Provident Financial (US:PROV)2024-04-30 20:38Financial Data and Key Metrics Changes - The company originated $18.2 million of loans held for investment in Q3 2024, a decrease from $20.2 million in the prior quarter [16] - Net interest margin declined by 4 basis points to 2.74% for the quarter ended March 31, 2024, due to an increase in the cost of total interest-bearing liabilities [5] - The allowance for credit losses to gross loans held for investment increased to 67 basis points at March 31, 2024, from 65 basis points on December 31, 2023 [18] Business Line Data and Key Metrics Changes - Loans held for investment decreased by approximately $10 million compared to the previous quarter, with declines in single-family, multifamily, and commercial real estate loans [17] - New loan production is being originated at higher mortgage interest rates, with adjustable rate loans adjusting to higher rates [6] - The company recorded a $124,000 provision for credit losses in Q3 2024, primarily due to a longer estimated life of the single-family loan portfolio [18] Market Data and Key Metrics Changes - Many real estate investors have reduced their activity due to higher mortgage and interest rates, leading to increased consumer demand for adjustable rate mortgage products [3] - The company has $41.8 million in office-related commercial real estate loans, representing 3.9% of the loans held for investment portfolio [4] - The company expects loan originations in the June 2024 quarter to be similar to the current quarter, at the lower end of the recent range of $18 million to $75 million [3] Company Strategy and Development Direction - The company is focusing on operating efficiencies to lower operating expenses, maintaining a stable run rate of approximately $7.2 million per quarter [7] - The short-term strategy for balance sheet management is conservative, with a focus on slowing loan portfolio growth due to tighter liquidity conditions and an inverted yield curve [21] - The company believes maintaining cash dividends and prudent capital returns through stock buybacks is important for capital management [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underwriting characteristics of borrowers and collateral despite concerns regarding commercial real estate loans [4] - The company anticipates that current pressure on the net interest margin may soon subside due to opportunities to reprice maturing wholesale funding downward [20] - Management indicated that they could grow the loan portfolio when market conditions are favorable, but are currently cautious due to the inverted yield curve [41] Other Important Information - The company distributed approximately $2.9 million in cash dividends and repurchased about $2 million worth of common stock for the fiscal year-to-date [33] - The total interest-bearing liabilities composition improved with a decrease in the average balance of deposits and borrowings [8] Q&A Session All Questions and Answers Question: Why not replace FHLB advances with brokered CDs for a lower rate? - Management stated that while it is an option, they have chosen not to do so at this point due to the current composition of wholesale funding being appropriate from a risk standpoint [12] Question: Will there be a step-up in expenses in the fourth quarter? - Management indicated that they do not expect a large deviation from the $7.2 million run rate, with true-up items coming in at the end of the fiscal year [13] Question: Is there pent-up demand from real estate investors? - Management expressed uncertainty about pent-up demand, noting that it is sensitive to interest rates, but they believe they could grow the loan portfolio when conditions are right [41]