What changed in this filing

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Item 1. Business

2023-09-05 compared with 2022-09-02 · 267 added, 208 removed, 839 unchanged (36% of the section changed)

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The Conversion was completed on June 27, 1996.

The Corporation is regulated by the Federal Reserve Board (“FRB”).

The Corporation is regulated by the Board of Governors of the Federal Reserve System (“FRB”).

At June 30, 2023, the Corporation had consolidated total assets of $1.33 billion, total deposits of $950.6 million and stockholders’ equity of $129.7 million.

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Accordingly, the information set forth in this Annual Report on Form 10-K (“Form 10-K”), including the audited consolidated financial statements and related data, relates primarily to the Bank.

As used in this report, the terms “we,” “our,” “us,” and the “Corporation” refer to Provident Financial Holdings, Inc.

and its consolidated subsidiaries, unless the context indicates otherwise.

When we refer to the “Provident” in this report, we are referring to Provident Financial Holdings, Inc.

When we refer to the “Bank” or “Provident Savings Bank” in this report, we are referring to Provident Savings Bank, F.S.B., a wholly owned subsidiary of Provident.

The Bank, founded in 1956, is a federally chartered stock savings bank headquartered in Riverside, California.

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The Bank is a financial services company committed to serving consumers and small to mid-sized businesses in the Inland Empire region of Southern California.

The Bank conducts its business operations as Provident Bank, and through its subsidiary, Provident Financial Corp.

The Bank conducts its business operations as Provident Bank, and through its subsidiary, Provident Financial Corp (“PFC”).

The business activities of the Bank consist of community banking, investment services and trustee services for real estate transactions.

The Bank’s community banking operations primarily consist of accepting deposits from customers within the communities surrounding its full-service offices and investing those funds in single-family, multi-family, commercial real estate, construction, commercial business, consumer and other mortgage loans.

Through its subsidiary, Provident Financial Corp, the Bank conducts trustee services for the Bank’s real estate transactions and in the past has held real estate for investment.

Through its subsidiary, PFC, the Bank conducts trustee services for the Bank’s real estate transactions and in the past has held real estate for investment.

For additional information, see “Subsidiary Activities” in this Form 10-K.

The activities of Provident Financial Corp are included in the Bank's operating segment results.

The activities of PFC are included in the Bank's operating segment results.

The Bank’s revenues are derived principally from interest earned on its loan and investment portfolios, and fees generated through its community banking activities.

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The Bank contributed $40,000 to the Foundation in both fiscal 2023 and 2022.

The Corporation is actively monitoring and responding to the effects of the novel coronavirus of 2019 (“COVID-19”) pandemic.

The Centers of Disease Control and Prevention (“CDC”) guidelines, as well as directives from federal, state, county and local officials, are being closely followed to make informed operational decisions.

During the COVID-19 pandemic, the health, safety and well-being of its customers, employees and communities and providing uninterrupted access to services are top priorities for the Corporation.

As of June 30, 2022, all banking branches are open with normal hours and substantially all employees have returned to their routine working environments.

The Bank will continue to monitor branch access and occupancy levels in relation to cases and close contact scenarios and follow governmental restrictions and public health authority guidelines.

Subsequent Event

On July 28, 2022, the Corporation announced that the Corporation’s Board of Directors declared a cash dividend of $0.14 per share.

Shareholders of the Corporation’s common stock at the close of business on August 18, 2022 were entitled to receive the cash dividend, which will be payable on September 8, 2022.

On July 27, 2023, the Corporation announced that the Provident Board of Directors declared a cash dividend of $0.14 per share.

Shareholders of Provident common stock at the close of business on August 17, 2023 were entitled to receive the cash dividend, payable on September 7, 2023.

The Bank is headquartered in Riverside, California and operates 12 full-service banking offices in Riverside County and one full-service banking office in San Bernardino County.

Management considers Riverside and Western San Bernardino counties to be the Bank’s primary market for deposits.

The Bank is the largest independent community bank headquartered in Riverside County and it has the eleventh largest deposit market share of all banks and the third largest of community banks in Riverside County.

Management considers Riverside and Western San Bernardino

counties to be the Bank’s primary market for deposits.

As of June 30, 2023, the Bank was the largest independent community bank headquartered in Riverside County and had the tenth largest deposit market share of all banks and the second largest of community banks in Riverside County.

The large geographic area encompassing Riverside and San Bernardino counties is referred to as the “Inland Empire.” According to the 2020 Census Bureau population statistics, Riverside and San Bernardino Counties have the fourth and fifth largest populations in California, respectively.

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Riverside and Western San Bernardino counties are relatively densely populated and are within the greater Los Angeles metropolitan area.

According to the United States of America (“U.S.”) Department of Labor, Bureau of Labor Statistics, the unemployment rate in June 2022 for the Inland Empire was 4.0% and in the State of California was 4.2%, compared to 3.6% nationwide, reflecting improvement in the economy attributable to the reduced impact of the COVID-19 pandemic.

The unemployment data reported in June 2021 was 7.9% in both the Inland Empire and California and 5.9% nationwide.

Business activity in the Inland Empire has continued to grow, and in the context of recent increasingly uncertain economic environment, stands in stark contrast to growth trends in the nation.

In the first quarter of calendar 2022, business activity in the Inland Empire expanded by 4.7% compared to 6.4% in the fourth quarter of calendar 2021.

Although regional growth has slowed somewhat, it unambiguously outperformed the U.S.

Gross Domestic Product, which declined by 1.5% in the first quarter of calendar 2022.

Over calendar year 2022, the Inland Empire’s business activity is forecast to rise between 2.5% and 3.5%.

Employment has continued to expand and the workforce in the region is larger than it was before the pandemic, something that is not true for the state as a whole.

University of California – Riverside School of Business – Inland Empire Business Activity Index – Summer 2022 Edition).

California home sales were 344,970 in June 2022, down 20.9% percent from June 2021, when 436,020 homes were sold on an annualized basis.

The June 2022 statewide and Inland Empire median home price was $863,790 and $585,000, up 5.4% and up 11.4% from June 2021, respectively.

California Association of Realtors – July 18, 2022 News Release).

According to the United States of America (“U.S.”) Department of Labor, Bureau of Labor Statistics, the unemployment rate in June 2023 for the Inland Empire was 4.4% and in the State of California was 4.6%, compared to 3.6% nationwide.

The unemployment data reported in June 2022 was 4.0% in the Inland Empire, 4.2% in the State of California and 3.6% nationwide.

The Covid-19 Pandemic of 2020 saw our economy take one of its biggest negative shocks in its modern history.

Social distancing made it nearly impossible to go to work, resulting in a significant decline in the labor force.

Since then, work practices have slowly shifted to recover the loss.

In Southern California, we have seen the labor force steadily increase in the Inland Empire, Orange County, and Los Angeles County.

However, while the numbers have not reached pre-pandemic levels in Orange and Los Angeles Counties, they have recovered and are above pre-pandemic levels in the Inland Empire.

There is hardly any other region in California that has added more jobs than Riverside County and San Bernardino County.

We have outperformed all other regions in Southern California;

and, in addition, Silicon Valley and San Francisco.

From its peak in May 2020, the unemployment rate has decreased by 11.2%.

The booming labor market is reflected in the relatively low unemployment rate for the region.

Housing plays an important role in the Inland Empire economy.

The low interest rate environment that prevailed for most of the last 20 years favored home buyers and builders alike.

But interest rates have increased to their highest level in two decades as the Fed has fought to bring inflation down.

This has had a chilling effect on home prices and home sales while creating new uncertainty for builders.

The median price peaked in San Bernardino County at $495,000 in April 2022, while Riverside County saw a peak at $650,000 in May.

The San Bernardino County median has since slid by nearly $30,000 compared to $55,000 for the Riverside County median.

Home sales reached their high point in March 2022, but declined throughout the year and into 2023 as a result of higher mortgage rates.

Home sales in February 2023 were 35% lower than a year ago in Riverside County and fell 42% in San Bernardino County.

The ultra-low rates that were characteristic of the last few years will not be returning soon.

With high rates and limited supply, the housing market faces a difficult year ahead.

To simply rattle down further performance statistics for the Inland Empire at this point would be unproductive, meaning that in this section we want to go beyond what a recession would mean to the Inland Empire.

Briefly, a national recession would cut back on the U.S.

appetite for imports and thereby reduce container shipments with serious negative effects on the region’s logistics sector.

To make matters worse, employment in the Greater Los Angeles area would also decrease, thereby affecting commuters from the Inland Empire directly.

Since unemployment is measured by residency, we would observe increases in the Inland Empire unemployment rate first (think of a lake freezing from the periphery).

Reduced spending by higher income commuters has secondary effects on the local economy, thereby lowering output and income of local firms and resulting in a further reduction of logistics employment as a result of fewer retail shipments.

excerpts from the Lowe Institute of Political Economy - The State of the Region the Inland Empire 2023 – March 30, 2023).

California home sales in June 2023 were 277,490 units, down 4.1 percent from 289,460 homes in May 2023 and down 19.7 percent from a year ago, when a revised 345,760 homes were sold on an annualized basis.

Sales of existing single-family homes in California remained below 300,000 units for the ninth consecutive month.

The yearly drop was the smallest since May 2022 and marked the first time in a year that sales dropped by less than 20 percent from a year ago.

However, the smaller decline was due primarily to weaker sales last June, when sales dropped below 350,000 for the first time in two years.

California’s median home price exceeded $800,000 in June for the third straight month, up 0.3 percent from May’s $836,110 to $838,260 in June.

The statewide median price continued to rise and reached the highest level in ten months.

Tight housing supply and more high-end homes being sold relative to prior months continued to put upward pressure on prices.

Despite the improvement from early 2023, the median home price in California dipped 2.4% on a year-over-year basis for the eighth consecutive month from $858,800 in June 2022.

The downward movement in home prices appears to be stabilizing, but more dips in the median price are expected in the coming months as rates will likely remain elevated for most, if not the entire third quarter, of 2023.

excerpts from California Association of Realtors – July 19, 2023 News Release).

The Bank faces significant competition in its market area in originating real estate loans and attracting deposits.

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Additional lending activities have historically included originating saleable single-family loans, primarily fixed-rate first trust deed mortgages.

The Bank’s net loans held for investment were $940.0 million at June 30, 2022, representing 79.2% of consolidated total assets.

The Bank’s net loans held for investment were $1.08 billion at June 30, 2023, representing 81% of consolidated total assets.

This compares to $940.0 million, or 79% of consolidated total assets, at June 30, 2022.

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four multi-family loans totaling $5.1 million to one group of borrowers;

eight single-family loans and one multi-family loan totaling $5.2 million to one group of borrowers;

eight single-family loans totaling $4.5 million to one group of borrowers;

two multi-family loans totaling $4.3 million to one group of borrowers;

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and one multi-family loan totaling $4.2 million to one group of borrowers.

The real estate collateral for these loans is located in Southern and Northern California.

The real estate collateral for these loans are primarily located in Southern and Northern California.

At June 30, 2023, all of these loans were performing in accordance with their repayment terms.

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In addition, due-on-sale clauses generally give the Bank the right to declare loans immediately due and payable in the event, among other things, the borrower sells the real property that secures the loan.

The average life of mortgage loans tends to increase, however, when current market interest rates are substantially higher than the interest rates on existing loans held for investment and, conversely, decrease when the interest rates on existing loans held for investment are substantially lower than current market interest rates, as borrowers are generally less inclined to refinance their loans when market rates increase and more inclined to refinance their loans when market rates decrease.

The average life of mortgage loans tends to increase, however, when current market interest rates are substantially higher than the interest rates on existing loans held for investment and, conversely, decrease when the interest rates on existing loans held for investment are substantially higher than current market interest rates, as borrowers are generally less inclined to refinance their loans when market rates increase and more inclined to refinance their loans when market rates decrease.

The table below describes the geographic dispersion of real estate secured loans held for investment (gross) at June 30, 2023 and 2022, as a percentage of the total dollar amount outstanding (dollars in thousands):

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One of the Bank’s primary lending activity is the origination and purchase of adjustable and fixed rate mortgage loans to be held for investment secured by first trust deed mortgages on owner-occupied, single-family (one to four units) residences in the communities where the Bank’s branches are located and surrounding areas in Southern and Northern California.

During fiscal 2022 the Bank originated $191.7 million and purchased $6.4 million of single-family loans to be held for investment, all of which were underwritten in accordance with the Bank’s origination guidelines.

During fiscal 2023, the Bank originated $165.9 million of single-family loans to be held for investment, all of which were underwritten in accordance with the Bank’s origination guidelines, and did not purchase any single-family loans.

This compares to single-family loan originations of $191.7 million and purchases of $6.4 million during fiscal 2022.

At June 30, 2023, total single-family loans held for investment increased 37% to $518.8 million, or 48% of the total loans held for investment, from $378.2 million, or 40% of the total loans held for investment, at June 30, 2022.

The increase in the single-family loans in fiscal 2022 was primarily attributable to new loans originated and purchased for investment that exceeded loan principal payments.

The increase in the single-family loans in fiscal 2023 was primarily attributable to new loans originated for investment that exceeded loan principal payments.

During fiscal 2023, the Bank had net recoveries of $8,000 in non-performing single-family loans, as compared to net recoveries of $439,000 during fiscal 2022.

At June 30, 2022 and 2021, total non-performing single-family loans were $1.4 million and $7.9 million, net of allowances and charge-offs, and there were no loans past due 30 to 89 days at both dates.

At June 30, 2023 and 2022, total non-performing single-family loans were $1.3 million and $1.4 million, respectively, net of allowances and charge-offs, and there were no loans past due 30 to 89 days at both dates.

The Bank has underwriting standards that generally conform with the standards of the government sponsored entities (“GSE”) which include Fannie Mae and Freddie Mac.

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Currently, the maximum LTV ratio is 90% for purchase and rate and term refinances and 75% for cash-out refinances.

The maximum loan amount offered is $1.5 million.

The lowest FICO score currently offered is 690 for a purchase transaction and 720 for a cash-out transaction.

The FICO score represents the creditworthiness of a borrower based on the borrower’s credit history, as

reported by an independent third party.

The maximum loan amount offered on single-family homes is $1.5 million.

The lowest FICO score currently offered for a purchase or no cash-out refinance transaction is 700, while the lowest FICO score for a cash-out refinance transaction is 720.

A limited cash-out refinance transaction limits cash back to the borrower to the lesser of 2% of the new loan amount or $2,000.The FICO score represents the creditworthiness of a borrower based on the borrower’s credit history, as reported by an independent third party.

A higher FICO score indicates a greater degree of creditworthiness.

Bank regulators have issued guidance stating that a FICO score of 660 and below is indicative of a “subprime” borrower.

The Bank currently lends on residential properties classified as single-family unit, planned unit developments and condominiums.

The Bank currently lends on residential properties classified as single-family units, planned unit developments and condominiums.

Underwriting standards and guidelines may change at any time given changes in real estate market conditions or changes to GSE policies and guidelines.

For additional protection, the Bank purchases lender-paid mortgage insurance for certain single-family mortgage loans.

As of June 30, 2022, a total of $78.6 million of single-family mortgage loans with a 79% weighted average LTV at the time of origination have lender-paid mortgage insurance providing a weighted average coverage ratio of 11% of the original loan amount.

As of June 30, 2023, a total of approximately $136.5 million of single-family mortgage loans with a 79% weighted average LTV at the time of origination have lender-paid mortgage insurance providing a weighted average coverage ratio of approximately 12% of the original loan amount.

Prior to fiscal 2009, many of the loans we originated for investment consisted of non-traditional single-family residential loans that do not conform to Fannie Mae or Freddie Mac underwriting guidelines as a result of the characteristics of the borrower or property, the loan terms, loan size or exceptions from agency underwriting guidelines.

In exchange for the additional risk to us associated with these loans, these borrowers generally are required to pay a higher interest rate, and depending on the credit history, a lower loan-to-value ratio was generally required than for a conforming loan.

Our non-traditional single-family residential loans include loans to borrowers who provided limited or no documentation of their income or stated income loans, negative amortization loans (a loan in which accrued interest exceeding the required monthly loan payment is added to loan principal up to 115% of the original loan amount), more than 30-year amortization loans, and loans to borrowers with a FICO score below 660 (these loans are considered subprime by the OCC).

Including these low FICO score loans, as of June 30, 2022, our single-family residential borrowers had a weighted average FICO score of 759 at the time of loan origination.

monthly loan payment is added to loan principal up to 115% of the original loan amount), more than 30-year amortization loans, and loans to borrowers with a FICO score below 660 (these loans are considered subprime by the OCC).

As of June 30, 2023, these non-traditional loans totaled $20.6 million, comprising 4% of total single-family residential loans held for investment and 2% of total loans held for investment.

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Currently, the ARM programs have a rate consisting of an Index tied to the Secured Overnight Financing Rate (“SOFR”), plus a margin.

The programs are limited to a maximum, semi-annual increase or decrease of one percentage point with a maximum lifetime increase of five percentage points.

The rate may not fall below the margin.

The programs are limited to a maximum semi-annual increase or decrease of one percentage point with a maximum lifetime increase of five percentage points and the rate may not fall below the margin.

The portfolio currently consists of the following indices, plus a margin of between 2.00% and 3.25%, which are used to calculate the periodic interest rate changes:

the London Interbank Offered Rate (“LIBOR”), SOFR, the 12-month average U.S.

the London Interbank Offered Rate (“LIBOR”) that will be transitioned to another similar index starting July 1, 2023, SOFR, the 12-month average U.S.

Treasury (“12 MAT”) or the weekly average yield on one-year U.S.

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The majority of the ARM loans held for investment have five, seven, or 10-year fixed periods prior to the first adjustment and provide for fully amortizing loan payments throughout the term of the loan.

Loans of this type have embedded interest rate risk if interest rates should rise during the initial fixed rate period.

Loans of this type have embedded interest rate risk if interest rates should rise during the initial fixed rate period or if rates should rise beyond the periodic or lifetime caps.

Borrower demand for ARM loans versus fixed-rate mortgage loans is a function of the level of interest rates, the expectations of changes in the level of interest rates and the difference between the initial interest rates and fees charged for each type of loan.

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If real estate values decline from the levels at the time of loan origination, the value of our real estate collateral securing the loans could be significantly reduced.

Our ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and it would be more likely to suffer losses on defaulted loans.

Multi-Family and Commercial Real Estate Mortgage Loans .

At June 30, 2022, multi-family mortgage loans were $464.7 million and commercial real estate loans were $90.4 million, or 49.5% and 9.6%, respectively, of loans held for investment.

This compares to multi-family mortgage loans of $484.4 million and commercial real estate loans of $95.3 million, or 56.8% and 11.2%, respectively, of loans held for investment at June 30, 2021.

Consistent with its strategy to diversify the composition of loans held for investment, the Bank has made the origination and purchase of multi-family and commercial real estate loans a priority.

During fiscal 2022 the Bank originated $105.9 million, all of which were underwritten in accordance with the Bank’s origination guidelines, and did not purchase any multi-family and commercial real estate loans.

This compares to loan originations of $88.8 million and loan purchases of $11.5 million during fiscal 2021.

At June 30, 2022, the Bank had 634 multi-family and 121 commercial real estate loans in loans held for investment.

This compares to 654 multi-family and 134 commercial real estate loans in loans held for investment at June 30, 2021.

Multi-family mortgage loans originated by the Bank are predominately adjustable rate loans, including hybrid ARM loans, with a term to maturity of 10 to 30 years and a 25 to 30-year amortization schedule.

The Bank’s ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and it would be more likely that the Bank could suffer losses on defaulted loans.

Multi-Family and Commercial Real Estate Loans .

At June 30, 2023, multi-family loans were $461.1 million and commercial real estate loans were $90.6 million, or 43% and 8%, respectively, of loans held for investment.

This compares to multi-family loans of $464.7 million and commercial real estate loans of $90.4 million, or 50% and 10%, respectively, of loans held for investment at June 30, 2022.

Consistent with its strategy to diversify the composition of loans held for investment, the Bank has emphasized the origination and purchase of multi-family and commercial real estate loans.

During fiscal 2023 the Bank originated $69.3 million and did not purchase any multi-family or commercial real estate loans.

This compares to multi-family and commercial real estate loan originations of $105.9 million and no loan purchases during fiscal 2022.

At June 30, 2023, the average outstanding multi-family per loan balance was approximately $734,000 and the average outstanding commercial real estate per loan balance was approximately $761,000.

Multi-family loans originated by the Bank are predominately adjustable rate loans, including hybrid ARM loans, with a term to maturity of 10 to 30 years and a 25 to 30-year amortization schedule.

Commercial real estate loans originated by the Bank are also predominately adjustable rate loans, including hybrid ARM loans, with a term to maturity of 10 to 30 years and a 25 to 30-year amortization schedule.

Rates on multi-family and commercial real estate ARM loans generally adjust monthly, quarterly, semi-annually or annually at a specific margin over the respective interest rate index, subject to period interest rate caps and life-of-loan interest rate caps.

Rates on multi-family and commercial real estate ARM loans generally adjust monthly, quarterly, semi-annually or annually at a specific margin over the respective interest rate index, subject to periodic interest rate caps and life-of-loan interest rate caps.

At June 30, 2023, $443.8 million, or 96%, of the Bank’s multi-family loans were secured by five to 36-unit projects.

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During both fiscal 2023 and 2022, the Bank had no charge-offs or recoveries on non-performing multi-family and commercial real estate loans.

At June 30, 2022 and 2021, there were no non-performing or 30 to 89 days delinquent multi-family and commercial real estate loans at both dates.

At June 30, 2023 and 2022, there were no non-performing or 30 to 89 days delinquent multi-family and commercial real estate loans.

Non-performing loans and/or delinquent loans may increase if there is a general decline in California real estate markets and in the event poor general economic conditions prevail.

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During fiscal 2023 and 2022, the Bank originated a total of $1.6 million and $2.2 million of construction loans (including undisbursed loan funds), respectively.

As of June 30, 2022 and 2021, the Bank had short-term construction loans totaling $148,000 and $2.8 million, respectively, and construction/permanent loans totaling $3.1 million and $279,000 respectively, net of undisbursed loan funds of $1.3 million and $3.0 million, respectively.

As of June 30, 2023 and 2022, the Bank had construction loans totaling $1.9 million and $3.2 million, net undisbursed loan funds of $1.9 million and $3.4 million, respectively, consisting of short-term construction loans totaling $1.7 million and $148,000, and construction/permanent loans totaling $230,000 and $3.1 million respectively.

Short-term construction loans include three types of loans:

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The owner secures long-term permanent financing at the completion of construction.

At June 30, 2022, there were four custom single-family construction loans totaling $4.3 million with $1.3 million of undisbursed funds.

This compares to June 30, 2021 when the Bank had two custom single-family construction loans totaling $1.7 million with $611,000 of undisbursed funds.

At June 30, 2023, there was one custom short-term single-family construction loan for $496,000, net undisbursed loan funds of $49,000.

This compares to June 30, 2022 when the Bank had one custom short-term single-family construction loans totaling $90,000, net undisbursed loan funds of $455,000.

From time to time the Bank makes lot loans to individuals to finance land acquisition prior to the start of construction or tract construction loans to subdivision builders.

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Tract construction may include the building and financing of model homes under a separate loan.

At June 30, 2022, there was one land loan of $123,000 and one tract construction loan of $1.7 million with $1.6 million undisbursed funds, as compared to one land loan of $139,000 at June 30, 2021.

At June 30, 2023, there was one land loan of $106,000 (reported as other mortgage loans) and one tract construction loan for $1.1 million, net undisbursed loan funds of $567,000, as compared to one land loan for $123,000 (reported as other mortgage loans) and one tract construction loan for $59,000, net undisbursed loan funds of $1.6 million at June 30, 2022.

Speculative construction loans are made to home builders and are termed “speculative” because the home builder does not have, at the time of loan origination, a signed sale contract with a home buyer who has a commitment for permanent financing with either the Bank or another lender for the finished home.

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The builder may be required to debt service the speculative construction loan for a significant period of time after the completion of construction until the homebuyer is identified.

At both June 30, 2022 and 2021, there were no speculative construction loans.

At June 30, 2023, the speculative construction loans were $94,000, net undisbursed loan funds of $166,000, as compared to none at June 30, 2022.

Construction/permanent loans automatically roll from the construction to the permanent phase.

The construction phase of a construction/permanent loan generally lasts nine to 12 months and the interest rate charged is generally fixed at a margin above prime rate and with a loan-to-value ratio of up to 75% of the appraised value of the completed property.

At June 30, 2022, there were $3.1 million of construction/permanent loans as compared to $279,000 of construction/permanent loans at June 30, 2021.

At June 30, 2023, there were $230,000 of custom construction/permanent loans, net undisbursed loan funds of $1.2 million as compared to $3.1 million of custom construction/permanent loans, net undisbursed loan funds of $1.3 million at June 30, 2022.

Construction loans under $1.0 million are approved by Bank personnel specifically designated to approve construction loans.

The Bank’s Loan Committee, comprised of the Chief Executive Officer, Chief Lending Officer, Chief Financial Officer, Senior Vice President – Single-Family Division and Vice President - Loan Administration, approves all construction loans over $1.0 million.

Prior to approval of any construction loan, an independent fee appraiser inspects the site and the Bank reviews the existing or proposed improvements, identifies the market for the proposed project, and

analyzes the pro-forma data and assumptions on the project.

In the case of a tract or speculative construction loan, the Bank reviews the experience and expertise of the builder.

In the case of a tract or speculative construction loan, the Bank also reviews the experience and expertise of the builder.

The Bank obtains credit reports, financial statements and tax returns on the borrowers and guarantors, an independent appraisal of the project, and any other expert report necessary to evaluate the proposed project.

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The construction loan documents require that construction loan proceeds be disbursed in increments as construction progresses.

Disbursements are based on periodic on-site inspections by independent inspectors and Bank personnel.

Disbursements are based on periodic on-site inspections by independent inspectors and/or Bank personnel.

At inception, the Bank also requires borrowers to deposit funds into the loan-in-process account covering the difference between the actual cost of construction and the loan amount.

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Construction loans afford the Bank the opportunity to achieve higher interest rates and fees with shorter terms to maturity than its single-family mortgage loans.

Construction loans, however, are generally considered to involve a higher degree of risk than single-family mortgage loans because of the inherent difficulty in estimating both a property’s value at completion of the project and the cost of the project.

of the project and the cost of the project.

The nature of these loans is such that they are generally more difficult to evaluate and monitor.

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All properties serving as collateral for loan participations are inspected by an employee of the Bank or a third-party inspection service prior to being approved by the Loan Committee and the Bank relies upon the same underwriting criteria required for those loans originated by the Bank.

The Bank purchased $6.4 million of loans to be held for investment (solely single-family loans) in fiscal 2022, compared to $16.9 million of purchased loans to be held for investment (primarily single-family and multi-family loans) in fiscal 2021.

The decline in loan purchases was due primarily to the uncertainty of the asset quality and fewer loans available for purchase during the COVID-19 pandemic.

As of June 30, 2022, total loans serviced by other financial institutions were $11.4 million, as compared to $13.6 million at June 30, 2021.

As of June 30, 2022, all loans serviced by others were performing according to their original contractual payment terms.

As of June 30, 2021, all loans serviced by others were performing according to their original contractual payment terms, except for one loan of $365,000 that was in the non-performing category.

The Bank did not purchase any loans to be held for investment in fiscal 2023, compared to $6.4 million of purchased loans to be held for investment (solely single-family) in fiscal 2022.

The decline in loan purchases was due primarily to the uncertainty of the asset quality and fewer loans available for purchase.

As of June 30, 2023 and 2022, there were $10.6 million and $11.4 million of loans serviced by other financial institutions, respectively.

As of June 30, 2023 and 2022, all loans serviced by others were performing according to their original contractual payment terms.

The Bank also sells participating interests in loans when it has been determined that it is beneficial to diversify the Bank’s risk.

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Commercial business loans allow the Bank to diversify its lending and increase the average loan yield.

As of June 30, 2022, commercial business loans were $1.2 million, or 0.1% of loans held for investment, up 42%

from $849,000, or 0.1% of loans held for investment at June 30, 2021.

As of June 30, 2023, commercial business loans were $1.6 million, up 30% from $1.2 million at June 30, 2022.

These loans represent secured and unsecured lines of credit and term loans secured by business assets.

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Accordingly, the repayment of a commercial business loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is secondary and oftentimes an insufficient source of repayment.

At June 30, 2022 and 2021, there were no non-performing commercial business loans at both dates.

During fiscal 2022 or 2021, the Bank had no charge-offs or recoveries on commercial business loans.

June 30, 2023 and 2022, there were no non-performing commercial business loans.

During fiscal 2023 and 2022, the Bank had no charge-offs or recoveries on commercial business loans.

Consumer Loans.

At June 30, 2022 and 2021, the Bank’s consumer loans were $86,000 and $95,000, respectively, or less than 0.1% of the Bank’s loans held for investment at these dates.

At June 30, 2023 and 2022, the Bank’s consumer loans were $65,000 and $86,000, respectively.

The Bank offers open-ended lines of credit on unsecured basis.

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The Bank had no non-performing consumer loans at both June 30, 2023 and 2022.

During fiscal 2022, the Bank had no net charge-offs on consumer loans, as compared to net charge-offs of $1,000 during fiscal 2021.

During fiscal 2023 and 2022, the Bank had no charge-offs or recoveries on consumer loans.

Loans Originations, Purchases, Sales and Repayments

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Loans originated for sale:

Retail originations

Wholesale originations

Total loans originated for sale

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Commercial real estate

Consumer loans

Commercial business loans

Total loans originated for investment

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Loan principal repayments

Increase (decrease) in other items, net (1)

Net increase (decrease) in loans held for investment at fair value

Increase in other items, net (1)

Net increase in loans held for investment

(1) Includes net changes in undisbursed loan funds, deferred loan fees or costs, allowance for loan losses, fair value of loans held for investment, advance payments of escrows and repurchases.

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At June 30, 2023, the Bank was servicing $32.6 million of loans for others, a 13% decrease from $37.7 million at June 30, 2022.

The decrease was primarily attributable to loan prepayments.

The decrease was primarily attributable to scheduled principal payments and prepayments.

Loan servicing includes processing payments, accounting for loan funds and collecting and paying real estate taxes, hazard insurance and other loan-related items such as private mortgage insurance.

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Generally, loan servicing becomes more valuable when interest rates rise (as prepayments typically decrease) and less valuable when interest rates decline (as prepayments typically increase).

In estimating fair values at June 30, 2022 and 2021, the Bank used a weighted average Constant Prepayment Rate (“CPR”) of 10.85% and 21.82%, respectively, and a weighted-average discount rate of 9.05% and 9.10%,

In estimating fair values at June 30, 2023 and 2022, the Bank used a weighted average Constant Prepayment Rate (“CPR”) of 7.44% and 10.85%, respectively, and a weighted-average discount rate of 9.05% at both dates.

The required impairment reserve against servicing assets at June 30, 2023 and 2022 was $165,000 and $119,000,

respectively.

The required impairment reserve against servicing assets at June 30, 2022 and 2021 was $119,000 and $176,000, respectively.

In aggregate, servicing assets had a carrying value of $256,000 and a fair value of $91,000 at June 30, 2023, compared to a carrying value of $287,000 and a fair value of $168,000 at June 30, 2022.

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Interest income is reduced by the full amount of accrued and uncollected interest on such loans.

As of June 30, 2022, total non-performing assets, net of allowance for loan losses and fair value adjustments, were $1.4 million, or 0.12% of total assets, which was primarily comprised of:

seven single-family loans and no real estate owned (“REO”).

As of June 30, 2022, all non-performing loans had a current payment status.

This compares to total non-performing assets, net of allowance for loan losses and fair value adjustments, of $8.6 million, or 0.73% of total assets, with $7.7 million, or 89%, of non-performing loans with a current payment status at June 30, 2021 and no REO.

As of June 30, 2023, total non-performing assets, net of allowance for loan losses and fair value adjustments, were $1.3 million, or 0.10% of total assets, which was primarily comprised of six single-family loans.

As of June 30, 2023, $175,000 or 13 percent of the total non-performing loans had a current payment status.

This compares to total non-performing assets, net of allowance for loan losses and fair value adjustments, of $1.4 million, or 0.12% of total assets, all of which had a current payment status at June 30, 2022.

The Bank had no real estate owned (“REO”) both at June 30, 2023 and 2022.

The following table sets forth information with respect to the Bank’s non-performing assets and troubled debt restructurings (“restructured loans”), net of allowance for loan losses and fair value adjustments, at the dates indicated:

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Factors considered in determining classification include, but are not limited to, expected future cash flows, collateral value, the financial condition of the borrower and current economic conditions.

The Bank measures each non-performing loan

based on ASC 310, “Receivables,” establishes a collectively evaluated or individually evaluated allowance and charges off those loans or portions of loans deemed uncollectible.

The Bank measures each non-performing loan based on Accounting Standards Codification (“ASC”) 310, “Receivables,” establishes a collectively evaluated or individually evaluated allowance and charges off those loans or portions of loans deemed uncollectible.

Restructured Loans.

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The loan terms which have been modified or restructured due to a borrower’s financial difficulty, include but are not limited to:

● A reduction in the stated interest rate;

● An extension of the maturity at an interest rate below market;

● A reduction in the accrued interest;

● A reduction in the stated interest rate and/or accrued interest;

● An extension of the maturity date, typically longer than 6 months;

● A reduction principal loan balance;

● Extensions, deferrals, renewals and rewrites.

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For the fiscal year ended June 30, 2023, there were no loans that were newly modified from their original terms, re-underwritten or identified as a restructured loan;

11 loans were upgraded to the pass category;

one loan was downgraded to the special mention category and subsequently upgraded back to the pass category;

one loan was paid off;

and no loans were converted to REO.

For the fiscal year ended June 30, 2022, there were no loans that were newly modified from their original terms, re-underwritten or identified as a restructured loan;

three loans were upgraded to the pass category;

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and no loans were converted to REO.

For the fiscal year ended June 30, 2021, there were 20 loans (including 19 COVID-19 related forbearance loans downgraded when their monthly payment deferrals were extended beyond six months) that were newly modified from their original terms, re-underwritten or identified as restructured loans;

while two loans were upgraded to the pass category;

three loans were paid off;

and no loans were converted to REO.

During the fiscal years ended June 30, 2023 and 2022, no restructured loans were in default within a 12-month period subsequent to their original restructuring.

Additionally, during the fiscal year ended June 30, 2022, there were no loans that were extended beyond their maturity of the modification terms;

while in fiscal year ended June 30, 2021, there were 12 restructured loans totaling $4.7 million that were extended beyond their initial modification terms.

Additionally, during the fiscal year ended June 30, 2023 and 2022, there were no loans that were extended beyond their maturity of the modification terms.

As of June 30, 2023, the net outstanding balance of the Bank’s restructured loans was $708,000, consisting of one loan classified as substandard on non-accrual status.

As of June 30, 2023, the restructured loan was delinquent with respect to its payment status.

As of June 30, 2022, the net outstanding balance of the Corporation’s 13 restructured loans was $4.5 million of which one loan totaling $722,000 was classified as substandard on non-accrual status.

As of June 30, 2022, all of the restructured loans were current with respect to their payment status, consistent with their modified terms.

As of June 30, 2021, the net outstanding balance of the Corporation’s 23 restructured loans was $7.9 million of which 20 loans totaling $7.0 million were classified as substandard on non-accrual status.

As of June 30, 2021, $7.7 million, or 97 percent, of the restructured loans were current with respect to their payment status, consistent with their modified terms.

The Bank upgrades restructured single-family loans to the pass category if the borrower has demonstrated satisfactory contractual payments for at least six consecutive months or 12 months for those loans that were restructured more than once and there is a reasonable assurance that the payments will continue.

Once the borrower has demonstrated satisfactory contractual payments beyond 12 consecutive months, the loan is no longer categorized as a restructured loan.

From March 2020 to March 2021, the Bank offered short-term loan modifications to assist borrowers during the COVID-19 pandemic.

The Coronavirus Aid, Relief, and Economic Security Act for 2020, as amended (“CARES Act”) and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus ("Interagency Statement") provided that a short-term modification made in response to COVID-19 and which meets certain criteria does not need to be accounted for as a restructured loan.

Accordingly, the Corporation does not account for such loan modifications as restructured loans.

Once the borrower has demonstrated satisfactory contractual payments beyond six or 12 consecutive months, as the case may be, the loan is no longer categorized as a restructured loan.

Foreclosed Real Estate.

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Subsequent declines in value are charged to operations.

As of June 30, 2022 and 2021, there was no REO property at both dates.

(“BPO”) to determine current market listing prices, and engages local realtors who are most familiar with real estate sub-markets, among other techniques, which generally results in the quick disposition of real estate owned.

As of both June 30, 2023 and 2022, there was no REO property.

In managing the real estate owned properties for quick disposition, the Bank completes the necessary repairs and maintenance to the individual properties before listing for sale, obtains new appraisals and broker price opinions (“BPO”) to determine current market listing prices, and engages local realtors who are most familiar with real estate sub-markets, among other techniques, which generally results in the quick disposition of real estate owned.

Asset Classification.

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Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss.

Doubtful assets have the weaknesses of substandard assets with the additional

characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss.

An asset classified as a loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted.

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Assets that do not currently expose the institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as special mention and are closely monitored by the Bank.

Classified assets improved 84% to $1.6 million at June 30, 2022 from $10.4 million at June 30, 2021.

The aggregate amounts of the Bank’s classified assets are located in California.

The following table summarizes classified assets, which is comprised of classified loans, including loans classified by the Bank as special mention, net of allowance for loan losses, and REO at the dates indicated:

The following table summarizes classified assets, which is comprised of classified loans located in California, including loans classified by the Bank as special mention, net of allowance for loan losses, and REO at the dates indicated:

At June 30, 2023

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Single-family

Commercial real estate

Total substandard loans

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After consideration of these and other factors, the Bank may determine that the asset in question, though not currently delinquent, presents a risk of loss that requires it to be classified or designated as special mention.

In addition, the Bank’s loans held for investment may include single-family, commercial and multi-family real estate loans with a balance exceeding the current

market value of the collateral which are not classified because they are performing and have borrowers who have sufficient resources to support the repayment of the loan.

In addition, the Bank’s loans held for investment may include single-family, commercial and multi-family real estate loans with a balance exceeding the current market value of the collateral which are not classified because they are performing and have borrowers who have sufficient resources to support the repayment of the loan.

Allowance for Loan Losses.

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The Bank has established a methodology for the determination of the provision for loan losses.

The methodology is set forth in a formal policy and takes into consideration the need for a collectively evaluated allowance for groups of homogeneous loans and an individually evaluated allowance that are tied to individual problem loans.

The Bank’s methodology for assessing the appropriateness of the allowance consists of several key elements.

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The amount of the charge-off is determined by comparing the loan balance to the estimated fair value of the underlying collateral, less disposition costs, with the loan balance in excess of the estimated fair value charged-off against the allowance for loan losses.

The allowance for loan losses for non-performing loans is determined by applying Accounting Standards Codification (“ASC”) 310, “Receivables.” For restructured loans that are less than 90 days delinquent, the allowance for loan losses are segregated into (a) individually evaluated allowances for those loans with applicable discounted cash flow calculations still in their restructuring period, classified lower than pass, and containing an embedded loss component or (b) collectively evaluated allowances based on the aggregated pooling method.

The allowance for loan losses for non-performing loans is determined by applying ASC 310, “Receivables.” For restructured loans that are less than 90 days delinquent, the allowance for loan losses are segregated into (a) individually evaluated allowances for those loans with applicable discounted cash flow calculations still in their restructuring period, classified lower than pass, and containing an embedded loss component or (b) collectively evaluated allowances based on the aggregated pooling method.

For non-performing loans less than 60 days delinquent where the borrower has filed bankruptcy, the collectively evaluated allowances are assigned based on the aggregated pooling method.

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Loss activity is reviewed for non-pooled loans and the loss factors are adjusted, if necessary.

By assessing the probable estimated losses inherent in the loans held

for investment on a quarterly basis, the Bank is able to adjust specific and inherent loss estimates based upon the most recent information that has become available.

By assessing the probable estimated losses inherent in the loans held for investment on a quarterly basis, the Bank is able to adjust specific and inherent loss estimates based upon the most recent information that has become available.

At June 30, 2023, the Bank had an allowance for loan losses of $5.9 million, or 0.55% of gross loans held for investment, compared to an allowance for loan losses at June 30, 2022 of $5.6 million, or 0.59% of gross loans held for investment.

A $2.5 million recovery from the allowance for loan losses was recorded in fiscal 2022, compared to a $708,000 recovery from the allowance for loan losses in fiscal 2021.

The decrease in the allowance for loan losses was due primarily to improved asset quality at June 30, 2022 and improving general economic conditions as compared to June 30, 2021, partly offset by an increase in loans held for investment in fiscal 2022.

Although management believes the best information available is used to make such provision (recovery), future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations.

While the Bank believes that it has established its existing allowance for loan losses in accordance with GAAP, there can be no assurance that regulators, in reviewing the Bank’s loan portfolio, will not recommend that the Bank significantly increase its allowance for loan losses.

In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, including as a result of the COVID-19 pandemic, there can be no assurance that the existing allowance for loan losses is adequate or that substantial increases will not be necessary.

Any material increase in the allowance for loan losses may adversely affect the Bank’s financial condition and results of operations.

A $374,000 provision for loan losses was recorded in fiscal 2023, compared to a $2.5 million recovery from the allowance for loan losses in fiscal 2022.

The increase in the allowance for loan losses was due primarily to an increase in loans held for investment in fiscal 2023.

Management believes, based on currently available information, the allowance for loan losses is sufficient to absorb potential losses inherent in loans held for investment at June 30, 2023.

The allowance for loan losses is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loans held for investment portfolio and upon management's continuing analysis of the factors

underlying the quality of the loans held for investment.

These factors include changes in the size and composition of the loans held for investment, actual loan loss experience, current economic conditions, detailed analysis of individual loans for which full collectability may not be assured, and determination of the realizable value of the collateral securing the loans.

Provisions (recoveries) for loan losses are charged (credited) against operations on a quarterly basis, as necessary, to maintain the allowance at appropriate levels.

See “Comparison of Operating Results for the Fiscal Years Ended June 30, 2023 and 2022 – Provision (Recovery) for Loan Losses” below.

Management believes that the amount maintained in the allowance will be adequate to absorb probable losses inherent in the loans held for investment.

Although management believes it uses the best information available to make such determinations, there can be no assurance that regulators, in reviewing the Bank's loans held for investment, will not request the Bank to significantly increase its allowance for loan losses.

Future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected as a result of economic, operating, regulatory and other conditions beyond the control of the Bank.

The following table shows certain credit ratios at and for the periods indicated and each component of the ratio’s calculations:

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Average loans receivable

Net charge-offs

Average loans receivable

Commercial business loans:

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Total average loans receivable

The distribution of our allowance for losses on loans at the dates indicated is summarized as follows:

(Dollars In Thousands)

Mortgage loans:

Single-family

Commercial real estate

Commercial business loans

Consumer loans

Total allowance for loan losses

Effective July 1, 2023, the Corporation will be required to adopt Accounting standard update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, commonly referred to as “CECL.” Upon adoption of ASU 2016-13 on July 1, 2023, we expect to recognize a reduction to our opening retained earnings of approximately $825,000, net of deferred taxes and other immaterial adjustments, resulting from a pretax increase to our allowance for credit losses of approximately $1.2 million.

The increase is primarily related to the difference between the historical incurred loss methodology currently utilized, as compared to estimating lifetime credit losses as required by the CECL standard.

Investment Securities Activities

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At June 30, 2023 and 2022, the Bank’s investment securities portfolio was $156.6 million and $188.4 million, respectively, which primarily consisted of federal agency and GSE obligations.

The Bank’s investment securities portfolio was classified as held to maturity and available for sale.

The Corporation purchased held to maturity mortgage-backed securities and collateralized mortgage obligations totaling $19.0 million and $158.0 million of mortgage-backed securities during fiscal 2022 and 2021, respectively.

At June 30, 2022 and 2021, our securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States government or its agencies or a GSE.

The Bank did not purchase any investment securities during fiscal 2023, compared to $19.0 million of mortgage-backed securities purchased during fiscal 2022.

At June 30, 2023 and 2022, the Bank’s securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States government or its agencies or a GSE.

The following table sets forth the composition of the Bank’s investment portfolio at the dates indicated:

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SBA securities (3)

Certificates of deposits

Certificates of deposit

Total investment securities - held to maturity

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The following table sets forth the outstanding balance, maturity and weighted average yield of the investment securities at June 30, 2023.

The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values.

After Five to

Five Years (1)

Ten Years (1)

(Dollars in Thousands)

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SBA securities

Certificates of deposits

Total investment securities - held to maturity

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Total investment securities

(1) The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values.

The actual maturity and yield for MBS and CMO may differ from the stated maturity and stated yield due to scheduled amortization, prepayments and acceleration of premium amortization or discount accretion.

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Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows are influenced significantly by general interest rates and money market conditions.

Borrowings through the FHLB – San Francisco and repurchase agreements may be used to compensate for declines in the availability of funds from other sources.

Borrowings through the FHLB – San

Francisco and repurchase agreements may be used to compensate for declines in the availability of funds from other sources.

Deposit Accounts.

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The Bank generally offers time deposits for terms not exceeding seven years.

As illustrated in the following table, time deposits represented 13% of the Bank’s deposit portfolio at June 30, 2022, compared to 15% at June 30, 2021.

As of June 30, 2022 and 2021, there were no brokered deposits.

The Bank attempts to reduce the overall cost of its deposit portfolio and to increase its franchise value by emphasizing transaction accounts, which are subject to a heightened degree of competition.

As illustrated in the following table, time deposits represented approximately 23% of the Bank’s deposit portfolio at June 30, 2023, compared to approximately 13% at June 30, 2022.

The time deposits included $106.4 million of brokered certificates of deposit at June 30, 2023, as compared to no brokered certificates of deposit at June 30, 2022.

At June 30, 2023, the Bank had related party deposits of approximately $8.1 million, compared to $6.6 million at June 30, 2022.

For additional information, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K.

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Transaction accounts:

Checking accounts – non interest-bearing

Checking accounts – noninterest-bearing

Checking accounts – interest-bearing

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(Dollars In Thousands)

Checking accounts – non interest-bearing

Checking accounts – noninterest-bearing

Checking accounts – interest-bearing

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Over five years

(1) Includes brokered certificates of deposit of $106.4 million and $0 at June 30, 2023 and 2022, respectively.

(2) Includes uninsured deposits of approximately $140.1 million and $173.7 million at June 30, 2023 and 2022, respectively.

The amounts of uninsured deposits are based on estimated amounts of uninsured deposits as of the reported period.

Such estimates are based on the same methodologies and assumptions used for regulatory reporting requirements.

Time Deposits by Rates .

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2.00 to 2.99%

3.00 to 3.99%

4.00 to 4.99%

5.00 to 5.99%

Time Deposits by Remaining Maturity.

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2.00 to 2.99 %

3.00 to 3.99%

4.00 to 4.99%

5.00 to 5.99%

Time Deposits Insurance Coverage by the FDIC.

The following tables set forth the time deposit FDIC insurance coverage by account and remaining maturity at June 30, 2022 and 2021:

The following tables set forth the time deposit FDIC insurance coverage by account and remaining maturity at the dates indicated:

At June 30, 2023

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Interest credited

Net increase in deposits

Net (decrease) increase in deposits

Ending balance

The FHLB – San Francisco functions as a central reserve bank providing credit for member financial institutions.

As a member, the Bank is required to own capital stock in the FHLB – San Francisco and is authorized to apply for advances using such stock and certain of its mortgage loans and other assets (principally investment securities) as collateral, provided certain creditworthiness standards have been met.

as collateral, provided certain creditworthiness standards have been met.

Advances are made pursuant to several different credit programs.

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The FHLB – San Francisco has, from time to time, served as the Bank’s primary borrowing source.

As of June 30, 2022 and 2021, the FHLB – San Francisco borrowing capacity was limited to 35% of the Bank’s total assets at both dates, amounting to $415.7 million and $416.2 million, respectively.

As of June 30, 2023, the FHLB – San Francisco borrowing capacity was limited to 40% of the Bank’s total assets, amounting to $534.1 million, up from 35% of the Bank’s total assets, amounting to $415.7 million at June 30, 2022.

Advances from the FHLB – San Francisco are typically secured by the Bank’s single-family residential, multi-family and commercial real estate mortgage loans.

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In addition, the Bank pledged investment securities totaling $4.2 million and $4.7 million at June 30, 2023 and 2022, respectively, to collateralize its FHLB – San Francisco advances under the Securities-Backed Credit (“SBC”) facility.

At June 30, 2022 and 2021, the Bank had $85.0 million and $101.0 million of borrowings from the FHLB – San Francisco with a weighted-average interest rate of 2.20% and 2.19%, respectively.

At June 30, 2023 and 2022, the Bank had $235.0 million and $85.0 million of outstanding borrowings from the FHLB – San Francisco with a weighted-average interest rate of 4.34% and 2.20%, respectively.

At June 30, 2023, the outstanding borrowings mature between 2023 and 2028 with a weighted average maturity of 12 months.

In addition to the total borrowings mentioned above, the Bank utilized its borrowing facility for letters of credit and credit enhancement for loans previously sold to the FHLB – San Francisco under the Mortgage Partnership Finance (“MPF”) program which have a recourse liability.

The outstanding letters of credit were $18.0 million and $16.0 million at June 30, 2022 and 2021, respectively;

while the outstanding MPF credit enhancement was $2.5 million at both June 30, 2022 and 2021.

As of June 30, 2022 and 2021, the remaining financing availability was $310.3 million and $296.8 million, with remaining available collateral of $310.5 million and $343.1 million, respectively.

In addition, as of June 30, 2022 and 2021, the Bank had secured a discount window facility of $153.9 million and $206.1 million at the Federal Reserve Bank of San Francisco, collateralized by investment securities with a fair market value of $163.7 million and $219.2 million, respectively.

At June 30, 2022, the Bank also has a federal funds facility with its correspondent bank for $50.0 million which matures on June 30, 2023.

This compares to the federal funds facility with its correspondent bank of $17.0 million with maturity on June 30, 2022.

The outstanding letters of credit were $11.0 million and $18.0 million at June 30, 2023 and 2022;

while the outstanding MPF credit enhancement was $216,000 and $2.5 million at June 30, 2023 and 2022, respectively.

As of June 30, 2023 and 2022, the remaining financing availability through the FHLB – San Francisco was $287.9 million and $310.3 million, with remaining available collateral of $468.6 million and $310.5 million, respectively.

As of June 30, 2023 and 2022, the Bank also had secured a discount window facility of $139.0 million and $153.9 million at the Federal Reserve Bank of San Francisco, collateralized by investment securities.

At June 30, 2023 and 2022, the Bank also has a federal funds facility with its correspondent bank for $50.0 million, which matures annually on June 30.

As of June 30, 2023 and 2022, there were no outstanding borrowings under the discount window facility or the federal funds facility with the correspondent bank at both dates.

As a member of the FHLB – San Francisco, the Bank is required to maintain a minimum investment in FHLB – San Francisco stock.

The Bank held the required investment at June 30, 2022 and 2021 of $8.2 million with no excess investment at both dates.

During fiscal 2022 and 2021, the Bank purchased FHLB – San Francisco capital stock totaling $84,000 and $185,000, respectively, and did not redeem any of the capital stock during both periods.

The Bank held the required investment in stock at June 30, 2023 and 2022 of $9.5 million and $8.2 million with no excess investment, respectively.

During fiscal 2023 and 2022, the Bank purchased FHLB – San Francisco capital stock totaling $1.3 million and $84,000, respectively, and did not redeem any of the capital stock during both periods.

In fiscal 2023 and 2022, the FHLB – San Francisco distributed cash dividends to the Bank totaling $556,000 and $489,000, respectively.

3 unchanged sentences

The Bank has three wholly owned subsidiaries:

Provident Financial Corp (“PFC”), Profed Mortgage, Inc., and First Service Corporation.

PFC, Profed Mortgage, Inc., and First Service Corporation.

PFC’s current activities include:

1 unchanged sentence

Profed Mortgage, Inc., which formerly conducted the Bank’s mortgage banking activities, and First Service Corporation are currently inactive.

In fiscal 2023 and 2022, the Bank contributed capital of $10,000 and $0 to PFC, respectively.

At June 30, 2023 and 2022, the Bank’s investment in its subsidiaries was $13,000 and $7,000, respectively.

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The Bank's general permissible lending limit for loans to one borrower is equal to the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus).

The Bank’s limits on loans to one borrower or group of related borrowers at June 30, 2022 and 2021 were $19.6 million and $19.4 million, respectively.

The Bank’s limits on loans to one borrower or group of related

borrowers at June 30, 2023 and 2022 were $19.8 million and $19.6 million, respectively.

At June 30, 2023, the Bank’s largest lending relationship to a single borrower or group of borrowers consisted of four multi-family loans totaling $5.1 million, which were performing according to their original payment terms.

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In addition, all long-term advances are required to provide funds for residential home financing.

At June 30, 2022 and 2021, the Bank had $85.0 million and $101.0 million of outstanding advances, respectively, from the FHLB – San Francisco with a remaining available credit facility of $310.3 million and $296.8 million, respectively, based on 35% of total assets for both dates, which is limited to available collateral.

At June 30, 2023 and 2022, the Bank had $235.0 million and $85.0 million of outstanding advances, respectively, from the FHLB – San Francisco with a remaining available credit facility of $287.9 million and $310.3 million, respectively, based on 40% and 35% of total assets, respectively, which is limited to available collateral.

For additional information, see “Business – Deposit Activities and Other Sources of Funds – Borrowings” above in this Form 10-K.

As a member of the FHLB - San Francisco, the Bank is required to purchase and maintain stock in the FHLB – San Francisco.

At June 30, 2022 and 2021, the Bank held $8.2 million of FHLB-San Francisco stock at both dates, which were in compliance with this membership requirement.

During fiscal 2022 and 2021, the Bank was required to purchase $84,000 and $185,000 of FHLB – San Francisco capital stock, respectively, and the Bank did not redeem any capital stock during both periods.

At June 30, 2023 and 2022, the Bank held $9.5 million and $8.2 million of FHLB-San Francisco stock, respectively, which were in compliance with this membership requirement.

During fiscal 2023 and 2022, the Bank was required to purchase $1.3 million and $84,000 of FHLB – San Francisco capital stock, respectively, and the Bank did not redeem any capital stock during both periods.

In fiscal 2023 and 2022, the FHLB – San Francisco distributed cash dividends to the Bank totaling $556,000 and $489,000, respectively.

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These contributions have in the past adversely affected the level of dividends paid by the FHLB - San Francisco and could continue to do so in the future.

These contributions also could have an adverse effect on the value of

FHLB - San Francisco stock in the future.

These contributions also could have an adverse effect on the value of FHLB - San Francisco stock in the future.

A reduction in value of the Bank’s FHLB - San Francisco stock may result in a corresponding reduction in the Bank’s capital.

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The Deposit Insurance Fund (“DIF”) of the FDIC insures deposits up to $250,000 per account owner as defined by the FDIC, backed by the full faith and credit of the United States.

As insurer, the FDIC imposes deposit insurance premiums in the form of assessments to maintain the DIF and is authorized to conduct examinations of and to require reporting by FDIC insured institutions.

As an insurer, the FDIC imposes deposit insurance premiums in the form of assessments to maintain the DIF and is authorized to conduct examinations of and to require reporting by FDIC insured institutions.

On October 18, 2022, the FDIC adopted a final rule to increase its initial base insurance assessment rate schedules by two basis points to improve the likelihood that the reserve ratio of the DIF would be restored to at least 1.35 percent by September 30, 2028.

The revised assessment rate schedules became effective January 1, 2023, with the first invoice payment date of June 30, 2023 for the assessment period of January 1, 2023 through March 31, 2023.

The Bank’s FDIC annual assessments for the fiscal years ended June 30, 2023 and 2022 were $459,000 and $322,000, respectively.

Under the FDIC’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments.

Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years.

Under the FDIC’s risk-based assessment system, institutions deemed less likely to fail pay lower assessments.

Assessments for institutions of less than $10 billion in assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years.

The FDIC has authority to increase insurance assessments.

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If the Bank does not have the ability to pay dividends to the Corporation, the Corporation may be limited in its ability to pay dividends to its stockholders.

In order to be considered well-capitalized under the prompt corrective action regulations, the Bank must maintain a Tier 1 leverage capital ratio of 5%, a CET1 risk-based capital ratio of 6.5%, a Tier 1 risk-based capital ratio of 8% and a total

risk-based capital ratio of 10% and the Bank must not be subject to any of certain mandates by the OCC requiring it as an individual institution to meet any specified capital level.

In order to be considered well-capitalized under the prompt corrective action regulations, the Bank must maintain a minimum Tier 1 leverage capital ratio of 5%, a CET1 risk-based capital ratio of 6.5%, a Tier 1 risk-based capital ratio of 8% and a total risk-based capital ratio of 10% and the Bank must not be subject to any of certain mandates by the OCC requiring it as an individual institution to meet any specified capital level.

EGRRCPA required the federal banking agencies, including the OCC, to establish a “community bank leverage ratio” of between 8% and 10% for institutions with assets of less than $10.0 billion.

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The Company did not opt in to the community bank leverage ratio framework for the year ended June 30, 2023.

As of June 30, 2022, the most recent notification from the OCC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.

See Note 9 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

The FASB has adopted a new accounting standard for accounting principles generally accepted in the U.S.

GAAP") that became effective for the Corporation on July 1, 2023.

This standard, referred to as Current Expected Credit Loss or

CECL, requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets.

CECL covers a broader range of assets than the current method of recognizing credit losses and generally results in earlier recognition of credit losses.

Upon adoption of CECL, a banking organization must record a one-time adjustment to its credit loss allowances as of the beginning of the fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowances under the current methodology and the amount required under CECL.

For a banking organization, implementation of CECL is generally likely to reduce retained earnings, and to affect other items, in a manner that reduces its regulatory capital.

The federal banking regulators (the FRB, the OCC and the FDIC) have adopted a rule that gives a banking organization the option to phase in over a three-year period the day-one adverse effects of CECL on its regulatory capital.

Prompt Corrective Action.

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The OCC also may take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

As of June 30, 2023, the most recent notification from the OCC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.

See Note 9 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Limitations on Capital Distributions.

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The Bank’s authority to engage in transactions with “affiliates” is limited by Sections 23A and 23B of the Federal Reserve Act as implemented by the FRB’s Regulation W.

The term “affiliates” for these purposes generally mean any company that controls or is under common control with an institution except subsidiaries of the

The term “affiliates” for these purposes generally mean any company that controls or is under common control with an institution except subsidiaries of the institution.

The Corporation and its non-savings institution subsidiaries are affiliates of the Bank.

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In addition, certain types of transactions are restricted to an aggregate percentage of the institution’s capital.

Institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.

Institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies

and no savings institution may purchase the securities of any affiliate other than a subsidiary.

FDIC-insured institutions are subject, with certain exceptions, to certain restrictions on extensions of credit to their parent holding companies or other affiliates, on investments in the stock or other securities of affiliates and on the taking of such stock or securities as collateral from any borrower.

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Under the Community Reinvestment Act of 1977 (“CRA”), every FDIC-insured institution has a continuing and affirmative obligation consistent with safe and sound banking practices to help meet the credit needs of its entire community, including low and moderate income neighborhoods.

The CRA requires that the Federal Reserve assess the Bank's record in meeting the credit needs of the communities it serves, especially low and moderate income neighborhoods.

The CRA requires that the FRB assess the Bank's record in meeting the credit needs of the communities it serves, especially low and moderate income neighborhoods.

Under the CRA, institutions are assigned a rating of "outstanding,"

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The Bank received a rating of satisfactory when it was last examined for CRA compliance.

On May 5, 2022, the federal bank regulatory agencies overhauled the CRA and jointly issued a proposal to strengthen and modernize regulations implementing the CRA.

The proposed regulations included major changes from the current regulation and will be effective on the first day of the first calendar quarter that begins at least 60 days after the publication date of the final rules.

The new rules as proposed are intended to:

(1) provide expanded access to credit, investment, and basic banking services in low- and moderate-income communities;

(2) address changes in the banking industry, including internet and mobile banking;

(3) yield greater clarity, consistency, and transparency;

(4) tailor CRA evaluations and data collection to bank size and type;

and (4) maintain a unified approach amongst the regulating agencies.

Anti-Money Laundering and Customer Identification.

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The FRB requires that all depository institutions maintain reserves on transaction accounts or non-personal time deposits.

These reserves may be in the form of cash or non interest-bearing deposits with the regional Federal Reserve Bank.

These reserves may be in the form of cash or noninterest-bearing deposits with the regional Federal Reserve Bank.

Interest-bearing checking accounts and other types of accounts that permit payments or transfers to third parties fall within the definition of transaction accounts and are subject to Regulation D reserve requirements, as are any non-personal time deposits at a bank.

Effective March 26, 2020, due to the COVID-19 pandemic, the FRB reduced reserve requirement ratios to 0%, which eliminated reserve requirements for all depository institutions.

Effective March 26, 2020, the FRB reduced reserve requirement ratios to 0%, which eliminated reserve requirements for all depository institutions.

Environmental Issues Associated with Real Estate Lending.

The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), is a federal statute, generally imposes strict liability on all prior and present "owners and operators"

The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), is a federal statute, that generally imposes strict liability on all prior and present "owners and operators"

of sites containing hazardous waste.

However, Congress acted to protect secured creditors by

providing that the term "owner and operator"

However, Congress acted to protect secured creditors by providing that the term "owner and operator"

excludes a person whose ownership is limited to protecting its security interest in the site.

Since the enactment of the CERCLA, this “secured creditor exemption” has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan.

To the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties with potential hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which costs often substantially exceed the value of the collateral property.

To the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties with potentially hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which costs often substantially exceed the value of the collateral property.

Privacy Regulations.

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Service providers are required under the rule to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect the banking organization’s customers for four or more hours.

Compliance with the new rule is required by May 1, 2022.

Compliance with the new rule was required by May 1, 2022.

Further, on July 26, 2023, the SEC adopted final rules that require public companies to promptly disclose material cybersecurity incidents on Form 8-K and detailed information regarding their cybersecurity risk management and governance on an annual basis on Form 10-K.

Companies will be required to report on Form 8-K any cybersecurity incident they determine to be material within four business days of making that determination.

The Form 8-K must describe the incident’s material impact or reasonably likely material impact on the company, including its financial condition and results of operations.

If any required information about the incident or its impact is not yet determined or is unavailable at the required time of the filing, the company must include a statement to this effect in the Form 8-K and file an amendment to the Form 8-K when that information becomes available.

A company must make its materiality determination after it has discovered a cybersecurity incident “without unreasonable delay.” In addition to incident reporting, the new rules will require companies to describe their cybersecurity processes and governance.

Smaller reporting companies, such as the Corporation, will have until June 15, 2024, before they must begin filing the new Form 8-K disclosure.

Companies must provide disclosures about cybersecurity risk management and governance beginning with their Form 10-K for fiscal years ending on or after December 15, 2023.

Non-compliance with federal or similar state privacy and cybersecurity laws and regulations could lead to substantial regulatory imposed fines and penalties, damages from private causes of action and/or reputational harm.

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The Consumer Financial Protection Bureau (“CFPB”) exercises broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws.

The Bank is subject to consumer protection regulations issued by the CFPB, but as a financial institution with assets of less than $10.0 billion, the Bank is generally subject to supervision and enforcement by the OCC with respect to compliance with consumer financial protection laws and CFPB regulations.

The Bank is subject to consumer protection regulations issued by the CFPB, but as a financial institution with assets of less than $10.0 billion in assets, the Bank is generally subject to supervision and enforcement by the OCC with respect to compliance with consumer financial protection laws and CFPB regulations.

The Bank is subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers.

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These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services.

Failure to comply with these laws and regulations

can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages and the loss of certain contractual rights.

Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages and the loss of certain contractual rights.

Savings and Loan Holding Company Regulation

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In addition, the FRB has enforcement authority over the Corporation and its non-savings institution subsidiaries, which also permits the FRB to restrict or prohibit activities that are determined to present a serious risk to the Bank.

The FRB has promulgated regulations implementing the “source of strength” doctrine that require holding companies, including savings and loan holding companies, to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

The FRB has promulgated regulations implementing the “source of strength” doctrine that require holding companies, including savings and loan holding companies, to act as a source of financial and managerial strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

These and other FRB policies, as well as the capital conservation buffer may restrict the Corporation’s ability to pay dividends.

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The Corporation must obtain approval from the FRB before acquiring more than 5% of the voting stock of another savings institution or savings and loan holding company or acquiring such an institution or holding company by merger, consolidation or purchase of its assets.

In evaluating an application for the Corporation to acquire control of a savings institution, the FRB would consider the financial and managerial resources and future prospects of the Corporation and the target institution, the effect of the acquisition on the risk to the DIF, the convenience and the needs of the community, including performance under the CRA and competitive factors.

In evaluating an application for the Corporation to acquire

control of a savings institution, the FRB would consider the financial and managerial resources and future prospects of the Corporation and the target institution, the effect of the acquisition on the risk to the DIF, the convenience and the needs of the community, including performance under the CRA and competitive factors.

The FRB may not approve any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions;

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The term “company” includes corporations, partnerships, associations, and certain trusts and other entities.

“Control” of a savings association or savings and loan holding company is deemed to exist if a company has voting control, directly or indirectly of more than 25% of any class of the savings

association’s voting stock or controls in any manner the election of a majority of the directors of the savings association or savings and loan holding company, and may be presumed under other circumstances, including, but not limited to, holding in certain cases 10% or more of a class of voting securities.

“Control” of a savings association or savings and loan holding company is deemed to exist if a company has voting control, directly or indirectly of more than 25% of any class of the savings association’s voting stock or controls in any manner the election of a majority of the directors of the savings association or savings and loan holding company, and may be presumed under other circumstances, including, but not limited to, holding in certain cases 10% or more of a class of voting securities.

Control may be direct or indirect and may occur through acting in concert with one or more other persons.

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The FRB policy statement also indicates that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends.

In addition, a savings and loan holding company is required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding twelve months, is equal to 10% or more of its consolidated net worth.

The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, FRB order or any condition imposed by, or written agreement with, the FRB.

In addition, a savings and loan holding company is required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of its consolidated net worth.

The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, FRB order or any condition

imposed by, or written agreement with, the FRB.

As discussed above, the capital conservation buffer requirements may also limit or preclude dividends payable by the Corporation.

COVID-19 Legislation.

In response to the COVID-19 pandemic, the U.S.

Congress and the federal banking agencies, though rulemaking, interpretive guidance and modifications to agency policies and procedures, have taken a series of actions to provide national emergency economic relief measures.

As the on-going COVID-19 pandemic evolves, federal and state regulatory authorities continue to issue additional guidance with respect to COVID-19.

In addition, it is possible that the U.S.

Congress will enact supplementary COVID-19 response legislation.

The Corporation continues to assess the impact of the CARES Act and The Consolidated Appropriations Act, 2021 (“CAA 2021”), and other statues, regulations and supervisory guidance related to the COVID-19 pandemic.

Federal Taxation

The Corporation and the Bank report their income on a fiscal year basis using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank’s reserve for bad debts discussed below.

The following discussion of tax matters is intended only as

a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Corporation.

The Corporation reports its income on a fiscal year basis using the accrual method of accounting and is subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank’s reserve for bad debts discussed below.

The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Corporation.

Tax Bad Debt Reserves.

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Under current law, a savings institution will not be required to recapture its pre-1988 bad debt reserve unless the Bank makes a “non-dividend distribution” as defined below.

Currently, the Corporation uses the specific charge-off method to account for bad debt deductions for income tax purposes.

Currently, the Bank uses the specific charge-off method to account for bad debt deductions for income tax purposes.

Distributions .

In the event that the Bank makes “non-dividend distributions” to the Corporation that are considered as made from the reserve for losses on qualifying real estate property loans, to the extent the reserve for such losses exceeds the amount that would have been allowed under the experience method or from the supplemental reserve for losses on loans (“Excess Distributions”), then an amount based on the amount distributed will be included in the Bank’s taxable income.

In the event that the Bank makes “non-dividend distributions” to Provident that are considered as made from the reserve for losses on qualifying real estate property loans, to the extent the reserve for such losses exceeds the amount that would have been allowed under the experience method or from the supplemental reserve for losses on loans (“Excess Distributions”), then an amount based on the amount distributed will be included in the Bank’s taxable income.

Non-dividend distributions include distributions in excess of the Bank’s current and accumulated earnings and profits, distributions in redemption of stock, and distributions in partial or complete liquidation.

However, dividends paid out of the Bank’s current or accumulated earnings and profits, as calculated for federal income tax purposes, will not be considered to result in a distribution from the Bank’s bad debt reserve.

Thus, any dividends to the Corporation that would reduce amounts appropriated to the Bank’s bad debt reserve and deducted for federal income tax purposes would create a tax liability for the Bank.

Thus, any dividends to Provident that would reduce amounts appropriated to the Bank’s bad debt reserve and deducted for federal income tax purposes would create a tax liability for the Bank.

The amount of additional taxable income attributable to an Excess Distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution.

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The Bank does not intend to pay dividends that would result in a recapture of any portion of its tax bad debt reserve.

During fiscal 2022, the Bank declared and paid $7.5 million of cash dividends to the Corporation while the Corporation declared and paid $4.1 million of cash dividends to shareholders.

During fiscal 2023, the Bank declared and paid $9.5 million of cash dividends to Provident while Provident declared and paid $4.0 million of cash dividends to shareholders.

Excise Tax on Stock Repurchases.

The Inflation Reduction Act of 2022 imposed a one percent excise tax on the value of corporate share repurchases (net of issuance).

On December 27, 2022, the Internal Revenue Services issued Note 2023-2 which provides interim guidance on the implementation of the excise tax on stock repurchases.

The excise tax is a non-deductible tax of one percent of the fair market value of the Corporation’s stock repurchases, net of restricted stock distributions, stock option exercises, ESOP repurchases and contributions and other qualified activities, occurring after December 31, 2022 in excess of $1.0 million.

The excise tax on the stock repurchases in fiscal 2023 was $13,000.

Tax Effect from Stock-Based Compensation.

During fiscal 2022, there were no restricted common stock distributed to employees but 1,000 shares of restricted stock was distributed to non-employee members of the Corporation’s Board of Directors.

During fiscal 2023, there were 93,750 shares of restricted common stock vested and distributed to employees but no shares of restricted stock was distributed to non-employee members of the Corporation’s Board of Directors.

Also, there were no non-qualified stock options exercised and no incentive stock options were exercised as disqualifying dispositions.

As a result, there was no federal tax benefit effect from stock-based compensation in fiscal 2022.

As a result, there was a $118,000 federal tax expense from stock-based compensation in fiscal 2023.

Other Matters.

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The Corporation will be treated as a general corporation subject to the general corporate tax rate.

There was a no state tax benefit effect from stock-based compensation in fiscal 2022, as described above in the section entitled "Federal Taxation."

There was $68,000 of state tax expense from stock-based compensation in fiscal 2023.

As a Delaware holding company not earning income in Delaware, the Corporation is exempted from Delaware corporate income tax, but is required to file an annual report with and pay an annual franchise tax to the State of Delaware.

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To facilitate talent attraction and retention, we strive to make the Bank an inclusive, safe and healthy workplace, with opportunities for our employees to grow and develop in their careers, supported by market-based compensation, benefits, health and welfare programs.

At June 30, 2022, approximately 73 percent of our workforce was female and 27 percent male, and our average tenure was approximately 8.6 years, a decrease of approximately 15 percent from an average tenure of 10.1 years at June 30, 2021.

The ethnicity of our workforce was 40.2% White, 5.2% Asian, 44.2% Hispanic or Latino, 5.2% two or more races, 0.6% American Indian or Alaskan Native, 0% Native Hawaiian or Pacific Islander and 4.6% African American or Black.

At June 30, 2023, approximately 75.7% of our workforce was female and 24.3% male, and our average employee tenure was approximately 8.5 years, down slightly from an average employee tenure of 8.6 years at June 30, 2022.

The ethnicity of our workforce was 41.4% White, 39.8% Hispanic or Latino, 6.6% African American or Black, 6.1% Asian, 4.4% two or more races, 0.6% American Indian or Alaskan Native and 1.1% Not Specified.

As part of our compensation philosophy, we offer and maintain market competitive compensation programs for our employees in order to attract and retain superior talent.

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and that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families.

In response to the COVID-19 pandemic, we implemented significant operating environment changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations.

This includes implementing additional safety measures for employees completing essential on-site work.

A core value of our talent management approach is to both develop talent from within and supplement with external hires.

This approach has yielded loyalty and dedication in our employee base which in turn grows our business, our commitment to our communities, and our customers, while adding new employees and external ideas supports a continuous improvement mindset.

We believe that our average tenure of over eight years reflects the engagement of our employees in this talent management philosophy.

We believe that our average employee tenure of over eight years reflects the engagement of our employees in this talent management philosophy.

Turnover for employees as measured by terminated employees to the average total employees was 41.4% in fiscal 2023, up from 39.8% in fiscal 2022.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business