Provident Financial (PROV) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2022, the company originated and purchased $65.3 million of loans held for investment, an increase from $60.9 million in the prior quarter [7] - Loan principal payments and payoffs increased to $72.5 million from $53.9 million in the previous quarter [7] - Loans held for investment decreased by approximately 1% compared to the previous quarter, with a notable decline in multifamily and commercial real estate loans [10] - Non-performing assets decreased significantly to $2.8 million from $6.6 million in the previous quarter [10][11] - The allowance for loan losses to gross loans held for investment decreased to 77 basis points from 86 basis points [12] Business Line Data and Key Metrics Changes - The company experienced a shift in loan payoffs, with more multifamily payoffs in the December quarter compared to single-family payoffs [24] - Underwriting standards have gradually returned to pre-pandemic levels, with a cautious approach towards commercial real estate, particularly in retail and office sectors [25] - The pipelines for single-family and multifamily loans are similar in size to the previous quarter, suggesting stable origination and purchase volumes [9] Market Data and Key Metrics Changes - Competition for loan originations remains elevated, particularly in the multifamily and commercial real estate sectors [8] - The refinance market is expected to slow down, impacting overall loan activity [27] - The company has seen increased activity in purchased loans, although no purchases were executed in the December quarter [27] Company Strategy and Development Direction - The company aims to leverage its balance sheet with prudent loan portfolio growth while redeploying excess liquidity into government-sponsored mortgage-backed securities [17] - Maintaining cash dividends is prioritized over stock buyback activities, although stock repurchases were made under the April 2020 program [18] - The company is focused on operational efficiencies to lower operating expenses [15] Management's Comments on Operating Environment and Future Outlook - Management noted that current credit quality is strong, with minimal early-stage delinquencies and a significant reduction in non-performing assets [10][11] - There is potential for further reduction in the allowance for loan losses as the economic environment improves [39] - The company is prepared for potential interest rate hikes, which could positively impact net interest margins [36] Other Important Information - The company has not adopted the Current Expected Credit Loss (CECL) model, making comparisons with CECL adopters challenging [12] - The FTE count increased slightly to 170 from 166 year-over-year [16] Q&A Session Summary Question: Were the payoffs related to rate hikes? - Management indicated it is difficult to determine, but noted a shift in the mix of payoffs with more multifamily payoffs in the December quarter [24] Question: Have underwriting standards returned to pre-pandemic levels? - Management confirmed that underwriting standards have gradually improved over the past year, with current caution in commercial real estate [25] Question: What is the current market activity for loans? - Management observed good pipeline activity, particularly in multifamily and commercial real estate, but noted the refinance market is expected to slow [27] Question: How is the company addressing wage pressures? - Management acknowledged wage pressures and indicated ongoing wage increases based on market surveys [29] Question: What was the amount of securities purchases in the March quarter? - Management reported $15 million in purchases during the December quarter, keeping cash balances flat [34] Question: What is the outlook for multifamily loan activity? - Management noted competitive conditions in the multifamily sector, with origination volumes expected to increase if purchase packages can be secured [37] Question: Is there room to drive down the coverage ratio? - Management indicated there is potential for reduction in the allowance for loan losses as the pandemic-related components are adjusted [39]