Hello and thank you for standing by. My name is Lacy, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Provident Financial Holdings Third Quarter of Fiscal 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Donavon Ternes, President and CEO. Please go ahead.

Thank you, Lacy. Good morning. This is Donavon Ternes, President and CEO of Provident Financial Holdings. 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, 2024, 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 distributed yesterday, which describes our third quarter fiscal 2025 results. I have an update regarding the Southern California wildfires in January 2025. We have been contacted by two borrowers who were impacted by the Altadena fire. One home had very minor damage to the perimeter fence, which the borrower repaired himself and although insured, he did not file an insurance claim. The other home had minor damage to the roof, mechanicals and smoke damage. The borrower filed an insurance claim, has received insurance proceeds which…

[Operator Instructions] Your first question comes from the line of Andrew Liesch with Piper Sandler. You may go ahead.

Thanks. Good morning, Donavon. Question on the CD growth in the quarter. Just curious if there’s anything behind that. I know that borrowings were down but was this also to bring on some client funds in advance of expected loan growth? Just curious on what drove that?

We remixed the liability profile in the March quarter. For the first time in a while, we opened up our government deposits desk again. And so we accumulated some government deposits in the March quarter. As a result of that, we had available liquidity to pay down Federal Home Loan Bank advances. And I think we paid down a little bit of brokered CDs as well.

Got it. And were these new CDs at a better rate than what you get in the wholesale market? And is there opportunities for more of this as time goes on?

So the rate was very similar to the wholesale market. The reason that we changed up the strategy is that short-term rates have finally come down. And these deposits are typically short-term in nature. And so that allowed for us to bring those deposits on at very similar cost to other wholesale funding.

Got it. Okay. That’s helpful. And then the margin, it seems like there were maybe – what did you say, if you add up maybe 5 basis points of maybe some nonrecurring benefit to the margin. So if you kind of take that out, you’re at 2.97% [ph], but based on what you’re saying for the repricing, it seems like you could get some expansion from that level here going into the fourth quarter. So certainly not as fast as a pace of what you saw in the last – in your third quarter. But from that 2.97%, it seems like there’s some pretty good optimism there. Am I reading that the right way?

Yes. And in fact, we did have a few items in the March quarter. For instance, the $94,000 net recovery with respect to non-performing loans. And then we always have volatility with respect to net deferred loan costs depending upon what the payoff volume is and which loans pay off at any given point. So that’s really an uncontrollable – well, both of those are uncontrollable to some degree. So that’s why I called it out and pointed it out in the call this morning. But beside that activity in the March quarter, we did spell out where we think our adjustable rate loans will be repricing both by dollar amount as well as by net interest margin or increase in interest rate over the course of the next two quarters. And the same thing with respect to wholesale funding as it relates to dollar amount and what their current costs are.

Yep. Got it. Yes, and that pick up to be nice. Good to see there. Great. You’ve covered everything else than you prepared comments that I had. So I’ll step back. Thank you.

Thank you.

Your next question comes from the line of Tim Coffey with Janney. You may go ahead.

Thank you. Good morning, Donavon.

Good morning, Tim.

I kind of want to pick your brain on what your thoughts are for prepayment activity over the next 12 months?

Well, it’s very difficult to really determine that. We had lower prepays in the March quarter than the December quarter. I expect that was because of the volatility we saw in mortgage rates in the March quarter. It seems like a 7% handle on mortgage rates slows activity by a good amount. And it seems when mortgage rates can be offered below 7% or with a 6% handle there’s more activity, and that then suggests what may occur with respect to prepayments. So, very difficult to describe. That’s one of the reasons we essentially describe the prior five quarters when we speak of net deferred loan costs amortization or acceleration to get a wider view or a wider picture of what occurs because any single quarter can have outsized impact with respect to prepayments.

Okay. If prepayment activity were to slow and the average life of the portfolio lengthens, how much would it have to, I guess, use the word lengthen to see a repeat of calendar 4Q when you saw a provision expense because of it?

Well, internally, we have some of those numbers, Tim, in thumbnails. But if you were to look back at what we have done over the course of, call it, the last four quarters, and you can kind of track what prepayments have done over those quarters and what mortgage interest rates have done over those quarters. And when mortgage interest rates go up from one quarter to the next, prepayments slow down, and that typically requires a provision because the average life of the portfolio, of course, lengthens. And the reverse is true, as you know, with respect to rates going down, prepayments accelerating, the average life of the portfolio declines, and then we recover with respect to what the provision is. So volatility in mortgage rates has an outsized impact in our loan portfolio because they are primarily 30-year mortgages, 15-year mortgages, and that’s much different than a C&I lender, for instance, that might have one year business loans on their books.

Okay, I understand. And then just turning to the capital allocation and capital returns. Obviously, solid long-standing strategy on how much capital you want to return to shareholders and just looking at the TCE ratio, right, for example, it’s fairly solid, stable last four quarters. If the volatility in the market were to increase and the value of the shares decline unexpectedly, would you enhance the buyback and look to return more capital to shareholders? Or do you feel, given the uncertainty out there, having more capital on hand is better?

Well, any time there’s uncertainty, I think having more capital is better. But with respect to our particular capital plans, we typically take a look at our business plan once a year, and we describe in that business plan the cash dividend that will move from the bank to the holding company. And then that cash dividend that is then moved up to the holding company will provide for future cash dividends as well as stock repurchase activity. That was accomplished when we adopted our fiscal 2025 business plan. So I wouldn’t suggest that there would be significant nuance difference with respect to what you’ll see in the June quarter in comparison to what we’ve done over the last three quarters of our fiscal year, simply because we’ve already set those standards with respect to our business plan. But we are in the process of developing our fiscal 2026 business plan and the same thing will occur, we will determine what the cash dividend should look like from bank to holding company. And based upon the approval of that business plan, which typically occurs in July of each year, we will then have established the amount of the cash dividend and the amount that we allocate toward stock repurchases. Now naturally, if the stock price goes down, we will repurchase more shares even given that we have a standard amount or a set amount sitting in the allocation for that activity.

Okay. And then one final question for me is as you compete for loans with the different groups out there, have you seen any change in their behavior or willingness to engage in new loans, et cetera, given what’s happened so far this month?

So if you’re referring to the in-market transaction between Columbia and Pacific Premier, we’ve not really seen anything at this point. And frankly, Pacific Premier had actually been shrinking their loan portfolio and been out of some of the markets that we’re in, primarily multifamily and commercial real estate loans. So we’ve not seen a great deal of difference there. Although what I will say with respect to multifamily, there are some relatively aggressive pricers out there on multifamily loans. And even though we might be priced toward the middle of the market as it relates to multifamily loans and competitors, there are some that might be priced 50 basis points, 75 basis points below the middle of the market. And I expect that they’re gathering a great bit of activity given what their pricing looks like. We’re not sure why that is occurring. You would have to ask those specific lenders, I suppose. But at the end of the day, that does dictate to some degree what we are seeing in multifamily in particular.

Okay. Well, I wasn’t specifically referencing that transaction, but a follow-up question on the overall market for multifamily. Over the last few years, you – the number of companies originating multifamily loans in the Southern California market, which again, is the second largest housing market – rental market in the country, has declined substantially. I hear what you’re saying about the aggressive lenders. Do you get the sense – are you optimistic that more of the market could start moving to you and where your pricing is sooner rather than later?

Difficult to understand what that timing may look like. What I know about our pricing and how we look at things, we’re looking at yield curve. We’re looking to competitors in the market. And ultimately, we’re interested in populating spread at the margin that is sustainable over time. If we find that pricing becomes too aggressive, we’ll look at other lending products, single-family, for instance. It makes no sense to me to originate multifamily at a yield or a rate lower than single-family, and we see that sometimes. So we would simply increase our production of single-family with respect to our needs as it relates to single-digit growth of the overall loan portfolio in comparison to where we need it to be relative to payoffs.

Right. Okay, that’s helpful, Donovan. Those are my questions. Thank you.

[Operator Instructions] Okay. That concludes our question-and-answer session. I will now turn the call back over to Donavon Ternes for closing remarks.

I’d like to thank everybody for attending this quarter’s call, and I look forward to next quarter’s call. Thank you very much.

That concludes today’s conference call. You may now disconnect.