Net Interest Margin Expands by 12 Basis Points (Sequential Quarter)               Loans Originated for Sale Increase by 441%             Significant Increase in Gain On Sale of Loans        Capital Ratios Remain Significantly Above "Well-Capitalized"                         Regulatory Thresholds 

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

For the quarter ended June 30, 2009, the Company reported net income of $1.31 million, or $0.21 per diluted share (on 6.20 million average shares outstanding), compared to a net loss of $(1.75) million, or $(0.28) per diluted share (on 6.17 million average shares outstanding), in the comparable period a year ago. The improvement in fourth quarter results was primarily attributable to an increase in non-interest income and a decrease in operating expenses, partly offset by an increase in the provision for loan losses.

"The favorable mortgage banking environment resulted in a meaningful improvement in our mortgage banking results and we are cautiously optimistic that the favorable environment will continue for the foreseeable future," said Craig G. Blunden, Chairman, President and Chief Executive Officer of the Company. "Nonetheless, elevated loan losses resulting from poor economic conditions will continue to require substantial resources, although, it is important to note, that the increase in non-performing assets during the fourth quarter of fiscal 2009 was significantly less than in recent prior quarters. We will continue to monitor economic conditions and necessarily respond to further deterioration by bolstering our allowance for loan losses."

As of June 30, 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 6.88 percent, 6.88 percent, 13.05 percent and 11.78 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 fourth quarter of fiscal 2009 was 0.33 percent, compared to negative (0.43) percent for the same period of fiscal 2008. Return on average stockholders' equity for the fourth quarter of fiscal 2009 was 4.51 percent, compared to negative (5.55) percent for the comparable period of fiscal 2008.

On a sequential quarter basis, fourth quarter results reflected net income of $1.31 million in comparison to a net loss of $(2.57) million in the third quarter of fiscal 2009. The improvement was primarily attributable to a decrease in the provision for loan losses, a significant increase in non-interest income, an increase in net interest income and a decrease in operating expenses. Diluted earnings per share improved $0.62, to $0.21 per share from a loss of $(0.41) per share in the third quarter of fiscal 2009. Return on average assets improved to 0.33 percent for the fourth quarter of fiscal 2009 from negative (0.67) percent in the third quarter of fiscal 2009 and return on average equity for the fourth quarter of fiscal 2009 was 4.51 percent, compared to negative (8.69) percent for the third quarter of fiscal 2009.

For fiscal 2009, the net loss was $(7.44) million as compared to net income of $860,000 in fiscal 2008; and diluted earnings per share for fiscal 2009 decreased to a loss of $(1.20) from $0.14 in fiscal 2008. Return on average assets for fiscal 2009 decreased to negative (0.47) percent from 0.05 percent in fiscal 2008. Return on average stockholders' equity for fiscal 2009 was negative (6.20) percent, compared to 0.68 percent in fiscal 2008.

Net interest income before provision for loan losses decreased slightly to $11.56 million in the fourth quarter of fiscal 2009 from $11.78 million for the same period in fiscal 2008. Non-interest income increased substantially to $9.02 million in the fourth quarter of fiscal 2009 from $285,000 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. Operating expense decreased $495,000, or six percent, to $7.43 million in the fourth quarter of fiscal 2009 from $7.92 million in the comparable period in fiscal 2008.

The average balance of loans outstanding decreased by $48.8 million, or three percent, to $1.37 billion in the fourth quarter of fiscal 2009 from $1.41 billion in the same quarter of fiscal 2008. The managed decline in the loan balance is 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 goals of maintaining prudent capital ratios and reducing its credit risk profile in response to deteriorating economic conditions. The average yield on loans receivable decreased by 33 basis points to 5.74 percent in the fourth quarter of fiscal 2009 from an average yield of 6.07 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 interest rates. Total loans originated for investment in the fourth quarter of fiscal 2009 were $8.7 million, consisting primarily of commercial real estate loans. In the fourth quarter of fiscal 2008 total loans originated for investment were $30.1 million, which primarily consisted of single-family and multi-family loans. The outstanding balance of "preferred loans" (multi-family, commercial real estate, construction and commercial business loans) decreased by $60.9 million, or 11 percent, to $508.7 million at June 30, 2009 from $569.6 million at June 30, 2008. Outstanding construction loans, net of undisbursed loan funds, declined $20.8 million, or 83 percent, to $4.2 million at June 30, 2009 from $25.0 million at June 30, 2008. The percentage of preferred loans to total loans held for investment at June 30, 2009 increased to 42 percent from 41 percent at June 30, 2008. Loan principal payments received in the fourth quarter of fiscal 2009 were $40.6 million, compared to $66.4 million in the same quarter of fiscal 2008.

There was no dividend on the Federal Home Loan Bank ("FHLB") -- San Francisco stock in the fourth quarter of fiscal 2009 as compared to $502,000 in the same quarter last year. Also, FHLB -- San Francisco announced that they will not redeem excess capital stock on the next regularly scheduled repurchase date of July 31, 2009 as a result of their desire to strengthen their capital ratios.

Average deposits decreased by $58.6 million, or six percent, to $963.4 million and the average cost of deposits decreased by 97 basis points to 2.04 percent in the fourth quarter of fiscal 2009, compared to an average balance of $1.02 billion and an average cost of 3.01 percent in the same quarter last year. Transaction account balances (core deposits) increased by $3.7 million, or one percent, to $352.4 million at June 30, 2009 from $348.7 million at June 30, 2008, primarily attributable to an increase in savings account balances. Time deposits decreased by $26.8 million, or four percent, to $636.9 million at June 30, 2009 compared to $663.7 million at June 30, 2008. The total time deposits at June 30, 2009 include brokered deposits of $19.6 million. The Bank gathered brokered deposits in the fourth quarter of fiscal 2009 as part of the Bank's liquidity and asset-liability management strategy.

The average balance of borrowings, which primarily consists of FHLB -- San Francisco advances, increased $22.8 million, or five percent, to $501.5 million in the fourth quarter of fiscal 2009 while the average cost of advances decreased 11 basis points to 3.69 percent in the fourth quarter of fiscal 2009, compared to an average balance of $478.7 million and an average cost of 3.80 percent in the same quarter of fiscal 2008. The decrease in the average cost of borrowings was primarily the result of the increased use of low cost short-term advances. 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 fourth quarter of fiscal 2009 improved six basis points to 2.99 percent from 2.93 percent during the same quarter last year. On a sequential quarter basis, the net interest margin in the fourth quarter of fiscal 2009 increased 12 basis points from 2.87 percent in the third quarter of fiscal 2009.

During the fourth quarter of fiscal 2009, the Company recorded a provision for loan losses of $12.86 million, compared to a provision for loan losses of $6.30 million during the same period of fiscal 2008, and a decline from the sequential third quarter of fiscal 2009 of $13.54 million. The provision for loan losses in the fourth quarter of fiscal 2009 was primarily attributable to an increase in loan classification downgrades, including an increase in non-performing loans ($11.48 million loan loss provision) and an increase in the general loan loss allowance for loans held for investment ($2.46 million loan loss provision), partly offset by a decline in loans held for investment ($1.08 million loan loss provision recovery). The general loan loss allowance was augmented to reflect the additional risk of 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 $88.3 million, or 5.59 percent of total assets, at June 30, 2009, compared to $32.5 million, or 1.99 percent of total assets, at June 30, 2008, and $81.0 million, or 5.18 percent of total assets, at March 31, 2009 (sequential quarter). The non-performing assets at June 30, 2009 were primarily comprised of 190 single-family loans ($57.9 million); six multi-family loans ($4.9 million); seven commercial real estate loans ($2.7 million); 10 construction loans ($2.3 million, nine of which, or $250,000, are associated with the previously disclosed Coachella, California construction loan fraud); one undeveloped lot loan ($1.6 million); eight commercial business loans ($1.2 million); nine single-family loans repurchased from, or unable to sell to investors ($1.3 million); and real estate owned comprised of 63 single-family properties ($15.1 million), one developed lot ($852,000) and 16 undeveloped lots acquired in the settlement of loans ($420,000, fourteen of which, or $389,000, are associated with the Coachella, California construction loan fraud). As of June 30, 2009, 43 percent, or $30.7 million of non-performing loans have a current payment status. Net charge-offs for the quarter ended June 30, 2009 were $9.60 million or 2.81 percent of average loans receivable (annualized), compared to $3.14 million or 0.89 percent of average loans receivable (annualized) for the quarter ended June 30, 2008 and to $6.32 million or 1.94 percent of average loans receivable (annualized) in the quarter ended March 31, 2009 (sequential quarter).

Classified assets at June 30, 2009 were $116.1 million, comprised of $24.3 million in the special mention category, $75.4 million in the substandard category and $16.4 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 June 30, 2009 from the June 30, 2008 level primarily as a result of additional loan classification downgrades.

For the quarter ended June 30, 2009, 37 loans for $16.5 million were modified from their original terms, were re-underwritten and were identified in our asset quality reports as Restructured Loans. As of June 30, 2009, the outstanding balance of Restructured Loans was $40.9 million: 31 are classified as pass, are not included in the classified asset totals described earlier and remain on accrual status ($10.8 million); one is classified as special mention and remains on accrual status ($328,000); and 78 are classified as substandard on non-accrual status ($29.8 million). As of June 30, 2009, 83 percent, or $33.9 million of the Restructured Loans have a current payment status.

The allowance for loan losses was $45.4 million at June 30, 2009, or 3.75 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 June 30, 2009 includes $25.3 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 to $9.02 million in the fourth quarter of fiscal 2009 compared to $285,000 the same period of fiscal 2008 was primarily the result of an increase in the gain on sale of loans and a smaller loss on sale and operations of real estate owned acquired in the settlement of loans, partly offset by a decrease in loan servicing and other fees, a decrease in deposit fees and a decrease in other non-interest income. The decrease in loan servicing and other fees was primarily attributable to lower loan prepayment fees; while the decrease in other non-interest income was primarily attributable to lower investment services fees. The decrease in deposit fees was primarily a result of a decrease in returned check fees.

The gain on sale of loans increased to $8.3 million for the quarter ended June 30, 2009 from a loss of $(358,000) in the comparable quarter last year. The average loan sale margin for mortgage banking was 133 basis points for the quarter ended June 30, 2009, compared to negative (32) basis points in the comparable quarter last year. The gain on sale of loans for the fourth quarter of fiscal 2009 includes an unrealized gain of $1.88 million attributable to the election of the fair value option (i.e., Statement of Financial Accounting Standards No. 159) on loans held for sale that are originated for sale by Provident Bank Mortgage, the Bank's mortgage banking division. The gain on sale of loans for the fourth quarter of fiscal 2009 was partially reduced by a $735,000 recourse provision on loans sold that are subject to repurchase, compared to a $1.42 million recourse provision in the comparable quarter last year. The mortgage banking environment has recently shown tremendous 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 $502.6 million, or 441 percent, to $616.6 million in the fourth quarter of fiscal 2009 from $114.0 million during the same period last year, the result of better liquidity in the secondary mortgage markets particularly in FHA/VA, Fannie Mae and Freddie Mac loan products and an increase in activity resulting from lower mortgage interest rates. Total loans sold for the quarter ended June 30, 2009 were $587.9 million, up 464 percent from $104.3 million for the same quarter last year. Total loan originations (including loans originated for investment and loans originated for sale) were $625.2 million in the fourth quarter of fiscal 2009, an increase of $481.2 million, or 334 percent, from $144.0 million in the same quarter of fiscal 2008.

Forty-seven real estate owned properties were sold for a net loss of $(18,000) in the quarter ended June 30, 2009 compared to 15 real estate owned properties sold for a net loss of $(462,000) in the same quarter last year. During the fourth quarter of fiscal 2009, 54 real estate owned properties were acquired in the settlement of loans, compared to 29 real estate owned properties acquired in the settlement of loans in the comparable period last year. As of June 30, 2009, the real estate owned balance was $16.4 million (80 properties), compared to $9.4 million (45 properties) at June 30, 2008.

The decrease in operating expense was primarily the result of a decrease in compensation, partly offset by increases in deposit insurance premiums and regulatory assessments and an increase in other operating expenses. The lower compensation expense was primarily a result of a $2.63 million non-recurring, non-taxable expense recovery attributable to the implementation of the Employee Stock Ownership Plan ("ESOP") voluntary self-correction measures.