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PF

PROVIDENT FINANCIAL SERVICES INC (PFS)·Q4 2024 Earnings Summary

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 .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue (Total Income, $USD Millions)$114.8 $210.6 $205.9
Net Interest Income ($USD Millions)$95.8 $183.7 $181.7
GAAP Diluted EPS ($)$0.36 $0.36 $0.37
Net Interest Margin (%)2.92% 3.31% 3.28%
Core Net Interest Margin (%)2.78% (Q3 core) 2.78% 2.85%
Efficiency Ratio (%)61.32% 57.20% 55.43%
Provision for Credit Losses ($USD Millions)$0.5 $9.6 $7.8
Net Charge-offs ($USD Millions)$4.0 $6.8 $5.5

Non-Interest Income Breakdown ($USD Millions):

ComponentQ4 2023Q3 2024Q4 2024
Fees & Commissions$6.1 $9.8 $9.7
Wealth Management Income$6.8 $7.6 $7.7
Insurance Agency Income$2.8 $3.6 $3.3
BOLI Income$1.6 $4.3 $2.3
Other Income$1.6 $1.5 $1.3
Total Non-Interest Income$19.0 $26.9 $24.2

Key KPIs:

KPIQ4 2023Q3 2024Q4 2024
Total Deposits ($USD Billions)$10.29 $18.38 $18.62
Loans Held for Investment ($USD Billions)$10.87 $18.79 $18.66
Loan Pipeline ($USD Billions)$1.70 $1.98 $1.79
Pipeline Weighted Avg Rate (%)—7.18% 6.91%
NPLs / Total Loans (%)0.46% 0.47% 0.39%
NPAs / Total Assets (%)0.43% 0.41% 0.34%
Allowance / Total Loans (%)0.99% 1.02% 1.04%
Avg Cost of Total Deposits (%)1.95% 2.36% 2.25%
Avg Loan Yield (%)5.50% 6.21% 5.99%

Note: Estimate comparisons to Wall Street consensus were unavailable due to S&P Global data access limitations.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin (reported)FY2025~3.45% trajectory by YE 2025 3.35%–3.45% for 2025 Maintained/tightened range
Core Operating ExpensesFY2025 (Quarterly)Q4’24 guide ~$107M; Q1’25 expected $112–$115M ~$112–$115M per quarter in 2025 Maintained at higher run-rate
Effective Tax RateFY2025~29.5% ~29.5% Maintained
ROA / ROTCEFY2025ROA ~1.15%, ROTCE ~16% ROA ~1.15%, ROTCE ~16% Maintained
Purchase Accounting AccretionNear-termQ3 base ~53 bps with volatility Q4 base; fewer prepayments on discounts; volatility persists Clarified base/volatility
DividendQ1 2025$0.24 (Q3 board action) $0.24 payable Feb 28, 2025 Maintained
CDs RepricingNext 12 months—~$3B repricing; ~57 bps pickup in Q1 New detail
Business MixImmediate—Exit non-relationship equipment leasing; $151.3M moved to HFS Strategic shift

Earnings Call Themes & Trends

TopicQ2 2024 (Q-2)Q3 2024 (Q-1)Q4 2024 (Current)Trend
NIM trajectory & deposit betasNIM 3.35%–3.40% near-term; neutral IRR; limited initial cut benefit NIM 3.31%; core margin +4 bps; 38 bps deposit cuts executed Oct 1 Reported NIM 3.28%; core NIM +4 bps; 2025 NIM 3.35%–3.45%; deposit cost down 11 bps Improving core margin; tighter reported range
Loan growth & pipelinePipeline ~$1.0B pull-through; CRE ratio managed with active pruning Pipeline ~$2.0B (7.18% rate); production $489M; payoffs $227M Production ~$713M; payoffs ~$328M; pipeline ~$1.8B (6.91% rate) Building; payoffs headwind moderating
Asset qualityNPLs 0.36%; allowance ~1.0% NPLs 0.47% (one CRE credit); resolution expected; net charge-offs 14 bps NPLs 0.39%; NPAs 0.34%; net charge-offs $5.5M; allowance 1.04% Improving
Fee businesses (Beacon/Insurance)Insurance organic growth 19%; Beacon AUM ~$4.1B Insurance +12.6% YoY; Beacon AUM $4.2B; fees +9% YoY Insurance organic growth +19% YoY; Beacon AUM $4.2B; fees strong Strong growth
Integration & cost savesMerger closed; cost saves targeted; Q3/Q4 opex path Core conversion completed; opex guide $110M Q4 All merger charges recognized; 2025 opex ~$112–$115M/qtr Integration complete; steady opex

Management Commentary

  • CEO: “Provident had an eventful 2024… We have maintained excellent asset quality, grown our deposits, and benefited from our expanding fee-based businesses… With core systems conversion and integration now completed, we look forward to further improving our performance across all business lines in 2025.” .
  • CEO on Q4 drivers: “Deposits grew $248 million… total cost of funds decreased 14 bps to 2.48%… core net interest margin expanded 4 bps… reported margin compressed 3 bps due to a decrease in purchase accounting accretion.” .
  • CFO: “Excluding charges related to our merger… core earnings were $62.9 million or $0.48 per share… We currently project the NIM in the 3.35% to 3.45% range for 2025… no further merger expense to be recorded in 2025.” .
  • Strategic shift: “We decided… to exit the non-relationship portion of the equipment lease financing business.” .
  • Tax: “Effective tax rate… fell to 22.6% due to a $4.2M benefit” and 2025 ETR ~29.5% .

Q&A Highlights

  • Fees trajectory: Management targets ~$26M quarterly average in 2025; seasonal insurance contingencies, swap/SBA gains, and actuarial BOLI claims support variability .
  • Expense guide: Core opex ~$112–$115M per quarter; Q4 included nonrecurring litigation reserve ($1.4M) and year-end incentive accruals; cost saves realized post-conversion .
  • Rate sensitivity: Balance sheet “so neutral” that 25 bp cuts have minimal NIM/NII impact; CD repricing and deposit exceptions drive improvements .
  • Purchase accretion: Q4 a “good base” with volatility tied to prepayments/premiums; fewer prepayments on discounts and some premium prepayments reduced accretion .
  • Securities restructuring: Not planned given inefficient earnback; restructuring done at acquisition; focus on franchise-accretive actions (lease exit) .
  • Loan growth priority: New CLO (Bill Fink) and expanded teams (PA/Westchester) to drive C&I and CRE; payoffs and maturities were headwinds in Q4 but activity is improving .

Estimates Context

  • S&P Global consensus EPS and revenue estimates for Q4 2024 were unavailable due to data access limits; therefore, beats/misses versus consensus cannot be assessed. Values would normally be retrieved from S&P Global; in this case, consensus comparison is unavailable.

Key Takeaways for Investors

  • Core earnings momentum is improving post-integration: adjusted ROA 1.05% and adjusted ROTCE 15.39% in Q4, with efficiency ratio down to 55.43%—a constructive setup for 2025, especially with merger charges behind them .
  • Margin outlook is favorable: deposit costs declining (2.25% average; further CD repricing benefit), core NIM expanding, and reported NIM guided to 3.35%–3.45% in 2025; watch accretion volatility and securities mix headwinds that can lower reported NIM but raise NII .
  • Asset quality remains a strength: NPLs down to 0.39%, NPAs 0.34%, net charge-offs lower; allowance at 1.04%—supports stable provisions as growth resumes .
  • Strategic pruning and focus: exit of non-relationship equipment leasing and seasonal/nonrecurring expense items suggest cleaner 2025 run-rate; core opex guide ~$112–$115M/qtr provides visibility .
  • Fee businesses are additive: Beacon AUM at $4.2B and insurance organic growth +19% YoY—support noninterest income resiliency amid margin normalization .
  • Growth catalysts: new CLO hire, expanded footprints in PA/Westchester, and deposit repricing discipline—monitor production scaling to ~$800–$900M/quarter target with ~40% pull-through to balances .
  • Dividend maintained at $0.24; combined with improving profitability and capital position, supports total return while margin/fee momentum plays out into 2025 .