Provident Financial Services, Inc. (PFS) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates positive financial performance with increased deposits, tangible book value, and strong profitability. The Q&A highlights strategic growth plans, stable NIM outlook, and improved credit quality. Despite some unclear responses, the company's focus on growth and efficiency, along with a slight decrease in tax rate and plans for geographic expansion, suggest a positive market reaction. The market cap indicates moderate reaction sensitivity, leading to a 'Positive' sentiment prediction.
Key Financial Performance
Net Earnings $83 million or $0.64 per share, with an annualized return on average assets of 1.34% and adjusted return on average tangible common equity of 17.6%. Reasons for change: Driven by record revenues, favorable credit metrics, and expanding core profitability.
Pre-Provision Net Revenue $111 million or an ROA of 1.78%. Reasons for change: Growth momentum and positive operating leverage.
Commercial Loan Production $3.2 billion in 2025, with net commercial loan growth of 5.5% for the year. Reasons for change: Elevated loan payoffs of $1.3 billion, primarily in the CRE portfolio, partially offset strong production.
Core Deposits Growth $260 million or 6.6% annualized compared to the linked quarter. Reasons for change: Favorable trends in commercial and consumer segments.
Nonperforming Assets Improved 9 basis points to 0.32%. Reasons for change: Successful resolution of $22 million of nonperforming loans and $1.3 million in associated net charge-offs.
Record Fee Revenue $28.3 million in the quarter. Reasons for change: Growth in insurance agency income, new business, and over 90% customer retention.
Beacon Trust Revenue $7.6 million in the fourth quarter. Reasons for change: Revenue growth and approximately $4.2 billion of AUM.
SBA Gains on Sale $946,000 in the fourth quarter and $2.8 million for the full year, up from $905,000 in 2024. Reasons for change: Increased SBA capabilities.
Revenue $226 million, driven by record net interest income of $197 million and record noninterest income of $28.3 million. Reasons for change: Increased average earning assets and reduced cost of interest-bearing liabilities.
Net Interest Margin (NIM) Core NIM increased by 7 basis points to 3.01%. Reasons for change: Reduction in asset yield offset by a decrease in the cost of interest-bearing liabilities.
Period-End Loans Held for Investment Increased $218 million or an annualized 4.5% for the quarter. Reasons for change: Growth in multifamily, commercial mortgage, and commercial loans.
Period-End Deposits Increased $182 million or an annualized 3.8% for the quarter. Reasons for change: Increased average deposits and reduced average cost of total deposits.
Noninterest Expense Increased to $114.7 million this quarter. Reasons for change: Increased performance-based incentive accruals.
Tangible Book Value Per Share Increased $0.57 or 3.8% this quarter to $15.70. Reasons for change: Strong profitability and capital formation.
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Operating Highlights
New Loan Production: Generated total new loan production of $3.2 billion in 2025, with a solid pipeline of $2.7 billion at year-end.
SBA Capabilities: Invested in SBA capabilities, generating $946,000 of gains on sale in Q4 and $2.8 million for the full year, up from $905,000 in 2024.
Core Deposits Growth: Core deposits grew $260 million or 6.6% annualized compared to the linked quarter.
Noninterest Income: Generated record fee revenue of $28.3 million in Q4, driven by insurance agency income and Beacon Trust's revenue growth.
Operational Efficiencies: Pre-provision net revenue reached a record $111 million, with a return on average assets of 1.78%.
Asset Quality: Resolved $22 million of nonperforming loans, improving nonperforming assets to 0.32%.
Strategic Investments: Preparing for a core system conversion in fall 2026 to enhance scalability and digital capabilities.
Share Repurchase Authorization: Announced a new share repurchase authorization for 2 million shares.
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Risk or Challenges
Loan Payoffs: Elevated loan payoffs of $1.3 billion, primarily in the CRE portfolio, partially offset strong loan production, which could impact net loan growth.
Deposit Market Competition: The deposit market remains competitive, which may challenge the company's ability to grow core funding.
Core System Conversion: The planned core system conversion in fall 2026 presents operational risks and potential disruptions during implementation.
Nonperforming Loans: Although nonperforming assets improved, the company resolved $22 million of nonperforming loans, indicating ongoing credit risk management challenges.
Interest Rate Environment: The company anticipates future benefits from Fed rate cuts and yield curve steepening, but changes in the interest rate environment could impact net interest margin projections.
Nonrecurring Charges: The core system upgrade in 2026 is expected to incur additional nonrecurring charges of approximately $5 million, which could affect financial performance in the second half of the year.
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Guidance & Outlook
Loan and Deposit Growth: The company expects loans and deposits to grow in the 4% to 6% range in 2026.
Core Net Interest Margin (NIM): The company projects continued core NIM expansion of 3 to 5 basis points for the next 2 quarters, with reported NIM estimated in the 3.4% to 3.5% range for 2026.
Noninterest Income: Noninterest income is expected to average $28.5 million per quarter in 2026.
Core Operating Expenses: Quarterly core operating expenses are projected to be approximately $118 million to $120 million for 2026, with a slightly higher run rate in the second half of the year.
Core System Conversion: The company is preparing for a core system conversion in Q3 of 2026, with additional nonrecurring charges of approximately $5 million expected in the third and fourth quarters.
Tax Rate: The effective tax rate for 2026 is projected to be approximately 29%, excluding discrete benefits from tax credit carrybacks.
Return Metrics: The company is targeting a core return on average assets in the 120% to 130% range and a mid-teens return on average tangible common equity for 2026.
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Shareholder Return Plan
Share Repurchase Authorization: Earlier this week, we announced a new share repurchase authorization that will allow us to buy back an additional 2 million shares.
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Key Q&A
Q:How do the $54 million tax credit investments announced affect the effective tax rate?
A:The $54 million tax credit investments announced are for the 2025 tax year benefits, reflected in a $3.4 million reduction in income tax expense. For 2026, the effective tax rate is estimated to drop from close to 30% to about 29%, with the benefits spread throughout three quarters of the year.
Q:What are the priorities for deploying excess capital?
A:The primary focus is on profitable balance sheet growth and organic growth. Additional priorities include considering dividend adjustments, investing in insurance and wealth platforms, and potential mergers, though M&A is a lower priority.
Q:What factors are considered in potential bank deals?
A:Key factors include cultural compatibility, talent acquisition, new lines of business, and market expansion. The management recognizes that not all criteria can be met in every deal and evaluates based on the number of boxes checked.
Q:What is the current state of deposit competition and its impact on NIM outlook?
A:Deposit competition is universal and ongoing, with a focus on noninterest-bearing demand and low-cost money. The company achieved 16.5% growth in average balances and $479 million in commercial deposits this year. While competition exists, the company believes it can win its share with the right talent and approach. The NIM outlook is not significantly impacted.
Q:What is the status of fixed-rate loans repricing and its impact on NIM?
A:Approximately $5.7 billion of adjustable-rate loans will reprice over the next four quarters, with an additional $4.7 billion from amortization and prepayments. The rate pickup is about 30-40 basis points, adding approximately 4 basis points to the NIM.
Q:What are the trends in the CRE market and the company's stance on acquiring CRE portfolios?
A:The CRE market is healthier, with improving volumes and stable pricing. The company has no desire to acquire CRE portfolios, preferring to allocate capital to client relationships. The company's CRE book has performed well, and it is attentive to market changes, such as rent control regulations in New York.
Q:What is the outlook for loan yields and wealth AUM in 2026?
A:Loan yields are expected to remain stable or slightly improve, with a 20 basis point lift in the 5-year rate from the prior quarter. Wealth AUM was down slightly in Q4 due to net outflows but is expected to grow in 2026 with new talent and strategies in place.
Q:Is there a desire to expand the geographic footprint?
A:Yes, the company is interested in expanding in areas like Long Island, Westchester, Rockland, and the Philly suburbs. It already has teams in these areas and plans to continue penetration.
Q:What is the expected purchase accounting accretion for 2026?
A:The expected purchase accounting accretion for 2026 is approximately $60 million for the full year, with some volatility due to prepayments.
Q:What are the hiring plans for 2026?
A:The company plans to hire 3-5 additional staff in areas like insurance, wealth, middle market space, and treasury management. These hires are aimed at supporting growth and maintaining positive operating leverage.
Q:What is the outlook for credit quality and reserve levels?
A:Credit quality remains strong, with 7 basis points in net charge-offs and 32 basis points in NPAs. The reserve levels are largely model-driven and appear to have stabilized.
Q:What is the plan for reducing deposit costs?
A:Deposit costs are expected to decrease further, with each 25 basis point Fed rate cut providing an additional 2-3 basis points improvement in the core margin. Betas are expected to run in the 25%-30% range relative to Fed rate cuts.
Q:What is the timeline and purpose of the core systems conversion?
A:The core systems conversion is scheduled for Labor Day weekend of 2026, transitioning to the IBS platform of FIS. This system is expected to enhance digital capabilities, product offerings, and operational efficiencies.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact number of hires planned for 2026, the precise impact of geographic expansion on financials, and the exact timeline for achieving certain growth targets in wealth AUM and middle market penetration. Additionally, responses on M&A priorities and CRE market trends were somewhat broad and lacked detailed metrics or examples.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AUM retention
Bank effort
CRE portfolio
Lakeland transaction
Plus insurance
Plus start
Pre record
Protection Plus
Provident capital
Provident commitment
Provident record
ROA Lakeland
SBA wealth
Trust AUM
ability conversion
activity core
agency income
asset profitability
authorization share
balance sheet
bank Trust
banking treasury
capability ability
conference
funding
gain sale
income Provident
loan payoff
momentum
priority
production loan
quartile
risk
talent
PFS Transcript
Provident Financial Services, Inc. (PFS) Q4 2025 Earnings Call Transcript
Positive1-28
The earnings call summary indicates positive financial performance with increased deposits, tangible book value, and strong profitability. The Q&A highlights strategic growth plans, stable NIM outlook, and improved credit quality. Despite some unclear responses, the company's focus on growth and efficiency, along with a slight decrease in tax rate and plans for geographic expansion, suggest a positive market reaction. The market cap indicates moderate reaction sensitivity, leading to a 'Positive' sentiment prediction.
Provident Financial Services, Inc. (PFS) Q3 2025 Earnings Call Transcript
Positive10-30
The earnings call summary shows strong financial performance, including increased equity ratio and profitability. The Q&A reveals strategic growth in specialty verticals and a robust loan pipeline. Despite competition, the company maintains strong C&I growth and a strategic focus on organic growth and capital deployment. The management's optimistic outlook on new talent acquisition and stable fee structures further supports a positive sentiment. However, some concerns about loan repricing specifics and competition impact are noted, but overall, the positive aspects outweigh the negatives.
Provident Financial Services, Inc. (PFS) Q2 2025 Earnings Call Transcript
Positive7-24
The earnings report reveals strong financial performance with record revenue, improved NIM, and reduced nonperforming assets. The Q&A highlights optimism for NII growth and a stable loan pipeline. Despite slight concerns over wealth management fees and deposit competition, the overall sentiment is positive. The market cap suggests a moderate reaction, aligning with a positive sentiment prediction of 2% to 8% stock price increase.
Provident Financial Services, Inc. (PFS) Q1 2025 Earnings Call Transcript
Unknown4-25
The earnings call presents mixed signals: strong core earnings and improved financial metrics are positive, but the increased non-performing loan ratio and write-down on foreclosed assets are concerning. The Q&A reveals some uncertainty, particularly regarding non-accrual loans and tariffs, which tempers optimism. The absence of a share repurchase program and a slight tax rate increase also contribute to a neutral outlook. Given the market cap of $1.78 billion, the stock is likely to experience a mild reaction, within the -2% to 2% range.
PFS Report
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