EX-13 2 prov10k2020exh13.htm EXHIBIT 13
EXHIBIT 13

2020 Annual Report to Stockholders






















2020 Annual Report

Message From the Chairman


Dear Shareholders:

I am pleased to forward our Annual Report for fiscal 2020.  Last year at this time, I wrote in the Chairman’s Message that “a well-positioned Company must also be ready for future challenges” and I went on to describe that several economists with various theories were suggesting that the U.S. could see the start of a recession in 2020 or 2021.  When I wrote those words, I wanted to convey that the Company takes risk management seriously and believes it is well-prepared to face future challenges that may arise from economic weakness.  Unfortunately, the forecasts were prescient with regard to an impending recession.  We are now in a significant economic slump as a result of the COVID-19 pandemic with poor visibility of what the immediate future may hold for financial institutions in general and the Company in particular.  A situation such as this is the reason the Company places such importance on our risk management oversight which is demonstrated by our robust capital levels, conservative credit culture, and strong liquidity position.

Fiscal 2020
Overall, our fiscal 2020 financial results, described on the following Financial Highlights pages, improved from last year.  However, it should be noted that a strong first half of the fiscal year was thrown off course by the poor economic environment which developed in the second half of our fiscal year.  Nonetheless, we demonstrated significant improvement in notable performance ratios such as the return on average assets, the return on average stockholders’ equity, and the efficiency ratio compared to last year.  Just as important, net income improved by 74 percent.
Last year, I described that our fiscal 2020 Business Plan forecast disciplined growth in loans held for investment, growth in retail deposits (primarily core deposits), control of operating expenses, and sound capital management decisions.
I am pleased to report that we have made progress on each of these initiatives.  Loan originations and purchases for the held for investment portfolio were $248.1 million in fiscal 2020, a 45 percent increase from fiscal 2019.  Unfortunately, an increase in loan prepayments depressed the growth rate of loans held for investment to the low single digits.  Core deposits, one of the most valuable assets of a banking franchise, increased by $74.9 million or 12 percent at June 30, 2020 from the same date last year; operating expenses for fiscal 2020 decreased by a remarkable 31 percent from the prior year (after adjusting for the reversion of non-recurring litigation settlement expenses in fiscal 2020 and the non-recurring expenses associated with scaling back the saleable single-family mortgage operations in fiscal 2019); and, we paid a quarterly cash dividend of $0.14 per share in fiscal 2020 while repurchasing approximately 66,000 shares of our common stock quarterly cash dividend of $0.14 per share in fiscal 2020 while repurchasing approximately 66,000 shares of our common stock.

Fiscal 2021
Similar to this past year, we plan to emphasize disciplined growth in loans held for investment (although we will not pursue growth at any cost); the continued growth of core deposits; diligent control of operating expenses; and sound capital management decisions.  We plan to return capital to shareholders in the form of cash dividends and believe that maintaining our cash dividend is very important to shareholders.  Doing so takes priority over common stock repurchases although we will monitor developing economic conditions and the potential impact to the Company to determine if common stock repurchases should once again become a prudent part of our capital management plans for fiscal 2021.  We are committed to single-family, multi-family, and commercial real estate mortgage lending as our primary sources of asset growth, however, in response to the uncertain economic environment, we will also work toward deploying excess liquidity by investing in lower-risk investment securities which will augment our strong liquidity profile.  Similarly, we intend to increase the percentage of lower cost checking and savings accounts and decrease the percentage of time deposits in our deposit base while still growing total deposits.  This strategy is intended to improve core revenue, over time, through a higher net interest margin and ultimately, coupled with the growth of the Company, an increase in net interest income.

A Final Word
I am pleased with how we have positioned the Company and am confident that our strong financial foundation will weather the current economic weakness and allow us to capitalize on future opportunities as they develop.  We are well-positioned to compete in the communities we serve and have thus far been able to navigate the COVID-19 pandemic reasonably well.

In closing, I would like to thank our staff of banking professionals for their dedication to Provident.  They are working diligently to support our customers and communities under unprecedented circumstances.  I would also like to thank the Board of Directors for its leadership, wisdom and guidance.
Most importantly, I would like to thank our customers and shareholders for your commitment to Provident.  To all of you, we appreciate your patronage and encouragement and we will continue to do everything we can at every opportunity to earn your business and your trust.  Thank you.


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)
  
2020
  
2019
  
2018
  
2017
  
2016
                 
FINANCIAL CONDITION DATA:
                    
Total assets
  
$
1,176,837
    
$
1,084,850
    
$
1,175,549
    
$
1,200,633
    
$
1,171,381
  
Loans held for investment, net
  
902,796
    
879,925
    
902,685
    
904,919
    
840,022
  
Loans held for sale, at fair value
  
—
    
—
    
96,298
    
116,548
    
189,458
  
Cash and cash equivalents
  
116,034
    
70,632
    
43,301
    
72,826
    
51,206
  
Investment securities
  
123,344
    
100,059
    
95,309
    
69,759
    
51,522
  
Deposits
  
892,969
    
841,271
    
907,598
    
926,521
    
926,384
  
Borrowings
  
141,047
    
101,107
    
126,163
    
126,226
    
91,299
  
Stockholders’ equity
  
123,976
    
120,641
    
120,457
    
128,230
    
133,451
  
Book value per share
  
16.67
    
16.12
    
16.23
    
16.62
    
16.73
  
                     
OPERATING DATA:
                    
Interest income
  
$
42,456
    
$
44,378
    
$
42,712
    
$
42,417
    
$
39,304
  
Interest expense
  
6,055
    
6,208
    
6,412
    
6,679
    
6,975
  
Net interest income
  
36,401
    
38,170
    
36,300
    
35,738
    
32,329
  
Provision (recovery) for loan losses
  
1,119
    
(475
)
  
(536
)
  
(1,042
)
  
(1,715
)
Net interest income after provision (recovery) for
    loan losses
  
35,282
    
38,645
    
36,836
    
36,780
    
34,044
  
Loan servicing and other fees
  
819
    
1,051
    
1,575
    
1,251
    
1,068
  
(Loss) gain on sale of loans, net
  
(132
)
  
7,135
    
15,802
    
25,680
    
31,521
  
Deposit account fees
  
1,610
    
1,928
    
2,119
    
2,194
    
2,319
  
Loss on sale and operations of real estate owned
acquired in the settlement of loans, net
  
—
    
(4
)
  
(86
)
  
(557
)
  
(95
)
Card and processing fees
  
1,454
    
1,568
    
1,541
    
1,451
    
1,448
  
Other non-interest income
  
769
    
833
    
944
    
802
    
800
  
Operating expenses
  
28,900
    
45,236
    
53,204
    
58,785
    
58,259
  
Income before income taxes
  
10,902
    
5,920
    
5,527
    
8,816
    
12,846
  
Provision for income taxes
  
3,213
    
1,503
    
3,396
    
3,609
    
5,372
  
Net income
  
$
7,689
    
$
4,417
    
$
2,131
    
$
5,207
    
$
7,474
  
Basic earnings per share
  
$
1.03
    
$
0.59
    
$
0.28
    
$
0.66
    
$
0.90
  
Diluted earnings per share
  
$
1.01
    
$
0.58
    
$
0.28
    
$
0.64
    
$
0.88
  
Cash dividend per share
  
$
0.56
    
$
0.56
    
$
0.56
    
$
0.52
    
$
0.48
  



Financial Highlights
   
At or For The Year Ended June 30,
   
2020
  
2019
  
2018
  
2017
  
2016
                     
KEY OPERATING RATIOS:
                    
                     
Performance Ratios
                    
Return on average assets
  
0.69
%
  
0.39
%
  
0.18
%
  
0.43
%
  
0.64
%
Return on average stockholders’ equity
  
6.26
    
3.63
    
1.73
    
3.94
    
5.43
  
Interest rate spread
  
3.30
    
3.40
    
3.13
    
3.00
    
2.78
  
Net interest margin
  
3.36
    
3.47
    
3.19
    
3.06
    
2.85
  
Average interest-earning assets to average interest-
    bearing liabilities
  
111.32
    
111.14
    
110.66
    
111.16
    
111.75
  
Operating and administrative expenses as a
    percentage of average total assets
  
2.59
    
4.00
    
4.54
    
4.90
    
4.98
  
Efficiency ratio(1)
  
70.62
    
89.26
    
91.42
    
88.32
    
83.96
  
Stockholders’ equity to total assets ratio
  
10.53
    
11.12
    
10.25
    
10.68
    
11.39
  
Dividend payout ratio
  
55.45
    
96.55
    
200.00
    
81.25
    
54.55
  
                     
The Bank's Regulatory Capital Ratios
                    
Tier 1 leverage capital (to adjusted average assets)
  
10.13
%
  
10.50
%
  
9.96
%
  
9.90
%
  
10.29
%
CET1 capital (to risk-weighted assets)
  
17.51
    
18.00
    
16.81
    
16.14
    
16.16
  
Tier 1 capital (to risk-weighted assets)
  
17.51
    
18.00
    
16.81
    
16.14
    
16.16
  
Total capital (to risk-weighted assets)
  
18.76
    
19.13
    
17.90
    
17.28
    
17.36
  
                     
Asset Quality Ratios
                    
Non-performing loans as a percentage of loans held
    for investment, net
  
0.55
%
  
0.71
%
  
0.67
%
  
0.88
%
  
1.23
%
Non-performing assets as a percentage of total
    assets
  
0.42
    
0.57
    
0.59
    
0.80
    
1.11
  
Allowance for loan losses as a percentage of gross
    loans held for investment
  
0.91
    
0.80
    
0.81
    
0.88
    
1.02
  
Net (recoveries) charge-offs to average loans
    receivable, net
  
(0.01
)
  
(0.02
)
  
0.01
    
(0.04
)
  
(0.17
)

(1)
Non-interest expense as a percentage of net interest income and non-interest income.



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 Tuesday, November 24, 2020 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 1000
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 California.





Board of Directors and Senior Officers

Board of Directors
  
Senior Officers
     
Joseph P. Barr, CPA
  
Provident Financial Holdings, Inc.
Partner Emeritus
    
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,
   
Chief Financial Officer, and
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
  
Deborah L. Hill
   
Senior Vice President
Debbi H. Guthrie
  
Chief Human Resources and
Retired Executive
  
Administrative Officer
Raincross Hospitality Corporation
    
   
Robert "Scott" Ritter
Roy H. Taylor
  
Senior Vice President
Retired Executive
  
Single-Family Division
Hub International of California, Inc.
    
   
Lilian Salter
William E. Thomas, Esq.
  
Senior Vice President
Executive Vice President and General Counsel
  
Chief Information Officer
The KPC Group
    
   
Donavon P. Ternes
   
President, Chief Operating Officer,
   
Chief Financial Officer, and
   
Corporate Secretary
     
   
David S. Weiant
   
Senior Vice President
   
Chief Lending Officer
     
   
Gwendolyn L. Wertz
   
Senior Vice President
   
Retail Banking Division
     
     
     
     


Provident Locations
    
     
RETAIL BANKING CENTERS
    
     
Blythe
  
Rancho Mirage
350 E. Hobson Way
  
71991 Highway 111
Blythe, CA 92225
  
Ranch Mirage, CA 92270
     
Canyon Crest
  
Redlands
5225 Canyon Crest Drive, Suite 86
  
125 E. Citrus Avenue
Riverside, CA 92507
  
Redlands, CA 92373
     
Corona
  
Sun City
487 Magnolia Avenue, Suite 101
  
27010 Sun City Boulevard
Corona, CA 92879
  
Sun City, CA 92586
     
Downtown Business Center
  
Temecula
4001 Main Street
  
40705 Winchester Road, Suite 6
Riverside, CA 92501
  
Temecula, CA 92591
     
Hemet
    
1690 E. Florida Avenue
    
Hemet, CA 92544
    
     
Home Office
    
6570 Magnolia Avenue
    
Riverside, CA 92506
    
     
La Sierra
    
3312 La Sierra Avenue, Suite 105
    
Riverside, CA 92503
    
     
Moreno Valley
    
12460 Heacock Street
    
Moreno Valley, CA 92553
    
     
Orangecrest
    
19348 Van Buren Boulevard, Suite 119
    
Riverside, CA 92508
    
     
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