Provident Financial Services - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered stable GAAP EPS of $0.37 and modest sequential improvement in net income ($48.5M vs. $46.4M in Q3), with core profitability metrics (adjusted ROA 1.05%, adjusted ROTCE 15.39%) improving despite slightly lower reported NIM from reduced purchase accounting accretion.
• Core NIM expanded 4 bps to 2.85% while reported NIM ticked down 3 bps to 3.28% due to lower accretion; deposit costs fell 11 bps to 2.25% and cost of funds declined 14 bps, supporting margin trajectory into 2025.
• Management guided 2025 NIM to 3.35%–3.45%, core opex ~$112–$115M per quarter, effective tax rate ~29.5%, and ROA ~1.15%/ROTCE ~16%, with all merger-related charges recognized and no further merger expense in 2025.
• Asset quality improved: NPL ratio fell to 0.39% (from 0.47%), NPAs to assets down to 0.34%, and allowance coverage increased to 1.04% of loans; the company exited non-relationship equipment lease financing and reclassified $151.3M to held-for-sale, reducing provision sequentially.
• Catalysts: deposit repricing and CD maturities (57 bps pickup in Q1), fee businesses growth (Beacon AUM $4.2B; insurance organic growth 19%), and lending leadership additions/market expansion (PA, Westchester) underpin growth; dividend maintained at $0.24.

What Went Well and What Went Wrong

What Went Well

• Core profitability strengthened: adjusted ROA 1.05%, adjusted ROTCE 15.39%, and adjusted PTPP ROA 1.53% in Q4, reflecting underlying earnings power post-integration.
• Funding costs improved: average total deposit cost fell 11 bps to 2.25%, cost of interest-bearing deposits down 15 bps; core NIM expanded 4 bps to 2.85% quarter-over-quarter.
• Asset quality trends positive: NPLs/loans decreased to 0.39% and NPAs/assets to 0.34%; net charge-offs fell to $5.5M (12 bps annualized) and allowance coverage increased to 1.04% of loans.

What Went Wrong

• Reported NIM compressed 3 bps sequentially to 3.28% due to lower purchase accounting accretion, and net interest income declined $2.0M QoQ to $181.7M.
• Non-interest income and expense had seasonal/one-off headwinds: BOLI income fell $2.0M; insurance agency income declined seasonally; other opex included a $1.4M litigation reserve; merger-related expenses rose to $20.2M in Q4.
• Loan growth modest amid payoffs/refis; average loan yield decreased 22 bps to 5.99% and pipeline rate moderated to 6.91% from 7.18%, reflecting competitive/market dynamics.

Transcript

Operator (participant)

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 one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Adriano Duarte, Head and Investor Relations Officer. Please go ahead, sir.

Adriano Duarte (Head and Investor Relations Officer)

Thank you, Christopher. Good morning, everyone, and thank you for joining us for our fourth quarter earnings call. Today's presenters are President and CEO Tony Labozzetta, 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 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 Labozzetta, who will offer his perspective on our fourth quarter. Tony.

Tony Labozzetta (President and CEO)

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 maintained 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 $0.37 per share. Our annualized adjusted return on average assets was 1.05%, and our adjusted return on average tangible equity was 15.39%. Our adjusted pre-tax pre-provision return on average assets was 1.53% 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 $0.34 to $14.71, and our tangible common equity ratio was consistent with the trailing quarter at 7.67%. As such, our board of directors approved a quarterly cash dividend of $0.004 per share, payable on February 28th. During the quarter, our deposits grew $248 million, or 5.4% annualized. The average cost of total deposits decreased 11 basis points to 2.25%, 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 in 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 Radd. 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 portfolio. I am 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, Provident's fee-based businesses continued 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%. Beacon Trust's assets under management grew to $4.2 billion, which represents a 7.5% growth relative to last year. Income improved 12% 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?

Tom Lyons (Senior EVP and CFO)

Thank you, Tony. Good morning, everyone. As Tony noted, we reported net income of $48.5 million, or $0.37 per share, for the quarter. Excluding charges related to our merger with Lakeland Bancorp, core earnings were $62.9 million in the current quarter, or $0.48 per share, with a core ROA of 1.05%. Further adjusting for the amortization of intangibles, our core return on average tangible equity was 15.39% 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 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 4 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 project a NIM in the 3.35%-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 of non-relationship equipment lease loans to held for sale. Excluding this transfer, period-end 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 $248 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 remained 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 losses decreased to $7.8 million this quarter, reflecting specific reserve requirements and some deterioration in the macroeconomic variables that drive our seasonal 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 BOLI 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-$115 million for 2025. Our effective tax rate for the quarter fell to 22.6% due to a $4.2 million benefit recorded on the revaluation of certain deferred tax assets. We currently expect our 2025 effective tax rate to approximate 29.5%.

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.

Operator (participant)

At this time, I would like to remind everyone, in order to ask a question, simply press Star, then 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.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

Hey, guys. Good morning.

Tony Labozzetta (President and CEO)

Good morning, Mark.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

First question I had, Tom, I guess I'm curious how you hit that $26 million fee projection in the third and fourth quarter when insurance revenues declined seasonally? What's kind of the offset? I mean, what are some of the other items that you anticipate being higher to mitigate that seasonal decline in insurance?

Tom Lyons (Senior EVP and CFO)

Yeah, 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 gains on loan sales, swap fee income, SBA loan sales.

Tony Labozzetta (President and CEO)

Insurance contingency in the first quarter, which makes it higher than $26 million.

Tom Lyons (Senior EVP and CFO)

Right. And also BOLI death benefit claims. We don't model those, but there's an actuarial component to that where we see some recognition of income there. So overall, we expect the $26 million quarter is a reasonable number.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

For the BOLI number, is a normal run rate, excluding death benefits, sort of $2.3 billion? Is that the right number?

Tom Lyons (Senior EVP and CFO)

Is that on top of what we reported?

Mark Fitzgibbon (Managing Director and Head of FSG Research)

Yeah.

Tom Lyons (Senior EVP and CFO)

I think so.

Tony Labozzetta (President and CEO)

That's correct. Yeah. This quarter had none, so that's a typical run rate, Mark.

Tom Lyons (Senior EVP and CFO)

Yep.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

Okay. Great. And then I guess your expense guide looks like it assumes some pretty heavy lifting. I guess what are some of the bigger pieces of that? Where do we have cost synergies coming? Is it residual stuff from the Lakeland deal, or are there other things where you think you can sort of reduce expenses on?

Tom Lyons (Senior EVP and CFO)

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 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 million-$114 million for the first quarter. So the $112 million-$115 million guide seems reasonable. We'd expect to see that stabilize, maybe even trail off a little bit in the back half of the year.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

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

Tom Lyons (Senior EVP and CFO)

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 incomes at most a couple of million dollars up or down, a couple hundred basis points even.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

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

Tony Labozzetta (President and CEO)

Sure. So vis-à-vis, no problem. We're pretty good at the risk management, and our balance sheet's pretty strong. So as we move into 2025 and beyond this year, in no particular order, I would probably say the continuing to build on our culture and nurture the team dynamics of bringing two companies together. 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 are 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 will still drive. 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.

Mark Fitzgibbon (Managing Director and Head of FSG Research)

Thank you.

Tony Labozzetta (President and CEO)

Welcome.

Tom Lyons (Senior EVP and CFO)

Thanks, Mark.

Operator (participant)

Your next question comes from the line of Billy Young with RBC Capital Markets. Billy, please go ahead.

Billy Young (Equity Research Analyst)

Hey, guys. How are you?

Tony Labozzetta (President and CEO)

Good morning, Billy.

Billy Young (Equity Research Analyst)

Good. I guess first, just kind of like a bigger picture question, kind of just looking at your adjusted returns for the quarter and your 2025 return targets. Just kind of how do you think about, 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?

Tom Lyons (Senior EVP and CFO)

I think there's continued ability to gain efficiencies and scale, which should continue to improve the returns metrics overall.

Tony Labozzetta (President and CEO)

Yeah. I would add to that that we've done a yeoman's job, a lot of effort this year in building the foundation for an organization that could meet some good, strong growth. 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. We put some good dynamics for loan growth in this coming year, and we'll continue to look at areas to become even more efficient, so I think it's really growing our businesses and being able to handle the scale without adding to the operating expenses.

Billy Young (Equity Research Analyst)

Got it. Thank you for that. And then just switching to loan growth a little bit, I think we've spent the last couple of quarters talking about kind of improving activity and better customer sentiment. Hasn't really shown up in the bottom-line numbers yet, but I kind of understand there's some moving parts this quarter. It feels like 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?

Tony Labozzetta (President and CEO)

Well, I think if you remember last quarter, we gave a little bit of caution that we might see some prepayments, and we saw some of that. This quarter, we also had about 50% of the $328 million that I mentioned was just maturities, payoffs, and sale of the underlying property. So that's just something that you can't really gauge. And about half was refinancing away from us. So the way I feel comfortable about it is we've made some good dynamic changes in our commercial bank. We have a good leadership team there across all our segments that can really build our business. We're seeing activity. If the operating environment cooperates and the rate cycle, I think that we're going to really jump ahead, right?

So 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 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 $800-$900 million of production, and then you take about 40% of that, and that's what really goes to your outstandings. That's sort of the algorithm or calculus that we do. And so we're able to see that at $712 million in this environment. So again, the only thing I would caution is the operating environment.

In terms of Provident 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 2025 is going to demonstrate that, but we've had some headwinds of change. Obviously, John retired, our CLO, and 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.

Tom Lyons (Senior EVP and CFO)

Yeah. If I could just add a couple of thoughts, Tony. 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 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 moving forward. And then in Tony's prepared comments, he did reference Bill Fink joining us as Chief Lending Officer and some other adds on the revenue-producing side that we expect to see really generate some growth. So pretty optimistic.

Tony Labozzetta (President and CEO)

Yeah. So I would say one last thing if you on that. We've been historically very strong on growing the CRE side of the business. If you look at the real underlying sort of silver lining in our commercial growth in our production is that most of the growth we've seen has come in the C&I space and our specialty lending businesses, which have done really well. If our CRE, which I think we could amp up, we had some noise around CRE this year. If we could amp up our CRE to the traditional levels, which I think that's probably easier for us to do than the other sides, then we should achieve the numbers that we're guiding to and maybe overachieve.

Billy Young (Equity Research Analyst)

Appreciate it. Thank you for taking my questions.

Operator (participant)

And your next question comes from the line of Tim Switzer with KBW. Tim, please go ahead.

Tim Switzer (VP of Equity Research)

Hey, good morning. Thank you for taking my questions. 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 you're talking about $113 million-$114 million for the first quarter, but then it maybe trails down a little bit in the back half of the year. What would be driving that improvement later in 2025? Is that seasonality or some initiatives you have that would maybe be coming offline?

Tom Lyons (Senior EVP and CFO)

Yeah. Typical seasonality, Tim, with the employer payroll tax thresholds being achieved and some of the 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.

Tim Switzer (VP of Equity Research)

Okay. And what would maybe drive you, I guess, to the higher end of your range if you're thinking 113, 114, Q1, and then down from there?

Tom Lyons (Senior EVP and CFO)

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.

Tim Switzer (VP of Equity Research)

Okay. And sorry if I missed this earlier, but is this quarter a good level for purchase accounting accretion going forward?

Tom Lyons (Senior EVP and CFO)

Yeah. I think it's a good base, Tim. It's a little bit unpredictable because of the volatilities in 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 a total of about $2.4 million. But that was about $800,000 of the reduction in the current quarter.

Tim Switzer (VP of Equity Research)

Oh, wow. Okay. And I think we've asked this before, but are you guys considering securities or starting just given the change in the yield curve and some of your lower-yielding assets? It seems like it could give you a nice earnback relatively quick.

Tom Lyons (Senior EVP and CFO)

No, Tim. I think we continue to feel that it's appropriate to hold the assets. We don't see that, again, in an efficient market. We don't see the earnback in a short enough timeframe to warrant that. We did do the restructuring in connection with the acquisition of about $550 million at the Lakeland acquisition because there it made sense. The hit to equity was already baked in through the purchase accounting.

Tony Labozzetta (President and CEO)

You might want to add that we're thinking about this thoroughly since we made the announcement on the leasing. You might want to expand on that.

Tom Lyons (Senior EVP and CFO)

Oh, that's true. I mean, we did decide, as you saw in the earnings 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.

Tim Switzer (VP of Equity Research)

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

Tom Lyons (Senior EVP and CFO)

Thank you.

Tony Labozzetta (President and CEO)

Thanks, Tom.

Operator (participant)

Your next question comes from the line of Feddie Strickland with Hovde Group. Feddie, please go ahead.

Feddie Strickland (Director)

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.

Tom Lyons (Senior EVP and CFO)

Yeah. CDs repricing over the next 12 months total about $3 billion, $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, they're about $4.8 billion, and the maturing CDs and borrowings are about $4.3 billion over the next 12 months. And then the flexibility on the rest of the liability side of things.

Tony Labozzetta (President and CEO)

We also have a slight repricing downward on some of the specialty pricing deposits that are non-CDs coming.

Tom Lyons (Senior EVP and CFO)

Yeah. That makes up the rest of the difference, and why I say that, regardless of the rate environment, really the impact on the NIM is fairly minimal.

Feddie Strickland (Director)

Got it. And then wanted to dig into fees really well in particular. 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 for the non-advisory portions of the wealth business?

Tom Lyons (Senior EVP and CFO)

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.

Tony Labozzetta (President and CEO)

Exactly. I think the game for us in the 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, what is that? I didn't get the second part.

Tom Lyons (Senior EVP and CFO)

Could you repeat it, Feddie? I didn't quite catch it.

Feddie Strickland (Director)

Portions?

Tony Labozzetta (President and CEO)

What do you mean?

Feddie Strickland (Director)

Just growth in non-advisory portions of the business.

Tony Labozzetta (President and CEO)

Yeah. I think that's been growing. For us, I think this year, I think we did, I think, $300-something million of new mostly outside bank growth in that business. It's not a, what I would call, a material segment of our space, but it's a good contributor. And ultimately, I think I would love to see more graduation from that space and into as assets build and into more of our Beacon wealth business. So having more of a synergy there. But ideally, I think from my perspective, I see 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.

Tom Lyons (Senior EVP and CFO)

Yeah. I'm not sure if we understood. Feddie, 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 and estate, that kind of?

Feddie Strickland (Director)

That's correct. I was just wondering whether that, I guess, the pie grows a little bit for those sections relative to the non-advisory or relative to the advisory part of the business.

Tom Lyons (Senior EVP and CFO)

It does, but it's a relatively small portion, really. The money at Beacon is made through the advisory services.

Feddie Strickland (Director)

Got it, and just last question. Wanted to touch on credit. I know there's not a ton in terms of NPAs, but could you talk about potential opportunities to resolve some of the non-performing loans over the course of 2025?

Tom Lyons (Senior EVP and CFO)

We continue to work with the customers. We look at note sales, 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.

Tony Labozzetta (President and CEO)

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 that things don't stay in there forever, and there's a good exit strategy.

Feddie Strickland (Director)

All right. Great. Thanks for taking my questions.

Tom Lyons (Senior EVP and CFO)

Thank you.

Operator (participant)

Our final question comes from the line of Manuel Navas with D.A. Davidson. Manuel, please go ahead.

Manuel Navas (Senior Research Analyst and Managing Director)

Hey, good morning. Could you speak a little bit more to the?Good morning.

Good morning. Could you speak a little 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?

Tom Lyons (Senior EVP and CFO)

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 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 data starts to drop more. But that's really the primary challenge there, is just that the shape of the curve changes materially. The other thing would be the accretion, which has volatility and growth overall, right? We talked about last quarter, I believe, and we're going to continue to execute on that adding some to the securities portfolio. I'd like to see that get up to about 15% 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.

Manuel Navas (Senior Research Analyst and Managing Director)

That's great. You've been able to lower deposit costs pretty well. Is there any difference in the first 75 basis points versus the December cut? And is there still going to be some deposit costs felt into the first quarter beyond CD repricing?

Tom Lyons (Senior EVP and CFO)

Yes. You'll see cuts that were effective January 1.

Manuel Navas (Senior Research Analyst and Managing Director)

Okay. Any difference in the difficulty of those cuts or pushback?

Tom Lyons (Senior EVP and CFO)

No. When the initial cuts came through, the communication was pretty clear that there were going to be continued movements in line with the Fed for the most part. So I would expect-

Tony Labozzetta (President and CEO)

A lot of those communications happened between the relationship managers and a lot of our customers. So not only did they inform about the rate cut, but they informed about prospective rate cuts and what the impacts would be. So since the stability is there, we haven't been. We're pretty comfortable that the clients are well informed in their behaviors. One of the things we saw this quarter, which wasn't clearly pointed out, we also saw some good consumer deposit flowing. Most of that growth happened in the consumer side, both non-interest bearing and interest bearing, and also some municipal.

So our business deposits were actually cycling down through the payments of bonuses, taxes, etc., which we didn't see any account closure. So most of that, we expect to kind of recycle back in. So with the consumer activity coming back, which has been the outflows over the last 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.

Manuel Navas (Senior Research Analyst and Managing Director)

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. Just could you add some more color, maybe sizing or timing of that opportunity?

Tony Labozzetta (President and CEO)

Sure. In my spoken comments earlier, I mentioned that we had more complements 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 CRE space in Pennsylvania. And so that'll help us grow. We have a sort of a more focused strategy in building out our Eastern Pennsylvania marketplace, which we have a good presence in. And I think those folks will help us build that. In tandem, working with our retail side, we're looking at both building not only the commercial, but the treasury management and the deposits as well in that market. And then we've added some complements in the Westchester in New York, Westchester, not West Chester, Pennsylvania, to be able to build out some of the lending in that space.

So, we're pretty comfortable, and I think they'll think coming on board. Perhaps he'll build out his team from folks that follow him. And 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.

Manuel Navas (Senior Research Analyst and Managing Director)

Thank you. I appreciate the comment there.

Tony Labozzetta (President and CEO)

Thank you.

Operator (participant)

That concludes our Q&A session. I will now turn the call back over to Anthony Labozzetta for closing remarks. Tony?

Tony Labozzetta (President and CEO)

Sure. I just wanted to say thank you to everyone and appreciate the good questions this quarter. I'm pretty comfortable and optimistic for Provident's future. I wish you all a good 2025 and look forward to having conversations with you in the near future. Thank you.

Operator (participant)

This concludes the meeting. Thank you all for joining. You may now disconnect.