Reportable Segments

The segment reporting is organized consistent with the Corporation’s executive summary and operating strategy. The business activities of the Corporation consist primarily of the Bank and PBM, a division of the Bank. The Bank's operations primarily consist of accepting deposits from customers within the communities surrounding the Bank’s full service offices and investing those funds in single-family, multi-family, commercial real estate, construction, commercial business, consumer and other mortgage loans. PBM operations primarily consist of the origination, purchase and sale of mortgage loans secured by single-family residences. The following table and discussion explain the results of the Corporation’s two major reportable segments, the Bank and PBM.

The following tables illustrate the Corporation’s operating segments for the fiscal years ended June 30, 2018, 2017 and 2016, respectively:



	For the Year Ended June 30, 2018
(In Thousands)	Provident Bank			Provident Bank Mortgage			Consolidated Totals
Net interest income	$	34,399		$	1,901		$	36,300
Recovery from the allowance for loan losses	(536		)	—			(536		)
Net interest income, after recovery from the allowance for loan losses	34,935			1,901			36,836

Non-interest income:
Loan servicing and other fees	509			1,066			1,575
Gain on sale of loans, net	21			15,781			15,802
Deposit account fees	2,119			—			2,119
Loss on sale and operations of real estate owned acquired in the settlement of loans, net	(86		)	—			(86		)
Card and processing fees	1,541			—			1,541
Other	944			—			944
Total non-interest income	5,048			16,847			21,895

Non-interest expense:
Salaries and employee benefits	18,146			16,675			34,821
Premises and occupancy	3,381			1,753			5,134
Operating and administrative expenses⁽¹⁾	5,653			7,596			13,249
Total non-interest expense	27,180			26,024			53,204
Income (loss) before taxes	12,803			(7,276		)	5,527
Provision (benefit) for income taxes⁽²⁾	6,005			(2,609		)	3,396
Net income (loss)	$	6,798		$	(4,667	)	$	2,131
Total assets, end of period	$	1,078,955		$	96,594		$	1,175,549

⁽¹⁾ Includes $1.3 million and $2.1 million of litigation settlement expenses for Provident Bank and Provident Bank Mortgage market segments, respectively.

⁽²⁾ Includes a net tax charge of $1.8 million resulting from the revaluation of net deferred tax assets consistent with the Tax Act for the Provident Bank market segment.



(In Thousands)	Year Ended June 30, 2017
	Provident Bank			Provident Bank Mortgage			Consolidated Total

Net interest income	$	31,589		$	4,149		$	35,738
Recovery from the allowance for loan losses	(808		)	(234		)	(1,042		)
Net interest income, after recovery from the allowance for loan losses	32,397			4,383			36,780

Non-interest income:
Loan servicing and other fees	331			920			1,251
Gain on sale of loans, net	137			25,543			25,680
Deposit account fees	2,194			—			2,194
Loss on sale and operations of real estate owned acquired in the settlement of loans, net	(533		)	(24		)	(557		)
Card and processing fees	1,451			—			1,451
Other	802			—			802
Total non-interest income	4,382			26,439			30,821

Non-interest expense:
Salaries and employee benefits	18,622			23,120			41,742
Premises and occupancy	3,251			1,810			5,061
Operating and administrative expenses⁽¹⁾	4,846			7,136			11,982
Total non-interest expenses	26,719			32,066			58,785
Income (loss) before income taxes	10,060			(1,244		)	8,816
Provision (benefit) for income taxes	4,132			(523		)	3,609
Net income (loss)	$	5,928		$	(721	)	$	5,207
Total assets, end of fiscal year	$	1,083,837		$	116,796		$	1,200,633

⁽¹⁾ Includes $1.2 million of litigation settlement expenses for the Provident Bank Mortgage market segment.



(In Thousands)	Year Ended June 30, 2016
	Provident Bank			Provident Bank Mortgage			Consolidated Total

Net interest income	$	28,261		$	4,068		$	32,329
Recovery from the allowance for loan losses	(1,608		)	(107		)	(1,715		)
Net interest income, after recovery from the allowance for loan losses	29,869			4,175			34,044

Non-interest income:
Loan servicing and other fees	568			500			1,068
Gain on sale of loans, net	25			31,496			31,521
Deposit account fees	2,319			—			2,319
Loss on sale and operations of real estate owned acquired in the settlement of loans, net	(52		)	(43		)	(95		)
Card and processing fees	1,448			—			1,448
Other	800			—			800
Total non-interest income	5,108			31,953			37,061

Non-interest expense:
Salaries and employee benefits	18,165			24,444			42,609
Premises and occupancy	2,959			1,687			4,646
Operating and administrative expenses	4,710			6,294			11,004
Total non-interest expenses	25,834			32,425			58,259
Income before income taxes	9,143			3,703			12,846
Provision for income taxes	3,815			1,557			5,372
Net income	$	5,328		$	2,146		$	7,474
Total assets, end of fiscal year	$	981,720		$	189,661		$	1,171,381

The information above was derived from the internal management reporting system used by management to measure performance of the segments.

The Corporation’s internal transfer pricing arrangements determined by management primarily consist of the following:


1.	Borrowings for PBM are indexed monthly to the higher of the three-month FHLB – San Francisco advance rate on the first Friday of the month plus 50 basis points or the Bank’s cost of funds for the prior month.


2.	PBM receives servicing released premiums for new loans transferred to the Bank’s loans held for investment. The servicing released premiums in the fiscal years ended June 30, 2018, 2017 and 2016 were $1.1 million, $992,000 and $468,000, respectively.


3.	PBM receives a discount (loss on sale of loans) or a premium (gain on sale of loans) for the new loans transferred to the Bank’s loans held for investment. The loss on sale of loans in the fiscal years ended June 30, 2018, 2017 and 2016 was $248,000, $286,000 and $55,000, respectively.


4.	Loan servicing costs are charged to PBM by the Bank based on the number of loans held for sale at fair value multiplied by a fixed fee which is subject to management’s review. The loan servicing costs in the fiscal years ended June 30, 2018, 2017 and 2016 were $114,000, $131,000 and $108,000, respectively.


5.	The Bank allocates quality assurance costs to PBM for its loan production, subject to management’s review. Quality assurance costs allocated to PBM in the fiscal years ended June 30, 2018, 2017 and 2016 were $283,000, $355,000 and $452,000, respectively.


6.	The Bank allocates loan vault service costs to PBM for its loan production, subject to management’s review. The loan vault service costs allocated to PBM in the fiscal years ended June 30, 2018, 2017 and 2016 were $92,000, $105,000 and $113,000, respectively.


7.	Office rents for PBM offices located in the Bank branches or offices are internally charged based on the square footage used. Office rents allocated to PBM in the fiscal years ended June 30, 2018, 2017 and 2016 were $193,000, $193,000 and $195,000, respectively.


8.	A management fee, which is subject to regular review, is charged to PBM for services provided by the Bank. The management fee in the fiscal years ended June 30, 2018, 2017 and 2016 was $2.0 million, $1.9 million and $1.8 million, respectively.