PROVIDENT FINANCIAL HOLDINGS INC

Previous wording

Provident Financial Holdings, Inc., a Delaware corporation, was organized in January 1996 for the purpose of becoming the holding company of Provident Savings Bank, F.S.B. (the “Bank") upon the Bank’s conversion from a federal mutual to a federal stock savings bank (“Conversion”). The Conversion was completed on June 27, 1996. The Corporation is regulated by the Board of Governors of the Federal Reserve System (“Federal Reserve”). At March 31, 2024, the Corporation had total assets of $1.29 billion, total deposits of $908.1 million and total stockholders’ equity of $129.5 million. The Corporation has not engaged in any significant activity other than holding the stock of the Bank. Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Bank and its subsidiaries. As used in this report, the terms “we,” “our,” “us,” and “Corporation” refer to Provident Financial Holdings, Inc. and its consolidated subsidiaries, unless the context indicates otherwise.

Current wording

Provident Financial Holdings, Inc., a Delaware corporation, was organized in January 1996 for the purpose of becoming the holding company of Provident Savings Bank, F.S.B. (the “Bank") upon the Bank’s conversion from a federal mutual to a federal stock savings bank (“Conversion”). The Conversion was completed on June 27, 1996. The Corporation is regulated by the Board of Governors of the Federal Reserve System (“Federal Reserve”). At September 30, 2024, the Corporation had total assets of $1.26 billion, total deposits of $863.9 million and total stockholders’ equity of $129.6 million. The Corporation has not engaged in any significant activity other than holding the stock of the Bank. Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Bank and its subsidiaries. As used in this report, the terms “we,” “our,” “us,” and “Corporation” refer to Provident Financial Holdings, Inc. and its consolidated subsidiaries, unless the context indicates otherwise.

Previous wording

This Form 10-Q contains statements that the Corporation believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to the Corporation’s financial condition, liquidity, results of operations, plans, objectives, future performance or business. You should not place undue reliance on these statements as they are subject to various risks and uncertainties. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Corporation may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Corporation. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements include, but are not limited to: potential adverse impacts to economic conditions in our local market areas, other markets where the Corporation has lending relationships, or other aspects of the Corporation's business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages, a potential recession or slowed economic growth; changes in the interest rate environment, including the past increases in the Board of Governors of the Federal Reserve benchmark rate and duration at which such increased interest rate levels are maintained, 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 continuing elevated inflation levels and the current and future monetary policies of the Federal Reserve in response thereto; the effects of any federal government shutdown; increased competitive pressures; changes in conditions within the securities markets; fluctuations in deposits; liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; 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; our ability to attract and retain deposits; our ability to pay dividends on our common stock; 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; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health cris…

Excerpt shortened here; the source contains the full paragraph.

Current wording

Certain matters discussed in this Form 10-Q constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to the Corporation’s consolidated statement of financial condition, liquidity, statements of operations, plans, objectives, future performance or business. You should not place undue reliance on these statements as they are subject to various risks and uncertainties. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Corporation may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Corporation.

Previous wording

Form 10-K. The Corporation adopted the current expected credit loss, or CECL, methodology on July 1, 2023. Accounting for the allowance for credit losses (“ACL”) involves significant judgement and assumptions by management and is based on historical data, current economic conditions and a reasonable and supportable forecast of future events. On a quarterly basis, management reviews the methodology and adequacy of the ACL. Refer to Notes 2, 4 and 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements, and the “Provision for (Recovery of) Credit Losses” section in this Form 10-Q for more information on the establishment of the ACL and the implementation of CECL.

Current wording

The Corporation’s critical accounting estimates are described in the Critical Accounting Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 - Organization and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements of our 2024 Annual Form 10-K. The Corporation adopted the current expected credit loss, or CECL, methodology on July 1, 2023. Accounting for the allowance for credit losses (“ACL”) involves significant judgement and assumptions by management and is based on historical data, current economic conditions and a reasonable and supportable forecast of future events. On a quarterly basis, management reviews the methodology and adequacy of the ACL. Refer to Notes 4 and 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements, and the “Provision for (Recovery of) Credit Losses” section in this Form 10-Q for more information on the establishment of the ACL.

Previous wording

The Corporation, subject to market conditions, intends to improve its community banking business over the next several years by moderately increasing total assets by increasing single-family, multi-family, commercial real estate, construction and commercial business loans. Further, the Corporation intends to gradually decrease the percentage of time deposits in its deposit base and to increase the percentage of lower cost checking and savings accounts, although deposit account diversification will also remain a focus. This strategy is intended to improve core revenue through a higher net interest margin and ultimately, coupled with the growth of the Corporation, an increase in net interest income. While the Corporation’s long-term strategy is for moderate growth, management recognizes that growth may be challenging given the uncertainty of current general economic conditions, the high interest rate environment and the inverted yield curve.

Current wording

The Corporation plans to enhance its community banking business by moderately increasing its total assets, focusing on expanding single-family, multi-family, commercial real estate, construction, and commercial business loans. Additionally, the Corporation aims to reduce the percentage of retail time deposits in its deposit base while increasing the proportion of lower-cost checking and savings accounts. To diversify its deposit instruments, the Corporation will consider utilizing brokered certificates of deposit and the State of California’s time deposits, subject to market conditions and its funding 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. While the Corporation’s long-term strategy targets moderate growth, management acknowledges that this growth may be influenced by general economic conditions and other factors.

Previous wording

Investment services operations primarily consist of selling alternative investment products such as annuities and mutual funds to the Bank’s depositors. Provident Financial Corp 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. Investment services and trustee services contribute a very small percentage of gross revenue.

Current wording

Investment services operations primarily consist of selling alternative investment products such as annuities and mutual funds to the Bank’s depositors. Provident Financial Corp (“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. Investment services and trustee services contribute a very small percentage of gross revenue.

Previous wording

There are a number of risks associated with the business activities of the Corporation, many of which are beyond the Corporation’s control as described in the Corporation’s 2023 Annual Form 10-K. 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 commercial real estate environment, particularly office space of various types, currently presents elevated risk within the banking industry. In response, the Bank has reviewed its existing office space exposure for any outsized exposure and implemented tighter underwriting standards for this collateral type. At March 31, 2024, our commercial real estate portfolio totaled $83.1 million, including office space of various types, totaling approximately $41.8 million or 50.3 percent of the total commercial real estate portfolio and 3.9 percent of the total loan portfolio.

Current wording

There are a number of risks associated with the business activities of the Corporation, many of which are beyond the Corporation’s control as described in the Corporation’s 2024 Annual Report on Form 10-K. 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 commercial real estate environment, particularly office space of various types, currently presents elevated risk within the banking industry. In response, the Bank has reviewed its existing loans collateralized by office space for any outsized exposure and implemented tighter underwriting standards for this collateral type. At September 30, 2024, our commercial real estate portfolio totaled $81.2 million, including office space of various types, totaling approximately $41.3 million or 50.9 percent of the total commercial real estate portfolio and 3.9 percent of the total loan portfolio.

Previous wording

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, in the form of originating loans or providing funds under existing lines of credit, loan sale agreements to third parties and option contracts. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying Condensed Consolidated Statements of Financial Condition. The Corporation’s exposure to credit loss, in the event of non-performance by the counterparty to these financial instruments, is represented by the contractual amount of these instruments. The Corporation uses the same credit policies in entering into financial instruments with off-balance sheet risk as it does for on-balance sheet instruments. For a discussion on commitments and derivative financial instruments, see Note 6 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Current wording

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, in the form of originating loans or providing funds under existing lines of credit, loan sale agreements to third parties and option contracts. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying Condensed Consolidated Statements of Financial Condition. The Corporation’s exposure to credit loss, in the event of non-performance by the counterparty to these financial instruments, is represented by the contractual amount of these instruments. The Corporation uses the same credit policies in entering into financial instruments with off-

Previous wording

Total assets decreased three percent to $1.29 billion at March 31, 2024 from $1.33 billion at June 30, 2023. The decrease was primarily attributable to decreases in cash and cash equivalents, investment securities and loans held for investment.

Current wording

Total assets decreased one percent to $1.26 billion at September 30, 2024 from $1.27 billion at June 30, 2024. The decrease was primarily attributable to decreases in cash and cash equivalents, investment securities and loans held for investment.

Previous wording

Total cash and cash equivalents, primarily excess cash deposited with the FRB of San Francisco, decreased $14.1 million, or 21 percent, to $51.7 million at March 31, 2024 from $65.8 million at June 30, 2023. The decrease in total cash and cash equivalents was primarily attributable to deposit outflows and management’s proactive strategy to manage liquidity based upon recent economic conditions.

Current wording

Total cash and cash equivalents, primarily excess cash deposited with the FRB of San Francisco, decreased $3.2 million, or six percent, to $48.2 million at September 30, 2024 from $51.4 million at June 30, 2024. The decrease in total cash and cash equivalents was primarily attributable to deposit outflows and management’s proactive strategy to manage liquidity based upon recent economic conditions.

Previous wording

Investment securities (held to maturity and available for sale) decreased $18.6 million, or 12 percent, to $137.9 million at March 31, 2024 from $156.5 million at June 30, 2023. The decrease was primarily the result of scheduled and accelerated principal payments on mortgage-backed and other securities during the first nine months of fiscal 2024. For further analysis on investment securities, see Note 4 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Current wording

Investment securities (held to maturity and available for sale) decreased $5.8 million, or four percent, to $126.1 million at September 30, 2024 from $131.9 million at June 30, 2024. The decrease was primarily the result of scheduled and accelerated principal payments on mortgage-backed and other securities during the first three months of fiscal 2025, with no purchases of investment securities during the period. For further analysis on investment securities, see Note 4 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Previous wording

Loans held for investment decreased $11.9 million, or one percent, to $1.07 billion at March 31, 2024 from $1.08 billion at June 30, 2023, predominantly due to declines in multi-family and commercial real estate loans. During the first nine months of fiscal 2024, the Corporation originated $56.9 million of loans held for investment, consisting primarily of single-family, multi-family and commercial real estate loans located throughout California. The Corporation did not purchase any loans from other institutions during the first nine months of fiscal 2024. Total loan principal payments during the first nine months of fiscal 2024 were $69.3 million, down 10 percent from $77.2 million during the comparable period in fiscal 2023. Single-family loans held for investment at March 31, 2024 and June 30, 2023 totaled $517.0 million and $518.8 million, representing approximately 49 percent and 48 percent of loans held for investment, respectively. Multi-family loans held for investment at March 31, 2024 and June 30, 2023 totaled $457.4 million and $461.1 million, respectively, representing approximately 43 percent of loans held for investment at both dates. Commercial real estate loans held for investment at March 31, 2024 and June 30, 2023 totaled $83.1 million and $90.6 million, respectively, representing approximately eight percent of loans held for investment at both dates.

Current wording

Loans held for investment decreased $4.3 million, less than one percent, to $1.05 billion at September 30, 2024 from $1.05 billion at June 30, 2024, predominantly due to declines in multi-family and commercial real estate loans, partly offset by an increase in single-family loans. During the first three months of fiscal 2025, the Corporation originated $28.9 million of loans held for investment, consisting primarily of single-family, multi-family and commercial real estate loans located throughout California. The Corporation did not purchase any loans during the first three months of fiscal 2025. Total loan principal payments during the first three months of fiscal 2025 were $34.0 million, up 48 percent from $23.0 million during the comparable period in fiscal 2024. Single-family loans held for investment at September 30, 2024 and June 30, 2024 totaled $524.2 million and $518.1 million, representing approximately 50 percent and 49 percent of loans held for investment, respectively. Multi-family loans held for investment at September 30, 2024 and June 30, 2024 totaled $435.8 million and $445.2 million, respectively, representing approximately 42 percent of loans held for investment at both dates. Commercial real estate loans held for investment at September 30, 2024 and June 30, 2024 totaled $81.2 million and $83.3 million, respectively, representing approximately eight percent of loans held for investment at both dates.

Previous wording

Total deposits decreased $42.5 million, or four percent, to $908.1 million at March 31, 2024 from $950.6 million at June 30, 2023, primarily due to a decrease in transaction accounts, partly offset by an increase in time deposits. The decrease in total deposits was primarily due to customers seeking higher interest rates elsewhere. Total uninsured deposits were approximately $136.4 million and $140.1 million at March 31, 2024 and June 30, 2023, respectively. The amounts of uninsured deposits are based on estimated amounts of uninsured deposits as of the reported period. Such estimates are based on the same methodologies and assumptions used for regulatory reporting requirements.

Current wording

Total deposits decreased $24.4 million, or three percent, to $863.9 million at September 30, 2024 from $888.3 million at June 30, 2024, due to decreases in all account categories, except money market accounts. The decrease in total deposits was primarily due to customers seeking higher interest rates as competition for deposits in our market area remains strong. Total uninsured deposits were approximately $124.2 million and $122.7 million at September 30, 2024 and June 30, 2024, respectively. The amounts of uninsured deposits are based on estimated amounts of uninsured deposits as of the reported period. Such estimates are based on the same methodologies and assumptions used for regulatory reporting requirements.

Previous wording

Transaction account balances or “core deposits” decreased $87.4 million, or 12 percent, to $642.2 million at March 31, 2024 from $729.6 million at June 30, 2023, while time deposits increased $45.0 million, or 20 percent, to $265.9 million at March 31, 2024 from $220.9 million at June 30, 2023. The increase in time deposits was due to both increases in retail time deposits and brokered certificates of deposit. Excluding brokered certificates of deposit, the percentage of time deposits to total deposits was 17 percent at March 31, 2024, compared to 14 percent at June 30, 2023. At March 31, 2024 and June 30, 2023, total brokered certificates of deposit were $130.9 million and $106.4 million, respectively.

Current wording

Transaction account balances or “core deposits” decreased $14.8 million, or two percent, to $599.7 million at September 30, 2024 from $614.5 million at June 30, 2024, while time deposits decreased $9.7 million, or four percent, to $264.2 million at September 30, 2024 from $273.9 million at June 30, 2024. The decrease in time deposits was due to primarily the decline in retail time deposits. At September 30, 2024 and June 30, 2024, total brokered certificates of deposit were $129.8 million and $131.8 million, respectively. Excluding brokered certificates of deposit, the percentage of time deposits to total deposits was 18 percent and 19 percent at September 30, 2024 and June 30, 2024, respectively.

Previous wording

Total borrowings were virtually unchanged at $235.0 million at March 31, 2024 and June 30, 2023. At March 31, 2024 and June 30, 2023, borrowings were comprised of short-term and long-term FHLB - San Francisco advances used for liquidity and interest rate risk management purposes.

Current wording

Total borrowings increased $11.0 million, or five percent, to $249.5.0 million at September 30, 2024 from $238.5 million at June 30, 2024. The increase in borrowings was primarily to augment the decrease in total deposits. At September 30, 2024 and June 30, 2024, borrowings were comprised of short-term and long-term FHLB - San Francisco advances used for liquidity and interest rate risk management purposes.

Previous wording

Comparison of Operating Results for the Quarters and Nine Months Ended March 31, 2024 and 2023

Current wording

Comparison of Operating Results for the Quarters Ended September 30, 2024 and 2023

Previous wording

For the first nine months of fiscal 2024, net income was $5.4 million, down $1.4 million. or 20 percent from $6.8 million in the same period of fiscal 2023. The decrease in net income was attributable to a $1.3 million decrease in net interest income, a $705,000 increase in non-interest expense and a $466,000 decrease in non-interest income, partly offset by a $481,000 change in the provision for credit losses to a $51,000 recovery of credit losses in the first nine months of fiscal 2024, in contrast to a $430,000 provision for credit losses in the same period in fiscal 2023.

Current wording

Net income for the first quarter of fiscal 2025 was $1.9 million, up $138,000 or eight percent from $1.8 million in the same period of fiscal 2024. The increase in net income was primarily attributable to a $697,000 recovery of credit losses in the first quarter of fiscal 2025 (in contrast to a $545,000 provision for credit losses in the same quarter last year) and a $148,000 increase in non-interest income, partly offset by a $667,000 increase in non-interest expense and a $523,000 decrease in net interest income.

Previous wording

The efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, was 76.20 percent for the third quarter of fiscal 2024, compared to 66.69 percent in the same period last year. For the first nine months of fiscal 2024, the efficiency ratio was 73.82 percent, compared to 67.33 percent for the same period of fiscal 2023. The deterioration of the efficiency ratio during the current quarter and nine-month period compared to the same periods last year was due both to higher non-interest expenses and lower total revenues.

Current wording

The efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, was 79.06 percent for the first quarter of fiscal 2025, compared to 69.32 percent in the same period last year. The deterioration of the efficiency ratio during the current quarter compared to the same period last year was due both to higher non-interest expenses and a lower net interest income.

Previous wording

Return on average stockholders’ equity was 4.57 percent in the third quarter of fiscal 2024, down from 7.12 percent in the same period last year. For the first nine months of fiscal 2024, return on average stockholders’ equity was 5.51 percent, down from 6.94 percent in the same period last year.

Current wording

Return on average assets was 0.61 percent in the first quarter of fiscal 2025, up seven basis points from 0.54 percent in the same period last year. Return on average stockholders’ equity was 5.78 percent in the first quarter of fiscal 2025, up from 5.40 percent in the same period last year. Diluted earnings per share for the first quarter of fiscal 2025 were $0.28, up 12 percent from $0.25 in the same period last year.

Previous wording

**For the Quarters Ended March 31, 2024 and 2023.**Net interest income decreased $842,000 or nine percent to $8.6 million for the third quarter of fiscal 2024 from $9.4 million for the same quarter last year. The decrease in net interest income was due to a lower net interest margin and, to a lesser extent, a lower average balance of interest-earning assets. The lower net interest margin was due to the increase in the average cost of interest-bearing liabilities which exceeded the increase in the average yield on interest-earning assets. The net interest margin during the third quarter of fiscal 2024 decreased 26 basis points to 2.74 percent from 3.00 percent in the same quarter last year. The average yield on interest-earning assets increased 58 basis points to 4.41 percent in the third quarter of fiscal 2024 from 3.83 percent in the same quarter last year, while the average cost of interest-bearing liabilities increased 93 basis points to 1.86 percent in the third quarter of fiscal 2024 from 0.93 percent in the same quarter last year. The average balance of interest-earning assets decreased slightly to $1.25 billion in the third quarter of fiscal 2024 as compared to the same quarter last year. The slight decrease in interest-earning assets was primarily due to a decrease in the average balance of investment securities, partly offset by increases in the average balance of loans receivable and interest-earning deposits. The average balance of interest-bearing liabilities decreased $4.1 million, or one percent, to $1.13 billion in the third quarter of fiscal 2024 from $1.14 billion in the same quarter last year primarily reflecting decreases in the average balance of core deposits or transaction accounts, partly offset by increases in the average balance of borrowings and time deposits.

Current wording

Net interest income decreased $523,000 or six percent to $8.6 million for the first quarter of fiscal 2025 from $9.1 million for the same quarter last year. The decrease in net interest income was due to a lower average balance of interest-earning assets and, to a lesser extent, a lower net interest margin. The average balance of interest-earning assets decreased $54.7 million, or four percent, to $1.22 billion in the first quarter of fiscal 2025 from $1.27 billion the same quarter last year as the average balances of investment securities, loans receivable and interest-earning deposits all declined. The average balance of interest-bearing liabilities decreased $51.3 million, or four percent, to $1.10 billion in the first quarter of fiscal 2025 from $1.15 billion in the same quarter last year primarily reflecting the decrease in the average balance of deposits. The lower net interest margin was due to the increase in the average cost of interest-bearing liabilities which exceeded the increase in the average yield on interest-earning assets. The net interest margin during the first quarter of fiscal 2025 decreased four basis points to 2.84 percent from 2.88 percent in the same quarter last year. The average yield on interest-earning assets increased 43 basis points to 4.63 percent in the first quarter of fiscal 2025 from 4.20 percent in the same quarter last year, while the average cost of interest-bearing liabilities increased 52 basis points to 1.97 percent in the first quarter of fiscal 2025 from 1.45 percent in the same quarter last year.

Previous wording

For the Nine Months Ended March 31, 2024 and 2023. Total interest income increased $7.7 million, or 23 percent, to $40.8 million for the first nine months of fiscal 2024 from $33.1 million in the same period of fiscal 2023. The increase was due primarily to an increase in interest income from loans receivable and, to a lesser extent, interest income on interest-earning deposits.

Current wording

Total interest income increased $733,000, or five percent, to $14.1 million for the first quarter of fiscal 2025 from $13.3 million for the same quarter of fiscal 2024. The increase was due primarily to an increase in interest income from loans receivable, partly offset by a decrease in interest income from interest-earnings deposits.

Previous wording

Interest income on loans receivable increased $1.7 million, or 15 percent, to $12.7 million in the third quarter of fiscal 2024 from $11.0 million in the same quarter of fiscal 2023. The increase was due to a higher average yield and, to a lesser extent, a higher average balance. The average yield on loans receivable increased 56 basis points to 4.74 percent in the third quarter of fiscal 2024 from an average yield of 4.18 percent in the same quarter last year. The higher weighted average loan yield was due primarily to the upward repricing of adjustable rate loans and new loan originations with higher weighted average interest rates. Adjustable-rate loans of approximately $112.9 million were repriced upward in the third quarter of fiscal 2024 by approximately 97 basis points from an average yield of 6.72 percent to 7.69 percent. The average balance of loans receivable increased $16.6 million, or two percent, to $1.07 billion in the third quarter of fiscal 2024 from $1.05 billion in the same quarter last year. Net deferred loan cost amortization in the third quarter of fiscal 2024 increased 12 percent to $255,000 from $228,000 in the same quarter last year. Total loans originated for investment in the third quarter of fiscal 2024 were $18.2 million, down 66 percent from $53.9 million in the same quarter last year; while loan principal payments received in the third quarter of fiscal 2024 were $28.5 million, up 63 percent from $17.5 million in the same quarter last year.

Current wording

Interest income on loans receivable increased $847,000, or seven percent, to $13.0 million in the first quarter of fiscal 2025 from $12.2 million in the same quarter of fiscal 2024. The increase was due to a higher average yield, partly offset by a lower average balance. The average yield on loans receivable increased 43 basis points to 4.97 percent in the first quarter of fiscal 2025 from an average yield of 4.54 percent in the same quarter last year. The higher weighted average loan yield was due primarily to the upward repricing of adjustable rate loans and new loan originations with higher weighted average interest rates. Adjustable-rate loans of approximately $122.2 million were repriced upward in the first quarter of fiscal 2025 by approximately 108 basis points from an average yield of 7.40 percent to 8.48 percent. The average balance of loans receivable decreased $23.5 million, or two percent, to $1.05 billion in the first quarter of fiscal 2025 from $1.07 billion in the same quarter last year. Net deferred loan cost amortization in the first quarter of fiscal 2025 increased 85 percent to $355,000 from $192,000 in the same quarter last year. Total loans originated for investment in the first quarter of fiscal 2025 were $28.9 million, up 56 percent from $18.5 million in the same quarter last year; while loan principal payments received in the first quarter of fiscal 2025 were $34.0 million, up 48 percent from $23.0 million in the same quarter last year.

Previous wording

Interest income from investment securities decreased $31,000, or six percent, to $517,000 in the third quarter of fiscal 2024 from $548,000 for the same quarter of fiscal 2023. This decrease was attributable to a lower average balance, partly offset by a higher average yield. The average balance of investment securities decreased $26.3 million, or 16 percent, to $141.4 million in the third quarter of fiscal 2024 from $167.7 million in the same quarter last year. The decrease in the average balance of investment securities was primarily the result of scheduled and accelerated principal payments on mortgage-backed securities. The average yield on investment securities increased 15 basis points to 1.46 percent in the third quarter of fiscal 2024 from 1.31 percent for the same quarter last year. The increase in the average yield was primarily attributable to a lower premium amortization during the current quarter in comparison to the same quarter last year ($124,000 vs. $181,000) due to lower total principal repayments ($5.7 million vs. $6.9 million) and the upward repricing of adjustable-rate mortgage-backed securities.

Current wording

Interest income from investment securities decreased $42,000, or eight percent, to $482,000 in the first quarter of fiscal 2025 from $524,000 for the same quarter of fiscal 2024. This decrease was attributable to a lower average balance, partly offset by a higher average yield. The average balance of investment securities decreased $24.1 million, or 16 percent, to $129.6 million in the first quarter of fiscal 2025 from $153.7 million in the same quarter last year. The decrease in the average balance of investment securities was primarily the result of scheduled and accelerated principal payments on mortgage-backed securities. The average yield on investment securities increased 13 basis points to 1.49 percent in the first quarter of fiscal 2025 from 1.36 percent for the same quarter last year. The increase in the average yield was primarily attributable to a lower premium amortization during the current quarter in comparison to the same quarter last year

Previous wording

Interest income from interest-earning deposits, primarily cash deposited at the FRB of San Francisco, was $397,000 in the third quarter of fiscal 2024, up 39 percent from $286,000 in the same quarter of fiscal 2023. The increase was due to a higher average yield and a higher average balance. The average yield earned on interest-earning deposits in the third quarter of fiscal 2024 was 5.40 percent, up 75 basis points from 4.65 percent in the same quarter last year, due primarily to an increase in the interest rate paid on excess reserves. The average balance of interest-earning deposits increased $4.5 million, or 18 percent, to $29.1 million in the third quarter of fiscal 2024 from $24.6 million in the same quarter last year primarily due to the Bank increasing its liquidity position.

Current wording

Interest income from interest-earning deposits, primarily cash deposited at the FRB of San Francisco, was $360,000 in the first quarter of fiscal 2025, down 22 percent from $463,000 in the same quarter of fiscal 2024. The decrease was due a lower average balance, partly offset by a higher average yield. The average balance of interest-earning deposits decreased $7.7 million, or 23 percent, to $26.3 million in the first quarter of fiscal 2025 from $34.0 million in the same quarter last year primarily due to the Bank decreasing its liquidity position, which was mitigated by adequate borrowing capacities. The average yield earned on interest-earning deposits in the first quarter of fiscal 2025 was 5.35 percent, up three basis points from 5.32 percent in the same quarter last year, due primarily to an increase in the interest rate paid on excess reserves.

Previous wording

**For the Quarters Ended March 31, 2024 and 2023.**Total interest expense increased $2.6 million or 100 percent to $5.2 million in the third quarter of fiscal 2024 from $2.6 million in the same quarter last year. The increase was attributable to higher interest expense on borrowings and time deposits, particularly brokered certificates of deposit.

Current wording

Total interest expense increased $1.3 million or 31 percent to $5.5 million in the first quarter of fiscal 2025 from $4.2 million in the same quarter last year. The increase was attributable to higher interest expense on borrowings and time deposits.

Previous wording

Interest expense on deposits for the first nine months of fiscal 2024 was $6.8 million, a 300 percent increase from $1.7 million for the same period last year. The increase in interest expense on deposits was primarily attributable to a higher average cost of time deposits, and to a lesser extent, a higher average balance of time deposits. The average cost of deposits was 0.99 percent, up 76 basis points from 0.23 percent in the same period last year, primarily attributable to time deposits (including brokered certificates of deposit) which increased 230 basis points to 3.54 percent for the first nine months of fiscal 2024 from 1.24 percent for the same period in fiscal 2023. The average balance of deposits decreased $40.3 million or four percent to $921.9 million in the first nine months of fiscal 2024 from $962.2 million in the same period last year due primarily to a decrease of $134.6 million in the average balance of transaction accounts, partly offset by an increase of $94.3 million in the average balance of time deposits.

Current wording

Interest expense on deposits for the first quarter of fiscal 2025 was $2.8 million, a 50 percent increase from $1.9 million for the same quarter last year. The increase in interest expense on deposits was attributable to a higher average cost and, to a lesser extent, a higher average balance of time deposits. The average cost of deposits was 1.27 percent for the first quarter of fiscal 2025, up 47 basis points from 0.80 percent in the same quarter last year, primarily attributable to the average cost of time deposits (including brokered certificates of deposit) which increased 79 basis points to 3.95 percent for the first quarter of fiscal 2025 from 3.16 percent in the same quarter of fiscal 2024. The average balance of deposits decreased six percent to $880.6 million in the first quarter of fiscal 2025 from $940.2 million in the same quarter last year due to decreases in transaction accounts which was partly offset by an increase in time deposits. The average balance of transaction accounts was $613.3 million in the first quarter of fiscal 2025, down 14 percent from $715.2 million in the same quarter last year; while the average balance of time deposits (including brokered certificates of deposit) increased 19 percent to $267.3 million in the first quarter of fiscal 2025 from $225.0 million in the same quarter last year.

Previous wording

Interest expense on borrowings, consisting of FHLB – San Francisco advances, for the third quarter of fiscal 2024 increased $845,000, or 49 percent, to $2.6 million from $1.7 million for the same quarter last year. The increase was primarily the result of a higher average balance and, to a lesser extent, a higher average cost of borrowings. The average balance of borrowings increased $47.1 million or 27 percent to $223.6 million in the third quarter of fiscal 2024 from $176.5 million in the same quarter last year and the average cost of borrowings increased 66 basis points to 4.63 percent in the third quarter of fiscal 2024 from 3.97 percent in the same quarter last year.

Current wording

Interest expense on borrowings, consisting of FHLB – San Francisco advances, for the first quarter of fiscal 2025 increased $317,000, or 14 percent, to $2.6 million from $2.3 million for the same quarter last year. The increase was primarily the result of a higher average cost of borrowings and, to a lesser extent, a higher average balance. The average cost of borrowings increased 41 basis points to 4.74 percent in the first quarter of fiscal 2025 from 4.33 percent in the same quarter last year and the average balance of borrowings increased $8.2 million or four percent to $220.7 million in the first quarter of fiscal 2025 from $212.5 million in the same quarter last year.

Previous wording

The following table sets forth the effects of changing rates and volumes on interest income and expense for the quarters and nine months ended March 31, 2024 and 2023, respectively. Information is provided with respect to the effects attributable to changes in volume (changes in volume multiplied by prior rate), the effects attributable to changes in rate (changes in rate multiplied by prior volume) and the effects attributable to changes that cannot be allocated between rate and volume.

Current wording

The following table sets forth the effects of changing rates and volumes on interest income and expense for the quarters ended September 30, 2024 and 2023, respectively. Information is provided with respect to the effects attributable to changes in volume (changes in volume multiplied by prior rate), the effects attributable to changes in rate (changes in rate multiplied by prior volume) and the effects attributable to changes that cannot be allocated between rate and volume.

Previous wording

For the Nine Months Ended March 31, 2024 and 2023. During the first nine months of fiscal 2024, the Corporation recorded a recovery of credit losses of $51,000, compared to a provision for credit losses of $430,000 in the same period of fiscal 2023. The recovery of credit losses recorded in the first nine months of fiscal 2024 was primarily attributable to a shorter estimated life of the loan portfolio resulting in higher loan prepayment estimates and the decline in the outstanding balance of loans held for investment at March 31, 2024 to $1.07 billion from $1.08 billion at June 30, 2023.

Current wording

During the first quarter of fiscal 2025, the Corporation recorded a recovery of credit losses of $697,000, in contrast to a $545,000 provision for credit losses recorded during the same period last year. The recovery of credit losses recorded in the first quarter of fiscal 2025 was primarily attributable to a shorter estimated life of the loan portfolio resulting from decreased market interest rates and higher loan prepayment estimates.

Previous wording

At March 31, 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 percent from $5.9 million at June 30, 2023. The ACL on loans as a percentage of gross loans held for investment was 0.67 percent at March 31, 2024, compared to 0.55 percent 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 the first nine months of fiscal 2024 ($51,000, which includes $16,000 for the recovery of unfunded loan commitment reserves).

Current wording

At September 30, 2024, the ACL on loans held for investment was $6.3 million, comprised of all collectively evaluated allowances, down 11 percent from $7.1 million at June 30, 2024 that were comprised of collectively evaluated allowances of $7.1 million and individually evaluated allowanced of $37,000. The ACL on loans as a percentage of gross loans held for investment was 0.61 percent at September 30, 2024, compared to 0.67 percent at June 30, 2024. The decrease in the ACL on loans was due primarily to the recovery of credit losses in the first three months of fiscal 2025 ($697,000, which includes a $39,000 provision for unfunded loan commitment reserve).

Previous wording

The following chart quantifies the factors contributing to the changes in the ACL on loans held for investment (“LHFI”) for the quarter and nine months ended March 31, 2024 subsequent to the adoption of the CECL methodology on July 1, 2023.

Current wording

The following chart quantifies the factors contributing to the changes in the ACL on loans held for investment (“LHFI”) for the quarters ended September 30, 2024 and 2023.

Previous wording

**For the Quarters Ended March 31, 2024 and 2023.**Non-interest expenses increased $244,000 or four percent to $7.2 million in the third quarter of fiscal 2024 from $6.9 million in the same quarter last year. The increase in the non-interest expense in the third quarter of fiscal 2024 was primarily due to higher salaries and employee benefits, and, to a lesser extent, higher equipment and professional expenses, partly offset by lower sales and marketing and other expenses.

Current wording

**For the Quarters Ended September 30, 2024 and 2023.**Non-interest expenses increased $667,000, or 10 percent, to $7.5 million in the first quarter of fiscal 2025 from $6.9 million in the same quarter last year. The increase in the non-interest expense in the first quarter of fiscal 2025 was primarily due to an increase in salaries and employee benefits.

Previous wording

Salaries and employee benefits increased $181,000, or four percent, to $4.5 million in the third quarter of fiscal 2024 from $4.4 million in the same quarter of fiscal 2023, representing the largest increase in non-interest expense. The increase was due primarily to higher compensation expenses and accruals for the supplemental executive retirement plans, partly offset by lower incentive compensation expenses.

Current wording

Salaries and employee benefits increased $519,000, or 13 percent, to $4.6 million in the first quarter of fiscal 2025 from $4.1 million in the same quarter of fiscal 2024, representing the largest increase in non-interest expense. The increase was due primarily to higher employee compensation, incentive compensation and retirement plan expenses.

Previous wording

**For the Quarters Ended March 31, 2024 and 2023.**The income tax provision was $620,000 for the third quarter of fiscal 2024, down 36 percent from $966,000 in the same quarter last year primarily due to lower pre-tax income. The effective tax rate in the third quarter of fiscal 2024 was 29.3 percent as compared to 29.4 percent in the same quarter last year.

Current wording

The income tax provision was $789,000 for the first quarter of fiscal 2025, up nine percent from $727,000 in the same quarter last year primarily due to higher pre-tax income. The effective tax rate in the first quarter of fiscal 2025 was 29.3 percent as compared to 29.2 percent in the same quarter last year.

Previous wording

Non-performing assets were comprised solely of non-performing loans at both March 31, 2024 and June 30, 2023. Non-performing loans, net of the ACL, consisting of loans with collateral located in California, were $2.2 million at March 31, 2024, up 73 percent from $1.3 million at June 30, 2023. Non-performing loans as a percentage of LHFI March 31, 2024 was 0.21 percent, compared to 0.12 percent at June 30, 2023. Non-performing loans at March 31, 2024 and June 30, 2023 were comprised of nine and six single-family loans, respectively. No interest accruals were made for loans that were past due 90 days or more or if the loans were deemed non-performing. There was no real estate owned at either March 31, 2024 or June 30, 2023. For further analysis on non-performing loans, see the tables below and Note 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Current wording

Non-performing assets were comprised solely of 10 non-performing single-family loans at both September 30, 2024 and June 30, 2024. Non-performing loans, net of the ACL, consisting of loans with collateral located in California, were $2.1 million at September 30, 2024, down 19 percent from $2.6 million at June 30, 2024. Non-performing loans as a percentage of LHFI at September 30, 2024 was 0.20 percent, compared to 0.25 percent at June 30, 2024. No interest accruals were made for non-performing loans. There were no loans that were past due 90 days or more and no real estate owned at either September 30, 2024 or June 30, 2024. For further analysis on non-performing loans, see the tables below and Note 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Previous wording

A decline in real estate values subsequent to the time of origination of the Corporation’s real estate secured loans could result in higher loan delinquency levels, foreclosures, provision for credit losses and net charge-offs. Real estate values and real estate markets are beyond the Corporation’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, changes in tax laws and other governmental statutes, regulations and policies and acts of nature, such as earthquakes, fires and national disasters particular to California where substantially all of the Corporation’s real estate collateral is located. If real estate values decline, the value of the real estate collateral securing the Corporation’s loans as set forth in the table could be significantly overstated. The Corporation’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 to suffer losses on defaulted loans. The Corporation generally does not update the loan-to-value ratio on its LHFI by obtaining new appraisals or broker price opinions (nor does the Corporation intend to do so in the future as a result of the costs and inefficiencies associated with completing the task) unless a specific loan has demonstrated deterioration in which case individually evaluated allowances are established, if required.

Current wording

to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies and acts of nature, such as earthquakes, fires and national disasters particular to California where substantially all of the Corporation’s real estate collateral is located. If real estate values decline, the value of the real estate collateral securing the Corporation’s loans as set forth in the table could be significantly overstated. The Corporation’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 to suffer losses on defaulted loans. The Corporation generally does not update the loan-to-value ratio on its LHFI by obtaining new appraisals or broker price opinions (nor does the Corporation intend to do so in the future as a result of the costs and inefficiencies associated with completing the task) unless a specific loan has demonstrated deterioration in which case individually evaluated allowances are established, if required.

Previous wording

The following table provides details related to the volume of loan originations, sales and principal payments for the quarters and nine months indicated:

Current wording

The following table provides details related to the volume of loan originations, sales and principal payments for the quarters indicated:

Previous wording

The primary investing activity of the Corporation is the origination and purchase of loans held for investment. During the first nine months of fiscal 2024 and 2023, the Corporation originated loans held for investment of $56.9 million and $212.8 million, respectively. At March 31, 2024, the Corporation had loan origination commitments totaling $5.1 million, undisbursed lines of credit totaling $809,000 and undisbursed construction loan funds totaling $586,000. The Corporation anticipates that it will have sufficient funds available to meet its current loan commitments. During the first nine months of fiscal 2024 and 2023, total loan repayments were $69.3 million and $77.2 million, respectively.

Current wording

million, respectively. At September 30, 2024, the Corporation had loan origination commitments totaling $15.3 million, undisbursed lines of credit totaling $3.5 million and undisbursed construction loan funds totaling $311,000. The Corporation anticipates that it will have sufficient funds available to meet its current loan funding commitments. During the first three months of fiscal 2025 and 2024, total loan repayments were $34.0 million and $23.0 million, respectively.

Previous wording

The Corporation’s primary financing activity is gathering deposits and, when needed, borrowings, principally FHLB – San Francisco advances. During the first nine months of fiscal 2024, total deposits decreased $42.5 million, or four percent, to $908.1 million, due primarily to a decrease in transaction accounts, partly offset by an increase in time deposits. The time deposits include brokered certificates of deposit totaling $130.9 million and $106.4 million at March 31, 2024 and June 30, 2023, respectively. At March 31, 2024, time deposits with a principal amount of $250,000 or less and scheduled

Current wording

The Corporation’s primary financing activity is gathering deposits and, when needed, borrowings, principally FHLB – San Francisco advances. During the first three months of fiscal 2025, total deposits decreased $24.4 million, or three percent, to $863.9 million, due to the declines in all account categories, except money market accounts. The time deposits include brokered certificates of deposit totaling $129.8 million and $131.8 million at September 30, 2024 and June 30, 2024, respectively. At September 30, 2024, time deposits with a principal amount of $250,000 or less and scheduled to mature in one year or less were $188.1 million and total time deposits with a principal amount of more than $250,000 and scheduled to mature in one year or less were $37.2 million. Historically, the Corporation has been able to retain most of its time deposits as they mature.

Previous wording

The Corporation must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. The Corporation maintains sufficient cash and cash equivalents to meet short-term liquidity needs. At March 31, 2024, total cash and cash equivalents were $51.7 million, or four percent of total assets. Depending on market conditions and the pricing of deposit products, the Bank may rely on FHLB – San Francisco advances for part of its liquidity needs. As of March 31, 2024, total borrowings were $235.0 million and the financing availability at the FHLB – San Francisco was limited to 40 percent of total assets. As a result, the remaining borrowing capacity available was $269.2 million and the remaining available collateral was $431.2 million at March 31, 2024. In addition, the Bank has secured a $172.7 million discount window facility at the FRB of San Francisco, collateralized by investment securities and single-family fixed-rate loans with a total balance of $236.8 million. As of March 31, 2024, the Bank also has a borrowing arrangement in the form of a federal funds facility with its correspondent bank for $50.0 million. The Bank had no advances under its discount window or correspondent bank facilities as of March 31, 2024.

Current wording

The Corporation must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. The Corporation maintains sufficient cash and cash equivalents to meet short-term liquidity needs. At September 30, 2024, total cash and cash equivalents were $48.2 million, or four percent of total assets. Depending on market conditions and the pricing of deposit products, the Bank may rely on FHLB – San Francisco advances for part of its liquidity needs. As of September 30, 2024, total borrowings were $249.5 million and the financing availability at the FHLB – San Francisco was limited to 40 percent of total assets. As a result, the remaining borrowing capacity available was $249.2 million and the remaining available collateral was $346.9 million at September 30, 2024. In addition, the Bank has secured a $211.5 million discount window facility at the FRB of San Francisco, collateralized by investment securities and single-family fixed-rate loans with a total balance of $295.2 million. As of September 30, 2024, the Bank also has a borrowing arrangement in the form of a federal funds facility with its correspondent bank for $50.0 million. The Bank had no advances under its discount window or correspondent bank facilities as of September 30, 2024.

Previous wording

The Bank continues to work with both the FHLB - San Francisco and FRB of San Francisco to ensure that borrowing capacity is continuously reviewed and updated in order to be accessed seamlessly should the need arise. This includes establishing accounts and pledging assets as needed in order to maximize borrowing capacity and liquidity. The total available borrowing capacity across all sources totaled approximately $491.9 million at March 31, 2024.

Current wording

The Bank continues to work with both the FHLB - San Francisco and FRB of San Francisco to ensure that borrowing capacity is continuously reviewed and updated in order to be accessed seamlessly should the need arise. This includes establishing accounts and pledging assets as needed in order to maximize borrowing capacity and liquidity. The total remaining available borrowing capacity across all sources totaled approximately $510.7 million at September 30, 2024.