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General
Provident Financial Holdings, Inc. , aDelaware corporation, was organized inJanuary 1996 for the purpose of becoming the holding company ofProvident 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 onJune 27, 1996 . The Corporation is regulated by theFederal Reserve Board ("FRB"). AtMarch 31, 2022 , the Corporation had total assets of$1.19 billion , total deposits of$963.5 million and total stockholders' equity of$127.6 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 toProvident 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 inRiverside, California . The Bank is regulated by theOffice of the Comptroller of the Currency ("OCC"), its primary federal regulator, and theFederal Deposit Insurance Corporation ("FDIC"), the insurer of its deposits. The Bank's deposits are federally insured up to applicable limits by theFDIC . The Bank has been a member of theFederal 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 inRiverside andSan Bernardino counties inCalifornia . Loans are primarily originated and purchased in Southern andNorthern California . There are various risks inherent in the Corporation's business including, among others, the general business environment, interest rates, theCalifornia 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 endedSeptember 30, 2002 . OnJanuary 25, 2022 , the Corporation declared a quarterly cash dividend of$0.14 per share for the Corporation's shareholders of record at the close of business onFebruary 15, 2022 , which was paid onMarch 8, 2022 . 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. UnderDelaware 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. 35
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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: potential adverse
impacts to economic conditions in our local market areas, other markets where
the Company has lending relationships, or other aspects of the Company's
business operations or financial markets, generally, resulting from the ongoing
novel coronavirus of 2019 ("COVID-19") and any governmental or societal
responses thereto; 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
transition away from LIBOR toward new interest rate benchmarks; fluctuations in
the demand for loans, the number of unsold homes, land and other properties and
fluctuations in real estate values in our market areas; results of examinations
of the Corporation by the FRB or of the Bank by the OCC or other regulatory
authorities, including the possibility that any such regulatory authority may,
among other things, require us to enter into a formal enforcement action or to
increase our allowance for loan losses, write-down assets, change our regulatory
capital position or affect our ability to borrow funds or maintain or increase
deposits, or impose additional requirements and restrictions on us, any of which
could adversely affect our liquidity and earnings; legislative or regulatory
changes that adversely affect our business including changes in regulatory
policies and principles, including the interpretation of regulatory capital or
other rules, including as a result of Basel III; the impact of the Dodd-Frank
Wall Street Reform and Consumer Protection Act, California Consumer Privacy Act
and the implementing regulations; the availability of resources to address
changes in laws, rules, or regulations or to respond to regulatory actions;
adverse changes in the securities markets; our ability to attract and retain
deposits; our ability to control operating costs and expenses; the use of
estimates in determining fair value of certain of our assets, which estimates
may prove to be incorrect and result in significant declines in valuation;
difficulties in reducing risk associated with the loans on our balance sheet;
staffing fluctuations in response to product demand or the implementation of
corporate strategies that affect our workforce and potential associated charges;
disruptions, security breaches, or other adverse events, failures or
interruptions in, or attacks on, our information technology systems or on the
third-party vendors who perform several of our critical processing functions;
our ability to successfully integrate any assets, liabilities, customers,
systems, and management personnel we have acquired or may in the future acquire
into our operations and our ability to realize related revenue synergies and
cost savings within expected time frames and any goodwill charges related
thereto; our ability to manage loan delinquency rates; our ability to retain key
members of our senior management team; costs and effects of litigation,
including settlements and judgments; increased competitive pressures among
financial services companies; changes in consumer spending, borrowing and
savings habits; the availability of resources to address changes in laws, rules,
or regulations or to respond to regulatory actions; our ability to pay dividends
on our common stock; adverse changes in the securities markets; the inability of
key third-party providers to perform their obligations to us; changes in
accounting policies and practices, as may be adopted by the financial
institution regulatory agencies or the Financial Accounting Standards Board ,
including additional guidance and interpretation on accounting issues and
details of the implementation of new accounting methods; including as a result
of the Coronavirus Aid, Relief, and Economic Security Act for 2020 ("CARES Act")
as amended by the Consolidated Appropriations Act 2021 ("CAA") and the
related Revised Interagency Statement on Loan Modifications and Reporting
36
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for Financial Institutions Working with Customers Affected by the Coronavirus
("Interagency Statement"); war or terrorist activities; and other economic,
competitive, governmental, regulatory, and technological factors affecting our
operations, pricing, products and services, including as a result of COVID-19,
the COVID-19 vaccination and economic stimulus efforts, and other risks detailed
in this report and in the Corporation's other reports filed with or furnished to
the SEC . These developments could have an adverse impact on our financial
position and our results of operations. Forward-looking statements are based
upon management's beliefs and assumptions at the time they are made. We
undertake no obligation to publicly update or revise any forward-looking
statements included in this document or to update the reasons why actual results
could differ from those contained in such statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking statements discussed in this document might
not occur, and you should not put undue reliance on any forward-looking
statements.
Critical accounting policies
The discussion and analysis of the Corporation's financial condition and results of operations is based upon the Corporation's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe 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 2021 Annual Report on Form 10-K for the year endedJune 30, 2021 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 nine months endedMarch 31, 2022 to the critical accounting policies as described in the Corporation's 2021 Annual Report on Form 10-K for the period endedJune 30, 2021 .
Executive summary and operational 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 ofSouthern California . The Bank conducts its business operations asProvident Bank and through its subsidiary,Provident Financial Corp. The business activities of the Corporation, primarily through the Bank, consist of community banking and, to a lesser degree, investment services for customers and trustee services on behalf of the Bank. Community banking operations primarily consist of accepting deposits from customers within the communities surrounding the Corporation's full service offices and investing those funds in single-family, multi-family and commercial real estate loans. Also, to a lesser extent, the Corporation makes construction, commercial business, consumer and other mortgage loans. The primary source of income in community banking is net interest income, which is the difference between the interest income earned on loans and investment securities, and the interest expense paid on interest-bearing deposits and borrowed funds. Additionally, certain fees are collected from depositors, such as returned check fees, deposit account service charges, ATM fees, IRA/KEOGH fees, safe deposit box fees, wire transfer fees and overdraft protection fees, among others. During the next three years, subject to market conditions, the Corporation intends to improve its community banking business by moderately increasing total assets (by increasing single-family, multi-family, commercial real estate, construction and commercial business loans). In addition, the Corporation intends to decrease the percentage of time deposits in its deposit base and to increase the percentage of lower cost checking and savings accounts. This strategy is intended to improve core revenue through a higher net interest margin and ultimately, coupled with the growth of the Corporation, an increase in net interest income. While the Corporation's long-term strategy is for moderate growth, management recognizes that growth may be challenging despite some recent improvements in general economic conditions as the economic consequences of COVID-19 remain unknown. 37
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Investment services operations primarily consist of selling alternative investment products such as annuities and mutual funds to the Bank's depositors. Investment services and trustee services contribute a very small percentage of gross revenue. Provident Financial Corp performs trustee services for the Bank's real estate secured loan transactions and has in the past held, and may in the future hold, real estate for investment. There are a number of risks associated with the business activities of the Corporation, many of which are beyond the Corporation's control, including: changes in accounting principles, laws, regulation, interest rates and the economy, including as a result of the COVID-19 pandemic, among others. The Corporation attempts to mitigate many of these risks through prudent banking practices, such as interest rate risk management, credit risk management, operational risk management, and liquidity risk management. TheCalifornia 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 withinCalifornia , significant declines in the value ofCalifornia real estate may also inhibit the Corporation's ability to recover on defaulted loans by selling the underlying real estate.
Impact of COVID-19 on the Company
The Corporation is actively monitoring and responding to the effects of the rapidly-changing COVID-19 pandemic. The health, safety and well-being of its customers, employees and communities are the Corporation's top priorities. As ofMarch 31, 2022 , all banking branches are open with normal hours and substantially all employees have returned to their routine working environments. The Bank will continue to monitor branch access and occupancy levels in relation to cases and close contact scenarios and follow governmental restrictions and public health authority guidelines.
Off-balance sheet financing arrangements
Commitments and Derivative Financial Instruments. The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, in the form of originating loans or providing funds under existing lines of credit, loan sale agreements to third parties and option contracts. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying Condensed Consolidated Statements of Financial Condition. The Corporation's exposure to credit loss, in the event of non-performance by the counterparty to these financial instruments, is represented by the contractual amount of these instruments. The Corporation uses the same credit policies in entering into financial instruments with off-balance sheet risk as it does for on-balance sheet instruments. For a discussion on commitments and derivative financial instruments, see Note 6 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.
Comparison of the financial situation at
Total assets increased slightly to$1.19 billion atMarch 31, 2022 from$1.18 billion atJune 30, 2021 . The increase in loans held for investment was mostly offset by the decreases in investment securities and cash and cash equivalents. Total cash and cash equivalents, primarily excess cash deposited with theFederal Reserve Bank of San Francisco , decreased$10.2 million , or 14 percent, to$60.1 million atMarch 31, 2022 from$70.3 million atJune 30, 2021 . The decrease in total cash and cash equivalents was primarily attributable to the utitization of excess liquidy for loans held for investment. Investment securities (held to maturity and available for sale) decreased$28.4 million , or 13 percent, to$198.5 million atMarch 31, 2022 from$226.9 million atJune 30, 2021 . The decrease was primarily the result of scheduled and accelerated principal payments on mortgage-backed securities, partly offset by the$18.0 million purchase of investment securities during the first nine months of fiscal 2022. For further analysis on investment securities, see Note 4 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q. 38 Table of Contents Loans held for investment increased$42.6 million , or five percent, to$893.6 million atMarch 31, 2022 from$851.0 million atJune 30, 2021 , primarily due to an increase in single-family loans, partly offset by decreases in multi-family and commercial real estate loans. During the first nine months of fiscal 2022, the Corporation originated$213.9 million of loans held for investment, consisting primarily of single-family, multi-family and commercial real estate loans that are located throughoutCalifornia . The Corporation also purchased$6.4 million of single-family loans to be held for investment during the first nine months of fiscal 2022. Total loan principal payments during the first nine months of fiscal 2022 were$180.1 million , down 11 percent from$201.6 million during the comparable period in fiscal 2021. The single-family loans held for investment balance atMarch 31, 2022 andJune 30, 2021 was$327.7 million and$268.3 million , respectively, and represented approximately 37 percent and 31 percent of loans held for investment, respectively. The tables below describe the geographic dispersion of gross real estate secured loans held for investment atMarch 31, 2022 andJune 30, 2021 , as a percentage of the total dollar amount outstanding: As ofMarch 31, 2022 : Inland Southern Other Other Empire California(1) California States Total Loan Category Balance % Balance % Balance % Balance % Balance % Single-family$ 106,560 33 %$ 102,134 31 %$ 118,684 36 %$ 283 - %$ 327,661 100 % Multi-family 63,902 14 % 278,717 59 % 125,758 27 % 279 - % 468,656 100 % Commercial real estate 22,150 24 % 42,106 46 % 27,088 30 % - - % 91,344 100 % Construction 2,365 57 % 1,762 43 % - - %
- - % 4,127 100 % Other - - % 131 100 % - - % - - % 131 100 % Total$ 194,977 22 %$ 424,850 48 %$ 271,530 30 %$ 562 - %$ 891,919 100 %
(1) Excluding Inland Empire.
As ofJune 30, 2021 : Inland Southern Other Other Empire California(1) California States Total Loan Category Balance % Balance % Balance % Balance % Balance % Single-family$ 78,631 29 %$ 100,560 38 %$ 88,790 33 %$ 291 - %$ 268,272 100 % Multi-family 68,350 14 % 304,534 63 % 111,232 23 % 292 - % 484,408 100 % Commercial real estate 22,989 24 % 41,940 44 % 30,350 32 % - - % 95,279 100 % Construction 279 9 % 2,761 91 % - - % - - % 3,040 100 % Other - - % 139 100 % - - % - - % 139 100 % Total$ 170,249 20 %$ 449,934 53 %$ 230,372 27 %$ 583 - %$ 851,138 100 %
(1) Excluding Inland Empire.
Total deposits increased$25.5 million , or three percent, to$963.5 million atMarch 31, 2022 from$938.0 million atJune 30, 2021 , primarily due to increases in transaction accounts, partly offset by a decrease in higher cost time deposits. Transaction accounts increased$38.8 million , or five percent, to$836.3 million atMarch 31, 2022 from$797.5 million atJune 30, 2021 , while time deposits decreased$13.2 million , or nine percent, to$127.2 million atMarch 31, 2022 from$140.4 million atJune 30, 2021 . The percentage of time deposits to total deposits decreased to 13 percent atMarch 31, 2022 from 15 percent atJune 30, 2021 , primarily due to a managed run-off of higher cost time deposits consistent with the Bank's strategic plan during the first nine months of fiscal 2022. Total borrowings decreased$21.0 million , or 21 percent, to$80.0 million atMarch 31, 2022 as compared to$101.0 million atJune 30, 2021 , due to prepayment and maturities of long-term borrowings. AtMarch 31, 2022 , borrowings are comprised of long-term FHLB -San Francisco advances used for interest rate risk management purposes. Total stockholders' equity increased slightly to$127.6 million atMarch 31, 2022 from$127.3 million atJune 30, 2021 , primarily as a result of the$6.6 million net income and$607,000 of stock-based compensation in the first nine months of 39 Table of Contents
fiscal 2022, partly offset by$3.1 million of quarterly cash dividends paid to shareholders and$3.7 million of stock repurchases. The Corporation repurchased 221,797 shares of its common stock under itsApril 2020 stock repurchase plan with a weighted average cost of$16.87 per share during the first nine months of fiscal 2022.
Comparison of operating results for the quarters and nine months ended
The Corporation's net income for the third quarter of fiscal 2022 was$1.7 million , up$138,000 or nine percent from$1.6 million in the same period of fiscal 2021. Compared to the same quarter last year, the increase in earnings was primarily attributable to a$445,000 increase in the recovery from the allowance for loan losses. For the first nine months of fiscal 2022, the Corporation's net income was$6.6 million , an increase of$2.4 million , or 57 percent, from$4.2 million in the same period of fiscal 2021. Compared to the same period last year, the increase in earnings was primarily attributable to a$2.1 million improvement in the provision for loan losses ($2.1 million recovery from the allowance for loan losses vs.$59,000 provision for loan losses) and a$1.3 million decrease in non-interest expenses (mainly, a$1.2 million decrease in salaries and employee benefits expense) and a$219,000 increase in non-interest income, partly offset by a$172,000 decrease in net interest income. The Corporation's efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, remained unchanged at 80 percent for the third quarter of fiscal 2022 as compared to the same period of fiscal 2021. For the first nine months of fiscal 2022, the Corporation's efficiency ratio improved to 73 percent from 78 percent for the same period of fiscal 2021. Return on average assets was 0.57 percent in the third quarter of fiscal 2022, up four basis points from 0.53 percent in the same period last year. For the first nine months of fiscal 2022, return on average assets was 0.74 percent, up 26 basis points from 0.48 percent in the same period last year. Return on average stockholders' equity was 5.33 percent in the third quarter of fiscal 2022, up from 4.99 percent in the same period last year. For the first nine months of fiscal 2022, return on average stockholders' equity was 6.94 percent, up from 4.51 percent for the same period last year. Diluted earnings per share for the third quarter of fiscal 2022 were$0.23 , up 10 percent from diluted earnings per share of$0.21 in the same period last year. For the first nine months of fiscal 2022, diluted earnings per share were$0.89 , up 59 percent from$0.56 in the same period last year.
Net interest income:
For the Quarters EndedMarch 31, 2022 and 2021. Net interest income increased by$81,000 to$7.5 million for the third quarter of fiscal 2022 from the same period in fiscal 2021, as a result of a higher average interest-earning asset balance and, to a lesser extent, a higher net interest margin. The average balance of interest-earning assets increased$10.3 million , or one percent, to$1.16 billion in the third quarter of fiscal 2022 from$1.15 billion in the comparable period of fiscal 2021, primarily reflecting increases in the average balance of loans receivable and interest-earning deposits, partly offset by a decrease in the average balance of investment securities. The average balance of interest-bearing liabilities increased by$10.7 million , or one percent, to$1.04 billion in the third quarter of fiscal 2022 from$1.03 billion in the same quarter last year primarily reflecting increases in the average balance of transaction accounts, partly offset by decreases in the average balance of both time deposits and borrowings. The net interest margin increased one basis point to 2.61 percent in the third quarter of fiscal 2022 from 2.60 percent in the same period of fiscal 2021. For the Nine Months EndedMarch 31, 2022 and 2021. Net interest income decreased by$172,000 , or one percent, to$23.1 million for the first nine months of fiscal 2022 from$23.3 million in the same period in fiscal 2021, as a result of a lower net interest margin, partly offset by a higher average interest-earning assets balance. The net interest margin was 2.65 percent in the first nine months of fiscal 2022, a decrease of five basis points from 2.70 percent in the same period of fiscal 2021, primarily due to a decrease in the average yield on interest-earning assets which exceeded the decrease in the average cost of interest-bearing liabilities. The weighted-average yield on interest-earning assets decreased by 19 basis points to 2.93 percent in the first nine months of fiscal 2022 from 3.12 percent in the same period last year, while the 40
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weighted-average cost of interest-bearing liabilities decreased by 15 basis points to 0.31 percent for the first nine months of fiscal 2022 as compared to 0.46 percent in the same period last year. The average balance of interest-earning assets increased$12.1 million , or one percent, to$1.16 billion in the first nine months of fiscal 2022 from$1.15 billion in the comparable period of fiscal 2021, primarily reflecting increases in the average balance of both investment securities and interest earning deposits, partly offset by a decrease in the average balance of loans receivable. The average balance of interest-bearing liabilities increased by$11.5 million , or one percent, to$1.05 billion in the first nine months of fiscal 2022 from$1.04 billion in the same period last year primarily reflecting an increase in the average balance of transaction accounts, partly offset by decreases in the average balance of both time deposits and borrowings.
Interest income:
For the Quarters EndedMarch 31, 2022 and 2021. Total interest income decreased by$172,000 , or two percent, to$8.3 million for the third quarter of fiscal 2022 as compared to$8.4 million for the same quarter of fiscal 2021. The decrease was due primarily to a decrease in interest income from loans receivable. Interest income on loans receivable decreased by$279,000 , or four percent, to$7.6 million in the third quarter of fiscal 2022 from$7.9 million in the same quarter of fiscal 2021. The decrease was due to a lower average yield, partly offset by a higher average balance. The average loans receivable yield during the third quarter of fiscal 2022 decreased 20 basis points to 3.53 percent from 3.73 percent during the same quarter last year. The decrease in the average yield on loans receivable was primarily attributable to loans repricing downward, new loan originations with a lower average yield and payoffs of loans with a higher average yield than the existing portfolio, partly offset by a decrease in net deferred loan cost amortization to$496,000 in the third quarter of fiscal 2022 from$717,000 in the same period of fiscal 2021. The average balance of loans receivable increased by$14.9 million , or two percent, to$858.3 million for the third quarter of fiscal 2022 from$843.4 million in the same quarter of fiscal 2021. Interest income from investment securities increased$63,000 , or 14 percent, to$515,000 in the third quarter of fiscal 2022 from$452,000 for the same quarter of fiscal 2021. This increase was attributable to a higher average yield, partly offset by a lower average balance. The average investment securities yield increased 20 basis points to 1.01 percent in the third quarter of fiscal 2022 from 0.81 percent in the same quarter of fiscal 2021. The increase in the average investment securities yield was primarily attributable to the upward repricing of adjustable rate mortgage-backed securities, new purchases with a higher estimated yield and a lower premium amortization during the current quarter in comparison to the same quarter last year ($328,000 vs.$534,000 ). The average balance of investment securities decreased$19.1 million , or nine percent, to$203.2 million in the third quarter of fiscal 2022 from$222.3 million in the same quarter of fiscal 2021. The decrease in the average balance of investment securities was primarily attributable to scheduled and accelerated principal payments on mortgage-backed securities, partly offset by purchases of investment securities during the last 12 months. The FHLB -San Francisco cash dividend received in the third quarter of fiscal 2022 was$123,000 , up$23,000 or 23 percent from$100,000 for the same quarter of fiscal 2021. The average balance of FHLB -San Francisco stock in the third quarter of fiscal 2022 increased$185,000 , or two percent, to$8.2 million from$8.0 million in the same quarter of fiscal 2021 and the average yield increased to 6.03 percent in the third quarter of fiscal 2022 from 5.02 percent in the same quarter last year. Interest income from interest-earning deposits, primarily cash deposited at theFederal Reserve Bank of San Francisco , was$39,000 in the third quarter of fiscal 2022, up$21,000 or 117 percent from$18,000 in the same quarter of fiscal 2021. The increase was due to a higher average yield and, to a lesser extent, a higher average balance. The average yield earned on interest-earning deposits increased eight basis points to 0.18 percent in the third quarter of fiscal 2022 from 0.10 percent in the comparable quarter last year. The average balance of the interest-earning deposits in the third quarter of fiscal 2022 was$86.0 million , an increase of$14.3 million or 20 percent, from$71.7 million in the same quarter of fiscal 2021. For the Nine Months EndedMarch 31, 2022 and 2021. Total interest income decreased by$1.4 million , or five percent, to$25.5 million for the first nine months of fiscal 2022 from$26.9 million in the same period of fiscal 2021. The decrease was due primarily to a decrease in interest income from loans receivable. 41 Table of Contents Interest income from loans receivable decreased$1.4 million , or six percent, to$23.7 million in the first nine months of fiscal 2022 from$25.1 million for the same period of fiscal 2021. The decrease was due to a lower average yield and, to a lesser extent, a lower average balance. The average loan receivable yield during the first nine months of fiscal 2022 decreased 17 basis points to 3.69 percent from 3.86 percent in the same period last year. The decrease in the average yield on loans receivable was primarily attributable to loans repricing downward, new loan originations with a lower average yield and payoffs of loans with a higher average yield than the existing portfolio, partly offset by a decrease in net deferred loan cost amortization to$1.6 million in the first nine months of fiscal 2022 from$1.7 million in the same period of fiscal 2021. The average balance of loans receivable decreased$13.4 million , or two percent, to$855.1 million for the first nine months of fiscal 2022 from$868.5 million in the same period of fiscal 2021. Interest income from investment securities decreased$12,000 , or one percent, to$1.4 million in the first nine months of fiscal 2022 from the same period of fiscal 2021. This decrease was attributable to a lower average yield, partly offset by a higher average balance. The average investment securities yield decreased eight basis points to 0.86 percent in the first nine months of fiscal 2022 from 0.94 percent in the same period of fiscal 2021. The decrease in the average investment securities yield was primarily attributable to the downward repricing of adjustable rate mortgage-backed securities and purchases for the last 12 months with a lower average estimated yield, partly offset by a lower premium amortization ($1.3 million compared to$1.4 million ). The average balance of investment securities increased$15.5 million , or eight percent, to$211.0 million in the first nine months of fiscal 2022 from$195.5 million in the same period of fiscal 2021. The increase in the average balance of investment securities was primarily the result of purchases of investment securities, partly offset by scheduled and accelerated principal payments on mortgage-backed securities. The FHLB -San Francisco cash dividend received in the first nine months of fiscal 2022 was$368,000 , up 23 percent from$300,000 in the same period of fiscal 2021. As a result, the average yield increased to 6.02 percent in the first nine months of fiscal 2022 as compared to 5.02 percent in the comparable period last year. The average balance of FHLB -San Francisco stock in the first nine months of fiscal 2022 increased$185,000 , or two percent, to$8.2 million from$8.0 million in the same period of fiscal 2021. Interest income from interest-earning deposits, primarily cash deposited at theFederal Reserve Bank of San Francisco , was$105,000 in the first nine months of fiscal 2022, up 78 percent from$59,000 in the same period of fiscal 2021. The increase was due to a higher average yield and, to a lesser extent, a higher average balance. The average yield earned on interest-earning deposits increased six basis points to 0.16 percent in the first nine months of fiscal 2022 from 0.10 percent in the comparable period last year, due primarily to an increase in the interest rate paid on excess reserves. The average balance of the interest-earning deposits in the first nine months of fiscal 2022 was$86.4 million , an increase of$9.8 million or nine percent, from$76.6 million in
the same period of fiscal 2021. Interest Expense: For the Quarters EndedMarch 31, 2022 and 2021. Total interest expense decreased by$253,000 or 26 percent to$720,000 in the third quarter of fiscal 2022 from$973,000 in the same quarter last year. This decrease was attributable to both lower deposit and borrowings expense. Interest expense on deposits for the third quarter of fiscal 2022 was$274,000 as compared to$380,000 for the same quarter last year, a decrease of$106,000 , or 28 percent. The decrease in interest expense on deposits was attributable to a lower average cost of deposits, partly offset by a higher average balance. The average cost of deposits improved, decreasing by five basis points to 0.12 percent during the third quarter of fiscal 2022 from 0.17 percent during the same quarter last year. The decrease in the average cost of deposits was attributable primarily to a lower percentage of time deposits to the total deposit balance and a 24 basis-point decrease in the average cost of time deposits. The average cost of transaction accounts remained unchanged at 0.05 percent. The average balance of deposits increased$46.4 million , or five percent, to$963.1 million during the quarter endedMarch 31, 2022 from$916.7 million during the same quarter last year. The increase in the average balance was primarily attributable to increases in transaction accounts, 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 third quarter of fiscal 2022 was 87 percent, compared to 84 percent in the same quarter of fiscal 2021. 42
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Interest expense on borrowings, consisting of FHLB -San Francisco advances, for the third quarter of fiscal 2022 decreased$147,000 , or 25 percent, to$446,000 from$593,000 for the same quarter last year. The decrease in interest expense on borrowings was the result of a lower average balance, partly offset by a higher average cost. The average balance of borrowings decreased$35.7 million , or 31 percent, to$80.0 million during the quarter endedMarch 31, 2022 from$115.7 million during the same quarter last year, due primarily to maturities and prepayments of borrowings. The average cost of borrowings increased 18 basis points to 2.26 percent for the quarter endedMarch 31, 2022 from 2.08 percent in the same quarter last year. The increase in the average cost of borrowings was primarily due to maturities of borrowings with a weighted average cost lower than the average cost of total borrowings. For the Nine Months EndedMarch 31, 2022 and 2021. Total interest expense decreased$1.2 million , or 33 percent to$2.4 million in the first nine months of fiscal 2022 from$3.6 million in the same period last year. This decrease was attributable primarily to both lower deposit and borrowings expense. Interest expense on deposits for the first nine months of fiscal 2022 was$889,000 as compared to$1.4 million in the same period last year, a decrease of$510,000 or 36 percent. The decrease in interest expense on deposits was primarily attributable to a lower average cost, partly offset by a higher average balance of deposits. The decrease in the average cost of deposits was attributable primarily to a lower percentage of time deposits to the total deposit balance and a 26 basis-point decrease in the average cost of time deposits. The average cost of transaction accounts also decreased by two basis points. The average cost of deposits decreased nine basis points to 0.12 percent during the first nine months of fiscal 2022 from 0.21 percent during the same period last year. The average balance of deposits increased$53.0 million , or six percent, to$959.2 million during the nine months endedMarch 31, 2022 from$906.2 million during the same period last year. The increase in the average balance was primarily attributable to increases in transaction accounts, partly offset by a decrease in higher cost time deposits. The average balance of transaction accounts to total deposits in the first nine months of fiscal 2022 was 86 percent, compared to 83 percent in the same period last year. Interest expense on borrowings, consisting of FHLB -San Francisco advances, for the first nine months of fiscal 2022 decreased$661,000 , or 30 percent, to$1.5 million from$2.2 million in the same period last year. The decrease in interest expense on borrowings was the result of a lower average balance, partly offset by a slightly higher average cost. The average balance of borrowings decreased by$41.5 million , or 32 percent, to$89.0 million during the nine months endedMarch 31, 2022 from$130.5 million during the same period last year, primarily due to prepayments and maturities of borrowings. The average cost of borrowings increased six basis points to 2.30 percent for the nine months endedMarch 31, 2022 from 2.24 percent in the same period last year. The increase in the average cost of borrowings was primarily due to maturities and prepayments of borrowings with a weighted average cost lower than the average cost of total borrowings and higher prepayment fees ($39,000 versus$12,000 ) for the first nine months of fiscal 2022 as compared to the same period last year. 43
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The following tables show the average balance sheets for the quarters and nine months ended
Average Balance Sheets
Quarter Ended Quarter Ended
March 31, 2022 March 31, 2021
Average Yield/ Average Yield/
(Dollars In Thousands) Balance Interest Cost Balance Interest Cost
Interest-earning
assets:
Loans receivable,
net(1) $ 858,300 $ 7,581 3.53 % $ 843,374 $ 7,860 3.73 %
Investment securities 203,171 515 1.01 % 222,284 452 0.81 %
FHLB - San Francisco
stock 8,155 123 6.03 % 7,970 100 5.02 %
Interests
deposits 86,007 39 0.18 % 71,728 18 0.10 % Total interest-earning assets 1,155,633 8,258 2.86 %
1,145,356 8,430 2.94%
Non interest-earning assets 32,346 31,258 Total assets$ 1,187,979 $ 1,176,614 Interest-bearing liabilities: Checking and money market accounts(2)$ 505,126 $ 54 0.04 %$ 473,196 $ 50 0.04 % Savings accounts 328,757 42 0.05 % 294,732 38 0.05 % Time deposits 129,229 178 0.56 % 148,821 292 0.80 % Total deposits 963,112 274 0.12 % 916,749 380 0.17 % Borrowings 80,000 446 2.26 % 115,672 593 2.08 % Total interest-bearing liabilities 1,043,112 720 0.28 % 1,032,421 973 0.38 % Non interest-bearing liabilities 17,348 19,141 Total liabilities 1,060,460 1,051,562 Stockholders' equity 127,519 125,052 Total liabilities and stockholders' equity$ 1,187,979 $ 1,176,614 Net interest income$ 7,538 $ 7,457 Interest rate spread(3) 2.58 % 2.56 % Net interest margin(4) 2.61 % 2.60 % Ratio of average interest- earning assets to average interest-bearing liabilities 110.79 % 110.94 % Return on average assets 0.57 % 0.53 % Return on average equity 5.33 % 4.99 %
(1) Includes non-performing loans and net amortization of the cost of deferred loans of
thousand and
respectively.
(2) Includes the average balance of non-remunerated checking accounts of
and 2021, respectively.
(3) Represents the difference between the weighted average return of all
interest-earning assets and the weighted average rate on all assets
Passives.
(4) Represents net interest income before provision (recovery) for loan losses
a percentage of average interest-earning assets.
44
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Nine Months Ended Nine Months Ended
March 31, 2022 March 31, 2021
Average Yield/ Average Yield/
(Dollars In Thousands) Balance Interest Cost Balance Interest Cost
Interest-earning
assets:
Loans receivable,
net(1) $ 855,080 $ 23,676 3.69 % $ 868,462 $ 25,121 3.86 %
Investment securities 210,978 1,366 0.86 % 195,463 1,378 0.94 %
FHLB - San Francisco
stock 8,155 368 6.02 % 7,970 300 5.02 %
Interest-earning
deposits 86,402 105 0.16 % 76,642 59 0.10 %
Total interest-earning
assets 1,160,615 25,515 2.93 % 1,148,537 26,858 3.12 %
Non interest-earning
assets 32,604 30,980
Total assets $ 1,193,219 $ 1,179,517
Interest-bearing
liabilities:
Checking and money
market accounts(2) $ 504,282 $ 169 0.04 % $ 463,291 $ 220 0.06 %
Savings accounts 320,999 128 0.05 % 284,787 170 0.08 %
Time deposits 133,872 592 0.59 % 158,091 1,009 0.85 %
Total deposits 959,153 889 0.12 % 906,169 1,399 0.21 %
Borrowings 88,986 1,537 2.30 % 130,510 2,198 2.24 %
Total interest-bearing
liabilities 1,048,139 2,426 0.31 % 1,036,679 3,597 0.46 %
Non interest-bearing
liabilities 17,722 18,089
Total liabilities 1,065,861 1,054,768
Stockholders' equity 127,358 124,749
Total liabilities and
stockholders' equity $ 1,193,219 $ 1,179,517
Net interest income $ 23,089 $ 23,261
Interest rate
spread(3) 2.62 % 2.66 %
Net interest margin(4) 2.65 %
2.70 % Ratio of average interest- earning assets to average interest-bearing liabilities 110.73 % 110.79 % Return on average assets 0.74 % 0.48 % Return on average equity 6.94 % 4.51 %
(1) Includes non-performing loans and net amortization of the cost of deferred loans of
million and
2021, respectively.
(2) Includes the average balance of non-remunerated checking accounts of
31, 2022 and 2021, respectively.
(3) Represents the difference between the weighted average return of all
interest-earning assets and the weighted average rate on all assets
Passives.
(4) Represents net interest income before provision (recovery) for loan losses
a percentage of average interest-earning assets.
The following tables set forth the effects of changing rates and volumes on interest income and expense for the quarters and nine months endedMarch 31, 2022 and 2021, 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. 45 Table of Contents Rate/Volume Variance Quarter Ended March 31, 2022 Compared To Quarter Ended March 31, 2021 Increase (Decrease) Due to (In Thousands) Rate Volume Rate/Volume Net Interest-earning assets: Loans receivable(1)$ (411) $ 139 $ (7)$ (279) Investment securities 112 (39) (10) 63 FHLB - San Francisco stock 21 2 - 23 Interest-earning deposits 14 4 3 21 Total net change in income on interest-earning assets (264) 106 (14) (172) Interest-bearing liabilities:
Checking and money market accounts - 4
- 4 Savings accounts - 4 - 4 Time deposits (87) (39) 12 (114) Borrowings 52 (183) (16) (147) Total net change in expense on interest-bearing liabilities (35) (214) (4) (253) Net (decrease) increase in net interest income$ (229) $ 320
(1) For the purposes of calculating volume, tariff and tariff/volume differentials,
non-performing loans were included in the weighted-average balance
outstanding.
Nine Months Ended March 31, 2022 Compared
To Nine Months Ended March 31, 2021
Increase (Decrease) Due to
(In Thousands) Rate Volume Rate/Volume Net
Interest-earning assets:
Loans receivable $ (1,075) $ (387) $ 17 $ (1,445)
Investment securities (112) 109 (9) (12)
FHLB - San Francisco stock 60 7 1 68
Interest-bearing deposits 35 7 4 46
Total net change in income on
interest-earning assets (1,092) (264) 13 (1,343)
Interest-bearing liabilities:
Checking and money market accounts (63) 18
(6) (51) Savings accounts (56) 22 (8) (42) Time deposits (309) (155) 47 (417) Borrowings 56 (698) (19) (661) Total net change in expense on interest-bearing liabilities (372) (813) 14 (1,171) Net (decrease) increase in net interest income$ (720) $ 549
$ (1)
Allowance (recovery) for loan losses:
For the Quarters EndedMarch 31, 2022 and 2021. During the third quarter of fiscal 2022, the Corporation recorded a recovery from the allowance for loan losses of$645,000 , up from the$200,000 recovery in the same quarter of fiscal 2021. The recovery from the allowance for loan losses for both the third quarters of fiscal 2022 and 2021 were primarily due to improved credit quality and improving economic conditions, partly offset by an increase in loans receivable during the current quarter; while a decrease in loans receivable contributed to the recovery in the same quarter last year. For the Nine Months EndedMarch 31, 2022 and 2021. During the first nine months of fiscal 2022, the Corporation recorded a recovery from the allowance for loan losses of$2.1 million , as compared to a provision for loan losses of 46
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$59,000 in the same period of fiscal 2021. The recovery from the allowance for loan losses for the first nine months of fiscal 2022 was primarily due to improved credit quality and improving economic conditions, partly offset by an increase in loans receivable. The provision for loan losses for the first nine months of fiscal 2021 primarily reflected an increase in non-performing loans partly offset by the decrease in loans receivable and an improvement in the forecasted economic metrics utilized in the qualitative component adjustment to our allowance for loan losses during the first nine months of fiscal 2021. Non-performing loans, net of the allowance for loan losses and fair value adjustments, decreased 77 percent to$2.0 million atMarch 31, 2022 from$8.6 million atJune 30, 2021 and were$9.8 million atMarch 31, 2021 . Net loan recoveries in the first nine months of fiscal 2022 were$433,000 or 0.07 percent (annualized) of average loans receivable, as compared to net loan recoveries of$22,000 or 0.00 percent (annualized) of average loans receivable in the same period of fiscal 2021. Total classified loans, net of the allowance for loan losses and fair value adjustments, were$2.8 million atMarch 31, 2022 as compared to$10.4 million atJune 30, 2021 and$12.2 million atMarch 31, 2021 . Classified loans, net of the allowance for loan losses and fair value adjustments, atMarch 31, 2022 were comprised of$789,000 of loans in the special mention category and$2.0 million of loans in the substandard category as compared to$1.8 million of loans in the special mention category and$8.6 million of loans in the substandard category atJune 30, 2021 .
The allowance for loan losses was determined through quantitative and qualitative adjustments, including the Bank’s experience with write-offs, and reflects the impact on loans held for investment of general economic conditions. current of the
AtMarch 31, 2022 , the allowance for loan losses was$6.0 million , comprised of collectively evaluated allowances of$5.9 million and individually evaluated allowances of$51,000 ; in comparison to the allowance for loan losses of$7.6 million atJune 30, 2021 , comprised of collectively evaluated allowances of$7.2 million and individually evaluated allowances of$384,000 . The allowance for loan losses as a percentage of gross loans held for investment was 0.66 percent atMarch 31, 2022 as compared to 0.88 percent atJune 30, 2021 . Management considers, based on currently available information, the allowance for loan losses sufficient to absorb potential losses inherent in loans held for investment. For further analysis on the allowance for loan losses, see Note 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements. A 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 completed quarters
Loan servicing and other fees decreased$118,000 or 33 percent to$237,000 in the third quarter of fiscal 2022 from$355,000 in the same quarter last year. The decrease was due primarily to a change in the fair value of loans held for investment to a$66,000 downward adjustment in the third quarter of fiscal 2022 as compared to a$57,000 upward adjustment to fair value in the same quarter last year. For the Nine Months EndedMarch 31, 2022 and 2021. Total non-interest income increased$219,000 , or seven percent, to$3.6 million for the nine months endedMarch 31, 2022 from$3.3 million for the same period last year. The increase was primarily attributable to increases in card and processing fees and other non-interest income. Card and processing fees increased$84,000 or eight percent to$1.2 million in the third quarter of fiscal 2022 from$1.1 million in the same period last year, resulting from higher activity as businesses reopen in our market area. Other non-interest income increased$139,000 or 35 percent to$536,000 in the third quarter of fiscal 2022 from$397,000 in the same period last year. The increase was primarily due to a$40,000 recovery on the allowance for loss reserves on sold loans recognized in the second quarter of fiscal 2022 as compared to a$120,000 provision for loss reserves on sold loans recognized in the first and second quarters of fiscal 2021. 47 Table of Contents Non-Interest Expense:
For the Quarters EndedMarch 31, 2022 and 2021. Total non-interest expense remained unchanged at$6.9 million for both quarters endedMarch 31, 2022 and 2021. Decreases in salaries and employee benefits expense, premises and occupancy expense, professional expense and deposit insurance premium and regulatory assessments expenses were largely offset by increases in equipment expense, sales and marketing expense and other operating expenses. For the Nine Months EndedMarch 31, 2022 and 2021. Total non-interest expense in the nine months endedMarch 31, 2022 was$19.5 million , a decrease of$1.3 million , or six percent, as compared to$20.8 million in the nine months endedMarch 31, 2021 . The decrease was primarily attributable to a decrease in salaries and employee benefits expense. Salaries and employee benefits expense decreased$1.2 million , or nine percent, to$11.8 million in the first nine months of fiscal 2022 from$13.0 million in the same period of fiscal 2021. The decrease was due primarily to a$1.2 million credit for the ERTC recorded in the first quarter of fiscal 2022. The ERTC was recorded for qualified wages consistent with the CAA and American Rescue Plan Act of 2021 where eligible employers can claim a maximum credit equal to 70 percent of$10,000 of qualified wages paid to an employee per calendar quarter.
Provision for income taxes:
The income tax provision reflects accruals for taxes at the applicable rates for federal income tax andCalifornia 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 certainCalifornia tax-exempt loans, among others. Therefore, there are fluctuations in the effective income tax rate from period to period based on the relationship of net permanent differences to income before tax. For the Quarters EndedMarch 31, 2022 and 2021. The Corporation's income tax provision was$699,000 for the third quarter of fiscal 2022, an 81 percent increase from$386,000 in the same quarter last year, primarily due to a higher income before income taxes. The effective income tax rate for the quarter endedMarch 31, 2022 was 29.2 percent as compared to 19.8 percent for the quarter endedMarch 31, 2021 . The lower effective tax rate in the third quarter of last year was attributable to the recognition of tax benefits resulting from the exercise of stock options. For the Nine Months EndedMarch 31, 2022 and 2021. The Corporation's income tax provision was$2.6 million for the first nine months of fiscal 2022, a 73 percent increase from$1.5 million in the same period last year, primarily reflecting higher pre-tax income. The effective income tax rate for the nine months endedMarch 31, 2022 and 2021 was 28.1 percent and 26.2 percent, respectively. The provision for income taxes in the first nine months of fiscal 2022 includes the tax benefits from the non-taxable treatment of the ERTC for state income tax purposes; while the provision for income taxes in the same period last year was primarily attributable to the recognition of tax benefits resulting from the exercise of stock options.
Asset quality
Non-performing assets were comprised solely of non-performing loans at bothMarch 31, 2022 andJune 30, 2021 . Non-performing loans, net of the allowance for loan losses and fair value adjustments, consisting of loans with collateral located inCalifornia , were$2.0 million atMarch 31, 2022 , down 77 percent from$8.6 million atJune 30, 2021 . Non-performing loans as a percentage of loans held for investment atMarch 31, 2022 was 0.22%, down from 1.02% atJune 30, 2021 . The non-performing loans atMarch 31, 2022 were comprised of eight single-family loans and one multi-family loan; while the non-performing loans atJune 30, 2021 are comprised of 27 single-family loans and one multi-family loan. No interest accruals were made for loans that were past due 90 days or more or if the loans were deemed non-performing. As ofMarch 31, 2022 , total restructured loans were$5.3 million , down 33 percent from$7.9 million atJune 30, 2021 . AtMarch 31, 2022 , a total of$974,000 or 18 percent of these restructured loans were classified as non-performing; while atJune 30, 2021 , a total of$7.0 million or 89 percent of these restructured loans were classified as non-performing. As ofMarch 31, 2022 , a total of$4.5 million or 85 percent of the restructured loans have a current payment status, consistent with their modified payment terms; this compares to$7.7 million or 97 percent of restructured loans that had a current 48 Table of Contents
payment status, in accordance with their amended payment terms on
There was no real estate owned at either
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, provision 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 toCalifornia where substantially all of the Corporation's real estate collateral is located. If real estate values decline, the value of the real estate collateral securing the Corporation's loans as set forth in the table could be significantly overstated. The Corporation's ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and it would be more likely to suffer losses on defaulted loans. The Corporation generally does not update the loan-to-value ratio on its loans held for investment by obtaining new appraisals or broker price opinions (nor does the Corporation intend to do so in the future as a result of the costs and inefficiencies associated with completing the task) unless a specific loan has demonstrated deterioration in which case individually evaluated allowances are established, if required.
The following table presents information relating to the Company’s non-performing assets, net of allowance for loan losses and fair value adjustments, as of the dates indicated:
At March 31 , At June 30 ,
(In Thousands) 2022
2021
Loans on non-accrual status (excluding restructured loans): Mortgage loans: Single-family $ 716 $ 882 Multi-family 306 781 Total 1,022 1,663
Accruing loans past due 90 days or more - - Restructured loans on non-accrual status: Mortgage loans: Single-family 974 6,983 Total 974 6,983 Total non-performing loans 1,996 8,646 Real estate owned, net - - Total non-performing assets $ 1,996$ 8,646
Non-performing loans as a percentage of loans held for investment, net of allowance for loan losses
0.22 % 1.02 % Non-performing loans as a percentage of total assets 0.17 % 0.73 % Non-performing assets as a percentage of total assets 0.17
% 0.73 %
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The following table summarizes classified assets, which include classified loans, net of allowance for loan losses and fair value adjustments, and real estate held, if any, as of the dates indicated:
At March 31, 2022 At June 30, 2021
(Dollars In Thousands) Balance Count Balance Count
Special mention loans:
Mortgage loans:
Single-family $ 789 2 $ 1,767 4
Total special mention loans 789 2
1,767 4 Substandard loans: Mortgage loans: Single-family 1,690 10 7,865 29 Multi-family 306 1 781 1 Total substandard loans 1,996 11 8,646 30 Total classified loans 2,785 13 10,413 34 Real estate owned - - - - Total classified assets$ 2,785 13$ 10,413 34 Total classified assets as a percentage of total assets 0.23 % 0.88 % Loan Volume Activities The following table is provided to disclose details related to the volume of loans originated and purchased for investment for the quarters and nine months indicated: For the Quarter Ended For the Nine Months Ended March 31, March 31, (In Thousands) 2022 2021 2022 2021 Loans originated for investment: Mortgage loans: Single-family$ 48,624 $ 38,928 $ 128,764 $ 74,571 Multi-family 31,487 21,208 71,725 48,024 Commercial real estate 7,011 830 11,216 2,690 Construction 544 - 2,228 1,828
Total loans originated for investment 87,666 60,966
213 933 127 113
Loans purchased for investment: Mortgage loans: Single-family 6,354 - 6,354 - Multi-family - - - 11,463
Total loans purchased for investment 6,354 -
6,354 11,463
Mortgage loan principal payments (53,647) (75,719) (180,053) (201,617) Increase (decrease) in other items, net?¹? 1,184 (59) 2,369 519 Net increase (decrease) in loans held for investment$ 41,557 $ (14,812) $
42,603
(1) Includes net changes in undisbursed loan funds, deferred lending fees or costs,
allowance for loan losses, fair value of loans held for investment, advance
payments of escrows and repurchases.
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Cash and capital resources
The Corporation's primary sources of funds are deposits, proceeds from principal and interest payments on loans and investment securities, proceeds from the maturity of loans and investment securities, FHLB -San Francisco advances, access to the discount window facility at theFederal 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 and mortgage prepayments 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 nine months of fiscal 2022 and 2021, the Corporation originated and purchased loans held for investment of$220.3 million and$138.6 million , respectively. AtMarch 31, 2022 , the Corporation had loan origination commitments totaling$40.7 million , undisbursed lines of credit totaling$1.3 million and undisbursed construction loan funds totaling$4.5 million . The Corporation anticipates that it will have sufficient funds available to meet its current loan commitments. During the first nine months of fiscal 2022 and 2021, total loan repayments were$180.1 million and$201.6 million , respectively. The Corporation's primary financing activity is gathering deposits. During the first nine months of fiscal 2022, the net increase in deposits was$25.5 million or three percent, due to an increase in transaction accounts, partly offset by a decrease in time deposits. Transaction account balances increased$38.8 million , or five percent, to$836.3 million atMarch 31, 2022 from$797.5 million atJune 30, 2021 , while time deposits decreased$13.2 million , or nine percent, to$127.2 million atMarch 31, 2022 from$140.4 million atJune 30, 2021 . AtMarch 31, 2022 , time deposits with a principal amount of$250,000 or less and scheduled to mature in one year or less were$65.3 million and total time deposits with a principal amount of more than$250,000 and scheduled to mature in one year or less were$13.5 million . Historically, the Corporation has been able to retain a significant percentage of its time deposits as they mature. The Corporation must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. The Corporation generally maintains sufficient cash and cash equivalents to meet short-term liquidity needs. AtMarch 31, 2022 , total cash and cash equivalents were$60.1 million , or five 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 ofMarch 31, 2022 , total borrowings were$80.0 million and the financing availability at FHLB -San Francisco was limited to 35 percent of total assets. As a result, the remaining borrowing facility available was$321.4 million and the remaining available collateral was$323.6 million . In addition, the Bank has secured a$168.4 million discount window facility at theFederal Reserve Bank of San Francisco , collateralized by investment securities with a fair market value of$179.1 million . As ofMarch 31, 2022 , the Bank also has a borrowing arrangement in the form of a federal funds facility with its correspondent banks for$67.0 million . The Bank had no advances under its correspondent banks or discount window facility as ofMarch 31, 2022 . During the first nine months of fiscal 2022, the Corporation purchased 221,797 shares of the Corporation's common stock under theApril 2020 stock repurchase plan with a weighted average cost of$16.87 per share. As ofMarch 31, 2022 , there are 45,036 shares available for purchase until the plan expires onApril 27, 2022 . The Corporation will purchase the shares from time to time in the open market or through privately negotiated transactions depending on market conditions, the capital requirements of the Corporation, and available cash that can be allocated to the stock repurchase program, among other considerations. Regulations require thrifts to maintain adequate liquidity to assure safe and sound operations. The Bank's average liquidity ratio (defined as the ratio of average qualifying liquid assets to average deposits and borrowings) for the quarter endedMarch 31, 2022 decreased slightly to 29.9 percent from 32.0 percent for the quarter endedJune 30, 2021 . 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- 51
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balance sheet items as calculated in accordance with regulatory accounting practices. The amounts and classification of the Bank’s capital are also subject to qualitative judgments by regulators regarding components, risk weightings and other factors.
AtMarch 31, 2022 , the Bank exceeded all regulatory capital requirements. The Bank was categorized "well-capitalized" atMarch 31, 2022 under the regulations of the OCC. As a bank holding company registered with theFederal Reserve ,Provident Financial Holdings, Inc. is subject to the capital adequacy requirements of theFederal Reserve . For a bank holding company with less than$3.0 billion in assets, the capital guidelines apply on a bank only basis, and theFederal Reserve expects the holding company's subsidiary bank to be well capitalized under the prompt corrective action regulations.
The Bank’s actual and required minimum capital amounts and ratios as of the dates indicated are as follows (in thousands of dollars):
Regulatory Requirements
Minimum for Capital Minimum to Be
Actual Adequacy
Objectives(1) Well capitalized
Amount Ratio Amount
Report Amount Report
Provident Savings Bank , F.S.B.: As ofMarch 31, 2022 Tier 1 leverage capital (to adjusted average assets)$ 122,026 10.27 %$ 47,510 4.00 %$ 59,388 5.00 % CET1 capital (to risk-weighted assets)$ 122,026 19.32 %$ 44,211 7.00 %$ 41,053 6.50 % Tier 1 capital (to risk-weighted assets)$ 122,026 19.32 %$ 53,684 8.50 %$ 50,526 8.00 % Total capital (to risk-weighted assets)$ 128,136 20.29 %$ 66,316 10.50 %$ 63,158 10.00 % As of June 30, 2021 Tier 1 leverage capital (to adjusted average assets)$ 121,621 10.19 %$ 47,736 4.00 %$ 59,670 5.00 % CET1 capital (to risk-weighted assets)$ 121,621 18.58 %$ 45,816 7.00 %$ 42,544 6.50 % Tier 1 capital (to risk-weighted assets)$ 121,621 18.58 %$ 55,634 8.50 %$ 52,361 8.00 % Total capital (to risk-weighted assets)$ 129,335 19.76 %$ 68,724 10.50 %$ 65,452 10.00 %
(1) Including the 2.50% conservation buffer for CET1, Tier 1 capital
capital and total capital ratios.
In addition to the minimum CET1, Tier 1 and Total capital ratios, the Bank must maintain a capital conservation buffer consisting of additional CET1 capital above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. As ofMarch 31, 2022 , the capital conservation buffer required a minimum of 2.50% of risk weighted assets. The ability of the Corporation to pay dividends to stockholders depends primarily on the ability of the Bank to pay dividends to the Corporation. The Bank may not declare or pay a cash dividend if the effect thereof would cause its net worth to be reduced below the regulatory capital requirements imposed by federal regulation. In the first nine months of fiscal 2022, the Bank paid a cash dividend of$7.5 million to the Corporation, while the Corporation paid$3.1 million of cash dividends to its shareholders. 52 Table of Contents Supplemental Information At At At March 31, June 30, March 31, 2022 2021 2021
Loans managed for third parties (in thousands)
Book value per share$ 17.43 $ 16.88 $
16.73
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