EX-13 2 prov-2017630x10kxex13.htm EXHIBIT 13 Exhibit


EXHIBIT 13

2017 Annual Report to Stockholders












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2017 Annual Report





Message From the Chairman


Dear Shareholders:
 
I am pleased to forward our Annual Report for fiscal 2017. You will note that it has been a mixed year for the Company. A year where we have demonstrated meaningful improvement in our community banking business, improving profitability by 11% in comparison to last year, but a year where we have also experienced challenges in our mortgage banking business, recording a small loss for the year. We have navigated similar waters in the past and are confident that we can continue to improve our community banking results by capitalizing on better general economic conditions through high quality growth while simultaneously adjusting our mortgage banking business to compensate for the poorer mortgage banking environment.
Overall, our fiscal 2017 financial results, net income of $5.2 million or $0.64 per share, deteriorated from last year and was largely the result of mortgage interest rate volatility resulting in a compressed loan sale margin as mortgage loan competitors responded with more aggressive pricing in an effort to stabilize their declining volume. When the downturn became evident, we spent the final two quarters of the fiscal year adjusting our mortgage banking business to compensate for the weaker mortgage banking fundamentals. As a result, we are better positioned today than we were last year at this time to better compete with what we believe will be lower overall mortgage volumes for fiscal 2018 in comparison to recent prior years.
The fiscal 2017 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, and to lower our operating expenses consistent with changes in market opportunities.
I am pleased to report that we have made progress. For Provident Bank, loan originations and purchases for the held for investment portfolio were $253.7 million in fiscal 2017, a 17 percent increase from $216.1 million in fiscal 2016, unfortunately the increased origination volume was tempered by loan prepayments. Nevertheless, loans held for investment grew eight percent this year, a higher growth rate than last year, and consistent with the moderate growth rate of the past four years; the core deposits balance increased by $41.1 million or seven percent at June 30, 2017 from the same date last year; operating expenses for fiscal 2017 increased by just three percent from the prior year; and finally, we paid a quarterly cash dividend of $0.13 per share in fiscal 2017 while repurchasing approximately 425,000 shares of our common stock.
Additionally, in fiscal 2017, Provident Bank Mortgage originated approximately $1.9 billion of loans held for sale, a decline of approximately 3% from fiscal 2016, with 51 percent originated for purchase money transactions and 49 percent originated for refinance transactions. Provident Bank Mortgage also originated $76.5 million of loans held for investment in fiscal 2017, a 109 percent increase from the $36.6 million originated last year. Also, operating expenses in our mortgage banking business were lower by one percent from the prior year, however, our loan sale margin declined to 140 basis points in fiscal 2017 from 157 basis points in fiscal 2016 as a result of the more competitive situation this year. To put this in perspective, 17 basis points less in loan sale margin on $1.9 billion of production volume reduces revenues by $3.2 million which, for us, was the difference between a profitable year or an unprofitable year for mortgage banking. Unfortunately, we experienced the latter.

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 and the percentage of loans held for investment to total assets continues to increase. We intend to grow the Company with similar goals this year in comparison to last 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. We will not pursue growth at any cost.
Similar to last year, during the course of fiscal 2018, we plan to 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 2017, we opened one and closed three mortgage banking retail offices and reduced the total number of mortgage banking personnel from the end of the prior year by approximately 16%. In fiscal 2018, we plan to: change our product offerings commensurate with the shifting market; continue our focus on purchase money originations versus refinance originations; make changes to our operating expenses consistent with market opportunities; and complete the implementation of our new loan operating system.

A Final Word
As I reflect on the performance of our Company during fiscal 2017, it would be easy to focus on the disappointing financial results while ignoring the heavy-lifting of our day-to-day activities that builds the franchise value of the Company without




embedding excessive risk in the balance sheet. We strive for long-term viability and try not to be unduly obsessed with short-term profitability. That is not to say, however, that we are satisfied with our recent financial performance, we are not. But, we also have long memories filled with past economic instability and the resultant stress on the financial services industry and financial and real estate markets; and in particular, individual banks that overextended themselves by entering new business lines they did not fully understand or expanded their risk appetite beyond prudent levels. We stick to our knitting; we have been serving the needs of consumers and businesses of Inland Southern California for many years and have grown to become the largest community bank headquartered in Riverside County. Over time, this approach has served our constituencies well.
In closing, I wish to recognize our staff of banking professionals and the Board of Directors for their endless commitment and dedication; and express my appreciation for the support we receive from our customers and shareholders. We recognize that our long-term success is conditioned upon your ongoing goodwill. Thank you.
      
 
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)
 
2017
 
2016
 
2015
 
2014
 
2013
 
 
 
 
 
 
 
 
 
FINANCIAL CONDITION DATA:
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,200,633

 
$
1,171,381

 
$
1,174,555

 
$
1,105,629

 
$
1,211,041

Loans held for investment, net
 
904,919

 
840,022

 
814,234

 
772,141

 
748,397

Loans held for sale, at fair value
 
116,548

 
189,458

 
224,715

 
158,883

 
188,050

Cash and cash equivalents
 
72,826

 
51,206

 
81,403

 
118,937

 
193,839

Investment securities
 
69,759

 
51,522

 
14,961

 
17,147

 
19,510

Deposits
 
926,521

 
926,384

 
924,086

 
897,870

 
923,010

Borrowings
 
126,226

 
91,299

 
91,367

 
41,431

 
106,491

Stockholders’ equity
 
128,230

 
133,451

 
141,137

 
145,862

 
159,974

Book value per share
 
16.62

 
16.73

 
16.35

 
15.66

 
15.40

 
 
 
 
 
 
 
 
 
 
 
OPERATING DATA:
 
 

 
 

 
 

 
 

 
 

Interest income
 
$
42,417

 
$
39,304

 
$
39,696

 
$
38,059

 
$
44,161

Interest expense
 
6,679

 
6,975

 
6,421

 
7,336

 
10,804

Net interest income
 
35,738

 
32,329

 
33,275

 
30,723

 
33,357

Recovery from the allowance for loan losses
 
(1,042
)
 
(1,715
)
 
(1,387
)
 
(3,380
)
 
(1,499
)
Net interest income after recovery from the allowance for loan losses
 
36,780

 
34,044

 
34,662

 
34,103

 
34,856

Loan servicing and other fees
 
1,251

 
1,068

 
1,085

 
1,077

 
1,093

Gain on sale of loans, net
 
25,680

 
31,521

 
34,210

 
25,799

 
68,493

Deposit account fees
 
2,194

 
2,319

 
2,412

 
2,469

 
2,449

(Loss) gain on sale and operations of real estate
owned acquired in the settlement of loans, net
 
(557
)
 
(95
)
 
282

 
18

 
916

Card and processing fees
 
1,451

 
1,448

 
1,406

 
1,370

 
1,292

Other non-interest income
 
802

 
800

 
992

 
942

 
957

Operating expenses
 
58,785

 
58,259

 
57,969

 
54,168

 
67,343

Income before income taxes
 
8,816

 
12,846

 
17,080

 
11,610

 
42,713

Provision for income taxes
 
3,609

 
5,372

 
7,277

 
5,004

 
16,916

Net income
 
$
5,207

 
$
7,474

 
$
9,803

 
$
6,606

 
$
25,797

Basic earnings per share
 
$
0.66

 
$
0.90

 
$
1.09

 
$
0.67

 
$
2.43

Diluted earnings per share
 
$
0.64

 
$
0.88

 
$
1.07

 
$
0.65

 
$
2.38

Cash dividend per share
 
$
0.52

 
$
0.48

 
$
0.45

 
$
0.40

 
$
0.24








Financial Highlights
 
 
At or For The Year Ended June 30,
 
 
2017
 
2016
 
2015
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
KEY OPERATING RATIOS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance Ratios
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
0.43
%
 
0.64
%
 
0.87
%
 
0.58
%
 
2.09
%
Return on average stockholders’ equity
 
3.94

 
5.43

 
6.81

 
4.31

 
16.80

Interest rate spread
 
3.00

 
2.78

 
2.96

 
2.69

 
2.69

Net interest margin
 
3.06

 
2.85

 
3.03

 
2.79

 
2.80

Average interest-earning assets to average interest-bearing liabilities
 
111.16

 
111.75

 
113.02

 
113.54

 
112.46

Operating and administrative expenses as a percentage of average total assets
 
4.90

 
4.98

 
5.12

 
4.75

 
5.44

Efficiency ratio(1)
 
88.32

 
83.96

 
78.70

 
86.81

 
62.03

Stockholders’ equity to total assets ratio
 
10.68

 
11.39

 
12.02

 
13.19

 
13.21

Dividend payout ratio
 
81.25

 
54.55

 
42.06

 
61.54

 
10.08

 
 
 
 
 
 
 
 
 
 
 
The Corporation's Regulatory Capital Ratios(2)
 
 

 
 

 
 

 
 

 
 

Tier 1 leverage capital (to adjusted average assets)
 
10.77
%
 
11.40
%
 
11.94
%
 
N/A
 
N/A
CET1 capital (to risk-weighted assets)
 
17.57

 
17.89

 
19.24

 
N/A
 
N/A
Tier 1 capital (to risk-weighted assets)
 
17.57

 
17.89

 
19.24

 
N/A
 
N/A
Total capital (to risk-weighted assets)
 
18.71

 
19.09

 
20.49

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

 
 

 
 

 
 

 
 

Tier 1 leverage capital (to adjusted average assets)
 
9.90
%
 
10.29
%
 
10.68
%
 
12.53
%
 
13.12
%
CET1 capital (to risk-weighted assets)
 
16.14

 
16.16

 
17.22

 
N/A
 
N/A
Tier 1 capital (to risk-weighted assets)
 
16.14

 
16.16

 
17.22

 
18.72

 
21.36

Total capital (to risk-weighted assets)
 
17.28

 
17.36

 
18.47

 
19.98

 
22.64

 
 
 
 
 
 
 
 
 
 
 
Asset Quality Ratios
 
 

 
 

 
 

 
 

 
 

Non-performing loans as a percentage of loans held for investment, net
 
0.88
%
 
1.23
%
 
1.71
%
 
2.06
%
 
2.90
%
Non-performing assets as a percentage of total assets
 
0.80

 
1.11

 
1.39

 
1.66

 
1.98

Allowance for loan losses as a percentage of gross loans held for investment
 
0.88

 
1.02

 
1.06

 
1.25

 
1.96

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

 
0.51


(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 Tuesday, November 28, 2017 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 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
 
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
Chief Executive Officer
 
Provident Bank Mortgage
Hub International of California, Inc.
 
 
 
 
Lilian Salter
William E. Thomas, Esq.
 
Senior Vice President
Principal
 
Chief Information Officer
William E. Thomas, Inc.,
 
 
a Professional Law Corporation
 
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
 
 
 
 
 
 
 
 
 
 
 
 






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
 
 
 
 
Atascadero
Downtown Business Center
 
7480 El Camino Real, 2nd Floor
4001 Main Street
 
Atascadero, CA 93422
Riverside, CA 92501
 
 
 
 
Brea
Hemet
 
3010 Saturn Street, Suite 101
1690 E. Florida Avenue
 
Brea, CA 92821
Hemet, CA 92544
 
 
 
 
Escondido
Home Office
 
221 West Crest Street, Suite 100
6570 Magnolia Avenue
 
Escondido, CA 92025
Riverside, CA 92506
 
 
 
 
Glendora
La Quinta
 
1200 East Route 66, Suite 102
78752 Highway 111
 
Glendora, CA 91740
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
 
 
 
 
Riverside, Canyon Crest Drive
Moreno Valley
 
5225 Canyon Crest Drive, Suite 86
12460 Heacock Street
 
Riverside, CA 92507
Moreno Valley, CA 92553
 
 
 
 
Riverside, Indiana Avenue
Orangecrest
 
7111 Indiana Avenue, Suite 200
19348 Van Buren Boulevard, Suite 119
 
Riverside, CA 92504
Riverside, CA 92508
 
 




 
 
Riverside, Riverside Avenue
Rancho Mirage
 
6529 Riverside Avenue, Suite 160
71991 Highway 111
 
Riverside, CA 92506
Ranch Mirage, CA 92270
 
 
 
 
Roseville
Redlands
 
2998 Douglas Boulevard, Suite 105
125 E. Citrus Avenue
 
Roseville, CA 95661
Redlands, CA 92373
 
 
 
 
 
Sun City
 
 
27010 Sun City Boulevard
 
 
Sun City, CA 92586
 
 
 
 
 
Temecula
 
 
40705 Winchester Road, Suite 6
 
 
Temecula, CA 92591
 
 
 
 
 
 
 
 
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