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

Thank you, Rachel. Good morning, ladies and gentlemen. Thank you for joining us today. The presenters for our first 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 our first quarter. Chris?

Thanks, Len, and good morning, everybody. Provident’s quarterly results were strong as we had an improving margin and solid core earnings, while asset quality declined slightly during the quarter. Earnings per share were $0.43 up from $0.37 for the same period in 2017 on improved revenue and a larger average loan portfolio from strong originations during the fourth quarter of 2017 which was partially offset by increased interest cost on deposits and borrowings. Performance metrics continue to improve with annualized return on average assets of 1.16% and return on average tangible equity of 12.7%. The margin improved by five basis points in the quarter to 3.30% as funding costs lag assets repricing. As our growth, the loan payoffs and our loan portfolio offset new closing volumes during the quarter which continue to exceed prior year levels. With the credit and loan structures by some competitors continue to be covenant light and aggressive on terms in pricing, while we continue to maintain our discipline and book onto those loans that meet our criteria, the pipeline remains robust and the yield exceeds the portfolio average. Deposit growth there in the quarter was muted as competition has raised rates at an accelerated pace. We successfully deployed a strategy to raise some CD rates below current borrowing levels. Core deposit totaled at 90.2% of total deposits as of March 31, 2018. Non-interest income increased 6.8% compared to the same-period in 2017 due primarily to commercial loan prepayment fee income, increased wealth management income, and a small increase in retail deposit fee income. Non-interest expense was controlled as we continue to prepare for $10 billion. Operating expense to average assets was 1.95% and our efficiency ratio is 54.18%, and we continue to invest in new technologies to build out digital product offerings and plan to…

Thank you, Chris and good morning everyone. As Chris noted, net income was a record $27.9 million for the first quarter of 2018 or $0.43 per share compared with $19.5 million or $0.30 per share for the trailing quarter. Average earning assets grew by $156 million with average loans increasing $168 million or an annualized 9.4% on the strength of trailing quarter originations. On a spot basis, loans increased $35 million despite relatively strong originations as payrolls was somewhat elevated and line of credit activity resulted in net outflows. Our net interest margin increased five basis points as the yield on earning assets increased 11 basis points. The increase in average balance and margin drove back at quarterly revenue of $87 million and record net interest income of $73 million. Average deposits grew by $33 million or 3.1% annualized. Funding costs did increase this quarter as record commercial municipal accounts repriced and the spread between borrowing costs and time deposits made VB funding more attractive. As a result, we brought in over $50 million in promotional 13 month CD at 1.75% below the federal home loan bank overnight borrowing rate of 2% at the end of the quarter. Looking ahead, the loan pipeline increased to $1.3 billion and the pipeline rate has increased 16 basis points since the last quarter to 4.65% exceeding the loan portfolio rate of 4.18%. Based on our short term loan pipeline, 90% core and non-interest bearing deposit funding and the variable rate nature of many of our assets, we anticipate strength in economy and additional Fed rate increases will contribute to further expansion of our net interest margin throughout 2018. While our overall credit metrics remains favorable, we did see some deterioration in selected commercial credits this quarter resulting in 17 basis points of net…

[Operator Instructions] The first question comes from Mark Fitzgibbon with Sandler O'Neill & Partners.

I wondered if you could start - just if you could share with us what assets under management are at Beacon, I didn’t see that in the release anywhere?

$2.3 billion Mark.

$2.3 billion, okay. And then secondly Tom any sense for incremental spending in 2018 in prep for crossing $10 billion, and also as your thoughts on some of the outlook for expenses this year?

The total for full-year growth initiatives that includes enhanced stress testing for some additional compliance adds, that analytics work and some seasonal preparations. The total for the year is about 4.6 million that’s included in the budget. We did about 480,000 in the first quarter of that looking at about 1.4 million in the second quarter. So, Q2 I am looking for expenses of about $48 million to $48.5 million. The reason for the increase in the current quarter would be in addition to some step-up in these investment spends or the portion of our directors' compensation that state in the form of stock has gone annually in the second quarter of this year and that's about $900,000 million. So I am looking for full year expenses around 195 million.

And then, can you refined your estimated all for the impacted Durbin since you’re getting closer $10 billion and also when you think you would be crossing $10 billion, is that you think in the third quarter?

So we're still running 2.8 on the Durbin. As far as the crossing, a lot depends on the payoff activity. I was expecting higher footings at the end of the period this quarter. Payoff activity was a little bit stronger than we expected. The plan is to go full speed ahead unless we wind up very closer at the end of the period in which case we will manage under the safe on Durbin.

And then that uptake in C&I, MPAs, wondered if you could share with us what industry that was in and any other specific color on what causes the issue?

There will be materials including hotel and building materials. It seems to be very borrow specific events this quarter. One thing, I would say indicative of broader trend deterioration. I guess some of the quality you expect when you move to 80% commercial loans, kind of mix.

But market is great today - industry specific is now like okay towards the whole host of these variable issues operation of one business.

And then, maybe lastly if could just help us think about then provisioning for the rest of the year. I know, there is a lot because into it but any guidance if you could give would be helpful.

Right now, this particular credit for big insurance we see which is where we highlighted that there may some additional provisioning required given the late breaking nature of the deterioration is an ongoing review of the reliability of collateral on that loan. Other than that, things are pretty steady as we goes, so we are already 86 basis point on total loans, I don’t see this dramatically increasing that rate, it’s about 136% of non accruing loans, we’re comfortable with those levels.

The next question comes from Russell Gunther with Davidson.

I appreciate the comments around expenses and $10 billion you’ve mentioned in your prepared remarks, the potential for regulatory release obviously keeping an eye on that. If it goes to as proposed is there - how would you quantify, if I say benefit to you guys from an P&L perspective?

First and foremost could be the vast - no longer applicable but we will certainly do, we do risk assessment and then we certainly look at our stress testing individually but not prescribed in those enhanced prudential standards. So that would be helpful that we would not have to hire additional quantitative analysis staffing to counter that in Washington. I think we estimate that to be savings that Tom reaffirmed around $1 million say just like that, but.

I was going to say $1 million to $2.5 million have to even overall projecting for a run rate which was 6 to 7 million inclusive of Durbin.

I heard you loud and clear on wanting to just run first team ahead on loan growth side of things encouraging to see pipe up both from rate and volume perspective. Could you just give us a little bit of color in terms of what you would expect to pull through from a loan mix and perhaps geographic perspective?

Well, from a loan mix it’s all factors, I would think residential landing, majority it not many houses so that is a little tougher business to predict. There is a lot of other institutions and we’re trying to gather volume there. We are seeing our opportunities in all facets. The challenge is the pull-through where we used to made these deals pull-through 65% to 70% on some of these loans once you put into a term sheet, those numbers have been lower down to 40% to 45% at best. So a lot of people trying to be very competitive, a lot of aggressive deals at levels that we don’t think are prudent for us, they may be for others. So I don’t think there is any category as we kind of lightening up on multifamily for a period of time, we don’t use the broker community for that, there are certain select forwards that we will still work with to certain projects, here trends and like. I think we just - we look at those at very valuable and that’s what we trying to do on all asset classes, Tom, will give u color.

Probably that's the competition in some of the credit standards appear to be lacking further amongst some of peers and we are trying to also credit disciple which might win our growth help to some of the peers to include the rates. Fortunately, we’re seeing favorable re-pricing, we haven’t been short duration bulk of a lot of variable rate assets, so we are going and buying, we are making up in the rate currently.

The next question comes from Collyn Gilbert with KBW.

Just a follow up on that comment on the loan side, so, you’re hearing the messaging in optimism on the margin which is great. But I guess, I am a little surprise, just kind of given the mix of what’s going on this quarter, you know saw the multifamily in CRE growth pickup. So just curious as to, what's that driving the growth which is one quarter, but still you’re getting the variable nature, its sounds like of the loan book. And then two interestingly that I would have thought maybe those were two segments that would be, very competitive. So just try to sort of if you could give us a little bit more color about those two segments being the driver of growth?

Well I certainly know that our customers - we have a couple of new ones from first quarter and the commercial real estate space which is good to have a few new ones versus those that are still very well established with us. In construction and industrial everybody are trying to get, I think the fact is the client that we are able to meet in order we can close these without a lot of other issues. But one thing we are missing out on more of the longer term fixed rate ones that some people are going aggressively out there at 10-year and 15-year fixed in the C&I space which we won’t go down in that path. I think that as you say we did have may be the right people at the right time we never want to over-say our importance somebody could probably under price, under cut but they maybe one deal only.

And then - just the credit the commercial NPL that rose this quarter, when was that loan originated?

It was underwritten at the end of 2016. It was put on the books right in January of 2017 viable business everything was fine credit wise - current to the worst that you may effect.

Does he have - he or she have multiple projects?

No.

Is it a project that’s challenged or is it the borrower that’s challenged?

No, it’s the borrower that’s challenged in their business.

And then just on the funding side Tom you had mentioned the CD promotion that you guys have been doing, I think you said 13 months I think you split in the press release. But is the - are you looking to start to extend it all on the funding side or how are you kind of thinking about the mix of funding that you want to put on the balance sheet.

I wouldn’t say we’re over extending because the asset book is relatively short, so we’re just trying to manage our interest rate risk so we’re able to say moderate I guess on the funding link.

And then what were prepayment fees this quarter?

Prepayment fees were 616,000 versus 185,000 in the trialing quarter.

I know it’s hard to predict but any thoughts just given kind of behaviors you’re seeing among your borrower base where you think the level of activity could for the remainder of the year?

We are seeing more payoffs as people got - some lot of capital out there find to be deployed aggressively. So we’re getting more payoffs I know in the first quarter we saw insurance company coming back in to fill their bucket with some longer return where permanent loans that we normally don’t get any way from a construction to firm. And we’re still seeing some payoff activity and I think we always try to save as much as possible, you don’t want to lose the loans but at the level we can’t compete or doesn’t hit our ROE hurdle as reasonable, then you kind of have to let it go. We see some of the borrowers reducing debt as well and taking and they are putting an additional equity to reduce their debt.

And then just finally, Tom on the margin outlook you had indicated I think you said economy getting better you’re expecting hikes. How many more rate hikes you're factored into the NIM - the positive NIM guidance that you’re offering?

We have margin in June and September.

The next question comes from Matthew Breese with Piper Jaffray.

I wanted to address the competitive landscape a little bit differently maybe from a geography standpoint and hoping you could may be compare contrast North Jersey to your Pennsylvania markets. And what is only differences and your ability to capture spread in those two markets?

In Pennsylvania when we require team capital, we would definitely go and there was an enhancement to opportunities there and 25 basis points where we are making more headway there. We have hired two new players in that market but we’re seeing again rationality and some aggressiveness some of the smaller companies that I guess trying to put on assets at levels again don’t make sense to us. I would compare the opportunities certainly in the Lehigh Valley if they are there we get a look. We’re getting more looks of late which is encouraging and I am in the box space and PA that team has done a pretty good job. We just want to always maintain our focus to where our growth can be in the box area. There is a lot of building going on there is a lot of warehouse something on our spec basis which is a little scary sometimes. So we think the PA has opportunities versus New Jersey we always known New Jersey market fairly well. So we are optimistic about our Pennsylvania expansion opportunities. We will see where we can pull them through at the right levels.

And as you think about potential M&A down the road do you have a preference geography one of the other?

Yes, one of the other not to be good but - we don’t ever preclude, we just always look at the numbers that they make ends and the partnership with somebody would be something that would be beneficial to both institutions and the people, and the customers as we love the opportunity. I know in Pennsylvania there is a bit more smaller institutions that are doing great work and have great market share that we’d love to have conversations with. So that’s probably the way that the growth would be preferable versus just de novo and/or just by hiring a couple lending officers. So we are always actively listening and talking to people and if there is opportunity we are going to be part of it.

Any notable changes in the level of conversations the flow conversations?

Nothing materially I know you’d expect to after tax reform in our first quarter everybody kind of is hunting down and seeing what that brings. I think there is always the market rationality that has to come in where people were expecting a huge premiums in a longer - I think available.

And then you mentioned seasonal is something you’re putting dollars and investments towards 2018 any initial reads, thoughts or potential impacts on that item?

No, I really can’t give you any potential impact at this point too early for us to give any reliable estimate.

We have another follow up question from Collyn Gilbert with KBW.

Matt sort of covered it was on M&A and just curios if you’re seeing any change in sellers interest or whatever but it sounds like no, not really?

No, nothing obviously that we are able to point to at all I think it’s just people have conversations on the other hand I think there is nothing that we could have changed from quarter-to-quarter.

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