Provident Financial Holdings Reports Fourth Quarter and Fiscal Year 2022 Results

Net Income of $2.46 Million in the June 2022 Quarter

Net Income of $9.09 Million for Fiscal 2022

Net Interest Margin Expands 32 Basis Points in Comparison
to the Prior Sequential Quarter

Loans Held for Investment Increase 11% from June 30, 2021 to $940.0 Million

Total Deposits Increase 2% from June 30, 2021 to $955.5 Million

Improved Asset Quality with a $411,000 Recovery from the Allowance for Loan Losses

Non-Interest Expenses Remain Well-Controlled

RIVERSIDE, Calif., July 26, 2022 (GLOBE NEWSWIRE) -- Provident Financial Holdings, Inc. ("Company"), NASDAQ GS: PROV, the holding company for Provident Savings Bank, F.S.B. ("Bank"), today announced fourth quarter and full year earnings for the fiscal year ended June 30, 2022.

For the quarter ended June 30, 2022, the Company reported net income of $2.46 million, or $0.34 per diluted share (on 7.32 million average diluted shares outstanding), down 26 percent from net income of $3.34 million, or $0.44 per diluted share (on 7.59 million average diluted shares outstanding), in the comparable period a year ago. Compared to the same quarter last year, the decrease in earnings was primarily attributable to lower salaries and employee benefits expenses due to the $2.44 million credit from the Employee Retention Tax Credit ("ERTC") in the fourth quarter last year (not replicated this quarter) and the $356,000 lower recovery from the allowance for loan losses, partly offset by the $1.13 million net interest income increase.

"I am pleased with our financial results for the June 2022 quarter and encouraged that our fundamentals continue to improve. For example, the net interest margin expanded by 32 basis points from the prior sequential quarter, we achieved a second consecutive quarter of compelling loan portfolio growth, and operating expenses are well-controlled," said Craig G. Blunden, Chairman and Chief Executive Officer of the Company. "And while much has recently been written about a potential economic downturn, I am confident that our credit quality and strong capital position provides a robust financial foundation to weather the challenges that may arise," said Mr. Blunden.

Return on average assets for the fourth quarter of fiscal 2022 was 0.83 percent, down from 1.12 percent for the same period of fiscal 2021; and return on average stockholders' equity for the fourth quarter of fiscal 2022 was 7.72 percent, down from 10.65 percent for the comparable period of fiscal 2021.

On a sequential quarter basis, the $2.46 million net income for the fourth quarter of fiscal 2022 reflects a 45 percent increase from $1.70 million in the third quarter of fiscal 2022. The increase in earnings for the fourth quarter of fiscal 2022 compared to the third quarter of fiscal 2022 was primarily attributable to a $968,000 increase in net interest income and a $450,000 decrease in non-interest expenses, partly offset by a $234,000 decrease in the recovery from the allowance for loan losses. The decrease in non-interest expenses was primarily due to lower salaries and employee benefits, premises and equipment and other operating expenses. Diluted earnings per share for the fourth quarter of fiscal 2022 were $0.34 per share, up 48 percent from the $0.23 per share during the third quarter of fiscal 2022. Return on average assets was 0.83 percent for the fourth quarter of fiscal 2022, up from 0.57 percent in the third quarter of fiscal 2022; and return on average stockholders' equity for the fourth quarter of fiscal 2022 was 7.72 percent, up from 5.33 percent for the third quarter of fiscal 2022.

For the fiscal year ended June 30, 2022, net income increased $1.53 million, or 20 percent, to $9.09 million from $7.56 million for the fiscal year ended June 30, 2021; and diluted earnings per share for the fiscal year ended June 30, 2022 increased 22 percent to $1.22 per share (on 7.45 million average diluted shares outstanding) from $1.00 per share (on 7.54 million average diluted shares outstanding) for the last fiscal year. Compared to the last fiscal year, the increase in earnings was primarily attributable to a $1.75 million increase in the recovery from the allowance for loan losses and a $956,000 increase in net interest income.

In the fourth quarter of fiscal 2022, net interest income increased $1.13 million or 15 percent to $8.51 million from $7.38 million for the same quarter last year. The increase in net interest income was primarily due to a higher net interest margin primarily due to a shift in the composition of interest-earning assets towards higher yielding loans held for investment and an increase in the average yield on interest-earning deposits reflecting recent increases in the targeted federal funds rate. The net interest margin during the fourth quarter of fiscal 2022 increased by 39 basis points to 2.93 percent from 2.54 percent in the same quarter last year. The average yield on interest-earning assets increased by 31 basis points to 3.18 percent in the fourth quarter of fiscal 2022 from 2.87 percent in the same quarter last year while the average cost of interest-bearing liabilities decreased by 10 basis points to 0.27 percent in the fourth quarter of fiscal 2022 from 0.37 percent in the same quarter last year. The average balance of interest-earning assets was virtually unchanged at $1.16 billion in the fourth quarter of fiscal 2022 as compared to the same quarter last year. The increase in the average balance of loans held for investment was mainly offset by decreases in the average balance of lower yielding investment securities and interest-earning deposits.

Interest income on loans receivable increased by $750,000, or 10 percent, to $8.49 million in the fourth quarter of fiscal 2022 from $7.74 million in the same quarter of fiscal 2021. The increase was due to a higher average balance and, to a lesser extent, a higher average yield. The average balance of loans receivable increased by $67.6 million, or eight percent, to $916.2 million in the fourth quarter of fiscal 2022 from $848.6 million in the same quarter last year. Total loans originated and purchased for investment in the fourth quarter of fiscal 2022 were $85.9 million, down eight percent from $93.3 million in the same quarter last year. Loan principal payments received in the fourth quarter of fiscal 2022 were $41.3 million, down 48 percent from $79.9 million in the same quarter last year. The average yield on loans receivable increased by five basis points to 3.70 percent in the fourth quarter of fiscal 2022 from an average yield of 3.65 percent in the same quarter last year. Net deferred loan cost amortization in the fourth quarter of fiscal 2022 decreased 75 percent to $191,000 from $752,000 in the same quarter last year. The decrease in the net deferred loan cost amortization was due primarily to lower total loan principal payments ($41.3 million vs. $79.9 million) and, to a lesser extent, a $94,000 deferred loan fee recovery from a legacy restructured loan that was paid off in the fourth quarter of fiscal 2022 (not incurred in the same quarter last year).

Interest income from investment securities increased $69,000, or 15 percent, to $540,000 in the fourth quarter of fiscal 2022 from $471,000 for the same quarter of fiscal 2021. This increase was attributable to a higher average yield, partly offset by a lower average balance. The average yield on investment securities increased 31 basis points to 1.11 percent in the fourth quarter of fiscal 2022 from 0.80 percent for the same quarter last year. The increase in the average investment securities yield was primarily attributable to the upward repricing of adjustable-rate mortgage-backed securities and a lower premium amortization during the current quarter in comparison to the same quarter last year ($270,000 vs. $535,000), attributable to a lower total principal repayment ($10.5 million vs. $15.8 million). The average balance of investment securities decreased by $41.7 million, or 18 percent, to $194.5 million in the fourth quarter of fiscal 2022 from $236.2 million in the same quarter last year.

In the fourth quarter of fiscal 2022, the Federal Home Loan Bank – San Francisco ("FHLB") distributed a $121,000 cash dividend to the Bank on its FHLB stock, up $3,000 or three percent from $118,000 in the same quarter last year. The average balance of FHLB – San Francisco stock in the fourth quarter of fiscal 2022 increased $97,000, or one percent, to $8.2 million from $8.1 million in the same quarter of fiscal 2021 and the average yield increased to 5.89 percent in the fourth quarter of fiscal 2022 from 5.81 percent in the same quarter last year.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was $69,000 in the fourth quarter of fiscal 2022, up 263 percent from $19,000 in the same quarter of fiscal 2021. The increase was due to a higher average yield, partly offset by a lower average balance. The average yield earned on interest-earning deposits in the fourth quarter of fiscal 2022 was 0.68 percent, up 57 basis points from 0.11 percent in the same quarter last year. The average balance of the Company's interest-earning deposits decreased $29.5 million, or 42 percent, to $40.4 million in the fourth quarter of fiscal 2022 from $69.9 million in the same quarter last year primarily due to the utilization of these excess funds for loan portfolio growth.

Interest expense on deposits for the fourth quarter of fiscal 2022 was $255,000 as compared to $346,000 for the same period last year, a decrease of $91,000, or 26 percent. The decrease in interest expense on deposits was attributable to a lower average cost of deposits, partly offset by a higher average balance. The average cost of deposits improved, decreasing by four basis points to 0.11 percent in the fourth quarter of fiscal 2022 from 0.15 percent in the same quarter last year. The average balance of deposits increased $29.6 million, or three percent, to $968.6 million in the fourth quarter of fiscal 2022 from $939.0 million in the same quarter last year, primarily due to increases in transaction accounts, partly offset by a managed run-off of higher cost time deposits.

Transaction account balances or "core deposits" increased $36.9 million, or five percent, to $834.4 million at June 30, 2022 from $797.5 million at June 30, 2021, while time deposits decreased $19.3 million, or 14 percent, to $121.1 million at June 30, 2022 from $140.4 million at June 30, 2021.

Interest expense on borrowings, consisting of FHLB – San Francisco advances, for the fourth quarter of fiscal 2022 decreased $165,000, or 27 percent, to $454,000 from $619,000 for the same period last year. The decrease in interest expense on borrowings was the result of a lower average balance, partly offset by a slightly higher average cost. The average balance of borrowings decreased $30.3 million, or 27 percent, to $80.5 million while the average cost of borrowings increased two basis points to 2.26 percent in the fourth quarter of fiscal 2022, compared to an average balance of $110.8 million with an average cost of 2.24 percent in the same quarter last year. The decrease in the average balance and the increase in the average cost of borrowings were primarily due to prepayments and maturities of borrowings with a lower average cost than our remaining borrowings.

During the fourth quarter of fiscal 2022, the Company recorded a recovery from the allowance for loan losses of $411,000, as compared to the $767,000 recovery recorded during the same period last year and the $645,000 recovery from the allowance for loan losses recorded in the third quarter of fiscal 2022 (sequential quarter). The recoveries from the allowance for loan losses primarily reflects improved credit quality and improving general economic conditions, partly offset by increases in loans held for investment during the respective periods.

Non-performing assets, comprised solely of non-performing loans with underlying collateral located in California, decreased $7.2 million or 84 percent to $1.4 million, or 0.12 percent of total assets, at June 30, 2022, compared to $8.6 million, or 0.73 percent of total assets, at June 30, 2021. The non-performing loans at June 30, 2022 are comprised of seven single-family loans, while the non-performing loans at June 30, 2021 were comprised of 27 single-family loans and one multi-family loan. At both June 30, 2022 and June 30, 2021, there was no real estate owned.

Net loan recoveries for the quarter ended June 30, 2022 were $6,000 or 0.00 percent (annualized) of average loans receivable, as compared to net loan recoveries of $8,000 or 0.00 percent (annualized) of average loans receivable for the quarter ended June 30, 2021 and net loan recoveries of $6,000 or 0.00 percent (annualized) of average loans receivable for the quarter ended March 31, 2022 (sequential quarter).

Classified assets, comprised solely of loans, were $1.6 million at June 30, 2022 which consist of $224,000 of loans in the special mention category and $1.4 million of loans in the substandard category; while classified assets at June 30, 2021 were $10.4 million, consisting of $1.8 million of loans in the special mention category and $8.6 million of loans in the substandard category.

The allowance for loan losses was $5.6 million or 0.59 percent of gross loans held for investment at June 30, 2022, down from the $7.6 million or 0.88 percent of gross loans held for investment at June 30, 2021. Management believes that, based on currently available information, the allowance for loan losses is sufficient to absorb potential losses inherent in loans held for investment at June 30, 2022 under the incurred loss methodology.

Non-interest income decreased by $76,000, or six percent, to $1.17 million in the fourth quarter of fiscal 2022 from $1.24 million in the same period last year, primarily due to a $101,000 decrease in loan servicing and other fees. On a sequential quarter basis, non-interest income increased $51,000, or five percent, primarily as a result of an increase in card and processing fees, partly offset by a decrease in loan servicing and other fees.

Non-interest expenses increased by $1.53 million or 31 percent to $6.45 million in the fourth quarter of fiscal 2022 from $4.92 million for the same quarter last year. The increase in the non-interest expense in the fourth quarter of fiscal 2022 was primarily due to the $2.44 million credit from the ERTC in the fourth quarter last year (not replicated this quarter), partly offset by the retirement benefits expense recovery ($198,000 expense recovery in comparison to a $115,000 expense accrual) and a $136,000 refund from a vendor on previously paid network services invoices that were overstated when billed. On a sequential quarter basis, non-interest expenses decreased by $450,000 or seven percent to $6.45 million in the fourth quarter of fiscal 2022 from $6.90 million in the third quarter of fiscal 2022.

The Company's efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, in the fourth quarter of fiscal 2022 was 67 percent, up from 57 percent in the same quarter last year but improved from 80 percent in the third quarter of fiscal 2022 (sequential quarter).

The Company's provision for income taxes was $1.17 million for the fourth quarter of fiscal 2022, up four percent from $1.12 million in the same quarter last year primarily due to an increase in the effective tax rate in the fourth quarter of fiscal 2022 to 32.2 percent from 25.2 percent in the same quarter last year. The lower than normal effective tax rate in the fourth quarter of last year was primarily attributable to the recognition of tax benefits resulting from the exercise of stock options and the non-taxable treatment of the ERTC for state tax purposes.

The Company repurchased 35,488 shares of its common stock with an average cost of $15.90 per share during the quarter ended June 30, 2022 pursuant to its April 2020 stock repurchase plan that expired on April 27, 2022. For fiscal 2022, there were 257,285 shares of PROV common stock purchased at an average cost of $16.73 per share. The Board of Directors approved a new stock repurchase plan on April 28, 2022 which authorized 364,259 shares for repurchase, all of which remain available for purchase at June 30, 2022.

The Bank currently operates 13 retail/business banking offices in Riverside County and San Bernardino County (Inland Empire).

The Company will host a conference call for institutional investors and bank analysts on Wednesday, July 27, 2022 at 9:00 a.m. (Pacific) to discuss its financial results. The conference call can be accessed by dialing 1-844-291-6356 and referencing access code number 2262909. An audio replay of the conference call will be available through Wednesday, August 3, 2022 by dialing 1-866-207-1041 and referencing access code number 5500963.

For more financial information about the Company please visit the website at www.myprovident.com and click on the "Investor Relations" section.

Safe-Harbor Statement

This press release contains statements that the Company believes are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to the Company's financial condition, liquidity, results of operations, plans, objectives, future performance or business. You should not place undue reliance on these statements, as they are subject to risks and uncertainties. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements include, but are not limited to potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, generally, resulting from the ongoing novel coronavirus of 2019 ("COVID-19") and any governmental or societal responses thereto; increased competitive pressures; changes in the interest rate environment; changes in general economic conditions, including the effects of inflation, and conditions within the securities markets; legislative and regulatory changes, including as a result of the COVID-19 pandemic; and other factors described in the Company's latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission ("SEC") - which are available on our website at www.myprovident.com and on the SEC's website at www.sec.gov. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements whether as a result of new information, future events or otherwise. These risks could cause our actual results for fiscal 2023 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us and could negatively affect our operating and stock price performance.

Contacts:

Craig G. Blunden 
Chairman and 
Chief Executive Officer 

Donavon P. Ternes
President, Chief Operating Officer 
and Chief Financial Officer

(951) 686-6060

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