• Loan Originations: $36.4 million in the most recent quarter, up from $28.9 million in the prior quarter.
• Loan Principal Payments and Payoffs: $34.3 million, slightly up from $34 million in the previous quarter.
• Non-Performing Assets: Increased to $2.5 million from $2.1 million as of September 30, 2024.
• Provision for Credit Losses: $586,000 for the December 2024 quarter.
• Allowance for Credit Losses: Increased to 66 basis points from 61 basis points.
• Net Interest Margin: Increased to 2.91% from 2.84% in the previous quarter.
• Average Cost of Deposits: Declined to 123 basis points, down by 4 basis points.
• Operating Expenses: $7.8 million, up from $7.5 million in the prior quarter.
• Full-Time Equivalent (FTE) Count: Increased to 162 from 160.
• Stock Repurchase: Approximately 64,000 shares repurchased in the December 2024 quarter.
• Cash Dividends Distributed: Approximately $1.9 million for the fiscal year-to-date.
• Common Stock Repurchase: Approximately $2.4 million worth repurchased for the fiscal year-to-date.

• Warning! GuruFocus has detected 6 Warning Signs with PROV.

Release Date: January 28, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Provident Financial Holdings Inc (NASDAQ:PROV) reported an increase in loan origination, with $36.4 million of loans held for investment, up from $28.9 million in the prior quarter.
• The company maintained strong credit quality, with non-performing assets increasing only slightly to $2.5 million and no early-stage delinquencies reported.
• Net interest margin improved to 2.91% for the quarter, up from 2.84% in the previous quarter, driven by a decrease in the cost of total interest-bearing liabilities.
• The average cost of deposits declined by 4 basis points, and the cost of borrowing decreased by 21 basis points, indicating effective cost management.
• Provident Financial Holdings Inc (NASDAQ:PROV) continues to execute its capital management strategy, repurchasing approximately 64,000 shares of common stock and distributing $1.9 million in cash dividends to shareholders.

Negative Points

• The company is facing challenges due to higher mortgage and interest rates, which have reduced real estate investor activity.
• Operating expenses increased to $7.8 million in the December quarter, up from $7.5 million in the previous quarter, partly due to non-recurring expenses.
• There is a slight increase in non-performing and classified loans, contributing to a $586,000 provision for credit losses.
• The composition of total interest-bearing liabilities deteriorated with a decrease in the average balance of deposits and an increase in the average balance of borrowing.
• Some adjustable-rate loans are expected to reprice at lower interest rates, which could impact future net interest margin expansion.

Q & A Highlights

Q: Donavon, regarding loan growth, it seems like production is trending towards the higher end. What needs to happen for growth to accelerate further? A: Donavon Ternes, President and CEO: For significant acceleration in loan growth, mortgage interest rates need to decline from current levels. However, lower rates could also lead to increased loan prepayments due to refinancing. Currently, we are seeing a 1.9% annual growth rate in the loan portfolio. We anticipate more growth opportunities in calendar 2025, especially with a flattening and upwardly sloping yield curve, which makes loan growth more feasible.

Q: With the yield curve changes, do you expect the net interest margin to continue its upward trend? A: Donavon Ternes, President and CEO: Yes, we expect the net interest margin to expand in future quarters. Although some loans are forecasted to reprice downward by 5 basis points in the March quarter, we anticipate a tailwind from repricing $85.5 million of wholesale funding downward. This should help maintain an upward trend in the net interest margin.

Q: Can you elaborate on the impact of the current interest rate environment on your loan portfolio? A: Donavon Ternes, President and CEO: New loan production is being originated at higher interest rates than the existing portfolio. Some adjustable-rate loans may reprice at lower rates, but we also have loans expected to reprice higher in the June quarter. This dynamic creates both headwinds and tailwinds for our net interest margin.

Q: What is your strategy for managing operating expenses given the recent increase? A: Donavon Ternes, President and CEO: Our operating expenses increased to $7.8 million due to non-recurring costs like executive search fees and retirement plan expenses. We expect a run rate of approximately $7.5 million per quarter moving forward and are actively seeking operating efficiencies to manage expenses.

Q: How does the current capital management strategy align with your growth objectives? A: Donavon Ternes, President and CEO: We are focused on disciplined growth of the loan portfolio, supported by a strong capital position. We continue to prioritize maintaining our cash dividend and executing stock buyback programs. Our capital management activities have resulted in a 154% distribution of fiscal 2025 net income, and a new stock repurchase plan has been approved.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.