Provident Financial (US:PROV)2021-05-01 16:00Financial Data and Key Metrics Changes - In Q3 2021, the company originated and purchased $61 million of loans held for investment, an increase from $29.6 million in the prior sequential quarter [6] - Loan principal payments and payoffs were $75.7 million, up from $59.6 million in the previous quarter [6] - Loans held for investment decreased by approximately 2% compared to December 31, 2020, with declines across various categories [6] - Non-performing assets decreased to $9.8 million from $10.3 million on December 31, 2020 [7] - The allowance for loan losses to gross loans held for investment decreased to 98 basis points from 99 basis points [9] - Net interest margin compressed by 6 basis points to 2.6% for the quarter ended March 31, 2021 [9][10] - Operating expenses declined to approximately $6.9 million, an 8% decrease compared to the same quarter last year [11] Business Line Data and Key Metrics Changes - The company experienced growth in single-family and multi-family pipelines, indicating potential for increased originations and purchases in the upcoming quarter [6] - The average cost of deposits decreased by 4 basis points to 17 basis points for the quarter [10] - The company recorded a $200,000 negative provision for loan losses in the March 2021 quarter [8] Market Data and Key Metrics Changes - Competition remains elevated for lower credit risk loan products, with multi-family and commercial real estate borrowers considering transactions due to improved economic conditions [6] - The California banking landscape has seen significant changes, with multiple deals announced recently, presenting potential opportunities for the company [25] Company Strategy and Development Direction - The company aims to leverage its balance sheet with prudent loan portfolio growth, although executing this strategy may be challenging in the current environment [11] - The company is redeploying excess liquidity into government-sponsored mortgage-backed securities [12] - Maintaining cash dividends is prioritized over stock buyback activities, although share repurchases have begun under the April 2020 program [12] Management's Comments on Operating Environment and Future Outlook - Management noted that current credit quality is holding up well, with no early-stage delinquency balances reported [7] - There is an expectation that payoff volume will decline, particularly in the single-family space, due to rising mortgage interest rates [30] - The company is optimistic about origination volume based on current pipelines and expects to meet or exceed previous quarter's performance [32] Other Important Information - The company has not adopted CECL, making its allowance methodology not directly comparable to CECL adopters [9] - The company is evaluating its branch structure to identify potential cost-saving opportunities [20][21] Q&A Session Summary Question: Expectations for changes in amortization due to rate changes - Management indicated that a decline in payoff volume could lead to a reduction in net deferred loan cost amortization, positively impacting net interest margin [16] Question: Considerations for stock buyback program - Management acknowledged that the stock is trading below book value, suggesting an opportunity for buybacks, but emphasized executing the existing plan [18] Question: Thoughts on expense base and cost reduction initiatives - Management is continuously looking to reduce operating costs and is evaluating branch structures for potential savings [20][21] Question: Broader market changes and opportunities - Management noted that consolidation in the California banking landscape could present opportunities for deposit and loan activity, although competition remains strong [26] Question: Outlook for loan growth and payoffs - Management expects a decline in payoff volume and is cautiously optimistic about loan growth based on current pipelines [30][32]