Registrant's telephone number, including area code:   (909) 686-6060

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  X   NO       .

Indicate by check mark whether disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ]

As of September 20, 2002, there were issued and outstanding 5,221,057 shares of the Registrant's common stock. The Registrant's common stock is listed on the Nasdaq Stock Market under the symbol "PROV." The aggregate market value of the common stock held by nonaffiliates of the Registrant, based on the closing sales price of the Registrant's common stock as quoted on the Nasdaq Stock Market on September 20, 2002, was $129.2 million. All numbers presented in this report, which are associated with the number of shares, have been adjusted for the 3-for-2 stock split in the form of a 50% stock dividend, record date of June 25, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

No documents are incorporated by reference.

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PROVIDENT FINANCIAL HOLDINGS, INC.
Table of Contents

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PART I

Provident Financial Holdings, Inc. (the "Corporation"), a Delaware corporation, was organized in January 1996 for the purpose of becoming the holding company for Provident Savings Bank, F.S.B. (the "Bank") upon the Bank's conversion from a federal mutual to a federal stock savings bank ("Conversion"). The Conversion was completed on June 27, 1996. At June 30, 2002, the Corporation had total assets of $1.0 billion, total deposits of $677.4 million and stockholders' equity of $103.0 million. The Corporation has not engaged in any significant activity other than holding the stock of the Bank. Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Bank and its subsidiaries.

The Corporation, from time to time, may repurchase its common stock as a way to enhance the Corporation's earnings per share. The Corporation considers the repurchase of its common stock if the market value of the stock is lower than its book value and/or the Corporation believes that the current stock price is under valued as compared to its current and future income projections. Consideration is also given to the Corporation's liquidity and capital requirements and its future capital needs based on the Corporation's current business plans. The Corporation's Board of Directors authorizes each stock repurchase program, the duration of which is normally one year. Once the stock repurchase program is authorized, Management may repurchase its common stock from time to time in the open market, depending upon market conditions and the factors described above.

The Bank, founded in 1956, is a federally chartered stock savings bank headquartered in Riverside, California. The Bank is regulated by the Office of Thrift Supervision ("OTS"), 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 under the Savings Association Insurance Fund ("SAIF"). The Bank has been a member of the Federal Home Loan Bank ("FHLB") System 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 and through its subsidiary, Provident Financial Corporation. The business activities of the Corporation consist of community banking, mortgage banking, investment services and real estate operations.

The Bank's 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 loans. Mortgage banking activities consist of the origination and sale of mortgage loans secured by single-family residences and consumer loans. Through its subsidiary (Provident Financial Corporation), the Bank offers investment services and conducts real estate operations. The Bank's revenues are derived principally from interest on its loan and investment portfolios and fees generated through its banking activities and its mortgage banking activities.

The Bank is headquartered in Riverside, California and operates ten full-service banking offices in Riverside County and one banking office in San Bernardino County. Management considers Riverside and Western San Bernardino Counties to be the Bank's primary market for deposits. Through the operations of Provident Bank Mortgage ("PBM"), the Bank has expanded its retail lending market to include a larger portion of Southern California. Currently, there are six stand-alone PBM loan production offices located in Los Angeles, Riverside and San Bernardino counties. PBM's loan production offices include a wholesale loan department through which the Bank maintains a network of loan correspondents. Most of the Bank's business is conducted in the communities surrounding its full-service branches and loan production offices.

The large geographic area encompassing Riverside and San Bernardino Counties is referred to as the "Inland Empire." According to 2000 Census Bureau population statistics, Riverside and San Bernardino Counties have the

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sixth and fifth largest county populations in California, respectively. The Bank's market area consists primarily of suburban and urban communities. Western Riverside and San Bernardino Counties are relatively densely populated and are within the greater Los Angeles metropolitan area. Southern California's economic growth has transformed the economy from one with a large segment in the aerospace and other defense-related industries, to a more diverse economy with service companies, including financial services, along with technology and other industries. For the past several years, the Inland Empire has enjoyed recent economic strength. Many corporations are moving their offices and warehouses to the Inland Empire which offers more affordable sites and more affordable housing for their employees. This trend has resulted in a significant improvement in real estate property values. The recent downturn in the national economy has had the effect of slowing the economy in the Inland Empire but has not resulted in the downturn seen in many parts of the country. The unemployment rate in the Inland Empire in June 2002 was at 5.7%, compared to 6.4% in California and 5.9% nationwide.

The Corporation's local market areas were also affected in early 2001 by the California energy crisis. The uncertain supply of electricity and higher cost of electricity and natural gas affected both businesses and consumers. Businesses that are relatively energy intensive were adversely affected by higher energy prices combined with a limited ability to increase product prices to reflect greater costs. Consumers experiencing higher energy bills had less disposable income to spend in the local economy. While the State of California government is working to address the energy crisis, management is unable to predict what, if any, resolution may ultimately be reached.

The Bank faces significant competition in its market area in both originating real estate loans and attracting deposits. The rapid population growth in Riverside County has attracted numerous financial institutions to the Bank's market area. The Bank's primary competitors are large regional and super-regional commercial banks as well as other community-oriented banks and savings institutions. The Bank also faces competition from credit unions and a large number of mortgage companies that operate within its market area. Many of these institutions are significantly larger than the Bank and therefore have greater financial and marketing resources than the Bank. The Bank's mortgage banking operations also face strong competition from other mortgage bankers and brokers as well as other financial institutions. Such competition may limit the Bank's growth and profitability in the future.

As of June 30, 2002, the Bank had 340 full-time equivalent employees, which consisted of 283 full-time, 57 prime-time, 26 part-time, and one temporary employee(s). The employees are not represented by a collective bargaining unit and the Bank believes its relationship with its employees to be good.

General. The lending activity of the Bank is predominately comprised of the origination of conventional, Federal Housing Administration ("FHA") and Veterans Administration ("VA") mortgage loans secured by single-family residential properties. The Bank also originates multi-family, commercial real estate, construction, commercial business, consumer and other loans for its portfolio. The Bank's net loans held for investment were approximately $593.6 million at June 30, 2002, representing approximately 59.0% of consolidated total assets. This compares to $697.2 million, or 62.4% of consolidated total assets, at June 30, 2001.

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Loan Portfolio Analysis. The following table sets forth the composition of the Bank's loan portfolio at the dates indicated.

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Maturity of Loan Portfolio. The following table sets forth information at June 30, 2002, regarding the dollar amount of principal repayments becoming contractually due during the periods indicated for loans held for investment. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as becoming due within one year. The table does not include any estimate of prepayments, which significantly shorten the average life of loan portfolios and may cause the Bank's actual repayment experience to differ from that shown below.

The following table sets forth the dollar amount of all loans held in the Bank's portfolio due after June 30, 2003 which have fixed interest rates and have floating or adjustable interest rates.

Scheduled contractual principal payments of loans do not reflect the actual life of such assets. The average life of loans is substantially less than their contractual terms because of prepayments. In addition, due-on-sale clauses on loans generally give the Bank the right to declare loans immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage. The average life of mortgage loans tends to increase, however, when current interest rates are substantially higher than interest rates on existing portfolio mortgage loans and, conversely, decrease when interest rates on existing portfolio mortgage loans are substantially higher than current interest rates.

Single-Family Mortgage Loans. The Bank's predominant lending activity is the origination of loans secured by first mortgages on owner-occupied, single-family (one- to four-family) residences in the communities where the Bank has established full service branches and loan production offices. At June 30, 2002, total single-family loans

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held for investment decreased to $413.7 million, or 65.6% of the total loans held for investment from $520.7 million, or 71.2% of the total loans held for investment in fiscal 2001. The decrease in the single-family loans was due primarily to approximately $385.2 million of loan prepayments resulting from the decline in interest rates during fiscal 2002.

The Bank's residential mortgage loans are generally underwritten and documented in accordance with the guidelines established by the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association ("FNMA"). All government insured loans are generally underwritten and documented in accordance with the guidelines established by the Department of Housing and Urban Development ("HUD") and the VA. The Bank's loan underwriters are approved as underwriters under HUD's delegated underwriter program.

The Bank offers adjustable rate mortgage ("ARM") loans at rates and terms competitive with market conditions. Substantially all of the ARM loans originated by the Bank meet the underwriting standards of the secondary markets. The Bank offers several ARM products which adjust semi-annually or annually after an initial fixed period ranging from six months to five years subject to a limitation on the annual increase of 1.0 to 2.0 percentage points and an overall limitation of 3.0 to 6.0 percentage points. The ARM loans in the Bank's portfolio utilize the FHLB eleventh district cost of funds index ("COFI"), the London interbank offered rates index ("LIBOR"), the 12-month average Treasury index ("12 MAT") or the weekly average yield on one-year U.S. Treasury securities adjusted to a constant maturity of one year ("CMT"), plus a margin of 2.00% to 3.25%. Loans based on the Treasury CMT constitute a majority of the Bank's loan portfolio. Currently, the Bank does not originate COFI indexed loa ns but emphasizes products based on the one-year CMT and LIBOR, which respond more quickly to immediate changes in interest rates. The majority of the ARM loans in the portfolio, at the present time, have three or five-year fixed periods prior to the first adjustment period. Loans of this type have embedded interest rate risk if interest rates should rise during the initial fixed rate period.

As of June 30, 2002, the Bank had $60.5 million in mortgage loans that may be subject to negative amortization, compared to $65.4 million at June 30, 2001. Negative amortization involves a greater risk to the Bank because during a period of high interest rates the loan principal balance may increase by up to 115% of the original loan amount. However, the Bank believes that the risk of default is reduced by the stability provided by payment schedules and has historically found that its origination of negative amortization loans has not resulted in higher amounts of non-performing loans. Borrower demand for ARM loans versus fixed-rate mortgage loans is a function of the level of interest rates, the expectations of changes in the level of interest rates and the difference between the initial interest rates and fees charged for each type of loan. The relative amount of fixed-rate mortgage loans and ARM loans that can be originated at any time is largely determined by the demand for each in a given interest rate and competitive environment.

The retention of ARM loans, rather than fixed rate loans, in the Bank's loan portfolio helps reduce exposure to changes in interest rates. There are, however, unquantifiable credit risks resulting from the potential of increased interest charges to be paid by the customer due to increases in interest rates. It is possible that, during periods of rising interest rates, the risk of default on ARM loans may increase as a result of the increase in the required payment from the borrower. Furthermore, the risk of default may increase because ARM loans originated by the Bank generally provide, as a marketing incentive, for initial rates of interest below rates that would apply if the adjustment index plus the applicable margin were initially used for pricing. Such loans are subject to increased risks of default or delinquency. Another consideration is that although ARM loans allow the Bank to increase the sensitivity of its asset base due to changes in the interest rates, the extent of this i nterest sensitivity is limited by the periodic and lifetime interest rate adjustment limits. In addition, because the COFI is a lagging market index, upward adjustments on these loans may occur more slowly than increases in the Bank's cost of interest-bearing liabilities, especially during periods of rapidly increasing interest rates. Because of these considerations, the Bank has no assurance that yields on ARM loans will be sufficient to offset increases in the Bank's cost of funds.

The Bank's present policy generally limits loan amounts to 97% of the appraised value or purchase price of a property, whichever is lower, for conventional loans. Higher loan-to-value ratios are available on certain government-insured programs. The Bank generally requires private mortgage insurance on residential loans with loan-to-value ratios exceeding 80% at the time of origination.

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Multi-Family and Commercial Real Estate Mortgage Loans. At June 30, 2002, multi-family mortgage loans were $35.4 million and commercial real estate loans were $62.5 million, or 5.6% and 9.9%, respectively, of the total loans held for investment. Consistent with its strategy to diversify the balance sheet composition, the Bank has made the origination of multi-family and commercial real estate mortgage loans a priority. At June 30, 2002, the Bank had 64 multi-family and 113 commercial real estate loans in its portfolio. The largest of these was a multi-family real estate loan with a balance of $2.9 million, secured by 80 townhouses in Riverside, which was performing in accordance with its terms.

Multi-family mortgage loans originated by the Bank are predominately adjustable rate loans with a term to maturity of 15 years based on a 30-year amortization schedule. Commercial real estate loans originated by the Bank are also predominately adjustable rate loans with a term to maturity of ten years based on a 25-year amortization schedule. Rates on multi-family and commercial real estate ARM loans generally adjust monthly, semi-annually or annually at a specific margin over the 12 MAT, subject to annual payment caps and life-of-loan interest rate caps. At June 30, 2002, $19.1 million, or 53.8%, of the Bank's multi-family loans were secured by five to 36 unit projects, of which $13.6 million, or 38.5 %, were located in Riverside or San Bernardino counties. The Bank's commercial real estate loan portfolio generally consists of loans secured by small office buildings, light industrial centers, mini warehouses and small retail centers, substantially all of which are located in Southern C alifornia. The Bank originates multi-family and commercial real estate loans in amounts ranging from $200,000 to $3.0 million. At June 30, 2002, the Bank had 30 commercial real estate and multi-family loans with principal balances of over $1.0 million which totaled $46.2 million. Independent appraisers, engaged by the Bank, perform appraisals on properties that secure multi-family and commercial real estate loans. Underwriting of multi-family and commercial real estate loans includes a thorough analysis of the cash flows generated by the real estate to support the debt service and the financial resources, experience, and income level of the borrowers.

Multi-family and commercial real estate loans affords the Bank an opportunity to receive higher interest rates than those generally available from single-family mortgage loans. However, loans secured by such properties are generally greater in amount, more difficult to evaluate and monitor and are more susceptible to default as a result of general economic conditions and, therefore, involve a greater degree of risk than single-family residential mortgage loans. Because payments on loans secured by multi-family and commercial properties are often dependent on the successful operation and management of the properties, repayment of such loans may be impacted by adverse conditions in the real estate market or the economy. At June 30, 2002, approximately $25.4 million, or 71.7%, of the Bank's multi-family loans and approximately $40.2 million, or 64.2%, of the Bank's commercial real estate loans were secured by properties located in Riverside or San Bernardino counties. Even though the Bank' s multi-family and commercial real estate loans are considered by management to be seasoned, and there has been a continued improvement in the real estate market, there is no assurance that the current market value of the properties securing these loans equals or exceeds the outstanding loan balance. At June 30, 2002, the Bank had no non-accrual multi-family or commercial real estate loans and no multi-family or commercial real estate loans that were 60 days or more past due. See also "REGULATION -- Federal Regulation of Savings Associations -- Loans to One Borrower."

Construction Mortgage Loans. Prompted by improved economic conditions and increased residential housing demand in its primary market area, the Bank actively originates two types of residential construction loans: (i) short-term construction loans and (ii) construction/permanent loans. At June 30, 2002, the Bank's construction loans were $72.2 million, or 11.5% of total loans held for investment, an increase of $10.3 million, or 17%, during fiscal 2002, which reflects the Bank's operational strategy. Undisbursed loan funds at the end of June 30, 2002 and 2001 were $30.5 million and $27.9 million, respectively.

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The composition of the Bank's construction loan portfolio is as follows:

Short-term construction loans include three types of loans: custom construction, tract construction, and speculative construction.

The Bank also provides construction financing for multi-family and commercial real estate properties. The Bank has increased its lending resources with the intent of increasing the amount of originations in multi-family, construction and commercial real estate loans.

Custom construction loans are made to individuals who, at the time of construction, have a contract executed with a builder to construct their residence. Custom construction loans are generally originated for a term of 12 months, with fixed interest rates at the prime lending rate and with loan-to-value ratios of up to 80% of the appraised value of the completed property. The owner secures long-term permanent financing at the completion of construction.

The Bank prefers to consider affordable as well as median-priced housing. Generally, significant presales are required prior to commencement of construction. Tract lending may include the building and financing of model homes under a separate loan. The terms for tract loans range from 12 to 18 months with interest rates from 1% to 2% above the prime-lending rate.

Speculative construction loans are made to home builders and are termed "speculative" because the home builder does not have, at the time of loan origination, a signed contract with a home buyer who has a commitment for permanent financing with either the Bank or another lender for the finished home. The home buyer may be identified either during or after the construction period, with the risk that the builder will have to debt service the speculative construction loan for a significant period of time after the completion of construction until the home buyer is identified.

Members of the Bank's Loan Committee approve all construction loans. Prior to preliminary approval of any construction loan application, an independent fee appraiser inspects the site and the Bank reviews the existing or proposed improvements, identifies the market for the proposed project, and analyzes the pro forma data and assumptions on the project. In the case of a speculative, tract or custom construction loan, the Bank reviews the experience and expertise of the builder. After preliminary approval has been given, the application is processed, which includes obtaining credit reports, financial statements and tax returns on the borrowers and guarantors, an independent appraisal of the project, and any other expert reports necessary to evaluate the proposed project. In the event of cost overruns, the Bank requires the borrower to deposit their own funds into a loans-in-process account, which the Bank disburses consistent with the completion of the subject proper ty pursuant to a revised disbursement schedule.

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The construction loan documents require that construction loan proceeds be disbursed in increments as construction progresses. Disbursements are based on periodic on-site inspections by independent fee inspectors and Bank personnel. At inception, the Bank also requires borrowers to deposit funds into the loans-in-process account covering the difference between the actual cost of construction and the loan amount. The Bank regularly monitors the construction loan portfolio, economic conditions and housing inventory. The Bank's property inspector performs periodic property inspections. The Bank believes that the internal monitoring system helps reduce many of the risks inherent in its construction loans.

Construction loans afford the Bank the opportunity to achieve higher interest rates and fees with shorter terms to maturity than its single-family mortgage loans. Construction loans, however, are generally considered to involve a higher degree of risk than single-family mortgage loans because of the inherent difficulty in estimating both a property's value at completion of the project and the estimated cost of the project. The nature of these loans is such that they are generally more difficult to evaluate and monitor. If the estimate of construction cost proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value upon completion proves to be inaccurate, the Bank may be confronted with a project whose value is insufficient to assure full repayment. Projects may also be jeopardized by disagreements between borrowers and builders and by the failure of builders to pay subcontractor s. Loans to builders to construct homes for which no purchaser has been identified carry more risk because the payoff for the loan depends on the builder's ability to sell the property prior to the time that the construction loan matures. The Bank has sought to address these risks by adhering to strict underwriting policies, disbursement procedures and monitoring practices. In addition, because the Bank's construction lending is in its primary market area, changes in the local economy and real estate market could adversely affect the Bank's construction loan portfolio.

Participation loan purchases and sales. In an effort to expand productivity and spread risk, participation purchases allow for a greater flexibility in the geographic distribution of the Bank's loans and increases the loan production volume. The Bank is aggressively networking with other lenders to purchase participating interests in multi-family, commercial and tract construction loans. The Bank generally purchases between 50% to 100% interest in the total loan amount. When the Bank purchases a participation loan, the lead lender will usually retain a servicing fee, thereby decreasing the loan yield. This servicing fee is primarily offset by a reduction in operating expenses to the Bank. All participation properties are inspected by Bank personnel prior to being approved by the Loan committee for purchase.

The Bank also sells participating interests in loans when it has been determined that it is beneficial to spread the risk. Participation sales also enable the Bank to maintain acceptable loan concentrations and comply with the Bank's loans to one borrower policy. Selling a participating interest in a loan increases the yield to the Bank on the portion of the loan that is retained.

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 portfolio yield. As of June 30, 2002, commercial business loans were $24.0 million, or 3.8% of total loans held for investment. These loans represent 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. 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 rate. The Bank may also obtain personal guarantees from financially capable parties based on a review of personal financial statements. The Bank's commercial loans may be structured as term loans or as lines of credit. 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 usually approved with a term of one year or less.

Commercial business loans involve greater risk than residential mortgage loans and involve risks that are different from those associated with residential and commercial real estate loans. Real estate loans are generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default.

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Although commercial business loans are often collateralized by equipment, inventory, accounts receivable or other business assets including real estate, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories and equipment may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial business loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is secondary and often times an insufficient source of repayment. At June 30, 2002, the Bank had no non-accrual commercial business loans.

Consumer and Other Loans. At June 30, 2002, the Bank's consumer loans were $19.4 million, or 3.1%, of the Bank's total loans held for investment, a decrease of $16.5 million, or 46.0%. The Bank has emphasized the origination of consumer loans, and, in particular, home equity lines of credit and equity loans, due to the higher yields that are available on these loans compared to residential mortgage loans. The decrease in consumer loans was due primarily to loan payoffs resulting from a strong refinance market which started in January 2001 as interest rates declined. The Bank anticipates that it will continue to be an active originator of home equity loans, subject to market conditions. At June 30, 2002, home equity loans amounted to $18.9 million, or 97.5% of total consumer loans.

The Bank offers open-ended lines of credit on either a secured or unsecured basis. Secured lines of credit are generally secured by a second mortgage on the borrower's primary residence. Secured lines of credit have an interest rate that is one to two percentage points above the prime lending rate, as published in The Wall Street Journal, while the rate on overdraft lines of credit is ten percentage points above this prime lending rate. In addition, the Bank offers savings lines of credit which have an interest rate that is four percentage points above the FHLB eleventh district COFI. In all cases, the rate adjusts monthly.

The Bank offers closed-end, fixed-rate home equity loans that are secured by the borrower's primary residence. These loans normally do not exceed 100% of the appraised value of the residence, less the outstanding principal of the first mortgage, and have terms of up to 15 years requiring monthly payments of principal and interest.

Consumer loans potentially have a greater risk than do residential mortgage loans, particularly in the case of loans that are unsecured. Consumer loan collections are dependent on the borrower's continuing 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. At June 30, 2002, the Bank had $156,000 in consumer loans accounted for on a non-accrual basis.

General. The Bank focuses its mortgage banking lending activities on mortgage loans secured by single-family properties. Mortgage banking involves the origination and sale of mortgage and consumer loans for the purpose of generating gains on sale of loans and fee income on the origination of loans, in addition to loan interest income. Given current pricing in the mortgage markets, the Bank generally sells all of its loans on a servicing-released basis. Generally, the level of loan sale activity and, therefore, its contribution to the Bank's profitability depends on maintaining a sufficient volume of loan originations. Changes in the level of interest rates and the local economy affect the number of loans originated by the Bank and, thus, the amount of loan sales, net interest income and loan fees earned.

Loan Solicitation and Processing. The Bank's mortgage banking operations consist of both wholesale and retail loan originations. The Bank's wholesale loan production utilizes a network of approximately 741 loan correspondents approved by the Bank who originate and submit loans at a mark-up over the Bank's daily published price. Wholesale origination in fiscal 2002, 2001 and 2000 was $672.1 million, $461.9 million and $232.9 million, respectively. The Bank maintains a regional wholesale lending office in Rancho Cucamonga, California.

The Bank's retail loan production utilizes loan officers and processors employed by PBM (Provident Bank Mortgage, a division of the Bank). The Bank's loan officers generate retail loan originations through referrals from

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realtors, builders and customers. As of June 30, 2002, PBM operated two retail offices within the Bank's facilities located in Riverside and Rancho Mirage and five separate retail loan production offices located in Glendora, Riverside, City of Industry, La Quinta and Torrance, all in Southern California. Generally, the cost of retail operations exceeds the cost of wholesale operations due to the burden of additional employees and greater overhead costs. However, the revenue per mortgage for retail originations is generally higher since the origination fees are retained by the Bank. Because wholesale loan production tends to decrease more dramatically than retail loan production during periods of higher interest rates, the Bank is seeking to originate a greater proportion of its loans through its retail operations. Retail originations in fiscal 2002, 2001 and 2000 were $431.4 million, $310.2 million and $174.3 million, respectively. Further, the Bank believes in its ability to attract r epeat business and cross-sell other banking services to borrowers acquired through its retail loan production.

The Bank requires evidence of marketable title, lien position and loan to value and requires a title insurance policy and appraisals on all properties. The Bank also requires evidence of fire and casualty insurance on the value of improvements. As required by federal regulations, the Bank also requires flood insurance to protect the property securing its interest if such property is located in a designated flood area.

Loan Commitments and Rate Locks. The Bank issues commitments for residential mortgage loans conditioned upon the occurrence of certain events. Such commitments are made with specified terms and conditions. Interest rate locks are generally offered to prospective borrowers for up to a 60-day period. The borrower may lock in the rate at any time from application until the time they wish to close the loan. Occasionally, borrowers obtaining financing on new home developments are offered rate locks up to 120 days from application. The Bank had outstanding commitments to originate loans totaling $56.7 million at June 30, 2002. See Note 15 of the Notes to Consolidated Financial Statements contained in Item 8 hereof. When the Bank commits to a borrower to lock in an interest rate there is the risk to the Bank that a rise in interest rates will reduce the value of the mortgage before it can be closed and sold. To control the interest rate risk caused by mortgage banking activities, t he Bank uses forward loan sales agreements and over-the-counter put options related to mortgage-backed securities as a hedge. See "-- Mortgage Banking Activities -- Derivative Activities."

Loan Origination and Other Fees. The Bank generally receives origination points and loan fees. Origination points are a percentage of the principal amount of the mortgage loan which is charged to a borrower for funding a loan. The amount of points charged by the Bank is generally 1% to 2%. Current accounting standards require points and fees received for originating loans (net of certain loan origination costs) to be deferred and amortized into interest income over the contractual life of the loan. Net deferred fees or costs associated with loans that are prepaid or sold are recognized as income at the time of prepayment or sale. The Bank had $27,000 of net unamortized deferred loan origination costs at June 30, 2002.

Loan Originations, Sales and Purchases. The Bank's mortgage originations include loans insured by the FHA and VA, as well as conventional loans. Except for loans originated for the Bank's portfolio, loans originated through the mortgage banking activities are originated for eventual sale into the secondary market. As such, these loans must meet the origination and underwriting criteria established by the final investors. The Bank sells a large percentage of the mortgage loans that it originates as whole loans to private investors. The Bank also sells conventional whole loans to FNMA and FHLMC through their purchase programs. Conventional mortgage loans originated by the Bank that do not meet FNMA or FHLMC guidelines may be sold to private institutional investors. See "-- Mortgage Banking Activities -- Derivative Activities."

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The following table shows the Bank's loan originations, purchases, sales and principal repayments during the periods indicated.

(1)    Includes net changes in undisbursed loan funds, deferred loan fees or costs, discounts on loans and loss reserves.

Mortgage loans sold to FHLMC and FNMA are sold on a non-recourse basis whereby foreclosure losses are generally the responsibility of the purchasing agency and not the Bank, except in the case of VA loans used to form Government National Mortgage Association ("GNMA") pools, which are subject to limitations on the VA's loan guarantees. Mortgage loans sold to private investors generally are sold without recourse other than standard representations and warranties.

Occasionally, the Bank is required to repurchase loans sold to FHLMC, FNMA or private investors if it is determined that such loans do not meet the credit requirements of the investor, or if one of the parties involved in the

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loan misrepresented pertinent facts, committed fraud, or if such loans were 90-days past due within 120 days of the loan funding date. During the year ended June 30, 2002, the Bank repurchased $1.1 million of single-family mortgage loans as compared to $757,000 in fiscal 2001 and $408,000 in fiscal 2000.

Loan Servicing. The Bank receives fees from a variety of institutional investors in return for performing the traditional services of collecting individual payments. At June 30, 2002, the Bank was servicing $136.1 million of loans for others. The Bank's loan servicing portfolio has decreased in recent years primarily because the Bank has sold a larger portion of its loans on a servicing-released basis. As long as the Bank continues to sell most mortgage loans with servicing released, the size of the mortgage servicing portfolio is expected to decrease. 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. When the Bank receives the gross mortgage payment from individual borrowers, it remits to the investor in the mortgage a predetermined net amount based on the loan sale agreement for that mortgage.

Derivative Activities. 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 often 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 in a corresponding loan sale commitment can be closed and 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 forward loan sales agreements and purchases of over-the-counter put options related to mortgage-backed securities. At various times, depending on management's assessment of interest rate movements and other economic conditions, the Bank may reduce or increase its derivative positions.

Under forward loan sales agreements, usually with FNMA, FHLMC or private investors, the Bank is obligated to sell certain dollar amounts of mortgage loans that meet specific underwriting and legal criteria before the expiration of the commitment period. These terms include the maturity of the individual loans, the yield to the purchaser, the servicing spread to the Bank (if servicing is retained) and the maximum principal amount of the individual loans. Forward loan sales of loans in the locked pipeline protect their sale prices from interest rate fluctuations that may occur from the time the interest rate of the loan is fixed to the time of its sale. The amount of and delivery date of the forward sales commitments is based upon management's estimates as to the volume of loans that will close and the length of the origination commitment. Forward loan sales do not provide complete interest-rate protection, however, because of the possibility of fallout (i.e., the failure to close) durin g the origination process. Differences between the estimated volume and timing of loan originations and the actual volume and timing of loan originations can expose the Bank to significant losses. If the Bank is not able to deliver the mortgage loans during the appropriate delivery period, the Bank may be required to pay a non-delivery fee or repurchase the delivery commitments at current market prices. Similarly, if the Bank has too many loans to deliver, the Bank must sell additional forward commitments at current market prices which may be unfavorable to the Bank. Generally, the Bank seeks to maintain forward loan sales agreements equal to the closed loans held for sale plus those applications that the Bank has rate locked and/or committed to close, adjusted by the projected fallout. The ultimate accuracy of such projections will directly bear upon the amount of interest rate risk incurred by the Bank. For the year ended June 30, 2002, the Bank had net gains of $59,000 attributable to the derivative financial instruments. At June 30, 2002, the Bank had outstanding commitments to sell loans totaling $45.7 million and commitments to originate loans totaling $56.7 million. See Note 15 of the Notes to Consolidated Financial Statements.

In order to reduce the interest rate risk associated with commitments to originate loans that are in excess of forward loan sales commitments, the Bank purchases over-the-counter put or call options on government agency mortgage-backed securities. At June 30, 2002, the Bank had $11.0 million in put-option contracts outstanding, which provided $1.7 million coverage.

The activities describes above are managed continually as markets change, however, there can be no assurance that the Bank will be successful in its effort to eliminate the risk of interest rate fluctuations between the time origination commitments are issued and the ultimate sale of the loan. The Bank employs a risk management firm to conduct daily analysis, report the Bank's interest rate risk position with respect to its loan origination and sale activities and

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to advise the Bank on interest rate movements and interest rate risk management strategies. The Bank's interest rate risk management activities are conducted in accordance with a written policy that has been approved by the Bank's Board of Directors that covers objectives, functions, instruments to be used, monitoring and internal controls. The Bank does not enter into option positions for trading or speculative purposes and does not enter into options that could generate a financial obligation beyond the initial premium paid. The Bank does not apply hedge accounting to its derivative financial instruments, therefore all changes in fair value are recorded in earnings.

Delinquent Loans. When a mortgage loan borrower fails to make a required payment when due, the Bank institutes collection procedures. If the Bank is unsuccessful at curing the delinquency, a property inspection is performed between the 45th day and 60th day of delinquency. In most cases, delinquencies are cured promptly; however, if by the 90th day of delinquency, or sooner if the borrower is chronically delinquent, and all reasonable means of obtaining the payment have been exhausted, foreclosure proceedings, according to the terms of the security instrument and applicable law, is initiated. Interest income is reduced by the full amount of accrued and uncollected interest on such loans.

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The following table sets forth delinquencies in the Bank's loan portfolio as of the dates indicated.

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The following table sets forth information with respect to the Bank's non-performing assets and restructured loans within the meaning of Statement of Financial Accounting Standard ("SFAS") No. 15 at the dates indicated.

The Bank assesses loans individually and identifies impairment when the accrual of interest has been discontinued, loans have been restructured or management has serious doubts about the future collectibility of principal and interest, even though the loans are currently performing. Factors considered in determining impairment include, but are not limited to, expected future cash flows, the financial condition of the borrower and current economic conditions. The Bank measures each impaired loan based on the fair value of its collateral and charges off those loans or portions of loans deemed uncollectible.

Foregone interest income, which would have been recorded for the year ended June 30, 2002 had impaired loans been current in accordance with their original terms, amounted to $480,000. The amount of interest income

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included in the results of operations on such loans for the year ended June 30, 2002 amounted to $674,000. Interest income foregone on restructured loans for such periods was not material.

Investment real estate is carried at the lower of cost or fair market value. All costs associated with disposition are considered in the determination of fair value. The Bank owned two properties, totaling $11.2 million, at June 30, 2002, both of which were held by a wholly owned subsidiary.

Asset Classification. The OTS has adopted various regulations regarding problem assets of savings institutions. The regulations require that each insured institution review and classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, OTS examiners have the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. Substandard assets have one or more defined weakness and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as a loss is considere d uncollectible and of such little value that continuance as an asset of the institution is not warranted. If an asset or portion thereof is classified as loss, the insured institution establishes a specific loss allowance for the full amount or for the portion of the asset classified as loss. All or a portion of allowances for loan losses established to cover probable losses related to assets classified substandard or doubtful may be included in determining an institution's regulatory capital, while specific valuation allowances for loan losses generally do not qualify as regulatory capital. Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as special mention and monitored by the Bank.

The aggregate amounts of the Bank's classified assets, including assets designated as special mention, were as follows at the dates indicated:

The substandard assets increased $2.2 million, or 33%, to $8.9 million at June 30, 2002 from $6.7 million at June 30, 2001. This increase was primarily attributable to four commercial business loans to a single borrower. The borrower filed for Chapter 11 Bankruptcy in fiscal 2002 but has continued to make all loan payments in a timely manner and to maintain sufficient collateral with the Bank in the form of accounts receivable, equipment and inventory such that the loan is fully secured The Bank closely monitors the borrower's business operations and the progress that they are making in the bankruptcy proceedings.

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As set forth below, assets classified as substandard and special mention as of June 30, 2002 included 68 loans and properties totaling approximately $17.9 million.

Not all of the Bank's classified assets are delinquent or non-performing. In determining whether the Bank's assets expose the Bank to sufficient risk to warrant classification, the Bank may consider various factors, including the payment history of the borrower, the loan-to-value ratio, and the debt coverage ratio of the property securing the loan. Upon consideration of these factors, the Bank may determine that the asset in question, though not currently delinquent, presents a risk of loss that requires it to be classified or designated as special mention. In addition, the Bank's loan portfolio includes commercial and multi-family real estate loans with a balance exceeding the current market value of the collateral that are not classified because they are performing and have borrowers who have sufficient resources to support the repayment of the loan.

Allowance for Loan Losses. The allowance for loan losses is maintained to cover losses inherent in the loan portfolio. In originating loans, the Bank recognizes that losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the collateral securing the loan. The responsibility for the review of the Bank's assets and the determination of the adequacy of the allowance lies with the Internal Asset Review Committee ("IAR Committee"). The Bank increases its allowance for loan losses by charging provisions for loan losses against the Bank's operations.

The Bank has established a methodology for the determination of provisions for loan losses. The methodology is set forth in a formal policy and takes into consideration the need for an overall allowance for loan losses as well as specific allowances that are tied to individual loans. The Bank's methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance, specific allowance for identified problem loans and unallocated allowance.

The formula allowance is calculated by applying loss factors to loans held for investment. The loss factors are applied according to loan program type and loan classification. The loss factors for each program type and loan classification are established based on an evaluation of the historical loss experience, prevailing market conditions, concentration in loan types and other relevant factors. Loans that are homogeneous in nature, such as residential mortgage, home equity and consumer installment loans are considered on a pooled loan basis. A factor is assigned to each pool based upon expected charge-offs for one year. The factors for larger, less homogeneous loans, such as construction, multifamily and commercial real estate loans, are based upon loss experience tracked over business cycles considered appropriate for the loan type.

Specific valuation allowances are established to absorb losses on loans for which full collectibility may not be reasonably assured as prescribed in SFAS No. 114 (as amended by SFAS No. 118). The amount of the specific allowance is based on the estimated value of the collateral securing the loan and other analyses pertinent to each

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situation. Estimates of identifiable losses are reviewed continually and, generally, a provision for losses is charged against operations on a monthly basis as necessary to maintain the allowance at an appropriate level. Management presents an analysis of the allowance for loan losses to the Bank's board of directors on a quarterly basis.

The unallocated allowance is based upon management's evaluation of various conditions, the effect of which are not directly measured in the determination of the formula and specific allowance. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments. The conditions evaluated in connection with the unallocated allowance include the following conditions that existed as of the balance sheet date: (1) then-existing general economic and business conditions affecting the key lending areas of the Bank, (2) credit quality trends, (3) loan volumes and concentrations, (4) recent loss experience in particular segments of the portfolio, and (5) regulatory examination results.

The IAR Committee meets quarterly to review and monitor conditions in the portfolio and to determine the appropriate allowance for loan losses. To the extent that any of these conditions are evidenced by identifiable problem credit or portfolio segment as of the evaluation date, the IAR Committee's estimate of the effect of such conditions may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by specifically identifiable problem credits or portfolio segments as of the evaluation date, the IAR Committee's evaluation of the probable loss related to such condition is reflected in the unallocated allowance. The intent of the Committee is to reduce the differences between estimated and actual losses. Pooled loan factors are adjusted to reflect current estimates of charge-offs during the next twelve months. Loss activity is reviewed for non-pooled loans and the loss factors adjusted, if necessary. By assessing the probable estimated losses inherent in the loan portfolio on a quarterly basis, the Bank is able to adjust specific and inherent loss estimates based upon the most recent information that has become available.

At June 30, 2002, the Bank had an allowance for loan losses of $6.6 million or 1.10% of gross loans held for investment compared to an allowance for loan losses at June 30, 2001 of $6.1 million, or 0.86% of gross loans held for investment. A $525,000 provision for loan losses was recorded in fiscal 2002, compared to none in fiscal 2001. The Bank's focus on expanding its investment in multi-family, commercial real estate, construction and commercial business loans may lead to increased levels of charge-offs. However, management believes that the amount maintained in the allowance will be adequate, but not excessive, to absorb losses inherent in the portfolio. Although management believes that they use the best information available to make such determinations, future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations .

As a result of past declines in local and regional real estate values and the significant losses experienced by many financial institutions, there has been a greater level of scrutiny by regulatory authorities of the loan portfolios of financial institutions undertaken as a part of the examinations of such institutions by banking regulators. While the Bank believes it has established its existing allowance for loan losses in accordance with accounting principles generally accepted in the United States of America, there can be no assurance that regulators, in reviewing the Bank's loan portfolio, will not request the Bank to increase significantly its allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that substantial increases will not be necessary should the quality of any loans deteriorate as a result of the factors discus sed above. Any material increase in the allowance for loan losses may adversely affect the Bank's financial condition and results of operations.

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The following table sets forth an analysis of the Bank's allowance for loan losses for the periods indicated. Where specific loan loss reserves have been established, any differences between the loss allowances and the amount of loss realized has been charged or credited to current operations.

(*)    Reclassifications of charge-off amounts and recovery amounts have been made to those amounts previously reported in the
         second and third quarters of fiscal 2002 to comply with the current reporting practices of the Corporation.

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The following table sets forth the breakdown of the allowance for loan losses by loan category for the periods indicated. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation of the allowance is based upon an asset classification matrix. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any other category.

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Federally chartered savings institutions are permitted under federal and state laws to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, deposits at the FHLB, certificates of deposit of federally insured institutions, certain bankers' acceptances and federal funds. Subject to various restrictions, federally chartered savings institutions may also invest a portion of their assets in commercial paper and corporate debt securities. Savings institutions such as the Bank are also required to maintain an investment in FHLB stock. In addition, the Bank is required to maintain minimum levels of investments that qualify as liquid assets under OTS regulations. See "REGULATION" and "Management's Discussion And Analysis Of Financial Condition And Results Of Operations -- Liquidity and Capital Resources" in Part II, Item 7 of this report. In March 2001, the OTS removed the specific liquidity requirement and now requires institutions to maintain the appropriate liquidity specific to their operations.

The investment policy of the Bank, established by the Board of Directors and implemented by the Bank's asset-liability committee ("ALCO"), seeks to provide and maintain adequate liquidity, complement the Bank's lending activities, and generate a favorable return on investments without incurring undue interest rate risk and credit risk. Investments are made based on certain considerations, such as yield, quality, maturity and marketability. The Bank also considers the effect that the proposed investment would have on the Bank's Risk-Based Capital and interest rate sensitivity.

At June 30, 2002, the Corporation's investment securities portfolio totaled $270.5 million at amortized cost, which primarily consisted of federal agency obligations. A total of $113.4 million of the Corporation's investment securities was classified as available for sale. All other securities were classified as held to maturity.

The following table sets forth the composition of the Bank's investment portfolio at the dates indicated.

(1) Mortgage-backed securities ("MBS").

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The following table sets forth the amortized cost, maturity and weighted average yield of the investments in debt securities in the Bank's securities portfolio at June 30, 2002:

General. Deposits, the proceeds from loan sales and loan repayments are the major sources of the Bank's funds for lending and other investment purposes. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows are influenced significantly by general interest rates and money market conditions. Loan sales are also influenced significantly by general interest rates. Borrowings through the FHLB-San Francisco and repurchase agreements may also be used to compensate for declines in the availability of funds from other sources.

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 deposits. 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 customer preferences and concerns. Generally, the Bank's deposit rates are close to 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 does not generally accept brokered deposits. The Bank reviews its deposit composition and pricing weekly.

The Bank currently offers time deposits for terms not exceeding five years. As illustrated in the following table, time deposits accounted for 49.7% of the Bank's deposit portfolio at June 30, 2002, compared to 62.4% at June 30, 2001. The Bank will attempt to reduce the overall cost of its deposit portfolio by increasing its transaction accounts. See "-- Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 herein.

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The following table sets forth information concerning the Bank's weighted-average interest rate of the deposits at June 30, 2002.