EX-13 2 prov-20230630xex13.htm EX-13

EXHIBIT 13

2023 Annual Report to Stockholders

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2023 Annual Report

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Message From the Chairman

Dear Shareholders:

I am pleased to forward our Annual Report for fiscal 2023 highlighting our financial results. Last year at this time, I wrote in the Chairman’s Message that “I was confident our strong financial foundation positions us well to face future challenges and to capitalize on opportunities as they develop.” Little did I know at the time that the Company’s strong financial foundation would be tested so soon by the unexpected banking industry turmoil earlier this year. I am happy to report that the Company did not experience any significant day-to-day operational disruptions. In fact, we grew the loan portfolio by approximately 15 percent over the course of the fiscal year despite becoming more conservative in the June 2023 quarter in response to the heightened liquidity concerns surrounding the banking industry. However, current general economic conditions do not seem to be improving and the Federal Open Market Committee has responded to higher inflation data by raising the federal funds rate to the highest level in 22 years and at the quickest pace in 40 years. This will surely suppress economic activity in the near term, as it is designed to do, and may be a precursor to a future recession or other economic dislocations. In any case, we believe our robust capital levels and conservative credit culture will continue to support the Company through any future economic disruptions.

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Fiscal 2023

Overall, our fiscal 2023 financial results, described in the following Financial Highlights, were similar to last year and much improved from the three prior fiscal years. Throughout fiscal 2023, operating conditions were unsettled with conflicting economic results such as high inflation, higher interest rates, and modest gross domestic product growth in contrast to low unemployment rates, strong jobs growth and higher wages. These conditions resulted in reasonable fundamental performance led by a higher net interest margin and net interest income offset by higher operating expenses but conditions became more challenging as the fiscal year progressed.

Last year, I described that our fiscal 2023 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. We experienced mixed results regarding these initiatives. Loan originations and purchases for the held for investment portfolio were $237.1 million in fiscal 2023, a 23 percent decrease from fiscal 2022 volume, but loan prepayments also declined this fiscal year and when combined with the loan origination and purchase volumes the activity resulted in a 15 percent increase in loans held for investment. However, core deposits decreased by $104.8 million or 13 percent at June 30, 2023 from the same date last year as a result of rising interest rates and the turmoil in the banking industry and were largely replaced with brokered certificates of deposit such that total deposits declined by just one percent. Operating expenses for fiscal 2023 increased by approximately four percent from the prior year (after adjusting for the Employee Retention Tax Credit in fiscal 2022) resulting from the inflationary environment. In addition, we paid a quarterly cash dividend of $0.14 per share in fiscal 2023 while repurchasing approximately 303,000 shares of our common stock under the April 2022 stock repurchase plan. Our capital management activities resulted in a 100 percent distribution of fiscal 2023 net income.

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Fiscal 2024

Similar to fiscal 2023, we plan to emphasize measured growth in loans held for investment; the continued growth of core deposits; disciplined control of operating expenses where we continue to improve operating efficiencies; and sound capital management decisions. We currently plan to return capital to shareholders in the form of cash dividends and believe that maintaining our cash dividend is very important to shareholders. We also recognize that prudent capital returns through stock repurchase programs is an essential capital management tool that we will continue to use as a component of our capital management strategy. We remain committed to single-family, multi-family, and commercial real estate mortgage lending as our primary sources of asset growth and we will redeploy cash-flows from investment securities to support the growth of our loan portfolio. Somewhat different than prior years, we intend to diversify the sources of total deposits and expand our contingency funding plans. We believe that doing so will reduce the volatility risk of the deposit base and provide for alternative funding sources in the event the banking industry experiences similar stresses this year. This strategy is intended to improve core revenue, over time, through a higher net interest margin, higher net interest income and ultimately, coupled with the growth of the Company, an increase in net income all while reducing the liquidity risk embedded in the balance sheet.

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A Final Word

Recently, I came across a quote that resonated with me and crystalized my thoughts regarding our task at hand particularly when I think about the challenges of the past few years. “Don’t accept the Paradise syndrome. You have to run your business in good times and bad, no matter what the economy, or the market, or the weather is doing.”1 I want to assure you that we understand operating conditions are not always “paradise.” In fact, perfect operating conditions are seldom experienced and if they are they are fleeting. We adjust our operating strategies on an ongoing basis to overcome challenging conditions but not in a way that jeopardizes our long-term viability in exchange for short-term profitability, by moving too far out on the risk curve, or by depreciating our franchise value. We will not move away from our community banking roots or from serving the families and small businesses of the Inland Empire, moreover we will celebrate and expand on that heritage.

In closing, I would like to recognize and thank our staff of banking professionals and Directors for their dedication to Provident. I would also like to express my appreciation to our customers, shareholders, and the communities we serve. To all of you, thank you for your continued patronage and support. We recognize that our continued success is inextricably linked to each of you and is dependent upon your ongoing goodwill.

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Sincerely,

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​ /s/ Craig G. Blunden | ​
Craig G. Blunden | ​
Chairman and Chief Executive Officer | ​

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1 The Stephens Private Equity Handbook by Jon E. M. Jacoby and Douglas H. Martin.

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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.

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​ | ​ | At or For The Year Ended June 30,
(In Thousands, Except Per Share Information) |  | 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019
FINANCIAL CONDITION DATA: |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total assets | ​ | $ | 1,332,948 | ​ | $ | 1,187,038 | ​ | $ | 1,183,596 | ​ | $ | 1,176,837 | ​ | $ | 1,084,850
Loans held for investment, net | ​ | ​ | 1,077,629 | ​ | ​ | 939,992 | ​ | ​ | 850,960 | ​ | ​ | 902,796 | ​ | ​ | 879,925
Cash and cash equivalents | ​ | ​ | 65,849 | ​ | ​ | 23,414 | ​ | ​ | 70,270 | ​ | ​ | 116,034 | ​ | ​ | 70,632
Investment securities | ​ | ​ | 156,492 | ​ | ​ | 188,421 | ​ | ​ | 226,893 | ​ | ​ | 123,344 | ​ | ​ | 100,059
Deposits | ​ | ​ | 950,571 | ​ | ​ | 955,504 | ​ | ​ | 937,973 | ​ | ​ | 892,969 | ​ | ​ | 841,271
Borrowings | ​ | ​ | 235,009 | ​ | ​ | 85,000 | ​ | ​ | 100,983 | ​ | ​ | 141,047 | ​ | ​ | 101,107
Stockholders’ equity | ​ | ​ | 129,687 | ​ | ​ | 128,650 | ​ | ​ | 127,280 | ​ | ​ | 123,976 | ​ | ​ | 120,641
Book value per share | ​ | ​ | 18.41 | ​ | ​ | 17.66 | ​ | ​ | 16.88 | ​ | ​ | 16.67 | ​ | ​ | 16.12
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OPERATING DATA: | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |
Interest income | ​ | $ | 45,992 | ​ | $ | 34,730 | ​ | $ | 35,201 | ​ | $ | 42,456 | ​ | $ | 44,378
Interest expense | ​ | ​ | 9,007 | ​ | ​ | 3,135 | ​ | ​ | 4,562 | ​ | ​ | 6,055 | ​ | ​ | 6,208
Net interest income | ​ | ​ | 36,985 | ​ | ​ | 31,595 | ​ | ​ | 30,639 | ​ | ​ | 36,401 | ​ | ​ | 38,170
Provision (recovery) for loan losses | ​ | ​ | 374 | ​ | ​ | (2,462) | ​ | ​ | (708) | ​ | ​ | 1,119 | ​ | ​ | (475)
Net interest income after provision (recovery) for loan losses | ​ | ​ | 36,611 | ​ | ​ | 34,057 | ​ | ​ | 31,347 | ​ | ​ | 35,282 | ​ | ​ | 38,645
Loan servicing and other fees | ​ | ​ | 414 | ​ | ​ | 1,056 | ​ | ​ | 1,170 | ​ | ​ | 819 | ​ | ​ | 1,051
Gain (loss) on sale of loans, net | ​ | ​ | 124 | ​ | ​ | 40 | ​ | ​ | (103) | ​ | ​ | (132) | ​ | ​ | 7,135
Deposit account fees | ​ | ​ | 1,296 | ​ | ​ | 1,302 | ​ | ​ | 1,247 | ​ | ​ | 1,610 | ​ | ​ | 1,928
Card and processing fees | ​ | ​ | 1,525 | ​ | ​ | 1,639 | ​ | ​ | 1,605 | ​ | ​ | 1,454 | ​ | ​ | 1,568
Other non-interest income | ​ | ​ | 716 | ​ | ​ | 679 | ​ | ​ | 654 | ​ | ​ | 769 | ​ | ​ | 829
Operating expenses | ​ | ​ | 28,270 | ​ | ​ | 25,915 | ​ | ​ | 25,733 | ​ | ​ | 28,900 | ​ | ​ | 45,236
Income before income taxes | ​ | ​ | 12,416 | ​ | ​ | 12,858 | ​ | ​ | 10,187 | ​ | ​ | 10,902 | ​ | ​ | 5,920
Provision for income taxes | ​ | ​ | 3,824 | ​ | ​ | 3,765 | ​ | ​ | 2,626 | ​ | ​ | 3,213 | ​ | ​ | 1,503
Net income | ​ | $ | 8,592 | ​ | $ | 9,093 | ​ | $ | 7,561 | ​ | $ | 7,689 | ​ | $ | 4,417
Basic earnings per share | ​ | $ | 1.20 | ​ | $ | 1.23 | ​ | $ | 1.01 | ​ | $ | 1.03 | ​ | $ | 0.59
Diluted earnings per share | ​ | $ | 1.19 | ​ | $ | 1.22 | ​ | $ | 1.00 | ​ | $ | 1.01 | ​ | $ | 0.58
Cash dividend per share | ​ | $ | 0.56 | ​ | $ | 0.56 | ​ | $ | 0.56 | ​ | $ | 0.56 | ​ | $ | 0.56

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Financial Highlights

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​ | ​ | At or For The Year Ended June 30, | ​
​ |  | 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019 | ​
KEY OPERATING RATIOS: |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
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Performance Ratios | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Return on average assets | ​ | 0.68 | % | 0.76 | % | 0.64 | % | 0.69 | % | 0.39 | %
Return on average stockholders’ equity | ​ | 6.58 | ​ | 7.14 | ​ | 6.05 | ​ | 6.26 | ​ | 3.63 | ​
Interest rate spread | ​ | 2.92 | ​ | 2.69 | ​ | 2.62 | ​ | 3.30 | ​ | 3.40 | ​
Net interest margin | ​ | 2.99 | ​ | 2.72 | ​ | 2.66 | ​ | 3.36 | ​ | 3.47 | ​
Average interest-earning assets to average interest- bearing liabilities | ​ | 110.27 | ​ | 110.67 | ​ | 110.78 | ​ | 111.32 | ​ | 111.32 | ​
Operating and administrative expenses as a percentage of average total assets | ​ | 2.23 | ​ | 2.17 | ​ | 2.18 | ​ | 2.59 | ​ | 4.00 | ​
Efficiency ratio(1) | ​ | 68.85 | ​ | 71.37 | ​ | 73.08 | ​ | 70.62 | ​ | 89.26 | ​
Stockholders’ equity to total assets ratio | ​ | 9.73 | ​ | 10.84 | ​ | 10.75 | ​ | 10.53 | ​ | 11.12 | ​
Dividend payout ratio | ​ | 47.06 | ​ | 45.88 | ​ | 55.83 | ​ | 55.45 | ​ | 96.55 | ​
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The Bank's Regulatory Capital Ratios | ​ |  | ​ |  | ​ |  | ​ |  | ​ |  | ​
Tier 1 leverage capital (to adjusted average assets) | ​ | 9.59 | % | 10.47 | % | 10.19 | % | 10.13 | % | 10.50 | %
CET1 capital (to risk-weighted assets) | ​ | 18.50 | ​ | 19.58 | ​ | 18.58 | ​ | 17.51 | ​ | 18.00 | ​
Tier 1 capital (to risk-weighted assets) | ​ | 18.50 | ​ | 19.58 | ​ | 18.58 | ​ | 17.51 | ​ | 18.00 | ​
Total capital (to risk-weighted assets) | ​ | 19.38 | ​ | 20.47 | ​ | 19.76 | ​ | 18.76 | ​ | 19.13 | ​
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Asset Quality Ratios | ​ |  | ​ |  | ​ |  | ​ |  | ​ |  | ​
Non-performing loans as a percentage of loans held for investment, net | ​ | 0.12 | % | 0.15 | % | 1.02 | % | 0.55 | % | 0.71 | %
Non-performing assets as a percentage of total assets | ​ | 0.10 | ​ | 0.12 | ​ | 0.73 | ​ | 0.42 | ​ | 0.57 | ​
Allowance for loan losses as a percentage of gross loans held for investment | ​ | 0.55 | ​ | 0.59 | ​ | 0.88 | ​ | 0.91 | ​ | 0.80 | ​
Net (recoveries) charge-offs to average loans receivable, net | ​ | (0.00) | ​ | (0.05) | ​ | (0.00) | ​ | (0.01) | ​ | (0.02) | ​

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(1) | Non-interest expense as a percentage of net interest income and non-interest income.

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Shareholder Information

ANNUAL MEETING

The annual meeting of shareholders will be held virtually by means of remote communication on Tuesday, November 28, 2023 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.

462 South 4th Street, Suite 1600

Louisville, KY 40202

(800) 368-5948

MARKET INFORMATION

Provident Financial Holdings, Inc. is traded on the NASDAQ Global Select Market under the symbol PROV.

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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.

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Board of Directors and Senior Officers

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Board of Directors |  | Senior Officers
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Bruce W. Bennett | ​ | Provident Financial Holdings, Inc.
Retired Health Care Executive | ​ | ​
Private Investor | ​ | Craig G. Blunden
​ | ​ | Chairman and Chief Executive Officer
Craig G. Blunden | ​ | ​
Chairman and Chief Executive Officer | ​ | Donavon P. Ternes
Provident Financial Holdings, Inc. | ​ | President, Chief Operating Officer,
Provident Bank | ​ | Chief Financial Officer, and
​ | ​ | Corporate Secretary
Judy A. Carpenter | ​ | ​
Head of Medical Network Operations | ​ | Provident Bank
Akido Labs, Inc. | ​ | ​
​ | ​ | Craig G. Blunden
Debbi H. Guthrie | ​ | Chairman and Chief Executive Officer
Retired Executive | ​ | ​
Raincross Hospitality Corporation | ​ | Deborah L. Hill
​ | ​ | Senior Vice President
Kathy M. Michalak | ​ | Chief Human Resources and
Former Executive Director | ​ | Administrative Officer
Habitat for Humanity Riverside | ​ | ​
​ | ​ | 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
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Provident Locations

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RETAIL BANKING CENTERS | ​ | ​
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Blythe | ​ | Moreno Valley
350 E. Hobson Way | ​ | 12460 Heacock Street
Blythe, CA 92225 | ​ | Moreno Valley, CA 92553
(760) 922-6105 ​ | ​ | (951) 242-3149
Canyon Crest | ​ | Orangecrest
5225 Canyon Crest Drive, Suite 86 | ​ | 19348 Van Buren Boulevard, Suite 119
Riverside, CA 92507 | ​ | Riverside, CA 92508
(951) 781-8080 ​ | ​ | (951) 780-7170
Corona | ​ | Rancho Mirage
487 Magnolia Avenue, Suite 101 | ​ | 71991 Highway 111
Corona, CA 92879 | ​ | Ranch Mirage, CA 92270
(951) 270-2926 ​ | ​ | (760) 340-5644
Downtown Business Center | ​ | Redlands
4001 Main Street | ​ | 125 E. Citrus Avenue
Riverside, CA 92501 | ​ | Redlands, CA 92373
(951) 682-3272 ​ | ​ | (909) 793-2992
Hemet | ​ | Sun City
1690 E. Florida Avenue | ​ | 27010 Sun City Boulevard
Hemet, CA 92544 | ​ | Sun City, CA 92586
(951) 658-7224 ​ | ​ | (951) 679-2301 ​
Home Office | ​ | Temecula
6570 Magnolia Avenue | ​ | 40705 Winchester Road, Suite 6
Riverside, CA 92506 | ​ | Temecula, CA 92591
(951) 782-6177 ​ | ​ | (951) 296-2429
La Sierra | ​ | ​
3312 La Sierra Avenue, Suite 105 | ​ | ​
Riverside, CA 92503 | ​ | ​
(951) 353-9897 | ​ | ​

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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

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www.myprovident.com

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NASDAQ Global Select Market - PROV