EX-13 3 prov10k2019exh13.htm EXHIBIT 13
EXHIBIT 13

2019 Annual Report to Stockholders






















2019 Annual Report

Message From the Chairman


Dear Shareholders:

I am pleased to forward our Annual Report for fiscal 2019.  Throughout the year, we have made great strides in improving upon our community bank franchise in the Inland Empire region of Southern California.  Fundamentals have improved as a result of our execution and are demonstrated by net interest margin expansion, stable core deposit costs and balances, strong credit quality, and robust capital levels.  We also made a few difficult decisions this past year when we consolidated the retail banking center in La Quinta with the center located in Rancho Mirage and when we scaled back the origination of saleable single-family mortgage loans.  Although these decisions were difficult, we remain convinced that the Company is better positioned today than this time last year as a result of our actions.

Fiscal 2019
Overall, the fiscal 2019 financial results, described on the following Financial Highlights pages, improved from last year.  However, it should be noted that our financial results were negatively impacted by the non-recurring expenses associated with the changes we made to scale back the saleable single-family lending operations and to consolidate the two retail banking centers.  Nonetheless, we have received a positive response from our shareholders who believe as we do that the adjustments we have made, despite the costs to do so, are beneficial to the long term success of the Company.
Last year in the Chairman’s Message I described that our 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.  We also established goals to adjust our single-family mortgage operations commensurate with market conditions.
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 $171.2 million in fiscal 2019, which was tempered to some degree by our disciplined underwriting standards.  Unfortunately, the loan origination volume was more than offset by another year of elevated loan prepayments.  Core deposits decreased by just $21.8 million or three percent at June 30, 2019 from the same date last year despite the fact that we maintained consistent core deposit rates in the face of generally rising interest rates; operating expenses for fiscal 2019 decreased by 15 percent from the prior year (after adjusting for the non-recurring expenses associated with scaling back the saleable single-family mortgage operations in fiscal 2019 and the non-recurring litigation settlement expenses in fiscal 2018); and, we paid a quarterly cash dividend of $0.14 per share in fiscal 2019 while repurchasing approximately 52,000 shares of our common stock.  Finally, we made the decision to concentrate our efforts on originating single-family loans for our portfolio and completed the necessary steps to restructure our single-family mortgage operations.

Fiscal 2020
Similar to this year, we plan to emphasize disciplined growth in loans held for investment (we will not pursue growth at any cost); the growth of core deposits; diligent control of operating expenses; and sound capital management decisions.  To the extent our opportunities are limited by overly aggressive competitors, we will return capital to shareholders in the form of cash dividends and common stock repurchases.  We are committed to single-family, multi-family, and commercial real estate mortgage lending as our primary sources of asset growth, however, we will work toward increasing the percentage of single-family loans and reducing the percentage of multi-family loans in our loan portfolio, while still growing both portfolios, resulting in a more balanced composition between these components.  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 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 we will capitalize on future opportunities as they develop.  Provident is well known in the communities we serve and we can compete quite well against money center, regional and other community banks.  Of course, a well-positioned Company must also be ready for future challenges.  At the time of this writing, the yield curve is inverted creating pressure on the net interest margin of many banks and several economists


are suggesting that the U.S. could see the start of a recession in 2020 or 2021.  We are prepared for these and other challenges as well.
In closing, I would like to thank our staff of banking professionals for their commitment and dedication to Provident and the Board of Directors for their wisdom and guidance.  I would also like to thank our customers for their loyalty to Provident over the years and the steadfast support of our shareholders.  We recognize that our long-term success is inextricably linked to each of you.  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)
  
2019
  
2018
  
2017
  
2016
  
2015
                 
FINANCIAL CONDITION DATA:
                    
Total assets
  
$
1,084,850
    
$
1,175,549
    
$
1,200,633
    
$
1,171,381
    
$
1,174,555
  
Loans held for investment, net
  
879,925
    
902,685
    
904,919
    
840,022
    
814,234
  
Loans held for sale, at fair value
  
—
    
96,298
    
116,548
    
189,458
    
224,715
  
Cash and cash equivalents
  
70,632
    
43,301
    
72,826
    
51,206
    
81,403
  
Investment securities
  
100,059
    
95,309
    
69,759
    
51,522
    
14,961
  
Deposits
  
841,271
    
907,598
    
926,521
    
926,384
    
924,086
  
Borrowings
  
101,107
    
126,163
    
126,226
    
91,299
    
91,367
  
Stockholders’ equity
  
120,641
    
120,457
    
128,230
    
133,451
    
141,137
  
Book value per share
  
16.12
    
16.23
    
16.62
    
16.73
    
16.35
  
                     
OPERATING DATA:
                    
Interest income
  
$
44,378
    
$
42,712
    
$
42,417
    
$
39,304
    
$
39,696
  
Interest expense
  
6,208
    
6,412
    
6,679
    
6,975
    
6,421
  
Net interest income
  
38,170
    
36,300
    
35,738
    
32,329
    
33,275
  
Recovery from the allowance for loan losses
  
(475
)
  
(536
)
  
(1,042
)
  
(1,715
)
  
(1,387
)
Net interest income after recovery from the
   allowance for loan losses
  
38,645
    
36,836
    
36,780
    
34,044
    
34,662
  
Loan servicing and other fees
  
1,051
    
1,575
    
1,251
    
1,068
    
1,085
  
Gain on sale of loans, net
  
7,135
    
15,802
    
25,680
    
31,521
    
34,210
  
Deposit account fees
  
1,928
    
2,119
    
2,194
    
2,319
    
2,412
  
Gain (loss) on sale and operations of real estate
   owned acquired in the settlement of loans, net
  
(4
)
  
(86
)
  
(557
)
  
(95
)
  
282
  
Card and processing fees
  
1,568
    
1,541
    
1,451
    
1,448
    
1,406
  
Other non-interest income
  
833
    
944
    
802
    
800
    
992
  
Operating expenses
  
45,236
    
53,204
    
58,785
    
58,259
    
57,969
  
Income before income taxes
  
5,920
    
5,527
    
8,816
    
12,846
    
17,080
  
Provision for income taxes
  
1,503
    
3,396
    
3,609
    
5,372
    
7,277
  
Net income
  
$
4,417
    
$
2,131
    
$
5,207
    
$
7,474
    
$
9,803
  
Basic earnings per share
  
$
0.59
    
$
0.28
    
$
0.66
    
$
0.90
    
$
1.09
  
Diluted earnings per share
  
$
0.58
    
$
0.28
    
$
0.64
    
$
0.88
    
$
1.07
  
Cash dividend per share
  
$
0.56
    
$
0.56
    
$
0.52
    
$
0.48
    
$
0.45
  


Financial Highlights
   
At or For The Year Ended June 30,
   
2019
  
2018
  
2017
  
2016
  
2015
                     
KEY OPERATING RATIOS:
                    
                     
Performance Ratios
                    
Return on average assets
  
0.39
%
  
0.18
%
  
0.43
%
  
0.64
%
  
0.87
%
Return on average stockholders’ equity
  
3.63
    
1.73
    
3.94
    
5.43
    
6.81
  
Interest rate spread
  
3.40
    
3.13
    
3.00
    
2.78
    
2.96
  
Net interest margin
  
3.47
    
3.19
    
3.06
    
2.85
    
3.03
  
Average interest-earning assets to average interest-
  bearing liabilities
  
111.14
    
110.66
    
111.16
    
111.75
    
113.02
  
Operating and administrative expenses as a
  percentage of average total assets
  
4.00
    
4.54
    
4.90
    
4.98
    
5.12
  
Efficiency ratio(1)
  
89.26
    
91.42
    
88.32
    
83.96
    
78.70
  
Stockholders’ equity to total assets ratio
  
11.12
    
10.25
    
10.68
    
11.39
    
12.02
  
Dividend payout ratio
  
96.55
    
200.00
    
81.25
    
54.55
    
42.06
  
                     
The Bank's Regulatory Capital Ratios
                    
Tier 1 leverage capital (to adjusted average assets)
  
10.50
%
  
9.96
%
  
9.90
%
  
10.29
%
  
10.68
%
CET1 capital (to risk-weighted assets)
  
18.00
    
16.81
    
16.14
    
16.16
    
17.22
  
Tier 1 capital (to risk-weighted assets)
  
18.00
    
16.81
    
16.14
    
16.16
    
17.22
  
Total capital (to risk-weighted assets)
  
19.13
    
17.90
    
17.28
    
17.36
    
18.47
  
                     
Asset Quality Ratios
                    
Non-performing loans as a percentage of loans held
  for investment, net
  
0.71
%
  
0.67
%
  
0.88
%
  
1.23
%
  
1.71
%
Non-performing assets as a percentage of total
  assets
  
0.57
    
0.59
    
0.80
    
1.11
    
1.39
  
Allowance for loan losses as a percentage of gross
  loans held for investment
  
0.80
    
0.81
    
0.88
    
1.02
    
1.06
  
Net charge-offs (recoveries) to average loans
  receivable, net
  
(0.02
)
  
0.01
    
(0.04
)
  
(0.17
)
  
(0.04
)

(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 26, 2019 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