Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter earnings call. At this time, all participants are in listen-only mode. Later, we will have a question and answer session, and instructions will be provided for you regarding queuing up for questions at that time. Should you require operator assistance during the call, press Star zero on your phone's keypad. As a reminder, this conference is being recorded, and a replay will be available for you to listen to starting at 11:00 AM Pacific Time today and running through August fifth at midnight.
International callers would use the number 402-970-0847, again, that access code is 1060286. Once again, those phone numbers for domestic, 866-207-1041. International, 402-970-0847, access code of 1060286. Replay available from 11:00 A.M. Pacific Time today through August fifth. At this time, I would now like to turn this conference over to our host, Chairman and Chief Executive Officer, Mr. Craig G. Blunden. Please go ahead, sir.
Thank you, John. Good morning, everyone. This is Craig G. Blunden, Chairman, CEO of Provident Financial Holdings. On the call with me is Donavon P. Ternes, our President, Chief Operating 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 operations, products or services, forecasts of financial or other performance measures, and statements about the company's general economic and business conditions. We also may make forward-looking 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 forward-looking statements available from the earnings release that was distributed yesterday from the annual report on and the June 30, and from the Form 10-Qs and other SEC filings that are filed subsequent to the Form 10-K. Forward-looking statements are effective only as of the date that they are made, and the company assumes no obligation to update this information. To begin with, thank you for participating in our call. I hope that each of you has had an opportunity to review our earnings release, which describes our fourth quarter results. In the most recent quarter, we originated and purchased $93.3 million of loans held for investment, an increase from the $61 million in the prior sequential quarter.
During the most recent quarter, we also experienced $79.9 million of loan principal payment and payoff, which is up from the $75.7 million in the March 2021 quarter and still tempering the growth of loans held for investment. In the June 2021 quarter, competition remains elevated for lower credit risk loan products, but it seems that many multi-family commercial real estate borrowers are once again considering transactions as a result of better general economic conditions. For the most part, our underwriting requirements have returned to pre-pandemic criteria, except for certain loan products such as retail and office CRE, which remain a bit tighter. Additionally, our single-family and multi-family pipelines are similar in size to last quarter, suggesting our originations of purchases in the September 2021 quarter will be similar to the volume we experienced this quarter.
For the three months ended June 30, 2021, loans held for investment increased by approximately 1% compared to March 31, 2021, with increases in the single-family and multi-family loan categories, partly offset by declines in the commercial real estate and construction loan categories. Current credit quality is holding up well, and you will note there are no early-stage delinquency balances at June 30, 2021. Additionally, non-performing assets decreased to $8.6 million, which is down from $9.8 million on March 31, 2021. Please note that the non-performing assets are largely comprised of forbearance loans downgraded to TDR non-accrual status as a result of not being able to resume their monthly payments at expiration of their initial forbearance. At the time we extended the forbearance period beyond 6 months, we downgrade the loans to non-performing status.
As of June 30, 2021, there were three single-family loans in forbearance with a combined outstanding balance of approximately $897,000, or 0.11% of gross loans held for investment, and one commercial real estate loan in forbearance with an outstanding balance of approximately $945,000, or 0.11% of gross loans held for investment. On March 31, 2021, we ended new requests pursuant to our forbearance program. Existing forbearance loans will run their course as provided in their individual forbearance agreements and may be eligible for an extension. We recorded a $767,000 negative provision for loan losses in the June 2021 quarter. The allowance for loan losses to gross loans held for investment decreased to 88 basis points on June 30th, from 98 basis points on March 31st. You will note that we remain on an incurred loss model and have not adopted CECL.
This means our allowance methodology cannot reasonably be compared to CECL adopters. Our net interest margin compressed by six basis points for the quarter ended June 30, 2021, compared to the March 2021 sequential quarter, as a result of a seven basis point decrease in the average yield on total interest-bearing assets, partly offset by a one basis point decrease in the cost of total interest-bearing liabilities. The decline in the average yield on total interest-bearing assets was primarily a result of the sharp rise in liquidity stemming from the significant loan prepayments and increase in total deposits, which were reinvested at lower yields. Our average cost of deposits decreased by two basis points to 15 basis points for the quarter ended June 30, 2021, compared to the prior sequential quarter.
Our borrowing costs increased by approximately 60 basis points in the June 2021 quarter compared to the March 2021 quarter, primarily due to a $21,000 prepayment fee on a $10 million borrowing prepaid in June that was scheduled to mature in August 2021. The 2.54% net interest margin this quarter was also negatively impacted by approximately six basis points as a result of the increase in amortization of the net deferred loan cost associated with the loan payoff in the June quarter in comparison to the average net deferred loan cost amortization of five previous quarters. We continue to look for operating efficiencies throughout the company to lower operating expenses. Notably, our FTE count on June 30, 2021, decreased to 161 compared to 178 FTE on the same date last year, a 10% decline.
You will note that we recorded a $2.4 million credit for the Employee Retention Tax Credit in the June 2021 quarter, consistent with the Consolidated Appropriations Act, 2021 and the American Rescue Plan Act of 2021, where eligible employers can claim a maximum credit equal to 70% of $10,000 of qualified wages paid to employee per calendar quarter. The general requirements to be eligible to claim the credit is a 20% or more decline in gross receipts in the calendar 2021 quarter compared to the same quarter in the calendar year 2019, and 500 or fewer full-time employees based on the average of the 2019 calendar year. There were a few irregular operating expenses incurred in the June 2021 quarter.
The first was an increase in stock-based compensation expense as described in the earnings release, resulting from the vesting and distribution of common stock awards, and the second was $170,000 settlement of a pre-litigation employment matter. Our short-term strategy for balance sheet management is unchanged from last quarter. We believe that leveraging the balance sheet with prudent loan portfolio growth is the best course of action, but executing on that strategy in the current environment has proven difficult. In the interim, we're redeploying excess liquidity in government-sponsored mortgage-backed securities with estimated average lives of approximately four years. We exceed the well-capitalized 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, and doing so takes priority over stock buyback activity.
However, we also recognize that prudent capital returns to shareholders through stock buyback programs is a valid capital management tool, and we purchased approximately 50,000 shares of common stock in the June 2021 quarter under the April 2020 stock repurchase program. We encourage everyone to review our June 30th investor presentation posted on our website. You will find that we include slides regarding financial metrics, asset quality, and capital management, which we believe will give you additional insight on our strong financial foundation supporting the future growth of the company. In particular, slide 13 contains the forbearance table as of June 30, 2021, and footnote five of the commercial real estate table describing the composition of our commercial real estate secured loan portfolio and the balances that may be considered higher risk in the current environment. We will now entertain any questions you may have regarding our financial results.
Thank you. John?
Our first question, we will go to Nick Kuchera. You're open. Please go ahead.
How are you?
Good morning. Fine.
Good morning. First, I wanted to start with loan growth. I appreciate the commentary on the pipeline and the production outlook. I know it's early, but have you seen refinance activities slowing at this point in the quarter, or is it still elevated?
Donavon?
Nick, I think refinance activity began to slow in the June quarter as a result of the bump up in the 10-year treasury yield and ultimately mortgage rates. Since that time, refinance activity has reversed in that it's grown a bit, since the 10-year yield and mortgage rates have come down. For us, that puts a little bit of pressure, perhaps, on prepayments. We've seen the bulk of that prepayment activity occur in the single-family loan portfolio. It also gives us opportunity with respect to new origination volume.
Okay. Can you help us think about the overall lending environment? Has the purchase market continued to normalize back to pre-pandemic times?
The purchase market is, you read all the anecdotal data, very difficult. There's still a lot of activity and there's very low inventory. The low inventory isn't there because of the demand side of the equation per se. It's because the sellers aren't listing their homes, as they once were or so it seems. To the extent that new listings come on, they are sold quite quickly. Demand for single-family product is very robust. I think some of the numbers with respect to inventory on hand relative to purchase volume is something less than two months, which is at very low levels from a historical perspective. A great deal of activity with respect to purchase volume to the extent sellers are actually putting their homes in listings.
That's great color. Just lastly, on the tax rate, this quarter's level is still below where you've historically run. Was that partly attributable to the Employee Retention Tax Credit? Where do you see that flushing out in future periods?
Our statutory tax rate on a consolidated basis, I think is 29.56%. That's what we described to ourselves, and that's how we build our own business plan. Some of the other things that come into play is obviously the Employee Retention Credit as you described, which is taxable at the federal level, but non-taxable at the state level. That provides a bit of a benefit to us in a particular quarter that it's taken.
Thank you for taking my questions.
Next we have Ben Gerla with The Hovde Group. Please go ahead.
Hey, good morning, guys.
Morning.
Morning. I was wondering if you guys could kind of expand a little bit more on the expense base in general. I understand that there's obviously the big Retention Tax Credit this quarter. I was looking to see if you could kind of expand to see if the possibility for the next couple quarters, obviously that will affect the tax rate, given the federal versus state level. From there, on the previous call, we talked about the branch network and if there's a potential for consolidation, and I know you guys were reviewing that as well. If you could just kind of expand on just those two aspects.
First of all, I'll address the branch network. As we described on the last call, we review our branch network primarily as leases become due. We determine whether or not consolidation of branches should occur at that time. The second part of that is to the extent we have a single branch in a single city, in the county, it's probably unlikely that we would consolidate that branch. On the other hand, to the extent that we have multiple branches in a particular city, such as Riverside, which is the city in question, that's where consolidation would take place. With respect to the other components of the expense base, Craig mentioned in his prepared comments that we had a couple of things occur in the June quarter.
The pre-litigation settlement expense as well as the investing and distribution of stock awards, which occurs infrequently, every two years or so, where there are true up expenses potentially as a result of that distribution in contrast to our forfeiture estimates. Those, I would exclude in any forecasting, certainly over the next couple of quarters. Other than that, we described that we've decreased or have taken out about 10% of the FTE count over the course of the year. I would expect less activity as I look down to future quarters, because we've already done a great deal with respect to that FTE count. I think in the past, many of the estimates have come in between $6.9 million and $7 million per quarter on kind of a normalized basis. That seems reasonable given what we know has occurred over the last couple of quarters.
Okay, great. That's really helpful. My last one, I understand that obviously the dividend is important, and you've repurchased shares the past couple quarters. As you guys continue to operate and produce positive earning results, the tangible book continues to go up. With that respect, is there kind of a red line in the sand that where repurchase would become a priority, or is dividend the sole focus?
Well, I don't think we have a sole focus as demonstrated by our actual activity. If I think about the hierarchy, we prefer or we wish to support the cash dividend obviously. As I think about stock repurchase activity, that's something that we've done historically, and it continues to be a part of our capital management. Frankly, we would prefer loan growth and leveraging balance sheet over stock repurchase activity. That becomes a capital management strategy within the context of generating earnings, and increasing total equity, and our capital ratios and kind of bringing them down into better levels. That's how we think about it.
Okay. Yeah, that makes sense. I appreciate the color. I'll step back.
Thank you.
Once again, ladies and gentlemen, for questions press 10 on your phone's keypad. Next we will go to Tim Coffey with Janney. Go ahead, please.
Thanks. Morning, gentlemen.
Morning, Timothy.
Hey. Craig and Donavon, if I get this right, can you describe your concern level about future loan originations given the increased kind of health warnings that we're seeing from your area, specifically kind of L.A. County and the mask mandate?
As I think about worrying with respect to the health conditions and how local governments are responding, I think there might be a minor or a small impact. Some of the things that we're seeing with respect to the new protocols or requirements, in many ways are kind of old hat to everybody. We've had mask mandates. We've had advisories or the advice of knowing and social distancing and things of that nature. Guess what? It really didn't slow down the refinance activity that we've seen over the past year. So I don't know that it would have a significant impact.
Potentially it could have more of an impact with respect to multifamily and commercial, and maybe slow some of that activity down because I think we did see an impact with owners and investors in those categories during the course of the pandemic, which seems to have improved now as a result of the decline in protocols or rules. Perhaps we see something there. I think as well what we've seen, I've kind of looked at everybody's numbers, certainly competitors that we deal with, and everybody's volume seems to have been pretty good this June quarter. There could be a limited impact. I don't know that it would be a large impact. I don't know if you have any comments, Craig.
Well, this is such a moving target, Tim. It's like a rollercoaster. You're going up and down and up and down, and you don't really know where we're going to be from week to week. In fact, trying to run a company and figure out what your employees should be doing week to week is difficult as well. I don't know where all this is going. I think I'd agree in general what Donavon has been saying on the market itself.
Okay. I remember a year ago we were having discussions about it being really difficult to do on-site inspection because of kind of the restrictions. You don't see the same thing occurring again?
No, we've not seen that. We've seen that the protocols that had been established, all of that was overcome. New procedures and activity has gone in that allow both lender and borrower to conduct those things on a safe health basis, if you will. Yeah, we don't see any of that right now.
Okay. You've done a great job year-over-year, bringing down or reinvesting the excess liquidity that has found its way onto your balance sheet. Do you still feel that you have more levers to pull to support margin?
Well, yeah. The June quarter was kind of a textbook quarter for us as it relates to that. The cash and cash equivalents were essentially flat in comparison to the March quarter. We brought investment security balances down, which are obviously lower yielding instruments during that quarter. Loans held for investment increased during the quarter. Deposits increased during the quarter, and borrowings came down during the quarter. We simply need to do more of that for consecutive quarters as we go down the timeline. What that will then do, as you suggest, is support the net interest margin. Remember, one of the things to think about, our single-family portfolio is primarily adjustable rate. Even though borrowers are getting their adjustment notices and those yields are going down, they're still inclined to refinance those balances into lower rate 30-year fixed product.
That has an implication for us as well as we think about the net interest margin, because those portfolios are generally adjusting downward. In fact, if you look at some of the tables in the earnings release, you'll see that the yield on SFR loans came down significantly. The yields on multifamily commercial real estate and construction, while coming down a little bit, those yields did not come down anywhere near what single family did.
Okay. Certainly your loan growth outlook, I think our origination outlook was as positive as well to that goal. All right, gentlemen, those are my questions. Thank you.
Thank you.
Sir, at this time, we have no additional questions in queue.
All right. Well, I'd like to thank everyone for participating in our conference call and look forward to speaking with all of you again next quarter. Thank you.
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Event Conferencing. You may now disconnect.