What changed in this filing

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Item 9A. Controls and Procedures

2023-09-05 compared with 2022-09-02 · 307 added, 315 removed, 1356 unchanged (31% of the section changed)

Controls and Procedures

a) An evaluation of the Corporation’s disclosure controls and procedures (as defined in Section 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934 (the “Act”)) was carried out under the supervision and with the participation of the Corporation’s Chief Executive Officer, Chief Financial Officer and the Corporation’s Disclosure Committee as of the end of the period covered by this report.

a) An evaluation of the Corporation’s disclosure controls and procedures (as defined in Section 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934 (the “Act”)) was carried out under the supervision and with the participation of the Corporation’s Chief Executive Officer (principal executive officer), Chief Financial Officer (principal financial officer) and the Corporation’s Disclosure Committee as of the end of the period covered by this report.

In designing and evaluating the Corporation’s disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.

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Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

The information required by this item regarding the Corporation’s Board of Directors is incorporated herein by reference from the section captioned “Proposal I – Election of Directors” in the Corporation’s Proxy Statement, a copy of which will be filed with the Securities and Exchange Commission no later than 120 days after the Corporation’s fiscal year end.

The executive officers of the Corporation and the Bank are elected annually and hold office until their respective successors have been elected and qualified or until death, resignation or removal by the Board of Directors.

For information regarding the Corporation’s executive officers, see Item 1, “Business - Executive Officers” in this Form 10-K.

For information regarding the Corporation’s executive officers, see Item 1, “Business - Executive Officers” in this Form 10-K, which is incorporated herein by reference.

Code of Ethics for Senior Financial Officers

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The Code of Ethics is publicly available as Exhibit 14 to the Corporation’s Annual Report on Form 10-K for the fiscal year June 30, 2007, and is available on the Corporation’s website, www.myprovident.com .

If the Corporation makes any substantial amendments to the Code of Ethics or grants any waiver, including any implicit waiver, from a provision of the Code to the Corporation’s Chief Executive Officer, Chief Financial Officer or Controller, the Corporation will disclose the nature of such amendment or waiver on the Corporation’s website and in a report on Form 8-K.

If the Corporation makes any substantial amendments to the Code of Ethics or grants any waiver, including any implicit waiver, from a provision of the Code of Ethics to the Corporation’s principal executive officer, principal financial officer, principal accounting officer or controller, or person performing similar functions, the Corporation will disclose the nature of such amendment or waiver on the Corporation’s website and in a report on Form 8-K.

Audit Committee and Audit Committee Financial Expert

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The audit committee consists of three independent directors of the Corporation:

Barr, Judy A.

Carpenter and Debbi H.

The Corporation has designated Joseph P.

Barr, Audit Committee Chairman, as its audit committee financial expert.

Barr is independent, as independence for audit committee members is defined under the listing standards of the NASDAQ Stock Market, a Certified Public Accountant in California and Ohio (inactive) and has been practicing public accounting for over 46 years.

Carpenter, Debbi H.

Guthrie and Kathy M.

The Corporation has designated Judy A.

Carpenter, Audit Committee Chair, as its audit committee financial expert.

Carpenter is independent, as independence for audit committee members is defined under the listing standards of the NASDAQ Stock Market, a Certified Public Accountant in California (inactive) and has been in public accounting as well as has extensive business knowledge, financial expertise and unparalleled familiarity with our local market and communities.

Nominating Procedures

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Stock Options

2013 Equity Incentive Plan:

Stock Options

Restricted Stock

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Equity compensation plans not approved by security holders

(1) Excludes restricted stock from the calculation since restricted stock awards do not contain an exercise price requirement.

(1) Includes 218,250 securities available for future issuance as restricted stock or restricted stock units under the foregoing compensation plans.

Certain Relationships and Related Transactions, and Director Independence

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The information required by this item is incorporated herein by reference from the section captioned “Proposal 3 - Ratification of Appointment of Independent Auditor” in the Corporation’s Proxy Statement, a copy of which will be filed with the Securities and Exchange Commission no later than 120 days after the Corporation’s fiscal year end.

Exhibits, Financial Statement Schedules.

Exhibits and Financial Statement Schedules.

Financial Statements

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Amended and Restated Bylaws of Provident Financial Holdings, Inc.

(incorporated by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed on December 1, 2014)

(incorporated by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K filed on November 30, 2022)

Form of Certificate of Provident's Common Stock (incorporated by reference to the Corporation’s Registration Statement on Form S-1 (333-2230) filed on March 11, 1996))

25 unchanged sentences

Form of Restricted Stock Agreement for restricted shares awarded under the 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 in the Corporation’s Registration Statement on Form S-8 (333-192727) dated December 9, 2013)

2022 Equity Incentive Plan (incorporated by reference to Exhibit A to the Corporation’s proxy statement dated October 27, 2022)

Form of Incentive Stock Option Agreement for options granted under the 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 in the Corporation’s Form S-8 dated December 16, 2022)

Form of Non-Qualified Stock Option Agreement for options granted under the 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 in the Corporation’s Form S-8 dated December 16, 2022)

Form of Restricted Stock Agreement for restricted shares awarded under the 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 in the Corporation’s Form S-8 dated December 16, 2022)

2023 Annual Report to Stockholders

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and (6) Selected Notes to Consolidated Financial Statements

The cover page from this Annual Report on Form 10-K for the quarter ended June 30, 2022, formatted in Inline XBRL and contained in Exhibit 101

The cover page from this Annual Report on Form 10-K for the year ended June 30, 2023, formatted in Inline XBRL and contained in Exhibit 101.

Form 10-K Summary.

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Accounting Officer)

/s/ Joseph P.

September 5, 2023

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September 5, 2023

September 2, 2022

/s/ William E.

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Consolidated Statements of Financial Condition as of June 30, 2023 and 2022

Consolidated Statements of Operations for the years ended June 30, 2022 and 2021

Consolidated Statements of Comprehensive Income for the years ended June 30, 2022 and 2021

Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended June 30, 2022 and 2021

Consolidated Statements of Operations for the fiscal years ended June 30, 2023 and 2022

Consolidated Statements of Comprehensive Income for the fiscal years ended June 30, 2023 and 2022

Consolidated Statements of Stockholders’ Equity for the fiscal years ended June 30, 2023 and 2022

Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2023 and 2022

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of

Provident Financial Holdings, Inc.

To the Stockholders and the Board of Directors ofProvident Financial Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of Provident Financial Holdings and subsidiary (the “Corporation”) as of June 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended June 30, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Corporation as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated statements of financial condition of Provident Financial Holdings and subsidiary (the "Corporation") as of June 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows, for each of the two years in the period ended June 30, 2023, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Corporation as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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The total estimate was $5.9 million at June 30, 2023.

The determination of the appropriate ALL inherently involves a high degree of subjectivity and requires significant estimates of the existing credit risks using both quantitative and qualitative analyses.

The determination of the appropriate ALL inherently involves a high degree

of subjectivity and requires significant estimates of the existing credit risks using both quantitative and qualitative analyses.

For the collectively evaluated allowances, the Corporation uses historical experience to develop quantitative loss factors, which it applies to these loans based on management’s assigned internal risk ratings.

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Consolidated Statements of Financial Condition

(In Thousands, Except Share Information)

(In Thousands, Except Share and Per Share Information)

Cash and cash equivalents

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Liabilities and Stockholders’ Equity

Non interest-bearing deposits

Noninterest-bearing deposits

Interest-bearing deposits

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Treasury stock at cost ( 11,186,445 and 10,944,431 shares, respectively)

Accumulated other comprehensive income, net of tax

Accumulated other comprehensive (loss) income, net of tax

Total stockholders’ equity

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Consolidated Statements of Operations

Year Ended June 30,

Fiscal Year Ended June 30,

(In Thousands, Except Per Share Information)

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Net interest income

Recovery from the allowance for loan losses

Net interest income, after recovery from the the allowance for loan losses

Provision (recovery) for loan losses

Net interest income, after provision (recovery) for loan losses

Non-interest income:

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Consolidated Statements of Comprehensive Income

Year Ended June 30,

Fiscal Year Ended June 30,

(In Thousands)

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Distribution of restricted stock

Awards for restricted stock

Forfeiture of restricted stock

Amortization of restricted stock

Exercise of stock options

Stock options expense

Amortization of restricted stock, net of tax

Stock options expense, net of tax

Cash dividends (1)

2 unchanged sentences

Purchase of treasury stock (2)

Distribution of restricted stock

Awards for restricted stock

Forfeiture of restricted stock

Amortization of restricted stock

Stock options expense

Amortization of restricted stock, net of tax

Stock options expense, net of tax

Tax effect from stock-based compensation

Cash dividends (1)

Balance at June 30, 2023

(1) Includes the purchase of 0 shares and 34,614 shares of distributed restricted stock in fiscal 2022 and 2021 in settlement of employees' withholding tax obligations, respectively.

(1) Cash dividends of $ 0.56 per share were paid in both fiscal 2023 and 2022.

(2) Includes the purchase of 33,045 shares of distributed restricted stock in fiscal 2023 in settlement of employees' withholding tax obligations.

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Cash Flows

Year Ended June 30,

Fiscal Year Ended June 30,

(In Thousands)

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Depreciation and amortization

Recovery from the allowance for loan losses

Provision (recovery) for loan losses

Stock-based compensation

Provision for deferred income taxes

Increase (decrease) in accounts payable, accrued interest and other liabilities

Increase in prepaid expenses and other assets

Increase in accounts payable, accrued interest and other liabilities

Decrease (increase) in prepaid expenses and other assets

Net cash provided by operating activities

Cash flows from investing activities:

(Increase) decrease in loans held for investment, net

Increase in loans held for investment, net

Purchase of investment securities - held to maturity

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Cash flows from financing activities:

Increase in deposits, net

(Decrease) increase in deposits, net

Proceeds from long-term borrowings

Repayments of long-term borrowings

Proceeds from (repayment of) short-term borrowings, net

Proceeds from short-term borrowings, net

Treasury stock purchases

Proceeds from exercise of stock options

Withholding taxes on stock-based compensation

Cash dividends

Net cash used for financing activities

Net decrease in cash and cash equivalents

Net cash provided by (used for) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

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Additional activities may include originating saleable single-family loans, primarily fixed-rate first mortgages.

Loans are primarily originated and purchased in Southern and Northern California.

Loans are primarily originated and purchased in California.

Use of estimates

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Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the loan repurchase reserve, the valuation of investment securities, the valuation of loans held for investment at fair value, deferred tax assets, loan servicing assets, real estate owned and deferred compensation costs.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of investment securities, the valuation of loans held for investment at fair value, deferred tax assets, loan servicing assets, real estate owned and deferred compensation costs.

The following accounting policies, together with those disclosed elsewhere in the consolidated financial statements, represent the significant accounting policies of Provident Financial Holdings, Inc.

11 unchanged sentences

Purchase premiums and discounts are amortized over the expected average life of the securities using the effective interest method.

Investment securities are reviewed annually for possible other-than-temporary impairment (“OTTI”).

Investment securities are reviewed quarterly for possible other-than-temporary impairment (“OTTI”).

For debt securities, an OTTI is evident if the Corporation intends to sell the debt security or will more likely than not be required to sell the debt security before full recovery of the entire amortized cost basis is realized.

However, even if the Corporation does not intend to sell the debt security and will not likely be required to sell the debt security before recovery of its entire amortized cost basis, the Corporation must evaluate expected cash flows to be received and determine if a credit loss has occurred.

However, even if the Corporation does not intend to sell the debt security and will not likely be required to sell the debt security before recovery of its entire amortized cost basis, the Corporation performs an analysis of evaluating factors such as cash and working capital requirements, contractual and regulatory obligations, and specific company/industry considerations.

In addition, the Corporation must evaluate expected cash flows to be received and determine if a credit loss has occurred.

In the event of a credit loss, the credit component of the impairment is recognized within non-interest income and the non-credit component is recognized through accumulated other comprehensive income, net of tax.

2 unchanged sentences

Loans held for investment

Loans held for investment consist of long-term adjustable and fixed rate loans secured by first trust deeds on single-family residences and multi-family and commercial real estate loans secured by commercial property, land and other residential properties.

These loans are generally offered to customers and businesses located in California.

7 unchanged sentences

If the principal balance is not deemed collectible, the entire payment received (principal and interest) is applied to the outstanding loan balance.

Non-performing loans that become current as to both principal and interest are returned to accrual status after demonstrating satisfactory payment history (usually six consecutive months) and when future payments are expected to be collected.

Allowance for loan losses

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The historical data is reviewed at least quarterly and adjustments are made as needed.

Management considers, based on currently available information, the allowance for loan losses sufficient to absorb probable losses inherent in loans held for investment.

Management considers, based on currently available information, the allowance for loan losses sufficient to absorb probable losses inherent within loans held for investment.

Various techniques are used to arrive at an individually evaluated allowance, including discounted cash flows and the fair market value of collateral.

The use of these techniques is inherently subjective and the actual losses could be greater or less than the estimates.

On July 1, 2023, the Corporation will adopt a new measurement of credit losses on its financial instruments, the Current Expected Credit Losses (“CECL”), as described in the Accounting Standard Updates section below under ASU 2016-13.

Allowance for unfunded loan commitments

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Net adjustments to the allowance for unfunded loan commitments are included in other non-interest expense on the Consolidated Statements of Operations.

Loans in forbearance

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act for 2020, as amended (“CARES Act”) was signed into law and on April 7, 2020, the Board of Governors of the Federal Reserve System (“Federal Reserve”), Federal Deposit Insurance Corporation (“FDIC”), National Credit Union Administration, Office of the Comptroller of the Currency (“OCC “) and Consumer Financial Protection Bureau issued the Interagency Statement on Loan Modifications

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus ("Interagency Statement").

Among other things, the CARES Act and Interagency Statement provided relief to borrowers, including the opportunity to defer loan payments while not negatively affecting their credit standing.

For commercial and consumer customers, the Corporation provided relief options, including payment deferrals and fee waivers.

All loans modified due to COVID-19 pandemic were separately monitored and any request for continuation of relief beyond the initial modification were reassessed to determine if a further modification should be granted and if a downgrade in risk rating was appropriate.

After the payment deferral period (forbearance period), normal loan payments once again became due and payable.

The forbearance amount will be due and payable in full as a balloon payment at the end of the loan term or sooner if the loan becomes due and payable in full at an earlier date.

As of March 31, 2021, the Corporation ceased accepting new forbearance requests and as of June 30, 2022, the Corporation had no pending requests for this type of payment relief.

As of June 30, 2022, the Corporation had no forbearance loans that were modified and operating under forbearance agreements in accordance with the CARES Act and Interagency Statement.

For additional information, see Note 3 of the Notes to Consolidated Financial Statements.

Troubled debt restructuring (“restructured loans”)

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

a) A reduction in the stated interest rate.

b) An extension of the maturity at an interest rate below market.

c) A reduction in the accrued interest.

a) A reduction in the stated interest rate and/or accrued interest.

b) An extension of the maturity date, typically longer than six months.

c) A reduction in the principal loan balance.

d) Extensions, deferrals, renewals and rewrites.

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The Corporation measures the allowance for loan losses of restructured loans based on the difference between the loan’s original carrying amount and the present value of expected future cash flows discounted at the original effective yield of the loan.

Based on the OCC guidance with respect to restructured loans and to conform to general practices within the banking industry, the Corporation maintains certain restructured loans on accrual status, provided there is reasonable assurance of repayment and performance, consistent with the modified terms based upon a current, well-documented credit evaluation.

Based on the Office of the Comptroller of the Currency (“OCC”) guidance with respect to restructured loans and to conform to general practices within the banking industry, the Corporation maintains certain restructured loans on accrual status, provided there is reasonable assurance of repayment and performance, consistent with the modified terms based upon a current, well-documented credit evaluation.

All other restructured loans are classified as “Substandard” and placed on non-performing status.

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In addition to the payment history described above;

multi-family, commercial real estate, construction and commercial business loans must also demonstrate a combination of corroborating characteristics to be upgraded, such as:

satisfactory cash flow, satisfactory guarantor support, and additional collateral support, among others.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

multi-family, commercial real estate, construction and commercial business loans must also demonstrate a combination of corroborating characteristics to be upgraded, such as satisfactory cash flow, satisfactory guarantor support, and additional collateral support, among others.

Non-performing loans

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Costs relating to improvement, maintenance and repairs of the property are expensed as incurred under gain (loss) on sale and operations of real estate owned acquired in the settlement of loans within the Consolidated Statements of Operations.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

Impairment of long-lived assets

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Prospective earnings or losses, tax law changes or capital changes could prompt the Corporation to reevaluate the assumptions which may be used to establish a valuation allowance.

As of June 30, 2022 and 2021, the estimated deferred tax asset, which is included in prepaid expenses and other assets, was $ 1.4 million and $ 2.5 million, respectively.

The Corporation maintains net deferred tax assets for deductible temporary tax differences, such as loss reserves, deferred compensation, non-accrued

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

interest and unrealized gains, among other items.

The decrease in the net deferred tax asset resulted primarily from a decreases in loan loss reserves and deferred loan costs.

The Corporation did not have any liabilities for uncertain tax positions or any known unrecognized tax benefit at June 30, 2022 or 2021.

As of June 30, 2023 and 2022, the estimated deferred tax asset, which is included in prepaid expenses and other assets, was $ 218,000 and $ 1.4 million, respectively.

The Corporation maintains net deferred tax assets for deductible temporary tax differences, such as loss reserves, deferred compensation, non-accrued interest and unrealized gains (losses), among other items.

The decrease in the net deferred tax asset resulted primarily from a lower deferred compensation and an increase in deferred tax liabilities from higher net deferred loan costs.

The Corporation did no t have any liabilities for uncertain tax positions or any known unrecognized tax benefit at June 30, 2023 or 2022.

Bank owned life insurance ("BOLI")

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The Bank records these BOLI policies within prepaid expenses and other assets in the Consolidated Statements of Financial Condition at each policy’s respective cash surrender value, with net changes recorded in other non-interest income in the Consolidated Statements of Operations.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

Cash dividend

3 unchanged sentences

Stock repurchases

The Corporation repurchased 257,285 shares of its common stock with an average cost of $ 16.73 per share during fiscal 2022 pursuant to its April 2020 stock repurchase plan that expired on April 27, 2022.

The Board of Directors approved a new stock repurchase plan on April 28, 2022 which authorized 364,259 shares for repurchase and expires on April 28, 2023, all of which remain available for purchase at June 30, 2022.

The Corporation repurchased 302,719 shares of its common stock with an average cost of $ 14.01 per share during fiscal 2023 pursuant to its April 2022 stock repurchase plan that was extended through April 28, 2024.

As of June 30, 2023, a total of 61,540 shares or 17 percent of the shares authorized for repurchase under the plan remain available to purchase until the plan expires on April 28, 2024.

Earnings per common share (“EPS”)

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ASC 718, “Compensation – Stock Compensation,” requires companies to recognize in the Consolidated Statements of Operations the grant-date fair value of stock options and other equity-based compensation issued to employees and directors.

Stock-based compensation expense, inclusive of restricted stock expense, recognized in the Consolidated Statements of Operations for the years ended June 30, 2022 and 2021 was $ 798,000 and $ 1.3 million, respectively.

Stock-based compensation, inclusive of restricted stock expense, recognized in the Consolidated Statements of Operations for the fiscal years ended June 30, 2023 and 2022 was $ 1.2 million and $ 798,000 , respectively.

Employee Stock Ownership Plan ("ESOP")

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The Corporation recognizes compensation expense over the vesting period of the shares awarded, equal to the fair value of the shares at the award date.

A total of $ 747,000 and $ 1.2 million of restricted stock expense was amortized during fiscal 2022 and 2021, respectively.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

A total of $ 1.1 million and $ 747,000 of restricted stock expense was amortized during fiscal 2023 and 2022, respectively.

Post-retirement benefits

4 unchanged sentences

Comprehensive income

ASC 220, “Comprehensive Income,” requires that realized revenue, expenses, gains and losses be included in net income (loss).

ASC 220, “Comprehensive Income,” requires that realized revenues, expenses, gains and losses be included in net income (loss).

Unrealized gains (losses) on available for sale securities and interest-only strips are reported as a separate component of the stockholders’ equity section of the Consolidated Statements of Financial Condition and the change in the unrealized gains (losses) are reported on the Consolidated Statements of Comprehensive Income and Consolidated Statements of Stockholders’ Equity.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

Accounting standard updates (“ASU”)

In November 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance,” This ASU requires the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy:

(1) Information about the nature of the transactions and the related accounting policy used to account for the transactions, (2) The line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item and (3) Significant terms and conditions of the transactions, including commitments and contingencies.

This ASU is effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021.

The Corporation has adopted this ASU and it did not have a material impact on the Corporation’s consolidated financial statements.

See Note 18 for additional disclosure.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326):

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” and subsequent amendments to the initial guidance in November 2018, ASU No.

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Effective Dates” extending the adoption date for certain registrants, including the Corporation.

These ASUs will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Corporation is evaluating its current expected loss methodology of its loan and investment portfolios to identify the necessary modifications in accordance with these standards and expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model.

A valuation adjustment to its allowance for loan losses or investment portfolio that is identified in this process will be reflected as a one-time adjustment in equity rather than earnings upon adoption.

The Corporation is in the process of compiling historical data that will be used to calculate expected credit losses on its loan portfolio to ensure the Corporation is fully compliant with these ASUs at the adoption date and is evaluating the potential impact upon adoption that these ASUs will have on the Corporation’s Consolidated Financial Statements.

Once adopted, the Corporation anticipates the allowance for loan losses to increase through a one-time adjustment to retained earnings, however, until the evaluation is complete the magnitude of the potential increase will be unknown.

In March 2020, the FASB issued ASU No.

These ASUs related to Topic 326 will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Corporation is evaluating its current expected credit loss methodology of its loans held for investment and investment securities held to maturity to identify the necessary modifications in accordance with these standards and expects a change in the processes and procedures to calculate the allowance for credit losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model.

The Corporation established a project team and implementation plan to address the key components to this process.

The Corporation has determined its loan segmentation, compiled historical data and selected methodologies for each loan grouping.

The Corporation ran several sets of parallel runs, and sensitivity analysis on its initial modeling assumptions and completed validation of the model in the fourth quarter of fiscal year 2023 prior to the adoption date of July 1, 2023.

The Corporation anticipates the allowance for credit losses for loans held for investment to change through a one-time adjustment to retained earnings, net of estimated income taxes.

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.

Additionally, we do not expect the adoption of CECL to result in a material impact to our held-to-maturity securities portfolio, which is primarily comprised of government agency mortgage-backed securities.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of reference Rate Reform on Financial Reporting.

This ASU applies to contracts, hedging relationships and other transactions that reference LIBOR or other rate references expected to be discontinued because of reference rate reform.

The ASU permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract re-

This ASU applies to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or other rate references expected to be discontinued because of reference rate reform.

The ASU permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination.

In January 2021, ASU 2021-01 clarified that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the changes in the interest rates used for margining, discounting, or contract price alignment for derivative instruments that are being implemented as part of the market-wide transition to new reference rates (commonly referred to as the “discounting transition”).

In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848.

The FASB had originally included a sunset provision within Topic 848 based on expectations of when the LIBOR would cease being published.

In March 2021, it was announced that the intended cessation date of LIBOR would be extended to June 30, 2023.

As a result, the FASB issued ASU 2022-06 deferring the sunset date of Topic 848 from March 31, 2023 to December 31, 2024.

This ASU is effective for all entities as of March 12, 2020 through December 31, 2024.

The Corporation is in the process of transitioning into other rate indices in accordance with the government agency guidelines.

As of June 30, 2023, the Corporation had approximately $ 469.4 million in loans held for investment with LIBOR indices.

Beginning July 1, 2023, the Corporation is transitioning these loans to Secured Overnight Financing Rate (“SOFR”) indices.

The Corporation is evaluating the impact of the adoption of this ASU and does not anticipate a material impact to its consolidated financial statements.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

measurement or reassessment of a previous accounting determination.

In January 2021, ASU 2021-01 clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the changes in the interest rates used for margining, discounting, or contract price alignment for derivative instruments that are being implemented as part of the market-wide transition to new reference rates (commonly referred to as the “discounting transition”).

This ASU is effective for all entities as of March 12, 2020 through December 31, 2022.

The Corporation is in the process of compiling data on the impact of reference rate reform and has not determined the impact of the adoption of this ASU on its consolidated financial statements.

Investment Securities

6 unchanged sentences

SBA securities (3)

Certificate of deposits

Total investment securities - held to maturity

12 unchanged sentences

government sponsored enterprise MBS

government sponsored enterprise CMO

SBA securities

Certificate of deposits

Certificates of deposit

Total investment securities - held to maturity

5 unchanged sentences

Total investment securities

In fiscal 2022 and 2021, the Corporation received MBS principal payments of $ 55.3 million and $ 52.6 million, respectively and did no t sell any investment securities.

The Corporation purchased MBS totaling $ 19.0 million and $ 158.0 million during fiscal 2022 and 2021, respectively.

In fiscal 2023 and 2022, the Corporation received principal payments from its investment securities of $ 30.7 million and $ 55.3 million, respectively and did no t sell any investment securities.

The Corporation did no t purchase any investment securities in fiscal 2023, while in fiscal 2022, the Corporation purchased investment securities totaling $ 19.0 million.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

As of June 30, 2022 and 2021, the Corporation held investments with an unrealized loss position of $ 14.1 million and $ 810,000 , respectively.

As of June 30, 2023 and 2022, the Corporation held investments with an unrealized loss position of $ 18.9 million and $ 14.1 million, respectively.

As of June 30, 2023

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government sponsored enterprise CMO

SBA securities

Total investment securities - held to maturity

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government sponsored enterprise MBS

government sponsored enterprise CMO

Total investment securities - held to maturity

Available for sale

U.S government agency MBS

government sponsored enterprise MBS

Private issue CMO

Total investment securities - available for sale

Total investment securities

As of June 30, 2022, the Corporation had investment securities with unrealized holding losses of $ 9.2 million that were less than 12 months and $ 4.9 million that were in an unrealized loss position for more than 12 months, as compared to investment securities at June 30, 2021 with unrealized holding losses of $ 810,000 that were less than 12 months and none that were in an unrealized loss position for more than 12 months.

The unrealized loss at June 30, 2022 was primarily attributable to 39 U.S.

government sponsored enterprise MBS, two U.S.

government sponsored enterprise CMOs and three private issue CMOs and, based on the nature of the investments, management concluded that such unrealized losses were not other than temporary.

The unrealized loss at June 30, 2021 was attributable to 16 U.S.

government sponsored enterprise MBS and, based on the nature of the investments, management concluded that such unrealized losses were not other than temporary.

The Corporation does not believe that there was any OTTI at June 30, 2022 and 2021.

At each of these dates, the Corporation intended and had the ability to hold the investment securities and was not likely to be required to sell the securities before realizing a full recovery.

The Corporation evaluates individual investment securities quarterly for other-than-temporary impairment.

At June 30, 2023, $ 18.6 million of the $ 18.9 million of unrealized holding losses were in a loss position for 12 months or more;

while at June 30, 2022, $ 4.9 million of the $ 14.1 million of unrealized holding losses were in a loss position for 12 months or more.

The unrealized losses on investment securities were attributable to changes in interest rates relative to when the investment securities were purchased, and not due to the credit quality of the investment securities;

which are predominately U.S.

government sponsored enterprise (GSE) securities.

The Corporation performs an analysis of evaluating

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

factors such as cash and working capital requirements, contractual and regulatory obligations, and specific company/industry considerations.

Based on its analysis, the Corporation has determined that the unrealized losses are temporary in nature due to the fluctuating nature of interest rates, as well as the Corporation’s intent and ability to hold these investments until maturity.

As a part of the Corporation’s monthly risk assessment, the Corporation runs a number of stressed liquidity scenarios.

These liquidity scenarios support the Corporation’s assessment that the Corporation has the ability to hold these securities until maturity and does not need to liquidate these investment securities in order to maintain adequate liquidity.

In order to maintain adequate liquidity, the Bank has established borrowing facilities with various counterparties.

The Bank had a remaining borrowing capacity of $ 287.9 million as of June 30, 2023 at the Federal Home Loan Bank of San Francisco.

In addition, the Bank has secured an estimated $ 139.0 million discount window facility at the Federal Reserve Bank of San Francisco collateralized by investment securities with June 30, 2023 balances of $ 150.3 million.

As of June 30, 2023, the Bank also has a borrowing arrangement in the form of a federal funds facility with its correspondent bank for $ 50.0 million.

The total available borrowing capacity across all sources totals approximately $ 476.9 million at June 30, 2023.

The Bank had no advances under the Federal Reserve Bank of San Francisco discount window or correspondent bank facility as of June 30, 2023 .

At June 30, 2022, the Bank had a remaining borrowing capacity of $ 310.3 million at the Federal Home Loan Bank of San Francisco.

In addition, the Bank had secured an estimated $ 153.9 million discount window facility at the Federal Reserve Bank of San Francisco collateralized by investment securities with June 30, 2022 balances of $ 180.6 million.

As of June 30, 2022, the Bank also had a borrowing arrangement in the form of a federal funds facility with its correspondent bank for $ 50.0 million.

The total available borrowing capacity across all sources totals approximately $ 514.2 million at June 30, 2022.

The Bank had no advances under the Federal Reserve Bank of San Francisco discount window or correspondent bank facility as of June 30, 2022 .

At June 30, 2023 and 2022, the Corporation did not hold any investment securities with the intent to sell and determined it had the ability to hold these investment securities until maturity.

It also determined that it was more likely than not that the Corporation would not be required to sell the securities prior to recovery of the amortized cost basis;

therefore, no impairment losses were recorded for the fiscal years ended June 30, 2023 and 2022.

Contractual maturities of investment securities as of June 30, 2023 and 2022 were as follows:

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Total investment securities

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

Loans Held for Investment

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The following table sets forth information at June 30, 2023 regarding the dollar amount of loans held for investment that are contractually repricing during the periods indicated, segregated between adjustable rate loans and fixed rate loans.

Fixed-rate loans comprised 11 % and 4 % of loans held for investment at June 30, 2022 and June 30, 2021, respectively.

Fixed-rate loans comprised 11 % of loans held for investment at both June 30, 2023 and June 30, 2022.

Adjustable rate loans having no stated repricing date that reprice when the index to which they are tied to reprices (e.g.

prime rate index) and checking account overdrafts are reported as repricing within one year.

The table does not include

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

any estimate of prepayments which may cause the Corporation’s actual repricing experience to differ materially from that shown.

prime rate index) and checking account overdrafts are reported as repricing within one year, subject to periodic and maximum rate cap.

The table does not include any estimate of prepayments which may cause the Corporation’s actual repricing experience to differ materially from that shown.

Adjustable Rate

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Quantitative loan loss factors are developed by determining the historical loss experience, expected future cash flows, discount rates and collateral fair values, among others.

Qualitative loan loss factors are developed by assessing general economic indicators such as Gross Domestic Product, Retail Sales, Unemployment Rates, Employment Growth, California Home Sales and Median California Home Prices, among others.

Qualitative loan loss factors are developed by assessing general economic indicators such as gross domestic product, retail sales, unemployment rates, employment growth, California home sales and median California home prices, as well as peer group data, reflecting the

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

effect of events that have occurred but are not yet evidenced in the historical data.

The Corporation assigns individual factors for the quantitative and qualitative methods for each loan category and each internal risk rating.

The Corporation categorizes all of the loans held for investment into risk categories based on relevant information about the ability of the borrower to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.

The Corporation categorizes all of the loans held for investment into risk categories based on relevant information about the ability of the borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.

A description of the general characteristics of the risk grades is as follows:

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● Loss - A loss loan is considered uncollectible and of such little value that continuance as an asset of the Bank is not warranted.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following tables summarize gross loans held for investment by loan types and risk category at the dates indicated:

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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 Corporation’s control.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

Non-performing loans are charged-off to their fair market values in the period the loans, or portion thereof, are deemed uncollectible, generally after the loan becomes 150 days delinquent for real estate secured first trust deed loans and 120 days delinquent for commercial business or real estate secured second trust deed loans.

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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 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 is 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.

For non-performing commercial real estate loans, individually evaluated allowances are calculated based on their fair values and if their fair values are higher than their loan balances, no allowances are required.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following tables summarize the Corporation’s allowance for loan losses and recorded investment in gross loans, by portfolio type, at the dates and for the years indicated.

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Allowance at beginning of period

(Recovery) provision for loan losses

Provision (recovery) for loan losses

Allowance for loan losses, end of period

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Net (recoveries) charge-offs to average loans receivable, net during the period

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

Year Ended June 30, 2022

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Balance, beginning of year

Recovery from the allowance for loan losses

Provision (recovery) for loan losses

Balance, end of year

The following tables identify the Corporation’s total recorded investment in non-performing loans by type at the dates and for the years indicated.

Generally, a loan is placed on non-accrual status when it becomes 90 days past due as to principal or interest or if the loan is deemed impaired, after considering economic and business conditions and collection efforts, where the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

In addition, interest income is not recognized on any loan where management has determined that collection is not reasonably assured.

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Loans that are not individually evaluated for impairment are included in pools of homogeneous loans for evaluation of related allowance reserves.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

At or For the Year Ended June 30, 2023

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Total single-family loans

Multi-family:

With a related allowance

Total multi-family loans

Total non-performing loans

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With a related allowance

Total mutlti-family loans

Commercial business loans:

With a related allowance

Total commercial business loans

Total multi-family loans

Total non-performing loans

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At June 30, 2023 and 2022, there were no commitments to lend additional funds to those borrowers whose loans were classified as non-performing.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

During the fiscal years ended June 30, 2023 and 2022, the Corporation’s average investment in non-performing loans was $ 1.1 million and $ 4.2 million, respectively.

4 unchanged sentences

The remaining $ 29,000 was applied to reduce the loan balances under the cost recovery method.

The Corporation has modified loans in accordance with the CARES Act and Interagency Statement.

The CARES Act and Interagency Statement provided guidance around the modification of loans as a result of the COVID-19 pandemic, and outlined, among other criteria, that short-term modifications of up to six months made on a good faith basis to borrowers who were current as defined under the CARES Act and Interagency Statement prior to any relief are not restructured loans and if all payments are current in accordance with the revised terms of the loan, the loan would not be reported as past due.

As of June 30, 2022, the Corporation had no remaining forbearance loans that were modified and operating under forbearance agreements in accordance with the CARES Act and Interagency Statement.

As of June 30, 2022, loan forbearance related to COVID-19 hardship requests are described below:

Forbearance Granted

Forbearance Completed (1)

Forbearance Remaining

(Dollars In Thousands)

Single-family loans

Multi-family loans

Commercial real estate loans

Total loan forbearance

(1) Includes 19 single-family loans totaling $ 6.9 million where forbearance was subsequently extended and were classified as restructured non-performing loans, consistent with the Interagency Statement.

As of June 30, 2022, five loans totaling $ 2.2 million were paid off and 13 loans totaling $ 3.9 million were upgraded to the pass category, while one loan totaling $ 760,000 remained as non-performing.

As of March 31, 2021, the Corporation ceased offering the COVID-19 forbearance relief program and as of June 30, 2022, the Corporation had no pending requests for this type of payment relief.

After the payment deferral period, normal loan payments once again became due and payable.

The forbearance amount is due and payable in full as a balloon payment at the end of the loan term or sooner if the loan becomes due and payable in full at an earlier date.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following tables provide information on the past due status of the Corporation’s loans held for investment, gross, at the dates indicated.

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(1) All loans 90 days or greater past due are placed on non-accrual status.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

June 30, 2022

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(1) All loans 90 days or greater past due are placed on non-accrual status.

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

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 real estate owned.

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;

1 unchanged sentence

and no loans were converted to real estate owned.

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

two loans were upgraded to the pass category;

three loans were paid off;

and no loans were converted to real estate owned.

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 restructured loans that were extended beyond the initial maturity of the modification;

while in fiscal 2021, there were 12 restructured loans totaling $ 4.7 million (which were all COVID-19 related forbearance loans prior to their restructuring) that were extended beyond the initial maturity of the modification.

Additionally, during the fiscal years ended June 30, 2023 and 2022, there were no restructured loans that were extended beyond the initial maturity of the modification.

As of June 30, 2023, the net outstanding balance of the Corporation’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;

one loan with an outstanding balance of $ 722,000 was classified as substandard on non-accrual status.

one loan with an outstanding balance of $ 722,000 was classified as substandard on non-accrual status and 12 loans totaling $ 3.7 million were classified in the pass category on 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;

20 loans totaling $ 7.0 million were classified as substandard on non-accrual status and three loans totaling $ 876,000 were classified as pass category on 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.

At both June 30, 2023 and June 30, 2022, there were no commitments to lend additional funds to those borrowers whose loans were restructured.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following table summarizes at the dates indicated the restructured loan balances, net of allowance for loan losses or charge-offs, by loan type and non-accrual versus accrual status at June 30, 2023 and 2022 :

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Total restructured loans

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following tables show the restructured loans by type, net of allowance for loan losses or charge-offs, at June 30, 2023 and 2022:

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With a related allowance

Without a related allowance (2)

Total single-family

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(1) Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan.

(2) There was no related allowance for loan losses because these loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance.

At June 30, 2022

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(2) There was no related allowance for loan losses because these loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance.

In the ordinary course of business, the Bank makes loans to its directors, officers and employees on substantially the same terms prevailing at the time of origination for comparable transactions with unaffiliated borrowers.

The following is a summary of related-party loan activity:

Year Ended June 30,

(In Thousands)

Balance, beginning of year

Sales and payments

Balance, end of year

As of June 30, 2022 and 2021, there were no outstanding related-party loans.

In the ordinary course of business, the Bank may offer loans to its directors, officers and employees on substantially the same terms prevailing at the time of origination for comparable transactions with unaffiliated borrowers.

During fiscal

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

2023 and 2022, there were no related-party loan activities and as of June 30, 2023 and 2022, there were no outstanding related-party loans.

The Corporation accounts for its leases in accordance with ASC 842, which was implemented on July 1, 2019, and requires the Corporation to record liabilities for future lease obligations as well as assets representing the right to use the underlying leased assets.

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Liabilities to make future lease payments are recorded in accounts payable, accrued interest and other liabilities, while right-of-use assets are recorded in premises and equipment in the Corporation’s Consolidated Statements of Financial Condition.

At June 30, 2022, all of the Corporation’s leases were classified as operating leases and the Corporation did not have any operating leases with an initial term of 12 months or less (“short-term leases”).

At June 30, 2023, all the Corporation’s leases were classified as operating leases and the Corporation did not have any operating leases with an initial term of 12 months or less (“short-term leases”).

Liabilities to make future lease payments and right-of-use assets are recorded for operating leases and do not include short-term leases.

These liabilities and right-of-use assets are determined based on the total contractual base rents for each lease, which include options to extend or renew each lease, where applicable, and where the Corporation believes it has an economic incentive to extend or renew the lease.

Due to the fact that lease extensions are not reasonably certain, the Corporation generally does not recognize payments occurring during option periods in the calculation of its operating right-of-use lease assets and operating lease liabilities.

The Corporation utilizes the FHLB - San Francisco interest rates as a discount rate for each of the remaining contractual terms at the adoption date as well as for future leases if the discount rate is not stated in the lease.

Since lease extensions are not reasonably certain, the Corporation generally does not recognize payments occurring during option periods in the calculation of its operating right-of-use lease assets and operating lease liabilities.

The Bank utilizes the FHLB - San Francisco interest rates as a discount rate for each of the remaining contractual terms at the adoption date as well as for future leases if the discount rate is not stated in the lease.

For leases that contain variable lease payments, the Corporation assumes future lease payment escalations based on a lease payment escalation rate specified in the lease or the specified index rate observed at the time of lease commencement.

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The following table presents supplemental information related to operating leases at the date and for the years indicated:

As of June 30,

(In Thousands)

June 30, 2022

June 30, 2021

Consolidated Statements of Condition:

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Equipment expenses from operating leases (1)

Total lease expense

Consolidated Statements of Cash Flows:

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Net of accumulated amortization.

Depreciation and amortization expense for the years ended June 30, 2022 and 2021 amounted to $ 1.5 million and $ 1.6 million, respectively.

Depreciation and amortization expense for the fiscal years ended June 30, 2023 and 2022 amounted to $ 1.4 million and $ 1.5 million, respectively.

PROVIDENT FINANCIAL HOLDINGS, INC.

6 unchanged sentences

Interest Rate

Checking deposits – non interest-bearing

Checking deposits – noninterest-bearing

Checking deposits – interest-bearing (1)

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Time deposits:

Under $100 (1)(2)

0.00 % - 5.25 %

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(1) Certain interest-bearing checking, savings, money market and time deposits require a minimum balance to earn interest.

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

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

The aggregate annual maturities of time deposits at June 30, 2023 and 2022 were as follows:

15 unchanged sentences

Total interest expense on deposits

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

At June 30, 2023 and 2022, deposits with negative balances (i.e.

overdrafts) that were reclassified to loans held for investment totaled $ 15,000 and $ 32,000 , respectively.

The Bank is required to maintain reserve balances with the Federal Reserve Bank of San Francisco.

Effective March 26, 2020, the Federal Reserve lowered the reserve ratios on transaction accounts maintained at a depository institution to zero percent so there was no required reserve balance at June 30, 2022 and 2021.

Advances from the FHLB – San Francisco, which mature on various dates through 2025, are collateralized by pledges of certain real estate loans with an aggregate balance at June 30, 2022 and 2021 of $ 570.4 million and $ 607.0 million, respectively.

In addition, the Bank pledged investment securities totaling $ 4.7 million and $ 1.6 million to collateralize its FHLB – San Francisco advances under the Securities-Backed Credit (“SBC”) program at June 30, 2022 and 2021, respectively.

The Bank’s FHLB – San Francisco borrowing capacity, which is limited to 35 % of total assets reported on the Bank’s quarterly Call Report, was approximately $ 415.7 million and $ 416.2 million at June 30, 2022 and 2021, respectively.

As of June 30, 2022 and 2021, the remaining/available borrowing facility was $ 310.3 million and $ 296.8 million, respectively, and the remaining/available collateral was $ 310.5 million and $ 343.1 million, respectively.

Effective March 26, 2020, the FRB lowered the reserve ratios on transaction accounts maintained at a depository institution to zero percent so there was no required reserve balance at June 30, 2023 and 2022.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

In addition, as of June 30, 2022 and 2021, the Bank had a $ 153.9 million and $ 206.1 million discount window facility, respectively, 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.

As of June 30, 2022 and 2021, the Bank also had a borrowing arrangement in the form of a federal funds facility with its correspondent bank for $ 50.0 million and $ 17.0 million, respectively.

The Bank intends to request a renewal of its borrowing arrangement with the correspondent bank prior to maturity.

As of June 30, 2023, the Bank’s FHLB – San Francisco maximum borrowing capacity was approximately $ 534.1 million, which is limited to 40 % of total assets reported on the Bank’s quarterly Call Report.

This borrowing capacity was collateralized by pledges of certain real estate loans with an aggregate loan balance of $ 967.6 million and investment securities of $ 4.2 million.

As of June 30, 2023, the Bank’s borrowings from the FHLB – San Francisco were $ 235.0 million, with varying maturity dates thru the year 2028.

In addition, the Bank utilizes its borrowing facility for letters of credit and for Mortgage Partnership Finance (“MPF”) program credit enhancement.

The outstanding letters of credit was $ 11.0 million and the outstanding MPF credit enhancement was $ 216,000 at June 30, 2023.

As of June 30, 2023, the remaining borrowing capacity was $ 287.9 million.

As of June 30, 2022, the Bank’s FHLB – San Francisco maximum borrowing capacity was approximately $ 415.7 million, which is limited to 35 % of total assets reported on the Bank’s quarterly Call Report.

This borrowing capacity was collateralized by pledges of certain real estate loans with an aggregate loan balance of $ 570.4 million and investment securities of $ 4.7 million.

As of June 30, 2022, the Bank’s borrowings from the FHLB – San Francisco were $ 85.0 million, with varying maturity dates through the year 2025.

In addition, the Bank utilizes its borrowing facility for letters of credit and for MPF program credit enhancement.

The outstanding letters of credit was $ 18.0 million and the outstanding MPF credit enhancement was $ 2.5 million at June 30, 2022.

As of June 30, 2022, the remaining borrowing capacity was $ 310.3 million.

In addition, as of June 30, 2023 and 2022, the Bank had $ 139.0 million and $ 153.9 million borrowing capacity available from the discount window facility at the Federal Reserve Bank of San Francisco, respectively, collateralized by investment securities.

As of June 30, 2023 and 2022, the Bank also had a borrowing arrangement in the form of a federal funds facility with its correspondent bank for $ 50.0 million at both dates.

The Bank intends to request a renewal of its borrowing arrangement with the correspondent bank prior to maturity on June 30, 2024.

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

2 unchanged sentences

FHLB - San Francisco advances

In addition to the total borrowings described above, the Bank utilizes its borrowing facility for letters of credit and MPF credit enhancement.

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

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

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

At both June 30, 2022 and 2021, the Bank held a stock investment of $ 8.2 million with no excess capital stock at either date.

During fiscal 2022, the FHLB – San Francisco did no t redeem any excess capital stock, while the Bank purchased $ 84,000 of FHLB - San Francisco capital stock.

During fiscal 2021, the FHLB – San Francisco did not redeem any excess capital stock, while the Bank purchased $ 185,000 of FHLB - San Francisco capital stock.

At June 30, 2023 and 2022, the Bank held a stock investment of $ 9.5 million and $ 8.2 million, respectively, with no excess capital stock.

During fiscal 2023 and 2022, the FHLB – San Francisco did no t redeem any excess capital stock, while the Bank purchased $ 1.3 million and $ 84,000 of FHLB - San Francisco capital stock, respectively.

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

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following tables set forth certain information regarding borrowings by the Bank at the dates and for the years indicated:

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(1) Borrowings with a remaining term of 12 months or less.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The aggregate annual contractual maturities of borrowings at June 30, 2023 and 2022 were as follows:

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If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements.

Management has determined that there were no unrecognized tax benefits to be reported in the Corporation’s consolidated financial statements for the years ended June 30, 2022 and 2021.

Management has determined that there were no unrecognized tax benefits to be reported in the Corporation’s consolidated financial statements for the fiscal years ended June 30, 2023 and 2022.

Under generally accepted accounting principles, the Corporation uses the asset and liability method of accounting for income taxes.

2 unchanged sentences

The Corporation’s effective tax rate may differ from the estimated statutory tax rates described above due to discrete items such as further adjustments to net deferred tax assets, excess tax benefits derived from stock option exercises and non-taxable earnings from bank owned life insurance, among other items.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The Corporation utilizes the asset and liability method of accounting for income taxes whereby deferred tax assets are recognized for deductible temporary differences and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences.

6 unchanged sentences

Provision for income taxes

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The Corporation’s tax benefit from non-qualified equity compensation recognized in the Consolidated Statements of Operations in connection with the adoption of ASU 2016-09 for fiscal 2022 and 2021 was $ 0 and $ 91,000 , respectively.

The Corporation’s tax expense from non-qualified stock-based compensation recognized in the Consolidated Statements of Operations in connection with the adoption of ASU 2016-09 for fiscal 2023 and 2022 was $ 186,000 and $ 0 , respectively.

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S.

7 unchanged sentences

Non-deductible expenses

Non-deductible stock-based compensation

Excess tax benefit on stock-based compensation

6 unchanged sentences

Total net deferred tax assets

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

Net deferred tax assets at June 30, 2023 and 2022 were comprised of the following:

4 unchanged sentences

Accrued vacation

Unrealized loss on investment securities

Lease liability

Total deferred tax assets

1 unchanged sentence

Prepaid expenses

Unrealized loss (gain) on investment securities

Unrealized gain on interest-only strips

Deferred loan costs

Right-of-use asset

Deferred loan costs, net

Total deferred tax liabilities

Net deferred tax assets

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The net deferred tax assets were included in prepaid expenses and other assets in the Consolidated Statements of Financial Condition.

14 unchanged sentences

For the fiscal years ended June 30, 2023 and 2022, there were no tax penalties and no interest charges arising from federal or state taxes.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.

3 unchanged sentences

For a bank holding company such as the Corporation with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis.

The Federal Reserve expects the holding company’s subsidiary bank to be well capitalized under the prompt corrective action regulations.

The FRB expects the holding company’s subsidiary bank to be well capitalized under the prompt corrective action regulations.

If the Corporation was subject to regulatory guidelines for bank holding companies at June 30, 2023, it would have exceeded all regulatory capital requirements.

2 unchanged sentences

Failure to meet minimum requirements can initiate certain mandatory and possibly additional discretionary actions by bank regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements.

In addition to the minimum capital ratios, the Bank has to maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

For calendar 2020 and thereafter, the minimum requirements call for a Tier 1 leverage capital ratio of 4.00%, a CET1 capital ratio of 7.00%, a Tier 1 risk-based capital ratio of 8.50%, and a Total risk-based capital ratio of 10.50%.

Under the standards, in order to be considered well-capitalized, the Bank must have at minimum a Tier 1 leverage capital ratio of 5.00%, a CET1 capital ratio of 6.50%, a Tier 1 risk-based capital ratio of 8.00%, and a Total risk-based capital ratio of 10.00%.

In addition to the minimum capital ratios, the Bank must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5 % above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions.

The Bank’s actual and required minimum capital amounts and ratios at the dates indicated are as follows (dollars in thousands):

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at June 30, 2023 under the regulations of the OCC.

The ability of the Corporation to pay dividends to stockholders depends primarily on the ability of the Bank to pay dividends to the Corporation.

The Corporation and the Bank may not declare or pay cash dividends on or repurchase any of its shares of common stock, if the effect would cause stockholders’ equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration and payment would otherwise violate regulatory requirements.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The ability of the Provident Financial Holdings to pay dividends to stockholders depends primarily on the ability of the Bank to pay dividends to the Provident Financial Holdings.

Provident Financial Holdings and the Bank may not declare or pay cash dividends on or repurchase any of its shares of common stock, if the effect would cause stockholders’ equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration and payment would otherwise violate regulatory requirements.

Generally, savings institutions, such as the Bank, that before and after the proposed distribution are well-capitalized, may make capital distributions during any calendar year up to 100% of net income for the year-to-date plus retained net income for the two preceding years.

1 unchanged sentence

If the Bank, however, proposes to make a capital distribution when it does not meet its capital requirements (or will not following the proposed capital distribution) or that will exceed these net income-based limitations, it must obtain the OCC's approval prior to making such distribution.

In addition, the Bank must file a prior written notice of a dividend with the Federal Reserve.

The Federal Reserve or the OCC may object to a capital distribution based on safety and soundness concerns.

In addition, the Bank must file a prior written notice of a dividend with the FRB.

The FRB or the OCC may object to a capital distribution based on safety and soundness concerns.

Additional restrictions on Bank dividends may apply if the Bank fails the Qualified Thrift Lender test.

In fiscal 2022 and 2021, the Bank declared and paid $ 7.5 million and $ 5.0 million of cash dividends to its parent, the Corporation, respectively.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

In fiscal 2023 and 2022, the Bank declared and paid $ 9.5 million and $ 7.5 million of cash dividends to its parent, Provident Financial Holdings, respectively.

Benefit Plans

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Participants vest immediately in their own contributions with 100 % vesting in the Corporation’s contributions occurring after six years of credited service.

The Corporation’s expense for the plan was approximately $ 297,000 for both the years ended June 30, 2022 and 2021.

The Corporation’s expense for the plan was approximately $ 306,000 and $ 297,000 for the fiscal years ended June 30, 2023 and 2022, respectively.

The Corporation has a multi-year employment agreement and a post-retirement compensation agreement with one executive officer and a post-retirement compensation agreement with another executive officer, which requires payments of certain benefits upon retirement.

At June 30, 2023 and 2022, the accrued liability of the post-retirement compensation agreements was $ 5.7 million and $ 6.8 million, respectively;

costs are being accrued and expensed annually.

For fiscal 2022 and 2021, the accrued expense for these liabilities was $ 217,000 and $ 563,000 , respectively.

costs are being accrued and expensed quarterly.

The decline in the accrued liability was due to an increase in the discount rate and a lower life expectancy, partly offset by a higher current compensation.

For fiscal 2023 and 2022, the accrued (recovery) expense for these liabilities was $( 1.1 million) and $ 217,000 , respectively.

The current obligation for these post-retirement benefits was fully funded consistent with contractual requirements and actuarially determined estimates of the total future obligation.

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The Corporation's contribution to the ESOP plan is discretionary.

During fiscal 2022, there were 20,000 shares that were purchased in the open market and $ 317,000 in cash contributions to fulfill the annual discretionary allocation.

This compares to fiscal 2021 when the Corporation purchased 40,000 shares in the open market to fulfill the annual discretionary allocation.

During fiscal 2023, there were 40,000 shares that were purchased in the open market to fulfill the annual discretionary allocation.

This compares to fiscal 2022 when the Corporation purchased 20,000 shares in the open market and made $ 317,000 in cash contributions to fulfill the annual discretionary allocation.

Since the annual contributions are discretionary, the benefits payable under the ESOP cannot be estimated.

3 unchanged sentences

Benefits are payable upon death, retirement, early retirement, disability or separation from service.

The net expense related to the ESOP for the years ended June 30, 2022 and 2021 was $ 659,000 and $ 577,000 respectively.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The net expense related to the ESOP for the fiscal years ended June 30, 2023 and 2022 was $ 563,000 and $ 659,000 , respectively.

Available shares and cash contributions, if any, are allocated every calendar year end.

and the total allocated at December 31, 2021 and 2020 were 40,000 shares at both dates.

The total ESOP allocation for calendar 2022 was 20,000 shares and $ 317,000 of cash contributions, as compared to 40,000 shares for calendar 2021.

Incentive Plans

As of June 30, 2022, the Corporation had three share-based compensation plans, which are described below.

These plans are the 2013 Equity Incentive Plan (“2013 Plan”), the 2010 Equity Incentive Plan (“2010 Plan”) and the 2006 Equity Incentive Plan (“2006 Plan”, collectively, the “Plans”).

For the years ended June 30, 2022 and 2021, the compensation cost for the Plans was $ 798,000 and $ 1.3 million, respectively.

As of June 30, 2023, the Corporation had four share-based compensation plans:

the 2022 Equity Incentive Plan (“2022 Plan”);

the 2013 Equity Incentive Plan (“2013 Plan”);

the 2010 Equity Incentive Plan (“2010 Plan”);

and the 2006 Equity Incentive Plan (“2006 Plan”, collectively, the “Plans”).

For the fiscal years ended June 30, 2023 and 2022, the compensation cost for the Plans was $ 1.2 million and $ 798,000 , respectively.

Equity Incentive Plans.

The Corporation established and the shareholders approved the Plans for directors, advisory directors, directors emeriti, officers and employees of the Corporation and its subsidiary.

The Corporation established the Plans, which were all approved by shareholders for directors, advisory directors, directors emeriti, officers and employees of the Corporation and its subsidiary.

The 2022 Plan authorizes 175,000 stock options and 200,000 shares of restricted stock.

The 2022 Plan also provides that no person may be granted more than 35,000 stock options or 30,000 shares of restricted stock in any one year.

The 2013 Plan authorizes 300,000 stock options and 300,000 shares of restricted stock.

The 2013 Plan also provides that no person may be granted more than 60,000 stock options or 45,000 shares of restricted stock in any one year.

The 2010 Plan authorized 586,250 stock options and 288,750 shares of restricted stock.

The 2006 Plan authorized 365,000 stock options and 185,000 shares of restricted stock.

As of June 30, 2022, equity awards may be made only from the 2013 plan as no new equity awards can be granted from the 2010 and 2006 Plans.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

As of June 30, 2023, equity awards may be granted only from the 2022 Plan and 2013 Plan, while no new equity awards can be granted from the 2010 Plan and 2006 Plan.

Equity Incentive Plans - Stock Options.

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Risk-free interest rate

In fiscal 2022, there were 14,000 options granted and 3,000 options expired, while no options were exercised or forfeited .

In fiscal 2021, there were no options granted, while 132,000 options were exercised and 5,500 options were forfeited.

As of June 30, 2022 and 2021, there were 43,500 options and 60,500 options available for future grants under the 2013 Plan, respectively.

The following tables summarize the stock option activity in the Plans during the years ended June 30, 2022 and 2021:

As of June 30, 2023, there were 175,000 options available for future grants under the 2022 Plan and 21,000 options available for future grants under the 2013 Plan.

As of June 30, 2022, there were 43,500 options available for future grants under the 2013 Plan.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following tables summarize the stock option activity in the Plans during the fiscal years ended June 30, 2023 and 2022:

Outstanding at June 30, 2021

8 unchanged sentences

The expense is expected to be recognized over a weighted-average period of 2.9 years and 1.6 years, respectively.

The forfeiture

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

rate during both fiscal 2022 and 2021 was 20 percent, and was calculated by using the historical forfeiture experience of all fully vested stock option grants which is reviewed annually.

The forfeiture rate during both fiscal 2023 and 2022 was 20 percent, and was calculated by using the historical forfeiture experience of all fully vested stock option grants which is reviewed annually.

Equity Incentive Plans – Restricted Stock.

3 unchanged sentences

The Corporation recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date.

In fiscal 2022, 1,000 shares of restricted stock were awarded, while 1,000 shares were vested and distributed, and 6,500 shares were forfeited.

In fiscal 2021, no shares of restricted stock were awarded and 112,750 shares were vested and distributed, while 11,500 shares were forfeited.

As of June 30, 2022 and 2021, there were 68,250 and 62,750 shares available for future awards under the 2013 Plan, respectively.

The following table summarizes the restricted stock activity for the years ended June 30, 2022 and 2021:

As of June 30, 2023, there were 200,000 shares available for future awards under the 2022 Plan and 18,250 shares available for future awards under the 2013 Plan.

As of June 20, 2022, there were only 68,250 shares available for future awards under the 2013 Plan.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following table summarizes the restricted stock activity for the fiscal years ended June 30, 2023 and 2022:

Weighted-Average

6 unchanged sentences

Expected to vest at June 30, 2023

As of June 30, 2022 and 2021, the unrecognized compensation expense was $ 994,000 and $ 1.8 million, respectively, related to unvested share-based compensation arrangements with respect to restricted stock issued under the Plans, and reported as a reduction to stockholders’ equity.

As of June 30, 2023 and 2022, the unrecognized compensation expense was $ 544,000 and $ 994,000 , respectively, related to unvested share-based compensation arrangements with respect to restricted stock issued under the Plans, and reported as a reduction to stockholders’ equity.

This expense is expected to be recognized over a weighted-average period of 3.1 years and 0.9 years, respectively.

Similar to stock options, a forfeiture rate of 20 percent was applied to the restricted stock compensation expense calculations in fiscal 2023 and 2022.

For the fiscal years ended June 30, 2022 and 2021, the fair value of shares vested and distributed was $ 17,000 and $ 2.1 million, respectively.

For the fiscal years ended June 30, 2023 and 2022, the fair value of shares vested and distributed was $ 1.1 million and $ 17,000 , respectively.

Earnings Per Share

1 unchanged sentence

Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the Corporation.

As of June 30, 2022 and 2021, there were outstanding options to purchase 431,000 shares and 417,000 shares of the Corporation’s common stock, respectively, of which 130,000 shares and 116,000 shares, respectively, were excluded from the diluted EPS computation as their effect was anti-dilutive.

As of June 30, 2023 and 2022, there were outstanding options to purchase 434,500 shares and 431,000 shares of the Corporation’s common stock, of which 434,500 shares and 130,000 shares, respectively, were excluded from the diluted EPS computation as their effect was anti-dilutive.

As of June 30, 2023 and 2022, there were outstanding restricted stock awards of 51,000 shares and 94,750 shares, respectively.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following table provides the basic and diluted EPS computations for the fiscal years ended June 30, 2023 and 2022, respectively:

5 unchanged sentences

Restricted stock

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

For the Year Ended June 30, 2022

14 unchanged sentences

Total minimum payments required

For the years ended June 30, 2022 and 2021, the lease and operating commitment expense was approximately $ 1.8 million and $ 1.7 million, respectively.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

For the fiscal years ended June 30, 2023 and 2022, the lease and operating commitment expense was approximately $ 1.9 million and $ 1.8 million, respectively.

The Bank sold single-family mortgage loans to unrelated third parties with standard representation and warranty provisions in the ordinary course of its business activities.

6 unchanged sentences

The terms of the indemnity vary from contract to contract and the amount of the indemnification liability, if any, cannot be determined.

The Corporation also enters into other contracts and agreements;

The Corporation also enters into other contracts and

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

such as, loan sale agreements, litigation settlement agreements, confidentiality agreements, loan servicing agreements, leases and subleases, among others, in which the Corporation agrees to indemnify third parties for acts by the Corporation’s agents, assignees and/or sub-lessees, and employees.

15 unchanged sentences

Commitments to extend credit on loans to be held for investment

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following table provides information regarding the allowance for loan losses for the undisbursed funds and commitments to extend credit on loans to be held for investment for the years ended June 30, 2022 and 2021:

(In Thousands)

Balance, beginning of the year

(Recovery) provision

Balance, end of the year

3 unchanged sentences

ASC 825 permits entities to elect to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the “Fair Value Option”) at specified election dates.

At each subsequent reporting date, an entity is required to report unrealized gains and losses on items in earnings for which the fair value option has been elected.

At each subsequent reporting date, an entity is

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

required to report unrealized gains and losses on items in earnings for which the fair value option has been elected.

The objective of the Fair Value Option is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.

13 unchanged sentences

Valuation techniques include the use of pricing models, discounted cash flow models and similar techniques.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

ASC 820 requires the Corporation to maximize the use of observable inputs and minimize the use of unobservable inputs.

1 unchanged sentence

The Corporation’s financial assets and liabilities measured at fair value on a recurring basis consist of investment securities available for sale, loans held for investment at fair value and interest-only strips;

while non-performing loans and MSA are measured at fair value on a nonrecurring basis.

while non-performing loans and mortgage servicing assets (“MSA”) are measured at fair value on a nonrecurring basis.

Investment securities - available for sale are primarily comprised of U.S.

government agency MBS, U.S.

government sponsored enterprise MBS and privately issued CMO.

The Corporation utilizes quoted prices in active markets for similar securities for its fair value measurement of MBS (Level 2) and broker price indications for similar securities in non-active markets for its fair value measurement of the privately issued CMO (Level 3).

government sponsored enterprise MBS and private issue CMO.

Loans held for investment at fair value are primarily single-family loans which have been transferred from loans held for sale.

2 unchanged sentences

The non-performing loans are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.

The fair value of a non-performing loan is determined based on an observable market price or current appraised value of the underlying collateral.

The fair value of a non-performing loan is

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

determined based on an observable market price or current appraised value of the underlying collateral.

Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the collateral.

13 unchanged sentences

While management believes the Corporation’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following fair value hierarchy table presents information at the dates indicated about the Corporation’s assets measured at fair value on a recurring basis:

The following fair value hierarchy tables present information at the dates indicated about the Corporation’s assets and liabilities measured at fair value on a recurring basis:

Fair Value Measurement at June 30, 2023 Using:

8 unchanged sentences

Total liabilities

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

Fair Value Measurement at June 30, 2022 Using:

8 unchanged sentences

Total liabilities

The following is a reconciliation of the beginning and ending balances during the periods shown of recurring fair value measurements recognized in the Consolidated Statements of Financial Condition using Level 3 inputs:

The following tables provide a reconciliation of the beginning and ending balances during the periods shown of recurring fair value measurements recognized in the Consolidated Statements of Financial Condition using Level 3 inputs:

Fair Value Measurement

11 unchanged sentences

(1) The valuation of loans held for investment at fair value includes management’s estimate of the specific credit risk attributes of each loan, in addition to the quoted secondary-market prices which account for interest rate characteristics.

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

Fair Value Measurement

11 unchanged sentences

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following fair value hierarchy table presents information about the Corporation’s assets measured at fair value at the dates indicated on a nonrecurring basis:

7 unchanged sentences

Mortgage servicing assets

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

The following table presents additional information about valuation techniques and inputs used for assets and liabilities, including derivative financial instruments, which are measured at fair value and categorized within Level 3 as of June 30, 2023:

6 unchanged sentences

Comparability adjustment

( 0.6 %) - ( 5.7 %) ( 1.6 %)

Loans held for investment, at fair value

53 unchanged sentences

Investment securities - held to maturity:

The investment securities - held to maturity consist of time deposits at CRA qualified minority financial institutions, U.S.

The investment securities - held to maturity consist of time deposits at Community Reinvestment Act qualified minority financial institutions, U.S.

SBA securities, U.S.

government sponsored enterprise MBS and U.S.

government sponsored enterprise CMOs.

government sponsored enterprise CMO.

Due to the short-term nature of the time deposits, the principal balance approximated fair value (Level 2).

For the MBS, the U.S.

SBA securities and U.S.

government sponsored enterprise CMOs, the Corporation utilizes quoted prices in active markets for similar securities for its fair value measurement (Level 2).

government sponsored enterprise MBS and CMO, the Corporation utilizes quoted prices in active markets for similar securities for its fair value measurement (Level 2).

FHLB – San Francisco stock:

2 unchanged sentences

The fair value of time deposits is estimated using a discounted cash flow calculation.

The discount rate is based upon rates currently offered for deposits of similar remaining maturities.

The fair value of transaction accounts (checking, money market and savings accounts) is estimated using a discounted cash flow calculation and management estimates of current market conditions.

The discount rate is based upon observable inputs, including rates currently offered for deposits of similar remaining maturities.

The fair value of transaction accounts (checking, money market and savings accounts) are equal to the carrying amounts payable on demand or estimated using a discounted cash flow calculation and management estimates of current market conditions.

The fair value of borrowings has been estimated using a discounted cash flow calculation.

10 unchanged sentences

The largest portion of the Corporation’s revenue is from interest income, which is not in the scope of ASC 606.

All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized in non-interest income.

All the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized in non-interest income.

If a contract is determined to be within the scope of ASC 606, the Corporation recognizes revenue as it satisfies a performance obligation.

2 unchanged sentences

Examples of revenue earned at a point in time are automated teller machine ("ATM") transaction fees, wire transfer fees, overdraft fees and interchange fees.

Revenue is primarily based on the number and type of transactions that are generally derived from transactional information accumulated by the Bank's systems and is recognized immediately as the transactions occur or upon providing the service to complete the customer's transaction.

Revenue is primarily based on the number and type of transactions that are generally derived from transactional information accumulated by the Corporation’s systems and is recognized immediately as the transactions occur or upon providing the service to complete the customer's transaction.

The Corporation is generally the principal in these contracts, with the exception of interchanges fees, in which case the Corporation is acting as the agent and records revenue net of expenses paid to the principal.

11 unchanged sentences

(1) Not in scope of ASC 606.

(2) Includes BOLI of $ 188 thousand and $ 191 thousand and net gain on sale of loans of $ 40 thousand and net loss on sale of loans of $ 103 thousand for the years ended June 30, 2022 and 2021, respectively, which are not in scope of ASC 606.

For the fiscal years ended June 30, 2022 and 2021, substantially all of the Corporation's revenues within the scope of ASC 606 are for performance obligations satisfied at a specified date.

(2) Includes BOLI of $ 186 thousand and $ 188 thousand and net gain on sale of loans of $ 124 thousand and net gain on sale of loans of $ 40 thousand for the fiscal years ended June 30, 2023 and 2022, respectively, which are not in scope of ASC 606.

For the fiscal years ended June 30, 2023 and 2022, substantially all the Corporation’s revenues within the scope of ASC 606 were for performance obligations satisfied at a specified date.

Revenues recognized in scope of ASC 606:

24 unchanged sentences

Stockholders’ equity

Condensed Statements of Operations

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

Condensed Statements of Operations

Year Ended June 30,

13 unchanged sentences

Equity in undistributed earnings of the Bank

(Increase) decrease in other assets

Decrease in other liabilities

Increase in other assets

Increase (decrease) in other liabilities

Net cash provided by operating activities

Cash flow from financing activities:

Exercise of stock options

Treasury stock purchases

4 unchanged sentences

Cash and cash equivalents at end of year

Government Assistance

The Employee Retention Tax Credit (“ERTC”) was created as part of the CARES Act to encourage businesses to continue paying employees by providing a credit to the eligible employer for wages paid to eligible employees.

The refundable credit is available for wages paid from March 13, 2020 through September 30, 2021 and can be utilized even if companies received Paycheck Protection Program (“PPP”) loans.

For calendar year 2021, the maximum ERTC was $ 7,000 per eligible employee per quarter.

The 2021 credit was computed at a rate of 70 percent of qualified wages paid, up to $ 10,000 per eligible employee, per quarter.

For Eligible Employers with less than 500 average full-time employees in 2019 and experienced a decline in gross receipts in current quarter or prior quarter compared to the same quarter in calendar year 2019, the credit was available for all employees receiving wages in 2021.

The Corporation recognized an ERTC of $ 1.2 million in the first quarter of fiscal 2022 and $ 2.4 million in the fourth quarter of fiscal 2021.

The ERTC was recorded in the Consolidated Statement of Operations for the respective periods under Salaries and employee benefits expense as a reduction to the total expense and the receivables were recorded in the

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

Consolidated Statements of Financial Condition under Prepaid expenses and other assets.

Also, the ERTC is a non-taxable credit for state income tax purposes.

As of June 30, 2022 and 2021, the total outstanding ERTC was $ 3.6 million and $ 2.4 million, respectively.

Subsequent Events

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

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

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 9A. Controls and Procedures