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Text: Today's presenters are Chairman and Chief Executive Officer, Chris Martin; President and Chief Operating Officer, Tony Labozzetta; and Senior Executive Vice President and Chief Financial Officer, Tom Lyons.
With that, it's my pleasure to introduce Chris Martin, who will offer his perspective on our first quarter.
We appreciate your participation today.
Our first quarter earnings were vastly improved from the same period last year when the pandemic's impact was first being felt.
The economy is rebounding quickly, BMS stimulus by the government, the success of the vaccine rollout, and the tenacity and perseverance of both consumers and business owners to weather this unprecedented event.
Earnings per share were $0.63 for the quarter as compared to $0.23 for the same period in 2020.
And the primary drivers of the improvement included a negative provision due to the prospects of a strong GDP growth combined with the full impact of improved revenue from the SB One acquisition.
Annualized return on average assets was 1.51%, and annualized return on average tangible equity was 16.8%.
Loan growth was constrained as PPP loan forgiveness and prepayments offset meaningful production.
Originations were robust and we continue to support the PPP program in its second phase.
The loan pipeline is consistent with the trailing quarter and the previous year to date.
Yields on new originations are approaching portfolio yields, so stabilization in asset yields is on the horizon.
Unlike most financial institutions, we are awash with liquidity due to the proceeds from stimulus checks and PPP monies augmenting deposit growth.
This added liquidity presented the accompanying challenge of where and how to invest the balances in an accretive manner, while remaining sensitive to potential run off.
And our core deposits are now 91% of total deposits.
The result in increase in deposits alleviated the need for borrowing, which decreased during the quarter.
Our margin improved six basis points during the quarter, and we envision core margin stability in the near term.
Noninterest income improved with the new revenue sources from SB One insurance, increased wealth management income from Beacon Trust, and sadly another bank-owned life insurance claim.
Retail fees also add to these increases along with loan prepayment fees and the net gain on the sale of residential mortgage loans.
Operating expenses were $61.9 million increase from the prior year, largely due to the addition of compensation and occupancy expenses from SB One.
Non-interest expense to average assets was 1.95% versus 2.13% for 2020.
FDIC insurance costs decreased -- increased, excuse me, due to an increase in the assessment rate, an increase in total assets, and the prior year's results having benefited from a small bank assessment credit.
We exceeded the cost saves we projected when we announced the SB One acquisition and are enthusiastic about the combined company's potential to extract more costs and increase revenue.
Our efficiency ratio was 56.19%.
As for asset quality, the numbers continue to improve from the trailing quarter.
Deferrals are down to $132 million, of which $123.5 million are commercial loans.
And of that number, approximately 96% are paying interest.
And Tom will go over this in more detail.
We are optimistic that as the economy opens up further and more people are vaccinated, results will continue to improve.
At this time, I would like to ask Tony to add more color to the success of the combination, along with strategic plans for Provident.
Let me start by noting that we have achieved or exceeded our financial expectations with regard to the merger with SB One Bank.
Our focus has shifted to cultural integration that culminated in the recent company wide rollout of our new core values, which we call our guiding principles.
This successful rollout was celebrated throughout our company, and it has inspired and energized all of us about what we can accomplish together.
Presently, we are all well along in the development of our new strategic plan.
Select tenants of our plan include enhanced focus on one of our core competencies, commercial banking.
This involves building out certain segments of our commercial book and reorganizing our Group to promote better efficiency and credit administration, which will make it easier for us to expand into new markets where we can compete and win.
We also want to build on our exceptional funding base and optimize our branch network.
Of note, during the quarter, we consolidated our branch office in Clifton, New Jersey.
We are also focused on building our non-spread income.
In addition to further expanding our successful wealth management and insurance groups we, will evaluate other sources of revenue with a long-term goal of having non-spread income comprised in excess of 25% of our net income.
To remain relevant, we are concentrating on digital banking and the digital transformation of our business processes to streamline activities, reduce friction, and make our customers' journey through all of our channels simple, fast, and easy.
This will make us more efficient and improve the experience of our customers and employees.
Mergers and acquisitions will continue to be part of our growth strategy for our bank, as well as for Beacon Trust and SB One Insurance.
Scale has become increasingly more important to offset reduced margins and cover the higher cost of investing for our future.
We will remain steadfast in pursuing strategic deals and partnering with companies that have comparable cultures.
Shifting quickly to our markets, we see the light at the end of the COVID tunnel.
Many sectors largely recovered or are quickly improving as the economic shutdown loosens and we approach herd immunity.
Those sectors that continue to exhibit pressure our office space, particularly in Manhattan, and retail centers that don't have a grocery store anchor.
Fortunately, Provident does not have a concentration of note in either of these sectors.
Most banks are presently dealing with the how to best utilize the excess liquidity on their balance sheet?
As a result, we are seeing increased competition which includes more aggressive pricing and elongated interest only periods with higher leverage.
At Provident we remain firmly committed to our credit culture not sacrificing structural [Phonetic] quality for quantity.
Despite the heightened competition, we are seeing good activity within our lending team.
This quarter we originated or funded $526 million of new loans excluding line of credit advances and net PPP loan activity.
This would have been a strong quarter for us if not for the high level of unanticipated loan payoffs that offset the growth.
The payoffs were due in large part to the sale of the underlying properties associated with the loan.
At quarter end, our pipeline remains strong at approximately $1.3 billion, and we are seeing a marginal improvement in the average rate in the pipeline.
If we have a good pull-through rate in our pipeline and see a reduction in prepayments, we should experience solid growth for the remainder of the year.
As noted earlier, our net income was $48.6 million or $0.63 per diluted share compared with $40.6 million or $0.53 per diluted share for the trailing quarter.
Earnings for the current quarter were favorably impacted by $15.9 million of negative provisions for credit losses on loans and off balance sheet credit exposures while the trailing quarter reflected negative provisions of $6.2 million.
Core pre-tax pre-provision earnings, excluding provisions for credit losses on loans and commitments to extend credit were $48.9 million for a pre-tax pre-provision ROA of 1.52%.
This is consistent with $50.1 million or 1.54% in the trailing quarter which also included -- excluded merger related charges and COVID response costs.
Our net interest margin expanded six basis points versus the trailing quarter to 3.10% as benefits from PPP loan forgiveness reduced funding costs and a steeper yield curve were partially offset by lower yielding excess liquidity.
We expect to maintain a core margin of approximately 3% as we continue to deploy excess liquidity into loans and securities, while we're pricing funding downward and continuing to emphasize non-interest bearing deposit growth.
Including non-interest bearing deposits, our total cost of deposits fell to 30 basis points this quarter from 31 basis points in the trailing quarter.
Average non-interest bearing deposits were stable at $2.4 billion or 24% of total average deposits for the quarter.
Average borrowing levels decreased $196 million and the average cost of borrowed funds decreased four basis points versus the trailing quarter to 1.12%.
Average loans increased slightly for the quarter, although quarter end loan totals decreased $19 million versus the trailing quarter.
Loan originations excluding line of credit advances were strong at $539 million for the quarter, including $190 million of PPP2 loans.
Payoffs were elevated however, including $177 million of PPP one loan forgiveness.
The loan pipeline at March 31st increased $73 million from the trailing quarter to $1.3 billion.
In addition, the pipeline rate increased eight basis points since last quarter to 3.65% at March 31st.
Our provision for credit losses on loans was a benefit of $15 million for the current quarter compared with a benefit of $2.3 million in the trailing quarter.
Asset quality metrics including non-performing loan levels, early stage and total delinquencies, criticized and classified loans and the portfolio weighted average risk rating, all improved versus the trailing quarter.
We had annualized net charge-offs as a percentage of average loans of four basis points this quarter compared with ten basis points for the trailing quarter.
Non-performing assets decreased to 65 basis points of total assets from 72 basis points at December 31st.
Excluding PPP loans, the allowance represented 0.92% of loans compared with 1.09% in the trailing quarter.
Loans that have been granted short-term COVID 19 related payment deferrals further declined from their peak of $1.3 billion or 16.8% of loans to $132 million or 1.3% of loans.
This compares with $207 million or 2.1% of loans at December 31st.
This $132 million of loans consist of $300,000 that are still in their initial deferral period, $47 million in a second 90-day deferral period, and $85 million that have received a third deferral.
Included in this total are $41 million of loans secured by hotels, $33 million secured by multifamily properties, including $20 million that are student housing related, $9 million of loans secured by retail properties, $7 million secured by restaurants, and $9 million secured by residential mortgages, with the balance comprised of diverse commercial loans.
Of the $123 million of commercial loans in deferral, 96% are paying interest.
Non-interest income increased $1.2 million versus the trailing quarter to $22 million as growth in insurance agency income, loan and deposit fees, wealth management income, and bank-owned life insurance income was partially offset by reductions in net profits on loan level swaps and gains on loan sales.
Excluding provisions for credit losses on commitments to extend credit and in the trailing quarter merger-related charges and COVID related costs, non-interest expenses were an annualized 1.95% of average assets for the current quarter compared to 1.82% in the trailing quarter.
The increase in the first quarter of 2021 is primarily attributable to seasonal increases in occupancy costs, including snow removal and utilities, an increase in FDIC insurance due to our increased asset size and the change to large institution assessment rates, and the annual reset of the employer share of payroll taxes.
Our effective tax rate increased to 25.1% from 23.3% for the trailing quarter as a result of an increase in the proportion of income derived from taxable sources.
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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provident financial services q1 earnings per share $0.63.
q1 earnings per share $0.63.

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