PROVIDENT FINANCIAL HOLDINGS INC Q3 FY2025 earnings call

• Southern California wildfire impact: Two borrowers affected, one with minor fence damage, another with roof, mechanical, and smoke damage who filed an insurance claim.
• Loan origination: Originated $27.9 million in the most recent quarter, with real estate investors reducing activity due to higher mortgage rates, but seeing moderate activity in loans held for investment. Loosened underwriting for some loan segments to encourage origination.
• Credit quality: Non-performing assets decreased, early-stage delinquencies low. Monitors commercial real estate loans, confident in performance based on underwriting characteristics.
• Net interest margin: Increased due to higher average yield on interest-earning assets and lower cost of interest-bearing liabilities. Expect continued expansion in June 2025 but at a slower pace.
• Balance sheet management: Somewhat growth-oriented, with loan origination volume at the middle of the quarterly range and loan prepayments below prior quarter. Composition of interest-earning assets and liabilities improved.
• Capital: Exceeds well-capitalized ratios, maintains cash dividend, repurchased shares, and distributed cash dividends and repurchased stock.

In the most recent quarter, Provident Financial Holdings originated $27.9 million of loans held for investment, a 23% decrease from $36.4 million in the prior sequential quarter. Loan principal payments and payoffs were $23 million, down 33% from $34.3 million in the December 2024 quarter. Loans held for investment increased by approximately $5.4 million in the three months ended March 31, 2025, with single-family loans increasing partly offset by declines in other segments. Non-performing assets decreased to $1.4 million on March 31, 2025, from $2.5 million on December 31, 2024, and early-stage delinquencies were $199,000. The net interest margin increased to 3.02% for the quarter ended March 31, 2025, from 2.91% in the prior quarter. The composition of total interest-earning assets and liabilities improved, with more loans receivable and deposits and less investment securities and borrowings.

• Loan origination volume in the June 2025 quarter is expected to be similar to the March 2025 quarter, around the middle of recent quarters' range (18-36 million).
• Net interest margin is expected to continue expanding in the June 2025 quarter but at a slower pace than the current quarter.
• Short-term strategy is growth-oriented, with disciplined growth of the loan portfolio planned.
• Capital management goals include maintaining cash dividend and considering stock buybacks as a capital return tool.

• Economic uncertainty due to fiscal policy reducing activity.
• Mortgage rate volatility affecting prepayment activity and loan portfolio performance.
• Competition in multifamily loans with some aggressive pricers potentially capturing activity.

Q: Question on the CD growth in the quarter and what drove it, and about margin outlook.

A: Donavon Ternes said they remixed the liability profile, opened government deposits desk, and the rate was similar to wholesale market. Mentioned net recovery in non-performing loans and volatility in net deferred loan costs, and outlined adjustable rate loan repricing and wholesale funding repricing opportunities.

Q: Thoughts on prepayment activity over next 12 months, impact of prepayments on provision, and capital allocation in case of market volatility.

A: Donavon Ternes said prepayment activity is hard to determine due to mortgage rate volatility. Explained that prepayment changes affect provision, and in case of market volatility, having more capital is better, with capital plans set in business plans including dividends and stock buybacks, and stock repurchases could increase if stock price declines.

Q: Thoughts on multifamily loan competition and optimism about market moving to their pricing.

A: Donavon Ternes said there are aggressive pricers in multifamily loans, and if pricing becomes too aggressive, they may increase single-family loan production to maintain sustainable spread.