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

General

Provident Financial Holdings, Inc., a Delaware corporation, was organized in
January 1996 for the purpose of becoming the holding company of Provident
Savings Bank, F.S.B. ("the Bank") upon the Bank's conversion from a federal
mutual to a federal stock savings bank ("Conversion"). The Conversion was
completed on June 27, 1996. The Corporation is regulated by the Federal Reserve
Board ("FRB"). At September 30, 2022, the Corporation had total assets of $1.25
billion, total deposits of $985.3 million and total stockholders' equity of
$129.2 million. The Corporation has not engaged in any significant activity
other than holding the stock of the Bank. Accordingly, the information set forth
in this report, including financial statements and related data, relates
primarily to the Bank and its subsidiaries. As used in this report, the terms

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“we”, “us”, “us” and “Company” means Provident Financial Holdings, Inc.
and its consolidated subsidiaries, unless the context otherwise requires.

The Bank, founded in 1956, is a federally chartered stock savings bank
headquartered in Riverside, California. The Bank is regulated by the Office of
the Comptroller of the Currency ("OCC"), its primary federal regulator, and the
Federal Deposit Insurance Corporation ("FDIC"), the insurer of its deposits. The
Bank's deposits are federally insured up to applicable limits by the FDIC. The
Bank has been a member of the Federal Home Loan Bank System since 1956.

The Corporation operates in a single business segment through the Bank. The
Bank's activities include attracting deposits, offering banking services and
originating and purchasing single-family, multi-family, commercial real estate,
construction and, to a lesser extent, other mortgage, commercial business and
consumer loans. Deposits are collected primarily from 13 banking locations
located in Riverside and San Bernardino counties in California. Loans are
primarily originated and purchased in Southern and Northern California. There
are various risks inherent in the Corporation's business including, among
others, the general business environment, interest rates, the California real
estate market, the demand for loans, the prepayment of loans, the repurchase of
loans previously sold to investors, the secondary market conditions to buy and
sell loans, competitive conditions, legislative and regulatory changes, fraud
and other risks.

The Corporation began to distribute quarterly cash dividends in the quarter
ended September 30, 2002. On July 28, 2022, the Corporation declared a quarterly
cash dividend of $0.14 per share for the Corporation's shareholders of record at
the close of business on August 18, 2022, which was paid on September 8, 2022.
Future declarations or payments of dividends will be subject to the
consideration of the Corporation's Board of Directors, which will take into
account the Corporation's financial condition, results of operations, tax
considerations, capital requirements, industry standards, legal restrictions,
economic conditions and other factors, including the regulatory restrictions
which affect the payment of dividends by the Bank to the Corporation. Under
Delaware law, dividends may be paid either out of surplus or, if there is no
surplus, out of net profits for the current fiscal year and/or the preceding
fiscal year in which the dividend is declared.

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

Safe Harbor Statement

Certain matters in this Form 10-Q constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. This Form
10-Q contains statements that the Corporation believes are "forward-looking
statements." These statements relate to the Corporation's financial condition,
liquidity, results of operations, plans, objectives, future performance or
business. When considering these forward-looking statements, you should keep in
mind these risks and uncertainties, as well as any cautionary statements the
Corporation may make. Moreover, you should treat these statements as speaking
only as of the date they are made and based only on information then actually
known to the Corporation. There are a number of important factors that could
cause future results to differ materially from historical performance and these
forward-looking statements. Factors which could cause actual results to differ
materially include, but are not limited to the following: potential adverse
impacts to economic conditions in our local market areas, other markets where
the Corporation has lending relationships, or other aspects of the Corporation's
business operations or financial markets, including, without limitation, as a
result of employment levels, labor shortages and the effects of inflation, a
potential recession or slowed economic growth caused by increasing political
instability from acts of war including Russia's invasion of Ukraine, as well as
increasing oil prices and supply chain disruptions, and any governmental or
societal responses to the COVID-19 pandemic, including the possibility of new
COVID-19 variants; the credit risks of lending activities, including changes in
the level and trend of loan delinquencies and charge-offs and changes in our
allowance for loan losses and provision for loan losses that may be impacted by
deterioration in the residential and commercial real estate markets and may lead
to increased losses and non-performing assets and may result in our allowance
for loan losses not being adequate to cover actual losses and require us to
materially increase our reserve; changes in the levels of general interest
rates, and the relative differences between short and long term interest rates,
deposit interest rates, our net interest margin and funding sources; the future
of LIBOR, and the transition away from LIBOR toward new interest rate
benchmarks; fluctuations in the demand for loans, the number of unsold homes,
land and other properties and

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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 banking,
securities and tax law, and in regulatory policies and principles, or the
interpretation of regulatory capital or other rules, and other governmental
initiatives affecting the financial services industry; the availability of
resources to address changes in laws, rules, or regulations or to respond to
regulatory actions; adverse changes in the securities markets; our ability to
attract and retain deposits; our ability to control operating costs and
expenses; the use of estimates in determining fair value of certain of our
assets, which estimates may prove to be incorrect and result in significant
declines in valuation; difficulties in reducing risk associated with the loans
on our balance sheet; staffing fluctuations in response to product demand or the
implementation of corporate strategies that affect our workforce and potential
associated charges; disruptions, security breaches, or other adverse events,
failures or interruptions in, or attacks on, our information technology systems
or on the third-party vendors who perform several of our critical processing
functions; our ability to successfully integrate any assets, liabilities,
customers, systems, and management personnel we have acquired or may in the
future acquire into our operations and our ability to realize related revenue
synergies and cost savings within expected time frames and any goodwill charges
related thereto; our ability to manage loan delinquency rates; our ability to
retain key members of our senior management team; costs and effects of
litigation, including settlements and judgments; increased competitive pressures
among financial services companies; changes in consumer spending, borrowing and
savings habits; the availability of resources to address changes in laws, rules,
or regulations or to respond to regulatory actions; our ability to pay dividends
on our common stock; the quality and composition of our securities portfolio and
the impact of any adverse changes in the securities markets; the inability of
key third-party providers to perform their obligations to us; changes in
accounting policies and practices, as may be adopted by the financial
institution regulatory agencies or the Financial Accounting Standards Board,
including additional guidance and interpretation on accounting issues and
details of the implementation of new accounting methods; the effects of climate
change, severe weather events, natural disasters, pandemics, epidemics and other
public health crises, acts of war or terrorism, and other external events on our
business; and other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing, products and services
and other risks detailed in this report and in the Corporation's other reports
filed with or furnished to the U.S. Securities and Exchange Commission ("SEC"),
including our 2022 Annual Form 10-K. These developments could have an adverse
impact on our financial position and our results of operations. Forward-looking
statements are based upon management's beliefs and assumptions at the time they
are made. We undertake no obligation to publicly update or revise any
forward-looking statements included in this document or to update the reasons
why actual results could differ from those contained in such statements, whether
as a result of new information, future events or otherwise. In light of these
risks, uncertainties and assumptions, the forward-looking statements discussed
in this document might not occur, and you should not put undue reliance on any
forward-looking statements. These risks could cause our actual results for
fiscal 2023 and beyond to differ materially from those expressed in any
forward-looking statements by, or on behalf of, us and could negatively affect
the Corporation's consolidated financial condition and consolidated results of
operations as well as its stock price performance.

Significant Accounting Policies and Estimates

The discussion and analysis of the Corporation's financial condition and results
of operations is based upon the Corporation's condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities, revenues and expenses,
and related disclosures of contingent assets and liabilities at the date of the
condensed consolidated financial statements. Actual results may differ from
these estimates under different assumptions or conditions.

The Corporation's critical accounting policies are described in the
Corporation's 2022 Annual Form 10-K in the Critical Accounting Policies section
of Management's Discussion and Analysis of Financial Condition and Results of
Operations and in Note 1 - Organization and Summary of Significant Accounting
Policies. There have been no significant changes during the three months ended
September 30, 2022 to the critical accounting policies as described in the
Corporation's 2022 Annual Form 10-K.

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Non-GAAP Measures

The Corporation uses certain non-GAAP financial measures to provide meaningful
supplemental information regarding the Corporation's operational performance and
to enhance investors' overall understanding of such financial performance.
However, these non-GAAP financial measures are supplemental and are not a
substitute for an analysis based on GAAP measures. As other companies may use
different calculations for these adjusted measures, this presentation may not be
comparable to other similarly titled adjusted measures reported by other
companies.

For periods presented below, the return on average equity is a non-GAAP
financial measure derived from GAAP-based amounts. The return on average
stockholders'equity is calculated by dividing net income by average
stockholders' equity.

                                               For the Quarter Ended
                                                  September 30,
(Dollars In Thousands)                           2022          2021
Net income                                   $      2,090    $   2,667

Average stockholders' equity                 $    130,166    $ 127,160

Return on average stockholders' equity(1)           6.42%        8.39%


(1) The ratio is annualized.

For periods presented below, the efficiency ratio is a non-GAAP financial
measure derived from GAAP-based amounts. The efficiency ratio is calculated by
dividing total non-interest expense by the sum of net interest income before
provision (recovery) for loan losses and total non-interest income.

                                                          For the Quarter Ended
                                                             September 30,
(Dollars In Thousands)                                   2022              2021
Total non-interest expense                           $       6,941     $       5,668

Net interest income before provision (recovery)
for loan losses                                      $       8,965     $       7,888
Total non-interest income                                    1,003             1,069
Total revenue                                        $       9,968     $       8,957

Efficiency ratio                                            69.63%            63.28%


For periods presented below, the net interest margin is a non-GAAP financial
measure derived from GAAP-based amounts. The net interest margin is calculated
by dividing net interest income before provision (recovery) for loan losses by
average interest-earning assets.

                                                                     For the Quarter Ended
                                                                         September 30,
(Dollars In Thousands)                                                2022           2021

Net interest income before provision (recovery) for loan losses $8,965 $7,888

Average interest-earning assets                                    $ 1,176,815    $ 1,163,010

Net interest margin(1)                                                   3.05%          2.71%


(1) Ratio is annualized.

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Executive summary and operational strategy

Provident Savings Bank, F.S.B., established in 1956, is a financial services
company committed to serving consumers and small to mid-sized businesses in the
Inland Empire region of Southern California. The Bank conducts its business
operations as Provident Bank and through its subsidiary, Provident Financial
Corp. The business activities of the Corporation, primarily through the Bank,
consist of community banking and, to a lesser degree, investment services for
customers and trustee services on behalf of the Bank.

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

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

Investment services operations primarily consist of selling alternative
investment products such as annuities and mutual funds to the Bank's depositors.
Investment services and trustee services contribute a very small percentage of
gross revenue.

Provident Financial Corp performs trustee services for the Bank's real estate
secured loan transactions and has in the past held, and may in the future hold,
real estate for investment.

There are a number of risks associated with the business activities of the
Corporation, many of which are beyond the Corporation's control, including:
changes in accounting principles, laws, regulation, interest rates and the
economy, including as a result of the effects of inflation, a potential
recession or slowed economic growth, and any governmental or societal responses
to the COVID-19 pandemic, among others. The Corporation attempts to mitigate
many of these risks through prudent banking practices, such as interest rate
risk management, credit risk management, operational risk management, and
liquidity risk management. The California economic environment presents
heightened risk for the Corporation primarily with respect to real estate values
and loan delinquencies. Since the majority of the Corporation's loans are
secured by real estate located within California, significant declines in the
value of California real estate may also inhibit the Corporation's ability to
recover on defaulted loans by selling the underlying real estate.

Impact of COVID-19 on the Company

The Corporation is actively monitoring and responding to the effects of the
COVID-19 pandemic. The health, safety and well-being of its customers, employees
and communities are the Corporation's top priorities. As of September 30, 2022,
all banking branches are open with normal hours. The Bank will continue to
monitor branch access and occupancy levels in relation to cases and close
contact scenarios and follow governmental restrictions and public health
authority guidelines.

Off-balance sheet financing arrangements

Commitments and Derivative Financial Instruments. The Corporation is a party to
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit, in the form of originating
loans or providing funds under existing lines of credit,

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loan sale agreements to third parties and option contracts. These instruments
involve, to varying degrees, elements of credit and interest-rate risk in excess
of the amount recognized in the accompanying Condensed Consolidated Statements
of Financial Condition. The Corporation's exposure to credit loss, in the event
of non-performance by the counterparty to these financial instruments, is
represented by the contractual amount of these instruments. The Corporation uses
the same credit policies in entering into financial instruments with off-balance
sheet risk as it does for on-balance sheet instruments. For a discussion on
commitments and derivative financial instruments, see Note 6 of the Notes to
Unaudited Interim Condensed Consolidated Financial Statements.

Comparison of the financial situation at September 30, 2022 and June 30, 2022

Total assets increased five percent to $1.25 billion at September 30, 2022 from
$1.19 billion at June 30, 2022. The increase was attributable to the increases
in loans held for investment and cash and cash equivalents, partly offset by a
decrease in investment securities.

Total cash and cash equivalents, primarily excess cash deposited with the
Federal Reserve Bank of San Francisco, increased $15.3 million, or 65 percent,
to $38.7 million at September 30, 2022 from $23.4 million at June 30, 2022. The
increase in total cash and cash equivalents was primarily attributable to
increases in deposits and borrowings combined with repayments from investment
securities in excess of the amount used to fund the growth in loans held for
investment.

Investment securities (held to maturity and available for sale) decreased $9.7
million, or five percent, to $178.7 million at September 30, 2022 from $188.4
million at June 30, 2022. The decrease was primarily the result of scheduled and
accelerated principal payments on mortgage-backed and other securities during
the first three months of fiscal 2023. For further analysis on investment
securities, see Note 4 of the Notes to Unaudited Interim Condensed Consolidated
Financial Statements of this Form 10-Q.

Loans held for investment increased $53.9 million, or six percent, to $993.9
million at September 30, 2022 from $940.0 million at June 30, 2022, primarily
due to an increase in single-family loans. During the first three months of
fiscal 2023, the Corporation originated $84.6 million of loans held for
investment, consisting of single-family, multi-family and commercial real estate
loans that are located throughout California. The Corporation did not purchase
any loans from other institutions during the first three months of fiscal 2023.
Total loan principal payments during the first three months of fiscal 2023 were
$31.7 million, down 41 percent from $53.9 million during the comparable period
in fiscal 2022. The single-family loans held for investment balance at September
30, 2022 and June 30, 2022 was $429.6 million and $378.2 million, respectively,
and represented approximately 43 percent and 40 percent of loans held for
investment, respectively.

The tables below describe the geographical breakdown of gross real estate loans held for investment September 30, 2022 and June 30, 2022as a percentage of the total dollar amount outstanding:

As of September 30, 2022:

                     Inland              Southern              Other               Other
                      Empire           California(1)         California            States               Total
Loan Category     Balance     %       Balance      %       Balance     %       Balance     %       Balance       %
Single-family    $ 138,408     32 %  $ 131,176      31 %  $ 159,713     37 %  $     278      - %  $  429,575     100 %
Multi-family        64,483     14 %    277,878      59 %    125,397     27 %        273      - %     468,031     100 %
Commercial
real estate         20,439     23 %     40,017      45 %     28,883     32 %          -      - %      89,339     100 %
Construction         2,927     93 %        224       7 %          -      -
%          -      - %       3,151     100 %
Other                    -      - %        118     100 %          -      - %          -      - %         118     100 %
Total            $ 226,257     23 %  $ 449,413      45 %  $ 313,993     32 %  $     551      - %  $  990,214     100 %

(1) Excluding Inland Empire.

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As of June 30, 2022:

                     Inland              Southern              Other               Other
                      Empire           California(1)         California            States               Total
Loan Category     Balance     %       Balance      %       Balance     %       Balance     %       Balance       %
Single-family    $ 126,638     33 %  $ 112,549      30 %  $ 138,767     37 %  $     280      - %  $  378,234     100 %
Multi-family        63,764     14 %    275,642      59 %    124,993     27 %        277      - %     464,676     100 %
Commercial
real estate         20,450     23 %     41,127      45 %     28,852     32 %          -      - %      90,429     100 %
Construction         3,157     98 %         59       2 %          -      -
%          -      - %       3,216     100 %
Other                    -      - %        123     100 %          -      - %          -      - %         123     100 %
Total            $ 214,009     23 %  $ 429,500      46 %  $ 292,612     31 %  $     557      - %  $  936,678     100 %

(1) Excluding Inland Empire.

For further discussion of loans held for investment purposes, see Note 5 of the Notes to the Unaudited Interim Condensed Consolidated Financial Statements of this Form 10-Q.

Total deposits increased $29.8 million, or three percent, to $985.3 million at
September 30, 2022 from $955.5 million at June 30, 2022, primarily due to an
increase in brokered time deposits, and to a lesser extent, transaction
accounts. Time deposits increased $21.9 million, or 18 percent, to $143.0
million at September 30, 2022 from $121.1 million at June 30, 2022, while
transaction accounts increased $7.9 million, or one percent, to $842.3 million
at September 30, 2022 from $834.4 million at June 30, 2022. The increase in time
deposits was primarily due to an increase in brokered certificates of deposit of
$30.0 million with a weighted average cost of 2.83% (including broker fees).
The percentage of time deposits to total deposits increased to 15 percent at
September 30, 2022 from 13 percent at June 30, 2022. Brokered deposits totaled
$30.0 million at September 30, 2022.

Total borrowings increased $30.0 million, or 35 percent, to $115.0 million at
September 30, 2022 as compared to $85.0 million at June 30, 2022, due to
additional short-term borrowings to fund the increase in loans held for
investment. At September 30, 2022, borrowings are comprised of short-term and
long-term FHLB - San Francisco advances used for interest rate risk management
purposes.

Total stockholders' equity increased slightly to $129.2 million at September 30,
2022 from $128.7 million at June 30, 2022, primarily as a result of the $2.1
million net income and $212,000 of stock-based compensation in the first three
months of fiscal 2023, partly offset by $1.0 million of quarterly cash dividends
paid to shareholders and $724,000 of stock repurchases. The Corporation
repurchased 49,624 shares of its common stock under its April 2022 stock
repurchase plan with a weighted average cost of $14.57 per share during the
first three months of fiscal 2023.

Comparison of operating results for the quarters ended September 30, 2022 and 2021

The Corporation's net income for the first quarter of fiscal 2023 was $2.1
million, down $577,000 or 22 percent from $2.7 million in the same period of
fiscal 2022. Compared to the same quarter last year, the decrease in net income
was primarily attributable to salaries and employee benefits expenses increasing
$1.0 million resulting from the $1.2 million credit from the Employee Retention
Tax Credit ("ERTC") recognized in the first quarter of last year (not replicated
this quarter) and a $409,000 change to a $70,000 provision for loan losses this
quarter in contrast to a $339,000 recovery from the allowance for loan losses in
the same quarter last year, partly offset by a $1.08 million increase in net
interest income.

The Company’s efficiency ratio increased to 70% for the first quarter of fiscal 2023 from 63% in the same period last year.

Return on average assets was 0.69 percent in the first quarter of fiscal 2023,
down from 0.89 percent in the same period last year. Return on average
stockholders' equity was 6.42 percent in the first quarter of fiscal 2023, down
from 8.39 percent in the same period last year.

Diluted earnings per share for the first quarter of fiscal 2023 was $0.29down 17% from diluted earnings per share of $0.35 at the same time last year.

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Net Interest Income:

For the Quarters Ended September 30, 2022 and 2021. Net interest income
increased $1.1 million or 14 percent to $9.0 million from $7.9 million for the
same quarter last year. The increase in net interest income was primarily due to
a higher net interest margin due to a shift in the composition of
interest-earning assets towards higher yielding loans held for investment and an
increase in the average yield on interest-earning deposits reflecting recent
increases in the targeted federal funds rate, including a 150-basis point
increase during the current quarter, to a range of 3.00% to 3.25%. The net
interest margin during the first quarter of fiscal 2023 increased 34 basis
points to 3.05 percent from 2.71 percent in the same quarter last year. The
average yield on interest-earning assets increased 35 basis points to 3.36
percent in the first quarter of fiscal 2023 from 3.01 percent in the same
quarter last year while the average cost of interest-bearing liabilities
increased by only three basis points to 0.35 percent in the first quarter of
fiscal 2023 from 0.32 percent in the same quarter last year. The average balance
of interest-earning assets increased by one percent to $1.18 billion in the
first quarter of fiscal 2023 from $1.16 billion in the same quarter last year.
The increase in the average balance of loans held for investment was mainly
offset by decreases in the average balance of both investment securities and
interest-earning deposits.

Interest Income:

For the Quarters Ended September 30, 2022 and 2021. Total interest income
increased $1.2 million, or 14 percent, to $9.9 million for the first quarter of
fiscal 2023 as compared to $8.7 million for the same quarter of fiscal 2022. The
increase was due primarily to an increase in interest income from loans
receivable.

Interest income on loans receivable increased by $925,000, or 11 percent, to
$9.1 million in the first quarter of fiscal 2023 from $8.2 million in the same
quarter of fiscal 2022. The increase was due to a higher average balance, partly
offset by a lower average yield. The average balance of loans receivable
increased by $107.9 million, or 13 percent, to $960.6 million in the first
quarter of fiscal 2023 from $852.7 million in the same quarter last year. Total
loans originated and purchased for investment in the first quarter of fiscal
2023 were $84.6 million, up 39 percent from $60.9 million in the same quarter
last year. Loan principal payments received in the first quarter of fiscal 2023
were $31.7 million, down 41 percent from $53.9 million in the same quarter last
year. The average yield on loans receivable decreased by four basis points to
3.79 percent in the first quarter of fiscal 2023 from an average yield of 3.83
percent in the same quarter last year. Net deferred loan cost amortization in
the first quarter of fiscal 2023 decreased 33 percent to $296,000 from $441,000
in the same quarter last year, attributable primarily to fewer loan payoffs.

Interest income from investment securities increased $118,000, or 28 percent, to
$536,000 in the first quarter of fiscal 2023 from $418,000 for the same quarter
of fiscal 2022. This increase was attributable to a higher average yield, partly
offset by a lower average balance. The average yield on investment securities
increased 40 basis points to 1.16 percent in the first quarter of fiscal 2023
from 0.76 percent for the same quarter last year. The increase in the average
investment securities yield was primarily attributable to a lower premium
amortization during the current quarter in comparison to the same quarter last
year ($238,000 vs. $510,000) attributable to a lower total principal repayment
($9.3 million vs. $17.0 million) and, to a lesser extent, the upward repricing
of adjustable-rate mortgage-backed securities. The average balance of investment
securities decreased by $35.5 million, or 16 percent, to $184.4 million in the
first quarter of fiscal 2023 from $219.9 million in the same quarter last year.

The FHLB - San Francisco distributed a $123,000 cash dividend to the Bank on its
stock in the first quarter of fiscal 2023, up slightly from $122,000 in the same
quarter last year. The average balance of FHLB - San Francisco stock in the
first quarter of fiscal 2023 was $8.2 million, virtually unchanged from the same
quarter of fiscal 2022 and the average yield was also virtually unchanged.

Interest income from interest-earning deposits, primarily cash deposited at the
Federal Reserve Bank of San Francisco, was $139,000 in the first quarter of
fiscal 2023, up 348 percent from $31,000 in the same quarter of fiscal 2022. The
increase was due to a higher average yield, partly offset by a lower average
balance. The average yield earned on interest-earning deposits in the first
quarter of fiscal 2023 was 2.30 percent, up 215 basis points from 0.15 percent
in the same quarter last year. The average balance of the Company's
interest-earning deposits decreased $58.6 million, or 71 percent, to $23.6
million in the first quarter of fiscal 2023 from $82.2 million in the same
quarter last year primarily due to the utilization of these excess funds for
loan portfolio growth.

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Interest Expense:
For the Quarters Ended September 30, 2022 and 2021. Total interest expense
increased $75,000 or nine percent to $933,000 in the first quarter of fiscal
2023 from $858,000 in the same quarter last year. The increase was primarily
attributable to higher interest expense on borrowings.

Interest expense on deposits for the first quarter of fiscal 2023 was $317,000,
a small increase from $313,000 for the same period last year. The increase in
interest expense on deposits was attributable to a higher average balance. The
average balance of deposits increased $10.0 million, or one percent, to $962.3
million in the first quarter of fiscal 2023 from $952.3 million in the same
quarter last year. The average cost of deposits was unchanged at 0.13 percent as
compared to the same quarter last year.

Transaction account balances or "core deposits" increased $7.9 million, or one
percent, to $842.3 million at September 30, 2022 from $834.4 million at June 30,
2022 and time deposits increased $21.9 million, or 18 percent, to $143.0 million
at September 30, 2022 from $121.1 million at June 30, 2022. The increase in time
deposits was primarily due to newly issued brokered certificates of deposit
totaling $30.0 million with a weighted average cost of 2.83% (including broker
fees).

Interest expense on borrowings, consisting of FHLB - San Francisco advances, for
the first quarter of fiscal 2023 increased $71,000, or 13 percent, to $616,000
from $545,000 for the same period last year. The increase in interest expense on
borrowings was the result of a higher average cost and, to a lesser extent, a
higher average balance. The average cost of borrowings increased by 18 basis
points to 2.39 percent in the first quarter of fiscal 2023 from 2.21 percent in
the same quarter last year, and the average balance of borrowings increased by
$4.5 million to $102.2 million in the first quarter of fiscal 2023 from $97.7
million in the same quarter last year.

                                       36

Contents

The following tables show the average balance sheets for the quarters ended
September 30, 2022 and 2021, respectively:

Average Balance Sheets

                                      Quarter Ended                             Quarter Ended
                                    September 30, 2022                        September 30, 2021
                            Average                    Yield/         Average                    Yield/
(Dollars In Thousands)      Balance       Interest      Cost          Balance       Interest      Cost
Interest-earning
assets:
Loans receivable,
net(1)                    $   960,610    $    9,100      3.79 %     $   852,741    $    8,175      3.83 %
Investment securities         184,352           536      1.16 %         219,907           418      0.76 %
FHLB - San Francisco
stock                           8,239           123      5.97 %           8,155           122      5.98 %
Interest-earning
deposits                       23,614           139      2.30 %          82,207            31      0.15 %

Total interest-earning
assets                      1,176,815         9,898      3.36 %       1,163,010         8,746      3.01 %

Non interest-earning
assets                         33,947                                    31,749

Total assets              $ 1,210,762                               $ 1,194,759

Interest-bearing
liabilities:
Checking and money
market accounts(2)        $   499,953    $       60      0.05 %     $   501,297    $       57      0.05 %
Savings accounts              334,670            44      0.05 %         313,267            41      0.05 %
Time deposits                 127,643           213      0.66 %         137,753           215      0.62 %

Total deposits(3)             962,266           317      0.13 %         952,317           313      0.13 %

Borrowings                    102,174           616      2.39 %          97,742           545      2.21 %

Total interest-bearing
liabilities                 1,064,440           933      0.35 %       1,050,059           858      0.32 %

Non interest-bearing
liabilities                    16,156                                    17,540

Total liabilities           1,080,596                                 1,067,599

Stockholders' equity          130,166                                   127,160
Total liabilities and
stockholders' equity      $ 1,210,762                               $ 1,194,759

Net interest income                      $    8,965                                $    7,888

Interest rate
spread(4)                                                3.01 %                                    2.69 %
Net interest margin(5)                                   3.05 %            
                       2.71 %
Ratio of average
interest- earning
assets to average
interest-bearing
liabilities                                            110.56 %                                  110.76 %
Return on average
assets                                                   0.69 %                                    0.89 %
Return on average
equity                                                   6.42 %                                    8.39 %

(1) Includes non-performing loans and net amortization of the cost of deferred loans of $296

thousand, and $441,000 for completed quarters September 30, 2022 and

2021, respectively.

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

$123.4 million and $121.9 million in the quarters ended September 30,

2022 and 2021, respectively.

(3) Includes the average balance of uninsured deposits of $178.2 million and $161.9

million during the quarters ended September 30, 2022 and 2021, respectively.

(4) Represents the difference between the weighted average return of all

interest-earning assets and the weighted average rate on all assets

Passives.

(5) Represents net interest income before provision (recovery) for loan losses

    a percentage of average interest-earning assets.


                                       37

  Table of Contents
The following tables set forth the effects of changing rates and volumes on
interest income and expense for the quarters ended September 30, 2022 and 2021,
respectively. Information is provided with respect to the effects attributable
to changes in volume (changes in volume multiplied by prior rate), the effects
attributable to changes in rate (changes in rate multiplied by prior volume) and
the effects attributable to changes that cannot be allocated between rate and
volume.

Rate/Volume Variance

                                                    Quarter Ended September 30, 2022 Compared
                                                       To Quarter Ended September 30, 2021
                                                            Increase (Decrease) Due to
(In Thousands)                                  Rate          Volume        Rate/Volume       Net
Interest-earning assets:
Loans receivable(1)                           $    (97)     $     1,033     $       (11)    $    925
Investment securities                               222            (68)             (36)         118
FHLB - San Francisco stock                            -               1                -           1
Interest-earning deposits                           445            (22)            (315)         108
Total net change in income on
interest-earning assets                             570             944            (362)       1,152

Interest-bearing liabilities:
Checking and money market accounts                    -               -    
           3           3
Savings accounts                                      -               3                -           3
Time deposits                                        15            (16)              (1)         (2)
Borrowings                                           44              25                2          71
Total net change in expense on
interest-bearing liabilities                         59              12                4          75
Net increase (decrease) in net interest
income                                        $     511     $       932    

($366) $1,077

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

non-performing loans have been included in the weighted average balance

exceptional.

Allowance (recovery) for loan losses:

For the Quarters Ended September 30, 2022 and 2021. During the first quarter of
fiscal 2023, the Corporation recorded a provision for loan losses of $70,000, as
compared to the $339,000 recovery from the allowance for loan losses recorded
during the same period last year. The provision for loan losses primarily
reflects an increase in loans held for investment in the first quarter of fiscal
2023 while the overall loan credit quality remains very good.

Non-performing assets, comprised solely of non-performing loans with underlying
collateral located in California, decreased $459,000 or 32 percent to $964,000,
or 0.08 percent of total assets, at September 30, 2022, compared to $1.4
million, or 0.12 percent of total assets, at June 30, 2022. The non-performing
loans at September 30, 2022 are comprised of five single-family loans, while the
non-performing loans at June 30, 2022 were comprised of seven single-family
loans. At both September 30, 2022 and June 30, 2022, there was no real estate
owned.

Net loan recoveries for the quarter ended September 30, 2022 were $4,000 or 0.00
percent (annualized) of average loans receivable, as compared to net loan
recoveries of $165,000 or 0.08 percent (annualized) of average loans receivable
for the quarter ended September 30, 2021.

Classified assets were $964,000 at September 30, 2022 which consist solely of
loans in the substandard category; while classified assets at June 30, 2022 were
$1.6 million, consisting of $224,000 of loans in the special mention category
and $1.4 million of loans in the substandard category.

The allowance for loan losses was determined through quantitative and qualitative adjustments, including the Bank’s experience with write-offs, and reflects the impact on loans held for investment of general economic conditions. current of the WE and California savings. See the related discussion on “asset quality”.

                                       38

  Table of Contents

At September 30, 2022, the allowance for loan losses was $5.6 million, comprised
of collectively evaluated allowances of $5.6 million and individually evaluated
allowances of $38,000; virtually unchanged from June 30, 2022. The allowance for
loan losses as a percentage of gross loans held for investment was 0.57 percent
at September 30, 2022 as compared to 0.59 percent at June 30, 2022. Management
considers, based on currently available information, the allowance for loan
losses sufficient to absorb potential losses inherent in loans held for
investment. For further analysis on the allowance for loan losses, see Note 5 of
the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

Non-interest income:

For the Quarters Ended September 30, 2022 and 2021. Non-interest income
decreased by $66,000, or six percent, to $1.00 million in the first quarter of
fiscal 2023 from $1.07 million in the same period last year, primarily due to a
decrease in loan servicing and other fees.

Loan servicing and other fees decreased $78,000 or 42 percent to $108,000 in the
first quarter of fiscal 2023 from $186,000 in the same quarter last year. The
decrease was attributable primarily to lower loan prepayment fees.

Non-interest expenses:

For the Quarters Ended September 30, 2022 and 2021. Non-interest expenses
increased by $1.27 million or 22 percent to $6.94 million in the first quarter
of fiscal 2023 from $5.67 million for the same quarter last year. The increase
in the non-interest expense in the first quarter of fiscal 2023 was primarily
due to a higher salaries and employee benefits expense.

Salaries and employee benefits expense increased $1.0 million, or 32 percent, to
$4.1 million in the first quarter of fiscal 2023 from $3.1 million in the same
period of fiscal 2022. The increase in the salaries and employee benefits
expense in the first quarter of fiscal 2023 was primarily due to the $1.2
million credit from the ERTC in the first quarter last year, not replicated
this
quarter.

Provision for Income Taxes:

The income tax provision reflects accruals for taxes at the applicable rates for
federal income tax and California franchise tax based upon reported pre-tax
income, adjusted for the effect of all permanent differences between income for
tax and financial reporting purposes, such as non-deductible stock-based
compensation, earnings from bank-owned life insurance policies and certain
California tax-exempt loans, among others. Therefore, there are fluctuations in
the effective income tax rate from period to period based on the relationship of
net permanent differences to income before tax.

For the Quarters Ended September 30, 2022 and 2021. The Corporation's income tax
provision was $867,000 for the first quarter of fiscal 2023, down 10 percent
from $961,000 in the same quarter last year primarily due to a decrease in
income before income taxes. The effective tax rate in the first quarter of
fiscal 2023 was 29.3 percent, up from 26.5 percent in the same quarter last
year. The higher effective tax rate in the first quarter of fiscal 2023 was
primarily attributable to the non-taxable treatment of the ERTC for state tax
purposes in the first quarter of fiscal 2022 that was not applicable to this
quarter.

Asset Quality
Non-performing assets were comprised solely of non-performing loans at both
September 30, 2022 and June 30, 2022. Non-performing loans, net of the allowance
for loan losses, consisting of loans with collateral located in California, were
$964,000 at September 30, 2022, down 32 percent from $1.4 million at June 30,
2022. Non-performing loans as a percentage of loans held for investment at
September 30, 2022 was 0.10%, down from 0.15% at June 30, 2022. The
non-performing loans at September 30, 2022 were comprised of five single-family
loans; while the non-performing loans at June 30, 2022 were comprised of seven
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 September 30, 2022, total restructured loans were $2.6 million, down 42
percent from $4.5 million at June 30, 2022. At September 30, 2022, a total of
$721,000 or 27 percent of these restructured loans were classified as
non-performing;

                                       39

  Table of Contents

while at June 30, 2022, a total of $722,000 or 16 percent of these restructured
loans were classified as non-performing. As of September 30, 2022, a total of
$1.9 million or 73 percent of the restructured loans have a current payment
status, consistent with their modified payment terms; this compares to $4.5
million or 100 percent of restructured loans that had a current payment status,
consistent with their modified payment terms as of June 30, 2022. Restructured
loans which are performing in accordance with their modified terms and not
otherwise classified as non-accrual are not included in non-performing assets.
For further analysis on non-performing loans and restructured loans, see Note 5
of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

There was no real estate owned at either September 30, 2022 Where June 30, 2022.

A decline in real estate values subsequent to the time of origination of the
Corporation's real estate secured loans could result in higher loan delinquency
levels, foreclosures, provision for loan losses and net charge-offs. Real estate
values and real estate markets are beyond the Corporation's control and are
generally affected by changes in national, regional or local economic conditions
and other factors. These factors include fluctuations in interest rates and the
availability of loans to potential purchasers, changes in tax laws and other
governmental statutes, regulations and policies and acts of nature, such as
earthquakes, fires and national disasters particular to California where
substantially all of the Corporation's real estate collateral is located. If
real estate values decline, the value of the real estate collateral securing the
Corporation's loans as set forth in the table could be significantly overstated.
The Corporation's ability to recover on defaulted loans by foreclosing and
selling the real estate collateral would then be diminished and it would be more
likely to suffer losses on defaulted loans. The Corporation generally does not
update the loan-to-value ratio on its loans held for investment by obtaining new
appraisals or broker price opinions (nor does the Corporation intend to do so in
the future as a result of the costs and inefficiencies associated with
completing the task) unless a specific loan has demonstrated deterioration in
which case individually evaluated allowances are established, if required.

The following table sets forth information with respect to the Corporation's
non-performing assets, net of allowance for loan losses, at the dates indicated:

                                                         At September 30,      At June 30,
(In Thousands)                                                 2022                2022
Loans on non-accrual status (excluding restructured
loans):
Mortgage loans:
Single-family                                           $               243    $         701
Total                                                                   243              701
Accruing loans past due 90 days or more                                   -                -

Restructured loans on non-accrual status:
Mortgage loans:
Single-family                                                           721              722
Total                                                                   721              722

Total non-performing loans                                              964            1,423

Real estate owned, net                                                    -                -
Total non-performing assets                             $               964    $       1,423

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

                       0.10 %           0.15 %

Non-performing loans as a percentage of total assets                   0.08 %           0.12 %

Non-performing assets as a percentage of total
assets                                                                 0.08 %           0.12 %


                                       40

  Table of Contents

The following table summarizes classified assets, which include classified loans, net of allowance for loan losses and fair value adjustments, and real estate held, if any, as of the dates indicated:

                                                 At September 30, 2022        At June 30, 2022
(Dollars In Thousands)                          Balance          Count       Balance      Count
Special mention loans:
Mortgage loans:
Single-family                                  $        -              -    $      224         1
Total special mention loans                             -              -   
       224         1

Substandard loans:
Mortgage loans:
Single-family                                         964              5         1,423         9
Total substandard loans                               964              5         1,423         9

Total classified loans                                964              5         1,647        10

Real estate owned                                       -              -             -         -

Total classified assets                        $      964              5    $    1,647        10

Total classified assets as a percentage of
total assets                                         0.08 %                       0.14 %


Loan Volume Activities

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

                                               For the Quarter Ended
                                                  September 30,
(In Thousands)                                  2022           2021
Loans originated for investment:
Mortgage loans:
Single-family                                $    57,049    $   34,420
Multi-family                                      24,196        25,318
Commercial real estate                             3,325         1,200
Total loans originated for investment             84,570        60,938

Loans purchased for investment                         -             -

Mortgage loan principal payments                (31,728)      (53,859)
Increase in other items, net?¹?                    1,108           996

Net increase in loans held for investment purposes $53,950 $8,075

(1) Includes net changes in undisbursed loan funds, deferred lending fees or costs,

provision for loan losses, fair value of loans held for investment and

advance escrow payments.

Cash and capital resources

The Corporation's primary sources of funds are deposits, proceeds from principal
and interest payments on loans and investment securities, proceeds from the
maturity of loans and investment securities, FHLB - San Francisco advances,
access to the discount window facility at the Federal Reserve Bank of San
Francisco and access to a federal funds facility with its correspondent bank.
While maturities and scheduled amortization of loans and investment securities
are a relatively

                                       41

  Table of Contents

the predictable source of funds, deposit flows and prepayments of mortgage loans are strongly influenced by general interest rates, economic conditions and competition.

The primary investing activity of the Corporation is the origination and
purchase of loans held for investment. During the first three months of fiscal
2022 and 2021, the Corporation originated and purchased loans held for
investment of $84.6 million and $60.9 million, respectively. At September 30,
2022, the Corporation had loan origination commitments totaling $47.4 million,
undisbursed lines of credit totaling $927,000 and undisbursed construction loan
funds totaling $2.8 million. The Corporation anticipates that it will have
sufficient funds available to meet its current loan commitments. During the
first three months of fiscal 2023 and 2022, total loan repayments were $31.7
million and $53.9 million, respectively.

The Corporation's primary financing activity is gathering deposits. During the
first three months of fiscal 2023, the net increase in deposits was $29.8
million or three percent, due primarily to an increase in time deposits and, to
a lesser extent, an increase in transaction accounts. Time deposits increased
$21.9 million, or 18 percent, to $143.0 million at September 30, 2022 from
$121.1 million at June 30, 2022, while transaction account balances increased
$7.9 million, or one percent, to $842.3 million at September 30, 2022 from
$834.4 million at June 30, 2022. The increase in time deposits was due to
brokered certificates of deposit totaling $30.0 million issued in the first
quarter of fiscal 2023. At September 30, 2022, time deposits with a principal
amount of $250,000 or less and scheduled to mature in one year or less were
$89.2 million and total time deposits with a principal amount of more than
$250,000 and scheduled to mature in one year or less were $10.7
million. Historically, the Corporation has been able to retain a
significant percentage of its time deposits as they mature.

The Corporation must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. The Corporation generally maintains sufficient cash and cash
equivalents to meet short-term liquidity needs. At September 30, 2022, total
cash and cash equivalents were $38.7 million, or three percent of total assets.
Depending on market conditions and the pricing of deposit products and the
FHLB - San Francisco advances, the Bank may rely on FHLB - San Francisco
advances for part of its liquidity needs. As of September 30, 2022, total
borrowings were $115.0 million and the financing availability at the FHLB - San
Francisco was limited to 35 percent of total assets. As a result, the remaining
borrowing facility available was $280.0 million and the remaining available
collateral was $276.9 million. In addition, the Bank has secured a $139.7
million discount window facility at the Federal Reserve Bank of San Francisco,
collateralized by investment securities with a fair market value of $148.7
million. As of September 30, 2022, the Bank also has a borrowing arrangement in
the form of a federal funds facility with its correspondent bank for $50.0
million. The Bank had no advances under its correspondent bank or discount
window facility as of September 30, 2022.

During the first three months of fiscal 2023, the Corporation purchased 49,624
shares of the Corporation's common stock under the April 2022 stock repurchase
plan with a weighted average cost of $14.57 per share. As of September 30, 2022,
there are 314,635 shares available for purchase until the plan expires on
April 28, 2023. The Corporation will purchase the shares from time to time in
the open market or through privately negotiated transactions depending on market
conditions, the capital requirements of the Corporation, and available cash that
can be allocated to the stock repurchase program, among other considerations.

Regulations require thrifts to maintain adequate liquidity to assure safe and
sound operations. The Bank's average liquidity ratio (defined as the ratio of
average qualifying liquid assets to average deposits and borrowings) for the
quarter ended September 30, 2022 decreased to 21.3 percent from 24.3 percent for
the quarter ended June 30, 2022.

The Bank, as a federally-chartered, federally insured savings bank, is subject
to the capital requirements established by the OCC. Under the OCC's capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weighting and other factors.

At September 30, 2022, the Bank exceeded all regulatory capital requirements.
The Bank was categorized "well-capitalized" at September 30, 2022 under the
regulations of the OCC. As a bank holding company registered with the Federal
Reserve, Provident Financial Holdings, Inc. is subject to the capital adequacy
requirements of the Federal Reserve.

                                       42

Contents

For a bank holding company of less than $3.0 billion of assets, the capital guidelines apply on a banking basis only, and the Federal Reserve expects the holding company’s subsidiary bank to be well capitalized under the early remedy regulations.

The Bank’s actual and required minimum capital amounts and ratios as of the dates indicated are as follows (in thousands of dollars):

                                                                  Regulatory Requirements
                                                        Minimum for Capital          Minimum to Be
                                      Actual            Adequacy

Objectives(1) Well capitalized

                                 Amount      Ratio       Amount         

Report Amount Report

Provident Savings Bank,
F.S.B.:

As of September 30, 2022
Tier 1 leverage capital (to
adjusted average assets)        $ 117,916     9.74 %  $      48,427       4.00 %  $   60,534     5.00 %
CET1 capital (to
risk-weighted assets)           $ 117,916    17.67 %  $      46,706       7.00 %  $   43,369     6.50 %
Tier 1 capital (to
risk-weighted assets)           $ 117,916    17.67 %  $      56,714       8.50 %  $   53,378     8.00 %
Total capital (to
risk-weighted assets)           $ 123,691    18.54 %  $      70,058      10.50 %  $   66,722    10.00 %

As of June 30, 2022
Tier 1 leverage capital (to
adjusted average assets)        $ 124,871    10.47 %  $      47,699       4.00 %  $   59,624     5.00 %
CET1 capital (to
risk-weighted assets)           $ 124,871    19.58 %  $      44,653       7.00 %  $   41,463     6.50 %
Tier 1 capital (to
risk-weighted assets)           $ 124,871    19.58 %  $      54,221       8.50 %  $   51,032     8.00 %
Total capital (to
risk-weighted assets)           $ 130,565    20.47 %  $      66,979      10.50 %  $   63,790    10.00 %

(1) Including the conservation buffer above 2.50% for CET1 capital,

Tier 1 capital and total capital ratios.

In addition to the minimum CET1, Tier 1 and Total capital ratios, the Bank must
maintain a capital conservation buffer consisting of additional CET1 capital
greater than 2.5% of risk-weighted assets above the required minimum levels in
order to avoid limitations on paying dividends, engaging in share repurchases,
and paying discretionary bonuses based on percentages of eligible retained
income that could be utilized for such actions.

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.
The Bank may not declare or pay a cash dividend if the effect thereof would
cause its net worth to be reduced below the regulatory capital requirements
imposed by federal regulation. In the first three months of fiscal 2023, the
Bank paid a cash dividend of $9.5 million to the Corporation, while the
Corporation paid $1.0 million of cash dividends to its shareholders.

Supplemental Information

                                                At             At             At
                                          September 30,     June 30,    September 30,
                                               2022           2022           2021

Loans managed for third parties (in thousands) $35,861 $37,707 $

46,454

Book value per share                      $     17.85      $   17.66    $  

17.12

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