EX-13 2 prov-2015630x10kxex13.htm EXHIBIT 13 Exhibit


EXHIBIT 13

2015 Annual Report to Stockholders































2015 Annual Report






Message From the Chairman


Dear Shareholders:
 
It is my pleasure to forward our Annual Report for fiscal 2015. We reported net income of $9.8 million, or $1.07 per diluted share, and a return on equity of 6.8%, which is significantly better than last year. As I described in my message last year, we were well-positioned to execute on our corporate strategies and our improved financial results reflect our ability to monetize a combination of generally better economic conditions and improved mortgage banking fundamentals during fiscal 2015. In fact, our pre-tax income was much more evenly distributed between our operating segments with community banking contributing $9.1 million and mortgage banking contributing $8.0 million in fiscal 2015. We are pleased with the progress we are making to improve the financial results of each operating segment and believe more progress can be made by executing on our multi-year objectives.
The fiscal 2015 Business Plan for Provident Bank forecast growth in loans held for investment, growth in retail deposits (primarily core deposits), control of operating expenses, and sound capital management decisions. For Provident Bank Mortgage, we established goals to change our product offerings consistent with the changing market, to increase the percentage of purchase money origination volume, to lower our operating expenses and to update our systems, policies and practices consistent with the regulatory changes scheduled to take effect in October 2015.
I am pleased to report that we have made progress in all of these specific initiatives. For Provident Bank, loan originations and purchases for the held for investment portfolio were $175.1 million in fiscal 2015, a four percent increase from $168.0 million in fiscal 2014, resulting in a five percent increase in loans held for investment; the core deposits balance increased by $51.4 million or 10% at June 30, 2015 from the same date last year; operating expenses increased by $3.8 million or seven percent from the prior year but our efficiency ratio improved to 79% in fiscal 2015 from 87% last year denoting that the growth in revenue outpaced the rise in operating expenses; finally, we paid a quarterly cash dividend of $0.11 per share in the first three quarters and $0.12 per share in the fourth quarter of fiscal 2015 while repurchasing approximately 785,000 shares of our common stock.
Additionally, in fiscal 2015, Provident Bank Mortgage originated $2.5 billion of loans held for sale a 26% increase from fiscal 2014, with 43% originated from purchase money transactions and 57% from refinance transactions. Also, while the operating expenses in our mortgage banking business were essentially unchanged from the prior year, revenue increased by approximately $9.9 million reversing the prior year’s pre-tax loss. We are also well on our way to the successful implementation of the changes needed to comply with the regulatory requirements by the October 2015 deadline.

Provident Bank
We remain committed to the long-term strategies implemented in prior years that we believe will improve our fundamental performance. For example, the percentage of investment securities to total assets continues to decline, the percentage of loans held for investment to total assets continues to increase and the percentage of preferred loans (multi-family, commercial real estate, construction and commercial business) to loans held for investment continues to grow. We intend to grow the Company with more aggressive goals this year but will remain disciplined in our execution, returning capital to shareholders in the form of cash dividends and common stock repurchases to the extent our opportunities are limited by overly aggressive competitors.
Similar to last year, during the course of fiscal 2016, we will emphasize prudent increases in loans held for investment; the growth of retail deposits (primarily transaction accounts); diligent control of operating expenses; and sound capital management decisions. We believe that successful execution of these strategies will enhance our franchise value while limiting our risk profile.
  
Provident Bank Mortgage
We have made significant progress in adjusting our mortgage banking business model to current market fundamentals. During the course of fiscal 2015, we opened one and closed two mortgage banking retail offices and kept the total number of mortgage banking employees essentially unchanged from the prior year. In fiscal 2016, we plan to: change our product offerings commensurate with the changing market; continue our focus on purchase money originations versus refinance originations; make changes to our operating expenses consistent with the changing market; and respond to the significant changes in regulatory requirements scheduled to take effect in October 2015.






A Final Word
In less than one year we will be celebrating the 60th Anniversary of our Company. As I reflect on the history of the Company, I can recall many important milestones such as, exceeding one billion dollars in total assets, becoming a publicly traded company, growing to over 500 employees, and successfully navigating through the Great Recession, among many others. But one thing stands out to me during our entire 60 year history: first and foremost we are a community bank and we have never forgotten that our success comes from fulfilling the needs of the businesses and families in the communities we serve. As I think about our community bank heritage, I’m reminded of a quote I once heard, “Write this on a rock…small businesses and community banks are the twin pillars of America’s Main Street economy.” A bit dramatic but I believe it to be true nonetheless. We differentiate our Company from the Wall Street banks and other interlopers by making local decisions and standing shoulder-to-shoulder with local leaders and residents to build a better community. I can describe many instances where our Company, directors, officers and staff have been instrumental in helping a particular project come to fruition for the betterment of the community. Why does it matter? Here’s what I know, engaging the community generates goodwill and a loyal customer base with diverse needs and preferences. Our goal is to meet those diverse needs and preferences when indifferent Wall Street banks can’t or won’t. By doing so, we will enhance and strengthen the franchise value of our Company along the way.
In closing, I wish to thank our staff of banking professionals for their ongoing commitment and dedication; and express my appreciation for the support we receive from customers and shareholders.
 
Sincerely,
 
 
/s/ Craig G. Blunden
Craig G. Blunden
Chairman and Chief Executive Officer









































Financial Highlights

The following tables set forth information 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,
(In Thousands, Except Per Share Information)
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
 
 
 
 
 
 
 
FINANCIAL CONDITION DATA:
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,174,555

 
$
1,105,629

 
$
1,211,041

 
$
1,260,917

 
$
1,313,724

Loans held for investment, net
 
814,234

 
772,141

 
748,397

 
796,836

 
881,610

Loans held for sale, at fair value
 
224,715

 
158,883

 
188,050

 
231,639

 
191,678

Cash and cash equivalents
 
81,403

 
118,937

 
193,839

 
145,136

 
142,550

Investment securities
 
14,961

 
17,147

 
19,510

 
22,898

 
26,193

Deposits
 
924,086

 
897,870

 
923,010

 
961,411

 
945,767

Borrowings
 
91,367

 
41,431

 
106,491

 
126,546

 
206,598

Stockholders’ equity
 
141,137

 
145,862

 
159,974

 
144,777

 
140,918

Book value per share
 
16.35

 
15.66

 
15.40

 
13.34

 
12.34

 
 
 
 
 
 
 
 
 
 
 
OPERATING DATA:
 
 

 
 

 
 

 
 

 
 

Interest income
 
$
39,696

 
$
38,059

 
$
44,161

 
$
51,435

 
$
58,689

Interest expense
 
6,421

 
7,336

 
10,804

 
14,705

 
20,940

Net interest income
 
33,275

 
30,723

 
33,357

 
36,730

 
37,749

(Recovery) provision for loan losses
 
(1,387
)
 
(3,380
)
 
(1,499
)
 
5,777

 
5,465

Net interest income after (recovery) provision for loan losses
 
34,662

 
34,103

 
34,856

 
30,953

 
32,284

Loan servicing and other fees
 
1,085

 
1,077

 
1,093

 
733

 
892

Gain on sale of loans, net
 
34,210

 
25,799

 
68,493

 
38,017

 
31,194

Deposit account fees
 
2,412

 
2,469

 
2,449

 
2,438

 
2,504

Gain (loss) on sale and operations of real estate
owned acquired in the settlement of loans, net
 
282

 
18

 
916

 
(120
)
 
(1,351
)
Gain on sale of premises and equipment
 

 

 

 

 
1,089

Card and processing fees
 
1,406

 
1,370

 
1,292

 
1,282

 
1,274

Other non-interest income
 
992

 
942

 
957

 
800

 
755

Operating expenses
 
57,969

 
54,168

 
67,343

 
55,365

 
45,372

Income before income taxes
 
17,080

 
11,610

 
42,713

 
18,738

 
23,269

Provision for income taxes
 
7,277

 
5,004

 
16,916

 
7,928

 
10,049

Net income
 
$
9,803

 
$
6,606

 
$
25,797

 
$
10,810

 
$
13,220

Basic earnings per share
 
$
1.09

 
$
0.67

 
$
2.43

 
$
0.96

 
$
1.16

Diluted earnings per share
 
$
1.07

 
$
0.65

 
$
2.38

 
$
0.96

 
$
1.16

Cash dividend per share
 
$
0.45

 
$
0.40

 
$
0.24

 
$
0.14

 
$
0.04









Financial Highlights
 
 
At or For The Year Ended June 30,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
KEY OPERATING RATIOS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance Ratios
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
0.87
%
 
0.58
%
 
2.09
%
 
0.84
%
 
0.97
%
Return on average stockholders’ equity
 
6.81

 
4.31

 
16.80

 
7.58

 
9.80

Interest rate spread
 
2.96

 
2.69

 
2.69

 
2.83

 
2.76

Net interest margin
 
3.03

 
2.79

 
2.80

 
2.95

 
2.90

Average interest-earning assets to average interest-bearing liabilities
 
113.02

 
113.54

 
112.46

 
110.53

 
108.31

Operating and administrative expenses as a percentage of average total assets
 
5.12

 
4.75

 
5.44

 
4.29

 
3.33

Efficiency ratio(1)
 
78.70

 
86.81

 
62.03

 
69.31

 
61.23

Stockholders’ equity to total assets ratio
 
12.02

 
13.19

 
13.21

 
11.48

 
10.73

Dividend payout ratio
 
42.06

 
61.54

 
10.08

 
14.58

 
3.45

 
 
 
 
 
 
 
 
 
 
 
The Corporation's Regulatory Capital Ratios(2)
 
 

 
 

 
 

 
 

 
 

Tier 1 leverage capital (to adjusted average assets)
 
11.94
%
 
N/A
 
N/A
 
N/A
 
N/A
CET1 capital (to risk-weighted assets)
 
19.24

 
N/A
 
N/A
 
N/A
 
N/A
Tier 1 capital (to risk-weighted assets)
 
19.24

 
N/A
 
N/A
 
N/A
 
N/A
Total capital (to risk-weighted assets)
 
20.49

 
N/A
 
N/A
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
The Bank's Regulatory Capital Ratios(2)
 
 

 
 

 
 

 
 

 
 

Tier 1 leverage capital (to adjusted average assets)
 
10.68
%
 
12.53
%
 
13.12
%
 
11.26
%
 
10.47
%
CET1 capital (to risk-weighted assets)
 
17.22

 
N/A
 
N/A
 
N/A
 
N/A
Tier 1 capital (to risk-weighted assets)
 
17.22

 
18.72

 
21.36

 
17.53

 
16.22

Total capital (to risk-weighted assets)
 
18.47

 
19.98

 
22.64

 
18.79

 
17.48

 
 
 
 
 
 
 
 
 
 
 
Asset Quality Ratios
 
 

 
 

 
 

 
 

 
 

Non-performing loans as a percentage of loans held for investment, net
 
1.71
%
 
2.06
%
 
2.90
%
 
4.33
%
 
4.21
%
Non-performing assets as a percentage of total assets
 
1.39

 
1.66

 
1.98

 
3.17

 
3.46

Allowance for loan losses as a percentage of gross loans held for investment
 
1.06

 
1.25

 
1.96

 
2.63

 
3.34

Allowance for loan losses as a percentage of gross non-performing loans
 
59.77

 
55.73

 
58.77

 
52.45

 
59.49

Net (recoveries) charge-offs to average loans receivable, net
 
(0.04
)
 
0.21

 
0.51

 
1.38

 
1.67


(1) 
Non-interest expense as a percentage of net interest income and non-interest income.
(2) 
On January 1, 2015 the Corporation and the Bank implemented the Basel III capital protocol consistent with regulatory requirements which were not applicable in prior periods.







Shareholder Information

 
ANNUAL MEETING

The annual meeting of shareholders will be held at the Riverside Art Museum at 3425 Mission Inn Avenue, Riverside, California on Thursday, November 19, 2015 at 11:00 a.m. (Pacific).  A formal notice of the meeting, together with a proxy statement and proxy form, will be mailed to shareholders.


CORPORATE OFFICE

Provident Financial Holdings, Inc.
3756 Central Avenue
Riverside, CA 92506
(951) 686-6060


INTERNET ADDRESS

www.myprovident.com


SPECIAL COUNSEL

Breyer & Associates PC
8180 Greensboro Drive, Suite 785
McLean, VA 22102
(703) 883-1100


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Deloitte & Touche LLP
695 Town Center Drive, Suite 1200
Costa Mesa, CA 92626-7188
(714) 436-7100


TRANSFER AGENT

Computershare, Inc.
P.O. Box 43078
Providence, RI 02940
(800) 942-5909


MARKET INFORMATION

Provident Financial Holdings, Inc. is traded on the NASDAQ Global Select Market under the symbol PROV.







FINANCIAL INFORMATION

Requests for copies of the Form 10-K and Forms 10-Q filed with the Securities and Exchange Commission should be directed in writing to:

Donavon P. Ternes
President, COO and CFO
Provident Financial Holdings, Inc.
3756 Central Avenue
Riverside, CA 92506


CORPORATE PROFILE

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.  The Corporation does not engage in any significant activity other than holding the stock of the Bank.  The Bank serves the banking needs of select communities in Riverside and San Bernardino Counties and has mortgage lending operations in Southern and Northern California.







Board of Directors and Senior Officers

Board of Directors
 
Senior Officers
 
 
 
Joseph P. Barr, CPA
 
Provident Financial Holdings, Inc.
Principal
 
 
Swenson Accountancy Corporation
 
Craig G. Blunden
 
 
Chairman and Chief Executive Officer
Bruce W. Bennett
 
 
Retired Health Care Executive
 
Donavon P. Ternes
Private Investor
 
President, Chief Operating Officer and
 
 
Chief Financial Officer
Craig G. Blunden
 
Corporate Secretary
Chairman and Chief Executive Officer
 
 
Provident Financial Holdings, Inc.
 
Provident Bank
Provident Bank
 
 
 
 
Craig G. Blunden
Judy A. Carpenter
 
Chairman and Chief Executive Officer
President and Chief Operating Officer
 
 
Riverside Medical Clinic
 
Richard L. Gale
 
 
Senior Vice President
Debbi H. Guthrie
 
Provident Bank Mortgage
Executive Vice President,
 
 
Chief Financial Officer and
 
Deborah L. Hill
Chief Operations Officer
 
Senior Vice President
Raincross Hospitality Corporation
 
Chief Human Resources and
 
 
Administrative Officer
Roy H. Taylor
 
 
Chief Executive Officer
 
Lilian Salter
Hub International of California, Inc.
 
Senior Vice President
 
 
Chief Information Officer
William E. Thomas, Esq.
 
 
Principal
 
Donavon P. Ternes
William E. Thomas, Inc.,
 
President, Chief Operating Officer and
A Professional Law Corporation
 
Chief Financial Officer
 
 
Corporate Secretary
 
 
 
 
 
David S. Weiant
 
 
Senior Vice President
 
 
Chief Lending Officer
 
 
 
 
 
Gwendolyn L. Wertz
 
 
Senior Vice President
 
 
Retail Banking
 
 
 
 
 
 
 
 
 
 
 
 







Provident Locations
 
 
 
 
RETAIL BANKING CENTERS
 
WHOLESALE MORTGAGE OFFICES
 
 
 
Blythe
 
Pleasanton
350 E. Hobson Way
 
5934 Gibraltar Drive, Suite 102
Blythe, CA 92225
 
Pleasanton, CA 94588
 
 
 
Canyon Crest
 
Rancho Cucamonga
5225 Canyon Crest Drive, Suite 86
 
10370 Commerce Center Drive, Suite 200
Riverside, CA 92507
 
Rancho Cucamonga, CA 91730
 
 
 
Corona
 
 
487 Magnolia Avenue, Suite 101
 
RETAIL MORTGAGE OFFICES
Corona, CA 92879
 
 
 
 
Carlsbad
Corporate Office
 
2888 Loker Avenue East, Suite 202
3756 Central Avenue
 
Carlsbad, CA 92010
Riverside, CA 92506
 
 
 
 
City of Industry
Downtown Business Center
 
18725 East Gale Avenue, Suite 100
4001 Main Street
 
City of Industry, CA 91748
Riverside, CA 92501
 
 
 
 
Elk Grove
Hemet
 
9245 Laguna Springs Drive, Suite 130
1690 E. Florida Avenue
 
Elk Grove, CA 95758
Hemet, CA 92544
 
 
 
 
Escondido
Iris Plaza
 
362 West Mission Avenue, Suite 200
16110 Perris Boulevard, Suite K
 
Escondido, CA 92025
Moreno Valley, CA 92551
 
 
 
 
Glendora
La Quinta
 
1200 East Route 66, Suite 102
78752 Highway 111
 
Glendora, CA 91740
La Quinta, CA 92253
 
 
 
 
Livermore
La Sierra
 
2578 Old First Street
3312 La Sierra Avenue, Suite 105
 
Livermore, CA 94550
Riverside, CA 92503
 
 
 
 
Rancho Cucamonga
Moreno Valley
 
10370 Commerce Center Drive, Suite 110
12460 Heacock Street
 
Rancho Cucamonga, CA 91730
Moreno Valley, CA 92553
 
 





 
 
Riverside, Canyon Crest Drive
Orangecrest
 
5225 Canyon Crest Drive, Suite 86
19348 Van Buren Boulevard, Suite 119
 
Riverside, CA 92507
Riverside, CA 92508
 
 
 
 
Riverside, Indiana Avenue
Rancho Mirage
 
7111 Indiana Avenue, Suite 200
71991 Highway 111
 
Riverside, CA 92504
Ranch Mirage, CA 92270
 
 
 
 
Riverside, Riverside Avenue
Redlands
 
6529 Riverside Avenue, Suite 160
125 E. Citrus Avenue
 
Riverside, CA 92506
Redlands, CA 92373
 
 
 
 
Roseville
Sun City
 
2998 Douglas Boulevard, Suite 105
27010 Sun City Boulevard
 
Roseville, CA 95661
Sun City, CA 92586
 
 
 
 
Santa Barbara
Temecula
 
3710 State Street, Suite B

40705 Winchester Road, Suite 6
 
Santa Barbara, CA 93105
Temecula, CA 92591
 
 
 
 
Westlake Village
 
 
2659 Townsgate Road, Suite 105
 
 
Westlake Village, CA 91361
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer Information 1-800-442-5201 or www.myprovident.com




















































Corporate Office
3756 Central Avenue, Riverside, CA 92506
(951) 686-6060

www.myprovident.com

NASDAQ Global Select Market - PROV