What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2020-09-04 compared with 2019-08-30 · 521 added, 481 removed, 174 unchanged (85% of the section changed)

2 unchanged sentences

Certain matters in this Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

This Form 10-K 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

This Form 10-K contains statements that the

Corporation believes are “forward-looking statements.” These statements relate to the Corporation’s financial condition, liquidity, results of operations, plans, objectives, future performance or business.

When considering these forward-looking

statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Corporation may make.

Moreover, you should treat these statements as speaking only as of the date they are made and based only on information

then actually known to the Corporation.

There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements.

Factors which could cause actual results to differ materially include, but

are not limited to the following:

the possibility that the actual costs incurred from our scaling back the saleable mortgage business will be materially different from the non-recurring expenses recorded in this report;

the credit risks of lending

activities, including changes in the level and trend of loan delinquencies and charge-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the residential and commercial real estate

markets and may lead to increased losses and non-performing assets and may result in our allowance for loan losses not being adequate to cover actual losses and require us to materially increase our reserve;

changes in general economic conditions,

either nationally or in our market areas;

changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;

fluctuations in

the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas;

secondary market conditions for loans and our ability to sell loans in the secondary market;

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 and the implementing regulations;

Factors which could cause actual results to differ

materially include, but are not limited to the following:

the effect of the novel coronavirus of 2019 (“COVID-19”) pandemic, including on the Corporation’s credit quality and business operations, as well as its impact on general economic and

financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S.

and global economies, and consumer and corporate customers, including economic

activity, employment levels and market liquidity;

the credit risks of lending activities, including changes in the level and trend of loan delinquencies and charge-offs and changes in our allowance for loan losses and provision for loan losses that

may be impacted by deterioration in the residential and commercial real estate markets and may lead to increased losses and non-performing assets and may result in our allowance for loan losses not being adequate to cover actual losses and require us

to materially increase our reserve;

changes in general economic conditions, either nationally or in our market areas;

changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit

interest rates, our net interest margin and funding sources;

uncertainty regarding the future of the London Interbank Offered Rate ("LIBOR"), and the potential transition away from LIBOR toward new interest rate benchmarks;

fluctuations in the demand

for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas;

results of examinations of the Corporation by the FRB or of the Bank by the OCC or other regulatory authorities, including

the possibility that any such regulatory authority may, among other things, require us to enter into a formal enforcement action or to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our

ability to borrow funds or maintain or increase deposits, or impose additional requirements and restrictions on us, any of which could adversely affect our liquidity and earnings;

legislative or regulatory changes that adversely affect our business

including changes in regulatory policies and principles, including the interpretation of regulatory capital or other rules, including as a result of Basel III;

the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, California

Consumer Privacy Act and the implementing regulations;

the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;

adverse changes in the securities markets;

our ability to attract and retain deposits;

increases in premiums for deposit insurance;

our ability to attract and retain

our ability to control operating costs and expenses;

the use of estimates in determining fair value of certain of our

assets, which estimates may prove to be incorrect and result in significant declines in valuation;

difficulties in reducing risk associated with the loans on our balance sheet;

staffing fluctuations in response to product demand or the implementation

of corporate strategies that affect our workforce and potential associated charges;

disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors

who perform several of our critical processing functions;

our ability to implement our branch expansion strategy;

our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in

the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

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;

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;

increased competitive pressures among

financial services companies;

changes in consumer spending, borrowing and savings habits;

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;

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

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;

the inability of key third-party providers to perform their obligations to us;

changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the

Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the

implementation of new accounting methods;

war or terrorist activities;

and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services

and other risks detailed in this report and in the Corporation’s other reports filed with or furnished to the SEC.

and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing,

products and services, including the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus

(“Interagency Statement”), and other risks detailed in this report and in the Corporation’s other reports filed with or furnished to the SEC.

These developments could have an adverse impact on our financial position and our results of operations.

Forward-looking statements

are based upon management’s beliefs and assumptions at the time they are made.

We undertake no obligation to publicly update or revise any forward-looking statements included in this document or to update the reasons why actual results could differ

from those contained in such statements, whether as a result of new information, future events or otherwise.

In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this document might not occur, and you

should not put undue reliance on any forward-looking statements.

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.

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.

upon the Bank’s conversion from a federal

mutual to a federal stock savings bank (“Conversion”).

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”).

The Corporation is regulated by the FRB.

At June 30, 2020, the Corporation had total assets of $1.18 billion, total

7 unchanged sentences

The Bank, founded in 1956, is a federally chartered stock savings bank headquartered in Riverside, California.

The Bank is regulated by the OCC, its primary federal regulator, and the Federal Deposit Insurance

Corporation (“FDIC”), the insurer of its deposits.

The Bank is regulated by the OCC, its primary federal regulator, and the FDIC, the

insurer of its deposits.

The Bank’s deposits are federally insured up to applicable limits by the FDIC.

1 unchanged sentence

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.

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

Additional activities have included originating saleable single-family loans, primarily fixed-rate first mortgages.

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 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 July 31, 2019, the Corporation declared a quarterly cash dividend of $0.14 per share.

The Corporation’s

shareholders of record at the close of business on August 20, 2019 will receive the cash dividend, which is payable on September 10, 2019.

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 audited Consolidated Financial Statements and accompanying selected Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

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 sell loans, competitive conditions, legislative and regulatory changes, fraud and other risks.

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

The information contained in this section should be read in conjunction with the audited Consolidated Financial Statements and accompanying selected Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Critical Accounting Policies

The discussion and analysis of the Corporation’s financial condition and results of operations is based upon the Corporation’s 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 consolidated financial statements.

The discussion and analysis of the Corporation’s financial condition and results of operations is based upon the Corporation’s 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 consolidated financial

Actual results may differ from these estimates under different assumptions or conditions.

The allowance for loan losses involves significant judgment and assumptions by management, which has a material impact on the carrying value of net loans held for investment.

Management considers the accounting

estimate related to the allowance for loan losses a critical accounting estimate because it is highly susceptible to change from period to period, requiring management to make assumptions about probable incurred losses inherent in the loans held for

investment at the date of the Consolidated Statements of Financial Condition.

The impact of a sudden large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings.

Management considers

the accounting estimate related to the allowance for loan losses a critical accounting estimate because it is highly susceptible to change from period to period, requiring management to make assumptions about probable incurred losses inherent in the

loans held for investment at the date of the Consolidated Statements of Financial Condition.

The impact of a sudden large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect

The allowance is based on two principles of accounting:

(i) ASC 450, “Contingencies,” which requires that losses be accrued when they are probable of occurring and can be estimated;

and (ii) ASC 310,

310, “Receivables.” The allowance has two components:

1 unchanged sentence

Each of these components is based upon estimates that can change over time.

The allowance is

based on historical experience and as a result can differ from actual losses incurred in the future.

Additionally, differences may result from changes to qualitative factors such as unemployment data, gross domestic product, interest rates, retail

sales, the value of real estate and real estate market conditions.

The allowance

is based on historical experience and as a result can differ from actual losses incurred in the future.

Additionally, differences may result from changes to qualitative factors such as unemployment data, gross domestic product, interest rates,

retail sales, the value of real estate and real estate market conditions.

The historical data is reviewed at least quarterly and adjustments are made as needed.

3 unchanged sentences

these techniques is inherently subjective and the actual losses could be greater or less than the estimates, which, can materially affect amounts recognized in the Consolidated Statements of Financial Condition and Consolidated Statements of

The Corporation assesses loans individually and classifies loans when the accrual of interest has been discontinued, loans have been restructured or management has serious doubts about the future collectibility of

principal and interest, even though the loans may currently be performing.

Factors considered in determining classification include, but are not limited to, expected future cash flows, the financial condition of the borrower and current economic

The Corporation assesses loans individually and classifies loans when the accrual of interest has been discontinued, loans have been restructured or management has serious doubts about the future

collectability of principal and interest, even though the loans may currently be performing.

Factors considered in determining classification include, but are not limited to, expected future cash flows, the financial condition of the borrower and

current economic conditions.

The Corporation measures each non-performing loan based on the fair value of its collateral, less selling costs, or discounted cash flow and charges off those loans or portions of loans deemed uncollectible.

Non-performing loans are charged-off to their fair values in the period the loans, or portion thereof, are deemed uncollectible, generally after the loan becomes 150 days delinquent for real estate secured first trust

deed loans and 120 days delinquent for commercial business or real estate secured second trust deed loans.

Non-performing loans are charged-off to their fair values in the period the loans, or portion thereof, are deemed uncollectible, generally after the loan becomes 150 days delinquent for real estate

secured first trust deed loans and 120 days delinquent for commercial business or real estate secured second trust deed loans.

For restructured loans, the charge-off occurs when the loan becomes 90 days delinquent;

and where borrowers file bankruptcy, the charge-off

occurs when the loan becomes 60 days delinquent.

The amount of the charge-off is determined by comparing the loan balance to the estimated fair value of the underlying collateral, less disposition costs, with the loan balance in excess of the

estimated fair value charged-off against the allowance for loan losses.

and where borrowers file

bankruptcy, the charge-off occurs when the loan becomes 60 days delinquent.

The amount of the charge-off is determined by comparing the loan balance to the estimated fair value of the underlying collateral, less disposition costs, with the loan

balance in excess of the estimated fair value charged-off against the allowance for loan losses.

The allowance for loan losses for non-performing loans is determined by applying ASC 310.

For restructured loans that are less than 90 days delinquent, the allowance for loan

losses are segregated into (a) individually evaluated allowances for those loans with applicable discounted cash flow calculations still in their restructuring period, classified lower than pass and, containing an embedded loss component or (b)

collectively evaluated allowances based on the aggregated pooling method.

For non-performing loans less than 60 days delinquent where the borrower has filed bankruptcy, the collectively evaluated allowances are assigned based on the aggregated

pooling method.

For non-performing commercial

real estate loans, an individually evaluated allowance is calculated based on the loan's fair value and if the fair value is higher than the individual loan balance, no allowance is required.

A troubled debt restructuring (“restructured loan”) is a loan which the Corporation, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Corporation would not

otherwise consider.

For restructured loans that are less than 90 days delinquent,

the allowance for loan losses are segregated into (a) individually evaluated allowances for those loans with applicable discounted cash flow calculations still in their restructuring period, classified lower than pass and, containing an embedded loss

component or (b) collectively evaluated allowances based on the aggregated pooling method.

For non-performing loans less than 60 days delinquent where the borrower has filed bankruptcy, the collectively evaluated allowances are assigned based on the

aggregated pooling method.

For non-performing commercial real estate loans, an individually evaluated allowance is calculated based on the loan's fair value and if the fair value is higher than the individual loan balance, no allowance is required.

A troubled debt restructuring (“restructured loan”) is a loan which the Corporation, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the

Corporation would not otherwise consider.

The loan terms which have been modified or restructured due to a borrower’s financial difficulty, include but are not limited to:

3 unchanged sentences

Extensions, deferrals, renewals and rewrites.

The Corporation measures the allowance for loan losses of restructured loans based on the difference between the original loan’s carrying amount and the present value of expected future cash flows discounted at the

original effective yield of the loan.

Based on published guidance with respect to restructured loans from certain banking regulators and to conform to general practices within the banking industry, the Corporation determined it was appropriate to

maintain certain restructured loans on accrual status because there is reasonable assurance of repayment and performance, consistent with the modified terms based upon a current, well-documented credit evaluation.

The Corporation measures the allowance for loan losses of restructured loans based on the difference between the original loan’s carrying amount and the present value of expected future cash flows

discounted at the original effective yield of the loan.

Based on published guidance with respect to restructured loans from certain banking regulators and to conform to general practices within the banking industry, the Corporation determined it was

appropriate to maintain certain restructured loans on accrual status because there is reasonable assurance of repayment and performance, consistent with the modified terms based upon a current, well-documented credit evaluation.

Other restructured loans are classified as “Substandard” and placed on non-performing status.

The loans may be upgraded and placed on accrual status once there is a sustained period of payment performance (usually six

months or, for loans that have been restructured more than once, 12 months) and there is a reasonable assurance that the payments will continue;

and if the borrower has demonstrated satisfactory contractual payments beyond 12 consecutive months, the

loan is no longer categorized as a restructured loan.

In addition to the payment history described above, multi-family, commercial real estate, construction and commercial business loans must also demonstrate a combination of corroborating

characteristics to be upgraded, such as:

The loans may be upgraded and placed on accrual status once there is a sustained period of payment

performance (usually six months or, for loans that have been restructured more than once, 12 months) and there is a reasonable assurance that the payments will continue;

and if the borrower has demonstrated satisfactory contractual payments beyond 12

consecutive months, the loan is no longer categorized as a restructured loan.

In addition to the payment history described above, multi-family, commercial real estate, construction and commercial business loans must also demonstrate a combination of

corroborating characteristics to be upgraded, such as:

satisfactory cash flow, satisfactory guarantor support, and additional collateral support, among others.

To qualify for restructuring, a borrower must provide evidence of their creditworthiness such as, current financial statements, their most recent income tax returns, current paystubs, current W-2s, and most recent bank

statements, among other documents, which are then verified by the Corporation.

The Corporation re-underwrites the loan with the borrower’s updated financial information, new credit report, current loan balance, new interest rate, remaining loan

term, updated property value and modified payment schedule, among other considerations, to determine if the borrower qualifies.

To qualify for restructuring, a borrower must provide evidence of their creditworthiness such as, current financial statements, their most recent income tax returns, current paystubs, current W-2s,

and most recent bank statements, among other documents, which are then verified by the Corporation.

The Corporation re-underwrites the loan with the borrower’s updated financial information, new credit report, current loan balance, new interest

rate, remaining loan term, updated property value and modified payment schedule, among other considerations, to determine if the borrower qualifies.

Interest is not accrued on any loan when its contractual payments are more than 90 days delinquent or if the loan is deemed impaired.

In addition, interest is not recognized on any loan where management has determined

that collection is not reasonably assured.

A non-performing loan may be restored to accrual status when delinquent principal and interest payments are brought current and future monthly principal and interest payments are expected to be collected.

In addition, interest is not recognized on any loan where

management has determined that collection is not reasonably assured.

A non-performing loan may be restored to accrual status when delinquent principal and interest payments are brought current and future monthly principal and interest payments are

expected to be collected.

When a loan is categorized as non-performing, all previously accrued but uncollected interest is reversed in the current operating results.

When a full recovery of the outstanding principal loan balance is in doubt,

subsequent payments received are first applied as a recovery of principal charged-off and then to unpaid principal.

When a full recovery of the outstanding principal loan

balance is in doubt, subsequent payments received are first applied as a recovery of principal charged-off and then to unpaid principal.

This is referred to as the cost recovery method.

A loan may be returned to accrual status at such time as the loan is brought fully

current as to both principal and interest, and, in management’s judgment, such loan is considered to be fully collectible on a timely basis.

However, the Corporation’s policy also allows management to continue the recognition of interest income on

certain non-performing loans.

A loan may be returned to accrual status at such time as the

loan is brought fully current as to both principal and interest, and, in management’s judgment, such loan is considered to be fully collectible on a timely basis.

However, the Corporation’s policy also allows management to continue the recognition

of interest income on certain non-performing loans.

This is referred to as the cash basis method under which the accrual of interest is suspended and interest income is recognized only when collected.

This policy applies to non-performing loans that are considered to be

fully collectible but the timely collection of payments is in doubt.

Management accounts for income taxes by estimating future tax effects of temporary differences between the tax and book basis of assets and liabilities considering the provisions of enacted tax laws.

These differences

result in deferred tax assets and liabilities, which are included in the Corporation’s Consolidated Statements of Financial Condition.

This policy applies to non-performing loans

that are considered to be fully collectible but the timely collection of payments is in doubt.

Management accounts for income taxes by estimating future tax effects of temporary differences between the tax and book basis of assets and liabilities considering the provisions of enacted tax

These differences result in deferred tax assets and liabilities, which are included in the Corporation’s Consolidated Statements of Financial Condition.

The application of income tax law is inherently complex.

Laws and regulations in this area are voluminous and are

often ambiguous.

As such, management is required to make many subjective assumptions and judgments regarding the Corporation’s income tax exposures, including judgments in determining the amount and timing of recognition of the resulting deferred

tax assets and liabilities, including projections of future taxable income.

Interpretations of and guidance surrounding income tax laws and regulations change over time.

As such, changes in management’s subjective assumptions and judgments can

materially affect amounts recognized in the Consolidated Statements of Financial Condition and Consolidated Statements of Operations.

Laws and regulations in this

area are voluminous and are often ambiguous.

of the resulting deferred tax assets and liabilities, including projections of future taxable income.

Interpretations of and guidance surrounding income tax laws and

regulations change over time.

As such, changes in management’s subjective assumptions and judgments can materially affect amounts recognized in the Consolidated Statements of Financial Condition

and Consolidated Statements of Operations.

Therefore, management considers its accounting for income taxes a critical accounting policy.

On February 4, 2019, the Corporation announced that it was in the best interests of the Corporation to scale back the saleable single-family mortgage loan originations and improve on its efforts to increase the volume

of portfolio single-family mortgage loan originations and purchases.

For additional information, see “Loan Originations” in this Form 10-K.

The Corporation recognized during fiscal 2019 non-recurring costs of $2.80 million, which is comprised of

$1.70 million in salaries and employee benefits expenses (attributable to severance and other personnel expenses), $337,000 in premises and occupancy expenses (attributable to accelerated lease expenses and accelerated depreciation of furniture and

fixtures), and $758,000 in equipment expenses (attributable to termination, charge-off, or modification of data processing and other contractual arrangements).

The Bank has not abandoned its single-family mortgage operations as the Bank is improving on its efforts to increase the volume of portfolio single-family mortgage loan originations and purchases in the same geographic

area, using the same underwriting criteria through the same origination channels.

The Bank has chosen to scale back originations of salable single-family mortgage loans, which is similar to previous decisions where the Bank has grown or retrenched

the business given changing market opportunities.

The Bank did not contemplate a permanent shut down of the single-family mortgage operations given its ongoing importance to the consolidated results of the Bank over time.

Management believes these

facts support the Bank’s position that the single-family mortgage business is a cyclical business which requires changes as a result of changing market conditions.

Therefore, the Bank has determined that the scaling back of salable single-family loan

originations and increasing its efforts to generate more portfolio single-family mortgage originations and purchases do not represent the abandonment of a business, and as such, all operating results continue to be reported as continuing operations.

Executive Summary and Operating Strategy

Provident Savings Bank, F.S.B., established in 1956, is a financial services company committed to serving consumers and small to mid-sized businesses in the Inland Empire region of Southern California.

conducts its business operations as Provident Bank and through its subsidiary, Provident Financial Corp.

The business activities of the Corporation, primarily through the Bank and its subsidiary, consist of community banking and, to a lesser degree,

investment services for customers and trustee services on behalf of the Bank.

Community banking operations primarily consist of accepting deposits from customers within the communities surrounding the Corporation’s full service offices and investing those funds in single-family, multi-family and

commercial real estate loans.

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

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 not occur as a result of weaknesses in general economic conditions.

Saleable single-family mortgage loan operations primarily consist of the origination and sale of mortgage loans secured by single-family residences.

The primary sources of income in the saleable mortgage loan

operations are gain on sale of loans and certain fees collected from borrowers in connection with the loan origination process.

On February 4, 2019, the Corporation announced that it was in the best interests of the Corporation to scale back the

saleable single-family mortgage loan originations and improve on its efforts to increase the volume of portfolio single-family mortgage loan originations.

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 asset (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

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 difficult as a result of weaknesses in general economic conditions.

Because the length of the COVID-19 pandemic and the efficacy of the extraordinary measures being put in place to address its

economic consequences are unknown, including the recent 150 basis point reductions in the targeted federal funds rate, until the pandemic subsides, the Corporation expects its net interest income and net interest margin will be adversely affected in

2020 and possibly longer.

Investment services operations primarily consist of selling alternative investment products such as annuities and mutual funds to the Bank’s depositors.

Investment services and trustee services contribute a very small

percentage of gross revenue.

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, 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

changes in accounting principles, laws,

regulation, interest rates and the economy, among others.

The Corporation attempts to mitigate many of these risks through prudent banking practices, such as interest rate risk management, credit risk management, operational risk management, and

liquidity risk management.

The California economic environment presents heightened risk for the Corporation primarily with respect to real estate values and loan delinquencies.

Since the majority of the Corporation’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.

For further details on risk factors and uncertainties, see

“Safe-Harbor Statement” included above in this item 7, and Item 1A, "Risk Factors.”

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.

For further details on risk factors and

uncertainties, see “Safe-Harbor Statement” included above in this item 7, and Item 1A, "Risk Factors.”

COVID-19 Impact to the Corporation

The Corporation is actively monitoring and responding to the effects of the rapidly-changing COVID-19 pandemic.

The health, safety and well-being of its customers, employees and communities are the

Corporation’s top priorities.

Centers of Disease Control (“CDC”) guidelines, as well as directives from federal, state, county and local officials, are being closely followed to make informed operational decisions.

During this unprecedented time, the Corporation is working diligently with its employees to implement CDC-advised health, hygiene and social distancing practices.

To avoid service disruptions, most

of its employees currently work from the Corporation’s premises and promote social distancing standards.

To date, there have been limited service disruptions.

The Corporation’s Employee Assistance Program is provided at no cost for employees and

family members seeking counseling services for mental health and emotional support needs.

The Corporation also adheres to the Families First Coronavirus Response Act (FFCRA), which includes the Emergency Paid Sick Leave Act and the Emergency Family

and Medical Leave Expansion.

During the COVID-19 pandemic, taking care of customers and providing uninterrupted access to services are top priorities for the Corporation.

All of the Corporation’s banking centers are open for

business with regular business hours while implementing CDC guidelines for social distancing and enhanced cleaning.

Customers can also conduct their banking business using drive throughs, online and mobile banking services, ATMs, and telephone

On March 27, 2020, the CARES Act was signed into law and on April 7, 2020, the Board of Governors of the Federal Reserve System, FDIC, National Credit Union Administration, OCC and consumer

Financial Protection Bureau issued Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (“Interagency Statement”).

Among other things, the CARES Act and Interagency

Statement provided relief to borrowers, including the opportunity to defer loan payments while not negatively affecting their credit standing.

The CARES Act and/or Interagency Statement provided guidance around the modification of loans as a result

of the COVID-19 pandemic, and outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act or Interagency Statement prior to any relief, are not troubled debt

restructurings.

For commercial and consumer customers, the Corporation has provided relief options, including payment deferrals from 90 days to 180 days and fee waivers.

As of June 30, 2020, the Corporation has 48 single-family forbearance loans,

with outstanding balances of $19.9 million or 2.20 percent of total loans, and five multi-family, commercial real estate and business loans, with outstanding balances of $2.7 million or 0.29 percent of total loans that were modified in accordance

with the CARES Act or Interagency Statement.

Interest income continues to be recognized during the payment deferrals, unless the loans are non-performing.

After the payment deferral period, scheduled loan payments will once again become due

The forbearance amount will be due and payable in full as a balloon payment at the end of the loan term or sooner if the loan becomes due and payable in full at an earlier date.

All loans modified due to COVID-19 will be separately monitored and any request for continuation of relief beyond the initial modification will be reassessed at that time to determine if a further

modification should be granted and if a downgrade in risk rating is appropriate.

As of June 30, 2020, loan forbearance related to COVID-19 hardship requests are described below:

Forbearance Granted

Forbearance Completed

Forbearance Remaining

(Dollars In Thousands)

Single-family loans

Multi-family loans

Commercial real estate loans

Total loan forbearance

As of June 30, 2020, loan forbearance outstanding balances are described below:

(Dollars In Thousands)

Weighted Avg.

Single-family loans

Multi-family loans

Commercial real estate loans (5)

Total loans in forbearance

Current loan balance in comparison to the original appraised value.

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

At time of loan origination.

Comprised of $579 thousand in Office and $493 thousand in Mixed Used – Office/Single-Family Residential.

In addition, as of June 30, 2020, the Bank had pending requests for payment relief for an additional seven single-family loans totaling approximately $2.6 million.

After the payment deferral period, normal loan payments will once again become due and payable.

The forbearance amount will be due and payable in full as a balloon payment at the end of the loan

term or sooner if the loan becomes due and payable in full at an earlier date.

The Corporation believes the steps we are taking are necessary to effectively manage its portfolio and assist the borrowers through the ongoing uncertainty surrounding the

duration, impact and government response to the COVID-19 pandemic.

For customers that may need access to funds in their certificates of deposit to assist with living expenses during the COVID-19 pandemic, the Corporation is waiving early withdrawal penalties on a

case by case basis.

Overdraft and other fees are also waived on a case-by-case basis.

The Corporation is cautious when paying overdrafts beyond the client's total deposit relationship, overdraft protection options or their overdraft coverage limits.

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

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

and bars, and businesses providing physical services;

Significantly lower market interest rates which may have a negative impact on variable rate loans indexed to LIBOR, U.S.

treasury and prime indices and on deposit pricing, as interest

rate adjustments typically lag the effect on the yield earned on interest-earning assets because rates on many deposit accounts are decision-based, not tied to a specific market-based index, and are based on competition for deposits;

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

Non-interest income may decline due to a decrease in fees earned as spending habits change by debit card customers complying with “Stay at Home” requirements and who otherwise may be

adversely affected by reductions in their personal income or job losses;

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

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

While the full impact of COVID-19 on the Corporation's future financial results is uncertain and not currently estimable, the Corporation believes that the impact could be materially adverse to its

financial condition and results of operations depending on the length and severity of the economic downturn brought on by the COVID-19 pandemic.

Off-Balance Sheet Financing Arrangements

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

These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying 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.

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.

These instruments involve, to varying

degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying 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

For a discussion on commitments and derivative financial instruments, see Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Off-balance sheet arrangements.

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its

These financial instruments include commitments to extend credit, in the form of originating loans or providing funds under existing lines of credit, loan sale commitments to investors, To-Be-Announced ("TBA") Mortgage-Backed-Securities

("MBS") trades 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 Consolidated

Statements of Financial Condition.

The Bank's exposure to credit loss, in the event of non-performance by the counter party to these financial instruments, is represented by the contractual amount of these

The Bank 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.

These instruments involve, to varying degrees, elements of credit

and interest-rate risk in excess of the amount recognized in the accompanying Consolidated Statements of Financial Condition.

The Bank's exposure to credit loss, in the event of non-performance by the counter party to these financial instruments, is

represented by the contractual amount of these instruments.

The Bank uses the same credit policies in making commitments to extend credit as it does for on-balance sheet instruments.

As of June 30, 2019 and 2018, these commitments were $4.3 million and $66.3 million, respectively.

discussion on financial instruments with off-balance sheet risks, see Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

As of June 30, 2020 and 2019, these commitments were $13.6

million and $4.3 million, respectively.

For a discussion on financial instruments with off-balance sheet risks, see Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Comparison of Financial Condition at June 30, 2020 and 2019

Total assets decreased $90.7 million, or 8%, to $1.08 billion at June 30, 2019 from $1.18 billion at June 30, 2018.

The decrease was primarily attributable to decreases in loans held for sale and, to a lesser extent,

loans held for investment, partly offset by an increase in cash and cash equivalents.

Total cash and cash equivalents, primarily excess cash deposited with the Federal Reserve Bank of San Francisco, increased $27.3 million, or 63%, to $70.6 million at June 30, 2019 from $43.3 million at June 30,

The increase was primarily attributable to the decreases in loans held for sale and loans held for investment, partly offset by decreases in customer deposits and borrowings.

The balance of cash and cash equivalents at June 30, 2019 was

consistent with the Corporation’s strategy of adequately managing credit and liquidity risk.

Total investment securities (held to maturity and available for sale) increased $4.8 million, or 5%, to $100.1 million at June 30, 2019 from $95.3 million at June 30, 2018.

The increase was primarily the result of

purchases of mortgage-backed securities held to maturity, partly offset by scheduled and accelerated principal payments on mortgage-backed securities.

For further analysis on investment securities, see Note 2 of the Notes to Consolidated Financial

Statements included in Item 8 of this Form 10-K.

Loans held for investment decreased $22.8 million, or 3% to $879.9 million at June 30, 2019 from $902.7 million at June 30, 2018.

In fiscal 2019, the Corporation originated $120.2 million of loans held for investment,

consisting primarily of single-family, multi-family and commercial real estate loans, compared to $186.4 million, consisting primarily of single-family, multi-family and commercial real estate loans, for the same period last year.

In addition, the

Corporation purchased $51.1 million of loans to be held for investment (primarily single-family and multi-family loans) in fiscal 2019, compared to $13.5 million of purchased loans to be held for investment (primarily multi-family loans) in fiscal

Total loan principal payments in fiscal 2019 were $195.4 million, compared to $208.5 million in fiscal 2018.

There was no REO acquired in the settlement of loans in fiscal 2019 as compared to $2.2 million in fiscal 2018.

The balance of

multi-family, commercial real estate, construction and commercial business loans, net of undisbursed loan funds, decreased 6% to $556.1 million at June 30, 2019 from $589.4 million at June 30, 2018, and represented 63% and 65% of loans held for

investment, respectively.

The balance of single-family loans held for investment increased $10.2 million, or 3%, to $325.0 million at June 30, 2019, from $314.8 million at June 30, 2018.

There were no loans held for sale at June 30, 2019 as compared to $96.3 million at June 30, 2018.

The decrease was primarily due to the Corporation’s decision to scale back the saleable single-family mortgage loan

originations and improve on its efforts to increase the volume of portfolio single-family mortgage loan originations.

Total loans originated for sale decreased $718.9 million, or 61%, to $467.1 million in fiscal 2019 from $1.19 billion in fiscal

Total deposits decreased $66.3 million, or 7%, to $841.3 million at June 30, 2019 from $907.6 million at June 30, 2018.

Time deposits decreased $44.5 million, or 19%, to $193.1 million at June 30, 2019 from $237.6

Total assets increased $92.0 million, or 9%, to $1.18 billion at June 30, 2020 from $1.08 billion at June 30, 2019.

The increase was primarily attributable to increases in cash and cash

equivalents, investment securities and loans held for investment.

Total cash and cash equivalents, primarily excess cash deposited with the Federal Reserve Bank of San Francisco, increased $45.4 million, or 64%, to $116.0 million at June 30, 2020 from $70.6

million at June 30, 2019.

while transaction accounts decreased $21.9 million, or 3%, to $648.1 million at June 30, 2019 from $670.0 million at June 30, 2018.

As of June 30, 2019 and 2018, the percentage of transaction accounts to total deposits was

77% and 74%, respectively.

The change in deposit mix was consistent with the Corporation’s marketing strategy to promote transaction accounts and the

strategic decision to increase the percentage of lower cost checking and savings accounts in its deposit base and decrease the percentage of time deposits by competing less aggressively for time deposits.

Borrowings, consisting of FHLB – San Francisco advances decreased $25.1 million, or 20%, to $101.1 million at June 30, 2019 from $126.2 million at June 30, 2018.

The decrease was due to the maturity of short-term

advances and the prepayment of a long-term advance during fiscal 2019.

The increase was primarily attributable to increases in customer deposits and borrowings, partly offset by the increases in loans held for investment and investment securities.

The balance of cash and cash equivalents at

June 30, 2020 was consistent with the Corporation’s strategy of adequately managing credit and liquidity risk.

Total investment securities (held to maturity and available for sale) increased $23.2 million, or 23%, to $123.3 million at June 30, 2020 from $100.1 million at June 30, 2019.

The increase was

primarily the result of purchases of mortgage-backed securities held to maturity, partly offset by scheduled and accelerated principal payments on mortgage-backed securities.

For additional information on investment securities, see Note 2 of the

Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Loans held for investment increased $22.9 million, or 3% to $902.8 million at June 30, 2020 from $879.9 million at June 30, 2019.

In fiscal 2020, the Corporation originated $106.0 million of loans

held for investment, consisting primarily of single-family, multi-family and commercial real estate loans, down 12% from $120.2 million, consisting primarily of single-family, multi-family and commercial real estate loans, for the same period last

In addition, the Corporation purchased $142.1 million of loans to be held for investment (primarily single-family and multi-family loans) in fiscal 2020, up 178% from $51.1 million of purchased loans to be held for investment (primarily

single-family and multi-family loans) in fiscal 2019.

Total loan principal payments in fiscal 2020 were $228.3 million, up 17% from $195.4 million in fiscal 2019.

There was no REO acquired in the settlement of loans in both fiscal 2020 and fiscal

The balance of multi-family, commercial real estate, construction and commercial business loans, net of undisbursed loan funds, increased 9% to $605.4 million at June 30, 2020 from $556.1 million at June 30, 2019, and represented 67% and 63%

of loans held for investment, respectively.

The balance of single-family loans held for investment decreased $26.2 million, or 8%, to $298.8 million at June 30, 2020, from $325.0 million at June 30, 2019.

For additional information on loans held for

investment, see Note 3 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Total deposits increased $51.7 million, or 6%, to $893.0 million at June 30, 2020 from $841.3 million at June 30, 2019.

Transaction accounts increased $74.9 million, or 12%, to $723.0 million at

June 30, 2020 from $648.1 million at June 30, 2019;

while time deposits decreased $23.1 million, or 12%, to $170.0 million at June 30, 2020 from $193.1 million at June 30, 2019.

As of June 30, 2020 and 2019, the percentage of transaction accounts to

total deposits was 81% and 77%, respectively.

Non-interest bearing deposits as a percentage of total deposits increased to 13.3% at June 30, 2020 from 10.7% at June 30, 2019.

The change in deposit mix was consistent with the Corporation’s marketing

strategy to promote transaction accounts and the strategic decision to increase the percentage of lower cost checking and savings accounts in its deposit base and decrease the percentage of time deposits by competing less aggressively for time

For additional information on deposits, see Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Borrowings, consisting of FHLB – San Francisco advances increased $39.9 million, or 39%, to $141.0 million at June 30, 2020 from $101.1 million at June 30, 2019.

The increase was due to new

advances, partly offset by the maturity of advances during fiscal 2020.

The weighted-average maturity of the Corporation’s FHLB – San Francisco advances was approximately 28 months at June 30, 2020, down from 44 months at June 30, 2019.

Total stockholders’ equity increased slightly to $120.6 million at June 30, 2019 from $120.5 million at June 30, 2018, primarily as a result of net income and the amortization of stock-based compensation benefits in

fiscal 2019, partly offset by stock repurchases (see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” of this Form 10-K) and quarterly cash dividends paid to shareholders.

additional information on borrowings, see Note 8 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Total stockholders’ equity increased 3% to $124.0 million at June 30, 2020 from $120.6 million at June 30, 2019, primarily as a result of net income and the amortization of stock-based compensation

benefits in fiscal 2020, partly offset by stock repurchases (see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” of this Form 10-K) and quarterly cash dividends paid to shareholders.

Comparison of Operating Results for the Years Ended June 30, 2020 and 2019

The Corporation recorded net income of $4.4 million, or $0.58 per diluted share, for the fiscal year ended June 30, 2019, up $2.3 million, or 109%, from $2.1 million,

or $0.28 per diluted share, for the fiscal year ended June 30, 2018.

The increase in net income in fiscal 2019 was primarily attributable to the $1.8 million net tax charge resulting from the revaluation of net deferred tax assets consistent with the

Tax Act recorded in fiscal 2018 and not replicated in fiscal 2019, while a decrease in non-interest expense and an increase in net interest income, was virtually offset by a decrease in non-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 slightly to 89% in fiscal 2019 from 91% in fiscal 2018.

Return on average assets in fiscal 2019 increased to 0.39% from 0.18% in fiscal 2018 and

return on average stockholders' equity in fiscal 2019 increased to 3.63% from 1.73% in fiscal 2018.

The Corporation recorded net income of $7.7 million, or $1.01 per diluted share, for the fiscal year ended June 30, 2020, up $3.3 million, or 75%,

from $4.4 million, or $0.58 per diluted share, for the fiscal year ended June 30, 2019.

The increase in net income in fiscal 2020 was primarily attributable to a $16.3 million decrease in non-interest expense, partly offset by a $8.0 million decrease

in non-interest income (mainly a $7.3 million decrease in the gain on sale of loans), a $1.8 million decrease in net interest income and a $1.6 million increase in the provision for loan losses.

The Corporation's efficiency ratio,

defined as non-interest expense divided by the sum of net interest income and non-interest income, improved to 71% in fiscal 2020 from 89% in fiscal 2019.

Return on average assets in fiscal 2020

increased to 0.69% from 0.39% in fiscal 2019 and return on average stockholders' equity in fiscal 2020 increased to 6.26% from 3.63% in fiscal 2019.

Net Interest Income.

Net interest income increased $1.9 million, or 5%, to $38.2 million in fiscal 2019 from $36.3 million in fiscal 2018.

This increase resulted from an

increase in the net interest margin, partly offset by a decrease in the average balance of interest-earning assets.

The net interest margin increased 28 basis points to 3.47% in fiscal 2019 from 3.19% in fiscal 2018, due to a 28 basis point increase

in the average yield on interest-earning assets, partially offset by a one basis point increase in the average cost of interest-bearing liabilities.

The average balance of interest-earning assets decreased $39.2 million, or 3%, to $1.10 billion in

fiscal 2019 from $1.14 billion in fiscal 2018.

Net interest income decreased $1.8 million, or 5%, to $36.4 million in fiscal 2020 from $38.2 million in fiscal 2019.

This decrease

resulted from a decrease in the net interest margin and, to a lesser extent, a decrease in the average balance of interest-earning assets.

The net interest margin decreased 11 basis points to 3.36% in fiscal 2020 from 3.47% in fiscal 2019, due to an

11 basis point decrease in the average yield on interest-earning assets, partially offset by a one basis point decrease in the average cost of interest-bearing liabilities.

The average balance of interest-earning assets decreased $17.9 million, or

2%, to $1.08 billion in fiscal 2020 from $1.10 billion in fiscal 2019.

Interest Income.

Total interest income increased $1.7 million, or 4%, to $44.4 million for fiscal 2019 from $42.7 million for fiscal 2018.

The increase was primarily due to

higher interest income on investment securities and interest-earning deposits.

The average yield on interest-earning assets increased 28 basis points to 4.03% in fiscal 2019 from 3.75% in fiscal 2018.

Interest income on loans receivable increased $76,000 to $40.1 million in fiscal 2019 from $40.0 million in fiscal 2018.

This increase was attributable to a higher average loan yield, partly offset by a lower average

loan balance.

The average loan yield, including loans held for sale, during fiscal 2019 increased 27 basis points to 4.33% from 4.06% in fiscal 2018.

The average balance of loans receivable decreased $60.8 million, or 6%, to $926.0 million during

fiscal 2019 from $986.8 million during fiscal 2018.

The average balance of loans held for sale decreased $42.6 million, or 48%, to $46.3 million for fiscal 2019 from $88.9 million in fiscal 2018 while the average yield on loans held for sale

increased 59 basis points to 4.69% in fiscal 2019 from 4.10% in fiscal 2018.

The average balance of loans held for investment decreased $18.2 million, or 2%, to $879.7 million in fiscal 2019 from $897.9 million in fiscal 2018 while the average yield

on loans held for investment increased 26 basis points to 4.31% in fiscal 2019 from 4.05% in fiscal 2018.

Total interest income decreased $1.9 million, or 4%, to $42.5 million for fiscal 2020 from $44.4 million for fiscal 2019.

The decrease was

primarily due to lower interest income on loans receivable and interest-earning deposits and lower cash dividends from FHLB – San Francisco stock.

Interest income on loans receivable decreased $947,000, or 2%, to $39.1 million in fiscal 2020 from $40.1 million in fiscal 2019.

This decrease was attributable to both a lower average loan yield

and average loan balance.

The weighted average loan yield during fiscal 2020 decreased five basis points to 4.28% from 4.33% in fiscal 2019, due primarily to the decrease in market interest rates resulting from the decline in the general economic

conditions impacted by the COVID-19 pandemic.

The average balance of loans receivable (including loans held for sale in fiscal 2019) decreased $10.6 million, or 1%, to $915.4 million during fiscal 2020 from $926.0 million during fiscal 2019.

were no loans held for sale in fiscal 2020.

The average balance of loans held for sale in fiscal 2019 was $46.3 million with the weighted average yield of 4.69%.

Interest income from investment securities increased $78,000, or 4%, to $2.1 million in fiscal 2020 from $2.0 million in fiscal 2019.

This increase was primarily a result of an increase in the average yield and, to a

lesser extent, an increase in the

average balance.

This increase was primarily a result of an increase in the

average yield, partly offset by a decrease in the average balance.

The average yield on investment securities increased 35 basis points to 2.44% during fiscal 2020 from 2.09% during fiscal 2019.

The increase in the average yield of investment securities was

primarily attributable to the purchase of new investment securities with a higher average yield than the existing portfolio and the upward repricing of adjustable rate mortgage-backed securities, partly offset by an accelerated amortization of

purchase premiums resulting from accelerated principal payments.

The average balance of investment securities increased $7.2 million, or 8%, to $97.9 million in fiscal 2019 from $90.7 million in fiscal 2018 as a result of new purchases of investment

securities, partly offset by scheduled and accelerated principal payments on mortgage-backed securities.

During fiscal 2019, the Bank purchased $39.7 million of mortgage-backed securities with an average yield of 3.01% and did not sell any

investment securities.

During fiscal 2019, the Bank received $707,000 of cash dividends from its FHLB - San Francisco stock, an increase of $139,000 or 24% from the $568,000 of cash dividends received in fiscal 2018.

The increase in cash

dividends was due primarily to a special cash dividend received in the second quarter of fiscal 2019 that did not occur in fiscal 2018, and as a result, the average yield increased 163 basis points to 8.62% in fiscal 2019 from 6.99% in fiscal 2018.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, increased $753,000, or 96%, to $1.5 million in fiscal 2019 from $784,000 in fiscal 2018, due to a

higher average yield and, to a lesser extent, a higher average balance.

The average yield increased 79 basis points to 2.24% in fiscal 2019 from 1.45% in fiscal 2018, resulting from increases in the target federal funds interest rate.

balance of interest-earning deposits increased $14.4 million, or 27%, to $67.8 million in fiscal 2019 from $53.4 million in fiscal 2018, due primarily to the decreases in loans held for sale (attributable to the Corporation’s decision to reduce

single-family loans originated for sale) and loans held for investment, partly offset by decreases in customer deposits and borrowings.

The increase in the average yield of investment

securities was primarily attributable to the upward repricing of adjustable rate mortgage-backed securities during the first half of fiscal 2020 and a lower premium amortization resulting from lower principal payments, partly offset by the purchase

of new investment securities during the second half of fiscal 2020 with a lower average yield than the existing portfolio.

The average balance of investment securities decreased $11.1 million, or 11%, to $86.8 million in fiscal 2020 from $97.9

million in fiscal 2019 as a result of scheduled and accelerated principal payments on mortgage-backed securities, partly offset by the new purchases of investment securities.

During fiscal 2020, the Bank purchased $55.9 million of mortgage-backed

securities with a weighted average yield of 1.16% and did not sell any investment securities.

During fiscal 2020, the Bank received $534,000 of cash dividends from its FHLB - San Francisco stock, a decrease of $173,000 or 24% from the $707,000 of cash dividends received in fiscal 2019.

decrease in cash dividends was due primarily to a special cash dividend of $133,000 received in the second quarter of fiscal 2019 that was not replicated in fiscal 2020, and as a result, the average yield decreased 207 basis points to 6.55% in fiscal

2020 from 8.62% in fiscal 2019.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, decreased $880,000, or 57%, to $657,000 in fiscal 2020 from $1.5 million in

fiscal 2019, due to a lower average yield, partly offset by a higher average balance.

The average yield decreased 134 basis points to 0.90% in fiscal 2020 from 2.24% in fiscal 2019, resulting from decreases in the targeted federal funds interest

The average balance of interest-earning deposits increased $4.0 million, or 6%, to $71.8 million in fiscal 2020 from $67.8 million in fiscal 2019.

Interest Expense.

Total interest expense for fiscal 2020 was $6.1 million as compared to $6.2 million for fiscal 2019, a decrease of $153,000, or 2%.

This decrease was

primarily attributable to a lower interest expense on deposits, particularly in time deposits, and borrowings.

The average balance of interest-bearing liabilities decreased $39.7 million or 4% to $989.7 million during fiscal 2019 as compared to $1.03

billion during fiscal 2018.

This decrease was attributable to declines in the average balance of both deposits and borrowings.

The average cost of interest-bearing liabilities was 0.63% during fiscal 2019, up one basis point from 0.62% during fiscal

The slight increase in the average cost of liabilities was primarily due to a higher average cost of borrowings.

Interest expense on deposits for fiscal 2019 was $3.4 million as compared to $3.5 million for the same period of fiscal 2018, a decrease of $114,000, or 3%.

The decrease in interest expense on deposits was primarily

attributable to a lower average balance.

decrease was primarily attributable to a lower interest expense on deposits, particularly in time deposits, partly offset by a higher interest expense on borrowings.

The average balance of interest-bearing liabilities decreased $17.7 million or 2% to

$972.0 million during fiscal 2020 as compared to $989.7 million during fiscal 2019.

decrease was attributable to a decline in the average balance of deposits, partly offset by an increase in the average balance of borrowings.

The average cost of interest-bearing liabilities was

0.62% during fiscal 2020, down one basis point from 0.63% during fiscal 2019.

Interest expense on deposits for fiscal 2020 was $2.9 million as compared to $3.4 million for fiscal 2019, a decrease of $438,000, or 13%.

The decrease in interest expense on deposits was

primarily attributable to a lower average balance, particularly time deposits.

The average balance of deposits decreased $36.0 million, or 4%, to $844.1 million during fiscal 2020 from $880.1 million during fiscal 2019.

The average balance of time deposits decreased by $31.2 million, or

12%, to $220.4 million in fiscal 2019 from $251.6 million in fiscal 2018.

The decrease in the average balance of time deposits was much larger than the decrease in the average balance of transaction accounts, consistent with the Bank's marketing

strategy to promote transaction accounts and the strategic decision to compete less aggressively on time deposit interest rates.

The average balance of transaction accounts decreased $4.0 million, or 1%, to $659.7 million in fiscal 2019 from $663.7

million in fiscal 2018.

The average balance of time

deposits decreased by $34.1 million, or 15%, to $186.3 million in fiscal 2020 from $220.4 million in fiscal 2019.

The decrease in the average balance of time deposits was much larger than the decrease in the average balance of transaction accounts,

consistent with the Bank's marketing strategy to promote transaction accounts and the strategic decision to compete less aggressively on time deposit interest rates.

The average balance of transaction accounts decreased $1.9 million to $657.8 million

in fiscal 2020 from $659.7 million in fiscal 2019.

The average balance of transaction accounts to total deposits in the fiscal 2020 was 78%, compared to 75% in fiscal 2019.

The average cost of deposits remained unchanged at 0.38% for both fiscal 2019 and 2018.

The average cost

of transaction accounts also remained unchanged at 0.15% for both fiscal 2019 and 2018;

while the average cost of time deposits in fiscal 2019 was 1.08%, up nine basis points, from 0.99% in fiscal 2018.

Interest expense on borrowings, consisting of FHLB - San Francisco advances, for fiscal 2019 decreased $90,000, or 3%, to $2.8 million as compared to $2.9 million in fiscal 2018.

The decrease in interest expense on

borrowings was due primarily to a lower average balance, partly offset by a slightly higher average cost.

The average balance of borrowings decreased $4.4 million, or 4%, to $109.6 million during fiscal 2019 from $114.0 million during fiscal 2018.

The average cost of borrowings increased to 2.58% in fiscal 2019 from 2.56% in fiscal 2018, an increase of two basis points.

The increase in the average cost of

borrowings was primarily due to the maturity of short-term advances and an early payoff of a long-term advance with a lower average cost in fiscal 2019.

The average cost of deposits decreased three basis points to 0.35% in fiscal

2020 from 0.38% in fiscal 2019.

The average cost of transaction accounts was 0.14% in fiscal 2020, down one basis point from 0.15% in fiscal 2019;

while the average cost of time deposits in fiscal 2020 was 1.09%, up one basis point, from 1.08% in

Interest expense on borrowings, consisting of FHLB - San Francisco advances, for fiscal 2020 increased $285,000, or 10%, to $3.1 million as compared to $2.8 million in fiscal 2019.

The increase in

interest expense on borrowings was due primarily to a higher average balance, partly offset by a lower average cost.

The average balance of borrowings increased $18.3 million, or 17%, to $127.9 million during fiscal 2020 from $109.6 million during

The average cost of borrowings decreased to 2.43% in fiscal 2020 from 2.58% in fiscal 2019, a decrease of 15 basis points.

The decrease in the average cost of borrowings was primarily due to new borrowings with a lower average cost in

Provision (Recovery) for Loan Losses.

During fiscal 2019, the Corporation recorded a recovery from the allowance for loan losses of $475,000, as compared to a $536,000 recovery

from the allowance for loan losses during fiscal 2018, a $61,000 or 11% decrease.

The recovery from the allowance for loan losses in fiscal 2019 was primarily attributable to a decrease in loans held for investment and a relatively low balance of

non-performing loans, while maintaining a relatively stable credit risk profile, as reflected in our asset quality ratios described below.

The allowance for loan losses decreased $309,000, or 4%, to $7.1 million at June 30, 2019 from $7.4 million at

June 30, 2018.

Non-performing assets (net of the collectively evaluated allowances and individually evaluated allowances), with underlying collateral primarily located in Southern California, decreased $745,000 or 11% to $6.2

million, or 0.57% of total assets, at June 30, 2019, compared to $7.0 million, or 0.59% of total assets, at June 30, 2018.

Non-performing loans at June 30, 2019 increased $161,000 or 3% since June 30, 2018 to $6.2 million and were comprised of 20

single-family loans ($5.2 million), one construction loan ($971,000) and one commercial business loan ($41,000).

There were no REO assets at June 30, 2019, as compared to $906,000 at June 30, 2018.

As of June 30, 2019, 70%, or $4.4 million of

non-performing loans have a current payment status.

Net loan recoveries in fiscal 2019 were $166,000 or 0.02% of average loans receivable, compared to net loan charge-offs of $118,000 or 0.01% of average loans receivable in fiscal 2018.

During fiscal 2020, the Corporation recorded a provision for loan losses of $1.1 million, as compared to a $475,000

recovery from the allowance for loan losses during fiscal 2019.

The provision for loan losses in fiscal 2020 was primarily due to a qualitative component established in the allowance for loan losses methodology in response to the COVID-19 pandemic

and its continued and forecasted adverse economic impact.

The allowance for loan losses increased $1.2 million, or 17%, to $8.3 million at June 30, 2020 from $7.1 million at June 30, 2019.

Non-performing assets (net of the collectively evaluated allowances and individually evaluated allowances), with underlying collateral primarily located in Southern California, decreased $1.3

million or 21% to $4.9 million, or 0.42% of total assets, at June 30, 2020, compared to $6.2 million, or 0.57% of total assets, at June 30, 2019.

Non-performing loans at June 30, 2020 were $4.9 million, comprised of 18 single-family loans ($4.9

million) and one commercial business loan ($31,000).

There was no REO at June 30, 2020 and 2019.

As of June 30, 2020, 33%, or $1.6 million of non-performing loans have a current payment status.

Net loan recoveries in fiscal 2020 were $70,000 or

0.01% of average loans receivable, compared to net loan recoveries of $166,000 or 0.02% of average loans receivable in fiscal 2019.

Classified assets at June 30, 2020 were $14.1 million, comprised of $8.6 million in the special mention category, $5.5 million in the substandard category and no outstanding REO.

Classified assets at June 30, 2018

were $15.8 million, comprised of $7.5 million in the special mention category, $7.4 million in the substandard category and $906,000 in REO.

For additional information, see Item 1, “Business - “Delinquencies and Classified Assets” in this Form 10-K.

No loans were modified from their original terms in fiscal 2019, while there were two loans that were modified or restructured from their original terms in fiscal 2018.

The outstanding balance of restructured loans at

June 30, 2019 was $3.8 million (eight loans), down 27 percent from $5.2 million (11 loans) at June 30, 2018.

As of June 30, 2019, one restructured loan was classified as special mention and remains on accrual status ($437,000), one restructured loan

was classified as substandard and remains on accrual status ($1.4 million) and six restructured loans were classified as substandard on non-accrual status ($1.9 million).

As of June 30, 2019, 63%, or $2.4 million of the restructured loans have a

current payment status, consistent with their modified payment terms.

During fiscal 2019, no restructured loans were in default within a 12-month period subsequent to their original restructuring while one restructured loan totaling $56,000 was

extended beyond the initial maturity date of the modification.

Classified assets

at June 30, 2019 were $16.2 million, comprised of $8.6 million in the special mention category, $7.6 million in the substandard category and no outstanding REO.

For additional information, see Item 1, “Business - “Delinquencies and Classified Assets”

in this Form 10-K.

For the fiscal year ended June 30, 2020, there were two loans that were newly modified from their original terms, re-underwritten or identified as a restructured loan;

one loan (previously

modified) was downgraded;

one loan was upgraded to the pass category;

two loans were paid off;

and no loans were converted to real estate owned.

For the fiscal year ended June 30, 2019, there were no loans that were newly modified from their

original terms, re-underwritten or identified as a restructured loan;

one loan (previously modified) was downgraded;

three loans were upgraded to the pass category;

one loan was paid off;

and no loans were converted to real estate owned.

outstanding balance of restructured loans at June 30, 2020 was $2.6

million (eight loans), down 32 percent from $3.8 million (eight loans) at June 30, 2019.

As of June 30, 2020, all restructured loans were classified as substandard on non-accrual status.

June 30, 2020, 44%, or $1.2 million of the restructured loans have a current payment status, consistent with their modified payment terms.

During fiscal 2020, no restructured loans were in default within a 12-month period subsequent to their

original restructuring.

The allowance for loan losses was $8.3 million at June 30, 2020, or 0.91% of gross loans held for investment, compared to $7.1 million, or 0.80% of gross loans held for investment at June 30,

The allowance for

loan losses at June 30, 2019 includes $130,000 of individually evaluated allowances, compared to $157,000 of individually evaluated allowances at June 30, 2018.

Management believes that, based on currently available information, the allowance for

loan losses is sufficient to absorb potential losses inherent in loans held for investment at June 30, 2019.

For additional information, see Item 1, “Business - Delinquencies and Classified Assets - Allowance for Loan Losses” in this Form 10-K.

The allowance for loan losses is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loans held for investment portfolio and upon management's continuing

analysis of the factors underlying the quality of the loans held for investment.

These factors include changes in the size and composition of the loans held for investment, actual loan loss experience, current economic conditions, detailed analysis

of individual loans for which full collectibility may not be assured, and determination of the realizable value of the collateral securing the loans.

Provisions (recoveries) for loan losses are charged (credited) against operations on a quarterly

basis, as necessary, to maintain the allowance at appropriate levels.

Management believes that the amount maintained in the allowance will be adequate to absorb probable losses inherent in the loans held for investment.

Although management believes

it uses the best information available

to make such determinations, there can be no assurance that regulators, in reviewing the Bank's loans held for investment, will not request the Bank to significantly increase its allowance for loan losses.

adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected as a result of economic, operating, regulatory and other conditions beyond the control of the Bank.

The allowance for loan losses at June 30, 2020 includes $100,000 of individually evaluated allowances, compared to $130,000 of individually evaluated allowances at June 30, 2019.

Management believes that, based on currently available

information, the allowance for loan losses is sufficient to absorb potential losses inherent in loans held for investment at June 30, 2020.

For additional information, see Item 1, “Business - Delinquencies and Classified Assets - Allowance for Loan

Losses” in this Form 10-K.

The allowance for loan losses is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loans held for investment portfolio and upon

management's continuing analysis of the factors underlying the quality of the loans held for investment.

These factors include changes in the size and composition of the loans held for investment, actual loan loss experience, current economic

conditions, detailed analysis of individual loans for which full collectability may not be assured, and determination of the realizable value of the collateral securing the loans.

Provisions (recoveries) for loan losses are charged (credited)

against operations on a quarterly basis, as necessary, to maintain the allowance at appropriate levels.

Management believes that the amount maintained in the allowance will be adequate to absorb probable losses inherent in the loans held for

Although management believes it uses the best information available to make such determinations, there can be no assurance that regulators, in reviewing the Bank's loans held for investment, will not request the Bank to significantly

increase its allowance for loan losses.

Future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected as a result of economic, operating, regulatory and other conditions

beyond the control of the Bank, including as a result of the COVID-19 pandemic.

Non-Interest Income.

Total non-interest income decreased $8.0 million, or 64%, to $4.5 million in fiscal 2020 from $12.5 million in fiscal 2019.

The decrease was primarily

attributable to decreases in the gain on sale of loans and loan servicing and other fees.

The net gain on sale of loans decreased $8.7 million, or 55%, to $7.1 million for fiscal 2019 from $15.8 million in fiscal 2018.

The decrease was a result of a lower volume of loans originated for sale, partly offset

by a higher average loan sale margin.

The decrease in the volume of loans originated for sale was consistent with the Corporation’s business decision to scale back the single-family loan originations for sale and improve on its efforts to increase

the volume of single-family loan originations held for investment.

Total loan sale volume, which includes the net change in commitments to extend credit on loans to be held for sale, was $410.7 million in fiscal 2019 as compared to $1.15 billion in

fiscal 2018, down $741.0 million or 64%.

The average loan sale margin during fiscal 2019 was 1.73% as compared to 1.37% in fiscal 2018, an increase of 36 basis points.

The improvement in the average loan sale margin was the result of market

conditions and a higher percentage of retail loan originations, which typically have a higher loan sale margin, as compared to wholesale loan originations.

The total retail loan originations as a percentage of total loans originated for sale during

fiscal 2019 was 64%, up from 57% in fiscal 2018.

The gain on sale of loans includes an unfavorable fair-value adjustment on loans held for sale and derivative financial instruments (commitments to extend credit, commitments to sell loans, TBA MBS

trades and option contracts) that amounted to a net loss of $2.9 million and $2.1 million in fiscal 2019 and 2018, respectively.

Loan servicing and other fees decreased $524,000, or 33%, to $1.1 million for fiscal 2019 from $1.6 million in fiscal 2018.

The decrease was attributable primarily to lower loan prepayment fees and higher servicing

asset impairments.

decrease was primarily attributable to the decrease in the gain on sale of loans.

The net gain on sale of loans decreased $7.3 million, or 102%, to a net loss of $132,000 for fiscal 2020 from a net gain of $7.1 million in fiscal 2019.

The net loss in fiscal 2020 was primarily

attributable to loan sale premium refunds from the early payoff of loans previously sold.

There was no loan sale volume in fiscal 2020, as compared to $410.7 million during fiscal 2019 with an average loan sale margin of 1.73 percent.

Deposit account fees decreased $318,000, or 16%, to $1.6 million for fiscal 2020 from $1.9 million in fiscal 2019, due primarily to certain fees that were waived related to accounts impacted by the

COVID-19 pandemic.

Loan servicing and other fees decreased $232,000, or 22%, to $819,000 for fiscal 2020 from $1.1 million in fiscal 2019.

The decrease was attributable primarily to a lower fair value gain on loans

held for investment at fair value in fiscal 2020 in comparison to fiscal 2019.

Non-Interest Expense.

Total non-interest expense in fiscal 2019 was $45.2 million, a decrease of $8.0 million, or 15%, as compared to $53.2 million in fiscal 2018.

in non-interest expense was primarily attributable to decreases in salaries and employee benefits expense and other operating expenses, partly offset by an increase in equipment expense.

Total non-interest expense in fiscal 2020 was $28.9 million, a decrease of $16.3 million, or 36%, as compared to $45.2 million in

The decrease in non-interest expense was primarily attributable to decreases in salaries and employee benefits expense, premises and occupancy expenses, equipment expense and other operating expenses.

Salaries and employee benefits expense decreased $11.2 million, or 37%, to $18.9 million in fiscal 2020 from $30.1 million in fiscal 2019.

The decrease in salaries and employee benefits was primarily due to lower

incentive compensation costs and staff reductions related to lower saleable mortgage loan originations, consistent with the Corporation’s business decision to scale back the saleable single-family mortgage loan originations.

Total loans originated

and purchased for sale in fiscal 2019 was $467.1 million, down 61% from $1.19 billion in fiscal 2018.

Total non-recurring salaries and employee benefits expenses of $1.7 million were recognized in fiscal 2019, which consist of severance and other

personnel expenses.

Total equipment expense increased $898,000, or 57%, to $2.5 million in fiscal 2019 from $1.6 million in fiscal 2018.

The increase was primarily attributable to $758,000 of non-recurring charges related to termination,

charge-off, or modification of data processing and other contractual arrangements, consistent with the Corporation’s business decision to scaling back the saleable single-family mortgage loan originations.

The decrease in salaries and employee benefits was

primarily due to fewer employees and incentive payments consistent with the scaling back of saleable single-family mortgage loan originations.

The salaries and employee benefits expense in fiscal 2019 includes approximately $11.4 million of salaries

and employee benefits expenses related to the staffing associated with saleable single-family loan originations, which includes $1.7 million of one-time costs associated with staff

There were no loans originated for sale in fiscal 2020, as compared to $467.1 million in fiscal 2019;

while total loans originated and purchased for investment in fiscal 2020 was $248.1

million, up 45% from $171.2 million in fiscal 2019.

Total premises and occupancy expense decreased $1.5 million, or 30%, to $3.5 million in fiscal 2020 from $5.0 million in fiscal 2019.

The decrease in both premises and occupancy expenses and

equipment expense was due primarily to the closure of 10 loan production offices and one retail banking center resulting in lower office rents and depreciation of furniture and fixtures, consistent with the Corporation’s business decision to scale

back the saleable single-family mortgage loan originations.

In addition fiscal 2019 included $337,000 of non-recurring charges related to accelerated lease expenses and depreciation of furniture and fixtures.

Total equipment expense decreased $1.4 million, or 56%, to $1.1 million in fiscal 2020 from $2.5 million in fiscal 2019.

The decrease was primarily attributable to lower equipment depreciation and

$758,000 of non-recurring charges in fiscal 2019 related to termination, charge-off, or modification of data processing and other contractual arrangements, consistent with the Corporation’s business decision to scale back the saleable single-family

mortgage loan originations.

Other non-interest expense decreased $1.1 million, or 27%, to $3.0 million in fiscal 2020 from $4.1 million in fiscal 2019.

The decrease was primarily attributable to the $3.4 million increase in litigation expenses

recognized in fiscal 2018 and not replicated in fiscal 2019 (see Part I, Item 3.

Legal Proceeding) and lower expenses related to reduced loan originations.

The decrease was primarily attributable to lower expenses related to

reduced loan originations and a $296,000 reversion of a previously recognized legal settlement expense.

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, 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

The Tax Act reduced the federal corporate income tax rate from a maximum 35% to a flat 21% as of January 1, 2018.

Since the Corporation has a fiscal year end of June 30th, the reduced corporate federal income tax rate

for fiscal year 2018 was the result of the application of a blended federal statutory tax rate of 28.06%, which was based on the applicable federal corporate income tax rates before and after the Tax Act and corresponding number of days in the fiscal

year before and after enactment.

The Corporation realized the full impact of the reduced statutory federal corporate income tax rate of 21% beginning in fiscal 2019.

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, 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.

The provision for income taxes was $3.2 million for fiscal 2020, representing an effective tax rate of 29.5%, as compared to $1.5 million in fiscal 2019, representing an effective tax rate of

The decline in the

provision for income taxes was due primarily to the net tax charge of $1.8 million resulting from the revaluation of net deferred tax assets (consistent with the Tax Act) recognized in fiscal 2018 and not replicated in fiscal 2019 and the application

of the federal income tax rate of 21% in fiscal 2019 as compared to the blended rate of 28.06% in fiscal 2018, partly offset by an increase in net income before income taxes.

The Corporation’s effective tax rate may differ from the estimated tax rates described above due to discrete items such as further adjustments to net deferred tax assets, excess tax benefits derived from stock option

exercises and non-taxable earnings from bank owned life insurance, among other items.

The Corporation’s effective tax rate may differ from the estimated tax rates described above due to discrete items such as further adjustments to net deferred tax assets, excess tax benefits

derived from stock option exercises and non-taxable earnings from bank owned life insurance, among other items.

The Corporation determined that the above tax rates meet its estimated income tax obligations.

For additional information, see Note 9, "Income Taxes," of the Notes

to Consolidated Financial Statements, contained in Item 8 of this Form 10-K.

For additional information, see Note 9,

"Income Taxes," of the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K.

Average Balances, Interest and Average Yields/Costs

The following table sets forth certain information for the periods regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average

interest-earning assets and interest expense on average interest-bearing liabilities and average yields and costs thereof.

Yields and costs for the periods indicated are derived by dividing income or expense by the average monthly balance of assets

or liabilities, respectively, for the periods presented.

The following table sets forth certain information for the periods regarding average balances of assets and liabilities as well as the total dollar amounts of interest income

from average interest-earning assets and interest expense on average interest-bearing liabilities and average yields and costs thereof.

Yields and costs for the periods indicated are derived by dividing income or expense by the average monthly

balance of assets or liabilities, respectively, for the periods presented.

Year Ended June 30,

24 unchanged sentences

interest-bearing liabilities

Includes loans held for sale and non-performing loans, as well as net deferred loan costs of $1.2 million, $1.1 million and $874 for the years ended June 30, 2019, 2018 and 2017,

Includes loans held for sale and non-performing loans, as well as net deferred loan costs of $1.1 million, $1.2 million and $1.1 million for the years ended June 30, 2020, 2019 and 2018,

respectively.

4 unchanged sentences

The following tables set forth the effects of changing rates and volumes on interest income and expense of the Corporation for the period presented.

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.

Please refer to Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations, Comparison of Operating Results for the Years Ended June 30, 2019 and 2018” and Comparison of Operating Results for the

Years Ended June 30, 2018 and 2017" of this Form 10-K.

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.

Year Ended June 30, 2020 Compared

13 unchanged sentences

Total net change in expense on interest-bearing liabilities

Net increase (decrease) in net interest income

Net (decrease) increase in net interest income

Includes loans held for sale and non-performing loans.

19 unchanged sentences

Liquidity and Capital Resources

The Corporation's primary sources of funds are deposits, proceeds from principal and interest payments on loans, proceeds from the maturity and sale of investment securities, proceeds from FHLB - San Francisco

advances, and access to the discount window facility at the Federal Reserve Bank of San Francisco.

While maturities and scheduled amortization of loans and investment securities are a relatively predictable source of funds, deposit flows, mortgage

prepayments and loan sales are greatly influenced by general interest rates, economic conditions and competition.

The primary investing activity of the Bank has been the origination and purchase of loans held for investment and loans held for sale.

During the fiscal years ended June 30, 2019 and 2018, the Bank originated loans in

the amounts of $587.3 million and $1.37 billion, respectively, the majority of which were sold, as noted below.

In addition, the Bank purchased loans for investment from other financial institutions in fiscal 2019 and 2018 in the amounts of $51.1

million and $13.5 million, respectively.

Total loans sold in fiscal 2019 and 2018 were $559.0 million and $1.20 billion, respectively.

At June 30, 2019 and 2018, the Bank had loan origination commitments totaling $4.3 million and $66.3 million,

respectively, with undisbursed loan funds of $6.6 million and $4.3 million, respectively.

The Bank anticipates that it will have sufficient funds available to meet its current loan origination commitments.

The Corporation's primary sources of funds are deposits, proceeds from principal and interest payments on loans, proceeds from the maturity and sale of investment securities, proceeds from FHLB -

San Francisco advances, and access to the discount window facility at the Federal Reserve Bank of San Francisco.

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 Bank has been the origination and purchase of loans held for investment and, prior to fiscal 2020, loans held for sale.

During the fiscal years ended June 30,

2020 and 2019, the Bank originated loans in the amounts of $106.0 million and $587.3 million, respectively, of which $467.1 million were originated for sale in fiscal 2019.

In addition, the Bank purchased loans held for investment from other

financial institutions in fiscal 2020 and 2019 in the amounts of $142.1 million and $51.1 million, respectively.

There were no loans sold in fiscal 2020, as compared to $559.0 million in fiscal 2019.

At June 30, 2020 and 2019, the Bank had loan

origination commitments totaling $13.6 million and $4.3 million, respectively, with undisbursed loan funds of $4.0 million and $6.6 million, respectively.

The Bank anticipates that it will have sufficient funds available to meet its current loan

origination commitments.

The Bank's primary financing activity is gathering deposits.

During the fiscal years ended June 30, 2019 and 2018, the net decrease in deposits was $66.3 million and $18.9 million, respectively.

On June 30, 2019,

time deposits that are scheduled to mature in one year or less were $106.1 million.

Historically, the Bank has been able to retain a significant percentage of its time deposits as they mature by adjusting deposit rates to the current interest rate

The Bank 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.

During the fiscal years ended June 30, 2020 and 2019, the net increase (decrease) in deposits was $51.7 million and $(66.3) million,

respectively.

On June 30, 2020, time deposits that are scheduled to mature in one year or less were $90.6 million.

Historically, the Bank has been able to retain a significant percentage of its time deposits as they mature by adjusting deposit

rates to the current interest rate environment.

The Bank 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 Bank generally maintains sufficient cash and cash equivalents to meet short-term liquidity needs.

At June 30, 2020, total cash and cash equivalents were $116.0 million, or 9.9% of total assets.

Depending on market conditions and

the pricing of deposit products

market conditions and the pricing of deposit products

and FHLB - San Francisco advances, the Bank may continue to rely on FHLB - San Francisco advances for part of its liquidity needs.

As of June 30, 2019, the remaining financing availability at FHLB - San Francisco was

$275.2 million and the remaining unused collateral was $434.7 million.

In addition, the Bank has secured a $74.2 million discount window facility at the Federal Reserve Bank of San Francisco, collateralized by investment securities with a fair

market value of $79.0 million.

As of June 30, 2020, the remaining financing availability at FHLB

- San Francisco was $228.1 million and the remaining available collateral was $351.5 million.

In addition, the Bank has secured a $94.4 million discount window facility at the Federal Reserve Bank of San Francisco, collateralized by investment

securities with a fair market value of $100.4 million.

The Bank also has a federal funds facility with its correspondent bank for $17.0 million which matures on June 30, 2021.

As of June 30, 2019, there were no outstanding borrowings under the discount window facility or

the federal funds facility with its correspondent bank.

As of June 30, 2020, there were no outstanding borrowings under the

discount window facility or the federal funds facility with its correspondent bank.

Regulations require the Bank 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 June 30, 2019 increased to 20.7% from 14.9% during the same quarter ended June 30, 2018.

The increase in the liquidity ratio was due primarily to the increase in average qualifying liquid assets and the decline in

average deposits and borrowings during the quarter ended June 30, 2019 in comparison to the quarter ended June 30, 2018.

The Bank augments its liquidity by maintaining sufficient borrowing capacity at the FHLB - San Francisco, Federal Reserve Bank

of San Francisco and its correspondent bank.

The Bank's average liquidity ratio (defined as the ratio of average qualifying liquid assets to

average deposits and borrowings) for the quarter ended June 30, 2020 increased to 23.1% from 20.7% during the same quarter ended June 30, 2019.

The increase in the liquidity ratio was due primarily to the increase in average qualifying liquid

assets, partly offset by the smaller increase in average liquidity base during the quarter ended June 30, 2020 in comparison to the quarter ended June 30, 2019.

The Bank augments its liquidity by maintaining sufficient borrowing capacity at the FHLB

- San Francisco, Federal Reserve Bank of San Francisco and its correspondent bank.

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.

In addition, Provident Financial Holdings, Inc., as a savings and loan holding company registered with the FRB, is

required by the FRB to maintain capital adequacy that generally parallels the OCC requirements.

Since the holding company has 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.

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.

Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

In addition, Provident Financial Holdings, Inc., as a savings and loan holding company

registered with the FRB, is required by the FRB to maintain capital adequacy that generally parallels the OCC requirements.

Since the holding company has 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.

At June 30, 2020, the Bank exceeded all regulatory capital requirements.

Under the prompt corrective action provisions, minimum ratios of 5.0% for Tier 1 Leverage Capital, 6.5% for Common Equity Tier 1 ("CET1")

Capital, 8.0% for Tier 1 Capital and 10.0% for Total Capital are required to be deemed “well capitalized.” As of June 30, 2019, the Bank exceeded the capital ratios needed to be considered well capitalized with Tier 1 Leverage Capital, CET1 Capital,

Tier 1 Capital and Total Capital ratios of 10.5%, 18.0%, 18.0% and 19.1%, respectively.

Under the prompt corrective action provisions, minimum ratios of 5.0% for Tier 1 Leverage Capital, 6.5% for Common Equity

Tier 1 ("CET1") Capital, 8.0% for Tier 1 Capital and 10.0% for Total Capital are required to be deemed “well capitalized.” As of June 30, 2020, the Bank exceeded the capital ratios needed to be considered well capitalized with Tier 1 Leverage

Capital, CET1 Capital, Tier 1 Capital and Total Capital ratios of 10.1%, 17.5%, 17.5% and 18.8%, respectively.

Impact of Inflation and Changing Prices

The Corporation's consolidated financial statements are prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of

historical dollars without considering the changes in the relative purchasing power of money over time as a result of inflation.

The Corporation's consolidated financial statements are prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating

results in terms of historical dollars without considering the changes in the relative purchasing power of money over time as a result of inflation.

The impact of inflation is reflected in the increasing cost of the Corporation's operations.

Unlike most industrial

companies, nearly all assets and liabilities of the Corporation are monetary.

most industrial companies, nearly all assets and liabilities of the Corporation are monetary.

As a result, interest rates have a greater impact on the Corporation's performance than do the effects of general levels of inflation.

In addition, interest rates do not

necessarily move in the direction, or to the same extent, as the prices of goods and services.

interest rates do not necessarily move in the direction, or to the same extent, as the prices of goods and services.

Impact of New Accounting Pronouncements

Various elements of the Corporation's accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.

In particular, management has

identified several accounting policies that, as a result of the judgments, estimates and assumptions inherent in those policies, are important to an understanding of the financial statements of the Corporation.

These policies relate to the

methodology for the recognition of interest income,

determination of the provision and allowance for loan losses, the estimated fair value of derivative financial instruments and the valuation of mortgage servicing rights and real estate owned.

These policies and

judgments, estimates and assumptions are described in greater detail in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the section entitled “Organization and Summary of Significant

Accounting Policies” contained in Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Management believes that the judgments, estimates and assumptions used in the preparation of the financial

statements are appropriate based on the factual circumstances at the time.

However, because of the sensitivity of the financial statements to these accounting policies, changes to the judgments, estimates and assumptions used could result in

material differences in the results of operations or financial condition.

In particular,

management has identified several accounting policies that, as a result of the judgments, estimates and assumptions inherent in those policies, are important to gain an understanding

of the financial statements of the Corporation.

These policies relate to the methodology for the recognition of interest income, determination of the provision and allowance for loan losses, the

estimated fair value of derivative financial instruments and the valuation of mortgage servicing rights and real estate owned.

These policies and judgments, estimates and assumptions are described in greater detail in this Item 7, "Management's

Discussion and Analysis of Financial Condition and Results of Operations" and in the section entitled “Organization and Summary of Significant Accounting Policies” contained in Note 1 of the Notes to the Consolidated Financial Statements included in

Item 8 of this Form 10-K.

Management believes that the judgments, estimates and assumptions used in the preparation of the financial statements are appropriate based on the factual circumstances at the time.

However, because of the sensitivity of

the financial statements to these accounting policies, changes to the judgments, estimates and assumptions used could result in material differences in the results of operations or financial condition.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis