Provident Financial plc

Ladies and gentlemen, thank you for standing by, and welcome to the Providence Second Quarter Earnings Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. If you should require offline assistance, you may depress star, then zero. As a reminder, today's call has been recorded. I will now turn the call over to your host, Mr. Blunden. Please go ahead, sir.

Kevin, good morning, everyone. This is Craig Blunden, Chairman and CEO of Providence Financial Holdings. And on the call with me is Donovan Turnis, our President, Chief Operating and Chief Financial Officer. Before we begin, I have a brief administrative item to address. Our presentation 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's 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 Form 10-K for the year ended June 30, 2019, and from the Form 10-Qs and other SEC filings that are filed subsequent to the Form 10-K. Forward-looking statements are effective only as to 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 second quarter results. In the most recent quarter, we originated and purchased $81.6 million of loans held for investment, a decrease from the $93.4 million in the prior sequential quarter. During the quarter, we also experienced $65.2 million of loan principal payments and payoffs, which is up from the $50.8 million in the September 2019 quarter, and still tempering the growth rate of loans held for investment. For the three months ended December 31, 2019, loans held for investment increased by approximately 2% in comparison to September 30, 2019, with growth in single-family and construction loans, but small declines in commercial real estate and multifamily loans. Competition for new loan production remains aggressive, but we were successful in augmenting our loan origination activity this quarter with single-family and multifamily loan purchases. We're very pleased with credit quality, and you will note that early-stage delinquency balances were just $986,000 at December 31, 2019. In addition, non-performing assets remain at very low levels and are now just $3.4 million, which is down from $6.1 million at December 31, 2018, a 43% decline in the course of the year. We reported a small $22,000 negative provision in December 2019 quarter, resulting from the low levels of non-performing classified assets and no meaningful charge-offs for many quarters. Very pleased with these credit quality results. Our net interest margin expanded by five basis points for the quarter ended December 31, 2019, compared to the same quarter last year. as a result of six basis point increase in the average yield on total interest earning assets and a one basis point increase in the cost of interest bearing liabilities. Our average cost of deposits decreased by three basis points for the quarter ended December 31, 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 3.59% net interest margin this quarter was augmented by approximately seven basis points as a result of decrease in amortization of the net deferred loan costs associated with loan payoffs in December quarter in comparison to the average of the five previous quarters. In addition, our net interest margin remained at the top end of its range in comparison to our recent prior quarters. Our net interest expenses I'm sorry, our non-industry expenses have declined significantly as a result of scaling back our operations regarding the origination of saleable single-family mortgage loans. Notably, our FTE count on December 31, 2019, was 184 compared to 349 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. As a result, operating expenses declined to approximately $7.6 million in the current quarter compared to approximately $10.9 million in the same quarter last year. Additionally, on a sequential quarter basis, operating expenses were essentially unchanged after adjusting for the $296,000 partial revision of a previously expensed legal settlement in the September 2019 quarter, which was not replicated in the December 2019 quarter. Our short-term strategy for balance sheet management is unchanged from last quarter. We believe that re-leveraging the balance sheet with prudent loan portfolio growth is the best course of action. We exceed well-capitalized capital ratios by a significant margin, allowing us to execute our business plan and capital management goals without complications. Although our repurchase activity is limited to approximately 2,400 shares of common stock in the December 2019 quarter, we continue to believe buyback activity is a wise use of capital, and we currently plan to continue to execute on the substantial returns of capital shareholders in the form of cash dividends and stock repurchases. We encourage everyone to review our December 31st investor presentation posted on our website. You'll find that we've included 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'll now entertain any questions you may have regarding our financial results. Thank you. Kevin?

Thank you. Ladies and gentlemen, if you wish to ask a question, please press 1 then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1, then 0 command. If you're using a speakerphone, please pick up your handset before pressing the numbers. Once again, if you have a question, you may press 1, then 0 at any time. One moment, please, for the first question. Now, once again, if you have a question, please press 1, then 0 at any time. Okay, we do have a question from the line of Kevin Swanson. Please state your company name, sir. Hi, guys.