Provident Financial Holdings Reports Fourth Quarter Fiscal 2012 Earnings

Net Income Increases by 105%

Net Interest Margin Increases by 28 Basis Points

Core Deposits (Transaction Accounts) Increase by 9%

Non-Performing Assets Decline by 12%

Repurchase of 157,945 Shares of Common Stock

RIVERSIDE, Calif., July 30, 2012 (GLOBE NEWSWIRE) -- Provident Financial Holdings, Inc. ("Company"), (Nasdaq:PROV), the holding company for Provident Savings Bank, F.S.B. ("Bank"), today announced fourth quarter earnings for the fiscal year ended June 30, 2012.

For the quarter ended June 30, 2012, the Company reported net income of $4.31 million, or $0.39 per diluted share (on 11.05 million average shares outstanding), compared to net income of $2.10 million, or $0.18 per diluted share (on 11.48 million average shares outstanding), in the comparable period a year ago. The increase in net income for the fourth quarter of fiscal 2012 was primarily attributable to an $8.97 million increase in the gain on sale of loans, net, partly offset by an increase of $1.20 million in the provision for loan losses and an increase of $3.85 million in compensation expenses, compared to the same period one year ago.

"We are pleased with our current operating results particularly with respect to mortgage banking. The mortgage banking business remains resilient and we are effectively executing on our strategy to increase the percentage of our mortgage business from the retail channel," said Craig G. Blunden, Chairman and Chief Executive Officer of the Company. "Earnings are strong, capital is strong and we are well positioned for growth. Unfortunately, we are finding that the economic recovery is still weak which is delaying our ability to grow the community banking business."

As of June 30, 2012, the Bank exceeded all regulatory capital requirements with Tier 1 Leverage, Tier 1 Risk-Based and Total Risk-Based capital ratios of 11.26 percent, 17.53 percent and 18.79 percent, respectively. As of June 30, 2011, these ratios were 10.53 percent, 16.30 percent and 17.56 percent, respectively. For each of these periods, the Bank's capital ratios exceeded the minimum required ratios to be deemed "well-capitalized" (5.00 percent for Tier 1 Leverage, 6.00 percent for Tier 1 Risk-Based and 10.00 percent for Total Risk-Based capital ratios).

Return on average assets for the fourth quarter of fiscal 2012 increased to 1.37 percent from 0.63 percent for the same period of fiscal 2011, and return on average stockholders' equity for the fourth quarter of fiscal 2012 increased to 11.96 percent from 5.99 percent for the comparable period of fiscal 2011.

On a sequential quarter basis, the fourth quarter net income of fiscal 2012 reflects a $1.97 million, or 85 percent, increase from net income of $2.33 million in the third quarter of fiscal 2012. The increase in net income in the fourth quarter of fiscal 2012 was primarily attributable to an increase of $4.57 million in the gain on sale of loans, partly offset by an increase of $1.35 million in compensation expenses, compared to the third quarter of fiscal 2012. Diluted earnings per share for the fourth quarter of fiscal 2012 increased by 86% to $0.39 per share from $0.21 per share in the third quarter of fiscal 2012. Return on average assets increased to 1.37 percent for the fourth quarter of fiscal 2012 from 0.73 percent in the third quarter of fiscal 2012; and return on average stockholders' equity for the fourth quarter of fiscal 2012 was 11.96 percent, compared to 6.50 percent for the third quarter of fiscal 2012.

For the fiscal year ended June 30, 2012, net income decreased to $10.81 million from $13.22 million in the comparable period ended June 30, 2011; and diluted earnings per share for the fiscal year ended June 30, 2012 decreased to $0.96 from $1.16 for the fiscal year ended June 30, 2011. The decrease was primarily due to the $9.32 million increase in compensation expenses partially offset by a $6.82 million increase in the gain on sale of loans, both attributable to the increase in mortgage banking loan production. The average loan sale margin remained unchanged at 149 basis points in fiscal 2012 as compared to fiscal 2011. Total loan sale volume in fiscal 2012 was $2.63 billion, up $524.2 million or 25 percent, from $2.11 billion in fiscal 2011. The return on average assets for the fiscal year ended June 30, 2012 decreased to 0.84 percent from 0.97 percent for fiscal year ended June 30, 2011. The return on average stockholders' equity for the fiscal year ended June 30, 2012 decreased to 7.54 percent from 9.74 percent for the fiscal year ended June 30, 2011.        

Net interest income before the provision for loan losses increased $393,000, or four percent, to $9.45 million in the fourth quarter of fiscal 2012 from $9.06 million for the same quarter of fiscal 2011, due to a 28 basis point increase in the net interest margin, partly offset by a $62.6 million, or five percent, decrease in average interest-earning assets. Non-interest income increased $8.72 million, or 120 percent, to $15.98 million in the fourth quarter of fiscal 2012 from $7.26 million in the same quarter of fiscal 2011. Non-interest expense increased $4.18 million, or 35 percent, to $15.99 million in the fourth quarter of fiscal 2012 from $11.81 million in the same quarter in fiscal 2011. The increases in non-interest income and non-interest expense relate primarily to mortgage banking operations.

The average balance of loans outstanding, including loans held for sale, decreased by $9.7 million, or one percent, to $1.05 billion in the fourth quarter of fiscal 2012 as compared to $1.06 billion in the same quarter of fiscal 2011. The average yield on loans receivable decreased by 33 basis points to 4.68 percent in the fourth quarter of fiscal 2012 from an average yield of 5.01 percent in the same quarter of fiscal 2011. 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 the higher average balance of loans held for sale with a lower average yield. The average balance of loans held for sale in the fourth quarter of fiscal 2012 was $237.6 million, compared to $162.3 million in the same quarter last year; and the average yield was 3.84% and 4.29%, respectively. Loans originated and purchased for investment in the fourth quarter of fiscal 2012 totaled $10.0 million, consisting primarily of multi-family and commercial real estate loans. The outstanding balance of "preferred loans" (multi-family, commercial real estate, construction and commercial business loans) decreased by $37.1 million, or nine percent, to $375.9 million at June 30, 2012 from $413.0 million at June 30, 2011. There were no construction loans outstanding at June 30, 2012 and 2011. The percentage of preferred loans to total loans held for investment at June 30, 2012 increased slightly to 46 percent from 45 percent at June 30, 2011. Loan principal payments received in the fourth quarter of fiscal 2012 were $35.7 million, compared to $29.3 million in the same quarter of fiscal 2011.  In addition, real estate acquired in the settlement of loans (real estate owned), gross of any allowances, in the fourth quarter of fiscal 2012 declined to $4.8 million, compared to $11.2 million in the same quarter of fiscal 2011.

The average balance of investment securities decreased by $3.4 million, or 13 percent, to $23.3 million in the fourth quarter of fiscal 2012 from $26.7 million in the same quarter of fiscal 2011. The decrease was attributable to principal payments received on mortgage-backed securities during the last 12 months.  The average yield on investment securities decreased 24 basis points to 2.08 percent in the fourth quarter of fiscal 2012 from 2.32 percent in the same quarter of fiscal 2011.  The decline in average yield was primarily attributable to the downward repricing of adjustable rate mortgage-backed securities.

In April 2012, the Federal Home Loan Bank ("FHLB") – San Francisco announced a partial redemption of excess capital stock held by member banks and a cash dividend. As a result, a total of $1.2 million of excess capital stock was redeemed at par and a $31,000 cash dividend was received by the Bank in the fourth quarter of fiscal 2012. This is comparable to the same quarter last year when the Bank received a $1.2 million stock redemption and a $22,000 cash dividend.

The average balance of the Company's interest-earning deposits, primarily cash with the Federal Reserve Bank of San Francisco, decreased $44.7 million, or 27 percent, to $121.8 million in the fourth quarter of fiscal 2012 from $166.5 million in the same quarter of fiscal 2011. The Bank maintains high levels of cash and cash equivalents in response to the uncertain operating environment and to fund its mortgage banking operations. The decrease in the average balance was due primarily to the utilization of the funds for a higher average balance of loans held for sale. The average yield earned on interest-earning deposits was 0.25% in the fourth quarter of fiscal 2012, unchanged from the same period in fiscal 2011 and much lower than the yield that could have been earned if the excess liquidity was deployed in loans or investment securities.

Average deposits increased $14.0 million, or one percent, to $962.2 million in the fourth quarter of fiscal 2012 from $948.2 million in the same quarter of fiscal 2011. The average cost of deposits decreased by 23 basis points to 0.79 percent in the fourth quarter of fiscal 2012 from 1.02 percent in the same quarter last year, primarily due to higher costing time deposits repricing to lower current market interest rates and a reduction in rates paid on transaction account balances ("core deposits"). Core deposits increased by $43.3 million, or nine percent, to $515.6 million at June 30, 2012 from $472.3 million at June 30, 2011, 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. Time deposits decreased $27.7 million, or six percent, to $445.8 million at June 30, 2012 from $473.5 million at June 30, 2011. As of June 30, 2012, the remaining outstanding balance of brokered deposits was $7.1 million, compared to $12.2 million as of June 30, 2011. 

The average balance of borrowings, which consisted of FHLB – San Francisco advances, decreased $88.7 million, or 41 percent, to $129.1 million in the fourth quarter of fiscal 2012 and the average cost of advances decreased 15 basis points to 3.70 percent in the fourth quarter of fiscal 2012, compared to an average balance of $217.8 million and an average cost of 3.85 percent in the same quarter of fiscal 2011. The decrease in borrowings was primarily attributable to scheduled maturities.

The net interest margin during the fourth quarter of fiscal 2012 increased 28 basis points to 3.11 percent from 2.83 percent in the same quarter last year. The increase was primarily due to the decline in the average cost of liabilities outpacing the declining yield of interest-earning assets. The declining yield of interest-earning assets was attributable to the downward repricing of loans and investment securities, partly offset by a lower level of excess liquidity invested at a nominal yield. The decline in the average cost of liabilities was primarily due to the downward repricing of deposits to current market interest rates and a decline in the average cost of borrowings attributable primarily to the scheduled maturities during the period.

During the fourth quarter of fiscal 2012, the Company recorded a provision for loan losses of $2.05 million, compared to the $847,000 provision for loan losses during the same period of fiscal 2011 and the $1.62 million provision recorded in the third quarter of fiscal 2012 (sequential quarter).

In compliance with the Office of the Comptroller of the Currency's ("OCC") regulatory reporting requirements which do not recognize specific valuation allowances, the Bank modified its charge-off policy on impaired loans during the quarter ended March 31, 2012 and, subsequent to the OCC's review, the Bank further refined its charge-off policy in the quarter ended June 30, 2012. The modification to the charge-off policy resulted in $3.01 million of additional charge-offs in the fourth quarter of fiscal 2012 and a total of $4.00 million of additional charge-offs for fiscal 2012, but had no impact to the allowance for loans losses or the provision for loan losses because these charge-offs were timely identified in previous periods as specific valuation allowances and were included in the Corporation's loss experience as part of the evaluation of the allowance for loan losses in those prior periods.

Non-performing assets, with underlying collateral primarily located in Southern California, decreased to $40.0 million, or 3.17 percent of total assets, at June 30, 2012, compared to $45.5 million, or 3.46 percent of total assets, at June 30, 2011. Non-performing loans at June 30, 2012 were primarily comprised of 87 single-family loans ($29.1 million); six commercial real estate loans ($3.2 million); four multi-family loans ($1.5 million); one other mortgage loan ($522,000); and six commercial business loans ($172,000).  Real estate owned acquired in the settlement of loans at June 30, 2012 was comprised of 18 single-family properties ($4.7 million), one multi-family property ($366,000), one commercial real estate property ($0, fully reserved), and four undeveloped lots ($385,000). Net charge-offs for the quarter ended June 30, 2012 were $4.83 million or 1.84 percent (annualized) of average loans receivable, compared to $4.84 million or 1.83 percent (annualized) of average loans receivable for the quarter ended June 30, 2011 and $4.26 million or 1.64 percent (annualized) of average loans receivable for the quarter ended March 31, 2012 (sequential quarter).

Classified assets at June 30, 2012 were $58.5 million, comprised of $4.9 million in the special mention category, $48.1 million in the substandard category and $5.5 million in real estate owned. Classified assets at June 30, 2011 were $66.6 million, comprised of $12.9 million in the special mention category, $45.4 million in the substandard category and $8.3 million in real estate owned. 

For the quarter ended June 30, 2012, two loans for $1.3 million were re-underwritten and modified from their original terms, and were identified as restructured loans. This compares to the same quarter last year when the Bank modified six loans for $2.9 million.  As of June 30, 2012, the outstanding balance of restructured loans was $25.1 million: 12 loans are classified as pass, are not included in the classified asset totals described earlier and remain on accrual status ($5.5 million); three loans are classified as special mention and remain on accrual status ($4.0 million); and 41 loans are classified as substandard ($15.6 million, all are on non-accrual status).  As of June 30, 2012, $18.5 million, or 74 percent, of the restructured loans are current with respect to their payment status.

The allowance for loan losses was $21.5 million at June 30, 2012, or 2.63 percent of gross loans held for investment, compared to $30.5 million at June 30, 2011, or 3.34 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 as of June 30, 2012.

Non-interest income increased $8.72 million, or 120 percent, to $15.98 million in the fourth quarter of fiscal 2012 from $7.26 million in the same period of fiscal 2011, primarily the result of an $8.97 million increase in the gain on sale of loans. On a sequential quarter basis, non-interest income increased $4.67 million, or 41 percent, primarily as a result of a $4.57 million increase in the gain on sale of loans.

The gain on sale of loans increased to $14.71 million for the quarter ended June 30, 2012 from $5.74 million in the comparable quarter last year, reflecting the impact of a higher loan sale volume and a higher 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 $774.5 million in the quarter ended June 30, 2012, up 84% from $420.2 million in the comparable quarter last year. The average loan sale margin for mortgage banking was 190 basis points for the quarter ended June 30, 2012, compared to 136 basis points in the comparable quarter last year. 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 $5.29 million in the fourth quarter of fiscal 2012, as compared to a favorable fair-value adjustment that amounted to a net gain of $2.85 million in the same period last year. The gain on sale of loans for the fourth quarter of fiscal 2012 includes a $241,000 recourse provision for loans sold that are subject to repurchase, compared to a $402,000 recourse provision for loans sold that are subject to repurchase in the comparable quarter of fiscal 2011. As of June 30, 2012, the recourse reserve for loans sold that are subject to repurchase was $6.2 million, an increase from $4.2 million at June 30, 2011.

In the fourth quarter of fiscal 2012, a total of $736.0 million of loans were originated and purchased for sale, 64 percent higher than $449.6 million for the same period last year, and 26 percent higher than the $583.6 million in the third quarter of fiscal 2012 (sequential quarter). The loan origination volume remains favorable from a historical perspective as a result of continued liquidity in the secondary mortgage markets particularly in FHA/VA, Fannie Mae and Freddie Mac loan products and very low mortgage interest rates. Total loans sold during the quarter ended June 30, 2012 were $690.0 million, 70 percent higher than $406.5 million during the same quarter last year, and 11 percent higher than the $623.4 million sold during the third quarter of fiscal 2012 (sequential quarter). Total loan originations (including loans originated and purchased for investment and loans originated and purchased for sale) were $746.0 million in the fourth quarter of fiscal 2012, an increase of 64 percent from $454.2 million in the same quarter of fiscal 2011, and 25 percent higher than the $595.2 million in the third quarter of fiscal 2012 (sequential quarter).

The sale and operations of real estate owned acquired in the settlement of loans resulted in a net loss of $(14,000) in the fourth quarter of fiscal 2012, as compared to a net gain of $257,000 in the comparable period last year. Sixteen real estate owned properties were sold in the quarter ended June 30, 2012 compared to 35 real estate owned properties sold in the same quarter last year. Thirteen real estate owned properties were acquired in the settlement of loans during the fourth quarter of fiscal 2012, compared to 25 real estate owned properties acquired in the settlement of loans in the comparable period last year. As of June 30, 2012, the real estate owned balance was $5.5 million (24 properties), compared to $8.3 million (54 properties) at June 30, 2011.

Non-interest expenses increased $4.18 million, or 35 percent, to $15.99 million in the fourth quarter of fiscal 2012 from $11.81 million in the same quarter last year, primarily as a result of an increase in compensation, premises and occupancy, sales and marketing and other operating expenses, partly offset by lower deposit insurance premiums resulting from an improvement in the Bank's risk category rating and the change in methodology of calculating the premium.  The increase in compensation and other operating expenses was due primarily to the increase in mortgage banking loan production; and the increase in premises and equipment was due primarily to increases in maintenance costs and office leases.

The Company's efficiency ratio improved to 63 percent in the fourth quarter of fiscal 2012 from 72 percent in the fourth quarter of fiscal 2011. The improvement was the result of an increase in non-interest income and an increase in net interest income, partly offset by an increase in non-interest expense.

The Company's tax provision was $3.08 million for the fourth quarter of fiscal 2012, up $1.52 million or 97 percent, from $1.56 million in the same quarter last year. The effective income tax rate for the quarter ended June 30, 2012 was 41.7 percent as compared to 42.6 percent in the same quarter last year. The Company believes that the tax provision recorded in the fourth quarter of fiscal 2012 reflects its current income tax obligations.

The Company repurchased 157,945 shares of its common stock during the quarter ended June 30, 2012 at an average cost of $10.98 per share. As of June 30, 2012, a total of 99,416 shares, or 18%, of the shares authorized in the April 2012 stock repurchase plan have been purchased, leaving 448,356 shares available for future purchases.

The Bank currently operates 15 retail/business banking offices in Riverside County and San Bernardino County (Inland Empire), which includes the newest office opened in June 2012 in La Quinta, California. Provident Bank Mortgage operates wholesale loan production offices in Pleasanton and Rancho Cucamonga, California and retail loan production offices in City of Industry, Escondido, Fairfield, Glendora, Hermosa Beach, Pleasanton, Rancho Cucamonga (2), Riverside (4), Roseville and San Rafael, California.

The Company will host a conference call for institutional investors and bank analysts on Tuesday, July 31, 2012 at 9:00 a.m. (Pacific) to discuss its financial results. The conference call can be accessed by dialing 1-800-230-1074 and requesting the Provident Financial Holdings Earnings Release Conference Call. An audio replay of the conference call will be available through Tuesday, August 14, 2012 by dialing 1-800-475-6701 and referencing access code number 254936.

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 and the conference call noted above contain statements that the Company believes are "forward-looking statements." These statements relate to the Company's financial condition, 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 include, but are not limited to the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of examinations of us by the Board of Governors of the Federal Reserve System and our bank subsidiary by the Office of Comptroller of the Currency or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules; our ability to attract and retain deposits; further increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; computer systems on which we depend could fail or experience a security breach; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our branch expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common stock; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described in the Company's reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2011.