FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended..................... September 30, 2000
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------------
Commission File Number 0-28304
PROVIDENT FINANCIAL HOLDINGS, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0704889
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3756 Central Avenue, Riverside, California 92506
------------------------------------------------
(Address of principal executive offices and zip code)
(909) 686-6060
--------------
(Registrant's telephone number, including area code)
-----------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check 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.
(1) Yes X . No .
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of class : As of November 6, 2000
---------------- ----------------------
Common stock, $ 0.01 par value 3,894,066 shares *
* Includes 284,045 shares held by the employee stock ownership plan that have
not been released, committed to be released, or allocated to participant
accounts; and 73,964 shares held by the management recognition plan which have
been committed to be released and allocated to participant accounts.
PROVIDENT FINANCIAL HOLDINGS, INC.
Table of Contents
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements. The Unaudited Interim Consolidated Financial
Statements of Provident Financial Holdings, Inc. filed as a part of
the report are as follows:
Consolidated Statements of Financial Condition
as of September 30, 2000 and June 30, 2000...................... 1
Consolidated Statements of Operations
for the quarters ended September 30, 2000 and 1999.............. 2
Consolidated Statements of Changes in Stockholders' Equity
for the quarters ended September 30, 2000 and 1999.............. 3
Consolidated Statements of Cash Flows
for the quarters ended September 30, 2000 and 1999.............. 4
Selected Notes to Unaudited Interim Consolidated Financial
Statements...................................................... 5
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
General......................................................... 7
Comparison of Financial Condition at September 30, 2000 and
June 30, 2000................................................... 7
Comparison of Operating Results for the quarters ended
September 30, 2000 and 1999..................................... 8
Loan Volume Activities.......................................... 15
Liquidity and Capital Resources................................. 16
Supplemental Information........................................ 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................... 17
Item 2. Changes in Securities................................. 17
Item 3. Defaults upon Senior Securities....................... 17
Item 4. Submission of Matters to Vote of Stockholders......... 17
Item 5. Other Information..................................... 17
Item 6. Exhibits and Reports on Form 8-K...................... 18
SIGNATURES.............................................................. 19
EXHIBIT 27 - FINANCIAL DATA SCHEDULE.................................... 20
PROVIDENT FINANCIAL HOLDINGS, INC.
Consolidated Statements of Financial Condition
(Unaudited)
Dollars in Thousands
September 30, June 30,
2000 2000
------------- -----------
ASSETS
Cash......................................... $ 18,021 $ 18,965
Overnight deposits........................... - -
Investment securities - held to maturity
(market value $168,874 and $166,059,
respectively)............................... 175,237 175,234
Investment securities - available for sale
at fair market value........................ 25,947 24,382
Loans held for investment, net............... 811,113 824,862
Loans held for sale, net..................... 49,258 52,049
Accrued interest receivable.................. 7,893 7,391
Real estate held for investment, net......... 12,264 12,380
Real estate owned, net....................... 1,173 1,047
Federal Home Loan Bank stock................. 17,625 17,287
Premises and equipment, net.................. 7,464 7,525
Prepaid expenses and other assets............ 6,410 6,682
----------- -----------
Total assets.............................. $ 1,132,405 $ 1,147,804
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Non-interest bearing deposits................ $ 19,209 $ 18,666
Interest bearing deposits.................... 673,796 677,792
----------- -----------
Total deposits............................ 693,005 696,458
Borrowings................................... 327,135 341,668
Accounts payable, accrued interest and
other liabilities........................... 21,329 20,711
----------- -----------
Total liabilities......................... 1,041,469 1,058,837
Stockholders' equity:
Preferred stock, $.01 par value; authorized
2,000,000 shares; none issued and outstanding - -
Common stock, $.01 par value; authorized
15,000,000 shares; issued 5,125,215 shares;
outstanding 3,900,066 and 3,922,066 shares,
respectively................................ 51 51
Additional paid-in capital................... 51,295 51,249
Retained earnings............................ 66,544 64,811
Treasury stock at cost (1,225,149 and
1,203,149 shares, respectively)............. (23,094) (22,696)
Unearned stock compensation.................. (4,381) (4,634)
Accumulated other comprehensive income,
net of tax.................................. 521 186
----------- -----------
Total stockholders' equity................ 90,936 88,967
----------- -----------
Total liabilities and stockholders'
equity................................... $ 1,132,405 $ 1,147,804
=========== ===========
The accompanying notes are integral part of these financial statements.
1
PROVIDENT FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations
(Unaudited)
Dollars in Thousands, Except Earnings Per Share
Quarter Ended
September 30,
---------------------
2000 1999
-------- --------
Interest income
Loans receivable, net........................ $ 16,680 $ 13,951
Investment securities........................ 3,520 3,213
Interest bearing deposits.................... 19 6
-------- --------
Total interest income..................... 20,219 17,170
Interest expense
Savings accounts............................. 684 548
Demand and NOW accounts...................... 942 1,022
Certificates of deposit...................... 6,759 5,397
Federal Home Loan Bank advances and other
borrowings.................................. 5,284 3,112
-------- --------
Total interest expense.................... 13,669 10,079
-------- --------
Net interest income............................. 6,550 7,091
Provision for loan losses....................... - -
-------- --------
Net interest income after provision for
loan losses.................................... 6,550 7,091
Non-interest income
Loan servicing and other fees................ 595 719
Gain on sale of loans, net................... 1,309 848
Real estate operations, net.................. 180 35
Other........................................ 788 614
-------- --------
Total non-interest income................. 2,872 2,216
Non-interest expenses
Salaries and employee benefits............... 3,986 4,009
Premises and occupancy....................... 509 492
Equipment.................................... 472 528
Professional expenses........................ 122 168
Sales and marketing expenses................. 268 269
Other........................................ 1,066 1,049
-------- --------
Total non-interest expenses.............. 6,423 6,515
-------- --------
Income before taxes............................ 2,999 2,792
Provision for income taxes..................... 1,266 1,182
-------- --------
Net income..................................... $ 1,733 $ 1,610
======== ========
Basic earnings per share.................... $ 0.49 $ 0.42
Diluted earnings per share.................. $ 0.48 $ 0.41
The accompanying notes are an integral part of these financial statements.
2
PROVIDENT FINANCIAL HOLDINGS, INC.
Consolidated Statements of Stockholders' Equity
(Unaudited)
Dollars in Thousands, Except Shares
For the Quarters Ended September 30, 2000 and 1999
Common Other
Stock Additional Unearned Compre-
-------------- Paid-in Retained Treasury Stock hensive
Shares Amount Capital Earnings Stock Compensation Income Total
- --------------------------------------------------------------------------------------------------------
Balance at June 30, 2000...... 3,922,066 $ 51 $ 51,249 $ 64,811 $ (22,696) $ (4,634) $ 186 $88,967
Comprehensive income:
Net income.................. 1,733 1,733
Unrealized holding gains on
securities available for
sale, net of tax.......... 335 335
-------
Total comprehensive income.... 2,068
Purchase of treasury stock.... (22,000) (398) (398)
Release of shares under stock-
based compensation plans...... 46 253 299
- --------------------------------------------------------------------------------------------------------
Balance at September 30, 2000. 3,900,066 $ 51 $ 51,295 $ 66,544 $ (23,094) $ (4,381) $ 521 $90,936
========================================================================================================
The accompanying notes are an integral part of these financial statements.
Accumu-
lated
Common Other
Stock Additional Unearned Compre-
-------------- Paid-in Retained Treasury Stock hensive
Shares Amount Capital Earnings Stock Compensation Income Total
- --------------------------------------------------------------------------------------------------------
Balance at June 30, 1999...... 4,385,785 $ 51 $ 51,069 $ 57,555 $ (14,089) $ (5,644) $ 744 $89,686
Comprehensive income:
Net income.................. 1,610 1,610
Unrealized holding gains on
securities available for
sale, net of tax........... (235) (235)
-------
Total comprehensive income.... 1,375
Purchase of treasury stock.... (203,500) (4,054) (4,054)
Release of shares under stock-
based compensation plans..... 65 252 317
- --------------------------------------------------------------------------------------------------------
Balance at September 30, 1999. 4,182,285 $ 51 $ 51,134 $ 59,165 $ (18,143) $ (5,392) $ 509 $87,324
========================================================================================================
The accompanying notes are an integral part of these financial statements.
3
PROVIDENT FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flow
(Unaudited)
Dollars in Thousands
Quarter Ended
September 30,
-----------------------
2000 1999
--------- -----------
Cash flows from operating activities:
Net income....................................... $ 1,733 $ 1,610
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................... 505 486
Provision for losses on real estate............. - 10
Gain on sale of loans........................... (1,309) (848)
Net gain on sale of investment securities - (7)
Increase (decrease) in accounts payable and
other liabilities............................... 386 (3,628)
(Increase) decrease in prepaid expense and
other assets.................................... (231) 43
Loans originated for sale........................ (115,894) (82,183)
Proceeds from sale of loans...................... 119,994 85,978
Stock compensation............................... 299 317
--------- -----------
Net cash provided by (used for) operating
activities................................... 5,483 1,778
Cash flows from investing activities:
Net decrease (increase) in loans receivable..... 13,823 (99,156)
Maturity of investment securities held-to-
maturity....................................... - 1,000
Purchases of investment securities available
for sale....................................... (993) (21,217)
Sales of investment securities available
for sale....................................... - 2,136
Purchase of Federal Home Loan Bank stock........ (338) (4,935)
Net (purchase) sales of real estate............. (211) 480
Purchases of premises and equipment............. (323) (304)
--------- -----------
Net cash provided by (used for) investing
activities................................... 11,958 (121,996)
Cash flows from financing activities:
Net (decrease) increase in deposits............. (3,453) 53,080
Repayment of Federal Home Loan Bank advances.... (426,302) (3,543,102)
Proceeds of Federal Home Loan Bank advances..... 411,900 3,610,000
Repayment of other borrowings................... (132) -
Treasury stock purchases........................ (398) (4,054)
--------- -----------
Net cash (used for) provided by financing
activities.. ................................ (18,385) 115,924
--------- -----------
Net decrease in cash and cash equivalents..... (944) (4,294)
Cash and cash equivalents at beginning of period. 18,965 19,729
--------- -----------
Cash and cash equivalents at end of period....... $ 18,021 $ 15,435
========= ===========
Supplemental Information:
Cash paid for interest.......................... $ 12,621 $ 11,210
Cash paid for income taxes...................... 432 367
Real estate acquired in settlement of loans..... 214 -
The accompanying notes are an integral part of these financial statements.
4
PROVIDENT FINANCIAL HOLDINGS, INC.
SELECTED NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2000
Note 1 : Basis of Presentation
The unaudited interim consolidated financial statements included herein
reflect all adjustments which are, in the opinion of management, necessary to
present a fair statement of the results for the interim period presented. All
such adjustments are of a normal recurring nature. The balance sheet data at
June 30, 2000 is derived from audited consolidated financial statements of
Provident Financial Holdings, Inc. (the "Company"). Certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. It is suggested that these unaudited interim consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Annual Report on Form
10-K for the year ended June 30, 2000 (File No. 000-28304) of the Company.
Certain amounts in the prior period's financial statements may have been
reclassified to conform to the current period's presentation.
Note 2: Earnings Per Share
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
would then share in the earnings of the entity. The following tables provide
the basic and diluted EPS computations for the quarters ended September 30,
2000 and 1999, respectively.
For the Quarter Ended
September 30,
--------------------------
2000 1999
----------- -----------
Numerator:
Net income - numerator for basic earnings
per share and diluted earnings per share-
income available to common stockholders..... $ 1,732,664 $ 1,609,819
=========== ===========
Denominator:
Denominator for basic earnings per share:
Weighted-average shares................... 3,514,149 3,809,179
Effect of dilutive securities:
Employee stock benefit plans.............. 129,854 128,860
----------- -----------
Denominator for diluted earnings per share :
Adjusted weighted-average shares
and assumed conversions................... 3,644,003 3,938,039
=========== ===========
Basic earnings per share....................... $ 0.49 $ 0.42
Diluted earnings per share..................... $ 0.48 $ 0.41
Note 3 : Operating Segment Reports
The Company has determined that its reportable segments are the operations
pertaining to mortgage banking and the operations of Provident Savings Bank,
F.S.B. ("Savings Bank") pertaining to consumer
5
and commercial banking. The following tables set forth condensed income
statements and total assets for the Company's operating segments for the
quarters ended September 30, 2000 and 1999, respectively.
For the Quarter Ended September 30, 2000
------------------------------------------
Savings Mortgage Consolidated
Bank Banking Total
- ------------------------------------------------------------------------------
Net interest income................ $ 6,382 $ 168 $ 6,550
Non-interest income:
Loan servicing and other fees.... 150 445 595
Gain on sale of loans, net....... (15) 1,324 1,309
Real estate operations, net...... 188 (8) 180
Other............................ 629 159 788
- ------------------------------------------------------------------------------
Total non-interest income....... 952 1,920 2,872
Non-interest expense:
Salaries and employee benefits... 2,904 1,082 3,986
Premises and occupancy........... 343 166 509
Operating and administrative
expenses........................ 1,174 754 1,928
- ------------------------------------------------------------------------------
Total non-interest expense...... 4,421 2,002 6,423
- ------------------------------------------------------------------------------
Operating income before income
taxes............................. $ 2,913 $ 86 $ 2,999
==============================================================================
Total assets, end of period $1,078,447 $ 53,958 $1,132,405
==============================================================================
For the Quarter Ended September 30, 1999
------------------------------------------
Savings Mortgage Consolidated
Bank Banking Total
- ------------------------------------------------------------------------------
Net interest income................ $ 6,908 $ 183 $ 7,091
Non-interest income:
Loan servicing and other fees.... (863) 1,582 719
Gain on sale of loans, net....... (4) 852 848
Real estate operations, net...... 17 18 35
Other............................ 606 8 614
- ------------------------------------------------------------------------------
Total non-interest income....... (244) 2,460 2,216
Non-interest expense:
Salaries and employee benefits... 2,836 1,173 4,009
Premises and occupancy........... 325 167 492
Operating and administrative
expenses........................ 1,296 718 2,014
- ------------------------------------------------------------------------------
Total non-interest expense...... 4,457 2,058 6,515
- ------------------------------------------------------------------------------
Operating income before income
taxes............................. $ 2,207 $ 585 $ 2,792
==============================================================================
Total assets, end of period........ $1,026,231 $ 45,023 $1,071,254
==============================================================================
6
Note 4 : SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities"
This statement establishes new accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. The Company adopted the new standard in the quarter ended
September 30, 2000 with no effect on the overall financial statements.
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Provident Financial Holdings, Inc. ("Provident Financial" or the "Company"), a
Delaware corporation, was organized in January 1996 for the purpose of
becoming the holding company for Provident Savings Bank, F.S.B. ("Savings
Bank") upon the Savings Bank's conversion from a federal mutual to a federal
stock savings bank ("Conversion"). The Conversion was completed on June 27,
1996. At September 30, 2000, the Company had total assets of $1.1 billion,
total deposits of $693.0 million and stockholders' equity of $90.9 million.
Provident Financial has not engaged in any significant activity other than
holding the stock of the Savings Bank. Accordingly, the information set forth
in this report, including financial statements and related data, relates
primarily to the Savings Bank and its subsidiaries.
The Savings Bank, founded in 1956, is a federally chartered savings bank
headquartered in Riverside, California. The Savings 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 Savings Bank's deposits are federally insured up to applicable limits by
FDIC (under the Savings Association Insurance Fund ("SAIF")). The Savings Bank
has been a member of the Federal Home Loan Bank ("FHLB") system since 1956.
The Savings Bank's business consists of traditional savings and loan
operations and mortgage banking activities. The savings and loan operations
primarily consist of accepting deposits from customers within the communities
surrounding the Savings Bank's full service offices and investing these funds
in commercial real estate, construction, business, consumer loans and, to a
lesser extent, in one-to-four-family, multi-family and other loans. In
addition, the Savings Bank also facilitates business checking accounts and
other business banking services, including the servicing of loans for others.
Mortgage banking activities consist of the origination and sale of mortgage
loans secured by one-to-four-family residences. The Savings Bank's revenues
are derived principally from interest on its loan and investment portfolio and
fees generated through its mortgage banking activities.
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this
section should be read in conjunction with the Unaudited Interim Consolidated
Financial Statements and accompanying Selected Notes to Unaudited Interim
Consolidated Financial Statements.
Comparison of Financial Condition at September 30, 2000 and June 30, 2000
In line with the Company's interest risk mitigation strategies as mentioned on
page five of the Company's 10-K report as of June 30, 2000, total assets
decreased by $15.4 million, or 1 percent, to $1.1 billion at the end of the
first quarter of fiscal 2001 as compared to the previous quarter. This
decrease was primarily the result of a decrease of $16.5 million, or 2
percent, in total net loans receivable to $860.4 million at September 30, 2000
from $876.9 million at June 30, 2000.
The proceeds from sales of current production of all single family, first
trust deed, residential mortgage loans and loan payoffs were used to pay down
FHLB advances. Total borrowings, which primarily consist of FHLB advances,
declined by $14.6 million to $327.1 million at September 30, 2000 from $341.7
million at June 30, 2000. The average maturity of the Company's existing FHLB
advances has been increased from 10.3 months at June 30, 2000 to 11.4 months
at September 30, 2000 in anticipation of possible rate
7
increases. These strategies, along with others, are intended to raise the
Company's current capital position through reducing the amount of leverage and
to mitigate the impact of future interest rate increases.
Total deposits declined slightly to $693.0 million at September 30, 2000 from
$696.5 million at June 30, 2000. This decline was attributable to normal
activities in transactional accounts. The Company continues its focus on
building clients' relationships through checking accounts and other banking
products and services.
Total stockholders' equity increased by $2.0 million during the period ended
September 30, 2000, which resulted mainly from the first quarter net income,
quarterly ESOP accruals and an increase in unrealized gains on securities
available for sale. This increase was partially reduced by resumption of the
Company's stock repurchases. A total of 22,000 shares, with an average price
of $18.08 per share, were repurchased in the first quarter of fiscal 2001. As
of September 30, 2000, 22 percent of the authorized 197,000 shares has been
repurchased with an average price of $16.44 per share.
Comparison of Operating Results for the Quarters Ended September 30, 2000 and
1999
The Company's net income for the quarter ended September 30, 2000 was $1.7
million, an increase of $123,000, or 8 percent, from $1.6 million during the
same quarter in 1999. This increase was primarily attributable to an increase
in the gains on sale of loans, which was partly offset by the decline in net
interest income.
The gains on sale of loans increased by $461,000, or 54 percent, to $1.3
million for the quarter ended September 30, 2000 from $848,000 during the same
quarter in 1999. This increase was primarily due to higher loan sale volume
and higher loan sale margin in the first quarter of fiscal 2001 compared to
the same quarter of fiscal 2000. The loan sale volume in the first quarter of
fiscal 2001 was $111.4 million compared to $86.0 million in the same quarter
of fiscal 2000.
The Company's net interest income decreased by 8 percent to $6.6 million for
the quarter ended September 30, 2000 from $7.1 million during the comparable
period of 1999. This decrease resulted from the increase in cost of funds,
which outpaced the increase in earning assets. The cost of funds increased by
87 basis points while the yield on earning assets increased by only 26 basis
points. The average earning assets during the first quarter 2001 were $1.1
billion, an increase of $127.1 million, or 13 percent, as compared to $962.8
million during the same quarter last year. The effect of earning asset growth
was offset by a lower net interest margin. The net interest margin narrowed to
2.40 percent in the first quarter from 2.95 percent during the same period of
1999.
The Company's efficiency ratio improved to 68 percent in the first quarter
from 70 percent in the same period of 1999. This increase was mainly
attributable to the increase in mortgage banking revenue. Return on average
assets for the quarter ended September 30, 2000 and 1999 was 0.61 percent and
0.64 percent, respectively. Return on average equity for the quarter ended
September 30, 2000 and 1999 was 7.81 percent and 7.36 percent, respectively.
Diluted earnings per share for the quarter ended September 30, 2000 was $0.48,
an increase of 17 percent from $0.41 in the quarter ended September 30, 1999.
The increase in the net earnings per share reflects the Company's stock
repurchase programs during fiscal years 1999 and 2000.
Interest Income. Interest income increased by $3.0 million, or 18 percent, to
$20.2 million for the quarter ended September 30, 2000 from $17.2 million
during the same quarter in 1999. This increase was the result of growth in
average earning assets and higher overall market rates. The average earnings
assets during the first quarter of fiscal 2001 were $1.1 billion as compared
to $962.8 million during the same period last year. The average yield on
earning assets during the first quarter of fiscal 2001 was 7.42 percent, 29
basis points higher than the average yield of 7.13 percent during the same
period last year.
Loan interest income increased by $2.7 million, or 20 percent, to $16.7
million in the quarter ended September 30, 2000 as compared to $14.0 million
for the same period in 1999. This increase was
8
attributable to growth in average loans, including those available for sale,
from $751.2 million during the first quarter of fiscal 2000 to $867.5 million
during the same quarter of fiscal 2001. The average loan yield during the
first quarter of fiscal 2001 was 7.69 percent as compared to 7.43 percent
during the same quarter last year.
The interest income from investment securities, including Federal Home Loan
Bank ("FHLB") stock, increased by $300,000, or 10 percent to $3.5 million
during the quarter ended September 30, 2000 from $3.2 million during the same
quarter in 1999. This increase was primarily a result of an increase in the
amount of average investment securities and an increase in the average yield.
The average investment securities increased by $10.8 million, or 5 percent, to
$222.5 million during the first quarter of 2001 from $211.7 million in the
same quarter last year. The average yield on investment securities increased
by 28 basis points to 6.36% during the first quarter of fiscal 2001 from 6.08%
during the same period last year.
Interest Expense. Interest expense for the quarter ended September 30, 2000
was $13.7 million as compared to $10.1 million for the same period in 1999, an
increase of $3.6 million, or 36 percent. This increase was primarily
attributable to increases in average deposits and FHLB advances as well as the
cost of both. The average cost of liabilities was 5.33 percent during the
quarter ended September 30, 2000, up 87 basis points as compared to 4.46
percent from the same period in 1999.
Average deposits increased by $35.2 million, or 5 percent, to $692.5 million
during the quarter ended September 30, 2000 as compared to $657.3 million
during the same period in 1999. The average cost of deposits increased to 4.82
percent during the quarter ended September 30, 2000 from 4.21 percent during
the same quarter in 1999. The increase in the average rate on deposits was due
to higher market rates.
Borrowings, which are mainly FHLB advances, averaged $327.8 million during the
quarter ended September 30, 2000 as compared to $238.4 million for the same
quarter in 1999, an increase of $89.4 million. The average cost on the
borrowings increased to 6.41 percent for the quarter ended September 30, 2000
from 5.18 percent in the same quarter in 1999. This increase resulted from the
lengthening of short-term borrowings to mitigate the future impact of rising
rates.
9
The following table depicts the average balance sheets for the quarters ended September 30, 2000 and 1999,
respectively:
Average Balance Sheets
(dollars in thousands)
Quarter Ended Quarter Ended
September 30, 2000 September 30, 1999
---------------------------------- --------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- -------- ---- ---------- -------- ----
Interest earning assets:
Loans (1..................... $ 867,472 $ 16,680 7.69% $ 751,182 $ 13,951 7.43%
Investment securities........ 203,759 3,182 6.25 198,969 3,101 6.23
FHLB stock................... 17,537 338 7.71 12,188 112 3.68
Interest-earning deposits.... 1,198 19 6.34 494 6 4.86
---------- -------- ---- ---------- -------- ----
Total interest earning
assets...................... 1,089,966 20,219 7.42% 962,833 17,170 7.13%
Non-interest earning assets.. 47,781 45,930
---------- ----------
Total assets................. $1,137,747 $1,008,763
========== ==========
Interest-bearing liabilities:
Savings accounts............. $ 84,327 684 3.23% $ 82,827 548 2.63%
Demand and negotiable order of
Withdrawal ("NOW") accounts. 152,515 942 2.46 147,210 1,022 2.75
Certificates of deposit...... 455,704 6,759 5.90 427,274 5,397 5.01
---------- -------- ---- ---------- -------- ----
Total deposits............... 692,546 8,385 4.82% 657,311 6,967 4.21%
FHLB advances................ 324,523 5,217 6.40% 238,210 3,110 5.18%
Other borrowings............. 3,285 67 8.11 184 2 4.32
---------- -------- ---- ---------- -------- ----
Total interest-bearing
liabilities................. 1,020,354 13,669 5.33% 895,705 10,079 4.46%
Non-interest-bearing
liabilities................ 28,644 25,593
---------- ----------
Total liabilities........... 1,048,998 921,298
Stockholders' equity........ 88,749 87,465
---------- ----------
Total liabilities and
stockholders' equity....... $1,137,747 $1,008,763
========== -------- ========== --------
Net interest income......... $ 6,550 $ 7,091
======== ========
Interest rate spread (2).... 2.09% 2.67%
Net interest margin (3)..... 2.40% 2.95%
Ratio of average interest earning
assets to average interest-
bearing liabilities........ 106.82% 107.49%
Return on average assets.... 0.61% 0.64%
Return on average equity.... 7.81% 7.36%
(1) Includes loans held for sale.
(2) Represents the difference between weighted average yield on all interest-earning assets and weighted
average rate on all interest-bearing liabilities.
(3) Represents net interest income before provision for loan losses as a percentage of average interest-
earning assets.
10
The following table provides the rate/volume variances for the quarters ended
September 30, 2000 and 1999, respectively:
Rate/Volume Variance
(dollars in thousands)
Quarter Ended September 30, 2000
Compared to Quarter Ended September 30, 1999
Increase (Decrease) Due to
- ------------------------------------------------------------------------------
Rate/
Rate Volume Volume Net
------- ------- ------ -------
Interest income
Loans receivable (1......... $ 493 $ 2,160 $ 76 $ 2,729
Investment securities....... 6 75 - 81
FHLB stock.................. 123 49 54 226
Interest-bearing deposits... 2 9 2 13
------- ------- ------ -------
Total net change in income
on interest-earning assets... 624 2,293 132 3,049
Interest-bearing liabilities :
Savings accounts............ 124 10 2 136
Demand and NOW accounts..... (113) 37 (4) (80)
Certificates of deposit..... 940 358 64 1,362
FHLB advances............... 719 1,124 264 2,107
Other borrowings............ 1 34 30 65
------- ------- ------ -------
Total net change in expense on
interest-bearing liabilities. 1,671 1,563 356 3,590
------- ------- ------ -------
Net change in net interest
income....................... $(1,047) $ 730 $ (224) $ (541)
======= ======= ====== =======
(1) Includes loans held for sale. For purposes of calculating volume, rate and
rate/volume variances, non-accrual loans were included in the weighted
average balance outstanding.
Provision for Loan Losses. No additional loan loss provisions were added
during the first quarters of fiscal 2001 and 2000. The allowance for loan
losses was $6.9 million at September 30, 2000 as compared to $6.7 million a
year earlier. The allowance as a percent of gross loans held for investment at
September 30, 2000 was 0.84 percent as compared to 0.87 percent at September
30, 1999.
The allowance for loan losses is maintained at a level sufficient to provide
for estimated losses based on evaluating known and inherent risks in the loan
portfolio and upon management's continuing analysis of the factors underlying
the quality of the loan portfolio. These factors include changes in the size
and composition of the loan portfolio, actual loan loss experience, current
and anticipated economic conditions, detailed analysis of individual loans for
which full collectibility may not be assured, and determination of the
realizable value of the collateral securing the loans. Provisions for losses
are charged against operations on a monthly basis as necessary to maintain the
allowance at appropriate levels. Management believes that the amount
maintained in the allowance will be adequate to absorb losses inherent in the
portfolio. Although management believes it uses the best information available
to make such determinations, there can be no assurance that regulators, in
reviewing the Company's loan portfolio, will not request the Company to
increase significantly its allowance for loan losses. Future adjustments to
the allowance for loan losses may be necessary and results of operations could
be significantly and adversely affected due to economic, operating,
regulatory, and other conditions beyond the control of the Company.
11
The following table is provided to disclose additional details on the
Company's allowance for loan losses and asset quality (dollars in thousands):
Allowance for Loan Losses
For the Quarter Ended
------------------------------------------
September 30, 2000 September 30, 1999
------------------ ------------------
Allowance at beginning of period. $ 6,850 $ 6,702
Provision for loan losses........ - -
Recoveries:
Mortgage loans:
One-to-four family............. 6 11
Multifamily.................... - -
Commercial..................... - -
Construction................... - -
Consumer loans................... - 14
Commercial business lending...... - -
------------------ ------------------
Total recoveries............. 6 25
Charge-offs:
Mortgage loans:
One-to-four family............. - -
Multifamily.................... - (6)
Commercial..................... - -
Construction................... - -
Consumer loans................... (1) -
Commercial business lending...... - -
------------------ ------------------
Total charge-offs............ (1) (6)
------------------ ------------------
Net recoveries............... 5 19
------------------ ------------------
Balance at end of period.... $ 6,855 $ 6,721
================== ==================
Allowance for loan losses as a
percentage of gross loans held
for investment.................. 0.84% 0.87%
Net recovery as a percentage of
average loans outstanding during
the period...................... - 0.01%
Allowance for loan losses as a
percentage of non-performing
loans at the end of the period. 800.82% 459.71%
12
Asset Quality. The following table is provided to disclose additional details
on asset quality (dollars in thousands) :
At September 30, At September 30,
2000 1999
---------------- ----------------
Loans accounted for on a non-accrual
basis:
Mortgage loans:
One-to-four family.................. $ 844 $ 1,426
Multifamily......................... - -
Commercial.......................... - -
Construction........................ - -
Consumer loans........................ 12 36
Commercial business lending........... - -
Other loans........................... - -
---------------- ----------------
Total.............................. 856 1,462
Accruing loans which are contractually
past due 90 days or more:
Mortgage loans:
One-to-four family.................. - -
Multifamily......................... - -
Commercial.......................... - -
Construction........................ - -
Consumer loans........................ - -
Commercial business lending........... - -
Other loans........................... - -
---------------- ----------------
Total.............................. - -
Total of non-accrual and 90 days
past due loans....................... 856 1,462
Real estate owned..................... 1,173 1,291
---------------- ----------------
Total non-performing assets....... $ 2,029 $ 2,753
================ ================
Restructured loans.................... $ 1,475 $ 1,502
Non-accrual and 90 days or more past
due loans as a percentage of loans
held for investment, net............. 0.11% 0.19%
Non-accrual and 90 days or more past
due loans as a percentage of total
assets............................... 0.08% 0.14%
Non-performing assets as a percentage
of total assets...................... 0.18% 0.26%
The Company reviews significant 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, financial condition of the borrower and the
current economic conditions. The Company measures each impaired loan based on
the fair value of its collateral and charges off those loans or portions of
loans deemed uncollectible.
13
Non-Interest Income. Non-interest income increased by $700,000, or 30 percent,
to $2.9 million during the quarter ended September 30, 2000 from $2.2 million
during the same period in 2000. The increase in non-interest income was
primarily attributable to an increase in gains from the sale of loans and
higher loan sale margin. In addition, the Company sold one of its mortgage
lending offices, Pacific Sunbelt Mortgage, in the first quarter of fiscal 2001
for a gain of $114,000. Total loans sold during the first quarter of fiscal
2001 increased by $25.4 million, or 30 percent, to $111.4 million as compared
to $86.0 million in the same period in fiscal 2000.
Non-Interest Expenses. Non-interest expense decreased by $92,000 to $6.4
million during the quarter ended September 30, 2000 from $6.5 million in the
same period in 1999. This decrease was primarily attributable to (a) a
decrease in the incentive based compensation related to the loan production/
mortgage banking division and (b) a decrease in equipment and professional
expenses associated with last year's Y2K equipment depreciation and consultant
costs. Non-interest expenses as a percentage of average assets improved to
2.26 percent during the first quarter of fiscal 2001 from 2.58 percent during
the same period in fiscal 1999.
Income taxes. Income tax expense was $1.3 million for the quarter ended
September 30, 2000 as compared to $1.2 million during the same period in 1999.
The effective tax rate for the first quarter ended September 30, 2000 and 1999
was 42 percent.
14
The following table is provided to disclose additional details related to the
volume of loans originated, purchased and sold (dollars in thousands):
Loan Volume Activities
For the Quarter Ended
September 30,
-----------------------
2000 1999
--------- ---------
Loans originated for sale :
Retail originations................ $ 63,117 $ 38,135
Wholesale originations............. 52,777 54,359
--------- ---------
Total loans originated for sale. 115,894 92,494
Loans sold:
Servicing released................. 111,428 84,943
Servicing retained................. - 1,035
--------- ---------
Total loans sold................ 111,428 85,978
Loans originated for portfolio:
Mortgage loans:
One-to-four family............... - 99,888
Multifamily...................... - 2,100
Commercial....................... 450 2,613
Construction loans............... 14,776 15,223
Consumer........................... - 10,826
Commercial business lending........ 1,690 2,575
Other loans........................ - 511
--------- ---------
Total loans originated for
portfolio...................... 16,916 133,736
Loans purchased:
Mortgage loans:
One-to-four family............... 384 -
Commercial....................... 1,845 3,609
--------- ---------
Total loans purchased........... 2,229 3,609
Mortgage loan principal repayments... 34,930 45,050
Real estate acquired in
settlement of loans................. 241 -
Decrease in other items, net (1)..... (5,435) (2,638)
--------- ---------
Net (decrease) increase in loans
receivable, net..................... $ (16,540) $ 96,173
========= =========
(1) Includes changes in accrued interest, loans in process, discounts and loan
loss reserves.
15
Liquidity and Capital Resources. The Company's primary sources of funding
include deposits, proceeds from loan principal and interest payments, sales of
loans, the maturity of and interest income on investment securities, and FHLB
advances. The Savings Bank has a credit line available with the FHLB of San
Francisco equal to 40 percent of total assets, which, on September 30, 2000
permitted additional advances of $129.6 million, in addition to having
unsecured lines of $74 million with its correspondent banks. While maturities
and scheduled amortization of loans are predictable sources of funds, deposit
flows, loan sales, and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, and competition.
The primary investing activity of the Company is the origination of mortgage
loans through the Savings Bank. For the quarter ended September 30, 2000, the
Savings Bank originated $132.8 million of loans as compared to $226.2 million
during the same period in 1999. For the quarter ended September 30, 2000, loan
sales aggregated $111.4 million, compared to $86.0 million for the same period
in 1999, and loan principal payments totaled $34.9 million, compared to $45.1
million for the same period in 1999.
By regulation, the Savings Bank must maintain a minimum liquidity equal to 4
percent of deposits and short-term borrowings. Liquidity is measured by cash
and readily marketable securities which are not committed, pledged, or
required as collateral for specific liabilities. The Savings Bank's average
liquidity ratios for the first quarter of fiscal 2001 and 2000 were 10 percent
and 25 percent, respectively. A reduction of the Savings Bank's quarterly
average liquidity was attributable mainly to (a) investment securities,
totaling $100.0 million, which were pledged to the FHLB to collateralize the
Security Backed Credit facility and (b) investment securities, totaling $15.0
million, which were pledged to the Federal Reserve Bank to collateralize the
Discount Window facility since September 1999.
The Savings Bank is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum requirements
can initiate certain mandatory actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective actions, the Savings Bank must meet certain specific capital
guidelines that involve quantitative measures of the Savings Bank's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Savings Bank's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk-weightings, and other factors. The Savings Bank's
actual and required capital amounts and ratios as of September 30, 2000 are as
follows (dollars in thousands):
Amount Percent
-------- -------
Tangible capital.................... $ 76,453 6.83%
Requirement to be "Well Capitalized" 22,393 2.00
-------- -----
Excess over requirement............. $ 54,060 4.83%
======== =====
Tier 1 (core) capital............... $ 76,453 6.83%
Requirement to be "Well Capitalized" 55,982 5.00
-------- -----
Excess over requirement............. $ 20,471 1.83%
======== =====
Total risk-based capital............ $ 83,830 13.83%
Requirement to be "Well Capitalized" 60,606 10.00
-------- -----
Excess over requirement............. $ 23,224 3.83%
======== =====
Tier 1 risk-based capital........... $ 76,453 12.61%
Requirement to be "Well Capitalized" 36,364 6.00
-------- -----
Excess over requirement............. $ 40,089 6.61%
======== =====
16
Supplemental Information
September 30, 2000 June 30, 2000 September 30, 1999
------------------ ------------- ------------------
Loans serviced for
others (in thousands) $ 249,588 $ 261,183 $ 296,555
Book value per share... $ 23.32 $ 22.68 $ 20.88
Forward-looking Statement
Certain matters discussed in this Form 10-Q may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward looking statements relate to, among other things,
expectations of the business environment in which the Company operates,
projections of future performance, perceived opportunities in the market, and
statements regarding the Company's mission and vision. These forward-looking
statements are based upon current management expectations, and may therefore
involve risks and uncertainties. The Company's actual results, performance, or
achievements may differ materially from those suggested, expressed, or implied
by forward looking statements due to a wide range of factors including, but
not limited to, non-bank financial services providers, regulatory changes and
other risks detailed in the Company's reports filed with the Securities and
Exchange Commission, including the Annual Report on Form 10-K for the fiscal
year ended June 30, 2000.
PART II OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
From time to time the Company or its subsidiaries are engaged in legal
proceedings in the ordinary course of business, none of which are considered
to have a material impact on the Company's financial position or results of
operations.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Shareholders
Not applicable.
Item 5. Other Information
a) A sale, consolidation and closing of mortgage banking offices:
- -----------------------------------------------------------------
During the first quarter of fiscal 2001, the Company, through its Provident
Bank Mortgage division, has executed the following:
1. Sold Pacific Sunbelt Mortgage office located in South Orange County for a
gain of $114,000
2. Consolidated its Redlands mortgage office (San Bernardino County,
California) and Van Burren mortgage office (Riverside, California)to a
new Riverside mortgage office (Riverside, California)
17
3. Closed its Orange mortgage office (Orange County, California).
In October 2000, Provident Bank Mortgage also closed its Las Vegas, Nevada
mortgage office.
b) Status on Branch Expansion to Temecula, California:
- ------------------------------------------------------
In July 2000, the Savings Bank purchased a branch site at Winchester Meadow
Market Center located at the northwest corner of Margarita Road and Winchester
Road, adjacent to Temecula Promenade Mall, for $535,000. Currently, the design
of the branch is in progress.
c) An appointment of a new Chief Financial Officer:
- ---------------------------------------------------
The Company appointed Mr. Donavon P. Ternes to be the Company's Chief
Financial Officer and Senior Vice President effective November 1, 2000. Mr.
Ternes previously served as President, Chief Executive Officer, Chief
Financial Officer and a Director of Mission Savings and Loan Association, F.A.
in Riverside, California.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits :
None.
b) Reports on Form 8-K
None.
18
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Provident Financial Holdings, Inc.
November 6, 2000 /s/ Craig G. Blunden
----------------------------------
Craig G. Blunden
President and Chief Executive Officer
(Principal Executive Officer)
November 6, 2000 /s/ Donovan P. Ternes
----------------------------------
Donavon P. Ternes
Chief Financial Officer
(Principal Financial and Accounting Officer)
19