PROVIDENT FINANCIAL HOLDINGS INC

**General.**The lending activity of the Bank is comprised of the origination of single-family, multi-family and commercial real estate loans and, to a lesser extent, construction, commercial business, consumer and other mortgage loans to be held for investment. Additional lending activities have historically included originating saleable single-family loans, primarily fixed-rate first trust deed mortgages. The Bank’s net loans held for investment were $1.05 billion at June 30, 2024, representing 83% of consolidated total assets. This compares to $1.08 billion, or 81% of consolidated total assets, at June 30, 2023.

At June 30, 2024, the maximum amount that the Bank could have loaned to any one borrower and the borrower’s related entities under applicable regulations was $20.1 million, or 15% of the Bank’s unimpaired capital and surplus. At June 30, 2024, the Bank had no loans or group of loans to related borrowers with outstanding balances in excess of this amount. The Bank’s five largest lending relationships at June 30, 2024 consisted of: four multi-family loans totaling $5.0 million to one group of borrowers; eight single-family loans totaling $4.4 million to one group of borrowers; three multi-family loans totaling $4.1 million to one group of borrowers; one multi-family loan totaling $4.1 million to one group of borrowers; and one multi-family loan totaling $4.0 million to one group of borrowers. The real estate collateral for these loans are primarily located in Southern and Northern California. At June 30, 2024, all of these loans were performing in accordance with their repayment terms.

Loans Held For Investment Analysis. The following table sets forth the composition of the Bank’s loans held for investment at the dates indicated:

Maturity of Loans Held for Investment. The following table sets forth information at June 30, 2024 regarding the dollar amount of principal payments becoming contractually due during the periods indicated for loans held for investment. Demand loans, loans having no stated schedule of principal payments, loans having no stated maturity, and overdrafts are reported as becoming due within one year. The table does not include any estimate of prepayments, which can significantly shorten the average life of loans held for investment and may cause the Bank’s actual principal payment experience to differ materially from that shown below:

The following table sets forth the dollar amount of all loans held for investment due after one year from June 30, 2024 which have fixed and floating or adjustable interest rates:

Scheduled contractual principal payments of loans do not reflect the actual life of such assets. The average life of loans is generally substantially less than their contractual terms because of prepayments. In addition, due-on-sale clauses generally give the Bank the right to declare loans immediately due and payable in the event, among other things, the borrower sells the real property that secures the loan. The average life of mortgage loans tends to increase, however, when current market interest rates are substantially higher than the interest rates on existing loans held for investment and, conversely, decrease when the interest rates on existing loans held for investment are substantially higher than current market interest rates, as borrowers are generally less inclined to refinance their loans when market rates increase and more inclined to refinance their loans when market rates decrease.

The table below describes the geographic dispersion of real estate secured loans held for investment (gross) at June 30, 2024 and 2023, as a percentage of the total dollar amount outstanding (dollars in thousands):

As of June 30, 2024:

As of June 30, 2023:

Single-Family Mortgage Loans. One of the Bank’s primary lending activities is the origination and purchase of adjustable and fixed rate mortgage loans to be held for investment, secured by first trust deed mortgages on owner-occupied, single-family (one to four units) residences in the communities where the Bank’s branches are located and surrounding areas in Southern and Northern California. During fiscal 2024, the Bank originated $40.9 million of single-family loans to be held for investment, all of which were underwritten in accordance with the Bank’s origination guidelines, and did not purchase any single-family loans. This compares to single-family loan originations of $165.9 million and no loan purchases during fiscal 2023. At June 30, 2024, total single-family loans held for investment decreased slightly to $518.1 million, or 49% of the total loans held for investment, from $518.8 million, or 48% of the total loans held for investment, at June 30, 2023. The decrease in the single-family loans in fiscal 2024 was primarily attributable to loan principal payments that exceeded new loans originated for investment. During fiscal 2024, the Bank did not have any recovery from non-performing single-family loans, as compared to net recoveries of $8,000 during fiscal 2023. At June 30, 2024 and 2023, total non-performing single-family loans were $2.6 million and $1.3 million, respectively, net of allowances and charge-offs, and there were no loans past due 30 to 89 days at both dates.

The Bank has underwriting standards that generally conform with the standards of the government sponsored entities (“GSE”) which include Fannie Mae and Freddie Mac. Mortgage insurance is usually required for all loans exceeding 80% loan-to-value (“LTV”) based on the lower of the purchase price or appraised value at the time of loan origination. The Bank is not currently offering loans with LTV ratios greater than 90%. The ratio is derived by dividing the original loan balance by the lower of the original appraised value or purchase price of the real estate collateral. Currently, the maximum LTV ratio is 90% for new purchases and limited cash-out refinances and 75% for cash-out refinances. The maximum loan amount offered on single-family homes is $1.5 million. A limited cash-out refinance transaction limits cash back to the borrower to the lesser of 2% of the new loan amount or $2,000. The lowest FICO score currently offered for a purchase or no cash-out refinance transaction is 700, while the lowest FICO score for a cash-out refinance transaction is 720. The FICO score represents the creditworthiness of a borrower based on the borrower’s credit history, as reported by an independent third party. A higher FICO score indicates a greater degree of creditworthiness. Bank regulators have issued guidance stating that a FICO score of 660 and below is indicative of a “subprime” borrower.

The Bank currently lends on residential properties classified as single-family units, planned unit developments and condominiums. Underwriting standards and guidelines may change at any time, based on shifts in real estate market conditions or changes to GSE policies and guidelines. To enhance protection, the Bank purchases lender-paid mortgage insurance for certain single-family mortgage loans. As of June 30, 2024, a total of approximately $141.8 million of single-family mortgage loans, with a 79% weighted average LTV at the time of origination have lender-paid mortgage insurance. This insurance provides a weighted average coverage ratio of approximately 11% of the original loan amount.

Prior to fiscal 2009, many of the loans we originated for investment consisted of non-traditional single-family residential loans that do not conform to Fannie Mae or Freddie Mac underwriting guidelines as a result of the characteristics of the borrower or property, the loan terms, loan size or exceptions from agency underwriting guidelines. In exchange for the additional risk to us associated with these loans, these borrowers generally are required to pay a higher interest rate, and

depending on the credit history, a lower loan-to-value ratio was generally required than for a conforming loan. Our non-traditional single-family residential loans include loans to borrowers who provided limited or no documentation of their income or stated income loans, negative amortization loans (a loan in which accrued interest exceeding the required monthly loan payment is added to loan principal up to 115% of the original loan amount), more than 30-year amortization loans, and loans to borrowers with a FICO score below 660 (these loans are considered subprime by the OCC).

As of June 30, 2024, these non-traditional loans totaled $17.7 million, comprising 3% of total single-family residential loans held for investment and 2% of total loans held for investment, with a weighted average seasoning of 16.1 years. At that date, stated income loans totaled $13.0 million, more than 30-year amortization loans totaled $6.0 million, low FICO score loans totaled $1.7 million, and negative amortization loans totaled $402,000 (the outstanding balances described may overlap more than one category).

The Bank currently offers fixed-rate loans in Riverside and San Bernardino counties, along with adjustable-rate mortgage (“ARM”) loans throughout California. Substantially all the loans originated by the Bank comply with GSE underwriting standards concerning credit and collateral. The Bank's ARM products offer various options, with interest rates adjusting every six months after an initial fixed period of five to ten years. These adjustments are limited by caps on semi-annual and lifetime rate changes.

Currently, the ARM programs have a rate consisting of an Index tied to the Secured Overnight Financing Rate (“SOFR”), plus a margin. The programs are limited to a maximum semi-annual increase or decrease of one percentage point with a maximum lifetime increase of five percentage points and the rate may not fall below the margin. The portfolio currently consists of the following indices, plus a margin of between 2.00% and 3.25%, which are used to calculate the periodic interest rate changes: SOFR, the 12-month average U.S. Treasury (“12 MAT”) or the weekly average yield on one-year U.S. Treasury securities adjusted to a constant maturity of one year (“CMT”). Loans based on the SOFR index constitute a majority of the Bank’s loans held for investment. The majority of the ARM loans held for investment have five, seven, or 10-year fixed periods prior to the first adjustment and provide for fully amortizing loan payments throughout the term of the loan. Loans of this type have embedded interest rate risk if interest rates should rise during the initial fixed rate period or if rates should rise beyond the periodic or lifetime caps.

Borrower demand for ARM loans versus fixed-rate mortgage loans is a function of the level of interest rates, the expectations of changes in the level of interest rates and the difference between the initial interest rates and fees charged for each type of loan. The relative amount of fixed-rate mortgage loans and ARM loans that can be originated at any time is largely determined by the demand for each product in a given interest rate and competitive environment.

The retention of ARM loans, rather than fixed-rate loans, helps to reduce the Bank’s exposure to changes in interest rates. There is, however, unquantifiable credit risk resulting from the potential of increased interest charges to be paid by the borrower as a result of increases in interest rates. It is possible that, during periods of rising interest rates, the risk of default on ARM loans may increase as a result of the increase in the required payment from the borrower. Further, the risk of default may increase because ARM loans originated by the Bank occasionally provide, as a marketing incentive, for initial rates of interest below those rates that would apply if the adjustment index plus the applicable margin were initially used for pricing. Because of these characteristics, ARM loans are subject to increased risks of default or delinquency. Additionally, while ARM loans allow the Bank to increase the sensitivity of its assets as a result of changes in interest rates, the extent of this interest rate sensitivity is limited by the periodic and lifetime interest rate adjustment limits. Furthermore, because loan indexes may not respond perfectly to changes in market interest rates, upward adjustments on loans may occur more slowly than increases in the Bank’s cost of interest-bearing liabilities, especially during periods of rapidly increasing interest rates. Conversely, downward adjustments on the Bank’s cost of funds typically lag adjustments on ARM loans which may occur more rapidly during periods of declining interest rates. For additional information concerning the effect of interest rates on our loan portfolio, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” of this Form 10-K.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires lenders to make a reasonable, good faith determination of a borrower’s ability to repay any consumer closed-end credit transaction secured by a dwelling and to limit prepayment penalties. Increased risks of legal challenge, private right of action and regulatory enforcement actions result from these rules. The Bank may originate loans that do not meet the definition of a “qualified mortgage” (“QM”). To mitigate the risks involved with non-QM loans, the Bank has implemented systems, processes,

procedural and product changes, and maintains its underwriting standards, to ensure that the “ability-to-repay” requirements are adequately addressed.

A decline in real estate values subsequent to the time of origination of real estate secured loans could result in higher loan delinquency levels, foreclosures, provisions for credit losses and net charge-offs. Real estate values and real estate markets are beyond the Bank’s control and are generally affected by changes in national, regional or local economic conditions and other factors. These factors include fluctuations in interest rates and the availability of loans to potential purchasers, housing supply and demand, changes in tax laws and other governmental statutes, regulations and policies and acts of nature, such as earthquakes, fires, droughts and other natural disasters particular to California where substantially all of our real estate collateral is located. If real estate values decline from the levels at the time of loan origination, the value of our real estate collateral securing the loans could be significantly reduced. The Bank’s ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and it would be more likely that the Bank could suffer losses on defaulted loans.

Multi-Family and Commercial Real Estate Loans. At June 30, 2024, multi-family loans were $445.2 million and commercial real estate loans were $83.3 million, or 42% and 8%, respectively, of loans held for investment. This compares to multi-family loans of $461.1 million and commercial real estate loans of $90.6 million, or 43% and 8%, respectively, of loans held for investment at June 30, 2023. Consistent with its strategy to diversify the composition of loans held for investment, the Bank has emphasized the origination and purchase of multi-family and commercial real estate loans. During fiscal 2024, the Bank originated $31.9 million in multi-family and commercial real estate loans but did not purchase any. This is a decrease from fiscal 2023, when $69.3 million of such loans were originated and none were purchased. As of June 30, 2024, the average outstanding loan balance was approximately $724,000 for multi-family loans and approximately $731,000 for commercial real estate loans.

The multi-family loans originated by the Bank are predominately adjustable-rate loans, including hybrid ARM loans, with terms ranging from 10 to 30 years and amortization schedules of 25 to 30 years. Similarly, the Bank’s commercial real estate loans are mainly adjustable-rate loans, also including hybrid ARM loans, with the same maturity terms and amortization schedules. The interest rates on multi-family and commercial real estate ARM loans generally adjust monthly, quarterly, semi-annually, or annually, based on a specific margin over the relevant interest rate index and are subject to periodic and lifetime interest rate caps. At June 30, 2024, $428.4 million, or 96%, of the Bank’s multi-family loans were secured by projects with five to 36 units. The Bank’s commercial real estate loan portfolio primarily consists of loans secured by small office buildings, light industrial buildings, warehouses, and small retail centers. The properties securing these loans are mainly located in the counties of Alameda, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Francisco, and Santa Clara. The Bank typically originates multi-family and commercial real estate loans in amounts ranging from $350,000 to $6.0 million. At June 30, 2024, the Bank had 57 commercial real estate and multi-family loans with principal balances greater than $1.5 million, totaling $125.7 million. Appraisals are obtained for all properties securing multi-family and commercial real estate loans. The underwriting process for these loans includes a thorough analysis of the property's cash flows to ensure adequate debt service coverage, as well as an evaluation of the financial resources, experience, and income levels of the borrowers and guarantors.

Multi-family and commercial real estate loans afford the Bank an opportunity to price the loans with higher interest rates than those generally available from single-family mortgage loans. However, loans secured by such properties are generally greater in amount, more difficult to evaluate and monitor and are more susceptible to default as a result of general economic conditions and, therefore, involve a greater degree of risk than single-family residential mortgage loans. Because payments on loans secured by multi-family and commercial real estate properties are often dependent on the successful operation and management of the properties, repayment of such loans may be impacted by adverse conditions in the real estate market or the economy. During both fiscal 2024 and 2023, the Bank had no charge-offs or recoveries on multi-family and commercial real estate loans. At June 30, 2024 and 2023, there were no non-performing or 30 to 89 days delinquent multi-family and commercial real estate loans. Non-performing loans and/or delinquent loans may increase if there is a general decline in California real estate markets and in the event poor general economic conditions prevail.

**Construction Loans.**The Bank originates from time to time two types of construction loans: short-term construction loans and construction/permanent loans. During fiscal 2024 and 2023, the Bank originated a total of $1.5 million and $1.6 million of construction loans (including undisbursed loan funds), respectively. As of June 30, 2024 and 2023, the Bank had construction loans totaling $2.7 million and $1.9 million, net of undisbursed loan funds of $435,000 and $1.9 million,

respectively. On these dates, the loans consisted of bridge loans totaling $1.5 million and $0, short-term construction loans totaling $228,000 and $1.7 million, and construction/permanent loans totaling $984,000 and $230,000 respectively.

Short-term construction loans include three types of loans: custom construction, tract construction, and speculative construction. The Bank provides construction financing for single-family, multi-family and commercial real estate properties. Custom construction loans are made to individuals who, at the time of application, have a contract executed with a builder to construct their residence. Custom construction loans are generally originated for a term of 12 to 18 months, with adjustable or fixed interest rates at the prime lending rate plus a margin and with loan-to-value ratios of up to 75% of the appraised value of the completed property. The owner secures long-term permanent financing at the completion of construction. At June 30, 2024, there were no custom short-term single-family construction loans. This compares to June 30, 2023 when the Bank had one custom short-term single-family construction loan totaling $496,000, net of undisbursed loan funds of $49,000.

From time to time the Bank makes lot loans to individuals to finance land acquisition prior to the start of construction or tract construction loans to subdivision builders. These subdivisions are usually financed and built in phases. A thorough analysis of market trends and demand within the area are reviewed for feasibility. Tract construction may include the building and financing of model homes under a separate loan. At June 30, 2024, there was one land loan of $95,000 (reported as other mortgage loans) and no tract construction loans; as compared to one land loan for $106,000 (reported as other mortgage loans) and one tract construction loan for $1.1 million, net of undisbursed loan funds of $567,000 at June 30, 2023.

Speculative construction loans are made to home builders and are termed “speculative” because the home builder does not have, at the time of loan origination, a signed sale contract with a home buyer who has a commitment for permanent financing with either the Bank or another lender for the finished home. The home buyer may be identified during or after the construction period. The builder may be required to debt service the speculative construction loan for a significant period of time after the completion of construction until the homebuyer is identified. At June 30, 2024, the Bank had one speculative construction loan of $228,000, net of undisbursed loan funds of $32,000, as compared to one construction loan of $94,000, net of undisbursed loan funds of $166,000 at June 30, 2023.

Construction/permanent loans automatically roll from the construction to the permanent phase. The construction phase generally lasts 12 to 18 months and the interest rate charged is generally fixed at a margin above prime rate and with a loan-to-value ratio of up to 75% of the appraised value of the completed property. At June 30, 2024, there were $984,000 of custom construction/permanent loans, net of undisbursed loan funds of $403,000 as compared to $230,000 of custom construction/permanent loans, net of undisbursed loan funds of $1.2 million at June 30, 2023.

Construction loans under $1.0 million are approved by Bank personnel specifically designated to approve construction loans. The Bank’s Loan Committee, comprised of the Chief Executive Officer, Chief Lending Officer, Senior Vice President – Single-Family Division and Vice President - Loan Administration, approves all construction loans over $1.0 million. Prior to approval of any construction loan, an independent fee appraiser inspects the site and the Bank reviews the existing or proposed improvements, identifies the market for the proposed project, and analyzes the pro-forma data and assumptions on the project. In the case of a tract or speculative construction loan, the Bank also reviews the experience and expertise of the builder. The Bank obtains credit reports, financial statements and tax returns on the borrowers and guarantors, an independent appraisal of the project, and any other expert report necessary to evaluate the proposed project. In the event of cost overruns, the Bank requires the borrower to deposit their own funds into a loan-in-process account, which the Bank disburses consistent with the completion of the subject property pursuant to a revised disbursement schedule.

The construction loan documents require that construction loan proceeds be disbursed in increments as construction progresses. Disbursements are based on periodic on-site inspections by independent inspectors and/or Bank personnel. At inception, the Bank also requires borrowers to deposit funds into a loan-in-process account covering the difference between the actual cost of construction and the loan amount. The Bank regularly monitors the construction loan portfolio, economic conditions and housing inventory. The Bank’s property inspectors perform periodic inspections. The Bank believes that the internal monitoring system helps reduce many of the risks inherent in its construction loans.

Construction loans afford the Bank the opportunity to achieve higher interest rates and fees with shorter terms to maturity than its single-family mortgage loans. Construction loans, however, are generally considered to involve a higher degree of risk than single-family mortgage loans because of the inherent difficulty in estimating both a property’s value at completion of the project and the cost of the project. The nature of these loans is such that they are generally more difficult to evaluate and monitor. If the estimate of construction costs proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value upon completion proves to be inaccurate, the Bank may be confronted with a project whose value is insufficient to assure full repayment. Projects may also be jeopardized by disagreements between borrowers and builders and by the failure of builders to pay subcontractors. Loans to builders to construct homes for which no purchaser has been identified carry additional risk because the payoff for the loan depends on the builder’s ability to sell the property prior to the time that the construction loan matures. The Bank has sought to address these risks by adhering to strict underwriting policies, disbursement procedures and monitoring practices. In addition, because the Bank’s construction lending is in its primary market area, changes in the local or regional economy and real estate market could adversely affect the Bank’s construction loans held for investment. During fiscal 2024 and 2023, the Bank had no charge-offs or recoveries on construction loans, and no construction loans were non-performing or 30-89 days delinquent at both June 30, 2024 and June 30, 2023.

**Participation Loan Purchases and Sales.**To expand production and diversify risk, the Bank purchases loans and loan participations, primarily with collateral located in California, which allows for greater geographic distribution outside of the Bank’s primary lending areas. The Bank typically purchases between 50% and 100% of the total loan amount. When purchasing a participation loan, the lead lender usually retains a servicing fee, which reduces the loan yield to approximately the cost the Bank would incur if it serviced the loan itself. All properties serving as collateral for these loan participations are inspected by either a Bank employee or a third-party inspection service before being approved by the Loan Committee. The Bank uses the same underwriting criteria for these purchases as it does for loans it originates. The Bank did not purchase any loans to be held for investment in fiscal 2024 and 2023, due primarily to concerns over asset quality in light of the current economic climate and fewer loans available for purchase. As of June 30, 2024 and 2023, there were $1.8 million and $10.6 million of loans serviced by other financial institutions, respectively. As of June 30, 2024 and 2023, all loans serviced by others were performing according to their original contractual payment terms, except for one loan totaling $362,000 that was classified as non-performing as of June 30, 2024.

The Bank also sells participating interests in loans when it has been determined that it is beneficial to diversify the Bank’s risk. Participation sales enable the Bank to maintain acceptable loan concentrations and comply with the Bank’s loans to one borrower policy. Generally, selling a participating interest in a loan increases the yield to the Bank on the portion of the loan that is retained. The Bank did not sell any participation loans in fiscal 2024 or fiscal 2023.

Commercial Business Loans. The Bank has a Business Banking Department that primarily serves businesses located within the Inland Empire. Commercial business loans allow the Bank to diversify its lending and increase the average loan yield. As of June 30, 2024, commercial business loans were $1.4 million, down from $1.6 million at June 30, 2023. These loans represent secured and unsecured lines of credit and term loans secured by business assets.

Commercial business loans are generally made to customers who are well known to the Bank and are generally secured by accounts receivable, inventory, business equipment and/or other assets. The Bank’s commercial business loans may be structured as term loans or as lines of credit. Lines of credit are made at variable rates of interest equal to a negotiated margin above the prime rate and term loans are at a fixed or variable rate. The Bank may also require personal guarantees from financially capable parties associated with the business based on a review of personal financial statements. Commercial business term loans are generally made to finance the purchase of assets and have maturities of five years or less. Commercial lines of credit are typically made for the purpose of providing working capital and are typically approved with a term of one year or less.

Commercial business loans involve greater risk than residential mortgage loans and involve risks that are different from those associated with residential and commercial real estate loans. Real estate loans are generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral value and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial business loans are often collateralized by equipment, inventory, accounts receivable or other business assets including real estate, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because accounts receivable may not be collectible and inventories and equipment may be obsolete or of limited

use. Accordingly, the repayment of a commercial business loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is secondary and oftentimes an insufficient source of repayment. At June 30, 2024 and 2023, there were no non-performing commercial business loans. During fiscal 2024 and 2023, the Bank had no charge-offs or recoveries on commercial business loans.

**Consumer Loans.**At June 30, 2024, the Bank’s consumer loans were $65,000, unchanged from June 30, 2023. The Bank offers open-ended lines of credit on an unsecured basis, primarily deposit overdraft lines of credit.

Consumer loans potentially have a greater risk than residential mortgage loans, particularly in the case of loans that are unsecured. Consumer loan collections are dependent on the borrower’s ongoing financial stability, and thus are more likely to be adversely affected by job loss, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans. The Bank had no non-performing consumer loans at both June 30, 2024 and 2023. During fiscal 2024 and 2023, the Bank had no charge-offs or recoveries on consumer loans.

Loans Originations, Purchases, Sales and Repayments

Mortgage loans are primarily originated for investment. Prior to scaling back originations of saleable single-family fixed-rate mortgage loans during fiscal 2019, a large amount of single-family fixed-rate mortgage loans were originated for sale to institutional investors. Mortgage loans sold to investors generally were sold without recourse other than standard representations and warranties. Generally, mortgage loans sold to Fannie Mae and Freddie Mac were sold on a non-recourse basis and foreclosure losses are generally the responsibility of the purchaser and not the Bank, except in the case of Federal Housing Administration (“FHA”) and Veterans’ Administration (“VA”) loans used to form Government National Mortgage Association pools, which are subject to limitations on the FHA’s and VA’s loan guarantees.

The following table shows the Bank’s loan originations, purchases, sales and principal repayments during the periods indicated. No loans were purchased during the periods indicated: