What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-09-02 compared with 2021-09-03 · 225 added, 252 removed, 822 unchanged (37% of the section changed)

23 unchanged sentences

The Bank contributed $40,000 to the Foundation in both fiscal 2022 and 2021.

Since the novel coronavirus of 2019 (“COVID-19”) was declared a pandemic in March 2020, COVID-19 has significantly affected our communities, customers, and operations.

Efforts to limit the spread of COVID-19 led to shelter-in-place orders, the temporary closure of non-essential businesses, travel restrictions, supply chain disruptions and prohibitions on public gatherings, among other things, throughout many parts of the United States and, in particular, the markets in which we operate.

Although many of these restrictions have been lifted and society has begun to re-open, the COVID-19 pandemic is ongoing and additional uncertainties exist which may continue to impact our customers, employees and vendors;

the financial services and banking industry;

and the economy as a whole.

These uncertainties include, among other things, the extent and severity of the spread of COVID-19 including COVID-19 variants, the length of the outbreak, the extent of distribution and efficacy of vaccines, the extent of lifting of pandemic-related restrictions including social distancing and the use of facemasks, and future actions taken by governmental authorities to contain the outbreak or to mitigate its impact.

In light of the uncertainties and continuing developments related the COVID-19 pandemic, the ultimate adverse impact of COVID-19 cannot be reliably estimated at this time, but it has been and is expected to continue to be material.

The Corporation is actively monitoring and responding to the effects of the novel coronavirus of 2019 (“COVID-19”) pandemic.

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

During the COVID-19 pandemic, the health, safety and well-being of its customers, employees and communities and providing uninterrupted access to services are top priorities for the Corporation.

As of June 30, 2022, all banking branches are open with normal hours and substantially all employees have returned to their routine working environments.

The Bank will continue to monitor branch access and occupancy levels in relation to cases and close contact scenarios and follow governmental restrictions and public health authority guidelines.

Subsequent Event

On July 28, 2022, the Corporation announced that the Corporation’s Board of Directors declared a cash dividend of $0.14 per share.

Shareholders of the Corporation’s common stock at the close of business on August 12, 2021 were entitled to receive the cash dividend, which was paid on September 2, 2021.

Shareholders of the Corporation’s common stock at the close of business on August 18, 2022 were entitled to receive the cash dividend, which will be payable on September 8, 2022.

The Bank is headquartered in Riverside, California and operates 12 full-service banking offices in Riverside County and one full-service banking office in San Bernardino County.

Management considers Riverside and Western San Bernardino counties to be the Bank’s primary market for deposits.

The Bank is the largest independent community bank headquartered in Riverside County and it has the tenth largest deposit market share of all banks and the second largest of community banks in Riverside County.

The Bank is the largest independent community bank headquartered in Riverside County and it has the eleventh largest deposit market share of all banks and the third largest of community banks in Riverside County.

The large geographic area encompassing Riverside and San Bernardino counties is referred to as the “Inland Empire.” According to the 2020 Census Bureau population statistics, Riverside and San Bernardino Counties have the fourth and fifth largest populations in California, respectively.

1 unchanged sentence

Riverside and Western San Bernardino counties are relatively densely populated and are within the greater Los Angeles metropolitan area.

According to the United States of America (“U.S.”) Department of Labor, Bureau of Labor Statistics, the unemployment rate for both the Inland Empire and the State of California in June 2021 was 7.9%, compared to 5.9% nationwide.

This elevated level of unemployment rate was due primarily to the impact of the COVID-19 pandemic, although it was much lower as compared to the unemployment data reported in June 2020, which was 13.3% in the Inland Empire, 14.1% in California and 11.1% nationwide.

Recent forecasts suggest that the Inland Empire economy is regaining 62,400 jobs in calendar 2021, up 4.15% from 2020.

The job gain is expected to be due to the reopening of businesses in the food and beverages, retail, hotel and entertainment sectors as well as growth in logistics, construction and health care.

Assuming this job growth, the Inland Empire job level would be at 1,564,300 jobs or just 3,200 jobs or 0.2 percent below its level at the end of 2019 (Source:

Inland Empire Quarterly Economic Report - May 2021).

California home sales in June 2021 were up 28.3% percent from a year ago, when 339,910 homes were sold on an annualized basis.

The June 2021 statewide and Inland Empire median home price was $819,630 and $525,000, up 30.9% and 28% from June 2020, respectively.

According to the United States of America (“U.S.”) Department of Labor, Bureau of Labor Statistics, the unemployment rate in June 2022 for the Inland Empire was 4.0% and in the State of California was 4.2%, compared to 3.6% nationwide, reflecting improvement in the economy attributable to the reduced impact of the COVID-19 pandemic.

The unemployment data reported in June 2021 was 7.9% in both the Inland Empire and California and 5.9% nationwide.

Business activity in the Inland Empire has continued to grow, and in the context of recent increasingly uncertain economic environment, stands in stark contrast to growth trends in the nation.

In the first quarter of calendar 2022, business activity in the Inland Empire expanded by 4.7% compared to 6.4% in the fourth quarter of calendar 2021.

Although regional growth has slowed somewhat, it unambiguously outperformed the U.S.

Gross Domestic Product, which declined by 1.5% in the first quarter of calendar 2022.

Over calendar year 2022, the Inland Empire’s business activity is forecast to rise between 2.5% and 3.5%.

Employment has continued to expand and the workforce in the region is larger than it was before the pandemic, something that is not true for the state as a whole.

University of California – Riverside School of Business – Inland Empire Business Activity Index – Summer 2022 Edition).

California home sales were 344,970 in June 2022, down 20.9% percent from June 2021, when 436,020 homes were sold on an annualized basis.

The June 2022 statewide and Inland Empire median home price was $863,790 and $585,000, up 5.4% and up 11.4% from June 2021, respectively.

California Association of Realtors – July 18, 2022 News Release).

11 unchanged sentences

The information contained on that website is not included as a part of, or incorporated by reference into, this Form 10-K.

Other than an investor’s own internet access charges, the Corporation makes available free of charge through that website the Corporation’s annual report, quarterly reports on Form

10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after these materials have been electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).

Other than an investor’s own internet access charges, the Corporation makes available free of charge through that website the Corporation’s annual report, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after these materials have been electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).

In addition, the SEC maintains a website that contains reports, proxy and information statements, and other information regarding companies that file electronically with the SEC.

2 unchanged sentences

The lending activity of the Bank is comprised of the origination of single-family, multi-family and commercial real estate loans and, to a lesser extent, construction, commercial business, consumer and other mortgage loans to be held for investment.

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

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

The Bank’s net loans held for investment were $940.0 million at June 30, 2022, representing 79.2% of consolidated total assets.

6 unchanged sentences

two multi-family loans totaling $4.4 million to one group of borrowers;

one multi-family loan totaling $4.3 million to one group of borrowers;

and one multi-family loan and one commercial real estate loan totaling $4.3 million to one group of borrowers.

three multi-family loans totaling $4.3 million to one group of borrowers;

and one multi-family loan totaling $4.2 million to one group of borrowers.

The real estate collateral for these loans is located in Southern and Northern California.

17 unchanged sentences

Demand loans, loans having no stated schedule of principal payments, loans having no stated maturity, and overdrafts are reported as becoming due within one year.

The table does not include any estimate of prepayments, which can significantly

shorten the average life of loans held for investment and may cause the Bank’s actual principal payment experience to differ materially from that shown below:

The table does not include any estimate of prepayments, which can significantly shorten the average life of loans held for investment and may cause the Bank’s actual principal payment experience to differ materially from that shown below:

(In Thousands)

34 unchanged sentences

This compares to single-family loan originations of $120.7 million and purchases of $5.4 million during fiscal 2021.

At June 30, 2021, total single-family loans held for investment decreased 10% to $268.3 million, or 31.5% of the total loans held for investment, from $298.8 million, or 33.0% of the total loans held for investment, at June 30, 2020.

The decrease in the single-family loans in fiscal 2021 was primarily attributable to loan principal payments that exceeded new loans originated and purchased for investment.

At June 30, 2022, total single-family loans held for investment increased 41% to $378.2 million, or 40.3% of the total loans held for investment, from $268.3 million, or 31.5% of the total loans held for investment, at June 30, 2021.

The increase in the single-family loans in fiscal 2022 was primarily attributable to new loans originated and purchased for investment that exceeded loan principal payments.

During fiscal 2022, the Bank had net recoveries of $439,000 in non-performing single-family loans, as compared to net recoveries of $31,000 during fiscal 2021.

At June 30, 2021 and 2020, total non-performing single-family loans were $7.9 million and $4.9 million, net of allowances and charge-offs, and $0 and $219,000 were past due 30 to 89 days, respectively.

The Bank has underwriting standards that generally conform with the standards of the governmental sponsored entities (“GSE”) which include Fannie Mae and Freddie Mac.

At June 30, 2022 and 2021, total non-performing single-family loans were $1.4 million and $7.9 million, net of allowances and charge-offs, and there were no loans past due 30 to 89 days at both dates.

The Bank has underwriting standards that generally conform with the standards of the government sponsored entities (“GSE”) which include Fannie Mae and Freddie Mac.

Mortgage insurance is usually required for all loans exceeding 80% loan-to-value (“LTV”) based on the lower of the purchase price or appraised value at the time of loan origination.

11 unchanged sentences

For additional protection, the Bank purchases lender-paid mortgage insurance for certain single-family mortgage loans.

As of June 30, 2021, a total of $55.7 million of single-family mortgage loans with an 78% weighted average LTV at the time of origination have lender-paid mortgage insurance providing a weighted average coverage ratio of 11% of the original loan amount.

The Bank currently offers closed-end, fixed-rate home equity loans that are secured by the borrower’s primary residence.

These loans do not exceed 75% of the appraised value of the residence and have terms of 30 years requiring monthly payments of principal and interest.

At June 30, 2021, home equity loans amounted to $2.8 million or 1.0% of single-family loans held for investment, as compared to $5.3 million or 1.8% of single-family loans held for investment at June 30, 2020.

As of June 30, 2022, a total of $78.6 million of single-family mortgage loans with a 79% weighted average LTV at the time of origination have lender-paid mortgage insurance providing a weighted average coverage ratio of 11% of the original loan amount.

Prior to fiscal 2009, many of the loans we originated for investment consisted of non-traditional single-family residential loans that do not conform to Fannie Mae or Freddie Mac underwriting guidelines as a result of the characteristics of the borrower or property, the loan terms, loan size or exceptions from agency underwriting guidelines.

In exchange for the additional risk to us associated with these loans, these borrowers generally are required to pay a higher interest rate, and depending on the credit history, a lower loan-to-value ratio was generally required than for a conforming loan.

Our non-traditional single-family residential loans include loans to borrowers who provided limited or no documentation of their income or stated income loans, negative amortization loans (a loan in which accrued interest exceeding the required monthly loan payment is added to loan principal up to 115% of the original loan amount), more than 30-year amortization loans, and loans to borrowers with a FICO score below 660 (these loans are considered subprime by the OCC).

Including these low FICO score loans, as of June 30, 2022, our single-family residential borrowers had a weighted average FICO score of 759 at the time of loan origination.

As of June 30, 2022, these non-traditional loans totaled $20.3 million, comprising 5.4% of total single-family residential loans held for investment and 2.2% of total loans held for investment.

At that date, stated income loans totaled $17.5 million, more than 30-year amortization loans totaled $4.3 million, low FICO score loans totaled $2.0 million, and negative amortization loans totaled $479,000 (the outstanding balances described may overlap more than one category).

The Bank currently offers fixed rate loan products in Riverside and San Bernardino counties and adjustable rate mortgage (“ARM”) loans throughout California.

4 unchanged sentences

The rate may not fall below the margin.

The portfolio currently consists of the following indexes, plus a margin of between 2.00% and 3.25%, which are used to calculate the periodic interest rate changes:

the London Interbank Offered Rate (“LIBOR”), SOFR, the FHLB Eleventh District cost of funds (“COFI”), the 12-month average U.S.

The portfolio currently consists of the following indices, plus a margin of between 2.00% and 3.25%, which are used to calculate the periodic interest rate changes:

the London Interbank Offered Rate (“LIBOR”), SOFR, the 12-month average U.S.

Treasury (“12 MAT”) or the weekly average yield on one-year U.S.

Treasury securities adjusted to a constant maturity of one year (“CMT”).

Loans based on the LIBOR index constitute a majority of the Bank’s loans held for investment.

The majority of the ARM loans held for investment have five, seven, or ten-year fixed periods prior to the first adjustment (“5/1, 7/1, or 10/1 hybrids”) and provide for fully amortizing loan payments throughout the term of the loan.

Loans based on the LIBOR and SOFR indices constitute a majority of the Bank’s loans held for investment.

The majority of the ARM loans held for investment have five, seven, or 10-year fixed periods prior to the first adjustment and provide for fully amortizing loan payments throughout the term of the loan.

Loans of this type have embedded interest rate risk if interest rates should rise during the initial fixed rate period.

Prior to fiscal 2009, the Bank offered stated income single-family mortgage loans.

As of June 30, 2021 and 2020, the outstanding balance of the stated income single-family mortgage loans was $26.0 million and $38.5 million, respectively, of which $997,000 and $1.8 million, respectively were non-performing, while no loans were 30-89 days delinquent at June 30, 2021 and 2020.

Borrower demand for ARM loans versus fixed-rate mortgage loans is a function of the level of interest rates, the expectations of changes in the level of interest rates and the difference between the initial interest rates and fees charged for each type of loan.

The relative amount of fixed-rate mortgage loans and ARM loans that can be originated at any time is largely determined by the demand for each product in a given interest rate and competitive environment.

Given the recent low-rate market environment, the production of ARM loans was significantly lower than fixed rate mortgages.

Recently, during the low-interest rate market environment, existing prior to calendar 2022, the production of ARM loans was significantly lower than fixed rate mortgages.

The retention of ARM loans, rather than fixed-rate loans, helps to reduce the Bank’s exposure to changes in interest rates.

13 unchanged sentences

Real estate values and real estate markets are beyond the Bank’s control and are generally affected by changes in national, regional or local economic conditions and other factors.

These factors include fluctuations in interest rates and the availability of loans to potential purchasers, housing supply and demand, changes in tax laws and other governmental statutes, regulations and policies and acts of nature, such as earthquakes, fires and other natural disasters particular to California where substantially all of our real estate collateral is located.

These factors include fluctuations in interest rates and the availability of loans to potential purchasers, housing supply and demand, changes in tax laws and other governmental statutes, regulations and policies and acts of nature, such as earthquakes, fires, droughts and other natural disasters particular to California where substantially all of our real estate collateral is located.

If real estate values decline from the levels at the time of loan origination, the value of our real estate collateral securing the loans could be significantly reduced.

4 unchanged sentences

Consistent with its strategy to diversify the composition of loans held for investment, the Bank has made the origination and purchase of multi-family and commercial real estate loans a priority.

During fiscal 2021 the Bank originated $88.8 million and purchased $11.5 million of multi-family and commercial real estate loans, all of which were underwritten in accordance with the Bank’s origination guidelines.

During fiscal 2022 the Bank originated $105.9 million, all of which were underwritten in accordance with the Bank’s origination guidelines, and did not purchase any multi-family and commercial real estate loans.

This compares to loan originations of $88.8 million and loan purchases of $11.5 million during fiscal 2021.

1 unchanged sentence

This compares to 654 multi-family and 134 commercial real estate loans in loans held for investment at June 30, 2021.

Multi-family mortgage loans originated by the Bank are predominately adjustable rate loans, including 1/1, 3/1, 5/1, 7/1 and 10/1 hybrids, with a term to maturity of 10 to 30 years and a 25 to 30 year amortization schedule.

Commercial real estate loans originated by the Bank are also predominately adjustable rate loans, including 1/1, 3/1 and 5/1 hybrids, with a term to maturity of 10 to 30 years and a 25 to 30 year amortization schedule.

Multi-family mortgage loans originated by the Bank are predominately adjustable rate loans, including hybrid ARM loans, with a term to maturity of 10 to 30 years and a 25 to 30-year amortization schedule.

Commercial real estate loans originated by the Bank are also predominately adjustable rate loans, including hybrid ARM loans, with a term to maturity of 10 to 30 years and a 25 to 30-year amortization schedule.

Rates on multi-family and commercial real estate ARM loans generally adjust monthly, quarterly, semi-annually or annually at a specific margin over the respective interest rate index, subject to period interest rate caps and life-of-loan interest rate caps.

8 unchanged sentences

However, loans secured by such properties are generally greater in amount, more difficult to evaluate and monitor and are more susceptible to default as a result of general economic conditions and, therefore, involve a greater degree of risk than single-family residential mortgage loans.

Because payments on loans secured by multi-family and commercial real estate properties are often dependent on the successful operation and management of the properties, repayment of such loans may be impacted by adverse

conditions in the real estate market or the economy.

During both fiscal 2022 and 2021, the Bank had no charge-offs or recoveries on non-performing multi-family and commercial real estate loans.

At June 30, 2021, there was one non-performing multi-family loan of $781,000 and no non-performing commercial real estate loans, as compared to no non-performing multi-family and commercial real estate loans at June 30, 2020.

At June 30, 2021 and 2020, there were no multi-family or commercial real esate loans that were past due 30 to 89 days.

At June 30, 2022 and 2021, there were no non-performing or 30 to 89 days delinquent multi-family and commercial real estate loans at both dates.

Non-performing loans and/or delinquent loans may increase if there is a general decline in California real estate markets and in the event poor general economic conditions prevail.

3 unchanged sentences

During fiscal 2022 and 2021, the Bank originated a total of $2.2 million and $5.4 million of construction loans (including undisbursed loan funds), respectively.

As of June 30, 2021 and 2020, the Bank had short-term construction loans totaling $2.8 million and $6.3 million, respectively, and construction/permanent loans totaling $279,000 and $1.5 million respectively, net of undisbursed loan funds of $3.0 million and $4.0 million, respectively.

As of June 30, 2022 and 2021, the Bank had short-term construction loans totaling $148,000 and $2.8 million, respectively, and construction/permanent loans totaling $3.1 million and $279,000 respectively, net of undisbursed loan funds of $1.3 million and $3.0 million, respectively.

Short-term construction loans include three types of loans:

4 unchanged sentences

The owner secures long-term permanent financing at the completion of construction.

At June 30, 2021, there were two custom single-family construction loans totaling $1.7 million with $611,000 of undisbursed funds.

At June 30, 2022, there were four custom single-family construction loans totaling $4.3 million with $1.3 million of undisbursed funds.

This compares to June 30, 2021 when the Bank had two custom single-family construction loans totaling $1.7 million with $611,000 of undisbursed funds.

3 unchanged sentences

Tract construction may include the building and financing of model homes under a separate loan.

At June 30, 2021, there was one land loan of $139,000 and no tract construction loans, as compared to one land loan of $143,000 and no tract construction loans at June 30, 2020.

At June 30, 2022, there was one land loan of $123,000 and one tract construction loan of $1.7 million with $1.6 million undisbursed funds, as compared to one land loan of $139,000 at June 30, 2021.

Speculative construction loans are made to home builders and are termed “speculative” because the home builder does not have, at the time of loan origination, a signed sale contract with a home buyer who has a commitment for permanent financing with either the Bank or another lender for the finished home.

1 unchanged sentence

The builder may be required to debt service the speculative construction loan for a significant period of time after the completion of construction until the homebuyer is identified.

At June 30, 2021, there were no single-family speculative construction loans.

This compares to June 30, 2020 when the Bank had three single-family speculative construction loans totaling $2.6 million with $828,000 of undisbursed funds.

At both June 30, 2022 and 2021, there were no speculative construction loans.

Construction/permanent loans automatically roll from the construction to the permanent phase.

The construction phase of a construction/permanent loan generally lasts nine to 12 months and the interest rate charged is generally fixed at a margin above prime rate and with a loan-to-value ratio of up to 75% of the appraised value of the completed property.

At June 30, 2021, there were $279,000 of construction/permanent loans as compared to $1.5 million of construction/permanent loans at June 30, 2020.

At June 30, 2022, there were $3.1 million of construction/permanent loans as compared to $279,000 of construction/permanent loans at June 30, 2021.

Construction loans under $1.0 million are approved by Bank personnel specifically designated to approve construction loans.

The Bank’s Loan Committee, comprised of the Chief Executive Officer, Chief Lending Officer, Chief Financial Officer, Senior Vice President – Single-Family Division and Vice President - Loan Administration, approves all construction loans over $1.0 million.

Prior to approval of any construction loan, an independent fee appraiser inspects the site and the Bank reviews the existing or proposed improvements, identifies the market for the proposed project, and analyzes the pro-forma data and assumptions on the project.

analyzes the pro-forma data and assumptions on the project.

In the case of a tract or speculative construction loan, the Bank reviews the experience and expertise of the builder.

The Bank obtains credit reports, financial statements and tax returns on the borrowers and guarantors, an independent appraisal of the project, and any other expert report necessary to evaluate the proposed project.

In the event of cost overruns, the Bank requires the borrower to deposit their own funds

into a loan-in-process account, which the Bank disburses consistent with the completion of the subject property pursuant to a revised disbursement schedule.

In the event of cost overruns, the Bank requires the borrower to deposit their own funds into a loan-in-process account, which the Bank disburses consistent with the completion of the subject property pursuant to a revised disbursement schedule.

The construction loan documents require that construction loan proceeds be disbursed in increments as construction progresses.

13 unchanged sentences

In addition, because the Bank’s construction lending is in its primary market area, changes in the local or regional economy and real estate market could adversely affect the Bank’s construction loans held for investment.

During fiscal 2021 and 2020, the Bank had no charge-offs or recoveries and no loans were non-performing or 30-89 days delinquent at June 30, 2021.

During fiscal 2022 and 2021, the Bank had no charge-offs or recoveries and no construction loans were non-performing or 30-89 days delinquent at both June 30, 2022 and June 30, 2021.

Participation Loan Purchases and Sales.

4 unchanged sentences

All properties serving as collateral for loan participations are inspected by an employee of the Bank or a third-party inspection service prior to being approved by the Loan Committee and the Bank relies upon the same underwriting criteria required for those loans originated by the Bank.

The Bank purchased $16.9 million of loans to be held for investment (primarily single-family and multi-family loans) in fiscal 2021, compared to $142.1 million of purchased loans to be held for investment (primarily single-family and multi-family loans) in fiscal 2020.

The decline in loan purchases was due primarily to the uncertainly of the asset quality during the COVID-19 pandemic.

The Bank purchased $6.4 million of loans to be held for investment (solely single-family loans) in fiscal 2022, compared to $16.9 million of purchased loans to be held for investment (primarily single-family and multi-family loans) in fiscal 2021.

The decline in loan purchases was due primarily to the uncertainty of the asset quality and fewer loans available for purchase during the COVID-19 pandemic.

As of June 30, 2022, total loans serviced by other financial institutions were $11.4 million, as compared to $13.6 million at June 30, 2021.

As of June 30, 2022, all loans serviced by others were performing according to their original contractual payment terms.

As of June 30, 2021, all loans serviced by others were performing according to their original contractual payment terms, except for one loan of $365,000 that was in the non-performing category.

As of June 30, 2020, all loans serviced by others were performing according to their original contractual payment terms, except for two loans that were in forbearance pursuant to a loan modification consistent with the Coronavirus Aid, Relief, and Economic Security Act of 2020, (“CARES Act”) signed into law on March 27, 2020 and/or the April 7, 2020 Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (“Interagency Statement”).

The CARES Act as amended on December 27, 2020, by the Consolidated Appropriations Act (“CAA”), and the Interagency Statement provides guidance regarding 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 and/or Interagency Statement prior to any relief, are not troubled debt restructurings, through January 1, 2022 or 60 days after the end of the national emergency declared by the President, whichever is earlier.

For additional information related to loan modifications as a result of the COVID-19 pandemic, see “Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations – COVID-19 Impact to the Corporation.”

The Bank also sells participating interests in loans when it has been determined that it is beneficial to diversify the Bank’s risk.

Participation sales enable the Bank to maintain acceptable loan concentrations and comply with the Bank’s loans to

one borrower policy.

Participation sales enable the Bank to maintain acceptable loan concentrations and comply with the Bank’s loans to one borrower policy.

Generally, selling a participating interest in a loan increases the yield to the Bank on the portion of the loan that is retained.

3 unchanged sentences

Commercial business loans allow the Bank to diversify its lending and increase the average loan yield.

As of June 30, 2021, commercial business loans were $849,000, or 0.1% of loans held for investment, up 77% from $480,000, or 0.1% of loans held for investment at June 30, 2020.

As of June 30, 2022, commercial business loans were $1.2 million, or 0.1% of loans held for investment, up 42%

from $849,000, or 0.1% of loans held for investment at June 30, 2021.

These loans represent secured and unsecured lines of credit and term loans secured by business assets.

9 unchanged sentences

Accordingly, the repayment of a commercial business loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is secondary and oftentimes an insufficient source of repayment.

At June 30, 2021, there were no non-performing commercial business loans, as compared to $31,000 of non-performing commercial business loans, net of allowances and charge-offs at June 20, 2020.

At June 30, 2022 and 2021, there were no non-performing commercial business loans at both dates.

During fiscal 2022 or 2021, the Bank had no charge-offs or recoveries on commercial business loans.

1 unchanged sentence

At June 30, 2022 and 2021, the Bank’s consumer loans were $86,000 and $95,000, respectively, or less than 0.1% of the Bank’s loans held for investment at these dates.

The Bank offers open-ended lines of credit on either a secured or unsecured basis.

The Bank offers secured savings lines of credit which have an interest rate that is four percentage points above the COFI, which adjusts monthly.

There were no secured savings lines of credit at June 30, 2021 and 2020.

The Bank offers open-ended lines of credit on unsecured basis.

Consumer loans potentially have a greater risk than residential mortgage loans, particularly in the case of loans that are unsecured.

Consumer loan collections are dependent on the borrower’s ongoing financial stability, and thus are more likely to be adversely affected by job loss (especially now as a result of the COVID-19 pandemic), illness or personal bankruptcy.

Consumer loan collections are dependent on the borrower’s ongoing financial stability, and thus are more likely to be adversely affected by job loss, illness or personal bankruptcy.

Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

The Bank had no non-performing consumer loans at June 30, 2021 and 2020.

During fiscal 2021, the Bank had $1,000 of net chargeoffs on consumer loans, as compared to net recoveries of $1,000 during fiscal 2020.

The Bank had no non-performing consumer loans at both June 30, 2022 and 2021.

During fiscal 2022, the Bank had no net charge-offs on consumer loans, as compared to net charge-offs of $1,000 during fiscal 2021.

Loans Originations, Purchases, Sales and Repayments

8 unchanged sentences

Retail originations

Wholesale originations

Total loans originated for sale

Servicing released

Servicing retained

9 unchanged sentences

Single-family

Commercial real estate

Total loans purchased for investment

Loan principal repayments

(Decrease) increase in other items, net (1)

Net (decrease) increase in loans held for investment and loans held for sale at fair value

(1) Includes net changes in undisbursed loan funds, deferred loan fees or costs, allowance for loan losses, fair value of loans held for investment, fair value of loans held for sale, advance payments of escrows and repurchases.

Increase (decrease) in other items, net (1)

Net increase (decrease) in loans held for investment at fair value

(1) Includes net changes in undisbursed loan funds, deferred loan fees or costs, allowance for loan losses, fair value of loans held for investment, advance payments of escrows and repurchases.

Loan Servicing

6 unchanged sentences

The fair value of servicing assets is determined by calculating the present value of the estimated net future cash flows consistent with contractually specified servicing fees.

The Bank periodically evaluates

servicing assets for impairment, which is measured as the excess of cost over fair value.

The Bank periodically evaluates servicing assets for impairment, which is measured as the excess of cost over fair value.

This review is performed on a disaggregated basis, based on loan type and interest rate.

Generally, loan servicing becomes more valuable when interest rates rise (as prepayments typically decrease) and less valuable when interest rates decline (as prepayments typically increase).

In estimating fair values at June 30, 2021 and 2020, the Bank used a weighted average Constant Prepayment Rate (“CPR”) of 21.82% and 26.07%, respectively, and a weighted-average discount rate of 9.10% and 9.11%, respectively.

In estimating fair values at June 30, 2022 and 2021, the Bank used a weighted average Constant Prepayment Rate (“CPR”) of 10.85% and 21.82%, respectively, and a weighted-average discount rate of 9.05% and 9.10%,

respectively.

The required impairment reserve against servicing assets at June 30, 2022 and 2021 was $119,000 and $176,000, respectively.

In aggregate, servicing assets had a carrying value of $287,000 and a fair value of $168,000 at June 30, 2022, compared to a carrying value of $384,000 and a fair value of $208,000 at June 30, 2021.

Delinquencies and Classified Assets

Asset Quality

Delinquent Loans .

3 unchanged sentences

Interest income is reduced by the full amount of accrued and uncollected interest on such loans.

The following table sets forth delinquencies in the Bank’s loans held for investment as of the dates indicated, gross of collectively and individually evaluated allowances, if any:

Non-performing

Mortgage loans:

Single-family

Commercial business loans

Consumer loans (1)

(1) At June 30, 2021, 2020 and 2019, the balance includes 29, 15 and 61 overdrawn consumer deposit accounts, respectively.

As of June 30, 2022, total non-performing assets, net of allowance for loan losses and fair value adjustments, were $1.4 million, or 0.12% of total assets, which was primarily comprised of:

27 single-family loans ($7.9 million);

one multi-family loan ($781,000);

and no real estate owned (“REO”).

As of June 30, 2021, $7.7 million, or 89%, of non-performing loans had a current payment status.

seven single-family loans and no real estate owned (“REO”).

As of June 30, 2022, all non-performing loans had a current payment status.

This compares to total non-performing assets, net of allowance for loan losses and fair value adjustments, of $8.6 million, or 0.73% of total assets, with $7.7 million, or 89%, of non-performing loans with a current payment status at June 30, 2021 and no REO.

4 unchanged sentences

Single-family

Commercial real estate

Accruing loans past due 90 days or more

2 unchanged sentences

Single-family

Commercial business loans

Total non-performing loans

6 unchanged sentences

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

The Bank measures each non-performing loan based on ASC 310, “Receivables,” establishes a collectively evaluated or individually evaluated allowance and charges off those loans or portions of loans deemed uncollectible.

The Bank measures each non-performing loan

based on ASC 310, “Receivables,” establishes a collectively evaluated or individually evaluated allowance and charges off those loans or portions of loans deemed uncollectible.

Restructured Loans.

7 unchanged sentences

The Bank 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.

For the fiscal year ended June 30, 2021, there were 20 loans (including 19 COVID-19 related forbearance loans downgraded when their monthly payment deferrals were extended beyond six months) that were newly modified from their original terms, re-underwritten or identified as a restructured loan;

while two loans were upgraded to pass category;

three loans were paid off;

and no loans were converted to REO.

For the fiscal year ended June 30, 2022, 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;

while three loans were upgraded to the pass category;

one loan was paid off;

three loans were upgraded to the pass category;

seven loans were paid off;

and no loans were converted to REO.

while two loans were upgraded to the pass category;

three loans were paid off;

and no loans were converted to REO.

During the fiscal years ended June 30, 2022 and 2021, no restructured loans were in default within a 12-month period subsequent to their original restructuring.

Additionally, during the fiscal year ended June 30, 2021, there were 12 restructured loans totaling $4.7 million that were extended beyond their initial modification terms;

while in fiscal year ended 2020, there were no restructured loans that were extended beyond the initial maturity of the modification.

Additionally, during the fiscal year ended June 30, 2022, there were no loans that were extended beyond their maturity of the modification terms;

while in fiscal year ended June 30, 2021, there were 12 restructured loans totaling $4.7 million that were extended beyond their initial modification terms.

As of June 30, 2022, the net outstanding balance of the Corporation’s 13 restructured loans was $4.5 million of which one loan totaling $722,000 was classified as substandard on non-accrual status.

As of June 30, 2022, all of the restructured loans were current with respect to their payment status, consistent with their modified terms.

As of June 30, 2021, the net outstanding balance of the Corporation’s 23 restructured loans was $7.9 million of which 20 loans totaling $7.0 million were classified as substandard on non-accrual status.

As of June 30, 2021, $7.7 million, or 97 percent, of the restructured loans were current with respect to their payment status, consistent with their modified terms.

As of June 30, 2020, the net outstanding balance of the Corporation’s eight restructured loans was $2.6 million:

all eight loans were classified as substandard on non-accrual status.

As of June 30, 2020, $1.7 million, or 65 percent, of the restructured loans were current with respect to their payment status, consistent with their modified terms.

The Bank upgrades restructured single-family loans to the pass category if the borrower has demonstrated satisfactory contractual payments for at least six consecutive months or 12 months for those loans that were restructured more than once and there is a reasonable assurance that the payments will continue.

1 unchanged sentence

From March 2020 to March 2021, the Bank offered short-term loan modifications to assist borrowers during the COVID-19 pandemic.

The CARES Act and Interagency Statement provided that a short-term modification made in response to COVID-19 and which meets certain criteria does not need to be accounted for as a restructured loan.

The Coronavirus Aid, Relief, and Economic Security Act for 2020, as amended (“CARES Act”) and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus ("Interagency Statement") provided that a short-term modification made in response to COVID-19 and which meets certain criteria does not need to be accounted for as a restructured loan.

Accordingly, the Corporation does not account for such loan modifications as restructured loans.

For additional information related to loan modifications as a result of the COVID-19 pandemic, see “Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations – COVID-19 Impact to the Corporation.”

Other Loans of Concern.

As of June 30, 2021, $1.8 million of loans (all single-family loans) which were not disclosed as non-performing loans were classified as special mention because known information about possible credit problems of the borrowers causes management to have some doubt as to the ability of such borrowers to comply with present loan repayment terms.

As of June 30, 2020, $8.6 million of loans which were not disclosed as non-performing loans were classified as special mention because known information about possible credit problems of the borrowers causes management to have some doubt as to the ability of such borrowers to comply with present loan repayment terms.

Of these loans, $3.1 million were single-family mortgage loans, $3.8 million were multi-family mortgage loans and $1.7 million was a construction loan.

Foreclosed Real Estate.

3 unchanged sentences

As of June 30, 2022 and 2021, there was no REO property at both dates.

In managing the real estate owned properties for quick disposition, the Bank completes the necessary repairs and maintenance to the individual properties before listing for sale, obtains new appraisals and broker price opinions (“BPO”) to determine current market listing prices, and engages local realtors who are most familiar with real estate sub-markets, among other techniques, which generally results in the quick disposition of real estate owned.

(“BPO”) to determine current market listing prices, and engages local realtors who are most familiar with real estate sub-markets, among other techniques, which generally results in the quick disposition of real estate owned.

Asset Classification.

1 unchanged sentence

The regulations require that each institution review and classify its assets on a regular basis.

In addition, in connection with

examinations of institutions, OCC examiners have the authority to identify problem assets and, if appropriate, require them to be classified.

In addition, in connection with examinations of institutions, OCC examiners have the authority to identify problem assets and, if appropriate, require them to be classified.

There are three classifications for problem assets:

19 unchanged sentences

Single-family

Commercial business loans

Total substandard loans

8 unchanged sentences

After consideration of these and other factors, the Bank may determine that the asset in question, though not currently delinquent, presents a risk of loss that requires it to be classified or designated as special mention.

In addition, the Bank’s loans held for investment may include single-family, commercial and multi-family real estate loans with a balance exceeding the current market value of the collateral which are not classified because they are performing and have borrowers who have sufficient resources to support the repayment of the loan.

In addition, the Bank’s loans held for investment may include single-family, commercial and multi-family real estate loans with a balance exceeding the current

market value of the collateral which are not classified because they are performing and have borrowers who have sufficient resources to support the repayment of the loan.

Allowance for Loan Losses.

25 unchanged sentences

Where any of these conditions is not apparent by specifically identifiable problem loans or portfolio segments as of the evaluation date, the IAR Committee’s evaluation of the probable loss related to such condition is reflected in the general allowance.

The intent of the IAR Committee is to reduce the differences between estimated and actual losses.

Pooled loan factors are adjusted to reflect current estimates of charge-offs for the subsequent 12 months.

Loss activity is reviewed for non-pooled loans and the loss factors are adjusted, if necessary.

By assessing the probable estimated losses inherent in the loans held for investment on a quarterly basis, the Bank is able to adjust specific and inherent loss estimates based upon the most recent information that has become available.

By assessing the probable estimated losses inherent in the loans held

for investment on a quarterly basis, the Bank is able to adjust specific and inherent loss estimates based upon the most recent information that has become available.

At June 30, 2022, the Bank had an allowance for loan losses of $5.6 million, or 0.59% of gross loans held for investment, compared to an allowance for loan losses at June 30, 2021 of $7.6 million, or 0.88% of gross loans held for investment.

A $708,000 recovery from the allowance for loan losses was recorded in fiscal 2021, compared to a $1.1 million provision for loan losses in fiscal 2020.

The decrease in the allowance for loan losses was due primarily to an improved economic outlook during the second half of fiscal 2021, reducing the expected impact of the COVID-19 pandemic to the credit quality of the loan portfolio, and a decrease in loans held for investment.

A $2.5 million recovery from the allowance for loan losses was recorded in fiscal 2022, compared to a $708,000 recovery from the allowance for loan losses in fiscal 2021.

The decrease in the allowance for loan losses was due primarily to improved asset quality at June 30, 2022 and improving general economic conditions as compared to June 30, 2021, partly offset by an increase in loans held for investment in fiscal 2022.

Although management believes the best information available is used to make such provision (recovery), future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations.

2 unchanged sentences

Any material increase in the allowance for loan losses may adversely affect the Bank’s financial condition and results of operations.

The following table sets forth an analysis of the Bank’s allowance for loan losses for the periods indicated.

Where individually evaluated allowances have been established, any differences between the individually evaluated allowances and the amount of loss realized has been charged or credited to current operations.

Year Ended June 30,

(Dollars In Thousands)

Allowance at beginning of period

(Recovery) provision for loan losses

Mortgage Loans:

Single-family

Commercial business loans

Consumer loans

Total recoveries

Mortgage loans:

Single-family

Consumer loans

Total charge-offs

Net recoveries (charge-offs)

Allowance at end of period

Allowance for loan losses as a percentage of gross loans held for investment

Net (recoveries) charge-offs as a percentage of average loans receivable, net, during the period

The following table sets forth the breakdown of the allowance for loan losses by loan category at the periods indicated.

Management believes that the allowance can be allocated by category only on an approximate basis.

The allocation of the allowance is based upon an asset classification matrix.

The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance in one category to absorb losses in any other categories.

The following table shows certain credit ratios at and for the periods indicated and each component of the ratio’s calculations:

At or For The Year Ended June 30,

(Dollars In Thousands)

Allowance for loan losses as a percentage of total gross loans held for investment at period end

Allowance for loan losses

Total gross loans held for investment

Non-performing loans as a percentage of net loans held for investment at period end

Total non-performing loans, net

Total loans held for investment, net

Allowance for loan losses as a percentage of gross non-performing loans at period end

Allowance for loan losses

Total gross non-performing loans

Net recoveries (charge-offs) to average loans receivable during the period:

Mortgage loans:

Single-family:

Net recoveries

Average loans receivable

Multi-family:

Net charge-offs

Average loans receivable

Commercial real estate:

Net charge-offs

Average loans receivable

Construction:

Net charge-offs

Average loans receivable

Commercial business loans:

Net charge-offs

Average loans receivable

Consumer loans:

Total allowance for loan losses

Net (charge-offs) recoveries

Average loans receivable

Total net recoveries

Total average loans receivable

Investment Securities Activities

8 unchanged sentences

The Bank’s investment securities portfolio was classified as held to maturity and available for sale.

The Corporation purchased held to maturity mortgage-backed securities totaling $158.0 million and $55.9 million during fiscal 2021 and 2020, respectively.

The Corporation purchased held to maturity mortgage-backed securities and collateralized mortgage obligations totaling $19.0 million and $158.0 million of mortgage-backed securities during fiscal 2022 and 2021, respectively.

At June 30, 2022 and 2021, our securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States government or its agencies or a GSE.

3 unchanged sentences

government sponsored enterprise MBS (1)

government sponsored enterprise CMO (2)

SBA securities (3)

8 unchanged sentences

(1) Mortgage-backed securities (“MBS”)

(2) Small Business Administration ("SBA")

(2) Collateralized mortgage obligations (“CMO”)

(3) Small Business Administration ("SBA")

The following table sets forth the outstanding balance, maturity and weighted average yield of the investment securities at June 30, 2022:

After Five to

Five Years (1)

Ten Years (1)

(Dollars in Thousands)

1 unchanged sentence

government sponsored enterprise MBS

government sponsored enterprise CMO

SBA securities

7 unchanged sentences

Total investment securities

The actual maturity and yield for MBS and CMO may differ from the stated maturity and stated yield due to scheduled amortization, loan prepayments and acceleration of premium amortization or discount accretion.

(1) The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values.

The actual maturity and yield for MBS and CMO may differ from the stated maturity and stated yield due to scheduled amortization, prepayments and acceleration of premium amortization or discount accretion.

Deposit Activities and Other Sources of Funds

21 unchanged sentences

(In Thousands)

Transaction accounts:

20 unchanged sentences

Fixed-term, fixed rate

The following table indicates the aggregate dollar amount of the Bank’s time deposits with balances of $100,000 or more differentiated by time remaining until maturity as of June 30, 2021:

Maturity Period

(In Thousands)

Three months or less

Over three to six months

Over six to twelve months

Over twelve months

Deposit Flows.

16 unchanged sentences

2.00 to 2.99%

Time Deposits by Maturities.

The following table sets forth the aggregate dollar amount of time deposits at June 30, 2021 differentiated by interest rates and maturity:

Time Deposits by Remaining Maturity.

The following table sets forth the aggregate dollar amount of time deposits at June 30, 2022 differentiated by interest rates and remaining maturity:

(Dollars In Thousands)

1 unchanged sentence

2.00 to 2.99 %

Time Deposits Insurance Coverage by the FDIC.

The following tables set forth the time deposit FDIC insurance coverage by account and remaining maturity at June 30, 2022 and 2021:

At June 30, 2022

Maturity Period

(In Thousands)

Three months or less

Over three to six months

Over six to twelve months

Over twelve months

At June 30, 2021

Maturity Period

(In Thousands)

Three months or less

Over three to six months

Over six to twelve months

Over twelve months

Deposit Activity.

3 unchanged sentences

Beginning balance

Net deposits (withdrawals) before interest credited

Net deposits before interest credited

Interest credited

Net increase (decrease) in deposits

Net increase in deposits

Ending balance

9 unchanged sentences

Total mortgage loans pledged to the FHLB – San Francisco were $570.4 million at June 30, 2022 as compared to $607.0 million at June 30, 2021.

In addition, the Bank pledged investment securities totaling $1.6 million at June 30, 2021 as compared to $2.2 million at June 30, 2020 to collateralize its FHLB – San Francisco advances under the Securities-Backed Credit (“SBC”) facility.

At June 30, 2021 and 2020, the Bank had $101.0 million and $141.0 million of borrowings, respectively, from the FHLB – San Francisco with a weighted-average interest rate of 2.19% and 2.23%, respectively.

In addition, the Bank pledged investment securities totaling $4.7 million and $1.6 million at June 30, 2022 and 2021, respectively, to collateralize its FHLB – San Francisco advances under the Securities-Backed Credit (“SBC”) facility.

At June 30, 2022 and 2021, the Bank had $85.0 million and $101.0 million of borrowings from the FHLB – San Francisco with a weighted-average interest rate of 2.20% and 2.19%, respectively.

At June 30, 2022, the outstanding borrowings mature between 2022 and 2025 with a weighted average maturity of 16 months.

In addition to the total borrowings mentioned above, the Bank utilized its borrowing facility for letters of credit and credit enhancement for loans previously sold to the FHLB – San Francisco under the Mortgage Partnership Finance (“MPF”) program which have a recourse liability.

The outstanding letters of credit and the outstanding MPF credit enhancement was $16.0 million and $2.5 million, respectively, at both June 30, 2021 and 2020.

The outstanding letters of credit were $18.0 million and $16.0 million at June 30, 2022 and 2021, respectively;

while the outstanding MPF credit enhancement was $2.5 million at both June 30, 2022 and 2021.

As of June 30, 2022 and 2021, the remaining financing availability was $310.3 million and $296.8 million, with remaining available collateral of $310.5 million and $343.1 million, respectively.

In addition, as of June 30, 2021 and 2020, the

Bank had secured a discount window facility of $206.0 million and $94.4 million at the Federal Reserve Bank of San Francisco, collateralized by investment securities with a fair market value of $219.2 million and $100.4 million, respectively.

The Bank also has a federal funds facility with its correspondent bank for $17.0 million which matures on June 30, 2022.

As of June 30, 2021, there were no outstanding borrowings under the discount window facility or the federal funds facility with the correspondent bank.

The following table sets forth certain information regarding borrowings by the Bank at the dates and for the years indicated:

At or For the Year Ended June 30,

(Dollars In Thousands)

Balance outstanding at the end of period:

FHLB – San Francisco advances

Weighted average rate at the end of period:

FHLB – San Francisco advances

Maximum amount of borrowings outstanding at any month end:

FHLB – San Francisco advances

Average short-term borrowings during the period with respect to:

FHLB – San Francisco advances

Weighted average short-term borrowing rate during the period with respect to:

FHLB – San Francisco advances

(1) Borrowings with a remaining term of 12 months or less.

In addition, as of June 30, 2022 and 2021, the Bank had secured a discount window facility of $153.9 million and $206.1 million at the Federal Reserve Bank of San Francisco, collateralized by investment securities with a fair market value of $163.7 million and $219.2 million, respectively.

At June 30, 2022, the Bank also has a federal funds facility with its correspondent bank for $50.0 million which matures on June 30, 2023.

This compares to the federal funds facility with its correspondent bank of $17.0 million with maturity on June 30, 2022.

As of June 30, 2022 and 2021, there were no outstanding borrowings under the discount window facility or the federal funds facility with the correspondent bank at both dates.

As a member of the FHLB – San Francisco, the Bank is required to maintain a minimum investment in FHLB – San Francisco stock.

The Bank held the required investment at June 30, 2021 of $8.2 million with no excess investment.

This compares to June 30, 2020 when the Bank held an investment of $8.0 million with an excess investment of $1.1 million.

During fiscal 2021, the Bank was required to purchase $185,000 of the FHLB – San Francisco capital stock and did not redeem any of the capital stock.

During fiscal 2020, the FHLB – San Francisco redeemed $229,000 of the excess capital stock, while the Bank did not purchase any FHLB - San Francisco capital stock.

In fiscal 2021 and 2020, the FHLB – San Francisco distributed $418,000 and $534,000 of cash dividends, respectively, to the Bank.

The Bank held the required investment at June 30, 2022 and 2021 of $8.2 million with no excess investment at both dates.

During fiscal 2022 and 2021, the Bank purchased FHLB – San Francisco capital stock totaling $84,000 and $185,000, respectively, and did not redeem any of the capital stock during both periods.

In fiscal 2022 and 2021, the FHLB – San Francisco distributed cash dividends to the Bank totaling $489,000 and $418,000, respectively.

Subsidiary Activities

40 unchanged sentences

The Bank’s limits on loans to one borrower or group of related borrowers at June 30, 2022 and 2021 were $19.6 million and $19.4 million, respectively.

At June 30, 2021, the Bank’s

largest lending relationship to a single borrower or group of borrowers consists of four multi-family loans totaling $5.3 million, which were performing according to its original payment terms.

At June 30, 2022, the Bank’s largest lending relationship to a single borrower or group of borrowers consisted of four multi-family loans totaling $5.2 million, which were performing according to their original payment terms.

Effective July 1, 2019, the OCC issued a final rule implementing a section of the Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”) which permits an eligible federal savings bank with assets of $20.0 billion or less as of December 31, 2017 to elect to operate with the business powers of a national bank, generally subject to the same limitations and restrictions, without converting to a national bank charter.

10 unchanged sentences

As a member of the FHLB - San Francisco, the Bank is required to purchase and maintain stock in the FHLB – San Francisco.

At June 30, 2021 and 2020, the Bank held $8.2 million and $8.0 million of FHLB-San Francisco stock, respectively, which was in compliance with this membership requirement.

During fiscal 2021, the Bank was required to purchase $185,000 of FHLB – San Francisco capital stock as compared to a $229,000 redemption in fiscal 2020.

In fiscal 2021 and 2020, the FHLB – San Francisco distributed $418,000 and $534,000 of cash dividends, respectively, to the Bank.

At June 30, 2022 and 2021, the Bank held $8.2 million of FHLB-San Francisco stock at both dates, which were in compliance with this membership requirement.

During fiscal 2022 and 2021, the Bank was required to purchase $84,000 and $185,000 of FHLB – San Francisco capital stock, respectively, and the Bank did not redeem any capital stock during both periods.

In fiscal 2022 and 2021, the FHLB – San Francisco distributed cash dividends to the Bank totaling $489,000 and $418,000, respectively.

There is no guarantee in the future that the FHLB – San Francisco will pay cash dividends or redeem excess capital stock held by its members.

1 unchanged sentence

These contributions have in the past adversely affected the level of dividends paid by the FHLB - San Francisco and could continue to do so in the future.

These contributions also could have an adverse effect on the value of FHLB - San Francisco stock in the future.

These contributions also could have an adverse effect on the value of

FHLB - San Francisco stock in the future.

A reduction in value of the Bank's FHLB - San Francisco stock may result in a corresponding reduction in the Bank’s capital.

2 unchanged sentences

As insurer, the FDIC imposes deposit insurance premiums in the form of assessments to maintain the DIF and is authorized to conduct examinations of and to require reporting by FDIC insured institutions.

The Bank’s FDIC annual assessments for the fiscal years ended June 30, 2022 and 2021 were $322,000 and $334,000, respectively.

Under the FDIC’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments.

6 unchanged sentences

Qualified Thrift Lender Test.

Like all savings institutions (subject to a narrow exception not applicable to the Bank), the Bank is required to meet a qualified thrift lender (“QTL”) test to avoid certain restrictions on their operations.

This test requires a savings institution to have at least 65% of its total assets as defined by regulation, in qualified thrift investments on a monthly average for nine out of every 12 months on a rolling basis.

2 unchanged sentences

Any savings institution that fails to meet the QTL test is subject to certain operating restrictions and may be required to convert to a national bank charter, and a savings and loan holding company of such an institution may become regulated as a bank holding company.

As of June 30, 2021, the Bank maintained 90.3% of its portfolio assets in qualified thrift investments and, therefore, met the qualified thrift lender test.

As of June 30, 2022 and 2021, the Bank maintained 90.8% and 90.3% of its portfolio assets in qualified thrift investments, respectively, and therefore, met the qualified thrift lender test at both dates.

During fiscal 2022 and 2021, the Bank was in compliance with the QTL test as of each month end.

Capital Requirements.

Federally insured savings institutions, such as the Bank, are required by the OCC to maintain minimum levels of regulatory capital, including a common equity Tier 1 (“CET1”) capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a total capital to risk-based assets ratio and a Tier 1 capital to total assets leverage ratio.

Federally insured savings institutions, such as the Bank, are required by the OCC to maintain minimum levels of regulatory capital, including a Tier 1 capital to adjusted average assets leverage ratio, a common equity Tier 1 (“CET1”) to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio and a total capital to risk-based assets ratio.

The capital standards require the maintenance of the following minimum capital ratios:

(i) a CET1 capital ratio of 4.5%;

(ii) a Tier 1 capital ratio of 6%;

(iii) a total capital ratio of 8%;

and (iv) a Tier 1 leverage ratio of 4%.

(i) a Tier 1 leverage ratio of 4%, (ii) a CET1 capital ratio of 4.5%;

(iii) a Tier 1 capital ratio of 6%;

and (iv) a total capital ratio of 8%.

Mortgage servicing rights and deferred tax assets over designated percentages of CET1 are also deducted from capital.

4 unchanged sentences

If the Bank does not have the ability to pay dividends to the Corporation, the Corporation may be limited in its ability to pay dividends to its stockholders.

In order to be considered well-capitalized under the prompt corrective action regulations, the Bank must maintain a CET1 risk-based ratio of 6.5%, a Tier 1 risk-based ratio of 8%, a total risk-based capital ratio of 10% and a leverage ratio of 5%, and the Bank must not be subject to any of certain mandates by the OCC requiring it as an individual institution to meet any specified capital level.

In order to be considered well-capitalized under the prompt corrective action regulations, the Bank must maintain a Tier 1 leverage capital ratio of 5%, a CET1 risk-based capital ratio of 6.5%, a Tier 1 risk-based capital ratio of 8% and a total

risk-based capital ratio of 10% and the Bank must not be subject to any of certain mandates by the OCC requiring it as an individual institution to meet any specified capital level.

EGRRCPA required the federal banking agencies, including the OCC, to establish a “community bank leverage ratio” of between 8% and 10% for institutions with assets of less than $10.0 billion.

Institutions with a capital level at or exceeding the ratio and otherwise meeting the specified requirements, and electing the alternative framework, are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements.

Final rules issued by the agencies established the community bank leverage ratio at 9% Tier 1 capital to total average assets, effective January 1, 2020.

Final rules issued by the agencies established the community bank leverage ratio at 9% Tier 1 capital to adjusted average assets, effective January 1, 2020.

A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly Call Report.

1 unchanged sentence

Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable regulatory capital requirements.

The CARES Act lowered the community bank leverage ratio to 8%, with a federal regulation making the reduced ratio effective April 23, 2020.

Another regulation was issued to transition back to the 9% community bank leverage ratio by increasing the ratio to 8.5% for calendar year 2021 and to 9% thereafter.

The Company did not opt in to the community bank leverage ratio framework for the year ended June 30, 2022.

26 unchanged sentences

The Bank’s authority to engage in transactions with “affiliates” is limited by Sections 23A and 23B of the Federal Reserve Act as implemented by the FRB’s Regulation W.

The term “affiliates” for these purposes generally mean any company that controls or is under common control with an institution except subsidiaries of the institution.

The term “affiliates” for these purposes generally mean any company that controls or is under common control with an institution except subsidiaries of the

The Corporation and its non-savings institution subsidiaries are affiliates of the Bank.

5 unchanged sentences

In addition, these institutions are prohibited from engaging in certain tying arrangements in connection with any extension of credit or the providing of any property or service.

Community Reinvestment Act and Consumer Protection Laws.

Community Reinvestment Act.

Under the Community Reinvestment Act of 1977 (“CRA”), every FDIC-insured institution has a continuing and affirmative obligation consistent with safe and sound banking practices to help meet the credit needs of its entire community, including low and moderate income neighborhoods.

5 unchanged sentences

The Bank received a rating of satisfactory when it was last examined for CRA compliance.

In connection with its deposit-taking, lending and other activities, the Bank is subject to a number of federal laws designed to protect consumers and promote lending for various purposes.

The Consumer Financial Protection Bureau (“CFPB”) as an independent bureau of the FRB issues regulations and standards under these federal consumer protection laws, which include the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act and others.

The CFPB has promulgated a number of proposed and final regulations under these laws that will affect our businesses.

Among these regulatory initiatives are final regulations setting “ability to repay” and “qualified mortgage” standards for residential mortgage loans and establishing new mortgage loan servicing and loan originator compensation standards.

The Bank devotes substantial compliance, legal and operational business resources to ensure compliance with applicable consumer protection standards.

In addition, customer privacy regulations limit the ability of the Bank to disclose nonpublic consumer information to non-affiliated third parties.

These regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated parties.

Anti-Money Laundering and Customer Identification.

24 unchanged sentences

of sites containing hazardous waste.

However, Congress acted to protect secured creditors by providing that the term "owner and operator"

However, Congress acted to protect secured creditors by

providing that the term "owner and operator"

excludes a person whose ownership is limited to protecting its security interest in the site.

8 unchanged sentences

The CCPA, including any amendments thereto or final regulations implemented thereunder, as well as other similar state data privacy laws and regulations, may require the establishment by the Bank of certain regulatory compliance and risk management controls.

In addition, on November 18, 2021, the federal banking agencies announced the adoption of a final rule providing for new notification requirements for banking organizations and their service providers for significant cybersecurity incidents.

Specifically, the new rule requires a banking organization to notify its primary federal regulator as soon as possible, and no later than 36 hours after, the banking organization determines that a “computer-security incident” rising to the level of a “notification incident” has occurred.

Notification is required for incidents that have materially affected or are reasonably likely to materially affect the viability of a banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector.

Service providers are required under the rule to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect the banking organization’s customers for four or more hours.

Compliance with the new rule is required by May 1, 2022.

Non-compliance with federal or similar state privacy and cybersecurity laws and regulations could lead to substantial regulatory imposed fines and penalties, damages from private causes of action and/or reputational harm.

The Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.

Other Consumer Protection Laws and Regulations.

The CFPB exercises broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws.

The Consumer Financial Protection Bureau (“CFPB”) exercises broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws.

The Bank is subject to consumer protection regulations issued by the CFPB, but as a financial institution with assets of less than $10.0 billion, the Bank is generally subject to supervision and enforcement by the OCC with respect to compliance with consumer financial protection laws and CFPB regulations.

2 unchanged sentences

These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services.

Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages and the loss of certain contractual rights.

Failure to comply with these laws and regulations

can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages and the loss of certain contractual rights.

Savings and Loan Holding Company Regulation

5 unchanged sentences

Capital Requirements.

For a savings and loan holding company with less than $3 billion in consolidated assets that qualifies as a small bank holding company under the FRB’s Small Bank Holding Company Policy Statement, such as the Corporation, the capital regulations apply to its savings institution subsidiaries, but not the Corporation, unless the FRB

determines otherwise in particular cases.

For a savings and loan holding company with less than $3.0 billion in consolidated assets that qualifies as a small bank holding company under the FRB’s Small Bank Holding Company Policy Statement, such as the Corporation, the capital regulations apply to its savings institution subsidiaries, but not the Corporation, unless the FRB determines otherwise in particular cases.

For a description of the capital regulations, see “Federal Regulation of Savings Institutions - Capital Requirements” above.

17 unchanged sentences

The term “company” includes corporations, partnerships, associations, and certain trusts and other entities.

“Control” of a savings association or savings and loan holding company is deemed to exist if a company has voting control, directly or indirectly of more than 25% of any class of the savings association’s voting stock or controls in any manner the election of a majority of the directors of the savings association or savings and loan holding company, and may be presumed under other circumstances, including, but not limited to, holding in certain cases 10% or more of a class of voting securities.

“Control” of a savings association or savings and loan holding company is deemed to exist if a company has voting control, directly or indirectly of more than 25% of any class of the savings

association’s voting stock or controls in any manner the election of a majority of the directors of the savings association or savings and loan holding company, and may be presumed under other circumstances, including, but not limited to, holding in certain cases 10% or more of a class of voting securities.

Control may be direct or indirect and may occur through acting in concert with one or more other persons.

4 unchanged sentences

● before any other company could acquire 25% or more of the common stock of the Corporation, and may be required for an acquisition of as little as 10% of such stock.

case of control of a savings and loan holding company or by the OCC in the case of control of a savings association not obtained through control of a holding company of such savings association.

Sarbanes-Oxley Act.

The Sarbanes-Oxley Act of 2002 intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.

We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations.

In addition, persons that are not companies are subject to the same or similar definitions of control with respect to savings and loan holding companies and savings associations and requirements for prior regulatory approval by the FRB in the case of control of a savings and loan holding company or by the OCC in the case of control of a savings association not obtained through control of a holding company of such savings association.

Federal Securities Laws.

Provident Financial Holdings, Inc.’s common stock is registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, as amended (“Exchange Act”).

The Corporation is subject to information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.

Dividends and Stock Repurchases.

4 unchanged sentences

As discussed above, the capital conservation buffer requirements may also limit or preclude dividends payable by the Corporation.

COVID-19 Legislation.

In response to the COVID-19 pandemic, the U.S.

Congress and the federal banking agencies, though rulemaking, interpretive guidance and modifications to agency policies and procedures, have taken a series of actions to provide national emergency economic relief measures.

As the on-going COVID-19 pandemic evolves, federal and state regulatory authorities continue to issue additional guidance with respect to COVID-19.

In addition, it is possible that the U.S.

Congress will enact supplementary COVID-19 response legislation.

The Corporation continues to assess the impact of the CARES Act and The Consolidated Appropriations Act, 2021 (“CAA 2021”), and other statues, regulations and supervisory guidance related to the COVID-19 pandemic.

Federal Taxation

The Corporation and the Bank report their income on a fiscal year basis using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank’s reserve for bad debts discussed below.

The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Corporation.

On December 22, 2017, the U.S.

Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).

The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses.

For businesses, the Tax Act reduces the corporate federal income tax rate from a maximum of 35% to a flat 21%.

The corporate federal income tax rate reduction was effective January 1, 2018.

Other major changes include expensing of equipment investment;

elimination of personal and dependent exemptions, the tax on people who do not obtain adequate health insurance coverage, and the corporate alternative minimum tax;

and increases in the standard deduction, the estate tax exemption, and the individual alternative minimum tax exemption.

The following discussion of tax matters is intended only as

a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Corporation.

Tax Bad Debt Reserves.

8 unchanged sentences

Distributions .

In the event that the Bank makes “non-dividend distributions” to the Corporation that are considered as made from the reserve for losses on qualifying real estate property loans, to the extent the reserve for such losses exceeds the amount that would have been allowed under the experience method or from the supplemental reserve for losses on

loans (“Excess Distributions”), then an amount based on the amount distributed will be included in the Bank’s taxable income.

Non-dividend distributions include distributions in excess of the Bank’s current and accumulated earnings and profits, distributions in redemption of stock, and distributions in partial or complete liquidation.

7 unchanged sentences

Tax Effect from Stock-Based Compensation.

During fiscal 2021, there were 112,750 shares of restricted common stock distributed to employees but no restricted stock was distributed to non-employee members of the Corporation’s Board of Directors.

Also, there were 69,164 shares of non-qualified stock options exercised while 17,255 shares of incentive stock options were exercised as disqualifying dispositions.

As a result, there was a $90,000 federal tax benefit effect from stock-based compensation in fiscal 2021.

During fiscal 2022, there were no restricted common stock distributed to employees but 1,000 shares of restricted stock was distributed to non-employee members of the Corporation’s Board of Directors.

Also, there were no non-qualified stock options exercised and no incentive stock options were exercised as disqualifying dispositions.

As a result, there was no federal tax benefit effect from stock-based compensation in fiscal 2022.

Other Matters.

5 unchanged sentences

The California franchise tax rate applicable to the Bank, equals the franchise tax rate applicable to corporations generally, plus an “in lieu” rate of 2%, which is approximately equal to personal property taxes and business license taxes paid by such corporations (but not generally paid by banks or financial corporations such as the Corporation).

At June 30, 2021 and 2020, the Corporation’s net state tax rate was 6.1% and 8.5%, respectively.

At June 30, 2022, the Corporation’s net state tax rate was 7.7%.

Bad debt deductions are available in computing California franchise taxes using the specific charge-off method.

1 unchanged sentence

The Corporation will be treated as a general corporation subject to the general corporate tax rate.

There was a $52,000 state tax benefit effect from stock-based compensation in fiscal 2021, as described above in the section entitled "Federal Taxation."

There was a no state tax benefit effect from stock-based compensation in fiscal 2022, as described above in the section entitled "Federal Taxation."

As a Delaware holding company not earning income in Delaware, the Corporation is exempted from Delaware corporate income tax, but is required to file an annual report with and pay an annual franchise tax to the State of Delaware.

During both fiscal 2021 and 2020, the Corporation paid franchise taxes of $200,000.

During fiscal 2022, the Corporation paid franchise taxes of $200,000.

Employees and Human Capital

2 unchanged sentences

To facilitate talent attraction and retention, we strive to make the Bank an inclusive, safe and healthy workplace, with opportunities for our employees to grow and develop in their careers, supported by market-based compensation, benefits, health and welfare programs.

At June 30, 2021, approximately 75 percent of our workforce was female and 25 percent male, and our average tenure was approximately 10.1 years, an increase of approximately three percent from an average tenure of 9.8 years at June 30, 2020.

At June 30, 2022, approximately 73 percent of our workforce was female and 27 percent male, and our average tenure was approximately 8.6 years, a decrease of approximately 15 percent from an average tenure of 10.1 years at June 30, 2021.

The ethnicity of our workforce was 40.2% White, 5.2% Asian, 44.2% Hispanic or Latino, 5.2% two or more races, 0.6% American Indian or Alaskan Native, 0% Native Hawaiian or Pacific Islander and 4.6% African American or Black.

As part of our compensation philosophy, we offer and maintain market competitive compensation programs for our employees in order to attract and retain superior talent.

In addition to strong base wages,

additional programs include quarterly or annual bonus opportunities, an Employee Stock Ownership Plan, a Corporation-matched 401(k) Plan, healthcare and insurance benefits, flexible spending accounts, accrued vacation and sick time, family leave, and an employee assistance program.

In addition to strong base wages, additional programs include quarterly or annual bonus opportunities, an Employee Stock Ownership Plan, a Corporation-matched 401(k) Plan, healthcare and insurance benefits, flexible spending accounts, accrued vacation and sick time, family leave, and an employee assistance program.

The success of our business is fundamentally connected to the well-being of our people.

6 unchanged sentences

This approach has yielded loyalty and dedication in our employee base which in turn grows our business, our commitment to our communities, and our customers, while adding new employees and external ideas supports a continuous improvement mindset.

We believe that our average tenure of over 10 years reflects the engagement of our employees in this talent management philosophy.

We believe that our average tenure of over eight years reflects the engagement of our employees in this talent management philosophy.

Turnover for employees as measured by terminated employees to the average total employees was 39.8% in fiscal 2022, up from 34.1% in fiscal 2021.

EXECUTIVE OFFICERS

19 unchanged sentences

There are no family relationships among or between the executive officers.

Blunden has been associated with Provident Savings Bank since 1974, currently serving as Chairman and Chief Executive Officer of the Bank and Provident, positions he has held since 1991 and 1996, respectively.

He served as President of the Bank from 1991 until June 2011 and as President of Provident from its formation in 1996 until June 2011.

Blunden has been associated with Provident Savings Bank since 1974, currently serving as Chairman and Chief Executive Officer of the Bank and the Corporation, positions he has held since 1991 and 1996, respectively.

He served as President of the Bank from 1991 until June 2011 and as President of the Corporation from its formation in 1996 until June 2011.

Blunden also serves on the Board of Directors of the Western Bankers Association.

Robert "Scott"

Ritter joined the Bank as Senior Vice President on September 26, 2016 and currently oversees the single-family mortgage division.

Ritter joined the Bank as Senior Vice President on September 26, 2016 and currently oversees the single-family mortgage operations.

Prior to joining the Bank, Mr.

19 unchanged sentences

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 1. Business