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 December 31, 2021, the Corporation had total assets of $1.18
billion, total deposits of $956.3 million and total stockholders' equity of
$127.9 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 October 29, 2021, the Corporation declared a
quarterly cash dividend of $0.14 per share for the Corporation's shareholders of
record at the close of business on November 19, 2021, which was paid on
December 10, 2021. Future declarations or payments of dividends will be subject
to the consideration of the Corporation's Board of Directors, which will take
into account the Corporation's financial condition, results of operations, tax
considerations, capital requirements, industry standards, legal restrictions,
economic conditions and other factors, including the regulatory restrictions
which affect the payment of dividends by the Bank to the Corporation. Under
Delaware law, dividends may be paid either out of surplus or, if there is no
surplus, out of net profits for the current fiscal year and/or the preceding
fiscal year in which the dividend is declared.

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

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

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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 six months ended December 31, 2021 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 still be challenging
despite some recent improvements in general economic conditions as the economic
consequences of COVID-19 remain unknown.

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.

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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
December 31, 2021, 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.

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



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 December 31, 2021 and June 30, 2021

Total assets remained virtually unchanged at $1.18 billion at a time December 31, 2021 and June 30, 2021.

Total cash and cash equivalents, primarily excess cash deposited with the
Federal Reserve Bank of San Francisco, increased $15.4 million, or 22 percent,
to $85.7 million at December 31, 2021 from $70.3 million at June 30, 2021. The
increase in total cash and cash equivalents was primarily attributable to the
decrease in investment securities.

Investment securities (held to maturity and available for sale) decreased $18.7
million, or eight percent, to $208.2 million at December 31, 2021 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 $15.0 million purchase of investment securities during the first six 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.

Loans held for investment increased $1.0 million to $852.0 million at December
31, 2021 from $851.0 million at June 30, 2021, primarily due to an increase in
single-family loans, partly offset by a decrease in multi-family and commercial
real estate loans. During the first six months of fiscal 2022, the Corporation
originated $126.3 million of loans held for investment, consisting primarily of
single-family and multi-family loans that are located throughout California. The
Corporation did not purchase any loans to be held for investment during the
first six months of fiscal 2022. Total loan

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principal payments during the first six months of fiscal 2022 were $126.4
million, up slightly from $125.9 million during the comparable period in fiscal
2021. The single-family loans held for investment balance at December 31, 2021
and June 30, 2021 was $290.2 million and $268.3 million, respectively, and
represented approximately 34 percent and 31 percent of loans held for
investment, respectively.

The tables below describe the geographical breakdown of gross real estate loans held for investment December 31, 2021 and June 30, 2021as a percentage of the total dollar amount outstanding:

As of December 31, 2021:


                     Inland             Southern              Other               Other
                      Empire          California(1)         California            States               Total
Loan Category     Balance     %       Balance     %       Balance     %       Balance     %       Balance       %
Single-family    $  90,633     31 %  $  95,075     33 %  $ 104,252     36 %  $     285      - %  $  290,245    100 %
Multi-family        65,149     14 %    281,259     60 %    119,775     26 %        284      - %     466,467    100 %
Commercial
real estate         22,983     25 %     40,646     45 %     27,607     30 %          -      - %      91,236    100 %
Construction         1,738     50 %      1,763     50 %          -      - %
         -      - %       3,501    100 %
Other                    -      - %        134    100 %          -      - %          -      - %         134    100 %
Total            $ 180,503     21 %  $ 418,877     49 %  $ 251,634     30 %  $     569      - %  $  851,583    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 $18.3 million, or two percent, to $956.3 million at
December 31, 2021 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 $27.2 million, or three percent,
to $824.7 million at December 31, 2021 from $797.5 million at June 30, 2021,
while time deposits decreased $8.7 million, or six percent, to $131.7 million at
December 31, 2021 from $140.4 million at June 30, 2021. The percentage of time
deposits to total deposits decreased to 14 percent at December 31, 2021 from
15 percent at June 30, 2021, primarily due to a managed run-off of higher cost
time deposits consistent with the reduction in the Bank's funding needs during
the first six months of fiscal 2022.

Total borrowings decreased $21.0 million, or 21 percent, to $80.0 million at
December 31, 2021 as compared to $101.0 million at June 30, 2021, due to
prepayment and maturities of long-term borrowings. At December 31, 2021,
borrowings are primarily comprised of long-term FHLB - San Francisco advances
used for interest rate risk management purposes.

Total stockholders' equity increased $654,000, or one percent, to $127.9 million
at December 31, 2021 from $127.3 million at June 30, 2021, primarily as a result
of the $4.9 million net income and $417,000 of stock-based compensation  in the
first six months of fiscal 2022, partly offset by $2.1 million of quarterly cash
dividends paid to shareholders and $2.6 million of stock repurchases. The
Corporation repurchased 152,526 shares of its common stock under its April 2020
stock repurchase plan with a weighted average cost of $16.95 per share during
the first six months of fiscal 2022.

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Comparison of operating results for the quarters and six months ended December 31, 2021 and 2020

The Corporation's net income for the second quarter of fiscal 2022 was $2.3
million, up $1.1 million or 92 percent from $1.2 million in the same period of
fiscal 2021. Compared to the same quarter last year, the increase in earnings
was primarily attributable to a $1.1 million improvement in the provision for
loan losses ($1.1 million recovery from the allowance for loan losses compared
to $39,000 provision for loan losses) and higher non-interest income (mainly,
higher loan servicing and other fees).

For the first six months of fiscal 2022, the Corporation's net income was $4.9
million, an increase of $2.2 million, or 81 percent, from $2.7 million in the
same period of fiscal 2021. Compared to the same period last year, the increase
in earnings was primarily attributable to a $1.7 million improvement in the
provision for loan losses ($1.4 million recovery from the allowance for loan
losses vs. $259,000 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 $304,000 increase in non-interest income, partly offset
by a $253,000 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, improved to 76 percent
for the second quarter of fiscal 2022 from 80 percent in the same period of
fiscal 2021. For the first six months of fiscal 2022, the Corporation's
efficiency ratio also improved to 70 percent from 78 percent for the same period
of fiscal 2021.

Return on average assets was 0.76 percent in the second quarter of fiscal 2022,
up 36 basis points from 0.40 percent in the same period last year. For the first
six months of fiscal 2022, return on average assets was 0.82 percent, up 37
basis points from 0.45 percent in the same period last year.

Return on average stockholders' equity was 7.11 percent in the second quarter of
fiscal 2022, up from 3.77 percent in the same period last year. For the first
six months of fiscal 2022, return on average stockholders' equity was 7.75
percent, up from 4.27 percent for the same period last year.

Diluted earnings per share for the second quarter of fiscal 2022 were $0.30, up
88 percent from diluted earnings per share of $0.16 in the same period
last year. For the first six months of fiscal 2022, diluted earnings per share
were $0.65, up 81 percent from $0.36 in the same period last year.

Net interest income:

For the Quarters Ended December 31, 2021 and 2020. Net interest income increased
by $25,000 to $7.7 million for the second quarter of fiscal 2022 from $7.6
million in the same period in fiscal 2021, as a result of a higher average
interest-earning asset balance, partly offset by a lower net interest
margin. The average balance of interest-earning assets increased $13.3 million,
or one percent, to $1.16 billion in the second quarter of fiscal 2022 from $1.15
billion in the comparable period of fiscal 2021, reflecting primarily an
increase in interest-earning deposits, partly offset by a decrease in loans held
for investment. The average balance of interest-bearing liabilities increased by
$13.6 million, or one percent, to $1.05 billion in the second quarter of fiscal
2022 from $1.04 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 decreased two basis points to 2.64 percent in the second quarter
of fiscal 2022 from 2.66 percent in the same period of fiscal 2021.

For the Six Months Ended December 31, 2021 and 2020. Net interest income
decreased by $253,000, or two percent, to $15.6 million for the first six months
of fiscal 2022 from $15.8 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 asset balance. The net interest margin was 2.67 percent in the
first six months of fiscal 2022, a decrease of eight basis points from 2.75
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 23 basis points to 2.97 percent in the
first six months of fiscal 2022 from 3.20 percent in the same period last year,
while the weighted-average cost of interest-bearing liabilities decreased by 18
basis points to 0.32 percent for the first six months of fiscal 2022 as compared
to 0.50 percent in the same period last year. The average balance of
interest-earning assets

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increased $12.9 million, or one percent, to $1.16 billion in the first six
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 $11.8 million, or one percent, to $1.05 billion in the
first six 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 December 31, 2021 and 2020. Total interest income
decreased by $398,000, or four percent, to $8.5 million for the second quarter
of fiscal 2022 as compared to $8.9 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 $424,000, or five percent, to
$7.9 million in the second quarter of fiscal 2022 from $8.3 million in the same
quarter of fiscal 2021. The decrease was due to a lower average yield, and to a
lesser extent, a lower average balance. The average loans receivable yield
during the second quarter of fiscal 2022 decreased 13 basis points to 3.71
percent from 3.84 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 loan payoffs with
a higher average yield than the existing portfolio and an increase in net
deferred loan cost amortization to $622,000 in the second quarter of fiscal 2022
from $521,000 in the same period of fiscal 2021. The average balance of loans
receivable decreased by $14.2 million, or two percent, to $854.3 million for the
second quarter of fiscal 2022 from $868.5 million in the same quarter of fiscal
2021.

Interest income from investment securities decreased $15,000, or three percent,
to $433,000 in the second quarter of fiscal 2022 from $448,000 for the same
quarter 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 three basis points to 0.83 percent in the second quarter of
fiscal 2022 from 0.86 percent in the same quarter of fiscal 2021. The decrease
in the average investment securities yield was primarily attributable to the
downward repricing of adjustable rate mortgage-backed securities, partly offset
by a lower premium amortization during the current quarter in comparison to the
same quarter last year ($443,000 vs. $531,000). The average balance of
investment securities increased $1.2 million, or one percent, to $209.7 million
in the second quarter of fiscal 2022 from $208.5 million in the same quarter of
fiscal 2021. The increase in the average balance of investment securities was
primarily attributable to purchases of investment securities during the last 12
months, partly offset by scheduled and accelerated principal payments on
mortgage-backed securities.

The FHLB - San Francisco cash dividend received in the second 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 second
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 second 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 $35,000 in the second quarter of
fiscal 2022, up 106 percent from $17,000 in the same quarter of fiscal 2021. The
increase was due to a higher average yield and a higher average balance. The
average yield earned on interest-earning deposits increased five basis points to
0.15 percent in the second quarter of fiscal 2022 from 0.10 percent in the
comparable period last year. The average balance of the interest-earning
deposits in the second quarter of fiscal 2022 was $91.0 million, an increase of
$26.1 million or 40 percent, from $64.9 million in the same quarter of fiscal
2021.

For the Six Months Ended December 31, 2021 and 2020. Total interest income
decreased by $1.1 million, or six percent, to $17.3 million for the first six
months of fiscal 2022 from $18.4 million in the same period of fiscal 2021. The
decrease was due primarily to a decrease in interest income from loans
receivable.



Interest income from loans receivable decreased $1.2 million, or seven percent,
to $16.1 million in the first six months of fiscal 2022 from $17.3 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 six months of fiscal 2022 decreased 15 basis points to
3.77 percent from 3.92 percent in the same period last year. The decrease in the
average yield

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on loans receivable was primarily attributable to loans repricing downward, new
loan originations with a lower average yield and loan payoffs with a higher
average yield than the existing portfolio and an increase in net deferred loan
cost amortization to $1.1 million in the first six months of fiscal 2022 from
$897,000 in the same period of fiscal 2021. The average balance of loans
receivable decreased $27.2 million, or three percent, to $853.5 million for the
first six months of fiscal 2022 from $880.7 million in the same period of fiscal
2021.



Interest income from investment securities decreased $75,000, or eight percent,
to $851,000 in the first six months of fiscal 2022 from $926,000 for 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 23 basis points to 0.79 percent in the first six months of
fiscal 2022 from 1.02 percent in the same period of fiscal 2021. The decrease in
the average investment securities yield was primarily attributable to a higher
premium amortization ($953,000 compared to $890,000) and the downward repricing
of adjustable rate mortgage-backed securities. The average balance of investment
securities increased $32.5 million, or 18 percent, to $214.8 million in the
first six months of fiscal 2022 from $182.3 million in the same period of fiscal
2021. The increase in the average balance of investment securities was primarily
the result of purchases of mortgage-backed securities, partly offset by
scheduled and accelerated principal payments on mortgage-backed securities.



The FHLB - San Francisco cash dividend received in the first six months of
fiscal 2022 was $245,000, up 23 percent from $200,000 in the same period of
fiscal 2021. As a result, the average yield increased to 6.01 percent in the
first six 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
six 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 $66,000 in the first six months of
fiscal 2022, up 61 percent from $41,000 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
five basis points to 0.15 percent in the first six months of fiscal 2022 from
0.10 percent in the comparable quarter last year, due primarily to an increase
in the interest on excess reserves. The average balance of the interest-earning
deposits in the first six months of fiscal 2022 was $86.6 million, an increase
of $7.5 million or nine percent, from $79.1 million in the same period of fiscal
2021.



Interest Expense:

For completed quarters December 31, 2021 and 2020. Total interest expense decreased by $423,000 or 33 percent to $848,000 in the second quarter of fiscal 2022 from $1.3 million in the same quarter last year. This decrease is attributable to both lower deposits and lower borrowing costs.

Interest expense on deposits for the second quarter of fiscal 2022 was $302,000
as compared to $468,000 for the same period last year, a decrease of $166,000,
or 35 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 nine basis points to
0.12 percent during the second quarter of fiscal 2022 from 0.21 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 25 basis-point decrease in the average cost of time
deposits. The average cost of transaction accounts also decreased by two basis
points. The average balance of deposits increased $59.4 million, or
seven percent, to $962.1 million during the quarter ended December 31, 2021 from
$902.7 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. Strategically, the
Corporation has been promoting transaction accounts and competing less
aggressively for time deposits. The average balance of transaction accounts to
total deposits in the second quarter of fiscal 2022 was 86 percent, compared to
83 percent in the same period of fiscal 2021.

Interest expense on borrowings, consisting primarily of FHLB - San Francisco
advances, for the second quarter of fiscal 2022 decreased $257,000, or
32 percent, to $546,000 from $803,000 for the same period last year. The
decrease in interest expense on borrowings was the result of a lower average
balance, partly offset by a higher average cost. The average balance of
borrowings decreased $45.8 million, or 34 percent, to $89.0 million during the
quarter ended December 31, 2021 from $134.8 million during the same period last
year, due primarily to maturities and prepayments of borrowings.

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The average cost of borrowings increased seven basis points to 2.43 percent for
the quarter ended December 31, 2021 from 2.36 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 the total borrowings and higher prepayment fees between the periods
($39,000 vs. $12,000).

For the Six Months Ended December 31, 2021 and 2020. Total interest expense
decreased $918,000, or 35 percent to $1.7 million in the first six months of
fiscal 2022 from $2.6 million in the same period last year. This decrease was
attributable primarily to both lower deposit and borrowing expense.



Interest expense on deposits for the first six months of fiscal 2022 was
$615,000 as compared to $1.0 million in the same period last year, a decrease of
$404,000 or 40 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 27 basis-point decrease in the average cost of time
deposits. The average cost of transaction accounts also decreased by three basis
points. The average cost of deposits decreased nine basis points to 0.13 percent
during the first six months of fiscal 2022 from 0.22 percent during the same
period last year. The average balance of deposits increased $56.2 million, or
six percent, to $957.2 million during the six months ended December 31, 2021
from $901.0 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 six months of fiscal 2022
was 86 percent, compared to 82 percent in the same period last year.



Interest expense on borrowings, consisting primarily of FHLB - San Francisco
advances, for the first six months of fiscal 2022 decreased $514,000, or 32
percent, to $1.1 million from $1.6 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 $44.4 million, or 32 percent, to $93.4 million during
the six months ended December 31, 2021 from $137.8 million during the same
period last year, primarily due to prepayments and maturities of borrowings. The
average cost of borrowings increased one basis point to 2.32 percent for the six
months ended December 31, 2021 from 2.31 percent in the same period last year.

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The following tables show the average balance sheets for the quarters and six months ended December 31, 2021 and 2020, respectively:

Average Balance Sheets


                                      Quarter Ended                             Quarter Ended
                                    December 31, 2021                         December 31, 2020
                            Average                    Yield/         Average                    Yield/
(Dollars In Thousands)      Balance       Interest      Cost          Balance       Interest      Cost
Interest-earning
assets:
Loans receivable,
net(1)                    $   854,270    $    7,920      3.71 %     $   868,494    $    8,344      3.84 %
Investment securities         209,686           433      0.83 %         208,453           448      0.86 %
FHLB - San Francisco
stock                           8,155           123      6.03 %           7,970           100      5.02 %
Interest-earning
deposits                       90,990            35      0.15 %          64,922            17      0.10 %

Total interest-earning
assets                      1,163,101         8,511      2.93 %       1,149,839         8,909      3.10 %

Non interest-earning
assets                         33,703                                    29,958

Total assets              $ 1,196,804                               $ 1,179,797

Interest-bearing
liabilities:
Checking and money
market accounts(2)        $   506,441    $       58      0.05 %     $   461,363    $       79      0.07 %
Savings accounts              321,143            45      0.06 %         283,432            54      0.08 %
Time deposits                 134,532           199      0.59 %         157,906           335      0.84 %

Total deposits                962,116           302      0.12 %         902,701           468      0.21 %

Borrowings                     89,022           546      2.43 %         134,826           803      2.36 %

Total interest-bearing
liabilities                 1,051,138           848      0.32 %       1,037,527         1,271      0.49 %

Non interest-bearing
liabilities                    18,269                                    17,415

Total liabilities           1,069,407                                 1,054,942

Stockholders' equity          127,397                                   124,855
Total liabilities and
stockholders' equity      $ 1,196,804                               $ 1,179,797

Net interest income                      $    7,663                                $    7,638

Interest rate
spread(3)                                                2.61 %                                    2.61 %
Net interest margin(4)                                   2.64 %            
                       2.66 %
Ratio of average
interest- earning
assets to average
interest-bearing
liabilities                                            110.65 %                                  110.82 %
Return on average
assets                                                   0.76 %                                    0.40 %
Return on average
equity                                                   7.11 %                                    3.77 %



(1) Includes non-performing loans and net amortization of the cost of deferred loans of $622

thousand and $521,000 for completed quarters December 31, 2021 and 2020,

respectively.

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

$116.7 million and $111.7 million in the quarters ended December 31, 2021

and 2020, 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


                                    Six Months Ended                         Six Months Ended
                                    December 31, 2021                        December 31, 2020
                            Average                   Yield/         Average                   Yield/
(Dollars In Thousands)      Balance      Interest      Cost          Balance      Interest      Cost
Interest-earning
assets:
Loans receivable,
net(1)                    $   853,505    $  16,095      3.77 %     $   880,733    $  17,261      3.92 %
Investment securities         214,797          851      0.79 %         182,344          926      1.02 %
FHLB - San Francisco
stock                           8,155          245      6.01 %           7,970          200      5.02 %
Interest-earning
deposits                       86,598           66      0.15 %          79,099           41      0.10 %

Total interest-earning
assets                      1,163,055       17,257      2.97 %       1,150,146       18,428      3.20 %

Non interest-earning
assets                         32,726                                   30,790

Total assets              $ 1,195,781                              $ 1,180,936

Interest-bearing
liabilities:
Checking and money
market accounts(2)        $   503,869    $     115      0.05 %     $   458,445    $     170      0.07 %
Savings accounts              317,205           86      0.05 %         279,923          132      0.09 %
Time deposits                 136,142          414      0.60 %         162,625          717      0.87 %

Total deposits                957,216          615      0.13 %         900,993        1,019      0.22 %

Borrowings                     93,382        1,091      2.32 %         137,769        1,605      2.31 %

Total interest-bearing
liabilities                 1,050,598        1,706      0.32 %       1,038,762        2,624      0.50 %

Non interest-bearing
liabilities                    17,905                                   17,575

Total liabilities           1,068,503                                1,056,337

Stockholders' equity          127,278                                  124,599
Total liabilities and
stockholders' equity      $ 1,195,781                              $ 1,180,936

Net interest income                      $  15,551                                $  15,804

Interest rate
spread(3)                                               2.65 %                                   2.70 %
Net interest margin(4)                                  2.67 %             
                     2.75 %
Ratio of average
interest- earning
assets to average
interest-bearing
liabilities                                           110.70 %                                 110.72 %
Return on average
assets                                                  0.82 %                                   0.45 %
Return on average
equity                                                  7.75 %                                   4.27 %



(1) Includes non-performing loans and net amortization of the cost of deferred loans of $1.1

million and $987,000 for the first six months ended December 31, 2021

and 2020, respectively.

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

$119.3 million and $113.7 million during the first half ended in December

31, 2021 and 2020, 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 six months ended December 31,
2021 and 2020, 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 December 31, 2021 Compared
                                                         To Quarter Ended December 31, 2020
                                                             Increase (Decrease) Due to
(In Thousands)                                   Rate           Volume         Rate/Volume       Net
Interest-earning assets:
Loans receivable(1)                           $     (292)     $     (137)     $           5    $  (424)
Investment securities                                (18)               3                 -        (15)
FHLB - San Francisco stock                             21               2                 -          23
Interest-earning deposits                               8               7                 3          18
Total net change in income on
interest-earning assets                             (281)           (125)                 8       (398)

Interest-bearing liabilities:
Checking and money market accounts                   (27)               8  
            (2)        (21)
Savings accounts                                     (15)               8               (2)         (9)
Time deposits                                       (102)            (49)                15       (136)
Borrowings                                             23           (272)               (8)       (257)
Total net change in expense on
interest-bearing liabilities                        (121)           (305)                 3       (423)
Net (decrease) increase in net interest
income                                        $     (160)     $       180     $           5    $     25



(1) For the purposes of calculating volume, tariff and tariff/volume differentials,

    non-performing loans were included in the weighted-average balance
    outstanding.





                                                    Six Months Ended December 31, 2021 Compared
                                                       To Six Months Ended December 31, 2020
                                                             Increase (Decrease) Due to
(In Thousands)                                  Rate           Volume         Rate/Volume        Net
Interest-earning assets:
Loans receivable(1)                          $     (652)     $     (534)     $          20    $ (1,166)
Investment securities                              (204)             166              (37)         (75)
FHLB - San Francisco stock                            39               5                 1           45
Interest-bearing deposits                             19               4                 2           25
Total net change in income on
interest-earning assets                            (798)           (359)   

(14) (1,171)

Interest-bearing liabilities:
Checking and money market accounts                  (66)              16   
           (5)         (55)
Savings accounts                                    (55)              17               (8)         (46)
Time deposits                                      (223)           (116)                36        (303)
Borrowings                                             5           (517)               (2)        (514)
Total net change in expense on
interest-bearing liabilities                       (339)           (600)                21        (918)
Net (decrease) increase in net interest
income                                       $     (459)     $       241     $        (35)    $   (253)



Allowance (recovery) for loan losses:

For the Quarters Ended December 31, 2021 and 2020. During the second quarter of
fiscal 2022, the Corporation recorded a recovery from the allowance for loan
losses of $1.1 million, as compared to a provision for loan losses of $39,000 in
the same period of fiscal 2021. The recovery from the allowance for loan losses
for the second quarter of fiscal 2022 was primarily due to improved credit
quality, payoffs of non-performing loans and improving economic conditions;
while the provision for loan losses recorded in the second quarter of fiscal
2021 primarily reflected the deterioration in forecasted economic metrics as a
result of the COVID-19 pandemic, partly offset by the decrease in loans
receivable.

For the Six Months Ended December 31, 2021 and 2020. During the first six months
of fiscal 2022, the Corporation recorded a recovery from the allowance for loan
losses of $1.4 million, as compared to a provision for loan losses of

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Contents

$259,000 in the same period of fiscal 2021. The recovery from the allowance for
loan losses for the first six months of fiscal 2022 was primarily due to
improved credit quality, payoffs of non-performing loans and improving economic
conditions; while the provision for loan losses recorded in the first six months
of fiscal 2021 primarily reflected the deterioration in forecasted economic
metrics as a result of the COVID-19 pandemic.



Non-performing loans, net of the allowance for loan losses and fair value
adjustments, decreased 68 percent to $2.8 million at December 31, 2021 from $8.6
million at June 30, 2021 and were $10.3 million at December 31, 2020. Net loan
recoveries in the first six months of fiscal 2022 were $427,000 or 0.10 percent
(annualized) of average loans receivable, as compared to net loan recoveries of
$14,000 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 December 31, 2021 as
compared to $10.4 million at June 30, 2021 and $14.9 million at December 31,
2020. Classified loans, net of the allowance for loan losses and fair value
adjustments, at December 31, 2021 were comprised of loans in the substandard
category and no loans in the special mention 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 December 31, 2021, the allowance for loan losses was $6.6 million, comprised
of collectively evaluated allowances of $6.5 million and individually evaluated
allowances of $52,000; 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 0.77 percent
at December 31, 2021 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 the Quarters Ended December 31, 2021 and 2020. Total non-interest income
increased $394,000, or 40 percent, to $1.4 million for the quarter ended
December 31, 2021 from $974,000 for the same period last year. The increase was
primarily attributable to an increase in loan servicing and other fees.

Loan servicing and other fees increased $324,000 or 270 percent to $444,000 in
the second quarter of fiscal 2022 from $120,000 in the same quarter last year.
The increase was due primarily to higher loan prepayment fees resulting from
higher loan payoffs, particularly in multi-family loans. Total loan prepayment
fees in the second quarter of fiscal 2022 was $383,000, up 188 percent from
$133,000 in the same period last year. Total loan repayments were $72.5 million
in the second quarter of fiscal 2022, up 22 percent from $59.6 million in the
same period last year.

For the Six Months Ended December 31, 2021 and 2020. Total non-interest income
increased $304,000, or 14 percent, to $2.4 million for the six months ended
December 31, 2021 from $2.1 million for the same period last year. The increase
was primarily attributable to increases in loan servicing and other fees and
other non-interest income.


Loan servicing and other fees increased $105,000 or 20 percent to $630,000 in
the first six months of fiscal 2021 from $525,000 in the same period last year.
The increase was due primarily to an increase in prepayment fees resulting from
higher loan payoffs, particularly in multi-family loans. Total loan prepayment
fees in the first six months of fiscal 2022 was $596,000, up six percent from
$563,000 in the same period last year. Total loan repayments were $126.4 million
in the first six months of fiscal 2022, up slightly from $125.9 million in
the
same period last year.



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Non-Interest Expense:

For the Quarters Ended December 31, 2021 and 2020. Total non-interest expense in
the quarter ended December 31, 2021 remained virtually unchanged at $6.9 million
as compared to the same period last year. Decreases in premises and occupancy,
professional and sales and marketing expenses were largely offset by an increase
in salaries and employee benefits expense.

Salaries and employee benefits expense increased $154,000, or four percent, to
$4.5 million in the second quarter of fiscal 2022 from $4.3 million in the same
period of fiscal 2021. The increase was due primarily to higher compensation and
retirement related expenses.

For the Six Months Ended December 31, 2021 and 2020. Total non-interest expense
in the six months ended December 31, 2021 was $12.6 million, a decrease of $1.3
million, or nine percent, as compared to $13.9 million in the six months ended
December 31, 2020. The decrease was primarily attributable to a decrease in
salaries and employee benefits expense.



Salaries and employee benefits expense decreased $1.1 million, or 13 percent, to
$7.6 million in the first six months of fiscal 2022 from $8.7 million in the
same period of fiscal 2021. The decrease was due primarily to a $1.2 million
credit for the Employee Retention Tax Credit ("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 December 31, 2021 and 2020. The Corporation's income tax
provision was $935,000 for the second quarter of fiscal 2022, a 94 percent
increase from $481,000 in the same quarter last year, primarily due to a higher
income before income taxes. The effective income tax rate for the quarter ended
December 31, 2021 was 29.2 percent as compared to 29.0 percent for the quarter
ended December 31, 2020. The Corporation believes that the effective income tax
rate applied in the second quarter of fiscal 2022 reflects its current income
tax obligations.

For the Six Months Ended December 31, 2021 and 2020. The Corporation's income
tax provision was $1.9 million for the first six months of fiscal 2022, a 70
percent increase from $1.1 million in the same period last year, primarily
reflecting higher pre-tax income. The effective income tax rate for the six
months ended December 31, 2021 and 2020 was 27.8 percent and 29.6 percent,
respectively. The lower effective income tax rate in the first six months of
fiscal 2022 was attributable primarily to the tax benefits from the non-taxable
treatment of the ERTC for state income tax purposes. The Corporation believes
that the effective income tax rates applied in the first six months of fiscal
2022 reflect its current income tax obligations.





Asset Quality
Non-performing assets were comprised solely of non-performing loans at both
December 31, 2021 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 $2.8 million at December 31, 2021, down 68 percent
from $8.6 million at June 30, 2021. Non-performing loans as a percentage of
loans held for investment at December 31, 2021 was 0.33%, down from 1.02% at
June 30, 2021. The non-performing loans at December 31, 2021 are comprised of
nine single-family loans and two multi-family loans; 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.

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Contents

As of December 31, 2021, total restructured loans were $6.8 million, down 14
percent from $7.9 million at June 30, 2021. At December 31, 2021, a total of
$980,000 or 15 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 December 31,
2021, a total of $5.8 million or 86 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
payment status, consistent with their modified payment terms as of June 30,
2021. Restructured loans which are performing in accordance with their modified
terms and not otherwise classified as non-accrual are not included in
non-performing assets. For further analysis on non-performing loans and
restructured loans, see Note 5 of the Notes to Unaudited Interim Condensed
Consolidated Financial Statements.

There was no real estate owned at either December 31, 2021 Where 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.

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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 December 31,      At June 30,
(In Thousands)                                                  2021               2021
Loans on non-accrual status (excluding restructured
loans):
Mortgage loans:
Single-family                                            $              745    $         882
Multi-family                                                          1,077              781
Total                                                                 1,822            1,663
Accruing loans past due 90 days or more                                   -                -

Restructured loans on non-accrual status:
Mortgage loans:
Single-family                                                           980            6,983
Total                                                                   980            6,983

Total non-performing loans                                            2,802            8,646

Real estate owned, net                                                    -                -
Total non-performing assets                              $            2,802    $       8,646

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

                       0.33 %           1.02 %

Non-performing loans as a percentage of total assets                   0.24 %           0.73 %

Non-performing assets as a percentage of total assets                  0.24
%           0.73 %



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 December 31, 2021         At June 30, 2021
(Dollars In Thousands)                           Balance         Count       Balance      Count
Special mention loans:
Mortgage loans:
Single-family                                  $         -             -    $    1,767         4
Total special mention loans                              -             -   
     1,767         4

Substandard loans:
Mortgage loans:
Single-family                                        1,725            11         7,865        29
Multi-family                                         1,077             2           781         1
Total substandard loans                              2,802            13         8,646        30

Total classified loans                               2,802            13        10,413        34

Real estate owned                                        -             -             -         -

Total classified assets                        $     2,802            13    $   10,413        34

Total classified assets as a percentage of
total assets                                          0.24 %                      0.88 %




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  Table of Contents

Loan Volume Activities

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


                                            For the Quarter Ended        For the Six Months Ended
                                                December 31,                  December 31,
(In Thousands)                               2021           2020           2021            2020
Loans originated for investment:
Mortgage loans:
Single-family                             $    45,720    $   12,444    $      80,140    $    35,643
Multi-family                                   14,920        13,907           40,238         26,816
Commercial real estate                          3,005             -            4,205          1,860
Construction                                    1,684           688            1,684          1,828
Total loans originated for investment          65,329        27,039        

126 267 66 147

Loans purchased for investment:
Mortgage loans:
Multi-family                                        -         2,525                -         11,463
Total loans purchased for investment                -         2,525        

– 11,463

Mortgage loan principal payments             (72,547)      (59,575)        (126,406)      (125,898)
Increase in other items, net(1)                   189           144            1,185            578

Net (decrease) increase in loans held
for investment                            $   (7,029)    $ (29,867)    $       1,046    $  (47,710)



(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.



Cash and capital resources

The Corporation's primary sources of funds are deposits, proceeds from principal
and interest payments on loans, proceeds from the maturity of investment
securities, FHLB - San Francisco advances, access to the discount window
facility at the Federal Reserve Bank of San Francisco and access to a federal
funds facility with its correspondent bank. While maturities and scheduled
amortization of loans and investment securities are a relatively predictable
source of funds, deposit flows 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 six months of fiscal
2022 and 2021, the Corporation originated and purchased loans held for
investment of $126.3 million and $77.6 million, respectively. At December 31,
2021, the Corporation had loan origination commitments totaling $14.2 million,
undisbursed lines of credit totaling $1.3 million and undisbursed construction
loan funds totaling $4.6 million. The Corporation anticipates that it will have
sufficient funds available to meet its current loan commitments. During the
first six months of fiscal 2022 and 2021, total loan repayments were $126.4
million and $125.9 million, respectively.

The Corporation's primary financing activity is gathering deposits. During the
first six months of fiscal 2022, the net increase in deposits was $18.3 million
or two percent, due to an increase in transaction accounts, partly offset by a
decrease in time deposits. Transaction account balances increased $27.2 million,
or three percent, to $824.7 million at December 31, 2021 from $797.5 million at
June 30, 2021, while time deposits decreased $8.7 million, or six percent, to
$131.7 million at December 31, 2021 from $140.4 million at June 30, 2021. At
December 31, 2021, time deposits with a principal amount of $250,000 or less and
scheduled to mature in one year or less were $65.6 million and total time
deposits with a principal amount of more than $250,000 and scheduled to mature
in one year or less were $11.3 million. Historically, the Corporation has been
able to retain a significant percentage of its time deposits as they mature.

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  Table of Contents
The Corporation must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. The Corporation generally maintains sufficient cash and cash
equivalents to meet short-term liquidity needs. At December 31, 2021, total cash
and cash equivalents were $85.7 million, or seven percent of total assets.
Depending on market conditions and the pricing of deposit products and FHLB -
San Francisco advances, the Bank may rely on FHLB - San Francisco advances for
part of its liquidity needs. As of December 31, 2021, 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 $318.8 million and the remaining available collateral was $345.3
million. In addition, the Bank has secured a $187.9 million discount window
facility at the Federal Reserve Bank of San Francisco, collateralized by
investment securities with a fair market value of $199.9 million. As of December
31, 2021, the Bank also has a borrowing arrangement in the form of a federal
funds facility with its correspondent bank for $17.0 million that matures on
June 30, 2022 which the Bank intends to renew upon maturity. The Bank had no
advances under its correspondent bank or discount window facility as of December
31, 2021.

During the first six months of fiscal 2022, the Corporation purchased 152,526
shares of the Corporation's common stock under the April 2020 stock repurchase
plan with a weighted average cost of $16.95 per share. As of December 31, 2021,
there are 114,307 shares available for purchase until the plan expires on
April 27, 2022. The Corporation will purchase the shares from time to time in
the open market or through privately negotiated transactions depending on market
conditions, the capital requirements of the Corporation, and available cash that
can be allocated to the stock repurchase program, among other considerations.

Regulations require thrifts to maintain adequate liquidity to assure safe and
sound operations. The Bank's average liquidity ratio (defined as the ratio of
average qualifying liquid assets to average deposits and borrowings) for the
quarter ended December 31, 2021 decreased slightly to 30.8 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-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weighting and other factors.

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

                                       52

Contents

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 December 31, 2021
Tier 1 leverage capital (to
adjusted average assets)        $ 119,937    10.02 %  $      47,868       4.00 %  $   59,835     5.00 %
CET1 capital (to
risk-weighted assets)           $ 119,937    19.69 %  $      42,645       7.00 %  $   39,599     6.50 %
Tier 1 capital (to
risk-weighted assets)           $ 119,937    19.69 %  $      51,784       8.50 %  $   48,738     8.00 %
Total capital (to
risk-weighted assets)           $ 126,644    20.79 %  $      63,968      10.50 %  $   60,922    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 December 31, 2021, the capital conservation buffer required a
minimum of 2.50% of risk weighted assets.

The ability of the Corporation to pay dividends to stockholders depends
primarily on the ability of the Bank to pay dividends to the Corporation. The
Bank may not declare or pay a cash dividend if the effect thereof would cause
its net worth to be reduced below the regulatory capital requirements imposed by
federal regulation. In the first six months of fiscal 2022, the Bank paid a cash
dividend of $7.5 million to the Corporation, while the Corporation paid $2.1
million of cash dividends to its shareholders.



Supplemental Information


                                                 At               At               At
                                            December 31,      June 30,        December 31,
                                                2021             2021             2020

Loans managed for third parties (in thousands) $44,199 $50,448

$64,521

Book value per share                       $     17.31       $    16.88    

$16.79

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