UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 [ ] 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 cha ...

Financial Data and Key Metrics Changes - In Q3 2021, the company originated and purchased $61 million of loans held for investment, an increase from $29.6 million in the prior sequential quarter [6] - Loan principal payments and payoffs were $75.7 million, up from $59.6 million in the previous quarter [6] - Loans held for investment decreased by approximately 2% compared to December 31, 2020, with declines across various categories [6] - Non-performing assets decreased to $9.8 million from $10.3 million on December 31, 2020 [7] - The allowance for loan losses to gross loans held for investment decreased to 98 basis points from 99 basis points [9] - Net interest margin compressed by 6 basis points to 2.6% for the quarter ended March 31, 2021 [9][10] - Operating expenses declined to approximately $6.9 million, an 8% decrease compared to the same quarter last year [11] Business Line Data and Key Metrics Changes - The company experienced growth in single-family and multi-family pipelines, indicating potential for increased originations and purchases in the upcoming quarter [6] - The average cost of deposits decreased by 4 basis points to 17 basis points for the quarter [10] - The company recorded a $200,000 negative provision for loan losses in the March 2021 quarter [8] Market Data and Key Metrics Changes - Competition remains elevated for lower credit risk loan products, with multi-family and commercial real estate borrowers considering transactions due to improved economic conditions [6] - The California banking landscape has seen significant changes, with multiple deals announced recently, presenting potential opportunities for the company [25] Company Strategy and Development Direction - The company aims to leverage its balance sheet with prudent loan portfolio growth, although executing this strategy may be challenging in the current environment [11] - The company is redeploying excess liquidity into government-sponsored mortgage-backed securities [12] - Maintaining cash dividends is prioritized over stock buyback activities, although share repurchases have begun under the April 2020 program [12] Management's Comments on Operating Environment and Future Outlook - Management noted that current credit quality is holding up well, with no early-stage delinquency balances reported [7] - There is an expectation that payoff volume will decline, particularly in the single-family space, due to rising mortgage interest rates [30] - The company is optimistic about origination volume based on current pipelines and expects to meet or exceed previous quarter's performance [32] Other Important Information - The company has not adopted CECL, making its allowance methodology not directly comparable to CECL adopters [9] - The company is evaluating its branch structure to identify potential cost-saving opportunities [20][21] Q&A Session Summary Question: Expectations for changes in amortization due to rate changes - Management indicated that a decline in payoff volume could lead to a reduction in net deferred loan cost amortization, positively impacting net interest margin [16] Question: Considerations for stock buyback program - Management acknowledged that the stock is trading below book value, suggesting an opportunity for buybacks, but emphasized executing the existing plan [18] Question: Thoughts on expense base and cost reduction initiatives - Management is continuously looking to reduce operating costs and is evaluating branch structures for potential savings [20][21] Question: Broader market changes and opportunities - Management noted that consolidation in the California banking landscape could present opportunities for deposit and loan activity, although competition remains strong [26] Question: Outlook for loan growth and payoffs - Management expects a decline in payoff volume and is cautiously optimistic about loan growth based on current pipelines [30][32]

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=ITEM%201%20-%20Financial%20Statements) Unaudited interim financial statements detail the company's financial condition, operating results, and cash flows for the period [Condensed Consolidated Statements of Financial Condition](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Financial%20Condition) Total assets decreased slightly to $1.17 billion, with a shift from cash and loans to investment securities Condensed Consolidated Statements of Financial Condition (In Thousands) | Account | December 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $74,001 | $116,034 | | Investment securities | $207,256 | $123,344 | | Loans held for investment, net | $855,086 | $902,796 | | **Total Assets** | **$1,170,727** | **$1,176,837** | | **Liabilities** | | | | Total deposits | $909,968 | $892,969 | | Borrowings | $116,015 | $141,047 | | **Total Liabilities** | **$1,045,743** | **$1,052,861** | | **Total Stockholders' Equity** | **$124,984** | **$123,976** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net income declined significantly for the quarter and six-month period, driven primarily by lower net interest income Key Operating Results (In Thousands, Except Per Share Data) | Metric | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $7,638 | $9,639 | $15,804 | $19,221 | | Provision for loan losses | $39 | $(22) | $259 | $(203) | | Non-interest Income | $974 | $1,344 | $2,133 | $2,414 | | Non-interest Expense | $6,916 | $7,554 | $13,901 | $14,792 | | **Net Income** | **$1,176** | **$2,398** | **$2,661** | **$4,960** | | **Diluted EPS** | **$0.16** | **$0.31** | **$0.36** | **$0.65** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) A net decrease in cash of $42.0 million resulted from significant use of cash for investing and financing activities Cash Flow Summary for Six Months Ended December 31 (In Thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,733 | $2,077 | | Net cash used for investing activities | $(38,577) | $(44,524) | | Net cash (used for) provided by financing activities | $(10,189) | $20,048 | | **Net decrease in cash and cash equivalents** | **$(42,033)** | **$(22,399)** | [Notes to Unaudited Interim Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Interim%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes reveal a mortgage-heavy loan portfolio, an increased allowance for loan losses, and the impact of COVID-19 - The loan portfolio is primarily composed of mortgage loans, with multi-family loans at **$488.4 million** and single-family loans at **$257.9 million** as of December 31, 2020[50](index=50&type=chunk) - The allowance for loan losses increased to **$8.54 million (0.99% of gross loans)** at Dec 31, 2020, from $8.27 million (0.91% of gross loans) at June 30, 2020, reflecting increased qualitative adjustments due to the COVID-19 pandemic's economic impact[56](index=56&type=chunk)[59](index=59&type=chunk)[240](index=240&type=chunk) - As of December 31, 2020, the Corporation had granted forbearance on 65 loans totaling **$26.7 million** related to COVID-19 hardship, with 8 loans totaling **$2.6 million** remaining in forbearance[96](index=96&type=chunk) - Restructured loans increased significantly to **$8.2 million** as of December 31, 2020, from $2.6 million at June 30, 2020, primarily due to extended COVID-19 related forbearance modifications[82](index=82&type=chunk)[83](index=83&type=chunk)[97](index=97&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=ITEM%202%20-%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial results, highlighting decreased profitability due to margin compression and the ongoing impact of COVID-19 [Executive Summary and Operating Strategy](index=45&type=section&id=Executive%20Summary%20and%20Operating%20Strategy) The company outlines its community banking strategy focused on real estate lending and improving its deposit mix amid economic headwinds - The company's primary business is community banking, focusing on deposits and real estate lending (single-family, multi-family, commercial) in Southern California[168](index=168&type=chunk)[169](index=169&type=chunk) - The operating strategy is to moderately increase total assets by growing various loan categories and to improve the deposit mix by increasing lower-cost checking/savings accounts and decreasing higher-cost time deposits[170](index=170&type=chunk) - Management anticipates that the COVID-19 pandemic and the **150 basis point reduction** in the federal funds rate in March 2020 will negatively impact net interest income and margin for calendar 2021 and possibly longer[170](index=170&type=chunk) [COVID-19 Impact to the Corporation](index=46&type=section&id=COVID-19%20Impact%20to%20the%20Corporation) The company is actively managing the pandemic's impact through customer relief programs, with a small number of loans remaining in forbearance Loan Forbearance Status as of December 31, 2020 (Dollars in Thousands) | Loan Type | Forbearance Granted (Count) | Forbearance Granted (Amount) | Forbearance Remaining (Count) | Forbearance Remaining (Amount) | | :--- | :--- | :--- | :--- | :--- | | Single-family loans | 58 | $23,239 | 6 | $1,835 | | Multi-family loans | 5 | $2,346 | 2 | $763 | | Commercial real estate loans | 2 | $1,066 | 0 | $0 | | **Total** | **65** | **$26,651** | **8** | **$2,598** | - Of the loans that completed their initial forbearance period, 16 single-family loans totaling **$6.3 million** were extended and subsequently reclassified as restructured loans[182](index=182&type=chunk) - Potential future impacts from COVID-19 include higher provisions for loan losses, negative pressure on net interest margin from low interest rates, a decline in non-interest income, and increased non-interest expenses[186](index=186&type=chunk) [Comparison of Financial Condition at December 31, 2020 and June 30, 2020](index=48&type=section&id=Comparison%20of%20Financial%20Condition%20at%20December%2031%2C%202020%20and%20June%2030%2C%202020) The balance sheet remained stable as a decrease in cash and loans was offset by a significant increase in investment securities - Total assets decreased by **$6.1 million (1%)** to $1.17 billion[189](index=189&type=chunk) - Cash and cash equivalents decreased by **$42.0 million (36%)** to $74.0 million, used to fund investment security purchases and pay down borrowings[190](index=190&type=chunk) - Loans held for investment decreased by **$47.7 million (5%)** to $855.1 million, primarily due to a decline in single-family loans as repayments outpaced originations[192](index=192&type=chunk) - Investment securities increased by **$84.0 million (68%)** to $207.3 million, following purchases of $106.4 million[191](index=191&type=chunk) - Total deposits increased by **$17.0 million (2%)** to $910.0 million, as a $33.2 million increase in transaction accounts offset a $16.2 million decrease in time deposits[196](index=196&type=chunk) - Total borrowings decreased by **$25.0 million (18%)** to $116.0 million due to repayments[197](index=197&type=chunk) [Comparison of Operating Results for the Quarter and Six Months ended December 31, 2020 and 2019](index=50&type=section&id=Comparison%20of%20Operating%20Results) Quarterly and six-month net income declined significantly year-over-year, driven by lower net interest income and a weaker efficiency ratio Key Performance Metrics | Metric | Q2 FY2021 | Q2 FY2020 | 6M FY2021 | 6M FY2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income (in millions) | $1.2 | $2.4 | $2.7 | $5.0 | | Diluted EPS | $0.16 | $0.31 | $0.36 | $0.65 | | Return on Average Assets | 0.40% | 0.87% | 0.45% | 0.91% | | Return on Average Equity | 3.77% | 7.81% | 4.27% | 8.13% | | Efficiency Ratio | 80% | 69% | 78% | 68% | [Asset Quality](index=62&type=section&id=Asset%20Quality) Asset quality deteriorated as non-performing and restructured loans increased significantly from the previous period Non-Performing Assets (In Thousands) | Metric | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Total non-performing loans | $10,270 | $4,924 | | Real estate owned, net | $0 | $0 | | **Total non-performing assets** | **$10,270** | **$4,924** | | NPLs as a % of loans held for investment, net | 1.20% | 0.55% | | NPAs as a % of total assets | 0.88% | 0.42% | - Total restructured loans increased by **215%** to **$8.2 million** at Dec 31, 2020, from $2.6 million at June 30, 2020, with all restructured loans on non-accrual status[260](index=260&type=chunk) Classified Assets (In Thousands) | Classification | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Special mention loans | $4,667 | $8,600 | | Substandard loans | $10,270 | $5,469 | | **Total classified assets** | **$14,937** | **$14,069** | [Liquidity and Capital Resources](index=66&type=section&id=Liquidity%20and%20Capital%20Resources) The Corporation maintains adequate liquidity and strong capital ratios that remain well above all regulatory requirements - Primary sources of funds are deposits and loan payments, and as of Dec 31, 2020, the Corporation had **$74.0 million** in cash and cash equivalents[268](index=268&type=chunk)[272](index=272&type=chunk) - The Corporation has significant secondary liquidity sources, including a remaining FHLB borrowing facility of **$277.9 million** and a **$176.2 million** discount window facility at the Federal Reserve[272](index=272&type=chunk) Bank Regulatory Capital Ratios as of December 31, 2020 | Ratio | Actual | Minimum to Be Well Capitalized | | :--- | :--- | :--- | | Tier 1 leverage capital | 9.78% | 5.00% | | CET1 capital | 18.30% | 6.50% | | Tier 1 capital | 18.30% | 8.00% | | Total capital | 19.56% | 10.00% | - The Bank paid a cash dividend of **$5.0 million** to the holding company in the first six months of fiscal 2021, while the holding company paid **$2.1 million** in dividends to its shareholders[278](index=278&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=69&type=section&id=ITEM%203%20-%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The Corporation is asset-sensitive and manages interest rate risk through its loan origination and investment strategies - The Corporation's strategy to mitigate interest rate risk involves originating adjustable-rate loans and holding frequently repricing mortgage-backed securities[281](index=281&type=chunk) Net Portfolio Value (NPV) Sensitivity as of December 31, 2020 (in thousands) | Basis Points Change in Rates | NPV Change | NPV as % of Portfolio Value Assets | | :--- | :--- | :--- | | +300 bp | $111,580 | 19.77% | | +200 bp | $82,528 | 17.88% | | +100 bp | $48,233 | 15.57% | | 0 bp | $0 | 12.14% | | -100 bp | $(19,278) | 10.73% | Net Interest Income (NII) Sensitivity (Next 12 Months) | Basis Point Change in Rates | Change in NII (Dec 31, 2020) | Change in NII (June 30, 2020) | | :--- | :--- | :--- | | +300 bp | 9.42% | 15.11% | | +200 bp | 6.28% | 9.95% | | +100 bp | 3.40% | 5.25% | | -100 bp | (0.10)% | (0.05)% | - The Corporation is asset sensitive, meaning its net interest income is projected to increase in a rising interest rate environment and decrease slightly in a falling rate environment[297](index=297&type=chunk) [Controls and Procedures](index=73&type=section&id=ITEM%204%20-%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were **effective** as of December 31, 2020[299](index=299&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[300](index=300&type=chunk) [PART II - OTHER INFORMATION](index=73&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=73&type=section&id=Item%201.%20Legal%20Proceedings) No pending legal proceedings are expected to have a material adverse effect on the Corporation's financial condition - The Corporation is not a party to any pending legal proceedings that it believes would have a **material adverse effect** on its financial condition or operations[301](index=301&type=chunk) [Risk Factors](index=74&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the most recent Annual Report - **No material changes** in risk factors were reported since the last Annual Report on Form 10-K[302](index=302&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Corporation did not repurchase shares under its public plan but did acquire shares from employees for tax purposes - The Corporation did not purchase any shares under its April 2020 stock repurchase plan during the quarter[305](index=305&type=chunk) - As of December 31, 2020, **371,815 shares** were available for purchase under the plan, which expires on April 30, 2021[305](index=305&type=chunk) - The Corporation purchased **505 shares** from employees at an average price of $13.68 per share to satisfy their withholding tax obligations on vested restricted stock[304](index=304&type=chunk)[306](index=306&type=chunk)

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