UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

	For the quarterly period ended	December 31, ~~2019~~2020

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

For the transition period from ________________ to _________________

Commission File Number 000-28304

PROVIDENT FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

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

3756 Central Avenue, Riverside, California 92506

(Address of principal executive offices and zip code)

(951) 686-6060

(Registrant’s telephone number, including area code)

_________________________________________________________

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

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.01 per share		PROV		The NASDAQ Stock Market LLC

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

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

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

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

Non-accelerated filer [X] 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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of January 31, ~~2020~~2021 there were ~~7,483,071~~7,442,254 shares of the registrant's common stock, $0.01 par value per share, outstanding.

PROVIDENT FINANCIAL HOLDINGS, INC.

Table of Contents

PART 1 -	FINANCIAL INFORMATION		Page

ITEM 1 -	Financial Statements. The Unaudited Interim Condensed Consolidated Financial Statements of Provident Financial Holdings, Inc. filed as a part of the report are as follows:

	Condensed Consolidated Statements of Financial Condition
		as of December 31, ~~2019~~2020 and June 30, ~~2019~~2020	1
	Condensed Consolidated Statements of Operations
		for the Quarter and Six Months Ended December 31, ~~2019~~2020 and ~~2018~~2019	2
	Condensed Consolidated Statements of Comprehensive Income
		for the Quarter and Six Months Ended December 31, ~~2019~~2020 and ~~2018~~2019	3
	Condensed Consolidated Statements of Stockholders’ Equity
		for the Quarter and Six Months Ended December 31, ~~2019~~2020 and ~~2018~~2019	4
	Condensed Consolidated Statements of Cash Flows
		for the Six Months Ended December 31, ~~2019~~2020 and ~~2018~~2019	6
	Notes to Unaudited Interim Condensed Consolidated Financial Statements		7

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

	General		4140
	Safe-Harbor Statement		4241
	Critical Accounting Policies		4342
	Executive Summary and Operating Strategy		43
	Off-Balance Sheet Financing Arrangements ~~and Contractual Obligations~~		4446
	Comparison of Financial Condition at December 31, ~~2019~~2020 and June 30, ~~2019~~2020		4546
	Comparison of Operating Results for the Quarter and Six Months ~~Ended~~ended December 31, ~~2019~~2020 and ~~2018~~2019		4748
	Asset Quality		58
	Loan Volume Activities		6162
	Liquidity and Capital Resources		6162
	Supplemental Information		6364

ITEM 3 -	Quantitative and Qualitative Disclosures about Market Risk		6465

ITEM 4 -	Controls and Procedures		6869

PART II -	OTHER INFORMATION

ITEM 1 -	Legal Proceedings		6869
ITEM 1A -	Risk Factors		6970
ITEM 2 -	Unregistered Sales of Equity Securities and Use of Proceeds		6970
ITEM 3 -	Defaults Upon Senior Securities		6970
ITEM 4 -	Mine Safety Disclosures		6970
ITEM 5 -	Other Information		6971
ITEM 6 -	Exhibits		7071

SIGNATURES			7172

PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Financial Condition

(Unaudited)

In Thousands, Except Share Information

	December 31, 2019			June 30, 2019			December 31, 2020			June 30, 2020
Assets
Cash and cash equivalents	$	48,233		$	70,632		$	74,001		$	116,034
Investment securities – held to maturity, at cost	77,161			94,090			203,098			118,627
Investment securities – available for sale, at fair value	5,237			5,969			4,158			4,717
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
Loans held for investment, net of allowance for loan losses of $8,538 and $8,265, respectively; includes $1,972 and $2,258 at fair value, respectively							855,086			902,796
Accrued interest receivable	3,292			3,424			3,126			3,271
Federal Home Loan Bank (“FHLB”) – San Francisco stock	8,199			8,199			7,970			7,970
Premises and equipment, net	10,967			8,226			9,980			10,254
Prepaid expenses and other assets	12,569			14,385			13,308			13,168

Total assets	$	1,107,387		$	1,084,850		$	1,170,727		$	1,176,837

Liabilities and Stockholders’ Equity

Liabilities:
Non interest-bearing deposits	$	85,846		$	90,184		$	109,609		$	118,771
Interest-bearing deposits	747,804			751,087			800,359			774,198
Total deposits	833,650			841,271			909,968			892,969

Borrowings	131,085			101,107			116,015			141,047
Accounts payable, accrued interest and other liabilities	18,876			21,831			19,760			18,845
Total liabilities	983,611			964,209			1,045,743			1,052,861

Commitments and Contingencies (Notes 6 and 10)

Stockholders’ equity:
Preferred stock, $.01 par value (2,000,000 shares authorized; none issued and outstanding)	—			—			—			—
Common stock, $.01 par value (40,000,000 shares authorized; 18,097,615 and 18,081,365 shares issued; 7,483,071 and 7,486,106 shares outstanding, respectively)	181			181
Common stock, $.01 par value (40,000,000 shares authorized; 18,097,615 and 18,097,615 shares issued; 7,442,254 and 7,436,315 shares outstanding, respectively)							181			181
Additional paid-in capital	95,118			94,351			96,164			95,593
Retained earnings	193,704			190,839			194,923			194,345
Treasury stock at cost (10,614,544 and 10,559,259 shares, respectively)	(165,360		)	(164,891		)
Treasury stock at cost (10,655,361 and 10,661,300 shares, respectively)							(166,364		)	(166,247		)
Accumulated other comprehensive income, net of tax	133			161			80			104

Total stockholders’ equity	123,776			120,641			124,984			123,976

Total liabilities and stockholders’ equity	$	1,107,387		$	1,084,850		$	1,170,727		$	1,176,837

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

PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

In Thousands, Except Per Share Information

	Quarter Ended December 31,						Six Months Ended December 31,						Quarter Ended December 31,					Six Months Ended December 31,
	2019			2018			2019			2018			2020		2019			2020		2019
Interest income:
Loans receivable, net	$	10,320		$	10,331		$	20,395		$	20,505		$	8,344	$	10,320		$	17,261	$	20,395
Investment securities		567			444			1,181			789		448		567			926		1,181
FHLB – San Francisco stock		145			278			288			421		100		145			200		288
Interest-earning deposits		189			387			435			725		17		189			41		435
Total interest income		11,221			11,440			22,299			22,440		8,909		11,221			18,428		22,299

Interest expense:
Checking and money market deposits		117			117			227			225		79		117			170		227
Savings deposits		131			147			265			298		54		131			132		265
Time deposits		530			630			1,062			1,251		335		530			717		1,062
Borrowings		804			715			1,524			1,478		803		804			1,605		1,524
Total interest expense		1,582			1,609			3,078			3,252		1,271		1,582			2,624		3,078

Net interest income		9,639			9,831			19,221			19,188		7,638		9,639			15,804		19,221
(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
Provision (recovery) for loan losses													39		(22		)	259		(203		)
Net interest income, after provision (recovery) for loan losses													7,599		9,661			15,545		19,424

Non-interest income:
Loan servicing and other fees		367			277			500			601		120		367			525		500
(Loss) gain on sale of loans, net		(43	)		2,263			(129	)		5,395
Deposit account fees		451			509			898			1,014		329		451			639		898
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		368		371			732		761
Other		198			161			384			350		157		155			237		255
Total non-interest income		1,344			3,595			2,414			8,144		974		1,344			2,133		2,414

Non-interest expense:
Salaries and employee benefits		4,999			7,211			9,984			15,461		4,301		4,999			8,744		9,984
Premises and occupancy		880			1,274			1,758			2,619		865		880			1,768		1,758
Equipment		262			495			541			916		273		262			548		541
Professional expenses		331			411			739			858		402		331			816		739
Sales and marketing expenses		212			253			329			422		227		212			340		329
Deposit insurance premiums and regulatory assessments		59			172			43			337		141		59			275		43
Other		811			1,059			1,398			1,966		707		811			1,410		1,398
Total non-interest expense		7,554			10,875			14,792			22,579		6,916		7,554			13,901		14,792

Income before income taxes		3,451			2,768			7,046			5,207		1,657		3,451			3,777		7,046
Provision for income taxes		1,053			810			2,086			1,426		481		1,053			1,116		2,086
Net income	$	2,398		$	1,958		$	4,960		$	3,781		$	1,176	$	2,398		$	2,661	$	4,960

Basic earnings per share	$	0.32		$	0.26		$	0.66		$	0.51		$	0.16	$	0.32		$	0.36	$	0.66
Diluted earnings per share	$	0.31		$	0.26		$	0.65		$	0.50		$	0.16	$	0.31		$	0.36	$	0.65
Cash dividends per share	$	0.14		$	0.14		$	0.28		$	0.28		$	0.14	$	0.14		$	0.28	$	0.28

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

PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

In Thousands

	For the Quarter Ended December 31,						For the Six Months Ended December 31,						For the Quarter Ended December 31,						For the Six Months Ended December 31,
	2019			2018			2019			2018			2020			2019			2020			2019
Net income	$	2,398		$	1,958		$	4,960		$	3,781		$	1,176		$	2,398		$	2,661		$	4,960

Change in unrealized holding loss on securities available for sale	(21		)	(28		)	(40		)	(58		)	(27		)	(21		)	(34		)	(40		)
Reclassification adjustment for net loss on securities available for sale included in net loss	—			—			—			—			—			—			—			—
Other comprehensive loss, before income taxes	(21		)	(28		)	(40		)	(58		)	(27		)	(21		)	(34		)	(40		)

Income tax benefit	(6		)	(8		)	(12		)	(17		)	(8		)	(6		)	(10		)	(12		)
Other comprehensive loss	(15		)	(20		)	(28		)	(41		)	(19		)	(15		)	(24		)	(28		)

Total comprehensive income	$	2,383		$	1,938		$	4,932		$	3,740		$	1,157		$	2,383		$	2,637		$	4,932

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

PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

In Thousands, Except Share Information

For the Quarter Ended December 31, ~~2019~~2020 and ~~2018:~~2019:

	Common Stock				Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss), Net of Tax						Common Stock				Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss), Net of Tax
	Shares		Amount														Total			Shares		Amount														Total
Balance at September 30, 2019	7,479,682		$	181	$	94,795		$	192,354		$	(165,309	)	$	148		$	122,169
Balance at September 30, 2020																				7,441,259		$	181	$	95,948		$	194,789		$	(166,358	)	$	99		$	124,659

Net income							2,398										2,398									1,176										1,176
Other comprehensive loss														(15		)	(15		)														(19		)	(19		)
Purchase of treasury stock(1)	(2,361	)									(51		)				(51		)	(505	)									(6		)				(6		)
Exercise of stock options	5,750				83												83
Distribution of restricted stock																				1,500
Amortization of restricted stock					219												219							200												200
Stock options expense					21												21							16												16
Cash dividends ⁽¹⁾⁽²⁾							(1,048			)							(1,048		)							(1,042			)							(1,042		)

Balance at December 31, 2019	7,483,071		$	181	$	95,118		$	193,704		$	(165,360	)	$	133		$	123,776
Balance at December 31, 2020																				7,442,254		$	181	$	96,164		$	194,923		$	(166,364	)	$	80		$	124,984

⁽¹⁾	~~Cash dividends of $0.14 per share were paid in the quarter ended December 31, 2019.~~

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

Shares Amount Total
Balance at September 30, 2018 7,500,860 $ 181 $ 95,795 $ 191,399 $ (165,884 ) $ 189 $ 121,680

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

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

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

⁽²⁾	Cash dividends of $0.14 per share were paid in the quarter ended December 31, ~~2018.~~2020.

	Common Stock				Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss), Net of Tax
	Shares		Amount														Total
Balance at September 30, 2019	7,479,682		$	181	$	94,795		$	192,354		$	(165,309	)	$	148		$	122,169

Net income							2,398										2,398
Other comprehensive loss														(15		)	(15		)
Purchase of treasury stock	(2,361	)									(51		)				(51		)
Exercise of stock options	5,750				83												83
Amortization of restricted stock					219												219
Stock options expense					21												21
Cash dividends ⁽¹⁾							(1,048			)							(1,048		)

Balance at December 31, 2019	7,483,071		$	181	$	95,118		$	193,704		$	(165,360	)	$	133		$	123,776

⁽¹⁾	Cash dividends of $0.14 per share were paid in the quarter ended December 31, 2019.

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

For the Six Months Ended December 31, ~~2019~~2020 and ~~2018:~~2019:

	Common Stock				Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss), Net of Tax
	Shares		Amount														Total
Balance at June 30, 2020	7,436,315		$	181	$	95,593		$	194,345		$	(166,247	)	$	104		$	123,976

Net income							2,661										2,661
Other comprehensive loss														(24		)	(24		)
Purchase of treasury stock ⁽¹⁾	(3,061	)									(36		)				(36		)
Distribution of restricted stock	9,000
Forfeiture of restricted stock						81						(81	)					—
Amortization of restricted stock					441												441
Stock options expense					49												49
Cash dividends ⁽²⁾							(2,083			)							(2,083		)

Balance at December 31, 2020	7,442,254		$	181	$	96,164		$	194,923		$	(166,364	)	$	80		$	124,984

⁽¹⁾	Includes the purchase of 3,061 shares of distributed restricted stock in settlement of employee withholding tax obligations.

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

	Common Stock				Additional Paid-In Capital		Retained Earnings			Treasury Stock					Accumulated Other Comprehensive Income (Loss), Net of Tax
	Shares		Amount															Total
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 options	16,250				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, 2019	7,483,071		$	181	$	95,118	$	193,704		$		(165,360	)		$	133		$		123,776

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

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

Shares Amount Total
Balance at June 30, 2018 7,421,426 $ 181 $ 94,957 $ 190,616 $ (165,507 ) $ 210 $ 120,457

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

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

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

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

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

PROVIDENT FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited - In Thousands)

	Six Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2020			2019
Cash flows from operating activities:
Net income	$	4,960		$	3,781		$	2,661		$	4,960
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,356			1,664			2,796			1,356
(Recovery) provision for loan losses	(203		)	(454		)
Loss (gain) on sale of loans, net	129			(5,395		)
Provision (recovery) for loan losses							259			(203		)
Stock-based compensation	480			730			490			480
Provision for deferred income taxes	1,432			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
(Benefit) provision for deferred income taxes							(344		)	1,432
Increase (decrease) in accounts payable, accrued interest and other liabilities							952			(2,923		)
Increase in prepaid expenses and other assets							(81		)	(3,025		)
Net cash provided by operating activities	2,077			45,154			6,733			2,077

Cash flows from investing activities:
(Increase) decrease in loans held for investment, net	(61,773		)	27,554
Decrease (increase) in loans held for investment, net							46,464			(61,773		)
Maturity of investment securities held to maturity	—			200			600			—
Principal payments from investment securities held to maturity	16,702			15,782			21,269			16,702
Principal payments from investment securities available for sale	695			875			527			695
Purchase of investment securities held to maturity	—			(13,669		)	(107,230		)	—
Proceeds from sale of real estate owned	—			915
Purchase of premises and equipment	(148		)	(348		)	(207		)	(148		)
Net cash (used for) provided by investing activities	(44,524		)	31,309
Net cash used for investing activities							(38,577		)	(44,524		)

Cash flows from financing activities:
Decrease in deposits, net	(7,621		)	(34,714		)
Increase (decrease) in deposits, net							16,999			(7,621		)
Repayments of short-term borrowings, net	—			(15,000		)	(5,000		)	—
Repayments of long-term borrowings	(29		)	(28		)	(20,032		)	(29		)
Proceeds from long-term borrowings	30,007			—			—			30,007
Exercise of stock options	215			226			—			215
Withholding taxes on stock based compensation	(32		)	(413		)	(37		)	(32		)
Cash dividends	(2,095		)	(2,091		)	(2,083		)	(2,095		)
Treasury stock purchases	(397		)	(385		)	(36		)	(397		)
Net cash provided by (used for) financing activities	20,048			(52,405		)

Net (decrease) increase in cash and cash equivalents	(22,399		)	24,058
Net cash (used for) provided by financing activities							(10,189		)	20,048
Net decrease in cash and cash equivalents							(42,033		)	(22,399		)
Cash and cash equivalents at beginning of period	70,632			43,301			116,034			70,632
Cash and cash equivalents at end of period	$	48,233		$	67,359		$	74,001		$	48,233
Supplemental information:
Cash paid for interest	$	3,091		$	3,263		$	2,742		$	3,091
Cash paid for income taxes	$	350		$	1,525		$	2,470		$	350
Transfer of loans held for sale to held for investment	$	1,085		$	724		$	—		$	1,085

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

PROVIDENT FINANCIAL HOLDINGS, INC.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

December 31, ~~2019~~2020

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, ~~2019~~2020 is derived from the audited consolidated financial statements of Provident Financial Holdings, Inc. and its wholly-owned subsidiary, Provident Savings Bank, F.S.B. (the “Bank”) (collectively, the “Corporation”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) with respect to interim financial reporting. It is recommended that these unaudited interim condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended June 30, ~~2019.~~2020. The results of operations for the quarter and six months ended December 31, ~~2019~~2020 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, ~~2020.~~

2021.

Note 2: Accounting Standard Updates (“ASU”)

There have been no accounting standard updates or changes in the status of their adoption that are significant to the Corporation as previously disclosed in Note 1 of the Corporation's Annual Report on Form 10-K for the year ended June 30, ~~2019,~~2020, other than:

~~ASU 2016-13:~~

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendments to the initial 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 guidance. In November 2019, the FASB also issued ASU 2019-10, “Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates” extending the adoption date for certain registrants, including the Corporation. These ASUs will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Corporation is evaluating its current expected loss methodology of its loan and investment portfolios to identify the necessary modifications in accordance with these standards and expects a change in the processes 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 Corporation is in the process of compiling historical data that will be used to calculate expected credit losses on its loan portfolio to ensure the Corporation is fully compliant with these ASUs at the adoption date and is evaluating the potential impact adoption of these ASUs will have 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 onto the balance sheet and aligns many of the underlying principles of the new lessor model with those in the new revenue recognition standard, Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers. The new leases standard represents a wholesale change to lease accounting and did not result in significant implementation

challenges during the transition period. 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 lease 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 for annual periods is beginning after December 15, 2018 (i.e., calendar periods beginning on January 1, 2019) and interim periods 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. The Corporation adopted the provisions of ASC 842 effective July 1, 2019 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 or contains a lease. The Corporation also elected to not recognize lease assets and lease liabilities for leases with an initial term of 12 months or less. The adoption of ASC 842 did not have a material impact on its consolidated financial statements. See Note 10 for additional discussion.

ASU 2018-13:

In August 2018, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies disclosure requirements on fair value measurements to improve their effectiveness.” The guidance permits entities to consider materiality when evaluating fair value measurement disclosures and, among other modifications, requires certain new disclosures related to Level 3 fair value measurements. This guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The guidance only affects disclosures in the notes to the condensed consolidated financial statements and will not otherwise affect the Corporation’s Condensed Consolidated Financial Statements. The adoption of this ASU did not have a material impact on its condensed consolidated financial statements. See Note 7 for additional discussion.

Note 3: Earnings Per Share

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

As of December 31, ~~2019~~2020 and ~~2018,~~2019, there were outstanding options to purchase ~~554,500~~549,000 shares and ~~509,000~~554,500 shares of the Corporation’s common stock, respectively. Of those shares, as of December 31, ~~2019~~2020 and ~~2018,~~2019, there were no135,000 shares and ~~45,000~~no shares, respectively, which were excluded from the diluted EPS computation as their effect was anti-dilutive. As of December 31, ~~2019~~2020 and ~~2018,~~2019, there were outstanding restricted stock awards of 207,500 shares and 225,500 shares, ~~and 12,000 shares,~~ respectively.

The following table provides the basic and diluted EPS computations for the quarter and six months ended December 31, 2020 and 2019, ~~and 2018,~~ respectively.

	For the Quarter Ended December 31,				For the Six Months Ended December 31,
(In Thousands, Except Earnings Per Share)	2020		2019		2020		2019
Numerator:
Net income – numerator for basic earnings per share and diluted earnings per share - available to common stockholders	$	1,176	$	2,398	$	2,661	$	4,960

Denominator:
Denominator for basic earnings per share:
Weighted-average shares	7,442		7,482		7,439		7,482

Effect of dilutive shares:
Stock options	37		133		29		133
Restricted stock	13		43		7		36

Denominator for diluted earnings per share:
Adjusted weighted-average shares and assumed conversions	7,492		7,658		7,475		7,651

Basic earnings per share	$	0.16	$	0.32	$	0.36	$	0.66
Diluted earnings per share	$	0.16	$	0.31	$	0.36	$	0.65

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

Note 4: Investment Securities

The amortized cost and estimated fair value of investment securities as of December 31, ~~2019~~2020 and June 30, ~~2019~~2020 were as follows:

December 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value		Carrying Value
December 31, 2020												Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value		Carrying Value
(In Thousands)
Held to maturity:
U.S. government sponsored enterprise MBS ⁽¹⁾	$	73,545	$	1,185	$	(64	)	$	74,666	$	73,545	$	200,195	$	3,433	$	(63	)	$	203,565	$	200,195
U.S. SBA securities ⁽²⁾		2,816		—		(13	)		2,803		2,816	1,903		—		(17		)	1,886		1,903
Certificate of deposits		800		—		—			800		800	1,000		—		—			1,000		1,000
Total investment securities - held to maturity	$	77,161	$	1,185	$	(77	)	$	78,269	$	77,161	$	203,098	$	3,433	$	(80	)	$	206,451	$	203,098

Available for sale:
U.S. government agency MBS	$	3,146	$	100	$	—		$	3,246	$	3,246	$	2,463	$	88	$	—		$	2,551	$	2,551
U.S. government sponsored enterprise MBS		1,688		72		—			1,760		1,760	1,420		14		—			1,434		1,434
Private issue CMO ⁽³⁾		227		4		—			231		231	174		—		(1		)	173		173
Total investment securities - available for sale	$	5,061	$	176	$	—		$	5,237	$	5,237	$	4,057	$	102	$	(1	)	$	4,158	$	4,158
Total investment securities	$	82,222	$	1,361	$	(77	)	$	83,506	$	82,398	$	207,155	$	3,535	$	(81	)	$	210,609	$	207,256

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

⁽²⁾	Small Business Administration (“SBA”).

⁽³⁾	Collateralized Mortgage Obligations (“CMO”).

June 30, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value		Carrying Value
June 30, 2020												Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value		Carrying Value
(In Thousands)
Held to maturity
Held to maturity:
U.S. government sponsored enterprise MBS	$	90,394	$	1,289	$	(14	)	$	91,669	$	90,394	$	115,763	$	2,636	$	(45	)	$	118,354	$	115,763
U.S. SBA securities		2,896		—		(6	)		2,890		2,896	2,064		—		(17		)	2,047		2,064
Certificate of deposits		800		—		—			800		800	800		—		—			800		800
Total investment securities - held to maturity	$	94,090	$	1,289	$	(20	)	$	95,359	$	94,090	$	118,627	$	2,636	$	(62	)	$	121,201	$	118,627

Available for sale
Available for sale:
U.S. government agency MBS	$	3,498	$	116	$	(1	)	$	3,613	$	3,613	$	2,823	$	120	$	—		$	2,943	$	2,943
U.S. government sponsored enterprise MBS		1,998		89		—			2,087		2,087	1,556		21		—			1,577		1,577
Private issue CMO		261		8		—			269		269	204		—		(7		)	197		197
Total investment securities - available for sale	$	5,757	$	213	$	(1	)	$	5,969	$	5,969	$	4,583	$	141	$	(7	)	$	4,717	$	4,717
Total investment securities	$	99,847	$	1,502	$	(21	)	$	101,328	$	100,059	$	123,210	$	2,777	$	(69	)	$	125,918	$	123,344

In the second quarter of fiscal ~~2020~~2021 and ~~2019,~~2020, the Corporation received MBS principal payments of ~~$8.1~~$12.4 million and ~~$8.3~~$8.1 million, respectively, and there were no sales of investment securities during these periods. The Corporation ~~did not purchase any investment securities in the second quarter of fiscal 2020, as compared to the purchase of $13.5~~purchased $21.5 million of U.S. government sponsored enterprise MBS to be held to maturity in the ~~same period~~second quarter of fiscal ~~2019.~~ 2021 but did not purchase any investment securities in the second quarter of fiscal 2020.

For the first six months of fiscal ~~2020~~2021 and ~~2019,~~2020, the Corporation received MBS principal payments of ~~$17.4~~$21.8 million and ~~$16.7~~$17.4 million, respectively, and there were no sales of investment securities during these periods. The Corporation ~~did not purchase any investment securities in the first six months of fiscal 2020, as compared to the purchase of $13.5~~purchased $106.4 million of U.S. government sponsored enterprise MBS to be held to maturity in the first six months of fiscal 2021 but did not purchase any investment securities in the same period of fiscal ~~2019.~~2020.

The Corporation held investments with an unrealized loss position of ~~$77,000~~$81,000 at December 31, ~~2019~~2020 and ~~$21,000~~$69,000 at June 30, ~~2019.~~2020.

As of December 31, 2020	Unrealized Holding Losses						Unrealized Holding Losses				Unrealized Holding Losses
(In Thousands)	Less Than 12 Months						12 Months or More				Total
	Fair				Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value				Losses		Value		Losses		Value		Losses
Held to maturity:
U.S. government sponsored enterprise MBS	$		10,015		$	63	$	—	$	—	$	10,015	$	63
U.S. SBA securities			—		$	—		1,886		17		1,886		17
Total investment securities – held to maturity	$		10,015		$	63	$	1,886	$	17	$	11,901	$	80

Available for sale:
Private issue CMO		$		173	$	1	$	—	$	—	$	173	$	1
Total investment securities – available for sale		$		173	$	1	$	—	$	—	$	173	$	1
Total investment securities		$		10,188	$	64	$	1,886	$	17	$	12,074	$	81

As of December 31, 2019
Unrealized Holding
Losses

Unrealized Holding
Losses

Unrealized Holding
Losses

(In Thousands) Less Than 12 Months 12 Months or More Total
Fair Unrealized Fair Unrealized Fair Unrealized
Description of Securities Value Losses Value Losses Value Losses
Held to maturity:
U.S. government sponsored enterprise MBS $ 6,407 $ 64 $ — $ — $ 6,407 $ 64
U.S. SBA securities — $ — 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 $ 6,407 $ 64 $ 2,313 $ 13 $ 8,720 $ 77

As of June 30, 2019	Unrealized Holding Losses				Unrealized Holding Losses				Unrealized Holding Losses
As of June 30, 2020													Unrealized Holding Losses				Unrealized Holding Losses				Unrealized Holding Losses
(In Thousands)	Less Than 12 Months				12 Months or More				Total				Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses
Held to maturity
Held to maturity:
U.S. government sponsored enterprise MBS	$	6,507	$	8	$	1,657	$	6	$	8,164	$	14	$	12,731	$	45	$	—	$	—	$	12,731	$	45
U.S. SBA securities		—	$	—		2,883		6		2,883		6		—	$	—		2,040		17		2,040		17
Total investment securities – held to maturity	$	6,507	$	8	$	4,540	$	12	$	11,047	$	20	$	12,731	$	45	$	2,040	$	17	$	14,771	$	62

Available for sale
U.S. government agency MBS	$	289	$	1	$	—	$	—	$	289	$	1
Available for sale:
Private issue CMO													$	197	$	7	$	—	$	—	$	197	$	7
Total investment securities – available for sale	$	289	$	1	$	—	$	—	$	289	$	1	$	197	$	7	$	—	$	—	$	197	$	7
Total investment securities	$	6,796	$	9	$	4,540	$	12	$	11,336	$	21	$	12,928	$	52	$	2,040	$	17	$	14,968	$	69

The Corporation evaluates individual investment securities quarterly for other-than-temporary declines in market value. At December 31, ~~2019, $13,000~~2020, $17,000 of the ~~$77,000~~$81,000 unrealized holding losses were 12 months or more; while at June 30, ~~2019, $12,000~~2020, $17,000 of the ~~$21,000~~$69,000 unrealized holding losses were 12 months or more. The ~~Corporation does not believe that there~~unrealized losses on investment securities were ~~any other-than-temporary impairments on~~attributable to changes in interest rates, relative to when the investment securities atwere purchased, and not due to the credit quality of the investment securities. At December 31, 2020 and 2019, the Corporation did not have any investment securities with the intent to sell and ~~2018;~~determined it was more likely than not that the Corporation would not be required to sell the

securities prior to recovery of the amortized cost basis; therefore, no impairment losses were recorded for the quarter ended December 31, ~~2019~~2020 and ~~2018.~~2019.

Contractual maturities of investment securities as of December 31, ~~2019~~2020 and June 30, ~~2019~~2020 were as follows:

	December 31, 2019				June 30, 2019				December 31, 2020				June 30, 2020
(In Thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value

Held to maturity:
Due in one year or less	$	800	$	800	$	400	$	400	$	1,000	$	1,000	$	800	$	800
Due after one through five years	25,201		25,309		32,584		32,728		19,081		19,913		19,389		20,194
Due after five through ten years	30,383		31,066		35,306		36,090		76,934		78,367		50,895		52,315
Due after ten years	20,777		21,094		25,800		26,141		106,083		107,171		47,543		47,892
Total investment securities - held to maturity	$	77,161	$	78,269	$	94,090	$	95,359	$	203,098	$	206,451	$	118,627	$	121,201

Available for sale:
Due in one year or less	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Due after one through five years	—		—		—		—		—		—		—		—
Due after five through ten years	—		—		—		—		—		—		—		—
Due after ten years	5,061		5,237		5,757		5,969		4,057		4,158		4,583		4,717
Total investment securities - available for sale	$	5,061	$	5,237	$	5,757	$	5,969	$	4,057	$	4,158	$	4,583	$	4,717
Total investment securities	$	82,222	$	83,506	$	99,847	$	101,328	$	207,155	$	210,609	$	123,210	$	125,918

Note 5: Loans Held for Investment

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

(In Thousands)	December 31, 2019			June 30, 2019			December 31, 2020			June 30, 2020
Mortgage loans:
Single-family	$	347,344		$	324,952		$	257,864		$	298,810
Multi-family	479,151			439,041			488,412			491,903
Commercial real estate	107,613			111,928			102,551			105,235
Construction ⁽¹⁾	6,914			4,638			7,135			7,801
Other	—			167			141			143
Commercial business loans ⁽²⁾	578			478			882			480
Consumer loans ⁽³⁾	140			134			95			94
Total loans held for investment, gross	941,740			881,338			857,080			904,466

Advance payments of escrows	56			53			142			68
Deferred loan costs, net	6,854			5,610			6,402			6,527
Allowance for loan losses	(6,921		)	(7,076		)	(8,538		)	(8,265		)
Total loans held for investment, net	$	941,729		$	879,925		$	855,086		$	902,796

⁽¹⁾	Net of ~~$6.8~~$2.7 million and ~~$6.6~~$4.0 million of undisbursed loan funds as of December 31, ~~2019~~2020 and June 30, ~~2019, respectively~~2020, respectively.

⁽²⁾	Net of ~~$0.9 million~~$520 thousand and ~~$1.0 million~~$935 thousand of undisbursed lines of credit as of December 31, ~~2019~~2020 and June 30, ~~2019,~~2020, respectively.

⁽³⁾	Net of ~~$0.5 million~~$422 thousand and ~~$0.5 million~~$448 thousand of undisbursed lines of credit as of December 31, ~~2019~~2020 and June 30, ~~2019,~~2020, respectively.

The following table sets forth information at December 31, ~~2019~~2020 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 one percent ~~and two percent~~ of loans held for investment at December 31, ~~2019~~2020 and June 30, ~~2019,~~2020, respectively. Adjustable rate loans having no stated repricing dates that reprice when the index they are tied to reprices (e.g. prime rate index) and checking account overdrafts are reported as repricing within one year. The table does not include any estimate of prepayments which may cause the Corporation’s actual repricing experience to differ materially from that shown.

	Adjustable Rate												Adjustable Rate
(In Thousands)	Within One Year		After One Year Through 3 Years		After 3 Years Through 5 Years		After 5 Years Through 10 Years		Fixed Rate		Total		Within One Year		After One Year Through 3 Years		After 3 Years Through 5 Years		After 5 Years Through 10 Years		Fixed Rate		Total
Mortgage loans:
Single-family	$	83,613	$	41,111	$	121,719	$	90,106	$	10,795	$	347,344	$	69,861	$	51,462	$	62,242	$	64,482	$	9,817	$	257,864
Multi-family	138,125		162,170		159,357		19,327		172		479,151		162,764		154,224		153,475		17,810		139		488,412
Commercial real estate	38,497		27,918		40,118		685		395		107,613		48,239		30,205		23,822		—		285		102,551
Construction	5,796		—		—		—		1,118		6,914		6,477		—		—		—		658		7,135
Other													—		—		—		—		141		141
Commercial business loans	160		—		—		—		418		578		500		—		—		—		382		882
Consumer loans	140		—		—		—		—		140		95		—		—		—		—		95
Total loans held for investment, gross	$	266,331	$	231,199	$	321,194	$	110,118	$	12,898	$	941,740	$	287,936	$	235,891	$	239,539	$	82,292	$	11,422	$	857,080

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

portfolio and conducts a quarterly review of the adequacy of the allowance for loan losses using quantitative and qualitative methods. The Corporation has adopted an internal risk rating policy in which each loan is rated for credit quality with a rating of pass, special mention, substandard, doubtful or loss. The two primary components that are used during the loan review process to determine the proper allowance levels are individually evaluated allowances and collectively evaluated allowances. Quantitative loan loss factors are developed by determining the historical loss experience, expected future cash flows, discount rates and collateral fair values, among others. Qualitative loan loss factors are developed by assessing general economic indicators such as gross domestic product, retail sales, unemployment rates, employment growth, California home sales and median California home ~~prices.~~prices as well as the forecasted economic impact of the novel coronavirus of 2019 (“COVID-19”). The Corporation assigns individual factors for the quantitative and qualitative methods for each loan category and each internal risk rating.

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

▪	~~Pass - These loans range from minimal credit risk to average, but still acceptable, credit risk. The likelihood of loss is considered remote.~~

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.

Special Mention - A special mention loan has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss. While concerns exist, the bank is currently protected and loss is considered unlikely and not imminent.

▪

Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

▪	Doubtful - A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

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.~~

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															December 31, 2020
(In Thousands)	(In Thousands)	Single- family		Multi- family		Commercial Real Estate		Construction		Commercial Business		Consumer		Total		(In Thousands)	Single- family		Multi- family		Commercial Real Estate		Construction		Other Mortgage		Commercial Business		Consumer		Total

Pass	Pass	$	339,599	$	475,330	$	106,687	$	5,629	$	535	$	140	$	927,920	Pass	$	245,747	$	484,680	$	102,551	$	7,135	$	141	$	882	$	95	$	841,231
Special Mention	Special Mention	4,276		3,821		—		1,285		—		—		9,382		Special Mention	935		3,732		—		—			—	—		—		4,667
Substandard	Substandard	3,469		—		926		—		43		—		4,438		Substandard	11,182		—		—		—			—	—		—		11,182
	Total loans held for investment, gross	$	347,344	$	479,151	$	107,613	$	6,914	$	578	$	140	$	941,740	Total loans held for investment, gross	$	257,864	$	488,412	$	102,551	$	7,135	$	141	$	882	$	95	$	857,080

		June 30, 2019																	June 30, 2020
(In Thousands)	(In Thousands)	Single- family		Multi- family		Commercial Real Estate		Construction		Other Mortgage		Commercial Business		Consumer		Total		(In Thousands)	Single- family		Multi- family		Commercial Real Estate		Construction		Other Mortgage		Commercial Business		Consumer		Total

Pass	Pass	$	314,036	$	435,177	$	111,001	$	3,667	$	167	$	429	$	134	$	864,611	Pass	$	289,942	$	488,126	$	105,235	$	6,098	$	143	$	445	$	94	$	890,083
Special Mention	Special Mention	3,795		3,864		927		—		—		—		—		8,586		Special Mention	3,120		3,777		—		1,703		—		—		—		8,600
Substandard	Substandard	7,121		—		—		971		—		49		—		8,141		Substandard	5,748		—		—		—		—		35		—		5,783
	Total loans held for investment, gross	$	324,952	$	439,041	$	111,928	$	4,638	$	167	$	478	$	134	$	881,338	Total loans held for investment, gross	$	298,810	$	491,903	$	105,235	$	7,801	$	143	$	480	$	94	$	904,466

The allowance for loan losses is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loans held for investment and upon management’s continuing analysis of the factors underlying the quality of the loans held for investment. These factors include changes in the size and composition of the loans held for investment, actual loan loss experience, current economic conditions, detailed analysis of individual loans for which full collectability may not be assured, and determination of the realizable value of the collateral securing the loans. The provision (recovery) for (from) the allowance for loan losses is charged (credited) against operations on a quarterly basis, as necessary, to maintain the allowance at appropriate levels. Although management believes it uses the best information available to make such determinations, there can be no assurance that regulators, in reviewing the Corporation’s loans held for investment, will not request a significant increase in its allowance for loan losses. Future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected as a result of economic, operating, regulatory, and other conditions beyond the Corporation’s control. In response to the COVID-19 pandemic, which has negatively impacted the current economic environment, the qualitative component has been increased in the allowance for loan losses methodology.

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

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

	For the Quarter Ended December 31,						For the Six Months Ended December 31,						For the Quarter Ended December 31,						For the Six Months Ended December 31,
(Dollars in Thousands)	2019			2018			2019			2018			2020			2019			2020			2019

Allowance at beginning of period	$	6,929		$	7,155		$	7,076		$	7,385		$	8,490		$	6,929		$	8,265		$	7,076

Provision (recovery) for loan losses	(22		)	(217		)	(203		)	(454		)	39			(22		)	259			(203		)

Recoveries:
Mortgage loans:
Single-family	13			123			49			155			9			13			14			49
Consumer loans	1			—			1			1			1			1			1			1
Total recoveries	14			123			50			156			10			14			15			50

Charge-offs:
Mortgage loans:
Single-family	—			—			(1		)	(25		)	—			—			—			(1		)
Consumer loans	—			—			(1		)	(1		)	(1		)	—			(1		)	(1		)
Total charge-offs	—			—			(2		)	(26		)	(1		)	—			(1		)	(2		)

Net recoveries (charge-offs)	14			123			48			130			9			14			14			48
Balance at end of period	$	6,921		$	7,061		$	6,921		$	7,061		$	8,538		$	6,921		$	8,538		$	6,921

Allowance for loan losses as a percentage of gross loans held for investment at the end of the period	0.73		%	0.80		%	0.73		%	0.80		%	0.99		%	0.73		%	0.99		%	0.73		%
Net (recoveries) charge-offs as a percentage of average loans receivable, net, during the period (annualized)	(0.01)		%	(0.05)		%	(0.01)		%	(0.03)		%	(0.00)		%	(0.01)		%	(0.00)		%	(0.01)		%

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									December 31, 2020
(In Thousands)	(In Thousands)	Current		30-89 Days Past Due		Non-Accrual ⁽¹⁾		Total Loans Held for Investment, Gross		(In Thousands)	Current		30-89 Days Past Due		Non-Accrual ⁽¹⁾		Total Loans Held for Investment, Gross

Mortgage loans:	Mortgage loans:									Mortgage loans:
	Single-family	$	342,893	$	982	$	3,469	$	347,344	Single-family	$	246,334	$	348	$	11,182	$	257,864
	Multi-family	479,151		—		—		479,151		Multi-family	488,412		—		—		488,412
	Commercial real estate	107,613		—		—		107,613		Commercial real estate	102,551		—		—		102,551
	Construction	6,914		—		—		6,914		Construction	7,135		—		—		7,135
										Other	141		—		—		141
Commercial business loans	Commercial business loans	535		—		43		578		Commercial business loans	882		—		—		882
Consumer loans	Consumer loans	136		4		—		140		Consumer loans	93		2		—		95
	Total loans held for investment, gross	$	937,242	$	986	$	3,512	$	941,740	Total loans held for investment, gross	$	845,548	$	350	$	11,182	$	857,080

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

		June 30, 2020
(In Thousands)		Current		30-89 Days Past Due		Non-Accrual⁽¹⁾		Total Loans Held for Investment, Gross

Mortgage loans:
	Single-family	$	293,326	$	219	$	5,265	$	298,810
	Multi-family	491,903		—		—		491,903
	Commercial real estate	105,235		—		—		105,235
	Construction	7,801		—		—		7,801
	Other	143		—		—		143
Commercial business loans		445		—		35		480
Consumer loans		94		—		—		94
	Total loans held for investment, gross	$	898,947	$	219	$	5,300	$	904,466

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

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-family 439,041 — — 439,041
Commercial real estate 111,928 — — 111,928
Construction 3,667 — 971 4,638
Other 167 — — 167
Commercial business loans 429 — 49 478
Consumer loans 129 5 — 134
Total loans held for investment, gross $ 874,032 $ 665 $ 6,641 $ 881,338

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

The following tables summarize the Corporation’s allowance for loan losses and recorded investment in gross loans, by portfolio type, at the dates and for the periods indicated.

Quarter Ended December 31, 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 December 31, 2018																									Quarter Ended December 31, 2020
(In Thousands)	Single- family			Multi- family			Commercial Real Estate			Construction			Other			Commercial Business			Consumer			Total			(In Thousands)	Single- family			Multi-family			Commercial Real Estate			Construction				Other		Commercial Business			Consumer				Total
Allowance for loan losses:																									Allowance for loan losses:
Allowance at beginning of period	$	2,741		$	3,336		$	1,012		$	38		$	3		$	19		$	6		$	7,155		Allowance at beginning of period	$	2,671		$	4,490		$	1,162		$	116		$	3		$	42		$	6		$	8,490
Provision (recovery) for loan losses		(185	)		(56	)		7			10			—			7			—			(217	)	Provision (recovery) for loan losses	26			50			(30		)	(6		)		—		(1		)	—			39
Recoveries		123			—			—			—			—			—			—			123		Recoveries	9			—			—			—				—		—			1			10
Charge-offs		—			—			—			—			—			—			—			—		Charge-offs	—			—			—			—				—		—			(1		)	(1		)
Allowance for loan losses, end of period	$	2,679		$	3,280		$	1,019		$	48		$	3		$	26		$	6		$	7,061
																									Allowance for loan losses, end of period	$	2,706		$	4,540		$	1,132		$	110		$	3		$	41		$	6		$	8,538

Allowance for loan losses:																									Allowance for loan losses:
Individually evaluated for impairment	$	159		$	—		$	—		$	—		$	—		$	9		$	—		$	168		Individually evaluated for impairment	$	570		$	—		$	—		$	—		$	—		$	—		$	—		$	570
Collectively evaluated for impairment		2,520			3,280			1,019			48			3			17			6			6,893		Collectively evaluated for impairment	2,136			4,540			1,132			110				3		41			6			7,968
Allowance for loan losses, end of period	$	2,679		$	3,280		$	1,019		$	48		$	3		$	26		$	6		$	7,061
																									Allowance for loan losses, end of period	$	2,706		$	4,540		$	1,132		$	110		$	3		$	41		$	6		$	8,538

Loans held for investment:																									Loans held for investment:
Individually evaluated for impairment	$	5,817		$	—		$	—		$	745		$	—		$	56		$	—		$	6,618		Individually evaluated for impairment	$	9,237		$	—		$	—		$	—		$	—		$	—		$	—		$	9,237
Collectively evaluated for impairment		306,682			447,033			112,830			3,241			167			399			103			870,455		Collectively evaluated for impairment	248,627			488,412			102,551			7,135				141		882			95			847,843
Total loans held for investment, gross	$	312,499		$	447,033		$	112,830		$	3,986		$	167		$	455		$	103		$	877,073
																									Total loans held for investment, gross	$	257,864		$	488,412		$	102,551		$	7,135		$	141		$	882		$	95		$	857,080
Allowance for loan losses as a percentage of gross loans held for investment		0.86	%		0.73	%		0.90	%		1.20	%		1.80	%		5.71	%		5.83	%		0.80	%	Allowance for loan losses as a percentage of gross loans held for investment		1.05	%		0.93	%		1.10	%		1.54	%		2.13	%		4.65	%		6.32	%		0.99	%

		Quarter Ended 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	%

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 %

	Six Months Ended December 31, 2018																									Six Months Ended December 31, 2020
(In Thousands)	Single- family			Multi- family			Commercial Real Estate			Construction			Other			Commercial Business			Consumer			Total			(In Thousands)	Single- family			Multi-family			Commercial Real Estate			Construction				Other		Commercial Business			Consumer				Total
Allowance for loan losses:																									Allowance for loan losses:
Allowance at beginning of period	$	2,783		$	3,492		$	1,030		$	47		$	3		$	24		$	6		$	7,385		Allowance at beginning of period	$	2,622		$	4,329		$	1,110		$	171		$	3		$	24		$	6		$	8,265
Provision (recovery) for loan losses		(234	)		(212	)		(11	)		1			—			2			—			(454	)	Provision (recovery) for loan losses	70			211			22			(61		)		—		17			—			259
Recoveries		155			—			—			—			—			—			1			156		Recoveries	14			—			—			—				—		—			1			15
Charge-offs		(25	)		—			—			—			—			—			(1	)		(26	)	Charge-offs	—			—			—			—				—		—			(1		)	(1		)
Allowance for loan losses, end of period	$	2,679		$	3,280		$	1,019		$	48		$	3		$	26		$	6		$	7,061
																									Allowance for loan losses, end of period	$	2,706		$	4,540		$	1,132		$	110		$	3		$	41		$	6		$	8,538

Allowance for loan losses:																									Allowance for loan losses:
Individually evaluated for impairment	$	159		$	—		$	—		$	—		$	—		$	9		$	—		$	168		Individually evaluated for impairment	$	570		$	—		$	—		$	—		$	—		$	—		$	—		$	570
Collectively evaluated for impairment		2,520			3,280			1,019			48			3			17			6			6,893		Collectively evaluated for impairment	2,136			4,540			1,132			110				3		41			6			7,968
Allowance for loan losses, end of period	$	2,679		$	3,280		$	1,019		$	48		$	3		$	26		$	6		$	7,061
																									Allowance for loan losses, end of period	$	2,706		$	4,540		$	1,132		$	110		$	3		$	41		$	6		$	8,538

Loans held for investment:														��											Loans held for investment:
Individually evaluated for impairment	$	5,817		$	—		$	—		$	745		$	—		$	56		$	—		$	6,618		Individually evaluated for impairment	$	9,237		$	—		$	—		$	—		$	—		$	—		$	—		$	9,237
Collectively evaluated for impairment		306,682			447,033			112,830			3,241			167			399			103			870,455		Collectively evaluated for impairment	248,627			488,412			102,551			7,135				141		882			95			847,843
Total loans held for investment, gross	$	312,499		$	447,033		$	112,830		$	3,986		$	167		$	455		$	103		$	877,073
																									Total loans held for investment, gross	$	257,864		$	488,412		$	102,551		$	7,135		$	141		$	882		$	95		$	857,080
Allowance for loan losses as a percentage of gross loans held for investment		0.86	%		0.73	%		0.90	%		1.20	%		1.80	%		5.71	%		5.83	%		0.80	%	Allowance for loan losses as a percentage of gross loans held for investment		1.05	%		0.93	%		1.10	%		1.54	%		2.13	%		4.65	%		6.32	%		0.99	%

		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	%

The following tables identify the Corporation’s total recorded investment in non-performing loans by type at the dates and for the periods indicated. Generally, a loan is placed on non-accrual status when it becomes 90 days past due as to principal or interest or if the loan is deemed impaired, after considering economic and business conditions and collection efforts, where the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. In addition, interest income is not recognized on any loan where management has determined that collection is not reasonably assured. A non-performing loan may be restored to accrual status when delinquent principal and interest payments are brought current, the borrower(s) has demonstrated sustained payment performance and future monthly principal and interest payments are expected to be collected on a timely basis. Loans with a related allowance reserve have been individually evaluated for impairment using either a discounted cash flow analysis or, for collateral dependent loans, current appraisals less costs to sell, to establish realizable value. This analysis may identify a specific impairment amount needed or may conclude that no reserve is needed. Loans that are not individually evaluated for impairment are included in pools of homogeneous loans for evaluation of related allowance reserves.

			At December 31, 2019														At December 31, 2020
			Unpaid										Net				Unpaid										Net
			Principal		Related			Recorded					Recorded				Principal		Related			Recorded					Recorded
(In Thousands)	(In Thousands)		Balance		Charge-offs			Investment		Allowance ⁽¹⁾			Investment		(In Thousands)		Balance		Charge-offs			Investment		Allowance ⁽¹⁾			Investment

Mortgage loans:	Mortgage loans:														Mortgage loans:
	Single-family:														Single-family:
		With a related allowance	$	1,102	$	—		$	1,102	$	(132	)	$	970		With a related allowance	$	9,636	$	—		$	9,636	$	(928	)	$	8,708
		Without a related allowance ⁽²⁾	2,908		(488		)	2,420		—			2,420			Without a related allowance ⁽²⁾	2,015		(453		)	1,562		—			1,562
	Total single-family		4,010		(488		)	3,522		(132		)	3,390		Total single-family		11,651		(453		)	11,198		(928		)	10,270

Commercial business loans:
	With a related allowance		43		—			43		(6		)	37
Total commercial business loans			43		—			43		(6		)	37

Total non-performing loans	Total non-performing loans		$	4,053	$	(488	)	$	3,565	$	(138	)	$	3,427	Total non-performing loans		$	11,651	$	(453	)	$	11,198	$	(928	)	$	10,270

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

⁽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.

2021

			At June 30, 2019														At June 30, 2020
			Unpaid										Net				Unpaid										Net
			Principal		Related			Recorded					Recorded				Principal		Related			Recorded					Recorded
(In Thousands)	(In Thousands)		Balance		Charge-offs			Investment		Allowance ⁽¹⁾			Investment		(In Thousands)		Balance		Charge-offs			Investment		Allowance ⁽¹⁾			Investment

Mortgage loans:	Mortgage loans:														Mortgage loans:
	Single-family:														Single-family:
		With a related allowance	$	2,640	$	—		$	2,640	$	(434	)	$	2,206		With a related allowance	$	3,289	$	—		$	3,289	$	(438	)	$	2,851
		Without a related allowance ⁽²⁾	3,518		(518		)	3,000		—			3,000			Without a related allowance ⁽²⁾	2,509		(467		)	2,042		—			2,042
	Total single-family		6,158		(518		)	5,640		(434		)	5,206		Total single-family		5,798		(467		)	5,331		(438		)	4,893

	Construction:
		Without a related allowance ⁽²⁾	971		—			971		—			971
	Total construction		971		—			971		—			971

Commercial business loans:	Commercial business loans:														Commercial business loans:
	With a related allowance		49		—			49		(8		)	41		With a related allowance		35		—			35		(4		)	31
Total commercial business loans	Total commercial business loans		49		—			49		(8		)	41		Total commercial business loans		35		—			35		(4		)	31

Total non-performing loans	Total non-performing loans		$	7,178	$	(518	)	$	6,660	$	(442	)	$	6,218	Total non-performing loans		$	5,833	$	(467	)	$	5,366	$	(442	)	$	4,924

⁽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 December 31, ~~2019,~~2020, 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 construction loan with undisbursed loan funds of $1.0 million, which was subsequently upgraded to a special mention category in November 2019.~~

For the quarter ended December 31, ~~2019~~2020 and ~~2018,~~2019, the Corporation’s average recorded investment in non-performing loans was ~~$4.0~~$9.9 million and ~~$6.6~~$4.0 million, respectively. The Corporation records payments on non-performing loans utilizing the cash basis or cost recovery method of accounting during the periods when the loans are on non-performing status. For the quarter ended December 31, ~~2019,~~2020, the Bank received ~~$57,000~~$43,000 in interest payments from non-performing loans, of which ~~$34,000 were~~$29,000 was recognized as interest income and the remaining ~~$23,000 were~~$14,000 was applied to reduce the loan balances under the cost recovery method. In comparison, for the quarter ended December 31, ~~2018,~~2019, the Bank received ~~$274,000~~$57,000 in interest payments from non-performing loans, of which ~~$226,000 were~~$34,000 was recognized as interest income and the remaining ~~$48,000 were~~$23,000 was applied to reduce the loan balances under the cost recovery method.

For the six months ended December 31, ~~2019~~2020 and ~~2018,~~2019, the Corporation’s average recorded investment in non-performing loans was ~~$4.7~~$7.6 million and ~~$6.8~~$4.7 million, respectively. For the six months ended December 31, 2020, the Bank received $93,000 in interest payments from non-performing loans, of which $70,000 was recognized as interest income and the remaining $23,000 was applied to reduce the loan balances under the cost recovery method. In comparison, for the six months ended December 31, 2019, the Bank received $204,000 in interest payments from non-performing loans, of which $157,000 ~~were~~was recognized as interest income and the remaining $47,000 were applied to reduce the loan balances under the cost recovery method. In comparison, for the six months ended December 31, 2018, the Bank received $395,000 in interest payments from non-performing loans, of which $291,000 were recognized as interest income and the remaining $104,000 werewas applied to reduce the loan balances under the cost recovery method.

21
22

The following tables present the average recorded investment in non-performing loans and the related interest income recognized for the quarter and six months ended December 31, ~~2019~~2020 and ~~2018:~~2019:

			Quarter Ended December 31,										Quarter Ended December 31,
			2019				2018						2020				2019
			Average		Interest		Average		Interest				Average		Interest		Average		Interest
			Recorded		Income		Recorded		Income				Recorded		Income		Recorded		Income
(In Thousands)	(In Thousands)		Investment		Recognized		Investment		Recognized		(In Thousands)		Investment		Recognized		Investment		Recognized

Without related allowances:	Without related allowances:										Without related allowances:
	Mortgage loans:										Mortgage loans:
		Single-family	$	2,874	$	21	$	3,326	$	189		Single-family	$	1,570	$	—	$	2,874	$	21
		Construction	—		—		745		—				1,570		—		2,874		21
			2,874		21		4,071		189

With related allowances:	With related allowances:										With related allowances:
	Mortgage loans:										Mortgage loans:
		Single-family	1,105		12		2,487		36			Single-family	8,285		29		1,105		12
	Commercial business loans		44		1		60		1		Commercial business loans		19		—		44		1
			1,149		13		2,547		37				8,304		29		1,149		13

	Total		$	4,023	$	34	$	6,618	$	226	Total		$	9,874	$	29	$	4,023	$	34

			Six Months Ended December 31,										Six Months Ended December 31,
			2019				2018						2020				2019
			Average		Interest		Average		Interest				Average		Interest		Average		Interest
			Recorded		Income		Recorded		Income				Recorded		Income		Recorded		Income
(In Thousands)	(In Thousands)		Investment		Recognized		Investment		Recognized		(In Thousands)		Investment		Recognized		Investment		Recognized

Without related allowances:	Without related allowances:										Without related allowances:
	Mortgage loans:										Mortgage loans:
		Single-family	$	2,980	$	111	$	3,963	$	229		Single-family	$	1,726	$	—	$	2,980	$	111
		Construction	542		20		496		—			Construction	—		—		542		20
			3,522		131		4,459		229				1,726		—		3,522		131

With related allowances:	With related allowances:										With related allowances:
	Mortgage loans:										Mortgage loans:
		Single-family	1,151		24		2,279		60			Single-family	5,897		69		1,151		24
	Commercial business loans		45		2		64		2		Commercial business loans		26		1		45		2
			1,196		26		2,343		62				5,923		70		1,196		26

	Total		$	4,718	$	157	$	6,802	$	291	Total		$	7,649	$	70	$	4,718	$	157

For the quarter ended December 31, 2020, 16 loans were newly restructured (forbearance loans which were downgraded when their monthly payment deferrals were extended beyond six months, consistent with the Interagency Statement), while one restructured loan was upgraded to the pass category. For the quarter ended December 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. During both quarters ended December 31, 2020 and 2019, no restructured loans were in default within a 12-month period subsequent to their original restructuring. Additionally, during the quarter ended December 31, 2020 and 2019, there was no loan whose modification was extended beyond the initial maturity of the modification. At both December 31, 2020 and June 30, 2020, there were no commitments to lend additional funds to those borrowers whose loans were restructured.

For the six months ended December 31, 2020, 17 loans were newly restructured (including 16 COVID-19 related loan forbearance modifications which were downgraded when their monthly payment deferrals were extended beyond six months, consistent with the Interagency Statement), while two restructured loans were upgraded to the pass category. For the six months ended December 31, 2019, no new loans were

restructured from their original terms and classified as restructured loans, while two substandard restructured loans were paid off, one restructured loan was downgraded from pass to the substandard category and one restructured loan was upgraded from special mention to the pass category. ~~For the quarter 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~~During both six months ended December 31, ~~2018, no new loans were restructured from their original terms~~2020 and ~~classified as restructured loans, while one restructured loan was upgraded to the pass category and one restructured loan was paid off. During the quarter and six months ended December 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 December 31, 2020 and 2019, there was no loan whose modification was extended beyond the initial maturity of the modification. During the quarter and six months ended December 31, 2018, there was one restructured loan with a loan balance of $56,000 whose modification was extended. At both December 31, 2019 and June 30, 2019, there were no commitments to lend additional funds to those borrowers whose loans were restructured.

As of December 31, ~~2019,~~2020, the Corporation held ~~six~~23 restructured loans with a net outstanding balance of ~~$1.8~~$8.2 million, and all loans were classified as substandard and on non-accrual status. As of June 30, ~~2019,~~2020, the Corporation held eight restructured loans with a net outstanding balance of ~~$3.8 million: one loan was classified as special mention on accrual status ($437,000); one loan was classified as substandard on accrual status ($1.4 million);~~$2.6 million, and ~~six~~all loans were classified as substandard on non-accrual status ($1.9 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.status. As of December 31, ~~2019 and~~2020, all of the restructured loans were current with respect to their modified payment terms, as compared to June 30, ~~2019, $888,000 or 49%, and $2.4~~2020 when $1.2 million or ~~63%, respectively,~~44 % of the restructured loans were current with respect to their modified payment terms.

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

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

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:~~type:

At At
(In Thousands) December 31, 2019 June 30, 2019
Restructured loans on non-accrual status:
      Mortgage loans:
        Single-family $ 1,783 $ 1,891
      Commercial business loans 37 41
        Total 1,820 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)	December 31, 2020		June 30, 2020
Restructured loans on non-accrual status:
Mortgage loans:
Single-family	$	8,208	$	2,612
Commercial business loans	—		31
Total	8,208		2,643

Total restructured loans	$	8,208	$	2,643

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

			At December 31, 2019														At December 31, 2020
			Unpaid										Net				Unpaid										Net
			Principal		Related			Recorded					Recorded				Principal		Related			Recorded					Recorded
(In Thousands)	(In Thousands)		Balance		Charge-offs			Investment		Allowance ⁽¹⁾			Investment		(In Thousands)		Balance		Charge-offs			Investment		Allowance ⁽¹⁾			Investment

Mortgage loans:	Mortgage loans:														Mortgage loans:
	Single-family:														Single-family:
		With a related allowance	$	685	$	—		$	685	$	(46	)	$	639		With a related allowance	$	7,939	$	—		$	7,939	$	(587	)	$	7,352
		Without a related allowance ⁽²⁾	1,509		(365		)	1,144		—			1,144			Without a related allowance ⁽²⁾	1,221		(365		)	856		—			856
	Total single-family		2,194		(365		)	1,829		(46		)	1,783		Total single-family		9,160		(365		)	8,795		(587		)	8,208

Commercial business loans:
	With a related allowance		43		—			43		(6		)	37
Total commercial business loans			43		—			43		(6		)	37

Total restructured loans	Total restructured loans		$	2,237	$	(365	)	$	1,872	$	(52	)	$	1,820	Total restructured loans		$	9,160	$	(365	)	$	8,795	$	(587	)	$	8,208

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

⁽²⁾ There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance.

			At June 30, 2019														At June 30, 2020
			Unpaid										Net				Unpaid										Net
			Principal		Related			Recorded					Recorded				Principal		Related			Recorded					Recorded
(In Thousands)	(In Thousands)		Balance		Charge-offs			Investment		Allowance⁽¹⁾			Investment		(In Thousands)		Balance		Charge-offs			Investment		Allowance⁽¹⁾			Investment

Mortgage loans:	Mortgage loans:														Mortgage loans:
	Single-family:														Single-family:
		With a related allowance	$	2,199	$	—		$	2,199	$	(122	)	$	2,077		With a related allowance	$	1,650	$	—		$	1,650	$	(108	)	$	1,542
		Without a related allowance⁽²⁾	2,040		(365		)	1,675		—			1,675			Without a related allowance⁽²⁾	1,435		(365		)	1,070		—			1,070
	Total single-family		4,239		(365		)	3,874		(122		)	3,752		Total single-family		3,085		(365		)	2,720		(108		)	2,612

Commercial business loans:	Commercial business loans:														Commercial business loans:
	With a related allowance		49		—			49		(8		)	41		With a related allowance		35		—			35		(4		)	31
Total commercial business loans	Total commercial business loans		49		—			49		(8		)	41		Total commercial business loans		35		—			35		(4		)	31

Total restructured loans	Total restructured loans		$	4,288	$	(365	)	$	3,923	$	(130	)	$	3,793	Total restructured loans		$	3,120	$	(365	)	$	2,755	$	(112	)	$	2,643

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

⁽²⁾ There was no related allowance for loan losses because the loans have been charged-off to their fair value or the fair value of the collateral is higher than the loan balance.

During the quarter and six months ended December 31, 2020 and 2019, no properties were acquired in the settlement of loans and no previously foreclosed upon properties were sold. ~~This compares to the quarter ended~~As of both December 31, 2018 when no 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 no previously foreclosed upon properties were sold. This compares to the six months ended December 31, 2018 when no property was acquired in the settlement of loans, while two previously foreclosed upon properties were sold. As of December 31, 20192020 and June 30, ~~2019,~~2020, there was no real estate owned ~~property at both dates.~~property. A new appraisal is obtained on each of the properties at the time of foreclosure and fair value is derived by using the lower of the appraised value or the listing price of the property, net of selling costs. Any initial loss is recorded as a charge to the allowance for loan losses before being transferred to real estate owned. Subsequent to transfer to real estate owned, if there is further deterioration in real estate values, specific real estate owned loss reserves are established and charged to the condensed consolidated statements of operations. In addition, the Corporation records costs to carry real estate owned as real estate owned operating expenses as incurred.

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

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

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

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

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

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

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

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

⁽¹⁾	Current loan balance in comparison to the original appraised value.

⁽²⁾	At time of loan origination, borrowers and/or guarantors.

⁽³⁾	At time of loan origination.

⁽⁴⁾	In months.

Note 6: Derivative and Other Financial Instruments with Off-Balance Sheet Risks

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit in the form of originating loans or providing funds under existing lines of credit, loan sale commitments to third parties and option contracts. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying Condensed Consolidated Statements of Financial Condition. The Corporation’s exposure to credit loss, in the event of non-performance by the counterparty to these financial instruments, is represented by the contractual amount of these instruments. The Corporation uses the same credit policies in entering into financial instruments with off-balance sheet risk as it does for on-balance sheet instruments. As of December 31, ~~2019~~2020 and June 30, ~~2019,~~2020, the Corporation had commitments to extend credit on loans to be held for investment of ~~$10.0~~$12.3 million and ~~$4.3~~$13.6 million, respectively.

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

Commitments	December 31, 2019		June 30, 2019		December 31, 2020		June 30, 2020
(In Thousands)

Undisbursed loan funds – Construction loans	$	6,821	$	6,592	$	2,736	$	4,029
Undisbursed lines of credit – Commercial business loans	850		1,003		520		935
Undisbursed lines of credit – Consumer loans	468		479		422		448
Commitments to extend credit on loans to be held for investment	10,021		4,254		12,281		13,579
Total	$	18,160	$	12,328	$	15,959	$	18,991

The following table provides information regarding the allowance for loan losses for the undisbursed funds and commitments to extend credit on loans to be held for investment for the quarter ~~and six months~~ ended December 31, ~~2019~~2020 and ~~2018.~~2019.

	For the Quarter Ended December 31,					For the Six Months Ended December 31,						For the Quarter Ended December 31,						For the Six Months Ended December 31,
(In Thousands)	2019			2018		2019			2018			2020			2019			2020			2019
Balance, beginning of the period	$	143		$	149	$	141		$	157		$	104		$	143		$	126		$	141
Provision (recovery)	(5		)	1		(3		)	(7		)
Recovery												(3		)	(5		)	(25		)	(3		)
Balance, end of the period	$	138		$	150	$	138		$	150		$	101		$	138		$	101		$	138

In accordance with ASC 815, “Derivatives and Hedging,” and interpretations of the Derivatives Implementation Group of the FASB, the fair value of the commitments to extend credit on loans to be held for sale, loan sale commitments, to be announced (“TBA”) MBS trades, put option contracts and call option contracts are recorded at fair value on the Condensed Consolidated Statements of Financial Condition. The Corporation does not apply hedge accounting to its derivative financial instruments; therefore, all changes in fair value are recorded in earnings. As of December 31, ~~2019~~2020 and June 30, ~~2019,~~2020, 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 quarter and six months ended December 31, 2019 and 2018 was as follows:

For the Quarter Ended
December 31, For the Six Months Ended
December 31,
Derivative Financial Instruments 2019 2018 2019 2018
(In Thousands)
Commitments to extend credit on loans to be held for sale $ — $ 8 $ — $ (321 )
Mandatory loan sale commitments and TBAMBS trades
— (928 ) — (249 )
Total net loss $ — $ (920 ) $ — $ (570 )

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~~2020 and June 30, ~~2019,~~2020, the Bank serviced ~~$8.3~~$6.2 million and ~~$9.7~~$7.4 million of loans under this program, respectively and has established a recourse liability of ~~$50,000 at both dates.~~

$40,000 and $70,000, respectively.

Occasionally, the Bank is required to repurchase loans sold to Freddie Mac, Fannie Mae or other investors if it is determined that such loans do not meet the credit requirements of the investor, or if one of the parties involved in the loan misrepresented pertinent facts, committed fraud, or if such loans were 90-days past due within 120 days of the loan funding date. During the quarter ended December 31, ~~2019,~~2020, the Bank ~~repurchased two single-family loans totaling $520,000.~~did not repurchase any loans. In comparison during the same quarter last year, the Bank ~~did not repurchase any loans. During the first six months of fiscal 2019, the Corporation~~ repurchased ~~three~~two single-family loans totaling ~~$1.1 million. In comparison during~~$520,000 pursuant to the recourse/repurchase covenants contained in the loan sale agreements. During the six months ended December 31, ~~2018,~~2020, the ~~Corporation~~Bank did not repurchase any loans. In comparison, during the same period last year, the Bank repurchased three single-family loans totaling ~~$253,000, including two loans totaling $25,000 that were fully charged off.~~$1.1 million pursuant to the recourse/repurchase covenants contained in the loan sale agreements. There were no other repurchase requests that did not result in the repurchase of the loan itself, which were settled in the quarter and six months ended December 31, ~~2019~~2020 and ~~2018.~~2019. In addition to the specific recourse liability for the MPF program, the Bank established a recourse liability of $350,000 and $200,000 for loans sold to other investors as of ~~both~~ December 31, ~~2019~~2020 and June 30, ~~2019.~~2020, respectively.

The following table shows the summary of the recourse liability for the quarter and six months ended December 31, ~~2019~~2020 and ~~2018:~~2019:

	For the Quarter Ended December 31,				For the Six Months Ended December 31,					For the Quarter Ended December 31,				For the Six Months Ended December 31,
Recourse Liability	2019		2018		2019		2018			2020		2019		2020		2019
(In Thousands)

Balance, beginning of the period	$	250	$	250	$	250	$	283		$	370	$	250	$	270	$	250
Provision (recovery) from recourse liability	—		—		—		(33		)
Provision for recourse liability										20		—		120		—
Net settlements in lieu of loan repurchases	—		—		—		—			—		—		—		—
Balance, end of the period	$	250	$	250	$	250	$	250		$	390	$	250	$	390	$	250

Note 7: Fair Value of Financial Instruments

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

earnings for which the fair value option has been elected. The objective of the Fair Value Option is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.

The Corporation also adopted ASU 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies disclosure requirements on fair value measurements to improve their effectiveness.” The guidance permits entities to consider materiality when evaluating fair value measurement disclosures and, among other modifications, requires certain new disclosures related to Level 3 fair value measurements.

The following table describes the difference at the dates indicated between the aggregate fair value and the aggregate unpaid principal balance of loans held for investment at fair value:

(In Thousands)	Aggregate Fair Value		Aggregate Unpaid Principal Balance		Net Unrealized Loss			Aggregate Fair Value		Aggregate Unpaid Principal Balance		Net Unrealized Loss
As of December 31, 2019:
As of December 31, 2020:
Loans held for investment, at fair value	$	4,173	$	4,284	$	(111	)	$	1,972	$	2,097	$	(125	)

As of June 30, 2019:
As of June 30, 2020:
Loans held for investment, at fair value	$	5,094	$	5,218	$	(124	)	$	2,258	$	2,369	$	(111	)

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

ASC 820 establishes a three-level valuation hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:

Level 1	-	Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.
Level 2	-	Observable inputs other than Level 1 such as: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated to observable market data for substantially the full term of the asset or liability.
Level 3	-	Unobservable inputs for the asset or liability that use significant assumptions, including assumptions of risks. These unobservable assumptions reflect the Corporation’s estimate of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of pricing models, discounted cash flow models and similar techniques.

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

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

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

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

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

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

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

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

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

	Fair Value Measurement at December 31, 2019 Using:								Fair Value Measurement at December 31, 2020 Using:
(In Thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Investment securities - available for sale:
U.S. government agency MBS	$	—	$	3,246	$	—	$	3,246	$	—	$	2,551	$	—	$	2,551
U.S. government sponsored enterprise MBS	—		1,760		—		1,760		—		1,434		—		1,434
Private issue CMO	—		—		231		231		—		—		173		173
Investment securities - available for sale	—		5,006		231		5,237		—		3,985		173		4,158

Loans held for investment, at fair value	—		—		4,173		4,173		—		—		1,972		1,972
Interest-only strips	—		—		13		13		—		—		12		12
Total assets	$	—	$	5,006	$	4,417	$	9,423	$	—	$	3,985	$	2,157	$	6,142

Liabilities	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Fair Value Measurement at June 30, 2019 Using:
(In Thousands) Level 1 Level 2 Level 3 Total
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 $ — $ — $ — $ —

	Fair Value Measurement at June 30, 2020 Using:
(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Investment securities - available for sale:
U.S. government agency MBS	$	—	$	2,943	$	—	$	2,943
U.S. government sponsored enterprise MBS	—		1,577		—		1,577
Private issue CMO	—		—		197		197
Investment securities - available for sale	—		4,520		197		4,717

Loans held for investment, at fair value	—		—		2,258		2,258
Interest-only strips	—		—		14		14
Total assets	$	—	$	4,520	$	2,469	$	6,989

Liabilities:	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

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													For the Quarter Ended December 31, 2020
	Fair Value Measurement Using Significant Other Unobservable Inputs (Level 3)													Fair Value Measurement Using Significant Other Unobservable Inputs (Level 3)
(In Thousands)	Private Issue CMO			Loans Held For Investment, at fair value ⁽¹⁾				Interest- Only Strips			Total			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
Beginning balance at September 30, 2020														$	184		$	2,240		$	13		$	2,437
Total gains or losses (realized/unrealized):
Included in earnings		—				31			—			31		—			(11		)	—			(11		)
Included in other comprehensive loss		(3	)			—			(1	)		(4	)	2			—			(1		)	1
Purchases		—				—			—			—		—			—			—			—
Issuances		—				—			—			—		—			—			—			—
Settlements		(19	)			(244	)		—			(263	)	(13		)	(257		)	—			(270		)
Transfers in and/or out of Level 3		—				—			—			—		—			—			—			—
Ending balance at December 31, 2019	$	231			$	4,173		$	13		$	4,417
Ending balance at December 31, 2020														$	173		$	1,972		$	12		$	2,157

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

	For the 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

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

For the Quarter Ended December 31, 2018

Fair Value Measurement
Using Significant Other Unobservable Inputs
(Level 3)

(In Thousands)
Private
Issue
CMO

Loans Held
For
Investment, at
fair value ⁽¹⁾

Interest-
Only
Strips

Loan
Commitments to Originate ⁽²⁾

Mandatory
Commitments ⁽³⁾
Total
Beginning balance at September 30, 2018 $ 316 $ 4,945 $ 24 $ 496 $ (9 ) $ 5,772
    Total gains or losses (realized/unrealized):
        Included in earnings — 95 — 8 (1 ) 102
        Included in other comprehensive loss (1 ) — (3 ) — — (4 )
    Purchases — — — — — —
    Issuances — — — — — —
    Settlements (5 ) (45 ) — — 1 (49 )
    Transfers in and/or out of Level 3 — — — — — —
Ending balance at December 31, 2018 $ 310
$ 4,995
$ 21
$ 504
$ (9 )
$ 5,821

⁽¹⁾	The valuation of loans held for investment at fair value includes the management estimates of the specific credit risk attributes of each loan, 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.~~

3132

	For the Six Months Ended December 31, 2019												For the Six Months Ended December 31, 2020
	Fair Value Measurement Using Significant Other Unobservable Inputs (Level 3)												Fair Value Measurement Using Significant Other Unobservable Inputs (Level 3)
(In Thousands)	Private Issue CMO			Loans Held For Investment, at fair value ⁽¹⁾			Interest- Only Strips			Total			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
Beginning balance at June 30, 2020													$	197		$	2,258		$	14		$	2,469
Total gains or losses (realized/unrealized):
Included in earnings		—			13			—			13		—			(15		)	—			(15		)
Included in other comprehensive loss		(3	)		—			(3	)		(6	)	6			—			(2		)	4
Purchases		—			—			—			—		—			—			—			—
Issuances		—			—			—			—		—			—			—			—
Settlements		(35	)		(934	)		—			(969	)	(30		)	(271		)	—			(301		)
Transfers in and/or out of Level 3		—			—			—			—		—			—			—			—
Ending balance at December 31, 2019	$	231		$	4,173		$	13		$	4,417
Ending balance at December 31, 2020													$	173		$	1,972		$	12		$	2,157

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

	For the Six Months Ended December 31, 2018																		For the Six Months Ended December 31, 2019
	Fair Value Measurement Using Significant Other Unobservable Inputs (Level 3)																		Fair Value Measurement Using Significant Other Unobservable Inputs (Level 3)
(In Thousands)	Private Issue CMO			Loans Held For Investment, at fair value ⁽¹⁾			Interest- Only Strips			Loan Commitments to Originate ⁽²⁾			Mandatory Commitments ⁽³⁾			Total			Private Issue CMO			Loans Held For Investment, at fair value ⁽¹⁾			Interest- Only Strips			Total
Beginning balance at June 30, 2018	$	350		$	5,234		$	23		$	825		$	(32	)	$	6,400
Beginning balance at June 30, 2019																			$	269		$	5,094		$	16		$	5,379
Total gains or losses (realized/unrealized):
Included in earnings		—			46			—			(321	)		21			(254	)	—			13			—			13
Included in other comprehensive loss		(1	)		—			(2	)		—			—			(3	)	(3		)	—			(3		)	(6		)
Purchases		—			—			—			—			—			—		—			—			—			—
Issuances		—			—			—			—			—			—		—			—			—			—
Settlements		(39	)		(755	)		—			—			2			(792	)	(35		)	(934		)	—			(969		)
Transfers in and/or out of Level 3		—			470			—			—			—			470		—			—			—			—
Ending balance at December 31, 2018	$	310		$	4,995		$	21		$	504		$	(9	)	$	5,821
Ending balance at December 31, 2019																			$	231		$	4,173		$	13		$	4,417

⁽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.~~

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

Fair Value Measurement at December 31, 2019 Using:
(In Thousands) Level 1 Level 2 Level 3 Total
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:								Fair Value Measurement at December 31, 2020 Using:
(In Thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Non-performing loans	$	—	$	3,971	$	2,247	$	6,218	$	—	$	1,562	$	8,708	$	10,270
Mortgage servicing assets	—		—		627		627		—		—		233		233
Real estate owned, net	—		—		—		—
Total	$	—	$	3,971	$	2,874	$	6,845	$	—	$	1,562	$	8,941	$	10,503

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

The following table presents additional information about valuation techniques and inputs used for assets and liabilities, which are measured at fair value and categorized within Level 3 as of December 31, ~~2019:~~2020:

(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⁾

Fair Value
As of
December 31,
2020

Valuation

Techniques

Unobservable Inputs

Range⁽¹⁾

(Weighted Average)

Impact to

Valuation

from an

Increase in

Inputs⁽²⁾

Assets:

Securities available-for sale:

Private issue CMO

231

Market comparable

pricing

Comparability adjustment

1.7% - 2.3% (1.9%)

Increase

173

Market comparable

pricing

Comparability adjustment

(0.1)% - (1.4)%

((0.3)%)

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

1,972

Relative value

analysis

Broker quotes

Credit risk factor

97.6% - 102.0%

(99.9%) of par
1.4% - 100.0% (5.9%)

Increase

Decrease

Non-performing loans⁽³⁾

676

Discounted cash flow

Default rates

5.0%

Decrease

7,352

Discounted cash flow

Default rates

5.0%

Decrease

Non-performing loans⁽⁴⁾

331

Relative value

analysis

Credit risk factor

20.0% - 30.0% (20.5%)

Decrease

1,356

Relative value analysis

Credit risk factor

20.0% - 30.0% (20.1%)

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

233

Discounted cash flow

Prepayment speed (CPR)

Discount rate

20.4% - 60.0% (29.6%)
9.0% - 10.5% (9.1%)

Decrease
Decrease

Interest-only strips

Discounted cash flow

Prepayment speed (CPR)

Discount rate

16.0% - 43.8% (41.2%)
9.0%

Decrease
Decrease

Discounted cash flow

Prepayment speed (CPR)

Discount rate

20.4% - 23.0% (22.9%)
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⁾	Consists of restructured loans.

⁽⁴⁾	Consists of other non-performing loans, excluding restructured loans.

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

The carrying amount and fair value of the Corporation’s other financial instruments as of December 31, ~~2019~~2020 and June 30, ~~2019~~2020 was as follows:

	December 31, 2019										December 31, 2020
(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	$	77,161	$	78,269	$	—	$	78,269	$	—	$	203,098	$	206,451	$	—	$	206,451	$	—
Loans held for investment, not recorded at fair value	$	937,556	$	919,915	$	—	$	—	$	919,915	$	853,114	$	854,482	$	—	$	—	$	854,482
FHLB – San Francisco stock	$	8,199	$	8,199	$	—	$	8,199	$	—	$	7,970	$	7,970	$	—	$	7,970	$	—

Financial liabilities:
Deposits	$	833,650	$	805,716	$	—	$	—	$	805,716	$	909,968	$	879,153	$	—	$	—	$	879,153
Borrowings	$	131,085	$	133,040	$	—	$	—	$	133,340	$	116,015	$	120,942	$	—	$	—	$	120,942

	June 30, 2019										June 30, 2020
(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	$	94,090	$	95,359	$	—	$	95,359	$	—	$	118,627	$	121,201	$	—	$	121,201	$	—
Loans held for investment, not recorded at fair value	$	874,831	$	861,374	$	—	$	—	$	861,374	$	900,538	$	902,074	$	—	$	—	$	902,074
FHLB – San Francisco stock	$	8,199	$	8,199	$	—	$	8,199	$	—	$	7,970	$	7,970	$	—	$	7,970	$	—

Financial liabilities:
Deposits	$	841,271	$	813,087	$	—	$	—	$	813,087	$	892,969	$	864,239	$	—	$	—	$	864,239
Borrowings	$	101,107	$	102,826	$	—	$	—	$	102,826	$	141,047	$	149,976	$	—	$	—	$	149,976

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.

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

While the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. During the quarter ended December 31, ~~2019,~~2020, there were no significant changes to the Corporation’s valuation techniques that had, or are expected to have, a material impact on its condensed consolidated financial position or results of operations.

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

The following tables provide the changes in AOCI by component for the quarter and six months ended December 31, ~~2019~~2020 and ~~2018.~~2019.

	For the Quarter Ended December 31, 2020
	Unrealized gains and losses on
(In Thousands)	Investment securities available for sale			Interest- only strips		Total

Beginning balance at September 30, 2020	$	90		$	9	$	99

Other comprehensive loss before reclassifications	(19		)	—		(19		)
Amount reclassified from accumulated other comprehensive income	—			—		—
Net other comprehensive loss	(19		)	—		(19		)

Ending balance at December 31, 2020	$	71		$	9	$	80

	For the Quarter Ended December 31, 2019
	Unrealized gains and losses on
(In Thousands)	Investment securities available for sale			Interest- only strips			Total

Beginning balance at September 30, 2019	$	138		$	10		$	148

Other comprehensive loss before reclassifications	(14		)	(1		)	(15		)
Amount reclassified from accumulated other comprehensive income	—			—			—
Net other comprehensive loss	(14		)	(1		)	(15		)

Ending balance at December 31, 2019	$	124		$	9		$	133

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 Six Months Ended December 31, 2020
	Unrealized gains and losses on
(In Thousands)	Investment securities available for sale			Interest- only strips			Total

Beginning balance at June 30, 2020	$	94		$	10		$	104

Other comprehensive loss before reclassifications	(23		)	(1		)	(24		)
Amount reclassified from accumulated other comprehensive income	—			—			—
Net other comprehensive loss	(23		)	(1		)	(24		)

Ending balance at December 31, 2020	$	71		$	9		$	80

	For the Six Months Ended December 31, 2019
	Unrealized gains and losses on
(In Thousands)	Investment securities available for sale			Interest- only strips			Total

Beginning balance at June 30, 2019	$	150		$	11		$	161

Other comprehensive loss before reclassifications	(26		)	(2		)	(28		)
Amount reclassified from accumulated other comprehensive income	—			—			—
Net other comprehensive loss	(26		)	(2		)	(28		)

Ending balance at December 31, 2019	$	124		$	9		$	133

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 9: Revenue From Contracts With Customers

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

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

Disaggregation of Revenue:

The following table includes the Corporation's non-interest income disaggregated by type of services for the quarter and six months ended December 31, ~~2019~~2020 and ~~2018:~~2019:

For the Quarter Ended
December 31, For the Six Months Ended
December 31,
Type of Services 2019 2018 2019 2018
(In Thousands)
Asset management fees $ 84 $ 56 $ 164 $ 138
Debit card and ATM fees 394 413 815 832
Deposit related fees 466 519 931 1,038
Loan related fees 8 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
Other 22 19 26 34
Total non-interest income $ 1,344 $ 3,595 $ 2,414 $ 8,144

	For the Quarter Ended December 31,				For the Six Months Ended December 31,
Type of Services	2020		2019		2020		2019
(In Thousands)
Loan servicing and other fees⁽¹⁾	$	120	$	367	$	525	$	500
Deposit account fees	329		451		639		898
Card and processing fees	368		371		732		761
Other⁽²⁾	157		155		237		255
Total non-interest income	$	974	$	1,344	$	2,133	$	2,414

⁽¹⁾	Not in scope of ASC 606.

⁽²⁾

~~There were no loan sales in the quarter~~Includes BOLI of $48 thousand and ~~first six months of fiscal 2020 as compared to the loan sale volume of $131.3 million and $313.1 million~~$47 thousand for the quarter and ~~first~~$96 thousand and $94 thousand for six months ended December 31, 2020 and 2019, respectively, which are not in scope of ~~fiscal 2019, respectively.~~ASC 606.

For both the quarter and six months ended December 31, ~~2019~~2020 and ~~2018,~~2019, substantially all of the Corporation's revenues within the scope of ASC 606 are for performance obligations satisfied at a specified date.

Revenues recognized in scope of ASC 606:

~~Asset management~~Deposit account fees: ~~Asset management fees~~Fees are ~~variable, since they are based~~earned on the ~~underlying portfolio value, which is subject~~Bank's deposit accounts for various products offered to ~~market conditions~~or services performed for the Bank's customers. Fees include business account fees, non-sufficient fund fees, ATM fees and ~~amounts invested by clients through a third-party provider. Asset management~~others. These fees are recognized ~~over~~concurrent with the ~~period that services are provided, and when~~event on a daily, monthly, quarterly or annual basis, depending on the ~~portfolio values are known or can be estimated at the end~~type of ~~each month.~~service.

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

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

Note 10: Leases

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

other liabilities, while right-of-use assets are recorded in premises and equipment in the Corporation’s condensed consolidated statements of financial condition. At December 31, ~~2019,~~2020, all of the Corporation’s leases were classified as operating leases and the Corporation did not have any operating leases with an initial term of 12 months or less (“short-term leases”). Liabilities to make future lease payments and right of use assets are recorded for operating leases and do not include short-term leases. These liabilities and right-of-use assets are determined based on the total contractual base rents for each lease, which include options to extend or renew each lease, where applicable, and where the Corporation believes it has an economic incentive to extend or renew the lease. Due to the fact that lease extensions are not reasonably certain, the Corporation generally does not recognize payments occurring during option periods in the calculation of its operating right-of-use lease assets and operating lease liabilities. The Corporation utilizes the FHLB - San Francisco rates as a discount rate for each of the remaining contractual terms at the adoption date as well as for future leases if the discount rate is not stated in the lease. For leases that contain variable lease payments, the Corporation assumes future lease payment escalations based on a lease payment escalation rate specified in the lease or the specified index rate observed at the time of lease commencement. Liabilities to make future lease payments are accounted for using the interest method, being reduced by periodic contractual lease payments net of periodic interest accretion. Right-of-use assets for operating leases are amortized over the term of the associated lease by amounts that represent the difference between periodic straight-line lease expense and periodic interest accretion in the related liability to make future lease payments.

For the quarter ~~and six months~~ ended December 31, 2020 and 2019, ~~expense~~expenses associated with the Corporation’s leases totaled ~~$211,000~~$210,000 and ~~$401,000,~~$211,000, respectively, and ~~was~~were recorded in premises and occupancy expenses and equipment expenses in the condensed consolidated statements of operations.

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

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

(In Thousands)
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

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

	Quarter Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Condensed Consolidated Statements of Operations:
Premises and occupancy expenses from operating leases^{(1) (2)}	$	199	$	195	$	398	$	374
Equipment expenses from operating leases	11		16		23		27

⁽¹⁾	Variable lease costs are immaterial.

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

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

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

The following table provides information related to remaining minimum contractual lease payments and other information associated with the Corporation’s leases as of December 31, ~~2019:~~2020:

		Amount⁽¹⁾			Amount⁽¹⁾
Year Ending June 30,	Year Ending June 30,	(In Thousands)			(In Thousands)
2020		$	495
2021	2021	753			$	455
2022	2022	677			778
2023	2023	478			469
2024	2024	361			359
2025					255
Thereafter	Thereafter	530			275
Total contract lease payments, net⁽²⁾		$	3,294
Total contract lease payments					$	2,591

Total liability to make lease payments	Total liability to make lease payments	$	3,123		$	2,478
Difference in undiscounted and discounted future lease payments	Difference in undiscounted and discounted future lease payments	$	171		$	113
Weighted average discount rate	Weighted average discount rate		2.14	%	Weighted average discount rate		2.00	%
Weighted average remaining lease term (years)	Weighted average remaining lease term (years)		4.8		Weighted average remaining lease term (years)		4.1

⁽¹⁾ Contractual base rents do not include property taxes and other operating expenses due under respective lease agreements. ⁽²⁾ Revenue related to sublease activity is immaterial and not presented herein.
⁽¹⁾ Contractual base rents do not include property taxes and other operating expenses due under respective lease agreements.					⁽¹⁾ Contractual base rents do not include property taxes and other operating expenses due under respective lease agreements.

~~The following table summarizes the impact of the adoption of the 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

Note ~~11:~~12: Subsequent ~~Event~~Events

On January 28, ~~2020,~~2021, the Corporation announced that the Corporation’s Board of Directors declared a quarterly cash dividend of $0.14 per share. Shareholders of the Corporation’s common stock at the close of business on February 18, ~~2020~~2021 are entitled to receive the cash dividend. The cash dividend will be payable on March ~~10, 2020.~~11, 2021.

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

General

Provident Financial Holdings, Inc., a Delaware corporation, was organized in January 1996 for the purpose of becoming the holding company of Provident Savings Bank, F.S.B. ("the Bank") upon the Bank’s conversion from a federal mutual to a federal stock savings bank (“Conversion”). The Conversion was completed on June 27, 1996. The Corporation is regulated by the Federal Reserve Board (“FRB”). At December 31, ~~2019,~~2020, the Corporation had total assets of ~~$1.11~~$1.17 billion, total deposits of ~~$833.7~~$910.0 million and total stockholders’ equity of ~~$123.8~~$125.0 million. The Corporation has not engaged in any significant activity other than holding the stock of the Bank. Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Bank and its subsidiaries. As used in this report, the terms “we,” “our,” “us,” and “Corporation” refer to Provident Financial Holdings, Inc. and its consolidated subsidiaries, unless the context indicates otherwise.

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

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

The Corporation began to distribute quarterly cash dividends in the quarter ended ~~December 31,~~September 30, 2002. On October ~~30, 2019,~~29, 2020, the Corporation declared a quarterly cash dividend of $0.14 per share for the Corporation’s shareholders of record at the close

of business on November ~~20, 2019,~~19, 2020, which was paid on December ~~11, 2019.~~10, 2020. Future declarations or payments of dividends will be subject to the consideration of the Corporation’s Board of Directors, which will take into account the Corporation’s financial condition, results of operations, tax considerations, capital requirements, industry standards, legal restrictions, economic conditions and other factors, including the regulatory restrictions which affect the payment of dividends by the Bank to the Corporation. Under Delaware law, dividends may be paid either out of surplus or, if there is no surplus, out of net profits for the current fiscal year and/or the preceding fiscal year in which the dividend is declared.

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

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

Safe-Harbor Statement

Certain matters in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Form 10-Q contains statements that the Corporation believes are “forward-looking statements.” These statements relate to the Corporation’s financial condition, liquidity, results of operations, plans, objectives, future performance or business. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Corporation may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Corporation. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially include, but are not limited to the following: the effect of the COVID-19 pandemic, including on the Corporation’s credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and charge-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the residential and commercial real estate markets and may lead to increased losses and non-performing assets and may result in our allowance for loan losses not being adequate to cover actual losses and require us to materially increase our reserve; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; uncertainty regarding the future of the London

Interbank Offered Rate ("LIBOR"), and the potential transition away from LIBOR toward new interest rate benchmarks; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; ~~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

systems or on the third-party vendors who perform several of our critical processing functions; ~~our ability to implement our branch expansion strategy;~~ our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common stock; adverse changes in the securities markets; the inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; including as a result of the Coronavirus Aid, Relief, and Economic Security Act for 2020 (“CARES Act”), Interagency Statement and the Consolidated Appropriations Act 2021; war or terrorist activities; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services, including the CARES Act, Interagency Statement and recent Covid-19 vaccination efforts, the Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (“Interagency Statement”), and other risks detailed in this report and in the Corporation’s other reports filed with or furnished to the SEC. These developments could have an adverse impact on our financial position and our results of operations. Forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included in this document or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this document might not occur, and you should not put undue reliance on any forward-looking statements.

Critical Accounting Policies

The discussion and analysis of the Corporation’s financial condition and results of operations is based upon the Corporation’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.

The Corporation's critical accounting policies are described in the Corporation’s ~~2019~~2020 Annual Report on Form 10-K for the year ended June 30, ~~2019~~2020 in the Critical Accounting Policies section of Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 - Organization and Significant Accounting Policies. There have been no significant changes during the six months ended December 31, ~~2019~~2020 to the critical accounting policies as described in the Corporation’s ~~2019~~2020 Annual Report on Form 10-K for the period ended June 30, ~~2019.~~

2020.

Executive Summary and Operating Strategy

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

Community banking operations primarily consist of accepting deposits from customers within the communities surrounding the Corporation’s full service offices and investing those funds in single-family, multi-family and commercial real estate loans. Also, to a lesser extent, the Corporation makes construction, commercial business, consumer and other mortgage loans. The primary source of income in community banking is net interest income, which is the difference between the interest income

earned on loans and investment securities, and the interest expense paid on interest-bearing deposits and borrowed funds. Additionally, certain fees are collected from ~~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 by(by increasing single-family, 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 ~~total assets,~~the Corporation, an increase in net interest income. While the Corporation’s long-term strategy is for moderate growth, management recognizes that growth may ~~not occur~~be difficult as a result of weaknesses in general economic conditions.

~~Saleable single-family mortgage loan operations primarily consist~~ Further, because the length of the ~~origination~~COVID-19 pandemic and ~~sale~~the efficacy of ~~mortgage loans secured by single-family residences. The primary sources of income~~the extraordinary measures being put in place to address its economic consequences are unknown, including the 150 basis point reductions in March 2020 in the ~~saleable mortgage loan operations are gain on sale of loans and certain fees collected from borrowers in connection with~~targeted federal funds rate, until the ~~loan origination process. On February 4, 2019,~~pandemic subsides, the Corporation ~~announced that it was in the best interests of the Corporation to scale back saleable single-family mortgage loan originations~~expects its net interest income and ~~improve on its efforts to increase the volume of portfolio single-family mortgage loan originations.~~net interest margin will be adversely affected for calendar 2021 and possibly longer.

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

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

There are a number of risks associated with the business activities of the Corporation, many of which are beyond the Corporation’s control, including: changes in accounting principles, laws, regulation, interest rates and the economy, including as a result of COVID-19, among others. The Corporation attempts to mitigate many of these risks through prudent banking practices, such as interest rate risk management, credit risk management, operational risk management, and liquidity risk management. The California economic environment presents heightened risk for the Corporation primarily with respect to real estate values and loan delinquencies. Since the majority of the Corporation’s loans are secured by real estate located within California, significant declines in the value of California real estate may also inhibit the Corporation’s ability to recover on defaulted loans by selling the underlying real estate.

COVID-19 Impact to the Corporation

The Corporation is actively monitoring and responding to the effects of the rapidly-changing COVID-19 pandemic. The health, safety and well-being of its customers, employees and communities are the Corporation’s top priorities. The Centers of Disease Control and Prevention (“CDC”) guidelines, as well as directives from federal, state, county and local officials, are being closely followed to make informed operational decisions.

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

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

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

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

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

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

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

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

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

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

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

⁽¹⁾	Current loan balance in comparison to the original appraised value.

⁽²⁾	At time of loan origination, borrowers and/or guarantors.

⁽³⁾	At time of loan origination.

⁽⁴⁾	In months.

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

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

The Corporation anticipates that the COVID-19 pandemic may continue to impact the business in future periods in one or more of the following ways, among others:

Higher provisions for certain commercial real estate loans may be incurred, especially to borrowers with tenants in industries, such as hospitality, travel, food service and restaurants and bars, and businesses providing physical services;

Significantly lower market interest rates which may have a negative impact on variable rate loans indexed to LIBOR, U.S. treasury and prime indices and on deposit pricing, as interest rate adjustments typically lag the effect on the yield earned on interest-earning assets because rates on many deposit accounts are decision-based, not tied to a specific market-based index, and are based on competition for deposits;

Certain additional fees for deposit and loan products may be waived or reduced;

Non-interest income may decline due to a decrease in fees earned as spending habits change by debit card customers complying with COVID-19 governmental safety requirements and who otherwise may be adversely affected by reductions in their personal income or job losses;

Non-interest expenses related to the effects of the COVID-19 pandemic may increase, including cleaning costs, supplies, equipment and other items; and

Additional loan forbearance or modifications may occur and borrowers may default on their loans, which may necessitate further increases to the allowance for loan losses.

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

Off-Balance Sheet Financing Arrangements ~~and Contractual Obligations~~

Commitments and Derivative Financial Instruments. The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, in the form of originating loans or providing funds under existing lines of credit, loan sale agreements to third parties and option contracts. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying Condensed Consolidated Statements of Financial Condition. The Corporation’s exposure to credit loss, in the event of non-performance by the counterparty to these financial instruments, is represented by the contractual amount of these instruments. The Corporation uses the same credit policies in entering into financial instruments with off-balance sheet risk as it does for on-balance sheet instruments. For a discussion on commitments and derivative financial instruments, see ~~Notes~~Note 6 ~~and 10~~ of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

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

Payments Due by Period
(In Thousands)
Less than
1 year
1 to less
than 3
years
3 to
5 years
Over
5 years
Total
Operating obligations $ 1,889 $ 3,176 $ 596 $ 175 $ 5,836
Pension benefits 259 517 518 6,150 7,444
Time deposits 103,391 64,327 20,293 921 188,932
FHLB – San Francisco advances 13,145 65,057 41,824 20,158 140,184
FHLB – San Francisco letter of credit 13,000 — — — 13,000
FHLB – San Francisco MPF credit enhancement ⁽¹⁾
— — — 2,458 2,458
Total $ 131,684 $ 133,077 $ 63,231 $ 29,862 $ 357,854

⁽¹⁾

Represents the potential maximum potential recourse obligation for loans previously sold by the Bank to the FHLB – San Francisco under its Mortgage Partnership Finance (“MPF”) program. As of December 31, 2019, the Bank serviced $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 December 31, ~~2019~~2020 and June 30, ~~2019~~2020

Total assets ~~increased $22.5~~decreased $6.1 million, or ~~two~~one percent, to ~~$1.11~~$1.17 billion at December 31, ~~2019~~2020 from ~~$1.08 billion at~~ June 30, ~~2019.~~2020. The ~~increase~~decrease was primarily attributable to ~~an increase~~decreases in cash and cash equivalents and loans held for investment, partly offset by ~~decreases~~an increase 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, decreased ~~$22.4~~$42.0 million, or 3236 percent, to ~~$48.2~~$74.0 million at December 31, ~~2019~~2020 from ~~$70.6~~$116.0 million at June 30, ~~2019.~~2020. The decrease in the total cash and cash equivalents was primarily attributable to the utilization of cash to fund ~~the increase in loans held for~~purchases of investment ~~which was supplemented by an increase in~~securities and to payoff borrowings.

Investment securities (held to maturity and available for sale) ~~decreased $17.7~~increased $84.0 million, or 1868 percent, to ~~$82.4~~$207.3 million at December 31, ~~2019~~2020 from ~~$100.1~~$123.3 million at June 30, ~~2019.~~2020. The ~~decrease~~increase was primarily the result of purchases of investment securities totaling $106.4 million, partly offset by scheduled and accelerated principal payments on mortgage-backed securities during the first six months of fiscal ~~2020.~~2021. For further analysis on investment securities, see Note 4 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Loans held for investment ~~increased $61.8~~decreased $47.7 million, or ~~seven~~five percent, to ~~$941.7~~$855.1 million at December 31, ~~2019~~2020 from ~~$879.9~~$902.8 million at June 30, ~~2019,~~2020, primarily due to a ~~$40.1 million increase in multi-family loans and a $22.4 million~~decrease in single-family loans. During the first six months of fiscal ~~2020,~~2021, the Corporation originated ~~$61.9~~$66.1 million of loans held for investment, consisting primarily of ~~multi-family~~single-family and ~~single-family~~multi-family loans and also purchased ~~$113.1~~$11.5 million of ~~single-family and~~ multi-family loans held for investment that are located throughout California. Total loan principal payments during the first six months of fiscal ~~2020~~2021 were $125.9 million, up nine percent from $116.0 million ~~up 11 percent from $104.1 million~~ during

the comparable period in fiscal ~~2019.~~2020. The single-family loans held for investment balance at December 31, ~~2019~~2020 and June 30, ~~2019~~2020 was ~~$347.3~~$257.9 million and ~~$325.0~~$298.8 million, respectively, and represented approximately 3730 percent and 33 percent of loans held for investment, ~~at both dates.~~

respectively.

The tables below describe the geographic dispersion of gross real estate secured loans held for investment at December 31, ~~2019~~2020 and June 30, ~~2019,~~2020, as a percentage of the total dollar amount outstanding:

As of December 31, ~~2019:~~2020:

	Inland Empire				Southern California⁽¹⁾				Other California				Other States				Total				Inland Empire				Southern California⁽¹⁾				Other California				Other States				Total
Loan Category	Balance		%		Balance		%		Balance		%		Balance		%		Balance		%		Balance		%		Balance		%		Balance		%		Balance		%		Balance		%
Single-family	$	94,260	27	%	$	162,033	47	%	$	90,053	26	%	$	998	—	%	$	347,344	100	%	$	71,881	28	%	$	115,141	45	%	$	70,546	27	%	$	296	—	%	$	257,864	100	%
Multi-family	70,060		15	%	301,719		63	%	107,053		22	%	319		—	%	479,151		100	%	69,025		14	%	314,635		65	%	104,453		21	%	299		—	%	488,412		100	%
Commercial real estate	24,166		22	%	52,213		49	%	31,234		29	%	—		—	%	107,613		100	%	23,462		23	%	45,342		44	%	33,747		33	%	—		—	%	102,551		100	%
Construction	494		7	%	5,406		78	%	1,014		15	%	—		—	%	6,914		100	%	861		12	%	6,274		88	%	—		—	%	—		—	%	7,135		100	%
Other																					—		—	%	141		100	%	—		—	%	—		—	%	141		100	%
Total	$	188,980	20	%	$	521,371	56	%	$	229,354	24	%	$	1,317	—	%	$	941,022	100	%	$	165,229	19	%	$	481,533	56	%	$	208,746	25	%	$	595	—	%	$	856,103	100	%

⁽¹⁾	Other than the Inland Empire.

As of June 30, ~~2019:~~2020:

	Inland Empire				Southern California⁽¹⁾				Other California				Other States				Total				Inland Empire				Southern California⁽¹⁾				Other California				Other States				Total
Loan Category	Balance		%		Balance		%		Balance		%		Balance		%		Balance		%		Balance		%		Balance		%		Balance		%		Balance		%		Balance		%
Single-family	$	104,967	33	%	$	146,963	45	%	$	71,997	22	%	$	1,025	—	%	$	324,952	100	%	$	82,019	28	%	$	140,888	47	%	$	75,372	25	%	$	531	—	%	$	298,810	100	%
Multi-family	70,241		16	%	272,282		62	%	96,192		22	%	326		—	%	439,041		100	%	66,427		14	%	321,556		65	%	103,609		21	%	311		—	%	491,903		100	%
Commercial real estate	30,551		27	%	54,010		48	%	27,367		25	%	—		—	%	111,928		100	%	23,501		22	%	47,484		45	%	34,250		33	%	—		—	%	105,235		100	%
Construction	525		11	%	3,579		77	%	534		12	%	—		—	%	4,638		100	%	1,115		14	%	5,190		67	%	1,496		19	%	—		—	%	7,801		100	%
Other	—		—	%	—		—	%	167		100	%	—		—	%	167		100	%	—		—	%	143		100	%	—		—	%	—		—	%	143		100	%
Total	$	206,284	24	%	$	476,834	54	%	$	196,257	22	%	$	1,351	—	%	$	880,726	100	%	$	173,062	19	%	$	515,261	57	%	$	214,727	24	%	$	842	—	%	$	903,892	100	%

⁽¹⁾	Other than the Inland Empire.

Total deposits ~~decreased $7.6~~increased $17.0 million, or two percent, to ~~$833.7~~$910.0 million at December 31, ~~2019~~2020 from ~~$841.3~~$893.0 million at June 30, ~~2019. Time deposits decreased $7.2~~2020, primarily due to increases in transaction accounts resulting primarily from government assistance programs related to the COVID-19 pandemic, partly offset by a decrease in higher cost time deposits. Transaction accounts increased $33.2 million, or ~~four~~five percent, to ~~$185.9~~$756.2 million at December 31, ~~2019~~2020 from ~~$193.1~~$723.0 million at June 30, ~~2019,~~2020, while ~~transaction accounts~~time deposits decreased ~~slightly~~$16.2 million, or 10 percent, to ~~$647.8~~$153.8 million at December 31, ~~2019~~2020 from ~~$648.1~~$170.0 million at June 30, ~~2019.~~2020. The percentage of time deposits to total deposits decreased to 2217 percent at December 31, ~~2019~~2020 from 2319 percent at June 30, ~~2019,~~2020, primarily due to a managed run-off of higher cost time deposits consistent with the reduction in the Bank’s funding needs ~~resulting from no loans originated for sale during the first half of fiscal 2020.~~

Total borrowings increased $30.0 million, or 30 percent, to $131.1 million at December 31, 2019 as compared to $101.1 million at June 30, 2019, due to additional long-term borrowing obtained with a lower average cost during the first six months of fiscal ~~2020. The~~2021.

Total borrowings ~~were~~decreased $25.0 million, or 18 percent, to $116.0 million at December 31, 2020 as compared to $141.0 million at June 30, 2020, due to repayments totaling $25.0 million of long-term and short-term borrowings during the first six months of fiscal 2021. At December 31, 2020, borrowings are primarily comprised of long-term FHLB - San Francisco advances used for interest rate risk management purposes.

Total stockholders’ equity increased ~~$3.2~~$1.0 million, or ~~three~~one percent, to ~~$123.8~~$125.0 million at December 31, ~~2019~~2020 from ~~$120.6~~$124.0 million at June 30, ~~2019,~~2020, primarily as a result of year-to-date net income of ~~$5.0~~$2.7 million and stock-based compensation of ~~$695,000,~~$490,000, partly offset by $2.1 million of quarterly cash dividends paid to shareholders ~~and stock repurchases of $397,000~~ during the first six months of fiscal ~~2020.~~2021. The Corporation ~~repurchased 19,285~~did not repurchase any shares of its common stock under its April 2020 plan during the six months ended December 31, ~~2019~~2020, but purchased 3,061 shares of distributed restricted stock in settlement of employee withholding tax obligations at an average cost of ~~$20.58~~$12.01 per share.

Comparison of Operating Results for the Quarter and Six Months ~~Ended~~ended December 31, ~~2019~~2020 and ~~2018~~2019

The Corporation’s net income for the second quarter of fiscal ~~2020~~2021 was ~~$2.4~~$1.2 million, ~~up 22~~down $1.2 million or 51 percent from ~~$2.0~~$2.4 million in the same period of fiscal ~~2019.~~2020. Compared to the same quarter last year, the ~~increase~~decrease was primarily attributable to lower a ~~$3.3~~decline of $2.0 million or 21 percent in net interest income and a $370,000 or 27 percent decrease in non-interest ~~expenses,~~income, partly offset by lower a ~~$2.3 million decrease~~$638,000 or eight percent decline in non-interest ~~income.~~expense.

For the first six months of fiscal ~~2020,~~2021, the Corporation’s net income was ~~$5.0~~$2.7 million, ~~an increase~~a decrease of ~~$1.2~~$2.3 million, or 3146 percent, from ~~$3.8~~$5.0 million in the same period of fiscal ~~2019.~~2020. Compared to the same period last year, the ~~increase~~decrease in earnings was primarily attributable to a ~~$7.8~~$3.4 million decrease in ~~non-interest expenses,~~net-interest income, partly offset by a ~~$5.7~~$1.2 million decrease in ~~non-interest income.~~salaries and employee benefits expense.

Earnings for the quarter and six months ended December 31, 2020 reflect the continued impact of the COVID-19 pandemic which resulted in a substantial reduction in business activity or the closing of businesses in California during these periods.

The Corporation’s efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, ~~improved~~increased to 6980 percent for the second quarter of fiscal ~~2020~~2021 from 8169 percent in the same period of fiscal ~~2019.~~2020. For the first six months of fiscal ~~2020,~~2021, the Corporation’s efficiency ratio ~~improved~~also increased to 6878 percent from 8368 percent for the same period of fiscal ~~2019.~~2020.

Return on average assets ~~increased 18 basis points to 0.87~~was 0.40 percent in the second quarter of fiscal ~~2020~~2021, down 47 basis points from ~~0.69~~0.87 percent in the same period last year. For the first six months of fiscal ~~2020,~~2021, return on average assets was ~~0.91~~0.45 percent, ~~up 25~~down 46 basis points from ~~0.66~~0.91 percent in the same period last year.

Return on average equity was ~~7.81~~3.77 percent in the second quarter of fiscal ~~2020 as compared to 6.42~~2021, down from 7.81 percent in the same period last year. For the first six months of fiscal ~~2020,~~2021, return on average equity was ~~8.13~~4.27 percent, ~~as compared to 6.22~~down from 8.13 percent for the same period last year.

Diluted earnings per share for the second quarter of fiscal ~~2020~~2021 were ~~$0.31, up 19~~$0.16, down 48 percent from ~~$0.26~~diluted earnings per share of $0.31 in the same period last year. For the first six months of fiscal ~~2020,~~2021, diluted earnings per share were ~~$0.65, a 30~~$0.36, down 45 percent ~~increase~~ from ~~$0.50~~$0.65 in the same period last year.

Net Interest Income:

For the Quarter Ended December 31, ~~2019~~2020 and ~~2018.~~2019. Net interest income decreased by ~~$192,000,~~$2.0 million, or ~~two~~21 percent, to ~~$9.6~~$7.6 million for the second quarter of fiscal ~~2020 as compared to~~2021 from $9.6 million in the same period in fiscal ~~2019,~~2020, as a result of a lower ~~average interest-earning asset balance,~~net interest margin, partly offset by a higher ~~net interest margin. The~~ average ~~balance of~~ interest-earning 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.asset balance. The net interest margin ~~increased five~~decreased 93 basis points to ~~3.59~~2.66 percent in the second quarter of fiscal ~~2020~~2021 from ~~3.54~~3.59 percent in the same period of fiscal ~~2019,~~2020, primarily due to ~~an increase~~a decrease in the average yield for all asset categories. The decrease of the average yield was due primarily to the declines in interest rates on adjustable rate instruments and interest-earning ~~assets, partly offset by a slight increase~~deposits following decreases to short-term rates over the last year, including the emergency 150 basis point reduction in the ~~average cost of interest-bearing liabilities.~~targeted Federal Funds Rate in March 2020 due to the COVID-19 pandemic. The weighted-average yield on interest-earning assets ~~increased~~decreased by ~~six~~108 basis points to ~~4.18~~3.10 percent in the second

quarter of fiscal ~~2020~~2021 from ~~4.12~~4.18 percent in the same quarter last year, and the weighted-average cost of interest-bearing liabilities ~~increased~~decreased by ~~one~~16 basis ~~point~~points to ~~0.65~~0.49 percent for the second quarter of fiscal ~~2020~~2021 as compared to ~~0.64~~0.65 percent in the same quarter last year. The ~~increase in the~~ average ~~yield~~balance of interest-earning assets ~~was primarily due~~increased $75.0 million, or seven percent, to $1.15 billion in the second quarter of fiscal 2021 from $1.07 billion in the comparable period of fiscal 2020, reflecting increases in the average ~~yield~~balance of investment securities and ~~loans receivable,~~interest-earning deposits, partly offset by ~~decreases~~a decrease in the average ~~yield on FHLB – San Francisco stock and interest-earning deposits.~~balance of loans receivable. The average balance of interest-bearing liabilities ~~decreased~~increased by ~~$36.1~~$72.9 million, or ~~four~~eight percent, to ~~$964.6 million~~$1.04 billion in the second quarter of fiscal ~~2020~~2021 from ~~$1.00 billion~~$964.6 million in the same quarter last year primarily reflecting ~~a decrease~~increases in the average balance of interest-bearing ~~deposits.~~deposits and, to a lesser extent, the average balance of borrowings.

For the Six Months Ended December 31, ~~2019~~2020 and ~~2018.~~2019. Net interest income ~~remained relatively unchanged at $19.2~~decreased by $3.4 million, or 18 percent, to $15.8 million for ~~both~~ the first six months of fiscal ~~2020 and~~2021 from $19.2 million in the same period in fiscal ~~2019~~2020, as a ~~higher~~result of a lower net interest margin, ~~was substantially~~partly offset by a ~~lower~~higher average interest-earning ~~assets~~asset balance. The net interest margin was ~~3.61~~2.75 percent in the first six months of fiscal ~~2020, up~~

192021, a decrease of 87 basis points from ~~3.42~~3.61 percent in the same period of fiscal ~~2019,~~2020, primarily due to ~~an increase~~a decrease in the average yield on interest-earning assets, ~~while~~partly offset by a decrease in the average cost of interest-bearing ~~liabilities remained unchanged.~~liabilities. The ~~increase~~weighted-average yield on interest-earning assets decreased by 99 basis points to 3.20 percent in the ~~average yield~~first six months of ~~interest-earning assets was primarily due to increases~~fiscal 2021 from 4.19 percent in the ~~average yield~~same quarter last year, and the weighted-average cost of ~~investment securities and loans receivable, partly offset~~interest-bearing liabilities decreased by ~~decreases~~14 basis points to 0.50 percent for the first six months of fiscal 2021 as compared to 0.64 percent in the ~~average yield on FHLB – San Francisco stock and interest-earning deposits.~~same period last year. The average balance of interest-earning assets ~~decreased $58.9~~increased $86.7 million, or ~~five~~eight percent, to ~~$1.06~~$1.15 billion in the first six months of fiscal ~~2020~~2021 from ~~$1.12~~$1.06 billion in the comparable period of fiscal ~~2019,~~2020, primarily reflecting ~~decreases~~increases in the average balance of investment securities and interest earning deposits, partly offset by a decrease in the average balance of loans ~~receivable and interest earning deposits.~~receivable. The average balance of interest-bearing liabilities ~~decreased~~increased by ~~$58.2~~$85.2 million, or ~~six~~nine percent, to ~~$953.6 million~~$1.04 billion in the first six months of fiscal ~~2020~~2021 from ~~$1.01 billion~~$953.6 million in the same period last year primarily reflecting ~~a decrease~~an increase in the average balance of ~~interest-bearing deposits.~~transaction accounts.

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

Interest Income:

For the Quarter Ended December 31, ~~2019~~2020 and ~~2018.~~2019. Total interest income decreased by ~~$219,000,~~$2.3 million, or ~~two~~21 percent, to ~~$11.2~~$8.9 million for the second quarter of fiscal ~~2020~~2021 as compared to ~~$11.4~~$11.2 million for the same quarter of fiscal ~~2019.~~2020. The decrease was ~~primarily~~ due to decreases in interest income from all interest-earning ~~deposits and cash dividends received from FHLB – San Francisco stock, partly offset by an increase in interest income from investment securities.~~assets, mainly loans receivable.

Interest income on loans receivable ~~(including loans held for sale~~decreased by $2.0 million, or 19 percent, to $8.3 million in the second quarter of fiscal ~~2019) remained relatively unchanged at~~2021 from $10.3 million for both the second quarter of fiscal 2020 and fiscal 2019. The average balance of loans receivable decreased by $7.1 million, or one percent, to $934.1 million for the second quarter of fiscal 2020 from $941.2 million in the same quarter of fiscal ~~2019, primarily~~2020. The decrease was due to a ~~decrease in the~~lower average ~~balance of loans held for sale attributable~~yield and, to ~~the scaling back of saleable single-family mortgage loan originations, partly offset by an increase in the~~a lesser extent, a lower average ~~balance of loans held for investment.~~balance. The average loans receivable yield during the second quarter of fiscal ~~2020 increased three~~2021 decreased 58 basis points to ~~4.42~~3.84 percent from ~~4.39~~4.42 percent during the same quarter last year. The ~~increase~~decrease in the average yield on loans receivable was primarily attributable to ~~a $378,000~~loans repricing downward reflecting declines in the targeted Federal Funds Rate and the increase of net deferred loan costs to $521,000 in the second quarter of fiscal 2021 from $12,000 in the same quarter of fiscal 2020. A deferred loan fee ~~that~~of $378,000 was recognized in interest income as a result of a loan payoff in the second quarter of fiscal 2020 ~~as compared~~from a previously classified non-performing loan that had been upgraded to ~~$159,000 of deferred interest payments that was recognized in interest income from two non-performing loans that were paid off~~pass and not replicated in the ~~same~~second quarter ~~last year.~~of fiscal

2021. The average balance of loans ~~held for investment increased $55.9~~receivable decreased by $65.6 million, or ~~six~~seven percent, to ~~$934.1~~$868.5 million ~~during~~for the second quarter of fiscal ~~2020~~2021 from ~~$878.2~~$934.1 million in the same quarter of fiscal ~~2019.~~2020.

Interest income from investment securities decreased $119,000, or 21 percent, to $448,000 in the second quarter of fiscal 2021 from $567,000 for the same quarter of fiscal 2020. This decrease was attributable to a lower average yield, partly offset by a higher average balance. The average investment securities yield ~~on the loans held for investment increased by six~~decreased 174 basis points to ~~4.42~~0.86 percent in the second quarter of fiscal ~~2020~~2021 from ~~4.36~~2.60 percent in the same quarter of fiscal 2019. There were no loans held for sale in the second quarter of fiscal 2020 as compared to the average balance of $63.0 million with an average yield of 4.86 percent in the same quarter of fiscal 2019.

Interest income from investment securities increased $123,000, or 28 percent, to $567,000 in the second quarter of fiscal 2020 from $444,000 for the same quarter of fiscal 2019. This increase was attributable to a higher average yield, partly offset by a lower average balance.2020. The ~~average investment securities yield increased 70 basis points to 2.60 percent in the second quarter of fiscal 2020 from 1.90 percent in the same quarter of fiscal 2019. The increase~~decrease in the average investment securities yield was primarily attributable to investment securities purchases at 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~~yield than the existing ~~portfolio.~~portfolio, a higher premium amortization between the quarters ($531,000 vs. $97,000) and the downward repricing of adjustable rate mortgage-backed securities. The average balance of investment securities ~~decreased $6.4~~increased $121.4 million, or ~~seven~~139 percent, to ~~$87.1~~$208.5 million in the second quarter of fiscal ~~2020~~2021 from ~~$93.5~~$87.1 million in the same quarter of fiscal ~~2019.~~2020. The ~~decrease~~increase in the average balance of investment securities was primarily ~~the result~~attributable to purchases of investment securities, partly offset by scheduled and accelerated principal payments on ~~mortgage-backed securities, partly offset by purchases of~~ mortgage-backed securities.

The FHLB – San Francisco cash dividend received in the second quarter of fiscal ~~2020~~2021 was ~~$145,000,~~$100,000, down $45,000 or 31 percent from ~~$278,000 in~~ the same quarter of fiscal ~~2019, which included a $133,000 special cash dividend received on FHLB San Francisco stock last year, not replicated this quarter.~~2020. The average balance of FHLB – San Francisco stock in the second quarter of fiscal ~~2020~~

~~remained unchanged at~~2021 decreased slightly to $8.0 million from $8.2 million ~~as compared to~~in the same quarter of fiscal ~~2019~~2020 and the average yield decreased to ~~7.07~~5.02 percent in the second quarter of fiscal ~~2020~~2021 from ~~13.56~~7.07 percent in the same quarter last year.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was ~~$189,000~~$17,000 in the second quarter of fiscal ~~2020,~~2021, down 5191 percent from ~~$387,000~~$189,000 in the same quarter of fiscal ~~2019.~~2020. The decrease was ~~primarily~~ due to a lower average ~~balance and,~~yield, partly offset by a higher average balance. The average yield earned on interest-earning deposits decreased 152 basis points to ~~a lesser extent, a lower average yield.~~0.10 percent in the second quarter of fiscal 2021 from 1.62 percent in the comparable quarter last year, due primarily to decreases in the targeted Federal Funds Rate over the last year. The average balance of the interest-earning deposits in the second quarter of fiscal ~~2020~~2021 was ~~$45.5~~$64.9 million, ~~a decrease~~an increase of ~~$22.3~~$19.4 million or 3343 percent, from ~~$67.8~~$45.5 million in the same quarter of fiscal 2019. The average yield earned on interest-earning deposits decreased 61 basis points to 1.62 percent in the second quarter of fiscal 2020 from 2.23 percent in the comparable quarter last year, due primarily to three 25 basis point decreases in the targeted Federal Funds Rate in the first and second quarter of fiscal 2020.

For the Six Months Ended December 31, ~~2019~~2020 and ~~2018.~~2019. Total interest income decreased by ~~$141,000,~~$3.9 million, or ~~one~~17 percent, to ~~$22.3~~$18.4 million for the first six months of fiscal ~~2020~~2021 from ~~$22.4~~$22.3 million in the same period of fiscal ~~2019.~~2020. The decrease was ~~primarily~~ due to decreases in interest income from all interest-earning ~~deposits, cash dividends received from FHLB – San Francisco stock and~~assets, mainly loans ~~receivable, partly offset by an increase in interest income from investment securities.~~receivable.

Loans receivable interest income ~~(including loans held for sale in the first six months of fiscal 2019)~~ decreased ~~$110,000,~~$3.1 million, or ~~one~~15 percent, to ~~$20.4~~$17.3 million in the first six months of fiscal ~~2020~~2021 from ~~$20.5~~$20.4 million for the same period of fiscal ~~2019.~~2020. The decrease was ~~attributable~~due to a lower average ~~loan balance, partly offset by~~yield and, to a ~~higher~~lesser extent, a lower average loan yield in the first six months of fiscal 2020 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.balance. The average loan yield during the first six months of fiscal ~~2020 increased 14~~2021 decreased 52 basis points to ~~4.44~~3.92 percent from ~~4.30~~4.44 percent in the same period last year. The ~~increase~~decrease in the average yield on loans receivable was primarily attributable to ~~$520,000~~loans repricing downward reflecting declines in the targeted Federal Funds Rate and the increase of net deferred loan costs to $987,000 in the first six months of fiscal 2021 from $172,000 in the same period of fiscal 2020. The higher net deferred loan costs was due primarily to higher loan prepayments during the periods and the prior period deferred loan fees ~~that~~of $520,000 which 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 six months of fiscal 2020 as compared to $176,000 of deferred interest payments that were recognized from three non-performing loans that were paid off in the same period last year.

The average balance of loans held for investment increased $33.2 million, or four percent, to $918.7 million during the first six months of fiscal 2020 from $885.5 million in the same period of fiscal 2019. The average yield on the loans held for investment increased by 17 basis points to 4.44 percent in the first six months of fiscal 2020 from ~~4.27 percent in the same period of fiscal 2019. There were no~~a previously classified non-performing loans ~~held for sale~~that had been upgraded to pass and not replicated in the first six months of fiscal ~~2020 as compared to the~~2021. The average balance of ~~$68.6~~loans receivable decreased $38.0 million, ~~with an average yield~~or four percent, to $880.7 million for the first six months of ~~4.71 percent~~fiscal 2021 from $918.7 million in the same period of fiscal ~~2019.~~2020.

Interest income from investment securities ~~increased $392,000,~~decreased $255,000, or 5022 percent, to ~~$1.2 million~~$926,000 in the first six months of fiscal ~~2020~~2021 from ~~$789,000~~$1.2 million for the same period of fiscal ~~2019.~~2020. This ~~increase~~decrease was attributable to a ~~higher~~lower average yield, partly offset by a ~~lower~~higher average balance. The average investment securities yield ~~increased 87~~decreased 156 basis points to ~~2.58~~1.02 percent in the first six months of fiscal ~~2020~~2021 from ~~1.71~~2.58 percent in the same period of fiscal ~~2019.~~2020. The ~~increase~~decrease in the average investment securities yield was primarily attributable to a ~~lower~~higher premium amortization ($~~227,000 vs. $511,000)~~890,000 compared to $227,000) and the purchases of investment securities during the last 12 months which had ~~higher~~lower average yields than the existing portfolio. The average balance

of investment securities ~~decreased $857,000,~~increased $90.8 million, or ~~one~~99 percent, to ~~$91.5~~$182.3 million in the first six months of fiscal ~~2020~~2021 from ~~$92.4~~$91.5 million in the same period of fiscal ~~2019.~~2020. The ~~decrease~~increase in the average balance of investment securities was primarily the result of purchases of mortgage-backed securities, partly offset by scheduled and accelerated principal payments on ~~mortgage-backed securities, partly offset by purchases of~~ mortgage-backed securities.

The FHLB – San Francisco cash dividend received in the first six months of fiscal ~~2020~~2021 was ~~$288,000,~~$200,000, down 3231 percent from ~~$421,000 in the same period of fiscal 2019, primarily attributable to a special cash dividend of $133,000 received in the first six months of fiscal 2019 and not replicated~~$288,000 in the same period of fiscal 2020. As a result, the average yield decreased to ~~7.03~~5.02 percent in the first six months of fiscal ~~2020~~2021 as compared to ~~10.27~~7.03 percent in the comparable period last year.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was ~~$435,000~~$41,000 in the first six months of fiscal ~~2020,~~2021, down 4091 percent from ~~$725,000~~$435,000 in the same period of fiscal ~~2019.~~2020. The decrease was due to a lower average ~~balance and,~~yield, partly offset by a higher average balance. The average yield earned on interest-earning deposits decreased 179 basis points to ~~a lesser extent, a lower average yield~~0.10 percent in the first six months of fiscal ~~2020 as compared~~2021 from 1.89 percent in the comparable quarter last year, due primarily to decreases in the ~~same period~~targeted Federal Funds Rate over the last year. The average balance of the interest-earning deposits in the first six months of fiscal ~~2020~~2021 was ~~$45.0~~$79.1 million, ~~a decrease~~an increase of ~~$22.6~~$34.1 million or 3376 percent, from ~~$67.6~~$45.0 million in the same period of fiscal 2019. The average yield decreased 21 basis points to 1.89 percent in the first six months of fiscal 2020 from 2.10 percent in the comparable period last year, due primarily to the decreases in the targeted Federal Funds Rate in the second half of 2019.2020.

Interest Expense:

For the Quarter Ended December 31, ~~2019~~2020 and ~~2018.~~2019. Total interest expense decreased ~~$27,000,~~by $311,000 or ~~two~~20 percent to ~~$1.6~~$1.3 million in the second quarter of fiscal ~~2020 as compared to~~2021 from $1.6 million in the same quarter last year. This decrease was primarily attributable ~~primarily~~ to lower deposit ~~expense, partly offset by higher borrowing~~ expense.

Interest expense on deposits for the second quarter of fiscal ~~2020~~2021 was ~~$778,000~~$468,000 as compared to ~~$894,000~~$778,000 for the same period last year, a decrease of ~~$116,000,~~$310,000, or 1340 percent. The decrease in interest expense on deposits was attributable to a lower average ~~balance and a slightly lower average~~ cost of deposits. The average balance of deposits decreased $56.0 million, or six percent, to $833.6 million during the quarter ended December 31, 2019 from $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.~~a higher average balance. The average cost of deposits improved, decreasing by ~~three~~16 basis points to ~~0.37~~0.21 percent during the second quarter of fiscal ~~2020~~2021 from ~~0.40~~0.37 percent during the same quarter last year. The decrease in the average cost of deposits was attributable primarily to a lower percentage of time deposits to the total deposit balance ~~partly offset by~~and a ~~two~~28 basis-point ~~increase~~decrease in the average cost of time deposits. The average cost of transaction accounts also decreased by eight basis points. The average balance of deposits increased $69.1 million, or eight percent, to $902.7 million during the quarter ended December 31, 2020 from $833.6 million during the same period last year. The increase in the average balance was primarily attributable to increases in transaction accounts resulting primarily from government assistance programs related to the COVID-19 pandemic, partly offset by a decrease in higher cost time deposits. Strategically, the Corporation has been promoting transaction accounts and competing less aggressively for time deposits. The average balance of transaction accounts to total deposits in the second quarter of fiscal ~~2020~~2021 was 7883 percent, compared to 7478 percent in the same period of fiscal ~~2019.~~2020.

Interest expense on borrowings, consisting primarily of FHLB – San Francisco advances, for the second quarter of fiscal ~~2020 increased $89,000, or 12 percent,~~2021 decreased slightly to ~~$804,000~~$803,000 from ~~$715,000~~$804,000 for the same period last year. The ~~increase~~decrease in interest expense on borrowings was the result of a ~~higher~~lower average ~~balance,~~cost, partly offset by a ~~lower~~higher 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.~~balance. The average cost of borrowings decreased 12seven basis points to ~~2.43~~2.36 percent for the quarter ended December 31, ~~2019~~2020 from ~~2.55~~2.43 percent in the same quarter last year. The decrease in the average cost of borrowings was primarily due to new long-term borrowings ~~with~~obtained at a lower interest rate than prior borrowings, reflecting the ~~weighted~~decline in market rates over the last year. The average ~~interest rate~~balance of ~~all~~ borrowings increased $3.7 million, or three percent, to $134.8 million during the ~~second~~ quarter ~~of fiscal 2020.~~ended December 31, 2020 from $131.1 million during the same period last year.

For the Six Months Ended December 31, ~~2019~~2020 and ~~2018.~~2019. Total interest expense decreased ~~$174,000,~~$454,000, or ~~five~~15 percent to ~~$3.1~~$2.6 million in the first six months of fiscal ~~2020~~2021 from ~~$3.3~~$3.1 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~~2021 was ~~$1.6~~$1.0 million as compared to ~~$1.8~~$1.6 million in the same period last year, a decrease of ~~$220,000~~$535,000 or 1234 percent. The decrease in interest expense on deposits was primarily attributable to a lower average ~~balance~~cost and, topartly offset by a ~~lesser extent, a lower average cost of deposits. The~~higher 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

total deposit balance and a 25 basis-point decrease in the average cost of time deposits. The average cost of transaction accounts also decreased by seven basis points. The average cost of deposits decreased 15 basis points to 0.22 percent during the first six months of fiscal 2021 from 0.37 percent during the same period last year. The average balance of deposits increased $68.8 million, or eight percent, to $901.0 million during the six months ended December 31, 2020 from $832.2 million during the same period last year. The increase in the average balance was primarily attributable to increases in transaction accounts resulting primarily from government assistance programs related to the COVID-19 pandemic, partly offset by a ~~five basis-point increase~~decrease in ~~the average~~higher cost of time deposits. The average balance of transaction accounts to total deposits in the first six months of fiscal ~~2020~~2021 was 7782 percent, compared to 7477 percent in the same period of fiscal ~~2019.~~2020.

Interest expense on borrowings, consisting primarily of FHLB – San Francisco advances, for the first six months of fiscal ~~2020~~2021 increased ~~$46,000,~~$81,000, or ~~three~~five percent, to $1.6 million from $1.5 million ~~as compared to~~in the same period last year. The increase in interest expense on borrowings was the result of a higher average balance, partly offset by a lower average cost. The average balance of borrowings increased by ~~$5.8~~$16.4 million, or ~~five~~14 percent, to ~~$121.4~~$137.8 million during the six months ended December 31, ~~2019~~2020 from ~~$115.6~~$121.4 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 ~~five~~18 basis points to ~~2.49~~2.31 percent for the six months ended December 31, ~~2019~~2020 from ~~2.54~~2.49 percent in the same period last year.

The following tables present the average balance sheets for the quarter and six months ended December 31, ~~2019~~2020 and ~~2018,~~2019, respectively:

Average Balance Sheets

	Quarter Ended December 31, 2019						Quarter Ended December 31, 2018						Quarter Ended December 31, 2020						Quarter Ended December 31, 2019
(Dollars In Thousands)	Average Balance		Interest		Yield/ Cost		Average Balance		Interest		Yield/ Cost		Average Balance		Interest		Yield/ Cost		Average Balance		Interest		Yield/ Cost
Interest-earning assets:
Loans receivable, net ⁽¹⁾	$	934,060	$	10,320	4.42	%	$	941,192	$	10,331	4.39	%	$	868,494	$	8,344	3.84	%	$	934,060	$	10,320	4.42	%
Investment securities	87,108		567		2.60	%	93,468		444		1.90	%	208,453		448		0.86	%	87,108		567		2.60	%
FHLB – San Francisco stock	8,199		145		7.07	%	8,199		278		13.56	%	7,970		100		5.02	%	8,199		145		7.07	%
Interest-earning deposits	45,519		189		1.62	%	67,760		387		2.23	%	64,922		17		0.10	%	45,519		189		1.62	%

Total interest-earning assets	1,074,886		11,221		4.18	%	1,110,619		11,440		4.12	%	1,149,839		8,909		3.10	%	1,074,886		11,221		4.18	%

Non interest-earning assets	32,216						31,683						29,958						32,216

Total assets	$	1,107,102					$	1,142,302					$	1,179,797					$	1,107,102

Interest-bearing liabilities:
Checking and money market accounts ⁽²⁾	$	388,430	$	117	0.12	%	$	379,752	$	117	0.12	%	$	461,363	$	79	0.07	%	$	388,430	$	117	0.12	%
Savings accounts	257,666		131		0.20	%	282,410		147		0.21	%	283,432		54		0.08	%	257,666		131		0.20	%
Time deposits	187,458		530		1.12	%	227,395		630		1.10	%	157,906		335		0.84	%	187,458		530		1.12	%

Total deposits	833,554		778		0.37	%	889,557		894		0.40	%	902,701		468		0.21	%	833,554		778		0.37	%

Borrowings	131,084		804		2.43	%	111,141		715		2.55	%	134,826		803		2.36	%	131,084		804		2.43	%

Total interest-bearing liabilities	964,638		1,582		0.65	%	1,000,698		1,609		0.64	%	1,037,527		1,271		0.49	%	964,638		1,582		0.65	%

Non interest-bearing liabilities	19,644						19,587						17,415						19,644

Total liabilities	984,282						1,020,285						1,054,942						984,282

Stockholders’ equity	122,820						122,017						124,855						122,820
Total liabilities and stockholders’ equity	$	1,107,102					$	1,142,302					$	1,179,797					$	1,107,102

Net interest income			$	9,639					$	9,831					$	7,638					$	9,639

Interest rate spread ⁽³⁾					3.53	%					3.48	%					2.61	%					3.53	%
Net interest margin ⁽⁴⁾					3.59	%					3.54	%					2.66	%					3.59	%
Ratio of average interest-earning assets to average interest-bearing liabilities					111.43	%					110.98	%					110.82	%					111.43	%
Return on average assets					0.87	%					0.69	%					0.40	%					0.87	%
Return on average equity					7.81	%					6.42	%					3.77	%					7.81	%

⁽¹⁾

Includes ~~loans held for sale and~~ non-performing loans ~~as well as~~and net deferred loan cost amortization of $521 thousand and $12 ~~and $268~~thousand for the quarter ended December 31, ~~2019~~2020 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 ~~$84.2~~$111.7 million and ~~$82.8~~$84.2 million during the quarter ended December 31, ~~2019~~2020 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.~~

Six Months Ended
December 31, 2019 Six Months Ended
December 31, 2018
(Dollars In Thousands) Average
Balance Interest Yield/
Cost Average
Balance Interest Yield/
Cost
Interest-earning assets:
Loans receivable, net ⁽¹⁾
$ 918,666 $ 20,395 4.44 % $ 954,148 $ 20,505 4.30 %
Investment securities 91,527 1,181 2.58 % 92,384 789 1.71 %
FHLB – San Francisco stock 8,199 288 7.03 % 8,199 421 10.27 %
Interest-earning deposits 45,015 435 1.89 % 67,552 725 2.10 %

Total interest-earning assets 1,063,407 22,299 4.19 % 1,122,283 22,440 4.00 %

Non interest-earning assets 31,812 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 accounts 258,659 265 0.20 % 285,441 298 0.21 %
Time deposits 188,708 1,062 1.12 % 232,074 1,251 1.07 %

Total deposits 832,187 1,554 0.37 % 896,217 1,774 0.39 %

Borrowings 121,363 1,524 2.49 % 115,577 1,478 2.54 %

Total interest-bearing liabilities 953,550 3,078 0.64 % 1,011,794 3,252 0.64 %

Non interest-bearing liabilities 19,668 19,960

Total liabilities 973,218 1,031,754

Stockholders’ equity 122,001 121,511
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 %

⁽¹⁾

~~Includes loans held for sale and non-performing loans, as well as net deferred loan cost amortization of $172 and $644 for the six months ended December 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 $82.5 million during the six months ended December 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.

	Six Months Ended December 31, 2020						Six Months Ended December 31, 2019
(Dollars In Thousands)	Average Balance		Interest		Yield/ Cost		Average Balance		Interest		Yield/ Cost
Interest-earning assets:
Loans receivable, net ⁽¹⁾	$	880,733	$	17,261	3.92	%	$	918,666	$	20,395	4.44	%
Investment securities	182,344		926		1.02	%	91,527		1,181		2.58	%
FHLB – San Francisco stock	7,970		200		5.02	%	8,199		288		7.03	%
Interest-earning deposits	79,099		41		0.10	%	45,015		435		1.89	%

Total interest-earning assets	1,150,146		18,428		3.20	%	1,063,407		22,299		4.19	%

Non interest-earning assets	30,790						31,812

Total assets	$	1,080,936					$	1,095,219

Interest-bearing liabilities:
Checking and money market accounts ⁽²⁾	$	458,445	$	170	0.07	%	$	384,820	$	227	0.12	%
Savings accounts	279,923		132		0.09	%	258,659		265		0.20	%
Time deposits	162,625		717		0.87	%	188,708		1,062		1.12	%

Total deposits	900,993		1,019		0.22	%	832,187		1,554		0.37	%

Borrowings	137,769		1,605		2.31	%	121,363		1,524		2.49	%

Total interest-bearing liabilities	1,038,762		2,624		0.50	%	953,550		3,078		0.64	%

Non interest-bearing liabilities	17,575						19,668

Total liabilities	1,056,337						973,218

Stockholders’ equity	124,599						122,001
Total liabilities and stockholders’ equity	$	1,080,936					$	1,095,219

Net interest income			$	15,804					$	19,221

Interest rate spread ⁽³⁾					2.70	%					3.55	%
Net interest margin ⁽⁴⁾					2.75	%					3.61	%
Ratio of average interest-earning assets to average interest-bearing liabilities					110.72	%					111.52	%
Return on average assets					0.45	%					0.91	%
Return on average equity					4.27	%					8.13	%

⁽¹⁾	Includes non-performing loans and net deferred loan cost amortization of $987 thousand and $172 thousand for the six months ended December 31, 2020 and 2019, respectively.

⁽²⁾	Includes the average balance of non interest-bearing checking accounts of $113.7 million and $82.7 million during the six months ended December 31, 2020 and 2019, respectively.

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

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

The following tables set forth the effects of changing rates and volumes on interest income and expense for the quarter and six months ended December 31, ~~2019~~2020 and ~~2018,~~2019, respectively. Information is provided with respect to the effects attributable to changes in volume (changes in volume multiplied by prior rate), the effects attributable to changes in rate (changes in rate multiplied by prior volume) and the effects attributable to changes that cannot be allocated between rate and volume.

Rate/Volume Variance

	Quarter Ended December 31, 2019 Compared To Quarter Ended December 31, 2018 Increase (Decrease) Due to												Quarter Ended December 31, 2020 Compared To Quarter Ended December 31, 2019 Increase (Decrease) Due to
(In Thousands)	Rate			Volume			Rate/ Volume			Net			Rate			Volume			Rate/ Volume			Net
Interest-earning assets:
Loans receivable ⁽¹⁾	$	68		$	(78	)	$	(1	)	$	(11	)	$	(1,346	)	$	(725	)	$	95		$	(1,976	)
Investment securities	164			(30		)	(11		)	123			(380		)	789			(528		)	(119		)
FHLB – San Francisco stock	(133		)	—			—			(133		)	(42		)	(4		)	1			(45		)
Interest-earning deposits	(108		)	(124		)	34			(198		)	(177		)	79			(74		)	(172		)
Total net change in income on interest-earning assets	(9		)	(232		)	22			(219		)	(1,945		)	139			(506		)	(2,312		)

Interest-bearing liabilities:
Checking and money market accounts	—			3			(3		)	—			(51		)	22			(9		)	(38		)
Savings accounts	(4		)	(13		)	1			(16		)	(82		)	13			(8		)	(77		)
Time deposits	13			(111		)	(2		)	(100		)	(133		)	(83		)	21			(195		)
Borrowings	(33		)	128			(6		)	89			(23		)	23			(1		)	(1		)
Total net change in expense on interest-bearing liabilities	(24		)	7			(10		)	(27		)	(289		)	(25		)	3			(311		)
Net increase (decrease) in net interest income	$	15		$	(239	)	$	32		$	(192	)
Net (decrease) increase in net interest income													$	(1,656	)	$	164		$	(509	)	$	(2,001	)

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

	Six Months Ended December 31, 2020 Compared To Six Months Ended December 31, 2019 Increase (Decrease) Due to
(In Thousands)	Rate			Volume			Rate/ Volume			Net
Interest-earning assets:
Loans receivable ⁽¹⁾	$	(2,391	)	$	(842	)	$	99		$	(3,134	)
Investment securities	(719		)	1,172			(708		)	(255		)
FHLB – San Francisco stock	(82		)	(8		)	2			(88		)
Interest-bearing deposits	(411		)	322			(305		)	(394		)
Total net change in income on interest-earning assets	(3,603		)	644			(912		)	(3,871		)

Interest-bearing liabilities:
Checking and money market accounts	(83		)	45			(19		)	(57		)
Savings accounts	(142		)	21			(12		)	(133		)
Time deposits	(231		)	(147		)	33			(345		)
Borrowings	(110		)	206			(15		)	81
Total net change in expense on interest-bearing liabilities	(566		)	125			(13		)	(454		)
Net (decrease) increase in net interest income	$	(3,037	)	$	519		$	(899	)	$	(3,417	)

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

5455

Six Months Ended December 31, 2019 Compared
To Six Months Ended December 31, 2018
Increase (Decrease) Due to
(In Thousands) Rate Volume Rate/
Volume Net
Interest-earning assets:
     Loans receivable ⁽¹⁾
$ 678 $ (763 ) $ (25 ) $ (110 )
     Investment securities 403 (7 ) (4 ) 392
     FHLB – San Francisco stock (133 ) — — (133 )
     Interest-bearing deposits (77 ) (237 ) 24 (290 )
Total net change in income on interest-earning assets 871 (1,007 ) (5 ) (141 )

Interest-bearing liabilities:
     Checking and money market accounts — 2 — 2
     Savings accounts (6 ) (28 ) 1 (33 )
     Time deposits 56 (234 ) (11 ) (189 )
     Borrowings (27 ) 74 (1 ) 46
Total net change in expense on interest-bearing liabilities 23 (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 Quarter Ended December 31, ~~2019~~2020 and ~~2018.~~2019. During the second quarter of fiscal ~~2020,~~2021, the Corporation recorded a provision for loan losses of $39,000, as compared to a recovery from the allowance for loan losses of $22,000 ~~as compared to a recovery of $217,000~~ in the same period of fiscal 2020. The increase in provision for loan losses during this quarter reflects an increase in non-performing loans partly offset by the decrease in loan balances.

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

Non-performing loans, net of the allowance for loan losses and fair value adjustments ~~decreased 45~~increased 109 percent to $10.3 million at December 31, 2020 from $4.9 million at June 30, 2020 and $3.4 million at December 31, ~~2019 from $6.2 million at June 30, 2019 and $6.1 million at December 31, 2018.~~2019. Net loan recoveries in the second quarter of fiscal ~~2020~~2021 were ~~$14,000~~$9,000 or ~~0.01~~0.00 percent (annualized) of average loans receivable, as compared to net loan recoveries of ~~$123,000~~$14,000 or ~~0.05~~0.01 percent (annualized) of average loans receivable in the same quarter of fiscal ~~2019.~~2020. For the first six months of fiscal 2021, the net loan recoveries were $14,000 or 0.00 percent (annualized) of average loans receivable as compared to net loan recoveries of $48,000 or 0.01 percent (annualized) of average loans receivable in the same period of fiscal 2020. Total classified loans, net of the allowance for loan losses and fair value adjustments, were $14.9 million at December 31, 2020 as compared to $14.1 million at June 30, 2020 and $13.7 million at December 31, ~~2019 as compared to $16.2 million at June 30, 2019 and $12.8 million at December 31, 2018.~~2019. Classified loans net of the allowance for loan losses and fair value adjustments at December 31, ~~2019~~2020 were comprised of ~~$9.4~~$4.6 million of loans in the special mention category and ~~$4.3~~$10.3 million of loans in the substandard category as compared to $8.6 million of loans in the special mention category and ~~$7.6~~$5.5 million of loans in the substandard category at June 30, ~~2019.~~2020.

~~For the Six Months Ended December 31, 2019 and 2018.~~ During the first six months of fiscal 2020, the Corporation recorded a recovery from the allowance for loan losses of $203,000, as compared to a recovery of $454,000 in the same period of fiscal 2019. The recovery from the allowance for loan losses in the first six months of fiscal 2020 was primarily attributable to the improving risk profile of the loan portfolio. Net loan recoveries in the first six months of fiscal 2020 were $48,000 or 0.01 percent (annualized) of average loans receivable, as compared to net loan recoveries of $130,000 or 0.03 percent (annualized) of average loans receivable in the same period of fiscal 2019.

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.~~economies. See related discussion of “Asset Quality.”

At December 31, ~~2019,~~2020, the allowance for loan losses was ~~$6.9~~$8.5 million, comprised of collectively evaluated allowances of ~~$6.9~~$7.9 million and individually evaluated allowances of ~~$52,000;~~$570,000; in comparison to the allowance for loan losses of ~~$7.1~~$8.3 million at June 30, ~~2019,~~2020, comprised of collectively evaluated allowances of ~~$7.0~~$8.2 million and individually evaluated allowances of ~~$130,000.~~$100,000. The allowance for loan losses as a percentage of gross loans held for investment was ~~0.73~~0.99 percent at December 31, ~~2019~~2020 as compared to ~~0.80~~0.91 percent at June 30, ~~2019.~~2020. Management considers, based on currently available information, the allowance for loan losses sufficient to absorb potential losses inherent in loans held for investment. For further analysis on the allowance for loan losses, see Note 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements. A further decline in national and local economic conditions, as a result of the COVID-19 pandemic or other factors, could result in a material increase in the allowance for loan losses and may adversely affect the Corporation’s financial condition and results of operations.

Non-Interest Income:

For the Quarter Ended December 31, ~~2019~~2020 and ~~2018.~~2019. Total non-interest income decreased ~~$2.3 million,~~$370,000, or 6428 percent, to ~~$1.3 million~~$974,000 for the quarter ended December 31, ~~2019~~2020 from ~~$3.6~~$1.3 million for the same period last year. The decrease was primarily attributable to decreases in loan servicing and other fees and deposit account fees.

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

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

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

Loan servicing and other fees increased $25,000 or five percent to $525,000 in the ~~gain on sale~~first six months of fiscal 2021 from $500,000 in the same period last year. The increase was due primarily to an increase in prepayment fees resulting from higher loan payoffs, particularly in multi-family loans.

~~The net gain on sale of loans~~Deposit account fees decreased ~~$2.3 million,~~$259,000 or ~~102~~29 percent to ~~a net loss of $43,000 for~~$639,000 in the ~~second quarter~~first six months of fiscal ~~2020~~2021 from ~~a net gain of $2.3 million~~$898,000 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 70 percent, to $2.4 million for the six months ended December 31, 2019 from $8.1 million for~~ the same period last year. The decrease was due primarily ~~attributable~~ to ~~a decrease~~certain fees that were waived related to accounts impacted by the COVID-19 pandemic and reduced transactions reflecting changes in spending habits due to the ~~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 six months of fiscal 2020 from a net gain of $5.4 million in the same period of fiscal 2019. The net loss in the first six months 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 first six months of fiscal 2020, as compared to $313.1 million during the six months ended December 31, 2018 with an average loan sale margin of 1.71 percent.COVID-19 pandemic.

Non-Interest Expense:

For the Quarter Ended December 31, ~~2019~~2020 and ~~2018.~~2019. Total non-interest expense in the quarter ended December 31, ~~2019~~2020 was ~~$7.6~~$6.9 million, a decrease of ~~$3.3 million,~~$638,000, or 30eight percent, as compared to ~~$10.9~~$7.6 million in the quarter ended December 31, ~~2018.~~2019. The decrease was primarily attributable to ~~scaling back the origination of saleable single-family mortgage loans resulting in significant reductions~~a decrease in salaries and employee benefits expenses ~~due to lower incentive compensation~~ and ~~staff reductions~~other operating expenses, partly offset by higher deposit insurance premiums and ~~lower premises and occupancy expenses due to the closing of loan production offices, as well as reductions in other related~~regulatory assessment expenses.

Salaries and employee benefits expense decreased ~~$2.2 million,~~$698,000, or 3114 percent, to ~~$5.0~~$4.3 million in the second quarter of fiscal ~~2020~~2021 from ~~$7.2~~$5.0 million in the same period of fiscal ~~2019.~~2020. The decrease was due primarily to fewer employees and lower employee bonus and other incentive payments. Total loan originations and purchases decreased ~~$104.1~~$52.0 million, or 5664 percent, to ~~$81.6~~$29.6 million in the second quarter of fiscal ~~2020~~2021 from ~~$185.7~~$81.6 million in the same quarter of fiscal ~~2019.~~2020. Total ~~full-~~

~~time~~full-time equivalent employees (“FTE”) were ~~184~~166 at December 31, ~~2019,~~2020, down ~~165~~18 FTE or 4710 percent from ~~349~~184 FTE at December 31, ~~2018.~~2019.

~~Premises~~Deposit insurance premiums and ~~occupancy~~regulatory assessment expenses ~~decreased $394,000, or 31~~were $141,000 in the second quarter of fiscal 2021, up 139 percent from $59,000 in the same quarter of fiscal 2020. The increase was due primarily to ~~$880,000~~FDIC insurance premium credits applied in the second quarter of fiscal 2020, which were not replicated in the second quarter of fiscal 2021.

Other non-interest expenses decreased $104,000, or 13 percent, to $707,000 in the second quarter of fiscal 2021 from ~~$1.3 million~~$811,000 in the 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 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 $113,000, or 66 percent, to $59,000 in 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 reduced expenses reflecting lower loan ~~origination expenses consistent with the scaling back of saleable single-family loan originations.~~originations and purchases.

For the Six Months Ended December 31, ~~2019~~2020 and ~~2018.~~2019. Total non-interest expense in the six months ended December 31, ~~2019~~2020 was ~~$14.8~~$13.9 million, a decrease of ~~$7.8 million~~$891,000, or 35six percent, as compared to ~~$22.6~~$14.8 million in the ~~same period~~six months ended

December 31, ~~2018.~~2019. The decrease was primarily ~~due~~attributable to ~~decreases~~a decrease in salaries and employee benefits ~~expense, premises~~expenses, partly offset by higher deposit insurance premiums and ~~occupancy expenses and other non-interest expense.~~regulatory assessment expenses.

Salaries and employee benefits expense decreased ~~$5.5~~$1.3 million, or 3513 percent, to ~~$10.0~~$8.7 million in the first six months of fiscal ~~2020~~2021 from ~~$15.5~~$10.0 million in the same period of fiscal ~~2019.~~2020. The decrease was due primarily ~~attributable~~ to fewer employees and lower employee bonus and other incentive ~~compensation costs and staff reductions related to the scaling back of salable single-family loan originations.~~payments. Total loan originations and purchases decreased ~~$243.7~~$97.4 million, or 5856 percent, to ~~$175.0~~$77.6 million in the first six months of fiscal ~~2020~~2021 from ~~$418.7~~$175.0 million in the ~~comparable~~same period of fiscal ~~2019.~~2020.

~~Premises~~Deposit insurance premiums and ~~occupancy~~regulatory assessment expenses ~~decreased $861,000, or 33~~were $275,000 in the first six months of fiscal 2021, up 540 percent from $43,000 in the same period of fiscal 2020. The increase was due primarily to ~~$1.8 million~~FDIC insurance premium credits applied in the first six months of fiscal 2020, ~~from $2.6 million~~which were not replicated in the same period of fiscal 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 lower 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 (see Part II, Item 1- Legal Proceedings) was recorded during the six months ended December 31, 2019.2021.

Provision ~~(Benefit)~~ for Income Taxes:

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

For the Quarter Ended December 31, ~~2019~~2020 and ~~2018.~~2019. The Corporation’s income tax provision was ~~$1.1 million~~$481,000 for the second quarter of fiscal ~~2020, up 30~~2021, a 54 percent decrease from ~~$810,000~~$1.1 million in the same quarter last ~~year. The increase was attributable to higher income before income taxes in the second quarter of fiscal 2020 in comparison to the same quarter last year.~~year, primarily reflecting lower pre-tax income. The effective income tax rate for the quarter ended December 31, ~~2019 and 2018 was 30.51% and 29.26%, respectively. The higher effective tax rate in the second quarter of fiscal~~ 2020 was ~~due primarily~~29.0 percent as compared to ~~fewer tax benefits resulting from stock-based compensation activities in comparison to~~30.5 percent for the ~~same~~ quarter ~~last year.~~ended December 31, 2019. The Corporation believes that the effective income tax rate applied in the second quarter of fiscal ~~2020~~2021 reflects its current income tax obligations.

For the Six Months Ended December 31, ~~2019~~2020 and ~~2018.~~2019. The Corporation’s income tax provision ~~for income taxes~~ was ~~$2.1~~$1.1 million for the first six months of fiscal ~~2020, up 46~~2021, a 47 percent decrease from ~~the $1.4~~$2.1 million ~~provision for income taxes~~ in the same period last ~~year. The increase was attributable to higher income before income taxes in the first six months of fiscal 2020 in comparison to the same period last year.~~year, primarily reflecting lower pre-tax income. The effective income tax rate for the six months ended December 31, 2020 and 2019 ~~and 2018~~ was 29.61% and 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.29.6 percent at both periods. The Corporation believes that the effective income tax rate applied in the first six months of fiscal ~~2020~~2021 reflects its current income tax obligations.

Asset Quality

Non-performing assets were comprised solely of non-performing loans at both December 31, 2020 and June 30, 2020. Non-performing loans, net of the allowance for loan losses and fair value adjustments, consisting of loans with collateral located in California, was ~~$3.4~~$10.3 million at December 31, ~~2019, down 45~~2020, up 109 percent from ~~$6.2~~$4.9 million at June 30, ~~2019.~~2020. Non-performing loans as a percentage of loans held for investment at December 31, ~~2019~~2020 was ~~0.36%~~1.20%, ~~improving~~up from ~~0.71%~~0.55% at June 30, ~~2019.~~2020. The non-performing loans at December 31, ~~2019~~2020 are comprised of 1633 single-family ~~loans ($3.4 million) and one commercial business loan ($37,000).~~loans. No interest accruals were made for loans that were past due 90 days or more or if the loans were deemed non-performing.

As of December 31, ~~2019,~~2020, total restructured loans ~~decreased $2.0 million, or 53~~increased 215 percent, to ~~$1.8~~$8.2 million from ~~$3.8~~$2.6 million at June 30, ~~2019.~~2020. At both December 31, ~~2019~~2020 and June 30, ~~2019, $1.8 million and $1.9 million~~2020, all of these restructured loans were classified as ~~non-performing, respectively.~~non-performing. As of December 31, ~~2019, $888,000, or 49 percent,~~2020, all of the restructured loans have a current payment status, consistent with their modified payment terms; this compares to ~~$2.4~~$1.2 million, or 6344 percent, of restructured loans that had a current payment status, consistent with their modified payment terms as of June 30, ~~2019.~~

~~There was no real estate owned at both December 31, 2019 and June 30, 2019.~~

Non-performing assets, which includes non-performing loans and real estate owned, if any, decreased $2.8 million or 45 percent to $3.4 million or 0.31 percent of total assets at December 31, 2019 from $6.2 million or 0.57 percent of total assets at June 30, 2019.2020. 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 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

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

A decline in real estate values subsequent to the time of origination of the Corporation’s real estate secured loans could result in higher loan delinquency levels, foreclosures, provisions for loan losses and net charge-offs. Real estate values and real estate markets are beyond the Corporation’s control and are generally affected by changes in national, regional or local economic conditions and other factors. These factors include fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies and acts of nature, such as earthquakes, fires and national disasters particular to California where substantially all of the Corporation’s real estate collateral is located. If real estate values decline, the value of the real estate collateral securing the Corporation’s loans as set forth in the table could be significantly overstated. The Corporation’s ability to recover on defaulted loans by foreclosing and selling the

real estate collateral would then be diminished and it would be more likely to suffer losses on defaulted loans. The Corporation generally does not update the loan-to-value ratio ~~(“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~~in which case individually evaluated allowances are established, if ~~required).~~required.

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

(In Thousands)	At December 31, 2019			At June 30, 2019			At December 31, 2020			At June 30, 2020
Loans on non-accrual status (excluding restructured loans):
Mortgage loans:
Single-family	$	1,607		$	3,315		$	2,062		$	2,281
Construction	—			971
Total	1,607			4,286			2,062			2,281

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

Restructured loans on non-accrual status:
Mortgage loans:
Single-family	1,783			1,891			8,208			2,612
Commercial business loans	37			41			—			31
Total	1,820			1,932			8,208			2,643

Total non-performing loans	3,427			6,218			10,270			4,924

Real estate owned, net	—			—			—			—
Total non-performing assets	$	3,427		$	6,218		$	10,270		$	4,924

Non-performing loans as a percentage of loans held for investment, net of allowance for loan losses	0.36		%	0.71		%	1.20		%	0.55		%

Non-performing loans as a percentage of total assets	0.31		%	0.57		%	0.88		%	0.42		%

Non-performing assets as a percentage of total assets	0.31		%	0.57		%	0.88		%	0.42		%

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			At December 31, 2020				At June 30, 2020
(Dollars In Thousands)	Balance		Count	Balance		Count	Balance			Count	Balance			Count
Special mention loans:
Mortgage loans:
Single-family	$	4,276	11	$	3,795	13	$	935		2	$	3,120		7
Multi-family	3,821		3	3,864		3	3,732			3	3,777			3
Commercial real estate	—		—	927		1	—			—	1,703			1
Construction	1,285		1	—		—
Total special mention loans	9,382		15	8,586		17	4,667			5	8,600			11

Substandard loans:
Mortgage loans:
Single-family	3,390		18	6,631		23	10,270			35	5,438			22
Commercial real estate	926		1	—		—
Construction	—		—	971		1
Commercial business loans	37		1	41		1	—			—	31			1
Total substandard loans	4,353		20	7,643		25	10,270			35	5,469			23

Total classified loans	13,735		35	16,229		42	14,937			40	14,069			34

Real estate owned	—		—	—		—	—			—	—			—

Total classified assets	$	13,735	35	$	16,229	42	$	14,937		40	$	14,069		34

Total classified assets as a percentage of total assets								1.28	%			1.20	%

6061

Loan Volume Activities

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

	For the Quarter Ended December 31,						For the Six Months Ended December 31,						For the Quarter Ended December 31,							For the Six Months Ended December 31,
(In Thousands)	2019			2018			2019			2018			2020			2019				2020				2019
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-family	8,061			24,180			15,567			41,396			12,444			8,061			35,643				15,567
Multi-family	14,921			5,446			34,271			18,155			13,907			14,921			26,816				34,271
Commercial real estate	6,479			3,175			8,898			8,480			—			6,479			1,860				8,898
Construction	2,313			1,863			3,209			3,343			688			2,313			1,828				3,209
Consumer loans	1			—			1			—			—			1			—				1
Total loans originated for investment	31,775			34,664			61,946			71,374			27,039			31,775			66,147				61,946

Loans purchased for investment:
Mortgage loans:
Single-family	44,610			—			70,733			—			—			44,610			—				70,733
Multi-family	5,243			4,622			42,369			4,622			2,525			5,243			11,463				42,369
Total loans purchased for investment	49,853			4,622			113,102			4,622			2,525			49,853			11,463				113,102

Mortgage loan principal payments	(65,205		)	(41,163		)	(116,034		)	(104,092		)	(59,575		)	(65,205		)	(125,898			)	(116,034			)
Increase (decrease) in other items, net ⁽¹⁾	992			60			2,790			(1,332		)
Increase in other items, net ⁽¹⁾													144			992			578				2,790

Net increase (decrease) in loans held for investment and loans held for sale at fair value	$	17,415		$	(22,910	)	$	61,804		$	(66,008	)
Net (decrease) increase in loans held for investment													$	(29,867	)	$	17,415		$		(47,710	)	$		61,804

⁽¹⁾	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.

Liquidity and Capital Resources

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

The primary investing activity of the Corporation is the origination and purchase of loans held for investment. During the first six months of fiscal ~~2020~~2021 and ~~2019,~~2020, the Corporation originated and purchased loans held for investment of ~~$175.0~~$77.6 million and ~~$76.0~~$175.0 million, respectively. At December 31, ~~2019,~~2020, the Corporation had loan origination commitments totaling ~~$10.0~~$12.3 million, undisbursed lines of credit totaling ~~$1.3 million~~$942,000 and undisbursed construction loan funds totaling ~~$6.8~~$2.7 million. The Corporation anticipates that it will have sufficient funds available to meet its current loan commitments. During the first six months of fiscal 2021 and 2020, total loan repayments were $125.9 million and $116.0 million, respectively.

The Corporation’s primary financing activity is gathering deposits. During the first six months of fiscal ~~2020,~~2021, the net ~~decrease~~increase in deposits was ~~$7.6~~$17.0 million or ~~one~~two percent, ~~primarily~~ due to an increase in transaction accounts, partly offset by a decrease in time

deposits. Time deposits decreased ~~$7.2~~$16.2 million, or ~~four~~10 percent, to ~~$185.9~~$153.8 million at December 31, ~~2019~~2020 from ~~$193.1~~$170.0 million at June 30, ~~2019.~~2020. At December 31, ~~2019,~~2020, time deposits with a principal amount of $250,000 or less and scheduled to mature in one year or less were ~~$79.6~~$68.6 million and total time deposits with a principal amount of more than $250,000 and scheduled to mature in one year or less were ~~$22.5~~$15.1 million. Historically, the Corporation has been able to retain a significant percentage of its time deposits as they mature.

The Corporation must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. The Corporation generally maintains sufficient cash and cash equivalents to meet short-term liquidity needs. At December 31, ~~2019,~~2020, total cash and cash equivalents were ~~$48.2~~$74.0 million, or ~~four~~six percent of total assets. Depending on market conditions and the pricing of deposit products and FHLB – San Francisco advances, the Bank may rely on FHLB – San Francisco advances for part of its liquidity needs. As of December 31, ~~2019,~~2020, total borrowings were ~~$131.1~~$116.0 million and the financing availability at FHLB – San Francisco was limited to 35 percent of total assets; the remaining borrowing facility available was ~~$240.3~~$277.9 million and the remaining available collateral was ~~$447.8~~$332.8 million. In addition, the Bank has secured a ~~$57.5~~$176.2 million discount window facility at the Federal Reserve Bank of San Francisco, collateralized by investment securities with a fair market value of ~~$61.2~~$187.4 million. As of December 31, ~~2019,~~2020, 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, ~~2020~~2021 which the Bank intends to renew upon maturity. The Bank had no advances under its correspondent bank or discount window facility as of December 31, ~~2019.~~2020.

Regulations require thrifts to maintain adequate liquidity to assure safe and sound operations. The Bank’s average liquidity ratio (defined as the ratio of average qualifying liquid assets to average deposits and borrowings) for the quarter ended December 31, ~~2019 decreased~~2020 increased to ~~14.7~~27.7 percent from ~~20.7~~23.1 percent for the quarter ended June 30, ~~2019.~~2020.

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 December 31, ~~2019,~~2020, the Bank exceeded all regulatory capital requirements. The Bank was categorized "well-capitalized" at December 31, ~~2019~~2020 under the regulations of the OCC. As a bank holding company registered with the Federal Reserve, Provident Financial Holdings, Inc. is subject to the capital adequacy requirements of the Federal Reserve. For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis, and the Federal Reserve expects the holding company’s subsidiary bank to be well capitalized under the prompt corrective action regulations.

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

					Regulatory Requirements												Regulatory Requirements
	Actual				Minimum for Capital Adequacy Purposes ⁽¹⁾				Minimum to Be Well Capitalized				Actual				Minimum for Capital Adequacy Purposes ⁽¹⁾				Minimum to Be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount			Ratio

Provident Savings Bank, F.S.B.:

As of December 31, 2019
As of December 31, 2020
Tier 1 leverage capital (to adjusted average assets)	$	113,384	10.24	%	$	44,276	4.00	%	$	55,345	5.00	%	$	115,562	9.78	%	$	47,249	4.00	%		$	59,061	5.00	%
CET1 capital (to risk-weighted assets)	$	113,384	16.62	%	$	47,755	7.00	%	$	44,344	6.50	%	$	115,562	18.30	%	$	44,193	7.00	%		$	41,037	6.50	%
Tier 1 capital (to risk-weighted assets)	$	113,384	16.62	%	$	57,989	8.50	%	$	54,578	8.00	%	$	115,562	18.30	%	$	53,663	8.50	%		$	50,507	8.00	%
Total capital (to risk-weighted assets)	$	120,443	17.65	%	$	71,633	10.50	%	$	68,222	10.00	%	$	123,463	19.56	%	$	66,290	10.50	%		$	63,133	10.00	%

As of June 30, 2019
As of June 30, 2020
Tier 1 leverage capital (to adjusted average assets)	$	115,009	10.50	%	$	43,824	4.00	%	$	54,779	5.00	%	$	116,967	10.13	%	$	46,188	4.00	%		$	57,735	5.00	%
CET1 capital (to risk-weighted assets)	$	115,009	18.00	%	$	44,730	7.00	%	$	41,535	6.50	%	$	116,967	17.51	%	$	46,747	7.00	%		$	43,408	6.50	%
Tier 1 capital (to risk-weighted assets)	$	115,009	18.00	%	$	54,314	8.50	%	$	51,119	8.00	%	$	116,967	17.51	%	$	56,765	8.50	%		$	53,426	8.00	%
Total capital (to risk-weighted assets)	$	122,225	19.13	%	$	67,094	10.50	%	$	63,899	10.00	%	$	125,316	18.76	%	$	70,121	10.50	%		$	66,782	10.00	%

⁽¹⁾	~~The dollar amounts and ratios include~~Inclusive of the ~~capital~~ conservation buffer ~~consisting~~ of 2.50% ~~of risk-weighted assets above the required minimum levels at December 31, 2019 and June 30, 2019~~ for CET1 capital, Tier 1 capital and Total ~~capital.~~capital ratios.

In addition to the minimum CET1, Tier 1 and Total capital ratios, the Bank ~~is required to~~must 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. AtAs of December 31, ~~2019,~~2020, the ~~Bank was in compliance with this requirement.~~capital conservation buffer required a minimum of 2.50% of risk weighted assets.

The ability of the Corporation to pay dividends to stockholders depends primarily on the ability of the Bank to pay dividends to the Corporation. The Bank may not declare or pay a cash dividend if the effect thereof would cause its net worth to be reduced below the regulatory capital requirements imposed by federal regulation. In the first six months of fiscal ~~2020,~~2021, the Bank paid a cash dividend of ~~$7.5~~$5.0 million to the ~~Corporation;~~Corporation, while the Corporation paid $2.1 million of cash dividends to its shareholders.

Supplemental Information

	At December 31, 2019	At June 30, 2019	At December 31, 2018	At December 31, 2020	At June 30, 2020	At December 31, 2019

Loans serviced for others (in thousands)	$102,824	$120,236	$123,294	$64,521	$86,505	$102,824

Book value per share	$16.54	$16.12	$16.34	$16.79	$16.67	$16.54

6364

ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk.

One of the Corporation’s principal financial objectives is to achieve long-term profitability while reducing its exposure to fluctuating interest rates. The Corporation has sought to reduce the exposure of its earnings to changes in interest rates by attempting to manage the repricing mismatch between interest-earning assets and interest-bearing liabilities. The principal element in achieving this objective is to increase the interest-rate sensitivity of the Corporation’s interest-earning assets by retaining for its portfolio new loan originations with interest rates subject to periodic adjustment to market conditions. 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~~short average life. The Corporation relies on retail deposits as its primary source of funds while utilizing FHLB – San Francisco advances as a secondary source of funding. Management believes retail deposits, unlike brokered deposits, reduces the effects of interest rate fluctuations because they generally represent a more stable source of funds. As part of its interest rate risk management strategy, the Corporation promotes transaction accounts and time deposits with terms up to seven years.

Through the use of an internal interest rate risk model, the Corporation is able to analyze its interest rate risk exposure by measuring the change in net portfolio value (“NPV”) over a variety of interest rate scenarios. NPV is defined as the net present value of expected future cash flows from assets, liabilities and off-balance sheet contracts. The calculation is intended to illustrate the change in NPV that would occur in the event of an immediate change in interest rates of ~~-200,~~ -100, +100, +200 and +300 basis points (“bp”) with no effect given to steps that management might take to counter the effect of the interest rate movement. As of December 31, ~~2019,~~2020, the targeted Federal Funds Rate range was ~~1.50%~~0.00% to ~~1.75%~~0.25%, making an immediate change of ~~-300~~-200 basis points or more improbable.

The following table is derived from the internal interest rate risk model and represents the NPV based on the indicated changes in interest rates as of December 31, ~~2019~~2020 (dollars in thousands).

Basis Points ("bp") Change in Rates	Net Portfolio Value		NPV Change ⁽¹⁾			Portfolio Value of Assets		NPV as Percentage of Portfolio Value Assets ⁽²⁾	Sensitivity Measure ⁽³⁾	Net Portfolio Value		NPV Change ⁽¹⁾			Portfolio Value of Assets		NPV as Percentage of Portfolio Value Assets ⁽²⁾	Sensitivity Measure ⁽³⁾
+300 bp	$	216,422	$	92,850		$	1,195,569	18.10%	+707 bp	$	258,292	$	111,580		$	1,306,574	19.77%	+763 bp
+200 bp	$	189,967	$	66,395		$	1,174,926	16.17%	+514 bp	$	229,240	$	82,528		$	1,281,912	17.88%	+574 bp
+100 bp	$	159,357	$	35,785		$	1,150,314	13.85%	+282 bp	$	194,945	$	48,233		$	1,252,129	15.57%	+343 bp
0 bp	$	123,572	$	—		$	1,120,724	11.03%	0 bp	$	146,712	$	—		$	1,208,534	12.14%	0 bp
-100 bp	$	112,588	$	(10,984	)	$	1,114,647	10.10%	-93 bp	$	127,434	$	(19,278	)	$	1,187,318	10.73%	-141 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 December 31, ~~2019~~2020 (“base case”).

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

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

The following table is derived from the internal interest rate risk model and represents the change in the NPV at a -100 basis point rate shock at December 31, ~~2019~~2020 and June 30, ~~2019.~~2020.

	At December 31, 2019	At June 30, 2019	At December 31, 2020	At June 30, 2020
	(-100 bp rate shock)	(-100 bp rate shock)	(-100 bp rate shock)	(-100 bp rate shock)
Pre-Shock NPV Ratio: NPV as a % of PV Assets	11.03%	11.80%	12.14%	11.93%
Post-Shock NPV Ratio: NPV as a % of PV Assets	10.10%	10.67%	10.73%	10.57%
Sensitivity Measure: Change in NPV Ratio	-93 bp	-113 bp	-141 bp	-136 bp

6465

The pre-shock NPV ratio ~~decreased 77~~increased 21 basis points to ~~11.03~~12.14 percent at December 31, ~~2019~~2020 from ~~11.80~~11.93 percent at June 30, ~~2019~~2020 and the post-shock NPV ratio ~~decreased 57~~increased 16 basis points to ~~10.10~~10.73 percent at December 31, ~~2019~~2020 from ~~10.67~~10.57 percent at June 30, ~~2019.~~2020. The ~~decrease~~increase of the NPV ratios was primarily attributable to net income in the first six months of fiscal 2021 and the changes in the composition of the balance sheet and interest rates, partly offset by a ~~$7.5~~$5.0 million cash dividend distribution from the Bank to Provident Financial Holdings, Inc. in September ~~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. Accordingly, the data presented in the tables in this section should not be relied upon as indicative of actual results in the event of changes in interest rates. Furthermore, the NPV presented in the foregoing tables is not intended to present the fair market value of the Corporation, nor does it represent amounts that would be available for distribution to shareholders in the event of the liquidation of the Corporation.

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

6566

The following table represents the interest rate gap analysis of the Corporation's assets and liabilities as of December 31, ~~2019:~~2020:

			Term to Contractual Repricing, Estimated Repricing, or Contractual Maturity ⁽¹⁾																	Term to Contractual Repricing, Estimated Repricing, or Contractual Maturity ⁽¹⁾
			As of December 31, 2019																	As of December 31, 2020
(Dollars In Thousands)	(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			(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:	Repricing Assets:																	Repricing Assets:
	Cash and cash equivalents		$	42,693		$	—		$	—		$	5,540		$	48,233		Cash and cash equivalents		$	68,874		$	—		$	—		$	5,127		$	74,001
	Investment securities		26,814			—			—			55,584			82,398			Investment securities		18,554			—			—			188,702			207,256
	Loans held for investment		265,573			231,242			321,527			123,387			941,729			Loans held for investment		286,634			235,210			239,130			94,112			855,086
	FHLB - San Francisco stock		8,199			—			—			—			8,199			FHLB - San Francisco stock		7,970			—			—			—			7,970
	Other assets		3,292			—			—			23,536			26,828			Other assets		3,126			—			—			23,288			26,414
		Total assets	346,571			231,242			321,527			208,047			1,107,387				Total assets	385,158			235,210			239,130			311,229			1,170,727

Repricing Liabilities and Equity:	Repricing Liabilities and Equity:																	Repricing Liabilities and Equity:
	Checking deposits - non-interest bearing		—			—			—			85,846			85,846			Checking deposits - non-interest bearing		—			—			—			109,609			109,609
	Checking deposits - interest bearing		40,418			80,836			80,836			67,364			269,454			Checking deposits - interest bearing		47,124			94,249			94,249			78,541			314,163
	Savings deposits		51,807			103,614			103,614			—			259,035			Savings deposits		57,827			115,653			115,653			—			289,133
	Money market deposits		16,709			16,709			—			—			33,418			Money market deposits		21,655			21,655			—			—			43,310
	Time deposits		102,063			62,906			20,016			912			185,897			Time deposits		83,718			52,516			16,913			606			153,753
	Borrowings		10,000			61,078			40,007			20,000			131,085			Borrowings		26,015			50,000			40,000			—			116,015
	Other liabilities		332			—			—			18,544			18,876			Other liabilities		227			—			—			19,533			19,760
	Stockholders' equity		—			—			—			123,776			123,776			Stockholders' equity		—			—			—			124,984			124,984
		Total liabilities and stockholders' equity	221,329			325,143			244,473			316,442			1,107,387				Total liabilities and stockholders' equity	236,566			334,073			266,815			333,273			1,170,727

Repricing gap positive (negative)	Repricing gap positive (negative)		$	125,242		$	(93,901	)	$	77,054		$	(108,395	)	$	—		Repricing gap positive (negative)		$	148,592		$	(98,863	)	$	(27,685	)	$	(22,044	)	$	—
Cumulative repricing gap:	Cumulative repricing gap:																	Cumulative repricing gap:
	Dollar amount		$	125,242		$	31,341		$	108,395		$	—		$	—		Dollar amount		$	148,592		$	49,729		$	22,044		$	—		$	—
	Percent of total assets		11		%	3		%	10		%	—		%	—		%	Percent of total assets		13		%	4		%	2		%	—		%	—		%

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

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

6667

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;~~

Forecast 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 basis points.

The following table describes the results of the analysis at December 31, ~~2019~~2020 and June 30, ~~2019.~~2020.

At December 31, 2019		At June 30, 2019
At December 31, 2020				At December 31, 2020	At June 30, 2020
Basis Point (bp) Change in Rates	Change in Net Interest Income	Basis Point (bp) Change in Rates	Change in Net Interest Income	Change in Net Interest Income	Basis Point (bp) Change in Rates	Change in Net Interest Income
+300 bp	6.70%	+300 bp	6.85%	9.42%	+300 bp	15.11%
+200 bp	5.03%	+200 bp	4.39%	6.28%	+200 bp	9.95%
+100 bp	4.45%	+100 bp	2.36%	3.40%	+100 bp	5.25%
-100 bp	1.16%	-100 bp	(3.63)%	(0.10)%	-100 bp	(0.05)%
-200 bp	(0.83)%	-200 bp	(6.69)%

At December 31, ~~2019~~2020 and June 30, ~~2019,~~2020, the Corporation was asset sensitive as its interest-earning assets at those dates are expected to reprice more quickly than its interest-bearing liabilities during the subsequent 12-month period. Therefore, in a rising interest rate environment, the model projects an increase in net interest income over the subsequent 12-month period. In a falling interest rate environment, the results project a slight decrease in net interest income over the subsequent 12-month period ~~except under the -100 basis point shock~~ at December 31, ~~2019 where more loans are forecast to hit their contractual floor interest rate.~~2020 and June 30, 2020.

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

ITEM 4 – Controls and Procedures.

a) An evaluation of the Corporation’s disclosure controls and procedures (as defined in Section 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934 (the “Act”)) was carried out under the supervision and with the participation of the Corporation’s Chief Executive Officer, Chief Financial Officer and the Corporation’s Disclosure Committee as of the end of the period covered by this quarterly report. In designing and evaluating the Corporation’s disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Also, because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures as of December 31, ~~2019~~2020 are effective, at the reasonable assurance level, in ensuring that the information required to be disclosed by the Corporation in the reports it files or submits under the Act is (i) accumulated and communicated to the Corporation’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

b) There have been no changes in the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended December 31, ~~2019,~~2020, that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting. The Corporation does not expect that its internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

~~There~~Periodically, there have been ~~no material changes~~various claims and lawsuits involving the Corporation, such as claims to enforce liens, condemnation proceedings on properties in which the Corporation holds security interests, claims involving the making and servicing of real property loans, employment matters and other issues in the ordinary course of and incidental to the Corporation’s business. These proceedings and the associated legal claims are often contested and the outcome of individual matters is not always predictable. Additionally, in some actions, it is difficult to assess potential exposure because the Corporation is still in the early stages of the litigation. The Corporation is not a party to any pending legal proceedings ~~previously disclosed in Part I, Item 3 of the Corporation’s Annual Report~~that it believes would have a material adverse effect on ~~Form 10-K for the year ended June 30, 2019, except as follows.~~

On July 24, 2019, the California Superior Court for the County of San Bernardino, California granted final approval of the settlement in the Cannon vs. Bank lawsuit. On July 26, 2019, the final order was signed by this court and on 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 $296,000 settlement expense recovery which was recognized in the first quarter of fiscal 2020.its financial condition, operations or cash flows.

6869

Item 1A. Risk Factors.

There have been no material changes in the risk factors previously disclosed in Part I, Item 1A of the Corporation's Annual Report on Form 10-K for the year ended June 30, ~~2019.~~2020.

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

~~The table below represents the Corporation’s purchases of its equity securities for the second quarter of fiscal 2020.~~

(a)	Not applicable.

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, 2019 2,361 $ 21.84 2,361 301,716
Total 2,361 $ 21.84 2,361 301,716

(b)	Not applicable.

(c)	The table below represents the Corporation’s purchases of its equity securities for the second quarter of fiscal 2021.

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, 2020	505	$	13.68	—	371,815
November 1 – 30, 2020	—	$	—	—	371,815
December 1 – 31, 2020	—	$	—	—	371,815
Total	505	$	13.68	—	371,815

⁽¹⁾	Represents the remaining shares available for future purchases under the April ~~2018~~2020 stock repurchase plan.

During the quarter and six months ended December 31, ~~2019,~~2020, the Corporation ~~purchased 2,361~~did not purchase any shares of the Corporation’s common stock ~~at an average cost of $21.84 per share. For~~under the ~~six months ended December 31, 2019, the Corporation purchased 19,285 shares of the Corporation’s common~~April 2020 stock ~~at an average cost of $20.58 per share.~~repurchase plan. As of December 31, ~~2019, a total of 71,284 shares or 19 percent of~~2020, the Corporation has not purchased any shares authorized in the April ~~2018~~2020 stock repurchase plan, ~~have been purchased at an average cost of $19.97 per share,~~ leaving ~~301,716~~all 371,815 shares available for ~~future purchases.~~ purchase until the plan expires on April 30, 2021.

During the quarter ended December 31, ~~2019, a total of 5,750 shares of common~~2020, there was no stock ~~were exercised, while no shares of~~option or restricted ~~common~~ stock activity, other than 5,500 stock options that were forfeited ~~or vested. For the six months ended December 31, 2019, a total of 16,250 shares of common stock were exercised~~ and ~~a total of 8,000~~1,500 shares of restricted stock that were ~~forfeited, while no shares of restricted common stock~~ vested. The Corporation ~~did not purchase any~~purchased 505 shares from recipients to fund their withholding tax obligations in the second quarter fiscal 2021 with an average cost of $13.68 per share.

During the six months ended December 31, 2020, there were 5,500 stock option that were forfeited, a total of 9,000 shares of restricted stock were forfeited and 9,000 shares of restricted stock were vested. The Corporation purchased 3,061 shares from recipients to fund their withholding tax obligations in the first six months of fiscal ~~2020. During the quarter and six months ended December 31, 2019, the Corporation did not sell any securities that were not registered under the Securities Act~~2021 with an average cost of ~~1933.~~$12.01 per share.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

Exhibits:

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

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

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

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

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

101	The following materials from the Corporation’s Quarterly Report on Form 10-Q for the quarter ended December 31, ~~2019,~~2020, 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;~~Income (Loss); (4) Condensed Consolidated Statements of Stockholders’ Equity; (5) Condensed Consolidated Statements of Cash Flows; and (6) Selected Notes to Condensed Consolidated Financial Statements.

SIGNATURES

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

	Provident Financial Holdings, Inc.



Date: February ~~10, 2020~~8, 2021	/s/ Craig G. Blunden
	Craig G. Blunden
	Chairman and Chief Executive Officer (Principal Executive Officer)



Date: February ~~10, 2020~~8, 2021	/s/ Donavon P. Ternes
	Donavon P. Ternes
	President, Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer)

~~Exhibit Index~~

~~31.1~~	~~Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~31.2~~	~~Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~32.1~~	~~Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~32.2~~	~~Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~101~~	The following materials from the Corporation’s Quarterly Report on Form 10-Q for the quarter ended December 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’ Equity; (5) Condensed Consolidated Statements of Cash Flows; and (6) Selected Notes to Condensed Consolidated Financial Statements.

	For the Quarter Ended December 31,					For the Six Months Ended December 31,
Derivative Financial Instruments	2019		2018			2019		2018
(In Thousands)
Commitments to extend credit on loans to be held for sale	$	—	$	8		$	—	$	(321	)
Mandatory loan sale commitments and TBAMBS trades	—		(928		)	—		(249		)
Total net loss	$	—	$	(920	)	$	—	$	(570	)

	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

(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

(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

	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 benefits	259		517		518		6,150		7,444
Time deposits	103,391		64,327		20,293		921		188,932
FHLB – San Francisco advances	13,145		65,057		41,824		20,158		140,184
FHLB – San Francisco letter of credit	13,000		—		—		—		13,000
FHLB – San Francisco MPF credit enhancement ⁽¹⁾	—		—		—		2,458		2,458
Total	$	131,684	$	133,077	$	63,231	$	29,862	$	357,854

	Six Months Ended December 31, 2019						Six Months Ended December 31, 2018
(Dollars In Thousands)	Average Balance		Interest		Yield/ Cost		Average Balance		Interest		Yield/ Cost
Interest-earning assets:
Loans receivable, net ⁽¹⁾	$	918,666	$	20,395	4.44	%	$	954,148	$	20,505	4.30	%
Investment securities	91,527		1,181		2.58	%	92,384		789		1.71	%
FHLB – San Francisco stock	8,199		288		7.03	%	8,199		421		10.27	%
Interest-earning deposits	45,015		435		1.89	%	67,552		725		2.10	%

Total interest-earning assets	1,063,407		22,299		4.19	%	1,122,283		22,440		4.00	%

Non interest-earning assets	31,812						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 accounts	258,659		265		0.20	%	285,441		298		0.21	%
Time deposits	188,708		1,062		1.12	%	232,074		1,251		1.07	%

Total deposits	832,187		1,554		0.37	%	896,217		1,774		0.39	%

Borrowings	121,363		1,524		2.49	%	115,577		1,478		2.54	%

Total interest-bearing liabilities	953,550		3,078		0.64	%	1,011,794		3,252		0.64	%

Non interest-bearing liabilities	19,668						19,960

Total liabilities	973,218						1,031,754

Stockholders’ equity	122,001						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	%