UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549

|FORM 10-K                                                         
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|Commission File Number: 0-26993                                   
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|PROVIDENT FINANCIAL HOLDINGS, INC.                                
|(Exact name of registrant as specified in its
    charter)        
|Delaware                                                          
|(State or other jurisdiction of incorporation
    or organization)
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|                                                                  
|3756 Central Avenue, Riverside, California                        
|(Address of principal executive offices)                          

Registrant's telephone number, including area code:   (909) 686-6060



Securities registered pursuant to Section 12(b) of the Act:   None



Securities registered pursuant to Section 12(g) of the Act:



Common Stock, par value $.01 per share
(Title of Class)



Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES X     NO .



Indicate by check mark whether disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [  ]



As of September 20, 2002, there were issued and outstanding 5,221,057 shares of the Registrant's common stock. The Registrant's common stock is listed on the Nasdaq Stock Market under the symbol "PROV."  The aggregate market value of the common stock held by nonaffiliates of the Registrant, based on the closing sales price of the Registrant's common stock as quoted on the Nasdaq Stock Market on September 20, 2002, was $129.2 million. All numbers presented in this report, which are associated with the number of shares, have been adjusted for the 3-for-2 stock split in the form of a 50% stock dividend, record date of June 25, 2002.





DOCUMENTS INCORPORATED BY REFERENCE



No documents are incorporated by reference.

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PROVIDENT FINANCIAL HOLDINGS, INC.
Table of Contents

PagePART IItem  1.
Business
1General
1Market Area
1Item  2.
Properties
35Item  3.
Legal Proceedings
35Item  4.
Submission of Matters to a Vote of Security Holders
36PART IIItem  5.
Market for Registrant's Common Equity and Related Stockholders Matters
36Item  6.
Selected Financial Data
37Item  7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
38Item  7A.
Quantitative and Qualitative Disclosures About Market Risk
46Item  8.
Financial Statements and Supplementary Data
51Item  9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
51PART IIIItem 10.
Directors and Executive Officers of the Registrant
52Item 11.
Executive Compensation
54Item 12.
Security Ownership of Certain Beneficial Owners and Management
61Item 13.
Certain Relationships and Related Transactions
64Item 14.
Controls and Procedures
65PART IVItem 15.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
65Signatures

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PART I



Item 1.  Business



General



Provident Financial Holdings, Inc. (the "Corporation"), a Delaware corporation, was organized in January 1996 for the purpose of becoming the holding company for 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.  At June 30, 2002, the Corporation had total assets of $1.0 billion, total deposits of $677.4 million and stockholders' equity of $103.0 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.



The Corporation, from time to time, may repurchase its common stock as a way to enhance the Corporation's earnings per share. The Corporation considers the repurchase of its common stock if the market value of the stock is lower than its book value and/or the Corporation believes that the current stock price is under valued as compared to its current and future income projections. Consideration is also given to the Corporation's liquidity and capital requirements and its future capital needs based on the Corporation's current business plans. The Corporation's Board of Directors authorizes each stock repurchase program, the duration of which is normally one year.  Once the stock repurchase program is authorized, Management may repurchase its common stock from time to time in the open market, depending upon market conditions and the factors described above.



The Bank, founded in 1956, is a federally chartered stock savings bank headquartered in Riverside, California.  The Bank is regulated by the Office of Thrift Supervision ("OTS"), 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 under the Savings Association Insurance Fund ("SAIF"). The Bank has been a member of the Federal Home Loan Bank ("FHLB") System since 1956.



The Bank 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, Provident Bank Mortgage and through its subsidiary, Provident Financial Corporation.  The business activities of the Corporation consist of community banking, mortgage banking, investment services and real estate operations.



The Bank's operations primarily consist of accepting deposits from customers within the communities surrounding its full service offices and investing those funds in single-family, multi-family, commercial real estate, construction, commercial business, consumer and other loans. Mortgage banking activities consist of the origination and sale of mortgage loans secured by single-family residences and consumer loans. Through its subsidiary (Provident Financial Corporation), the Bank offers investment services and conducts real estate operations. The Bank's revenues are derived principally from interest on its loan and investment portfolios and fees generated through its banking activities and its mortgage banking activities.

Market Area



The Bank is headquartered in Riverside, California and operates ten full-service banking offices in Riverside County and one banking office in San Bernardino County. Management considers Riverside and Western San Bernardino Counties to be the Bank's primary market for deposits. Through the operations of Provident Bank Mortgage ("PBM"), the Bank has expanded its retail lending market to include a larger portion of Southern California. Currently, there are six stand-alone PBM loan production offices located in Los Angeles, Riverside and San Bernardino counties. PBM's loan production offices include a wholesale loan department through which the Bank maintains a network of loan correspondents. Most of the Bank's business is conducted in the communities surrounding its full-service branches and loan production offices.



The large geographic area encompassing Riverside and San
Bernardino Counties is referred to as the "Inland Empire." According to 2000
Census Bureau population statistics, Riverside and San Bernardino Counties have
the

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sixth and fifth largest county populations in California,
respectively. The Bank's market area consists primarily of suburban and urban
communities. Western Riverside and San Bernardino Counties are relatively
densely populated and are within the greater Los Angeles metropolitan area.
Southern California's economic growth has transformed the economy from one with
a large segment in the aerospace and other defense-related industries, to a more
diverse economy with service companies, including financial services, along with
technology and other industries. For the past several years, the Inland Empire
has enjoyed recent economic strength. Many corporations are moving their offices
and warehouses to the Inland Empire which offers more affordable sites and more
affordable housing for their employees. This trend has resulted in a significant
improvement in real estate property values. The recent downturn in the national
economy has had the effect of slowing the economy in the Inland Empire but has
not resulted in the downturn seen in many parts of the country. The unemployment
rate in the Inland Empire in June 2002 was at 5.7%, compared to 6.4% in
California and 5.9% nationwide.



The Corporation's local market areas were also affected in early 2001 by the California energy crisis. The uncertain supply of electricity and higher cost of electricity and natural gas affected both businesses and consumers. Businesses that are relatively energy intensive were adversely affected by higher energy prices combined with a limited ability to increase product prices to reflect greater costs. Consumers experiencing higher energy bills had less disposable income to spend in the local economy. While the State of California government is working to address the energy crisis, management is unable to predict what, if any, resolution may ultimately be reached.



Competition



The Bank faces significant competition in its market area in both originating real estate loans and attracting deposits.  The rapid population growth in Riverside County has attracted numerous financial institutions to the Bank's market area. The Bank's primary competitors are large regional and super-regional commercial banks as well as other community-oriented banks and savings institutions.  The Bank also faces competition from credit unions and a large number of mortgage companies that operate within its market area.  Many of these institutions are significantly larger than the Bank and therefore have greater financial and marketing resources than the Bank. The Bank's mortgage banking operations also face strong competition from other mortgage bankers and brokers as well as other financial institutions.  Such competition may limit the Bank's growth and profitability in the future.



Personnel



As of June 30, 2002, the Bank had 340 full-time equivalent employees, which consisted of 283 full-time, 57 prime-time, 26 part-time, and one temporary employee(s). The employees are not represented by a collective bargaining unit and the Bank believes its relationship with its employees to be good.



Lending Activities



General. The lending activity of the Bank is predominately comprised of the origination of conventional, Federal Housing Administration ("FHA") and Veterans Administration ("VA") mortgage loans secured by single-family residential properties. The Bank also originates multi-family, commercial real estate, construction, commercial business, consumer and other loans for its portfolio. The Bank's net loans held for investment were approximately $593.6 million at June 30, 2002, representing approximately 59.0% of consolidated total assets.  This compares to $697.2 million, or 62.4% of consolidated total assets, at June 30, 2001.

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Loan Portfolio Analysis.  The following table sets forth the composition of the Bank's loan portfolio at the dates indicated.



|                             |                        |             | At June 30,
|---------------------------- | ---------------------- | ----------- | -----------
|                             |                        |             | 2002       
|                             |                        |             | Amount     
|(Dollars In Thousands)       |                        |            
|                             |                        |             |            
|Mortgage loans:              |                        |             |            
|                             | Single-family          |             | $ 413,676  
|                             | Multi-family           |             | 35,436     
|                             | Commercial real estate |             | 62,509     
|                             | Construction           |             | 72,233     
|                             | Total mortgage loans   |             | 583,854    
|                             |                        |             |            
|Commercial business loans    |                        | 24,024      |            
|Consumer loans               |                        | 19,377      |            
|Other loans                  |                        | 3,455       |            
|                             | Total loans held for   |             |            
|                             | investment             |             | 630,710    
|                             |                        |             |            
|Undisbursed loan funds       |                        | (30,536     | )          
|Deferred loan (fees) costs   |                        | (27         | )          
|Unearned (discounts) premium |                        | (14         | )          
|Allowance for loan losses    |                        | (6,579      | )          
|                             | Total loans held for   |             |            
|                             | investment, net        |             | $ 593,554  
|Loans held for sale          |                        | $     1,747 |            

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Maturity of Loan Portfolio.  The following table sets forth information at June 30, 2002, regarding the dollar amount of principal repayments becoming contractually due during the periods indicated for loans held for investment.  Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as becoming due within one year.  The table does not include any estimate of prepayments, which significantly shorten the average life of loan portfolios and may cause the Bank's actual repayment experience to differ from that shown below.



|                          |                        |        |           |       | After     |       | After        |       | After         |        |            |        |              
|------------------------- | ---------------------- | ------ | --------- | ----- | --------- | ----- | ------------ | ----- | ------------- | ------ | ---------- | ------ | -------------
|                          |                        |        |           |       | One Year  |       | 3 Years      |       | 5 Years       |        |            |        |              
|                          |                        |        | Within    |       | Through   |       | Through      |       | Through       |        | Beyond     |        |              
|                          |                        |        | One Year  |       | 3 Years   |       | 5 Years      |       | 10 Years      |        | 10 Years   |        | Total        
|(In Thousands)            |                        |       
|                          |                        |        |           |       |           |       |              |       |               |        |            |       
|Mortgage loans:           |                        |        |           |       |           |       |              |       |               |        |            |       
|                          | Single-family          |        | $     175 |       | $   2,393 |       | $      4,113 |       | $       9,888 |        | $  397,107 |        | $   413,676  
|                          | Multi-family           |        | 724       |       | 5,433     |       | 6,374        |       | 8,903         |        | 14,002     |        | 35,436       
|                          | Commercial real estate |        | 5,253     |       | 5,533     |       | 7,837        |       | 31,062        |        | 12,824     |        | 62,509       
|                          | Construction           |        | 23,929    |       | 22,290    |       | -            |       | 2,287         |        | 23,727     |        | 72,233       
|Commercial business loans |                        | 11,780 |           | 5,696 |           | 3,801 |              | 2,747 |               | -      |            | 24,024
|Consumer loans            |                        | 272    |           | 160   |           | 1,050 |              | 2,202 |               | 15,693 |            | 19,377
|Other loans               |                        | 321    |           | 2,587 |           | 547   |              | -     |               | -      |            | 3,455 
|                          | Total loans held for   |        |           |       |           |       |              |       |               |        |            |        |              
|                          | investment             |        | $  42,454 |       | $  44,092 |       | $  23,722    |       | $    57,089   |        | $  463,353 |        | $     630,710



The following table sets forth the dollar amount of all loans held in the Bank's portfolio due after June 30, 2003 which have fixed interest rates and have floating or adjustable interest rates.



|                          |                                 |        |             |       | Floating or
|------------------------- | ------------------------------- | ------ | ----------- | ----- | -----------
|                          |                                 |        |             |       | Adjustable 
|                          |                                 |        | Fixed-Rates |       | Rates      
|(In Thousands)            |                                 |       
|                          |                                 |        |             |      
|Mortgage loans:           |                                 |        |             |      
|                          | Single-family                   |        | $  24,150   |       | $  389,351 
|                          | Multi-family                    |        | 2,402       |       | 32,310     
|                          | Commercial real estate          |        | 9,035       |       | 48,221     
|                          | Construction                    |        | 28,960      |       | 19,344     
|Commercial business loans |                                 | 10,332 |             | 8,773
|Consumer loans            |                                 | 7,512  |             | 4,732
|Other loans               |                                 | 2,883  |             | 251  
|                          | Total loans held for investment |        | $  85,274   |       | $ 502,982  



Scheduled contractual principal payments of loans do not reflect the actual life of such assets.  The average life of loans is substantially less than their contractual terms because of prepayments.  In addition, due-on-sale clauses on loans generally give the Bank the right to declare loans immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage.  The average life of mortgage loans tends to increase, however, when current interest rates are substantially higher than interest rates on existing portfolio mortgage loans and, conversely, decrease when interest rates on existing portfolio mortgage loans are substantially higher than current interest rates.



Single-Family Mortgage Loans. The Bank's predominant
lending activity is the origination of loans secured by first mortgages on
owner-occupied, single-family (one- to four-family) residences in the
communities where the Bank has established full service branches and loan
production offices. At June 30, 2002, total single-family loans

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held for investment decreased to $413.7 million, or 65.6% of
the total loans held for investment from $520.7 million, or 71.2% of the total
loans held for investment in fiscal 2001. The decrease in the single-family
loans was due primarily to approximately $385.2 million of loan prepayments
resulting from the decline in interest rates during fiscal 2002.



The Bank's residential mortgage loans are generally underwritten and documented in accordance with the guidelines established by the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association ("FNMA").  All government insured loans are generally underwritten and documented in accordance with the guidelines established by the Department of Housing and Urban Development ("HUD") and the VA.  The Bank's loan underwriters are approved as underwriters under HUD's delegated underwriter program.



The Bank offers adjustable rate mortgage ("ARM") loans at rates and terms competitive with market conditions.  Substantially all of the ARM loans originated by the Bank meet the underwriting standards of the secondary markets.  The Bank offers several ARM products which adjust semi-annually or annually after an initial fixed period ranging from six months to five years subject to a limitation on the annual increase of 1.0 to 2.0 percentage points and an overall limitation of 3.0 to 6.0 percentage points. The ARM loans in the Bank's portfolio utilize the FHLB eleventh district cost of funds index ("COFI"), the London interbank offered rates index ("LIBOR"), the 12-month average Treasury index ("12 MAT") or the weekly average yield on one-year U.S. Treasury securities adjusted to a constant maturity of one year ("CMT"), plus a margin of 2.00% to 3.25%.  Loans based on the Treasury CMT constitute a majority of the Bank's loan portfolio.  Currently, the Bank does not originate COFI indexed loans but emphasizes products based on the one-year CMT and LIBOR, which respond more quickly to immediate changes in interest rates.  The majority of the ARM loans in the portfolio, at the present time, have three or five-year fixed periods prior to the first adjustment period.  Loans of this type have embedded interest rate risk if interest rates should rise during the initial fixed rate period.



As of June 30, 2002, the Bank had $60.5 million in mortgage loans that may be subject to negative amortization, compared to $65.4 million at June 30, 2001. Negative amortization involves a greater risk to the Bank because during a period of high interest rates the loan principal balance may increase by up to 115% of the original loan amount. However, the Bank believes that the risk of default is reduced by the stability provided by payment schedules and has historically found that its origination of negative amortization loans has not resulted in higher amounts of non-performing loans.  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 in a given interest rate and competitive environment.



The retention of ARM loans, rather than fixed rate loans, in the Bank's loan portfolio helps reduce exposure to changes in interest rates.  There are, however, unquantifiable credit risks resulting from the potential of increased interest charges to be paid by the customer due to increases in interest rates.  It is possible that, during periods of rising interest rates, the risk of default on ARM loans may increase as a result of the increase in the required payment from the borrower.  Furthermore, the risk of default may increase because ARM loans originated by the Bank generally provide, as a marketing incentive, for initial rates of interest below rates that would apply if the adjustment index plus the applicable margin were initially used for pricing. Such loans are subject to increased risks of default or delinquency.  Another consideration is that although ARM loans allow the Bank to increase the sensitivity of its asset base due to changes in the interest rates, the extent of this interest sensitivity is limited by the periodic and lifetime interest rate adjustment limits.  In addition, because the COFI is a lagging market index, upward adjustments on these loans may occur more slowly than increases in the Bank's cost of interest-bearing liabilities, especially during periods of rapidly increasing interest rates.  Because of these considerations, the Bank has no assurance that yields on ARM loans will be sufficient to offset increases in the Bank's cost of funds.



The Bank's present policy generally limits loan amounts to 97% of the appraised value or purchase price of a property, whichever is lower, for conventional loans.  Higher loan-to-value ratios are available on certain government-insured programs.  The Bank generally requires private mortgage insurance on residential loans with loan-to-value ratios exceeding 80% at the time of origination.

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Multi-Family and Commercial Real Estate Mortgage Loans. At June 30, 2002, multi-family mortgage loans were $35.4 million and commercial real estate loans were $62.5 million, or 5.6% and 9.9%, respectively, of the total loans held for investment. Consistent with its strategy to diversify the balance sheet composition, the Bank has made the origination of multi-family and commercial real estate mortgage loans a priority. At June 30, 2002, the Bank had 64 multi-family and 113 commercial real estate loans in its portfolio.  The largest of these was a multi-family real estate loan with a balance of $2.9 million, secured by 80 townhouses in Riverside, which was performing in accordance with its terms.



Multi-family mortgage loans originated by the Bank are predominately adjustable rate loans with a term to maturity of 15 years based on a 30-year amortization schedule. Commercial real estate loans originated by the Bank are also predominately adjustable rate loans with a term to maturity of ten years based on a 25-year amortization schedule.  Rates on multi-family and commercial real estate ARM loans generally adjust monthly, semi-annually or annually at a specific margin over the 12 MAT, subject to annual payment caps and life-of-loan interest rate caps.  At June 30, 2002, $19.1 million, or 53.8%, of the Bank's multi-family loans were secured by five to 36 unit projects, of which $13.6 million, or 38.5 %, were located in Riverside or San Bernardino counties.  The Bank's commercial real estate loan portfolio generally consists of loans secured by small office buildings, light industrial centers, mini warehouses and small retail centers, substantially all of which are located in Southern California.  The Bank originates multi-family and commercial real estate loans in amounts ranging from $200,000 to $3.0 million.  At June 30, 2002, the Bank had 30 commercial real estate and multi-family loans with principal balances of over $1.0 million which totaled $46.2 million.  Independent appraisers, engaged by the Bank, perform appraisals on properties that secure multi-family and commercial real estate loans. Underwriting of multi-family and commercial real estate loans includes a thorough analysis of the cash flows generated by the real estate to support the debt service and the financial resources, experience, and income level of the borrowers.



Multi-family and commercial real estate loans affords the Bank an opportunity to receive higher interest rates than those generally available from single-family mortgage loans.  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 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.  At June 30, 2002, approximately $25.4 million, or 71.7%, of the Bank's multi-family loans and approximately $40.2 million, or 64.2%, of the Bank's commercial real estate loans were secured by properties located in Riverside or San Bernardino counties. Even though the Bank's multi-family and commercial real estate loans are considered by management to be seasoned, and there has been a continued improvement in the real estate market, there is no assurance that the current market value of the properties securing these loans equals or exceeds the outstanding loan balance. At June 30, 2002, the Bank had no non-accrual multi-family or commercial real estate loans and no multi-family or commercial real estate loans that were 60 days or more past due.  See also "REGULATION -- Federal Regulation of Savings Associations -- Loans to One Borrower."



Construction Mortgage Loans.  Prompted by improved economic conditions and increased residential housing demand in its primary market area, the Bank actively originates two types of residential construction loans: (i) short-term construction loans and (ii) construction/permanent loans. At June 30, 2002, the Bank's construction loans were $72.2 million, or 11.5% of total loans held for investment, an increase of $10.3 million, or 17%, during fiscal 2002, which reflects the Bank's operational strategy. Undisbursed loan funds at the end of June 30, 2002 and 2001 were $30.5 million and $27.9 million, respectively.

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The composition of the Bank's construction loan portfolio is as follows:

|                        | At June 30,
|----------------------- | -----------
|                        | 2002       
|                        | Amount     
|(Dollars In Thousands)  |            
|                        |            
|Short-term construction | $ 46,410   
|Construction/permanent  | 25,823     
|                        | $ 72,233   



Short-term construction loans include three types of loans: custom construction, tract construction, and speculative construction.



The Bank also provides construction financing for multi-family and commercial real estate properties. The Bank has increased its lending resources with the intent of increasing the amount of originations in multi-family, construction and commercial real estate loans.



Custom construction loans are made to individuals who, at the time of construction, have a contract executed with a builder to construct their residence.  Custom construction loans are generally originated for a term of 12 months, with fixed interest rates at the prime lending rate and with loan-to-value ratios of up to 80% of the appraised value of the completed property.  The owner secures long-term permanent financing at the completion of construction.



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 prime or above and with a loan-to-value ratio of up to 80% of the appraised value of the completed property.



The Bank prefers to consider affordable as well as median-priced housing.  Generally, significant presales are required prior to commencement of construction.  Tract lending may include the building and financing of model homes under a separate loan.  The terms for tract loans range from 12 to 18 months with interest rates from 1% to 2% above the prime-lending rate.



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 contract with a home buyer who has a commitment for permanent financing with either the Bank or another lender for the finished home.  The home buyer may be identified either during or after the construction period, with the risk that the builder will have to debt service the speculative construction loan for a significant period of time after the completion of construction until the home buyer is identified.



Members of the Bank's Loan Committee approve all construction loans.  Prior to preliminary approval of any construction loan application, 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.  In the case of a speculative, tract or custom construction loan, the Bank reviews the experience and expertise of the builder.  After preliminary approval has been given, the application is processed, which includes obtaining credit reports, financial statements and tax returns on the borrowers and guarantors, an independent appraisal of the project, and any other expert reports necessary to evaluate the proposed project.  In the event of cost overruns, the Bank requires the borrower to deposit their own funds into a loans-in-process account, which the Bank disburses consistent with the completion of the subject property pursuant to a revised disbursement schedule.

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The construction loan documents require that construction loan proceeds be disbursed in increments as construction progresses.  Disbursements are based on periodic on-site inspections by independent fee inspectors and Bank personnel.  At inception, the Bank also requires borrowers to deposit funds into the loans-in-process account covering the difference between the actual cost of construction and the loan amount.  The Bank regularly monitors the construction loan portfolio, economic conditions and housing inventory.  The Bank's property inspector performs periodic property inspections.  The Bank believes that the internal monitoring system helps reduce many of the risks inherent in its construction loans.



Construction loans afford the Bank the opportunity to achieve higher interest rates and fees with shorter terms to maturity than its single-family mortgage loans.  Construction loans, however, are generally considered to involve a higher degree of risk than single-family mortgage loans because of the inherent difficulty in estimating both a property's value at completion of the project and the estimated cost of the project.  The nature of these loans is such that they are generally more difficult to evaluate and monitor.  If the estimate of construction cost proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the project.  If the estimate of value upon completion proves to be inaccurate, the Bank may be confronted with a project whose value is insufficient to assure full repayment.  Projects may also be jeopardized by disagreements between borrowers and builders and by the failure of builders to pay subcontractors.  Loans to builders to construct homes for which no purchaser has been identified carry more risk because the payoff for the loan depends on the builder's ability to sell the property prior to the time that the construction loan matures.  The Bank has sought to address these risks by adhering to strict underwriting policies, disbursement procedures and monitoring practices.  In addition, because the Bank's construction lending is in its primary market area, changes in the local economy and real estate market could adversely affect the Bank's construction loan portfolio.



Participation loan purchases and sales.



The Bank also sells participating interests in loans when it has been determined that it is beneficial to spread the risk.  Participation sales also enable the Bank to maintain acceptable loan concentrations and comply with the Bank's loans to one borrower policy.  Selling a participating interest in a loan increases the yield to the Bank on the portion of the loan that is retained.



Commercial Business Loans.  The Bank has a business banking department that primarily serves businesses located within the Inland Empire. Commercial business loans allow the Bank to diversify its lending and increase the average portfolio yield.  As of June 30, 2002, commercial business loans were $24.0 million, or 3.8% of total loans held for investment.  These loans represent unsecured lines of credit and term loans secured by business assets.



Commercial business loans are generally made to customers who are well known to the Bank and are generally secured by accounts receivable, inventory, business equipment and/or other assets.  Lines of credit are made at variable rates of interest equal to a negotiated margin above the prime rate and term loans are at a fixed rate.  The Bank may also obtain personal guarantees from financially capable parties based on a review of personal financial statements.  The Bank's commercial loans may be structured as term loans or as lines of credit.  Commercial business term loans are generally made to finance the purchase of assets and have maturities of five years or less.  Commercial lines of credit are typically made for the purpose of providing working capital and usually approved with a term of one year or less.



Commercial business loans involve greater risk than
residential mortgage loans and involve risks that are different from those
associated with residential and commercial real estate loans. Real estate loans
are generally considered to be collateral based lending with loan amounts based
on predetermined loan to collateral values and liquidation of the underlying
real estate collateral is viewed as the primary source of repayment in the event
of borrower default.

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Although commercial business loans are often collateralized
by equipment, inventory, accounts receivable or other business assets including
real estate, the liquidation of collateral in the event of a borrower default is
often an insufficient source of repayment because accounts receivable may be
uncollectible and inventories and equipment may be obsolete or of limited use,
among other things. 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 often times an insufficient
source of repayment. At June 30, 2002, the Bank had no non-accrual commercial
business loans.



Consumer and Other Loans. At June 30, 2002, the Bank's consumer loans were $19.4 million, or 3.1%, of the Bank's total loans held for investment, a decrease of $16.5 million, or 46.0%. The Bank has emphasized the origination of consumer loans, and, in particular, home equity lines of credit and equity loans, due to the higher yields that are available on these loans compared to residential mortgage loans. The decrease in consumer loans was due primarily to loan payoffs resulting from a strong refinance market which started in January 2001 as interest rates declined.  The Bank anticipates that it will continue to be an active originator of home equity loans, subject to market conditions. At June 30, 2002, home equity loans amounted to $18.9 million, or 97.5% of total consumer loans.



The Bank offers open-ended lines of credit on either a secured or unsecured basis.  Secured lines of credit are generally secured by a second mortgage on the borrower's primary residence.  Secured lines of credit have an interest rate that is one to two percentage points above the prime lending rate, as published in The Wall Street Journal, while the rate on overdraft lines of credit is ten percentage points above this prime lending rate.  In addition, the Bank offers savings lines of credit which have an interest rate that is four percentage points above the FHLB eleventh district COFI. In all cases, the rate adjusts monthly.



The Bank offers closed-end, fixed-rate home equity loans that are secured by the borrower's primary residence.  These loans normally do not exceed 100% of the appraised value of the residence, less the outstanding principal of the first mortgage, and have terms of up to 15 years requiring monthly payments of principal and interest.



Consumer loans potentially have a greater risk than do residential mortgage loans, particularly in the case of loans that are unsecured. Consumer loan collections are dependent on the borrower's continuing 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.  At June 30, 2002, the Bank had $156,000 in consumer loans accounted for on a non-accrual basis.



Mortgage Banking Activities



General. The Bank focuses its mortgage banking lending activities on mortgage loans secured by single-family properties. Mortgage banking involves the origination and sale of mortgage and consumer loans for the purpose of generating gains on sale of loans and fee income on the origination of loans, in addition to loan interest income. Given current pricing in the mortgage markets, the Bank generally sells all of its loans on a servicing-released basis. Generally, the level of loan sale activity and, therefore, its contribution to the Bank's profitability depends on maintaining a sufficient volume of loan originations.  Changes in the level of interest rates and the local economy affect the number of loans originated by the Bank and, thus, the amount of loan sales, net interest income and loan fees earned.



Loan Solicitation and Processing.  The Bank's mortgage banking operations consist of both wholesale and retail loan originations. The Bank's wholesale loan production utilizes a network of approximately 741 loan correspondents approved by the Bank who originate and submit loans at a mark-up over the Bank's daily published price. Wholesale origination in fiscal 2002, 2001 and 2000 was $672.1 million, $461.9 million and $232.9 million, respectively. The Bank maintains a regional wholesale lending office in Rancho Cucamonga, California.



The Bank's retail loan production utilizes loan officers and processors employed by PBM (Provident Bank Mortgage, a division of the Bank).  The Bank's loan officers generate retail loan originations through referrals from

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<PAGE>

realtors, builders and customers.  As of June 30, 2002, PBM operated two retail offices within the Bank's facilities located in Riverside and Rancho Mirage and five separate retail loan production offices located in Glendora, Riverside, City of Industry, La Quinta and Torrance, all in Southern California.  Generally, the cost of retail operations exceeds the cost of wholesale operations due to the burden of additional employees and greater overhead costs.  However, the revenue per mortgage for retail originations is generally higher since the origination fees are retained by the Bank. Because wholesale loan production tends to decrease more dramatically than retail loan production during periods of higher interest rates, the Bank is seeking to originate a greater proportion of its loans through its retail operations. Retail originations in fiscal 2002, 2001 and 2000 were $431.4 million, $310.2 million and $174.3 million, respectively.  Further, the Bank believes in its ability to attract repeat business and cross-sell other banking services to borrowers acquired through its retail loan production.



The Bank requires evidence of marketable title, lien position and loan to value and requires a title insurance policy and appraisals on all properties.  The Bank also requires evidence of fire and casualty insurance on the value of improvements.  As required by federal regulations, the Bank also requires flood insurance to protect the property securing its interest if such property is located in a designated flood area.



Loan Commitments and Rate Locks.  The Bank issues commitments for residential mortgage loans conditioned upon the occurrence of certain events.  Such commitments are made with specified terms and conditions.  Interest rate locks are generally offered to prospective borrowers for up to a 60-day period. The borrower may lock in the rate at any time from application until the time they wish to close the loan.  Occasionally, borrowers obtaining financing on new home developments are offered rate locks up to 120 days from application.  The Bank had outstanding commitments to originate loans totaling $56.7 million at June 30, 2002.  See Note 15 of the Notes to Consolidated Financial Statements contained in Item 8 hereof.  When the Bank commits to a borrower to lock in an interest rate there is the risk to the Bank that a rise in interest rates will reduce the value of the mortgage before it can be closed and sold.  To control the interest rate risk caused by mortgage banking activities, the Bank uses forward loan sales agreements and over-the-counter put options related to mortgage-backed securities as a hedge.  See "-- Mortgage Banking Activities -- Derivative Activities."



Loan Origination and Other Fees.  The Bank generally receives origination points and loan fees.  Origination points are a percentage of the principal amount of the mortgage loan which is charged to a borrower for funding a loan.  The amount of points charged by the Bank is generally 1% to 2%.  Current accounting standards require points and fees received for originating loans (net of certain loan origination costs) to be deferred and amortized into interest income over the contractual life of the loan.  Net deferred fees or costs associated with loans that are prepaid or sold are recognized as income at the time of prepayment or sale.  The Bank had $27,000 of net unamortized deferred loan origination costs at June 30, 2002.



Loan Originations, Sales and Purchases.   The Bank's mortgage originations include loans insured by the FHA and VA, as well as conventional loans.  Except for loans originated for the Bank's portfolio, loans originated through the mortgage banking activities are originated for eventual sale into the secondary market.  As such, these loans must meet the origination and underwriting criteria established by the final investors.  The Bank sells a large percentage of the mortgage loans that it originates as whole loans to private investors.  The Bank also sells conventional whole loans to FNMA and FHLMC through their purchase programs. Conventional mortgage loans originated by the Bank that do not meet FNMA or FHLMC guidelines may be sold to private institutional investors.  See "-- Mortgage Banking Activities -- Derivative Activities."

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<PAGE>



The following table shows the Bank's loan originations, purchases, sales and principal repayments during the periods indicated.



|                                                     |                           |                                      |             | Year Ended June 30,
|---------------------------------------------------- | ------------------------- | ------------------------------------ | ----------- | -------------------
|                                                     |                           |                                      |             | 2002               
|(In Thousands)                                       |                           |                                     
|                                                     |                           |                                      |             |                    
|Loans originated for sale:                           |                           |                                      |             |                    
|                                                     | Retail originations       | $     431,446                        | $   310,196 | $  174,331         
|                                                     | Wholesale originations    | 672,128                              | 461,863     | 232,890            
|                                                     |                           | Total loans originated for sale      | 1,103,574   | 772,059            
|                                                     |                           |                                      |             |                    
|Loans sold and settled:                              |                           |                                      |             |                    
|                                                     | Servicing released        | (1,168,529)                          | (678,443)   | (388,583)          
|                                                     | Servicing retained        | (4,466)                              | -           | (1,275)            
|                                                     |                           | Total loans sold                     | (1,172,995) | (678,443)          
|                                                     |                           |                                      |             |                    
|Loans originated for portfolio:                      |                           |                                      |             |                    
|                                                     | Mortgage loans:           |                                      |             |                    
|                                                     |                           | Single-family                        | 159,270     | 1,796              
|                                                     |                           | Multi-family                         | 2,994       | -                  
|                                                     |                           | Commercial real estate               | 20,529      | 2,787              
|                                                     |                           | Construction                         | 51,927      | 47,715             
|                                                     | Commercial business loans | 6,298                                | 7,704       | 7,288              
|                                                     | Consumer loan             | 30                                   | 172         | 15,672             
|                                                     | Other loans               | 3,189                                | 1,202       | 1,093              
|                                                     |                           | Total loans originated for portfolio | 244,237     | 61,376             
|                                                     |                           |                                      |             |                    
|Loans purchased for portfolio:                       |                           |                                      |             |                    
|                                                     | Mortgage loans:           |                                      |             |                    
|                                                     |                           | Single-family                        | -           | -                  
|                                                     |                           | Multi-family                         | 1,590       | 3,212              
|                                                     |                           | Commercial real estate               | 8,544       | 5,675              
|                                                     |                           | Construction                         | 27,915      | 20,289             
|                                                     | Other loans               | 543                                  | 433         | -                  
|Total loans purchased for portfolio                  | 38,592                    | 29,609                               | 6,618      
|                                                     |                           |                                      |             |                    
|Mortgage loan principal repayments                   | (385,261)                 | (220,150)                            | (125,188)  
|Real estate acquired in settlement of loans          | (1,348)                   | (1,044)                              | (1,144)    
|Decrease (increase) in receivable from sale of loans | 70,045                    | (85,804)                             | (14,160)   
|Decrease in other items, net (1)                     | (909)                     | (4,489)                              | (3,456)    
|Net (decrease) increase in loans held for investment |                           |                                      |             |                    
|and loans held for sale                              | $  (104,065)              | $ (126,886)                          | $  156,307 



(1)    Includes net changes in undisbursed loan funds, deferred loan fees or costs, discounts on loans and loss reserves.



Mortgage loans sold to FHLMC and FNMA are sold on a non-recourse basis whereby foreclosure losses are generally the responsibility of the purchasing agency and not the Bank, except in the case of VA loans used to form Government National Mortgage Association ("GNMA") pools, which are subject to limitations on the VA's loan guarantees.  Mortgage loans sold to private investors generally are sold without recourse other than standard representations and warranties.



Occasionally, the Bank is required to repurchase loans sold to FHLMC,
FNMA or private investors if it is determined that such loans do not meet the
credit requirements of the investor, or if one of the parties involved in the

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<PAGE>

loan misrepresented pertinent facts, committed fraud, or if
such loans were 90-days past due within 120 days of the loan funding date.
During the year ended June 30, 2002, the Bank repurchased $1.1 million of
single-family mortgage loans as compared to $757,000 in fiscal 2001 and $408,000
in fiscal 2000.



Loan Servicing.  The Bank receives fees from a variety of institutional investors in return for performing the traditional services of collecting individual payments.  At June 30, 2002, the Bank was servicing $136.1 million of loans for others.  The Bank's loan servicing portfolio has decreased in recent years primarily because the Bank has sold a larger portion of its loans on a servicing-released basis.  As long as the Bank continues to sell most mortgage loans with servicing released, the size of the mortgage servicing portfolio is expected to decrease.  Loan servicing includes processing payments, accounting for loan funds and collecting and paying real estate taxes, hazard insurance and other loan-related items such as private mortgage insurance. When the Bank receives the gross mortgage payment from individual borrowers, it remits to the investor in the mortgage a predetermined net amount based on the loan sale agreement for that mortgage.



Derivative Activities.  Mortgage banking involves the risk that a rise in interest rates will reduce the value of a mortgage before it can be sold.  This type of risk often occurs when the Bank commits to an interest rate lock on a borrower's application during the origination process and interest rates increase before the loan in a corresponding loan sale commitment can be closed and sold.  Such interest rate risk also arises when mortgages are placed in the warehouse (i.e., held for sale) without locking in an interest rate for their eventual sale in the secondary market.  The Bank seeks to control or limit the interest rate risk caused by mortgage banking activities.  The two methods used by the Bank to help reduce interest rate risk from its mortgage banking activities are forward loan sales agreements and purchases of over-the-counter put options related to mortgage-backed securities.  At various times, depending on management's assessment of interest rate movements and other economic conditions, the Bank may reduce or increase its derivative positions.



Under forward loan sales agreements, usually with FNMA, FHLMC or private investors, the Bank is obligated to sell certain dollar amounts of mortgage loans that meet specific underwriting and legal criteria before the expiration of the commitment period.  These terms include the maturity of the individual loans, the yield to the purchaser, the servicing spread to the Bank (if servicing is retained) and the maximum principal amount of the individual loans.  Forward loan sales of loans in the locked pipeline protect their sale prices from interest rate fluctuations that may occur from the time the interest rate of the loan is fixed to the time of its sale.  The amount of and delivery date of the forward sales commitments is based upon management's estimates as to the volume of loans that will close and the length of the origination commitment.  Forward loan sales do not provide complete interest-rate protection, however, because of the possibility of fallout (i.e., the failure to close) during the origination process.  Differences between the estimated volume and timing of loan originations and the actual volume and timing of loan originations can expose the Bank to significant losses.  If the Bank is not able to deliver the mortgage loans during the appropriate delivery period, the Bank may be required to pay a non-delivery fee or repurchase the delivery commitments at current market prices.  Similarly, if the Bank has too many loans to deliver, the Bank must sell additional forward commitments at current market prices which may be unfavorable to the Bank.  Generally, the Bank seeks to maintain forward loan sales agreements equal to the closed loans held for sale plus those applications that the Bank has rate locked and/or committed to close, adjusted by the projected fallout.  The ultimate accuracy of such projections will directly bear upon the amount of interest rate risk incurred by the Bank. For the year ended June 30, 2002, the Bank had net gains of $59,000 attributable to the derivative financial instruments. At June 30, 2002, the Bank had outstanding commitments to sell loans totaling $45.7 million and commitments to originate loans totaling $56.7 million. See Note 15 of the Notes to Consolidated Financial Statements.



In order to reduce the interest rate risk associated with commitments to originate loans that are in excess of forward loan sales commitments, the Bank purchases over-the-counter put or call options on government agency mortgage-backed securities.  At June 30, 2002, the Bank had $11.0 million in put-option contracts outstanding, which provided $1.7 million coverage.



The activities describes above are managed continually as
markets change, however, there can be no assurance that the Bank will be
successful in its effort to eliminate the risk of interest rate fluctuations
between the time origination commitments are issued and the ultimate sale of the
loan. The Bank employs a risk management firm to conduct daily analysis, report
the Bank's interest rate risk position with respect to its loan origination and
sale activities and

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<PAGE>

to advise the Bank on interest rate movements and interest
rate risk management strategies. The Bank's interest rate risk management
activities are conducted in accordance with a written policy that has been
approved by the Bank's Board of Directors that covers objectives, functions,
instruments to be used, monitoring and internal controls. The Bank does not
enter into option positions for trading or speculative purposes and does not
enter into options that could generate a financial obligation beyond the initial
premium paid. The Bank does not apply hedge accounting to its derivative
financial instruments, therefore all changes in fair value are recorded in
earnings.





Delinquencies and Classified Assets



Delinquent Loans.  When a mortgage loan borrower fails to make a required payment when due, the Bank institutes collection procedures.  If the Bank is unsuccessful at curing the delinquency, a property inspection is performed between the 45th day and 60th day of delinquency.  In most cases, delinquencies are cured promptly; however, if by the 90th day of delinquency, or sooner if the borrower is chronically delinquent, and all reasonable means of obtaining the payment have been exhausted, foreclosure proceedings, according to the terms of the security instrument and applicable law, is initiated.  Interest income is reduced by the full amount of accrued and uncollected interest on such loans.

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<PAGE>

The following table sets forth delinquencies in the Bank's loan portfolio as of the dates indicated.



|                          | At June 30,   
|------------------------- | --------------
|                          | 2002          
|                          | 60 - 89 Days  
|                          | Numberof
Loans
|(Dollars In Thousands)    |               
|Mortgage loans:           |               
|Single-family             | 16            
|Multi-family              | -             
|Commercial real estate    | -             
|Construction              | 1             
|Commercial business loans | 3             
|Consumer loans            | 16            
|Other loans               | -             
|Total                     | 36            

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<PAGE>

The following table sets forth information with respect to the Bank's non-performing assets and restructured loans within the meaning of Statement of Financial Accounting Standard ("SFAS") No. 15 at the dates indicated.



|                                            |                        |         | At June 30,
|------------------------------------------- | ---------------------- | ------- | -----------
|                                            |                        |         | 2002       
|(Dollars In Thousands)                      |                       
|                                            |                        |         |            
|Loans accounted for on a non-accrual basis: |                        |         |            
|Mortgage loans:                             |                        |         |            
|                                            | Single-family          | $ 1,163 |            
|                                            | Multi-family           | -       |            
|                                            | Commercial real estate | -       |            
|                                            | Construction           | -       |            
|Commercial business loans                   | -                      |         | 285        
|Consumer loans                              | 156                    |         | 24         
|                                            | Total                  | 1,319   |            
|                                            |                        |         |            
|Accruing loans which are contractually      |                        |         |            
|past due 90 days or more:                   |                        |         |            
|Mortgage loans:                             |                        |         |            
|                                            | Single-family          | -       |            
|                                            | Total                  | -       |            
|                                            |                        |         |            
|Total of non-accrual and 90 days past       |                        |         |            
|due loans                                   | 1,319                  |         | 1,507      
|                                            |                        |         |            
|Foreclosed real estate, net                 | 313                    |         | 224        
|Total non-performing assets                 | $ 1,632                |         | $ 1,731    
|                                            |                        |         |            
|Restructured loans                          | $ 1,401                |         | $ 1,428    
|                                            |                        |         |            
|Non-accrual and 90 days or more             |                        |         |            
|past due loans as a percentage of           |                        |         |            
|loans held for investment, net              | 0.22%                  |         | 0.22%      
|                                            |                        |         |            
|Non-accrual and 90 days or more             |                        |         |            
|past due loans as a percentage of           |                        |         |            
|total assets                                | 0.13%                  |         | 0.13%      
|                                            |                        |         |            
|Non-performing assets as a percentage       |                        |         |            
|of total assets                             | 0.16%                  |         | 0.15%      

The Bank assesses loans individually and identifies impairment when the accrual of interest has been discontinued, loans have been restructured or management has serious doubts about the future collectibility of principal and interest, even though the loans are currently performing.  Factors considered in determining impairment include, but are not limited to, expected future cash flows, the financial condition of the borrower and current economic conditions. The Bank measures each impaired loan based on the fair value of its collateral and charges off those loans or portions of loans deemed uncollectible.



Foregone interest income, which would have been recorded for
the year ended June 30, 2002 had impaired loans been current in accordance with
their original terms, amounted to $480,000. The amount of interest income

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<PAGE>

included in the results of operations on such loans for the
year ended June 30, 2002 amounted to $674,000. Interest income foregone on
restructured loans for such periods was not material.



Foreclosed and Investment Real Estate.  Real estate acquired by the Bank as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed real estate until it is sold.  When property is acquired it is recorded at the lower of its cost, which is the unpaid principal balance of the related loan plus foreclosure costs, or market value less cost of sale.  Subsequent declines in value are charged to operations.  At June 30, 2002, the Bank had $313,000 of foreclosed real estate, net of allowance for losses of $23,000, which was comprised of one



Investment real estate is carried at the lower of cost or fair market value.  All costs associated with disposition are considered in the determination of fair value.  The Bank owned two properties, totaling $11.2 million, at June 30, 2002, both of which were held by a wholly owned subsidiary.



Asset Classification.  The OTS has adopted various regulations regarding problem assets of savings institutions.  The regulations require that each insured institution review and classify its assets on a regular basis.  In addition, in connection with examinations of insured institutions, OTS examiners have the authority to identify problem assets and, if appropriate, require them to be classified.  There are three classifications for problem assets: substandard, doubtful and loss.  Substandard assets have one or more defined weakness and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected.  Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss.  An asset classified as a loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted.  If an asset or portion thereof is classified as loss, the insured institution establishes a specific loss allowance for the full amount or for the portion of the asset classified as loss.  All or a portion of allowances for loan losses established to cover probable losses related to assets classified substandard or doubtful may be included in determining an institution's regulatory capital, while specific valuation allowances for loan losses generally do not qualify as regulatory capital.  Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as special mention and monitored by the Bank.



The aggregate amounts of the Bank's classified assets, including assets designated as special mention, were as follows at the dates indicated:



|                             |       |           | At June 30,
|---------------------------- | ----- | --------- | -----------
|                             |       |           | 2002       
|(Dollars In Thousands)       |       |          
|                             |       |           |            
|Substandard assets           |       | $   8,892 |            
|Special mention              |       | 9,026     |            
|                             | Total |           | $ 17,918   
|                             |       |           |            
|Total classified assets as a |       |           |            
|percentage of total assets   |       | 1.78%     |            



The substandard assets increased $2.2 million, or 33%, to $8.9 million at June 30, 2002 from $6.7 million at June 30, 2001. This increase was primarily attributable to four commercial business loans to a single borrower. The borrower filed for Chapter 11 Bankruptcy in fiscal 2002 but has continued to make all loan payments in a timely manner and to maintain sufficient collateral with the Bank in the form of accounts receivable, equipment and inventory such that the loan is fully secured The Bank closely monitors the borrower's business operations and the progress that they are making in the bankruptcy proceedings.

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<PAGE>





As set forth below, assets classified as substandard and special mention as of June 30, 2002 included 68 loans and properties totaling approximately $17.9 million.



|                          |                        |    | Number of |         |             |         |                 |          | 
|------------------------- | ---------------------- | -- | --------- | ------- | ----------- | ------- | --------------- | -------- | 
|                          |                        |    | Items     |         | Substandard |         | Special Mention | Total   
|(Dollars In Thousands)    |                        |    |           |        
|                          |                        |    |           |         |             |         |                 |         
|Mortgage loans:           |                        |    |           |         |             |         |                
|                          | Single-family          | 26 |           | $ 3,414 |             | $   403 |                 | $  3,817
|                          | Commercial real estate | 2  |           | 1,401   |             | 986     |                 | 2,387   
|                          | Construction           | 8  |           | 517     |             | 2,215   |                 | 2,732   
|Commercial business loans | 27                     |    | 3,220     |         | 2,660       |         | 5,880          
|Consumer loans            | 2                      |    | 27        |         | -           |         | 27             
|Real estate owned         | 1                      |    | 313       |         | -           |         | 313            
|Other assets              | 2                      |    | -         |         | 2,762       |         | 2,762          
|                          | Total                  | 68 |           | $ 8,892 |             | $ 9,026 |                 | $ 17,918

Not all of the Bank's classified assets are delinquent or non-performing. In determining whether the Bank's assets expose the Bank to sufficient risk to warrant classification, the Bank may consider various factors, including the payment history of the borrower, the loan-to-value ratio, and the debt coverage ratio of the property securing the loan.  Upon consideration of these 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 loan portfolio includes commercial and multi-family real estate loans with a balance exceeding the current market value of the collateral that 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. The allowance for loan losses is maintained to cover losses inherent in the loan portfolio.  In originating loans, the Bank recognizes that losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the collateral securing the loan. The responsibility for the review of the Bank's assets and the determination of the adequacy of the allowance lies with the Internal Asset Review Committee ("IAR Committee").   The Bank increases its allowance for loan losses by charging provisions for loan losses against the Bank's operations.



The Bank has established a methodology for the determination of provisions for loan losses.  The methodology is set forth in a formal policy and takes into consideration the need for an overall allowance for loan losses as well as specific allowances that are tied to individual loans. The Bank's methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance, specific allowance for identified problem loans and unallocated allowance.



The formula allowance is calculated by applying loss factors to loans held for investment. The loss factors are applied according to loan program type and loan classification. The loss factors for each program type and loan classification are established based on an evaluation of the historical loss experience, prevailing market conditions, concentration in loan types and other relevant factors.  Loans that are homogeneous in nature, such as residential mortgage, home equity and consumer installment loans are considered on a pooled loan basis.  A factor is assigned to each pool based upon expected charge-offs for one year.   The factors for larger, less homogeneous loans, such as construction, multifamily and commercial real estate loans, are based upon loss experience tracked over business cycles considered appropriate for the loan type.



Specific valuation allowances are established to absorb losses on loans for which full collectibility may not be reasonably assured as prescribed in SFAS No. 114 (as amended by SFAS
No. 118). The amount of the specific allowance is based on the estimated value
of the collateral securing the loan and other analyses pertinent to each

17

<PAGE>

situation. Estimates of identifiable losses are reviewed
continually and, generally, a provision for losses is charged against operations
on a monthly basis as necessary to maintain the allowance at an appropriate
level. Management presents an analysis of the allowance for loan losses to the
Bank's board of directors on a quarterly basis.



The unallocated allowance is based upon management's evaluation of various conditions, the effect of which are not directly measured in the determination of the formula and specific allowance. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments. The conditions evaluated in connection with the unallocated allowance include the following conditions that existed as of the balance sheet date: (1) then-existing general economic and business conditions affecting the key lending areas of the Bank, (2) credit quality trends, (3) loan volumes and concentrations, (4) recent loss experience in particular segments of the portfolio, and (5) regulatory examination results.



The IAR Committee meets quarterly to review and monitor conditions in the portfolio and to determine the appropriate allowance for loan losses. To the extent that any of these conditions are evidenced by identifiable problem credit or portfolio segment as of the evaluation date, the IAR Committee's estimate of the effect of such conditions may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by specifically identifiable problem credits 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 unallocated allowance. The intent of the Committee is to reduce the differences between estimated and actual losses.  Pooled loan factors are adjusted to reflect current estimates of charge-offs during the next twelve months.  Loss activity is reviewed for non-pooled loans and the loss factors adjusted, if necessary.   By assessing the probable estimated losses inherent in the loan portfolio 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, 2002, the Bank had an allowance for loan losses of $6.6 million or 1.10% of gross loans held for investment compared to an allowance for loan losses at June 30, 2001 of $6.1 million, or 0.86% of gross loans held for investment. A $525,000 provision for loan losses was recorded in fiscal 2002, compared to none in fiscal 2001.  The Bank's focus on expanding its investment in multi-family, commercial real estate, construction and commercial business loans may lead to increased levels of charge-offs. However, management believes that the amount maintained in the allowance will be adequate, but not excessive, to absorb losses inherent in the portfolio. Although management believes that they use the best information available to make such determinations, 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.



As a result of past declines in local and regional real estate values and the significant losses experienced by many financial institutions, there has been a greater level of scrutiny by regulatory authorities of the loan portfolios of financial institutions undertaken as a part of the examinations of such institutions by banking regulators.  While the Bank believes it has established its existing allowance for loan losses in accordance with accounting principles generally accepted in the United States of America, there can be no assurance that regulators, in reviewing the Bank's loan portfolio, will not request the Bank to increase significantly its allowance for loan losses.  In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that substantial increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above.  Any material increase in the allowance for loan losses may adversely affect the Bank's financial condition and results of operations.

18

<PAGE>



The following table sets forth an analysis of the Bank's allowance for loan losses for the periods indicated.  Where specific loan loss reserves have been established, any differences between the loss allowances and the amount of loss realized has been charged or credited to current operations.



|                                              | Year Ended June 30,   
|--------------------------------------------- | ----------------------
|                                              | 2002                  
|(Dollars In Thousands)                        |                       
|                                              |                       
|Allowance at beginning of period              | $ 6,068               
|Provision for loan losses                     | 525                   
|Recoveries:                                   |                       
|Mortgage loans:                               |                       
|                                              | Single-family         
|                                              | Multi-family          
|                                              | Commercial real estate
|Consumer loans                                | -                     
|Other loans                                   | -                     
|                                              |                       
|                                              |                       
|Charge-offs:                                  |                       
|Mortgage loans:                               |                       
|                                              | Single-family         
|                                              | Multi-family          
|                                              | Commercial real estate
|Commercial business loans (*)                 | 69                    
|Consumer loans                                | 32                    
|                                              |                       
|Net charge-offs                               | 14                    
|Balance at end of period                      | $ 6,579               
|                                              |                       
|Allowance for loan losses as a percentage of  |                       
|loans held for investment                     | 1.10%                 
|                                              |                       
|Net charge-offs as a percentage of average    |                       
|loans receivable, net, during the period      | -                     
|                                              |                       
|Allowance for loan losses as a percentage of  |                       
|non-performing loans at the end of the period | 498.79%               



(*)    Reclassifications of charge-off amounts
and recovery amounts have been made to those amounts previously reported in the
         second and
third quarters of fiscal 2002 to comply with the current reporting practices of
the Corporation.

19

<PAGE>

The following table sets forth the breakdown of the allowance for loan losses by loan category for 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 to absorb losses in any other category.



|                                
|--------------------------------
|                                
|                                
|                                
|(Dollars In Thousands)          
|                                
|Mortgage loans:                 
|Single-family                   
|Multi-family                    
|Commercial real estate          
|Construction                    
|Commercial business loans       
|Consumer loans                  
|Other loans                     
|Unallocated                     
|Total allowance for  loan losses

20

<PAGE>

Investment Activities



Federally chartered savings institutions are permitted under federal and state laws to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, deposits at the FHLB, certificates of deposit of federally insured institutions, certain bankers' acceptances and federal funds.  Subject to various restrictions, federally chartered savings institutions may also invest a portion of their assets in commercial paper and corporate debt securities.  Savings institutions such as the Bank are also required to maintain an investment in FHLB stock.  In addition, the Bank is required to maintain minimum levels of investments that qualify as liquid assets under OTS regulations.  See "REGULATION" and "Management's Discussion And Analysis Of Financial Condition And Results Of Operations -- Liquidity and Capital Resources" in Part II, Item 7 of this report. In March 2001, the OTS removed the specific liquidity requirement and now requires institutions to maintain the appropriate liquidity specific to their operations.



The investment policy of the Bank, established by the Board of Directors and implemented by the Bank's asset-liability committee ("ALCO"), seeks to provide and maintain adequate liquidity, complement the Bank's lending activities, and generate a favorable return on investments without incurring undue interest rate risk and credit risk.  Investments are made based on certain considerations, such as yield, quality, maturity and marketability. The Bank also considers the effect that the proposed investment would have on the Bank's Risk-Based Capital and interest rate sensitivity.



At June 30, 2002, the Corporation's investment securities portfolio totaled $270.5 million at amortized cost, which primarily consisted of federal agency obligations.  A total of $113.4 million of the Corporation's investment securities was classified as available for sale. All other securities were classified as held to maturity.



The following table sets forth the composition of the Bank's investment portfolio at the dates indicated.



|                               |                                    |                          |         |          |         |        | At June 30,
|------------------------------ | ---------------------------------- | ------------------------ | ------- | -------- | ------- | ------ | -----------
|                               |                                    |                          |         |          |         |        |            
|                               |                                    |                          |         |          |         |        |            
|                               |                                    |                          |         |          |         |        | Amortized  
|                               |                                    |                          |         |          |         |        | Cost       
|(Dollars In Thousands)         |                                   
|                               |                                    |                          |         |          |         |        |            
|Held to maturity securities:   |                                    |                          |         |          |         |        |            
|                               | U.S. government agency  securities | $154,351                 |         | $155,024 |         | 56.87  | %          
|                               | U.S. government MBS (1)            | 9                        |         | 15       |         | 0.01   |            
|                               | Corporate bonds                    | 2,762                    |         | 2,666    |         | 0.98   |            
|                               |                                    |                          |         |          |         |        |            
|                               |                                    | Total held to maturity   | 157,122 |          | 157,705 |        | 57.86      
|                               |                                    |                          |         |          |         |        |            
|Available for sale securities: |                                    |                          |         |          |         |        |            
|                               | U.S. government agency  securities | 38,316                   |         | 38,497   |         | 14.13  |            
|                               | U.S. government agency MBS         | 75,034                   |         | 75,566   |         | 27.73  |            
|                               | FHLMC common stock                 | 11                       |         | 734      |         | 0.27   |            
|                               | FNMA common stock                  | 1                        |         | 29       |         | 0.01   |            
|                               | Equity securities                  | -                        |         | -        |         | -      |            
|                               |                                    |                          |         |          |         |        |            
|                               |                                    | Total available for sale | 113,362 |          | 114,826 |        | 42.14      
|                               |                                    |                          |         |          |         |        |            
|                               | Total investment securities        | $270,484                 |         | $272,531 |         | 100.00 | %          

(1) Mortgage-backed securities ("MBS").

21

<PAGE>

The following table sets forth the amortized cost, maturity and weighted average yield of the investments in debt securities in the Bank's securities portfolio at June 30, 2002:



|                       |  |                     | Due in   |   | Due          |          | Due           | Due       |          |      
|---------------------- |  | ------------------- | -------- | - | ------------ | -------- | ------------- | --------- | -------- | -----
|                       |  |                     | One Year |   | After One to |          | After Five to | After     |          |      
|                       |  |                     | or Less  |   | Five Years   |          | Ten Years     | Ten Years | Total   
|                       |  |                     | Amount   |   | Yield        |          | Amount        |           | Yield    |      
|(Dollars In Thousands) |  |                    
|                       |  |                     |          |   |              |          |               |           |          |      
|Held to maturity       |  | $                 - |          | - |              | $126,127 | 3.52%         |           | $ 30,995 | 5.21%
|Available for sale     |  | -                   |          | - |              | 58,073   | 4.13          |           | 6,789    | 5.27 
|Total                  |  | $                 - |          | - |              | $184,200 | 3.71%         |           | $ 37,784 | 5.22%





Deposit Activities and Other Sources of Funds



General.  Deposits, the proceeds from loan sales and loan repayments are the major sources of the Bank's funds for lending and other investment purposes.  Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows are influenced significantly by general interest rates and money market conditions.  Loan sales are also influenced significantly by general interest rates. Borrowings through the FHLB-San Francisco and repurchase agreements may also be used to compensate for declines in the availability of funds from other sources.



Deposit Accounts.  Substantially all of the Bank's depositors are residents of the State of California. Deposits are attracted from within the Bank's market area by offering a broad selection of deposit instruments, including checking, savings, money market and time deposits.  Deposit account terms vary, differentiated by the minimum balance required, the time periods that the funds must remain on deposit and the interest rate, among other factors. In determining the terms of its deposit accounts, the Bank considers current interest rates, profitability to the Bank, interest rate risk characteristics, competition and its customer preferences and concerns.  Generally, the Bank's deposit rates are close to the median rates of its competitors within a given market.  The Bank may occasionally pay above-market interest rates to attract or retain deposits when less expensive sources of funds are not available.  The Bank may also pay above-market interest rates in specific markets in order to increase the deposit base of a particular office or group of offices.  The Bank does not generally accept brokered deposits.  The Bank reviews its deposit composition and pricing weekly.



The Bank currently offers time deposits for terms not exceeding five years.  As illustrated in the following table, time deposits accounted for 49.7% of the Bank's deposit portfolio at June 30, 2002, compared to 62.4% at June 30, 2001. The Bank will attempt to reduce the overall cost of its deposit portfolio by increasing its transaction accounts.  See "-- Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 herein.

22

<PAGE>



The following table sets forth information concerning the Bank's weighted-average interest rate of the deposits at June 30, 2002.



|Weighted      |      |                       |                                          |                       |                | Percentage
|------------- | ---- | --------------------- | ---------------------------------------- | --------------------- | -------------- | ----------
|Average       |      |                       | Minimum                                  |                       | Balance        | of Total  
|Interest Rate | Term | Deposit  Account Type | Amount                                   |                       | (In Thousands) | Deposits  
|              |      |                       |                                          |                      
|0.00%         |      | N/A                   | Checking deposits - non-interest bearing | $                   - |                | $ 31,076  
|0.80          |      | N/A                   | Checking deposits - interest bearing     | -                     |                | 94,084    
|2.24          |      | N/A                   | Savings deposits                         | 10                    |                | 166,001   
|2.07          |      | N/A                   | Money market deposits                    | -                     |                | 49,690    
|              |      |                       |                                          |                       |                |           
|              |      |                       | Time deposits:                           |                       |                |           
|2.77          |      | 18 to 36 Months       | Fixed-term, variable rate                | 1,000                 |                | 2,164     
|1.43          |      | 90 Days or Less       | Fixed-term, fixed rate                   | 1,000                 |                | 9,432     
|1.48          |      | 4 Months              | Fixed-term, fixed rate                   | 1,000                 |                | 282       
|1.49          |      | 5 Months              | Fixed-term, fixed rate                   | 1,000                 |                | 377       
|1.65          |      | 6-7 Months            | Fixed-term, fixed rate                   | 1,000                 |                | 30,520    
|1.92          |      | 9 Months              | Fixed-term, fixed rate                   | 1,000                 |                | 8,872     
|2.83          |      | 1 Year                | Fixed-term, fixed rate                   | 1,000                 |                | 83,314    
|2.40          |      | 13 Months             | Fixed-term, fixed rate                   | 1,000                 |                | 359       
|3.89          |      | 15 Months             | Fixed-term, fixed rate                   | 1,000                 |                | 46,804    
|4.46          |      | 18 Months             | Fixed-term, fixed rate                   | 1,000                 |                | 6,453     
|3.60          |      | 20 Months             | Fixed-term, fixed rate                   | 1,000                 |                | 5,304     
|4.45          |      | 2 Years               | Fixed-term, fixed rate                   | 1,000                 |                | 60,133    
|6.03          |      | 3 Years               | Fixed-term, fixed rate                   | 1,000                 |                | 49,313    
|5.17          |      | 4 Years               | Fixed-term, fixed rate                   | 1,000                 |                | 1,950     
|5.28          |      | 5 Years               | Fixed-term, fixed rate                   | 1,000                 |                | 31,013    
|8.00          |      | 8 Years               | Fixed-term, fixed rate                   | 1,000                 |                | 182       
|3.90          |      | 10 Years              | Fixed-term, fixed rate                   | 1,000                 |                | 125       
|2.72%         |      |                       |                                          |                       |                | $ 677,448 





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, 2002.



|                               | Maturity Period |          | Amount  
|------------------------------ | --------------- | -------- | --------
|(In Thousands)                 |                 |         
|                               |                 |         
|Three months or less           |                 | $ 18,848
|Over three through six months  |                 | 19,333  
|Over six through twelve months |                 | 11,448  
|Over twelve months             |                 | 40,087  
|                               | Total           |          | $ 89,716

23

<PAGE>

Deposit Flows. The following table sets forth the balances (inclusive of interest credited) and changes in dollar amount of deposits in the various types of accounts offered by the Bank at and between the dates indicated.



|                                         |                                      |                                   | At June 30,
|---------------------------------------- | ------------------------------------ | --------------------------------- | -----------
|                                         |                                      |                                   | 2002       
|                                         |                                      |                                   |            
|                                         |                                      |                                   |            
|                                         |                                      |                                   | Amount     
|(Dollars In Thousands)                   |                                      |                                   |            
|                                         |                                      |                                   |            
|Checking deposits - non-interest bearing |                                      | $    31,076                       | 4.59%      
|Checking deposits - interest bearing     |                                      | 94,084                            | 13.89      
|Savings deposits                         |                                      | 166,001                           | 24.50      
|Money market deposits                    |                                      | 49,690                            | 7.33       
|Time deposits:                           |                                      |                                   |            
|                                         | Fixed-term, fixed rate which mature: |                                   |            
|                                         |                                      | Within 1 year                     |            
|                                         |                                      | After 1 year, but within 2 years  |            
|                                         |                                      | After 2 years, but within 5 years |            
|                                         |                                      | After 5 years                     |            
|                                         | Fixed-term, variable rate            |                                   | 2,164      
|                                         | Total                                |                                   | $ 677,448  



Time Deposits by Rates.  The following table sets forth the aggregate balance of time deposits categorized by interest rates at the dates indicated.



|               |       |            |                       |               |           | At June 30, |  | 
|-------------- | ----- | ---------- | --------------------- | ------------- | --------- | ----------- |  | 
|               |       |            |                       | 2002          | 2001      | 2000       
|(In Thousands) |       |           
|               |       |            |                       |               |           |            
|Below 1.00%    |       | $       84 | $                  12 | $          86
|1.00 to 1.99%  |       | 62,051     | 8                     | -            
|2.00 to 2.99%  |       | 42,385     | 185                   | 155          
|3.00 to 3.99%  |       | 74,298     | 19,547                | 2,578        
|4.00 to 4.99%  |       | 79,399     | 95,229                | 42,794       
|5.00 to 5.99%  |       | 19,807     | 116,627               | 280,191      
|6.00 to 6.99%  |       | 57,001     | 215,168               | 132,426      
|7.00 to 7.99%  |       | 1,390      | 9,090                 | 2,283        
|8.00% and over |       | 182        | 167                   | 155          
|               | Total |            | $ 336,597             | $ 456,033     | $ 460,668

24

<PAGE>

Time Deposits by Maturities.  The following table sets forth the aggregate dollar amount of time deposits at June 30, 2002 differentiated by interest rates and maturity.





|               |       |                    |  |              |  |                         |  |                     |  |                       |  |                        | 
|-------------- | ----- | ------------------ |  | ------------ |  | ----------------------- |  | ------------------- |  | --------------------- |  | ---------------------- | 
|               |       |                    |  |              |  | One to                  |  | Two to              |  | Three to              |  | After                  | 
|               |       |                    |  | Less Than    |  | Two                     |  | Three               |  | Four                  |  | Four                   | 
|               |       |                    |  | One Year     |  | Years                   |  | Years               |  | Years                 |  | Years                  | 
|(In Thousands) |      
|               |       |                    |  |              |  |                         |  |                     |  |                       |  |                        | 
|Below 1.00%    |       | $               84 |  | $          - |  | $                     - |  | $                 - |  | $                   - |  | $                   84
|1.00 to 1.99%  |       | 62,051             |  | -            |  | -                       |  | -                   |  | -                     |  | 62,051                
|2.00 to 2.99%  |       | 38,328             |  | 3,608        |  | 438                     |  | -                   |  | 11                    |  | 42,385                
|3.00 to 3.99%  |       | 44,017             |  | 27,456       |  | 2,653                   |  | 157                 |  | 15                    |  | 74,298                
|4.00 to 4.99%  |       | 44,776             |  | 14,347       |  | 6,395                   |  | 881                 |  | 13,000                |  | 79,399                
|5.00 to 5.99%  |       | 10,272             |  | 1,420        |  | 1,719                   |  | 1,169               |  | 5,227                 |  | 19,807                
|6.00 to 6.99%  |       | 46,877             |  | 5,299        |  | 2,259                   |  | 2,460               |  | 106                   |  | 57,001                
|7.00 to 7.99%  |       | 516                |  | 591          |  | 283                     |  | -                   |  | -                     |  | 1,390                 
|8.00% and over |       | 182                |  | -            |  | -                       |  | -                   |  | -                     |  | 182                   
|               | Total | $ 247,103          |  | $ 52,721     |  | $ 13,747                |  | $ 4,667             |  | $ 18,359              |  | $ 336,597             







Deposit Activity.  The following table sets forth the deposit activity of the Bank for the periods indicated.



|                                    |                   |           |           | At or For the Year Ended June 30,
|----------------------------------- | ----------------- | --------- | --------- | ---------------------------------
|                                    |                   |           |           | 2002                             
|(In Thousands)                      |                   |          
|                                    |                   |           |           |                                  
|Beginning balance                   |                   | $ 730,041 |           | $ 696,458                        
|                                    |                   |           |           |                                  
|Net (withdrawals) deposits before   |                   |           |           |                                  
|                                    | interest credited |           | (76,786   | )                                
|Interest credited                   |                   | 24,193    |           | 34,477                           
|Net (decrease) increase in deposits |                   | (52,593   | )         | 33,583                           
|                                    | Ending balance    |           | $ 677,448 |                                  





Borrowings.  The FHLB-San Francisco functions as a central reserve bank providing credit for member financial institutions.  As a member, the Bank is required to own capital stock in the FHLB-San Francisco and is authorized to apply for advances using such stock and certain of its mortgage loans and other assets (principally investment securities which are obligations of, or guaranteed by, the U.S. government) as collateral, provided certain creditworthiness standards have been met.  Advances are made pursuant to several different credit programs.  Each credit program has its own interest rate, maturity, terms and conditions. Depending on the program, limitations on the amount of advances are based on the financial condition of the member institution and the adequacy of collateral pledged to secure the credit.  The Bank utilizes advances from the FHLB-San Francisco as an alternative to deposits, to supplement its supply of lendable funds, to meet deposit withdrawal requirements and to help manage interest rate risk.  The FHLB-San Francisco has, from time to time, served as the Bank's primary borrowing source.  Advances from the FHLB-San Francisco are typically secured by the Bank's first mortgage loans. In addition, the Bank used U.S. government agency securities totaling $119.7 million at June 30, 2002 to collateralize its FHLB advances under the Security-Backed Credit ("SBC") facility as compared to $79.8 million at June 30, 2001. At June 30, 2002, the Bank had $202.5 million of borrowings from the FHLB-San
Francisco with a weighted-average rate of 5.50%, of

25

<PAGE>

which $37.0 million was under the SBC facility. Such
borrowings mature between 2002 and 2021. The following table sets forth certain
information regarding borrowings by the Bank at the dates and for the periods
indicated:





|                                                           |                                                         |           | At or For the Year Ended June 30, |            
|---------------------------------------------------------- | ------------------------------------------------------- | --------- | --------------------------------- | -----------
|                                                           |                                                         |           | 2002                              |            
|(Dollars In Thousands)                                     |                                                         |          
|                                                           |                                                         |           |                                   |            
|Balance outstanding at end of period:                      |                                                         |           |                                   |            
|                                                           | FHLB advances                                           | $ 202,466 |                                   | $ 265,830  
|                                                           | A loan to facilitate purchase of an investment property | -         |                                   | -          
|                                                           |                                                         |           |                                   |            
|Weighted average rate:                                     |                                                         |           |                                   |            
|                                                           | FHLB advances                                           | 5.50%     |                                   | 6.28%      
|                                                           | A loan to facilitate purchase of an investment property | -         |                                   | -          
|                                                           |                                                         |           |                                   |            
|Maximum amount of borrowings outstanding at any month end: |                                                         |           |                                   |            
|                                                           | FHLB advances                                           | $ 257,525 |                                   | $ 329,937  
|                                                           | A loan to facilitate purchase of an investment property | -         |                                   | 3,287      
|                                                           |                                                         |           |                                   |            
|Approximate average short-term* borrowings                 |                                                         |           |                                   |            
|outstanding with respect to:                               |                                                         |           |                                   |            
|                                                           | FHLB advances                                           | $  76,144 |                                   | $   131,035
|                                                           |                                                         |           |                                   |            
|Approximate weighted average short-term* borrowings rate   |                                                         |           |                                   |            
|with respect to:                                           |                                                         |           |                                   |            
|                                                           | FHLB advances                                           | 6.67%     |                                   | 6.61%      



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



In addition, the Bank has a borrowing arrangement in the form of a federal funds facility with its correspondent bank in the amount of  $45 million, none of which was outstanding at June 30, 2002 and 2001.

Subsidiary Activities



Federal savings associations generally may invest up to 3% of their assets in service corporations, provided that at least one-half of any amount in excess of 1% is used primarily for community, inner-city and community development projects.  The Bank's investment in its service corporations did not exceed these limits at June 30, 2002.



The Bank has three wholly owned subsidiaries: Provident Financial Corporation ("PFC"), Profed Mortgage, Inc., and First Service Corporation. PFC's current activities include: (i) acting as trustee for the Bank's real estate transactions, (ii) engaging in annuity sales and providing brokerage services at branch offices of the Bank, (iii) selling property and life insurance, primarily to the Bank's customers, and (iv) holding real estate for investment. The largest real estate investment of PFC is an office building in downtown Riverside, California with a carrying book value of  $10.5 million as of June 30, 2002. Other real estate held for investment by PFC at June 30, 2002 totaled $653,000. As of June 30, 2002, PFC had a loan from the Bank (which was used to repay the loan that was assumed from the seller when PFC purchased the downtown office building) of $1.1 million with an annual interest rate of 8.25% and a monthly installment of $70,305.63 through November 1, 2003. Profed Mortgage, Inc., which formerly conducted the Bank's mortgage banking activities, and First Service Corporation are currently inactive.  At June 30, 2002, the Bank's investment in its subsidiaries was $9.4 million.

26

<PAGE>



REGULATION



General



The Bank is subject to extensive regulation, examination and supervision by the OTS as its chartering agency, and the FDIC, as the insurer of its deposits.  The activities of federal savings institutions are governed by the Home Owners' Loan Act ("HOLA") and, in certain respects, the Federal Deposit Insurance Act ("FDIA"), and the regulations issued by the OTS and the FDIC to implement these statutes.  These laws and regulations delineate the nature and extent of the activities in which federal savings associations may engage.  Lending activities and other investments must comply with various statutory and regulatory capital requirements.  In addition, the Bank's relationship with its depositors and borrowers is also regulated to a great extent, especially in such matters as the ownership of deposit accounts and the form and content of the Bank's mortgage documents.  The Bank is required to file reports with the OTS and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other financial institutions.  There are periodic examinations by the OTS and the FDIC to review the Bank's compliance with various regulatory requirements.  The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.  Any change in such policies, whether by the OTS, the FDIC or Congress, could have a material adverse impact on the Corporation, the Bank and their operations.



Federal Regulation of Savings Associations



Office of Thrift Supervision.  The OTS is a department in the Department of the Treasury subject to the general oversight of the Secretary of the Treasury.  The OTS has extensive authority over the operations of savings associations.  Among other functions, the OTS issues and enforces regulations affecting federally insured savings associations and regularly examines these institutions.



All savings associations are required to pay assessments to the OTS to fund the agency's operations.  The general assessments, paid on a semi-annual basis, are determined based on the savings association's total assets, including consolidated subsidiaries.  The Bank's OTS assessment for the fiscal year ended June 30, 2002 was $209,000.



Federal Home Loan Bank System.  The FHLB System, consisting of 12 FHLBs, is under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The designated duties of the FHFB are to supervise the FHLBs, to ensure that the FHLBs carry out their housing finance mission, to ensure that the FHLBs remain adequately capitalized, able to raise funds in the capital markets, and to ensure that the FHLBs operate in a safe and sound manner.



The Bank, as a member of the FHLB-San Francisco, is required to acquire and hold shares of capital stock in the FHLB-San Francisco in an amount equal to the greater of (i) 1.0% of the aggregate outstanding principal amount of residential mortgage loans, home purchase contracts and similar obligations at the beginning of each year, or (ii) 5 percent of its advances (i.e., borrowings) from the FHLB-San Francisco.  The Bank was in compliance with this requirement, its investment in FHLB-San Francisco stock was $13 million at June 30, 2002.



Among other benefits, the FHLB provides a central credit facility primarily for member institutions.  It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System.  It makes advances to members in accordance with policies and procedures established by the FHFB and the Board of Directors of the FHLB-San Francisco.



The FHLBs are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions also could have an adverse effect on the value of FHLB stock in the future.

27

<PAGE>



Federal Deposit Insurance Corporation.  The FDIC is an independent federal agency established originally to insure the deposits, up to prescribed statutory limits, of federally insured banks and to preserve the safety and soundness of the banking industry.  The FDIC maintains two separate insurance funds: the Bank Insurance Fund ("BIF") and the SAIF.  The Bank's deposit accounts are insured by the FDIC under the SAIF to the maximum extent permitted by law.  As insurer of the Bank's deposits, the FDIC has examination, supervisory and enforcement authority over the Bank.



As insurer of the Bank's deposits, the FDIC has examination, supervisory and enforcement authority over all savings associations. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the SAIF or the BIF. The FDIC also has the authority to initiate enforcement actions against savings institutions, after giving the OTS an opportunity to take such action, and may terminate the deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in unsafe or unsound condition.



The FDIC's deposit insurance premiums are assessed through a risk-based system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their level of capital and supervisory evaluation. Under the system, institutions classified as well capitalized (i.e., a Core Capital ratio of least 5%, a ratio of Tier 1, or Core Capital, to Risk-Weighted Assets ("Tier 1 Risk-Based Capital") of at least 6% and a Risk-Based Capital ratio of at least 10%) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (i.e., Core or Tier 1 Risk-Based Capital ratio of less than 4% or a Risk-Based Capital ratio of less than 8%) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period.



The FDIC is authorized to increase assessment rates, on a semi-annual basis, if it determines that the reserve ratio of the SAIF will be less than the designated reserve ratio of 1.25% of the SAIF insured deposits. In setting these increased assessments, the FDIC must seek to restore the reserve ratio to that designated reserve level, or such higher reserve ratio as established by the FDIC. The FDIC may also impose special assessments on SAIF members to repay amounts borrowed from the United States Treasury or for any other reasons deemed necessary by the FDIC.



The premium schedule for BIF and SAIF insured institutions ranges from 0 to 27 basis points.  However, SAIF insured institutions and BIF insured institutions are required to pay a Financing Corporation assessment in order to fund the interest on bonds issued to resolve thrift failures in the 1980s.  This amount is currently equal to approximately 1.88 basis points for each $100 in domestic deposits for SAIF and BIF insured members. These assessments, which may be revised based upon the level of BIF and SAIF deposits, will continue until the bonds mature in the years 2017 through 2019.



Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS.  Management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance.



Liquidity Requirements.  The OTS repealed its liquidity regulation in April 2001. Although the percentage liquidity requirement of 4% has been eliminated, the interim rule still requires thrifts to maintain adequate liquidity to assure safe and sound operation. The Bank's average liquidity ratio for the quarter ended June 30, 2002 was 33.2%.



Prompt Corrective Action. The OTS is required to take certain supervisory actions against undercapitalized savings associations, the severity of which depends upon the institution's degree of undercapitalization.  Generally, an institution that has a ratio of Total Capital to Risk-Weighted Assets of less than 8%, a ratio of Tier I (Core) Capital to Risk-Weighted Assets of less than 4%, or a ratio of Core Capital to total assets of less than 4% (3% or less for institutions with the highest examination rating) is considered to be "undercapitalized."  An institution that has a total risk-based capital ratio less than 6%, a Tier I Capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be "significantly undercapitalized" and an institution that has a Tangible Capital to Total Assets ratio equal to or less than 2% is deemed to be "critically undercapitalized."  Subject to a narrow exception, the OTS is required to appoint a receiver or conservator for a savings institution that is "critically undercapitalized."

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At June 30, 2002, the Bank was categorized as "well capitalized" under the prompt corrective action regulations of the OTS.



Standards for Safety and Soundness.  The federal banking regulatory agencies have prescribed, by regulation, standards for all insured depository institutions relating to: (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii) earnings; and (viii) compensation, fees and benefits ("Guidelines").  The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.  If the OTS determines that the Bank fails to meet any standard prescribed by the Guidelines, it may require the Bank to submit an acceptable plan to achieve compliance with the standard.  Management is aware of no conditions relating to these safety and soundness standards which would require the submission of a plan of compliance.



Qualified Thrift Lender Test.  All savings associations, including the Bank, are required to meet a qualified thrift lender ("QTL") test to avoid certain restrictions on their operations.  This test requires a savings association to have at least 65% of its portfolio assets (as defined by regulation) in qualified thrift investments on a monthly average for nine out of every 12 months on a rolling basis.  As an alternative, the savings association may maintain 60% of its assets in those assets specified in Section 7701(a)(19) of the Internal Revenue Code ("Code").  Under either test, such assets primarily consist of residential housing related loans and investments.  At June 30, 2002, the Bank met the test and its QTL percentage was 75.48%.



Any savings association that fails to meet the QTL test must convert to a national bank charter, unless it requalifies as a QTL and thereafter remains a QTL.  If an association does not requalify and converts to a national bank charter, it must remain SAIF-insured until the FDIC permits it to transfer to the BIF.   If such an association has not yet requalified or converted to a national bank, its new investments and activities are limited to those permissible for both a savings association and a national bank, and it is limited to national bank branching rights in its home state.  In addition, the association is immediately ineligible to receive any new FHLB borrowings and is subject to national bank limits for the payment of dividends.  If such association has not requalified or converted to a national bank within three years after the failure, it must divest of all investments and cease all activities not permissible for a national bank.  In addition, it must repay promptly any outstanding FHLB borrowings, which may result in prepayment penalties.  If any association that fails the QTL test is controlled by a holding company, then within one year after the failure, the holding company must register as a bank holding company and become subject to all restrictions on bank holding companies.  See "-- Savings and Loan Holding Company Regulations."



Capital Requirements. Federally insured savings associations, such as the Bank, are required to maintain a minimum level of regulatory capital. The OTS has established capital standards, including a Tangible Capital requirement, a Leverage ratio (or Core Capital) requirement and a Risk-Based Capital requirement applicable to such savings associations.



The capital regulations require Tangible Capital of at least 1.5% of Adjusted Total Assets (as defined by regulation). At June 30, 2002, the Bank had Tangible Capital of $88.8 million, or 8.92% of Adjusted Total Assets, which is approximately $73.9 million above the minimum requirement of 1.5% of Adjusted Total Assets in effect on that date.



The capital standards also require Core Capital equal to at least 3% or 4% of adjusted total assets, depending on an institution's supervisory rating. Core Capital generally consists of Tangible Capital. At June 30, 2002, the Bank had Core Capital equal to $88.8 million, or 8.92% of Adjusted Tangible Assets, which is $49.0 million above the 4% requirement of Adjusted Tangible Assets in effect on that date.



The OTS risk-based capital requirement requires savings associations to have Total Capital of at least 8% of Risk-Weighted Assets. Total Capital consists of Core Capital, as defined above, and supplementary capital.  Supplementary capital consists of certain permanent and maturing capital instruments that do not qualify as Core Capital and general loan loss allowances up to a maximum of 1.25% of Risk-Weighted Assets. Supplementary capital may be used to satisfy the risk-based requirement only to the extent of Core Capital.

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In determining the amount of Risk-Weighted Assets, all assets, including certain off-balance sheet items, are multiplied by a risk weight, ranging from 0% to 100%, based on the risk inherent in the type of asset.  For example, the OTS has assigned a risk weighting of 50% for prudently underwritten permanent single-family first lien mortgage loans not more than 90 days delinquent and having a loan-to-value ratio of not more than 80% at the time of origination unless insured to such ratio by an insurer approved by FNMA or FHLMC.



On June 30, 2002, the Bank had Total Risk-Based Capital of approximately $95.3 million, including $88.8 million in Core Capital and $6.5 million in qualifying supplementary capital, and Risk-Weighted Assets of $529.3 million, or a Total Capital ratio of 18.01% to Risk-Weighted Assets. This amount was $53.0 million above the 8% requirement in effect on that date.



The OTS is authorized to impose capital requirements in excess of these standards on individual associations on a case-by-case basis. The OTS and the FDIC are authorized and, under certain circumstances required, to take certain actions against savings associations that fail to meet their capital requirements. The OTS is generally required to take action to restrict the activities of an "undercapitalized association" (generally defined to be one with less than either a 4% Core Capital ratio, a 4% Tier 1 Capital ratio or an 8% Risk-Based Capital ratio). Any such association must submit a capital restoration plan and until such plan is approved by the OTS may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions.  The OTS is authorized to impose the additional restrictions that are applicable to significantly undercapitalized associations.



The OTS is also generally authorized to reclassify an association into a lower capital category and impose the restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition.



The imposition by the OTS or the FDIC of any of these measures on the Corporation or the Bank may have a substantial adverse effect on their operations and profitability.



Limitations on Capital Distributions. The OTS imposes various restrictions on savings associations with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account.



Generally, savings institutions, such as the Bank, that before and after the proposed distribution remain well-capitalized, may make capital distributions during any calendar year equal to the greater of 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an institution deemed to be in need of more than normal supervision by the OTS may have its dividend authority restricted by the OTS. The Bank may pay dividends in accordance with this general authority.



Savings institutions proposing to make any capital distribution need only submit written notice to the OTS 30 days prior to such distribution. Savings institutions that do not, or would not meet their current minimum capital requirements following a proposed capital distribution, however, must obtain OTS approval prior to making such distribution. The OTS may object to the distribution during that 30-day period based on safety and soundness concerns. See "-- Capital Requirements."



Loans to One Borrower.  Federal law provides that savings institutions are generally subject to the national bank limit on loans to one borrower. A savings institution may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral.  At June 30, 2002, the Bank's limit on loans to one borrower was $16.6 million. At June 30, 2002, the Bank's largest single loan to one borrower was $2.9 million, which was performing according to its original terms.



Activities of Associations and Their Subsidiaries.  When a savings association establishes or acquires a subsidiary or elects to conduct any new activity through a subsidiary that the association controls, the savings association must notify the FDIC and the OTS 30 days in advance and provide the information each agency may, by regulation, require. Savings associations also must conduct the activities of subsidiaries in accordance with existing regulations and orders.

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The OTS may determine that the savings association's ownership, control of, or its relationship to, the subsidiary constitutes a serious risk to the safety, soundness or stability of the savings association or is inconsistent with sound banking practices or with the purposes of the FDIA. Based upon that determination, the FDIC or the OTS has the authority to order the savings association to divest itself of control of the subsidiary.  The FDIC also may determine by regulation or order that any specific activity poses a serious threat to the SAIF.  If so, it may require that no SAIF member engage in that activity directly.



Transactions with Affiliates.  Savings associations must comply with Sections 23A and 23B of the Federal Reserve Act relative to transactions with affiliates in the same manner and to the same extent as if the savings association were a Federal Reserve member Savings Bank. Generally, transactions between a savings association or its subsidiaries and its affiliates are required to be on terms as favorable to the association as transactions with non-affiliates. In addition, certain of these transactions, such as loans to an affiliate, are restricted to a percentage of the association's capital.  Affiliates of the Bank include the Corporation and any company which is under common control with the Bank.  In addition, a savings association may not lend to any affiliate engaged in activities not permissible for a savings and loan holding company or acquire the securities of most affiliates.  The OTS has the discretion to treat subsidiaries of savings associations as affiliates on a case by case basis.



Certain transactions with directors, officers or controlling persons are also subject to conflict of interest regulations enforced by the OTS.  These conflict of interest regulations and other statutes also impose restrictions on loans to such persons and their related interests.  Among other things, such loans must be made on terms substantially similar to transactions with unaffiliated individuals.



Community Reinvestment Act. Under the federal Community Reinvestment Act ("CRA"), all federally-insured financial institutions have a continuing and affirmative obligation consistent with safe and sound operations to help meet all the credit needs of its delineated community.  The CRA does not establish specific lending requirements or programs nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to meet all the credit needs of its delineated community. The CRA requires the federal banking supervisory agencies, in connection with regulatory examinations, to assess an institution's record of meeting the credit needs of its delineated community and to take such record into account in evaluating regulatory applications to establish a new branch office that will accept deposits, relocate an existing office, or merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution, among others.  The CRA requires public disclosure of an institution's CRA rating.  The Bank received a "satisfactory" rating as a result of its latest evaluation.



Regulatory and Criminal Enforcement Provisions.  The OTS has primary enforcement responsibility over savings institutions and has the authority to bring action against all "institution-affiliated parties," including stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution.  Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers or directors, receivership, conservatorship or termination of deposit insurance.  Civil penalties cover a wide range of violations and can amount to $27,500 per day, or $1.1 million per day in particularly egregious cases.  Under the FDIA, the FDIC has the authority to recommend to the Director of the OTS that enforcement action be taken with respect to a particular savings institution.  If action is not taken by the Director, the FDIC has authority to take such action under certain circumstances.  Federal law also establishes criminal penalties for certain violations.



Savings and Loan Holding Company Regulations



General.  The Corporation is a unitary savings and loan holding company subject to regulatory oversight of the OTS.  Accordingly, the Corporation is required to register and file reports with the OTS and is subject to regulation and examination by the OTS.  In addition, the OTS has enforcement authority over the Corporation and its non-savings association subsidiaries which also permits the OTS to restrict or prohibit activities that are determined to present a serious risk to the subsidiary savings association.

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The Gramm-Leach-Bliley Financial Services Modernization Act of 1999.  On November 12, 1999, the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 was signed into law.  The purpose of this legislation was to modernize the financial services industry by establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers.  Generally, the Act:

(a)    repealed the historical restrictions and eliminated many federal and state law barriers to affiliations among banks, securities firms, insurance companies and other financial service providers;

(b)    provided a uniform framework for the functional regulation of the activities of banks, savings institutions and their holding companies;



(c)   
broadened the activities that may be conducted by national banks, banking
subsidiaries of bank holding companies and their financial subsidiaries;

(d)   
provided an enhanced framework for protecting the privacy of consumer
information;

(e)    adopted a number of provisions related to the capitalization, membership, corporate governance and other measures designed to modernize the FHLB system;

(f)    modified the laws governing the implementation of the Community Reinvestment Act; and

(g)    addressed a variety of other legal and regulatory issues affecting day-to-day operations and long-term activities of financial institutions.



The USA Patriot Act.

Among other requirements, Title III of the USA PATRIOT Act imposes the following requirements with respect to financial institutions:

- Pursuant to Section 352, all financial institutions must establish anti-money laundering programs that include, at minimum: (i) internal policies, procedures, and controls, (ii) specific designation of an anti-money laundering compliance officer, (iii) ongoing employee training programs, and (iv) an independent audit function to test the anti-money laundering program.



























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During the first quarter of 2002 the Federal Crimes Enforcement Network (FinCEN), a bureau of the Department of Treasury, issued proposed and interim regulations to implement the provisions of Sections 312 and 352 of the USA Patriot Act.



Sarbanes-Oxley Act of 2002.  On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002 implementing legislative reforms intended to address corporate and accounting fraud. In addition to the establishment of a new accounting oversight board which will enforce auditing, quality control and independence standards and will be funded by fees from all publicly traded companies, the bill restricts provision of both auditing and consulting services by accounting firms. To ensure auditor independence, any non-audit services being provided to an audit client will require preapproval by the company's audit committee members. In addition, the audit partners must be rotated. The bill requires chief executive officers and chief financial officers, or their equivalent, to certify to the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willfully violate this certification requirement. In addition, under the Act, counsel will be required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and, if such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee of the board of directors or the board itself.



Longer prison terms will also be applied to corporate executives who violate federal securities laws, the period during which certain types of suits can be brought against a company or its officers has been extended, and bonuses issued to top executives prior to restatement of a company's financial statements are now subject to disgorgement if such restatement was due to corporate misconduct. Executives are also prohibited from insider trading during retirement plan "blackout" periods, and loans to company executives are restricted. In addition, a provision directs that civil penalties levied by the SEC as a result of any judicial or administrative action under the Act be deposited to a fund for the benefit of harmed investors. The Federal Accounts for Investor Restitution ("FAIR") provision also requires the SEC to develop methods of improving collection rates. The legislation accelerates the time frame for disclosures by public companies, as they must immediately disclose any material changes in their financial condition or operations. Directors and executive officers must also provide information for most changes in ownership in a company's securities within two business days of the change.



The Act also increases the oversight of, and codifies certain requirements relating to audit committees of public companies and how they interact with the company's "registered public accounting firm" ("RPAF"). Audit Committee members must be independent and are absolutely barred from accepting consulting, advisory or other compensatory fees from the issuer. In addition, companies must disclose whether at least one member of the committee is a "financial expert" (as such term will be defined by the SEC) and if not, why not. Under the Act, a RPAF is prohibited from performing statutorily mandated audit services for a company if such company's chief executive officer, chief financial officer, comptroller, chief accounting officer or any person serving in equivalent positions has been employed by such firm and participated in the audit of such company during the one-year period preceding the audit initiation date. The Act also prohibits any officer or director of a company or any other person acting under their direction from taking any action to fraudulently influence, coerce, manipulate or mislead any independent public or certified accountant engaged in the audit of the company's financial statements for the purpose of rendering the financial statement's materially misleading. The Act also requires the SEC to prescribe rules requiring inclusion of an internal control report and assessment by management in the annual report to shareholders. The Act requires the RPAF that issues the audit report to attest to and report on management's assessment of the company's internal controls. In addition, the Act requires that each financial report required to be prepared in accordance with (or reconciled to) generally accepted accounting principles and filed with the SEC reflect all material correcting adjustments that are identified by a RPAF in accordance with generally accepted accounting principles and the rules and regulations of the SEC.



Acquisitions

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than 25% of the voting shares of such holding company, from acquiring control of any savings association not a subsidiary of such savings and loan holding company, unless the acquisition is approved by the OTS.



Activities.  As a unitary savings and loan holding company, the Corporation generally is not subject to activity restrictions.  If the Corporation acquires control of another savings association as a separate subsidiary other than in a supervisory acquisition, it would become a multiple savings and loan holding company and the activities of the Bank and any other subsidiaries (other than the Bank or any other SAIF insured savings association) would generally become subject to additional restrictions.  There generally are more restrictions on the activities of a multiple savings and loan holding company than on those of a unitary savings and loan holding company.  Federal law provides that, among other things, no multiple savings and loan holding company or subsidiary thereof which is not an insured association shall commence or continue for more than two years after becoming a multiple savings and loan holding company or subsidiary thereof, any business activity other than:  (i) furnishing or performing management services for a subsidiary insured institution, (ii) conducting an insurance agency or escrow business, (iii) holding, managing, or liquidating assets owned by or acquired from a subsidiary insured institution, (iv) holding or managing properties used or occupied by a subsidiary insured institution, (v) acting as trustee under deeds of trust, (vi) those activities previously directly authorized by regulation as of March 5, 1987 to be engaged in by multiple savings and loan holding companies or (vii) those activities authorized by the Federal Reserve Board as permissible for savings and loan holding companies, unless the OTS by regulation, prohibits or limits such activities for savings and loan holding companies.  Those activities described in (vii) above also must be approved by the OTS prior to being engaged in by a multiple savings and loan holding company.



Qualified Thrift Lender Test. If the Bank fails the qualified thrift lender test, within one year the Corporation must register as, and will become subject to, the significant activity restrictions applicable to savings and loan holding companies.  See "-- Federal Regulation of Savings Associations -- Qualified Thrift Lender Test" for information regarding the Bank's qualified thrift lender test.

TAXATION



Federal Taxation



General.  The Corporation and the Bank report their income on a fiscal year basis using the accrual method of accounting and will be 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.



Tax Bad Debt Reserves. As a result of legislation enacted in 1996, the reserve method of accounting for bad debt reserves was repealed for tax years beginning after December 31, 1995.  Due to such repeal, the Bank is no longer able to calculate its deduction for bad debts using the percentage-of-taxable-income or the experience method.  Instead, the Bank will be permitted to deduct as bad debt expense its specific charge-offs during the taxable year.  In addition, the legislation required savings associations to recapture into taxable income, over a six-year period, their post-1987 additions to their bad debt tax reserves. As of the effective date of the legislation, the Bank had no post-1987 additions to its bad debt tax reserves. As of June 30, 2002, the Bank's total pre-1988 bad debt reserve for tax purposes was approximately $9.0 million. Under current law, a savings association will not be required to recapture its pre-1988 bad debt reserve unless the Bank makes a "non-dividend distribution" as defined below.



Distributions.  To the extent that the Bank makes "non-dividend distributions" to the Corporation that are considered as made: (i)
from the reserve for losses on qualifying real property loans, to the extent the
reserve for such losses exceeds the amount that would have been allowed under
the experience method; or (ii) 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. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from the Bank's bad debt
reserve. Thus, any dividends to the Corporation that would reduce amounts
appropriated to the

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Bank's bad debt reserve and deducted for federal income tax
purposes would create a tax liability for the Bank. The amount of additional
taxable income attributable to an Excess Distribution is an amount that, when
reduced by the tax attributable to the income, is equal to the amount of the
distribution. Thus, if the Bank makes a "non-dividend distribution," then
approximately one and one-half times the amount distributed will be included in
taxable income for federal income tax purposes, assuming a 35% corporate income
tax rate (exclusive of state and local taxes). See "REGULATION" for limits on
the payment of dividends by the Bank. The Bank does not intend to pay dividends
that would result in a recapture of any portion of its tax bad debt reserve.
During fiscal 2002, the Bank declared and paid cash dividends to the Corporation
of $4.8 million.



Corporate Alternative Minimum Tax.  The Code imposes a tax on alternative minimum taxable income ("AMTI") at a rate of 20%. In addition, only 90% of AMTI can be offset by net operating loss carryovers.  AMTI is increased by an amount equal to 75% of the amount by which the Bank's adjusted current earnings exceeds its AMTI (determined without regard to this preference and prior toreduction for net operating losses).



Other Matters.   The Internal Revenue Service has audited the Bank's income tax returns through 1996 and the California Franchise Tax Board has audited the Bank through 1990.



State Taxation



California.  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 Bank).  At June 30, 2002, the total net state tax rate was 7.6%.  Bad debt deductions are available in computing California franchise taxes using the specific charge-off method.  The Bank and its California subsidiaries file California franchise tax returns on a combined basis.  The Corporation will be treated as a general corporation subject to the general corporate tax rate.



Delaware.  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.

Item 2. Properties



At June 30, 2002, the net book value of the Bank's property (including land and buildings) and its furniture, fixtures and equipment was $8.1 million.  The Bank's home office, which is owned by the Bank, is located in Riverside, California.  Including the home office, the Bank has eleven banking offices, ten of which are located in Riverside County in the cities of Riverside (2), Moreno Valley, Hemet, Sun City, Rancho Mirage, Corona, Temecula and Blythe, California and one is in Redlands, California in San Bernardino County. The only in-store banking office in Moreno Valley, California was closed in October 2001. Eight of the banking offices are owned by the Bank and three are leased.  The leases expire from 2005 to 2010. The Bank also has six separate loan production offices, which are located in Riverside, La Quinta, Rancho Cucamonga, Glendora, City of Industry and Torrance, California. All of these offices are leased.  The leases expire from 2002 to 2004. A new banking office in Riverside (at Orangecrest Promenade), California is expected to be opened in 2003 and will be leased property.



Item 3.  Legal Proceedings



Periodically, there have been various claims and lawsuits involving the Bank, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans and other issues in the ordinary course of and incident to the Banks' business.  The Bank is not a party to any pending legal proceedings that it believes would have a material adverse effect on the financial condition or operations of the Bank.



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Item 4.  Submission of Matters to a Vote of Security Holders



No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 2002.











PART II



Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters



The common stock of Provident Financial Holdings, Inc. is listed on the Nasdaq Stock Market under the symbol PROV. The following table provides the high and low stock prices for PROV during the last two fiscal years. As of June 30, 2002, there were approximately 378 registered stockholders of record.



|               |      |  | First                |  | Second              |  | Third            |  | Fourth         
|-------------- | ---- |  | -------------------- |  | ------------------- |  | ---------------- |  | ---------------
|               |      |  | (Ended September 30) |  | (Ended December 31) |  | (Ended March 31) |  | (Ended June 30)
|               |      |  |                      |  |                     |  |                  |  |                
|2002 Quarters: |      |  |                      |  |                     |  |                  | 
|               | High |  | $ 17.20              |  | $ 17.33             |  | $ 19.73          |  | $ 22.53        
|               | Low  |  | 14.63                |  | 14.47               |  | 17.27            |  | 19.60          
|               |      |  |                      |  |                     |  |                  |  |                
|2001 Quarters: |      |  |                      |  |                     |  |                  | 
|               | High |  | $ 12.67              |  | $ 13.83             |  | $ 14.42          |  | $ 15.63        
|               | Low  |  | 9.37                 |  | 11.46               |  | 11.50            |  | 12.37          
|               |      |  |                      |  |                     |  |                  |  |                



In July 2002, the Board of Directors of the Corporation approved a quarterly cash dividend policy, with the first quarterly cash dividend of $0.05 per share distributed on August 30, 2002.  Future declarations or payments of dividends will be subject to determination by 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, 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 fiscal year in which the dividend is declared and/or the preceding fiscal year.



During fiscal 2002, the Board approved a three-for-two stock split thereby improving the trading liquidity of the Corporation's stock.  The Corporation continues to repurchase its stock consistent with the Board approved stock repurchase plan.  A total of 264,150 shares were repurchased during this fiscal year reducing the number of shares outstanding, which improved its earnings per share.



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Item 6.  Selected Financial Data



The following tables set forth selected financial highlights concerning the consolidated financial position and results of operations of the Corporation and its subsidiary at the dates and for the periods indicated.

|                                                                                                    | At or for the year ended June 30,
|--------------------------------------------------------------------------------------------------- | ---------------------------------
|                                                                                                    | 2002                             
|(In Thousands, Except Share Information )                                                           |                                  
|                                                                                                    |                                  
|FINANCIAL CONDITION DATA:                                                                           |                                  
|Total assets                                                                                        | $  1,005,318                     
|Loans held for investment, net                                                                      | 593,554                          
|Loans held for sale                                                                                 | 1,747                            
|Receivable from sale of loans                                                                       | 67,241                           
|Cash and cash equivalents                                                                           | 27,700                           
|Investment securities                                                                               | 271,948                          
|Deposits                                                                                            | 677,448                          
|Borrowings                                                                                          | 202,466                          
|Stockholders' equity                                                                                | 103,031                          
|                                                                                                    |                                  
|OPERATING DATA:                                                                                     |                                  
|Interest income                                                                                     | $          65,668                
|Interest expense                                                                                    | 39,188                           
|Net interest income                                                                                 | 26,480                           
|Provision for loan losses                                                                           | 525                              
|Net interest income after provision .                                                               | 25,955                           
|Loan servicing and other fees                                                                       | 2,178                            
|Gain on sale of loans, net                                                                          | 10,139                           
|Deposit account fees                                                                                | 1,641                            
|Other non-interest income                                                                           | 1,791                            
|Real estate operations, net                                                                         | 693                              
|Operating expenses                                                                                  | 26,806                           
|Income before income taxes                                                                          | 15,591                           
|Provision for income taxes                                                                          | 6,482                            
|Net income                                                                                          | $             9,109              
|Basic earnings per share                                                                            | $                 1.77           
|Diluted earnings per share                                                                          | $                 1.68           
|                                                                                                   
|(*) Excluding the impact of the non-recurring property gain, totaling $3.57 million (net of taxes).

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|                                                                                                   | At or for the year ended June 30,      
|-------------------------------------------------------------------------------------------------- | ---------------------------------------
|                                                                                                   | 2002                                   
|                                                                                                   |                                        
|KEY OPERATING RATIOS:                                                                              |                                        
|                                                                                                   |                                        
|Performance Ratios                                                                                 |                                        
|                                                                                                   | Return on assets                       
|                                                                                                   | Return on stockholders' equity         
|                                                                                                   | Net interest rate spread               
|                                                                                                   | Net interest margin                    
|                                                                                                   | Average interest-earning assets to     
|                                                                                                   | average interest-bearing liabilities   
|                                                                                                   | Operating and administrative expenses  
|                                                                                                   | as a percentage of average total assets
|                                                                                                   | Efficiency ratio                       
|                                                                                                   | Equity to asset ratio                  
|                                                                                                   |                                        
|Regulatory Capital Ratios                                                                          |                                        
|                                                                                                   | Tangible Capital                       
|                                                                                                   | Tier 1 Leverage Capital                
|                                                                                                   | Total Risk-Based Capital               
|                                                                                                   | Tier 1 Risk-Based Capital              
|                                                                                                   |                                        
|Asset Quality Ratios                                                                               |                                        
|                                                                                                   | Non-accrual and 90 days or more        
|                                                                                                   | past due loans as a percentage of      
|                                                                                                   | loans held for investment, net         
|                                                                                                   | Non-performing assets as a percentage  
|                                                                                                   | of total assets                        
|                                                                                                   | Allowance for loan losses as a         
|                                                                                                   | percentage of loans held for           
|                                                                                                   | investment                             
|                                                                                                   | Allowance for loan losses as a         
|                                                                                                   | percentage of non-performing loans     
|                                                                                                   | Net charge-offs to average             
|                                                                                                   | outstanding loans                      
|                                                                                                   |                                        
|                                                                                                  
|(*) Excludes the impact of the non-recurring property gain, totaling $3.57 million (net of taxes).



Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations



The following discussion and analysis should be read in conjunction with the Corporation's Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in Item 8 of this report.



General



Management's discussion and analysis of financial condition and results of operations are 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 Consolidated Financial Statements and accompanying notes thereto included in Item 8 of this report.  Provident Savings Bank, FSB, is a wholly owned subsidiary of Provident Financial Holdings, Inc. and as such, comprises substantially all of the activity for Provident Financial Holdings, Inc.

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Certain matters in this annual report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements relate to, among others, expectations of the business environment in which the Corporation operates, projections of future performance, perceived opportunities in the market, potential future credit experience, and statements regarding the Corporation's mission and vision. These forward-looking statements are based upon current management expectations, and may, therefore, involve risks and uncertainties. The Corporation's actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements due to a wide range of factors including, but not limited to, the general business environment, the direction of future interest rates, the California real estate market, competitive conditions between banks and non-bank financial services providers, regulatory changes, labor market competitiveness, and other risks detailed in the Corporation's reports filed with the Securities and Exchange Commission.



Critical Accounting Policies



The discussion and analysis of the Corporation's financial condition and results of operations are based upon our 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 financial statements. Actual results may differ from these estimates under different assumptions or conditions.



Accounting for the allowance for loan losses involves significant judgments and assumptions by management, which have a material impact on the carrying value of net loans. Management considers this accounting policy to be a critical accounting policy. The judgments and assumptions used by management are based on historical data and management's view of the current economic environment as described in "Provision for Loan Losses."



Interest is generally not accrued on any loan when its contractual payments are more than 90 days delinquent. In addition, interest is not recognized on any loan which management has determined that collection is not reasonably assured. A non-accrual loan may be restored to accrual status when delinquent principal and interest payments are brought current, the loan is paying in accordance with its payment terms for a minimum six-month period, and future monthly principal and interest payments are expected to be collected.



Properties acquired through foreclosure or deed in lieu of foreclosure, are transferred to the real estate owned portfolio and carried at the lower of cost or estimated fair value less the estimated costs to sell the property. The fair values of the properties are based upon current appraisals. The difference between the fair value of the real estate collateral and the loan balance at the time of transfer is recorded as a loan charge-off if fair value is lower. Subsequent to foreclosure, management periodically performs additional valuations and the properties are adjusted, if necessary, to the lower of carrying value or fair value, less estimated selling costs. The determination of a property's estimated fair value includes revenues projected to be realized from disposal of the property, construction and renovation costs.



Operating Strategy



Provident Savings Bank, FSB, 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, PBM and through its subsidiary, PFC. Thus, the business activities of the Corporation consist of community banking, mortgage banking, investment services and real estate operations.



The Corporation has established strategies for the next five years, which will change the composition and diversify its balance sheet; diversify its revenue sources; create operating efficiencies; and deploy more aggressive capital management techniques.



The Corporation intends to restructure its balance sheet by
decreasing the concentration of single-family mortgage loans within its loan
portfolio and increasing the concentration of multi-family, commercial real
estate, construction and commercial business loans. The Corporation also intends
to decrease the percentage of time deposits in its

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<PAGE>

deposit base and to increase the percentage of checking and
savings deposits. This strategy is intended to improve core revenue through a
higher net interest margin.



The Corporation also intends to diversify revenue sources through continued growth of non-interest income, which is primarily income from mortgage banking, fees from banking products and services, revenue from investment sales, and revenue from real estate operations.



The Corporation intends to create operating efficiencies by streamlining processes and procedures, deploying technology solutions to improve productivity, leveraging its infrastructure to support revenue growth and conducting benchmark studies which will determine opportunities to reduce operating expenses.



The Corporation intends to deploy more aggressive capital management techniques such as share repurchases and a cash dividend policy, among others, resulting in higher earnings per share.

The Corporation is involved in various legal matters associated with its normal operations.  In the opinion of management, these matters will be resolved without material effect on the Corporation's financial position, results of operations or cash flows.



Commitments and Derivative Financial Instruments



The Corporation conducts a portion of its operations in leased facilities under non-cancelable agreements classified as operating leases. The following is a schedule of minimum rental payments under such operating leases which expire at various years:



|Year Ended June 30,             | Amount    
|------------------------------- | ----------
|(Dollars In Thousands)          |           
|                                |           
|                                | 2003      
|                                | 2004      
|                                | 2005      
|                                | 2006      
|                                | 2007      
|                                | Thereafter
|Total minimum payments required | $ 1,902   

Lease expense under operating leases was approximately $553,000 $569,000 and $632,000 for the years ended June 30, 2002, 2001 and 2000, respectively.

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, and forward loan sale agreements to third parties. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying consolidated balance sheet.  The Corporation's exposure to credit loss, in the event of non-performance by the other party to these financial instruments, is represented by the contractual amount of these instruments.  The Corporation uses the same credit policies in making commitments to extend credit as it does for on-balance sheet instruments.

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<PAGE>





|                                                        | June 30,
|------------------------------------------------------- | --------
|Commitments                                             | 2002    
|(In Thousands)                                          |         
|                                                        |         
|Undisbursed loan funds - Construction loans             | $ 30,536
|Undisbursed lines of credit - Commercial business
loans | 10,285  
|Undisbursed lines of credit - Consumer loans            | 11,730  
|                                                        | $ 52,551



Commitments to extend credit are agreements to lend money to a customer at some future date as long as all conditions have been met in the agreement.  These commitments generally have expiration dates within 60 days of the commitment date and may require the payment of a fee.  Since some of these commitments are expected to expire, the total commitment amount outstanding does not necessarily represent future cash requirements.  The Corporation evaluates each customer's creditworthiness on a case-by-case basis prior to issuing a commitment.  At June 30, 2002 and 2001, interest rates on commitments to extend credit ranged from 5.13% to 14.00% and 5.50% to 8.75%, respectively. Commitments to extend credit on loans to be held for investment were $18.2 million and $2.0 million at June 30, 2002 and 2001, respectively.



In an effort to minimize its exposure to interest rate fluctuations on commitments to extend credit where the underlying loan will be sold, the Corporation enters into forward loan sale agreements to sell certain dollar amounts of fixed rate and adjustable rate loans to third parties.  These agreements specify the minimum maturity of the loans, the yield to the purchaser, the servicing spread to the Corporation (if servicing is retained), the maximum principal amount of all loans to be delivered and the maximum principal amount of individual loans to be delivered.  The Corporation typically satisfies these forward loan sale agreements with its current loan production; at June 30, 2002 and 2001 the aggregate amount of loans held for sale and of commitments to extend credit on loans to be held for sale exceeded the Corporation's forward loan sale agreements. At June 30, 2002 and 2001, interest rates on forward loan sale agreements ranged from 5.50% to 7.00% and 5.50% to 7.50%, respectively.



In addition to the instruments described above, the Corporation also purchases over-the-counter put option contracts (with expiration dates that generally coincide with the terms of the commitments to extend credit) which mitigate the interest rate risk inherent in commitments to extend credit.  The contract amounts of these instruments reflect the extent of involvement the Corporation has in this particular class of financial instruments.  The Corporation's exposure to loss on these financial instruments is limited to the premiums paid for the put option contracts.  Put options are adjusted to market in accordance with SFAS No. 133.



In accordance with SFAS No. 133 and interpretations of the Derivative Implementation Group, the fair value of the commitments to extend credit on loans to be held for sale, forward loan sale agreements and put option contracts are recorded at fair value on the balance sheet, and are included in other assets or (other liabilities). As of June 30, 2001, commitments to extend credit on loans to be held for sale were not interpreted to be derivatives.  As such, these amounts were not included on the balance sheet as of June 30, 2001. The Corporation is not applying hedge accounting to its derivative financial instruments; therefore, all changes in fair value are recorded in earnings. The net impact of derivative financial instruments on the consolidated statements of operations during the years ended June 30, 2002 and 2001 was $3 and $411, respectively.

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<PAGE>





|                                                     | June 30, 2002 |  | June 30, 2001 |  
|---------------------------------------------------- | ------------- |  | ------------- | -
|                                                     |               |  | Fair          |  
|Derivative financial instruments                     | Amount        |  | Value         |  
|(In Thousands)                                       |               |  |               |  
|                                                     |               |  |               |  
|Commitments (*) to extend credit on loans to be held |               |  |               |  
|for sale, including servicing released
premiums      | $     56,738  |  | $  779        |  
|Forward loan sale agreements                         | 45,709        |  | (237          | )
|Put option contracts                                 | 11,000        |  | 17            |  
|Total                                                | $ 113,447     |  | $  559        |  

(*) Net of an estimated 26.71% of commitments, which may not fund.

Comparison of Financial Condition at June 30, 2002 and June 30, 2001



Total assets decreased slightly from $1.12 billion at June 30, 2001 to $1.01 billion at June 30, 2002 primarily as a result of a decrease in loans held for investment. The loans held for investment decreased $103.6 million from $697.2 million at June 30, 2001 to $593.6 million at June 30, 2002 primarily as a result of loan prepayments. These prepayments were attributable to the extraordinarily high volume of refinance activity during fiscal 2002 in connection with the low interest rate environment. The receivable from sale of loans decreased $70.1 million from $137.3 million at June 30, 2001 to $67.2 million at June 30, 2002, resulting from the timing difference between loan sales and loan settlements. These decreases were partially offset by a $67.5 million increase in investment securities from $204.5 million at June 30, 2001 to $271.9 million at June 30, 2002.



The Bank originated approximately $1.35 billion in new loans, primarily through its mortgage division, and purchased $38.6 million in loans from other financial institutions. The Provident Bank Mortgage loan production is sold primarily servicing released; a total of $1.17 billion was sold during fiscal 2002. The outstanding balance of loans held for sale decreased from $2.2 million at June 30, 2001 to $1.7 million at June 30, 2002. The outstanding balance of loans held for sale is largely dependent on the timing of loan fundings and loan sales.



Total liabilities decreased from $1.02 billion at June 30, 2001 to $902.3 million at June 30, 2002 as a result of the decrease in FHLB advances and customer deposits. Total deposits decreased from $730.0 million at June 30, 2001 to $677.4 million at June 30, 2002. During fiscal 2002, the Bank continued its emphasis on expanding client relationships, particularly with low cost checking accounts. Checking accounts increased $12.6 million, or 11.2%, from $112.6 million at June 30, 2001 to $125.2 million at June 30, 2002. Money market accounts increased $3.6 million, or 7.8%, from $46.1 million at June 30, 2001 to $49.7 million at June 30, 2002. Savings accounts increased $50.7 million, or 44.0%, from $115.3 million at June 30, 2001 to $166.0 million at June 30, 2002. FHLB advances decreased $63.3 million, from $265.8 million at June 30, 2001 to $202.5 million at June 30, 2002. The Bank reduced its FHLB advances with excess liquidity resulting from loan prepayments.



Total stockholders' equity was $103.0 million at June 30, 2002, as compared to $97.3 million at June 30, 2001. The $5.7 million increase in stockholders' equity during fiscal 2002 from net income was partially offset by share repurchases. The Corporation repurchased 280,194 shares, or approximately 5% of outstanding shares, at an average price of $18.32 per share, totaling $5.1 million in fiscal 2002. The Corporation's book value per share increased from $17.01 at June 30, 2001 to $18.86 at June 30, 2002.



Comparison of Operating Results for the Years Ended June 30, 2002 and 2001



General. The Corporation had net earnings of $9.1 million, or $1.68 per diluted share, for the year ended June 30, 2002, as compared to $8.9 million, or $1.65 per diluted share, for the year ended June 30, 2001. The increase in operating earnings in fiscal 2002 was primarily attributable to an improvement in non-interest income.

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<PAGE>



Net Interest Income. Net interest income increased $139,000, or 0.5%, from $26.3 million in fiscal 2001 to $26.5 million in fiscal 2002. This increase resulted principally from an increase in net interest margin. The net interest margin increased from an average of 2.43% in fiscal 2001 to an average of 2.62% in fiscal 2002. The increase in the net interest margin was primarily attributable to a decrease in short-term interest rates during fiscal 2002 where the decrease in the costs of interest bearing liabilities was greater than that of the decrease in income from earning assets.



Interest Income.  Interest income decreased $15.1 million, or 18.7%, from $80.8 million in fiscal 2001 to $65.7 million in fiscal 2002 as the average earning assets decreased $73.7 million, or 6.8%, to $1.01 billion in fiscal 2002 from $1.09 billion in fiscal 2001. The average yield on assets also decreased 95 basis points from 7.44% in fiscal 2001 to 6.49% in fiscal 2002. Average loan balances decreased $170.7 million, or 19.8%, from $863.5 million during fiscal 2001 to $692.8 million during fiscal 2002 and the average yield decreased 31 basis points from 7.71% to 7.40%, respectively. The average balance of investment securities increased $31.3 million, or 15.5%, from $201.5 million during fiscal 2001 to $232.8 million during fiscal 2002 while the average yield decreased 105 basis points from 6.26% to 5.21%, respectively. The decrease in yields was the result of the decline in interest rates during fiscal 2002.



Interest Expense.  Interest expense decreased $15.3 million, or 28.0%, from $54.5 million in fiscal 2001 to $39.2 million in fiscal 2002. The average balance of deposits decreased $4.8 million, or 0.7%, from $706.6 million during fiscal 2001 to $701.8 million during fiscal 2002 and the average cost of the deposits decreased 145 basis points from 4.88% during fiscal 2001 to 3.43% during fiscal 2002. The average balance of FHLB advances decreased $67.6 million, or 22.2%, from $304.6 million during fiscal 2001 to $237.0 million during fiscal 2002 and the average cost increased nine basis points from 6.48% to 6.39%, respectively. During fiscal 2002, the Bank prepaid $37.0 million of FHLB advances with prepayment penalties of $365,000. Excluding the prepayment penalties, the average cost of FHLB advances in fiscal 2002 would have been approximately 6.23%.



Provision for Loan Losses. Loan loss provisions in fiscal 2002 were $525,000 as compared to no provision in fiscal 2001. The allowance for loan losses was $6.6 million, or 1.10% of gross loans held for investment, at June 30, 2002, as compared to $6.1 million, or 0.86% of gross loans held for investment, at June 30, 2001. The allowance for loan losses as a percentage of non-performing loans at the end of fiscal 2002 was 498.8%, as compared to 402.7% at the end of fiscal 2001.



In accordance with the current operating strategy, the fastest growing segments of the loan portfolio are commercial real estate and construction loans. These loans generally have greater risk than single-family mortgage loans. Management believes that the current provision for loan losses is prudent and based upon the loan portfolio composition, historic loss experience and current economic conditions.



Non-interest Income. Total non-interest income increased $2.4 million, or 17.1%, to $16.4 million in fiscal 2002 from $14.0 million in fiscal 2001. The increase in non-interest income was primarily attributable to an increase in gain on the sale of loans, along with increases in loan servicing and other fees, deposit account fees and other income. Total gain from sale of loans increased $2.1 million, or 26.3%, from $8.0 million in fiscal 2001 to $10.1 million in fiscal 2002, and was the result of higher loan origination volume, partially offset by a lower average loan sale margin. Total loans originated for sale increased $331.5 million, or 42.9%, from $772.1 million in fiscal 2001 to $1.10 billion in fiscal 2002. The average loan sale margin decreased 14 basis points to 0.90% during fiscal 2002 from 1.04% during fiscal 2001. The increase on the gain on sale of loans was primarily due to a strong refinance market as interest rates declined during fiscal 2002. Loan servicing and other fees increased from $2.1 million in fiscal 2001 to $2.2 million in fiscal 2002, resulting primarily from an increase in loan prepayment fees, which was partly offset by lower loan servicing fees. The decline in the loan servicing fees was a result of a lower volume of loans serviced for others, $136.1 million as of June 30, 2002 as compared to $203.8 million as of June 30, 2001. Deposit account fees increased $311,000, or 23.4%, to $1.6 million in fiscal 2002 from $1.3 million in fiscal 2001. The increase in deposit account fees was the direct result of the Bank's deposit strategy which emphasizes transaction account growth. Other non-interest income increased to $1.8 million in fiscal 2002 from $1.6 million in fiscal 2001, resulting primarily from higher gain on sales of investment securities.

Non-interest Expense. Total non-interest expense
increased $1.7 million, or 6.8%, to $26.8 million in fiscal 2002 as compared to
$25.1 million in fiscal 2001. This increase was attributable primarily to
increases in compensation

43

<PAGE>

expenses, occupancy, equipment and professional expenses, and
was partially offset by lower marketing and other operating expenses. The
increase in the non-interest expense was due primarily to the opening of the two
new banking offices in Temecula and Corona, California, both of which were
opened in August 2001.



Income Taxes. The provision for income taxes was $6.5 million for fiscal 2002, representing an effective tax rate of 41.6%, as compared to $6.4 million in 2001, representing an effective tax rate of 41.7%.



Comparison of Operating Results for the Years Ended June 30, 2001 and 2000



General. The Corporation had net earnings of $8.9 million, or $1.65 per diluted share, for the year ended June 30, 2001, as compared to $7.3 million, or $1.31 per diluted share, for the year ended June 30, 2000. The increase in operating earnings in fiscal 2001 was primarily attributable to an improvement in non-interest income, partially offset by a reduction in net interest income and slightly higher operating expenses.



Net Interest Income. Net interest income decreased $2.7 million, or 9.3%, from $29.0 million in fiscal 2000 to $26.3 million in fiscal 2001. This decrease resulted principally from a decrease in the net interest margin. The net interest margin declined from an average of 2.70% in fiscal 2000 to an average of 2.43% in fiscal 2001. The decline in the net interest margin was primarily attributable to an increase in short-term interest rates during fiscal 2001 where the increase in the costs of interest bearing liabilities was greater than that of the increase in income from earning assets.



Interest Income.  Interest income increased $3.1 million, or 4.0%, from $77.7 million in fiscal 2000 to $80.8 million in fiscal 2001 as the average earning assets remained at approximately $1.1 billion during fiscal 2001 compared to fiscal 2000. The average yield on assets increased from 7.25% in fiscal 2000 to 7.44% in fiscal 2001. Average loan balances increased from $850.7 million during fiscal 2000 to $863.5 million during fiscal 2001 and the average yield increased from 7.52% to 7.71%, respectively. The average balance of investment securities decreased slightly from $203.1 million during fiscal 2000 to $201.5 million during fiscal 2001 while the average yield remained at 6.26%.



Interest Expense.  Interest expense increased $5.8 million, or 11.8%, from $48.7 million in fiscal 2000 to $54.5 million in fiscal 2001. Average deposits increased from $689.4 million during fiscal 2000 to $706.6 million during fiscal 2001 and the average cost of deposits increased from 4.41% during fiscal 2000 to 4.88% during fiscal 2001. Average FHLB advances decreased from $314.5 million during fiscal 2000 to $304.6 million during fiscal 2001 and the average cost increased from 5.77% to 6.48%, respectively. During fiscal 2001, the Bank prepaid $20.0 million of FHLB advances with prepayment penalties of $63,000. Excluding the prepayment penalties, the average cost of FHLB advances in fiscal 2001 would have been approximately 6.46%.



Provision for Loan Losses. There were no loan loss provisions recorded in fiscal 2001 compared to $250,000 in fiscal 2000. The allowance for loan losses was $6.1 million, or 0.86% of gross loans held for investment, at June 30, 2001, as compared to $6.9 million, or 0.82% of gross loans held for investment, at June 30, 2000. The allowance for loan losses as a percentage of non-performing loans at the end of fiscal 2001 was 402.7%, as compared to 899.0% at the end of fiscal 2000.



Non-interest Income. Total non-interest income increased $5.2 million, or 58.7%, to $14.0 million in fiscal 2001 from $8.8 million in fiscal 2000. The increase in non-interest income was primarily attributable to an increase in gain on the sale of loans, along with an increase in other income, and was partially offset by a decrease in loan servicing and other fees. Total gain from sale of loans increased by $4.8 million, or 147.3%, from $3.2 million in fiscal 2000 to $8.0 million in fiscal 2001, and was the result of higher loan origination volume, a higher average loan sale margin and the SFAS
No. 133 favorable adjustments of $437,000. Total loans originated for sale
increased by $364.9 million, or 89.6%, from $407.2 million in fiscal 2000 to
$772.1 million in fiscal 2001. The average loan sale margin increased 24 basis
points to 1.04% during fiscal 2001 from 0.80% during fiscal 2000. The increase
on the gain on sale of loans was primarily due to the strong refinance market
beginning in January 2001 when interest rates began to decline. Other
non-interest income increased by $231,000, or 16.3%, to $1.6 million in fiscal
2001 from $1.4 million in fiscal 2000, resulting primarily from higher gain on
sales of investment securities. Total loan servicing and other fees declined
from $2.7 million in fiscal 2000 to $2.1 million in fiscal 2001, resulting
primarily from a decline in broker fees and loan servicing fees. The decline in
broker fees was due to a lower volume of loans

44

<PAGE>

brokered to other financial institutions. A total of $48.4
million of brokered loans was funded in fiscal 2001 as compared to $70.0 million
in fiscal 2000. The decline in loan servicing fees was the result of a lower
volume of loans serviced for others, $203.8 million as of June 30, 2001 as
compared to $261.2 million as of June 30, 2000.

Non-interest Expense. Total non-interest expense increased slightly to $25.1 million in fiscal 2001 as compared to $25.0 million in fiscal 2000. The slight increase was attributable primarily to an increase in compensation expenses and was largely offset by a decline in equipment, premises and occupancy and other operating expenses. The decline in equipment expenses resulted primarily from higher costs in fiscal 2000 related to the "Year 2000 Projects", while the decline in premises and occupancy expenses resulted from the sale of a mortgage office and consolidations or closures of mortgage offices in Southern California and Nevada.



Income Taxes. The provision for income taxes was $6.4 million for fiscal 2001, representing an effective tax rate of 41.7%, as compared to $5.3 million in 2000, representing an effective tax rate of 42.3%.

Liquidity and Capital Resources



The Corporation's primary sources of funds are deposits, proceeds from the sale of loans originated for sale, proceeds from principal and interest payments on loans, proceeds from the maturity of investment securities and FHLB advances. While maturities and scheduled amortization of loans and investment securities are a predictable source of funds, deposit flows, mortgage prepayments and loan sales are greatly influenced by general interest rates, economic conditions and competition.



The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. The Bank generally maintains sufficient cash to meet short-term liquidity needs. At June 30, 2002, cash totaled $27.7 million, or 2.8% of total assets. Depending on market conditions and the pricing of deposit products and FHLB advances, the Bank may continue to partly rely on FHLB advances for its liquidity needs.



Even though the OTS eliminated the minimum liquidity requirement for savings institutions in April 2001, the regulation still requires thrifts to maintain adequate liquidity to assure safe and sound operations. The Bank's average liquidity ratio for the quarter ended June 30, 2002 increased to 33.2% from 22.6% during the same period ending June 30, 2001. This increase was primarily due to the unexpected cash flow generated from the large volume of loan prepayments, which were reinvested in qualifying liquid instruments.



The primary investing activity of the Bank is the origination of multi-family, commercial real estate, construction, and commercial business loans. Most mortgage and consumer loans originated by PBM were sold including servicing rights. During the years ended June 30, 2002, 2001 and 2000, the Bank originated loans in the amounts of $1.35 billion, $833.4 million and $683.5 million, respectively. In addition, the Bank purchased loans from other financial institutions in fiscal 2002, 2001 and 2000 in the amounts of $38.6 million, $29.6 million and $6.6 million, respectively. Total loans sold by PBM in fiscal 2002, 2001 and 2000 were $1.17 billion, $678.4 million and $389.9 million, respectively.  At June 30, 2002, the Bank had loan origination commitments totaling $56.7 million and undisbursed loans in process totaling $30.5 million. The Bank anticipates that it will have sufficient funds available to meet its current loan origination commitments. Time deposits that are scheduled to mature in one year or less from June 30, 2002 were $247.1 million. Historically, the Bank has been able to retain a significant amount of its time deposits as they mature. Management of the Bank believes it has adequate resources to fund all loan commitments with deposits and FHLB advances, and that it can adjust deposit rates to retain deposits in changing interest rate environments.



The Bank is required to maintain specific amounts of capital pursuant to OTS requirements. Under OTS's current prompt corrective action provisions, the minimum ratio of 2% for Tangible Capital ratio is required to be deemed other than "critically undercapitalized," while a minimum of 5% for Tier 1 (Core) capital, 10% for Total Risk-Based Capital and 6% for Tier 1 Risk-Based Capital ratios are deemed "well capitalized." As of June 30, 2002, the Bank was well in excess of all regulatory capital requirements with Tangible Capital, Core Capital, Tier 1 Risk-Based Capital and Total Risk-Based Capital ratios of 8.92%, 8.92%, 16.78% and 18.01%, respectively.



45

<PAGE>

Impact of Inflation and Changing Prices



The Corporation's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increasing cost of the Corporation's operations. Unlike most industrial companies, nearly all assets and liabilities of the Corporation are monetary. As a result, interest rates have a greater impact on the Corporation's performance than do the effects of general levels of inflation. In addition, interest rates do not necessarily move in the direction, or to the same extent, as the prices of goods and services.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk



Quantitative Aspects of Market Risk.  The Bank does not maintain a trading account for any class of financial instrument nor does it purchase high-risk derivative financial instruments.  Furthermore, the Bank is not subject to foreign currency exchange rate risk or commodity price risk.  For information regarding the sensitivity to interest rate risk of the Bank's interest-earning assets and interest-bearing liabilities, see the tables under "Item 1. Business - Lending Activities - Maturity of Loan Portfolio, "Investment Activities" and "Deposit Activities and Other Sources of Funds - Time Deposits by Maturities" contained herein.



Qualitative Aspects of Market Risk.  The Bank's principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating interest rates.  The Bank has sought to reduce the exposure of its earnings to changes in interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates. The principal element in achieving this objective is to decrease the interest-rate sensitivity of the Bank's interest-earning assets by retaining for its portfolio new loan originations with interest rates subject to periodic adjustment to market conditions and by selling fixed-rate, single-family mortgage loans.  In addition, the Bank maintains an investment portfolio which is largely in U.S. government agency securities and U.S. government agency MBS with contractual maturities of up to 30 years.  The Bank relies on retail deposits as its primary source of funds.  Management believes retail deposits, compared to brokered deposits, reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds.  As part of its interest rate risk management strategy, the Bank promotes transaction accounts and time deposits with terms up to five years.  For additional information, see "Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein and the information provided below.



Asset and Liability Management.  The principal financial objective of the Corporation's interest rate risk management function is to achieve long-term profitability while limiting its exposure to the fluctuation of interest rates. The Corporation, through its ALCO, has sought to reduce the exposure of its earnings to changes in interest rates by managing the mismatch between asset and liability maturities and interest rates. The principal element in achieving this objective is to manage the interest-rate sensitivity of the Corporation's assets by retaining loans with interest rates subject to periodic market adjustments. In addition, the Bank maintains a liquid investment portfolio comprised of government agency securities and MBS. The Bank relies on retail deposits as its primary source of funding while utilizing FHLB advances as a secondary source of funding. As part of its interest rate risk management strategy, the Bank promotes transaction accounts and time deposits with terms up to five years.



Using data from the Bank's quarterly report to the OTS, the Bank receives a report that measures interest rate risk by modeling the change in Net Portfolio Value ("NPV") over a variety of interest rate scenarios. The interest rate analysis received from the OTS is similar to the Bank's own interest rate analysis model. NPV is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The calculation is intended to illustrate the change in NPV that would occur in the event of an immediate change in interest rates of at least 100, 200 and 300 basis points with no effect given to any steps which management might take to counter the effect of that interest rate movement.



The following table is provided by the OTS and sets forth as of June 30, 2002 the estimated changes in NPV based on the indicated interest rate environments. The Bank's balance sheet position as of June 30, 2002 is as follows: if interest rates increase, the NPV of the Bank is expected to decrease and future net interest income would decrease;

46

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conversely, if interest rates decrease, the NPV of the Bank is expected to decrease but future net interest income would increase.



|                       |  |            |  |           |   |            |  | NPV as Percentage  |            
|---------------------- |  | ---------- |  | --------- | - | ---------- |  | ------------------ | -----------
|                       |  | Net        |  | NPV       |   | Portfolio  |  | of Portfolio Value | Sensitivity
|Basis Points (bp)      |  | Portfolio  |  | Change    |   | Value      |  | Assets             | Measure    
|Change in Rates        |  | Value      |  | (1)       |   | Assets     |  | (2)                | (3)        
|(Dollars In Thousands) |  |            |  |           |   |           
|                       |  |            |  |           |   |           
|+300 bp                |  | $  115,030 |  | $ (22,805 | ) | $1,001,409 |  | 11.49%             | -159       
|+200 bp                |  | 127,006    |  | (10,829   | ) | 1,022,435  |  | 12.42%             | -65        
|+100 bp                |  | 134,768    |  | (3,066    | ) | 1,040,556  |  | 12.95%             | 12         
|0 bp                   |  | 137,835    |  | -         |   | 1,054,153  |  | 13.08%             | 0          
|-100 bp                |  | 134,081    |  | (3,754    | ) | 1,062,773  |  | 12.62%             | -46        
|                       |  |            |  |           |   |            |  |                    |            

(1)    Represents the decrease of the estimated NPV at the indicated change in interest rates compared to the NPV calculated at June 30,
         2002 ("base case").
(2)    Calculated as the estimated NPV divided by the portfolio value of total assets.
(3)    Calculated as the change in the NPV ratio from the base case at the indicated change in interest rates.

The following table provided by the OTS, is based on the calculations contained in the previous table, and sets forth the change in the NPV at a +200 bp. rate shock at June 30, 2002 and 2001.

|Risk Measure: +200 bp Rate Shock |  | At June 30, 2002 |    | At June 30, 2001 |   
|-------------------------------- |  | ---------------- | -- | ---------------- | --
|                                 |  |                  |    |                  |   
|Pre-shock NPV Ratio              |  | 13.08            | %  | 11.71            | % 
|Post-shock NPV Ratio             |  | 12.42            |    | 10.33            |   
|Sensitivity Measure              |  | 65               | bp | 138              | bp
|                                 |  |                  |    |                  |   



As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or repricing characteristics, they may react in different degrees to changes in interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market. Additionally, certain assets, such as ARM loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from time deposits could likely deviate significantly from those assumed in calculating the table. It is also possible that, as a result of an interest rate increase, the increased mortgage payments required of ARM borrowers could result in an increase in delinquencies and defaults. Changes in interest rates could also affect the volume and profitability of the Corporation's mortgage banking operations. Accordingly, the data presented in the tables above should not be relied upon as indicative of actual results in the event of changes in interest rates. Furthermore, the NPV presented in the foregoing tables is not intended to present the fair market value of the Bank, nor does it represent amounts that would be available for distribution to stockholders in the event of the liquidation of the Corporation.



Average Balances, Interest and Average Yields/Cost. The following table sets forth certain information for the periods regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities and average yields and costs thereof.  Such yields and costs for the periods indicated are derived by dividing income or expense by the average monthly balance of assets or liabilities, respectively, for the periods presented.

47

<PAGE>



|                              |                                    |                                     |             |          |        |          |         |                |             |          |        | Year Ended June 30, |         |                 |             |          |        |         
|----------------------------- | ---------------------------------- | ----------------------------------- | ----------- | -------- | ------ | -------- | ------- | -------------- | ----------- | -------- | ------ | ------------------- | ------- | --------------- | ----------- | -------- | ------ | --------
|                              |                                    |                                     |             |          |        | 2002     |         |                |             |          |        | 2001                |         |                 |             |          |        | 2000    
|                              |                                    |                                     |             |          |        |          |         | Average        |             |          |        |                     |         | Average         |             |          |        |         
|                              |                                    |                                     |             | Average  |        |          |         | Yield/         |             | Average  |        |                     |         | Yield/          |             | Average  |        |         
|                              |                                    |                                     |             | Balance  |        | Interest |         | Cost           |             | Balance  |        | Interest            |         | Cost            |             | Balance  |        | Interest
|(Dollars In Thousands)        |                                    |                                     |             |          |        |          |         |                |             |          |        |                     |        
|                              |                                    |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |         
|Interest-earning assets:      |                                    |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |       
|                              | Loans receivable, net (1) (2)      | $   692,761                         |             | $ 51,247 |        | 7.40%    |         | $      863,479 |             | $ 66,561 |        | 7.71%               |         | $       850,717 |             | $ 64,004 |        | 7.52%   
|                              | Investment securities              | 232,781                             |             | 12,122   |        | 5.21%    |         | 201,479        |             | 12,603   |        | 6.26%               |         | 203,061         |             | 12,707   |        | 6.26%   
|                              | FHLB stock (3)                     | 15,006                              |             | 779      |        | 5.19%    |         | 17,046         |             | 1,449    |        | 8.50%               |         | 17,129          |             | 939      |        | 5.48%   
|                              | Interest-earning deposits          | 71,484                              |             | 1,520    |        | 2.13%    |         | 3,703          |             | 184      |        | 4.97%               |         | 841             |             | 46       |        | 5.47%   
|                              |                                    | Total interest-earning assets       | 1,012,032   |          | 65,668 |          | 6.49%   |                | 1,085,707   |          | 80,797 |                     | 7.44%   |                 | $ 1,071,748 |          | 77,696 |         
|                              |                                    |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |        |         
|Non-interest earning assets   | 50,114                             |                                     |             |          |        |          | 54,322  |                |             |          |        |                     | 47,322  |                 |             |          |       
|                              |                                    | Total assets                        | $ 1,062,146 |          |        |          |         |                | $ 1,140,029 |          |        |                     |         |                 | $ 1,119,070 |          |        |         
|                              |                                    |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |        |         
|Interest-bearing liabilities: |                                    |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |       
|                              | Checking and money market deposits | $       172,293                     |             | 2,410    |        | 1.40%    |         | $   152,906    |             | 3,710    |        | 2.43%               |         | $    150,097    |             | 3,973    |        | 2.65%   
|                              | Savings deposits                   | 135,621                             |             | 3,170    |        | 2.34%    |         | 96,812         |             | 3,350    |        | 3.46%               |         | 85,204          |             | 2,392    |        | 2.81%   
|                              | Time deposits                      | 393,857                             |             | 18,474   |        | 4.69%    |         | 456,881        |             | 27,435   |        | 6.00%               |         | 454,059         |             | 24,011   |        | 5.29%   
|                              |                                    | Total deposits                      | 701,771     |          | 24,054 |          | 3.43%   |                | 706,599     |          | 34,495 |                     | 4.88%   |                 | 689,360     |          | 30,376 |         
|                              |                                    |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |        |         
|FHLB advances (4)             | 236,967                            |                                     | 15,134      |          | 6.39%  |          | 304,631 |                | 19,749      |          | 6.48%  |                     | 314,488 |                 | 18,131      |          | 5.77% 
|Other borrowings (5)          | -                                  |                                     | -           |          | -      |          | 2,916   |                | 212         |          | 7.27%  |                     | 2,032   |                 | 218         |          | 10.73%
|                              |                                    | Total borrowings                    | 236,967     |          | 15,134 |          | 6.39%   |                | 307,547     |          | 19,961 |                     | 6.49%   |                 | 316,520     |          | 18,349 |         
|                              |                                    |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |        |         
|                              |                                    | Total interest-bearing liabilities  | 938,738     |          | 39,188 |          | 4.17%   |                | 1,014,146   |          | 54,456 |                     | 5.37%   |                 | 1,005,880   |          | 48,725 |         
|                              |                                    |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |        |         
|                              | Non-interest-bearing liabilities   | 22,705                              |             |          |        |          |         | 32,498         |             |          |        |                     |         | 26,622          |             |          |        |         
|                              |                                    | Total liabilities                   | 961,443     |          |        |          |         |                | 1,046,644   |          |        |                     |         |                 | 1,032,502   |          |        |         
|                              |                                    |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |        |         
|                              | Stockholders' equity               | 100,703                             |             |          |        |          |         | 93,385         |             |          |        |                     |         | 86,568          |             |          |        |         
|                              |                                    | Total liabilities and stockholders' |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |        |         
|                              |                                    | equity                              | $ 1,062,146 |          |        |          |         |                | $ 1,140,029 |          |        |                     |         |                 | $ 1,119,070 |          |        |         
|                              |                                    |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |        |         
|                              | Net interest income                |                                     |             | $ 26,480 |        |          |         |                |             | $ 26,341 |        |                     |         |                 |             | $ 28,971 |        |         
|                              |                                    |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |        |         
|                              | Interest rate spread (6)           |                                     |             |          |        | 2.32%    |         |                |             |          |        | 2.07%               |         |                 |             |          |        | 2.41%   
|                              | Net interest margin (7)            |                                     |             |          |        | 2.62%    |         |                |             |          |        | 2.43%               |         |                 |             |          |        | 2.70%   
|                              | Ratio of average interest-earning  |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |        |         
|                              | assets to average interest-bearing |                                     |             |          |        |          |         |                |             |          |        |                     |         |                 |             |          |        |         
|                              | liabilities                        | 107.81%                             |             |          |        |          |         | 107.06%        |             |          |        |                     |         | 106.55%         |             |          |        |         



(1)    Includes loans available for sale, receivable on sale of loans and non-accrual loans.
(2)    Includes net deferred loan fee (costs) amortization of $247, ($366) and ($270) for the years ended June 30, 2002, 2001 and 2000, respectively.
(3)    Includes dividend accruals of $246,000 in fiscal 2001, which in prior years were not recognized until received.
(4)    Includes interest prepayment penalty of $365 and $63 for the years ended June 30, 2002 and 2001, respectively.
(5)    Includes nine months of Supplemental Employee Retirement Program accruals in fiscal 2000, totaling $51.
(6)    Represents difference between weighted average yield on all interest-earning assets and weighted average rate on all interest-bearing liabilities.
(7)    Represents net income before provision for loan losses as a percentage of average interest-earning assets.







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Yields Earned and Rates Paid. The following table sets forth (on a consolidated basis), for the periods and at the dates indicated, the weighted average yields earned on the Bank's assets and the weighted average interest rates paid on the Bank's liabilities, together with the net yield on interest-earning assets.



|                                   |       |  | Quarter  |  |                    
|---------------------------------- | ----- |  | -------- |  | -------------------
|                                   |       |  | Ended    |  |                    
|                                   |       |  | June 30, |  | Year Ended June 30,
|                                   |       |  | 2002     |  | 2002               
|                                   |       |  |          |  |                    
|Weighted average yield on:         |       |  |          |  |                    
|                                   |       |  |          |  |                    
|Loans receivable (1)               | 7.22% |  | 7.40%    |  | 7.71%              
|                                   |       |  |          |  |                    
|Investment securities              | 4.56% |  | 5.21%    |  | 6.26%              
|                                   |       |  |          |  |                    
|FHLB stock (2)                     | 5.94% |  | 5.19%    |  | 8.50%              
|                                   |       |  |          |  |                    
|Interest-earning deposits          | 1.75% |  | 2.13%    |  | 4.97%              
|                                   |       |  |          |  |                    
|All interest-earning assets        | 6.15% |  | 6.49%    |  | 7.44%              
|                                   |       |  |          |  |                    
|Weighted average rate paid on:     |       |  |          |  |                    
|                                   |       |  |          |  |                    
|Checking and money market deposits | 1.02% |  | 1.40%    |  | 2.43%              
|                                   |       |  |          |  |                    
|Savings deposits                   | 2.19% |  | 2.34%    |  | 3.46%              
|                                   |       |  |          |  |                    
|Time deposits                      | 4.04% |  | 4.69%    |  | 6.00%              
|                                   |       |  |          |  |                    
|FHLB advances                      | 6.72% |  | 6.39%    |  | 6.48%              
|                                   |       |  |          |  |                    
|Other borrowings                   | -     |  | -        |  | 7.27%              
|                                   |       |  |          |  |                    
|All interest-bearing liabilities   | 3.75% |  | 4.17%    |  | 5.37%              
|                                   |       |  |          |  |                    
|Interest rate spread (3)           | 2.40% |  | 2.32%    |  | 2.07%              
|                                   |       |  |          |  |                    
|Net interest margin (4)            | 2.70% |  | 2.62%    |  | 2.43%              



(1) Includes loans available for sale.
(2) Includes the accrual of the quarterly FHLB dividend, which began in the second quarter of fiscal 2001.
(3) Spread between weighted average rates on all interest-earning assets and all interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.

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Rate/Volume Table. The following table sets forth the effects of changing rates and volumes on interest income and expense of the Bank.  Information is provided with respect to (i) effects attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes that cannot be allocated between rate and volume.



|                               |                                | Year Ended June 30, 2002
Compared to Year
Ended June 30, 2001
Increase (Decrease) Due to |        | Year Ended June 30, 2001
Compared to Year
Ended June 30, 2000
Increase (Decrease) Due to |    
|------------------------------ | ------------------------------ | ---------------------------------------------------------------------------------------- | ------ | ---------------------------------------------------------------------------------------- | ---
|                               |                                |                                                                                         
|                               |                                |                                                                                         
|                               |                                |                                                                                         
|                               |                                | Rate                                                                                     |        | Volume                                                                                   |    
|(In Thousands)                 |                               
|                               |                                |                                                                                          |        |                                                                                          |    
|Interest income:               |                                |                                                                                          |        |                                                                                          |    
|                               | Loans receivable (1)           | $(2,681                                                                                  | )      | $ (13,160                                                                                | )  
|                               | Investment securities          | (2,112                                                                                   | )      | 1,958                                                                                    |    
|                               | FHLB stock                     | (565                                                                                     | )      | (173                                                                                     | )  
|                               | Interest-bearing deposits      | (108                                                                                     | )      | 3,368                                                                                    |    
|                               | Total net change in income     |                                                                                          |        |                                                                                          |    
|                               | on interest-earning assets     | (5,466                                                                                   | )      | (8,007                                                                                   | )  
|                               |                                |                                                                                          |        |                                                                                          |    
|Interest-bearing liabilities : |                                |                                                                                          |        |                                                                                          |    
|                               | Checking and money market      |                                                                                          |        |                                                                                          |    
|                               |                                | deposits                                                                                 | (1,571 | )                                                                                        | 470
|                               | Savings deposits               | (1,088                                                                                   | )      | 1,343                                                                                    |    
|                               | Time deposits                  | (6,006                                                                                   | )      | (3,784                                                                                   | )  
|                               | FHLB advances                  | (291                                                                                     | )      | (4,387                                                                                   | )  
|                               | Other borrowings               | (212                                                                                     | )      | (212                                                                                     | )  
|                               | Total net change in expense on |                                                                                          |        |                                                                                          |    
|                               | interest bearing liabilities   | (9,168                                                                                   | )      | (6,570                                                                                   | )  
|                               |                                |                                                                                          |        |                                                                                          |    
|                               | Net change in  net             |                                                                                          |        |                                                                                          |    
|                               | interest income                | $3,702                                                                                   |        | $   (1,437                                                                               | )  



(1)    Includes loans available for sale. For purposes of
calculating volume, rate and rate/volume variances, non-accrual loans were
         included in the weighted
average balance outstanding.



Impact of New Accounting Pronouncements.

SFAS No. 141:
SFAS No. 141, "Business Combinations," requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001; the use of the pooling-of-interest method is no longer allowed. The adoption of this statement had no material impact on the Corporation's financial position, results of operations or cash flows.

SFAS No. 142:
SFAS No. 142, "Goodwill and Other Intangible Assets," requires that, once adopted, amortization of goodwill will cease and as an alternative, requiring the carrying value of goodwill to be evaluated for impairment on at least an annual basis.  Intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."  SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001.  The adoption of this statement is not expected to have a material impact on the Corporation's financial position, results of operations or cash flows.

SFAS No. 143:
SFAS No. 143, "Accounting for Asset Retirement Obligations" requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made.   The associated asset retirement cost would be capitalized as part of the carrying amount of the long-lived asset.  The effective date for SFAS No. 143 will be for fiscal years beginning after June 15, 2002. The adoption of this statement is not expected to have a material impact on the Corporation's financial position, results of operations or cash flows.

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<PAGE>



SFAS No. 144:
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," replaces SFAS No. 121.  SFAS No. 144 requires that long-lived assets be measured at the lower of the carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. It also expands the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction.  SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The adoption of this statement is not expected to have a material impact on the Corporation's financial position, results of operations or cash flows.

SFAS No. 146
In July 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," was issued, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force ("EITF") Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entities commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The Corporation will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002.

Subsequent Events:



Staff reorganization. On July 12, 2002, the Corporation reorganized its staffing levels by reducing its workforce approximately 10%, or by approximately 34 full-time equivalents. The estimated total savings will be approximately $1.2 million annually and the total severance costs were $89,000. The staff reorganization was based on the Corporation's recent benchmarking study on productivity.



Cash dividends. On July 24, 2002, the Corporation's Board of Directors declared a quarterly cash dividend of $0.05 per share on the Corporation's outstanding shares of common stock.  The total shares outstanding as of the August 7, 2002 record date were 5,425,757; and the total cash dividend of $271,000 was paid on August 30, 2002.



Purchase of deposits. On August 28, 2002, the Corporation announced the signing of a Deposit Purchase and Assumption Agreement ("Agreement") between the Bank and Valley Bank of Moreno Valley, California.  The Agreement calls for the deposits of Valley Bank's Sun City, California branch to be transferred to the Bank's branch located in Sun City.  At July 31, 2002, total deposits subject to the Agreement were approximately $9.3 million.  The Valley Bank branch in Sun City will subsequently close.  The transaction, which requires the approval of the Office of Thrift Supervision, the California State Department of Financial Institutions, the Federal Deposit Insurance Corporation and the shareholders of Valley Bank, is expected to be completed by the end of the calendar year.

Item 8.  Financial Statements and Supplementary Data



For Consolidated Financial Statements and Notes to
Consolidated Financial Statements, refer to the index on page 70.



Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



None.

51

<PAGE>





PART III



Item 10.  Directors and Executive Officers of the Registrant



The Corporation's Board of Directors consists of seven members. The Board of Directors is divided into three classes with three-year staggered terms, with approximately one-third of the directors elected each year. The executive officers of the Corporation and the Bank are elected annually and hold office until their respective successors have been elected and qualified or until death, resignation or removal by the Board of Directors. The following tables set forth information with respect to the Directors and executive officers of the Corporation and the Bank.



Directors of the Corporation and the Bank

|                   |         | Year First   | Current
|------------------ | ------- | ------------ | -------
|                   |         | Elected      | Term   
|Name               | Age (1) | Director (2) | Expires
|                  
|Craig G. Blunden   | 54      | 1975         | 2002   
|Roy H. Taylor      | 51      | 1990         | 2002   
|Robert G. Schrader | 63      | 1995         | 2003   
|William E. Thomas  | 53      | 1997         | 2003   
|Joseph P. Barr     | 56      | 2001         | 2004   
|Bruce W. Bennett   | 53      | 1993         | 2004   
|Debbi H. Guthrie   | 51      | 1994         | 2004   



Executive Officers of the Corporation and the Bank

PositionName
Age (1)
Corporation
BankCraig G. Blunden
54
Chairman, President, and
Chairman, President, andChief Executive Officer
Chief Executive OfficerRobert G. Schrader
63
Secretary and Director
Executive Vice President,Chief Operating Officer,Secretary and DirectorDonavon P. Ternes
42
Chief Financial Officer
Senior Vice PresidentChief Financial OfficerDonald L. Blanchard52
N/A
Senior Vice PresidentRetail BankingLilian Brunner
47
N/A
Senior Vice PresidentChief Information OfficerRichard L. Gale
51
N/A
Senior Vice PresidentProvident Bank Mortgage


---

52

<PAGE>

Biographical Information



Set forth below is certain information regarding the Directors and Executive Officers of the Corporation and the Bank.  There are no family relationships among or between the directors or executive officers.



Craig G. Blunden has been associated with the Bank since 1974 and has held his current positions at the Bank since 1991 and as President and Chief Executive Officer of the Corporation since its formation in 1996.  Mr. Blunden also serves on the Board of Directors of the Federal Home Loan Bank of San Francisco and the Greater Riverside Chambers of Commerce.



Roy H. Taylor is the President of Talbot Agency, Inc., an insurance brokerage firm, with which he has been associated since 1972.  Mr. Taylor currently serves as Chairman of the Personnel/Compensation Committee.



Robert G. Schrader has been associated with the Bank since 1963 and has served as Executive Vice President of the Bank since January 1995.  From 1990 through 1994, Mr. Schrader served as Senior Vice President of the Bank.  Mr. Schrader has held his current position with the Corporation since its formation in 1996.



William E. Thomas, a principal of William E. Thomas, Inc., a Professional Law Corporation, is general counsel to a diversified group of medical groups and medical management companies in Southern California.  Previously, Mr. Thomas was the founding and managing partner of a private law firm in Riverside, California.  He currently serves on the Corporation's Personnel/Compensation Committee.



Joseph P. Barr is a Certified Public Accountant in California and Ohio and has been in public accounting for more than 30 years.  He is currently a principal with Swenson Accountancy Corp., a regional assurances and business services firm, with which he has been associated since 1996.  Mr. Barr serves as Chairman of the Audit Committee.



Bruce W. Bennett is the President and owner of Community Care and Rehabilitation Center, a skilled nursing facility, with which he has been associated since 1973.  He also serves as Chairman of Community Health Corporation and Riverside Community Hospital.  Mr. Bennett currently serves on the Corporation's Audit Committee.



Debbi H. Guthrie is the President and owner of Roy O. Huffman Roof Company, with which she has been affiliated since 1971.  Ms. Guthrie currently serves on the Corporation's Audit Committee.



Donavon P. Ternes joined the Bank as Senior Vice President and Chief Financial Officer on November 1, 2000. Prior to joining the Bank, Mr. Ternes was the President, Chief Executive Officer, Chief Financial Officer and Director of Mission Savings and Loan Association in Riverside, California for over 11 years.



Donald L. Blanchard, who joined the Bank in 1989, has held his current position with the Bank since 1989.



Lilian Brunner, who joined the Bank in 1993, was general auditor prior to being promoted to Chief Information Officer in 1997.



Richard L. Gale, who joined the Bank in 1988, has served as President of the Provident Bank Mortgage division since 1989.  Mr. Gale has held his current position with the Bank since 1993.



Compliance with Section 16(a) of the Exchange Act



Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act") requires the Corporation's executive officers and directors, and persons who own more than 10% of any registered class of the Corporation's equity securities, to file reports of ownership and changes in ownership with the SEC.  Executive officers, directors and greater than 10% shareholders are required by regulation to furnish the Corporation with copies of all Section 16(a) forms they file.



Based solely on its review of the copies of such forms it has
received and written representations provided to the Corporation by the above
referenced persons, the Corporation believes that, during the fiscal year ended
June 30,

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2002, all filing requirements applicable to its reporting
officers, directors and greater than 10% shareholders were properly and timely
complied with.



Item 11.  Executive Compensation



Directors' Compensation



Non-employee Directors of the Bank currently receive a monthly retainer of $1,750 and also receive a fee of $300 for each committee meeting attended.  The committee chairman receives a fee of $400.In addition, Directors are covered under the Bank's policies for medical, dental and vision care.  Dependent coverage is available at the Directors' own expense.  Following retirement from the Board of Directors, Directors continue to receive such coverage.  No separate fees are paid for service on the Board of Directors of the Corporation.



During the fiscal year ended June 30, 1997, non-employee Directors Bennett, Guthrie, and Taylor each received options to acquire 30,750 shares of the Corporation's common stock under the Corporation's 1996 Stock Option Plan.  During the fiscal year ended June 30, 1998, Mr. Thomas, who was elected to the Board at the 1997 Annual Meeting, received options to acquire 30,750 shares of the Corporation's common stock.  Mr. Barr, who was elected to the Board at the 2001 Annual Meeting, received options to acquire 30,750 shares of the Corporation's common stock during the fiscal year ended June 30, 2002.



During the fiscal year ended June 30, 1998, non-employee Directors Bennett, Guthrie, Taylor and Thomas were each awarded 11,685 shares of restricted common stock under the Corporation's 1996 Management Recognition Plan.  During the fiscal year ended June 30, 2002, Mr. Barr, who was elected to the Board at the 2001 Annual Meeting, was awarded 2,337 shares of restricted common stock.  The restricted stock awards vest ratably over a five-year period.



Executive Compensation



For executive compensation reporting purposes, SEC regulations define the term "named executive officers" to include all individuals serving as chief executive officer during the next recently completed year, regardless of compensation level, and the four most highly compensated executive officers, other than the chief executive officer, whose total annual salary and bonus for the last completed fiscal year exceeded $100,000.  Messrs. Blunden, Schrader, Gale, Blanchard, Ternes and Ms. Brunner were the Corporation's "named executive officers" for the fiscal year ended June 30, 2002.

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Summary Compensation Table. The following table shows the compensation paid during the last three fiscal years to the Corporation's Chief Executive Officer and five highest paid executive officers who received salary and bonus in excess of $100,000 during the fiscal year ended June 30, 2002.

|                          |      |                     |            |                    | Long-Term Compensation |           
|------------------------- | ---- | ------------------- | ---------- | ------------------ | ---------------------- | ----------
|                          |      |                     | Awards     |                   
|                          |      | Annual Compensation | Restricted | Securities         |                       
|                          |      |                     |            | Other Annual       | Stock                  | Underlying
|Name and Position         | Year | Salary($)           | Bonus($)   | Compensation($)(1) | Award($)(2)            | Options(#)
|                          |      |                     |            |                    |                        |           
|Craig G. Blunden          | 2002 | $ 276,596           | $ 81,967   | -                  | -                      | -         
|President and             | 2001 | 263,425             | 98,299     | -                  | -                      | -         
|Chief Executive Officer   | 2000 | 249,500             | 82,584     | -                  | -                      | -         
|                          |      |                     |            |                    |                        |           
|Robert G. Schrader        | 2002 | $ 142,770           | $ 28,625   | -                  | -                      | -         
|Executive Vice President  | 2001 | 137,265             | 34,655     | -                  | -                      | -         
|Chief Operating Officer   | 2000 | 132,075             | 29,757     | -                  | -                      | -         
|                          |      |                     |            |                    |                        |           
|Richard L. Gale           | 2002 | $99,996             | $ 585,000  | -                  | -                      | -         
|Senior Vice President     | 2001 | 99,996              | 292,500    | -                  | -                      | -         
|Mortgage Banking          | 2000 | 99,996              | --         | -                  | -                      | -         
|                          |      |                     |            |                    |                        |           
|Donald L. Blanchard       | 2002 | $ 107,565           | $ 21,566   | -                  | -                      | -         
|Senior Vice President     | 2001 | 103,575             | 20,930     | -                  | -                      | -         
|Retail Banking            | 2000 | 99,630              | 20,197     | -                  | -                      | -         
|                         
|Donavon P. Ternes (4)     | 2002 | $ 129,377           | $ 28,125   | -                  | -                      | -         
|Senior Vice President     | 2001 | 83,333              | 21,252     | -                  | $ 298,000              | 45,000    
|Chief Financial Officer   | 2000 | -                   | -          | -                  | -                      | -         
|                         
|Lilian Brunner            | 2002 | $ 107,550           | $ 21,566   | -                  | -                      | -         
|Senior Vice President     | 2001 | 101,625             | 25,499     | -                  | -                      | -         
|Chief Information Officer | 2000 | 96,100              | 21,567     | -                  | -                      | -         

________________

|(1) | Does not include perquisites which did not exceed the lesser of $50,000 or 10% of salary and bonus.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Represents the total value of the award of restricted common stock on October 20, 1997 in the following amounts: Mr. Blunden, 76,875 shares; Mr. Schrader, 49,200 shares; Mr. Blanchard, 24,600 shares; Mr. Gale, 24,600 shares and Ms. Brunner, 24,600 shares.  Represents the total value of the award of restricted common stock on November 1, 2000 to Mr. Ternes in the amount of 24,000 shares.  All such awards vest ratably over a five-year period.  At June 30, 2002, the value of the unvested restricted stock awards were:  Mr. Blunden, $344,400; Mr. Schrader, $220,416; Mr. Ternes, $430,080; Mr. Gale, $110,208; Mr. Blanchard, $110,208; and Ms. Brunner, $110,208.  Dividends, if any, paid on the restricted common stock are accrued and held in arrears until the restricted common stock becomes vested.
|(3) | Amounts for 2002 reflect: for Mr. Blunden, supplemental life insurance of $15,069, employer contribution to 401(k) Plan of $5,452 and employer contribution to ESOP of $12,748; for Mr. Schrader, employer contribution to 401(k) Plan of $3,070 and employer contribution to ESOP of $12,748; for Mr. Ternes, employer contribution to 401(k) Plan of $4,51 for Mr. Gale, employer contribution to 401(k) Plan of $6,000 and employer contribution to ESOP of $12,748; for Mr. Blanchard, employer contribution to 401(k) Plan of $3,226 and employer contribution to ESOP of $9,483; and for Ms. Brunner, employer contribution to 401(k) Plan of $3,255 and employer contribution to ESOP of $9,776.                                                                                                                        

|(4) | Mr. Ternes was appointed to his position effective November 1, 2000.
|--- | --------------------------------------------------------------------

Option Grants in Last Fiscal Year.  No options were granted to the Chief Executive Officer and the named executive officers during the fiscal year ended June 30, 2002.

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Option Exercise/Value Table.  The following information with respect to options exercised during the fiscal year ended June 30, 2002, and remaining unexercised at the end of the fiscal year, is presented for the Chief Executive Officer and the named executive officers.

|                    | Shares      |             | Number of Securities   |               | Value of Unexercised     
|------------------- | ----------- | ----------- | ---------------------- | ------------- | -------------------------
|                    | Acquired    |             | Underlying Unexercised |               | In-the-Money Options     
|                    | on          | Value       | Options                |               | at Fiscal Year End ($)(1)
|Name                | Exercise(#) | Realized($) | Exercisable            | Unexercisable |                          
|                    |             |             |                        |               |                          
|Craig G. Blunden    | -           | -           | 153,750                | -             |                          
|Robert G. Schrader  | 18,000      | $ 133,500   | 74,250                 | -             |                          
|Richard L. Gale     | -           | -           | 30,000                 | -             |                          
|Donald L. Blanchard | -           | -           | 45,000                 | -             |                          
|Donavon P. Ternes   | -           | -           | 9,000                  | 36,000        |                          
|Lilian Bruner       | -           | -           | 25,500                 | 4,500         |                          

_________________

|(1) | Value of unexercised in-the-money options equals market value of shares covered by in-the-money options on June 30, 2002 less the option exercise price.  Options are in-the-money if the market value of the shares covered by the options is greater than the option exercise price.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employment Agreements.  The Bank has entered into an employment agreement with Mr. Blunden.  The agreement has a term of three years and may be renewed by the Board for an additional year each year unless Mr. Blunden has attained age 62 or the Board or Mr. Blunden have given advance notice of their intention not to extend the term of the agreement.  The agreement further provides for a base salary which may not be reduced except as part of a general salary reduction policy for senior executives of the Bank and, at any time, below the initial base salary of the agreement.  Mr. Blunden's base salary is subject to annual review by the Board.  Mr. Blunden's current base salary under the agreement is $283,343.  In the event of a "change of control" of the Bank (as defined below), Mr. Blunden's base salary is fixed as the sum of his then current base salary and any bonuses paid during the 12-month period preceding the change in control.  Under the agreement, Mr. Blunden is eligible to participate in all fringe benefit programs available to employees of the Bank as well as any program made available to senior executives of the Bank, including the use of an employer-provided automobile.  The agreement also provides for the reimbursement of expenses incurred by Mr. Blunden in the course of his employment.



In the event of Mr. Blunden's termination without cause by the Bank, the agreement provides for (i) a lump sum payment equal to the discounted present value of the aggregate future base salary payments Mr. Blunden would have received over the then remaining term of the agreement and (ii) the continuation of life and medical insurance at the Bank's expense for Mr. Blunden and his dependents.  If Mr. Blunden's employment terminates by reason of his death or disability, the Bank is also obligated to continue life and medical insurance benefits for Mr. Blunden and his dependents, as applicable.



In the event of Mr. Blunden's termination without cause following a change in control of the Bank, Mr. Blunden is entitled to an additional payment equal to three times the sum of his base salary and bonuses during the 12 months preceding his termination of employment reduced by the value of any other payments made by the Bank by reason of Mr. Blunden's termination without cause.  In the event that a change of control of the Bank had occurred on June 30, 2002, based solely on the cash compensation paid to Mr. Blunden during 2002 and excluding the value of any other employee benefits which may be payable, Mr. Blunden would have received a payment of approximately $1,075,689.  For purposes of the agreement, "change in control" is defined to mean (i) a change in control of the Bank as determined under applicable regulations of the Office of Thrift Supervision and (ii) a change in the composition of the Board following a merger, consolidation or other business combination involving the Bank such that a majority of the directors of the resulting entity consists of persons who were not directors immediately prior to such transaction.



Post-Retirement Compensation Agreement. The Bank has entered into a separate post-retirement compensation agreement with Mr. Blunden.  The agreement provides that if Mr. Blunden terminates employment with the Bank after attaining age 60, the Bank will provide Mr. Blunden with a monthly benefit for life equal to 50% of his final average monthly salary.  For purposes of the agreement, "final average monthly salary" is defined as the average of

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<PAGE>

Mr. Blunden's highest paid 36 consecutive months of employment with the Bank determined by reference to the gross amount of Mr. Blunden's monthly salary excluding bonus and incentive awards, director's fees and accelerated payments of future salary.  Assuming that Mr. Blunden's 2002, 2001 and 2000 average monthly salary was equivalent to his "final average monthly salary," the normal monthly benefit payable under the agreement would be approximately $10,966.  Under the agreement, Mr. Blunden may elect to receive the actuarially determined lump sum equivalent of the normal monthly benefit or a joint-and-survivor benefit.  Mr. Blunden may also elect to receive an early retirement benefit under the agreement which is reduced proportionately to reflect the number of months then remaining to Mr. Blunden's 60th birthday.  However, in the event of Mr. Blunden's termination of employment prior to age 60 by reason of his death or disability, the agreement provides for payment of the normal monthly benefit to Mr. Blunden or his beneficiary.  At June 30, 2002, the accrued liability of the Bank with respect to its obligations under the agreement was $1,026,794.

Severance Agreements.  The Corporation and the Bank have entered into severance agreements with Messrs. Schrader,  Blanchard, Gale, and Ternes and Ms. Brunner.  The agreements have a term of one year, which may be extended for an additional year on the anniversary of the effective date of the agreement by the Board of Directors.  The agreements provide that in the event of an involuntary termination of the officer following a change in control of the Corporation or the Bank, they will be entitled to receive two times their then current base salary.  A severance payment also will be provided on a similar basis in connection with a voluntary termination of employment where, subsequent to a change in control, the officer is assigned duties inconsistent with their positions, duties, responsibilities and status immediately prior to such change in control.  The Bank or its successor would also be obligated to continue the officer's other employee benefits for a one-year period following termination of employment.



The term "change in control" is defined in the agreements as having occurred when, among other things, (a) a person other than the Corporation purchases shares of the Corporation's common stock pursuant to a tender or exchange offer for such shares, (b) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Corporation representing 25% or more of the combined voting power of the Corporation's then outstanding securities, (c) the membership of the Board of Directors changes as the result of a contested election, or (d) shareholders of the Corporation approve a merger, consolidation, sale or disposition of all or substantially all of the Corporation's assets, or a plan of partial or complete liquidation.  If a change in control of the Corporation of the Bank occurred during the fiscal year ending June 30, 2002, based solely on the officer's current salary level and excluding the value of any other employee benefits which may be payable, the officers would receive payment as follows: Mr. Schrader, $294,000; Mr. Ternes, $265,000; Mr. Gale, $199,992; Mr. Blanchard, $221,520; and Ms. Brunner, $221,400.



Audit Committee Matters



Audit Committee Charter.  The Audit Committee operates pursuant to a Charter approved by the Corporation's Board of Directors.  The Audit Committee reports to the Board of Directors and is responsible for overseeing and monitoring financial accounting and reporting, the system of internal controls established by management and the audit process of the Corporation.  The Audit Committee Charter sets out the responsibilities, authority and specific duties of the Audit Committee.  The Charter specifies, among other things, the structure and membership requirements of the Audit Committee, as well as the relationship of the Audit Committee to the independent accountants, the internal audit department, and management of the Corporation.



Report of the Audit Committee.



- The Audit Committee has completed its initial review and discussion of the Corporation's 2002 audited financial statements with management;



- The Audit Committee has discussed with the independent auditor (Deloitte & Touche LLP) the matters required to be discussed by Statement on Auditing Standards ("SAS") No. 61, Communication with Audit Committees, as amended by SAS No. 90, Audit Committee Communications, including matters related to the conduct of the audit of the Corporation's financial statements;













Audit Committee:    Bruce W. Bennett,Chairman
                                                Joseph P. Barr
                                                Debbi H. Guthrie



Independence and Other Matters.  Each member of the Audit Committee is "independent," as defined, in the case of the Corporation, under The Nasdaq Stock Market Rules. The Audit Committee members do not have any relationship to the Corporation that may interfere with the exercise of their independence from management and the Corporation.  None of the Audit Committee members are current officers or employees of the Corporation or its affiliates.



Compensation Committee Matters



Notwithstanding anything to the contrary set forth in any of the Corporation's previous filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate future filings, including this Form 10-K, in whole or in part, the following Report of the Compensation Committee and Performance Graph shall not be incorporated by reference into any such filings.



Report of the Personnel/Compensation Committee.Under rules established by the SEC, the Corporation is required to provide certain data and information in regard to the compensation and benefits provided to the Corporation's Chief Executive Officer and other executive officers of the Corporation and the Bank.  The disclosure requirements for the Chief Executive Officer and other executive officers include the use of tables and a report explaining the rationale and considerations that led to the fundamental executive compensation decisions affecting those individuals.  Insofar as no separate compensation is currently payable by the Corporation, the Personnel/ Compensation Committee of the Bank (the "Committee"), at the direction of the Board of Directors of the Corporation, has prepared the following report for inclusion in this Form 10-K.



General.  The Personnel/Compensation Committee of the Board of Directors is responsible for establishing and implementing all compensation policies of the Bank and its subsidiaries.  The Committee is also responsible for evaluating the performance of the Chief Executive Officer of the Bank and approving an appropriate compensation level.  The Chief Executive Officer evaluates the performance of the Executive Vice President and certain Senior Vice Presidents of the Bank and recommends to the Committee individual compensation levels for approval by the Committee.



Compensation Policies.  The Committee believes that a compensation plan for executive officers should take into account management skills, long-term performance results and shareholder returns. The principal underlying compensation policies are:  (1) to attract and retain key executives who are highly qualified and are vital to the long-term success of the Bank and its subsidiaries; (2) to provide levels of compensation competitive with those offered throughout the banking industry; (3) to motivate executives to enhance long-term shareholder value by helping them build their own ownership in the Corporation; and (4) to integrate the compensation program with the Bank's long-term strategic planning and management process.



Base Salary.  The Bank's current compensation plan
involves a combination of salary and bonuses to reward short-term performance,
and has included, and, in the future, may include grants of stock options to
encourage long-term

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performance. The salary levels of executive officers are
designed to be competitive within the banking and financial services industries.
Individual annual performance is reviewed to determine appropriate salary
adjustments.



Annual Incentive Plan.  The Annual Incentive Plan is based on annual performance of the Bank compared to budget and individual performance assessments.  The Plan is designed to provide for baseline bonuses up to 30% of salary for the Chief Executive Officer, up to 20% of salary for Senior Officers, up to 12% of salary for certain managers, and up to 8% of salary for certain department managers.  Actual bonuses may exceed the baseline if the Bank performs better than the budget and/or the individual employee performs better than the baseline performance requirement.



Long Term Incentive Compensation.  The Stock Option Plan is designed to attract and retain qualified personnel and nonemployee directors, to provide such officers, key employees and nonemployee directors with a proprietary interest in the Corporation as an incentive to contribute to the success of the Corporation and the Bank and to reward officers and key employees for outstanding performance.  Stock options have been granted to key employees of the Corporation and its subsidiaries, including the Bank.  The Stock Option Plan is administered and interpreted by a committee of the Board of Directors.  Under the Stock Option Plan, such committee determines which officers and key employees will be granted options, the number of shares subject to each option, and the exercisability of such options.  The per share exercise price of an option will equal at least 100% of the fair market value of a share of common stock on the date the option is granted.



Compensation of the Chief Executive Officer.  During the fiscal year ended June 30, 2002, the base salary of Craig G. Blunden, President and Chief Executive Officer of the Bank, was $276,596 along with an incentive bonus of $81,967.  The Committee believes Mr. Blunden's current compensation is appropriate based on competitive salary surveys and the performance of the Bank.



The Committee also recommends to the Board of Directors the amount of fees paid for service on the Board.  The Committee did not recommend a change in Board fees during the fiscal year ended June 30, 2002.



Personnel/Compensation Committee:     Roy H. Taylor, Chairman
                                                                      William E. Thomas



Compensation Committee Interlocks and Insider Participation.  No executive officer of the Corporation has served as a member of the compensation committee of another entity, one of whose executive officers served on the Compensation Committee.  No executive officer of the Corporation has served as a director of another entity, one of whose executive officers served on the Compensation Committee.  No executive officer of the Corporation has served as a member of the compensation committee of another entity, one of whose executive officers served as a director of the Corporation.

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Performance Graph



The following graph compares the cumulative total shareholder return on the Corporation's common stock with the cumulative total return on the Nasdaq (U.S. Stock) Index and a peer group of the Nasdaq Bank Index.  Total return assumes the reinvestment of all dividends.





COMPARISON OF CUMULATIVE TOTAL RETURN *











*  Assumes that the value of the investment in the Corporation's common stock and each index was $100 on June 28, 1996, the date on which the Corporation's common stock began trading on the Nasdaq Stock Market, and that all dividends were reinvested.

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Item 12.  Security Ownership of Certain Beneficial Owners and Management



Equity Compensation Plan Information.



|                              |                       |                     |                        |            |                   |                          | (c)                  
|----------------------------- | --------------------- | ------------------- | ---------------------- | ---------- | ----------------- | ------------------------ | ---------------------
|                              |                       |                     |                        |            |                   |                          | Number of securities 
|                              |                       |                     | (a)                    |            | (b)               |                          | remaining available  
|                              |                       |                     | Number of securities   |            | Weighted average  |                          | for future issuance  
|                              |                       |                     | to be issued upon      |            | exercise price    |                          | under equity         
|                              |                       |                     | exercise or vesting of |            | of outstanding    |                          | compensation plans   
|                              |                       |                     | Outstanding options    |            | options, warrants |                          | (excluding securities
|Plan category                 |                       | warrants and rights |                        | and rights |                   | reflected in column (a))
|                              |                       |                     |                        |            |                   |                          |                      
|Equity compensation plans     |                       |                     |                        |            |                   |                         
|approved by security holders: |                       |                     |                        |            |                   |                         
|                              | Option plan           |                     | 649,500                |            | $11.47            |                          | 94,533               
|                              | Restricted stock plan |                     | 77,590                 |            | N/A               |                          | 12,558               
|                              | Total                 |                     | 727,090                |            |                   |                          | 107,091              





Security Ownership of Certain Beneficial Owners and Management

(a)    Security Ownership of Certain Beneficial Owners.
    (b)   
Security Ownership of Management.

Persons and groups who beneficially own in excess of 5% of the Corporation's common stock are required to file with the SEC, and provide a copy to the Corporation, certain reports disclosing such ownership pursuant to the Exchange Act.  Based on such reports, the following table sets forth, as of the close of business on September 6, 2002, certain information as to those persons who were beneficial owners of more than 5% of the outstanding shares of common stock. The number of shares have been adjusted to reflect the 3-for-2 stock split in the form of a 50% stock dividend, record date of June 25, 2002.  Management knows of no persons other than those set forth below who beneficially owned more than 5% of the outstanding shares of common stock at September 6, 2002. The total outstanding shares at September 6, 2002 were 5,412,057.

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The table also sets forth, as of the close of business on September 6, 2002, information as to the shares of common stock beneficially owned by (a) each current director of the Corporation, and (b) each of the named executive officers, as set forth in the Summary Compensation Table contained in Item 11 hereof, and  all executive officers and directors of the Corporation as a group.

|                                     | Number of Shares       | Percent of Shares
|------------------------------------ | ---------------------- | -----------------
|Name                                 | Beneficially Owned (1) | Outstanding      
|                                     |                        |                  
|Beneficial Owners of More Than 5%    |                        |                  
|                                     |                        |                  
|Provident Savings Bank, F.S.B.       | 579,411                | 10.71%           
|Employee Stock Ownership Plan Trust  |                        |                  
|                                     |                        |                  
|Brandes Investment Partners, L.P.    | 273,541 (2)            | 5.05%            
|12750 High Bluff Drive               |                        |                  
|San Diego, California  92130         |                        |                  
|                                     |                        |                  
|Thomson Horstmann & Bryant, Inc.     | 519,750 (3)            | 9.60%            
|Park 80 West, Plaza One              |                        |                  
|Saddle Brook, New Jersey  07663      |                        |                  
|                                     |                        |                  
|Jeffrey L. Gendell                   | 555,450 (4)            | 10.26%           
|Tontine Partners, L.P.               |                        |                  
|Tontine Management L.L.C.            |                        |                  
|Tontine Financial  Partners L.P.     |                        |                  
|Tontine Overseas Associates, L.L.C.  |                        |                  
|200 Park Avenue, Suite 3900          |                        |                  
|New York, New York 10166             |                        |                  
|                                     |                        |                  
|First Financial Fund, Inc.           | 475,950 (5)            | 8.79%            
|Gateway Center Three                 |                        |                  
|1100 Mulberry Street, 9th Floor      |                        |                  
|Newark, New Jersey  07102            |                        |                  
|                                     |                        |                  
|Wellington Management Company L.L.P. | 580,800 (6)            | 10.73%           
|75 State Street                      |                        |                  
|Boston, Massachusetts 02109          |                        |                  
|                                     |                        |                  
|JAM Partners, L.P.(7)(9)             | 402,150 (9)            | 7.43%            
|One Fifth Avenue                     |                        |                  
|New York, New York 1003              |                        |                  
|Endicott Partners, L.P.(8)(9)        |                        |                  
|237 Park Avenue, Suite 801           |                        |                  
|New York, NY 10017                   |                        |                  
|Gene F. Gaines (9)                   |                        |                  
|1018 Second Street, Unit 1           |                        |                  
|Santa Monica, California 90403       |                        |                  
|                                     |                        |                  

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|(Continued)                       | Number of Shares       | Percent of Shares
|--------------------------------- | ---------------------- | -----------------
|Name                              | Beneficially Owned (1) | Outstanding      
|                                  |                        |                  
|Beneficial Owners of More Than 5% |                        |                  
|                                  |                        |                  
|Directors                         |                        |                  
|                                  |                        |                  
|Joseph P. Barr                    | 7,125                  | *                
|Bruce W. Bennett                  | 43,894  (10)           | *                
|Debbi H. Guthrie                  | 45,262 (11)            | *                
|Roy H. Taylor                     | 58,849                 | 1.09%            
|William E. Thomas                 | 32,523                 | *                
|                                  |                        |                  
|Named Executive Officers          |                        |                  
|                                  |                        |                  
|Craig G. Blunden**                | 343,184 (12)(13)       | 6.34%            
|Robert G. Schrader**              | 231,431 (13)           | 4.28%            
|Richard L. Gale                   | 57,472                 | 1.06%            
|Donald L. Blanchard               | 60,531                 | 1.12%            
|Donavon P. Ternes                 | 21,099                 | *                
|Lilian Brunner                    | 37,334                 | *                
|                                  |                        |                  
|All Executive Officers and        | 848,556                | 15.68%           
|Directors as a Group (11 persons) |                        |                  

______________

|*    | Less than one percent of shares outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**   | Mr. Blunden and Mr. Schrader are also directors of the Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(1)  | In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to be the beneficial owner, for purposes of this table, of any shares of common stock if he or she has voting or investment power with respect to such security.  The table includes shares owned by spouses, other immediate family members in trust, shares held in retirement accounts or funds for the benefit of the named individuals, and other forms of ownership, over which shares the persons named in the table may possess voting and/or investment power.  Shares held in accounts under the Bank's ESOP which the holders have voting power but not investment power, are included as follows: Mr. Blunden, 5,558 shares; Mr. Schrader, 4,842 shares; Mr. Gale, 4,285 shares; Mr. Blanchard, 3,605 shares; Ms. Brunner, 3,185 shares; all executive officers and directors as a group, 21,475 shares.  The amounts shown also include the following number of shares which the indicated individuals have the right to acquire within 60 days of the close of business on September 6, 2002 through the exercise of stock options granted pursuant to the Corporation's 1996 Stock Option Plan: Mr. Bennett, 30,750 shares; Ms. Guthrie, 30,750 shares; Mr. Taylor, 30,750 shares; Mr. Thomas, 24,600 shares; Mr. Barr, 6,150 shares; Mr. Blunden, 153,750 shares; Mr. Schrader, 74,250 shares; Mr. Gale, 30,000 shares; Mr. Blanchard, 45,000 shares; Ms. Brunner, 25,500 shares; Mr. Ternes, 18,000; all executive officers and directors as a group, 469,500 shares.
|(2)  | Information concerning the shares owned by Brandes Investment Partners, L.P. as of December 31, 2001 was obtained from an amended Schedule 13G.  According to this filing, Brandes Investment Partners, L.P., an investment advisor registered under the Investment Advisers Act of 1940, has shared voting power with respect to 134,203 shares and shared dispositive power with respect to 273,541 shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(3)  | Information concerning the shares owned by Thomson Horstmann & Bryant, Inc. as of December 31, 2001 was obtained from an amended Schedule 13G. According to this filing, Thomson Horstmann & Bryant, Inc., an investment advisor registered under the Investment Advisers Act of 1940, has sole voting power with respect to 241,350 shares and sole dispositive power with respect to 519,750 shares.63<PAGE>                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(4)  | Information concerning the shares owned by Tontine Management L.L.C., Tontine Partners, L.P., Tontine Overseas Associates, L.L.C., and Tontine Financial Partners L.P. as of December 31, 2001 was obtained from an amended Schedule 13G. According to this filing, Jeffrey L. Gendell, an investment advisor registered under the Investment Advisers Act of 1940, has shared voting and dispositive power with respect to these shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(5)  | Information concerning the shares owned by First Financial Fund, Inc. as of December 31, 2001 was obtained from an amended Schedule 13G. According to this filing, First Financial Fund, Inc., an investment company registered under the Investment Company Act of 1940, has sole voting power and shared dispositive power with respect to these shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(6)  | Information concerning the shares owned by Wellington Management Company, L.L.P. as of December 31, 2001 was obtained from an amended Schedule 13G. According to this filing, Wellington Management Company, L.L.P., an investment company registered under the Investment Company Act of 1940, has shared voting power with respect to 55,650 shares and shared dispositive power with respect to 580,800 shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(7)  | Consists of JAM Partners, L.P., JAM Special Opportunities Fund, L.P., JAM Managers, L.L.C., and Sy Jacobs (the "JAM Parties").                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(8)  | Consists of Endicott Partners, L.P., Endicott Partners II, L.P., Endicott Offshore Investors, Ltd., W.R. Endicott, L.L.C., Endicott Management Co., Wayne K. Goldstein and Robert I. Usdan (the "Endicott Parties").                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(9)  | Information concerning the shares owned by the JAM Parties, the Endicott Parties and Gene F. Gaines as of May 29, 2002 was obtained from a Schedule 13D. According to this filing, the JAM Parties have voting and dispositive power with respect to 165,000 shares (JAM Managers, L.L.C. has voting and dispositive power over 155,625 shares and Mr. Sy Jacobs has voting and dispositive power over 9,375 shares), which Mr. Jacobs may be deemed to have the indirect power to vote and to dispose or direct the disposition of the shares held by the JAM Parties; the Endicott Parties have voting and dispositive power over 235,650 shares (Endicott Partners, L.P., Endicott Partners II, L.P., W.R. Endicott, L.L.C. have voting and dispositive power over 145,050 shares, Endicott Management Co. has voting and dispositive power over 22,800 shares, and Endicott Offshore Investors, Ltd. has voting and dispositive power over 67,800 shares), which Messrs. Goldstein and Usdan may be deemed to have the indirect power to vote and to dispose or direct the disposition of the shares held by the Endicott Parties; and Mr. Gaines may be deemed to have the indirect power to vote and to dispose or direct the disposition of 1,500 shares.                                                                                                                                                                                                                                                                                               
|(10) | Includes 1,320 shares owned by Mr. Bennett's spouse.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(11) | Includes 7,500 shares owned by a company controlled by Ms. Guthrie.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(12) | Includes 5,340 shares owned by Mr. Blunden's spouse.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(13) | Includes 90,148 shares of unvested restricted stock awarded to employees and directors of the Corporation and the Bank pursuant to the Corporation's 1996 Management Recognition Plan which are held in a trust for participants and which will be voted by Mr. Blunden and Mr. Schrader as trustees of such trust.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

(c)   
Changes in Control

The Corporation is not aware of any arrangements, including any pledge by any person of securities of the Corporation, the operation of which may at a subsequent date result in a change of control of the Corporation.



Item 13.  Certain Relationships and Related Transactions



As required by federal regulations, all loans or extensions of credit to executive officers and directors are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons (except for loans made pursuant to programs generally available to all employees) and do not involve more than the normal risk of repayment or present other unfavorable features.  In addition, loans made by the Bank to a director or executive officer in an amount that, when aggregated with the amount of all other loans by the Bank to such person and his or her related interests, are in excess of the greater of $25,000 or 5% of the Bank's capital and surplus (up to a maximum of $500,000) are subject to approval in advance by a majority of the disinterested members of the Board of Directors.



64

<PAGE>

Item 14.  Controls and Procedures

In the fiscal year ended June 30, 2002, we did not make any significant
changes in, nor take any corrective actions regarding our internal controls or
other factors that could significantly affect these controls.  We
periodically review our internal controls for effectiveness, and did conduct such a review during this period.  In the future, we plan
to conduct an evaluation of our disclosure controls and procedures each quarter.

PART IV



Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K



(a)  1.     Financial Statements
              See Index to Consolidated Financial Statements on page
70.



(b)    Reports on Form 8-K filed during the last quarter of the Registrant's fiscal year ended June 30, 2002

(1)    The Registrant's Form 8-K dated April 2, 2002 regarding the stock repurchase of up to 5 percent of its common stock over
                a one-year period.
       (2)    The Registrant's Form 8-K dated April 15, 2002 regarding the filing of an application with the Office of Thrift Supervision for                a new banking office located in Riverside, California.
       (3)    The Registrant's Form 8-K dated May 8, 2002 regarding the opening of a loan production office in La Quinta, California.
       (4)    The Registrant's Form 8-K dated May 29, 2002 regarding a 3-for-2 stock split in the form of a 50 percent stock dividend.

1. I have reviewed this annual report on Form 10-K of Provident Financial Holdings, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.
4. I have reviewed this annual report on Form 10-K of Provident Financial Holdings, Inc.;
5. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
6. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Consolidated Statements of Financial Condition

(In thousands, except share information)

---



|                                                                          | June 30,                                                                                                      
|------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------
|                                                                          | 2002                                                                                                          
|Assets                                                                    |                                                                                                               
|Cash                                                                      | $     27,700                                                                                                  
|Overnight deposits                                                        | -                                                                                                             
|                                                                          | Cash and cash equivalents                                                                                     
|                                                                          |                                                                                                               
|Investment securities - held to maturity                                  |                                                                                                               
|                                                                          | (fair value $157,705 and $162,498, respectively)                                                              
|Investment securities - available for sale at fair value                  | 114,826                                                                                                       
|Loans held for investment, net of allowance for loan losses of $6,579 and |                                                                                                               
|                                                                          | $6,068, respectively                                                                                          
|Loans held for sale, at lower of cost or market                           | 1,747                                                                                                         
|Receivable from sale of loans                                             | 67,241                                                                                                        
|Accrued interest receivable                                               | 5,591                                                                                                         
|Real estate held for investment, net                                      | 11,150                                                                                                        
|Other real estate owned, net                                              | 313                                                                                                           
|Federal Home Loan Bank stock                                              | 13,000                                                                                                        
|Premises and equipment, net                                               | 8,119                                                                                                         
|Prepaid expenses and other assets                                         | 4,955                                                                                                         
|                                                                          | Total assets                                                                                                  
|                                                                          |                                                                                                               
|Liabilities and Stockholders' Equity                                      |                                                                                                               
|Liabilities:                                                              |                                                                                                               
|Non-interest-bearing deposits                                             | $      31,076                                                                                                 
|Interest-bearing deposits                                                 | 646,372                                                                                                       
|                                                                          | Total deposits                                                                                                
|                                                                          |                                                                                                               
|Borrowings                                                                | 202,466                                                                                                       
|Accounts payable, accrued interest and other liabilities                  | 22,373                                                                                                        
|Total liabilities                                                         | 902,287                                                                                                       
|                                                                          |                                                                                                               
|Commitments and contingencies (Note 14)                                   |                                                                                                               
|                                                                          |                                                                                                               
|Stockholders' equity:                                                     |                                                                                                               
|Preferred stock, $0.01 par value; (2,000,000 shares authorized;           |                                                                                                               
|                                                                          | none issued and outstanding)                                                                                  
|Common stock, $0.01 par value; (15,000,000 shares authorized;             |                                                                                                               
|                                                                          | 7,712,515 and 7,692,265 shares issued, respectively; 5,463,199 and
5,716,306 shares outstanding, respectively)
|Additional paid-in capital                                                | 52,178                                                                                                        
|Retained earnings                                                         | 82,805                                                                                                        
|Treasury stock at cost (2,249,316 and 1,975,959 shares, respectively)     | (30,027                                                                                                       
|Unearned stock compensation                                               | (2,866                                                                                                        
|Accumulated other comprehensive income, net of tax                        | 864                                                                                                           
|                                                                          | Total stockholders' equity                                                                                    
|                                                                          |                                                                                                               
|                                                                          | Total liabilities and stockholders' equity                                                                    

The accompanying notes are an integral part of these
consolidated financial statements.

73

<PAGE>



Consolidated Statements of Operations

|                                                      | Year Ended June 30,                         
|----------------------------------------------------- | --------------------------------------------
|                                                      | 2002                                        
|Interest income:                                      |                                             
|                                                      | Loans receivable, net                       
|                                                      | Investment securities                       
|                                                      | Federal Home Loan Bank stock                
|                                                      | Interest-earning deposits                   
|                                                      | Total interest income                       
|                                                      |                                             
|Interest expense:                                     |                                             
|                                                      | Deposits                                    
|                                                      | Borrowings                                  
|Total interest expense                                | 39,188                                      
|Net interest income, before provision for loan losses | 26,480                                      
|Provision for loan losses                             | 525                                         
|Net interest income, after provision for loan losses  | 25,955                                      
|                                                      |                                             
|Non-interest income:                                  |                                             
|                                                      | Loan servicing and other fees               
|                                                      | Gain on sale of loans, net                  
|                                                      | Real estate operations, net                 
|                                                      | Deposit account fees                        
|                                                      | Gain (loss) on sale of investment securities
|                                                      | Other                                       
|Total non-interest income                             | 16,442                                      
|                                                      |                                             
|Non-interest expense:                                 |                                             
|                                                      | Salaries and employee benefits              
|                                                      | Premises and occupancy                      
|                                                      | Equipment expense                           
|                                                      | Professional expense                        
|                                                      | Sales and marketing expense                 
|                                                      | Other                                       
|Total non-interest expense                            | 26,806                                      
|Income before income taxes                            | 15,591                                      
|Provision for income taxes                            | 6,482                                       
|                                                      | Net income                                  
|Basic earnings per share                              | $        1.77                               
|Diluted earnings per share                            | $        1.68                               

The accompanying notes are an integral part of these
consolidated financial statements.

74

<PAGE>

Consolidated Statements of Stockholders' Equity

(In thousands, except shares)

---

|                                                             |                                                                      | Accumulated Other Comprehensive Income, net of tax |                            
|------------------------------------------------------------ | -------------------------------------------------------------------- | -------------------------------------------------- | ---------------------------
|                                                             | Additional
Paid-in
Capital                                           |                                                    | Unearned
Stock
Compensation
|Retained
Earnings                                            | Treasury 
Stock                                                     
|Common Stock                                                 | Total                                                               
|Shares                                                       | Amount                                                              
|Balance at June 30, 1999                                     | 6,578,620                                                            |                                                    | $    77                    
|Comprehensive income:                                        |                                                                      |                                                    |                            
|                                                             | Net income                                                           |                                                    |                            
|                                                             | Unrealized holding loss on securities available for sale, net of tax |                                                    |                            
|Total comprehensive income                                   |                                                                      |                                                    |                            
|Purchase of treasury stock                                   | (695,578                                                             | )                                                  |                            
|Amortization and grants for Management Recognition Plan      |                                                                      |                                                    |                            
|Allocations of contributions to ESOP (1)                     |                                                                      |                                                    |                            
|Balance at June 30, 2000                                     | 5,883,042                                                            |                                                    | 77                         
|Comprehensive income:                                        |                                                                      |                                                    |                            
|                                                             | Net income                                                           |                                                    |                            
|                                                             | Unrealized holding gain on securities available for sale, net of tax |                                                    |                            
|Total comprehensive income                                   |                                                                      |                                                    |                            
|Purchase of treasury stock                                   | (181,976                                                             | )                                                  |                            
|Exercise of stock options                                    | 4,500                                                                |                                                    |                            
|Amortization and grants for Management Recognition Plan      | 10,740                                                               |                                                    |                            
|Allocations of contributions to ESOP                         |                                                                      |                                                    |                            
|Balance at June 30, 2001                                     | 5,716,306                                                            |                                                    | 77                         
|                                                             |                                                                      |                                                    |                            
|Comprehensive income:                                        |                                                                      |                                                    |                            
|                                                             | Net income                                                           |                                                    |                            
|                                                             | Unrealized holding gain on securities available for sale, net of tax |                                                    |                            
|Total comprehensive income                                   |                                                                      |                                                    |                            
|Purchase of treasury stock                                   | (280,194                                                             | )                                                  |                            
|Exercise of stock options                                    | 20,250                                                               |                                                    |                            
|Amortization and grants for Management Recognition Plan      | 6,837                                                                |                                                    |                            
|Allocations of contributions to ESOP                         |                                                                      |                                                    |                            
|Cash dividends in lieu of fractional shares from stock split |                                                                      |                                                    |                            
|Balance at June 30, 2002                                     | 5,463,199                                                            |                                                    | $ 77                       

(1) Employee Stock Ownership Plan ("ESOP").

The accompanying notes are an integral part of these
consolidated financial statements.

75

<PAGE>

Consolidated Statements of Cash Flows

(In thousands)

---





|                                      | Year Ended June 30,                                            
|------------------------------------- | ---------------------------------------------------------------
|                                      | 2002                                                           
|Cash flows from operating activities: |                                                                
|                                      | Net income                                                     
|                                      | Adjustments to reconcile net income to net                     
|                                      | cash provided by (used for) operating activities:              
|                                      | Depreciation and amortization                                  
|                                      | Provision for loan losses                                      
|                                      | Provision for losses on real estate                            
|                                      | Gain on sale of loans                                          
|                                      | Net (gain) loss on sale of investment securities               
|                                      | Deferred income taxes                                          
|                                      | (Decrease) increase in accounts payable, accrued interest and  
|                                      | other liabilities                                              
|                                      | Decrease (increase) in prepaid expenses and other assets       
|Loans originated for sale             | (1,103,574                                                     
|Proceeds from sale of loans           | 1,184,186                                                      
|Stock compensation                    | 1,453                                                          
|                                      | Net cash provided by (used for) operating activities           
|                                      |                                                                
|Cash flows from investing activities: |                                                                
|                                      | Net decrease (increase) in loan held for investment            
|                                      | Maturity and call of investment securities held to maturity    
|                                      | Maturity and call of investment securities held for sale       
|                                      | Principal payments from mortgage backed securities             
|                                      | Purchase of investment securities held to maturity             
|                                      | Purchase of investment securities available for sale           
|                                      | Proceeds from sales of investment securities available for sale
|                                      | Sales (purchase) of Federal Home Loan Bank stock               
|                                      | Net sales (purchases) of real estate                           
|                                      | Purchase of premises and equipment                             
|                                      |                                                                

The accompanying notes are an integral part of these
consolidated financial statements.

76

<PAGE>

Consolidated Statements of Cash Flows

(In thousands)

---



|                                               | Year Ended June 30,                                        
|---------------------------------------------- | -----------------------------------------------------------
|                                               | 2002                                                       
|Cash flows from financing activities:          |                                                            
|                                               | Net (decrease) increase in deposits                        
|                                               | Repayment of Federal Home Loan Bank advances               
|                                               | Proceeds from Federal Home Loan Bank advances              
|                                               | (Repayment) proceeds from other borrowings                 
|                                               | Treasury stock purchases                                   
|                                               | Exercise of stock options                                  
|                                               | Cash dividend in lieu of fractional shares from stock split
|                                               | Net cash (used for) provided by financing activities       
|                                               |                                                            
|                                               | Net increase (decrease) in cash and cash equivalents       
|Cash and cash equivalents at beginning of year | 26,839                                                     
|Cash and cash equivalents at end of year       | $         27,700                                           
|                                               |                                                            
|Supplemental information:                      |                                                            
|                                               | Cash paid for interest                                     
|                                               | Cash paid for income taxes                                 
|                                               | Real estate acquired in settlement of loans                

The accompanying notes are an integral part of these
consolidated financial statements.

77

<PAGE>

Notes to Consolidated Financial Statements

---

1.    Summary of Significant Accounting Policies (in Thousands):



Provident Savings Bank, FSB (the "Bank") converted from a federally chartered mutual savings bank to a federally chartered stock bank effective June 27, 1996. Provident Financial Holdings, Inc., a Delaware corporation organized by the Bank, acquired all of the capital stock of the Bank issued in the conversion; the transaction was recorded on a book value basis.



The consolidated financial statements include the accounts of Provident Financial Holdings Inc., and its wholly owned subsidiary, Provident Savings Bank, FSB (collectively, the "Corporation").  All significant inter-company balances and transactions have been eliminated.



The Corporation operates in two business segments: community banking (Provident Bank) and mortgage banking (Provident Bank Mortgage, a division of Provident Bank). Provident Bank activities include attracting deposits, offering banking services and originating multi-family, commercial real estate, construction, commercial business and consumer loans (primarily, overdraft and deposit loans). Provident Bank Mortgage's primary activities are originating single-family (one-to-four units) and consumer (primarily, second mortgages and equity lines of credit) loans for sale to institutional investors as well as for investment. Deposits are collected primarily from 11 banking locations located in Riverside and San Bernardino counties in California. The mortgage banking loans are originated from six free-standing lending offices in Southern California, as well as from the banking locations.



The accounting and reporting policies of the Corporation conform to accounting principles generally accepted in the United States of America and to prevailing practices within the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate and deferred tax assets.



The following accounting policies, together with those disclosed elsewhere in the consolidated financial statements, represent the significant accounting policies of Provident Financial Holdings, Inc. and the Bank.



Reclassifications
Certain reclassifications of prior year financial data have been made to conform to the current reporting practices of the Corporation.



Cash and cash equivalents
Cash and cash equivalents include cash on hand and due from banks, as well as overnight deposits placed at its correspondent banks.

Investment securities
The Corporation classifies its qualifying investments as available for sale or
held to maturity. The Corporation's policy of classifying investments as held to
maturity is based upon its ability and management's positive intent to hold such
securities to maturity. Securities expected to be held to maturity are carried
at amortized historical cost. All other securities are classified as available
for sale and are carried at fair value. Fair value is determined based upon
quoted market prices. Unrealized holding gains and losses on securities
available for sale are included in accumulated other comprehensive income, net
of tax. Gains and losses on dispositions of investment securities are

78

<PAGE>

Notes to Consolidated Financial Statements

---

included in non-interest income and are determined using the
specific identification method. Purchase premiums and discounts are amortized
over the life of the securities using the interest method over the terms of the
securities.



Loans
Loans held for investment consist primarily of long-term loans secured by first trust deeds on single-family residences, other residential property, commercial property and land. The single-family adjustable-rate mortgage (ARM) is the Corporation's primary loan investment. In addition to the ARMs, multi-family, commercial real estate, construction, commercial business and consumer loans are becoming a substantial part of the loan portfolio. These loans are generally offered to customers and businesses located in Southern California, primarily in Riverside and San Bernardino counties, commonly known as the Inland Empire, and to a lesser extent in Orange, Los Angeles and other counties. A deterioration in the economic conditions of these markets could adversely affect the Corporation's business, financial condition and profitability. Such a deterioration could give rise to increased loan delinquencies, an increase in problem assets and foreclosures, decreased loan demand and a decline in real estate values.



Loan origination fees and certain direct origination expenses are deferred and amortized to interest income on loans over the contractual life of the loan using the effective interest method.  The amortization is discontinued for non-performing loans. Interest receivable represents, for the most part, the current month'sinterest which will be included as a part of the borrower's next monthly loan payment.  Interest receivable is accrued only if deemed collectible.  Loans generally are deemed to be in non-accrual status when they become 90 days past due.  When a loan is placed on non-accrual status, interest accrued but not received is reversed against income.



Receivable from sale of loans
Receivable from sale of loans represents expected settlement proceeds from the sale of loans which closed but have not settled. The duration of the loan sale settlement generally ranges from 30 to 45 days.

Provident Bank Mortgage activities
Loans are originated for both investment and sale in the secondary market.  Since the Corporation is primarily an adjustable-rate mortgage and consumer lender for its own portfolio, most fixed-rate loans are originated for sale to institutional investors.

Loans held for sale are carried at the lower of cost or fair value. Fair value is generally determined by outstanding commitments from investors or investors' current yield requirements as calculated on the aggregate loan basis. Loans are sold without recourse other than standard representations and warranties.  Most loans are sold with servicing released. For some loans sold, the Corporation may retain the servicing rights in order to generate servicing income. Where the Corporation continues to service loans after sale, investors are paid their share of the principal collections together with interest at an agreed-upon rate, which generally differs from the loan's contractual interest rate.



Gains or losses on sales of loans, including fees received or paid, are recognized at the time of sale and are determined by the difference between the net sales proceeds and the book value of the loans sold.  When loans are sold with servicing retained, the carrying value is allocated between the assets transferred and the fair value of the retained servicing in determining the amount of gain.  Servicing assets and liabilities are amortized over the estimated life and are assessed for subsequent impairment. Servicing assets were not significant at June 30, 2002 and 2001.

During the fiscal years ended June 30, 2002 and 2001, the Corporation sold 74% and 67%, respectively, of its loans to a single primary buyer.  If the Corporation is unable to sell loans to the primary buyer, management believes the availability of other qualified buyers would mitigate any significant risk to the Corporation's operations.

79

<PAGE>

Notes to Consolidated Financial Statements

---

Allowance for loan losses
It is the policy of the Corporation to provide for an allowance for loan losses inherent in the portfolio as of the balance sheet date when any significant and permanent decline in the borrower's ability to pay or in the value of the underlying collateral occurs.  Periodic reviews are made in an attempt to identify potential problems at an early stage. Individual loans are periodically reviewed and are classified according to their inherent risk.  The internal asset review policy used by the Corporation is the primary basis by which the Corporation evaluates the probable loss exposure. Management's determination of the adequacy of the allowance for loan losses is based on an evaluation of the portfolio, past experience, prevailing market conditions, and other relevant factors. The determination of the allowance for loan losses is based on estimates that are particularly susceptible to changes in the economic environment and market conditions. The allowance is increased by the provision for losses charged against income and reduced by charge-offs, net of recoveries.



Impaired loans
The Corporation assesses loans individually and identifies impairment when the accrual of interest has been discontinued, loans have been restructured or management has serious doubts about the future collectibility of principal and interest, even though the loans are currently performing. Factors considered in determining impairment include, but are not limited to, expected future cash flows, the financial condition of the borrower and current economic conditions.  The Corporation measures each impaired loan based on the fair value of its collateral and charges off those loans or portions of loans deemed uncollectible.



Real estate
Real estate acquired through foreclosure is initially recorded at the lesser of the loan balance at the time of foreclosure or the fair value of the real estate acquired, less estimated selling costs.  All real estate is carried at the lower of cost or fair value, less estimated selling costs.  Real estate loss provisions are recorded when the carrying value of the property exceeds the fair value.  Costs relating to improvement of property are capitalized.  Other costs are expensed as incurred.



Impairment of long-lived assets
The Corporation reviews its long-lived assets for impairment annually or when events or circumstances indicate that the carrying amount of these assets may not be recoverable. An asset is considered impaired when the expected undiscounted cash flows over the remaining useful life are less than the net book value. When impairment is indicated for an asset, the amount of impairment loss is the excess of the net book value over its fair value.



Premises and equipment
Premises and equipment are stated at cost, less accumulated depreciation and amortization.  Depreciation is computed primarily on a straight-line basis over the estimated useful lives as follows:

Buildings                                     	10 to 40 years
                Furniture and fixtures                	3 to 10 years
                Automobiles                               	3 years
                Computer equipment                 	3 to 5 years

Leasehold improvements are amortized over the shorter of the respective lease terms or the lives of the improvements.  Maintenance and repair costs are charged to operations as incurred.

80

<PAGE>

Notes to Consolidated Financial Statements

---



Income taxes
Taxes are provided for on substantially all income and expense items included in earnings, regardless of the period in which such items are recognized for tax purposes.  Taxes on income are determined by using the liability method.  This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Corporation's financial statements or tax returns.  In estimating future tax consequences, all expected future events other than enactments of changes in the tax law or rates are considered.



Risks and uncertainties
In the normal course of its business, the Corporation encounters two significant types of risk: economic and regulatory. There are three main components to economic risk: interest rate risk, credit risk and market risk. The Corporation is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different frequencies, or on a different basis, than its interest-earning assets.  Credit risk is the risk of default on the Corporation's loan portfolio that results from the borrower's inability or unwillingness to make contractually required payments.  Market risk results from changes in the value of assets and liabilities which may impact, favorably or unfavorably, the realizability of those assets and liabilities held by the Corporation.



The Corporation is subject to the regulations of various government agencies.  These regulations can and do change significantly from period to period.  The Corporation also undergoes periodic examinations by the regulatory agencies, which may subject it to further changes with respect to asset valuations, amounts of required loss allowances and operating restrictions resulting from the regulators' judgments based on information available to them at the time of their examination.



Stock split
On May 29, 2002, the Corporation declared a three-for-two stock split, distributed in the form of a 50% stock dividend on July 12, 2002 to shareholders of record on June 25, 2002.  All share and per share information in the accompanying consolidated financial statements have been restated to reflect the stock split.





Earning per common share (EPS)
Basic EPS represents net income divided by the weighted average common shares outstanding during the period excluding any potential dilutive effects.  Diluted EPS gives effect to all potential issuances of common stock that would have caused basic EPS to be lower as if the issuance had already occurred.  Accordingly, diluted EPS reflects an increase in the weighted average shares outstanding due to the assumed exercise of stock options and the vesting of restricted stock.



Employee Stock Ownership Plan (ESOP)
The Corporation recognizes compensation expense when shares are committed to be released to employees in an amount equal to the fair value of the shares so committed.  The difference between the amount of compensation expense and the cost of the shares released is recorded as additional paid-in capital.  Therefore, total stockholders' equity is not affected.



Management Recognition Plan (MRP)
The Corporation recognizes compensation expense over the vesting period of the shares awarded equal to the fair value of the shares at the date of the award.

81

<PAGE>

Notes to Consolidated Financial Statements

---



Post retirement benefits
The estimated obligation for post retirement health care and life insurance benefits is determined based on an actuarial computation of the cost of current and future benefits for employees and retirees.  Such costs are charged to expense during the years that the employees provide service.



Comprehensive income
Accounting principles generally require that realized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains or losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with income, are components of comprehensive income.



The components of other comprehensive income and related tax effects are as follows:



|                                        |                                      | For the Year Ended June 30,
|--------------------------------------- | ------------------------------------ | ---------------------------
|                                        |                                      | 2002                       
|Unrealized holding gains (losses) on    |                                      |                            
|                                        | available-for-sale securities, net . | $   780                    
|Reclassification adjustment for (gains) |                                      |                            
|                                        | losses realized in income            | (544)                      
|Net unrealized gains (losses)           | 236                                  | 914                        
|Tax effect                              | (97)                                 | (375)                      
|Net-of-tax amount                       | $   139                              | $   539                    



Recent accounting pronouncements



Statement of Financial Accounting Standard ("SFAS") No. 141:
SFAS No. 141, "Business Combinations," requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001; the use of the pooling-of-interest method is no longer allowed. The adoption of this statement did not have a material impact on the Corporation's financial position, results of operations or cash flows.





SFAS No. 142:
SFAS No. 142, "Goodwill and Other Intangible Assets," requires that, once adopted, amortization of goodwill will cease and as an alternative, requiring the carrying value of goodwill to be evaluated for impairment on at least an annual basis.  Intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."  SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001.  The adoption of this statement is not expected to have a material impact on the Corporation's financial position, results of operations or cash flows.





SFAS No. 143:
SFAS No. 143, "Accounting for Asset Retirement Obligations" requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made.   The associated asset retirement cost would be capitalized as part of the carrying amount of the long-lived asset.  The effective date for SFAS No. 143 will be for fiscal years beginning after June 15, 2002. The adoption of this statement is not expected to have a material impact on the Corporation's financial position, results of operations or cash flows.

82

<PAGE>

Notes to Consolidated Financial Statements

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SFAS No. 144:
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," replaces SFAS No. 121.  SFAS No. 144 requires that long-lived assets be measured at the lower of the carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. It also expands the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction.  SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The adoption of this statement is not expected to have a material impact on the Corporation's financial position, results of operations or cash flows.





SFAS No. 146:
In July 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," was issued, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force ("EITF") Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entities commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The Corporation will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002.





2.    Investment Securities (in Thousands):

The amortized cost and estimated fair value of investment securities as of June 30, 2002 and 2001 were as follows:

|June 30, 2002               | Amortized
Cost                    | Gross
Unrealized
Gains |            | Gross
Unrealized
(Losses) |           | Estimated
Fair
Value | Carrying
Value
|--------------------------- | --------------------------------- | ---------------------- | ---------- | ------------------------- | --------- | -------------------- | --------------
|                            |                                   |                        |            |                           |           |                      |               
|Held to maturity            |                                   |                        |            |                           |           |                      |               
|                            | U.S. government agency securities | $ 154,351              | $      685 | $     (12)                | $ 155,024 | $ 154,351           
|                            | U.S. government MBS (1)           | 9                      | 6          | -                         | 15        | 9                   
|                            | Corporate bonds                   | 2,762                  | -          | (96)                      | 2,666     | 2,762               
|                            | Total held to maturity            | 157,122                | 691        | (108)                     | 157,705   | 157,122             
|                            |                                   |                        |            |                           |           |                      |               
|Available for sale          |                                   |                        |            |                           |          
|                            | U.S. government agency securities | 38,316                 | 181        | -                         | 38,497    | 38,497              
|                            | U.S. government agency MBS (1)    | 75,034                 | 737        | (205)                     | 75,566    | 75,566              
|                            | FHLMC common stock                | 11                     | 723        | -                         | 734       | 734                 
|                            | FNMA common stock                 | 1                      | 28         | -                         | 29        | 29                  
|                            | Total available for sale          | 113,362                | 1,669      | (205)                     | 114,826   | 114,826             
|Total investment securities | $ 270,484                         | $ 2,360                | $ (313)    | $ 272,531                 | $ 271,948



83

<PAGE>

Notes to Consolidated Financial Statements

---

|June 30, 2001               | Amortized
Cost                    | Gross
Unrealized
Gains |         | Gross
Unrealized
(Losses) |          | Estimated
Fair
Value | Carrying
Value
|--------------------------- | --------------------------------- | ---------------------- | ------- | ------------------------- | -------- | -------------------- | --------------
|                            |                                   |                        |         |                           |          |                      |               
|Held to maturity            |                                   |                        |         |                           |          |                      |               
|                            | U.S. government agency securities | $ 160,571              |         | $   79                    |          | $     (592           | )             
|                            | U.S. government MBS (1)           | 16                     |         | 8                         |          | -                    |               
|                            | Corporate bonds                   | 2,745                  |         | -                         |          | (329                 | )             
|                            | Total held to maturity            | 163,332                |         | 87                        |          | (921                 | )             
|                            |                                   |                        |         |                           |          |                      |               
|Available for sale          |                                   |                        |         |                           |          |                      |               
|                            | U.S. government agency securities | 39,919                 |         | 103                       |          | (114                 | )             
|                            | FHLMC common stock                | 17                     |         | 1,208                     |          | -                    |               
|                            | FNMA common stock                 | 1                      |         | 32                        |          | -                    |               
|                            | Total available for sale          | 39,937                 |         | 1,343                     |          | (114                 | )             
|Total investment securities | $ 203,269                         |                        | $ 1,430 |                           | $ (1,035 | )                    | $ 203,664     



(1)    Mortgage Backed Securities ("MBS").



Gross realized gains on sale of investment securities during the years ended June 30, 2002, 2001 and 2000 were $544, $253 and $55, respectively; while the gross realized losses were $0, $5 and $60, respectively.

In fiscal 2001, $178.1 million of securities held to maturity were called by the issuer and $1.0 million of corporate bonds matured.  The high volume of called securities was the result of the significant decline in interest rates during the last half of fiscal 2001.  In fiscal 2002, $327.1 million of securities were called by the issuer and $4.5 million matured.  The securities called were callable at the option of the issuer and were primarily issued by the Federal Home Loan Bank ("FHLB"), the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").

The maturities of investments in debt securities were as follows:

|                                     | June 30, 2002 | June 30, 2001
|------------------------------------ | ------------- | -------------
|                                     |               | Estimated    
|Amortized                            |               | Fair         
|Cost                                 |               | Value        
|Held to maturity                     |               |              
|Due after one through five years     | $ 126,127     |              
|Due after five through ten years     | 30,995        |              
|                                     | 157,122       |              
|Available for sale                   |               |              
|Due after one through five years     | 58,073        |              
|Due after five through ten years     | 6,789         |              
|Due after ten years                  | 48,488        |              
|                                     | 113,350       |              
|Total investments in debt securities | $ 270,472     |              

84

<PAGE>

Notes to Consolidated Financial Statements

---

3.    Loans Held for Investment (in Thousands):

Loans held for investment consisted of the following:

|                                | June 30,                  
|------------------------------- | --------------------------
|                                | 2002                      
|                                |                           
|Mortgage loans:                 |                           
|                                | Single-family             
|                                | Multi-family              
|                                | Commercial real estate    
|                                | Construction              
|Commercial business loans       | 24,024                    
|Consumer loans                  | 19,377                    
|Others                          | 3,455                     
|                                | 630,710                   
|Less:                           |                           
|                                | Undisbursed loan funds    
|                                | Deferred loan (fees) costs
|                                | Unearned discounts        
|                                | Allowance for loan losses 
|Total loans held for investment | $ 593,554                 

Fixed-rate loans comprised 12% and 13% of the loan portfolio at June 30, 2002 and 2001, respectively.

The following summarizes the components of the net change in the allowance for loan losses:

|                             | Year Ended June 30,
|---------------------------- | -------------------
|                             | 2002               
|                             |                    
|Balance, beginning of period | $ 6,068            
|Provision for losses         | 525                
|Recoveries                   | 96                 
|Charge-offs                  | (110               
|Balance, end of period       | $ 6,579            

The effect of non-accrual and restructured loans on interest income for the years ended June 30, 2002, 2001 and 2000 is presented below:

|                         | Year Ended June 30,
|------------------------ | -------------------
|                         | 2002               
|                         |                    
|Contractual interest due | $ 89               
|Interest recognized      | (21                
|Net interest foregone    | $ 68               

85

<PAGE>

Notes to Consolidated Financial Statements

---

At June 30, 2002 and 2001, there were no commitments to lend additional funds to those borrowers whose loans were classified as impaired.

The following table identifies the Corporation's total recorded investment in impaired loans, net of specific allowances, by type at June 30, 2002 and 2001:



|                           | June 30, 2002                     
|-------------------------- | ----------------------------------
|                           | Recorded
Investment               
|                           |                                   
|Mortgage loans:            |                                   
|                           | Single-family:                    
|                           |                                   
|                           | Total single-family loans         
|                           |                                   
|                           | Commercial real estate:           
|                           |                                   
|                           | Total commercial real estate loans
|                           |                                   
|Commercial business loans: |                                   
|                           |                                   
|                           |                                   
|                           | Total commercial business loans   
|                           |                                   
|Consumer loans:            |                                   
|                           |                                   
|                           | Total consumer loans              
|Total impaired loans       | $ 3,851                           



86

<PAGE>

Notes to Consolidated Financial Statements

---



|                           | June 30, 2001                     
|-------------------------- | ----------------------------------
|                           | Recorded
Investment               
|                           |                                   
|Mortgage loans:            |                                   
|                           | Single-family:                    
|                           |                                   
|                           | Total single-family loans         
|                           |                                   
|                           | Multi-family:                     
|                           |                                   
|                           | Total multi-family loans          
|                           |                                   
|                           | Commercial real estate:           
|                           |                                   
|                           | Total commercial real estate loans
|                           |                                   
|Commercial business loans: |                                   
|                           |                                   
|                           | Total commercial business loans   
|                           |                                   
|Consumer loans:            |                                   
|                           |                                   
|                           | Total consumer loans              
|Total impaired loans       | $ 4,029                           



During the years ended June 30, 2002, 2001 and 2000, the Corporation's average investment in impaired loans was $4,362, $4,183 and $4,325, respectively; the imputed interest income during these periods was $480, $352 and $304, respectively; while the interest income recognized on a cash basis was $674, $296 and $234, respectively. The Corporation records interest on non-accrual loans utilizing the cash basis method of accounting during periods when the loans are on non-accrual status.



In the ordinary course of business, the Bank makes loans to its directors, officers and employees at substantially the same terms prevailing at the time of origination for comparable transactions with unaffiliated borrowers.  The following is a summary of related-party loan activity:



|                             | Year Ended June 30,
|---------------------------- | -------------------
|                             | 2002               
|                             |                    
|Balance, beginning of period | $       2,861      
|Originations                 | 11,471             
|Payments/sales               | (13,415            
|Balance, end of period       | $             917  

The total loan origination increased $9.2
million, or 408%, from $2.3 million in fiscal 2001 to $11.5 million, due
primarily to loan refinancing resulting from the decline in interest rates
during fiscal 2002. The total payments/sales

87

<PAGE>

Notes to Consolidated Financial Statements

---

increased $10.6 million, or 373%, from $2.9 million to $13.4
million, and was primarily attributable to the sale of loans to institutional
investors.

4.    Provident Bank Mortgage (in Thousands):

The following summarizes the unpaid principal balance of loans serviced for others by the Corporation:

|                                     | Year Ended June 30, 
|------------------------------------ | --------------------
|                                     | 2002                
|                                     |                     
|Loans serviced for Federal Home Loan |                     
|                                     | Mortgage Corporation
|Loans serviced for Federal National  |                     
|                                     | Mortgage Association
|Loans serviced for other investors   | 16,513              
|Total loans serviced for others      | $ 136,059           

Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and foreclosure processing.  Loan servicing income includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees.  The Corporation held borrowers' escrow balances related to loans serviced for others of $267, $379 and $397 as of June 30, 2002, 2001 and 2000, respectively. These escrow balances are included in deposits in the accompanying consolidated statements of financial condition.

Loans sold consisted of the following:

|                 | Year Ended June 30, 
|---------------- | --------------------
|                 | 2002                
|                 |                     
|Loans sold:      |                     
|                 | Servicing -
released
|                 | Servicing - retained
|Total loans sold | $ 1,172,995         



Loans held for sale consisted of the following:

|                          | June 30,
|------------------------- | --------
|                          | 2002    
|                          |         
|Fixed rate                | $ 1,094 
|Adjustable rate           | 653     
|Total loans held for sale | $ 1,747 

88

<PAGE>

Notes to Consolidated Financial Statements

---



5.    Real Estate Held for Investment and Other Real Estate Owned (in Thousands):

Real estate held for investment consisted of the following:

|                                           | June 30,
|------------------------------------------ | --------
|                                           | 2002    
|                                           |         
|Real estate held for investment            | $ 12,480
|Less: Accumulated depreciation             | (1,330) 
|Total real estate held for investment, net | $ 11,150



Other real estate owned consisted of the following:

|                                       | June 30,
|-------------------------------------- | --------
|                                       | 2002    
|                                       |         
|Other real estate owned                | $ 336   
|Less: Allowance for real estate losses | (23     
|Total real estate owned, net           | $ 313   

The following summarizes the components of the net change in the allowance for losses on real estate:

|                             | Year Ended June 30,
|---------------------------- | -------------------
|                             | 2002               
|                             |                    
|Balance, beginning of period | $  17              
|Provisions for losses        | 58                 
|Charge-offs                  | (52)               
|Balance, end of period       | $  23              

6.    Premises and Equipment (in Thousands):

Premises and equipment consisted of the following:

|                                               | June 30, 
|---------------------------------------------- | ---------
|                                               | 2002     
|                                               |          
|Land                                           | $   2,785
|Buildings                                      | 7,569    
|Leasehold improvements                         | 950      
|Furniture and equipment                        | 10,557   
|Automobiles                                    | 119      
|                                               | 21,980   
|Less accumulated depreciation and amortization | (13,861  
|Total premises and equipment, net              | $   8,119

89

<PAGE>

Notes to Consolidated Financial Statements

---

Depreciation and amortization expense for the years ended June 30, 2002, 2001 and 2000 amounted to $1,681, $1,453 and $1,829, respectively.

7.    Deposits (in Thousands):

|                                           | June 30, 2002  |               | June 30, 2001
|------------------------------------------ | -------------- | ------------- | -------------
|                                           | Interest Rate* |               | Amount       
|                                           |                |               |              
|Checking deposits - non-interest bearing   | -              |               | $     31,076 
|Checking deposits - interest bearing       | 0% - 2.96%     |               | 94,084       
|Savings deposits                           | 0% - 3.20%     |               | 166,001      
|Money market deposits                      | 0% - 2.13%     |               | 49,690       
|Time deposits                              |                |               |              
|                                           | Under $100     | 1.10% - 7.24% |              
|                                           | $100 and over  | 1.44% - 8.00% |              
|Total deposits                             |                |               | $ 677,448    
|Weighted average interest rate on deposits |                |               | 2.72%        

(*) Some interest-bearing checking, savings and money market deposits require a minimum balance to earn interest.

The aggregate annual maturities of time deposits are as follows:

|                         | June 30, 
|------------------------ | ---------
|                         | 2002     
|                         |          
|One year or less         | $ 247,103
|Over one to two years    | 52,721   
|Over two to three years  | 13,747   
|Over three to four years | 4,667    
|Over four years          | 18,359   
|Total time deposits      | $ 336,597

Interest expense on deposits is summarized as follows:

|                                     | Year Ended June 30,
|------------------------------------ | -------------------
|                                     | 2002               
|                                     |                    
|Checking deposits - interest bearing | $   1,005          
|Savings deposits                     | 3,170              
|Money market deposits                | 1,405              
|Time deposits                        | 18,474             
|Total interest expense on deposits   | $ 24,054           

The Corporation is required to maintain cash and reserve balances with the Federal Reserve Bank.  Such reserves are calculated based on deposit balances and are offset by the cash balances maintained by the Bank. The cash balances maintained by the bank at June 30, 2002, 2001 and 2000 were sufficient to cover the reserve requirements.



90

<PAGE>

Notes to Consolidated Financial Statements

---

8.    Borrowings (Dollars in Thousands):

Advances from the FHLB were collateralized by pledges of certain real estate loans with an aggregate principal balance at June 30, 2002 and 2001 of $302,296 and $458,637, respectively. In addition, the Bank used U.S. government agency securities totaling $119,654 at June 30, 2002 to collateralize its FHLB advances under Security-Backed Credit ("SBC") program as compared to $79,828 at June 30, 2001. At June 30, 2002, the Bank's FHLB borrowing capacity, which is limited to 40% of total assets reported on the Bank's quarterly thrift financial reports, was approximately $416,437 as compared to $463,030 at June 30, 2001. In addition, the Bank has another borrowing arrangement in the form of a federal funds facility with its correspondent bank for $45 million; no borrowings were outstanding at June 30, 2002 and 2001.

Borrowings consisted of the following:

|                      | June 30, 
|--------------------- | ---------
|                      | 2002     
|                      |          
|Regular FHLB advances | $ 165,466
|SBC FHLB advances     | 37,000   
|Total borrowings      | $ 202,466

As a member of the FHLB system, the Bank is required to maintain a minimum investment in FHLB stock.  The Bank held the required investment of $13 million with an excess of $1.2 million at June 30, 2002, as compared to $16.4 million with an excess of $2.9 million at June 30, 2001.  Any excess may be redeemed by the Bank or called by FHLB at par.

91

<PAGE>

Notes to Consolidated Financial Statements

---

The following tables set forth certain information regarding borrowings by the Bank at the dates and for the periods indicated:



|                                                           |                                                         |           | At or For the Year Ended June 30,
|---------------------------------------------------------- | ------------------------------------------------------- | --------- | ---------------------------------
|                                                           |                                                         |           | 2002                             
|                                                           |                                                         |           | (Dollars in Thousands)           
|                                                           |                                                         |           |                                  
|Balance outstanding at end of period:                      |                                                         |           |                                  
|                                                           | FHLB advances                                           | $ 202,466 |                                  
|                                                           | A loan to facilitate purchase of an investment property | -         |                                  
|                                                           |                                                         |           |                                  
|Weighted average rate:                                     |                                                         |           |                                  
|                                                           | FHLB advances                                           | 5.50%     |                                  
|                                                           | A loan to facilitate purchase of an investment property | -         |                                  
|                                                           |                                                         |           |                                  
|Maximum amount of borrowings outstanding at any month end: |                                                         |           |                                  
|                                                           | FHLB advances                                           | $ 257,525 |                                  
|                                                           | A loan to facilitate purchase of an investment property | -         |                                  
|                                                           |                                                         |           |                                  
|Approximate average short-term* borrowings                 |                                                         |           |                                  
|outstanding with respect to:                               |                                                         |           |                                  
|                                                           | FHLB advances                                           | $  76,144 |                                  
|                                                           |                                                         |           |                                  
|Approximate average short-term* borrowings rate with       |                                                         |           |                                  
|with respect to:                                           |                                                         |           |                                  
|                                                           | FHLB advances                                           | 6.67%     |                                  

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

In April 2001, the Bank, through its subsidiary, paid off the loan which was assumed as a condition of the purchase of investment property in downtown Riverside.

The aggregate annual contractual maturities of borrowings are as follows:

|                               | June 30, 
|------------------------------ | ---------
|                               | 2002     
|                               |          
|Within one year                | $  69,500
|One to two years               | 18,031   
|Two to three years             | 30,000   
|Three to four years            | 10,000   
|Four to five years             | -        
|Over five years                | 74,935   
|Total borrowings               | $ 202,466
|Weighted average interest rate | 5.50%    

92

<PAGE>

Notes to Consolidated Financial Statements

---

9.    Income Taxes (Dollars in Thousands):

The provision for income taxes consisted of the following:

|                           | Year Ended June 30,
|-------------------------- | -------------------
|                           | 2002               
|                           |                    
|Current:                   |                    
|                           | Federal            
|                           | State              
|                           | 6,762              
|Deferred:                  |                    
|                           | Federal            
|                           | State              
|                           | (280)              
|Provision for income taxes | $ 6,482            

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pre-tax income from continuing operations as a result of the following differences:

|                                       | Year Ended June 30,
|-------------------------------------- | -------------------
|                                       | 2002               
|                                       |                    
|Federal statutory income tax rate      | 35.0%              
|State taxes, net of federal tax effect | 7.6                
|Other                                  | (1.0)              
|Effective income tax rate              | 41.6%              

Deferred tax (assets) liabilities  by jurisdiction were as follows:

|                                     | June 30,
|------------------------------------ | --------
|                                     | 2002    
|                                     |         
|Deferred taxes - federal             | $   (98 
|Deferred taxes - state               | (50     
|Total deferred tax (asset) liability | $ (148  

93

<PAGE>

Notes to Consolidated Financial Statements

---

Deferred tax (assets) liabilities were comprised of the following:

|                                                            | June 30,                          
|----------------------------------------------------------- | ----------------------------------
|                                                            | 2002                              
|                                                            |                                   
|Depreciation                                                | $  3,222                          
|FHLB dividends                                              | 2,247                             
|Unrealized gain on investment securities                    | 600                               
|Market value adjustments - derivative financial instruments | 50                                
|                                                            | Total deferred tax liabilities    
|                                                            |                                   
|State taxes                                                 | (548                              
|Market value adjustments - loans to be held for sale        | (808                              
|Loss reserves                                               | (3,318                            
|Deferred compensation                                       | (1,302                            
|ESOP contribution                                           | (122                              
|Accrued bonuses                                             | -                                 
|Accrued vacation                                            | (161                              
|Other                                                       | (8                                
|                                                            | Total deferred tax assets         
|                                                            | Net deferred tax (asset) liability

The net deferred tax asset is included in other assets and the net deferred tax liability is included in other liabilities in the accompanying consolidated statements of financial condition.



Retained earnings at June 30, 2002 included approximately $9,019 for which federal income tax of approximately $3,066 had not been provided.  If the amounts that qualify as deductions for federal income tax purposes are later used for purposes other than for bad debt losses, including distribution in liquidation, they will be subject to federal income tax at the then current corporate tax rate.  If those amounts are not so used, they will not be subject to tax even in the event the Corporation were to convert its charter.

10.    Capital (Dollars in Thousands):



Federal regulations require that institutions with investment in subsidiaries conducting real estate investments and joint venture activities maintain sufficient capital over the minimum regulatory requirements. The Bank maintains capital in excess of the minimum requirements.



The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements.  Under 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 weightings and other factors.



Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of Total and Tier 1 Capital (as defined in the
regulations) to Risk-Weighted Assets (as defined), and of Core Capital (as
defined) to Adjustable Tangible Assets (as defined).

94

<PAGE>

Notes to Consolidated Financial Statements

---

Management believes, as of June 30, 2002 and 2001, that the
Bank meets all capital adequacy requirements to which it is subject.



Various adjustments are required to be made to retained earnings and total assets for computing these capital ratios, depending on an institution's capital and asset structure.  The adjustment presently applicable to the Bank is for equity investments in real estate.  In addition, in calculating risk-based capital, general loss allowances are included as capital on a limited basis.



As of June 30, 2002 and 2001, the most recent notification from the Office of Thrift Supervision categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action.  To be categorized as "well capitalized" the Bank must maintain minimum Total risk-based, Core capital and Tier 1 risk-based capital ratios as set forth in the table.  There are no conditions or events since that notification that management believes have changed the institution's category.

The Bank may not declare or pay cash dividends on or repurchase any of its shares of common stock, if the effect would cause stockholders' equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration and payment would otherwise violate regulatory requirements.

The Bank's actual capital amounts and ratios as of June 30, 2002 and 2001 are as follows:

|                                | Actual   | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions
|------------------------------- | -------- | ----------------------------- | ----------------------------------------------------------------
|                                | Amount   |                               | Ratio                                                           
|                                |          |                               |                                                                 
|As of June 30, 2002             |          |                               |                                                                 
|Total Capital to Risk Weighted  |          |                               |                                                                 
|Assets                          | $ 95,349 |                               | 18.01%                                                          
|Core Capital to Adjustable      |          |                               |                                                                 
|Tangible Assets                 | 88,806   |                               | 8.92%                                                           
|Tier 1 Capital to Risk Weighted |          |                               |                                                                 
|Assets                          | 88,806   |                               | 16.78%                                                          
|Tangible Capital                | 88,806   |                               | 8.92%                                                           
|                                |          |                               |                                                                 
|As of June 30, 2001             |          |                               |                                                                 
|Total Capital to Risk Weighted  |          |                               |                                                                 
|Assets                          | $ 89,162 |                               | 14.89%                                                          
|Core Capital to Adjustable      |          |                               |                                                                 
|Tangible Assets                 | 82,535   |                               | 7.47%                                                           
|Tier 1 Capital to Risk Weighted |          |                               |                                                                 
|Assets                          | 82,535   |                               | 13.78%                                                          
|Tangible Capital                | 82,535   |                               | 7.47%                                                           



11.    Benefit Plans (in Thousands, Except Share Information):

The Corporation has a 401(k) defined-contribution plan covering all employees meeting specific age and service requirements. Under the plan, employees may contribute up to 10% of their pretax compensation. The Corporation

95

<PAGE>

Notes to Consolidated Financial Statements

---

makes matching contributions up to 3% of participants' pretax compensation. Participants vest immediately in their own contributions with 100% vesting in the Corporation's contributions occurring after six years of credited service.  The Corporation's expense for the plan was approximately $323, $254 and $193 for the years ended June 30, 2002, 2001 and 2000, respectively.



The Corporation has a multi-year employment agreement with one executive officer, which requires payments of certain benefits upon retirement.  The obligation was fully funded at June 30, 2002 and actuarially determined retirement costs are being accrued and expensed annually.

Employee Stock Ownership Plan



An ESOP was established for all employees who are age 21 or older and have completed one year of service with the Corporation during which they have served a minimum of 1,000 hours. The ESOP borrowed $4,100 from the Corporation to purchase 615,026 shares of the common stock issued in the conversion.  The loan will be repaid principally from the Corporation's contributions to the ESOP over a period of 15 years. At June 30, 2002, the outstanding balance on the loan was $2,856.  Shares purchased with the loan proceeds are held in an unearned ESOP shares account and released on a pro rata basis as the loan is repaid. Contributions to the ESOP and shares released from the unearned ESOP shares account are allocated among participants on the basis of compensation, as described in the plan, in the year of allocation. Benefits generally become 100% vested after six years of credited service. Vesting will accelerate upon retirement, death or disability of the participant or in the event of a change in control of the Corporation. Forfeitures will be reallocated among remaining participating employees in the same proportion as contributions.  Benefits may be payable upon death, retirement, early retirement, disability or separation from service.  Since the annual contributions are discretionary, the benefits payable under the ESOP cannot be estimated.  The expense related to the ESOP totaled $741, $527 and $451 for the years ending June 30, 2002, 2001 and 2000, respectively.  At June 30, 2002 and 2001, the unearned ESOP shares account of $2,367 and $2,638, respectively, was reported as a reduction of stockholders' equity.

The table below reflects ESOP activity for the period indicated (in number of shares):

|                                          | June 30,
|----------------------------------------- | --------
|                                          | 2002    
|Unallocated shares at beginning of period | 395,635 
|Allocated                                 | (40,578 
|Unallocated shares at end of period       | 355,057 

The fair value of unallocated ESOP shares totaled $7,953, $6,135 and $4,053 at June 30, 2002, 2001 and 2000, respectively.





12.    Incentive Plans (in Thousands, Except Share Information):

Management Recognition Plan



The Corporation has established the 1996 MRP to provide key employees and eligible directors with a proprietary interest in the growth, development and financial success of the Corporation through the award of restricted stock.  The Corporation acquired 307,500 shares of its common stock in the open market to fund the MRP.  As of June 30, 2002 and 2001, the total MRP shares which had been awarded were 294,942 and 288,105, respectively, and the weighted average fair value at the date of grant was $13.28 and $13.25 per share, respectively.  Awarded shares vest over a five-year period as long as the employee or director remains an employee or director of the Corporation.  The

96

<PAGE>

Notes to Consolidated Financial Statements

---

Corporation recognizes compensation expense for the MRP based on the fair value of the shares at grant date.  MRP compensation expense was $728, $718 and $740 for the years ended June 30, 2002, 2001 and 2000, respectively.At June 30, 2002 and 2001, the value of unearned MRP shares account, $499 and $1,128, respectively, was reported as a reduction of stockholders' equity.

Stock Option Plan



The Corporation has established the 1996 Stock Option Plan ("Plan") for certain of its directors and key employees under which options to acquire up to 768,783 shares of common stock have been granted.  Under the Plan, options may not be granted at a price less than the fair market value at the date of grant.  Options are vested over a five-year period as long as the employee or director remains an employee or director of the Corporation. The options are exercisable after vesting for up to the remaining term of the original grant. The maximum term of the options granted is 10 years.

The following is a summary of changes in options outstanding:

|                             | Number of
Shares                    |         | Weighted
Average
Strike Price
|---------------------------- | ----------------------------------- | ------- | -----------------------------
|Outstanding at June 30, 1999 | 564,000                             |         | $ 10.79                      
|                             | Granted                             | -       |                              
|                             | Canceled                            | (7,500  | )                            
|Outstanding at June 30, 2000 | 556,500                             |         | $ 10.80                      
|                             | Granted (fair value of $7.19/share) | 45,000  |                              
|                             | Exercised                           | (4,500  | )                            
|                             | Canceled                            | (48,000 | )                            
|Outstanding at June 30, 2001 | 549,000                             |         | $ 10.70                      
|                             | Granted (fair value of $6.93/share) | 128,250 |                              
|                             | Exercised                           | (20,250 | )                            
|                             | Canceled                            | (7,500  | )                            
|Outstanding at June 30, 2002 | 649,500                             |         | $ 11.47                      

97

<PAGE>

Notes to Consolidated Financial Statements

---

The following table summarizes the outstanding stock options and the exercisable portion of the stock options as of June 30, 2002, 2001 and 2000:

|                 |  | Options Outstanding |             | Options Exercisable
|---------------- |  | ------------------- | ----------- | -------------------
|                 |  |                     |             | Weighted           
|                 |  | Number              | Average     | Average            
|                 |  | Of                  | Remaining   | Exercise           
|Exercise Prices  |  | Options             | Option Life |                    
|                 |  |                     |             |                    
|At June 30, 2002 |  |                     |             |                    
|$14.50           |  | 128,250             | 9.34        | years              
|$12.42           |  | 45,000              | 8.35        |                    
|$10.17           |  | 423,000             | 4.57        |                    
|$13.73           |  | 53,250              | 5.56        |                    
|$10.17 to $14.50 |  | 649,500             | 5.85        | years              
|                 |  |                     |             |                    
|At June 30, 2001 |  |                     |             |                    
|$12.42           |  | 45,000              | 9.35        | years              
|$10.17           |  | 450,750             | 5.57        |                    
|$13.73           |  | 53,250              | 6.56        |                    
|$10.17 to $13.73 |  | 549,000             | 5.98        | years              
|                 |  |                     |             |                    
|At June 30, 2000 |  |                     |             |                    
|$10.17           |  | 458,250             | 6.57        | years              
|$13.73           |  | 98,250              | 7.56        |                    
|$10.17 to $13.73 |  | 556,500             | 6.74        | years              

At June 30, 2002, 94,533 shares were available for future grants under the Plan.

Additional Stock Option Plan Information



The Corporation has adopted the disclosure requirements of SFAS No. 123"Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the Corporation continues to measure compensation cost in accordance with Accounting Principles Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," but provides pro forma disclosures of net income and earnings per share as if the fair value method (as defined in SFAS No. 123) had been applied.

The Corporation has calculated the fair value of stock-based awards to employees using the Black-Scholes option-pricing model with the following assumptions: 10-year expected life, stock volatility for the past 30 months (27% for grants in fiscal 2002 and 35% for fiscal 2001), risk-free rate of the 10-year Treasury Note (4.42% for grants in fiscal 2002 and 5.73% for fiscal 2001) and no dividends. No stock options were granted in fiscal 2000. The Corporation calculated the fair value only at the time of the stock option grants and no additional computations are performed during the life of the options. Any forfeitures are recognized as they occur.  If the computed fair value of the awards had been amortized to expense over the vesting period of the awards, pro-forma net income, pro-forma basic and proforma diluted earnings per share would have been $8,792, $1.71 and $1.62 per share in fiscal 2002; $8,516, $1.62 and $1.58 per share in fiscal 2001; and $6,868, $1.26 and $1.24 per share in fiscal 2000, respectively.

98

<PAGE>

Notes to Consolidated Financial Statements

---





13.    Earnings Per Share (in Thousands, Except Share Information):

Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the entity. No shares have been excluded from the diluted EPS computations.





|                           | For the Year Ended June 30, 2002
|-------------------------- | --------------------------------
|                           | Income
(numerator)              
|                           |                                 
|Basic EPS                  | $ 9,109                         
|Effect of dilutive shares: |                                 
|                           | Stock options                   
|                           | Restricted stock awards         
|Diluted EPS                | $ 9,109                         





|                           | For the Year Ended June 30, 2001
|-------------------------- | --------------------------------
|                           | Income
(numerator)              
|                           |                                 
|Basic EPS                  | $ 8,886                         
|Effect of dilutive shares: |                                 
|                           | Stock options                   
|                           | Restricted stock awards         
|Diluted EPS                | $ 8,886                         





|                           | For the Year Ended June 30, 2000
|-------------------------- | --------------------------------
|                           | Income
(numerator)              
|                           |                                 
|Basic EPS                  | $ 7,256                         
|Effect of dilutive shares: |                                 
|                           | Stock options                   
|                           | Restricted stock awards         
|Diluted EPS                | $ 7,256                         





14.    Commitments and Contingencies (in Thousands):

The Corporation is involved in various legal matters associated with its normal operations.  In the opinion of management, these matters will be resolved without material effect on the Corporation's financial position, results of operations or cash flows.

99

<PAGE>

Notes to Consolidated Financial Statements

---



The Corporation conducts a portion of its operations in leased facilities under non-cancelable agreements classified as operating leases. The following is a schedule of minimum rental payments under such operating leases which expire at various years:

|Year Ended June 30,             | Amount    
|------------------------------- | ----------
|                                |           
|                                | 2003      
|                                | 2004      
|                                | 2005      
|                                | 2006      
|                                | 2007      
|                                | Thereafter
|Total minimum payments required | $ 1,902   

Lease expense under operating leases was approximately $553, $569 and $632 for the years ended June 30, 2002, 2001 and 2000, respectively.

15.    Derivative and Other Financial Instruments With Off-Balance Sheet Risk (Dollars in  Thousands):

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, and forward loan sale agreements to third parties. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying consolidated balance sheet.  The Corporation's exposure to credit loss, in the event of non-performance by the other party to these financial instruments, is represented by the contractual amount of these instruments.  The Corporation uses the same credit policies in making commitments to extend credit as it does for on-balance sheet instruments.



|                                                        | June 30,
|------------------------------------------------------- | --------
|Commitments                                             | 2002    
|                                                        |         
|Undisbursed loan funds - Construction loans             | $ 30,536
|Undisbursed lines of credit - Commercial business loans | 10,285  
|Undisbursed lines of credit - Consumer loans            | 11,730  
|                                                        | $ 52,551



Commitments to extend credit are agreements to lend money to a customer at some future date as long as all conditions have been met in the agreement.  These commitments generally have expiration dates within 60 days of the commitment date and may require the payment of a fee.  Since some of these commitments are expected to expire, the total commitment amount outstanding does not necessarily represent future cash requirements.  The Corporation evaluates each customer's creditworthiness on a case-by-case basis prior to issuing a commitment.  At June 30, 2002 and 2001, interest rates on commitments to extend credit ranged from 5.13% to 14.00% and 5.50% to 8.75%, respectively. Commitments to extend credit on loans to be held for investment were $18.2 million and $2.0 million at June 30, 2002 and 2001, respectively.

100

<PAGE>

Notes to Consolidated Financial Statements

---



In an effort to minimize its exposure to interest rate fluctuations on commitments to extend credit where the underlying loan will be sold, the Corporation enters into forward loan sale agreements to sell certain dollar amounts of fixed rate and adjustable rate loans to third parties.  These agreements specify the minimum maturity of the loans, the yield to the purchaser, the servicing spread to the Corporation (if servicing is retained), the maximum principal amount of all loans to be delivered and the maximum principal amount of individual loans to be delivered.  The Corporation typically satisfies these forward loan sale agreements with its current loan production; at June 30, 2002 and 2001 the aggregate amount of loans held for sale and of commitments to extend credit on loans to be held for sale exceeded the Corporation's forward loan sale agreements. At June 30, 2002 and 2001, interest rates on forward loan sale agreements ranged from 5.50% to 7.00% and 5.50% to 7.50%, respectively.



In addition to the instruments described above, the Corporation also purchases over-the-counter put option contracts (with expiration dates that generally coincide with the terms of the commitments to extend credit) which mitigates the interest rate risk inherent in commitments to extend credit.  The contract amounts of these instruments reflect the extent of involvement the Corporation has in this particular class of financial instruments.  The Corporation's exposure to loss on these financial instruments is limited to the premiums paid for the put option contracts.  Put options are adjusted to market in accordance with SFAS No. 133.



In accordance with SFAS No. 133 and interpretations of the Derivative Implementation Group, the fair value of the commitments to extend credit on loans to be held for sale, forward loan sale agreements and put option contracts are recorded at fair value on the balance sheet, and are included in other assets or (other liabilities). As of June 30, 2001, commitments to extend credit on loans to be held for sale were not interpreted to be derivatives.  As such, these amounts were not included on the balance sheet as of June 30, 2001. The Corporation is not applying hedge accounting to its derivative financial instruments; therefore, all changes in fair value are recorded in earnings. The net impact of derivative financial instruments on the consolidated statements of operations during the years ended June 30, 2002 and 2001 was $3 and $411, respectively.



|                                                     | June 30, 2002 |  | June 30, 2001 |  
|---------------------------------------------------- | ------------- |  | ------------- | -
|                                                     |               |  | Fair          |  
|Derivative Financial Instruments                     | Amount        |  | Value         |  
|                                                     |               |  |               |  
|Commitments (*) to extend credit on loans to be held |               |  |               |  
|for sale, including servicing released premiums      | $   56,738    |  | $  779        |  
|Forward loan sale agreements                         | 45,709        |  | (237          | )
|Put option contracts                                 | 11,000        |  | 17            |  
|Total                                                | $ 113,447     |  | $  559        |  

(*) Net of an estimated 26.71% of commitments, which may not fund.



16.    Fair Values of Financial Instruments (in Thousands):

The reported fair values of financial instruments are based on various factors. In some cases, fair values represent quoted market prices for identical or comparable instruments. In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows, assumed discount rates and other factors reflecting varying degrees of risk. The estimates are subjective in nature and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Accordingly, the reported fair values may not represent actual values of the financial instruments that could have been realized as of year end or that will be realized in the future. The following methods and assumptions were used to estimate fair value of each class of significant financial instrument:

101

<PAGE>

Notes to Consolidated Financial Statements

---



Cash and due from banks, federal funds sold, interest bearing deposits with banks: The carrying amount of these financial assets approximates the fair value.



Investment securities: The fair value of investment securities is based on quoted market prices or dealer quotes.



Loans held for investment: For loans that reprice frequently at market rates, the carrying amount approximates the fair value. For fixed-rate loans, the fair value is determined by either (i) discounting the estimated future cash flows of such loans, using a current interest rate at which such loans would be made to borrowers over their estimated remaining contractual maturities, or (ii) quoted market prices. The allowance for loan losses is subtracted as an estimate of the underlying credit risk.



Loans held for sale: Fair values for loans are based on quoted market prices.  Forward loan sale agreements have been considered in the determination of the estimated fair value of loans held for sale.



Receivable from sale of loans: The carrying value for the receivable from sale of loans approximates fair value because of the short-term nature of the financial instruments.



Accrued interest receivable/payable: The carrying value for accrued interest receivable/payable approximates fair value because of the short-term nature of the financial instruments.



Federal Home Loan Bank stock: The carrying amount reported for FHLB stock approximates fair value. If redeemed, the Corporation will receive an amount equal to the par value of the stock.



Deposits: The fair value of the deposits is estimated using a discounted cash flow calculation. The discount rate on such deposits is based upon rates currently offered for borrowings of similar remaining maturities.



Borrowings: The fair value of borrowings has been estimated using a discounted cash flow calculation.  The discount rate on such borrowings is based upon rates currently offered for borrowings of similar remaining maturities.



Commitments: Commitments to extend credit on existing obligations are discounted in a manner similar to loans held for investment.



Derivative Financial Instruments: The fair value of the derivative financial instruments are based upon quoted market prices, current market bids, outstanding forward loan sale commitments and estimates from independent pricing sources.

102

<PAGE>

Notes to Consolidated Financial Statements

---

The carrying amount and fair values of the Corporation's financial instruments were as follows:

|                                                 | June 30, 2002 |   | June 30, 2001 
|------------------------------------------------ | ------------- | - | --------------
|                                                 | Carrying      |   | Market        
|                                                 | Amount        |   | Value         
|Financial assets:                                |               |   |               
|Cash and cash equivalents                        | $      27,700 |   | $       27,700
|Investment securities                            | 271,948       |   | 272,531       
|Loans held for investment.                       | 593,554       |   | 605,322       
|Loans held for sale                              | 1,747         |   | 1,781         
|Receivable from sale of loans                    | 67,241        |   | 67,241        
|Accrued interest receivable                      | 5,591         |   | 5,591         
|FHLB stock                                       | 13,000        |   | 13,000        
|                                                 |               |   |               
|Financial liabilities:                           |               |   |               
|Deposits                                         | 677,448       |   | 664,324       
|Borrowings                                       | 202,466       |   | 209,366       
|Accrued interest payable                         | 1,124         |   | 1,124         
|                                                 |               |   |               
|Derivative Financial Instruments:                |               |   |               
|Commitments to extend credit on loans to be held |               |   |               
|for sale, including servicing released premiums  | 779           |   | 779           
|Forward loan sale agreements                     | (237          | ) | (237          
|Put option contracts                             | 17            |   | 17            



103

<PAGE>

Notes to Consolidated Financial Statements

---

17.    Operating Segments (in Thousands):

The following tables illustrate the Corporation's operating segments for the years ended June 30, 2002, 2001 and 2000, respectively.



|                            | Year Ended June 30, 2002             
|--------------------------- | -------------------------------------
|                            | Provident
Bank                       
|                            |                                      
|Net interest income .       | $    23,614                          
|Non-interest income:        |                                      
|                            | Loan servicing and other fees        
|                            | Gain on sale of loans, net           
|                            | Real estate operations, net          
|                            | Deposit account fees                 
|                            | Gain on sale of investment securities
|                            | Other                                
|                            | Total non-interest income            
|                            |                                      
|Non-interest expense:       |                                      
|                            | Salaries and employee benefits.      
|                            | Premises and occupancy               
|                            | Operating and administrative expenses
|                            | Total non-interest expenses          
|Income before income taxes  | 8,005                                
|Provision for income taxes  | 3,326                                
|Net income                  | $     4,679                          
|Total assets, end of period | $ 937,313                            



104

<PAGE>

Notes to Consolidated Financial Statements

---



|                            | Year Ended June 30, 2001             
|--------------------------- | -------------------------------------
|                            | Provident
Bank                       
|                            |                                      
|Net interest income .       | $    25,082                          
|Non-interest income:        |                                      
|                            | Loan servicing and other fees        
|                            | (Loss) gain on sale of loans, net    
|                            | Real estate operations, net          
|                            | Deposit account fees                 
|                            | Gain on sale of investment securities
|                            | Other                                
|                            | Total non-interest income            
|                            |                                      
|Non-interest expense:       |                                      
|                            | Salaries and employee benefits       
|                            | Premises and occupancy               
|                            | Operating and administrative expenses
|                            | Total non-interest expenses          
|Income before income taxes  | 11,542                               
|Provision for income taxes  | 4,812                                
|Net income                  | $     6,730                          
|Total assets, end of period | $ 975,044                            





|                            | Year Ended June 30, 2000             
|--------------------------- | -------------------------------------
|                            | Provident
Bank                       
|                            |                                      
|Net interest income         | $      28,195                        
|Non-interest income:        |                                      
|                            | Loan servicing and other fees        
|                            | Gain on sale of loans, net           
|                            | Real estate operations, net          
|                            | Deposit account fees                 
|                            | Loss on sale of investment securities
|                            | Other                                
|                            | Total non-interest income            
|                            |                                      
|Non-interest expense:       |                                      
|                            | Salaries and employee benefits       
|                            | Premises and occupancy               
|                            | Operating and administrative expenses
|                            | Total non-interest expenses          
|Income before income taxes  | 12,080                               
|Provision for income taxes  | 5,104                                
|Net income                  | $        6,976                       
|Total assets, end of period | $ 1,095,024                          



105

<PAGE>

Notes to Consolidated Financial Statements

---

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



The Corporation's overall internal transfer pricing arrangements determined by management are summarized as follows:

1. Borrowings for Provident Bank Mortgage are indexed monthly to the higher of the three-month FHLB advance rate, plus 50 basis points on the first day of the month or the prior month's overall cost of the Bank's deposits and borrowings.
2. Provident Bank Mortgage receives servicing-released premiums for the loans transferred to the Bank's portfolio equal to the market price of such loans. The servicing-released premiums in the years ended June 30, 2002, 2001 and 2000 were $1,636, $136 and $2,210, respectively.
3. Loan servicing fees are charged by the Bank based on the number of loans held for sale multiplied by a fixed fee which is subject to management's regular review. The loan servicing fees in the years ended June 30, 2002, 2001 and 2000 were $163, $216 and $70, respectively.
4. Office rents for Provident Bank Mortgage offices, which are located at the Bank offices, are internally charged based on the square footage. The total office rents were $93 each fiscal year.
5. A management fee, which is subject to regular review, is charged to Provident Bank Mortgage for services provided by Provident Bank. The management fee in the years ended June 30, 2002, 2001 and 2000 was $360, $240 and $240, respectively.





18.    Holding Company Condensed Financial Information (in Thousands):





This information should be read in conjunction with the other notes to the consolidated financial statements. The following is the condensed balance sheet for Provident Financial Holdings, Inc. (Holding Company only) as of    June 30, 2002 and 2001 and condensed statements of operations and cash flows for each of the three years in the period ended June 30, 2002, 2001 and 2000.

Condensed Balance Sheets

|                                     | June 30,                
|------------------------------------ | ------------------------
|                                     | 2002                    
|                                     |                         
|Assets                               |                         
|                                     | Cash                    
|                                     | Investment in subsidiary
|                                     | Other assets            
|                                     | $ 103,046               
|                                     |                         
|Liabilities and Stockholders' Equity |                         
|                                     | Other liabilities       
|                                     | Stockholders' equity    
|                                     | $ 103,046               

106

<PAGE>

Notes to Consolidated Financial Statements

---

Condensed Statements of Operations

|                                         | Year Ended June 30,                                          
|---------------------------------------- | -------------------------------------------------------------
|                                         | 2002                                                         
|                                         |                                                              
|Interest and other income                | $    268                                                     
|General and administrative expenses      | 315                                                          
|                                         | (Loss) income before equity in net earnings of the subsidiary
|Equity in net earnings of the subsidiary | 9,214                                                        
|                                         | Income before income taxes                                   
|                                         | Income taxes                                                 
|                                         | Net income                                                   



Condensed Statements of Cash Flows

|                                                           | Year Ended June 30,                                         
|---------------------------------------------------------- | ------------------------------------------------------------
|                                                           | 2002                                                        
|                                                           |                                                             
|Cash flows from operating activities:                      |                                                             
|                                                           | Net income                                                  
|Adjustments to reconcile net income to net cash (used for) |                                                             
|                                                           | provided by operating activities:                           
|                                                           | Equity in net earnings of the subsidiary                    
|                                                           | Depreciation and amortization                               
|                                                           | Net loss on sale of investment securities                   
|                                                           | Decrease (increase) in other assets                         
|                                                           | Decrease in other liabilities                               
|                                                           | Net cash provided by (used for) operating activities        
|                                                           |                                                             
|Cash flow from investing activities:                       |                                                             
|                                                           | Purchase of investment securities held to maturity          
|                                                           | Maturity of investment securities held to maturity          
|                                                           | Purchase of investment securities available for sale        
|                                                           | Sales of investment securities available for sale           
|                                                           | Dividends received from the Bank                            
|                                                           | Capital injection to the Bank                               
|                                                           | Net cash provided by investing activities                   
|                                                           |                                                             
|Cash flow from financing activities:                       |                                                             
|                                                           | Exercise of stock options                                   
|                                                           | Treasury stock purchases                                    
|                                                           | Cash dividends in lieu of fractional shares from stock split
|                                                           | Net cash used for financing activities                      
|Net (decrease) increase in cash during the year            | (62                                                         
|Cash and cash equivalents, beginning of year               | 319                                                         
|Cash and cash equivalents, end of year                     | $    257                                                    

107

<PAGE>

Notes to Consolidated Financial Statements

---

19.    Quarterly Results of Operations (Unaudited, in Thousands, Except Share Information):

The following tables set forth the quarterly financial data, which were derived from the consolidated financial statements presented in Form 10-Qs, for the fiscal years ended June 30, 2002 and 2001.

|                                         | For Fiscal Year 2002
|---------------------------------------- | --------------------
|                                         | For the             
|                                         | Year Ended          
|                                         | June 30,            
|                                         | 2002                
|                                         |                     
|Interest income                          | $ 65,668            
|Interest expense                         | 39,188              
|Net interest income                      | 26,480              
|                                         |                     
|Provision for loan losses                | 525                 
|Net interest income, after provision for |                     
|loan losses                              | 25,955              
|                                         |                     
|Non-interest income                      | 16,442              
|Non-interest expense                     | 26,806              
|Income before income taxes               | 15,591              
|                                         |                     
|Provision for income taxes               | 6,482               
|Net income                               | $   9,109           
|                                         |                     
|Basic earnings per share                 | $         1.77      
|Diluted earnings per share               | $         1.68      

108

<PAGE>

Notes to Consolidated Financial Statements

---



|                                         | For Fiscal Year 2001
|---------------------------------------- | --------------------
|                                         | For the             
|                                         | Year Ended          
|                                         | June 30,            
|                                         | 2001                
|                                         |                     
|Interest income                          | $ 80,797            
|Interest expense                         | 54,456              
|Net interest income                      | 26,341              
|                                         |                     
|Provision for loan losses                | -                   
|Net interest income, after provision for |                     
|loan losses                              | 26,341              
|                                         |                     
|Non-interest income                      | 13,967              
|Non-interest expense                     | 25,068              
|Income before income taxes               | 15,240              
|                                         |                     
|Provision for income taxes               | 6,354               
|Net income                               | $   8,886           
|                                         |                     
|Basic earnings per share                 | $         1.69      
|Diluted earnings per share               | $         1.65      

20.    Subsequent Events (Dollars In Thousands, Except Share Information):

Staff reorganization:
On July 12, 2002, the Corporation reorganized its staffing levels by reducing its workforce approximately 10%, or by approximately 34 full-time equivalents. The total severance costs were $89. The staff reorganization was based on the Corporation's recent benchmarking study on productivity.

Cash dividends:
On July 24, 2002, the Corporation's Board of Directors declared a quarterly cash dividend of $0.05 per share on the Corporation's outstanding shares of common stock.  The total shares outstanding as of the August 7, 2002 record date were 5,425,757; and the total cash dividend of $271 was paid on August 30, 2002.



109

<PAGE>







EXHIBIT 21



Subsidiaries of the Registrant

<PAGE>





Parent



Provident Financial Holdings, Inc.



Percentage
Jurisdiction orSubsidiaries
of Ownership
State of IncorporationProvident Savings Bank, F.S.B.
100%
United StatesProvident Financial Corporation (1)
100%
CaliforniaProfed Mortgage, Inc. (1) (2)
100%
CaliforniaFirst Service Corporation (1) (2)
100%
California




(1)    This corporation is a wholly owned subsidiary of Provident Savings Bank, F.S.B.



(2)    Currently inactive.



<PAGE>





EXHIBIT 23.1



Independent Auditors' Consent



<PAGE>



INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No. 333-30935 of Provident Financial Holdings, Inc. on Form S-8 of our report dated August 13, 2002, appearing in this Annual Report on Form 10-K of Provident Financial Holdings, Inc., for the year ended June 30, 2002.



/s/ Deloitte & Touche LLP
Costa Mesa, California
September 26, 2002

<PAGE>







EXHIBIT 23.2



Independent Auditors' Consent

<PAGE>





CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-30935) of Provident Financial Holdings, Inc. of our report dated August 4, 2000 relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K.



/s/PricewaterhouseCoopers LLP
Los Angeles, CA
September 26, 2002

<PAGE>





<PAGE>

EXHIBIT 99.1

Certification letters per Section 906 of the Sarbanes-Oxley Act of 2002


<PAGE>CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report on Form 10-K of Provident Financial Holdings, Inc. ("the Company") for the period ending June 30, 2002 (the "Report"), I, Craig G. Blunden, Chairman, President and Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: September 26, 2002                                                      /s/Craig G. Blunden
                                                                                                  Craig G. Blunden 
                                                                                                                      Chairman, President and Chief Executive Officer

<PAGE>



CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER 
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Annual Report on Form 10-K of Provident Financial Holdings, Inc. ("the Company") for the period ending June 30, 2002 (the "Report"), I, Donavon P. Ternes, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:



1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: September 26, 2002                                                                                 /s/Donavon P. Ternes
                                                                                                                            Donavon P. Ternes                                                                                                                                                Chief Financial Officer

<PAGE>