Net Interest Margin Expands by 18 Basis Points                Loans Originated for Sale Increase by 322%               Significant Increase in Gain On Sale of Loans       Capital Ratios Remain Significantly Above 'Well-Capitalized'                          Regulatory Thresholds 

RIVERSIDE, Calif., April 29, 2009 (GLOBE NEWSWIRE) -- Provident Financial Holdings, Inc. ("Company"), (Nasdaq:PROV), the holding company for Provident Savings Bank, F.S.B. ("Bank"), today announced third quarter results for the fiscal year ending June 30, 2009.

For the quarter ended March 31, 2009, the Company reported a net loss of $(2.57) million, or $(0.41) per diluted share (on 6.22 million average shares outstanding), compared to net income of $957,000, or $0.15 per diluted share (on 6.20 million average shares outstanding), in the comparable period a year ago. The decrease in the third quarter results was primarily attributable to an increase in the provision for loan losses, partly offset by an increase in non-interest income.

"Poor economic conditions resulted in an increase in delinquent loans requiring a $13.5 million provision for loan losses during the quarter ended March 31, 2009. The Company will continue to monitor economic conditions and necessarily respond to further deterioration by bolstering our allowance for loan losses," said Craig G. Blunden, Chairman, President and Chief Executive Officer of the Company. "On a positive note, the unprecedented actions of the U.S. government during this economic crisis have resulted in significantly lower mortgage interest rates which have led to a meaningful improvement in our mortgage banking business. We expect the favorable mortgage banking environment will provide the Company with a tremendous opportunity to improve core earnings."

As of March 31, 2009 the Bank exceeded all regulatory capital requirements and is deemed "well-capitalized" with Tangible Capital, Core Capital, Total Risk-Based Capital and Tier 1 Risk-Based Capital ratios of 7.06 percent, 7.06 percent, 12.68 percent and 11.42 percent, respectively. As of June 30, 2008 these ratios were 7.19 percent, 7.19 percent, 12.25 percent and 10.99 percent, respectively. For each period, the capital ratios were well above the minimum required ratios to be deemed "well-capitalized" (5.00 percent for Core Capital, 10.00 percent for Total Risk-Based Capital and 6.00 percent for Tier 1 Risk-Based Capital).

Return on average assets for the third quarter of fiscal 2009 was negative (0.67) percent, compared to 0.23 percent for the same period of fiscal 2008. Return on average stockholders' equity for the third quarter of fiscal 2009 was negative (8.69) percent, compared to 2.99 percent for the comparable period of fiscal 2008.

On a sequential quarter basis, the third quarter results improved to a net loss of $(2.57) million from a net loss of $(6.51) million in the second quarter of fiscal 2009. The improvement was primarily attributable to a decrease in the provision for loan losses and a significant increase in non-interest income and, to a much lesser extent, an increase in net interest income, partly offset by an increase in operating expenses. Diluted loss per share improved $0.64, to a loss of $(0.41) from a loss of $(1.05) per share in the second quarter of fiscal 2009. Return on average assets improved 100 basis points to negative (0.67) percent for the third quarter of fiscal 2009 from negative (1.67) percent in the second quarter of fiscal 2009 and return on average equity for the third quarter of fiscal 2009 was negative (8.69) percent, compared to negative (21.44) percent for the second quarter of fiscal 2009.

For the nine months ended March 31, 2009, the net loss was $(8.75) million, compared to net income of $2.61 million in the comparable period ended March 31, 2008; and diluted earnings per share for the nine months ended March 31, 2009 decreased to a loss of $(1.41) from earnings of $0.42 for the comparable period last year. Return on average assets for the nine months ended March 31, 2009 decreased to negative (0.74) percent from 0.22 percent for the nine-month period a year earlier. Return on average stockholders' equity for the nine months ended March 31, 2009 was negative (9.62) percent, compared to 2.73 percent for the same nine-month period a year earlier.

Net interest income before provision for loan losses decreased slightly to $10.67 million in the third quarter of fiscal 2009 from $10.72 million for the same period in fiscal 2008. Non-interest income increased $4.79 million, or 299 percent, to $6.39 million in the third quarter of fiscal 2009 from $1.60 million in the comparable period of fiscal 2008, reflecting an increase in the gain on sale of loans as a result of increased mortgage banking activity during the quarter, as described below. Non-interest expense increased $649,000, or nine percent, to $7.95 million in the third quarter of fiscal 2009 from $7.30 million in the comparable period in fiscal 2008.

The average balance of loans outstanding decreased by $100.1 million, or seven percent, to $1.30 billion in the third quarter of fiscal 2009 from $1.40 billion in the same quarter of fiscal 2008. The managed decline in the loan balance was consistent with the Company's short-term strategy to curtail portfolio growth of multi-family, commercial real estate, construction and single-family mortgage loans held for investment and its goal of maintaining prudent capital ratios in response to deteriorating economic conditions. The average yield decreased by 39 basis points to 5.78 percent in the third quarter of fiscal 2009 from an average yield of 6.17 percent in the same quarter of fiscal 2008. The decrease in the average loan yield was primarily attributable to accrued interest income reversals on non-accrual loans, loan payoffs of loans which had a higher average yield than the average yield of loans held for investment and adjustable rate loans re-pricing to lower market interest rates. Total loans originated for investment in the third quarter of fiscal 2009 were $3.5 million, consisting primarily of multi-family loans. Total loans originated for investment were $67.5 million (including $28.3 million of loans purchased for investment) in the third quarter of fiscal 2008, which consisted primarily of multi-family and single-family loans. The outstanding balance of "preferred loans" (multi-family, commercial real estate, construction and commercial business loans) decreased by $79.6 million, or 13 percent, to $513.6 million at March 31, 2009 from $593.2 million at March 31, 2008. Outstanding construction loans declined $19.6 million, or 72 percent, to $7.6 million at March 31, 2009 from $27.2 million at March 31, 2008. The percentage of preferred loans to total loans held for investment at March 31, 2009 remained unchanged at 41 percent in comparison to March 31, 2008. Loan principal payments received in the third quarter of fiscal 2009 were $36.2 million, compared to $51.9 million in the same quarter of fiscal 2008.

The Federal Home Loan Bank ("FHLB") - San Francisco did not pay a dividend on its stock in the third quarter of fiscal 2009 as compared to $419,000 in the same quarter last year and announced that it will not redeem excess capital stock on the next regularly scheduled repurchase date of April 30, 2009 as a result of its desire to strengthen its capital ratios.

Average deposits decreased by $71.2 million, or seven percent, to $941.1 million and the average cost of deposits decreased by 110 basis points to 2.26 percent in the third quarter of fiscal 2009, compared to an average balance of $1.01 billion and an average cost of 3.36 percent in the same quarter last year. Transaction account balances (core deposits) decreased by $8.1 million, or two percent, to $340.0 million at March 31, 2009 from $348.1 million at March 31, 2008, primarily attributable to a decrease in money market account balances. Time deposits decreased by $76.2 million, or 11 percent, to $607.9 million at March 31, 2009 compared to $684.1 million at March 31, 2008. The decrease in time deposits was primarily attributable to the strategic decision to be more conservative on the interest rates the Bank pays on time deposits and compete less aggressively with those competitors paying above market rates in order to reduce the cost of the Company liabilities. The Bank does not have any brokered deposits.

The average balance of borrowings, which primarily consists of FHLB - San Francisco advances, decreased $13.0 million to $460.3 million in the third quarter of fiscal 2009 while the average cost of advances decreased eight basis points to 4.03 percent in the third quarter of fiscal 2009, compared to an average balance of $473.3 million and an average cost of 4.11 percent in the same quarter of fiscal 2008. The decrease in the average cost of borrowings was primarily the result of maturing long-term advances which had a higher average cost than the average cost of new advances. Additionally, interest rates on FHLB - San Francisco advances have fallen as a result of the unprecedented actions taken by the U.S. Treasury Department and Federal Reserve to reduce interest rates in response to the global credit crisis.

The net interest margin during the third quarter of fiscal 2009 improved 18 basis points to 2.87 percent from 2.69 percent during the same quarter last year. On a sequential quarter basis, the net interest margin in the third quarter of fiscal 2009 improved 17 basis points from 2.70 percent in the second quarter of fiscal 2009.

During the third quarter of fiscal 2009, the Company recorded a provision for loan losses of $13.54 million, compared to a provision for loan losses of $3.15 million during the same period of fiscal 2008. The provision for loan losses in the third quarter of fiscal 2009 was primarily attributable to an increase in loan classification downgrades, including an increase in non-performing loans ($12.65 million) and an increase in the general loan loss allowance for loans held for investment ($2.08 million), partly offset by a decline in loans held for investment ($1.19 million). The general loan loss allowance was augmented to reflect the impact on loans held for investment resulting from the deteriorating general economic conditions in the U.S. such as higher unemployment rates, negative gross domestic product, declining real estate values and lower retail sales.

Non-performing assets, with underlying collateral primarily located in Southern California, increased to $81.0 million, or 5.18 percent of total assets, at March 31, 2009, compared to $32.5 million, or 1.99 percent of total assets at June 30, 2008 and $27.3 million, or 1.63 percent of total assets, at March 31, 2008. The non-performing assets at March 31, 2009 were primarily comprised of 195 single-family loans ($56.4 million); six multi-family loans ($4.1 million); 10 construction loans ($2.3 million, nine of which, or $263,000, are associated with the previously disclosed Coachella, California construction loan fraud); three commercial real estate loans ($2.2 million); one lot loan ($1.0 million); four commercial business loans ($159,000); nine single-family loans repurchased from, or unable to sell to investors ($1.0 million); and real estate owned comprised of 56 single-family properties ($13.4 million) and 17 undeveloped lots acquired in the settlement of loans ($468,000, fourteen of which, or $409,000, are associated with the Coachella, California construction loan fraud). Net charge-offs for the quarter ended March 31, 2009 were $6.32 million or 1.94 percent of average loans receivable, compared to $3.14 million or 0.89 percent of average loans receivable for the quarter ended June 30, 2008 and to $3.58 million or 1.02 percent of average loans receivable in the comparable quarter last year.

Classified assets at March 31, 2009 were $101.3 million, comprised of $18.0 million in the special mention category, $69.4 million in the substandard category and $13.9 million in real estate owned. Classified assets at June 30, 2008 were $68.6 million, consisting of $29.4 million in the special mention category, $29.8 million in the substandard category and $9.4 million in real estate owned. Classified assets increased at March 31, 2009 from the June 30, 2008 level primarily as a result of additional loan classification downgrades.

For the quarter ended March 31, 2009, thirty-one loans for $13.1 million were modified from their original terms, were re-underwritten and were identified in our asset quality reports as Restructured Loans. As of March 31, 2009, the outstanding balance of Restructured Loans was $28.2 million: 20 are classified as pass, are not included in the classified asset totals described earlier and remain on accrual status ($7.1 million); one is classified as substandard and remains on accrual status ($240,000); and 58 are classified as substandard on non-accrual status ($20.9 million).

The allowance for loan losses was $42.2 million at March 31, 2009, or 3.36 percent of gross loans held for investment, compared to $19.9 million, or 1.43 percent of gross loans held for investment at June 30, 2008. The allowance for loan losses at March 31, 2009 includes $24.0 million of specific loan loss reserves, compared to $6.5 million of specific loan loss reserves at June 30, 2008. 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.

The increase in non-interest income in the third quarter of fiscal 2009 compared to the same period of fiscal 2008 was primarily the result of an increase in the gain on sale of loans, partly offset by a decrease in loan servicing and other fees, a larger loss on sale and operations of real estate owned acquired in the settlement of loans and a decrease in other non-interest income. The decrease in loan servicing and other fees was primarily attributable to lower loan prepayment fees and higher reserves on mortgage servicing rights resulting from higher loan prepayment estimates; while the decrease in other non-interest income was primarily attributable to lower investment services fees and legal settlements.

The gain on sale of loans increased to $6.1 million for the quarter ended March 31, 2009 from $306,000 in the comparable quarter last year. The average loan sale margin for mortgage banking was 133 basis points for the quarter ended March 31, 2009, compared to 41 basis points in the comparable quarter last year. Total loans sold for the quarter ended March 31, 2009 were $300.4 million, up 329 percent from $70.0 million for the same quarter last year. The gain on sale of loans for the third quarter of fiscal 2009 was reduced by a $384,000 recourse provision on loans sold that are subject to repurchase, compared to a $264,000 recourse provision in the comparable quarter last year. The mortgage banking environment has shown tremendous recent improvement as a result of the significant decline in mortgage interest rates but remains highly volatile as a result of the well-publicized deterioration of the single-family real estate market.

The volume of loans originated for sale increased $279.5 million, or 322 percent, to $366.4 million in the third quarter of fiscal 2009 from $86.9 million during the same period last year, the result of better liquidity in the secondary mortgage markets particularly in FHA/VA loan products and an increase in activity resulting from lower mortgage interest rates. Total loan originations (including loans originated for investment, loans purchased for investment and loans originated for sale) were $369.9 million in the third quarter of fiscal 2009, an increase of $215.5 million, or 140 percent, from $154.4 million in the same quarter of fiscal 2008.