U.S. Markets close in 1 hr 53 mins

Edited Transcript of PFS earnings conference call or presentation 1-Feb-19 3:00pm GMT

Q4 2018 Provident Financial Services Inc Earnings Call

Jersey City Feb 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Provident Financial Services Inc earnings conference call or presentation Friday, February 1, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Christopher P. Martin

Provident Financial Services, Inc. - Chairman, President & CEO

* Leonard G. Gleason

Provident Financial Services, Inc. - Senior VP & IR Officer

* Thomas M. Lyons

Provident Financial Services, Inc. - Executive VP & CFO

================================================================================

Conference Call Participants

================================================================================

* Collyn Bement Gilbert

Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst

* Erik Edward Zwick

Boenning and Scattergood, Inc., Research Division - Research Analyst of Northeast Banks

* Mark Thomas Fitzgibbon

Sandler O'Neill + Partners, L.P., Research Division - Principal & Director of Research

* Matthew M. Breese

Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst

* Russell Elliott Teasdale Gunther

D.A. Davidson & Co., Research Division - VP & Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, everyone, and welcome to the Provident Financial Services, Inc., fourth quarter earnings conference call. (Operator Instructions) Please also note today's event is being recorded.

At this time, I'd like to turn the conference call over to Mr. Len Gleason, Investor Relations Officer. Mr. Gleason, please go ahead.

--------------------------------------------------------------------------------

Leonard G. Gleason, Provident Financial Services, Inc. - Senior VP & IR Officer [2]

--------------------------------------------------------------------------------

Thank you, Jamie. Good morning, ladies and gentlemen. Thank you for joining us today. The presenters for our fourth quarter earnings call are Chris Martin, Chairman, President and CEO; and Tom Lyons, Executive Vice President and Chief Financial Officer.

Before beginning their review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today's call. Our full disclaimer can be found in this morning's earnings release, which has been posted to the Investor Relations page on our website, provident.bank.

Now I'm pleased to introduce Chris Martin, who will offer his perspective on the fourth quarter. Chris?

--------------------------------------------------------------------------------

Christopher P. Martin, Provident Financial Services, Inc. - Chairman, President & CEO [3]

--------------------------------------------------------------------------------

Thanks, Len, and good morning, everyone. Provident's record quarterly and annual results continue to reflect the successful implementation of our strategic objectives. Earnings for the quarter were $35.8 million or $0.55 per share versus $0.30 per share for the quarter ended December 31, 2017. Full year-over-year earnings increased by more than 26%, and we have continued to benefit from our well-positioned balance sheet, our deposit and loan pricing discipline and our selective restraint when competing with banks, life insurance companies and other financial intermediaries.

Our annualized return on average assets and average tangible equity for the quarter were 1.46% and 15.27%, up from 80 basis points and 8.69% for the same period in 2017. Our total assets remain below the $10 billion threshold for enhanced regulatory oversight and Durbin limits on debit card fee income at $9.7 billion at year-end 2018 as our loan levels remain static.

Loan payoffs muted strong loan originations and line of credit advances of $3.16 billion for the year. And we are well positioned for net loan growth in 2019, albeit at low to mid-single-digit levels, as we anticipate additional payoffs. The pipeline remains robust and consistent, and we continue to steer away from riskier lending, focusing on portfolio optimization that meets our risk-adjusted returns and does not adversely impact the quality of our loan portfolio.

Asset quality continued to improve with total nonperformers representing 0.35% of total loans at 12/31/18. Foreclosed assets were only $1.6 million at year-end versus $6.9 million at the same period last year. Net charge-offs for the quarter were just 1 basis point, and we are not seeing any adverse trends that would portend significant deterioration in asset quality as the economy appears somewhat stable. And we remain optimistic but cautious.

Total deposits increased during 2018 by $116 million with CDs making up the bulk of it as they represented a cheaper source of funding than borrowings. And we really haven't increased our core deposit pricing on traditional bank accounts appreciably, while many of our liability-sensitive competitors and those with outsized growth targets struggled to fund their operations. And we continue to forecast that, once the Fed stops increasing rates, we should see a stabilization in deposit betas.

As mentioned in this morning's release, our board approved a 9.5% increase in our regular cash dividend and also declared a special cash dividend of $0.20 per share. These actions reflect our board's confidence in our ability to generate strong earnings and to continue to enhance shareholder value, and there was some activity in stock buybacks during the fourth quarter when the market came under pressure. We still have over 2.5 million shares remaining in our current buyback approval.

And we also announced our agreement to acquire a successful and seasoned registered investment adviser in Manhattan with approximately $750 million in assets under management, which will elevate our Beacon Trust business to over $3 billion in total AUM upon closing, and we anticipate we will close this transaction early in the second quarter of the year.

Net interest income was again a record for PFS this quarter. The margin performed well, increasing 6 basis points from the trailing quarter to 3.44%. And I note that there are no prepayment fees included to skew the results. We anticipate continued modest growth in our NIM for 2019. Noninterest income increased $2.3 million for the quarter, and Tom will provide more details.

The quarter included some additional expenditures for technology and investments in improving the customer experience. We are enhancing the use of analytics in terms of really understanding our competitors and, more importantly, our customers' banking needs and expectations. The digital platform is key to competing effectively in the future, so our investments in this channel must deliver a more personalized relationship with our customers. While we continue to expend resources on technology, we also are focused on improving our operational efficiencies: reviewing workflows, evaluating our staffing models and deploying robotic process automation, where applicable.

As for M&A, you have heard it from us many times, we continue to seek out acquisitions that will enhance net interest income, fee income and our management team. It always comes down to the best opportunity, the right fit and earnings accretion with a reasonable tangible book earn-back period.

We believe the outlook for growth in the U.S. economy is fundamentally strong, but volatility will continue as geopolitical anxiety add in to the challenge. GDP continues to be strong, unemployment the lowest in almost a generation, and at least until the government shut down, improving consumer confidence. Businesses appear to be healthy, and their balance sheet and cash flows are the strongest they have been in years. And while New Jersey and Eastern Pennsylvania have their own challenges, we believe they represent some of the best markets in the country and provide ample opportunity for continued growth.

At this time, I would like to ask Tom to provide you with more details on the quarter. Tom?

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [4]

--------------------------------------------------------------------------------

Thank you, Chris, and good morning, everyone. As Chris noted, net income was a record $35.8 million for the fourth quarter of 2018 or $0.55 per diluted share compared with $35.5 million or $0.54 per share for the trailing quarter and $19.5 million or $0.30 per share for the fourth quarter of 2017.

Current quarter earnings were driven by record revenue of $93 million as interest income and net interest income both achieved record levels. Our net interest margin expanded 6 basis points versus the trailing quarter as our earning asset yield increased 12 basis points, while the cost of interest-bearing liabilities increased 7 basis points.

Further helping the margin, average stockholders equity increased $19 million for the quarter. Note that our reported margin is core with loan prepayment fees excluded and reported as noninterest income.

Pretax preprovision earnings were $44 million, an increase of approximately 17% when compared with the fourth quarter of 2017. Current quarter results included a $2.2 million pretax gain on the sale of Visa Class B shares and a $1.9 million tax benefit from a cost segregation study on certain capital improvements.

Year-end loan totals increased $22 million from September 30 as loan originations were 21% better than the trailing quarter, but growth was again constrained by a high rate of payoffs and maintenance of our credit and pricing discipline. The pipeline remained strong at $972 million. And while the pipeline rate has decreased 1 basis point since last quarter to 4.94%, it still exceeds the loan portfolio rate of 4.49%.

Based on our strong loan pipeline, 89% core noninterest bearing deposit funding and the variable-rate nature of many of our assets, we anticipate further modest expansion of our net interest margin in the near term. Credit metrics on the loan portfolio was strong, and nonperforming assets saw net resolutions of $7.3 million during the quarter, declining to 28 basis points of total assets at quarter-end.

Provision for loan losses was $1.8 million for the quarter, while annualized net charge-offs were just 1 basis point of average loans. As a result, the allowance for loan losses to total loans increased to 77 basis points from 75 basis points at September 30, while the allowance as a percentage of nonaccrual loans increased to 216% from 185% at September 30.

Noninterest income declined by $300,000 versus the trailing quarter to $15.6 million as decreases in bank-owned life insurance income, loan level swap income, gains on loan sales and wealth management income were largely offset by a $2.2 million gain on the sale of Visa Class B shares. Noninterest expenses were an annualized 2.01% of average assets for the quarter. Expenses increased by $2.7 million to $49.4 million versus the trailing quarter primarily as a result of increased consulting costs related to process-improvement initiatives, data processing, risk management, regulatory and tax compliance as well as compensation and benefits, legal and other expenses.

Our effective tax rate fell to 14.3% (sic) [14.4%] for the quarter, largely as a result of a $1.9 million benefit recorded from a recently concluded cost segregation study on certain capital improvements. We are currently projecting an effective tax rate of approximately 20% for 2019. That concludes our prepared remarks.

We'd be happy to respond to questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question today comes from Mark Fitzgibbon from Sandler O'Neill + Partners.

--------------------------------------------------------------------------------

Mark Thomas Fitzgibbon, Sandler O'Neill + Partners, L.P., Research Division - Principal & Director of Research [2]

--------------------------------------------------------------------------------

First question. Tom, I apologize if I missed this, but could you give any comments on the outlook for expenses?

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [3]

--------------------------------------------------------------------------------

I didn't go outlook. No, Mark. I think it's going to remain about this level in the first quarter. While some of the expenses we incurred in the fourth quarter are not expected to recur, they're going to be largely offset by the typical first quarter pickup in payroll taxes, occupancy expenses around utilities and snow removal, and again, some continued expenses around growth initiatives. So I'm looking for about $50 million for the quarter, about $204 million for the year, assuming the wealth deal closes.

--------------------------------------------------------------------------------

Mark Thomas Fitzgibbon, Sandler O'Neill + Partners, L.P., Research Division - Principal & Director of Research [4]

--------------------------------------------------------------------------------

Okay, great. It looked like this quarter in other expenses, they were up quite a bit. Was there anything unusual in there? Or is that some of the building costs and such?

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [5]

--------------------------------------------------------------------------------

Yes. It was a lot of little things in other. I guess the biggest -- the mover that I could identify would be on the consulting side of things, those expenses related to the cost segregation study, which obviously provided a nice benefit. There were some regulatory enhancements that we made as well as CECL work that was being done. We had a payroll implementation, a kind of scattering of things that some of which we had some discretion over the timing over. And we chose to accelerate some of those investments to correspond with the gain that we took on the sale of the Class B Visa shares.

--------------------------------------------------------------------------------

Mark Thomas Fitzgibbon, Sandler O'Neill + Partners, L.P., Research Division - Principal & Director of Research [6]

--------------------------------------------------------------------------------

Okay. And then could you update us on where you are in terms of preparation for crossing $10 billion?

--------------------------------------------------------------------------------

Christopher P. Martin, Provident Financial Services, Inc. - Chairman, President & CEO [7]

--------------------------------------------------------------------------------

Well, this is Chris. We've been spending money with consultants with -- again, looking at every little thing that can happen. Right now, we're -- with payoffs, we're going the different direction. It's not that we don't want to go through. We are preparing. We're also having regulators here on a regular basis, so we're being treated as if we're $10 billion. And we're working with them to make sure that we're able to show the progression. We have definitely spent money in the risk calibrations and more on policies, documentation as we go forward. Other than that, Durbin is what it is. And same with the big bank, FDIC insurance, those will be incurred when and if we cross.

--------------------------------------------------------------------------------

Mark Thomas Fitzgibbon, Sandler O'Neill + Partners, L.P., Research Division - Principal & Director of Research [8]

--------------------------------------------------------------------------------

So would you wait until a deal presents itself? Or would eventually you make a decision to cross without an acquisition?

--------------------------------------------------------------------------------

Christopher P. Martin, Provident Financial Services, Inc. - Chairman, President & CEO [9]

--------------------------------------------------------------------------------

The answer would be yes. Not being smug, but it would be either/or. We are not saying we wouldn't do a deal to go over $10 billion. That's not the case at all. If we have to go organically because nothing hits the hurdles that we'd expect in an M&A deal, we will just go through it. Obviously, getting some scale to offset those expenses would be a preferable way to go through. But if it happens organically, we will.

--------------------------------------------------------------------------------

Mark Thomas Fitzgibbon, Sandler O'Neill + Partners, L.P., Research Division - Principal & Director of Research [10]

--------------------------------------------------------------------------------

Okay. But barring that, you probably hold the balance sheet below $10 billion for at least a couple quarters until the opportunity presents itself?

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [11]

--------------------------------------------------------------------------------

Mark, I think as we approach the end of the year, if we're not going to be at about $10.2 billion, we would probably try to hold back and remain under, just to save the extra year on Durbin.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Our next question comes from Collyn Gilbert from KBW.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [13]

--------------------------------------------------------------------------------

Tom, if we can just go back to the expense discussion for a minute? Obviously, you guys came in higher than what you all had originally projected for the quarter. I know you had indicated you accelerated some of those expenses because of a Visa gain. But overall, it looks like expenses are settling out higher in 2019 than perhaps what you would have anticipated. Number one, is that correct? And then number two, if so, is that -- do we attribute this ramp-up really to prepping for $10 billion? Or are there other things going on? I don't -- I guess I'm just curious was there a strategic change or something that occurred that's now causing expenses to run higher than where you would have anticipated in the third quarter.

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [14]

--------------------------------------------------------------------------------

Yes. I don't think it's a change, Collyn, but it is both. I guess we've been calling them growth initiatives. It's $10 billion, but it's not strictly compliance. There's investments being made in data analytics, workflow evaluation, things to try and enhance capacity that will give us a return going forward, but they require some upfront investment, mobile and online banking enhancements, and as well as making sure compliance keeps pace with our growth, and then CECL, in addition. So all of those things, I think, have been expected all along. Again, some of it got pulled forward a little bit because we had that gain available to us, but I don't think we're materially different than what our expectations were strategic plan-wise.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [15]

--------------------------------------------------------------------------------

Okay, okay. That's helpful. And then in terms of -- you had indicated the $204 million with Tirschwell. Included in that number, can you just give us a sense of what fees -- what you're kind of expecting on the fee side then with Tirschwell coming in to the fold?

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [16]

--------------------------------------------------------------------------------

Yes. The $3.4 million is expenses. I think the fees are about $4 million and change. Let me see if I could find it here. All right. $4.8 million.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [17]

--------------------------------------------------------------------------------

Okay, okay. That's helpful. And then just back to the NIM. If you could offer what your -- kind of what your outlook is there, I mean, it's continued to do -- holding very well. I know, Chris, you had indicated you're holding the line on the pricing for your core deposits but just sort of your outlook there maybe, Tom, for the NIM.

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [18]

--------------------------------------------------------------------------------

Sure. And just to clarify on the wealth acquisition, that's current 2019. That's not a full year annualized. So that's about 3/4 of a year, $4.8 million, assuming we close second quarter.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [19]

--------------------------------------------------------------------------------

Okay. That's helpful.

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [20]

--------------------------------------------------------------------------------

As far as NIM goes, I think we're looking for 1 to 2 basis points a quarter. Obviously, the sensitivity to that assessment is what happens on the funding side of things, a lot of which is driven by the Fed and competitors. But assuming that we're right in our projections, looks like 1 to 2 basis points a quarter.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [21]

--------------------------------------------------------------------------------

Of expansion or...

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [22]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Christopher P. Martin, Provident Financial Services, Inc. - Chairman, President & CEO [23]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [24]

--------------------------------------------------------------------------------

Continued expansion, okay. That's hopeful. Okay. And then just finally on the tax rate, so that's a huge delta, 20% from 27%. Can you just talk about what's going into your assumptions there to be able to lower that?

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [25]

--------------------------------------------------------------------------------

Sure. 27% was always the max based on changes in the state rate, particularly around treatment of real estate investment trust. The state has just now issued another -- what do they call it, state tax bulletin number -- -86 on January 3. They still haven't concluded definitively whether the REITs would be part of the combined group. The way the law is currently written, we believe the REIT still benefits from the structure, and therefore, the tax rate stays about the same at 20% effective.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

Our next question comes from Russell Gunther from D.A. Davidson.

--------------------------------------------------------------------------------

Russell Elliott Teasdale Gunther, D.A. Davidson & Co., Research Division - VP & Senior Research Analyst [27]

--------------------------------------------------------------------------------

I just want to follow up on the loan growth conversation. You got the comments around low to mid-single digits. Pipeline is a little bit lower coming into 1Q '19. So could you share with us sort of what the delta would be for your ability to hit the high end of that guide?

--------------------------------------------------------------------------------

Christopher P. Martin, Provident Financial Services, Inc. - Chairman, President & CEO [28]

--------------------------------------------------------------------------------

Well, this is Chris. The biggest challenge has been the payoffs. It's not for getting a decent flow of good loans. The problem is that payoffs keep coming in, which shows you the quality of the portfolio that they're very refilable by other institutions. We are seeing more in the bank space of late taking us out, and I think some of those structures and/or pricing is fairly aggressive. So that is the backdrop of -- as much work as we can do. It takes a couple of loans that go away. We've seen them in the first month of the year coming in a little bit higher than anticipated. So that just starts you off a little behind as we go in. So I don't know that we're in -- we'd love to say we're going to get to the high end of that, but we are going to definitely try. We can't slow down some of the payoffs, so...

--------------------------------------------------------------------------------

Russell Elliott Teasdale Gunther, D.A. Davidson & Co., Research Division - VP & Senior Research Analyst [29]

--------------------------------------------------------------------------------

Got you. Okay. And I appreciate your thoughts there. And then on the RIA acquisition that's scheduled to close, now looks like some decent earnings accretion there. Kind of what's the opportunity set to do more of those going forward?

--------------------------------------------------------------------------------

Christopher P. Martin, Provident Financial Services, Inc. - Chairman, President & CEO [30]

--------------------------------------------------------------------------------

Well, we -- it's not for not trying. There are certainly opportunities. They have to kind of fit the metric and fit the mold, so to speak. We have a very good platform with Beacon. We continue to look at contiguous, and there are -- we think there'll be more coming in that space. You just have to match up to what we're trying to accomplish and mirror what they are trying to accomplish at the same time. We're not just pay cash out. We want to get people that want to stay involved and help the transition of the customers over. So we have the capacity to do more, but we always like to get everything under the tent. But we will continue to look at that space, absent any bank M&A that might show up.

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [31]

--------------------------------------------------------------------------------

Yes. I think we would like to continue to diversify that revenue stream. I think there's been something being looked at pretty much continuously for the last several years. We certainly have the capital flexibility to do more of that and the desire to do that.

--------------------------------------------------------------------------------

Russell Elliott Teasdale Gunther, D.A. Davidson & Co., Research Division - VP & Senior Research Analyst [32]

--------------------------------------------------------------------------------

Got it. Okay, great. And then just -- to round out that capital deployment conversation, yes, Chris, I heard you loud and clear. You continue to look at depository deals. Maybe just a reminder for us in terms of what an ideal target there would look like for you.

--------------------------------------------------------------------------------

Christopher P. Martin, Provident Financial Services, Inc. - Chairman, President & CEO [33]

--------------------------------------------------------------------------------

Well, I think, we're certainly somebody that's in market or contiguous. It can be smaller. Doesn't have to be in a substantive size. I think when we look at Pennsylvania, we'd love to get another -- a little more space in there. We do cover New Jersey fairly well. And I think we just want to make sure the organization has really good management and solid fundamentals, and we can build on that. So I think that anything in the area, we don't seem to think about we're leapfrogging to other markets that are completely out of our sphere.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

Our next question comes from Matthew Breese from Piper Jaffray.

--------------------------------------------------------------------------------

Matthew M. Breese, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [35]

--------------------------------------------------------------------------------

On the tax rate, you said there was another bulletin in January. It was unclear if -- or not definitive if the REIT was still protected. So just curious. Is your read that politically speaking the tax rate stuff is done at this point? And it's -- the interpretation is that you're protected? Or could they come back to this and swing the pendulum back against you?

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [36]

--------------------------------------------------------------------------------

We are in compliance with current law. The law could change, I guess, at any time, as always. But right now, we -- the position is that the [rebenefits] still endure.

--------------------------------------------------------------------------------

Matthew M. Breese, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [37]

--------------------------------------------------------------------------------

Got it. Okay. And then going back to the expense commentary. Thinking about the other expense line, I know there are some investments, legal consulting in there. How long do you expect that to last? Is that more of a catch-up through 2019? Or should we just think about that expense line remaining elevated through 2020 as well?

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [38]

--------------------------------------------------------------------------------

Yes. I think legal will probably come down as we see less in the way of asset recovery expenses. It was a little bit elevated in Q4. The other investments, regulatory compliance almost never goes down. I'm trying to think what else is in here. The process-improvement initiatives that we're going through, that will have an end to it over the course of this year. And offsetting that, we should see revenue benefits accrued during the course of the year as well. Technology, data analytics, I think that's just -- you have to establish what percentage of your revenues you want to devote to, to continue to work on the customer experience and what the market demands.

--------------------------------------------------------------------------------

Matthew M. Breese, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [39]

--------------------------------------------------------------------------------

Right. And could you give us some examples of the areas that needed investments? And what the revenue on the other side would -- what that benefit would be?

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [40]

--------------------------------------------------------------------------------

Well, on the process improvement side of things, I think most of the revenue comes from freeing up excess capacity and some cost saves in terms of personnel through attrition over time, new staffing model being evaluated for the branches, physical location. Evaluation is something we always do. So those are places where you'd pick up capacity. On the data analytics side, better information should give you better decision-making, which should drive greater revenue growth. We're spending some money there.

--------------------------------------------------------------------------------

Christopher P. Martin, Provident Financial Services, Inc. - Chairman, President & CEO [41]

--------------------------------------------------------------------------------

Matt, this is Chris. At the end of the day, when you know Provident, if we're spending money, we're going to try to figure out a way to save money on the backside of that because that's kind of how we've always run the business.

--------------------------------------------------------------------------------

Matthew M. Breese, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [42]

--------------------------------------------------------------------------------

Understood, understood. Okay. And then, Chris, in your opening comments, you noted that with the Fed pausing, you would expect deposit betas to stall a little bit. Is there any indication with the latest message that competition has started to ease at all?

--------------------------------------------------------------------------------

Christopher P. Martin, Provident Financial Services, Inc. - Chairman, President & CEO [43]

--------------------------------------------------------------------------------

A little early, though, in reviewing other people's comments. I think everybody's kind of hoping it slows down. New Jersey, though, there's still a lot of people trying to fund their pipelines and their loan growth. And the only place they can get it is normally through some higher rates, whether it be on their core accounts or on the CD levels. It's tough to generate noninterest-bearing deposits unless you're generating a lot of C&I and/or commercial relationships. So I think it'll continue, albeit at a slower pace.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

Our next question comes from Erik Zwick from Boenning and Scattergood.

--------------------------------------------------------------------------------

Erik Edward Zwick, Boenning and Scattergood, Inc., Research Division - Research Analyst of Northeast Banks [45]

--------------------------------------------------------------------------------

First, maybe just on loan growth. And I appreciate the comments you made previously, especially with the -- in regards to paydowns. But as I'm thinking about origination volumes, looking at what's in the press release, they were down year-over-year about 15%. So kind of, one, curious if that was a reflection of market demand or maybe competitors offering deals that -- pricing and structure that you aren't comfortable with. And then I guess what is your expectation for origination volume in '19 versus '18?

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [46]

--------------------------------------------------------------------------------

Yes. I'll let Chris jump in on the competitive environment and the forward look, but I do want to point out the fourth quarter of last year was extraordinary. If you look in year-over-year Q4, that was the highest level of originations, I think, I can recall ever seeing here. So we are down about 11% versus Q4 '17 but up 21% versus Q3 of '18 in terms of origination activity, exclusive of line of credit advances, so true originations, meaning including renewals and new money on modifications.

--------------------------------------------------------------------------------

Christopher P. Martin, Provident Financial Services, Inc. - Chairman, President & CEO [47]

--------------------------------------------------------------------------------

Yes. I think -- this is Chris. From the standpoint of structure, we see a lot of things going on that we would probably not do. We see our 20-year slots with a 4-year interest only. We've seen a lot of no guarantees on loans that should have partial guarantees, so we are kind of holding back and not allowing the structure, unless it really is compelling, and the people that we know have very good reputations with us and others that we are going to stick to where we are in that regard. The only place we could probably play would be in pricing. And even then, we are seeing some deals that we would quote at LIBOR plus 200, and they're being done at LIBOR plus 120. So the people -- the incumbent is very defensive on keeping their book of business, so they're very aggressive. And I think you lead with your chin sometimes on those, and we think that some of them aren't really worth the risk. Not that we are saying that everything is perfect in the portfolio, but we think that we are very discerning in how we look at credit and how we see the returns from an equity return basis for our stockholders.

--------------------------------------------------------------------------------

Erik Edward Zwick, Boenning and Scattergood, Inc., Research Division - Research Analyst of Northeast Banks [48]

--------------------------------------------------------------------------------

That's helpful. And then on the buyback, you mentioned 2.5 million shares remaining in the current authorization, and I think it's about $13 million repurchased in 4Q. Just curious about your appetite and particularly price sensitivity for additional buyback going forward? Would we need to see a pullback like we did in the fourth quarter? Or would you potentially look to be involved without a significant selloff like that?

--------------------------------------------------------------------------------

Thomas M. Lyons, Provident Financial Services, Inc. - Executive VP & CFO [49]

--------------------------------------------------------------------------------

I think pricing plays a role in that. We're looking for a reasonable earn-back on a risk-free basis so obviously longer than you would on an external deal. But we look at value creation relative to multiples of tangible book and earnings, what the forward earnings accretion brings.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

And ladies and gentlemen, at this time, I'm showing no additional questions. We'll end today's question-and-answer session. I'd like to turn the floor back over to Chris Martin for any closing remarks.

--------------------------------------------------------------------------------

Christopher P. Martin, Provident Financial Services, Inc. - Chairman, President & CEO [51]

--------------------------------------------------------------------------------

Well, we thank you for joining us on our call today, and we look forward to a very positive 2019 and to warmer temperatures. Certainly, have a good day. Thank you.

--------------------------------------------------------------------------------

Operator [52]

--------------------------------------------------------------------------------

Ladies and gentlemen, that does conclude today's conference call. We thank you for attending. You may now disconnect your lines.