PROVIDENT FINANCIAL HOLDINGS INC Q4 FY2025 earnings call

• Loan origination: $29.4 million originated in the most recent quarter, a 5% increase from the prior sequential quarter; loan principal payments/payoffs up 83%. Consumer demand for single-family ARMs stabilizing; underwriting adjustments to encourage origination. Loan pipelines higher, expecting similar or higher origination in the September 2025 quarter.
• Credit quality: Nonperforming assets unchanged, no early delinquencies. Monitoring commercial real estate loans, especially offices, but confident in their performance based on underwriting characteristics.
• Net interest margin: Impacted by higher net deferred loan costs, but opportunity to reprice funding lower in upcoming quarters.
• Operating expenses: Decreased to $7.6 million in the June 2025 quarter, a normalized run rate; expecting $7.6M-$7.8M per quarter in 2026.
• Balance sheet management: More growth-oriented; loan portfolio growth, improved asset and liability composition; well-capitalized; dividend maintained, shares repurchased in the June 2025 quarter.

For the 3 months ended June 30, 2025, Provident Financial Holdings originated $29.4 million of loans held for investment, a 5% increase from the prior sequential quarter. Loan principal payments and payoffs were $42 million, an 83% increase from the March 2025 quarter. Loans held for investment decreased by approximately $13.2 million during this period, mostly from multifamily, commercial real estate, and commercial business loans, with single-family loans slightly increasing. Nonperforming assets were $1.4 million at June 30, 2025, unchanged from March 31, 2025, and there were no early-stage delinquencies. The net interest margin decreased 8 basis points to 2.94% for the quarter ended June 30, 2025. Operating expenses were $7.6 million in the June 2025 quarter, a decrease from $7.9 million in the March 2025 quarter, with operating expenses for 2026 expected to be in the range of $7.6 million to $7.8 million per quarter.

• Loan origination volume in the September 2025 quarter is expected to be similar to or higher than the June 2025 quarter, in the mid to high range of recent quarters.
• For 2026, operating expenses are forecasted to be in the range of $7.6 million to $7.8 million per quarter.
• Opportunity to reprice wholesale funding lower in upcoming quarters, potentially expanding the net interest margin.

• Real estate investors are cautious due to higher mortgage rates and market uncertainties.
• Commercial real estate loans, particularly those secured by office buildings, could pose risks if not managed properly.
• Higher loan prepayments than production volume could impact financial results.

Q: Has the recent uptick in prepayments shifted your view on portfolio mix or originations?

A: Our mix is primarily 50% single-family, 50% multifamily. We will adjust the mix of one type over the other if we're not meeting goals, with single-family outperforming in volume recently but multifamily and commercial real estate having more volume this quarter.

Q: Is there an efficiency ratio that you guys target?

A: It depends upon portfolio growth. Our operating expense baseline will fund future loan portfolio growth, and as we grow the loan portfolio and total assets, we will be able to reduce the efficiency ratio over time.

Q: Are the increased payoffs this quarter a function of price or structure?

A: It's more structured than price. Our pricing is competitive, but underwriting characteristics are tighter than some in the market, which relates to our strong credit quality. We've been loosening underwriting in single-family and multifamily but remain tighter in commercial real estate, especially offices.

Q: What was the dollar value of loans repricing in the September quarter?

A: Approximately $117 million of loans are repricing upward by approximately 15 basis points in the September 2025 quarter.

Q: What is the range of the loan-to-deposit ratio you feel comfortable with?

A: Our business model allows for higher loan-to-deposit ratios. Currently in the mid-1 teens, we'll continue to work to lower it as deposit liquidity improves, but we're more comfortable with higher ratios.