Investor Communications: Investor Relations:
Conference Call Script
Provident New York Bancorp
3Q 2009
Conference Call Script
Operator will introduce the call, explain process, and introduce
host, usually ending with … “Please go ahead”…
George Strayton:
Good morning and thank you for joining Provident New York Bancorp’s third-quarter earnings conference call for fiscal 2009. I’m George Strayton, the company’s President and CEO. With me today is Paul Maisch, our chief financial officer.
During today’s conference call we will update you on:
- Our financial performance in the fiscal third quarter,
- The factors driving these results;
- And an outlook for the remainder of 2009.
Much of the information we will discuss is included in our earnings announcement that was released earlier this morning, which is available on our website, providentbanking.com, in the investor relations section. Also, this call is being simulcast live on our website, where it will be archived for 90 days.
I’d like to remind everyone that any forward-looking statements made during the course of the conference call are subject to the risks and uncertainties described in the company’s filings with the Securities and Exchange Commission, including the press release filed this morning, as well as our Annual Report on Form 10-K.
As this is our first earnings conference call, I want to start by giving you some brief background information on our company. I think it will help give everyone a better context in which to place our third-quarter results.
Provident Bank was founded in 1888 and is the only independent community bank in the Hudson Valley region of New York. We have nearly $3 billion dollars in assets and operate 33 branches in Rockland, Orange, Ulster, Sullivan, Putnam, Westchester and Bergen counties.
The defining characteristic of our bank is the fact that we have always operated with a conservative, community-oriented approach to banking, which has served us well.
Everything we do is built around risk management. We originate and service our own loans, and our lenders are locally based, in arm’s reach of our customers. We focus on the basic blocking and tackling of banking, and strive to remain consistent and disciplined in our credit policies. You won’t find any subprime lending here.
You could call us plain vanilla – which I think is a compliment in these times. It certainly has allowed us to build a solid bank with strong capital and sound asset quality.
Over the years our growth has come organically, and through mergers and acquisitions. Our long-term strategy is to look for opportunities to grow our banking franchise where and when it makes sense.
Like most banks, we have been negatively impacted by the collapse of the housing market and the recession. Our loan growth has stalled, our margins have been squeezed and our credit quality has been tested.
I’m proud to say, however, that we have fared better than many of our peers. We are well-capitalized and have ample liquidity, which enabled us to forgo applying for the TARP, and our credit quality has remained relatively stable, all things considered.
We still have the ability to lend money, which we continue to do for the benefit of our customers and communities. That is our mission, and we plan to continue serving our communities for many years to come.
With that background in mind, I’m now going to discuss the financial highlights from the third quarter of our fiscal 2009, which ends on September 30th. Paul will give you more details on the results in a moment.
Overall, Provident Bank continued to perform relatively well in a challenging economy during the quarter. We remained well-capitalized, with a Tier 1 risk-based capital ratio of 9.04 percent. And we ended the quarter with ample liquidity, totaling more than $62 million dollars in cash at the Federal Reserve Bank.
Another positive development in the third quarter was the improvement in our credit quality. Our net charge-offs were 2 million dollars, which is roughly half of what they were in the prior linked quarter. Our nonperforming loans totaled 24.6 million dollars, which is a decline of 1.8 million from the previous quarter.
We posted gains in income and earnings in the third quarter, with net income totaling 9 million dollars, or 23 cents per diluted share, compared to 6.3 million, or 16 cents, a year ago.
The increase was due largely to gains on the sale of securities that totaled 10 million dollars. Still, this is a solid accomplishment given the fact that we’ve been operating in an interest rate environment that is as low as we may ever see in our lifetime.
The realized gains on the sales of securities were designed to help boost our liquidity in an otherwise dry credit market. One impact from these sales was the narrowing of our net interest margin to 3.74 percent at the end of the third quarter, which compares to 4.04 percent at the same time last year and 3.80 percent for the linked quarter.
Net loan balances were essentially flat in the third quarter, reflecting the stagnant economy. Our Acquisition, Development and Construction portfolio grew 32 million dollars, while our residential mortgage portfolio declined 39.5 million as a result of our strategy to sell fixed-rate conforming loan originations into the secondary market as a way to control interest rate risk. Our gross loans totaled 1.71 billion dollars, compared to 1.65 billion a year ago.
Turning to deposits, our commercial transaction accounts continued to grow during the third quarter, up 27 million dollars over our 2008 fiscal year end. Quarter-end deposits decreased $116,000, however, due to seasonal declines in municipal transaction accounts.
I’m now going to turn the call over to Paul Maisch, our Chief Financial Officer, who will review our financial performance in more detail. Afterward, I’ll discuss our outlook for the remainder of 2009, and then open up the call to questions.
Paul…
Paul Maisch
As George mentioned, we posted gains in earnings and net income that were largely due to 10 million dollars in realized gains on sales of securities during the third quarter. This amount comes on top of the gain of $6.1 million that we realized in the previous quarter.
We made these moves as a way to boost our liquidity in a tight credit market. Whether we realize further gains from our security holdings will depend on market conditions as we move forward.
Our total capital increased 22.2 million dollars to 421.4 million for the fiscal nine months ended June 30, 2009, due to an increase in our retained earnings, and an improvement in accumulated other comprehensive income – again, as a result of realizing the security gains.
Looking closer at our credit quality, as George noted, we saw a decline in charge-offs and nonperforming assets. Net charge-offs for the quarter were 2.0 million dollars, or 44 basis points of average loans. This compares to 4.3 million dollars in the previous quarter and 812 thousand dollars a year ago.
Drilling down, 1.3 million dollars of net charge-offs were in the community business loan portfolio. Write-downs in our Acquisition, Development and Construction portfolio totaled 703,000 dollars.
We decreased our loan-loss provision during the quarter to 3.1 million dollars, which is 4 million dollars less than the previous quarter and 1.1 million in excess of net charge-offs. On a year-over-year comparison, our loan-loss provision increased by 1.7 million dollars.
We increased our allowance for loan losses to 28 million dollars, or 1.63 percent of loans outstanding, and 114 percent of non-performing loans, as compared to the previous quarter. Like most banks, we are making sure we have adequate coverage in the face of ongoing pressure on our loan portfolio.
As a percentage of total assets, non-performing assets were 90 basis points in the third quarter, which compares to 95 basis points in the previous linked quarter.
Our nonperforming loans decreased 1.8 million dollars in the third quarter to 24.6 million dollars, down from 26.4 million in the second quarter.
Before delving deeper into our nonperforming loans, it makes sense to step back and take a look at the composition of our loan portfolio, which is diverse, both industry-wise and geographically.
Commercial real estate loans comprise roughly for 32 percent of our overall loan portfolio. 1 to 4 family residential makes up 29 percent, consumer loans are 15 percent, commercial business is 14 percent, and construction is 10 percent.
In our press release this morning, we included a table that outlines our non-performing loans by category, including those with specific reserves and those without.
Our net interest income was 22.7 million dollars for the third quarter, which was 1.5 million less than the same quarter last year and $909,000 less than the linked quarter. Our net interest margin was 3.74 percent for the third quarter, compared to 4.04 percent last year and 3.80 percent for the linked quarter. The year-over-year comparison includes the cumulative 2 percent cut in the Federal Funds target rate.
Our noninterest income totaled 15.3 million dollars at the end of the third quarter, an increase of 10.2 million dollars compared to last year, mostly do to the sales of securities that we mentioned earlier. Noninterest income was 11.1 million dollars in the second quarter of 2009.
Noninterest expense increased by 2.6 million dollars, or 13.5 percent, over the third quarter of last year, and 1.4 million over the second quarter of this year. The increase is due primarily to increased FDIC assessments of 2.1 million dollars.
As you probably know, the FDIC approved a new fee plan recently that imposed a special assessment on insured banks of 5 basis points of total assets, in addition to regular insurance premiums.
Our efficiency ratio was 71.73 percent for the third quarter, compared with 60.8 a year ago. We achieved a return on common equity of 8.52 percent, and a return on average assets of 1.25 percent.
Total deposits were up slightly on a year-over-year basis, coming in at 1.9 billion dollars at the end of the third quarter. As George stated earlier, our commercial transaction accounts grew during the third quarter, while period-end deposits decreased due to seasonal declines in municipal transaction accounts.
As was the case last quarter, our loan portfolio remained fairly flat during the quarter due to the weak economy.
Now I’d like to turn the call back over to George for closing comments.
George Strayton:
Thanks Paul.
Before I open the call to questions, I’d like to make a few comments about our outlook for the remainder of calendar 2009.
Though there are faint signs of stabilization in the economy, it is still going to remain a tough banking market in which to operate. Our industry will continue to be confronted with a slow-moving economy and historically low interest rates.
That will continue to put pressure on our margins and our credit quality.
As I said at the beginning of the call, our focus has always been on risk management. This is what has led us safely to this point, and it is what will continue to guide us as we move forward.
We will remain true to our business model of providing personalized community banking products and services that expand and strengthen our customer relationships.
Though there is still a rough road ahead, we are well prepared to continue to meet the challenges.
I want to thank all of you for your interest in Provident Bank. Now, I would like our moderator to open the lines for questions.
END
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