Provident Financial's Q3 2025: Contradictions Emerge on Loan Growth Strategy, Deposit Costs, and M&A Approach

Date of Call: October 30, 2025

Financials Results

• Revenue: $222.0M, record for the quarter (net interest income $194.0M; noninterest income $27.4M); second consecutive quarter of record revenues
• EPS: $0.55 per diluted share (net income $72M), consistent with the prior quarter
• Gross Margin: Net interest margin 3.43%, up 7 bps sequentially (core NIM up 1 bp); average yield on assets 5.76%

Guidance:

• Q4 NIM projected in the 3.38%–3.45% range; projections assume an additional 25 bps Fed rate reduction in December 2025.
• Quarterly core operating expenses projected at approximately $113M for Q4 2025.
• Expect core margin expansion of roughly 3–5 bps per quarter over the next several quarters.
• Model deposit beta conservatively at ~30%–35%.
• Purchase-accounting drag on NIM expected to run ~40–45 bps and persist over the next four quarters.

Business Commentary:

* Strong Financial Performance: - Provident Financial Services reported net earnings of $72 million or $0.55 per share for Q3 2025, consistent with the previous quarter. - The company's annualized return on average assets was 1.16%, with an adjusted return on average tangible equity of 16.01%. - This strong performance was driven by a record pretax free provision revenues of nearly $109 million, indicating enhanced underlying profitability.

• Deposit and Loan Growth:
• Deposits increased by $388 million, or an annualized rate of 8%, with core deposits rising $291 million or 7.5% annualized.
• The commercial lending team closed approximately $742 million in new loans, bringing the production year-to-date to $2.1 billion.

• This growth was supported by investments in people and capabilities to efficiently fund loan growth and maintain a diverse deposit base.

• Noninterest Income and Strategic Initiatives:

• Noninterest income reached $27.4 million, with growth in Provident Protection Plus and SBA gains on sale.
• The hire of Annamaria Vitelli as Chief Growth Officer at Beacon Trust is part of strategic efforts to expand market presence and deepen client relationships.

• These initiatives align with the company's focus on increasing noninterest income through targeted business expansion and strategic hiring.

• Interest Rate Environment and Asset Quality:

• Provident's net interest margin increased by 7 basis points versus the trailing quarter, benefiting from recent Fed rate cuts and expected yield curve steepening.
• Asset quality remained strong with a decline in non-performing assets and net charge-offs at $5.4 million, reflecting a comfortable credit position.
• The company's focus on risk management and strategic growth initiatives contributed to maintaining a strong balance sheet.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted "record revenues for the second consecutive quarter" and pretax pre-provision earnings of a record ~$109M; net income $72M ($0.55); loan pipeline nearly $2.9B with $1.7B pull-through; deposits up $388M (annualized 8%); asset quality: NPAs 0.41%, net charge-offs $5.4M; Board approved $0.24/share dividend.

Q&A:

• Question from Timothy Switzer (Keefe, Bruyette, & Woods): Update on quantity of loans repricing over the next 12 months and expected uplift at current rates?
  Response: Approximately $5.9B of loans will reprice, with ~$4.95B floating; uplift reflected in margin projections tied to pipeline rates.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods): Do you have the blended yield on the fixed-rate vs adjustable portion?
  Response: Management did not have a blended yield breakout at hand; uses pipeline rate (~6.15%) and margin projection instead.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods): What are you seeing on competitive dynamics between C&I and CRE?
  Response: Competition has increased mainly on CRE (private/insurance/agency activity); C&I pricing pressure is less pronounced and pipeline remains strong.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods): How are specialty verticals like ABL and healthcare contributing to loan growth?
  Response: Specialty verticals (including ABL and healthcare) drove double-digit growth and represent ~14% of the pipeline; C&I was the primary driver of quarter growth.

• Question from Feddie Strickland (Hovde Group): Does guidance imply a ~$1M step-down in noninterest income due to prepayment fees and insurance seasonality?
  Response: Yes — expect a modest Q4 decline driven by volatile prepayment fees (about $1.7M this quarter) and seasonal weakness in insurance; guidance is conservative.

• Question from Feddie Strickland (Hovde Group): Are you adding wealth/Beacon talent to grow AUM into 2026?
  Response: Yes — hired a Chief Growth Officer (Annamaria Vitelli) to expand Beacon, add producers and deepen bank integration to grow AUM.

• Question from Feddie Strickland (Hovde Group): Thoughts on capital deployment (dividends vs buybacks vs organic growth) while managing CRE concentration?
  Response: Primary preference is organic growth; CET1 ~11.9% at the bank level; target dividend payout around 40%–45%; full capital decisions await January budget updates.

• Question from David Storms (Stonegate Capital Partners): Thoughts on recent decrease in deposit costs and how much further they can fall?
  Response: Deposit mix shifted toward noninterest-bearing; cost of funds only up 1 bp to 2.44%; expect benefit from recent Fed cuts and model deposit beta at ~30%–35%.

• Question from David Storms (Stonegate Capital Partners): Is there a push to get the efficiency ratio below 50% and what would that entail?
  Response: Not aggressively — management will continue prudent investments; expects revenue growth and gradual margin expansion (3–5 bps/qtr) to drive operating leverage rather than deep cost cuts.

• Question from Gregory Zingone (Piper Sandler): How frequently are you encountering private credit firms?
  Response: Private credit is present but has not materially impacted our relational origination or pipeline to date.

• Question from Gregory Zingone (Piper Sandler): Have you felt pricing pressure on average wealth management fees?
  Response: Average fees have moderated from ~77 bps to ~72 bps over the last two years and have been stable recently.

• Question from Gregory Zingone (Piper Sandler): Where are new wealth relationships coming on today?
  Response: New relationships are coming on at similar fee levels; average new-relationship fee remains around 72 bps.

• Question from Gregory Zingone (Piper Sandler): Are you looking at M&A and what would you target?
  Response: Primary focus is organic build (middle market expansion); M&A remains opportunistic — management will consider deals if valuation and strategic fit align.

• Question from Stephen Moss (Raymond James): How should we think about purchase accounting and will prepayments remain elevated?
  Response: Prepays should normalize to roughly $150M–$200M; purchase-accounting drag historically runs about 40–45 bps of NIM and is expected to persist near that level over the next four quarters.

• Question from Stephen Moss (Raymond James): How are you thinking about hiring for 2026 after recent investments?
  Response: Management plans continued targeted hiring (e.g., 10–12 insurance producers annually, expanded middle-market hiring) to support growth; details will be in the Q1 strategic update.

Contradiction Point 1

Loan Growth Strategy and CRE Concentration

It highlights a shift in Provident's strategic focus on loan growth and CRE concentration, which impacts the company's risk profile and growth trajectory.

How are your new specialty verticals such as ABL and health care contributing to loan growth? - Timothy Switzer(KBW)

2025Q3: We've seen a significant pickup in new originations, particularly in the C&I segment. Total loans ended the quarter at $12.8 billion, up 3% during the quarter and 17% on a year-over-year basis. C&I, including health care and warehouse lending, drove significant growth this quarter. - Anthony Labozzetta(CEO)

What is Provident's target CRE concentration and the timeline to achieve it? - Mark Fitzgibbon(Piper Sandler)

2025Q1: Our CRE portfolio increased by $127 million to $4.4 billion at quarter end. The growth was driven by new originations and paydowns in the portfolio. - Anthony Labozzetta(CEO)

Contradiction Point 2

Deposit Costs and Interest Rate Sensitivity

It involves differing views on the sensitivity of deposit costs to interest rate changes, which impacts Provident's funding strategy and profit margins.

What is your outlook on potential further decreases in deposit costs and the competitive landscape? - David Storms(Stonegate Capital Partners)

2025Q3: Deposit costs have shown a slight increase, but remain attractive. We expect benefits from recent Fed rate cuts in Q4, with a model of 30% to 35% beta on deposits. - Thomas M. Lyons(CFO)

How will expenses develop in 2025? - Feddie Strickland(Hovde Group)

2025Q1: Deposit costs were $1.46, a 3 basis point increase from Q4 2024. The first 3 months of 2025 were characterized by positive net interest income growth and continued strength in both core and non-core deposits, where the end of March was at $16.5 billion. - Thomas M. Lyons(CFO)

Contradiction Point 3

M&A Strategy and Focus

It reflects a change in the company's strategic approach to mergers and acquisitions, which can impact growth opportunities and shareholder value.

Given the stock's 12% increase, are you open to M&A now? - Timothy Switzer (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q3: Always evaluating strategic options, focus remains on organic growth. If the right opportunity arises, it will be considered. Stock price still has room to grow. - Anthony Labozzetta(CEO)

Were the economic assumption changes primarily from Moody's, and is the current outlook for modest provisioning in the back half of the year correct? - Mark Thomas Fitzgibbon (Piper Sandler & Co.)

2025Q2: Always evaluating strategic options, focus remains on organic growth. If the right opportunity arises, it will be considered. Stock price still has room to grow. - Anthony Labozzetta(CEO)

Contradiction Point 4

Loan Competition and CRE Market Pricing

It highlights differing perspectives on the competitive landscape and pricing dynamics in the commercial real estate market, which could impact revenue projections and strategic decision-making.

How do you assess loan pricing competition in the CRE and C&I markets? - Timothy Switzer (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q3: We have observed stronger competition in the CRE space, mainly from private and insurance agencies. In C&I, while pricing is competitive, it's less so than in CRE. - Anthony Labozzetta(CEO)

How did you achieve the $26 million fee target in Q3 and Q4 despite seasonal declines in insurance revenue? What other factors could offset these seasonal declines? - Mark Fitzgibbon (Piper Sandler)

2024Q4: The CRE market remains competitive, but we continue to see opportunities to originate and effectively finance transactions. - Anthony Labozzetta(CEO)

Contradiction Point 5

Noninterest Income and Prepayment Fees

It involves differing expectations for non-interest income, particularly related to prepayment fees, which can affect revenue projections and strategic planning.

Why is noninterest income expected to decline quarterly from lower loan prepayment fees and seasonal factors? - Feddie Strickland (Hovde Group, LLC, Research Division)

2025Q3: The expected decline is due to conservative assumptions on prepayment fees and seasonal factors in insurance. We anticipate a step down due to lower prepayment fees. - Thomas M. Lyons(CFO)

Does payoff activity need to moderate to meet the 5% growth target for 2025? - Bill Young (RBC Capital Markets)

2024Q4: We continue to see strong originations in our specialty verticals with a healthy backlog. However, prepayments, particularly in CRE, remain above our historical average. - Thomas M. Lyons(CFO)