Provident Financial plc

Ladies and gentlemen, thank you for standing by and welcome to the first quarter earnings call. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions. To require assistance, please press star zero. As a reminder, this call is being recorded. And I'd like to turn it over to Mr. Blunden. Please go ahead, sir.

Good morning, everyone. This is Craig Blunden, Chairman and CEO of Provident Financial Holdings. And on the call with me is Donovan Ternus, our President, Chief Operating and Chief Financial Officer. Before we begin, I have a brief administrative item to address. Our presentations today discusses the company's business outlook and will include forward-looking statements. Those statements include descriptions of management's plans, objectives or goals for future operations, products or services, forecasts of financial or other performance measures, and statements about the company's general outlook for economic and business conditions. We also may make forward-looking statements during the question-and-answer period following management presentation. These forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ from any forward-looking statement is available from the earnings release that was distributed yesterday from the annual report on Farm 10-K for the year ended June 30, 2019, and from the Form 10Qs and other SEC filings that are filed subsequent to the Form 10K. Board looking statements are effective only as of the date they are made, and the company assumes no obligation to update this information. To begin with, thank you for participating in our call. I hope that each of you has had an opportunity to review our earnings release, which describes our first quarter results. The fundamentals of the company continue to improve. our net interest margin has expanded, core deposits have been stable, credit quality has been strong, and loans originated and purchased for portfolio have been increasing over the past year. In the most recent quarter, we originated and purchased $93.4 million of loans held for investment, an increase from the $51.2 million in the prior sequential quarter. During the quarter, we also experienced $58.8 million $50.8 million of loan participation payments and payoffs, which is down from the $54.8 million in the June 2019 quarter, but still tempering the growth rate of loans held for investment. Additionally, we estimate that the decrease in amortization of net deferred loan costs associated with the lower loan payoffs in the September quarter in comparison to the average of the previous five quarters augmented our net interest margin by approximately four basis points this quarter. For the three months ended September 30 of 2019, loans held for investment increased by approximately 5% in comparison to the balance on June 30, 2019, with growth in single family, multifamily, and construction loans, but a small decline in commercial real estate loans. Competition for new loan production remains aggressive, and augmenting our loan originating activity this quarter with single-family and multi-family loan purchases. We're very pleased with credit quality and we'll note that early-stage salinquency balances were just $992,000 at September 30th, 2019. In addition, non-performing assets remain at very low levels and are now just $5.2 million, which is down from $7.4 million at September 30th, 2018, a 30% decline during the course of the year. We recorded a small $181,000 negative provision in September 2019 quarter resulting from the low levels of non-performing and classified assets and no meaningful charge-offs for many quarters. We're very pleased with these credit quality results. Our net interest margin expanded by 34 basis points for the quarter ended September 30th, 2019 compared to the same quarter last year as a result of a 33 basis point increase in the average yield and total interest earning assets and a one basis point decrease in the cost of interest bearing liabilities. Our average cost of deposits decreased by two basis points for the quarter ended September 30, 2019 compared to the same quarter last year. Over the course of the past 12 months, we've been able to hold the line on the cost of core deposits, highlighting the strength and value of our deposit franchise. The net interest margin this quarter of 3.64% was augmented by approximately four basis points as a result of decrease in loan payoffs, which decreased the amortization of net deferred loan costs. In addition, our net interest margin remains at the top end of its range in comparison to our recent prior quarters. Our non-interest expenses have declined significantly as a result of scaling back our operations regarding the origination of saleable single-family loans. Notably, our FTE count on September 30, 2019 was 188 compared to 363 FTE on the same date last year, and we have 10 fewer loan production offices and one less retail banking center in comparison to the same time last year. Additionally, we had two unusual items reduce our non-interest expenses for the current quarter. First item was the $296,000 reversion of a previously recognized legal settlement lowering our operating expenses for the quarter. The second item was approximately $150,000 benefit and lower deposit insurance premiums as a result of the FPIC implementation of the small bank assessment credits. We estimate that our small bank assessment credit will be available through March 31, 2020 and provide approximately $75,000 quarterly benefit for each of the next two quarters. Our short-term strategy for balance sheet management is unchanged from last quarter. We believe that re-leveraging the balance sheet of prudent loan portfolio growth is the best course of action. With a foreseeable future, we believe that maintaining a significant cushion above the bank's regulatory capital ratios of 8% for Chair 1 leverage and 13% for total risk base is wise. We're confident we'll be able to do so. Currently exceed each of these ratios by a significant margin, demonstrating we have the capital executed on business plan and capital management goals. Additionally, in the September 2019 quarter, we purchased approximately 17,000 shares of common stock and continue to execute on substantial returns of capital of shareholders in the form of cash dividends and stock repurchases. We encourage everyone to review our September 30th investor presentation posted on our website. You'll find that we include slides regarding financial metrics, asset quality, and capital management, which we believe will give you additional insight on our strong financial foundation supporting the future growth of the company. We will now entertain any questions you may have regarding our financial results. Thank you. Tricia.

Ladies and gentlemen, if you would like to ask a question, please press star then 1. You'll hear a tone indicating you've been placed in queue. Once again, if you have a question, please press star 1 at this time. We'll go to the line of Tim O'Brien with Sandler, O'Neill, and Partners. Please go ahead.