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Item 7. Management’s Discussion and Analysis

2024-08-30 compared with 2023-09-05 · 144 added, 189 removed, 178 unchanged (65% of the section changed)

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These statements relate to the Corporation’s financial condition, liquidity, results of operations, plans, objectives, future performance or business.

You should not place undue reliance on these statements as they are subject to various risks and uncertainties.

When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Corporation may make.

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There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements.

Factors which could cause actual results to differ materially include, but are not limited to the following:

potential adverse impacts to economic conditions in our local market areas, other markets where the Corporation has lending relationships, or other aspects of the Corporation's business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war including Russia’s invasion of Ukraine, as well as supply chain disruptions;

higher inflation and the impact of current and future monetary policies of the FRB in response thereto;

Factors which could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements include, but are not limited to:

● adverse economic conditions in our local market areas or other markets where we have lending relationships

● effects of employment levels, labor shortages, inflation, a recession or slowed economic growth;

● changes in the interest rate environment, including the past increases in the Federal Reserve benchmark rate and the duration of such increased levels, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity;

● the impact of inflation and the Federal Reserve monetary policy;

● the effects of any Federal government shutdown;

● credit risks of lending activities, including loan delinquencies, write-offs, changes in our ACL, and provision for credit losses;

● increased competitive pressures;

● quality and composition of our securities portfolio and the impact of adverse changes in the securities markets;

● fluctuations in deposits;

● secondary market conditions for loans and our ability to sell loans in the secondary market;

● liquidity issues, including our ability to borrow funds or raise additional capital, if necessary;

● expectations regarding key growth initiatives and strategic priorities;

● the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment;

the credit risks of lending activities, including changes in the level and trend of loan delinquencies and charge-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the residential and commercial real estate markets and may lead to increased losses and non-performing assets and may result in our allowance for loan losses not being adequate to cover actual losses and require us to materially increase our reserve;

changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;

the transition from LIBOR to new interest rate benchmarks;

fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas;

results of examinations of the Corporation by the FRB or of the Bank by the OCC or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to enter into a formal enforcement action or to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements and restrictions on us, any of which could adversely affect our liquidity and earnings;

legislative or regulatory changes that adversely affect our business including changes in banking, securities and tax law, and in regulatory policies and principles, or the interpretation of regulatory capital or other rules, and other governmental initiatives affecting the financial services industry;

the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;

adverse changes in the securities markets;

our ability to attract and retain deposits;

our ability to control operating costs and expenses;

the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

difficulties in reducing risk associated with the loans on our balance sheet;

staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;

disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions;

our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

our ability to manage loan delinquency rates;

our ability to retain key members of our senior management team;

costs and effects of litigation, including settlements and judgments;

increased competitive pressures among financial services companies and non-financial services companies;

changes in consumer spending, borrowing and savings habits;

the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;

● results of examinations of us by regulatory authorities, which may the possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action against us or our bank subsidiary which could require us to increase our ACL, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings;

● legislative and regulatory changes, including changes in banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules;

● use of estimates in determining the fair value of assets, which may prove incorrect;

● disruptions or security breaches, or other adverse events, failures or interruptions in or attacks on our information technology systems or on the our third-party vendors;

● staffing fluctuations in response to product demand or corporate implementation strategies;

● our ability to pay dividends on our common stock;

the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets;

the inability of key third-party providers to perform their obligations to us;

changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;

the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business;

other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services;

and other risks detailed in this report and in the Corporation’s other reports filed with or furnished to the SEC.

● environmental, social and governance goals;

● effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil unrest and other external events;

● and other factors described in this Form 10-K and in Quarterly Reports on Form 10-Q and other reports filed with and furnished to the Securities and Exchange Commission (“SEC”), which are available on our website at www.myprovident.com and on the SEC’s website at www.sec.gov .

Forward-looking statements are based upon management’s beliefs and assumptions at the time they are made.

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The Corporation operates in a single business segment through the Bank.

The Bank's activities include attracting deposits, offering banking services and originating and purchasing single-family, multi-family, commercial real estate, construction and, to a lesser extent, other mortgage, commercial business and consumer loans.

Deposits are collected primarily from 13 banking locations located in Riverside and San Bernardino counties in California.

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The discussion and analysis of the Corporation’s financial condition and results of operations is based upon the Corporation’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of these financial statements requires management to make estimates that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the consolidated financial statements.

The preparation of these financial statements requires management to make difficult, subjective or complex judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the consolidated financial statements and, therefore, management considers the following to be critical accounting estimates.

These estimates involve a significant level of uncertainty at the time they are made, and changes in these estimates that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

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See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements.

Allowance for loan losses.

The allowance for loan losses involves significant judgment and assumptions by management, which has a material impact on the carrying value of net loans held for investment.

Management considers the accounting

estimate related to the allowance for loan losses a critical accounting estimate because it is highly susceptible to change from period to period, requiring management to make assumptions about probable incurred losses inherent in the loans held for investment at the date of the Consolidated Statements of Financial Condition.

The impact of a sudden large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings.

The allowance is based on two principles of accounting:

(i) ASC 450, “Contingencies,” which requires that losses be accrued when they are probable of occurring and can be estimated;

and (ii) ASC 310, “Receivables.” The allowance has two components:

collectively evaluated allowances and individually evaluated allowances on loans held for investment.

Each of these components is based upon estimates that can change over time.

The allowance is based on historical experience and as a result can differ from actual losses incurred in the future.

The Corporation also applies qualitative loss factors 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 effect of events that have occurred but are not yet evidenced in the historical data.

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

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

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

The use of these techniques is inherently subjective and the actual losses could be greater or less than the estimates, which, can materially affect amounts recognized in the Consolidated Statements of Financial Condition and Consolidated Statements of Operations.

The Corporation assesses loans individually and classifies loans when the accrual of interest has been discontinued, loans have been restructured or management has serious doubts about the future collectability of principal and interest, even though the loans may currently be performing.

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

The Corporation measures each non-performing loan based on the fair value of its collateral, less selling costs, or discounted cash flow and charges off those loans or portions of loans deemed uncollectible.

Non-performing loans are charged-off to their fair 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.

For restructured loans, the charge-off occurs when the loan becomes 90 days delinquent;

and where borrowers file bankruptcy, the charge-off occurs when the loan becomes 60 days delinquent.

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.

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

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

For non-performing commercial real estate loans, an individually evaluated allowance is calculated based on the loan's fair value and if the fair value is higher than the individual loan balance, no allowance is required.

A restructured loan is a loan which the Bank, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Bank would not otherwise consider.

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

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

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

● A reduction in the principal loan balance;

● Extensions, deferrals, renewals and rewrites.

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

Based on published guidance with respect to restructured loans from certain banking regulators and to conform to general practices within the banking industry, the Bank may determine that it is appropriate to maintain certain restructured loans on accrual status because there is reasonable assurance of repayment and performance, consistent with the modified terms based upon a current, well-documented credit evaluation.

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

The loans may be upgraded and placed on accrual status once there is a sustained period of payment performance (usually six months or, for loans that have been restructured more than once, 12 months) and there is a reasonable assurance that the payments will continue;

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

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.

To qualify for restructuring, a borrower must provide evidence of their creditworthiness such as, current financial statements, their most recent income tax returns, current paystubs, current W-2s, and most recent bank statements, among other documents, which are then verified by the Bank.

The Bank re-underwrites the loan with the borrower’s updated financial information, new credit report, current loan balance, new interest rate, remaining loan term, updated property value and modified payment schedule, among other considerations, to determine if the borrower qualifies.

Interest is not accrued on any loan when its contractual payments are more than 90 days delinquent or if the loan is deemed impaired.

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

A non-performing loan may be restored to accrual status when delinquent principal and interest payments are brought current and future monthly principal and interest payments are expected to be collected.

When a loan is categorized as non-performing, all previously accrued but uncollected interest is reversed in the current operating results.

When a full recovery of the outstanding principal loan balance is in doubt, subsequent payments received are first applied as a recovery of principal charged-off and then to unpaid principal.

This is referred to as the cost recovery method.

A loan may be returned to accrual status at such time as the loan is brought fully current as to both principal and interest, and, in management’s judgment, such loan is considered to be fully collectible on a timely basis.

However, the Bank’s policy also allows management to continue the recognition of interest income on certain non-performing loans.

This is referred to as the cash basis method under which the accrual of interest is suspended and interest income is recognized only when collected.

This policy applies to non-performing loans that are considered to be fully collectible but the timely collection of payments is in doubt.

Allowance for Credit Losses.

The ACL involves significant judgment and assumptions by management, which has a material impact on the carrying value of financial assets.

The Corporation adopted ASC 326 using the prospective transition approach for all financial assets measured at amortized cost and off-balance sheet credit exposures.

Results for reporting periods beginning after July 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards.

As required by ASC 326, on July 1, 2023 the Corporation implemented CECL and recognized a $1.2 million one-time increase to its ACL, which was recorded directly to retained earnings.

Under ASC 326 , the ACL is a valuation account that is deducted from the related loan’s amortized cost basis to present the net amount expected to be collected on the loans.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

Management believes the ACL on loans held for investment is maintained at a level sufficient to provide for expected losses on the Corporation’s loans held for investment based on historical loss experience, current conditions, and reasonable and supportable forecasts.

The provision for (recovery of) credit losses is charged (credited) against operations on a quarterly basis, as necessary, to maintain the ACL at appropriate levels.

Future adjustments to the ACL 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.

Provision for Income Taxes.

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Additionally, certain fees are collected from depositors, such as returned check fees, deposit account service charges, ATM fees, IRA/KEOGH fees, safe deposit box fees, wire transfer fees and overdraft protection fees, among others.

The Corporation intends to improve its community banking business by moderately increasing total assets by increasing single-family, multi-family, commercial real estate, construction and commercial business loans.

In addition, the Corporation intends to decrease the percentage of retail time deposits in its deposit base and to increase the percentage of lower cost checking and savings accounts and to diversify the deposit instruments, including the use of brokered certificates of deposit and State of California’s time deposits, subject to market conditions and the Corporation’s funding needs.

This strategy is intended to improve core revenue through a higher net interest margin and ultimately, coupled with the growth of the Corporation, an increase in net interest income.

While the Corporation’s long-term strategy is for moderate growth, management recognizes that growth may be affected by general economic conditions and other factors.

The Corporation plans to enhance its community banking business by moderately increasing its total assets, focusing on expanding single-family, multi-family, commercial real estate, construction, and commercial business loans.

Additionally, the Corporation aims to reduce the percentage of retail time deposits in its deposit base while increasing the proportion of lower-cost checking and savings accounts.

To diversify its deposit instruments, the Corporation will consider utilizing brokered certificates of deposit and the State of California’s time deposits, subject to market conditions and its funding

This strategy is designed to improve core revenue by achieving a higher net interest margin and, combined with the Corporation’s growth, ultimately increase net interest income.

While the Corporation’s long-term strategy targets moderate growth, management acknowledges that this growth may be influenced by general economic conditions and other factors.

Investment services operations primarily consist of selling alternative investment products such as annuities and mutual funds to the Bank’s depositors.

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Since the majority of the Corporation’s loans are secured by real estate located within California, significant declines in the value of California real estate may also inhibit the Corporation’s ability to recover on defaulted loans by selling the underlying real estate.

For further details on risk factors and uncertainties, see “Safe-Harbor Statement” included above in this Item 7, and Item 1A, "Risk Factors.”

Comparison of Financial Condition at June 30, 2024 and 2023

Total assets increased $145.9 million, or 12%, to $1.33 billion at June 30, 2023 from $1.19 billion at June 30, 2022.

The increase was primarily attributable to an increase in loans held for investment and, to a lesser extent, an increase in cash and cash equivalents, partly offset by a decrease in investment securities.

Total cash and cash equivalents, primarily excess cash deposited with the Federal Reserve Bank of San Francisco, increased $42.4 million, or 181%, to $65.8 million at June 30, 2023 from $23.4 million at June 30, 2022.

The increase was consistent with the Corporation’s strategy of adequately managing credit and liquidity risk.

Total assets decreased $60.7 million, or 5%, to $1.27 billion at June 30, 2024 from $1.33 billion at June 30, 2023.

The decrease was primarily attributable to decreases in loans held for investment, investment securities and cash and cash equivalents.

Total cash and cash equivalents, primarily excess cash deposited with the FRB of San Francisco, decreased $14.4 million, or 22%, to $51.4 million at June 30, 2024 from $65.8 million at June 30, 2023.

The decrease was consistent with the Corporation’s strategy of adequately managing credit and liquidity risk.

Total investment securities (held to maturity and available for sale) decreased $24.6 million, or 16%, to $131.9 million at June 30, 2024 from $156.5 million at June 30, 2023.

The decrease was the result of scheduled and accelerated principal payments on investment securities.

During fiscal 2023, the Bank did not purchase any investment securities, while in fiscal 2022, the Bank purchased $19.0 million of government sponsored enterprise mortgage-backed securities and collateralized mortgage obligations.

The Bank did not sell any investment securities during fiscal 2023 and 2022.

During fiscal 2024 and 2023, the Bank did not purchase or sell any investment securities.

For additional information on investment securities, see Note 2 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Loans held for investment, net increased $137.6 million, or 15% to $1.08 billion at June 30, 2023 from $940.0 million at June 30, 2022.

In fiscal 2023, the Bank originated $237.1 million of loans held for investment, down 21% from $299.8 million during fiscal 2022, in both years consisting primarily of single-family, multi-family and commercial real estate loans.

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

Total loan principal payments in fiscal 2023 were $102.3 million, down 54% from $221.3 million in fiscal 2022, due primarily to the mortgage interest rate increases during fiscal 2023.

There was no REO acquired in the settlement of loans in both fiscal 2023 and fiscal 2022.

Loans held for investment, net decreased $24.7 million, or 2%, to $1.05 billion at June 30, 2024 from $1.08 billion at June 30, 2023.

In fiscal 2024, the Bank originated $75.5 million of loans held for investment, down 68% from $237.1 million during fiscal 2023.

In both years these loans consisted primarily of single-family, multi-family and commercial real estate loans.

The Bank did not purchase any loans in fiscal 2024 or 2023.

Management attributes the decrease in loan originations to the higher interest rate environment and overall uncertainty in the economy.

Total loan principal payments in fiscal 2024 were $99.9 million, down 2% from $102.3 million in fiscal 2023.

There was no REO in both fiscal 2024 and 2023.

The balance of multi-family, commercial real estate, construction and commercial business loans, net of undisbursed loan funds, decreased $22.6 million, or 4%, to $532.6 million at June 30, 2024 from $555.2 million at June 30, 2023, and represented 51% and 52% of loans held for investment, respectively.

The balance of single-family loans held for investment increased $140.6 million, or 37%, to $518.8 million at June 30, 2023, from $378.2 million at June 30, 2022.

The balance of single-family loans held for investment decreased slightly to $518.1 million at June 30, 2024, from $518.8 million at June 30, 2023.

For additional information on loans held for investment, see Note 3 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

FHLB – San Francisco and other equity investments increased $603,000, or 6%, to $10.1 million at June 30, 2024 from $9.5 million at June 30, 2023.

The increase was due to a VISA stock conversion and the purchase of additional FHLB stock.

In May 2024, the Bank converted its Class B1 VISA stock to Class B2 VISA stock and Class C VISA stock.

Subsequently, the Bank recorded the Class C VISA stock at its fair value on its Consolidated Statements of Condition.

of June 30, 2024, the fair value of the Class C VISA stock was $540,000.

The Bank also purchased $63,000 of required additional FHLB - San Francisco stock during the year.

Total deposits decreased $62.3 million, or 7%, to $888.3 million at June 30, 2024 from $950.6 million at June 30, 2023.

Transaction accounts decreased $115.1 million, or 16%, to $614.5 million at June 30, 2024 from $729.6 million at June 30, 2023, while time deposits increased $53.0 million, or 24%, to $273.9 million at June 30, 2024 from $220.9 million at June 30, 2023.

The increase in time deposits was primarily attributable to the utilization of brokered certificates of deposit.

Outstanding brokered certificates of deposit as of June 30, 2023 totaled $106.4 million.

The increase in time deposits includes the increased utilization of brokered certificates of deposit.

Brokered certificates of deposit increased $25.4 million, or 24%, to $131.8 million at June 30, 2024 from $106.4 million at June 30, 2023.

As of June 30, 2024 and 2023, the percentage of transaction accounts to total deposits was 69% and 77%, respectively.

Noninterest-bearing deposits as a percentage of total deposits decreased to 11% at June 30, 2023 from 13% at June 30, 2022.

Total retail deposits, defined as total deposits excluding brokered certificates of deposit, decreased by $111.3 million, or 12% to $844.2 million at June 30, 2023 from $955.5 million at June 30, 2022, due primarily to the decline of deposit balances related to a number of customers seeking higher interest rates elsewhere.

Total retail deposits, defined as total deposits excluding brokered certificates of deposit, decreased by $87.7 million, or 10% to $756.5 million at June 30, 2024 from $844.2 million at June 30, 2023, due primarily to the decline of transaction account balances related to some customers seeking higher interest rates elsewhere.

For additional information on deposits, see Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Borrowings, consisting of FHLB – San Francisco advances increased $3.5 million, or 1%, to $238.5 million at June 30, 2024 from $235.0 million at June 30, 2023.

The increase was primarily due to new advances to fund the increase of loans held for investment.

The weighted-average maturity of the Corporation’s FHLB – San Francisco advances was approximately 12 months at June 30, 2023, down from 16 months at June 30, 2022.

The increase was primarily due to new advances to augment the decrease in deposits.

The weighted average maturity of the Corporation’s FHLB – San Francisco advances was approximately 13 months at June 30, 2024, up from 12 months at June 30, 2023.

For additional information on borrowings, see Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Total stockholders’ equity increased $1.0 million or 1% to $129.7 million at June 30, 2023 from $128.7 million at June 30, 2022, primarily as a result of net income and the amortization of stock-based compensation in fiscal 2023, partly offset by stock repurchases (see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Form 10-K) and quarterly cash dividends paid to shareholders.

Total stockholders’ equity increased slightly to $129.9 million at June 30, 2024 from $129.7 million at June 30, 2023, primarily as a result of net income and the amortization of stock-based compensation in fiscal 2024, partly offset by stock repurchases (see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Form 10-K) and quarterly cash dividends paid to shareholders.

Comparison of Operating Results for the Fiscal Years Ended June 30, 2024 and 2023

The Corporation recorded net income of $8.6 million, or $1.19 per diluted share, for the fiscal year ended June 30, 2023, down $501,000, or 6%, from $9.1 million, or $1.22 per diluted share, for the fiscal year ended June 30, 2022.

The decrease in net income in fiscal 2023 compared to fiscal 2022 was primarily attributable to a $2.8 million increase in the provision for loan losses as a result of a $374,000 provision for loan losses recorded during fiscal 2023 compared to a $2.5 million recovery from the allowance for loan losses during fiscal 2022, a $2.4 million increase in non-interest expense and a $641,000 decrease in non-interest income, partly offset by a $5.4 million increase in net interest income.

The Corporation's efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, improved slightly to 69% in fiscal 2023 from 71% in fiscal 2022 as a result of the increase in net interest income.

The Corporation recorded net income of $7.4 million, or $1.06 per diluted share, for the fiscal year ended June 30, 2024, down $1.2 million, or 14%, from $8.6 million, or $1.19 per diluted share, for the fiscal year ended June 30, 2023.

The decrease in net income was primarily attributable to a $2.1 million decrease in net interest income, a $270,000 increase in non-interest expense and a $134,000 decrease in non-interest income, partly offset by a $437,000 change in the provision for credit losses resulting from a $63,000 recovery of credit losses recorded during fiscal 2024 compared to a $374,000 provision for credit losses during fiscal 2023.

The Corporation's efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, increased to 73% in fiscal 2024 from 69% in fiscal 2023 due to both an increase in non-interest expenses and a decline in revenues.

Return on average assets in fiscal 2024 decreased to 0.57% from 0.68% in fiscal 2023 and return on average stockholders' equity in fiscal 2024 decreased to 5.62% from 6.58% in fiscal 2023.

Net Interest Income.

Net interest income increased $5.4 million, or 17%, to $37.0 million in fiscal 2023 from $31.6 million in fiscal 2022.

This increase resulted from an increase in the net interest margin and, to a lesser extent, an increase in the average balance of interest-earning assets.

The net interest margin increased 27 basis points to 2.99% in fiscal 2023 from 2.72% in fiscal 2022, due primarily to a 73 basis points increase in the average yield on interest-earning assets, partly offset by a 50 basis points increase in the average cost of interest-bearing liabilities.

The average balance of interest-

earning assets increased $75.4 million, or 7%, to $1.24 billion in fiscal 2023 from $1.16 billion in fiscal 2022.

Net interest income decreased $2.1 million, or 6%, to $34.9 million in fiscal 2024 from $37.0 million in fiscal 2023.

This decrease resulted from interest expense on interest-bearing liabilities increasing at a faster pace than interest income earned on interest-earning assets.

Net interest margin decreased 21 basis points to 2.78% in fiscal 2024 from 2.99% in fiscal 2023, due to the decline in net interest income coupled with an increase in average interest earning assets.

The average balance of interest-earning assets increased $18.6 million, or 2%, to $1.25 billion in fiscal 2024 from $1.24 billion in fiscal 2023.

The average balance of interest-bearing liabilities increased $16.8 million, or 2%, to $1.13 billion during fiscal 2024 as compared to $1.12 billion during fiscal 2023.

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Total interest income increased $8.7 million, or 19%, to $54.7 million for fiscal 2024 from $46.0 million for fiscal 2023.

The increase was primarily attributable to increases in all interest-earning asset categories, primarily loans receivable.

The increase was primarily attributable to an increase of interest income from loans receivable.

Interest income on loans receivable increased $8.0 million, or 19%, to $50.2 million in fiscal 2024 from $42.2 million in fiscal 2023.

This increase was attributable to a higher average loan balance and, to a lesser extent, a higher average loan yield.

The average balance of loans receivable increased $158.7 million, or 18%, to $1.03 billion during fiscal 2023 from $870.3 million during fiscal 2022.

The weighted average loan yield during fiscal 2023 increased 40 basis points to 4.10% from 3.70% in fiscal 2022, due primarily to the increase in market interest rates resulting from recent FOMC increases in the targeted federal funds rate since March 2022.

Interest income from investment securities increased $263,000, or 14%, to $2.2 million in fiscal 2023 from $1.9 million in fiscal 2022.

This increase was primarily a result of an increase in the average yield, partly offset by a decrease in the average balance.

The increase was attributable to a higher average loan yield and, to a lesser extent, a higher average loan balance.

The weighted average loan yield during fiscal 2024 increased 59 basis points to 4.69% from 4.10% in fiscal 2023,

reflecting new loans being originated at higher interest rates and adjustable rate loans repricing higher due to overall higher market interest rates resulting from the FOMC increases in the targeted federal funds rate during the latter half of fiscal

The average balance of loans receivable increased $40.6 million, or 4%, to $1.07 billion during fiscal 2024 from $1.03 billion during fiscal 2023.

Interest income on investment securities decreased $109,000, or 5%, to $2.1 million in fiscal 2024 from $2.2 million in fiscal 2023, due to a decrease in the average balance, partly offset by an increase in the average yield..

The average balance of investment securities decreased $27.5 million, or 16%, to $144.5 million in fiscal 2024 from $172.0 million in fiscal 2023 as a result of scheduled and accelerated principal payments on mortgage-backed securities.

The average yield on investment securities increased 17 basis points to 1.43% for fiscal 2024 from 1.26% for fiscal 2023.

The increase in the average yield of investment securities was primarily attributable to a lower premium amortization resulting from lower principal payments.

Total premium amortization in fiscal 2023 was $791,000, down $760,000, or 49%, from $1.6 million in fiscal 2022.

The average balance of investment securities decreased $34.9 million, or 17%, to $172.0 million in fiscal 2023 from $206.9 million in fiscal 2022 as a result of scheduled and accelerated principal payments on mortgage-backed securities.

During fiscal 2023, the Bank received $556,000 of cash dividends from its FHLB - San Francisco stock, an increase of $67,000 or 14% from the $489,000 of cash dividends received in fiscal 2022, resulting in an average yield of 6.55% on FHLB stock during 2023 compared to 5.98% during 2022.

During fiscal 2023, the Bank purchased $1.3 million of required FHLB - San Francisco stock as a result of its increased borrowings.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, increased $902,000, or 518%, to $1.1 million in fiscal 2023 from $174,000 in fiscal 2022, due to a higher average yield, partly offset by a lower average balance.

The average yield increased 382 basis points to 4.05% in fiscal 2023 from 0.23% in fiscal 2022, resulting from increases in the targeted federal funds interest rate during fiscal 2023.

Total premium amortization in fiscal 2024 was $532,000, down $259,000, or 33%, from $791,000 in fiscal 2023.

During fiscal 2024, the Bank received $802,000 of cash dividends from the FHLB - San Francisco and other equity investments, an increase of $246,000 or 44% from the $556,000 of cash dividends received in fiscal 2023, resulting in an average yield of 8.35% during fiscal 2024 compared to 6.55% during fiscal 2023.

Interest income on interest-earning deposits, primarily cash deposited at the FRB of San Francisco, increased $598,000, or 56%, to $1.7 million in fiscal 2024 from $1.1 million in fiscal 2023, due to a higher average yield and, to a lesser extent, a higher average balance.

The average yield increased 133 basis points to 5.38% in fiscal 2024 from 4.05% in fiscal 2023, resulting from increases in the targeted federal funds interest rate since March 2022 to July 2023.

The average balance of interest-earning deposits increased $4.4 million, or 17%, to $30.6 million in fiscal 2024 from $26.2 million in fiscal 2023.

Interest Expense.

Total interest expense for fiscal 2024 was $19.8 million compared to $9.0 million for fiscal 2023, an increase of $10.8 million or 120%.

This increase was primarily attributable to a higher interest expense on borrowings and, to a lesser extent, a higher interest expense on deposits, particularly time deposits.

The average cost of interest-bearing liabilities was 0.80% during fiscal 2023, up 50 basis point from 0.30% during fiscal 2022, and the average balance of interest-bearing liabilities was $1.12 billion during fiscal 2023, up $72.2 million or 7% from $1.05 billion during fiscal 2022.

This increase was primarily attributable to a higher interest expense on deposits, particularly time deposits and, to a lesser extent, a higher interest expense on borrowings.

The average cost of interest-bearing liabilities was 1.74% during fiscal 2024, up 94 basis points from 0.80% during fiscal 2023, and the average balance of interest-bearing liabilities was $1.14 billion during fiscal 2024, up $16.8 million or 2% from $1.12 billion during fiscal 2023.

Interest expense on deposits for fiscal 2024 was $9.7 million compared to $3.1 million for fiscal 2023, an increase of $6.6 million or 213%.

The increase in interest expense on deposits was attributable to a higher average cost, particularly for time deposits, partly offset by a decrease in average balance.

The average cost of deposits increased 21 basis points to 0.33% in fiscal 2023 from 0.12% in fiscal 2022.

The average cost of transaction accounts remained at 0.05% in fiscal 2023 compared to fiscal 2022, while the average cost of time deposits in fiscal 2023 was 1.70%, up 113 basis points, from 0.57% in fiscal 2022.

The average balance of deposits decreased slightly to $960.9 million during fiscal 2023 from $961.5 million during fiscal 2022.

The average balance of transaction accounts decreased $31.3 million, or 4%, to $798.7 million in fiscal 2023 from $830.0 million in fiscal 2022.

The average balance of time deposits increased by $30.6 million, or 23%, to $162.1 million in fiscal 2023 from $131.5 million in fiscal 2022.

The increase was primarily attributable to a higher average cost for time deposits and, to a lesser extent, a higher average balance of such deposit.

The average cost of time deposits in fiscal 2024 was 3.66%, up 196 basis points, from 1.70% in fiscal 2023, while the average cost of transaction accounts was 0.09% in fiscal 2024, up four basis points from 0.05% in fiscal 2023.

The average cost of all deposits increased 73 basis points to 1.06% in fiscal 2024 from 0.33% in fiscal 2023.

The average balance of time deposits increased $85.8 million, or 53%, to $247.9 million in fiscal 2024 from $162.1 million in fiscal 2023, which as partly offset a decrease in the average balance of transaction accounts which decreased $130.5 million, or 16%, to $668 2 million in fiscal 2024 from $798.7 million in fiscal 2023.

The increase of time deposits included increased brokered certificates of deposit.

The average balance of brokered certificates of deposit in fiscal 2024 was $118.8 million with the average cost of 5.17% compared to the average balance of $48.7 million with the average cost of 3.97% in fiscal 2023.

Interest expense on borrowings, consisting of FHLB - San Francisco advances, for fiscal 2024 increased $4.2 million, or 71%, to $10.1 million as compared to $5.9 million in fiscal 2023.

The increase in interest expense on borrowings was due to a higher average balance and a higher average cost.

The average balance of borrowings increased $72.8 million, or 84%,

to $159.7 million during fiscal 2023 from $86.9 million during fiscal 2022.

The average cost of borrowings was 3.67% in fiscal 2023, up 138 basis points from 2.29% in fiscal 2022.

Provision (Recovery) for Loan Losses.

During fiscal 2023, the Corporation recorded a provision for loan losses of $374,000, compared to a recovery from the allowance for loan losses of $2.5 million during fiscal 2022.

The provision reflected in fiscal 2023 was primarily due to a higher outstanding balance of loans held for investment, while the recovery from the allowance for loan losses in fiscal 2022 was primarily due to an improvement in the qualitative component adjustment to the allowance for loan losses reflecting improved general economic conditions and recoveries from the allowance for loan losses from non-performing loans and classified loans that were upgraded or paid off, partly offset by an increase in loans held for investment.

Non-performing assets, comprised solely of non-performing loans (net of the collectively evaluated allowances and individually evaluated allowances) during fiscal 2023 and fiscal 2022, was $1.3 million at June 30, 2023, down $123,000 or 9% from $1.4 million at June 30, 2022.

Non-performing loans at June 30, 2023 were comprised of six single-family loans on non-accrual.

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

Net loan recoveries in fiscal 2023 were $8,000 or 0.00% of average loans receivable, compared to net loan recoveries of $439,000 or 0.05% of average loans receivable in fiscal 2022.

At both June 30, 2023 and June 30, 2022, there was no REO or accruing loans 90 days or more past due.

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

Commencing July 1, 2023, the Corporation will be calculating its allowance for credit losses on loans in accordance with the CECL methodology.

The increase in interest expense on borrowings was due to a higher average balance and, to a lesser extent, a higher average cost.

The average balance of borrowings increased $61.7 million, or 39%, to $221.4 million during fiscal 2024 from $159.7 million during fiscal 2023 and the average cost of borrowings was 4.58% in fiscal 2024, up 91 basis points from 3.67% in fiscal 2023.

Provision for (Recovery of) Credit Losses.

During fiscal 2024, the Corporation recorded a recovery of credit losses of $63,000, compared to a provision for credit losses of $374,000 during fiscal 2023.

The recovery of credit losses reflected in fiscal 2024 was primarily due to a $23.5 million decrease in loans held for investment at June 30, 2024 from June 30, 2023 and a slightly shorter estimated life of the single-family loan portfolio resulting from higher loan prepayment estimates, partly offset by higher unfunded loan commitments resulting from a higher outstanding balance at June 30, 2024 as compared to the prior fiscal year end.

The provision for credit losses in fiscal 2023 was primarily due to a higher outstanding balance of loans held for investment.

At June 30, 2024, the ACL on loans held for investment was $7.1 million, comprised of collectively evaluated allowances of $7.1 million and individually evaluated allowances of $37,000;

up 20% from $5.9 million at June 30, 2023.

The ACL on loans as a percentage of gross loans held for investment was 0.67% at June 30, 2024, compared to 0.55% at June 30, 2023.

The increase in the ACL on loans was due primarily to the adoption of the CECL methodology ($1.2 million), partly offset by the recovery of credit losses in fiscal 2024 ($63,000, net of a $15,000 provision for unfunded loan commitment reserves).

The ACL on loans as a percentage of gross loans held for investment was 0.67% at June 30, 2024, compared to 0.55% at June 30, 2023.

The following chart quantifies the factors contributing to the changes in the ACL on loans held for investment (“LHFI”) for the year ended June 30, 2024 subsequent to the adoption of the CECL methodology on July 1, 2023.

Management believes, based on currently available information, the ACL is sufficient to absorb expected losses inherent in loans held for investment at June 30, 2024 under the CECL methodology adopted since July 1, 2023.

For additional information, see Item 1, “Business - “Asset Quality” in this Form 10-K.

Non-Interest Income.

Total non-interest income was $4.1 million in fiscal 2023, a decrease of $641,000 or 14% from $4.7 million in fiscal 2022, primarily attributable to a decrease in loan servicing and other fees.

Loan servicing and other fees decreased $642,000, or 61%, to $414,000 for fiscal 2023 from $1.1 million in fiscal 2022, due primarily to lower loan prepayment fees, attributable to lower loan payoffs.

Total non-interest income was $3.9 million in fiscal 2024, a decrease of $134,000 or 3% from $4.1 million in fiscal 2023.

Loan servicing and other fees decreased $77,000, or 19%, to $337,000 for fiscal 2024 from $414,000 in fiscal 2023, due primarily to lower loan prepayment fees, attributable to lower loan payoffs.

Deposit account fees decreased $142,000, or 11%, to $1.2 million for fiscal 2024 from $1.3 million in fiscal 2023, due primarily to lower non-sufficient funds account fees, attributable to lower transactions and lower transaction account balances.

Card and processing fees decreased $141,000, or 9%, to $1.4 million for fiscal 2024 from $1.5 million in fiscal 2023, due primarily to lower debit card transactions.

Other fees increased $226,000, or 27%, to $1.1 million for fiscal 2024 from $840,000 in fiscal 2023, due primarily to a $540,000 net unrealized gain on other equity investments resulting from the VISA share conversion, partly offset by a net change of $190,000 on the losses on sale of loans (a net loss of $64,000 on sale of loans in fiscal 2024 compared to a net gain of $124,000 on sale of loans in the prior fiscal year).

In May 2024, the Bank converted its VISA Class B1 shares into VISA Class B2 shares and VISA Class C shares and recorded the VISA Class C shares at fair value subsequent to the conversion.

Non-Interest Expense.

Total non-interest expense was $28.3 million in fiscal 2023, an increase of $2.4 million or 9% from $25.9 million in fiscal 2022.

The increase in non-interest expense was primarily attributable to increases in salaries and employee benefits and premises and occupancy expenses.

Salaries and employee benefits expense increased $1.9 million, or 12%, to $17.7 million in fiscal 2023 from $15.8 million in fiscal 2022.

The increase in salaries and employee benefits expense was primarily due to a $1.2 million Employee Retention Tax Credit (“ERTC”) recorded in fiscal 2022 and not replicated in fiscal 2023, a $1.0 million increase in incentive compensation, a $387,000 increase in stock-based compensation resulting from the true-up adjustments associated with the vesting of the equity incentive awards, a $350,000 decrease in deferred loan fees recoveries (ASC 310), partly offset by a $1.3 million recovery from the Bank’s obligations for the supplemental executive retirement plans.

Total non-interest expense was $28.5 million in fiscal 2024, an increase of $270,000 or 1% from $28.3 million in fiscal 2023.

The increase in non-interest expense was primarily attributable to increases in premises and occupancy expenses, equipment expense, deposit insurance premiums and regulatory assessments, partly offset by decreases in salaries and employee benefits and other operating expenses.

Salaries and employee benefits expense decreased $95,000, or 1%, to $17.6 million in fiscal 2024 from $17.7 million in fiscal 2023.

The decrease in salaries and employee benefits expense was primarily attributable to a decrease in incentive compensation, partly offset by increases in the supplemental executive retirement plans and compensation costs.

Premises and occupancy expense increased $139,000, or 4%, to $3.6 million in fiscal 2024 from $3.4 million in fiscal 2023.

The increase was due primarily to higher network services expenses, attributable to a refund of $136,000 in fiscal 2022 from a vendor on previously paid network services invoices that were overstated when paid and not replicated in fiscal 2023 and higher network services expenses in fiscal 2023 resulting from network upgrades.

The increase was primarily attributable to increases in building maintenance and fixture depreciation costs, resulting primarily from the relocation of one of our banking offices and ATM upgrades, partly offset by lower on-line service expenses.

Equipment expense increased $157,000, or 14%, to $1.3 million in fiscal 2024 from $1.2 million in fiscal 2023, due primarily to the upgrades of computer hardware and software and an increase of equipment lease expenses.

Deposit insurance premiums and regulatory assessments increased $123,000, or 19%, to $780,000 in fiscal 2024 from $657,000 in fiscal 2023, primarily attributable to the increase in FDIC insurance assessments.

Provision for Income Taxes.

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Therefore, there are fluctuations in the effective income tax rate from period to period based on the relationship of net permanent differences to income before tax.

The provision for income taxes was $3.8 million for fiscal 2023, representing an effective tax rate of 30.8%, similar to $3.8 million in fiscal 2022, representing an effective tax rate of 29.3%.

The higher effective tax rate in fiscal 2023 was attributable primarily to a decrease in the tax benefit realized from the equity incentive awards with the share price lower

at vesting and distribution than the fair value estimated on the grant date, while the effective tax rate in fiscal 2022 was impacted by the non-taxable treatment of the lower ERTC for state tax purposes (not replicated in fiscal 2023).

The provision for income taxes was $3.0 million for fiscal 2024, representing an effective tax rate of 29.2%, down $788,000 or 21% from $3.8 million in fiscal 2023, representing an effective tax rate of 30.8%.

The lower effective tax rate in fiscal 2024 was attributable primarily to the decreased tax benefit in fiscal 2023 from the equity incentive awards with the share price lower at vesting and distribution than the fair value estimated at the grant date, which was not replicated in fiscal 2024.

The Corporation’s effective tax rate may differ from the estimated 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.

The Corporation determined that the above tax rates meet its estimated income tax obligations.

For additional information, see Note 8, "Income Taxes,"

of the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K.

For additional information, see Note 8, "Income Taxes," of the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K.

Average Balances, Interest and Average Yields/Costs

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Investment securities

FHLB – San Francisco stock

FHLB - San Francisco and other equity investments

Interest-earning deposits

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Ratio of average interest- earning assets to average interest-bearing liabilities

(1) Includes non-performing loans of $1.1 million and $4.2 million, as well as net deferred loan costs of $959 thousand and $1.8 million for the fiscal years ended June 30, 2023 and 2022, respectively.

(1) Includes the average balance of non-performing loans of $2.1 million and $1.1 million, as well as net deferred loan costs of $955 thousand and $959 thousand for the fiscal years ended June 30, 2024 and 2023, respectively.

(2) Includes the average balance of noninterest-bearing checking accounts of $97.3 million and $112.9 million in the fiscal years ended June 30, 2024 and 2023, respectively.

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The following table sets forth the effects of changing rates and volumes on interest income and expense of the Corporation for the period presented.

Information is provided with respect to the effects attributable to changes in volume (changes in

volume multiplied by prior rate), the effects attributable to changes in rate (changes in rate multiplied by prior volume) and the effects attributable to changes that cannot be allocated between rate and volume.

Information is provided with respect to the effects attributable to changes in volume (changes in volume multiplied by prior rate), the effects attributable to changes in rate (changes in rate multiplied by prior volume) and the effects attributable to changes that cannot be allocated between rate and volume.

Year Ended June 30, 2024 Compared

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Investment securities

FHLB – San Francisco stock

FHLB – San Francisco and other equity investments

Interest-bearing deposits

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Liquidity and Capital Resources

The Corporation's primary sources of funds are deposits, proceeds from principal and interest payments on loans, proceeds from the maturity and sale of investment securities, proceeds from FHLB - San Francisco advances, access to the discount window facility at the Federal Reserve Bank of San Francisco and access to the correspondent bank’s federal funds facility.

The Bank’s primary sources of funds are deposits, proceeds from principal and interest payments on loans, proceeds from the maturity and sale of investment securities, proceeds from FHLB - San Francisco advances, access to the discount window facility at the FRB of San Francisco and access to the correspondent bank’s federal funds facility.

While maturities and scheduled amortization of loans and investment securities are a relatively predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The primary investing activity of the Bank has been the origination and purchase of loans held for investment.

The primary investing activity of the Bank has been the origination and, to a lesser extent, purchase of loans held for investment.

During the fiscal years ended June 30, 2024 and 2023, the Bank originated loans held for investment of $75.5 million and $237.1 million, respectively.

In addition, the Bank purchased loans held for investment from other financial institutions in fiscal 2023 and fiscal 2022 of $0 and $6.4 million, respectively.

At June 30, 2023 and 2022, the Bank had loan origination commitments totaling $2.4 million and $43.4 million, with undisbursed loan funds of $2.0 million and $3.4 million, respectively.

The Bank did not purchase any loans held for investment from other financial institutions in fiscal 2024 or 2023.

At June 30, 2024 and 2023, the Bank had loan origination commitments totaling $9.4 million and $2.4 million, with undisbursed loan funds of $435,000 and $2.0 million, respectively.

The Bank anticipates that it will have sufficient funds available to meet its current loan origination commitments.

The Bank's primary financing activity is gathering deposits.

During the fiscal years ended June 30, 2023 and 2022, the net (decrease) increase in deposits was $(4.9 million) and $17.5 million, respectively.

The Bank's primary financing activity is gathering deposits, which include both retail and brokered deposits.

During the fiscal years ended June 30, 2024 and 2023, the net decrease in deposits was $62.2 million and $4.9 million, respectively.

On June 30, 2024, time deposits scheduled to mature in one year or less were $245.7 million.

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At June 30, 2024, total cash and cash equivalents were $51.4 million, or 4.0% of total assets.

Depending on market conditions and the pricing of deposit products and FHLB - San Francisco advances, the Bank may continue to rely on FHLB - San Francisco advances for part of its liquidity needs.

Depending on market conditions and the pricing of deposit products and FHLB - San Francisco advances, the Bank may continue to rely on FHLB - San Francisco advances for part

of its liquidity needs.

As of June 30, 2024, the remaining financing availability at the FHLB - San Francisco was $261.3 million and the remaining available collateral was $367.4 million.

In addition, the Bank has secured a $139.0 million discount window facility at the Federal Reserve Bank of San Francisco, collateralized by investment securities.

also has a federal funds facility with its correspondent bank for $50.0 million which matures on June 30, 2024.

In addition, the Bank has secured a $208.6 million discount window facility at the FRB of San Francisco, collateralized by $126.6 million of investment securities and $178.6 million of loans held for investment.

The Bank also has a federal funds facility with its correspondent bank for $50.0 million which matures on June 30, 2025.

As of June 30, 2024, there were no outstanding borrowings under the discount window facility or the federal funds facility with its correspondent bank.

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The Bank's average liquidity ratio (defined as the ratio of average qualifying liquid assets to average deposits and borrowings) for the quarter ended June 30, 2024 decreased to 16.6% from 18.1% during the same quarter ended June 30, 2023.

The decrease in the liquidity ratio was due primarily to the decrease in average qualifying liquid assets and the increase in average borrowings during the quarter ended June 30, 2023 in comparison to the quarter ended June 30, 2022.

The Bank augments its liquidity by maintaining sufficient borrowing capacity at the FHLB - San Francisco, Federal Reserve Bank of San Francisco and its correspondent bank.

The decrease in the liquidity ratio was due primarily to the decrease in average qualifying liquid assets which exceeded the decrease in average deposits and borrowings during the quarter ended June 30, 2024 in comparison to the quarter ended June 30, 2023.

The Bank augments its liquidity by maintaining sufficient borrowing capacity at the FHLB - San Francisco, FRB of San Francisco and its correspondent bank.

We incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets.

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The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations.

Based on our current capital allocation objectives, during fiscal 2024 we project expending approximately $1.8 million to $2.7 million for capital investment in property, plant and equipment.

For additional information regarding our commitments, see Note 13, "Commitments and Contingencies,"

of the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K.

Provident is a separate legal entity from the Bank and, on a stand-alone level, must provide for its own liquidity and pay its own operating expenses and cash dividends and stock repurchases.

Based on our current capital allocation objectives, during fiscal 2025 we project expenditures of ranging from $270,000 to $1.5 million for capital investment in premises and equipment.

For additional information regarding our commitments, see Note 13, "Commitments and Contingencies," of the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K.

Provident is a separate legal entity from the Bank and, on a stand-alone level, must provide for its own liquidity and pay its own operating expenses, cash dividends and stock repurchases.

Provident’s primary sources of funds consist of capital raised through dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends.

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At June 30, 2024, the Bank exceeded all regulatory capital requirements.

Under the prompt corrective action provisions, minimum ratios of 5.0% for Tier 1 Leverage Capital, 6.5% for CET1 Capital, 8.0% for Tier 1 Risk-based Capital and

10.0% for Total Risk-based Capital are required to be deemed “well capitalized.” As of June 30, 2023, the Bank exceeded the capital ratios needed to be considered well capitalized with Tier 1 Leverage Capital, CET1 Capital, Tier 1 Risk-based Capital and Total Risk-based Capital ratios of 9.6%, 18.5%, 18.5% and 19.4%, respectively.

See also, “Regulation – Federal Regulation of Savings Institutions – Capital Requirements” and Note 9, "Capital"

of the Notes to Consolidated Financial Statements contained in Items 1 and 8 of this Form 10-K, respectively.

Under the prompt corrective action provisions, minimum ratios of 5.0% for Tier 1 Leverage Capital, 6.5% for CET1 Capital, 8.0% for Tier 1 Risk-based Capital and 10.0% for Total Risk-based Capital are required to be deemed “well capitalized.” As of June 30, 2024, the Bank exceeded the capital ratios needed to be considered well capitalized with Tier 1 Leverage Capital, CET1 Capital, Tier 1 Risk-based Capital and Total Risk-based Capital ratios of 10.0%, 19.3%, 19.3% and 20.4%, respectively.

See also, “Regulation – Federal Regulation of Savings Institutions – Capital Requirements” and Note 9, "Capital" of the Notes to Consolidated Financial Statements contained in Items 1 and 8 of this Form 10-K, respectively.

Impact of New Accounting Pronouncements

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In particular, management has identified several accounting policies that, as a result of the judgments, estimates and assumptions inherent in those policies, are important to gain an understanding of the financial statements of the Corporation.

These policies relate to the methodology for the recognition of interest income, determination of the provision and allowance for loan losses, the estimated fair value of derivative financial instruments and the valuation of mortgage servicing assets and real estate owned.

These policies and judgments, estimates and assumptions are described in greater detail in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations"

and in the section entitled “Organization and Summary of Significant Accounting Policies” contained in Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

These policies relate to the methodology for the recognition of interest income, determination of the provision for credit losses and the ACL, the estimated fair value of derivative financial instruments, the valuation of mortgage servicing assets and real estate owned and the provision for income taxes.

These policies and judgments, estimates and assumptions are described in greater detail in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the section entitled “Organization and Summary of Significant Accounting Policies” contained in Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Management believes that the judgments, estimates and assumptions used in the preparation of the financial statements are appropriate based on the factual circumstances at the time.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis