Provident Financial (NASDAQ:PROV) reported modest loan growth in its fiscal first quarter of 2027, supported by lower loan payoff activity and stable origination pipelines, while management said it expects seasonal factors to limit lending activity in the coming quarters.
President and CEO Donavon Ternes said loans held for investment increased by approximately $4 million during the quarter, primarily driven by single-family lending. The company originated $45.4 million of loans held for investment, compared with $46.4 million in the preceding quarter. Meanwhile, principal payments and payoffs declined 6% sequentially to $40.8 million.
Ternes attributed the moderation in payoffs to the interest-rate environment, which he said has reduced borrowers’ opportunities to refinance at lower rates. He said the company has continued to adjust underwriting requirements in certain loan segments in an effort to support disciplined and sustainable origination growth.
Loan Growth Outlook Reflects Seasonal Slowdown
Management said its loan pipeline remained stable and that loan originations in the December 2026 quarter were expected to remain within the range of recent quarters, which has been between $29 million and $46 million. The company also expects loan prepayment activity to continue moderating.
During the question-and-answer session, Ternes said pipelines at the start of the December quarter were generally similar to their levels through much of the September quarter. However, he noted that the December and March periods typically bring a seasonal slowdown in originations because of the holiday season.
“We do expect that we will be able to gin up some growth in the December quarter, and perhaps in the March quarter,” Ternes said. He added that the company expects payoffs to decline further because relatively few outstanding mortgages can be refinanced at lower rates in the current environment.
Asset Quality Remained Stable
Provident Financial said credit quality remained strong at Sept. 30, 2026. Nonperforming assets totaled $504,000, or 4 basis points of total assets, essentially unchanged from $505,000 at June 30. The company reported no loans in the early stages of delinquency at quarter-end.
The company continues to monitor commercial real estate exposure, particularly office-building loans. Ternes said management believes those loans should continue to perform based on borrower profiles and collateral characteristics. Loans secured by office properties totaled $33.3 million, or 3.2% of loans held for investment. Provident Financial also had three commercial real estate loans totaling $424,000 scheduled to mature during the remainder of fiscal 2027.
Provident Financial recorded a $777,000 provision for credit losses during the September quarter. According to Ternes, the provision was primarily tied to an increase in the expected life of the loan portfolio as higher market interest rates reduce the incentive for borrowers to prepay. The allowance for credit losses increased to 64 basis points of gross loans held for investment, from 57 basis points in the prior quarter.
Margin Increased, Though Funding Costs Could Temper Further Gains
Net interest margin increased 11 basis points from the June quarter to 3.32% in the September quarter. The improvement reflected a 20-basis-point rise in asset yields, partly offset by a 9-basis-point increase in funding costs.
The September-quarter margin also benefited by roughly 10 basis points from a Federal Home Loan Bank special cash dividend. Average deposit costs rose 11 basis points to 1.47%, while the cost of borrowings declined 3 basis points to 4.01%.
New lending continued to carry higher yields than the existing portfolio. Loans originated during the September quarter had a weighted average rate of 6.19%, compared with 5.43% for loans held for investment at quarter-end. In the December quarter, approximately $116 million of adjustable-rate loans are expected to reprice about 65 basis points higher, to a weighted average rate of 7.21% from 6.56%.
However, Ternes said the opportunity to reprice maturing wholesale funding at lower rates is largely over. Approximately $104.9 million of Federal Home Loan Bank advances, brokered certificates of deposit and government certificates of deposit are set to mature in the December quarter at a weighted average rate of 3.94%, and management expects those balances to reprice somewhat higher.
In response to an analyst question, Ternes said he expects net interest margin to expand in the December quarter after adjusting for the special Federal Home Loan Bank dividend, but by less than the reported 11-basis-point sequential increase in the September quarter.
Capital Returns and Expense Efforts
Operating expenses declined slightly to $7.6 million from $7.7 million in the June quarter. Full-time-equivalent employee count stood at 160 at Sept. 30, compared with 164 a year earlier, as the company continued to seek operating efficiencies.
Provident Financial repurchased approximately 86,000 shares during the September quarter for $1.6 million. Together with approximately $880,000 in cash dividends, total capital returned to shareholders represented about 158% of quarterly net income, according to Ternes.
The company approved a new 5% stock repurchase plan on Oct. 22, 2026. Ternes said Provident Financial remains significantly above well-capitalized regulatory thresholds and views both its cash dividend and prudent share repurchases as important capital-management tools.
Asked whether the company might restructure its held-to-maturity securities portfolio, Ternes said management has considered the option but does not intend to pursue it at this point. He said the portfolio is running off and its cash flows are being reinvested at “significantly higher rates.”
About Provident Financial (NASDAQ:PROV)
Provident Financial Holdings, Inc is the holding company for Provident Savings Bank, a federally chartered community bank headquartered in Riverside, California. The bank serves individuals, families and businesses primarily in Southern California, with a focus on the Inland Empire and surrounding communities.
Provident Savings Bank offers a range of traditional banking products and services, including deposit accounts, residential mortgage loans, home equity financing, consumer loans and commercial real estate lending.
