Leonard Gleason – IR Chris Martin – Chairman, President and CEO Tom Lyons – EVP & CFO.

Mark Fitzgibbon – Sandler O'Neill Jason O'Donnell – Merion Capital Group David Bishop – Drexel Hamilton Collyn Gilbert – KBW Matthew Kelley – Sterne Agee.

Welcome to the Provident Financial Third Quarter Earnings Conference Call. (Operator Instructions). I would now like to turn the conference call over to Mr. Len Gleason. Please go ahead, sir..

Thank you Chad. Good morning, ladies and gentlemen. Thank you for joining us on this pleasant autumn morning. The presenters for our third quarter earnings call are, Chris Martin, Chairman, President and CEO; and Tom Lyons, Executive Vice President and CFO.

Before we begin the 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 may be obtained by accessing the Investor Relations page on our website, www.providentnj.com. Now I'm pleased to introduce our Chief Executive Officer, Chris Martin, who will offer his perspective on our third quarter financial results.

Chris?.

Thanks, Len, and good morning everyone. Our operating results for the quarter after adjusting for non-recurring items related to the acquisitions of Team Capital came in at $0.34 per share. Our return metrics were solid with adjusted return on average assets at 1% and adjusted return on average tangible equity of 11.62%.

Operating efficiency in the core basis was 56.7% for the quarter and our margin held up well increase six basis points to 3.30%. From the balance sheet perspective we have standard 8.4 billion in total assets. Loan growth was constrained by some large payouts at the end of the quarter resulting in annualized growth of approximately 4%.

And we continue to believe that moderate loan growth in an unsettled interest rate environment is prudent and we continue to hold true to our credit and pricing disciplines.

We’re seeing very aggressive competition in pricing and structure including deals at a 140 over the treasury for multi-family along with LIBOR plus a 130 basis points for C&I deals as well as longer interest only period, low cap rates and the reduction or elimination of personal guarantees.

We will continue to model our pricing with a return on equity discipline and a strength of our loan pipeline demonstrates that growth can be accomplished without abandoning our risk management requirements.

During the quarter we added an asset base lending team and acquired their small portfolio of approximately 25 million in outstanding's at the same time. We are also experiencing some traction within our medical lending group and we’re spending a lot of time and energy supporting the lending teams in Western New Jersey and Eastern Pennsylvania.

And we’re pleased with the growth prospects in these regions now that we have a fully integrated Team Capital. In the wealth space, we try to continue to improve its profitability and we are looking forward to marketing our wealth management products and services to the extended markets of the former Team Capital.

We completed the Team Capital systems conversions on Labor Day weekend and I'm very proud of the management and staff of both companies for making this seamless transition.

There were many enhancements that were employed in the Team Capital branches that will also be deployed in the Provident branches in the next two quarters to improve efficiencies and to provide customers with better service.

And our technology improvements continue to be evaluated in a number of locations as we engage our customers with self-service and mobile delivery channels.

Deposits were down during the quarter as anticipated with municipal accounts demonstrating their normal cyclicality accompanied by forecasted run-off from higher price and brokered the team capital deposits and in CD outflows.

Some larger banks offering very aggressive money market accounts that require large balances to attain the APY [ph] which may continue to put pressure on the retention of single service customers. From additional loss deposit [ph] one-off may occur from these more rate sensitive non-relationships depositors.

But our core deposits now represent 85.8% of our total deposits and during that period our borrowed funds increased $287 million during the quarter as we replace the deposit (indiscernible) and maturing advances at lower rates and extended duration at the same time.

With our capital levels holding strong and opportunities improving in our markets we’re optimistic about the future. As we move toward the $10 billion with no set timetable for that to happen, we’re assessing the steps required to further enhance our risk management and modeling capabilities.

Our further expenses continued to be form by the industry at cyber security control needs to be constantly updated and upgraded and obviously the cost of compliance and regulation continues to increase.

With these challenges it is imperative that we look at ways to offset these expenses with operating efficiencies and reduction to non-essentially expenditures. On the M&A front we continuously evaluate the landscape in both whole bank and wealth fields but are keenly focused on the markets just acquired from Team Capital.

With that Tom will detail some of the numbers.

Tom?.

Thank you Chris. Good morning everyone. Our net income for the third quarter was $90 million compared with 16.4 million for the trailing quarter, earnings per share were $0.30 compared to the $0.28 for the trailing quarter.

Earnings for the quarter were impacted by cost related to the Team Capital acquisition and related systems conversions totaling $2.2 million or $0.04 per share net of tax [ph].

Net interest income increased by $5.6 million compared with the trailing quarter to 53 million as average net loans outstanding increased by 456 million and the average yield on loans improved by five basis points to 4.3%.

Average growth is driven by the May 30th acquisition of Commercial Mortgage and C&I loans from Team Capital as well as current period originations of commercial, CRE and residential mortgage loans.

The yield on loans benefited five basis points for the quarter as a result of the accretion of purchase accounting adjustments including one basis point due to payments received on purchase credit, impaired loans and the resulting recognition of amounts previously considered non-accretable.

Average securities balances also increased by $61 million, however yields declined by three basis points versus the trailing quarter as a result of an increase in premium amortization on mortgage backed securities.

The cost of interest bearing liabilities decreased one basis point as borrowing cost declined with the combination of these factors resulting in a six basis point increase in our net interest margin to 3.3%. We provided $1.5 million to loan losses this quarter consistent with the trailing quarter.

Non-performing loans decreased 1.3 million from the trailing quarter to 64 million or 1.0% of total loans. Net charge-offs for the quarter increased slightly to 2 million or an annualized 14 basis points of average loans. Subsequent to quarter-end we have thus far resolved over 4 million of non-performing assets.

The loan losses to total loans decreased to 1.06% from 1.08% at June 30, however the allowance coverage of non-performing loans increased to 99%.

Non-interest income increased $982,000 compared to the trailing quarter primarily as a result of the $733,000 increase in loan prepayment fees, $437,000 in profits from loan level swap transactions and a $377,000 increase in gains realized on security sales.

Partially offset by non-recurring items in the trailing quarter consisting of a $486,000 gain realized on the prepayment of borrowings and a $300,000 benefit recorded on a (indiscernible) claim.

Non-interest expense increased $2.2 million versus the trailing quarter to 45.8 million, compensation and benefits cost included $922,000 in severance cost and state balances for Team Capital transitional employee.

Additional transaction costs totaled 2.8 million were included in other non-interest expense primarily core system contract termination and conversion costs. Excluding these acquisition related items are efficiency ratio with 56.7% and our annualized operating expenses to average assets were 1.99%.

Income tax expenses was 7.9 million compared with 6.2 million for the trailing quarter and our effective tax rate increased to 29.4% from 27.5% as a result of an increase in taxable income as a proportion of free tax income due to the acquisition of Team Capital and the incremental realization of cost savings.

That concludes our prepared remarks and we will be happy to respond to questions..

(Operator Instructions). Our first question comes from Mark Fitzgibbon with Sandler O'Neill..

First question for you Tom, the NIM expansion was a good surprise this quarter and it looks like it was driven by sort of higher mortgage and C&I loan yields, I'm just curious why was that? And could you also share with us your outlook for the margin?.

I think a lot of that was driven by purchase accounting adjustments, the general credit accretion. Loan yields are benefited as I said by five basis points, so it was about four basis points to the margin of improvement. So ex-the purchase accounting adjustments were essentially flat versus last quarter on the NIM.

In terms of outlook I see a little bit of pressure probably in the 3 to 5 basis point range, (indiscernible) rates are lower than the portfolio yields.

The pipeline is strong but the rate on that is also a bit lower than current portfolio yields and the purchase accounting adjustments will start to diminish a bit over the next 4 to 5 quarters and then start to stabilize..

And then secondly that ABLT that you brought in, what kind of volume do you think they are capable of generating maybe over the next year?.

We’re looking at that like anything else, we want to build on it as we are -- so we are talking about $20 million to $25 million next year. We certainly have a pipeline that’s growing, we like to build on that but we really like to make sure of it, we have got everything in place continue to grow than support it.

So I think that will be doubling the size in less than a year..

And then on the cost from the Team acquisition, I guess I'm curious where the system conversion complete now when do you think you will have all the cost synergies extracted and has your projections changed at all?.

Projections haven't changed, we’re tracking well versus our original estimates. A little bit more cost to be incurred in Q4, a 750,000 or else as we finish out. We did have some transitional employees remain through for the first part to get us through the systems conversion. But the bulk of the cost were behind us.

In terms of cost saves, those have been coming in obviously over the course of the last quarter as personnel have moved on but we see a full potentially from that in Q4, so it's about another -- probably another $400,000 worth of cost saves to be realized in Q4..

Okay.

And then finally Chris you mentioned that you’re getting close to that $10 billion threshold, I wonder if you could talk about what things you still need to do to prepare for that? And how it might affect your cost structure in 2015 and beyond?.

Sure. I think organically we probably wouldn’t get there for a couple of years but we have already we have started in the way of the risk area certainly taking on and documenting a lot more of the growth opportunities and modelling so that will take probably a couple of individuals also.

We have also according to the budget for next year some system opportunities to be able to do that, not doing it on spreadsheets. So I think it's the formality of what we have to do and working with the regulator, you know very accommodative to say how we are progressing from a risk analysis standpoint and then the modeling that comes with that.

So I think we’re going to build on that as we go along. We have always done that fairly well, I think it's documentation more than that it is knowledge base that needs to be expanded..

The next question is from Jason O'Donnell with Merion Capital Group..

Just following upon the margin discussion, can you tell us how much we had in the way of accretable yield type required loans in the third quarter in terms of dollars?.

Yes it was 537,000 in regular accretion and then another $200,000 that came out of PCI that was formerly considered non-accretable but we had cash for improvement, we had a couple of property sold and we see payments on those. So a total of 737,000..

And then you sort of envision as you look at that accretable yield level will step down over the next few quarters and then eventually stabilize?.

Yes I think the regular schedule to accretable yield was four basis points to loan yields this quarter, that would drop to three basis points in Q4, two basis points in Q1 and then one basis point for the next couple of quarters after that..

And then on the operating expense base, I know Mark asked this question as well but on the -- so the 42.1 million that you’ve this quarter excluding the non-recurring cost tied to the acquisitions, it sounds like you’re saying there is another $400,000 worth of potentially non-recurring cost that could come out of that base heading into the fourth quarter is that right?.

Fourth quarter, yes, $400,000, yes..

And then on just a couple of housekeeping items, you all recorded -- is it $1 million even in prepaid -- (indiscernible) third quarter is that right Tom?.

Yes, $983,000 prepayment..

Okay and then what was the gain on sale of OREO?.

Gain on sale was a 113,000 for the quarter..

Next question is from David Bishop with Drexel Hamilton..

Just curious, I mean I know you’re still early in the integration process but what was the outlook there in terms of and thinking in terms of deploying capital potential for more M&A or even out buybacks, just curious what you’re thinking in terms of capital targeting there?.

We do not need any more capital, I think we’re very well capitalized. Probably looking at the opportunities provide the best return for shareholders on that but we’re in a good space and place.

We do have a lot of shares still available for repurchase and we see the market getting into pressure but for the most part we like the growth aspects of our portfolio in the pipeline but nowhere capital rates is going on out there..

And then just curious in terms of I think you mentioned, you had some outflows on the deposit side can you just go over that again? What you’re thinking in terms of the deposit pricing here?.

Well certainly the deposit pricing has gotten a little over some firms are probably have a little bit more loan to deposit ratio that are little out of lack -- ours is at 104, we’re comfortable with that, we would like to see more core deposits, yes but to go after those when you get borrowings of a lot longer duration and structure probably better off for us but we’re still looking at expanding relationships, we think and are acting on the team capital markets has been very fertile for us, with some of the products that we can offer which they did not have in the past and we look forward to going into those markets in a more aggressive manner..

And if I could just offer on the run-off that we did see this quarter, I want to make it clear fair amount of that was what I would consider to be wholesale funding in the guise of deposits, for broken money markets, (indiscernible) deposits, some bankers trustee funds.

So again short term in nature kind of all deposits that run-off and in some cases it's replaced with longer term funding for more stability and better service management..

The next question is from Collyn Gilbert with KBW..

Could you just -- Chris you had indicated that there was a large loan that paid down this quarter, what was the size of that loan? And where there any prepayment fees received on it?.

We have got 42 million in pay-offs in September. 20 million was in CRE, 7 million in C&I. So those came right in at quarter end so you see that the blip right at that period, but the average still was okay..

The prepayment fees for the quarter were 983,000 and of course I don’t have the monthly breakout so I couldn’t tell you what exactly was attributable for those late payments..

Okay, so 983,000 for the quarter.

And do you just happen to have there, Tom, what the prepayment income was in the second quarter?.

255,000..

And sorry to go back on this, on the expense discussion, but I just want to make sure I understand. So if we’re -- so should we be thinking about kind of this like a $41 million run-rate on expenses all-in with your comments of lower employee costs 400,000 of cost saves.

Is that how we should be thinking about?.

That’s pretty much again if you take Q3, Q3 was 45.8 million inclusive of the transaction cost back at 3.7 million and another 400,000, just 41.7..

Our next question is from (indiscernible)..

Most of my questions have been asked and answered but if you could just kind of give an overview of what you feel is going on with the economy? Chris I think earlier this year you talked about (indiscernible), perhaps economic activity gotten a lot better since then or it's stayed the same? What's you’re feeling about this?.

Well I think our customers, we have to really gauge that comment. For the most part their balance sheets are in better shape and certainly their P&Ls are much better than they were three years ago. Business in our New Jersey market has been okay, I think everybody is doing a little bit better.

As in the New Jersey economy that’s still struggling with its foreclosure levels and some other things. But for the most part I think everybody is still realizing this is the economy we have, we can't change it. Let's just go ahead and work through it.

Certainly with gas prices where they go, like always gets the consumers a little bit happier but for the most part I think the economies hopefully can stand at on two feet, we will find out from the feds this afternoon what their viewpoint is on that. So we’re feeling better about the business obviously.

The rate environment who knows when the rates will go up and if they go up how fast and that’s something that we really can't forecast..

So I guess further evidence is some improvement in the strength of the pipeline and fourth quarter is starting off pretty well, we’re looking at increases of about $36 million and loans outstanding through today. So some of that pipeline is starting to pull through..

With the pipeline, are you getting new customers or is it from existing customers who are taking like bigger loans and expanding themselves?.

It's both, Rick, we’re getting opportunity, certainly there is a lot of term sheets that we’re throwing at customers but we’re able to -- because of our agility and be able to have access to the top, we’re able to win some of these deals and also some of our borrowers are expanding their businesses and they are coming back to us obviously it's easy -- it's matter for them to expand.

So we’re feeling good on both sides with that..

Okay, and one final question.

Will the business be coming -- or taking it away from larger competitors or is it from the smaller institutions?.

Mostly it’s larger competitors..

Our next question is from Matthew Kelley with Sterne Agee..

Can you give a little detail on the pipeline yields? I know your pipeline was up as you mentioned the 1.26 million, what are the yields like on that pipeline compared to the second quarter?.

Looking at overall it was about 360..

Last quarter I was think probably about 10 basis points higher..

And then in the securities book, should we expect to see similar type of decline or where do you think that shakes out from the $1.6 billion we have now?.

I think we will probably stay around that level?.

So growing some higher yield in commercial real estate stuff, remixing a little bit on the deposit side. You got a 326 core margin here, ex-the accretable yield benefits in the current rate environment over the next year.

How much more compression in that core margin would you anticipate?.

I would estimate probably four basis points. I think the rate environment -- got little dicey certainly in the middle of the month but what we see is where we get back to a normalized spot and we would see probably four basis points compression in the near term.

Obviously deposit cluster and hitting their floors pretty much and guarding the -- losing relationships, we will probably have to defend some territory there..

And last one, are we still using about a 29.5% tax rate, is that accurate for '15 or any migration higher or lower?.

Maybe it might take up higher in '15, I take it up to 30..

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks..

We thank you for getting on the call.

This is the two year anniversary of Sandy hitting New Jersey and it's coastlines and New York and our thoughts are out to those people as they still struggle to get out from underneath but we celebrate the fact that we have been able to come out and help those customers, with our employees out there doing some builds and that’s very important.

We hope that they will be able to weather the next set of storms we may ever see. So we would really appreciate your time and attention and have a great day..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..