EX-13 2 prov10k2020exh13.htm EXHIBIT 13
EXHIBIT 13
2020 Annual Report to Stockholders

2020 Annual Report

Message From the Chairman
Dear Shareholders:
I am pleased to forward our Annual Report for fiscal 2020. Last year at this time, I wrote in the Chairman’s Message that “a well-positioned Company must also be ready for future challenges” and I went on to describe that several economists with various theories were suggesting that the U.S. could see the start of a recession in 2020 or 2021. When I wrote those words, I wanted to convey that the Company takes risk management seriously and believes it is well-prepared to face future challenges that may arise from economic weakness. Unfortunately, the forecasts were prescient with regard to an impending recession. We are now in a significant economic slump as a result of the COVID-19 pandemic with poor visibility of what the immediate future may hold for financial institutions in general and the Company in particular. A situation such as this is the reason the Company places such importance on our risk management oversight which is demonstrated by our robust capital levels, conservative credit culture, and strong liquidity position.
Fiscal 2020
Overall, our fiscal 2020 financial results, described on the following Financial Highlights pages, improved from last year. However, it should be noted that a strong first half of the fiscal year was thrown off course by the poor economic environment which developed in the second half of our fiscal year. Nonetheless, we demonstrated significant improvement in notable performance ratios such as the return on average assets, the return on average stockholders’ equity, and the efficiency ratio compared to last year. Just as important, net income improved by 74 percent.
Last year, I described that our fiscal 2020 Business Plan forecast disciplined growth in loans held for investment, growth in retail deposits (primarily core deposits), control of operating expenses, and sound capital management decisions.
I am pleased to report that we have made progress on each of these initiatives. Loan originations and purchases for the held for investment portfolio were $248.1 million in fiscal 2020, a 45 percent increase from fiscal 2019. Unfortunately, an increase in loan prepayments depressed the growth rate of loans held for investment to the low single digits. Core deposits, one of the most valuable assets of a banking franchise, increased by $74.9 million or 12 percent at June 30, 2020 from the same date last year; operating expenses for fiscal 2020 decreased by a remarkable 31 percent from the prior year (after adjusting for the reversion of non-recurring litigation settlement expenses in fiscal 2020 and the non-recurring expenses associated with scaling back the saleable single-family mortgage operations in fiscal 2019); and, we paid a quarterly cash dividend of $0.14 per share in fiscal 2020 while repurchasing approximately 66,000 shares of our common stock quarterly cash dividend of $0.14 per share in fiscal 2020 while repurchasing approximately 66,000 shares of our common stock.
Fiscal 2021
Similar to this past year, we plan to emphasize disciplined growth in loans held for investment (although we will not pursue growth at any cost); the continued growth of core deposits; diligent control of operating expenses; and sound capital management decisions. We plan to return capital to shareholders in the form of cash dividends and believe that maintaining our cash dividend is very important to shareholders. Doing so takes priority over common stock repurchases although we will monitor developing economic conditions and the potential impact to the Company to determine if common stock repurchases should once again become a prudent part of our capital management plans for fiscal 2021. We are committed to single-family, multi-family, and commercial real estate mortgage lending as our primary sources of asset growth, however, in response to the uncertain economic environment, we will also work toward deploying excess liquidity by investing in lower-risk investment securities which will augment our strong liquidity profile. Similarly, we intend to increase the percentage of lower cost checking and savings accounts and decrease the percentage of time deposits in our deposit base while still growing total deposits. This strategy is intended to improve core revenue, over time, through a higher net interest margin and ultimately, coupled with the growth of the Company, an increase in net interest income.
A Final Word
I am pleased with how we have positioned the Company and am confident that our strong financial foundation will weather the current economic weakness and allow us to capitalize on future opportunities as they develop. We are well-positioned to compete in the communities we serve and have thus far been able to navigate the COVID-19 pandemic reasonably well.

In closing, I would like to thank our staff of banking professionals for their dedication to Provident. They are working diligently to support our customers and communities under unprecedented circumstances. I would also like to thank the Board of Directors for its leadership, wisdom and guidance.
Most importantly, I would like to thank our customers and shareholders for your commitment to Provident. To all of you, we appreciate your patronage and encouragement and we will continue to do everything we can at every opportunity to earn your business and your trust. Thank you.
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,
(In Thousands, Except Per Share Information) |  | 2020 |  | 2019 |  | 2018 |  | 2017 |  | 2016
FINANCIAL CONDITION DATA: |  |  |  |  |  |  |  |  |  |
Total assets |  | $ | 1,176,837 |  |  | $ | 1,084,850 |  |  | $ | 1,175,549 |  |  | $ | 1,200,633 |  |  | $ | 1,171,381 |
Loans held for investment, net |  | 902,796 |  |  | 879,925 |  |  | 902,685 |  |  | 904,919 |  |  | 840,022 |
Loans held for sale, at fair value |  | — |  |  | — |  |  | 96,298 |  |  | 116,548 |  |  | 189,458 |
Cash and cash equivalents |  | 116,034 |  |  | 70,632 |  |  | 43,301 |  |  | 72,826 |  |  | 51,206 |
Investment securities |  | 123,344 |  |  | 100,059 |  |  | 95,309 |  |  | 69,759 |  |  | 51,522 |
Deposits |  | 892,969 |  |  | 841,271 |  |  | 907,598 |  |  | 926,521 |  |  | 926,384 |
Borrowings |  | 141,047 |  |  | 101,107 |  |  | 126,163 |  |  | 126,226 |  |  | 91,299 |
Stockholders’ equity |  | 123,976 |  |  | 120,641 |  |  | 120,457 |  |  | 128,230 |  |  | 133,451 |
Book value per share |  | 16.67 |  |  | 16.12 |  |  | 16.23 |  |  | 16.62 |  |  | 16.73 |
OPERATING DATA: |  |  |  |  |  |  |  |  |  |
Interest income |  | $ | 42,456 |  |  | $ | 44,378 |  |  | $ | 42,712 |  |  | $ | 42,417 |  |  | $ | 39,304 |
Interest expense |  | 6,055 |  |  | 6,208 |  |  | 6,412 |  |  | 6,679 |  |  | 6,975 |
Net interest income |  | 36,401 |  |  | 38,170 |  |  | 36,300 |  |  | 35,738 |  |  | 32,329 |
Provision (recovery) for loan losses |  | 1,119 |  |  | (475 | ) |  | (536 | ) |  | (1,042 | ) |  | (1,715 | )
Net interest income after provision (recovery) for loan losses |  | 35,282 |  |  | 38,645 |  |  | 36,836 |  |  | 36,780 |  |  | 34,044 |
Loan servicing and other fees |  | 819 |  |  | 1,051 |  |  | 1,575 |  |  | 1,251 |  |  | 1,068 |
(Loss) gain on sale of loans, net |  | (132 | ) |  | 7,135 |  |  | 15,802 |  |  | 25,680 |  |  | 31,521 |
Deposit account fees |  | 1,610 |  |  | 1,928 |  |  | 2,119 |  |  | 2,194 |  |  | 2,319 |
Loss on sale and operations of real estate owned acquired in the settlement of loans, net |  | — |  |  | (4 | ) |  | (86 | ) |  | (557 | ) |  | (95 | )
Card and processing fees |  | 1,454 |  |  | 1,568 |  |  | 1,541 |  |  | 1,451 |  |  | 1,448 |
Other non-interest income |  | 769 |  |  | 833 |  |  | 944 |  |  | 802 |  |  | 800 |
Operating expenses |  | 28,900 |  |  | 45,236 |  |  | 53,204 |  |  | 58,785 |  |  | 58,259 |
Income before income taxes |  | 10,902 |  |  | 5,920 |  |  | 5,527 |  |  | 8,816 |  |  | 12,846 |
Provision for income taxes |  | 3,213 |  |  | 1,503 |  |  | 3,396 |  |  | 3,609 |  |  | 5,372 |
Net income |  | $ | 7,689 |  |  | $ | 4,417 |  |  | $ | 2,131 |  |  | $ | 5,207 |  |  | $ | 7,474 |
Basic earnings per share |  | $ | 1.03 |  |  | $ | 0.59 |  |  | $ | 0.28 |  |  | $ | 0.66 |  |  | $ | 0.90 |
Diluted earnings per share |  | $ | 1.01 |  |  | $ | 0.58 |  |  | $ | 0.28 |  |  | $ | 0.64 |  |  | $ | 0.88 |
Cash dividend per share |  | $ | 0.56 |  |  | $ | 0.56 |  |  | $ | 0.56 |  |  | $ | 0.52 |  |  | $ | 0.48 |

Financial Highlights

|  | At or For The Year Ended June 30,
|  | 2020 |  | 2019 |  | 2018 |  | 2017 |  | 2016
KEY OPERATING RATIOS: |  |  |  |  |  |  |  |  |  |
Performance Ratios |  |  |  |  |  |  |  |  |  |
Return on average assets |  | 0.69 | % |  | 0.39 | % |  | 0.18 | % |  | 0.43 | % |  | 0.64 | %
Return on average stockholders’ equity |  | 6.26 |  |  | 3.63 |  |  | 1.73 |  |  | 3.94 |  |  | 5.43 |
Interest rate spread |  | 3.30 |  |  | 3.40 |  |  | 3.13 |  |  | 3.00 |  |  | 2.78 |
Net interest margin |  | 3.36 |  |  | 3.47 |  |  | 3.19 |  |  | 3.06 |  |  | 2.85 |
Average interest-earning assets to average interest- bearing liabilities |  | 111.32 |  |  | 111.14 |  |  | 110.66 |  |  | 111.16 |  |  | 111.75 |
Operating and administrative expenses as a percentage of average total assets |  | 2.59 |  |  | 4.00 |  |  | 4.54 |  |  | 4.90 |  |  | 4.98 |
Efficiency ratio(1) |  | 70.62 |  |  | 89.26 |  |  | 91.42 |  |  | 88.32 |  |  | 83.96 |
Stockholders’ equity to total assets ratio |  | 10.53 |  |  | 11.12 |  |  | 10.25 |  |  | 10.68 |  |  | 11.39 |
Dividend payout ratio |  | 55.45 |  |  | 96.55 |  |  | 200.00 |  |  | 81.25 |  |  | 54.55 |
The Bank's Regulatory Capital Ratios |  |  |  |  |  |  |  |  |  |
Tier 1 leverage capital (to adjusted average assets) |  | 10.13 | % |  | 10.50 | % |  | 9.96 | % |  | 9.90 | % |  | 10.29 | %
CET1 capital (to risk-weighted assets) |  | 17.51 |  |  | 18.00 |  |  | 16.81 |  |  | 16.14 |  |  | 16.16 |
Tier 1 capital (to risk-weighted assets) |  | 17.51 |  |  | 18.00 |  |  | 16.81 |  |  | 16.14 |  |  | 16.16 |
Total capital (to risk-weighted assets) |  | 18.76 |  |  | 19.13 |  |  | 17.90 |  |  | 17.28 |  |  | 17.36 |
Asset Quality Ratios |  |  |  |  |  |  |  |  |  |
Non-performing loans as a percentage of loans held for investment, net |  | 0.55 | % |  | 0.71 | % |  | 0.67 | % |  | 0.88 | % |  | 1.23 | %
Non-performing assets as a percentage of total assets |  | 0.42 |  |  | 0.57 |  |  | 0.59 |  |  | 0.80 |  |  | 1.11 |
Allowance for loan losses as a percentage of gross loans held for investment |  | 0.91 |  |  | 0.80 |  |  | 0.81 |  |  | 0.88 |  |  | 1.02 |
Net (recoveries) charge-offs to average loans receivable, net |  | (0.01 | ) |  | (0.02 | ) |  | 0.01 |  |  | (0.04 | ) |  | (0.17 | )

(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 24, 2020 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 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
Retired Executive |  | Single-Family Division
Hub International of California, Inc. |  |
|  | Lilian Salter
William E. Thomas, Esq. |  | Senior Vice President
Executive Vice President and General Counsel |  | Chief Information Officer
The KPC Group |  |
|  | 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 Division

Provident Locations

RETAIL BANKING CENTERS |  |
Blythe |  | Rancho Mirage
350 E. Hobson Way |  | 71991 Highway 111
Blythe, CA 92225 |  | Ranch Mirage, CA 92270
Canyon Crest |  | Redlands
5225 Canyon Crest Drive, Suite 86 |  | 125 E. Citrus Avenue
Riverside, CA 92507 |  | Redlands, CA 92373
Corona |  | Sun City
487 Magnolia Avenue, Suite 101 |  | 27010 Sun City Boulevard
Corona, CA 92879 |  | Sun City, CA 92586
Downtown Business Center |  | Temecula
4001 Main Street |  | 40705 Winchester Road, Suite 6
Riverside, CA 92501 |  | Temecula, CA 92591
Hemet |  |
1690 E. Florida Avenue |  |
Hemet, CA 92544 |  |
Home Office |  |
6570 Magnolia Avenue |  |
Riverside, CA 92506 |  |
La Sierra |  |
3312 La Sierra Avenue, Suite 105 |  |
Riverside, CA 92503 |  |
Moreno Valley |  |
12460 Heacock Street |  |
Moreno Valley, CA 92553 |  |
Orangecrest |  |
19348 Van Buren Boulevard, Suite 119 |  |
Riverside, CA 92508 |  |
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