PFS
#Thanks, Len.
Good morning everyone.
We appreciate your participation on today's call.
First-quarter earnings of $0.32 per share they exceeded the same quarter last year by 6.7%.
Our return on average assets was 94 basis points and we achieved a return on average tangible equity of about 10.67%.
Net interest income of $61.9 million exceeded the same period last year by 12.2%.
And our provision for loan losses was reflective of the improvement in asset quality and the resolution of a number of smaller credits.
With our earnings release this morning we announced a continued cash dividend of $0.16 per share.
Loan originations during the quarter were $349 million but overall portfolio growth was muted due to several large commercial payoffs.
Volumes in the pipeline were impacted by our credit and pricing discipline as competitors in or market have aggressively extended duration or offered loan rates and terms that would not meet our ROE minimums.
Our asset-based lending group is gaining traction and our medical lending team is also building its pipeline.
The compression in our net interest margin of 6 basis points in the quarter can be attributed to the drop in asset yields as rates remain historically low.
As on-rates for loans are lower than current portfolio yields and originations are skewed towards adjustable rates or shorter initial terms we anticipate that margin expansion will be difficult to attain in the near-term.
Our balance sheet size remains static compared with the year-end as we utilize cash flows from deposit growth and investments to fund loan growth and reduce overnight borrowing positions.
Our business advantage checking product is being well received in our new markets and core deposits now represent over 86% of total deposits.
Non-interest income of $10.3 million exceeded the same period last year by 27% due to prepayment fees on commercial loans and an increase in wealth management income from improved client pricing as well as growth in assets under administration as a result of the October acquisition from Suffolk County National Bank.
On April 1, 2015 Beacon Trust closed its acquisition of The MDE Group.
We look forward to the successful integration of the staff and clients of MDE which gives us approximately $2.5 billion in assets under management and more than 900 client relationships.
<UNK> will go over into more detail the non-interest expenses.
But suffice it to say that the harsh winter had an impact on operating expenses along with increased compensation and benefit cost.
Our new markets in Pennsylvania and Western New Jersey are showing promise as we have added staff in the Lehigh Valley and Bucks County regions and are promoting our brand of relationship banking in those areas.
We continue to review opportunities to leverage our capital through accretive deals as smaller institutions struggle to cope under the weight of the onerous regulatory burdens and the flat interest rate environment.
Before turning it over to <UNK> I would like to publicly thank Jeff Shein and Geoff Connor, our two retired directors, for their guidance, leadership and dedication to the success of Provident.
Their efforts and professionalism will be missed by all of us who had the pleasure of working with them.
<UNK>.
Thank you, <UNK>.
Good morning everyone.
Our net income for the first quarter was $19.8 million compared with $21.2 million for the trailing quarter.
Earnings per share were $0.32 compared with $0.34 in the trailing quarter.
Net interest income decreased by $1.4 million to $62 million as the effects of the shorter calendar quarter and an 11 basis point decline in the average loan yields more than offset the benefit of a 5.6% annualized increase in average loans outstanding.
The net interest margin decreased 6 basis points to 3.24% with 2 basis points of that decline attributable to a reduction in the accretion of purchase accounting adjustments.
The cost of interest-bearing liabilities was unchanged versus the trailing quarter; however, the margin was aided by 7% annualized growth in average non-interest-bearing deposits.
Therefore our total cost of deposits declined 1 basis point to 0.25%.
We provided $600,000 for loan losses this quarter compared with $1.3 million in the prior quarter as asset quality metrics continued to improve.
Non-performing loans decreased $3 million from the trailing quarter to $51 million or 0.83% of total loans.
Net charge-offs for the quarter decreased to $1.2 million or an annualized 8 basis points of average loans.
The allowance for loan losses to total loans decreased slightly to 1% from 1.01% at December 31; however, the allowance coverage of non-performing loans increased to 120%.
Non-interest income decreased $1.1 million compared to the trailing quarter as increases in loan prepayment fees and wealth management income were more than offset by reductions in gains on loan sales and lower loan swap income.
Non-interest expense increased $1.1 million versus the trailing quarter to $43.4 million.
Compensation and benefits increased $1.9 million reflecting annual merit increases, increased incentive accruals and payroll taxes.
Net occupancy cost increased $876,000 versus the trailing quarter primarily due to snow and ice removal and increased utilities cost attributable to the harsh winter weather.
These increases were partially offset by reductions in advertising and various other expense items.
Our efficiency ratio was 60.1% and our annualized operating expenses to average assets were 2.07% for the first quarter of 2015.
Income tax expense was $8 million compared with $10 million for the trailing quarter and our effective tax rate decreased to 29.8% from 32%.
The decrease in the effective rate was primarily a result of the prior-quarter recognition of a $639,000 write-down of deferred tax assets due to the apportionment of income to Pennsylvania stemming from the Team Capital acquisition.
We currently project an effective tax rate of approximately 30% for the remainder of 2015.
That concludes our prepared remarks.
We'd be happy to respond to questions.
Yes, I think it adds about $600,000 roughly to the bottom line per quarter, Mark.
I'm sorry it's in my revenues.
Yes, it's about $2.5 million to $2.8 million per quarter additional.
About $1.7 million operating expenses per quarter.
I would expect around 90 basis points on new loan originations as a rough guide.
Asset quality metrics have continued to improve.
That's really what drove the reduced provision versus the trailing quarter.
About 3.52%.
Probably, Mark.
We looked at certainly our origination volume has skewed more towards adjustable-rate.
I think we were about 52% of it being adjustable and I think that's kind of where we're trying to keep that in mind being a little conservative and we could probably make more money by doing fixed but longer-term duration.
We figure so being a little bit more flexible and ready for rates going up if they ever do we're going to give up something to get something in the end.
I would say ---+ are there opportunities.
They are coming.
I think the stress of this environment has got everybody trying to figure out where they're going to go.
I don't think it's heating up to the level that everybody had anticipated, though.
^ Well, that all kind of hedges on if it was organic growth of our Company and balance sheet it would take a lot longer than if we did another material acquisition but we've already started the process.
We've been working with regulators.
We are spending a little bit of money on systems.
And so I think the transition would be there if we move along and there's an opportunity to have a very accretive acquisition we would probably move that needle very quickly.
So it's not something that's preordained.
Well, certainly <UNK> will chime in also.
We did see a lot of payoffs in the first quarter and this was not really related to competitive factors necessarily but a lot of our clients are monetizing gains on properties that they are selling.
Now there might be 1031 exchanges going on at the same time but in our talking to clients that have been paying off they just saw the opportunity to be too good to pass up.
And these are people that have been in the business for 25, 30 years.
So they know when the market's getting a little frothy and/or there are opportunities for them to sell now and buy later.
So some of our payoffs were related to that.
And then we're also dealing with the agencies and the life companies coming back into the space for larger credits and being able to offer one of our clients got 4% 30-year on a property and that's something we certainly can't do but that was from a life company.
So they opted to stay with us for a little bit longer and this is a construction that just got finished up so it is going to perm.
So we are dealing with a little bit of that going on.
And we always say the quality of our portfolio being a lot of a borrowers they are also very refiable by very aggressive terms out there.
So we really can't fault them on it but it's tough for us to go ahead and try to compete on some of those.
I think I would just add I would expect to see some acceleration in loan originations and loan growth in the second quarter given the strength of the pipeline.
The pipeline is about $100 million or so better than it was in the trailing quarter and it's pretty well diversified among the various lending categories.
I think we're still in the mid-single-digit range.
Well I think our multifamily originations probably would slow up a little bit.
Being it's such a competitive market we see more people coming into that space.
As you know we do mostly New Jersey, Pennsylvania, not in the boroughs.
But on the other hand I think the market has done well in the middle market space, the asset-based lending group, again small but it's moving in the right direction.
And the residential has picked up as of late.
We hired a few new people to do originations and that volume has picked up a little also.
So when you look at a pie chart it definitely has a lot of diversification from all fronts.
But certainly shortening up on the duration and trying to keep it more adjustable or shorter resets.
It's primarily two categories, <UNK>.
The gains on loan sales were down about $640,000 and the profit on swaps was about $230,000 less than the trailing quarter.
Yes.
The more routine core fee categories pretty much performed as expected in line.
It was really those volatile items that showed the drop.
Primarily gains on SBA loan sales.
So sometimes you can have a significant gain on a one-off kind of item in that pool.
I'm sorry.
The ---+
I think inclusive of the operating expenses related to MDE we're probably at about $45 million for next quarter.
That excludes a little bit of transaction-related charges that we'll see.
And then I think you'll see it drop off a little bit in Q3 as certain of the payroll tax changes roll through the rest of the way.
