Business Description
The Bank, founded in 1956, is a federally chartered stock savings bank headquartered
in Riverside, California. 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, Provident Bank
Mortgage (“PBM”), a division of the Bank, and through its subsidiary,
Provident Financial Corp. The business activities of the Bank consist of community
banking, mortgage 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 single-family, multi-family, commercial
real estate, construction, commercial business, consumer and other mortgage
loans. The Banks mortgage banking activities primarily consist of the origination,
purchase and sale of single-family mortgage loans (including second mortgages
and equity lines of credit). Through its subsidiary, Provident Financial Corp,
the Bank conducts trustee services for the Bank’s real estate transactions
and in the past has held real estate for investment.
The lending activity of the Bank is predominately comprised of the origination
of first mortgage loans secured by single-family residential properties to be
held for sale and, to a lesser extent, to be held for investment. The Bank also
originates 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.
Mortgage banking involves the risk that a rise in interest rates will reduce
the value of a mortgage before it can be sold. This type of risk occurs when
the Bank commits to an interest rate lock on a borrower’s application
during the origination process and interest rates increase before the loan can
be sold. Such interest rate risk also arises when mortgages are placed in the
warehouse (i.e., held for sale) without locking in an interest rate for their
eventual sale in the secondary market. The Bank seeks to control or limit the
interest rate risk caused by mortgage banking activities. The two methods used
by the Bank to help reduce interest rate risk from its mortgage banking activities
are loan sale commitments and the purchase of over-the-counter put and call
option contracts related to mortgage-backed securities. At various times, depending
on loan origination volume and management’s assessment of projected loans
which may not fund, the Bank may reduce or increase its derivative positions.
If the Bank is unable to reasonably predict the amount of loan commitments which
may not fund, the Bank may enter into “best-efforts” loan sale commitments
rather than “mandatory” loan sale commitments. Mandatory loan sale
commitments may include whole loan and/or To-Be-Announced MBS (“TBA MBS”)
loan sale commitments.
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