Key Highlights

  • Net income was $1.573 million, or $0.25 per diluted share, versus $0.35 in the prior quarter and $0.25 a year earlier.
  • Net interest margin widened to 3.32% from 3.21% in the prior quarter and 3.00% a year earlier.
  • The provision for credit losses was $777,000, against a $95,000 recovery in the prior quarter.
  • The bank repurchased 86,431 shares at an average of $18.30, below book value of $20.24 per share.
  • Non-performing assets were $504,000, or 0.04% of total assets.

Provident Financial Holdings Earnings: Why Did Profit Fall 28% Sequentially?

Provident Financial Holdings (NASDAQ:PROV) reported fiscal first-quarter net income of $1.573 million, or $0.25 per diluted share, on Tuesday, October 27. That was down 28% from $2.18 million, or $0.35, in the fourth quarter and 6% from $1.68 million a year earlier, when diluted EPS was also $0.25. The earnings screen showed an estimate of $0.32, a surprise of negative 20.63% as screened.

The release carried no numerical guidance, and a conference call was scheduled for Wednesday, October 28. Return on assets was 0.52% and return on equity 4.93%. The holding company runs Provident Savings Bank, with 13 branches in Riverside and San Bernardino Counties, California.

PROV Net Interest Margin: How Did It Widen to 3.32%?

Net interest income was $9.770 million, up 9% from $8.930 million a year earlier and up $459,000 from the fourth quarter. Net interest margin rose to 3.32% from 3.21% and 3.00%. About $270.6 million of adjustable-rate loans repriced over the past 12 months from a weighted average 6.13% to 7.12%.

Loan yield was 5.22% on an average balance of $1.031 billion. Borrowing costs fell to 4.01% from 4.59% as higher-cost advances matured and were replaced with lower-cost ones, while the cost of deposits rose to 1.47% from 1.34% on more time deposits, including brokered certificates.

Interest income also included a $307,000 special dividend on Federal Home Loan Bank stock. Noninterest income was $804,000, down from $1.283 million in the fourth quarter, which had been boosted by a Visa share conversion. Noninterest expense was $7.619 million and the efficiency ratio improved to 72.05% from 78.35%.

Provision Swing and Credit Quality: What Drove the Allowance Build?

The provision was $777,000, compared with a $95,000 recovery in the fourth quarter and a $626,000 recovery a year earlier. The allowance rose to $6.59 million, or 0.64% of gross loans, from 0.57% in June. The chief executive tied the build to a longer expected loan life as rates rose, and said credit quality remains excellent.

Non-performing assets were $504,000, or 0.04% of total assets, versus $1.888 million a year earlier. There was no real estate owned, no net charge-offs, and loans 30 to 89 days delinquent totaled $2,000. Classified assets rose to $4.1 million from $2.5 million at June 30.

Gross loans were $1.033 billion, with single-family loans of $582.4 million and multi-family loans of $381.6 million. Originations were $45.4 million, up from $29.6 million a year earlier.

Buybacks Below Book Value: What Is Next for Provident's Capital Plan?

The bank repurchased 86,431 shares at an average of $18.30, and 88,174 shares remain under the current program. Shares outstanding fell to 6,197,727 from 6,264,035 in June. Book value per share was $20.24, stockholders' equity was $125.4 million, and the quarterly dividend was unchanged at $0.14.

Total deposits were $897.7 million, total assets $1.210 billion, and available liquidity about $464.2 million. The bank's CET1 ratio was 17.36%, down from 19.41%, and Tier 1 leverage was 9.25%. Watch the October 28 call for commentary on deposit mix, repricing and the pace of repurchases.