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 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.

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 December 31, 2024, the Corporation had total assets of $1.25 billion, total deposits of $867.5 million and total stockholders’ equity of $128.6 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

The Corporation began paying quarterly cash dividends during the quarter ended September 30, 2002. On July 25, 2024, the Corporation’s Board of Directors declared a quarterly cash dividend of $0.14 per share for the Corporation’s shareholders of record at the close of business on August 15, 2024, which was paid on September 5, 2024. Future declarations or payments of dividends will be subject to the consideration of the Corporation’s Board of Directors, which will consider the Corporation’s financial condition, results of operations, tax considerations, capital requirements, industry standards, legal restrictions, economic conditions and other factors, including the regulatory restrictions which affect the payment of dividends by the Bank to the Corporation. Under Delaware law, dividends may be paid either out of surplus or, if there is no surplus, out of net profits for the current fiscal year and/or the preceding fiscal year in which the dividend is declared.

Current wording

The Corporation began paying quarterly cash dividends during the quarter ended September 30, 2002. On October 24, 2024, the Corporation’s Board of Directors declared a quarterly cash dividend of $0.14 per share for shareholders of record as of the close of business on November 14, 2024. This dividend was paid on December 5, 2024. Future dividend declarations and payments will be subject to the Board of Directors’ discretion, considering factors such as the Corporation’s financial condition, operational results, tax implications, capital requirements, industry standards, legal restrictions, economic conditions, and other relevant factors, including regulatory limitations that affect the Bank’s ability to pay dividends to the Corporation. Under Delaware law, dividends may be paid from surplus or, in the abset of surplus, from net profits of the current fiscal year and/or the preceding fiscal year in which the dividend is declared.

Previous 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.

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 Annual Report on Form 10-K for the fiscal year ended June 30, 2024 (“2024 Form 10-K”). There have not been any material changes in the Corporation’s critical accounting policies and estimates as compared to the disclosures contained in the Corporation’s 2024 Form 10-K.

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 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.

Current wording

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 inhibit the Corporation’s ability to recover on defaulted loans by selling the underlying real estate. Additionally, 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 December 31, 2024, our commercial real estate portfolio totaled $78.0 million, including office space of various types, totaling approximately $40.4 million or 51.8 percent of the total commercial real estate portfolio and 3.8 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-

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-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.

Previous 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.

Current wording

Total assets decreased one percent to $1.25 billion at December 31, 2024 from $1.27 billion at June 30, 2024. The decrease was primarily attributable to decreases in cash and cash equivalents and investment securities.

Previous 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.

Current wording

Total cash and cash equivalents, primarily excess cash deposited with the FRB of San Francisco, decreased $5.9 million, or 11 percent, to $45.5 million at December 31, 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 $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.

Current wording

Investment securities (held to maturity and available for sale) decreased $11.3 million, or nine percent, to $120.6 million at December 31, 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 six months of fiscal 2025, with no purchases or sales 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 $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.

Current wording

Loans held for investment increased $624,000 to $1.05 billion at December 31, 2024 from June 30, 2024, predominantly due to an increase in single-family loans, partly offset by declines in multi-family and commercial real estate loans. During the first six months of fiscal 2025, the Corporation originated $65.4 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 six months of fiscal 2025. Total loan principal payments during the first six months of fiscal 2025 were $68.4 million, up 68 percent from $40.8 million during the comparable period in fiscal 2024. Single-family loans held for investment at December 31, 2024 and June 30, 2024 totaled $533.1 million and $518.1

Previous 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.

Current wording

Total deposits decreased $20.8 million, or two percent, to $867.5 million at December 31, 2024 from $888.3 million at June 30, 2024, due to decreases in all account categories, except time deposits. 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 $134.7 million and $122.7 million at December 31, 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 $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.

Current wording

Transaction account balances or “core deposits” decreased $21.6 million, or four percent, to $592.9 million at December 31, 2024 from $614.5 million at June 30, 2024, while time deposits increased $753,000 to $274.6 million at December 31, 2024 from $273.9 million at June 30, 2024. The increase in time deposits was primarily due to the increase in brokered certificates of deposit, partly offset by a decline in retail time deposits. At December 31, 2024 and June 30, 2024, total brokered certificates of deposit were $143.8 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 December 31, 2024 and June 30, 2024, respectively.

Previous 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.

Current wording

Total borrowings increased $7.0 million, or three percent, to $245.5 million at December 31, 2024 from $238.5 million at June 30, 2024. The increase in borrowings was primarily to fund deposit outflows. At December 31, 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

Total stockholders’ equity declined slightly to $129.6 million at September 30, 2024 from $129.9 million at June 30, 2024. The decrease was primarily due to $961,000 of cash dividends paid to shareholders and $1.5 million of stock repurchases, partly offset by net income of $1.9 million in the first three months of fiscal 2025 and the amortization of stock-based compensation of $173,000. The Corporation repurchased 93,641 shares of its common stock in the open market at a weighted average cost of $14.26 per share during the first three months of fiscal 2025 pursuant to its publicly announced stock repurchase program. In addition, the Corporation acquired 8,758 shares of Corporation common stock at a cost of $13.24 per share in settlement of employees' withholding tax obligations related to the vesting of restricted stock in the first quarter of fiscal 2025.

Current wording

Total stockholders’ equity declined $1.3 million, or one percent, to $128.6 million at December 31, 2024 from $129.9 million at June 30, 2024. The decrease was primarily due to $1.9 million of cash dividends paid to shareholders and $2.5 million of stock repurchases, partly offset by net income of $2.8 million in the first six months of fiscal 2025 and the amortization of stock-based compensation of $300,000. The Corporation repurchased 157,197 shares of its common stock in the open market at a weighted average cost of $14.98 per share during the first six months of fiscal 2025 pursuant to its publicly announced stock repurchase program. In addition, the Corporation acquired 8,758 shares of the Corporation common stock at a cost of $13.24 per share in settlement of employees' withholding tax obligations related to the vesting of restricted stock in the first six months of fiscal 2025.

Previous wording

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

Current wording

Comparison of Operating Results for the Quarters and Six Months Ended December 31, 2024 and 2023

Previous 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.

Current wording

Net income for the second quarter of fiscal 2025 was $872,000, down $1.3 million or 59 percent from $2.1 million in the same period of fiscal 2024. The decrease was primarily attributable to a $586,000 provision for credit losses in the second quarter of fiscal 2025 (in contrast to a $720,000 recovery of credit losses in the same quarter last year) and a $450,000 increase in non-interest expense.

Previous 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.

Current wording

The efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, was 81.15 percent for the second quarter of fiscal 2025, compared to 76.11 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 primarily due to higher non-interest expenses. For the first six months of fiscal 2025, the efficiency ratio was 80.11 percent, compared to 72.68 percent for the same period of fiscal 2024. The deterioration of the efficiency ratio during the first six months of fiscal 2025 compared to the same period last year was due to both higher non-interest expenses and a lower net interest income, partly offset by a higher non-interest income.

Previous 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.

Current wording

Return on average stockholders’ equity was 2.66 percent in the second quarter of fiscal 2025, down from 6.56 percent in the same period last year. For the first six months of fiscal 2025, return on average stockholders’ equity was 4.22 percent, down from 5.98 percent in the same period last year.

Previous 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.

Current wording

For the Six Months Ended December 31, 2024 and 2023. Net interest income decreased $538,000 or three percent to $17.4 million for the first six months of fiscal 2025 from $17.9 million in the same period in fiscal 2024, as a result of a lower average balance of interest-earning assets, partly offset by a higher net interest margin. The average balance of interest-earning assets decreased $56.5 million, or four percent, to $1.21 billion in the first six months of fiscal 2025 from $1.27 billion in the comparable period of fiscal 2024, primarily reflecting decreases in the average balance of loans receivable, investment securities and interest-earning deposits. The average balance of interest-bearing liabilities decreased by $53.3 million, or five percent, to $1.10 billion in the first six months of fiscal 2025 from $1.15 billion in the same period last year primarily reflecting decreases in the average balance of transaction accounts, partly offset by an increase in the average balance of time deposits, particularly in brokered certificates of deposit. Net interest margin was 2.87 percent in the first six months of fiscal 2025, an increase of four basis points from 2.83 percent in the same period of fiscal 2024. The weighted-average yield on interest-earning assets increased by 37 basis points to 4.64 percent in the first six months of fiscal 2025 from 4.27 percent in the same period last year, while the weighted-average cost of interest-bearing liabilities increased by 37 basis points to 1.94 percent for the first six months of fiscal 2025 as compared to 1.57 percent in the same period last year.

Previous 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.

Current wording

**For the Quarters Ended December 31, 2024 and 2023.**Total interest income increased $356,000, or three percent, to $14.0 million for the second quarter of fiscal 2025 from $13.7 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 decreases in interest income from investment securities and interest-earnings deposits.

Previous 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.

Current wording

Interest income on loans receivable increased $541,000, or four percent, to $13.1 million in the second quarter of fiscal 2025 from $12.5 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 33 basis points to 4.99 percent in the second quarter of fiscal 2025 from an average yield of 4.66 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 $100.7 million were repriced upward in the second quarter of fiscal 2025 by approximately 15 basis points from an average yield of 7.83 percent to 7.98 percent. The average balance of loans receivable decreased $27.8 million, or three percent, to $1.05 billion in the second quarter of fiscal 2025 from $1.07 billion in the same quarter last year. Net deferred loan cost amortization in the second quarter of fiscal 2025 increased 76 percent to $381,000 from $217,000 in the same quarter last year. Total loans originated for investment in the second quarter of fiscal 2025 were $36.4 million, up 80 percent from $20.2 million in the same quarter last year; while loan principal payments received in the second quarter of fiscal 2025 were $34.3 million, up 93 percent from $17.8 million in the same quarter last year.

Previous 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

Current wording

Interest income from investment securities decreased $53,000, or 10 percent, to $471,000 in the second 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 $23.4 million, or 16 percent, to $123.8 million in the second quarter of fiscal 2025 from $147.2 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 10 basis points to 1.52 percent in the second quarter of fiscal 2025 from 1.42 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 ($97,000 vs. $137,000) due to lower total principal repayments ($5.3 million vs. $5.9 million) and the upward repricing of adjustable-rate mortgage-backed securities.

Previous wording

The Bank received $210,000 of cash dividends from FHLB – San Francisco stock and other equity investments in the first quarter of fiscal 2025, up 17 percent from $179,000 in the same quarter last year. The average balance of FHLB – San Francisco stock and other equity investments in the first quarter of fiscal 2025 was $10.1 million, up six percent from $9.5 million in the same quarter of fiscal 2024 while the average yield was 8.30 percent, up 77 basis points from 7.53 percent.

Current wording

The Bank received $213,000 of cash dividends from FHLB – San Francisco stock and other equity investments in the second quarter of fiscal 2025, up eight percent from $197,000 in the same quarter last year. The average balance of FHLB – San Francisco stock and other equity investments in the second quarter of fiscal 2025 was $10.2 million, up seven percent from $9.5 million in the same quarter of fiscal 2024 while the average yield was 8.38 percent, up nine basis points from 8.29 percent.

Previous 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.

Current wording

Interest income from interest-earning deposits, primarily cash deposited at the FRB of San Francisco, was $287,000 in the second quarter of fiscal 2025, down 34 percent from $435,000 in the same quarter of fiscal 2024. The decrease was due to a lower average balance and, to a lesser extent, a lower average yield. The average balance of interest-earning deposits decreased $7.8 million, or 25 percent, to $23.7 million in the second quarter of fiscal 2025 from $31.5 million in the same quarter last year primarily due to the Bank decreasing its liquidity position, which was mitigated by robust borrowing capacities. The average yield earned on interest-earning deposits in the second quarter of fiscal 2025 was 4.74 percent, down 67 basis points from 5.41 percent in the same quarter last year, due primarily to a decrease in the interest rate paid on excess reserves.

Previous 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.

Current wording

**For the Quarters Ended December 31, 2024 and 2023.**Total interest expense increased $371,000 or eight percent to $5.3 million in the second quarter of fiscal 2025 from $4.9 million in the same quarter last year. The increase was attributable primarily to higher interest expense on time deposits.

Previous 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.

Current wording

Interest expense on deposits for the second quarter of fiscal 2025 was $2.7 million, an 18 percent increase from $2.3 million for the same quarter last year. The increase in interest expense on deposits was attributable to a higher average cost, partly offset by a lower average balance of deposits. The average cost of deposits was 1.23 percent for the second quarter of fiscal 2025, up 24 basis points from 0.99 percent in the same quarter last year, primarily attributable to the average cost of time deposits (including brokered certificates of deposit) which increased 23 basis points to 3.78 percent for the second quarter of fiscal 2025 from 3.55 percent in the same quarter of fiscal 2024. The average balance of deposits decreased six percent to $863.1 million in the second quarter of fiscal 2025 from $914.6 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 $600.2 million in the second quarter of fiscal 2025, down 11 percent from $677.1 million in the same quarter last year; while the average balance of time deposits (including brokered certificates of deposit) increased 11 percent to $262.9 million in the second quarter of fiscal 2025 from $237.6 million in the same quarter last year.

Previous 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.

Current wording

Interest expense on borrowings, consisting primarily of FHLB – San Francisco advances, for the first six months of fiscal 2025 increased $287,000, or six percent, to $5.2 million from $4.9 million in the same period last year. The increase was primarily the result of a higher average cost and, to a lesser extent, a higher average balance. The average cost of borrowings increased 21 basis points to 4.63 percent in the first six months of fiscal 2025 from 4.42 percent in the same period last year and the average balance of borrowings increased by $2.2 million or one percent to $223.7 million in the first six months of fiscal 2025 from $221.5 million in the same period last year.

Previous 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.

Current wording

The following table sets forth the effects of changing rates and volumes on interest income and expense for the quarters and six months ended December 31, 2024 and 2023. 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

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.

Current wording

**For the Quarters Ended December 31, 2024 and 2023.**During the second quarter of fiscal 2025, the Corporation recorded a provision for credit losses of $586,000, in contrast to a $720,000 recovery of credit losses recorded during the same period last year. The provision for credit losses recorded in the second quarter of fiscal 2025 was primarily attributable to a longer estimated life of the loan portfolio resulting from increased market interest rates and lower loan prepayment estimates.

Previous 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).

Current wording

At December 31, 2024, the ACL on loans held for investment was $7.0 million, all of which was comprised of collectively evaluated allowances, slightly lower than the $7.1 million at June 30, 2024, which was comprised of collectively evaluated allowances of $7.0 million and individually evaluated allowances of $37,000. The ACL on loans as a percentage of gross loans held for investment was 0.66 percent at December 31, 2024, down slightly from 0.67 percent at June 30, 2024. The decrease in the ACL on loans was due primarily to the recovery of credit losses recorded in the first six months of fiscal 2025, totaling $111,000, which includes a $2,000 recovery of the unfunded loan commitment reserve.

Previous 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.

Current wording

Salaries and employee benefits increased $257,000, or six percent, to $4.8 million in the second quarter of fiscal 2025 from $4.6 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, retirement plan benefits and executive search agency costs, partly offset by a lower accrual adjustment for the supplemental executive retirement plans.

Previous 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.

Current wording

For the Quarters Ended December 31, 2024 and 2023. The income tax provision was $352,000 for the second quarter of fiscal 2025, down 60 percent from $884,000 in the same quarter last year primarily due to lower pre-tax income. The effective tax rate in the second quarter of fiscal 2025 was 28.8 percent as compared to 29.2 percent in the same quarter last year.

Previous 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.

Current wording

Non-performing assets were comprised solely of 10 non-performing single-family loans at both December 31, 2024 and June 30, 2024. These non-performing loans, net of the ACL, were secured by collateral located in California, and totaled $2.5 million at December 31, 2024, down three percent from $2.6 million at June 30, 2024. Non-performing loans as a percentage of LHFI at December 31, 2024 was 0.24 percent, compared to 0.25 percent at June 30, 2024. No interest accruals were made for non-performing loans. There were no accruing loans 90 days or more past due and no real estate owned at either December 31, 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

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

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 loans held for investment 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 indicated:

Current wording

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

Previous 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.

Current wording

The primary investing activity of the Corporation is the origination and purchase of loans held for investment. During the first six months of fiscal 2025 and 2024, the Corporation originated loans held for investment of $65.4 million and $38.7 million, respectively, with no loan purchases during either period. At December 31, 2024, the Corporation had loan origination commitments totaling $8.8 million, undisbursed lines of credit totaling $2.1 million and undisbursed loan funds totaling $146,000. The Corporation anticipates having sufficient funds available to meet its current loan funding commitments. During the first six months of fiscal 2025 and 2024, total loan repayments were $68.4 million and $40.8 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 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.

Current wording

The Corporation’s primary financing activity is gathering deposits and, when needed, borrowings, principally FHLB – San Francisco advances. During the first six months of fiscal 2025, total deposits decreased $20.8 million, or two percent, to $867.5 million, due to the declines in all account categories, except time deposits. The time deposits include brokered certificates of deposit totaling $143.8 million and $131.8 million at December 31, 2024 and June 30, 2024, respectively. At December 31, 2024, time deposits with a principal amount of $250,000 or less and scheduled to mature in one year or

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 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.

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 December 31, 2024, total cash and cash equivalents were $45.5 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 December 31, 2024, total borrowings were $245.5 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 at the FHLB – San Francisco was $246.2 million and the remaining available collateral was $360.7 million at December 31, 2024. In addition, the Bank has secured a $198.5 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 $285.2 million. As of December 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 December 31, 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 remaining available borrowing capacity across all sources totaled approximately $510.7 million at September 30, 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 $494.7 million at December 31, 2024.

Previous wording

Regulations require the Bank to maintain adequate liquidity to assure safe and sound operations. The Bank’s average liquidity ratio (defined as the ratio of average qualifying liquid assets to average deposits and borrowings) for the quarter ended September 30, 2024 was 16.6 percent, unchanged from the quarter ended June 30, 2024.

Current wording

Regulations require the Bank to maintain adequate liquidity to assure safe and sound operations. The Bank’s average liquidity ratio (defined as the ratio of average qualifying liquid assets to average deposits and borrowings) for the quarter ended December 31, 2024 was 16.0 percent, a slight decline from 16.6 percent for the quarter ended June 30, 2024.

Previous wording

On September 28, 2023, the Board of Directors approved a stock repurchase plan, authorizing up to 350,353 shares of the Corporation’s outstanding common stock to be purchased over a one-year period. On September 26, 2024, the Board approved an extension of the stock repurchase plan for another year. As of September 30, 2024, a total of 95,475 shares or 27 percent of authorized shares for repurchase under the stock repurchase plan remained available to purchase. The Corporation purchases the shares from time to time in the open market or through privately negotiated transactions depending on market conditions, the capital requirements of the Corporation, and available cash that can be allocated to the stock repurchase program, among other considerations.

Current wording

On September 28, 2023, the Board of Directors approved a stock repurchase plan authorizing the purchase of up to 350,353 shares of the Corporation’s outstanding common stock over a one-year period. On September 26, 2024, the Board approved a one-year extension of the plan. On January 23, 2025, subsequent to quarter-end, the Corporation announced that the Board authorized the repurchase of up to five percent (5%) of the Corporation’s common stock, or approximately 334,773 shares. The Corporation plans to purchase shares periodically in the open market or through privately negotiated transactions over a one-year period, subject to market conditions, the Corporation’s capital requirements, available cash, and other relevant factors. The repurchase program initiated in September 2023 and extended in September 2024 was terminated effective January 24, 2025. As a result, the 21,691 shares that remained eligible for repurchase under the original program will no longer be repurchased.