PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[x] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
PROVIDENT FINANCIAL HOLDINGS, INC.
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(Name of Registrant as Specified in Its Charter)
PROVIDENT FINANCIAL HOLDINGS, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transactions applies:
N/A
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
N/A
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(2) Form, schedule or registration statement no.:
N/A
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(3) Filing party:
N/A
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(4) Date filed:
N/A
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September 26, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Provident Financial Holdings, Inc. to be held at the Mission Inn at 3649
Mission Inn Avenue, Riverside, California, on Thursday, October 30, 1997, at
11:00 a.m., local time.
The Notice of Annual Meeting of Shareholders and Proxy Statement
appearing on the following pages describe the formal business to be transacted
at the meeting. During the meeting, we will also report on the operations of
the Company. Directors and officers of the Company, as well as a representative
of Price Waterhouse LLP, the Company's independent auditors, will be present to
respond to appropriate questions of shareholders.
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THIS MEETING, WHETHER
OR NOT YOU ATTEND THE MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF SHARES
YOU OWN. TO MAKE SURE YOUR SHARES ARE REPRESENTED, WE URGE YOU TO COMPLETE AND
MAIL THE ENCLOSED PROXY CARD. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON
EVEN IF YOU HAVE PREVIOUSLY MAILED A PROXY CARD.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Craig G. Blunden
Craig G. Blunden
President and Chief Executive Officer
PROVIDENT FINANCIAL HOLDINGS, INC.
3576 CENTRAL AVENUE
RIVERSIDE, CALIFORNIA 92506
(909) 686-6060
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 30, 1997
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Provident Financial Holdings, Inc. ("Company") will be held at the Mission Inn
at 3649 Mission Inn Avenue, Riverside, California, on Thursday, October 30,
1997, at 11:00 a.m., local time, for the following purposes:
(1) To elect two directors to serve for a term of three years; and
(2) To consider and act upon such other matters as may properly come
before the meeting or any adjournments thereof.
NOTE: The Board of Directors is not aware of any other business to come
before the meeting.
Any action may be taken on the foregoing proposals at the meeting on the
date specified above or on any date or dates to which, by original or later
adjournment, the meeting may be adjourned. Shareholders of record at the close
of business on September 10, 1997 are entitled to notice of and to vote at the
meeting and any adjournments or postponements thereof.
You are requested to complete and sign the enclosed form of proxy, which
is solicited by the Board of Directors, and to mail it promptly in the enclosed
envelope. The proxy will not be used if you attend the meeting and vote in
person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Robert G. Schrader
ROBERT G. SCHRADER
SECRETARY
Riverside, California
September 26, 1997
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
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PROXY STATEMENT
OF
PROVIDENT FINANCIAL HOLDINGS, INC.
3576 CENTRAL AVENUE
RIVERSIDE, CALIFORNIA 92506
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ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 30, 1997
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This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Provident Financial Holdings, Inc.
("Company"), the holding company for Provident Savings Bank, F.S.B. (the
"Savings Bank"), to be used at the Annual Meeting of Shareholders of the
Company. The Annual Meeting will be held at the Mission Inn at 3649 Mission Inn
Avenue, Riverside, California on Thursday, October 30, 1997, at 11:00 a.m.,
local time. This Proxy Statement and the enclosed proxy card are being first
mailed to shareholders on or about September 26, 1997.
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VOTING AND PROXY PROCEDURE
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Shareholders Entitled to Vote. Shareholders of record as of the close of
business on September 10, 1997 are entitled to one vote for each share of
common stock ("Common Stock") of the Company then held. As of September 10,
1997, the Company had 5,082,215 shares of Common Stock issued and outstanding.
Quorum. The presence, in person or by proxy, of at least a majority of
the total number of outstanding shares of Common Stock entitled to vote is
necessary to constitute a quorum at the Annual Meeting. Abstentions will be
counted as shares present and entitled to vote at the Annual Meeting for
purposes of determining the existence of a quorum. Broker non-votes will not be
considered shares present and will not be included in determining whether a
quorum is present.
Voting. The Board of Directors solicits proxies so that each shareholder
has the opportunity to vote on the proposals to be considered at the Annual
Meeting. When a proxy card is returned properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. Where no instructions are indicated, proxies will be voted FOR the
nominees for directors set forth below. If a shareholder attends the Annual
Meeting, he or she may vote by ballot.
The two directors to be elected at the Annual Meeting will be elected by
a plurality of the votes cast by shareholders present in person or by proxy and
entitled to vote. Shareholders are not permitted to cumulate their votes for
the election of directors. With respect to the election of directors, votes may
be cast for or withheld from each nominee. Votes that are withheld and broker
non-votes will have no effect on the outcome of the election because directors
will be elected by a plurality of votes cast.
Revocation of a Proxy. Shareholders who execute proxies retain the right
to revoke them at any time before they are voted. Proxies may be revoked by
written notice delivered in person or mailed to the Secretary of the Company or
by filing a later proxy prior to a vote being taken on a particular proposal at
the Annual Meeting. Attendance at the Annual Meeting will not automatically
revoke a proxy, but a shareholder in attendance may request a ballot and vote
in person, thereby revoking a prior granted proxy.
Participants in the Provident Savings Bank ESOP. If a shareholder is a
participant in the Provident Savings Bank, F.S.B. Employee Stock Ownership Plan
(the "ESOP"), the proxy card represents a voting instruction to the trustees of
the ESOP as to the number of shares in the participant's plan account. Each
participant in the ESOP may direct the trustees as to the manner in which
shares of Common Stock allocated to the participant's plan account
are to be voted. Unallocated shares of Common Stock held by the ESOP and
allocated shares for which no voting instructions are received will be voted by
the trustees in the same proportion as shares for which the trustees have
received voting instructions.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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Persons and groups who beneficially own in excess of 5% of the Company's
Common Stock are required to file certain reports disclosing such ownership
pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act").
Based on such reports, the following table sets forth, as of September 10,
1997, certain information as to those persons who were beneficial owners of
more than 5% of the outstanding shares of Common Stock. Management knows of no
persons other than those set forth below who beneficially owned more than 5% of
the outstanding shares of Common Stock at September 10, 1997.
The following table also sets forth, as of September 10, 1997,
information as to the shares of Common Stock beneficially owned by (a) each
current director of the Company and each of management's nominees for director,
(b) each of the executive officers named in the Summary Compensation Table
found below ("named executive officers") and (c) all executive officers and
directors of the Company as a group.
Number of Shares Percent of Shares
Name Beneficially Owned (1) Outstanding
- ---- ---------------------- -----------
BENEFICIAL OWNERS OF MORE THAN 5%
Provident Savings Bank, F.S.B. 410,017 8.1%
Employee Stock Ownership Plan Trust
Thomson Horstmann & Bryant, Inc. 445,900(2) 8.8
Park 80 West
Plaza Two
Saddle Brook, New Jersey 07663
Keefe Managers, Inc. 349,500(3) 6.9
375 Park Avenue, 31st Floor
New York, New York 10152
Brandes Investment Partners, L.P. 339,165(4) 6.7
San Diego, California
First Financial Fund, Inc. 308,000(5) 6.1
Gateway Center Three
100 Mulberry Street, 9th Floor
Newark, New Jersey 07102
DIRECTORS
Bruce W. Bennett 4,331(6) *
Michael C. Billings 5,001(7) *
Debbi H. Guthrie 5,001(8) *
David W. Mitchell 1 *
Roy H. Taylor 25,001 *
William E. Thomas 1,450(9) *
2
Number of Shares Percent of Shares
Name Beneficially Owned (1) Outstanding
- ---- ---------------------- -----------
NAMED EXECUTIVE OFFICERS
Craig G. Blunden** 30,463(10) *
Robert G. Schrader** 21,151 *
All Executive Officers and 121,968 2.4
Directors as a Group
(12 persons)
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* Less than 1 percent of shares outstanding.
** Mr. Blunden and Mr. Schrader are also directors of the Company.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be the beneficial owner, for purposes of this table, of any shares of
Common Stock if he or she has voting or investment power with respect to
such security. The table includes shares owned by spouses, other immediate
family members in trust, shares held in retirement accounts or funds for
the benefit of the named individuals, and other forms of ownership, over
which shares the persons named in the table may possess voting and/or
investment power. Shares held in accounts under the Savings Bank's ESOP,
as to which the holders have voting power but not investment power, are
included as follows: Mr. Blunden, 733 shares; Mr. Schrader, 588 shares;
all executive officers and directors as a group, 2,851 shares.
(2) Information concerning the shares owned by Thomson Horstmann and Bryant,
Inc. as of December 31, 1996 was obtained from a Schedule 13G. According
to this filing, Thomson Horstmann and Bryant, Inc., an investment advisor
registered under the Investment Advisors Act of 1940, has sole voting
power with respect to 286,600 shares and sole dispositive power with
respect to 445,900 shares.
(3) Information concerning the shares owned by Keefe Managers, Inc. as of
December 31, 1996 was obtained from a Schedule 13G. According to this
filing, Keefe Managers, Inc., an investment advisor registered under the
Investment Advisors Act of 1940, has sole voting and dispositive power
with respect to these shares.
(4) Information concerning the shares owned by Brandes Investment Partners,
L.P. as of December 31, 1996 was obtained from a Schedule 13G. According
to this filing, Brandes investment Partners, L.P., an investment advisor
registered under the Investment Advisors Act of 1940, has sole voting
power with respect to 339,165 shares, sole dispositive power with respect
to 6,100 shares and shared dispositive power with respect to 333,065
shares.
(5) Information concerning the shares owned by First Financial Fund, Inc. as
of December 31, 1996 was obtained from a Schedule 13G. According to this
filing, First Financial Fund, Inc., an investment company registered under
the Investment Company Act, has sole voting power and shared dispositive
power with respect to 308,000 shares.
(6) Includes 880 shares owned by Mr. Bennett's spouse.
(7) Mr. Billings currently serves as a director, but is not standing for
re-election at the Annual Meeting.
(8) Includes 5,000 shares owned by a company controlled by Ms. Guthrie.
(9) Includes 950 shares owned by Mr. Thomas's daughter.
(10) Includes 2,560 shares owned by Mr. Blunden's spouse.
3
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PROPOSAL I -- ELECTION OF DIRECTORS
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The Company's Board of Directors presently consists of seven members. The
Board of Directors is divided into three classes with three-year staggered
terms, with approximately one third of the directors elected each year. The
terms of Robert G. Schrader and Michael C. Billings will expire at the time of
the Annual Meeting. Two directors will be elected at the Annual Meeting to
serve for a three year period, or until their respective successors have been
elected and qualified. Mr. Billings is not standing for re-election. The Board
of Directors has nominated Mr. Schrader for re-election. In addition, the Board
of Directors has nominated William E. Thomas, who does not currently serve as a
director. David W. Mitchell, whose term expires in 1999, is retiring from the
Board of Directors at the time of the Annual Meeting. The size of the Board of
Directors will be reduced to six members at the time of the Annual Meeting.
It is intended that the proxies solicited by the Board of Directors will
be voted for the election of the above named nominees. If any nominee is unable
to serve, the shares represented by all valid proxies will be voted for the
election of such substitute as the Board of Directors may recommend or the
Board of Directors may adopt a resolution to amend the Bylaws and reduce the
size of the Board. At this time the Board of Directors knows of no reason why
any nominee might be unavailable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF MESSRS.
SCHRADER AND THOMAS.
The following table sets forth certain information regarding the nominees
for election at the Annual Meeting, as well as information regarding those
directors continuing in office after the Annual Meeting.
Year First
Elected Term to
Name Age (1) Director (2) Expire
---- ------- ------------ ------
BOARD NOMINEES
Robert G. Schrader 58 1995 2000(3)
William E. Thomas 48 -- 2000(3)
DIRECTORS CONTINUING IN OFFICE
Bruce W. Bennett 48 1993 1998
Debbi H. Guthrie 46 1994 1998
Craig G. Blunden 49 1975 1999
Roy H. Taylor 47 1990 1999
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(1) As of June 30, 1997.
(2) Includes prior service on the Board of Directors of the Savings Bank.
(3) Assuming the individual is re-elected.
The present principal occupation and other business experience during the
last five years of each nominee for election and each director continuing in
office is set forth below:
Robert G. Schrader has been associated with the Savings Bank since 1963
and has served as Executive Vice President of the Savings Bank since January
1995. From 1990 through 1994, Mr. Schrader served as Senior Vice
4
President of the Savings Bank. Mr. Schrader has served as Corporate Secretary
of the Company since its formation in 1996.
William E. Thomas is the managing partner of the law firm of Thomas,
Mort, Prosser & Knudsen, LLP, Riverside, California, which he founded in 1982.
Bruce W. Bennett is the President and owner of Community Care and
Rehabilitation Center, a skilled nursing facility, with which he has been
associated since 1973. He also serves as a director of Riverside Community
Hospital. Mr. Bennett currently serves on the Personnel/Compensation Committee.
Debbi H. Guthrie is the President and owner of Roy O. Huffman Roof
Company, with which she has been affiliated since 1971. Ms. Guthrie currently
serves on the Company's Audit Committee. Ms. Guthrie also serves as State
Director for the ATHENA FOUNDATION and is the immediate Past Chairman of the
Board of the Greater Riverside Chamber of Commerce.
Craig G. Blunden has been associated with the Savings Bank since 1974 and
has served as President and Chief Executive Officer of the Savings Bank since
1991 and as President and Chief Executive Officer of the Company since its
formation in 1996. Mr. Blunden also serves on the Foundation Board of Trustees
for the University of California, Riverside, the Western League of Savings
Institutions Board of Directors and America's Community Bankers Mortgage
Finance Committee.
Roy H. Taylor is the President of Goldware & Taylor Insurance services,
an insurance brokerage firm, with which he has been associated since 1972. Mr.
Taylor currently serves as chairman of the Personnel/Compensation Committee.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
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The Boards of Directors of the Company and the Savings Bank conduct their
business through meetings of the Boards and through their committees. During
the fiscal year ended June 30, 1997, the Board of Directors of the Company held
12 meetings and the Board of Directors of the Savings Bank held 13 meetings. No
director of the Company or the Savings Bank attended fewer than 75% of the
total meetings of the Boards and committees on which such person served during
this period.
The Board of Directors of the Company has an Audit Committee, currently
consisting of Directors Mitchell (Chairman), Guthrie and Billings, which is
responsible for reviewing the adequacy of the Savings Bank's system of internal
accounting controls, approving the services provided by the Company's outside
auditor and meeting with the Company's outside auditor to discuss the results
of the annual audit and any related matters. The Audit Committee met five times
during the fiscal year ended June 30, 1997.
The Personnel/Compensation Committee, currently consisting of Directors
Taylor (Chairman), Bennett and Billings, is responsible for reviewing the
Savings Bank's employee benefit programs and wage and salary administration
program, making recommendations to the full Board of Directors on annual salary
increases and bonuses and addressing other personnel issues as they arise. The
Personnel/Compensation Committee met five times during the fiscal year ended
June 30, 1997.
The Board of Directors of the Company acts as a nominating committee for
selecting the nominees for election as directors. The Board of Directors met
once in its capacity as nominating committee to select nominees for election at
the Annual Meeting.
5
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DIRECTORS' COMPENSATION
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Non-employee Directors of the Savings Bank currently receive a monthly
retainer of $1,750. Non-employee Directors also receive a fee of $300 for each
committee meeting attended. The committee chairman receives a fee of $400. In
addition, Directors are covered under the Savings Bank's policies for medical,
dental and vision care. Dependent coverage is available at the Directors' own
expense. Following retirement from the Board of Directors, Directors continue
to receive such coverage. No separate fees are paid for service on the Board of
Directors of the Company.
During the year ended June 30, 1997, each non-employee director received
options to acquire 20,500 shares of the Company's Common Stock under the
Company's 1996 Stock Option Plan. The stock options vest ratably over a
five-year period.
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EXECUTIVE COMPENSATION
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SUMMARY COMPENSATION TABLE
The following information is furnished for the Chief Executive Officer of
the Company and for the executive officers of the Company who received salary
and bonus in excess of $100,000 for the year ended June 30, 1997. No other
executive officers of the Company or the Bank received salary and bonus in
excess of $100,000 during the year ended June 30, 1997.
Long-Term Compensation
-----------------------
Annual Compensation Awards
-------------------------------------- -----------------------
Other
Annual
Compen- Restricted Securities
Name and sation Stock Underlying All Other
Position Year Salary($) Bonus($) ($)(1) Award($) Options(#) Compensation($)
- -------- ---- --------- -------- ------ -------- ---------- ---------------
Craig G. Blunden 1997 $210,000 $ -- -- 102,500 $15,602(2)
Chief Executive 1996 208,999 44,100 -- -- -- 13,162
Officer and 1995 204,010 -- -- -- -- 12,914
President
Robert G. Schrader 1997 116,400 -- -- 61,500 12,264(2)
Executive Vice 1996 112,641 13,132 -- -- -- 10,105
President and Chief 1995 105,958 -- -- -- -- 7,791
Operating Officer
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(1) Does not include perquisites which did not exceed the lesser of $50,000 or 10% of salary and bonus.
(2) Amounts for 1997 reflect: for Mr. Blunden, employer contribution to 401(k) Plan of $3,413 and employer
contribution to ESOP of $12,189; for Mr. Schrader, employer contribution to 401(k) Plan of $2,474 and
employer contribution to ESOP of $9,790.
6
OPTION GRANTS IN LAST FISCAL YEAR.
The following table sets forth information concerning the grant of stock options to each of the named
executive officers during the fiscal year ended June 30, 1997.
Individual Grants
--------------------------------------------------
Percent Potential Realizable Value at
Number of of Total Assumed Annual Rates of Stock Price
Securities Options Appreciation for Option Term(2)
Underlying Granted to Exercise -----------------------------------
Options Employees in Price Expiration
Name Granted(1) Fiscal Year ($/sh) Date 5%($) 10%($)
- ---------------- ---------- ----------- ------ ---------- -------- ----------
Craig G. Blunden 102,500 40.4% $15.25 1/23/07 $983,041 $2,491,219
Robert G. Schrader 61,500 24.2 15.25 1/23/07 589,825 1,494,731
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(1) Each option granted vests at the rate of 20 percent per annum. Options will become immediately
exercisable in the event of a change in control of the Company. Each option was granted under the
Company's 1996 Stock Option Plan and has an exercise price equal to the fair market value of the Common
Stock on the date of grant. Each of the indicated options was granted on January 23, 1997.
(2) The dollar gains under these columns result from calculations required by the Securities and Exchange
Commission's rules and are not intended to forecast future price appreciation of the Common Stock of the
Company. It is important to note that options have value to the listed executives only if the stock price
increases above the exercise price shown in the table during the effective option period. In order for
the listed executives to realize the potential values set forth in the 5% and 10% columns in the table,
the price per share of the Company's Common Stock would be approximately $24.84 and $39.55, respectively,
as of the expiration date of the options.
OPTION EXERCISE/VALUE TABLE.
The following information with respect to options exercised during the fiscal year ended June 30, 1997,
and remaining unexercised at the end of the fiscal year, is presented for the named executive officers.
Value of Unexercised
Number of Securities In-the-Money Options
Shares Unexercised Options at Fiscal Year End($)(1)
Acquired on Value --------------------------- --------------------------
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ------------ ----------- ----------- ------------- ----------- -------------
Craig G. Blunden -- -- -- 102,500 $ -- $140,938
Robert G. Schrader -- -- -- 61,500 -- 84,563
- ----------
(1) Value of unexercised in-the-money options equals market value of shares covered by in-the-money options
on June 30, 1997 less the option exercise price. Options are in-the-money if the market value of the
shares covered by the options is greater than the option exercise price.
EMPLOYMENT AGREEMENTS
On January 1, 1997, the Savings Bank entered into an employment agreement
with Mr. Blunden, which superseded his employment agreement dated March 26,
1992. The agreement has an initial term of three years and may be renewed by
the Board for an additional year each year unless Mr. Blunden has attained age
62 or the Board or Mr. Blunden have given advance notice of their intention not
to extend the term of the agreement. The agreement further provides for a base
salary which may not be reduced except as part of a general salary reduction
policy for
7
senior executives of the Savings Bank and, at any time, below the initial base
salary of the agreement. Mr. Blunden's base salary is subject to annual review
by the Board. Mr. Blunden's current base salary under the agreement is
$210,000. In the event of a "change of control" of the Savings Bank (as defined
below), Mr. Blunden's base salary is fixed as the sum of his then current base
salary and any bonuses paid during the 12-month period preceding the change in
control. Under the agreement, Mr. Blunden is eligible to participate in all
fringe benefit programs available to employees of the Savings Bank as well as
any program made available to senior executives of the Savings Bank, including
the use of an employer-provided automobile. The agreement also provides for the
reimbursement of expenses incurred by Mr. Blunden in the course of his
employment.
In the event of Mr. Blunden's termination without cause by the Savings
Bank, the agreement provides for (i) a lump sum payment equal to the discounted
present value of the aggregate future base salary payments Mr. Blunden would
have received over the then remaining term of the agreement and (ii) the
continuation of life and medical insurance at the Savings Bank's expense for
Mr. Blunden and his dependents. If Mr. Blunden's employment terminates by
reason of his death or disability, the Savings Bank is also obligated to
continue life and medical insurance benefits for Mr. Blunden and his
dependents, as applicable.
In the event of Mr. Blunden's termination without cause following a
change in control of the Savings Bank, Mr. Blunden is entitled to an additional
payment equal to three times the sum of his base salary and bonuses during the
12 months preceding his termination of employment reduced by the value of any
other payments made by the Savings Bank by reason of Mr. Blunden's termination
without cause. In the event that a change of control of the Savings Bank had
occurred on June 30, 1997, based solely on the cash compensation paid to Mr.
Blunden during 1997 and excluding the value of any other employee benefits
which may be payable, Mr. Blunden would have received a payment of
approximately $945,000. For purposes of the agreement, "change in control" is
defined to mean (i) a change in control of the Savings Bank as determined under
applicable regulations of the Office of Thrift Supervision and (ii) a change in
the composition of the Board following a merger, consolidation or other
business combination involving the Savings Bank such that a majority of the
directors of the resulting entity consists of persons who were not directors
immediately prior to such transaction.
POST-RETIREMENT COMPENSATION AGREEMENT
On January 1, 1997, the Savings Bank entered into a separate post-
retirement compensation agreement with Mr. Blunden, which superseded his post-
retirement compensation agreement dated March 26, 1992. The agreement provides
that, if Mr. Blunden terminates employment with the Savings Bank after
attaining age 60, the Savings Bank will provide Mr. Blunden with a monthly
benefit for life equal to 50% of his final average monthly salary. For purpose
of the agreement, "final average monthly salary" is defined as the average of
Mr. Blunden's highest paid 36 consecutive months of employment with the Savings
Bank determined by reference to the gross amount of Mr. Blunden's monthly
salary excluding bonus and incentive awards, director's fees and accelerated
payments of future salary. Assuming that Mr. Blunden's current compensation
level were equivalent to his "final average monthly salary," the normal monthly
benefit payable under the agreement would be $8,750. Under the agreement, Mr.
Blunden may elect to receive the actuarially determined lump sum equivalent of
the normal monthly benefit or a joint-and-survivor benefit. Mr. Blunden may
also elect to receive an early retirement benefit under the agreement which is
reduced proportionately to reflect the number of months then remaining to Mr.
Blunden's 60th birthday. However, in the event of Mr. Blunden's termination of
employment prior to age 60 by reason of his death or disability, the agreement
provides for payment of the normal monthly benefit to Mr. Blunden or his
beneficiary. At June 30, 1997, the accrued liability of the Savings Bank with
respect to its obligations under the agreement was $547,000.
SEVERANCE AGREEMENT
In connection with the Savings Bank's mutual to stock conversion, the
Company and the Savings Bank entered into a severance agreement with Mr.
Schrader. The agreement has a term of one year, which may be extended for an
additional year on the anniversary of the effective date of the agreement by
the Board of Directors.
8
PAGE
The agreement provides that in the event of an involuntary termination of Mr.
Schrader following a change in control of the Company or the Savings Bank, he
will be entitled to receive two times his then current base salary. A severance
payment also will be provided on a similar basis in connection with a voluntary
termination of employment where, subsequent to a change in control, Mr.
Schrader is assigned duties inconsistent with his position, duties,
responsibilities and status immediately prior to such change in control. The
Savings Bank or its successor would also be obligated to continue Mr.
Schrader's other employee benefits for a one-year period following termination
of employment.
The term "change in control" is defined in the agreement as having
occurred when, among other things, (a) a person other than the Company
purchases shares of the Company's common stock pursuant to a tender or exchange
offer for such shares, (b) any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act is or becomes the beneficial owner, directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities, (c) the
membership of the Board of Directors changes as the result of a contested
election, or (d) shareholders of the Company approve a merger, consolidation,
sale or disposition of all or substantially all of the Company's assets, or a
plan of partial or complete liquidation. If a change in control of the Company
or the Savings Bank occurred during the fiscal year ending June 30, 1997, based
solely on Mr. Schrader's current salary level and excluding the value of any
other employee benefits which may be payable, Mr. Schrader would receive
payment of approximately $282,800.
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Exchange Act that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following Report of the Compensation
Committee and Performance Graph shall not be incorporated by reference into any
such filings.
REPORT OF THE PERSONNEL/COMPENSATION COMMITTEE.
Under rules established by the Securities and Exchange Commission, the
Company is required to provide certain data and information in regard to the
compensation and benefits provided to the Company's Chief Executive Officer and
other executive officers of the Savings Bank. The disclosure requirements for
the Chief Executive Officer and other executive officers include the use of
tables and a report explaining the rationale and considerations that led to the
fundamental executive compensation decisions affecting those individuals.
Insofar as no separate compensation is currently payable by the Company, the
Personnel/Compensation Committee of the Savings Bank (the "Committee"), at the
direction of the Board of Directors of the Company, has prepared the following
report for inclusion in this proxy statement.
The Personnel/Compensation Committee of the Board of Directors is
responsible for establishing and implementing all compensation policies of the
Savings Bank and its subsidiaries. The Committee is also responsible for
evaluating the performance of the Chief Executive Officer of the Savings Bank
and approving an appropriate compensation level. The Chief Executive Officer
evaluates the performance of the Executive Vice President and certain Senior
Vice Presidents of the Savings Bank and recommends to the Committee individual
compensation levels for approval by the Committee.
The Committee believes that a compensation plan for executive officers
should take into account management skills, long-term performance results and
shareholder returns. The principals underlying compensation policies are: (1)
to attract and retain key executives who are highly qualified and are vital to
the long-term success of the Savings Bank and its subsidiaries; (2) to provide
levels of compensation competitive with those offered throughout the banking
industry; (3) to motivate executives to enhance long-term shareholder value by
helping them build their own ownership in the Company; and (4) to integrate the
compensation program with the Savings Bank's long-term strategic planning and
management process.
The Savings Bank's current compensation plan involves a combination of
salary and bonuses to reward short-term performance, and, in the future, will
include grants of stock options to encourage long-term performance.
9
The salary levels of executive officers are designed to be competitive within
the banking and financial services industries. The Committee annually reviews
the Western League of Savings Institutions Survey of salaries to determine
competitive salary levels. Individual annual performance is reviewed to
determine appropriate salary adjustments.
The Annual Incentive Plan is based on annual performance of the Savings
Bank compared to budget, profitability relative to peers, and individual
performance assessments. The Plan is designed to provide for bonuses up to 30%
of salary for the Chief Executive Officer, up to 25% of salary for Senior
Officers, up to 15% of salary for certain managers, and up to 10% of salary for
remaining department managers.
The Stock Option Plan is designed to attract and retain qualified
personnel and nonemployee directors, to provide such officers, key employees
and nonemployee directors with a proprietary interest in the Company as an
incentive to contribute to the success of the Company and the Savings Bank and
to reward officers and key employees for outstanding performance. Stock options
have been granted to key employees of the Company and its subsidiaries,
including the Savings Bank. The Stock Option plan will be administered and
interpreted by a committee of the Board of Directors. Under the Stock Option
Plan, such committee will determine which officers and key employees will be
granted options, the number of shares subject to each option, and the
exercisability of such options. The per share exercise price of an option will
equal at least 100% of the fair market value of a share of Common Stock on the
date the option is granted.
During the fiscal year ended June 30, 1997, the base salary of Craig G.
Blunden, President and Chief Executive Officer of the Savings Bank, was
$210,000. No bonus payments were made under the terms of the Company's Annual
Incentive Plan. The Committee believes the current compensation is appropriate
based on competitive salary surveys and the performance of the Savings Bank.
The Committee also recommends to the Board of Directors the amount of
fees paid for service on the Board. The Committee did not recommend a change in
Board fees during the fiscal year ended June 30, 1997.
Personnel/Compensation Committee
Roy H. Taylor
Bruce W. Bennett
Michael C. Billings
10
PERFORMANCE GRAPH
PERFORMANCE GRAPH. The following graph compares the cumulative total
shareholder return on the Company's Common Stock with the cumulative total
return on the Nasdaq (U.S. Stock) Index and a peer group of the Nasdaq Bank
Index. Total return assumes the reinvestment of all dividends.
[Performance graph appears here]
6/28/96 9/30/96 12/31/96 3/31/97 6/30/97
------- ------- -------- ------- -------
Provident Financial
Holdings, Inc. 100 115 127 138 151
Nasdaq (U.S. Stock) Index 100 104 109 103 122
Nasdaq Bank Index 100 111 125 134 156
* Assumes that the value of the investment in the Company's Common Stock and
each index was $100 on June 28, 1996, the date on which the Company's Common
Stock began trading on the Nasdaq National Market, and that all dividends were
reinvested.
11
- -------------------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- -------------------------------------------------------------------------------
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than 10% of any registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Executive
officers, directors and greater than 10% shareholders are required by
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms it has received
and written representations provided to the Company by the above referenced
persons, the Company believes that, during the fiscal year ended June 30, 1997,
all filing requirements applicable to its reporting officers, directors and
greater than 10% shareholders were properly and timely complied with.
- -------------------------------------------------------------------------------
TRANSACTIONS WITH MANAGEMENT
- -------------------------------------------------------------------------------
As required by federal regulations, all loans or extensions of credit to
executive officers and directors are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons (except for loans made pursuant to
programs generally available to all employees) and do not involve more than the
normal risk of repayment or present other unfavorable features. In addition,
loans made by the Savings Bank to a director or executive officer in an amount
that, when aggregated with the amount of all other loans by the Savings Bank to
such person and his or her related interests, are in excess of the greater of
$25,000 or 5% of the Savings Bank's capital and surplus (up to a maximum of
$500,000) are subject to approval in advance by a majority of the disinterested
members of the Board of Directors.
- -------------------------------------------------------------------------------
AUDITORS
- -------------------------------------------------------------------------------
The Board of Directors has appointed Price Waterhouse LLP, independent
public accountants, to serve as the Company's auditors for the fiscal year
ending June 30, 1998. A representative of Price Waterhouse LLP is expected to
be present at the Annual Meeting to respond to appropriate questions from
shareholders and will have the opportunity to make a statement if he or she so
desires.
- -------------------------------------------------------------------------------
OTHER MATTERS
- -------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Annual Meeting other than those matters described above in this Proxy
Statement. However, if any other matters should properly come before the Annual
Meeting, it is intended that proxies in the accompanying form will be voted in
respect thereof in accordance with the judgment of the person or persons voting
the proxies.
- -------------------------------------------------------------------------------
MISCELLANEOUS
- -------------------------------------------------------------------------------
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of the Common Stock. In addition to solicitations by
mail, directors, officers and regular employees of the Company may solicit
proxies personally or by telecopier or telephone without additional
compensation.
The Company's 1997 Annual Report to Shareholders, including financial
statements, has been mailed to all shareholders of record as of the close of
business on September 10, 1997. Any shareholder who has not received
12
a copy of such annual report may obtain a copy by writing to the Company. The
Annual Report is not to be treated as part of the proxy solicitation material
or having been incorporated herein by reference.
A COPY OF THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30,
1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE FURNISHED
WITHOUT CHARGE TO SHAREHOLDERS OF RECORD AS OF SEPTEMBER 10, 1997 UPON WRITTEN
REQUEST TO ROBERT G. SCHRADER, CORPORATE SECRETARY, PROVIDENT FINANCIAL
HOLDINGS, INC., 3576 CENTRAL AVENUE, RIVERSIDE, CALIFORNIA 92506.
- -------------------------------------------------------------------------------
SHAREHOLDER PROPOSALS
- -------------------------------------------------------------------------------
Proposals of shareholders intended to be presented at the Company's
annual meeting to be held in October 1998 must be received by the Company no
later than May 25, 1998 to be considered for inclusion in the proxy materials
and form of proxy relating to such meeting. Any such proposals shall be subject
to the requirements of the proxy rules adopted under the Exchange Act.
The Company's Certificate of Incorporation provides that in order for a
shareholder to make nominations for the election of directors or proposals for
business to be brought before the Annual Meeting, a shareholder must deliver
notice of such nominations and/or proposals to the Secretary not less than 30
nor more than 60 days prior to the date of the Annual Meeting; provided that if
less than 31 days' notice of the Annual Meeting is given to shareholders, such
notice must be delivered not later than the close of the tenth day following
the day on which notice of the Annual Meeting was mailed to shareholders. As
specified in the Certificate of Incorporation, the notice with respect to
nominations for election of directors must set forth certain information
regarding each nominee for election as a director, including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director, if elected, and certain information regarding the
shareholder giving such notice. The notice with respect to business proposals
to be brought before the Annual Meeting must state the shareholder's name,
address and number of shares of Common Stock held, and briefly discuss the
business to be brought before the Annual Meeting, the reasons for conducting
such business at the Annual Meeting and any interest of the shareholder in the
proposal.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Robert G. Schrader
ROBERT G. SCHRADER
SECRETARY
Riverside, California
September 26, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
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 Corporation. The information contained in this
section should be read in conjunction with the Consolidated Financial
Statements and accompanying Notes thereto.
OPERATING STRATEGY
The Corporation's primary goal has been to improve its profitability
while maintaining a sound capital position. To accomplish this goal, the
Corporation has employed an operating strategy that includes: (1) originating
for its portfolio one- to four-family residential mortgage loans, primarily
with adjustable rates; (2) enhancing net income and controlling interest rate
risk by originating fixed-rate loans for sale in the secondary market; (3)
diversifying its revenue sources through commercial banking and; (4) improving
asset quality by limiting new originations of commercial real estate and
multi-family loans, increasing real estate owned marketing efforts and
establishing and utilizing more effective problem loan monitoring procedures;
(5) controlling asset growth to a level sustainable by the Corporation's
capital position; and (6) controlling operating expenses. The Corporation and
the Savings Bank intend to continue this operating strategy in an effort to
enhance long-term profitability while maintaining a reasonable level of loan
loss reserves. The Savings Bank intends to enhance such strategy by expanding
the products and services it offers within its primary market area in order to
improve market share.
The profitability of the Savings Bank's operations depends primarily on
its net interest income, its non-interest income (principally from mortgage
banking activities) and its non-interest expense. Net interest income is the
difference between the income the Savings Bank receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits and borrowings. Non-interest income is comprised of income from
mortgage banking activities, gains on the occasional sale of assets and
miscellaneous fees and income. Mortgage banking generates income from the sale
of mortgage loans (which may be sold with servicing retained or with servicing
released) and from servicing fees on loans sold on a servicing-retained basis.
The Savings Bank receives a higher price for loans sold on a servicing-released
basis because it is relinquishing the right to service the loan. The
contribution of mortgage banking activities to the Savings Bank's results of
operations is highly dependent on the demand for loans by borrowers and
investors, and therefore the amount of gain on sale of loans may vary
significantly from period to period as a result of changes in market interest
rates and the local and national economy and whether the Savings Bank sells
loans servicing-released or servicing-retained. The Savings Bank's
profitability is also affected by the level of non-interest expense.
Non-interest expenses include compensation and benefits, occupancy and
equipment expenses, deposit insurance premiums, data servicing expenses and
other operating costs. Non-interest expenses related to mortgage banking
activities include compensation and benefits, occupancy and equipment expenses,
telephone and other operating costs, all of which are related to the volume of
loans originated. The Corporation's results of operations may be adversely
affected during periods of reduced loan demand to the extent that non-interest
expenses associated with mortgage banking activities are not reduced
commensurate with the decrease in loan originations.
COMPARISON OF FINANCIAL CONDITION
Total assets increased from $584.8 million at June 30, 1996 to $615.5
million at June 30, 1997 primarily as a result of growth in retail deposits.
Loans held for investment increased $64.2 million from $452.9 million at June
30, 1996 to $517.1 million at June 30, 1997. The Savings Bank, during the later
half of fiscal 1997, decided to accept a larger percentage of ARM loans
generated by its mortgage division into its own portfolio. The Savings Bank
believed that this strategy would help leverage its capital base through high
quality loans which would produce a higher return on assets and equity. Loans
held for sale decreased from $49.6 million at June 30, 1996 to $20.0
14
million at June 30, 1997. The amount of loans held for sale is largely
dependent on timing of loan fundings, loan commitment expirations, and loan
sale settlements.
Total liabilities increased from $498.9 million at June 30, 1996 to
$530.1 million at June 30, 1997 principally as a result of retail deposit
growth. Deposits increased from $479.4 million at June 30, 1996 to $508.8
million at June 30, 1997. During 1997, the Savings Bank increased its emphasis
on building new client relationships. FHLB advances decreased from $8.6 million
at June 30, 1996 to $6.8 million at June 30, 1997 as the Savings Bank retired
maturing FHLB advances rather than renew this borrowing.
Total stockholders' equity was $85.4 million at June 30, 1997 compared to
$86.0 million at June 30, 1996. The Corporation repurchased 205,000 shares for
a total cost of $3.3 million which partially offset the $1.9 million increase
in retained earnings. The Corporation's book value per share increased from
$16.77 at June 30, 1996 to $17.37 at June 30, 1997.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1996 AND 1997
GENERAL. The Corporation reported net earnings of $1.9 million, or $0.41
per share, for the year ended June 30, 1997 as compared to $2.8 million for the
year ended June 30, 1996. The decline in operating results between fiscal 1996
and fiscal 1997 was due primarily to a one-time $3.2 million SAIF assessment
charged in fiscal 1997. Without this special assessment, net income for fiscal
1997 would have been $3.8 million.
NET INTEREST INCOME. Net interest income increased by $2.6 million, or
15.2%, from $16.5 million in fiscal 1996 to $19.1 million in fiscal 1997. This
increase resulted principally from the investment of the conversion proceeds
into interest earning assets and the widening of the Corporation's net interest
margin from 3.1% to 3.3%.
INTEREST INCOME. The average yield on interest-earning assets declined
slightly in fiscal 1997 because a large portion of the stock conversion
proceeds were invested in short-term securities. Total interest income
increased by $782,000 in 1997 due to the increase in earning assets provided by
the stock conversion. The average balance in investment securities rose from
$20.1 million in 1996 to $55.2 million in 1997 while the yield decreased from
6.9% to 5.7%. The loans receivable yield also decreased 16 basis points
reflecting the slightly downward trend of interest rates during the year.
INTEREST EXPENSE. Interest expense declined on both deposits and FHLB
advances. The conversion proceeds allowed the Corporation to repay higher cost
FHLB advances. The average balance of these advances declined from $20.2
million in fiscal 1996 to $7.1 million in fiscal 1997. With the decline in
interest rates during fiscal 1997, the average cost of deposits decreased by 18
basis points from 4.9% in 1996 to 4.7% in 1997.
PROVISIONS FOR LOAN LOSSES. Provisions for losses declined in fiscal 1997
to $1.3 million as compared to $2.3 million in fiscal 1996. A smaller provision
was required because of a significant decline in credit losses. Credit losses
fell from $2.5 million in 1996 to $1.4 million in 1997. Commercial real estate
losses, which fell from $1.3 million in 1996 to $309,000 in 1997, experienced
the greatest drop. The allowance for loan losses ended fiscal 1997 at $5.5
million, unchanged from 1996. Because of growth in the loan portfolio during
fiscal 1997 the ratio of the allowance for loan losses as a percent of total
loans outstanding declined from 1.18% in 1996 to 1.04% in 1997. Allowance for
loan losses as a percent of nonperforming loans at the end of the period was
87.5% compared to 123.4% at the end of 1996. Recent loss reserve experience has
indicated that a reduction in the ratio is warranted.
NON-INTEREST INCOME. Total non-interest income decreased by 19.5%, from
$9.5 million in 1996 to $7.6 million in 1997 primarily as a result of lower
gains on sale of loans. The ratio of gains to total loan sales remained
constant during the two periods at 105 basis points, however, the volume of
sales declined from $454 million in 1996 to $343 million in 1997. In addition,
non-interest income was increased in 1996 by the receipt of $1 million in life
insurance proceeds on a former Chief Executive Officer.
15
NON-INTEREST EXPENSE. Total non-interest expense increased by $2.7
million, or 13.9% in 1997 because of the one-time SAIF assessment of $3.2
million. The payment of this special assessment brought the SAIF fund to its
legally required minimum reserve level which should result in lower premiums in
future years.
INCOME TAXES. Provision for income taxes was $1.2 million for fiscal 1997
(for an effective tax rate of 37.4%) compared to $1.3 million in 1996 (for an
effective tax rate of 32.2%). The Corporation eliminated the valuation
allowance previously established against the deferred state tax asset because
management determined that it was more likely than not to utilize its future
benefit. The effective rate for 1996 was lower because it was reduced by $1.0
million in non-taxable life insurance proceeds.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
GENERAL. The Company reported net earnings of $2.8 million for the year
ended June 30, 1996 compared to a net loss of $4.0 million for the year ended
June 30, 1995. The improvement in operating results between fiscal 1995 and
fiscal 1996 was due to an increased interest rate spread, reduced provisions
for loan losses, and increased income from sales of loans.
NET INTEREST INCOME. Net interest income increased by $3.0 million, or
22.3%, from $13.5 million for fiscal 1995 to $16.5 million for fiscal 1996.
This increase resulted from an increase in the spread between the yield on
interest-earning assets and the rate paid on interest-bearing liabilities from
2.31% for the year ended June 30, 1995 to 2.75% for the year ended June 30,
1996 as the average yield on loans increased more than the average rate paid on
deposits.
INTEREST INCOME. Total interest income increased $5.8 million, or 16.1%,
from $36.0 million for the year ended June 30, 1995 to $41.8 million for the
year ended June 30, 1996. This increase between the periods was almost
exclusively the result of an increase in interest income on loans receivable
(including loans held for sale), which rose by $5.7 million from $34.0 million
for the year ended June 30, 1995 to $39.7 million for the year ended June 30,
1996. This increase is primarily attributable to the increase in the average
yield on the loan portfolio from 6.89% in fiscal 1995 to 7.87% in fiscal 1996.
The increase in the average yield on loans is primarily a function of the
changes in the COFI index, whose average was 4.59% during fiscal 1995 compared
to an average of 5.03% during fiscal 1996. In addition, an increase in mortgage
banking activities during the year ended June 30, 1996 accounted for a $10.7
million increase in the average balance of loans receivable (including loans
held for sale). The Savings Bank originated $161.5 million in loans held for
sale during fiscal 1995 compared to $469.2 million in fiscal 1996. Due to the
small difference between short- and long-term interest rates that prevailed
during much of fiscal 1996, the interest rate on fully-indexed ARM loans
generally exceeded rates available on 30-year fixed rate mortgage loans. As a
result, the level of refinancing activities increased during fiscal 1996 as
borrowers sought to replace ARM loans with fixed rate loans.
Interest income on investment securities increased by $101,000, or 7.9%,
as a result of higher market interest rates. The average yield on investment
securities increased from 6.23% for the year ended June 30, 1995 to 6.88% for
the year ended June 30, 1996. This increase was partially offset by a $500,000
decline in the average balance of investment securities from $20.6 million in
fiscal 1995 to $20.1 million in fiscal 1996. During fiscal 1996, management
used maturing security investments to repay maturing FHLB advances. Because the
yield available on overnight deposits often equaled or exceeded the rates
available on short term investments, management elected to increase its
holdings of overnight deposits. As a result, average interest-earning deposits
increased $2.0 million to $13.9 million for fiscal 1996 from the $11.9 million
for fiscal 1995. Interest income on interest-earning deposits rose $78,000, or
18.4%, to $500,000 in fiscal 1996 compared to $423,000 in fiscal 1995.
INTEREST EXPENSE. Interest expense increased by $2.8 million, or 12.4%,
from $22.5 million during the year ended June 30, 1995 to $25.3 million for the
year ended June 30, 1996. Interest expense on deposits increase $2.8 million,
or 13.3%, from $21.2 million for fiscal 1995 to $24.0 million for fiscal 1996
as a result of both an increase
16
in the average balance of total deposits and a 47 basis point increase in the
cost of deposits. The average balance of deposits increased $12.1 million, or
2.5%, from $477.4 million in fiscal 1995 to $489.5 million in fiscal 1996. This
reflected management's strategy to replace FHLB advances and other borrowings
with relatively less expense deposits. The Savings Bank attracted certificate
accounts because their costs were less than, or equal to, comparable FHLB
advances for similar durations. In addition, as a result of higher short-term
market interest rates during fiscal 1996, the Savings Bank paid higher rates on
new and renewing certificates of deposits, and some customers shifted from
lower rate passbook, demand, and NOW accounts to higher yielding certificate
accounts.
The Savings Bank reduced its use of FHLB advances and other borrowings
between the two periods. Although the average balance of FHLB advances declined
$1.5 million, or 6.9%, the average rate paid on this funding source increased
from 4.94% to 6.25% as a result of increased market interest rates and longer
maturities. Consequently, interest expense on FHLB advances rose $190,000, or
17.7%, from $1.1 million for the year ended June 30, 1995 to $1.3 million for
the year ended June 30, 1996. The average balance of other borrowings
(principally reverse repurchase agreements) declined $3.5 million and the
related interest expense also declined by $229,000 to $3,000 for the year ended
June 30, 1996. Included in the fiscal 1995 expense on other borrowings was
$65,000 of capitalized interest expense which the Savings Bank recognized at
June 30, 1995 in connection with the write down of a joint venture project.
PROVISIONS FOR LOAN LOSSES. Provisions for losses on loans were $2.3
million for fiscal 1996 compared to $4.8 million for fiscal 1995. The $2.5
million decline was attributable to a stabilization in the level of non-
performing commercial and multi-family loans during 1996. Although past due and
non-accrual loans totaled $4.5 million, or .98% of net loans receivable, at
June 30, 1996 compared to $2.6 million, or .54%, at June 30, 1996, past due and
non-accrual commercial and multi-family loans at June 30, 1996 were $798,000,
or .18%, compared to $1.4 million or .30% of net loans receivable at June 30,
1995. Net charge-offs aggregated $1.9 million in fiscal 1996 compared to $3.0
million in fiscal 1995. Of these amounts, charge-offs on commercial and multi-
family loans were $1.0 million and $1.3 million, respectively. Despite the
improvement in the levels of commercial and multi-family loans during fiscal
1996, the recessionary economic conditions prevailing in Southern California
in recent years have resulted in increased loan delinquencies and defaults as
well as reductions in the value of properties securing loans made by the
Savings Bank. These factors, in combination with higher unemployment levels
within the Savings Bank market areas, resulted in management's decision to
increase the allowance for loan losses to a level which exceeded that of June
30, 1995. At June 30, 1996, the allowance for loan losses as a percentage of
gross loans receivable were 1.18% compared to 1.06% at June 30, 1995.
NON-INTEREST INCOME. Total non-interest income increased by $5.0 million,
or 110.7%, from $4.5 million for fiscal 1995 to $9.5 million for fiscal 1996.
This increase is attributable to an increase in the gain from the sales of
loans and the receipt of $1.0 million in life insurance proceeds. Gains from
sales of loans increased $4.0 million, or 578.0% to $4.8 million for fiscal
1996 from $701,000 for fiscal 1995. This increase resulted from increased
production levels at existing offices and, to a lesser extent, gains from
related interest rate risk management activities. Loan originations and sales
totaled $469.2 million and $458.8 million, respectively, during fiscal 1996
compared to $161.5 million and $210.0 million, respectively, in fiscal 1995.
Substantially all of the loans sold in fiscal 1996 were sold on a servicing
released basis. Servicing income remained constant at $2.5 million in both
fiscal 1996 and 1995. In March, 1996, the Savings Bank received $1.0 million in
proceeds from a life insurance policy upon the passing of the former chief
executive officer. The policy was designated as a reimbursement of previously
expensed retirement benefits.
NON-INTEREST EXPENSE. Total non-interest expense increased $647,000, or
3.4% from $19.0 million for fiscal 1995 to $19.6 million for fiscal 1996.
Salaries and employee benefits increased by $1.8 million, or 18.3%, over fiscal
1995 principally as a result of production related compensation from increased
mortgage banking activities during fiscal 1996. In addition, at June 30, 1996,
the Savings Bank recognized $162,000 of expenses related to the newly
implemented ESOP. Occupancy expenses declined by $397,000, or 17.0%, between
the periods. However, occupancy expenses for fiscal 1995 include $298,000 of
charges related to the closing of offices and related expenses
17
within the Profed Mortgage division. Other expenses increased by $617,000, or
16.3%, principally because of expenses from interest rate risk management
activities.
The loss from real estate operations declined from $1.6 million for
fiscal 1995 to $101,000 for fiscal 1996. The decreased loss reflects the
liquidation of the Savings Bank's one remaining real estate joint venture in
July 1995 and reduced provisions on foreclosed real estate. There were no
provisions for losses on joint ventures during fiscal 1996 compared to a
provision of $682,000 during fiscal 1995. Provisions for losses on foreclosed
real estate decreased by $744,000 from $983,000 during fiscal 1995 to $239,000
during fiscal 1996.
INCOME TAXES. Income taxes were $1.3 million for fiscal 1996 (resulting
in an effective tax rate of 32.2%) compared to a tax benefit of $1.8 million
for fiscal 1995 (resulting in an effective rate of 30.3%). The increase of $3.1
million in tax expense is principally attributable to an increase in pre-tax
income of $9.9 million between the periods, reduced by the $1.0 million of non-
taxable insurance proceeds. The Savings Bank has a California net operating
loss carryforward which is reduced by 50% in future tax years. As a result, the
Savings Bank did not fully tax benefit its tax losses in fiscal 1995, thereby
decreasing the effective tax rate.
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST
The following table sets forth certain information for the periods
regarding average balances of assets and liabilities as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average yields and
costs thereof. Such yields and costs for the periods indicated are derived by
dividing income or expense by the average monthly balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily balances has causes any material difference
in the information presented.
18
Year Ended June 30,
--------------------------------------------------------------------------
1997 1996 1995
----------------------- ------------------------ ------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in Thousands)
Interest-earning assets:
Loans receivable, net (1)(2) $498,853 $38,445 7.71% $504,336 $39,701 7.87% $494,087 $34,045 6.89%
Investment securities...... 55,207 3,133 5.68 20,135 1,386 6.88 20,636 1,284 6.23
FHLB stock................. 4,749 290 6.10 4,489 230 5.13 4,944 268 5.41
Interest-earning deposits.. 14,712 731 4.97 13,873 500 3.61 11,885 423 3.56
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-earning
assets............... 573,521 42,599 7.43 542,833 41,817 7.70 531,552 36,020 6.78
-------- ------- ---- -------- ------- ---- -------- ------- ----
Non-interest-earning assets. 25,051 21,313 23,332
-------- -------- --------
Total assets.......... $598,572 $564,146 $554,884
======== ======== ========
Interest-bearing liabilities:
Passbook accounts.......... $ 49,567 1,363 2.75 $ 52,345 1,743 3.33 $ 55,805 1,466 2.63
Demand and NOW accounts.... 111,059 3,733 3.36 111,145 4,237 3.81 126,913 5,082 4.00
Certificate accounts....... 329,099 18,016 5.47 326,056 18,027 5.53 294,701 14,641 4.97
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total deposits........ 489,725 23,112 4.72 489,546 24,007 4.90 477,419 21,189 4.44
FHLB advances.............. 7,098 416 5.87 20,155 1,260 6.25 21,655 1,070 4.94
Other borrowings........... -- -- -- 840 2 0.24 4,302 232 5.38
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities.......... 496,823 23,528 4.74 510,541 25,269 4.95 503,376 22,491 4.47
-------- ------- ---- -------- ------- ---- -------- ------- ----
Non-interest-bearing
liabilities............... 15,912 13,432 10,804
-------- -------- -------
Total liabilities.......... 512,735 523,973 514,180
Shareholders equity........ 85,837 40,173 40,704
-------- -------- -------
Total liabilities and
Shareholders equity.. $598,572 $564,146 $554,884
======== ======== ========
Net interest income ....... $19,071 $16,548 $13,529
======= ======= =======
Interest rate spread (3)... 2.69% 2.75% 2.31%
Net interest margin (4).... 3.33% 3.05% 2.55%
Ratio of average interest-
earning assets to average
interest-bearing
liabilities............... 115.44% 106.33% 105.60%
- ---------------------------
(1) Includes loans available for sale.
(2) Includes deferred loan fee amortization of ($254,000), $112,000 and $98,000 for the years ended June 30,
1997, 1996 and 1995, respectively.
(3) Represents difference between weighted average yield on all interest-earning assets and weighted average
rate on all interest-bearing liabilities.
(4) Represents net interest income before provision for loan losses as a percentage of average interest-
earning assets.
19
YIELDS EARNED AND RATES PAID
The following table sets forth (on a consolidated basis) for the periods
and at the dates indicated the weighted average yields earned on the Savings
Bank's assets and the weighted average interest rates paid on the Savings
Bank's liabilities, together with the net yield on interest-earning assets.
At June Year Ended June 30,
30, --------------------
1997 1997 1996 1995
---- ---- ---- ----
Weighted average yield on:
Loans receivable (1)......................... 7.79% 7.71% 7.87% 6.89%
Investment securities........................ 5.89 5.68 6.88 6.23
FHLB stock................................... 5.94 6.10 5.13 5.41
Interest-earning deposits.................... 5.25 4.97 3.61 3.56
All interest-earning assets.................. 7.17 7.43 7.70 6.78
Weighted average rate paid on:
Passbook accounts............................ 2.64 2.75 3.33 2.63
Demand and NOW accounts...................... 3.26 3.36 3.81 4.00
Certificate accounts......................... 5.50 5.47 5.53 4.97
FHLB advances................................ 5.93 5.87 6.25 4.94
Other borrowings............................. -- -- 0.30 5.38
All interest-bearing liabilities............. 4.11 4.74 4.95 4.47
Interest rate spread (spread between
weighted average rates on all
interest-earnings assets and
all interest-bearing liabilities............ 3.06 2.69 2.75 2.31
Net interest margin (net interest
income as a percentage of average
interest-earning assets).................... 3.55 3.33 3.05 2.55
- -------------------
(1) Includes loans available for sale.
RATE/VOLUME TABLE
The following table sets forth the effects of changing rates and volumes
on interest income and expense of the Savings Bank. Information is provided
with respect to (i) effects attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) effects attributable to changes in rate
(changes in rate multiplied by prior volume); and (iii) changes that cannot be
allocated between rate and volume.
20
1997 Compared to Year 1996 Compared to Year
Ended June 30, 1996 Ended June 30, 1995
Increase (Decrease) Due to Increase (Decrease) Due to
---------------------------- --------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
---- ------ ------ --- ---- ------ ------ ---
(In Thousands)
Interest income:
Loans
receivable(1).... ($834) ($ 432) $ 9 ($1,257) $4,850 $706 $100 $5,656
Investment
securities....... (243) 2,415 (424) 1,748 135 (31) (3) 102
FHLB stock........ 44 13 3 60 (14) (25) 1 (38)
Interest-bearing
deposits......... 189 30 11 230 6 70 1 77
----- ------- ------ ------- ------ ---- ---- ------
Total net change
in income on
interest earning
assets.......... (844) 2,026 (401) 781 4,977 720 99 5,797
----- ------- ------ ------- ------ ---- ---- ------
Interest-bearing
liabilities:
Passbook accounts. (304) (92) 17 (379) 392 (91) (24) 277
Demand and NOW
accounts......... (501) (3) -- (504) (244)(631) 30 (845)
Certificate
accounts.......... (178) 168 (2) (12) 1,653 1,558 176 3,387
FHLB advances..... (77) (816) 50 (843) 283 (74) (20) 189
Other borrowings.. (3) (3) 3 (3) (219)(187) 177 (230)
----- ------- ------ ------- ------ ---- ---- ------
Total net change
in expense on
interest-bearing
liabilities.....(1,063) (746) 68 (1,741) 1,865 575 338 2,778
----- ------- ------ ------- ------ ---- ---- ------
Net change in net
interest income .. $219 $2,772 ($469) $2,522 $3,112 $145 ($239) $3,019
==== ====== ===== ====== ====== ==== ===== ======
- --------------------
(1) Includes loans available for sale. For purposes of calculating volume, rate
and rate/volume variances, nonaccrual loans were included in the weighted
average balance outstanding.
ASSET AND LIABILITY MANAGEMENT
The principal financial objective of the Savings Bank's interest rate
risk management function is to achieve long-term profitability while limiting
its exposure to fluctuating interest rates. The Savings Bank has sought to
reduce exposure of its earnings to changes in market interest rates by managing
the mismatch between asset and liability maturities and interest rates. The
principal element in achieving this objective is to increase the interest-rate
sensitivity of the Savings Bank's assets by holding loans with interest rates
subject to periodic market adjustments. In addition, the Savings Bank maintains
a liquid investment portfolio comprised of short-term government securities.
The Savings Bank relies on retail deposits as its primary source of funds.
Management believes retail deposits, compared to brokered deposits, limits the
effects of interest rate fluctuations because they generally represent a more
stable source of funds. As part of its interest rate risk management strategy,
the Savings Bank promotes transaction accounts and certificates of deposit with
terms up to five years.
In order to encourage savings associations to reduce their interest rate
risk, the OTS adopted a rule incorporating an interest rate risk ("IRR")
component into the risk-based capital rules. Using data from the Savings Bank's
quarterly reports to the OTS, the Savings Bank receives a report from the OTS
that measures interest rate risk by modeling the change in Net Portfolio Value
("NPV") over a variety of interest rate scenarios. This
21
procedure for measuring interest rate risk was developed by the OTS to replace
the "gap" analysis (the difference between interest-earning assets and
interest-bearing liabilities that mature or reprice within a specific time
period). NPV is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The calculation is intended to
illustrate the change in NPV that would occur in the event of an immediate
change in interest rates of at least 200 basis points with no effect given to
any steps which management might take to counter the effect of that interest
rate movement. Under OTS regulations, an institution whose "measured interest
rate risk" is greater than 2.0% of the portfolio value of total assets will be
subject to a deduction from total capital for purposes of calculating its
risk-based capital.
The following table is provided by the OTS and sets forth as of June 30,
1997 the estimated changes in NPV based on the indicated interest rate
environments. No effect has been given to any steps that management of the
Savings Bank may take to counter the effects of interest rate movements
presented in the table.
Net Portfolio as % of
Net Portfolio Value Portfolio Value of Assets
---------------------------- -------------------------
Basis Point ("bp") $ $ NPV
Change in Rates Amount Change(1) % Change Ratio(2) Change(3)
--------------- ------ --------- -------- -------- ---------
(Dollars in Thousands)
+400 bp $60,882 (25,312) (29)% 10.53% (344) bp
+300 bp 69,923 (16,272) (19)% 11.84 (213) bp
+200 bp 77,854 (8,340) (10)% 12.94 (103) bp
+100 bp 83,666 (2,529) (3)% 13.69 (27) bp
0 bp 86,195 -- -- 13.97 --
-100 bp 85,389 (805) (1) 13.77 (20) bp
-200 bp 83,178 (3,017) (4) 13.38 (59) bp
-300 bp 81,958 (4,236) (5) 13.13 (83) bp
-400 bp 82,707 (3,488) (4) 13.16 (81) bp
- ---------------
(1) Represents the increase (decrease) of the estimated NPV at the indicated
change in interest rates compared to the NPV based on prevailing
interest rates at June 30, 1997 ("base case").
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV").
(3) Calculated as the change in the NPV ratio from the base case amount
assuming the indicated change in interest rates.
The following table is provided by the OTS and is based on the
calculations in the above table. It sets forth the change in the NPV Ratio at a
200 bp rate shock at the end of the last three quarters of fiscal 1997.
At At At
June 30, March 31, December 31,
1997 1997 1996
---- ---- ----
RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock NPV Ratio: NPV as % of
PV of Assets............................. 13.97% 14.19% 13.70%
Exposure Measure: Post-Shock NPV Ratio... 12.94 12.68 12.68
Sensitivity Measure: Change in NPV Ratio. (103) bp (118) bp (102) bp
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar
22
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as ARM loans, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. Further, in the event of a change in interest rates, expected rates
of prepayments on loans and early withdrawals from certificates could likely
deviate significantly from those assumed in calculating the table. It is also
possible that, as a result of an interest rate increase, the increased mortgage
payments required of ARM borrowers could result in an increase in delinquencies
and defaults. Changes in market interest rates would also affect the volume and
profitability of the Savings Bank's mortgage banking activities. Accordingly,
the data presented in the tables above should not be relied upon as indicative
of actual results in the event of changes in interest rates. Furthermore, the
NPV presented in the foregoing tables is not intended to represent the fair
market value of the Savings Bank, nor does it represent amounts that would be
available for distribution to stockholders in the event of the liquidation of
the Savings Bank.
LIQUIDITY AND CAPITAL RESOURCES
The Savings Bank's primary sources of funds are deposits, proceeds from
sales of loans originated for sale, proceeds from principal and interest
payments on loans, the maturity of and interest income on investment
securities, and FHLB advances. While maturities and scheduled amortization of
loans and investment securities are a predictable source of funds, deposit
flows, mortgage prepayments and loan sales are greatly influenced by general
interest rates, economic conditions and competition.
The Savings Bank must maintain an adequate level of liquidity to ensure
the availability of sufficient funds to support loan growth and deposit
withdrawals, to satisfy financial commitments and to take advantage of
investment opportunities. The Savings Bank generally maintains sufficient cash
and overnight deposits to meet short-term liquidity needs. At June 30, 1997,
cash (including overnight deposits) totaled $20.1 million, or 3.3% of total
assets. In addition, the Savings Bank maintains a credit facility with the
FHLB-San Francisco, which provides for immediately available advances. Advances
under this credit facility totaled $6.8 million at June 30, 1997. Depending on
market conditions and the pricing of deposit products and FHLB borrowings, the
Savings Bank may continue to rely on FHLB borrowings for its liquidity needs.
The OTS requires a savings institution to maintain an average daily
balance of liquid assets (cash and eligible investments) equal to at least 5.0%
of the average daily balance of its net withdrawable deposits and short-term
borrowings. In addition, short-term liquid assets currently must constitute
1.0% of the sum of net withdrawable deposit accounts plus short-term
borrowings. The Savings Bank's actual short-term liquidity ratio at June 30,
1997 was 6.8%. The Savings Bank has in the past consistently maintained
liquidity levels relatively close to and in excess of regulatory requirements
and believes this is an appropriate strategy for proper asset and liability
management.
The primary investing activity of the Savings Bank is the origination of
mortgage loans. During years ended June 30, 1997, 1996 and 1995, the Savings
Bank originated loans in the amounts of $440.6 million,$516.9 million and
$255.1 million, respectively. At June 30, 1997, the Savings Bank had loan
commitments totaling $51.0 million and undisbursed loans in process totaling
$3.7 million. The Savings Bank anticipates that it will have sufficient funds
available to meet its current loan origination commitments. Certificates of
deposit that are scheduled to mature in less than one year from June 30, 1997
totaled $288.2 million. Historically, the Savings Bank has been able to retain
a significant amount of its deposits as they mature. Management of the Savings
Bank believes it has adequate resources to fund all loan commitments by
deposits and FHLB advances and that it can adjust the offering rates of savings
certificates to retain deposits in changing interest rate environments.
The Savings Bank is required to maintain specific amounts of capital
pursuant to OTS requirements. As of June 30, 1997, the Savings Bank was in
compliance with all regulatory capital requirements which were effective as of
such date with tangible, core and risk-based capital ratios of 9.9%, 9.9% and
16.1%, respectively. For a
23
detailed discussion of regulatory capital requirements, see "REGULATION --
Federal Regulation of Savings Associations -- Capital Requirements" in Item 1
of this Report.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Effective July 1, 1996 the Company adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights" recognizing mortgage servicing rights as separate
assets from the underlying mortgage loans at the time such loans are sold and
servicing is retained. SFAS 122 did not have a material impact on the Company's
financial reporting. Effective January 1, 1997, the Company adopted SFAS 125
"Accounting for Transfers of Financial Assets and Liabilities." Under the
financial-components approach of SFAS 125, after a transfer of financial
assets, an entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes al financial and servicing assets
it no longer controls and liabilities that have been extinguished. If a
transfer does not meet the criteria for a sale, the transfer is accounted for
as a secured borrowing with pledge of collateral. The adoption of SFAS 125 did
not have a material impact on the Company's financial reporting.
In February 1997, FASB issued Statement of Financial Accounting Standards
No. 128 "Earnings per Share (SFAS 128). SFAS 128 supersedes APB Option No. 15
"Earnings per Share (APB 15) and establishes standards for computing and
presenting earnings per share (EPS) for entities with publicly held common
stock or potential common stock. SFAS 128 simplifies the reporting of EPS and
brings them substantially in line with those found in International Accounting
Standard 33, Earnings per Share, recently issued by the International
Accounting Standards Committee. It replaces the presentation of primary EPS
with a presentation of basic EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures and a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator of the diluted EPS
computation. This statement is effective for financial statements for both
interim and annual periods ending after December 15, 1997. Earlier application
is not permitted. The Company has determined that this statement will have no
significant impact on the financial position, results of operations, or
earnings per share.
In February 1997, the FASB also issued Statement of Financial Standards
No. 129, "Disclosure of Information about Capital Structure" (SFAS 129). This
Statement is effective for financial statements for periods ending after
December 15, 1997. The Company does not expect SFAS 129 to have any significant
impact on prior disclosures since it primarily consolidates requirements from
previously issued Opinions and Statements into one Statement.
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with GAAP which generally
requires the measurement of financial position and operating results in terms
of historical dollars, without considering the change in the relative
purchasing power of money over time due to inflation. The primary impact of
inflation is reflected in the increased cost of the Savings Bank's operations.
Unlike most industrial companies, virtually all the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates
generally have a more significant impact on a financial institution's
performance than do general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services. In the current interest rate environment, liquidity and
maturity structure of the Savings Bank's assets and liabilities are critical to
the maintenance of performance levels.
24
REVOCABLE PROXY
PROVIDENT FINANCIAL HOLDINGS, INC.
ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 30, 1997
The undersigned hereby appoints the Board of Directors of Provident
Financial Holdings, Inc. (the "Company") with full powers of substitution to
act as attorneys and proxies for the undersigned, to vote all shares of Common
Stock of the Company which the undersigned is entitled to vote at the Annual
Meeting of Shareholders, to be held at the Mission Inn at 3649 Mission Inn
Avenue, Riverside, California, on Thursday, October 30, 1997, at 11:00 a.m.,
local time, and at any and all adjournments thereof, as follows:
VOTE
1. The election as director of the nominees FOR WITHHELD
listed below (except as marked to the [ ] [ ]
contrary below).
Robert G. Schrader
William E. Thomas
INSTRUCTIONS: TO WITHHOLD YOUR VOTE
FOR ANY INDIVIDUAL NOMINEE, WRITE THE
NOMINEE'S NAME ON THE LINE BELOW.
2. In their discretion, upon such other matters as may properly come before
the meeting.
The Board of Directors recommends a vote "FOR" the listed propositions.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED THIS
PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE BOARD OF DIRECTORS
IN ITS BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING. THIS PROXY ALSO CONFERS
DISCRETIONARY AUTHORITY ON THE BOARD OF DIRECTORS TO VOTE WITH RESPECT TO THE
ELECTION OF ANY PERSON AS DIRECTOR WHERE THE NOMINEES ARE UNABLE TO SERVE OR
FOR GOOD CAUSE WILL NOT SERVE AND MATTERS INCIDENT TO THE CONDUCT OF THE 1996
ANNUAL MEETING.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Annual Meeting
or at any adjournment thereof and after notification to the Secretary of the
Company at the Annual Meeting of the shareholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of the Notice of Annual Meeting of Shareholders, a
Proxy Statement dated September 26, 1997 and the 1997 Annual Report to
Shareholders.
Dated: , 1997
--------------------
- --------------------------------- -----------------------------------
PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER
- --------------------------------- -----------------------------------
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
Please sign exactly as your name appears on the enclosed card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.