EX-13 2 prov10k2012exh13.htm EXHIBIT 13 prov10k2012exh13.htm


EXHIBIT 13

2012 Annual Report to Stockholders
 
 
 
 
 
 





















2012 Annual Report
 
 
 
 
 
 
Message From the Chairman

Dear Shareholders:
 
I am pleased to forward our Annual Report for fiscal 2012, which describes the second consecutive year of significantly improved financial results compared to the fiscal years ended June 30, 2010, 2009 and 2008.  I believe that we have effectively weathered the weak banking environment which is commonly associated with the period following the financial crisis of 2008 and I also believe that we are well-positioned for future growth.  We continue to capitalize on favorable mortgage banking conditions at the same time that credit quality continues to improve.  For fiscal 2012, we reported net income of $10.8 million, or $0.96 per diluted share, and a return on equity of 7.6%, which is a solid performance in comparison to many of our peers, although somewhat lower than we would expect in a more normalized banking environment.
Last year, when we were completing our fiscal 2012 Business Plan, we became more confident that in addition to investing in our mortgage banking business we needed to once again establish the foundation for sustainable, organic growth to prepare for an eventual economic recovery.  As a result, the Business Plan for the Bank designated investments in our preferred loan origination capabilities and in the resources needed to increase core deposits, while also allocating resources for the ongoing oversight of asset quality issues arising from the loan portfolio.  We also felt strongly that our capital position was formidable and could support an increased cash dividend to shareholders and reinstatement of our stock repurchase plan.  For Provident Bank Mortgage, the primary goal was to capture significant loan origination volume consistent with the investment we have been making in our retail loan origination capacity and to remain flexible in the event the volatile environment presented low risk opportunities to augment our retail delivery channel.
I am pleased to report that we have made progress in connection with all of these initiatives.  Specifically, preferred loan originations and purchases were $57.8 million in fiscal 2012, a 335% increase from $13.3 million in fiscal 2011; we opened our 15th full service branch office and increased core deposits by 9%; non-performing assets declined by a noteworthy 12%; and we increased the quarterly cash dividend to $0.04 per share while repurchasing 670,348 shares of our common stock.
Additionally, in fiscal 2012, Provident Bank Mortgage originated over $2.5 billion of loans for sale, the best year in our 56 year history in terms of loan origination volume.  Additionally, we opened or acquired four retail loan production offices expanding to 14 statewide and experienced a 34% increase in retail loan origination volume, the first year in our history where retail loan originations exceeded $1.0 billion.
 
Provident Bank
Our fiscal 2013 Business Plan charts a somewhat more aggressive growth strategy than recent years combined with a capital management plan where we recognize that growth may be difficult given the uncertain economic climate, high levels of unemployment, and the weak, albeit slightly improving, housing markets.  We will balance the need to grow with a disciplined approach to market opportunities and return capital to shareholders in the form of cash dividends or common stock repurchases if we believe the growth opportunities carry too much risk.  We will continue to invest in our preferred loan origination capabilities and retail deposit platform primarily within our geographic footprint.
Similar to last year, during the course of fiscal 2013, 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
Mortgage interest rates remain at very low levels (from a historical perspective) and, very recently, the housing markets seem to have rebounded from their lowest point in the cycle suggesting that mortgage banking fundamentals will be favorable for much of fiscal 2013.  We have never been better prepared to take advantage of the opportunities we see and expect that mortgage banking profitability will improve from fiscal 2012 as we realize the full benefit of the investments made in prior years.  We are increasing the percentage of retail originations in
 
 
 
 
Message From the Chairman

comparison to wholesale originations and plan to continue to do so.  We are closely monitoring our loan sale margin and will be quick to respond to poorer fundamentals should they develop.
 
A Final Word
At the time of this writing, the national political conventions are being held and each political party is making its case to the electorate.  I am struck by the sharp differences.  However, I am also struck by the one thing that both political parties seem to agree on, that our best days are still ahead of us.  I started to wonder, is the same thing true for Provident?  Are our best days still ahead of us?  After some consideration, I realized that we are fortunate to enjoy a highly skilled staff of banking professionals, exceptional loyalty from our customers in the growing communities we serve, and the dedicated support of our shareholders.  I am convinced that these constituencies will work to our advantage, for the betterment of Provident.  Yes, I believe our best days are still ahead of us!
 
 
Sincerely,
 
 
/s/ Craig G. Blunden
Craig G. Blunden
Chairman and Chief Executive Officer





 
 
 
Message From the Chairman


 



 
 
 
Message From the Chairman
 
 



 
 



 
 
 
Message From the Chairman
 
 



 
 



 
 
 

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,
  
   
2012
    
2011
    
2010
    
2009
    
2008
  
(In Thousands, Except Per Share Information )
                          
                               
FINANCIAL CONDITION DATA:
                              
Total assets
  $ 1,260,917     $ 1,313,724     $ 1,398,576     $ 1,578,788     $ 1,632,447  
Loans held for investment, net
    796,836       881,610       1,006,260       1,165,529       1,368,137  
Loans held for sale, at fair value
    231,639       191,678       170,255       135,490       -  
Loans held for sale, at lower of cost or
  market
     -        -        -        10,555       28,461  
Cash and cash equivalents
    145,136       142,550       96,201       56,903       15,114  
Investment securities
    22,898       26,193       35,003       125,279       153,102  
Deposits
    961,411       945,767       932,933       989,245       1,012,410  
Borrowings
    126,546       206,598       309,647       456,692       479,335  
Stockholders’ equity
    144,777       140,918       126,919       114,085       123,980  
Book value per share
    13.34       12.34       11.13       18.34       19.97  
                                         
OPERATING DATA:
                                        
Interest income
  $ 51,435     $ 58,689     $ 70,163     $ 85,924     $ 95,749  
Interest expense
    14,705       20,940       30,585       42,156       54,313  
Net interest income
    36,730       37,749       39,578       43,768       41,436  
Provision for loan losses
    5,777       5,465       21,843       48,672       13,108  
Net interest income (expense) after
  provision
     30,953        32,284        17,735       (4,904 )     28,328  
Loan servicing and other fees
    733       892       797       869       1,776  
Gain on sale of loans, net
    38,017       31,194       14,338       16,971       1,004  
Deposit account fees
    2,438       2,504       2,823       2,899       2,954  
Net gain on sale of investment securities
     -       -       2,290       356       -  
(Loss) gain on sale and operations of
real estate owned acquired in the settlement of loans, net
    (120 )     (1,351 )      16       (2,469 )     (2,683 )
Gain on sale of premises and equipment
     -       1,089       -       -       6  
Card and processing fees
     1,282       1,274       1,110       825       574  
Other non-interest income
    800       755       885       758       1,580  
Operating expenses
    55,365       45,372       38,139       29,980       30,311  
Income (loss) before income taxes
    18,738       23,269       1,855       (14,675 )     3,228  
Provision (benefit) for income taxes
    7,928       10,049       740       (7,236 )     2,368  
Net income (loss)
  $ 10,810     $ 13,220     $ 1,115     $ (7,439 )   $ 860  
Basic earnings (loss) per share
  $ 0.96     $ 1.16     $ 0.13     $ (1.20 )   $ 0.14  
Diluted earnings (loss) per share
  $ 0.96     $ 1.16     $ 0.13     $ (1.20 )   $ 0.14  
Cash dividend per share
  $ 0.14     $ 0.04     $ 0.04     $ 0.16     $ 0.64  
 
 
 
 
 
Financial Highlights

 
    At or For The Year Ended June 30,  
    2012     2011     2010     2009     2008  
                               
                               
KEY OPERATING RATIOS:
                              
                               
Performance Ratios
                              
Return (loss) on average assets
    0.84 %     0.97 %     0.08 %     (0.47 )%     0.05 %
Return (loss) on average stockholders’ equity
    7.58       9.80       0.94       (6.20 )     0.68  
Interest rate spread
    2.83       2.76       2.71       2.68       2.36  
Net interest margin
    2.95       2.90       2.83       2.86       2.61  
Average interest-earning assets to
                                        
 average interest-bearing liabilities
     110.53       108.31       105.68       106.62       107.35  
Operating and administrative expenses
                                        
 as a percentage of average total assets
    4.29       3.33       2.61       1.90       1.87  
Efficiency ratio (1)
    69.31       61.23       61.68       46.86       64.98  
Stockholders’ equity to total assets ratio
    11.48       10.73       9.07       7.23       7.59  
Dividend payout ratio
    14.58       3.45       30.77    
NM
       457.14  
                                         
Regulatory Capital Ratios
                                        
Tier 1 leverage capital ratio
    11.26 %     10.47 %     8.77 %     6.83 %     7.19 %
Tier 1 risk-based capital ratio
    17.53       16.22       11.83       11.70       10.99  
Total risk-based capital ratio
    18.79       17.48       13.10       12.97       12.25  
                                         
Asset Quality Ratios
                                        
Non-performing loans as a percentage
                                        
 of loans held for investment, net
    4.33 %     4.21 %     5.84 %     6.16 %     1.70 %
Non-performing assets as a percentage
                                        
 of total assets
    3.17       3.46       5.25       5.59       1.99  
Allowance for loan losses as a percentage
                                        
 of gross loans held for investment
    2.63       3.34       4.14       3.75       1.43  
Allowance for loan losses as a percentage
                                        
 of gross non-performing loans
    52.45       59.49       56.78       46.77       67.01  
Net charge-offs to average loans receivable, net
     1.38       1.67       1.96       1.72       0.58  
                                         

(1)  
Non-interest expense as a percentage of net interest income, before provision for loan losses, 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 27, 2012 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
350 South Grand Avenue, Suite 200
Los Angeles, CA 90071-3462
(213) 688-0800


TRANSFER AGENT

Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
(908) 497-2300


MARKET INFORMATION

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

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
Bruce W. Bennett
  
Chief Executive Officer
Retired Health Care Executive
    
Private Investor
  
Donavon P. Ternes
   
President
Craig G. Blunden
  
Chief Operating Officer
Chairman and Chief Executive Officer
  
Chief Financial Officer
Provident Bank
  
Corporate Secretary
     
Debbi H. Guthrie
  
Provident Bank
Senior Vice President
  
 
Raincross Hospitality Corporation
  
Craig G. Blunden
   
Chairman
Robert G. Schrader
  
Chief Executive Officer
Retired Executive Vice President
    
and Chief Operating Officer
  
Richard L. Gale
Provident Bank
  
Senior Vice President
   
Provident Bank Mortgage
Roy H. Taylor
    
Chief Executive Officer
  
Kathryn R. Gonzales
Hub International of California
  
Senior Vice President
Insurance Services, Inc.
  
Retail Banking
     
William E. Thomas, Esq.
  
Deborah L. Hill
Principal
  
Senior Vice President
William E. Thomas, Inc.,
  
Chief Human Resources and
A Professional Law Corporation
  
Administrative Officer
     
   
Lilian Salter
   
Senior Vice President
   
Chief Information Officer
     
   
Donavon P. Ternes
   
President
   
Chief Operating Officer
   
Chief Financial Officer
   
Corporate Secretary
     
   
David S. Weiant
   
Senior Vice President
   
Chief Lending Officer

 
 
 

 

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
    
   
City of Industry
Corporate Office
  
18725 East Gale Avenue, Suite 100
3756 Central Avenue
  
City of Industry, CA 91748
Riverside CA 92506
    
   
Escondido
Downtown Business Center
  
362 West Mission Avenue, Suite 200
4001 Main Street
  
Escondido, CA 92025
Riverside, CA 92501
    
   
Fairfield
Hemet
  
5030 Business Center Drive, Suite 330
1690 E. Florida Avenue
  
Fairfield, CA 94534
Hemet, CA 92544
    
   
Glendora
Iris Plaza
  
1200 E. Route 66, Suite 102
16110 Perris Boulevard, Suite K
  
Glendora, CA 91740
Moreno Valley, CA 92551
    
   
Hermosa Beach
La Quinta
  
1601 Pacific Coast Hwy., Suite 290
78752 Highway 111
  
Hermosa Beach, CA 90254
La Quinta, CA 92253
    
   
Pleasanton
La Sierra
  
5934 Gibraltar Drive, Suite 205
3312 La Sierra Avenue, Suite 105
  
Pleasanton, CA 94588
Riverside, CA 92503
    
   
Rancho Cucamonga, Haven Avenue
Moreno Valley
  
8599 Haven Avenue, Suite 210
12460 Heacock Street
  
Rancho Cucamonga, CA 91730
Moreno Valley, CA 92553
    
   
Rancho Cucamonga, Commerce Center Drive
Orangecrest
  
10370 Commerce Center Drive, Suite 110
19348 Van Buren Boulevard, Suite 119
  
Rancho Cucamonga, CA 91730
Riverside, CA 92508
    
   
Riverside, Canyon Crest Drive
Rancho Mirage
  
5225 Canyon Crest Drive, Suite 86
71-991 Highway 111
  
Riverside, CA 92507
Ranch Mirage, CA 92270
    
   
Riverside, Indiana Avenue
Redlands
  
7111 Indiana Avenue, Suite 200
125 E. Citrus Avenue
  
Riverside, CA 92504
Redlands, CA 92373
    
 
 
 
 
 
 
Provident Locations

 
   
Riverside, Market Street
Sun City
  
2280 Market Street, Suite 230
27010 Sun City Boulevard
  
Riverside, CA 92501
Sun City, CA 92586
    
   
Riverside, Riverside Avenue
Temecula
  
6529 Riverside Avenue, Suite 160
40705 Winchester Road, Suite 6
  
Riverside, CA 92506
Temecula, CA 92591
    
   
Roseville
   
2998 Douglas Boulevard, Suite 105
   
Roseville, CA 95661
     
   
San Rafael
   
100 Smith Ranch Road, Suite 110
   
San Rafael, CA 94903
     
     
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