Provident Financial Holdings, Inc. (‘Provident’) operates as a holding company of Provident Savings Bank, F.S.B. (the ‘bank’).
The company is regulated by the Board of Governors of the Federal Reserve System (‘Federal Reserve’). The bank is regulated by the Office of the Comptroller of the Currency (‘OCC’), its primary federal regulator, and the Federal Deposit Insurance Corporation (‘FDIC’), the insurer of its deposits. The bank’s deposits are federally insured up to applicable limits by the F...
Provident Financial Holdings, Inc. (‘Provident’) operates as a holding company of Provident Savings Bank, F.S.B. (the ‘bank’).
The company is regulated by the Board of Governors of the Federal Reserve System (‘Federal Reserve’). The bank is regulated by the Office of the Comptroller of the Currency (‘OCC’), its primary federal regulator, and the Federal Deposit Insurance Corporation (‘FDIC’), the insurer of its deposits. The bank’s deposits are federally insured up to applicable limits by the FDIC. The bank has been a member of the Federal Home Loan Bank (‘FHLB’) – San Francisco since 1956.
The bank is a financial services company committed to serving consumers and small to mid-sized businesses in the Inland Empire region of Southern California. The bank conducts its business operations as Provident Bank, and through its subsidiary, Provident Financial Corp (‘PFC’). The business activities of the bank consist of community banking, investment services, and trustee services for real estate transactions.
The bank’s community banking operations primarily consist of accepting deposits from customers within the communities surrounding its full-service offices and investing those funds in the origination of single-family, multi-family, and commercial real estate loans, and, to a lesser extent, construction, commercial business, consumer, and other mortgage loans to be held for investment. Through its subsidiary, PFC, the bank conducts trustee services for the bank’s real estate transactions and in the past has held real estate for investment. The bank’s revenues are derived principally from interest earned on its loan and investment portfolios, and fees generated through its community banking activities.
Lending Activities
The lending activity of the bank consists of the origination of single-family, multi-family, and commercial real estate loans, and, to a lesser extent, construction, commercial business, consumer, and other mortgage loans to be held for investment. Additional lending activities have historically included originating saleable single-family loans, primarily fixed-rate first trust deed mortgages.
Single-Family Mortgage Loans
One of the bank’s primary lending activities is the origination and purchase of adjustable and fixed-rate mortgage loans to be held for investment, secured by first trust deed mortgages on owner-occupied, single-family (one to four units) residences in the communities where the bank’s branches are located and surrounding areas in Southern and Northern California.
The bank lends on residential properties classified as single-family units, planned unit developments, and condominiums. To enhance protection, the bank purchases lender-paid mortgage insurance for certain single-family mortgage loans.
The bank offers fixed-rate loans in Riverside and San Bernardino counties, along with adjustable-rate mortgage (‘ARM’) loans throughout California. Substantially all the loans originated by the bank comply with government-sponsored entities (‘GSE’) underwriting standards concerning credit and collateral. The bank's ARM products offer various options, with interest rates adjusting every six months after an initial fixed period of five to ten years.
The bank’s ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished, and it would be more likely that the bank could suffer losses on defaulted loans.
Multi-Family and Commercial Real Estate Loans
Consistent with the company’s strategy to diversify the composition of loans held for investment, the bank has emphasized the origination and purchase of multi-family and commercial real estate loans.
The multi-family loans originated by the bank are predominantly adjustable-rate loans, including hybrid ARM loans, with terms ranging from 10 to 30 years and amortization schedules of 25 to 30 years. Similarly, the bank’s commercial real estate loans are mainly adjustable-rate loans, also including hybrid ARM loans, with the same maturity terms and amortization schedules. The interest rates on multi-family and commercial real estate ARM loans generally adjust monthly, quarterly, semi-annually, or annually, based on a specific margin over the relevant interest rate index, and are subject to periodic and lifetime interest rate caps. The bank’s commercial real estate loan portfolio primarily consists of loans secured by small office buildings, light industrial buildings, warehouses, and small retail centers. The properties securing these loans are mainly located in the counties of Alameda, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Francisco, and Santa Clara.
Construction Loans
The bank originates from time to time two types of construction loans: short-term construction loans and construction/permanent loans.
The bank provides construction financing for single-family, multi-family, and commercial real estate properties. Custom construction loans are made to individuals who, at the time of application, have a contract executed with a builder to construct their residence. Custom construction loans are generally originated for a term of 12 to 18 months, with adjustable or fixed interest rates at the prime lending rate plus a margin, and with loan-to-value ratios of up to 75% of the appraised value of the completed property. The owner secures long-term permanent financing at the completion of construction.
From time to time, the bank makes lot loans to individuals to finance land acquisition prior to the start of construction, or tract construction loans to subdivision builders. The bank regularly monitors the construction loan portfolio, economic conditions, and housing inventory. The bank’s property inspectors perform periodic inspections.
Commercial Business Loans
The bank has a Business Banking Department that primarily serves businesses located within the Inland Empire. Commercial business loans allow the bank to diversify its lending and increase the average loan yield. These loans represent secured and unsecured lines of credit and term loans secured by business assets.
Commercial business loans are generally made to customers who are well known to the bank and are generally secured by accounts receivable, inventory, business equipment, and/or other assets. The bank’s commercial business loans may be structured as term loans or as lines of credit. Lines of credit are made at variable rates of interest equal to a negotiated margin above the prime rate, and term loans are at a fixed or variable rate. Commercial business term loans are generally made to finance the purchase of assets and have maturities of five years or less. Commercial lines of credit are typically made for the purpose of providing working capital and are typically approved with a term of one year or less.
Consumer Loans
The bank offers open-ended lines of credit on an unsecured basis, primarily deposit overdraft lines of credit.
Consumer loans potentially have a greater risk than residential mortgage loans, particularly in the case of loans that are unsecured. Consumer loan collections are dependent on the borrower’s ongoing financial stability, and thus are more likely to be adversely affected by job loss, illness, or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.
Loan Servicing
The bank receives fees from a variety of investors in return for performing the traditional services of collecting individual loan payments on loans sold by the bank to such investors. Loan servicing includes processing payments, accounting for loan funds, and collecting and paying real estate taxes, hazard insurance, and other loan-related items, such as private mortgage insurance. After the bank receives the gross mortgage payment from individual borrowers, it remits to the investor a predetermined net amount based on the loan sale agreement for that mortgage. The bank periodically evaluates servicing assets for impairment, which is measured as the excess of cost over fair value.
Investment Securities Activities
As of June 30, 2024, the company’s securities included U.S. government agency Mortgage-backed securities (‘MBS’), U.S. government-sponsored enterprise MBS, and Private issue Collateralized mortgage obligations (‘CMO’).
Deposit Activities and Other Sources of Funds
Deposits and loan repayments are the major sources of the bank’s funds for lending and other investment purposes.
Deposit Accounts
Substantially all of the bank’s depositors are residents of the State of California. Deposits are attracted from within the bank’s market area by offering a broad selection of deposit instruments, including checking, savings, money market, and time deposit accounts. Deposit account terms vary, differentiated by the minimum balance required, the time periods that the funds must remain on deposit, and the interest rate, among other factors. In determining the terms of its deposit accounts, the bank considers current interest rates, profitability to the bank, interest rate risk characteristics, competition, and its customers’ preferences and concerns. Generally, the bank’s deposit rates are commensurate with the median rates of its competitors within a given market. The bank may occasionally pay above-market interest rates to attract or retain deposits when less expensive sources of funds are not available. The bank may also pay above-market interest rates in specific markets in order to increase the deposit base of a particular office or group of offices. The bank reviews its deposit composition and pricing on a weekly basis.
As of June 30, 2024, the company’s deposits included checking accounts noninterest-bearing, checking accounts interest-bearing, savings accounts, money market accounts, and time deposits included fixed-term, fixed rate which mature: within one year, over one to two years, over two to five years, and over five years.
Subsidiary Activities
The bank has three wholly owned subsidiaries: PFC, Profed Mortgage, Inc., and First Service Corporation. PFC’s current activities include acting as trustee for the bank’s real estate transactions and holding real estate for investment. Profed Mortgage, Inc., and First Service Corporation are currently inactive.
Regulation
The bank, as a federally chartered savings institution, is subject to extensive regulation, examination, and supervision by the OCC, as its primary federal regulator, and the FDIC, as its insurer of deposits. The bank is a member of the FHLB System, and its deposits are insured up to applicable limits by the FDIC. The bank must file reports with the OCC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions, such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the OCC to evaluate the bank’s safety and soundness and compliance with various regulatory requirements. The company, as a savings and loan holding company, is required to file certain reports with, is subject to examination by, and otherwise must comply with the rules and regulations of the Federal Reserve Bank (‘FRB’), its primary regulator. The company is also subject to the rules and regulations of the Securities and Exchange Commission (‘SEC’) under the federal securities laws.
As part of this authority, the bank is required to file periodic reports with the OCC and is subject to periodic examinations by the OCC. The OCC also has extensive enforcement authority over all federal savings institutions, including the bank.
The bank is a member of the FHLB – San Francisco, which is one of 11 regional FHLBs, each of which serves as a reserve or central bank for its members within its assigned region. As a member of the FHLB - San Francisco, the bank is required to purchase and maintain stock in the FHLB – San Francisco.
Like all savings institutions (subject to a narrow exception not applicable to the bank), the bank is required to meet a qualified thrift lender (‘QTL’) test to avoid certain restrictions on its operations. During fiscal 2024, the bank was in compliance with the QTL test as of each month end.
Federally insured savings institutions, such as the bank, are required by the OCC to maintain minimum levels of regulatory capital, including a Tier 1 capital to adjusted average assets leverage ratio, a common equity Tier 1 (‘CET1’) to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, and a total capital to risk-based assets ratio.
As of June 30, 2024, the most recent notification from the OCC categorized the bank as ‘well capitalized’ under the regulatory framework for prompt corrective action. In addition, the bank must file a prior written notice of a dividend with the FRB.
The bank’s authority to engage in transactions with ‘affiliates’ is limited by Sections 23A and 23B of the Federal Reserve Act, as implemented by the FRB’s Regulation W.
The Community Reinvestment Act of 1977 (‘CRA’) requires that the OCC assess the bank's record in meeting the credit needs of the communities it serves, especially low and moderate-income neighborhoods. The bank received a rating of satisfactory when it was last examined for CRA compliance.
The bank is subject to consumer protection regulations issued by the Consumer Financial Protection Bureau (‘CFPB’), but as a financial institution with assets of less than $10.0 billion in assets, the bank is generally subject to supervision and enforcement by the OCC with respect to compliance with consumer financial protection laws and CFPB regulations.
The bank is subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers. While not exhaustive, these laws and regulations include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices, and various regulations that implement some or all of the foregoing.
The company is a unitary savings and loan holding company, subject to the regulatory oversight of the FRB. Accordingly, the company is required to register and file reports with the FRB and is subject to regulation and examination by the FRB. In addition, the FRB has enforcement authority over the company and its non-savings institution subsidiaries, which also permits the FRB to restrict or prohibit activities that are determined to present a serious risk to the bank.
The company must obtain approval from the FRB before acquiring more than 5% of the voting stock of another savings institution or savings and loan holding company or acquiring such an institution or holding company by merger, consolidation, or purchase of its assets. In evaluating an application for the company to acquire control of a savings institution, the FRB would consider the financial and managerial resources and future prospects of the company and the target institution, the effect of the acquisition on the risk to the Deposit Insurance Fund (‘DIF’), the convenience and the needs of the community, including performance under the CRA, and competitive factors.
The company’s common stock is registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, as amended (‘Exchange Act’). The company is subject to information, proxy solicitation, insider trading restrictions, and other requirements under the Exchange Act.
History
Provident Financial Holdings, Inc., a Delaware corporation, was founded in 1956. The company was incorporated in 1996.
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