Speaker #1: Ladies and gentlemen, thank you for standing by.
Operator: 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 Q2 fiscal 2026 earnings call. All lines have been placed on mute to prevent any background noise, and after the speakers' remarks, there will be a question-and-answer session. If you'd like to ask a question at that time, please press star, then the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question at any time, simply press star one again. I'll now turn the call over to Donavon Ternes, President and CEO. You may begin.
Operator: 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 Q2 fiscal 2026 earnings call. All lines have been placed on mute to prevent any background noise, and after the speakers' remarks, there will be a question-and-answer session. If you'd like to ask a question at that time, please press star, then the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question at any time, simply press star one again. I'll now turn the call over to Donavon Ternes, President and CEO. You may begin.
Speaker #1: 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.
Speaker #1: All lines have been placed on mute to prevent any background noise, and after the speakers are marked, there will be a question-and-answer session. If you'd like to ask a question at that time, please telephone keypad to raise your hand and enter the queue.
Speaker #1: If you'd like to withdraw your question at any time, simply press star one again. I'll now turn the call over to Donavon Ternes. President and CEO, you may
Speaker #1: begin. Thank
Speaker #2: 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.
Donavon Ternes: 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.
Donavon Ternes: 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.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: 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.
Donavon Ternes: 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.
Donavon Ternes: 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.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: In the most recent quarter, we originated 42.1 million dollars of loans held for investment, a 42% increase from the 29.6 million dollars that were originated in the prior sequential quarter.
Speaker #2: 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.
Donavon Ternes: 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 three 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.
Donavon Ternes: 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 three 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.
Speaker #2: Lower mortgage rates have driven stronger loan origination activity, but also have 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.
Speaker #2: 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.
Speaker #2: For the three months ended December 31, 2025, loans held for investment decreased by approximately $4.1 million, with a decline in multi-family, commercial business, and commercial real estate loans partly offset by an increase in single-family and construction loans.
Speaker #2: Current credit quality continues to hold up very well and you will note that non-performing assets were just 999 or 990,000 dollars or eight basis points of total assets at December 31, 2025, a decrease from 1.9 million dollars at September 30, 2025.
Donavon Ternes: Current credit quality continues to hold up very well, and you will note that nonperforming assets were just $999,000, or 8 basis points of total assets at 31 December 2025, a decrease from $1.9 million at 30 September 2025. Additionally, there were no loans in the early stages of delinquency at 31 December 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.
Donavon Ternes: Current credit quality continues to hold up very well, and you will note that nonperforming assets were just $999,000, or 8 basis points of total assets at 31 December 2025, a decrease from $1.9 million at 30 September 2025. Additionally, there were no loans in the early stages of delinquency at 31 December 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.
Speaker #2: Additionally, there were no loans in the early stages of delinquency at December, indicating an absence of emergent 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, these loans will continue to perform well.
Speaker #2: 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 our investment.
Speaker #2: You should also note that, of loans held for, we have just six CRE loans that total $2.8 million maturing in the remainder of fiscal 2026.
Donavon Ternes: You should also note that we have just 6 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 31 December 2025, a slight decrease from 56 basis points at 30 September 2025.
Donavon Ternes: You should also note that we have just 6 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 31 December 2025, a slight decrease from 56 basis points at 30 September 2025.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: Our net interest margin increased three basis points to 3.03% for the quarter ended December 31, 2025, compared to 3.00% for the sequential quarter ended September 30, 2025.
Donavon Ternes: 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.
Donavon Ternes: 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.
Speaker #2: The net result of a five basis point decrease in the cost of total interest-bearing liabilities, net of a two basis point decrease in the yield of total interest-earning assets.
Speaker #2: Our average cost of deposits decreased to 1.32%, down two basis points for the quarter ended December 31, 2025, while our cost of borrowing decreased 20 basis points to 4.39% in the December 2025 quarter compared to the September 2025 quarter.
Speaker #2: The net deferred loan costs amortization associated with loan payoffs in the December 2025 quarter, compared to the average of the previous five quarters, negatively impacted the net interest margin by approximately five basis points, in contrast to no impact in the September 2025 quarter.
Donavon Ternes: The net deferred loan costs amortization associated with loan payoffs in the December 2025 quarter, compared to the average of the previous five quarters, negatively impacted the net interest margin by approximately five 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 31 December 2025. In the March 2026 quarter, our adjustable rate loans are repricing at interest rates that are slightly lower than their current interest rates.
Donavon Ternes: The net deferred loan costs amortization associated with loan payoffs in the December 2025 quarter, compared to the average of the previous five quarters, negatively impacted the net interest margin by approximately five 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 31 December 2025. In the March 2026 quarter, our adjustable rate loans are repricing at interest rates that are slightly lower than their current interest rates.
Speaker #2: 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.
Speaker #2: 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%.
Donavon Ternes: 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 six months.
Donavon Ternes: 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 six months.
Speaker #2: 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%.
Speaker #2: Many of these loans are already in their adjustable phase of the loan term, with rate resets every six 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.
Donavon Ternes: 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 certificates of deposit maturing in Q1 2026 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 Q2 2026 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.
Donavon Ternes: 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 certificates of deposit maturing in Q1 2026 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 Q2 2026 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.
Speaker #2: Excluding overnight borrowings, 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 4.12%.
Speaker #2: 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%.
Speaker #2: 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.
Donavon Ternes: 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 one 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 to 7.7 million per quarter. Our short-term strategy focuses on disciplined balance sheet growth by expanding our loan portfolio.
Donavon Ternes: 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 one 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 to 7.7 million per quarter. Our short-term strategy focuses on disciplined balance sheet growth by expanding our loan portfolio.
Speaker #2: Our FTE count at December 31, 2025, was 163, compared to 162 one year ago. We continue to look for operating efficiencies throughout the company to lower operating expenses.
Speaker #2: 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.
Speaker #2: For the remainder of fiscal 2026, we expect a run rate of approximately $7.6 to $7.7 million per quarter. Our short-term strategy focuses on disciplined balance sheet growth by expanding our loan portfolio.
Speaker #2: 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.
Donavon Ternes: 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.
Donavon Ternes: 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.
Speaker #2: As a result, the overall composition of our interest-earning assets and interest-bearing liabilities was 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.
Speaker #2: 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 are a responsible capital management tool, and we repurchased approximately $96,000 of common stock in the December 2025 quarter.
Speaker #2: 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.
Donavon Ternes: 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.
Donavon Ternes: 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.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: Colby, we will now entertain any questions that others may have regarding our financial results. Thank you. We will now begin the question-and-answer session. If you would like to ask a question, again, please press star, then the number one on your telephone keypad to raise your hand and enter the queue.
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, again, please press star, then the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question at any time, simply press star one again. We'll pause just for a moment to compile the roster. Your first question comes from the line of Timothy Coffey with Janney. Your line is open.
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, again, please press star, then the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question at any time, simply press star one again. We'll pause just for a moment to compile the roster. Your first question comes from the line of Timothy Coffey with Janney. Your line is open.
Speaker #2: If you’d like to withdraw your question at any time, simply press star one again. We’ll pause just for a moment to compile the roster.
Speaker #2: Your first question comes from the line of Timothy Coffey with Janney. Your line is open.
Speaker #3: Thank you. Morning,
Timothy Coffey: Thank you. Morning, Donavon.
Timothy Coffey: Thank you. Morning, Donavon.
Speaker #3: Donovan. Good
Donavon Ternes: Good morning.
Donavon Ternes: Good morning.
Timothy Coffey: Given the puts and takes that you just described on the loan portfolio, what is the probability that your portfolio is flat this, the next four quarters?
Speaker #3: Given the morning puts and takes that you just described on the loan portfolio, what is the probability that your portfolio is flat the next four—
Timothy Coffey: Given the puts and takes that you just described on the loan portfolio, what is the probability that your portfolio is flat this, the next four quarters?
Speaker #3: Quarters? Well, it's kind of a loaded—
Donavon Ternes: 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 five 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.
Donavon Ternes: 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 five 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.
Speaker #4: That's a 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.
Speaker #4: We've been able to do so essentially for the last five quarters or so. We have pipelines that are built that suggest the March 2026 quarter will also be a higher origination volume quarter.
Speaker #4: 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.
Speaker #4: And whether or not we grew those balances or essentially were somewhat flat.
Timothy Coffey: Yeah. Do you see the loans repricing in the June quarter as a potential headwind to loan growth?
Timothy Coffey: Yeah. Do you see the loans repricing in the June quarter as a potential headwind to loan growth?
Speaker #3: Do you see the loans repricing in the June quarter as a potential headwind to loan growth?
Speaker #4: 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.
Donavon Ternes: 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 input, 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.
Donavon Ternes: 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 input, 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.
Speaker #4: But they're not substantially higher. From where new loan production is coming in, that could have an impact; there could be implications with respect to that.
Speaker #4: 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.
Speaker #4: 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.
Donavon Ternes: 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 five 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 five quarters. So the implications of loan payoffs are twofold: difficulty in growing loan portfolio, and secondarily, there are implications to our net interest margin.
Donavon Ternes: 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 five 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 five quarters. So the implications of loan payoffs are twofold: difficulty in growing loan portfolio, and secondarily, there are implications to our net interest margin.
Speaker #4: 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.
Speaker #4: And the most recent quarter, those payoffs essentially impacted our net interest margin by a negative five 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 five quarters.
Speaker #4: So the implications of loan payoffs are twofold: difficulty in growing loan portfolios, and secondarily, there are implications to our net interest.
Speaker #4: So, the implications of loan payoffs are twofold: difficulty in growing loan portfolios, and secondarily, there are implications to our net interest margin. Right.
Timothy Coffey: Right. Okay. And then the government, the federal government, has recently discussed, you know, exploded ideas on how to make housing more affordable. If some of those plans come through, would that be a net positive for your business?
Timothy Coffey: Right. Okay. And then the government, the federal government, has recently discussed, you know, exploded ideas on how to make housing more affordable. If some of those plans come through, would that be a net positive for your business?
Speaker #3: Okay. And then the government, the federal government, has recently discussed—explored—ideas on how to make housing more affordable. If some of those plans come through, would that be a net positive for your business?
Speaker #4: Well, I think ultimately, if you look at—particularly in California, where we land—if you look at housing stock or available inventory, you find that there is much more demand than available inventory.
Donavon Ternes: 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.
Donavon Ternes: 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.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: 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.
Donavon Ternes: 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.
Donavon Ternes: 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.
Speaker #4: And that would ultimately drive more buyers. I
Speaker #4: believe. All right.
Timothy Coffey: All right, great. Thank you. Those are my questions. Appreciate it.
Timothy Coffey: All right, great. Thank you. Those are my questions. Appreciate it.
Speaker #3: Great. Thank you. Those are my questions. Appreciate it.
Speaker #2: Again, if you'd like to ask a question, please press star, then the number one on your telephone keypad. And with no further questions in queue, I'd like to turn the conference back over to Donavon for closing.
Operator: Again, if you'd like to ask a question, please press star, then the number one on your telephone keypad. With no further questions in queue, I'd like to turn the conference back over to Donavon for closing remarks.
Operator: Again, if you'd like to ask a question, please press star, then the number one on your telephone keypad. With no further questions in queue, I'd like to turn the conference back over to Donavon for closing remarks.
Speaker #2: remarks. Thank you,
Donavon Ternes: Thank you, Colby, and thank you, everyone, for attending our second quarter earnings call, and I look forward to the next call with our third quarter earnings. Have a good day.
Donavon Ternes: Thank you, Colby, and thank you, everyone, for attending our second quarter earnings call, and I look forward to the next call with our third quarter earnings. Have a good day.
Speaker #4: Colby. And thank you, everyone, for attending our second quarter earnings call. I look forward to the next call for our third quarter earnings.
Speaker #4: Have a good
Speaker #4: day. This
Operator: This concludes today's conference call. You may now disconnect.
Operator: This concludes today's conference call. You may now disconnect.
