FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended . . . . . . . . September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________to______________
Commission File Number 0-28304
PROVIDENT FINANCIAL HOLDINGS, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0704889
---------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3756 Central Avenue Riverside, California 92506
-----------------------------------------------------
(Address of principal executive offices and zip code)
(909) 686-6060
---------------
(Registrant's telephone number, including area code)
_____________________________________
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check 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 October 31, 1996
----------------- ----------------------
Common stock, $.01 par value 5,125,215 shares *
* Includes 388,232 shares held by employee stock ownership plan that have not
been released, committed to be released, or allocated to participant
accounts.
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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 September 30, 1996 and June 30, 1996. . . . . . . . . . . . 1
Consolidated Statements of Operations
for the quarter ended September 30, 1996 and 1995 . . . . . . . . 2
Consolidated Statements of Changes in Stockholder's
Equity for the quarter ended September 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for the quarter
ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . 4
Selected Notes to Consolidated Financial Statements. . . . . . . 5
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operation
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Recent Developments and Significant Events. . . . . . . . . . . . 6
Comparison of Financial Condition at September 30 and
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 7
Comparison of Operating Results for the Quarters ended
September 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . 7
Asset Quality . . . . . . . . . . . . . . . . . . . . . . . . . 11
Liquidity and Capital Resources . . . . . . . . . . . . . . . . 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities . . . . . . . . . . . . . . . . 14
Item 3. Defaults upon Senior Securities . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote
of Stockholders . . . . . . . . . . . . . . . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBIT 27 - FINANCIAL DATA SCHEDULE . . . . . . . . . . . . . . . 16
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PROVIDENT FINANCIAL HOLDINGS, INC
Consolidated Statements of Financial Condition
(Unaudited)
Dollars in Thousands
September 30, June 30,
1996 1996
ASSETS
Cash $ 10,779 $ 7,031
Overnight Deposits 3,100 23,800
Investment Securities-
held to maturity 63,755 27,118
Loans Receivable-net 452,644 452,945
Loans Receivable-held
for sale 24,687 49,612
Accrued Interest Receivable 3,151 3,083
Real Estate Available for Sale 6,114 5,779
Federal Home Loan Bank Stock 4,658 4,590
Premises and Equipment 6,966 7,058
Prepaid Expenses and
Other Assets 4,312 3,831
-------- ----------
TOTAL ASSETS $580,166 $ 584,847
======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Non-interest bearing Deposits$ 1,634 $ 2,106
Interest-bearing Deposits 473,992 477,268
Borrowings 6,828 8,578
Accounts Payable and Other
Liabilities 12,781 10,925
------- -------
TOTAL LIABILITIES 495,235 498,877
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 and outstanding 5,125,215
at September 30, 1996 and
June 30, 1996 51 51
Additional Paid-in Capital 49,749 49,742
Retained Earnings 39,013 40,129
Unearned ESOP shares (3,882) (3,952)
------- ------
TOTAL STOCKHOLDERS'
EQUITY 84,931 85,970
------- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $580,166 $584,847
======== ========
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PROVIDENT FINANCIAL HOLDINGS, INC
Consolidated Statements of Operations
(Unaudited)
Dollars in Thousands, Except Earnings Per Share
Quarter Ended
September 30,
1996 1995
Interest Income
Loans $ 9,495 $10,004
Investment Securities 1,069 507
-------- -------
Total Interest Income 10,564 10,511
Interest Expense
Deposits 5,557 6,124
Borrowings 120 409
-------- -------
Total Interest Expense 5,677 6,533
Net Interest Income 4,887 3,978
Provision for Loan Losses 254 264
-------- --------
Net Interest Income after
Provision for Loan
Losses 4,633 3,714
Non-Interest Income
Loan Servicing and Other Fees 630 649
Gains from Sales of Loans 1,050 769
Other 319 256
------- -------
Total non-interest
income 1,999 1,674
Non-interest Expenses
Salaries and
employee benefits 3,098 2,521
Premises and occupancy 519 467
SAIF Insurance premiums 3,544 319
Telephone 107 95
Other 1,267 860
------- -------
Total Operating and
Administrative
Expenses 8,535 4,262
Real Estate Operations, net (20) 28
--------- --------
Total non-interest
expenses 8,515 4,290
Income (Loss) Before Taxes (1,883) 1,098
Provision (Benefit) for
Income Taxes (767) 585
------- -------
Net Income (Loss) $(1,116) $ 513
======== ======
Earnings Per Share $ (0.24) N/A
======== =====
Weighted Average Shares
Outstanding 4,729,981 N/A
========= =====
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PROVIDENT FINANCIAL HOLDINGS, INC.
Consolidated Statements of Stockholders' Equity
(Unaudited)
Dollars in Thousands
For the Quarter Ended September 30, 1996 and 1995
Additional Unearned
Common Paid-in Retained Esop
Shares Stock Capital Earning Shares Total
Balance
at June
30, 1995 $37,323 $37,323
Net income 513 513
---------------------------------------------------
Balance at
September
30, 1995 0 0 0 $37,836 0 $37,836
====================================================
Additional Unearned
Common Paid-in Retained Esop
Shares Stock Capital Earning Shares Total
Balance
at June
30, 1996 5,125,215 $51 $49,742 $40,129 $(3,952) $85,970
Release of
ESOP shares 7 70 77
Net loss (1,116) (1,116)
------------------------------------------------------
Balance at
September
30, 1996 5,125,215 $51 $49,749 $39,013 $(3,882) $84,931
======================================================
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PROVIDENT FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Dollars in Thousands
Year to Date September 30,
1996 1995
Cash flows from operating
activities:
Net income (loss) $ (1,116) $ 513
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depreciation and amortization 284 251
Amortization of loan fees (11) (83)
Provision for loan losses 254 264
Provision for losses on real
estate 46 36
Gain on sale of loans (1,050) (769)
Increase in accounts payable
and other liabilities 1,857 3,545
Increase in prepaid expenses
and other assets (614) (732)
Loans originated for sale (82,852) (93,682)
Proceeds from sale of loans 108,827 85,636
-------- --------
Net cash provided by
(used for) operating
activities 25,625 (5,021)
Cash flows from financing
activities:
Net increase (decrease) in NOW,
passbook and money market
deposits 139 (1,412)
Net increase (decrease) in term
deposits (3,888) 12,152
Repayment of Federal Home Loan
Bank Advances (1,750) (19,000)
Proceeds from Federal Home
Loan Bank Advances 0 6,000
Net increase (decrease) in
securities sold under agreements
to repurchase 0 (1,985)
------- --------
Net cash used for financing
activities (5,499) (4,245)
Cash flows from investing activities:
Net (increase) decrease in loans
receivable (1,980) 5,913
Maturity of investment
securities held-to-maturity 76,613 53,512
Purchases of investment
securities held-to-maturity (113,251) (45,634)
Proceeds from disposal of
real estate 1,662 3,751
Purchases of premises and
equipment, net of proceeds
from sales (199) (108)
Other 77 0
-------- -------
Net cash (used for) provided
by investing activities
(37,078) 17,434
--------- -------
Net (decrease) increase in
cash and cash equivalents (16,952) 8,168
Cash and cash equivalents at
beginning of period 30,831 11,433
-------- ------<PAGE>
Cash and cash equivalents
at end of period $ 13,879 $ 19,601
========== ========
Supplemental information:
Cash paid for interest 5,641 7,104
Cash paid for income taxes 0 35
Real estate acquired in
settlement of loans 2,113 674
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PROVIDENT FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
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, 1996 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, 1996 (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.
Effective July 1, 1996 the Company adopted SFAS No. 122, Accounting for
Mortgage Servicing Rights, which amended SFAS No. 65. SFAS No. 122 requires
the Company to allocate the total cost of all mortgage loans sold, whether
originated or purchased, to mortgage servicing rights and the loans (without
the mortgage servicing rights) based on their relative fair values if it is
practicable to estimate those fair values. SFAS No. 122 is to be applied
prospectively. The adoption of this statement did not have a material impact
the Company's results of operation or financial condition, since the
overwhelming majority of loans are sold on a servicing released basis.
Note 2: Earnings Per Share
Presentation of earnings per share is not meaningful for any periods prior to
June 30, 1996, inclusive, due to the closing of the Company's initial public
offering on June 27, 1996.
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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
(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
eight 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
four offices within the Savings Bank's retail branch facilities and five
free-standing loan production offices, two of which include wholesale loan
departments.
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
portfolio 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. As more fully explained below, the Savings Bank
incurred a one-time assessment to recapitalize the SAIF during the most
recent quarter. 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.
Recent Developments and Significant Events
On September 30, 1996 the Savings Bank recorded the effect of the one-time,
special assessment to be paid by institutions whose deposits accounts are
insured by the Savings Association Insurance Fund ("SAIF"). The Bank's
deposits are SAIF insured.
The one-time assessment, designed to shore up the undercapitalized SAIF, is a
key banking provision contained in the Omnibus Appropriations Bill signed by
President Clinton on September 30, 1996. The legislation calls for an
assessment equal to 65.7 basis points of an institution's assessable deposits
as of March 31, 1995, payable on November 29, 1996. The legislation lowers
SAIF premiums from the current minimum of 23 cents per $100 to approximately
six and a half cents per $100 beginning in January, 1997.
The Federal Deposit Insurance Corporation has notified the Company that the
pre-tax assessment will be $3.2 million. Based on an estimated effective tax
rate of 41.7%, the after-tax charge is expected to be approximately $1.9
million. The payment of the special assessment will not change the Bank's
categorization as a "well capitalized" institution under Federal regulations.
<PAGE>
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Comparison of Financial Condition at September 30 and June 30, 1996
Total assets decreased by $4.7 million, or 0.8%, from $584.9 million at June
30, 1996 to $580.2 million at September 30, 1996. This decline was chiefly
the result of a $3.7 million, or 0.8%, contraction in total deposits from
$479.4 million at June 30, 1996 to $475.6 million at September 30, 1996 and
the maturities of FHLB advances. FHLB advances declined $1.8 million (20.4%)
to $6.8 million on September 30, 1996 from $8.6 million on June 30, 1996.
The decline in deposits was the result of management's decision to contain
interest costs on deposits in the face of increased competition.
Loans receivable-held for sale declined $24.9 million, or 50.2%, to $24.7
million at September 30, 1996 from $49.6 million at June 30, 1996 primarily
as a result of an increased level of loan sales. Loans receivable-net
declined by $301,000 (0.1%) to $452.6 million at September 30, 1996 from
$452.9 million at June 30, 1996, as origination of portfolio loans
essentially offset amortization and payoffs.
Investment securities held to maturity rose by $36.6 million, or 135.1%, to
$63.8 million at September 30, 1996 from $27.1 million at June 30, 1996 as a
portion of the proceeds from the initial public offering (completed on June
27, 1996) together with loan sales proceeds were invested in U.S. Government
and agency securities. Conversely, overnight deposits (which include Federal
Funds Sold) declined $20.7 million or 87.0%, to $3.1 million at September 30,
1996 from $23.8 million on June 30, 1996 as funds were shifted into higher
yielding investments.
Comparison of Operating Results for the Quarters ended September 30, 1996 and
1995
Net income decreased from $513,000 for the quarter ended September 30, 1995
to a loss of $1.1 million for the quarter ended September 30, 1996. The most
recent quarter's results include a charge of $3.2 million ($1.9 million
after tax) for the assessment resulting from the recapitalization of the
Savings Association Insurance Fund (SAIF). Without this special one-time
assessment, the Company would have reported net earnings of $764,000 for the
quarter ended September 30, 1996. Year to year operating results were
primarily affected by an increase in net interest income, increases in gains
on sales of loans and operating expenses associated with the loan origination
function. Net interest income increased $909,000, or 22.9%, from $4.0
million for the quarter ended September 30, 1995 to $4.9 million for the
quarter ended September 30, 1996. This increase was due, in large part, to a
$50.2 million increase in the Company's average balance of net
interest-earning assets, the result of the completion of the initial public
offering on June 27, 1996. In addition, the Company continued to benefit
from a reduction in rates paid on interest-bearing liabilities.
Interest Income. The average balance of investment securities, daily
interest-bearing deposits and FHLB stock increased by $42.6 million in the
quarter ended September 30, 1996, and interest income from those investments
rose by $562,000 for the September, 1996 quarter compared to 1995. The
average yield on investment securities held to maturity declined from 6.30%
in September, 1995 to 5.54% in 1996, which reflects the investment of a
portion of the conversion proceeds in lower yielding short-term investments
as well as a tightening of the yield curve. The average yield on interest
bearing deposits rose from 3.71% for the quarter ended September 30, 1995 to
4.74% for the quarter ended September 30, 1996 as a result of an
increase in the level of Fed Fund rates. Earnings on FHLB stock increased by
$18,000 reflecting an increase of $243,000 in the average balance of FHLB
stock for the quarter ended September 30, 1996 and a 126 basis point increase
in the average yield on that stock.
Loan interest income declined by $509,000, or 5.1%, to $9.5 million in the
quarter ended September 30, 1996 from $10.0 for the similar period in the
prior fiscal year. The majority of this decline is attributable to a
reduction in the level of loans receivable-net, including loans held for
sale. As further explained below, loan sales exceeded loans originated for
sale resulting in a reduction in the average balance of loans receivable-net
to $485.9 million for the first quarter of fiscal 1997 from $506.6 million
for the first quarter of fiscal 1996. As a consequence of a generally lower
rate environment which reduced the average COFI rate, the yield on loans
receivable-net fell to 7.82% for the quarter ended September 30, 1996 from
7.90% for the quarter ended September 30, 1995.
Interest Expense. Interest expense for the quarter ended September 30, 1996
was $5.7 million compared to $6.5 million for the comparable period in 1995,
a decrease of $856,000, or 13.1%. This decrease is attributable, almost
equally, to a decrease in average interest-bearing liabilities, particularly
FHLB advances, and a decline in the rates paid on those balances. Average
deposits declined $10.6 million, or 2.2%, in 1996 as a result of the initial
public offering, while the rate paid on deposits declined from 5.02% in the
quarter ended September 30, 1995 to 4.65% in the quarter ended September 30,
1996. Average FHLB advances totaled $25.5
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million during the quarter ended September 30, 1995 compared to $7.9 million
of the quarter ended September 30, 1996, resulting in a $287,000 decline in
related interest expense. The average rate paid on these advances decreased
from 6.39% for the quarter ended September 30, 1995 to 6.05% for the
comparable period in 1996. The decline in FHLB advances reflects management's
decision not to replace maturing advances in light of the proceeds raised in
the initial public offering.
The following tables provide additional comparative data on the Company's
average balances and rate/volume changes:
Quarter Ending
9/30/96
---------------------------------------
Average
Average Yield/
Balance Interest Cost
Interest-earning assets:
Loans receivable, net (1) $485,860 $ 9,495 7.82%
Investment securities 52,288 723 5.54
FHLB stock 4,640 69 5.94
Interest-earning deposits 23,323 277 4.74
-------- ------
Total interest-earning
assets 566,111 10,564 7.47
--------- -------
Non-interest-earning assets 21,991
---------
Total assets $588,102
=========
Interest-bearing liabilities:
Passbook accounts 51,102 386 3.02
Demand and NOW accounts 108,792 968 3.56
Certificate accounts 317,683 4,203 5.29
-------- ------
Total deposits 477,577 5,557 4.65
FHLB advances 7,901 120 6.05
Other borrowings 11 0 0.00
--------- ------
Total interest-bearing
liabilities 485,489 5,677 4.68
Non-interest-bearing liabilities 16,372
-------
Total liabilities 501,861
--------
Retained earnings 86,241
--------
Total liabilities and
retained earnings $588,102
========
Net interest income $4,887
======
Interest rate spread (2) 2.79%
Net interest margin (3) 3.45%
Ratio of average interest-earning
assets to average interest-bearing
liabilities 116.61%
Return on Assets (0.76%)
Return on Equity (5.18%)
Quarter Ending
9/30/95
---------------------------------------
Average
Average Yield/
Balance Interest Cost
Interest-earning assets:
Loans receivable, net (1) $506,597 $10,004 7.90%
Investment securities 22,721 358 6.30
FHLB stock 4,397 51 4.68
Interest-earning deposits 10,538 98 3.71
--------- -------
Total interest-earning
assets 544,253 10,511 7.73
---------
Non-interest-earning assets 22,667
---------
Total assets $566,920
=========
Interest-bearing liabilities:
Passbook accounts 51,262 444 3.47
Demand and NOW accounts 112,293 1,142 4.07
Certificate accounts 324,665 4,538 5.59
-------- -------
Total deposits 488,220 6,124 5.02
FHLB advances 25,459 407 6.39
Other borrowings 165 2 6.14
-------- -----
Total interest-bearing
liabilities 513,844 6,533 5.09
Non-interest-bearing liabilities 16,112
--------
Total liabilities 529,956
--------
Retained earnings 36,964
--------
Total liabilities and
retained earnings $566,920
=========
Net interest income $3,978
=====
Interest rate spread (2) 2.64%
Net interest margin (3) 2.92%
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 105.92%
Return on Assets 0.36%
Return on Equity 5.55%
_________________________
(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.
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Quarter Ended September 30, 1996 Compared to
Quarter Ended September 30, 1995
Increase (Decrease) Due to
---------------------------
Rate/
Rate Volume Volume Net
----- ------ ------ ----
Interest income:
Loans
receivable (1) $ (103) $ (410) $ 4 $ (509)
Investment
securities (43) 465 (56) 366
FHLB stock 14 3 1 18
Interest-bearing
deposits 27 118 33 178
---- ---- ---- -----
Total net change
in income on
interest-earning
assets (105) 176 (18) 53
----- ---- ----- --
Interest-bearing
liabilities:
Passbook accounts (57) (1) 0 (58)
Demand and NOW
accounts (143) (36) 4 (175)
Certificate
accounts (242) (98) 6 (334)
FHLB advances (21) (280) 15 (286)
Other borrowings (3) (2) 2 (3)
----- --- --- ------
Total net change
in expense on
interest-bearing
liabilities (466) (417) 27 (856)
----- ---- --- ----
Net change in net
interest income $ 361 $ 593 $ (45) $ 909
====== ======== ======= =======
- ------------------
(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.
Provision for Loan Losses. For the quarter ended September 30, 1996, the
Company's provision for loan losses was $254,000 compared to $264,000 for the
quarter ended September 30, 1995, a decrease of $10,000. This decrease is
primarily attributable to the consistency of the level of loan loss reserves
as a percentage of gross loans receivable. At September 30, 1996, loan loss
reserves as a percentage of gross loans receivable was 1.13%, compared to
1.14% at September 30, 1995. The allowance for loan losses, net of
charge-offs, decreased by $227,000, to $5.2 million at September 30, 1996
from $5.5 million at June 30, 1996. 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.
<PAGE>
<PAGE>
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 Quarter Ended
September 30, 1996 September 30, 1995
------------------ ------------------
Allowance at beginning
of period $ 5,452 $ 5,085
Provision for loan losses 254 264
Recoveries:
Mortgage Loans:
One-to-four family 1 --
Multifamily 8 78
Commercial 38 250
Construction -- --
Consumer loans -- --
Other Loans -- --
-- ---
---- -----
Total recoveries 47 328
Charge-offs:
Mortgage Loans:
One-to-four family (117) (10)
Multifamily (102) (218)
Commercial (309) (19)
Construction 0 --
Consumer loans 0 --
Other Loans 0 --
------ -----
Total charge-offs (528) (247)
------ -----
Net charge-offs (481) 81
------ ----
Balance at end of
period $ 5,225 $ 5,430
====== ======
Allowance for loan losses
as a percentage of gross
loans outstanding at the
end of the period 1.13% 1.14%
Net charge-offs as a
percentage of average loans
outstanding during the period (0.40%) 0.02%
Allowance for loan losses
as a percentage of nonperforming
loans at the end of the period 157.43% 213.70%
<PAGE>
<PAGE>
Asset Quality. The following tables are provided to disclose additional
details on asset quality (dollars in thousands):
At September 30, 1996 At June 30, 1996
Loans accounted for
on a non-accrual
basis:
Mortgage Loans:
One-to-four family $ 2,840 $ 3,511
Multifamily 411 798
Commercial 0 0
Construction 0 0
Consumer Loans 68 108
Other Loans 0 0
------ ------
Total 3,319 4,417
Accruing loans which are
contractually past due
90 days or more:
Mortgage Loans:
One-to-four family 0 0
Multifamily 0 0
Commercial 0 0
Construction 0 0
Consumer loans 0 0
Other Loans 0 0
--- ---
Total 0 0
--- ---
Total of nonaccrual and
90 days past due loans 3,319 4,417
Real estate owned 3,053 2,711
----- -----
Total nonperforming
assets $6,372 $7,128
====== ======
Restructured loans $4,939 $4,905
Nonaccrual and 90 days or
more past due loans as
a percentage of portfolio
loans receivable, net 0.73% 0.98%
Nonaccrual and 90 days or
more past due loans as a
percentage of total assets 0.57% 0.76%
Nonperforming assets as a
percentage of total assets 1.10% 1.22%
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.
Non-interest Income. Non-interest income increased $325,000, or 19.4%, from
$1.7 million in the first quarter of fiscal 1996 to $2.0 million in the first
quarter of fiscal 1997. This increase was primarily due to a $281,000
increase in the net gains from sales of loans, resulting from an increase in
the level of loans sold. During the quarter ended September 30, 1996, loans
sold aggregated $106.8 million, compared to $85.1 million for the similar
period last year. The overwhelming majority of sold loans continue to be on
a servicing released basis.
<PAGE>
<PAGE>
Non-interest Expenses. Non-interest expenses increased $4.2 million, or
98.5%, to $8.5 million in the most recent quarter compared to $4.3 million
for the same period last year. As previously discussed, the one-time special
assessment to recapitalize the SAIF increased deposit insurance premiums by
$3.2 million to $3.5 million for the quarter ended September 30, 1996
compared to $319,000 for the quarter ended September 30, 1995. Increases in
salaries and employee benefits, premises and occupancy, and other expenses
are primarily attributable to efforts to increase the level of loan
production. A small portion of the increase in other expenses is related to
increased legal and accounting expenses associated with operations as a
public company.
Income taxes. Income tax benefit was $767,000 for the quarter ended
September 30, 1996 (resulting in an effective tax rate of 40.7%) compared to
a tax expense of $585,000 for the quarter ended September 30, 1995 (resulting
in an effective tax rate of 53.3%). The Company has a California net
operating loss carry forward which is reduced by 50% in future tax years. As
a result, the Company did not tax benefit its loan and tax losses during the
first quarter of fiscal 1996, thereby increasing the effective tax rate.
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
September 30,
---------------------
1996 1995
------ ------
Loans originated for Sale
Retail originations $ 33,373 $32,836
Wholesale originations 49,479 60,846
------- -------
Total loans originated
for sale 82,852 93,682
Loans sold:
Servicing released 105,215 84,825
Servicing retained 1,539 279
-------- --------
Total loans sold 106,754 85,104
Loans originated for Portfolio:
Mortgage loans:
One-to-four family 10,082 7,190
Multifamily 292 1,380
Commercial 0 0
Construction loans 409 0
Consumer 1,491 806
Other loans 0 0
------ ------
Total loans originated
for Portfolio 12,274 9,376
Loans purchased:
Mortgage loans:
One-to-four family 219 198
Commercial 0 0
------- --------
Total loans purchased 219 198
Mortgage loan principal
repayments 13,405 14,331
Real estate acquired in
settlement of loans 2,113 674
Increase (decrease) in
other items, net (1) 1,701 (982)
-------- --------
Net (decrease) increase
in loans receivable, net $(25,226) $ 2,165
========= =========
(1) Includes changes in accrued interest, loans in process, discounts and
loan loss reserves.
<PAGE>
<PAGE>
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 September 30,
1996 permitted additional advances up to $161.2 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. During the quarter ended September 30, 1996,
the Savings Bank originated a total of $95.1 million in loans. This
activity was funded primarily by loan sales and repayments on loans and
securities. For the quarter ended September 30, 1996 loans sales
aggregated $106.8 million and loan principal repayments totaled $13.4
million. FHLB advances decreased $1.8 million, for the same quarter and net
deposits declined $3.7 million. Investment securities and overnight deposits
increased by a net $15.9 million.
By regulation, the Savings Bank must maintain liquidity of 5% 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 ratio for
September 30, 1995 and 1996 were 7.72% and 12.53%, 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 September 30,
1996 are as follows:
Amount Percent
Tangible Capital $55,819 10.03%
Requirement 8,344 1.50
------- ------
Excess over requirement $47,475 8.53%
======= =====
Core Capital $55,819 10.03%
Requirement 16,688 3.00
-------- ------
Excess over
requirement $39,131 7.03%
======= =====
Risk Based Capital $60,231 17.10%
Requirement to Be
"Well Capitalized" 28,174 8.00
------- -------
Excess over
requirement $32,057 9.10%
======= =======
Management believes that under current regulations, the Company will continue
to meet its minimum capital requirements in the foreseeable future.
<PAGE>
<PAGE>
PART II - FINANCIAL 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.
<PAGE>
<PAGE>
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.
/s/ Craig G. Blunden
November 6, 1996 ------------------------------------
Craig G. Blunden
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Karl P. Zalazowski
November 6, 1996 ------------------------------------
Karl P. Zalazowski
Chief Financial Officer
(Principal Financial and Accounting
Officer)
<PAGE>
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