PROVIDENT FINANCIAL HOLDINGS INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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 March 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 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 September 30, 2002. On January 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 on February 15, 2022, which was paid on March 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. 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.

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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

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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 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 2021 Annual Report on Form 10-K for the year ended June 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 ended March 31, 2022 to the critical accounting
policies as described in the Corporation's 2021 Annual Report on Form 10-K for
the period ended June 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 of Southern California. The Bank conducts its business
operations as Provident Bank and through its subsidiary, Provident Financial
Corp. The business activities of the Corporation, primarily through the Bank,
consist of community banking and, to a lesser degree, investment services for
customers and trustee services on behalf of the Bank.

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

During the next three years, subject to market conditions, the Corporation
intends to improve its community banking business by moderately increasing total
assets (by increasing single-family, multi-family, commercial real estate,
construction and commercial business loans). In addition, the Corporation
intends to decrease the percentage of time deposits in its deposit base and to
increase the percentage of lower cost checking and savings accounts. This
strategy is intended to improve core revenue through a higher net interest
margin and ultimately, coupled with the growth of the Corporation, an increase
in net interest income. While the Corporation's long-term strategy is for
moderate growth, management recognizes that growth may be challenging despite
some recent improvements in general economic conditions as the economic
consequences of COVID-19 remain unknown.

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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. 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.

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 of
March 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 March 31, 2022 and June 30, 2021


Total assets increased slightly to $1.19 billion at March 31, 2022 from $1.18
billion at June 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 the
Federal Reserve Bank of San Francisco, decreased $10.2 million, or 14 percent,
to $60.1 million at March 31, 2022 from $70.3 million at June 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 at March 31, 2022 from $226.9 million
at June 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.

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Loans held for investment increased $42.6 million, or five percent, to $893.6
million at March 31, 2022 from $851.0 million at June 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 throughout California. 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 at March 31, 2022 and June 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 at March 31, 2022 and June 30, 2021, as a percentage
of the total dollar amount outstanding:

As of March 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 of June 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 at
March 31, 2022 from $938.0 million at June 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 at March 31, 2022 from $797.5 million at June 30, 2021, while
time deposits decreased $13.2 million, or nine percent, to $127.2 million at
March 31, 2022 from $140.4 million at June 30, 2021. The percentage of time
deposits to total deposits decreased to 13 percent at March 31, 2022 from
15 percent at June 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 at
March 31, 2022 as compared to $101.0 million at June 30, 2021, due to prepayment
and maturities of long-term borrowings. At March 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 at March 31,
2022 from $127.3 million at June 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

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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 its April 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 March 31, 2022 and 2021

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 Ended March 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 Ended March 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

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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 Ended March 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 the
Federal 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 Ended March 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.

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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 the
Federal 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 Ended March 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 ended March 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.

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Contents


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 ended March 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 ended March 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 Ended March 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 ended March 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 ended
March 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 ended March 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

Contents

The following tables show the average balance sheets for the quarters and nine months ended March 31, 2022 and 2021, respectively:


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 $496

thousand and $717,000 for completed quarters March 31, 2022 and 2021,

respectively.

(2) Includes the average balance of non-remunerated checking accounts of

$114.4 million and $114.1 million in the quarters ended March 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.


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  Table of Contents

                                    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 $1.6

million and $1.7 million for the first nine months ended March 31, 2022 and

2021, respectively.

(2) Includes the average balance of non-remunerated checking accounts of

$117.7 million and $113.9 million in the first nine months ended March

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 ended March 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.

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  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  

$ (10) $81

(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) ($172)

Allowance (recovery) for loan losses:

For the Quarters Ended March 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 Ended March 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

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Contents

$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 at March 31, 2022 from $8.6
million at June 30, 2021 and were $9.8 million at March 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 at March 31, 2022 as
compared to $10.4 million at June 30, 2021 and $12.2 million at March 31, 2021.
Classified loans, net of the allowance for loan losses and fair value
adjustments, at March 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 at June 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 WE and California savings. See the related discussion on “asset quality”.


At March 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 at June 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
at March 31, 2022 as compared to 0.88 percent at June 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 March 31, 2022 and 2021. Total non-interest income decreased $85,000or seven percent, to $1.1 million for the quarter ended March 31, 2022 from $1.2 million for the same period last year. The decrease is mainly due to a decrease in loan servicing and other fees.

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 Ended March 31, 2022 and 2021. Total non-interest income
increased $219,000, or seven percent, to $3.6 million for the nine months ended
March 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.

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  Table of Contents

Non-Interest Expense:
For the Quarters Ended March 31, 2022 and 2021. Total non-interest expense
remained unchanged at $6.9 million for both quarters ended March 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 Ended March 31, 2022 and 2021. Total non-interest expense in
the nine months ended March 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 ended
March 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 and California franchise tax based upon reported pre-tax
income, adjusted for the effect of all permanent differences between income for
tax and financial reporting purposes, such as non-deductible stock-based
compensation, earnings from bank-owned life insurance policies and certain
California tax-exempt loans, among others. Therefore, there are fluctuations in
the effective income tax rate from period to period based on the relationship of
net permanent differences to income before tax.

For the Quarters Ended March 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 ended
March 31, 2022 was 29.2 percent as compared to 19.8 percent for the quarter
ended March 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 Ended March 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 ended March 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 both
March 31, 2022 and June 30, 2021. Non-performing loans, net of the allowance for
loan losses and fair value adjustments, consisting of loans with collateral
located in California, were $2.0 million at March 31, 2022, down 77 percent from
$8.6 million at June 30, 2021. Non-performing loans as a percentage of loans
held for investment at March 31, 2022 was 0.22%, down from 1.02% at June 30,
2021. The non-performing loans at March 31, 2022 were comprised of eight
single-family loans and one multi-family loan; while the non-performing loans at
June 30, 2021 are comprised of 27 single-family loans and one multi-family loan.
No interest accruals were made for loans that were past due 90 days or more or
if the loans were deemed non-performing.

As of March 31, 2022, total restructured loans were $5.3 million, down 33
percent from $7.9 million at June 30, 2021. At March 31, 2022, a total of
$974,000 or 18 percent of these restructured loans were classified as
non-performing; while at June 30, 2021, a total of $7.0 million or 89 percent of
these restructured loans were classified as non-performing. As of March 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

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  Table of Contents

payment status, in accordance with their amended payment terms on June 30, 2021. Restructured loans that are performing in accordance with their modified terms and that are not otherwise classified as accrued are not included in non-performing assets. For a more in-depth analysis of non-performing loans and restructured loans, see note 5 of the notes to the unaudited condensed interim consolidated financial statements.

There was no real estate owned at either March 31, 2022 or June 30, 2021.


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

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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  Table of Contents

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 ($62,522)

(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 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 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. At March 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 at March 31, 2022 from $797.5 million at June
30, 2021, while time deposits decreased $13.2 million, or nine percent, to
$127.2 million at March 31, 2022 from $140.4 million at June 30, 2021. At March
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. At March 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 of March 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 the Federal Reserve Bank of San Francisco, collateralized by
investment securities with a fair market value of $179.1 million. As of March
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 of March
31, 2022.

During the first nine months of fiscal 2022, the Corporation purchased 221,797
shares of the Corporation's common stock under the April 2020 stock repurchase
plan with a weighted average cost of $16.87 per share. As of March 31, 2022,
there are 45,036 shares available for purchase until the plan expires on
April 27, 2022. The Corporation will purchase the shares from time to time in
the open market or through privately negotiated transactions depending on market
conditions, the capital requirements of the Corporation, and available cash that
can be allocated to the stock repurchase program, among other considerations.

Regulations require thrifts to maintain adequate liquidity to assure safe and
sound operations. The Bank's average liquidity ratio (defined as the ratio of
average qualifying liquid assets to average deposits and borrowings) for the
quarter ended March 31, 2022 decreased slightly to 29.9 percent from
32.0 percent for the quarter ended June 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

Contents

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.


At March 31, 2022, the Bank exceeded all regulatory capital requirements. The
Bank was categorized "well-capitalized" at March 31, 2022 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 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 of March 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 of March 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) $39,936 $50,448 $57,422


Book value per share                      $    17.43    $   16.88    $    

16.73

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