EX-13 3 annualrep.htm EXHIBIT 13
EXHIBIT 13
2010 Annual Report to Stockholders

2010 Annual Report

Message From the Chairman

Dear Shareholders:
I am pleased to forward our Annual Report. For the fiscal year ended 2010, we reported net income of $1.1 million, or $0.13 per diluted share, significantly better than the $7.4 million net loss last year. At first glance, the modest earnings for fiscal 2010 may seem unremarkable or even disappointing unless considered within the larger context of the distressed banking environment and poor general economic climate. The year turned out to be as challenging as we anticipated but we were largely able to overcome the difficulties we faced. Credit quality improved from fiscal 2009 and we capitalized on mortgage banking opportunities resulting from the historically low mortgage interest rates precipitated by the unprecedented actions of the Department of the Treasury and Federal Reserve in response to the very poor economic climate. The lower provision for loan losses in fiscal 2010 in comparison to fiscal 2009 and meaningful gain on sale of loans led the way for our return to profitability.
Last year, when we were completing our fiscal 2010 Business Plan, we painstakingly deliberated over the initiatives necessary to overcome the difficult operating environment that we were forecasting for fiscal 2010. For the Bank, our Business Plan focused on enhancing and preserving capital, deleveraging the balance sheet, addressing asset quality issues head-on and maintaining the Bank’s “well-capitalized” regulatory capital designation. For Provident Bank Mortgage, the primary goal was to capture more loan origination volume consistent with our forecast of improving mortgage banking operating conditions.
I am pleased to report that we succeeded in connection with all of these initiatives. Specifically, the Company’s capital increased by 11%, largely the result of the follow-on public stock offering completed in December 2009 during what can best be described as “very difficult equity market conditions”; total assets declined by 11%; non-performing assets declined by 17%; and the Bank maintained the “well-capitalized” regulatory capital designation throughout the fiscal year.
Just as important, in fiscal 2010, Provident Bank Mortgage originated over $1.8 billion of loans for sale, the best year in our 54 year history in terms of loan origination volume. Mortgage banking earnings were paramount in our fiscal 2010 turnaround and more than sufficient to offset legacy mortgage banking costs associated with loans originated and sold during the boom years of the single-family housing cycle.
Provident Bank
Our fiscal 2011 outlook is less guarded than last year at this time but the current operating environment is still very challenging. Therefore, we have once again prepared our Business Plan with the goals of preserving capital, slightly deleveraging the balance sheet and maintaining the Bank’s “well-capitalized” regulatory capital designation, not unlike our fiscal 2010 initiatives, although we do not foresee a significant decline in total assets from current levels.
The single most significant matter facing the Bank remains asset quality. We have dedicated a significant amount of resources to deal with asset quality issues and believe we can make further progress in reducing non-performing assets from current levels provided the lackluster economic recovery gains some strength. We remain committed to quickly identifying any problem loans within the loans held for investment portfolio, to timely record any related losses that we may experience, and to quickly dispose of the resultant real estate owned.
Provident Bank Mortgage
To date, fiscal 2011 has been stronger than last year and very good mortgage banking fundamentals are in place. Mortgage interest rates have remained at very low levels (from a historical perspective) and competitors have been slow to enter the market as a result of the reduced operating liquidity available to fund a mortgage banking business coupled with the uncertain regulatory environment. We invested heavily in fiscal 2010 to increase our mortgage banking staffing levels and begin fiscal 2011 with a full complement of professionals augmenting our ability to maintain loan origination volumes at historically high levels for our Company.
A Final Word
I began my message by describing that I was pleased with our modest earnings for fiscal 2010 because it represents a turnaround from our poor results in fiscal 2009 and, possibly, the beginning of a more favorable banking

Message From the Chairman

environment with fewer legacy costs sapping the Company’s financial and management resources. Although I am somewhat more optimistic, it does not mean that we will not face future difficulties, as we surely will, particularly if the poor economic climate persists longer than anticipated. We will continue to take the necessary actions in fiscal 2011, similar to prior years, concentrating our efforts on credit risk management and reinforcing the foundation for the Company’s future growth once the economic climate becomes more favorable.
Sincerely,
/s/ Craig G. Blunden
Craig G. Blunden
Chairman, President and
Chief Executive Officer

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,
| 2010 | 2009 | 2008 | 2007 | 2006
(In Thousands, Except Per Share Information ) |  |  |  |
FINANCIAL CONDITION DATA: |  |  |  |  |  |  |  |  |  |
Total assets | $ 1,399,401 |  | $ 1,579,613 |  | $ 1,632,447 |  | $ 1,648,923 |  | $ 1,624,452 |
Loans held for investment, net | 1,006,260 |  | 1,165,529 |  | 1,368,137 |  | 1,350,696 |  | 1,264,979 |
Loans held for sale, at fair value | 170,255 |  | 135,490 |  | - |  | - |  | - |
Loans held for sale, at lower of cost or market | - |  | 10,555 |  | 28,461 |  | 1,337 |  | 4,713 |
Receivable from sale of loans | - |  | - |  | - |  | 60,513 |  | 99,930 |
Cash and cash equivalents | 96,201 |  | 56,903 |  | 15,114 |  | 12,824 |  | 16,358 |
Investment securities | 35,003 |  | 125,279 |  | 153,102 |  | 150,843 |  | 177,189 |
Deposits | 932,933 |  | 989,245 |  | 1,012,410 |  | 1,001,397 |  | 921,279 |
Borrowings | 309,647 |  | 456,692 |  | 479,335 |  | 502,774 |  | 546,211 |
Stockholders’ equity | 127,744 |  | 114,910 |  | 123,980 |  | 128,797 |  | 136,148 |
Book value per share | 11.20 |  | 18.48 |  | 19.97 |  | 20.20 |  | 19.47 |
OPERATING DATA: |  |  |  |  |  |  |  |  |  |
Interest income | $ 70,163 |  | $ 85,924 |  | $ 95,749 |  | $ 100,968 |  | $ 86,627 |
Interest expense | 30,585 |  | 42,156 |  | 54,313 |  | 59,245 |  | 42,635 |
Net interest income | 39,578 |  | 43,768 |  | 41,436 |  | 41,723 |  | 43,992 |
Provision for loan losses | 21,843 |  | 48,672 |  | 13,108 |  | 5,078 |  | 1,134 |
Net interest income (expense) after provision | 17,735 |  | (4,904 | ) | 28,328 |  | 36,645 |  | 42,858 |
Loan servicing and other fees | 797 |  | 869 |  | 1,776 |  | 2,132 |  | 2,572 |
Gain on sale of loans, net | 14,338 |  | 16,971 |  | 1,004 |  | 9,318 |  | 13,481 |
Deposit account fees | 2,823 |  | 2,899 |  | 2,954 |  | 2,087 |  | 2,093 |
Net gain on sale of investment securities | 2,290 |  | 356 |  | - |  | - |  | - |
Net gain on sale of real estate held for investment | - |  | - |  | - |  | 2,313 |  | 6,335 |
Gain (loss) on sale and operations of real estate owned acquired in the settlement of loans, net | 16 |  | (2,469 | ) | (2,683 | ) | (117 | ) | 20 |
Other non-interest income | 1,995 |  | 1,583 |  | 2,160 |  | 1,828 |  | 1,708 |
Operating expenses | 38,139 |  | 29,980 |  | 30,311 |  | 34,631 |  | 33,755 |
Income (loss) before income taxes | 1,855 |  | (14,675 | ) | 3,228 |  | 19,575 |  | 35,312 |
Provision (benefit) for income taxes | 740 |  | (7,236 | ) | 2,368 |  | 9,124 |  | 15,676 |
Net income (loss) | $ 1,115 |  | $ (7,439 | ) | $ 860 |  | $ 10,451 |  | $ 19,636 |
Basic earnings (loss) per share | $ 0.13 |  | $ (1.20 | ) | $ 0.14 |  | $ 1.59 |  | $ 2.93 |
Diluted earnings (loss) per share | $ 0.13 |  | $ (1.20 | ) | $ 0.14 |  | $ 1.57 |  | $ 2.82 |
Cash dividend per share | $ 0.04 |  | $ 0.16 |  | $ 0.64 |  | $ 0.69 |  | $ 0.58 |

Financial Highlights

| At or For The Year Ended June 30,
2010 |  | 2009 |  | 2008 |  | 2007 |  | 2006 |
KEY OPERATING RATIOS: |  |  |  |  |  |  |  |  |  |
Performance Ratios |  |  |  |  |  |  |  |  |  |
| Return (loss) on average assets | 0.08 | % | (0.47 | )% | 0.05 | % | 0.61 | % | 1.24 | %
| Return (loss) on average stockholders’ equity | 0.94 |  | (6.20 | ) | 0.68 |  | 7.77 |  | 15.02 |
| Interest rate spread | 2.71 |  | 2.68 |  | 2.36 |  | 2.23 |  | 2.64 |
| Net interest margin | 2.83 |  | 2.86 |  | 2.61 |  | 2.51 |  | 2.86 |
| Average interest-earning assets to |  |  |  |  |  |  |  |  |  |
| average interest-bearing liabilities | 105.68 |  | 106.62 |  | 107.35 |  | 107.72 |  | 107.99 |
| Operating and administrative expenses |  |  |  |  |  |  |  |  |  |
| as a percentage of average total assets | 2.61 |  | 1.90 |  | 1.87 |  | 2.03 |  | 2.13 |
| Efficiency ratio (1) | 61.68 |  | 46.86 |  | 64.98 |  | 58.42 |  | 48.08 |
| Stockholders’ equity to total assets ratio | 9.13 |  | 7.27 |  | 7.59 |  | 7.81 |  | 8.38 |
| Dividend payout ratio | 30.77 |  | NM |  | 457.14 |  | 43.95 |  | 20.57 |
Regulatory Capital Ratios |  |  |  |  |  |  |  |  |  |
| Tangible capital | 8.82 | % | 6.88 | % | 7.19 | % | 7.62 | % | 8.08 | %
| Core capital | 8.82 |  | 6.88 |  | 7.19 |  | 7.62 |  | 8.08 |
| Total risk-based capital | 13.17 |  | 13.05 |  | 12.25 |  | 12.49 |  | 13.37 |
| Tier 1 risk-based capital | 11.91 |  | 11.78 |  | 10.99 |  | 11.39 |  | 12.36 |
Asset Quality Ratios |  |  |  |  |  |  |  |  |  |
| Non-performing loans as a percentage of loans held for investment, net | 5.84 | % | 6.16 | % | 1.70 | % | 1.18 | % | 0.20 | %
| Non-performing assets as a percentage of total assets | 5.25 |  | 5.59 |  | 1.99 |  | 1.20 |  | 0.16 |
| Allowance for loan losses as a percentage of gross loans held for investment | 4.14 |  | 3.75 |  | 1.43 |  | 1.09 |  | 0.81 |
| Allowance for loan losses as a percentage of non-performing loans | 74.00 |  | 63.28 |  | 85.79 |  | 93.32 |  | 407.71 |
| Net charge-offs to average loans receivable, net | 1.96 |  | 1.72 |  | 0.58 |  | 0.04 |  | - |

(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 30, 2010 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
Chief Operating Officer and Chief Financial Officer
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, President and CEO
Bruce W. Bennett |  |
President |  | Donavon P. Ternes
Community Care & Rehabilitation Center |  | Chief Operating Officer
|  | Chief Financial Officer
Craig G. Blunden |  | Corporate Secretary
Chairman, President and CEO |  |
Provident Bank |  | Provident Bank
Debbi H. Guthrie |  | Craig G. Blunden
Private Investor |  | Chairman, President and CEO
Robert G. Schrader |  | Richard L. Gale
Retired Executive Vice President and COO |  | Senior Vice President
Provident Bank |  | Provident Bank Mortgage
Roy H. Taylor |  | Kathryn R. Gonzales
Chief Executive Officer |  | Senior Vice President
Hub International of California |  | Retail Banking
Insurance Services, Inc. |  |
|  | Lilian Salter
William E. Thomas |  | Senior Vice President
Principal |  | Chief Information Officer
William E. Thomas, Inc., |  |
A Professional Law Corporation |  | Donavon P. Ternes
|  | Executive Vice President
|  | Chief Operating Officer
|  | Chief Financial Officer
|  | Corporate Secretary
|  | David S. Weiant
|  | Senior Vice President
|  | Chief Lending Officer

RETAIL BANKING CENTERS |  | WHOLESALE 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 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 |  |
|  | Glendora
Hemet |  | 1200 E. Route 66, Suite 102
1690 E. Florida Avenue |  | Glendora, CA 91740
Hemet, CA 92544 |  |
|  | Rancho Cucamonga
Iris Plaza |  | 8599 Haven Avenue
16110 Perris Boulevard, Suite K |  | Rancho Cucamonga, CA 91730
Moreno Valley, CA 92551 |  |
|  | Riverside, Indiana Avenue
La Sierra |  | 7111 Indiana Avenue, Suite 200
3312 La Sierra Avenue, Suite 105 |  | Riverside, CA 92504
Riverside, CA 92503 |  |
|  | Riverside, Market Street
Moreno Valley |  | 2280 Market Street, Suite 230
12460 Heacock Street |  | Riverside, CA 92501
Moreno Valley, CA 92553 |  |
|  | Riverside, Riverside Avenue
Orangecrest |  | 6529 Riverside Avenue, Suite 160
19348 Van Buren Boulevard, Suite 119 |  | Riverside, CA 92506
Riverside, CA 92508 |  |
Rancho Mirage |  |
71-991 Highway 111 |  |
Ranch Mirage, CA 92270 |  |
Redlands |  |
125 E. Citrus Avenue |  |
Redlands, CA 92373 |  |
Sun City |  |
27010 Sun City Boulevard |  |
Sun City, CA 92586 |  |
Temecula |  |
40325 Winchester Road |  |
Temecula, CA 92591 |  |
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