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Value

Provident Financial Holdings, Inc. (PROV - Snapshot Report) reported solid fiscal first-quarter results in late October, which included a positive earnings surprise of nearly 85%. This Zacks #1 Rank (Strong Buy) bank holding company has now beaten earnings estimates in three of the last four quarters with an average overperformance of 32.5%. Moreover, with a P/B multiple of just 1.2, the stock looks attractive for value investors.

Impressive Q1 Results

On October 25, Provident Financial reported fiscal first quarter earnings of 72 cents per share, outpacing the Zacks Consensus Estimate by 84.6% and the year-ago earnings by 260.0%. The better-than-expected results were driven by significant top-line growth, partly offset by higher expenses.

Net interest income edged up 1.6% from the year-ago quarter to $8.9 million. Similarly, net interest margin expanded 17 basis points (bps) to 2.96%. Non-interest income jumped drastically and reached $22.2 million, primarily driven by higher gains on the sale of loans. Yet, non-interest expenses escalated 40.8% to $17.3 million as a result of higher salaries and employee benefit costs.

Provident Financial witnessed a decent improvement in its asset quality during the quarter. As of September 30, 2012, allowance for loan losses was $20.1 million, down 30.0% year over year. Net charge-offs were 0.72% to average loans receivable, falling 32 bps from the prior-year quarter.

Earnings Estimates Advancing

Over the last 60 days, the Zacks Consensus Estimate for fiscal 2013 surged 67.7% to $2.18 per share as the sole estimate moved higher. This reflects year-over-year growth of 127.1%. For fiscal 2014, the estimate moved north over the same time frame, helping the Zacks Consensus Estimate improve 16.7% to $1.40.

Valuation Looks Attractive

Along with an attractive P/B multiple, Provident Financial has a forward P/E ratio of 7.6 (a P/E ratio under 15.0 and P/B ratio below 3.0 generally indicate value). Moreover, the company has a trailing 12-month ROE of 11.8%, compared with the peer group average of 6.3%. This implies that the company reinvests its earnings more efficiently than its industry peers.

Headquartered in Riverside, California, Provident Financial is the holding company of Provident Savings Bank F.S.B. The company provides financial services to retail consumers and small to mid-sized businesses and has 15 retail/business banking offices in Riverside County and San Bernardino County. Founded in 1956, the company has a market cap of about $178.0 million. Other Zacks #1 Rank (Strong Buy) firms in the same industry include HomeStreet, Inc. (HMST) and Flagstar Bancorp Inc. (FBC).


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