Good day and welcome to the Provident Financial Services First Quarter Earnings Conference Call. [Operator Instructions] Please also note that this event is being recorded. I would now like to turn the conference over to Len Gleason, Investor Relations Officer. Sir, please go ahead.

Thank you, Steven. Good morning ladies and gentlemen, thank you for joining us on this fourth Friday in April. Presenters for our first quarter earnings call are Chris Martin, Chairman, President and CEO; and Tom Lyons, our Executive Vice President and Chief Financial Officer. Before beginning a 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 the text of this morning's earnings release, which has been posted to the Investor Relations page on our website provident.bank. Now it's my pleasure to introduce Chris Martin who will offer his perspective on our first quarter financial results. Chris?

Thank you, Len and good morning everyone. Provident is off to a strong start in 2017 with record net income and earnings per share for the quarter. The margin improved as asset repricing exceeded portfolio yields, while funding costs remain relatively constant and on average the loans increased. However quarter end footings were slightly lower than year-end due to repayments in the CRE and construction loan portfolios and continued run-off on residential loans. The pace of loan prepayments has exceeded our forecast as commercial real estate loan customers sell their properties or refinance them with like company or the agencies after the construction is completed. Deposit loans were also lower due to seasonal activity but the loan and deposit pipelines remain robust and we anticipate a return to balance sheet growth in the second quarter. And we continue to project mid single-digit loan growth for the year. Return on average assets for the quarter was 1% versus 94 basis points for the first quarter of 2016. Our return on average tangible equity was 11.33% versus 10.76% from Q1 2016. The efficiency ratio stayed flat at approximately 58% versus 59% in the prior-year quarter and during the quarter we closed one underperforming branch locations and consolidated another as we continue the ongoing discipline of branch rationalization. In this regard, we have recently undertaken an initiative to pursue sale-leaseback our arrangements for a number of our owned branch locations. We continue to see improved pricing in our loan originations although competition remains fierce. We see selected instances of competitors allowing extension of loan terms, longer rate locks with no fees, aggressive loan-to-values and no guarantees. And we do not see adequate returns on many of these prospect, so we pass on these credits. We're able to maintain stable deposit and funding cost…

Thank you, Chris, and good morning everyone. As Chris noted, our net income for the first quarter was a record $23.4 million compared to $22.6 million for the trailing quarter. Earnings per share were $0.37 compared with $0.35 for the trailing quarter. This was a $2.5 million or $0.04 per share increase compared with the first quarter of 2016. A change in accounting guidance related to the recognition of benefits from share-based transactions reduced our income tax expense by $1.2 million for the quarter contributing to the improvement in earnings. Net interest income also reached a new quarterly high of $67 million, as our net interest margin expanded four basis points versus the trailing quarter to 3.11%. Average earning assets increased $48 million, with average loans up $67 million or 3.9% annualized. Loan growth was tempered by runoff in home equity and residential mortgage loans and payoffs in our commercial, real estate and construction loan portfolios, partially offset by increase C&I lending. Looking ahead, the loan pipeline remains strong and for the first time in a long time, the pipeline rate exceeds the loan portfolio rate at 4.18%. The margin benefited from stable funding costs, favorable reprising of variable rate assets, the deployment of excess liquidity held during the trailing quarter, and reduced premium amortization on mortgage-backed securities. We anticipate modest additional expansion of the net interest margin throughout 2017. We provided $1.5 million for loan losses this quarter and increased from $1.2 million in the prior quarter as net charge-offs increased slightly to $1.2 million on a annualized seven basis points of average loans. Asset quality metrics was stable versus the trailing quarter with non-accruing loans decreasing $1.9 million to $40.5 million or 0.58% of total loans. The amounts for loan losses to total loans increased slightly to 89…

[Operator Instructions] And our first question comes from Mark Fitzgibbon with Sandler O'Neill. Please go ahead.

Thank you for taking my question. Chris you guys are only about $0.5 billion away from the $10 billion threshold. Can you update us on how far along you are in terms of preparing for this and maybe give us a sense for what the incremental costs are to be incurred?

Well, I'll let Tom talk about the incremental cost Mark, but I certainly say that we've had a steering committee of our group here with our risk and our management team we are very long down the process. We are implementing certainly some steps and some expenses to be prepared for DFAST stress testing. We have yet to hire a couple of quant's to help out in that process. In between I think we're continuing down the road even the regulators that we meet with the regulators to talk about our process, we will be running a dry run of this stress testing in 2018 even though we probably don't need to and then meet with regulators yet again. And I think infrastructure and compliance wise, we've implemented and our continuing to implement some of the things when we anticipate the CFPB type of review and we meet with our midsized bank, and have gone through this and make sure we compare notes and have taken some of their experiences and be able to really try to figure out where any kind of black holes are.

In terms of cross Mark, we will look at about $1.6 for the year 2017, not a whole lot was incurred in Q1 expect to see an increase in consultancy cost in Q2 ass we entered into some engagements there. And a broader sense from a non-interest expense run rate kind of look, I think we're going to still be around 46.5 million to 47 million, that’s inclusive of the cost expected to be incurred for $10 billion already next year.

Okay. And then secondly your capital ratios are building. Could you talk about your plans for sort of deploying the excess capital?

Well I certainly would love to return it to shareholders in some form. I think we like growth the best. We still have a lot of capacity, the volumes and pipelines are there. You're right, we continue to accumulate capital that mitigates some of the CRE exposure with the guidelines that we have. M&A even though we'd love to put that money to work in some context, we want to make sure it meets the hurdles and the accretiveness of any type of transaction. So it's a good problem to have. We certainly have to leverage and in a rising rate environment it might make it a little easier without taking on a lot of extension risk.

Our acquisitions more likely on the feet - wealth management or more likely on the banks side do you think.

I would think in this timeframe probably more on the wealth management side, though we wouldn't say no to looking at any other good combination with other banks. I think as we go through the balance of the year, and next year if we ever did get an opportunity that makes sense for both companies, it would make it close to the timeframe when we would be going over 10 billion which would be a real good way to go about getting over there either organically and with the deal combines. So it will open up an opportunity to not just look at larger deals but maybe some bolt-on acquisitions of good people and good markets.

To add to that mark given our expectation of crossing $10 billion organically in the second quarter next year there is no reason to hold back from an acquisition if the opportunity arises.

And then Chris lastly, do you think that – I think your efficiency ratio this quarter was 58%. Do you think that over time you might be able to drive that efficiency ratio down to a bank like say, may be investors bank or something close to their ratio.

Well I would think that the cost of compliance and the things are going on, you want to not really probably overpromise on that front, I think our review with our regulators they like our approach, they like our credit analysis everything else related to DSA and otherwise, I think it's really – it’s going to be tough to move that needle and I guess in line with the brethren out there, they realize its same thing. We have to spend a little more money on the other hand if we all work together and get a better tenor and tone in Washington and with the regulator to say, the pendulum has swung one way, I think it should come back a little bit to say, everybody is doing a decent job or risk assessment Dodd Frank side. I would think that the - it could go a little bit lower but not material different without changing your risk profile.

Once we get to the initial cost of crossing the threshold, did you benefit from scale, and hope to see some reduction there.

[Operator Instructions] And there appears to be no more questions at this time. Actually we have a question from Matthew Breese with Piper Jaffray. Please go ahead.

Sorry about the late entrance there guys. Just to follow up on the $10 billion cross, if you do find the right whole bank deal in the near-term, do you feel like the remaining steps you need to cross 10 billion and DFAST ready. Do you feel like those remaining steps can be accelerated to be where you need to be?

Yes, we had modeled that case of a deal. I certainly would make it little more cumbersome but we're aware of all the things we have to do. I think we're prepared for either side of it. So we're not solving for, waiting for 2019. We have the process in place and there is always for our team. Are we ready to implement if we have to, it takes a lot more work and maybe a few more consultants come in to accelerate some of the information to get there. We love to do it ourselves organically learning and doing it ourselves versus using outside parties but we certainly think we could do that as it did happen to be an accretive deal that we would not want to miss.

And Matt we start planning for crossing the threshold over year ago and the timeline is always been acceleratable. It's kind of depending on trying to spread out the cost pending a deal, but we got one that that got us there sooner, we could definitely accelerate our timeline.

And then just the overall M&A environment. How would you characterize it? Is there a lot of chatter or not as much chatter? There has certainly been a lot of moving pieces as far as Washington and interest rates and all that. So would love to just get a sense for what you’re hearing from all the banks in the area.

Well I think our global view is that - it has been a little hot – I think it's slowing down slightly. It might be hoping that something in Washington could reduce some of the burden and change the rules, that might be wishful thinking on some people's parts. But I think everybody is looking at their approach to shareholder value and making sure that they are fulfilling their fiduciary duty. It is tougher, we are not a huge company but it certainly I would say if it's tough for us and others and we're pretty efficient as kind of be getting tougher for those that are smaller that can absorb some of these cost and the risk attached to it. But I think that's kind of their assessment of what's going on. Maybe they think there is some relief, I don't see it in the near-term. So that would I think keep a steady flow but I don't think there is going to be rush to the exit by any stretch.

Understood, all right. And then my last one, considering loan growth this quarter and your comments for perhaps an acceleration of growth throughout the end of the year. Could you just give us a sense for where you expect the pickup in loan growth to come from, will it resemble what we saw this quarter or more traditional growth categories for you.

Well it certainly is the scene eyesight which I know everybody is focused on that but the focus by the regulators on CRE and we also – we’ve been going that route for a long time. It's just - the C&I loans that we do not a big currently is the commercial real estate loans. We have seen the pickup in our ABL Group as a base lending group, and SBA loan volume we think will pickup in the second quarter. We also know CRE, we have multi-family where we're very specific of who we do business with and where as we have mentioned before on the other calls, we do not use the broker network, nor do we do things in the boroughs, nothing against that volume which is not something we do. But we certainly have very substantial borrowers that are doing things a lot in the transit villages such as regular train lines, where everybody wants to be in – that's kind of where we are seeing some opportunities. So I think we balance it all along to say we go where the volume is but we also are very - I think conservative in our approach in any asset class we lend to.

Okay. Got it. That’s all I had. Thank you.

Our next question comes from Collyn Gilbert with KBW. Please go ahead.

Thanks. Good morning, guys. Can you just go into little bit more detail on this sale lease back initiatives maybe what - how big that you think that could be with the financial impact would be either expenses or just the overall bottomline?

It approximately 12 branches Collyn and they were three different sections of the state. The reason we would do this type of transaction was to, one reduce maybe our inability to lease out other part of that building such as there may be a second floor and/or the space may be very large, we really need a portion of it. So was really to reduce some of our ownership expenses that we would deal with and we think it's an opportunity for us to look down the road of where we might be going. It still would be - we still be about 40% owned and then 60% leased. It's a cost opportunity plus I think monetize some of the real estate value and reduction of branch sizes is something that we've been looking at for a long time. It's just you can't do that without have somebody else maybe own it.

Okay. Give a sense of - maybe what kind of gain you could harvest from doing this?

We just sent that package out. We're getting a lot of - it is coming in, we are just starting to evaluate that so we do not have it. I mean we have some branches that are going to be probably above market and then more newer ones that maybe not going to praise out as much. On the other hand, we have some that have some stored value from being on our books for a long time. So our blend is really not just to be a gain situation, it's more of an operational change.

Yes I would expect it to be fairly neutral Collyn, given that we’re taking backspace in the building. I think the pricing is counterbalance with the regular pay on the rent to a large extent.

Okay. That’s helpful. And then Tom, maybe could you just give some color to what you think fees will kind of do for the rest of the year. I think that bounced around based on prepaid and that interest overall activity. But where you think maybe a better quarterly run rate is on the G side or is growth potential there?

The challenging thing is the swap on valuation adjustment, that was like 1 billion - sorry 1.5 million change quarter-over-quarter because the rate movements. So, other than that things are pretty confident. Prepayment fees were down but that's just – that's always going to be volatile but it's never is as large a number because of the number of loans that payoff and where they are in the cycle relative to the terms of the prepayment agreement. So I mean you’re probably looking in a $13 million kind of range is a normal and that subject to plus and minus $1 million or so pretty.

Okay. Do you just on the prepaid part, do you see, I mean - do you see any kind of more sort of systemic trend of those lowering as we look out this year as rates move, or how do you think that will be as the part of the overall fee lines.

Well I think certainly - this is Chris, there's certainly amount of fees that the construction loan pays off, we don't get the permanents for the most part. There is not many prepayment attached to that. I would say as rates rise Collyn, there is probably going to less payoffs and/or sales, unless somebody is exiting a properties. So from a commercial real estate perspective, I don't see it getting robustly greater.

We budgeted that with the expectation of rise in rate in the past, and then it's all very deal specific. So certain transactions happen regardless of rate environment, so you’re still going to see bounce around.

Okay. That’s helpful. Thanks guys.

This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.