EX-13 2 prov10k2012exh13.htm EXHIBIT 13
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