believe and we're going to continue to execute on that adding some to the securities portfolio like to see that get up to about 15 percent of assets the spread on that's a little lower so it could drive the nim down a bit but still give us greater net interest income so that that's great um you've been able to uh lower uh deposit costs

pretty pretty well um is it is there any difference in the first 75 basis points versus the december cut and um uh is that is there still going to be some deposit costs dealt into the first quarter beyond cd repricing yes you'll see cuts that were effective january 1. any any difference in the difficulty of those cuts or pushback no when the initial cuts came through the communication was pretty clear that uh that there were going to be continued movements in in line with the fed for the most part so i would expect uh a lot of those communications happened between the relationship

managers and a lot of our customers um so not only did they inform about the rate cut but they informed about prospective rate cuts and what the the impacts would be so um it shouldn't it you know since the stability is there we haven't you know we're pretty we're pretty comfortable that the clients are well informed and um their behaviors you know one of the things we saw this quarter act which which wasn't clearly pointed out we also saw some good consumer deposit flowing most of that growth happened in in the consumer side both non-interpreting and interest-bearing and also some municipal our business deposits were actually cycling down through the payments of bonuses taxes etc which we we didn't see any account closure so most of that will we expect to kind of recycle back in so with the consumer activity coming back which has been the outflows over the last, you know, since COVID, I think that that is probably a good indication that that flows in and if our commercial deposits come back in, it should bode well for our growth as we move forward.

I appreciate that. Can you expand a little bit more on the, just kind of shifting gears to the opportunity geographically? You brought up Pennsylvania and Westchester. Or just could you add some more color, maybe sizing or timing of that opportunity?

Sure. In my spoken comments earlier, I mentioned that we added more compliments to our current lending teams in our present markets. In addition to that, we've also expanded by having, I think, a four-person team into Pennsylvania, and I think two more individuals into the crease base in Pennsylvania. and so that that'll help us grow the you know we have a sort of a more focused strategy in building out our eastern pennsylvania uh marketplace which we have a good presence in and i think those folks will help us build that in tandem working with our our other our retail side we're looking at both building you know not only the commercial but the treasury management and deposits as well in their market and then we've added some compliments in the westchester in new york westchester not just to Pennsylvania, to be able to build out some of the lending in that space. So, you know, we're pretty comfortable, and I think Bill Fink coming on board. Perhaps he'll build out his team from folks that follow him. And, you know, it's a pretty exciting time. I know it's not showing up in the balance sheet just yet, but I'm pretty comfortable that we've set the foundation for good growth as we move forward. Thank you. appreciate the commentary thank you that concludes our q a session i will now turn the call back over to antonio level setta for closing remarks tony sure um i just wanted to say thank you to everyone and um appreciate the good questions this quarter um i'm pretty comfortable and optimistic for providence future um i wish you all a a good 2025 and look forward to having uh conversations with you in the near future.