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 . . . . . . . . . . . . . . March 31, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-28304
PROVIDENT FINANCIAL HOLDINGS, INC.
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(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
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(Address of principal executive offices and zip code)
(909) 686-6060
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(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 April 30, 1998
- --------------- --------------------
Common stock, $.01 par value 4,669,215 shares *
*Includes 351,675 shares held by employee stock ownership plan that have not
been released, committed to be released, or allocated to participant accounts.
1
PROVIDENT FINANCIAL HOLDINGS, INC.
Table of Contents
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements. The 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 March 31, 1998 and June 30, 1997 . . . . . . . . . . . . . . 1
Consolidated Statements of Operations
for the quarter and nine months ended March 31, 1998 and 1997. . . 2
Consolidated Statement of Changes in Stockholders' Equity
for the nine months ended March 31, 1998 and 1997. . . . . . . . . 3
Consolidated Statements of Cash Flows
for the quarter and nine months ended March 31, 1998 and 1997. . . 4
Selected Notes to Consolidated Financial Statements. . . . . . . . 5
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Comparison of Financial Condition at March 31, 1998 and June 30,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Comparison of Operating Results for the Quarter and Nine Months
ended March 31, 1998 and 1997. . . . . . . . . . . . . . . . . . . 7
Asset Quality. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 16
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . 16
Item 3. Defaults upon Senior Securities. . . . . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of Stockholders. . . . . 16
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 16
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
EXHIBIT 27 - FINANCIAL DATA SCHEDULE. . . . . . . . . . . . . . . . . . 18
2
PROVIDENT FINANCIAL HOLDINGS, INC
Consolidated Statements of Financial Condition
(Unaudited)
Dollars in Thousands
March 31, June 30,
1998 1997
ASSETS
Cash $ 19,928 $ 10,411
Overnight Deposits 4,300 9,700
Investment Securities-held to maturity (market
value $62,962 and $34,425) 62,966 33,645
Investment securities-available for sale at fair
value 1,537 761
Loans held for investment 602,034 517,147
Loans held for sale 46,247 19,984
Accrued interest receivable 4,351 3,378
Real estate available for sale 6,275 5,676
Federal Home Loan Bank stock - at cost 5,581 4,879
Premises and equipment, net 7,564 6,825
Prepaid expenses and other assets 3,767 3,094
--------- ---------
TOTAL ASSETS $ 764,550 $ 615,500
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest bearing deposits $ 9,782 $ 2,335
Interest-bearing deposits 553,458 506,424
Borrowings 99,616 6,828
Accounts Payable and Other Liabilities 16,885 14,466
--------- ---------
TOTAL LIABILITIES 679,741 530,053
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; outstanding 4,669,215 at
March 31, 1998 and 4,920,215 at June 30, 1997 51 51
Additional paid-in capital 50,059 49,842
Retained earnings 45,891 42,070
Treasury stock at cost (251,000 and 0 shares) (4,984) -0-
Management Recognition Program stock at cost
(205,000 and 205,000 shares) (3,291) (3,291)
Unearned ESOP shares at cost (351,675 and 371,964
shares) (3,517) (3,720)
Unrealized gain on securities, net of tax 600 495
--------- --------
TOTAL STOCKHOLDERS' EQUITY 84,809 85,447
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 764,550 $615,500
========= ========
3
PROVIDENT FINANCIAL HOLDINGS, INC
Consolidated Statements of Operations
(Unaudited)
Dollars in Thousands, Except Earnings Per Share
Three Months ended Nine Months ended
March 31, March 31,
1998 1997 1998 1997
Interest Income
Loans $11,947 $9,467 $34,066 $28,471
Investment Securities 1,057 1,076 2,568 3,259
------- ------ ------- -------
Total Interest Income 13,004 10,543 36,634 31,730
Interest Expense
Deposits 6,361 5,799 19,086 17,070
Borrowings 1,267 98 2,178 317
------- ------ ------- -------
Total Interest Expense 7,628 5,897 21,264 17,387
Net Interest Income 5,376 4,646 15,370 14,343
Provision for Loan Losses 300 250 1,050 954
Net Interest Income after ------- ------ ------- -------
provision for loan losses 5,076 4,396 14,320 13,389
Non-Interest Income
Loan Servicing and Other Fees 660 653 2,271 2,065
Gains from Sales of Loans 958 651 3,076 2,827
Other 392 345 1,042 937
------- ------ ------- -------
Total non-interest income 2,010 1,649 6,389 5,829
Non-interest Expenses
Salaries and employee benefits 3,049 2,401 8,975 8,560
Premises and occupancy 523 526 1,580 1,547
SAIF Insurance premiums 84 17 245 3,875
Telephone 82 96 285 296
Other 1,226 1,099 3,314 3,498
Total Operating and ------- ------ ------- -------
Administrative Expenses 4,964 4,139 14,399 17,776
Real Estate Operations, net 35 (90) (311) (7)
------- ------ ------- -------
Total non-interest expenses 4,999 4,049 14,088 17,769
Income Before Taxes 2,087 1,996 6,621 1,449
Provision for Income Taxes 886 850 2,800 642
------- ------ ------- -------
Net Income $ 1,201 $1,146 $ 3,821 $ 807
======= ====== ======= =======
Basic Earnings Per Share $ 0.28 $ 0.24 $ 0.87 $ 0.17
======= ====== ======= =======
Weighted Average Shares
Outstanding 4,317,635 4,730,690 4,411,497 4,732,603
========= ========= ========== =========
Diluted Earnings Per Share $ 0.27 $ 0.24 $ 0.85 $ 0.17
======= ====== ======= =======
Weighted Average Diluted
Shares 4,450,198 4,738,277 4,509,141 4,735.095
========= ========= ========== =========
Return on Assets 0.66% 0.76% 0.75% 0.18%
Return on Equity 5.78% 5.34% 6.05% 1.25%
4
PROVIDENT FINANCIAL HOLDINGS, INC
Consolidated Statements of Stockholders' Equity
(Unaudited)
Dollars in Thousands
For the Nine Months Ended March 31, 1998 and 1997
- ---------------------------------------------------------------------------------------------------------
Unrealized
Addi- Gain on
tional Unearned Securities
Common Paid-in Retained Treasury ESOP Available
Shares Stock Capital Earnings Stock Shares For Sale Total
- ---------------------------------------------------------------------------------------------------------
Balance at June 30,
1996 5,125,215 $51 $49,742 $40,129 ($3,952) $85,970
Release of ESOP shares 61 165 226
Net Income 807 807
Purchase of Treasury
Stock (50,000) ($825) (825)
Unrealized gain on
securities available
for sale, net of
taxes $399 399
-------------------------------------------------------------------------------
Balance at March 31,
1997 5,075,215 $51 $49,803 $40,936 ($825) ($3,787) $399 $86,577
===============================================================================
Unrealized
Addi- Gain on
tional Unearned Securities
Common Paid-in Retained Treasury ESOP Available
Shares Stock Capital Earnings Stock Shares For Sale Total
- ---------------------------------------------------------------------------------------------------------
Balance at June 30,
1997 4,920,215 $51 $49,842 $42,070 ($3,291) ($3,720) $495 $85,447
Net Income 3,821 3,821
Purchase of Treasury
Stock (246,000) (4,984) (4,984)
Release of ESOP shares 217 203 420
Unrealized gain on
securities available
for sale, net of taxes
105 105
----------------------------------------------------
- ---------------------------
Balance at March 31,
1998 4,674,215 $51 $50,059 $45,891 ($8,275)
($3,517) $600 $84,809
==============================================================================
=
5
PROVIDENT FINANCIAL HOLDINGS, INC
Consolidated Statements of Cash Flows
(Unaudited)
Dollars in Thousands
Dollars in Thousands Three Months ended Nine Months ended
March 31, March 31,
1998 1997 1998 1997
Cash flows from operating
activities:
Net income $1,201 $1,146 $3,821 $807
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 53 275 563 823
Amortization (accretion) of
loan fees (238) 105 (520) 110
Accretion of discounts on
Securities (48) (529) (162) (1,363)
Amortization of Unearned ESOP
Shares 150 0 420 0
Provision for loan losses 300 250 1,050 954
Provision for losses on real
estate 8 29 26 237
Gain on sale of loans (958) (651) (3,076) (2,827)
Increase in accounts payable
and other liabilities 3,446 1,306 2,419 1,898
Decrease (increase) in prepaid
expenses and other assets 499 1,679 (2,348) 460
Loans originated for sale (117,910) (68,439) (328,413) (238,000)
Proceeds from sale of loans 105,007 80,245 305,226 268,090
-------- ------- -------- --------
Net cash provided by (used
for) operating Activities (8,490) 15,416 (20,994) 31,189
Cash flows from investing
activities:
Net increase in loans
receivable (13,820) (26,903) (89,888) (40,268)
Maturity of investment
securities held-to-maturity 18,368 87,314 49,008 230,759
Purchases of investment
securities held-to-maturity (21,478) (81,801) (78,943) (253,884)
Proceeds from disposal of real
estate 1,352 1,419 4,063 5,415
Purchases of premises and
equipment, net of sales (726) (78) (1,519) (527)
Other 69 97 104 627
-------- ------- -------- --------
Net cash used for investing
activities (16,235) (19,952) (117,175) (57,878)
-------- ------- -------- --------
Cash flows from financing
activities:
Net increase (decrease) in NOW,
passbook 23,822 (14,523) 27,007 1,288
Net increase in term deposits 5,559 30,311 27,484 21,814
Repayment of Federal Home Loan
Bank advances 0 0 0 (1,750)
Proceeds from Federal Home Loan
Bank advances 6,993 0 92,778 0
Treasury stock purchases (386) (825) (4,983) (825)
-------- ------- ------- -------
Net cash used for financing
activities 35,988 14,963 142,286 20,527
Net increase (decrease) in
cash and cash equivalents 11,263 10,427 4,117 (6,162)
Cash and cash equivalents at
beginning of period 12,965 14,242 20,111 30,831
Cash and cash equivalents at end ------- ------- ------- -------
of period $24,228 $24,669 $24,228 $24,669
======= ======= ======= =======
6
Supplemental information:
Cash paid for interest $7,870 $6,047 $21,850 $17,350
Cash paid for income taxes 1,131 43 3,609 48
Real estate acquired in
settlement of loans 1,096 778 4,688 5,039
7
PROVIDENT FINANCIAL HOLDINGS, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
Note 1: Basis of Presentation
The unaudited 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 periods presented. All such
adjustments are of a normal recurring nature. The balance sheet data at June
30, 1997 is derived from audited 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 consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Annual Report on Form 10-K for the year ended June 30, 1997 (File No. 0-28304)
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
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per Share. SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary restated, to conform to the SFAS No. 128 requirements.
The following table sets forth the computation of basic and diluted earnings
per share:
For the Three Months ended For the Nine Months ended
March 31, March 31,
--------------------------------------------------------
1998 1997 1998 1997
--------------------------------------------------------
Numerator:
Net income -
Numerator for basic
earnings per share
and diluted earnings
per share - income
available to common
stockholders $1,201,000 $1,146,000 $3,821,000 $ 807,000
========== ========== ========== ==========
Denominator:
Denominator for
basic earnings per
share - Weighted-
average shares 4,317,635 4,730,690 4,411,497 4,732,603
Effect of dilutive
securities:
Employee stock
benefit plans 132,563 7,587 97,644 2,492
---------- ---------- ---------- ----------
Denominator for
diluted earnings
per Share-adjusted
weighted-average
shares and assumed
conversions 4,450,198 4,738,277 4,509,141 4,735,095
========= ========= ========= =========
Basic earnings per
share $0.28 $0.24 $0.87 $0.17
Diluted earnings per
share $0.27 $0.24 $0.85 $0.17
8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Provident Financial Holdings, Inc. (the Company) is a Delaware corporation
which was organized in January, 1996 for the purpose of becoming the holding
company for Provident Savings Bank, F.S.B. (the Savings Bank) upon the
latter's conversion from a federal mutual to a federal stock savings bank (the
"Conversion"). The conversion was completed on June 27, 1996. The Company
operates primarily in one business segment - attracting customer deposits to
originate loans secured primarily by mortgages on residential real estate.
The segment includes ancillary activities related to real estate lending such
as mortgage banking and real estate development. The Savings Bank is a
federally chartered savings bank founded in 1956 whose deposits are insured
by the FDIC under the Savings Association Insurance Fund (SAIF). The Savings
Bank conducts business from its main office in Riverside, California and its
nine branch offices. Through the operations of its Profed Mortgage Division
(Profed), the Savings Bank has expanded its retail lending market to include a
larger portion of Southern California and Southern Nevada. Profed operates
three offices within the Savings Bank's retail branch facilities and seven
free-standing loan production offices, one of which includes a wholesale loan
department.
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 Consolidated Financial
Statements and accompanying Selected Notes to Consolidated Financial
Statements.
The operating results of the Company depend 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 Company receives on its loan and investment portfolios and its
cost of funds, which consist of interest paid on deposits and borrowings.
Non-interest income is comprised of income from mortgage banking activities,
gain on the occasional sale of assets and miscellaneous fees and income. The
contribution of mortgage banking activities to the Company'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. The Company'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. The Savings
Bank incurred a one-time assessment to recapitalize the Savings Association
Insurance Fund ("SAIF") during the quarter ended September 30, 1996. 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
Company'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 at March 31, 1998 and June 30, 1997
Total assets increased by $149.1 million, or 24% to $764.6 million at March
31, 1998 from $615.5 million at June 30, 1997. This increase was chiefly the
result of an $84.9 million, or 16.4% increase in loans held for investment to
$602.0 million at March 31, 1998 from $517.1 million at June 30, 1997 and a
$29.3 million, or 87.2% increase in investment securities to $63.0 million at
March 31, 1998 from $33.6 million at June 30, 1997. The Company continued its
leveraging strategy by directing a larger percentage of loan originations into
its portfolio and increasing its investment portfolio. This expansion was
funded by an increase in deposits, which rose by $54.5 million, or 10.8%, from
$508.8 million at June 30, 1997. Federal Home Loan Bank (FHLB) advances
provided the remaining financing with an increase of $92.8 million from June
30, 1997. The Company plans to continue utilizing borrowings from FHLB to
fund its loan growth objectives.
Loans held for sale increased $26.2 million, or 131.0%, to $46.2 million at
March 31, 1998, from $20.0 million at June 30, 1997. This increase was the
result of increased loan demand in the Company's lending territory and the
timing of loan sale settlements.
9
Comparison of Operating Results for the Three and Nine Months ended March 31,
1998 and 1997
The Company's net income for the three months ended March 31, 1998 and 1997
was $1.2 million and $1.1 million, respectively, while for the nine months
ended March 31, 1998 and 1997 the Company recorded net income of $3.8 million
and $807,000, respectively. The nine month period in 1997 included a special
charge of $3.2 million ($1.9 million after tax) for the SAIF recapitalization
assessment. Without this special one-time assessment, the Company would have
reported net income of $2.7 million for the nine months ended March 31, 1997.
Earnings per diluted share were $0.27 per share for the quarter ended March
31, 1998 and $0.85 per diluted share for the nine months ended March 31, 1998.
Year-to-year operating results were primarily affected by an increase in net
interest income tempered, in part, by increases in other operating and
administrative expenses.
The Company's net interest margin decreased to 3.06% for the quarter ended
March 31, 1998 as compared to 3.22% for the quarter ended March 31, 1997 due
to interest rate compression. Interest rate compression occurs when the
spread between the rates paid on deposits and borrowings and the rates
received on loans and investments begins to narrow. Net interest income
increased $730,000 for the third quarter of 1998, or 15.7%, and $1,027,000 for
the 1998 nine month period, or 7.2%, compared to the same periods in 1997 due
to the increase in the volume of interest earning assets.
Interest Income. Interest income increased by $2.5 million (23.3%) to $13.0
million for the quarter ended March 31, 1998 from $10.5 million for the
similar quarter last year. The average yield on interest earning assets
increased to 7.4% for the quarter ended March 31, 1998 from 7.3% for the
similar period last year. The average balance of investment securities,
interest-bearing deposits and FHLB stock decreased by $7.0 million, or 10.0%,
for the quarter ended March 31, 1998 and interest income from these
investments decreased by $19,000 compared to the same period last year. The
average rate on investment securities rose by 53 basis points to 6.22% for the
1998 quarter compared to 5.69% for the 1997 quarter.
Loan interest income increased by $2.5 million, or 26.0%, to $11.9 million in
the quarter ended March 31, 1998, as compared to $9.5 million for the quarter
ended March 31, 1997. The majority of this increase was attributable to an
increase in the level of loans held for investment and loans held for sale.
Beginning in the quarter ended December 31, 1996, management undertook a
program to increase the level of portfolio loans through retention of mortgage
loan production.
For the nine months ended March 31, 1998, loan interest income rose by $5.6
million, or 19.6%, to $34.1 million from $28.5 million for the nine months
ended March 31, 1997. Average loans receivable, including those held for
sale, increased to $595.6 million for nine months ended March 31, 1998 as
compared to $490.5 million for the nine months ended March 31, 1997, while the
yield declined to 7.63% from 7.74%, respectively. The average balance of
investment securities, interest-bearing deposits, and FHLB stock decreased by
$22.3 million, or 28.4%, to $56.2 million as the result of the loan portfolio
growth. The interest income from those investments decreased $691,000 or
21.2%, to $2.6 million in the nine months ended March 31, 1998. The average
yield on investment securities held to maturity increased 54 basis points to
6.20% in the nine months ended March 31, 1998 compared to 5.66% for the nine
months ended March 31, 1997, due to a lengthening of the term of new
investments.
Interest Expense. Interest expense for the quarter ended March 31, 1998 was
$7.6 million as compared to $5.9 million for the comparable period in 1997, an
increase of $1.7 million, or 29.3%. Interest expense for the nine months
ended March 31, 1998 totaled $21.3 million as compared to $17.4 million for
the similar period one year ago, an increase of $3.9 million, or 22.4%. These
increases are attributable to an increase in average interest-bearing
liabilities, particularly FHLB advances. Average deposits increased by $42.5
million, or 8.5%, during the quarter compared to the prior year and $42.6
million, or 8.7%, for the nine months. The rate paid on deposits increased to
4.8% during the quarter ended March 31, 1998 from 4.75% during the similar
quarter in 1997 and to 4.82% from 4.69% during the respective nine month
periods. FHLB advances averaged $88.5 million during the quarter ended March
31, 1998 compared to $6.8 million for the quarter ended March 31, 1997 and
$50.0 million compared to $7.2 million during the respective nine month
periods. The volume increase on FHLB advances resulted in a $1.17 million or
1,192%, increase in related interest expense for the quarter compared to the
prior year and a $1.86 million, or 585.4%, increase for the nine month period.
The average rate paid on these advances decreased to 5.8% for the quarter
ended March 31, 1998 from 5.82% in the same quarter in 1997 and declined to
5.78% for the nine months ended March 31, 1998 from 5.88% for the same period
in 1997.
10
The following tables provide additional comparative data on the Company's average balances and
rate/volume changes.
Three months Ended Three Months Ended
3/31/98 3/31/97
-------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest
Yield/Cost
Interest-earning assets:
Loans receivable, net (1)....... $633,902 $11,947 7.54 % $500,755 $9,467 7.56%
Investment securities........... 60,462 939 6.22 61,536 875 5.69
FHLB Stock...................... 5,143 74 5.78 4,784 76 6.39
Interest-bearing deposits....... 3,743 43 4.64 10,037 125 5.00
-------- ------- ---- -------- ------- ----
Total interest-earning assets. 703,250 13,004 7.40 577,112 10,543 7.31
Non-interest earning assets... 27,990 25,770
-------- --------
Total Assets $731,240 $602,882
Interest-bearing liabilities: ======== ========
Passbook accounts .............. $49,546 264 2.16 % $47,333 310 2.66%
Demand and NOW accounts......... 117,654 851 2.93 110,890 885 3.24
Certificate accounts............ 370,352 5,246 5.75 336,846 4,604 5.54
-------- ------- ---- -------- ------- ----
Total Deposits 537,552 6,361 4.80 495,069 5,799 4.75
FHLB Advances.................... 88,452 1,265 5.80 6,828 98 5.82
Other borrowings................. 205 2 5.14 0 0 0
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities 626,208 7,628 4.94 501,897 5,897 4.77
Non-interest bearing liabilities. 21,908 15,063
-------- --------
Total liabilities................ 648,117 516,960
-------- --------
Retained Earnings................ 83,123 85,922
Total liabilities and -------- --------
retained earnings............... $731,240 $602,882
======== ========
Net interest income.............. $ 5,376 $4,646
======= ======
Interest rate spread (2)......... 2.46 % 2.54%
Net interest margin (3).......... 3.06 % 3.22%
Ratio of average interest-
earning assets to average
interest-bearing liabilities.... 112.30% 114.99%
Return on Assets 0.66 % 0.76%
Return on Equity 5.78 % 5.34%
Nine Months Ended Nine Months Ended
3/31/98 3/31/97
-------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest
Yield/Cost
Interest-earning assets:
Loans receivable, net (1)....... $595,623 $34,066 7.63 % $490,480 $28,471 7.74%
Investment securities........... 46,003 2,139 6.20 58,509 2,484 5.66
FHLB Stock...................... 5,029 229 6.06 4,712 219 6.20
Interest-bearing deposits....... 5,132 200 5.21 15,226 556 4.87
-------- ------- ---- -------- ------- ----
Total interest-earning assets. 651,787 36,634 7.49 568,927 31,730 7.44
Non-interest earning assets... 25,958 24,998
-------- --------
Total Assets $677,745 $593,925
Interest-bearing liabilities: ======== ========
Passbook accounts .............. $46,818 936 2.66 % $50,664 1,048 2.75%
Demand and NOW accounts......... 115,935 2,643 3.04 110,291 2,822 3.41
Certificate accounts............ 364,470 15,506 5.67 323,693 13,200 5.43
-------- ------- ---- -------- ------- ----
Total Deposits 527,223 19,085 4.82 484,648 17,070 4.69
FHLB Advances.................... 49,987 2,173 5.78 7,188 317 5.88
Other borrowings................. 141 6 5.14 0 0
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities 677,351 21,264 4.91 491,836 17,387 4.71
Non-interest bearing liabilities. 16,234 16,290
-------- --------
Total liabilities................ 593,585 580,126
-------- --------
Retained Earnings................ 84,160 85,799
-------- --------
Total liabilities and
retained earnings............... $677,745 $593,925
======== ========
Net interest income.............. $15,370 $14,343
======= =======
Interest rate spread (2)......... 2.59 % 2.73%
Net interest margin (3).......... 3.14 % 3.36%
Ratio of average interest-
earning assets to average
interest-bearing liabilities.... 112.89% 115.67%
Return on Assets 0.75 % 0.18%
Return on Equity 6.05 % 1.25%
- ----------------------------------------------------------------------------------------------------
(1) Includes loans available for sale
(2) Represents 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.
11
Three Months Ended March 31, 1998
Compared to Three Months Ended March 31, 1997
Increase (Decrease) Due to:
---------------------------
Rate/
Rate Volume Volume Net
Interest income:
Loans receivable (1) $(29) $2,517 $(8) $2,480
Investment securities 81 (15) (1) 65
FHLB stock (7) 6 (1) (2)
Interest-bearing deposits (9) (79) 6 (82)
Total net change in change ---- ------ ---- ------
on interest-earning assets 36 2,429 (4) 2,461
Interest-bearing liabilities:
Passbook accounts (58) 15 (3) (46)
Demand and NOW accounts (84) 55 (5) (34)
Certificate accounts 170 455 17 642
FHLB advances (0) 1,171 (4) 1,167
Other borrowings 0 0 2 2
Total net change in expense on ---- ------ ---- ------
interest-bearing liabilities 28 1,696 7 1,731
Net change in net interest ---- ------ ---- ------
income $ 8 $ 733 $(11) $ 730
==== ====== ==== ======
(1) Includes loans available for sale. For purposes of calculating volume,
rate and rate/volume variances, non-accrual loans were included in the
weighted average balance outstanding.
Nine Months Ended March 31, 1998
Compared to Nine Months Ended March 31, 1997
Increase (Decrease) Due to:
---------------------------
Rate/
Rate Volume Volume Net
Interest income:
Loans receivable (1) $(418) $6,103 $(90) $5,595
Investment securities 236 (531) (50) (345)
FHLB stock (5) 15 0 10
Interest-bearing deposits 39 (369) (26) (356)
Total net change in change ----- ------ ---- ------
on interest-earning assets (148) 5,218 (166) 4,904
Interest-bearing liabilities:
Passbook accounts (34) (81) 3 (112)
Demand and NOW accounts (307) 144 (16) (179)
Certificate accounts 570 1,664 72 2,306
FHLB advances (5) 1,893 (32) 1,856
Other borrowings 0 0 6 6
Total net change in expense ---- ------ ----- ------
on interest-bearing
liabilities 224 3,620 33 3,877
Net Change in net interest ----- ------ ----- ------
income $(372) $1,598 $(199) $1,027
===== ====== ===== ======
(1) Includes loans available for sale. For purposes of calculating volume,
rate and rate/volume variances, non-accrual loans were included in the
weighted average balance outstanding
12
Provision for Loan Losses. The provision for loan losses was $300,000 for the
quarter and $1,050,000 for the nine months ended March 31, 1998, as compared
to $250,000 and $954,000, respectively, for the same periods in 1997. At March
31, 1998, loan loss reserves as a percentage of gross loans receivable was
1.02% as compared to 1.07% at March 31, 1997. With the recent improvement in
the Southern California economy and its housing market, the Company intends to
allow its loan loss reserve to decrease below 1% of gross loans. Net
charge-offs fell to 5 basis points of average loans during the nine months,
down from 30 basis points in the same period last year.
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.
The following tables are provided to disclose additional detail on the
Company's allowance for loan losses and asset quality (dollars in thousands):
For the Nine Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
Allowance at beginning of period $5,465 $5,452
Provision for loan losses 1,050 954
Recoveries:
Mortgage Loans:
One-to-four family 11 11
Multi-family 191 51
Commercial - 38
Construction - -
Consumer loans 19 -
Commercial Business Lending - -
Other loans - -
----- ------
Total recoveries 221 100
Charge-offs:
Mortgage Loans:
One-to-four family (85) (285)
Multi-family (2) (610)
Commercial (253) (309)
Construction - -
Consumer loans (85) -
Commercial business lending - -
Other loans - (2)
----- ------
Total charge-offs (425) (1,206)
Net charge-offs (204) (1,106)
----- ------
Balance at end of period $6,311 $5,300
Allowance for loan losses as a ====== ======
percentage of gross loans outstanding
at the end of the period 1.02% 1.07%
Net charge-offs as a percentage of
average loans
Outstanding during the period (0.05)% (0.30)%
Allowance for loan losses as a
percentage of non-performing loans
at the end of the period 130.99% 102.40%
13
Asset Quality. The following tables are provided to disclose additional
details on asset quality (dollars in thousands):
March 31, 1998 June 30, 1997
-------------- -------------
Loans accounted for on a non-
accrual basis:
Mortgage Loans:
One-to-four family $1,929 $3,667
Multi-family - 1,176
Commercial 2,770 979
Construction - -
Consumer Loans 74 150
Commercial business lending - -
Other loans - -
------ ------
Total 4,773 150
Accruing loans which are contractually
past due 90 days or more:
Mortgage Loans:
One-to-four family - 268
Multi-family - -
Commercial - -
Construction - -
Consumer Loans 45 9
Commercial Business Lending - -
Other Loans - -
------ ------
Total 45 277
Total of nonaccrual and 90 days past
due loans: 4,818 6,249
Real estate owned 3,454 2,636
------ ------
Total non-performing assets: $8,272 $8,885
====== ======
Restructured loans $1,990 $4,910
====== ======
Non-accrual and 90 days or more past
due loans as a percentage of
portfolio loans receivable, net 0.80% 1.21%
Non-accrual and 90 days or more past
due loans as a percentage of total
assets 0.63% 1.02%
Non-performing assets as a percentage
of total assets 1.08% 1.44%
The Company addresses loans individually and identifies impairment when the
accrual of interest has been discontinued, loans have been restructured or
Management has serious doubts about the future collectibility of principal
and interest, even though the loans are currently performing. Factors
considered in determining impairment include, but are not limited to, expected
future cash flows, the financial condition of the borrower and current
economic conditions. The Company measures each impaired loan based on the
fair value of its collateral and charges off those loans or portions of loans
deemed uncollectible.
14
Non-interest Income. Non-interest income increased by $361,000, or 21.9% ,to
$2.0 million in the third quarter of fiscal 1998 from $1.6 million in the
third quarter of fiscal 1997. For the nine month period ending March 31,
1998, non-interest income increased by $560,000, or 9.6%, to $6.4 million, as
compared to the same period in 1997. Part of this increase in the nine month
period was a result of increases in loan servicing and other fees. The other
significant component was gains from the sales of loans which increased by
$249,000, or 8.8%, to $3.1 million during the nine months ended March 31,
1998. This was due to an increase of $37.1 million in the aggregate amount of
loans sold during the period as compared to the same period last year.
Non-interest Expenses. Non-interest expenses increased by $1.0 million during
the quarter to $5.0 million from $4.0 million in the same period last year.
Non-interest expenses decreased to $14.1 million, or 20.7%, for the nine
months ending March 31, 1998 from $17.8 million for the same period in 1997.
This decrease was due to the SAIF assessment of $3.2 million in the prior nine
month period.
Income taxes. Income tax expense was $886,000 for the quarter versus
$850,000 for the same quarter of 1997, while the nine month numbers were $2.8
million for fiscal 1998 versus $642,000 for fiscal 1997. The resulting
effective tax rates for the quarters ended March 31, 1998 and 1997 were 42.5%
and 42.6% and the nine month ratios were 42.3% and 44.3% respectively.
Loan Origination Volumes. The following table is provided to disclose
additional detail related to the volume of loans originated (dollars in
thousands):
For the Quarter Ended For the Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
---- ---- ---- ----
Loans originated for sale
Retail originations $46,917 $27,363 $130,070 $95,187
Wholesale originations 74,756 41,044 208,124 142,781
Total loans originated ------- ------- -------- -------
for sale 121,673 68,407 338,194 237,968
Loans sold:
Servicing released 105,007 78,790 305,226 265,762
Servicing retained 127 0 365 1,539
------- ------- -------- -------
Total loans sold 105,134 78,790 305,591 267,301
Loans originated for
portfolio;
Mortgage loans:
One-to-four family 40,655 38,271 138,147 71,725
Multi-family 500 202 920 916
Commercial 0 0 250 0
Construction loans 3,404 168 11,554 667
Consumer 1,465 1,854 4,106 4,928
Commercial business
lending 1,434 0 2,474 0
Other loans 0 0 78 232
Total loans originated ------- ------- -------- -------
for portfolio 47,458 40,495 157,529 78,468
Loans purchased:
Mortgage loans:
One-to-four family 162 571 19,000 1,991
Commercial 0 0 0 0
------- ------- -------- -------
Total loans purchased 162 571 19,000 1,991
Mortgage loan principal
repayments 34,622 17,370 90,539 42,864
Real estate acquired in
settlement of loans 1,155 778 6,021 5,039
(Decrease) increase in
other items, net (1) (1,650) 2,111 (1,423) 3,916
Net increase in loans ------- ------- -------- ------
receivable, net $26,732 $14,646 $111,149 $7,139
======= ======= ======== ======
(1) Includes changes in accrued interest, loans in process, discounts and loan
loss reserves.
15
Liquidity and Capital Resources. The Company's primary source of funds are
deposits, proceeds from loan principal and interest payments and 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 Federal Home
Loan Bank of San Francisco of 30% of total assets, which, on March 31, 1998
permitted additional advances up to $129.7 million. While maturities and
scheduled amortization of loans are a predictable source 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 March 31, 1998, the
Savings Bank originated a total of $169.3 million in loans and $514.7 million
for fiscal year to date. This activity was funded primarily by loan sales,
retail deposits and FHLB advances. For the quarter ended March 31, 1998 loans
sales aggregated $105.1 million and loan principal repayments totaled $34.6
million along with $305.6 million in loan sales and $90.5 million in
repayments in the fiscal period to date. FHLB advances increased by $92.8
million for the fiscal period to date.
By regulation, the Savings Bank must maintain liquidity of 4% of deposits and
short-term borrowings. Liquidity is measured by cash and readily marketable
securities which are not committed, pledged, or required to liquidate specific
liabilities. The Savings Bank's average liquidity ratios for March 31, 1998
and 1997 were 10.41% and 12.09%, respectively.
The Savings Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
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 judgements by the regulators
about components, risk-weightings, and other factors. The Savings Bank's
actual and required capital amounts and ratios as of March 31, 1998 are as
follows:
Amount Percent
Tangible capital $63,331 8.44%
Requirement 11,259 1.50%
------- ----
Excess over requirement $52,072 6.94%
Core capital $63,331 8.44%
Requirement 22,518 3.00%
------- ----
Excess over requirement $40,813 5.44%
Risk based capital $69,266 14.59%
Requirement to be "Well Capitalized" 37,978 8.00%
------- -----
Excess over requirement $31,288 6.59%
Management believes that under current regulations, the Company will continue
to meet its minimum capital requirements in the foreseeable future.
Year 2000 issues. In preparation for information system issues in the Year
2000, the Company has completed an assessment of its internal Year 2000
exposure. To bring the Company's systems into compliance, the Company will be
replacing its primary software operating systems. Initial estimates for the
conversion total $1.8 million for software and equipment and $100,000 for
non-recurring consulting and project management. Supplemental Information
March 31, 1998 June 30, 1997 March 31, 1997
-------------- ------------- --------------
Loans serviced for others $465,928 $530,318 $551,342
Book value per share $ 18.16 $ 17.37 $ 17.06
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, the general business environment, the
California real estate market, competitive conditions among bank and 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,
1997.
16
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 Stockholders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit 27 - Financial data schedule
b) Reports on form 8-k
None.
17
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.
April 30, 1998 /s/ Craig G. Blunden
--------------------------------------------
Craig G. Blunden
President and Chief Executive Officer
(Principal Executive Officer)
April 30, 1998 /s/ Brian M. Riley
--------------------------------------------
Brian M. Riley
Chief Financial Officer
(Principal Financial and Accounting Officer)
18