PROVIDENT FINANCIAL HOLDINGS INC

Federally chartered savings institutions are permitted under federal and state laws to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and government sponsored enterprises and of state and municipal governments, deposits at the FHLB, certificates of deposit of federally insured institutions, certain bankers’ acceptances, mortgage-backed securities and federal funds. Subject to various restrictions, federally chartered savings institutions may also invest a portion of their assets in commercial paper and corporate debt securities.

The investment policy of the Bank, established by the Board of Directors and implemented by the Bank’s Asset-Liability Committee, seeks to provide and maintain adequate liquidity, complement the Bank’s lending activities, and generate a favorable return on investment without incurring undue interest rate risk or credit risk. Investments are made based on certain considerations, such as credit quality, yield, maturity, liquidity and marketability. The Bank also considers the effect that the proposed investment would have on the Bank’s risk-based capital requirements and interest rate risk sensitivity.

At June 30, 2024 and 2023, the Bank’s investment securities portfolio was $131.9 million and $156.6 million, respectively, which primarily consisted of federal agency and GSE obligations. The Bank did not purchase any investment securities during fiscal 2024 and 2023. At June 30, 2024 and 2023, the Bank’s securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States government or its agencies or a GSE.

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

(1)Mortgage-backed securities (“MBS”)

(2)Collateralized mortgage obligations (“CMO”)

(3)Small Business Administration ("SBA")

The following table sets forth the outstanding balance, maturity and weighted average yield of the investment securities at June 30, 2024. The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values.

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

The Bank evaluates individual investment securities quarterly for impairment based on ASC 326 since the adoption on July 1, 2023. At June 30, 2024, the Bank reported $15.8 million of unrealized holding losses, which were in a loss position for 12 months or more. The unrealized losses on investment securities were attributable to changes in interest rates relative to when the investment securities were purchased and not due to the credit quality of the investment securities, which are predominately GSE securities that are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. Therefore, the Corporation has determined that the unrealized losses are due to the fluctuating nature of interest rates, and not related to any potential credit risks within the investment portfolio. The Bank does not currently intend to sell any investment securities classified as held to maturity or available for sale and as such, records the investment security at book value or fair market value as prescribed by accounting principles generally accepted in the U.S. ("U.S. GAAP."). As a part of the Bank’s monthly risk assessment, it runs a number of stressed liquidity scenarios to determine if it is more likely than not that the Bank will be required to sell the investment security before the recovery of its amortized costs basis. These liquidity scenarios support the Bank’s assessment that it has the ability to hold these held to maturity securities until maturity or available for sale securities until recovery of the amortized costs is realized and it is not more likely than not that the Bank will be required to sell the securities prior to recovery of the amortized costs. There were no ACL on investment securities held to maturity and there was no impairment on investment securities available for sale at the adoption date of ASC 326 on July 1, 2023 and at June 30, 2024.

At June 30, 2024 and 2023, the Corporation did not hold any investment securities held to maturity or investment securities available for sale with the intent to sell and determined it had the ability to hold these investment securities until maturity. As previously discussed, it also determined that it was more likely than not that the Bank would not be required to sell the securities prior to recovery of the amortized cost basis; therefore, no impairment losses were recorded on investment securities available for sale and investment securities held to maturity for the fiscal years ended June 30, 2024 and 2023.