UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended
DecemberMarch 31, 20182019

[   ]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 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.  [X]  Yes    X[   ]  No     .

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

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

Large accelerated filer  [   ]              Accelerated filer  [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 ☐ [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[  ] Yes  [X]  No  X  .
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.01 per sharePROVThe NASDAQ Stock Market LLC


APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of May 3, 2019 there were 7,497,357 shares of the registrant's common stock, $0.01 par value per share, outstanding.

Title of class:
 
As of February 4, 2019
Common stock, $ 0.01 par value, per share 7,509,855 shares
PROVIDENT FINANCIAL HOLDINGS, INC.
Table of Contents
PART 1  -FINANCIAL INFORMATIONPage
    
ITEM 1  -
Financial Statements.  The Unaudited Interim Condensed Consolidated Financial Statements of
Provident Financial Holdings, Inc. filed as a part of the report are as follows:
 
    
 Condensed Consolidated Statements of Financial Condition 
  as of DecemberMarch 31, 20182019 and June 30, 20181
 Condensed Consolidated Statements of Operations 
  for the Quarters and SixNine Months Ended DecemberMarch 31, 20182019 and 201720182
 Condensed Consolidated Statements of Comprehensive Income 
  for the Quarters and SixNine Months Ended DecemberMarch 31, 20182019 and 201720183
 Condensed Consolidated Statements of Stockholders' Equity 
  for the Quarters and SixNine Months Ended DecemberMarch 31, 20182019 and 201720184
 Condensed Consolidated Statements of Cash Flows 
  for the SixNine Months Ended DecemberMarch 31, 20182019 and 201720186
 Notes to Unaudited Interim Condensed Consolidated Financial Statements7
    
ITEM 2  -Management's Discussion and Analysis of Financial Condition and Results of Operations: 
    
 General5150 
 Safe-Harbor Statement5251 
 Critical Accounting Policies5352 
 Executive Summary and Operating Strategy53
 Off-Balance Sheet Financing Arrangements and Contractual Obligations5455 
 Comparison of Financial Condition at DecemberMarch 31, 20182019 and June 30, 201855
 Comparison of Operating Results 
  for the Quarters and SixNine Months Ended DecemberMarch 31, 20182019 and 2017201857
 Asset Quality68
 Loan Volume Activities7677 
 Liquidity and Capital Resources7778 
 Supplemental Information80
    
ITEM 3  -Quantitative and Qualitative Disclosures about Market Risk80
    
ITEM 4  -Controls and Procedures84
    
PART II  -OTHER INFORMATION 
    
ITEM 1  -Legal Proceedings85
ITEM 1A -Risk Factors85
ITEM 2  -Unregistered Sales of Equity Securities and Use of Proceeds8685 
ITEM 3  -Defaults Upon Senior Securities86
ITEM 4  -Mine Safety Disclosures86
ITEM 5  -Other Information86
ITEM 6  -Exhibits86
    
SIGNATURES89

.
PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Financial Condition
(Unaudited)
In Thousands, Except Share Information
 
 December 31,
2018		  
June 30,
2018
  
March 31,
2019
  
June 30,
2018
 
Assets            
Cash and cash equivalents $67,359  $43,301  $61,458  $43,301 
Investment securities – held to maturity, at cost  84,990   87,813   102,510   87,813 
Investment securities – available for sale, at fair value  6,563   7,496   6,294   7,496 
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 investment, net of allowance for loan losses of
$7,080 and $7,385, respectively; includes $5,239 and $5,234 at fair value, respectively
  883,554   902,685 
Loans held for sale, at fair value  57,562   96,298   30,500   96,298 
Accrued interest receivable  3,156   3,212   3,386   3,212 
Real estate owned, net  —   906   —   906 
Federal Home Loan Bank ("FHLB") – San Francisco stock  8,199   8,199   8,199   8,199 
Premises and equipment, net  8,601   8,696   8,395   8,696 
Prepaid expenses and other assets  15,327   16,943   15,099   16,943 
                
Total assets $1,127,170  $1,175,549  $1,119,395  $1,175,549 
                
Liabilities and Stockholders' Equity                
                
Liabilities:                
Non interest-bearing deposits $78,866  $86,174  $90,875  $86,174 
Interest-bearing deposits  794,018   821,424   786,009   821,424 
Total deposits  872,884   907,598   876,884   907,598 
                
Borrowings  111,135   126,163   101,121   126,163 
Accounts payable, accrued interest and other liabilities  20,474   21,331   20,181   21,331 
Total liabilities  1,004,493   1,055,092   998,186   1,055,092 
                
Commitments and Contingencies (Notes 7 and 11)                
                
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;
18,053,115 and 18,033,115 shares issued; 7,506,855 and
7,421,426 shares outstanding, respectively)
  181   181 
Common stock, $.01 par value (40,000,000 shares authorized;
18,064,365 and 18,033,115 shares issued; 7,497,357 and
7,421,426 shares outstanding, respectively)
  181   181 
Additional paid-in capital  95,913   94,957   96,114   94,957 
Retained earnings  192,306   190,616   191,103   190,616 
Treasury stock at cost (10,546,260 and 10,611,689 shares, respectively)  (165,892)  (165,507)
Treasury stock at cost (10,567,008 and 10,611,689 shares, respectively)  (166,352)  (165,507)
Accumulated other comprehensive income, net of tax  169   210   163   210 
                
Total stockholders' equity  122,677   120,457   121,209   120,457 
                
Total liabilities and stockholders' equity $1,127,170  $1,175,549  $1,119,395  $1,175,549 
The accompanying notes are an integral part of these condensed consolidated financial statements.
1

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
March 31,
  
Nine Months Ended
March 31,
 2018  2017  2018  2017  2019  2018  2019 2018 
Interest income:                       
Loans receivable, net $10,331  $9,735  $20,505  $19,892  $10,011  $9,933  $30,516  $29,825 
Investment securities  444   319   789   576   592   382   1,381   958 
FHLB – San Francisco stock  278   143   421   284   144   144   565   428 
Interest-earning deposits  387   168   725   358   386   233   1,111   591 
Total interest income  11,440   10,365   22,440   21,110   11,133   10,692   33,573   31,802 
                                
Interest expense:                                
Checking and money market deposits  117   112   225   215   102   96   327   311 
Savings deposits  147   149   298   298   139   147   437   445 
Time deposits  630   625   1,251   1,264   600   613   1,851   1,877 
Borrowings  715   728   1,478   1,464   680   712   2,158   2,176 
Total interest expense  1,609   1,614   3,252   3,241   1,521   1,568   4,773   4,809 
                                
Net interest income  9,831   8,751   19,188   17,869   9,612   9,124   28,800   26,993 
(Recovery) provision for loan losses  (217)  (11)  (454)  158 
Net interest income, after (recovery) provision for loan losses  10,048   8,762   19,642   17,711 
Provision (recovery) for loan losses  4   (505)  (450)  (347) 
Net interest income, after provision (recovery) for loan losses  9,608   9,629   29,250   27,340 
                                
Non-interest income:                                
Loan servicing and other fees  277   317   601   680   262   493   863   1,173 
Gain on sale of loans, net  2,263   4,317   5,395   9,164   1,719   3,597   7,114   12,761 
Deposit account fees  509   536   1,014   1,094   471   529   1,485   1,623 
Loss on sale and operations of real estate owned acquired in the
settlement of loans, net
  (7)  (22)  (6)  (62)
Gain (loss) on sale and operations of real estate owned acquired in
the settlement of loans, net
  2   (19)  (4)  (81) 
Card and processing fees  392   373   790   754   373   372   1,163   1,126 
Other  161   220   350   463   225   238   575   701 
Total non-interest income  3,595   5,741   8,144   12,093   3,052   5,210   11,196   17,303 
                                
Non-interest expense:                                
Salaries and employee benefits(1)  7,211   8,633   15,461   17,902   9,292   8,808   24,753   26,710 
Premises and occupancy  1,274   1,260   2,619   2,574   1,286   1,255   3,905   3,829 
Equipment  495   375   916   737   417   442   1,333   1,179 
Professional expenses  411   521   858   1,041   513   400   1,371   1,441 
Sales and marketing expenses  253   301   422   504   246   213   668   717 
Deposit insurance premiums and regulatory assessments  172   218   337   402   124   189   461   591 
Other (1)(2)
  1,059   1,905   1,966   5,787   1,122   1,132   3,088   6,919 
Total non-interest expense  10,875   13,213   22,579   28,947   13,000   12,439   35,579   41,386 
Income before income taxes  2,768   1,290   5,207   857 
Provision for income taxes (2)
  810   2,067   1,426   1,859 
                
Income (loss) before income taxes  (340)  2,400   4,867   3,257 
Provision (benefit) for income taxes (3)
  (189)  667   1,237   2,526 
Net income (loss) $1,958  $(777) $3,781  $(1,002) $(151) $1,733  $3,630  $731 
                                
Basic earnings (loss) per share $0.26  $(0.10) $0.51  $(0.13) $(0.02) $0.23  $0.49  $0.10 
Diluted earnings (loss) per share $0.26  $(0.10) $0.50  $(0.13) $(0.02) $0.23  $0.48  $0.09 
Cash dividends per share $0.14  $0.14  $0.28  $0.28  $0.14  $0.14  $0.42  $0.42 
.
(1) Includes $650,000 and $3.4 million of litigation settlement expense for the quarter and six months ended December 31, 2017, respectively.
(1)
Includes $1.5 million of costs associated with staff reductions in mortgage banking operations during the quarter and nine months ended March 31, 2019.
(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.
(2)
Includes $3.4 million of litigation settlement expense for the nine months ended March 31, 2018.
(3)
Includes a net tax charge of $1.9 million resulting from the revaluation of net deferred tax assets consistent with the Tax Cuts and Jobs Act for the nine months ended March 31, 2018.
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
2
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,
  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
 2018  2017  2018  2017  2019  2018  2019  2018 
Net income (loss) $1,958  $(777) $3,781  $(1,002) $(151) $1,733  $3,630  $731 
                                
Change in unrealized holding loss on securities available for sale  (28)  (80)  (58)  (78)  (9)  (35)  (67)  (113)
Reclassification adjustment for net loss on securities available
for sale included in net loss
  —   45   —   45 
Reclassification adjustment for net income (loss) on securities
available for sale included in net income (loss)
  —   (2)  —   43 
Other comprehensive loss, before income taxes  (28)  (35)  (58)  (33)  (9)  (37)  (67)  (70)
                                
Income tax benefit  (8)  (15)  (17)  (14)  (3)  (13)  (20)  (27)
Other comprehensive loss  (20)  (20)  (41)  (19)  (6)  (24)  (47)  (43)
                                
Total comprehensive income (loss) $1,938  $(797) $3,740  $(1,021) $(157) $1,709  $3,583  $688
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
In Thousands, Except Share Information

For the Quarters Ended DecemberMarch 31, 20182019 and 2017:2018:
 
Common
Stock
  Additional         
Accumulated
Other
Comprehensive
     
Common
Stock
  
Additional
Paid-In
  Retained   Treasury    
Accumulated
Other
Comprehensive
Income (Loss), 
    
 Shares  Amount  
 Paid-In
Capital
  
Retained
Earnings
  
Treasury
Stock
  
Income (Loss),
Net of Tax
  Total  Shares  Amount  Capital  Earnings  Stock  Net of Tax  Total 
Balance at September 30, 2018 7,500,860  $181  $95,795  $191,399  $(165,884) $189  $121,680 
Balance at December 31, 2018  7,506,855  $181  $95,913  $192,306  $(165,892) $169  $122,677 
                                                        
Net income              1,958           1,958 
Net loss              (151)          (151)
Other comprehensive loss                      (20)  (20)                      (6)  (6)
Purchase of treasury stock (1)
Purchase of treasury stock (1)
(505)              (8)      (8)
Purchase of treasury stock (1)
  (23,748)              (460)      (460)
Exercise of stock options  5,000       73               73   11,250       164               164 
Distribution of restricted stock Distribution of restricted stock 1,500                       —   3,000                       — 
Amortization of restricted stock Amortization of restricted stock         33               33           29               29 
Stock options expense          12               12           8               8 
Cash dividends (2)(1)
              (1,051)          (1,051)              (1,052)          (1,052)
                                                        
Balance at December 31, 20187,506,855  $181  $95,913  $192,306  $(165,892) $169  $122,677 
Balance at March 31, 2019  7,497,357  $181  $96,114  $191,103  $(166,352) $163  $121,209 

(1)
Cash dividends of $0.14 per share were paid in the quarter ended March 31, 2019.
 
  
Common
Stock
  Additional
Paid-In		   Retained   Treasury   
Accumulated
Other
Comprehensive
Income (Loss),
    
 Shares  Amount  Capital  Earnings  Stock  Net of Tax  Total 
Balance at December 31, 2017  7,474,776  $180  $94,011  $189,610  $(163,311) $210  $120,700 
                             
Net income              1,733           1,733 
Other comprehensive loss                      (24)  (24)
Purchase of treasury stock (1)
  (80,972)              (1,475)      (1,475)
Exercise of stock options  56,500       416               416 
Distribution of restricted stock  10,500                       -- 
Amortization of restricted stock          167               167 
Stock options expense          125               125 
Cash dividends (2)
              (1,042)          (1,042)
                             
Balance at March 31, 2018  7,460,804  $180  $94,719  $190,301  $(164,786) $186  $120,600 

(1)
Includes the repurchase of 5053,291 shares of distributed restricted stock in settlement of employee withholding tax obligations.
(2)
Cash dividends of $0.14 per share were paid in the quarter ended DecemberMarch 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 September 30, 20177,609,552  $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.
4

For the SixNine Months Ended DecemberMarch 31, 20182019 and 2017:2018:
 
 
Common
Stock
  Additional         
Accumulated
Other
Comprehensive
     
Common
Stock
  
Additional
Paid-In
  Retained  Treasury   
Accumulated
Other
Comprehensive
Income (Loss),
    
 Shares  Amount  
Paid-In
Capital
  
Retained
Earnings
  
Treasury
Stock
  
Income (Loss),
Net of Tax
  Total  Shares  Amount  Capital  Earnings  Stock  Net of Tax  Total 
Balance at June 30, 2018  7,421,426  $181  $94,957  $190,616  $(165,507) $210  $120,457   7,421,426  $181  $94,957  $190,616  $(165,507) $210  $120,457 
                                                        
Net income              3,781           3,781               3,630           3,630 
Other comprehensive loss                      (41)  (41)                      (47)  (47)
Purchase of treasury stock (1)
Purchase of treasury stock (1)
(21,071)              (385)      (385)  (44,819)              (845)      (845)
Exercise of stock options  20,000       226               226   31,250       390               390 
Distribution of restricted stock Distribution of restricted stock 86,500                       —   89,500                       — 
Amortization of restricted stock Amortization of restricted stock         397               397           426               426 
Stock options expense          333               333           341               341 
Cash dividends (2)
              (2,091)          (2,091)              (3,143)          (3,143)
                                                        
Balance at December 31, 2018 7,506,855  $181  $95,913  $192,306  $(165,892) $169  $122,677 
Balance at March 31, 2019  7,497,357  $181  $96,114  $191,103  $(166,352) $163  $121,209 

(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$0.42 per share were paid in the sixnine months ended DecemberMarch 31, 2018.

2019.
 
  
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 

  
Common
Stock
  
Additional
Paid-In
  Retained    Treasury    
Accumulated
Other
Comprehensive
Income (Loss), 
    
  Shares  Amount  Capital  Earnings  Stock  Net of Tax  Total 
Balance at June 30, 2017  7,714,052  $180  $93,209  $192,754  $(158,142) $229  $128,230 
                             
Net income              731           731 
Other comprehensive loss                      (43)  (43)
Purchase of treasury stock (1)
  (347,498)              (6,627)      (6,627)
Exercise of stock options  83,750       677               677 
Distribution of restricted stock  10,500                       -- 
Amortization of restricted stock          458               458 
Forfeitures of restricted stock          17       (17)      — 
Stock options expense          358               358 
Cash dividends (2)
              (3,184)          (3,184)
                             
Balance at March 31, 2018  7,460,804  $180  $94,719  $190,301  $(164,786) $186  $120,600 
(1)Includes the repurchase of 3,291 shares of distributed restricted stock in settlement of employee withholding tax obligations.
(2)   Cash dividends of $0.28$0.42 per share were paid in the sixnine months ended DecemberMarch 31, 2017.2018.
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5
PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited - In Thousands)
 
 
Six Months Ended
 December 31,
  Nine Months Ended March 31, 
 2018  2017  2019  2018 
Cash flows from operating activities:            
Net income (loss) $3,781  $(1,002)
Net income $3,630  $731 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                
Depreciation and amortization  1,664   1,582   2,045   2,229 
(Recovery) provision for loan losses  (454)  158 
Recovery from the allowance for loan losses  (450)  (347)
Recovery of losses on real estate owned  —   (552)  —   (552)
Gain on sale of loans, net  (5,395)  (9,164)  (7,114)  (12,761)
(Gain) loss on sale of real estate owned, net  (9)  580   (9)  564 
Stock-based compensation  730   524   767   816 
Provision (benefit) for deferred income taxes  733   (79)  553   (28)
(Decrease) increase in accounts payable, accrued interest and other liabilities  (482)  3,278   (320)  3,294 
Decrease (increase) in prepaid expenses and other assets  546   (306)  446   (482)
Loans originated for sale  (342,738)  (724,156)  (453,444)  (944,349)
Proceeds from sale of loans  386,778   753,571   526,090   983,504 
Net cash provided by operating activities  45,154   24,434   72,194   32,619 
                
Cash flows from investing activities:                
Decrease in loans held for investment, net  27,554   17,548   19,230   8,956 
Maturity of investment securities held to maturity  200   —   800   200 
Principal payments from investment securities held to maturity  15,782   10,837   24,093   17,882 
Principal payments from investment securities available for sale  875   885   1,140   1,252 
Purchase of investment securities held to maturity  (13,669)  (38,511)  (40,282)  (54,147)
Proceeds from sale of real estate owned  915   1,587   915   2,223 
Purchase of premises and equipment  (348)  (1,589)  (151)  (2,713)
Net cash provided by (used for) investing activities  31,309   (9,243)  5,745   (26,347)
                
Cash flows from financing activities:                
Decrease in deposits, net  (34,714)  (18,733)  (30,714)  (4,022)
Repayments of short-term borrowings, net  (15,000)  (15,000)  (15,000)  (15,000)
Repayments of long-term borrowings  (28)  (37)  (10,042)  (10,050)
Proceeds from long-term borrowings  —   10,000 
Exercise of stock options  226   261   390   677 
Withholding taxes on stock based compensation  (413)  (41)  (428)  (318)
Cash dividends  (2,091)  (2,142)  (3,143)  (3,184)
Treasury stock purchases  (385)  (5,152)  (845)  (6,627)
Net cash used for financing activities  (52,405)  (40,844)  (59,782)  (28,524)
                
Net increase (decrease) in cash and cash equivalents  24,058   (25,653)  18,157   (22,252)
Cash and cash equivalents at beginning of period  43,301   72,826   43,301   72,826 
Cash and cash equivalents at end of period $67,359  $47,173  $61,458  $50,574 
Supplemental information:                
Cash paid for interest $3,263  $3,252  $4,796  $4,816 
Cash paid for income taxes $1,525  $2,350  $1,555  $2,400 
Transfer of loans held for sale to held for investment $724  $521  $1,360  $1,122 
Real estate acquired in the settlement of loans $—  $700  $—  $1,659 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
PROVIDENT FINANCIAL HOLDINGS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements

December
March 31, 20182019

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, 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") (collectively, the "Corporation").  Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") with respect to interim financial reporting.  It is recommended that these unaudited interim condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended June 30, 2018.  The results of operations for the quarter and sixnine months ended DecemberMarch 31, 20182019 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2019.


Note 2: Accounting Standard Updates ("ASU")

There have been no accounting standard updates or changes in the status of their adoption that are 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, 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 sixnine months ended DecemberMarch 31, 2018;2019; 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.

7

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. In January 2019, the FASB issued ASU 2019-01, Codification Improvements. The amendments in this update include the following items: (i) determining the fair value of the underlying asset by lessors that are not manufacturers or dealers; (ii) requiring cash received from lessors from sales-type and direct financing leases to be presented in the cash flow statement within investing activities; and (iii) clarifying interim disclosure requirements. The effective date and transition requirements for the first and second items of this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019 and early adoption is permitted. The effective date and transition requirements for the third item of this ASU are the same as ASU 2016-02. The Corporation plans to adopt ASU 2018-11these ASUs on July 1, 2019. Management is currently assessing the impact of ASU 2016-02these ASUs on the Corporation's financial position and results of operations but does not believe that adoption of ASU 2018-11these ASUs  will have a material impact on its 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.


8
Note 3: Earnings (Loss) Per Share

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

As of DecemberMarch 31, 20182019 and 2017,2018, there were outstanding options to purchase 509,000497,750 shares and 585,500529,000 shares of the Corporation's common stock, respectively. Of those shares, as of DecemberMarch 31, 20182019 and 2017,2018, there were 45,000497,750 shares and 585,50026,000 shares, respectively, which were excluded from the diluted EPS computation as their effect was anti-dilutive.  As of DecemberMarch 31, 2019 and 2018, there were outstanding restricted stock awards of 12,0009,000 shares which have a dilutive effect; and as of December 31, 2017, there were98,500 shares, respectively. The outstanding restricted stock awards of 109,000 shares withhad no dilutive effect.effect for the quarter ended March 31, 2019 but they were dilutive for the comparable quarter last year.
8

The following table provides the basic and diluted EPS computations for the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017,2018, respectively.
 
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
(In Thousands, Except Earnings Per Share) 
For the Quarters Ended
December 31,
  
For the Six Months Ended
December 31,
  2019  2018  2019  2018 
 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) $(151) $1,733  $3,630  $731 
                                
Denominator:                                
Denominator for basic earnings per share:                                
Weighted-average shares  7,506   7,566   7,468   7,630   7,507   7,457   7,481   7,573 
                                
Effect of dilutive shares:                                
Stock options  89   —   90   —   —   97   60   111 
Restricted stock  7   —   21   —   —   62   14   53 
                                
Denominator for diluted earnings per share:                                
Adjusted weighted-average shares and assumed
conversions
  7,602   7,566   7,579   7,630   7,507   7,616   7,555   7,737 
                                
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)
Basic earnings (loss) per share $(0.02) $0.23  $0.49  $0.10 
Diluted earnings (loss) per share $(0.02) $0.23  $0.48  $0.09 

9
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"), a division of the Bank. The Corporation expects to discontinue the operations of PBM by June 30, 2019.  The Corporation estimates that it will incur costs of approximately $3.6 million to $4.0 million to complete the exit 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.  As of March 31, 2019, the total costs incurred for both the quarter and nine months ended March 31 2019 were approximately $1.6 million, comprised of
 
9
$1.5 million in salaries and employee benefits expenses, $81,000 in premises and occupancy expenses and $13,000 in equipment expenses. There were no costs incurred related to the exit prior to the quarter ended March 31, 2019.

The following tables set forth condensed consolidated statements of operations and total assets for the Corporation's operating segments for the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017,2018, respectively.
 For the Quarter Ended December 31, 2018  For the Quarter Ended March 31, 2019 
(In Thousands) 
Provident
Bank
  
Provident
Bank
Mortgage
  
Consolidated
Totals
  
Provident
Bank
  
Provident
Bank
Mortgage
  
Consolidated
Totals
 
Net interest income $9,525  $306  $9,831  $9,431  $181  $9,612 
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 
Provision (recovery) for loan losses  74   (70)  4 
Net interest income, after provision (recovery) for loan losses  9,357   251   9,608 
                        
Non-interest income:                        
Loan servicing and other fees (1)
  (149)  426   277   103   159   262 
Gain on sale of loans, net (2)
  —   2,263   2,263 
Gain (loss) on sale of loans, net (2)
  (1)  1,720   1,719 
Deposit account fees  509   —   509   471   —   471 
Loss on sale and operations of real estate owned
acquired in the settlement of loans, net
  (7)  —   (7)
Gain on sale and operations of real estate owned
acquired in the settlement of loans, net
  2   —   2 
Card and processing fees  392   —   392   373   —   373 
Other  161   —   161   223   2   225 
Total non-interest income  906   2,689   3,595   1,171   1,881   3,052 
                        
Non-interest expense:                        
Salaries and employee benefits  4,300   2,911   7,211   5,002   4,290   9,292 
Premises and occupancy  897   377   1,274   847   439   1,286 
Operating and administrative expenses  1,067   1,323   2,390   1,314   1,108   2,422 
Total non-interest expense  6,264   4,611   10,875   7,163   5,837   13,000 
Income (loss) before income taxes  4,384   (1,616)  2,768   3,365   (3,705)  (340)
Provision (benefit) for income taxes  1,287   (477)  810   907   (1,096)  (189)
Net income (loss) $3,097  $(1,139) $1,958  $2,458  $(2,609) $(151)
Total assets, end of period $1,069,379  $57,791  $1,127,170  $1,088,716  $30,679  $1,119,395 

 
(1)
Includes an inter-company charge of $258$2 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 $14$17 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.
10
 For the Quarter Ended December 31, 2017  For the Quarter Ended March 31, 2018 
(In Thousands) 
Provident
Bank
  
Provident
Bank
Mortgage
  
Consolidated
Totals
  
Provident
Bank
  
Provident
Bank
Mortgage
  
Consolidated
Totals
 
Net interest income $8,217  $534  $8,751  $8,750  $374  $9,124 
Recovery from the allowance for loan losses  (11)  —   (11)  (505)  —   (505)
Net interest income, after recovery from the allowance for loan losses  8,228   534   8,762   9,255   374   9,629 
                        
Non-interest income:                        
Loan servicing and other fees (1)
  108   209   317   313   180   493 
Gain on sale of loans, net (2)
  22   4,295   4,317 
Gain (loss) on sale of loans, net (2)
  (1)  3,598   3,597 
Deposit account fees  536   —   536   529   —   529 
Loss on sale and operations of real estate owned
acquired in the settlement of loans, net
  (22)  —   (22)  (19)  —   (19)
Card and processing fees  373   —   373   372   —   372 
Other  220   —   220   238   —   238 
Total non-interest income  1,237   4,504   5,741   1,432   3,778   5,210 
                        
Non-interest expense:                        
Salaries and employee benefits  4,449   4,184   8,633   4,763   4,045   8,808 
Premises and occupancy  822   438   1,260   842   413   1,255 
Operating and administrative expenses (3)
  1,189   2,131   3,320   1,050   1,326   2,376 
Total non-interest expense  6,460   6,753   13,213   6,655   5,784   12,439 
Income (loss) before income taxes  3,005   (1,715)  1,290   4,032   (1,632)  2,400 
Provision (benefit) for income taxes (4)
  2,532   (465)  2,067   1,252   (585)  667 
Net income (loss) $473  $(1,250) $(777) $2,780  $(1,047) $1,733 
Total assets, end of period $1,065,204  $96,927  $1,162,131  $1,086,437  $90,165  $1,176,602 


(1)
Includes an inter-company charge of $99$222 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$44 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 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.
 
11

 For the Six Months Ended December 31, 2018 For the Nine Months Ended March 31, 2019 
(In Thousands) 
Provident
Bank
  
Provident
Bank
Mortgage
  
Consolidated
Totals
  
Provident
Bank
  
Provident
Bank
Mortgage
  
Consolidated
Totals
 
Net interest income $18,525  $663  $19,188  $27,956  $844  $28,800 
(Recovery) provision for loan losses  (549)  95   (454)
Net interest income, after (recovery) provision for loan losses  19,074   568   19,642 
Provision (recovery) for loan losses  (475)  25   (450)
Net interest income, after provision (recovery) for loan losses  28,431   819   29,250 
                        
Non-interest income:                        
Loan servicing and other fees (1)
  (16)  617   601   87   776   863 
Gain on sale of loans, net (2)
  34   5,361   5,395   33   7,081   7,114 
Deposit account fees  1,014   —   1,014   1,485   —   1,485 
Loss on sale and operations of real estate owned
acquired in the settlement of loans, net
  (6)  —   (6)  (4)  —   (4)
Card and processing fees  790   —   790   1,163   —   1,163 
Other  350   —   350   573   2   575 
Total non-interest income  2,166   5,978   8,144   3,337   7,859   11,196 
                        
Non-interest expense:                        
Salaries and employee benefits  9,136   6,325   15,461   14,138   10,615   24,753 
Premises and occupancy  1,805   814   2,619   2,652   1,253   3,905 
Operating and administrative expenses  1,993   2,506   4,499   3,307   3,614   6,921 
Total non-interest expense  12,934   9,645   22,579   20,097   15,482   35,579 
Income (loss) before income taxes  8,306   (3,099)  5,207   11,671   (6,804)  4,867 
Provision (benefit) for income taxes  2,342   (916)  1,426   3,249   (2,012)  1,237 
Net income (loss) $5,964  $(2,183) $3,781  $8,422  $(4,792) $3,630 
Total assets, end of period $1,069,379  $57,791  $1,127,170  $1,088,716  $30,679  $1,119,395 

(1)
Includes an inter-company charge of $426$428 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 $20$37 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.
 
12

  For the Nine Months Ended March 31, 2018 
(In Thousands) 
Provident
Bank
  
Provident
Bank
Mortgage
  
Consolidated
Totals
 
Net interest income $25,517  $1,476  $26,993 
Recovery from the allowance for loan losses  (347)  —   (347)
Net interest income, after recovery from the allowance for loan losses  25,864   1,476   27,340 
             
Non-interest income:            
     Loan servicing and other fees (1)
  468   705   1,173 
     Gain on sale of loans, net (2)
  21   12,740   12,761 
     Deposit account fees  1,623   —   1,623 
     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
  (81)  —   (81)
     Card and processing fees  1,126   —   1,126 
     Other  701   —   701 
          Total non-interest income  3,858   13,445   17,303 
             
Non-interest expense:            
     Salaries and employee benefits  13,714   12,996   26,710 
     Premises and occupancy  2,491   1,338   3,829 
     Operating and administrative expenses (3)
  4,490   6,357   10,847 
          Total non-interest expense  20,695   20,691   41,386 
Income (loss) before income taxes  9,027   (5,770)  3,257 
Provision (benefit) for income taxes (4)
  4,595   (2,069)  2,526 
Net income (loss) $4,432  $(3,701) $731 
Total assets, end of period $1,086,437  $90,165  $1,176,602 
  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$561 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$182 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 settlement expense for the first sixnine months of fiscal 2018, of which $2.1 million was allocated to PBM.
(4)
Includes a net tax charge of $1.8$1.9 million resulting from the revaluation of net deferred tax assets consistent with the Tax Cuts and Jobs Act for the sixnine months ended December 31, 2017.

13

13
Note 5: Investment Securities

The amortized cost and estimated fair value of investment securities as of DecemberMarch 31, 20182019 and June 30, 2018 were as follows:
December 31, 2018 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
(Losses)
  
Estimated
Fair
Value
  
Carrying
Value
 
March 31, 2019 
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  $99,193  $728  $(163) $99,758  $99,193 
U.S. SBA securities (2)
  2,939   —   (18)  2,921   2,939   2,917   —   (19)  2,898   2,917 
Certificate of deposits  600   —   —   600   600   400   —   —   400   400 
Total investment securities - held to maturity $84,990  $369  $(303) $85,056  $84,990  $102,510  $728  $(182) $103,056  $102,510 
                                        
Available for sale:                                        
U.S. government agency MBS $3,824  $118  $—  $3,942  $3,942  $3,677  $119  $—  $3,796  $3,796 
U.S. government sponsored enterprise MBS  2,213   98   —   2,311   2,311   2,107   91   —   2,198   2,198 
Private issue CMO (3)
  307   3   —   310   310   296   4   —   300   300 
Total investment securities - available for sale $6,344  $219  $—  $6,563  $6,563  $6,080  $214  $—  $6,294  $6,294 
Total investment securities $91,334  $588  $(303) $91,619  $91,553  $108,590  $942  $(182) $109,350  $108,804 

(1)
Mortgage-Backed Securities ("MBS").
(2)
Small Business Administration ("SBA").
(3)
Collateralized Mortgage Obligations ("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 

In the secondthird quarters of fiscal 2019 and 2018, the Corporation received MBS principal payments of $8.3$8.6 million and $5.8$7.4 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$26.2 million and $28.4$12.4 million, to be held to maturity, respectively. For the first sixnine months of fiscal 2019 and 2018, the Corporation received MBS principal payments of $16.7$25.2 million and $11.7$19.1 million,
14
respectively, and there were no sales of investment securities during these periods.  In the first sixnine months of fiscal
14
2019 and 2018, the Corporation purchased U.S. government sponsored enterprise MBS totaling $13.5$39.7 million and $38.5$50.9 million, to be held to maturity, respectively. In addition, the Corporation also purchased $3.0 million in U.S. SBA loan pool securities to be held to maturity in the third quarter and first nine months of fiscal 2018.

The Corporation held investments with an unrealized loss position of $303,000$182,000 at DecemberMarch 31, 20182019 and $777,000 at June 30, 2018.
As of December 31, 2018
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
As of March 31, 2019
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 SecuritiesValue Losses Value Losses Value Losses Value Losses Value Losses Value Losses 
Held to maturity:                        
U.S. government sponsored enterprise MBS $—  $—  $37,363  $285  $37,363  $285  $—  $—  $26,758  $163  $26,758  $163 
U.S. SBA securities  2,914   18   —   —   2,914   18   2,892   19   —   —   2,892   19 
Total investment securities $2,914  $18  $37,363  $285  $40,277  $303  $2,892  $19  $26,758  $163  $29,650  $182 

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 
 Fair Unrealized Fair Unrealized Fair Unrealized 
Description  of SecuritiesValue Losses Value Losses Value Losses 
Held to maturity:            
  U.S. government sponsored enterprise MBS $47,045  $762  $—  $—  $47,045  $762 
  U.S. SBA securities  2,964   15   —   —   2,964   15 
Total investment securities $50,009  $777  $—  $—  $50,009  $777 

The Corporation evaluates individual investment securities quarterly for other-than-temporary declines in market value. At DecemberMarch 31, 2018, $285,0002019, $163,000 of the total $303,000$182,000 unrealized holding losses were 12 months or more; while at June 30, 2018, all of the unrealized holding loss waslosses were less than 12 months. The Corporation does not believe that there were any other-than-temporary impairments on the investment securities at DecemberMarch 31, 20182019 and 2017;2018; therefore, no impairment losses were recorded for the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017.2018.
15
Contractual maturities of investment securities as of DecemberMarch 31, 20182019 and June 30, 2018 were as follows:
 December 31, 2018  June 30, 2018  March 31, 2019  June 30, 2018 
(In Thousands) 
Amortized
Cost
  
Estimated
Fair
Value
  
Amortized
Cost
  
Estimated
Fair
Value
  
Amortized
Cost
  
Estimated
Fair
Value
  
Amortized
Cost
  
Estimated
Fair
Value
 
                        
Held to maturity:                        
Due in one year or less $600  $600  $600  $600  $200  $200  $600  $600 
Due after one through five years  35,169   34,918   24,961   24,569   35,345   35,259   24,961   24,569 
Due after five through ten years  17,537   17,689   22,847   22,477   38,691   39,126   22,847   22,477 
Due after ten years  31,684   31,849   39,405   39,593   28,274   28,471   39,405   39,593 
Total investment securities - held to maturity $84,990  $85,056  $87,813  $87,239  $102,510  $103,056  $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   6,080   6,294   7,220   7,496 
Total investment securities - available for sale $6,344  $6,563  $7,220  $7,496  $6,080  $6,294  $7,220  $7,496 
Total investment securities $91,334  $91,619  $95,033  $94,735  $108,590  $109,350  $95,033  $94,735 

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
  
March 31,
2019
  
June 30,
2018
 
Mortgage loans:            
Single-family $312,499  $314,808  $314,824  $314,808 
Multi-family  447,033   476,008   449,812   476,008 
Commercial real estate  112,830   109,726     115,355   109,726 
Construction (1)
  3,986   3,174   4,139   3,174 
Other  167   167   167   167 
Commercial business loans (2)
  455   500   483   500 
Consumer loans (3)
  103   109   133   109 
Total loans held for investment, gross  877,073   904,492   884,913   904,492 
                
Advance payments of escrows  95   18   225   18 
Deferred loan costs, net  5,306   5,560   5,496   5,560 
Allowance for loan losses  (7,061)  (7,385)  (7,080)  (7,385)
Total loans held for investment, net $875,413  $902,685  $883,554  $902,685 

 
(1)
Net of $5.7$6.1 million and $4.3 million of undisbursed loan funds as of DecemberMarch 31, 20182019 and June 30, 2018, respectively
(2)
Net of $1.5 million$950 and $495 of undisbursed lines of credit as of DecemberMarch 31, 20182019 and June 30, 2018, respectively.
(3)
Net of $487$481 and $503 of undisbursed lines of credit as of DecemberMarch 31, 20182019 and June 30, 2018, respectively.

16
The following table sets forth information at DecemberMarch 31, 20182019 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% of loans held for investment at both DecemberMarch 31, 20182019 and June 30, 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 actual repricing experience to differ materially from that shown.
 
  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 
Mortgage loans:                  
     Single-family $105,981  $31,216  $100,552  $63,034  $11,716  $312,499 
     Multi-family  129,858   162,154   142,177   12,642   202   447,033 
     Commercial real estate  41,376   35,953   35,008   —   493   112,830 
     Construction  2,600   —   —   —   1,386   3,986 
     Other  —   —   —   —   167   167 
Commercial business loans  57   —   —   —   398   455 
Consumer loans  103   —   —   —   —   103 
     Total loans held for investment,
       gross
 $279,975  $229,323  $277,737  $75,676  $14,362  $877,073 

  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 
Mortgage loans:                  
     Single-family $100,302  $37,514  $102,300  $62,493  $12,215  $314,824 
     Multi-family  125,503   162,437   145,968   15,710   194   449,812 
     Commercial real estate  44,247   33,136   36,442   1,055   475   115,355 
     Construction  3,581   —   —   —   558   4,139 
     Other  —   —   —   —   167   167 
Commercial business loans  75   —   —   —   408   483 
Consumer loans  133   —   —   —   —   133   
     Total loans held for investment,
       gross
 $273,841  $233,087  $284,710  $79,258  $14,017  $884,913 
The Corporation has developed an internal loan grading system to evaluate and quantify the Bank's loans held for investment portfolio with respect to quality and risk.  Management continually evaluates the credit quality of the Corporation's loan portfolio and conducts a quarterly review of the adequacy of the allowance for loan losses using quantitative and qualitative methods. The Corporation has adopted an internal risk rating policy in which each loan is rated for credit quality with a rating of pass, special mention, substandard, doubtful or loss.  The two primary components that are used during the loan review process to determine the proper allowance levels are individually evaluated allowances and collectively evaluated allowances.  Quantitative loan loss factors are developed by determining the historical loss experience, expected future cash flows, discount rates and collateral fair values, among others.  Qualitative loan loss factors are developed by assessing general economic indicators such as gross domestic product, retail sales, unemployment rates, employment growth, California home sales and median California home prices.  The Corporation assigns individual factors for the quantitative and qualitative methods for each loan category and each internal risk rating.

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

▪Pass - These loans range from minimal credit risk to average, but still acceptable, credit risk.  The likelihood of loss is considered remote.
▪Special Mention - A special mention loan has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss.  While concerns exist, the bank is currently protected and loss is considered unlikely and not imminent.
▪Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the borrower or of the collateral pledged, if any.  Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt.  A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
 
17
 
▪Doubtful - A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.
▪Loss - A loss loan is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted.

The following tables summarize gross loans held for investment, net of fair value adjustments, by loan types and risk category at the dates indicated:
 December 31, 2018 March 31, 2019 
(In Thousands) 
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  
Other
Mortgage
  
Commercial
Business
  Consumer  Total  
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  $304,403  $445,927  $115,355  $3,394  $167  $430  $133  $869,809 
Special Mention  1,400   3,906   —   —       —   —   5,306   3,347   3,885   —   —   —   —   —   7,232 
Substandard  7,126   —   —   745   —   56   —   7,927   7,074   —   —   745   —   53   —   7,872 
Total loans held for
investment, gross
 $312,499  $447,033  $112,830  $3,986  $167  $455  $103  $877,073  $314,824  $449,812  $115,355  $4,139  $167  $483  $133  $884,913 
 June 30, 2018 
(In Thousands) 
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  
Other
Mortgage
  
Commercial
Business
  Consumer  Total 
                         
Pass $304,619  $472,061  $108,786  $3,174  $167  $430  $109  $889,346 
Special Mention  2,548   3,947   940   —   —   —   —   7,435 
Substandard  7,641   —   —   —   —   70   —   7,711 
  Total loans held for
     investment, gross
 $314,808  $476 008  $109,726  $3,174  $167  $500  $109  $904,492 

 June 30, 2018 
(In Thousands) 
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  
Other
Mortgage
  
Commercial
Business
  Consumer  Total 
                         
Pass $304,619  $ 472,061  $108,786  $3,174  $167  $430  $109  $889,346 
Special Mention  2,548   3,947   940   —   —   —   —   7,435 
Substandard  7,641   —   —   —   —   70   —   7,711 
Total loans held for
   investment, gross
 $314,808  $476,008  $109,726  $3,174  $167  $500  $109  $904,492 
 
The allowance for loan losses is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loans held for investment and upon management's continuing analysis of the factors underlying the quality of the loans held for investment.  These factors include changes in the size and composition of the loans held for investment, actual loan loss experience, current economic conditions, detailed analysis of individual loans for which full collectability may not be assured, and determination of the realizable value of the collateral securing the loans.  The provision (recovery) for (from) the allowance for loan losses is charged (credited) against operations on a quarterly basis, as necessary, to maintain the allowance at appropriate levels.  Although management believes it uses the best information available to make such determinations, there can be no assurance that regulators, in reviewing the Corporation's loans held for investment, will not request a significant increase in its allowance for loan losses.  Future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected as a result of economic, operating, regulatory, and other conditions beyond the Corporation's control.

Non-performing loans are charged-off to their fair market values in the period the loans, or portion thereof, are deemed uncollectible, generally after the loan becomes 150 days delinquent for real estate secured first trust deed loans and 120 days delinquent for commercial business or real estate secured second trust deed loans.  For loans that were modified from their original terms, were re-underwritten and identified in the Corporation's asset quality reports as troubled debt restructurings ("restructured loans"), the charge-off occurs when the loan becomes 90 days delinquent; and where borrowers file bankruptcy, the charge-off occurs when the loan becomes 60 days delinquent.  The amount of the charge-off is determined by comparing the loan balance to the estimated fair value of the underlying collateral, less disposition costs, with the loan balance in excess of the estimated fair value charged-off against the allowance for loan losses.  The allowance for loan losses for non-performing loans
18
18
is determined by applying Accounting Standards Codification ("ASC") 310, "Receivables."  For restructured loans that are less than 90 days delinquent, the allowance for loan losses are segregated into (a) individually evaluated allowances for those loans with applicable discounted cash flow calculations still in their restructuring period, classified lower than pass, and  containing an embedded loss component or (b) collectively evaluated allowances based on the aggregated pooling method.  For non-performing loans less than 60 days delinquent where the borrower has filed bankruptcy, the collectively evaluated allowances are assigned based on the aggregated pooling method.  For non-performing commercial real estate loans, an individually evaluated allowance is derived based on the loan's discounted cash flow fair value (for restructured loans) or collateral fair value less estimated selling costs and if the fair value is higher than the loan balance, no allowance is required.

The following table summarizes the Corporation's allowance for loan losses at DecemberMarch 31, 20182019 and June 30, 2018:
(In Thousands) December 31, 2018 June 30, 2018  March 31, 2019  June 30, 2018 
Collectively evaluated for impairment:            
Mortgage loans:            
Single-family $2,520  $2,632  $2,514  $2,632 
Multi-family  3,280   3,492   3,300   3,492 
Commercial real estate  1,019   1,030   1,042   1,030 
Construction  48   47   63   47 
Other  3   3   3   3 
Commercial business loans  17   18   18   18 
Consumer loans  6   6   8   6 
Total collectively evaluated allowance  6,893   7,228   6,948   7,228 
                
Individually evaluated for impairment:                
Mortgage loans:                
Single-family  159   151   123   151 
Commercial business loans  9   6   9   6 
Total individually evaluated allowance  168   157   132   157 
Total loan loss allowance $7,061  $7,385  $7,080  $7,385 
19
The following table is provided to disclose additional details for the periods indicated on the Corporation's allowance for loan losses:
 
For the Quarters Ended
December 31,
  
For the Six Months Ended
December 31,
  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
(Dollars in Thousands) 2018  2017  2018  2017  2019  2018  2019  2018 
                        
Allowance at beginning of period $7,155  $8,063  $7,385  $8,039  $7,061  $8,075  $7,385  $8,039 
                                
(Recovery) provision for loan losses  (217)  (11)  (454)  158 
Provision (recovery) for loan losses  4   (505)  (450)  (347)
                                
Recoveries:                                
Mortgage loans:                                
Single-family  123   48   155   132   22   71   177   203 
Consumer loans  —   —   1   —   1   —   2   — 
Total recoveries  123   48   156   132   23   71   179   203 
                                
Charge-offs:                                
Mortgage loans:                                
Single-family  —   (25)  (25)  (254)  (6)  (110)  (31)  (364)
Consumer loans  —   —   (1)  —   (2)  —   (3)  — 
Total charge-offs  —   (25)  (26)  (254)  (8)  (110)  (34)  (364)
                                
Net recoveries (charge-offs)  123   23   130   (122)
Net (charge-offs) recoveries  15   (39)  145   (161)
Balance at end of period $7,061  $8,075  $7,061  $8,075  $7,080  $7,531  $7,080  $7,531 
                                
Allowance for loan losses as a percentage of gross
loans held for investment at the end of the period
  0.80%  0.90%  0.80%  0.90%  0.79%  0.84%  0.79%  0.84%
Net (recoveries) charge-offs as a percentage of average
loans receivable, net, during the period (annualized)
  (0.05)%  (0.01)%  (0.03)%  0.02%
Net charge-offs (recoveries) as a percentage of average
loans receivable, net, during the period (annualized)
  (0.01)%  0.02%  (0.02)%  0.02%

The following tables denote the past due status of the Corporation's gross loans held for investment, net of fair value adjustments, at the dates indicated.
 December 31, 2018  March 31, 2019 
(In Thousands) Current  
30-89 Days
Past Due
  
Non-Accrual (1)
 
Total Loans
Held for
Investment, Gross
 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  $308,554  $696  $5,574  $314,824 
Multi-family  447,033   —   —   447,033   449,812   —   —   449,812 
Commercial real estate  112,830   —   —   112,830   115,355   —   —   115,355 
Construction  3,241   —   745   3,986   3,394   —   745   4,139 
Other  167   —   —   167   167   —   —   167 
Commercial business loans  399   —   56   455   430   —   53   483 
Consumer loans  101   2   —   103   130   3   —   133 
Total loans held for investment, gross $870,644  $2  $6,427  $877,073  $877,842  $699  $6,372  $884,913 

(1)  All loans 90 days or greater past due are placed on non-accrual status.
20
 June 30, 2018  June 30, 2018 
(In Thousands) Current  
30-89 Days
Past Due
  
Non-Accrual (1)
 Total Loans Held for Investment, Gross Current  
30-89 Days
Past Due
  
Non-Accrual (1)
 
Total Loans Held for
Investment, Gross
                        
Mortgage loans:                        
Single-family $307,863  $804  $6,141  $314,808  $307,863  $804  $6,141  $314,808 
Multi-family  476,008   —   —   476,008   476,008   —   —   476,008 
Commercial real estate  109,726   —   —   109,726   109,726   —   —   109,726 
Construction  3,174   —   —   3,174   3,174   —   —   3,174 
Other  167   —   —   167   167   —   —   167 
Commercial business loans  430   —   70   500   430   —   70   500 
Consumer loans  108   1   —   109   108   1   —   109 
Total loans held for investment, gross $897,476  $805  $6,211  $904,492  $897,476  $805  $6,211  $904,492 

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

The following tables summarize the Corporation's allowance for loan losses and recorded investment in gross loans, by portfolio type, at the dates and for the periods indicated.
  Quarter Ended 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 March 31, 2019 
(In Thousands) 
Single-
family
 
Multi-
family
 
Commercial
Real Estate
 Construction Other 
Commercial
Business
 Consumer Total 
Allowance for loan losses:                 
Allowance at beginning of  period $2,679 $3,280 $1,019  $48 $3 $26  $6  $7,061 
Provision (recovery) for loan losses  (58) 20  23   15  —  1   3   4 
Recoveries  22  —  —   —  —  —   1   23 
Charge-offs  (6) —  —   —  —  —   (2   (8)
   Allowance for loan losses,
    end of period
 $2,637 $3,300 $1,042  $63 $3 $27  $8  $7,080 
                             
Allowance for loan losses:                            
Individually evaluated for impairment $123 $— $—  $— $— $9  $—  $132 
Collectively evaluated for impairment  2,514  3,300  1,042   63  3  18   8   6,948 
   Allowance for loan losses,
    end of period
 $2,637 $3,300 $1,042  $63 $3 $27  $8  $7,080 
                             
Loans held for investment:                            
Individually evaluated for impairment $6,004 $— $—  $745 $— $53  $—  $6,802 
Collectively evaluated for impairment  308,820  449,812  115,355   3,394  167  430   133   878,111 
   Total loans held for investment,
     gross
 $314,824 $449,812 $115,355  $4,139 $167 $483  $133  $884,913 
   Allowance for loan losses as
    a percentage of gross loans
    held for investment 
   0.84%   0.73%   0.90%    1.52%   1.80%   5.59%    6.02%    0.79% 
 
21
  Quarter Ended March 31, 2018 
(In Thousands) 
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  Commercial Business  Consumer  Total 
Allowance for loan losses:                     
Allowance at beginning of  period $3,303  $3,295  $933  $504  $32  $8  $8,075 
Provision (recovery) for loan losses  (143)  17   33   (410)  (1)  (1)  (505)
Recoveries  71   —   —   —   —   —   71 
Charge-offs  (110)  —   —   —   —   —   (110)
   Allowance for loan losses,
    end of period
 $3,121  $3,312  $966  $94  $31  $7  $7,531 
                             
Allowance for loan losses:                            
Individually evaluated for impairment $161  $—  $—  $—  $15  $—  $176 
Collectively evaluated for impairment  2,960   3,312   966   94   16   7   7,355 
   Allowance for loan losses,
    end of period
 $3,121  $3,312  $966  $94  $31  $7  $7,531 
                             
Loans held for investment:                            
Individually evaluated for impairment $7,929  $—  $—  $—  $73  $—  $8,002 
Collectively evaluated for impairment  308,983   466,266   106,937   5,324   377   130   888,017 
   Total loans held for investment,
    gross
 $316,912  $466,266  $106,937  $5,324  $450  $130  $896,019 
   Allowance for loan losses as
    a percentage of gross loans
    held for investment
  0.98%  0.71%  0.90%  1.77%  6.89%  5.38%  0.84%

  Quarter 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
$3,579  $3,431  $875  $140  $31  $7  $8,063 
(Recovery) provision for loan
   losses
 (299)  (136)  58   364   1   1   (11)
Recoveries  48   —   —   —   —   —   48 
Charge-offs  (25)  —   —   —   —   —   (25)
   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   7,072   402   144   881,569 
   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 
1.05%  0.71%  0.90%  7.13%  6.69%  5.56%  0.90%
22
  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%


2322
 Nine Months Ended March 31, 2019 
(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 
Provision (recovery) for loan losses  (292)  (192)  12   16   —   3   3   (450)
Recoveries  177   —   —   —   —   —   2   179 
Charge-offs  (31)  —   —   —   —   —   (3)  (34)
   Allowance for loan losses,
    end of period
 $2,637  $3,300  $1,042  $63  $3  $27  $8  $7,080 
                                
Allowance for loan losses:                               
Individually evaluated for impairment $123  $—  $—  $—  $—  $9  $—  $132 
Collectively evaluated for impairment  2,514   3,300   1,042   63   3   18   8   6,948 
   Allowance for loan losses,
    end of period
 $2,637  $3,300  $1,042  $63  $3  $27  $8  $7,080 
                                
Loans held for investment:                               
Individually evaluated for impairment $6,004  $—  $—  $745  $—  $53  $—  $6,802 
Collectively evaluated for impairment  308,820   449,812   115,355   3,394   167   430   133   878,111 
   Total loans held for investment,
    gross
 $314,824  $449,812  $115,355  $4,139  $167  $483  $133  $884,913 
   Allowance for loan losses as
    a percentage of gross loans
    held for investment
  0.84%  0.73%  0.90%  1.52%  1.80%  5.59%  6.02%  0.79%
 

 
  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   7,072   402   144   881,569 
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 
1.05%  0.71%  0.90%  7.13%  6.69%  5.56%  0.90%
23
  Nine Months Ended March 31, 2018 
(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 
Provision (recovery) for loan losses  (319)  (108)  87   (2)  (5)  —   (347) 
Recoveries  203   —   —   —   —   —   203 
Charge-offs  (364)  —   —   —   —   —   (364) 
   Allowance for loan losses,
    end of period
 $3,121  $3,312  $966  $94  $31  $7  $7,531 
                             
Allowance for loan losses:                            
Individually evaluated for impairment $161  $—  $—  $—  $15  $—  $176 
Collectively evaluated for impairment  2,960   3,312   966   94   16   7   7,355 
   Allowance for loan losses,
    end of period
 $3,121  $3,312  $966  $94  $31  $7  $7,531 
                             
Loans held for investment:                            
Individually evaluated for impairment $7,929  $—  $—  $—  $73  $—  $8,002 
Collectively evaluated for impairment  308,983   466,266   106,937   5,324   377   130   888,017 
   Total loans held for investment, gross $316,912  $466,266  $106,937  $5,324  $450  $130  $896,019 
Allowance for loan losses as
  a percentage of gross loans
  held for investment
  0.98%  0.71%  0.90%  1.77%  6.89   5.38%  0.84
 
%


24

The following tables identify the Corporation's total recorded investment in non-performing loans by type at the dates and for the periods indicated.  Generally, a loan is placed on non-accrual status when it becomes 90 days past due as to principal or interest or if the loan is deemed impaired, after considering economic and business conditions and collection efforts, where the borrower's financial condition is such that collection of the contractual principal or interest on the loan is doubtful.  In addition, interest income is not recognized on any loan where management has determined that collection is not reasonably assured.  A non-performing loan may be restored to accrual status when delinquent principal and interest payments are brought current, the borrower(s) has demonstrated sustained payment performance and future monthly principal and interest payments are expected to be collected on a timely basis.  Loans with a related allowance reserve have been individually evaluated for impairment using either a discounted cash flow analysis or, for collateral dependent loans, current appraisals less costs to sell, to establish realizable value.  This analysis may identify a specific impairment amount needed or may conclude that no reserve is needed.  Loans that are not individually evaluated for impairment are included in pools of homogeneous loans for evaluation of related allowance reserves.
 At December 31, 2018  At March 31, 2019 
 Unpaid           Net  Unpaid           Net 
 Principal  Related  Recorded     Recorded  Principal  Related  Recorded     Recorded 
(In Thousands) Balance  Charge-offs  Investment  
Allowance (1)
  Investment  Balance  Charge-offs  Investment  
Allowance (1)
  Investment 
                              
Mortgage loans:                              
Single-family:                              
With a related allowance $2,856  $—  $2,856  $(393) $2,463  $1,813  $—  $1,813  $(284) $1,529 
Without a related allowance (2)
  3,368   (561)  2,807   —   2,807   4,336   (539)  3,797   —   3,797 
Total single-family  6,224   (561)  5,663   (393)  5,270   6,149   (539)  5,610   (284)  5,326 
                                        
Construction:                                        
Without a related allowance (3)
  745   —   745   —   745   745   —   745   —   745 
Total construction  745   —   745   —   745   745   —   745   —   745 
                                        
Commercial business loans:                                        
With a related allowance  56   —  ��56   (9)  47   53   —   53   (9)  44 
Total commercial business loans  56   —   56   (9)  47   53   —   53   (9)  44 
                                        
Total non-performing loans $7,025  $(561) $6,464  $(402) $6,062  $6,947  $(539) $6,408  $(293) $6,115 

(1)  Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan, and fair value credit adjustments.
(2)  There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance.
(3)  There was no related allowance for loan losses because the loans, net of undisbursed loan funds, have been charged-off to their fair value or the fair value of the collateral is higher than the net loan balance.

25
  At June 30, 2018 
  Unpaid           Net 
  Principal  Related  Recorded     Recorded 
(In Thousands) Balance  Charge-offs  Investment  
Allowance (1)
  Investment 
                
Mortgage loans:               
   Single-family:                 
      With a related allowance $1,333  $—  $1,333  $(185) $1,148 
      Without a related allowance (2)
  5,569   (724)  4,845   —   4,845 
   Total single-family  6,902   (724)  6,178   (185)  5,993 
                     
Commercial business loans:                    
   With a related allowance  70   —   70   (6)  64 
Total commercial business loans  70   —   70   (6)  64 
                     
Total non-performing loans $6,972  $(724) $6,248  $(191) $6,057 

(1)  Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan, and fair value credit adjustments.
(2)  There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance.

At both DecemberMarch 31, 20182019 and June 30, 2018, there were no commitments to lend additional funds to those borrowers whose loans were classified as non-performing, except for one construction loan with undisbursed loan funds of $1.2 million at DecemberMarch 31, 2018.2019.

For the quarters ended DecemberMarch 31, 20182019 and 2017,2018, the Corporation's average recorded investment in non-performing loans was $6.6$6.4 million and $8.2$7.6 million, respectively.  The Corporation records payments on non-performing loans utilizing the cash basis or cost recovery method of accounting during the periods when the loans are on non-performing status. For both quartersthe quarter ended DecemberMarch 31, 2019, the Bank received $63,000 in interest payments from non-performing loans, of which $30,000 were recognized as interest income and the remaining $33,000 were applied to reduce the loan balances under the cost recovery method.  In comparison for the quarter ended March 31, 2018, and 2017,the Bank received $121,000 in interest payments from non-performing loans, of which $70,000 were recognized as interest income of $226,000 and $10,000, respectively, was recognized, based on cash receipts from loan payments on non-performing loans and $48,000 and $80,000, respectively, was collected andthe remaining $51,000 were applied to reduce the loan balances under the cost recovery method.

For the sixnine months ended DecemberMarch 31, 20182019 and 2017,2018, the Corporation's average recorded investment in non-performing loans was $6.8$6.7 million and $8.4$8.1 million, respectively.  For the sixnine months ended DecemberMarch 31, 2019, the Bank received $458,000 in interest payments from non-performing loans, of which $321,000 were recognized as interest income and the remaining $137,000 were applied to reduce the loan balances under the cost recovery method.  In comparison for the nine months ended March 31, 2018, and 2017,the Bank received $466,000 in interest payments from non-performing loans, of which $240,000 were recognized as interest income of $291,000 and $170,000, respectively, was recognized, based on cash receipts from loan payments on non-performing loans and $104,000 and $174,000, respectively, was collected andthe remaining $226,000 were applied to reduce the loan balances under the cost recovery method.
26
The following table presentstables present the average recorded investment in non-performing loans and the related interest income recognized for the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017:2018:
 Quarter Ended December 31,  Quarter Ended March 31, 
 2018  2017  2019  2018 
 Average  Interest  Average  Interest  Average  Interest  Average  Interest 
 Recorded  Income  Recorded  Income  Recorded  Income  Recorded  Income 
(In Thousands) Investment  Recognized  Investment  Recognized  Investment  Recognized  Investment  Recognized 
                        
Without related allowances:                        
Mortgage loans:                        
Single-family $3,326  $189  $7,301  $—  $2,785  $—  $6,397  $49 
Construction  745   —   —   —   745   —   —   — 
  4,071   189   7,301   —   3,530   —   6,397   49 
                                
With related allowances:                                
Mortgage loans:                                
Single-family  2,487   36   786   8   2,841   29   1,170   20 
Commercial business loans  60   1   76   2   54   1   74   1 
  2,547   37   862   10   2,895   30   1,244   21 
                                
Total $6,618  $226  $8,163  $10  $6,425  $30  $7,641  $70 
 

             
  Nine Months Ended March 31, 
  2019  2018 
  Average  Interest  Average  Interest 
  Recorded  Income  Recorded  Income 
(In Thousands) Investment  Recognized  Investment  Recognized 
             
Without related allowances:            
Mortgage loans:            
Single-family $3,570  $229  $7,296  $184 
Commercial real estate  —   —   22   13 
Construction  579   —   —   — 
   4,149   229   7,318   197 
                 
With related allowances:                
Mortgage loans:                
Single-family  2,466   89   738   39 
Commercial business loans  61   3   76   4 
   2,527   92   814   43 
                 
Total $6,676  $321  $8,132  $240 
  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 

27

For the quarter ended DecemberMarch 31, 2018,2019, no new loans were restructured from their original terms and classified as restructured loans, while one restructured loan from pass category was paid off.downgraded to special mention.  For the sixnine months ended DecemberMarch 31, 2018,2019, no new loans were restructured from their original terms and classified as restructured loans, while one restructured loan was upgraded to the "pass"pass category, one restructured loan from the pass category was downgraded to special mention and one restructured loan was paid off.  For the quarters and sixnine months ended DecemberMarch 31, 2017,2018, there were notwo loans totaling $2.2 million that were newly modified from their original terms and re-underwritten or identified in the Corporation's asset quality reports as restructured loans. During the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017,2018, no restructured loans were in default within a 12-month period subsequent to their original restructuring.  Additionally, during the quarter and six months ended DecemberMarch 31, 2018,2019, there was oneno loan whose modification was extended beyond the initial maturity of the modification; while during the nine months ended March 31, 2019, there was one loan whose modification was extended beyond the initial maturity of the modification. During the quarter and sixnine months ended DecemberMarch 31, 2017,2018, there were no loans whose modification was extended beyond the initial maturity of the modification.  At both DecemberMarch 31, 20182019 and June 30, 2018, there were no commitments to lend additional funds to those borrowers whose loans were restructured.

As of DecemberMarch 31, 2018,2019, the Corporation held nine10 restructured loans with a net outstanding balance of $4.2$4.6 million: one loan was classified as special mention ($440,000), one loan was classified as substandard and remains on accrual status ($1.4 million); and eight loans were classified as substandard on non-accrual status ($2.82.7 million). As of June 30, 2018, the Corporation held 11 restructured loans with a net outstanding balance of $5.2 million: one loan was classified as special mention on accrual status ($389,000); one loan was classified as substandard on accrual status ($1.4 million); and nine loans were classified as substandard on non-accrual status ($3.4 million).  Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.  Assets that do not currently expose the Corporation to sufficient risk to warrant adverse classification but possess weaknesses are designated as special mention and are closely monitored by the Corporation.  As of DecemberMarch 31, 20182019 and June 30, 2018, $2.9 million or 70%63%, and $2.9 million or 56%, respectively, of the restructured loans were current with respect to their modified payment terms.

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

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

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The following table summarizes at the dates indicated the restructured loan balances, net of allowance for loan losses, by loan type and non-accrual versus accrual status:
 At  At  At  At 
(In Thousands)
 December 31,
2018
 
June 30,
2018
 March 31, 2019  June 30, 2018 
Restructured loans on non-accrual status:            
Mortgage loans:            
Single-family $2,698  $3,328  $2,669  $3,328 
Commercial business loans  47   64   44   64 
Total  2,745   3,392   2,713   3,392 
                
Restructured loans on accrual status:                
Mortgage loans:                
Single-family  1,425   1,788   1,865   1,788 
Total  1,425   1,788   1,865   1,788 
                
Total restructured loans $4,170  $5,180  $4,578  $5,180 

The following tables identify the Corporation's total recorded investment in restructured loans by type at the dates and for the periods indicated.
  At March 31, 2019 
  Unpaid           Net 
  Principal  Related  Recorded     Recorded 
(In Thousands) Balance  Charge-offs  Investment  
Allowance (1)
  Investment 
                
Mortgage loans:               
     Single-family:               
       With a related allowance $2,207  $—  $2,207  $(123) $2,084 
       Without a related allowance (2)
  2,818   (368)  2,450   —   2,450 
     Total single-family  5,025   (368)  4,657   (123)  4,534 
                     
Commercial business loans:                    
     With a related allowance  53   —   53   (9)  44 
Total commercial business loans  53   —   53   (9)  44 
                     
Total restructured loans $5,078  $(368) $4,710  $(132) $4,578 

  At December 31, 2018 
  Unpaid           Net 
  Principal  Related  Recorded     Recorded 
(In Thousands) Balance  Charge-offs  Investment  
Allowance (1)
  Investment 
                
Mortgage loans:               
     Single-family:               
       With a related allowance $2,214  $—  $2,214  $(124) $2,090 
       Without a related allowance (2)
  2,407   (374)  2,033   —   2,033 
     Total single-family  4,621   (374)  4,247   (124)  4,123 
                     
Commercial business loans:                    
     With a related allowance  56   —   56   (9)  47 
Total commercial business loans  56   —   56   (9)  47 
                     
Total restructured loans $4,677  $(374) $4,303  $(133) $4,170 
(1)  Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan.
(2)  There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance.

29
  At June 30, 2018 
  Unpaid           Net 
  Principal  Related  Recorded     Recorded 
(In Thousands) Balance  Charge-offs  Investment  
Allowance (1)
  Investment 
                
Mortgage loans:               
     Single-family               
       With a related allowance $2,228  $—  $2,228  $(151) $2,077 
       Without a related allowance (2)
  3,450   (411)  3,039   —   3,039 
     Total single-family  5,678   (411)  5,267   (151)  5,116 
                     
Commercial business loans:                    
     With a related allowance  70   —   70   (6)  64 
Total commercial business loans  70   —   70   (6)  64 
                     
Total restructured loans $5,748  $(411) $5,337  $(157) $5,180 

(1)  Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan.
(2)  There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance.

During the quarter ended DecemberMarch 31, 2018,2019, no properties were acquired in the settlement of loans whileand no previously foreclosed upon properties were sold.  This compares to the quarter ended March 31, 2018 when two properties were acquired in the settlement of loans, and one previously foreclosed upon property was sold. This compares to the quarter ended December 31, 2017 when one property was acquired in the settlement of loans, while no previously foreclosed upon properties were sold. For the sixnine months ended DecemberMarch 31, 2018,2019, no properties were acquired in the settlement of loans, while two previously foreclosed upon properties were sold. This compares to the sixnine months ended DecemberMarch 31, 20172018 when one property wasthree properties were acquired in the settlement of loans, while twoand three previously foreclosed upon properties were sold. As of DecemberMarch 31, 2018,2019, there was no outstanding real estate owned property. This compares to two real estate owned properties located in California with a total net fair value of $906,000 at June 30, 2018.  A new appraisal was obtained on each of the properties at the time of foreclosure and fair value was derived by using the lower of the appraised value or the listing price of the property, net of selling costs.  Any initial loss was recorded as a charge to the allowance for loan losses before being transferred to real estate owned.  Subsequent to transfer to real estate owned, if there is further deterioration in real estate values, specific real estate owned loss reserves are established and charged to the statement of operations.  In addition, the Corporation records costs to carry real estate owned as real estate operating expenses as incurred.


Note 7: Derivative and Other Financial Instruments with Off-Balance Sheet Risks

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 commitments to third parties and option contracts.  These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying Condensed Consolidated Statements of Financial Condition.  The Corporation's exposure to credit loss, in the event of non-performance by the counterparty to these financial instruments, is represented by the contractual amount of these instruments.  The Corporation uses the same credit policies in entering into financial instruments with off-balance sheet risk as it does for on-balance sheet instruments.  As of DecemberMarch 31, 20182019 and June 30, 2018, the Corporation had commitments to extend credit (on loans to be held for investment and loans to be held for sale) of $34.6$16.6 million and $66.3 million, respectively.

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The following table provides information at the dates indicated regarding undisbursed funds on construction loans, undisbursed funds to borrowers on existing lines of credit with the Corporation as well as commitments to originate loans to be held for investment at the dates indicated below.
Commitments December 31, 2018 June 30, 2018  March 31, 2019  June 30, 2018 
(In Thousands)            
            
Undisbursed loan funds – Construction loans $5,747  $4,302  $6,109  $4,302 
Undisbursed lines of credit – Commercial business loans  1,488   495   950   495 
Undisbursed lines of credit – Consumer loans  487   503   481   503 
Commitments to extend credit on loans to be held for investment  7,376   9,352   4,346   9,352 
Total $15,098  $14,652  $11,886  $14,652 

The following table provides information regarding the allowance for loan losses for the undisbursed funds and commitments to extend credit on loans to be held for investment for the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017.2018.
 
For the Quarters Ended
December 31,
  
For the Six Months Ended
December 31,
  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
(In Thousands) 2018  2017  2018  2017  2019  2018  2019  2018 
Balance, beginning of the period $149  $213  $157  $277  $150  $188  $157  $277 
Provision (recovery)  1   (25)  (7)  (89)  1   (29)  (6)  (118)
Balance, end of the period $150  $188  $150  $188  $151  $159  $151  $159 

In accordance with ASC 815, "Derivatives and Hedging," and interpretations of the Derivatives Implementation Group of the FASB, the fair value of the commitments to extend credit on loans to be held for sale, loan sale commitments, to be announced ("TBA") MBS trades, put option contracts and call option contracts are recorded at fair value on the Condensed Consolidated Statements of Financial Condition.  At DecemberMarch 31, 2018, $506,0002019, $240,000 was included in other assets and $691,000$224,000 was included in other liabilities; at June 30, 2018, $849,000 was included in other assets and $464,000 was included in other liabilities.  The Corporation does not apply hedge accounting to its derivative financial instruments; therefore, all changes in fair value are recorded in earnings.

The net impact of derivative financial instruments recorded within the gain on sale of loans contained in the Condensed Consolidated Statements of Operations during the quarters and sixnine months ended DecemberMarch 31, 20182019 and 20172018 was as follows:
 
For the Quarters Ended
December 31,
  
For the Six Months Ended
December 31,
  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
Derivative Financial Instruments 2018  2017  2018  2017  2019  2018  2019  2018 
(In Thousands)                        
Commitments to extend credit on loans to be held for sale $8  $29  $(321) $(93) $(264) $266  $(585) $173 
Mandatory loan sale commitments and TBA MBS trades
  (928)  (582)  (249)  (791)  465   (281)  216   (1,072)
Option contracts, net  —   —   —   (37)  —   —   —   (37)
Total net loss $(920) $(553) $(570) $(921)
Total net gain (loss) $201  $(15) $(369) $(936)

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The outstanding derivative financial instruments and other loan sale agreements at the dates indicated were as follows:
 December 31, 2018  June 30, 2018  March 31, 2019  June 30, 2018 
Derivative Financial Instruments Amount  
Fair
Value
  Amount  
Fair
Value
  Amount  
Fair
Value
  Amount  
Fair
Value
 
(In Thousands)                        
Commitments to extend credit on loans to be held for sale (1)
 $27,260  $504  $56,906  $825  $12,211  $240  $56,906  $825 
Best efforts loan sale commitments  (12,795)  —   (29,502)  —   (10,212)  —   (29,502)  — 
Mandatory loan sale commitments and TBA MBS trades  (66,721)  (689)  (117,759)  (440)  (28,817)  (224)  (117,759)  (440)
Total $(52,256) $(185) $(90,355) $385  $(26,818) $16  $(90,355) $385 

(1)
Net of 26.3%18.6% at DecemberMarch 31, 20182019 and 24.7% at June 30, 2018 of commitments which management has estimated may not fund.

Occasionally, the Corporation is required to repurchase loans sold to Freddie Mac, Fannie Mae or other institutional investors if it is determined that such loans do not meet the credit requirements of the investor, or if one of the parties involved in the loan misrepresented pertinent facts, committed fraud, or if such loans were 90-days past due within 120 days of the loan funding date. During the third quarter of fiscal 2019, the Corporation repurchased two loans totaling $446,000 pursuant to the recourse/repurchase covenants contained in the loan sale agreements. In comparison, the Corporation repurchased two loans totaling $602,000 from investors during the third quarter of fiscal 2018. During the first sixnine months of fiscal 2019, the Corporation repurchased threefive loans totaling $253,000,$699,000, including two loans that were fully charged off ($25,000). In comparison, the Corporation did not repurchase anyrepurchased two loans totaling $602,000 from investors during the first sixnine months of fiscal 2018 pursuant to the recourse/repurchase covenants contained in the loan sale agreements.2018. Additional repurchase requests may have been settled that did not result in the repurchase of the loan itself.  The primary reasons for honoring the repurchase requests are borrower fraud, undisclosed liabilities on borrower applications, and documentation, verification and appraisal disputes.  For the third quarters of fiscal 2019 and 2018, the Corporation did not record any provision for the recourse liability and did not settle any claims.  For the first sixnine months of fiscal 2019 and 2018, the Corporation recorded a $33,000 recovery and a $22,000 recovery from the recourse liability, respectively, and did not settle any claims.  As of DecemberMarch 31, 2018,2019, the total recourse reserve for loans sold that are subject to repurchase decreased to $250,000, as compared to $283,000 at June 30, 2018 and $283,000 at DecemberMarch 31, 2017.2018.

Beginning in 2008, in connection with the downturn in the real estate market, the Corporation implemented tighter underwriting standards to reduce potential loan repurchase requests, including requiring higher credit scores, generally lower debt-to-income ratios, and verification of income and assets, among other criteria.  Despite management's diligent estimate of the recourse reserve, the Corporation is still subject to risks and uncertainties associated with potentially higher loan repurchase claims from investors, and there are no assurances that the current recourse reserve will be sufficient to cover all future recourse claims.

The following table shows the summary of the recourse liability for the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017:2018:
  
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 

  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
Recourse Liability 2019  2018  2019  2018 
(In Thousands)            
             
Balance, beginning of the period $250  $283  $283  $305 
Recovery from recourse liability  —   —   (33)  (22)
Net settlements in lieu of loan repurchases  —   —   —   — 
Balance, end of the period $250  $283  $250  $283 

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Note 8: Fair Value of Financial Instruments

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

The following table describes the difference at the dates indicated between the aggregate fair value and the aggregate unpaid principal balance of loans held for investment at fair value and loans held for sale at fair value:
(In Thousands) 
Aggregate
Fair Value
  
Aggregate
Unpaid
Principal
Balance
  
Net
Unrealized
(Loss) Gain
  
Aggregate
Fair Value
  
Aggregate
Unpaid
Principal
Balance
  
Net
Unrealized
Gain (Loss)
 
As of December 31, 2018:         
As of March 31, 2019:         
Loans held for investment, at fair value $4,995  $5,261  $(266) $5,239  $5,417  $(178)
Loans held for sale, at fair value $57,562  $55,648  $1,914  $30,500  $29,565  $935 
                        
As of June 30, 2018:                        
Loans held for investment, at fair value $5,234  $5,546  $(312) $5,234  $5,546  $(312)
Loans held for sale, at fair value $96,298  $93,791  $2,507  $96,298  $93,791  $2,507 

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

ASC 820 establishes a three-level valuation hierarchy that prioritizes inputs to valuation techniques used in fair value calculations.  The three levels of inputs are defined as follows:
Level 1-Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.
Level 2-Observable inputs other than Level 1 such as: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated to observable market data for substantially the full term of the asset or liability.
Level 3-Unobservable inputs for the asset or liability that use significant assumptions, including assumptions of risks.  These unobservable assumptions reflect the Corporation's estimate of assumptions that market participants would use in pricing the asset or liability.  Valuation techniques include the use of pricing models, discounted cash flow models and similar techniques.

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

The Corporation's financial assets and liabilities measured at fair value on a recurring basis consist of investment securities available for sale, loans held for investment at fair value, loans held for sale at fair value, interest-only strips and derivative
 
33
financial instruments; while non-performing loans, mortgage servicing assets ("MSA") and real estate owned are measured at fair value on a nonrecurring basis.

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

Derivative financial instruments are comprised of commitments to extend credit on loans to be held for sale, mandatory loan sale commitments, TBA MBS trades and option contracts.  The fair value of TBA MBS trades is determined using quoted secondary-market prices (Level 2).  The fair values of other derivative financial instruments are determined by quoted prices for a similar commitment or commitments, adjusted for the specific attributes of each commitment (Level 3).

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

Loans held for sale at fair value are primarily single-family loans.  The fair value is determined, when possible, using quoted secondary-market prices such as mandatory loan sale commitments.  If no such quoted price exists, the fair value of a loan is determined by quoted prices for a similar loan or loans, adjusted for the specific attributes of each loan (Level 2).

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

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

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

34
The fair value of real estate owned is derived from the lower of the appraised value or the listing price, net of estimated selling costs (Level 2).

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

The following fair value hierarchy tables present information at the dates indicated about the Corporation's assets measured at fair value on a recurring basis:
 Fair Value Measurement at December 31, 2018 Using:  Fair Value Measurement at March 31, 2019 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 $—  $3,942  $—  $3,942  $—  $3,796  $—  $3,796 
U.S. government sponsored enterprise MBS  —   2,311   —   2,311   —   2,198   —   2,198 
Private issue CMO  —   —   310   310   —   —   300   300 
Investment securities - available for sale  —   6,253   310   6,563   —   5,994   300   6,294 
                                
Loans held for investment, at fair value  —   —   4,995   4,995   —   —   5,239   5,239 
Loans held for sale, at fair value  —   57,562   —   57,562   —   30,500   —   30,500 
Interest-only strips  —   —   21   21   —   —   18   18 
                                
Derivative assets:                                
Commitments to extend credit on loans to be held for sale  —   —   505   505   —   —   240   240 
Mandatory loan sale commitments  —   —   1   1 
Derivative assets  —   —   506   506   —   —   240   240 
Total assets $—  $63,815  $5,832  $69,647  $—  $36,494  $5,797  $42,291 
                                
Liabilities:                                
Derivative liabilities:                                
Commitments to extend credit on loans to be held for sale $—  $—  $1  $1 
Mandatory loan sale commitments  —   —   10   10  $—  $—  $7  $7 
TBA MBS trades  —   680   —   680   —   217   —   217 
Derivative liabilities  —   680   11   691   —   217   7   224 
Total liabilities $—  $680  $11  $691  $—  $217  $7  $224 

35
  Fair Value Measurement at June 30, 2018 Using: 
(In Thousands) Level 1  Level 2  Level 3  Total 
Assets:            
     Investment securities - available for sale:            
         U.S. government agency MBS $—  $4,384  $—  $4,384 
         U.S. government sponsored enterprise MBS  —   2,762   —   2,762 
         Private issue CMO  —   —   350   350 
             Investment securities - available for sale  —   7,146   350   7,496 
                 
     Loans held for investment, at fair value  —   —   5,234   5,234 
     Loans held for sale, at fair value  —   96,298   —   96,298 
     Interest-only strips  —   —   23   23 
                 
     Derivative assets:                
         Commitments to extend credit on loans to be held for sale  —   —   849   849 
             Derivative assets  —   —   849   849 
Total assets $—  $103,444  $6,456  $109,900 
                 
Liabilities:                
     Derivative liabilities:                
         Commitments to extend credit on loans to be held for sale $—  $—  $24  $24 
         Mandatory loan sale commitments  —   —   32   32 
         TBA MBS trades  —   408   —   408 
             Derivative liabilities  —   408   56   464 
Total liabilities $—  $408  $56  $464 



36
The following tables summarize reconciliations of the beginning and ending balances during the periods shown of recurring fair value measurements recognized in the Condensed Consolidated Statements of Financial Condition using Level 3 inputs:
 For the Quarter Ended December 31, 2018  For the Quarter Ended March 31, 2019 
 
Fair Value Measurement
Using Significant Other Unobservable Inputs
(Level 3)
  
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  
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 
Beginning balance at December 31, 2018 $310  $4,995  $21  $504  $(9) $5,821 
Total gains or losses (realized/unrealized):                                             
Included in earnings  —   95   —   8   (1)  102   —   87   —   (264)  (3)  (180)
Included in other comprehensive loss  (1)  —   (3)  —   —   (4)  1   —   (3)  —   —   (2)
Purchases  —   —   —   —   —   —   —   —   —   —   —   — 
Issuances  —   —   —   —   —   —   —   —   —   —   —   — 
Settlements  (5)  (45)  —   —   1   (49)  (11)  (34)  —   —   5   (40)
Transfers in and/or out of Level 3  —   —   —   —   —   —   —   191   —   —   —   191 
Ending balance at December 31, 2018 $310  $4,995  $21  $504  $(9) $5,821 
Ending balance at March 31, 2019 $300  $5,239  $18  $240  $(7) $5,790 

(1)
The valuation of loans held for investment at fair value includes the management estimates of the specific credit risk attributes of each loan, in addition to the quoted secondary-market prices which account for the interest rate characteristics of each loan.
(2)
Consists of commitments to extend credit on loans to be held for sale.
(3)
Consists of mandatory loan sale commitments.

 For the Quarter Ended December 31, 2017  For the Quarter Ended March 31, 2018 
 
Fair Value Measurement
Using Significant Other Unobservable Inputs
(Level 3)
  
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
Commit-
ments to
Originate (2)
  
Manda-
tory
Commit-
ments (3)
  Total  
Private
Issue
CMO
  
Loans Held
For
Investment, at
fair value (1)
  
Interest-
Only
Strips
  
Loan
Commit-
ments to
Originate (2)
  
Manda-
tory
Commit-
ments (3)
  Total 
Beginning balance at September 30, 2017 $448  $6,924  $28  $687  $(4) $8,083 
Beginning balance at December 31, 2017 $419  $5,157  $26  $716  $(24) $6,294 
Total gains or losses (realized/unrealized):                                                
Included in earnings  —   38   —   29   (20)  47   —   (118)  —   266   (26)  122 
Included in other comprehensive loss  —   —   (2)  —   —   (2)  (2)  —   (2)  —   —   (4)
Purchases  —   —   —   —   —   —   —   —   —   —   —   — 
Issuances  —   —   —   —   —   —   —   —   —   —   —   — 
Settlements  (29)  (1,805)  —   —   —   (1,834)  (22)  (43)  —   —   —   (65)
Transfers in and/or out of Level 3  —   —   —   —   —   —   —   —   —   —   —   — 
Ending balance at December 31, 2017 $419  $5,157  $26  $716  $(24) $6,294 
Ending balance at March 31, 2018 $395  $4,996  $24  $982  $(50) $6,347 

(1)
The valuation of loans held for investment at fair value includes the management estimates of the specific credit risk attributes of each loan, in addition to the quoted secondary-market prices which account for the interest rate characteristics of each loan.
(2)
Consists of commitments to extend credit on loans to be held for sale.
(3)
Consists of mandatory loan sale commitments.
 
37
  For the Six Months 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 June 30, 2018 $350  $5,234  $23  $825  $(32) $6,400 
   Total gains or losses (realized/unrealized):                       
      Included in earnings  —   46   —   (321)  21   (254)
      Included in other comprehensive loss  (1)  —   (2)  —   —   (3)
   Purchases  —   —   —   —   —   — 
   Issuances  —   —   —   —   —   — 
   Settlements  (39)  (755)  —   —   2   (792)
   Transfers in and/or out of Level 3  —   470   —   —   —   470 
Ending balance at December 31, 2018 $310  $4,995  $21  $504  $(9) $5,821 
  For the Nine Months Ended March 31, 2019 
  
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 June 30, 2018 $350  $5,234  $23  $825  $(32) $6,400 
     Total gains or losses (realized/unrealized):                        
         Included in earnings  —   133   —   (585)  18   (434)
         Included in other comprehensive loss  —   —   (5)  —   —   (5)
     Purchases  —   —   —   —   —   — 
     Issuances  —   —   —   —   —   — 
     Settlements  (50)  (789)  —   —   7   (832)
     Transfers in and/or out of Level 3  —   661   —   —   —   661 
Ending balance at March 31, 2019 $300  $5,239  $18  $240  $(7) $5,790 

(1)
The valuation of loans held for investment at fair value includes the management estimates of the specific credit risk attributes of each loan, in addition to the quoted secondary-market prices which account for the interest rate characteristics of each loan.
(2)
Consists of commitments to extend credit on loans to be held for sale.
(3)
Consists of mandatory loan sale commitments.

 
 For the Six Months Ended December 31, 2017  For the Nine Months Ended March 31, 2018 
 
Fair Value Measurement
Using Significant Other Unobservable Inputs
(Level 3)
  
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
Commit-
ments to
Originate (2)
 
Manda-
tory
Commit-
ments (3)
 
Option
Contracts
  Total  
Private
Issue
CMO
  
Loans Held
For
Investment, at
fair value (1) 
Interest-
Only
Strips
  
Loan
Commit-
ments to
Originate (2)
  Manda-
tory
Commit-
ments (3) 
 
Option
Contracts
  Total 
Beginning balance at June 30, 2017 $461  $6,445  $31  $809  $47  $37  $7,830  $461  $6,445  $31  $809  $47  $37  $7,830 
Total gains or losses (realized/unrealized):                             Total gains or losses (realized/unrealized):                          
Included in earnings  —   46   —   (93)  (73)  (37)  (157)  —   (72)  —   173   (99)  (37)  (35)
Included in other comprehensive loss  1   —   (5)  —   —   —   (4)  (1)  —   (7)  —   —   —   (8)
Purchases  —   —   —   —   —   —   —   —   —   —   —   —   —   — 
Issuances  —   —   —   —   —   —   —   —   —   —   —   —   —   — 
Settlements  (43)  (1,856)  —   —   2   —   (1,897)  (65)  (1,899)  —   —   2   —   (1,962)
Transfers in and/or out of Level 3  —   522   —   —   —   —   522   —   522   —   —   —   —   522 
Ending balance at December 31, 2017 $419  $5,157  $26  $716  $(24) $—  $6,294 
Ending balance at March 31, 2018 $395  $4,996  $24  $982  $(50) $—  $6,347 

(1)
The valuation of loans held for investment at fair value includes the management estimates of the specific credit risk attributes of each loan, in addition to the quoted secondary-market prices which account for the interest rate characteristics of each loan.
(2)
Consists of commitments to extend credit on loans to be held for sale.
(3)
Consists of mandatory loan sale commitments.

38
38

The following fair value hierarchy tables present information about the Corporation's assets measured at fair value at the dates indicated on a nonrecurring basis:
 Fair Value Measurement at December 31, 2018 Using:  Fair Value Measurement at March 31, 2019 Using: 
(In Thousands) Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3  Total 
Non-performing loans $—  $4,313  $1,749  $6,062  $—  $4,541  $1,574  $6,115 
Mortgage servicing assets  —   —   513   513   —   —   456   456 
Real estate owned, net  —   —   —   —   —   —   —   — 
Total $—  $4,313  $2,262  $6,575  $—  $4,541  $2,030  $6,571 

  Fair Value Measurement at June 30, 2018 Using: 
(In Thousands) Level 1  Level 2  Level 3  Total 
Non-performing loans $—  $4,845  $1,212  $6,057 
Mortgage servicing assets  —   —   135   135 
Real estate owned, net  —   906   —   906 
Total $—  $5,751  $1,347  $7,098 
 
  Fair Value Measurement at June 30, 2018 Using: 
(In Thousands) Level 1  Level 2  Level 3  Total 
Non-performing loans $—  $4,845  $1,212  $6,057 
Mortgage servicing assets  —   —   135   135 
Real estate owned, net  —   906   —   906 
Total $—  $5,751  $1,347  $7,098 


39
The following table presents additional information about valuation techniques and inputs used for assets and liabilities, including derivative financial instruments, which are measured at fair value and categorized within Level 3 as of DecemberMarch 31, 2018:2019:
(Dollars In Thousands) 
Fair Value
As of
December 31,
2018
 
Valuation
Techniques
Unobservable Inputs 
Range (1)
(Weighted Average)
 
Impact to
Valuation
from an
Increase in
Inputs (2)
 
Fair Value
As of
March 31,
2019
 
Valuation
Techniques
Unobservable Inputs 
Range (1)
(Weighted Average)
 
Impact to
Valuation
from an
Increase in
Inputs (2)
                           
Assets:                         
                            
Securities available - for sale: Private issue CMO $310 Market comparable pricingComparability adjustment 0.8% – 1.0% (0.9%) Increase $300 
Market comparable
  pricing
Comparability adjustment 1.2% – 1.3% (1.2%) Increase
                             
Loans held for investment,
at fair value
 $4,995 
Relative value
  analysis
Broker quotes

Credit risk factors
 
96.7% – 103.5%
(99.6%) of par
1.2% - 100.0% (4.7%)
 
Increase

Decrease
 $5,239 
Relative value
  analysis
Broker quotes

Credit risk factors
 
98.3% – 105.2%
(101.1%) of par
1.2% - 100.0% (4.3%)
 
Increase

Decrease
                             
Non-performing loans $712 Discounted cash flowDefault rates 5.0% Decrease $703 Discounted cash flowDefault rates 5.0% Decrease
Non-performing loans $1,037 Relative value analysisLoss severity 20.0% - 30.0% (23.0%) Decrease $871 
Relative value
  analysis
Loss severity 20.0% - 30.0% (21.3%) Decrease
                             
Mortgage servicing assets $513 Discounted cash flow
Prepayment speed (CPR)
Discount rate
 8.3% - 60.0% (18.2%)9.0% - 10.5% (9.2%) 
Decrease
Decrease
 $456 Discounted cash flow
Prepayment speed (CPR)
Discount rate
 
9.7% - 60.0% (21.7%)
9.0% - 10.5%(9.2%)
 
Decrease
Decrease
                             
Interest-only strips $21 Discounted cash flow
Prepayment speed (CPR)
Discount rate
 11.4% - 30.5% (28.1%)9.0% 
Decrease
Decrease
 $18 Discounted cash flow
Prepayment speed (CPR)
Discount rate
 
18.7% - 35.9% (34.3%)
9.0%
 
Decrease
Decrease
                             
Commitments to extend credit on loans to be held for sale $505 Relative value analysis
TBA-MBS broker quotes
Fall-out ratio (3)
 
98.3% – 104.6%
(101.6%) of par
16.9% - 28.2% (26.3%)
 
Increase
 
Decrease
 $240 
Relative value
  analysis
TBA-MBS broker quotes
Fall-out ratio (3)
 
99.0% – 103.4%
(101.6%) of par
18.5% - 19.1% (18.6%)
 
Increase
 
Decrease
                             
Mandatory loan sale commitments $1 Relative value analysis
TBA MBS broker quotes
Roll-forward costs (4)
 
104.0% of par
0.023%
 
Decrease
Decrease
               
Liabilities:                           
                             
Commitments to extend credit on loans to be held for sale $1 Relative value analysis
TBA-MBS broker quotes
Fall-out ratio (3)
 
102.6% – 102.6%
(102.6%) of par
16.9% - 28.2% (26.3%)
 
Decrease
 
Decrease
               
Mandatory loan sale commitments $10 Relative value analysis
TBA MBS broker quotes
Roll-forward costs (4)
 
102.4% - 103.4%
(102.9%) of par
0.023%
 
Increase
 
Increase
 $7 
Relative value
  analysis
TBA MBS broker quotes
 
Roll-forward costs (4)
 
102.3% - 105.7%
(103.9%) of par
0.015%
 
Increase
 
Increase
(1)
The range is based on the estimated fair values and management estimates.
(2)
Unless otherwise noted, this column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant changes in these inputs in isolation could result in significantly higher or lower fair value measurements.
(3)
The percentage of commitments to extend credit on loans to be held for sale which management has estimated may not fund.
(4)
An estimated cost to roll forward the mandatory loan sale commitments which management has estimated may not be delivered to the corresponding investors in a timely manner.

40
The significant unobservable inputs used in the fair value measurement of the Corporation's assets and liabilities include the following: prepayment speeds, discount rates, MBS – TBA quotes, estimated fallout ratios, broker quotes and roll-forward costs, among others.  Significant increases or decreases in any of these inputs in isolation could result in significantly lower or higher fair value measurement. The various unobservable inputs used to determine valuations may have similar or diverging impacts on valuation.

40
The carrying amount and fair value of the Corporation's other financial instruments as of DecemberMarch 31, 20182019 and June 30, 2018 was as follows:
  December 31, 2018 
(In Thousands) 
Carrying
Amount
  
Fair
Value
  

Level 1
  

Level 2
  

Level 3
 
Financial assets:               
   Investment securities - held to maturity $84,990  $85,056   —  $85,056  $— 
   Loans held for investment, not recorded at fair value $870,418  $842,908   —   —  $842,908 
   FHLB – San Francisco stock $8,199  $8,199   —  $8,199   — 
                     
Financial liabilities:                    
   Deposits $872,884  $843,671   —   —  $843,671 
   Borrowings $111,135  $109,680   —   —  $109,680 
      June 30, 2018            March 31, 2019 
(In Thousands)   
Carrying
Amount
   
Fair
Value
  Level 1   Level 2   Level 3    
Carrying
Amount
  
Fair
Value
  

Level 1
  

Level 2
  

Level 3
 
Financial assets:                             
Investment securities - held to maturity $87,813  $87,239   —  $87,239   —  $102,510  $103,056   —  $103,056  $— 
Loans held for investment, not recorded at fair value $897,451  $873,112   —   —  $873,112  $878,315  $857,399   —   —  $857,399 
FHLB – San Francisco stock $8,199      $8,199   —  $—      $8,199  $8,199   —  $8,199   — 
                                            
Financial liabilities:                                            
Deposits $907,598  $877,641   —   —  $877,641  $876,884  $847,875   —   —  $847,875 
Borrowings $126,163  $123,778   —   —  $123,778  $101,121  $101,274   —   —  $101,274 

  June 30, 2018 
(In Thousands) 
Carrying
Amount
  
Fair
Value
  

Level 1
  

Level 2
  

Level 3
 
Financial assets:               
   Investment securities - held to maturity $87,813  $87,239   —  $87,239   — 
   Loans held for investment, not recorded at fair value $897,451  $873,112   —   —  $873,112 
   FHLB – San Francisco stock $8,199  $8,199   —  $8,199   — 
                     
Financial liabilities:                    
   Deposits $907,598  $877,641   —   —  $877,641 
   Borrowings $126,163  $123,778   —   —  $123,778 

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

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

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


41
Deposits: The fair value of time deposits is estimated using a discounted cash flow calculation. The discount rate is based upon rates currently offered for deposits of similar remaining maturities.  The fair value of transaction accounts (checking, money market and savings accounts) is estimated using a discounted cash flow calculation and management estimates of current market conditions.

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

41
The Corporation has various processes and controls in place to ensure that fair value is reasonably estimated.  The Corporation generally determines fair value of their Level 3 assets and liabilities by using internally developed models which primarily utilize discounted cash flow techniques and prices obtained from independent management services or brokers.  The Corporation performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process.

While the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.  During the quarter ended DecemberMarch 31, 2018,2019, there were no significant changes to the Corporation's valuation techniques that had, or are expected to have, a material impact on its consolidated financial position or results of operations.


Note 9: Incentive Plans

As of DecemberMarch 31, 2018,2019, the Corporation had two active share-based compensation plans, which are described below.  These plans are the 2013 Equity Incentive Plan ("2013 Plan") and the 2010 Equity Incentive Plan ("2010 Plan").  Additionally, the Corporation had one inactive share-based compensation plan - the 2006 Equity Incentive Plan ("2006 Plan") where no new awards can be granted but outstanding grants remain eligible for exercise.

For the quarters ended DecemberMarch 31, 20182019 and 2017,2018, the compensation cost for these plans was $45,000$37,000 and $258,000,$292,000, respectively.  The income tax (deficit) benefit (deficiencies) recognized in the Condensed Consolidated Statements of Operations per adoption of ASU 2016-09 for share-based compensation plans for the quarters ended DecemberMarch 31, 2019 and 2018 was $(10,000) and 2017 was $(2,000) and $7,000,$186,000, respectively.

For the first sixnine months ended DecemberMarch 31, 20182019 and 2017,2018, the compensation cost for these plans was $730,000$767,000 and $524,000,$816,000, respectively.  The income tax benefit recognized in the Condensed Consolidated Statements of Operations per adoption of ASU 2016-09 for share-based compensation plans for the sixnine months ended DecemberMarch 31, 2019 and 2018 was $114,000 and 2017 was $124,000 and $20,000,$206,000, respectively.

Equity Incentive Plans.  The Corporation established and the shareholders approved the 2013 Plan, the 2010 Plan and the 2006 Plan (collectively, "the Plans") for directors, advisory directors, directors emeriti, officers and employees of the Corporation and its subsidiary.  The 2013 Plan authorizes 300,000 stock options and 300,000 shares of restricted stock.  The 2013 Plan also provides that no person may be granted more than 60,000 stock options or 45,000 shares of restricted stock in any one year.  The 2010 Plan authorizes 586,250 stock options and 288,750 shares of restricted stock.  The 2010 Plan also provides that no person may be granted more than 117,250 stock options or 43,312 shares of restricted stock in any one year.  The 2006 Plan authorized 365,000 stock options and 185,000 shares of restricted stock.  The 2006 Plan also provided that no person was granted more than 73,000 stock options or 27,750 shares of restricted stock in any one year.

Equity Incentive Plans - Stock Options.  Under the Plans, options may not be granted at a price less than the fair market value at the date of the grant.  Options typically vest over a five-year or shorter period as long as the director, advisory director,
42
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
42
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 secondthird quarter of fiscal 2019, no options were granted or forfeited, while 5,000and 11,250 options were exercised.  This compares to the secondthird quarter of fiscal 2018 when no options were granted or forfeited, while 5,750and 56,500 options were exercised. During the first sixnine months of fiscal 2019, no options were granted or forfeited, while 20,000and 31,250 options were exercised. This compares to the first sixnine months of fiscal 2018 when no options were granted, while 27,250and 83,750 options were exercised and 2,500 options were forfeited.  As of DecemberMarch 31, 20182019 and 2017,2018, there were 147,500 stock options available for future grants under the Plans at both dates.

The following table summarizestables summarize the stock option activity in the Plans for the quarter and sixnine months ended DecemberMarch 31, 2018.2019.

  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 March 31, 2019 
Options Shares  
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
($000)
 
Outstanding at December 31, 2018  509,000  $12.83     
Granted  —  $—     
Exercised  (11,250) $14.59     
Forfeited  —  $—     
Outstanding at March 31, 2019  497,750  $12.79   4.53  $3,551 
Vested and expected to vest at March 31, 2019  495,150  $12.75   4.52  $3,550 
Exercisable at March 31, 2019  484,750  $12.60   4.45  $3,546 


43
  For the Nine Months Ended March 31, 2019 
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  (31,250) $12.49     
Forfeited  —  $—     
Outstanding at March 31, 2019  497,750  $12.79   4.53  $3,551 
Vested and expected to vest at March 31, 2019  495,150  $12.75   4.52  $3,550 
Exercisable at March 31, 2019  484,750  $12.60   4.45  $3,546 

As of DecemberMarch 31, 20182019 and 2017,2018, there was $76,000$68,000 and $652,000$503,000 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 1.81.5 years and 1.11.0 years, respectively.  The forfeiture rate during the first sixnine months of fiscal 2019 and 2018 was 20 percent for both periods, and was calculated by using the historical forfeiture experience of stock option grants and is reviewed annually.

43
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 were no restricted stock awards and no forfeitures, while there were 1,5003,000 shares of restricted stock vested in the secondthird quarter of fiscal 2019. This compares to no restricted stock activity in the secondthird quarter of fiscal 2018.2018, other than the vesting of 10,500 shares. For the first sixnine months of fiscal 2019, there was no restricted stock activity, other than the vesting of 86,50089,500 shares. This compares to no restricted stock activity, other than the vesting of 10,500 shares and the forfeiture of 2,000 shares for the first sixnine months of fiscal 2018.  As of DecemberMarch 31, 20182019 and 2017,2018, there were 267,750 shares of restricted stock available for future awards under the Plans at both dates.

The following table summarizestables summarize the unvested restricted stock activity for the quarter and sixnine months ended DecemberMarch 31, 2018.

 
For the Quarter Ended
December 31, 2018
Unvested SharesShares
Weighted-
Average
Award Date
Fair Value
Unvested at September 30, 201813,500 $18.20
Granted— $—
Vested(1,500)$17.35
Forfeited— $—
Unvested at December 31, 201812,000 $18.31
Expected to vest at December 31, 20189,600 $18.31

 
For the Six Months Ended
December 31, 2018
Unvested SharesShares
Weighted-
Average
Award Date
Fair Value
Unvested at June 30, 201898,500 $14.35
Granted— $—
Vested(86,500)$13.80
Forfeited— $—
Unvested at December 31, 201812,000 $18.31
Expected to vest at December 31, 20189,600 $18.31

2019.

  
For the Quarter Ended
March 31, 2019
 
Unvested Shares Shares  
Weighted-
Average
Award Date
Fair Value
 
Unvested at December 31, 2018  12,000  $18.31 
Granted  —  $— 
Vested  (3,000) $18.90 
Forfeited  —  $— 
Unvested at March 31, 2019  9,000  $18.11 
Expected to vest at March 31, 2019  7,200  $18.11 

44
  
For the Nine Months Ended
March 31, 2019
 
Unvested Shares Shares  
Weighted-
Average
Award Date
Fair Value
 
Unvested at June 30, 2018  98,500  $14.35 
Granted  —  $— 
Vested  (89,500) $13.97 
Forfeited  —  $— 
Unvested at March 31, 2019  9,000  $18.11 
Expected to vest at March 31, 2019  7,200  $18.11 

As of DecemberMarch 31, 20182019 and 2017,2018, the unrecognized compensation expense was $159,000$131,000 and $867,000,$687,000, respectively, related to unvested share-based compensation arrangements under the Plans, and reported as a reduction to stockholders' equity.  This expense is expected to be recognized over a weighted-average period of 1.61.5 years and 1.31.2 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 sixnine months of fiscal 2019 and 2018.

44

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

The following tables provide the changes in AOCI by component for the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017.2018.
 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 For the Quarter Ended March 31, 2019 
Unrealized gains and losses on Unrealized gains and losses on 
(In Thousands)
Investment securities
available for sale
Interest-
only strips
Total 
Investment securities
available for sale
 
Interest-
only strips
  Total 
            
Beginning balance at September 30, 2017$214 $16 $230 
Beginning balance at December 31, 2018 $154  $15  $169 
               
Other comprehensive loss before reclassifications(61)(4)(65)  (4)  (2)  (6)
Amount reclassified from accumulated other comprehensive income42 3 45   —   —   — 
Net other comprehensive loss(19)(1)(20)  (4)  (2)  (6)
               
Ending balance at December 31, 2017$195 $15 $210 
Ending balance at March 31, 2019 $150  $13  $163 
 
45
  For the Quarter Ended March 31, 2018 
  Unrealized gains and losses on 
(In Thousands) 
Investment securities
available for sale
 
Interest-
only strips
  Total 
          
Beginning balance at December 31, 2017 $195  $15  $210 
             
Other comprehensive loss before reclassifications  (20)  (2)  (22)
Amount reclassified from accumulated other comprehensive income  (2)  —   (2)
Net other comprehensive loss  (22)  (2)  (24)
             
Ending balance at March 31, 2018 $173  $13  $186 
    
    
  For the Nine Months Ended March 31, 2019 
  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  (44)  (3)  (47)
Amount reclassified from accumulated other comprehensive income  —   —   — 
Net other comprehensive loss  (44)  (3)  (47)
             
Ending balance at March 31, 2019 $150  $13  $163 

45

  
 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 For the Nine Months Ended March 31, 2018 
Unrealized gains and losses on Unrealized gains and losses on 
(In Thousands)
Investment securities
available for sale
Interest-
only strips
Total 
Investment securities
available for sale
 
Interest-
only strips
  Total 
            
Beginning balance at June 30, 2017$211 $18 $229  $211  $18  $229 
               
Other comprehensive loss before reclassifications(58)(6)(64)  (78)  (8)  (86)
Amount reclassified from accumulated other comprehensive income42 3 45   40   3   43 
Net other comprehensive loss(16)(3)(19)  (38)  (5)  (43)
               
Ending balance at December 31, 2017$195 $15 $210 
Ending balance at March 31, 2018 $173  $13  $186 
Note 11: Offsetting Derivative and Other Financial Instruments

The 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 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 Condensed Consolidated Statement of Financial Condition, and the gross amount not offset in the Corporation's Condensed Consolidated Statement of Financial Condition as of the dates indicated.

46
As of DecemberMarch 31, 2018:
  GrossNet   
  AmountAmount   
  Offset in theof Assets inGross Amount Not Offset in 
  Condensedthe Condensedthe Condensed Consolidated 
 GrossConsolidatedConsolidatedStatements of Financial Condition 
 Amount ofStatementsStatements Cash 
 Recognizedof Financialof FinancialFinancialCollateralNet
(In Thousands)AssetsConditionConditionInstrumentsReceivedAmount
Assets      
   Derivatives$1 $— $1 $— $— $1 
Total$1 $— $1 $— $— $1 
  GrossNet   
  AmountAmount   
  Offset in theof Liabilities inGross Amount Not Offset in 
  Condensedthe Condensedthe Condensed Consolidated 
 GrossConsolidatedConsolidatedStatements of Financial Condition 
 Amount ofStatementsStatements Cash 
 Recognizedof Financialof FinancialFinancialCollateralNet
(In Thousands)LiabilitiesConditionConditionInstrumentsReceivedAmount
Liabilities      
   Derivatives$690 $— $690 $— $— $690 
Total$690 $— $690 $— $— $690 

2019:
As of June 30, 2018:
   GrossNet     
   AmountAmount     
   Offset in theof Assets inGross Amount Not Offset in 
   Condensedthe Condensedthe Condensed Consolidated 
 GrossConsolidatedConsolidatedStatements of Financial Condition 
 Amount ofStatementsStatements Cash 
 Recognizedof Financialof FinancialFinancialCollateralNet
(In Thousands)AssetsConditionConditionInstrumentsReceivedAmount
Assets           
   Derivatives$$— $— $— $— $— $—
Total$—$—$—$—$—$—
46

   GrossNet     
   AmountAmount     
   Offset in theof Liabilities inGross Amount Not Offset in 
   Condensedthe Condensedthe Condensed Consolidated 
 GrossConsolidatedConsolidatedStatements of Financial Condition 
 Amount ofStatementsStatements  Cash 
 Recognizedof Financialof FinancialFinancialCollateralNet
(In Thousands)LiabilitiesConditionConditionInstrumentsReceivedAmount
Liabilities           
   Derivatives $224 $— $224 $— $— $224
Total $224 $— $224 $— $— $224

As of June 30, 2018:
GrossNet   
TotalAmountAmount
Offset in theof Assets inGross Amount Not Offset in
Condensedthe Condensedthe Condensed Consolidated
GrossConsolidatedConsolidatedStatements of Financial Condition
Amount ofStatementsStatements Cash
Recognizedof Financialof FinancialFinancialCollateralNet
(In Thousands)AssetsConditionConditionInstrumentsReceivedAmount
Assets
   Derivatives$— $— $— $— $— $—
Total$— $—$—$—$—$—
47

 GrossNet     GrossNet    
 AmountAmount     Amount    
 Offset in theof Liabilities inGross Amount Not Offset in   Offset in theof Liabilities inGross Amount Not Offset in 
 Condensedthe Condensedthe Condensed Consolidated   Condensedthe Condensedthe Condensed Consolidated 
GrossConsolidatedConsolidatedStatements of Financial Condition GrossConsolidatedStatements of Financial Condition 
Amount ofStatementsStatements Cash Amount ofStatements  Cash 
Recognizedof Financialof FinancialFinancialCollateralNetRecognizedof FinancialFinancialCollateralNet
(In Thousands)LiabilitiesConditionConditionInstrumentsReceivedAmountLiabilitiesConditionInstrumentsReceivedAmount
Liabilities             
Derivatives$440 $— $440 $— $— $440  $440 $— $440 $— $— $440
Total$440 $— $440 $— $— $440  $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.

47
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.

48

Disaggregation of Revenue:

The following table includes the Company's non-interest income disaggregated by type of services for the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017:2018:
 
For the Quarters Ended
 December 31,
 For the Six Months Ended
December 31,
Type of Services2018201720182017
(In Thousands)    
Asset management fees$56 $88 $138 $207 
Debit card and ATM fees413 394 832 796 
Deposit related fees519 543 1,038 1,110 
Loan related fees1 (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 
Other19 26 34 38 
Total non-interest income$3,595 $5,741 $8,144 $12,093 
  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
Type of Services 2019  2018  2019  2018 
(In Thousands)            
Asset management fees $77  $87  $215  $294 
Debit card and ATM fees  395   394   1,227   1,190 
Deposit related fees  484   549   1,522   1,659 
Loan related fees  12   (6)  25   (42)
BOLI (1)
  47   65   140   199 
Loan servicing fees (1)
  262   493   863   1,173 
Net gain on sale of loans (1)
  1,719   3,597   7,114   12,761 
Other  56   31   90   69 
Total non-interest income $3,052  $5,210  $11,196  $17,303 

(1)
Not in scope of ASC 606.

For the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017,2018, 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.
48

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 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"). 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
49
maximum of 35 percent to a flat 21 percent. The federal corporate tax rate reduction was effective January 1, 2018. Since the Corporation has a fiscal year end of June 30th, the reduced federal corporate income tax rate for its fiscal year 2018 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 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 federal 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 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$1.9 million that was recognized in the second quarterfirst nine months of fiscal 2018.

The estimated combined federal and state statutory tax rates, before discrete items, for the second quarters of fiscal 2019 and 2018 and for fiscal years 2019 and 2018 are as follows:
Statutory Tax RatesQ2FY2019Q2FY2018FY2019FY2018  FY2019FY2018
Federal Tax Rate21.00%28.06%21.00%28.06%  21.00%28.06%
State Tax Rate10.84%10.84%  10.84%
Combined Statutory Tax Rate (1)
29.56%35.86%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 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.

49

Note 14: Subsequent EventsEvent

1)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,On April 30, 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 May 21, 2019 will be entitled to receive the cash dividend.  The cash dividend will be payable on June 11, 2019.

2)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 April 30, 2019, the Corporation announced that the Corporation's Board of Directors authorized a one-year extension of the April 2018 stock repurchase plan.  To date, a total of 23,748 shares of the Corporation's common stock have been purchased under the plan, leaving 349,252 shares of the Corporation's common stock authorized for purchase from time to time in the open market or in privately negotiated transactions prior to the expiration of the extension on April 26, 2020.

3)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.

50

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

General

Provident Financial Holdings, Inc., a Delaware corporation, was organized in January 1996 for the purpose of becoming the holding company of Provident Savings Bank, F.S.B. ("the Bank") upon the Bank's conversion from a federal mutual to a federal stock savings bank ("Conversion").  The Conversion was completed on June 27, 1996.  The Corporation is regulated by the Federal Reserve Board ("FRB").  At DecemberMarch 31, 2018,2019, the Corporation had total assets of $1.13$1.12 billion, total deposits of $872.9$876.9 million and total stockholders' equity of $122.7$121.2 million.  The Corporation has not engaged in any significant activity other than holding the stock of the Bank.  Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Bank and its subsidiaries.  As used in this report, the terms "we," "our," "us," and "Corporation" refer to Provident Financial Holdings, Inc. and its consolidated subsidiaries, unless the context indicates otherwise.

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

The Corporation'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 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 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 Riverside, California; and nine retail loan production offices located throughout California.  The 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 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.

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.

50
The Corporation began to distribute quarterly cash dividends in the quarter ended DecemberMarch 31, 2002.  On October 25, 2018,January 29, 2019, the Corporation declared a quarterly cash dividend of $0.14 per share for the Corporation's shareholders of record at the close of business on November 15, 2018,February 19, 2019, which was paid on December 6, 2018.March 12, 2019.  Future declarations or payments of dividends will be subject to the consideration of the Corporation's Board of Directors, which will take into account the Corporation's financial condition, results of operations, tax considerations, capital requirements, industry standards, legal restrictions, economic conditions and other factors, including the regulatory restrictions which affect the payment of dividends by the Bank to the Corporation.  Under Delaware law, dividends may be paid either out of surplus or, if there is no surplus, out of net profits for the current fiscal year and/or the preceding fiscal year in which the dividend is declared.

On January 29,April 30, 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,May 21, 2019 will be entitled to receive the cash dividend.  The cash dividend will be payable on March 12,June 11, 2019.
51

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


Safe-Harbor Statement

Certain matters in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  This Form 10-Q contains statements that the Corporation believes are "forward-looking statements."  These statements relate to the Corporation's financial condition, liquidity, results of operations, plans, objectives, future performance or business. 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 revenuepre-tax losses from the mortgage banking segment and non-interest expense from the mortgage banking segment resulting from our exiting the mortgage banking businesspre-tax income 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 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
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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
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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 other reports filed with or furnished to the 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 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 financial condition and results of operations is based upon the Corporation's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements.  Actual results may differ from these estimates under different assumptions or conditions.

The Corporation's critical accounting policies are described in the Corporation's 2018 Annual Report on Form 10-K for the year ended June 30, 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 sixnine months ended DecemberMarch 31, 20182019 to the critical accounting policies as described in the Corporation's 2018 Annual Report on Form 10-K for the period ended June 30, 2018.


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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 full service offices and investing those funds in single-family, multi-family and commercial real estate loans.  Also, to a lesser extent, the Corporation makes construction, commercial business, consumer and other mortgage loans.  The primary source of income in community banking is net interest income, which is the difference between the interest income earned on loans and investment securities, and the interest expense paid on interest-bearing deposits and borrowed funds.  Additionally, certain fees are collected from depositors, such as returned check fees, deposit account service charges, ATM fees, IRA/KEOGH fees, safe deposit box fees, wire transfer fees and overdraft protection fees, among others.
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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 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 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 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. On February 4, 2019, the Corporation announced that it was in the long-term best interests of the Corporation to discontinue the operations of the Corporation's mortgage banking segment conducted through PBM.

This decision was reached after an analysis of current economic conditions and the current operating environment for the highly competitive mortgage banking business, including the significant decline in loan origination volume.  The Corporation willhad been pursuing a strategy of improving the profitability of its mortgage banking business by significantly reducing operating expenses commensurate with the significant decline in loan origination volume while maintaining loan sale margins and prudent underwriting standards.  However, based on the operating environment and market conditions for the foreseeable future, the Corporation determined that it would be unable to successfully execute that strategy within a reasonable period of time.

The Corporation plans to continue to modifyoriginate single-family mortgage loans for retention on its balance sheet, primarily within its market area, the Inland Empire region of Southern California and purchase these loans consistent with its historical activity in this regard.  Upon termination of PBM's mortgage banking operations, includingPBM will no longer be reported as a segment of the numberCorporation.  The Corporation currently estimates that PBM's mortgage banking operations will end on or before June 30, 2019 and expects that the headcount in the Corporation will decrease by approximately 122 full time equivalent employees by that date.

As a result of exiting the mortgage banking business, the Corporation estimates:
quarterly net interest income from the mortgage banking segment to decline approximately $306,000 (net of funding costs) by the first quarter of fiscal 2020 from $306,000 in the second quarter of fiscal 2019 due to the decrease in loans held for sale,
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quarterly non-interest income from the mortgage banking segment to decline approximately $2.7 million by the first quarter of fiscal 2020 from $2.7 million in the second quarter of fiscal 2019,
quarterly non-interest expense from the mortgage banking segment to decrease approximately $4.6 million by the first quarter of fiscal 2020 from $4.6 million in the second quarter of fiscal 2019,
quarterly non-interest income from the community banking segment to increase approximately $272,000 to $1.2 million by the end of the first quarter of fiscal 2020 from $906,000 in the second quarter of fiscal 2019 as a result of the discontinuation of inter-company charges to compensate PBM for originating loans held for investment and for servicing fees on loans sold on a servicing retained basis,
quarterly non-interest expense from the community banking segment to increase approximately $649,000 to $6.9 million by the end of the first quarter of fiscal 2020 from $6.3 million in the second quarter of fiscal 2019 as a result of retaining certain mortgage banking personnel in responseto continue to originate and purchase single-family mortgage loans for retention on the Bank's balance sheet and discontinuation of the management fee allocation from the Bank to the rapidly changing mortgage banking environment.  Changes may include a different product mix, further tightening of underwriting standards, variationssegment,
the estimated fully phased in its operating expenses or a combinationquarterly impact of these changes in fiscal 2020 will be to increase the pre-tax income by approximately $1.2 million per quarter in comparison to the second quarter of fiscal 2019,
the Corporation will stop accepting loan applications and other changes.loan locks from the mortgage banking segment early in the fourth quarter of fiscal 2019, as a result, revenues will decrease more quickly than expenses but the declines in each cannot be accurately forecast for the time period the Corporation is effecting the exit from the mortgage banking business, and
to stop operating its mortgage banking business as a defined segment with separate mortgage banking segment reporting prior to the first quarter of fiscal 2020.

Provident Financial Corp performs trustee servicesThe Corporation also estimates that it will:
incur total one-time costs of approximately $3.6 million to $4.0 million, which amounts include costs for severance, retention, personnel, premises, occupancy, depreciation, and costs related to termination of data processing and other contractual arrangements, and
have estimated cash outlays of approximately $3.5 million to $3.9 million of its total estimated one-time costs (consistent with the Bank's real estate secured loan transactions andamounts above less depreciation).

Once the mortgage banking exit has in the past held, and may inbeen completed, the future hold, real estate for investment. operations of the Corporation will be much more consistent with the traditional community banking activities as described earlier.

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

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

There are a number of risks associated with the business activities of the Corporation, many of which are beyond the Corporation's control, 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 loans are secured by real estate located within California, significant declines in the value of California real estate may also inhibit the Corporation's ability to recover on defaulted loans by selling the underlying real estate.


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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 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.

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Contractual Obligations.  The following table summarizes the Corporation's contractual obligations at DecemberMarch 31, 20182019 and the effect these obligations are expected to have on the Corporation's liquidity and cash flows in future periods:

 Payments Due by Period
(In Thousands)
Less than
1 year
1 to less
than  3
years
3 to
5 years
Over
5 years
Total
Operating obligations$2,392 $4,383 $1,667 $640 $9,082 
Pension benefits253 505 505 6,282 7,545 
Time deposits123,764 78,701 24,035 945 227,445 
FHLB – San Francisco advances12,713 35,594 32,695 40,755 121,757 
FHLB – San Francisco letter of credit10,000 — — — 10,000 
FHLB – San Francisco MPF credit enhancement (1)
— — — 2,458 2,458 
Total$149,122 $119,183 $58,902 $51,080 $378,287 
  Payments Due by Period 
(In Thousands) 
Less than
1 year
  
1 to less
than 3
years
  
3 to
5 years
  
Over
5 years
  Total 
Operating obligations $2,683  $3,744  $1,118  $570  $8,115 
Pension benefits  253   505   505   6,282   7,545 
Time deposits  117,104   72,065   23,725   719   213,613 
FHLB – San Francisco advances  2,646   45,313   42,494   20,565   111,018 
FHLB – San Francisco letter of credit  10,000   —   —   —   10,000 
FHLB – San Francisco MPF credit enhancement (1)
  —   —   —   2,458   2,458 
Total $132,686  $121,627  $67,842  $30,594  $352,749 

(1)
Represents the potential future obligation for loans previously sold by the Bank to the FHLB – San Francisco under its Mortgage Partnership Finance ("MPF") program.  As of DecemberMarch 31, 2018,2019, the Bank serviced $10.9$10.4 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.


Comparison of Financial Condition at DecemberMarch 31, 20182019 and June 30, 2018

Total assets decreased $48.4$56.2 million, or fourfive percent, to $1.13$1.12 billion at DecemberMarch 31, 20182019 from $1.18 billion at June 30, 2018.  The decrease was primarily attributable to decreases in loans held for investment and loans held for sale, and investment securities, partly offset by an increaseincreases in cash and cash equivalents.equivalents and investment securities.

Total cash and cash equivalents, primarily excess cash deposited with the Federal Reserve Bank of San Francisco, increased $24.1$18.2 million, or 5642 percent, to $67.4$61.5 million at DecemberMarch 31, 20182019 from $43.3 million at June 30, 2018.  The increase in the total cash and cash equivalents was primarily attributable to the decreases in loans held for sale and loans held for investment, and investment securities, partly offset by the increase in investment securities and the payoff of short-term borrowings and time deposits that matured during the first sixnine months of fiscal 2019.

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Investment securities (held to maturity and available for sale) decreased $3.7increased $13.5 million, or four14 percent, to $91.6$108.8 million at DecemberMarch 31, 20182019 from $95.3 million at June 30, 2018. The decreaseincrease was primarily the result of investment security purchases, partly offset by scheduled and accelerated principal payments on mortgage-backed securities partly offset by investment security purchases during the first sixnine months of fiscal 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 $27.3$19.1 million, or threetwo percent, to $875.4$883.6 million at DecemberMarch 31, 20182019 from $902.7 million at June 30, 2018, primarily due to a $29.0$26.2 million or six percent decline in multi-family loans, partly offset by a $5.6 million increase in commercial real estate loans.  During the first sixnine months of fiscal 2019, the Corporation originated $71.4$93.8 million of loans held for investment, consisting primarily of single-family, multi-family and multi-familycommercial real estate loans and also purchased $4.6$26.2 million in single-family, multi-family and commercial real estate loans held for investment. Total loan principal payments during the first sixnine months of fiscal 2019 were $104.1$140.5 million, up threedown two percent from $100.8$143.9 million during the comparable period in fiscal 2018. Single-familyThe single-family loans held for investment decreased $2.3 million, or one percent, to $312.5balance was essentially unchanged at $314.8 million at Decemberboth March 31, 2018 from $314.8 million at2019 and June 30, 2018, and represented approximately 36 percent and 35 percent of loans held for investment, respectively.
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The tables below describe the geographic dispersion of gross real estate secured loans held for investment at DecemberMarch 31, 20182019 and June 30, 2018, as a percentage of the total dollar amount outstanding:

As of DecemberMarch 31, 20182019
(Dollars In Thousands)   Inland
Empire 
   Southern
California (1) 
  
Other
California   
  
Other
States  
  Total    
Loan Category  Balance  %   Balance  %   Balance  %   Balance  %   Balance  %  
Single-family$109,742 35%$146,372 47%$55,334 18%$1,051 —%$312,499 100% 
Multi-family72,201 16%267,774 60%106,726 24%332 —%447,033 100% 
Commercial real estate32,224 29%52,928 47%27,678 24%— —%112,830 100% 
Construction139 4%3,404 85%443 11%— —%3,986 100% 
Other— —%— —%167 100%— —%167 100% 
Total$214,306 24%$470,4781 54%$190,348 22%$1,383 —%$876,515 100% 
(Dollars In Thousands) 
Inland
Empire
  
Southern
California (1)
  
Other
California
  
Other
States
  Total 
Loan Category Balance  %  Balance  %  Balance  %  Balance  %  Balance  % 
Single-family $107,164   34% $144,261   46% $62,360   20% $1,039   —% $314,824   100%
Multi-family  71,357   16%  275,087   61%  103,039   23%  329   —%  449,812   100%
Commercial real estate  31,972   28%  55,435   48%  27,948   24%  —   —%  115,355   100%
Construction  295   7%  3,397   82%  447   11%  —   —%  4,139   100%
Other  —   —%  —   —%  167   100%  —   —%  167   100%
Total $210,788   24% $478,1801   54% $193,961   22% $1,368   —% $884,297   100%

(1)
Other than the Inland Empire.

As of June 30, 2018
(Dollars In Thousands) 
Inland
Empire
  
Southern
California (1)
  
Other
California
  
Other
States
  Total 
Loan Category Balance  %  Balance  %  Balance  %  Balance  %  Balance  % 
Single-family $110,510   35% $149,261   48% $53,960   17% $1,077   —% $314,808   100%
Multi-family  76,473   16%  287,174   60%  109,684   23%  2,677   1%  476,008   100%
Commercial real estate  32,224   29%  47,903   44%  29,599 �� 27%  —   —%  109,726   100%
Construction  49   1%  2,685   85%  440   14%  —   —%  3,174   100%
Other  —   —%  —   —%  167   100%  —   —%  167   100%
Total $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 $38.7$65.8 million, or 4068 percent, to $57.6$30.5 million at DecemberMarch 31, 20182019 from $96.3 million at June 30, 2018.  The decrease was primarily due to a decrease in the loan originationloans originated for sale volumeattributable to the winding down of the mortgage banking operations and the timing difference between loan fundings and loan sale settlements. Total loans originated
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for sale during the quarter ended DecemberMarch 31, 20182019 was $146.4$110.7 million as compared to $241.6 million during the quarter ended June 30, 2018.

Total deposits decreased $34.7$30.7 million, or fourthree percent, to $872.9$876.9 million at DecemberMarch 31, 20182019 from $907.6 million at June 30, 2018.  Transaction accounts decreased $20.8$3.3 million or three percent, to $649.2$666.7 million at DecemberMarch 31, 20182019 from $670.0 million at June 30, 2018, while time deposits decreased $13.9$27.4 million, or six12 percent, to $223.7$210.2 million at DecemberMarch 31, 20182019 from $237.6 million at June 30, 2018 consistent with the Bank's strategy to decrease the percentage of time deposits in its deposit base.

Total borrowings decreased $15.1$25.1 million, or 1220 percent, to $111.1$101.1 million at DecemberMarch 31, 20182019 as compared to $126.2 million at June 30, 2018, due to the maturity of short-term borrowings.borrowings and an early payoff of a long-term borrowing. The borrowings were primarily comprised of long-term FHLB - San Francisco advances used for interest rate risk management purposes.

Total stockholders' equity increased $2.2 million,$752,000, or twoone percent, to $122.7$121.2 million at DecemberMarch 31, 20182019 from $120.5 million at June 30, 2018, primarily as a result of net income of $3.8$3.6 million and the amortization of stock-based compensation benefits
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during the first sixnine months of fiscal 2019, partly offset by $2.1$3.1 million of quarterly cash dividends paid to shareholders and stock repurchases from restricted stock recipients to fund their withholding tax obligations.


Comparison of Operating Results for the Quarters and SixNine Months Ended DecemberMarch 31, 20182019 and 20172018

The Corporation's net incomeloss for the secondthird quarter of fiscal 2019 was $2.0 million, a substantial improvement as compared$151,000, in contrast to the net lossincome of $777,000$1.7 million in the same period of fiscal 2018. Compared to the same quarter last year, the increase in earningsdecline 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 rate (not replicated this quarter), (b) the $650,000 litigation reserve which, net of tax benefit, reduced net results by approximately $(0.06) per diluted 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; partly offset by a $2.0$1.88 million decrease in the gain on sale of loans.loans and a $484,000 increase in salaries and employee benefits expense, partly offset by the $189,000 benefit from income taxes resulting from the loss before taxes this quarter in contrast to the $667,000 provision for income taxes in the same quarter last year (an $856,000 difference).

For the first sixnine months of fiscal 2018,2019, the Corporation's net income was $3.8$3.6 million, an increase of $4.8$2.9 million, or 480397 percent, from athe net lossincome of $1.0 million$731,000 in the same period of fiscal 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$1.9 million or $(0.24) per diluted share, from the net deferred tax assets revaluation required by the Tax Act consistent with the lower corporate federal income tax rate applied in the second quarter of fiscal 2018 (not replicated this period)fiscal year), (b) the $3.4 million litigation reserve which, net of tax benefit, reduced net results by approximately $(0.29) per diluted share in the first sixnine months of fiscal 2018 (not replicated this period)fiscal year), (c) a $1.3$1.8 million increase in net interest income and (d) a $2.4$1.9 million decrease in salaries and employee benefits expense and (e) the application of the statutory federal and state 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; partly offset by a $3.8$5.7 million decrease in the gain on sale of loans.

The Corporation's efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, improvedincreased to 81103 percent for the secondthird quarter of fiscal 2019 from 9187 percent in the same period of fiscal 2018. ForHowever, for the first sixnine months of fiscal 2019, the Corporation's efficiency ratio improved to 8389 percent from 9793 percent for the same period of fiscal 2018.

Return (loss) on average assets increased 96decreased 64 basis points to 0.69(0.05) percent in the secondthird quarter of fiscal 2019 from (0.27)0.59 percent in the same period last year. ForHowever for the first sixnine months of fiscal 2019, return (loss) on average assets was 0.660.42 percent, up 8334 basis points from (0.17)0.08 percent in the same period last year.

Return (loss) on average equity increased to 6.42was (0.49) percent in the secondthird quarter of fiscal 2019 from (2.50)as compared to 5.76 percent in the same period last year. ForHowever for the first sixnine months of fiscal 2019, return (loss) on average equity was 6.223.97 percent compared to (1.59)0.78 percent for the same period last year.
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Diluted earnings (loss) per share for the secondthird quarter of fiscal 2019 were $0.26, a significant improvement$(0.02), down 109 percent from $(0.10)$0.23 in the same period last year. ForHowever for the first sixnine months of fiscal 2019, diluted earnings (loss) per share were $0.50, a 485$0.48, up 433 percent increase from $(0.13)$0.09 in the same period last year.


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Net Interest Income:

For the Quarters Ended DecemberMarch 31, 20182019 and 2017.2018.  Net interest income increased by $1.1 million,$488,000, or 12five percent, to $9.8$9.6 million for the secondthird quarter of fiscal 2019 as compared to the same period in fiscal 2018, as a result of a higher net interest margin, partly offset by a lower average interest-earning asset balance. The net interest margin increased 4630 basis points to 3.543.53 percent in the secondthird quarter of fiscal 2019 from 3.083.23 percent in the same period of fiscal 2018, primarily due to an increase in the average yield on interest-earning assets, partly offset by a 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 increased by 4831 basis points to 4.124.09 percent in the secondthird quarter of fiscal 2019 from 3.643.78 percent in the same quarter last year, while the weighted-average cost of interest-bearing liabilities increased by twoone basis pointspoint to 0.640.63 percent for the secondthird quarter of fiscal 2019 as compared to 0.62 percent in the same quarter last year. The 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 andresulting primarily from higher market interest rates, except FHLB – San Francisco stock as a result of the payment of the special cash dividend.stock. The average balance of interest-earning assets decreased $27.7$41.4 million, or twofour percent, to $1.11$1.09 billion in the secondthird quarter of fiscal 2019 from $1.14$1.13 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 $27.0$45.6 million, or threefour percent, to $1.00 billion$979.0 million in the secondthird quarter of fiscal 2019 from $1.03$1.02 billion in the same quarter last year.

For the SixNine Months Ended DecemberMarch 31, 20182019 and 2017.2018.  Net interest income increased $1.3$1.8 million, or seven percent, to $19.2$28.8 million for the first sixnine months of fiscal 2019 from $17.9$27.0 million for the comparable period in fiscal 2018, due to a higher net interest margin, partly offset by a lower average interest-earning assets balance. The net interest margin was 3.423.45 percent in the first sixnine months of fiscal 2019, up 3029 basis points from 3.123.16 percent in the same period of fiscal 2018, primarily due to an increase in the average yield on interest-earning assets, partly offset by a slight increase in the average cost of interest-bearing liabilities.  The net interest margin in the sixnine 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 SanFHLB-San Francisco stock, which increased the net interest margin by approximately sixthree basis points for the period. The weighted-average yield on interest-earning assets increased by 31 basis points to 4.004.03 percent, while the weighted-average cost of interest-bearing liabilities increased by two basis points to 0.64 percent for the first sixnine months of fiscal 2019 as compared to the same period last year.  The average balance of interest-earning assets decreased $22.2$28.5 million, or two percent, to $1.12$1.11 billion in the first sixnine 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$28.9 million, or twothree percent, to $1.01$1.00 billion in the first sixnine months of fiscal 2019 from $1.03 billion in the same period last year.

Interest Income:

For the Quarters Ended DecemberMarch 31, 20182019 and 2017.2018.  Total interest income increased by $1.1 million,$441,000, or 10four percent, to $11.4$11.1 million for the secondthird quarter of fiscal 2019 as compared to the same quarter of fiscal 2018.  The increase was primarily due to an increase in interest income of allfrom investment securities and interest-earning assets, particularly in loans receivable.deposits.

Interest income on loans receivable increased $596,000,$78,000, or sixone percent, to $10.3$10.0 million in the secondthird quarter of fiscal 2019 as compared to the same quarter of fiscal 2018.  This increase was attributable to a higher average loan yield reflecting the rise in interest rates over the last year, partly offset by a lower average loan balance. The average loans receivable yield during the secondthird quarter of fiscal 2019 increased 4625 basis points to 4.394.38 percent from 3.934.13 percent during the same quarter last year, primarily due to increases in the average yield of both loans held for investment and the average yield of loans held for sale combined with a lower
58
percentage of loans held for sale to total loans receivable. The average yield on loans receivable in the second quarter of
58
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$46.8 million, or five percent, to $941.2$915.0 million for the secondthird quarter of fiscal 2019 from $990.9$961.8 million in the same quarter of fiscal 2018, primarily due to a decrease in average loans held for sale attributable to a decrease inthe winding down of the mortgage banking activityoperations 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 decreased $12.0$13.1 million, or one percent, to $878.2$875.5 million during the secondthird quarter of fiscal 2019 from $890.2$888.6 million in the same quarter of fiscal 2018. The average yield on the loans held for investment increased by 4323 basis points to 4.36 percent in the secondthird quarter of fiscal 2019 from 3.934.13 percent in the same quarter of fiscal 2018. The average balance of loans held for sale however,also decreased $37.7$33.8 million, or 3746 percent, to $63.0$39.5 million during the secondthird quarter of fiscal 2019 from $100.7$73.3 million in the same quarter of fiscal 2018.  The average yield on the loans held for sale increased by 9561 basis points to 4.864.74 percent in the secondthird quarter of fiscal 2019 from 3.914.13 percent in the same quarter of fiscal 2018.

Interest income from investment securities increased $125,000,$210,000, or 3955 percent, to $444,000$592,000 in the secondthird quarter of fiscal 2019 from $319,000$382,000 for the same quarter of fiscal 2018. This increase was primarily attributable to a higher average yield and, to a lesser extent, a higher average balance.yield.  The average investment securities yield increased 4678 basis points to 1.902.32 percent in the secondthird quarter of fiscal 2019 from 1.441.54 percent in the same quarter of fiscal 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$2.5 million, or sixthree percent, to $93.5$101.9 million in the secondthird quarter of fiscal 2019 from $88.6$99.4 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 secondthird quarter of fiscal 2019 was $278,000, up 94$144,000, unchanged from the same quarter of fiscal 2018.  The average balance in the third quarter of fiscal 2019 increased $91,000, or one percent, to $8.2 million from $143,000$8.1 million in the same quarter of fiscal 2018, primarily attributable to a special cash dividendrequired stock purchase due to reduced borrowings of $133,000 received$91,000 in DecemberApril 2018.   As a result, the average yield increaseddecreased to 13.567.03 percent in the secondthird quarter of fiscal 2019 as compared to 7.057.10 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 $387,000$386,000 in the secondthird quarter of fiscal 2019, up 13066 percent from $168,000$233,000 in the same quarter of fiscal 2018.  The increase was primarily due to a higher average yield, and to a lesser extent, a higher average balance in the second quarter of fiscal 2019 as compared to the same quarter last year.yield.  The average yield earned on interest-earning deposits increased 9389 basis points to 2.232.40 percent in the secondthird quarter of fiscal 2019 from 1.301.51 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 secondthird quarter of fiscal 2019 was $67.8$64.4 million, an increase of $17.1$2.8 million or 34five percent, from $50.7$61.6 million in the same quarter of fiscal 2018. The increase in the average balance of interest-earning deposits was primarily due to the decreases in loans held for investment and loans held for sale, partly offset by an increase in investment securities and a decreasedecreases in deposits.deposits and borrowings.

For the SixNine Months Ended DecemberMarch 31, 20182019 and 2017.2018.  Total interest income increased by $1.3$1.8 million, or six percent, to $22.4$33.6 million for the first sixnine months of fiscal 2019 from $21.1$31.8 million in the same period of fiscal 2018.  The increase was primarily due to an increase in interest income offrom all interest-earning assets, particularly in loans receivable.assets.

Loans receivable interest income increased $613,000,$691,000, or threetwo percent, to $20.5$30.5 million in the first sixnine months of fiscal 2019 from $19.9$29.8 million for the same period of fiscal 2018.  The increase was attributable to a higher average loan yield reflecting the rise in interest rates over the last year, partly offset by a lower average loan balance in the first sixnine months of fiscal 2019 in comparison to the same period last year.  The average loan yield, including loans held for sale, during the first sixnine months of fiscal 2019 increased 3229 basis points to 4.304.32 percent from 3.984.03 percent in the same period last year. The average yield on loansbalance of
 
59
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$45.7 million, or five percent, to $954.1$941.3 million for the first sixnine months of fiscal 2019 from $999.2$987.0 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 decreased $13.5$13.3 million, or twoone percent, to $885.5$882.3 million during the first sixnine months of fiscal 2019 from $899.0$895.6 million in the same period of fiscal 2018.  The average yield on the loans held for investment increased by 2826 basis points to 4.274.30 percent in the first sixnine months of fiscal 2019 from 3.994.04 percent in the same period of fiscal 2018.  The average balance of loans held for sale decreased by $31.6$32.4 million, or 3235 percent, to $68.6$59.0 million during the first sixnine months of fiscal 2019 from $100.2$91.4 million in the same period of fiscal 2018.  The average yield on the loans held for sale increased by 7974 basis points to 4.71 percent in the first sixnine months of fiscal 2019 from 3.923.97 percent in the same period of fiscal 2018.

Interest income from investment securities increased $213,000,$423,000, or 3744 percent, to $789,000$1.4 million in the first sixnine months of fiscal 2019 from $576,000$958,000 for the same period of fiscal 2018. This increase was attributable to a higher average yield and, to a lesser extent, a higher average balance. The average investment securities yield increased 3147 basis points to 1.711.93 percent in the first sixnine months of fiscal 2019 from 1.401.46 percent in the same period of fiscal 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$7.8 million, or 13nine percent, to $92.4$95.5 million in the first sixnine months of fiscal 2019 from $82.0$87.7 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 sixnine months of fiscal 2019 was $421,000,$565,000, up 4832 percent from $284,000$428,000 in the same period of fiscal 2018, primarily attributable to a special cash dividend of $133,000 received in December 2018. As a result, the average yield increased to 10.279.19 percent in the first sixnine months of fiscal 2019 as compared to 7.017.04 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 $725,000$1.1 million in the first sixnine months of fiscal 2019, up 10388 percent from $358,000$591,000 in the same period of fiscal 2018.  The increase was due to a higher average yield and, to a lesser extent, a higher average balance in the first sixnine months of fiscal 2019 as compared to the same period last year.  The average yield increased 8384 basis points to 2.102.20 percent in the first sixnine months of fiscal 2019 from 1.271.36 percent in the comparable period 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 first sixnine months of fiscal 2019 was $67.6$66.5 million, an increase of $12.5$9.2 million or 2316 percent, from $55.1$57.3 million in the same period of fiscal 2018.  The increase in average balance of interest-earning deposits was primarily due to the decreases in loans held for investment and loans held for sale, partly offset by an increase in investment securities and a decrease in deposits.

Interest Expense:

For the Quarters Ended DecemberMarch 31, 20182019 and 2017.2018.  Total interest expense remained virtually unchanged at $1.6decreased $47,000, or three percent to $1.5 million for bothin the second quartersthird quarter of fiscal 2019 from $1.6 million in the comparable quarter of fiscal 2018. This decrease was attributable to lower interest expenses on both deposits and 2018.borrowings.

Interest expense on deposits for the secondthird quarter of fiscal 2019 was $894,000$841,000 as compared to $886,000$856,000 for the same period last year, an increasea decrease of $8,000,$15,000, or onetwo percent.  The increasedecrease in interest expense on deposits was primarily attributable to a lower average balance, partly offset by a slightly higher average cost of deposits. The average balance of deposits mostlydecreased $38.7 million, or four percent, to $873.3 million during the quarter ended March 31, 2019 from $912.0 million during the same period last year. The decrease in the average balance was primarily attributable to decreases in time deposits and, to a lesser extent,
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savings deposits, partly offset by a lower average balance.an increase in checking and money market deposits. The average cost of deposits remained
60
relatively stable, increasing twoonly one basis pointspoint to 0.400.39 percent during the secondthird 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 transaction accounts to total deposits in the secondthird quarter of fiscal 2019 was 7475 percent, compared to 7273 percent in the same period of fiscal 2018.

Interest expense on borrowings, consisting of FHLB – San Francisco advances, for the secondthird quarter of fiscal 2019 decreased $13,000,$32,000, or twofour percent, to $715,000$680,000 from $728,000$712,000 for the same period last year.  The decrease in interest expense on borrowings was the result of a lower average cost and,balance, partly offset by a higher average cost. The average balance of borrowings decreased $6.8 million, or six percent, to a lesser extent, a lower average balance.$105.8 million during the quarter ended March 31, 2019 from $112.6 million during the same period last year, primarily due to the $10.0 million prepayment of long-term borrowings in February 2019. The average cost of borrowings decreased fourincreased five basis points to 2.552.61 percent for the quarter ended DecemberMarch 31, 20182019 from 2.592.56 percent in the same quarter last year. The decreaseincrease in the average cost of borrowings was primarily due to the maturityprepayment of a long-term advance which was renewed atborrowings with a lower interest rate in than the third quarterweighted average interest rate 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 ofall borrowings.

For the SixNine Months Ended DecemberMarch 31, 20182019 and 2017.2018.  Total interest expense for the first sixnine months of fiscal 2019 increased only $11,000decreased $36,000, or one percent, to $4.8 million as compared to the same period last year.  This slight increasedecrease was attributable to a higher interest expense on borrowings, partly offset by a lower interest expenseexpenses on deposits.both, deposits and borrowings.

Interest expense on deposits for the first sixnine months of fiscal 2019 was relatively unchanged at $1.8decreased $18,000, or one percent, to $2.6 million as compared to the same period last year, a slight decrease of $3,000.year.  The slight decrease in interest expense on deposits was primarily attributable to a lower average balance, partly offset by a higher average cost of deposits. The average balance of deposits decreased $23.4$28.4 million, or three percent, to $896.2$888.7 million during the sixnine months ended DecemberMarch 31, 20182019 from $919.6$917.1 million during the same period last year. The decrease in the average balance was primarily attributable to a decreasedecreases in time deposits and, to a lesser extent, savings deposits, partly offset by an increase in transaction accounts.checking and money market deposits. The average cost of deposits increased one basis point to 0.39 percent during the first sixnine months of fiscal 2019 from 0.38 percent during the same period 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 transaction accounts to total deposits in the first sixnine months 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 first sixnine months of fiscal 2019 increased $14,000,decreased $18,000, or one percent, to $1.5$2.2 million as compared to the same period last year.  The increasedecrease in interest expense on borrowings was the result of a higherlower average balance, partly offset bycost and to a lesser extent, a lower average cost.balance. The average cost of borrowings decreased one basis point to 2.56 percent for the nine months ended March 31, 2019 from 2.57 percent in the same period last year. The average balance of borrowings increaseddecreased by $2.8 million, or two percent,$403,000 to $115.6$112.4 million during the sixnine months ended DecemberMarch 31, 20182019 from $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 six months ended December 31, 2018 from 2.57 percent in the same period last year.

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The following tables present the average balance sheets for the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017,2018, 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 securities93,468 444 1.90% 88,588 319 1.44%
FHLB – San Francisco stock8,199 278 13.56% 8,108 143 7.05%
Interest-earning deposits67,760 387 2.23% 50,725 168 1.30%
        
Total interest-earning assets1,110,619 11,440 4.12% 1,138,327 10,365 3.64%
        
Non interest-earning assets31,683    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 accounts282,410 147 0.21% 289,990 149 0.20%
Time deposits227,395 630 1.10% 252,588 625 0.98%
        
Total deposits889,557 894 0.40% 916,210 886 0.38%
        
Borrowings111,141 715 2.55% 111,521 728 2.59%
        
Total interest-bearing liabilities1,000,698 1,609 0.64% 1,027,731 1,614 0.62%
        
Non interest-bearing liabilities19,587    19,932   
        
Total liabilities1,020,285    1,047,663   
        
Stockholders' equity122,017    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
March 31, 2019
  
Quarter Ended
March 31, 2018
 
(Dollars In Thousands) 
Average
Balance
  Interest  
Yield/
Cost
  
Average
Balance
  Interest  
Yield/
Cost
 
Interest-earning assets:                  
Loans receivable, net (1)
 $915,049  $10,011   4.38% $961,826  $9,933   4.13%
Investment securities  101,851   592   2.32%  99,390   382   1.54%
FHLB – San Francisco stock  8,199   144   7.03%  8,108   144   7.10%
Interest-earning deposits  64,390   386   2.40%  61,591   233   1.51%
                         
Total interest-earning assets  1,089,489   11,133   4.09%  1,130,915   10,692   3.78%
                         
Non interest-earning assets  30,228           34,820         
                         
Total assets $1,119,717          $1,165,735         
                         
Interest-bearing liabilities:                        
Checking and money market accounts (2)
 $382,294  $102   0.11% $370,346  $96   0.11%
Savings accounts  274,400   139   0.21%  293,579   147   0.20%
Time deposits  216,558   600   1.12%  248,104   613   1.00%
                         
Total deposits  873,252   841   0.39%  912,029   856   0.38%
                         
Borrowings  105,793   680   2.61%  112,625   712   2.56%
                         
Total interest-bearing liabilities  979,045   1,521   0.63%  1,024,654   1,568   0.62%
                         
Non interest-bearing liabilities  17,991           20,804         
                         
Total liabilities  997,036           1,045,458         
                         
Stockholders' equity  122,681           120,277         
Total liabilities and stockholders' equity $1,119,717          $1,165,735         
                         
Net interest income     $9,612          $9,124     
                         
Interest rate spread (3)
          3.46%          3.16%
Net interest margin (4)
          3.53%          3.23%
Ratio of average interest-earning assets to
   average interest-bearing liabilities
          111.28%          110.37%
Return (loss) on average assets          (0.05)%          0.59%
Return (loss) on average equity          (0.49)%          5.76%

(1)
Includes loans held for sale and non-performing loans, as well as net deferred loan cost amortization of $268$179 and $409$120 for the quarters ended DecemberMarch 31, 20182019 and 2017,2018, respectively.
(2)
Includes the average balance of non interest-bearing checking accounts of $82.8$83.1 million and $78.6$78.9 million during the quarters ended DecemberMarch 31, 20182019 and 2017,2018, 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.
 
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Six Months Ended
December 31, 2018
 
Six Months Ended
December 31, 2017
 
Nine Months Ended
March 31, 2019
  
Nine Months Ended
March 31, 2018
 
(Dollars In Thousands)
Average
Balance
Interest
Yield/
Cost
 
Average
Balance
Interest
Yield/
Cost
 
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% $941,336  $30,516   4.32% $986,952  $29,825   4.03%
Investment securities92,384 789 1.71% 82,029 576 1.40%  95,494   1,381   1.93%  87,710   958   1.46%
FHLB – San Francisco stock8,199 421 10.27% 8,108 284 7.01%  8,199   565   9.19%  8,108   428   7.04%
Interest-earning deposits67,552 725 2.10% 55,085 358 1.27%  66,498   1,111   2.20%  57,254   591   1.36%
                             
Total interest-earning assets1,122,283 22,440 4.00% 1,144,464 21,110 3.69%  1,111,527   33,573   4.03%  1,140,024   31,802   3.72%
                             
Non interest-earning assets30,982    32,514     30,711           33,240         
                             
Total assets$1,153,265    $1,176,978    $1,142,238          $1,173,264         
                             
Interest-bearing liabilities:                             
Checking and money market accounts (2)
$378,702 $225 0.12% $373,425 $215 0.11% $379,882  $327   0.11% $372,413  $311   0.11%
Savings accounts285,441 298 0.21% 288,347 298 0.21%  281,814   437   0.21%  290,065   445   0.20%
Time deposits232,074 1,251 1.07% 257,856 1,264 0.97%  226,978   1,851   1.09%  254,653   1,877   0.98%
                             
Total deposits896,217 1,774 0.39% 919,628 1,777 0.38%  888,674   2,615   0.39%  917,131   2,633   0.38%
                             
Borrowings115,577 1,478 2.54% 112,834 1,464 2.57%  112,363   2,158   2.56%  112,766   2,176   2.57%
                             
Total interest-bearing liabilities1,011,794 3,252 0.64% 1,032,462 3,241 0.62%  1,001,037   4,773   0.64%  1,029,897   4,809   0.62%
                             
Non interest-bearing liabilities19,960    18,408     19,306           19,174         
                             
Total liabilities1,031,754    1,050,870     1,020,343           1,049,071         
                             
Stockholders' equity121,511    126,108     121,895           124,193         
Total liabilities and stockholders' equity$1,153,265    $1,176,978    $1,142,238          $1,173,264         
                             
Net interest income $19,188    $17,869       $28,800          $26,993     
                             
Interest rate spread (3)
 3.36%  3.07%          3.39%          3.10%
Net interest margin (4)
 3.42%  3.12%          3.45%          3.16%
Ratio of average interest-earning assets to
average interest-bearing liabilities
 110.92%  110.85%          111.04%          110.69%
Return (loss) on average assets 0.66%  (0.17)%
Return (loss) on average equity 6.22%  (1.59)%
Return on average assets          0.42%          0.08%
Return on average equity          3.97%          0.78%

(1)
Includes loans held for sale and non-performing loans, as well as net deferred loan cost amortization of $644$823 and $616$736 for the sixnine months ended DecemberMarch 31, 20182019 and 2017,2018, respectively.
(2)
Includes the average balance of non interest-bearing checking accounts of $82.5$82.7 million and $79.1 million during the sixnine months ended DecemberMarch 31, 20182019 and 2017,2018, 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.

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The following tables set forth the effects of changing rates and volumes on interest income and expense for the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017,2018, 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)RateVolume
Rate/
Volume
Net
Interest-earning assets:    
     Loans receivable (1)
$1,141 $(488)$(57)$596 
     Investment securities101 18 6 125 
     FHLB – San Francisco stock132 2 1 135 
     Interest-earning deposits124 55 40 219 
Total net change in income on interest-earning assets1,498 (413)(10)1,075 
     
Interest-bearing liabilities:    
     Checking and money market accounts— 5 — 5 
     Savings accounts2 (4)— (2)
     Time deposits75 (62)(8)5 
     Borrowings(11)(2)— (13)
Total net change in expense on interest-bearing liabilities66 (63)(8)(5)
Net increase (decrease) in net interest income$1,432 $(350)$(2)$1,080 
  
Quarter Ended March 31, 2019 Compared
To Quarter Ended March 31, 2018
Increase (Decrease) Due to
 
(In Thousands) Rate  Volume  
Rate/
Volume
  Net 
Interest-earning assets:            
     Loans receivable (1)
 $590  $(483) $(29) $78 
     Investment securities  196   9   5   210 
     FHLB – San Francisco stock  (2)  2   —   — 
     Interest-earning deposits  136   11   6   153 
Total net change in income on interest-earning assets  920   (461)  (18)  441 
                 
Interest-bearing liabilities:                
     Checking and money market accounts  —   6   —   6 
     Savings accounts  1   (9)  —   (8)
     Time deposits  74   (78)  (9)  (13)
     Borrowings  12   (43)  (1)  (32)
Total net change in expense on interest-bearing liabilities  87   (124)  (10)  (47)
Net increase (decrease) in net interest income $833  $(337) $(8) $488 

(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.

 
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Six Months Ended December 31, 2018 Compared
To Six Months Ended December 31, 2017
Increase (Decrease) Due to
 
Nine Months Ended March 31, 2019 Compared
To Nine Months Ended March 31, 2018
Increase (Decrease) Due to
 
(In Thousands)RateVolume
Rate/
Volume
Net Rate  Volume  
Rate/
Volume
  Net 
Interest-earning assets:                
Loans receivable (1)
$1,582 $(897)$(72)$(613) $2,169  $(1,379) $(99) $691 
Investment securities125 72 16 213   311   85   27   423 
FHLB – San Francisco stock133 3 1 137   131   5   1   137 
Interest-bearing deposits236 79 52 367   368   94   58   520 
Total net change in income on interest-earning assets2,076 (743)(3)1,330   2,979   (1,195)  (13)  1,771 
                    
Interest-bearing liabilities:                    
Checking and money market accounts7 3 — 10   —   16   —   16 
Savings accounts— — — —   5   (12)  (1)  (8)
Time deposits126 (126)(13)(13)  201   (204)  (23)  (26)
Borrowings(22)36 — 14   (10)  (8)  —   (18)
Total net change in expense on interest-bearing liabilities111 (87)(13)11   196   (208)  (24)  (36)
Net increase (decrease) in net interest income$1,965 $(656)$10 $1,319  $2,783  $(987) $11  $1,807 

(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.

Provision (Recovery) for Loan Losses:

For the Quarters Ended DecemberMarch 31, 20182019 and 2017.2018.  During the secondthird quarter of fiscal 2019, the Corporation recorded a recovery from the allowanceprovision for loan losses of $217,000, compared$4,000, in contrast to a recovery from the allowance for loan losses of $11,000$505,000 in the same period of fiscal 2018.  The recovery recorded infrom the secondallowance for loan losses during the same quarter of fiscal 2019last year was primarily attributable to the recoveries relatedimproving risk profile of the loan portfolio as reflected in the asset quality ratios and loan balances shifting to the payoff of two non-performing loans during the second quarter of fiscal 2019.lower risk categories from higher risk categories. Non-performing loans, net of the allowance for loan losses and fair value adjustments remained relatively unchanged at $6.1 million as compared toat both March 31, 2019 and June 30, 2018 but lower than the $8.0$6.8 million at DecemberMarch 31, 2017.2018. Net loan recoveries in the secondthird quarter of fiscal 2019 were $123,000$15,000 or 0.050.01 percent (annualized) of average loans receivable, compared to net loan recoveriescharge offs of $23,000$39,000 or 0.010.02 percent (annualized) of average loans receivable in the same quarter of fiscal 2018. Total classified loans, net of the allowance for loan losses and fair value adjustments, were $12.8$14.8 million at DecemberMarch 31, 20182019 as compared to $14.9 million at June 30, 2018 and $13.2$11.1 million at DecemberMarch 31, 2017.2018. Classified loans net of the allowance for loan losses and fair value adjustments were comprised of $5.3$7.3 million and $7.5 million of loans in the special mention category and $7.5 million and $7.4 million of loans in the substandard category at DecemberMarch 31, 20182019 and June 30, 2018, respectively.

For the SixNine Months Ended DecemberMarch 31, 20182019 and 2017.2018.  During the first sixnine months of fiscal 2019, the Corporation recorded a recovery from the allowance for loan losses of $454,000, in contrast$450,000, as compared to a $158,000 provision$347,000 recovery from the allowance for loan losses in the same period of fiscal 2018. The recovery from the allowance for loan losses in the first sixnine months of fiscal 2019 was primarily attributable to the decrease in loans held for investment and the recoveries related to the payoff of the two non-performing loans during the first sixnine months of fiscal 2019.  Net loan recoveries in the first sixnine months of fiscal 2019 were $130,000$145,000 or 0.03(0.02) percent (annualized) of average loans receivable, in contrast to net loan charge offs of $122,000$161,000 or (0.02)0.02 percent (annualized) of average loans receivable in the same period of fiscal 2018.

65
The allowance for loan losses was determined through quantitative and qualitative adjustments including the Bank's charge-off experience and reflects the impact on loans held for investment from the current general economic conditions of the U.S. and
65
California economies such as the improving unemployment rate and higher home prices in California.  See related discussion of "Asset Quality" below.

At DecemberMarch 31, 2018,2019, the allowance for loan losses was $7.1 million, comprised of collectively evaluated allowances of $6.9 million and individually evaluated allowances of $168,000;$132,000; in comparison to the allowance for loan losses of $7.4 million at June 30, 2018, comprised of collectively evaluated allowances of $7.2 million and individually evaluated allowances of $157,000. The allowance for loan losses as a percentage of gross loans held for investment was 0.800.79 percent at DecemberMarch 31, 20182019 as compared to 0.81 percent at June 30, 2018. Management considers, based on currently available information, the allowance for loan losses sufficient to absorb potential losses inherent in loans held for investment.  For further analysis on the allowance for loan losses, see Note 6 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

Non-Interest Income:

For the Quarters Ended DecemberMarch 31, 20182019 and 2017.2018.  Total non-interest income decreased $2.1 million, or 3740 percent, to $3.6$3.1 million for the quarter ended DecemberMarch 31, 20182019 from $5.7$5.2 million for the same period last year.  The decrease was primarily attributable to a decrease in the net gain on sale of loans during the current quarter as compared to the comparable period last year.

The net gain on sale of loans decreased $2.0$1.9 million, or 4753 percent, to $2.3$1.7 million for the secondthird quarter of fiscal 2019 from $4.3$3.6 million in the same quarter of fiscal 2018 reflecting the impact of a lower loan sale volume, partly offset by a higher average loan sale margin.  Total loan sale volume, which includes the net change in commitments to extend credit on loans to be held for sale, decreased $156.5$139.7 million or 5459 percent to $131.3$95.8 million in the quarter ended DecemberMarch 31, 20182019 from $287.8$235.5 million in the comparable quarter last year.  The decrease in loan sale volume was attributable to the decrease inwinding down of the mortgage banking activity as compared to the same period last year primarily as a result of higher mortgage interest rates and lower refinance, and more recently, home purchase volume.  The total refinanceoperations. Refinance loans as a percentage of total loans originated by PBM during the secondthird quarter of fiscal 2019 was 2830 percent, down from 4237 percent in the same quarter of fiscal 2018.  Retail loans as a percentage of total loans originated for sale by PBM during the secondthird quarter of fiscal 2019 were 6065 percent, up from 5559 percent in the same quarter of fiscal 2018. The average loan sale margin for PBM increased 2326 basis points to 1.721.79 percent in the secondthird quarter of fiscal 2019 from 1.491.53 percent in the same period of fiscal 2018. The increase in the average loan sale margin was the result of a higher percentage of retail loan production (which generally has higher loan sale margins) versus wholesale loan production and maintaining pricing discipline throughout the quarter. The gain on sale of loans includes an unfavorable fair-value adjustment on loans held for sale and derivative financial instruments (commitments to extend credit, commitments to sell loans, commitments to sell mortgage-backed securities, and option contracts) pursuant to ASC 815 and ASC 825 that amounted to a net loss of $674,000$778,000 in the secondthird quarter of fiscal 2019 as compared to an unfavorable fair-value adjustmenta net loss of $1.3 million$844,000 in the same period last year. The fair-value adjustment on loans held for sale and derivative financial instruments is consistent with the Bank's mortgage banking activity and the volatility of mortgage interest rates. As of DecemberMarch 31, 2018,2019, the fair value of derivative financial instruments pursuant to ASC 815 and ASC 825 was $1.7 million,$951,000, compared to $2.9 million at June 30, 2018 and $3.7$2.8 million at DecemberMarch 31, 2017.2018.

For the SixNine Months Ended DecemberMarch 31, 20182019 and 2017.2018.  Total non-interest income decreased $4.0$6.1 million, or 3335 percent, to $8.1$11.2 million for the sixnine months ended DecemberMarch 31, 20182019 from $12.1$17.3 million for the same period last year.  The decrease was primarily attributable to a decrease in the gain on sale of loans.

The net gain on sale of loans decreased $3.8$5.7 million, or 4144 percent, to $5.4$7.1 million for the first sixnine months of fiscal 2019 from $9.2$12.8 million in the same period of fiscal 2018 reflecting the impact of a lower loan sale volume, partly offset by a higher average loan sale margin.  Total loan sale volume was $313.1$408.9 million in the first sixnine months ended DecemberMarch 31, 2018,2019, down $366.9$506.5 million, or 5455 percent, from $680.0$915.4 million in the comparable period last year.  The decrease in loan sale volume was attributable primarily to a decrease inthe winding down of the mortgage banking activity as compared to the same period last year.operations.  Refinance loans as a percentage of total loans originated by PBM during the first sixnine months of fiscal 2019 were 29 percent, down from 4241 percent in
66
the same period of
66
fiscal 2018. Retail loans as a percentage of total loans originated for sale by PBM during the first sixnine months of fiscal 2019 were 6364 percent, up from 5556 percent in the same period of fiscal 2018. The average loan sale margin for PBM during the first sixnine months of fiscal 2019 was 1.711.73 percent, up 3734 basis points from 1.341.39 percent for the same period of fiscal 2018.  The increase in the average loan sale margin was the result of a higher percentage of retail loan production (which generally has higher loan sale margins) versus wholesale loan production and maintaining pricing discipline throughout the period. The gain on sale of loans includes an unfavorable fair-value adjustment on derivative financial instruments pursuant to ASC 815 and ASC 825, a net loss of $1.2$1.9 million in the first sixnine months of fiscal 2019 as compared to an unfavorable fair-value adjustment, a net loss of $1.4$2.2 million in the same period last year.

Non-Interest Expense:

For the Quarters Ended DecemberMarch 31, 20182019 and 2017.2018.  Total non-interest expense in the quarter ended DecemberMarch 31, 20182019 was $10.9$13.0 million, a decreasean increase of $2.3 million,$561,000, or 17five percent, as compared to $13.2$12.4 million in the quarter ended DecemberMarch 31, 2017.2018. The decreaseincrease was primarily a result of a decreasean increase in salaries and employee benefits expense and a decrease in other non-interest expense.

Total salaries and employee benefits expense decreased $1.4 million,increased $484,000, or 16five percent, to $7.2$9.3 million in the secondthird quarter of fiscal 2019 from $8.6$8.8 million in the same period of fiscal 2018.  The decreaseincrease in salaries and employee benefits expense was primarily relatedattributable to $1.5 million of one-time costs associated with staff reductions in mortgage banking operations and $674,000 in current costs associated with incentive compensation accruals, partly offset by lower variable compensation resulting from lower mortgage banking loan originations and staff reductions in mortgage banking.originations. Total loan originations and purchases (including loans originated and purchased for investment and loans originated for sale) decreased $181.1$114.8 million, or 4943 percent, to $185.7$154.7 million in the secondthird quarter of fiscal 2019 from $366.8$269.5 million in the comparable quarter of fiscal 2018. Total full-time equivalent employees in the mortgage banking division was 148were 107 at DecemberMarch 31, 2018,2019, down 3047 percent from 212200 at DecemberMarch 31, 2017.

Total other non-interest expenses decreased $846,000, or 44 percent, to $1.1 million in the second quarter of fiscal 2019 from $1.9 million in the same period of fiscal 2018.  The decrease was primarily attributable to the $650,000 litigation settlement expense recorded in other non-interest expense in the second quarter of fiscal 2018 and not replicated this quarter.

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 to complete the exit 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. As of March 31, 2019, the total one-time costs incurred were $1.6 million, comprised of $1.5 million in salaries and employee benefits expenses, $81,000 in premises and occupancy expenses, and $13,000 in equipment expenses.

For the SixNine Months Ended DecemberMarch 31, 20182019 and 2017.2018.  Total non-interest expense in the sixnine months ended DecemberMarch 31, 20182019 was $22.6$35.6 million, a decrease of $6.3$5.8 million or 2214 percent, as compared to $28.9$41.4 million in the same period ended DecemberMarch 31, 2017.2018.  The decrease was primarily due to a decreasedecreases in salaries and employee benefits expense and a decrease in other non-interest expense.

Total salaries and employee benefits expense decreased $2.4$1.9 million, or 13seven percent, to $15.5$24.8 million in the first sixnine months of fiscal 2019 from $17.9$26.7 million in the same period of fiscal 2018.  The decrease was primarily attributable to lower incentive compensation costs and PBM staff reductions related to lower mortgage banking loan originations.originations attributable to the winding down of the mortgage banking operations, partly offset by one-time costs associated with staff reductions in mortgage banking operations and incentive compensation accruals. Total loan originations and purchases (including loans originated and purchased for investment and loans originated for sale) decreased $385.3$500.0 million, or 4847 percent, to $418.7$573.4 million in the first sixnine months of fiscal 2019 from $804.0 million$1.07 billion in the comparable period of fiscal 2018.

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Total other non-interest expenses decreased $3.8 million, or 6655 percent, to $2.0$3.1 million in the first sixnine months of fiscal 2019 from $5.8$6.9 million in the same period of fiscal 2018. The decrease in other non-interest expenses was primarily attributable to litigation settlement expense of $3.4 million in the first sixnine months of fiscal 2018, and not replicated this current period.  No additional contingencies exist regarding these legal matters although the settlement agreements remain subject to court approval and other customary conditions. For additional information see Part II, Item 1, "Legal Proceedings."

Provision (Benefit) for Income Taxes:

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

For the Quarters Ended DecemberMarch 31, 20182019 and 2017.2018.  The Corporation's income tax provisionbenefit was $810,000$189,000 for the secondthird quarter of fiscal 2019, as comparedin contrast to a $2.1 million$667,000 tax provision in the same quarter last year.year (an $856,000 difference). The decrease in the provision for income taxes was primarily attributable to the one-time, non-cash, net tax charge of $1.8 million, or $(0.24) per diluted share, from the net deferred tax assets revaluationloss before taxes and the reduction in thea lower federal corporate income tax rate resulting fromin the Tax Act, partly offset by the higherthird quarter of fiscal 2019 in comparison to income before taxes.taxes in the same quarter last year. Since the Corporation has a fiscal year end of June 30th, the reduced federal corporate income tax rate from the Tax Act for fiscal 2018 was the result of the application of a blended federal statutory tax rate of 28.06%, and is a flat 21% federal corporate income tax rate for fiscal 2019 and thereafter. As a result, theThe effective federal and state income tax rate for the quarter ended DecemberMarch 31, 2019 and 2018 was 29.26%.55.59% and 27.79%, respectively. The higher effective tax rate in the third quarter of fiscal 2019 was due primarily to tax benefits resulting from stock-based compensation activities. The Corporation believes that the effective income tax rate applied in the secondthird quarter of fiscal 2019 reflects its current income tax obligations.

For the SixNine Months Ended DecemberMarch 31, 20182019 and 2017.2018.  The Corporation's provision for income taxes was $1.4$1.2 million for the first sixnine months of fiscal 2019, down 2352 percent from the $1.9$2.5 million provision for income taxes in the same period last year. The decrease in the provision for income taxes was primarily attributable to the one-time, non-cash, net tax charge of $1.9 million from the net deferred tax assetassets revaluation and the reduction ofin the federal corporate income tax rate resulting from the Tax Act, partly offset by the higher net income before taxes.taxes recorded in the second quarter of fiscal 2018.  The effective income tax rate for the sixnine months ended DecemberMarch 31, 2019 and 2018 was 27.39%.25.42% and 77.56%, respectively. The Corporation believes that the effective income tax rate applied in the first sixnine months of fiscal 2019 reflects its current income tax obligations.


Asset Quality

Non-performing loans, net of the allowance for loan losses and fair value adjustments, consisting of loans with collateral located in California, at December 31, 2018 remained unchanged at $6.1 million as compared toat both March 31, 2019 June 30, 2018. Non-performing loans as a percentage of loans held for investment at DecemberMarch 31, 20182019 was 0.69%, up from 0.67% at June 30, 2018.  The non-performing loans at DecemberMarch 31, 20182019 are comprised of 20 single-family loans ($5.3 million), one construction loan ($745,000) and one commercial business loan ($47,000)44,000).  No interest accruals were made for loans that were past due 90 days or more or if the loans were deemed non-performing.

As of DecemberMarch 31, 2018,2019, total restructured loans decreased $1.0 million,$601,000, or 1912 percent, to $4.2$4.6 million from $5.2 million at June 30, 2018.  At DecemberMarch 31, 20182019 and June 30, 2018, $2.7 million and $3.4 million of these restructured loans were classified as non-performing, respectively.  As of DecemberMarch 31, 2018,2019, $2.9 million, or 7063 percent, of the restructured loans have a current payment status, consistent with their modified payment terms; this compares to $2.9 million, or 56 percent, of restructured loans that had a current payment status, consistent with their modified payment terms as of June 30, 2018.

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There was no real estate owned at DecemberMarch 31, 20182019 as compared to $906,000 at June 30, 2018 (two single-family properties located in California).

Non-performing assets, which includes non-performing loans and real estate owned, decreased $901,000$848,000 or 1312 percent to $6.1 million or 0.540.55 percent of total assets at DecemberMarch 31, 20182019 from $7.0 million or 0.59 percent of total assets at June 30, 2018. Restructured loans which are performing in accordance with their modified terms and are not otherwise classified non-accrual are not included in non-performing assets.  For further analysis on non-performing loans and restructured loans, see Note 6 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

Occasionally, the Corporation is required to repurchase loans sold to Freddie Mac, Fannie Mae or other institutional investors if it is determined that such loans do not meet the credit requirements of the investor, or if one of the parties involved in the loan misrepresented pertinent facts, committed fraud, or if such loans were 90-days past due within 120 days of the loan funding date. During the first sixnine months of fiscal 2019, the Corporation repurchased threefive loans totaling $253,000,$699,000, including two loans that were fully charged off ($25,000). In comparison, the Corporation did not repurchase anyrepurchased two loans totaling $602,000 from investors during the first sixnine months of fiscal 2018 pursuant to the recourse/repurchase covenants contained in the loan sale agreements.2018. Additional repurchase requests may have been settled that did not result in the repurchase of the loan itself.  The primary reasons for honoring the repurchase requests are borrower fraud, undisclosed liabilities on borrower applications, and documentation, verification and appraisal disputes.  For the first sixnine months of fiscal 2019 and 2018, the Corporation recorded a $33,000 recovery and a $22,000 recovery from the recourse liability, respectively, and did not settle any claims.  As of DecemberMarch 31, 2018,2019, the total recourse reserve for loans sold that are subject to repurchase decreased to $250,000, as compared to $283,000 at both June 30, 2018 and $283,000 at DecemberMarch 31, 2017.2018.

Beginning in 2008, in connection with the downturn in the real estate market, the Corporation implemented tighter underwriting standards to reduce potential loan repurchase requests, including requiring higher credit scores, generally lower debt-to-income ratios, and verification of income and assets, among other criteria.  Despite management's diligent estimate of the recourse reserve, the Corporation is still subject to risks and uncertainties associated with potentially higher loan repurchase claims from investors, and there are no assurances that the current recourse reserve will be sufficient to cover all future recourse claims.

The following table shows the summary of the recourse liability for the quarters and sixnine months ended DecemberMarch 31, 20182019 and 2017:2018:
 
For the Quarters Ended
December 31,
 For the Six Months Ended
December 31,
Recourse Liability2018201720182017
(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 
  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
Recourse Liability 2019  2018  2019  2018 
(In Thousands)            
             
Balance, beginning of the period $250  $283  $283  $305 
Recovery from recourse liability  —   —   (33)  (22)
Net settlements in lieu of loan repurchases  —   —   —   — 
Balance, end of the period $250  $283  $250  $283 

A decline in real estate values subsequent to the time of origination of the Corporation's real estate secured loans could result in higher loan delinquency levels, foreclosures, provisions for loan losses and net charge-offs.  Real estate values and real estate markets are beyond the Corporation's control and are generally affected by changes in national, regional or local economic conditions and other factors.  These factors include fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies and acts of nature, such as earthquakes, fires and national disasters particular to California where substantially all of the Corporation's real estate collateral is located.  If real estate values decline from the levels described in the following tables (which were derived at the time of loan origination), the value of the real estate collateral securing the Corporation's loans as set forth in the table could be significantly
69
overstated.  The Corporation's ability to recover on defaulted loans by foreclosing and selling the real estate collateral would
69
then be diminished and it would be more likely to suffer losses on defaulted loans.  The Corporation generally does not update the loan-to-value ratio ("LTV") on its loans held for investment by obtaining new appraisals or broker price opinions (nor does the Corporation intend to do so in the future as a result of the costs and inefficiencies associated with completing the task) unless a specific loan has demonstrated deterioration or the Corporation receives a loan modification request from a borrower (in which case individually evaluated allowances are established, if required).  Therefore, it is reasonable to assume that the LTV ratios disclosed in the following tables may be understated or overstated in comparison to their current LTV ratios as a result of their year of origination, the subsequent general decline or improvement in real estate values that has occurred and the specific location and condition of the individual properties.  The Corporation has not quantified the current LTVs of its loans held for investment nor the impact the decline or improvement in real estate values has had on the original LTVs of its loans held for investment.

The following table describes certain credit risk characteristics of the Corporation's single-family, first trust deed, mortgage loans held for investment as of DecemberMarch 31, 2018:2019:
(Dollars In Thousands) 
Outstanding
Balance (1)
 
Weighted-
Average
FICO (2)
 
Weighted-
Average
LTV (3)
 
Weighted-
Average
Seasoning (4)
Interest only $1,500  619  75% 1.21 years
Stated income (5)
 $56,323  733  58% 13.33 years
FICO less than or equal to 660 $7,656  638  65% 8.22 years
Over 30-year amortization $7,528  726  63% 13.63 years
(Dollars In Thousands)
Outstanding
Balance (1)
Weighted-
Average
FICO (2)
Weighted-
Average
LTV (3)
Weighted-
Average
Seasoning (4)
Interest only$1,500 61975%0.97 years
Stated income (5)
$59,732 73358%13.11 years
FICO less than or equal to 660$7,618 63766%7.86 years
Over 30-year amortization$8,024 72063%13.42 years

(1)
The outstanding balance presented on this table may overlap more than one category.  Of the outstanding balance, $2.9 million of "stated income," $306$300 of "FICO less than or equal to 660," and $215$214 of "over 30-year amortization" balances were non-performing.
(2)
Based on borrower's FICO scores at the time of loan origination.  The FICO score represents the creditworthiness of a borrower based on the borrower's credit history, as reported by an independent third party.  A higher FICO score indicates a greater degree of creditworthiness.  Bank regulators have issued guidance stating that a FICO score of 660 and below is indicative of a "subprime" borrower.
(3)
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.
(4)
Seasoning describes the number of years since the funding date of the loan.
(5)
Stated income is defined as borrower stated income on his/her loan application which was not subject to verification during the loan origination process.

The following table summarizes the amortization schedule of the Corporation's interest only single-family, first trust deed, mortgage loans held for investment, including the percentage of those which are identified as non-performing or 30 – 89 days delinquent as of DecemberMarch 31, 2018:2019:
(Dollars In Thousands)Balance
Non-Performing (1)
30 - 89 Days
Delinquent (1)
Fully amortize in the next 12 months$— —%—%
Fully amortize between 1 year and 5 years1,500 —%—%
Fully amortize after 5 years— —%—%
Total$1,500 —%—%
(Dollars In Thousands) Balance  
Non-Performing (1)
  
30 - 89 Days
Delinquent (1)
 
Fully amortize in the next 12 months $1,500   —%   —% 
Fully amortize between 1 year and 5 years  —   —%   —% 
Fully amortize after 5 years  —   —%   —% 
Total $1,500   —%   —% 

(1)
As a percentage of each category.


70
The following table summarizes the interest rate reset (repricing) schedule of the Corporation's stated income single-family, first trust deed, mortgage loans held for investment, including the percentage of those which are identified as non-performing or 30 – 89 days delinquent as of DecemberMarch 31, 2018:2019:
(Dollars In Thousands)
Balance (1)
Non-Performing (1)
30 - 89 Days
Delinquent (1)
Interest rate reset in the next 12 months$59,018 4%—%
Interest rate reset between 1 year and 5 years— —%—%
Interest rate reset after 5 years714 100%—%
Total$59,732 5%—%
(Dollars In Thousands) 
Balance (1)
  
Non-Performing (1)
 
30 - 89 Days
Delinquent (1)
 
Interest rate reset in the next 12 months $55,616   4%   1% 
Interest rate reset between 1 year and 5 years  —   —%   —% 
Interest rate reset after 5 years  707   100%   —% 
Total $56,323   5%   1% 

(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 single-family, first trust deed, mortgage loans held for investment, at DecemberMarch 31, 2018:2019:
 Calendar Year of Origination 
(Dollars In Thousands)
2010 &
Prior

2011

2012

2013

2014

2015

2016

2017

2018

Total
Loan balance (in thousands)$97,932$726$1,986$2,139$5,338$10,345$28,709$69,363$82,824$299,362
Weighted-average LTV (1)
58%59%53%45%62%68%64%72%71%66%
Weighted-average age (in years)13.247.336.345.504.443.592.481.610.485.38
Weighted-average FICO (2)
730724758752755740752738745739
Number of loans36231020171556107140730
           
Geographic breakdown (%)          
Inland Empire37%45%16%45%33%20%26%32%41%35%
Southern California (3)
51%55%52%22%36%49%34%46%50%48%
Other California (4)
11%—%32%33%31%31%40%22%9%17%
Other States1%—%—%—%—%—%—%—%—%—%
Total100%100%100%100%100%100%100%100%100%100%
  Calendar Year of Origination    
(Dollars In
Thousands)
 
2011 &
Prior
  

2012
  

2013
  

2014
  

2015
  

2016
  

2017
  

2018
  
YTD
2019
  

Total
 
Loan balance (in
  thousands)
 $93,005  $1,937  $1,681  $5,127  $8,812  $28,554  $67,035  $81,516  $14,985  $302,652 
Weighted-average
  LTV (1)
  58%   53%   40%   62%   68%   63%   72%   70%   68%   65% 
Weighted-average
  age (in years)
  13.42  6.58   5.85   4.68   3.82   2.72   1.86   0.74   0.92   5.30 
Weighted-average
  FICO (2)
  730   757   758   754   746   752   739   743   769   741 
Number of loans  347   10   18   16   13   56   104   140   26   730 
                                         
Geographic
  breakdown (%)
                                        
Inland Empire  37%   17%   56%   33%   18%   26%   33%   42%   9%   34% 
Southern
  California (3)
  51%   52%   25%   38%   57%   34%   45%   50%   29%   47% 
Other California (4)
  11%   31%   19%   29%   25%   40%   22%   8%   62%   19% 
Other States  1%   —%   —%   —%   —%   —%   —%   —%   —%   —% 
Total  100%   100%   100%   100%   100%   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.

71
71The following table summarizes the interest rate reset (repricing) schedule of the Corporation's single-family, first trust deed, mortgage loans held for investment, including the percentage of those which are identified as non-performing or 30 – 89 days delinquent as of March 31, 2019:
(Dollars In Thousands) 
Balance (1)
  
Non-Performing (1)
 
30 - 89 Days
Delinquent (1)
 
Interest rate reset in the next 12 months $100,266   3%   1% 
Interest rate reset between 1 year and 5 years  130,090   —%   —% 
Interest rate reset after 5 years  72,296   3%   —% 
Total $302,652   2%   —% 

(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 multi-family loans held for investment, at DecemberMarch 31, 2018:2019:
Calendar Year of Origination  Calendar Year of Origination    
(Dollars In Thousands)
2010 &
Prior

2011

2012

2013

2014

2015

2016

2017

2018

Total
 
2011 &
Prior
  

2012
  

2013
  

2014
  

2015
  

2016
  

2017
  

2018
  
YTD
2019
  

Total
 
Loan balance (in thousands)$13,171$3,417$10,002$30,051$54,410$72,546$112,763$73,505$77,168$447,033 $16,057  $9,816  $25,044  $49,349  $68,866  $110,780  $72,030  $76,332  $21,538  $449,812 
Weighted-average LTV (1)
35%48%48%49%50%52%48%49%46%48%  37%   48%   48%   49%   51%   47%   49%   45%   59%   48% 
Weighted-average DCR (2)
1.74x1.73x1.89x1.77x1.69x1.66x1.67x1.57x1.67x  1.75x   1.90x   1.83x   1.70x   1.67x   1.67x   1.67x   1.57x   1.47x   1.66x 
Weighted-average age (in years)14.277.256.305.374.513.462.501.560.593.08  13.02   6.54   5.63   4.74   3.70   2.75   1.81   0.83   0.07   3.12 
Weighted-average FICO (3)
719750744767755762751757757  727   745   767   768   753   762   751   757   750   756 
Number of loans36514507811613811893648  40   13   44   74   114   136   116   93   25   655 
                                            
Geographic breakdown (%)                                            
Inland Empire42%—%1%38%17%18%10%18%11%16%  34%   —%   41%   16%   18%   11%   17%   12%   10%   16% 
Southern California (4)
51%82%78%44%47%60%61%64%68%60%  56%   78%   46%   50%   60%   61%   64%   68%   68%   61% 
Other California (5)
5%18%21%18%36%22%29%18%21%24%  8%   22%   13%   34%   22%   28%   19%   20%   22%   23% 
Other States2%—%—%—%  2%   —%   —%   —%   —%   —%   —%   —%   —%   —% 
Total100%—%100%100%  100%   100%   100%   100%   100%   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)
Debt Coverage Ratio ("DCR") at time of origination.
(3)
At time of loan origination.
(4)
Other than the Inland Empire.
(5)
Other than the Inland Empire and Southern California.

72
The following table summarizes the interest rate reset or maturity schedule of the Corporation's multi-family 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 DecemberMarch 31, 2018:2019:
(Dollars In Thousands)Balance
Non-
Performing (1)
30 - 89 Days
Delinquent
Percentage
Not Fully
Amortizing (1)
Interest rate reset or mature in the next 12 months$129,858 —%—%7%
Interest rate reset or mature between 1 year and 5 years304,331 —%—%2%
Interest rate reset or mature after 5 years12,844 —%—%—%
Total$447,033 —%—%3%
(Dollars In Thousands) Balance  
Non-
Performing (1)
 
30 - 89 Days
Delinquent
  
Percentage
Not Fully
Amortizing (1)
Interest rate reset or mature in the next 12 months $132,835   —%   —%   7% 
Interest rate reset or mature between 1 year and 5 years  302,422   —%   —%   1% 
Interest rate reset or mature after 5 years  14,555   —%   —%   —% 
Total $449,812   —%   —%   3% 

(1)
As a percentage of each category.

72

The following table describes certain credit risk characteristics, geographic locations and the calendar year of loan origination of the Corporation's commercial real estate loans held for investment, at DecemberMarch 31, 2018:2019:
  Calendar Year of Origination    
(Dollars In Thousands) 
2011 &
Prior
  

2012
  

2013
  

2014
  

2015
  

2016
  

2017
  

2018
  
YTD
2019
  
Total (5)(6)
Loan balance (in
  thousands)
 $537  $9,373  $7,679  $18,237  $19,278  $15,791  $19,366  $19,900  $5,194  $115,355 
Weighted-average LTV (1)
  36%   44%   48%   42%   39%   47%   42%   44%   42%   43% 
Weighted-average DCR (2)
  1.38x   1.98x   1.65x   1.96x   1.8x   1.57x   1.82x   1.61x   1.45x   1.75x 
Weighted-average age (in
  years)
  10.09   6.48   5.71   4.59   3.69   2.86   1.61   0.79   0.11   3.10 
Weighted-average FICO (2)
  711   742   767   753   757   758   773   754   738   757 
Number of loans  4   7   12   22   25   22   23   29   6   150 
                                         
Geographic breakdown
  (%):
                                        
Inland Empire  69%   78%   27%   41%   31%   11%   26%   10%   —%   28% 
Southern California (3)
  31%   22%   45%   44%   32%   65%   52%   55%   81%   48% 
Other California (4)
  —%   —%   28%   15%   37%   24%   22%   35%   19%   24% 
Other States  —%   —%   —%   —%   —%   —%   —%   —%   —%   —% 
Total  100%   100%   100%   100%   100%   100%   100%   100%   100%   100% 
 Calendar Year of Origination 
(Dollars In Thousands)
2010 &
Prior

2011

2012

2013

2014

2015

2016

2017

2018
Total (5)(6)
Loan balance (in thousands)$573$—$9,862$8,842$18,699$19,412$15,947$19,485$20,010$112,830
Weighted-average LTV (1)
35%—%43%48%43%40%48%43%44%44%
Weighted-average DCR (2)
1.38x—x1.97x1.61x1.95x1.80x1.57x1.82x1.61x1.76x
Weighted-average age (in years)10.34—6.275.464.353.452.611.370.543.04
Weighted-average FICO (2)
712—741763753757758773754758
Number of loans5—8142225222329148
           
Geographic breakdown (%):          
Inland Empire69%—%75%24%40%31%11%26%10%29%
Southern California (3)
31%—%25%46%45%32%65%52%55%47%
Other California (4)
—%—%—%30%15%37%24%22%35%24%
Other States—%—%—%—%—%—%—%—%—%—%
Total100%—%—%100%100%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: $48.8$47.2 million in Mixed Use; $17.8$20.7 million in Office; $17.7$19.9 million in Retail; $8.7$8.6 million in Mobile Home Parks; $7.8$7.7 million in Warehouse; $4.3 million in Medical/Dental Office; $2.7 million in Mini-Storage; $2.0$1.7 million in Restaurant/Fast Food; $1.5 million in Light Industrial/Manufacturing and $1.1 million in Automotive – Non Gasoline and $1.5 million in Light Industrial/Manufacturing.Gasoline.
(6)
Consisting of $106.4$108.9 million or 94.394.4 percent in investment properties and $6.4$6.5 million or 5.75.6 percent in owner occupied properties.

73
The following table summarizes the interest rate reset or maturity schedule of the 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 DecemberMarch 31, 2018:2019:
(Dollars In Thousands)Balance
Non-
Performing (1)
30 - 89 Days
Delinquent
Percentage
Not Fully
Amortizing (1)
Interest rate reset or mature in the next 12 months$41,377 —%—%81%
Interest rate reset or mature between 1 year and 5 years71,453 —%—%91%
Interest rate reset or mature after 5 years— —%—%—%
Total$112,830 —%—%88%
(Dollars In Thousands) Balance  
Non-
Performing (1)
  
30 - 89 Days
Delinquent
  
Percentage
Not Fully
Amortizing (1)
 
Interest rate reset or mature in the next 12 months $45,699   —%   —%   83% 
Interest rate reset or mature between 1 year and 5 years  69,656   —%   —%   90% 
Interest rate reset or mature after 5 years  —   —%   —%   —% 
Total $115,355   —%   —%   87% 

(1)
As a percentage of each category.

73
The following table sets forth information with respect to the Corporation's non-performing assets, net of allowance for loan losses and fair value adjustments, at the dates indicated:
(In Thousands)
At December 31,
2018
At June 30,
2018
Loans on non-accrual status (excluding restructured loans):  
Mortgage loans:  
Single-family$2,572 $2,665 
Construction745 — 
Total3,317 2,665 
   
Accruing loans past due 90 days or more— — 
   
Restructured loans on non-accrual status:  
Mortgage loans:  
Single-family2,698 3,328 
Commercial business loans47 64 
Total2,745 3,292 
   
Total non-performing loans6,062 6,057 
   
Real estate owned, net— 906 
Total non-performing assets$6,062 $6,963 
   
Non-performing loans as a percentage of loans held for investment, net
   of allowance for loan losses
0.69%0.67%
   
Non-performing loans as a percentage of total assets0.54%0.52%
   
Non-performing assets as a percentage of total assets0.54%0.59%
(In Thousands) 
At March 31,
2019
  
At June 30,
2018
 
Loans on non-accrual status (excluding restructured loans):      
Mortgage loans:      
     Single-family $2,657  $2,665 
     Construction  745   — 
     Total  3,402   2,665 
         
Accruing loans past due 90 days or more  —   — 
         
Restructured loans on non-accrual status:        
Mortgage loans:        
     Single-family  2,669   3,328 
Commercial business loans  44   64 
     Total  2,713   3,392 
         
Total non-performing loans  6,115   6,057 
         
Real estate owned, net  —   906 
Total non-performing assets $6,115  $6,963 
         
Non-performing loans as a percentage of loans held for investment, net
   of allowance for loan losses
  0.69%  0.67%
         
Non-performing loans as a percentage of total assets  0.55%  0.52%
         
Non-performing assets as a percentage of total assets  0.55%  0.59%

74
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 DecemberMarch 31, 2018:2019:
 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 loans47 — — — — — — — — 47   
Total$3,865 $— $85 $— $— $— $— $1,367 $745 $6,062   
74
  Calendar Year of Origination    
(In Thousands) 
2011 &
Prior
  2012  2013  2014  2015  2016  2017  2018  
YTD
2019
  Total 
Mortgage loans:                              
Single-family $3,775  $84  $—  $—  $—  $—  $1,467  $—  $—  $5,326 
Construction  —   —   —   —   —   —   —   745   —   745 
Commercial business
  loans
  44   —   —   —   —   —   —   —   —   44 
Total $3,819  $84  $—  $—  $—  $—  $1,467  $745  $—  $6,115 

The following table describes the non-performing loans, net of allowance for loan losses and fair value adjustments, by the geographic location as of DecemberMarch 31, 2018:2019:
(In Thousands)Inland Empire
Southern
California (1)
Other
California (2)
Other StatesTotal
Mortgage loans:     
   Single-family$1,874 $2,141 $1,255 $— $5,270 
   Construction —  745  —  —  745 
Commercial business loans47 — — — 47 
Total$1,921 $2,886 $1,255 $— $6,062 
(In Thousands) Inland Empire  
Southern
California (1)
  
Other
California (2)
  Other States  Total 
Mortgage loans:               
Single-family $1,892  $2,110  $1,324  $—  $5,326 
Construction  —   745   —   —   745 
Commercial business loans  44   —   —   —   44 
Total $1,936  $2,855  $1,324  $—  $6,115 

(1)
Other than the Inland Empire.
(2)
Other than the Inland Empire and Southern California.

75
The following table summarizes classified assets, which is comprised of classified loans, net of allowance for loan losses and fair value adjustments, and real estate owned at the dates indicated:
 
At December 31,
2018
 
At June 30,
2018
(Dollars In Thousands)BalanceCount BalanceCount
Special mention loans:     
Mortgage loans:     
    Single-family$1,400 6  $2,584 8 
    Multi-family3,906 3  3,947 3 
    Commercial real estate— —  940 1 
         Total special mention loans5,306 9  7,471 12 
      
Substandard loans:     
Mortgage loans:     
    Single-family6,695 23  7,391 24 
    Construction745 1  — — 
Commercial business loans47 1  64 1 
         Total substandard loans7,487 25  7,455 25 
      
Total classified loans12,793 34  14,926 37 
      
Real estate owned:     
    Single-family— —  906 2 
         Total real estate owned— —  906 2 
      
Total classified assets$12,793 34  $15,832 39 
  
At March 31,
2019
  
At June 30,
2018
 
(Dollars In Thousands) Balance  Count  Balance  Count 
Special mention loans:            
Mortgage loans:            
     Single-family $3,347   12  $2,584   8 
     Multi-family  3,885   3   3,947   3 
     Commercial real estate  —   —   940   1 
          Total special mention loans  7,232   15   7,471   12 
                 
Substandard loans:                
Mortgage loans:                
     Single-family  6,751   23   7,391   24 
     Construction  745   1   —   — 
     Commercial business loans  44   1   64   1 
          Total substandard loans  7,540   25   7,455   25 
                 
Total classified loans  14,772   40   14,926   37 
                 
Real estate owned:                
     Single-family  —   —   906   2 
          Total real estate owned  —   —   906   2 
                 
Total classified assets $14,772   40  $15,832   39 


75
76

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 sixnine months indicated:
 
For the Quarters Ended
December 31,    
  
For the Six Months Ended
December 31,    
   
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
(In Thousands)   2018   2017   2018   2017   2019  2018  2019  2018 
Loans originated for sale:                          
Retail originations$87,913 $183,787 $215,046 $397,088   $72,353  $129,816  $287,399  $526,904 
Wholesale originations58,504 148,077 127,692 327,068    38,353   90,377   166,045   417,445 
Total loans originated for sale (1)
146,417 331,864 342,738 724,156    110,706   220,193   453,444   944,349 
                     
Loans sold:                     
Servicing released(165,484)(351,720)(376,534)(725,183)   (134,264)  (220,532)  (510,798)  (945,715)
Servicing retained(2,026)(9,660)(2,784)(17,248)   (2,409)  (5,326)  (5,193)  (22,574)
Total loans sold (2)
(167,510)(361,380)(379,318)(742,431)   (136,673)  (225,858)  (515,991)  (968,289)
                     
Loans originated for investment:                     
Mortgage loans:                     
Single-family24,180 12,362 41,396 39,698    6,862   22,665   48,258   62,363 
Multi-family5,446 9,473 18,155 21,667    9,523   18,612   27,678   40,279 
Commercial real estate3,175 8,478 8,480 12,970    4,040   5,930   12,520   18,900 
Construction1,863 1,475 3,343 2,409    1,970   2,050   5,313   4,459 
Consumer loans— 2 — 3    —   —   —   3 
Total loans originated for investment (3)
34,664 31,790 71,374 76,747    22,395   49,257   93,769   126,004 
                     
Loans purchased for investment:                     
Mortgage loans:                     
Single-family  8,426   —   8,426   — 
Multi-family4,622 2,241 4,622 2,241    12,023   —   16,645   2,241 
Commercial real estate— 868 — 868    1,157   —   1,157   868 
Total loans purchased for investment (3)
4,622 3,109 4,622 3,109    21,606   —   26,228   3,109 
                     
Mortgage loan principal payments(41,163)(57,390)(104,092)(100,751)   (36,456)  (43,163)  (140,548)  (143,914)
Real estate acquired in settlement of loans— (700)— (700)   —   (959)  —   (1,659)
Increase (decrease) in other items, net (4)
60 (22)(1,332)968  
(Decrease) increase in other items, net (4)
  (499)  1,955   (1,831)  2,923 
                     
Net decrease in loans held for investment and loans held for
sale at fair value
$(22,910)$(52,729)$(66,008)$(38,902) 
Net (decrease) increase in loans held for investment and
loans held for sale at fair value
 $(18,921) $1,425  $(84,929) $(37,477)

(1)
Includes PBM loans originated for sale during the quarters and sixnine months ended DecemberMarch 31, 2019 and 2018 and 2017 totaling $146.4$110.7 million, $331.9$220.2 million, $342.7$453.4 million and $724.2$944.3 million, respectively.
(2)
Includes PBM loans sold during the quarters and sixnine months ended DecemberMarch 31, 2019 and 2018 and 2017 totaling $167.5$136.7 million, $361.4$225.9 million, $379.3$516.0 million and $742.4$968.3 million, respectively.
(3)
Includes PBM loans originated and purchased for investment during the quarters and sixnine months ended DecemberMarch 31, 2019 and 2018 and 2017 totaling $24.1$4.0 million, $12.4$20.6 million, $40.0$44.0 million and $37.8$58.4 million, respectively.
(4)
Includes net changes in undisbursed loan funds, deferred loan fees or costs, allowance for loan losses, fair value of loans held for investment, fair value of loans held for sale, advance payments of escrows and repurchases.

76
77
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 primary sources of funds are deposits, proceeds from the sale of loans originated 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 sixnine months of fiscal 2019 and 2018, the Corporation originated and purchased $418.7$573.4 million and $804.0 million$1.07 billion of loans, respectively.  The total loans sold in the first sixnine months of fiscal 2019 and 2018 were $379.3$516.0 million and $742.4$968.3 million, respectively.  At DecemberMarch 31, 2018,2019, the Corporation had loan origination commitments totaling $34.6$16.6 million, undisbursed lines of credit totaling $2.0$1.4 million and undisbursed construction loan funds totaling $5.7$6.1 million.  The Corporation anticipates that it will have sufficient funds available to meet its current loan commitments.

The Corporation's primary financing activity is gathering deposits.  During the first sixnine months of fiscal 2019, the net decrease in deposits was $34.7$30.7 million or fourthree percent, primarily due to non-renewing scheduled maturities in time deposits. The decrease in time deposits was consistent with the Corporation's operating strategy. Time deposits decreased $13.9$27.4 million, or six12 percent, to $223.7$210.2 million at DecemberMarch 31, 20182019 from $237.6 million at June 30, 2018.  At DecemberMarch 31, 2018,2019, time deposits with a principal amount of $250,000 or less and scheduled to mature in one year or less were $98.7$93.5 million and total time deposits with a principal amount of more than $250,000 and scheduled to mature in one year or less were $23.5$22.8 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 DecemberMarch 31, 2018,2019, total cash and cash equivalents were $67.4$61.5 million, or sixfive 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 DecemberMarch 31, 2018,2019, total borrowings were $111.1$101.1 million and the financing availability at FHLB – San Francisco was limited to 35 percent of total assets; the remaining borrowing facility was $281.5$280.9 million and the remaining available collateral was $490.2$485.7 million. In addition, the Bank has secured a $67.4an $80.5 million discount window facility at the Federal Reserve Bank of San Francisco, collateralized by investment securities with a fair market value of $71.7$85.6 million.  As of DecemberMarch 31, 2018,2019, 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, 2019 which the Bank intends to renew upon maturity.  The Bank had no advances under its correspondent bank or discount window facility as of DecemberMarch 31, 2018.2019.

77
78

Regulations require thrifts to maintain adequate liquidity to assure safe and sound operations. The Bank's average liquidity ratio (defined as the ratio of average qualifying liquid assets to average deposits and borrowings) for the quarter ended DecemberMarch 31, 20182019 increased to 15.922.6 percent from 14.9 percent for the quarter ended June 30, 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 DecemberMarch 31, 2018, Provident Financial Holdings, Inc. and2019, the Bank each exceeded all regulatory capital requirements.  The Bank was categorized "well-capitalized" at DecemberMarch 31, 20182019 under the regulations of the OCC.
78

As a bank holding company registered with the Federal Reserve, Provident Financial Holdings, Inc. is subject to the capital adequacy requirements of the Federal Reserve. For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis, and the Federal Reserve expects the holding company's subsidiary bank to be well capitalized under the prompt corrective action regulations. If Provident Financial Holdings, Inc. were subject to regulatory capital guidelines for bank holding companies with $3.0 billion or more in assets at March 31, 2019, Provident Financial Holdings, Inc. would have exceeded all regulatory capital requirements.  The regulatory capital ratios calculated for Provident Financial Holdings, Inc. at March 31, 2019 were 10.81% for Tier 1 leverage-based capital, 18.32% for Tier 1 risk-based capital, 19.42% for total risk-based capital, and 18.32% for common equity Tier 1 ("CET1") capital ratio.

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(1)
  
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, 2018                 
Tier 1 leverage capital (to adjusted average assets)$122,485  10.72%  $45,685  4.00%  $57,106  5.00% 
Common Equity Tier 1 ("CET1") capital (to risk-
weighted assets)
$122,485  18.48%  $42,257  
 
6.38
%  $43,085  6.50% 
Tier 1 capital (to risk-weighted assets)$122,485  18.48%  $52,199  7.88%  $53,028  8.00% 
Total capital (to risk-weighted assets)$129,696  19.57%  $65,456  9.88%  $66,285  10.00% 
                 
As of June 30, 2018              
Tier 1 leverage capital (to adjusted assets)$120,218  10.29%  $46,719  4.00%  $58,399  5.00% 
CET1 capital (to risk-weighted assets)$120,218  17.37%  $44,132  6.38%  $44,998  6.50% 
Tier 1 capital (to risk-weighted assets)$120,218  17.37%  $54,516  7.88%  $55,382  8.00% 
Total capital (to risk-weighted assets)$127,760  18.46%  $68,362  9.88%  $69,227  10.00% 
              
Provident Savings Bank, F.S.B.:                                
                                
As of December 31, 2018              
As of March 31, 2019                  
Tier 1 leverage capital (to adjusted average assets)$113,792  9.96%  $45,684  4.00%  $57,105  5.00% Tier 1 leverage capital (to adjusted average assets)$113,906   10.17% $44,779   4.00% $55,974   5.00%
CET1 capital (to risk-weighted assets)$113,792  17.17%  $42,256  6.38%  $43,085  6.50%  $113,906   17.24% $46,240   7.00% $42,937   6.50%
Tier 1 capital (to risk-weighted assets)$113,792  17.17%  $52,199  7.88%  $53,027  8.00%  $113,906   17.24% $56,148   8.50% $52,845   8.00%
Total capital (to risk-weighted assets)$121,003  18.26%  $65,456  9.88%  $66,284  10.00%  $121,137   18.34% $69,359   10.50% $66,057   10.00%
                                      
As of June 30, 2018                                      
Tier 1 leverage capital (to adjusted assets)$116,369  9.96%  $46,716  4.00%  $58,394  5.00% 
Tier 1 leverage capital (to adjusted average assets)Tier 1 leverage capital (to adjusted average assets)$116,369   9.96% $46,716   4.00% $58,394   5.00%
CET1 capital (to risk-weighted assets)$116,369  16.81%  $44,125  6.38%  $44,990  6.50%  $116,369   16.81% $44,125   6.38% $44,990   6.50%
Tier 1 capital (to risk-weighted assets)$116,369  16.81%  $54,507  7.88%  $55,372  8.00%  $116,369   16.81% $54,507   7.88% $55,372   8.00%
Total capital (to risk-weighted assets)$123,911  17.90%  $68,350  9.88%  $69,215  10.00%  $123,911   17.90% $68,350   9.88% $69,215   10.00%
(1)
The dollar amounts and ratios include the capital conservation buffer of 2.50% and 1.875% of risk-weighted assets at March 31, 2019 and June 30, 2018, respectively, except the Tier 1 leverage capital dollar amounts and ratios.
In addition to the minimum CET1, Tier 1 and total capital ratios, Provident Financial Holdings, Inc. and the Bank will haveis required to maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This requirement began to be phased in on January 1, 2016 at an amount more than 0.625 percent of risk-weighted assets and increased each year to an amount more than to 2.5 percent of risk-weighted assets when fully implemented on January 1, 2019. As of DecemberMarch 31, 2018,2019, the Bank's capital conservation buffer was an amount more than 1.875%.10.34% as filed in the Call Report with the OCC.

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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 sixnine months of fiscal 2019, the Bank paid a cash dividend of $7.5 million to the Corporation; while the Corporation paid $2.1$3.1 million of cash dividends to its shareholders.

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Supplemental Information
At
December 31,
2018
At
June 30,
2018
At
December 31,
2017
 
At
March 31,
2019
  
At
June 30,
2018
  
At
March 31,
2018
 
            
Loans serviced for others (in thousands)$123,294$128,409$127,088 $123,049  $128,409  $128,060 
               
Book value per share$16.34$16.23$16.15 $16.17  $16.23  $16.16 


ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk.

One of the Corporation's principal financial objectives is to achieve long-term profitability while reducing its exposure to fluctuating interest rates.  The Corporation has sought to reduce the exposure of its earnings to changes in interest rates by attempting to manage the repricing mismatch between interest-earning assets and interest-bearing liabilities.  The principal element in achieving this objective is to increase the interest-rate sensitivity of the Corporation's interest-earning assets by retaining for its portfolio new loan originations with interest rates subject to periodic adjustment to market conditions 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 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") 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 -200, -100, +100, +200 +300 and +400+300 basis points ("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 2.50 percent making an immediate change of -200 and -300 basis points improbable.

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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 DecemberMarch 31, 20182019 (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)
+400 bp$ 241,427 $123,479 $ 1,229,892 19.63% +921 bp
+300 bp$ 216,894 $        98,946 $ 1,211,292 17.91%  +749 bp
+200 bp$ 188,062 $          70,114 $ 1,188,611 15.82%  +540 bp
+100 bp$ 154,714 $          36,766 $ 1,161,806 13.32%   +290 bp
      0 bp$ 117,948 $— $ 1,131,645 10.42%  0 bp
-100 bp$ 110,957 $(6,991)$ 1,124,294 9.87% -55 bp
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)
 
 +300bp $221,787 $98,304 $1,210,431  18.32%  +740bp 
 +200bp $192,959 $69,476 $1,187,516  16.25%  +533bp 
 +100bp $159,617 $36,134 $1,160,287  13.76%  +284bp 
 0bp $123,483 $— $1,130,483  10.92%  0bp 
 -100bp $113,761 $(9,722 $1,121,186  10.15%  -77bp 
 -200bp $127,904 $4,421 $1,135,758  11.26%  +34bp 

(1)
Represents the increase (decrease) of the NPV at the indicated interest rate change in comparison to the NPV at DecemberMarch 31, 20182019 ("base case").
(2)
Derived from the NPV divided by the portfolio value of total assets.
(3)
Derived from 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 DecemberMarch 31, 20182019 and June 30, 2018.
At December 31, 2018At June 30, 2018At March 31, 2019At June 30, 2018
(-100 bp rate shock)(-100 bp rate shock)(-100 bp rate shock)(-100 bp rate shock)
Pre-Shock NPV Ratio: NPV as a % of PV Assets10.42%  10.24%10.92%10.24%
Post-Shock NPV Ratio: NPV as a % of PV Assets9.87%9.62%10.15%9.62%
Sensitivity Measure: Change in NPV Ratio-55 bp-62 bp-77 bp-62 bp

The pre-shock NPV ratio increased 1868 basis points to 10.4210.92 percent at DecemberMarch 31, 20182019 from 10.24 percent at June 30, 2018 and the post-shock NPV ratio increased 2553 basis points to 9.8710.15 percent at DecemberMarch 31, 20182019 from 9.62 percent at June 30, 2018.  The increase of the NPV ratios was primarily attributable to net income in the first sixnine months of fiscal 2019 and a higher net valuation of total assets in comparison to total liabilities, partly offset by a $7.5 million cash dividend distribution from the Bank to the CorporationProvident Financial Holdings, Inc. 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 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.

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

The following table represents the interest rate gap analysis of the Corporation's assets and liabilities as of DecemberMarch 31, 2018:2019:
   
Term to Contractual Repricing, Estimated Repricing, or Contractual
Maturity (1)
   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
   (Dollars In thousands)
Repricing Assets:     
 Cash and cash equivalents$61,030 $— $— $6,329 $67,359 
 Investment securities38,848 — — 52,705 91,553 
 Loans held for investment278,915 229,289 277,651 89,558 875,413 
 Loans held for sale57,562 — — — 57,562 
 FHLB - San Francisco stock8,199 — — — 8,199 
 Other assets3,156 — — 23,928 27,084 
  Total assets447,710 229,289 277,651 172,520 1,127,170 
        
Repricing Liabilities and Equity:     
 Checking deposits - non-interest bearing— — — 78,866 78,866 
 Checking deposits - interest bearing38,482 76,965 76,965 64,137 256,549 
 Savings deposits55,429 110,858 110,858 — 277,145 
 Money market deposits18,314 18,313 — — 36,627 
 Time deposits122,217 76,853 23,694 933 223,697 
 Borrowings10,000 31,135 30,000 40,000 111,135 
 Other liabilities346 — — 20,128 20,474 
 Stockholders' equity— — — 122,677 122,677 
  Total liabilities and stockholders' equity244,788 314,124 241,517 326,741. 1,127,170 
        
Repricing gap positive (negative)$202,922 $(84,835)$36,134 $(154,221)$— 
Cumulative repricing gap:     
 Dollar amount$202,922 $118,087 $154,221 $— $— 
 Percent of total assets18%10%14%—%—%
  
Term to Contractual Repricing, Estimated Repricing, or Contractual
Maturity (1)
 
  As of March 31, 2019 
(Dollars In Thousands) 
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 
    
Repricing Assets:               
Cash and cash equivalents $54,980  $—  $—  $6,478  $61,458 
Investment securities  34,768   200   —   73,836   108,804 
Loans held for investment  272,770   233,125   284,781   92,878   883,554 
Loans held for sale  30,500   —   —   —   30,500 
FHLB - San Francisco stock  8,199   —   —   —   8,199 
Other assets  3,387   —   —   23,493   26,880 
Total assets  404,604   233,325   284,781   196,685   1,119,395 
                     
Repricing Liabilities and Equity:                    
Checking deposits - non-interest bearing  —   —   —   90,875   90,875 
Checking deposits - interest bearing  40,447   80,894   80,894   67,413   269,648 
Savings deposits  54,394   108,788   108,789   —   271,971 
Money market deposits  17,115   17,114   —   —   34,229 
Time deposits  116,331   69,668   23,446   716   210,161 
Borrowings  —   41,121   40,000   20,000   101,121 
Other liabilities  335   —   —   19,846   20,181 
Stockholders' equity  —   —   —   121,209   121,209 
Total liabilities and stockholders' equity  228,622   317,585   253,129   320,059   1,119,395 
                     
Repricing gap positive (negative) $175,982  $(84,260) $31,652  $(123,374) $— 
Cumulative repricing gap:                    
Dollar amount $175,982  $91,722  $123,374  $—  $— 
Percent of total assets  16%  8%  11%  —%  —%

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

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

The gap results presented above could vary substantially if different assumptions are used or if actual experience differs from the assumptions used in the preparation of the gap analysis.  Furthermore, the gap analysis provides a static view of interest rate risk exposure at a specific point in time without taking into account redirection of cash flows activity and deposit fluctuations.

The extent to which the net interest margin will be impacted by changes in prevailing interest rates will depend on a number of factors, including how quickly interest-earning assets and interest-bearing liabilities react to interest rate changes. It is not uncommon for rates on certain assets or liabilities to lag behind changes in the market rates of interest.  Additionally, prepayments of loans and early withdrawals of 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 rates of interest on net interest income is likely to be different from that predicted solely on the basis of the interest rate sensitivity analysis set forth in the previous table.

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

The Corporation's current balance sheet and repricing characteristics;
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 and 200 basis points.  

The following table describes the results of the analysis at DecemberMarch 31, 20182019 and June 30, 2018.
At December 31, 2018 At June 30, 2018
At March 31, 2019At March 31, 2019 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 bp7.56% +400 bp7.84%
+300 bp6.74% +300 bp6.83%6.50% +300 bp6.83%
+200 bp5.80% +200 bp5.73%6.04% +200 bp5.73%
+100 bp4.53% +100 bp4.53%5.00% +100 bp4.53%
-100 bp(6.02)% -100 bp(3.98)%(5.86)% -100 bp(3.98)%
-200 bp(12.21)% -200 bp(10.61)%

At DecemberMarch 31, 20182019 and June 30, 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, in a rising interest rate environment, the model projects an increase in net interest income over the subsequent 12-month period.  In a falling interest rate environment, the 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
 
83
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 current disclosure to previous disclosures, over time, within the context of the actual performance of the treasury yield curve.


ITEM 4 – Controls and Procedures.

a) An evaluation of the Corporation's disclosure controls and procedures (as defined in Section 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934 (the "Act")) was carried out under the supervision and with the participation of the Corporation's Chief Executive Officer, Chief Financial Officer and the Corporation's Disclosure Committee as of the end of the period covered by this quarterly report.  In designing and evaluating the Corporation's disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.  Also, because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected.  Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Based on their evaluation, the Corporation's Chief Executive Officer and Chief Financial Officer concluded that the Corporation's disclosure controls and procedures as of DecemberMarch 31, 20182019 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 management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

b) There have been no changes in the Corporation's internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended DecemberMarch 31, 2018,2019, that has materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting.  The Corporation does not expect that its internal control over financial reporting will prevent all error and all fraud.  A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met.  Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.  The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.


84

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings.

There have been no material changes in the legal proceedings previously disclosed in Part I, Item 3 of the Corporation's Annual Report on Form 10-K for the year ended June 30, 2018, except as follows.

On November 13, 2018, the United States Districtpresiding Court for the Eastern District of California (the "Court") approved the motion for final approval of the settlement agreement in the two class and collective action lawsuits filed by Gina McKeen-Chaplin individually and on behalf of others and Neal, respectively, against the Bank.  The settlement funds have been distributed to the plaintiffs and plaintiff's counsel consistent with the settlement agreements.  TheOn April 8, 2019, the presiding Court set a compliance hearing for January 30, 2019 at which timesigned an order closing and dismissing the court will consider evidence that the distribution process is complete and that a final accounting may be approved.cases.

The long-form settlement agreement has been executed by all parties forOn December 20, 2018, counsel in the lawsuit known as Cannon versusvs. the Bank but remains subject to approvalfiled a Motion for Preliminary Approval of the Settlement in the California Superior Court for the County of San Bernardino. A hearing date has been set for February 8,On April 12, 2019, regardingthis Court granted preliminary approval of the settlement of this matter.and set a tentative date for a hearing on final approval for July 24, 2019, which presumes the notice and claim process will be completed by then.


Item 1A.  Risk Factors.

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, 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 pretaxpre-tax losses from the mortgage banking segment of $1.6 million (based on the second quarter of fiscal 2019) and wefurther anticipate increases in our pre-tax income in our community banking segment of $1.2 million per quarter as a result of this change,the discontinuation of the mortgage banking business, no assurance can be given as to when or whether we will realize this benefit.these benefits.


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

The table below represents the Corporation's purchases of its equity securities for the secondthird quarter of fiscal 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, 2018505 $17.01— 373,000 
November 1 – 30, 2018— $—— 373,000 
December 1 – 31, 2018— $—— 373,000 
Total505 $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)
January 1 – 31, 2019  —  $—   —   373,000 
February 1 – 28, 2019  11,941  $18.69   11,941   361,059 
March 1 – 31, 2019  11,807  $20.05   11,807   349,252 
Total  23,748  $19.36   23,748   349,252 

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

85

During the quarter and nine months ended March 31, 2019, the Corporation purchased 23,748 shares of the Corporation's common stock at an average cost of $19.36 per share. As of DecemberMarch 31, 2018, no2019, a total of 23,748 shares or six percent of the shares authorized in the April 2018 stock repurchase plan have been purchased at an average cost of $19.36 per share, leaving all 373,000349,252 shares available for future purchases. During the quarter ended DecemberMarch 31, 2018,2019, the Corporation issued 5,00011,250 shares of common stock consistent the exercise of certain stock options and 1,5003,000 shares of restricted common stock vested. The Company purchased 505did not purchase any shares at an average price of $17.01 per share from recipients to fund their withholding tax obligations in the secondthird quarter of fiscal 2019. For the sixnine months ended DecemberMarch 31, 2018,2019, the Corporation issued 20,00031,250 shares of common stock consistent with the exercise of certain stock options and 86,50089,500 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 sixnine months of fiscal 2019. During the quarter and sixnine months ended DecemberMarch 31, 2018,2019, 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)
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 (b)
Amended and Restated Bylaws of Provident Financial Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the 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 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 Form 8-K dated December 19, 2005)
86
  
10.3
Post-Retirement Compensation Agreement with Donavon P. Ternes (incorporated by reference to Exhibit 10.1 to the Corporation's Form 8-K dated July 7, 2009)
86
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 Form 8-K dated February 24, 2012)
  
10.5
2006 Equity Incentive Plan (incorporated by reference to Exhibit A to the 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 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 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 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 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 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 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 Form 8-K dated November 30, 2010)
  
10.13
2013 Equity Incentive Plan (incorporated by reference to Exhibit A to the 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 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 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 Registration Statement on Form S-8 (333-192727) dated December 9, 2013)
87
  
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
87
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
  
101The following materials from the Corporation's Quarterly Report on Form 10-Q for the quarter ended DecemberMarch 31, 2018,2019, 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' Equity; (5) Condensed Consolidated Statements of Cash Flows; and (6) Selected Notes to Condensed Consolidated Financial Statements.
  

88
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,May 9, 2019
/s/ Craig G. Blunden
 Craig G. Blunden
 
Chairman and Chief Executive Officer
(Principal Executive Officer)
  
  
  
Date: February 8,May 9, 2019
/s/ Donavon P. Ternes
 Donavon P. Ternes
 
President, Chief Operating Officer and
Chief Financial Officer
(Principal Financial and Accounting Officer)

89
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 Quarterly Report on Form 10-Q for the quarter ended DecemberMarch 31, 2018,2019, 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' Equity; (5) Condensed Consolidated Statements of Cash Flows; and (6) Selected Notes to Condensed Consolidated Financial Statements.