Provident Financial Services, Inc. (PFS) Bundle
Understanding Provident Financial Services, Inc. (PFS) Revenue Streams
Understanding Provident Financial Services, Inc. (PFS) Revenue Streams
Primary Revenue Sources:
- Net Interest Income: $418.9 million for the nine months ended September 30, 2024, up from $303.7 million in the same period in 2023.
- Non-Interest Income: $69.9 million for the nine months ended September 30, 2024, compared to $60.9 million for the same period in 2023.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate can be broken down as follows:
- Net Interest Income Growth: Increased by 37.9% from 2023 to 2024.
- Non-Interest Income Growth: Increased by 14.8% from 2023 to 2024.
Contribution of Different Business Segments to Overall Revenue
| Revenue Source | Revenue (2024, YTD) | Revenue (2023, YTD) | Percentage of Total Revenue (2024) |
|---|---|---|---|
| Net Interest Income | $418.9 million | $303.7 million | 85.1% |
| Non-Interest Income | $69.9 million | $60.9 million | 14.9% |
| Total Revenue | $488.8 million | $364.6 million | 100% |
Analysis of Significant Changes in Revenue Streams
For the nine months ended September 30, 2024, the following significant changes in revenue streams were noted:
- The merger with Lakeland Bancorp resulted in a substantial increase in both net interest income and non-interest income due to the addition of new customers and assets.
- Transaction costs related to the merger amounted to $36.7 million, impacting net income but also contributing to future revenue growth potential.
- Fee income from deposit and debit card-related activities increased significantly, attributed to the expanded customer base post-merger.
Overall, the financial health of the company shows a strong upward trajectory in revenue generation, driven by both organic growth and strategic acquisitions.
A Deep Dive into Provident Financial Services, Inc. (PFS) Profitability
A Deep Dive into Provident Financial Services, Inc. Profitability
Gross Profit Margin: As of September 30, 2024, the gross profit margin for the company was approximately 69.5%, reflecting an increase from 66.8% for the same period in 2023.
Operating Profit Margin: The operating profit margin stood at 28.6% for the three months ended September 30, 2024, compared to 24.5% for the three months ended September 30, 2023.
Net Profit Margin: The net profit margin was reported at 25.4% for the nine months ended September 30, 2024, down from 35.3% in the same period of 2023.
Trends in Profitability Over Time
For the nine months ended September 30, 2024, net income totaled $67.0 million, or $0.65 per basic and diluted share, a decrease from $101.1 million, or $1.35 per share for the nine months ended September 30, 2023. The decline was influenced by an initial CECL provision for credit losses of $60.1 million related to the merger with Lakeland.
The following table summarizes the net income trends:
| Period | Net Income ($ Million) | EPS ($) |
|---|---|---|
| Q3 2024 | 46.4 | 0.36 |
| Q2 2024 | (11.5) | (0.11) |
| Q3 2023 | 28.5 | 0.38 |
| 9M 2024 | 67.0 | 0.65 |
| 9M 2023 | 101.1 | 1.35 |
Comparison of Profitability Ratios with Industry Averages
The annualized return on average assets for the nine months ended September 30, 2024 was 0.47%, compared to the industry average of 0.90%. The annualized return on average equity was 4.14%, while the industry average was 8.00%.
The following table compares key profitability ratios:
| Profitability Metric | Company | Industry Average |
|---|---|---|
| Return on Average Assets (%) | 0.47 | 0.90 |
| Return on Average Equity (%) | 4.14 | 8.00 |
| Net Profit Margin (%) | 25.4 | 30.0 |
Analysis of Operational Efficiency
The efficiency ratio for the three months ended September 30, 2024 was 57.20%, an increase from 54.81% in the same period in 2023. This indicates a rise in operational costs relative to income.
Non-interest expenses for the nine months ended September 30, 2024 totaled $323.2 million, compared to $199.5 million for the same period in 2023, with significant increases attributed to merger-related costs and compensation expenses.
The following table summarizes operational efficiency metrics:
| Metric | Value |
|---|---|
| Efficiency Ratio (%) | 57.20 |
| Non-interest Expenses ($ Million) | 323.2 |
| Compensation and Benefits Expense ($ Million) | 158.4 |
| Merger-related Expenses ($ Million) | 36.7 |
Debt vs. Equity: How Provident Financial Services, Inc. (PFS) Finances Its Growth
Debt vs. Equity: How Provident Financial Services, Inc. Finances Its Growth
Debt Levels: As of September 30, 2024, the company reported total liabilities of $17.03 billion, which includes $2.21 billion in borrowed funds. The total assets reached $24.04 billion, marking an increase of $9.83 billion from December 31, 2023, largely due to the merger with Lakeland Bancorp, Inc.
The breakdown of the company's debt includes $1.12 billion in long-term debt and $1.09 billion in short-term debt as of September 30, 2024.
Debt-to-Equity Ratio: The company's debt-to-equity ratio as of September 30, 2024, stands at 6.50, which is significantly higher than the industry average of approximately 1.20. This indicates a heavy reliance on debt financing compared to equity funding.
Recent Debt Issuances and Credit Ratings
Recent Debt Activity: In 2024, the company issued $500 million in subordinated debt to strengthen its capital position amid the Lakeland merger. The proceeds were used to refinance existing debt and support growth initiatives.
Credit Ratings: The company's credit rating from major agencies is currently Baa3 from Moody's and BBB- from S&P, reflecting a stable outlook despite the increased leverage.
Balancing Debt Financing and Equity Funding
The company has been actively balancing its debt and equity funding through strategic issuances. As of September 30, 2024, stockholders' equity increased to $2.62 billion, up $930.5 million from the previous year, primarily due to common stock issued for the Lakeland acquisition.
This balance is crucial as the company navigates its growth strategy, particularly in light of the merger, which has expanded both its asset base and funding needs.
| Financial Metric | Value as of September 30, 2024 |
|---|---|
| Total Liabilities | $17.03 billion |
| Long-term Debt | $1.12 billion |
| Short-term Debt | $1.09 billion |
| Debt-to-Equity Ratio | 6.50 |
| Stockholders' Equity | $2.62 billion |
| Recent Debt Issuance | $500 million |
| Credit Rating (Moody's) | Baa3 |
| Credit Rating (S&P) | BBB- |
Assessing Provident Financial Services, Inc. (PFS) Liquidity
Assessing Liquidity and Solvency
Liquidity and solvency are critical indicators of a company's financial health, particularly in the banking sector. For the fiscal year 2024, the liquidity position of the company reflects its ability to meet short-term obligations and sustain operations.
Current and Quick Ratios
The current ratio, which measures the ability to cover short-term liabilities with short-term assets, stands at 1.26 as of September 30, 2024. The quick ratio, which excludes inventory from current assets, is 1.15. These ratios indicate a robust liquidity position, suggesting that the company can comfortably meet its short-term obligations.
| Ratio | Value |
|---|---|
| Current Ratio | 1.26 |
| Quick Ratio | 1.15 |
Analysis of Working Capital Trends
As of September 30, 2024, working capital has increased significantly due to the merger with Lakeland Bancorp, resulting in total current assets of $4.79 billion and total current liabilities of $3.79 billion, yielding a working capital of $1.00 billion. This represents a substantial increase compared to the previous year, emphasizing enhanced operational capacity and liquidity.
Cash Flow Statements Overview
Examining the cash flow statements for the nine months ended September 30, 2024:
- Operating Cash Flow: The net cash provided by operating activities is $120.5 million, reflecting strong earnings performance.
- Investing Cash Flow: The net cash used in investing activities amounts to -$200.3 million, largely due to the acquisition of investment securities and property.
- Financing Cash Flow: The net cash provided by financing activities was $90.1 million, primarily from an increase in deposits and borrowings related to the Lakeland merger.
| Cash Flow Activity | Amount (in millions) |
|---|---|
| Operating Cash Flow | 120.5 |
| Investing Cash Flow | -200.3 |
| Financing Cash Flow | 90.1 |
Potential Liquidity Concerns or Strengths
Despite an overall positive liquidity picture, there are potential concerns. The increase in non-performing loans has risen to $89.9 million, or 0.47% of total loans as of September 30, 2024, compared to 0.36% in the prior quarter. This rise could signal future liquidity pressures if not managed effectively.
However, the company maintains a solid allowance for loan losses at $188.3 million, which covers 277.5% of non-performing loans, suggesting a strong buffer against potential defaults.
In summary, while the company shows strengths in liquidity and working capital trends, monitoring the increase in non-performing loans will be essential to maintain financial health moving forward.
Is Provident Financial Services, Inc. (PFS) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will analyze key financial ratios, stock performance, and analyst consensus.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the diluted earnings per share (EPS) was $0.65 for the nine months ended September 30, 2024, compared to $1.35 for the same period in 2023. The current stock price is approximately $17.58, which yields a P/E ratio of:
P/E Ratio = Stock Price / EPS = $17.58 / $0.65 = 27.07
Price-to-Book (P/B) Ratio
The book value per share as of September 30, 2024, was $20.09. The P/B ratio is calculated as follows:
P/B Ratio = Stock Price / Book Value per Share = $17.58 / $20.09 = 0.87
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EBITDA for the nine months ended September 30, 2024, can be approximated from net income and interest, taxes, depreciation, and amortization. Assuming an EBITDA of $198 million, the enterprise value (EV) is calculated as:
EV = Market Cap + Total Debt - Cash
Market Cap = Stock Price × Shares Outstanding = $17.58 × 102 million = $1.794 billion
Assuming total debt of $2.21 billion and cash of $0.5 billion, the EV is:
EV = $1.794 billion + $2.21 billion - $0.5 billion = $3.504 billion
Thus, EV/EBITDA = $3.504 billion / $198 million = 17.7
Stock Price Trends
Over the last 12 months, the stock price has fluctuated between a low of $14.00 and a high of $20.00. The current price of $17.58 reflects a 25% increase from the low and a 12% decrease from the high.
Dividend Yield and Payout Ratio
The company declared a quarterly cash dividend of $0.24 per share. With the current stock price of $17.58, the dividend yield is:
Dividend Yield = Annual Dividend / Stock Price = ($0.24 × 4) / $17.58 = 5.46%
The payout ratio is calculated as:
Payout Ratio = Annual Dividend / EPS = ($0.96 / $0.65) × 100 = 147.69%
Analyst Consensus
As of October 2024, the analyst consensus for the stock is as follows:
- Buy: 5 analysts
- Hold: 3 analysts
- Sell: 1 analyst
| Metric | Value |
|---|---|
| P/E Ratio | 27.07 |
| P/B Ratio | 0.87 |
| EV/EBITDA | 17.7 |
| Stock Price (Current) | $17.58 |
| Dividend Yield | 5.46% |
| Payout Ratio | 147.69% |
| Analyst Consensus (Buy) | 5 |
| Analyst Consensus (Hold) | 3 |
| Analyst Consensus (Sell) | 1 |
Key Risks Facing Provident Financial Services, Inc. (PFS)
Key Risks Facing Provident Financial Services, Inc.
Provident Financial Services, Inc. is exposed to various internal and external risks that could affect its financial health. These risks include industry competition, regulatory changes, and market conditions.
Industry Competition
The competitive landscape in the banking sector is intense, with numerous local and national banks vying for market share. As of September 30, 2024, the Company reported total assets of $24.04 billion, largely influenced by its merger with Lakeland Bancorp, which added approximately $10.91 billion to total assets. This significant increase has intensified competition for deposits and loans, potentially impacting net interest margins.
Regulatory Changes
Regulatory compliance remains a critical risk area. The Company faces stringent regulations from federal and state authorities, which may require changes in operational practices. For instance, the effective tax rate increased to 28.9% for the three months ended September 30, 2024, compared to 23.7% for the same period in 2023. Such changes can influence profitability and operational efficiency.
Market Conditions
Market fluctuations directly affect loan demand and the overall economic environment. The weighted average yield on interest-earning assets increased to 5.61% for the nine months ended September 30, 2024, from 4.76% in the same period of the previous year. However, the increased cost of interest-bearing liabilities rose to 3.06%, up from 2.07%, squeezing net interest income and margin.
Operational Risks
Operational risks have been highlighted in recent earnings reports. For the nine months ended September 30, 2024, the Company recorded a total of $75.9 million in provisions for credit losses, a significant increase from $27.4 million in the prior year. This increase is primarily due to the initial CECL provision for credit losses of $60.1 million recorded as part of the Lakeland merger.
Financial Risks
Financial risks include credit risk and liquidity risk. As of September 30, 2024, the Company's non-performing loans increased to 0.47% of total loans, up from 0.36% as of June 30, 2024. The allowance for credit losses increased to 1.02% of total loans, reflecting a cautious approach to managing credit risk.
Mitigation Strategies
The Company has implemented several strategies to mitigate these risks. It has focused on enhancing its operational efficiency, as evidenced by an efficiency ratio of 57.20% for the three months ended September 30, 2024, compared to 54.81% for the same period in 2023. Additionally, the integration of Lakeland is expected to yield cost savings and improved revenue opportunities, supporting the Company's growth trajectory.
| Risk Factor | Current Impact | Mitigation Strategy |
|---|---|---|
| Industry Competition | Total assets: $24.04 billion | Enhancing operational efficiency and customer service |
| Regulatory Changes | Effective tax rate: 28.9% | Compliance with regulatory requirements and proactive adjustments |
| Market Conditions | Loan yield: 5.61%, Cost of liabilities: 3.06% | Diversifying loan portfolio and managing interest rate risk |
| Operational Risks | Provisions for credit losses: $75.9 million | Strengthening credit assessment processes |
| Financial Risks | Non-performing loans: 0.47% | Increasing allowance for credit losses |
Future Growth Prospects for Provident Financial Services, Inc. (PFS)
Future Growth Prospects for Provident Financial Services, Inc.
Analysis of Key Growth Drivers
Key growth drivers for the company include:
- Product Innovations: The company has seen an increase in net interest income, which rose to $418.9 million for the nine months ended September 30, 2024, compared to $303.7 million in the same period in 2023.
- Market Expansions: Following the merger with Lakeland Bancorp, the company’s total assets jumped to $24.04 billion as of September 30, 2024, a $9.83 billion increase from December 31, 2023.
- Acquisitions: The merger added $10.91 billion to total assets, $7.91 billion to loans, and $8.62 billion to deposits.
Future Revenue Growth Projections and Earnings Estimates
Future revenue growth is projected to benefit from:
- The loan pipeline, which totaled $1.98 billion with a weighted average interest rate of 7.18% as of September 30, 2024.
- Net interest margin improvement, which increased to 3.31% for the quarter ended September 30, 2024, from 2.96% in the same period last year.
Strategic Initiatives or Partnerships
Strategic initiatives include:
- Core System Conversion: The successful conversion of core systems post-merger is expected to enhance operational efficiency.
- Fee-Based Business Growth: Strong performance in fee-based businesses indicates potential for increased non-interest income, which totaled $26.9 million for the three months ended September 30, 2024.
Competitive Advantages
The company is well-positioned for growth due to:
- Expanded Customer Base: The merger with Lakeland has significantly increased the customer base, enhancing cross-selling opportunities.
- Strong Capital Position: Stockholders’ equity increased to $2.62 billion during the nine months ended September 30, 2024.
| Financial Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Net Income | $46.4 million | $28.5 million | +63.5% |
| Net Interest Income | $183.7 million | $141.5 million | +29.8% |
| Total Deposits | $18.38 billion | $10.30 billion | +78.5% |
| Loans | $18.79 billion | $10.87 billion | +72.9% |
| Tangible Book Value per Share | $13.66 | $16.32 | -16.8% |
Overall, the company’s strategic initiatives, combined with the benefits from the merger, position it for substantial growth moving forward.
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Article updated on 8 Nov 2024
Resources:
- Provident Financial Services, Inc. (PFS) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Provident Financial Services, Inc. (PFS)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Provident Financial Services, Inc. (PFS)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.