Provident Financial (PROV) - 2024 Q3 - Quarterly Results

Q3 FY2024 Earnings Release This section summarizes Provident Financial Holdings' third-quarter fiscal year 2024 results, highlighting key financial performance, condition, and detailed analysis Performance Summary Provident Financial Holdings reported a net income of $1.49 million for the third quarter of fiscal 2024, a 36% decrease year-over-year and a 30% decrease sequentially, primarily due to lower net interest income and increased credit loss provisions Q3 FY2024 Key Financial Results | Metric | Q3 FY2024 | Q3 FY2023 | YoY Change | Q2 FY2024 | QoQ Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Income | $1.49 million | $2.32 million | -36% | $2.14 million | -30% | | Diluted EPS | $0.22 | $0.33 | -33% | $0.31 | -29% | | Return on Average Assets (ROA) | 0.47% | 0.72% | -25 bps | 0.66% | -19 bps | | Return on Average Equity (ROE) | 4.57% | 7.12% | -255 bps | 6.56% | -199 bps | - Management's current strategy focuses on patience amid economic uncertainty, managing operating expenses, maintaining sound credit and interest rate risk, and executing the common stock repurchase program[5] - For the nine months ended March 31, 2024, net income was $5.40 million, a 20% decrease from $6.78 million in the prior year period, with diluted EPS at $0.77, down 18% from $0.94[9] Financial Condition Overview As of March 31, 2024, total assets stood at $1.29 billion, with loans held for investment at $1.07 billion and total deposits at $908.1 million, while maintaining a strong liquidity position of approximately $491.9 million Balance Sheet Highlights (as of March 31, 2024) | Metric | Value | Change from June 30, 2023 | | :--- | :--- | :--- | | Total Assets | $1.29 Billion | -3% | | Loans Held for Investment | $1.07 Billion | -1% | | Total Deposits | $908.1 Million | -5% | | Non-Performing Assets to Total Assets | 0.17% | +7 bps | - The company has significant available liquidity, including $269.2 million from the FHLB, $172.7 million from the Federal Reserve Bank, and a $50.0 million unsecured facility, totaling $491.9 million[19] Detailed Financial Analysis The company's financial performance was impacted by a compressed net interest margin of 2.74%, rising interest expenses, a provision for credit losses, increased non-interest expenses, and a higher efficiency ratio of 76.20% Net Interest Income and Margin Net interest income for Q3 FY2024 was $8.56 million, a 9% decrease from the prior year, as funding costs outpaced asset yields, compressing the net interest margin by 26 basis points to 2.74% Net Interest Margin Analysis (Q3 FY2024 vs Q3 FY2023) | Metric | Q3 FY2024 | Q3 FY2023 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $8.56 million | $9.40 million | -9% | | Net Interest Margin | 2.74% | 3.00% | -26 bps | | Avg. Yield on Earning Assets | 4.41% | 3.83% | +58 bps | | Avg. Cost of Interest-Bearing Liabilities | 1.86% | 0.93% | +93 bps | - Interest income on loans increased by 15% YoY to $12.68 million, driven by a 56 basis point increase in the average loan yield to 4.74%[11] - Interest expense on deposits surged 204% YoY to $2.68 million, as the average cost of deposits rose 81 basis points to 1.18%, largely due to an increase in higher-costing time deposits[16] - Interest expense on FHLB borrowings increased 49% YoY to $2.57 million, due to a higher average balance and a 66 basis point increase in the average cost to 4.63%[18] Provision for Credit Losses and Asset Quality A provision for credit losses of $124,000 was recorded in Q3 FY2024, contrasting with a recovery in the prior quarter, primarily due to a longer estimated life of the single-family loan portfolio, while non-performing assets increased to $2.3 million - The provision for credit losses was primarily attributed to a longer estimated life of the single-family loan portfolio resulting from higher market interest rates and lower prepayment estimates[21] Asset Quality Indicators | Metric | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Non-Performing Assets | $2.3 million | $1.3 million | | Non-Performing Assets / Total Assets | 0.17% | 0.10% | | Allowance for Credit Losses / Gross Loans | 0.67% | 0.55% | - The allowance for credit losses increased from $5.9 million at June 30, 2023, to $7.1 million at March 31, 2024, primarily due to a $1.2 million increase upon the adoption of the CECL methodology on July 1, 2023[25] Non-Interest Income and Expense Non-interest income decreased 14% year-over-year to $848,000, while non-interest expense increased 4% to $7.17 million, leading to a deteriorated efficiency ratio of 76.20% - Non-interest income decreased primarily due to lower deposit account fees, card and processing fees, and other non-interest income[26] - Non-interest expense increased mainly due to higher salaries and employee benefits, equipment, and professional expenses[27] Efficiency Ratio | Period | Efficiency Ratio | | :--- | :--- | | Q3 FY2024 | 76.20% | | Q2 FY2024 | 76.11% | | Q3 FY2023 | 66.69% | Capital Management The company continued its capital return strategy by repurchasing 50,051 shares of common stock at an average price of $13.99 per share during the quarter, with 237,592 shares remaining available for repurchase - During the quarter ended March 31, 2024, the Company repurchased 50,051 shares of common stock at an average cost of $13.99 per share[31] - 237,592 shares remain available for future purchase under the current stock repurchase program, which expires on September 28, 2024[31] Consolidated Financial Statements & Highlights This section presents the consolidated financial statements and key highlights, including balance sheet, income statement, loan and deposit compositions, asset quality, and capital ratios Condensed Consolidated Statements of Financial Condition The balance sheet shows total assets of $1.29 billion as of March 31, 2024, a decrease from $1.33 billion at June 30, 2023, primarily due to lower total deposits, while total stockholders' equity remained stable Balance Sheet Summary (in thousands) | Account | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Total Assets | $1,290,047 | $1,332,948 | | Loans held for investment, net | $1,065,761 | $1,077,629 | | Total Deposits | $908,122 | $950,571 | | Borrowings | $235,000 | $235,009 | | Total Stockholders' Equity | $129,506 | $129,687 | Condensed Consolidated Statements of Operations For Q3 FY2024, net interest income was $8.56 million, down from $9.40 million in the prior-year quarter, with total non-interest expense exceeding non-interest income, resulting in a net income of $1.49 million after provisions and taxes Income Statement Summary - Quarter Ended March 31 (in thousands) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Net Interest Income | $8,559 | $9,401 | | Provision for credit losses | $124 | $169 | | Non-interest income | $848 | $981 | | Non-interest expense | $7,168 | $6,924 | | Net Income | $1,495 | $2,323 | Sequential Quarter Income Statement Summary (in thousands) | Account | Q3 2024 (ended 3/31/24) | Q2 2024 (ended 12/31/23) | | :--- | :--- | :--- | | Net Interest Income | $8,559 | $8,774 | | Provision for (recovery of) credit losses | $124 | $(720) | | Non-interest income | $848 | $875 | | Non-interest expense | $7,168 | $7,344 | | Net Income | $1,495 | $2,141 | Financial Highlights This section provides detailed tables on key performance ratios, loan originations, asset quality, capital adequacy, and the composition of major balance sheet accounts, highlighting profitability declines and strong regulatory capital Loan Origination and Composition Total loans originated for investment in Q3 FY2024 were $18.2 million, a 66% decrease year-over-year, with single-family loans seeing the largest drop, while the total loan portfolio of $1.06 billion is primarily composed of single-family and multi-family mortgages Total Loans Originated for Investment (in thousands) | Loan Type | Q3 FY2024 | Q3 FY2023 | | :--- | :--- | :--- | | Single-family | $8,946 | $39,543 | | Multi-family | $5,865 | $10,660 | | Commercial real estate | $2,172 | $3,422 | | Total | $18,233 | $53,885 | Loans Held for Investment Composition (as of March 31, 2024, in thousands) | Loan Type | Balance | Weighted Avg. Rate | | :--- | :--- | :--- | | Single-family | $517,039 | 4.39% | | Multi-family | $457,401 | 5.14% | | Commercial real estate | $83,136 | 6.36% | | Total | $1,063,315 | 4.89% | Deposit and Borrowing Composition As of March 31, 2024, total deposits were $908.1 million, with a notable shift towards higher-cost time deposits, including an increase in brokered CDs, while total borrowings stood at $235.0 million Deposit Composition (as of March 31, 2024 vs 2023, in thousands) | Deposit Type | Balance 2024 | Balance 2023 | | :--- | :--- | :--- | | Non interest-bearing | $91,708 | $108,479 | | Interest-bearing Checking | $275,920 | $325,077 | | Savings | $247,847 | $305,403 | | Time deposits | $265,932 | $206,069 | | Total Deposits | $908,122 | $983,046 | - Brokered CDs included in time deposits totaled $130.9 million with a weighted average cost of 5.19% at March 31, 2024, up from $95.3 million with a cost of 4.37% a year prior[55] Asset Quality and Capital Ratios Asset quality weakened, with non-performing loans increasing to $2.25 million (0.21% of net loans) at March 31, 2024, though the Bank's regulatory capital ratios remain strong and well above requirements Asset Quality Ratios | Ratio | March 31, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Non-performing loans to loans held for investment, net | 0.21% | 0.09% | | Non-performing assets to total assets | 0.17% | 0.07% | | Allowance for credit losses to gross loans | 0.67% | 0.56% | Bank Regulatory Capital Ratios (as of March 31, 2024) | Ratio | Value | | :--- | :--- | | Tier 1 leverage ratio | 9.70% | | Common equity tier 1 capital ratio | 18.77% | | Tier 1 risk-based capital ratio | 18.77% | | Total risk-based capital ratio | 19.85% |