Table of Contents

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

December 31, 2020

September 30, 2021


[     ]

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


For the transition period from ________________ to _________________


Commission File Number 000-28304

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)

(I.R.S. Employer
Identification No.)


3756 Central Avenue, Riverside, California 92506

(Address of principal executive offices and zip code)


(951) 686-6060

(Registrant’s telephone number, including area code)


_________________________________________________________

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


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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

PROV

PROV

The NASDAQ Stock Market LLC


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


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


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


Large accelerated filer [  ]                                                                           Accelerated filer [  ]   
Non-accelerated filer [X]                                                                            Smaller reporting company[X]                    
                                                                                                                       Emerging growth company [  ]

Large accelerated filer 

Accelerated filer  

Non-accelerated filer 

Smaller reporting company

Emerging growth company

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


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

Yes  [X]  No


APPLICABLE ONLY TO CORPORATE ISSUERS


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of JanuaryOctober 31, 2021 there were 7,442,2547,452,812 shares of the registrant's common stock, $0.01 par value per share, outstanding.




Table of Contents

PROVIDENT FINANCIAL HOLDINGS, INC.

Table of Contents

PART 1  -

FINANCIAL INFORMATION

Page

ITEM 1  -

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

Condensed Consolidated Statements of Financial Condition


as of December 31, 2020September 30, 2021 and June 30, 20202021

1

Condensed Consolidated Statements of Operations


for the Quarter Ended September 30, 2021 and Six Months Ended December 31, 2020 and 2019

2

Condensed Consolidated Statements of Comprehensive Income


for the Quarter Ended September 30, 2021 and Six Months Ended December 31, 2020 and 2019

3

Condensed Consolidated Statements of Stockholders’ Equity


for the Quarter Ended September 30, 2021 and Six Months Ended December 31, 2020 and 2019

4

Condensed Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 2021 and 2020

5

for the Six Months Ended December 31, 2020 and 20196

Notes to Unaudited Interim Condensed Consolidated Financial Statements

7

6

ITEM 2  -

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

General

40

29

Safe-Harbor Statement

41

30

Critical Accounting Policies

42

31

Executive Summary and Operating Strategy

43

32

Off-Balance Sheet Financing Arrangements

46

33

Comparison of Financial Condition at December 31, 2020September 30, 2021 and June 30, 20202021

46

33

48

35

Asset Quality

58

39

Loan Volume Activities

62

42

Liquidity and Capital Resources

62

42

Supplemental Information

64

44

ITEM 3  -

Quantitative and Qualitative Disclosures about Market Risk

65

44

ITEM 4  -

Controls and Procedures

69

48

PART II  -

OTHER INFORMATION

ITEM 1  -

Legal Proceedings

69

48

ITEM 1A -

Risk Factors

70

49

ITEM 2  -

Unregistered Sales of Equity Securities and Use of Proceeds

70

49

ITEM 3  -

Defaults Upon Senior Securities

70

49

ITEM 4  -

Mine Safety Disclosures

70

49

ITEM 5  -

Other Information

71

49

ITEM 6  -

Exhibits

71

50

SIGNATURES

72

51




Table of Contents

.

PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Financial Condition

(Unaudited)

In Thousands, Except Share Information


 December 31,
 2020
June 30,
 2020
Assets  
    Cash and cash equivalents$74,001 $116,034 
    Investment securities – held to maturity, at cost203,098 118,627 
    Investment securities – available for sale, at fair value4,158 4,717 
    Loans held for investment, net of allowance for loan losses of
    $8,538 and $8,265, respectively; includes $1,972 and $2,258 at fair value, respectively
855,086 902,796 
    Accrued interest receivable3,126 3,271 
    Federal Home Loan Bank (“FHLB”) – San Francisco stock7,970 7,970 
    Premises and equipment, net9,980 10,254 
    Prepaid expenses and other assets13,308 13,168 
   
  
            Total assets$1,170,727 $ 1,176,837 
   
Liabilities and Stockholders’ Equity  
   
Liabilities:  
    Non interest-bearing deposits$109,609 $118,771 
    Interest-bearing deposits800,359 774,198 
            Total deposits909,968 892,969 
   
    Borrowings116,015 141,047 
    Accounts payable, accrued interest and other liabilities19,760 18,845 
            Total liabilities1,045,743 1,052,861 
   
Commitments and Contingencies  (Notes 6 and 10)  
   
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;
    18,097,615 and 18,097,615 shares issued; 7,442,254 and
    7,436,315 shares outstanding, respectively)
181 181 
    Additional paid-in capital96,164 95,593 
    Retained earnings194,923 194,345 
    Treasury stock at cost (10,655,361 and 10,661,300 shares, respectively)(166,364)(166,247)
    Accumulated other comprehensive income, net of tax80 104 
   
            Total stockholders’ equity124,984 123,976 
   
            Total liabilities and stockholders’ equity$1,170,727 $1,176,837 

September 30, 

June 30, 

(In Thousands, Except Share Information)

2021

    

2021

Assets

Cash and cash equivalents

$

88,249

$

70,270

Investment securities - held to maturity, at cost

 

205,821

 

223,306

Investment securities - available for sale, at fair value

 

3,316

 

3,587

Loans held for investment, net of allowance for loan losses $7,413 and $7,587, respectively; includes $1,577 and $1,874 at fair value, respectively

 

859,035

 

850,960

Accrued interest receivable

 

2,909

 

2,999

Federal Home Loan Bank (“FHLB”) - San Francisco stock

 

8,155

 

8,155

Premises and equipment, net

 

9,014

 

9,377

Prepaid expenses and other assets

 

15,782

 

14,942

 

 

Total assets

$

1,192,281

$

1,183,596

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

Liabilities:

 

 

Non interest-bearing deposits

$

120,883

$

123,179

Interest-bearing deposits

 

835,859

 

814,794

Total deposits

 

956,742

 

937,973

 

 

Borrowings

 

90,000

 

100,983

Accounts payable, accrued interest and other liabilities

 

17,304

 

17,360

Total liabilities

 

1,064,046

 

1,056,316

 

 

Commitments and Contingencies (Note 14)

 

 

 

 

Stockholders’ equity:

 

 

Preferred stock, $0.01 par value (2,000,000 shares authorized; NaN issued and outstanding)

 

 

Common stock, $.01 par value; (40,000,000 and 40,000,000 shares authorized; 18,229,615 and 18,229,615 shares issued respectively; 7,491,705 and 7,541,469 outstanding, respectively)

 

183

 

183

Additional paid-in capital

 

98,179

 

97,978

Retained earnings

 

199,344

 

197,733

Treasury stock at cost (10,737,910 and 10,688,146 shares, respectively)

 

(169,537)

 

(168,686)

Accumulated other comprehensive income, net of tax

 

66

 

72

 

 

Total stockholders’ equity

 

128,235

 

127,280

 

 

Total liabilities and stockholders’ equity

$

1,192,281

$

1,183,596

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

1


Table of Contents

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,
 2020201920202019
Interest income:    
    Loans receivable, net$8,344 $10,320 $17,261 $20,395 
    Investment securities448 567 926 1,181 
    FHLB – San Francisco stock100 145 200 288 
    Interest-earning deposits17 189 41 435 
    Total interest income8,909 11,221 18,428 22,299 
     
Interest expense:    
    Checking and money market deposits79 117 170 227 
    Savings deposits54 131 132 265 
    Time deposits335 530 717 1,062 
    Borrowings803 804 1,605 1,524 
    Total interest expense1,271 1,582 2,624 3,078 
     
Net interest income7,638 9,639 15,804 19,221 
Provision (recovery) for loan losses39 (22)259 (203)
Net interest income, after provision (recovery) for loan losses7,599 9,661 15,545 19,424 
     
Non-interest income:    
    Loan servicing and other fees120 367 525 500 
    Deposit account fees329 451 639 898 
    Card and processing fees368 371 732 761 
    Other157 155 237 255 
    Total non-interest income974 1,344 2,133 2,414 
     
Non-interest expense:    
    Salaries and employee benefits4,301 4,999 8,744 9,984 
    Premises and occupancy865 880 1,768 1,758 
    Equipment273 262 548 541 
    Professional expenses402 331 816 739 
    Sales and marketing expenses227 212 340 329 
    Deposit insurance premiums and regulatory assessments141 59 275 43 
    Other707 811 1,410 1,398 
    Total non-interest expense6,916 7,554 13,901 14,792 
     
Income before income taxes1,657 3,451 3,777 7,046 
Provision for income taxes481 1,053 1,116 2,086 
    Net income$1,176 $2,398 $2,661 $4,960 
     
Basic earnings per share$0.16 $0.32 $0.36 $0.66 
Diluted earnings per share$0.16 $0.31 $0.36 $0.65 
Cash dividends per share$0.14 $0.14 $0.28 $0.28 

Quarter Ended

September 30, 

(In Thousands, Except Per Share Information)

    

2021

2020

    

Interest income:

  

Loans receivable, net

$

8,175

  

$

8,917

Investment securities

 

418

  

 

478

FHLB - San Francisco stock

 

122

  

 

100

Interest-earning deposits

 

31

  

 

24

Total interest income

 

8,746

  

 

9,519

 

Interest expense:

 

Checking and money market deposits

57

91

Savings deposits

41

78

Time deposits

215

382

Borrowings

 

545

  

 

802

Total interest expense

 

858

  

 

1,353

 

Net interest income

 

7,888

  

 

8,166

(Recovery) provision for loan losses

 

(339)

  

 

220

Net interest income, after (recovery) provision for loan losses

 

8,227

  

 

7,946

 

Non-interest income:

 

Loan servicing and other fees

 

186

  

 

405

Deposit account fees

 

312

  

 

310

Card and processing fees

 

405

  

 

364

Other

 

166

  

 

80

Total non-interest income

 

1,069

  

 

1,159

 

Non-interest expense:

 

Salaries and employee benefits(1)

 

3,120

  

 

4,443

Premises and occupancy

 

905

  

 

903

Equipment expense

 

288

  

 

275

Professional expense

 

461

  

 

414

Sales and marketing expense

 

142

  

 

113

Deposit insurance premium and regulatory assessments

 

137

  

 

134

Other

 

615

  

 

703

Total non-interest expense

 

5,668

  

 

6,985

 

Income before income taxes

 

3,628

  

 

2,120

Provision for income taxes

 

961

  

 

635

Net income

$

2,667

  

$

1,485

 

Basic earnings per share

$

0.35

  

$

0.20

Diluted earnings per share

$

0.35

  

$

0.20

Cash dividends per share

$

0.14

  

$

0.14

(1)Includes a $1.2 million credit from the Employee Retention Tax Credit for the quarter ended September 30, 2021.

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


2

2

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PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

In Thousands


 For the Quarter Ended
 December 31,
For the Six Months Ended
 December 31,
 2020201920202019
Net income$1,176 $2,398 $2,661 $4,960 
     
Change in unrealized holding loss on securities available for sale(27)(21)(34)(40)
Reclassification adjustment for net loss on securities available
  for sale included in net loss
    
Other comprehensive loss, before income taxes(27)(21)(34)(40)
     
Income tax benefit(8)(6)(10)(12)
Other comprehensive loss(19)(15)(24)(28)
     
Total comprehensive income$1,157 $2,383 $2,637 $4,932 







For the Quarter Ended

September 30, 

(In Thousands)

    

2021

    

2020

    

Net income

$

2,667

  

$

1,485

 

Change in unrealized holding losses on securities available for sale and interest-only strips

 

(9)

  

 

(7)

Reclassification of losses to net income

 

0

  

 

0

Other comprehensive loss, before income tax benefit

 

(9)

  

 

(7)

Income tax benefit

 

(3)

  

 

(2)

Other comprehensive loss

 

(6)

  

 

(5)

Total comprehensive income

$

2,661

  

$

1,480

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


3

3

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PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

In Thousands, Except Share Information


For the Quarter Ended December 31, 2020September 30, 2021 and 2019:

 
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
 
 SharesAmountTotal
Balance at September 30, 20207,441,259 $181 $95,948 $194,789 $(166,358)$99 $124,659 
        
Net income   1,176   1,176 
Other comprehensive loss     (19)(19)
Purchase of treasury stock (1)
(505)   (6) (6)
Distribution of restricted stock1,500         
Amortization of restricted stock  200    200 
Stock options expense  16    16 
Cash dividends (2)
   (1,042)  (1,042)
        
Balance at December 31, 20207,442,254 $181 $96,164 $194,923 $(166,364)$80 $124,984 

2020:

    

    

    

    

    

    

Accumulated 

    

    

Other 

 

Common 

Additional 

Comprehensive 

 

Stock

Paid-In

Retained

Treasury

Income (Loss),

 

Shares

Amount

Capital

Earnings

Stock

Net of Tax

Total

Balance at June 30, 2021

 

7,541,469

$

183

$

97,978

$

197,733

$

(168,686)

$

72

$

127,280

Net income

 

 

 

  

 

2,667

 

  

 

  

2,667

Other comprehensive loss

 

 

 

  

 

  

 

  

 

(6)

(6)

Purchase of treasury stock

 

(49,764)

 

 

 

  

 

(851)

 

  

(851)

Amortization of restricted stock

 

 

 

189

 

  

 

  

 

  

189

Stock options expense

 

 

 

12

 

  

 

  

 

  

12

Cash dividends(1)

 

 

 

  

 

(1,056)

 

  

 

  

(1,056)

Balance at September 30, 2021

 

7,491,705

$

183

$

98,179

$

199,344

$

(169,537)

$

66

$

128,235

(1)
Includes the purchase of 505 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 December 31, 2020.September 30, 2021.








 
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
 
 SharesAmountTotal
Balance at September 30, 20197,479,682 $181 $94,795 $192,354 $(165,309)$148 $122,169 
        
Net income   2,398   2,398 
Other comprehensive loss     (15)(15)
Purchase of treasury stock(2,361)   (51) (51)
Exercise of stock options5,750  83    83 
Amortization of restricted stock  219    219 
Stock options expense  21    21 
Cash dividends (1)
   (1,048)  (1,048)
        
Balance at December 31, 20197,483,071 $181 $95,118 $193,704 $(165,360)$133 $123,776 

    

    

    

    

    

    

Accumulated 

    

    

Other 

 

Common 

Additional 

Comprehensive 

 

Stock

Paid-In

Retained

Treasury

Income (Loss),

 

Shares

Amount

Capital

Earnings

Stock

Net of Tax

Total

Balance at June 30, 2020

 

7,436,315

$

181

$

95,593

$

194,345

$

(166,247)

$

104

$

123,976

Net income

 

 

 

 

1,485

 

 

1,485

Other comprehensive loss

 

 

 

 

 

 

(5)

(5)

Purchase of treasury stock(1)

 

(2,556)

 

 

 

 

(30)

 

(30)

Distribution of restricted stock

 

7,500

 

 

 

 

 

Forfeiture of restricted stock

 

 

 

81

 

 

(81)

 

Amortization of restricted stock

 

 

 

241

 

 

 

241

Stock options expense

 

 

 

33

 

 

 

33

Cash dividends(2)

 

 

 

 

(1,041)

 

 

(1,041)

Balance at September 30, 2020

 

7,441,259

$

181

$

95,948

$

194,789

$

(166,358)

$

99

$

124,659

(1)
Includes the purchase of 2,556 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 December 31, 2019.September 30, 2020.



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


4

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For the Six Months Ended December 31, 2020 and 2019:
 
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
 
 SharesAmountTotal
Balance at June 30, 20207,436,315 $181 $95,593 $194,345 $(166,247)$104 $123,976 
        
Net income   2,661   2,661 
Other comprehensive loss     (24)(24)
Purchase of treasury stock (1)
(3,061)   (36) (36)
Distribution of restricted stock9,000         
Forfeiture of restricted stock      81     (81)     
Amortization of restricted stock  441    441 
Stock options expense  49    49 
Cash dividends (2)
   (2,083)  (2,083)
        
Balance at December 31, 20207,442,254 $181 $96,164 $194,923 $(166,364)$80 $124,984 

(1)
Includes the purchase

PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of 3,061 shares of distributed restricted stock in settlement of employee withholding tax obligations.

(2)
Cash dividends of $0.28 per share were paid in the six months ended December 31, 2020.

 
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
 
 SharesAmountTotal
Balance at June 30, 20197,486,106 $181 $94,351 $190,839 $(164,891)$161 $120,641 
        
Net income   4,960   4,960 
Other comprehensive loss     (28)(28)
Purchase of treasury stock(19,285)   (397) (397)
Exercise of stock options16,250  215    215 
Forfeiture of restricted stock      72     (72)      
Amortization of restricted stock  439    439 
Stock options expense  41    41 
Cash dividends (1)
   (2,095)  (2,095)
        
Balance at December 31, 20197,483,071 $181 $95,118 $193,704 $(165,360)$133 $123,776 

 (1)   Cash dividends of $0.28 per share were paid in the six months ended December 31, 2019.




Flows

(Unaudited - In Thousands)

Three Months Ended

September 30, 

(In Thousands)

    

2021

    

2020

    

Cash flows from operating activities:

  

Net income

$

2,667

 

$

1,485

Adjustments to reconcile net income to net cash provided by operating activities :

 

Depreciation and amortization

 

1,364

 

 

1,266

(Recovery) provision for loan losses

 

(339)

 

 

220

Stock-based compensation

 

201

 

 

274

Provision for deferred income taxes

 

261

 

 

27

Decrease in accounts payable, accrued interest and other liabilities

 

(66)

 

 

(158)

Increase in prepaid expenses and other assets

 

(1,041)

 

 

(66)

Net cash provided by operating activities

 

3,047

 

 

3,048

 

Cash flows from investing activities:

 

Net (increase) decrease in loans held for investment

 

(8,177)

 

 

17,157

Purchase of investment securities - held to maturity

 

0

 

 

(85,117)

Maturity of investment securities - held to maturity

 

200

 

 

400

Principal payments from investment securities - held to maturity

 

16,775

 

 

9,119

Principal payments from investment securities - available for sale

 

263

 

 

295

Purchase of premises and equipment

 

(8)

 

 

(69)

Net cash used for investing activities

 

9,053

 

 

(58,215)

Cash flows from financing activities:

Net increase in deposits

18,769

11,717

Repayments of long-term borrowings

(10,983)

(16)

Repayments of short-term borrowings, net

0

(5,000)

Treasury stock purchases

(851)

(30)

Withholding taxes on stock-based compensation

0

(30)

Cash dividends

(1,056)

(1,041)

Net cash provided by financing activities

5,879

5,600

Net increase (decrease) in cash and cash equivalents

17,979

(49,567)

Cash and cash equivalents at beginning of year

70,270

116,034

Cash and cash equivalents at end of year

$

88,249

$

66,467

Supplemental information:

Cash paid for interest

$

861

$

1,343

Cash paid for income taxes

$

100

$

1,020

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


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PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows
(Unaudited - In Thousands)
 
Six Months Ended
December 31,
 20202019
Cash flows from operating activities:  
    Net income$2,661 $4,960 
    Adjustments to reconcile net income to net cash provided by operating activities:  
        Depreciation and amortization2,796 1,356 
        Provision (recovery) for loan losses259 (203)
        Stock-based compensation490 480 
        (Benefit) provision for deferred income taxes(344)1,432 
    Increase (decrease) in accounts payable, accrued interest and other liabilities952 (2,923)
    Increase in prepaid expenses and other assets(81)(3,025)
            Net cash provided by operating activities6,733 2,077 
   
Cash flows from investing activities:  
    Decrease (increase) in loans held for investment, net46,464 (61,773)
    Maturity of investment securities held to maturity600  
    Principal payments from investment securities held to maturity21,269 16,702 
    Principal payments from investment securities available for sale527 695 
    Purchase of investment securities held to maturity(107,230) 
    Purchase of premises and equipment(207)(148)
            Net cash used for investing activities(38,577)(44,524)
   
Cash flows from financing activities:  
    Increase (decrease) in deposits, net16,999 (7,621)
    Repayments of short-term borrowings, net(5,000) 
    Repayments of long-term borrowings(20,032)(29)
    Proceeds from long-term borrowings 30,007 
    Exercise of stock options 215 
    Withholding taxes on stock based compensation(37)(32)
    Cash dividends(2,083)(2,095)
    Treasury stock purchases(36)(397)
            Net cash (used for) provided by financing activities(10,189)20,048 
Net decrease in cash and cash equivalents(42,033)(22,399)
Cash and cash equivalents at beginning of period116,034 70,632 
Cash and cash equivalents at end of period$74,001 $48,233 
Supplemental information:  
    Cash paid for interest$2,742 $3,091 
    Cash paid for income taxes$2,470 $350 
    Transfer of loans held for sale to held for investment$ $1,085 

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 31, 2020

September 30, 2021

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, 20202021 is derived from the audited consolidated financial statements of Provident Financial Holdings, Inc. and its wholly-owned subsidiary, Provident Savings Bank, F.S.B. (the “Bank”"Bank") (collectively, the “Corporation”"Corporation"). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”("GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”("SEC") with respect to interim financial reporting. It is recommended that these unaudited interim condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended June 30, 2020.2021. The results of operations for the quarter and six months ended December 31, 2020September 30, 2021 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2021.


2022.

Note 2: Accounting Standard Updates (“ASU”)


There have been no accounting standard updates or changes in the status of their adoption that are significantmaterial 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, 2020, other than:


ASU 2018-13:
In August 2018, the Financial Accounting Standards Board (“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. This guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The guidance only affects disclosures in the notes to the condensed consolidated financial statements and will not otherwise affect the Corporation’s Condensed Consolidated Financial Statements. The adoption of this ASU did not have a material impact on its condensed consolidated financial statements. See Note 7 for additional discussion.



7


2021.

Note 3: Earnings Per Share


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


As of December 31,September 30, 2021 and 2020, and 2019, there were outstanding options to purchase 549,000417,000 shares and 554,500 shares of the Corporation’s common stock, respectively. Of those shares, as of December 31,September 30, 2021 and 2020, and 2019, there were 135,000116,000 shares and no419,500 shares, respectively, whichthat were excluded from the diluted EPS computation as their effect was anti-dilutive. As of December 31,September 30, 2021 and 2020, and 2019, there were outstanding restricted stock awards of 207,500101,250 shares and 225,500209,000 shares, respectively.


6

Table of Contents

The following table provides the basic and diluted EPS computations for the quarter ended September 30, 2021 and six months ended December 31, 2020, and 2019, respectively.

 For the Quarter Ended
December 31,
For the Six Months Ended
December 31,
(In Thousands, Except Earnings Per Share)2020201920202019
Numerator:    
    Net income – numerator for basic earnings per share and
       diluted earnings per share - available to common
       stockholders
$1,176 $2,398 $2,661 $4,960 
     
Denominator:    
    Denominator for basic earnings per share:    
        Weighted-average shares7,442 7,482 7,439 7,482 
     
        Effect of dilutive shares:    
   Stock options37 133 29 133 
   Restricted stock13 43 7 36 
     
    Denominator for diluted earnings per share:    
        Adjusted weighted-average shares and assumed
          conversions
7,492 7,658 7,475 7,651 
     
Basic earnings per share$0.16 $0.32 $0.36 $0.66 
Diluted earnings per share$0.16 $0.31 $0.36 $0.65 




8

For the Quarter Ended

September 30, 

(In Thousands, Except Earnings Per Share)

 

2021

 

2020

Numerator:

     Net income – numerator for basic earnings per share and 

 

$

2,667

 

$

1,485

       diluted earnings per share - available to common

       stockholders

Denominator:

     Denominator for basic earnings per share:

        Weighted-average shares

 

7,530

 

7,436

     Effect of dilutive shares:

        Stock options

 

42

 

21

        Restricted stock

 

3

 

     Denominator for diluted earnings per share:

        Adjusted weighted-average shares and assumed conversions

 

7,575

 

7,457

Basic earnings per share

 

$

0.35

 

$

0.20

Diluted earnings per share

 

$

0.35

 

$

0.20

Note 4: Investment Securities


The amortized cost and estimated fair value of investment securities as of December 31, 2020September 30, 2021 and June 30, 20202021 were as follows:

    

    

    

Gross

    

Gross

    

Estimated

    

Amortized

Unrealized

Unrealized

Fair

Carrying

September 30, 2021

Cost

Gains

(Losses)

Value

Value

(In Thousands)

 

  

 

  

 

  

 

  

 

  

Held to maturity

 

  

 

  

 

  

 

  

 

  

U.S. government sponsored enterprise MBS(1)

$

203,749

$

1,689

$

(1,101)

$

204,337

$

203,749

U.S. SBA securities(2)

 

1,272

 

11

 

0

 

1,283

 

1,272

Certificate of deposits

 

800

 

0

 

0

 

800

 

800

Total investment securities - held to maturity

$

205,821

$

1,700

$

(1,101)

$

206,420

$

205,821

 

  

 

  

 

  

 

  

 

  

Available for sale

 

  

 

  

 

  

 

  

 

  

U.S. government agency MBS

$

1,993

$

69

$

0

$

2,062

$

2,062

U.S. government sponsored enterprise MBS

 

1,091

 

13

 

0

 

1,104

 

1,104

Private issue CMO(3)

 

147

 

3

 

0

 

150

 

150

Total investment securities - available for sale

$

3,231

$

85

$

0

$

3,316

$

3,316

Total investment securities

$

209,052

$

1,785

$

(1,101)

$

209,736

$

209,137

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

December 31, 2020
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)
$200,195 $3,433 $(63)$203,565 $200,195 
   U.S. SBA securities (2)
1,903  (17)1,886 1,903 
   Certificate of deposits1,000   1,000 1,000 
Total investment securities - held to maturity$203,098 $3,433 $(80)$206,451 $203,098 
      
Available for sale:     
   U.S. government agency MBS$2,463 $88 $ $2,551 $2,551 
   U.S. government sponsored enterprise MBS1,420 14  1,434 1,434 
   Private issue CMO (3)
174  (1)173 173 
Total investment securities - available for sale$4,057 $102 $(1)$4,158 $4,158 
Total investment securities$207,155 $3,535 $(81)$210,609 $207,256 

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

(2)

7

Small Business Administration (“SBA”).
(3)
Collateralized Mortgage Obligations (“CMO”).

June 30, 2020
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Estimated
Fair
Value
Carrying
Value
(In Thousands)     
Held to maturity:     
U.S. government sponsored enterprise MBS$115,763 $2,636 $(45)$118,354 $115,763 
U.S. SBA securities2,064  (17)2,047 2,064 
Certificate of deposits800   800 800 
Total investment securities - held to maturity$118,627 $2,636 $(62)$121,201 $118,627 
      
Available for sale:     
U.S. government agency MBS$2,823 $120 $ $2,943 $2,943 
U.S. government sponsored enterprise MBS1,556 21  1,577 1,577 
Private issue CMO204  (7)197 197 
Total investment securities - available for sale$4,583 $141 $(7)$4,717 $4,717 
Total investment securities$123,210 $2,777 $(69)$125,918 $123,344 

Table of Contents

    

    

    

Gross

    

Gross

    

Estimated

    

Amortized

Unrealized

Unrealized

Fair

Carrying

June 30, 2021

Cost

Gains

(Losses)

Value

Value

(In Thousands)

 

  

 

  

 

  

 

  

 

  

Held to maturity

 

  

 

  

 

  

 

  

 

  

U.S. government sponsored enterprise MBS

$

220,448

$

2,209

$

(810)

$

221,847

$

220,448

U.S. SBA securities

 

1,858

 

16

 

0

 

1,874

 

1,858

Certificate of deposits

 

1,000

 

0

 

0

 

1,000

 

1,000

Total investment securities - held to maturity

$

223,306

$

2,225

$

(810)

$

224,721

$

223,306

 

  

 

  

 

  

 

  

 

  

Available for sale

 

  

 

  

 

  

 

  

 

  

U.S. government agency MBS

$

2,146

$

76

$

0

$

2,222

$

2,222

U.S. government sponsored enterprise MBS

 

1,197

 

14

 

0

 

1,211

 

1,211

Private issue CMO

 

151

 

3

 

0

 

154

 

154

Total investment securities - available for sale

$

3,494

$

93

$

0

$

3,587

$

3,587

Total investment securities

$

226,800

$

2,318

$

(810)

$

228,308

$

226,893

In the secondfirst quarter of fiscal 20212022 and 2020,2021, the Corporation received MBS principal payments of $12.4$17.0 million and $8.1$9.4 million, respectively, and there were no0 sales of investment securities during these periods. The Corporation purchased $21.5 million of U.S. government sponsored enterprise MBS to be held to maturity in the second quarter of fiscal 2021 but did not0t purchase any investment securities in the secondfirst quarter of fiscal 2020.


9

For the first six months of fiscal 2021 and 2020, the Corporation received MBS principal payments of $21.8 million and $17.4 million, respectively, and there were no sales of investment securities during these periods. The Corporation2022 but purchased $106.4$84.9 million of U.S. government sponsored enterprise MBS to be held to maturity in the first six monthsquarter of fiscal 2021 but did not purchase any investment securities in the same period of fiscal 2020.

2021.

The Corporation held investments with an unrealized loss position of $81,000$1.1 million at December 31, 2020September 30, 2021 and $69,000$810,000 at June 30, 2020.

As of December 31, 2020
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
Unrealized Holding
Losses
(In Thousands)Less Than 12 Months 12 Months or More Total
 FairUnrealized FairUnrealized FairUnrealized
Description  of SecuritiesValueLosses ValueLosses ValueLosses
Held to maturity:        
   U.S. government sponsored enterprise MBS$10,015 $63  $ $  $10,015 $63 
   U.S. SBA securities  $   1,886  17   1,886  17 
Total investment securities – held to maturity$10,015 $63  $1,886 $17  $11,901 $80 
                     
Available for sale:                    
Private issue CMO$173 $1  $ $  $173 $1 
Total investment securities – available for sale$173 $1  $ $  $173 $1 
Total investment securities$10,188 $64  $1,886 $17  $12,074 $81 


As of June 30, 2020
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
Unrealized Holding
Losses
(In Thousands)Less Than 12 Months 12 Months or More Total
 FairUnrealized FairUnrealized FairUnrealized
Description  of SecuritiesValueLosses ValueLosses ValueLosses
Held to maturity:        
   U.S. government sponsored enterprise MBS$12,731 $45  $ $  $12,731 $45 
   U.S. SBA securities  $   2,040  17   2,040  17 
Total investment securities – held to maturity$12,731 $45  $2,040 $17  $14,771 $62 
                     
Available for sale:                    
Private issue CMO$197 $7  $ $  $197 $7 
Total investment securities – available for sale$197 $7  $ $  $197 $7 
Total investment securities$12,928 $52  $2,040 $17  $14,968 $69 

2021.

As of September 30, 2021

Unrealized Holding Losses

Unrealized Holding Losses

Unrealized Holding Losses

(In Thousands)

Less Than 12 Months

12 Months or More

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Description of Securities

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Held to maturity

U.S. government sponsored enterprise MBS

$

119,650

$

746

$

8,787

$

355

$

128,437

$

1,101

Total investment securities - held to maturity

$

119,650

$

746

$

8,787

$

355

$

128,437

$

1,101

Total investment securities

$

119,650

$

746

$

8,787

$

355

$

128,437

$

1,101

As of June 30, 2021

Unrealized Holding Losses

Unrealized Holding Losses

Unrealized Holding Losses

(In Thousands)

Less Than 12 Months

12 Months or More

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Description of Securities

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Held to maturity

U.S. government sponsored enterprise MBS

$

84,600

$

810

$

$

$

84,600

$

810

U.S. SBA securities

0

0

0

0

0

0

Total investment securities - held to maturity

$

84,600

$

810

$

$

$

84,600

$

810

Total investment securities

$

84,600

$

810

$

$

$

84,600

$

810

The Corporation evaluates individual investment securities quarterly for other-than-temporary declines in market value. At December 31, 2020, $17,000September 30, 2021, $355,000 of the $81,000$1.1 million of unrealized holding losses were 12 months or more; while at June 30, 2020, $17,0002021, NaN of the $69,000$810,000 of unrealized holding losses were 12 months or more. The unrealized losses on investment securities were attributable to changes in interest rates, relative to when the investment securities were purchased, and not

8

Table of Contents

due to the credit quality of the investment securities. At December 31,September 30, 2021 and 2020, and 2019, the Corporation did not have any investment securities with the intent to sell and determined it was more likely than not that the Corporation would not be required to sell the


10

securities prior to recovery of the amortized cost basis; therefore, no0 impairment losses were recorded for the quarter ended December 31, 2020September 30, 2021 and 2019.

2020.

Contractual maturities of investment securities as of December 31, 2020September 30, 2021 and June 30, 20202021 were as follows:

 December 31, 2020 June 30, 2020
(In Thousands)Amortized
Cost
Estimated
Fair
Value
 Amortized
Cost
Estimated
Fair
Value
      
Held to maturity:     
Due in one year or less$1,000 $1,000  $800 $800 
Due after one through five years19,081 19,913  19,389 20,194 
Due after five through ten years76,934 78,367  50,895 52,315 
Due after ten years106,083 107,171  47,543 47,892 
Total investment securities - held to maturity$203,098 $206,451  $118,627 $121,201 
      
Available for sale:     
Due in one year or less$ $  $ $ 
Due after one through five years     
Due after five through ten years     
Due after ten years4,057 4,158  4,583 4,717 
Total investment securities - available for sale$4,057 $4,158  $4,583 $4,717 
Total investment securities$207,155 $210,609  $123,210 $125,918 







11

September 30, 2021

June 30, 2021

    

    

Estimated

    

    

Estimated

Amortized

Fair

Amortized

Fair

(In Thousands)

Cost

Value

Cost

Value

Held to maturity

 

  

 

  

 

  

 

  

Due in one year or less

$

1,136

$

1,152

$

1,209

$

1,218

Due after one through five years

 

13,141

 

13,696

 

14,544

 

15,179

Due after five through ten years

 

82,772

 

83,286

 

90,798

 

91,780

Due after ten years

 

108,772

 

108,286

 

116,755

 

116,544

Total investment securities - held to maturity

$

205,821

$

206,420

$

223,306

$

224,721

 

  

 

  

 

  

 

  

Available for sale

 

  

 

  

 

  

 

  

Due in one year or less

$

0

$

0

$

0

$

0

Due after one through five years

 

0

 

0

 

0

 

0

Due after five through ten years

 

0

 

0

 

0

 

0

Due after ten years

 

3,231

 

3,316

 

3,494

 

3,587

Total investment securities - available for sale

$

3,231

$

3,316

$

3,494

$

3,587

Total investment securities

$

209,052

$

209,736

$

226,800

$

228,308

Note 5: Loans Held for Investment


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

(In Thousands)December 31,
2020
June 30,
2020
Mortgage loans:  
    Single-family$257,864 $298,810 
    Multi-family 488,412 491,903 
    Commercial real estate 102,551 105,235 
    Construction (1)
 7,135 7,801 
    Other 141 143 
Commercial business loans (2)
 882 480 
Consumer loans (3)
 95 94 
    Total loans held for investment, gross857,080 904,466 
   
Advance payments of escrows142 68 
Deferred loan costs, net6,402 6,527 
Allowance for loan losses(8,538)(8,265)
      Total loans held for investment, net$855,086 $902,796 

September 30, 

June 30, 

(In Thousands)

2021

 

2021

Mortgage loans:

 

  

 

  

 

Single-family

$

274,970

$

268,272

Multi-family

 

489,550

 

484,408

Commercial real estate

 

91,779

 

95,279

Construction(1)

 

2,574

 

3,040

Other

 

137

 

139

Commercial business loans(2)

 

865

 

849

Consumer loans(3)

 

84

 

95

Total loans held for investment, gross

 

859,959

 

852,082

 

  

 

Advance payments of escrows

 

68

 

157

Deferred loan costs, net

 

6,421

 

6,308

Allowance for loan losses

 

(7,413)

 

(7,587)

Total loans held for investment, net

$

859,035

$

850,960

(1)
Net of $2.7$3.8 million and $4.0$4.5 million of undisbursed loan funds as of December 31, 2020September 30, 2021 and June 30, 2020,2021, respectively.
(2)
Net of $520$441 thousand and $935$460 thousand of undisbursed lines of credit as of December 31, 2020September 30, 2021 and June 30, 2020,2021, respectively.
(3)
Net of $422$415 thousand and $448$425 thousand of undisbursed lines of credit as of December 31, 2020September 30, 2021 and June 30, 2020,2021, respectively.


9

Table of Contents

The following table sets forth information at December 31, 2020September 30, 2021 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 one5 percent of loans held for investment at December 31, 2020 andSeptember 30, 2021 as compared to 4 percent at June 30, 2020,2021, respectively. 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 RateTotal
Mortgage loans:      
    Single-family$69,861 $51,462 $62,242 $64,482 $9,817 $257,864 
    Multi-family162,764 154,224 153,475 17,810 139 488,412 
    Commercial real estate48,239 30,205 23,822  285 102,551 
    Construction6,477    658 7,135 
    Other    141 141 
Commercial business loans500    382 882 
Consumer loans95     95 
    Total loans held for investment,
      gross
$287,936 $235,891 $239,539 $82,292 $11,422 $857,080 

12

Adjustable Rate

    

    

After

    

After

    

After

    

    

Within

One Year

3 Years

5 Years

(In Thousands)

One Year

Through 3 Years

Through 5 Years

Through 10 Years

Fixed Rate

Total

Mortgage loans:

Single-family

$

56,142

$

41,341

$

36,261

$

98,249

$

42,977

$

274,970

Multi-family

 

164,115

 

128,288

 

166,307

 

30,632

 

208

 

489,550

Commercial real estate

 

45,447

 

28,973

 

17,359

 

0

 

0

 

91,779

Construction

 

2,247

 

0

 

0

 

0

 

327

 

2,574

Other

 

0

 

0

 

0

 

0

 

137

 

137

Commercial business loans

 

519

 

0

 

0

 

0

 

346

 

865

Consumer loans

 

84

 

0

 

0

 

0

 

0

 

84

Total loans held for investment, gross

$

268,554

$

198,602

$

219,927

$

128,881

$

43,995

$

859,959

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 as well as the forecasted economic impact of the novel coronavirus of 2019 (“COVID-19”). 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 worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful - A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.
Loss - A loss loan is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted.

10

Pass - These loans range from minimal credit risk to average, but still acceptable, credit risk.  The likelihood

Table of loss is considered remote.

Contents

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.
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, 2020
(In Thousands)
Single-
family
Multi-
family
Commercial
Real Estate
Construction
Other
Mortgage
Commercial BusinessConsumerTotal
          
Pass$245,747 $484,680 $102,551 $7,135 $141 $882 $95 $841,231 
Special Mention935 3,732       4,667 
Substandard11,182        11,182 
 
Total loans held for
   investment, gross
$257,864 $488,412 $102,551 $7,135 $141 $882 $95 $857,080 


13

  June 30, 2020
(In Thousands)
Single-
family
Multi-
family
Commercial
Real Estate
Construction
Other
Mortgage
Commercial BusinessConsumerTotal
          
Pass$289,942 $488,126 $105,235 $6,098 $143 $445 $94 $890,083 
Special Mention3,120 3,777  1,703    8,600 
Substandard5,748     35  5,783 
 
Total loans held for
   investment, gross
$298,810 $491,903 $105,235 $7,801 $143 $480 $94 $904,466 

September 30, 2021

Commercial

Other

Commercial

(In Thousands)

    

Single-family

    

Multi-family

    

 Real Estate

    

Construction

    

Mortgage

    

Business

    

Consumer

    

Total

Pass

$

267,220

$

488,440

$

91,779

$

2,574

$

137

$

865

$

84

$

851,099

Special Mention

 

1,610

 

0

 

0

 

0

0

 

0

 

0

 

1,610

Substandard

 

6,140

 

1,110

 

0

 

0

0

 

0

 

0

 

7,250

Total loans held for investment, gross

$

274,970

$

489,550

$

91,779

$

2,574

$

137

$

865

$

84

$

859,959

June 30, 2021

    

    

    

Commercial

    

    

Other

Commercial

    

    

(In Thousands)

Single-family

Multi-family

Real Estate

Construction

Mortgage

Business

Consumer

Total

Pass

$

258,217

$

483,289

$

95,279

$

3,040

$

139

$

849

$

95

$

840,908

Special Mention

 

1,767

 

0

 

0

 

0

0

 

0

 

0

 

1,767

Substandard

 

8,288

 

1,119

 

0

 

0

0

 

0

 

0

 

9,407

Total loans held for investment, gross

$

268,272

$

484,408

$

95,279

$

3,040

$

139

$

849

$

95

$

852,082

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. In response to the COVID-19 pandemic, which has negatively impacted the current economic environment, the qualitative component has beenwas increased in the allowance for loan losses methodology.


methodology reflecting the uncertain economic environment upon the onset of the pandemic. However, an improved economic outlook has developed in the last two quarters which reduced the qualitative component as the forecasted impact of the pandemic on the credit quality of the loan portfolio in future quarters diminished.

Non-performing loans are charged-off to their fair market values in the period the loans, or portion thereof, are deemed uncollectible, generally after the loan becomes 150 days delinquent for real estate secured first trust deed loans and 120 days delinquent for commercial business or real estate secured second trust deed loans. For loans that were modified from their original terms, were re-underwritten and identified in the Corporation’s asset quality reports as troubled debt restructurings (“restructured loans”), the charge-off occurs when the loan becomes 90 days delinquent; and where borrowers file bankruptcy, the charge-off occurs when the loan becomes 60 days delinquent. The amount of the charge-off is determined by comparing the loan balance to the estimated fair value of the underlying collateral, less disposition costs, with the loan balance in excess of the estimated fair value charged-off against the allowance for loan losses. The allowance for loan losses for non-performing loans is determined by applying ASC 310, “Receivables.”  For restructured loans that are less than 90 days delinquent, the allowance for loan losses 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.


11


14

Table of Contents

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

 For the Quarter Ended
December 31,
For the Six Months Ended
December 31,
(Dollars in Thousands)2020201920202019
     
Allowance at beginning of period$8,490 $6,929 $8,265 $7,076 
     
Provision (recovery) for loan losses39 (22)259 (203)
     
Recoveries:    
Mortgage loans:    
        Single-family9 13 14 49 
Consumer loans1 1 1 1 
    Total recoveries10 14 15 50 
     
Charge-offs:    
Mortgage loans:    
        Single-family   (1)
Consumer loans(1) (1)(1)
    Total charge-offs(1) (1)(2)
     
    Net recoveries (charge-offs)9 14 14 48 
        Balance at end of period$8,538 $6,921 $8,538 $6,921 
     
Allowance for loan losses as a percentage of gross
  loans held for investment at the end of the period
0.99%0.73%0.99%0.73%
Net (recoveries) charge-offs as a percentage of average
  loans receivable, net, during the period (annualized)
(0.00)%(0.01)%(0.00)%(0.01)%





15

For the Quarter Ended 

    

September 30, 

(Dollars in Thousands)

    

2021

    

2020

    

Allowance at beginning of period

$

7,587

$

8,265

(Recovery) provision for loan losses

 

(339)

 

220

Recoveries:

 

  

 

  

Mortgage loans:

 

  

 

  

Single-family

 

165

 

5

Total recoveries

 

165

 

5

Charge-offs:

 

  

 

  

Mortgage loans:

 

  

 

  

Single-family

 

0

 

0

Total charge-offs

 

0

 

0

Net recoveries (charge-offs)

 

165

 

5

Balance at end of period

$

7,413

$

8,490

Allowance for loan losses as a percentage of gross loans held for investment at the end of the period

 

0.86

%  

 

0.95

%  

Net (recoveries) charge-offs as a percentage of average loans receivable, net, during the period (annualized)

 

(0.08)

%  

 

0.00

%  

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, 2020
(In Thousands)Current
30-89 Days
Past Due
Non-Accrual (1)
Total Loans Held for
Investment, Gross
      
Mortgage loans:    
 Single-family$246,334 $348 $11,182 $257,864 
 Multi-family488,412   488,412 
 Commercial real estate102,551   102,551 
 Construction7,135   7,135 
 Other141   141 
Commercial business loans882   882 
Consumer loans93 2  95 
 Total loans held for investment, gross$845,548 $350 $11,182 $857,080 

September 30, 2021

30-89 Days Past

Total Loans Held for

(In Thousands)

    

Current

    

Due

    

Non-Accrual(1)

    

Investment, Gross

Mortgage loans:

Single-family

$

268,811

$

19

$

6,140

$

274,970

Multi-family

 

488,440

 

0

 

1,110

 

489,550

Commercial real estate

 

91,779

 

0

 

0

 

91,779

Construction

 

2,574

 

0

 

0

 

2,574

Other

 

137

 

0

 

0

 

137

Commercial business loans

 

865

 

0

 

0

 

865

Consumer loans

 

83

 

1

 

0

 

84

Total loans held for investment, gross

$

852,689

$

20

$

7,250

$

859,959

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

12


  June 30, 2020
(In Thousands)Current
30-89 Days
Past Due
Non-Accrual(1)
Total Loans Held for
Investment, Gross
      
Mortgage loans:    
 Single-family$293,326 $219 $5,265 $298,810 
 Multi-family491,903   491,903 
 Commercial real estate105,235   105,235 
 Construction7,801   7,801 
 Other143   143 
Commercial business loans445  35 480 
Consumer loans94   94 
 Total loans held for investment, gross$898,947 $219 $5,300 $904,466 

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


16

Table of Contents

June 30, 2021

    

    

30-89 Days Past

    

    

Total Loans Held for

(In Thousands)

Current

Due

Non-Accrual(1)

Investment, Gross

Mortgage loans:

Single-family

$

259,984

$

0

$

8,288

$

268,272

Multi-family

 

483,289

 

0

 

1,119

 

484,408

Commercial real estate

 

95,279

 

0

 

0

 

95,279

Construction

 

3,040

 

0

 

0

 

3,040

Other

139

 

0

 

0

 

139

Commercial business loans

 

849

 

0

 

0

 

849

Consumer loans

 

88

 

7

 

0

 

95

Total loans held for investment, gross

$

842,668

$

7

$

9,407

$

852,082

(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, 2020 
(In Thousands)
Single-
family
Multi-family
Commercial
Real Estate
Construction Other Commercial BusinessConsumerTotal 
Allowance for loan losses:           
Allowance at beginning of  period$2,671 $4,490 $1,162 $116 $3 $42 $6 $8,490   
Provision (recovery) for loan losses26 50 (30)(6)  (1) 39   
Recoveries9       1 10   
Charge-offs       (1)(1)  
 
Allowance for loan losses,
  end of period
$2,706 $4,540 $1,132 $110 $3 $41 $6 $8,538   
             
Allowance for loan losses:           
Individually evaluated for impairment$570 $ $ $ $ $ $ $570   
Collectively evaluated for impairment2,136 4,540 1,132 110  3 41 6 7,968   
 
Allowance for loan losses,
  end of period
$2,706 $4,540 $1,132 $110 $3 $41 $6 $8,538   
             
Loans held for investment:           
Individually evaluated for impairment$9,237 $ $ $ $ $ $ $9,237   
Collectively evaluated for impairment248,627 488,412 102,551 7,135  141 882 95 847,843   
 
Total loans held for investment,
  gross
$257,864 $488,412 $102,551 $7,135 $141 $882 $95 $857,080   
Allowance for loan losses as
  a percentage of gross loans
  held for investment
 1.05
%
 0.93
%
 1.10
%
 1.54
%
 2.13
%
 4.65
%
 6.32
%
 0.99
%
  

    

Quarter Ended September 30, 2021

 

Single- 

Multi- 

Commercial 

Commercial 

(In Thousands)

 

family

 

family

 

Real Estate

Construction

Other

 

Business

Consumer

Total

Allowance for loan losses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

Allowance at beginning of period

$

2,000

$

4,485

$

1,006

$

51

$

3

$

36

$

6

$

7,587

(Recovery) provision for loan losses

 

(338)

 

40

 

(39)

 

(2)

 

0

 

1

 

(1)

 

(339)

Recoveries

 

165

 

0

 

0

 

0

 

0

 

0

 

0

 

165

Charge-offs

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

Allowance for loan losses, end of period

$

1,827

$

4,525

$

967

$

49

$

3

$

37

$

5

$

7,413

Allowance for loan losses:

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$

260

$

$

$

$

$

$

$

260

Collectively evaluated for impairment

 

1,567

 

4,525

 

967

 

49

 

3

 

37

 

5

 

7,153

Allowance for loan losses, end of period

$

1,827

$

4,525

$

967

$

49

$

3

$

37

$

5

$

7,413

Loans held for investment:

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$

5,894

$

$

$

$

$

$

$

5,894

Collectively evaluated for impairment

 

269,076

 

489,550

 

91,779

 

2,574

 

137

 

865

 

84

 

854,065

Total loans held for investment, gross

$

274,970

$

489,550

$

91,779

$

2,574

$

137

$

865

$

84

$

859,959

Allowance for loan losses as a percentage of gross loans held for investment

 

0.66

%  

 

0.92

%  

 

1.05

%  

 

1.90

%  

 

2.19

%  

 

4.28

%  

 

5.95

%  

 

0.86

%  


13



17

  Quarter Ended December 31, 2019
(In Thousands)
Single-
family

Multi-family
Commercial
Real Estate
Construction 
Commercial
Business
ConsumerTotal
Allowance for loan losses:        
Allowance at beginning of period$2,234 $3,507 $1,085 $74 $20 $9 $6,929 
Provision (recovery) for loan losses(90)(5)(27)94  8 (2)(22)
Recoveries13      1 14 
Charge-offs        
 
Allowance for loan losses,
  end of period
$2,157 $3,502 $1,058 $168 $28 $8 $6,921 
          
Allowance for loan losses:        
Individually evaluated for impairment$46 $ $ $ $6 $ $52 
Collectively evaluated for impairment2,111 3,502 1,058 168  22 8 6,869 
 
Allowance for loan losses,
  end of period
$2,157 $3,502 $1,058 $168 $28 $8 $6,921 
          
Loans held for investment:        
Individually evaluated for impairment$3,053 $ $ $ $43 $ $3,096 
Collectively evaluated for impairment344,291 479,151 107,613 6,914  535 140 
938,644 
 
Total loans held for investment,
  gross
$347,344 $479,151 $107,613 $6,914 $578 $140 $941,740 
Allowance for loan losses as
  a percentage of gross loans
  held for investment
 0.62
%
 0.73
%
 0.98
%
 2.43
% 4.84
%
 5.71
%
 0.73
%

Table of Contents





18

  Six Months Ended December 31, 2020 
(In Thousands)
Single-
family

Multi-family
Commercial
Real Estate
Construction Other Commercial BusinessConsumerTotal 
Allowance for loan losses:           
Allowance at beginning of period$2,622 $4,329 $1,110 $171 $3 $24 $6 $8,265   
Provision (recovery) for loan losses70 211 22 (61)  17  259   
Recoveries14       1 15   
Charge-offs       (1)(1)  
 
Allowance for loan losses,
  end of period
$2,706 $4,540 $1,132 $110 $3 $41 $6 $8,538   
             
Allowance for loan losses:           
Individually evaluated for impairment$570 $ $ $ $ $ $ $570   
Collectively evaluated for impairment2,136 4,540 1,132 110  3 41 6 7,968   
 
Allowance for loan losses,
  end of period
$2,706 $4,540 $1,132 $110 $3 $41 $6 $8,538   
             
Loans held for investment:           
Individually evaluated for impairment$9,237 $ $ $ $ $ $ $9,237   
Collectively evaluated for impairment248,627 488,412 102,551 7,135  141 882 95 847,843   
 
Total loans held for investment,
  gross
$257,864 $488,412 $102,551 $7,135 $141 $882 $95 $857,080   
Allowance for loan losses as
  a percentage of gross loans
  held for investment
 1.05
%
 0.93
%
 1.10
%
 1.54
%
 2.13
%
 4.65
%
 6.32
%
 0.99
%
  





19

  Six Months Ended December 31, 2019
(In Thousands)
Single-
family

Multi-family
Commercial
Real Estate
Construction Other Commercial BusinessConsumerTotal
Allowance for loan losses:          
Allowance at beginning of period$2,709 $3,219 $1,050 $61 $3 $26 $8 $7,076 
Provision (recovery) for loan losses(600)283 8 107  (3)2  (203)
Recoveries49       1 50 
Charge-offs(1)      (1)(2)
 
Allowance for loan losses,
  end of period
$2,157 $3,502 $1,058 $168 $ $28 $8 $6,921 
            
Allowance for loan losses:          
Individually evaluated for impairment$46 $ $ $ $ $6 $ $52 
Collectively evaluated for impairment2,111 3,502 1,058 168   22 8 6,869 
 
Allowance for loan losses,
  end of period
$2,157 $3,502 $1,058 $168 $ $28 $8 $6,921 
            
Loans held for investment:          
Individually evaluated for impairment$3,053 $ $ $ $ $43 $ $3,096 
Collectively evaluated for impairment344,291 479,151 107,613 6,914   535 140 938,644 
 
Total loans held for investment,
  gross
$347,344 $479,151 $107,613 $6,914 $ $578 $140 $941,740 
Allowance for loan losses as
  a percentage of gross loans
  held for investment
 0.62
%
 0.73
%
 0.98
%
 2.43
%
 %
 4.84
%
 5.71
%
 0.73
%





20

    

Quarter Ended September 30, 2020

Single- 

Multi- 

Commercial 

Commercial 

(In Thousands)

 

family

 

family

 

Real Estate

Construction

 

Other

Business

Consumer

Total

Allowance for loan losses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

Allowance at beginning of period

$

2,622

$

4,329

$

1,110

$

171

$

3

$

24

$

6

$

8,265

Provision (recovery) for loan losses

 

44

 

161

 

52

 

(55)

 

 

18

 

 

220

Recoveries

 

5

 

0

 

0

 

0

 

0

 

0

 

0

 

5

Charge-offs

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

Allowance for loan losses, end of period

$

2,671

$

4,490

$

1,162

$

116

$

3

$

42

$

6

$

8,490

Allowance for loan losses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Individually evaluated for impairment

$

80

$

$

$

$

$

4

$

$

84

Collectively evaluated for impairment

 

2,591

 

4,490

 

1,162

 

116

 

3

 

38

 

6

 

8,406

Allowance for loan losses, end of period

$

2,671

$

4,490

$

1,162

$

116

$

3

$

42

$

6

$

8,490

Loans held for investment:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Individually evaluated for impairment

$

2,957

$

$

$

$

$

31

$

$

2,988

Collectively evaluated for impairment

 

285,833

 

482,900

 

105,207

 

8,787

 

142

 

892

 

100

 

883,861

Total loans held for investment, gross

$

288,790

$

482,900

$

105,207

$

8,787

$

142

$

923

$

100

$

886,849

Allowance for loan losses as a percentage of gross loans held for investment

 

0.92

%  

 

0.93

%  

 

1.10

%  

 

1.32

%  

 

2.11

%  

 

4.55

%  

 

6.00

%  

 

0.95

%  

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, 2020
   Unpaid   Net
   PrincipalRelatedRecorded Recorded
(In Thousands)BalanceCharge-offsInvestment
Allowance (1)
Investment
        
Mortgage loans:     
 Single-family:     
  With a related allowance$9,636 $ $9,636 $(928)$8,708 
  
Without a related allowance (2)
2,015 (453)1,562  1,562 
 Total single-family11,651 (453)11,198 (928)10,270 
        
Total non-performing loans$11,651 $(453)$11,198 $(928)$10,270 


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

14

(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.




21

   At June 30, 2020
   Unpaid   Net
   PrincipalRelatedRecorded Recorded
(In Thousands)BalanceCharge-offsInvestment
Allowance (1)
Investment
        
Mortgage loans:     
 Single-family:     
  With a related allowance$3,289 $ $3,289 $(438)$2,851 
  
Without a related allowance (2)
2,509 (467)2,042  2,042 
 Total single-family5,798 (467)5,331 (438)4,893 
        
Commercial business loans:     
 With a related allowance35  35 (4)31 
Total commercial business loans35  35 (4)31 
        
Total non-performing loans$5,833 $(467)$5,366 $(442)$4,924 

Table of Contents

(1)

At September 30, 2021

Unpaid

Net

Principal

Related

Recorded

Recorded

(In Thousands)

    

Balance

    

Charge-offs

    

Investment

    

Allowance(1)

    

Investment

Mortgage loans:

Single-family:

 

  

 

  

 

  

 

  

 

  

With a related allowance

$

5,437

$

0

$

5,437

$

(309)

$

5,128

Without a related allowance(2)

 

1,020

 

(307)

 

713

 

 

713

Total single-family loans

 

6,457

 

(307)

 

6,150

 

(309)

 

5,841

Multi-family:

 

  

 

  

 

  

 

  

 

  

With a related allowance

 

1,111

 

0

 

1,111

 

(336)

 

775

Total multi-family loans

 

1,111

 

0

 

1,111

 

(336)

 

775

Total non-performing loans

$

7,568

$

(307)

$

7,261

$

(645)

$

6,616

(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 June 30, 2021

Unpaid

Related

Net

Principal

Charge-offs

Recorded

Recorded

(In Thousands)

    

Balance

    

Related

    

Investment

    

Allowance(1)

    

Investment

Mortgage loans:

 

  

 

  

 

  

 

  

 

  

Single-family:

 

  

 

  

 

  

 

  

 

  

With a related allowance

$

7,400

$

0

$

7,400

$

(434)

$

6,966

Without a related allowance(2)

 

1,335

 

(436)

 

899

 

 

899

Total single-family loans

 

8,735

 

(436)

 

8,299

 

(434)

 

7,865

Multi-family:

 

  

 

  

 

  

 

  

 

  

With a related allowance

 

1,119

 

0

 

1,119

 

(338)

 

781

Total multi-family loans

 

1,119

 

0

 

1,119

 

(338)

 

781

Total non-performing loans

$

9,854

$

(436)

$

9,418

$

(772)

$

8,646

(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.
(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 December 31, 2020,September 30, 2021, there were no commitments to lend additional funds to those borrowers whose loans were classified as non-performing.


For the quarter ended December 31,September 30, 2021 and 2020, and 2019, the Corporation’s average recorded investment in non-performing loans was $9.9$7.8 million and $4.0$5.4 million, respectively. The Corporation records payments on non-performing loans utilizing the cash basis or cost recovery method of accounting during the periods when the loans are on non-performing status. For the quarter ended December 31, 2020,September 30, 2021, the Bank received $43,000$211,000 in interest payments from non-performing loans, of which $29,000$202,000 was recognized as interest income and the remaining $14,000$9,000 was applied to reduce the loan balances under the cost recovery method. In comparison, for the quarter ended December 31, 2019,September 30, 2020, the Bank received $57,000$50,000 in interest payments from non-performing loans, of which $34,000$41,000 was recognized as interest income and the remaining $23,000$9,000 was applied to reduce the loan balances under the cost recovery method.


15

For the six months ended December 31, 2020 and 2019, the Corporation’s average recorded investment in non-performing loans was $7.6 million and $4.7 million, respectively.  For the six months ended December 31, 2020, the Bank received $93,000 in interest payments from non-performing loans, of which $70,000 was recognized as interest income and the remaining $23,000 was applied to reduce the loan balances under the cost recovery method.  In comparison, for the six months ended December 31, 2019, the Bank received $204,000 in interest payments from non-performing loans, of which $157,000 was recognized as interest income and the remaining $47,000 was applied to reduce the loan balances under the cost recovery method.


22

Table of Contents

The following tables present the average recorded investment in non-performing loans and the related interest income recognized for the quarter ended September 30, 2021 and 2020:

Quarter Ended September 30, 

2021

2020

Average

Interest

Average

Interest

Recorded

Income

Recorded

Income

(In Thousands)

    

Investment

    

Recognized

    

Investment

    

Recognized

Without related allowances:

 

 

 

 

Mortgage loans:

Single-family

$

817

$

140

$

1,883

 

$

0

 

 

817

 

140

 

1,883

 

 

0

With related allowances:

 

 

 

 

 

 

Mortgage loans:

Single-family

 

5,827

 

47

 

3,510

 

 

40

Multi-family

 

1,114

 

15

 

0

 

 

0

Commercial business loans

 

0

 

0

 

32

 

 

1

 

 

6,941

 

62

 

3,542

 

 

41

Total

$

7,758

$

202

$

5,425

 

$

41

The Corporation has modified loans in accordance with the Coronavirus Aid, Relief, and Economic Security Act for 2020, as amended (“CARES Act”) and Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (“Interagency Statement”). The CARES Act and Interagency Statement provided guidance around the modification of loans as a result of the COVID-19 pandemic, and outlined, among other criteria, that short-term modifications of up to six months ended December 31, 2020made on a good faith basis to borrowers who were current as defined under the CARES Act and 2019:

   Quarter Ended December 31,
   2020 2019
   AverageInterest AverageInterest
   RecordedIncome RecordedIncome
(In Thousands)InvestmentRecognized InvestmentRecognized
        
Without related allowances:     
 Mortgage loans:     
  Single-family$1,570 $  $2,874 $21 
   1,570   2,874 21 
        
With related allowances:     
 Mortgage loans:     
  Single-family8,285 29  1,105 12 
 Commercial business loans19   44 1 
  8,304 29  1,149 13 
       
 Total$9,874 $29  $4,023 $34 

Interagency Statement prior to any relief are not restructured loans and if all payments are current in accordance with the revised terms of the loan, the loan would not be reported as past due. As of September 30, 2021, the Corporation had one remaining forbearance loan with an outstanding balance of $308,000 or 0.04 percent of total loans that was modified and operating under a forbearance agreement in accordance with the CARES Act and Interagency Statement. As of September 30, 2021, the Corporation had no pending requests for payment relief.

As of September 30, 2021, loan forbearance related to COVID-19 hardship requests are described below:

Forbearance Granted 

Forbearance Completed(1)

Forbearance Remaining

    

Number of

    

    

Number of

    

    

Number of

    

(Dollars In Thousands)

Loans

Amount

Loans

Amount

Loans

Amount

Single-family loans

 

59

$

23,471

 

58

$

23,163

 

1

$

308

Multi-family loans

 

5

 

2,308

 

5

 

2,308

 

 

Commercial real estate loans

 

3

 

1,990

 

3

 

1,990

 

 

Total loan forbearance

 

67

$

27,769

 

66

$

27,461

 

1

$

308

(1)  Includes 19 single-family loans totaling $7.1 million which were subsequently extended and classified as restructured non-performing loans, consistent with the Interagency Statement.


16

   Six Months Ended December 31,
   2020 2019
   AverageInterest AverageInterest
   RecordedIncome RecordedIncome
(In Thousands)InvestmentRecognized InvestmentRecognized
        
Without related allowances:     
 Mortgage loans:     
  Single-family$1,726 $  $2,980 $111 
  Construction   542 20 
   1,726   3,522 131 
        
With related allowances:     
 Mortgage loans:     
  Single-family5,897 69  1,151 24 
 Commercial business loans26 1  45 2 
  5,923 70  1,196 26 
       
 Total$7,649 $70  $4,718 $157 

Table of Contents

As of September 30, 2021, certain characteristics of loans in forbearance are described below:

    

    

    

    

    

    

Weighted

    

Weighted Avg.

% of

Weighted

Avg. Debt

Forbearance

Number

Total

Weighted

Avg.

Coverage

Period

(Dollars In Thousands)

of Loans

Amount

Loans

Avg. LTV(1)

FICO(2)

Ratio(3)

Granted(4)

Single-family loans

 

1

$

308

 

0.04

%  

78

%  

653

 

N/A

 

12.0

Total loans in forbearance

 

1

$

308

 

0.04

%  

78

%  

653

 

N/A

 

12.0

(1)Current loan balance in comparison to the original appraised value.
(2)At time of loan origination, borrowers and/or guarantors.
(3)At time of loan origination.
(4)In months.

For additional detail, see the "COVID-19 Impact to the Corporation" section in Management's Discussion and Analysis of Financial Condition and Results of Operation in this Form 10-Q.

For the quarter ended December 31, 2020, 16September 30, 2021, 0 loans were newly restructured, (forbearance loans which were downgraded whenwhile 1 restructured loan was paid off. For the quarter ended September 30, 2020, one loan was restructured from their monthly payment deferrals were extended beyond six months, consistent with the Interagency Statement),original terms and classified as a restructured loan, while one1 restructured loan was upgraded to the pass category. For the quarter ended December 31, 2019, no new loans were restructured


23


from their original terms and classified as restructured loans, while one restructured loan was downgraded from pass to the substandard category and one restructured loan was upgraded from special mention to the pass category. During both quarters ended December 31,September 30, 2021 and 2020, and 2019, no restructured loans were in default within a 12-month period subsequent to their original restructuring. Additionally,Additionally. during the quarterboth quarters ended December 31,September 30, 2021 and 2020, and 2019, there was no loanwere 0 loans whose modification waswere extended beyond the initial maturity of the modification. At both December 31, 2020September 30, 2021 and June 30, 2020,2021, there were no commitments to lend additional funds to those borrowers whose loans were restructured.

For

As of September 30, 2021, the six months ended December 31, 2020, 17 loans were newly restructured (including 16 COVID-19 related loan forbearance modifications which were downgraded when their monthly payment deferrals were extended beyond six months, consistent with the Interagency Statement), while twoCorporation held 22 restructured loans with a net outstanding balance of $7.9 million, of which $5.1 million were upgraded to the pass category. For the six months ended December 31, 2019, no new loans were restructured from their original terms and classified as restructured loans, while two substandard restructured loans were paid off, one restructured loan was downgraded from pass to the substandard category and one restructured loan was upgraded from special mention to the pass category. During both six months ended December 31, 2020 and 2019, no restructured loans were in default within a 12-month period subsequent to their original restructuring. Additionally, during the six months ended December 31, 2020 and 2019, there was no loan whose modification was extended beyond the initial maturity of the modification.


on non-accrual status. As of December 31, 2020,June 30, 2021, the Corporation held 23 restructured loans with a net outstanding balance of $8.2$7.9 million, and all loans were classified as substandard and on non-accrual status. As of June 30, 2020, the Corporation held eight restructured loans with a net outstanding balance of $2.6which $7.0 million and all loans were classified as substandard on non-accrual status. As of December 31, 2020, allSeptember 30, 2021, a total of $6.7 million or 85% of the restructured loans were current with respect to their modified payment terms, as compared to June 30, 20202021 when $1.2$7.7 million or 44 %97% 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.


17

Table of Contents

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


 AtAt
(In Thousands)December 31, 2020June 30, 2020
Restructured loans on non-accrual status:  
Mortgage loans:  
Single-family$8,208 $2,612 
Commercial business loans 31 
Total8,208 2,643 
   
Total restructured loans$8,208 $2,643 

24

    

At

At

    

(In Thousands)

September 30, 2021

June 30, 2021

Restructured loans on non-accrual status:

Mortgage loans:

 

  

 

  

 

Single-family

$

5,102

$

6,983

Total

 

5,102

 

6,983

Restructured loans on accrual status:

 

  

 

Mortgage loans:

 

  

 

Single-family

 

2,773

 

876

Total

 

2,773

 

876

Total restructured loans

$

7,875

$

7,859

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

At September 30, 2021

Unpaid

Net

Principal

Related

Recorded

Recorded

(In Thousands)

    

Balance

    

Charge-offs

    

Investment

    

Allowance(1)

    

Investment

Mortgage loans:

Single-family:

With a related allowance

$

5,191

$

0

$

5,191

$

(260)

$

4,931

Without a related allowance(2)

 

3,199

 

(255)

 

2,944

 

 

2,944

Total single-family

 

8,390

 

(255)

 

8,135

 

(260)

 

7,875

Total restructured loans

$

8,390

$

(255)

$

8,135

$

(260)

$

7,875

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

At June 30, 2021

Unpaid

Net

Principal

Related

Recorded

Recorded

(In Thousands)

    

Balance

    

Charge-offs

    

Investment

    

Allowance(1)

    

Investment

Mortgage loans:

 

  

 

  

 

  

 

  

 

  

Single-family:

 

  

 

  

 

  

 

  

 

  

With a related allowance

$

7,151

$

0

$

7,151

$

(384)

$

6,767

Without a related allowance(2)

 

1,457

 

(365)

 

1,092

 

 

1,092

Total single-family

 

8,608

 

(365)

 

8,243

 

(384)

 

7,859

Total restructured loans

$

8,608

$

(365)

$

8,243

$

(384)

$

7,859

(1)Consists of collectively and individually evaluated allowances, specifically assigned to the individual loan.
(2)There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance.
   At December 31, 2020
   Unpaid   Net
   PrincipalRelatedRecorded Recorded
(In Thousands)BalanceCharge-offsInvestment
Allowance (1)
Investment
        
Mortgage loans:     
 Single-family:     
  With a related allowance$7,939 $ $7,939 $(587)$7,352 
  
Without a related allowance (2)
1,221 (365)856  856 
 Total single-family9,160 (365)8,795 (587)8,208 
        
Total restructured loans$9,160 $(365)$8,795 $(587)$8,208 

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

   At June 30, 2020
   Unpaid   Net
   PrincipalRelatedRecorded Recorded
(In Thousands)BalanceCharge-offsInvestment
Allowance(1)
Investment
        
Mortgage loans:     
 Single-family:     
  With a related allowance$1,650 $ $1,650 $(108)$1,542 
  
Without a related allowance(2)
1,435 (365)1,070  1,070 
 Total single-family3,085 (365)2,720 (108)2,612 
        
Commercial business loans:     
 With a related allowance35  35 (4)31 
Total commercial business loans35  35 (4)31 
        
Total restructured loans$3,120 $(365)$2,755 $(112)$2,643 

(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 September 30, 2021 and six months ended December 31, 2020, and 2019, no properties were acquired in the settlement of loans and no previously foreclosed upon properties were sold. As of both December 31, 2020September 30, 2021 and June 30, 2020,2021, there was no real

18

estate owned property. A new appraisal is obtained on each of the properties at the time of foreclosure and fair value is derived by using the lower of the appraised value or the listing price of the property, net of selling costs. Any initial loss is recorded as a charge to the allowance for loan losses before being transferred to real estate owned. Subsequent to transfer to real estate owned, if there is further deterioration in real estate values, specific real estate owned loss reserves are established and charged to the condensed consolidated statements of operations.  In addition, the Corporation records costs to carry real estate owned as real estate owned operating expenses as incurred.


25

The Coronavirus Aid, Relief, and Economic Security Act of 2020 signed into law on March 27, 2020 ("CARES Act") and Interagency Statement provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act and Interagency Statement prior to any relief and were not extended beyond their initial six months of deferred payments, are not considered restructured loans. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. To qualify as an eligible loan under the CARES Act and Interagency Statement, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (a) 60 days after the date of termination of the national emergency declared by the President or (b) December 31, 2020. In addition, the bank regulatory agencies issued the Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (“Interagency Statement”) stating that COVID-19 related short-term modifications (i.e., six months or less) granted to loans that were current as of the loan modification program implementation date are not restructured loans.

On December 27, 2020, the Consolidated Appropriations Act 2021 (H.R. 133) was signed into law. Among other purposes, this act provides coronavirus emergency response and relief, including extending relief offered under the CARES Act related to restructured loans as a result of COVID-19 through January 1, 2022 or 60 days after the end of the national emergency declared by the President, whichever is earlier.

As of December 31, 2020, the Corporation had six single-family forbearance loans, with outstanding balances of $1.8 million or 0.21 percent of total loans, and two multi-family loans with outstanding balances of $763,000 or 0.09 percent of total loans that were modified in accordance with the CARES Act and Interagency Statement. In addition, as of December 31, 2020, the Corporation had two pending requests for payment relief for a single-family loan of $684,000 and a multi-family loan of $1.1 million.

As of December 31, 2020, loan forbearance related to COVID-19 hardship requests are described below:

 Forbearance Granted
Forbearance Completed (1)
Forbearance Remaining
(Dollars In Thousands)
Number of
Loans
Amount
Number of
Loans
Amount
Number of
Loans
Amount
Single-family loans 58 $23,239  52 $21,404  6 $1,835 
Multi-family loans 5  2,346  3  1,583  2  763 
Commercial real estate loans 2  1,066  2  1,066     
Total loan forbearance 65 $26,651  57 $24,053  8 $2,598 

(1)
Includes 16 single-family loans totaling $6.3 million which were subsequently extended and classified as restructured loans, consistent with the Interagency Statement.






26

As of December 31, 2020, certain characteristics of loans in forbearance are described below:

(Dollars In Thousands)Number of LoansAmount
% of
Total
Loans
Weighted
Avg. LTV (1)
Weighted
Avg. FICO (2)
Weighted
Avg. Debt
Coverage
Ratio (3)
Weighted Avg.
Forbearance
Period
Granted (4)
 
Single-family loans 6 $1,835 0.21% 75% 725  N/A  6.0 
Multi-family loans 2  763 0.09% 56% 711  1.26x 5.0 
Total loans in forbearance 8 $2,598 0.30% 69% 721  1.26x 5.7 

(1)
Current loan balance in comparison to the original appraised value.
(2)
At time of loan origination, borrowers and/or guarantors.
(3)
At time of loan origination.
(4)
In months.

Note 6: 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 December 31, 2020September 30, 2021 and June 30, 2020,2021, the Corporation had commitments to extend credit on loans to be held for investment of $12.3$22.5 million and $13.6$21.9 million, respectively.


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

CommitmentsDecember 31, 2020June 30, 2020
(In Thousands)  
   
Undisbursed loan funds – Construction loans$2,736 $4,029 
Undisbursed lines of credit – Commercial business loans520 935 
Undisbursed lines of credit – Consumer loans422 448 
Commitments to extend credit on loans to be held for investment12,281 13,579 
Total$15,959 $18,991 

    

    

Commitments

September 30, 2021

June 30, 2021

(In Thousands)

 

  

 

  

 

Undisbursed loan funds – Construction loans

$

3,763

$

4,479

Undisbursed lines of credit – Commercial business loans

 

441

 

460

Undisbursed lines of credit – Consumer loans

 

415

 

425

Commitments to extend credit on loans to be held for investment

 

22,508

 

21,887

Total

$

27,127

$

27,251

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 quarter ended December 31, 2020September 30, 2021 and 2019.

 For the Quarter Ended
 December 31,
For the Six Months Ended
December 31,
(In Thousands)2020201920202019
Balance, beginning of the period$104 $143 $126 $141 
Recovery(3)(5)(25)(3)
Balance, end of the period$101 $138 $101 $138 

27

2020.

For the Quarter Ended

September 30, 

(In Thousands)

    

2021

    

2020

    

Balance, beginning of the year

$

127

$

126

Recovery

 

(23)

 

(22)

Balance, end of the year

$

104

$

104

In accordance with ASC 815, “Derivatives and Hedging,” and interpretations of the Derivatives Implementation Group of the FASB, the fair value of the commitments to extend credit on loans to be held for sale, loan sale commitments, to be announced (“TBA”) MBS trades, put option contracts and call option contracts are recorded at fair value on the Condensed Consolidated Statements of Financial Condition. The Corporation does not apply hedge accounting to its derivative financial instruments; therefore, all changes in fair value are recorded in earnings. As of December 31, 2020September 30, 2021 and June 30, 2020,2021, there were no0 outstanding derivative financial instruments.


Loans previously sold to the FHLB – San Francisco under the Mortgage Partnership Finance (“MPF”) program have a recourse liability. The FHLB – San Francisco absorbs the first four4 basis points of loss by establishing a first loss account and a credit scoring process is used to calculate the maximum recourse amount for the Bank. All losses above the Bank’s

19

maximum recourse amount are the responsibility of the FHLB – San Francisco. The FHLB – San Francisco pays the Bank a credit enhancement fee on a monthly basis to compensate the Bank for accepting the recourse obligation. As of December 31, 2020September 30, 2021 and June 30, 2020,2021, the Bank serviced $6.2$4.8 million and $7.4$5.3 million of loans under this program, respectively, and has established a recourse liability of $40,000 and $70,000, respectively.


$25,000 at both dates.

Occasionally, the Bank is required to repurchase loans sold to Freddie Mac, Fannie Mae or other investors if it is determined that such loans do not meet the credit requirements of the investor, or if one of the parties involved in the loan misrepresented pertinent facts, committed fraud, or if such loans were 90-days past due within 120 days of the loan funding date. During the quarter ended December 31,September 30, 2021 and 2020 the Bank did not repurchase any loans. In comparison during the same quarter last year, the Bank repurchased two single-family loans totaling $520,000 pursuantor settle any request to the recourse/repurchase covenants contained in the loan sale agreements. During the six months ended December 31, 2020, the Bank did not repurchase any loans. In comparison, during the same period last year, the Bank repurchased three single-family loans totaling $1.1 million pursuant to the recourse/repurchase covenants contained in the loan sale agreements. There were no other repurchase requests that did not result in the repurchase of the loan itself, which were settled in the quarter and six months ended December 31, 2020 and 2019.purchase a loan. In addition to the specific recourse liability for the MPF program, the Bank established a recourse liability of $350,000 and $200,000$175,000 for loans sold to other investors as of December 31, 2020both September 30, 2021 and June 30, 2020, respectively.


2021.

The following table shows the summary of the recourse liability for the quarter ended September 30, 2021 and six months ended December 31, 2020 and 2019:

 
For the Quarter Ended
December 31,
 For the Six Months Ended
December 31,
Recourse Liability2020201920202019
(In Thousands)    
     
Balance, beginning of the period$370 $250 $270 $250 
Provision for recourse liability20  120  
Net settlements in lieu of loan repurchases    
Balance, end of the period$390 $250 $390 $250 


2020:

For the Quarter Ended 

    

September 30, 

Recourse Liability

    

2021

    

2020

    

(In Thousands)

Balance, beginning of the period

$

200

$

270

Provision for recourse liability

 

0

 

100

Net settlements in lieu of loan repurchases

 

0

 

0

Balance, end of the period

$

200

$

370

Note 7: Fair Value of Financial Instruments


The Corporation adopted ASC 820, “Fair Value Measurements and Disclosures,” and elected the fair value option pursuant to ASC 825, “Financial Instruments.” ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 825 permits entities to elect to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the “Fair Value Option”) at specified election dates. At each subsequent reporting date, an entity is required to report unrealized gains and losses on items in

28

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 Corporation also adopted 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 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:

(In Thousands)
Aggregate
Fair Value
Aggregate
Unpaid
Principal
Balance
Net
Unrealized
Loss
As of December 31, 2020:   
Loans held for investment, at fair value$1,972 $2,097 $(125)
    
As of June 30, 2020:   
Loans held for investment, at fair value$2,258 $2,369 $(111)

Aggregate

Unpaid

Net

Aggregate

Principal

Unrealized

(In Thousands)

    

Fair Value

    

Balance

    

Loss

As of September 30, 2021:

Loans held for investment, at fair value

$

1,577

$

1,635

$

(58)

As of June 30, 2021:

 

  

 

  

 

  

Loans held for investment, at fair value

$

1,874

$

1,934

$

(60)

20

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 and interest-only strips; while non-performing loans, mortgage servicing assets ("MSA") and real estate owned, if any, are measured at fair value on a nonrecurring basis.


29

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


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


Non-performing loans are loans which are inadequately protected by the current sound 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.


21

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).


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.




30

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, 2020 Using:
(In Thousands)Level 1Level 2Level 3Total
Assets:    
    Investment securities - available for sale:    
        U.S. government agency MBS$ $2,551 $ $2,551 
        U.S. government sponsored enterprise MBS 1,434  1,434 
        Private issue CMO  173 173 
            Investment securities - available for sale 3,985 173 4,158 
     
    Loans held for investment, at fair value  1,972 1,972 
    Interest-only strips  12 12 
Total assets$ $3,985 $2,157 $6,142 
     
Liabilities$ $ $ $ 
Total liabilities$ $ $ $ 

Fair Value Measurement at September 30, 2021 Using:

(In Thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

Investment securities - available for sale:

U.S. government agency MBS

$

0

$

2,062

$

0

$

2,062

U.S. government sponsored enterprise MBS

 

0

 

1,104

 

0

 

1,104

Private issue CMO

 

0

 

0

 

150

 

150

Investment securities - available for sale

 

0

 

3,166

 

150

 

3,316

Loans held for investment, at fair value

 

0

 

0

 

1,577

 

1,577

Interest-only strips

 

0

 

0

 

9

 

9

Total assets

$

0

$

3,166

$

1,736

$

4,902

Liabilities:

$

0

$

0

$

0

$

0

Total liabilities

$

0

$

0

$

0

$

0

Fair Value Measurement at June 30, 2021 Using:

(In Thousands)

    

Level 1

Level 2

    

Level 3

    

Total

Assets:

Investment securities - available for sale:

U.S. government agency MBS

$

0

$

2,222

$

0

$

2,222

U.S. government sponsored enterprise MBS

 

0

 

1,211

 

0

 

1,211

Private issue CMO

 

0

 

0

 

154

 

154

Investment securities - available for sale

 

0

 

3,433

 

154

 

3,587

Loans held for investment, at fair value

 

0

 

0

 

1,874

 

1,874

Interest-only strips

 

0

 

0

 

10

 

10

Total assets

$

0

$

3,433

$

2,038

$

5,471

Liabilities:

$

0

$

0

$

0

$

Total liabilities

$

0

$

0

$

0

$


22

 Fair Value Measurement at June 30, 2020 Using:
(In Thousands)Level 1Level 2Level 3Total
Assets:    
    Investment securities - available for sale:    
        U.S. government agency MBS$ $2,943 $ $2,943 
        U.S. government sponsored enterprise MBS 1,577  1,577 
        Private issue CMO  197 197 
            Investment securities - available for sale 4,520 197 4,717 
     
    Loans held for investment, at fair value  2,258 2,258 
    Interest-only strips  14 14 
Total assets$ $4,520 $2,469 $6,989 
     
Liabilities:$ $ $ $ 
Total liabilities$ $ $ $ 





31

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, 2020 
 
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
 Total 
Beginning balance at September 30, 2020$
184
 $
2,240
 $
13
 $
2,437
 
   Total gains or losses (realized/unrealized):        
      Included in earnings (11) (11)
      Included in other comprehensive loss2  (1)1 
   Purchases    
   Issuances    
   Settlements(13)(257) (270)
   Transfers in and/or out of Level 3    
Ending balance at December 31, 2020$173 $1,972 $12 $2,157 

For the Quarter Ended September 30, 2021

Fair Value Measurement

Using Significant Other Unobservable Inputs

(Level 3)

Private

Loans Held For

Interest-

Issue

Investment, at

Only

(In Thousands)

    

CMO

    

fair value(1)

    

Strips

    

Total

Beginning balance at June 30, 2021

$

154

$

1,874

$

10

$

2,038

Total gains or losses (realized/unrealized):

Included in earnings

 

0

 

2

 

0

 

2

Included in other comprehensive income (loss)

 

1

 

0

 

(1)

 

0

Purchases

 

0

 

0

 

0

 

0

Issuances

 

0

 

0

 

0

 

0

Settlements

 

(5)

 

(299)

 

0

 

(304)

Transfers in and/or out of Level 3

 

0

 

0

 

0

 

0

Ending balance at September 30, 2021

$

150

$

1,577

$

9

$

1,736

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


 For the Quarter Ended December 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
 Total 
Beginning balance at September 30, 2019$
253
 $
4,386
 $
14
 $
4,653
 
   Total gains or losses (realized/unrealized):        
      Included in earnings 31  31
      Included in other comprehensive loss(3) (1)(4)
   Purchases    
   Issuances    
   Settlements(19)(244) (263)
   Transfers in and/or out of Level 3    
Ending balance at December 31, 2019$231 $4,173 $13 $4,417 

For the Quarter Ended September 30, 2020

Fair Value Measurement

Using Significant Other Unobservable Inputs

(Level 3)

Private

Loans Held For

Interest-

Issue

Investment, at

Only

(In Thousands)

    

CMO

    

fair value(1)

    

Strips

    

Total

Beginning balance at June 30, 2020

$

197

$

2,258

$

14

$

2,469

Total gains or losses (realized/unrealized):

Included in earnings

 

0

 

(4)

 

0

 

(4)

Included in other comprehensive income (loss)

 

4

 

0

 

(1)

 

3

Purchases

 

0

 

0

 

0

 

0

Issuances

 

0

 

0

 

0

 

0

Settlements

 

(17)

 

(14)

 

0

 

(31)

Transfers in and/or out of Level 3

 

0

 

0

 

0

 

0

Ending balance at September 30, 2020

$

184

$

2,240

$

13

$

2,437

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



32


 For the Six Months Ended December 31, 2020 
 
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
 Total 
Beginning balance at June 30, 2020$
197
 $
2,258
 $
14
 $
2,469
 
   Total gains or losses (realized/unrealized):        
      Included in earnings (15) (15)
      Included in other comprehensive loss6  (2)4 
   Purchases    
   Issuances    
   Settlements(30)(271) (301)
   Transfers in and/or out of Level 3    
Ending balance at December 31, 2020$173 $1,972 $12 $2,157 

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


 For the Six Months Ended December 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
 Total 
Beginning balance at June 30, 2019$
269
 $
5,094
 $
16
 $
5,379
 
   Total gains or losses (realized/unrealized):        
      Included in earnings 13  13 
      Included in other comprehensive loss(3) (3)(6)
   Purchases    
   Issuances    
   Settlements(35)(934) (969)
   Transfers in and/or out of Level 3    
Ending balance at December 31, 2019$231 $4,173 $13 $4,417 

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

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

 Fair Value Measurement at December 31, 2020 Using:
(In Thousands)Level 1Level 2Level 3Total
Non-performing loans$ $1,562 $8,708 $10,270 
Mortgage servicing assets  233 233 
Total$ $1,562 $8,941 $10,503 

Fair Value Measurement at September 30, 2021 Using:

(In Thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Non-performing loans

$

0

$

713

$

5,903

$

6,616

Mortgage servicing assets

 

0

 

0

 

132

 

132

Total

$

0

$

713

$

6,035

$

6,748

Fair Value Measurement at June 30, 2021 Using:

(In Thousands)

Level 1

Level 2

Level 3

Total

Non-performing loans

    

$

0

$

899

$

7,747

$

8,646

Mortgage servicing assets

 

0

 

0

 

208

 

208

Total

$

0

$

899

$

7,955

$

8,854

33

23


 Fair Value Measurement at June 30, 2020 Using:
(In Thousands)Level 1Level 2Level 3Total
Non-performing loans$ $2,042 $2,882 $4,924 
Mortgage servicing assets  382 382 
Total$ $2,042 $3,264 $5,306 

Table of Contents

The following table presents additional information about valuation techniques and inputs used for assets and liabilities, which are measured at fair value and categorized within Level 3 as of December 31, 2020:

(Dollars In Thousands)Fair Value
As of
December 31,
2020
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
$173 
Market comparable
pricing
Comparability adjustment
(0.1)% - (1.4)%
((0.3)%)
Increase
      
Loans held for investment, at
   fair value
$1,972 
Relative value
analysis
Broker quotes
Credit risk factor
97.6% - 102.0%
(99.9%) of par
1.4% - 100.0% (5.9%)
Increase

Decrease
      
Non-performing loans(3)
$7,352 Discounted cash flowDefault rates5.0%Decrease
      
Non-performing loans(4)
$1,356 Relative value analysisCredit risk factor20.0% - 30.0% (20.1%)Decrease
      
Mortgage servicing assets$233 Discounted cash flow
Prepayment speed (CPR)
Discount rate
20.4% - 60.0% (29.6%)
9.0% - 10.5% (9.1%)
Decrease
Decrease
      
Interest-only strips$12 Discounted cash flow
Prepayment speed (CPR)
Discount rate
20.4% - 23.0% (22.9%)
9.0%
Decrease
Decrease
      
Liabilities:     
None       
      
September 30, 2021:

Impact to

Fair Value

Valuation

As of

from an

September 30, 

Valuation

Range(1)

Increase in

(Dollars In Thousands)

  

2021

  

Techniques

  

Unobservable Inputs

  

(Weighted Average)

  

Inputs(2)

Assets:

Securities available-for sale: Private issue CMO

$

150

 

Market comparable pricing

 

Comparability adjustment

 

1.6% - 2.5% (2.3%)

 

Increase

Loans held for investment, at fair value

$

1,577

 

Relative value analysis

 

Broker quotes

 

98.0% - 104.1% (101.0%) of par

 

Increase

Credit risk factor

 

1.3% - 100.0% (4.6%)

Decrease

Non-performing loans(3)

$

4,931

 

Discounted cash flow

 

Default rates

 

5.0% - 5.2% (5.0%)

Decrease

Non-performing loans(4)

$

972

 

Relative value analysis

 

Credit risk factor

 

20.0% - 30.0% (28.4%)

 

Decrease

Mortgage servicing assets

$

132

 

Discounted cash flow

 

Prepayment speed (CPR)

 

21.1% - 60.0% (26.5%)

 

Decrease

 

Discount rate

 

9.0% - 10.5% (9.1%)

 

Decrease

Interest-only strips

$

9

 

Discounted cash flow

 

Prepayment speed (CPR)

 

25.4% - 28.9% (28.7%)

Decrease

 

Discount rate

 

9.0%

 

Decrease

Liabilities:

 

  

 

  

 

  

 

  

 

  

None

(1)
The range is based on the historical estimated fair values and management estimates.
(2)
Unless otherwise noted, this column represents the directional change in the fair value of the Level 3 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)
Consists of restructured loans.loans.
(4)
Consists of other non-performing loans, excluding restructured loans.

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


34

The carrying amount and fair value of the Corporation’s other financial instruments as of December 31, 2020September 30, 2021 and June 30, 20202021 was as follows:

 December 31, 2020
(In Thousands)Carrying
Amount
Fair
Value

Level 1

Level 2

Level 3
Financial assets:     
Investment securities - held to maturity$203,098 $206,451 $ $206,451 $ 
Loans held for investment, not recorded at fair value$853,114 $854,482 $ $ $854,482 
FHLB – San Francisco stock$7,970 $7,970 $ $7,970 $ 
      
Financial liabilities:     
Deposits$909,968 $879,153 $ $ $879,153 
Borrowings$116,015 $120,942 $ $ $120,942 

 June 30, 2020
(In Thousands)Carrying
Amount
Fair
Value

Level 1

Level 2

Level 3
Financial assets:     
Investment securities - held to maturity$118,627 $121,201 $ $121,201 $ 
Loans held for investment, not recorded at fair value$900,538 $902,074 $ $ $902,074 
FHLB – San Francisco stock$7,970 $7,970 $ $7,970 $ 
      
Financial liabilities:     
Deposits$892,969 $864,239 $ $ $864,239 
Borrowings$141,047 $149,976 $ $ $149,976 

September 30, 2021

Carrying

Fair

(In Thousands)

    

Amount

    

Value

    

Level 1

    

Level 2

    

Level 3

Financial assets:

Loans held for investment, not recorded at fair value

$

857,458

$

858,810

$

0

$

0

$

858,810

Investment securities - held to maturity

$

205,821

$

206,420

$

0

$

206,420

$

0

FHLB – San Francisco stock

$

8,155

$

8,155

$

0

$

8,155

$

0

Financial liabilities:

 

  

 

  

 

  

 

  

 

  

Deposits

$

956,742

$

922,037

$

0

$

0

$

922,037

Borrowings

$

90,000

$

93,311

$

0

$

0

$

93,311

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June 30, 2021

Carrying

Fair

(In Thousands)

    

Amount

    

Value

    

Level 1

    

Level 2

    

Level 3

Financial assets:

Loans held for investment, not recorded at fair value

$

849,086

$

848,727

$

0

$

0

$

848,727

Investment securities - held to maturity

$

223,306

$

224,721

$

0

$

224,721

$

0

FHLB – San Francisco stock

$

8,155

$

8,155

$

0

$

8,155

$

0

Financial liabilities:

 

 

 

 

 

Deposits

$

937,973

$

904,673

$

0

$

0

$

904,673

Borrowings

$

100,983

$

104,526

$

0

$

0

$

104,526

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.


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.


35

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 December 31, 2020,September 30, 2021, there were no significant changes to the Corporation’s valuation techniques that had, or are expected to have, a material impact on its condensed  consolidated financial position or results of operations.


25


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Note 8: Reclassification Adjustment of Accumulated Other Comprehensive Income ("AOCI")


The following tables provide the changes in AOCI by component for the quarter ended September 30, 2021 and six months ended December 31, 2020 and 2019.

 For the Quarter Ended December 31, 2020
 Unrealized gains and losses on
(In Thousands)
Investment securities
available for sale
Interest-
only strips
Total
    
Beginning balance at September 30, 2020$90 $9 $99 
    
Other comprehensive loss before reclassifications(19) (19)
Amount reclassified from accumulated other comprehensive income   
Net other comprehensive loss(19) (19)
    
Ending balance at December 31, 2020$71 $9 $80 

 For the Quarter Ended December 31, 2019
 Unrealized gains and losses on
(In Thousands)
Investment securities
available for sale
Interest-
only strips
Total
    
Beginning balance at September 30, 2019$138 $10 $148 
    
Other comprehensive loss before reclassifications(14)(1)(15)
Amount reclassified from accumulated other comprehensive income   
Net other comprehensive loss(14)(1)(15)
    
Ending balance at December 31, 2019$124 $9 $133 


36

 For the Six Months Ended December 31, 2020
 Unrealized gains and losses on
(In Thousands)
Investment securities
available for sale
Interest-
only strips
Total
    
Beginning balance at June 30, 2020$94 $10 $104 
    
Other comprehensive loss before reclassifications(23)(1)(24)
Amount reclassified from accumulated other comprehensive income   
Net other comprehensive loss(23)(1)(24)
    
Ending balance at December 31, 2020$71 $9 $80 

 For the Six Months Ended December 31, 2019
 Unrealized gains and losses on
(In Thousands)
Investment securities
available for sale
Interest-
only strips
Total
    
Beginning balance at June 30, 2019$150 $11 $161 
    
Other comprehensive loss before reclassifications(26)(2)(28)
Amount reclassified from accumulated other comprehensive income   
Net other comprehensive loss(26)(2)(28)
    
Ending balance at December 31, 2019$124 $9 $133 

2020.

For the Quarter Ended September 30, 2021

Unrealized Gains and Losses on

Investment Securities

(Dollars In Thousands, Net of Statutory Taxes)

    

Available for Sale

    

Interest-Only Strips

    

Total

Beginning balance at June 30, 2021

$

65

$

7

$

72

Other comprehensive loss before reclassifications

 

(5)

 

(1)

 

(6)

Amount reclassified from accumulated other comprehensive income

 

0

 

0

 

0

Net other comprehensive loss

 

(5)

 

(1)

 

(6)

Ending balance at September 30, 2021

$

60

$

6

$

66

For the Quarter Ended September 30, 2020

Unrealized Gains and Losses on

Investment Securities

(Dollars In Thousands, Net of Statutory Taxes)

    

Available for Sale

    

Interest-Only Strips

    

Total

Beginning balance at June 30, 2020

$

94

$

10

$

104

Other comprehensive loss before reclassifications

 

(4)

 

(1)

 

(5)

Amount reclassified from accumulated other comprehensive income

 

 

 

Net other comprehensive loss

 

(4)

 

(1)

 

(5)

Ending balance at September 30, 2020

$

90

$

9

$

99

Note 9: Revenue From Contracts With Customers


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


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


26

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Table of Contents

Disaggregation of Revenue:


The following table includes the Corporation's non-interest income disaggregated by type of services for the quarter ended September 30, 2021 and six months ended December 31, 2020 and 2019:


 For the Quarter Ended
 December 31,
 For the Six Months Ended
December 31,
Type of Services2020201920202019
(In Thousands)    
Loan servicing and other fees(1)
$120 $367 $525 $500 
Deposit account fees329 451 639 898 
Card and processing fees368 371 732 761 
Other(2)
157 155 237 255 
Total non-interest income$974 $1,344 $2,133 $2,414 

2020:

Quarter Ended September 30, 

Type of Services

    

2021

    

2020

(In Thousands)

 

  

 

  

Loan servicing and other fees(1)

$

186

$

405

Deposit account fees

312

310

Card and processing fees

405

364

Other(2)

 

166

 

80

Total non-interest income

$

1,069

$

1,159

(1)
Not in scope of ASC 606.
(2)Includes BOLI of $47 thousand and $48 thousand for the quarter ended September 30, 2021 and 2020, respectively, which are not in scope of ASC 606.
(2)
Includes BOLI of $48 thousand and $47 thousand for the quarter and $96 thousand and $94 thousand for six months ended December 31, 2020 and 2019, respectively, which are not in scope of ASC 606.

For both the quarter ended September 30, 2021 and six months ended December 31, 2020, and 2019, substantially all of the Corporation's revenues within the scope of ASC 606 are for performance obligations satisfied at a specified date.


Revenues recognized in scope of ASC 606:


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


Card and processing fees:Debit interchange income represents fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from cardholder transactions through a third partythird-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'cardholders’ debit card. Certain expenses directly associated with the debit cards are recorded on a net basis with the interchange income.


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


Note 10: Leases


The Corporation accounts for its leases in accordance with ASC 842, which was implemented on July 1, 2019, and requires the Corporation to record liabilities for future lease obligations as well as assets representing the right to use the underlying leased assets. The Corporation’sCorporation's leases primarily represent future obligations to make payments for the use of buildings, space or equipment for its operations. Liabilities to make future lease payments are recorded in accounts payable, accrued interest and


38

other liabilities, while right-of-use assets are recorded in premises and equipment in the Corporation’sCorporation's condensed consolidated statements of financial condition. At December 31, 2020,September 30, 2021, all of the Corporation’sCorporation's leases were classified as operating leases and the Corporation did not have any operating leases with an initial term of 12 months or less (“("short-term leases”leases"). Liabilities to make future lease payments and right of use assets are recorded for operating leases and do not include short-term leases. These liabilities and right-of-use assets are determined based on the total contractual

27

Table of Contents

base rents for each lease, which include options to extend or renew each lease, where applicable, and where the Corporation believes it has an economic incentive to extend or renew the lease. Due to the fact that lease extensions are not reasonably certain, the Corporation generally does not recognize payments occurring during option periods in the calculation of its operating right-of-use lease assets and operating lease liabilities. The Corporation utilizes the FHLB - San Francisco rates as a discount rate for each of the remaining contractual terms at the adoption date as well as for future leases if the discount rate is not stated in the lease. For leases that contain variable lease payments, the Corporation assumes future lease payment escalations based on a lease payment escalation rate specified in the lease or the specified index rate observed at the time of lease commencement. Liabilities to make future lease payments are accounted for using the interest method, being reduced by periodic contractual lease payments net of periodic interest accretion. Right-of-use assets for operating leases are amortized over the term of the associated lease by amounts that represent the difference between periodic straight-line lease expense and periodic interest accretion in the related liability to make future lease payments.


For the quarter ended December 31,September 30, 2021 and 2020, and 2019, expenses associated with the Corporation’s leases totaled $210,000$223,000 and $211,000, respectively, and were recorded in premises and occupancy expenses and equipment expenses in the condensed consolidated statements of operations.


For the six months ended December 31, 2020 and 2019, expenses associated with the Corporation’s leases totaled $421,000 and $401,000, respectively, and were recorded in premises and occupancy expenses and equipment expenses in the condensed consolidated statements of operations.

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


(In Thousands)
At
December 31, 2020
At
June 30, 2020
Condensed Consolidated Statements of Condition:  
Premises and equipment - Operating lease right of use assets$2,393 $2,525 
Accounts payable, accrued interest and other liabilities –
Operating lease liabilities
$2,478 $2,640 


 Quarter Ended
 December 31,
Six Months Ended
 December 31,
 2020201920202019
Condensed Consolidated Statements of Operations:    
Premises and occupancy expenses from operating leases (1) (2)
$199 $195 $398 $374 
Equipment expenses from operating leases11 16 23 27 

    

As of

(In Thousands)

September 30, 2021

June 30, 2021

Consolidated Statements of Condition:

 

  

 

  

Premises and equipment - Operating lease right of use assets

$

1,904

 

$

2,117

Accounts payable, accrued interest and other liabilities – Operating lease liabilities

$

1,970

 

$

2,192

Quarter Ended September 30, 

2021

2020

Consolidated Statements of Operations:

 

  

 

  

Premises and occupancy expenses from operating leases(1)

$

200

 

$

199

Equipment expenses from operating leases

$

23

 

$

12

Consolidated Statements of Cash Flows:

 

  

 

 

  

Operating cash flows from operating leases, net

$

232

 

$

226

(1)
VariableIncludes immaterial variable lease costs are immaterial.costs.

(2)

28

Revenue related to sublease activity is immaterial and netted against operating lease expenses.


39

(In Thousands)
Six Months Ended
December 31, 2020
Six Months Ended
December 31, 2019
Condensed Consolidated Statements of Cash Flows:      
Operating cash flows from operating leases, net(1)
$451 $563 

Table of Contents

(1)
Revenue related to sublease activity is immaterial and netted against operating lease expenses.

The following table provides information related to remaining minimum contractual lease payments and other information associated with the Corporation’s leases as of December 31, 2020:


 
Amount(1)
Year Ending June 30,(In Thousands)
2021$455 
2022778 
2023469 
2024359 
2025255 
Thereafter275 
Total contract lease payments$2,591 
   
Total liability to make lease payments$2,478 
Difference in undiscounted and discounted future lease payments$113 
Weighted average discount rate 2.00%
Weighted average remaining lease term (years) 4.1 
 
(1)  Contractual base rents do not include property taxes and other operating expenses due under respective lease agreements.

September 30, 2021:

    

Amount(1)

 

Year Ending June 30, 

 

(In Thousands)

2022

$

655

2023

 

506

2024

 

359

2025

 

255

2026

 

236

Thereafter

 

39

Total contract lease payments

$

2,050

Total liability to make lease payments

$

1,970

Difference in undiscounted and discounted future lease payments

$

80

Weighted average discount rate

 

2.01

%

Weighted average remaining lease term (years)

 

3.6

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

Note 11: Stock Repurchases

On April 27, 2021, the Corporation extended its 5 percent stock repurchase program of April 30, 2020 with a remaining authorized 317,108 shares to be purchased for a period of one year or until completed, whichever occurs first.

During the quarter ended September 30, 2021, the Corporation purchased 49,764 shares of the Corporation’s common stock under the April 2020 stock repurchase plan with a weighted average cost of $17.10 per share. As of September 30, 2021, there are 217,069 shares available for purchase until the plan expires on April 27, 2022. The Corporation will purchase the shares from time to time in the open market or through privately negotiated transactions depending on market conditions, the capital requirements of the Corporation, and available cash that can be allocated to the stock repurchase program, among other considerations.

Note 12: Subsequent Events


On JanuaryOctober 28, 2021, 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 FebruaryNovember 18, 2021 are entitled to receive the cash dividend. The cash dividend will be payable on March 11,December 9, 2021.


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 December 31, 2020,September 30, 2021, the Corporation had total assets of $1.17$1.19 billion, total deposits of $910.0$956.7 million and total stockholders’ equity of $125.0$128.2 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.


29


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Table of Contents

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


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


The Corporation began to distribute quarterly cash dividends in the quarter ended September 30, 2002. On October 29, 2020,July 22, 2021, 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 19, 2020,August 12, 2021, which was paid on December 10, 2020.September 2, 2021. Future declarations or payments of dividends will be subject to the consideration of the Corporation’s Board of Directors, which will take into account the Corporation’s financial condition, results of operations, tax considerations, capital requirements, industry standards, legal restrictions, economic conditions and other factors, including the regulatory restrictions which affect the payment of dividends by the Bank to the Corporation. Under Delaware law, dividends may be paid either out of surplus or, if there is no surplus, out of net profits for the current fiscal year and/or the preceding fiscal year in which the dividend is declared.


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


Safe-Harbor Statement


Certain matters in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Form 10-Q contains statements that the Corporation believes are “forward-looking statements.”  These statements relate to the Corporation’s financial condition, liquidity, results of operations, plans, objectives, future performance or business. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Corporation may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Corporation. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially include, but are not limited to the following: the effect of the COVID-19 pandemic, including on the Corporation’s credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; 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; uncertainty regarding the future of the London


41

Interbank Offered Rate ("LIBOR"), and the potential transition away from LIBOR toward new interest rate benchmarks; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; results of examinations of the Corporation by the FRB or of the Bank by the OCC or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to enter into a formal enforcement action or to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds

30

Table of Contents

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, California Consumer Privacy 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; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common stock; adverse changes in the securities markets; the inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; including as a result of the Coronavirus Aid, Relief, and Economic Security Act for 2020 (“CARES Act”), Interagency Statement and as amended by the Consolidated Appropriations Act 2021;2021 (“CAA”) and the related Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (“Interagency Statement”); war or terrorist activities; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services, including the CARES Act, Interagency Statementas a result of COVID-19 and recent Covid-19COVID-19 vaccination efforts, the Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (“Interagency Statement”),economic stimulus efforts, 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.


42

The Corporation'sCorporation’s critical accounting policies are described in the Corporation’s 20202021 Annual Report on Form 10-K for the year ended June 30, 20202021 in the Critical Accounting Policies section of Management'sManagement’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 sixthree months ended December 31, 2020September 30, 2021 to the critical accounting policies as described in the Corporation’s 20202021 Annual Report on Form 10-K for the period ended June 30, 2020.2021.


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Table of Contents

Executive Summary and Operating Strategy


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


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


During the next three years, subject to market conditions, the Corporation intends to improve its community banking business by moderately increasing total assets (by increasing single-family, multi-family, commercial real estate, construction and commercial business loans). In addition, the Corporation intends to decrease the percentage of 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 still be difficult as a result of weaknesseschallenging despite some recent improvements in general economic conditions. Further, becauseconditions as the lengthlong-term economic consequences of the COVID-19 pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown, including the 150 basis point reductions in March 2020 in the targeted federal funds rate, until the pandemic subsides, theremain unknown. The Corporation expects its net interest income and net interest margin willmay still be adversely affectedcompressed for the remaining calendar 2021 and possibly longer.


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, including as a result of the COVID-19 pandemic, 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.



43

COVID-19 Impact to the Corporation


The Corporation is actively monitoring and responding to the effects of the rapidly-changing COVID-19 pandemic. The health, safety and well-being of its customers, employees and communities are the Corporation’s top priorities. As of September 30, 2021, all Bank branches are open with normal hours and substantially all employees have returned to their routine working environments. The CentersBank will continue to monitor branch access and occupancy levels in relation to cases and close contact scenarios and follow governmental restrictions and public health authority guidelines.

The Company provided payment and financial relief programs for borrowers impacted by COVID-19. All loans modified due to COVID-19 were separately monitored and any request for continuation of Disease Controlrelief beyond the initial modification was

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reassessed at that time to determine if a further modification should be granted and Prevention (“CDC”) guidelines, as well as directives from federal, state, county and local officials, are being closely followed to make informed operational decisions.


During this unprecedented time,if a downgrade in risk rating was appropriate. As of September 30, 2021, the Corporation is working diligently with its employees to implement CDC-advised health, hygiene and social distancing practices. To avoid service disruptions, most of its employees currently work from the Corporation’s premises and promote social distancing standards. To date, there have been limited service disruptions. The Corporation’s Employee Assistance Program is provided at no cost for employees and family members seeking counseling services for mental health and emotional support needs. The Corporation also adheres to the Families First Coronavirus Response Act (FFCRA), which requires certain employers to provide employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19, providing additional flexibility to its employees to help navigate their individual challenges.

During the COVID-19 pandemic, taking care of customers and providing uninterrupted access to services are top priorities for the Corporation. All of the Corporation’s banking centers are open for business with regular business hours while implementing CDC guidelines for social distancing and enhanced cleaning. Customers can also conduct their banking business using drive thrus, online and mobile banking services, ATMs, and telephone banking.

On March 27, 2020, the CARES Act was signed into law and on April 7, 2020, the Board of Governors of the Federal Reserve System, FDIC, National Credit Union Administration, OCC and Consumer Financial Protection Bureau issued the Interagency Statement. Among other things, the CARES Act and Interagency Statement provided relief to borrowers, including the opportunity to defer loan payments while not negatively affecting their credit standing. The CARES Act and Interagency Statement provided guidance around the modification of loans as a result of the COVID-19 pandemic, and outlined, among other criteria, that short-term modifications of up to six months made on a good faith basis to borrowers who were current as defined under the CARES Act and Interagency Statement prior to any relief are not restructured loans. For commercial and consumer customers, the Corporation has provided relief options, including payment deferrals from 60 days to 180 days and fee waivers.

On December 27, 2020, the Consolidated Appropriations Act 2021 (H.R. 133) was signed into law. Among other purposes, this act provides coronavirus emergency response and relief, including extending relief offered under the CARES Act related to restructured loans as a result of COVID-19 through January 1, 2022 or 60 days after the end of the national emergency declared by the President, whichever is earlier.

As of December 31, 2020, the Corporation has sixhad only one remaining single-family forbearance loans,loan, with an outstanding balancesbalance of $1.8 million$308,000 or 0.21 percent of total loans, and two multi-family loans with outstanding balances of $763,000 or 0.090.04 percent of total loans that were modified in accordance with the CARES Act and Interagency Statement. In addition, as of December 31, 2020,September 30, 2021, the Corporation had twono pending requests for payment relief for a single-family loan of $684,000 and a multi-family loan of $1.1 million.

Interest income continues to be recognized during the payment deferrals, unless the loans are non-performing. After the payment deferral period, scheduled loan payments will once again become due and payable. The forbearance amount will be due and payable in full as a balloon payment at the endrelief. For additional information, see Note 5 of the loan term or sooner if the loan becomes due and payable in full at an earlier date.

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All loans modified dueNotes to COVID-19 will be separately monitored and any request for continuation of relief beyond the initial modification will be reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating is appropriate.

As of December 31, 2020, loan forbearance related to COVID-19 hardship requests are described below:

 Forbearance Granted
Forbearance Completed (1)
Forbearance Remaining
(Dollars In Thousands)
Number of
Loans
Amount
Number of
Loans
Amount
Number of
Loans
Amount
Single-family loans 58 $23,239  52 $21,404  6 $1,835 
Multi-family loans 5  2,346  3  1,583  2  763 
Commercial real estate loans 2  1,066  2  1,066     
Total loan forbearance 65 $26,651  57 $24,053  8 $2,598 

(1)
Includes 16 single-family loans totaling $6.3 million which were subsequently extended and classified as restructured loans consistent with the Interagency Statement.

As of December 31, 2020, certain characteristics of loans in forbearance are described below:

(Dollars In Thousands)
Number
of Loans
Amount
% of
Total
Loans
Weighted
Avg. LTV (1)
Weighted
Avg. FICO (2)
Weighted
Avg. Debt
Coverage
Ratio (3)
Weighted Avg.
Forbearance
Period
Granted (4)
 
Single-family loans 6 $1,835 0.21% 75% 725  N/A  6.0 
Multi-family loans 2  763 0.09% 56% 711  1.26x 5.0 
Total loans in forbearance 8 $2,598 0.30% 69% 721  1.26x 5.7 

(1)
Current loan balance in comparison to the original appraised value.
(2)
At time of loan origination, borrowers and/or guarantors.
(3)
At time of loan origination.
(4)
In months.

Unaudited Interim Condensed Consolidated Financial Statements.

The Corporation believes the steps we are taking are necessary to effectively manage its portfolio and assist the borrowers through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic.


For customers that may need access to funds in their certificates of deposit to assist with living expenses during the COVID-19 pandemic, the Corporation is waiving early withdrawal penalties on a case by case basis. Overdraft and other fees are also waived on a case-by-case basis. The Corporation is cautious when paying overdrafts beyond the client's total deposit relationship, overdraft protection options or their overdraft coverage limits.

The Corporation anticipates that the COVID-19 pandemic may continue to impact the business in future periods in one or more of the following ways, among others:
Higher provisions for certain commercial real estate loans may be incurred, especially to borrowers with tenants in industries, such as hospitality, travel, food service and restaurants and bars, and businesses providing physical services;
Significantly lower market interest rates which may have a negative impact on variable rate loans indexed to LIBOR, U.S. treasury and prime indices and on deposit pricing, as interest rate adjustments typically lag the effect on the yield earned on interest-earning assets because rates on many deposit accounts are decision-based, not tied to a specific market-based index, and are based on competition for deposits;
Certain additional fees for deposit and loan products may be waived or reduced;


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Non-interest income may decline due to a decrease in fees earned as spending habits change by debit card customers complying with COVID-19 governmental safety requirements and who otherwise may be adversely affected by reductions in their personal income or job losses;
Non-interest expenses related to the effects of the COVID-19 pandemic may increase, including cleaning costs, supplies, equipment and other items; and
Additional loan forbearance or modifications may occur and borrowers may default on their loans, which may necessitate further increases to the allowance for loan losses.

While the full impact of COVID-19 on the Corporation's future financial results is uncertain and not currently estimable, the Corporation believes that the impact could be materially adverse to its financial condition and results of operations depending on the length and severity of the economic downturn brought on by the COVID-19 pandemic.


Off-Balance Sheet Financing Arrangements


Commitments and Derivative Financial Instruments. The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, in the form of originating loans or providing funds under existing lines of credit, loan sale agreements to third parties and option contracts. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying Condensed Consolidated Statements of Financial Condition. The Corporation’s exposure to credit loss, in the event of non-performance by the counterparty to these financial instruments, is represented by the contractual amount of these instruments. The Corporation uses the same credit policies in entering into financial instruments with off-balance sheet risk as it does for on-balance sheet instruments. For a discussion on commitments and derivative financial instruments, see Note 6 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.


Comparison of Financial Condition at December 31, 2020September 30, 2021 and June 30, 2020


2021

Total assets decreased $6.1increased $8.7 million, or one percent, to $1.17$1.19 billion at December 31, 2020September 30, 2021 from June 30, 2020.2021. The decreaseincrease was primarily attributable to decreasesincreases in cash and cash equivalents and loans held for investment, partly offset by an increasea decrease in investment securities.


Total cash and cash equivalents, primarily excess cash deposited with the Federal Reserve Bank of San Francisco, decreased $42.0increased $17.9 million, or 3626 percent, to $74.0$88.2 million at December 31, 2020September 30, 2021 from $116.0$70.3 million at June 30, 2020.2021. The decreaseincrease in the total cash and cash equivalents was primarily attributable to the utilization of cash to fund purchasesscheduled mortgage payments and accelerated principal payments of investment securities and to payoff borrowings.


securities.

Investment securities (held to maturity and available for sale) increased $84.0decreased $17.8 million, or 68eight percent, to $207.3$209.1 million at December 31, 2020September 30, 2021 from $123.3$226.9 million at June 30, 2020.2021. The increasedecrease was primarily the result of purchases of investment securities totaling $106.4 million, partly offset by scheduled and accelerated principal payments on mortgage-backed securities during the first sixthree months of fiscal 2021.2022. For further analysis on investment securities, see Note 4 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.


Loans held for investment decreased $47.7increased $8.0 million, or fiveone percent, to $855.1$859.0 million at December 31, 2020September 30, 2021 from $902.8$851.0 million at June 30, 2020,2021, primarily due to increases in single-family and multi-family loans, partly offset by a decrease in single-familycommercial real estate loans. During the first sixthree months of fiscal 2021,2022, the Corporation originated $66.1$60.9 million of loans held for investment, consisting primarily of single-family and multi-family loans and also purchased $11.5 million of multi-family loans held for investment that are located throughout California. The Corporation did not purchase any loans to be held for investment during the first three months of fiscal 2022. Total loan principal payments during the first sixthree months of fiscal 20212022 were $125.9$53.9 million, up ninedown 19 percent from $116.0$66.3 million during


46

the comparable period in fiscal 2020.2021. The single-family loans held for investment balance at December 31, 2020September 30, 2021 and June 30, 20202021 was $257.9$275.0 million and $298.8$268.3 million, respectively, and represented approximately 3032 percent and 3331 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 December 31, 2020September 30, 2021 and June 30, 2020,2021, as a percentage of the total dollar amount outstanding:


As of December 31, 2020:

 
Inland
Empire
Southern
California(1)
Other
California
Other
States
Total
Loan CategoryBalance%Balance%Balance%Balance%Balance%
Single-family$71,881 28%$115,141 45%$70,546 27%$296 %$257,864 100%
Multi-family69,025 14%314,635 65%104,453 21%299 %488,412 100%
Commercial real
  estate
23,462 23%45,342 44%33,747 33% %102,551 100%
Construction861 12%6,274 88% % %7,135 100%
Other

 
%
141
 100
%

 
%

 
%
141
 100
%
Total$165,229 19%$481,533 56%$208,746 25%$595 %$856,103 100%

September 30, 2021:

    

Inland 

    

Southern 

    

Other 

    

Other 

    

    

    

    

 

Empire

California(1)

California

States

Total

Loan Category

    

Balance

    

%  

    

Balance

    

%  

    

Balance

    

%  

    

Balance

    

%  

    

Balance

    

%

Single-family

$

82,383

 

30

%  

$

98,686

 

36

%  

$

93,612

 

34

%  

$

289

 

%  

$

274,970

 

100

%

Multi-family

 

65,945

 

14

%  

 

305,616

 

62

%  

 

117,701

 

24

%  

 

288

 

%  

 

489,550

 

100

%

Commercial real estate

 

21,759

 

24

%  

 

40,990

 

45

%  

 

29,030

 

31

%  

 

 

%  

 

91,779

 

100

%

Construction

 

845

 

33

%  

 

1,729

 

67

%  

 

 

%  

 

 

%  

 

2,574

 

100

%

Other

 

 

%  

 

137

 

100

%  

 

 

%  

 

 

%  

 

137

 

100

%

Total

$

170,932

 

20

%  

$

447,158

 

52

%  

$

240,343

 

28

%  

$

577

 

%  

$

859,010

 

100

%

(1)
Other than the Inland Empire.

As of June 30, 2020:

 
Inland
Empire
Southern
California(1)
Other
California
Other
States
Total
Loan CategoryBalance%Balance%Balance%Balance%Balance%
Single-family$82,019 28%$140,888 47%$75,372 25%$531 %$298,810 100%
Multi-family66,427 14%321,556 65%103,609 21%311 %491,903 100%
Commercial real
  estate
23,501 22%47,484 45%34,250 33% %105,235 100%
Construction1,115 14%5,190 67%1,496 19% %7,801 100%
Other %143 100% % %143 100%
Total$173,062 19%$515,261 57%$214,727 24%$842 %$903,892 100%

2021:

Inland 

    

Southern 

    

Other 

    

Other 

    

    

    

    

 

Empire

California(1)

California

States

Total

Loan Category

    

Balance

    

%  

    

Balance

    

%  

    

Balance

    

%  

    

Balance

    

%  

    

Balance

    

%

Single-family

$

78,631

 

29

%  

$

100,560

 

38

%  

$

88,790

 

33

%  

$

291

 

%  

$

268,272

 

100

%

Multi-family

 

68,350

 

14

%  

 

304,534

 

63

%  

 

111,232

 

23

%  

 

292

 

%  

 

484,408

 

100

%

Commercial real estate

 

22,989

 

24

%  

 

41,940

 

44

%  

 

30,350

 

32

%  

 

 

%  

 

95,279

 

100

%

Construction

 

279

 

9

%  

 

2,761

 

91

%  

 

 

%  

 

 

%  

 

3,040

 

100

%

Other

 

 

%  

 

139

 

100

%  

 

 

%  

 

 

%  

 

139

 

100

%

Total

$

170,249

 

20

%  

$

449,934

 

53

%  

$

230,372

 

27

%  

$

583

 

%  

$

851,138

 

100

%

(1)
Other than the Inland Empire.

Total deposits increased $17.0$18.7 million, or two percent, to $910.0$956.7 million at December 31, 2020September 30, 2021 from $893.0$938.0 million at June 30, 2020,2021, primarily due to increases in transaction accounts, resulting primarily from government assistance programs related to the COVID-19 pandemic, partly offset by a decrease in higher cost time deposits. Transaction accounts increased $33.2$23.8 million, or fivethree percent, to $756.2$821.3 million at December 31, 2020September 30, 2021 from $723.0$797.5 million at June 30, 2020,2021, while time deposits decreased $16.2$4.9 million, or 10three percent, to $153.8$135.5 million at December 31, 2020September 30, 2021 from $170.0$140.4 million at June 30, 2020.2021. The percentage of time deposits to total deposits decreased to 1714 percent at December 31, 2020September 30, 2021 from 1915 percent at June 30, 2020,2021, primarily due to a managed run-off of higher cost time deposits consistent with the reduction in the Bank’s funding needs during the first sixthree months of fiscal 2021.


2022.

Total borrowings decreased $25.0$11.0 million, or 1811 percent, to $116.0$90.0 million at December 31, 2020September 30, 2021 as compared to $141.0$101.0 million at June 30, 2020,2021, due to repayments totaling $25.0 millionmaturities of long-term and short-term borrowings during the first six months of fiscal 2021.borrowings. At December 31, 2020,September 30, 2021, borrowings are primarily comprised of long-term FHLB - San Francisco advances used for interest rate risk management purposes.


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Total stockholders’ equity increased $1.0 million,$955,000, or one percent, to $125.0$128.2 million at December 31, 2020September 30, 2021 from $124.0$127.3 million at June 30, 2020,2021, primarily as a result of year-to-datethe $2.7 million net income in the first three months of $2.7 million and stock-based compensation of $490,000,fiscal 2022, partly offset by $2.1$1.1 million of quarterly cash dividends paid to shareholders, during the first six months$851,000 of fiscal 2021.stock repurchases and $201,000 of stock-based compensation. The Corporation did not repurchase anyrepurchased 49,764 shares of its common stock under its April 2020 stock repurchase plan during the six months ended December 31, 2020, but purchased 3,061 shares of distributed restricted stock in settlement of employee withholding tax obligations at anwith a weighted average cost of $12.01$17.10 per share.share during the first three months of fiscal 2022.


34

Comparison of Operating Results for the Quarter Ended September 30, 2021 and Six Months ended December 31, 2020 and 2019


The Corporation’s net income for the secondfirst quarter of fiscal 20212022 was $1.2$2.7 million, downup $1.2 million or 5180 percent from $2.4$1.5 million in the same period of fiscal 2020.2021. Compared to the same quarter last year, the decrease was primarily attributable to lower a decline of $2.0 million or 21 percent in net interest income and a $370,000 or 27 percent decrease in non-interest income, partly offset by lower a $638,000 or eight percent decline in non-interest expense.


For the first six months of fiscal 2021, the Corporation’s net income was $2.7 million, a decrease of $2.3 million, or 46 percent, from $5.0 million in the same period of fiscal 2020. Compared to the same period last year, the decreaseincrease in earnings was primarily attributable to a $3.4$1.3 million decrease in net-interest income, partly offset by a $1.2 million decrease innon-interest expenses (mainly, lower salaries and employee benefits expense.

Earningsexpenses) and a $559,000 improvement from the provision for loan losses to a $339,000 recovery from the quarterallowance for loan losses, partly offset by lower net interest income and six months ended December 31, 2020 reflect the continued impact of the COVID-19 pandemic which resulted in a substantial reduction in business activity or the closing of businesses in California during these periods.

lower non-interest income (mainly, lower loan servicing and other fees).

The Corporation’s efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, increasedimproved to 8063 percent for the secondfirst quarter of fiscal 20212022 from 6975 percent in the same period of fiscal 2020. For the first six months of fiscal 2021, the Corporation’s efficiency ratio also increased to 78 percent from 68 percent for the same period of fiscal 2020.


2021. Return on average assets was 0.400.89 percent in the secondfirst quarter of fiscal 2021, down 472022, up 39 basis points from 0.870.50 percent in the same period last year. ForReturn on average equity was 8.39 percent in the first six monthsquarter of fiscal 2021, return on average assets was 0.45 percent, down 46 basis points2022, up from 0.914.78 percent in the same period last year.

Return on average equity was 3.77 percent in the second quarter of fiscal 2021, down from 7.81 percent in the same period last year. For the first six months of fiscal 2021, return on average equity was 4.27 percent, down from 8.13 percent for the same period last year.

Diluted earnings per share for the secondfirst quarter of fiscal 20212022 were $0.16, down 48$0.35, up 75 percent from diluted earnings per share of $0.31$0.20 in the same period last year. For the first six months of fiscal 2021, diluted earnings per share were $0.36, down 45 percent from $0.65 in the same period last year.

Net Interest Income:


For the Quarter Ended December 31, 2020September 30, 2021 and 2019.2020. Net interest income decreased by $2.0 million,$278,000, or 21three percent, to $7.6$7.9 million for the secondfirst quarter of fiscal 20212022 from $9.6$8.2 million in the same period in fiscal 2020,2021, as a result of a lower net interest margin, partly offset by a higher average interest-earning asset balance. The net interest margin decreased 9313 basis points to 2.662.71 percent in the secondfirst quarter of fiscal 20212022 from 3.592.84 percent in the same period of fiscal 2020,2021, primarily due to a decrease in the average yield for all asset categories.on interest-earning assets which exceeded the smaller decrease in the average cost of interest-bearing liabilities. The decrease of the average yield on interest-earning asset was due primarily attributable to the declines in interest rates on adjustable rate instruments and interest-earning deposits following decreases to short-term rates over the last year, including the emergency 150 basis point reduction in the targeted Federal Funds Rate in March 2020 due to the COVID-19 pandemic.average yield of investment securities and loans held for investment categories. The weighted-average yield on interest-earning assets decreased by 10830 basis points to 3.103.01 percent in the second


48

first quarter of fiscal 20212022 from 4.183.31 percent in the same quarter last year, andwhile the weighted-average cost of interest-bearing liabilities decreased by 1620 basis points to 0.490.32 percent for the secondfirst quarter of fiscal 20212022 as compared to 0.650.52 percent in the same quarter last year. The average balance of interest-earning assets increased $75.0$12.6 million, or sevenone percent, to $1.15$1.16 billion in the secondfirst quarter of fiscal 20212022 from $1.07$1.15 billion in the comparable period of fiscal 2020,2021, reflecting increasesprimarily purchases of investment securities in fiscal 2021, partly offset by decreases in the average balance of both loans held for investment securities and interest-earning deposits, partly offset by a decrease in the average balance of loans receivable.deposits. The average balance of interest-bearing liabilities increased by $72.9$10.1 million, or eightone percent, to $1.04$1.05 billion in the secondfirst quarter of fiscal 20212022 from $964.6 million$1.04 billion in the same quarter last year primarily reflecting increases in the average balance of interest-bearing deposits and, to a lesser extent, the average balance of borrowings.

For the Six Months Ended December 31, 2020 and 2019.  Net interest income decreased by $3.4 million, or 18 percent, to $15.8 million for the first six months of fiscal 2021 from $19.2 million in the same period in fiscal 2020, as a result of a lower net interest margin,transaction accounts, partly offset by a higher average interest-earning asset balance. The net interest margin was 2.75 percent in the first six months of fiscal 2021, a decrease of 87 basis points from 3.61 percent in the same period of fiscal 2020, primarily due to a decrease in the average yield on interest-earning assets, partly offset by a decrease in the average cost of interest-bearing liabilities. The weighted-average yield on interest-earning assets decreased by 99 basis points to 3.20 percent in the first six months of fiscal 2021 from 4.19 percent in the same quarter last year, and the weighted-average cost of interest-bearing liabilities decreased by 14 basis points to 0.50 percent for the first six months of fiscal 2021 as compared to 0.64 percent in the same period last year. The average balance of interest-earning assets increased $86.7 million, or eight percent, to $1.15 billion in the first six months of fiscal 2021 from $1.06 billion in the comparable period of fiscal 2020, primarily reflecting increasesdecreases in the average balance of investment securitiesboth time deposits and interest earning deposits, partly offset by a decrease in the average balance of loans receivable. The average balance of interest-bearing liabilities increased by $85.2 million, or nine percent, to $1.04 billion in the first six months of fiscal 2021 from $953.6 million in the same period last year primarily reflecting an increase in the average balance of transaction accounts.

Beginning in August 2019, the Federal Reserve reduced the targeted Federal Funds Rate by 25 basis points three times in 2019 and by 150 basis points during the quarter ended March 2020 to a range of 0.00% to 0.25%.  The 150 basis-point decrease in the targeted Federal Funds Rate in response to the COVID-19 pandemic did not occur until late in the quarter in March 2020, and the effect of the lower interest rate environment has continued to be realized during this quarter. Furthermore, the effect of the changes in the targeted Federal Funds Rate on the cost of liabilities typically lags the effect on the yield earned on interest-earning assets because rates on many deposit accounts are decision-based, not tied to a specific market-based index, and are based on competition for deposits while most interest-earning assets adjust earlier because they are tied to a specific market-based index. Because the length of the COVID-19 pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown until the pandemic subsides, the Corporation expects its net interest income and net interest margin will continue to be adversely affected in calendar year 2021 and possibly longer.

borrowings.

Interest Income:


For the Quarter Ended December 31, 2020September 30, 2021 and 2019.2020. Total interest income decreased by $2.3 million,$773,000, or 21eight percent, to $8.9$8.7 million for the secondfirst quarter of fiscal 20212022 as compared to $11.2$9.5 million for the same quarter of fiscal 2020.2021. The decrease was due primarily to decreases in interest income from all interest-earning assets, mainlyboth loans receivable.


held for investment and investment securities.

Interest income on loans receivableheld for investment decreased by $2.0 million,$742,000, or 19eight percent, to $8.3$8.2 million in the secondfirst quarter of fiscal 20212022 from $10.3$8.9 million in the same quarter of fiscal 2020.2021. The decrease was due to a lower average yieldbalance, and to a lesser extent, a lower average balance.yield. The average balance of loans held for investment decreased by $40.3 million, or five percent, to $852.7 million for the first quarter of fiscal 2022 from $893.0 million in the same quarter of fiscal 2021. The average loans receivableheld for investment yield during the secondfirst quarter of fiscal 20212022 decreased 5816 basis points to 3.843.83 percent from 4.423.99 percent during the same quarter last year. The decrease in the average yield on loans receivable was primarily attributable to loans repricing downward, reflecting declines in the targeted Federal Funds Ratenew loan originations with a lower average yield and the increase of net deferred loan costs to $521,000 in the second quarter of fiscal 2021 from $12,000 in the same quarter of fiscal 2020. A deferred loan fee of $378,000 was recognized in interest income as a result of a loan payoff in the second quarter of fiscal 2020 from a previously classified non-performing loan that had been upgraded to pass and not replicated in the second quarter of fiscal


49

2021. The average balancepayoffs of loans receivable decreased by $65.6 million, or seven percent, to $868.5 million forwith a higher average yield than the second quarter of fiscal 2021 from $934.1 million in the same quarter of fiscal 2020. 

existing portfolio.

Interest income from investment securities decreased $119,000,$60,000, or 2113 percent, to $448,000$418,000 in the secondfirst quarter of fiscal 20212022 from $567,000$478,000 for the same quarter of fiscal 2020.2021. This decrease was attributable to a lower average yield, partly offset by a higher average balance. The average investment securities yield decreased 17446 basis points to 0.860.76 percent in the secondfirst quarter of fiscal 20212022 from 2.601.22 percent in the same quarter of fiscal 2020.2021. The decrease in the average investment

35

securities yield was primarily attributable to investment securities purchases in fiscal 2021 at a lower average yield than the existing portfolio, a higher premium amortization betweenduring the quarterscurrent quarter in comparison to the same quarter last year ($531,000510,000 vs. $97,000)$359,000) and the downward repricing of adjustable rate mortgage-backed securities. The average balance of investment securities increased $121.4$63.7 million, or 13941 percent, to $208.5$219.9 million in the secondfirst quarter of fiscal 20212022 from $87.1$156.2 million in the same quarter of fiscal 2020.2021. The increase in the average balance of investment securities was primarily attributable to purchases of investment securities in fiscal 2021, partly offset by scheduled and accelerated principal payments on mortgage-backed securities.


The FHLB – San Francisco cash dividend received in the secondfirst quarter of fiscal 20212022 was $100,000, down $45,000$122,000, up $22,000 or 3122 percent from the same quarter of fiscal 2020.2021. The average balance of FHLB – San Francisco stock in the secondfirst quarter of fiscal 2021 decreased slightly2022 increased two percent to $8.0$8.2 million from $8.2$8.0 million in the same quarter of fiscal 20202021 and the average yield decreasedincreased to 5.025.98 percent in the secondfirst quarter of fiscal 20212022 from 7.075.02 percent in the same quarter last year.


Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was $17,000$31,000 in the secondfirst quarter of fiscal 2021, down 912022, up 29 percent from $189,000$24,000 in the same quarter of fiscal 2020.2021. The decreaseincrease was due to a lowerhigher average yield, partly offset by a higherlower average balance. The average yield earned on interest-earning deposits decreased 152increased five basis points to 0.15 percent in the first quarter of fiscal 2022 from 0.10 percent in the second quarter of fiscal 2021 from 1.62 percent in the comparable quarter last year, due primarily to decreases in the targeted Federal Funds Rate over the last year. The average balance of the interest-earning deposits in the second quarter of fiscal 2021 was $64.9 million, an increase of $19.4 million or 43 percent, from $45.5 million in the same quarter of fiscal 2020.


For the Six Months Ended December 31, 2020 and 2019.  Total interest income decreased by $3.9 million, or 17 percent, to $18.4 million for the first six months of fiscal 2021 from $22.3 million in the same period of fiscal 2020.  The decrease was due to decreases in interest income from all interest-earning assets, mainly loans receivable.

Loans receivable interest income decreased $3.1 million, or 15 percent, to $17.3 million in the first six months of fiscal 2021 from $20.4 million for the same period of fiscal 2020.  The decrease was due to a lower average yield and, to a lesser extent, a lower average balance.  The average loan yield during the first six months of fiscal 2021 decreased 52 basis points to 3.92 percent from 4.44 percent in the same period last year. The decrease in the average yield on loans receivable was primarily attributable to loans repricing downward reflecting declines in the targeted Federal Funds Rate and the increase of net deferred loan costs to $987,000 in the first six months of fiscal 2021 from $172,000 in the same period of fiscal 2020. The higher net deferred loan costs was due primarily to higher loan prepayments during the periods and the prior period deferred loan fees of $520,000 which were recognized in interest income as a result of three loan payoffs in the first six months of fiscal 2020 from a previously classified non-performing loans that had been upgraded to pass and not replicated in the first six months of fiscal 2021. The average balance of loans receivable decreased $38.0 million, or four percent, to $880.7 million for the first six months of fiscal 2021 from $918.7 million in the same period of fiscal 2020.

Interest income from investment securities decreased $255,000, or 22 percent, to $926,000 in the first six months of fiscal 2021 from $1.2 million for the same period of fiscal 2020. This decrease was attributable to a lower average yield, partly offset by a higher average balance. The average investment securities yield decreased 156 basis points to 1.02 percent in the first six months of fiscal 2021 from 2.58 percent in the same period of fiscal 2020.  The decrease in the average investment securities yield was primarily attributable to a higher premium amortization ($890,000 compared to $227,000) and the purchases of investment securities during the last 12 months which had lower average yields than the existing portfolio. The average balance

50

of investment securities increased $90.8 million, or 99 percent, to $182.3 million in the first six months of fiscal 2021 from $91.5 million in the same period of fiscal 2020. The increase in the average balance of investment securities was primarily the result of purchases of mortgage-backed securities, partly offset by scheduled and accelerated principal payments on mortgage-backed securities.

The FHLB – San Francisco cash dividend received in the first six months of fiscal 2021 was $200,000, down 31 percent from $288,000 in the same period of fiscal 2020. As a result, the average yield decreased to 5.02 percent in the first six months of fiscal 2021 as compared to 7.03 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 $41,000 in the first six months of fiscal 2021, down 91 percent from $435,000 in the same period of fiscal 2020.  The decrease was due to a lower average yield, partly offset by a higher average balance. The average yield earned on interest-earning deposits decreased 179 basis points to 0.10 percent in the first six months of fiscal 2021 from 1.89 percent in the comparable quarter last year, due primarily to decreases in the targeted Federal Funds Rate over the last year. The average balance of the interest-earning deposits in the first six monthsquarter of fiscal 20212022 was $79.1$82.2 million, an increasea decrease of $34.1$11.1 million or 7612 percent, from $45.0$93.3 million in the same periodquarter of fiscal 2020.

2021.

Interest Expense:


For the Quarter Ended December 31, 2020September 30, 2021 and 2019.2020. Total interest expense decreased by $311,000$495,000 or 2037 percent to $1.3 million$858,000 in the secondfirst quarter of fiscal 20212022 from $1.6$1.4 million in the same quarter last year. This decrease was primarily attributable to lower borrowing expense and lower deposit expense.


Interest expense on deposits for the secondfirst quarter of fiscal 20212022 was $468,000$313,000 as compared to $778,000$551,000 for the same period last year, a decrease of $310,000,$238,000, or 4043 percent. The decrease in interest expense on deposits was attributable to a lower average cost of deposits, partly offset by a higher average balance. The average cost of deposits improved, decreasing by 1611 basis points to 0.210.13 percent during the secondfirst quarter of fiscal 20212022 from 0.370.24 percent during the same quarter last year. The decrease in the average cost of deposits was attributable primarily to a lower percentage of time deposits to the total deposit balance and a 2829 basis-point decrease in the average cost of time deposits. The average cost of transaction accounts also decreased by eightfour basis points. The average balance of deposits increased $69.1$53.0 million, or eightsix percent, to $902.7$952.3 million during the quarter ended December 31, 2020September 30, 2021 from $833.6$899.3 million during the same period last year. The increase in the average balance was primarily attributable to increases in transaction accounts, resulting primarily from government assistance programs related to the COVID-19 pandemic, partly offset by a decrease in higher cost 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 secondfirst quarter of fiscal 20212022 was 8386 percent, compared to 7881 percent in the same period of fiscal 2020.


2021.

Interest expense on borrowings, consisting primarily of FHLB – San Francisco advances, for the secondfirst quarter of fiscal 20212022 decreased slightly$257,000, or 32 percent, to $803,000$545,000 from $804,000$802,000 for the same period last year. The decrease in interest expense on borrowings was the result of a lower average cost, partly offset bybalance and, to a higherlesser extent, a lower average balance. The average cost of borrowings decreased seven basis points to 2.36 percent for the quarter ended December 31, 2020 from 2.43 percent in the same quarter last year.cost. The decrease in the average cost of borrowings was primarily due to new long-term borrowings obtained at a lower interest rate than prior borrowings, reflecting the decline in market rates over the last year.prepayments and maturities of borrowings. The average balance of borrowings increased $3.7decreased $43.0 million, or three31 percent, to $134.8$97.7 million during the quarter ended December 31, 2020 from $131.1 million during the same period last year.


For the Six Months Ended December 31, 2020 and 2019.  Total interest expense decreased $454,000, or 15 percent to $2.6 million in the first six months of fiscalSeptember 30, 2021 from $3.1$140.7 million in the same period last year. This decrease was attributable primarily to lower deposit expense, partly offset by higher borrowing expense.

51

Interest expense on deposits for the first six months of fiscal 2021 was $1.0 million as compared to $1.6 million in the same period last year, a decrease of $535,000 or 34 percent.  The decrease in interest expense on deposits was primarily attributable to a lower average cost and, partly offset by a higher average balance of deposits. The decrease in the average cost of deposits was attributable primarily to a lower percentage of time deposits to the total deposit balance and a 25 basis-point decrease in the average cost of time deposits. The average cost of transaction accounts also decreased by seven basis points. The average cost of deposits decreased 15 basis points to 0.22 percent during the first six months of fiscal 2021 from 0.37 percent during the same period last year. The average balancecost of deposits increased $68.8 million, or eightborrowings decreased five basis points to 2.21 percent to $901.0 million duringfor the six monthsquarter ended December 31, 2020September 30, 2021 from $832.2 million during the same period last year. The increase in the average balance was primarily attributable to increases in transaction accounts resulting primarily from government assistance programs related to the COVID-19 pandemic, partly offset by a decrease in higher cost time deposits. The average balance of transaction accounts to total deposits in the first six months of fiscal 2021 was 82 percent, compared to 772.26 percent in the same periodquarter last year.

36


Interest expense on borrowings, consisting primarily of FHLB – San Francisco advances, for the first six months of fiscal 2021 increased $81,000, or five percent, to $1.6 million from $1.5 million in the same period last year.  The increase in interest expense on borrowings was the result of a higher average balance, partly offset by a lower average cost. The average balance of borrowings increased by $16.4 million, or 14 percent, to $137.8 million during the six months ended December 31, 2020 from $121.4 million during the same period last year, primarily due to new long-term borrowings at a lower average cost. The average cost of borrowings decreased 18 basis points to 2.31 percent for the six months ended December 31, 2020 from 2.49 percent in the same period last year.








52

The following tables present the average balance sheets for the quarter ended September 30, 2021 and six months ended December 31, 2020, and 2019, respectively:


Average Balance Sheets

 Quarter Ended
December 31, 2020
 Quarter Ended
December 31, 2019
(Dollars In Thousands)Average
Balance
InterestYield/
Cost
 Average
Balance
InterestYield/
Cost
Interest-earning assets:       
Loans receivable, net (1)
$868,494 $8,344 3.84% $934,060 $10,320 4.42%
Investment securities 208,453 448 0.86% 87,108 567 2.60%
FHLB – San Francisco stock 7,970 100 5.02% 8,199 145 7.07%
Interest-earning deposits 64,922 17 0.10% 45,519 189 1.62%
        
Total interest-earning assets1,149,839 8,909 3.10% 1,074,886 11,221 4.18%
        
Non interest-earning assets29,958    32,216   
        
Total assets$1,179,797    $1,107,102   
        
Interest-bearing liabilities:       
Checking and money market accounts (2)
$461,363 $79 0.07% $388,430 $117 0.12%
Savings accounts 283,432 54 0.08% 257,666 131 0.20%
Time deposits 157,906 335 0.84% 187,458 530 1.12%
        
Total deposits902,701 468 0.21% 833,554 778 0.37%
        
Borrowings134,826 803 2.36% 131,084 804 2.43%
        
Total interest-bearing liabilities1,037,527 1,271 0.49% 964,638 1,582 0.65%
        
Non interest-bearing liabilities17,415    19,644   
        
Total liabilities1,054,942    984,282   
        
Stockholders’ equity124,855    122,820   
Total liabilities and stockholders’ equity$1,179,797    $1,107,102   
        
Net interest income $7,638    $9,639  
        
Interest rate spread (3)
  2.61%   3.53%
Net interest margin (4)
  2.66%   3.59%
Ratio of average interest-earning assets to
   average interest-bearing liabilities
  110.82%   111.43%
Return on average assets  0.40%   0.87%
Return on average equity  3.77%   7.81%

Quarter Ended

Quarter Ended

September 30, 2021

September 30, 2020

Average

Yield/

Average

Yield/

(Dollars In Thousands)

Balance

Interest

Cost

Balance

Interest

Cost

Interest-earning assets:

    

  

    

  

    

  

    

    

  

    

  

    

  

    

Loans receivable, net(1)

$

852,741

$

8,175

 

3.83

%  

$

892,971

$

8,917

 

3.99

%  

Investment securities

 

219,907

 

418

 

0.76

%  

 

156,235

 

478

 

1.22

%  

FHLB – San Francisco stock

 

8,155

 

122

 

5.98

%  

 

7,970

 

100

 

5.02

%  

Interest-earning deposits

 

82,207

 

31

 

0.15

%  

 

93,276

 

24

 

0.10

%  

Total interest-earning assets

 

1,163,010

 

8,746

 

3.01

%  

 

1,150,452

 

9,519

 

3.31

%  

Non interest-earning assets

 

31,749

 

  

 

  

 

31,624

 

 

  

Total assets

$

1,194,759

 

  

 

  

$

1,182,076

 

  

 

  

Interest-bearing liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

Checking and money market accounts(2)

$

501,297

$

57

 

0.05

%  

$

455,528

$

91

 

0.08

%  

Savings accounts

 

313,267

 

41

 

0.05

%  

 

276,413

 

78

 

0.11

%  

Time deposits

 

137,753

 

215

 

0.62

%  

 

167,345

 

382

 

0.91

%  

Total deposits

 

952,317

 

313

 

0.13

%  

 

899,286

 

551

 

0.24

%  

Borrowings

 

97,742

 

545

 

2.21

%  

 

140,711

 

802

 

2.26

%  

Total interest-bearing liabilities

 

1,050,059

 

858

 

0.32

%  

 

1,039,997

 

1,353

 

0.52

%  

Non interest-bearing liabilities

 

17,540

 

  

 

  

 

17,735

 

  

 

  

Total liabilities

 

1,067,599

 

  

 

  

 

1,057,732

 

  

 

  

Stockholders’ equity

 

127,160

 

  

 

  

 

124,344

 

  

 

  

Total liabilities and stockholders’ equity

$

1,194,759

 

  

 

  

$

1,182,076

 

  

 

  

Net interest income

 

  

$

7,888

 

  

 

  

$

8,166

 

  

Interest rate spread(3)

 

  

 

  

 

2.69

%  

 

  

 

  

 

2.79

%  

Net interest margin(4)

 

  

 

  

 

2.71

%  

 

  

 

  

 

2.84

%  

Ratio of average interest- earning assets to average interest-bearing liabilities

 

  

 

  

 

110.76

%  

 

  

 

  

 

110.62

%  

Return on average assets

0.89

%

0.50

%

Return on average equity

8.39

%

4.78

%

(1)
Includes non-performing loans and net deferred loan cost amortization of $521$441 thousand and $12$466 thousand for the quarter ended December 31,September 30, 2021 and 2020, and 2019, respectively.
(2)
Includes the average balance of non interest-bearing checking accounts of $111.7$121.9 million and $84.2$115.8 million during the quarter ended December 31,September 30, 2021 and 2020, and 2019, 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 (recovery) for loan losses as a percentage of average interest-earning assets.


37

53

 Six Months Ended
December 31, 2020
 Six Months Ended
December 31, 2019
(Dollars In Thousands)Average
Balance
InterestYield/
Cost
 Average
Balance
InterestYield/
Cost
Interest-earning assets:       
Loans receivable, net (1)
$880,733 $17,261 3.92% $918,666 $20,395 4.44%
Investment securities 182,344 926 1.02% 91,527 1,181 2.58%
FHLB – San Francisco stock 7,970 200 5.02% 8,199 288 7.03%
Interest-earning deposits 79,099 41 0.10% 45,015 435 1.89%
        
Total interest-earning assets1,150,146 18,428 3.20% 1,063,407 22,299 4.19%
        
Non interest-earning assets30,790    31,812   
        
Total assets$1,080,936    $1,095,219   
        
Interest-bearing liabilities:       
Checking and money market accounts (2)
$458,445 $170 0.07% $384,820 $227 0.12%
Savings accounts 279,923 132 0.09% 258,659 265 0.20%
Time deposits 162,625 717 0.87% 188,708 1,062 1.12%
        
Total deposits900,993 1,019 0.22% 832,187 1,554 0.37%
        
Borrowings137,769 1,605 2.31% 121,363 1,524 2.49%
        
Total interest-bearing liabilities1,038,762 2,624 0.50% 953,550 3,078 0.64%
        
Non interest-bearing liabilities17,575    19,668   
        
Total liabilities1,056,337    973,218   
        
Stockholders’ equity124,599    122,001   
Total liabilities and stockholders’ equity$1,080,936    $1,095,219   
        
Net interest income $15,804    $19,221  
        
Interest rate spread (3)
  2.70%   3.55%
Net interest margin (4)
  2.75%   3.61%
Ratio of average interest-earning assets to
   average interest-bearing liabilities
  110.72%   111.52%
Return on average assets  0.45%   0.91%
Return on average equity  4.27%   8.13%
(1)
Includes non-performing loans and net deferred loan cost amortization of $987 thousand and $172 thousand for the six months ended December 31, 2020 and 2019, respectively.
(2)
Includes the average balance of non interest-bearing checking accounts of $113.7 million and $82.7 million during the six months ended December 31, 2020 and 2019, 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 (recovery) for loan losses as a percentage of average interest-earning assets.

54

The following tables set forth the effects of changing rates and volumes on interest income and expense for the quarter ended September 30, 2021 and six months ended December 31, 2020, and 2019, 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, 2020 Compared
To Quarter Ended December 31, 2019
Increase (Decrease) Due to
(In Thousands)RateVolumeRate/
Volume
Net
Interest-earning assets:    
    Loans receivable (1)
$(1,346)$(725)$95 $(1,976)
    Investment securities(380)789 (528)(119)
    FHLB – San Francisco stock(42)(4)1 (45)
    Interest-earning deposits(177)79 (74)(172)
Total net change in income on interest-earning assets(1,945)139 (506)(2,312)
     
Interest-bearing liabilities:    
    Checking and money market accounts(51)22 (9)(38)
    Savings accounts(82)13 (8)(77)
    Time deposits(133)(83)21 (195)
    Borrowings(23)23 (1)(1)
Total net change in expense on interest-bearing liabilities(289)(25)3 (311)
Net (decrease) increase in net interest income$(1,656)$164 $(509)$(2,001)

Quarter Ended September 30, 2021 Compared 

To Quarter Ended September 30, 2020

Increase (Decrease) Due to

(In Thousands)

Rate

Volume

Rate/Volume

Net

Interest-earning assets:

    

  

    

  

    

  

    

  

Loans receivable(1)

$

(357)

$

(401)

$

16

$

(742)

Investment securities

 

(181)

 

194

 

(73)

 

(60)

FHLB – San Francisco stock

 

20

 

2

 

 

22

Interest-earning deposits

 

11

 

(3)

 

(1)

 

7

Total net change in income on interest-earning assets

 

(507)

 

(208)

 

(58)

 

(773)

Interest-bearing liabilities:

 

  

 

  

 

  

 

  

Checking and money market accounts

 

(40)

 

9

 

(3)

 

(34)

Savings accounts

 

(41)

 

10

 

(6)

 

(37)

Time deposits

 

(121)

 

(68)

 

22

 

(167)

Borrowings

 

(17)

 

(245)

 

5

 

(257)

Total net change in expense on interest-bearing liabilities

 

(219)

 

(294)

 

18

 

(495)

Net (decrease) increase in net interest income

$

(288)

$

86

$

(76)

$

(278)

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

 Six Months Ended December 31, 2020 Compared
To Six Months Ended December 31, 2019
Increase (Decrease) Due to
(In Thousands)RateVolumeRate/
Volume
Net
Interest-earning assets:    
    Loans receivable (1)
$(2,391)$(842)$99 $(3,134)
    Investment securities(719)1,172 (708)(255)
    FHLB – San Francisco stock(82)(8)2 (88)
    Interest-bearing deposits(411)322 (305)(394)
Total net change in income on interest-earning assets(3,603)644 (912)(3,871)
     
Interest-bearing liabilities:    
    Checking and money market accounts(83)45 (19)(57)
    Savings accounts(142)21 (12)(133)
    Time deposits(231)(147)33 (345)
    Borrowings(110)206 (15)81 
Total net change in expense on interest-bearing liabilities(566)125 (13)(454)
Net (decrease) increase in net interest income$(3,037)$519 $(899)$(3,417)

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

55

Provision (Recovery) for Loan Losses:


For the Quarter Ended December 31, 2020September 30, 2021 and 2019.2020. During the secondfirst quarter of fiscal 2021,2022, the Corporation recorded a provision for loan losses of $39,000, as compared to a recovery from the allowance for loan losses of $22,000$339,000, as compared to a provision for loan losses of $220,000 in the same period of fiscal 2020.2021. The increase inrecovery from the allowance for loan losses for the first quarter of fiscal 2022 was due to an improved credit quality and payoffs of non-performing loans; while the provision for loan losses during thisrecorded in the first quarter reflects an increaseof fiscal 2021 primarily reflected the deterioration in non-performing loansforecasted economic metrics at September 30, 2020 as a result of the COVID-19 pandemic, partly offset by the decrease in loan balances.


For the Six Months Ended December 31, 2020 and 2019.  During the first six months of fiscal 2021, the Corporation recorded a provision for loan losses of $259,000, as compared to a recovery from the allowance for loan losses of $203,000 in the same period of fiscal 2020. The increase in provision for loan losses during this six-month period was primarily attributable to an increase in the qualitative component established in our allowance for loan losses methodology in response to the deteriorating economic conditions and probable loan losses, including the potential effects from higher forecasted unemployment rates and lower gross domestic product, as well as the impact on other economic conditions on the U.S. and global economies from COVID-19.

Non-performing loans, net of the allowance for loan losses and fair value adjustments, increased 109decreased 23 percent to $10.3$6.6 million at December 31, 2020September 30, 2021 from $4.9$8.6 million at June 30, 20202021 and $3.4were $4.5 million at December 31, 2019.September 30, 2020. Net loan recoveries in the secondfirst quarter of fiscal 20212022 were $9,000$165,000 or 0.000.08 percent (annualized) of average loans receivable, as compared to net loan recoveries of $14,000$5,000 or 0.010.00 percent (annualized) of average loans receivable in the same quarter of fiscal 2020. For the first six months of fiscal 2021, the net loan recoveries were $14,000 or 0.00 percent (annualized) of average loans receivable as compared to net loan recoveries of $48,000 or 0.01 percent (annualized) of average loans receivable in the same period of fiscal 2020.2021. Total classified loans, net of the allowance for loan losses and fair value adjustments, were $14.9$8.2 million at December 31, 2020September 30, 2021 as compared to $14.1$10.4 million at June 30, 20202021 and $13.7$10.6 million at December 31, 2019.September 30, 2020. Classified loans, net of the allowance for loan losses and fair value adjustments, at December 31, 2020September 30, 2021 were comprised of $4.6$1.6 million of loans in the special mention category and $10.3$6.6 million of loans in the substandard category as compared to $8.6$1.8 million of loans in the special mention category and $5.5$8.6 million of loans in the substandard category at June 30, 2020.


2021.

The allowance for loan losses was determined through quantitative and qualitative adjustments including the Bank'sBank’s charge-off experience and reflects the impact on loans held for investment from the current general economic conditions of the U.S. and California economies. See related discussion of “Asset Quality.”


At December 31, 2020,September 30, 2021, the allowance for loan losses was $8.5$7.4 million, comprised of collectively evaluated allowances of $7.9$7.1 million and individually evaluated allowances of $570,000;$260,000; in comparison to the allowance for loan losses of $8.3$7.6 million at June 30, 2020,2021, comprised of collectively evaluated allowances of $8.2$7.2 million and individually evaluated

38

allowances of $100,000.$384,000. The allowance for loan losses as a percentage of gross loans held for investment was 0.990.86 percent at December 31, 2020September 30, 2021 as compared to 0.910.88 percent at June 30, 2020.2021. 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 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements. A further decline in national and local economic conditions, as a result of the COVID-19 pandemic or other factors, could result in a material increase in the allowance for loan losses and may adversely affect the Corporation’s financial condition and results of operations.




56

Non-Interest Income:


For the Quarter Ended December 31, 2020September 30, 2021 and 2019.2020. Total non-interest income decreased $370,000,$90,000, or 28eight percent, to $974,000$1.1 million for the quarter ended December 31, 2020 from $1.3 million for the same period last year.  The decrease was primarily attributable to decreases in loan servicing and other fees and deposit account fees.


Loan servicing and other fees decreased $247,000 or 67 percent to $120,000 in the second quarter of fiscalSeptember 30, 2021 from $367,000 in the same quarter last year. The decrease was due primarily to a decrease in prepayment fees resulting from lower loan payoffs, particularly in multi-family loans.

Deposit account fees decreased $122,000 or 27 percent to $329,000 in the second quarter of fiscal 2021 from $451,000 in the same quarter last year.  The decrease was due primarily to certain fees that were waived related to accounts impacted by the COVID-19 pandemic and reduced transactions reflecting changes in spending habits due to the COVID-19 pandemic.

For the Six Months Ended December 31, 2020 and 2019.  Total non-interest income decreased $281,000, or 12 percent, to $2.1 million for the six months ended December 31, 2020 from $2.4$1.2 million for the same period last year. The decrease was primarily attributable to a decrease in deposit accountloan servicing and other fees.

Loan servicing and other fees increased $25,000decreased $219,000 or five54 percent to $525,000$186,000 in the first six monthsquarter of fiscal 20212022 from $500,000$405,000 in the same period last year. The increase was due primarily to an increase in prepayment fees resulting from higher loan payoffs, particularly in multi-family loans.


Deposit account fees decreased $259,000 or 29 percent to $639,000 in the first six months of fiscal 2021 from $898,000 in the same periodquarter last year. The decrease was due primarily to certainlower loan prepayment fees thatresulting from lower loan payoffs, particularly in multi-family loans. Total loan prepayment fees in the first quarter of fiscal 2022 was $213,000, down 50 percent from $430,000 in the same period last year. Total loan repayments were waived related to accounts impacted by$53.9 million in the COVID-19 pandemic and reduced transactions reflecting changesfirst quarter of fiscal 2022, down 19 percent from $66.3 million in spending habits due to the COVID-19 pandemic.

same period last year.  

Non-Interest Expense:


For the Quarter Ended December 31, 2020September 30, 2021 and 2019.2020. Total non-interest expense in the quarter ended December 31, 2020September 30, 2021 was $6.9$5.7 million, a decrease of $638,000,$1.3 million, or eight19 percent, as compared to $7.6$7.0 million in the quarter ended December 31, 2019.September 30, 2020. The decrease was primarily attributable to a decrease in salaries and employee benefits expenses and other operating expenses, partly offset by higher deposit insurance premiums and regulatory assessment expenses.


Salaries and employee benefits expense decreased $698,000, or 14 percent, to $4.3 million in the second quarter of fiscal 2021 from $5.0 million in the same period of fiscal 2020. The decrease was due primarily to fewer employees and lower employee bonus and other incentive payments. Total loan originations and purchases decreased $52.0 million, or 64 percent, to $29.6 million in the second quarter of fiscal 2021 from $81.6 million in the same quarter of fiscal 2020. Total full-time equivalent employees (“FTE”) were 166 at December 31, 2020, down 18 FTE or 10 percent from 184 FTE at December 31, 2019.

Deposit insurance premiums and regulatory assessment expenses were $141,000 in the second quarter of fiscal 2021, up 139 percent from $59,000 in the same quarter of fiscal 2020. The increase was due primarily to FDIC insurance premium credits applied in the second quarter of fiscal 2020, which were not replicated in the second quarter of fiscal 2021.

Other non-interest expenses decreased $104,000, or 13 percent, to $707,000 in the second quarter of fiscal 2021 from $811,000 in the same quarter of fiscal 2020. The decrease in other non-interest expenses was primarily attributable to reduced expenses reflecting lower loan originations and purchases.

For the Six Months Ended December 31, 2020 and 2019.  Total non-interest expense in the six months ended December 31, 2020 was $13.9 million, a decrease of $891,000, or six percent, as compared to $14.8 million in the six months ended

57

December 31, 2019. The decrease was primarily attributable to a decrease in salaries and employee benefits expenses, partly offset by higher deposit insurance premiums and regulatory assessment expenses.

Salaries and employee benefits expense decreased $1.3 million, or 1330 percent, to $8.7$3.1 million in the first six monthsquarter of fiscal 20212022 from $10.0$4.4 million in the same period of fiscal 2020.2021. The decrease was due primarily to fewer employeesa $1.2 million credit for the Employee Retention Tax Credit (“ERTC”). The ERTC was recorded for qualified wages consistent with the Consolidated Appropriations Act of 2021 and lowerAmerican Rescue Plan Act of 2021 where eligible employers can claim a maximum credit equal to 70 percent of $10,000 of qualified wages paid to an employee bonus and other incentive payments. Total loan originations and purchases decreased $97.4 million, or 56 percent, to $77.6 million in the first six months of fiscal 2021 from $175.0 million in the same period of fiscal 2020.


Deposit insurance premiums and regulatory assessment expenses were $275,000 in the first six months of fiscal 2021, up 540 percent from $43,000 in the same period of fiscal 2020. The increase was due primarily to FDIC insurance premium credits applied in the first six months of fiscal 2020, which were not replicated in the same period of fiscal 2021.

per calendar quarter.

Provision for Income Taxes:


The income tax provision reflects accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon reported pre-tax income, adjusted for the effect of all permanent differences between income for tax and financial reporting purposes, such as non-deductible stock-based compensation, earnings from bank-owned life insurance policies 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 Quarter Ended December 31, 2020September 30, 2021 and 2019.2020. The Corporation’s income tax provision was $481,000$961,000 for the secondfirst quarter of fiscal 2021,2022, a 5451 percent decreaseincrease from $1.1 million$635,000 in the same quarter last year, primarily reflecting lower pre-tax income.due to a higher income before income taxes. The effective income tax rate for the quarter ended December 31, 2020September 30, 2021 was 29.026.5 percent as compared to 30.530.0 percent for the quarter ended December 31, 2019. The Corporation believes thatSeptember 30, 2020, attributable to the effective income tax rate applied inbenefits from the second quarternon-taxable treatment of fiscal 2021 reflects its current incomethe ERTC for state tax obligations.


For the Six Months Ended December 31, 2020 and 2019.  The Corporation’s income tax provision was $1.1 million for the first six months of fiscal 2021, a 47 percent decrease from $2.1 million in the same period last year, primarily reflecting lower pre-tax income. The effective income tax rate for the six months ended December 31, 2020 and 2019 was 29.6 percent at both periods.purposes. The Corporation believes that the effective income tax rate applied in the first six monthsquarter of fiscal 20212022 reflects its current income tax obligations.

Asset Quality


Non-performing assets were comprised solely of non-performing loans at both December 31, 2020September 30, 2021 and June 30, 2020.2021. Non-performing loans, net of the allowance for loan losses and fair value adjustments, consisting of loans with collateral located in California, was $10.3$6.6 million at December 31, 2020, up 109September 30, 2021, down 23 percent from $4.9$8.6 million at June 30, 2020.2021. Non-performing loans as a percentage of loans held for investment at December 31, 2020September 30, 2021 was 1.20%0.77%, updown from 0.55%1.02% at June 30, 2020.2021. The non-performing loans at December 31, 2020September 30, 2021 are comprised of 3320 single-family loans.loans and one multi-

39

family loan; while the non-performing loans at June 30, 2021 are comprised of 27 single-family loans and one multi-family loan. 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 December 31, 2020,September 30, 2021, total restructured loans increased 215were $7.9 million, unchanged from June 30, 2021. At September 30, 2021, a total of $5.1 million or 65 percent to $8.2 million from $2.6 millionof these restructured loans were classified as non-performing; while at June 30, 2020.  At both December 31, 2020 and June 30, 2020, all2021, a total of $7.0 million or 89 percent of these restructured loans were classified as non-performing. As of December 31, 2020, allSeptember 30, 2021, a total of $6.7 million or 85 percent of the restructured loans have a current payment status, consistent with their modified payment terms; this compares to $1.2$7.7 million or 4497 percent of restructured loans that had a current payment status, consistent with their modified payment terms as of June 30, 2020.2021. Restructured loans which are performing in accordance with their modified terms and are not otherwise classified as non-accrual are not included in non-performing assets. For further analysis on non-performing loans and restructured loans, see Note 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.


58

There was no real estate owned at either December 31, 2020September 30, 2021 or June 30, 2020.


2021.

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, the value of the real estate collateral securing the Corporation’s loans as set forth in the table could be significantly overstated. The Corporation’s ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and it would be more likely to suffer losses on defaulted loans. The Corporation generally does not update the loan-to-value ratio on its loans held for investment by obtaining new appraisals or broker price opinions (nor does the Corporation intend to do so in the future as a result of the costs and inefficiencies associated with completing the task) unless a specific loan has demonstrated deterioration in which case individually evaluated allowances are established, if required.


40










59

Table of Contents

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,
2020
At June 30,
2020
Loans on non-accrual status (excluding restructured loans):  
Mortgage loans:  
    Single-family$2,062 $2,281 
    Total2,062 2,281 
   
Accruing loans past due 90 days or more  
   
Restructured loans on non-accrual status:  
Mortgage loans:  
     Single-family8,208 2,612 
Commercial business loans 31 
     Total8,208 2,643 
   
Total non-performing loans10,270 4,924 
   
Real estate owned, net  
Total non-performing assets$10,270 $4,924 
   
Non-performing loans as a percentage of loans held for investment, net
   of allowance for loan losses
1.20%0.55%
   
Non-performing loans as a percentage of total assets0.88%0.42%
   
Non-performing assets as a percentage of total assets0.88%0.42%




60

    

At September 30, 

    

At June 30, 

 

(In Thousands)

2021

2021

Loans on non-accrual status (excluding restructured loans):

 

  

 

  

Mortgage loans:

 

  

 

  

Single-family

$

739

$

882

Multi-family

 

775

 

781

Total

 

1,514

 

1,663

Accruing loans past due 90 days or more

 

 

Restructured loans on non-accrual status:

 

  

 

  

Mortgage loans:

 

  

 

  

Single-family

 

5,102

 

6,983

Total

 

5,102

 

6,983

Total non-performing loans

 

6,616

 

8,646

Real estate owned, net

 

 

Total non-performing assets

$

6,616

$

8,646

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

 

0.77

%  

 

1.02

%

Non-performing loans as a percentage of total assets

 

0.55

%  

 

0.73

%

Non-performing assets as a percentage of total assets

 

0.55

%  

 

0.73

%  

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

 At December 31,
2020
 At June 30,
2020
(Dollars In Thousands)BalanceCount BalanceCount
Special mention loans:     
Mortgage loans:     
     Single-family$935 2  $3,120 7 
     Multi-family3,732 3  3,777 3 
     Commercial real estate   1,703 1 
          Total special mention loans4,667 5  8,600 11 
      
Substandard loans:     
Mortgage loans:     
Single-family10,270 35  5,438 22 
Commercial business loans   31 1 
Total substandard loans10,270 35  5,469 23 
      
Total classified loans14,937 40  14,069 34 
      
Real estate owned     
      
Total classified assets$14,937 40  $14,069 34 
            
Total classified assets as a percentage of total assets 1.28%    1.20%  

    

At September 30, 2021

    

At June 30, 2021

(Dollars In Thousands)

    

Balance

    

Count

    

Balance

    

Count

Special mention loans:

 

  

 

  

 

  

 

  

Mortgage loans:

 

  

 

  

 

  

 

  

Single-family

$

1,610

 

4

$

1,767

 

4

Total special mention loans

 

1,610

 

4

 

1,767

 

4

Substandard loans:

 

  

 

  

 

  

 

  

Mortgage loans:

 

  

 

  

 

  

 

  

Single-family

 

5,841

 

22

 

7,865

 

29

Multi-family

 

774

 

1

 

781

 

1

Total substandard loans

 

6,615

 

23

 

8,646

 

30

Total classified loans

 

8,225

 

27

 

10,413

 

34

Real estate owned

 

 

 

 

Total classified assets

$

8,225

 

27

$

10,413

 

34

Total classified assets as a percentage of total assets

 

0.69

%  

  

 

0.88

%  

  


41




61

Table of Contents

Loan Volume Activities


The following table is provided to disclose details related to the volume of loans originated and purchased for investment for the quarter and six months indicated:

 For the Quarter Ended
December 31,
For the Six Months Ended
December 31,
(In Thousands)2020201920202019
Loans originated for investment:     
    Mortgage loans:     
        Single-family12,444 8,061 35,643 15,567  
        Multi-family13,907 14,921 26,816 34,271  
        Commercial real estate 6,479 1,860 8,898  
        Construction688 2,313 1,828 3,209  
    Consumer loans 1  1  
     Total loans originated for investment27,039 31,775 66,147 61,946  
      
Loans purchased for investment:     
    Mortgage loans:     
        Single-family 44,610  70,733  
        Multi-family2,525 5,243 11,463 42,369  
      Total loans purchased for investment2,525 49,853 11,463 113,102  
      
Mortgage loan principal payments(59,575)(65,205)(125,898)(116,034) 
Increase in other items, net (1)
144 992 578 2,790  
      
Net (decrease) increase in loans held for investment$(29,867)$17,415 $(47,710)$61,804  

For the Quarter Ended

    

September 30, 

(In Thousands)

    

2021

    

2020

    

Loans originated for investment:

 

  

 

  

 

Mortgage loans:

 

  

 

  

 

Single-family

$

34,420

$

23,199

Multi-family

 

25,318

 

12,909

Commercial real estate

 

1,200

 

1,860

Construction

 

 

1,140

Total loans originated for investment

 

60,938

 

39,108

Loans purchased for investment:

 

  

 

  

Mortgage loans:

 

  

 

  

Multi-family

 

 

8,938

Total loans purchased for investment

 

 

8,938

Mortgage loan principal payments

 

(53,859)

 

(66,323)

Increase in other items, net(1)

 

996

 

434

Net increase (decrease) in loans held for investment

$

8,075

$

(17,843)

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

Liquidity and Capital Resources


The Corporation’s primary sources of funds are deposits, 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. During the first sixthree months of fiscal 20212022 and 2020,2021, the Corporation originated and purchased loans held for investment of $77.6$60.9 million and $175.0$48.0 million, respectively. At December 31, 2020,September 30, 2021, the Corporation had loan origination commitments totaling $12.3$22.5 million, undisbursed lines of credit totaling $942,000$856,000 and undisbursed construction loan funds totaling $2.7$3.8 million. The Corporation anticipates that it will have sufficient funds available to meet its current loan commitments. During the first sixthree months of fiscal 20212022 and 2020,2021, total loan repayments were $125.9$53.9 million and $116.0$66.3 million, respectively.


The Corporation’s primary financing activity is gathering deposits. During the first sixthree months of fiscal 2021,2022, the net increase in deposits was $17.0$18.8 million or two percent, due to an increase in transaction accounts, partly offset by a decrease in time


62

deposits. Time deposits decreased $16.2Transaction account balances increased $23.8 million, or 10three percent, to $153.8$821.3 million at December 31, 2020September 30, 2021 from $170.0$797.5 million at June 30, 2020.2021, while time deposits decreased $4.9 million, or three percent, to $135.5 million at September 30, 2021 from $140.4 million at June 30, 2021. At December 31, 2020,September 30, 2021, time deposits with a principal amount of $250,000 or less and scheduled to mature in one year or less were $68.6$66.6 million and total time deposits with a principal amount of more than $250,000 and scheduled to mature in one year or less were $15.1$11.0 million. Historically, the Corporation has been able to retain a significant percentage of its time deposits as they mature.


42

Table of Contents

The Corporation must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. The Corporation generally maintains sufficient cash and cash equivalents to meet short-term liquidity needs. At December 31, 2020,September 30, 2021, total cash and cash equivalents were $74.0$88.2 million, or sixseven percent of total assets. Depending on market conditions and the pricing of deposit products and FHLB – San Francisco advances, the Bank may rely on FHLB – San Francisco advances for part of its liquidity needs. As of December 31, 2020,September 30, 2021, total borrowings were $116.0$90.0 million and the financing availability at FHLB – San Francisco was limited to 35 percent of total assets; the remaining borrowing facility available was $277.9$305.8 million and the remaining available collateral was $332.8$338.6 million. In addition, the Bank has secured a $176.2$189.8 million discount window facility at the Federal Reserve Bank of San Francisco, collateralized by investment securities with a fair market value of $187.4$201.9 million. As of December 31, 2020,September 30, 2021, 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, 20212022 which the Bank intends to renew upon maturity. The Bank had no advances under its correspondent bank or discount window facility as of December 31, 2020.


September 30, 2021.

During the quarter ended September 30, 2021, the Corporation purchased 49,764 shares of the Corporation’s common stock under the April 2020 stock repurchase plan with a weighted average cost of $17.10 per share. As of September 30, 2021, there are 217,069 shares available for purchase until the plan expires on April 27, 2022. The Corporation will purchase the shares from time to time in the open market or through privately negotiated transactions depending on market conditions, the capital requirements of the Corporation, and available cash that can be allocated to the stock repurchase program, among other considerations.

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 December 31, 2020 increasedSeptember 30, 2021 decreased slightly to 27.731.5 percent from 23.132.0 percent for the quarter ended June 30, 2020.


2021.

The Bank, as a federally-chartered, federally insured savings bank, is subject to the capital requirements established by the OCC. Under the OCC'sOCC’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'sBank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank'sBank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.


At December 31, 2020,September 30, 2021, the Bank exceeded all regulatory capital requirements. The Bank was categorized "well-capitalized" at December 31, 2020September 30, 2021 under the regulations of the OCC. As a bank holding company registered with the Federal Reserve, Provident Financial Holdings, Inc. is subject to the capital adequacy requirements of the Federal Reserve. For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis, and the Federal Reserve expects the holding company’s subsidiary bank to be well capitalized under the prompt corrective action regulations.


43




63

Table of Contents

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

    Regulatory Requirements
 Actual 
Minimum for Capital
Adequacy Purposes (1)
 
Minimum to Be
Well Capitalized
 Amount Ratio Amount Ratio Amount Ratio
               
Provident Savings Bank, F.S.B.:              
               
As of December 31, 2020              
Tier 1 leverage capital (to adjusted average assets)$115,562   9.78%  $47,249  4.00% $59,061  5.00% 
CET1 capital (to risk-weighted assets)$115,562  18.30%  $44,193  7.00% $41,037  6.50% 
Tier 1 capital (to risk-weighted assets)$115,562  18.30%  $53,663  8.50% $50,507  8.00% 
Total capital (to risk-weighted assets)$123,463  19.56%  $66,290  10.50% $63,133  10.00% 
               
As of June 30, 2020              
Tier 1 leverage capital (to adjusted average assets)$116,967  10.13%  $46,188  4.00% $57,735  5.00% 
CET1 capital (to risk-weighted assets)$116,967  17.51%  $46,747  7.00% $43,408  6.50% 
Tier 1 capital (to risk-weighted assets)$116,967  17.51%  $56,765  8.50% $53,426  8.00% 
Total capital (to risk-weighted assets)$125,316  18.76%  $70,121  10.50% $66,782  10.00% 

Regulatory Requirements

 

Minimum for Capital

Minimum to Be

 

Actual

Adequacy Purposes(1)

Well Capitalized

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

Provident Savings Bank, F.S.B.:

 

  

 

  

 

  

 

  

 

  

 

  

As of September 30, 2021

 

  

 

  

 

  

 

  

 

  

 

  

Tier 1 leverage capital (to adjusted average assets)

$

117,229

 

9.81

%  

$

47,784

 

4.00

%  

$

59,730

 

5.00

%

CET1 capital (to risk-weighted assets)

$

117,229

 

18.90

%  

$

43,410

 

7.00

%  

$

40,309

 

6.50

%

Tier 1 capital (to risk-weighted assets)

$

117,229

 

18.90

%  

$

52,712

 

8.50

%  

$

49,612

 

8.00

%

Total capital (to risk-weighted assets)

$

124,746

 

20.12

%  

$

65,115

 

10.50

%  

$

62,014

 

10.00

%

As of June 30, 2021

 

  

 

  

 

  

 

  

 

  

 

  

Tier 1 leverage capital (to adjusted average assets)

$

121,621

 

10.19

%  

$

47,736

 

4.00

%  

$

59,670

 

5.00

%

CET1 capital (to risk-weighted assets)

$

121,621

 

18.58

%  

$

45,816

 

7.00

%  

$

42,544

 

6.50

%

Tier 1 capital (to risk-weighted assets)

$

121,621

 

18.58

%  

$

55,634

 

8.50

%  

$

52,361

 

8.00

%

Total capital (to risk-weighted assets)

$

129,335

 

19.76

%  

$

68,724

 

10.50

%  

$

65,452

 

10.00

%

(1)
Inclusive of the conservation buffer of 2.50% for CET1 capital, Tier 1 capital and Total capital ratios.

In addition to the minimum CET1, Tier 1 and Total capital ratios, the Bank must maintain a capital conservation buffer consisting of additional CET1 capital 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. As of December 31, 2020,September 30, 2021, the capital conservation buffer required a minimum of 2.50% of risk weighted assets.


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 sixthree months of fiscal 2021,2022, the Bank paid a cash dividend of $5.0$7.5 million to the Corporation, while the Corporation paid $2.1$1.1 million of cash dividends to its shareholders.


Supplemental Information

 At
December 31,
2020
At
June 30,
2020
At
December 31,
2019
    
Loans serviced for others (in thousands)$64,521$86,505$102,824
    
Book value per share$16.79$16.67$16.54


64

At

At

At

September 30, 

June 30, 

September 30, 

2021

2021

2020

Loans serviced for others (in thousands)

$

46,454

$

50,448

$

77,562

Book value per share

$

17.12

$

16.88

$

16.75

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.

44

Table of Contents

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 -100, +100, +200 and +300 basis points (“bp”) with no effect given to steps that management might take to counter the effect of the interest rate movement. As of December 31, 2020,September 30, 2021, the targeted Federal Funds Ratefederal funds rate range was 0.00% to 0.25%, making an immediate change of -200 basis points or more improbable.


The following table is derived from the internal interest rate risk model and represents the NPV based on the indicated changes in interest rates as of December 31, 2020September 30, 2021 (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)
+300 bp$ 258,292 $        111,580 $ 1,306,574 19.77%+763 bp
+200 bp$ 229,240 $          82,528 $ 1,281,912 17.88%+574 bp
+100 bp$ 194,945 $          48,233 $ 1,252,129 15.57%+343 bp
      0 bp$ 146,712 $ $ 1,208,534 12.14%   0 bp
-100 bp$ 127,434 $(19,278)$ 1,187,318 10.73%-141 bp

    

Net

    

    

Portfolio

    

NPV as Percentage

    

Basis Points ("bp")

Portfolio

NPV

Value of

of Portfolio Value

Sensitivity

Change in Rates

Value

Change(1)

Assets

Assets(2)

Measure(3)

+300 bp

$

258,129

$

107,227

$

1,327,772

 

19.44

%  

+718

bp

+200 bp

$

230,437

$

79,535

$

1,303,311

 

17.68

%  

+542

bp

+100 bp

$

196,020

$

45,118

$

1,272,205

 

15.41

%  

+315

bp

-

$

150,902

$

$

1,230,479

 

12.26

%  

-100 bp

$

127,275

$

(23,627)

$

1,206,178

 

10.55

%  

-171

bp

(1)
Represents the increase (decrease) of the NPV at the indicated interest rate change in comparison to the NPV at December 31, 2020September 30, 2021 (“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 December 31, 2020September 30, 2021 and June 30, 2020.

 At December 31, 2020At June 30, 2020
 (-100 bp rate shock)(-100 bp rate shock)
Pre-Shock NPV Ratio: NPV as a % of PV Assets12.14%11.93%
Post-Shock NPV Ratio: NPV as a % of PV Assets10.73%10.57%
Sensitivity Measure: Change in NPV Ratio-141 bp-136 bp

65

2021.

    

At September 30, 2021

    

At June 30, 2021

 

 

(-100 bp rate shock)

 

(-100 bp rate shock)

Pre-Shock NPV Ratio: NPV as a % of PV Assets

 

12.26

%

12.54

%

Post-Shock NPV Ratio: NPV as a % of PV Assets

 

10.55

%

11.25

%

Sensitivity Measure: Change in NPV Ratio

 

-171

bp

 

-129

bp

The pre-shock NPV ratio increased 21decreased 28 basis points to 12.1412.26 percent at December 31, 2020September 30, 2021 from 11.9312.54 percent at June 30, 20202021 and the post-shock NPV ratio increased 16decreased 70 basis points to 10.7310.55 percent at December 31, 2020September 30, 2021 from 10.5711.25 percent at June 30, 2020.2021. The increasedecrease of the NPV ratios was primarily attributable to net incomea $7.5 million cash dividend distribution from the Bank to Provident Financial Holdings, Inc. in the first six months of fiscalSeptember 2021 and the changes in the composition of the balance sheet and interest rates, partly offset by a $5.0 million cash dividend distribution fromnet income in the Bank to Provident Financial Holdings, Inc. in September 2020.


first three months of fiscal 2022.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing tables. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Additionally, certain assets, such as 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

45

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. Accordingly, the data presented in the tables in this section should not be relied upon as indicative of actual results in the event of changes in interest rates. Furthermore, the NPV presented in the foregoing tables is not intended to present the fair market value of the Corporation, nor does it represent amounts that would be available for distribution to shareholders in the event of the liquidation of the Corporation.


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





66

The following table represents the interest rate gap analysis of the Corporation'sCorporation’s assets and liabilities as of December 31, 2020:September 30, 2021:

Term to Contractual Repricing, Estimated Repricing, or Contractual

 

Maturity(1)

 

As of September 30, 2021

 

    

    

Greater than

    

Greater than

    

Greater than

    

 

12 months or

1 year to 3

3 years to

5 years or

 

(Dollars In Thousands)

less

 

years

 

5 years

 

non-sensitive

Total

Repricing Assets:

 

  

 

  

 

  

 

  

 

  

Cash and cash equivalents

$

82,640

$

$

$

5,609

$

88,249

Investment securities

 

15,014

 

 

 

194,123

 

209,137

Loans held for investment

 

267,666

 

198,184

 

219,377

 

173,808

 

859,035

FHLB - San Francisco stock

 

8,155

 

 

 

 

8,155

Other assets

 

2,909

 

 

 

24,796

 

27,705

Total assets

 

376,384

 

198,184

 

219,377

 

398,336

 

1,192,281

Repricing Liabilities and Equity:

 

  

 

  

 

  

 

  

 

  

Checking deposits - non interest-bearing

 

 

 

 

120,883

 

120,883

Checking deposits - interest bearing

 

51,192

 

102,384

 

102,384

 

85,321

 

341,281

Savings deposits

 

63,664

 

127,327

 

127,327

 

 

318,318

Money market deposits

 

20,393

 

20,392

 

 

 

40,785

Time deposits

 

77,577

 

45,183

 

11,934

 

781

 

135,475

Borrowings

 

30,000

 

40,000

 

20,000

 

 

90,000

Other liabilities

 

244

 

 

 

17,060

 

17,304

Stockholders' equity

 

 

 

 

128,235

 

128,235

Total liabilities and stockholders' equity

 

243,070

 

335,286

 

261,645

 

352,280

 

1,192,281

Repricing gap positive (negative)

$

133,314

$

(137,102)

$

(42,268)

$

46,056

$

Cumulative repricing gap:

 

  

 

  

 

  

 

  

 

  

Dollar amount

$

133,314

$

(3,788)

$

(46,056)

$

$

Percent of total assets

 

11

%  

 

%  

 

(4)

%  

 

%  

 

%

(1)Cash and cash equivalents are presented as estimated repricing; investment securities and loans held for investment are presented as contractual maturities or contractual repricing (without consideration for prepayments); FHLB - San Francisco stock is presented as contractual repricing; transaction accounts (checking, savings and money market deposits) are presented as estimated repricing; while time deposits (without consideration for early withdrawals) and borrowings are presented as contractual maturities.
   
Term to Contractual Repricing, Estimated Repricing, or Contractual
Maturity (1)
   As of December 31, 2020
(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$68,874 $ $ $5,127 $74,001 
 Investment securities18,554   188,702 207,256 
 Loans held for investment286,634 235,210 239,130 94,112 855,086 
 FHLB - San Francisco stock7,970    7,970 
 Other assets3,126   23,288 26,414 
  Total assets385,158 235,210 239,130 311,229 1,170,727 
        
Repricing Liabilities and Equity:     
 Checking deposits - non-interest bearing   109,609 109,609 
 Checking deposits - interest bearing47,124 94,249 94,249 78,541 314,163 
 Savings deposits57,827 115,653 115,653  289,133 
 Money market deposits21,655 21,655   43,310 
 Time deposits83,718 52,516 16,913 606 153,753 
 Borrowings26,015 50,000 40,000  116,015 
 Other liabilities227   19,533 19,760 
 Stockholders' equity   124,984 124,984 
  Total liabilities and stockholders' equity236,566 334,073 266,815 333,273 1,170,727 
        
Repricing gap positive (negative)$148,592 $(98,863)$(27,685)$(22,044)$ 
Cumulative repricing gap:     
 Dollar amount$148,592 $49,729 $22,044 $ $ 
 Percent of total assets13%4%2%%%

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

46


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


67

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;
Forecast balance sheet growth consistent with the business plan;
Current interest rates and yield curves and management estimates of projected interest rates;
Embedded options, interest rate floors, periodic caps and lifetime caps;
Repricing characteristics for market rate sensitive instruments;
Loan, investment, deposit and borrowing cash flows;
Loan prepayment estimates for each type of loan; and
Immediate, permanent and parallel movements in interest rates of plus 300, 200 and 100 and minus 100 basis points.
The Corporation’s current balance sheet and repricing characteristics;
Forecast balance sheet growth consistent with the business plan;
Current interest rates and yield curves and management estimates of projected interest rates;
Embedded options, interest rate floors, periodic caps and lifetime caps;
Repricing characteristics for market rate sensitive instruments;
Loan, investment, deposit and borrowing cash flows;
Loan prepayment estimates for each type of loan; and
Immediate, permanent and parallel movements in interest rates of plus 300, 200 and 100 and minus 100 basis points.  

The following table describes the results of the analysis at December 31, 2020September 30, 2021 and June 30, 2020.

At December 31, 2020 At June 30, 2020
Basis Point (bp)
Change in Rates
Change in
Net Interest Income
 
Basis Point (bp)
Change in Rates
Change in
Net Interest Income
+300 bp9.42% +300 bp15.11%
+200 bp6.28% +200 bp9.95%
+100 bp3.40% +100 bp5.25%
 -100 bp(0.10)% -100 bp(0.05)%

2021.

At September 30, 2021

At June 30, 2021

 

Basis Point (bp)

Change in

Basis Point (bp)

Change in

 

Change in Rates

Net Interest Income

Change in Rates

Net Interest Income

 

+300 bp

    

6.24%

+300 bp

    

4.55%

+200 bp

 

3.05%

+200 bp

 

2.06%

+100 bp

 

0.88%

+100 bp

 

0.23%

-100 bp

 

0.63%

-100 bp

 

0.22%

At December 31, 2020September 30, 2021 and June 30, 2020,2021, 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 slight decreasesmaller increase in net interest income over the subsequent 12-month period at December 31, 2020September 30, 2021 and June 30, 2020.


2021.

Management believes that the assumptions used to complete the analysis described in the table above are reasonable. However, past experience has shown that immediate, permanent and parallel movements in interest rates will not necessarily occur. Additionally, while the analysis provides a tool to evaluate the projected net interest income to changes

47

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.



68

ITEM 4 – Controls and Procedures.


a)

(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 December 31, 2020September 30, 2021 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)

(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 December 31, 2020,September 30, 2021, that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting. The Corporation does not expect that its internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.


PART II – OTHER INFORMATION


Item 1. Legal Proceedings.


Periodically, there have been various claims and lawsuits involving the Corporation, such as claims to enforce liens, condemnation proceedings on properties in which the Corporation holds security interests, claims involving the making and servicing of real property loans, employment matters and other issues in the ordinary course of and incidental to the Corporation’s business. These proceedings and the associated legal claims are often contested and the outcome of individual matters is not always predictable. Additionally, in some actions, it is difficult to assess potential exposure

48

because the Corporation is still in the early stages of the litigation. The Corporation is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition, operations or cash flows.



69

Item 1A. Risk Factors.


There have been no material changes in the risk factors previously disclosed in Part I, Item 1A of the Corporation'sCorporation’s Annual Report on Form 10-K for the year ended June 30, 2020.



2021.

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


(a)Not applicable.
(b)Not applicable.
(c)The table below represents the Corporation’s purchases of its equity securities for the secondfirst quarter of fiscal 2021.2022.

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, 2020505 $13.68 371,815 
November 1 – 30, 2020 $ 371,815 
December 1 – 31, 2020 $ 371,815 
Total505 $13.68 371,815 

    

    

    

    

(d) Maximum

(c) Total Number of

Number of Shares

Shares Purchased as

that May Yet Be

(a) Total Number of

(b) Average Price

Part of Publicly

Purchased Under

Period

Shares Purchased

Paid per Share

Announced Plan

the Plan(1)

July 1, 2021 – July 31, 2021

 

$

 

 

266,833

August 1, 2021 – August 31, 2021

 

25,674

$

17.17

 

25,674

 

241,159

September 1, 2021 – September 30, 2021

 

24,090

$

17.02

 

24,090

 

217,069

Total

 

49,764

$

17.10

 

49,764

 

217,069

(1)
Represents the remaining shares available for future purchases under the April 2020 stock repurchase plan.

During the quarter and six months ended December 31, 2020,September 30, 2021, the Corporation did not purchase anypurchased 49,764 shares of the Corporation’s common stock under the April 2020 stock repurchase plan.plan with a weighted average cost of $17.10 per share. As of December 31, 2020, the Corporation has not purchased any shares authorized in the April 2020 stock repurchase plan, leaving all 371,815September 30, 2021, there are 217,069 shares available for purchase until the plan expires on April 30, 2021.


27, 2022. The Corporation will purchase the shares from time to time in the open market or through privately negotiated transactions depending on market conditions, the capital requirements of the Corporation, and available cash that can be allocated to the stock repurchase program, among other considerations.

During the quarter ended December 31, 2020,September 30, 2021, there was no stock option or restricted stock activity other than 5,500 stock optionsand the Corporation did not sell any securities that were forfeited and 1,500 sharesnot registered under the Securities Act of restricted stock that were vested. The Corporation purchased 505 shares from recipients to fund their withholding tax obligations in the second quarter fiscal 2021 with an average cost of $13.68 per share.


During the six months ended December 31, 2020, there were 5,500 stock option that were forfeited, a total of 9,000 shares of restricted stock were forfeited and 9,000 shares of restricted stock were vested. The Corporation purchased 3,061 shares from recipients to fund their withholding tax obligations in the first six months of fiscal 2021 with an average cost of $12.01 per share.

1933.

Item 3. Defaults Upon Senior Securities.


Not applicable.


Item 4. Mine Safety Disclosures.


Not applicable.



70

Item 5. Other Information.


Not applicable.


49

Item 6. Exhibits.


Exhibits:

3.1

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

3.2

Amended and Restated Bylaws of Provident Financial Holdings, Inc. (incorporated by reference to Exhibit 3.13.2 to the Corporation’s Current Report on Form 8-K filed on December 1, 2014)September 30, 2021)

4.1

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

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

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

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

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 December 31, 2020,September 30, 2021, formatted in Extensible Business Reporting Language (XBRL): (1) Condensed Consolidated Statements of Financial Condition; (2) Condensed Consolidated Statements of Operations; (3) Condensed Consolidated Statements of Comprehensive Income (Loss); (4) Condensed Consolidated Statements of Stockholders’ Equity; (5) Condensed Consolidated Statements of Cash Flows; and (6) Selected Notes to Condensed Consolidated Financial Statements.



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SIGNATURES


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



Provident Financial Holdings, Inc.

Date: February 8,November 5, 2021

/s/ Craig G. Blunden

Craig G. Blunden

Chairman and Chief Executive Officer

(Principal Executive Officer)

Date: February 8,November 5, 2021

/s/ Donavon P. Ternes

Donavon P. Ternes

President, Chief Operating Officer and

Chief Financial Officer

(Principal Financial and Accounting Officer)



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