Provident Financial Holdings Inc (PROV) 2007 Q1 法說會逐字稿

Welcome to the first quarter earnings release conference call. [OPERATOR INSTRUCTIONS]

With that I'd like to turn the conference over to our host, Chairman and CEO, Mr. Craig Blunden. Please go ahead, sir.

Thank you Dave. Good morning everyone, this is Craig Blunden Chairman and CEO of Provident Financial Holdings. And on the call with me is Donavan Ternes, our Chief Financial Officer. Before we begin I have a brief administrative item to address.

Our presentation today discusses the Company's business outlook and will include forward looking statements. Those statements include descriptions of Management's plans, objectives or goals for future operations, products or services, forecasts of financial or other performance measures, and statements about the Company's general outlook for economic and business conditions. We also may make forward looking statements during the question and answer period following Management's presentation.

These forward looking statements are subject to a number of risks and uncertainties and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ is available from the earnings release that was distributed yesterday and from the annual report on form 10K for the year ended June 30th, 2006. Forward looking statements are effective only as of the date that they are made, and the Company assumes no obligation to update this information.

To begin with, thank you for participating in our call. I hope that each of you has had an opportunity to review yesterday's earnings release, which describes our first quarter results. This morning, I will update you on current trends in our mortgage banking business, and community banking business.

First, our mortgage banking division originated $360 million of loans this quarter, essentially unchanged from the $367 million of loans originated during the quarter ended June 30, 2006. Of this total $48 million or 13% was originated for our portfolio during the quarter in comparison to $83 million or 23% during the quarter ended June 30, 2006. The loan sale margin for this quarter was 111 basis points, an increase from 95 basis points in the quarter ended June 30, 2006. The rebound in loan sale margin is encouraging, particularly since refinanced activity rose to 58% of loan origination volume, up from 55% in the quarter ended June 30, 2006 and a 55% in the same quarter last year.

During our conference calls of the last few quarters, I have noted that mortgage banking environment as become much more competitive because of higher interest rates and rising real estate prices resulting in lower affordability and leading to lower funding volumes. These circumstances did not change this quarter nor do we expect this highly competitive environment to change in the short term. We have responded to the environment by increasing the number of production staff, decreasing the number of support staff, consolidating certain operations and establishing new loan production offices.

Most recently, we reestablished our retail loan production office in Rancho Mirage by hiring a top producer from the area with a good realtor base. Also this quarter, we established a northern California wholesale loan production office in Pleasanton, staffed with a small group of top producing mortgage bankers that have been in the area for a number of years. These actions were taken to stabilize our volume in a declining market and to become more efficient in the back office.

As a result of these actions, the number and mix of employees in mortgage banking continues to change. Currently we have 159 full time employees in the division, 59 are production staff and 100 are support staff. This compares favorably to September 30, 2005 when we employed 165 full time employees with 50 production staff and 115 support staff. Lowering the ratio of support staff to production staff creates a more efficient operation and lower the cost of originating each loan.

We continue to be encouraged by the results of our community banking business and the opportunities that are available in Inland Empire. For the quarter ended September 30, 2006, we expanded the number-- percentage of loans to total earnings assets and the percentage of preferred loans to total loans. During the quarter we originated and purchased $70 million of loans primarily preferred loans, similar to prior quarters.

The one area of concern in our community bank business is the highly competitive deposit market, which is further adversely affected by the current shape of the yield curve. Both of these issues have stalled our deposit growth because we have made the business decision to compete less aggressively on deposit rates than many other financial institutions in our market area. Over the long term, we believe this strategy will pay off in the form of a less rate sensitive depositor who uses a higher number of our products and services.

In the interim, however, we will continue to see weakness in our deposit growth. I should also mention that our 13th branch, [La Sierra] is scheduled to open in mid-December. Opening Denovo branches within our existing geographic footprint, helps us solidify our deposit market share in an attractive [inaudible] empire. And is an integral part of our long-term deposit strategy.

Noninterest expense increased by 1% during the current quarter, compared to the same quarter last year, but declined by 3% from the quarter ended June 30, 2006. The small change in noninterest expense coupled with our growth in total assets has led to an improvement in our G&A to average assets ratio which declined to 2%. We continue to deploy sound capital management strategies for the benefit of all shareholders. We also maintain that the best use of our capital is the prudent growth of the Company, but to extent we're unable to grow as quickly or as carefully as we envisioned, sound capital management strategies, including share repurchases, will continue to be employed. During the quarter we repurchased approximately 111,000 shares of common stock at an average cost of $30.35 per share.

Finally, I would like to update you on current conditions in the southern California real estate market. According to an October 12th news release, from Data Quick information systems, September's leading price payed for a southern California home climbed by 1.9% from September of last year, but declined by 1% from August of this year. And news release also noted that September's increase was the smallest since February 1997 and that Southland homes continue to sell at their slowest pace in nine years.

Marshall Prentice, the President of Data Quick said, "Now is when things get interesting. The vast majority of home buyers have done very well for themselves the past few years. As things level off though, we should be able to quantify how many buyers over paid during the frenzy and by how much. And more importantly how they manage any financial challenges they encounter. Historically most home owners in that situation tough it out and wait for the market to go up again."

Before I open the call to questions, I wish to advise you that we have posted an investor presentation in the Investor Relations section of our website, which you can review at your convenience. We will now entertain any questions that you may have regarding our financial results. Thank you. Dave?

[OPERATOR INSTRUCTIONS] All right, and gentleman, at this time, we have no questions in queue.

Well, in that case, we will end our conference call today and look forward to speaking with everyone next quarter. Thank you.

Thank you very much, and ladies and gentlemen, this conference will be made available for replay starting at 12:30 p.m. Pacific time today, and running through the 31st of October at midnight. You may access the AT&T executive playback service at anytime by dialing 1-800-475-6701 and entering the access code 844111. International participants dial 320-365-3844. Those numbers once again are 1-800-475-6701 and 320-365-3844 with an access code of 844111. That concludes our conference today.