Provident Financial Holdings, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended June 30, 2023, compared with fiscal 2022. Although the request metadata says “2022 Q4,” this filing is an annual report for FY2023; it does not provide a clear standalone fourth-quarter summary. Provident is a bank holding company operating primarily through Provident Savings Bank, serving consumers and businesses in Southern California’s Inland Empire.
Financial performance and condition
| Metric | FY2023 / June 30, 2023 | FY2022 / June 30, 2022 |
|---|---|---|
| Total assets | $1.333 billion | $1.187 billion |
| Net income | $8.6 million; diluted EPS $1.19 | $9.1 million; diluted EPS $1.22 |
| Net interest income | $37.0 million; net interest margin 2.99% | $31.6 million; net interest margin 2.72% |
| Loans held for investment, net | $1.078 billion | $940.0 million |
| Deposits | $950.6 million | $955.5 million |
| FHLB borrowings | $235.0 million; weighted-average rate 4.34% | $85.0 million; 2.20% |
| Cash and cash equivalents | $65.8 million | $23.4 million |
| Stockholders’ equity | $129.7 million | $128.7 million |
- Interest income increased 33% to $46.0 million, while interest expense rose 187% to $9.0 million. The average yield on interest-earning assets rose to 3.72% from 2.99%; the average cost of interest-bearing liabilities increased to 0.80% from 0.30%.
- Provision for loan losses was $374,000, versus a $2.5 million recovery in FY2022. The allowance was $5.9 million, or 0.55% of gross loans, versus $5.6 million, or 0.59%.
- Operating cash flow was $16.3 million, compared with $11.8 million. Investing activities used $109.9 million, principally reflecting loan growth; financing activities provided $136.0 million, including increased borrowings. Cash increased $42.4 million.
- Liquidity included $65.8 million of cash and approximately $476.9 million of stated available borrowing capacity across FHLB, Federal Reserve discount window and correspondent-bank facilities. The Bank had $235.0 million outstanding in FHLB advances; no discount-window or correspondent-bank borrowings were outstanding.
- The Bank’s regulatory capital ratios were 9.59% Tier 1 leverage, 18.50% CET1, 18.50% Tier 1 risk-based and 19.38% total risk-based. It was categorized as well-capitalized.
- Held-to-maturity securities had $18.8 million of unrealized losses at June 30, 2023, primarily attributed to interest-rate changes. Management reported intent and ability to hold them to maturity and recorded no impairment.
Material changes versus FY2022
- Net income declined $501,000, or 6%, despite higher net interest income. The main offsets were the swing from a loan-loss recovery to a provision, higher non-interest expense and lower non-interest income. Return on average assets fell to 0.68% from 0.76%; return on average equity fell to 6.58% from 7.14%.
- Loans grew 15%, led by single-family loans, which increased 37% to $518.8 million. Single-family loans were 48% of the portfolio; multi-family and commercial real estate loans together were about 51%.
- Deposits edged down 1%, but the mix shifted: transaction accounts fell 13%, retail deposits excluding brokered CDs declined 12%, and time deposits rose 82% to $220.9 million. Brokered CDs totaled $106.4 million, versus none a year earlier. Estimated uninsured deposits declined to $140.1 million from $173.7 million.
- FHLB borrowings increased $150.0 million to fund loan growth. Investment securities declined 17% to $156.6 million, with no purchases during FY2023.
- Non-performing assets decreased to $1.3 million, or 0.10% of assets, from $1.4 million, or 0.12%. There were no real estate-owned properties; six single-family loans were on non-accrual at year-end.
Outlook, risks and notable items
- Management’s stated strategy is moderate asset and loan growth, with an aim to increase lower-cost checking and savings deposits and reduce reliance on retail time deposits, while using brokered CDs and other funding sources as needed. These are strategic objectives, not quantified earnings guidance.
- Management projected FY2024 capital spending of approximately $1.8 million to $2.7 million. It said it expected to continue quarterly dividends at $0.14 per share, subject to Board discretion and regulatory constraints. A $0.14 dividend was declared July 27, 2023, payable September 7, 2023.
- Interest-rate risk is a key concern. The Bank’s model showed liability sensitivity: a +100, +200 and +300 basis-point shock projected 12-month net interest income declines of 1.95%, 5.26% and 10.56%, respectively. The model is assumption-dependent and actual results may differ.
- Major risks include California and Inland Empire real-estate and economic concentration, rising funding costs, deposit competition and liquidity, credit losses in real-estate lending, and potential borrower payment stress on adjustable-rate loans. Multi-family and commercial real-estate loans were 51% of loans; the filing also highlights property-value, refinancing and balloon-payment risks.
- CECL adoption began July 1, 2023. The company expected a pretax allowance increase of approximately $1.2 million and an approximately $825,000 reduction to opening retained earnings, net of tax.
- The Bank reported approximately $469.4 million of LIBOR-indexed loans at June 30, 2023 and was transitioning them to SOFR beginning July 1, 2023; management expected the revenue effect to be approximately neutral.
- Non-interest expense rose 9% to $28.3 million. Salary and benefit costs increased, in part because FY2022 included a $1.2 million Employee Retention Tax Credit that did not recur; FY2023 also included higher incentive and stock-based compensation.
- The company reported no pending legal proceeding it believed would materially adversely affect its financial condition, operations or cash flows. The independent auditor issued an unqualified opinion on the financial statements and identified the allowance for loan losses as a critical audit matter. Management reported effective internal controls; the auditor did not audit internal control over financial reporting.
Important facts for investors to verify
- Confirm deposit trends, deposit pricing, brokered-CD usage, uninsured-deposit levels and renewal/maturity concentrations against subsequent filings.
- Track net interest margin and funding costs as deposits and borrowings reprice; compare actual outcomes with the filing’s rate-sensitivity model.
- Review CECL adoption results, including the actual opening allowance adjustment and subsequent credit-loss provision trends.
- Monitor loan concentrations, especially California single-family, multi-family and commercial real-estate exposures, delinquencies, collateral values and criticized/classified loans.
- Verify the transition of LIBOR-indexed loans to SOFR and any resulting borrower, legal, operational or revenue effects.
- Assess the sustainability of dividends and repurchases in light of Bank-to-holding-company dividend capacity, capital needs and liquidity.