Provident Financial Services, Inc. Announces First Quarter Earnings and Declares Quarterly Cash Dividend (2025)

ISELIN, N.J., April 24, 2025 (GLOBE NEWSWIRE) -- Provident Financial Services, Inc. (NYSE:PFS) (the "Company”) reported net income of $64.0 million, or $0.49 per basic and diluted share for the three months ended March 31, 2025, compared to $48.5 million, or $0.37 per basic and diluted share, for the three months ended December 31, 2024 and $32.1 million, or $0.43 per basic and diluted share, for the three months ended March 31, 2024. Net income for the three months ended March 31, 2025 was negatively impacted by a $2.7 million write-down on a foreclosed property, partially offset by a $624,000 profit on fixed asset sales related to the consolidation of three branches. While there were no transaction costs related to our merger with Lakeland Bancorp, Inc. ("Lakeland”) for the 2025 period, these costs totaled $20.2 million for the three months ended December31, 2024 and $2.2 million for the three months ended March 31, 2024, respectively.

Anthony J. Labozzetta, President and Chief Executive Officer commented, "With the integration of Lakeland behind us, we are starting to see the benefits of the transaction come to fruition. We are very pleased with our first quarter financial results and encouraged by the promising start to the year. Despite ongoing uncertainty in the markets, our core businesses, credit quality and risk management remain strong. Our team is focused on building the business, delivering exceptional customer service and creating value for all stakeholders while remaining agile in this rapidly changing economic and regulatory environment."

Performance Highlights for the First Quarter of 2025

• Adjusted for a one-time write-down on a foreclosed property in the current quarter, as well as transaction costs related to the merger with Lakeland in prior quarters, the Company's annualized adjusted returns on average assets, average equity and average tangible equity⁽¹⁾ were 1.11%, 10.13% and 16.15% for the quarter ended March31, 2025, compared to 1.05%, 9.53% and 15.39% for the quarter ended December31, 2024. A reconciliation between GAAP and the above non-GAAP ratios is shown on page 11 of the earnings release.
• The Company's annualized adjusted pre-tax, pre-provision returns on average assets, average equity and average tangible equity⁽²⁾ were 1.61%, 14.63% and 21.18% for the quarter ended March31, 2025, compared to 1.53%, 13.91% and 20.31% for the quarter ended December31, 2024. A reconciliation between GAAP and the above non-GAAP ratios is shown on page 11 of the earnings release.
• The Company's total commercial and industrial ("C&I") loan portfolio increased $74.3 million, or 6.5% annualized, to $4.68 billion as of March31, 2025, from $4.61 billion as of December31, 2024. Additionally, the Company's total commercial portfolio increased $150.0 million, or 3.8% annualized to $16.19 billion as of March31, 2025, from $16.04 billion as of December31, 2024.
• The net interest margin increased six basis points to 3.34% for the quarter ended March31, 2025, from 3.28% for the trailing quarter, while the core net interest margin, which excludes the impact of purchase accounting accretion and amortization, increased nine basis points from the trailing quarter to 2.94%. The average yield on total loans decreased four basis points to 5.95% for the quarter ended March31, 2025, compared to the trailing quarter, while the average cost of deposits, including non-interest-bearing deposits, decreased 14 basis points to 2.11% for the quarter ended March31, 2025.
• The Company recorded a $325,000 provision for credit losses on loans for the quarter ended March31, 2025, compared to a $7.8 million provision for the trailing quarter. The decrease in the provision for credit losses for the quarter was primarily attributable to the change in a qualitative factor indexed to the forecasted unemployment rate that resulted in a decrease in reserves required on pooled loans within our Current Expected Credit Loss ("CECL") model. The allowance for credit losses as a percentage of loans decreased to 1.02% as of March31, 2025, from 1.04% as of December31, 2024.
• Insurance Agency income increased $858,000 or 17.9%, versus the same period in 2024, while pre-tax Insurance Agency net income increased $544,000 or 23.3% versus the same period in 2024.
• As of March31, 2025, the Company's loan pipeline, consisting of work-in-process and loans approved pending closing, totaled $2.77 billion, with a weighted average interest rate of 6.31%.

Declaration of Quarterly Dividend

The Company's Board of Directors declared a quarterly cash dividend of $0.24 per common share payable on May 30, 2025 to stockholders of record as of the close of business on May 16, 2025.

Results of Operations

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Three months ended March 31, 2025 compared to the three months ended December 31, 2024

For the three months ended March 31, 2025, net income was $64.0 million, or $0.49 per basic and diluted share, compared to net income of $48.5 million, or $0.37 per basic and diluted share, for the three months ended December 31, 2024.

Net Interest Income and Net Interest Margin

Net interest income was $181.7 million for the three months ended March 31, 2025 and the trailing quarter, despite there being two fewer calendar days in the first quarter of 2025, primarily due to favorable repricing of deposits.

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The Company's net interest margin increased six basis points to 3.34% for the quarter ended March31, 2025, from 3.28% for the trailing quarter. The weighted average yield on interest-earning assets for the quarter ended March31, 2025 decreased three basis points to 5.63%, compared to the trailing quarter. The weighted average cost of interest-bearing liabilities for the quarter ended March31, 2025 decreased 13 basis points from the trailing quarter to 2.90%. The average cost of interest-bearing deposits for the quarter ended March31, 2025 decreased 17 basis points to 2.64%, compared to 2.81% for the trailing quarter. The average cost of total deposits, including non-interest-bearing deposits, was 2.11% for the quarter ended March31, 2025, compared to 2.25% for the trailing quarter. The average cost of borrowed funds for the quarter ended March31, 2025 was 3.76%, compared to 3.64% for the quarter ended December31, 2024.

Provision for Credit Losses on Loans

For the quarter ended March31, 2025, the Company recorded a $325,000 provision for credit losses on loans, compared with a provision for credit losses of $7.8 million for the quarter ended December31, 2024. The decrease in the provision for credit losses for the quarter was primarily attributable to the change in a qualitative factor indexed to the forecasted unemployment rate that resulted in a decrease in reserves required on pooled loans within our CECL model. For the three months ended March 31, 2025, net charge-offs totaled $2.0 million, or an annualized four basis points of average loans, compared with net charge-offs of $5.5 million, or an annualized nine basis points of average loans, for the trailing quarter.

Non-Interest Income and Expense

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For the three months ended March 31, 2025, non-interest income totaled $27.0 million, an increase of $2.9 million, compared to the trailing quarter. Insurance agency income increased $2.4 million to $5.7 million for the three months ended March 31, 2025, compared to the trailing quarter, mainly due to the receipt of contingent commissions and additional business in the current quarter. Additionally, other income increased $920,000 to $2.2 million for the three months ended March 31, 2025, compared to the trailing quarter, primarily due to an increase in profit on fixed asset sales, combined with an increase in net fees on loan-level interest rate swap transactions. Partially offsetting these increases to non-interest income, wealth management income decreased $327,000 to $7.3 million for the three months ended March 31, 2025, compared to the trailing quarter, mainly due to a decrease in the average market value of assets under management during the period, while BOLI income decreased $169,000 for the three months ended March 31, 2025, compared to the trailing quarter, primarily due to decreased equity valuations.

Non-interest expense totaled $116.3 million for the three months ended March 31, 2025, a decrease of $18.1 million, compared to $134.3 million for the trailing quarter. Merger-related expenses, which were completed at the end of 2024, decreased $20.2 million for the three months ended March 31, 2025, compared to the trailing quarter. Other operating expenses decreased $929,000 to $16.4 million for the three months ended March 31, 2025, compared to $17.4 million for the trailing quarter, largely due to a prior quarter $1.4 million charge for contingent litigation reserves, combined with decreases in professional service and insurance expenses, partially offset by a $2.7 million write-down on a foreclosed property. Partially offsetting these decreases in non-interest expense, compensation and benefits expense increased $2.4 million to $62.4 million for the three months ended March 31, 2025, compared to $59.9 million for the trailing quarter. The increase in compensation and benefit expense was primarily due to increases in salary expense related to company-wide annual merit increases and severance expense, partially offset by a decrease in stock-based compensation. Additionally, net occupancy expense increased $1.4 million to $13.9 million for the three months ended March 31, 2025, compared to the trailing quarter, largely due to seasonal increases in snow removal, utilities and other maintenance costs.

The Company's annualized adjusted non-interest expense as a percentage of average assets⁽¹⁾ totaled 1.92% for the quarter ended March31, 2025, compared to 1.90% for the trailing quarter. The efficiency ratio (adjusted non-interest expense divided by the sum of net interest income and non-interest income)⁽¹⁾ was 54.43% for the three months ended March31, 2025, compared to 55.43% for the trailing quarter.

Income Tax Expense

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For the three months ended March31, 2025, the Company's income tax expense was $27.8 million with an effective tax rate of 30.3%, compared with income tax expense of $14.2 million with an effective tax rate of 22.6% for the trailing quarter. The increase in tax expense and the effective tax rate for the three months ended March31, 2025, compared with the trailing quarter was largely due to an increase in taxable income and a discrete item related to stock-based compensation, combined with a prior quarter $4.2 million tax benefit related to the revaluation of certain deferred tax assets to reflect the imposition by the State of New Jersey of a 2.5% Corporate Transit Fee, effective January 1, 2024.

Three months ended March 31, 2025 compared to the three months ended March 31, 2024

For the three months ended March 31, 2025, net income was $64.0 million, or $0.49 per basic and diluted share, compared to net income of $32.1 million, or $0.43 per basic and diluted share, for the three months ended March 31, 2024.

Net Interest Income and Net Interest Margin

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Net interest income increased $88.1 million to $181.7 million for the three months ended March 31, 2025, from $93.7 million for same period in 2024. The increase in net interest income was favorably impacted by the net assets added in the May 16, 2024 acquisition of Lakeland and related accretion of purchase accounting adjustments.

The Company's net interest margin increased 47 basis points to 3.34% for the quarter ended March31, 2025, from 2.87% for the same period last year. The weighted average yield on interest-earning assets for the quarter ended March31, 2025 increased 57 basis points to 5.63%, compared to 5.06% for the quarter ended March31, 2024. The weighted average cost of interest-bearing liabilities increased 10 basis points for the quarter ended March31, 2025 to 2.90%, compared to 2.80% for the first quarter of 2024. The average cost of interest-bearing deposits for the quarter ended March31, 2025 was 2.64%, compared to 2.60% for the same period last year. Average non-interest-bearing demand deposits increased $1.65 billion to $3.72 billion for the quarter ended March31, 2025, compared to $2.07 billion for the quarter ended March31, 2024. The average cost of total deposits, including non-interest-bearing deposits, was 2.11% for the quarter ended March31, 2025, compared with 2.04% for the quarter ended March31, 2024. The average cost of borrowed funds for the quarter ended March31, 2025 was 3.76%, compared to 3.60% for the same period last year.

Provision for Credit Losses on Loans

For the quarter ended March31, 2025, the Company recorded a $325,000 provision for credit losses on loans, compared with a $200,000 provision for credit losses on loans for the quarter ended March31, 2024. The increase in the provision for credit losses was due to an increase in specific reserves on impaired credits.For the three months ended March 31, 2025, net charge-offs totaled $2.0 million, or an annualized four basis points of average loans, compared with net charge-offs of $971,000, or an annualized four basis points of average loans, for the quarter ended March 31, 2024.

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Non-Interest Income and Expense

Non-interest income totaled $27.0 million for the quarter ended March31, 2025, an increase of $6.2 million, compared to the same period in 2024. Fee income increased $3.7 million to $9.7 million for the three months ended March 31, 2025, compared to the prior year quarter, primarily due to increases in deposit fee income, debit card related fee income and commercial loan prepayment fees, resulting from the Lakeland merger. Other income increased $1.4 million to $2.2 million for the three months ended March 31, 2025, compared to the quarter ended March31, 2024, primarily due to an increase in profit on fixed asset sales, combined with an increase in net fees on loan-level interest rate swap transactions and an increase in gains on sales of mortgage loans. Insurance agency income increased $858,000 to $5.7 million for the three months ended March 31, 2025, compared to the quarter ended March31, 2024, largely due to an increase in contingency income and business activity, while BOLI income increased $275,000 to $2.1 million for the three months ended March 31, 2025, compared to the prior year quarter, related to the addition of Lakeland's BOLI, partially offset by a decrease in equity valuations.

For the three months ended March 31, 2025, non-interest expense totaled $116.3 million, an increase of $44.4 million, compared to the three months ended March 31, 2024. Compensation and benefits expense increased $22.3 million to $62.4 million for three months ended March 31, 2025, compared to $40.0 million for the same period in 2024. The increase was primarily due to the addition of Lakeland, combined with an increase in salary expense associated with Company-wide annual merit increases. Amortization of intangibles increased $8.8 million to $9.5 million for the three months ended March 31, 2024, compared to $705,000 for 2024, largely due to core deposit intangible amortization related to the addition of Lakeland. Other operating expense increased $6.1 million to $16.4 million for the three months ended March 31, 2025, compared to $10.3 million for the three months ended March 31, 2024, largely due to the addition of Lakeland and a $2.7 million write-down on a foreclosed property in the current quarter. Net occupancy expense increased $5.4 million to $13.9 million for the three months ended March 31, 2024, compared to the same period in 2024, primarily due to increased depreciation and maintenance expenses because of the addition of Lakeland. Data processing expense increased $2.8 million to $9.6 million for three months ended March 31, 2025, compared to $6.8 million for the same period in 2024. The increase in data processing expense was primarily due to increases in software service, telecommunication and core service expenses, due to the addition of Lakeland. Additionally, FDIC insurance expense increased $1.1 million to $3.4 million for the three months ended March 31, 2025, compared to the same period in 2024, primarily due to increases in the assessment rate and average assets, as a result of the addition of Lakeland. Partially offsetting these increases in non-interest expense, merger-related expenses, which completed at the end of 2024 decreased $2.2 million for the three months ended March 31, 2025, compared to the same period in 2024.

The Company's annualized adjusted non-interest expense as a percentage of average assets⁽¹⁾ was 1.92% for the quarter ended March31, 2025, compared to 1.99% for the same period in 2024. The efficiency ratio (adjusted non-interest expense divided by the sum of net interest income and non-interest income)⁽¹⁾ was 54.43% for the three months ended March 31, 2025 compared to 60.82% for the same respective period in 2024.

Income Tax Expense

For the three months ended March 31, 2025, the Company's income tax expense was $27.8 million with an effective tax rate of 30.3%, compared with $10.9 million with an effective tax rate of 25.3% for the three months ended March 31, 2024. The increase in tax expense for the three months ended March 31, 2025, compared with the same period last year, was largely the result of an increase in taxable income and an increase in state tax rates as a result of the May 2024 Lakeland merger, as well as a discrete item related to stock-based compensation. The increase in state tax rates is a result of the Company no longer receiving benefit of a reduced New Jersey state rate available for the Company's REIT and New Jersey investment company subsidiaries. The state of New Jersey allows certain bank subsidiaries with assets under $15 billion to benefit from the lower rate, however due to the Lakeland merger in May of 2024, the $15 billion asset threshold was crossed and the increased New Jersey rate was applicable.

Asset Quality

The Company's total non-performing loans as of March31, 2025 were $103.2 million, or 0.54% of total loans, compared $72.1 million, or 0.39% of total loans as of December31, 2024 and $35.5 million, or 0.35% of total loans as of March31, 2024. The $31.2 million increase in non-performing loans as of March31, 2025, compared to the trailing quarter, was primarily attributable to two loans: a $20.3 million commercial real estate loan secured by a mixed use property with a current loan-to value of 53% and an $11.5 million construction loan secured by a nearly complete warehouse facility with a current loan-to-value of 62%. These loans have no prior charge-off history and carry no specific reserve allocations. As of March31, 2025, impaired loans totaled $86.1 million with related specific reserves of $7.9 million, compared with impaired loans totaling $55.4 million with related specific reserves of $7.5 million as of December31, 2024. As of March31, 2024, impaired loans totaled $40.1 million with related specific reserves of $8.2 million.

As of March31, 2025, the Company's allowance for credit losses related to the loan held for investment portfolio was 1.02% of total loans, compared to 1.04% and 0.98% as of December31, 2024 and March31, 2024, respectively. The allowance for credit losses decreased $1.7 million to $191.8 million as of March31, 2025, from $193.4 million as of December31, 2024. The decrease in the allowance for credit losses on loans at March31, 2025 compared to December31, 2024 was due to net charge-offs of $2.0 million, partially offset by a $325,000 provision for credit losses.

The following table shows accruing past due loans and non-accrual loans on the dates indicated, as well as certain asset quality ratios.