Ladies and gentlemen, thank you for standing by. My name is Abby and I'll be your conference operator today. At this time, I would like to welcome everyone to the Provident Financial Services second quarter earnings 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 that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. And I would now like to turn the conference over to Adriano Duarte, Investor Relations Officer. You may begin.

Thank you, Abby. Good afternoon, everyone, and thank you for joining us for our second quarter earnings call. Today's presenters are President and CEO, Tony Labazzetta, 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 is contained in this morning's earnings release, which has been posted to the Investor Relations page on our website, Provident.Bank. Now, it's my pleasure to introduce Tony Labazzetta, who will offer his perspective on our second quarter. Tony.

Thank you, Adriano, and welcome everyone to the Provident Financial Services earnings call. The Provident team delivered an impressive performance this quarter. Our team gained momentum with solid earning asset growth, improved margins and asset quality, record earnings, and expansion of tangible book value. During the quarter, we reported net earnings of $72 million or $0.55 per share. Our annualized return on average assets was 1.19% and our adjusted return on average tangible equity was 16.79%. For the second quarter, pre-tax, pre-provision return on average assets was 1.64%. These core financial results improved from the trailing quarter and the same quarter last year and we are confident in our ability to sustain this momentum throughout the remainder of 2025 we continue to build our capital position which comfortably exceeds levels deemed to be well capitalized for the quarter our tangible book value per share grew 45 cents to 14.60 and our tangible common equity ratio expanded to 8.03 as such this morning our board of directors approved a quarterly cash dividend 24 cents per share payable on august 29th during the quarter our deposits increased 260 million our annual annualized growth rate of 5.6 percent we continue to improve our average cost of total deposits which decreased to 2.1 percent during the second quarter our commercial lending team closed approximately $764 million in new loans, bringing our production to a record $1.4 billion for the first half of the year. As a result, our commercial loan portfolio grew at an annualized rate of 8%. This quarter's production consisted of 20% commercial real estate and 80% commercial and industrial loans. Our strong capital formation combined with our production mix has reduced our CRE ratio to 444%. Adjusting for merger-related purchase accounting marks, the CRE ratio is actually 408%. Notwithstanding the high level of loan closings this quarter, our loan pipeline remains robust at approximately $2.6 billion, and the weighted average interest rate is stable at 6.3%. The pull-through adjusted pipeline, including loans pending closing, is approximately 1.6 billion. We've remained confident about the strength of our pipeline and our ability to achieve our commercial loan growth expectations for the rest of the year. Our credit quality is strong relative to our peer group with a modest improvement in our non-performing assets and a decline in delinquencies and classified loans. Our net charge-offs decreased this quarter to just 1.2 million or three basis points of average loans. These numbers demonstrate our commitment to prudent underwriting and portfolio management standards. Overall, Providence fee-based businesses perform all this quarter. Providence Protection Plus maintained its strong performance with an 11.3% increase in revenue for the second quarter, and its income was up 10.1% compared to the same period in 2024. for. Given market conditions early in the quarter, Beacon Trust's revenue declined 5.2% due to a decrease in average market value of assets under management. However, asset valuations have recovered and Beacon closed a quarter with $4.1 billion in AUM, which is consistent with the trailing quarter. The Beacon team is focused on building AUM, and I am pleased to report that beacon has hired a new chief growth officer to further this objective with a projected start date late in the third quarter overall we are proud of our performance this quarter we have a dynamic team and a solid foundation to grow our core businesses expand profitability and create even more value for our stockholders and customers building our strong results we believe we will continue this momentum and achieve our desired goals for the remainder of 2025 now i will turn the call over to tom for his comments on our financial performance tom thank you tony and

good afternoon everyone as tony noted we reported net income of 72 million dollars or 55 cents per share for the quarter with an roa of 1.19 percent adjusting to the amortization of intangibles our return on average tangible equity was 16.79% for the quarter. Pre-tax pre-provision earnings for the current quarter were $99.6 million or an annualized 1.64% of average assets. Revenue increased to a record $214 million for the quarter, driven by record net interest income of $187 million and non-interest income of $27 million. Average earning assets increased by $383 million dollars or an annualized seven percent versus the trailing quarter with the average yield on assets increasing five basis points to 5.68 percent our reported net interest margin increased two basis points versus the trailing quarter to 3.36 percent while our core net interest margin remains stable we currently project the nim in the 335 to 3.45 range for the remainder of 2025. Our projections include 25 basis point rate reductions in September and November. Period end loans held for investment increased $318 million, or an annualized 6.8% for the quarter, driven by growth in commercial, multifamily, and commercial real estate loans, partially offset by reductions in construction and residential mortgage loans. C&I loans grew at an annualized 21% pace, while total commercial loans grew by an annualized eight percent for the quarter our pull through adjusted loan pipeline at quarter end was 1.6 billion the pipeline rate of 6.3 percent is accretive relative to our current portfolio yield of 6.05 percent period end deposits increased 260 million dollars for the quarter however average deposits decreased 278 million versus the trailing quarter the average cost of total deposits decreased to 2.10% this quarter. Asset quality remains strong with non-performing assets declining to 44 basis points of total assets. Net charge-offs were just $1.2 million or an annualized three basis points of average loans this quarter. In addition, total delinquencies declined to 65 basis points of loans and criticized and classified loans fell to 2.97% of loans. This strong and stable asset quality coupled with an improved economic forecast used in our CECL model, drove a $2.9 million reserve release this quarter. This brought our allowance coverage ratio to 98 basis points of loans at June 30th. Non-interest income was steady at $27 million this quarter, with solid performance realized from poor banking fees, insurance and wealth management, as well as gains on SBA loan sales. Non-interest expenses were $114.6 million, with annualized expenses to average assets totaling 1.89%. And the efficiency ratio improving to 53.5% for the quarter. We reaffirm our previous guidance of quarterly for operating expenses of approximately 112 to $115 million for 2025. Our effective tax rate for the quarter was 29.7% and we currently expect our effective tax rate to approximate 29.5% for the remainder of 2025. Our sound financial performance supported asset growth and drove strong capital formation. Tangible book value per share increased 45 cents or 3.2 percent to $14.60 and our tangible common equity ratio improved to 8.03 percent from 7.9 percent last quarter. That concludes our prepared remarks. We would be happy to respond to questions.

And thank you. We'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue if you would like to withdraw your question simply press star one again if you're called upon to ask your question and are listening via speakerphone on your device please pick up your handset and ensure that your phone is not on mute when asking your question again it's star one to join the queue and our first question comes from the line of mark fitzgibbon with piper sandler your line is open hey guys good afternoon hey mark how are you good first question i had for you tony is on the the beacon business i heard your comments about you know growth starting to ramp with some new people i i guess i was curious is there any change

in strategy or is it just simply you brought in some new people that will go out and market aggressively and grow the business uh or are you trying to to kind of market to a different audience uh great question i i really don't think i would call it much of a strategy change i think our focused has been growing the AUM.

Beacon is a really strong platform. I think one of the things that we're looking to enhance is the sales and service, more to the sales side, right? I think we're trying to build a bigger force that could easily work with our business line partners on the other commercial, retail, treasury, insurance, so that we can penetrate not only our existing business, but we can also get new to bank or new to Beacon clients as well. So it's a forward strategy with with and also a focus on retention and so integrating it better into our businesses is what we're trying to do and i think uh the individual we hire for this for this role is going to be key to to that initiative okay and then a couple questions around provisioning you mentioned in the release that you know part of the reason for the reserve release was um improved sort of the economic forecast i assume is that moody's their assumptions changed that's correct mark moody's baseline and primarily in our case the the main driver in terms of macroeconomic variables is the commercial property price index that drove most of the release okay and then kind

of related i guess i was curious your your bottom line roa and roe estimates kind of imply that provisioning will be pretty modest in the back half of the year am i thinking about it the right way because you've given really good guidance on most of the other items and that's the one that it kind of sticks out.

I think that's the case, Mark. If you look at asset quality, we saw some nice improvement in terms of criticized and classified and you don't see it in the release, but the watch list credits have improved as well. And for good economic reasons, we saw improved lease up in both the retail, commercial real estate space, as well as the multifamily space. So feeling pretty good about credit quality overall.

Barring any shift in market conditions or some global event, I think that's a good outlook.

Yeah, and I will know, Mark, even though you saw a small increase in dollars of NPLs, there's virtually no lost content in the drive of the increase. There was one loan in excess of $10 million. It was really almost, I guess, a technical non-maturity in the sense that there's some ownership concerns among the owners of that business as to the disposition of the property, but really strong valuation. So we're not concerned about losses there.

Okay. And then last question, Tony. Tony, last quarter, I had asked you about sort of M&A, and you said you're focused on organic growth but open to M&A. However, your stock price didn't fully reflect the strength of the company, et cetera. Your stock is up maybe 10%, 12% since then. Do you feel like the currency gives you capacity to be able to seriously consider M&A at this point?

Well, you know, if I wasn't clear last time, I think we're always in a place where we have to evaluate all our strategic options, and we continue to do that. I think right now our main focus is on organic growth, but we're not closing the door to M&A at all. In fact, if the right opportunity to admit the strategic things that I talked about last quarter came up, we would have to entertain, observe it, and evaluate it to what it means for our shareholders as we go forward. But I think the price is starting to, you know, reflect a little bit more of what we think Provident is, and I think there's still some more room that we can move there. Great.

Thank you. and our next question comes from the line of steve moss with raymond james your line is open hey guys this is thomas on for steve thanks for taking my question i just want to start it off uh with loans here cni growth was really strong you know what what's driving that right now is it more line utilization or is it you know new originations and maybe what What additional hiring opportunities are you seeing for C&I lenders these days?

Well, I would characterize our organizational capacity is where we want it right now. And, you know, additional hirings will come from the standpoint of expansion and what we're thinking about. I think that growth is because of the book. I think that growth, not only the book, but also Bill Fink being here, the team's focus on C&I. You know, we have a very diverse set of products today that we didn't have three years ago. We have the ABL, health care lending, mortgage warehousing, SBAs ramping up. So we have all these businesses. They've all contributed nicely to our production this year, this quarter. And our pipeline shows that they'll continue to contribute nicely. But our focus is not away from Cree. I just want to be careful not to express that. We're growing our Creebook. We're doing it. It's just that those other lines are moving at a much faster pace. And so we're pleased with that. They're bringing in some great deposits with it. We do have the capacity, but we'll just keep going when we need to. And we have a good plan on expansion, both from a capacity numbers and geography. So I think I'm pretty pleased with the general direction of where we are with the commercial bank.

And I would agree with Tony that it was primarily driven by origination, but we did see increased line usage over the last number of months. We call it normalization. We were traveling in a low territory for a long time, as I guess was much of the industry. We're back up around 45% line utilization. And I'd add also in terms of the pipeline, Tony talked a little bit about the mix going forward. About 40% of the pull-through adjusted pipeline is in Cree. About 55% is in the commercial categories. And about 5% consumer.

I just would like to round out that comment by saying it's not accidental. I think part of our strategic objective was to diversify our commercial books so we're not Cree heavy, and as you can see by the reported number, that if you adjust for the merger-related charge, we're at 408. That's a pretty solid number, and it'll continue to improve as we continue to build our other lines of business. Especially when you consider we were at 475 a year ago.

That's all great, Cull. I really appreciate that. And if I can get one more in, you know, wealth management fees did feel a little light at 68 basis points of EOP AUM. Was that driven by maybe lower average AUM from market volatility or maybe something else?

Yes, that is the case for the quarter. As Tony noted, I think in his opening comments, the average balance was down. It impacted revenue for the quarter, but we did see market recovery and we're back up actually a little bit ahead of where we were at the end of period uh at the first quarter so client count has remained constant we're actually a plus three on the client account the aum per client has gone up a little bit so nice recovery by the end of the period okay great that makes sense all right that's all for me thanks guys thank you and our next question comes from the line of fetty strickland with hovde group your line is open hey good afternoon um just wanted to start on the expense guide.

Last quarter, I think you mentioned you might be able to come in potentially at the lower end of the range. Do you still feel like maybe that's achievable and we can see the quarterly expense line even come down a little bit in the back half of the year?

I do, Fetty. So there was a little bit of unanticipated what I would consider non-recurring costs in terms of some severance charges, about $750,000 to a million dollars, let's say, in non-recurring there. That said, the back half of the year is usually when we take a closer to look at some of our incentive accruals for the current period as we get greater visibility into where we might end the year. So, the various incentive programs throughout the different disciplines in the bank, we try to get a finer point on a little more precise, and that can affect the accruals either positively or negatively. So, that's why we're given a range of 112 to 115.

Got it. Appreciate that. And just wanted to talk through the municipal deposit flow seasonality, kind of what your expectations are there, and am I thinking about that correctly, that maybe the increase in broker deposits is really to replace some of that outflow, and then we could maybe see those broker deposits come back down as you maybe have some seasonal inflows in municipal deposits?

Yeah, I think that that's a fair statement. I would kind of expand on that to say, you know, we also allowed some high-yielding CDs that we had, you know, on our books from pre-merger during the liquidity times, and that was just a tradeoff between the broker deposits or, you know, the consumer CDs, which were high yield, and we thought that was a good trade, and it also made up the delta in funding needs because of the municipal outflow. So, there was a combination of those two things. If you look at our municipal pipeline now, not only do we expect the flows, which are strong in the third quarter, particularly this month, and we're starting to see that, but you also are now seeing uh the pipeline of municipal potential new municipal business is also there so that that that should come along nicely if uh as we achieve um those wins you are correct though that the municipal deposits the trough is the deepest in the second quarter historically all right great thanks for the color thanks and our next question comes from the line of Tim Switzer with KBW.

Your line is open.

Hey, Tim. Hey, good afternoon. Thanks for taking my questions. With you guys a little bit less interested in M&A right now, do you have like a target capital level you're trying to get to and how does that play into your appetite for more share repurchases?

I don't think it's a significant strength. I kind of like around 11 and a quarter for the CEP one okay okay and uh sorry this has already been asked but for the nym projector you guys took up the high end of the guide a little bit um can you talk about what's helping drive that and you know how would fed rate cuts impact your uh your margin um the balance sheet's fairly neutral so i mean the two cuts to 25 basis points are built into that margin expectation you know there's we've run a whole number of models i'm working off the most likely though, but it looks like around a 340 in Q3, maybe exiting as high as 345, 347, even at the end of the year. But again, exercise a little caution in that. And again, that's two rate cuts in September and November.

Great, okay, that's good to hear. And the last one for me, the loan pipeline moved down just slightly lower, but you obviously had pretty good growth in Q2.

Is there any like slowdown or uncertainty need causing borrowers to be more cautious at all or um you know everything still looks pretty pretty good people aren't too concerned about tariffs or anything like that yeah actually i that's one of the real uh bright spots um you know while the pipeline went down it did go down because of some what i would call very strong loan closings in the court right and i think the key is we scrub our pipeline incredibly well so the stuff that's in there we feel pretty good about it um and uh so we also uh in all the conversations with our verticals don't see any signs of anything slowing down immediately the the replenishment appears to be happening um we we do expect to have a nice pull through in the third quarter and continue to replenish it and so um again i i don't see anything right now that i'm concerned i think it's a bright spot for us moving forward okay great thank you guys and our final question comes from the line of manuel navas with da Davidson.

Your line is open.

Hey, I appreciate that commentary on the NIM in the back after the year. Is the main drivers there the accretive new loan production with deposits kind of being more flat, or could you see some deposit costs declines as well? I guess you do include two cuts, so that's part of it as well.

Yeah, I would put more emphasis on the asset repricing, though. You got about six billion of the existing back book repricing over the next 12 months um you know about 5.1 billion is floating so you know as the rates move we should see that benefit and then the new loan production coming on at the creative levels as well i would be cautious about taking too much credit even with the rate cuts on the funding side just because the competitive environment i think is a little bit more challenged now uh deposits are a high commodity yeah i i i would i would characterize i would add one dimension to that i think uh certainly there's a lot of accretive loan production.

I think whether we're in the high end of the range or low end of the range, it's going to be dictated by the plumbing side. But I also want to preface us that while we make managerial decisions, we're focusing a lot of our energy around the NII. So we'll be willing to give away one or two basis points if our NII can grow.

So I just want you guys to remember that for the next earnings call that'll be management decisions that will make to drive better earnings um and and that's part of the management game right that's a really good point and you saw some of that even on the investment portfolio side i think i mentioned last quarter i'd be very comfortable taking the investments back up to about 15 of assets we're still a little bit under that now but the leverage growth obviously gives you a little bit less spread but but good income with with very little credit losses because we're buying high quality treasuries and agency securities right but but we're feeling pretty good because some of the funding growth that we're seeing and if that manifests along with the loan production it should be well in the range of what tom is saying i definitely sense the optimism uh on on

nii growth uh could you speak a little bit more to that competition you're seeing just uh in some of that commentary i mean that's also because there's more demand out there but just i could just speak to that for a moment yeah i think a lot of the competition we're seeing now and tom can jump in at any moment we're saying on the consumer deposit side we're seeing more of the stress right whether they're uh the the deposit accounts moving into uh money markets or other banks are starting to get a little bit more competitive for the space particularly with cd products um our business deposits are stable and growing um just a back point for for everybody on this call um we're probably funding about 30 percent of our of our commercial production commercial funding is being done with business deposits and that that's a pretty good ratio and so the like i said if we can have the municipals come back we're not seeing a lot of stress there in terms of competition we're seeing the competition more on the consumer side not that the municipals don't have it but the biggest level of competition is happening on the consumer deposits. Tom, would you like to add on that?

I think you covered it just to accentuate that it's not just banks, it's the availability of viable investment alternatives for folks as well. You can get a decent return. Right.

I really appreciate the commentary. Thank you. You're welcome.

And that concludes our question and answer session. I will now turn the conference back over to Mr. Tony Labozzetta for closing remarks.

Well, thank you everyone for your questions and joining the call we hope everyone has an enjoyable summer and a great rest of the year we look forward to speaking with you soon thank you very much and ladies and gentlemen this concludes today's call and we thank you for your participation you may now disconnect