Provident Financial Holdings Reports Third Quarter Fiscal 2015 Earnings

THIRD QUARTER HIGHLIGHTS INCLUDE:

Net Income Rises 86% to $2.6 Million Compared to Same Quarter Last Year

Diluted Earnings Per Share Increases 107% to $0.29 Per Share Compared to Same Quarter Last Year

Net Interest Margin Expands 31 Basis Points to 3.05% Compared to Same Quarter Last Year

Loans Held for Investment Increase 6% to $819.6 Million Since June 30, 2014

Non-Performing Assets Decline 26% to $13.7 Million Since June 30, 2014

Repurchased 278,220 Shares of Common Stock During the Current Quarter

RIVERSIDE, Calif., April 28, 2015 (GLOBE NEWSWIRE) -- Provident Financial Holdings, Inc. ("Company"), (Nasdaq:PROV), the holding company for Provident Savings Bank, F.S.B. ("Bank"), today announced third quarter earnings for the fiscal year ending June 30, 2015.

For the quarter ended March 31, 2015, the Company reported net income of $2.60 million, or $0.29 per diluted share (on 9.11 million average diluted shares outstanding), compared to net income of $1.40 million, or $0.14 per diluted share (on 9.97 million average diluted shares outstanding), in the comparable period a year ago. The increase in net income for the third quarter of fiscal 2015 was primarily attributable to a $4.46 million, or 84 percent, increase in the gain on sale of loans; partly offset by a $2.14 million, or 24 percent, increase in salaries and employee benefits expense and an increase of $852,000, or 75 percent, in the provision for income taxes, compared to the same period one year ago.

"We are encouraged by the healthier general economic environment and are well positioned to serve our growing markets," said Craig G. Blunden, Chairman and Chief Executive Officer of the Company. "Our improved financial results reflect a return to better operating fundamentals for both our community banking and mortgage banking business," he concluded.

As of March 31, 2015, the Bank exceeded all regulatory capital requirements with Tier 1 Leverage, Common Equity Tier 1, Tier 1 Risk-Based and Total Risk-Based capital ratios of 10.79 percent, 15.81 percent, 15.81 percent and 16.94 percent, respectively. As of June 30, 2014, these ratios were 12.53 percent, not applicable, 18.72 percent and 19.98 percent, respectively. The ratios declined primarily as a result of the $25.0 million cash dividend paid by the Bank to the Company in September 2014 to fund stock repurchases, dividends to shareholders and general corporate and administrative expenses, and the increase in total assets. It should be noted that the current capital ratios are not directly comparable to prior periods because the Bank has implemented the Basel III capital protocol at March 31, 2015 consistent with regulatory requirements and prior periods have not been adjusted.

Return on average assets for the third quarter of fiscal 2015 increased to 0.92 percent from 0.50 percent for the same period of fiscal 2014 and return on average stockholders' equity for the third quarter of fiscal 2015 increased to 7.22 percent from 3.70 percent for the comparable period of fiscal 2014.

On a sequential quarter basis, the third quarter of fiscal 2015 net income reflects a $272,000, or 12 percent, increase from net income of $2.33 million in the second quarter of fiscal 2015. The increase in net income in the third quarter of fiscal 2015 compared to the second quarter of fiscal 2015 was primarily attributable to an increase of $1.71 million in the gain on sale of loans, partly offset by an increase of $1.00 million in salaries and employee benefits expense. Diluted earnings per share for the third quarter of fiscal 2015 were $0.29 per share, up 16 percent from $0.25 per share in the second quarter of fiscal 2015. Return on average assets increased to 0.92 percent for the third quarter of fiscal 2015 from 0.84 percent in the second quarter of fiscal 2015; and return on average stockholders' equity for the third quarter of fiscal 2015 was 7.22 percent, compared to 6.42 percent for the second quarter of fiscal 2015.

For the nine months ended March 31, 2015, net income increased $2.80 million, or 62 percent, to $7.32 million from $4.52 million in the comparable period ended March 31, 2014; and diluted earnings per share for the nine months ended March 31, 2015 increased $0.35, or 80 percent, to $0.79 from $0.44 for the comparable nine month period last year.          

Net interest income increased $928,000, or 12 percent, to $8.38 million in the third quarter of fiscal 2015 from $7.45 million for the same quarter of fiscal 2014, attributable to a 31 basis point increase in the net interest margin.  Non-interest income increased $4.48 million, or 66 percent, to $11.27 million in the third quarter of fiscal 2015 from $6.79 million in the same quarter of fiscal 2014. Non-interest expense increased $2.62 million, or 21 percent, to $15.17 million in the third quarter of fiscal 2015 from $12.55 million in the same quarter of fiscal 2014. The increases in non-interest income, primarily due to an increase in the gain on sale of loans, and non-interest expense, primarily due to an increase in salaries and employee benefits, relate primarily to increased mortgage banking operations.

The average balance of loans outstanding, including loans held for sale, increased by $149.6 million, or 18 percent, to $992.3 million in the third quarter of fiscal 2015 from $842.7 million in the same quarter of fiscal 2014, primarily due to an increase in loans held for sale attributable to the improved mortgage banking activity and an increase in loans held for investment, primarily in multi-family loans. The average yield on loans receivable decreased by 23 basis points to 3.91 percent in the third quarter of fiscal 2015 from an average yield of 4.14 percent in the same quarter of fiscal 2014. The decrease in the average loan yield was primarily attributable to payoffs of loans which had a higher yield than the average yield of loans held for investment, adjustable rate loans repricing to lower current market interest rates and a lower average yield on loans held for sale. The average balance of loans held for sale in the third quarter of fiscal 2015 was $184.5 million with an average yield of 3.65 percent as compared to $81.8 million with an average yield of 4.09 percent in the same quarter of fiscal 2014. Loans originated and purchased for investment in the third quarter of fiscal 2015 totaled $55.2 million, consisting primarily of multi-family, commercial real estate and single-family loans. The outstanding balance of "preferred loans" (multi-family, commercial real estate, construction and commercial business loans) increased by $48.7 million, or 12 percent, to $449.7 million at March 31, 2015 from $401.0 million at June 30, 2014. The percentage of preferred loans to total loans held for investment at March 31, 2015 increased to 55 percent from 51 percent at June 30, 2014. Loan principal payments received in the third quarter of fiscal 2015 were $34.4 million, compared to $25.6 million in the same quarter of fiscal 2014.

The average balance of investment securities decreased by $1.5 million, or nine percent, to $16.0 million in the third quarter of fiscal 2015 from $17.5 million in the same quarter of fiscal 2014. The decrease was attributable to principal payments received on mortgage-backed securities during the last 12 months, partly offset by an $800,000 investment in short-term time deposits at four minority-owned financial institutions in June 2014 and a $250,000 investment in the common stock of a community development financial institution in July 2014 to help fulfill the Bank's Community Reinvestment Act obligation.  The average yield on investment securities decreased 13 basis points to 1.75 percent in the third quarter of fiscal 2015 from 1.88 percent for the same quarter of fiscal 2014.  The decline in the average yield was primarily attributable to the downward repricing of adjustable rate mortgage-backed securities and the placement of the short-term time deposits referred to above at an average yield of 0.50 percent.

In the third quarter of fiscal 2015, the Federal Home Loan Bank ("FHLB") – San Francisco distributed a $126,000 cash dividend to the Bank. This compares to the same quarter last year when the Bank received a $203,000 cash dividend.

The average balance of the Company's interest-earning deposits, primarily cash with the Federal Reserve Bank of San Francisco, decreased $135.2 million, or 62 percent, to $83.5 million in the third quarter of fiscal 2015 from $218.7 million in the same quarter of fiscal 2014. The decrease in interest-earning deposits was primarily the result of redeploying cash balances to fund the increase in loans held for sale and loans held for investment. The average yield earned on interest-earning deposits was 0.25 percent in both the third quarters of fiscal 2015 and 2014 and lower than the yield that could have been earned if the excess liquidity was deployed in loans or investment securities.

Average deposits increased slightly to $911.0 million in the third quarter of fiscal 2015 from $909.7 million in the same quarter of fiscal 2014. The average cost of deposits decreased by six basis points to 0.52 percent in the third quarter of fiscal 2015 from 0.58 percent in the same quarter last year, primarily due to higher cost time deposits repricing to lower current market interest rates and a lower percentage of time deposits to the total deposit balance. Transaction account balances or "core deposits" increased $36.3 million, or seven percent, to $563.3 million at March 31, 2015 from $527.0 million at June 30, 2014, while time deposits decreased $16.3 million, or four percent, to $354.6 million at March 31, 2015 from $370.9 million at June 30, 2014, consistent with the Bank's strategy to decrease the percentage of time deposits in its deposit base and to increase the percentage of lower cost checking and savings accounts.

The average balance of borrowings, which consisted of FHLB – San Francisco advances, increased $9.0 million, or 17 percent, to $60.4 million and the average cost of advances decreased 58 basis points to 2.60 percent in the third quarter of fiscal 2015, compared to an average balance of $51.5 million and an average cost of 3.18 percent in the same quarter of fiscal 2014. The increase in borrowings was primarily attributable to newly acquired long-term advances to hedge against rising interest rates and overnight borrowings to fund improved mortgage banking volumes.

The net interest margin during the third quarter of fiscal 2015 increased 31 basis points to 3.05 percent from 2.74 percent in the same quarter last year. The increase was primarily due to the deployment of excess liquidity into higher yielding interest-earning assets, primarily to fund increases in loans held for sale and loans held for investment. The average yield of interest-earning assets increased by 26 basis points to 3.62 percent in the third quarter of fiscal 2015 from 3.36 percent in the same quarter last year, while the average cost of liabilities decreased by seven basis points to 0.65 percent in the third quarter of fiscal 2015 from 0.72 percent in the same quarter last year.

During the third quarter of fiscal 2015, the Company recorded a recovery from the allowance for loan losses of $111,000, compared to the recovery of $849,000 recorded during the same period of fiscal 2014 and the $354,000 recovery recorded in the second quarter of fiscal 2015 (sequential quarter).

Non-performing assets, with underlying collateral primarily located in Southern California, decreased to $13.7 million, or 1.13 percent of total assets, at March 31, 2015, compared to $18.4 million, or 1.66 percent of total assets, at June 30, 2014. Non-performing loans at March 31, 2015 decreased $5.4 million or 34 percent since June 30, 2014 to $10.5 million and were primarily comprised of 29 single-family loans ($6.8 million); four multi-family loans ($2.1 million); four commercial real estate loans ($1.5 million); and two commercial business loans ($93,000).  Real estate owned acquired in the settlement of loans at March 31, 2015 increased $723,000, or 29 percent, to $3.2 million (five properties) from $2.5 million (four properties) at June 30, 2014.  The real estate owned at March 31, 2015 was comprised of three single-family properties ($1.0 million) and two commercial real estate properties ($2.2 million). 

Net recoveries for the quarter ended March 31, 2015 were $(130,000) or (0.05) percent (annualized) of average loans receivable, compared to net charge-offs of $168,000 or 0.08 percent (annualized) of average loans receivable for the quarter ended March 31, 2014 and net recoveries of $(159,000) or (0.07) percent (annualized) of average loans receivable for the quarter ended December 31, 2014 (sequential quarter).

Classified assets at March 31, 2015 were $35.0 million, comprised of $12.2 million of loans in the special mention category, $19.6 million of loans in the substandard category and $3.2 million in real estate owned. Classified assets at June 30, 2014 were $37.9 million, comprised of $9.4 million of loans in the special mention category, $26.0 million of loans in the substandard category and $2.5 million in real estate owned. 

For the quarter ended March 31, 2015, no loans were restructured from their original terms or newly classified as a restructured loan.  As of March 31, 2015, the outstanding balance of restructured loans was $6.8 million: three loans were classified as special mention ($1.2 million, on accrual status); and 16 loans were classified as substandard ($5.6 million, 14 of the 16 loans ($4.7 million) are on non-accrual status).  As of March 31, 2015, $4.1 million, or 60 percent, of restructured loans were current with respect to their modified payment terms.

The allowance for loan losses was $8.7 million at March 31, 2015, or 1.05 percent of gross loans held for investment, compared to $9.7 million at June 30, 2014, or 1.25 percent of gross loans held for investment. Management believes that, based on currently available information, the allowance for loan losses is sufficient to absorb potential losses inherent in loans held for investment at March 31, 2015.

Non-interest income increased by $4.48 million, or 66 percent, to $11.27 million in the third quarter of fiscal 2015 from $6.79 million in the same period of fiscal 2014, primarily as a result of a $4.46 million increase in the gain on sale of loans. On a sequential quarter basis, non-interest income increased $1.77 million, or 19 percent, primarily as a result of a $1.71 million, or 21 percent, increase in the gain on sale of loans.

The gain on sale of loans increased to $9.75 million for the quarter ended March 31, 2015 from $5.29 million in the comparable quarter last year, reflecting the impact of a higher loan sale volume, partly offset by a lower average loan sale margin. Total loan sale volume, which includes the net change in commitments to extend credit on loans to be held for sale, was $784.6 million in the quarter ended March 31, 2015, up $421.3 million, or 116 percent, from $363.3 million in the comparable quarter last year. The average loan sale margin for mortgage banking was 125 basis points for the quarter ended March 31, 2015, down 19 basis points from 144 basis points in the comparable quarter last year and down 15 basis points from 140 basis points in the second quarter of fiscal 2015 (sequential quarter). The gain on sale of loans includes a favorable fair-value adjustment on loans held for sale and derivative financial instruments (commitments to extend credit, commitments to sell loans, commitments to sell mortgage-backed securities, and option contracts) that amounted to a net gain of $4.20 million in the third quarter of fiscal 2015, compared to a favorable fair-value adjustment that amounted to a net gain of $718,000 in the same period last year.

In the third quarter of fiscal 2015, a total of $680.6 million of loans were originated and purchased for sale, 92 percent higher than the $353.7 million for the same period last year, and 20 percent higher than the $565.7 million during the second quarter of fiscal 2015 (sequential quarter). The loan origination volume has increased from the previous year because mortgage interest rates have recently declined spurring an increase in refinance activity. Total loans sold during the quarter ended March 31, 2015 were $604.1 million, 59 percent higher than the $380.2 million sold during the same quarter last year, and 16 percent higher than the $519.9 million sold during the second quarter of fiscal 2015 (sequential quarter). Total loan originations (including loans originated and purchased for investment and loans originated and purchased for sale) were $735.8 million in the third quarter of fiscal 2015, an increase of 89 percent from $389.9 million in the same quarter of fiscal 2014, and 19 percent higher than the $616.1 million in the second quarter of fiscal 2015 (sequential quarter).

The sale and operations of real estate owned acquired in the settlement of loans resulted in a net gain of $58,000 in the third quarter of fiscal 2015, compared to a net gain of $45,000 in the comparable period last year. Two real estate owned properties were sold in the quarter ended March 31, 2015 compared to two real estate owned properties sold in the same quarter last year. One real estate owned property was acquired in the settlement of loans during the third quarter of fiscal 2015, compared to one real estate owned property acquired in the settlement of loans in the comparable period last year. As of March 31, 2015, the real estate owned balance was $3.2 million (five properties), compared to $2.5 million (four properties) at June 30, 2014.

Non-interest expenses increased $2.62 million, or 21 percent, to $15.17 million in the third quarter of fiscal 2015 from $12.55 million in the same quarter last year, primarily as a result of the increase in salaries and employee benefits expense.  The increase in salaries and employee benefits expense was primarily related to the increase in mortgage banking loan production resulting in higher variable compensation expense.

The Company's efficiency ratio improved to 77 percent in the third quarter of fiscal 2015 from 88 percent in the third quarter of fiscal 2014. The improvement was primarily the result of the increase in non-interest income, partly offset by the increase in non-interest expense.

The Company's provision for income taxes was $1.99 million for the third quarter of fiscal 2015, an increase of $852,000 or 75 percent, from $1.14 million in the same quarter last year, as a result of the increase in income before taxes. The effective income tax rate for the quarter ended March 31, 2015 was 43.4 percent as compared to 44.9 percent in the same quarter last year. The Company believes that the tax provision recorded in the third quarter of fiscal 2015 reflects its current income tax obligations.

The Company repurchased 278,220 shares of its common stock during the quarter ended March 31, 2015 at an average cost of $16.02 per share.  As of March 31, 2015, a total of 347,313 shares or 77 percent of the shares authorized in the October 2014 stock repurchase plan have been purchased, leaving 105,899 shares available for future purchases.

The Bank currently operates 15 retail/business banking offices in Riverside County and San Bernardino County (Inland Empire). Provident Bank Mortgage operates two wholesale loan production offices and 13 retail loan production offices located throughout California.

The Company will host a conference call for institutional investors and bank analysts on Wednesday, April 29, 2015 at 9:00 a.m. (Pacific) to discuss its financial results. The conference call can be accessed by dialing 1-877-260-8898 and requesting the Provident Financial Holdings Earnings Release Conference Call. An audio replay of the conference call will be available through Wednesday, May 6, 2015 by dialing 1-800-475-6701 and referencing access code number 358194.

For more financial information about the Company please visit the website at www.myprovident.com and click on the "Investor Relations" section.

Safe-Harbor Statement

This press release contains statements that the Company believes are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to the Company's financial condition, liquidity, results of operations, plans, objectives, future performance or business. You should not place undue reliance on these statements, as they are subject to risks and uncertainties. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements include, but are not limited to increased competitive pressures; changes in the interest rate environment; secondary market conditions for loans and our ability to sell loans in the secondary market; changes in general economic conditions and conditions within the securities markets; legislative and regulatory changes; and other factors described in the Company's latest annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission-which are available on our website at www.myprovident.com and on the SEC's website at www.sec.gov. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements whether as a result of new information, future events or otherwise. These risks could cause our actual results for fiscal 2015 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us and could negatively affect our operating and stock price performance.