PROV-2014.6.30-10K-EX13

EXHIBIT 13

2014 Annual Report to Stockholders

2014 Annual Report

Message From the Chairman

Dear Shareholders:

It is my pleasure to forward our Annual Report for fiscal 2014. We reported net income of $6.6 million, or $0.65 per diluted share, and a return on equity of 4.3%, which is lower than expected, but not unreasonable given the decline in mortgage banking revenues. As I described in my message last year, we expected fiscal 2014 to be a year of transition for our company. We understood at that time that the elevated earnings in fiscal 2013 from our mortgage banking business would be difficult to replicate in fiscal 2014. In fact, we spent the first three quarters of fiscal 2014 adjusting our mortgage banking business model to compensate for the poorer mortgage banking fundamentals. At the same time, we were investing in our community banking business to increase our loan origination capacity to support growth in our multi-family, commercial real estate and construction loan portfolios. By the end of fiscal 2014 each of these initiatives were largely complete and, as a result, we are better positioned today than we were last year at this time to take advantage of better general economic conditions and stabilized mortgage origination markets.

In addition to the initiatives described above, our fiscal 2014 Business Plan outlined our multi-year objectives to lower the balance of cash and cash equivalents; to decrease the percentage of single-family loans to loans held for investment; to change our funding mix by reducing borrowings, time deposits, and brokered deposits; to improve asset quality; and to return a meaningful amount of capital to our shareholders in the form of cash dividends and stock repurchases while maintaining sound regulatory capital ratios. More specifically, the fiscal 2014 Business Plan for Provident Bank forecast growth in loans held for investment, growth in retail deposits (primarily core deposits), control of operating expenses, and sound capital management decisions. For Provident Bank Mortgage, we established goals to change our product offerings consistent with the changing market, to increase the percentage of purchase money origination volume, to lower our operating expenses and to update our systems, policies and practices consistent with the regulatory changes scheduled to take effect in January 2014.

I am pleased to report that we have made progress in all of these specific initiatives. Loan originations and purchases for the held for investment portfolio were $168.0 million in fiscal 2014, a 79% increase from $94.1 million in fiscal 2013, resulting in an increase in loans held for investment for the first time in six years; we increased the core deposits balance by 1% at June 30, 2014 from the same date last year, less than intended but making progress nonetheless; operating expenses declined by $13.2 million or 20% from the prior year; and, we paid a quarterly cash dividend of $0.10 per share while repurchasing 1.13 million shares of our common stock.

Additionally, in fiscal 2014, Provident Bank Mortgage originated $2.0 billion of loans held for sale, with 58% originated from purchase money transactions and 42% from refinance transactions. Also, we decreased the operating expenses in our mortgage banking business by $10.4 million or 25% in comparison to the prior year and we successfully implemented the changes in regulatory requirements within the January 2014 deadline.

Provident Bank

We remain committed to the strategies implemented in prior years that we believe will improve our fundamental performance. For example, the percentage of investment securities to total assets continues to decline, the percentage of loans held for investment to total assets continues to increase and the percentage of preferred loans (multi-family, commercial real estate, construction and commercial business) to loans held for investment continues to grow. We intend to grow the Company with more aggressive goals this year but will remain disciplined in our growth execution, returning capital to shareholders in the form of cash dividends and common stock repurchases to the extent our opportunities are limited by overly aggressive competitors or languishing improvement in general economic conditions. 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 2015, 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

We have made significant progress in adjusting our mortgage banking business model to current market fundamentals. During the course of fiscal 2014, we closed four mortgage banking retail offices and reduced the total number of mortgage banking employees by 19%. In fiscal 2015, we will plan to: change our product offerings commensurate with the changing market; continue our focus on purchase money originations versus refinance originations; make changes to our operating expenses consistent with the changing market; and respond to the significant changes in regulatory requirements currently scheduled to take effect in August 2015.

A Final Word

There is no doubt that fiscal 2014 was a year of transition for our Company but not unlike many transitions we have successfully overcome in the past; and, it seems to me, that it is unrealistic to believe that the path to success does not contain some bumps along the way. In fact, I’m reminded of a quote attributed to David Brinkley, the Emmy-award winning broadcast journalist who once said, “Lay a firm foundation with the bricks that others throw at you.” Well, we positioned a few bricks and reinforced our foundation during fiscal 2014 and I am confident that the effort will result in better future performance. The Company is well positioned for future growth and will be able to capitalize on opportunities very quickly as they arise.

In closing, I wish to thank our staff of banking professionals for their ongoing commitment and dedication; and express my appreciation for the support we receive from our customers in the communities we serve and the trust bestowed upon us by our shareholders. We recognize that our Company is inextricably linked to each of you and we will make every effort to earn your respect and loyalty.

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,
	2014			2013			2012			2011			2010
(In Thousands, Except Per Share Information )
FINANCIAL CONDITION DATA:
Total assets	$	1,105,629		$	1,211,041		$	1,260,917		$	1,313,724		$	1,398,576
Loans held for investment, net	772,141			748,397			796,836			881,610			1,006,260
Loans held for sale, at fair value	158,883			188,050			231,639			191,678			170,255
Cash and cash equivalents	118,937			193,839			145,136			142,550			96,201
Investment securities	17,147			19,510			22,898			26,193			35,003
Deposits	897,870			923,010			961,411			945,767			932,933
Borrowings	41,431			106,491			126,546			206,598			309,647
Stockholders’ equity	145,862			159,974			144,777			140,918			126,919
Book value per share	15.66			15.40			13.34			12.34			11.13
OPERATING DATA:
Interest income	$	38,059		$	44,161		$	51,435		$	58,689		$	70,163
Interest expense	7,336			10,804			14,705			20,940			30,585
Net interest income	30,723			33,357			36,730			37,749			39,578
(Recovery) provision for loan losses	(3,380		)	(1,499		)	5,777			5,465			21,843
Net interest income after (recovery) provision for loan losses	34,103			34,856			30,953			32,284			17,735
Loan servicing and other fees	1,077			1,093			733			892			797
Gain on sale of loans, net	25,799			68,493			38,017			31,194			14,338
Deposit account fees	2,469			2,449			2,438			2,504			2,823
Net gain on sale of investment securities	—			—			—			—			2,290
Gain (loss) on sale and operations of real estate owned acquired in the settlement of loans, net	18			916			(120		)	(1,351		)	16
Gain on sale of premises and equipment	—			—			—			1,089			—
Card and processing fees	1,370			1,292			1,282			1,274			1,110
Other non-interest income	942			957			800			755			885
Operating expenses	54,168			67,343			55,365			45,372			38,139
Income before income taxes	11,610			42,713			18,738			23,269			1,855
Provision for income taxes	5,004			16,916			7,928			10,049			740
Net income	$	6,606		$	25,797		$	10,810		$	13,220		$	1,115
Basic earnings per share	$	0.67		$	2.43		$	0.96		$	1.16		$	0.13
Diluted earnings per share	$	0.65		$	2.38		$	0.96		$	1.16		$	0.13
Cash dividend per share	$	0.40		$	0.24		$	0.14		$	0.04		$	0.04

Financial Highlights



	At or For The Year Ended June 30,
	2014		2013		2012		2011		2010
KEY OPERATING RATIOS:
Performance Ratios
Return on average assets	0.58	%	2.09	%	0.84	%	0.97	%	0.08	%
Return on average stockholders’ equity	4.31		16.80		7.58		9.80		0.94
Interest rate spread	2.69		2.69		2.83		2.76		2.71
Net interest margin	2.79		2.80		2.95		2.90		2.83
Average interest-earning assets to average interest-bearing liabilities	113.54		112.46		110.53		108.31		105.68
Operating and administrative expenses as a percentage of average total assets	4.75		5.44		4.29		3.33		2.61
Efficiency ratio ⁽¹⁾	86.81		62.03		69.31		61.23		61.68
Stockholders’ equity to total assets ratio	13.19		13.21		11.48		10.73		9.07
Dividend payout ratio	61.54		10.08		14.58		3.45		30.77
Regulatory Capital Ratios
Tier 1 leverage capital ratio	12.53	%	13.12	%	11.26	%	10.47	%	8.77	%
Tier 1 risk-based capital ratio	18.72		21.36		17.53		16.22		11.83
Total risk-based capital ratio	19.98		22.64		18.79		17.48		13.10
Asset Quality Ratios
Non-performing loans as a percentage of loans held for investment, net	2.06	%	2.90	%	4.33	%	4.21	%	5.84	%
Non-performing assets as a percentage of total assets	1.66		1.98		3.17		3.46		5.25
Allowance for loan losses as a percentage of gross loans held for investment	1.25		1.96		2.63		3.34		4.14
Allowance for loan losses as a percentage of gross non-performing loans	55.73		58.77		52.45		59.49		56.78
Net charge-offs to average loans receivable, net	0.21		0.51		1.38		1.67		1.96


⁽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 25, 2014 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 1200

Costa Mesa, CA 92626-7188

(714) 436-7100

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.

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 Financial Holdings, Inc.		Corporate Secretary
Provident Bank
		Provident Bank
Judy A. Carpenter
President and Chief Operating Officer		Craig G. Blunden
Riverside Medical Clinic		Chairman
		Chief Executive Officer
Debbi H. Guthrie
Senior Vice President and Managing Director		Richard L. Gale
Raincross Hospitality Corporation		Senior Vice President
		Provident Bank Mortgage
Roy H. Taylor
Chief Executive Officer		Deborah L. Hill
Hub International of California, Inc.		Senior Vice President
Insurance Services, Inc.		Chief Human Resources and
		Administrative Officer
William E. Thomas, Esq.
Principal		Lilian Salter
William E. Thomas, Inc.,		Senior Vice President
A Professional Law Corporation		Chief Information Officer

		Donavon P. Ternes
		President
		Chief Operating Officer
		Chief Financial Officer
		Corporate Secretary

		David S. Weiant
		Senior Vice President
		Chief Lending Officer

		Gwendolyn L. Wertz
		Senior Vice President
		Retail Banking

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
		Elk Grove
Downtown Business Center		9245 Laguna Springs Drive, Suite 130
4001 Main Street		Elk Grove, CA 95758
Riverside, CA 92501
		Escondido
Hemet		362 West Mission Avenue, Suite 200
1690 E. Florida Avenue		Escondido, CA 92025
Hemet, CA 92544
		Glendora
Iris Plaza		1200 East Route 66, Suite 102
16110 Perris Boulevard, Suite K		Glendora, CA 91740
Moreno Valley, CA 92551
		Livermore
La Quinta		2578 Old First Street
78752 Highway 111		Livermore, CA 94550
La Quinta, CA 92253
		Rancho Cucamonga
La Sierra		10370 Commerce Center Drive, Suite 110
3312 La Sierra Avenue, Suite 105		Rancho Cucamonga, CA 91730
Riverside, CA 92503
		Redding
Moreno Valley		1619 Hilltop Drive, Suite E
12460 Heacock Street		Redding, CA 96002
Moreno Valley, CA 92553



		Riverside, Canyon Crest Drive
Orangecrest		5225 Canyon Crest Drive, Suite 86
19348 Van Buren Boulevard, Suite 119		Riverside, CA 92507
Riverside, CA 92508
		Riverside, Indiana Avenue
Rancho Mirage		7111 Indiana Avenue, Suite 200
71991 Highway 111		Riverside, CA 92504
Ranch Mirage, CA 92270
		Riverside, Riverside Avenue
Redlands		6529 Riverside Avenue, Suite 160
125 E. Citrus Avenue		Riverside, CA 92506
Redlands, CA 92373
		Roseville
Sun City		2998 Douglas Boulevard, Suite 105
27010 Sun City Boulevard		Roseville, CA 95661
Sun City, CA 92586
		San Rafael
Temecula		899 Northgate Drive, Suite 304
40705 Winchester Road, Suite 6		San Rafael, CA 94903
Temecula, CA 92591
		Santa Barbara
		3710 State Street, Suite B
		Santa Barbara, CA 93105

		Westlake Village
		2659 Townsgate Road, Suite 105
		Westlake Village, CA 91361










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