EX-13 2 prov-2016630x10kxex13.htm EXHIBIT 13 Exhibit


EXHIBIT 13

2016 Annual Report to Stockholders












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2016 Annual Report





Message From the Chairman


Dear Shareholders:
 
I am pleased to forward our Annual Report during the 60th Anniversary of our Company. It is a tremendous honor to represent the Company, to be the one, on behalf of the Company, accepting awards and recognition from local and state leaders who have acknowledged Provident for the positive impact it has made over the years, helping to make life better in the communities we serve. More importantly, to be the one that thanks our customers and employees for their loyalty and dedication.
Our fiscal 2016 results, net income of $7.5 million or $0.88 per share, were lower than last year and hampered because we made the strategic decision to stand firm on our underwriting standards in the face of an extremely competitive operating environment thereby reducing our growth rate. Additionally, mortgage banking experienced a more difficult year than last year as a result of interest rate volatility and the implementation of the October 2015 regulatory changes which seemed to freeze mortgage origination activity for a time as industry participants made sure their implementation complied with the new requirements. Nonetheless, we continue to improve on our ability to execute within each operating segment laying the foundation for improved financial results consistent with our multi-year objectives.
The fiscal 2016 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 new October 2015 regulatory requirements.
I am pleased to report that we have made progress in all of these specific initiatives. For Provident Bank, loan originations and purchases for the held for investment portfolio were $216.1 million in fiscal 2016, a 23 percent increase from $175.1 million in fiscal 2015, unfortunately the increased origination volume was tempered by a significant increase in loan prepayments resulting in a lower than forecast three percent increase in loans held for investment which was below our expectations; the core deposits balance increased by $39.1 million or seven percent at June 30, 2016 from the same date last year; operating expenses were essentially unchanged from the prior year; and finally, we paid a quarterly cash dividend of $0.12 per share in fiscal 2016 while repurchasing approximately 742,000 shares of our common stock.
Additionally, in fiscal 2016, Provident Bank Mortgage originated $2.0 billion of loans held for sale, a 21 percent decrease from fiscal 2015, with 54 percent originated from purchase money transactions and 46 percent originated from refinance transactions. Also, operating expenses in our mortgage banking business were essentially unchanged from the prior year and we implemented the changes needed to comply with the regulatory requirements by the October 2015 deadline.

Provident Bank
We remain committed to the long-term strategies implemented in prior years that we believe will improve our fundamental performance. For example, the percentage of investment securities to total assets remains at very low levels, 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 expand. We intend to grow the Company with more aggressive goals this year but will remain disciplined in our 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.
Similar to last year, during the course of fiscal 2017, we will emphasize prudent increases in loans held for investment; the growth of retail deposits; 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 continue to adjust our mortgage banking business model to current market fundamentals. During the course of fiscal 2016, we opened one mortgage banking retail office and reduced by 12 the total number of mortgage banking employees from the prior year. In fiscal 2017, we plan to: change our product offerings commensurate with the shifting market; continue our focus on purchase money originations versus refinance originations; and make changes to our operating expenses consistent with market opportunities.

A Final Word
In last year’s message, leading up to the 60th Anniversary of our Company, I recounted many important milestones. We achieved those milestones during good and bad economic times; and during periods of rapid and less than rapid growth. Over the course of those 60 years we established a corporate culture for our Company that sometimes reminds me of the famous story, the Tortoise and the Hare, attributed to the Greek fabulist Aesop. Of course, in my view, the application of the story to banking is consistent with the Tortoise who established a disciplined, steady pace to eventually win the race, rather than with the hare who carelessly fell asleep at a critical juncture in the race (although many familiar with the banking industry leading up to the Great




Recession may draw a different parallel). At Provident we approach our business in a similar manner to how the Tortoise approached the celebrated race. We are disciplined and steady, certainly; and we are also pragmatic, determined, nimble, thoughtful and resourceful. Our corporate culture is the reason Provident thrives today, becoming the largest independently owned community bank in Riverside County, underscoring 60 years of commitment to the customers and communities we serve while building the franchise value of the Company along the way.
In closing, I wish to thank our staff of banking professionals and the Board of Directors for their ongoing commitment and dedication; and express my appreciation for the sponsorship we receive from customers and shareholders. Truly, with your support, we have withstood the test of time.
      
 
Sincerely,
 
 
/s/ Craig G. Blunden
Craig G. Blunden
Chairman and Chief Executive Officer




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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)
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
 
 
FINANCIAL CONDITION DATA:
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,171,381

 
$
1,174,555

 
$
1,105,629

 
$
1,211,041

 
$
1,260,917

Loans held for investment, net
 
840,022

 
814,234

 
772,141

 
748,397

 
796,836

Loans held for sale, at fair value
 
189,458

 
224,715

 
158,883

 
188,050

 
231,639

Cash and cash equivalents
 
51,206

 
81,403

 
118,937

 
193,839

 
145,136

Investment securities
 
51,522

 
14,961

 
17,147

 
19,510

 
22,898

Deposits
 
926,384

 
924,086

 
897,870

 
923,010

 
961,411

Borrowings
 
91,299

 
91,367

 
41,431

 
106,491

 
126,546

Stockholders’ equity
 
133,451

 
141,137

 
145,862

 
159,974

 
144,777

Book value per share
 
16.73

 
16.35

 
15.66

 
15.40

 
13.34

 
 
 
 
 
 
 
 
 
 
 
OPERATING DATA:
 
 

 
 

 
 

 
 

 
 

Interest income
 
$
39,304

 
$
39,696

 
$
38,059

 
$
44,161

 
$
51,435

Interest expense
 
6,975

 
6,421

 
7,336

 
10,804

 
14,705

Net interest income
 
32,329

 
33,275

 
30,723

 
33,357

 
36,730

(Recovery) provision for loan losses
 
(1,715
)
 
(1,387
)
 
(3,380
)
 
(1,499
)
 
5,777

Net interest income after (recovery) provision for loan losses
 
34,044

 
34,662

 
34,103

 
34,856

 
30,953

Loan servicing and other fees
 
1,068

 
1,085

 
1,077

 
1,093

 
733

Gain on sale of loans, net
 
31,521

 
34,210

 
25,799

 
68,493

 
38,017

Deposit account fees
 
2,319

 
2,412

 
2,469

 
2,449

 
2,438

(Loss) gain on sale and operations of real estate
owned acquired in the settlement of loans, net
 
(95
)
 
282

 
18

 
916

 
(120
)
Card and processing fees
 
1,448

 
1,406

 
1,370

 
1,292

 
1,282

Other non-interest income
 
800

 
992

 
942

 
957

 
800

Operating expenses
 
58,259

 
57,969

 
54,168

 
67,343

 
55,365

Income before income taxes
 
12,846

 
17,080

 
11,610

 
42,713

 
18,738

Provision for income taxes
 
5,372

 
7,277

 
5,004

 
16,916

 
7,928

Net income
 
$
7,474

 
$
9,803

 
$
6,606

 
$
25,797

 
$
10,810

Basic earnings per share
 
$
0.90

 
$
1.09

 
$
0.67

 
$
2.43

 
$
0.96

Diluted earnings per share
 
$
0.88

 
$
1.07

 
$
0.65

 
$
2.38

 
$
0.96

Cash dividend per share
 
$
0.48

 
$
0.45

 
$
0.40

 
$
0.24

 
$
0.14








Financial Highlights
 
 
At or For The Year Ended June 30,
 
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
 
KEY OPERATING RATIOS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance Ratios
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
0.64
%
 
0.87
%
 
0.58
%
 
2.09
%
 
0.84
%
Return on average stockholders’ equity
 
5.43

 
6.81

 
4.31

 
16.80

 
7.58

Interest rate spread
 
2.78

 
2.96

 
2.69

 
2.69

 
2.83

Net interest margin
 
2.85

 
3.03

 
2.79

 
2.80

 
2.95

Average interest-earning assets to average interest-bearing liabilities
 
111.75

 
113.02

 
113.54

 
112.46

 
110.53

Operating and administrative expenses as a percentage of average total assets
 
4.98

 
5.12

 
4.75

 
5.44

 
4.29

Efficiency ratio(1)
 
83.96

 
78.70

 
86.81

 
62.03

 
69.31

Stockholders’ equity to total assets ratio
 
11.39

 
12.02

 
13.19

 
13.21

 
11.48

Dividend payout ratio
 
54.55

 
42.06

 
61.54

 
10.08

 
14.58

 
 
 
 
 
 
 
 
 
 
 
The Corporation's Regulatory Capital Ratios(2)
 
 

 
 

 
 

 
 

 
 

Tier 1 leverage capital (to adjusted average assets)
 
11.40
%
 
11.94
%
 
N/A
 
N/A
 
N/A
CET1 capital (to risk-weighted assets)
 
17.89

 
19.24

 
N/A
 
N/A
 
N/A
Tier 1 capital (to risk-weighted assets)
 
17.89

 
19.24

 
N/A
 
N/A
 
N/A
Total capital (to risk-weighted assets)
 
19.09

 
20.49

 
N/A
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
The Bank's Regulatory Capital Ratios(2)
 
 

 
 

 
 

 
 

 
 

Tier 1 leverage capital (to adjusted average assets)
 
10.29
%
 
10.68
%
 
12.53
%
 
13.12
%
 
11.26
%
CET1 capital (to risk-weighted assets)
 
16.16

 
17.22

 
N/A
 
N/A
 
N/A
Tier 1 capital (to risk-weighted assets)
 
16.16

 
17.22

 
18.72

 
21.36

 
17.53

Total capital (to risk-weighted assets)
 
17.36

 
18.47

 
19.98

 
22.64

 
18.79

 
 
 
 
 
 
 
 
 
 
 
Asset Quality Ratios
 
 

 
 

 
 

 
 

 
 

Non-performing loans as a percentage of loans held for investment, net
 
1.23
%
 
1.71
%
 
2.06
%
 
2.90
%
 
4.33
%
Non-performing assets as a percentage of total assets
 
1.11

 
1.39

 
1.66

 
1.98

 
3.17

Allowance for loan losses as a percentage of gross loans held for investment
 
1.02

 
1.06

 
1.25

 
1.96

 
2.63

Allowance for loan losses as a percentage of gross non-performing loans
 
77.38

 
59.77

 
55.73

 
58.77

 
52.45

Net (recoveries) charge-offs to average loans receivable, net
 
(0.17
)
 
(0.04
)
 
0.21

 
0.51

 
1.38


(1) 
Non-interest expense as a percentage of net interest income and non-interest income.
(2) 
On January 1, 2015 the Corporation and the Bank implemented the Basel III capital protocol consistent with regulatory requirements which were not applicable in prior periods.






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 Thursday, November 17, 2016 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

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 Southern and Northern 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
 
Richard L. Gale
 
 
Senior Vice President
Debbi H. Guthrie
 
Provident Bank Mortgage
Executive Vice President and
 
 
Chief Communications Officer
 
Deborah L. Hill
Raincross Hospitality Corporation
 
Senior Vice President
 
 
Chief Human Resources and
Roy H. Taylor
 
Administrative Officer
Chief Executive Officer
 
 
Hub International of California, Inc.
 
Lilian Salter
 
 
Senior Vice President
William E. Thomas, Esq.
 
Chief Information Officer
Principal
 
 
William E. Thomas, Inc.,
 
Donavon P. Ternes
a Professional Law Corporation
 
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
 
 
 
 
 
 
 
 
 
 
 
 






Provident Locations
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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
 
 
 
 
Carlsbad
Downtown Business Center
 
2888 Loker Avenue East, Suite 202
4001 Main Street
 
Carlsbad, CA 92010
Riverside, CA 92501
 
 
 
 
City of Industry
Hemet
 
18725 East Gale Avenue, Suite 100
1690 E. Florida Avenue
 
City of Industry, CA 91748
Hemet, CA 92544
 
 
 
 
Elk Grove
Home Office
 
9245 Laguna Springs Drive, Suite 130
6570 Magnolia Avenue
 
Elk Grove, CA 95758
Riverside, CA 92506
 
 
 
 
Escondido
La Quinta
 
362 West Mission Avenue, Suite 200
78752 Highway 111
 
Escondido, CA 92025
La Quinta, CA 92253
 
 
 
 
Glendora
La Sierra
 
1200 East Route 66, Suite 102
3312 La Sierra Avenue, Suite 105
 
Glendora, CA 91740
Riverside, CA 92503
 
 
 
 
Livermore
Moreno Valley
 
2578 Old First Street
12460 Heacock Street
 
Livermore, CA 94550
Moreno Valley, CA 92553
 
 
 
 
Rancho Cucamonga
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
71991 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
 
 
 
 
Riverside, Riverside Avenue
Sun City
 
6529 Riverside Avenue, Suite 160
27010 Sun City Boulevard
 
Riverside, CA 92506
Sun City, CA 92586
 
 
 
 
Roseville
Temecula
 
2998 Douglas Boulevard, Suite 105
40705 Winchester Road, Suite 6
 
Roseville, CA 95661
Temecula, CA 92591
 
 
 
 
Santa Barbara
 
 
3710 State Street, Suite B

 
 
Santa Barbara, CA 93105
 
 
 
 
 
Victorville
 
 
12180 Ridgecrest Street, Suite 116
 
 
Victorville, CA 92395
 
 
 
 
 
Westlake Village
 
 
2659 Townsgate Road, Suite 105
 
 
Westlake Village, CA 91361
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer Information 1-800-442-5201 or www.myprovident.com


















































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Corporate Office
3756 Central Avenue, Riverside, CA 92506
(951) 686-6060

www.myprovident.com

NASDAQ Global Select Market - PROV