Q1 2020 Earnings Call

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Hi, it's a provident financial earnings.

And maybe your name please.

[noise] reach L.R.A.C.H.O. Smith S M I T H.

And your company.

Era A.I.E.R.A.

Thank you one moment.

Thank you.

And one last retail banking center in comparison to the same time last year.

Additionally, we had two.

This slide on should reduce our non interest expenses for the current quarter.

First item was the $296000 version of a previously recognized legal settlement lowering our operating expenses for the quarter.

Second item was approximately 150000 dollar benefit from lower deposit insurance premiums as a result of the FDIC implementation of a small assessment credits.

We estimate that are small bank assessment credit will be available through March 31, 2020.

And provide approximately 75000 dollar quarterly benefit for use on the next two quarters.

Our short term strategy for balance sheet management is unchanged from last quarter.

We believe that re leveraging the balance sheet with prudent loan portfolio growth as the best course of action.

For the foreseeable future, we believe that maintaining a significant cushion above the banks regulatory capital ratios of 8% for tier one leverage and 13% for total risk base as wise and are confident we'll be able to do so.

Currently exceeds each of these ratios by a significant margin demonstrating the capital execute our business plan to capital management goals.

Additionally, in the September 2019 quarter.

We purchased approximately 17000 shares of common stock and continue to execute on substantial returns of capital shareholders in the form of cash dividends and stock repurchases.

Purged everyone to review our September Thirtyth Investor presentation posted on our website.

You will find that we include the slides regarding financial metrics asset quality and capital management, which we believe we'll give you additional insight on our strong financial foundation supporting the future growth of the company.

We will now entertain any questions you may have regarding our financial results. Thank you.

Ladies and gentlemen, if you like to ask question. Please press Star then one you'll hear a tone, indicating you've been placed in Q.

Any of your question. Please press star one at this time.

Bottom line of Tim O'brien with Sandler O'neill and partners. Please go ahead.

Good morning, Thanks, guys.

Just a question on non interest expense so.

Taking out the one timers the run off.

Your noninterest expense for the quarter was around 407 points.

7 million is that a baseline is that reflect.

Everything out of it and.

Is it kind of kind of grow with inflation.

Beyond this or do you have other initiatives that you're working on that might drive a little higher costs, you're going forward from that number.

Hi, Good morning, Tim its Donovan.

That 7.7 million you described as a little bit higher than what we would.

Suggest is our baseline we suggest our baseline is around seven of a half million.

As we think about the go forward quarters.

And that does not.

Include any additional activity we may have.

With respect to operating expense reduction initiatives.

And secondarily with respect to that number.

We believe as we go forward and grow balance sheet, we will not have to meaningfully add.

To our operating expense base so.

I think a seven into half million dollar run rate.

On a go forward quarterly basis is probably.

In the ballpark with respect to estimates.

On the seven and a half million excludes the FDIC credit.

Correct and the FDIC credit runs about 75000 per quarter.

It is what to think about there and we think we'll have that benefit.

Provided the FDIC approves that for the December quarter end, the March quarter as well.

And now that.

Your big changes in restructuring are settled out.

Looking out beyond the first quarter of your new fiscal year do you have a sense of.

Our can you share a little bit of detail about what your strategic goals might be with regard to.

Currency.

Where what's a reasonable.

What would be an acceptable efficiency rate that the board would like to see achieved four for shareholders.

For the new for this fiscal year.

You know I think as you think about.

How we're going to achieve lower efficiency ratio.

I have to think about us being able to grow.

Total interest earning assets.

And because this is largely going to come from.

Increasing our net interest income.

As we go down the timeline.

And the one thing to think about there if you look at total interest earning assets.

For the September Thirtyth quarter.

It was a billion 51 million call it.

52 million call. It for the September quarter, we think that is the low points with respect to the activity that we've had over the course of the last year.

Because our loans held for sale.

We're adding to total interest earning assets in the September quarter last year December quarter March quarter, really Didnt turn to zero until the June quarter of 19, and now the September COVID-19.

And we can now then grow from here we believe so.

Total interest, earning assets of 1.052 billion at the September 30.

2019 quarter end, we believe is the low point as we think about going forward. So we think we can grow net interest income.

As we go down the timeline and that will be the largest driver.

Of lowering our efficiency ratio because we've just suggested that our operating expenses are going to be where they're going to be.

And we won't have to increase them as we increase total assets.

And then.

Switching gears regarding the margin and Don I mean, you've talked a little bit about this.

True balance sheet changes you have.

Moderated your acid the asset sensitivity of the balance sheet can you give us any color on.

25 basis point rate cut.

In all things considered expected impact to to your margin a lot of guys are taken off sand 60 basis points summer, saying five to 10, whatever but do you have a sense of.

What the potential impact is to your margin from.

An incremental 25 basis point cut.

It's going to have an impact, but we're not going to forecast the amount of that impact.

The larger impact with respect to our margin is how aggressively we grow balance sheet.

Because as we grow balance sheet, we're putting loans on.

College in the belly of the curve 567 year.

Our weighted average maturities if you will are weighted average months to roll.

And we're funding that on the short end we're funding it on the short end because we do on that bring asset sensitivity down on the in the balance sheet, which we've been successfully doing more towards neutral we don't want to be liability sensitive per se.

But we don't want to be as.

As asset sensitive as we were.

Say six months ago, and we've been successful, bringing that down so as growth rate.

Increases.

As we go down the timeline that's going to contribute.

Potentially.

To a smaller growth rate with respect to our net interest margin, but I wouldnt necessarily forecast compression for the December quarter.

With respect to net interest margin, but the 14 basis points sequential quarter increase that we received in September that we demonstrated in September is going to go down I believe from from 14 basis points.

Thanks, guys I'll step back.

Instant.

Once again, if you have a question please press star one.

That's a line of Tim Coffey with Janney. Please go ahead.

Hi, Thanks morning, gentlemen.

Accordingly.

The the loan growth that we saw.

For the quarter.

Where does that in terms of a run rate going forward.

Well that the growth was about 5% for the quarters that 20% annualized I would not argue that we're going to be having a 20% annualized run rate.

Our growth rate for the entire quarter, although I will say that.

See more loan packages.

And weve been able to success successfully execute on those packages to augment our internal originations.

And by way of example.

In the.

September quarter, we purchased approximately 63 million.

Of the 93 million of loan growth.

And we already have commitments out with respect to the fourth quarter or the December quarter.

In.

Loan purchases that are not quite.

Of the same size.

But.

Would suggest that we're going to grow loans in the December quarter, as well, maybe not at that 5% rate.

Okay.

It is the the vacuum that you're seeing the opportunity to buy loans.

Is that a result of the market unlocking or are you being able to be more optimistic our other creative and how you.

Pricey things.

I think it's a combination of both but certainly one of the things we saw particularly with respect to the single family pull purchases that we completed in the September quarter.

Many of those loans in the packages were seasoned loans and they might have been seasoned a couple of years. So.

As interest rates have come down over the last six months or so.

We're now seeing that some seasoned loans that were once probably going to get priced at a discount.

Because of where the rates were in comparison to current market. They are now being priced at a premium because those rates have come down significantly.

Since the fed action has occurred.

So I think that unlocked.

Some of our activity.

And then secondarily I think as a result of the changes we made with respect to single family change and focus it's a change in our focus and and.

We have a pretty good single family group.

That we're using and were able to tap the resources that we have developed in selling loans to certain counterparties to now being able to buy loans from those counterparties.

Okay.

Essence, and and we look at kind of the geographic location of the collateral that you're buying you change your parameters or is it the continued to be in market.

No its its.

State wide, California sale.

Okay. So okay.

And then loan yields were a bit stronger than I guess I anticipated this quarter.

Yes, obviously, there's some some help in there.

As I mentioned at the beginning of your prepared remarks, Craig but was there anything else in there or is this or is this relatively.

Table range.

Well the other thing.

You have to note is that.

We have many loans repricing.

On an ongoing basis and.

The margin to the index with respect to how they are repricing.

May actually be above the start rate at the time that we put those loans on in portfolio and Thats, particularly true with respect to multifamily and commercial real estate loans now that's counterbalanced by the new loan production that we're bringing on.

Because the new loan production is obviously Christ, probably lower than the existing portfolio.

And that's bringing some pressure on those loan yields.

And then there's the other factor, which is the fact that.

Even as the indices are coming down and the margin to the Indicee may suggest a drop in low rate at the time Reprices. Some of these loans will reprice down to a floor. So we won't get the full impact of them repricing downward because they're going to hit their floor.

And again, that's in multifamily and commercial real estate production. So when we think about our loan yields even though rates have come down.

We don't expect as much pressure to our net interest margin in those repricing.

Characteristics of those loans.

But we do acknowledge that as new loan production goes up it's coming on that Fintur spreads and that will have some.

Compression effect on us.

Okay.

And then kind of switching to aside the balance sheet on on your CD balances.

At this are about once a 20% of total deposits.

How much of that is going to be coming up for renewal in the next two quarters.

Well for the next four quarters. So the next year, we have about 101 million, a 102 million coming up for.

Renewal.

I don't have broken down by quarter, but it's about 102 million I believe over.

Over the course of the next 12 months from September 30.

Okay.

And that yes that navy productive it may be counterproductive, it obviously depends upon where the where those yields are.

Obviously with interest rates coming down.

That's helpful with respect to repricing our liabilities.

Right, Okay, well. Thank you those are all my questions.

Once again any questions press star one.

And there are no further questions in queue at this time.

Alright, if there are no further questions I want to thank everyone for participating on our conference call and look forward to speaking with you next quarter.

Thank you.

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73003, tamp that does conclude the call today. Thank you for your participation you may now disconnect.

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