Thanks for standing by. My name is Mandeep, and I’ll be your operator today. At this time, I’d like to welcome everyone to the Provident Financial Holdings Fourth Quarter and Fiscal 2024 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Donavon Ternes, President and CEO. You may begin.

Good morning. This is Donavon Ternes, President and CEO of Provident Financial Holdings. And on the call with me is Tam Nguyen, our Senior Vice President 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, 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 from any forward-looking statement is available from the earnings release that was distributed yesterday from the annual report on Form 10-K for the year ended June 30, 2023, and from the Form 10-Qs and other SEC filings that are filed subsequent to the Form 10-K. 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 our earnings release, which describes our fourth quarter and fiscal year results. In the most recent quarter, we originated $18.6 million of loans held for investment, an increase from $18.2 million in the prior sequential quarter. During the most recent quarter, we also had $30.6 million of loan principal payments and payoffs, which is up from $28.5 million in the March 2024 quarter and still at the lower end of the quarter of the…

Thank you. [Operator Instructions] Our first question comes from the line of Andrew Liesch with Piper Sandler. Please go ahead.

Hi, good morning. So Donovan, it sounds like you’re becoming increasingly willing to look at adding loans to the portfolio and opening up growth. I guess what sort of specific things do we need to see for that to happen?

Well, Andrew, I think your assessment is accurate. We are interested in growing loan portfolio again. The difficulty is the inverted yield curve and the extent that the inversion is inverted, which complicates populating, call it, a 5-year hybrid arm at the 5-year part of the curve and funding it at the, call it, 6-month, 1-year, 18-month part of the curve, where the inversion essentially brings a lower spread at the margin when we populate those loans. If we see the Fed actually begin to lower interest rates, as they’ve suggested or as fundings have suggested, we can see the short end part of the curve, in fact, reduce in cost, and that would allow us to populate loans at a better spread than we are currently. So the first thing is we want to see a lower inversion in the yield curve that would be beneficial to us. But the second part of it is the fact that we are still in an inverted yield curve environment. There is still a risk of recession, although I would argue that the risk is lower today than it was six months ago or a year ago. But we are sensitive to that. And obviously, we are not interested in growing loan portfolio in the event we are about to enter a recession.

Got it. Very helpful. Turning to capital, the book value and equity continue to rise even with the buyback and the dividend. And I know you want to retain some capital growth returns. But have you thought about – or has the Board thought about a special dividend just to return some of this to shareholders is given where things stand right now?

Sure. I think a special dividend has been thought of. I think our preferred course of action is cash – well, grow cash dividends to shareholders and then ultimately repurchasing shares when we are trading at approximately 70% of tangible book value. So, I think those three courses of action are preferred to a special cash dividend.

Got it. Very good. You have answered all my other questions. I will step back. Thank you.

Thank you.

Our next question comes from the line of Timothy Coffey with Janney. Please go ahead.

Hi Donavon.

Hey. Good morning.

So, what is your best estimate for – so we get into a down rate environment, what is your best estimate or the pay-off and pay-down activity on your loan portfolio?

We would expect pay-offs to potentially increase if we see interest rates decline. Although the thing to think about there, our in-the-money coupons at that point would probably be the origination volume that was originated over the past couple of years at higher interest rates. And that volume is or has been lower than what we routinely originate in a better environment. And then secondarily, those loans that have adjusted or fully indexed and are now fully adjustable, perhaps those loans as well would consider refi. Although if we see the short end of the curve come down, the indices will come down, and those loans would actually begin to adjust downward. So, some of the enticement to refinance those loans would be taken off the table if we would start seeing those loans adjusting downward because they are already in the fully indexed and fully adjustable period. So, generally speaking, we would think that prepayment estimates should go up as a result of a decline in interest rates, but it’s uncertain how much would really – or how much it would really go up because of the two additions I have suggested, which is lower volume of in-the-money loans, and adjustable rate loans, perhaps reversing course and adjusting downward.

Okay. Regardless of the rate environment, do you typically see 100% of the loans, the scheduled to re-price in the quarter, stick around versus being prepaid, or is it always less than 100%?

Well, there is some activity with respect to pay-off volume and some of that pay-off volume could be those loans that are set to re-price obviously, and they might choose to pay-off into a lower costing loan than sticking around with respect to re-pricing. Although the one thing we have seen and we have heard anecdotally from some of our originators, because multifamily and commercial real estate rates are still a little bit higher and most firms are not originating 30 – interest rates that are lower in nature. Not many of them are necessarily interested in a 5-year or a 7-year hybrid arm at these higher rates because they get locked in to a new prepayment penalty. And so there might be some lag for some of these borrowers to look for lower interest rates before they refinance. And in fact, while we have had some pay-off before they began their first re-pricing or their next re-pricing, it’s been a routine or a relatively small number.

Okay. That’s helpful. Thank you. In your mind to get investors back in the market, do they need a material decline in interest rates or visibility to lower interest rates?

I think visibility we are already seeing, and I think it’s visibility to lower interest rates. But ultimately, with respect to the borrowers, they want to see lower interest rates. If you are talking about the investors in bank stocks, I think there has already been a return to the market.

Yes. I was talking more about commercial real estate investors.

Okay. Got it.

Yes. I know that. I seem to move it in bank stocks, and I think that’s positive. And then I appreciate the color on your advances and broker deposits that are scheduled too much here. I am wondering within your deposit portfolio, from your retail customers or general bank customers, how much of those or what segments of those deposits re-price on day one of a rate cut?

Very little of them will re-price on day one, Tim. As you know, our deposit beta has been very low during this cycle. And that’s because we have not done much with respect to increasing interest rates on our transaction accounts. It would only be the retail CDs that would perhaps re-price downward, but they are in a locked term, so it wouldn’t be a day one phenomenon, it would be over the course of time as that CD were to mature very similarly to brokered CDs.

Okay. Alright. I appreciate taking my questions. Thank you.

That concludes our Q&A session. I will now turn the call back over to Donavon Ternes for closing remarks.

Thank you everyone for attending our fourth quarter and fiscal year-end call. In the event you have any follow-up questions, we are open to follow-up questions in a follow-up call, just give us a ring, and have a good day.

This concludes today’s call. You may now disconnect.