PROVIDENT FINANCIAL HOLDINGS INC Q1 FY2025 earnings call

• Loan origination: Originated $28.9 million of loans held for investment in the most recent quarter, with single-family and multifamily loan pipelines higher than previous quarter, suggesting higher originations in Dec 2024. - Credit quality: Nonperforming assets decreased to $2.1 million, and no early-stage delinquencies, with commercial real estate loans monitored but confident in performance. - Net interest margin: Increased to 2.84% due to higher average yield on interest-earning assets and unchanged cost of interest-bearing liabilities, with loans repricing to lower rates and opportunity to reprice wholesale funding downward. - Operating expenses: FTE count decreased, operating expenses at $7.5 million in Q3 2024, expected $7.4-7.5 million run rate in 2025. - Balance sheet management: More growth-oriented strategy with disciplined loan portfolio growth, exceeding well-capitalized capital ratios. - Capital management: Maintaining cash dividend, repurchased ~94,000 shares in Q3 2024, distributed ~$1 million in dividends and repurchased ~$1.3 million in stock year-to-date.

In the most recent quarter, Provident Financial Holdings originated $28.9 million of loans held for investment, an increase from $18.6 million in the prior sequential quarter. Loan principal payments and payoffs were $34 million, up from $30.6 million in the June 2024 quarter. Loans held for investment decreased by approximately $4.3 million from June 30, 2024, with multifamily and commercial real estate loan categories decreasing and single-family construction and commercial business loan categories increasing. Nonperforming assets decreased to $2.1 million on September 30, 2024, from $2.6 million on June 30, and there were no early-stage delinquencies. The net interest margin increased to 2.84% for the quarter ended September 30, 2024, compared to 2.74% in the prior quarter. Operating expenses were $7.5 million in the September 2024 quarter, with an expected run rate of approximately $7.4 million to $7.5 million per quarter in fiscal 2025. Revenue contributions weren't explicitly broken down by product segment percentage, but loan origination, loan payments, and margin changes were key elements.

• Loan originations: Single-family and multifamily loan pipelines higher, expecting Dec 2024 loan originations to be higher than Sep 2024 and at or above recent range of $19-29 million. - Net interest margin: Expected to expand in Dec 2024 quarter but at a slower pace than current quarter, with loans and wholesale funding repricing to lower rates. - Operating expenses: Expected run rate of $7.4-7.5 million per quarter in 2025. - Balance sheet management: Short-term strategy more growth-oriented than last fiscal year, with disciplined loan portfolio growth.

• Real estate investors reduced activity due to higher mortgage and other interest rates, though moderate activity continues. - Monitoring commercial real estate loans, particularly those secured by office buildings, as a risk. - Impact of changing interest rates on repricing of loans and wholesale funding, which could affect net interest margin and portfolio performance.

Q: Andrew Liesch asks about the lender base and plans to hire more folks for loan origination.

A: Donavon Ternes says they have a good team in place, held back teams for 18-2 years, rates are about average to market but higher in multifamily and commercial real estate, still expect to grow origination volume in Dec quarter.

Q: Andrew Liesch asks about net interest margin in September.

A: Donavon Ternes says net interest margin for September was 2.84%, 10 points higher than June quarter at 2.74%.

Q: Andrew Liesch asks about share repurchase pace.

A: Donavon Ternes says $9 million cash dividend moved from bank to holding company in end of September to support repurchase and cash dividend activity for remainder of fiscal year, with 10b5-1 plan controlling day-to-day repurchase.

Q: Timothy Coffey asks if toggling pricing is for multifamily and commercial real estate given higher rates.

A: Donavon Ternes says it's for all three categories: single-family, multifamily, commercial, looking to increase loan origination volume across all.

Q: Timothy Coffey asks about mortgage rate increase as headwind to growth.

A: Donavon Ternes says mortgage rates backed up but still lower than a year ago, still seeing increased refinance activity across all segments.

Q: Timothy Coffey asks about deposit pricing trajectory.

A: Donavon Ternes says retail deposits can't be repriced lower, but FHLB advances and brokered CDs can be repriced down, with $69.6 million maturing in Dec 2024 expected to reprice lower, and $85.5 million in March 2025 also expected to reprice lower, expecting net interest margin improvement but slower pace than current quarter.