PROVIDENT FINANCIAL HOLDINGS INC - Quarter Report: 2023 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)




[ ✓ ]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended	March 31, 2023

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ________________ to _________________

Commission File Number 000-28304

PROVIDENT FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware	33-0704889
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3756 Central Avenue, Riverside, California 92506

(Address of principal executive offices and zip code)

(951) 686-6060

(Registrant’s telephone number, including area code)

_________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	PROV	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ⌧ Yes ◻ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧ Yes ◻ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ◻	Accelerated filer ◻
Non-accelerated filer ⌧	Smaller reporting company ⌧
	Emerging growth company ◻

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

◻ Yes ⌧ No

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of April 30, 2023, there were 7,022,658 shares of the registrant's common stock, $0.01 par value per share, outstanding.

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PROVIDENT FINANCIAL HOLDINGS, INC.

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PART 1 -	FINANCIAL INFORMATION	Page

ITEM 1 -	Financial Statements. The Unaudited Interim Condensed Consolidated Financial Statements of Provident Financial Holdings, Inc. filed as a part of the report are as follows:

	Condensed Consolidated Statements of Financial Condition as of March 31, 2023 and June 30, 2022	1
	Condensed Consolidated Statements of Operations for the Quarters and Nine Months Ended March 31, 2023 and 2022	2
	Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended March 31, 2023 and 2022	3
	Condensed Consolidated Statements of Stockholders’ Equity for the Quarters and Nine Months Ended March 31, 2023 and 2022	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2023 and 2022	6
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	7

ITEM 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations:

	General	35
	Safe-Harbor Statement	35
	Critical Accounting Estimates	37
	Executive Summary and Operating Strategy	37
	Commitments and Derivative Financial Instruments	38
	Comparison of Financial Condition at March 31, 2023 and June 30, 2022	38
	Comparison of Operating Results for the Quarters and Nine Months Ended March 31, 2023 and 2022	40
	Asset Quality	48
	Loan Volume Activities	51
	Liquidity and Capital Resources	51
	Supplemental Information	54

ITEM 3 -	Quantitative and Qualitative Disclosures about Market Risk	54

ITEM 4 -	Controls and Procedures	58

PART II -	OTHER INFORMATION

ITEM 1 -	Legal Proceedings	58
ITEM 1A -	Risk Factors	59
ITEM 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	59
ITEM 3 -	Defaults Upon Senior Securities	59
ITEM 4 -	Mine Safety Disclosures	59
ITEM 5 -	Other Information	59
ITEM 6 -	Exhibits	60

SIGNATURES		61

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PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Financial Condition

(Unaudited)

In Thousands, Except Share Information


	March 31,		June 30,
	2023		2022
Assets
Cash and cash equivalents	$	60,771	$	23,414
Investment securities - held to maturity, at cost		161,336		185,745
Investment securities - available for sale, at fair value		2,251		2,676
Loans held for investment, net of allowance for loan losses $6,001 and $5,564, respectively; includes $1,352 and $1,396 of loans held at fair value, respectively		1,077,704		939,992
Accrued interest receivable		3,610		2,966
Federal Home Loan Bank (“FHLB”) - San Francisco stock		8,239		8,239
Premises and equipment, net		9,193		8,826
Prepaid expenses and other assets		12,176		15,180

Total assets	$	1,335,280	$	1,187,038

Liabilities and Stockholders’ Equity

Liabilities:
Non interest-bearing deposits	$	108,479	$	125,089
Interest-bearing deposits		874,567		830,415
Total deposits		983,046		955,504

Borrowings		205,010		85,000
Accounts payable, accrued interest and other liabilities		17,818		17,884
Total liabilities		1,205,874		1,058,388

Commitments and Contingencies

Stockholders’ equity:
Preferred stock, $0.01 par value (2,000,000 shares authorized; none issued and outstanding)		—		—
Common stock, $.01 par value; (40,000,000 and 40,000,000 shares authorized; 18,229,615 and 18,229,615 shares issued respectively; 7,033,963 and 7,285,184 outstanding, respectively)		183		183
Additional paid-in capital		98,962		98,826
Retained earnings		206,449		202,680
Treasury stock at cost (11,195,652 and 10,944,431 shares, respectively)		(176,163)		(173,041)
Accumulated other comprehensive (loss) income, net of tax		(25)		2

Total stockholders’ equity		129,406		128,650

Total liabilities and stockholders’ equity	$	1,335,280	$	1,187,038

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

In Thousands, Except Per Share Information


	Quarter Ended				Nine Months Ended
	March 31,				March 31,
	2023		2022		2023		2022
Interest income:
Loans receivable, net	$	11,028	$	7,581	$	30,365	$	23,676
Investment securities		548		515		1,632		1,366
FHLB - San Francisco stock		146		123		414		368
Interest-earning deposits		286		39		666		105
Total interest income		12,008		8,258		33,077		25,515

Interest expense:
Checking and money market deposits		56		54		177		169
Savings deposits		42		42		130		128
Time deposits		781		178		1,364		592
Borrowings		1,728		446		3,655		1,537
Total interest expense		2,607		720		5,326		2,426

Net interest income		9,401		7,538		27,751		23,089
Provision (recovery) for loan losses		169		(645)		430		(2,051)
Net interest income, after provision (recovery) for loan losses		9,232		8,183		27,321		25,140

Non-interest income:
Loan servicing and other fees		104		237		327		867
Deposit account fees		328		329		998		966
Card and processing fees		361		378		1,109		1,182
Other		188		170		506		536
Total non-interest income		981		1,114		2,940		3,551

Non-interest expense:
Salaries and employee benefits		4,359		4,203		12,882		11,778
Premises and occupancy		843		836		2,500		2,499
Equipment expense		279		330		848		932
Professional expense		260		299		1,162		1,108
Sales and marketing expense		182		186		504		477
Deposit insurance premium and regulatory assessments		191		136		465		409
Other		810		909		2,302		2,263
Total non-interest expense		6,924		6,899		20,663		19,466

Income before income taxes		3,289		2,398		9,598		9,225
Provision for income taxes		966		699		2,814		2,595
Net income	$	2,323	$	1,699	$	6,784	$	6,630

Basic earnings per share	$	0.33	$	0.23	$	0.94	$	0.89
Diluted earnings per share	$	0.33	$	0.23	$	0.94	$	0.89

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

In Thousands


	For the Quarter Ended				For the Nine Months Ended
	March 31,				March 31,
	2023		2022		2023		2022
Net income	$	2,323	$	1,699	$	6,784	$	6,630

Change in unrealized holding income (losses) on securities available for sale and interest-only strips		11		(27)		(38)		(47)
Reclassification of losses to net income		—		—		—		—
Other comprehensive income (loss), before income tax expense (benefit)		11		(27)		(38)		(47)
Income tax expense (benefit)		3		(8)		(11)		(14)
Other comprehensive income (loss)		8		(19)		(27)		(33)
Total comprehensive income	$	2,331	$	1,680	$	6,757	$	6,597

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

In Thousands, Except Share and Per Share Information

For the Quarters Ended March 31, 2023 and 2022:


										Accumulated
										Other
	Common			Additional						Comprehensive
	Stock			Paid-In		Retained		Treasury		(Loss) Income,
	Shares	Amount		Capital		Earnings		Stock		Net of Tax		Total
Balance at December 31, 2022	7,132,270	$	183	$	98,732	$	205,117	$	(174,758)	$	(33)	$	129,241

Net income							2,323						2,323
Other comprehensive income											8		8
Purchase of treasury stock	(98,307)								(1,396)				(1,396)
Forfeiture of restricted stock					9				(9)				—
Amortization of restricted stock					207								207
Stock options expense					14								14
Cash dividends⁽¹⁾							(991)						(991)

Balance at March 31, 2023	7,033,963	$	183	$	98,962	$	206,449	$	(176,163)	$	(25)	$	129,406

(1)	Cash dividends of $0.14 per share were paid in the quarter ended March 31, 2023.


										Accumulated
										Other
	Common			Additional						Comprehensive
	Stock			Paid-In		Retained		Treasury		Income (Loss),
	Shares	Amount		Capital		Earnings		Stock		Net of Tax		Total
Balance at December 31, 2021	7,389,943	$	183	$	98,404	$	200,569	$	(171,280)	$	58	$	127,934

Net income							1,699						1,699
Other comprehensive loss											(19)		(19)
Purchase of treasury stock	(69,271)								(1,156)				(1,156)
Forfeiture of restricted stock					23				(23)				—
Amortization of restricted stock					177								177
Stock options expense					13								13
Cash dividends⁽¹⁾							(1,031)						(1,031)

Balance at March 31, 2022	7,320,672	$	183	$	98,617	$	201,237	$	(172,459)	$	39	$	127,617

(1)	Cash dividends of $0.14 per share were paid in the quarter ended March 31, 2022.

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For the Nine Months Ended March 31, 2023 and 2022:


										Accumulated
										Other
	Common			Additional						Comprehensive
	Stock			Paid-In		Retained		Treasury		Income (Loss),
	Shares	Amount		Capital		Earnings		Stock		Net of Tax		Total
Balance at June 30, 2022	7,285,184	$	183	$	98,826	$	202,680	$	(173,041)	$	2	$	128,650

Net income							6,784						6,784
Other comprehensive loss											(27)		(27)
Purchase of treasury stock	(251,221)								(3,592)				(3,592)
Awards of restricted stock					(479)				479				—
Forfeiture of restricted stock					9				(9)				—
Amortization of restricted stock					615								615
Stock options expense					45								45
Tax effect from stock based compensation					(54)								(54)
Cash dividends⁽¹⁾							(3,015)						(3,015)

Balance at March 31, 2023	7,033,963	$	183	$	98,962	$	206,449	$	(176,163)	$	(25)	$	129,406

(1)Cash dividends of $0.42 per share were paid in the nine months ended March 31, 2023.


										Accumulated
										Other
	Common			Additional						Comprehensive
	Stock			Paid-In		Retained		Treasury		Income (Loss),
	Shares	Amount		Capital		Earnings		Stock		Net of Tax		Total
Balance at June 30, 2021	7,541,469	$	183	$	97,978	$	197,733	$	(168,686)	$	72	$	127,280

Net income							6,630						6,630
Other comprehensive loss											(33)		(33)
Purchase of treasury stock	(221,797)								(3,741)				(3,741)
Distribution of restricted stock	1,000												—
Awards of restricted stock					(9)				9				—
Forfeiture of restricted stock					41				(41)				—
Amortization of restricted stock					570								570
Stock options expense					37								37
Cash dividends⁽¹⁾							(3,126)						(3,126)

Balance at March 31, 2022	7,320,672	$	183	$	98,617	$	201,237	$	(172,459)	$	39	$	127,617

(1)Cash dividends of $0.42 per share were paid in the nine months ended March 31, 2022.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited - In Thousands)


	Nine Months Ended
	March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	6,784	$	6,630
Adjustments to reconcile net income to net cash provided by operating activities :
Depreciation and amortization		2,412		4,029
Provision (recovery) for loan losses		430		(2,051)
Stock-based compensation		660		607
Provision for deferred income taxes		824		834
Decrease in accounts payable, accrued interest and other liabilities		(151)		(673)
Decrease (increase) in prepaid expenses and other assets		879		(2,021)
Net cash provided by operating activities		11,838		7,355

Cash flows from investing activities:
Net increase in loans held for investment		(138,869)		(42,111)
Purchase of investment securities - held to maturity		—		(18,159)
Maturity of investment securities - held to maturity		400		400
Principal payments from investment securities - held to maturity		23,386		44,205
Principal payments from investment securities - available for sale		387		597
Purchase of premises and equipment		(730)		(113)
Net cash used for investing activities		(115,426)		(15,181)

Cash flows from financing activities:
Net increase in deposits		27,542		25,527
Proceeds from long-term borrowings		35,000		—
Repayments of long-term borrowings		(20,000)		(20,983)
Proceeds from short-term borrowings, net		105,010		—
Treasury stock purchases		(3,592)		(3,741)
Cash dividends		(3,015)		(3,126)
Net cash provided by (used for) financing activities		140,945		(2,323)

Net increase (decrease) in cash and cash equivalents		37,357		(10,149)
Cash and cash equivalents at beginning of period		23,414		70,270
Cash and cash equivalents at end of period	$	60,771	$	60,121
Supplemental information:
Cash paid for interest	$	4,422	$	2,473
Cash paid for income taxes	$	2,000	$	2,025

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

March 31, 2023

Note 1: Basis of Presentation

The unaudited interim condensed consolidated financial statements included herein reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results of operations for the interim periods presented. All such adjustments are of a normal, recurring nature. The condensed consolidated statement of financial condition at June 30, 2022 is derived from the audited consolidated financial statements of Provident Financial Holdings, Inc. and its wholly-owned subsidiary, Provident Savings Bank, F.S.B. (the "Bank") (collectively, the "Corporation"). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") with respect to interim financial reporting. It is recommended that these unaudited interim condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended June 30, 2022 (“2022 Annual Form 10-K”). The results of operations for the quarter and nine months ended March 31, 2023 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2023.

Note 2: Accounting Standard Updates (“ASU”)

There have been no accounting standard updates or changes in the status of their adoption that are material to the Corporation as previously disclosed in Note 1 of the Corporation's 2022 Annual Form 10-K, except the following:

ASU 2020-04:

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of reference Rate Reform on Financial Reporting. This ASU applies to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or other rate references expected to be discontinued because of reference rate reform. The ASU permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination. In January 2021, ASU 2021-01 clarified that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the changes in the interest rates used for margining, discounting, or contract price alignment for derivative instruments that are being implemented as part of the market-wide transition to new reference rates (commonly referred to as the “discounting transition”). In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848. The FASB had originally included a sunset provision within Topic 848 based on expectations of when the LIBOR would cease being published. In March 2021, it was announced that the intended cessation date of LIBOR would be extended to June 30, 2023. As a result, the FASB issued ASU 2022-06 deferring the sunset date of Topic 848 from March 31, 2023 to December 31, 2024. This ASU is effective for all entities as of March 12, 2020 through December 31, 2024. The Corporation is in the process of compiling data on the impact of reference rate reform and has not determined the impact of the adoption of this ASU on its consolidated financial statements.

ASU 2016-13:

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendments to the initial guidance in November 2018, ASU No. 2018-19, April 2019, ASU 2019-04, May 2019, ASU 2019-05, November 2019, ASU 2019-11, February 2020, ASU 2020-02, March 2020, ASU 2020-03 and March 2022, ASU 2022-02, all of which clarifies codification and corrects unintended application of the guidance. In November 2019, the FASB also issued ASU 2019-10, “Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates” extending the adoption date for certain registrants, including the Corporation. These ASUs related to Topic 326 will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Corporation is evaluating its current expected loss methodology of its loans held for investment and investment securities held to maturity

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to identify the necessary modifications in accordance with these standards and expects a change in the processes and procedures to calculate the allowance for credit losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The Corporation has established a project team and implementation plan to address the key components to this process. The Corporation has determined its loan segmentation and compiled historical data, which is currently under evaluation. The Corporation is in the process of evaluating the appropriate methodologies for each loan grouping and has begun testing, parallel runs, and sensitivity analysis on its initial modeling assumptions and results prior to the adoption date of July 1, 2023. The Corporation anticipates the allowance for credit losses for loans held for investment to change through a one-time adjustment to retained earnings and is still evaluating the potential impact upon adoption that these ASUs will have on the Corporation’s Consolidated Financial Statements; however, until the evaluation is complete the magnitude of the potential change will be unknown.

Note 3: Earnings Per Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the Corporation.

As of March 31, 2023 and 2022, there were outstanding options to purchase 434,500 shares and 431,000 shares of the Corporation’s common stock, respectively. Of those shares, as of March 31, 2023 and 2022, there were 434,500 shares and 130,000 shares, respectively, that were excluded from the diluted EPS computation as their effect was anti-dilutive. As of March 31, 2023 and 2022, there were outstanding restricted stock awards of 146,750 shares and 96,750 shares, respectively.

The following table provides the basic and diluted EPS computations for the quarters and nine months ended March 31, 2023 and 2022, respectively.


	For the Quarter Ended				For the Nine Months Ended
	March 31,				March 31,
(In Thousands, Except Earnings Per Share)	2023		2022		2023		2022
Numerator:
Net income – numerator for basic earnings per share and
diluted earnings per share - available to common
stockholders	$	2,323	$	1,699	$	6,784	$	6,630

Denominator:
Denominator for basic earnings per share:
Weighted-average shares		7,081		7,358		7,181		7,442

Effect of dilutive shares:
Stock options		—		35		—		38
Restricted stock		65		20		51		11

Denominator for diluted earnings per share:
Adjusted weighted-average shares and assumed
conversions		7,146		7,413		7,232		7,491

Basic earnings per share	$	0.33	$	0.23	$	0.94	$	0.89
Diluted earnings per share	$	0.33	$	0.23	$	0.94	$	0.89

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Note 4: Investment Securities

The amortized cost and estimated fair value of investment securities as of March 31, 2023 and June 30, 2022 were as follows:


			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair		Carrying
March 31, 2023	Cost		Gains		(Losses)		Value		Value
(In Thousands)
Held to maturity
U.S. government sponsored enterprise MBS⁽¹⁾	$	156,785	$	1	$	(17,189)	$	139,597	$	156,785
U.S. government sponsored enterprise CMO⁽²⁾		3,895		—		(278)		3,617		3,895
U.S. SBA securities⁽³⁾		656		—		—		656		656
Total investment securities - held to maturity		161,336		1		(17,467)		143,870		161,336

Available for sale
U.S. government agency MBS		1,463		—		(23)		1,440		1,440
U.S. government sponsored enterprise MBS		725		—		(12)		713		713
Private issue CMO		107		—		(9)		98		98
Total investment securities - available for sale		2,295		—		(44)		2,251		2,251
Total investment securities	$	163,631	$	1	$	(17,511)	$	146,121	$	163,587

(1)Mortgage-Backed Securities (“MBS”).

(2)Collateralized Mortgage Obligations (“CMO”).

(3)Small Business Administration (“SBA”).


			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair		Carrying
June 30, 2022	Cost		Gains		(Losses)		Value		Value
(In Thousands)
Held to maturity
U.S. government sponsored enterprise MBS	$	180,492	$	63	$	(13,945)	$	166,610	$	180,492
U.S. government sponsored enterprise CMO		3,913		—		(150)		3,763		3,913
U.S. SBA securities		940		11		—		951		940
Certificate of deposits		400		—		—		400		400
Total investment securities - held to maturity		185,745		74		(14,095)		171,724		185,745

Available for sale
U.S. government agency MBS		1,698		6		(6)		1,698		1,698
U.S. government sponsored enterprise MBS		865		4		(4)		865		865
Private issue CMO		118		—		(5)		113		113
Total investment securities - available for sale		2,681		10		(15)		2,676		2,676
Total investment securities	$	188,426	$	84	$	(14,110)	$	174,400	$	188,421

In the third quarters of fiscal 2023 and 2022, the Corporation received MBS principal payments of $6.9 million and $12.3 million, respectively, and there were no sales of investment securities during these periods. The Corporation did not purchase any investment securities in the third quarter of fiscal 2023; while in the third quarter of fiscal 2022, the Corporation purchased $3.0 million of U.S. government sponsored enterprise CMO to be held to maturity.

For the first nine months of fiscal 2023 and 2022, the Corporation received MBS principal payments of $23.8 million and $44.8 million, respectively, and there were no sales of investment securities during these periods. The Corporation did not purchase any investment securities in the first nine months of fiscal 2023, while in the first nine months of fiscal 2022, the Corporation purchased $15.2 million of U.S. government sponsored enterprise MBS to be held to maturity and $3.0 million of U.S. government sponsored enterprise CMO to be held to maturity.

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The Corporation held investments with an unrealized loss position of $17.5 million at March 31, 2023 and $14.1 million at June 30, 2022.


As of March 31, 2023	Unrealized Holding Losses				Unrealized Holding Losses				Unrealized Holding Losses
(In Thousands)	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
Held to maturity
U.S. government sponsored enterprise MBS	$	10,921	$	180	$	127,749	$	17,009	$	138,670	$	17,189
U.S. government sponsored enterprise CMO		—		—		3,617		278		3,617		278
U.S. SBA securities		656	$	—		—		—		656		—
Total investment securities - held to maturity		11,577		180		131,366		17,287		142,943		17,467

Available for sale
U.S government agency MBS		1,440		23		—		—		1,440		23
U.S. government sponsored enterprise MBS		315		5		352		7		667		12
Private issue CMO		—		—		98		9		98		9
Total investment securities - available for sale		1,755		28		450		16		2,205		44
Total investment securities	$	13,332	$	208		131,816	$	17,303	$	145,148	$	17,511


As of June 30, 2022	Unrealized Holding Losses				Unrealized Holding Losses				Unrealized Holding Losses
(In Thousands)	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
Held to maturity
U.S. government sponsored enterprise MBS	$	121,844	$	9,018	$	35,528	$	4,927	$	157,372	$	13,945
U.S. government sponsored enterprise CMO		3,764		150		—		—		3,764		150
Total investment securities - held to maturity		125,608		9,168		35,528		4,927		161,136		14,095

Available for sale
U.S government agency MBS		826		6		—		—		826		6
U.S. government sponsored enterprise MBS		671		4		—		—		671		4
Private issue CMO		113		5		—		—		113		5
Total investment securities - available for sale		1,610		15		—		—		1,610		15
Total investment securities	$	127,218	$	9,183	$	35,528	$	4,927	$	162,746	$	14,110

The Corporation evaluates individual investment securities quarterly for other-than-temporary impairment. At March 31, 2023, $17.3 million of the $17.5 million of unrealized holding losses were in a loss position for 12 months or more; while at June 30, 2022, $4.9 million of the $14.1 million of unrealized holding losses were in a loss position for 12 months or more. The unrealized losses on investment securities were attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities; which are

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predominately U.S. government sponsored enterprise (GSE) securities. Therefore, the Corporation has determined that the unrealized losses are temporary in nature due to the fluctuating nature of interest rates, as well as the Corporation’s intent and ability to hold these investments until maturity. As a part of the Corporation’s monthly risk assessment, the Corporation runs a number of stressed liquidity scenarios. These liquidity scenarios support the Corporation’s assessment that the Corporation has the ability to hold these securities until maturity and does not need to liquidate these investment securities in order to maintain adequate liquidity.

In order to maintain adequate liquidity, the Bank has established borrowing facilities with various counterparties. The Bank had a remaining borrowing capacity of $228.6 million as of March 31, 2023 at the Federal Home Loan Bank of San Francisco. In addition, the Bank has secured an estimated $146.8 million discount window facility at the Federal Reserve Bank of San Francisco collateralized by investment securities with March 31, 2023 balances of $157.1 million. As of March 31, 2023, 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 the Federal Reserve discount window or correspondent bank facility as of March 31, 2023.

At June 30, 2022, the Bank had a remaining borrowing capacity of $310.3 million at the Federal Home Loan Bank of San Francisco. In addition, the Bank had secured an estimated $168.4 million discount window facility at the Federal Reserve Bank of San Francisco collateralized by investment securities with June 30, 2022 balances of $191.1 million. As of June 30, 2022, the Bank also had 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 the Federal Reserve discount window or correspondent bank facility as of June 30, 2022.

At March 31, 2023 and 2022, the Corporation did not hold any investment securities with the intent to sell and determined it had the ability to hold these investment securities until maturity. It also determined that it was more likely than not that the Corporation would not be required to sell the securities prior to recovery of the amortized cost basis; therefore, no impairment losses were recorded for the quarters and nine months ended March 31, 2023 and 2022.

Contractual maturities of investment securities as of March 31, 2023 and June 30, 2022 were as follows:


	March 31, 2023				June 30, 2022
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
(In Thousands)	Cost		Value		Cost		Value
Held to maturity
Due in one year or less	$	662	$	656	$	1,427	$	1,425
Due after one through five years		8,665		8,406		10,908		10,805
Due after five through ten years		64,372		58,501		77,167		72,625
Due after ten years		87,637		76,307		96,243		86,869
Total investment securities - held to maturity		161,336		143,870		185,745		171,724

Available for sale
Due in one year or less		—		—		—		—
Due after one through five years		—		—		—		—
Due after five through ten years		390		381		98		98
Due after ten years		1,905		1,870		2,583		2,578
Total investment securities - available for sale		2,295		2,251		2,681		2,676
Total investment securities	$	163,631	$	146,121	$	188,426	$	174,400

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Note 5: Loans Held for Investment

Loans held for investment, net of fair value adjustments, consisted of the following:


	March 31,		June 30,
(In Thousands)	2023		2022
Mortgage loans:
Single-family	$	512,632	$	378,234
Multi-family		466,332		464,676
Commercial real estate		90,496		90,429
Construction		2,891		3,216
Other		108		123
Commercial business loans		1,640		1,206
Consumer loans		61		86
Total loans held for investment, gross		1,074,160		937,970

Advance payments of escrows		265		47
Deferred loan costs, net		9,280		7,539
Allowance for loan losses		(6,001)		(5,564)
Total loans held for investment, net	$	1,077,704	$	939,992

The following table sets forth information at March 31, 2023 regarding the dollar amount of loans held for investment that are contractually repricing during the periods indicated, segregated between adjustable rate loans and fixed rate loans. Fixed-rate loans comprised 11 percent of loans held for investment at both March 31, 2023 and June 30, 2022. Adjustable rate loans having no stated repricing dates that reprice when the index they are tied to reprices (e.g. prime rate index) and checking account overdrafts are reported as repricing within one year. The table does not include any estimate of prepayments which may cause the Corporation’s actual repricing experience to differ materially from that shown.


	Adjustable Rate
			After		After		After
		Within	One Year		3 Years		5 Years
(In Thousands)	One Year		Through 3 Years		Through 5 Years		Through 10 Years		Fixed Rate		Total
Mortgage loans:
Single-family	$	54,826	$	19,064	$	64,330	$	264,053	$	110,359	$	512,632
Multi-family		144,363		130,700		143,405		47,726		138		466,332
Commercial real estate		42,412		14,277		32,511		—		1,296		90,496
Construction		625		174		—		—		2,092		2,891
Other		—		—		—		—		108		108
Commercial business loans		1,574		—		—		—		66		1,640
Consumer loans		61		—		—		—		—		61
Total loans held for investment, gross	$	243,861	$	164,215	$	240,246	$	311,779	$	114,059	$	1,074,160

The Corporation has developed an internal loan grading system to evaluate and quantify the Bank’s loans held for investment portfolio with respect to quality and risk. Management continually evaluates the credit quality of the Corporation’s loan portfolio and conducts a quarterly review of the adequacy of the allowance for loan losses using quantitative and qualitative methods. The Corporation has adopted an internal risk rating policy in which each loan is rated for credit quality with a rating of pass, special mention, substandard, doubtful or loss. The two primary components that are used during the loan review process to determine the proper allowance levels are individually evaluated allowances and collectively evaluated allowances. Quantitative loan loss factors are developed by determining the historical loss experience, expected future cash flows, discount rates and collateral fair values, among others. Qualitative loan loss factors are developed by assessing general economic indicators such as gross domestic product, retail sales, unemployment rates, employment growth, California home sales and median California home prices. The Corporation assigns individual factors for the quantitative and qualitative methods for each loan category and each internal risk rating.

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The Corporation categorizes all of the loans held for investment into risk categories based on relevant information about the ability of the borrower to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. A description of the general characteristics of the risk grades is as follows:

●

Pass - These loans range from minimal credit risk to average, but still acceptable, credit risk. The likelihood of loss is considered remote.

●

Special Mention - A special mention loan has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss. While concerns exist, the bank is currently protected and loss is considered unlikely and not imminent.

●

Substandard - A substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

●

Doubtful - A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

●

Loss - A loss loan is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted.

The following tables summarize gross loans held for investment, net of fair value adjustments, by loan types and risk category at the dates indicated:


	March 31, 2023
					Commercial				Other		Commercial
(In Thousands)	Single-family		Multi-family		Real Estate		Construction		Mortgage		Business		Consumer		Total

Pass	$	510,643	$	465,821	$	89,946	$	2,891	$	108	$	1,640	$	61	$	1,071,110
Special Mention		962		511		—		—		—		—		—		1,473
Substandard		1,027		—		550		—		—		—		—		1,577
Total loans held for investment, gross	$	512,632	$	466,332	$	90,496	$	2,891	$	108	$	1,640	$	61	$	1,074,160


	June 30, 2022
					Commercial					Other	Commercial
(In Thousands)	Single-family		Multi-family		Real Estate		Construction			Mortgage	Business		Consumer		Total

Pass	$	376,502	$	464,676	$	90,429	$	3,216	$	123	$	1,206	$	86	$	936,238
Special Mention		224		—		—		—		—		—		—		224
Substandard		1,508		—		—		—		—		—		—		1,508
Total loans held for investment, gross	$	378,234	$	464,676	$	90,429	$	3,216	$	123	$	1,206	$	86	$	937,970

The allowance for loan losses is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loans held for investment and upon management’s continuing analysis of the factors underlying the quality of the loans held for investment. These factors include changes in the size and composition of the loans held for investment, actual loan loss experience, current economic conditions, detailed analysis of individual loans for which full collectability may not be assured, and determination of the realizable value of the collateral securing the loans. The provision (recovery) for (from) the allowance for loan losses is charged (credited) against operations on a quarterly basis, as necessary, to maintain the allowance at appropriate levels. Although management believes it uses the best information available to make such determinations, there can be no assurance that regulators, in reviewing the Corporation’s loans held for investment, will not request a significant increase in its allowance for loan losses. Future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected as a result of economic, operating, regulatory, and other conditions beyond the Corporation’s control.

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Non-performing loans are charged-off to their fair market values in the period the loans, or portion thereof, are deemed uncollectible, generally after the loan becomes 150 days delinquent for real estate secured first trust deed loans and 120 days delinquent for commercial business or real estate secured second trust deed loans. For loans that were modified from their original terms, were re-underwritten and identified in the Corporation’s asset quality reports as troubled debt restructurings (“restructured loans”), the charge-off occurs when the loan becomes 90 days delinquent; and where borrowers file bankruptcy, the charge-off occurs when the loan becomes 60 days delinquent. The amount of the charge-off is determined by comparing the loan balance to the estimated fair value of the underlying collateral, less disposition costs, with the loan balance in excess of the estimated fair value charged-off against the allowance for loan losses. The allowance for loan losses for non-performing loans is determined by applying ASC 310, “Receivables.” For restructured loans that are less than 90 days delinquent, the allowance for loan losses is segregated into (a) individually evaluated allowances for those loans with applicable discounted cash flow calculations still in their restructuring period, classified lower than pass, and containing an embedded loss component or (b) collectively evaluated allowances based on the aggregated pooling method. For non-performing loans less than 60 days delinquent where the borrower has filed bankruptcy, the collectively evaluated allowances are assigned based on the aggregated pooling method. For non-performing commercial real estate loans, an individually evaluated allowance is derived based on the loan's discounted cash flow fair value (for restructured loans) or collateral fair value less estimated selling costs and if the fair value is higher than the loan balance, no allowance is required.

The following table is provided to disclose additional details for the periods indicated on the Corporation’s allowance for loan losses:


	For the Quarter Ended						For the Nine Months Ended
	March 31,						March 31,
(Dollars in Thousands)	2023			2022			2023			2022

Allowance at beginning of period	$	5,830		$	6,608		$	5,564		$	7,587

Provision (recovery) for loan losses		169			(645)			430			(2,051)

Recoveries:
Mortgage loans:
Single-family		2			6			7			433
Total recoveries		2			6			7			433

Total charge-offs		—			—			—			—

Net recoveries (charge-offs)		2			6			7			433
Balance at end of period	$	6,001		$	5,969		$	6,001		$	5,969

Allowance for loan losses as a percentage of gross loans held for investment at the end of the period		0.56	%		0.66	%		0.56	%		0.66	%
Net (recoveries) charge-offs as a percentage of average loans receivable, net, during the period (annualized)		(0.00)	%		(0.00)	%		(0.00)	%		(0.07)	%
Allowance for loan losses as a percentage of gross non-performing loans at the end of the period		584.32	%		268.15	%		584.32	%		268.15	%

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The following tables denote the past due status of the Corporation's gross loans held for investment, net of fair value adjustments, at the dates indicated.


	March 31, 2023
			30-89 Days Past				Total Loans Held for
(In Thousands)	Current		Due		Non-Accrual⁽¹⁾		Investment, Gross

Mortgage loans:
Single-family	$	510,643	$	962	$	1,027	$	512,632
Multi-family		466,332		—		—		466,332
Commercial real estate		90,496		—		—		90,496
Construction		2,891		—		—		2,891
Other		108		—		—		108
Commercial business loans		1,640		—		—		1,640
Consumer loans		60		1		—		61
Total loans held for investment, gross	$	1,072,170	$	963	$	1,027	$	1,074,160

(1)	All loans 90 days or greater past due are placed on non-accrual status.


	June 30, 2022
			30-89 Days Past				Total Loans Held for
(In Thousands)	Current		Due		Non-Accrual⁽¹⁾		Investment, Gross

Mortgage loans:
Single-family	$	376,726	$	—	$	1,508	$	378,234
Multi-family		464,676		—		—		464,676
Commercial real estate		90,429		—		—		90,429
Construction		3,216		—		—		3,216
Other		123		—		—		123
Commercial business loans		1,206		—		—		1,206
Consumer loans		83		3		—		86
Total loans held for investment, gross	$	936,459	$	3	$	1,508	$	937,970

(1)	All loans 90 days or greater past due are placed on non-accrual status.

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The following tables summarize the Corporation’s allowance for loan losses and recorded investment in gross loans, by portfolio type, at the dates and for the periods indicated.


	Quarter Ended March 31, 2023
	Single-			Multi-			Commercial									Commercial
(In Thousands)	family			family			Real Estate			Construction			Other			Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period	$	1,600		$	3,300		$	847		$	17		$	3		$	58		$	5		$	5,830
Provision (recovery) for loan losses		127			7			21			4			(1)			12			(1)			169
Recoveries		2			—			—			—			—			—			—			2
Charge-offs		—			—			—			—			—			—			—			—
Allowance for loan losses, end of period	$	1,729		$	3,307		$	868		$	21		$	2		$	70		$	4		$	6,001

Allowance for loan losses:
Individually evaluated for impairment	$	38		$	—		$	—		$	—		$	—		$	—		$	—		$	38
Collectively evaluated for impairment		1,691			3,307			868			21			2			70			4			5,963
Allowance for loan losses, end of period	$	1,729		$	3,307		$	868		$	21		$	2		$	70		$	4		$	6,001

Loans held for investment:
Individually evaluated for impairment	$	804		$	—		$	—		$	—		$	—		$	—		$	—		$	804
Collectively evaluated for impairment		511,828			466,332			90,496			2,891			108			1,640			61			1,073,356
Total loans held for investment, gross	$	512,632		$	466,332		$	90,496		$	2,891		$	108		$	1,640		$	61		$	1,074,160
Allowance for loan losses as a percentage of gross loans held for investment		0.34	%		0.71	%		0.96	%		0.73	%		1.85	%		4.27	%		6.56	%		0.56	%
Net (recoveries) charge-offs to average loans receivable, net during the period		—	%		—	%		—	%		—	%		—	%		—	%		—	%		—	%

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	Quarter Ended March 31, 2022
	Single-			Multi-			Commercial									Commercial
(In Thousands)	family			family			Real Estate			Construction				Other		Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period	$	1,396		$	4,219		$	915		$	55		$	3		$	15		$	5		$	6,608
(Recovery) provision for loan losses		(64)			(544)			(45)			4			—			5			(1)			(645)
Recoveries		6			—			—			—			—			—			—			6
Charge-offs		—			—			—			—			—			—			—			—
Allowance for loan losses, end of period	$	1,338		$	3,675		$	870		$	59		$	3		$	20		$	4		$	5,969

Allowance for loan losses:
Individually evaluated for impairment	$	51		$	—		$	—		$	—		$	—		$	—		$	—		$	51
Collectively evaluated for impairment		1,287			3,675			870			59			3			20			4			5,918
Allowance for loan losses, end of period	$	1,338		$	3,675		$	870		$	59		$	3		$	20		$	4		$	5,969

Loans held for investment:
Individually evaluated for impairment	$	1,549		$	—		$	—		$	—		$	—		$	—		$	—		$	1,549
Collectively evaluated for impairment		326,112			468,656			91,344			4,127			131			459			73			890,902
Total loans held for investment, gross	$	327,661		$	468,656		$	91,344		$	4,127		$	131		$	459		$	73		$	892,451
Allowance for loan losses as a percentage of gross loans held for investment		0.41	%		0.78	%		0.95	%		1.43	%		2.29	%		4.36	%		5.48	%		0.66	%
Net (recoveries) charge-offs to average loans receivable, net during the period		(0.01)	%		—	%		—	%		—	%		—	%		—	%		—	%		—	%

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	Nine Months Ended March 31, 2023
							Commercial									Commercial
(In Thousands)	Single-family			Multi-family			Real Estate			Construction			Other			Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period	$	1,383		$	3,282		$	816		$	23		$	3		$	52		$	5		$	5,564
Provision (recovery) for loan losses		339			25			52			(2)			(1)			18			(1)			430
Recoveries		7			—			—			—			—			—			—			7
Charge-offs		—			—			—			—			—			—			—			—
Allowance for loan losses, end of period	$	1,729		$	3,307		$	868		$	21		$	2		$	70		$	4		$	6,001

Allowance for loan losses:
Individually evaluated for impairment	$	38		$	—		$	—		$	—		$	—		$	—		$	—		$	38
Collectively evaluated for impairment		1,691			3,307			868			21			2			70			4			5,963
Allowance for loan losses, end of period	$	1,729		$	3,307		$	868		$	21		$	2		$	70		$	4		$	6,001

Loans held for investment:
Individually evaluated for impairment	$	804		$	—		$	—		$	—		$	—		$	—		$	—		$	804
Collectively evaluated for impairment		511,828			466,332			90,496			2,891			108			1,640			61			1,073,356
Total loans held for investment, gross	$	512,632		$	466,332		$	90,496		$	2,891		$	108		$	1,640		$	61		$	1,074,160
Allowance for loan losses as a percentage of gross loans held for investment		0.34	%		0.71	%		0.96	%		0.73	%		1.85	%		4.27	%		6.56	%		0.56	%
Net (recoveries) charge-offs to average loans receivable, net during the period		—	%		—	%		—	%		—	%		—	%		—	%		—	%		—	%

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	Nine Months Ended March 31, 2022
							Commercial									Commercial
(In Thousands)	Single-family			Multi-family			Real Estate			Construction			Other			Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period	$	2,000		$	4,485		$	1,006		$	51		$	3		$	36		$	6		$	7,587
(Recovery) provision for loan losses		(1,095)			(810)			(136)			8			—			(16)			(2)			(2,051)
Recoveries		433			—			—			—			—			—			—			433
Charge-offs		—			—			—			—			—			—			—			—
Allowance for loan losses, end of period	$	1,338		$	3,675		$	870		$	59		$	3		$	20		$	4		$	5,969

Allowance for loan losses:
Individually evaluated for impairment	$	51		$	—		$	—		$	—		$	—		$	—		$	—		$	51
Collectively evaluated for impairment		1,287			3,675			870			59			3			20			4			5,918
Allowance for loan losses, end of period	$	1,338		$	3,675		$	870		$	59		$	3		$	20		$	4		$	5,969

Loans held for investment:
Individually evaluated for impairment	$	1,549		$	—		$	—		$	—		$	—		$	—		$	—		$	1,549
Collectively evaluated for impairment		326,112			468,656			91,344			4,127			131			459			73			890,902
Total loans held for investment, gross	$	327,661		$	468,656		$	91,344		$	4,127		$	131		$	459		$	73		$	892,451
Allowance for loan losses as a percentage of gross loans held for investment		0.41	%		0.78	%		0.95	%		1.43	%		2.29	%		4.36	%		5.48	%		0.66	%
Net (recoveries) charge-offs to average loans receivable, net during the period		(0.20)	%		—	%		—	%		—	%		—	%		—	%		—	%		(0.07)	%

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The following tables identify the Corporation’s total recorded investment in non-performing loans by type at the dates and for the periods indicated. Generally, a loan is placed on non-accrual status when it becomes 90 days past due as to principal or interest or if the loan is deemed impaired, after considering economic and business conditions and collection efforts, where the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. In addition, interest income is not recognized on any loan where management has determined that collection is not reasonably assured. A non-performing loan may be restored to accrual status when delinquent principal and interest payments are brought current, the borrower(s) has demonstrated sustained payment performance and future monthly principal and interest payments are expected to be collected on a timely basis. Loans with a related allowance reserve have been individually evaluated for impairment using either a discounted cash flow analysis or, for collateral dependent loans, current appraisals less costs to sell, to establish realizable value. This analysis may identify a specific impairment amount needed or may conclude that no reserve is needed. Loans that are not individually evaluated for impairment are included in pools of homogeneous loans for evaluation of related allowance reserves.


	At March 31, 2023
	Unpaid								Net
	Principal		Related		Recorded				Recorded
(In Thousands)	Balance		Charge-offs		Investment		Allowance⁽¹⁾		Investment

Mortgage loans:
Single-family:
With a related allowance	$	971	$	—	$	971	$	(82)	$	889
Without a related allowance⁽²⁾		83		(27)		56		—		56
Total single-family loans		1,054		(27)		1,027		(82)		945

Total non-performing loans	$	1,054	$	(27)	$	1,027	$	(82)	$	945

(1)	Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan.

(2)	There was no related allowance for loan losses because the loans were charged-off to their fair value or the fair value of the collateral was higher than the loan balance.


	At June 30, 2022
	Unpaid		Related						Net
	Principal		Charge-offs		Recorded				Recorded
(In Thousands)	Balance		Related		Investment		Allowance⁽¹⁾		Investment

Mortgage loans:
Single-family:
With a related allowance	$	993	$	—	$	993	$	(85)	$	908
Without a related allowance⁽²⁾		548		(33)		515		—		515
Total single-family loans		1,541		(33)		1,508		(85)		1,423

Total non-performing loans	$	1,541	$	(33)	$	1,508	$	(85)	$	1,423

(1)	Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan.

(2)	There was no related allowance for loan losses because the loans were charged-off to their fair value or the fair value of the collateral was higher than the loan balance.

At March 31, 2023, there were no commitments to lend additional funds to those borrowers whose loans were classified as non-performing.

For the quarters ended March 31, 2023 and 2022, the Corporation’s average recorded investment in non-performing loans was $1.0 million and $3.0 million, respectively. The Corporation records payments on non-performing loans utilizing the cash basis or cost recovery method of accounting during the periods when the loans are on non-performing status. For the quarter ended March 31, 2023, the Bank received $15,000 in interest payments from non-performing loans, of which $13,000 was recognized as interest income and the remaining $2,000 was applied to reduce the loan balances under the cost recovery method. In comparison, for the quarter ended March 31, 2022, the Bank received $34,000 in interest payments from non-performing loans, of which $28,000 was recognized as interest income and the remaining $6,000 was applied to reduce the loan balances under the cost recovery method.

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For the nine months ended March 31, 2023 and 2022, the Corporation’s average recorded investment in non-performing loans was $1.1 million and $5.0 million, respectively. For the nine months ended March 31, 2023, the Bank received $38,000 in interest payments from non-performing loans, of which $33,000 was recognized as interest income and the remaining $5,000 was applied to reduce the loan balances under the cost recovery method. In comparison, for the nine months ended March 31, 2022, the Bank received $384,000 in interest payments from non-performing loans, of which $361,000 was recognized as interest income and the remaining $23,000 was applied to reduce the loan balances under the cost recovery method.

The following tables present the average recorded investment in non-performing loans and the related interest income recognized for the quarters and nine months ended March 31, 2023 and 2022:


		Quarter Ended March 31,
	2023				2022
		Average	Interest		Average		Interest
		Recorded	Income		Recorded		Income
(In Thousands)		Investment	Recognized		Investment		Recognized
Without related allowances:
Mortgage loans:
Single-family	$	57	$	—	$	540	$	1
		57		—		540		1

With related allowances:
Mortgage loans:
Single-family		973		13		1,267		15
Multi-family		—		—		1,172		12
		973		13		2,439		27

Total	$	1,030	$	13	$	2,979	$	28


	Nine Months Ended March 31,
	2023				2022
		Average	Interest		Average		Interest
		Recorded	Income		Recorded		Income
(In Thousands)		Investment	Recognized		Investment		Recognized
Without related allowances:
Mortgage loans:
Single-family	$	87	$	—	$	675	$	232
		87		—		675		232

With related allowances:
Mortgage loans:
Single-family		983		33		3,126		86
Multi-family		—		—		1,179		43
		983		33		4,305		129

Total	$	1,070	$	33	$	4,980	$	361

For the quarter ended March 31, 2023, no loans were restructured, while one previously restructured loan was downgraded from the pass category to the special mention category. For the quarter ended March 31, 2022, no loans were restructured, one previously restructured loan was downgraded from the pass category to the special mention category and two previously restructured loans were paid off. During both quarters ended March 31, 2023 and 2022, no restructured loans were in default within a 12-month period subsequent to their original restructuring.

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For the nine months ended March 31, 2023, no loans were restructured, 10 previously restructured loans were upgraded to the pass category, one previously restructured loan was downgraded from pass category to special mention category and one previously restructured loan was paid off. For the nine months ended March 31, 2022, no loans were restructured, 11 previously restructured loans were upgraded to the pass category, one previously restructured loan was upgraded from the substandard category to the special mention category and six previously restructured loans paid off. During both nine months ended March 31, 2023 and 2022, no restructured loans were in default within a 12-month period subsequent to their original restructuring.

As of March 31, 2023, the Corporation held three restructured loans with a net outstanding balance of $1.4 million of which one loan totaling $710,000 was classified as substandard and on non-accrual status. As of June 30, 2022, the Corporation held 13 restructured loans with a net outstanding balance of $4.5 million, of which one loan totaling $722,000 was classified as substandard on non-accrual status. As of March 31, 2023, $966,000 or 71 percent of the restructured loans were current with respect to their modified payment terms; while as of June 30, 2022, all of the restructured loans were current with respect to their modified payment terms.

The Corporation upgrades restructured single-family loans to the pass category if the borrower has demonstrated satisfactory contractual payments for at least six consecutive months; 12 months for those loans that were restructured more than once; and if the borrower has demonstrated satisfactory contractual payments beyond 12 consecutive months, the loan is no longer categorized as a restructured loan. In addition to the payment history described above, multi-family, commercial real estate, construction and commercial business loans must also demonstrate a combination of the following characteristics to be upgraded: satisfactory cash flow, satisfactory guarantor support, and additional collateral support, among others.

To qualify for restructuring, a borrower must provide evidence of their creditworthiness such as, current financial statements, their most recent income tax returns, current paystubs, current W-2s, and most recent bank statements, among other documents, which are then verified by the Corporation. The Corporation re-underwrites the loan with the borrower’s updated financial information, new credit report, current loan balance, new interest rate, remaining loan term, updated property value and modified payment schedule, among other considerations, to determine if the borrower qualifies.

The following table summarizes at the dates indicated the restructured loan balances, net of allowance for loan losses, by loan type:


	At		At
(In Thousands)	March 31, 2023		June 30, 2022
Restructured loans on non-accrual status:
Mortgage loans:
Single-family	$	710	$	722
Total		710		722

Restructured loans on accrual status:
Mortgage loans:
Single-family		655		3,748
Total		655		3,748
Total restructured loans	$	1,365	$	4,470

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The following tables identify the Corporation’s total recorded investment in restructured loans by type at the dates and for the periods indicated.


	At March 31, 2023
	Unpaid								Net
	Principal		Related		Recorded				Recorded
(In Thousands)	Balance		Charge-offs		Investment		Allowance⁽¹⁾		Investment

Mortgage loans:
Single-family:
With a related allowance	$	748	$	—	$	748	$	(38)	$	710
Without a related allowance⁽²⁾		655		—		655		—		655
Total single-family		1,403		—		1,403		(38)		1,365

Total restructured loans	$	1,403	$	—	$	1,403	$	(38)	$	1,365

(1)	Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan.

(2)	There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance.


	At June 30, 2022
	Unpaid								Net
	Principal		Related		Recorded				Recorded
(In Thousands)	Balance		Charge-offs		Investment		Allowance⁽¹⁾		Investment

Mortgage loans:
Single-family:
With a related allowance	$	760	$	—	$	760	$	(38)	$	722
Without a related allowance⁽²⁾		3,748		—		3,748		—		3,748
Total single-family		4,508		—		4,508		(38)		4,470

Total restructured loans	$	4,508	$	—	$	4,508	$	(38)	$	4,470

(1)	Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan.

(2)	There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance.

During the quarters and nine months ended March 31, 2023 and 2022, no properties were acquired in the settlement of loans and no previously foreclosed upon properties were sold. As of both March 31, 2023 and June 30, 2022, there was no real estate owned property. A new appraisal is obtained on each of the properties at the time of foreclosure and fair value is derived by using the lower of the appraised value or the listing price of the property, net of selling costs. Any initial loss is recorded as a charge to the allowance for loan losses before being transferred to real estate owned. Subsequent to transfer to real estate owned, if there is further deterioration in real estate values, specific real estate owned loss reserves are established and charged to the condensed consolidated statements of operations. In addition, the Corporation records costs to carry real estate owned as real estate owned operating expenses as incurred.

Note 6: Derivative and Other Financial Instruments with Off-Balance Sheet Risks

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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. As of March 31, 2023 and June 30, 2022, the Corporation had commitments to extend credit on loans to be held for investment of $8.9 million and $43.4 million, respectively.

The following table provides information at the dates indicated regarding undisbursed funds on construction loans, undisbursed funds to borrowers on existing lines of credit with the Corporation as well as commitments to originate loans to be held for investment at the dates indicated below.



Commitments	March 31, 2023		June 30, 2022
(In Thousands)
Undisbursed loan funds – Construction loans	$	2,867	$	3,384
Undisbursed lines of credit – Commercial business loans		541		541
Undisbursed lines of credit – Consumer loans		373		390
Commitments to extend credit on loans to be held for investment		8,938		43,386
Total	$	12,719	$	47,701

The following table provides information regarding the allowance for loan losses for the undisbursed funds and commitments to extend credit on loans to be held for investment for the quarters and nine months ended March 31, 2023 and 2022.


	For the Quarter Ended				For the Nine Months Ended
	March 31,				March 31,
(In Thousands)	2023		2022		2023		2022
Balance, beginning of the period	$	71	$	99	$	130	$	127
Provision (recovery)		3		42		(56)		14
Balance, end of the period	$	74	$	141	$	74	$	141

In accordance with ASC 815, “Derivatives and Hedging,” and interpretations of the Derivatives Implementation Group of the FASB, the fair value of the commitments to extend credit on loans to be held for sale, loan sale commitments, to be announced (“TBA”) MBS trades, put option contracts and call option contracts are recorded at fair value on the Condensed Consolidated Statements of Financial Condition. The Corporation does not apply hedge accounting to its derivative financial instruments; therefore, all changes in fair value are recorded in earnings. As of March 31, 2023 and June 30, 2022, there were no outstanding derivative financial instruments.

Loans previously sold to the FHLB – San Francisco under the Mortgage Partnership Finance (“MPF”) program have a recourse liability. The FHLB – San Francisco absorbs the first four basis points of loss by establishing a first loss account and a credit scoring process is used to calculate the maximum recourse amount for the Bank. All losses above the Bank’s maximum recourse amount are the responsibility of the FHLB – San Francisco. The FHLB – San Francisco pays the Bank a credit enhancement fee on a monthly basis to compensate the Bank for accepting the recourse obligation. As of March 31, 2023 and June 30, 2022, the Bank serviced $3.7 million and $4.1 million of loans under this program, respectively, and has established a recourse liability of $10,500 at both dates.

Occasionally, the Bank is required to repurchase loans sold to Freddie Mac, Fannie Mae or other investors if it is determined that such loans do not meet the credit requirements of the investor, or if one of the parties involved in the loan misrepresented pertinent facts, committed fraud, or if such loans were 90-days past due within 120 days of the loan funding date. During the quarters and nine months ended March 31, 2023 and 2022, the Bank did not repurchase any loans or settle any request to repurchase a loan. In addition to the specific recourse liability for the MPF program, the Bank established a recourse liability of $150,000 for loans sold to other investors at both March 31, 2023 and June 30, 2022.

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The following table shows the summary of the recourse liability for the quarters and nine months ended March 31, 2023 and 2022:


	For the Quarter Ended				For the Nine Months Ended
	March 31,				March 31,
Recourse Liability	2023		2022		2023		2022
(In Thousands)
Balance, beginning of the period	$	160	$	160	$	160	$	200
Recovery for recourse liability		—		—		—		(40)
Net settlements in lieu of loan repurchases		—		—		—		—
Balance, end of the period	$	160	$	160	$	160	$	160

Note 7: Fair Value of Financial Instruments

The Corporation adopted ASC 820, “Fair Value Measurements and Disclosures,” and elected the fair value option pursuant to ASC 825, “Financial Instruments.” ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 825 permits entities to elect to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the “Fair Value Option”) at specified election dates. At each subsequent reporting date, an entity is required to report unrealized gains and losses on items in earnings for which the fair value option has been elected. The objective of the Fair Value Option is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.

The following table describes the difference at the dates indicated between the aggregate fair value and the aggregate unpaid principal balance of loans held for investment at fair value:


			Aggregate
			Unpaid		Net
	Aggregate		Principal		Unrealized
(In Thousands)	Fair Value		Balance		Loss
As of March 31, 2023:
Loans held for investment, at fair value	$	1,352	$	1,506	$	(154)

As of June 30, 2022:
Loans held for investment, at fair value	$	1,396	$	1,569	$	(173)

ASC 820-10-65-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” provides additional guidance for estimating fair value in accordance with ASC 820, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased.

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ASC 820 establishes a three-level valuation hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:

Level 1	-	Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.
Level 2	-	Observable inputs other than Level 1 such as: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated to observable market data for substantially the full term of the asset or liability.
Level 3	-	Unobservable inputs for the asset or liability that use significant assumptions, including assumptions of risks. These unobservable assumptions reflect the Corporation’s estimate of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of pricing models, discounted cash flow models and similar techniques.

ASC 820 requires the Corporation to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.

The Corporation’s financial assets and liabilities measured at fair value on a recurring basis consist of investment securities available for sale, loans held for investment at fair value and interest-only strips; while non-performing loans, mortgage servicing assets ("MSA") and real estate owned, if any, are measured at fair value on a nonrecurring basis.

Investment securities - available for sale are primarily comprised of U.S. government agency MBS, U.S. government sponsored enterprise MBS and privately issued CMO. The Corporation utilizes quoted prices in active markets for similar securities for its fair value measurement of MBS (Level 2) and broker price indications for similar securities in non-active markets for its fair value measurement of the CMO (Level 3).

Loans held for investment at fair value are primarily single-family loans which have been transferred from loans held for sale. The fair value is determined by the management estimates of the specific credit risk attributes of each loan, in addition to the quoted secondary-market prices which account for the interest rate characteristics of each loan (Level 3).

Non-performing loans are loans which are inadequately protected by the current sound worth and paying capacity of the borrowers or of the collateral pledged. The non-performing loans are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. The fair value of a non-performing loan is determined based on an observable market price or current appraised value of the underlying collateral. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the borrower. For non-performing loans which are restructured loans, the fair value is derived from discounted cash flow analysis (Level 3), except those which are in the process of foreclosure or 90 days delinquent for which the fair value is derived from the appraised value of its collateral (Level 2). For other non-performing loans which are not restructured loans, other than non-performing commercial real estate loans, the fair value is derived from relative value analysis: historical experience and management estimates by loan type for which collectively evaluated allowances are assigned (Level 3); or the appraised value of its collateral for loans which are in the process of foreclosure or where borrowers file bankruptcy (Level 2). For non-performing commercial real estate loans, the fair value is derived from the appraised value of its collateral (Level 2). Non-performing loans are reviewed and evaluated on at least a quarterly basis for additional allowance and adjusted accordingly, based on the same factors identified above. This loss is not recorded directly as an adjustment to current earnings or other comprehensive income (loss), but rather as a component in determining the overall adequacy of the allowance for loan losses. These adjustments to the estimated fair value of non-performing loans may result in increases or decreases to the provision for loan losses recorded in current earnings.

The Corporation uses the amortization method for its MSA, which amortizes the MSA in proportion to and over the period of estimated net servicing income and assesses the MSA for impairment based on fair value at each reporting date. The fair value of the MSA is derived using the present value method; which includes a third party’s prepayment projections of similar instruments, weighted-average coupon rates, estimated servicing costs and discount interest rates (Level 3).

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The rights to future income from serviced loans that exceed contractually specified servicing fees are recorded as interest-only strips. The fair value of interest-only strips is derived using the same assumptions that are used to value the related MSA (Level 3).

The Corporation’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Corporation’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The following fair value hierarchy tables present information at the dates indicated about the Corporation’s assets and liabilities measured at fair value on a recurring basis:


	Fair Value Measurement at March 31, 2023 Using:
(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Investment securities - available for sale:
U.S. government agency MBS	$	—	$	1,440	$	—	$	1,440
U.S. government sponsored enterprise MBS		—		713		—		713
Private issue CMO		—		—		98		98
Investment securities - available for sale		—		2,153		98		2,251

Loans held for investment, at fair value		—		—		1,352		1,352
Interest-only strips		—		—		8		8
Total assets	$	—	$	2,153	$	1,458	$	3,611

Liabilities:	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—


	Fair Value Measurement at June 30, 2022 Using:
(In Thousands)		Level 1		Level 2		Level 3		Total
Assets:
Investment securities - available for sale:
U.S. government agency MBS	$	—	$	1,698	$	—	$	1,698
U.S. government sponsored enterprise MBS		—		865		—		865
Private issue CMO		—		—		113		113
Investment securities - available for sale		—		2,563		113		2,676

Loans held for investment, at fair value		—		—		1,396		1,396
Interest-only strips		—		—		7		7
Total assets	$	—	$	2,563	$	1,516	$	4,079

Liabilities:	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

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The following tables summarize reconciliations of the beginning and ending balances during the periods shown of recurring fair value measurements recognized in the Condensed Consolidated Statements of Financial Condition using Level 3 inputs:


	For the Quarter Ended March 31, 2023
	Fair Value Measurement
	Using Significant Other Unobservable Inputs
	(Level 3)
	Private		Loans Held For		Interest-
	Issue		Investment, at		Only
(In Thousands)	CMO		fair value⁽¹⁾		Strips		Total
Beginning balance at December 31, 2022	$	102	$	1,345	$	9	$	1,456
Total gains or losses (realized/unrealized):
Included in earnings		—		30		—		30
Included in other comprehensive income (loss)		(1)		—		(1)		(2)
Purchases		—		—		—		—
Issuances		—		—		—		—
Settlements		(3)		(23)		—		(26)
Transfers in and/or out of Level 3		—		—		—		—
Ending balance at March 31, 2023	$	98	$	1,352	$	8	$	1,458

(1)	The valuation of loans held for investment at fair value includes management estimates of the specific credit risk attributes of each loan, in addition to the quoted secondary-market prices which account for the interest rate characteristics of each loan.


	For the Quarter Ended March 31, 2022
	Fair Value Measurement
	Using Significant Other Unobservable Inputs
	(Level 3)
	Private		Loans Held For		Interest-
	Issue		Investment, at		Only
(In Thousands)	CMO		fair value⁽¹⁾		Strips		Total
Beginning balance at December 31, 2021	$	146	$	1,555	$	9	$	1,710
Total gains or losses (realized/unrealized):
Included in earnings		—		(67)		(1)		(68)
Included in other comprehensive income (loss)		(2)		—		—		(2)
Purchases		—		—		—		—
Issuances		—		—		—		—
Settlements		(9)		(18)		—		(27)
Transfers in and/or out of Level 3		—		—		—		—
Ending balance at March 31, 2022	$	135	$	1,470	$	8	$	1,613

(1)	The valuation of loans held for investment at fair value includes management estimates of the specific credit risk attributes of each loan, in addition to the quoted secondary-market prices which account for the interest rate characteristics of each loan.

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	For the Nine Months Ended March 31, 2023
	Fair Value Measurement
	Using Significant Other Unobservable Inputs
	(Level 3)
	Private		Loans Held For		Interest-
	Issue		Investment, at		Only
(In Thousands)	CMO		fair value⁽¹⁾		Strips		Total
Beginning balance at June 30, 2022	$	113	$	1,396	$	7	$	1,516
Total gains or losses (realized/unrealized):
Included in earnings		—		19		—		19
Included in other comprehensive income (loss)		(5)		—		1		(4)
Purchases		—		—		—		—
Issuances		—		—		—		—
Settlements		(10)		(63)		—		(73)
Transfers in and/or out of Level 3		—		—		—		—
Ending balance at March 31, 2023	$	98	$	1,352	$	8	$	1,458

(1)	The valuation of loans held for investment at fair value includes management estimates of the specific credit risk attributes of each loan, in addition to the quoted secondary-market prices which account for the interest rate characteristics of each loan.


	For the Nine Months Ended March 31, 2022
	Fair Value Measurement
	Using Significant Other Unobservable Inputs
	(Level 3)
	Private		Loans Held For		Interest-
	Issue		Investment, at		Only
(In Thousands)	CMO		fair value⁽¹⁾		Strips		Total
Beginning balance at June 30, 2021	$	154	$	1,874	$	10	$	2,038
Total gains or losses (realized/unrealized):
Included in earnings		—		(59)		—		(59)
Included in other comprehensive income (loss)		(2)		—		(2)		(4)
Purchases		—		—		—		—
Issuances		—		—		—		—
Settlements		(17)		(345)		—		(362)
Transfers in and/or out of Level 3		—		—		—		—
Ending balance at March 31, 2022	$	135	$	1,470	$	8	$	1,613

(1)	The valuation of loans held for investment at fair value includes management estimates of the specific credit risk attributes of each loan, in addition to the quoted secondary-market prices which account for the interest rate characteristics of each loan.

The following fair value hierarchy tables present information about the Corporation’s assets measured at fair value at the dates indicated on a nonrecurring basis:


	Fair Value Measurement at March 31, 2023 Using:
(In Thousands)	Level 1		Level 2		Level 3		Total
Non-performing loans	$	—	$	56	$	889	$	945
Mortgage servicing assets		—		—		94		94
Total	$	—	$	56	$	983	$	1,039


	Fair Value Measurement at June 30, 2022 Using:
(In Thousands)	Level 1		Level 2		Level 3		Total
Non-performing loans	$	—	$	515	$	908	$	1,423
Mortgage servicing assets		—		—		168		168
Total	$	—	$	515	$	1,076	$	1,591

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The following table presents additional information about valuation techniques and inputs used for assets and liabilities, which are measured at fair value and categorized within Level 3 as of March 31, 2023:


						Impact to
	Fair Value					Valuation
	As of					from an
	March 31,		Valuation		Range⁽¹⁾	Increase in
(Dollars In Thousands)	2023		Techniques	Unobservable Inputs	(Weighted Average)	Inputs⁽²⁾
Assets:
Securities available-for sale: Private issue CMO	$	98	Market comparable pricing	Comparability adjustment	(8.2%) - (8.7%) (8.6%)	Increase

Loans held for investment, at fair value	$	1,352	Relative value analysis	Broker quotes	91.5% - 98.0% (93.1%)	Increase
				Credit risk factor	1.2% - 6.6% (3.3%)	Decrease

Non-performing loans⁽³⁾	$	710	Discounted cash flow	Default rates	5.0%	Decrease

Non-performing loans⁽⁴⁾	$	179	Relative value analysis	Credit risk factor	20.0%	Decrease

Mortgage servicing assets	$	94	Discounted cash flow	Prepayment speed (CPR)	5.3% - 60.0% (9.7%)	Decrease
				Discount rate	9.0% - 10.5% (9.1%)	Decrease

Interest-only strips	$	8	Discounted cash flow	Prepayment speed (CPR)	7.2% - 15.1% (14.6%)	Decrease
				Discount rate	9.0%	Decrease


Liabilities:

None

(1)	The range is based on the historical estimated fair values and management estimates.

(2)

Unless otherwise noted, this column represents the directional change in the fair value of the Level 3 asset instruments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant changes in these inputs in isolation could result in significantly higher or lower fair value measurements.

(3)	Consists of restructured loans.

(4)	Consists of other non-performing loans, excluding restructured loans.

The significant unobservable inputs used in the fair value measurement of the Corporation’s assets and liabilities include the following: prepayment speeds, discount rates and broker quotes, among others. Significant increases or decreases in any of these inputs in isolation could result in significantly lower or higher fair value measurement. The various unobservable inputs used to determine valuations may have similar or diverging impacts on valuation.

The carrying amount and fair value of the Corporation’s other financial instruments as of March 31, 2023 and June 30, 2022 was as follows:


	March 31, 2023
	Carrying		Fair
(In Thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Loans held for investment, not recorded at fair value	$	1,076,352	$	1,002,191	$	—	$	—	$	1,002,191
Investment securities - held to maturity	$	161,336	$	143,870	$	—	$	143,870	$	—
FHLB – San Francisco stock	$	8,239	$	8,239	$	—	$	8,239	$	—

Financial liabilities:
Deposits	$	983,046	$	866,706	$	—	$	—	$	866,706
Borrowings	$	205,010	$	203,541	$	—	$	—	$	203,541

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	June 30, 2022
	Carrying		Fair
(In Thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Loans held for investment, not recorded at fair value	$	938,596	$	892,339	$	—	$	—	$	892,339
Investment securities - held to maturity	$	185,745	$	171,724	$	—	$	171,724	$	—
FHLB – San Francisco stock	$	8,239	$	8,239	$	—	$	8,239	$	—

Financial liabilities:
Deposits	$	955,504	$	917,220	$	—	$	—	$	917,220
Borrowings	$	85,000	$	84,299	$	—	$	—	$	84,299

Loans held for investment, not recorded at fair value: For loans that reprice frequently at market rates, the carrying amount approximates the fair value. For fixed-rate loans, the fair value is determined by either (i) discounting the estimated future cash flows of such loans over their estimated remaining contractual maturities using a current interest rate at which such loans would be made to borrowers, or (ii) quoted market prices.

Investment securities - held to maturity: The investment securities - held to maturity consist of time deposits at CRA qualified minority financial institutions, U.S. SBA securities, U.S. government sponsored enterprise CMO and U.S. government sponsored enterprise MBS. Due to the short-term nature of the time deposits, the principal balance approximated fair value (Level 2). For the MBS, CMO and SBA securities, the Corporation utilizes quoted prices in active markets for similar securities for its fair value measurement (Level 2).

FHLB – San Francisco stock: The carrying amount reported for FHLB – San Francisco stock approximates fair value. When redeemed, the Corporation will receive an amount equal to the par value of the stock.

Deposits: The fair value of time deposits is estimated using a discounted cash flow calculation. The discount rate is based upon rates currently offered for deposits of similar remaining maturities. The fair value of transaction accounts (checking, money market and savings accounts) is estimated using a discounted cash flow calculation and management estimates of current market conditions.

Borrowings: The fair value of borrowings has been estimated using a discounted cash flow calculation. The discount rate on such borrowings is based upon rates currently offered for borrowings of similar remaining maturities.

The Corporation has various processes and controls in place to ensure that fair value is reasonably estimated. The Corporation generally determines fair value of their Level 3 assets and liabilities by using internally developed models which primarily utilize discounted cash flow techniques and prices obtained from independent management services or brokers. The Corporation performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process.

While the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. During the quarter ended March 31, 2023, there were no significant changes to the Corporation’s valuation techniques that had, or are expected to have, a material impact on its condensed consolidated financial position or results of operations.

Note 8: Revenue From Contracts With Customers

In accordance with ASC 606, revenues are recognized when goods or services are transferred to the customer in exchange for the consideration the Corporation expects to be entitled to receive. The largest portion of the Corporation's revenue is from interest income, which is not in the scope of ASC 606. All of the Corporation's revenue from contracts with customers in the scope of ASC 606 is recognized in non-interest income.

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If a contract is determined to be within the scope of ASC 606, the Corporation recognizes revenue as it satisfies a performance obligation. Payments from customers are generally collected at the time services are rendered, monthly, quarterly or annually. For contracts with customers within the scope of ASC 606, revenue is either earned at a point in time or revenue is earned over time. Examples of revenue earned at a point in time are automated teller machine ("ATM") transaction fees, wire transfer fees, overdraft fees and interchange fees. Revenue is primarily based on the number and type of transactions that are generally derived from transactional information accumulated by our systems and is recognized immediately as the transactions occur or upon providing the service to complete the customer's transaction. The Corporation is generally the principal in these contracts, with the exception of interchange fees, in which case the Corporation is acting as the agent and records revenue net of expenses paid to the principal. Examples of revenue earned over time, which generally occur on a monthly basis, are deposit account maintenance fees, investment advisory fees, merchant revenue, trust and investment management fees and safe deposit box fees. Revenue is generally derived from transactional information accumulated by our systems or those of third-parties and is recognized as the related transactions occur or services are rendered to the customer.

Disaggregation of Revenue:

The following table includes the Corporation's non-interest income disaggregated by type of services for the quarters and nine months ended March 31, 2023 and 2022:


	Quarter Ended				Nine Months Ended
	March 31,				March 31,
Type of Services	2023		2022		2023		2022
(In Thousands)
Loan servicing and other fees⁽¹⁾	$	104	$	237	$	327	$	867
Deposit account fees		328		329		998		966
Card and processing fees		361		378		1,109		1,182
Other⁽²⁾		188		170		506		536
Total non-interest income	$	981	$	1,114	$	2,940	$	3,551

(1)	Not within the scope of ASC 606.

(2)	Includes BOLI of $46 thousand, $46 thousand, $139 thousand and $141 thousand for the quarters and nine months ended March 31, 2023 and 2022, respectively, which are not within the scope of ASC 606.

For both the quarters and nine months ended March 31, 2023 and 2022, substantially all of the Corporation's revenues within the scope of ASC 606 are for performance obligations satisfied at a specified date.

Revenues recognized within the scope of ASC 606:

Deposit account fees: Fees are earned on the Bank's deposit accounts for various products offered to or services performed for the Bank's customers. Fees include business account fees, non-sufficient fund fees, ATM fees and others. These fees are recognized concurrent with the event on a daily, monthly, quarterly or annual basis, depending on the type of service.

Card and processing fees: Debit interchange income represents fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from cardholder transactions through a third-party payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholders’ debit card. Certain expenses directly associated with the debit cards are recorded on a net basis with the interchange income.

Other: Includes asset management fees, certain loan related fees, stop payment fees, wire services fees, safe deposit box fees and other fees earned on other services, such as merchant services or occasional non-recurring type services, and are recognized at the time of the event or the applicable billing cycle. Asset management fees are variable, since they are based on the underlying portfolio value, which is subject to market conditions and amounts invested by customers through a third-party provider. Asset management fees are recognized over the period that services are provided, and when the portfolio values are known or can be estimated at the end of each month. Loan related fees include (loss) gain on sale of

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loans, prepayment fees, late charges, brokered loan fees, maintenance fees and others. These fees are recognized concurrent with the event on a daily, monthly, quarterly or annual basis, depending on the type of service.

Note 9: Leases

The Corporation accounts for its leases in accordance with ASC 842 which requires the Corporation to record liabilities for future lease obligations as well as assets representing the right to use the underlying leased assets. The Corporation's leases primarily represent future obligations to make payments for the use of buildings, space or equipment for its operations. Liabilities to make future lease payments are recorded in accounts payable, accrued interest and other liabilities, while right-of-use assets are recorded in premises and equipment in the Corporation's condensed consolidated statements of financial condition. At March 31, 2023, all of the Corporation's leases were classified as operating leases and the Corporation did not have any operating leases with an initial term of 12 months or less ("short-term leases"). Liabilities to make future lease payments and right-of-use assets are recorded for operating leases and do not include short-term leases. These liabilities and right-of-use assets are determined based on the total contractual base rents for each lease, which include options to extend or renew each lease, where applicable, and where the Corporation believes it has an economic incentive to extend or renew the lease. Due to the fact that lease extensions are not reasonably certain, the Corporation generally does not recognize payments occurring during option periods in the calculation of its operating right-of-use lease assets and operating lease liabilities. The Corporation utilizes the FHLB – San Francisco rates as a discount rate for each of the remaining contractual terms at the adoption date as well as for future leases if the discount rate is not stated in the lease. For leases that contain variable lease payments, the Corporation assumes future lease payment escalations based on a lease payment escalation rate specified in the lease or the specified index rate observed at the time of lease commencement. Liabilities to make future lease payments are accounted for using the interest method, being reduced by periodic contractual lease payments net of periodic interest accretion. Right-of-use assets for operating leases are amortized over the term of the associated lease by amounts that represent the difference between periodic straight-line lease expense and periodic interest accretion in the related liability to make future lease payments.

For the quarters ended March 31, 2023 and 2022, expenses associated with the Corporation’s leases totaled $220,000 and $218,000, respectively, and were recorded in premises and occupancy expenses and equipment expenses in the condensed consolidated statements of operations. For the nine months ended March 31, 2023 and 2022, expenses associated with the Corporation’s leases totaled $651,000 and $660,000, respectively, and were recorded in premises and occupancy expenses and equipment expenses in the condensed consolidated statements of operations.

The following table presents supplemental information related to operating leases at the date and for the periods indicated:


	As of
(In Thousands)	March 31, 2023			June 30, 2022
Condensed Consolidated Statements of Condition:
Premises and equipment - Operating lease right of use assets	$	1,984	$	1,969
Accounts payable, accrued interest and other liabilities – Operating lease liabilities	$	2,000	$	1,998


	Quarter Ended				Nine Months Ended
	March 31,				March 31,
(In Thousands)	2023			2022	2023			2022
Condensed Consolidated Statements of Operations:
Premises and occupancy expenses from operating leases⁽¹⁾	$	195	$	196	$	581	$	591
Equipment expenses from operating leases	$	25	$	22	$	70	$	69

(1)	Includes immaterial variable lease costs.


	Nine Months Ended		Nine Months Ended
(In Thousands)	March 31, 2023		March 31, 2022
Condensed Consolidated Statements of Cash Flows:
Operating cash flows from operating leases, net	$	657	$	697

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The following table provides information related to remaining minimum contractual lease payments and other information associated with the Corporation’s leases as of March 31, 2023:


	Amount⁽¹⁾
Year Ending June 30,	(In Thousands)
2023	$	228
2024		809
2025		585
2026		296
2027		100
Thereafter		71
Total contract lease payments	$	2,089

Total liability to make lease payments	$	2,000
Difference in undiscounted and discounted future lease payments	$	89
Weighted average discount rate		2.81	%
Weighted average remaining lease term (years)		2.5

(1)	Contractual base rents do not include property taxes and other operating expenses due under respective lease agreements.

Note 10: Stock Repurchases

On April 28, 2022, the Board of Directors of the Corporation authorized the repurchase of up to five percent of the Corporation’s common stock, approximately 364,259 shares (the “April 2022 stock repurchase plan”). The Corporation may purchase the shares from time to time in the open market or through privately negotiated transactions over a one-year period 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. The April 2022 stock repurchase plan will continue for a period of one year or until completed, whichever occurs first.

During the quarter ended March 31, 2023, the Corporation purchased 98,307 shares of its common stock under the April 2022 stock repurchase plan with a weighted average cost of $14.20 per share. For the nine months ended March 31, 2023, the Corporation purchased 251,221 shares of the Corporation’s common stock under the April 2022 stock repurchase plan with a weighted average cost of $14.30 per share. As of March 31, 2023, a total of 113,038 shares or 31 percent of authorized shares under the plan remained available for purchase.

Note 11: Subsequent Events

On April 27, 2023, the Corporation announced that the Board of Directors declared a quarterly cash dividend of $0.14 per share. Shareholders of the Corporation’s common stock at the close of business on May 18, 2023 are entitled to receive the cash dividend. The cash dividend will be payable on June 8, 2023.

On April 27, 2023, the Corporation announced that the Board of Directors authorized an extension of the April 2022 stock repurchase plan (“Plan”), which was set to expire on April 28, 2023, for a period of one year or until completed, whichever occurs first. There were 101,044 shares available for purchase under the Plan as of April 28, 2023.

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ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

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 Federal Reserve Board (“FRB”). At March 31, 2023, the Corporation had total assets of $1.34 billion, total deposits of $983.0 million and total stockholders’ equity of $129.4 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.

The Bank, founded in 1956, is a federally chartered stock savings bank headquartered in Riverside, California. The Bank is regulated by the Office of the Comptroller of the Currency (“OCC”), its primary federal regulator, and the Federal Deposit Insurance Corporation (“FDIC”), the insurer of its deposits. The Bank’s deposits are federally insured up to applicable limits by the FDIC. The Bank has been a member of the Federal Home Loan Bank System since 1956.

The Corporation operates in a single business segment through the Bank. The Bank’s activities include attracting deposits, offering banking services and originating and purchasing single-family, multi-family, commercial real estate, construction and, to a lesser extent, other mortgage, commercial business and consumer loans. Deposits are collected primarily from 13 banking locations located in Riverside and San Bernardino counties in California. Loans are primarily originated and purchased in Southern and Northern California. There are various risks inherent in the Corporation’s business including, among others, the general business environment, interest rates, the California real estate market, the demand for loans, the prepayment of loans, the repurchase of loans previously sold to investors, the secondary market conditions to buy and sell loans, competitive conditions, legislative and regulatory changes, fraud and other risks.

The Corporation began paying quarterly cash dividends during the quarter ended September 30, 2002. On January 24, 2023, 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 February 14, 2023, which was paid on March 7, 2023. Future declarations or payments of dividends will be subject to the consideration of the Corporation’s Board of Directors, which will take into account 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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding the financial condition and results of operations of the Corporation. The information contained in this section should be read in conjunction with the Unaudited Interim Condensed Consolidated Financial Statements and accompanying selected Notes to Unaudited Interim Condensed Consolidated Financial Statements.

Safe-Harbor Statement

Certain matters in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Form 10-Q contains statements that the Corporation believes are “forward-looking statements.” These statements relate to the Corporation’s financial condition, liquidity, results of operations, plans, objectives, future performance or business. 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 include, but are not limited to the following: potential adverse impacts to economic conditions in our local market areas, other

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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 and the effects of inflation, a potential recession or slowed economic growth, as well as increasing prices and supply chain disruptions, and any governmental or societal responses to new COVID-19 variants; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and charge-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the residential and commercial real estate markets and may lead to increased losses and non-performing assets and may result in our allowance for loan losses not being adequate to cover actual losses and require us to materially increase our reserve; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; the transition away from LIBOR toward new interest rate benchmarks; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; results of examinations of the Corporation by the FRB or of the Bank by the OCC or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to enter into a formal enforcement action or to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements and restrictions on us, any of which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in banking, securities and tax law, and in regulatory policies and principles, or the interpretation of regulatory capital or other rules, and other governmental initiatives affecting the financial services industry; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; adverse changes in the securities markets; our ability to attract and retain deposits; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; 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; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; increased competitive pressures among financial services companies and non-financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common stock; the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets; the inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business; other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services; and other risks detailed in this report and in the Corporation’s other reports filed with or furnished to the SEC, including our 2022 Annual Form 10-K. These factors could have an adverse impact on our financial position and our results of operations.

Forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included in this document or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this document might not occur, and you should not put undue reliance on any forward-looking statements. These factors could cause our actual results for the remaining fiscal 2023 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us and could negatively affect the Corporation’s consolidated financial condition and consolidated results of operations as well as its stock price performance.

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Critical Accounting Estimates

The discussion and analysis of the Corporation’s financial condition and results of operations is based upon the Corporation’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.

The Corporation’s critical accounting estimates are described in the Corporation’s 2022 Annual Form 10-K in the Critical Accounting Policies 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. There have been no significant changes during the nine months ended March 31, 2023 to the critical accounting estimates as described in the Corporation’s 2022 Annual Form 10-K.

Executive Summary and Operating Strategy

Provident Savings Bank, F.S.B., established in 1956, is a financial services company committed to serving consumers and small to mid-sized businesses in the Inland Empire region of Southern California. The Bank conducts its business operations as Provident Bank and through its subsidiary, Provident Financial Corp. The business activities of the Corporation, primarily through the Bank, consist of community banking and, to a lesser degree, investment services for customers and trustee services on behalf of the Bank.

Community banking operations primarily consist of accepting deposits from customers within the communities surrounding the Corporation’s full service offices and investing those funds in single-family, multi-family and commercial real estate loans. Also, to a lesser extent, the Corporation makes construction, commercial business, consumer and other mortgage loans. The primary source of income in community banking is net interest income, which is the difference between the interest income earned on loans and investment securities, and the interest expense paid on interest-bearing deposits and borrowed funds. Additionally, certain fees are collected from depositors, such as returned check fees, deposit account service charges, ATM fees, IRA/KEOGH fees, safe deposit box fees, wire transfer fees and overdraft protection fees, among others.

During the next three years, subject to market conditions, the Corporation intends to improve its community banking business by moderately increasing total assets (by increasing single-family, multi-family, commercial real estate, construction and commercial business loans). In addition, the Corporation intends to decrease the percentage of customer time deposits in its deposit base and to increase the percentage of lower cost checking and savings accounts. 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 current general economic conditions and risk of recession.

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

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.

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 2022 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

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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.

Commitments and Derivative Financial Instruments

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.

Comparison of Financial Condition at March 31, 2023 and June 30, 2022

Total assets increased 12 percent to $1.34 billion at March 31, 2023 from $1.19 billion at June 30, 2022. The increase was attributable to the increases in loans held for investment and cash and cash equivalents, partly offset by a decrease in investment securities.

Total cash and cash equivalents, primarily excess cash deposited with the Federal Reserve Bank of San Francisco, increased $37.4 million, or 160 percent, to $60.8 million at March 31, 2023 from $23.4 million at June 30, 2022. The increase in total cash and cash equivalents was primarily attributable to management’s strategy to increase liquidity due to recent industry instability as a result of several high-profile bank failures.

Investment securities (held to maturity and available for sale) decreased $24.8 million, or 13 percent, to $163.6 million at March 31, 2023 from $188.4 million at June 30, 2022. 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 2023. For further analysis on investment securities, see Note 4 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Loans held for investment increased $137.7 million, or 15 percent, to $1.08 billion at March 31, 2023 from $940.0 million at June 30, 2022, primarily due to an increase in single-family loans. During the first nine months of fiscal 2023, the Corporation originated $212.8 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 2023. Total loan principal payments during the first nine months of fiscal 2023 were $77.2 million, down 57 percent from $180.1 million during the comparable period in fiscal 2022. Single-family loans held for investment at March 31, 2023 and June 30, 2022 was $512.6 million and $378.2 million and represented approximately 48 percent and 40 percent of loans held for investment, respectively.

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The tables below describe the geographic dispersion of gross real estate secured loans held for investment at March 31, 2023 and June 30, 2022, as a percentage of the total dollar amount of loans outstanding:

As of March 31, 2023:


	Inland				Southern				Other				Other
	Empire				California⁽¹⁾				California				States				Total
Loan Category	Balance		%		Balance		%		Balance		%		Balance		%		Balance		%
Single-family	$	149,311	29	%	$	170,972	33	%	$	192,075	38	%	$	274	—	%	$	512,632	100	%
Multi-family		62,500	13	%		273,995	59	%		129,837	28	%		—	—	%		466,332	100	%
Commercial real estate		17,870	20	%		46,293	51	%		26,333	29	%		—	—	%		90,496	100	%
Construction		2,111	73	%		606	21	%		174	6	%		—	—	%		2,891	100	%
Other		—	—	%		108	100	%		—	—	%		—	—	%		108	100	%
Total	$	231,792	22	%	$	491,974	46	%	$	348,419	32	%	$	274	—	%	$	1,072,459	100	%

(1)	Other than the Inland Empire.

As of June 30, 2022:


	Inland				Southern				Other				Other
	Empire				California⁽¹⁾				California				States				Total
Loan Category	Balance		%		Balance		%		Balance		%		Balance		%		Balance		%
Single-family	$	126,638	33	%	$	112,549	30	%	$	138,767	37	%	$	280	—	%	$	378,234	100	%
Multi-family		63,764	14	%		275,642	59	%		124,993	27	%		277	—	%		464,676	100	%
Commercial real estate		20,450	23	%		41,127	45	%		28,852	32	%		—	—	%		90,429	100	%
Construction		3,157	98	%		59	2	%		—	—	%		—	—	%		3,216	100	%
Other		—	—	%		123	100	%		—	—	%		—	—	%		123	100	%
Total	$	214,009	23	%	$	429,500	46	%	$	292,612	31	%	$	557	—	%	$	936,678	100	%

(1)	Other than the Inland Empire.

For further analysis on loans held for investment, see Note 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Total deposits increased $27.5 million, or three percent, to $983.0 million at March 31, 2023 from $955.5 million at June 30, 2022, primarily due to an increase in time deposits, partly offset by a decrease in transaction accounts. Total uninsured deposits, adjusted lower by collateralized deposits, were approximately $177.8 million and $169.7 million at March 31, 2023 and June 30, 2022, respectively.

Transaction account balances or “core deposits” decreased $57.4 million, or seven percent, to $777.0 million at March 31, 2023 from $834.4 million at June 30, 2022 and time deposits increased $85.0 million, or 70 percent, to $206.1 million at March 31, 2023 from $121.1 million at June 30, 2022. The increase in time deposits was primarily due to a $95.3 million increase in brokered certificates of deposit with a weighted average cost of 4.37 percent (including broker fees). Excluding brokered certificates of deposit, the percentage of time deposits to total deposits decreased to 12 percent at March 31, 2023 from 13 percent at June 30, 2022. Brokered certificates of deposit totaled $95.3 million at March 31, 2023.

Total borrowings increased $120.0 million, or 141 percent, to $205.0 million at March 31, 2023 as compared to $85.0 million at June 30, 2022, due to additional borrowings to fund the increase in loans held for investment and to provide for additional liquidity. At March 31, 2023, borrowings are comprised of short-term and long-term FHLB - San Francisco advances used for liquidity and interest rate risk management purposes.

Total stockholders’ equity increased to $129.4 million at March 31, 2023 from $128.7 million at June 30, 2022, primarily as a result of $6.8 million of net income and $660,000 of stock-based compensation in the first nine months of fiscal 2023, partly offset by $3.0 million of cash dividends paid to shareholders and $3.6 million of stock repurchases. The Corporation

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repurchased 251,221 shares of its common stock under its April 2022 stock repurchase plan at a weighted average cost of $14.30 per share during the first nine months of fiscal 2023.

Comparison of Operating Results for the Quarters and Nine Months Ended March 31, 2023 and 2022

Net income for the third quarter of fiscal 2023 was $2.3 million, up $624,000 or 37 percent from $1.7 million in the same period of fiscal 2022. The increase in net income was primarily attributable to a $1.9 million increase in net interest income, partly offset by an $814,000 change to the provision for loan losses to a $169,000 provision for loan losses this quarter in contrast to a $645,000 recovery from the allowance for loan losses in the same quarter last year and a $133,000 decrease in non-interest income, mainly attributable to a decrease in loan prepayment fees.

For the first nine months of fiscal 2023, net income was $6.8 million, an increase of $154,000, or two percent, from $6.6 million in the same period of fiscal 2022. The increase in net income was primarily attributable to a $4.7 million increase in net interest income, partly offset by a $2.5 million change to the provision for loan losses to a $430,000 provision for loan losses in the first nine months of fiscal 2023 in contrast to a $2.1 million recovery from the allowance for loan losses in the same period last year, a $1.2 million increase in non-interest expenses, mainly due to the $1.2 million credit from the Employee Retention Tax Credit (“ERTC”) recognized in the first quarter of last year and not replicated this period, and a $611,000 decrease in non-interest income, mainly attributable to a decrease in loan prepayment fees.

The Corporation’s efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, improved to 66.69 percent for the third quarter of fiscal 2023 from 79.74 percent in the same period last year. For the first nine months of fiscal 2023, the Corporation’s efficiency ratio improved to 67.33 percent from 73.07 percent for the same period of fiscal 2022. The improvement in the efficiency ratio during the current quarter compared to the same quarter last year was due mainly to higher total revenues. The improvement in the efficiency ratio during the first nine months of fiscal 2023 compared to the same period the prior year was due to higher total revenues, partly offset by higher non-interest expenses.

Return on average assetswas 0.72 percent in the third quarter of fiscal 2023, up 15 basis points from 0.57 percent in the same period last year. For the first nine months of fiscal 2023, return on average assets was 0.72 percent, down two basis points from 0.74 percent in the same period last year.

Return on average stockholders’ equity was 7.12 percent in the third quarter of fiscal 2023, up from 5.33 percent in the same period last year. For the first nine months of fiscal 2023, return on average stockholders’ equity was 6.94 percent, unchanged from the same period last year.

Diluted earnings per share for the third quarter of fiscal 2023 were $0.33, up 43 percent from $0.23 in the same period last year. For the first nine months of fiscal 2023, diluted earnings per share were $0.94, up six percent from $0.89 in the same period last year.

Net Interest Income:

For the Quarters Ended March 31, 2023 and 2022. Net interest income increased $1.9 million or 25 percent to $9.4 million from $7.5 million for the same quarter last year. The increase in net interest income was due to a higher net interest margin and, to a lesser extent, higher average earning assets. The higher net interest margin wasdue to a shift in the composition of interest-earning assets towards higher yielding loans held for investment and an increase in the average yield on interest-earning deposits reflecting recent increases in the targeted federal funds rate, including a 50-basis point increase during the current quarter, to a range of 4.75% to 5.00%; partly offset by increases in the weighted average cost and average balance of customer deposits and borrowings. The net interest margin during the third quarter of fiscal 2023 increased 39 basis points to 3.00 percent from 2.61 percent in the same quarter last year. The average yield on interest-earning assets increased 97 basis points to 3.83 percent in the third quarter of fiscal 2023 from 2.86 percent in the same quarter last year while the average cost of interest-bearing liabilities increased by 65 basis points to 0.93 percent in the third quarter of fiscal 2023 from 0.28 percent in the same quarter last year. The average balance of interest-earning assets increased by nine percent to $1.25 billion in the third quarter of fiscal 2023 from $1.16 billion in the same quarter last year. The increase in earning assets was primarily due to an increase in the average balance of loans receivable, partly

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offset by decreases in the average balance of both investment securities and interest-earning deposits. The average balance of interest-bearing liabilities increased by $95.4 million, or nine percent, to $1.14 billion in the third quarter of fiscal 2023 from $1.04 billion in the same quarter last year primarily reflecting an increase in the average balance of borrowings and, to a lesser extent, the average balance of time deposits, partly offset by a decrease in the average balance of transaction accounts.

For the Nine Months Ended March 31, 2023 and 2022. Net interest income increased $4.7 million or 20 percent to $27.8 million for the first nine months of fiscal 2023 from $23.1 million in the same period in fiscal 2022, as a result of a higher net interest margin and, to a lesser extent, a higher average interest-earning asset balance. The net interest margin was 3.03 percent in the first nine months of fiscal 2023, an increase of 38 basis points from 2.65 percent in the same period of fiscal 2022, primarily due to an increase in the average yield on interest-earning assets which exceeded the increase in the average cost of interest-bearing liabilities. The weighted-average yield on interest-earning assets increased by 68 basis points to 3.61 percent in the first nine months of fiscal 2023 from 2.93 percent in the same period last year, while the weighted-average cost of interest-bearing liabilities increased by 33 basis points to 0.64 percent for the first nine months of fiscal 2023 as compared to 0.31 percent in the same period last year. The average balance of interest-earning assets increased $59.5 million, or five percent, to $1.22 billion in the first nine months of fiscal 2023 from $1.16 billion in the comparable period of fiscal 2022, primarily reflecting an increase in the average balance of loans receivable, partly offset by decreases in the average balance of both investment securities and interest-earning deposits. The average balance of interest-bearing liabilities increased by $58.0 million, or six percent, to $1.11 billion in the first nine months of fiscal 2023 from $1.05 billion in the same period last year primarily reflecting an increase in the average balance of borrowings and, to a lesser extent, the average balance of time deposits, partly offset by a decrease in the average balance of transaction accounts.

Interest Income:

For the Quarters Ended March 31, 2023 and 2022. Total interest income increased $3.7 million, or 45 percent, to $12.0 million for the third quarter of fiscal 2023 as compared to $8.3 million for the same quarter of fiscal 2022. The increase was due primarily to an increase in interest income from loans receivable.

Interest income on loans receivable increased by $3.4 million, or 45 percent, to $11.0 million in the third quarter of fiscal 2023 from $7.6 million in the same quarter of fiscal 2022. The increase was due to a higher average balance and a higher average yield. The average balance of loans receivable increased $196.1 million, or 23 percent, to $1.05 billion in the third quarter of fiscal 2023 from $858.3 million in the same quarter last year. Total loans originated and purchased for investment in the third quarter of fiscal 2023 were $53.9 million, down 43 percent from $94.0 million in the same quarter last year. Loan principal payments received in the third quarter of fiscal 2023 were $17.5 million, down 67 percent from $53.6 million in the same quarter last year. The average yield on loans receivable increased by 65 basis points to 4.18 percent in the third quarter of fiscal 2023 from an average yield of 3.53 percent in the same quarter last year. Net deferred loan cost amortization in the third quarter of fiscal 2023 decreased 54 percent to $228,000 from $496,000 in the same quarter last year, attributable primarily to fewer loan payoffs. The higher weighted average loan yield was due primarily to the repricing of adjustable interest rate loans and new loan originations with higher weighted average interest rates. Adjustable-rate loans of approximately $97.4 million were repriced upward in the third quarter of fiscal 2023 by approximately 137 basis points from a weighted average 4.77 percent to 6.14 percent.

Interest income from investment securities increased by $33,000, or six percent, to $548,000 in the third quarter of fiscal 2023 from $515,000 for the same quarter of fiscal 2022. This increase was attributable to a higher average yield, partly offset by a lower average balance. The average yield on investment securities increased 30 basis points to 1.31 percent in the third quarter of fiscal 2023 from 1.01 percent for the same quarter last year. The increase in the average investment securities yield was primarily attributable to a lower premium amortization during the current quarter in comparison to the same quarter last year ($181,000 vs. $328,000) due to lower total principal repayments ($6.9 million vs. $12.3 million) and, to a lesser extent, the upward repricing of adjustable-rate mortgage-backed securities. The average balance of investment securities decreased by $35.5 million, or 17 percent, to $167.7 million in the third quarter of fiscal 2023 from $203.2 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.

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The FHLB – San Francisco distributed a $146,000 cash dividend to the Bank on its stock in the third quarter of fiscal 2023, up 19 percent from $123,000 in the same quarter last year. The average balance of FHLB – San Francisco stock in the third quarter of fiscal 2023 was $8.2 million, virtually unchanged from the same quarter of fiscal 2022 while the average yield was 7.09 percent, up 106 basis points from 6.03 percent.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was $286,000 in the third quarter of fiscal 2023, up 633 percent from $39,000 in the same quarter of fiscal 2022. The increase was due to a higher average yield, partly offset by a lower average balance. The average yield earned on interest-earning deposits in the third quarter of fiscal 2023 was 4.65 percent, up 447 basis points from 0.18 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 decreased by $61.4 million, or 71 percent, to $24.6 million in the third quarter of fiscal 2023 from $86.0 million in the same quarter last year primarily due to the utilization of these excess funds for loan portfolio growth.

For the Nine Months Ended March 31, 2023 and 2022. Total interest income increased $7.6 million, or 30 percent, to $33.1 million for the first nine months of fiscal 2023 from $25.5 million in the same period of fiscal 2022. The increase was due primarily to an increase in interest income from loans receivable.

Interest income from loans receivable increased $6.7 million, or 28 percent, to $30.4 million in the first nine months of fiscal 2023 from $23.7 million for the same period of fiscal 2022. The increase was due to a higher average balance and, to a lesser extent, a higher weighted average yield. The average balance of loans receivable increased by $156.8 million, or 18 percent, to $1.01 billion for the first nine months of fiscal 2023 from $855.1 million in the same period of fiscal 2022. Total loans originated and purchased for investment in the first nine months of fiscal 2023 were $212.8 million, down three percent from $220.3 million in the same period last year. Loan principal payments received in the first nine months of fiscal 2023 were $77.2 million, down 57 percent from $180.1 million in the same period last year. The weighted average loan receivable yield during the first nine months of fiscal 2023 increased 31 basis points to 4.00 percent from 3.69 percent in the same period last year. The increase in the average yield on loans receivable was primarily attributable to loans repricing upward, new loan originations with a higher average yield and a decrease in net deferred loan cost amortization to $727,000 in the first nine months of fiscal 2023 from $1.6 million in the same period of fiscal 2022. Adjustable-rate loans of approximately $280.1 million were repriced upward in the first nine months of fiscal 2023 by approximately 108 basis points from a weighted average 4.29 percent to 5.37 percent.

Interest income from investment securities increased $266,000, or 19 percent, to $1.6 million in the first nine months of fiscal 2023 from $1.4 million for the same period of fiscal 2022. This increase was attributable to a higher average yield, partly offset by a lower average balance. The average investment securities yield increased by 38 basis points to 1.24 percent in the first nine months of fiscal 2023 from 0.86 percent in the same period of fiscal 2022. The increase in the average investment securities yield was primarily attributable to a lower premium amortization ($622,000 compared to $1.3 million) due to lower total principal repayments ($23.8 million vs. $44.8 million) and, to a lesser extent, the upward repricing of adjustable rate mortgage-backed securities. The average balance of investment securities decreased by $35.2 million, or 17 percent, to $175.8 million in the first nine months of fiscal 2023 from $211.0 million in the same period of fiscal 2022. The decrease in the average balance of investment securities was primarily the result of scheduled and accelerated principal payments on mortgage-backed securities.

The FHLB – San Francisco cash dividend received in the first nine months of fiscal 2023 was $414,000, up 13 percent from $368,000 in the same period of fiscal 2022. The average balance of FHLB – San Francisco stock in the first nine months of fiscal 2023 was $8.2 million, virtually unchanged from the same period of fiscal 2022 while the average yield was 6.70 percent, up 68 basis points from 6.02 percent.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was $666,000 in the first nine months of fiscal 2023, up 534 percent from $105,000 in the same period of fiscal 2022. The increase was primarily due to a higher average yield. The average yield earned on interest-earning deposits increased by 346 basis points to 3.62 percent in the first nine months of fiscal 2023 from 0.16 percent in the comparable period last year, due primarily to an increase in the interest rate paid on excess reserves. The average balance of the interest-earning deposits in the first nine months of fiscal 2023 was $24.2 million, a decrease of $62.2 million or 72 percent, from $86.4 million in the same period of fiscal 2022.

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Interest Expense:

For the Quarters Ended March 31, 2023 and 2022. Total interest expense increased by $1.9 million or 262 percent to $2.6 million in the third quarter of fiscal 2023 from $720,000 in the same quarter last year. The increase was attributable to higher interest expense on borrowings and time deposits, particularly brokered certificates of deposit.

Interest expense on deposits for the third quarter of fiscal 2023 was $879,000, a 221 percent increase from $274,000 for the same period last year. The increase in interest expense on deposits was attributable to a higher average balance and cost of time deposits. The average cost of deposits was 0.37 percent for the third quarter of fiscal 2023, up 25 basis points from 0.12 percent in the same quarter last year, attributable primarily to the average cost of time deposits (mainly brokered certificates of deposit) which increased 131 basis points to 1.87% for the third quarter of fiscal 2023 from 0.56 percent in the same quarter of fiscal 2022. The average balance of deposits decreased slightly to $962.0 million in the third quarter of fiscal 2023 from $963.1 million in the same quarter last year due to decreases in transaction accounts which was mainly offset by an increase in brokered certificates of deposit.

Interest expense on borrowings, consisting of FHLB – San Francisco advances, for the third quarter of fiscal 2023 increased $1.3 million, or 287 percent, to $1.7 million from $446,000 for the same period last year. The increase was primarily the result of a higher average balance and, to a lesser extent, a higher average cost. The average balance of borrowings increased by $96.5 million or 121 percent to $176.5 million in the third quarter of fiscal 2023 from $80.0 million in the same quarter last year and the average cost of borrowings increased by 171 basis points to 3.97 percent in the third quarter of fiscal 2023 from 2.26 percent in the same quarter last year.

For the Nine Months Ended March 31, 2023 and 2022. Total interest expense increased $2.9 million, or 120 percent to $5.3 million in the first nine months of fiscal 2023 from $2.4 million in the same period last year. This increase was attributable primarily to interest expense on borrowing and, to a lesser extent, interest expense on time deposits

Interest expense on deposits for the first nine months of fiscal 2023 was $1.7 million, a $782,000 or 88 percent increase from $889,000 for the same period last year. The increase in interest expense on deposits was primarily attributable to a higher average cost of time deposits. The average cost of deposits was 0.23 percent, up 11 basis points from 0.12 percent in the same period last year, attributable primarily to time deposits (mainly brokered certificates of deposit) which increased 65 basis points to 1.24% for the first nine months of fiscal 2023 from 0.59% in the same period in fiscal 2022. The average balance of deposits increased slightly to $962.2 million in the first nine months of fiscal 2023 from $959.2 million in the same period last year due to increases in time deposits (particularly brokered certificates of deposit) and savings deposits, partly offset by a decrease in checking and money market deposits.

Interest expense on borrowings, consisting primarily of FHLB – San Francisco advances, for the first nine months of fiscal 2023 increased by $2.2 million, or 138 percent, to $3.7 million from $1.5 million in the same period last year. The increase in interest expense on borrowings was primarily the result of a higher average balance and, to a lesser extent, a higher average cost. The average balance of borrowings increased by $54.9 million or 62 percent to $143.9 million in the first nine months of fiscal 2023 from $89.0 million in the same period last year and the average cost of borrowings increased by 108 basis points to 3.38 percent in the first nine months of fiscal 2023 from 2.30 percent in the same period last year.

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The following tables present the average balance sheets for the quarters and nine months ended March 31, 2023 and 2022, respectively. Average balances include loans accounted for on a non-accrual basis. Amortization of net deferred loan fees/costs is included with interest income on loans receivable.

Average Balance Sheets


	Quarter Ended						Quarter Ended
	March 31, 2023						March 31, 2022
	Average				Yield/		Average				Yield/
(Dollars In Thousands)	Balance		Interest		Cost		Balance		Interest		Cost
Interest-earning assets:
Loans receivable, net⁽¹⁾	$	1,054,431	$	11,028	4.18	%	$	858,300	$	7,581	3.53	%
Investment securities		167,679		548	1.31	%		203,171		515	1.01	%
FHLB – San Francisco stock		8,239		146	7.09	%		8,155		123	6.03	%
Interest-earning deposits		24,615		286	4.65	%		86,007		39	0.18	%

Total interest-earning assets		1,254,964		12,008	3.83	%		1,155,633		8,258	2.86	%

Non interest-earning assets		32,416						32,346

Total assets	$	1,287,380					$	1,187,979

Interest-bearing liabilities:
Checking and money market accounts⁽²⁾	$	475,958	$	56	0.05	%	$	505,126	$	54	0.04	%
Savings accounts		316,980		42	0.05	%		328,757		42	0.05	%
Time deposits		169,105		781	1.87	%		129,229		178	0.56	%

Total deposits⁽³⁾		962,043		879	0.37	%		963,112		274	0.12	%

Borrowings		176,501		1,728	3.97	%		80,000		446	2.26	%

Total interest-bearing liabilities		1,138,544		2,607	0.93	%		1,043,112		720	0.28	%

Non interest-bearing liabilities		18,291						17,348

Total liabilities		1,156,835						1,060,460

Stockholders’ equity		130,545						127,519
Total liabilities and stockholders’ equity	$	1,287,380					$	1,187,979

Net interest income			$	9,401					$	7,538

Interest rate spread⁽⁴⁾					2.90	%					2.58	%
Net interest margin⁽⁵⁾					3.00	%					2.61	%
Ratio of average interest- earning assets to average interest-bearing liabilities					110.23	%					110.79	%
Return on average assets					0.72	%					0.57	%
Return on average equity					7.12	%					5.33	%

(1)	Includes the average balance of non-performing loans of $1.0 million and $3.0 million and net deferred loan cost amortization of $228 thousand and $496 thousand for the quarters ended March 31, 2023 and 2022, respectively.

(2)	Includes the average balance of non interest-bearing checking accounts of $107.1 million and $114.7 million during the quarters ended March 31, 2023 and 2022, respectively.

(3)	Includes the average balance of uninsured deposits (adjusted lower by collateralized deposits) of approximately $167.6 million and $170.7 million in the quarters ended March 31, 2023 and 2022, respectively.

(4)	Represents the difference between the weighted-average yield on all interest-earning assets and the weighted-average rate on all interest-bearing liabilities.

(5)	Represents net interest income before provision (recovery) for loan losses as a percentage of average interest-earning assets.

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	Nine Months Ended						Nine Months Ended
	March 31, 2023						March 31, 2022
	Average				Yield/		Average				Yield/
(Dollars In Thousands)	Balance		Interest		Cost		Balance		Interest		Cost
Interest-earning assets:
Loans receivable, net⁽¹⁾	$	1,011,916	$	30,365	4.00	%	$	855,080	$	23,676	3.69	%
Investment securities		175,802		1,632	1.24	%		210,978		1,366	0.86	%
FHLB – San Francisco stock		8,239		414	6.70	%		8,155		368	6.02	%
Interest-earning deposits		24,153		666	3.62	%		86,402		105	0.16	%

Total interest-earning assets		1,220,110		33,077	3.61	%		1,160,615		25,515	2.93	%

Non interest-earning assets		33,552						32,604

Total assets	$	1,253,662					$	1,193,219

Interest-bearing liabilities:
Checking and money market accounts⁽²⁾	$	489,633	$	177	0.05	%	$	504,282	$	169	0.04	%
Savings accounts		326,381		130	0.05	%		320,999		128	0.05	%
Time deposits		146,227		1,364	1.24	%		133,872		592	0.59	%

Total deposits⁽³⁾		962,241		1,671	0.23	%		959,153		889	0.12	%

Borrowings		143,887		3,655	3.38	%		88,986		1,537	2.30	%

Total interest-bearing liabilities		1,106,128		5,326	0.64	%		1,048,139		2,426	0.31	%

Non interest-bearing liabilities		17,147						17,722

Total liabilities		1,123,275						1,065,861

Stockholders’ equity		130,387						127,358
Total liabilities and stockholders’ equity	$	1,253,662					$	1,193,219

Net interest income			$	27,751					$	23,089

Interest rate spread⁽⁴⁾					2.97	%					2.62	%
Net interest margin⁽⁵⁾					3.03	%					2.65	%
Ratio of average interest- earning assets to average interest-bearing liabilities					110.30	%					110.73	%
Return on average assets					0.72	%					0.74	%
Return on average equity					6.94	%					6.94	%

(1)	Includes the average balance of non-performing loans of $1.1 million and $5.0 million and net deferred loan cost amortization of $727 thousand and $1.6 million for the nine months ended March 31, 2023 and 2022, respectively.

(2)	Includes the average balance of non interest-bearing checking accounts of $115.4 million and $117.7 million during the nine months ended March 31, 2023 and 2022, respectively.

(3)	Includes the average balance of uninsured deposits (adjusted lower by collateralized deposits) of approximately $182.2 million and $167.0 million in the nine months ended March 31, 2023 and 2022, respectively.

(4)	Represents the difference between the weighted-average yield on all interest-earning assets and the weighted-average rate on all interest-bearing liabilities.

(5)	Represents net interest income before provision (recovery) for loan losses as a percentage of average interest-earning assets.

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The following tables set forth the effects of changing rates and volumes on interest income and expense for the quarters and nine months ended March 31, 2023 and 2022, 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.

Rate/Volume Variance


	Quarter Ended March 31, 2023 Compared
	To Quarter Ended March 31, 2022
	Increase (Decrease) Due to
(In Thousands)	Rate		Volume		Rate/Volume		Net
Interest-earning assets:
Loans receivable⁽¹⁾	$	1,397	$	1,731	$	319	$	3,447
Investment securities		150		(90)		(27)		33
FHLB – San Francisco stock		22		1		—		23
Interest-earning deposits		961		(28)		(686)		247
Total net change in income on interest-earning assets		2,530		1,614		(394)		3,750

Interest-bearing liabilities:
Checking and money market accounts		6		(3)		(1)		2
Savings accounts		—		(1)		1		—
Time deposits		419		55		129		603
Borrowings		337		538		407		1,282
Total net change in expense on interest-bearing liabilities		762		589		536		1,887
Net increase (decrease) in net interest income	$	1,768	$	1,025	$	(930)	$	1,863

(1)	For purposes of calculating volume, rate and rate/volume variances, non-performing loans were included in the weighted-average balance outstanding.


	Nine Months Ended March 31, 2023 Compared
	To Nine Months Ended March 31, 2022
	Increase (Decrease) Due to
(In Thousands)	Rate		Volume		Rate/Volume		Net
Interest-earning assets:
Loans receivable⁽¹⁾	$	1,984	$	4,340	$	365	$	6,689
Investment securities		593		(227)		(100)		266
FHLB – San Francisco stock		42		4		—		46
Interest-bearing deposits		2,251		(75)		(1,615)		561
Total net change in income on interest-earning assets		4,870		4,042		(1,350)		7,562

Interest-bearing liabilities:
Checking and money market accounts		13		(4)		(1)		8
Savings accounts		—		2		—		2
Time deposits		657		55		60		772
Borrowings		725		948		445		2,118
Total net change in expense on interest-bearing liabilities		1,395		1,001		504		2,900
Net increase (decrease) in net interest income	$	3,475	$	3,041	$	(1,854)	$	4,662

(1)	For purposes of calculating volume, rate and rate/volume variances, non-performing loans were included in the weighted-average balance outstanding.

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Provision (Recovery) for Loan Losses:

For the Quarters Ended March 31, 2023 and 2022. During the third quarter of fiscal 2023, the Corporation recorded a provision for loan losses of $169,000, compared to a $645,000 recovery from the allowance for loan losses recorded during the same quarter last year. The provision for loan losses primarily reflects an increase in loans held for investment in the third quarter of fiscal 2023.

For the Nine Months Ended March 31, 2023 and 2022. During the first nine months of fiscal 2023, the Corporation recorded a provision for loan losses of $430,000, compared to a recovery from the allowance for loan losses of $2.1 million in the same period of fiscal 2022. The provision for loan losses primarily reflects an increase in loans held for investment in the first nine months of fiscal 2023.

Non-performing assets, comprised solely of non-performing loans with underlying collateral located in California, decreased $478,000 or 34 percent to $945,000, or 0.07 percent of total assets, at March 31, 2023, compared to $1.4 million, or 0.12 percent of total assets, at June 30, 2022. Non-performing loans at March 31, 2023 were comprised of five single-family loans, while non-performing loans at June 30, 2022 were comprised of seven single-family loans. At both March 31, 2023 and June 30, 2022, there was no real estate owned.

Net loan recoveries for the quarter ended March 31, 2023 were $2,000 or 0.00 percent (annualized) of average loans receivable, as compared to net loan recoveries of $6,000 or 0.00 percent (annualized) of average loans receivable for the quarter ended March 31, 2022. For the nine months ended March 31, 2023, net loan recoveries were $7,000 or 0.00 percent (annualized) of average loans receivable, as compared to net loan recoveries of $433,000 or 0.07 percent (annualized) of average loans receivable for the nine months ended March 31, 2022.

Classified assets were $3.0 million at March 31, 2023, consisting of $1.5 million of loans in the special mention category and $1.5 million of loans in the substandard category; while classified assets at June 30, 2022 were $1.6 million, consisting of $224,000 of loans in the special mention category and $1.4 million of loans in the substandard category.

At March 31, 2023, the allowance for loan losses was $6.0 million, comprised of collectively evaluated allowances of $6.0 million and individually evaluated allowances of $38,000; up eight percent from $5.6 million at June 30, 2022. The allowance for loan losses as a percentage of gross loans held for investment was 0.56 percent at March 31, 2023, compared to 0.59 percent at June 30, 2022. The allowance for loan losses was determined through quantitative and qualitative adjustments including the Bank’s charge-off experience and reflects the impact on loans held for investment from the current general economic conditions of the U.S. and California economies.

Management considers, based on currently available information, the allowance for loan losses sufficient to absorb potential losses inherent in loans held for investment. See “Asset Quality” below and Note 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements for additional discussion regarding the allowance for loan losses.

Non-Interest Income:

For the Quarters Ended March 31, 2023 and 2022. Non-interest income decreased by $133,000, or 12 percent, to $981,000 in the third quarter of fiscal 2023 from $1.1 million in the same period last year, primarily due to a decrease in loan servicing and other fees.

Loan servicing and other fees decreased $133,000 or 56 percent to $104,000 in the third quarter of fiscal 2023 from $237,000 in the same quarter last year. The decrease was attributable primarily to lower loan prepayment fees resulting from fewer loan payoffs, particularly in multi-family loans. Total loan prepayment fees in the third quarter of fiscal 2023 were $48,000, down $182,000 or 79 percent from $230,000 in the same quarter last year. Total loan repayments were $17.5 million in the third quarter of fiscal 2023, down 67 percent from $53.6 million in the same quarter last year.

For the Nine Months Ended March 31, 2023 and 2022. Total non-interest income decreased $611,000, or 17 percent, to $2.9 million for the nine months ended March 31, 2023 from $3.6 million for the same period last year. The decrease was primarily attributable to a decrease in loan servicing and other fees.

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Loan servicing and other fees decreased by $540,000 or 62 percent to $327,000 in the first nine months of fiscal 2023 from $867,000 in the same period last year. The decrease was due primarily to a decrease in loan prepayment fees resulting from fewer loan payoffs, particularly in multi-family loans. Total loan prepayment fees in the first nine months of fiscal 2023 was $270,000, down $556,000 or 67 percent from $826,000 in the same period last year. Total loan repayments were $77.2 million in the first nine months of fiscal 2023, down 57 percent from $180.1 million in the same period last year. Other changes in non-interest income during the first nine months of fiscal 2023 compared to the same period in fiscal 2022, included a $73,000 or six percent decrease in card and processing fees.

Non-Interest Expense:

For the Quarters Ended March 31, 2023 and 2022. Non-interest expenses increased by $25,000 or less than one percent to $6.9 million in the third quarter of fiscal 2023 from the same quarter last year. The increase in the non-interest expense in the third quarter of fiscal 2023 was primarily due to higher salaries and employee benefits expenses and higher deposit insurance premium and regulatory assessment, partly offset by lower equipment, professional and other operating expenses.

For the Nine Months Ended March 31, 2023 and 2022. Non-interest expense for the nine months ended March 31, 2023 was $20.7 million, an increase of $1.2 million, or six percent, compared to $19.5 million in the nine months ended March 31, 2022. The increase was primarily attributable to an increase in salaries and employee benefits expense.

Salaries and employee benefits expense increased by $1.1 million, or nine percent, to $12.9 million in the first nine months of fiscal 2023 from $11.8 million in the same period of fiscal 2022. The increase was due primarily to the $1.2 million credit related to ERTC recorded in the first quarter of fiscal 2022 and not replicated in fiscal 2023.

Provision for Income Taxes:

The income tax provision reflects accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon reported pre-tax income, adjusted for the effect of all permanent differences between income for tax and financial reporting purposes, such as non-deductible stock-based compensation, earnings from bank-owned life insurance policies, among others. Therefore, there are fluctuations in the effective income tax rate from period to period based on the relationship of net permanent differences to income before tax.

For the Quarters Ended March 31, 2023 and 2022. The income tax provision was $966,000 for the third quarter of fiscal 2023, up 38 percent from $699,000 in the same quarter last year primarily due to higher pre-tax income. The effective tax rate in the third quarter of fiscal 2023 was 29.4 percent as compared to 29.2 percent in the same quarter last year.

For the Nine Months Ended March 31, 2023 and 2022. The income tax provision was $2.8 million for the first nine months of fiscal 2023, an eight percent increase from $2.6 million in the same period last year, primarily reflecting higher pre-tax income. The effective income tax rate for the nine months ended March 31, 2023 and 2022 was 29.3 percent and 28.1 percent, respectively. The lower effective income tax rate in the first nine months of fiscal 2022 was attributable primarily to the tax benefits from the non-taxable treatment of the ERTC for state income tax purposes. The Corporation believes that the effective income tax rates applied in the first nine months of fiscal 2023 reflect its current income tax obligations.

Asset Quality

Non-performing assets were comprised solely of non-performing loans at both March 31, 2023 and June 30, 2022. Non-performing loans, net of the allowance for loan losses, consisting of loans with collateral located in California, were $945,000 at March 31, 2023, down 34 percent from $1.4 million at June 30, 2022. Non-performing loans as a percentage of loans held for investment at March 31, 2023 was 0.09%, down from 0.15% at June 30, 2022. The non-performing loans at March 31, 2023 were comprised of five single-family loans; while the non-performing loans at June 30, 2022 were comprised of seven single-family loans. 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, 2023 or June 30, 2022.

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As of March 31, 2023, total restructured loans were $1.4 million, down 69 percent from $4.5 million at June 30, 2022. At March 31, 2023, a total of $710,000 or 52 percent of these restructured loans were classified as non-performing; while at June 30, 2022, a total of $722,000 or 16 percent of these restructured loans were classified as non-performing. As of March 31, 2023, a total of $966,000 or 71 percent of the restructured loans had a current payment status, consistent with their modified payment terms. As of June 30, 2022, all of the restructured loans had a current payment status, consistent with their modified payment terms. Restructured loans which are performing in accordance with their modified terms and not otherwise classified as non-accrual are not included in non-performing assets. For further analysis on non-performing loans and restructured loans, see Note 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

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 loan 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.

The following table sets forth information with respect to the Corporation’s non-performing assets, net of allowance for loan losses, at the dates indicated:


	At March 31,			At June 30,
(In Thousands)	2023			2022
Loans on non-accrual status (excluding restructured loans):
Mortgage loans:
Single-family	$	235		$	701
Total		235			701

Accruing loans past due 90 days or more		—			—

Restructured loans on non-accrual status:
Mortgage loans:
Single-family		710			722
Total		710			722

Total non-performing loans		945			1,423

Real estate owned, net		—			—
Total non-performing assets	$	945		$	1,423

Non-performing loans as a percentage of loans held for investment, net of allowance for loan losses		0.09	%		0.15	%

Non-performing loans as a percentage of total assets		0.07	%		0.12	%

Non-performing assets as a percentage of total assets		0.07	%		0.12	%

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The following table summarizes classified assets, which is comprised of classified loans, net of allowance for loan losses and fair value adjustments, and real estate owned, if any, at the dates indicated:


	At March 31, 2023				At June 30, 2022
(Dollars In Thousands)	Balance			Count	Balance			Count
Special mention loans:
Mortgage loans:
Single-family	$	1,017		3	$	224		1
Multi-family		511		1		—		—
Total special mention loans		1,528		4		224		1

Substandard loans:
Mortgage loans:
Single-family		945		5		1,423		9
Commercial real estate		550		1		—		—
Total substandard loans		1,495		6		1,423		9

Total classified loans		3,023		10		1,647		10

Real estate owned		—		—		—		—

Total classified assets	$	3,023		10	$	1,647		10

Total classified assets as a percentage of total assets		0.23	%			0.14	%

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Loan Volume Activities

The following table is provided to disclose details related to the volume of loans originated, purchased and sold for the quarters and nine months indicated:


	For the Quarter Ended				For the Nine Months Ended
	March 31,				March 31,
(In Thousands)	2023		2022		2023		2022
Loans originated for sale:
Wholesale originations	$	—	$	—	$	512	$	—
Total loans originated for sale		—		—		512		—

Loans sold:
Servicing retained		—		—		(512)		—
Total loans sold		—		—		(512)		—

Loans originated for investment:
Mortgage loans:
Single-family		39,543		48,624		153,671		128,764
Multi-family		10,660		31,487		43,519		71,725
Commercial real estate		3,422		7,011		13,772		11,216
Construction		260		544		1,648		2,228
Commercial business loans		—		—		190		—
Total loans originated for investment		53,885		87,666		212,800		213,933

Loans purchased for investment
Mortgage loans:
Single-family		—		6,354		—		6,354
Total loans purchased for investment		—		6,354		—		6,354

Mortgage loan principal payments		(17,458)		(53,647)		(77,184)		(180,053)
Increase in other items, net⁽¹⁾		940		1,184		2,096		2,369

Net increase in loans held for investment	$	37,367	$	41,557	$	137,712	$	42,603

(1)	Includes net changes in undisbursed loan funds, deferred loan fees or costs, allowance for loan losses, fair value of loans held for investment and advance payments of escrows.

Liquidity and Capital Resources

The Corporation’s primary sources of funds are deposits, proceeds from principal and interest payments on loans and investment securities, proceeds from the maturity of loans and investment securities, FHLB – San Francisco advances, access to the discount window facility at the Federal Reserve Bank of San Francisco and access to a federal funds facility with its correspondent bank. While maturities and scheduled amortization of loans and investment securities are a relatively predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The primary investing activity of the Corporation is the origination and purchase of loans held for investment. During the first nine months of fiscal 2023 and 2022, the Corporation originated and purchased loans held for investment of $212.8 million and $220.3 million, respectively. At March 31, 2023, the Corporation had loan origination commitments totaling $8.9 million, undisbursed lines of credit totaling $914,000 and undisbursed construction loan funds totaling $2.9 million. The Corporation anticipates that it will have sufficient funds available to meet its current loan commitments. During the first nine months of fiscal 2023 and 2022, total loan repayments were $77.2 million and $180.1 million, respectively.

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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 2023, the net increase in deposits was $27.5 million or three percent, due primarily to an increase in time deposits (attributable to brokered certificates of deposit), partly offset by a decrease in transaction accounts. Transaction account balances decreased $57.4 million, or seven percent, to $777.0 million at March 31, 2023 from $834.4 million at June 30, 2022 and time deposits increased $85.0 million, or 70 percent, to $206.1 million at March 31, 2023 from $121.1 million at June 30, 2022. The increase in time deposits was due to a $95.3 million increase in brokered certificates of deposit with a weighted average cost of 4.37 percent (including broker fees). Brokered certificates of deposit totaled $95.3 million at March 31, 2023. At March 31, 2023, time deposits with a principal amount of $250,000 or less and scheduled to mature in one year or less were $148.3 million and total time deposits with a principal amount of more than $250,000 and scheduled to mature in one year or less were $16.0 million. Historically, the Corporation has been able to retain a significant percentage of its time deposits as they mature.

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, 2023, total cash and cash equivalents were $60.8 million, or five percent of total assets. Depending on market conditions and the pricing of deposit products and the FHLB – San Francisco advances, the Bank may rely on FHLB – San Francisco advances for part of its liquidity needs. As of March 31, 2023, total borrowings were $205.0 million and the financing availability at the FHLB – San Francisco was limited to 35 percent of total assets. As a result, the remaining borrowing capacity available was $228.6 million and the remaining available collateral was $420.7 million. In addition, the Bank has secured a $135.8 million discount window facility at the Federal Reserve Bank of San Francisco, collateralized by investment securities with a fair market value of $93.3 million and investment securities with par value of $53.5 million. As of March 31, 2023, 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 facility as of March 31, 2023.

The Bank continues to work with both the FHLB - San Francisco and Federal Reserve Bank 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.

Regulations require thrifts 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 March 31, 2023 decreased to 18.1 percent from 24.3 percent for the quarter ended June 30, 2022.

During the first nine months of fiscal 2023, the Corporation purchased 251,221 shares of the Corporation’s common stock under the April 2022 stock repurchase plan with a weighted average cost of $14.30 per share. As of March 31, 2023, there are 113,038 shares available for purchase until the plan expires on April 28, 2023. Subsequent to March 31, 2023, the Board of Directors extended the April 2022 stock repurchase plan for a period of one year or until completed, whichever occurs first. 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.

Provident Financial Holdings is a separate legal entity from the Bank and, on a stand-alone level, must provide for its own liquidity and pay its own operating expenses and cash dividends. Provident Financial Holdings’s primary sources of funds consist of capital raised through dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. We currently expect to continue our current practice of paying quarterly cash dividends on our common stock subject to our Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. Our current quarterly common stock dividend rate is $0.14 per share, as approved by our Board of Directors, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank, and returning a portion of our cash to our shareholders. Assuming continued payment during 2023 at this rate of $0.14 per share, our average total dividend paid each quarter would be approximately $1.0 million based on the number of outstanding shares at March 31, 2023. At March 31, 2023, the Corporation (on an unconsolidated basis) had liquid assets of $6.0 million.

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The Bank, as a federally-chartered, federally insured savings bank, is subject to the capital requirements established by the OCC. Under the OCC’s capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

At March 31, 2023, the Bank exceeded all regulatory capital requirements. The Bank was categorized "well-capitalized" at March 31, 2023 under the regulations of the OCC. As a bank holding company registered with the Federal Reserve, Provident Financial Holdings, Inc. is subject to the capital adequacy requirements of the Federal Reserve. For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis, and the Federal Reserve expects the holding company’s subsidiary bank to be well capitalized under the prompt corrective action regulations.

The Bank’s actual and required minimum capital amounts and ratios at the dates indicated are as follows (dollars in thousands):


					Regulatory Requirements
					Minimum for Capital				Minimum to Be
	Actual				Adequacy Purposes⁽¹⁾				Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio

Provident Savings Bank, F.S.B.:

As of March 31, 2023
Tier 1 leverage capital (to adjusted average assets)	$	123,456	9.59	%	$	51,493	4.00	%	$	64,366	5.00	%
CET1 capital (to risk-weighted assets)	$	123,456	17.90	%	$	48,279	7.00	%	$	44,831	6.50	%
Tier 1 capital (to risk-weighted assets)	$	123,456	17.90	%	$	58,625	8.50	%	$	55,176	8.00	%
Total capital (to risk-weighted assets)	$	129,530	18.78	%	$	72,419	10.50	%	$	68,970	10.00	%

As of June 30, 2022
Tier 1 leverage capital (to adjusted average assets)	$	124,871	10.47	%	$	47,699	4.00	%	$	59,624	5.00	%
CET1 capital (to risk-weighted assets)	$	124,871	19.58	%	$	44,653	7.00	%	$	41,463	6.50	%
Tier 1 capital (to risk-weighted assets)	$	124,871	19.58	%	$	54,221	8.50	%	$	51,032	8.00	%
Total capital (to risk-weighted assets)	$	130,565	20.47	%	$	66,979	10.50	%	$	63,790	10.00	%

(1)	Inclusive of the conservation buffer of not less than 2.50% for Common Equity Tier 1 (“CET1”) capital, Tier 1 capital and Total capital ratios.

In addition to the minimum CET1, Tier 1 and Total capital ratios, the Bank must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions.

If the Bank does not have the ability to pay dividends to the Corporation, the Corporation may be limited in its ability to pay dividends to its stockholders. The Bank may not declare or pay a cash dividend if the effect thereof would cause its net worth to be reduced below the regulatory capital requirements imposed by federal regulation.

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Supplemental Information


	At		At		At
	March 31,		June 30,		March 31,
	2023		2022		2022

Loans serviced for others (in thousands)	$	33,960	$	37,707	$	39,936

Book value per share	$	18.40	$	17.66	$	17.43

ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk.

One of the Corporation’s principal financial objectives is to achieve long-term profitability while reducing its exposure to fluctuating interest rates. The Corporation has sought to reduce the exposure of its earnings to changes in interest rates by attempting to manage the repricing mismatch between interest-earning assets and interest-bearing liabilities. The principal element in achieving this objective is to increase the interest-rate sensitivity of the Corporation’s interest-earning assets by retaining for its portfolio new loan originations with interest rates subject to periodic adjustment to market conditions.

In addition, the Corporation maintains an investment portfolio, which is largely comprised of U.S. government sponsored enterprise MBS with contractual maturities of up to 30 years that reprice frequently or have a relatively short average life. The Corporation relies on retail deposits as its primary source of funds while utilizing FHLB – San Francisco advances and, from time to time, brokered certificates of deposit as a secondary source of funding. Management believes retail deposits, unlike brokered certificates of deposit, reduces the effects of interest rate fluctuations because they generally represent a more stable source of funds. As part of its interest rate risk management strategy, the Corporation promotes transaction accounts and time deposits with terms up to seven years.

Through the use of an internal interest rate risk model, the Corporation is able to analyze its interest rate risk exposure by measuring the change in net portfolio value (“NPV”) over a variety of interest rate scenarios. NPV is defined as the net present value of expected future cash flows from assets, liabilities and off-balance sheet contracts. The calculation is intended to illustrate the change in NPV that would occur in the event of an immediate change in interest rates of -300, -200, -100, +100, +200 and +300 basis points (“bp”) with no effect given to steps that management might take to counter the effect of the interest rate movement. As of March 31, 2023, the targeted federal funds rate range was 4.75% to 5.00%.

The following table is derived from the internal interest rate risk model and represents the NPV based on the indicated changes in interest rates as of March 31, 2023 (dollars in thousands).


	Net				Portfolio		NPV as Percentage
Basis Points ("bp")	Portfolio		NPV		Value of		of Portfolio Value		Sensitivity
Change in Rates	Value		Change⁽¹⁾		Assets		Assets⁽²⁾		Measure⁽³⁾
+300 bp	$	181,212	$	32,135	$	1,381,130	13.12	%	+214	bp
+200 bp	$	174,775	$	25,698	$	1,377,736	12.69	%	+171	bp
+100 bp	$	166,056	$	16,979	$	1,372,118	12.10	%	+112	bp
-	$	149,077	$	—	$	1,358,298	10.98	%	—
-100 bp	$	135,058	$	(14,019)	$	1,346,639	10.03	%	-95	bp
-200 bp	$	114,902	$	(34,175)	$	1,329,752	8.64	%	-234	bp
-300 bp	$	121,145	$	(27,932)	$	1,339,271	9.05	%	-193	bp

(1)	Represents the increase (decrease) of the NPV at the indicated interest rate change in comparison to the NPV at March 31, 2023 (“base case”).

(2)	Derived from the NPV divided by the portfolio value of total assets.

(3)	Derived from the change in the NPV as Percentage of Portfolio Value Assets from the base case ratio assuming the indicated change in interest rates (expressed in basis points).

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The following table is derived from the internal interest rate risk model and represents the change in the NPV at a -200 basis point rate shock at March 31, 2023 and at a -100 basis point rate shock at June 30, 2022.


	At March 31, 2023		At June 30, 2022
	(-200 bp rate shock)		(-100 bp rate shock)
Pre-Shock NPV Ratio: NPV as a % of PV Assets	10.98	%	8.87	%
Post-Shock NPV Ratio: NPV as a % of PV Assets	8.64	%	8.54	%
Sensitivity Measure: Change in NPV Ratio	-234	bp	-33	bp

The pre-shock NPV ratio increased 211 basis points to 10.98 percent at March 31, 2023 from 8.87 percent at June 30, 2022 and the post-shock NPV ratio increased 10 basis points to 8.64 percent at March 31, 2023 from 8.54 percent at June 30, 2022. The increase of the NPV ratios was primarily attributable to the changes in market interest rates, the composition of the balance sheet and net income in the first nine months of fiscal 2023, partly offset by a $9.5 million cash dividend distribution from the Bank to the Corporation in September 2022.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing tables. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Additionally, certain assets, such as adjustable rate mortgage (“ARM”) loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from time deposits could likely deviate significantly from those assumed when calculating the results described in the tables above. It is also possible that, as a result of an interest rate increase, the higher mortgage payments required from ARM loans could result in an increase in delinquencies and defaults. Accordingly, the data presented in the tables in this section should not be relied upon as indicative of actual results in the event of changes in interest rates. Furthermore, the NPV presented in the foregoing tables is not intended to present the fair market value of the Corporation, nor does it represent amounts that would be available for distribution to shareholders in the event of the liquidation of the Corporation.

The Corporation measures and evaluates the potential effects of interest rate movements through an interest rate sensitivity "gap" analysis. Interest rate sensitivity reflects the potential effect on net interest income when there is movement in interest rates. For loans, securities and liabilities with contractual maturities, the table presents contractual repricing or scheduled maturity. For transaction accounts (checking, money market and savings deposits) that have no contractual maturity, the table presents estimated principal cash flows and, as applicable, the Corporation’s historical experience, management’s judgment and statistical analysis concerning their most likely withdrawal behaviors.

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The following table represents the interest rate gap analysis of the Corporation’s assets and liabilities as of March 31, 2023:


	Term to Contractual Repricing, Estimated Repricing, or Contractual
	Maturity⁽¹⁾
	As of March 31, 2023
				Greater than			Greater than			Greater than
	12 months or			1 year to 3			3 years to			5 years or
(Dollars In Thousands)	less			years			5 years			non-sensitive			Total

Repricing Assets:
Cash and cash equivalents	$	54,398		$	—		$	—		$	6,373		$	60,771
Investment securities		8,985			—			—			154,602			163,587
Loans held for investment		243,680			164,107			240,438			429,479			1,077,704
FHLB - San Francisco stock		8,239			—			—			—			8,239
Other assets		3,610			—			—			21,369			24,979
Total assets		318,912			164,107			240,438			611,823			1,335,280

Repricing Liabilities and Equity:
Checking deposits - non interest-bearing		—			—			—			108,479			108,479
Checking deposits - interest bearing		48,762			97,523			97,523			81,269			325,077
Savings deposits		61,081			122,161			122,161			—			305,403
Money market deposits		19,009			19,009			—			—			38,018
Time deposits		164,345			33,171			6,605			1,948			206,069
Borrowings		150,010			55,000			—			—			205,010
Other liabilities		1,115			—			—			16,703			17,818
Stockholders' equity		—			—			—			129,406			129,406
Total liabilities and stockholders' equity		444,322			326,864			226,289			337,805			1,335,280

Repricing gap positive (negative)	$	(125,410)		$	(162,757)		$	14,149		$	274,018		$	—
Cumulative repricing gap:
Dollar amount	$	(125,410)		$	(288,167)		$	(274,018)		$	—		$	—
Percent of total assets		(9)	%		(22)	%		(21)	%		—	%		—	%

(1)

Cash and cash equivalents are presented as estimated repricing; investment securities and loans held for investment are presented as contractual maturities or contractual repricing (without consideration for prepayments); FHLB - San Francisco stock is presented as contractual repricing; transaction accounts (checking, savings and money market deposits) are presented as estimated repricing; while time deposits (without consideration for early withdrawals) and borrowings are presented as contractual maturities.

The static gap analysis shows a negative position in the 12 months or less and Greater than 1 year to 3 years "cumulative repricing gap - dollar amount" categories, indicating more liabilities are sensitive to repricing than assets. Management views non interest-bearing checking deposits to be the least sensitive to changes in market interest rates and these accounts are therefore characterized as long-term funding. Interest-bearing checking deposits are considered more sensitive, followed by increased sensitivity for savings and money market deposits. For the purpose of calculating gap, a portion of these interest-bearing deposit balances are assumed to be subject to estimated repricing as follows: interest-bearing checking deposits at 15% per year, savings deposits at 20% per year and money market deposits at 50% in the first and second years.

The gap results presented above could vary substantially if different assumptions are used or if actual experience differs from the assumptions used in the preparation of the gap analysis. Furthermore, the gap analysis provides a static view of

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interest rate risk exposure at a specific point in time without taking into account redirection of cash flows activity and deposit fluctuations.

The extent to which the net interest margin will be impacted by changes in prevailing interest rates will depend on a number of factors, including how quickly interest-earning assets and interest-bearing liabilities react to interest rate changes. It is not uncommon for rates on certain assets or liabilities to lag behind changes in the market rates of interest. Additionally, prepayments of loans and early withdrawals of time deposits could cause interest sensitivities to vary. As a result, the relationship between interest-earning assets and interest-bearing liabilities, as shown in the previous table, is only a general indicator of interest rate sensitivity and the effect of changing rates of interest on net interest income is likely to be different from that predicted solely on the basis of the interest rate sensitivity analysis set forth in the previous table.

The Corporation also models the sensitivity of net interest income for the 12-month period subsequent to any given month-end assuming a dynamic balance sheet accounting for, among other items:

●

The Corporation’s current balance sheet and repricing characteristics;

●

Forecast balance sheet growth consistent with the business plan;

●

Current interest rates and yield curves and management estimates of projected interest rates;

●

Embedded options, interest rate floors, periodic caps and lifetime caps;

●

Repricing characteristics for market rate sensitive instruments;

●

Loan, investment, deposit and borrowing cash flows;

●

Loan prepayment estimates for each type of loan; and

●

Immediate, permanent and parallel movements in interest rates of plus 300, 200 and 100 and minus 100, 200 and 300 basis points.

The following table describes the results of the analysis at March 31, 2023 and June 30, 2022.


At March 31, 2023		At June 30, 2022
Basis Point (bp)	Change in	Basis Point (bp)	Change in
Change in Rates	Net Interest Income	Change in Rates	Net Interest Income
+300 bp	-1.16%	+300 bp	3.32%
+200 bp	-0.77%	+200 bp	2.14%
+100 bp	-0.31%	+100 bp	1.05%
-100 bp	-0.89%	-100 bp	-0.09%
-200 bp	-2.11%	-200 bp	-3.28%
-300 bp	-4.80%	-300 bp	-7.71%

At March 31, 2023, the Corporation was close to neutral to slightly liability sensitive as its interest-bearing liabilities at this date are expected to reprice more quickly than its interest-earning assets during the subsequent 12-month period. Therefore, in a rising interest rate environment, the model projects a slight decrease in net interest income over the subsequent 12-month period. In a falling interest rate environment, the results also project a slight decrease in net interest income over the subsequent 12-month period.

At June 30, 2022, the Corporation was asset sensitive as its interest-earning assets at this date were expected to reprice more quickly than its interest-bearing liabilities during the subsequent 12 month period. Therefore, in a rising interest rate environment, the model projected an increase in net interest income over the subsequent 12 month period. In a falling interest rate environment, the results projected a decrease in net interest income over the subsequent 12-month period.

Management believes that the assumptions used to complete the analysis described in the table above are reasonable. However, past experience has shown that immediate, permanent and parallel movements in interest rates will not necessarily occur. Additionally, while the analysis provides a tool to evaluate the projected net interest income to changes in interest rates, actual results may be substantially different if actual experience differs from the assumptions used to complete the analysis, particularly with respect to the 12-month business plan when asset growth is forecast. Therefore,

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the model results that the Corporation discloses should be thought of as a risk management tool to compare the trends of the Corporation’s current disclosure to previous disclosures, over time, within the context of the actual performance of the treasury yield curve.

ITEM 4 – Controls and Procedures.

(a) An evaluation of the Corporation’s disclosure controls and procedures (as defined in Section 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934 (the “Act”)) was carried out under the supervision and with the participation of the Corporation’s Chief Executive Officer, Chief Financial Officer and the Corporation’s Disclosure Committee as of the end of the period covered by this quarterly report. In designing and evaluating the Corporation’s disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Also, because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures as of March 31, 2023 were effective, at the reasonable assurance level, in ensuring that the information required to be disclosed by the Corporation in the reports it files or submits under the Act is (i) accumulated and communicated to the Corporation’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) There have been no changes in the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting. The Corporation does not expect that its internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

Periodically, there have been various claims and lawsuits involving the Corporation, such as claims to enforce liens, condemnation proceedings on properties in which the Corporation holds security interests, claims involving the making and servicing of real property loans, employment matters and other issues in the ordinary course of and incidental to the Corporation’s business. These proceedings and the associated legal claims are often contested and the outcome of individual matters is not always predictable. Additionally, in some actions, it is difficult to assess potential exposure because the Corporation is still in the early stages of the litigation. The Corporation is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition, operations or cash flows.

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Item 1A. Risk Factors.

There have been no material changes in the risk factors previously disclosed in Part I, Item 1A of the Corporation’s 2022 Annual Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a)	Not applicable.

(b)	Not applicable.

(c)	The table below represents the Corporation’s purchases of its equity securities for the third quarter of fiscal 2023.


					Maximum
				Total Number of	Number of Shares
				Shares Purchased as	that May Yet Be
	Total Number of	Average Price		Part of Publicly	Purchased Under
Period	Shares Purchased	Paid per Share		Announced Plan	the Plan⁽¹⁾
January 1, 2023 – January 31, 2023	35,000	$	14.17	35,000	176,345
February 1, 2023 – February 28, 2023	27,945	$	14.41	27,945	148,400
March 1, 2023 – March 31, 2023	35,362	$	14.05	35,362	113,038
Total	98,307	$	14.20	98,307	113,038

(1)

The Corporation may purchase 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.

On April 28, 2022, the Board of Directors of the Corporation announced the repurchase of up to five percent of the Corporation’s common stock, approximately 364,259 shares. The April 2022 stock repurchase plan will continue for a period of one year or until completed, whichever occurs first.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits.

Exhibits:


3.1		Amended and Restated Certificate of Incorporation of Provident Financial Holdings, Inc. as filed with the Delaware Secretary of State on November 24, 2009 (incorporated by reference to Exhibit 3.1 to the Corporation’s Quarterly Report on Form 10-Q filed on November 9, 2010)

3.2		Amended and Restated Bylaws of Provident Financial Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Corporation’s Form 8-K filed on November 30, 2022)

4.1		Form of Certificate of Provident’s Common Stock (incorporated by reference to the Corporation’s Registration Statement on Form S-1 (333-2230) filed on March 11, 1996))

10.22		2022 Equity Incentive Plan (incorporated by reference to Exhibit A to the Corporation’s proxy statement dated October 27, 2022)

10.23		Form of Incentive Stock Option Agreement for options granted under the 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 in the Corporation’s Form S-8 dated December 16, 2022)

10.24		Form of Non-Qualified Stock Option Agreement for options granted under the 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 in the Corporation’s Form S-8 dated December 16, 2022)

10.25		Form of Restricted Stock Agreement for restricted shares awarded under the 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 in the Corporation’s Form S-8 dated December 16, 2022)

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials from the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Extensible Business Reporting Language (XBRL): (1) Condensed Consolidated Statements of Financial Condition; (2) Condensed Consolidated Statements of Operations; (3) Condensed Consolidated Statements of Comprehensive Income (Loss); (4) Condensed Consolidated Statements of Stockholders’ Equity; (5) Condensed Consolidated Statements of Cash Flows; and (6) Selected Notes to Condensed Consolidated Financial Statements.

104		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Provident Financial Holdings, Inc.



Date: May 5, 2023	/s/ Craig G. Blunden
	Craig G. Blunden
	Chairman and Chief Executive Officer (Principal Executive Officer)



Date: May 5, 2023	/s/ Donavon P. Ternes
	Donavon P. Ternes
	President, Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer)