Provident Financial Services, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited consolidated results for the three months ended March 31, 2022, compared with Q1 2021; balance-sheet comparisons are with December 31, 2021. The company operates through Provident Bank.
Key financial metrics
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Net income; diluted EPS | $44.0 million; $0.58 | Q1 2021: $48.6 million; $0.63 |
| Net interest income | $94.5 million | Q1 2021: $90.0 million |
| Net interest margin | 3.02% | Q1 2021: 3.05% |
| Non-interest income / expense | $20.1 million / $61.9 million | Q1 2021: $21.6 million / $61.9 million |
| Provision benefit for loan credit losses | $6.4 million | Q1 2021: $15.0 million |
| Total assets | $13.62 billion | December 31, 2021: $13.78 billion |
| Loans, net / allowance for loan losses | $9.59 billion / $76.3 million | December 31, 2021: $9.50 billion / $80.7 million |
| Deposits / borrowed funds | $11.37 billion / $399.6 million | December 31, 2021: $11.23 billion / $626.8 million |
| Stockholders’ equity | $1.62 billion | December 31, 2021: $1.70 billion |
| Operating cash flow | $51.1 million | Q1 2021: $36.4 million |
Investing activities used $192.4 million and financing activities used $138.0 million. Cash, cash equivalents and restricted cash decreased $279.3 million during the quarter to $433.1 million.
Material changes versus comparable periods
- Net income fell about 9% year over year, while net interest income rose $4.5 million. Lower deposit and borrowing costs supported the increase; net interest margin edged down three basis points.
- Non-interest income declined $1.5 million, largely due to lower bank-owned life insurance income, other income and fees. Insurance agency and wealth management income increased.
- The loan-loss provision benefit was smaller than in Q1 2021, which had benefited from a more favorable post-pandemic recovery outlook. Q1 2022 included net loan recoveries of $1.9 million versus net charge-offs of $0.9 million in Q1 2021.
- Loans increased $81.3 million from year-end; PPP loans declined $66.0 million to $28.9 million. Deposits rose $132.1 million, while borrowings fell $227.2 million, primarily as FHLB borrowings were replaced with deposits.
- Accumulated other comprehensive income shifted from a $6.9 million gain at year-end to a $67.9 million loss, chiefly reflecting higher-rate-driven unrealized losses on available-for-sale securities. Q1 other comprehensive loss was $74.8 million after tax.
- The company repurchased 1.28 million shares for $29.0 million and paid $18.7 million in dividends during the quarter.
Outlook, management commentary, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management cautions that Q1 results are not necessarily indicative of full-year 2022 results.
- Management described the company as moderately asset-sensitive. Its model projects 12-month net interest income increasing 4.9% under a gradual 300-basis-point rate rise, and decreasing 3.2% under a 100-basis-point decline. The filing emphasizes that model assumptions and actual results may differ.
- Actual regulatory capital ratios exceeded applicable minimums at March 31, 2022. Company ratios included 11.56% common equity Tier 1 and 12.32% total risk-based capital; the Bank’s total risk-based capital ratio was 11.61%.
- Key risks include interest-rate and securities-market volatility, credit deterioration, commercial real estate exposure, liquidity and funding conditions, economic uncertainty, and the continuing uncertain effects of COVID-19. Commercial real estate, commercial and construction loans together represented 84.4% of loans.
- Non-performing loans were $44.3 million, or 0.46% of loans, down from $48.0 million at year-end; non-performing assets were $52.9 million. Management noted that changes in economic forecasts and credit conditions could affect the allowance and earnings.
- Available-for-sale securities had $118.9 million of gross unrealized losses at quarter-end; management attributed the increase in securities in loss positions to rising market interest rates. Legal proceedings in the ordinary course were not expected by management to have a material adverse impact. No changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Track the effects of further interest-rate changes on net interest margin, deposit pricing, securities values and modeled asset sensitivity.
- Review the size and composition of unrealized securities losses and their potential implications for equity and liquidity.
- Monitor commercial real estate and construction credit quality, non-performing loans, delinquencies, and the adequacy of the credit-loss allowance.
- Assess whether deposit growth can continue to fund loan growth and whether reduced wholesale borrowings are sustainable.
- Confirm the impact of share repurchases, dividends and any further capital distributions on capital and per-share results.