Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Loan originations increased to $18.6 million from $18.2 million in the prior quarter.
- Nonperforming assets remain low, with a slight increase to $2.6 million from $2.2 million.
- The company recorded a $12,000 recovery for credit losses in the June 2024 quarter.
- Net interest margin remained stable at 2.74% for the quarter.
- Provident Financial Holdings Inc repurchased approximately 48,000 shares of common stock and distributed $3.9 million in cash dividends in fiscal 2024.
Negative Points
- Loans held for investment decreased by approximately $12.8 million compared to the previous quarter.
- Higher mortgage and interest rates have reduced real estate investor activity.
- Operating expenses are expected to increase to approximately $7.4 million per quarter in fiscal 2025 due to higher wages and inflationary pressures.
- The cost of deposits and borrowing increased, impacting the net interest margin.
- The company is adopting a more conservative balance sheet management strategy due to tighter liquidity conditions and an inverted yield curve.
Q & A Highlights
Highlights of Provident Financial Holdings Inc (PROV, Financial) Q4 2024 Earnings Call
Q: So Donavon, it sounds like you're becoming increasingly willing to look at adding loans to the portfolio and opening up growth. I guess what sort of specific things do we need to see for that to happen?
A: Well, Andrew, I think your assessment is accurate. We are interested in growing the loan portfolio again. The difficulty is the inverted yield curve, which complicates populating loans at a favorable spread. If the Fed begins to lower interest rates, we could see better spreads. Additionally, we are cautious about growing the loan portfolio in the event of a potential recession.
Q: Turning to capital. The book value and equity continue to rise even with the buyback and the dividend. Have you thought about a special dividend to return some of this to shareholders?
A: A special dividend has been considered, but our preferred course of action is regular cash dividends and share repurchases, especially when trading at approximately 70% of tangible book value.
Q: What is your best estimate for payoff and paydown activity on your loan portfolio in a down rate environment?
A: We would expect payoffs to potentially increase if interest rates decline. However, the volume of in-the-money loans is lower, and adjustable rate loans might adjust downward, reducing the incentive to refinance.
Q: Do you typically see 100% of the loans scheduled to reprice in the quarter stick around versus being prepaid?
A: There is some payoff activity, but it has been relatively small. Borrowers might wait for lower interest rates before refinancing to avoid new prepayment penalties.
Q: To get commercial real estate investors back in the market, do they need a material decline in interest rates or visibility to lower rates?
A: Visibility to lower interest rates is already present, but borrowers ultimately want to see lower rates. For bank stock investors, there has already been a return to the market.
Q: Within your deposit portfolio, how much of those deposits reprice on day one of a rate cut?
A: Very few deposits will reprice on day one. Our deposit beta has been low, and only retail CDs might reprice downward over time as they mature.
Q: What are your thoughts on the current credit quality and nonperforming assets?
A: Current credit quality is holding up well. Nonperforming assets increased slightly to $2.6 million from $2.2 million in the previous quarter. There were no early-stage delinquencies as of June 30, 2024.
Q: Can you provide more details on your strategy for balance sheet management?
A: Our short-term strategy is more conservative, focusing on slowing loan portfolio growth due to tighter liquidity conditions and the inverted yield curve. We aim to maintain a stable run rate for operating expenses and look for efficiencies to lower costs.
Q: How do you plan to manage your capital and dividend strategy moving forward?
A: We believe maintaining our cash dividend is important. We also see stock buybacks as a responsible capital management tool. In fiscal 2024, we distributed $3.9 million in cash dividends and repurchased $2.6 million worth of common stock.
Q: What are your expectations for loan originations in the upcoming quarter?
A: Our single-family and multifamily loan pipelines are similar to last quarter, suggesting that loan originations in the September 2024 quarter will be at the lower end of the recent range, between $18 million and $54 million.
Q: How do you see the net interest margin evolving in the near term?
A: The net interest margin was unchanged at 2.74% for the quarter ended June 30, 2024. We expect the current pressure on the net interest margin to subside soon, given the potential for repricing maturing wholesale funding downward.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
