Provident Financial (US:PROV)2024-01-30 21:21Financial Data and Key Metrics Changes - In the most recent quarter, the company originated $20.2 million of loans held for investment, an increase from $18.5 million in the prior sequential quarter [3] - The net interest margin for the quarter ended December 31, 2023, declined by 10 basis points to 2.78% compared to the previous quarter, attributed to a 13 basis point increase in the average yield on total interest-earning assets and a 24 basis point increase in the cost of total interest-bearing liabilities [11] - Non-performing assets increased to $1.8 million from $1.4 million on September 30, 2023, while early-stage delinquency balances were $340,000 at December 31, 2023 [10] Business Line Data and Key Metrics Changes - Loans held for investment increased by $3.6 million compared to the September 30, 2023, ending balance sheet, with small increases in single-family, multifamily, commercial real estate, and construction loan categories [32] - The company reported $17.8 million of loan principal payments and payoffs, down from $23 million in the September 2023 quarter [31] - The average cost of deposits increased by 19 basis points to 99 basis points for the quarter ended December 31, 2023, compared to 80 basis points in the prior quarter [34] Market Data and Key Metrics Changes - The company noted a tightening of underwriting requirements and increased pricing across all product lines due to higher funding costs and tighter liquidity conditions [9] - There is a growing consumer demand for single-family adjustable-rate mortgage products as a result of higher fixed-rate mortgage interest rates [9] Company Strategy and Development Direction - The company is adopting a more conservative short-term strategy for balance sheet management, focusing on slowing the loan portfolio due to tighter liquidity conditions [37] - The management emphasized the importance of maintaining cash dividends and has distributed approximately $2 million of cash dividends to shareholders and repurchased approximately $1.2 million worth of common stock [39] 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 [5] - The company anticipates that the current pressure on the net interest margin may soon subside due to opportunities to reprice maturing wholesale funding downward [13] - Management indicated that the liquidity environment in the industry is expected to improve, which could provide opportunities for growth in 2024 [42] Other Important Information - The company recorded a $720,000 recovery of credit losses in the December 2023 quarter, primarily due to a decrease in the average life of the loan portfolio [33] - Operating expenses increased to $7.3 million in the December 2023 quarter, higher than the stable run rate of $7.2 million per quarter, mainly due to higher salaries and employee benefits expenses [36] Q&A Session Summary Question: Margin outlook with potential Fed rate cuts - Management noted that the balance sheet has a longer tail for assets repricing upward due to hybrid arms and that relief on the funding side is being observed [18][19] Question: Opportunities for growth in 2024 - Management highlighted that the liquidity environment is crucial for growth opportunities and that recent Fed comments suggest a potential for lower rates in 2024, which could improve deposit gathering [42][43] Question: Demand for mortgages and rate impacts - Management indicated that interest rates have already decreased, leading to increased activity, and further reductions could stimulate refinancing and loan activity [50]