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Item 7. Management’s Discussion and Analysis

2025-08-29 compared with 2024-08-30 · 138 added, 129 removed, 193 unchanged (58% of the section changed)

9 unchanged sentences

● 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;

● effects of employment levels, labor shortages, persistent inflation, recessionary pressures or slowing economic growth;

● changes in interest rate levels and the duration of such changes, including actions by the Federal Reserve, 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 monetary and fiscal policy responses thereto, and their impact on consumer and business behavior;

● the effects of a Federal government shutdown, debt ceiling standoff, or other fiscal policy uncertainty;

● credit risks of lending activities, including loan delinquencies, loan charge-offs, changes in our allowance for credit losses (“ACL”), and provision for credit losses;

● increased competitive pressures among financial services companies, including repricing and competitors’ pricing initiatives, and their impact on our market position, loan, and deposit products;

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

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● 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;

● 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;

● results of examinations of us by regulatory authorities, which may include 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;

● the ability to adapt to rapid technological changes, including advancements in artificial intelligence, digital banking, and cybersecurity;

● legislative or regulatory changes, including but not limited to shifts in capital requirements, banking regulation, tax laws, or consumer protection laws;

● 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;

● vulnerabilities in information systems or third-party service providers, including disruptions, breaches, or attacks;

● geopolitical developments and international conflicts, including but not limited to tensions or instability in Eastern Europe, the Middle East, and Asia, or the imposition of new or increased tariffs and trade restrictions, which may disrupt financial markets, global supply chains, energy prices, or economic activity in specific industry sectors;

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

● our ability to pay dividends on our common stock;

● 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 .

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

● availability of appropriate insurance products in our market areas;

● other factors described in this Form 10-K and in our 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.

1 unchanged sentence

In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this document might not occur, and you should not put undue reliance on any forward-looking statements.

These factors could cause our actual results for the fiscal 2025 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us and could negatively affect the Corporation’s consolidated financial condition and consolidated results of operations as well as its stock price performance.

These factors could cause our actual results for fiscal 2026 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us and could negatively affect the Corporation’s consolidated financial condition and consolidated results of operations as well as its stock price performance.

Provident, a Delaware corporation, was organized in January 1996 for the purpose of becoming the holding company of the Bank upon the Bank’s conversion completed on June 27, 1996.

8 unchanged sentences

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 (generally land loans), commercial business and consumer loans.

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

4 unchanged sentences

Critical Accounting Estimates

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 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.

Accordingly, actual results may differ from these estimates under different assumptions or conditions.

We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

We have reviewed our critical accounting estimates with the audit committee of our Board of Directors.

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.

The preparation of our consolidated financial statements in accordance with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities as of the reporting date.

The estimates we consider most critical to understanding our financial condition and results of operations are those that require difficult, subjective, or complex judgments and that could materially change from period to period if different assumptions were used or if actual results differ from our assumptions.

For the Corporation, these critical estimates primarily relate to:

● the allowance for credit losses on loans and investment securities, and

● the provision for income taxes.

These estimates involve significant uncertainty and are based on historical experience, current conditions, and other factors management believes to be reasonable under the circumstances.

We evaluate these estimates on an ongoing basis and discuss them with the Audit Committee of our Board of Directors.

For a summary of our significant accounting policies, see Note 1—Summary of Significant Accounting Policies in Item 8 of this Annual Report on Form 10-K.

Allowance for Credit Losses.

1 unchanged sentence

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.

Results for reporting periods beginning after July 1, 2023 are presented under CECL.

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 and a net of tax charge of $824,000 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.

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Provident Savings Bank, F.S.B., established in 1956, is a financial services company committed to serving consumers and small to mid-sized businesses in the Inland Empire region of Southern California.

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

The Bank conducts its business

operations as Provident Bank and through its subsidiary, PFC.

The business activities of the Corporation, primarily through the Bank, consist of community banking and, to a lesser degree, investment services for customers and trustee services on behalf of the Bank.

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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

To diversify its deposit funding base, the Corporation will consider utilizing brokered certificates of deposit and public funds, subject to market conditions and funding needs.

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.

1 unchanged sentence

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

Investment services and trustee services contribute a very small percentage of gross revenue.

Investment services and trustee services contribute a very small percentage to gross revenue.

PFC performs trustee services for the Bank’s real estate secured loan transactions and has in the past held, and may in the future hold, real estate for investment.

2 unchanged sentences

The Corporation attempts to mitigate many of these risks through prudent banking practices, such as interest rate risk management, credit risk management, operational risk management, and liquidity risk management.

The California economic environment presents heightened risk for the Corporation primarily with respect to real estate values and loan delinquencies.

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.

The California economic environment presents heightened risk to the Corporation, particularly with respect to real estate values and loan delinquencies.

Because the majority of the Corporation’s loans are secured by real estate located in California, significant declines in California property values could limit the Corporation’s ability to recover on defaulted loans through the sale of the underlying collateral.

Within commercial real estate, the office sector continues to face elevated risk, driven by higher vacancy rates, slower leasing activity, and downward pressure on rental rates in certain California markets.

These trends may negatively affect collateral values and the repayment capacity of borrowers.

In response, the Bank has evaluated its existing loans collateralized by office properties for outsized concentrations and has implemented tighter underwriting standards for such collateral.

At June 30, 2025, our commercial real estate portfolio totaled $72.8 million, of which $39.5 million, or 54.2%, was secured by various types of office properties, representing 3.8% of the total loan portfolio.

While current credit performance within the office segment remains satisfactory, management continues to monitor the portfolio closely in light of evolving market conditions.

The January 2025 wildfires in Los Angeles, California did not have a material direct impact on the Bank’s customers or collateral in our market area.

However, those events, along with more recent wildfires in other regions of the state, underscore the ongoing risks wildfires present to our loan portfolio.

Potential indirect impacts include increased insurance premiums, stricter underwriting standards, shifts in property values, and localized economic disruptions such as business closures and job losses, all of which could elevate credit risk.

Borrowers in affected areas may face financial hardship that could reduce repayment capacity and impair collateral values, particularly where insurance coverage is inadequate or claims are denied.

Given the increasing frequency and severity of wildfires associated with climate change, these events could require higher provisions for loan losses.

The Corporation remains committed to prudent risk management practices to mitigate potential impacts and support customers in navigating any related financial challenges.

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

1 unchanged sentence

Total assets decreased $26.6 million, or 2%, to $1.25 billion at June 30, 2025 from $1.27 billion at June 30, 2024.

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.

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

Total cash and cash equivalents, primarily excess cash deposited with the FRB of San Francisco, increased $1.7 million, or 3%, to $53.1 million at June 30, 2025 from $51.4 million at June 30, 2024.

The increase 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 $20.9 million, or 16%, to $111.0 million at June 30, 2025 from $131.9 million at June 30, 2024.

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

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

During fiscal 2025, the Bank purchased $981,000 of investment securities and did not sell any investment securities;

while during fiscal 2024, 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 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.

Loans held for investment, net decreased $7.2 million, or 1%, to $1.05 billion at June 30, 2025 as compared to June 30, 2024.

Total loan principal payments in fiscal 2025 were $133.3 million, up 33% from $99.9 million in fiscal 2024, while the Bank originated $122.7 million of loans held for investment in fiscal 2025, up 62% from $75.5 million in fiscal 2024.

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 2025 or 2024.

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 decreased slightly to $518.1 million at June 30, 2024, from $518.8 million at June 30, 2023.

Management attributes the increase in loan originations to the decision to increase or maintain the total balance of loans held for investment in response to higher loan prepayments in fiscal 2025.

The balance of multi-family, commercial real estate, construction and commercial business loans, net of undisbursed loan funds, decreased $34.7 million, or 7%, to $497.9 million at June 30, 2025, from $532.6 million at June 30, 2024, representing 48% and 51% of loans held for investment, respectively.

The balance of single-family loans held for investment increased $26.3 million, or 5%, to $544.4 million at June 30, 2025, from $518.1 million at June 30, 2024.

There was no REO in fiscal 2025 and 2024.

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.

FHLB – San Francisco stock and other equity investments increased $190,000, or 2%, to $10.3 million at June 30, 2025, from $10.1 million at June 30, 2024.

The increase was primarily due to a higher fair value adjustment of other equity investments, which consist solely of 1,297 shares of VISA Class C stock.

As of June 30, 2025 and 2024, the fair value of these other equity investments was $730,000 and $540,000, respectively.

The Bank did not purchase additional FHLB - San Francisco stock during fiscal 2025, while in fiscal 2024, the Bank purchased $63,000 of FHLB - San Francisco stock.

Total deposits increased to $888.8 million at June 30, 2025 from $888.3 million at June 30, 2024.

Transaction accounts decreased $38.0 million, or 6%, to $576.5 million at June 30, 2025 from $614.5 million at June 30, 2024, while time deposits increased $38.4 million, or 14%, to $312.3 million at June 30, 2025 from $273.9 million at June 30, 2024.

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.

Time deposits included brokered certificates of deposit of $131.0 million as of June 30, 2025, down slightly from $131.8 million at June 30, 2024.

As of June 30, 2025 and 2024, the percentage of transaction accounts to total deposits was 65% and 69%, respectively.

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.

Total retail deposits, defined as total deposits excluding brokered certificates of deposit, increased to $757.8 million at June 30, 2025 from $756.5 million at June 30, 2024.

This increase was due primarily to the increase in retail time deposits, which was largely offset by the decline in transaction account balances as some customers sought 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 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.

Borrowings, consisting primarily of FHLB – San Francisco advances, decreased $25.4 million, or 11%, to $213.1 million at June 30, 2025 from $238.5 million at June 30, 2024.

The decrease was primarily due to scheduled maturities that were not fully renewed.

The weighted average maturity of the Corporation’s FHLB – San Francisco advances was approximately 10 months at June 30, 2025, down from 13 months at June 30, 2024.

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 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.

Total stockholders’ equity decreased $1.4 million, or 1%, to $128.5 million at June 30, 2025 from $129.9 million at June 30, 2024, primarily as a result of 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, partly offset by net income and the amortization of stock-based compensation in fiscal 2025.

Comparison of Operating Results for the Fiscal Years Ended June 30, 2025 and 2024

The Corporation recorded net income of $6.3 million, or $0.93 per diluted share, for the fiscal year ended June 30, 2025, down $1.1 million, or 15%, from $7.4 million, or $1.06 per diluted share, for the fiscal year ended June 30, 2024.

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.

The decrease in net income was primarily attributable to a $2.3 million increase in non-interest expense and a $410,000 decrease in non-interest income, partly offset by a $666,000 recovery of credit losses recorded during fiscal 2025 as compared to a $63,000 recovery of credit losses during fiscal 2024, and a $546,000 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, increased to 79% in fiscal 2025 from 73% in fiscal 2024 due primarily to an increase in non-interest expenses.

Return on average assets in fiscal 2025 was 0.50% compared to 0.57% in fiscal 2024, and return on average stockholders' equity in fiscal 2025 was 4.79%, compared to 5.62% in fiscal 2024.

Net Interest Income.

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.

Net interest income increased $546,000, or 2%, to $35.5 million in fiscal 2025 from $34.9 million in fiscal 2024.

This increase reflects higher loan yields and the repricing of adjustable-rate loans, which outpaced increases in interest expense on deposits and borrowings.

The net interest margin increased 15 basis points to 2.93% in fiscal 2025 from 2.78% in fiscal 2024.

The average balance of interest-earning assets decreased $42.2 million, or 3%, to $1.21 billion in fiscal 2025 from $1.25 billion in fiscal 2024.

The average balance of interest-bearing liabilities decreased $39.4 million, or 3%, to $1.10 billion during fiscal 2025 as compared to $1.14 billion during fiscal 2024.

Interest Income.

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 an increase of interest income from loans receivable.

Total interest income increased $1.9 million, or 3%, to $56.6 million in fiscal 2025 from $54.7 million in fiscal 2024.

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

Interest income on loans receivable increased $2.3 million, or 5%, to $52.5 million in fiscal 2025 from $50.2 million in fiscal 2024.

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.

The increase was attributable to a higher average loan yield, partly offset by a lower average loan balance.

The weighted average loan yield during fiscal 2025 increased 31 basis points to 5.00% from 4.69% in fiscal 2024, reflecting new loans being originated at higher interest rates and adjustable rate loans repricing higher due to overall higher market interest rates.

The average balance of loans receivable decreased $18.2 million, or 2%, to $1.05 billion during fiscal 2025 from $1.07 billion during fiscal 2024.

Interest income on investment securities decreased $202,000, or 10%, to $1.9 million in fiscal 2025 from $2.1 million in fiscal 2024, 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 balance of investment securities decreased $23.1 million, or 16%, to $121.4 million in fiscal 2025 from $144.5 million in fiscal 2024 mainly as a result of scheduled and accelerated principal payments on mortgage-backed securities.

The average yield on investment securities increased 10 basis points to 1.53% for fiscal 2025 from 1.43% for fiscal 2024.

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

The total premium amortization in fiscal 2025 was $374,000, down $158,000, or 30%, from $532,000 in fiscal 2024.

During fiscal 2025, the Bank received $845,000 of cash dividends from the FHLB - San Francisco and other equity investments, an increase of $43,000, or 5%, from the $802,000 of cash dividends received in fiscal 2024, resulting in an average yield of 8.27% during fiscal 2025 compared to 8.35% during fiscal 2024.

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.

The average balance of these investments was $10.2 million during fiscal 2025, up 6% from $9.6 million during fiscal 2024.

Interest income on interest-earning deposits, primarily cash deposited at the FRB of San Francisco, decreased $296,000, or 18%, to $1.4 million in fiscal 2025 from $1.7 million in fiscal 2024, due to a lower average yield and, to a lesser extent, a lower average balance.

The average yield decreased 69 basis points to 4.69% in fiscal 2025 from 5.38% in fiscal 2024, resulting from decreases in the targeted federal funds interest rates during fiscal 2025.

The average balance of interest-earning deposits decreased $1.6 million, or 5%, to $29.0 million in fiscal 2025 from $30.6 million in fiscal 2024.

Interest Expense.

Total interest expense for fiscal 2025 was $21.2 million compared to $19.8 million for fiscal 2024, an increase of $1.4 million or 7%.

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.

This increase was primarily attributable to a higher interest expense on deposits, particularly time deposits, partly offset by a lower interest expense on borrowings.

The average cost of interest-bearing liabilities was 1.93% during fiscal 2025, up 19 basis points from 1.74% during fiscal 2024, while the average balance of interest-bearing liabilities was $1.10 billion during fiscal 2025, down $39.4 million, or 3%, from $1.14 billion during fiscal 2024.

Interest expense on deposits for fiscal 2025 was $11.2 million compared to $9.7 million for fiscal 2024, an increase of $1.5 million or 16%.

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 increase was primarily attributable to a higher average balance of time deposits and modestly higher rates on time deposits and savings accounts.

The average balance of time deposits increased $34.6 million, or 14%, to $282.5 million in fiscal 2025 from $247.9 million in fiscal 2024, while the average balance of transaction accounts decreased $69.0 million, or 10%, to $599.2 million in fiscal 2025 from $668.2 million in fiscal 2024.

The time deposits include brokered certificates of deposit.

The average balance of brokered certificates of deposit in fiscal 2025 was $134.0 million with the average cost of 4.65% compared to the average balance of $118.8 million with the average cost of 5.17% in fiscal 2024.

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, 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.

The average cost of time deposits (including brokered certificates of deposit) in fiscal 2025 was 3.73%, up seven basis points, from 3.66% in fiscal 2025, while the average cost of transaction accounts was 0.12% in fiscal 2025, up three basis points from 0.09% in fiscal 2024.

The average cost of all deposits (including non-interest bearing deposits) increased 21 basis points to 1.27% in fiscal 2025 from 1.06% in fiscal 2024.

Interest expense on borrowings, consisting primarily FHLB - San Francisco advances, for fiscal 2025 decreased $212,000, or 2%, to $9.9 million as compared to $10.1 million in fiscal 2024.

The decrease in interest expense on borrowings was due to a lower average balance, partly offset by a higher average cost.

The average balance of borrowings decreased $5.1 million, or 2%, to $216.3 million during fiscal 2025 from $221.4 million during fiscal 2024 and the average cost of borrowings was 4.59% in fiscal 2025, up one basis point from 4.58% in fiscal 2024.

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).

During fiscal 2025, the Corporation recorded a recovery of credit losses of $666,000, compared to a recovery of $63,000 during fiscal 2024.

The increase in the recovery of credit losses in fiscal 2025 was primarily due to improved qualitative factors related to the single-family residential loans and lower historical loss rates, partially offset by an increase in the balance of single-family loans.

At June 30, 2025, the ACL on loans held for investment was $6.4 million, comprised of all collectively evaluated allowances, down 9% from $7.1 million at June 30, 2024.

The ACL on loans as a percentage of gross loans held for investment was 0.62% at June 30, 2025, compared to 0.67% at June 30, 2024.

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.

The decrease in the ACL on loans was due primarily to the recovery of credit losses recorded in fiscal 2025.

The following chart quantifies the factors contributing to the changes in the ACL on loans held for investment (“LHFI”) for the years ended June 30, 2025 and 2024.

Management believes, based on currently available information, that the ACL is sufficient to absorb expected credit losses in loans held for investment at June 30, 2025 and 2024.

The ACL is determined in accordance with ASC 326, which requires the recognition of expected credit losses over the contractual life of the loans, considering historical loss experience, current conditions, and reasonable and supportable forecasts.

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

Non-Interest Income.

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.

Total non-interest income was $3.5 million in fiscal 2025, a decrease of $410,000 or 10% from $3.9 million in fiscal 2024, due primarily to decreases in card and processing fees and other non-interest income.

Loan servicing and other fees increased $82,000, or 24%, to $419,000 in fiscal 2025 from $337,000 in fiscal 2024, due primarily to higher late fees on loans.

Deposit account fees decreased $42,000, or 4%, to $1.1 million in fiscal 2025 from $1.2 million in fiscal 2024, due primarily to lower non-sufficient funds fees, associated with fewer transactions.

Card and processing fees decreased $119,000, or 9%, to $1.3 million in fiscal 2025 from $1.4 million in fiscal 2024, due primarily to fewer debit card transactions.

Other non-interest income decreased $331,000, or 31%, to $735,000 in fiscal 2025 from $1.1 million in fiscal 2024.

The prior year included a $540,000 net gain on other equity investments from the VISA share conversion, partly offset by a $190,000 positive fair value adjustment on the VISA equity investment in fiscal 2025.

Non-Interest Expense.

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 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.

Total non-interest expense was $30.8 million in fiscal 2025, an increase of $2.3 million or 8% from $28.5 million in fiscal 2024.

The increase in non-interest expense was primarily attributable to increases in salaries and employee benefits, equipment expense and other non-interest expenses.

Salaries and employee benefits increased $1.4 million, or 8%, to $19.0 million in fiscal 2025 from $17.6 million in fiscal 2024.

The increase in salaries and employee benefits was primarily attributable to increases in compensation costs, incentive compensation, group insurance costs and executive search costs.

Equipment expense increased $233,000, or 18%, to $1.5 million in fiscal 2025 from $1.3 million in fiscal 2024, due primarily to higher software license and maintenance costs.

Other non-interest expenses increased $594,000, or 20%, to $3.6 million in fiscal 2025 from $3.0 million in fiscal 2024, primarily attributable to higher litigation settlement expenses, debit card operation costs, deposit related costs and other operating costs.

During fiscal 2025, the Bank recognized a $232,000 expense related to the settlement of wage and hour claims under California’s Private Attorneys General Act filed by former employees.

The claims, which were previously stayed pending mediation, were resolved through a global settlement agreement in February 2025.

No litigation reserve had been established prior to the settlement, which does not include any admission of liability and remains subject to court approval.

Provision for Income Taxes.

The income tax provision reflects accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon reported pre-tax income, adjusted for the effect of all permanent differences between income for tax and financial reporting purposes, such as non-deductible stock-based compensation and bank-owned life insurance policies, among others.

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.

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 taxes.

The provision for income taxes was $2.6 million for fiscal 2025, representing an effective tax rate of 29.5%, down $418,000 or 14% from $3.0 million in fiscal 2024, representing an effective tax rate of 29.2%.

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 decrease in the provision for income taxes in fiscal 2025 compared to fiscal 2024 was due primarily to a lower income before the provision for income taxes.

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 or liabilities, 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.

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The following table sets forth certain information for the periods regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities and average yields and costs thereof.

Yields and costs for the periods indicated are derived by dividing income or expense by the average monthly balance of assets or liabilities, respectively, for the periods presented.

Yields and costs for the periods indicated are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the periods presented.

Year Ended June 30,

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

(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.

(1) Includes the average balance of non-performing loans of $2.1 million and $2.1 million, as well as net deferred loan costs of $1.4 million and $955 thousand for the fiscal years ended June 30, 2025 and 2024, respectively.

(2) Includes the average balance of noninterest-bearing checking accounts of $88.2 million and $97.3 million in the fiscal years ended June 30, 2025 and 2024, respectively.

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The Bank did not purchase any loans held for investment from other financial institutions in fiscal 2025 or 2024.

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.

At June 30, 2025 and 2024, the Bank had loan origination commitments totaling $6.1 million and $9.4 million, with undisbursed loan funds of $582,000 and $435,000, 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, 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.

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

During the fiscal year ended June 30, 2025, the net increase in deposits was $424,000, compared to the net decrease of $62.2 million during fiscal 2024.

On June 30, 2025, time deposits scheduled to mature in one year or less were $278.3 million.

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As of June 30, 2025, the remaining financing availability at the FHLB - San Francisco was $282.3 million and the remaining available collateral was $364.9 million.

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.

The total available borrowing capacity across all sources totals approximately $519.9 million at June 30, 2024.

In addition, the Bank has a $142.5 million discount window facility at the FRB of San Francisco, collateralized by $24.8 million of investment securities and $227.0 million of loans held for investment.

The Bank also has a federal funds facility with a correspondent bank for $50.0 million which matures on March 31, 2026.

As of June 30, 2025, there were no outstanding borrowings under the discount window facility or the federal funds facility with the correspondent bank.

The total available borrowing capacity across all sources was approximately $474.8 million at June 30, 2025.

Regulations require the Bank to maintain adequate liquidity to assure safe and sound operations.

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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, 2025 in comparison to the quarter ended June 30, 2024.

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

Despite the decrease, the Bank continues to maintain sufficient liquidity, supported by borrowing capacity at the FHLB – San Francisco, the FRB of San Francisco, and its correspondent bank, and management believes the current liquidity position is adequate to meet operational needs and regulatory requirements.

Management believes that, given these sources and ongoing liquidity management practices, the Bank is well-positioned to meet funding requirements.

Management will continue to adjust the balance of liquid assets and funding sources as necessary to maintain adequate liquidity and support the Bank’s operations and lending activities.

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 2025 we project expenditures of ranging from $270,000 to $1.5 million for capital investment in premises and equipment.

Based on our current capital allocation objectives, during fiscal 2026 we project expenditures ranging from $532,000 to $1.1 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.

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In addition, we currently expect to continue our current practice of paying quarterly cash dividends on our common stock subject to our Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice.

Our current quarterly common stock dividend rate is $0.14 per share, as approved by our Board of Directors, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank, and returning a substantial portion of our cash to our shareholders.

Assuming continued payment during fiscal 2026 at this rate of $0.14 per share, our average total dividend paid each quarter would be approximately $921,000 based on the number of our current outstanding shares as of June 30, 2025.

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The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

In addition, Provident Financial Holdings, Inc., as a savings and loan holding company registered with the FRB, is required by the FRB to maintain capital adequacy that generally parallels the OCC requirements.

Provident Financial Holdings, Inc., as a savings and loan holding company registered with the FRB, is required by the FRB to maintain capital adequacy that generally parallels the OCC requirements.

Since the holding company has less than $3.0 billion in assets, the capital guidelines apply on a bank only basis, and the FRB expects the holding company’s subsidiary bank to be well capitalized under the prompt corrective action regulations.

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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

Various elements of the Corporation's accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.

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 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.

However, because of the sensitivity of the financial statements to these accounting policies, changes to the judgments, estimates and assumptions used could result in material differences in the results of operations or financial condition.

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