Provident Financial Holdings, Inc.

both and thank you for standing by. My name is Tiffany and I will be your conference operator today. At this time I would like to welcome everyone to the Providence Financial Holding fourth quarter and fiscal year 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. If you would like to ask a question during that time simply press star and the number one on your telephone keypad. I would now like to turn the call over to Donovan Turniss, President and Chief Executive Officer. Donovan please go ahead.

Thank you Tiffany. Good morning this is Donovan Turniss, President and CEO of Providence Financial Holdings and on the call with me is Peter Pham 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 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 may also 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 10k for the year ended June 30, 2024, and from the form 10Qs and other FTC filings that are filed subsequent to the form 10k. 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 have had an opportunity to review our earnings release that we distributed yesterday which describes our fourth quarter and fiscal 2025 results. In the most recent quarter, we originated 29.4 million dollars of loans held for investment, a five percent increase from 27.9 million dollars that were originated in the prior sequential quarter. During the most recent quarter, we also had 42 million dollars of loan principal payments and payoffs which is an increase of 83 percent from 23 million dollars in the March 2025 quarter. Real estate investors have been more cautious as a result of the higher mortgage rates and uncertainties in the market, although we continue to see moderate activity in loans held for investment. However, we are seeing consumer demand for single-family adjustable rate mortgage products stabilize and we will continue to make adjustments to our underwriting requirements within certain loan segments to encourage higher loan origination volume. Additionally, our single-family and multifamily loan pipelines are higher in comparison to last quarter, suggesting our loan origination volume in the September 2025 quarter will be similar to or higher than when compared to the June 2025 quarter and around the middle to higher end of the range of recent quarters which has been 19 and 36 million dollars. For the three months ended June 30, 2025, loans held for investment decreased by approximately 13.2 million dollars with the decrease mostly coming from multifamily, commercial real estate, and commercial business loans, partly offset by a small increase in single-family loans. Current credit quality continues to hold up very well and you will note that non-performing assets were 1.4 million dollars at June 30, 2025, unchanged from March 31, 2025. Additionally, there were no loans in the early stages of delinquency at June 30, 2025. We continue to monitor commercial real estate loans, particularly loans secured by office buildings, but are confident that based on the underwriting characteristics of our borrowers and collateral that these loans will continue to perform well. We have outlined these characteristics on slide 13 of our quarterly investor presentation which shows that our exposure to loans secured by various types of office buildings is 39.5 million dollars or 3.8 percent of loans held for investment. You should also note that we have just 10 CRE loans that total 5.1 million dollars maturing in fiscal 2026. We recorded a 164,000 dollar recovery of credit losses in the June 2025 quarter. The recovery recorded in the fourth quarter of fiscal 2025 was primarily attributable to a decline in the balance of loans held for investment, a decline in historical loss factors, and lower classified assets, partly offset by a slightly longer average life of the loan portfolio. The outstanding balance of loans held for investment at June 30, 2025, decreased by 13.2 million dollars from March 31, 2025. The allowance for credit losses to gross loans held for investment was 62 basis points at June 30, 2025, unchanged from March 31, 2025. Our net interest margin decreased eight basis points to 2.94 percent for the quarter ended June 30, 2025, compared to the 3.02 percent for the sequential quarter ended March 31, 2025. The net result of a six basis points decline in the average yield on total interest earning assets and no change in the cost of total interest bearing liabilities. Our average cost of deposit increased to 1.33 percent of seven basis points for the quarter ended June 30, 2025, while our cost of borrowing increased six basis points to 4.58 percent in the June 2025 quarter compared to the March 2025 quarter.

The

net interest margin was negatively impacted

by

approximately four basis points as a result of higher net deferred loan costs associated with loan payoffs in the June 2025 quarter compared to the net average net deferred loan cost amortization of the previous five quarters. In contrast to a two basis point positive impact in the March 2025 quarter. Also, the March 2025 quarter had a benefit of three basis points from approximately $94,000 of loan interest recovery that was not replicated this quarter as the result of non-performing loan payoffs and loan classification upgrades. New loan production is being originated at higher mortgage interest rates than the weighted average of the existing portfolio. The weighted average rate of loans originated in the June 2025 quarter was 6.69 percent compared to the weighted average rate of 5.16 percent for our loans held for the past two years. In addition, our adjustable rate loans are replacing at interest rates that are higher than their current interest rates. For example, we have approximately $117 million of loans replacing in the September 2025 quarter to an interest rate currently forecast to be 15 basis points higher to a weighted average interest rate of 7.23 percent from 7.08 percent. Additionally, we have approximately $98 million of loans repricing in the December 2025 quarter to an interest rate currently forecast to be 15 basis points higher similar to the September quarter to a weighted average interest rate of 6.88 percent from 6.73 percent. I would point out that there is an opportunity to replace the touring wholesale funding downward as a result of current market conditions where interest rates have moved lower across all terms. Excluding overnight borrowing, we have approximately $71 million of federal home loan bank advances, brokerage certificates of deposit, and government certificates of deposit maturing in the September 2025 quarter at a weighted average interest rate of 4.43 percent. Additionally, we have approximately $105 million of federal home loan bank advances, brokerage certificates of deposit, and government certificates of deposit maturing into December 2025 quarter at a weighted average interest rate of 4.61 percent. Given current market conditions, we would expect to reprice these maturities to a lower weighted average cost of funds. All of this suggests there is an opportunity for expansion of the net interest margin in the September 2025 quarter. We continue to look for operating efficiencies throughout the company to lower operating expenses. Our FTE count on June 30, 2025 was 163 compared to 160 one year ago. You will note that operating expenses were $7.6 million dollars in the June 2025 quarter, a decrease from $7.5 million dollars in the March 2025 quarter. Operating expenses for the June 2025 quarter represented a more normalized run rate. In the March 2025 quarter, operating expenses included $239,000 of litigation settlement expenses and $27,000 of executive search firm costs. For fiscal 2026, we expect a run rate of approximately 7.6 to $7.8 million dollars per quarter. Our short-term strategy for balance sheet management is more growth oriented than last fiscal year. We believe that disciplined growth of the loan portfolio remains the best course of action at this time as we recognize that the Federal Open Market Committee has recalibrated the looser monetary policy and the inverted yield curve has begun to reverse back to an upwardly smoking curve. We were successful in the execution of the strategy in the June 2025 quarter with loan origination volume at the higher end of the quarterly range. However, loan pre-payments were higher than the prior sequential quarter offsetting the higher loan production volume. The composition of total interest earning assets improved with a higher percentage of loans receivable and interest earning deposits to total interest earning assets and a lower percentage of investment securities to total interest earning assets. Additionally, the composition of total interest bearing liabilities improved with an increase in the average balance of deposits and a decrease in the average balance of borrowing. We exceed well capitalized capital ratios by a significant margin allowing us to execute on our business plan and capital management goals without complications. We believe that maintaining our tax dividend is very important. We also recognize that prudent capital returns to shareholders through stock buyback programs is a responsible capital management tool and we repurchased approximately 76,000 shares of common stock in the June 2025 quarter. For the fiscal year we distributed approximately 3.8 million dollars of cash dividends to shareholders and repurchased approximately 4.3 million dollars worth of common stock. Accordingly, our capital management activity have resulted in a 129 percent distribution of fiscal 2025 net income. We encourage everyone to review our June 30th investor presentation posted on our website. You will find that we included slides regarding financial metrics, asset quality, and capital management which we believe will provide additional insight on our solid financial summit foundation supporting the future growth of the company. We will now entertain any questions that you may have regarding our financial results. Thank you. Tiffany, please proceed.

At this time if you would like to ask a question press star then the number one on your telephone keypad. To withdraw your question simply press star one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from William with Piper Sandler. Please go ahead.

Hi everyone. Thank you guys for the 2026 outlook and the outlook on the back half of the year as well. I just have one question. Has the recent uptick in prepayments shifted your view on portfolio mix originations? Basically are you guys leaning more into certain segments or a set of runoffs?

Yeah, our mix is primarily, you know, what we would prefer I suppose is 50% single family, 50% multi-family. But to the extent we're not meeting our goals with either of those buckets we'll increase the mix of one type over the other. As it occurs single family has been performing on the volume perspective over the last few quarters. Although this quarter we did realize more volume in multi-family and commercial real estate than the recent prior quarters. Nonetheless we're not married to a straight mix in the portfolio as long as we're generating the volume of those two types.

Awesome, awesome. And there's one other, I guess on expenses, so that's very helpful the outlook. But is there an efficiency ratio that you guys target? I know earlier in like 2025-ish you guys bounced under that 70% efficiency, about 20-20 more or rather, under that 70% efficiency. Is that something that you guys think you'll be able to get back to?

Well it depends on portfolio growth strength. What I would describe is that our current operating expense baseline will be able to fund future growth of the loan portfolio into the balance sheet and ultimately as we grow the loan portfolio and grow total interest earning assets and ultimately grow total assets we will be able to reduce that efficiency ratio over time into a better ratio for smaller companies such as ours from where we currently are.

Awesome, yeah that's it for me. So thank you so much, I appreciate it.

Your next question comes from Tam Coffee with Danny. Please go ahead.

Great, thank you, morning gentlemen. Donovan,

the increased payoff this quarter, a function of K-competition, is it primarily on price that's the friction or is it also structure? I think it's probably both Tim. If you were to look at our pricing, we're priced relatively competitively in both single family and multi-family, but our underwriting characteristics are perhaps a little bit tighter than some of the others in the market and that speaks to the credit quality we've had over time and so I would argue it is probably more structure than it is although in both single family and multi-family we have been loosening underwriting restrictions and really with single family and multi-family we're probably back to underwriting to pre-COVID criteria when we tightened up during COVID, but in promotional real estate other than multi-family were still a little bit tighter, particularly in the office segment or some of the out of other favor

other segments. Okay, that's helpful. And then just double

checking my notes here, on the loans that are repricing the next two quarters,

what was the dollar value of that for the September quarter? So

September we have approximately 117 million repricing upwards by approximately 15 basis points.

Okay, and then for the December quarter,

what that 15 basis points improvement was to what? Approximately 98 million dollars.

Okay, and what was it repricing to? 6.88 percent. Okay, perfect. That's what we're going forward. The expense outlook is helpful. Do you remind us what the seasonality is to that, given that you do operate on a fiscal year?

Well, the March quarter of every year you'll see higher operating expenses primarily in the salary and benefits line because of employer taxes being paid until some of the higher wage earners max out, if you will, on some of those tax obligations. So the March quarter is really the one quarter out of the three or out of the four that have a little bit of seasonality to it.

Okay, okay. So no intervening impact from, you know, salary adjustments?

Well, yeah, July 1st we obviously have increases to merit and that's why we died at higher in that 7.6 to 7.8 million range per quarter in the September and thereafter quarters. In contrast to our prior dies, we saw, I think we're, you know, 7.6 to 7.7 million per quarter.

Okay, okay. That's really helpful. And then just a question on the loan deposit ratio. Obviously it's elevated relative

to peers, but you know, as you detail in your earnings release, you have ample liquidity.

What is the range of the loan deposit ratio that you suspect it was?

Well, our business model, Jim, lends itself to a higher loan to deposit ratio. Since we're essentially mortgage lenders for the bulk of our mortgage or the bulk of our loan portfolio, there are no drawdowns that come out of borrower requests on an ongoing basis, such as a P&I portfolio. So there's no dry powder that the borrower can draw from with respect to our portfolio. So as we're forecasting out cash flows, it's a bit more stable for us than many. And as a result of that, we can run higher loan to deposit ratios and we have historically done so. Recently we've brought that down probably about five basis points. I think we were in the 120s and now we're in the mid-1 teams. And we will continue to work that down as deposit liquidity improves, as deposit competition improves in our market. Nonetheless, we are more comfortable with higher loan to deposit ratios.

All right, that's a great color, Don, and thank you. Those are my questions.

That concludes our question and answer session and I will now turn the call back over to Don of Internets for closing remarks.

I appreciate everyone's participation today on the call. As always, you can follow up with us if you wish. We're always open to having individual conversations. And with that, I look forward to next quarter's call. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.