Provident Financial Holdings, Inc. Aktie

Hello, and thank you for standing by. My name is Lacey, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Provident Financial Holdings Fourth Quarter and Fiscal 2026 Earnings Call. [Operator Instructions]

Thank you. I'd now like to turn the call over to Donavon Ternes, please go ahead.

Thank you, Lacey. Good morning. This is Donavon Ternes, President and CEO of Provident Financial Holdings. And on the call with me is Peter Fan, 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 interest rates, 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, 2025, 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 that we distributed yesterday, which describes our fourth quarter and fiscal 2026 results. In the most recent quarter, loan originations increased while loan prepayments declined, resulting in a modest loan growth of approximately $3 million, primarily in our portfolio of single-family loans. We originated $46.4 million of loans held for investment, a 5% increase from the $44.2 million originated in the prior sequential quarter.

Loan principal payments and payoffs declined to $43.5 million, a decrease of 16% from the $52.1 million in the March 2026 quarter. We have seen loan prepayment activity decline in the current interest rate environment as refinancing opportunities are less attractive. We continue to make adjustments to our underwriting requirements within certain loan segments to support disciplined, sustainable growth and origination volume. Despite the volatility in the market, our loan pipeline has remained stable, suggesting our loan origination volume in the September 2026 quarter will remain at the upper end of the range of recent quarters which has been between $29 million and $46 million. We would also expect to see continued moderation in prepayment activity. Our credit quality remains strong. You will note that nonperforming assets were just $505,000 or 4 basis points of total assets at June 30, 2026, a decrease from $978,000 at March 31, 2026. Additionally, there were no loans in the early stages of delinquency at June 30, 2026, indicating no emerging credit issues. We continue to closely monitor commercial real estate loans, particularly loans secured by office buildings, but we believe based on our borrower profiles and collateral characteristics that these loans will continue to perform in accordance with their terms. 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 limited to $33.3 million or 3.2% of loans held for investment. You should also note that we have just 4 CRE loans that totaled $818,000 maturing in fiscal 2027.

We recorded a $95,000 recovery of credit losses in the June 2026 quarter. The recovery recorded in the fourth quarter of fiscal 2026 was primarily attributable to a decrease in the expected life of the loan portfolio resulting from loans repricing higher during the quarter, resulting in a larger incentive for the borrower to prepay. The allowance for credit losses to gross loans held for investment was 57 basis points at June 30, 2026, a slight decrease from 58 basis points at March 31, 2026.

Compared to the sequential quarter ended March 31, 2026, our net interest margin increased 8 basis points to 3.21% for the quarter ended June 30, 2026, comprised of a 7 basis point increase to the yield on interest-earning assets and a 4 basis point decrease in the cost of total interest-bearing liabilities. For the quarter ended June 30, 2026, our cost of borrowings decreased 7 basis points to 4.04%, while our average cost of deposits increased 3 basis points to 1.36%.

The net deferred loan cost amortization associated with loan payoffs in the June 2026 quarter compared to the average of the previous 5 quarters positively impacted the net interest margin by approximately 3 basis points in contrast to a negative impact of 7 basis points in the March 2026 quarter.

New loan production is being originated at higher mortgage interest rates than the weighted-average rate of the existing loan portfolio. The weighted-average rate of loans originated in the June 2026 quarter was 6.03%, compared to the weighted average rate of 5.31% for loans held for investment as of June 30, 2026.

In the September 2026 quarter, our adjustable rate loans are repricing at interest rates that are higher than their current interest rates. We have approximately $133 million of loans repricing in the September 2026 quarter to an interest rate that we forecast will be 79 basis points higher to a weighted-average interest rate of 7.10% from the current interest rate of 6.31%. I would note that the opportunity to reprice maturing wholesale funding downward is largely behind us in the current interest rate environment. We have approximately $81.7 million of Federal Home Loan Bank advances, brokered certificates of deposits and government certificates of deposit maturing in the September 2026 quarter at a weighted-average interest rate of 4.05%. Given the current interest rate environment, we expect to reprice these maturities at comparable cost of funds perhaps somewhat higher. All of this suggests that any net interest margin expansion in the September 2026 quarter will likely be driven by higher loan yields.

Our FTE count at June 30, 2026, was 158 compared to 163 1 year ago. We continue to look for operating efficiencies throughout the company to lower operating expenses. Operating expenses were $7.7 million in the June 2026 quarter, a slight increase from $7.6 million in the March 2026 quarter. Our short-term strategy focuses on disciplined balance sheet growth by expanding our loan portfolio. We believe this approach is well suited to the current economic environment and the normalized yield curve. During the June 2026 quarter, we were somewhat successful in the execution of this strategy with higher loan originated -- origination volume and more moderate level of loan prepayments. As a result, the composition of our interest-earning assets and interest-bearing liabilities remain consistent with the prior quarter.

We exceed well-capitalized capital ratios by a significant margin, providing flexibility to execute on our business plan and capital management goals without complications. We believe that maintaining our cash dividend is very important. We also recognize that prudent capital returns to shareholders through stock buyback programs is a responsible and effective capital management tool. During the June 2026 quarter, we repurchased approximately 90,000 shares at a total cost of $1.5 billion (sic) [ $1.5 million ], combined with approximately $874,000 of cash dividends paid to our shareholders. Total capital return to shareholders represented approximately 110% of the June quarter's net income. We encourage everyone to review our June 30 investor presentation that has been 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 foundation supporting the future growth of the company.

We will now entertain any questions that you may have regarding our financial results. Lacey?

[Operator Instructions] Your first question comes from the line of Matthew Clark with Piper Sandler.

This is Nick Branton on for Matthew. Maybe just starting on deposit costs. Can you kind of just provide some more color on the trends you see and kind of where you see the total cost of deposits heading over the next couple of quarters?

Well, I think the trend is pretty much what you've heard from peers. It is a very competitive deposit landscape. And as a result of that competitive pressure, there are many institutions that are offering specials with respect to their money market accounts, with respect to their certificates of deposit, and that, coupled with a pause by the Fed with respect to lowering of interest rates suggests that deposit costs have probably reached their low this cycle unless the Fed were to reverse course. And as a result of that, we would expect deposit costs and perhaps other wholesale funding to stabilize or slightly increase from these levels. And as that works through our balance sheet and our liabilities, we would expect our deposit costs and perhaps our wholesale funding to go up a bit, although to forecast that specifically is pretty difficult. As I described, we have, I think it was $81.7 million of wholesale funding that is coming up for repricing in the September quarter. And the weighted-average cost of that wholesale funding coming up for repricing is 4.05%. And we don't see an ability to meaningfully reprice that wholesale funding at lower rates. In fact, it will probably reprice up by a bit given the current economic environment.

Got it. That's helpful. And then maybe switching to loan yields, saw a nice uptick there this quarter. Can you kind of similarly kind of walk through the main drivers there for the quarter and kind of see -- kind of let us know where you see the yields trending over the next couple of quarters as well?

Sure. So as we described in the prepared remarks, we have approximately $133 million of loans repricing in the September 2026 quarter. Many of those loans are repricing for the first time, which suggests that they were probably originated in the September 2021 quarter since many of our loans are 5/1 hybrids. And because they were originated perhaps 5 years ago, they were originated at much lower yields. And so we described that our expectation for that $133 million is going to reprice upward by approximately 79 basis points to 7.10% in the September quarter. Additionally, any new loan production coming on is coming on at higher interest rates than the existing portfolio weighted average interest rate. So we would expect loan yields to continue to rise in the September quarter, essentially becoming a tailwind to net interest margin. Now the one caveat with respect to that and that can swing loan yields dramatically from one period to the next is what the payoff activity looks like and what that may mean for the accelerated net deferred loan cost amortization. And that can best be illustrated, I suppose, by comparing the March 2026 quarter when we had approximately $650,000 of accelerated net deferred loan cost amortization in contrast to approximately $400,000 in the June quarter. And that difference was probably about a 10 basis point swing in our loan yields just by virtue of that activity. So we think it is a favorable tailwind with respect to loan yields. And we think overall, as a result of that, we still have some wind at our back with respect to what we believe net interest margin may do in the coming quarter, but probably at a slower pace than what we've realized over the past few quarters.

Mr. Ternes, there are no more questions at this time.

Very good. I appreciate everybody's participation in the call today, and we look forward to speaking with you next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may disconnect.

Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Provident Financial Holdings Third Quarter of Fiscal 2026 Earnings Call.

[Operator Instructions]

I would now like to turn the call over to Donavon Ternes. You may begin.

Thank you, Kayla. Good morning. This is Donavon Ternes, President and CEO of Provident Financial Holdings. And on the call with me is Peter Fan, 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 interest rates, 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, 2025, 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 that we distributed yesterday, which describes our third quarter fiscal 2026 results. In the most recent quarter, lower mortgage rates that prevailed for most of the quarter supported higher loan originations, but also led to higher loan prepayments. We originated $44.2 million of loans held for investment, a 5% increase from the $42.1 million that were originated in the prior sequential quarter. We also had $52.1 million of loan principal payments and payoffs, which is an increase of 12% from the $46.7 million in the December 2025 quarter.

We are continuing to make prudent adjustments to our underwriting requirements within certain loan segments to promote disciplined, sustainable growth in origination volume. Due to the current market turbulence and recent rise in interest rates, we have seen our loan pipelines, which were rising, stabilize, suggesting our loan origination volume in the June 2026 quarter may be in the range of the -- or may be in the mid to upper range of recent quarters, which has been between $28 million and $44 million. We would also expect to see some moderation in prepayment volume.

For the 3 months ended March 31, 2026, loans held for investment decreased by approximately $8 million, primarily in our portfolio of single-family loans. Current credit quality continues to hold up very well, and you will note that nonperforming assets were just $978,000 or 8 basis points of total assets at March 31, 2026, unchanged from December 31, 2025. Additionally, there were no loans in the early stages of delinquency at March 31, 2026, indicating no emerging credit issues.

We continue to monitor closely commercial real estate loans, particularly loans secured by office buildings, but we believe 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 $36.1 million or 3.5% of loans held for investment. You should also note that we have just 5 CRE loans that totaled $1.9 million maturing in the remainder of calendar 2026.

We recorded a $326,000 provision for credit losses in the March 2026 quarter. The provision recorded in the third quarter of fiscal 2026 was primarily attributable to an increase in the expected life of the loan portfolio due to higher mortgage interest rates at the end of the quarter compared to the prior quarter end. The allowance for credit losses to gross loans held for investment was 58 basis points at March 31, 2026, an increase from 55 basis points at December 31, 2025.

Compared to the sequential quarter ended December 31, 2025, our net interest margin increased 10 basis points to 3.13% for the quarter ended March 31, 2026, the result of a special cash dividend from the Federal Home Loan Bank, which contributed 9 basis points to our yield on interest-earning assets and a 7 basis points decrease in the total cost of interest-bearing liabilities offset by an 11 basis point decrease in our loan yield.

For the quarter ended March 31, 2026, our cost of borrowings decreased 28 basis points to 4.11%, while our average cost of deposits increased 1 basis point to 1.33%. The net deferred loan cost amortization associated with loan payoffs in the March 2026 quarter compared to the average of the previous 5 quarters negatively impacted the net interest margin by approximately 7 basis points in contrast to 5 basis points in the December 2025 quarter.

New loan production is being originated at higher mortgage interest rates than the weighted average rate of the existing loan portfolio. The weighted average rate of loans originated in the March 2026 quarter was 6.12% compared to the weighted average rate of 5.20% for loans held for investment at March 31, 2026. In the June 2026 quarter, our adjustable rate loans are repricing at interest rates that are higher than their current interest rates. We have approximately $135 million of loans repricing in the June 2026 quarter to an interest rate that we estimate will be 72 basis points higher to a weighted average interest rate of 6.86% from the current interest rate of 6.14%.

In the September 2026 quarter, we have approximately $122 million of loans repricing to an interest rate that we estimate will be 51 basis points higher to a weighted average interest rate of 6.67% from 6.16%. Many of these loans are already in the adjustable phase of the loan term with rate resets every 6 months.

I would also point out that there is an opportunity to reprice the touring wholesale funding downward as a result of current market conditions where interest rates have moved lower across all terms. Excluding overnight borrowings, we have approximately $84.5 million of Federal Home Loan Bank advances, brokered certificates of deposits and government certificates of deposits maturing in the June 2026 quarter at a weighted average interest rate of 4.13%. Additionally, we have approximately $81.7 million of Federal Home Loan Bank advances, brokered certificates of deposits and government certificates of deposits maturing in the September 2026 quarter at a weighted average interest rate of 4.05%.

Given the current interest rate outlook, we would expect to reprice these maturities to a lower weighted average cost of funds. All of this currently suggests that there continues to be an opportunity for net interest margin expansion in the June 2026 quarter.

Our FTE count at March 31, 2026, was 160 compared to 163 1 year ago. We continue to look for operating efficiencies throughout the company to lower operating expenses. Operating expenses were $7.6 million in the March 2026 quarter, a decrease from $7.9 million in the December 2025 quarter.

Operating expenses for the December 2025 quarter included a $214,000 pre-litigation voluntary mediation settlement expense related to an employment matter. For the June 2026 quarter, we expect operating expenses of approximately $7.5 million to $7.7 million.

Our short-term strategy focused on disciplined balance sheet growth by expanding our loan portfolio. We believe this approach is well suited to the stable economic environment and the ongoing normalization of the yield curve. During the March 2026 quarter, we were partly successful in the execution of this strategy with higher loan origination volume, but higher prepayments more than offset that growth. As a result, the overall composition of our interest-earning assets and interest-bearing liabilities were similar to the prior quarter.

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 cash dividend is very important. We also recognize that prudent capital returns to shareholders through stock buyback programs is a responsible capital management tool. During the March 2026 quarter, our Board of Directors authorized a new stock repurchase program for up to 5% of the company's outstanding common stock. We repurchased approximately 92,000 shares at a total cost of $1.5 million, together with approximately $892,000 of cash dividends paid to our shareholders. Our capital management activities represent a distribution of approximately 175% of the March quarter's net income.

We encourage everyone to review our March 31 investor presentation that has been 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 foundation supporting the future growth of the company.

Kayla, we will now entertain any questions that may come about as a result of this call.

[Operator Instructions] Your first question comes from the line of Tim Coffey with Brean Capital.

Question about the prepayment trends that you're seeing, obviously kind of accelerated over the last several quarters. Is this due to competition? Or is there something else driving that?

Well, I think there are a few things driving it. The predominant theme I would suggest are lower mortgage interest rates overall in contrast to where they were perhaps a year ago. And so I think that explains a great deal of elevated repayment activity. Additionally, we do have some loans that are repricing for their first time out of their fixed rate period. And in those cases, the interest rate can rise somewhat dramatically for those borrowers, which I believe triggers the interest of borrowers to go out and look for another refinance loan to potentially lower the interest rate that they would experience in the event the loan were to reprice in our portfolio.

Competition, of course, is very high, and that's largely because everybody is looking for assets. We see pricing competition across the board. We see competitive pressure with respect to underwriting characteristics. And so I think a combination of those 3 things is really driving prepayment volume.

Now what I would also suggest, as I described in my prepared remarks, we have seen interest rates rise at the end of the third quarter or at the end of the March quarter I should say. And in fact, those rates have remained relatively steady through April. They've come down a little bit from where they ended at March 31, but they've held kind of at the upper bound of that range. And so I would expect prepayments to come down a bit as well as a result of the rise in interest rates recently.

Okay. And then sticking with the mortgage rates and interest rates in general. If we don't -- if the forward curve plays out, the forward Fed funds rate plays out as no cuts this year, how does that impact your origination activity?

Well, I think we can expect our activity to replicate what we've been able to do. When I look at the first 9 months of this year, our origination volume is up 24% in contrast to the origination volume of the first 9 months of last year. And that largely represents an increase in multifamily and CRE. Multifamily and CRE volume increased by 97% in comparison to the first 9 months of last year and single-family volume was up 6% in comparison to last year. And really, that was the result of us becoming more aggressive as a result of what the yield curve did. We are seeing normalization in the yield curve where we are no longer being penalized for originating loans in the belly of the curve while funding ourselves at the short end of the curve and essentially having a negative spread in that yield curve.

Right now, there's a positive spread in that yield curve. It is beneficial to us to become more aggressive and originate more loans against that yield curve today in contrast to where we were a year ago.

Okay. Great. And then if I can transition to margin. Given that backdrop, I think coming into the quarter, I would -- I think it might have been reasonable to think that margin might expand 2 to 3 basis points a quarter. With the yield curve the way it is right now, is that still a reasonable estimate?

Well, we saw a nice expansion in the March quarter, but a large part of that was the Federal Home Loan Bank special cash dividend. So the way I would think about it is to back out that special cash dividend to see what kind of a normalized margin looked like with respect to the March quarter and then do a look-back comparison. And I think you will see that the margin expanded about 2 or 3 basis points in the March quarter.

I think what is more important as I look out into the June quarter in comparison to March, in the March quarter, we began the quarter expecting that the repricing of our loan portfolio was -- for those loans that were repricing were actually going to contract. And indeed, they did contract, but they only contracted by 1 basis point in contrast to what we had forecast at the beginning of the quarter. And that was because of what the yield curve did during the quarter, which elevated that repricing of those loans in contrast where we started the quarter.

And we see that now when we're forecasting out our June quarter repricing. I described that in the June quarter, we have $135 million of loans repricing, which we currently estimate upwards of 72 basis points. While at the same time, we have $85 million approximately of wholesale funding that we would expect to reprice downward. I think those characteristics are better than they were to begin our March quarter, to begin our June quarter. And therefore, I think net interest margin expansion could be a little bit better in the June quarter than the normalized activity in March if we were to back out the FHLB special cash dividend and what we saw in the December and September quarter.

Okay. Great. That's super helpful. And then just kind of understanding the provision expense in the quarter. Obviously, it's a function of rates. But is it also a function of the size of the loan portfolio and not necessarily the increase in origination activity?

It is the result of the size as well as the deterioration or improvement in the portfolio. All 3 of those conditions exist with respect to estimating our allowance. Although the most important factor has been probably the last couple of years, what mortgage interest rates have done and then what that means relative to our estimates of prepayment volume. And as prepayment volume goes up, our estimated life goes down, so the ACL can come down.

As mortgage interest rates go up, the estimated life goes up and what we saw this quarter with mortgage rates rising from December 31 to March 31, we had a provision because our estimated life of the portfolio went up. A very smaller or minor component relative to that provision is related to what the quality of the portfolio looks like from a credit risk standpoint. And then similarly, whether or not the portfolio expanded or declined.

[Operator Instructions] And there are no further questions at this time. Mr. Donavon Ternes, I'll turn the call back over to you.

Thank you very much, Kayla. Thanks everybody for attending the call, and we are available always as well in the event there are further questions with respect to our earnings release. Have a good week, everyone. Thank you.

This concludes today's conference call. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I'd like to welcome you to the Provident Financial Holdings' Second Quarter of Fiscal 2026 Earnings Call. [Operator Instructions]

I will now turn the call over to Donavon Ternes, President and CEO. You may begin.

Thank you, Colby. Good morning. This is Donavon Ternes, President and CEO of Provident Financial Holdings. And on the call with me is Peter Fan, 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 interest rates, 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, 2025, 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 that we distributed yesterday, which describes our second quarter fiscal 2026 results. In the most recent quarter, we originated $42.1 million of loans held for investment, a 42% increase from the $29.6 million that were originated in the prior sequential quarter. During the most recent quarter, we also had $46.7 million of loan principal payments and payoffs, which is an increase of 35% from the $34.5 million in the September 2025 quarter.

Lower mortgage rates have driven stronger loan origination activity but also has led to higher prepayment activity. We are continuing to make prudent adjustments to our underwriting requirements within certain loan segments to promote disciplined, sustainable growth in origination volume. Our loan pipelines are moderately higher than last quarter, suggesting our loan origination volume in the March 2026 quarter will be within the range of recent quarters which has been between $28 million and $42 million.

For the 3 months ended December 31, 2025, loans held for investment decreased by approximately $4.1 million with a decline in multifamily, commercial business and commercial real estate loans, partly offset by an increase in single-family and construction loans.

Current credit quality continues to hold up very well. And you will note that nonperforming assets were just $990,000 or 8 basis points of total assets at December 31, 2025, a decrease from $1.9 million at September 30, 2025. Additionally, there were no loans in the early stages of delinquency at December 31, 2025, indicating an absence of emerging credit issues.

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 $36.7 million or 3.5% of loans held for investment. You should also note that we have just six CRE loans, that total $2.8 million, maturing in the remainder of fiscal 2026.

We recorded a $158,000 recovery of credit losses in the December 2025 quarter. The recovery recorded in the second quarter of fiscal 2026 was primarily attributable to a decline in the expected life of the loan portfolio due to lower mortgage interest rates. The allowance for credit losses to gross loans held for investment was 55 basis points at December 31, 2025, a slight decrease from 56 basis points at September 30, 2025.

Our net interest margin increased 3 basis points to 3.03% for the quarter ended December 31, 2025, compared to the 3% for the sequential quarter ended September 30, 2025, the net result of a 5 basis point decrease in the cost of total interest-bearing liabilities net of a 2 basis point decrease in the yield of total interest-earning assets.

Our average cost of deposits decreased to 1.32%, down 2 basis points for the quarter ended December 31, 2025, while our cost of borrowing decreased 20 basis points to 4.39% in December 2025 quarter compared to the September 2025 quarter.

The net deferred loan cost amortization associated with loan payoffs in the December 2025 quarter compared to the average of the previous 5 quarters negatively impacted the net interest margin by approximately 5 basis points in contrast to no impact in the September 2025 quarter.

New loan production is being originated at higher mortgage interest rates than the weighted average rate of the existing loan portfolio. The weighted average rate of loans originated in the December 2025 quarter was 6.15% compared to the weighted average rate of 5.22% for loans held for investment as of December 31, 2025. In the March 2026 quarter, our adjustable rate loans are repricing at interest rates that are slightly lower than their current interest rates. We have approximately $112.2 million of loans repricing in the March 2026 quarter to an interest rate that we currently believe will be 14 basis points lower to a weighted average interest rate of 6.85% from the current interest rate of 6.99%.

However, in the June 2026 quarter, we have approximately $125.2 million of loans repricing to an interest rate that we currently believe will be 38 basis points higher to a weighted average interest rate of 6.49% from 6.11%. Many of these loans are already in their adjustable phase of the loan term with rate resets every 6 months.

I would also point out that there is an opportunity to reprice maturing wholesale funding downward as a result of current market conditions, where interest rates have moved lower across all terms. Excluding overnight borrowings, we have approximately $109 million of Federal Home Loan Bank advances, brokered certificates of deposit and government certificate of deposit maturing in the March 2026 quarter at a weighted average interest rate of 4.12%. Additionally, we have approximately $79.5 million of Federal Home Loan Bank advances, brokered certificates of deposit and government certificates of deposit maturing in the June 2026 quarter at a weighted average interest rate of 4.15%. Given the current interest rate outlook, we would expect to reprice these maturities to a lower weighted average cost of funds. All of this currently suggests that there continues to be an opportunity for net interest margin expansion in the March 2026 quarter.

Our FTE count at December 31, 2025, was 163 compared to 162 1 year ago. We continue to look for operating efficiencies throughout the company to lower operating expenses. Operating expenses were $7.9 million in the December 2025 quarter, an increase from $7.6 million in the September 2025 quarter. Operating expenses for the December 2025 quarter included a $214,000 pre-litigation voluntary mediation settlement expense related to an employment matter. For the remainder of fiscal 2026, we expect a run rate of approximately $7.6 million to $7.7 million per quarter.

Our short-term strategy focuses on disciplined balance sheet growth by expanding our loan portfolio. We believe this approach is well suited to the stable economic environment and the ongoing normalization of the yield curve. During the December 2025 quarter, we were partly successful in the execution of this strategy with higher loan origination volume, but higher loan prepayments more than offset that growth. As a result, the overall composition of our interest-earning assets and interest-bearing liabilities were essentially consistent with the prior quarter.

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 continue -- we believe that maintaining our cash 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 $96,000 of common stock in the December 2025 quarter.

For the second quarter of our fiscal year, we distributed $906,000 of cash dividends to shareholders and repurchased approximately $1.5 million worth of common stock. Accordingly, our capital management activities represent a 170% distribution of the December 2025 quarter's net income.

We encourage everyone to review our December 31 investor presentation that has been 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 foundation supporting the future growth of the company.

Colby, we will now entertain any questions that others may have regarding our financial results.

[Operator Instructions] Your first question comes from the line of Timothy Coffey with Janney.

Given the puts and takes that you just described on the loan portfolio, what is the probability that your portfolio is flat with -- the next 4 quarters?

Well, it's kind of a loaded question that I could answer if I knew what loan payoffs looked like for the next few quarters. What we've been focusing on is increasing our origination volume each and every quarter. We've been able to do so essentially for the last 5 quarters or so. We have pipelines that are built that suggest the March 2026 quarter will also be a higher origination-volume quarter, but it's very difficult to discern what loan payoffs look like, which will ultimately then drive what the loan balances look like at the end of the quarter and whether or not we grew those balances or essentially were somewhat flat.

Do you see the loans repricing in the June quarter as a potential headwind to loan growth?

Not necessarily, Tim. When we think about where those loans are repricing, and we compare to current market conditions with respect to new loan production, it looks like they're a bit higher than new loan production, but they're not substantially higher from where new loan production is coming in. So that could have an impact, there could be implications with respect to that. But ultimately, if they are not repricing substantially higher than current market conditions, I would not expect that driver alone to be the driver of accelerated loan payoffs.

The other thing to think about, Tim, with respect to accelerated loan payoffs, it's kind of a double-edged sword. On the one hand, we obviously have trouble growing the loan portfolio to a large degree if those payoffs are higher or those payoff volumes are higher. But secondarily, those payoffs generally carry net deferred loan costs that get accelerated in as a debit or a decline to net interest income over the quarter. And the most recent quarter, those payoffs essentially impacted our net interest margin by a negative 5 basis points, in contrast to no implications or no impact in the September quarter, if we look at those net deferred loan costs on average for the prior 5 quarters. So the implications of loan payoffs are twofold, difficulty in growing loan portfolio and secondarily, there are implications to our net interest margin.

Right. Okay. And then the government -- federal government has recently discussed -- [ floated ] ideas on how to make housing more affordable. If some of those plans come through, would that be a net positive for your business?

Well, I think ultimately, if you look at -- particularly in California, where we lend, if you look at housing stock or available inventory, you find that there is much more demand than available inventory over time. And I think that has exhausted many would-be purchasers particularly as it relates to affordability. And what that housing stock pricing has done, even though pricing has slowed, it is still advancing a bit in the state of California, not at the rate that it was advancing, nonetheless, it's still advancing. Interest rates are a bit favorable with respect to affordability. As those rates come down, affordability goes up. But ultimately, in the state of California, available housing is far outstripped by demand.

And so anything that is done, I guess, by local, state or federal governments that would expand available housing, lowering new construction costs and the like would be helpful. And that would ultimately drive more buyers, I believe.

[Operator Instructions] And with no further questions in queue, I'd like to turn the conference back over to Donavon for closing remarks.

Thank you, Colby, and thank you, everyone, for attending our second quarter earnings call, and I look forward to the next call for -- with our third quarter earnings. Have a good day.

This concludes today's conference call. You may now disconnect.

Hello, and welcome to the Annual Meeting of Shareholders of Provident Financial Holdings, Inc. Please note that today's meeting is being recorded. During the meeting, we will have the question and answer session. Shareholders and proxy holders can submit questions at anytime at any time by clicking on the Q&A tab.

It is now my pleasure to turn today's meeting over to Mr. Donavon Ternes, President and Chief Executive Officer. Mr. Ternes, the floor is yours.

Thank you, Mark. The meeting will please come to order. Welcome to the Annual Meeting of Shareholders of Provident Financial Holdings. I am Donavon Ternes, President and Chief Executive Officer, and I will act as Chairman of the meeting.

Attending the meeting virtually is Peter Fan, Secretary of the company, who will act as Secretary of the meeting. At this time, I would like to introduce our Senior Officers, Directors and Nominees who have joined us for the annual meeting.

The Directors and Nominees attending are Craig Blunden, Judy Carpenter, Debbi Guthrie, Brian Hawley, Kathy Michalak, Bill Thomas and Matt Webb. The senior officers attending are Scott Ritter, Dave Weiant, Gwen Wertz, Avi Demirdjian and Glee Harris. Also attending is John Breyer, our Corporate Counsel; and Daniel Israel, the partner of our accounting firm.

The Secretary has prepared a list of the shareholders of the company entitled to vote at the meeting, arranged in alphabetical order, showing the holders of the common stock of the company as of the close of business on October 6, 2025, the record date for voting. The list is available for inspection on the virtual meeting platform.

The Secretary informs me that the records of the company show that there were outstanding on the record date and entitled to notice of and to vote at this annual meeting, 6,503,511 shares of common stock, of which 3,251,756 shares represents a majority. We have previously received an affidavit that the notice of meeting and a form of proxy, therefore, were mailed on or about October 20, 2025, to each holder of record on the close of business on October 6, 2025. A copy of the affidavit with documents attached will be attached to the minutes of this meeting as Exhibit A.

It is now in order to appoint an inspector to count and examine all voting. The Board of Directors has previously appointed Peter Fan as Inspector of Election to act at this meeting and any adjournments. The certificate and report of inspector will be attached to the minutes. The Secretary has previously delivered to the inspector the list of shareholders and all proxies which have been received.

The Secretary informs me that substantially more than a majority of the shares of common stock entitled to vote at the meeting are present virtually or by proxy. The inspector is making an exact count and will submit a formal report on the number of shares present or represented during the course of the meeting.

A quorum is therefore declared present, subject to the confirmation of that fact by the inspector in his report. We will waive the reading of the minutes of last year's annual meeting, but a copy of the minutes is available should any shareholder wish to review them. In order to save time at this meeting, we propose to arrange the proceedings so that the votes will be taken at this time. And while the inspector is counting the ballots, we will continue with other business. If you have already voted by proxy, you need not vote using the online platform at this meeting.

The first item of business to be acted upon at the meeting, as stated in the notice of meeting, is the election of directors. In accordance with the bylaws, it is proposed that 3 directors be elected each to serve for a 3-year term. In accordance with the bylaws of the company, 3 individuals have been nominated: Debbi H. Guthrie, Kathy M. Michalak and Matthew E. Webb, each to serve for a 3-year term. No nominations may be made at the meeting. Therefore, I declare nominations to be closed.

Shareholders are entitled to one vote for each share of stock owned as shown in the records of the company. The vote will now be taken on the election of directors. If you wish to vote using the online platform, please vote now on each of the director nominees.

[Voting]

Has everyone had an opportunity to vote? If so, I declare the polls closed for the election of directors. The second item on the agenda is the advisory vote on the approval of executive compensation as disclosed in the proxy statement for this annual meeting. The Chair will entertain a motion to submit the advisory proposal on executive compensation to a vote.

I so move.

I so move.

I second the motion.

Thank you. The vote will now be taken on the motion. If you wish to vote using the online platform, please do so now on the executive compensation of the company's named executive officers.

[Voting]

Has everyone had an opportunity to vote? If so, I declare the polls closed on this motion. The final item of business is the approval of the appointment of Deloitte & Touche LLP as the company's independent auditors for the fiscal year ending June 30, 2026. The Chair will entertain a motion that Deloitte & Touche LLP be appointed as independent auditors for the 2026 fiscal year.

I so move.

I second.

Very well. The vote will now be taken on the motion. If you wish to vote using the online platform, please vote on the approval of the appointment of Deloitte & Touche LLP as the company's independent auditors for the fiscal year ending June 30, 2026. Adoption of this proposal requires a majority of the votes cast at this meeting by holders of company common stock.

[Voting]

Has everyone had an opportunity to vote? If so, I declare the polls closed for this proposal. While the inspector is counting the votes, I would like to take this opportunity to answer any questions. Are there any questions?

Hearing none, we will move on with the results of the election. The inspector has completed his count, and the Secretary will now read the report. Peter?

Thank you, Donavon. I, Peter C. Fan, the duly appointed inspector of election of Provident Financial Holdings, do hereby certify that the Annual Meeting of Shareholders of the company is being held virtually on this Thursday, November 20, 2025, at 11:00 a.m. local time pursuant to due notice.

According to the certified list of shareholders, which is available for inspection on the virtual meeting platform, there were 6,503,511 shares of common stock of the company outstanding and entitled to vote at this virtual meeting. There are present at this meeting virtually or by proxy, the holders of 5,736,174 shares of common stock of the company, representing 88.20% of total votes eligible to be cast, constituting a majority and a quorum of the outstanding shares entitled to vote.

I inspected the signed proxies and virtual ballots used at the meeting and found them in proper form. The following is a record of the votes cast in the election of Debbi H. Guthrie, Kathy M. Michalak and Matthew E. Webb as directors of the company.

Votes for Debbi H. Guthrie, 3,215,117 shares, representing 60.67%. Votes withheld for Debbi H. Guthrie, 2,084,647 shares, representing 39.33%. Votes for Kathy M. Michalak, 3,217,063 shares, representing 60.70%; votes withheld for Kathy M. Michalak, 2,082,701 shares, representing 39.30%. Votes for Matthew E. Webb, 3,216,572 shares, representing 60.69% and votes withheld for Matthew E. Webb, 2,083,192 shares, representing 39.31%.

Accordingly, Debbi H. Guthrie, Kathy M. Michalak and Matthew E. Webb are declared to be duly elected directors of the company, each to serve for a 3-year term. I inspected the signed proxies and virtual ballots used at the meeting and the following is a record of the votes cast with respect to the advisory vote to approve the executive compensation as disclosed in the proxy statement for this virtual Annual Meeting of Shareholders. Votes for was 2,796,098 shares, representing 52.75%. Votes against was 2,055,034 shares, representing 38.78%. Votes abstained was 448,632 shares, representing 8.47%.

Accordingly, having received the favorable votes of at least a majority of the votes cast virtually or by proxy at the meeting, the proposal is declared to be duly adopted by the shareholders of the company. I inspected the signed proxies and virtual ballots and found them in proper form. The following is a record of votes cast with respect to the proposal to approve Deloitte & Touche LLP as the company's independent auditors for the fiscal year ending June 30, 2026.

Votes for was 5,602,909 shares, representing 97.67%. Votes against was 131,087 shares, representing 2.29% and votes abstained was 2,178 shares, representing 0.04%. Accordingly, having received a favorable vote of at least a majority of the votes cast virtually or by proxy at the meeting, the proposal is declared to be duly adopted by the shareholders of the company. These results -- these tentative results will be verified subsequent to this meeting, and I will disclose the final official results on a Form 8-K filing with the Securities and Exchange Commission.

Thank you. Donavon?

Thank you, Peter. The report of the inspector confirms that a quorum is and has been in attendance at the virtual meeting for all purposes. It also shows that Debbi H. Guthrie, Kathy M. Michalak and Matthew E. Webb have been duly elected directors of the company, each to serve for a 3-year term. The report of inspector also shows that more than a majority of the votes cast using the virtual platform or by proxy at this meeting have been voted in favor of the approval of the advisory vote on executive compensation and the approval of Deloitte & Touche LLP as the company's independent accountants for the fiscal year ending June 30, 2026.

The report of the inspector has been accepted and approved and will be attached to the minutes of the meeting. There being no further business to come before the meeting, a motion to adjourn is in order.

I move that the meeting be adjourned.

I second the motion.

Very good. Those in favor, signify by saying aye.

Aye.

Aye.

Those opposed, say no. The motion is carried and the meeting is adjourned. This concludes the annual meeting. You may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by. My name is Calvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Provident Financial Holdings First Quarter of Fiscal 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Donavon Ternes, President and Chief Executive Officer. Please go ahead.

Good morning. This is Donavon Ternes, President and CEO of Provident Financial Holdings. And on the call with me is Peter Fan, 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 interest rates, 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, 2025, 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. Thank you for participating in our call. I hope that each of you has had an opportunity to review our earnings release that we distributed yesterday, which describes our first quarter fiscal 2026 results. In the most recent quarter, we originated $29.6 million of loans held for investment, a 1% increase from $29.4 million that were originated in the prior sequential quarter. During the most recent quarter, we also had $34.5 million of loan principal payments and payoffs, which is a decrease of 18% from $42 million in the June 2025 quarter.

Real estate investors have been cautious as uncertainties remain in the market, although we have seen an increase in activity as mortgage interest rates have declined. We will continue to make prudent adjustments to our underwriting requirements, within certain loan segments to encourage higher loan origination volume. Additionally, our single-family and multifamily loan pipelines are moderately higher in comparison to last quarter, suggesting our loan origination volume in the December 2025 quarter will be within the range of recent quarters, which has been between $28 million and $36 million.

For the 3 months ended September 30, 2025, loans held for investment decreased by approximately $4 million, with a decline in multifamily and commercial real estate loans, partly offset by an increase in single-family loans. Current credit quality continues to hold up very well, and you will note that nonperforming assets were $1.9 million at September 30, 2025, an increase from $1.4 million from June 30, 2025. Additionally, there were no loans in the early stages of delinquency at September 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 $36.9 million or 3.5% of loans held for investment. You should also note that we have just 9 CRE loans that totaled $3.8 million maturing in the remainder of fiscal 2026. We recorded a $626,000 recovery of credit losses in the September 2025 quarter. The recovery recorded in the first quarter of fiscal 2026 was primarily attributable to a decline in the expected life of the loan portfolio due to lower mortgage interest rates. The allowance for credit losses to gross loans held for investment was 56 basis points at September 30, 2025, a decrease from 62 basis points at June 30, 2025. Our net interest margin increased 6 basis points to 3% for the quarter ended September 30, 2025, compared to 2.94% for the sequential quarter ended June 30, 2025.

The net result of an 8 basis point increase in the average yield on total interest-earning assets net of a 1 basis point increase in the cost of total interest-bearing liabilities. Our average cost of deposits increased to 1.34%, up 1 basis point for the quarter ended September 30, 2025, while our cost of borrowing also increased 1 basis point to 4.59% in the September 2025 quarter compared to the June 2025 quarter. The net interest margin was not impacted as a result of net deferred loan costs associated with loan payoffs in the September 2025 quarter compared to the average net deferred loan cost amortization of the previous 5 quarters in contrast to a 4 basis point negative impact in the June 2025 quarter.

New loan production is being originated at higher mortgage interest rates than the weighted average rate of the existing loan portfolio. The weighted average rate of loans originated in the September 2025 quarter was 6.62% compared to the weighted average rate of 5.2% of our loans held for investment as of September 30, 2025. In addition, our adjustable rate loans are repricing at interest rates that are higher than their current interest rates. We have approximately $107 million of loans repricing in the December 2025 quarter to an interest rate that we currently believe will be 18 basis points higher to a weighted average interest rate of 6.89% from the current interest rate of 6.71%. However, in the March 2026 quarter, we have approximately $104 million of loans repricing to an interest rate that we currently believe will be 32 basis points lower to a weighted average interest rate of 6.70% from 7.02%.

Many of these loans are already in their adjustable phase of the loan term with rate resets every 6 months. I would point out that there is an opportunity to reprice maturing wholesale funding downward as a result of current market conditions, where interest rates have moved lower across all terms. Excluding overnight borrowings, we have approximately $104.7 million of Federal Home Loan Bank advances, brokered certificates of deposit, and government certificates of deposit, maturing in the December 2025 quarter at a weighted average interest rate of 4.61%. Additionally, we have approximately $109 million of Federal Home Loan Bank advances, brokered certificates of deposit and government certificates of deposit maturing in the March 2026 quarter at a weighted average interest rate of 4.15%.

Given the current interest rate outlook, we would expect to reprice these maturities to a lower weighted average cost of funds. All of this currently suggests that there continues to be an opportunity for net interest margin expansion in the December 2025 quarter. Our FTE count on September 30, 2025, was 164 compared to 157 one year ago. We continue to look for operating efficiencies throughout the company to lower operating expenses. You will note that operating expenses were $7.6 billion in the September 2025 quarter, unchanged from the June 2025 quarter and represent a normalized run rate for the remainder of fiscal 2026 we expect a run rate of approximately $7.6 million to $7.7 million per quarter.

Our short-term strategy for balance sheet management is more growth-oriented than last fiscal year. We believe that disciplined loan growth of the loan portfolio remains the best course of action at this time as we recognize that the Federal Reserve's Federal Open Market Committee has adopted a looser monetary policy and the inverted yield curve has begun to reverse back to an upwardly sloping curve. We were partly successful in execution of this growth strategy in September 2025 quarter with consistent loan origination volume, but the originations were offset by loan prepayments. As a result, the composition of total interest-earning assets and interest-bearing liabilities were consistent with the prior quarter.

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 cash 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 67,000 shares of common stock in the September 2025 quarter. For the first quarter of our fiscal year, we distributed $921,000 of cash dividends to shareholders and repurchased approximately $1.1 million worth of common stock.

Accordingly, our capital management activities represented a 117% distribution of the September 2025 quarter's net income. We encourage everyone to review our September 30 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 foundation, supporting the future growth of the company. We will now entertain any questions that you may have regarding our financial results. Thank you. Calvin?

[Operator Instructions] Your first question comes from the line of Frank Williams of Piper Sandler.

So you guys mentioned that balance sheet growth is going to be a short-term area of focus. And I just kind of wanted to walk through some of the challenges that you guys may be seeing and maybe discuss the loan growth trajectory going into calendar year 2026.

Sure. So currently, as we think about multifamily and commercial real estate other than multifamily, there still seems to be some hesitancy by borrowers with respect to new activity as a result of higher mortgage rates than we've seen maybe 3 and 4 years ago. Although I would also describe that mortgage interest rates are coming down a bit, which should present more opportunity for potential purchasers of multifamily and commercial real estate. Additionally, there's some opportunity with respect to refinance activity that we see as a result of mortgage interest rates coming down. But one of the things we also see as a result of what is going on in the market is an elevated amount of prepayments that we are experiencing in our loan portfolio.

And even though our origination volume has been relatively steady over the course of the last 4 or 5 quarters, we're also seeing refinance volume prepaying out of our loan portfolio at about the same amount, such that loan growth has been difficult to come by. Now one of the things that we have been doing over the course, really, of the last year or so, we have been loosening some of our underwriting standards, particularly in multifamily back to what we would consider pre-COVID underwriting characteristics. And that seems to have opened up the pipeline a bit more with respect to activity. But nonetheless, when you look at what our origination volume has been, what our payoff volume has been, it has been difficult to grow the portfolio in a meaningful way over the past year or so.

[Operator Instructions] And your next question comes from the line of Timothy Coffey with Janney.

So based on your commentary, is it a reasonable expectation to think that margin might expand this next quarter at a similar level to the calendar 3Q?

Yes, I think that's a reasonable expectation. If I go back to the low of our net interest margin, the low was June 30, 2024, and our net interest margin was 2.74%. And fast forward now to September 30, 2025, our net interest margin is 3%. So over the course of that window, we've grown net interest margin 26 basis points. And then considering what occurred in the September quarter, in contrast to the June quarter, we were up by 6 basis points from June 30 at 2.94% to September 30 at 3%. And all of the factors are relatively similar today, as they were at June 30, I'd have to go into my conference call text for June 30, but my recollection is when we were describing what our expectations were with respect to loan that would be repricing upward.

It was very similar to what we're expecting in the December quarter. I guess one of the major differences between that June quarter and this September quarter, we would expect to see our interest-bearing cost of liabilities declining a bit more perhaps than what they did because of what has occurred with the Fed and their action of a 25 basis point reduction in September and what is probably going to be another 25 basis point reduction today.

So all of this, in our mind, adds up to a conclusion that we expect modest or moderate net interest margin expansion as we look down certainly in the December quarter and as we move through our fiscal 2026 fiscal year.

Okay. Great. And then I'm wondering if we could unpack something you talked about pretty early on in your prepared remarks. In terms of the impact of lower interest rates have on the average life of the loan portfolio and how that might correlate with changes in the allowance.

Sure. So if you think about what our loan portfolio is comprised of, it's essentially 30-year mortgage loans, whether they're single family, multifamily, I guess, commercial real estate, we have 25-year mortgage loans, but they're essentially relatively long mortgage loans. And when interest rates either increase -- mortgage interest rates either increase or decrease, we can see a material impact with respect to the average life of that loan portfolio because there's such a long duration loan in the first place. And so as a result of that, when we see interest rates this past quarter come down in the Ready Mac PMS 30-year fixed rate, I think from June 30 to September 30, that interest rate moved down by 47 basis points. Well that 47 basis point move downward, increased the proposition of refinance activity and shortened the average life of that loan portfolio to such a degree that the recovery from credit losses was pretty significant. .

And by the way, we see the reverse of that occurring as well. I think the most recent quarter that we saw that occur was the September 2024 quarter to the December 31, 2024 quarter. I don't recall specifically how mortgage interest rate rose during that period. But my recollection is they rose and as a result of that, we actually put in a provision for loan losses in that quarter, again, primarily because of what the weighted average life of that loan portfolio looks like.

Okay. So all else equal, if mortgage rates continue to come down, are you -- is the allowance too big right now?

Well, all else being equal and no deterioration in the credit quality of the loan portfolio or no significant growth in the loan portfolio where provision would be necessary. Yes, we would argue as interest rates come down, loan prepayments will increase, refinance activity will increase, and that will shorten the estimated life of our loan portfolio and it could have an outsized impact in a recovery of credit losses in contrast to a provision. But those are a number of caveats, Tim. No loan growth, no deterioration in the portfolio and interest rates coming down significantly. .

Okay. All right. I understand. Yes. And then the rest of my questions were proven to answering your prepared remarks.

There are no further questions at this time. And with that, I will turn the call back to Donavon Ternes, President and CEO, for final closing remarks. Please go ahead.

Thank you, Calvin. I appreciate everybody's attendance on the call this morning, and we look forward to our call in January. Goodbye.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect.