Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter Earnings Call . As a reminder, this conference is being recorded, and a replay will be available for you to listen to starting at 11:00 a.m. Pacific Time today and running through August 5 at midnight. To access that replay, dial (866) 207-1041, enter the access code of 1060286. International callers will use the number of (402) 970-0847. And again, that access code is 1060286 . And at this time, I would now like to turn this conference over to our host, Chairman and CEO, Mr. Craig Blunden. Please go ahead, sir.

Thank you, John. Good morning, everyone. This is Craig Blunden, Chairman and CEO of Provident Financial Holdings. And on the call with me is Donavon Ternes, our President, Chief Operating and 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, forecast of financial or other performance measures and statements about the company's general outlook for economic and business conditions.

And our first question, we will go to Nick Cucharale.

So first, I wanted to start with loan growth. I appreciate the commentary on the pipeline and the production outlook. I know it's early, but have you seen refinance activity slowing at this point in the quarter or is it still elevated?

Don?

Nick, I think refinance activity began to slow in the June quarter as a result of the bump up in the 10-year treasury yield and ultimately mortgage rates. But since that time, refinance activity has reversed in that it's grown a bit since the 10-year yield and mortgage rates have come down. For us, that puts a little bit of pressure perhaps on prepayments. We've seen the bulk of that prepayment activity occur in the single-family loan portfolio, although it also gives us opportunity with respect to new origination volume.

Can you help us think about the overall lending environment? Has the purchase market continued to normalize back to pre-pandemic times?

The purchase market is -- you read all the anecdotal data, very difficult. I mean there's still a lot of activity, and there's very low inventory. But the low inventory isn't there because of the demand side of the equation per se, it's because sellers aren't listing their homes as they once were, or so it seems. So to the extent that new listings come on, they are sold quite quickly, and so demand for single-family product is very robust. I think some of the numbers with respect to inventory on hand relative to purchase volume is something less than 2 months, which is at very low levels from a historical perspective. So a great deal of activity with respect to purchase volume to the extent sellers are actually putting their homes in listings.

And just lastly, on the tax rate. This quarter's level is still below where you've historically run. Was that partly attributable to the employee retention tax credit? And where do you see that flushing out in future periods?

Our statutory tax rate on a consolidated basis, I think, is 29.56%. And so that's what we described to ourselves, and that's how we build our own business plan. Some of the other things that come into play is, obviously, the employee retention credit, as you described, which is taxable at the federal level, but nontaxable at the state level. And so that provides a bit of a benefit to us in a particular quarter that it's taken.

Next, we have Ben Gerlinger with the Hovde Group.

I was wondering if you guys could kind of expand a little bit more on the expense base in general. I understand that there's obviously the big retention tax credit this quarter. I was looking to see if you could kind of expand and see if the possibility for the next couple of quarters, and obviously, that will affect the tax rate given the federal versus state level. And then from there, on the previous call, we talked about the branch network and if there's a potential for consolidation. I know you guys were reviewing that. I was wondering if you could just kind of expand on just those two aspects.

First of all, I'll address the branch network. As we described on the last call, we review our branch network primarily as leases become due, and we determine whether or not consolidation of branches should occur at that time. The second part of that is to the extent we have a single branch in a single city in the county, it's probably unlikely that we would consolidate that branch. On the other hand, to the extent that we have multiple branches in a particular city, such as Riverside, which is the city in question, that's where consolidation would take place.

And then my last one, I understand that, obviously, the dividend is important, and you've repurchased shares in the past couple of quarters. As you guys continue to operate and produce positive earnings results, the tangible book continues to go up with that respect. Is there kind of a red line in the sand that where repurchased would become a priority? Or is dividend the sole focus?

Well, I don't think we have a sole focus as demonstrated by our actual activity. If I think about the hierarchy, we wish to support the cash dividend, obviously. But then as I think about stock repurchase activity, that's something that we've done historically, and it continues to take or continues to be a part of our capital management. But frankly, we would prefer loan growth and leveraging balance sheet over stock repurchase activity. So that becomes a capital management strategy within the context of generating earnings and increasing total equity and our capital ratios and kind of bringing them down into better levels. So that's how we think about it.

Next, we will go to Tim Coffey with Janney.

Craig and Donavon, can you talk -- see if I get this right. Can you describe your concern level about future loan originations given the increased kind of health warnings that we're seeing from your area, specifically kind of L.A. County and the mass mandate?

As I think about what is occurring with respect to the health conditions and how local governments are responding, I think there might be a minor or a small impact, but some of the things that we're seeing with respect to the new protocols or requirements in many ways are kind of old hat to everybody. We've had mask mandates. We've had advisories or the advice of not gathering and social distancing and things of that nature. And guess what, it really didn't slow down the refinance activity that we've seen over the past year, and so I don't know that it would have a significant impact. Now potentially, it could have more of an impact with respect to multifamily and commercial and maybe slowed some of that activity down because I think we did see an impact with owners and investors in those categories during the course of the pandemic, which seems to have improved now as a result of the decline in protocols or fewer protocols, and so perhaps we see something there. But I think as well what we've seen, I've kind of looked at everybody's numbers, certainly competitors that we deal with, and everybody's volume seems to have been pretty good this June quarter. So there could be a limited impact. I don't know that it would be a large impact. I don't know if you have any comments, Craig?

Well, this is such a moving target, Tim. It's like a roller coaster going up and down and up and down. You don't really know where we're going to be from week to week. And in fact, trying to run a company and figure out what your employees should be doing week to week is difficult as well. So I don't know where all this is going. I think I'd agree in general what Donavon has been saying on the market itself.

So I remember a year ago, we were having discussions about being really difficult to do on-site inspection because of kind of the restrictions. You don't see the same thing occurring again?

No, we've not seen that. We've seen that the protocols that had been established, all of that was overcome and new procedures and activity has gone in that allow both lender and borrower to conduct those things on a safe health basis, if you will. So yes, we don't see any of that right now.

And then you've done a great job year-over-year bringing down or reinvesting the excess liquidity that has found its way on to your balance sheet. Do you still feel that you have more levers to pull to support margin?

Well, yes, I mean the June quarter was kind of a textbook quarter for us as it relates to that. I mean the cash and cash equivalents were essentially flat in comparison to the March quarter. We brought investment security balances down, which are obviously lower yielding instruments during that quarter. Loans held for investment increased during the quarter. Deposits increased during the quarter and borrowings came down during the quarter. We simply need to do more of those -- or more of that for consecutive quarters as we go down the time line. And what that will then do, as you suggest, is support the net interest margin. Remember, one of things to think about, our single-family portfolio is primarily adjustable rate. And even though borrowers are getting their adjustment notices and those yields are going down, they're still inclined to refinance those balances into lower rate 30-year fixed product. And so that has an implication for us as well as we think about the net interest margin because those portfolios are generally adjusting downward. In fact, if you look at some of the tables in the earnings release, you'll see that the yield on SFR loans came down significantly, but the yields on multifamily, commercial real estate and construction, while coming down a little bit, those yields did not come down anywhere near what single-family did.

And certainly, your loan growth outlook, I think our origination outlook is positive as well to that goal. All right, gentlemen, those are my questions.

And sir, at this time, we have no additional questions in queue.

Well, I'd like to thank everyone for participating in our conference call and look forward to speaking with all of you again next quarter. Thank you.

And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Event Conferencing. You may now disconnect.