What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-02-08 compared with 2020-11-06 · 419 added, 239 removed, 408 unchanged (62% of the section changed)

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The Corporation is regulated by the Federal Reserve Board (“FRB”).

At September 30, 2020, the Corporation had

At December 31, 2020, the Corporation had

total assets of $1.17 billion, total deposits of $910.0 million and total stockholders’ equity of $125.0 million.

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The Corporation began to distribute quarterly cash dividends in the quarter ended September 30, 2002.

On July 30, 2020, the Corporation declared a quarterly cash dividend of $0.14 per share for

the Corporation’s shareholders of record at the close of business on August 20, 2020, which was paid on September 10, 2020.

On October 29, 2020, the Corporation declared a quarterly cash dividend of $0.14 per share for

the Corporation’s shareholders of record at the close of business on November 19, 2020, which was paid on December 10, 2020.

Future declarations or payments of dividends will be subject to the consideration of the Corporation’s Board of Directors,

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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;

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;

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;

to control operating costs and expenses;

our ability to control operating costs and

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;

difficulties in reducing risk associated with the loans on our balance

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;

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

our ability to retain key members of our senior management team;

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increased competitive pressures among financial services companies;

consumer spending, borrowing and savings habits;

changes in consumer spending, borrowing

and savings habits;

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

our ability to pay dividends on our common stock;

adverse changes in the securities

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;

adverse changes in the securities markets;

the inability of key

third-party providers to perform their obligations to us;

changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and

interpretation on accounting issues and details of the implementation of new accounting methods;

including as a result of the Coronavirus Aid, Relief, and Economic Security Act for 2020 (“CARES Act”), Interagency Statement and the Consolidated

Appropriations Act 2021;

war or terrorist activities;

and other economic, competitive, governmental, regulatory, and technological factors

affecting our operations, pricing, products and services, including the CARES Act, the

Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (“Interagency Statement”), and other risks detailed

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

and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services, including the CARES Act, Interagency Statement and

recent Covid-19 vaccination efforts, the Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (“Interagency Statement”), and other risks detailed in this

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

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

Forward-looking statements are based upon management’s

beliefs and assumptions at the time they are made.

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

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Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 - Organization and Significant Accounting Policies.

There have been no significant changes during the three months ended September 30, 2020 to the

There have been no significant changes during the six months ended December 31, 2020 to the

critical accounting policies as described in the Corporation’s 2020 Annual Report on Form 10-K for the period ended June 30, 2020.

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moderate growth, management recognizes that growth may be difficult as a result of weaknesses in general economic conditions.

Further, 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 150 basis point reductions in March 2020 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 for the remainder of 2020 and possibly longer.

Further, 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 150 basis point reductions in March 2020 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 for calendar 2021 and possibly longer.

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

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

The Corporation also adheres to the Families First Coronavirus Response Act (FFCRA), requires certain employers to provide employees with paid sick leave or

expanded family and medical leave for specified reasons related to COVID-19, providing additional flexibility to its employees to help navigate their individual challenges.

The Corporation also adheres to the Families First Coronavirus Response Act (FFCRA), which requires certain employers to provide employees with paid sick leave

or expanded family and medical leave for specified reasons related to COVID-19, providing additional flexibility to its employees to help navigate their individual challenges.

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

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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

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 restructured loans.

For commercial and consumer customers, the Corporation has provided relief options, including payment deferrals from 60 days to

180 days and fee waivers.

September 30, 2020, the Corporation has 44 single-family forbearance loans, with outstanding balances of $17.2 million or 1.94 percent of total loans, and one multi-family loan with an outstanding

balance of $455,000 or 0.05 percent of total loans that were modified in accordance with the CARES Act or Interagency Statement.

In addition, as of September 30, 2020, the Corporation had one pending request for payment relief for a single-family

loan totaling approximately $264,000.

The CARES Act and Interagency Statement provided guidance around the modification of loans as a result of the COVID-19 pandemic, and outlined, among other criteria, that short-term modifications of up to six months made on a good faith

basis to borrowers who were current as defined under the CARES Act and Interagency Statement prior to any relief are not restructured loans.

For commercial and consumer customers, the Corporation has provided relief options, including payment

deferrals from 60 days to 180 days and fee waivers.

On December 27, 2020, the Consolidated Appropriations Act 2021 (H.R.

133) was signed into law.

Among other purposes, this act provides coronavirus emergency response and relief, including extending

relief offered under the CARES Act related to restructured loans as a result of COVID-19 through January 1, 2022 or 60 days after the end of the national emergency declared by the President, whichever is earlier.

As of December 31, 2020, the Corporation has six single-family forbearance loans, with outstanding balances of $1.8 million or 0.21 percent of total loans, and two multi-family loans with

outstanding balances of $763,000 or 0.09 percent of total loans that were modified in accordance with the CARES Act and Interagency Statement.

In addition, as of December 31, 2020, the Corporation had two pending requests for payment relief for a

single-family loan of $684,000 and a multi-family loan of $1.1 million.

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

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

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

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

Forbearance Granted

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Total loan forbearance

As of September 30, 2020, certain characteristics of loans in forbearance are described below:

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

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

(Dollars In Thousands)

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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;

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.

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with off-balance sheet risk as it does for on-balance sheet instruments.

For a discussion on commitments and derivative financial instruments, see Notes 6 and 10 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

Comparison of Financial Condition at September 30, 2020 and June 30, 2020

Total assets increased $7.2 million, or one percent, to $1.18 billion at September 30, 2020 from June 30, 2020.

The increase was primarily attributable to an increase in investment securities,

partly offset by decreases in cash and cash equivalents and loans held for investment.

Total cash and cash equivalents, primarily excess cash deposited with the Federal Reserve Bank of San Francisco, decreased $49.5 million, or 43 percent, to $66.5 million at September 30, 2020 from

For a discussion on commitments and derivative financial instruments, see Note 6 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

Comparison of Financial Condition at December 31, 2020 and June 30, 2020

Total assets decreased $6.1 million, or one percent, to $1.17 billion at December 31, 2020 from June 30, 2020.

The decrease was primarily attributable to decreases in cash and cash equivalents and

loans held for investment, partly offset by an increase in investment securities.

Total cash and cash equivalents, primarily excess cash deposited with the Federal Reserve Bank of San Francisco, decreased $42.0 million, or 36 percent, to $74.0 million at December 31, 2020 from

$116.0 million at June 30, 2020.

The decrease in the total cash and cash equivalents was primarily attributable to the utilization of cash to fund purchases of investment securities.

Investment securities (held to maturity and available for sale) increased $75.0 million, or 61 percent, to $198.3 million at September 30, 2020 from $123.3 million at June 30, 2020.

was primarily the result of investment purchases totaling $84.9 million, partly offset by scheduled and accelerated principal payments on mortgage-backed securities during the

first three months of fiscal 2021.

For further analysis on investment securities, see Note 4 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Loans held for investment decreased $17.8 million, or two percent, to $885.0 million at September 30, 2020 from $902.8 million at June 30, 2020, primarily due to decreases in single-family and

multi-family loans.

During the first three months of fiscal 2021, the Corporation originated $39.1 million of loans held for investment, consisting primarily of single-family and multi-family loans and also purchased $8.9 million of multi-family

loans held for investment that are located throughout California.

Total loan principal payments during the first three months of fiscal 2021 were $66.3 million, up 31 percent from $50.8 million during the comparable period in fiscal 2020.

single-family loans held for investment balance at September 30, 2020 and June 30, 2020 was $288.8 million and $298.8 million, respectively, and represented approximately 33 percent of loans held for investment at both dates.

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

As of September 30, 2020:

The decrease in the total cash and cash equivalents was primarily attributable to the utilization of cash to fund purchases of investment securities and to payoff borrowings.

Investment securities (held to maturity and available for sale) increased $84.0 million, or 68 percent, to $207.3 million at December 31, 2020 from $123.3 million at June 30, 2020.

The increase was

primarily the result of purchases of investment securities totaling $106.4 million, partly offset by scheduled and accelerated principal payments on mortgage-backed securities during the first six months of fiscal 2021.

For further analysis on

investment securities, see Note 4 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Loans held for investment decreased $47.7 million, or five percent, to $855.1 million at December 31, 2020 from $902.8 million at June 30, 2020, primarily due to a decrease in single-family

During the first six months of fiscal 2021, the Corporation originated $66.1 million of loans held for investment, consisting primarily of single-family and multi-family loans and also purchased $11.5 million of multi-family loans held for

investment that are located throughout California.

Total loan principal payments during the first six months of fiscal 2021 were $125.9 million, up nine percent from $116.0 million during

the comparable period in fiscal 2020.

The single-family loans held for investment balance at December 31, 2020 and June 30, 2020 was $257.9 million and $298.8 million, respectively, and represented

approximately 30 percent and 33 percent of loans held for investment, respectively.

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

As of December 31, 2020:

California (1)

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Other than the Inland Empire.

Total deposits increased $11.7 million, or one percent, to $904.7 million at September 30, 2020 from $893.0 million at June 30, 2020, primarily due to increases in transaction accounts resulting

Total deposits increased $17.0 million, or two percent, to $910.0 million at December 31, 2020 from $893.0 million at June 30, 2020, primarily due to increases in transaction accounts resulting

primarily from government assistance programs related to the COVID-19 pandemic, partly offset by a decrease in higher cost time deposits.

Transaction accounts increased $20.7 million, or three percent, to $743.7 million at September 30, 2020 from

$723.0 million at June 30, 2020, while time deposits decreased $9.0 million, or five percent, to $161.0 million at September 30, 2020 from $170.0 million at June 30, 2020.

Transaction accounts increased $33.2 million, or five percent, to $756.2 million at December 31, 2020 from

$723.0 million at June 30, 2020, while time deposits decreased $16.2 million, or 10 percent, to $153.8 million at December 31, 2020 from $170.0 million at June 30, 2020.

The percentage of time deposits to total deposits decreased to 17 percent at

September 30, 2020 from 19 percent at June 30, 2020, primarily due to

a managed run-off of higher cost time deposits consistent with the reduction in the Bank’s funding needs during the first three months of fiscal 2021.

Total borrowings decreased $5.0 million, or four percent, to $136.0 million at September 30, 2020 as compared to $141.0 million at June 30, 2020, due to a repayment of $5.0 million of short-term

borrowings during the first quarter of fiscal 2021.

The borrowings are primarily comprised of long-term FHLB - San Francisco advances used for interest rate risk management purposes.

Total stockholders’ equity increased $683,000, or one percent, to $124.7 million at September 30, 2020 from $124.0 million at June 30, 2020, primarily as a result of year-to-date net income of $1.5

million and stock-based compensation of $274,000, partly offset by $1.0 million of quarterly cash dividends paid to shareholders during the first three months of fiscal 2021.

The Corporation did not repurchase any shares of its common stock under its

April 2020 plan during the three months ended September 30, 2020, but purchased 2,556 shares of distributed restricted stock in settlement of employee withholding tax obligations at an average cost of $11.68 per share.

Comparison of Operating Results for the Quarter ended September 30, 2020 and 2019

The Corporation’s net income for the first quarter of fiscal 2021 was $1.5 million, down $1.1 million or 42 percent from $2.6 million in the same period of fiscal 2020.

Compared to the same quarter

last year, the decrease was primarily attributable to lower net interest income and a higher provision for loan losses, partly offset by lower non-interest expenses.

Earnings for the quarter reflect the continued impact of the COVID-19 pandemic which

resulted in a substantial reduction in business activity or the closing of businesses in California.

The Corporation’s efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, increased to 75 percent for the first quarter of fiscal 2021

from 68 percent in the same period of fiscal 2020, primarily due to the decrease in net interest income.

Return on average assets was 0.50 percent in the first quarter of fiscal 2021, down from 0.95 percent in the same period last year.

average equity was 4.78 percent in the first quarter of fiscal 2021, down from 8.46 percent in the same period last year.

Diluted earnings per share for the first quarter of fiscal 2021 were $0.20, down from diluted earnings per share of $0.33 in the

same period last year.

December 31, 2020 from 19 percent at June 30, 2020, primarily due to a managed run-off of higher cost time deposits consistent with the reduction in the Bank’s funding needs during the first six months of fiscal 2021.

Total borrowings decreased $25.0 million, or 18 percent, to $116.0 million at December 31, 2020 as compared to $141.0 million at June 30, 2020, due to repayments totaling $25.0 million of long-term

and short-term borrowings during the first six months of fiscal 2021.

At December 31, 2020, borrowings are primarily comprised of long-term FHLB - San Francisco advances used for interest rate risk management purposes.

Total stockholders’ equity increased $1.0 million, or one percent, to $125.0 million at December 31, 2020 from $124.0 million at June 30, 2020, primarily as a result of year-to-date net income of

$2.7 million and stock-based compensation of $490,000, partly offset by $2.1 million of quarterly cash dividends paid to shareholders during the first six months of fiscal 2021.

The Corporation did not repurchase any shares of its common stock under

its April 2020 plan during the six months ended December 31, 2020, but purchased 3,061 shares of distributed restricted stock in settlement of employee withholding tax obligations at an average cost of $12.01 per share.

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

The Corporation’s net income for the second quarter of fiscal 2021 was $1.2 million, down $1.2 million or 51 percent from $2.4 million in the same period of fiscal 2020.

Compared to the same

quarter last year, the decrease was primarily attributable to lower a decline of $2.0 million or 21 percent in net interest income and a $370,000 or 27 percent decrease in non-interest income, partly offset by lower a $638,000 or eight percent

decline in non-interest expense.

For the first six months of fiscal 2021, the Corporation’s net income was $2.7 million, a decrease of $2.3 million, or 46 percent, from $5.0 million in the same period of fiscal 2020.

the same period last year, the decrease in earnings was primarily attributable to a $3.4 million decrease in net-interest income, partly offset by a $1.2 million decrease in salaries and employee benefits expense.

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

California during these periods.

The Corporation’s efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, increased to 80 percent for the second quarter of fiscal 2021

from 69 percent in the same period of fiscal 2020.

For the first six months of fiscal 2021, the Corporation’s efficiency ratio also increased to 78 percent from 68 percent for the same period of fiscal 2020.

Return on average assets was 0.40 percent in the second quarter of fiscal 2021, down 47 basis points from 0.87 percent in the same period last year.

For the first six months of fiscal 2021, return

on average assets was 0.45 percent, down 46 basis points from 0.91 percent in the same period last year.

Return on average equity was 3.77 percent in the second quarter of fiscal 2021, down from 7.81 percent in the same period last year.

For the first six months of fiscal 2021, return on average

equity was 4.27 percent, down from 8.13 percent for the same period last year.

Diluted earnings per share for the second quarter of fiscal 2021 were $0.16, down 48 percent from diluted earnings per share of $0.31 in the same period last year.

For the first six months of

fiscal 2021, diluted earnings per share were $0.36, down 45 percent from $0.65 in the same period last year.

Net Interest Income:

For the Quarter Ended September 30, 2020 and 2019.

Net interest income decreased by $1.4 million, or 15 percent, to $8.2 million for the first quarter of

For the Quarter Ended December 31, 2020 and 2019.

Net interest income decreased by $2.0 million, or 21 percent, to $7.6 million for the second quarter of

fiscal 2021 from $9.6 million in the same period in fiscal 2020, as a result of a lower net interest margin, partly offset by a higher average interest-earning asset balance.

The net interest margin decreased 93 basis points to 2.66 percent in the

first quarter of fiscal 2021 from 3.64 percent in the same period of fiscal 2020, primarily due to a decrease in the average yield for all categories of interest-earning assets attributable primarily to declines in interest rates on adjustable rate

instruments and interest-earning deposits following decreases to short-term rates over the last year, including the emergency 150 basis point reduction in the targeted Federal Funds Rate in March 2020 due to the COVID-19 pandemic.

weighted-average yield on interest-earning assets decreased by 90 basis points to 3.31 percent in the first quarter of fiscal 2021 from 4.21 percent in the same quarter last year, and the weighted-average cost of interest-bearing liabilities

decreased by 11 basis points to 0.52 percent for the first quarter of fiscal 2021 as compared to 0.63 percent in the same quarter last year.

The average balance of interest-earning assets increased $98.5 million, or nine percent, to $1.15 billion in

the first quarter of fiscal 2021 from $1.05 billion in the comparable period of fiscal 2020, reflecting increases in the average balance of investment securities and interest-earning deposits, partly offset by a decrease in the average balance of

loans receivable.

The average balance of interest-bearing liabilities increased by $97.5 million, or 10 percent, to $1.04 billion in the first quarter of fiscal 2021 from $942.5 million in the same quarter last year primarily reflecting increases in

the average balance of interest-bearing deposits and, to a lower extent, the average balance of borrowings.

Beginning in August 2019, the Federal Reserve reduced the targeted Federal Funds Rate by 25 basis points three times in 2019 and the 150 basis points during the quarter ended March 2020 to a range

second quarter of fiscal 2021 from 3.59 percent in the same period of fiscal 2020, primarily due to a decrease in the average yield for all asset categories.

The decrease of the average yield was due primarily to the declines in interest rates on

adjustable rate instruments and interest-earning deposits following decreases to short-term rates over the last year, including the emergency 150 basis point reduction in the targeted Federal Funds Rate in March 2020 due to the COVID-19 pandemic.

weighted-average yield on interest-earning assets decreased by 108 basis points to 3.10 percent in the second

quarter of fiscal 2021 from 4.18 percent in the same quarter last year, and the weighted-average cost of interest-bearing liabilities decreased by 16 basis points to 0.49 percent for the second

quarter of fiscal 2021 as compared to 0.65 percent in the same quarter last year.

The average balance of interest-earning assets increased $75.0 million, or seven percent, to $1.15 billion in the second quarter of fiscal 2021 from $1.07 billion in

the comparable period of fiscal 2020, reflecting increases in the average balance of investment securities and interest-earning deposits, partly offset by a decrease in the average balance of loans receivable.

The average balance of interest-bearing

liabilities increased by $72.9 million, or eight percent, to $1.04 billion in the second quarter of fiscal 2021 from $964.6 million in the same quarter last year primarily reflecting increases in the average balance of interest-bearing deposits and,

to a lesser extent, the average balance of borrowings.

For the Six Months Ended December 31, 2020 and 2019.

Net interest income decreased by $3.4 million, or 18 percent, to $15.8 million for the first six months

of fiscal 2021 from $19.2 million in the same period in fiscal 2020, as a result of a lower net interest margin, partly offset by a higher average interest-earning asset balance.

The net interest margin was 2.75 percent in the first six months of

fiscal 2021, a decrease of 87 basis points from 3.61 percent in the same period of fiscal 2020, primarily due to a decrease in the average yield on interest-earning assets, partly offset by a decrease in the average cost of interest-bearing

The weighted-average yield on interest-earning assets decreased by 99 basis points to 3.20 percent in the first six months of fiscal 2021 from 4.19 percent in the same quarter last year, and the weighted-average cost of interest-bearing

liabilities decreased by 14 basis points to 0.50 percent for the first six months of fiscal 2021 as compared to 0.64 percent in the same period last year.

The average balance of interest-earning assets increased $86.7 million, or eight percent, to

$1.15 billion in the first six months of fiscal 2021 from $1.06 billion in the comparable period of fiscal 2020, primarily reflecting increases in the average balance of investment securities and interest earning deposits, partly offset by a decrease

in the average balance of loans receivable.

The average balance of interest-bearing liabilities increased by $85.2 million, or nine percent, to $1.04 billion in the first six months of fiscal 2021 from $953.6 million in the same period last year

primarily reflecting an increase in the average balance of transaction accounts.

Beginning in August 2019, the Federal Reserve reduced the targeted Federal Funds Rate by 25 basis points three times in 2019 and by 150 basis points during the quarter ended March 2020 to a range

of 0.00% to 0.25%.

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and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown until the pandemic subsides, the Corporation expects its net interest income and net interest margin will continue to be adversely

affected in the remainder of calendar year 2020 and possibly longer.

affected in calendar year 2021 and possibly longer.

Interest Income:

For the Quarter Ended September 30, 2020 and 2019.

Total interest income decreased by $1.6 million, or 14 percent, to $9.5 million for the first quarter of

For the Quarter Ended December 31, 2020 and 2019.

Total interest income decreased by $2.3 million, or 21 percent, to $8.9 million for the second quarter of

fiscal 2021 as compared to $11.2 million for the same quarter of fiscal 2020.

The decrease was primarily due to decreases in interest income from all interest-earning assets.

Interest income on loans receivable decreased by $1.2 million, or 12 percent, to $8.9 million in the first quarter of fiscal 2021 from $10.1 million in the same quarter of fiscal 2020.

was due to a lower average yield and, to a much lower extent, a lower average balance.

The average loans receivable yield during the first quarter of fiscal 2021 decreased 47 basis points to 3.99 percent from 4.46 percent during the same quarter last

The decrease in the average yield on loans receivable was primarily attributable to loans repricing downward reflecting declines in the targeted Federal Funds Rate and the increase of net deferred loan costs to $466,000 in the first quarter of

fiscal 2021 from $160,000 in the same quarter of fiscal 2020.

The average balance of loans receivable decreased by $10.3 million, or one percent, to $893.0 million for the first quarter of fiscal 2021 from $903.3 million in the same quarter of fiscal

Interest income from investment securities decreased $136,000, or 22 percent, to $478,000 in the first quarter of fiscal 2021 from $614,000 for the same quarter of fiscal 2020.

The decrease was due to decreases in interest income from all interest-earning assets, mainly loans receivable.

Interest income on loans receivable decreased by $2.0 million, or 19 percent, to $8.3 million in the second quarter of fiscal 2021 from $10.3 million in the same quarter of fiscal 2020.

decrease was due to a lower average yield and, to a lesser extent, a lower average balance.

The average loans receivable yield during the second quarter of fiscal 2021 decreased 58 basis points to 3.84 percent from 4.42 percent during the same

quarter last year.

second quarter of fiscal 2021 from $12,000 in the same quarter of fiscal 2020.

A deferred loan fee of $378,000 was recognized in interest income as a result of a loan payoff in the second quarter of fiscal 2020 from a previously classified

non-performing loan that had been upgraded to pass and not replicated in the second quarter of fiscal

The average balance of loans receivable decreased by $65.6 million, or seven percent, to $868.5 million for the second quarter of fiscal 2021 from $934.1 million in the same quarter of fiscal

Interest income from investment securities decreased $119,000, or 21 percent, to $448,000 in the second quarter of fiscal 2021 from $567,000 for the same quarter of fiscal 2020.

This decrease was

attributable to a lower average yield, partly offset by a higher average balance.

The average investment securities yield decreased 134 basis points to 1.22 percent in the first quarter of fiscal 2021 from 2.56 percent in the same quarter of fiscal

The decrease in the average investment securities yield was primarily attributable to investment securities purchases at a lower average yield, a higher premium amortization between the quarters ($357,000 vs.

$130,000) and the downward

repricing of adjustable rate mortgage-backed securities.

The average balance of investment securities increased $60.3 million, or 63 percent, to $156.2 million in the first quarter of fiscal 2021 from $95.9 million in the same quarter of fiscal 2020.

The increase in the average balance of investment securities was primarily attributable to the investment purchases, partly offset by scheduled and accelerated principal payments on mortgage-backed securities.

The FHLB – San Francisco cash dividend received in the first quarter of fiscal 2021 was $100,000, down $43,000 or 30 percent from the same quarter of fiscal 2020.

The average investment securities yield decreased 174 basis points to 0.86 percent in the second quarter of fiscal 2021 from 2.60 percent in the same quarter of fiscal

The decrease in the average investment securities yield was primarily attributable to investment securities purchases at a lower average yield than the existing portfolio, a higher premium amortization between the quarters ($531,000 vs.

$97,000) and the downward repricing of adjustable rate mortgage-backed securities.

The average balance of investment securities increased $121.4 million, or 139 percent, to $208.5 million in the second quarter of fiscal 2021 from $87.1 million in the

same quarter of fiscal 2020.

The increase in the average balance of investment securities was primarily attributable to purchases of investment securities, partly offset by scheduled and accelerated principal payments on mortgage-backed securities.

The FHLB – San Francisco cash dividend received in the second quarter of fiscal 2021 was $100,000, down $45,000 or 31 percent from the same quarter of fiscal 2020.

The average balance of FHLB – San

Francisco stock in the first quarter of fiscal 2021 decreased slightly to $8.0 million from $8.2 million in the same quarter of fiscal 2020 and the average yield decreased to 5.02 percent in the first quarter of fiscal 2021 from 6.98 percent in the

Francisco stock in the second quarter of fiscal 2021 decreased slightly to $8.0 million from $8.2 million in the same quarter of fiscal 2020 and the average yield decreased to 5.02 percent in the second quarter of fiscal 2021 from 7.07 percent in the

same quarter last year.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was $24,000 in the first quarter of fiscal 2021, down 90 percent from $246,000

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was $17,000 in the second quarter of fiscal 2021, down 91 percent from

$189,000 in the same quarter of fiscal 2020.

The decrease was primarily due to a lower average yield, partly offset by a higher average balance.

The average yield earned on interest-earning deposits decreased 206 basis points to 0.10 percent in the first

The decrease was due to a lower average yield, partly offset by a higher average balance.

The average yield earned on interest-earning deposits decreased 152 basis points to 0.10 percent in the second

quarter of fiscal 2021 from 1.62 percent in the comparable quarter last year, due primarily to decreases in the targeted Federal Funds Rate over the last year.

The average balance of the interest-earning deposits in the first quarter of fiscal 2021

The average balance of the interest-earning deposits in the second quarter of fiscal 2021

was $64.9 million, an increase of $19.4 million or 43 percent, from $45.5 million in the same quarter of fiscal 2020.

For the Six Months Ended December 31, 2020 and 2019.

Total interest income decreased by $3.9 million, or 17 percent, to $18.4 million for the first six

months of fiscal 2021 from $22.3 million in the same period of fiscal 2020.

The decrease was due to decreases in interest income from all interest-earning assets, mainly loans receivable.

Loans receivable interest income decreased $3.1 million, or 15 percent, to $17.3 million in the first six months of fiscal 2021 from $20.4 million for the same period of fiscal 2020.

was due to a lower average yield and, to a lesser extent, a lower average balance.

The average loan yield during the first six months of fiscal 2021 decreased 52 basis points to 3.92 percent from 4.44 percent in the same period last year.

decrease in the average yield on loans receivable was primarily attributable to loans repricing downward reflecting declines in the targeted Federal Funds Rate and the increase of net deferred loan costs to $987,000 in the first six months of fiscal

2021 from $172,000 in the same period of fiscal 2020.

The higher net deferred loan costs was due primarily to higher loan prepayments during the periods and the prior period deferred loan fees of $520,000 which were recognized in interest income as a

result of three loan payoffs in the first six months of fiscal 2020 from a previously classified non-performing loans that had been upgraded to pass and not replicated in the first six months of fiscal 2021.

The average balance of loans receivable

decreased $38.0 million, or four percent, to $880.7 million for the first six months of fiscal 2021 from $918.7 million in the same period of fiscal 2020.

Interest income from investment securities decreased $255,000, or 22 percent, to $926,000 in the first six months of fiscal 2021 from $1.2 million for the same period of fiscal 2020.

This decrease

was attributable to a lower average yield, partly offset by a higher average balance.

The average investment securities yield decreased 156 basis points to 1.02 percent in the first six months of fiscal 2021 from 2.58 percent in the same period of

The decrease in the average investment securities yield was primarily attributable to a higher premium amortization ($890,000 compared to $227,000) and the purchases of investment securities during the last 12 months which had lower

average yields than the existing portfolio.

The average balance

of investment securities increased $90.8 million, or 99 percent, to $182.3 million in the first six months of fiscal 2021 from $91.5 million in the same period of fiscal 2020.

The increase in the

average balance of investment securities was primarily the result of purchases of mortgage-backed securities, partly offset by scheduled and accelerated principal payments on mortgage-backed securities.

The FHLB – San Francisco cash dividend received in the first six months of fiscal 2021 was $200,000, down 31 percent from $288,000 in the same period of fiscal 2020.

As a result, the average yield

decreased to 5.02 percent in the first six months of fiscal 2021 as compared to 7.03 percent in the comparable period last year.

Interest income from interest-earning deposits, primarily cash deposited at the Federal Reserve Bank of San Francisco, was $41,000 in the first six months of fiscal 2021, down 91 percent from

$435,000 in the same period of fiscal 2020.

The decrease was due to a lower average yield, partly offset by a higher average balance.

The average yield earned on interest-earning deposits decreased 179 basis points to 0.10 percent in the first six

months of fiscal 2021 from 1.89 percent in the comparable quarter last year, due primarily to decreases in the targeted Federal Funds Rate over the last year.

The average balance of the interest-earning deposits in the first six months of fiscal 2021

was $79.1 million, an increase of $34.1 million or 76 percent, from $45.0 million in the same period of fiscal 2020.

Interest Expense:

For the Quarter Ended September 30, 2020 and 2019.

Total interest expense decreased by $143,000 or 10 percent to $1.4 million in the first quarter of fiscal

For the Quarter Ended December 31, 2020 and 2019.

Total interest expense decreased by $311,000 or 20 percent to $1.3 million in the second quarter of fiscal

2021 from $1.6 million in the same quarter last year.

This decrease was attributable to lower deposit expense, partly offset by higher borrowing expense.

Interest expense on deposits for the first quarter of fiscal 2021 was $551,000 as compared to $776,000 for the same period last year, a decrease of $225,000, or 29 percent.

This decrease was primarily attributable to lower deposit expense.

Interest expense on deposits for the second quarter of fiscal 2021 was $468,000 as compared to $778,000 for the same period last year, a decrease of $310,000, or 40 percent.

The decrease in

interest expense on deposits was attributable to a lower average cost of deposits, partly offset by a higher average balance.

The average cost of deposits improved, decreasing by 13 basis points to 0.24 percent during the first quarter of fiscal 2021

The average cost of deposits improved, decreasing by 16 basis points to 0.21 percent during the second quarter of fiscal

2021 from 0.37 percent during the same quarter last year.

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time deposits.

The average balance of deposits increased $68.5 million, or eight percent, to $899.3 million during the quarter ended September 30, 2020 from $830.8 million during the same period last year.

The increase in the average balance was

primarily attributable to an increase in the transaction accounts, partly offset by a decrease in time deposits.

The average cost of transaction accounts also decreased by eight basis points.

The average balance of deposits increased $69.1 million, or eight percent, to $902.7 million during the quarter ended December 31, 2020 from $833.6 million

during the same period last year.

The increase in the average balance was primarily attributable to increases in transaction accounts resulting primarily from government assistance programs related to the COVID-19 pandemic, partly offset by a

decrease in higher cost time deposits.

Strategically, the Corporation has been promoting transaction accounts and competing less aggressively for time deposits.

balance of transaction accounts to total deposits in the first quarter of fiscal 2021 was 81 percent, compared to 77 percent in the same period of fiscal 2020.

Interest expense on borrowings, consisting primarily of FHLB – San Francisco advances, for the first quarter of fiscal 2021 increased $82,000, or 11 percent, to $802,000 from $720,000 for the same

period last year.

The average balance of transaction accounts to total deposits in the second quarter of

fiscal 2021 was 83 percent, compared to 78 percent in the same period of fiscal 2020.

Interest expense on borrowings, consisting primarily of FHLB – San Francisco advances, for the second quarter of fiscal 2021 decreased slightly to $803,000 from $804,000 for the same period last

The decrease in interest expense on borrowings was the result of a lower average cost, partly offset by a higher average balance.

The average cost of borrowings decreased seven basis points to 2.36 percent for the quarter ended December 31,

2020 from 2.43 percent in the same quarter last year.

The decrease in the average cost of borrowings was primarily due to new long-term borrowings obtained at a lower interest rate than prior borrowings, reflecting the decline in market rates over

the last year.

The average balance of borrowings increased $3.7 million, or three percent, to $134.8 million during the quarter ended December 31, 2020 from $131.1 million during the same period last year.

For the Six Months Ended December 31, 2020 and 2019.

Total interest expense decreased $454,000, or 15 percent to $2.6 million in the first six months of

fiscal 2021 from $3.1 million in the same period last year.

This decrease was attributable primarily to lower deposit expense, partly offset by higher borrowing expense.

Interest expense on deposits for the first six months of fiscal 2021 was $1.0 million as compared to $1.6 million in the same period last year, a decrease of $535,000 or 34 percent.

in interest expense on deposits was primarily attributable to a lower average cost and, partly offset by a higher average balance of deposits.

The decrease in the average cost of deposits was attributable primarily to a lower percentage of time

deposits to the total deposit balance and a 25 basis-point decrease in the average cost of time deposits.

The average cost of transaction accounts also decreased by seven basis points.

The average cost of deposits decreased 15 basis points to 0.22

percent during the first six months of fiscal 2021 from 0.37 percent during the same period last year.

The average balance of deposits increased $68.8 million, or eight percent, to $901.0 million during the six months ended December 31, 2020 from

$832.2 million during the same period last year.

The increase in the average balance was primarily attributable to increases in transaction accounts resulting primarily from government assistance programs related to the COVID-19 pandemic, partly

offset by a decrease in higher cost time deposits.

The average balance of transaction accounts to total deposits in the first six months of fiscal 2021 was 82 percent, compared to 77 percent in the same period of fiscal 2020.

Interest expense on borrowings, consisting primarily of FHLB – San Francisco advances, for the first six months of fiscal 2021 increased $81,000, or five percent, to $1.6 million from $1.5 million

in the same period last year.

The increase in interest expense on borrowings was the result of a higher average balance, partly offset by a lower average cost.

The average balance of borrowings increased $29.1 million, or 26 percent, to $140.7 million during

the quarter ended September 30, 2020 from $111.6 million during the same period last year.

The average cost of borrowings decreased 30 basis points to 2.26 percent for the quarter ended September 30, 2020 from 2.56 percent in the same quarter last

The decrease in the average cost of borrowings was primarily due to new long-term borrowings obtained at a lower interest rate than prior borrowings, reflecting the decline in market rates over the last year.

The following tables present the average balance sheets for the quarter ended September 30, 2020 and 2019, respectively:

The average balance of borrowings increased by $16.4 million, or 14 percent, to $137.8

million during the six months ended December 31, 2020 from $121.4 million during the same period last year, primarily due to new long-term borrowings at a lower average cost.

The average cost of borrowings decreased 18 basis points to 2.31 percent

for the six months ended December 31, 2020 from 2.49 percent in the same period last year.

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

Average Balance Sheets

Quarter Ended

September 30, 2020

December 31, 2020

Quarter Ended

September 30, 2019

December 31, 2019

(Dollars In Thousands)

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Return on average equity

Includes non-performing loans, as well as net deferred loan cost amortization of $466 thousand and $160 thousand for the quarter ended September 30, 2020 and 2019, respectively.

Includes the average balance of non interest-bearing checking accounts of $115.8 million and $81.3 million during the quarter ended September 30, 2020 and 2019, respectively.

Includes non-performing loans and net deferred loan cost amortization of $521 thousand and $12 thousand for the quarter ended December 31, 2020 and 2019, respectively.

Includes the average balance of non interest-bearing checking accounts of $111.7 million and $84.2 million during the quarter ended December 31, 2020 and 2019, respectively.

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

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

The following tables set forth the effects of changing rates and volumes on interest income and expense for the quarter ended September 30, 2020 and 2019, respectively.

Information is provided

with respect to the effects attributable to changes in volume (changes in volume multiplied by prior rate), the effects attributable to changes in rate (changes in rate multiplied by prior volume) and the effects attributable to changes that cannot

be allocated between rate and volume.

Six Months Ended

December 31, 2020

Six Months Ended

December 31, 2019

(Dollars In Thousands)

Interest-earning assets:

Loans receivable, net (1)

Investment securities

FHLB – San Francisco stock

Interest-earning deposits

Total interest-earning assets

Non interest-earning assets

Interest-bearing liabilities:

Checking and money market accounts (2)

Savings accounts

Time deposits

Total deposits

Total interest-bearing liabilities

Non interest-bearing liabilities

Total liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

Net interest income

Interest rate spread (3)

Net interest margin (4)

Ratio of average interest-earning assets to

average interest-bearing liabilities

Return on average assets

Return on average equity

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

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

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

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

The following tables set forth the effects of changing rates and volumes on interest income and expense for the quarter and six months ended December 31, 2020 and 2019, respectively.

is provided with respect to the effects attributable to changes in volume (changes in volume multiplied by prior rate), the effects attributable to changes in rate (changes in rate multiplied by prior volume) and the effects attributable to changes

that cannot be allocated between rate and volume.

Rate/Volume Variance

Quarter Ended September 30, 2020 Compared

To Quarter Ended September 30, 2019

Quarter Ended December 31, 2020 Compared

To Quarter Ended December 31, 2019

Increase (Decrease) Due to

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Net (decrease) increase in net interest income

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

Six Months Ended December 31, 2020 Compared

To Six Months Ended December 31, 2019

Increase (Decrease) Due to

(In Thousands)

Interest-earning assets:

Loans receivable (1)

Investment securities

FHLB – San Francisco stock

Interest-bearing deposits

Total net change in income on interest-earning assets

Interest-bearing liabilities:

Checking and money market accounts

Savings accounts

Time deposits

Total net change in expense on interest-bearing liabilities

Net (decrease) increase in net interest income

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

Provision (Recovery) for Loan Losses:

For the Quarter Ended September 30, 2020 and 2019.

During the first quarter of fiscal 2021, the Corporation recorded a provision for loan losses of

For the Quarter Ended December 31, 2020 and 2019.

During the second quarter of fiscal 2021, the Corporation recorded a provision for loan losses of $39,000,

as compared to a recovery from the allowance for loan losses of $22,000 in the same period of fiscal 2020.

The increase in provision for loan losses during this quarter was primarily attributable to an increase in the qualitative component

established in our allowance for loan losses methodology in response to the deteriorating economic conditions and probable loan losses, including the potential effects from higher forecasted unemployment rates and lower gross domestic product, as

well as the impact on other economic conditions on the U.S.

The increase in provision for loan losses during this quarter reflects an increase in non-performing loans partly offset by the decrease in

loan balances.

For the Six Months Ended December 31, 2020 and 2019.

During the first six months of fiscal 2021, the Corporation recorded a provision for loan losses of

$259,000, as compared to a recovery from the allowance for loan losses of $203,000 in the same period of fiscal 2020.

The increase in provision for loan losses during this six-month period was primarily attributable to an increase in the qualitative

component established in our allowance for loan losses methodology in response to the deteriorating economic conditions and probable loan losses, including the potential effects from higher forecasted unemployment rates and lower gross domestic

product, as well as the impact on other economic conditions on the U.S.

and global economies from COVID-19.

Non-performing loans, net of the allowance for loan losses and fair value adjustments decreased eight percent to $4.5 million at September 30, 2020 from $4.9 million at June 30, 2020 and $5.2

million at September 30, 2019.

Net loan recoveries in the first quarter of fiscal 2021 were $5,000 or 0.00 percent (annualized) of average loans receivable, as compared to net loan recoveries of $34,000 or 0.02 percent (annualized) of average loans

Non-performing loans, net of the allowance for loan losses and fair value adjustments increased 109 percent to $10.3 million at December 31, 2020 from $4.9 million at June 30, 2020 and $3.4 million

at December 31, 2019.

Net loan recoveries in the second quarter of fiscal 2021 were $9,000 or 0.00 percent (annualized) of average loans receivable, as compared to net loan recoveries of $14,000 or 0.01 percent (annualized) of average loans

receivable in the same quarter of fiscal 2020.

Total classified loans, net of the allowance for loan losses and fair value adjustments, were $10.6 million at September 30, 2020 as compared to $14.1 million at June 30, 2020 and $13.0 million at

September 30, 2019.

Classified loans net of the allowance for loan losses and fair value adjustments at September 30, 2020 were comprised of $6.0 million of loans in the special mention category and $4.6 million of loans in the substandard category

as compared to $8.6 million of loans in the special mention category and $5.5 million of loans in the substandard category at June 30, 2020.

For the first six months of fiscal 2021, the net loan recoveries were $14,000 or 0.00 percent (annualized) of average loans receivable as compared to net loan recoveries of $48,000 or 0.01 percent

(annualized) of average loans receivable in the same period of fiscal 2020.

Total classified loans, net of the allowance for loan losses and fair value adjustments, were $14.9 million at December 31, 2020 as compared to $14.1 million at June 30, 2020

and $13.7 million at December 31, 2019.

Classified loans net of the allowance for loan losses and fair value adjustments at December 31, 2020 were comprised of $4.6 million of loans in the special mention category and $10.3 million of loans in the

substandard category as compared to $8.6 million of loans in the special mention category and $5.5 million of loans in the substandard category at June 30, 2020.

The allowance for loan losses was determined through quantitative and qualitative adjustments including the Bank's charge-off experience and reflects the impact on loans held for investment from

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See related discussion of “Asset Quality.”

At September 30, 2020, the allowance for loan losses was $8.5 million, comprised of collectively evaluated allowances of $8.4 million and individually evaluated allowances of $84,000;

At December 31, 2020, the allowance for loan losses was $8.5 million, comprised of collectively evaluated allowances of $7.9 million and individually evaluated allowances of $570,000;

in comparison

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The allowance for loan losses as a percentage of gross loans held for

investment was 0.95 percent at September 30, 2020 as compared to 0.91 percent at June 30, 2020.

investment was 0.99 percent at December 31, 2020 as compared to 0.91 percent at June 30, 2020.

Management considers, based on currently available information, the allowance for loan losses sufficient to absorb potential losses inherent in loans held

4 unchanged sentences

Non-Interest Income:

For the Quarter Ended September 30, 2020 and 2019.

Total non-interest income increased $89,000, or eight percent, to $1.2 million for the quarter ended

September 30, 2020 from $1.1 million for the same period last year.

The increase was primarily attributable to an increase in loan servicing fees, partly offset by a decrease in deposit account fees.

Loan servicing and other fees increased $272,000 or 205 percent to $405,000 in the first quarter of fiscal 2021 from $133,000 in the same quarter last year.

For the Quarter Ended December 31, 2020 and 2019.

Total non-interest income decreased $370,000, or 28 percent, to $974,000 for the quarter ended December

31, 2020 from $1.3 million for the same period last year.

The decrease was primarily attributable to decreases in loan servicing and other fees and deposit account fees.

Loan servicing and other fees decreased $247,000 or 67 percent to $120,000 in the second quarter of fiscal 2021 from $367,000 in the same quarter last year.

The decrease was due primarily to a

decrease in prepayment fees resulting from lower loan payoffs, particularly in multi-family loans.

Deposit account fees decreased $122,000 or 27 percent to $329,000 in the second quarter of fiscal 2021 from $451,000 in the same quarter last year.

The decrease was due primarily to certain fees

that were waived related to accounts impacted by the COVID-19 pandemic and reduced transactions reflecting changes in spending habits due to the COVID-19 pandemic.

For the Six Months Ended December 31, 2020 and 2019.

Total non-interest income decreased $281,000, or 12 percent, to $2.1 million for the six months ended

December 31, 2020 from $2.4 million for the same period last year.

The decrease was primarily attributable to a decrease in deposit account fees.

Loan servicing and other fees increased $25,000 or five percent to $525,000 in the first six months of fiscal 2021 from $500,000 in the same period last year.

The increase was due primarily to an

increase in prepayment fees resulting from higher loan payoffs, particularly in multi-family loans.

Deposit account fees decreased $137,000 or 31 percent to $310,000 in the first quarter of fiscal 2021 from $447,000 in the same quarter last year.

Deposit account fees decreased $259,000 or 29 percent to $639,000 in the first six months of fiscal 2021 from $898,000 in the same period last year.

The decrease was due primarily to certain fees

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Non-Interest Expense:

For the Quarter Ended September 30, 2020 and 2019.

Total non-interest expense in the quarter ended September 30, 2020 was $7.0 million, a decrease of

$253,000, or three percent, as compared to $7.2 million in the quarter ended September 30, 2019.

The decrease was primarily attributable to a decrease in salaries and employee benefits expenses, partly offset by higher deposit insurance premiums and

regulatory assessment expenses and other operating expenses.

Salaries and employee benefits expense decreased $542,000, or 11 percent, to $4.4 million in the first quarter of fiscal 2021 from $5.0 million in the same period of fiscal 2020.

For the Quarter Ended December 31, 2020 and 2019.

Total non-interest expense in the quarter ended December 31, 2020 was $6.9 million, a decrease of

$638,000, or eight percent, as compared to $7.6 million in the quarter ended December 31, 2019.

The decrease was primarily attributable to a decrease in salaries and employee benefits expenses and other operating expenses, partly offset by higher

deposit insurance premiums and regulatory assessment expenses.

Salaries and employee benefits expense decreased $698,000, or 14 percent, to $4.3 million in the second quarter of fiscal 2021 from $5.0 million in the same period of fiscal 2020.

The decrease was

due primarily to fewer employees and lower employee bonus and other incentive payments.

Total loan originations and purchases decreased $45.4 million, or 49 percent, to $48.0 million in the first quarter of fiscal 2021 from $93.4 million in the same

Total loan originations and purchases decreased $52.0 million, or 64 percent, to $29.6 million in the second quarter of fiscal 2021 from $81.6 million in the same

quarter of fiscal 2020.

Total full-time equivalent employees (“FTE”) were 163 at September 30, 2020, down 25 FTE or 13 percent from 188 FTE at September 30, 2019.

Deposit insurance premiums and regulatory assessment expenses were $134,000 in the first quarter of fiscal 2021, in contrast to a recovery/credit of $16,000 in the same quarter of fiscal 2020.

increase was due primarily to FDIC insurance premium credits applied in the first quarter of fiscal 2020, which were not replicated in the first quarter of fiscal 2021.

Other non-interest expenses increased $116,000, or 20 percent, to $703,000 in the first quarter of fiscal 2021 from $587,000 in the same quarter of fiscal 2020.

The increase in other non-interest

expenses was primarily attributable to the $296,000 reversion of litigation expenses in the first quarter of fiscal 2020, which was not replicated this quarter, partly offset by reduced expenses reflecting lower loan originations and purchases.

Provision (Benefit) for Income Taxes:

Total full-time equivalent employees (“FTE”) were 166 at December 31, 2020, down 18 FTE or 10 percent from 184 FTE at December 31, 2019.

Deposit insurance premiums and regulatory assessment expenses were $141,000 in the second quarter of fiscal 2021, up 139 percent from $59,000 in the same quarter of fiscal 2020.

The increase was

due primarily to FDIC insurance premium credits applied in the second quarter of fiscal 2020, which were not replicated in the second quarter of fiscal 2021.

Other non-interest expenses decreased $104,000, or 13 percent, to $707,000 in the second quarter of fiscal 2021 from $811,000 in the same quarter of fiscal 2020.

The decrease in other non-interest

expenses was primarily attributable to reduced expenses reflecting lower loan originations and purchases.

For the Six Months Ended December 31, 2020 and 2019.

Total non-interest expense in the six months ended December 31, 2020 was $13.9 million, a decrease of

$891,000, or six percent, as compared to $14.8 million in the six months ended

December 31, 2019.

The decrease was primarily attributable to a decrease in salaries and employee benefits expenses, partly offset by higher deposit insurance premiums and regulatory assessment

Salaries and employee benefits expense decreased $1.3 million, or 13 percent, to $8.7 million in the first six months of fiscal 2021 from $10.0 million in the same period of fiscal 2020.

decrease was due primarily to fewer employees and lower employee bonus and other incentive payments.

Total loan originations and purchases decreased $97.4 million, or 56 percent, to $77.6 million in the first six months of fiscal 2021 from $175.0

million in the same period of fiscal 2020.

Deposit insurance premiums and regulatory assessment expenses were $275,000 in the first six months of fiscal 2021, up 540 percent from $43,000 in the same period of fiscal 2020.

The increase was

due primarily to FDIC insurance premium credits applied in the first six months of fiscal 2020, which were not replicated in the same period of fiscal 2021.

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

2 unchanged sentences

are fluctuations in the effective income tax rate from period to period based on the relationship of net permanent differences to income before tax.

For the Quarter Ended September 30, 2020 and 2019.

The Corporation’s income tax provision was $635,000 for the first quarter of fiscal 2021, a 39 percent

For the Quarter Ended December 31, 2020 and 2019.

The Corporation’s income tax provision was $481,000 for the second quarter of fiscal 2021, a 54 percent

decrease from $1.1 million in the same quarter last year, primarily reflecting lower pre-tax income.

The effective income tax rate for the quarter ended September 30, 2020 was 29.95 percent as compared to 28.73 percent for the quarter ended September

The Corporation believes that the effective income tax rate applied in the first quarter of fiscal 2021 reflects its current income tax obligations.

The effective income tax rate for the quarter ended December 31, 2020 was 29.0 percent as compared to 30.5 percent for the quarter ended December 31,

The Corporation believes that the effective income tax rate applied in the second quarter of fiscal 2021 reflects its current income tax obligations.

For the Six Months Ended December 31, 2020 and 2019.

The Corporation’s income tax provision was $1.1 million for the first six months of fiscal 2021, a 47

percent decrease from $2.1 million in the same period last year, primarily reflecting lower pre-tax income.

The effective income tax rate for the six months ended December 31, 2020 and 2019 was 29.6 percent at both periods.

The Corporation believes

that the effective income tax rate applied in the first six months of fiscal 2021 reflects its current income tax obligations.

Asset Quality

Non-performing loans, net of the allowance for loan losses and fair value adjustments, consisting of loans with collateral located in California, was $4.5 million at September 30, 2020, down

$392,000 or eight percent from $4.9 million at June 30, 2020.

Non-performing loans as a percentage of loans held for investment at September 30, 2020 was 0.51%, improving from 0.55% at June 30, 2020.

The non-performing loans at September 30, 2020

are comprised of 17 single-family loans ($4.5 million) and one commercial business loan ($27,000).

No interest accruals were made for loans that were past due 90 days or more or if the loans were deemed non-performing.

As of September 30, 2020, total restructured loans decreased $194,000, or seven percent, to $2.4 million from $2.6 million at June 30, 2020.

At both September 30, 2020 and June 30, 2020, all of

these restructured loans were classified as non-performing.

As of September 30, 2020, all of the restructured loans have a current payment status, consistent with their modified payment terms;

this compares to $1.2 million, or 44 percent, of

restructured loans that had a current payment status, consistent with their modified payment terms as of June 30, 2020.

There was no real estate owned at both September 30, 2020 and June 30, 2020.

Non-performing assets, which includes non-performing loans and real estate owned, if any, decreased $392,000 or eight percent to $4.5 million or 0.38 percent of total assets at September 30, 2020

from $4.9 million or 0.42 percent of total assets at June 30, 2020.

Restructured loans which are performing in accordance with their modified terms and are not otherwise classified non-accrual are not included in non-performing assets.

analysis on non-performing loans and restructured loans, see Note 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

Non-performing assets were comprised solely of non-performing loans at both December 31, 2020 and June 30, 2020.

Non-performing loans, net of the allowance for loan losses and fair value

adjustments, consisting of loans with collateral located in California, was $10.3 million at December 31, 2020, up 109 percent from $4.9 million at June 30, 2020.

Non-performing loans as a percentage of loans held for investment at December 31, 2020

was 1.20%, up from 0.55% at June 30, 2020.

The non-performing loans at December 31, 2020 are comprised of 33 single-family loans.

No interest accruals were made for loans that were past due 90 days or more or if the loans were deemed

non-performing.

As of December 31, 2020, total restructured loans increased 215 percent, to $8.2 million from $2.6 million at June 30, 2020.

At both December 31, 2020 and June 30, 2020, all of these restructured

loans were classified as non-performing.

As of December 31, 2020, all of the restructured loans have a current payment status, consistent with their modified payment terms;

this compares to $1.2 million, or 44 percent, of restructured loans that had

a current payment status, consistent with their modified payment terms as of June 30, 2020.

Restructured loans which are performing in accordance with their modified terms and are not otherwise classified non-accrual are not included in

non-performing assets.

For further analysis on non-performing loans and restructured loans, see Note 5 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

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

A decline in real estate values subsequent to the time of origination of the Corporation’s real estate secured loans could result in higher loan delinquency levels, foreclosures, provisions for

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The Corporation generally does not

update the loan-to-value ratio on its loans held for investment by obtaining new appraisals or broker price opinions (nor does the Corporation intend to do so in the future as a result of the costs and inefficiencies associated with

completing the task) unless a specific loan has demonstrated deterioration in which case individually evaluated allowances are established, if required.

task) unless a specific loan has demonstrated deterioration in which case individually evaluated allowances are established, if required.

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

(In Thousands)

At September 30,

At December 31,

Loans on non-accrual status (excluding restructured loans):

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any, at the dates indicated:

At September 30,

At December 31,

(Dollars In Thousands)

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Loan Volume Activities

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

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

For the Quarter Ended

September 30,

For the Six Months Ended

(In Thousands)

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Commercial real estate

Consumer loans

Total loans originated for investment

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The primary investing activity of the Corporation is the origination and purchase of loans held for investment.

During the first three months of fiscal 2021 and 2020, the Corporation originated

and purchased loans held for investment of $48.0 million and $93.4 million, respectively.

At September 30, 2020, the Corporation had loan origination commitments totaling $7.7 million, undisbursed lines of credit totaling $928,000 and undisbursed

During the first six months of fiscal 2021 and 2020, the Corporation originated and

purchased loans held for investment of $77.6 million and $175.0 million, respectively.

At December 31, 2020, the Corporation had loan origination commitments totaling $12.3 million, undisbursed lines of credit totaling $942,000 and undisbursed

construction loan funds totaling $2.7 million.

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

During the first six months of fiscal 2021 and 2020, total loan repayments were $125.9

million and $116.0 million, respectively.

The Corporation’s primary financing activity is gathering deposits.

During the first three months of fiscal 2021, the net increase in deposits was $11.7 million or one percent, primarily due to an

increase in transaction accounts, partly offset by a decrease in time deposits.

Time deposits decreased $9.0 million, or five percent, to $161.0 million at September 30, 2020 from $170.0

million at June 30, 2020.

At September 30, 2020, time deposits with a principal amount of $250,000 or less and scheduled to mature in one year or less were $71.4 million and total time deposits

with a principal amount of more than $250,000 and scheduled to mature in one year or less were $14.6 million.

Historically, the Corporation has been able to retain a significant percentage of its time deposits as they mature.

During the first six months of fiscal 2021, the net increase in deposits was $17.0 million or two percent, due to an increase in

transaction accounts, partly offset by a decrease in time

Time deposits decreased $16.2 million, or 10 percent, to $153.8 million at December 31, 2020 from $170.0 million at June 30, 2020.

At December 31, 2020, time deposits with a principal

amount of $250,000 or less and scheduled to mature in one year or less were $68.6 million and total time deposits with a principal amount of more than $250,000 and scheduled to mature in one year or less were $15.1 million.

Historically, the

Corporation has been able to retain a significant percentage of its time deposits as they mature.

The Corporation must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to

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

At September 30, 2020, total cash and cash equivalents were $66.5 million, or six percent of

At December 31, 2020, total cash and cash equivalents were $74.0 million, or six percent of

total assets.

Depending on market conditions and the pricing of deposit products and FHLB – San Francisco advances, the Bank may rely on FHLB – San Francisco advances for part of its liquidity needs.

As of September 30, 2020, total borrowings were

As of December 31, 2020, total borrowings were

$116.0 million and the financing availability at FHLB – San Francisco was limited to 35 percent of total assets;

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Bank has secured a $176.2 million discount window facility at the Federal Reserve Bank of San Francisco, collateralized by investment securities with a fair market value of $187.4 million.

As of September 30, 2020, the Bank also has a borrowing

As of December 31, 2020, the Bank also has a borrowing

arrangement in the form of a federal funds facility with its correspondent bank for $17.0 million that matures on June 30, 2021 which the Bank intends to renew upon maturity.

The Bank had no advances under its correspondent bank or discount window

facility as of September 30, 2020.

facility as of December 31, 2020.

Regulations require thrifts to maintain adequate liquidity to assure safe and sound operations.

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

average deposits and borrowings) for the quarter ended September 30, 2020 increased to 25.4 percent from 23.1 percent for the quarter ended June 30, 2020.

average deposits and borrowings) for the quarter ended December 31, 2020 increased to 27.7 percent from 23.1 percent for the quarter ended June 30, 2020.

The Bank, as a federally-chartered, federally insured savings bank, is subject to the capital requirements established by the OCC.

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

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

The Bank was categorized "well-capitalized" at September 30, 2020 under the regulations of the OCC.

At December 31, 2020, the Bank exceeded all regulatory capital requirements.

The Bank was categorized "well-capitalized" at December 31, 2020 under the regulations of the OCC.

As a bank holding

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Provident Savings Bank, F.S.B.:

As of September 30, 2020

As of December 31, 2020

Tier 1 leverage capital (to adjusted average assets)

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order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions.

As of September 30, 2020, the capital

As of December 31, 2020, the capital

conservation buffer required a minimum of 2.50% of risk weighted assets.

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the effect thereof would cause its net worth to be reduced below the regulatory capital requirements imposed by federal regulation.

In the first three months of fiscal 2020, the Bank paid a cash dividend of $5.0 million to the Corporation, while the

In the first six months of fiscal 2021, the Bank paid a cash dividend of $5.0 million to the Corporation, while the

Corporation paid $2.1 million of cash dividends to its shareholders.

Supplemental Information

September 30,

Loans serviced for others (in thousands)

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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-Q

Item 2. Management’s Discussion and Analysis