Provident Financial (PROV) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited interim condensed consolidated financial information, including statements, management's discussion, market risk, and controls Financial Statements This section presents the unaudited interim condensed consolidated financial statements, including financial condition, operations, equity, and cash flows, with detailed notes Condensed Consolidated Statements of Financial Condition This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Financial Condition (in thousands) | Metric | March 31, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Total Assets | $1,187,834 | $1,183,596 | | Loans held for investment, net | $893,563 | $850,960 | | Investment securities | $198,523 | $226,893 | | Cash and cash equivalents | $60,121 | $70,270 | | Total Liabilities | $1,060,217 | $1,056,316 | | Total deposits | $963,500 | $937,973 | | Borrowings | $80,000 | $100,983 | | Total Stockholders' Equity | $127,617 | $127,280 | Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income over specific periods Consolidated Operations Highlights (in thousands, except per share data) | Metric | Quarter Ended Mar 31, 2022 | Quarter Ended Mar 31, 2021 | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $7,538 | $7,457 | $23,089 | $23,261 | | (Recovery) provision for loan losses | ($645) | ($200) | ($2,051) | $59 | | Non-interest Income | $1,114 | $1,199 | $3,551 | $3,332 | | Non-interest Expense | $6,899 | $6,909 | $19,466 | $20,810 | | Net Income | $1,699 | $1,561 | $6,630 | $4,222 | | Diluted EPS | $0.23 | $0.21 | $0.89 | $0.56 | - Net income for the nine months ended March 31, 2022, was significantly boosted by a $1.2 million credit from the Employee Retention Tax Credit (ERTC), which reduced salaries and employee benefits expense[12] Condensed Consolidated Statements of Stockholders' Equity This statement tracks changes in the company's equity over time, including net income, dividends, and stock repurchases - The company paid cash dividends of $0.14 per share in the quarter ended March 31, 2022, consistent with the prior year's quarter[16][17] - For the nine months ended March 31, 2022, the company repurchased 221,797 shares of treasury stock for $3.74 million[19] Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary for Nine Months Ended March 31 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,355 | $9,025 | | Net cash used for investing activities | ($15,181) | ($60,862) | | Net cash (used for) provided by financing activities | ($2,323) | $7,432 | | Net decrease in cash and cash equivalents | ($10,149) | ($44,405) | - The primary use of cash in investing activities for the nine months ended March 31, 2022, was a net increase in loans held for investment of $42.1 million. In the prior year period, the company had a net decrease in loans and significant purchases of investment securities[24] Notes to Unaudited Interim Condensed Consolidated Financial Statements These notes provide detailed explanations and breakdowns of the financial data presented in the consolidated financial statements - Gross loans held for investment increased to $892.5 million at March 31, 2022, from $852.1 million at June 30, 2021, with single-family and multi-family loans comprising the largest segments[45] Allowance for Loan Losses Activity (in thousands) | Period | Beginning Balance | (Recovery) Provision | Net Recoveries (Charge-offs) | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | Q3 2022 | $6,608 | ($645) | $6 | $5,969 | | 9M 2022 | $7,587 | ($2,051) | $433 | $5,969 | - Non-performing loans on non-accrual status decreased significantly to $2.2 million at March 31, 2022, from $9.4 million at June 30, 2021, indicating improved asset quality[54][55] - On April 28, 2022, the Board of Directors declared a quarterly cash dividend of $0.14 per share and authorized a new stock repurchase plan for up to 5% of the company's common stock[145][146] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operating results, including analyses of asset quality, liquidity, and capital resources Executive Summary and Operating Strategy This section outlines the Corporation's strategic goals, focusing on asset growth and optimizing the deposit mix - The Corporation's operating strategy focuses on moderately increasing total assets by growing its loan portfolio, particularly in single-family, multi-family, and commercial real estate loans[160] - A key strategic goal is to improve the net interest margin by shifting the deposit mix from higher-cost time deposits to lower-cost checking and savings accounts[160] Comparison of Financial Condition This section compares the company's financial position at different reporting dates, highlighting changes in assets, liabilities, and equity - Total assets increased slightly to $1.19 billion at March 31, 2022, from $1.18 billion at June 30, 2021, driven by a 5% increase in loans held for investment to $893.6 million[166][170] - Total deposits grew by 3% to $963.5 million, reflecting a 5% increase in transaction accounts, while higher-cost time deposits decreased by 9%, consistent with the company's strategy[174] - Total borrowings decreased by 21% to $80.0 million due to prepayment and maturities of long-term FHLB advances[175] Comparison of Operating Results This section analyzes the company's financial performance over different periods, focusing on revenue, expenses, and profitability metrics Key Performance Metrics | Metric | Q3 FY22 | Q3 FY21 | 9M FY22 | 9M FY21 | | :--- | :--- | :--- | :--- | :--- | | Net Income (in millions) | $1.7 | $1.6 | $6.6 | $4.2 | | Diluted EPS | $0.23 | $0.21 | $0.89 | $0.56 | | ROA | 0.57% | 0.53% | 0.74% | 0.48% | | ROE | 5.33% | 4.99% | 6.94% | 4.51% | - The 57% increase in net income for the first nine months of fiscal 2022 was primarily driven by a $2.1 million recovery from the allowance for loan losses and a $1.3 million decrease in non-interest expenses[179] - Net interest margin for the nine-month period decreased by 5 basis points to 2.65% compared to the prior year, as the decrease in the average yield on interest-earning assets outpaced the decrease in the cost of funds[185] - Non-interest expense for the nine months decreased by 6%, mainly due to a $1.2 million credit for the Employee Retention Tax Credit (ERTC) recorded in the first quarter[227][228] Asset Quality This section assesses the credit risk within the loan portfolio and the adequacy of the allowance for loan losses - Asset quality showed significant improvement, with non-performing loans (net) decreasing by 77% to $2.0 million at March 31, 2022, from $8.6 million at June 30, 2021[218][232] Asset Quality Ratios | Ratio | March 31, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Non-performing loans / Loans held for investment | 0.22% | 1.02% | | Allowance for loan losses / Gross loans | 0.66% | 0.88% | - Total classified assets, a broader measure of credit risk, decreased to $2.8 million from $10.4 million at June 30, 2021[239] Liquidity and Capital Resources This section evaluates the company's ability to meet its financial obligations and maintain sufficient capital levels - The Corporation maintains a strong liquidity position with primary funding from deposits and access to significant borrowing capacity, including $321.4 million from the FHLB and a $168.4 million discount window facility at the Federal Reserve[241][244] - The Bank exceeded all regulatory capital requirements at March 31, 2022, and was categorized as 'well-capitalized' under OCC regulations[249] Bank Capital Ratios as of March 31, 2022 | Ratio | Actual | Well-Capitalized Minimum | | :--- | :--- | :--- | | Tier 1 leverage capital | 10.27% | 5.00% | | CET1 capital | 19.32% | 6.50% | | Total capital | 20.29% | 10.00% | Quantitative and Qualitative Disclosures about Market Risk This section details the Corporation's management of market risk, primarily interest rate risk, using NPV sensitivity and gap analysis to measure exposure to interest rate fluctuations - The Corporation uses an internal interest rate risk model to measure the change in Net Portfolio Value (NPV) under various interest rate scenarios[256] Net Portfolio Value (NPV) Sensitivity as of March 31, 2022 | Change in Rates | Change in NPV (in thousands) | | :--- | :--- | | +300 bp | $100,718 | | +200 bp | $72,672 | | +100 bp | $39,533 | | -100 bp | ($9,935) | - The company's net interest income simulation model indicates an asset-sensitive position, projecting a 0.73% increase in net interest income over 12 months with a +100 basis point rate shock as of March 31, 2022[270][271] Controls and Procedures Management, including the CEO and CFO, concluded that the Corporation's disclosure controls and procedures were effective as of March 31, 2022. No material changes to internal control over financial reporting occurred during the quarter - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2022[276] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the Corporation's internal controls[277] PART II - OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, and details on equity security sales and use of proceeds Legal Proceedings The Corporation is involved in various claims and lawsuits in the ordinary course of business but is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition - The Corporation is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition, operations, or cash flows[278] Risk Factors There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended June 30, 2021 - There have been no material changes in the risk factors previously disclosed in the Corporation's Annual Report on Form 10-K for the year ended June 30, 2021[279] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activity during the quarter. The company purchased 69,271 shares under its publicly announced plan at an average price of $16.69 per share Share Repurchases in Q3 FY2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2022 | 20,376 | $16.86 | | February 2022 | 17,213 | $16.82 | | March 2022 | 31,682 | $16.50 | | Total | 69,271 | $16.69 | - As of March 31, 2022, 45,036 shares remained available for purchase under the April 2020 stock repurchase plan, which was set to expire on April 27, 2022[282]