PROVIDENT FINANCIAL HOLDINGS INC Q2 FY2026 earnings call

• Lower mortgage rates drove stronger loan origination activity but also higher prepayment activity; adjustments to underwriting requirements are ongoing.
• Loan pipelines are moderately higher, indicating March 2026 origination volume within recent range.
• Current credit quality holds up well, with nonperforming assets low and no early-stage delinquencies.
• Monitors commercial real estate loans, particularly office buildings, with $36.7 million (3.5% of loans held for investment) exposure and six CRE loans maturing in fiscal 2026 totaling $2.8 million.
• Recorded a $158,000 recovery of credit losses in Q2 2026 due to lower mortgage interest rates affecting loan portfolio life.
• Net interest margin affected by net deferred loan cost amortization from loan payoffs in the December 2025 quarter.
• FTE count at December 31, 2025, was 163 (same as 1 year ago); operating expenses were $7.9 million in Q2 2026, with a pre-litigation voluntary mediation settlement expense of $214,000.
• Short-term strategy focuses on disciplined balance sheet growth via loan portfolio expansion; capital ratios exceed well-capitalized levels.
• Distributed $906,000 in cash dividends and repurchased approximately $1.5 million of common stock in Q2 2026, representing a 170% distribution of net income.

In the second quarter of Fiscal 2026, Provident Financial Holdings originated $42.1 million of loans held for investment, a 42% increase from the prior sequential quarter. Loan principal payments and payoffs were $46.7 million, a 35% increase from the previous quarter. Loans held for investment decreased by approximately $4.1 million for the 3 months ended December 31, 2025, with declines in multifamily, commercial business, and commercial real estate loans offset by increases in single-family and construction loans. Nonperforming assets were $990,000 (8 basis points of total assets) at December 31, 2025, down from $1.9 million previously. The net interest margin increased 3 basis points to 3.03% for the quarter ended December 31, 2025. Average cost of deposits decreased to 1.32%, and cost of borrowing decreased to 4.39%. Loan pipelines were moderately higher than the prior quarter, suggesting March 2026 quarter origination volume would be in the range of $28 million to $42 million. Revenue contribution percentages aren't explicitly stated for each segment but key metrics on loans, margins, and asset quality are highlighted.

• Loan origination volume in the March 2026 quarter is expected to be within the range of recent quarters ($28 million to $42 million).
• Adjustable rate loans repricing in March 2026 quarter to a weighted average interest rate of 6.85% (14 basis points lower than current rate of 6.99%).
• Loans repricing in June 2026 quarter expected to be at a weighted average interest rate of 6.49% (38 basis points higher than current 6.11%).
• Opportunity to reprice maturing wholesale funding downward, with $109 million maturing in March 2026 quarter at 4.12% weighted average and $79.5 million maturing in June 2026 quarter at 4.15% weighted average, expecting lower weighted average cost of funds leading to net interest margin expansion in March 2026 quarter.

• Higher loan prepayments offsetting loan origination growth, affecting overall loan portfolio composition.
• Implications of loan payoffs on net interest margin, as seen in the December 2025 quarter where net deferred loan cost amortization negatively impacted the margin by ~5 basis points.
• Monitoring commercial real estate loans, particularly office buildings, for potential performance issues despite confident underwriting characteristics.

Q: Given the puts and takes that you just described on the loan portfolio, what is the probability that your portfolio is flat with the next 4 quarters?

A: It's difficult to determine as it depends on loan payoffs; we've been focusing on increasing origination volume, with pipelines suggesting March 2026 quarter will be higher, but loan payoffs are hard to discern.

Q: Do you see the loans repricing in the June quarter as a potential headwind to loan growth?

A: Not necessarily; while they reprice higher than new loan production, they aren't substantially higher, and loan payoffs have twofold implications (portfolio growth difficulty and net interest margin impact).

Q: The federal government has recently discussed ideas on how to make housing more affordable. If some of those plans come through, would that be a net positive for your business?

A: Ultimately, in California where they lend, there's more demand than available housing. Anything expanding available housing, lowering construction costs, etc., would be helpful as it could drive more buyers.