New Jersey based Provident Financial Services (PFS) released a typically solid report for the third quarter of 2016. The main feature is how PFS has become a 10% EPS growth proposition through simple gains in operating leverage. Let's walk through the numbers and see if this performance can be maintained.
I like the balance sheet of this bank, which is of low risk with 150% coverage of non-performing loans, which represent 0.6% of total loans. Approximately 70% of the loan book is in mortgages).The CET1 in 2Q was 11.7% (the number is pending for 3Q), a level I would argue is excessive for this bank. This capital can be deployed in numerous ways: dividends or buybacks, acquisitions or higher loan balances, with commercial loan growth now a management focus. The current repurchase authorisation leaves 3.2m shares eligible for repurchase which is ~5% of outstanding shares. The quarterly dividend implies a 0.8% quarterly yield which should build out to further over the medium term.
