Provident Financial (PROV) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2026, the company originated $42.1 million in loans held for investment, a 42% increase from $29.6 million in the prior quarter [5] - Loan principal payments and payoffs increased to $46.7 million, up 35% from $34.5 million in the previous quarter [5] - The net interest margin increased by 3 basis points to 3.03% compared to 3% in the previous quarter [9] - The average cost of deposits decreased to 1.32%, down 2 basis points, while the cost of borrowing decreased by 20 basis points to 4.39% [10] Business Line Data and Key Metrics Changes - Loans held for investment decreased by approximately $4.1 million, with declines in multifamily, commercial business, and commercial real estate loans, partially offset by increases in single-family and construction loans [6] - Non-performing assets were $999,000, or 8 basis points of total assets, a decrease from $1.9 million at the end of the previous quarter [6][7] - The allowance for credit losses to gross loans held for investment was 55 basis points, slightly down from 56 basis points [8] Market Data and Key Metrics Changes - The loan pipelines are moderately higher than last quarter, suggesting origination volume in Q3 2026 will be within the range of recent quarters, between $28 million and $42 million [5] - The weighted average rate of loans originated in Q2 2026 was 6.15%, compared to 5.22% for loans held for investment as of December 31, 2025 [11] Company Strategy and Development Direction - The company focuses on disciplined balance sheet growth by expanding its loan portfolio, which is deemed suitable for the stable economic environment and ongoing normalization of the yield curve [15] - The company aims to maintain its cash dividend and recognizes stock buybacks as a responsible capital management tool, having repurchased approximately $96,000 of common stock in Q2 2026 [15][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the current credit quality, noting no loans in early stages of delinquency and a strong performance of commercial real estate loans [7] - The company anticipates opportunities for net interest margin expansion in Q3 2026 due to expected repricing of maturing wholesale funding to lower costs [13] Other Important Information - Operating expenses increased to $7.9 million in Q2 2026 from $7.6 million in the previous quarter, including a $214,000 pre-litigation settlement expense [14] - The company distributed $906,000 in cash dividends and repurchased approximately $1.5 million worth of common stock, representing a 170% distribution of the quarter's net income [16] Q&A Session Summary Question: What is the probability that the loan portfolio is flat over the next four quarters? - Management indicated that it is difficult to predict loan payoffs, but they have been focusing on increasing origination volume each quarter, suggesting a potential for higher origination in Q3 2026 [20] Question: Do loans repricing in the June quarter pose a potential headwind to loan growth? - Management noted that while repricing could have implications, it is not expected to significantly hinder loan growth as the repricing is not substantially higher than current market conditions [21] Question: Would government plans to make housing more affordable be a net positive for the business? - Management believes that any initiatives to expand available housing would be beneficial, especially in California where demand exceeds supply [23][25]