PROV - Earnings call transcript Q3 2020 | Provident Financial Holdings, Inc.

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Operator

And ladies and gentlemen, thank you for standing by. Welcome to the Provident Financial Holdings First Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. like Blunden. the now your over would Craig host, I to conference turn to And ahead, go Please sir.

Craig Blunden

Holdings. call Brad. is our and Financial Craig you, President, Blunden, on Thank Good Chief Chairman CEO morning, Chief Operating of Financial Donavon me is with everyone. and This And Ternes, the Officer. Provident

I have begin, item we brief administrative to address. Before a

services, plans, general Our forecast about operations, statements include Those include forward-looking presentation today statements. other future or discusses financial the economic for the of of company's business objectives management's performance business products statements goals conditions. or outlook outlook and will and and or descriptions measures for company's

We available statements and may distributed for could annual earnings differ also forward-looking Form period any the forward-looking are subsequent release SEC from XX-Qs question-and-answer subject today. the from ended and materially year from to XX-K. to the actual on results those of was that and report are Form forward-looking on that XX, other may uncertainties, factors June statements discussed statement the a risk from differ to filed during that and cause These following management's XXXX, the the Information results from Form presentation. number actual make is filings yesterday, the XX-K risks

I investment, of sequential as release, we Forward-looking thank for an each and with, million that results. begin quarter. made the quarter, In and our held in originated statements you obligation had date from prior hope an the quarter this the $XX.X opportunity has for only are To million most $XX call. to information. the our to effective which describes increase earnings they're of first of company update assumes our participating you in no review purchased recent loans

$XX.X loans for normalized the $XX.X competition and the loan rate to some investment. product. for experienced June elevated September of XXXX which the up payoffs, is risk in credit seems of payments During held that million growth quarter degree, still have from million also tempering lower markets the quarter, principal it and we the the quarter, XXXX is In mortgage

cautious individual due purchase with requirements. regarding consistent is season our particularly complete on diligence difficult it single-family still we're to loans Additionally, underwriting packages, production, loan because

the September XXXX, decreased by up note will credit and X% other that held early-stage Current holding offset XX, delinquency For with just for in June quality loans the is at three the comparison in were ended categories, by single-family XX, we multifamily months XX, categories. to $X,XXX and investment declines approximately balances and in XXXX. growth XXXX, partly loan well construction September

remain XX, June In is and low are addition, XXXX, -- which down non-performing million, $XX just decline. $X.X assets from an $X.X levels million X% at very at

for have implications future However, and the quality, pandemic discern difficult fluid the it is situation may negative is the credit implications. to quantify although and regarding potential

The Additionally, table. footnote result XX in their the environment. loans some slide that current portfolio commercial investor balances as you the estate refer will loan be footnote payments. being in currently specifically real describes may secured the risk monthly forbearance downgraded I wish we to our to resume of to of anticipate also not able be a estate the higher of five real that of considered composition presentation, commercial our and

clarifying be amount Act, new date. to experienced from at six requests to to event promulgated the In March, continue declined the due the April and Board plan is forbearance But the and forbearance May if believe by sooner in Financial beats full and XXXX. statements Securities Commission. payable in the criteria the an payable levels Exchange earlier of end forbearance guidance forbearance of borrowers and a months. payment and Accounting at We from loan the will with up significantly We CARES becomes as work the forbearance full granted, payment in or have our provide a interagency due our term and for that the Standards balloon regulatory note loan

result, we of cited a the we qualify for the vast guidance the on loans. provision favorable forbearance believe As that majority in

of for were single-family multifamily and with outstanding approximately As held loans with of of or approximately million loans balances in an there X.XX% in forbearance, $XXX,XXX October of of for XX, XXXX, forbearance balance investment. investment $X.X loans X.XX% gross outstanding or held one XX gross loan

release, significant of payments forbearance earnings You October balance in the number of that balances loans a XX, described in XXth, on XXXX, decline a loans comparison result the October. those and September will in in monthly as in note to resume

loans as XXth, October in three October. resume non-performing seven and or October principal November, were of payments their months seven forbearance granted of additional in scheduled loans approximately are combined a status to $X.X monthly to as just relief. an classified with restructured million Additionally, Six will $X.X downgraded balance the be loans million of of approximately

recorded One and the information balances the the losses the of classified. XXXX September impacted the presentation on XX number primarily in in loans of has in the methodology for allowance environment. pandemic, forbearance. economic the losses components a table to reference, of updated current for was we to loans which $XXX,XXX response negatively due quarter, downgraded for in Also, to loan slide qualitative in an investor loan the reflect the XXXX and seven We forbearance XX, provision previously in our increase October

not remain This note have on CECL our will reasonably incurred methodology that CECL. and the means You loss model we allowance adopters. be that to cannot adopted compared

point The on a points of total rise the basis offset a invested deposits the average in of decline compressed the ended decrease basis from result interest XX liabilities. at stemming total on the in nominal the increase in significant in was XXXX, XXth in average X-basis-point to a assets as interest and margin interest the the yield September decrease result bearing net quarter cost Our total yield sequential total assets, earning June primarily sharp XX of XX, liquidity yields. partially compared quarter for interest the by by

quarter also the loan previous negatively September loan payoffs impacted comparison amortization points this of the believe by September to given the likely Our are average further as XX, ended was cost the loan interest X XXXX, June that deposits increase approximately points associated declines result of amortization net X the we quarter the deferred of the X.XX% XX basis basis The sequential with in interest deferred five net points rate in cost decreased margin and the compared quarter XXth to average current to by quarter, for quarters. environment. in net the the basis a of costs

for the We September throughout FTE decline. to company efficiencies XX% XX, date the year, a lower to to expenses. FTE on Notably, to operating decreased look our XXX last same compared continue XXXX, XXX, operating count on

quarter. $X.X had of As benefited from settlement quarter, a privacy in bank approximately and implementation of neither previously our compared million September to of replicated operating which $X this same year. from year the in fewer in result resulting of that quarter and to of were declined FDIC expenses other employees current though, quarter insurance Please last the XXXX $XXX,XXX approximately the savings, revision a lower the cost expense operating small last $XXX,XXX million assessment -- credits, deposit the approximately recognized expenses loan note

the $XXX,XXX from As declined same a the result, year. in last current operating or expenses approximately quarter X% operating adjusted by expenses

by June the term balance strategy loan The quarter. quarter. XXXX expenses compensation quarter management adjusting in the securities a that unchanged executing current environment course with in and are for replicated short approximately after growth strategy average on on government excess difficult. priority XX of benefit activity. with September us the capital not sheet doing well of in by reversal interim, lives We sponsored -- business maintaining action, may basis, buyback four Additionally, and prove but the over operating the incentive allowing capitalized is sequential goals complications. execute prudent an cash X% without very last years. In quarter capital exceed from from takes $XXX,XXX estimated a dividend declined accruals management the so that redeploying liquidity that the balance the is plan approximately We June and for the ratios believe stock portfolio leveraging is in believe XXXX of sheet on best our significant important we margin mortgage-backed We our to

in As important current increasingly XXXX course until a our stock result, is and can common to economic repurchase landscape. wish of clarity and the become we the that investor September review everyone posted emphasize on the shares XXth any on September of current encourage did not environment our has quarter capital We in website. to wisest get safeguarding presentation better we the action

you capital supporting growth on additional company. financial metrics, financial find will we slides You strong regarding believe the give asset management, the and which we've will our foundation quality of future included insight

you. will you entertain regarding may Brad? questions Thank have now We any financial our results.

Operator

first from our go And Instructions] question comes Please of Tim ahead. [Operator Coffey. the today line

Tim Coffey

Hi. Thank for hosting the call Good morning. morning, this you gentlemen.

Craig Blunden

morning. Good

Donavon Ternes

Tim. morning, Good

Tim Coffey

appetite first, Maybe the mean, what's kind MBS future your does few your demand What you loan for two next – or purchases? of part do growth here. how you for a quarters? is, do anticipate, influence question outlook I that loan And over

Donavon Ternes

I fill will Tim, question. that

that growth, that it financial with of of to many think everybody the economic currently environment bit that seems quarter. that monitoring, institutions results all, growth of respect of First and a I've struggling when the for coming loan really been the seems out we're it about we in. course, result loan the of is is And

financial not about in discern difficult been we some those And with purchasing those have very pools trying we borrowers, the difficult income. other to from growth when activity underwrite everything. about whether or particular, re-underwrite institutions For single-family of product, pandemic from come re-underwrite by loans and respect that think borrowers, to because loan to it us, if is their becomes trying borrowers has think impacted we to with of our those

are that volume single-family difficult so our brings originate down purchases bit. -- and a And our

the some seen is current But portfolios. themselves the small alike. out in from there multifamily rent get because their because for industry, are underwrite rolls packages packages can and is see income and a rolls We environment, own generated Those real everybody to still, and easier packages essentially estate -- current the loan for we growth currently those keeping are property are in have commercial there across bit so the because rent packages. purchase is fewer

consistent mortgage-backed about is the us and as time, off came average So where over move it cash -- think pretty opportunity purchasing kind to liquidity we such spins impact a to the and the excess and through margin of giving balances to cash because as that to that process impact product liquidity with And flow the we're moving normalized product that lives. deposits, buildup levels, cash obviously our of reinvest at that it in kind mortgage-backed short from pre-pandemic the our net essentially date. like of the stabilized. and we're ultimately, extent securities, at of a interest from liquidity has we it have now relatively that We securities, in later into cycle the -- and

little the great smaller margin be stabilized, quarter than we that expansion. June amount certainly September quarter we of March forward a current our kind margins net in contraction, than expect if as saw on sheet would But where seen. structured fact, just we a liquidity basis, see rate interest balance of the also of could a certainly lesser that amount it by in would are go potentially we've at So because without and net is quarter, excess the see is interest somewhat bit much compressed that a and

into got I color more appreciate the you net So and loan I But growth MBS. on than interest just margin. hope

Tim Coffey

kind you quarter? where that's yields anyway. going was question on No. I purchase the mean, in MBS of do. market the – what What the the yields were I average this

Donavon Ternes

points call amortizing. The XX-year, fully to the amort XX-year not from it, depending or amortizing, whether XX-year points, fully securities are yielding upon mortgage-backed basis -- amortizing, fully XX-year XX XX it's basis a anywhere amortizing XX fully

guess. the under I it, call high, X%, So, just

Tim Coffey

Okay.

you historic you are that costs, deposit Craig, could your bit of think prepared had a the a them costs you you're remarks, mentioned do decline you lows thinking go Are already kind they bouncing for take but in bottom the much institution? the on could moderate Now, you lower? it's lower, or or

Donavon Ternes

deposit they Yeah. basis costs certainly lower, at much CDs down and deposit CDs embedded don't go for the those they quarter. that in rate are reduce allowing points they costs. were But because because I can lower are us the they come to there as XX coming mature can know and in

respect they to but them cases, many transaction the so some in And high-single well. as digits digits, single in the Secondarily, are we deposits, we're looking on what our can come quite at those we're closely. are accounts down of with in paying

reduced I down. still what have alike. much know about by the it think to basis to those We as It's needs some in bring points. deposit costs be we upon it some quarter-over-quarter -- X costs but deposit basis will points. as seeing don't X liquidity we're room if I and degrees dependent possible,

liquidity Secondarily, upon have just of some of what months. that to run, normally deposits going into those than we're available, There's bit permanent. the six last are they that we over not running a pandemic, the sense depending brought a higher the depositors to do perhaps with some deposits result balances the necessarily bank are as

to the in broader Home respect $XX million $XX December respect million four cost a we in another January. maturing to we with Bank is have believe with Loan question maturing and then I advances. essentially Moving up have funds, of Federal months on also coming maturities next in to

Our we also in advances to them, advanced pay be the advances, would overall to much event of funds, anticipation our as those excess we are reduce Federal our would use cost the cost costs. Loan well costs is of essentially that their Home were those that Bank and existing than if liquidity as what replace off lower

Tim Coffey

is there's to What it seems And more credit, demand one you Donavon. see you. then right to the what is But capital to at of to buyback, have a like loan the to you question is look allow need That looks seems everything it for me, because help for going Okay. using good, now. stable source you're a really goes do Thank start we me, while. to buybacks. it last

it on through of would to the kind take read I'm So buyback? what

Craig Blunden

Well, me on let No. start that one.

than. just few know in I and in it's I the see also the protect to need a this the And we wall hoping we'll as this institutions next that kind same of to thing more where when regulators are levels, capital I is think economy. think really months? the believe will out headed uncertain lot still dynamic wondering play how

as see we ever bit look even quality need don't So seeing delinquency wait and a quite good. levels I credit mentioned, this though, you've this all to and headed, remember still is where think already and I

Tim Coffey

Right.

Donavon Ternes

of that, reinstituted see we conversations, we you and Yeah. The only thing monitoring regulators institutions routine I expect have we buybacks. Tim, add, with would are as and have a number

a that that -- or Some activity would has that of have with program, regulators that, receptive all regulator even expect institutions -- down expanded path. obviously, has the are occurred, result knowledge. this the to somewhat And we as going

might CARES as about down implications the through getting intermediate we going which to will clearly that expiring commercial estate respect some looks good multifamily we're may with and may it go. know real little rents our are where understand mean bit pleased. of I cautious very on just Right we're respect uncertain some this credit, there's we're Act near-term XX so, about the understand to to now very But whether still more are bit our regulators December we implications where now But little through think forbearance and cautious loans, quarter our largely XXst, a go think what that. to to that. as of it's not with and And a credit. or and rents very, loans, that we be

Craig Blunden

to get or whatever does. OCC. if state and I'm wonder a FDIC starting sense of And on see you I'm different whether way to they look difference or regulator too, for in depending trying institutions, it or a this have look Tim, different look a the versus regulator which at or to Yeah. there's they're

Tim Coffey

not. I have

Donavon Ternes

top would relatively Tim, book. certainly we that of XX% credit our and like tangible think of implement our something obviously, to and in it's comfortable get to doing comparison we trading stock is so, as we XX% It's that given soon fact mind, good others at outlook or is the

Craig Blunden

Yeah.

Tim Coffey

All you sense. are much. That questions. right. Yeah. my makes Well, all those very Thank

Craig Blunden

you. Thank

Operator

do of the And have from Please Arbetton question [ph]. line a go Brett ahead. we

Unidentified Analyst

guys. morning, Good Hey.

Craig Blunden

Good morning.

Donavon Ternes

morning, Good Brett.

Unidentified Analyst

thinking I management money a various maybe technology. and looking just expense switching networks wanted update give with you expense and things at branch ask doing on might banks plans have the spending maybe just and or to second, to other for you on, about topics investing in first are thoughts change with this us your an any thoughts please? branches the dynamic and management year any and expense, on franchise, the technology Can on

Craig Blunden

Donavon? that will You take

Donavon Ternes

Sure.

in last that XXX out, A did XX% component first decline were down prepared those point thing had to describe XX, we reductions from remarks the as to the FTE of So, that of XX, is XX. that we a XXXX year to FTE I XX of want XX XX, XXX occurred. FTE, nuanced from September XXXX June September Craig's September we

of than respect more saves see subsequent and half so of to the as expense September that. we reduction with in So a the quarter, occurred that essentially benefits to result expect quarters in some salaries costs

had million, that from base result as but it relatively the in what are, a bit So done which the in that was we expenses just a for operating room still of $X little the of million there's is, good where a September we quarter. downward baseline $X on we've a quarter,

branch did as we in branches reduce for Quinta the our coming Last Moving up year, analysis system. one of that La to lease on followed the renewal. was an

of on on going leases embarking it what there. to same is for coming be do our to process that dictated understand might we and be branches able respect expiration to for up that's with the their really to each lease are are We renewal that

we're another or consolidated and se the be to expect we about branches and if per proper, network, can't thinking for thinking about we're probably you Riverside blight really the consolidation probably it's proper. with will, on branch you doing anything be in there. occur, instance, branch branch to our So if something But table. if But limited think if that our to in Riverside occur anything I would wouldn't were branch about

Another The at and our branches which were to does environment time. what past. They built than footprint a we today. different and in we've a of on period be in thing not of looking the potentially need we're the them considering, table, some own was that's for it owned branch long

either relocating So there's do respect to something a locations that smaller and those or in we space. potentially with could leased there close space very selling a

are and if mind the the So non-recurring you of one have expenses for expenses at deck, or items. adjust in one-time our look we on top you slide us very of operating and of the for some slides operating four it's

describe next this to December But size conducive not little cities we $X we branches expect adjusted dropped not giving next quarter quarter located. respect, that network million want quarter to a as are where the it's ourselves operating $X.X these the think quarter the were a drop XXXX and it the bit $X.X to the our going If network on we quarter, represent will to $X.X million, of because $X.X we're I have to -- will is I'm initiatives. in So with basis. now those the in million, million, you to year's well, if change, we we’re and QX our an last expenses of million and we June at will, -- wholesale

Unidentified Analyst

great That's Okay. color.

of back looking have are wanted near-term. to at higher to a not do comments into prepays. of very away go slow least going visibility like the level it's the the you've led around, thing might moved that for so I people quality probably feel that's just that is if that to stuff kind assets you Any high or this, you and to, environment where continue rate just at for any other had some is, is The obviously that

Donavon Ternes

that our to single-family, single-family today commercial necessarily. think elevated portfolios, rates do prepays are near-term. our and largest much for so play. so low are essentially Not I be have are estate our second probably portfolios, multifamily But or loans all the also going we of in in real

payoffs for would So where expect the given to elevated future, interest see rates foreseeable are. I

play us near-term, with on we've pressure generally that to with origination on so the the purchase and conservative and growing us platform, fact growth about our puts in and obviously that discipline as the in may been respect that balance loan we some Now, the credit sheet think portfolio. relatively culture

Unidentified Analyst

one you're the Okay. and about a obviously, good there's me, wise. credit, There's from situation provision here, for growth remain just a And really then levels, is just maybe a assuming thinking I provision that charge-off thinking mean, dwindle about just continue one in down credit from bit, here little challenged? reserve a minimal to last the

Donavon Ternes

that's the larger I had Obviously, what Brett. think than to was I saw understanding what March fair with that in respect September in what provision in the and saw the provision when in that larger June after provisioning quarters June provision did mean, you quarter the than quarter was the we occurred quarter. we quarter.

provisioning. So argue given our that, and one deterioration no without should probably is credit reserve our allowance be from where significant here, could -- metrics it is our

I that the extended Well, for we’re Now, that credits December million. will begin quarter, and making seven they October. one text, the that scheduled because repayment of payments that, prepared and were caution show we for and our we and or instance, will minute occurred non-performing out in became in those forbearance, loans begin again, to with that's we in downgraded to payments unable loans comment, up $X.X did them this described

to million at non-performing XXst, So will go all where respect loans the already being about. million to $X.X else we with our -- activity $X.X from know December equal,

housing the Now, suggests those are very single-family loss believe non-performing the California very, loan, we in will higher in that content And loans seven are increase is relatively non-performers well, LTVs or strong. markets significant, don't low. a because that the

were and to charge-off be I discounted cash way respect that don't would there establish into would collateral the dependency, of if of they flows, to they deteriorate much those. with the to So expect off that reserve further in move

troubled with deterioration as which a have situation wouldn't of loans a the commercial restructuring. smaller these bit of we result be and But So so deterioration debt estate provisioning provided our only real see of do loans of multifamily a that And either or perhaps, into, great the activity. in around quarter, I XX deterioration that left in portfolio. we we forbearance where in we deal don't or a out to could moving expect December a see

think I your is is. respect where our probably point to with allowance current valid our and provisioning

Unidentified Analyst

Okay. That's much. you Thank great color. so

Operator

And we do have go line Clark. the a for Matthew of question Please ahead.

Matthew Clark

morning. Good Hi.

Craig Blunden

morning. Good

Matthew Clark

should single-family sounds On resi the level an here? Is continue further elevated. with activity, there, to going might there comfort there those growth, expect expectation resuming the net a that be are that knowing in mitigate loan like or and multifamily, to maybe of the bit decline resuming for you those maybe balances runoff it increased to your potential little -- some able purchases there's purchase portfolios potential kind remain prepays given we

Donavon Ternes

the levels, I and mortgage, that time, given to portfolio, any this rates think mortgage may at borrower and single-family current at fact in portfolio the that it given the the are is more that to employment and portfolios maintain alike. pandemic so difficult to given purchase season in single-family trying single-family be the understand or low difficult

being it's portfolio, think the the of that one portfolios than perhaps. more if I would risk others, about So is argue I single-family

in We multifamily. packages have seen

purchase multifamily but it a about from other did little in $X quarters, down quarter was September of fact, million. the bit In we

the now right for We package we're -- quarter have multifamily. December a in going underwriting we're

loosening could markets, context to see the seems packages that area available within the of for perhaps be credit that So in the purchases. being we

could stabilize us again. hopefully, alleviate that potentially pressure begin something portfolio's getting your have growing position we that's it and it to So the a and it retraction, where help into we on

Matthew Clark

have this rate yields a -- can production the on do where headed? those then And on Okay. that average happen for to we quarter, the on might get be so weighted originations, you sense loan

Donavon Ternes

respect production Yeah. with They high the the in were volume. to Xs

Matthew Clark

Okay.

Okay. for level you I about just can last? of criticized or then the one this the me, the coming quarter But versus non-accrual to kind speak this to you think, talked in a And last $X.X classified moving million quarter. amount classified, criticized

Donavon Ternes

quarter Sure. at I in mean, had actually down quarter. move the to September June we non-performers the comparison

classified very during our time a low very, levels that total fact, of In period from we've moved down hit also historic and perspective.

of but think, and overdrawn. think were as probably see, were XX, stuff, we had loans about checking zero. accounts we that delinquent I delinquent I September don't It was our was that not loans. Secondarily, some think, in fact, $X,XXX, did any consumer I

to is So wasn't where -- are which really come yeah, delinquents, classified zero. and there XX-day non-performers XX-day you're from

Now, some that that which in meeting or October there for to in already payments September as at our They're of guidance. forbearance loans be may make not described, that November of December. delinquent we've forbearance, the were program, payments criteria, able forbearance September in because those are scheduled are not XX, the others their in XX, or they're CARES Act interagency the

TDR get downward XX of would resumed percentage percentage some will. that XX, is our similar that those October that categories, possible reclassified those loans have the those, again, or of if experience we a it's XX monthly XX our payments, on that experience not but already the large to expect some of it's to and as although there's potentially, out can So come others into on

deterioration either expect non-performing in we classifieds, we or So, the don't the described significant million. see what today based fact except upon $X.X already that for I've

Matthew Clark

Great. Thank you.

Operator

[Operator Instructions]

Craig Blunden

to I next thank you. in participating to Look our with forward Thank quarterly speaking earnings everyone all All Well, you of right. call. quarter. for want again

Operator

at ladies XX Xth gentlemen, midnight. November today available Pacific And today's replay and after a.m. through will for be conference

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Provident Financial (PROV) 31 Oct 202020 Q3 Earnings call transcript