Provident Financial Services Inc (PFS) Q4 2020 Earnings Call Transcript

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Provident Financial Services Inc (NYSE:PFS)
Q4 2020 Earnings Call
Jan 29, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Provident Financial Services Incorporated Fourth Quarter Earnings Call. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Mr. Leonard Gleason. Please go ahead, sir.

Leonard G. GleasonSenior Vice President and Investor Relations Officer

Thank you, Chuck. Good morning, ladies and gentlemen. Thank you for joining us for our fourth quarter earnings call. Today’s presenters are Chris Martin, Chairman and CEO; Tony Labozzetta, President and Chief Operating Officer; and Tom Lyons, Senior 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 is contained in 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 fourth quarter. Chris?

Christopher MartinChairman and Chief Executive Officer

Thank you, Len, and good morning. Thank you for participating today. We sincerely hope that you and your families are healthy.

Our fourth quarter earnings were strong, as we successfully completed our systems integration of SB One and met both our expense savings estimate of over 30% and came in under our projected one-time merger-related charges. I would be extremely remiss, if I did not recognize the herculean effort by management and the staffs from both companies as they ably met the challenges presented during the pandemic. And Provident was one of the only a few financial institutions that announced and completed the transaction and converted systems during this tumultuous time in our country.

Fourth quarter earnings were strong at $40.6 million or $0.53 per share, including $3.2 million in merger-related charges. Net interest income was up 22% quarter-over-quarter. Total assets at December 31st, 2020 stood at $12.9 billion, which resulted in an annualized return on average assets of 1.25% for the quarter and an annualized return on average tangible equity of 14.1%.

Included in total assets were $473 million in PPP loans, which will continue to be submitted to the SBA for forgiveness throughout Q2 of this year. With only nominal GDP growth expected in Q2, we anticipate that loan growth will lag and businesses will rebound in the second half of 2021. Credit line usage is down to 41.6% at December 31st, 2020 versus 55.7% in 2019.

Another issue is the deleveraging of consumer balances, which should begin to pick up once the vaccine is more widely distributed and people get back to more normalized behavior. With low interest rates, business clients with strong balance sheets and cash flows are able to refinance and/or pay down their loans. Competition for loan growth remains extreme and our loan pipeline is $1.2 billion, with $295 million approved awaiting closing, and a 47% pull-through rate expected on the remainder.

Deposits for the year increased $2.7 billion, including $1.76 billion acquired from SB One. Core deposit growth continued throughout the year and represented 88.9% of total deposits at December 31st. Deposit trends remained favorable during the quarter. And growth was robust and broad-based, supported by seasonal inflows and pandemic-related customer behavior. We ended the year with a loan-to-deposit ratio of 99.8%, and we continue to interact with our customers to further solidify deposit relationships.

We also anticipate that with additional government stimulus, deposits will increase or at least remain at these elevated levels and then begin to gradually be drawn down during the second half of 2021. The bank also promotes the products and services available through SB One Insurance, a new fee business line for us, along with wealth management offerings through Beacon Trust, to further expand our client relationships. Despite the challenging interest rate environment, our core margin held up well during the quarter.

Non-interest income was up $2.7 million versus same quarter last year, which is primarily the result of $1.8 million contributed by our new fee revenue source from SB One Insurance, accompanied by an increase in the net gain on sale of residential mortgage loans of $757,000 and wealth management income increasing $561,000. These increases were partially offset by decreases in prepayment fees of $882,000.

Non-operating expenses increased $4.8 million for the quarter, which included $3.2 million of non-recurring costs related to the acquisition of SB One. Our operating expenses to average assets was 1.82% for the quarter and our efficiency ratio was 54.12%. We continue to enhance our digital and online mobile banking platforms, as client behavior has demonstrated a clear preference for these channels. As an example, we have seen an increase in daily usage of 945% versus our previous person-to-person platform. We will seek to optimize our expanded business model, with the driver being ROI and customer relationship expansion supported by analytics.

And we consolidated three branch locations during the quarter and have another one planned later this quarter. Our reserve release this quarter primarily reflects Moody’s improving macroeconomic outlook. Although I would note, we did add appropriate qualitative adjustments for economic uncertainty as the pace and shape of the recovery is still evolving.

We’re beginning to see the expected rise in non-accrual loans and charge-offs that may already have been reserved under — for under our CECL methodology. We are working with all of our clients to provide hardship assistance whenever possible and prudent. If the vaccination and herd immunity can take hold, we estimate that it would reduce the loss content within our loan portfolio.

And Tom will update the loan payment deferrals in more detail. But we have seen most of our clients come out of deferrals and returned to full P&I payments. Our strong capital levels remained above well capitalized, which continue to support growth, a solid cash dividend and an opportunity for stock repurchases that meet our internal return hurdles.

We repurchased 1.3 million shares in 2020 at an average cost of $16.59 per share, which leaves PFS with only 262,000 shares remaining in our existing program. Yesterday, our Board authorized the adoption of a new 5% repurchase program, which will commence upon the completion of the existing one.

On the M&A front, despite the fact we just completed the SB One systems conversion in November, we remain open to those opportunities that expand our market and deliver solid returns to our stockholders. We remain disciplined buyers in terms of the financial profile that fits our strategic objectives and culture. And we will assess fee-based businesses along with whole bank acquisitions.

Though there were improving economic indicators in the fourth quarter, we continue to see an uneven recovery and upticks in COVID cases toward the end of the quarter, negatively impacted the road to recovery. Overall, our customers continue to be in a much stronger position than we would have anticipated when this crisis began.

However, unemployment levels in the market remained high. Inventory levels are lower than they were pre-pandemic and the client confidence to invest in their business appears contingent upon the success of the vaccination distribution and the relaxation of government shutdowns. Despite all this, we believe there is a great potential for expanding economic activity in the second half of the year, especially if there is significant stimulus package.

I’ll let Tom go into the further details. Tom?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Thank you, Chris, and good morning, everyone. As Chris noted, our net income was $40.6 million or $0.53 per diluted share, compared to $27.1 million or $0.37 per diluted share for the trailing quarter. Earnings for the current quarter included $6.2 million of negative provisions for credit losses on loans and off-balance sheet credit exposures, while the trailing quarter reflected provisions of $5.8 million.

Q4 represents the first full quarter of combined operations following the July 31st acquisition of SB One Bancorp, with systems integration now complete and the bulk of expected cost saves now achieved. The remaining non-recurring merger integration costs of $3.2 million were recorded in the fourth quarter, outperforming our expectations as disclosed at the transaction’s inception by about $800,000, and helping tangible book value per share to recover and surpass pre-acquisition levels.

Core pre-tax pre-provision earnings, excluding provisions for credit losses on loans and commitments to extend credit, merger-related charges and COVID response costs were $50.1 million for pre-tax pre-provision ROA of 1.54%. This compares favorably with $44.4 million or 1.48% in the trailing quarter.

Our net interest margin expanded 3 basis points versus the trailing quarter, as we reduced funding costs and grew non-interest bearing deposits, while earning asset yields held steady. To combat margin compression, we continue to reprice deposit accounts downward and emphasized non-interest bearing deposit growth.

Including non-interest bearing deposits, our total cost of deposits fell to 31 basis points this quarter from 33 basis points in the trailing quarter. Non-interest bearing deposits averaged $2.38 billion or 24% of total average deposits for the quarter. This was an increase from $2.21 billion in the trailing quarter, reflecting a full quarter contribution from SB One.

Average borrowing levels decreased $82 million and the average cost of borrowed funds decreased 3 basis points versus the trailing quarter to 1.16%. Quarter end loan totals increased $66 million versus the trailing quarter or an annualized 2.7%, reflecting growth in C&I, construction and consumer loans, partially offset by net reductions in CRE, multi-family and residential mortgage loans.

Loan originations, excluding line of credit advances totaled $868 million for the quarter. The pipeline at December 31st decreased $138 million from the trailing quarter to $1.2 billion. However, the pipeline rate increased 2 basis points since last quarter to 3.57% at December 31st.

Our provision for credit losses on loans was a benefit of $2.3 million for the current quarter, compared with an expense of $6.4 million in the trailing quarter. We had annualized net charge-offs as a percentage of average loans of 10 basis points this quarter, compared with net recoveries of less than 1 basis point for the trailing quarter.

Non-performing assets increased to 71 basis points of total assets from 42 basis points at September 30th. Excluding PPP loans, the allowance represented 1.09% of loans, compared with 1.16% in the trailing quarter. While it may seem counter-intuitive to see the allowance coverage of the loan portfolio declined while non-performing loans increased, this demonstrates our stable expectations of loss content in the loans that have been moved to non-accrual, while life of loan loss expectations for the performing portfolio have improved as a result of advances and the pandemic response and improved economic forecasts.

The expected migration of certain credits to non-performing status is reflective of the protracted economic challenges faced by certain borrowers in a sub-optimal operating environment, constrained by pandemic response restrictions. Where we could no longer confidently support and more likely than not expectation that all contractually due principal and interest payments would be made, we have classified these credits as non-accrual regardless of whether they are receiving short-term deferrals in accordance with the CARES Act.

Loans that have been or expected to be granted short-term COVID-19-related payment deferrals declined from their peak of $1.31 billion or 16.8% of loans to $207 million or 2.1% of loans. This compares with $311 million or 3.2% of loans at September 30th.

This $207 million of loans consists of $9 million that are still in their initial deferral period; $51 million in the second 90-day deferral period; $121 million required additional deferrals and $26 million that have completed their initial deferral periods, but are expected to require ongoing assistance.

Included in this total are $49 million of loans secured by hotels with a pre-COVID weighted average LTV of 43%; $36 million of loans secured by retail properties with a pre-COVID weighted average LTV of 58%; $30 million of loans secured by multi-family properties, including $21 million that are student housing related with a pre-COVID weighted average LTV of 61%; $5 million of loans secured by restaurants with a pre-COVID weighted average LTV of 50%; and $30 million secured by residential mortgages with the balance comprised of diverse commercial loans.

Non-interest income decreased $268,000 versus the trailing quarter to $20 million as growth in loan and deposit fee income, bank-owned life insurance income and gains on loan sales was more than offset by a decline in net profit on loan level swaps, gains on sale of REO and a small reduction in wealth management income.

Excluding provisions for credit losses on commitments to extend credit, merger-related charges and COVID-related costs, non-interest expenses were an annualized 1.82% of average assets for the quarter, compared with 1.92% in the trailing quarter, as the benefits of greater scale and planned acquisition cost saves were achieved.

Our effective tax rate decreased to 23.3% from 25.5% for the trailing quarter as a result of an increased proportion of income coming from tax exempt sources in the current quarter. We are currently projecting an effective tax rate of approximately 24% for 2021.

That concludes our prepared remarks. We’d be happy to respond to questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark FitzgibbonPiper Sandler — Analyst

Hey, guys. Good morning.

Christopher MartinChairman and Chief Executive Officer

Good morning.

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Good morning.

Mark FitzgibbonPiper Sandler — Analyst

First question I have is on — give us a sense, you’ve got quite a bit of excess liquidity on the balance sheet. How long does it take for you to deploy that? Will that all, kind of, go away in 1Q, do you think or most of it?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

We’re doing our best, Mark, hopefully through loan growth and find suitable investments. I would estimate our excess liquidity about $284 million at the end of the year. So it’s an ongoing process, but we will continue to try and manage that down.

Anthony J. LabozzettaPresident And Chief Operating Officer

Yes. I would add to that, that we expect loan growth to be a little bit quicker and a little bit higher than we’ve been trailing. So between the combined banks that emerged, we expect to deploy that excess liquidity pretty quick throughout the year.

Mark FitzgibbonPiper Sandler — Analyst

Okay. And then it looks like you’ve got about $1.1 billion of somewhat higher cost borrowings. I guess, I’m curious what the maturity schedule of those looks like and is there an opportunity to prepay some of them?

Christopher MartinChairman and Chief Executive Officer

Tom is going to get the numbers. The opportunity to prepay is always there, but it doesn’t make sense from an economic perspective at the time of the penalty. The earn back sometimes extents just as far as the duration of the borrowings. So, we look at that as, you make some decisions, you match up as much you can with your operations. But especially, with the home loan bank dividend was very healthy, it doesn’t — it’s one of our better yielding assets. Tom, you have a little bit?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Yes, I would just agree. I’m not a big fan of prepaying borrowings with full yield maintenance. I think it just takes a hit to equity in the current period to enhance our earnings going forward. But we wind up in the same place where you’ve lost income currently or equity. In terms of maturing funding overall, over the next four quarters, we have close to $1 billion coming off. A lot of it’s in the CD portfolio, we’ll get the right number here. Yes, $1.088 billion total.

And I guess the way that — the weighted average rate currently is about 98 basis points. The pickups is much as — is about 60 basis points, coming down like 36 basis points on the reprice. So each quarter there is like $364 million in Q1; $231 million in Q2; $143 million in Q3; and $170 million in Q4 of 2021, that’s maturing time deposits. The borrowings rolling off are considerably less, but the CDs make up the bulk of what’s going to be priced.

Mark FitzgibbonPiper Sandler — Analyst

Okay. And then, Tom, excluding the impact of PPP, how are you thinking about the margin going forward?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

A little bit better than last quarter, but not a lot. I think we’ve slowed down to around the 295% range, that’s actually inclusive of PPP.

Mark FitzgibbonPiper Sandler — Analyst

Okay. And then…

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

There is about $8.7 million in deferred fees. I’m sorry, Mark, about $8.7 million in deferred fees remaining on PPP currently.

Mark FitzgibbonPiper Sandler — Analyst

$8.7 million?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

That’s correct.

Mark FitzgibbonPiper Sandler — Analyst

Okay. And then on — as far as operating expenses go, can you kind of update us what’s your thinking on expense outlook for, say 1Q and 2Q, as the synergy start to come through from the deal?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Yes, I think for the year, we’re still around $240 million. And we are going to be a little bit — skewed a little bit higher in the first part of the year, because of the usual seasonal factors and utilities cost, payroll taxes. So maybe a little bit higher than $60 million in Q1 and then — and floating down.

Mark FitzgibbonPiper Sandler — Analyst

Okay. And then lastly, I guess, given your buyback announcement, does the buyback makes sense at current price levels? Or is it sort of intended to deal with any downdrafts in the market? Because it look like this most recent quarter, your average price was a fair bit like 15% lower than where the stock is today?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Yes, I think that’s more the case with markets opportunistic. We kind of try to hug around the 1.2 times tangible book level that gives us the best return in terms of earn-back and alternate use of capital versus just trying to lever it up.

Mark FitzgibbonPiper Sandler — Analyst

Thank you.

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Thank you.

Christopher MartinChairman and Chief Executive Officer

Thank you.

Operator

Our next question will come from Erik Zwick with Boenning and Scattergood. Please go ahead.

Erik ZwickBoenning and Scattergood — Analyst

Hey. Good morning, guys.

Christopher MartinChairman and Chief Executive Officer

Good morning.

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Good morning.

Erik ZwickBoenning and Scattergood — Analyst

Tom, if I could just follow up on the margin commentary you just gave quickly, I just want to make sure I’ve got all the pieces right. I think you mentioned in your prepared remarks that the yields on the pipeline are about 3.75%, and that’s pretty close to where the current yield in the book is. So it seem like there shouldn’t be too much pressure there. You gave the outline of the maturing time deposits and those pricing lever. That seems like that should be a benefit, and then also the $8.7 million of deferred PPPs coming through. So just curious where the pressure is coming from in your outlook from the current fourth quarter level of the margin, down to that kind of $295 that you mentioned?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

The pipeline rate, if I misspoke, it was 3.57%, not 3.75%.

Erik ZwickBoenning and Scattergood — Analyst

Got you. Okay. That helps square that up. And then looking at the run rate for expenses headed into 2021, if I back out the — I guess, about $3.2 million in merger-related expenses in 4Q that, kind of, gets into the mid-50s [Phonetic] range or so, which was maybe a little lower than I had been expecting prior. Is that a good run rate heading into 2021? Or are there other factors and inflationary pressures that might kind of drive that higher? What are your expectations there?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Yes. I think it’s more like 60 [Phonetic] to 61 [Phonetic] in the first part of the year per quarter, the normal increases, the payroll tax stuff that we talked about. But also you had an unusual reversal of the credit provisions on off-balance sheet commitments this quarter that was $3.9 million favorable. We wouldn’t expect to see that recur.

Erik ZwickBoenning and Scattergood — Analyst

Excellent. That’s helpful. And then in terms of the newly authorized round of PPP loans, any expectations for what that might add to the balance sheet here in the first part of the year?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

I think we’re probably — at this point, based on applications received, somewhere in the $175 million to the low $200 million range.

Erik ZwickBoenning and Scattergood — Analyst

Great. Thanks. And last one and maybe for Chris or anyone, who wants to weigh in. You mentioned you have — in 2021, you’ll consider fee-based and whole bank opportunities as they arise and if there is a good fit. Just curious if you could remind us on, for your target size and any kind of geographic markets that you would look to expand into, if the appropriate opportunity presented itself?

Christopher MartinChairman and Chief Executive Officer

Well, this is Chris. And I think, we always look at things that are in or contiguous. And if they can expand into really good markets that don’t really destroy the franchise value of our company, we will look at them. They have to always meet the hurdles and be part of our culture size, matter. I mean, I don’t know that we would do a $100 million company, not because it’s bad. It’s just the fact that the economies of scale aren’t there. But I would say at $0.5 billion, it would be a start point, especially if you’re looking out in Pennsylvania that has a bunch of smaller companies that maybe gives us some more scale and opportunity.

And I think anything contiguous, which is always above Sussex County, up into Rockland, Orange County, Westchester, New York, surrounding maybe. And maybe we have a — with SB One, a little bit of a exposure and Queens doing very, very well. But that doesn’t mean we’re just going to go out on an expedition. We have to just look at opportunities and sometimes that could be organic versus buying businesses.

On the wealth side, we can definitely expand that horizon a little bit more. And we also look at what our clients are. So, I hate to say that Florida has opportunity, because there are people down there, but that’s certainly been well bedded by a lot of institutions that are looking at that as an opportunity and the pricing has gotten a little bit skewed.

Erik ZwickBoenning and Scattergood — Analyst

Great. Thanks for the color there. I appreciate you guys taking all my questions.

Christopher MartinChairman and Chief Executive Officer

Thank you.

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Thank you.

Operator

The next question will come from Steven Duong with RBC Capital Markets. Please go ahead.

Steven DuongRBC Capital Markets — Analyst

Hi. Good morning, guys.

Christopher MartinChairman and Chief Executive Officer

Good morning, Steve.

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Good morning.

Steven DuongRBC Capital Markets — Analyst

Just on — first, just on the loan side. Can you just tell us what is going on with the commercial mortgage and the commercial loans and just the sequential changes in those portfolios?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Yes. The sequential change is little bit distorted from the systems conversion that happened in November, unfortunately. There were some reclassification entries that took place during the period. So it’s a little bit challenging. Easier to look at the yields overall.

Steven DuongRBC Capital Markets — Analyst

Got it. Okay. And I guess, what do you guys are generally expecting for the year? I know you’re looking at more back weighted. Is just — is there a general range that you’re thinking about, excluding PPP?

Anthony J. LabozzettaPresident And Chief Operating Officer

Yes. From — Steven, just from a growth rate, I think what we’re seeing in the pipeline, there’s a lot of robust activity. And unless things get a little unusual in terms of hyper competition and pricing and structure, we think we could be between that 4%, 4.5% and 6% as a good target for us. Again, we think we could be on the high-end, if we don’t see competitive pressures getting a little outrageous. But beyond that, the activity, given the circumstances that we’re seeing in the marketplace with COVID, etc, is pretty healthy and our people are busy.

Steven DuongRBC Capital Markets — Analyst

Got it. And that would really be geared more toward the second half, or are you thinking it’s kind of even right now given where your pipelines are?

Anthony J. LabozzettaPresident And Chief Operating Officer

I would venture a strong guess that the second half will be better than the first half. But we are seeing how quickly we can pull those loans through the pipeline.

Steven DuongRBC Capital Markets — Analyst

All right. Got it. And then just one last one from me. Just — once we get through this, where do you think your reserves will eventually gravitate toward?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

I would guess high-90% to low-1%, kind of, coverage range, when I just think about what’s typical charge-off activity. Our loan portfolio has about a four-year weighted average life. So, I’m trying to estimate life of loan losses in my own simple way, taking 25 basis points as a guess at normal charge-offs. I think our long-term average over the last five years. Again, very benign credit environment, it was about 16 basis points. So that kind of gives you the lower boundary. But I think the industry is more than the 25 basis points to 30 basis point kind of range for banks with our kind of composition.

Steven DuongRBC Capital Markets — Analyst

Got it. All right. Appreciate the color. Thank you.

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Thank you.

Operator

The next question will come from Russell Gunther with D.A. Davidson. Please go ahead.

Russell GuntherD.A. Davidson — Analyst

Hey. Good morning, guys.

Christopher MartinChairman and Chief Executive Officer

Good morning.

Russell GuntherD.A. Davidson — Analyst

A quick follow-up on the loan growth commentary. Appreciate the thoughts that you guys shared. Within that target, could you guys talk a bit about the mix that you would expect to be driving that and any geographic concentrations or outsized contribution?

Anthony J. LabozzettaPresident And Chief Operating Officer

Sure. I mean, from a geographic concentration we — I tend to point to the markets we serve, like our primary markets. In terms of the mix, we’re seeing a lot. And from a pre-perspective, it’s some multifamily medical office, small amount of retail and a lot of owner-occupied activity in industrial, the space that we’re seeing and targeting to lend into. While we don’t basically red line any categories, we’re very careful in the spaces of our office, hospitality. There has to be a real strong enhanced underwriting component to that to attract us to go there.

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Still a strong emphasis on C&I as well there.

Anthony J. LabozzettaPresident And Chief Operating Officer

Yes. And we have a very strong emphasis on C&I, owner occupied as well in the 2021 year.

Russell GuntherD.A. Davidson — Analyst

That’s great. I appreciate the additional comments there. And then as you think about your fee businesses into 2021, could you talk about overall revenue projections there? I’m particularly curious on the insurance and wealth front?

Christopher MartinChairman and Chief Executive Officer

I’m going to take insurance. You go?

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Sure. Well, the insurance, we definitely had an increase of 17%. And last year, it’s really done well. I’d yield to Tony, because he ran the business at SB One. So, he is a little more familiar than we are at this level. So, Tony?

Anthony J. LabozzettaPresident And Chief Operating Officer

Yes. I mean, with insurance, it’s — I always use an anecdotal point. It could pretty much just check the box and give them 17% to 20% year-over-year growth. However, this year is going to be positively unusual. What that basically means is now that the insurance company has a much broader base to, obviously, sell those products and services. So, we’re seeing a lot of good momentum. And I know George is pretty enthusiastic about the activity as we engage with the rest of the teams on the Provident side. And so, I think he can grow his business much faster than he has historically. But just for purposes of financial projections, let’s just say, 17% to 20% year-over-year, but I think he could do better.

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

On the wealth side of things, lot depends on market conditions, obviously. But we did close the year at record levels in AUM, up to $3.7 billion. Our typical fee rate or our last 12-month average fee rate is 77 basis points. So, we did just under $26 million in revenue for 2020. A lot of the same synergies that we are hoping to achieve with the insurance business are transferable to the wealth business, as well as we try to broaden and deepen those relationships. So the expectations are pretty positive.

Christopher MartinChairman and Chief Executive Officer

Agreed.

Russell GuntherD.A. Davidson — Analyst

That’s great, guys. I appreciate the thoughts there. And then the last one for me is just a follow-up. Tom, you mentioned the expense item that you wouldn’t expect to run rate. Could you just clarify what that was? I apologize, I missed it.

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Sure. That’s the provision for credit losses on off-balance sheet credit exposure, so the commitments to extend credit. Again, with the favorable economic forecast that we saw coming out of Moody’s, we had a fairly significant decrease in that. We could see some additional decrease if conditions continue to improve. But I wouldn’t expect to see anything of that magnitude.

Russell GuntherD.A. Davidson — Analyst

And the magnitude was $3.9 million.

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Yes, $3.9 million. It’s broken out on the P&L as a separate line item.

Russell GuntherD.A. Davidson — Analyst

Okay. Perfect. All right, guys. That’s it for me. Thanks very much.

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Thanks, Russell.

Christopher MartinChairman and Chief Executive Officer

Thank you, Russell.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Christopher Martin for any closing remarks. Please go ahead.

Christopher MartinChairman and Chief Executive Officer

Well, as we enter 2021, we are increasingly optimistic about our path to economic recovery as we expect to see the rollout of vaccines accelerate near-term, providing benefits in the back half of the year. But we will continue to monitor the landscape carefully. And we are confident that the strength of our franchise and the benefits of our merger with SB One positions us well. And we are excited about the tremendous opportunity, when the pandemic-related slowdown subsides.

Thank you for your time today. And please continue to wear a mask.

Operator

[Operator Closing Remarks]

Duration: 32 minutes

Call participants:

Leonard G. GleasonSenior Vice President and Investor Relations Officer

Christopher MartinChairman and Chief Executive Officer

Thomas M. LyonsSenior Executive Vice President and Chief Financial Officer

Anthony J. LabozzettaPresident And Chief Operating Officer

Mark FitzgibbonPiper Sandler — Analyst

Erik ZwickBoenning and Scattergood — Analyst

Steven DuongRBC Capital Markets — Analyst

Russell GuntherD.A. Davidson — Analyst

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