Q2 2023 Provident Financial Holdings Inc Earnings Call

And ladies and gentlemen, thank you for standing by welcome to the Provident Financial Holdings second quarter earnings Conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.

You should require assistance during the call. Please press Star then zero as a reminder, today's conference is being recorded I would now like to turn the conference over to our host Mr. Craig Blunden. Please go ahead Sir.

Thank you. Good morning, everyone. This is Greg Blunden, Chairman and CEO of Provident Financial Holdings.

Those statements include descriptions of Madison's plans.

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<unk> financial or other performance measures and statements about the company's general outlook for economic and business conditions.

We also may make forward looking statements during the question and answer period following management presentation.

These forward looking statements are subject to a number of risks and uncertainties and actual results may differ materially from those discussed today.

Information on the risk factors that could cause actual results to differ from any forward looking statement is available from the earnings release that was distributed last Friday from.

From the annual report on Form 10-K for the year ended June 30th 2022.

And from the form 10 cues and other <unk> filings filed subsequent to the Form 10-K.

Or like any statements are effective only <unk> of the date they're made.

The company as soon as no obligation to update this information.

To begin but thank you for participating in our call I hope that each of you has had an opportunity to review our earnings release, which describes our second quarter results.

And the most recent quarter, we originated $74.3 million of loans Elver investment.

Declined from $84.6 million and the prior sequential quarter.

Bring the most recent quarter, we also experienced $28 million a loan principal payoffs and payments, which is down from the $31.7 million in the <unk>.

September 20th 22 quarters and at the lower end of the quarterly range.

Currently competition remains elevated for loan originations and it seems that many borrowers have reduced their new activity I also results rising mortgage interest rates.

Definitely worth seeing more demand for single family adjustable rate mortgage products as a result of higher fixed rate mortgage interest rates for.

For the most part are underwriting requirements have not changed but certain loan products, such as retail and office CRE remains somewhat higher them other CRE products.

Additionally are single family a multifamily pipelines are smaller in comparison to last quarter, suggesting originations in the March 20th 23 quarter will decline from this quarter and may drop below the range of recent prior.

Prior quarters.

Which has been between 65 and $95 million.

For the three months ended December 31st 2022 loans held for investment and increased by approximately 5% compared to September 30th 2022, antique balances with the increase in single family loans more than offsetting the small declines in the oldest family commercial real estate and construction alone category.

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Current credit quality is holding up very well and he will note that there are just $4000 of early stage delinquency balances as of December 31st 2022. Additionally, nonperforming assets decrease the just $976000, which is down from 964.

Thousand dollars on September 30th 2022.

Re recorded 191000 dollar provision for loan losses in the December 2022 quarter allow.

Allowance for loan losses to gross loans help or investment decrease the 56 basis points on December 31st 2022 from 57 basis points on September 30th.

You will note that we remain on the incurred last model and have not adopted Cecil. This means that our allowance methodology cannot be reasonably compare to seek full adopters.

Our net interest margin was unchanged step three point O 5% for the quarter ended December 31st 2022.

Compared to the September .

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Resolve about 27 basis point increase in the average yield on total and just starting assets and at 28 basis point increase in the cost of total interest bearing liabilities, notably our average cost deposits increased by just seven basis points to 20 basis points for the quarter ended December .

31, 2022, compared to 13 basis points and the prior sequential quarter, but our borrowing costs increased by 99 basis points and the December 2022 quarter compared to the September 20th 22 Porter.

The net interest margin this quarter was positively impact by approximately five basis points.

As a result, Lord preferred costs.

Loan costs associated with fewer loan payoffs.

December 2022 quarter in comparison to the average net preferred loan cost amortization of the five previous quarters.

New loan production is being originated at higher mortgage interest rates than recent prior quarters and adjusted rate loans.

And our portfolio are now adjusting to higher interest rates in comparison to their existing interest rates also from all the family in commercial real estate loans loans are adjusting above their existing floors. However.

However, many adjustable rate loans in all categories are limited in their upward adjustment by their periodic interest rate caps.

We continue to look for operating efficiencies throughout the company to lower operating expenses are FTE count on December 31, 2022 decreased to 160 compared to 170 F. T E. On the same date last year.

You will note the operating expenses decreased $6.8 million into December 20th two order.

Somewhat lower than what we described as stable run rate of approximately $6.9 million per quarter.

We expect a similar run rate for the remainder of the physical 20 twenty-three what may experience some pressure on operating expenses.

A result of increased wages and then last place urinary pressure on other operating expenses.

A short term strategy for balance sheet management is unchanged from last quarter we've.

We believe that leveraging the balance sheet, what prudent loan portfolio gross it's the best course of action.

We were very successful in execution this quarter, what's known origination volumes at the mid point of the quarterly range alone pay off at the lower end of the quarterly range.

Total interest turning asset composition improved during the quarter with an increase in average balance at Lance receivable and a decrease in the lower yielding average balance from investment securities. However.

However.

A little interest bearing liabilities composition deteriorate <unk> with a small increase in the average balance of deposits, but a larger increase in the average balance of borrowing.

We exceed well capitalized capital ratios by a significant margin, allowing us to execute on our business plan and capital management goals without complications, we believe that maintaining our cash dividend is very important.

Also recognize that prudent capital returns to shareholders restock buyback programs is a valid capital management tool.

We repurchased approximately 103000 shares of common stock in the December 2022 quarter.

For the fiscal year to date, we distributed approximately $2 million of cash dividends to shareholders and repurchase approximately $2.2 billion worth of common stock.

As a result are capital management activities resulted in a 95 per cent just <unk> a year to date physical 2023 net income.

We encourage everyone to review our December 31st and best presentation posted on our website.

You will find that we included slides regarding financial matrix asset quality and capital management, which we believe will give you additional insight on a solid financial foundation supporting the future growth of the company.

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

And ladies and gentlemen, if you wish to ask a question. Please press. One then zero on your telephone keypad you may withdraw your question at anytime by repeating the one zero command.

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And once again, if you have a question at this time, please press one and zero.

Once again, if there are any questions at this time, please press one and zero on your telephone keypad.

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Alright, Thank you well, we look forward to talking with everybody again next quarter.

At our Investor Conference call. Thank you.

And ladies and gentlemen, today's conference and won't be available for replay.

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February 6th you may access to AT&T replay system at anytime by dialing 18662071041 entering the access code 2446007.

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