PROVIDENT FINANCIAL HOLDINGS INC

Fiscal 2024

Overall, our fiscal 2024 financial results, described in the following Financial Highlights, reflected a decline in both net income and total assets compared to the prior year. Throughout fiscal 2024, operating conditions were challenging with the macroeconomic headwinds of an inverted yield curve, higher interest rates, high inflation, rising unemployment rates and modest gross domestic product growth. As a result, the Bank made the strategic decision to restrict loan growth and took a defensive position with the balance sheet, resulting in a lower balance of loans held for investment, but thereby limiting new exposures to credit risk. In addition, the deposit environment was highly competitive and depositors were actively seeking higher rates for their deposits. This resulted in a decline in our total deposits and an increase in our interest expense as we were competing to retain those relationships or replace them with higher cost funding sources.

Last year, we described that our fiscal 2024 Business Plan forecast disciplined growth in loans held for investment, growth in retail deposits (primarily core deposits), control of operating expenses, and sound capital management decisions. The Business Plan was predicated on the forecast of gradual rate cuts by the FOMC and the beginning of the return to a normally sloped yield curve.

But when the rate environment we envisioned did not materialize, we deviated from the Business Plan as it relates to loan growth. Loan originations and purchases for the held for investment portfolio were $75.5 million in fiscal 2024, a 68 percent decrease from the fiscal 2023 volume, and loan prepayments exceeded new loan origination volume resulting in a two percent decrease in loans held for investment. On the funding side, core deposits decreased by $115.1 million or 16 percent at June 30, 2024 from the same date last year as a result of depositors moving funds into higher yielding investment opportunities and were partially replaced with brokered certificates of deposit such that total deposits declined by seven percent. Operating expenses for fiscal 2024 increased by approximately one percent from the prior year resulting from the inflationary environment but were well-controlled. Last year, we mentioned our intent to expand our contingency funding sources and successfully executed that plan by increasing total borrowing capacity from all sources by approximately seven percent in comparison to the prior fiscal year. In addition, we paid a quarterly cash dividend of $0.14 per share in fiscal 2024 while repurchasing approximately 197,000 shares of our common stock under the stock repurchase plans. Our capital management activities resulted in an approximately 88 percent distribution of fiscal 2024 net income.