Provident Financial Holdings, Inc. (NASDAQ:PROV) Q4 2020 Earnings Conference Call - Final Transcript

Jul 29, 2020 • 12:00 pm ET

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Provident Financial Holdings, Inc. (NASDAQ:PROV) Q4 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
Craig Blunden

and we're just $4.9 million, which is down from the $6.2 million at June 30, 2019, a 21% decline during the course of the year. However, the situation regarding the pandemic is fluid and may not -- and may have negative implications for future credit quality, although it's far from certain what those implications will be.

We continue to work with our borrowers to provide payment forbearance of up to 6 months. The forbearance amount will be due and payable in full as a balloon payment at the end of the loan term or sooner if the loan becomes due and payable in full at an earlier date. We believe our forbearance plan will meet the broad criteria promulgated by the CARES Act, the interagency regulatory guidance and clarifying statements from the Financial Accounting Standards Board and the Securities and Exchange Commission. As a result, we believe that we qualify for the favorable provision cited in the guidance on the vast majority of forbearance loans.

As of June 30, 2020, there were 48 single-family loans in forbearance with outstanding balances of approximately $19.9 million or 2.2% of gross loans held for investment and 5 multifamily and commercial real estate loans in forbearance with outstanding balances of approximately $2.7 million or 0.29% of gross loans held for investment.

Monthly payments on the majority of loans in forbearance will not be required to resume until October or November of 2020. Additionally, new request for forbearance have significantly declined from levels experienced in March and April and May. We recorded a $448,000 provision for loan losses in the June 2020 quarter, primarily due to an increase in the qualitative components in our allowance for loan losses methodology in response to the pandemic, which has negatively impacted the current economic environment.

You will note that we remain on the incurred loss model and have not adopted CECL. This means that our allowance methodology cannot be reasonably compared to CECL adopters. I also wish to refer you to Slide 13 of our investor presentation, specifically Footnote 5 of the commercial and real estate table. The footnote describes the composition of our commercial real estate secured loan portfolio and the balances that may be considered high risk in the current environment. Additionally, we populated a new table on Slide 13 describing certain characteristics of loans in forbearance.

Our net interest margin compressed by 35 basis points for the quarter ended June 30, 2020, compared to the March 31 sequential quarter as a result of a 41 basis point decrease in the average yield on total interest-bearing assets, partly offset by a 7 basis point decrease in the cost of total interest-bearing liabilities. The decline in the average yield on total interest-bearing assets was primarily a result of a sharp rise in liquidity, stemming from the significant increase in total deposits and invested at nominal yields.

Our average cost of deposits decreased by 6 basis points to 30 basis points for the quarter ended June 30, 2020,