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Text: Today's presenters are Chairman and CEO, Chris Martin; President and Chief Operating Officer, Tony Labozzetta; and Senior Executive Vice President and Chief Financial Officer, Tom Lyons.
Now it's my pleasure to introduce Chris Martin, who will offer his perspective on the third quarter.
Provident's third quarter results were strong, and we believe the business climate is promising as we look into Q4.
Earnings of $0.49 in the quarter exceeded last year's results by 32%.
And performance was augmented by several factors, including an improving economy as it continues to decline out of COVID restraints, better credit metrics and the achievement of earnings acceleration from the acquisition of SB One.
The quarter was marked by growth in net interest income and a strong return on average assets of 1.11% and return on average tangible equity of 12.04%.
Based on their confidence in our earnings outlook, our Board approved an increase in our quarterly cash dividend to $0.24 per share, representing an increase of 4.3%.
And during the quarter, we also repurchased approximately 630,000 shares of our common stock at an average price of $22.04 per share.
Our capital position is strong and comfortably exceeds well capitalized levels.
As Tony and Tom will detail in their remarks, we are dealing with excess liquidity, not unlike many other financial institutions.
We have diligently deployed a portion of that liquidity into securities, but obviously, loan growth would be our preferred investment.
We anticipate the Fed will commence tapering their quantitative easing purchases in the fourth quarter, which we hope will result in a steepening of the yields curve.
This always takes a while to make an impact, but would signal positive economic outlook, and a moderate amount of inflation would be positive for the bank.
With a fairly neutral interest rate, risk position, excess liquidity and stable low-cost deposit funding, we continue to be well positioned to benefit from a rise in interest rates, while remaining well protected if rates remain low.
The focal point for Provident was our loan growth ex-PPP, which contributed to increased net interest income, and our strong quarter end loan pipeline, which reflects customer confidence and provides positive momentum for respectable growth going into the fourth quarter.
In terms of pricing, the weighted average rate on our loan pipeline has increased, reflecting movement in the treasury curve.
The market remains aggressive and our lenders face competition on rates from banks and on structure from nonbanks.
In spite of the challenging environment, we win deals because of our relentless focus on delivering a best-in-class customer experience.
Our core deposit growth continues to be strong in both the consumer and commercial areas, and our cost of deposit remains one of the best in our markets.
And we're also seeing growth in the wealth management and insurance businesses, and we'd expect that organic growth to continue.
Asset quality improved and charge-offs were negligible as the economy continues to improve.
And core operating costs are well controlled as reflected in our adjusted noninterest expense to average asset ratio of 1.85% and an efficiency ratio of 54.5% for the quarter.
I remain highly enthusiastic about the prospects within our markets and the drive and motivation of our banking teams will continue to spur growth and enable us to continue to deliver long-term shareholder value.
With that, I'll ask Tony to add more context.
I would like to share with you thoughts about our performance of our key lines of business and areas of focus.
Based on certain trends that we are observing, we believe the economic outlook for the fourth quarter and leading into 2022 looks promising.
This supports improved growth and continued solid profitability for the remainder of the calendar year.
Our commercial lending group continues to demonstrate strong productivity.
In the third quarter, we closed $514 million of new loans, an increase of 29% from the prior quarter.
While prepayments adjusted for PPP are down from the prior quarter, they remain higher than we desire.
Of note, nearly half of our commercial loan prepayments were driven by the sale of the underlying business or asset.
In addition, our line of credit utilization percentage remains roughly 28% compared to the historical average of approximately 40%, which equates to about $190 million of potential additional outstanding loan balances.
Nevertheless, our production exceeded the pressures of the current operating environment, and as such, we grew our commercial loan portfolio, excluding PPP, at an annualized rate of 9.4%.
Notwithstanding our significant loan production and the fierce competition, at quarter end, our pipeline remains robust at approximately $1.6 billion.
The pull-through adjusted pipeline, including loans pending closing, is approximately $1 billion.
Of note, our expected pipeline rate increased 12 basis points from the last quarter.
We project good pull-through, and if prepayments are stable, we should meet or exceed our loan growth expectations for the remainder of the year.
We continue to experience good growth in our core deposits, particularly noninterest-bearing demand, which grew at an annualized rate of 12% and presently comprise 24% of our total deposits.
Our total cost of deposits for the quarter declined three basis points to 23 basis points and is among the best in our peer group.
While we are in a rate and liquidity cycle that has driven margins lower throughout the industry, our growth and low-cost deposit franchise continue to drive value, which is demonstrated by our continued increase in net interest income.
We continued to grow fee revenue, largely through Beacon Trust and SB One insurance.
Adjusting for nonrecurring items related to the SB One merger, SB One Insurance increased its operating profit 10% from the same quarter last year, driven largely by a strong retention ratio of 96.4%.
Beacon Trust also had good performance, with assets under management increasing approximately 17% to about $4 billion, and revenue increasing 16% over the same quarter last year.
As I have mentioned in the past, both Beacon Trust and SB One insurance are value-add for our clients and the bank.
We are seeing increased opportunities and referrals among all of our lines of business, which make our growth prospects more exciting.
Looking forward, our focus is to enhance our asset mix and deploy more of our excess liquidity, which should improve our margin, and more importantly, grow net interest income.
Our fee-based businesses are important to us, and we want to accelerate their growth and strengthen the synergies with the bank.
Lastly, we have a number of initiatives that will modernize certain business processes that are aimed at reducing friction and improving the digital journey for our employees and customers.
As we accomplish our goals, we will increase our franchise value and improve our total return to our shareholders.
Our net income for the quarter was $37.3 million or $0.49 per diluted share compared with $44.8 million or $0.58 per diluted share for the trailing quarter.
Earnings for the current quarter included $2 million of provisions for credit losses on loans and off-balance sheet credit exposures, while the trailing quarter benefited from $8.7 million of net negative provisions.
Pretax pre-provision earnings were a quarterly record $52.1 million or an annualized 1.55% of average assets.
Current period earnings featured record quarterly revenue, including record net interest income and noninterest income.
While we did experience modest net interest margin compression as a result of ongoing elevated liquidity, earnings on the $166 million increase in average interest-earning assets partially offset the impact of declines in yields and lower PPP income.
Income recognized from PPP loan forgiveness fell $402,000 versus the trailing quarter to $2.5 million, and remaining PPP -- deferred PPP fees totaled $3.2 million at September 30.
Meanwhile, funding costs fell as average deposits increased and average borrowings declined.
Average noninterest-bearing deposits increased $74 million versus the trailing quarter and the total cost of deposits declined 3 basis points to just 23 basis points.
Pull-through adjusted loan pipeline at September 30 was consistent with the trailing quarter at $1.1 billion, and the pipeline rate increased 12 basis points since last quarter to 3.4%.
Excluding PPP loans, period-end loan totals increased $153 million or an annualized 6.4% versus June 30.
Loan growth occurred primarily in the CRE category.
Our provision for credit losses on loans was $1 million for the current quarter compared with the benefit of $10.7 million in the trailing quarter.
Asset quality metrics, including nonperforming loan levels, early stage and total delinquencies criticized and classified loans and all related ratios improved versus the trailing quarter.
We had net charge-offs of $1.9 million or an annualized 8 basis points of average loans this quarter.
Nonperforming assets decreased to 51 basis points of total assets from 62 basis points at June 30.
Excluding PPP loans, the allowance represented 0.85% of loans compared with 0.88% in the trailing quarter.
Noninterest income increased to $23.4 million, helped by income recognized from a $3.4 million reduction in contingent consideration related to the earn-out provisions of the 2019 purchase of registered investment advisor, Tirschwell & Loewy.
We became subject to the interchange fee limitations of the Durbin amendment this quarter, which reduced revenue by $1.1 million compared with the trailing quarter.
Excluding provisions for credit losses on commitments to extend credit and merger-related and COVID expenses in 2020, operating expenses were an annualized 1.85% of average assets for the current quarter compared with 1.84% in the trailing quarter, and 1.92% for the third quarter of 2020.
The efficiency ratio was 54.51% for the third quarter of 2021 compared with 54.12% in the trailing quarter and 56.2% for the third quarter of 2020.
Our effective tax rate was 25.7% versus 25.4% for the trailing quarter, and we are currently projecting an effective tax rate of approximately 25% for the remainder of 2021.
We'd be happy to respond to questions.

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compname reports q3 earnings per share of $0.49.
q3 earnings per share $0.49.

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