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

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

  For the quarterly period ended
MarchDecember 31, 2019

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

  For the transition period from ________________ to _________________



Commission File Number 000-28304


PROVIDENT FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

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

3756 Central Avenue, Riverside, California 92506
(Address of principal executive offices and zip code)

(951) 686-6060
(Registrant'sRegistrant’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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per sharePROVThe 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“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.

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


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

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


APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock, as of the latest practicable date.
As of May 3, 2019January 31, 2020 there were 7,497,3577,483,071 shares of the registrant's common stock, $0.01 par value per share, outstanding.

PROVIDENT FINANCIAL HOLDINGS, INC.
Table of Contents
PART 1  -FINANCIAL INFORMATIONPage
    
ITEM 1  -
Financial Statements.  The Unaudited Interim Condensed Consolidated Financial Statements of
Provident Financial Holdings, Inc. filed as a part of the report are as follows:
 
    
 Condensed Consolidated Statements of Financial Condition 
  as of MarchDecember 31, 2019 and June 30, 201820191
 Condensed Consolidated Statements of Operations 
  for the QuartersQuarter and NineSix Months Ended MarchDecember 31, 2019 and 20182
 Condensed Consolidated Statements of Comprehensive Income 
  for the QuartersQuarter and NineSix Months Ended MarchDecember 31, 2019 and 20183
 Condensed Consolidated Statements of Stockholders'Stockholders’ Equity 
  for the QuartersQuarter and NineSix Months Ended MarchDecember 31, 2019 and 20184
 Condensed Consolidated Statements of Cash Flows 
  for the NineSix Months Ended MarchDecember 31, 2019 and 20186
 Notes to Unaudited Interim Condensed Consolidated Financial Statements7
    
ITEM 2  -Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations: 
    
 General50 41
 Safe-Harbor Statement51 42
 Critical Accounting Policies52 43
 Executive Summary and Operating Strategy53 43
 Off-Balance Sheet Financing Arrangements and Contractual Obligations55 44
 Comparison of Financial Condition at MarchDecember 31, 2019 and June 30, 2018201955 45
 
Comparison of Operating Results
for the QuartersQuarter and NineSix Months Ended MarchDecember 31, 2019 and 2018
57 47
 Asset Quality68 58
 Loan Volume Activities77 61
 Liquidity and Capital Resources78 61
 Supplemental Information80 63
    
ITEM 3  -Quantitative and Qualitative Disclosures about Market Risk80 64
    
ITEM 4  -Controls and Procedures84 68
    
PART II  -OTHER INFORMATION 
    
ITEM 1  -Legal Proceedings85 68
ITEM 1A -Risk Factors85 69
ITEM 2  -Unregistered Sales of Equity Securities and Use of Proceeds85 69
ITEM 3  -Defaults Upon Senior Securities86 69
ITEM 4  -Mine Safety Disclosures86 69
ITEM 5  -Other Information86 69
ITEM 6  -Exhibits86 70
    
SIGNATURES89 71
.

.
PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Financial Condition
(Unaudited)
In Thousands, Except Share Information

  
March 31,
2019
  
June 30,
2018
 
Assets      
   Cash and cash equivalents $61,458  $43,301 
   Investment securities – held to maturity, at cost  102,510   87,813 
   Investment securities – available for sale, at fair value  6,294   7,496 
   Loans held for investment, net of allowance for loan losses of
 $7,080 and $7,385, respectively; includes $5,239 and $5,234 at fair value, respectively
  883,554   902,685 
   Loans held for sale, at fair value  30,500   96,298 
   Accrued interest receivable  3,386   3,212 
   Real estate owned, net  —   906 
   Federal Home Loan Bank ("FHLB") – San Francisco stock  8,199   8,199 
   Premises and equipment, net  8,395   8,696 
   Prepaid expenses and other assets  15,099   16,943 
         
          Total assets $1,119,395  $1,175,549 
         
Liabilities and Stockholders' Equity        
         
Liabilities:        
   Non interest-bearing deposits $90,875  $86,174 
   Interest-bearing deposits  786,009   821,424 
          Total deposits  876,884   907,598 
         
   Borrowings  101,121   126,163 
   Accounts payable, accrued interest and other liabilities  20,181   21,331 
          Total liabilities  998,186   1,055,092 
         
Commitments and Contingencies  (Notes 7 and 11)        
         
Stockholders' equity:        
   Preferred stock, $.01 par value (2,000,000 shares authorized;
 none issued and outstanding)
  —   — 
   Common stock, $.01 par value (40,000,000 shares authorized;
 18,064,365 and 18,033,115 shares issued; 7,497,357 and
 7,421,426 shares outstanding, respectively)
  181   181 
   Additional paid-in capital  96,114   94,957 
   Retained earnings  191,103   190,616 
   Treasury stock at cost (10,567,008 and 10,611,689 shares, respectively)  (166,352)  (165,507)
   Accumulated other comprehensive income, net of tax  163   210 
         
          Total stockholders' equity  121,209   120,457 
         
          Total liabilities and stockholders' equity $1,119,395  $1,175,549 
 December 31,
 2019		June 30,
 2019
Assets  
     Cash and cash equivalents$48,233 $70,632 
     Investment securities – held to maturity, at cost77,161 94,090 
     Investment securities – available for sale, at fair value5,237 5,969 
     Loans held for investment, net of allowance for loan losses of
      $6,921 and $7,076, respectively; includes $4,173 and $5,094 at fair value, respectively
941,729 879,925 
     Accrued interest receivable3,292 3,424 
     Federal Home Loan Bank (“FHLB”) – San Francisco stock8,199 8,199 
     Premises and equipment, net10,967 8,226 
     Prepaid expenses and other assets12,569 14,385 
              Total assets$1,107,387 $ 1,084,850 
   
Liabilities and Stockholders’ Equity  
   
Liabilities:  
     Non interest-bearing deposits$85,846 $90,184 
     Interest-bearing deposits747,804 751,087 
             Total deposits833,650 841,271 
   
     Borrowings131,085 101,107 
     Accounts payable, accrued interest and other liabilities18,876 21,831 
             Total liabilities983,611 964,209 
   
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 18,081,365 shares issued; 7,483,071 and
     7,486,106 shares outstanding, respectively)
181 181 
     Additional paid-in capital95,118 94,351 
     Retained earnings193,704 190,839 
     Treasury stock at cost (10,614,544 and 10,559,259 shares, respectively)(165,360)(164,891)
     Accumulated other comprehensive income, net of tax133 161 
             Total stockholders’ equity123,776 120,641 
             Total liabilities and stockholders’ equity$1,107,387 $1,084,850 
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
1
PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
In Thousands, Except Per Share Information

  
Quarter Ended
March 31,
  
Nine Months Ended
March 31,
  2019  2018  2019  2018 
Interest income:           
   Loans receivable, net $10,011  $9,933  $30,516  $29,825 
   Investment securities  592   382   1,381   958 
   FHLB – San Francisco stock  144   144   565   428 
   Interest-earning deposits  386   233   1,111   591 
   Total interest income  11,133   10,692   33,573   31,802 
                 
Interest expense:                
   Checking and money market deposits  102   96   327   311 
   Savings deposits  139   147   437   445 
   Time deposits  600   613   1,851   1,877 
   Borrowings  680   712   2,158   2,176 
   Total interest expense  1,521   1,568   4,773   4,809 
                 
Net interest income  9,612   9,124   28,800   26,993 
Provision (recovery) for loan losses  4   (505)  (450)  (347) 
Net interest income, after provision (recovery) for loan losses  9,608   9,629   29,250   27,340 
                 
Non-interest income:                
   Loan servicing and other fees  262   493   863   1,173 
   Gain on sale of loans, net  1,719   3,597   7,114   12,761 
   Deposit account fees  471   529   1,485   1,623 
   Gain (loss) on sale and operations of real estate owned acquired in
     the settlement of loans, net
  2   (19)  (4)  (81) 
   Card and processing fees  373   372   1,163   1,126 
   Other  225   238   575   701 
   Total non-interest income  3,052   5,210   11,196   17,303 
                 
Non-interest expense:                
   Salaries and employee benefits (1)
  9,292   8,808   24,753   26,710 
   Premises and occupancy  1,286   1,255   3,905   3,829 
   Equipment  417   442   1,333   1,179 
   Professional expenses  513   400   1,371   1,441 
   Sales and marketing expenses  246   213   668   717 
   Deposit insurance premiums and regulatory assessments  124   189   461   591 
   Other (2)
  1,122   1,132   3,088   6,919 
   Total non-interest expense  13,000   12,439   35,579   41,386 
                 
Income (loss) before income taxes  (340)  2,400   4,867   3,257 
Provision (benefit) for income taxes (3)
  (189)  667   1,237   2,526 
   Net income (loss) $(151) $1,733  $3,630  $731 
                 
Basic earnings (loss) per share $(0.02) $0.23  $0.49  $0.10 
Diluted earnings (loss) per share $(0.02) $0.23  $0.48  $0.09 
Cash dividends per share $0.14  $0.14  $0.42  $0.42 

.
  Quarter Ended
December 31,		  Six Months Ended
December 31,		 
  2019  2018  2019  2018 
Interest income:            
    Loans receivable, net $10,320  $10,331  $20,395  $20,505 
    Investment securities  567   444   1,181   789 
    FHLB – San Francisco stock  145   278   288   421 
    Interest-earning deposits  189   387   435   725 
    Total interest income  11,221   11,440   22,299   22,440 
                 
Interest expense:                
    Checking and money market deposits  117   117   227   225 
    Savings deposits  131   147   265   298 
    Time deposits  530   630   1,062   1,251 
    Borrowings  804   715   1,524   1,478 
    Total interest expense  1,582   1,609   3,078   3,252 
                 
Net interest income  9,639   9,831   19,221   19,188 
(Recovery) provision for loan losses  (22)  (217)  (203)  (454)
Net interest income, after  (recovery) provision for loan losses  9,661   10,048   19,424   19,642 
                 
Non-interest income:                
    Loan servicing and other fees  367   277   500   601 
    (Loss) gain on sale of loans, net  (43)  2,263   (129)  5,395 
    Deposit account fees  451   509   898   1,014 
    Loss on sale and operations of real estate owned acquired in the
      settlement of loans, net
  —   (7)  —   (6)
    Card and processing fees  371   392   761   790 
    Other  198   161   384   350 
    Total non-interest income  1,344   3,595   2,414   8,144 
                 
Non-interest expense:                
    Salaries and employee benefits  4,999   7,211   9,984   15,461 
    Premises and occupancy  880   1,274   1,758   2,619 
    Equipment  262   495   541   916 
    Professional expenses  331   411   739   858 
    Sales and marketing expenses  212   253   329   422 
    Deposit insurance premiums and regulatory assessments  59   172   43   337 
    Other  811   1,059   1,398   1,966 
    Total non-interest expense  7,554   10,875   14,792   22,579 
Income before income taxes  3,451   2,768   7,046   5,207 
Provision for income taxes  1,053   810   2,086   1,426 
    Net income $2,398  $1,958  $4,960  $3,781 
                 
Basic earnings per share $0.32  $0.26  $0.66  $0.51 
Diluted earnings per share $0.31  $0.26  $0.65  $0.50 
Cash dividends per share $0.14  $0.14  $0.28  $0.28 
(1)
Includes $1.5 million of costs associated with staff reductions in mortgage banking operations during the quarter and nine months ended March 31, 2019.

(2)
Includes $3.4 million of litigation settlement expense for the nine months ended March 31, 2018.
(3)
Includes a net tax charge of $1.9 million resulting from the revaluation of net deferred tax assets consistent with the Tax Cuts and Jobs Act for the nine months ended March 31, 2018.
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
2

.
PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
In Thousands

 For the Quarter Ended
 December 31,		For the Six Months Ended
 December 31,
 2019201820192018
Net income$2,398 $1,958 $4,960 $3,781 
     
Change in unrealized holding loss on securities available for sale(21)(28)(40)(58)
Reclassification adjustment for net loss on securities available
  for sale included in net loss
— — — — 
Other comprehensive loss, before income taxes(21)(28)(40)(58)
     
Income tax benefit(6)(8)(12)(17)
Other comprehensive loss(15)(20)(28)(41)
     
Total comprehensive income$2,383 $1,938 $4,932 $3,740 
  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
  2019  2018  2019  2018 
Net income (loss) $(151) $1,733  $3,630  $731 
                 
Change in unrealized holding loss on securities available for sale  (9)  (35)  (67)  (113)
Reclassification adjustment for net income (loss) on securities
  available for sale included in net income (loss)
  —   (2)  —   43 
Other comprehensive loss, before income taxes  (9)  (37)  (67)  (70)
                 
Income tax benefit  (3)  (13)  (20)  (27)
Other comprehensive loss  (6)  (24)  (47)  (43)
                 
Total comprehensive income (loss) $(157) $1,709  $3,583  $688
 




The accompanying notes are an integral part of these condensed consolidated financial statements.
3

3

PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
In Thousands, Except Share Information

For the QuartersQuarter Ended MarchDecember 31, 2019 and 2018:
 
Common
Stock
  
Additional
Paid-In
  Retained   Treasury    
Accumulated
Other
Comprehensive
Income (Loss), 
    
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
 
 Shares  Amount  Capital  Earnings  Stock  Net of Tax  Total SharesAmountTotal
Balance at December 31, 2018  7,506,855  $181  $95,913  $192,306  $(165,892) $169  $122,677 
Balance at September 30, 20197,479,682 $181 $94,795 $192,354 $(165,309)$148 $122,169 
                                 
Net loss              (151)          (151)
Net income   2,398  2,398 
Other comprehensive loss                      (6)  (6)     (15)(15)
Purchase of treasury stock  (23,748)              (460)      (460)(2,361)   (51) (51)
Exercise of stock options  11,250       164               164 5,750  83  83 
Distribution of restricted stock  3,000                       — 
Amortization of restricted stock          29               29   219  219 
Stock options expense          8               8   21  21 
Cash dividends (1)
              (1,052)          (1,052)   (1,048) (1,048)
                                 
Balance at March 31, 2019  7,497,357  $181  $96,114  $191,103  $(166,352) $163  $121,209 
Balance at December 31, 20197,483,071 $181 $95,118 $193,704 $(165,360)$133 $123,776 

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

 
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
 
 SharesAmountTotal
Balance at September 30, 20187,500,860 $181 $95,795 $191,399 $(165,884)$189 $121,680 
        
Net income   1,958   1,958 
Other comprehensive loss     (20)(20)
Purchase of treasury stock (1)
(505)   (8) (8)
Exercise of stock options5,000  73    73 
Distribution of restricted stock1,500       — 
Amortization of restricted stock  33    33 
Stock options expense  12    12 
Cash dividends (2)
   (1,051)  (1,051)
        
Balance at December 31, 20187,506,855 $181 $95,913 $192,306 $(165,892)$169 $122,677 
(1)
Includes the repurchase of 3,291505 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 MarchDecember 31, 2018.



The accompanying notes are an integral part of these condensed consolidated financial statements.
4
4

For the NineSix Months Ended MarchDecember 31, 2019 and 2018:
 
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
 
 SharesAmountTotal
Balance at June 30, 2019
7,486,106 $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 
  
Common
Stock
  
Additional
Paid-In
  Retained  Treasury   
Accumulated
Other
Comprehensive
Income (Loss),
    
  Shares  Amount  Capital  Earnings  Stock  Net of Tax  Total 
Balance at June 30, 2018  7,421,426  $181  $94,957  $190,616  $(165,507) $210  $120,457 
                             
Net income              3,630           3,630 
Other comprehensive loss                      (47)  (47)
Purchase of treasury stock (1)
  (44,819)              (845)      (845)
Exercise of stock options  31,250       390               390 
Distribution of restricted stock  89,500                       — 
Amortization of restricted stock          426               426 
Stock options expense          341               341 
Cash dividends (2)
              (3,143)          (3,143)
                             
Balance at March 31, 2019  7,497,357  $181  $96,114  $191,103  $(166,352) $163  $121,209 
 (1)   Cash dividends of $0.28 per share were paid in the six months ended December 31, 2019.


 
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
 
 SharesAmountTotal
Balance at June 30, 20187,421,426 $181 $94,957 $190,616 $(165,507)$210 $120,457 
        
Net income   3,781   3,781 
Other comprehensive loss     (41)(41)
Purchase of treasury stock (1)
(21,071)   (385) (385)
Exercise of stock options20,000  226    226 
Distribution of restricted stock86,500       — 
Amortization of restricted stock  397    397 
Stock options expense  333    333 
Cash dividends (2)
   (2,091)  (2,091)
        
Balance at December 31, 20187,506,855 $181 $95,913 $192,306 $(165,892)$169 $122,677 
(1)   Includes the repurchase of 21,071 shares of distributed restricted stock in settlement of employee withholding tax obligations.
(2)   Cash dividends of $0.42$0.28 per share were paid in the ninesix months ended March 31, 2019.
  
Common
Stock
  
Additional
Paid-In
  Retained    Treasury    
Accumulated
Other
Comprehensive
Income (Loss), 
    
  Shares  Amount  Capital  Earnings  Stock  Net of Tax  Total 
Balance at June 30, 2017  7,714,052  $180  $93,209  $192,754  $(158,142) $229  $128,230 
                             
Net income              731           731 
Other comprehensive loss                      (43)  (43)
Purchase of treasury stock (1)
  (347,498)              (6,627)      (6,627)
Exercise of stock options  83,750       677               677 
Distribution of restricted stock  10,500                       -- 
Amortization of restricted stock          458               458 
Forfeitures of restricted stock          17       (17)      — 
Stock options expense          358               358 
Cash dividends (2)
              (3,184)          (3,184)
                             
Balance at March 31, 2018  7,460,804  $180  $94,719  $190,301  $(164,786) $186  $120,600 
(1)   Includes the repurchase of 3,291 shares of distributed restricted stock in settlement of employee withholding tax obligations.
(2)   Cash dividends of $0.42 per share were paid in the nine months ended MarchDecember 31, 2018.





The accompanying notes are an integral part of these condensed consolidated financial statements.
5
5
PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited - In Thousands)
 
Six Months Ended
December 31,
 20192018
Cash flows from operating activities:  
   Net income$4,960 $3,781 
   Adjustments to reconcile net income to net cash provided by operating activities:  
      Depreciation and amortization1,356 1,664 
      (Recovery) provision for loan losses(203)(454)
      Loss (gain) on sale of loans, net129 (5,395)
      Stock-based compensation480 730 
      Provision for deferred income taxes1,432 733 
   Decrease in accounts payable, accrued interest and other liabilities(3,052)(482)
   (Increase) decrease in prepaid expenses and other assets(3,025)537 
   Loans originated for sale— (342,738)
   Proceeds from sale of loans— 386,778 
         Net cash provided by operating activities2,077 45,154 
   
Cash flows from investing activities:  
   (Increase) decrease in loans held for investment, net(61,773)27,554 
   Maturity of investment securities held to maturity— 200 
   Principal payments from investment securities held to maturity16,702 15,782 
   Principal payments from investment securities available for sale695 875 
   Purchase of investment securities held to maturity— (13,669)
   Proceeds from sale of real estate owned— 915 
   Purchase of premises and equipment(148)(348)
         Net cash (used for) provided by investing activities(44,524)31,309 
   
Cash flows from financing activities:  
   Decrease in deposits, net(7,621)(34,714)
   Repayments of short-term borrowings, net— (15,000)
   Repayments of long-term borrowings(29)(28)
   Proceeds from long-term borrowings30,007 — 
   Exercise of stock options215 226 
   Withholding taxes on stock based compensation(32)(413)
   Cash dividends(2,095)(2,091)
   Treasury stock purchases(397)(385)
         Net cash provided by (used for) financing activities20,048 (52,405)
   
Net (decrease) increase in cash and cash equivalents(22,399)24,058 
Cash and cash equivalents at beginning of period70,632 43,301 
Cash and cash equivalents at end of period$48,233 $67,359 
Supplemental information:  
   Cash paid for interest$3,091 $3,263 
   Cash paid for income taxes$350 $1,525 
   Transfer of loans held for sale to held for investment$1,085 $724 

  Nine Months Ended March 31, 
  2019  2018 
Cash flows from operating activities:      
   Net income $3,630  $731 
   Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
      Depreciation and amortization  2,045   2,229 
      Recovery from the allowance for loan losses  (450)  (347)
      Recovery of losses on real estate owned  —   (552)
      Gain on sale of loans, net  (7,114)  (12,761)
      (Gain) loss on sale of real estate owned, net  (9)  564 
      Stock-based compensation  767   816 
      Provision (benefit) for deferred income taxes  553   (28)
   (Decrease) increase in accounts payable, accrued interest and other liabilities  (320)  3,294 
   Decrease (increase) in prepaid expenses and other assets  446   (482)
   Loans originated for sale  (453,444)  (944,349)
   Proceeds from sale of loans  526,090   983,504 
         Net cash provided by operating activities  72,194   32,619 
         
Cash flows from investing activities:        
   Decrease in loans held for investment, net  19,230   8,956 
   Maturity of investment securities held to maturity  800   200 
   Principal payments from investment securities held to maturity  24,093   17,882 
   Principal payments from investment securities available for sale  1,140   1,252 
   Purchase of investment securities held to maturity  (40,282)  (54,147)
   Proceeds from sale of real estate owned  915   2,223 
   Purchase of premises and equipment  (151)  (2,713)
         Net cash provided by (used for) investing activities  5,745   (26,347)
         
Cash flows from financing activities:        
   Decrease in deposits, net  (30,714)  (4,022)
   Repayments of short-term borrowings, net  (15,000)  (15,000)
   Repayments of long-term borrowings  (10,042)  (10,050)
   Proceeds from long-term borrowings  —   10,000 
   Exercise of stock options  390   677 
   Withholding taxes on stock based compensation  (428)  (318)
   Cash dividends  (3,143)  (3,184)
   Treasury stock purchases  (845)  (6,627)
         Net cash used for financing activities  (59,782)  (28,524)
         
Net increase (decrease) in cash and cash equivalents  18,157   (22,252)
Cash and cash equivalents at beginning of period  43,301   72,826 
Cash and cash equivalents at end of period $61,458  $50,574 
Supplemental information:        
   Cash paid for interest $4,796  $4,816 
   Cash paid for income taxes $1,555  $2,400 
   Transfer of loans held for sale to held for investment $1,360  $1,122 
   Real estate acquired in the settlement of loans $—  $1,659 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
6
PROVIDENT FINANCIAL HOLDINGS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements

MarchDecember 31, 2019

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, 20182019 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'sCorporation’s Annual Report on Form 10-K for the year ended June 30, 2018.2019.  The results of operations for the quarter and nine months ended MarchDecember 31, 2019 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2019.2020.


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

There have been no accounting standard updates or changes in the status of their adoption that are significant to the Corporation as previously disclosed in Note 1 of the Corporation's Annual Report on Form 10-K for the year ended June 30, 2018,2019, other than:

ASU 2014-09:2016-13:
In May 2014,June 2016, the Financial Accounting Standards Board ("FASB"(“FASB”) issued ASU 2014-09, "Revenue from Contracts with Customers," which created FASB Accounting Standards Codification (ASC) Topic 606 ("ASC 606"). ASC 606 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction priceCredit Losses on Financial Instruments,” and subsequent amendments to the performance obligationsinitial guidance in November 2018, ASU No. 2018-19, April 2019, ASU 2019-04, May 2019, ASU 2019-05, and November 2019 ASU 2019-11, all of which clarifies codification and corrects unintended application of the contractguidance. In November 2019, the FASB also issued ASU 2019-10, “Financial Instruments — Credit Losses (Topic 326), Derivatives and (5) recognize revenue when (or as)Hedging (Topic 815), and Leases (Topic 842): Effective Dates” extending the entity satisfies a performance obligation. ASC 606 wasadoption date for certain registrants, including the Corporation. These ASUs will be effective for annual periods, and interim reporting periods within those annual periods,fiscal years beginning after December 15, 2017.2022, including interim periods within those fiscal years. The Corporation adopted ASC 606 on July 1, 2018 usingis evaluating its current expected loss methodology of its loan and investment portfolios to identify the modified retrospective approach. Therefore, the comparative information has not been adjustednecessary modifications in accordance with these standards and continues to be reported under superseded ASC 605. There was no cumulative effect adjustment as of July 1, 2018, and there were no material changes to the timing or amount of revenue recognized for the nine months ended March 31, 2019; however, additional disclosures were incorporatedexpects a change in the footnotesprocesses and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. A valuation adjustment to its allowance for loan losses or investment portfolio that is identified in this process will be reflected as a one-time adjustment in equity rather than earnings upon adoption. The majorityCorporation is in the process of the Company's revenue is comprised of interest income from financial assets, which is explicitly excluded from the scope of ASC 606. The Corporation electedcompiling historical data that will be used to apply the practical expedient pursuantcalculate expected credit losses on its loan portfolio to ASC 606 and therefore does not disclose information about remaining performance obligations that have an original expected term of one year or less and allowsensure the Corporation to expense costs related to obtaining a contract as incurred whenis fully compliant with these ASUs at the original amortization period wouldadoption date and is evaluating the potential impact adoption of these ASUs will have been one year or less. See Note 12 for additional discussion.

7
on the Corporation’s Consolidated Financial Statements.

ASU 2018-11
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." This ASU introduces a lessee model that brings most leases ononto the balance sheet and aligns many of the underlying principles of the new lessor model with those in the new revenue recognition standard, ASCAccounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers. The new leases standard represents a wholesale change to lease accounting and will most likelydid not result in significant implementation

7

challenges during the transition periodperiod. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and beyond. Thislease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The effective date of this ASU will be effective for annual periods is beginning after December 15, 2018 (i.e., calendar periods beginning on January 1, 2019), and interim periods therein, early adoption is permitted.therein. In July 2018, the FASB issued ASU 2018-11, Leases, Targeted Improvements, which allows entities the option of initially applying the new leases standard at the adoption date (such as January 1, 2019, for calendar year- end public business entities) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In January 2019, the FASB issued ASU 2019-01, Codification Improvements. The amendments in this update include the following items: (i) determining the fair value of the underlying asset by lessors that are not manufacturers or dealers; (ii) requiring cash received from lessors from sales-type and direct financing leases to be presented in the cash flow statement within investing activities; and (iii) clarifying interim disclosure requirements. The effective date and transition requirements for the first and second items of this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019 and early adoption is permitted. The effective date and transition requirements for the third item of this ASU are the same as ASU 2016-02. The Corporation plans to adopt these ASUs onadopted the provisions of ASC 842 effective July 1, 2019. Management2019 utilizing the transition method allowed under ASU 2018-11 and will not restate comparative periods as well as electing to not separate non-lease components from lease components. The Corporation elected the package of practical expedients permitted under ASC 842's transition guidance, which allows the Corporation to carryforward its historical lease classifications and its assessment as to whether a contract is currently assessing the impactor contains a lease. The Corporation also elected to not recognize lease assets and lease liabilities for leases with an initial term of these ASUs on the Corporation's financial position and results of operations but does not believe that12 months or less. The adoption of these ASUs  willASC 842 did not have a material impact on its consolidated financial statements. See Note 10 for additional discussion.

ASU 2018-132018-13:
In August 2018, the FASB issued ASU 2018-13, Disclosure“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. TheThis guidance will be effective fiscal years beginning January 1, 2020,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 consolidated financial statements and will not otherwise affect the Corporation's financial position or results of operations.
Corporation’s Consolidated Financial Statements.


8
Note 3: Earnings (Loss) Per Share

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

As of MarchDecember 31, 2019 and 2018, there were outstanding options to purchase 497,750554,500 shares and 529,000509,000 shares of the Corporation'sCorporation’s common stock, respectively. Of those shares, as of MarchDecember 31, 2019 and 2018, there were 497,750no shares and 26,00045,000 shares, respectively, which were excluded from the diluted EPS computation as their effect was anti-dilutive. As of MarchDecember 31, 2019 and 2018, there were outstanding restricted stock awards of 9,000225,500 shares and 98,50012,000 shares, respectively. The outstanding restricted stock had no dilutive effect for the quarter ended March 31, 2019 but they were dilutive for the comparable quarter last year.



8

The following table provides the basic and diluted EPS computations for the quartersquarter and ninesix months ended MarchDecember 31, 2019 and 2018, respectively.
  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
(In Thousands, Except Earnings Per Share) 2019  2018  2019  2018 
Numerator:            
   Net income (loss) – numerator for basic earnings per share 
    and diluted earnings per share - available to common 
    stockholders
 $(151) $1,733  $3,630  $731 
                 
Denominator:                
   Denominator for basic earnings per share:                
    Weighted-average shares  7,507   7,457   7,481   7,573 
                 
     Effect of dilutive shares:                
Stock options  —   97   60   111 
Restricted stock  —   62   14   53 
                 
  Denominator for diluted earnings per share:                
    Adjusted weighted-average shares and assumed
     conversions
  7,507   7,616   7,555   7,737 
                 
Basic earnings (loss) per share $(0.02) $0.23  $0.49  $0.10 
Diluted earnings (loss) per share $(0.02) $0.23  $0.48  $0.09 


Note 4: Operating Segment Reports

The Corporation operates in two business segments: community banking through the Bank and mortgage banking through Provident Bank Mortgage ("PBM"), a division of the Bank. The Corporation expects to discontinue the operations of PBM by June 30, 2019.  The Corporation estimates that it will incur costs of approximately $3.6 million to $4.0 million to complete the exit during the remainder of fiscal 2019, which amounts include costs for severance, retention, personnel, premises, occupancy, depreciation, and costs related to termination of data processing and other contractual arrangements.  As of March 31, 2019, the total costs incurred for both the quarter and nine months ended March 31 2019 were approximately $1.6 million, comprised of
9
$1.5 million in salaries and employee benefits expenses, $81,000 in premises and occupancy expenses and $13,000 in equipment expenses. There were no costs incurred related to the exit prior to the quarter ended March 31, 2019.

The following tables set forth condensed consolidated statements of operations and total assets for the Corporation's operating segments for the quarters and nine months ended March 31, 2019 and 2018, respectively.
  For the Quarter Ended March 31, 2019 
(In Thousands) 
Provident
Bank
  
Provident
Bank
Mortgage
  
Consolidated
Totals
 
Net interest income $9,431  $181  $9,612 
Provision (recovery) for loan losses  74   (70)  4 
Net interest income, after provision (recovery) for loan losses  9,357   251   9,608 
             
Non-interest income:            
     Loan servicing and other fees (1)
  103   159   262 
     Gain (loss) on sale of loans, net (2)
  (1)  1,720   1,719 
     Deposit account fees  471   —   471 
     Gain on sale and operations of real estate owned
        acquired in the settlement of loans, net
  2   —   2 
Card and processing fees  373   —   373 
Other  223   2   225 
          Total non-interest income  1,171   1,881   3,052 
             
Non-interest expense:            
     Salaries and employee benefits  5,002   4,290   9,292 
     Premises and occupancy  847   439   1,286 
     Operating and administrative expenses  1,314   1,108   2,422 
          Total non-interest expense  7,163   5,837   13,000 
Income (loss) before income taxes  3,365   (3,705)  (340)
Provision (benefit) for income taxes  907   (1,096)  (189)
Net income (loss) $2,458  $(2,609) $(151)
Total assets, end of period $1,088,716  $30,679  $1,119,395 

(1)
Includes an inter-company charge of $2 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
(2)
Includes an inter-company charge of $17 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.
10
  For the Quarter Ended March 31, 2018 
(In Thousands) 
Provident
Bank
  
Provident
Bank
Mortgage
  
Consolidated
Totals
 
Net interest income $8,750  $374  $9,124 
Recovery from the allowance for loan losses  (505)  —   (505)
Net interest income, after recovery from the allowance for loan losses  9,255   374   9,629 
             
Non-interest income:            
     Loan servicing and other fees (1)
  313   180   493 
     Gain (loss) on sale of loans, net (2)
  (1)  3,598   3,597 
     Deposit account fees  529   —   529 
     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
  (19)  —   (19)
     Card and processing fees  372   —   372 
     Other  238   —   238 
          Total non-interest income  1,432   3,778   5,210 
             
Non-interest expense:            
     Salaries and employee benefits  4,763   4,045   8,808 
     Premises and occupancy  842   413   1,255 
     Operating and administrative expenses  1,050   1,326   2,376 
          Total non-interest expense  6,655   5,784   12,439 
Income (loss) before income taxes  4,032   (1,632)  2,400 
Provision (benefit) for income taxes  1,252   (585)  667 
Net income (loss) $2,780  $(1,047) $1,733 
Total assets, end of period $1,086,437  $90,165  $1,176,602 


(1)
Includes an inter-company charge of $222 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
(2)
Includes an inter-company charge of $44 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.
11
  For the Nine Months Ended March 31, 2019 
(In Thousands) 
Provident
Bank
  
Provident
Bank
Mortgage
  
Consolidated
Totals
 
Net interest income $27,956  $844  $28,800 
Provision (recovery) for loan losses  (475)  25   (450)
Net interest income, after provision (recovery) for loan losses  28,431   819   29,250 
             
Non-interest income:            
     Loan servicing and other fees (1)
  87   776   863 
     Gain on sale of loans, net (2)
  33   7,081   7,114 
     Deposit account fees  1,485   —   1,485 
     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
  (4)  —   (4)
     Card and processing fees  1,163   —   1,163 
     Other  573   2   575 
          Total non-interest income  3,337   7,859   11,196 
             
Non-interest expense:            
     Salaries and employee benefits  14,138   10,615   24,753 
     Premises and occupancy  2,652   1,253   3,905 
     Operating and administrative expenses  3,307   3,614   6,921 
          Total non-interest expense  20,097   15,482   35,579 
Income (loss) before income taxes  11,671   (6,804)  4,867 
Provision (benefit) for income taxes  3,249   (2,012)  1,237 
Net income (loss) $8,422  $(4,792) $3,630 
Total assets, end of period $1,088,716  $30,679  $1,119,395 

(1)
Includes an inter-company charge of $428 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
(2)
Includes an inter-company charge of $37 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.
12

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

(1)
Includes an inter-company charge of $561 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
(2)
Includes an inter-company charge of $182 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.
(3)
Includes $3.4 million of litigation settlement expense for the first nine months of fiscal 2018, of which $2.1 million was allocated to PBM.
(4)
Includes a net tax charge of $1.9 million resulting from the revaluation of net deferred tax assets consistent with the Tax Cuts and Jobs Act for the nine months ended December 31, 2017.
  For the Quarter Ended
December 31,		  For the Six Months Ended
December 31,		 
(In Thousands, Except Earnings Per Share) 2019  2018  2019  2018 
Numerator:            
    Net income – numerator for basic earnings per share and
      diluted earnings per share - available to common
      stockholders
 $2,398  $1,958  $4,960  $3,781 
                 
Denominator:                
  Denominator for basic earnings per share:                
    Weighted-average shares  7,482   7,506   7,482   7,468 
                 
    Effect of dilutive shares:                
Stock options  133   89   133   90 
Restricted stock  43   7   36   21 
                 
  Denominator for diluted earnings per share:                
    Adjusted weighted-average shares and assumed
      conversions
  7,658   7,602   7,651   7,579 
                 
Basic earnings per share $0.32  $0.26  $0.66  $0.51 
Diluted earnings per share $0.31  $0.26  $0.65  $0.50 



13
Note 5:4: Investment Securities

The amortized cost and estimated fair value of investment securities as of MarchDecember 31, 2019 and June 30, 20182019 were as follows:
March 31, 2019 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
(Losses)
  
Estimated
Fair
Value
  
Carrying
Value
 
(In Thousands)               
Held to maturity:               
  U.S. government sponsored enterprise MBS (1)
 $99,193  $728  $(163) $99,758  $99,193 
  U.S. SBA securities (2)
  2,917   —   (19)  2,898   2,917 
  Certificate of deposits  400   —   —   400   400 
Total investment securities - held to maturity $102,510  $728  $(182) $103,056  $102,510 
                     
Available for sale:                    
  U.S. government agency MBS $3,677  $119  $—  $3,796  $3,796 
  U.S. government sponsored enterprise MBS  2,107   91   —   2,198   2,198 
  Private issue CMO (3)
  296   4   —   300   300 
Total investment securities - available for sale $6,080  $214  $—  $6,294  $6,294 
Total investment securities $108,590  $942  $(182) $109,350  $108,804 

December 31, 2019 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
(Losses)
  
Estimated
Fair
Value
  
Carrying
Value
 
(In Thousands)               
Held to maturity:               
  U.S. government sponsored enterprise MBS (1)
 $73,545  $1,185  $(64) $74,666  $73,545 
  U.S. SBA securities (2)
  2,816   —   (13)  2,803   2,816 
  Certificate of deposits  800   —   —   800   800 
Total investment securities - held to maturity $77,161  $1,185  $(77) $78,269  $77,161 
                     
Available for sale:                    
  U.S. government agency MBS $3,146  $100  $—  $3,246  $3,246 
  U.S. government sponsored enterprise MBS  1,688   72   —   1,760   1,760 
  Private issue CMO (3)
  227   4   —   231   231 
Total investment securities - available for sale $5,061  $176  $—  $5,237  $5,237 
Total investment securities $82,222  $1,361  $(77) $83,506  $82,398 

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

9
June 30, 2018 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
(Losses)
  
Estimated
Fair
Value
  
Carrying
Value
 
(In Thousands)               
Held to maturity:               
  U.S. government sponsored enterprise MBS $84,227  $203  $(762) $83,668  $84,227 
  U.S. SBA securities  2,986   —   (15)  2,971   2,986 
  Certificate of deposits  600   —   —   600   600 
Total investment securities - held to maturity $87,813  $203  $(777) $87,239  $87,813 
                     
Available for sale:                    
  U.S. government agency MBS $4,234  $150  $—  $4,384  $4,384 
  U.S. government sponsored enterprise MBS  2,640   122   —   2,762   2,762 
  Private issue CMO  346   4   —   350   350 
Total investment securities - available for sale $7,220  $276  $—  $7,496  $7,496 
Total investment securities $95,033  $479  $(777) $94,735  $95,309 

June 30, 2019 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
(Losses)
  
Estimated
Fair
Value
  
Carrying
Value
 
(In Thousands)               
Held to maturity               
  U.S. government sponsored enterprise MBS $90,394  $1,289  $(14) $91,669  $90,394 
  U.S. SBA securities  2,896   —   (6)  2,890   2,896 
  Certificate of deposits  800   —   —   800   800 
Total investment securities - held to maturity $94,090  $1,289  $(20) $95,359  $94,090 
                     
Available for sale                    
  U.S. government agency MBS $3,498  $116  $(1) $3,613  $3,613 
  U.S. government sponsored enterprise MBS  1,998   89   —   2,087   2,087 
  Private issue CMO  261   8   —   269   269 
Total investment securities - available for sale $5,757  $213  $(1) $5,969  $5,969 
Total investment securities $99,847  $1,502  $(21) $101,328  $100,059 

In the third quarterssecond quarter of fiscal 20192020 and 2018,2019, the Corporation received MBS principal payments of $8.6$8.1 million and $7.4$8.3 million, respectively, and there were no sales of investment securities during these periods. The Corporation purchaseddid not purchase any investment securities in the second quarter of fiscal 2020, as compared to the purchase of $13.5 million of U.S. government sponsored enterprise MBS totaling $26.2 million and $12.4 million, to be held to maturity respectively.in the same period of fiscal 2019. For the first ninesix months of fiscal 20192020 and 2018,2019, the Corporation received MBS principal payments of $25.2$17.4 million and $19.1$16.7 million, respectively, and there were no sales of investment securities during these periods. InThe Corporation did not purchase any investment securities in the first ninesix months of fiscal
14
2019 and 2018, 2020, as compared to the Corporation purchasedpurchase of $13.5 million of U.S. government sponsored enterprise MBS totaling $39.7 million and $50.9 million, to be held to maturity, respectively. In addition, the Corporation also purchased $3.0 million in U.S. SBA loan pool securities to be held to maturity in the third quarter and first nine monthssame period of fiscal 2018.2019.

The Corporation held investments with an unrealized loss position of $182,000$77,000 at MarchDecember 31, 2019 and $777,000$21,000 at June 30, 2018.2019.
As of March 31, 2019
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
As of December 31, 2019
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
(In Thousands)Less Than 12 Months 12 Months or More Total Less Than 12 Months 12 Months or More Total 
Fair Unrealized Fair Unrealized Fair Unrealized Fair Unrealized Fair Unrealized Fair Unrealized 
Description of SecuritiesValue Losses Value Losses Value Losses Value Losses Value Losses Value Losses 
Held to maturity:                        
U.S. government sponsored enterprise MBS $—  $—  $26,758  $163  $26,758  $163  $6,407  $64  $—  $—  $6,407  $64 
U.S. SBA securities  2,892   19   —   —   2,892   19   —  $—   2,313   13   2,313   13 
Total investment securities – held to maturity $6,407  $64  $2,313  $13  $8,720  $77 
                        
Available for sale                        
Total investment securities – available for sale $—  $—  $—  $—  $—  $— 
Total investment securities $2,892  $19  $26,758  $163  $29,650  $182  $6,407  $64  $2,313  $13  $8,720  $77 

As of June 30, 2018
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
(In Thousands)Less Than 12 Months 12 Months or More Total 
 Fair Unrealized Fair Unrealized Fair Unrealized 
Description  of SecuritiesValue Losses Value Losses Value Losses 
Held to maturity:            
  U.S. government sponsored enterprise MBS $47,045  $762  $—  $—  $47,045  $762 
  U.S. SBA securities  2,964   15   —   —   2,964   15 
Total investment securities $50,009  $777  $—  $—  $50,009  $777 
10

As of June 30, 2019
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$6,507 $8  $1,657 $6  $8,164 $14 
  U.S. SBA securities — $—   2,883  6   2,883  6 
Total investment securities – held to maturity$6,507 $8  $4,540 $12  $11,047 $20 
                     
Available for sale                    
U.S. government agency MBS$289 $1  $— $—  $289 $1 
Total investment securities – available for sale$289 $1  $— $—  $289 $1 
Total investment securities$6,796 $9  $4,540 $12  $11,336 $21 

The Corporation evaluates individual investment securities quarterly for other-than-temporary declines in market value. At MarchDecember 31, 2019, $163,000$13,000 of the $182,000$77,000 unrealized holding losses were 12 months or more; while at June 30, 2018, all2019, $12,000 of the $21,000 unrealized holding losses were less than 12 months.months or more. The Corporation does not believe that there were any other-than-temporary impairments on the investment securities at MarchDecember 31, 2019 and 2018; therefore, no impairment losses were recorded for the quarters and nine monthsquarter ended MarchDecember 31, 2019 and 2018.
15

Contractual maturities of investment securities as of MarchDecember 31, 2019 and June 30, 20182019 were as follows:
 December 31, 2019 

June 30, 2019
(In Thousands)Amortized
Cost		Estimated
Fair
Value		 Amortized
Cost		Estimated
Fair
Value
      
Held to maturity:     
Due in one year or less$800 $800  $400 $400 
Due after one through five years25,201 25,309  32,584 32,728 
Due after five through ten years30,383 31,066  35,306 36,090 
Due after ten years20,777 21,094  25,800 26,141 
Total investment securities - held to maturity$77,161 $78,269  $94,090 $95,359 
      
Available for sale:     
Due in one year or less$— $—  $— $— 
Due after one through five years— —  — — 
Due after five through ten years— —  — — 
Due after ten years5,061 5,237  5,757 5,969 
Total investment securities - available for sale$5,061 $5,237  $5,757 $5,969 
Total investment securities$82,222 $83,506  $99,847 $101,328 

  March 31, 2019  June 30, 2018 
(In Thousands) 
Amortized
Cost
  
Estimated
Fair
Value
  
Amortized
Cost
  
Estimated
Fair
Value
 
             
Held to maturity:            
Due in one year or less $200  $200  $600  $600 
Due after one through five years  35,345   35,259   24,961   24,569 
Due after five through ten years  38,691   39,126   22,847   22,477 
Due after ten years  28,274   28,471   39,405   39,593 
Total investment securities - held to maturity $102,510  $103,056  $87,813  $87,239 
                 
Available for sale:                
Due in one year or less $—  $—  $—  $— 
Due after one through five years  —   —   —   — 
Due after five through ten years  —   —   —   — 
Due after ten years  6,080   6,294   7,220   7,496 
Total investment securities - available for sale $6,080  $6,294  $7,220  $7,496 
Total investment securities $108,590  $109,350  $95,033  $94,735 
11

Note 6:5: Loans Held for Investment

Loans held for investment, net of fair value adjustments, consisted of the following:
(In Thousands) 
March 31,
2019
  
June 30,
2018
 December 31,
2019		June 30,
2019
Mortgage loans:       
Single-family $314,824  $314,808 $347,344 $324,952 
Multi-family  449,812   476,008 479,151 439,041 
Commercial real estate  115,355   109,726 107,613 111,928 
Construction (1)
  4,139   3,174 6,914 4,638 
Other  167   167 — 167 
Commercial business loans (2)
  483   500 578 478 
Consumer loans (3)
  133   109 140 134 
Total loans held for investment, gross  884,913   904,492 941,740 881,338 
         
Advance payments of escrows  225   18 56 53 
Deferred loan costs, net  5,496   5,560 6,854 5,610 
Allowance for loan losses  (7,080)  (7,385)(6,921)(7,076)
Total loans held for investment, net $883,554  $902,685 $941,729 $879,925 

(1)
Net of $6.1$6.8 million and $4.3$6.6 million of undisbursed loan funds as of MarchDecember 31, 2019 and June 30, 2018,2019, respectively
(2)
Net of $950$0.9 million and $495$1.0 million of undisbursed lines of credit as of MarchDecember 31, 2019 and June 30, 2018,2019, respectively.
(3)
Net of $481$0.5 million and $503$0.5 million of undisbursed lines of credit as of MarchDecember 31, 2019 and June 30, 2018,2019, respectively.

16
The following table sets forth information at MarchDecember 31, 2019 regarding the dollar amount of loans held for investment that are contractually repricing during the periods indicated, segregated between adjustable rate loans and fixed rate loans.  Fixed-rate loans comprised 2%one percent and two percent of loans held for investment at both MarchDecember 31, 2019 and June 30, 2018.2019, 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'sCorporation’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$83,613 $41,111 $121,719 $90,106 $10,795 $347,344 
    Multi-family138,125 162,170 159,357 19,327 172 479,151 
    Commercial real estate38,497 27,918 40,118 685 395 107,613 
    Construction5,796 — — — 1,118 6,914 
Commercial business loans160 — — — 418 578 
Consumer loans140 — — — — 140 
    Total loans held for investment,
      gross
$266,331 $231,199 $321,194 $110,118 $12,898 $941,740 
  Adjustable Rate       
(In Thousands) 
Within One
Year
  
After
One Year
Through 3
Years
  
After
3 Years
Through 5
Years
  
After
5 Years
Through 10
Years
  Fixed Rate  Total 
Mortgage loans:                  
     Single-family $100,302  $37,514  $102,300  $62,493  $12,215  $314,824 
     Multi-family  125,503   162,437   145,968   15,710   194   449,812 
     Commercial real estate  44,247   33,136   36,442   1,055   475   115,355 
     Construction  3,581   —   —   —   558   4,139 
     Other  —   —   —   —   167   167 
Commercial business loans  75   —   —   —   408   483 
Consumer loans  133   —   —   —   —   133   
     Total loans held for investment,
       gross
 $273,841  $233,087  $284,710  $79,258  $14,017  $884,913 

The Corporation has developed an internal loan grading system to evaluate and quantify the Bank'sBank’s loans held for investment portfolio with respect to quality and risk.  Management continually evaluates the credit quality of the Corporation'sCorporation’s loan

12
portfolio and conducts a quarterly review of the adequacy of the allowance for loan losses using quantitative and qualitative methods. The Corporation has adopted an internal risk rating policy in which each loan is rated for credit quality with a rating of pass, special mention, substandard, doubtful or loss.  The two primary components that are used during the loan review process to determine the proper allowance levels are individually evaluated allowances and collectively evaluated allowances.  Quantitative loan loss factors are developed by determining the historical loss experience, expected future cash flows, discount rates and collateral fair values, among others.  Qualitative loan loss factors are developed by assessing general economic indicators such as gross domestic product, retail sales, unemployment rates, employment growth, California home sales and median California home prices.  The Corporation assigns individual factors for the quantitative and qualitative methods for each loan category and each internal risk rating.

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

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

The following tables summarize gross loans held for investment, net of fair value adjustments, by loan types and risk category at the dates indicated:
  December 31, 2019
(In Thousands)
Single-
family
Multi-
family
Commercial
Real Estate
Construction
Commercial
Business
ConsumerTotal
         
Pass$339,599 $475,330 $106,687 $5,629 $535 $140 $927,920 
Special Mention4,276 3,821 — 1,285 — — 9,382 
Substandard3,469 — 926 — 43 — 4,438 
 
Total loans held for
   investment, gross
$347,344 $479,151 $107,613 $6,914 $578 $140 $941,740 

 March 31, 2019 
(In Thousands) 
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  
Other
Mortgage
  
Commercial
Business
  Consumer  Total 
                         
Pass $304,403  $445,927  $115,355  $3,394  $167  $430  $133  $869,809 
Special Mention  3,347   3,885   —   —   —   —   —   7,232 
Substandard  7,074   —   —   745   —   53   —   7,872 
   Total loans held for
     investment, gross
 $314,824  $449,812  $115,355  $4,139  $167  $483  $133  $884,913 
13
  June 30, 2019
(In Thousands)
Single-
family
Multi-
family
Commercial
Real Estate
Construction
Other
Mortgage
Commercial BusinessConsumerTotal
          
Pass$314,036 $435,177 $111,001 $3,667 $167 $429 $134 $864,611 
Special Mention3,795 3,864 927 — — — — 8,586 
Substandard7,121 — — 971 — 49 — 8,141 
 
Total loans held for
   investment, gross
$324,952 $439,041 $111,928 $4,638 $167 $478 $134 $881,338 

 June 30, 2018 
(In Thousands) 
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  
Other
Mortgage
  
Commercial
Business
  Consumer  Total 
                         
Pass $304,619  $ 472,061  $108,786  $3,174  $167  $430  $109  $889,346 
Special Mention  2,548   3,947   940   —   —   —   —   7,435 
Substandard  7,641   —   —   —   —   70   —   7,711 
Total loans held for
   investment, gross
 $314,808  $476,008  $109,726  $3,174  $167  $500  $109  $904,492 
The allowance for loan losses is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loans held for investment and upon management'smanagement’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'sCorporation’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'sCorporation’s control.

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

The following table summarizes the Corporation's allowance for loan losses at March 31, 2019 and June 30, 2018:
(In Thousands) March 31, 2019  June 30, 2018 
Collectively evaluated for impairment:      
   Mortgage loans:      
      Single-family $2,514  $2,632 
      Multi-family  3,300   3,492 
      Commercial real estate  1,042   1,030 
      Construction  63   47 
      Other  3   3 
   Commercial business loans  18   18 
   Consumer loans  8   6 
      Total collectively evaluated allowance  6,948   7,228 
         
Individually evaluated for impairment:        
   Mortgage loans:        
      Single-family  123   151 
   Commercial business loans  9   6 
      Total individually evaluated allowance  132   157 
Total loan loss allowance $7,080  $7,385 
14
19

The following table is provided to disclose additional details for the periods indicated on the Corporation'sCorporation’s allowance for loan losses:
 For the Quarter Ended
December 31,		For the Six Months Ended
December 31,
(Dollars in Thousands)2019201820192018
     
Allowance at beginning of period$6,929 $7,155 $7,076 $7,385 
     
Provision (recovery) for loan losses(22)(217)(203)(454)
     
Recoveries:    
Mortgage loans:    
     Single-family13 123 49 155 
Consumer loans1 — 1 1 
   Total recoveries14 123 50 156 
     
Charge-offs:    
Mortgage loans:    
     Single-family— — (1)(25)
Consumer loans— — (1)(1)
   Total charge-offs— — (2)(26)
     
   Net recoveries (charge-offs)14 123 48 130 
     Balance at end of period$6,921 $7,061 $6,921 $7,061 
     
Allowance for loan losses as a percentage of gross
  loans held for investment at the end of the period
0.73%0.80%0.73%0.80%
Net (recoveries) charge-offs as a percentage of average
  loans receivable, net, during the period (annualized)
(0.01)%(0.05)%(0.01)%(0.03)%
  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
(Dollars in Thousands) 2019  2018  2019  2018 
             
Allowance at beginning of period $7,061  $8,075  $7,385  $8,039 
                 
Provision (recovery) for loan losses  4   (505)  (450)  (347)
                 
Recoveries:                
Mortgage loans:                
      Single-family  22   71   177   203 
Consumer loans  1   —   2   — 
   Total recoveries  23   71   179   203 
                 
Charge-offs:                
Mortgage loans:                
      Single-family  (6)  (110)  (31)  (364)
Consumer loans  (2)  —   (3)  — 
   Total charge-offs  (8)  (110)  (34)  (364)
                 
   Net (charge-offs) recoveries  15   (39)  145   (161)
      Balance at end of period $7,080  $7,531  $7,080  $7,531 
                 
Allowance for loan losses as a percentage of gross
  loans held for investment at the end of the period
  0.79%  0.84%  0.79%  0.84%
Net charge-offs (recoveries) as a percentage of average
  loans receivable, net, during the period (annualized)
  (0.01)%  0.02%  (0.02)%  0.02%

The following tables denote the past due status of the Corporation's gross loans held for investment, net of fair value adjustments, at the dates indicated.
  December 31, 2019
(In Thousands)Current30-89 Days
Past Due
Non-Accrual (1)
Total Loans Held for
Investment, Gross
      
Mortgage loans:    
 Single-family$342,893 $982 $3,469 $347,344 
 Multi-family479,151 — — 479,151 
 Commercial real estate107,613 — — 107,613 
 Construction6,914 — — 6,914 
Commercial business loans535 — 43 578 
Consumer loans136 4 — 140 
 Total loans held for investment, gross$937,242 $986 $3,512 $941,740 
  March 31, 2019 
(In Thousands) Current  
30-89 Days
Past Due
  
Non-Accrual (1)
 
Total Loans Held for
Investment, Gross
             
Mortgage loans:            
Single-family $308,554  $696  $5,574  $314,824 
Multi-family  449,812   —   —   449,812 
Commercial real estate  115,355   —   —   115,355 
Construction  3,394   —   745   4,139 
Other  167   —   —   167 
Commercial business loans  430   —   53   483 
Consumer loans  130   3   —   133 
   Total loans held for investment, gross $877,842  $699  $6,372  $884,913 

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

2015
  June 30, 2019
(In Thousands)Current
30-89 Days
Past Due
Non-Accrual(1)
Total Loans Held for Investment, Gross
      
Mortgage loans:    
 Single-family$318,671 $660 $5,621 $324,952 
 Multi-family439,041 — — 439,041 
 Commercial real estate111,928 — — 111,928 
 Construction3,667 — 971 4,638 
 Other167 — — 167 
Commercial business loans429 — 49 478 
Consumer loans129 5 — 134 
 Total loans held for investment, gross$874,032 $665 $6,641 $881,338 
  June 30, 2018 
(In Thousands) Current  
30-89 Days
Past Due
  
Non-Accrual (1)
 
Total Loans Held for
Investment, Gross
             
Mortgage loans:            
Single-family $307,863  $804  $6,141  $314,808 
Multi-family  476,008   —   —   476,008 
Commercial real estate  109,726   —   —   109,726 
Construction  3,174   —   —   3,174 
Other  167   —   —   167 
Commercial business loans  430   —   70   500 
Consumer loans  108   1   —   109 
Total loans held for investment, gross $897,476  $805  $6,211  $904,492 

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

The following tables summarize the Corporation'sCorporation’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, 2019 
(In Thousands)
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  Commercial Business  Consumer  Total 
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)
Recoveries 13   —   —   —   —   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 impairment 2,111   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 impairment 344,291   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%
 Quarter Ended March 31, 2019 
(In Thousands) 
Single-
family
 
Multi-
family
 
Commercial
Real Estate
 Construction Other 
Commercial
Business
 Consumer Total 
Allowance for loan losses:                 
Allowance at beginning of  period $2,679 $3,280 $1,019  $48 $3 $26  $6  $7,061 
Provision (recovery) for loan losses  (58) 20  23   15  —  1   3   4 
Recoveries  22  —  —   —  —  —   1   23 
Charge-offs  (6) —  —   —  —  —   (2   (8)
   Allowance for loan losses,
    end of period
 $2,637 $3,300 $1,042  $63 $3 $27  $8  $7,080 
                             
Allowance for loan losses:                            
Individually evaluated for impairment $123 $— $—  $— $— $9  $—  $132 
Collectively evaluated for impairment  2,514  3,300  1,042   63  3  18   8   6,948 
   Allowance for loan losses,
    end of period
 $2,637 $3,300 $1,042  $63 $3 $27  $8  $7,080 
                             
Loans held for investment:                            
Individually evaluated for impairment $6,004 $— $—  $745 $— $53  $—  $6,802 
Collectively evaluated for impairment  308,820  449,812  115,355   3,394  167  430   133   878,111 
   Total loans held for investment,
     gross
 $314,824 $449,812 $115,355  $4,139 $167 $483  $133  $884,913 
   Allowance for loan losses as
    a percentage of gross loans
    held for investment 
   0.84%   0.73%   0.90%    1.52%   1.80%   5.59%    6.02%    0.79% 

16
21
  Quarter Ended March 31, 2018 
(In Thousands) 
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  Commercial Business  Consumer  Total 
Allowance for loan losses:                     
Allowance at beginning of  period $3,303  $3,295  $933  $504  $32  $8  $8,075 
Provision (recovery) for loan losses  (143)  17   33   (410)  (1)  (1)  (505)
Recoveries  71   —   —   —   —   —   71 
Charge-offs  (110)  —   —   —   —   —   (110)
   Allowance for loan losses,
    end of period
 $3,121  $3,312  $966  $94  $31  $7  $7,531 
                             
Allowance for loan losses:                            
Individually evaluated for impairment $161  $—  $—  $—  $15  $—  $176 
Collectively evaluated for impairment  2,960   3,312   966   94   16   7   7,355 
   Allowance for loan losses,
    end of period
 $3,121  $3,312  $966  $94  $31  $7  $7,531 
                             
Loans held for investment:                            
Individually evaluated for impairment $7,929  $—  $—  $—  $73  $—  $8,002 
Collectively evaluated for impairment  308,983   466,266   106,937   5,324   377   130   888,017 
   Total loans held for investment,
    gross
 $316,912  $466,266  $106,937  $5,324  $450  $130  $896,019 
   Allowance for loan losses as
    a percentage of gross loans
    held for investment
  0.98%  0.71%  0.90%  1.77%  6.89%  5.38%  0.84%

 Quarter Ended December 31, 2018 
(In Thousands)
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  Other  Commercial Business  Consumer  Total 
Allowance for loan losses:                       
Allowance at beginning of  period$2,741  $3,336  $1,012  $38  $3  $19  $6  $7,155 
Provision (recovery) for loan losses (185)  (56)  7   10   —   7   —   (217)
Recoveries 123   —   —   —   —   —   —   123 
Charge-offs —   —   —   —   —   —   —   — 
Allowance for loan losses,
  end of period
$2,679  $3,280  $1,019  $48  $3  $26  $6  $7,061 
                                
Allowance for loan losses:                               
Individually evaluated for impairment$159  $—  $—  $—  $—  $9  $—  $168 
Collectively evaluated for impairment 2,520   3,280   1,019   48   3   17   6   6,893 
Allowance for loan losses,
  end of period
$2,679  $3,280  $1,019  $48  $3  $26  $6  $7,061 
                                
Loans held for investment:                               
Individually evaluated for impairment$5,817  $—  $—  $745  $—  $56  $—  $6,618 
Collectively evaluated for impairment 306,682   447,033   112,830   3,241   167   399   103   870,455 
Total loans held for investment,
  gross
$312,499  $447,033  $112,830  $3,986  $167  $455  $103  $877,073 
Allowance for loan losses as
  a percentage of gross loans
  held for investment
 0.86%  0.73%  0.90%  1.20%  1.80%  5.71%  5.83%  0.80%


22
 Nine Months Ended March 31, 2019 
(In Thousands) 
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  Other  Commercial Business  Consumer Total 
Allowance for loan losses:                       
Allowance at beginning of  period $2,783  $3,492  $1,030  $47  $3  $24  $6  $7,385 
Provision (recovery) for loan losses  (292)  (192)  12   16   —   3   3   (450)
Recoveries  177   —   —   —   —   —   2   179 
Charge-offs  (31)  —   —   —   —   —   (3)  (34)
   Allowance for loan losses,
    end of period
 $2,637  $3,300  $1,042  $63  $3  $27  $8  $7,080 
                                
Allowance for loan losses:                               
Individually evaluated for impairment $123  $—  $—  $—  $—  $9  $—  $132 
Collectively evaluated for impairment  2,514   3,300   1,042   63   3   18   8   6,948 
   Allowance for loan losses,
    end of period
 $2,637  $3,300  $1,042  $63  $3  $27  $8  $7,080 
                                
Loans held for investment:                               
Individually evaluated for impairment $6,004  $—  $—  $745  $—  $53  $—  $6,802 
Collectively evaluated for impairment  308,820   449,812   115,355   3,394   167   430   133   878,111 
   Total loans held for investment,
    gross
 $314,824  $449,812  $115,355  $4,139  $167  $483  $133  $884,913 
   Allowance for loan losses as
    a percentage of gross loans
    held for investment
  0.84%  0.73%  0.90%  1.52%  1.80%  5.59%  6.02%  0.79%

23
  Nine Months Ended March 31, 2018 
(In Thousands) 
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  Commercial Business  Consumer  Total 
Allowance for loan losses:                     
Allowance at beginning of  period $3,601  $3,420  $879  $96  $36  $7  $8,039 
Provision (recovery) for loan losses  (319)  (108)  87   (2)  (5)  —   (347) 
Recoveries  203   —   —   —   —   —   203 
Charge-offs  (364)  —   —   —   —   —   (364) 
   Allowance for loan losses,
    end of period
 $3,121  $3,312  $966  $94  $31  $7  $7,531 
                             
Allowance for loan losses:                            
Individually evaluated for impairment $161  $—  $—  $—  $15  $—  $176 
Collectively evaluated for impairment  2,960   3,312   966   94   16   7   7,355 
   Allowance for loan losses,
    end of period
 $3,121  $3,312  $966  $94  $31  $7  $7,531 
                             
Loans held for investment:                            
Individually evaluated for impairment $7,929  $—  $—  $—  $73  $—  $8,002 
Collectively evaluated for impairment  308,983   466,266   106,937   5,324   377   130   888,017 
   Total loans held for investment, gross $316,912  $466,266  $106,937  $5,324  $450  $130  $896,019 
Allowance for loan losses as
  a percentage of gross loans
  held for investment
  0.98%  0.71%  0.90%  1.77%  6.89   5.38%  0.84
 
%


17
24
 Six Months Ended December 31, 2019 
(In Thousands)
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  Other  Commercial Business  Consumer  Total 
Allowance for loan losses:                       
Allowance at beginning of  period$2,709  $3,219  $1,050  $61  $3  $26  $8  $7,076 
Provision (recovery) for loan losses (600)  283   8   107   (3)  2   —   (203)
Recoveries 49   —   —   —   —   —   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 impairment 2,111   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 impairment 344,291   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%






18

 Six Months Ended December 31, 2018 
(In Thousands)
Single-
family
  
Multi-
family
  
Commercial
Real Estate
  Construction  Other  Commercial Business  Consumer  Total 
Allowance for loan losses:                       
Allowance at beginning of  period$2,783  $3,492  $1,030  $47  $3  $24  $6  $7,385 
Provision (recovery) for loan losses (234)  (212)  (11)  1   —   2   —   (454)
Recoveries 155   —   —   —   —   —   1   156 
Charge-offs (25)  —   —   —   —   —   (1)  (26)
Allowance for loan losses,
  end of period
$2,679  $3,280  $1,019  $48  $3  $26  $6  $7,061 
                                
Allowance for loan losses:                               
Individually evaluated for impairment$159  $—  $—  $—  $—  $9  $—  $168 
Collectively evaluated for impairment 2,520   3,280   1,019   48   3   17   6   6,893 
Allowance for loan losses,
  end of period
$2,679  $3,280  $1,019  $48  $3  $26  $6  $7,061 
                                
Loans held for investment:                 ��             
Individually evaluated for impairment$5,817  $—  $—  $745  $—  $56  $—  $6,618 
Collectively evaluated for impairment 306,682   447,033   112,830   3,241   167   399   103   870,455 
Total loans held for investment,
  gross
$312,499  $447,033  $112,830  $3,986  $167  $455  $103  $877,073 
Allowance for loan losses as
  a percentage of gross loans
  held for investment
 0.86%  0.73%  0.90%  1.20%  1.80%  5.71%  5.83%  0.80%







19


The following tables identify the Corporation'sCorporation’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'sborrower’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, 2019
   Unpaid   Net
   PrincipalRelatedRecorded Recorded
(In Thousands)BalanceCharge-offsInvestment
Allowance (1)
Investment
        
Mortgage loans:     
 Single-family:     
  With a related allowance$1,102 $— $1,102 $
(132)$970 
  
Without a related allowance (2)
2,908 (488)2,420 — 2,420 
 Total single-family4,010 (488)3,522 (132)3,390 
        
Commercial business loans:     
 With a related allowance43 — 43 (6)37 
Total commercial business loans43 — 43 (6)37 
        
Total non-performing loans$4,053 $(488)$3,565 $
(138)$3,427 
  At March 31, 2019 
  Unpaid           Net 
  Principal  Related  Recorded     Recorded 
(In Thousands) Balance  Charge-offs  Investment  
Allowance (1)
  Investment 
                
Mortgage loans:               
   Single-family:               
      With a related allowance $1,813  $—  $1,813  $(284) $1,529 
      Without a related allowance (2)
  4,336   (539)  3,797   —   3,797 
   Total single-family  6,149   (539)  5,610   (284)  5,326 
                     
   Construction:                    
      Without a related allowance (3)
  745   —   745   —   745 
   Total construction  745   —   745   —   745 
                     
Commercial business loans:                    
   With a related allowance  53   —   53   (9)  44 
Total commercial business loans  53   —   53   (9)  44 
                     
Total non-performing loans $6,947  $(539) $6,408  $(293) $6,115 

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



2520



   At June 30, 2019
   Unpaid   Net
   PrincipalRelatedRecorded Recorded
(In Thousands)BalanceCharge-offsInvestment
Allowance (1)
Investment
        
Mortgage loans:     
 Single-family:     
  With a related allowance$2,640 $— $2,640 $
(434)$2,206 
  
Without a related allowance (2)
3,518 (518)3,000 — 3,000 
 Total single-family6,158 (518)5,640 (434)5,206 
        
 Construction:     
  
Without a related allowance (2)
971 — 971 — 971 
 Total construction971 — 971 — 971 
      
Commercial business loans:     
 With a related allowance49 — 49 (8)41 
Total commercial business loans49 — 49 (8)41 
        
Total non-performing loans$7,178 $(518)$6,660 $
(442)$6,218 
  At June 30, 2018 
  Unpaid           Net 
  Principal  Related  Recorded     Recorded 
(In Thousands) Balance  Charge-offs  Investment  
Allowance (1)
  Investment 
                
Mortgage loans:               
   Single-family:                 
      With a related allowance $1,333  $—  $1,333  $(185) $1,148 
      Without a related allowance (2)
  5,569   (724)  4,845   —   4,845 
   Total single-family  6,902   (724)  6,178   (185)  5,993 
                     
Commercial business loans:                    
   With a related allowance  70   —   70   (6)  64 
Total commercial business loans  70   —   70   (6)  64 
                     
Total non-performing loans $6,972  $(724) $6,248  $(191) $6,057 

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

At both MarchDecember 31, 2019, and June 30, 2018, there were no commitments to lend additional funds to those borrowers whose loans were classified as non-performing.  At June 30, 2019, there was one non-performing except for one construction loan with undisbursed loan funds of $1.2$1.0 million, at March 31,which was subsequently upgraded to a special mention category in November 2019.

For the quartersquarter ended MarchDecember 31, 2019 and 2018, the Corporation'sCorporation’s average recorded investment in non-performing loans was $6.4$4.0 million and $7.6$6.6 million, respectively.  The Corporation records payments on non-performing loans utilizing the cash basis or cost recovery method of accounting during the periods when the loans are on non-performing status. For the quarter ended MarchDecember 31, 2019, the Bank received $63,000$57,000 in interest payments from non-performing loans, of which $30,000$34,000 were recognized as interest income and the remaining $33,000$23,000 were applied to reduce the loan balances under the cost recovery method.  In comparison, for the quarter ended MarchDecember 31, 2018, the Bank received $121,000$274,000 in interest payments from non-performing loans, of which $70,000$226,000 were recognized as interest income and the remaining $51,000$48,000 were applied to reduce the loan balances under the cost recovery method.

For the ninesix months ended MarchDecember 31, 2019 and 2018, the Corporation'sCorporation’s average recorded investment in non-performing loans was $6.7$4.7 million and $8.1$6.8 million, respectively.  For the ninesix months ended MarchDecember 31, 2019, the Bank received $458,000$204,000 in interest payments from non-performing loans, of which $321,000$157,000 were recognized as interest income and the remaining $137,000$47,000 were applied to reduce the loan balances under the cost recovery method.  In comparison, for the ninesix months ended MarchDecember 31, 2018, the Bank received $466,000$395,000 in interest payments from non-performing loans, of which $240,000$291,000 were recognized as interest income and the remaining $226,000$104,000 were applied to reduce the loan balances under the cost recovery method.

2621

The following tables present the average recorded investment in non-performing loans and the related interest income recognized for the quartersquarter and ninesix months ended MarchDecember 31, 2019 and 2018:
  Quarter Ended March 31, 
  2019  2018 
  Average  Interest  Average  Interest 
  Recorded  Income  Recorded  Income 
(In Thousands) Investment  Recognized  Investment  Recognized 
             
Without related allowances:            
Mortgage loans:            
Single-family $2,785  $—  $6,397  $49 
Construction  745   —   —   — 
   3,530   —   6,397   49 
                 
With related allowances:                
Mortgage loans:                
Single-family  2,841   29   1,170   20 
Commercial business loans  54   1   74   1 
   2,895   30   1,244   21 
                 
Total $6,425  $30  $7,641  $70 
   Quarter Ended December 31,
   2019 2018
   AverageInterest AverageInterest
   RecordedIncome RecordedIncome
(In Thousands)InvestmentRecognized InvestmentRecognized
        
Without related allowances:     
 Mortgage loans:     
  Single-family$2,874 $21  $3,326 $189 
  Construction— —  745 — 
   2,874 21  4,071 189 
        
With related allowances:     
 Mortgage loans:     
  Single-family1,105 12  2,487 36 
 Commercial business loans44 1  60 1 
  1,149 13  2,547 37 
       
 Total$4,023 $34  $6,618 $226 

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

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   Six Months Ended December 31,
   2019 2018
   AverageInterest AverageInterest
   RecordedIncome RecordedIncome
(In Thousands)InvestmentRecognized InvestmentRecognized
        
Without related allowances:     
 Mortgage loans:     
  Single-family$2,980 $111  $3,963 $229 
  Construction542 20  496 — 
   3,522 131  4,459 229 
        
With related allowances:     
 Mortgage loans:     
  Single-family1,151 24  2,279 60 
 Commercial business loans45 2  64 2 
  1,196 26  2,343 62 
       
 Total$4,718 $157  $6,802 $291 

For the quarter ended MarchDecember 31, 2019, no new loans were restructured 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. For the six months ended December 31, 2019, no new loans were

22
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.mention to the pass category. For the ninequarter ended December 31, 2018, no new loans were restructured from their original terms and classified as restructured loans, while one restructured loan was paid off. For the six months ended MarchDecember 31, 2019,2018, no new loans were restructured from their original terms and classified as restructured loans, while one restructured loan was upgraded to the pass category one restructured loan from the pass category was downgraded to special mention and one restructured loan was paid off. ForDuring the quartersquarter and ninesix months ended March 31, 2018, there were two loans totaling $2.2 million that were newly modified from their original terms and re-underwritten or identified in the Corporation's asset quality reports as restructured loans. During the quarters and nine months ended MarchDecember 31, 2019 and 2018, no restructured loans were in default within a 12-month period subsequent to their original restructuring. Additionally, during the quarter and six months ended MarchDecember 31, 2019, there was no loan whose modification was extended beyond the initial maturity of the modification; while during the nine months ended March 31, 2019, there was one loan whose modification was extended beyond the initial maturity of the modification. During the quarter and ninesix months ended MarchDecember 31, 2018, there were no loanswas one restructured loan with a loan balance of $56,000 whose modification was extended beyond the initial maturity of the modification.extended. At both MarchDecember 31, 2019 and June 30, 2018,2019, there were no commitments to lend additional funds to those borrowers whose loans were restructured.

As of MarchDecember 31, 2019, the Corporation held 10six restructured loans with a net outstanding balance of $4.6 million: one loan was classified as special mention ($440,000), one loan was classified as substandard and remains on accrual status ($1.4 million) and eight$1.8 million, all loans were classified as substandard and on non-accrual status ($2.7 million).status. As of June 30, 2018,2019, the Corporation held 11eight restructured loans with a net outstanding balance of $5.2$3.8 million: one loan was classified as special mention on accrual status ($389,000)437,000); one loan was classified as substandard on accrual status ($1.4 million); and ninesix loans were classified as substandard on non-accrual status ($3.41.9 million).  Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.  Assets that do not currently expose the Corporation to sufficient risk to warrant adverse classification but possess weaknesses are designated as special mention and are closely monitored by the Corporation.  As of MarchDecember 31, 2019 and June 30, 2018, $2.92019, $888,000 or 49%, and $2.4 million or 63%, and $2.9 million or 56%, respectively, of the restructured loans were current with respect to their modified payment terms.

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

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



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The following table summarizes at the dates indicated the restructured loan balances, net of allowance for loan losses, by loan type and non-accrual versus accrual status:
 AtAt
(In Thousands)December 31, 2019June 30, 2019
Restructured loans on non-accrual status:  
      Mortgage loans:  
        Single-family$1,783 $1,891 
      Commercial business loans37 41 
        Total1,820 1,932 
   
Restructured loans on accrual status:  
      Mortgage loans:  
        Single-family— 1,861 
        Total— 1,861 
   
        Total restructured loans$1,820 $3,793 
  At  At 
(In Thousands) March 31, 2019  June 30, 2018 
Restructured loans on non-accrual status:      
     Mortgage loans:      
       Single-family $2,669  $3,328 
     Commercial business loans  44   64 
       Total  2,713   3,392 
         
Restructured loans on accrual status:        
     Mortgage loans:        
       Single-family  1,865   1,788 
       Total  1,865   1,788 
         
       Total restructured loans $4,578  $5,180 

The following tables identify the Corporation'sCorporation’s total recorded investment in restructured loans by type at the dates and for the periods indicated.
   At December 31, 2019
   Unpaid   Net
   PrincipalRelatedRecorded Recorded
(In Thousands)BalanceCharge-offsInvestment
Allowance (1)
Investment
        
Mortgage loans:     
 Single-family:     
  With a related allowance$685 $— $685 $(46)$639 
  
Without a related allowance (2)
1,509 (365)1,144 — 1,144 
 Total single-family2,194 (365)1,829 (46)1,783 
        
Commercial business loans:     
 With a related allowance43 — 43 (6)37 
Total commercial business loans43 — 43 (6)37 
        
Total restructured loans$2,237 $(365)$1,872 $(52)$1,820 
  At March 31, 2019 
  Unpaid           Net 
  Principal  Related  Recorded     Recorded 
(In Thousands) Balance  Charge-offs  Investment  
Allowance (1)
  Investment 
                
Mortgage loans:               
     Single-family:               
       With a related allowance $2,207  $—  $2,207  $(123) $2,084 
       Without a related allowance (2)
  2,818   (368)  2,450   —   2,450 
     Total single-family  5,025   (368)  4,657   (123)  4,534 
                     
Commercial business loans:                    
     With a related allowance  53   —   53   (9)  44 
Total commercial business loans  53   —   53   (9)  44 
                     
Total restructured loans $5,078  $(368) $4,710  $(132) $4,578 

(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.


2924
   At June 30, 2019
   Unpaid   Net
   PrincipalRelatedRecorded Recorded
(In Thousands)BalanceCharge-offsInvestment
Allowance(1)
Investment
        
Mortgage loans:     
 Single-family:     
  With a related allowance$2,199 $— $2,199 $(122)$2,077 
  
Without a related allowance(2)
2,040 (365)1,675 — 1,675 
 Total single-family4,239 (365)3,874 (122)3,752 
        
Commercial business loans:     
 With a related allowance49 — 49 (8)41 
Total commercial business loans49 — 49 (8)41 
        
Total restructured loans$4,288 $(365)$3,923 $(130)$3,793 
  At June 30, 2018 
  Unpaid           Net 
  Principal  Related  Recorded     Recorded 
(In Thousands) Balance  Charge-offs  Investment  
Allowance (1)
  Investment 
                
Mortgage loans:               
     Single-family               
       With a related allowance $2,228  $—  $2,228  $(151) $2,077 
       Without a related allowance (2)
  3,450   (411)  3,039   —   3,039 
     Total single-family  5,678   (411)  5,267   (151)  5,116 
                     
Commercial business loans:                    
     With a related allowance  70   —   70   (6)  64 
Total commercial business loans  70   —   70   (6)  64 
                     
Total restructured loans $5,748  $(411) $5,337  $(157) $5,180 

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

During the quarter ended MarchDecember 31, 2019, no properties were acquired in the settlement of loans and no previously foreclosed upon properties were sold.  This compares to the quarter ended MarchDecember 31, 2018 when twono properties were acquired in the settlement of loans, while one previously foreclosed upon property was sold. For the six months ended December 31, 2019, no properties were acquired in the settlement of loans and oneno previously foreclosed upon property wasproperties were sold. ForThis compares to the ninesix months ended MarchDecember 31, 2019,2018 when no properties wereproperty was acquired in the settlement of loans, while two previously foreclosed upon properties were sold. This compares to the nine months ended March 31, 2018 when three properties were acquired in the settlement of loans, and three previously foreclosed upon properties were sold. As of MarchDecember 31, 2019 and June 30, 2019, there was no outstanding real estate owned property. This compares to two real estate owned properties located in California with a total net fair value of $906,000property at June 30, 2018.both dates.  A new appraisal wasis obtained on each of the properties at the time of foreclosure and fair value wasis derived by using the lower of the appraised value or the listing price of the property, net of selling costs.  Any initial loss wasis 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 statementcondensed consolidated statements of operations.  In addition, the Corporation records costs to carry real estate owned as real estate operating expenses as incurred.


Note 7:6: 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'sCorporation’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 MarchDecember 31, 2019 and June 30, 2018,2019, the Corporation had commitments to extend credit (onon loans to be held for investment and loans to be held for sale) of $16.6$10.0 million and $66.3$4.3 million, respectively.

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30

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, 2019June 30, 2019
(In Thousands)  
   
Undisbursed loan funds – Construction loans$6,821 $6,592 
Undisbursed lines of credit – Commercial business loans850 1,003 
Undisbursed lines of credit – Consumer loans468 479 
Commitments to extend credit on loans to be held for investment10,021 4,254 
Total$18,160 $12,328 
Commitments March 31, 2019  June 30, 2018 
(In Thousands)      
       
Undisbursed loan funds – Construction loans $6,109  $4,302 
Undisbursed lines of credit – Commercial business loans  950   495 
Undisbursed lines of credit – Consumer loans  481   503 
Commitments to extend credit on loans to be held for investment  4,346   9,352 
Total $11,886  $14,652 

The following table provides information regarding the allowance for loan losses for the undisbursed funds and commitments to extend credit on loans to be held for investment for the quartersquarter and ninesix months ended MarchDecember 31, 2019 and 2018.
 For the Quarter Ended
 December 31,		For the Six Months Ended
December 31,
(In Thousands)2019201820192018
Balance, beginning of the period$143 $149 $141 $157 
Provision (recovery)(5)1 (3)(7)
Balance, end of the period$138 $150 $138 $150 
  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
(In Thousands) 2019  2018  2019  2018 
Balance, beginning of the period $150  $188  $157  $277 
Provision (recovery)  1   (29)  (6)  (118)
Balance, end of the period $151  $159  $151  $159 

In accordance with ASC 815, "Derivatives“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"(“TBA”) MBS trades, put option contracts and call option contracts are recorded at fair value on the Condensed Consolidated Statements of Financial Condition. At March 31, 2019, $240,000 was included in other assets and $224,000 was included in other liabilities; at June 30, 2018, $849,000 was included in other assets and $464,000 was included in other liabilities.  The Corporation does not apply hedge accounting to its derivative financial instruments; therefore, all changes in fair value are recorded in earnings. As of December 31, 2019 and June 30, 2019, there were no outstanding derivative financial instruments.

The net impact of derivative financial instruments recorded within the gain on sale of loans contained in the Condensed Consolidated Statements of Operations during the quartersquarter and ninesix months ended MarchDecember 31, 2019 and 2018 was as follows:
 For the Quarter Ended
 December 31,		 For the Six Months Ended
December 31,
Derivative Financial Instruments2019201820192018
(In Thousands)    
Commitments to extend credit on loans to be held for sale$— $8 $— $(321)
Mandatory loan sale commitments and TBA MBS trades
— (928)— (249)
Total net loss$— $(920)$— $(570)
  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
Derivative Financial Instruments 2019  2018  2019  2018 
(In Thousands)            
Commitments to extend credit on loans to be held for sale $(264) $266  $(585) $173 
Mandatory loan sale commitments and TBA MBS trades
  465   (281)  216   (1,072)
Option contracts, net  —   —   —   (37)
Total net gain (loss) $201  $(15) $(369) $(936)

Loans previously sold to the FHLB – San Francisco under the Mortgage Partnership Finance (“MPF”) program have a recourse liability.  The FHLB – San Francisco absorbs the first four basis points of loss by establishing a first loss account and a credit scoring process is used to calculate the maximum recourse amount for the Bank.  All losses above the Bank’s maximum recourse amount are the responsibility of the FHLB – San Francisco.  The FHLB – San Francisco pays the Bank a credit enhancement fee on a monthly basis to compensate the Bank for accepting the recourse obligation.  As of December 31, 2019 and June 30, 2019, the Bank serviced $8.3 million and $9.7 million of loans under this program, respectively and has established a recourse liability of $50,000 at both dates.

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

(1)
Net of 18.6% at March 31, 2019 and 24.7% at June 30, 2018 of commitments which management has estimated may not fund.

Occasionally, the CorporationBank is required to repurchase loans sold to Freddie Mac, Fannie Mae or other institutional investors if it is determined that such loans do not meet the credit requirements of the investor, or if one of the parties involved in the loan misrepresented pertinent facts, committed fraud, or if such loans were 90-days past due within 120 days of the loan funding date.  During the third quarter of fiscalended December 31, 2019, the CorporationBank repurchased two single-family loans totaling $446,000 pursuant to the recourse/repurchase covenants contained in the loan sale agreements.$520,000. In comparison the Corporation repurchased two loans totaling $602,000 from investors during the thirdsame quarter of fiscal 2018.last year, the Bank did not repurchase any loans. During the first ninesix months of fiscal 2019, the Corporation repurchased fivethree loans totaling $699,000,$1.1 million. In comparison during the six months ended December 31, 2018, the Corporation repurchased three loans totaling $253,000, including two loans totaling $25,000 that were fully charged off ($25,000). In comparison, the Corporation repurchased two loans totaling $602,000 from investors during the first nine months of fiscal 2018. Additionaloff. There were no other repurchase requests may have been settled that did not result in the repurchase of the loan itself.  The primary reasons for honoringitself, which were settled in the repurchase requests are borrower fraud, undisclosed liabilities on borrower applications, and documentation, verification and appraisal disputes.  For the third quarters of fiscalquarter ended December 31, 2019 and 2018,2018. In addition to the Corporation did not record any provisionspecific recourse liability for the MPF program, the Bank established a recourse liability and did not settle any claims.  For the first nine months of fiscal 2019 and 2018, the Corporation recorded a $33,000 recovery and a $22,000 recovery from the recourse liability, respectively, and did not settle any claims.  As of March 31, 2019, the total recourse reserve$200,000 for loans sold that are subject to repurchase decreased to $250,000,other investors as compared to $283,000 atof both December 31, 2019 and June 30, 2018 and $283,000 at March 31, 2018.

Beginning in 2008, in connection with the downturn in the real estate market, the Corporation implemented tighter underwriting standards to reduce potential loan repurchase requests, including requiring higher credit scores, generally lower debt-to-income ratios, and verification of income and assets, among other criteria.  Despite management's diligent estimate of the recourse reserve, the Corporation is still subject to risks and uncertainties associated with potentially higher loan repurchase claims from investors, and there are no assurances that the current recourse reserve will be sufficient to cover all future recourse claims.2019.

The following table shows the summary of the recourse liability for the quartersquarter and ninesix months ended MarchDecember 31, 2019 and 2018:
 
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
For the Quarter Ended
December 31,
 For the Six Months Ended
December 31,
Recourse Liability 2019  2018  2019  2018 2019201820192018
(In Thousands)              
              
Balance, beginning of the period $250  $283  $283  $305 $250 $250 $250 $283 
Recovery from recourse liability  —   —   (33)  (22)
Provision (recovery) from recourse liability— — — (33)
Net settlements in lieu of loan repurchases  —   —   —   — — — — — 
Balance, end of the period $250  $283  $250  $283 $250 $250 $250 $250 
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Note 8:7: Fair Value of Financial Instruments

The Corporation adopted ASC 820, "Fair“Fair Value Measurements and Disclosures,"” and elected the fair value option pursuant to ASC 825, "Financial Instruments"“Financial Instruments” on loans originated for sale by PBM.sale.  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“Fair Value Option"Option”) at specified election dates.  At each subsequent reporting date, an entity is required to report unrealized gains and losses on items in earnings for which the fair value option has been elected.  The objective of the Fair Value Option is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.



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The following table describes the difference at the dates indicated between the aggregate fair value and the aggregate unpaid principal balance of loans held for investment at fair value and loans held for sale at fair value:
(In Thousands)
Aggregate
Fair Value
Aggregate
Unpaid
Principal
Balance
Net
Unrealized
Loss
As of December 31, 2019:   
Loans held for investment, at fair value$4,173 $4,284 $(111)
    
As of June 30, 2019:   
Loans held for investment, at fair value$5,094 $5,218 $(124)
(In Thousands) 
Aggregate
Fair Value
  
Aggregate
Unpaid
Principal
Balance
  
Net
Unrealized
Gain (Loss)
 
As of March 31, 2019:         
Loans held for investment, at fair value $5,239  $5,417  $(178)
Loans held for sale, at fair value $30,500  $29,565  $935 
             
As of June 30, 2018:            
Loans held for investment, at fair value $5,234  $5,546  $(312)
Loans held for sale, at fair value $96,298  $93,791  $2,507 

ASC 820-10-65-4, "Determining“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“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'sCorporation’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'sCorporation’s financial assets and liabilities measured at fair value on a recurring basis consist of investment securities available for sale, loans held for investment at fair value, loans held for sale at fair value, interest-only strips and derivative
33
financial instruments; while non-performing loans, mortgage servicing assets ("MSA") and real estate owned are measured at fair value on a nonrecurring basis.

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

Derivative financial instruments are comprised of commitments to extend credit on loans to be held for sale, mandatory loan sale commitments, TBA MBS trades and option contracts.  The fair value of TBA MBS trades is determined using quoted secondary-market prices (Level 2).  The fair values of other derivative financial instruments are determined by quoted prices for a similar commitment or commitments, adjusted for the specific attributes of each commitment (Level 3).
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Loans held for investment at fair value are primarily single-family loans which have been transferred from loans held for sale.  The fair value is determined by the management estimates of the specific credit risk attributes of each loan, in addition to the quoted secondary-market prices which account for the interest rate characteristics of each loan (Level 3).

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

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

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

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

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

The Corporation'sCorporation’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'sCorporation’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.


29

The following fair value hierarchy tables present information at the dates indicated about the Corporation'sCorporation’s assets measured at fair value on a recurring basis:
 Fair Value Measurement at December 31, 2019 Using:
(In Thousands)Level 1Level 2Level 3Total
Assets:    
    Investment securities - available for sale:    
        U.S. government agency MBS$— $3,246 $— $3,246 
        U.S. government sponsored enterprise MBS— 1,760 — 1,760 
        Private issue CMO— — 231 231 
           Investment securities - available for sale— 5,006 231 5,237 
     
    Loans held for investment, at fair value— — 4,173 4,173 
    Interest-only strips— — 13 13 
Total assets$— $5,006 $4,417 $9,423 
     
Liabilities$— $— $— $— 
Total liabilities$— $— $— $— 
  Fair Value Measurement at March 31, 2019 Using: 
(In Thousands) Level 1  Level 2  Level 3  Total 
Assets:            
     Investment securities - available for sale:            
         U.S. government agency MBS $—  $3,796  $—  $3,796 
         U.S. government sponsored enterprise MBS  —   2,198   —   2,198 
         Private issue CMO  —   —   300   300 
             Investment securities - available for sale  —   5,994   300   6,294 
                 
     Loans held for investment, at fair value  —   —   5,239   5,239 
     Loans held for sale, at fair value  —   30,500   —   30,500 
     Interest-only strips  —   —   18   18 
                 
     Derivative assets:                
         Commitments to extend credit on loans to be held for sale  —   —   240   240 
             Derivative assets  —   —   240   240 
Total assets $—  $36,494  $5,797  $42,291 
                 
Liabilities:                
         Derivative liabilities:                
         Mandatory loan sale commitments $—  $—  $7  $7 
         TBA MBS trades  —   217   —   217 
             Derivative liabilities  —   217   7   224 
Total liabilities $—  $217  $7  $224 

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

 Fair Value Measurement at June 30, 2019 Using:
(In Thousands)Level 1Level 2Level 3Total
Assets:    
    Investment securities - available for sale:    
        U.S. government agency MBS$— $3,613 $— $3,613 
        U.S. government sponsored enterprise MBS— 2,087 — 2,087 
        Private issue CMO— — 269 269 
           Investment securities - available for sale— 5,700 269 5,969 
     
    Loans held for investment, at fair value— — 5,094 5,094 
    Interest-only strips— — 16 16 
Total assets$— $5,700 $5,379 $11,079 
     
Liabilities:$— $— $— $— 
Total liabilities$— $— $— $— 



36
30
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, 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 March 31, 2019 
  
Fair Value Measurement
Using Significant Other Unobservable Inputs
(Level 3)
 
(In Thousands) 
Private
Issue
CMO
  
Loans Held
For
Investment, at
fair value (1)
  
Interest-
Only
Strips
  
Loan
Commitments
to Originate (2)
  
Mandatory
Commitments (3)
 Total 
Beginning balance at December 31, 2018 $310  $4,995  $21  $504  $(9) $5,821 
     Total gains or losses (realized/unrealized):                        
        Included in earnings  —   87   —   (264)  (3)  (180)
        Included in other comprehensive loss  1   —   (3)  —   —   (2)
     Purchases  —   —   —   —   —   — 
     Issuances  —   —   —   —   —   — 
     Settlements  (11)  (34)  —   —   5   (40)
     Transfers in and/or out of Level 3  —   191   —   —   —   191 
Ending balance at March 31, 2019 $300  $5,239  $18  $240  $(7) $5,790 

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


 For the Quarter Ended December 31, 2018 
 
Fair Value Measurement
Using Significant Other Unobservable Inputs
(Level 3)
 
(In Thousands)
Private
Issue
CMO
  
Loans Held
For
Investment, at
fair value (1)
  
Interest-
Only
Strips
  
Loan
Commitments to Originate (2)
  
Mandatory
Commitments (3)
  Total 
Beginning balance at September 30, 2018$316  $4,945  $24  $496  $(9) $5,772 
    Total gains or losses (realized/unrealized):                       
        Included in earnings —   95   —   8   (1)  102 
        Included in other comprehensive loss (1)  —   (3)  —   —   (4)
    Purchases —   —   —   —   —   — 
    Issuances —   —   —   —   —   — 
    Settlements (5)  (45)  —   —   1   (49)
    Transfers in and/or out of Level 3 —   —   —   —   —   — 
Ending balance at December 31, 2018$310
  $4,995
  $21
  $504
  $(9)
 $5,821
 
  For the Quarter Ended March 31, 2018 
  
Fair Value Measurement
Using Significant Other Unobservable Inputs
(Level 3)
 
(In Thousands) 
Private
Issue
CMO
  
Loans Held
For
Investment, at
fair value (1)
  
Interest-
Only
Strips
  
Loan
Commit-
ments to
Originate (2)
  
Manda-
tory
Commit-
ments (3)
  Total 
Beginning balance at December 31, 2017 $419  $5,157  $26  $716  $(24) $6,294 
     Total gains or losses (realized/unrealized):                        
         Included in earnings  —   (118)  —   266   (26)  122 
         Included in other comprehensive loss  (2)  —   (2)  —   —   (4)
     Purchases  —   —   —   —   —   — 
     Issuances  —   —   —   —   —   — 
     Settlements  (22)  (43)  —   —   —   (65)
     Transfers in and/or out of Level 3  —   —   —   —   —   — 
Ending balance at March 31, 2018 $395  $4,996  $24  $982  $(50) $6,347 

(1)
The valuation of loans held for investment at fair value includes the management estimates of the specific credit risk attributes of each loan, in addition to the quoted secondary-market prices which account for the interest rate characteristics of each loan.
(2)
Consists of commitments to extend credit on loans to be held for sale.
(3)
Consists of mandatory loan sale commitments.
37
  For the Nine Months Ended March 31, 2019 
  
Fair Value Measurement
Using Significant Other Unobservable Inputs
(Level 3)
 
(In Thousands) 
Private
Issue
CMO
  
Loans Held
For
Investment, at
fair value (1)
  
Interest-
Only
Strips
  
Loan
Commitments
to Originate (2)
  
Mandatory
Commitments (3)
 Total 
Beginning balance at June 30, 2018 $350  $5,234  $23  $825  $(32) $6,400 
     Total gains or losses (realized/unrealized):                        
         Included in earnings  —   133   —   (585)  18   (434)
         Included in other comprehensive loss  —   —   (5)  —   —   (5)
     Purchases  —   —   —   —   —   — 
     Issuances  —   —   —   —   —   — 
     Settlements  (50)  (789)  —   —   7   (832)
     Transfers in and/or out of Level 3  —   661   —   —   —   661 
Ending balance at March 31, 2019 $300  $5,239  $18  $240  $(7) $5,790 

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

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

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


31
38
  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.

 For the Six Months Ended December 31, 2018 
 
Fair Value Measurement
Using Significant Other Unobservable Inputs
(Level 3)
 
(In Thousands)
Private
Issue
CMO
  
Loans Held
For
Investment, at
fair value (1)
  
Interest-
Only
Strips
  
Loan
Commitments
to Originate (2)
  
Mandatory
Commitments (3)
  Total 
Beginning balance at June 30, 2018$350  $5,234  $23  $825  $(32) $6,400 
    Total gains or losses (realized/unrealized):                       
        Included in earnings —   46   —   (321)  21   (254)
        Included in other comprehensive loss (1)  —   (2)  —   —   (3)
    Purchases —   —   —   —   —   — 
    Issuances —   —   —   —   —   — 
    Settlements (39)  (755)  —   —   2   (792)
    Transfers in and/or out of Level 3 —   470   —   —   —   470 
Ending balance at December 31, 2018$310  $4,995  $21  $504  $(9) $5,821 

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



32
The following fair value hierarchy tables present information about the Corporation'sCorporation’s assets measured at fair value at the dates indicated on a nonrecurring basis:
 Fair Value Measurement at December 31, 2019 Using:
(In Thousands)Level 1Level 2Level 3Total
Non-performing loans$— $2,420 $1,007 $3,427 
Mortgage servicing assets— — 527 527 
Real estate owned, net— — — — 
Total$— $2,420 $1,534 $3,954 

 Fair Value Measurement at June 30, 2019 Using:
(In Thousands)Level 1Level 2Level 3Total
Non-performing loans$— $3,971 $2,247 $6,218 
Mortgage servicing assets— — 627 627 
Real estate owned, net— — — — 
Total$— $3,971 $2,874 $6,845 
  Fair Value Measurement at March 31, 2019 Using: 
(In Thousands) Level 1  Level 2  Level 3  Total 
Non-performing loans $—  $4,541  $1,574  $6,115 
Mortgage servicing assets  —   —   456   456 
Real estate owned, net  —   —   —   — 
Total $—  $4,541  $2,030  $6,571 


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


33
39
The following table presents additional information about valuation techniques and inputs used for assets and liabilities, including derivative financial instruments, which are measured at fair value and categorized within Level 3 as of MarchDecember 31, 2019:
(Dollars In Thousands)
 
Fair Value
As of
March 31,
2019
 
Valuation
Techniques
Unobservable Inputs 
Range (1)
(Weighted Average)
 
Impact to
Valuation
from an
Increase in
Inputs (2)
               
Assets:             
               
Securities available - for sale:
    Private issue CMO
 $300 
Market comparable
  pricing
Comparability adjustment 1.2% – 1.3% (1.2%) Increase
                
Loans held for investment,
    at fair value
 $5,239 
Relative value
  analysis
Broker quotes

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

Decrease
                
Non-performing loans $703 Discounted cash flowDefault rates 5.0% Decrease
Non-performing loans $871 
Relative value
  analysis
Loss severity 20.0% - 30.0% (21.3%) Decrease
                
Mortgage servicing assets $456 Discounted cash flow
Prepayment speed (CPR)
Discount rate
 
9.7% - 60.0% (21.7%)
9.0% - 10.5%(9.2%)
 
Decrease
Decrease
                
Interest-only strips $18 Discounted cash flow
Prepayment speed (CPR)
Discount rate
 
18.7% - 35.9% (34.3%)
9.0%
 
Decrease
Decrease
                
Commitments to extend credit
    on loans to be held for sale
 $240 
Relative value
  analysis
TBA-MBS broker quotes
Fall-out ratio (3)
 
99.0% – 103.4%
(101.6%) of par
18.5% - 19.1% (18.6%)
 
Increase
 
Decrease
                
Liabilities:              
                
Mandatory loan sale
   commitments
 $7 
Relative value
  analysis
TBA MBS broker quotes
 
Roll-forward costs (4)
 
102.3% - 105.7%
(103.9%) of par
0.015%
 
Increase
 
Increase
(Dollars In Thousands)Fair Value
As of
December 31,
2019
Valuation
Techniques
Unobservable Inputs
Range(1)
(Weighted Average)
Impact to
Valuation
from an
Increase in
Inputs(2)
      
Assets:     
Securities available-for sale:
   Private issue CMO
$231 
Market comparable
pricing
Comparability adjustment1.7% - 2.3% (1.9%)Increase
      
Loans held for investment, at
   fair value
$4,173 
Relative value
analysis
Broker quotes

Credit risk factor
98.0% - 104.1%
(101.4%) of par
0.0% - 100.0% (3.8%)
Increase

Decrease
      
Non-performing loans(3)
$676 Discounted cash flowDefault rates5.0%Decrease
      
Non-performing loans(4)
$331 
Relative value
analysis
Credit risk factor20.0% - 30.0% (20.5%)Decrease
      
Mortgage servicing assets$527 Discounted cash flow
Prepayment speed (CPR)
Discount rate
12.1% - 60.0% (22.5%)
9.0% - 10.5% (9.1%)		Decrease
Decrease
      
Interest-only strips$13 Discounted cash flow
Prepayment speed (CPR)
Discount rate
16.0% - 43.8% (41.2%)
9.0%		Decrease
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)
The percentageConsists of commitments to extend credit on loans to be held for sale which management has estimated may not fund.restructured loans.
(4)
An estimated cost to roll forward the mandatory loan sale commitments which management has estimated may not be delivered to the corresponding investors in a timely manner.Consists of other non-performing loans, excluding restructured loans.

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


4034
The carrying amount and fair value of the Corporation'sCorporation’s other financial instruments as of MarchDecember 31, 2019 and June 30, 20182019 was as follows:
 March 31, 2019 December 31, 2019
(In Thousands) 
Carrying
Amount
  
Fair
Value
  

Level 1
  

Level 2
  

Level 3
 Carrying
Amount		Fair
Value
Level 1
Level 2
Level 3
Financial assets:                    
Investment securities - held to maturity $102,510  $103,056   —  $103,056  $— $77,161 $78,269 $— $78,269 $— 
Loans held for investment, not recorded at fair value $878,315  $857,399   —   —  $857,399 $937,556 $919,915 $— $— $919,915 
FHLB – San Francisco stock $8,199  $8,199   —  $8,199   — $8,199 $8,199 $— $8,199 $— 
                         
Financial liabilities:                         
Deposits $876,884  $847,875   —   —  $847,875 $833,650 $805,716 $— $— $805,716 
Borrowings $101,121  $101,274   —   —  $101,274 $131,085 $133,040 $— $— $133,340 

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

Level 1
  

Level 2
  

Level 3
 
Financial assets:               
   Investment securities - held to maturity $87,813  $87,239   —  $87,239   — 
   Loans held for investment, not recorded at fair value $897,451  $873,112   —   —  $873,112 
   FHLB – San Francisco stock $8,199  $8,199   —  $8,199   — 
                     
Financial liabilities:                    
   Deposits $907,598  $877,641   —   —  $877,641 
   Borrowings $126,163  $123,778   —   —  $123,778 
 June 30, 2019
(In Thousands)Carrying
Amount		Fair
Value
Level 1
Level 2
Level 3
Financial assets:     
Investment securities - held to maturity$94,090 $95,359 $— $
95,359 $— 
Loans held for investment, not recorded at fair value$874,831 $861,374 $— $
— $861,374 
FHLB – San Francisco stock$8,199 $8,199 $— $
8,199 $— 
      
Financial liabilities:     
Deposits$841,271 $813,087 $— $
— $813,087 
Borrowings$101,107 $102,826 $— $
— $102,826 

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

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


Note 9: Incentive Plans

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

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

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

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

Equity Incentive Plans - Stock Options.  Under the Plans, options may not be granted at a price less than the fair market value at the date of the grant.  Options typically vest over a five-year or shorter period as long as the director, advisory director, director emeritus, officer or employee remains in service to the Corporation.  The options are exercisable after vesting for up to the remaining term of the original grant.  The maximum term of the options granted is 10 years.

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option valuation model with the following assumptions.  The expected volatility is based on implied volatility from historical common stock closing prices for the prior 84 months.  The expected dividend yield is based on the most recent quarterly dividend on an annualized basis.  The expected term is based on the historical experience of all fully vested stock option grants and is reviewed
42
annually.  The risk-free interest rate is based on the U.S. Treasury note rate with a term similar to the underlying stock option on the particular grant date.
During the third quarter of fiscal 2019, no options were granted or forfeited, and 11,250 options were exercised.  This compares to the third quarter of fiscal 2018 when no options were granted or forfeited, and 56,500 options were exercised. During the first nine months of fiscal 2019, no options were granted or forfeited, and 31,250 options were exercised. This compares to the first nine months of fiscal 2018 when no options were granted, and 83,750 options were exercised and 2,500 options were forfeited.  As of March 31, 2019 and 2018, there were 147,500 stock options available for future grants under the Plans at both dates.

The following tables summarize the stock option activity in the Plans for the quarter and nine months ended March 31, 2019.

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


  For the Nine Months Ended March 31, 2019 
Options Shares  
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
($000)
 
Outstanding at June 30, 2018  529,000  $12.77     
Granted  —  $—     
Exercised  (31,250) $12.49     
Forfeited  —  $—     
Outstanding at March 31, 2019  497,750  $12.79   4.53  $3,551 
Vested and expected to vest at March 31, 2019  495,150  $12.75   4.52  $3,550 
Exercisable at March 31, 2019  484,750  $12.60   4.45  $3,546 

As of March 31, 2019 and 2018, there was $68,000 and $503,000 of unrecognized compensation expense, respectively, related to unvested share-based compensation arrangements under the Plans.  The expense is expected to be recognized over a weighted-average period of 1.5 years and 1.0 years, respectively.  The forfeiture rate during the first nine months of fiscal 2019 and 2018 was 20 percent for both periods, and was calculated by using the historical forfeiture experience of stock option grants and is reviewed annually.

43
Equity Incentive Plans – Restricted Stock.  The Corporation used 300,000 shares, 288,750 shares and 185,000 shares of its treasury stock to fund the 2013 Plan, the 2010 Plan and the 2006 Plan, respectively.  Awarded shares typically vest over a five-year or shorter period as long as the director, advisory director, director emeriti, officer or employee remains in service to the Corporation.  Once vested, a recipient of restricted stock will have all rights of a shareholder, including the power to vote and the right to receive dividends.  The Corporation recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date.

There were no restricted stock awards and no forfeitures, while there were 3,000 shares of restricted stock vested in the third quarter of fiscal 2019. This compares to no restricted stock activity in the third quarter of fiscal 2018, other than the vesting of 10,500 shares. For the first nine months of fiscal 2019, there was no restricted stock activity, other than the vesting of 89,500 shares. This compares to no restricted stock activity, other than the vesting of 10,500 shares and the forfeiture of 2,000 shares for the first nine months of fiscal 2018.  As of March 31, 2019 and 2018, there were 267,750 shares of restricted stock available for future awards under the Plans at both dates.

The following tables summarize the unvested restricted stock activity for the quarter and nine months ended March 31, 2019.

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

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

As of March 31, 2019 and 2018, the unrecognized compensation expense was $131,000 and $687,000, respectively, related to unvested share-based compensation arrangements under the Plans, and reported as a reduction to stockholders' equity.  This expense is expected to be recognized over a weighted-average period of 1.5 years and 1.2 years, respectively.  Similar to stock options, a forfeiture rate of 20 percent has been applied for the restricted stock compensation expense calculations in the first nine months of fiscal 2019 and 2018.

44

Note 10:8: Reclassification Adjustment of Accumulated Other Comprehensive Income ("AOCI")

The following tables provide the changes in AOCI by component for the quartersquarter and ninesix months ended MarchDecember 31, 2019 and 2018.
 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 

 For the Quarter Ended December 31, 2018
 Unrealized gains and losses on
(In Thousands)
Investment securities
available for sale
Interest-
only strips
Total
    
Beginning balance at September 30, 2018$172 $17 $189 
    
Other comprehensive loss before reclassifications(18)(2)(20)
Amount reclassified from accumulated other comprehensive income— — — 
Net other comprehensive loss(18)(2)(20)
    
Ending balance at December 31, 2018$154 $15 $169 
  

  For the Quarter Ended March 31, 2019 
  Unrealized gains and losses on 
(In Thousands) 
Investment securities
available for sale
 
Interest-
only strips
  Total 
          
Beginning balance at December 31, 2018 $154  $15  $169 
             
Other comprehensive loss before reclassifications  (4)  (2)  (6)
Amount reclassified from accumulated other comprehensive income  —   —   — 
Net other comprehensive loss  (4)  (2)  (6)
             
Ending balance at March 31, 2019 $150  $13  $163 
  For the Quarter Ended March 31, 2018 
  Unrealized gains and losses on 
(In Thousands) 
Investment securities
available for sale
 
Interest-
only strips
  Total 
          
Beginning balance at December 31, 2017 $195  $15  $210 
             
Other comprehensive loss before reclassifications  (20)  (2)  (22)
Amount reclassified from accumulated other comprehensive income  (2)  —   (2)
Net other comprehensive loss  (22)  (2)  (24)
             
Ending balance at March 31, 2018 $173  $13  $186 
    
    
  For the Nine Months Ended March 31, 2019 
  Unrealized gains and losses on 
(In Thousands) 
Investment securities
available for sale
 
Interest-
only strips
  Total 
             
Beginning balance at June 30, 2018 $194  $16  $210 
             
Other comprehensive loss before reclassifications  (44)  (3)  (47)
Amount reclassified from accumulated other comprehensive income  —   —   — 
Net other comprehensive loss  (44)  (3)  (47)
             
Ending balance at March 31, 2019 $150  $13  $163 

36
45
  For the Nine Months Ended March 31, 2018 
  Unrealized gains and losses on 
(In Thousands) 
Investment securities
available for sale
 
Interest-
only strips
  Total 
          
Beginning balance at June 30, 2017 $211  $18  $229 
             
Other comprehensive loss before reclassifications  (78)  (8)  (86)
Amount reclassified from accumulated other comprehensive income  40   3   43 
Net other comprehensive loss  (38)  (5)  (43)
             
Ending balance at March 31, 2018 $173  $13  $186 
Note 11: Offsetting Derivative and Other Financial Instruments
 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 

The Corporation's derivative transactions are generally governed by International Swaps and Derivatives Association Master Agreements and similar arrangements, which include provisions governing the setoff of assets and liabilities between the parties.  When the Corporation has more than one outstanding derivative transaction with a single counterparty, the setoff provisions contained within these agreements generally allow the non-defaulting party the right to reduce its liability to the defaulting party by amounts eligible for setoff, including the collateral received as well as eligible offsetting transactions with that counterparty, irrespective of the currency, place of payment, or booking office.  The Corporation's policy is to present its derivative assets and derivative liabilities on the Condensed Consolidated Statements of Financial Condition on a net basis.  The derivative assets and liabilities are comprised of mandatory loan sale commitments, TBA MBS trades and option contracts.

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

As of March 31, 2019:
GrossNet
AmountAmount
Offset in theof Assets inGross Amount Not Offset in
Condensedthe Condensedthe Condensed Consolidated
GrossConsolidatedConsolidatedStatements of Financial Condition
Amount ofStatementsStatements Cash
Recognizedof Financialof FinancialFinancialCollateralNet
(In Thousands)AssetsConditionConditionInstrumentsReceivedAmount
Assets
   Derivatives$—$—$—$—$—$—
Total$—$—$—$—$—$—
46

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

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

   GrossNet     
   AmountAmount     
   Offset in theof Liabilities inGross Amount Not Offset in 
   Condensedthe Condensedthe Condensed Consolidated 
 GrossConsolidatedConsolidatedStatements of Financial Condition 
 Amount ofStatementsStatements  Cash 
 Recognizedof Financialof FinancialFinancialCollateralNet
(In Thousands)LiabilitiesConditionConditionInstrumentsReceivedAmount
Liabilities           
   Derivatives $440 $— $440 $— $— $440
Total $440 $— $440 $— $— $440
 For the Six Months Ended December 31, 2018
 Unrealized gains and losses on
(In Thousands)
Investment securities
available for sale
Interest-
only strips
Total
    
Beginning balance at June 30, 2018$194 $16 $210 
    
Other comprehensive loss before reclassifications(40)(1)(41)
Amount reclassified from accumulated other comprehensive income— — — 
Net other comprehensive loss(40)(1)(41)
    
Ending balance at December 31, 2018$154 $15 $169 


Note 12:9: 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 CompanyCorporation expects to be entitled to receive. The largest portion of the Company'sCorporation's revenue is from interest income, which is not in the scope of ASC 606. All of the Company'sCorporation's revenue from contracts with customers in the scope of ASC 606 is recognized in non-interest income.

47
If a contract is determined to be within the scope of ASC 606, the CompanyCorporation recognizes revenue as it satisfies a performance obligation. Payments from customers are generally collected at the time services are rendered, monthly or quarterly. For contracts with customers within the scope of ASC 606, revenue is either earned at a point in time or revenue is earned over time. Examples of revenue earned at a point in time are automated teller machine ("ATM") transaction fees, wire transfer fees, overdraft fees and interchange fees. Revenue is primarily based on the number and type of transactions that are generally derived from transactional information accumulated by our systems and is recognized immediately as the transactions occur or upon providing the service to complete the customer's transaction. The CompanyCorporation is generally the principal in these contracts, with the exception of interchanges fees, in which case the CompanyCorporation 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.

37
Disaggregation of Revenue:

The following table includes the Company'sCorporation's non-interest income disaggregated by type of services for the quartersquarter and ninesix months ended MarchDecember 31, 2019 and 2018:

  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
Type of Services 2019  2018  2019  2018 
(In Thousands)            
Asset management fees $77  $87  $215  $294 
Debit card and ATM fees  395   394   1,227   1,190 
Deposit related fees  484   549   1,522   1,659 
Loan related fees  12   (6)  25   (42)
BOLI (1)
  47   65   140   199 
Loan servicing fees (1)
  262   493   863   1,173 
Net gain on sale of loans (1)
  1,719   3,597   7,114   12,761 
Other  56   31   90   69 
Total non-interest income $3,052  $5,210  $11,196  $17,303 
 For the Quarter Ended
 December 31,		 For the Six Months Ended
December 31,
Type of Services2019201820192018
(In Thousands)    
Asset management fees$84 $56 $164 $138 
Debit card and ATM fees394 413 815 832 
Deposit related fees466 519 931 1,038 
Loan related fees8 1 14 13 
BOLI (1)
46 47 93 93 
Loan servicing fees (1)
367 277 500 601 
Net gain (loss) on sale of loans (1) (2)
(43)2,263 (129)5,395 
Other22 19 26 34 
Total non-interest income$1,344 $3,595 $2,414 $8,144 

(1)
Not in scope of ASC 606.606.
(2)
There were no loan sales in the quarter and first six months of fiscal 2020 as compared to the loan sale volume of $131.3 million and $313.1 million for the quarter and first six months of fiscal 2019, respectively.

For the quartersquarter and ninesix months ended MarchDecember 31, 2019 and 2018, substantially all of the Company'sCorporation's revenues within the scope of ASC 606 are for performance obligations satisfied at a specified date.

Revenues recognized in scope of ASC 606:

Asset management fees: Asset management fees are variable, since they are based on the underlying portfolio value, which is subject to market conditions and amounts invested by clients through a third-party provider. Asset management fees are recognized over the period that services are provided, and when the portfolio values are known or can be estimated at the end of each month.month.

Debit card and ATM fees: Debit and ATM interchange income represents fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from debit cardholder transactions through a third party payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholders' debit card. Certain expenses directly associated with the debit cards are recorded on a net basis with the interchange income.
48

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

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

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


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Note 13: Income Taxes10: Leases

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax CutsThe Corporation accounts for its leases in accordance with ASC 842, which was implemented on July 1, 2019, and Jobs Act (the "Tax Act"). The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Tax Act reduces the corporate federal tax income rate from a maximum of 35 percent to a flat 21 percent. The federal corporate tax rate reduction was effective January 1, 2018. Sincerequires the Corporation has a fiscal year endto record liabilities for future lease obligations as well as assets representing the right to use the underlying leased assets. The Corporation’s leases primarily represent future obligations to make payments for the use of June 30th, the reduced federal corporate income tax ratebuildings, space or equipment for its fiscal year 2018 resultedoperations. Liabilities to make future lease payments are recorded in accounts payable, accrued interest and other liabilities, while right-of-use assets are recorded in premises and equipment in the applicationCorporation’s condensed consolidated statements of a blended federal statutory income tax ratefinancial condition. At December 31, 2019, all of 28.06 percent, which is based on the applicable tax rates beforeCorporation’s leases were classified as operating leases and after the Tax Act and corresponding number of days in the fiscal year before and after enactment, and then a flat 21 percent tax rate thereafter.

Under generally accepted accounting principles, the Corporation uses the assetdid not have any operating leases with an initial term of 12 months or less (“short-term leases”). Liabilities to make future lease payments and liability methodright of accountinguse assets are recorded for income taxes. Under this method, deferred tax assetsoperating leases and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets anddo not include short-term leases. These liabilities and their respective tax bases. Deferred taxright-of-use assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. At June 30, 2017, the Corporation's deferred tax assets and liabilities were determined based on the then-current enacted federal taxtotal contractual base rents for each lease, which include options to extend or renew each lease, where applicable, and where the Corporation believes it has an economic incentive to extend or renew the lease. Due to the fact that lease extensions are not reasonably certain,  the Corporation generally does not recognize payments occurring during option periods in the calculation of its operating right-of-use lease assets and operating lease liabilities. The Corporation utilizes the FHLB - San Francisco rates as a discount rate of 35 percent. As a resultfor each of the reductionremaining contractual terms at the adoption date as well as for future leases if the discount rate is not stated in the federal corporate income tax rate under the Tax Act,lease. For leases that contain variable lease payments, the Corporation revalued its deferred taxassumes 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 liabilities atperiodic interest accretion in the related liability to make future lease payments.

For the quarter and six months ended December 31, 2017. Deferred tax assets2019, expense associated with the Corporation’s leases totaled $211,000 and liabilities realized$401,000, respectively, and was recorded in fiscal year 2018 were re-measured using the aforementioned blended rate. All remaining deferred tax assetspremises and liabilities were re-measured using the new statutory federal rate of 21 percent. These re-measurements collectively resulted in a discrete tax expense of $1.9 million that was recognizedoccupancy expenses and equipment expenses in the first nine monthscondensed consolidated statements of fiscal 2018.operations.




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

(In Thousands)
Quarter
Ended
December 31,
2019
Six Months
Ended
December 31,
2019
As of
December 31,
2019
Condensed Consolidated Statements of Condition:   
Premises and equipment - Operating lease right of use assets      $2,960 
Accounts payable, accrued interest and other liabilities –
Operating lease liabilities
      $3,123 
          
Condensed Consolidated Statements of Operations:   
Premises and occupancy expenses from operating leases (1) (2)
$195 $374    
Equipment expenses from operating leases$16 $27    
    
Condensed Consolidated Statements of Cash Flows:         
Operating cash flows from operating leases, net(2)
$279 $563    

(1)
Variable lease costs are immaterial.
(2)
Revenue related to sublease activity is immaterial and netted against operating lease expenses.

The estimated combined federalfollowing table provides information related to remaining minimum contractual lease payments and state statutory tax rates, before discrete items, for fiscal years 2019 and 2018 areother information associated with the Corporation’s leases as follows:
Statutory Tax Rates  FY2019FY2018
Federal Tax Rate  21.00%28.06%
State Tax Rate  10.84%10.84%
Combined Statutory Tax Rate (1)
  29.56%35.86%
of December 31, 2019:

(1)
 
Amount(1)
Year Ending June 30,(In Thousands)
2020$495 
2021753 
2022677 
2023478 
2024361 
Thereafter530 
Total contract lease payments, net(2)
$3,294 
   
Total liability to make lease payments$3,123 
Difference in undiscounted and discounted future lease payments$171 
Weighted average discount rate 2.14%
Weighted average remaining lease term (years) 4.8 
              
(1) Contractual base rents do not include property taxes and other operating expenses due under respective lease agreements.
(2) Revenue related to sublease activity is immaterial and not presented herein.


40
The combined statutory tax rate is netfollowing table summarizes the impact of the federal tax benefit foradoption of the state tax deduction.new lease accounting guidance on the Corporation’s condensed consolidated statements of financial condition as of July 1, 2019:

(In Thousands)
June 30,
2019
Adjustments
due to new
lease guidance
July 1,
2019
December 31,
2019
Total assets$1,084,850 $3,399 $1,088,249 $1,107,387 
Total liabilities$964,209 $3,704 $967,913 $983,611 
Total equity$120,641 $— $120,641 $123,776 


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

49

Note 14:11: Subsequent Event

On April 30, 2019,January 28, 2020, the Corporation announced that the Corporation'sCorporation’s Board of Directors declared a quarterly cash dividend of $0.14 per share. Shareholders of the Corporation'sCorporation’s common stock at the close of business on May 21, 2019 will beFebruary 18, 2020 entitled to receive the cash dividend. The cash dividend will be payable on June 11, 2019.

On April 30, 2019, the Corporation announced that the Corporation's Board of Directors authorized a one-year extension of the April 2018 stock repurchase plan.  To date, a total of 23,748 shares of the Corporation's common stock have been purchased under the plan, leaving 349,252 shares of the Corporation's common stock authorized for purchase from time to time in the open market or in privately negotiated transactions prior to the expiration of the extension on April 26,March 10, 2020.


ITEM 2 – Management'sManagement’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'sBank’s conversion from a federal mutual to a federal stock savings bank ("Conversion"(“Conversion”).  The Conversion was completed on June 27, 1996.  The Corporation is regulated by the Federal Reserve Board ("FRB"(“FRB”).  At MarchDecember 31, 2019, the Corporation had total assets of $1.12$1.11 billion, total deposits of $876.9$833.7 million and total stockholders'stockholders’ equity of $121.2$123.8 million.  The Corporation has not engaged in any significant activity other than holding the stock of the Bank.  Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Bank and its subsidiaries.  As used in this report, the terms "we," "our," "us,"“we,” “our,” “us,” and "Corporation"“Corporation” refer to Provident Financial Holdings, Inc. and its consolidated subsidiaries, unless the context indicates otherwise.

The Bank, founded in 1956, is a federally chartered stock savings bank headquartered in Riverside, California.  The Bank is regulated by the Office of the Comptroller of the Currency ("OCC"(“OCC”), its primary federal regulator, and the Federal Deposit Insurance Corporation ("FDIC"(“FDIC”), the insurer of its deposits.  The Bank'sBank’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'sCorporation operates in a single business consists of community banking activities and mortgage banking activities, conducted by Provident Bank and Provident Bank Mortgage ("PBM"), a division ofsegment through the Bank. CommunityThe Bank's activities include attracting deposits, offering banking activities primarily consist of accepting deposits from customers within the communities surrounding the Bank's full service officesservices and investing those funds inoriginating and purchasing single-family, loans, multi-family, loans, commercial real estate, loans, construction loans,and,  to a lesser extent, other mortgage, commercial business loans,and consumer loans and other real estate loans.  The Bank also offers business checking accounts, other businessDeposits are collected primarily from 13 banking services, and services loans for others.  Mortgage banking activities consist of the origination and sale of mortgage loans secured primarily by single-family residences.  The Bank currently operates 14 retail/business banking officeslocations located in Riverside County and San Bernardino County (commonly known as the Inland Empire).  The Corporation's revenuescounties in California. Loans are derived principally from interest on its loansprimarily originated and investment securitiespurchased in Southern and fees generated through its community banking and mortgage banking activities.Northern California. There are various risks inherent in the Corporation'sCorporation’s business including, among others, the general business environment, interest rates, the California real estate market, the demand for loans, the prepayment of loans, the repurchase of loans previously sold to investors, the secondary market conditions to sell loans, competitive conditions, legislative and regulatory changes, fraud and other risks.

On February 4, 2019, the Corporation announced that the Corporation's Board of Directors determined that it was in the long-term best interests of the Corporation to exit the operations of the Corporation's mortgage banking segment conducted through PBM.

50
The Corporation began to distribute quarterly cash dividends in the quarter ended MarchDecember 31, 2002.  On January 29,October 30, 2019, the Corporation declared a quarterly cash dividend of $0.14 per share for the Corporation'sCorporation’s shareholders of record at the close

41
of business on February 19,November 20, 2019, which was paid on March 12,December 11, 2019.  Future declarations or payments of dividends will be subject to the consideration of the Corporation'sCorporation’s Board of Directors, which will take into account the Corporation'sCorporation’s financial condition, results of operations, tax considerations, capital requirements, industry standards, legal restrictions, economic conditions and other factors, including the regulatory restrictions which affect the payment of dividends by the Bank to the Corporation.  Under Delaware law, dividends may be paid either out of surplus or, if there is no surplus, out of net profits for the current fiscal year and/or the preceding fiscal year in which the dividend is declared.

On April 30, 2019,January 28, 2020, the Corporation announced that the Corporation'sCorporation’s Board of Directors declared a quarterly cash dividend of $0.14 per share. Shareholders of the Corporation'sCorporation’s common stock at the close of business on May 21, 2019February 18, 2020 will be entitled to receive the cash dividend.  The cash dividend will be payable on June 11, 2019.March 10, 2020.

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


Safe-Harbor Statement

Certain matters in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  This Form 10-Q contains statements that the Corporation believes are "forward-looking“forward-looking statements."”  These statements relate to the Corporation'sCorporation’s financial condition, liquidity, results of operations, plans, objectives, future performance or business. You should not place undue reliance on these statements, as they are subject to risks and uncertainties. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Corporation may make.  Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Corporation. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements.  Factors which could cause actual results to differ materially include, but are not limited to the following: the possibility that the actual costs incurred from our exiting the mortgage banking business and the possibility that the actual changes in pre-tax losses from the mortgage banking segment and our pre-tax income will be materially different from the estimated changes provided in this report; the possibility that our mortgage banking business may experience increased volatility in its revenues and earnings before the discontinuation of the mortgage banking business, the credit risks of lending activities, including changes in the level and trend of loan delinquencies and charge-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the residential and commercial real estate markets and may lead to increased losses and non-performing assets and may result in our allowance for loan losses not being adequate to cover actual losses and require us to materially increase our reserve; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to purchase and sell loans in the secondary market; results of examinations of the Corporation by the FRB or of the Bank by the OCC or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to enter into a formal enforcement action or to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements and restrictions on us, any of which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, including the interpretation of regulatory capital or other rules, including as a result of Basel III; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 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; increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology

42
systems or on the third-party vendors who perform several of our critical processing functions; our ability to implement our branch expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations
51
or to respond to regulatory actions; our ability to pay dividends on our common stock; adverse changes in the securities markets; the inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; war or terrorist activities; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and other risks detailed in this report and in the Corporation'sCorporation’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'smanagement’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'sCorporation’s financial condition and results of operations is based upon the Corporation'sCorporation’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements.  Actual results may differ from these estimates under different assumptions or conditions.

The Corporation's critical accounting policies are described in the Corporation's 2018Corporation’s 2019 Annual Report on Form 10-K for the year ended June 30, 20182019 in the Critical Accounting Policies section of Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 - Organization and Significant Accounting Policies.  There have been no significant changes during the ninesix months ended MarchDecember 31, 2019 to the critical accounting policies as described in the Corporation's 2018Corporation’s 2019 Annual Report on Form 10-K for the period ended June 30, 2018.2019.


52

Executive Summary and Operating Strategy

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

Community banking operations primarily consist of accepting deposits from customers within the communities surrounding the Corporation'sCorporation’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

43
earned on loans and investment securities, and the interest expense paid on interest-bearing deposits and borrowed funds.  Additionally, certain fees are collected from borrowers and depositors, such as late payment charges, prepayment fess, 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;assets by increasing single-family, mortgage loans and higher yielding loans (i.e., multi-family, commercial real estate, construction and commercial business loans).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 anticipated growth of the Corporation,total assets, an increase in net interest income. While the Corporation'sCorporation’s long-term strategy is for moderate growth, management recognizes that growth may not occur as a result of weaknesses in general economic conditions.

Mortgage bankingSaleable single-family mortgage loan operations primarily consist of the origination and sale of mortgage loans secured by single-family residences. The primary sources of income in the saleable mortgage bankingloan operations are gain on sale of loans and certain fees collected from borrowers in connection with the loan origination process. On February 4, 2019, the Corporation announced that it was in the long-term best interests of the Corporation to discontinue the operations of the Corporation's mortgage banking segment conducted through PBM.

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

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

As a result of exiting the mortgage banking business, the Corporation estimates:
quarterly net interest income from the mortgage banking segment to decline approximately $306,000 (net of funding costs) by the first quarter of fiscal 2020 from $306,000 in the second quarter of fiscal 2019 due to the decrease in loans held for sale,
53
quarterly non-interest income from the mortgage banking segment to decline approximately $2.7 million by the first quarter of fiscal 2020 from $2.7 million in the second quarter of fiscal 2019,
quarterly non-interest expense from the mortgage banking segment to decrease approximately $4.6 million by the first quarter of fiscal 2020 from $4.6 million in the second quarter of fiscal 2019,
quarterly non-interest income from the community banking segment to increase approximately $272,000 to $1.2 million by the end of the first quarter of fiscal 2020 from $906,000 in the second quarter of fiscal 2019 as a result of the discontinuation of inter-company charges to compensate PBM for originating loans held for investment and for servicing fees on loans sold on a servicing retained basis,
quarterly non-interest expense from the community banking segment to increase approximately $649,000 to $6.9 million by the end of the first quarter of fiscal 2020 from $6.3 million in the second quarter of fiscal 2019 as a result of retaining certain mortgage banking personnel to continue to originate and purchase single-family mortgage loans for retention on the Bank's balance sheet and discontinuation of the management fee allocation from the Bank to the mortgage banking segment,
the estimated fully phased in quarterly impact of these changes in fiscal 2020 will beefforts to increase the pre-tax income by approximately $1.2 million per quarter in comparison to the second quartervolume of fiscal 2019,
the Corporation will stop acceptingportfolio single-family mortgage loan applications and loan locks from the mortgage banking segment early in the fourth quarter of fiscal 2019, as a result, revenues will decrease more quickly than expenses but the declines in each cannot be accurately forecast for the time period the Corporation is effecting the exit from the mortgage banking business, and
to stop operating its mortgage banking business as a defined segment with separate mortgage banking segment reporting prior to the first quarter of fiscal 2020.

The Corporation also estimates that it will:
incur total one-time costs of approximately $3.6 million to $4.0 million, which amounts include costs for severance, retention, personnel, premises, occupancy, depreciation, and costs related to termination of data processing and other contractual arrangements, and
have estimated cash outlays of approximately $3.5 million to $3.9 million of its total estimated one-time costs (consistent with the amounts above less depreciation).

Once the mortgage banking exit has been completed, the future operations of the Corporation will be much more consistent with the traditional community banking activities as described earlier.originations.

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

Provident Financial Corp performs trustee services for the Bank'sBank’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'sCorporation’s control, including: changes in accounting principles, laws, regulation, interest rates and the economy, among others.  The Corporation attempts to mitigate many of these risks through prudent banking practices, such as interest rate risk management, credit risk management, operational risk management, and liquidity risk management.  The California economic environment presents heightened risk for the Corporation primarily with respect to real estate values and loan delinquencies. Since the majority of the Corporation'sCorporation’s loans are secured by real estate located within California, significant declines in the value of California real estate may also inhibit the Corporation'sCorporation’s ability to recover on defaulted loans by selling the underlying real estate.


54

Off-Balance Sheet Financing Arrangements and Contractual Obligations

Commitments and Derivative Financial Instruments.  The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit, in the form of originating loans or providing funds under existing lines of credit, loan sale agreements to third parties and option contracts.  These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying Condensed Consolidated Statements of Financial Condition.  The Corporation'sCorporation’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 7Notes 6 and 10 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.


44
Contractual Obligations.  The following table summarizes the Corporation'sCorporation’s contractual obligations at MarchDecember 31, 2019 and the effect these obligations are expected to have on the Corporation'sCorporation’s liquidity and cash flows in future periods:

 Payments Due by Period
(In Thousands)
Less than
1 year
1 to less
than  3
years
3 to
5 years
Over
5 years
Total
Operating obligations$1,889 $3,176 $596 $175 $5,836 
Pension benefits259 517 518 6,150 7,444 
Time deposits103,391 64,327 20,293 921 188,932 
FHLB – San Francisco advances13,145 65,057 41,824 20,158 140,184 
FHLB – San Francisco letter of credit13,000 — — — 13,000 
FHLB – San Francisco MPF credit enhancement (1)
— — — 2,458 2,458 
Total$131,684 $133,077 $63,231 $29,862 $357,854 
  Payments Due by Period 
(In Thousands) 
Less than
1 year
  
1 to less
than 3
years
  
3 to
5 years
  
Over
5 years
  Total 
Operating obligations $2,683  $3,744  $1,118  $570  $8,115 
Pension benefits  253   505   505   6,282   7,545 
Time deposits  117,104   72,065   23,725   719   213,613 
FHLB – San Francisco advances  2,646   45,313   42,494   20,565   111,018 
FHLB – San Francisco letter of credit  10,000   —   —   —   10,000 
FHLB – San Francisco MPF credit enhancement (1)
  —   —   —   2,458   2,458 
Total $132,686  $121,627  $67,842  $30,594  $352,749 

(1)
Represents the potential futuremaximum potential recourse obligation for loans previously sold by the Bank to the FHLB – San Francisco under its Mortgage Partnership Finance ("MPF"(“MPF”) program.  As of MarchDecember 31, 2019, the Bank serviced $10.4$8.3 million of loans under this program.  The estimated amounts by period are based on historical loss experience.

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


Comparison of Financial Condition at MarchDecember 31, 2019 and June 30, 20182019

Total assets decreased $56.2increased $22.5 million, or fivetwo percent, to $1.12$1.11 billion at MarchDecember 31, 2019 from $1.18$1.08 billion at June 30, 2018.2019.  The decreaseincrease was primarily attributable to decreasesan increase in loans held for investment, and loans held for sale, partly offset by increasesdecreases in cash and cash equivalents and investment securities.

Total cash and cash equivalents, primarily excess cash deposited with the Federal Reserve Bank of San Francisco, increased $18.2decreased $22.4 million, or 4232 percent, to $61.5$48.2 million at MarchDecember 31, 2019 from $43.3$70.6 million at June 30, 2018.2019.  The increasedecrease in the total cash and cash equivalents was primarily attributable to the decreasesutilization of cash to fund the increase in loans held for sale and loans held for investment, partly offsetwhich was supplemented by thean increase in investment securities and the payoff of borrowings and time deposits that matured during the first nine months of fiscal 2019.borrowings.

55
Investment securities (held to maturity and available for sale) increased $13.5decreased $17.7 million, or 1418 percent, to $108.8$82.4 million at MarchDecember 31, 2019 from $95.3$100.1 million at June 30, 2018.2019. The increasedecrease was primarily the result of investment security purchases, partly offset by scheduled and accelerated principal payments on mortgage-backed securities during the first ninesix months of fiscal 2019.2020. For further analysis on investment securities, see Note 54 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Loans held for investment decreased $19.1increased $61.8 million, or twoseven percent, to $883.6$941.7 million at MarchDecember 31, 2019 from $902.7$879.9 million at June 30, 2018,2019, primarily due to a $26.2$40.1 million declineincrease in multi-family loans partly offset byand a $5.6$22.4 million increase in commercial real estatesingle-family loans.  During the first ninesix months of fiscal 2019,2020, the Corporation originated $93.8$61.9 million of loans held for investment, consisting primarily of single-family, multi-family and commercial real estatesingle-family loans and also purchased $26.2$113.1 million inof single-family multi-family and commercial real estatemulti-family loans held for investment.investment that are located throughout California. Total loan principal payments during the first ninesix months of fiscal 20192020 were $140.5$116.0 million, down twoup 11 percent from $143.9$104.1 million during the comparable period in fiscal 2018.2019. The single-family loans held for investment balance was essentially unchanged at $314.8 million at both MarchDecember 31, 2019 and June 30, 2018,2019 was $347.3 million and $325.0 million, respectively, and represented approximately 36 percent and 3537 percent of loans held for investment respectively.at both dates.

45

The tables below describe the geographic dispersion of gross real estate secured loans held for investment at MarchDecember 31, 2019 and June 30, 2018,2019, as a percentage of the total dollar amount outstanding:

As of MarchDecember 31, 20192019:
 
Inland
Empire
Southern
California(1)
Other
California
Other
States
Total
Loan CategoryBalance%Balance%Balance%Balance%Balance%
Single-family$94,260 27%$162,033 47%$90,053 26%$998 —%$347,344 100%
Multi-family70,060 15%301,719 63%107,053 22%319 —%479,151 100%
Commercial real estate24,166 22%52,213 49%31,234 29%— —%107,613 100%
Construction494 7%5,406 78%1,014 15%— —%6,914 100%
Total$188,980 20%$521,371 56%$229,354 24%$1,317 —%$941,022 100%
(Dollars In Thousands) 
Inland
Empire
  
Southern
California (1)
  
Other
California
  
Other
States
  Total 
Loan Category Balance  %  Balance  %  Balance  %  Balance  %  Balance  % 
Single-family $107,164   34% $144,261   46% $62,360   20% $1,039   —% $314,824   100%
Multi-family  71,357   16%  275,087   61%  103,039   23%  329   —%  449,812   100%
Commercial real estate  31,972   28%  55,435   48%  27,948   24%  —   —%  115,355   100%
Construction  295   7%  3,397   82%  447   11%  —   —%  4,139   100%
Other  —   —%  —   —%  167   100%  —   —%  167   100%
Total $210,788   24% $478,1801   54% $193,961   22% $1,368   —% $884,297   100%

(1)
Other than the Inland Empire.

As of June 30, 20182019:
 
Inland
Empire
Southern
California(1)
Other
California
Other
States
Total
Loan CategoryBalance%Balance%Balance%Balance%Balance%
Single-family$104,967 33%$146,963 45%$71,997 22%$1,025 —%$324,952 100%
Multi-family70,241 16%272,282 62%96,192 22%326 —%439,041 100%
Commercial real estate30,551 27%54,010 48%27,367 25%— —%111,928 100%
Construction525 11%3,579 77%534 12%— —%4,638 100%
Other— —%— —%167 100%— —%167 100%
Total$206,284 24%$476,834 54%$196,257 22%$1,351 —%$880,726 100%
(Dollars In Thousands) 
Inland
Empire
  
Southern
California (1)
  
Other
California
  
Other
States
  Total 
Loan Category Balance  %  Balance  %  Balance  %  Balance  %  Balance  % 
Single-family $110,510   35% $149,261   48% $53,960   17% $1,077   —% $314,808   100%
Multi-family  76,473   16%  287,174   60%  109,684   23%  2,677   1%  476,008   100%
Commercial real estate  32,224   29%  47,903   44%  29,599 �� 27%  —   —%  109,726   100%
Construction  49   1%  2,685   85%  440   14%  —   —%  3,174   100%
Other  —   —%  —   —%  167   100%  —   —%  167   100%
Total $219,256   24% $487,0231   54% $193,850   21% $3,754   1% $903,883   100%

(1)
Other than the Inland Empire.

Loans held for saleTotal deposits decreased $65.8$7.6 million or 68 percent, to $30.5$833.7 million at MarchDecember 31, 2019 from $96.3$841.3 million at June 30, 2018.2019.  Time deposits decreased $7.2 million, or four percent, to $185.9 million at December 31, 2019 from $193.1 million at June 30, 2019, while transaction accounts decreased slightly to $647.8 million at December 31, 2019 from $648.1 million at June 30, 2019. The decrease waspercentage of time deposits to total deposits decreased to 22 percent at December 31, 2019 from 23 percent at June 30, 2019, primarily due to a decreasemanaged run-off of higher cost time deposits consistent with the reduction in the Bank’s funding needs resulting from no loans originated for sale attributable to the winding down of the mortgage banking operations and the timing difference between loan fundings and loan sale settlements. Total loans originated
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for sale during the quarter ended March 31, 2019 was $110.7 million as compared to $241.6 million during the quarter ended June 30, 2018.

Total deposits decreased $30.7 million, or three percent, to $876.9 million at March 31, 2019 from $907.6 million at June 30, 2018.  Transaction accounts decreased $3.3 million to $666.7 million at March 31, 2019 from $670.0 million at June 30, 2018, while time deposits decreased $27.4 million, or 12 percent, to $210.2 million at March 31, 2019 from $237.6 million at June 30, 2018 consistent with the Bank's strategy to decrease the percentagefirst half of time deposits in its deposit base.fiscal 2020.

Total borrowings decreased $25.1increased $30.0 million, or 2030 percent, to $101.1$131.1 million at MarchDecember 31, 2019 as compared to $126.2$101.1 million at June 30, 2018,2019, due to additional long-term borrowing obtained with a lower average cost during the maturityfirst six months of short-term borrowings and an early payoff of a long-term borrowing.fiscal 2020. The borrowings were primarily comprised of long-term FHLB - San Francisco advances used for interest rate risk management purposes.

Total stockholders'stockholders’ equity increased $752,000,$3.2 million, or onethree percent, to $121.2$123.8 million at MarchDecember 31, 2019 from $120.5$120.6 million at June 30, 2018,2019, primarily as a result of net income of $3.6$5.0 million and the amortization of stock-based compensation benefits during the first nine months of fiscal 2019,$695,000, partly offset by $3.1$2.1 million of quarterly cash dividends paid to shareholders and stock repurchases from restrictedof $397,000 during the first six months of fiscal 2020. The Corporation repurchased 19,285 shares of its common stock recipients to fund their withholding tax obligations.during the six months ended December 31, 2019 at an average cost of $20.58 per share.

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Comparison of Operating Results for the QuartersQuarter and NineSix Months Ended MarchDecember 31, 2019 and 2018

The Corporation'sCorporation’s net lossincome for the thirdsecond quarter of fiscal 20192020 was $151,000, in contrast to the net income of $1.7$2.4 million, up 22 percent from $2.0 million in the same period of fiscal 2018.2019. Compared to the same quarter last year, the declineincrease was primarily attributable to a $1.88$3.3 million decrease in the gain on sale of loans and a $484,000 increase in salaries and employee benefits expense,non-interest expenses, partly offset by the $189,000 benefit from income taxes resulting from the loss before taxes this quartera $2.3 million decrease in contrast to the $667,000 provision for income taxes in the same quarter last year (an $856,000 difference).non-interest income.

For the first ninesix months of fiscal 2019,2020, the Corporation'sCorporation’s net income was $3.6$5.0 million, an increase of $2.9$1.2 million, or 39731 percent, from the net income of $731,000$3.8 million in the same period of fiscal 2018.2019. Compared to the same period last year, the increase in earnings was primarily attributable to (a) the one-time, non-cash, net tax charge of $1.9 million from the net deferred tax assets revaluation required by the Tax Act consistent with the lower corporate federal income tax rate applied in the second quarter of fiscal 2018 (not replicated this fiscal year), (b) the $3.4 million litigation reserve in the first nine months of fiscal 2018 (not replicated this fiscal year), (c) a $1.8 million increase in net interest income and (d) a $1.9$7.8 million decrease in salaries and employee benefits expense and (e) the application of the statutory federal and state income tax rate of 29.56% this current period as compared to the blended tax rate of 35.86% in the same period last year;non-interest expenses, partly offset by a $5.7 million decrease in the gain on sale of loans.non-interest income.

The Corporation'sCorporation’s efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, increasedimproved to 10369 percent for the thirdsecond quarter of fiscal 20192020 from 8781 percent in the same period of fiscal 2018. However, for2019. For the first ninesix months of fiscal 2019,2020, the Corporation'sCorporation’s efficiency ratio improved to 8968 percent from 9383 percent for the same period of fiscal 2018.2019.

Return (loss) on average assets decreased 64increased 18 basis points to (0.05)0.87 percent in the thirdsecond quarter of fiscal 20192020 from 0.590.69 percent in the same period last year. However forFor the first ninesix months of fiscal 2019,2020, return on average assets was 0.420.91 percent, up 3425 basis points from 0.080.66 percent in the same period last year.

Return (loss) on average equity was (0.49)7.81 percent in the thirdsecond quarter of fiscal 20192020 as compared to 5.766.42 percent in the same period last year. However forFor the first ninesix months of fiscal 2019,2020, return on average equity was 3.978.13 percent as compared to 0.786.22 percent for the same period last year.
57

Diluted earnings (loss) per share for the thirdsecond quarter of fiscal 20192020 were $(0.02), down 109$0.31, up 19 percent from $0.23$0.26 in the same period last year. However forFor the first ninesix months of fiscal 2019,2020, diluted earnings per share were $0.48, up 433$0.65, a 30 percent increase from $0.09$0.50 in the same period last year.

Net Interest Income:

For the QuartersQuarter Ended MarchDecember 31, 2019 and 2018.  Net interest income increaseddecreased by $488,000,$192,000, or fivetwo percent, to $9.6 million for the thirdsecond quarter of fiscal 20192020 as compared to the same period in fiscal 2018,2019, as a result of a higher net interest margin,lower average interest-earning asset balance, partly offset by a lowerhigher net interest margin. The average balance of interest-earning asset balance.assets decreased $35.7 million, or three percent, to $1.07 billion in the second quarter of fiscal 2020 from $1.11 billion in the comparable period of fiscal 2019, primarily reflecting decreases in the average balance of interest-earning deposits, loans receivable and investment securities. The net interest margin increased 30five basis points to 3.533.59 percent in the thirdsecond quarter of fiscal 20192020 from 3.233.54 percent in the same period of fiscal 2018,2019, primarily due to an increase in the average yield on interest-earning assets, partly offset by a slight increase in the average cost of interest-bearing liabilities. The weighted-average yield on interest-earning assets increased by 31six basis points to 4.094.18 percent in the thirdsecond quarter of fiscal 20192020 from 3.784.12 percent in the same quarter last year, whileand the weighted-average cost of interest-bearing liabilities increased by one basis point to 0.630.65 percent for the thirdsecond quarter of fiscal 20192020 as compared to 0.620.64 percent in the same quarter last year. The increase in the average yield of interest-earning assets was primarily due to an increaseincreases in the average yield of all interest-earning assets resulting primarily from higher market interest rates, except FHLB – San Francisco stock. The average balance of interest-earning assets decreased $41.4 million, or four percent, to $1.09 billion in the third quarter of fiscal 2019 from $1.13 billion in the comparable period of fiscal 2018, primarily reflecting a decrease in the average balance ofinvestment securities and loans receivable, partly offset by increasesdecreases in the average balance of investment securitiesyield on FHLB – San Francisco stock and interest-earning deposits. The average balance of interest-bearing liabilities decreased by $45.6$36.1 million, or four percent, to $979.0$964.6 million in the thirdsecond quarter of fiscal 20192020 from $1.02$1.00 billion in the same quarter last year.year primarily reflecting a decrease in the average balance of interest-bearing deposits.

For the NineSix Months Ended MarchDecember 31, 2019 and 2018.  Net interest income increased $1.8 million, or seven percent, to $28.8remained relatively unchanged at $19.2 million for both the first ninesix months of fiscal 2020 and fiscal 2019 from $27.0 million for the comparable period in fiscal 2018, due toas a higher net interest margin partlywas substantially offset by a lower average interest-earning assets balance. The net interest margin was 3.453.61 percent in the first ninesix months of fiscal 2019,2020, up 29

47
19 basis points from 3.163.42 percent in the same period of fiscal 2018,2019, primarily due to an increase in the average yield on interest-earning assets, partly offset by a slight increase inwhile the average cost of interest-bearing liabilities.liabilities remained unchanged. The net interest marginincrease in the nine monthsaverage yield of fiscal 2019interest-earning assets was augmentedprimarily due to increases in the average yield of investment securities and loans receivable, partly offset by $176,000 of previously unrecognized loan interest income resulting fromdecreases in the payoff of three non-performing loans and the $133,000 special cash dividend receivedaverage yield on FHLB-SanFHLB – San Francisco stock which increased the net interest margin by approximately three basis points for the period. The weighted-average yield onand interest-earning assets increased by 31 basis points to 4.03 percent, while the weighted-average cost of interest-bearing liabilities increased by two basis points to 0.64 percent for the first nine months of fiscal 2019 as compared to the same period last year.deposits. The average balance of interest-earning assets decreased $28.5$58.9 million, or twofive percent, to $1.11$1.06 billion in the first ninesix months of fiscal 20192020 from $1.14$1.12 billion in the comparable period of fiscal 2018,2019, primarily reflecting a decreasedecreases in the average balance of loans receivable partly offset by increases in the average balance of investment securities and interest earning deposits. The average balance of interest-bearing liabilities decreased by $28.9$58.2 million, or threesix percent, to $1.00 billion$953.6 million in the first ninesix months of fiscal 20192020 from $1.03$1.01 billion in the same period last year.year primarily reflecting a decrease in the average balance of interest-bearing deposits.

Interest Income:

For the QuartersQuarter Ended MarchDecember 31, 2019 and 2018.  Total interest income increaseddecreased by $441,000,$219,000, or fourtwo percent, to $11.1$11.2 million for the thirdsecond quarter of fiscal 20192020 as compared to $11.4 million for the same quarter of fiscal 2018.2019.  The increasedecrease was primarily due to decreases in interest income from interest-earning deposits and cash dividends received from FHLB – San Francisco stock, partly offset by an increase in interest income from investment securities and interest-earning deposits.securities.

Interest income on loans receivable increased $78,000, or one percent, to $10.0 million in the third quarter of fiscal 2019 as compared to the same quarter of fiscal 2018.  This increase was attributable to a higher average loan yield reflecting the rise in interest rates over the last year, partly offset by a lower average loan balance. The average loans receivable yield during the third quarter of fiscal 2019 increased 25 basis points to 4.38 percent from 4.13 percent during the same quarter last year, primarily due to increases in the average yield of both loans held for investment and(including loans held for sale combined with a lower
58
percentagein the second quarter of loans heldfiscal 2019) remained relatively unchanged at $10.3 million for sale to total loans receivable.both the second quarter of fiscal 2020 and fiscal 2019.  The average balance of loans receivable decreased by $46.8$7.1 million, or fiveone percent, to $915.0$934.1 million for the thirdsecond quarter of fiscal 20192020 from $961.8$941.2 million in the same quarter of fiscal 2018,2019, primarily due to a decrease in the average balance of loans held for sale attributable to the winding downscaling back of saleable single-family mortgage loan originations, partly offset by an increase in the mortgage banking operations and, to a lesser extent, a decrease in average balance of loans held for investment. The average loans receivable yield during the second quarter of fiscal 2020 increased three basis points to 4.42 percent from 4.39 percent during the same quarter last year. The increase in the average yield on loans receivable was primarily attributable to a $378,000 deferred loan fee that was recognized in interest income as a result of a loan payoff in the second quarter of fiscal 2020 as compared to $159,000 of deferred interest payments that was recognized in interest income from two non-performing loans that were paid off in the same quarter last year.

Loans receivable is comprised of loans held for investment and loans held for sale. The average balance of loans held for investment decreased $13.1increased $55.9 million, or onesix percent, to $875.5$934.1 million during the thirdsecond quarter of fiscal 20192020 from $888.6$878.2 million in the same quarter of fiscal 2018.2019. The average yield on the loans held for investment increased by 23six basis points to 4.364.42 percent in the thirdsecond quarter of fiscal 20192020 from 4.134.36 percent in the same quarter of fiscal 2018. The average balance of2019. There were no loans held for sale also decreased $33.8 million, or 46 percent, to $39.5 million duringin the thirdsecond quarter of fiscal 2019 from $73.32020 as compared to the average balance of $63.0 million in the same quarter of fiscal 2018.  Thewith an average yield on the loans held for sale increased by 61 basis points to 4.74 percent in the third quarter of fiscal 2019 from 4.134.86 percent in the same quarter of fiscal 2018.2019.

Interest income from investment securities increased $210,000,$123,000, or 5528 percent, to $592,000$567,000 in the thirdsecond quarter of fiscal 20192020 from $382,000$444,000 for the same quarter of fiscal 2018.2019. This increase was primarily attributable to a higher average yield.yield, partly offset by a lower average balance. The average investment securities yield increased 7870 basis points to 2.322.60 percent in the thirdsecond quarter of fiscal 20192020 from 1.541.90 percent in the same quarter of fiscal 2018.2019. The increase in the average investment securities yield was primarily attributable to a lower premium amortization ($97,000 vs. $224,000) and the purchases of investment securities during the last 12 months which had higher average yields than the existing portfolio and the repricing of adjustable mortgage-backed securities to higher interest rates, partly offset by accelerated amortization of purchase premiums resulting from accelerated principal payments.portfolio. The average balance of investment securities increased $2.5decreased $6.4 million, or threeseven percent, to $101.9$87.1 million in the thirdsecond quarter of fiscal 20192020 from $99.4$93.5 million in the same quarter of fiscal 2018.2019. The increasedecrease in the average balance of investment securities was primarily the result of purchases ofscheduled and accelerated principal payments on mortgage-backed securities, partly offset by scheduled and accelerated principal payments onpurchases of mortgage-backed securities.

The FHLB – San Francisco cash dividend received in the thirdsecond quarter of fiscal 20192020 was $144,000, unchanged$145,000, down from the same quarter of fiscal 2018.  The average balance in the third quarter of fiscal 2019 increased $91,000, or one percent, to $8.2 million from $8.1 million$278,000 in the same quarter of fiscal 2018, attributable2019, which included a $133,000 special cash dividend received on FHLB San Francisco stock last year, not replicated this quarter. The average balance of FHLB – San Francisco stock in the second quarter of fiscal 2020

48
remained unchanged at $8.2 million as compared to a required stock purchase due to reduced borrowingsthe same quarter of $91,000 in April 2018.   As a result,fiscal 2019 and the average yield decreased to 7.037.07 percent in the thirdsecond quarter of fiscal 2019 as compared to 7.102020 from 13.56 percent in the comparablesame quarter last year.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was $386,000$189,000 in the thirdsecond quarter of fiscal 2019, up 662020, down 51 percent from $233,000$387,000 in the same quarter of fiscal 2018.2019. The increasedecrease was primarily due to a higherlower average balance and, to a lesser extent, a lower average yield. The average balance of the interest-earning deposits in the second quarter of fiscal 2020 was $45.5 million, a decrease of $22.3 million or 33 percent, from $67.8 million in the same quarter of fiscal 2019. The average yield earned on interest-earning deposits increased 89decreased 61 basis points to 2.401.62 percent in the thirdsecond quarter of fiscal 20192020 from 1.512.23 percent in the comparable quarter last year, due primarily to the increasesthree 25 basis point decreases in the targeted federal funds rate over the last year.  The average balance of the interest-earning depositsFederal Funds Rate in the thirdfirst and second quarter of fiscal 2019 was $64.4 million, an increase of $2.8 million or five percent, from $61.6 million in the same quarter of fiscal 2018. The increase in the average balance of interest-earning deposits was primarily due to the decreases in loans held for investment and loans held for sale, partly offset by an increase in investment securities and decreases in deposits and borrowings.2020.

For the NineSix Months Ended MarchDecember 31, 2019 and 2018.  Total interest income increaseddecreased by $1.8 million,$141,000, or sixone percent, to $33.6$22.3 million for the first ninesix months of fiscal 20192020 from $31.8$22.4 million in the same period of fiscal 2018.2019.  The increasedecrease was primarily due to decreases in interest income from interest-earning deposits, cash dividends received from FHLB – San Francisco stock and loans receivable, partly offset by an increase in interest income from all interest-earning assets.investment securities.

Loans receivable interest income increased $691,000,(including loans held for sale in the first six months of fiscal 2019) decreased $110,000, or twoone percent, to $30.5$20.4 million in the first ninesix months of fiscal 20192020 from $29.8$20.5 million for the same period of fiscal 2018.2019.  The increasedecrease was attributable to a lower average loan balance, partly offset by a higher average loan yield reflecting the rise in interest rates over the last year, partly offset by a lower average loan balance in the first ninesix months of fiscal 20192020 in comparison to the same period last year.  The average balance of loans receivable decreased $35.4 million, or four percent, to $918.7 million for the first six months of fiscal 2020 from $954.1 million in the same period of fiscal 2019. The average loan yield including loans held for sale, during the first ninesix months of fiscal 20192020 increased 2914 basis points to 4.324.44 percent from 4.034.30 percent in the same period last year. The increase in the average balance of
59
yield on loans receivable including loans held for sale, decreased $45.7 million, or five percent,was primarily attributable to $941.3 million for$520,000 of deferred loan fees that were recognized in interest income as a result of three loan payoffs and $48,000 of deferred interest payments that was recognized from one non-performing loan that was paid off in the first ninesix months of fiscal 20192020 as compared to $176,000 of deferred interest payments that were recognized from $987.0 millionthree non-performing loans that were paid off in the same period of fiscal 2018.last year.

Loans receivable is comprised of loans held for investment and loans held for sale.  The average balance of loans held for investment decreased $13.3increased $33.2 million, or onefour percent, to $882.3$918.7 million during the first ninesix months of fiscal 20192020 from $895.6$885.5 million in the same period of fiscal 2018.2019. The average yield on the loans held for investment increased by 2617 basis points to 4.304.44 percent in the first ninesix months of fiscal 20192020 from 4.044.27 percent in the same period of fiscal 2018.  The average balance of2019. There were no loans held for sale decreased by $32.4 million, or 35 percent, to $59.0 million duringin the first ninesix months of fiscal 2019 from $91.42020 as compared to the average balance of $68.6 million in the same period of fiscal 2018.  Thewith an average yield on the loans held for sale increased by 74 basis points toof 4.71 percent in the first nine months of fiscal 2019 from 3.97 percent in the same period of fiscal 2018.2019.

Interest income from investment securities increased $423,000,$392,000, or 4450 percent, to $1.4$1.2 million in the first ninesix months of fiscal 20192020 from $958,000$789,000 for the same period of fiscal 2018.2019. This increase was attributable to a higher average yield, and, topartly offset by a lesser extent, a higherlower average balance. The average investment securities yield increased 4787 basis points to 1.932.58 percent in the first ninesix months of fiscal 20192020 from 1.461.71 percent in the same period of fiscal 2018.2019.  The increase in the average investment securities yield was primarily attributable to a lower premium amortization ($227,000 vs. $511,000) and the purchases of investment securities during the last 12 months which had higher average yields than the existing portfolio and the repricing of adjustable rate mortgage-backed securities to higher interest rates, partly offset by accelerated amortization of purchase premiums resulting from accelerated principal payments.portfolio. The average balance of investment securities increased $7.8 million,decreased $857,000, or nineone percent, to $95.5$91.5 million in the first ninesix months of fiscal 20192020 from $87.7$92.4 million in the same period of fiscal 2018.2019. The increasedecrease in the average balance of investment securities was primarily the result of purchases ofscheduled and accelerated principal payments on mortgage-backed securities, partly offset by scheduled and accelerated principal payments onpurchases of mortgage-backed securities.

The FHLB – San Francisco cash dividend received in the first ninesix months of fiscal 20192020 was $565,000, up$288,000, down 32 percent from $428,000$421,000 in the same period of fiscal 2018,2019, primarily attributable to a special cash dividend of $133,000 received in December 2018.the first six months of fiscal 2019 and not replicated in the same period of fiscal 2020. As a result, the average yield increaseddecreased to 9.197.03 percent in the first ninesix months of fiscal 20192020 as compared to 7.0410.27 percent in the comparable period last year.

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Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was $1.1 million$435,000 in the first ninesix months of fiscal 2019, up 882020, down 40 percent from $591,000$725,000 in the same period of fiscal 2018.2019.  The increasedecrease was due to a higherlower average yieldbalance and, to a lesser extent, a higherlower average balanceyield in the first ninesix months of fiscal 20192020 as compared to the same period last year.  The average yield increased 84 basis points to 2.20 percent in the first nine months of fiscal 2019 from 1.36 percent in the comparable period last year, due primarily to the increases in the targeted federal funds rate over the last year.  The average balance of the interest-earning deposits in the first ninesix months of fiscal 20192020 was $66.5$45.0 million, an increasea decrease of $9.2$22.6 million or 1633 percent, from $57.3$67.6 million in the same period of fiscal 2018.2019. The increaseaverage yield decreased 21 basis points to 1.89 percent in average balancethe first six months of interest-earning deposits wasfiscal 2020 from 2.10 percent in the comparable period last year, due primarily due to the decreases in loans held for investment and loans held for sale, partly offset by an increasethe targeted Federal Funds Rate in investment securities and a decrease in deposits.the second half of 2019.

Interest Expense:

For the QuartersQuarter Ended MarchDecember 31, 2019 and 2018.  Total interest expense decreased $47,000,$27,000, or threetwo percent to $1.5 million in the third quarter of fiscal 2019 from $1.6 million in the comparablesecond quarter of fiscal 2018.2020 as compared to the same quarter last year. This decrease was attributable primarily to lower interest expenses on both deposits and borrowings.deposit expense, partly offset by higher borrowing expense.

Interest expense on deposits for the thirdsecond quarter of fiscal 20192020 was $841,000$778,000 as compared to $856,000$894,000 for the same period last year, a decrease of $15,000,$116,000, or two13 percent.  The decrease in interest expense on deposits was primarily attributable to a lower average balance partly offset byand a slightly higherlower average cost of deposits. The average balance of deposits decreased $38.7$56.0 million, or foursix percent, to $873.3$833.6 million during the quarter ended MarchDecember 31, 2019 from $912.0 million during the same period last year. The decrease in the average balance was primarily attributable to decreases in time deposits and, to a lesser extent,
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savings deposits, partly offset by an increase in checking and money market deposits. The average cost of deposits remained relatively stable, increasing only one basis point to 0.39 percent during the third quarter of fiscal 2019 from 0.38 percent during the same quarter last year.  The increase in the average cost of deposits was attributable primarily to a higher average cost of time deposits, partly offset by a lower percentage of time deposits to the total deposit balance. 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 third quarter of fiscal 2019 was 75 percent, compared to 73 percent in the same period of fiscal 2018.

Interest expense on borrowings, consisting of FHLB – San Francisco advances, for the third quarter of fiscal 2019 decreased $32,000, or four percent, to $680,000 from $712,000 for the same period last year.  The decrease in interest expense on borrowings was the result of a lower average balance, partly offset by a higher average cost. The average balance of borrowings decreased $6.8 million, or six percent, to $105.8 million during the quarter ended March 31, 2019 from $112.6 million during the same period last year, primarily due to the $10.0 million prepayment of long-term borrowings in February 2019. The average cost of borrowings increased five basis points to 2.61 percent for the quarter ended March 31, 2019 from 2.56 percent in the same quarter last year. The increase in the average cost of borrowings was primarily due to the prepayment of long-term borrowings with a lower interest rate in than the weighted average interest rate of all borrowings.

For the Nine Months Ended March 31, 2019 and 2018.  Total interest expense for the first nine months of fiscal 2019 decreased $36,000, or one percent, to $4.8 million as compared to the same period last year.  This decrease was attributable to lower interest expenses on both, deposits and borrowings.

Interest expense on deposits for the first nine months of fiscal 2019 decreased $18,000, or one percent, to $2.6 million as compared to the same period last year.  The slight decrease in interest expense on deposits was primarily attributable to a lower average balance, partly offset by a higher average cost of deposits. The average balance of deposits decreased $28.4 million, or three percent, to $888.7 million during the nine months ended March 31, 2019 from $917.1$889.6 million during the same period last year. The decrease in the average balance was primarily attributable to decreases in time deposits and, to a lesser extent, savings deposits, partly offset by an increase in checking and money market deposits. The average cost of deposits increased oneimproved, decreasing by three basis pointpoints to 0.390.37 percent during the first nine monthssecond quarter of fiscal 20192020 from 0.380.40 percent during the same periodquarter last year.  The increasedecrease in the average cost of deposits was attributable primarily to a higher average cost of time deposits, partly offset by a lower percentage of time deposits to the total deposit balance.balance, partly offset by a two basis-point increase in the average cost of 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 second quarter of fiscal 2020 was 78 percent, compared to 74 percent in the same period of fiscal 2019.

Interest expense on borrowings, consisting primarily of FHLB – San Francisco advances, for the second quarter of fiscal 2020 increased $89,000, or 12 percent, to $804,000 from $715,000 for 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 $20.0 million, or 18 percent, to $131.1 million during the quarter ended December 31, 2019 from $111.1 million during the same period last year. The average cost of borrowings decreased 12 basis points to 2.43 percent for the quarter ended December 31, 2019 from 2.55 percent in the same quarter last year. The decrease in the average cost of borrowings was primarily due to new long-term borrowings with a lower interest rate than the weighted average interest rate of all borrowings during the second quarter of fiscal 2020.

For the Six Months Ended December 31, 2019 and 2018.  Total interest expense decreased $174,000, or five percent to $3.1 million in the first six months of fiscal 2020 from $3.3 million in the same period last year. This decrease was attributable primarily to lower deposit expense, partly offset by higher borrowing expense.

Interest expense on deposits for the first six months of fiscal 2020 was $1.6 million as compared to $1.8 million in the same period last year, a decrease of $220,000 or 12 percent.  The decrease in interest expense on deposits was primarily attributable to a lower average balance and, to a lesser extent, a lower average cost of deposits. The average balance of deposits decreased $64.0 million, or seven percent, to $832.2 million during the six months ended December 31, 2019 from $896.2 million during the same period last year. The decrease in the average balance was primarily attributable to a decrease in time deposits and, to a lesser extent, savings deposits, partly offset by an increase in checking and money market deposits. The average cost of deposits decreased two basis points to 0.37 percent during the first six months of fiscal 2020 from 0.39 percent during the same period last year. The decrease in the average cost of deposits was attributable primarily to a lower percentage of time deposits to the

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total deposit balance, partly offset by a five basis-point increase in the average cost of time deposits. The average balance of transaction accounts to total deposits in the first ninesix months of fiscal 20192020 was 7477 percent, compared to 7274 percent in the same period of fiscal 2018.2019.

Interest expense on borrowings, consisting primarily of FHLB – San Francisco advances, for the first ninesix months of fiscal 2019 decreased $18,000,2020 increased $46,000, or onethree percent, to $2.2$1.5 million as compared to the same period last year.  The decreaseincrease in interest expense on borrowings was the result of a lowerhigher average cost and to a lesser extent,balance, partly offset by a lower average balance.cost. The average balance of borrowings increased by $5.8 million, or five percent, to $121.4 million during the six months ended December 31, 2019 from $115.6 million during the same period last year, primarily due to the new long-term borrowings during the first quarter of fiscal 2020 at a lower average cost. The average cost of borrowings decreased onefive basis pointpoints to 2.562.49 percent for the ninesix months ended MarchDecember 31, 2019 from 2.572.54 percent in the same period last year. The average balance of borrowings decreased by $403,000 to $112.4 million during the nine months ended March 31, 2019 from $112.8 million during the same period last year.


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The following tables present the average balance sheets for the quartersquarter and ninesix months ended MarchDecember 31, 2019 and 2018, respectively:

Average Balance Sheets
 Quarter Ended
December 31, 2019		 Quarter Ended
December 31, 2018
(Dollars In Thousands)Average
Balance		InterestYield/
Cost		 Average
Balance		InterestYield/
Cost
Interest-earning assets:       
Loans receivable, net (1)
$934,060 $10,320 4.42% $941,192 $10,331 4.39%
Investment securities87,108 567 2.60% 93,468 444 1.90%
FHLB – San Francisco stock8,199 145 7.07% 8,199 278 13.56%
Interest-earning deposits45,519 189 1.62% 67,760 387 2.23%
        
Total interest-earning assets1,074,886 11,221 4.18% 1,110,619 11,440 4.12%
        
Non interest-earning assets32,216    31,683   
        
Total assets$1,107,102    $1,142,302   
        
Interest-bearing liabilities:       
Checking and money market accounts (2)
$388,430 $117 0.12% $379,752 $117 0.12%
Savings accounts257,666 131 0.20% 282,410 147 0.21%
Time deposits187,458 530 1.12% 227,395 630 1.10%
        
Total deposits833,554 778 0.37% 889,557 894 0.40%
        
Borrowings131,084 804 2.43% 111,141 715 2.55%
        
Total interest-bearing liabilities964,638 1,582 0.65% 1,000,698 1,609 0.64%
        
Non interest-bearing liabilities19,644    19,587   
        
Total liabilities984,282    1,020,285   
        
Stockholders’ equity122,820    122,017   
Total liabilities and stockholders’ equity$1,107,102    $1,142,302   
        
Net interest income $9,639    $9,831  
        
Interest rate spread (3)
  3.53%   3.48%
Net interest margin (4)
  3.59%   3.54%
Ratio of average interest-earning assets to
   average interest-bearing liabilities
  111.43%   110.98%
Return on average assets  0.87%   0.69%
Return on average equity  7.81%   6.42%
  
Quarter Ended
March 31, 2019
  
Quarter Ended
March 31, 2018
 
(Dollars In Thousands) 
Average
Balance
  Interest  
Yield/
Cost
  
Average
Balance
  Interest  
Yield/
Cost
 
Interest-earning assets:                  
Loans receivable, net (1)
 $915,049  $10,011   4.38% $961,826  $9,933   4.13%
Investment securities  101,851   592   2.32%  99,390   382   1.54%
FHLB – San Francisco stock  8,199   144   7.03%  8,108   144   7.10%
Interest-earning deposits  64,390   386   2.40%  61,591   233   1.51%
                         
Total interest-earning assets  1,089,489   11,133   4.09%  1,130,915   10,692   3.78%
                         
Non interest-earning assets  30,228           34,820         
                         
Total assets $1,119,717          $1,165,735         
                         
Interest-bearing liabilities:                        
Checking and money market accounts (2)
 $382,294  $102   0.11% $370,346  $96   0.11%
Savings accounts  274,400   139   0.21%  293,579   147   0.20%
Time deposits  216,558   600   1.12%  248,104   613   1.00%
                         
Total deposits  873,252   841   0.39%  912,029   856   0.38%
                         
Borrowings  105,793   680   2.61%  112,625   712   2.56%
                         
Total interest-bearing liabilities  979,045   1,521   0.63%  1,024,654   1,568   0.62%
                         
Non interest-bearing liabilities  17,991           20,804         
                         
Total liabilities  997,036           1,045,458         
                         
Stockholders' equity  122,681           120,277         
Total liabilities and stockholders' equity $1,119,717          $1,165,735         
                         
Net interest income     $9,612          $9,124     
                         
Interest rate spread (3)
          3.46%          3.16%
Net interest margin (4)
          3.53%          3.23%
Ratio of average interest-earning assets to
   average interest-bearing liabilities
          111.28%          110.37%
Return (loss) on average assets          (0.05)%          0.59%
Return (loss) on average equity          (0.49)%          5.76%

(1)
Includes loans held for sale and non-performing loans, as well as net deferred loan cost amortization of $179$12 and $120$268 for the quartersquarter ended MarchDecember 31, 2019 and 2018, respectively. The average balance of loans held for sale was $0 and $63.0 million during the quarter ended December 31, 2019 and 2018, respectively.
(2)
Includes the average balance of non interest-bearing checking accounts of $83.1$84.2 million and $78.9$82.8 million during the quartersquarter ended MarchDecember 31, 2019 and 2018, respectively.
(3)
Represents the difference between the weighted-average yield on all interest-earning assets and the weighted-average rate on all interest-bearing liabilities.
(4)
Represents net interest income before provision (recovery) for loan losses as a percentage of average interest-earning assets.

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62
 Six Months Ended
December 31, 2019		 Six Months Ended
December 31, 2018
(Dollars In Thousands)Average
Balance		InterestYield/
Cost		 Average
Balance		InterestYield/
Cost
Interest-earning assets:       
Loans receivable, net (1)
$918,666 $20,395 4.44% $954,148 $20,505 4.30%
Investment securities91,527 1,181 2.58% 92,384 789 1.71%
FHLB – San Francisco stock8,199 288 7.03% 8,199 421 10.27%
Interest-earning deposits45,015 435 1.89% 67,552 725 2.10%
        
Total interest-earning assets1,063,407 22,299 4.19% 1,122,283 22,440 4.00%
        
Non interest-earning assets31,812    30,982   
        
Total assets$1,095,219    $1,153,265   
        
Interest-bearing liabilities:       
Checking and money market accounts (2)
$384,820 $227 0.12% $378,702 $225 0.12%
Savings accounts258,659 265 0.20% 285,441 298 0.21%
Time deposits188,708 1,062 1.12% 232,074 1,251 1.07%
        
Total deposits832,187 1,554 0.37% 896,217 1,774 0.39%
        
Borrowings121,363 1,524 2.49% 115,577 1,478 2.54%
        
Total interest-bearing liabilities953,550 3,078 0.64% 1,011,794 3,252 0.64%
        
Non interest-bearing liabilities19,668    19,960   
        
Total liabilities973,218    1,031,754   
        
Stockholders’ equity122,001    121,511   
Total liabilities and stockholders’ equity$1,095,219    $1,153,265   
        
Net interest income $19,221    $19,188  
        
Interest rate spread (3)
  3.55%   3.36%
Net interest margin (4)
  3.61%   3.42%
Ratio of average interest-earning assets to
   average interest-bearing liabilities
  111.52%   110.92%
Return on average assets  0.91%   0.66%
Return on average equity  8.13%   6.22%
  
Nine Months Ended
March 31, 2019
  
Nine Months Ended
March 31, 2018
 
(Dollars In Thousands) 
Average
Balance
  Interest  
Yield/
Cost
  
Average
Balance
  Interest  
Yield/
Cost
 
Interest-earning assets:                  
Loans receivable, net (1)
 $941,336  $30,516   4.32% $986,952  $29,825   4.03%
Investment securities  95,494   1,381   1.93%  87,710   958   1.46%
FHLB – San Francisco stock  8,199   565   9.19%  8,108   428   7.04%
Interest-earning deposits  66,498   1,111   2.20%  57,254   591   1.36%
                         
Total interest-earning assets  1,111,527   33,573   4.03%  1,140,024   31,802   3.72%
                         
Non interest-earning assets  30,711           33,240         
                         
Total assets $1,142,238          $1,173,264         
                         
Interest-bearing liabilities:                        
Checking and money market accounts (2)
 $379,882  $327   0.11% $372,413  $311   0.11%
Savings accounts  281,814   437   0.21%  290,065   445   0.20%
Time deposits  226,978   1,851   1.09%  254,653   1,877   0.98%
                         
Total deposits  888,674   2,615   0.39%  917,131   2,633   0.38%
                         
Borrowings  112,363   2,158   2.56%  112,766   2,176   2.57%
                         
Total interest-bearing liabilities  1,001,037   4,773   0.64%  1,029,897   4,809   0.62%
                         
Non interest-bearing liabilities  19,306           19,174         
                         
Total liabilities  1,020,343           1,049,071         
                         
Stockholders' equity  121,895           124,193         
Total liabilities and stockholders' equity $1,142,238          $1,173,264         
                         
Net interest income     $28,800          $26,993     
                         
Interest rate spread (3)
          3.39%          3.10%
Net interest margin (4)
          3.45%          3.16%
Ratio of average interest-earning assets to
   average interest-bearing liabilities
          111.04%          110.69%
Return on average assets          0.42%          0.08%
Return on average equity          3.97%          0.78%

(1)
Includes loans held for sale and non-performing loans, as well as net deferred loan cost amortization of $823$172 and $736$644 for the ninesix months ended MarchDecember 31, 2019 and 2018, respectively. The average balance of loans held for sale was $0 and $68.6 million during the six months ended December 31, 2019 and 2018, respectively.
(2)
Includes the average balance of non interest-bearing checking accounts of $82.7 million and $79.1$82.5 million during the ninesix months ended MarchDecember 31, 2019 and 2018, respectively.
(3)
Represents the difference between the weighted-average yield on all interest-earning assets and the weighted-average rate on all interest-bearing liabilities.
(4)
Represents net interest income before provision (recovery) for loan losses as a percentage of average interest-earning assets.

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The following tables set forth the effects of changing rates and volumes on interest income and expense for the quartersquarter and ninesix months ended MarchDecember 31, 2019 and 2018, respectively.  Information is provided with respect to the effects attributable to changes in volume (changes in volume multiplied by prior rate), the effects attributable to changes in rate (changes in rate multiplied by prior volume) and the effects attributable to changes that cannot be allocated between rate and volume.

Rate/Volume Variance
 Quarter Ended December 31, 2019 Compared
To Quarter Ended December 31, 2018
Increase (Decrease) Due to
(In Thousands)RateVolumeRate/
Volume		Net
Interest-earning assets:    
     Loans receivable (1)
$68 $(78)$(1)$(11)
     Investment securities164 (30)(11)123 
     FHLB – San Francisco stock(133)— — (133)
     Interest-earning deposits(108)(124)34 (198)
Total net change in income on interest-earning assets(9)(232)22 (219)
     
Interest-bearing liabilities:    
     Checking and money market accounts— 3 (3)— 
     Savings accounts(4)(13)1 (16)
     Time deposits13 (111)(2)(100)
     Borrowings(33)128 (6)89 
Total net change in expense on interest-bearing liabilities(24)7 (10)(27)
Net increase (decrease) in net interest income$15 $(239)$32 $(192)
  
Quarter Ended March 31, 2019 Compared
To Quarter Ended March 31, 2018
Increase (Decrease) Due to
 
(In Thousands) Rate  Volume  
Rate/
Volume
  Net 
Interest-earning assets:            
     Loans receivable (1)
 $590  $(483) $(29) $78 
     Investment securities  196   9   5   210 
     FHLB – San Francisco stock  (2)  2   —   — 
     Interest-earning deposits  136   11   6   153 
Total net change in income on interest-earning assets  920   (461)  (18)  441 
                 
Interest-bearing liabilities:                
     Checking and money market accounts  —   6   —   6 
     Savings accounts  1   (9)  —   (8)
     Time deposits  74   (78)  (9)  (13)
     Borrowings  12   (43)  (1)  (32)
Total net change in expense on interest-bearing liabilities  87   (124)  (10)  (47)
Net increase (decrease) in net interest income $833  $(337) $(8) $488 

(1)
Includes loans held for sale for the quarter ended December 31, 2018 and non-performing loans.  For purposes of calculating volume, rate and rate/volume variances, non-performing loans were included in the weighted-average balance outstanding.
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Nine Months Ended March 31, 2019 Compared
To Nine Months Ended March 31, 2018
Increase (Decrease) Due to
 
(In Thousands) Rate  Volume  
Rate/
Volume
  Net 
Interest-earning assets:            
     Loans receivable (1)
 $2,169  $(1,379) $(99) $691 
     Investment securities  311   85   27   423 
     FHLB – San Francisco stock  131   5   1   137 
     Interest-bearing deposits  368   94   58   520 
Total net change in income on interest-earning assets  2,979   (1,195)  (13)  1,771 
                 
Interest-bearing liabilities:                
     Checking and money market accounts  —   16   —   16 
     Savings accounts  5   (12)  (1)  (8)
     Time deposits  201   (204)  (23)  (26)
     Borrowings  (10)  (8)  —   (18)
Total net change in expense on interest-bearing liabilities  196   (208)  (24)  (36)
Net increase (decrease) in net interest income $2,783  $(987) $11  $1,807 




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 Six Months Ended December 31, 2019 Compared
To Six Months Ended December 31, 2018
Increase (Decrease) Due to
(In Thousands)RateVolumeRate/
Volume		Net
Interest-earning assets:    
     Loans receivable (1)
$678 $(763)$(25)$(110)
     Investment securities403 (7)(4)392 
     FHLB – San Francisco stock(133)— — (133)
     Interest-bearing deposits(77)(237)24 (290)
Total net change in income on interest-earning assets871 (1,007)(5)(141)
     
Interest-bearing liabilities:    
     Checking and money market accounts— 2 — 2 
     Savings accounts(6)(28)1 (33)
     Time deposits56 (234)(11)(189)
     Borrowings(27)74 (1)46 
Total net change in expense on interest-bearing liabilities23 (186)(11)(174)
Net increase (decrease) in net interest income$848 $(821)$6 $33 

(1)
Includes loans held for sale for the six months ended December 31, 2018 and non-performing loans.  For purposes of calculating volume, rate and rate/volume variances, non-performing loans were included in the weighted-average balance outstanding.

Provision (Recovery) for Loan Losses:

For the QuartersQuarter Ended MarchDecember 31, 2019 and 2018.  During the thirdsecond quarter of fiscal 2019,2020, the Corporation recorded a provision for loan losses of $4,000, in contrast to a recovery from the allowance for loan losses of $505,000$22,000, as compared to a recovery of $217,000 in the same period of fiscal 2018.2019.  The recovery from the allowance for loan losses during this quarter and the same quarter last year was primarily attributable to the improving risk profile of the loan portfolio as reflected in the asset quality ratios and loan balances shifting to lower risk categories from higher risk categories. Non-performing loans, net of the allowance for loan losses and fair value adjustments remained relatively unchangeddecreased 45 percent to $3.4 million at December 31, 2019 from $6.2 million at June 30, 2019 and $6.1 million at both March 31, 2019 and June 30, 2018 but lower than the $6.8 million at MarchDecember 31, 2018. Net loan recoveries in the thirdsecond quarter of fiscal 20192020 were $15,000$14,000 or 0.01 percent (annualized) of average loans receivable, compared to net loan charge offsrecoveries of $39,000$123,000 or 0.020.05 percent (annualized) of average loans receivable in the same quarter of fiscal 2018.2019. Total classified loans, net of the allowance for loan losses and fair value adjustments, were $14.8$13.7 million at MarchDecember 31, 2019 as compared to $14.9$16.2 million at June 30, 20182019 and $11.1$12.8 million at MarchDecember 31, 2018. Classified loans net of the allowance for loan losses and fair value adjustments at December 31, 2019 were comprised of $7.3 million and $7.5$9.4 million of loans in the special mention category and $7.5$4.3 million of loans in the substandard category as compared to $8.6 million of loans in the special mention category and $7.4$7.6 million of loans in the substandard category at March 31, 2019 and June 30, 2018, respectively.2019.

For the NineSix Months Ended MarchDecember 31, 2019 and 2018.  During the first ninesix months of fiscal 2019,2020, the Corporation recorded a recovery from the allowance for loan losses of $450,000,$203,000, as compared to a $347,000 recovery from the allowance for loan lossesof $454,000 in the same period of fiscal 2018.2019. The recovery from the allowance for loan losses in the first ninesix months of fiscal 20192020 was primarily attributable to the decrease in loans held for investment and the recoveries related to the payoffimproving risk profile of the two non-performing loans during the first nine months of fiscal 2019.loan portfolio.  Net loan recoveries in the first ninesix months of fiscal 20192020 were $145,000$48,000 or (0.02)0.01 percent (annualized) of average loans receivable, in contrastas compared to net loan charge offsrecoveries of $161,000$130,000 or 0.020.03 percent (annualized) of average loans receivable in the same period of fiscal 2018.2019.

55
65
The allowance for loan losses was determined through quantitative and qualitative adjustments including the Bank's charge-off experience and reflects the impact on loans held for investment from the current general economic conditions of the U.S. and California economies such as the improving unemployment rate and higher home prices in California.  See related discussion of "Asset Quality" below.“Asset Quality.”

At MarchDecember 31, 2019, the allowance for loan losses was $7.1$6.9 million, comprised of collectively evaluated allowances of $6.9 million and individually evaluated allowances of $132,000;$52,000; in comparison to the allowance for loan losses of $7.4$7.1 million at June 30, 2018,2019, comprised of collectively evaluated allowances of $7.2$7.0 million and individually evaluated allowances of $157,000.$130,000. The allowance for loan losses as a percentage of gross loans held for investment was 0.790.73 percent at MarchDecember 31, 2019 as compared to 0.810.80 percent at June 30, 2018.2019. 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 65 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

Non-Interest Income:

For the QuartersQuarter Ended MarchDecember 31, 2019 and 2018.  Total non-interest income decreased $2.1$2.3 million, or 4064 percent, to $3.1$1.3 million for the quarter ended MarchDecember 31, 2019 from $5.2 million for the same period last year.  The decrease was primarily attributable to a decrease in the net gain on sale of loans during the current quarter as compared to the comparable period last year.

The net gain on sale of loans decreased $1.9 million, or 53 percent, to $1.7 million for the third quarter of fiscal 2019 from $3.6 million in the same quarter of fiscal 2018 reflecting the impact of a lower loan sale volume, partly offset by a higher average loan sale margin.  Total loan sale volume, which includes the net change in commitments to extend credit on loans to be held for sale, decreased $139.7 million or 59 percent to $95.8 million in the quarter ended March 31, 2019 from $235.5 million in the comparable quarter last year.  The decrease in loan sale volume was attributable to the winding down of the mortgage banking operations. Refinance loans as a percentage of total loans originated by PBM during the third quarter of fiscal 2019 was 30 percent, down from 37 percent in the same quarter of fiscal 2018.  Retail loans as a percentage of total loans originated for sale by PBM during the third quarter of fiscal 2019 were 65 percent, up from 59 percent in the same quarter of fiscal 2018. The average loan sale margin for PBM increased 26 basis points to 1.79 percent in the third quarter of fiscal 2019 from 1.53 percent in the same period of fiscal 2018. The increase in the average loan sale margin was the result of a higher percentage of retail loan production (which generally has higher loan sale margins) versus wholesale loan production and maintaining pricing discipline throughout the quarter. The gain on sale of loans includes an unfavorable fair-value adjustment on loans held for sale and derivative financial instruments (commitments to extend credit, commitments to sell loans, commitments to sell mortgage-backed securities, and option contracts) pursuant to ASC 815 and ASC 825 that amounted to a net loss of $778,000 in the third quarter of fiscal 2019 as compared to a net loss of $844,000 in the same period last year. The fair-value adjustment on loans held for sale and derivative financial instruments is consistent with the Bank's mortgage banking activity and the volatility of mortgage interest rates. As of March 31, 2019, the fair value of derivative financial instruments pursuant to ASC 815 and ASC 825 was $951,000, compared to $2.9 million at June 30, 2018 and $2.8 million at March 31, 2018.

For the Nine Months Ended March 31, 2019 and 2018.  Total non-interest income decreased $6.1 million, or 35 percent, to $11.2 million for the nine months ended March 31, 2019 from $17.3 million for the same period last year.  The decrease was primarily attributable to a decrease in the gain on sale of loans.

The net gain on sale of loans decreased $2.3 million, or 102 percent, to a net loss of $43,000 for the second quarter of fiscal 2020 from a net gain of $2.3 million in the same quarter of fiscal 2019. The net loss in the second quarter of fiscal 2020 was primarily attributable to loan sale premium refunds from early payoff of loans previously sold. There was no loan sale volume in the second quarter of fiscal 2020 consistent with the Corporation’s scaling back of the origination of saleable single-family mortgage loans, as compared to $131.3 million in the quarter ended December 31, 2018 with an average loan sale margin of 1.72 percent.

For the Six Months Ended December 31, 2019 and 2018.  Total non-interest income decreased $5.7 million, or 4470 percent, to $7.1$2.4 million for the six months ended December 31, 2019 from $8.1 million for the same period last year.  The decrease was primarily attributable to a decrease in the gain on sale of loans.

The net gain on sale of loans decreased $5.5 million, or 102 percent, to a net loss of $129,000 for the first ninesix months of fiscal 20192020 from $12.8a net gain of $5.4 million in the same period of fiscal 2018 reflecting2019.  The net loss in the impactfirst six months of a lowerfiscal 2020 was primarily attributable to loan sale premium refunds from early payoff of loans previously sold. There was no loan sale volume partly offset by a higher average loan sale margin.  Total loan sale volume was $408.9 million in the first nine months ended March 31, 2019, down $506.5 million, or 55 percent, from $915.4 million in the comparable period last year.  The decrease in loan sale volume was attributable primarily to the winding down of the mortgage banking operations.  Refinance loans as a percentage of total loans originated by PBM during the first ninesix months of fiscal 2019 were 29 percent, down from 41 percent in the same period of
66
fiscal 2018. Retail loans2020, as a percentage of total loans originated for sale by PBMcompared to $313.1 million during the first ninesix months of fiscal 2019 were 64 percent, up from 56 percent in the same period of fiscal 2018. Theended December 31, 2018 with an average loan sale margin for PBM during the first nine months of fiscal 2019 was 1.73 percent, up 34 basis points from 1.39 percent for the same period of fiscal 2018.  The increase in the average loan sale margin was the result of a higher percentage of retail loan production (which generally has higher loan sale margins) versus wholesale loan production and maintaining pricing discipline throughout the period. The gain on sale of loans includes an unfavorable fair-value adjustment on derivative financial instruments pursuant to ASC 815 and ASC 825, a net loss of $1.9 million in the first nine months of fiscal 2019 as compared to a net loss of $2.2 million in the same period last year.1.71 percent.

Non-Interest Expense:

For the QuartersQuarter Ended MarchDecember 31, 2019 and 2018.  Total non-interest expense in the quarter ended MarchDecember 31, 2019 was $13.0$7.6 million, an increasea decrease of $561,000,$3.3 million, or five30 percent, as compared to $12.4$10.9 million in the quarter ended MarchDecember 31, 2018. The increasedecrease was primarily a resultattributable to scaling back the origination of an increasesaleable single-family mortgage loans resulting in significant reductions in salaries and employee benefits expense.expenses due to lower incentive compensation and staff reductions and lower premises and occupancy expenses due to the closing of loan production offices, as well as reductions in other related expenses.

Total salariesSalaries and employee benefits expense increased $484,000,decreased $2.2 million, or five31 percent, to $9.3$5.0 million in the thirdsecond quarter of fiscal 20192020 from $8.8$7.2 million in the same period of fiscal 2018.  The increase in salaries and employee benefits expense was primarily attributable to $1.5 million of one-time costs associated with staff reductions in mortgage banking operations and $674,000 in current costs associated with incentive compensation accruals, partly offset by lower variable compensation resulting from lower mortgage banking loan originations.2019. Total loan originations and purchases (including loans originated and purchased for investment and loans originated for sale) decreased $114.8$104.1 million, or 4356 percent, to $154.7$81.6 million in the thirdsecond quarter of fiscal 20192020 from $269.5$185.7 million in the comparablesame quarter of fiscal 2018.2019. Total full-timefull-

56
time equivalent employees in the mortgage banking division(“FTE”) were 107184 at MarchDecember 31, 2019, down 165 FTE or 47 percent from 200349 FTE at MarchDecember 31, 2018.

On January 30, 2019, the Corporation announced that Bank will close its La Quinta Branch effective at the close of business on May 10, 2019. The Bank anticipates an annual operational cost savings of approximately $473,000, primarily in salaries and employee benefits expenses and premisesPremises and occupancy expenses subsequentdecreased $394,000, or 31 percent, to the branch closure. Total one-time charges for the branch closure will be approximately $18,000.

On February 4, 2019, the Corporation announced that the Corporation's Board of Directors determined that it was$880,000 in the long-term best interests of the Corporation to exit the operations of the Corporation's mortgage banking segment conducted through PBM. The Corporation estimates that it will incur one-time costs of approximately $3.6 million to $4.0 million to complete the exit during the remaindersecond quarter of fiscal 2019, which amounts include costs for severance, retention, personnel, premises, occupancy, depreciation, and costs related to termination of data processing and other contractual arrangements. As of March 31, 2019, the total one-time costs incurred were $1.6 million, comprised of $1.52020 from $1.3 million in salaries and employee benefits expenses, $81,000the same quarter of fiscal 2019.  Equipment expense decreased $233,000, or 47 percent, to $262,000 in the second quarter of fiscal 2020 from $495,000 in the same quarter of fiscal 2019.  The decrease in both premises and occupancy expenses and $13,000equipment expense was due primarily to the closure of 10 loan production offices and one retail banking center.

Deposit insurance premiums and regulatory assessments decreased $113,000, or 66 percent, to $59,000 in equipment expenses.the second quarter of fiscal 2020 from $172,000 in the same quarter of fiscal 2019.  The decrease was due primarily to a small bank assessment credit awarded by the FDIC in September 2019 which reduced assessment fees for the second quarter of fiscal 2020.

Other non-interest expenses decreased $248,000, or 23 percent, to $811,000 in the second quarter of fiscal 2020 from $1.1 million in the same quarter of fiscal 2019. The decrease in other non-interest expenses was primarily attributable to lower loan origination expenses consistent with the scaling back of saleable single-family loan originations.

For the NineSix Months Ended MarchDecember 31, 2019 and 2018.  Total non-interest expense in the ninesix months ended MarchDecember 31, 2019 was $35.6$14.8 million, a decrease of $5.8$7.8 million or 1435 percent, as compared to $41.4$22.6 million in the same period ended MarchDecember 31, 2018.  The decrease was primarily due to decreases in salaries and employee benefits expense, premises and inoccupancy expenses and other non-interest expense.

Total salariesSalaries and employee benefits expense decreased $1.9$5.5 million, or seven35 percent, to $24.8$10.0 million in the first ninesix months of fiscal 20192020 from $26.7$15.5 million in the same period of fiscal 2018.2019.  The decrease was primarily attributable to lower incentive compensation costs and PBM staff reductions related to lower mortgage bankingthe scaling back of salable single-family loan originations attributable to the winding down of the mortgage banking operations, partly offset by one-time costs associated with staff reductions in mortgage banking operations and incentive compensation accruals.originations.  Total loan originations and purchases (including loans originated and purchased for investment and loans originated for sale) decreased $500.0$243.7 million, or 4758 percent, to $573.4$175.0 million in the first ninesix months of fiscal 20192020 from $1.07 billion$418.7 million in the comparable period of fiscal 2018.2019.

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Total other non-interestPremises and occupancy expenses decreased $3.8 million,$861,000, or 5533 percent, to $3.1$1.8 million in the first ninesix months of fiscal 20192020 from $6.9$2.6 million in the same period of fiscal 2018.2019.  Equipment expense decreased $375,000, or 41 percent, to $541,000 in the first six months of fiscal 2020 from $916,000 in the same period of fiscal 2019.  The decrease in both premises and occupancy expenses and equipment expense was due primarily to the closure of 10 loan production offices and one retail banking center.

Deposit insurance premiums and regulatory assessments decreased $294,000, or 87 percent, to $43,000 in the first six months of fiscal 2020 from $337,000 in the same period of fiscal 2019.  The decrease was due primarily to a small bank assessment credit awarded by the FDIC in September 2019 which reduced assessment fees for the first six months of fiscal 2020.

Other non-interest expenses decreased $568,000, or 29 percent, to $1.4 million in the first six months of fiscal 2020 from $2.0 million in the same period of fiscal 2019. The decrease in other non-interest expenses was primarily attributable to litigationlower loan origination expenses consistent with the scaling back of saleable single-family loan originations. In addition, a $296,000 partial reversion of a previously recognized legal settlement expense of $3.4 million in the first nine months of fiscal 2018, not replicated this current period.  No additional contingencies exist regarding these legal matters although the settlement agreements remain subject to court approval and other customary conditions. For additional information see(see Part II, Item 1, "Legal Proceedings."1- Legal Proceedings) was recorded during the six months ended December 31, 2019.

Provision (Benefit) for Income Taxes:

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

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For the QuartersQuarter Ended MarchDecember 31, 2019 and 2018.  The Corporation'sCorporation’s income tax benefitprovision was $189,000$1.1 million for the thirdsecond quarter of fiscal 2019, in contrast to a $667,000 tax provision in the same quarter last year (an $856,000 difference). The decrease was attributable to loss before taxes and a lower federal income tax rate in the third quarter of fiscal 2019 in comparison to income before taxes2020, up 30 percent from $810,000 in the same quarter last year. SinceThe increase was attributable to higher income before income taxes in the Corporation has asecond quarter of fiscal year end of June 30th,2020 in comparison to the reduced federal corporate income tax rate from the Tax Act for fiscal 2018 was the result of the application of a blended federal statutory tax rate of 28.06%, and is a flat 21% federal corporate income tax rate for fiscal 2019 and thereafter.same quarter last year. The effective income tax rate for the quarter ended MarchDecember 31, 2019 and 2018 was 55.59%30.51% and 27.79%29.26%, respectively. The higher effective tax rate in the thirdsecond quarter of fiscal 20192020 was due primarily to fewer tax benefits resulting from stock-based compensation activities.activities in comparison to the same quarter last year. The Corporation believes that the effective income tax rate applied in the thirdsecond quarter of fiscal 20192020 reflects its current income tax obligations.

For the NineSix Months Ended MarchDecember 31, 2019 and 2018.  The Corporation'sCorporation’s provision for income taxes was $1.2$2.1 million for the first ninesix months of fiscal 2019, down 522020, up 46 percent from the $2.5$1.4 million provision for income taxes in the same period last year. The decrease in the provision for income taxesincrease was primarily attributable to the one-time, non-cash, net tax charge of $1.9 million from the net deferred tax assets revaluation and the reduction in the federal corporate income tax rate resulting from the Tax Act, partly offset by the higher income before income taxes recorded in the second quarterfirst six months of fiscal 2018.2020 in comparison to the same period last year. The effective income tax rate for the ninesix months ended MarchDecember 31, 2019 and 2018 was 25.42%29.61% and 77.56%27.39%, respectively. The higher effective tax rate in the first six months of fiscal 2020 was due primarily to fewer tax benefits resulting from stock-based compensation activities in comparison to the same period last year. The Corporation believes that the effective income tax rate applied in the first ninesix months of fiscal 20192020 reflects its current income tax obligations.


Asset Quality

Non-performing loans, net of the allowance for loan losses and fair value adjustments, consisting of loans with collateral located in California, remained unchanged at $6.1was $3.4 million at both MarchDecember 31, 2019, down 45 percent from $6.2 million at June 30, 2018.2019. Non-performing loans as a percentage of loans held for investment at MarchDecember 31, 2019 was 0.69%0.36%, upimproving from 0.67%0.71% at June 30, 2018.2019.  The non-performing loans at MarchDecember 31, 2019 are comprised of 2016 single-family loans ($5.33.4 million), one construction loan ($745,000) and one commercial business loan ($44,000)37,000).  No interest accruals were made for loans that were past due 90 days or more or if the loans were deemed non-performing.

As of MarchDecember 31, 2019, total restructured loans decreased $601,000,$2.0 million, or 1253 percent, to $4.6$1.8 million from $5.2$3.8 million at June 30, 2018.2019.  At MarchDecember 31, 2019 and June 30, 2018, $2.72019, $1.8 million and $3.4$1.9 million of these restructured loans were classified as non-performing, respectively.  As of MarchDecember 31, 2019, $2.9 million,$888,000, or 6349 percent, of the restructured loans have a current payment status, consistent with their modified payment terms; this compares to $2.9$2.4 million, or 5663 percent, of restructured loans that had a current payment status, consistent with their modified payment terms as of June 30, 2018.2019.

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There was no real estate owned at Marchboth December 31, 2019 as compared to $906,000 atand June 30, 2018 (two single-family properties located in California).2019.

Non-performing assets, which includes non-performing loans and real estate owned, if any, decreased $848,000$2.8 million or 1245 percent to $6.1$3.4 million or 0.550.31 percent of total assets at MarchDecember 31, 2019 from $7.0$6.2 million or 0.590.57 percent of total assets at June 30, 2018.2019. Restructured loans which are performing in accordance with their modified terms and are not otherwise classified non-accrual are not included in non-performing assets.  For further analysis on non-performing loans and restructured loans, see Note 65 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

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

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

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

A decline in real estate values subsequent to the time of origination of the Corporation'sCorporation’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'sCorporation’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'sCorporation’s real estate collateral is located.  If real estate values decline, from the levels described in the following tables (which were derived at the time of loan origination), the value of the real estate collateral securing the Corporation'sCorporation’s loans as set forth in the table could be significantly overstated.  The Corporation'sCorporation’s ability to recover on defaulted loans by foreclosing and selling the

58
real estate collateral would
69
then be diminished and it would be more likely to suffer losses on defaulted loans.  The Corporation generally does not update the loan-to-value ratio ("LTV"(“LTV”) on its loans held for investment by obtaining new appraisals or broker price opinions (nor does the Corporation intend to do so in the future as a result of the costs and inefficiencies associated with completing the task) unless a specific loan has demonstrated deterioration or the Corporation receives a loan modification request from a borrower (in which case individually evaluated allowances are established, if required).  Therefore, it is reasonable to assume that the LTV ratios disclosed in the following tables may be understated or overstated in comparison to their current LTV ratios as a result of their year of origination, the subsequent general decline or improvement in real estate values that has occurred and the specific location and condition of the individual properties.  The Corporation has not quantified the current LTVs of its loans held for investment nor the impact the decline or improvement in real estate values has had on the original LTVs of its loans held for investment.

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

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

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

(1)
As a percentage of each category.

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

(1)
As a percentage of each category.

The following table describes certain credit risk characteristics, geographic locations and the calendar year of loan origination of the Corporation's single-family, first trust deed, mortgage loans held for investment, at March 31, 2019:
  Calendar Year of Origination    
(Dollars In
Thousands)
 
2011 &
Prior
  

2012
  

2013
  

2014
  

2015
  

2016
  

2017
  

2018
  
YTD
2019
  

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

(1)
LTV is the ratio derived by dividing the current loan balance by the lower of the original appraised value or purchase price of the real estate collateral.
(2)
At time of loan origination.
(3)
Other than the Inland Empire.
(4)
Other than the Inland Empire and Southern California.

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

(1)
As a percentage of each category.

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

2012
  

2013
  

2014
  

2015
  

2016
  

2017
  

2018
  
YTD
2019
  

Total
 
Loan balance (in
  thousands)
 $16,057  $9,816  $25,044  $49,349  $68,866  $110,780  $72,030  $76,332  $21,538  $449,812 
Weighted-average LTV (1)
  37%   48%   48%   49%   51%   47%   49%   45%   59%   48% 
Weighted-average DCR (2)
  1.75x   1.90x   1.83x   1.70x   1.67x   1.67x   1.67x   1.57x   1.47x   1.66x 
Weighted-average age (in
  years)
  13.02   6.54   5.63   4.74   3.70   2.75   1.81   0.83   0.07   3.12 
Weighted-average FICO (3)
  727   745   767   768   753   762   751   757   750   756 
Number of loans  40   13   44   74   114   136   116   93   25   655 
                                         
Geographic breakdown
  (%)
                                        
Inland Empire  34%   —%   41%   16%   18%   11%   17%   12%   10%   16% 
Southern California (4)
  56%   78%   46%   50%   60%   61%   64%   68%   68%   61% 
Other California (5)
  8%   22%   13%   34%   22%   28%   19%   20%   22%   23% 
Other States  2%   —%   —%   —%   —%   —%   —%   —%   —%   —% 
Total  100%   100%   100%   100%   100%   100%   100%   100%   100%   100% 

(1)
LTV is the ratio derived by dividing the current loan balance by the lower of the original appraised value or purchase price of the real estate collateral.
(2)
Debt Coverage Ratio ("DCR") at time of origination.
(3)
At time of loan origination.
(4)
Other than the Inland Empire.
(5)
Other than the Inland Empire and Southern California.

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The following table summarizes the interest rate reset or maturity schedule of the Corporation's multi-family loans held for investment, including the percentage of those which are identified as non-performing, 30 – 89 days delinquent or not fully amortizing as of March 31, 2019:
(Dollars In Thousands) Balance  
Non-
Performing (1)
 
30 - 89 Days
Delinquent
  
Percentage
Not Fully
Amortizing (1)
Interest rate reset or mature in the next 12 months $132,835   —%   —%   7% 
Interest rate reset or mature between 1 year and 5 years  302,422   —%   —%   1% 
Interest rate reset or mature after 5 years  14,555   —%   —%   —% 
Total $449,812   —%   —%   3% 

(1)
As a percentage of each category.

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

2012
  

2013
  

2014
  

2015
  

2016
  

2017
  

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

(1)
LTV is the ratio derived by dividing the current loan balance by the lower of the original appraised value or purchase price of the real estate collateral.
(2)
At time of loan origination.
(3)
Other than the Inland Empire.
(4)
Other than the Inland Empire and Southern California.
(5)
Comprised of the following: $47.2 million in Mixed Use; $20.7 million in Office; $19.9 million in Retail; $8.6 million in Mobile Home Parks; $7.7 million in Warehouse; $4.3 million in Medical/Dental Office; $2.7 million in Mini-Storage; $1.7 million in Restaurant/Fast Food; $1.5 million in Light Industrial/Manufacturing and $1.1 million in Automotive – Non Gasoline.
(6)
Consisting of $108.9 million or 94.4 percent in investment properties and $6.5 million or 5.6 percent in owner occupied properties.

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The following table summarizes the interest rate reset or maturity schedule of the Corporation's commercial real estate loans held for investment, including the percentage of those which are identified as non-performing, 30 – 89 days delinquent or not fully amortizing as of March 31, 2019:
(Dollars In Thousands) Balance  
Non-
Performing (1)
  
30 - 89 Days
Delinquent
  
Percentage
Not Fully
Amortizing (1)
 
Interest rate reset or mature in the next 12 months $45,699   —%   —%   83% 
Interest rate reset or mature between 1 year and 5 years  69,656   —%   —%   90% 
Interest rate reset or mature after 5 years  —   —%   —%   —% 
Total $115,355   —%   —%   87% 

(1)
As a percentage of each category.

The following table sets forth information with respect to the Corporation'sCorporation’s non-performing assets, net of allowance for loan losses and fair value adjustments, at the dates indicated:
(In Thousands)At December 31,
2019		At June 30,
2019
Loans on non-accrual status (excluding restructured loans):  
Mortgage loans:  
        Single-family$1,607 $3,315 
        Construction— 971 
        Total1,607 4,286 
   
Accruing loans past due 90 days or more— — 
   
Restructured loans on non-accrual status:  
Mortgage loans:  
        Single-family1,783 1,891 
Commercial business loans37 41 
        Total1,820 1,932 
   
Total non-performing loans3,427 6,218 
   
Real estate owned, net— — 
Total non-performing assets$3,427 $6,218 
   
Non-performing loans as a percentage of loans held for investment, net
   of allowance for loan losses
0.36%0.71%
   
Non-performing loans as a percentage of total assets0.31%0.57%
   
Non-performing assets as a percentage of total assets0.31%0.57%

(In Thousands) 
At March 31,
2019
  
At June 30,
2018
 
Loans on non-accrual status (excluding restructured loans):      
Mortgage loans:      
     Single-family $2,657  $2,665 
     Construction  745   — 
     Total  3,402   2,665 
         
Accruing loans past due 90 days or more  —   — 
         
Restructured loans on non-accrual status:        
Mortgage loans:        
     Single-family  2,669   3,328 
Commercial business loans  44   64 
     Total  2,713   3,392 
         
Total non-performing loans  6,115   6,057 
         
Real estate owned, net  —   906 
Total non-performing assets $6,115  $6,963 
         
Non-performing loans as a percentage of loans held for investment, net
   of allowance for loan losses
  0.69%  0.67%
         
Non-performing loans as a percentage of total assets  0.55%  0.52%
         
Non-performing assets as a percentage of total assets  0.55%  0.59%

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The following table describes the non-performing loans, net of allowance for loan losses and fair value adjustments, by the calendar year of origination as of March 31, 2019:
  Calendar Year of Origination    
(In Thousands) 
2011 &
Prior
  2012  2013  2014  2015  2016  2017  2018  
YTD
2019
  Total 
Mortgage loans:                              
Single-family $3,775  $84  $—  $—  $—  $—  $1,467  $—  $—  $5,326 
Construction  —   —   —   —   —   —   —   745   —   745 
Commercial business
  loans
  44   —   —   —   —   —   —   —   —   44 
Total $3,819  $84  $—  $—  $—  $—  $1,467  $745  $—  $6,115 

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

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

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The following table summarizes classified assets, which is comprised of classified loans, net of allowance for loan losses and fair value adjustments, and real estate owned, if any, at the dates indicated:
 At December 31,
2019		 At June 30,
2019
(Dollars In Thousands)BalanceCount BalanceCount
Special mention loans:     
Mortgage loans:     
    Single-family$4,276 11  $3,795 13 
    Multi-family3,821 3  3,864 3 
    Commercial real estate— —  927 1 
    Construction1,285 1  — — 
        Total special mention loans9,382 15  8,586 17 
      
Substandard loans:     
Mortgage loans:     
    Single-family3,390 18  6,631 23 
    Commercial real estate926 1  — — 
    Construction— —  971 1 
Commercial business loans37 1  41 1 
        Total substandard loans4,353 20  7,643 25 
      
Total classified loans13,735 35  16,229 42 
      
Real estate owned— —  — — 
      
Total classified assets$13,735 35  $16,229 42 
  
At March 31,
2019
  
At June 30,
2018
 
(Dollars In Thousands) Balance  Count  Balance  Count 
Special mention loans:            
Mortgage loans:            
     Single-family $3,347   12  $2,584   8 
     Multi-family  3,885   3   3,947   3 
     Commercial real estate  —   —   940   1 
          Total special mention loans  7,232   15   7,471   12 
                 
Substandard loans:                
Mortgage loans:                
     Single-family  6,751   23   7,391   24 
     Construction  745   1   —   — 
     Commercial business loans  44   1   64   1 
          Total substandard loans  7,540   25   7,455   25 
                 
Total classified loans  14,772   40   14,926   37 
                 
Real estate owned:                
     Single-family  —   —   906   2 
          Total real estate owned  —   —   906   2 
                 
Total classified assets $14,772   40  $15,832   39 



76

60
Loan Volume Activities

The following table is provided to disclose details related to the volume of loans originated, purchased and sold for the quartersquarter and ninesix months indicated:
 For the Quarter Ended
December 31,		 For the Six Months Ended
December 31,		 
(In Thousands)
2019
 2018 
 2019 
 2018  
 
Loans originated for sale:        
    Retail originations$— $87,913 $— $215,046  
    Wholesale originations— 58,504 — 127,692  
        Total loans originated for sale— 146,417 — 342,738  
      
Loans sold:     
    Servicing released— (165,484)— (376,534) 
    Servicing retained— (2,026)— (2,784) 
        Total loans sold— (167,510)— (379,318) 
      
Loans originated for investment:     
    Mortgage loans:     
            Single-family8,061 24,180 15,567 41,396  
            Multi-family14,921 5,446 34,271 18,155  
            Commercial real estate6,479 3,175 8,898 8,480  
            Construction2,313 1,863 3,209 3,343  
    Consumer loans1 — 1 —  
        Total loans originated for investment31,775 34,664 61,946 71,374  
      
Loans purchased for investment:     
    Mortgage loans:     
            Single-family44,610 — 70,733 —  
            Multi-family5,243 4,622 42,369 4,622  
        Total loans purchased for investment49,853 4,622 113,102 4,622  
      
Mortgage loan principal payments(65,205)(41,163)(116,034)(104,092) 
Increase (decrease) in other items, net (1)
992 60 2,790 (1,332) 
      
Net increase (decrease) in loans held for investment and loans
    held for sale at fair value
$17,415 $(22,910)$61,804 $(66,008) 
  
For the Quarters Ended
March 31,
  
For the Nine Months Ended
March 31,
 
(In Thousands) 2019  2018  2019  2018 
Loans originated for sale:            
    Retail originations $72,353  $129,816  $287,399  $526,904 
    Wholesale originations  38,353   90,377   166,045   417,445 
        Total loans originated for sale (1)
  110,706   220,193   453,444   944,349 
                 
Loans sold:                
    Servicing released  (134,264)  (220,532)  (510,798)  (945,715)
    Servicing retained  (2,409)  (5,326)  (5,193)  (22,574)
        Total loans sold (2)
  (136,673)  (225,858)  (515,991)  (968,289)
                 
Loans originated for investment:                
    Mortgage loans:                
          Single-family  6,862   22,665   48,258   62,363 
          Multi-family  9,523   18,612   27,678   40,279 
          Commercial real estate  4,040   5,930   12,520   18,900 
          Construction  1,970   2,050   5,313   4,459 
    Consumer loans  —   —   —   3 
        Total loans originated for investment  (3)
  22,395   49,257   93,769   126,004 
                 
Loans purchased for investment:                
    Mortgage loans:                
          Single-family  8,426   —   8,426   — 
          Multi-family  12,023   —   16,645   2,241 
          Commercial real estate  1,157   —   1,157   868 
Total loans purchased for investment (3)
  21,606   —   26,228   3,109 
                 
Mortgage loan principal payments  (36,456)  (43,163)  (140,548)  (143,914)
Real estate acquired in settlement of loans  —   (959)  —   (1,659)
(Decrease) increase in other items, net (4)
  (499)  1,955   (1,831)  2,923 
                 
Net (decrease) increase in loans held for investment and
  loans held for sale at fair value
 $(18,921) $1,425  $(84,929) $(37,477)

(1)
Includes PBM loans originated for sale during the quarters and nine months ended March 31, 2019 and 2018 totaling $110.7 million, $220.2 million, $453.4 million and $944.3 million, respectively.
(2)
Includes PBM loans sold during the quarters and nine months ended March 31, 2019 and 2018 totaling $136.7 million, $225.9 million, $516.0 million and $968.3 million, respectively.
(3)
Includes PBM loans originated and purchased for investment during the quarters and nine months ended March 31, 2019 and 2018 totaling $4.0 million, $20.6 million, $44.0 million and $58.4 million, respectively.
(4)
Includes net changes in undisbursed loan funds, deferred loan fees or costs, allowance for loan losses, fair value of loans held for investment, fair value of loans held for sale, advance payments of escrows and repurchases.

77
Loans that the Corporation has originated for sale are primarily sold on a servicing released basis.  Clear ownership is conveyed to the investor by endorsing the original note in favor of the investor; transferring the servicing to a new servicer consistent with investor instructions; communicating the servicing transfer to the borrower as required by law; and sending the loan file and collateral instruments electronically to the investor contemporaneous with receiving the cash proceeds from the sale of the loan.  Additionally, the Corporation registers the change of ownership in the mortgage electronic registration system known as MERS as required by the contractual terms of the loan sale agreement.  Also, the Corporation retains an imaged copy of the entire loan file and collateral instruments as an abundance of caution in the event questions arise that can only be answered by reviewing the loan file.  Additionally, the Corporation does not originate or sponsor mortgage-backed securities.


Liquidity and Capital Resources

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

61
The primary investing activity of the Corporation is the origination and purchase of loans held for investment and loans held for sale.investment.  During the first ninesix months of fiscal 20192020 and 2018,2019, the Corporation originated and purchased $573.4loans held for investment of $175.0 million and $1.07 billion of loans, respectively.  The total loans sold in the first nine months of fiscal 2019 and 2018 were $516.0 million and $968.3$76.0 million, respectively. At MarchDecember 31, 2019, the Corporation had loan origination commitments totaling $16.6$10.0 million, undisbursed lines of credit totaling $1.4$1.3 million and undisbursed construction loan funds totaling $6.1$6.8 million.  The Corporation anticipates that it will have sufficient funds available to meet its current loan commitments.

The Corporation'sCorporation’s primary financing activity is gathering deposits.  During the first ninesix months of fiscal 2019,2020, the net decrease in deposits was $30.7$7.6 million or threeone percent, primarily due to non-renewing scheduled maturitiesa decrease in time deposits. The decrease in time deposits was consistent with the Corporation's operating strategy. Time deposits decreased $27.4$7.2 million, or 12four percent, to $210.2$185.9 million at MarchDecember 31, 2019 from $237.6$193.1 million at June 30, 2018.2019.  At MarchDecember 31, 2019, time deposits with a principal amount of $250,000 or less and scheduled to mature in one year or less were $93.5$79.6 million and total time deposits with a principal amount of more than $250,000 and scheduled to mature in one year or less were $22.8$22.5 million. Historically, the Corporation has been able to retain a significant percentage of its time deposits as they mature.

The Corporation must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities.  The Corporation generally maintains sufficient cash and cash equivalents to meet short-term liquidity needs.  At MarchDecember 31, 2019, total cash and cash equivalents were $61.5$48.2 million, or fivefour 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 MarchDecember 31, 2019, total borrowings were $101.1$131.1 million and the financing availability at FHLB – San Francisco was limited to 35 percent of total assets; the remaining borrowing facility available was $280.9$240.3 million and the remaining available collateral was $485.7$447.8 million. In addition, the Bank has secured an $80.5a $57.5 million discount window facility at the Federal Reserve Bank of San Francisco, collateralized by investment securities with a fair market value of $85.6$61.2 million. As of MarchDecember 31, 2019, the Bank also has a borrowing arrangement in the form of a federal funds facility with its correspondent bank for $17.0 million that matures on June 30, 20192020 which the Bank intends to renew upon maturity.  The Bank had no advances under its correspondent bank or discount window facility as of MarchDecember 31, 2019.

78
Regulations require thrifts to maintain adequate liquidity to assure safe and sound operations. The Bank'sBank’s average liquidity ratio (defined as the ratio of average qualifying liquid assets to average deposits and borrowings) for the quarter ended MarchDecember 31, 2019 increaseddecreased to 22.614.7 percent from 14.920.7 percent for the quarter ended June 30, 2018.2019.

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

At MarchDecember 31, 2019, the Bank exceeded all regulatory capital requirements.  The Bank was categorized "well-capitalized" at MarchDecember 31, 2019 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'scompany’s subsidiary bank to be well capitalized under the prompt corrective action regulations. If Provident Financial Holdings, Inc. were subject to regulatory capital guidelines for bank holding companies with $3.0 billion or more in assets at March 31, 2019, Provident Financial Holdings, Inc. would have exceeded all regulatory capital requirements.  The regulatory capital ratios calculated for Provident Financial Holdings, Inc. at March 31, 2019 were 10.81% for Tier 1 leverage-based capital, 18.32% for Tier 1 risk-based capital, 19.42% for total risk-based capital, and 18.32% for common equity Tier 1 ("CET1") capital ratio.

62
The Bank'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, 2019              
Tier 1 leverage capital (to adjusted average assets)$113,384   10.24%  $44,276  4.00%  $55,345  5.00% 
CET1 capital (to risk-weighted assets)$113,384  16.62%  $47,755  7.00%  $44,344  6.50% 
Tier 1 capital (to risk-weighted assets)$113,384  16.62%  $57,989  8.50%  $54,578  8.00% 
Total capital (to risk-weighted assets)$120,443  17.65%  $71,633  10.50%  $68,222  10.00% 
               
As of June 30, 2019              
Tier 1 leverage capital (to adjusted average assets)$115,009  10.50%  $43,824  4.00%  $54,779  5.00% 
CET1 capital (to risk-weighted assets)$115,009  18.00%  $44,730  7.00%  $41,535  6.50% 
Tier 1 capital (to risk-weighted assets)$115,009  18.00%  $54,314  8.50%  $51,119  8.00% 
Total capital (to risk-weighted assets)$122,225  19.13%  $67,094  10.50%  $63,899  10.00% 
     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 March 31, 2019                  
Tier 1 leverage capital (to adjusted average assets)$113,906   10.17% $44,779   4.00% $55,974   5.00%
CET1 capital (to risk-weighted assets) $113,906   17.24% $46,240   7.00% $42,937   6.50%
Tier 1 capital (to risk-weighted assets) $113,906   17.24% $56,148   8.50% $52,845   8.00%
Total capital (to risk-weighted assets) $121,137   18.34% $69,359   10.50% $66,057   10.00%
                         
As of June 30, 2018                        
Tier 1 leverage capital (to adjusted average assets)$116,369   9.96% $46,716   4.00% $58,394   5.00%
CET1 capital (to risk-weighted assets) $116,369   16.81% $44,125   6.38% $44,990   6.50%
Tier 1 capital (to risk-weighted assets) $116,369   16.81% $54,507   7.88% $55,372   8.00%
Total capital (to risk-weighted assets) $123,911   17.90% $68,350   9.88% $69,215   10.00%

(1)
The dollar amounts and ratios include the capital conservation buffer consisting of 2.50% and 1.875% of risk-weighted assets above the required minimum levels at MarchDecember 31, 2019 and June 30, 2018, respectively, except the2019 for CET1 capital, Tier 1 leverage capital dollar amounts and ratios.Total capital.

In addition to the minimum CET1, Tier 1 and totalTotal capital ratios, the Bank is required to maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. As of MarchAt December 31, 2019, the Bank's capital conservation bufferBank was 10.34% as filed in the Call Reportcompliance with the OCC.this requirement.
79

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 ninesix months of fiscal 2019,2020, the Bank paid a cash dividend of $7.5 million to the Corporation; while the Corporation paid $3.1$2.1 million of cash dividends to its shareholders.


Supplemental Information
 
At
March 31,
2019
  
At
June 30,
2018
  
At
March 31,
2018
 At
December 31,
2019		At
June 30,
2019		At
December 31,
2018
            
Loans serviced for others (in thousands) $123,049  $128,409  $128,060 $102,824$120,236$123,294
               
Book value per share $16.17  $16.23  $16.16 $16.54$16.12$16.34


63
ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk.

One of the Corporation'sCorporation’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'sCorporation’s interest-earning assets by retaining for its portfolio new loan originations with interest rates subject to periodic adjustment to market conditions and by selling fixed-rate, single-family mortgage loans.conditions.  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"(“NPV”) over a variety of interest rate scenarios.  NPV is defined as the net present value of expected future cash flows from assets, liabilities and off-balance sheet contracts.  The calculation is intended to illustrate the change in NPV that would occur in the event of an immediate change in interest rates of -200, -100, +100, +200 and +300 basis points ("bp"(“bp”) with no effect given to steps that management might take to counter the effect of the interest rate movement. The current federal funds rate is 2.50 percentAs of December 31, 2019, the targeted Federal Funds Rate range was 1.50% to 1.75%, making an immediate change of -300 basis points improbable.

80

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 MarchDecember 31, 2019 (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)
 
 +300bp $221,787 $98,304 $1,210,431  18.32%  +740bp 
 +200bp $192,959 $69,476 $1,187,516  16.25%  +533bp 
 +100bp $159,617 $36,134 $1,160,287  13.76%  +284bp 
 0bp $123,483 $— $1,130,483  10.92%  0bp 
 -100bp $113,761 $(9,722 $1,121,186  10.15%  -77bp 
 -200bp $127,904 $4,421 $1,135,758  11.26%  +34bp 
Basis Points ("bp")
Change in Rates
Net
Portfolio
Value
NPV
Change (1)
Portfolio
Value of
Assets
NPV as Percentage
of Portfolio Value
Assets (2)
Sensitivity
Measure (3)
+300 bp$ 216,422 $        92,850 $ 1,195,569 18.10%    +707 bp
+200 bp$ 189,967 $          66,395 $ 1,174,926 16.17%   +514 bp
+100 bp$ 159,357 $          35,785 $ 1,150,314 13.85%   +282 bp
      0 bp$ 123,572 $— $ 1,120,724 11.03%      0 bp
-100 bp$ 112,588 $(10,984)$ 1,114,647 10.10%   -93 bp
-200 bp$ 116,630 $(6,942)$ 1,119,409 10.42%     -61 bp

(1)
Represents the increase (decrease) of the NPV at the indicated interest rate change in comparison to the NPV at MarchDecember 31, 2019 ("(“base case"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 MarchDecember 31, 2019 and June 30, 2018.
 At March 31, 2019At June 30, 2018
 (-100 bp rate shock)(-100 bp rate shock)
Pre-Shock NPV Ratio: NPV as a % of PV Assets10.92%10.24%
Post-Shock NPV Ratio: NPV as a % of PV Assets10.15%9.62%
Sensitivity Measure: Change in NPV Ratio-77 bp-62 bp
2019.

 At December 31, 2019At June 30, 2019
 (-100 bp rate shock)(-100 bp rate shock)
Pre-Shock NPV Ratio: NPV as a % of PV Assets11.03%11.80%
Post-Shock NPV Ratio: NPV as a % of PV Assets10.10%10.67%
Sensitivity Measure: Change in NPV Ratio  -93 bp-113 bp

64
The pre-shock NPV ratio increased 68decreased 77 basis points to 10.9211.03 percent at MarchDecember 31, 2019 from 10.2411.80 percent at June 30, 20182019 and the post-shock NPV ratio increased 53decreased 57 basis points to 10.1510.10 percent at MarchDecember 31, 2019 from 9.6210.67 percent at June 30, 2018.2019.  The increasedecrease of the NPV ratios was primarily attributable to net income in the first nine months of fiscal 2019 and a higher net valuation of total assets in comparison to total liabilities, partly offset by a $7.5 million cash dividend distribution from the Bank to Provident Financial Holdings, Inc. in September 2018.2019, partly offset by net income in the first six months of fiscal 2020.

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

81
The Corporation measures and evaluates the potential effects of interest rate movements through an interest rate sensitivity "gap" analysis.  Interest rate sensitivity reflects the potential effect on net interest income when there is movement in interest rates. For loans, securities and liabilities with contractual maturities, the table presents contractual repricing or scheduled maturity.  For transaction accounts (checking, money market and savings deposits) that have no contractual maturity, the table presents estimated principal cash flows and, as applicable, the Corporation's historical experience, management's judgment and statistical analysis concerning their most likely withdrawal behaviors.




65
The following table represents the interest rate gap analysis of the Corporation's assets and liabilities as of MarchDecember 31, 2019:
   
Term to Contractual Repricing, Estimated Repricing, or Contractual
Maturity (1)
   As of December 31, 2019
(Dollars In Thousands)
12 months or
less
Greater than
1 year to 3
years
Greater than
3 years to 5
years
Greater than
5 years or
non-sensitive
Total
    
Repricing Assets:     
 Cash and cash equivalents$42,693 $— $— $5,540 $48,233 
 Investment securities26,814 — — 55,584 82,398 
 Loans held for investment265,573 231,242 321,527 123,387 941,729 
 FHLB - San Francisco stock8,199 — — — 8,199 
 Other assets3,292 — — 23,536 26,828 
  Total assets346,571 231,242 321,527 208,047 1,107,387 
        
Repricing Liabilities and Equity:     
 Checking deposits - non-interest bearing— — — 85,846 85,846 
 Checking deposits - interest bearing40,418 80,836 80,836 67,364 269,454 
 Savings deposits51,807 103,614 103,614 — 259,035 
 Money market deposits16,709 16,709 — — 33,418 
 Time deposits102,063 62,906 20,016 912 185,897 
 Borrowings10,000 61,078 40,007 20,000 131,085 
 Other liabilities332 — — 18,544 18,876 
 Stockholders' equity— — — 123,776 123,776 
  Total liabilities and stockholders' equity221,329 325,143 244,473 316,442 1,107,387 
        
Repricing gap positive (negative)$125,242 $(93,901)$77,054 $(108,395)$— 
Cumulative repricing gap:     
 Dollar amount$125,242 $31,341 $108,395 $— $— 
 Percent of total assets11%3%10%—%—%
  
Term to Contractual Repricing, Estimated Repricing, or Contractual
Maturity (1)
 
  As of March 31, 2019 
(Dollars In Thousands) 
12 months or
less
  
Greater than
1 year to 3
years
  
Greater than
3 years to 5
years
  
Greater than
5 years or
non-sensitive
  Total 
    
Repricing Assets:               
Cash and cash equivalents $54,980  $—  $—  $6,478  $61,458 
Investment securities  34,768   200   —   73,836   108,804 
Loans held for investment  272,770   233,125   284,781   92,878   883,554 
Loans held for sale  30,500   —   —   —   30,500 
FHLB - San Francisco stock  8,199   —   —   —   8,199 
Other assets  3,387   —   —   23,493   26,880 
Total assets  404,604   233,325   284,781   196,685   1,119,395 
                     
Repricing Liabilities and Equity:                    
Checking deposits - non-interest bearing  —   —   —   90,875   90,875 
Checking deposits - interest bearing  40,447   80,894   80,894   67,413   269,648 
Savings deposits  54,394   108,788   108,789   —   271,971 
Money market deposits  17,115   17,114   —   —   34,229 
Time deposits  116,331   69,668   23,446   716   210,161 
Borrowings  —   41,121   40,000   20,000   101,121 
Other liabilities  335   —   —   19,846   20,181 
Stockholders' equity  —   —   —   121,209   121,209 
Total liabilities and stockholders' equity  228,622   317,585   253,129   320,059   1,119,395 
                     
Repricing gap positive (negative) $175,982  $(84,260) $31,652  $(123,374) $— 
Cumulative repricing gap:                    
Dollar amount $175,982  $91,722  $123,374  $—  $— 
Percent of total assets  16%  8%  11%  —%  —%

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

The static gap analysis shows a positive position in the "Cumulative"cumulative repricing gap - dollar amount" category, indicating more assets are sensitive to repricing than liabilities. Management views non-interest bearing deposits to be the least sensitive to
82
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.

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

The following table describes the results of the analysis at MarchDecember 31, 2019 and June 30, 2018.2019.
At March 31, 2019 At June 30, 2018
At December 31, 2019At December 31, 2019 At June 30, 2019
Basis Point (bp)
Change in Rates
Change in
Net Interest Income
 
Basis Point (bp)
Change in Rates
Change in
Net Interest Income
Change in
Net Interest Income
 
Basis Point (bp)
Change in Rates
Change in
Net Interest Income
+300 bp6.50% +300 bp6.83%6.70% +300 bp6.85%
+200 bp6.04% +200 bp5.73%5.03% +200 bp4.39%
+100 bp5.00% +100 bp4.53%4.45% +100 bp2.36%
-100 bp(5.86)% -100 bp(3.98)%1.16% -100 bp(3.63)%
-200 bp(12.21)% -200 bp(10.61)%(0.83)% -200 bp(6.69)%

At MarchDecember 31, 2019 and June 30, 2018,2019, the Corporation was asset sensitive as its interest-earning assets at those dates are expected to reprice more quickly than its interest-bearing liabilities during the subsequent 12-month period.  Therefore, in a rising interest rate environment, the model projects an increase in net interest income over the subsequent 12-month period.  In a falling interest rate environment, the results project a decrease in net interest income over the subsequent 12-month period.period, except under the -100 basis point shock at December 31, 2019 where more loans are forecast to hit their contractual floor interest rate.

Management believes that the assumptions used to complete the analysis described in the table above are reasonable.  However, past experience has shown that immediate, permanent and parallel movements in interest rates will not necessarily
83
occur.  Additionally, while the analysis provides a tool to evaluate the projected net interest income to changes in interest rates, actual results may be substantially different if actual experience differs from the assumptions used to complete the analysis, particularly with respect to the 12-month business plan when asset growth is forecast.  Therefore, the model results that the Corporation discloses should be thought of as a risk management tool to compare the trends of the Corporation'sCorporation’s current disclosure to previous disclosures, over time, within the context of the actual performance of the treasury yield curve.

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ITEM 4 – Controls and Procedures.

a) An evaluation of the Corporation'sCorporation’s disclosure controls and procedures (as defined in Section 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934 (the "Act"“Act”)) was carried out under the supervision and with the participation of the Corporation'sCorporation’s Chief Executive Officer, Chief Financial Officer and the Corporation'sCorporation’s Disclosure Committee as of the end of the period covered by this quarterly report.  In designing and evaluating the Corporation'sCorporation’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'sCorporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation'sCorporation’s disclosure controls and procedures as of MarchDecember 31, 2019 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'sCorporation’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'sSEC’s rules and forms.

b) There have been no changes in the Corporation'sCorporation’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended MarchDecember 31, 2019, that has materially affected, or is reasonably likely to materially affect, the Corporation'sCorporation’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.


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PART II – OTHER INFORMATION

Item 1.  Legal Proceedings.

There have been no material changes in the legal proceedings previously disclosed in Part I, Item 3 of the Corporation'sCorporation’s Annual Report on Form 10-K for the year ended June 30, 2018,2019, except as follows.

On November 13, 2018, the presiding Court approved the motion for final approval of the settlement agreement in the two class and collective action lawsuits filed by Gina McKeen-Chaplin and Neal, respectively, against the Bank.  The settlement funds have been distributed to the plaintiffs and plaintiff's counsel consistent with the settlement agreements.  On April 8,July 24, 2019, the presiding Court signed an order closing and dismissing the cases.

On December 20, 2018, counsel in the lawsuit known as Cannon vs. the Bank filed a Motion for Preliminary Approval of the Settlement in the California Superior Court for the County of San Bernardino. On April 12, 2019, this CourtBernardino, California granted preliminaryfinal approval of the settlement in the Cannon vs. Bank lawsuit. On July 26, 2019, the final order was signed by this court and seton August 6, 2019, the Bank forwarded the settlement amount to the class administrator. The total settlement was reduced to $2.5 million from $2.8 million, resulting in a tentative date for a hearing on final approval for July 24, 2019,$296,000 settlement expense recovery which presumeswas recognized in the notice and claim process will be completed by then.first quarter of fiscal 2020.


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Item 1A.  Risk Factors.

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

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

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


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

The table below represents the Corporation'sCorporation’s purchases of its equity securities for the thirdsecond quarter of fiscal 2019.2020.
Period 
(a) Total
Number of
Shares Purchased
  
(b) Average
Price Paid
per Share
  
(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plan
 
(d) Maximum
Number of Shares
that May Yet Be
Purchased Under the
Plan (1)
January 1 – 31, 2019  —  $—   —   373,000 
February 1 – 28, 2019  11,941  $18.69   11,941   361,059 
March 1 – 31, 2019  11,807  $20.05   11,807   349,252 
Total  23,748  $19.36   23,748   349,252 
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, 2019— $—— 304,077 
November 1 – 30, 2019— $—— 304,077 
December 1 – 31, 20192,361 $21.842,361 301,716 
Total2,361 $21.842,361 301,716 

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

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During the quarter and nine months ended MarchDecember 31, 2019, the Corporation purchased 23,7482,361 shares of the Corporation'sCorporation’s common stock at an average cost of $19.36$21.84 per share. For the six months ended December 31, 2019, the Corporation purchased 19,285 shares of the Corporation’s common stock at an average cost of $20.58 per share. As of MarchDecember 31, 2019, a total of 23,74871,284 shares or six19 percent of the shares authorized in the April 2018 stock repurchase plan have been purchased at an average cost of $19.36$19.97 per share, leaving 349,252301,716 shares available for future purchases. During the quarter ended MarchDecember 31, 2019, the Corporation issued 11,250a total of 5,750 shares of common stock consistentwere exercised, while no shares of restricted common stock were forfeited or vested. For the exercisesix months ended December 31, 2019, a total of certain16,250 shares of common stock optionswere exercised and 3,000a total of 8,000 shares of restricted stock were forfeited, while no shares of restricted common stock vested. The CompanyCorporation did not purchase any shares from recipients to fund their withholding tax obligations in the thirdsecond quarter of fiscal 2019. For the nine months ended March 31, 2019, the Corporation issued 31,250 shares of common stock consistent with the exercise of certain stock options and 89,500 shares of restricted common stock vested. The Company purchased 21,071 shares at an average price of $18.28 per share from recipients to fund their withholding tax obligations in the first ninesix months of fiscal 2019.2020. During the quarter and ninesix months ended MarchDecember 31, 2019, the Corporation did not sell any securities that were not registered under the Securities Act of 1933.


Item 3.  Defaults Upon Senior Securities.

Not applicable.


Item 4.  Mine Safety Disclosures.

Not applicable.


Item 5.  Other Information.

Not applicable.

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Item 6.  Exhibits.

Exhibits:
3.1 (a)
Amended and Restated Certificate of Incorporation of Provident Financial Holdings, Inc. as filed with the Delaware Secretary of State on November 24, 2009 (incorporated by reference to Exhibit 3.1 to the Corporation's Quarterly Report on Form 10-Q filed on November 9, 2010)
  
3.1 (b)(b)
Amended and Restated Bylaws of Provident Financial Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Corporation'sCorporation’s Current Report on Form 8-K filed on December 1, 2014)
  
10.1
4.1
Employment Agreement with Craig G. BlundenForm of Certificate of Provident's Common Stock (incorporated by reference to Exhibit 10.1 to the Corporation's Form 8-K dated December 19, 2005)
10.2
Post-Retirement Compensation Agreement with Craig G. Blunden (incorporated by reference to Exhibit 10.2 to the Corporation's Form 8-K dated December 19, 2005)
10.3
Post-Retirement Compensation Agreement with Donavon P. Ternes (incorporated by reference to Exhibit 10.1 to the Corporation's Form 8-K dated July 7, 2009)
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10.4
Form of Severance Agreement with  Deborah L. Hill, Robert "Scott" Ritter, Lilian Salter, Donavon P. Ternes, David S. Weiant and Gwendolyn L. Wertz (incorporated by reference to Exhibit 10.1 in the Corporation's Form 8-K dated February 24, 2012)
10.5
2006 Equity Incentive Plan (incorporated by reference to Exhibit A to the Corporation's proxy statement dated October 12, 2006)
10.6
Form of Incentive Stock Option Agreement for options granted under the 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.10 in the Corporation's Form 10-Q for the quarter ended December 31, 2006)
10.7
Form of Non-Qualified Stock Option Agreement for options granted under the 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.11 in the Corporation's Form 10-Q for the quarter ended December 31, 2006)
10.8
Form of Restricted Stock Agreement for restricted shares awarded under the 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.12 in the Corporation's Form 10-Q for the quarter ended December 31, 2006)
10.9
2010 Equity Incentive Plan (incorporated by reference to Exhibit A to the Corporation's proxy statement dated October 28, 2010)
10.10
Form of Incentive Stock Option Agreement for options granted under the 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 in the Corporation's Form 8-K dated November 30, 2010)
10.11
Form of Non-Qualified Stock Option Agreement for options granted under the 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 in the Corporation's Form 8-K dated November 30, 2010)
10.12
Form of Restricted Stock Agreement for restricted shares awarded under the 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 in the Corporation's Form 8-K dated November 30, 2010)
10.13
2013 Equity Incentive Plan (incorporated by reference to Exhibit A to the Corporation's proxy statement dated October 24, 2013)
10.14
Form of Incentive Stock Option Agreement for options granted under the 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 in the Corporation'sCorporation’s Registration Statement on Form S-8 (333-192727) dated December 9, 2013)
10.15
Form of Non-Qualified Stock Option Agreement for options granted under the 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 in the Corporation's Registration StatementS-1 (333-2230) filed on Form S-8 (333-192727) dated December 9, 2013)
10.16
Form of Restricted Stock Agreement for restricted shares awarded under the 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 in the Corporation's Registration Statement on Form S-8 (333-192727) dated December 9, 2013)
March 11, 1996))
  
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
87
32.1
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
32.2
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
101The following materials from the Corporation'sCorporation’s Quarterly Report on Form 10-Q for the quarter ended MarchDecember 31, 2019, formatted in Extensible Business Reporting Language (XBRL): (1) Condensed Consolidated Statements of Financial Condition; (2) Condensed Consolidated Statements of Operations; (3) Condensed Consolidated Statements of Comprehensive Income; (4) Condensed Consolidated Statements of Stockholders'Stockholders’ Equity; (5) Condensed Consolidated Statements of Cash Flows; and (6) Selected Notes to Condensed Consolidated Financial Statements.
  



88

70



SIGNATURES

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


 Provident Financial Holdings, Inc.
  
  
  
Date: May 9, 2019February 10, 2020
/s/ Craig G. Blunden
 Craig G. Blunden
 
Chairman and Chief Executive Officer
(Principal Executive Officer)
  
  
  
Date: May 9, 2019February 10, 2020
/s/ Donavon P. Ternes
 Donavon P. Ternes
 
President, Chief Operating Officer and
Chief Financial Officer
(Principal Financial and Accounting Officer)



89

71
Exhibit Index

31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
32.1
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
32.2
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
101
The following materials from the Corporation'sCorporation’s Quarterly Report on Form 10-Q for the quarter ended MarchDecember 31, 2019, formatted in Extensible Business Reporting Language (XBRL): (1) Condensed Consolidated Statements of Financial Condition; (2) Condensed Consolidated Statements of Operations; (3) Condensed Consolidated Statements of Comprehensive Income; (4) Condensed Consolidated Statements of Stockholders'Stockholders’ Equity; (5) Condensed Consolidated Statements of Cash Flows; and (6) Selected Notes to Condensed Consolidated Financial Statements.