

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



	For the quarterly period ended	December 31, ~~2017~~2018



[ ]	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		(I.R.S. Employer
incorporation or organization)		Identification No.)

3756 Central Avenue, Riverside, California 92506

(Address of principal executive offices and zip code)

(951) 686-6060

(~~Registrant’s~~Registrant's telephone number, including area code)

_________________________________________________________

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

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 X üNo .

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes X Noü 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~~"large accelerated filer,~~” “accelerated~~" "accelerated filer,~~” “smaller~~" "smaller reporting company,”" and ~~“emerging~~"emerging growth ~~company”~~company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐[ ] Accelerated filer ☒[X] Non-accelerated filer ☐[ ] Smaller reporting company ☐[X] 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.~~Act ☐

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

Yes No ü X .

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the ~~issuer’s~~issuer's classes of common stock, as of the latest practicable date.



Title of class:		As of ~~January 31, 2018~~February 4, 2019
Common stock, $ 0.01 par value, per share		~~7,477,776~~7,509,855 shares

PROVIDENT FINANCIAL HOLDINGS, INC.

Table of Contents



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:
			~~Page~~
	Condensed Consolidated Statements of Financial Condition
		as of December 31, ~~2017~~2018 and June 30, ~~2017~~2018	1
	Condensed Consolidated Statements of Operations
		for the Quarters and Six Months Ended December 31, ~~2017~~2018 and ~~2016~~2017	2
	Condensed Consolidated Statements of Comprehensive Income
		for the Quarters and Six Months Ended December 31, ~~2017~~2018 and ~~2016~~2017	3
	Condensed Consolidated Statements of ~~Stockholders’~~Stockholders' Equity
		for the Quarters and Six Months Ended December 31, ~~2017~~2018 and ~~2016~~2017	4
	Condensed Consolidated Statements of Cash Flows
		for the Six Months Ended December 31, ~~2017~~2018 and ~~2016~~2017	6
	Notes to Unaudited Interim Condensed Consolidated Financial Statements		7

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

	General		46 51
	Safe-Harbor Statement		47 52
	Critical Accounting Policies		48 53
	Executive Summary and Operating Strategy		48 53
	Off-Balance Sheet Financing Arrangements and Contractual Obligations		49 54
	Comparison of Financial Condition at December 31, ~~2017~~2018 and June 30, ~~2017~~ 2018		50 55
	Comparison of Operating Results
		for the Quarters and Six Months Ended December 31, ~~2017~~2018 and ~~2016~~ 2017	52 57
	Asset Quality		61 68
	Loan Volume Activities		69 76
	Liquidity and Capital Resources		70 77
	Supplemental Information		72 80

ITEM 3 -	Quantitative and Qualitative Disclosures about Market Risk		72 80

ITEM 4 -	Controls and Procedures		75 84

PART II -	OTHER INFORMATION

ITEM 1 -	Legal Proceedings		76 85
ITEM 1A -	Risk Factors		77 85
ITEM 2 -	Unregistered Sales of Equity Securities and Use of Proceeds		77 86
ITEM 3 -	Defaults Upon Senior Securities		78 86
ITEM 4 -	Mine Safety Disclosures		78 86
ITEM 5 -	Other Information		78 86
ITEM 6 -	Exhibits		78 86

SIGNATURES 1 2			81 89

PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Financial Condition

(Unaudited)

In Thousands, Except Share Information


	December 31, 2017			June 30, 2017			December 31, 2018				June 30, 2018
Assets
Cash and cash equivalents	$	47,173		$	72,826			$	67,359		$	43,301
Investment securities – held to maturity, at cost	87,626			60,441					84,990			87,813
Investment securities – available for sale, at fair value	8,405			9,318					6,563			7,496
Loans held for investment, net of allowance for loan losses of $8,075 and $8,039, respectively; includes $5,157 and $6,445 at fair value, respectively	885,976			904,919
Loans held for investment, net of allowance for loan losses of $7,061 and $7,385, respectively; includes $4,995 and $5,234 at fair value, respectively									875,413			902,685
Loans held for sale, at fair value	96,589			116,548					57,562			96,298
Accrued interest receivable	3,147			2,915					3,156			3,212
Real estate owned, net	621			1,615					—			906
Federal Home Loan Bank (“FHLB”) – San Francisco stock	8,108			8,108
Federal Home Loan Bank ("FHLB") – San Francisco stock									8,199			8,199
Premises and equipment, net	7,816			6,641					8,601			8,696
Prepaid expenses and other assets	16,670			17,302					15,327			16,943

Total assets	$	1,162,131		$	1,200,633			$	1,127,170		$	1,175,549

Liabilities and Stockholders’ Equity
Liabilities and Stockholders' Equity

Liabilities:
Non interest-bearing deposits	$	77,144		$	77,917			$	78,866		$	86,174
Interest-bearing deposits	830,644			848,604					794,018			821,424
Total deposits	907,788			926,521					872,884			907,598

Borrowings	111,189			126,226					111,135			126,163
Accounts payable, accrued interest and other liabilities	22,454			19,656					20,474			21,331
Total liabilities	1,041,431			1,072,403					1,004,493			1,055,092

Commitments and Contingencies
Commitments and Contingencies (Notes 7 and 11)

Stockholders’ equity:
Stockholders' equity:
Preferred stock, $.01 par value (2,000,000 shares authorized; none issued and outstanding)	—			—					—			—
Common stock, $.01 par value (40,000,000 shares authorized; 17,976,615 and 17,949,365 shares issued; 7,474,776 and 7,714,052 shares outstanding, respectively)	180			180
Common stock, $.01 par value (40,000,000 shares authorized; 18,053,115 and 18,033,115 shares issued; 7,506,855 and 7,421,426 shares outstanding, respectively)									181			181
Additional paid-in capital	94,011			93,209					95,913			94,957
Retained earnings	189,610			192,754					192,306			190,616
Treasury stock at cost (10,501,839 and 10,235,313 shares, respectively)	(163,311		)	(158,142		)
Treasury stock at cost (10,546,260 and 10,611,689 shares, respectively)									(165,892	)		(165,507	)
Accumulated other comprehensive income, net of tax	210			229					169			210

Total stockholders’ equity	120,700			128,230
Total stockholders' equity									122,677			120,457

Total liabilities and stockholders’ equity	$	1,162,131		$	1,200,633
Total liabilities and stockholders' equity								$	1,127,170		$	1,175,549

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

PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

In Thousands, Except Per Share Information


	Quarter Ended December 31,						Six Months Ended December 31,						Quarter Ended December 31,						Six Months Ended December 31,
	2017			2016			2017			2016			2018			2017			2018			2017
Interest income:
Loans receivable, net	$	9,735		$	10,116		$	19,892		$	20,596		$	10,331		$	9,735		$	20,505		$	19,892
Investment securities	319			128			576			212				444			319			789			576
FHLB – San Francisco stock	143			458			284			643				278			143			421			284
Interest-earning deposits	168			101			358			156				387			168			725			358
Total interest income	10,365			10,803			21,110			21,607				11,440			10,365			22,440			21,110

Interest expense:
Checking and money market deposits	112			105			215			203				117			112			225			215
Savings deposits	149			146			298			290				147			149			298			298
Time deposits	625			731			1,264			1,503				630			625			1,251			1,264
Borrowings	728			736			1,464			1,438				715			728			1,478			1,464
Total interest expense	1,614			1,718			3,241			3,434				1,609			1,614			3,252			3,241

Net interest income	8,751			9,085			17,869			18,173				9,831			8,751			19,188			17,869
(Recovery) provision for loan losses	(11		)	(350		)	158			(500		)		(217	)		(11	)		(454	)		158
Net interest income, after (recovery) provision for loan losses	8,762			9,435			17,711			18,673				10,048			8,762			19,642			17,711

Non-interest income:
Loan servicing and other fees	317			310			680			577				277			317			601			680
Gain on sale of loans, net	4,317			6,478			9,164			14,474				2,263			4,317			5,395			9,164
Deposit account fees	536			552			1,094			1,102				509			536			1,014			1,094
Loss on sale and operations of real estate owned acquired in the settlement of loans, net	(22		)	(63		)	(62		)	(166		)		(7	)		(22	)		(6	)		(62	)
Card and processing fees	373			361			754			725				392			373			790			754
Other	220			194			463			372				161			220			350			463
Total non-interest income	5,741			7,832			12,093			17,084				3,595			5,741			8,144			12,093

Non-interest expense:
Salaries and employee benefits	8,633			10,349			17,902			21,663				7,211			8,633			15,461			17,902
Premises and occupancy	1,260			1,235			2,574			2,524				1,274			1,260			2,619			2,574
Equipment	375			340			737			702				495			375			916			737
Professional expenses	521			630			1,041			1,135				411			521			858			1,041
Sales and marketing expenses	301			253			504			549				253			301			422			504
Deposit insurance premiums and regulatory assessments	218			177			402			425				172			218			337			402
Other⁽¹⁾	1,905			1,684			5,787			3,302				1,059			1,905			1,966			5,787
Total non-interest expense	13,213			14,668			28,947			30,300				10,875			13,213			22,579			28,947

Income before income taxes	1,290			2,599			857			5,457				2,768			1,290			5,207			857
Provision for income taxes⁽²⁾	2,067			1,095			1,859			2,359				810			2,067			1,426			1,859
Net (loss) income	$	(777	)	$	1,504		$	(1,002	)	$	3,098
Net income (loss)													$	1,958		$	(777	)	$	3,781		$	(1,002	)

Basic (loss) earnings per share	$	(0.10	)	$	0.19		$	(0.13	)	$	0.39
Diluted (loss) earnings per share	$	(0.10	)	$	0.18		$	(0.13	)	$	0.38
Basic earnings (loss) per share													$	0.26		$	(0.10	)	$	0.51		$	(0.13	)
Diluted earnings (loss) per share													$	0.26		$	(0.10	)	$	0.50		$	(0.13	)
Cash dividends per share	$	0.14		$	0.13		$	0.28		$	0.26		$	0.14		$	0.14		$	0.28		$	0.28

^.^.

⁽¹⁾ Includes $650,000 and $3.4 million of litigation settlement expense ~~accrual related to "McKeen-Chaplin" and "Neal" matters~~ for the quarter ~~ended December 31, 2017~~ and ~~$3.4 million~~

~~of litigation expense accruals related to "McKeen-Chaplin," "Neal" and "Cannon" matters for the~~ six months ended December 31, ~~2017.~~2017, respectively.

⁽²⁾ Includes a net tax charge of $1.8 million resulting from the revaluation of net deferred tax assets consistent with the Tax Cuts and Jobs Act for both the quarter and

six months ended December 31, 2017.

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

PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

In Thousands

													For the Quarters Ended December 31,						For the Six Months Ended December 31,
													2018			2017			2018			2017
	For the Quarters Ended December 31,						For the Six Months Ended December 31,
	2017			2016			2017			2016
Net (loss) income	$	(777	)	$	1,504		$	(1,002	)	$	3,098
Net income (loss)													$	1,958		$	(777	)	$	3,781		$	(1,002	)

Change in unrealized holding loss on securities available for sale	(80		)	(28		)	(78		)	(84		)		(28	)		(80	)		(58	)		(78	)
Reclassification adjustment for net loss on securities available for sale included in net loss	45			—			45			—				—			45			—			45
Other comprehensive loss, before income taxes	(35		)	(28		)	(33		)	(84		)		(28	)		(35	)		(58	)		(33	)

Income tax benefit	(15		)	(12		)	(14		)	(35		)		(8	)		(15	)		(17	)		(14	)
Other comprehensive loss	(20		)	(16		)	(19		)	(49		)		(20	)		(20	)		(41	)		(19	)

Total comprehensive (loss) income	$	(797	)	$	1,488		$	(1,021	)	$	3,049
Total comprehensive income (loss)													$	1,938		$	(797	)	$	3,740		$	(1,021	)

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

PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

In Thousands, Except Share Information

For the Quarters Ended December 31, ~~2017~~2018 and ~~2016~~:2017:

Common
Stock
Additional
Paid-In Capital Retained Earnings Treasury Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax

Shares Amount Total
Balance at September 30, 2017 7,609,552
$ 180
$ 93,669
$ 191,451
$ (160,609 ) $ 230
$ 124,921

Net loss (777 ) (777 )
Other comprehensive loss (20 ) (20 )
Purchase of treasury stock (140,526 ) (2,702 ) (2,702 )
Exercise of stock options 5,750

84
84
Amortization of restricted stock 142
142
Stock options expense 116
116
Cash dividends⁽¹⁾
(1,064 ) (1,064 )

Balance at December 31, 2017 7,474,776
$ 180
$ 94,011
$ 189,610
$ (163,311 ) $ 210
$ 120,700

⁽¹⁾~~Cash dividends of $0.14 per share were paid in the quarter ended December 31, 2017.~~

	Common Stock					Additional								Accumulated Other Comprehensive
	Shares			Amount		Paid-In Capital		Retained Earnings			Treasury Stock			Income (Loss), Net of Tax			Total
Balance at September 30, 2018		7,500,860		$	181	$	95,795	$	191,399		$	(165,884	)	$	189		$	121,680

Net income									1,958									1,958
Other comprehensive loss															(20	)		(20	)
Purchase of treasury stock ⁽¹⁾		(505	)									(8	)					(8	)
Exercise of stock options		5,000					73											73
Distribution of restricted stock		1,500																—
Amortization of restricted stock							33											33
Stock options expense							12											12
Cash dividends ⁽²⁾									(1,051	)								(1,051	)

Balance at December 31, 2018		7,506,855		$	181	$	95,913	$	192,306		$	(165,892	)	$	169		$	122,677

⁽¹⁾	Includes the repurchase of 505 shares of distributed restricted stock in settlement of employee withholding tax obligations.

Common
Stock
Additional
Paid-In Capital Retained Earnings Treasury Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax

Shares Amount Total
Balance at September 30, 2016 7,978,166
$ 178
$ 91,633
$ 192,227
$ (151,095 ) $ 280
$ 133,223

Net income 1,504
1,504
Other comprehensive loss (16 ) (16 )
Purchase of treasury stock (85,800 ) (1,659 ) (1,659 )
Exercise of stock options 22,750
1
267
268
Amortization of restricted stock 133
133
Awards of restricted stock (25 ) 25
—
Forfeiture of restricted stock 73
(73 ) —
Stock options expense 142
142
Tax effect from stock-based compensation (8 ) (8 )
Cash dividends⁽¹⁾
(1,032 ) (1,032 )

Balance at December 31, 2016 7,915,116
$ 179
$ 92,215
$ 192,699
$ (152,802 ) $ 264
$ 132,555

⁽²⁾	Cash dividends of $0.14 per share were paid in the quarter ended December 31, 2018.

⁽¹⁾~~Cash dividends of $0.13 per share were paid in the quarter ended December 31, 2016.~~

	Common Stock					Additional								Accumulated Other Comprehensive
	Shares			Amount		Paid-In Capital		Retained Earnings			Treasury Stock			Income (Loss), Net of Tax			Total
Balance at September 30, 2017		7,609,552		$	180	$	93,669	$	191,451		$	(160,609	)	$	230		$	124,921

Net loss									(777	)								(777	)
Other comprehensive loss															(20	)		(20	)
Purchase of treasury stock		(140,526	)									(2,702	)					(2,702	)
Exercise of stock options		5,750					84											84
Amortization of restricted stock							142											142
Stock options expense							116											116
Cash dividends ⁽¹⁾									(1,064	)								(1,064	)

Balance at December 31, 2017		7,474,776		$	180	$	94,011	$	189,610		$	(163,311	)	$	210		$	120,700

⁽¹⁾	Cash dividends of $0.14 per share were paid in the quarter ended December 31, 2017.

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

For the Six Months Ended December 31, ~~2017~~2018 and ~~2016:~~2017:

Common
Stock
Additional
Paid-In Capital Retained Earnings Treasury Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax

Shares Amount Total
Balance at June 30, 2017 7,714,052
$ 180
$ 93,209
$ 192,754
$ (158,142 ) $ 229
$ 128,230

Net loss (1,002 ) (1,002 )
Other comprehensive loss (19 ) (19 )
Purchase of treasury stock (266,526 ) (5,152 ) (5,152 )
Exercise of stock options 27,250

261
261
Amortization of restricted stock 291
291
Forfeitures of restricted stock 17
(17 ) —
Stock options expense 233

233
Cash dividends⁽¹⁾

(2,142 ) (2,142 )

Balance at December 31, 2017 7,474,776
$ 180
$ 94,011
$ 189,610
$ (163,311 ) $ 210
$ 120,700

	Common Stock					Additional								Accumulated Other Comprehensive
	Shares			Amount		Paid-In Capital		Retained Earnings			Treasury Stock			Income (Loss), Net of Tax			Total
Balance at June 30, 2018		7,421,426		$	181	$	94,957	$	190,616		$	(165,507	)	$	210		$	120,457

Net income									3,781									3,781
Other comprehensive loss															(41	)		(41	)
Purchase of treasury stock ⁽¹⁾		(21,071	)									(385	)					(385	)
Exercise of stock options		20,000					226											226
Distribution of restricted stock		86,500																—
Amortization of restricted stock							397											397
Stock options expense							333											333
Cash dividends ⁽²⁾									(2,091	)								(2,091	)

Balance at December 31, 2018		7,506,855		$	181	$	95,913	$	192,306		$	(165,892	)	$	169		$	122,677

⁽¹⁾Includes the repurchase of 21,071 shares of distributed restricted stock in settlement of employee withholding tax obligations^.

⁽²⁾Cash dividends of $0.28 per share were paid in the six months ended December 31, 2018.

	Common Stock					Additional								Accumulated Other Comprehensive
	Shares			Amount		Paid-In Capital		Retained Earnings			Treasury Stock			Income (Loss), Net of Tax			Total
Balance at June 30, 2017		7,714,052		$	180	$	93,209	$	192,754		$	(158,142	)	$	229		$	128,230

Net loss									(1,002	)								(1,002	)
Other comprehensive loss															(19	)		(19	)
Purchase of treasury stock		(266,526	)									(5,152	)					(5,152	)
Exercise of stock options		27,250					261											261
Amortization of restricted stock							291											291
Forfeitures of restricted stock							17					(17	)					—
Stock options expense							233											233
Cash dividends ⁽¹⁾									(2,142	)								(2,142	)

Balance at December 31, 2017		7,474,776		$	180	$	94,011	$	189,610		$	(163,311	)	$	210		$	120,700

⁽¹⁾Cash dividends of $0.28 per share were paid in the six months ended December 31, 2017.

Common
Stock
Additional
Paid-In Capital Retained Earnings Treasury Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax

Shares Amount Total
Balance at June 30, 2016 7,975,250
$ 178
$ 90,802
$ 191,666
$ (149,508 ) $ 313
$ 133,451

Net income 3,098
3,098
Other comprehensive loss (49 ) (49 )
Purchase of treasury stock⁽¹⁾
(171,634 ) (3,321 ) (3,321 )
Exercise of stock options 23,750
1
284
285
Distribution of restricted stock 87,750
—
Amortization of restricted stock 495
495
Awards of restricted stock (161 ) 161
—
Forfeitures of restricted stock 134
(134 ) —
Stock options expense 482
482
Tax effect from stock-based compensation 179
179
Cash dividends⁽²⁾
(2,065 ) (2,065 )

Balance at December 31, 2016 7,915,116
$ 179
$ 92,215
$ 192,699
$ (152,802 ) $ 264
$ 132,555

⁽¹⁾~~Includes the repurchase of 25,598 shares of distributed restricted stock in settlement of employee withholding tax obligations.~~

⁽²⁾~~Cash dividends of $0.26 per share were paid in the six months ended December 31, 2016.~~

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

PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited - In Thousands)


	Six Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2018			2017
Cash flows from operating activities:
Net (loss) income	$	(1,002	)	$	3,098
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net income (loss)							$	3,781		$	(1,002	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	1,582			1,334				1,664			1,582
Provision (recovery) for loan losses	158			(500		)
(Recovery) provision of losses on real estate owned	(552		)	76
(Recovery) provision for loan losses								(454	)		158
Recovery of losses on real estate owned								—			(552	)
Gain on sale of loans, net	(9,164		)	(14,474		)		(5,395	)		(9,164	)
Loss (gain) on sale of real estate owned, net	580			(33		)
(Gain) loss on sale of real estate owned, net								(9	)		580
Stock-based compensation	524			977				730			524
(Benefit) provision for deferred income taxes	(79		)	1,504
Tax effect from stock based compensation	—			(179		)
Increase in accounts payable, accrued interest and other liabilities	3,278			3,441
Increase in prepaid expenses and other assets	(306		)	(497		)
Provision (benefit) for deferred income taxes								733			(79	)
(Decrease) increase in accounts payable, accrued interest and other liabilities								(482	)		3,278
Decrease (increase) in prepaid expenses and other assets								546			(306	)
Loans originated for sale	(724,156		)	(1,189,253		)		(342,738	)		(724,156	)
Proceeds from sale of loans	753,571			1,230,321				386,778			753,571
Net cash provided by operating activities	24,434			35,815				45,154			24,434

Cash flows from investing activities:
Decrease (increase) in loans held for investment, net	17,548			(29,008		)
Decrease in loans held for investment, net								27,554			17,548
Maturity of investment securities held to maturity								200			—
Principal payments from investment securities held to maturity	10,837			6,252				15,782			10,837
Principal payments from investment securities available for sale	885			1,044				875			885
Purchase of investment securities held to maturity	(38,511		)	—				(13,669	)		(38,511	)
Proceeds from sale of real estate owned	1,587			857				915			1,587
Purchase of premises and equipment	(1,589		)	(185		)		(348	)		(1,589	)
Net cash used for investing activities	(9,243		)	(21,040		)
Net cash provided by (used for) investing activities								31,309			(9,243	)

Cash flows from financing activities:
(Decrease) increase in deposits, net	(18,733		)	2,289
Decrease in deposits, net								(34,714	)		(18,733	)
Repayments of short-term borrowings, net	(15,000		)	—				(15,000	)		(15,000	)
Proceeds from long-term borrowings	—			20,000
Repayments of long-term borrowings	(37		)	(36		)		(28	)		(37	)
Exercise of stock options	261			285				226			261
Withholding taxes on stock based compensation	(41		)	(501		)		(413	)		(41	)
Tax effect from stock based compensation	—			179
Cash dividends	(2,142		)	(2,065		)		(2,091	)		(2,142	)
Treasury stock purchases	(5,152		)	(3,321		)		(385	)		(5,152	)
Net cash (used for) provided by financing activities	(40,844		)	16,830
Net cash used for financing activities								(52,405	)		(40,844	)

Net (decrease) increase in cash and cash equivalents	(25,653		)	31,605
Net increase (decrease) in cash and cash equivalents								24,058			(25,653	)
Cash and cash equivalents at beginning of period	72,826			51,206				43,301			72,826
Cash and cash equivalents at end of period	$	47,173		$	82,811		$	67,359		$	47,173
Supplemental information:
Cash paid for interest	$	3,252		$	3,411		$	3,263		$	3,252
Cash paid for income taxes	$	2,350		$	1,934		$	1,525		$	2,350
Transfer of loans held for sale to held for investment	$	521		$	1,584		$	724		$	521
Real estate acquired in the settlement of loans	$	700		$	1,298		$	—		$	700

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

PROVIDENT FINANCIAL HOLDINGS, INC.

~~NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Unaudited Interim Condensed Consolidated Financial Statements

December 31, 2018

~~December 31, 2017~~

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, ~~2017~~2018 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”~~"Bank") (collectively, the ~~“Corporation”~~"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”~~("GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission ~~(“SEC”~~("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~~Corporation's Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2018. The results of operations for the quarter and six months ended December 31, ~~2017~~2018 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, ~~2018.~~2019.

Note 2: Accounting Standard Updates ~~(“ASU”~~("ASU")

There have been no accounting standard updates or changes in the status of their adoption that are ~~applicable~~significant to the Corporation as previously disclosed in Note 1 of the Corporation's Annual Report on Form 10-K for the year ended June 30, ~~2017, except~~2018, other than:

ASU 2014-09:

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, "Revenue from Contracts with Customers," which created FASB Accounting Standards Codification (ASC) Topic 606 ("ASC 606"). ASC 606 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASC 606 was effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. The Corporation adopted ASC 606 on July 1, 2018 using the modified retrospective approach. Therefore, the comparative information has not been adjusted and continues to be reported under superseded ASC 605. There was no cumulative effect adjustment as of July 1, 2018, and there were no material changes to the timing or amount of revenue recognized for the six months ended December 31, 2018; however, additional disclosures were incorporated in the footnotes upon adoption. The majority of the Company's revenue is comprised of interest income from financial assets, which is explicitly excluded from the scope of ASC 606. The Corporation elected to apply the practical expedient pursuant to ASC 606 and therefore does not disclose information about remaining performance obligations that have an original expected term of one year or less and allows the Corporation to expense costs related to obtaining a contract as incurred when the original amortization period would have been one year or less. See Note 12 for additional discussion.

ASU 2018-11

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." This ASU introduces a lessee model that brings most leases on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the new revenue recognition standard, ASC 606, Revenue From Contracts With Customers. The new leases standard represents a wholesale change to lease accounting and will most likely result in significant implementation challenges during the transition period and beyond. This ASU will be effective for annual periods beginning after December 15, 2018 (i.e., calendar periods beginning on January 1, 2019), and interim periods therein, early adoption is permitted. In July 2018, the FASB issued ASU 2018-11, Leases, Targeted Improvements, which allows entities the option of initially applying the new leases standard at the adoption date (such as January 1, 2019, for calendar year- end public business entities) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Corporation plans to adopt ASU 2018-11 on July 1, 2019. Management is currently assessing the impact of ASU 2016-02 on the Corporation's financial position and results of operations but does not believe that adoption of ASU ~~2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting)," beginning in fiscal 2018 which did not~~2018-11 will have a material impact on its ~~condensed~~ consolidated financial statements.

ASU 2018-13

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies disclosure requirements on fair value measurements to improve their effectiveness. The guidance permits entities to consider materiality when evaluating fair value measurement disclosures and, among other modifications, requires certain new disclosures related to Level 3 fair value measurements. The guidance will be effective beginning January 1, 2020, with early adoption permitted. The guidance only affects disclosures in the notes to the consolidated financial statements and will not affect the Corporation's financial position or results of operations.

Note 3: Earnings (Loss) ~~Earnings~~ Per Share

Basic earnings (loss) ~~earnings~~ per share ~~(“EPS”~~("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 entity.

As of December 31, ~~2017~~2018 and ~~2016,~~2017, there were outstanding options to purchase ~~585,500~~509,000 shares and ~~903,000~~585,500 shares of the ~~Corporation’s~~Corporation's common stock, respectively. Of those shares, as of December 31, ~~2017~~2018 and ~~2016,~~2017, there were ~~585,500~~45,000 shares and ~~151,000~~585,500 shares, respectively, which were excluded from the diluted EPS computation as their effect was anti-dilutive. As of December 31, 2018, there were outstanding restricted stock awards of 12,000 shares which have a dilutive effect; and as of December 31, 2017, there were outstanding restricted stock awards of 109,000 shares with no dilutive effect in the second quarter of fiscal 2018; and as of December 31, 2016, there were outstanding restricted stock awards of 105,000 shares which had a dilutive effect in the second quarter of fiscal 2017.effect.

The following table provides the basic and diluted EPS computations for the quarters and six months ended December 31, ~~2017~~2018 and ~~2016,~~2017, respectively.

(In Thousands, Except Earnings Per Share)	For the Quarters Ended December 31,					For the Six Months Ended December 31,
	2018		2017			2018		2017
Numerator:
Net income (loss) – numerator for basic earnings per share and diluted earnings per share - available to common stockholders	$	1,958	$	(777	)	$	3,781	$	(1,002	)

Denominator:
Denominator for basic earnings per share:
Weighted-average shares		7,506		7,566			7,468		7,630

Effect of dilutive shares:
Stock options		89		—			90		—
Restricted stock		7		—			21		—

Denominator for diluted earnings per share:
Adjusted weighted-average shares and assumed conversions		7,602		7,566			7,579		7,630

Basic (loss) earnings per share	$	0.26	$	(0.10	)	$	0.51	$	(0.13	)
Diluted (loss) earnings per share	$	0.26	$	(0.10	)	$	0.50	$	(0.13	)

(In Thousands, Except Earnings Per Share)
For the Quarters Ended
December 31, For the Six Months Ended
December 31,
2017 2016 2017 2016
Numerator:
Net (loss) income – numerator for basic earnings per share and diluted earnings per share - available to common stockholders $ (777 ) $ 1,504
$ (1,002 ) $ 3,098

Denominator:

Denominator for basic earnings per share:

Weighted-average shares 7,566
7,954
7,630
7,951

Effect of dilutive shares:
Stock options —
170
—
164
Restricted stock —
21
—
35

Denominator for diluted earnings per share:

Adjusted weighted-average shares and assumed conversions 7,566
8,145
7,630
8,150

Basic (loss) earnings per share $ (0.10 ) $ 0.19
$ (0.13 ) $ 0.39
Diluted (loss) earnings per share $ (0.10 ) $ 0.18
$ (0.13 ) $ 0.38

Note 4: Operating Segment Reports

The Corporation operates in two business segments: community banking through the Bank and mortgage banking through Provident Bank Mortgage ~~(“PBM”~~("PBM"), a division of the Bank.

The following tables set forth condensed consolidated statements of operations and total assets for the ~~Corporation’s~~Corporation's operating segments for the quarters and six months ended December 31, ~~2017~~2018 and ~~2016,~~2017, respectively.

	For the Quarter Ended December 31, 2018
(In Thousands)	Provident Bank			Provident Bank Mortgage			Consolidated Totals
Net interest income	$	9,525		$	306		$	9,831
Recovery from the allowance for loan losses		(217	)		—			(217	)
Net interest income, after recovery from the allowance for loan losses		9,742			306			10,048

Non-interest income:
Loan servicing and other fees ⁽¹⁾		(149	)		426			277
Gain on sale of loans, net ⁽²⁾		—			2,263			2,263
Deposit account fees		509			—			509
Loss on sale and operations of real estate owned acquired in the settlement of loans, net		(7	)		—			(7	)
Card and processing fees		392			—			392
Other		161			—			161
Total non-interest income		906			2,689			3,595

Non-interest expense:
Salaries and employee benefits		4,300			2,911			7,211
Premises and occupancy		897			377			1,274
Operating and administrative expenses		1,067			1,323			2,390
Total non-interest expense		6,264			4,611			10,875
Income (loss) before income taxes		4,384			(1,616	)		2,768
Provision (benefit) for income taxes		1,287			(477	)		810
Net income (loss)	$	3,097		$	(1,139	)	$	1,958
Total assets, end of period	$	1,069,379		$	57,791		$	1,127,170

For the Quarter Ended December 31, 2017
(In Thousands) Provident
Bank Provident
Bank
Mortgage Consolidated
Totals
Net interest income $ 8,217
$ 534
$ 8,751
Recovery from the allowance for loan losses (11 ) —
(11 )
Net interest income, after recovery from the allowance for loan losses 8,228
534
8,762

Non-interest income:
     Loan servicing and other fees ⁽¹⁾
108
209
317
     Gain on sale of loans, net ⁽²⁾
22
4,295
4,317
Deposit account fees 536
—
536
     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
(22 ) —
(22 )
Card and processing fees 373
—
373
Other 220
—
220
Total non-interest income 1,237
4,504
5,741

Non-interest expense:
Salaries and employee benefits 4,449
4,184
8,633
Premises and occupancy 822
438
1,260
Operating and administrative expenses⁽³⁾
1,189
2,131
3,320
Total non-interest expense 6,460
6,753
13,213
Income (loss) before income taxes 3,005
(1,715 ) 1,290
Provision (benefit) for income taxes⁽⁴⁾
2,532
(465 ) 2,067
Net income (loss) $ 473
$ (1,250 ) $ (777 )
Total assets, end of period $ 1,065,204
$ 96,927
$ 1,162,131


⁽¹⁾	Includes an inter-company charge of ~~$99~~$258 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.


⁽²⁾	Includes an inter-company charge of ~~$79~~$14 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.

	For the Quarter Ended December 31, 2017
(In Thousands)	Provident Bank			Provident Bank Mortgage			Consolidated Totals
Net interest income	$	8,217		$	534		$	8,751
Recovery from the allowance for loan losses		(11	)		—			(11	)
Net interest income, after recovery from the allowance for loan losses		8,228			534			8,762

Non-interest income:
Loan servicing and other fees ⁽¹⁾		108			209			317
Gain on sale of loans, net ⁽²⁾		22			4,295			4,317
Deposit account fees		536			—			536
Loss on sale and operations of real estate owned acquired in the settlement of loans, net		(22	)		—			(22	)
Card and processing fees		373			—			373
Other		220			—			220
Total non-interest income		1,237			4,504			5,741

Non-interest expense:
Salaries and employee benefits		4,449			4,184			8,633
Premises and occupancy		822			438			1,260
Operating and administrative expenses ⁽³⁾		1,189			2,131			3,320
Total non-interest expense		6,460			6,753			13,213
Income (loss) before income taxes		3,005			(1,715	)		1,290
Provision (benefit) for income taxes ⁽⁴⁾		2,532			(465	)		2,067
Net income (loss)	$	473		$	(1,250	)	$	(777	)
Total assets, end of period	$	1,065,204		$	96,927		$	1,162,131

⁽¹⁾	Includes an inter-company charge of $99 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.

⁽²⁾	Includes an inter-company charge of $79 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.

⁽³⁾	Includes $650,000 of litigation settlement expense ~~accrual~~ for the second quarter of fiscal 2018, all of which was allocated to PBM.


⁽⁴⁾	Includes a net tax charge of $1.8 million resulting from the revaluation of net deferred tax assets consistent with the Tax Cuts and Jobs Act for the quarter ended December 31, 2017.

	For the Six Months Ended December 31, 2018
(In Thousands)	Provident Bank			Provident Bank Mortgage			Consolidated Totals
Net interest income	$	18,525		$	663		$	19,188
(Recovery) provision for loan losses		(549	)		95			(454	)
Net interest income, after (recovery) provision for loan losses		19,074			568			19,642

Non-interest income:
Loan servicing and other fees ⁽¹⁾		(16	)		617			601
Gain on sale of loans, net ⁽²⁾		34			5,361			5,395
Deposit account fees		1,014			—			1,014
Loss on sale and operations of real estate owned acquired in the settlement of loans, net		(6	)		—			(6	)
Card and processing fees		790			—			790
Other		350			—			350
Total non-interest income		2,166			5,978			8,144

Non-interest expense:
Salaries and employee benefits		9,136			6,325			15,461
Premises and occupancy		1,805			814			2,619
Operating and administrative expenses		1,993			2,506			4,499
Total non-interest expense		12,934			9,645			22,579
Income (loss) before income taxes		8,306			(3,099	)		5,207
Provision (benefit) for income taxes		2,342			(916	)		1,426
Net income (loss)	$	5,964		$	(2,183	)	$	3,781
Total assets, end of period	$	1,069,379		$	57,791		$	1,127,170

For the Quarter Ended December 31, 2016
(In Thousands) Provident
Bank Provident
Bank
Mortgage Consolidated
Totals
Net interest income $ 7,821
$ 1,264
$ 9,085
Recovery from the allowance for loan losses (346 ) (4 ) (350 )
Net interest income after recovery from the allowance for loan losses 8,167
1,268
9,435

Non-interest income:
     Loan servicing and other fees ⁽¹⁾
250
60
310
     Gain on sale of loans, net ⁽²⁾
37
6,441
6,478
Deposit account fees 552
—
552
     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
(58 ) (5 ) (63 )
Card and processing fees 361
—
361
Other 194
—
194
Total non-interest income 1,336
6,496
7,832

Non-interest expense:
Salaries and employee benefits 4,642
5,707
10,349
Premises and occupancy 792
443
1,235
Operating and administrative expenses 1,152
1,932
3,084
Total non-interest expense 6,586
8,082
14,668
Income (loss) before income taxes 2,917
(318 ) 2,599
Provision (benefit) for income taxes 1,228
(133 ) 1,095
Net income (loss) $ 1,689
$ (185 ) $ 1,504
Total assets, end of period $ 1,035,158
$ 156,997
$ 1,192,155


⁽¹⁾	Includes an inter-company charge of ~~$128~~$426 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.


⁽²⁾	Includes an inter-company charge of ~~$109~~$20 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.

	For the Six Months Ended December 31, 2017
(In Thousands)	Provident Bank			Provident Bank Mortgage			Consolidated Totals
Net interest income	$	16,767		$	1,102		$	17,869
Provision for loan losses		158			—			158
Net interest income, after provision for loan losses		16,609			1,102			17,711

Non-interest income:
Loan servicing and other fees ⁽¹⁾		155			525			680
Gain on sale of loans, net ⁽²⁾		22			9,142			9,164
Deposit account fees		1,094			—			1,094
Loss on sale and operations of real estate owned acquired in the settlement of loans, net		(62	)		—			(62	)
Card and processing fees		754			—			754
Other		463			—			463
Total non-interest income		2,426			9,667			12,093

Non-interest expense:
Salaries and employee benefits		8,951			8,951			17,902
Premises and occupancy		1,649			925			2,574
Operating and administrative expenses ⁽³⁾		3,440			5,031			8,471
�� Total non-interest expense		14,040			14,907			28,947
Income (loss) before income taxes		4,995			(4,138	)		857
Provision (benefit) for income taxes ⁽⁴⁾		3,343			(1,484	)		1,859
Net income (loss)	$	1,652		$	(2,654	)	$	(1,002	)
Total assets, end of period	$	1,065,204		$	96,927		$	1,162,131

For the Six Months Ended December 31, 2017
(In Thousands) Provident
Bank Provident
Bank
Mortgage Consolidated
Totals
Net interest income $ 16,767
$ 1,102
$ 17,869
Provision for loan losses 158
—
158
Net interest income, after provision for loan losses 16,609
1,102
17,711

Non-interest income:
     Loan servicing and other fees ⁽¹⁾
155
525
680
     Gain on sale of loans, net ⁽²⁾
22
9,142
9,164
Deposit account fees 1,094
—
1,094
     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
(62 ) —
(62 )
Card and processing fees 754
—
754
Other 463
—
463
Total non-interest income 2,426
9,667
12,093

Non-interest expense:
Salaries and employee benefits 8,951
8,951
17,902
Premises and occupancy 1,649
925
2,574
Operating and administrative expenses⁽³⁾
3,440
5,031
8,471
Total non-interest expense 14,040
14,907
28,947
Income (loss) before income taxes 4,995
(4,138 ) 857
Provision (benefit) for income taxes⁽⁴⁾
3,343
(1,484 ) 1,859
Net income (loss) $ 1,652
$ (2,654 ) $ (1,002 )
Total assets, end of period $ 1,065,204
$ 96,927
$ 1,162,131


⁽¹⁾	Includes an inter-company charge of $339 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.


⁽²⁾	Includes an inter-company charge of $138 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.


⁽³⁾	Includes $3.4 million of litigation ~~accrual~~settlement expense for the first six months of fiscal 2018, of which $2.1 million was allocated to PBM.


⁽⁴⁾	Includes a net tax charge of $1.8 million resulting from the revaluation of net deferred tax assets consistent with the Tax Cuts and Jobs Act for the six months ended December 31, 2017.

For the Six Months Ended December 31, 2016
(In Thousands) Provident
Bank Provident
Bank
Mortgage Consolidated
Totals
Net interest income $ 15,396
$ 2,777
$ 18,173
Recovery from the allowance for loan losses (310 ) (190 ) (500 )
Net interest income, after recovery from the allowance for loan losses 15,706
2,967
18,673

Non-interest income:
     Loan servicing and other fees ⁽¹⁾
319
258
577
     Gain on sale of loans, net ⁽²⁾
38
14,436
14,474
Deposit account fees 1,102
—
1,102
     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
(163 ) (3 ) (166 )
Card and processing fees 725
—
725
Other 372
—
372
Total non-interest income 2,393
14,691
17,084

Non-interest expense:
Salaries and employee benefits 9,536
12,127
21,663
Premises and occupancy 1,648
876
2,524
Operating and administrative expenses 2,299
3,814
6,113
Total non-interest expense 13,483
16,817
30,300
Income before income taxes 4,616
841
5,457
Provision for income taxes 2,005
354
2,359
Net income $ 2,611
$ 487
$ 3,098
Total assets, end of period $ 1,035,158
$ 156,997
$ 1,192,155


⁽¹⁾	~~Includes an inter-company charge of $223 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.~~


⁽²⁾	~~Includes an inter-company charge of $168 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.~~

Note 5: Investment Securities

The amortized cost and estimated fair value of investment securities as of December 31, ~~2017~~2018 and June 30, ~~2017~~2018 were as follows:

December 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value		Carrying Value
(In Thousands)
Held to maturity:
U.S. government sponsored enterprise MBS ⁽¹⁾	$	81,451	$	369	$	(285	)	$	81,535	$	81,451
U.S. SBA securities ⁽²⁾		2,939		—		(18	)		2,921		2,939
Certificate of deposits		600		—		—			600		600
Total investment securities - held to maturity	$	84,990	$	369	$	(303	)	$	85,056	$	84,990

Available for sale:
U.S. government agency MBS	$	3,824	$	118	$	—		$	3,942	$	3,942
U.S. government sponsored enterprise MBS		2,213		98		—			2,311		2,311
Private issue CMO ⁽³⁾		307		3		—			310		310
Total investment securities - available for sale	$	6,344	$	219	$	—		$	6,563	$	6,563
Total investment securities	$	91,334	$	588	$	(303	)	$	91,619	$	91,553

As of December 31, 2017

Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value

Carrying
Value
(In Thousands)
Held to maturity:
Certificates of deposit $ 600
$ —
$ —
$ 600
$ 600
U.S. government sponsored enterprise MBS ⁽¹⁾
87,026
147
437
86,736
87,026
Total investment securities - held to maturity $ 87,626
$ 147
$ 437
$ 87,336
$ 87,626

Available for sale:
U.S. government agency MBS $ 4,678
$ 181
$ —
$ 4,859
$ 4,859
U.S. government sponsored enterprise MBS 2,977
150
—
3,127
3,127
Private issue CMO ⁽²⁾
413
6
—
419
419
Total investment securities - available for sale $ 8,068
$ 337
$ —
$ 8,405
$ 8,405
Total investment securities $ 95,694
$ 484
$ 437
$ 95,741
$ 96,031


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

⁽²⁾	Small Business Administration ("SBA").

⁽²⁾⁽³⁾

Collateralized Mortgage Obligations ~~(“CMO”~~("CMO").

June 30, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value		Carrying Value
(In Thousands)
Held to maturity:
U.S. government sponsored enterprise MBS	$	84,227	$	203	$	(762	)	$	83,668	$	84,227
U.S. SBA securities		2,986		—		(15	)		2,971		2,986
Certificate of deposits		600		—		—			600		600
Total investment securities - held to maturity	$	87,813	$	203	$	(777	)	$	87,239	$	87,813

Available for sale:
U.S. government agency MBS	$	4,234	$	150	$	—		$	4,384	$	4,384
U.S. government sponsored enterprise MBS		2,640		122		—			2,762		2,762
Private issue CMO		346		4		—			350		350
Total investment securities - available for sale	$	7,220	$	276	$	—		$	7,496	$	7,496
Total investment securities	$	95,033	$	479	$	(777	)	$	94,735	$	95,309

As of June 30, 2017

Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value

Carrying
Value
(In Thousands)
Held to maturity:
Certificates of deposit $ 600
$ —
$ —
$ 600
$ 600
U.S. government sponsored enterprise MBS 59,841
265
77
60,029
59,841
Total investment securities - held to maturity $ 60,441
$ 265
$ 77
$ 60,629
$ 60,441

Available for sale:
U.S. government agency MBS $ 5,197
$ 186
$ —
$ 5,383
$ 5,383
U.S. government sponsored enterprise MBS 3,301
173
—
3,474
3,474
Private issue CMO 456
5
—
461
461
Total investment securities - available for sale $ 8,954
$ 364
$ —
$ 9,318
$ 9,318
Total investment securities $ 69,395
$ 629
$ 77
$ 69,947
$ 69,759

In the second quarters of fiscal ~~2018~~2019 and ~~2017,~~2018, the Corporation received MBS principal payments of ~~$5.8~~$8.3 million and ~~$3.2~~$5.8 million,, respectively, and there were no sales of investment securities during these periods. The Corporation purchased U.S. government sponsored enterprise MBS totaling $13.5 million and $28.4 million, to be held to maturity, ~~during the second quarter of fiscal 2018 and no purchases were made during the second quarter of fiscal 2017.~~respectively. For the first six months of fiscal ~~2018~~2019 and ~~2017,~~2018, the Corporation received MBS principal payments of ~~$11.7~~$16.7 million and ~~$7.3~~$11.7 million,

respectively, and there were no sales of investment securities during these periods. In the first six months of fiscal 2019 and 2018, the Corporation purchased U.S. government sponsored enterprise MBS totaling $13.5 million and $38.5 million, to be held to maturity, ~~and none were purchased in the first six months of fiscal 2017.~~

respectively.

The Corporation held investments with an unrealized loss position of ~~$437,000~~$303,000 at December 31, ~~2017~~2018 and ~~$77,000~~$777,000 at June 30, ~~2017.~~2018.

As of December 31, 2018	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		$	—		$	—		$	37,363		$	285		$	37,363		$	285
U.S. SBA securities			2,914			18			—			—			2,914			18
Total investment securities		$	2,914		$	18		$	37,363		$	285		$	40,277		$	303


As of December 31, 2017	Unrealized Holding Losses				Unrealized Holding Losses				Unrealized Holding Losses
As of June 30, 2018													Unrealized Holding Losses						Unrealized Holding Losses						Unrealized Holding Losses
(In Thousands)	Less Than 12 Months				12 Months or More				Total				Less Than 12 Months						12 Months or More						Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses		Value			Losses			Value			Losses			Value			Losses
Held to maturity:
U.S. government sponsored enterprise MBS	$	71,893	$	437	$	—	$	—	$	71,893	$	437		$	47,045		$	762		$	—		$	—		$	47,045		$	762
U.S. SBA securities															2,964			15			—			—			2,964			15
Total investment securities	$	71,893	$	437	$	—	$	—	$	71,893	$	437		$	50,009		$	777		$	—		$	—		$	50,009		$	777

As of June 30, 2017 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 $ 28,722
$ 77
$ —
$ —
$ 28,722
$ 77
Total investment securities $ 28,722
$ 77

$ —
$ —

$ 28,722
$ 77

The Corporation evaluates individual investment securities quarterly for other-than-temporary declines in market value. ~~As of~~At December 31, ~~2017 and June 30, 2017,~~2018, $285,000 of the total $303,000 unrealized holding losses were ~~for a term~~12 months or more; while at June 30, 2018, all of the unrealized holding loss was less than 12 months. The Corporation does not believe that there ~~are~~were any other-than-temporary impairments on the investment securities at December 31, ~~2017~~2018 and ~~2016;~~2017; therefore, no impairment losses were recorded for the quarters and six months ended December 31, ~~2017~~2018 and ~~2016.~~2017.

Contractual maturities of investment securities as of December 31, ~~2017~~2018 and June 30, ~~2017~~2018 were as follows:

	December 31, 2018				June 30, 2018
(In Thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value

Held to maturity:
Due in one year or less	$	600	$	600	$	600	$	600
Due after one through five years		35,169		34,918		24,961		24,569
Due after five through ten years		17,537		17,689		22,847		22,477
Due after ten years		31,684		31,849		39,405		39,593
Total investment securities - held to maturity	$	84,990	$	85,056	$	87,813	$	87,239

Available for sale:
Due in one year or less	$	—	$	—	$	—	$	—
Due after one through five years		—		—		—		—
Due after five through ten years		—		—		—		—
Due after ten years		6,344		6,563		7,220		7,496
Total investment securities - available for sale	$	6,344	$	6,563	$	7,220	$	7,496
Total investment securities	$	91,334	$	91,619	$	95,033	$	94,735

December 31, 2017 June 30, 2017
(In Thousands) Amortized
Cost Estimated
Fair
Value Amortized
Cost Estimated
Fair
Value

Held to maturity:
Due in one year or less $ 600
$ 600
$ 600
$ 600
Due after one through five years 11,036
11,002
4,698
4,708
Due after five through ten years 43,596
43,286
41,404
41,374
Due after ten years 32,394
32,448
13,739
13,947
Total investment securities - held to maturity $ 87,626
$ 87,336
$ 60,441
$ 60,629

Available for sale:
Due in one year or less $ —
$ —
$ —
$ —
Due after one through five years —
—
—
—
Due after five through ten years —
—
—
—
Due after ten years 8,068
8,405
8,954
9,318
Total investment securities - available for sale $ 8,068
$ 8,405
$ 8,954
$ 9,318
Total investment securities $ 95,694
$ 95,741
$ 69,395
$ 69,947

Note 6: Loans Held for Investment

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

(In Thousands)	December 31, 2018				June 30, 2018
Mortgage loans:
Single-family		$	312,499		$	314,808
Multi-family			447,033			476,008
Commercial real estate			112,830			109,726
Construction ⁽¹⁾			3,986			3,174
Other			167			167
Commercial business loans ⁽²⁾			455			500
Consumer loans ⁽³⁾			103			109
Total loans held for investment, gross			877,073			904,492

Advance payments of escrows			95			18
Deferred loan costs, net			5,306			5,560
Allowance for loan losses			(7,061	)		(7,385	)
Total loans held for investment, net		$	875,413		$	902,685

⁽¹⁾	Net of $5.7 million and $4.3 million of undisbursed loan funds as of December 31, 2018 and June 30, 2018, respectively

⁽²⁾	Net of $1.5 million and $495 of undisbursed lines of credit as of December 31, 2018 and June 30, 2018, respectively.

⁽³⁾	Net of $487 and $503 of undisbursed lines of credit as of December 31, 2018 and June 30, 2018, respectively.

(In Thousands) December 31, 2017 June 30, 2017
Mortgage loans:
Single-family $ 313,837
$ 322,197
Multi-family 463,786
479,959
Commercial real estate 103,366
97,562
Construction 14,430
16,009
Commercial business loans 478
576
Consumer loans 144
129
Total loans held for investment, gross 896,041
916,432

Undisbursed loan funds (7,358 ) (9,015 )
Advance payments of escrows 46
61
Deferred loan costs, net 5,322
5,480
Allowance for loan losses (8,075 ) (8,039 )
Total loans held for investment, net $ 885,976
$ 904,919

The following table sets forth information at December 31, ~~2017~~2018 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 ~~2 percent~~2% of loans held for investment at both December 31, ~~2017~~2018 and June 30, ~~2017.~~2018. 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~~Corporation's actual repricing experience to differ materially from that shown.


	Adjustable Rate												Adjustable Rate
(In Thousands)	Within One Year		After One Year Through 3 Years		After 3 Years Through 5 Years		After 5 Years Through 10 Years		Fixed Rate		Total		Within One Year		After One Year Through 3 Years		After 3 Years Through 5 Years		After 5 Years Through 10 Years		Fixed Rate		Total
Mortgage loans:
Single-family	$	152,732	$	23,887	$	73,968	$	51,007	$	12,243	$	313,837	$	105,981	$	31,216	$	100,552	$	63,034	$	11,716	$	312,499
Multi-family	117,609		169,374		160,034		14,216		2,553		463,786			129,858		162,154		142,177		12,642		202		447,033
Commercial real estate	27,941		38,106		31,511		5,220		588		103,366			41,376		35,953		35,008		—		493		112,830
Construction	12,527		—		—		—		1,903		14,430			2,600		—		—		—		1,386		3,986
Other														—		—		—		—		167		167
Commercial business loans	46		—		—		—		432		478			57		—		—		—		398		455
Consumer loans	144		—		—		—		—		144			103		—		—		—		—		103
Total loans held for investment, gross	$	310,999	$	231,367	$	265,513	$	70,443	$	17,719	$	896,041	$	279,975	$	229,323	$	277,737	$	75,676	$	14,362	$	877,073

director emeritus, officer or employee remains in service to the Corporation. The options are exercisable after vesting for up to the remaining term of the original grant. The maximum term of the options granted is 10 years.

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option valuation model with the following assumptions. The expected volatility is based on implied volatility from historical common stock closing prices for the prior 84 months. The expected dividend yield is based on the most recent quarterly dividend on an annualized basis. The expected term is based on the historical experience of all fully vested stock option grants and is reviewed annually. The risk-free interest rate is based on the U.S. Treasury note rate with a term similar to the underlying stock option on the particular grant date.

During the second quarter of fiscal ~~2018,~~2019, no options were granted or forfeited, while ~~5,750~~5,000 options were ~~exercised and no options were forfeited.~~exercised. This compares to the second quarter of fiscal ~~2017~~2018 when ~~6,000~~no options were granted ~~22,750~~or forfeited, while 5,750 options were ~~exercised~~

~~and 11,250 options were forfeited.~~exercised. During the first six months of fiscal ~~2018,~~2019, no options were granted or forfeited, while 20,000 options were exercised. This compares to the first six months of fiscal 2018 when no options were granted, while 27,250 options were exercised and 2,500 options were forfeited. ~~This compares to the first six months of fiscal 2017 when 26,000 options were granted, while 23,750 options were exercised and 27,250 options were forfeited.~~ As of December 31, ~~2017~~2018 and ~~2016,~~2017, there were 147,500 ~~and 138,000~~ stock options available for future grants under the Plans ~~respectively.~~at both dates.

The following ~~tables summarize~~table summarizes the stock option activity in the Plans for the quarter and six months ended December 31, ~~2017.~~2018.

	For the Quarter Ended December 31, 2018
Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value ($000)
Outstanding at September 30, 2018		514,000		$	12.84
Granted		—		$	—
Exercised		(5,000	)	$	14.59
Forfeited		—		$	—
Outstanding at December 31, 2018		509,000		$	12.83		4.80	$	1,485
Vested and expected to vest at December 31, 2018		506,400		$	12.79		4.78	$	1,485
Exercisable at December 31, 2018		496,000		$	12.65		4.72	$	1,485

	For the Six Months Ended December 31, 2018
Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value ($000)
Outstanding at June 30, 2018		529,000		$	12.77
Granted		—		$	—
Exercised		(20,000	)	$	11.31
Forfeited		—		$	—
Outstanding at December 31, 2018		509,000		$	12.83		4.80	$	1,485
Vested and expected to vest at December 31, 2018		506,400		$	12.79		4.78	$	1,485
Exercisable at December 31, 2018		496,000		$	12.65		4.72	$	1,485

For the Quarter Ended December 31, 2017
Options Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
($000)
Outstanding at September 30, 2017 591,250
$12.27
Granted —
$—
Exercised (5,750 ) $14.59
Forfeited —
$—
Outstanding at December 31, 2017 585,500
$12.25 5.29 $3,633
Vested and expected to vest at December 31, 2017 545,350
$12.03 5.17 $3,501
Exercisable at December 31, 2017 384,750
$10.67 4.41 $2,973

For the Six Months Ended December 31, 2017
Options Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
($000)
Outstanding at June 30, 2017 615,250
$12.14
Granted —
$—
Exercised (27,250 ) $9.57
Forfeited (2,500 ) $14.59
Outstanding at December 31, 2017 585,500
$12.25 5.29 $3,633
Vested and expected to vest at December 31, 2017 545,350
$12.03 5.17 $3,501
Exercisable at December 31, 2017 384,750
$10.67 4.41 $2,973

As of December 31, ~~2017~~2018 and ~~2016,~~2017, there was ~~$652,000~~$76,000 and ~~$1.1 million~~$652,000 of unrecognized compensation expense, respectively, related to unvested share-based compensation arrangements under the Plans. The expense is expected to be recognized over a weighted-average period of ~~1.1~~1.8 years and ~~2.0~~1.1 years, respectively. The forfeiture rate during the first six months of fiscal ~~2018~~2019 and ~~2017~~2018 was 20 percent for both periods, and was calculated by using the historical forfeiture experience of stock option grants and is reviewed annually.

Equity Incentive Plans – Restricted Stock. The Corporation used 300,000 shares, 288,750 shares and 185,000 shares of its treasury stock to fund the 2013 Plan, the 2010 Plan and the 2006 Plan, respectively. Awarded shares typically vest over a five-year or shorter period as long as the director, advisory director, director emeriti, officer or employee remains in service to the Corporation. Once vested, a recipient of restricted stock will have all rights of a shareholder, including the power to vote and the right to receive dividends. The Corporation recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date.

There ~~was~~were no restricted stock awards and no forfeitures, while there were 1,500 shares of restricted stock vested in the second quarter of fiscal 2019. This compares to no restricted stock activity in the second quarter of fiscal 2018. ~~This compares to the award of 3,000 shares, the forfeiture of 8,250 shares and no vesting of restricted stock in the second quarter of fiscal 2017.~~ For the first six months of fiscal ~~2018,~~2019, there was no restricted stock activity, other than the vesting of 86,500 shares. This compares to no restricted stock activity, other than the forfeiture of 2,000 ~~shares. This compares to the award of 18,000~~ shares ~~the forfeiture of 15,250 shares and the vesting of 87,750 shares of restricted stock in~~for the first six months of fiscal ~~2017.~~2018. As of December 31,

~~2017~~ 2018 and ~~2016,~~2017, there were 267,750 shares ~~and 271,750 shares~~ of restricted stock ~~respectively~~ available for future awards under the ~~Plans.~~Plans at both dates.

The following table summarizes the unvested restricted stock activity infor the quarter and six months ended December 31, ~~2017.~~2018.

	For the Quarter Ended December 31, 2018
Unvested Shares	Shares		Weighted- Average Award Date Fair Value
Unvested at September 30, 2018	13,500		$18.20
Granted	—		$—
Vested	(1,500	)	$17.35
Forfeited	—		$—
Unvested at December 31, 2018	12,000		$18.31
Expected to vest at December 31, 2018	9,600		$18.31

	For the Six Months Ended December 31, 2018
Unvested Shares	Shares		Weighted- Average Award Date Fair Value
Unvested at June 30, 2018	98,500		$14.35
Granted	—		$—
Vested	(86,500	)	$13.80
Forfeited	—		$—
Unvested at December 31, 2018	12,000		$18.31
Expected to vest at December 31, 2018	9,600		$18.31

For the Quarter Ended December 31, 2017
Unvested Shares Shares
Weighted-Average
Award Date
Fair Value
Unvested at September 30, 2017 109,000
$14.45
Granted —
$—
Vested —
$—
Forfeited —
$—
Unvested at December 31, 2017 109,000
$14.45
Expected to vest at December 31, 2017 87,200
$14.45

For the Six Months Ended December 31, 2017
Unvested Shares Shares
Weighted-Average
Award Date
Fair Value
Unvested at June 30, 2017 111,000
$14.16
Granted —
$—
Vested —
$—
Forfeited (2,000 ) $13.30
Unvested at December 31, 2017 109,000
$14.45
Expected to vest at December 31, 2017 87,200
$14.45

As of December 31, ~~2017~~2018 and ~~2016,~~2017, the unrecognized compensation expense was ~~$867,000~~$159,000 and ~~$1.3 million,~~$867,000, respectively, related to unvested share-based compensation arrangements under the Plans, and reported as a reduction to ~~stockholders’~~stockholders' equity. This expense is expected to be recognized over a weighted-average period of ~~1.3~~1.6 years and ~~2.2~~1.3 years, respectively. Similar to stock options, a forfeiture rate of 20 percent has been applied for the restricted stock compensation expense calculations in the first six months of fiscal ~~2018~~2019 and ~~2017.~~2018.

~~Stock Option Plan.~~ The Corporation established the Stock Option Plan for key employees and eligible directors under which options to acquire up to 352,500 shares of common stock may be granted. Under the Stock Option Plan, stock options may not be granted at a price less than the fair market value at the date of the grant. Stock options typically vest over a five-year period on a pro-rata basis as long as the employee or director remains in service to the Corporation. The stock options are exercisable after vesting for up to the remaining term of the original grant. The maximum term of the stock options granted is 10 years. As of December 31, 2017, no stock options remain available for future grants under the Stock Option Plan, which expired in November 2013.

The fair value of each stock option grant was estimated on the date of the grant using the Black-Scholes option valuation model with the following assumptions. The expected volatility was based on implied volatility from historical common stock closing prices for the prior 84 months. The expected dividend yield was based on the most recent quarterly dividend on an annualized basis. The expected term was based on the historical experience of stock option grants and is reviewed annually. The risk-free interest rate was based on the U.S. Treasury note rate with a term similar to the underlying stock option on the particular grant date.

For the second quarter of fiscal 2018 and 2017, there was no activity in the Stock Option Plan. For the first six months of fiscal 2018 and 2017, there was no activity in the Stock Option Plan, except forfeitures of 50,000 shares and 12,500 shares, respectively. As of December 31, 2017 and 2016, there were no stock options available for future grants under the Stock Option Plan.

~~The following table summarizes the activity in the Stock Option Plan for the six months ended December 31, 2017.~~

For the Six Months Ended December 31, 2017

Options

Shares

Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic
Value
($000)
Outstanding at June 30, 2017 50,000
$19.92
Granted —
$—
Exercised —
$—
Forfeited (50,000 ) $19.92
Outstanding at December 31, 2017 —
$— — $—
Vested and expected to vest at December 31, 2017 —
$— — $—
Exercisable at December 31, 2017 —
$— — $—

~~As of December 31, 2017 and 2016, there was no unrecognized compensation expense at either date, related to unvested share-based compensation arrangements under the Stock Option Plan.~~

Note 10: Reclassification ~~adjustment~~Adjustment of Accumulated Other Comprehensive Income ("AOCI")

The following tables provide the changes in AOCI by component for the quarters and six months ended December 31, ~~2017~~2018 and ~~2016.~~2017.

	For the Quarter Ended December 31, 2018
	Unrealized gains and losses on
(In Thousands)	Investment securities available for sale			Interest- only strips			Total

Beginning balance at September 30, 2018	$	172		$	17		$	189

Other comprehensive loss before reclassifications	(18		)	(2		)	(20		)
Amount reclassified from accumulated other comprehensive income	—			—			—
Net other comprehensive loss	(18		)	(2		)	(20		)

Ending balance at December 31, 2018	$	154		$	15		$	169

	For the Quarter Ended December 31, 2017
	Unrealized gains and losses on
(In Thousands)	Investment securities available for sale			Interest- only strips			Total

Beginning balance at September 30, 2017	$	214		$	16		$	230

Other comprehensive loss before reclassifications	(61		)	(4		)	(65		)
Amount reclassified from accumulated other comprehensive income	42			3			45
Net other comprehensive loss	(19		)	(1		)	(20		)

Ending balance at December 31, 2017	$	195		$	15		$	210

For the Quarter Ended December 31, 2017
Unrealized gains and losses on
(In Thousands) Investment securities available for sale Interest-only strips Total

Beginning balance at September 30, 2017 $ 214
$ 16
$ 230

Other comprehensive loss before reclassifications (61 ) (4 ) (65 )
Amount reclassified from accumulated other comprehensive income 42
3
45
Net other comprehensive loss (19 ) (1 ) (20 )

Ending balance at December 31, 2017 $ 195
$ 15
$ 210


	For the Six Months Ended December 31, 2018
	Unrealized gains and losses on
(In Thousands)	Investment securities available for sale			Interest- only strips			Total

Beginning balance at June 30, 2018	$	194		$	16		$	210

Other comprehensive loss before reclassifications	(40		)	(1		)	(41		)
Amount reclassified from accumulated other comprehensive income	—			—			—
Net other comprehensive loss	(40		)	(1		)	(41		)

Ending balance at December 31, 2018	$	154		$	15		$	169

	For the Six Months Ended December 31, 2017
	Unrealized gains and losses on
(In Thousands)	Investment securities available for sale			Interest- only strips			Total

Beginning balance at June 30, 2017	$	211		$	18		$	229

Other comprehensive loss before reclassifications	(58		)	(6		)	(64		)
Amount reclassified from accumulated other comprehensive income	42			3			45
Net other comprehensive loss	(16		)	(3		)	(19		)

Ending balance at December 31, 2017	$	195		$	15		$	210

For the Quarter Ended December 31, 2016
Unrealized gains and losses on
(In Thousands) Investment securities available for sale Interest-only strips Total

Beginning balance at September 30, 2016 $ 256
$ 24
$ 280

Other comprehensive loss before reclassifications (14 ) (2 ) (16 )
Amount reclassified from accumulated other comprehensive income —
—
—
Net other comprehensive loss (14 ) (2 ) (16 )

Ending balance at December 31, 2016 $ 242
$ 22
$ 264

For the Six Months Ended December 31, 2017
Unrealized gains and losses on
(In Thousands) Investment securities available for sale Interest-only strips Total

Beginning balance at June 30, 2017 $ 211
$ 18
$ 229

Other comprehensive loss before reclassifications (58 ) (6 ) (64 )
Amount reclassified from accumulated other comprehensive income 42
3
45
Net other comprehensive loss (16 ) (3 ) (19 )

Ending balance at December 31, 2017 $ 195
$ 15
$ 210

For the Six Months Ended December 31, 2016
Unrealized gains and losses on
(In Thousands) Investment securities available for sale Interest-only strips Total

Beginning balance at June 30, 2016 $ 286
$ 27
$ 313

Other comprehensive loss before reclassifications (44 ) (5 ) (49 )
Amount reclassified from accumulated other comprehensive income —
—
—
Net other comprehensive loss (44 ) (5 ) (49 )

Ending balance at December 31, 2016 $ 242
$ 22
$ 264

Note 11: Offsetting Derivative and Other Financial Instruments

The ~~Corporation’s~~Corporation's derivative transactions are generally governed by International Swaps and Derivatives Association Master Agreements and similar arrangements, which include provisions governing the setoff of assets and liabilities between the parties. When the Corporation has more than one outstanding derivative transaction with a single counterparty, the setoff provisions contained within these agreements generally allow the non-defaulting party the right to reduce its liability to the defaulting party by amounts eligible for setoff, including the collateral received as well as eligible offsetting transactions with that counterparty,

irrespective of the currency, place of payment, or booking office. The ~~Corporation’s~~Corporation's policy is to present its derivative assets and derivative liabilities on the Condensed Consolidated Statements of Financial Condition on a net basis. The derivative assets and liabilities are comprised of mandatory loan sale commitments, TBA MBS trades and option contracts.

The following tables present the gross and net amounts of derivative assets and liabilities and other financial instruments as reported in the ~~Corporation’s~~Corporation's Condensed Consolidated Statement of Financial Condition, and the gross amount not offset in the ~~Corporation’s~~Corporation's Condensed Consolidated Statement of Financial Condition as of the dates indicated.

As of December 31, ~~2017:~~2018:

			Gross		Net
			Amount		Amount
			Offset in the		of Assets in		Gross Amount Not Offset in
			Condensed		the Condensed		the Condensed Consolidated
	Gross		Consolidated		Consolidated		Statements of Financial Condition
	Amount of		Statements		Statements				Cash
	Recognized		of Financial		of Financial		Financial		Collateral		Net
(In Thousands)	Assets		Condition		Condition		Instruments		Received		Amount
Assets
Derivatives	$	1	$	—	$	1	$	—	$	—	$	1
Total	$	1	$	—	$	1	$	—	$	—	$	1

Gross Net
Amount Amount
Offset in the of Assets in Gross Amount Not Offset in
Condensed the Condensed the Condensed Consolidated
Gross Consolidated Consolidated Statements of Financial Condition
Amount of Statements Statements Cash
Recognized of Financial of Financial Financial Collateral Net
(In Thousands) Assets Condition Condition Instruments Received Amount
Assets
Derivatives $ 2
$ —
$ 2
$ —
$ —
$ 2
Total $ 2
$ —
$ 2
$ —
$ —
$ 2

Gross Net
Amount Amount
Offset in the of Liabilities in Gross Amount Not Offset in
Condensed the Condensed the Condensed Consolidated
Gross Consolidated Consolidated Statements of Financial Condition
Amount of Statements Statements Cash
Recognized of Financial of Financial Financial Collateral Net
(In Thousands) Liabilities Condition Condition Instruments Received Amount
Liabilities
Derivatives $ 207
$ —
$ 207
$ —
$ —
$ 207
Total $ 207
$ —
$ 207
$ —
$ —
$ 207

			Gross		Net
			Amount		Amount
			Offset in the		of Liabilities in		Gross Amount Not Offset in
			Condensed		the Condensed		the Condensed Consolidated
	Gross		Consolidated		Consolidated		Statements of Financial Condition
	Amount of		Statements		Statements				Cash
	Recognized		of Financial		of Financial		Financial		Collateral		Net
(In Thousands)	Liabilities		Condition		Condition		Instruments		Received		Amount
Liabilities
Derivatives	$	690	$	—	$	690	$	—	$	—	$	690
Total	$	690	$	—	$	690	$	—	$	—	$	690

As of June 30, ~~2017:~~2018:

Gross Net
Amount Amount
Offset in the of Assets in Gross Amount Not Offset in
Condensed the Condensed the Condensed Consolidated
Gross Consolidated Consolidated Statements of Financial Condition
Amount of Statements Statements Cash
Recognized of Financial of Financial Financial Collateral Net
(In Thousands) Assets Condition Condition Instruments Received Amount
Assets
Derivatives $ 623
$ —
$ 623
$ —
$ —
$ 623
Total $ 623
$ —
$ 623
$ —
$ —
$ 623

Gross

Net

Amount

Offset in the

of ~~Liabilities~~Assets in

Gross Amount Not Offset in

Condensed

the Condensed

the Condensed Consolidated

Gross

Consolidated

Statements of Financial Condition

Amount of

Statements

Cash

Recognized

of Financial

Financial

Collateral

Net

(In Thousands)

~~Liabilities~~Assets

Condition

Instruments

Received

Amount

~~Liabilities~~Assets

Derivatives

—

Total

—

			Gross		Net
			Amount		Amount
			Offset in the		of Liabilities in		Gross Amount Not Offset in
			Condensed		the Condensed		the Condensed Consolidated
	Gross		Consolidated		Consolidated		Statements of Financial Condition
	Amount of		Statements		Statements				Cash
	Recognized		of Financial		of Financial		Financial		Collateral		Net
(In Thousands)	Liabilities		Condition		Condition		Instruments		Received		Amount
Liabilities
Derivatives	$	440	$	—	$	440	$	—	$	—	$	440
Total	$	440	$	—	$	440	$	—	$	—	$	440

Note 12: 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 Company expects to be entitled to receive. The largest portion of the Company's revenue is from interest income, which is not in the scope of ASC 606. All of the Company's revenue from contracts with customers in the scope of ASC 606 is recognized in non-interest income.

If a contract is determined to be within the scope of ASC 606, the Company recognizes revenue as it satisfies a performance obligation. Payments from customers are generally collected at the time services are rendered, monthly, or quarterly. 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 Company is generally the principal in these contracts, with the exception of interchanges fees, in which case the Company 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 Company's non-interest income disaggregated by type of services for the quarters and six months ended December 31, 2018 and 2017:

	For the Quarters Ended December 31,					For the Six Months Ended December 31,
Type of Services	2018		2017			2018		2017
(In Thousands)
Asset management fees	$	56	$	88		$	138	$	207
Debit card and ATM fees	413		394			832		796
Deposit related fees	519		543			1,038		1,110
Loan related fees	1		(11		)	13		(36		)
BOLI ⁽¹⁾	47		67			93		134
Loan servicing fees ⁽¹⁾	277		317			601		680
Net gain on sale of loans ⁽¹⁾	2,263		4,317			5,395		9,164
Other	19		26			34		38
Total non-interest income	$	3,595	$	5,741		$	8,144	$	12,093

⁽¹⁾	Not in scope of ASC 606.

For the quarters and six months ended December 31, 2018 and 2017, substantially all of the Company's revenues within the scope of ASC 606 are for performance obligations satisfied at a specified date.

Revenues recognized in scope of ASC 606:

Asset management fees: Asset management fees are variable, since they are based on the underlying portfolio value, which is subject to market conditions and amounts invested by clients 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.

Debit card and ATM fees: Debit and ATM interchange income represents fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from debit 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.

Deposit related 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, stop payment fees, wire services, safe deposit box and others. These fees are recognized on a daily, monthly or quarterly basis, depending on the type of service.

Loan related fees: Non-interest loan fee income is earned on loans that the Bank services, excluding loan servicing fees which are not within the scope of ASC 606. Loan related fees include prepayment fees, late charges, brokered loan fees, maintenance fees and others. These fees are recognized on a daily, monthly, quarterly or annual basis, depending on the type of service.

Other: Fees earned on other services, such as merchant services or occasional non-recurring type services, are recognized at the time of the event or the applicable billing cycle.

Note ~~12:~~13: Income Taxes

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the ~~“Tax Act”~~"Tax Act"). The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Tax Act reduces the corporate federal tax income rate from a

maximum of 35 percent to a flat 21 percent. The corporate tax rate reduction was effective January 1, 2018. Since the Corporation has a fiscal year end of June 30^th, the reduced corporate income tax rate for its fiscal year 2018 ~~will result~~resulted in the application of a blended federal statutory income tax rate of 28.06 percent, which is based on the applicable tax rates before and after the Tax Act and corresponding number of days in the fiscal year before and after enactment, and then a flat 21 percent tax rate thereafter.

Under generally accepted accounting principles, the Corporation uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. At June 30, 2017, the ~~Corporation’s~~Corporation's deferred tax assets and liabilities were determined based on the then-current enacted federal tax rate of 35 percent. As a result of the reduction in the corporate income tax rate under the Tax Act, the Corporation revalued its deferred tax assets and liabilities at December 31, 2017. Deferred tax assets and liabilities ~~expected to be~~ realized in fiscal year 2018 were re-measured using the aforementioned blended rate. All remaining deferred tax assets and liabilities were re-measured using the new statutory federal rate of 21 percent. These re-measurements collectively resulted in a discrete tax expense of $1.8 million that was recognized ~~during~~in the second quarter ~~ended December 31, 2017. The Corporation’s revaluation~~ of its deferred tax assets and liabilities is subject to further clarification of the Tax Act and refinements of its estimates. As a result, the actual impact on the deferred tax assets and liabilities and income tax expense due to the Tax Act may vary from the amounts estimated.

fiscal 2018.

The estimated combined federal and state statutory tax rates, before discrete items, for the ~~remainder~~second quarters of fiscal 2019 and 2018 and for fiscal years 2019 and 2018 are as follows:


Statutory Tax Rates	Q3FY2018	Q4FY2018	FY2019	Q2FY2019	Q2FY2018	FY2019	FY2018
Federal Tax Rate	28.06%		21.00%	21.00%	28.06%	21.00%	28.06%
State Tax Rate	10.84%			10.84%	10.84%
Combined Statutory Tax Rate⁽¹⁾	35.86%		29.56%	29.56%	35.86%	29.56%	35.86%

⁽¹⁾ The combined statutory tax rate is net of the federal tax benefit for the state tax deduction.

The ~~Corporation’s~~Corporation's effective tax rate may differ from the estimated statutory tax rates described above due to discrete items such as further adjustments to net deferred tax assets, excess tax benefits derived from stock option exercises and non-taxable earnings from bank owned life insurance, among other items.

Note ~~13:~~14: Subsequent ~~Event~~Events

~~On January 30, 2018, the Corporation announced that the Corporation’s 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 February 20, 2018 will be entitled to receive the cash dividend. The cash dividend will be payable on March 13, 2018.

On January 29, 2019, the Corporation announced that the Corporation's 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 February 19, 2019 will be entitled to receive the cash dividend. The cash dividend will be payable on March 12, 2019.

On January 30, 2019, the Corporation announced that Bank will close its La Quinta Branch effective at the close of business on May 10, 2019. The Bank anticipates an annual operational cost savings of approximately $473,000, primarily in salaries and employee benefits expenses and premises and occupancy expenses subsequent to the branch closure. Total one-time charges for the branch closure will be approximately $18,000.

On February 4, 2019, the Corporation announced that the Corporation's Board of Directors determined that it was in the long-term best interests of the Corporation to exit the operations of the Corporation's mortgage banking segment conducted through PBM. The Corporation estimates that it will incur one-time costs of approximately $3.6 million to $4.0 million during the remainder of fiscal 2019, which amounts include costs for severance, retention, personnel, premises, occupancy, depreciation, and costs related to termination of data processing and other contractual arrangements. For additional information, see the Form 8-K the Corporation filed with the SEC on February 4, 2019.

ITEM 2 – ~~Management’s~~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~~Bank's conversion from a federal mutual to a federal stock savings bank ~~(“Conversion”~~("Conversion"). The Conversion was completed on June 27, 1996. The Corporation is regulated by the Federal Reserve Board ~~(“FRB”~~("FRB"). At December 31, ~~2017,~~2018, the Corporation had total assets of ~~$1.16~~$1.13 billion, total deposits of ~~$907.8~~$872.9 million and total ~~stockholders’~~stockholders' equity of ~~$120.7~~$122.7 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,”~~"we," "our," "us," and ~~“Corporation”~~"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”~~("OCC"), its primary federal regulator, and the Federal Deposit Insurance Corporation ~~(“FDIC”~~("FDIC"), the insurer of its deposits. The ~~Bank’s~~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’s~~Corporation's business consists of community banking activities and mortgage banking activities, conducted by Provident Bank and Provident Bank Mortgage ("PBM"), a division of the Bank. Community banking activities primarily consist of accepting deposits from customers within the communities surrounding the ~~Bank’s~~Bank's full service offices and investing those funds in single-family loans, multi-family loans, commercial real estate loans, construction loans, commercial business loans, consumer loans and other real estate loans. The Bank also offers business checking accounts, other business banking services, and services loans for others. Mortgage banking activities consist of the origination ~~purchase~~ and sale of mortgage loans secured primarily by single-family residences. The Bank currently operates 14 retail/business banking offices in Riverside County and San Bernardino County (commonly known as the Inland Empire). Provident Bank Mortgage operates two wholesale loan production offices: one in Pleasanton and one in ~~Rancho Cucamonga,~~Riverside, California; and nine retail loan production offices located throughout California. The ~~Corporation’s~~Corporation's revenues are derived principally from interest on its loans and investment securities and fees generated through its community banking and mortgage banking activities. There are various risks inherent in the ~~Corporation’s~~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 sell loans, competitive conditions, legislative and regulatory changes, fraud and other risks.

The Corporation began to distribute quarterly cash dividends in the quarter ended December 31, 2002. On October ~~24, 2017,~~25, 2018, the Corporation declared a quarterly cash dividend of $0.14 per share for the ~~Corporation’s~~Corporation's shareholders of record at the close of business on November ~~14, 2017,~~15, 2018, which was paid on December ~~5, 2017.~~6, 2018. Future declarations or payments of dividends will be

subject to the consideration of the ~~Corporation’s~~Corporation's Board of Directors, which will take into account the ~~Corporation’s~~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. ~~For further discussion, see Note 13~~

On January 29, 2019, the Corporation announced that the Corporation's Board of Directors declared a quarterly cash dividend of $0.14 per share. Shareholders of the ~~Notes~~Corporation's common stock at the close of business on February 19, 2019 will be entitled to ~~Unaudited Interim Condensed Consolidated Financial Statements.~~receive the cash dividend. The cash dividend will be payable on March 12, 2019.

~~Management’s~~

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~~"forward-looking statements.”" These statements relate to the ~~Corporation’s~~Corporation's financial condition, liquidity, results of operations, plans, objectives, future performance or business. You should not place undue reliance on these statements, as they are subject to risks and uncertainties. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Corporation may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Corporation. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially include, but are not limited to the following: the possibility that the actual costs incurred from our exiting the mortgage banking business will be materially different from the estimated costs provided in this report, and the possibility that the actual changes in net interest income from the mortgage banking segment, mortgage origination revenue from the mortgage banking segment, mortgage servicing revenue from the mortgage banking segment, and non-interest expense from the mortgage banking segment resulting from our exiting the mortgage banking business will be materially different from the estimated changes provided in this report; the possibility that our mortgage banking business may experience increased volatility in its revenues and earnings and the possibility that the profitability of our mortgage banking business could be significantly reduced, both before and after the discontinuation of the mortgage banking business, 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 general economic conditions, either nationally or in our market areas; 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; 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; secondary market conditions for loans and our ability to sell loans in the secondary market; 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 regulatory policies and principles, including the interpretation of regulatory capital or other rules, including as a result of Basel III; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act ~~(the "Dodd Frank Act")~~ and the implementing regulations; 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; increases in premiums for deposit insurance; 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 implement our branch expansion strategy; 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; 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; 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; war or terrorist activities; and 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~~Corporation's other reports filed with or furnished to the ~~SEC, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2017.~~SEC. These developments

could have an adverse impact on our financial position and our results of operations. Forward-looking statements are based upon ~~management’s~~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.

Critical Accounting Policies

The discussion and analysis of the ~~Corporation’s~~Corporation's financial condition and results of operations is based upon the ~~Corporation’s~~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 policies are described in the Corporation's ~~2017~~2018 Annual Report on Form 10-K for the year ended June 30, ~~2017~~2018 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 Significant Accounting Policies. There have been no significant changes during the six months ended December 31, ~~2017~~2018 to the critical accounting policies as described in the Corporation's ~~2017~~2018 Annual Report on Form 10-K for the period ended June 30, ~~2017.~~2018.

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, Provident Bank Mortgage, a division of the Bank, and through its subsidiary, Provident Financial Corp. The business activities of the Corporation, primarily through the Bank and its subsidiary, consist of community banking, mortgage 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~~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 other fees. Community banking operations also include providing investment services which primarily consist of selling alternative investment products such as annuities and mutual funds to the Bank’s depositors.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 mortgage loans and higher yielding ~~preferred~~ loans (i.e., multi-family, commercial real estate, construction and commercial business loans). In addition, the Corporation intends to decrease the percentage of 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~~Corporation's long-term strategy is for moderate growth, management recognizes that growth may not occur as a result of weaknesses in general economic conditions.

Mortgage banking operations primarily consist of the origination ~~purchase~~ and sale of mortgage loans secured by single-family residences. The primary sources of income in mortgage banking are gain on sale of loans and certain fees collected from borrowers in connection with the loan origination process. The Corporation will continue to modify its operations, including the number of mortgage banking personnel, in response to the rapidly changing mortgage banking environment. Changes may include a different product mix, ~~changes to~~further tightening of underwriting standards, variations in its operating expenses or a combination of these and other changes.

Provident Financial Corp performs trustee services for the ~~Bank’s~~Bank's real estate secured loan transactions and has in the past held, and may in the future hold, real estate for investment. ~~Trustee~~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.

There are a number of risks associated with the business activities of the Corporation, many of which are beyond the ~~Corporation’s~~Corporation's control, including: changes in accounting principles, laws, regulation, interest rates and the economy, among others. The Corporation attempts to mitigate many of these risks through prudent banking practices, such as interest rate risk management, credit risk management, operational risk management, and liquidity risk management. The California economic environment presents heightened risk for the Corporation primarily with respect to real estate values and loan delinquencies. Since the majority of the ~~Corporation’s~~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~~Corporation's ability to recover on defaulted loans by selling the underlying real estate. In addition, the Corporation’s operating costs may increase significantly as a result of the Dodd-Frank Act. Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Corporation.

Off-Balance Sheet Financing Arrangements and Contractual Obligations

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~~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 7 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

Contractual Obligations. The following table summarizes the ~~Corporation’s~~Corporation's contractual obligations at December 31, ~~2017~~2018 and the effect these obligations are expected to have on the ~~Corporation’s~~Corporation's liquidity and cash flows in future periods:


	Payments Due by Period										Payments Due by Period
(In Thousands)	Less than 1 year		1 to less than 3 years		3 to 5 years		Over 5 years		Total		Less than 1 year		1 to less than 3 years		3 to 5 years		Over 5 years		Total
Operating obligations	$	2,545	$	3,053	$	1,365	$	905	$	7,868	$	2,392	$	4,383	$	1,667	$	640	$	9,082
Pension benefits	248		496		496		6,611		7,851		253		505		505		6,282		7,545
Time deposits	103,338		114,408		29,823		4,685		252,254		123,764		78,701		24,035		945		227,445
FHLB – San Francisco advances	12,560		24,842		33,965		51,711		123,078		12,713		35,594		32,695		40,755		121,757
FHLB – San Francisco letter of credit	7,000		—		—		—		7,000		10,000		—		—		—		10,000
FHLB – San Francisco MPF credit enhancement ⁽¹⁾	—		—		—		2,458		2,458		—		—		—		2,458		2,458
Total	$	125,691	$	142,799	$	65,649	$	66,370	$	400,509	$	149,122	$	119,183	$	58,902	$	51,080	$	378,287


⁽¹⁾	Represents the potential future obligation for loans previously sold by the Bank to the FHLB – San Francisco under its Mortgage Partnership Finance ~~(“MPF”~~("MPF") program. As of December 31, ~~2017,~~2018, the Bank serviced ~~$13.3~~$10.9 million of loans under this program. The estimated amounts by period are based on historical loss experience.

The expected obligation for time deposits and FHLB – San Francisco advances include anticipated interest accruals based on the respective contractual terms.

In addition to the off-balance sheet financing arrangements and contractual obligations mentioned above, the Corporation has derivatives and other financial instruments with off-balance sheet risks as described in Note 7 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

Comparison of Financial Condition at December 31, ~~2017~~2018 and June 30, ~~2017~~2018

Total assets decreased ~~$38.5~~$48.4 million, or ~~three~~four percent, to ~~$1.16~~$1.13 billion at December 31, ~~2017~~2018 from ~~$1.20~~$1.18 billion at June 30, ~~2017.~~2018. The decrease was primarily attributable to decreases in ~~cash and cash equivalents,~~ loans held for investment, ~~and~~ loans held for sale and investment securities, partly offset by an increase in ~~investment securities held to maturity.~~cash and cash equivalents.

Total cash and cash equivalents, primarily excess cash deposited with the Federal Reserve Bank of San Francisco, ~~decreased $25.6~~increased $24.1 million, or 3556 percent, to ~~$47.2~~$67.4 million at December 31, ~~2017~~2018 from ~~$72.8~~$43.3 million at June 30, ~~2017.~~2018. The ~~decrease~~increase in the total cash and cash equivalents was primarily attributable to the ~~utilization of cash to fund the increase~~decreases in loans held for sale, loans held for investment and investment securities, ~~held to maturity.~~partly offset by the payoff of short-term borrowings and time deposits that matured during the first six months of fiscal 2019.

Investment securities (held to maturity and available for sale) ~~increased $26.2~~decreased $3.7 million, or 38four percent, to ~~$96.0~~$91.6 million at December 31, ~~2017~~2018 from ~~$69.8~~$95.3 million at June 30, ~~2017.~~2018. The ~~increase~~decrease was primarily the result of ~~purchases of mortgage-backed securities held to maturity, partly offset by~~ scheduled and accelerated principal payments on mortgage-backed securities, partly offset by investment security purchases during the first six months of fiscal ~~2018.~~2019. For further analysis on investment securities, see Note 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Loans held for investment decreased ~~$18.9~~$27.3 million, or three percent, to ~~$886.0~~$875.4 million at December 31, ~~2017~~2018 from ~~$904.9~~$902.7 million at June 30, ~~2017.~~2018, primarily due to a $29.0 million or six percent decline in multi-family loans. During the first six months of fiscal ~~2018,~~2019, the Corporation originated ~~$76.7~~$71.4 million of loans held for investment, consisting primarily of single-family and multi-family ~~loans. During the first six months of fiscal 2018, the Corporation~~loans and also purchased ~~$3.1~~$4.6 million ofin multi-family loans held for investment. Total loan principal payments during the first six months of fiscal ~~2018~~2019 were ~~$100.8~~$104.1 million, ~~down four~~up three percent from ~~$105.3~~$100.8 million during the comparable period in fiscal 2017, due primarily to lower loan refinance activity. The balance of preferred loans decreased $10.4 million, or two percent, to $574.7 million at December 31, 2017, compared to $585.1 million at June 30, 2017, net of undisbursed loan funds of $7.4 million and $9.0 million, respectively, and represented 65 percent and 64 percent of loans held for investment, respectively. The balance of single-family2018. Single-family loans held for investment decreased ~~$8.4~~$2.3 million, or ~~three~~one percent, to ~~$313.8~~$312.5 million at December 31, ~~2017, compared to $322.2~~2018 from $314.8 million at June 30, ~~2017,~~2018, and represented 35approximately 36 percent and 3635 percent of loans held for investment, respectively.

The tables below describe the geographic dispersion of gross real estate secured loans held for investment at December 31, ~~2017~~2018 and June 30, ~~2017,~~2018, as a percentage of the total dollar amount outstanding:

As of December 31, ~~2017~~2018


(Dollars In Thousands)	Inland Empire				Southern California ⁽¹⁾				Other California				Other States				Total					Inland Empire				Southern California ⁽¹⁾				Other California				Other States				Total
Loan Category	Balance		%		Balance		%		Balance		%		Balance		%		Balance		%			Balance	%			Balance	%			Balance	%			Balance	%			Balance	%
Single-family	$	103,704	33	%	$	148,932	48	%	$	60,097	19	%	$	1,104	—	%	$	313,837	100	%	$	109,742	35	%	$	146,372	47	%	$	55,334	18	%	$	1,051	—	%	$	312,499	100	%
Multi-family	79,149		17	%	275,716		59	%	106,204		23	%	2,717		1	%	463,786		100	%	72,201		16	%	267,774		60	%	106,726		24	%	332		—	%	447,033		100	%
Commercial real estate	32,604		31	%	46,126		45	%	24,636		24	%	—		—	%	103,366		100	%	32,224		29	%	52,928		47	%	27,678		24	%	—		—	%	112,830		100	%
Construction	3,224		22	%	9,808		68	%	1,398		10	%	—		—	%	14,430		100	%	139		4	%	3,404		85	%	443		11	%	—		—	%	3,986		100	%
Other																					—		—	%	—		—	%	167		100	%	—		—	%	167		100	%
Total	$	218,681	24	%	$	480,582	54	%	$	192,335	21	%	$	3,821	1	%	$	895,419	100	%	$	214,306	24	%	$	470,4781	54	%	$	190,348	22	%	$	1,383	—	%	$	876,515	100	%


⁽¹⁾	Other than the Inland Empire.

As of June 30, ~~2017~~2018


(Dollars In Thousands)	Inland Empire				Southern California ⁽¹⁾				Other California				Other States				Total					Inland Empire				Southern California ⁽¹⁾				Other California				Other States				Total
Loan Category	Balance		%		Balance		%		Balance		%		Balance		%		Balance		%			Balance	%			Balance	%			Balance	%			Balance	%			Balance	%
Single-family	$	102,686	32	%	$	156,045	49	%	$	62,249	19	%	$	1,217	—	%	$	322,197	100	%	$	110,510	35	%	$	149,261	48	%	$	53,960	17	%	$	1,077	—	%	$	314,808	100	%
Multi-family	80,861		17	%	282,871		59	%	113,459		24	%	2,768		—	%	479,959		100	%	76,473		16	%	287,174		60	%	109,684		23	%	2,677		1	%	476,008		100	%
Commercial real estate	31,497		32	%	42,192		43	%	23,873		25	%	—		—	%	97,562		100	%	32,224		29	%	47,903		44	%	29,599		27	%	—		—	%	109,726		100	%
Construction	3,760		24	%	10,614		66	%	1,635		10	%	—		—	%	16,009		100	%	49		1	%	2,685		85	%	440		14	%	—		—	%	3,174		100	%
Other																					—		—	%	—		—	%	167		100	%	—		—	%	167		100	%
Total	$	218,804	24	%	$	491,722	54	%	$	201,216	22	%	$	3,985	—	%	$	915,727	100	%	$	219,256	24	%	$	487,0231	54	%	$	193,850	21	%	$	3,754	1	%	$	903,883	100	%


⁽¹⁾	Other than the Inland Empire.

Loans held for sale decreased ~~$19.9~~$38.7 million, or 1740 percent, to ~~$96.6~~$57.6 million at December 31, ~~2017~~2018 from ~~$116.5~~$96.3 million at June 30, ~~2017.~~2018. The decrease was primarily due to ~~lower loans originated and purchased~~a decrease in the loan origination for sale volume and the timing difference between loan fundings and loan sale settlements. Total loans originated ~~and purchased~~ for sale during the quarter ended December 31, ~~2017~~2018 was ~~$331.9~~$146.4 million ~~down $74.0 million or 18 percent from $405.9~~as compared to $241.6 million during the quarter ended June 30, ~~2017.~~2018.

Total deposits decreased ~~$18.7~~$34.7 million, or ~~two~~four percent, to ~~$907.8~~$872.9 million at December 31, ~~2017~~2018 from ~~$926.5~~$907.6 million at June 30, ~~2017.~~2018. Transaction accounts ~~increased $2.1~~decreased $20.8 million, or three percent, to ~~$660.7~~$649.2 million at December 31, ~~2017~~2018 from ~~$658.6~~$670.0 million at June 30, ~~2017,~~2018, while time deposits decreased ~~$20.8~~$13.9 million, or ~~eight~~six percent, to ~~$247.1~~$223.7 million at December 31, ~~2017~~2018 from ~~$267.9~~$237.6 million at June 30, ~~2017. The change in deposit mix was~~2018 consistent with the ~~Corporation’s marketing~~Bank's strategy to ~~promote transaction accounts and the strategic decision to increase the percentage of lower cost checking and savings accounts in its deposit base and~~ decrease the percentage of time deposits ~~by competing less aggressively for time deposits.~~in its deposit base.

Total borrowings decreased ~~$15.0~~$15.1 million, or 12 percent, to ~~$111.2~~$111.1 million at December 31, ~~2017~~2018 as compared to $126.2 million at June 30, ~~2017,~~2018, due to the maturity of short-term borrowings. ~~Total~~The borrowings ~~are~~were primarily comprised of long-term FHLB - San Francisco advances used for interest rate risk management purposes.

Total ~~stockholders’~~stockholders' equity ~~decreased $7.5~~increased $2.2 million, or ~~six~~two percent, to ~~$120.7~~$122.7 million at December 31, ~~2017~~2018 from ~~$128.2~~$120.5 million at June 30, ~~2017,~~2018, primarily as a result of ~~stock repurchases totaling $5.2~~net income of $3.8 million ~~(see Part II, Item 2, “Unregistered Sales~~and the amortization of ~~Equity Securities and Use~~stock-based compensation benefits

during the first six months of ~~Proceeds”),~~fiscal 2019, partly offset by $2.1 million of quarterly cash dividends paid to shareholders and ~~a net loss of $1.0 million, partly offset by the amortization of stock-based compensation benefits during the first six months of fiscal 2018.~~stock repurchases from restricted stock recipients to fund their withholding tax obligations.

Comparison of Operating Results for the Quarters and Six Months Ended December 31, ~~2017~~2018 and ~~2016~~2017

The ~~Corporation’s~~Corporation's net ~~loss~~income for the second quarter of fiscal ~~2018~~2019 was ~~$777,000,~~$2.0 million, a ~~decrease of $2.3 million, or 152 percent,~~substantial improvement as compared to the net ~~income~~loss of ~~$1.5 million~~$777,000 in the same period of fiscal ~~2017. The second~~2018. Compared to the same quarter ~~of fiscal 2018 results were impacted by a~~last year, the increase in earnings was primarily attributable to (a) the one-time, non-cash, net tax charge of $1.8 million, or $(0.24) per diluted share, from the net deferred tax assets revaluation in the second quarter of fiscal 2018 required by the Tax Act which lowered the federal corporate income tax ~~legislation commonly referred to as~~rate (not replicated this quarter), (b) the ~~Tax Cuts and Jobs Act (the "Tax Act”) enacted on December 22, 2017; and a~~ $650,000 litigation ~~expense accrual~~reserve which, net of tax benefit, reduced net results by approximately $(0.06) per diluted ~~share. Compared~~share in the second quarter of fiscal 2018 (not replicated this quarter), (c) a $1.1 million increase in net interest income, a $1.4 million decrease in salaries and employee benefits expense and the application of the statutory income tax rate (federal tax rate and state tax rate) of 29.56% this quarter as compared to the blended tax rate of 35.86% in the same quarter last ~~year, the~~year; partly offset by a $2.0 million decrease ~~was primarily attributable to decreases~~ in the gain on sale of loans, a decline in the recovery from the allowance for loan losses, lower net interest income and an increase in the provision for income taxes, partly offset by a decrease in salaries and employee benefits expense. loans.

For the first six months of fiscal 2018, the ~~Corporation’s~~Corporation's net income was $3.8 million, an increase of $4.8 million, or 480 percent, from a net loss ~~was~~of $1.0 ~~million, a decrease of $4.1 million, or 132 percent, from net income of $3.1~~ million in the same period of fiscal ~~2017. The first six months of fiscal 2018 results were impacted by~~2018. Compared to the same period last year, the increase in earnings was primarily attributable to (a) the one-time, non-cash, net tax charge of $1.8 million, or $(0.24) per diluted share, from the net deferred tax assets revaluation required by the Tax ~~Act; and a~~Act consistent with the lower corporate federal income tax rate applied in the second quarter of fiscal 2018 (not replicated this period), (b) the $3.4 million of litigation ~~expense accruals~~reserve which, net of tax benefit, reduced net results by approximately ~~$(0.45)~~$(0.29) per diluted ~~share. Compared~~share in the first six months of fiscal 2018 (not replicated this period), (c) a $1.3 million increase in net interest income, a $2.4 million decrease in salaries and employee benefits expense and the application of the statutory income tax rate of 29.56% this current period as compared to the blended tax rate of 35.86% in the same period last ~~year, the~~year; partly offset by a $3.8 million decrease ~~was primarily attributable to decreases~~ in the gain on sale of loans, an increase in the litigation expense accruals, a decline in the recovery from the allowance for loan losses, lower net interest income and an increase in the provision for income taxes, partly offset by a decrease in salaries and employee benefits expense.loans.

The ~~Corporation’s~~Corporation's efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, ~~increased~~improved to 9181 percent for the second quarter of fiscal ~~2018~~2019 from 8791 percent in the same period of fiscal ~~2017.~~2018. For the first six months of fiscal ~~2018,~~2019, the ~~Corporation’s~~Corporation's efficiency ratio ~~also increased~~improved to 9783 percent from 8697 percent for the same period of fiscal ~~2017.~~2018.

Return (loss) on average assets ~~decreased 77~~increased 96 basis points to ~~(0.27)~~0.69 percent in the second quarter of fiscal ~~2018~~2019 from ~~0.50~~(0.27) percent in the same period last year. For the first six months of fiscal ~~2018,~~2019, return (loss) on average assets was ~~(0.17)~~0.66 percent, ~~down 68~~up 83 basis points from ~~0.51~~(0.17) percent in the same period last year.

Return (loss) on average equity ~~decreased~~increased to ~~(2.50)~~6.42 percent in the second quarter of fiscal ~~2018~~2019 from ~~4.53~~(2.50) percent in the same period last year. For the first six months of fiscal ~~2018,~~2019, return (loss) on average equity was ~~(1.59)~~6.22 percent compared to ~~4.66~~(1.59) percent for the same period last year.

Diluted earnings (loss) ~~earnings~~ per share for the second quarter of fiscal ~~2018~~2019 were ~~$(0.10),~~$0.26, a ~~156 percent decrease~~significant improvement from ~~$0.18~~$(0.10) in the same period last year. For the first six months of fiscal ~~2018,~~2019, diluted earnings (loss) ~~earnings~~ per share were ~~$(0.13),~~$0.50, a ~~134~~485 percent ~~decrease~~increase from ~~$0.38~~$(0.13) in the same period last year. The higher percentage decrease in the diluted earnings per share in comparison to the percentage decrease in the net income between each period was primarily attributable to stock repurchases during the prior 12 months.

Net Interest Income:

For the Quarters Ended December 31, ~~2017~~2018 and ~~2016.~~2017. Net interest income ~~decreased~~increased by ~~$334,000~~$1.1 million, or 12 percent, to ~~$8.8~~$9.8 million for the second quarter of fiscal ~~2018~~2019 as compared to the ~~comparable~~same period in fiscal ~~2017,~~2018, as a result of a ~~lower average earning asset balance, and a slightly lower~~higher net interest margin. The average balance of interest-earning assets decreased $36.7 million, or three percent, to $1.14 billion in the second quarter of fiscal 2018 from $1.18 billion in the comparable period of fiscal 2017, primarily reflecting decreases in average loans receivable and interest earning deposits,margin, partly offset by ~~an increase in the~~a lower average ~~balance of investment securities.~~interest-earning asset balance. The net interest margin ~~decreased one~~increased 46 basis ~~point~~points to ~~3.08~~3.54 percent in the second quarter of fiscal ~~2018~~2019 from ~~3.09~~3.08 percent in the same period of fiscal ~~2017,~~2018, primarily due to ~~a decrease~~an increase in the average yield on interest-earning assets, partly offset by a ~~decrease~~slight increase in the average cost of interest-bearing liabilities. The net interest margin in the second quarter of fiscal 2019 was augmented by $159,000 of previously unrecognized loan interest income resulting from the payoff of two non-performing loans and the $133,000 special cash dividend received on FHLB San Francisco stock, which increased the net interest margin by approximately 10 basis points for the quarter. The weighted-average yield on interest-earning assets ~~decreased~~increased by ~~four~~48 basis points to ~~3.64~~4.12 percent in the second quarter of fiscal 2019 from ~~3.68~~3.64 percent in the same quarter last year, while the weighted-average cost of interest-bearing liabilities ~~decreased~~increased by two basis points to ~~0.62~~0.64 percent for the second quarter of fiscal ~~2018~~2019 as compared to ~~0.64~~0.62 percent in the same quarter last year. The ~~decrease~~increase in the average yield of interest-earning assets was primarily due to an increase in the average yield of all interest-earning assets, particularly in loans receivable and FHLB – San Francisco stock as a result of the payment of the special cash dividend. The average balance of interest-earning assets decreased $27.7 million, or two percent, to $1.11 billion in the second quarter of fiscal 2019 from $1.14 billion in the comparable period of fiscal 2018, primarily reflecting a decrease in the average ~~yield~~balance of ~~FHLB - San Francisco stock,~~loans receivable, partly offset by increases in the average ~~yield~~balance of ~~loans receivable,~~ investment securities and interest-earning deposits. The average balance of interest-bearing liabilities decreased by $27.0 million, or three percent, to $1.00 billion in the second quarter of fiscal 2019 from $1.03 billion in the same quarter last year.

For the Six Months Ended December 31, ~~2017~~2018 and ~~2016.~~2017. Net interest income ~~decreased $304,000,~~increased $1.3 million, or ~~two~~seven percent, to ~~$17.9~~$19.2 million for the first six months of fiscal ~~2018~~2019 from ~~$18.2~~$17.9 million for the comparable period in fiscal ~~2017,~~2018, due to a ~~lower average earning assets balance,~~higher net interest margin, partly offset by a ~~higher net interest margin. The~~lower average ~~balance of~~ interest-earning assets decreased $32.6 million, or three percent, to $1.14 billion in the first six months of fiscal 2018 from $1.18 billion in the comparable period of fiscal 2017, primarily reflecting decreases in average loans receivable and interest earning deposits, partly offset by an increase in the

~~average balance of investment securities.~~balance. The net interest margin was ~~3.12~~3.42 percent in the first six months of fiscal ~~2018,~~2019, up ~~three~~30 basis points from ~~3.09~~3.12 percent in the same period of fiscal ~~2017~~2018, primarily due to an increase in the average yield on interest-earning assets, ~~and~~partly offset by a ~~decrease~~slight increase in the average cost of interest-bearing liabilities. The net interest margin in the six months of fiscal 2019 was augmented by $176,000 of previously unrecognized loan interest income resulting from the payoff of three non-performing loans and the $133,000 special cash dividend received on FHLB San Francisco stock, which increased the net interest margin by approximately six basis points for the period. The weighted-average yield on interest-earning assets increased by ~~two~~31 basis points to ~~3.69~~4.00 percent, while the weighted-average cost of interest-bearing liabilities ~~decreased~~increased by two basis points to ~~0.62~~0.64 percent for the first six months of fiscal ~~2018~~2019 as compared to the same period last year. The average balance of interest-earning assets decreased $22.2 million, or two percent, to $1.12 billion in the first six months of fiscal 2019 from $1.14 billion in the comparable period of fiscal 2018, primarily reflecting a decrease in the average balance of loans receivable, partly offset by increases in the average balance of investment securities and interest earning deposits. The average balance of interest-bearing liabilities decreased by $20.7 million, or two percent, to $1.01 billion in the first six months of fiscal 2019 from $1.03 billion in the same period last year.

Interest Income:

For the Quarters Ended December 31, ~~2017~~2018 and ~~2016.~~2017. Total interest income ~~decreased~~increased by ~~$438,000,~~$1.1 million, or ~~four~~10 percent, to ~~$10.4~~$11.4 million for the second quarter of fiscal ~~2018 from $10.8 million in~~2019 as compared to the same quarter of fiscal ~~2017.~~2018. The ~~decrease~~increase was primarily due to ~~lower~~an increase in interest income onof all interest-earning assets, particularly in loans ~~receivable and FHLB - San Francisco stock, partly offset by higher interest income on investment securities and interest-earning deposits.~~receivable.

Interest income on loans receivable ~~decreased $381,000,~~increased $596,000, or ~~four~~six percent, to ~~$9.7~~$10.3 million in the second quarter of fiscal ~~2018 from $10.1 million for~~2019 as compared to the same quarter of fiscal ~~2017.~~2018. This ~~decrease~~increase was attributable to a ~~lower~~higher average loan ~~balance,~~yield reflecting the rise in interest rates over the last year, partly offset by a ~~higher~~lower average loan ~~yield.~~balance. The average ~~balance of~~ loans receivable including loans held for sale, decreased by $59.5 million, or six percent, to $990.9 million for the second quarter of fiscal 2018 from $1.05 billion in the same quarter of fiscal 2017, primarily due to a decrease in average loans held for sale attributable to a decrease in mortgage banking activity which was partly offset by an increase in average loans held for investment. The average loan yield ~~including loans held for sale,~~ during the second quarter of fiscal ~~2018~~2019 increased ~~eight~~46 basis points to ~~3.93~~4.39 percent from ~~3.85~~3.93 percent during the same quarter last year, primarily due to ~~an increase~~increases in the average yield of loans held for investment and ~~an increase in~~ the average yield of loans held for sale with a lower percentage of loans held for sale to total loans receivable. The average yield on loans receivable in the second quarter of

fiscal 2019 includes $159,000 of previously unrecognized interest income resulting from the payoff of two non-performing loans, which increased the yield by approximately seven basis points for the quarter. The average balance of loans receivable decreased by $49.7 million, or five percent, to $941.2 million for the second quarter of fiscal 2019 from $990.9 million in the same quarter of fiscal 2018, primarily due to a decrease in average loans held for sale attributable to a decrease in mortgage banking activity and, to a lesser extent, a decrease in average loans held for investment.

Loans receivable is comprised of loans held for investment and loans held for sale. The average balance of loans held for investment ~~increased $36.9~~decreased $12.0 million, or ~~four~~one percent, to ~~$890.2~~$878.2 million during the second quarter of fiscal ~~2018~~2019 from ~~$853.3~~$890.2 million in the same quarter of fiscal ~~2017.~~2018. The average yield on the loans held for investment increased by ~~two~~43 basis points to ~~3.93~~4.36 percent in the second quarter of fiscal ~~2018~~2019 from ~~3.91~~3.93 percent in the same quarter of fiscal ~~2017.~~2018. The average balance of loans held for sale, however, decreased ~~$96.4~~$37.7 million, or 4937 percent, to ~~$100.7~~$63.0 million during the second quarter of fiscal ~~2018~~2019 from ~~$197.1~~$100.7 million in the same quarter of fiscal ~~2017.~~2018. The average yield on the loans held for sale increased by 3295 basis points to ~~3.91~~4.86 percent in the second quarter of fiscal ~~2018~~2019 from ~~3.59~~3.91 percent in the same quarter of fiscal ~~2017.~~2018.

Interest income from investment securities increased ~~$191,000,~~$125,000, or ~~149~~39 percent, to ~~$319,000~~$444,000 in the second quarter of fiscal ~~2018~~2019 from ~~$128,000~~$319,000 for the same quarter of fiscal ~~2017.~~2018. This increase was attributable to a higher average ~~balance~~yield and, to a lesser extent, a higher average yield. The average balance of investment securities increased $43.0 million, or 94 percent, to $88.6 million in the second quarter of fiscal 2018 from $45.6 million in the same quarter of fiscal 2017. The increase in the average balance of investment securities was primarily the result of purchases of mortgage-backed securities, partly offset by scheduled and accelerated principal payments on mortgage-backed securities.balance. The average investment securities yield increased 3246 basis points to ~~1.44~~1.90 percent in the second quarter of fiscal ~~2018~~2019 from ~~1.12~~1.44 percent in the same quarter of fiscal ~~2017.~~2018. The increase in the average investment securities yield was primarily attributable to the purchases of investment securities which had higher average yields than the existing portfolio and the repricing of adjustable mortgage-backed securities to higher interest rates, partly offset by accelerated amortization of purchase premiums resulting from accelerated principal payments. The average balance of investment securities increased $4.9 million, or six percent, to $93.5 million in the second quarter of fiscal 2019 from $88.6 million in the same quarter of fiscal 2018. The increase in the average balance of investment securities was primarily the result of purchases of mortgage-backed securities, partly offset by scheduled and accelerated principal payments on mortgage-backed securities.

The FHLB – San Francisco cash dividend received in the second quarter of fiscal ~~2018~~2019 was ~~$143,000, down 69~~$278,000, up 94 percent from ~~$458,000~~$143,000 in the same quarter of fiscal ~~2017. The cash dividends received in the second quarter of last year included~~2018, primarily attributable to a special cash dividend ~~not replicated~~of $133,000 received in ~~the second quarter of fiscal~~December 2018. ~~The~~As a result, the average yield ~~decreased~~increased to ~~7.05~~13.56 percent in the second quarter of fiscal ~~2018~~2019 as compared to ~~22.63~~7.05 percent in the comparable quarter last year.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was ~~$168,000~~$387,000 in the second quarter of fiscal ~~2018,~~2019, up 66130 percent from ~~$101,000~~$168,000 in the same quarter of fiscal ~~2017.~~2018. The increase was due to a higher average yield, ~~partly offset by~~and to a ~~lower~~lesser extent, a higher average balance in the second quarter of fiscal ~~2018~~2019 as compared to the same quarter last year. The average yield earned on interest-earning deposits increased 7493 basis points to ~~1.30~~2.23 percent in the second quarter of fiscal ~~2018~~2019 from ~~0.56~~1.30 percent in the comparable quarter last year, due primarily to the increases in the targeted federal funds rate over the last year. The average balance of the interest-earning deposits in the second quarter of fiscal ~~2018~~2019 was ~~$50.7~~$67.8 million, ~~a decrease~~an increase of ~~$20.3~~$17.1 million or 2934 percent, from ~~$71.0~~$50.7 million in the same quarter of fiscal ~~2017.~~2018. The ~~decrease~~increase in the average balance of interest-earning deposits was primarily due to the ~~utilization of funds for the increases~~decreases in loans held for investment and loans held for sale, partly offset by an increase in investment securities and ~~the decreases~~a decrease in ~~deposits and borrowings, partly offset by the decline in the average balance of loans held for sale.~~

deposits.

For the Six Months Ended December 31, ~~2017~~2018 and ~~2016.~~2017. Total interest income ~~decreased~~increased by ~~$497,000,~~$1.3 million, or ~~two~~six percent, to ~~$21.1~~$22.4 million for the first six months of fiscal ~~2018~~2019 from ~~$21.6~~$21.1 million in the same period of fiscal ~~2017.~~2018. The ~~decrease~~increase was primarily due to ~~lower~~an increase in interest income onof all interest-earning assets, particularly in loans ~~receivable and FHLB - San Francisco stock, partly offset by higher interest income on investment securities and interest-earning deposits.~~receivable.

Loans receivable interest income ~~decreased $704,000,~~increased $613,000, or three percent, to ~~$19.9~~$20.5 million in the first six months of fiscal ~~2018~~2019 from ~~$20.6~~$19.9 million for the same period of fiscal ~~2017.~~2018. The ~~decrease~~increase was attributable to a ~~lower~~higher average loan ~~balance,~~yield reflecting the rise in interest rates over the last year, partly offset by a ~~higher~~lower average loan ~~yield~~balance in the first six months of fiscal ~~2018~~2019 in comparison to the same period last year. The average balance of loans receivable, including loans held for sale, decreased $65.0 million to $999.2 million for the first six months of fiscal 2018 from $1.06 billion in the same period of fiscal 2017. The average loan yield, including loans held for sale, during the first six months of fiscal ~~2018~~2019 increased 1132 basis points to ~~3.98~~4.30 percent from ~~3.87~~3.98 percent in the same period last year. The average yield on loans

receivable in the first six months of fiscal 2019 includes $176,000 of previously unrecognized interest income resulting from the payoff of three non-performing loans, which increased the yield by approximately four basis points for the first six months of fiscal 2019; while in the same period of fiscal 2018, it includes $118,000 of previously unrecognized interest income resulting from the payoff of two non-performing loans, which increased the yield by approximately two basis points for the first six months of fiscal 2018. The average balance of loans receivable, including loans held for sale, decreased $45.1 million to $954.1 million for the first six months of fiscal 2019 from $999.2 million in the same period of fiscal 2018.

Loans receivable is comprised of loans held for investment and loans held for sale. The average balance of loans held for investment ~~increased $48.8~~decreased $13.5 million, or ~~six~~two percent, to ~~$899.0~~$885.5 million during the first six months of fiscal ~~2018~~2019 from ~~$850.2~~$899.0 million in the same period of fiscal ~~2017.~~2018. The average yield on the loans held for investment increased by ~~five~~28 basis points to ~~3.99~~4.27 percent in the first six months of fiscal ~~2018~~2019 from ~~3.94~~3.99 percent in the same period of fiscal ~~2017.~~2018. The average balance of loans held for sale decreased by ~~$113.9~~$31.6 million, or 5332 percent, to ~~$100.2~~$68.6 million during the first six months of fiscal ~~2018~~2019 from ~~$214.1~~$100.2 million in the same period of fiscal ~~2017.~~2018. The average yield on the loans held for sale increased by 3379 basis points to ~~3.92~~4.71 percent in the first six months of fiscal ~~2018~~2019 from ~~3.59~~3.92 percent in the same period of fiscal ~~2017.~~2018.

Interest income from investment securities increased ~~$364,000,~~$213,000, or ~~172~~37 percent, to ~~$576,000~~$789,000 in the first six months of fiscal ~~2018~~2019 from ~~$212,000~~$576,000 for the same period of fiscal ~~2017.~~2018. This increase was attributable to a higher average ~~balance~~yield and, to a lesser extent, a higher average yield. The average balance of investment securities increased $34.4 million, or 72 percent, to $82.0 million in the first six months of fiscal 2018 from $47.6 million in the same period of fiscal 2017. The increase in average balance of investment securities was primarily the result of purchases of mortgage-backed securities, partly offset by scheduled and accelerated principal payments on mortgage-backed securities.balance. The average investment securities yield increased 5131 basis points to ~~1.40~~1.71 percent in the first six months of fiscal ~~2018~~2019 from ~~0.89~~1.40 percent in the same period of fiscal ~~2017.~~2018. The increase in the average investment securities yield was primarily attributable to the purchases of investment securities which had higher average yields than the existing portfolio and the repricing of adjustable rate mortgage-backed securities to higher interest rates, partly offset by accelerated amortization of purchase premiums resulting from accelerated principal payments. The average balance of investment securities increased $10.4 million, or 13 percent, to $92.4 million in the first six months of fiscal 2019 from $82.0 million in the same period of fiscal 2018. The increase in the average balance of investment securities was primarily the result of purchases of mortgage-backed securities, partly offset by scheduled and accelerated principal payments on mortgage-backed securities.

The FHLB – San Francisco cash dividend received in the first six months of fiscal ~~2018~~2019 was ~~$284,000, down 56~~$421,000, up 48 percent from ~~$643,000~~$284,000 in the same period of fiscal ~~2017. The cash dividend received in the first six months of fiscal 2017 includes~~2018, primarily attributable to a special cash dividend of $133,000 received in ~~the second quarter of fiscal 2017, not replicated in the same period of fiscal~~December 2018. ~~The~~As a result, the average yield ~~decreased~~increased to ~~7.01~~10.27 percent in the first six months of fiscal ~~2018~~2019 as compared to ~~15.88~~7.01 percent in the comparable period last year.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was ~~$358,000~~$725,000 in the first six months of fiscal ~~2018,~~2019, up ~~129~~103 percent from ~~$156,000~~$358,000 in the same period of fiscal ~~2017.~~2018. The increase was due to a higher average yield ~~partly offset by~~and, to a ~~lower~~lesser extent, a higher average balance in the first six months of fiscal ~~2018~~2019 as compared to the same period last year. The average yield increased 7483 basis points to ~~1.27~~2.10 percent in the first six months of fiscal ~~2018~~2019 from ~~0.53~~1.27 percent in the comparable period last year, due primarily to the ~~recent~~ increases in the targeted federal funds ~~rate.~~rate over the last year. The average balance of the interest-earning deposits in the first six months of fiscal ~~2018~~2019 was ~~$55.1~~$67.6 million, ~~a decrease~~an increase of ~~$2.0~~$12.5 million or ~~four~~23 percent, from ~~$57.1~~$55.1 million in the same period of fiscal ~~2017.~~2018. The ~~decrease~~increase in average balance of interest-earning deposits was primarily due to the ~~utilization of funds for the increases~~decreases in loans held for investment and loans held for sale, partly offset by an increase in investment securities and ~~the decreases~~a decrease in ~~deposits and borrowings, partly offset by the decline in the average balance of loans held for sale.~~deposits.

Interest Expense:

For the Quarters Ended December 31, ~~2017~~2018 and ~~2016.~~2017. Total interest expense remained virtually unchanged at $1.6 million for both the second ~~quarter~~quarters of fiscal 2018 was $1.6 million as compared to $1.7 million for the same period last year, a decrease of $104,000, or six percent. This decrease was attributable to a lower interest expense on deposits, primarily in time deposits.2019 and 2018.

Interest expense on deposits for the second quarter of fiscal ~~2018~~2019 was ~~$886,000~~$894,000 as compared to ~~$982,000~~$886,000 for the same period last year, an increase of $8,000, or one percent. The increase in interest expense on deposits was primarily attributable to a slightly higher average cost of deposits, mostly offset by a lower average balance. The average cost of deposits remained

relatively stable, increasing two basis points to 0.40 percent during the second quarter of fiscal 2019 from 0.38 percent during the same quarter last year. The increase in the average cost of deposits was attributable primarily to a higher average cost of time deposits, partly offset by a lower percentage of time deposits to the total deposit balance. The average balance of deposits decreased $26.6 million, or three percent, to $889.6 million during the quarter ended December 31, 2018 from $916.2 million during the same period last year. The decrease in the average balance was primarily attributable to a decrease in time deposits. Strategically, the Corporation has been promoting transaction accounts and competing less aggressively for time deposits. The average balance of ~~$96,000,~~transaction accounts to total deposits in the second quarter of fiscal 2019 was 74 percent, compared to 72 percent in the same period of fiscal 2018.

Interest expense on borrowings, consisting of FHLB – San Francisco advances, for the second quarter of fiscal 2019 decreased $13,000, or ~~10 percent.~~two percent, to $715,000 from $728,000 for the same period last year. The decrease in interest expense on borrowings was the result of a lower average cost and, to a lesser extent, a lower average balance. The average cost of borrowings decreased four basis points to 2.55 percent for the quarter ended December 31, 2018 from 2.59 percent in the same quarter last year. The decrease in the average cost of borrowings was primarily due to the maturity of a long-term advance which was renewed at a lower interest rate in the third quarter of fiscal 2018. The average balance of borrowings decreased slightly to $111.1 million during the quarter ended December 31, 2018 from $111.5 million during the same period last year, primarily due to principal payments of borrowings.

For the Six Months Ended December 31, 2018 and 2017. Total interest expense for the first six months of fiscal 2019 increased only $11,000 as compared to the same period last year. This slight increase was attributable to a higher interest expense on borrowings, partly offset by a lower interest expense on deposits.

Interest expense on deposits for the first six months of fiscal 2019 was relatively unchanged at $1.8 million as compared to the same period last year, a slight decrease of $3,000. The slight decrease in interest expense on deposits was primarily attributable to a lower average balance, ~~and to~~partly offset by a ~~lesser extent, a lower~~higher average cost of deposits. The average balance of deposits decreased ~~$23.1~~$23.4 million, or ~~two~~three percent, to ~~$916.2~~$896.2 million during the ~~quarter~~six months ended December 31, ~~2017~~2018 from ~~$939.3~~$919.6 million during the same period last year. The decrease in the average balance was primarily attributable to a decrease in time deposits, partly offset by an increase in

transaction accounts. The average cost of deposits ~~decreased three~~increased one basis ~~points~~point to 0.39 percent during the first six months of fiscal 2019 from 0.38 percent during the ~~second quarter of fiscal 2018 from 0.41 percent during the~~ same ~~quarter~~period last year. The ~~decrease~~increase in the average cost of deposits was attributable primarily to a ~~lower~~higher average cost of time deposits, and a lower percentage of time deposits to the total deposit balance. Strategically, the Corporation has been promoting transaction accounts and competing less aggressively for time deposits. The Corporation believes the increase in transaction accounts was also attributable to the impact of depositors seeking an alternative to lower yielding time deposits in anticipation of higher interest rates. The average balance of transaction accounts to total deposits in the second quarter of fiscal 2018 was 72 percent, compared to 69 percent in the same period of fiscal 2017.

Interest expense on borrowings, consisting of FHLB – San Francisco advances, for the second quarter of fiscal 2018 decreased $8,000, or one percent, to $728,000 from $736,000 for the same period last year. The decrease in interest expense on borrowings was the result of a lower average balance, partly offset by a higher average cost. The average balance of borrowings decreased $8.0 million, or seven percent, to $111.5 million during the quarter ended December 31, 2017 from $119.5 million during the same period last year, due primarily to the maturity of short-term borrowings. The average cost of borrowings increased 15 basis points to 2.59 percent for the quarter ended December 31, 2017 from 2.44 percent in the same quarter last year. The increase in the average cost of advances was primarily due to the maturities of the short-term borrowings with an average cost below the existing borrowings in the second quarter of fiscal 2017.

~~For the Six Months Ended December 31, 2017 and 2016.~~ Total interest expense for the first six months of fiscal 2018 was $3.2 million as compared to $3.4 million for the same period last year, a decrease of $193,000, or six percent. This decrease was attributable to a lower interest expense on deposits, primarily in time deposits, partly offset by a higher interest expense on borrowings.

Interest expense on deposits for the first six months of fiscal 2018 was $1.8 million as compared to $2.0 million for the same period last year, a decrease of $219,000, or 11 percent. The decrease in interest expense on deposits was primarily attributable to a lower average balance and, to a lesser extent, a lower average cost of deposits. The average balance of deposits decreased $16.5 million, or two percent, to $919.6 million during the six months ended December 31, 2017 from $936.1 million during the same period last year. The increase in the average balance was primarily attributable to a decrease in time deposits, partly offset by an increase in transaction accounts. The average cost of deposits decreased four basis points to 0.38 percent during the first six months of fiscal 2018 from 0.42 percent during the same period last year. The decrease in the average cost of deposits was attributable primarily to a lower average cost of time deposits and a lower percentage of time deposits to the total deposit balance. The average balance of transaction accounts to total deposits in the first six months of fiscal ~~2018~~2019 was 7274 percent, compared to 6872 percent in the same period of fiscal ~~2017.~~2018.

Interest expense on borrowings, consisting of FHLB – San Francisco advances, for the first six months of fiscal ~~2018~~2019 increased ~~$26,000,~~$14,000, or ~~two~~one percent, to $1.5 million ~~from $1.4 million for~~as compared to the same period last year. The increase in interest expense on borrowings was the result of a higher average ~~cost,~~balance, partly offset by a lower average balance. The average cost of borrowings increased 26 basis points to 2.57 percent for the six months ended December 31, 2017 from 2.31 percent in the same period last year. The increase in average cost of advances was primarily due to the maturity of short-term borrowings with a much lower average cost than long-term FHLB borrowings.cost. The average balance of borrowings ~~decreased~~increased by ~~$10.4~~$2.8 million, or ~~eight~~two percent, to ~~$112.8~~$115.6 million during the six months ended December 31, ~~2017~~2018 from ~~$123.2~~$112.8 million during the same period last year, primarily due to additional short-term borrowings at lower average cost. The average cost of borrowings decreased three basis points to 2.54 percent for the ~~maturity of~~six months ended December 31, 2018 from 2.57 percent in the ~~short-term borrowings.~~ same period last year.

The following tables present the average balance sheets for the quarters and six months ended December 31, ~~2017~~2018 and ~~2016,~~2017, respectively:

Average Balance Sheets

	Quarter Ended December 31, 2018						Quarter Ended December 31, 2017
(Dollars In Thousands)	Average Balance		Interest		Yield/ Cost		Average Balance		Interest		Yield/ Cost
Interest-earning assets:
Loans receivable, net ⁽¹⁾	$	941,192	$	10,331	4.39	%	$	990,906	$	9,735	3.93	%
Investment securities	93,468		444		1.90	%	88,588		319		1.44	%
FHLB – San Francisco stock	8,199		278		13.56	%	8,108		143		7.05	%
Interest-earning deposits	67,760		387		2.23	%	50,725		168		1.30	%

Total interest-earning assets	1,110,619		11,440		4.12	%	1,138,327		10,365		3.64	%

Non interest-earning assets	31,683						33,498

Total assets	$	1,142,302					$	1,171,825

Interest-bearing liabilities:
Checking and money market accounts ⁽²⁾	$	379,752	$	117	0.12	%	$	373,632	$	112	0.12	%
Savings accounts	282,410		147		0.21	%	289,990		149		0.20	%
Time deposits	227,395		630		1.10	%	252,588		625		0.98	%

Total deposits	889,557		894		0.40	%	916,210		886		0.38	%

Borrowings	111,141		715		2.55	%	111,521		728		2.59	%

Total interest-bearing liabilities	1,000,698		1,609		0.64	%	1,027,731		1,614		0.62	%

Non interest-bearing liabilities	19,587						19,932

Total liabilities	1,020,285						1,047,663

Stockholders' equity	122,017						124,162
Total liabilities and stockholders' equity	$	1,142,302					$	1,171,825

Net interest income			$	9,831					$	8,751

Interest rate spread ⁽³⁾					3.48	%					3.02	%
Net interest margin ⁽⁴⁾					3.54	%					3.08	%
Ratio of average interest-earning assets to average interest-bearing liabilities					110.98	%					110.76	%
Return (loss) on average assets					0.69	%					(0.27)	%
Return (loss) on average equity					6.42	%					(2.50)	%

Quarter Ended
December 31, 2017 Quarter Ended
December 31, 2016
(Dollars In Thousands) Average
Balance Interest Yield/
Cost Average
Balance Interest Yield/
Cost
Interest-earning assets:
Loans receivable, net ⁽¹⁾
$ 990,906
$ 9,735
3.93 % $ 1,050,410
$ 10,116
3.85 %
Investment securities 88,588
319
1.44 % 45,599
128
1.12 %
FHLB – San Francisco stock 8,108
143
7.05 % 8,094
458
22.63 %
Interest-earning deposits 50,725
168
1.30 % 70,972
101
0.56 %

Total interest-earning assets 1,138,327
10,365
3.64 % 1,175,075
10,803
3.68 %

Non interest-earning assets 33,498
33,638

Total assets $ 1,171,825
$ 1,208,713

Interest-bearing liabilities:
Checking and money market accounts ⁽²⁾
$ 373,632
112
0.12 % $ 360,678
105
0.12 %
Savings accounts 289,990
149
0.20 % 283,120
146
0.20 %
Time deposits 252,588
625
0.98 % 295,477
731
0.98 %

Total deposits 916,210
886
0.38 % 939,275
982
0.41 %

Borrowings 111,521
728
2.59 % 119,530
736
2.44 %

Total interest-bearing liabilities 1,027,731
1,614
0.62 % 1,058,805
1,718
0.64 %

Non interest-bearing liabilities 19,932
17,007

Total liabilities 1,047,663
1,075,812

Stockholders’ equity 124,162
132,901

Total liabilities and stockholders’ equity $ 1,171,825
$ 1,208,713

Net interest income $ 8,751
$ 9,085

Interest rate spread ⁽³⁾
3.02 % 3.04 %
Net interest margin ⁽⁴⁾
3.08 % 3.09 %
Ratio of average interest-earning assets to
average interest-bearing liabilities
110.76 % 110.98 %
Return on average assets (0.27 )% 0.50 %
Return on average equity (2.50 )% 4.53 %


⁽¹⁾	Includes loans held for sale and non-performing loans, as well as net deferred loan cost amortization of ~~$409~~$268 and ~~$238~~$409 for the quarters ended December 31, ~~2017~~2018 and ~~2016,~~2017, respectively.


⁽²⁾	Includes the average balance of non interest-bearing checking accounts of ~~$78.6~~$82.8 million and ~~$74.0~~$78.6 million during the quarters ended December 31, ~~2017~~2018 and ~~2016,~~2017, respectively.


⁽³⁾	Represents the difference between the weighted-average yield on all interest-earning assets and the weighted-average rate on all interest-bearing liabilities.


⁽⁴⁾	Represents net interest income before provision for loan losses as a percentage of average interest-earning assets.


	Six Months Ended December 31, 2018						Six Months Ended December 31, 2017
(Dollars In Thousands)	Average Balance		Interest		Yield/ Cost		Average Balance		Interest		Yield/ Cost
Interest-earning assets:
Loans receivable, net ⁽¹⁾	$	954,148	$	20,505	4.30	%	$	999,242	$	19,892	3.98	%
Investment securities	92,384		789		1.71	%	82,029		576		1.40	%
FHLB – San Francisco stock	8,199		421		10.27	%	8,108		284		7.01	%
Interest-earning deposits	67,552		725		2.10	%	55,085		358		1.27	%

Total interest-earning assets	1,122,283		22,440		4.00	%	1,144,464		21,110		3.69	%

Non interest-earning assets	30,982						32,514

Total assets	$	1,153,265					$	1,176,978

Interest-bearing liabilities:
Checking and money market accounts ⁽²⁾	$	378,702	$	225	0.12	%	$	373,425	$	215	0.11	%
Savings accounts	285,441		298		0.21	%	288,347		298		0.21	%
Time deposits	232,074		1,251		1.07	%	257,856		1,264		0.97	%

Total deposits	896,217		1,774		0.39	%	919,628		1,777		0.38	%

Borrowings	115,577		1,478		2.54	%	112,834		1,464		2.57	%

Total interest-bearing liabilities	1,011,794		3,252		0.64	%	1,032,462		3,241		0.62	%

Non interest-bearing liabilities	19,960						18,408

Total liabilities	1,031,754						1,050,870

Stockholders' equity	121,511						126,108
Total liabilities and stockholders' equity	$	1,153,265					$	1,176,978

Net interest income			$	19,188					$	17,869

Interest rate spread ⁽³⁾					3.36	%					3.07	%
Net interest margin ⁽⁴⁾					3.42	%					3.12	%
Ratio of average interest-earning assets to average interest-bearing liabilities					110.92	%					110.85	%
Return (loss) on average assets					0.66	%					(0.17)	%
Return (loss) on average equity					6.22	%					(1.59)	%

Six Months Ended
December 31, 2017 Six Months Ended
December 31, 2016
Average
Balance Interest Yield/
Cost Average
Balance Interest Yield/
Cost
Interest-earning assets:
Loans receivable, net ⁽¹⁾
$ 999,242
$ 19,892
3.98 % $ 1,064,246
$ 20,596
3.87 %
Investment securities 82,029
576
1.40 % 47,598
212
0.89 %
FHLB – San Francisco stock 8,108
284
7.01 % 8,094
643
15.88 %
Interest-earning deposits 55,085
358
1.27 % 57,140
156
0.53 %

Total interest-earning assets 1,144,464
21,110
3.69 % 1,177,078
21,607
3.67 %

Non interest-earning assets 32,514
32,603

Total assets $ 1,176,978
$ 1,209,681

Interest-bearing liabilities:
Checking and money market accounts ⁽²⁾
$ 373,425
215
0.11 % $ 355,685
203
0.11 %
Savings accounts 288,347
298
0.21 % 279,953
290
0.21 %
Time deposits 257,856
1,264
0.97 % 300,416
1,503
0.99 %

Total deposits 919,628
1,777
0.38 % 936,054
1,996
0.42 %

Borrowings 112,834
1,464
2.57 % 123,235
1,438
2.31 %

Total interest-bearing liabilities 1,032,462
3,241
0.62 % 1,059,289
3,434
0.64 %

Non interest-bearing liabilities 18,408
17,354

Total liabilities 1,050,870
1,076,643

Stockholders’ equity 126,108
133,038

Total liabilities and stockholders’ equity $ 1,176,978
$ 1,209,681

Net interest income $ 17,869
$ 18,173

Interest rate spread ⁽³⁾
3.07 % 3.03 %
Net interest margin ⁽⁴⁾
3.12 % 3.09 %
Ratio of average interest-earning assets to
average interest-bearing liabilities
110.85 % 111.12 %
Return on average assets (0.17 )% 0.51 %
Return on average equity (1.59 )% 4.66 %


⁽¹⁾	Includes loans held for sale and non-performing loans, as well as net deferred loan cost amortization of ~~$616~~$644 and ~~$402~~$616 for the six months ended December 31, ~~2017~~2018 and ~~2016,~~2017, respectively.


⁽²⁾	Includes the average balance of non interest-bearing checking accounts of ~~$79.1~~$82.5 million and ~~$72.3~~$79.1 million during the six months ended December 31, ~~2017~~2018 and ~~2016,~~2017, respectively.


⁽³⁾	Represents the difference between the weighted-average yield on all interest-earning assets and the weighted-average rate on all interest-bearing liabilities.


⁽⁴⁾	Represents net interest income before provision for loan losses as a percentage of average interest-earning assets.

The following tables set forth the effects of changing rates and volumes on interest income and expense for the quarters and six months ended December 31, ~~2017~~2018 and ~~2016,~~2017, 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 December 31, 2018 Compared To Quarter Ended December 31, 2017 Increase (Decrease) Due to
(In Thousands)	Rate			Volume			Rate/ Volume			Net
Interest-earning assets:
Loans receivable ⁽¹⁾	$	1,141		$	(488	)	$	(57	)	$	596
Investment securities	101			18			6			125
FHLB – San Francisco stock	132			2			1			135
Interest-earning deposits	124			55			40			219
Total net change in income on interest-earning assets	1,498			(413		)	(10		)	1,075

Interest-bearing liabilities:
Checking and money market accounts	—			5			—			5
Savings accounts	2			(4		)	—			(2		)
Time deposits	75			(62		)	(8		)	5
Borrowings	(11		)	(2		)	—			(13		)
Total net change in expense on interest-bearing liabilities	66			(63		)	(8		)	(5		)
Net increase (decrease) in net interest income	$	1,432		$	(350	)	$	(2	)	$	1,080

Quarter Ended December 31, 2017 Compared
To Quarter Ended December 31, 2016
Increase (Decrease) Due to
(In Thousands) Rate Volume Rate/
Volume Net
Interest-earning assets:
Loans receivable ⁽¹⁾
$ 204
$ (573 ) $ (12 ) $ (381 )
Investment securities 37
120
34
191
FHLB – San Francisco stock (315 ) 1
(1 ) (315 )
Interest-bearing deposits 132
(28 ) (37 ) 67
Total net change in income on interest-earning assets 58
(480 ) (16 ) (438 )

Interest-bearing liabilities:
Checking and money market accounts —
7
—
7
Savings accounts —
3
—
3
Time deposits —
(106 ) —
(106 )
Borrowings 44
(49 ) (3 ) (8 )
Total net change in expense on interest-bearing liabilities 44
(145 ) (3 ) (104 )
Net increase (decrease) in net interest income $ 14
$ (335 ) $ (13 ) $ (334 )


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


⁽¹⁾	As a percentage of each category.

The following table describes certain credit risk characteristics, geographic locations and the calendar year of loan origination of the ~~Corporation’s~~Corporation's commercial real estate loans held for investment, at December 31, ~~2017:~~2018:


	Calendar Year of Origination										Calendar Year of Origination
(Dollars In Thousands)	2009 & Prior	2010	2011	2012	2013	2014	2015	2016	2017	Total ⁽⁵⁾⁽⁶⁾	2010 & Prior	2011	2012	2013	2014	2015	2016	2017	2018	Total ⁽⁵⁾⁽⁶⁾
Loan balance (in thousands)	$1,198	$336	$—	$10,451	$12,887	$21,087	$20,033	$17,446	$19,928	$103,366	$573	$—	$9,862	$8,842	$18,699	$19,412	$15,947	$19,485	$20,010	$112,830
Weighted-average LTV ⁽¹⁾	25%	54%	—%	45%	46%	45%	41%	50%	44%	45%	35%	—%	43%	48%	43%	40%	48%	43%	44%	44%
Weighted-average DCR ⁽²⁾	1.47x	1.25x	—	1.94x	1.64x	1.93x	1.80x	1.58x	1.67x	1.75x	1.38x	—x	1.97x	1.61x	1.95x	1.80x	1.57x	1.82x	1.61x	1.76x
Weighted-average age (in years)	16.49	7.60	—	5.27	4.43	3.40	2.45	1.61	0.37	2.81	10.34	—	6.27	5.46	4.35	3.45	2.61	1.37	0.54	3.04
Weighted-average FICO ⁽²⁾	707	703	—	743	759	752	758	759	773	759	712	—	741	763	753	757	758	773	754	758
Number of loans	6	2	—	9	19	26	25	23		133	5	—	8	14	22	25	22	23	29	148

Geographic breakdown (%):
Inland Empire	73%	49%	—%	72%	22%	37%	31%	11%	26%	31%	69%	—%	75%	24%	40%	31%	11%	26%	10%	29%
Southern California ⁽³⁾	27%	51%	—%	28%	48%	43%	32%	62%	51%	45%	31%	—%	25%	46%	45%	32%	65%	52%	55%	47%
Other California ⁽⁴⁾	—%				30%	20%	37%	27%	23%	24%	—%	—%	—%	30%	15%	37%	24%	22%	35%	24%
Other States	—%										—%	—%	—%							—%
Total	100%		—%	100%							100%	—%	—%	100%						100%


⁽¹⁾	LTV is the ratio derived by dividing the current loan balance by the lower of the original appraised value or purchase price of the real estate collateral.


⁽²⁾	At time of loan origination.


⁽³⁾	Other than the Inland Empire.


⁽⁴⁾	Other than the Inland Empire and Southern California.

⁽⁵⁾

Comprised of the following: ~~$34.2~~$48.8 million in Mixed Use; ~~$19.4~~$17.8 million in Office; $17.7 million in Retail; ~~$15.9 million in Office; $11.1~~$8.7 million in Mobile Home Parks; ~~$8.8~~$7.8 million in Warehouse; ~~$5.4~~$4.3 million in Medical/Dental Office; ~~$3.4~~$2.7 million in Mini-Storage; ~~$2.1~~$2.0 million in Restaurant/Fast Food; ~~$1.6~~$1.5 million in Automotive – Non Gasoline and $1.5 million in Light Industrial/Manufacturing.


⁽⁶⁾	Consisting of ~~$98.3~~$106.4 million or ~~95.1~~94.3 percent in investment properties and ~~$5.1~~$6.4 million or ~~4.9~~5.7 percent in owner occupied properties.

The following table summarizes the interest rate reset or maturity schedule of the ~~Corporation’s~~Corporation's commercial real estate loans held for investment, including the percentage of those which are identified as non-performing, 30 – 89 days delinquent or not fully amortizing as of December 31, ~~2017:~~2018:


(Dollars In Thousands)	Balance		Non- Performing ⁽¹⁾	30 - 89 Days Delinquent	Percentage Not Fully Amortizing ⁽¹⁾	Balance		Non- Performing ⁽¹⁾	30 - 89 Days Delinquent	Percentage Not Fully Amortizing ⁽¹⁾
Interest rate reset or mature in the next 12 months	$	28,529	—%		68%	$	41,377	—%	—%	81%
Interest rate reset or mature between 1 year and 5 years	69,617		—%		90%	71,453		—%	—%	91%
Interest rate reset or mature after 5 years	5,220		—%		83%	—		—%	—%	—%
Total	$	103,366	—%		84%	$	112,830	—%	—%	88%


⁽¹⁾	As a percentage of each category.

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


(In Thousands)	At December 31, 2017			At June 30, 2017			At December 31, 2018			At June 30, 2018
Loans on non-accrual status (excluding restructured loans):
Mortgage loans:
Single-family	$	4,508		$	4,668		$	2,572		$	2,665
Commercial real estate	—			201
Construction							745			—
Total	4,508			4,869			3,317			2,665

Accruing loans past due 90 days or more	—			—			—			—

Restructured loans on non-accrual status:
Mortgage loans:
Single-family	3,416			3,061			2,698			3,328
Commercial business loans	61			65			47			64
Total	3,477			3,126			2,745			3,292

Total non-performing loans	7,985			7,995			6,062			6,057

Real estate owned, net	621			1,615			—			906
Total non-performing assets	$	8,606		$	9,610		$	6,062		$	6,963

Non-performing loans as a percentage of loans held for investment, net of allowance for loan losses	0.90		%	0.88		%	0.69		%	0.67		%

Non-performing loans as a percentage of total assets	0.69		%	0.67		%	0.54		%	0.52		%

Non-performing assets as a percentage of total assets	0.74		%	0.80		%	0.54		%	0.59		%

The following table describes the non-performing loans, net of allowance for loan losses and fair value adjustments, by the calendar year of origination as of December 31, ~~2017:~~2018:

		Calendar Year of Origination
(In Thousands)		2010 & Prior		2011		2012		2013		2014		2015		2016		2017		2018		Total
Mortgage loans:
	Single-family	$	3,818	$	—	$	85	$	—	$	—	$	—	$	—	$	1,367	$	—	$	5,270
	Construction		—		—		—		—		—		—		—		—		745		745
Commercial business loans		47		—		—		—		—		—		—		—		—		47
Total		$	3,865	$	—	$	85	$	—	$	—	$	—	$	—	$	1,367	$	745	$	6,062

Calendar Year of Origination
(In Thousands) 2009 &
Prior
2010
2011
2012
2013
2014
2015
2016
2017
Total
Mortgage loans:
Single-family $ 7,837
$ —
$ —
$ 87
$ —
$ —
$ —
$ —
$ —
$ 7,924
Commercial business loans 61
—
—
—
—
—
—
—
—
61
Total $ 7,898
$ —
$ —
$ 87
$ —
$ —
$ —
$ —
$ —
$ 7,985

The following table describes the non-performing loans, net of allowance for loan losses and fair value adjustments, by the geographic location as of December 31, ~~2017:~~2018:


(In Thousands)	(In Thousands)	Inland Empire		Southern California ⁽¹⁾		Other California ⁽²⁾		Other States		Total		(In Thousands)	Inland Empire		Southern California ⁽¹⁾		Other California ⁽²⁾		Other States		Total
Mortgage loans:	Mortgage loans:											Mortgage loans:
	Single-family	$	3,381	$	3,006	$	1,537	$	—	$	7,924	Single-family	$	1,874	$	2,141	$	1,255	$	—	$	5,270
												Construction		—		745		—		—		745
Commercial business loans	Commercial business loans	61		—		—		—		61		Commercial business loans	47		—		—		—		47
Total	Total	$	3,442	$	3,006	$	1,537	$	—	$	7,985	Total	$	1,921	$	2,886	$	1,255	$	—	$	6,062


⁽¹⁾	Other than the Inland Empire.


⁽²⁾	Other than the Inland Empire and Southern California.

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


	At December 31, 2017			At June 30, 2017			At December 31, 2018			At June 30, 2018
(Dollars In Thousands)	Balance		Count	Balance		Count	Balance		Count	Balance		Count
Special mention loans:
Mortgage loans:
Single-family	$	2,878	7	$	3,443	9	$	1,400	6	$	2,584	8
Multi-family	—		—	272		1	3,906		3	3,947		3
Construction	721		1	—		—
Commercial real estate							—		—	940		1
Total special mention loans	3,599		8	3,715		10	5,306		9	7,471		12

Substandard loans:
Mortgage loans:
Single-family	7,924		31	7,729		29	6,695		23	7,391		24
Commercial real estate	—		—	201		1
Construction	1,569		1	—		—	745		1	—		—
Commercial business loans	61		1	65		1	47		1	64		1
Total substandard loans	9,554		33	7,995		31	7,487		25	7,455		25

Total classified loans	13,153		41	11,710		41	12,793		34	14,926		37

Real estate owned:
Single-family	621		1	1,615		2	—		—	906		2
Total real estate owned	621		1	1,615		2	—		—	906		2

Total classified assets	$	13,774	42	$	13,325	43	$	12,793	34	$	15,832	39

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 six months indicated:


	For the Quarters Ended December 31,						For the Six Months Ended December 31,							For the Quarters Ended December 31,						For the Six Months Ended December 31,
(In Thousands)	2017			2016			2017			2016				2018			2017			2018			2017
Loans originated and purchased for sale:
Loans originated for sale:
Retail originations	$	183,787		$	264,857		$	397,088		$	583,827		$	87,913		$	183,787		$	215,046		$	397,088
Wholesale originations and purchases	148,077			277,054			327,068			605,426
Total loans originated and purchased for sale ⁽¹⁾	331,864			541,911			724,156			1,189,253
Wholesale originations													58,504			148,077			127,692			327,068
Total loans originated for sale ⁽¹⁾													146,417			331,864			342,738			724,156

Loans sold:
Servicing released	(351,720		)	(624,979		)	(725,183		)	(1,183,992		)	(165,484		)	(351,720		)	(376,534		)	(725,183		)
Servicing retained	(9,660		)	(13,520		)	(17,248		)	(22,821		)	(2,026		)	(9,660		)	(2,784		)	(17,248		)
Total loans sold ⁽²⁾	(361,380		)	(638,499		)	(742,431		)	(1,206,813		)	(167,510		)	(361,380		)	(379,318		)	(742,431		)

Loans originated for investment:
Mortgage loans:
Single-family	12,362			17,926			39,698			29,756			24,180			12,362			41,396			39,698
Multi-family	9,473			15,418			21,667			34,459			5,446			9,473			18,155			21,667
Commercial real estate	8,478			2,021			12,970			4,848			3,175			8,478			8,480			12,970
Construction	1,475			1,661			2,409			3,296			1,863			1,475			3,343			2,409
Consumer loans	2			1			3			1			—			2			—			3
Total loans originated for investment ⁽³⁾	31,790			37,027			76,747			72,360			34,664			31,790			71,374			76,747

Loans purchased for investment:
Mortgage loans:
Single-family	—			9,477			—			9,527
Multi-family	2,241			16,858			2,241			39,764			4,622			2,241			4,622			2,241
Commercial real estate	868			—			868			—			—			868			—			868
Total loans purchased for investment ⁽³⁾	3,109			26,335			3,109			49,291			4,622			3,109			4,622			3,109

Mortgage loan principal payments	(57,390		)	(54,722		)	(100,751		)	(105,264		)	(41,163		)	(57,390		)	(104,092		)	(100,751		)
Real estate acquired in settlement of loans	(700		)	—			(700		)	(1,298		)	—			(700		)	—			(700		)
(Decrease) increase in other items, net ⁽⁴⁾	(22		)	(5,577		)	968			(2,197		)
Increase (decrease) in other items, net ⁽⁴⁾													60			(22		)	(1,332		)	968

Net decrease in loans held for investment and loans held for sale at fair value	$	(52,729	)	$	(93,525	)	$	(38,902	)	$	(4,668	)	$	(22,910	)	$	(52,729	)	$	(66,008	)	$	(38,902	)


⁽¹⁾	Includes PBM loans originated ~~and purchased~~ for sale during the quarters and six months ended December 31, 2018 and 2017 ~~and 2016~~ totaling $146.4 million, $331.9 million, ~~$541.9~~$342.7 million and $724.2 million, ~~and $1.19 billion,~~ respectively.


⁽²⁾	Includes PBM loans sold during the quarters and six months ended December 31, 2018 and 2017 ~~and 2016~~ totaling $167.5 million, $361.4 million, ~~$638.5~~$379.3 million and $742.4 million, ~~and $1.21 billion,~~ respectively.


⁽³⁾	Includes PBM loans originated and purchased for investment during the quarters and six months ended December 31, 2018 and 2017 ~~and 2016~~ totaling $24.1 million, $12.4 million, ~~$15.6 million, $37.8~~$40.0 million and ~~$26.8~~$37.8 million, respectively.


⁽⁴⁾	Includes net changes in undisbursed loan funds, deferred loan fees or costs, allowance for loan losses, fair ~~vale~~value of loans held for investment, fair value of loans held for sale, advance payments of escrows and repurchases.

Loans that the Corporation has originated for sale are primarily sold on a servicing released basis. Clear ownership is conveyed to the investor by endorsing the original note in favor of the investor; transferring the servicing to a new servicer consistent with investor instructions; communicating the servicing transfer to the borrower as required by law; and sending the loan file and collateral instruments electronically to the investor contemporaneous with receiving the cash proceeds from the sale of the loan. Additionally, the Corporation registers the change of ownership in the mortgage electronic registration system known as MERS as required by the contractual terms of the loan sale agreement. Also, the Corporation retains an imaged copy of the entire loan file and collateral instruments as an abundance of caution in the event questions arise that can only be answered by reviewing the loan file. Additionally, the Corporation does not originate or sponsor mortgage-backed securities.

Liquidity and Capital Resources

The ~~Corporation’s~~Corporation's primary sources of funds are deposits, proceeds from the sale of loans originated ~~and purchased~~ for sale, proceeds from principal and interest payments on loans, proceeds from the maturity and sale of 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, mortgage prepayments and loan sales 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 and loans held for sale. During the first six months of fiscal ~~2018~~2019 and ~~2017,~~2018, the Corporation originated and purchased ~~$804.0~~$418.7 million and ~~$1.31 billion~~$804.0 million of loans, respectively. The total loans sold in the first six months of fiscal 2019 and 2018 were $379.3 million and ~~2017 were~~ $742.4 million, ~~and $1.21 billion,~~ respectively. At December 31, ~~2017,~~2018, the Corporation had loan origination commitments totaling ~~$57.7~~$34.6 million, undisbursed lines of credit totaling ~~$1.1~~$2.0 million and undisbursed construction loan funds totaling ~~$7.4~~$5.7 million. The Corporation anticipates that it will have sufficient funds available to meet its current loan commitments.

The ~~Corporation’s~~Corporation's primary financing activity is gathering deposits. During the first six months of fiscal ~~2018,~~2019, the net decrease in deposits was ~~$18.7~~$34.7 million or four percent, primarily due to non-renewing scheduled maturities in time ~~deposits, partly offset by the increase in transaction accounts.~~deposits. The decrease in time deposits ~~and the increase in transaction accounts were~~was consistent with the Corporation's operating strategy. ~~As of~~Time deposits decreased $13.9 million, or six percent, to $223.7 million at December 31, ~~2017, total deposits were $907.8 million.~~2018 from $237.6 million at June 30, 2018. At December 31, ~~2017,~~2018, time deposits with a principal amount of $250,000 or less and scheduled to mature in one year or less were ~~$101.6~~$98.7 million and total time deposits with a principal amount of ~~$100,000~~more than $250,000 and scheduled to mature in one year or ~~higher~~less were ~~$122.1~~$23.5 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 generally maintains sufficient cash and cash equivalents to meet short-term liquidity needs. At December 31, ~~2017,~~2018, total cash and cash equivalents were ~~$47.2~~$67.4 million, or ~~four~~six percent of total assets. Depending on market conditions and the pricing of deposit products and FHLB – San Francisco advances, the Bank may rely on FHLB – San Francisco advances for part of its liquidity needs. As of December 31, ~~2017,~~2018, total borrowings were ~~$111.2~~$111.1 million and the financing availability at FHLB – San Francisco was limited to 35 percent of total assets; the remaining borrowing facility was ~~$297.1~~$281.5 million and the remaining available collateral was ~~$535.6~~$490.2 million. In addition, the Bank has secured a ~~$75.8~~$67.4 million discount window facility at the Federal Reserve Bank of San Francisco, collateralized by investment securities with a fair market value of ~~$80.7~~$71.7 million. As of December 31, ~~2017,~~2018, the Bank also has a borrowing arrangement in the form of a federal funds facility with its correspondent bank for $17.0 million that matures on June 30, ~~2018~~2019 which the Bank intends to renew upon maturity. The Bank had no advances under its correspondent bank or discount window facility as of December 31, ~~2017.~~2018.

Regulations require thrifts to maintain adequate liquidity to assure safe and sound operations. The ~~Bank’s~~Bank's average liquidity ratio (defined as the ratio of average qualifying liquid assets to average deposits and borrowings) for the quarter ended December 31, ~~2017 decreased~~2018 increased to ~~17.9~~15.9 percent from ~~22.1~~14.9 percent for the quarter ended June 30, ~~2017.~~2018.

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. In addition, Provident Financial Holdings, Inc. as a savings and loan holding company registered with the FRB and is required by the FRB to maintain capital adequacy that generally parallels the OCC requirements.

At December 31, ~~2017,~~2018, Provident Financial Holdings, Inc. and the Bank each exceeded all regulatory capital requirements. The Bank was categorized "well-capitalized" at December 31, ~~2017~~2018 under the regulations of the OCC.

Provident Financial Holdings, Inc. and the Bank's actual and required minimum capital amounts and ratios at the dates indicated are as follows (dollars in thousands):


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

Provident Financial Holdings, Inc.:

As of December 31, 2017
As of December 31, 2018
Tier 1 leverage capital (to adjusted average assets)	$	120,453	10.28	%		$	46,862	4.00	%	$	58,577	5.00	%	$	122,485	10.72	%	$	45,685	4.00	%	$	57,106	5.00	%
Common Equity Tier 1 ("CET1") capital (to risk- weighted assets)	$	120,453	17.62	%		$	39,313	5.75	%	$	44,441	6.50	%	$	122,485	18.48	%	$	42,257	6.38	%	$	43,085	6.50	%
Tier 1 capital (to risk-weighted assets)	$	120,453	17.62	%		$	49,568	7.25	%	$	54,696	8.00	%	$	122,485	18.48	%	$	52,199	7.88	%	$	53,028	8.00	%
Total capital (to risk-weighted assets)	$	128,716	18.83	%		$	63,242	9.25	%	$	68,370	10.00	%	$	129,696	19.57	%	$	65,456	9.88	%	$	66,285	10.00	%

As of June 30, 2017
As of June 30, 2018
Tier 1 leverage capital (to adjusted assets)	$	127,956	10.77	%		$	47,506	4.00	%	$	59,383	5.00	%	$	120,218	10.29	%	$	46,719	4.00	%	$	58,399	5.00	%
CET1 capital (to risk-weighted assets)	$	127,956	17.57	%		$	41,885	5.75	%	$	47,348	6.50	%	$	120,218	17.37	%	$	44,132	6.38	%	$	44,998	6.50	%
Tier 1 capital (to risk-weighted assets)	$	127,956	17.57	%		$	52,811	7.25	%	$	58,274	8.00	%	$	120,218	17.37	%	$	54,516	7.88	%	$	55,382	8.00	%
Total capital (to risk-weighted assets)	$	136,271	18.71	%		$	67,380	9.25	%	$	72,843	10.00	%	$	127,760	18.46	%	$	68,362	9.88	%	$	69,227	10.00	%

Provident Savings Bank, F.S.B.:

As of December 31, 2017
As of December 31, 2018
Tier 1 leverage capital (to adjusted average assets)	$	112,401	9.59	%		$	46,862	4.00	%	$	58,577	5.00	%	$	113,792	9.96	%	$	45,684	4.00	%	$	57,105	5.00	%
CET1 capital (to risk-weighted assets)	$	112,401	16.44	%		$	39,307	5.75	%	$	44,434	6.50	%	$	113,792	17.17	%	$	42,256	6.38	%	$	43,085	6.50	%
Tier 1 capital (to risk-weighted assets)	$	112,401	16.44	%		$	49,561	7.25	%	$	54,688	8.00	%	$	113,792	17.17	%	$	52,199	7.88	%	$	53,027	8.00	%
Total capital (to risk-weighted assets)	$	120,664	17.65	%	��	$	63,233	9.25	%	$	68,360	10.00	%	$	121,003	18.26	%	$	65,456	9.88	%	$	66,284	10.00	%

As of June 30, 2017
As of June 30, 2018
Tier 1 leverage capital (to adjusted assets)	$	117,530	9.90	%		$	47,503	4.00	%	$	59,379	5.00	%	$	116,369	9.96	%	$	46,716	4.00	%	$	58,394	5.00	%
CET1 capital (to risk-weighted assets)	$	117,530	16.14	%		$	41,877	5.75	%	$	47,339	6.50	%	$	116,369	16.81	%	$	44,125	6.38	%	$	44,990	6.50	%
Tier 1 capital (to risk-weighted assets)	$	117,530	16.14	%		$	52,801	7.25	%	$	58,263	8.00	%	$	116,369	16.81	%	$	54,507	7.88	%	$	55,372	8.00	%
Total capital (to risk-weighted assets)	$	125,845	17.28	%		$	67,367	9.25	%	$	72,829	10.00	%	$	123,911	17.90	%	$	68,350	9.88	%	$	69,215	10.00	%

In addition to the minimum CET1, Tier 1 and total capital ratios, Provident Financial Holdings, Inc. and the Bank will have to maintain a capital conservation buffer consisting of additional CET1 capital 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. This requirement began to be phased in on January 1, 2016 at an amount more than 0.625 percent of risk-weighted assets and ~~will increase~~increased each year to an amount ~~equal~~more than to 2.5 percent of risk-weighted assets when fully implemented inon January 1, 2019. As of December 31, ~~2017,~~2018, the conservation buffer was ~~1.25 percent.~~an amount more than 1.875%.

The ability of the Corporation to pay dividends to stockholders depends primarily on the ability of the Bank to pay dividends to the Corporation. 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. In the first six months of fiscal ~~2018,~~2019, the Bank paid a cash dividend of ~~$5.0~~$7.5 million to the Corporation; while the Corporation paid $2.1 million of cash dividends to its shareholders.

Supplemental Information

	At December 31, 2018	At June 30, 2018	At December 31, 2017

Loans serviced for others (in thousands)	$123,294	$128,409	$127,088

Book value per share	$16.34	$16.23	$16.15

~~Supplemental Information~~

At
December 31,
2017 At
June 30,
2017 At
December 31,
2016

Loans serviced for others (in thousands) $127,088 $119,304 $113,615

Book value per share $16.15 $16.62 $16.75

ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk.

One of the ~~Corporation’s~~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~~Corporation's interest-earning assets by retaining for its portfolio new loan originations with interest rates subject to periodic adjustment to market conditions and by selling fixed-rate, single-family mortgage loans. In addition, the Corporation maintains an investment portfolio, which is largely in U.S. government agency MBS and U.S. government sponsored enterprise MBS with contractual maturities of up to 30 years that reprice ~~periodically~~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 as a secondary source of funding. Management believes retail deposits, unlike brokered deposits, 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”~~("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 -100, +100, +200, +300 and +400 basis points ~~(“bp”~~("bp") with no effect given to steps that management might take to counter the effect of the interest rate movement. The current federal funds rate is ~~1.50~~2.50 percent making an immediate change of -200 and -300 basis points improbable.

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 December 31, ~~2017~~2018 (dollars in thousands).


Basis Points ("bp") Change in Rates	Net Portfolio Value		NPV Change⁽¹⁾			Portfolio Value of Assets		NPV as Percentage of Portfolio Value Assets⁽²⁾	Sensitivity Measure⁽³⁾	Net Portfolio Value		NPV Change ⁽¹⁾			Portfolio Value of Assets		NPV as Percentage of Portfolio Value Assets ⁽²⁾	Sensitivity Measure ⁽³⁾
+400 bp	$	262,577	$	129,152		$	1,282,301	20.48%	+919 bp	$	241,427	$	123,479		$	1,229,892	19.63%	+921 bp
+300 bp	$	236,832	$	103,407		$	1,263,229	18.75%	+746 bp	$	216,894	$	98,946		$	1,211,292	17.91%	+749 bp
+200 bp	$	206,859	$	73,434		$	1,240,231	16.68%	+539 bp	$	188,062	$	70,114		$	1,188,611	15.82%	+540 bp
+100 bp	$	172,084	$	38,659		$	1,212,942	14.19%	+290 bp	$	154,714	$	36,766		$	1,161,806	13.32%	+290 bp
0 bp	$	133,425	$	—		$	1,181,462	11.29%	0 bp	$	117,948	$	—		$	1,131,645	10.42%	0 bp
-100 bp	$	120,515	$	(12,910	)	$	1,173,826	10.27%	-102 bp	$	110,957	$	(6,991	)	$	1,124,294	9.87%	-55 bp


⁽¹⁾	Represents the increase (decrease) of the NPV at the indicated interest rate change in comparison to the NPV at December 31, ~~2017 (“~~2018 ("base ~~case”~~case").


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


⁽³⁾	Derived asfrom the change in the NPV ratio from the base case amount assuming the indicated change in interest rates (expressed in basis points).

The following table is derived from the internal interest rate risk model and represents the change in the NPV at a -100 basis point rate shock at December 31, ~~2017~~2018 and June 30, ~~2017.~~2018.


	At December 31, 2017	At June 30, 2017	At December 31, 2018	At June 30, 2018
	(-100 bp rate shock)		(-100 bp rate shock)	(-100 bp rate shock)
Pre-Shock NPV Ratio: NPV as a % of PV Assets	11.29%	11.49%	10.42%	10.24%
Post-Shock NPV Ratio: NPV as a % of PV Assets	10.27%	10.16%	9.87%	9.62%
Sensitivity Measure: Change in NPV Ratio	-102 bp	-133 bp	-55 bp	-62 bp

The pre-shock NPV ratio ~~declined 20~~increased 18 basis points to ~~11.29~~10.42 percent at December 31, ~~2017~~2018 from ~~11.49~~10.24 percent at June 30, ~~2017 while~~2018 and the post-shock NPV ratio increased 1125 basis points to ~~10.27~~9.87 percent at December 31, ~~2017~~2018 from ~~10.16~~9.62 percent at June 30, ~~2017. As~~2018. The increase of the NPV ratios was primarily attributable to net income in the first six months of fiscal 2019 and higher net valuation of total assets in comparison to total liabilities, partly offset by a ~~result,~~$7.5 million cash dividend distribution from the ~~sensitivity ratio declined 31 basis points~~Bank to ~~102 basis points at December 31, 2017 from 133 basis points at June 30, 2017.~~the Corporation in September 2018.

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 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 borrowers could result in an increase in delinquencies and defaults. Changes in market interest rates may also affect the volume and profitability of the ~~Corporation’s~~Corporation's mortgage banking operations. 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 ~~principal cash flows.~~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 ~~as applicable,~~ concerning their most likely withdrawal behaviors.

The following table represents the interest rate gap analysis of the Corporation's assets and liabilities as of December 31, ~~2017:~~2018:


			Term to Repricing or Maturity⁽¹⁾																	Term to Contractual Repricing, Estimated Repricing, or Contractual Maturity ⁽¹⁾
			As of December 31, 2017																	As of December 31, 2018
			12 months or less			Greater than 1 year to 3 years			Greater than 3 years to 5 years			Greater than 5 years or non sensitive			Total					12 months or less			Greater than 1 year to 3 years			Greater than 3 years to 5 years			Greater than 5 years or non-sensitive			Total
			(Dollars In thousands)																	(Dollars In thousands)
Repricing Assets:	Repricing Assets:																	Repricing Assets:
	Cash and cash equivalents		$	44,345		$	—		$	—		$	2,828		$	47,173		Cash and cash equivalents		$	61,030		$	—		$	—		$	6,329		$	67,359
	Investment securities		41,399			—			—			54,632			96,031			Investment securities		38,848			—			—			52,705			91,553
	Loans held for investment		303,164			231,237			265,483			86,092			885,976			Loans held for investment		278,915			229,289			277,651			89,558			875,413
	Loans held for sale		96,589			—			—			—			96,589			Loans held for sale		57,562			—			—			—			57,562
	FHLB - San Francisco stock		8,108			—			—			—			8,108			FHLB - San Francisco stock		8,199			—			—			—			8,199
	Other assets		—			—			—			28,254			28,254			Other assets		3,156			—			—			23,928			27,084
		Total assets	493,605			231,237			265,483			171,806			1,162,131				Total assets	447,710			229,289			277,651			172,520			1,127,170

Repricing Liabilities and Equity:	Repricing Liabilities and Equity:																	Repricing Liabilities and Equity:
	Checking deposits - non-interest bearing		—			—			—			77,144			77,144			Checking deposits - non-interest bearing		—			—			—			78,866			78,866
	Checking deposits - interest bearing		38,454			76,909			76,909			64,091			256,363			Checking deposits - interest bearing		38,482			76,965			76,965			64,137			256,549
	Savings deposits		58,484			116,968			116,968			—			292,420			Savings deposits		55,429			110,858			110,858			—			277,145
	Money market deposits		17,362			17,362			—			—			34,724			Money market deposits		18,314			18,313			—			—			36,627
	Time deposits		101,557			111,721			29,208			4,651			247,137			Time deposits		122,217			76,853			23,694			933			223,697
	FHLB - San Francisco borrowings		10,000			20,000			31,189			50,000			111,189			Borrowings		10,000			31,135			30,000			40,000			111,135
	Other liabilities		—			—			—			22,454			22,454			Other liabilities		346			—			—			20,128			20,474
	Stockholders' equity		—			—			—			120,700			120,700			Stockholders' equity		—			—			—			122,677			122,677
		Total liabilities and stockholders' equity	225,857			342,960			254,274			339,040			1,162,131				Total liabilities and stockholders' equity	244,788			314,124			241,517			326,741.			1,127,170

Repricing gap positive (negative)	Repricing gap positive (negative)		$	267,748		$	(111,723	)	$	11,209		$	(167,234	)	$	—		Repricing gap positive (negative)		$	202,922		$	(84,835	)	$	36,134		$	(154,221	)	$	—
Cumulative repricing gap:	Cumulative repricing gap:																	Cumulative repricing gap:
	Dollar amount		$	267,748		$	156,025		$	167,234		$	—		$	—		Dollar amount		$	202,922		$	118,087		$	154,221		$	—		$	—
	Percent of total assets		23		%	13		%	14		%	—		%	—		%	Percent of total assets		18		%	10		%	14		%	—		%	—		%

⁽¹⁾ Cash and cash equivalents are presented as ~~forecast~~estimated repricing; investment securities and loans held for investment are presented as contractual maturities or contractual repricing (without consideration for prepayments); loans held for sale and transaction accounts are presented as ~~forecast~~estimated repricing; FHLB - San Francisco stock is presented as ~~forecast~~contractual repricing; while time deposits (without consideration for early withdrawals) and ~~FHLB - San Francisco~~ borrowings are presented as contractual maturities.

The static gap analysis shows a positive position in the ~~"12 months or less" category and the "Greater than 3 years to 5 years"~~"Cumulative repricing gap - dollar amount" category, indicating more assets are sensitive to repricing than liabilities; while the gap analysis shows a negative position in the "Greater than 1 year to 3 years" category and the "Greater than 5 years or non sensitive" category, indicating more liabilities are sensitive to repricing than assets. However, the cumulative repricing gap is positive in each category. Non-maturity checking deposits are available for immediate withdrawal and are therefore assumed to be inherently sensitive to changes in interest rates.liabilities. Management views non-interest bearing 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 percent~~15% per year, savings deposits at ~~20 percent~~20% per year and money market deposits at ~~50 percent~~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 interest rate risk

exposure at a specific point in time without taking into account redirection of cash flows activity and deposit ~~fluctuations, and repricing.~~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 ~~interest rates.~~rates of interest. Additionally, prepayments of loans and early withdrawals of certificates of deposit 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 ~~market~~rates of interest ~~rates~~ 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~~Corporation's current balance sheet and repricing characteristics;

Forecasted 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 400, 300, 200 and 100 and minus 100 basis points.

The following table describes the results of the analysis at December 31, ~~2017~~2018 and June 30, ~~2017.~~2018.


At December 31, 2017		At June 30, 2017
At December 31, 2018				At December 31, 2018	At June 30, 2018
Basis Point (bp) Change in Rates	Change in Net Interest Income	Basis Point (bp) Change in Rates	Change in Net Interest Income	Change in Net Interest Income	Basis Point (bp) Change in Rates	Change in Net Interest Income
+400 bp	11.76%	+400 bp	16.70%	7.56%	+400 bp	7.84%
+300 bp	10.03%	+300 bp	14.23%	6.74%	+300 bp	6.83%
+200 bp	8.22%	+200 bp	11.62%	5.80%	+200 bp	5.73%
+100 bp	6.12%	+100 bp	8.29%	4.53%	+100 bp	4.53%
-100 bp	(5.29)%	-100 bp	(3.68)%	(6.02)%	-100 bp	(3.98)%

At ~~both~~ December 31, ~~2017~~2018 and June 30, ~~2017,~~2018, the Corporation was asset sensitive as its interest-earning assets at those dates are expected to reprice more quickly than its interest-bearing liabilities during the subsequent 12-month period. Therefore, ~~at December 31, 2017 and June 30, 2017,~~ in a rising interest rate environment, the model ~~forecasts~~projects an increase in net interest income over the subsequent 12-month period. In a falling interest rate environment, the ~~model forecasts~~results project 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, the model results that the Corporation discloses should be thought of as a risk management tool to compare the trends of the ~~Corporation’s~~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~~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”~~"Act")) was carried out under the supervision and with the participation of the ~~Corporation’s~~Corporation's Chief Executive Officer, Chief Financial Officer and the ~~Corporation’s~~Corporation's Disclosure Committee as of the end of the period covered by this quarterly report. In designing and evaluating the ~~Corporation’s~~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~~Corporation's Chief Executive Officer and Chief Financial Officer concluded that the ~~Corporation’s~~Corporation's disclosure controls and procedures as of December 31, ~~2017~~2018 are 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~~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~~SEC's rules and forms.

b) There have been no changes in the ~~Corporation’s~~Corporation's internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended December 31, ~~2017,~~2018, that has materially affected, or is reasonably likely to materially affect, the ~~Corporation’s~~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~~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 issuesno material changes in the ~~ordinary course of an incident to the Corporation’s business. The Corporation is not a party to any pending~~ legal proceedings ~~that it believes would have a material adverse effect on the financial condition, operations or cash flows~~previously disclosed in Part I, Item 3 of the ~~Corporation,~~Corporation's Annual Report on Form 10-K for the year ended June 30, 2018, except as ~~set forth below. Additionally, in some actions, it is difficult to assess potential exposure because the Corporation is still in the early stages of the litigation.~~follows.

On ~~December 17, 2012, a class and collective action lawsuit, Gina McKeen-Chaplin, individually and on behalf of others similarly situated vs. the Bank was filed in~~November 13, 2018, the United States District Court for the Eastern District of California (the "Court") ~~against~~approved the Bank claiming damages, restitution and injunctive relief for alleged misclassification of certain employees as exempt rather than non-exempt, resulting in a failure to pay appropriate overtime compensation, to provide meal and rest periods, to pay waiting time penalties and to provide accurate wage statements (the “McKeen-Chaplin lawsuit”).

~~On August 12, 2015, the Court issued an order denying the plaintiffs'~~ motion for summary judgment and granting the Bank's motion for summary judgment affirming that the plaintiffs were properly classified as exempt employees and denying the federal claims. On August 18, 2015, the plaintiffs filed an appeal to the order. On July 5, 2017, the United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) reversed the Court’s ruling granting the Bank's motion for summary judgment, instead ruling the plaintiffs were improperly classified as exempt employees and were entitled to overtime compensation. The Ninth Circuit remanded the case back to the Court with instructions to enter summary judgement in favor of the plaintiffs. As a result of the Ninth Circuit’s unfavorable ruling, the Bank filed on September 7, 2017, a petition for writ of certiorari to the United States Supreme Court, which was denied on November 27, 2017.

On May 22, 2013, counsel in the McKeen-Chaplin lawsuit filed another class action called Neal versus Provident Savings Bank, F.S.B. (the “Neal lawsuit”) in California Superior Court in Alameda County (the "State Court"). The Neal lawsuit is virtually identical to the McKeen-Chaplin lawsuit alleging that mortgage underwriters were misclassified as exempt employees and is in the early stages of litigation.

On December 18, 2017, the Bank entered into a Memorandum of Understanding with the plaintiffs' representatives to memorialize an agreement in principle to settle the pending McKeen-Chaplin and Neal Lawsuits. The Memorandum of Understanding assumes class certification for purposesfinal approval of the settlement only and provides for an aggregate settlement payment by the Bank of $1.8 million, which includes all settlement funds, the named plaintiff service payments, and class counsel's attorneys' fees and costs. Any additional costs and expenses related to employer-side payroll taxes will be paid by the Bank.

~~The Bank's decision to settle these lawsuits was the result of the unfavorable ruling by the United States Supreme Court~~agreement in the two class and collective action lawsuits filed by Gina McKeen-Chaplin, ~~lawsuit~~individually and the significant legal costs, distraction from day-to-day operating activities and substantial resources that would be required to defend the Bank in protracted litigation if the Neal lawsuit would proceed. In addition, the Bank determined that the settlement would reduce the Bank's potential exposure to damages, penalties, fines and plaintiffs' legal fees in the eventon behalf of ~~an unfavorable outcome in the Neal lawsuit. The settlement will include the dismissal of all claims against the Bank and related parties in the McKeen-Chaplin~~others and Neal, ~~Lawsuits without any admission of liability or wrongdoing attributed to~~respectively, against the Bank. The settlement ~~described in~~funds have been distributed to the ~~Memorandum of Understanding~~plaintiffs and plaintiff's counsel consistent with the settlement agreements. The Court set a compliance hearing for January 30, 2019 at which time the court will consider evidence that the distribution process is complete and that a final accounting may be approved.

The long-form settlement agreement has been executed by all parties for the lawsuit known as Cannon versus the Bank but remains subject to ~~court~~ approval and other customary conditions, including a limitation on the number of plaintiffs in each lawsuit that may opt out of the proposed settlement. If the opt out number for either lawsuit is exceeded, the Bank may at its sole and absolute discretion void the settlement within 30 days of receiving notice of the number of plaintiff’s electing to opt out of the settlement.

~~Based on the proposed settlement, the Corporation recorded litigation expense accrual of $650,000 in the second quarter of fiscal 2018 to fully reserve for the agreed upon settlement amount.~~

~~On August 6, 2015, a former employee, Christina Cannon, filed a lawsuit called Cannon versus the Bank~~ in the California Superior Court for the County of San Bernardino. Cannon seeks to represent a class of all non-exempt employees in a class action lawsuit brought under California’s Unfair Competition Law, Business & Professions Code section 17200. The underlying claims include unpaid overtime (including off-the-clock work), meal and rest period violations, minimum wage violations, and failure to reimburse business expenses. On SeptemberA hearing date has been set for February 8, 2017, the attorneys for the plaintiffs in the Cannon Lawsuit sent notification to the Bank and to the California Labor & Workforce Development Agency informing them of their intent to bring a claim under the Private Attorneys’ General Act of 2004 (“PAGA”) on behalf of all non-exempt employees and covering a variety of alleged wage and hour violations. On September 12, 2017, the Bank entered into a Memorandum of Understanding with the plaintiffs’ representatives to memorialize an agreement in principle to settle the pending Cannon Lawsuit. The Memorandum of Understanding assumes class certification for purposes of2019 regarding the settlement ~~only and provides for an aggregate settlement payment by the Bank~~ of $2.8 million, which includes all settlement funds, the class representative enhancement award, settlement administrator’s expenses, any employer-side payroll taxes, and class counsel’s attorneys’ fees and costs. The Bank’s decision to settle this matter was the result of the significant legal costs, distraction from day-to-day operating activities and substantial resources that would be required to defend the Bank in protracted litigation. In addition, the Bank determined that the settlement would reduce the Bank’s potential exposure to damages, penalties, fines and plaintiffs’ legal fees in the event of an unfavorable outcome in a court trial. The settlement includes the dismissal of all claims against the Bank and related parties in the Cannon Lawsuit and claim under the PAGA, without any admission of liability or wrongdoing attributed to the Bank. The settlement described in the Memorandum of Understanding remains subject to court approval and other customary conditions. Because of the uncertainty surrounding this litigation, no litigation reserve had been previously established by the Bank resulting in the full $2.8 million settlement expense being recognized in the first quarter of fiscal 2018.

~~The Corporation is not a party to any other pending legal proceedings that it believes would have a material adverse effect on the financial condition, operations and cash flows of the Corporation.~~matter.

Item 1A. Risk Factors.

~~There~~Except as set forth below, there have been no material changes in the risk factors previously disclosed in Part I, Item 1A of the Corporation's Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2018.

The discontinuation of our mortgage banking segment could adversely affect our results of operations.

On February 4, 2019, we announced the discontinuation of our mortgage banking segment conducted through Provident Bank Mortgage, a division of Provident Savings Bank, F.S.B. by June 30, 2019. As a result, we expect to incur one-time costs of approximately $3.6 million to $4.0 million during the remainder of fiscal 2019. It may take longer than we expect to complete the winding down of this business and we may incur costs that exceed our estimated costs. Although we anticipate the elimination of the quarterly pretax losses from the mortgage banking segment of $1.6 million (based on the second quarter of fiscal 2019) and we anticipate increases in pre-tax income in our community banking segment of $1.2 million per quarter as a result of this change, no assurance can be given as to when or whether we will realize this benefit.

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

The table below represents the ~~Corporation’s~~Corporation's purchases of its equity securities for the second quarter of fiscal ~~2018.~~2019.

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plan	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plan ⁽¹⁾
October 1 – 31, 2018	505	$	17.01	—	373,000
November 1 – 30, 2018	—	$	—	—	373,000
December 1 – 31, 2018	—	$	—	—	373,000
Total	505	$	17.01	—	373,000

Period

(a) Total
Number of
Shares Purchased

(b) Average
Price Paid
per Share

(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plan
(d) Maximum
Number of Shares
that May Yet Be
Purchased Under the
Plan ⁽¹⁾
October 1 – 31, 2017 2,776
$19.42 2,776
256,424
November 1 – 30, 2017 47,671
$19.21 47,671
208,753
December 1 – 31, 2017 90,079
$19.23 90,079
118,674
Total 140,526
$19.23 140,526
118,674


⁽¹⁾	Represents the remaining shares available for future purchases under the ~~June 2017~~April 2018 stock repurchase plan.

~~During the quarter ended December 31, 2017, the Corporation purchased 140,526 shares of the Corporation’s common stock at an average cost of $19.23 per share.~~ As of December 31, ~~2017, a total of 266,526~~2018, no shares ~~or 69 percent of the shares authorized~~ in the ~~June 2017~~April 2018 stock repurchase plan have been purchased, ~~at an average cost of $19.33 per share,~~ leaving ~~118,674~~all 373,000 shares available for future purchases. During the quarter ended December 31, ~~2017,~~2018, the Corporation issued 5,000 shares of common stock consistent the exercise of certain stock options and 1,500 shares of restricted common stock vested. The Company purchased 505 shares at an average price of $17.01 per share from recipients to fund their withholding tax obligations in the second quarter of fiscal 2019. For the six months ended December 31, 2018, the Corporation issued 20,000 shares of common stock consistent with the exercise of certain stock options and 86,500 shares of restricted common stock vested. The Company purchased 21,071 shares at an average price of $18.28 per share from recipients to fund their withholding tax obligations in the first six months of fiscal 2019. During the quarter and six months ended December 31, 2018, the Corporation did not sell any securities that were not registered under the Securities Act of 1933.

The Corporation is subject to regulatory capital requirements adopted by the Federal Reserve Board, which generally are the same as the capital requirements for the Bank. These capital requirements include provisions that limit the ability of the Corporation to pay dividends to its stockholders or repurchase its shares.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

Exhibits:



3.1 (a)	~~Certificate of Incorporation of Provident Financial Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Corporation’s Registration Statement on Form S-1 (File No. 333-2230))~~

~~3.1 (b)~~	~~Certificate of Amendment to~~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)

3.1 ~~(c)~~(b)	Amended and Restated Bylaws of Provident Financial Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the ~~Corporation’s~~Corporation's Current Report on Form 8-K filed on December 1, 2014)

10.1	Employment Agreement with Craig G. Blunden (incorporated by reference to Exhibit 10.1 to the ~~Corporation’s~~Corporation's Form 8-K dated December 19, 2005)



10.2	Post-Retirement Compensation Agreement with Craig G. Blunden (incorporated by reference to Exhibit 10.2 to the ~~Corporation’s~~Corporation's Form 8-K dated December 19, 2005)


10.3	Post-Retirement Compensation Agreement with Donavon P. Ternes (incorporated by reference to Exhibit 10.1 to the ~~Corporation’s~~Corporation's Form 8-K dated July 7, 2009)

10.4	Form of Severance Agreement with Deborah L. Hill, Robert "Scott" Ritter, Lilian Salter, Donavon P. Ternes, David S. Weiant and Gwendolyn L. Wertz (incorporated by reference to Exhibit 10.1 in the ~~Corporation’s~~Corporation's Form 8-K dated February 24, 2012)

10.5	2006 Equity Incentive Plan (incorporated by reference to Exhibit A to the ~~Corporation’s~~Corporation's proxy statement dated October 12, 2006)

10.6	Form of Incentive Stock Option Agreement for options granted under the 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.10 in the ~~Corporation’s~~Corporation's Form 10-Q for the quarter ended December 31, 2006)

10.7	Form of Non-Qualified Stock Option Agreement for options granted under the 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.11 in the ~~Corporation’s~~Corporation's Form 10-Q for the quarter ended December 31, 2006)

10.8	Form of Restricted Stock Agreement for restricted shares awarded under the 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.12 in the ~~Corporation’s~~Corporation's Form 10-Q for the quarter ended December 31, 2006)

10.9	2010 Equity Incentive Plan (incorporated by reference to Exhibit A to the ~~Corporation’s~~Corporation's proxy statement dated October 28, 2010)

10.10	Form of Incentive Stock Option Agreement for options granted under the 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 in the ~~Corporation’s~~Corporation's Form 8-K dated November 30, 2010)

10.11	Form of Non-Qualified Stock Option Agreement for options granted under the 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 in the ~~Corporation’s~~Corporation's Form 8-K dated November 30, 2010)

10.12	Form of Restricted Stock Agreement for restricted shares awarded under the 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 in the ~~Corporation’s~~Corporation's Form 8-K dated November 30, 2010)

10.13	2013 Equity Incentive Plan (incorporated by reference to Exhibit A to the ~~Corporation’s~~Corporation's proxy statement dated October 24, 2013)

10.14	Form of Incentive Stock Option Agreement for options granted under the 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 in the ~~Corporation’s~~Corporation's Registration Statement on Form S-8 (333-192727) dated December 9, 2013)

10.15	Form of Non-Qualified Stock Option Agreement for options granted under the 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 in the ~~Corporation’s~~Corporation's Registration Statement on Form S-8 (333-192727) dated December 9, 2013)

10.16	Form of Restricted Stock Agreement for restricted shares awarded under the 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 in the ~~Corporation’s~~Corporation's Registration Statement on Form S-8 (333-192727) dated December 9, 2013)


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~~Corporation's Quarterly Report on Form 10-Q for the quarter ended December 31, ~~2017,~~2018, 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; (4) Condensed Consolidated Statements of ~~Stockholders’~~Stockholders' Equity; (5) Condensed Consolidated Statements of Cash Flows; and (6) Selected Notes to Condensed Consolidated Financial Statements.

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: February 8, ~~2018~~2019	/s/ Craig G. Blunden
	Craig G. Blunden
	Chairman and Chief Executive Officer (Principal Executive Officer)



Date: February 8, ~~2018~~2019	/s/ Donavon P. Ternes
	Donavon P. Ternes
	President, Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit Index



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~~Corporation's Quarterly Report on Form 10-Q for the quarter ended December 31, ~~2017,~~2018, 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; (4) Condensed Consolidated Statements of ~~Stockholders’~~Stockholders' Equity; (5) Condensed Consolidated Statements of Cash Flows; and (6) Selected Notes to Condensed Consolidated Financial Statements.



	Common Stock				Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss), Net of Tax
	Shares		Amount													Total
Balance at September 30, 2017	7,609,552		$	180	$	93,669	$	191,451		$	(160,609	)	$	230		$	124,921

Net loss							(777		)							(777		)
Other comprehensive loss													(20		)	(20		)
Purchase of treasury stock	(140,526	)								(2,702		)				(2,702		)
Exercise of stock options	5,750				84											84
Amortization of restricted stock					142											142
Stock options expense					116											116
Cash dividends⁽¹⁾							(1,064		)							(1,064		)

Balance at December 31, 2017	7,474,776		$	180	$	94,011	$	189,610		$	(163,311	)	$	210		$	120,700



	For the Quarter Ended December 31, 2016
(In Thousands)	Provident Bank			Provident Bank Mortgage			Consolidated Totals
Net interest income	$	7,821		$	1,264		$	9,085
Recovery from the allowance for loan losses	(346		)	(4		)	(350		)
Net interest income after recovery from the allowance for loan losses	8,167			1,268			9,435

Non-interest income:
Loan servicing and other fees ⁽¹⁾	250			60			310
Gain on sale of loans, net ⁽²⁾	37			6,441			6,478
Deposit account fees	552			—			552
Loss on sale and operations of real estate owned acquired in the settlement of loans, net	(58		)	(5		)	(63		)
Card and processing fees	361			—			361
Other	194			—			194
Total non-interest income	1,336			6,496			7,832

Non-interest expense:
Salaries and employee benefits	4,642			5,707			10,349
Premises and occupancy	792			443			1,235
Operating and administrative expenses	1,152			1,932			3,084
Total non-interest expense	6,586			8,082			14,668
Income (loss) before income taxes	2,917			(318		)	2,599
Provision (benefit) for income taxes	1,228			(133		)	1,095
Net income (loss)	$	1,689		$	(185	)	$	1,504
Total assets, end of period	$	1,035,158		$	156,997		$	1,192,155



	December 31, 2017				June 30, 2017
(In Thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value

Held to maturity:
Due in one year or less	$	600	$	600	$	600	$	600
Due after one through five years	11,036		11,002		4,698		4,708
Due after five through ten years	43,596		43,286		41,404		41,374
Due after ten years	32,394		32,448		13,739		13,947
Total investment securities - held to maturity	$	87,626	$	87,336	$	60,441	$	60,629

Available for sale:
Due in one year or less	$	—	$	—	$	—	$	—
Due after one through five years	—		—		—		—
Due after five through ten years	—		—		—		—
Due after ten years	8,068		8,405		8,954		9,318
Total investment securities - available for sale	$	8,068	$	8,405	$	8,954	$	9,318
Total investment securities	$	95,694	$	95,741	$	69,395	$	69,947


▪	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 asset~~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.


▪	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.

	December 31, 2018
(In Thousands)	Single- family		Multi- family		Commercial Real Estate		Construction		Other Mortgage		Commercial Business		Consumer		Total

Pass	$	303,973	$	443,127	$	122,830	$	3,241	$	167	$	399	$	103	$	863,80
Special Mention		1,400		3,906		—		—				—		—		5,306
Substandard		7,126		—		—		745		—		56		—		7,927
Total loans held for investment, gross	$	312,499	$	447,033	$	112,830	$	3,986	$	167	$	455	$	103	$	877,073

	December 31, 2018
(In Thousands)	Current		30-89 Days Past Due		Non-Accrual ⁽¹⁾			Total Loans Held for Investment, Gross

Mortgage loans:
Single-family	$	306,873	$	—		$	5,626		$	312,499
Multi-family		447,033		—			—			447,033
Commercial real estate		112,830		—			—			112,830
Construction		3,241		—			745			3,986
Other		167		—			—			167
Commercial business loans		399		—			56			455
Consumer loans		101		2			—			103
Total loans held for investment, gross	$	870,644	$	2		$	6,427		$	877,073

	Quarter Ended December 31, 2018
(In Thousands)	Single- family			Multi- family			Commercial Real Estate			Construction			Other			Commercial Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period	$	2,741		$	3,336		$	1,012		$	38		$	3		$	19		$	6		$	7,155
(Recovery) provision for loan losses		(185	)		(56	)		7			10			—			7			—			(217	)
Recoveries		123			—			—			—			—			—			—			123
Charge-offs		—			—			—			—			—			—			—			—
Allowance for loan losses, end of period	$	2,679		$	3,280		$	1,019		$	48		$	3		$	26		$	6		$	7,061

Allowance for loan losses:
Individually evaluated for impairment	$	159		$	—		$	—		$	—		$	—		$	9		$	—		$	168
Collectively evaluated for impairment		2,520			3,280			1,019			48			3			17			6			6,893
Allowance for loan losses, end of period	$	2,679		$	3,280		$	1,019		$	48		$	3		$	26		$	6		$	7,061

Loans held for investment:
Individually evaluated for impairment	$	5,817		$	—		$	—		$	745		$	—		$	56		$	—		$	6,618
Collectively evaluated for impairment		306,682			447,033			112,830			3,241			167			399			103			870,455
Total loans held for investment, gross	$	312,499		$	447,033		$	112,830		$	3,986		$	167		$	455		$	103		$	877,073
Allowance for loan losses as a percentage of gross loans held for investment		0.86	%		0.73	%		0.90	%		1.20	%		1.80	%		5.71	%		5.83	%		0.80	%


		Quarter Ended December 31, 2017																						Quarter Ended December 31, 2017
(In Thousands)	(In Thousands)	Single-family			Multi-family			Commercial Real Estate			Construction			Commercial Business			Consumer			Total				Single- family			Multi- family			Commercial Real Estate			Construction			Commercial Business			Consumer			Total
Allowance for loan losses:	Allowance for loan losses:																						Allowance for loan losses:
Allowance at beginning of period	Allowance at beginning of period	$	3,579		$	3,431		$	875		$	140		$	31		$	7		$	8,063		Allowance at beginning of period	$	3,579		$	3,431		$	875		$	140		$	31		$	7		$	8,063
(Recovery) provision for loan losses	(Recovery) provision for loan losses	(299		)	(136		)	58			364			1			1			(11		)	(Recovery) provision for loan losses		(299	)		(136	)		58			364			1			1			(11	)
Recoveries	Recoveries	48			—			—			—			—			—			48					48			—			—			—			—			—			48
Charge-offs	Charge-offs	(25		)	—			—			—			—			—			(25		)			(25	)		—			—			—			—			—			(25	)
	Allowance for loan losses, end of period	$	3,303		$	3,295		$	933		$	504		$	32		$	8		$	8,075
Allowance for loan losses, end of period																							Allowance for loan losses, end of period	$	3,303		$	3,295		$	933		$	504		$	32		$	8		$	8,075

Allowance for loan losses:	Allowance for loan losses:
Individually evaluated for impairment	Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	15		$	—		$	15		Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	15		$	—		$	15
Collectively evaluated for impairment	Collectively evaluated for impairment	3,303			3,295			933			504			17			8			8,060					3,303			3,295			933			504			17			8			8,060
	Allowance for loan losses, end of period	$	3,303		$	3,295		$	933		$	504		$	32		$	8		$	8,075
Allowance for loan losses, end of period																							Allowance for loan losses, end of period	$	3,303		$	3,295		$	933		$	504		$	32		$	8		$	8,075

Loans held for investment:	Loans held for investment:
Individually evaluated for impairment	Individually evaluated for impairment	$	7,038		$	—		$	—		$	—		$	76		$	—		$	7,114			$	7,038		$	—		$	—		$	—		$	76		$	—		$	7,114
Collectively evaluated for impairment	Collectively evaluated for impairment	306,799			463,786			103,366			14,430			402			144			888,927					306,799			463,786			103,366			7,072			402			144			881,569
	Total loans held for investment, gross	$	313,837		$	463,786		$	103,366		$	14,430		$	478		$	144		$	896,041
Total loans held for investment, gross																							Total loans held for investment, gross	$	313,837		$	463,786		$	103,366		$	7,072		$	478		$	144		$	888,683
Allowance for loan losses as a percentage of gross loans held for investment	Allowance for loan losses as a percentage of gross loans held for investment	1.05		%	0.71		%	0.90		%	3.49		%	6.69		%	5.56		%	0.90		%	Allowance for loan losses as a percentage of gross loans held for investment		1.05	%		0.71	%		0.90	%		7.13	%		6.69	%		5.56	%		0.90	%

	Six Months Ended December 31, 2018
(In Thousands)	Single- family			Multi- family			Commercial Real Estate			Construction			Other			Commercial Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period	$	2,783		$	3,492		$	1,030		$	47		$	$ 3		$	24		$	6			$	7,385
(Recovery) provision for loan losses		(234	)		(212	)		(11	)		1			—			2			—				(454	)
Recoveries		155			—			—			—			—			—			1				156
Charge-offs		(25	)		—			—			—			—			—			(1	)			(26	)
Allowance for loan losses, end of period	$	2,679		$	3,280		$	1,019		$	48		$	$ 3		$	26		$	6			$	7,061

Allowance for loan losses:
Individually evaluated for impairment	$	159		$	—		$	—		$	—		$	$ —		$	9		$	—			$	168
Collectively evaluated for impairment		2,520			3,280			1,019			48			3			17			6				6,893
Allowance for loan losses, end of period	$	2,679		$	3,280		$	1,019		$	48		$	$ 3		$	26		$	6			$	7,061

Loans held for investment:
Individually evaluated for impairment	$	5,817		$	—		$	—		$	745		$	$ —		$	56		$	—			$	6,618
Collectively evaluated for impairment		306,682			447,033			112,830			3,241			167			399			103				870,455
Total loans held for investment, gross	$	312,499		$	447,033		$	112,830		$	3,986		$	167		$	455		$	103			$	877,073
Allowance for loan losses as a percentage of gross loans held for investment		0.86	%		0.73	%		0.90	%		1.20	%		1.80	%		5.71	%		5.83	%			0.80	%



		Quarter Ended December 31, 2016
(In Thousands)		Single-family			Multi-family			Commercial Real Estate			Construction			Other Mortgage			Commercial Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period		$	4,575		$	3,186		$	854		$	53		$	7		$	42		$	8		$	8,725
(Recovery) provision for loan losses		(304		)	(36		)	(18		)	12			(1		)	(5		)	2			(350		)
Recoveries		33			6			—			—			—			—			—			39
Charge-offs		(21		)	—			—			—			—			—			(2		)	(23		)
	Allowance for loan losses, end of period	$	4,283		$	3,156		$	836		$	65		$	6		$	37		$	8		$	8,391

Allowance for loan losses:
Individually evaluated for impairment		$	97		$	—		$	—		$	—		$	—		$	15		$	—		$	112
Collectively evaluated for impairment		4,186			3,156			836			65			6			22			8			8,279
	Allowance for loan losses, end of period	$	4,283		$	3,156		$	836		$	65		$	6		$	37		$	8		$	8,391

Loans held for investment:
Individually evaluated for impairment		$	7,844		$	374		$	—		$	—		$	—		$	85		$	—		$	8,303
Collectively evaluated for impairment		308,751			448,091			98,044			16,872			265			525			184			872,732
	Total loans held for investment, gross	$	316,595		$	448,465		$	98,044		$	16,872		$	265		$	610		$	184		$	881,035
Allowance for loan losses as a percentage of gross loans held for investment		1.35		%	0.70		%	0.85		%	0.39		%	2.26		%	6.07		%	4.35		%	0.96		%



		Six Months Ended December 31, 2017
(In Thousands)		Single-family			Multi-family			Commercial Real Estate			Construction			Commercial Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period		$	3,601		$	3,420		$	879		$	96		$	36		$	7		$	8,039
(Recovery) provision for loan losses		(176		)	(125		)	54			408			(4		)	1			158
Recoveries		132			—			—			—			—			—			132
Charge-offs		(254		)	—			—			—			—			—			(254		)
	Allowance for loan losses, end of period	$	3,303		$	3,295		$	933		$	504		$	32		$	8		$	8,075

Allowance for loan losses:
Individually evaluated for impairment		$	—		$	—		$	—		$	—		$	15		$	—		$	15
Collectively evaluated for impairment		3,303			3,295			933			504			17			8			8,060
	Allowance for loan losses, end of period	$	3,303		$	3,295		$	933		$	504		$	32		$	8		$	8,075

Loans held for investment:
Individually evaluated for impairment		$	7,038		$	—		$	—		$	—		$	76		$	—		$	7,114
Collectively evaluated for impairment		306,799			463,786			103,366			14,430			402			144			888,927
	Total loans held for investment, gross	$	313,837		$	463,786		$	103,366		$	14,430		$	478		$	144		$	896,041
Allowance for loan losses as a percentage of gross loans held for investment		1.05		%	0.71		%	0.90		%	3.49		%	6.69		%	5.56		%	0.90		%



		Six Months Ended December 31, 2016
(In Thousands)		Single-family			Multi-family			Commercial Real Estate			Construction			Other Mortgage			Commercial Business			Consumer			Total
Allowance for loan losses:
Allowance at beginning of period		$	4,933		$	2,800		$	848		$	31		$	7		$	43		$	8		$	8,670
(Recovery) provision for loan losses		(859		)	343			(12		)	34			(1		)	(6		)	1			(500		)
Recoveries		296			13			—			—			—			—			1			310
Charge-offs		(87		)	—			—			—			—			—			(2		)	(89		)
	Allowance for loan losses, end of period	$	4,283		$	3,156		$	836		$	65		$	6		$	37		$	8		$	8,391

Allowance for loan losses:
Individually evaluated for impairment		$	97		$	—		$	—		$	—		$	—		$	15		$	—		$	112
Collectively evaluated for impairment		4,186			3,156			836			65			6			22			8			8,279
	Allowance for loan losses, end of period	$	4,283		$	3,156		$	836		$	65		$	6		$	37		$	8		$	8,391

Loans held for investment:
Individually evaluated for impairment		$	7,844		$	374		$	—		$	—		$	—		$	85		$	—		$	8,303
Collectively evaluated for impairment		308,751			448,091			98,044			16,872			265			525			184			872,732
	Total loans held for investment, gross	$	316,595		$	448,465		$	98,044		$	16,872		$	265		$	610		$	184		$	881,035
Allowance for loan losses as a percentage of gross loans held for investment		1.35		%	0.70		%	0.85		%	0.39		%	2.26		%	6.07		%	4.35		%	0.96		%


			At December 31, 2017												At December 31, 2018
			Unpaid										Net		Unpaid										Net
			Principal		Related			Recorded					Recorded		Principal		Related			Recorded					Recorded
(In Thousands)	(In Thousands)		Balance		Charge-offs			Investment		Allowance⁽¹⁾			Investment		Balance		Charge-offs			Investment		Allowance ⁽¹⁾			Investment

Mortgage loans:	Mortgage loans:
Single-family:
With a related allowance															$	2,856	$	—		$	2,856	$	(393	)	$	2,463
Without a related allowance ⁽²⁾																3,368		(561	)		2,807		—			2,807
Total single-family																6,224		(561	)		5,663		(393	)		5,270
	Single-family:
		With a related allowance	$	1,126	$	—		$	1,126	$	(240	)	$	886
		Without a related allowance⁽²⁾	7,951		(913		)	7,038		—			7,038
	Total single-family		9,077		(913		)	8,164		(240		)	7,924
Construction:
Without a related allowance ⁽³⁾																745		—			745		—			745
Total construction																745		—			745		—			745

Commercial business loans:	Commercial business loans:
	With a related allowance		76		—			76		(15		)	61
With a related allowance																56		—		��	56		(9	)		47
Total commercial business loans	Total commercial business loans		76		—			76		(15		)	61			56		—			56		(9	)		47

Total non-performing loans	Total non-performing loans		$	9,153	$	(913	)	$	8,240	$	(255	)	$	7,985	$	7,025	$	(561	)	$	6,464	$	(402	)	$	6,062

	Quarter Ended December 31,
	2018				2017
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(In Thousands)	Investment		Recognized		Investment		Recognized

Without related allowances:
Mortgage loans:
Single-family	$	3,326	$	189	$	7,301	$	—
Construction		745		—		—		—
		4,071		189		7,301		—

With related allowances:
Mortgage loans:
Single-family		2,487		36		786		8
Commercial business loans		60		1		76		2
		2,547		37		862		10

Total	$	6,618	$	226	$	8,163	$	10

	Six Months Ended December 31,
	2018				2017
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(In Thousands)	Investment		Recognized		Investment		Recognized

Without related allowances:
Mortgage loans:
Single-family	$	3,963	$	229	$	7,659	$	135
Commercial real estate		—		—		34		13
Construction		496		—		—		496
		4,459		229		7,693		148

With related allowances:
Mortgage loans:
Single-family		2,279		60		608		19
Commercial business loans		64		2		77		3
		2,343		62		685		22

Total	$	6,802	$	291	$	8,378	$	170


Commitments	December 31, 2017		June 30, 2017		December 31, 2018			June 30, 2018
(In Thousands)

Undisbursed loan funds – Construction loans	$	7,358	$	9,015		$	5,747	$	4,302
Undisbursed lines of credit – Commercial business loans	559		646				1,488		495
Undisbursed lines of credit – Consumer loans	525		562				487		503
Commitments to extend credit on loans to be held for investment	9,702		19,119				7,376		9,352
Total	$	18,144	$	29,342		$	15,098	$	14,652


	For the Quarters Ended December 31,					For the Six Months Ended December 31,						For the Quarters Ended December 31,					For the Six Months Ended December 31,
(In Thousands)	2017			2016		2017			2016			2018		2017			2018			2017
Balance, beginning of the period	$	213		$	173	$	277		$	204		$	149	$	213		$	157		$	277
Recovery	(25		)	—		(89		)	(31		)
Provision (recovery)													1		(25	)		(7	)		(89	)
Balance, end of the period	$	188		$	173	$	188		$	173		$	150	$	188		$	150		$	188

	For the Quarters Ended December 31,						For the Six Months Ended December 31,
Derivative Financial Instruments	2018			2017			2018			2017
(In Thousands)
Commitments to extend credit on loans to be held for sale	$	8		$	29		$	(321	)	$	(93	)
Mandatory loan sale commitments and TBAMBS trades		(928	)		(582	)		(249	)		(791	)
Option contracts, net		—			—			—			(37	)
Total net loss	$	(920	)	$	(553	)	$	(570	)	$	(921	)


⁽¹⁾	Net of ~~30.6 percent~~26.3% at December 31, ~~2017~~2018 and ~~25.7 percent~~24.7% at June 30, ~~2017~~2018 of commitments which management has estimated may not fund.

	For the Quarters Ended December 31,					For the Six Months Ended December 31,
Recourse Liability	2018		2017			2018			2017
(In Thousands)

Balance, beginning of the period	$	250	$	305		$	283		$	305
Recovery from recourse liability		—		(22	)		(33	)		(22	)
Net settlements in lieu of loan repurchases		—		—			—			—
Balance, end of the period	$	250	$	283		$	250		$	283


(In Thousands)	Aggregate Fair Value		Aggregate Unpaid Principal Balance		Net Unrealized (Loss) Gain			Aggregate Fair Value		Aggregate Unpaid Principal Balance		Net Unrealized (Loss) Gain
As of December 31, 2017:
As of December 31, 2018:
Loans held for investment, at fair value	$	5,157	$	5,362	$	(205	)	$	4,995	$	5,261	$	(266	)
Loans held for sale, at fair value	$	96,589	$	93,449	$	3,140		$	57,562	$	55,648	$	1,914

As of June 30, 2017:
As of June 30, 2018:
Loans held for investment, at fair value	$	6,445	$	6,696	$	(251	)	$	5,234	$	5,546	$	(312	)
Loans held for sale, at fair value	$	116,548	$	112,940	$	3,608		$	96,298	$	93,791	$	2,507



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~~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.

	Fair Value Measurement at December 31, 2018 Using:
(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Investment securities - available for sale:
U.S. government agency MBS	$	—	$	3,942	$	—	$	3,942
U.S. government sponsored enterprise MBS		—		2,311		—		2,311
Private issue CMO		—		—		310		310
Investment securities - available for sale		—		6,253		310		6,563

Loans held for investment, at fair value		—		—		4,995		4,995
Loans held for sale, at fair value		—		57,562		—		57,562
Interest-only strips		—		—		21		21

Derivative assets:
Commitments to extend credit on loans to be held for sale		—		—		505		505
Mandatory loan sale commitments		—		—		1		1
Derivative assets		—		—		506		506
Total assets	$	—	$	63,815	$	5,832	$	69,647

Liabilities:
Derivative liabilities:
Commitments to extend credit on loans to be held for sale	$	—	$	—	$	1	$	1
Mandatory loan sale commitments		—		—		10		10
TBA MBS trades		—		680		—		680
Derivative liabilities		—		680		11		691
Total liabilities	$	—	$	680	$	11	$	691


	Fair Value Measurement at December 31, 2017 Using:								Fair Value Measurement at June 30, 2018 Using:
(In Thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Investment securities - available for sale:
U.S. government agency MBS	$	—	$	4,859	$	—	$	4,859	$	—	$	4,384	$	—	$	4,384
U.S. government sponsored enterprise MBS	—		3,127		—		3,127			—		2,762		—		2,762
Private issue CMO	—		—		419		419			—		—		350		350
Investment securities - available for sale	—		7,986		419		8,405			—		7,146		350		7,496

Loans held for investment, at fair value	—		—		5,157		5,157			—		—		5,234		5,234
Loans held for sale, at fair value	—		96,589		—		96,589			—		96,298		—		96,298
Interest-only strips	—		—		26		26			—		—		23		23

Derivative assets:
Commitments to extend credit on loans to be held for sale	—		—		737		737			—		—		849		849
TBA MBS trades	—		2		—		2
Derivative assets	—		2		737		739			—		—		849		849
Total assets	$	—	$	104,577	$	6,339	$	110,916	$	—	$	103,444	$	6,456	$	109,900

Liabilities:
Derivative liabilities:
Commitments to extend credit on loans to be held for sale	$	—	$	—	$	21	$	21	$	—	$	—	$	24	$	24
Mandatory loan sale commitments	—		—		24		24			—		—		32		32
TBA MBS trades	—		183		—		183			—		408		—		408
Derivative liabilities	—		183		45		228			—		408		56		464
Total liabilities	$	—	$	183	$	45	$	228	$	—	$	408	$	56	$	464



	Fair Value Measurement at June 30, 2017 Using:
(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Investment securities - available for sale:
U.S. government agency MBS	$	—	$	5,383	$	—	$	5,383
U.S. government sponsored enterprise MBS	—		3,474		—		3,474
Private issue CMO	—		—		461		461
Investment securities - available for sale	—		8,857		461		9,318

Loans held for investment, at fair value	—		—		6,445		6,445
Loans held for sale, at fair value	—		116,548		—		116,548
Interest-only strips	—		—		31		31

Derivative assets:
Commitments to extend credit on loans to be held for sale	—		—		847		847
Mandatory loan sale commitments	—		—		47		47
TBAMBS trades	—		539		—		539
Option contracts	—		—		37		37
Derivative assets	—		539		931		1,470
Total assets	$	—	$	125,944	$	7,868	$	133,812

Liabilities:
Derivative liabilities:
Commitments to extend credit on loans to be held for sale	$	—	$	—	$	38	$	38
Derivative liabilities	—		—		38		38
Total liabilities	$	—	$	—	$	38	$	38

	For the Quarter Ended December 31, 2018
	Fair Value Measurement Using Significant Other Unobservable Inputs (Level 3)
(In Thousands)	Private Issue CMO			Loans Held For Investment, at fair value ⁽¹⁾			Interest- Only Strips			Loan Commitments to Originate ⁽²⁾		Mandatory Commitments ⁽³⁾			Total
Beginning balance at September 30, 2018	$	316		$	4,945		$	24		$	496	$	(9	)	$	5,772
Total gains or losses (realized/unrealized):
Included in earnings		—			95			—			8		(1	)		102
Included in other comprehensive loss		(1	)		—			(3	)		—		—			(4	)
Purchases		—			—			—			—		—			—
Issuances		—			—			—			—		—			—
Settlements		(5	)		(45	)		—			—		1			(49	)
Transfers in and/or out of Level 3		—			—			—			—		—			—
Ending balance at December 31, 2018	$	310		$	4,995		$	21		$	504	$	(9	)	$	5,821


⁽¹⁾	The valuation of loans held for investment at fair value includes the management estimates of the specific credit risk attributes of each loan, ~~(Level 3),~~ in addition to the quoted secondary-market prices which account for the interest rate ~~characteristics.~~characteristics of each loan.