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, 1997
[ ] 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 APRIL 30, 1997
--------------- --------------------
COMMON STOCK, $.01 PAR VALUE 5,070,215 SHARES *
*Includes 378,727 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 March 31, 1997 and June 30, 1996 ........................... 1
Consolidated Statements of Operations
for the quarter and nine months ended March 31, 1997 and 1996 .... 2
Consolidated Statement of Changes in Stockholder's Equity
for the nine months ended March 31, 1997 .......................... 3
Consolidated Statements of Cash Flows
for the quarter and nine months ended March 31, 1997 and 1996 .... 4
Selected Notes to Consolidated Financial Statements ............... 5
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operation
General ........................................................... 6
Comparison of Financial Condition at March 31, 1997 and June 30,
1996 .............................................................. 6
Comparison of Operating Results for the Quarter and Nine Months
ended March 31, 1997 and 1996 ..................................... 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
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PROVIDENT FINANCIAL HOLDINGS, INC
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
DOLLARS IN THOUSANDS
MARCH 31, JUNE 30,
1997 1996
------ ------
ASSETS
Cash $ 9,269 $ 7,031
Overnight Deposits 15,400 23,800
Investment Securities-held to maturity 50,986 27,118
Available for sale, at fair market value 619 -
Loans Receivable-net 487,347 452,945
Loans Receivable-held for sale 22,349 49,612
Accrued Interest Receivable 3,182 3,083
Real Estate Available for Sale 4,952 5,779
Federal Home Loan Bank Stock 4,809 4,590
Premises and Equipment 6,738 7,058
Prepaid Expenses and Other Assets 3,054 3,831
------ ------
TOTAL ASSETS $608,705 $584,847
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest bearing Deposits $ 2,268 $ 2,106
Interest-bearing Deposits 500,208 477,268
Borrowings 6,828 8,578
Accounts Payable and Other Liabilities 12,824 10,925
------ ------
TOTAL LIABILITIES 522,128 498,877
Preferred stock, $.01 par value; ( 2,000,000 shares
authorized; none issued and outstanding)
Common stock, $.01 par value; (15,000,000 shares
authorized; 5,125,215 issued; 5,075,215 and
5,125,215 outstanding at March 31, 1997 and June 30,
1996, respectively) 51 51
Additional Paid-in Capital 49,803 49,742
Retained Earnings 40,936 40,129
Treasury Stock at Cost (50,000 Shares) (825) -
Unearned ESOP shares (3,787) (3,952)
Unrealized gain on securities available for sale, net 399 -
------ ------
TOTAL STOCKHOLDERS' EQUITY 86,577 85,970
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $608,705 $584,847
======= =======
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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,
1997 1996 1997 1996
------ ------ ------ ------
Interest Income
Loans $ 9,467 $ 9,847 $28,471 $29,839
Investment Securities 1,076 520 3,259 1,590
------ ------ ------ ------
Total Interest Incom 10,543 10,367 31,730 31,429
Interest Expense
Deposits 5,799 5,933 17,070 18,329
Borrowings 98 288 317 1,010
------ ------ ------ ------
Total Interest Expense 5,897 6,221 17,387 19,339
Net Interest Income 4,646 4,146 14,343 12,090
Provision for Loan Losses 250 900 954 1,840
------ ------ ------ ------
Net Interest Income after Provision
for Loan Losses 4,396 3,246 13,389 10,250
Non-Interest Income
Loan Servicing and Other Fees 653 562 2,065 1,837
Gains from Sales of Loans 651 1,448 2,827 3,400
Other 345 1,295 937 1,877
------ ------ ------ ------
Total non-interest income 1,649 3,305 5,829 7,114
Non-interest Expenses
Salaries and employee benefits 2,401 2,880 8,560 8,102
Premises and occupancy 526 462 1,547 1,420
SAIF Insurance premiums 17 327 3,875 964
Telephone 96 116 296 310
Other 1,099 1,187 3,498 3,085
Total Operating and
Administrative Expense 4,139 4,972 17,776 13,881
Real Estate Operations, net (90) (56) (7) 254
------ ------ ------ ------
Total non-interest expenses 4,049 5,028 17,769 14,135
Income (Loss) Before Taxes 1,996 1,523 1,449 3,229
Provision (Benefit) for Income Taxes 850 104 642 947
------ ------ ------ ------
Net Income (Loss) $ 1,146 $ 1,419 $ 807 $2,282
====== ====== ====== ======
Earnings Per Share $ 0.24 N/A $ 0.17 N/A
====== ====== ====== ======
Weighted Average Shares Outstanding 4,733,437 N/A 4,733,467 N/A
Return on Assets 0.76% 1.01% 0.18% 0.54%
Return on Equity 5.34% 14.68% 1.25% 7.98%
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PROVIDENT FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
DOLLARS IN THOUSANDS
FOR THE NINE MONTHS ENDED MARCH 31, 1997
Unrealized
Additional Unearned Gain (loss)
Common Paid-in Retained Treasury ESOP on AFS
Shares Stock Capital Earnings Stock Shares Securities Total
------ ----- ------- -------- -------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 earnings 807 807
Treasury Stock Purchase (50,000) (825) (825)
Unrealized Gain on Securities
Available for Sale, Net of Tax 399 399
------ ----- ------- -------- -------- ------ ---------- --------
Balance at March 31,1997 5,075,215 $51 $49,803 $40,936 ($825) $(3,787) $399 $86,577
========= ===== ======= ======== ========= ====== ========== ========
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PROVIDENT FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
DOLLARS IN THOUSANDS
THREE MONTHS NINE MONTHS
ENDED MARCH 31 ENDED MARCH 31,
1997 1996 1997 1996
------ ------ ------ ------
Cash flows from operating activities:
Net income (loss) $ 1,146 $ 1,419 $ 807 $ 2,282
Adjustments to reconcile net income/
(loss) to net cash provided by
operating activities:
Depreciation and amortization (254) (69) (540) (114)
Amortization of loan fees 105 (2) 110 (120)
Provision for loan losses 250 900 953 1,840
Provision for losses on real estate 29 201 237 361
Gain on sale of loans (650) (1,014) (2,827) (2,958)
Increase in accounts payable
and other liabilities 1,305 (1,685) 1,899 4,036
Increase in prepaid expenses and
other assets 1,679 (945) 460 (2,301)
Loans originated for sale (68,439) (119,743)(238,000) (334,348)
Proceeds from sale of loans 80,245 121,059 268,090 316,556
------ ------ ------ ------
Net cash provided by (used for) operating
activities 15,416 121 31,189 (14,766)
Cash flows from financing activities:
Net increase (decrease) in NOW, passbook
and money market deposits (14,523) (2,749) 1,288 (575)
Net increase(decrease) in term deposits 30,311 (6,554) 21,814 3,178
Repayment of Federal Home Loan
Bank Advance 0 (2,500) (1,750) (28,000)
Proceeds from Federal Home Loan
Bank Advance 0 0 0 12,500
Net increase (decrease) in securities sold
under agreements to repurchase 0 0 0 (1,985)
------ ------ ------ ------
Net cash used for financing activities 15,788 (11,803) 21,352 (14,882)
Cash flows from investing activities:
Net (increase) decrease in loans
receivable (26,903) 8,784 (40,268) 16,554
Maturity of investment securities held-
to-maturity 87,314 48,069 230,759 144,371
Purchases of investment securities
held-to-maturity (81,801) (45,555) 253,884) (142,160)
Proceeds from disposal of real estate 1,419 831 5,415 7,042
Purchases of premises and equipment,
net of proceeds from sales (78) (262) (527) (457)
Treasury Stock Purchases (825) 0 (825)
Other 97 887 627 0
Net cash (used for) provided by ------ ------ ------ ------
investing activities (20,777) 12,754 (58,703) 25,350
Net (decrease) increase in cash and ------ ------ ------ ------
cash equivalents 10,427 1,072 (6,162) (4,298)
Cash and cash equivalents at beginning
of period 14,242 6,063 30,831 11,433
Cash and cash equivalents at end ------ ------ ------ ------
of period $ 24,669 $ 7,135 $24,669 $ 7,135
====== ====== ====== ======
Supplemental information:
Cash paid for interest 6,047 6,540 17,350 19,743
Cash paid for income taxes 43 315 4 1,265
Real estate acquired in settlement
of loans 778 924 5,039 2,108
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PROVIDENT FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
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. Effective January 1, 1997 the Company adopted SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities which superseded SFAS No. 122. 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 loan's 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.
NOTE 3
On September 30, 1996 Federal legislation which recapitalized the Savings
Association Insurance Fund ("SAIF") through a special one-time assessment was
enacted. This special assessment, at a rate of 65.7 basis points, was based on
the company's deposits as of March 31, 1995. For the quarter ended September
30, 1996, the Company recorded an expense of approximately $3.2 million for
this special assessment. Starting in January, 1997, the amount paid to the
insurance fund has been reduced to a minimum of 6.5 basis points, as compared
to the previous minimum of 23 basis points.
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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 (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 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 three
offices within the Savings Bank's retail branch facilities and six 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 consists 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 of $3.2 million to recapitalize
the 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, 1997 AND JUNE 30, 1996
Total assets increased by $23.9 million or 4.1% from $584.8 million at June
30, 1996 to $608.7 million at March 31, 1997. This increase was chiefly the
result of a $34.4 million or 7.6% increase in Loans Receivable-net from
$452.9 million at June 30, 1996 to $487.3 million at March 31, 1997 as the
company leveraged its net worth by directing a larger percentage of loan
originations to its portfolio. This expansion was funded by an increase in
deposits which rose by $23.1 million (4.8%) to $502.5 million at March 31,
1997 from $479.4 million at June 30, 1996. This increase in deposits was the
result of management's decision to increase specific account maturity ranges.
Investment Securities-held to maturity increased $23.9 million, or 88.0%, to
$51.0 million at March 31, 1997 from $27.1 million at June 30, 1996. This
increase was the result of a portion of the proceeds of the initial offering
(completed on June 27, 1996) shifting from Overnight Deposits; this latter
category declined $8.4 million, or 35.3% from $23.8 million at June 30, 1996
to $15.4 million at March 31, 1997.
Investment Securities Available for Sale increased to $619,000 at March 31,
1997 from $0 at June 30, 1996 as the result of management's decision to
reclassify the Company's holdings of FHLMC and FNMA stock.
Loans Receivable- held for sale declined $27.3 million (55.0%), from $49.6
million at June 30, 1996, to $22.3 million at March 31, 1997. This decline is
the result of a larger portion of loans originated being directed to the
investment portfolio and a decrease in loan demand in the Company's lending
territory. Proceeds from this decline were primarily used to fund portfolio
loan product.
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COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED MARCH 31,
1997 AND 1996 The Company's net earnings for the three months ended March 31,
1997 and 1996 were $1.1 million and $1.4 million, respectively, while for the
nine months ended March 31, 1997 and 1996 the Company recorded net earnings of
$807,000 and $2.3 million, respectively. The nine month period in fiscal 1997
included 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 $2.7 million for the nine months ended March 31,
1997. The three and nine month periods ending March 31, 1996 included $1.0
million in proceeds from a life insurance policy on a former Chief Executive
Officer. Without this non-recurring item the results for the nine months ended
March 31, 1996 would have been net earnings of $1.7 million. Earnings per
share were $0.24 per share for the quarter and $0.17 per share for the nine
months ended March 31, 1997 ($0.54 per share without the SAIF assessment).
Since the company converted to a stock charter at the end of June, 1996,
earnings per share for periods prior to this date are not meaningful. Beyond
the special SAIF assessment, year to date operating results were primarily
affected by an increase in net interest income tempered in part by increases
in compensation and other operating and administrative expenses. The Company's
net interest margin increased to 3.22% for the quarter ended March 31, 1997
compared to 3.06% for the quarter ended March 31, 1996. Net interest income
increased $500,000 for the 1997 quarter, or 12.1%, and $2.3 million for the
1997 nine month period, or 18.6%, compared to the same periods in 1996. These
increases were due in large part to the completion of the initial public
offering on June 27, 1996 which increased the Company's balance of net
interest earning assets for both the 1997 quarter, $43.1 million, and nine
month period, $47.3 million, compared to the respective prior year periods.
INTEREST INCOME. Interest income remained nearly constant at $10.5 million for
the quarter ended March 31, 1997 compared to $10.4 million for the similar
quarter last year, however, the average yield on interest earning assets
declined to 7.31% for the quarter ended March 31, 1997 from 7.65% for the
similar period last year. This decline resulted from the investment of
conversion proceeds into lower yielding short term (i.e. one-to-three-year)
government and agency securities in order to retain sufficient liquidity for
any possible acquisitions. The average balance of investment securities,
interest-bearing deposits and FHLB stock increased $39.4 million, or 106.4%
(essentially representing the proceeds from the conversion) for the quarter
ended March 31, 1997 and interest income from these investments rose by
$556,000 (106.9%) compared to the same period last year. The average rate on
investment securities declined by 65 basis points to 5.69% for the 1997
quarter compared to 6.34% for the 1996 quarter. The average yield on interest
earning deposits rose from 4.34% for the quarter ended March 31, 1996 to 5.00%
for the quarter ended March 31, 1997 as a result of an increase in the level
of Fed Fund rates. Earnings on FHLB stock increased by $19,000 for the
quarter, the result of an increase in the average yield from 5.14% for the
1996 quarter compared to 6.39% for the 1997 quarter.
Loan interest income declined by $380,000 or 3.9%, to 9.5 million in the
quarter ended March 31, 1997 compared to $9.8 million for the quarter ended
March 31, 1996. This decline is attributable to a reduction in both the
average balance and the average interest rate on loans during the quarter when
matched against the prior year's period. The average loans receivable, net
(including loans held for sale) decreased from $505.3 million in 1996 to
$500.8 million in 1997 while the yield moved 23 basis points, from 7.79% in
1996 to 7.56% in 1997. During fiscal 1997, management has undertaken a program
to increase the level of portfolio loans. This action has impacted the loan
yield by adding adjustable rate loans with introductory rates to the portfolio
while originating fewer loans for sale with higher yielding fixed rates.
For the nine months ended March 31, 1997, interest income rose by $301,000, or
1.0%, to $31.7 million from $31.4 million for the nine months ended March 31,
1996. As a result of a reduction in the yield curve, a lower average loan
portfolio balance and the investment of conversion proceeds in lower yielding
and shorter term investment securities, the average yield on earning assets
fell to 7.44% in the nine months ended March 31, 1997 compared to 7.71% in the
nine months ended March 31, 1996. Average loans receivable, including those
held for sale, declined to $490.5 million for the nine months ended March 31,
1997 compared to $505.9 million for the nine months ended March 31, 1996,
while the yield declined to 7.74% from 7.86%, respectively. The average
balance of investment securities, interest-bearing deposits, and FHLB stock
increased by $40.8 million, or 108.2%, to 78.4 million, while the interest
income from those investments increased by $1.7 million, or 105.0%, to $3.3
million in the nine months ended March 31, 1997. The average yield on
investment securities held to maturity declined 115 basis points to 5.66% in
the nine months ended March 31, 1997 compared to 6.81% for the nine months
ended March 31, 1996, reflecting the investment of a portion of the conversion
proceeds in lower yielding investment securities as well as a tightening of
the yield curve.
INTEREST EXPENSE. Interest expense for the quarter ended March 31,
1997 was $5.9 million compared to $6.2 million for the
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comparable period in 1996, a decrease of $324,000, or 5.2%. Interest expense
for the nine months ended March 31, 1997 totaled $17.4 million compared to
$19.3 million for the similar period one year ago, a decrease of $1.9 million,
or 10.1 %. These decreases are attributable to a decrease in average
interest-bearing liabilities, particularly FHLB advances, and a decline in the
rates paid on those balances. Average deposits increased $3.7 million, or
0.8%, during the quarter compared to the prior year and decreased $6.5
million, or (1.3%) for the nine months while the rate paid on deposits
declined from 4.90% during the quarter ended March 31, 1996 to 4.75% during
the similar quarter in 1997 and from 4.97% to 4.69% during the two respective
nine month periods. FHLB advances averaged $18.8 million during the quarter
ended March 31, 1996 compared to $6.8 million for the quarter ended March 31,
1997 and $21.8 million compared to $7.2 million during the respective nine
month periods. The volume reductions on FHLB advances resulted in a $190,000,
or 66.0% decrease in related expense for the quarter compared to the prior
year and a $690,000, or 68.5%, decrease for the nine month period. The average
rate paid on these advances declined from 6.20% for the quarter ended March
31, 1996 to 5.82% in the same quarter in 1997 and from 6.15% for the nine
months ended March 31, 1996 to 5.88% for the same period in 1997. The declines
in FHLB advances reflect management's decision not to replace maturing
advances in light of the proceeds raised in the initial public offering.
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<TABLE>
The following tables provide additional comparative data on the Company's average balances and
rate/volume changes:
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
3/31/97 3/31/96 3/31/97 3/31/96
Average Average Average Average
Average Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
Interest-
earning
assets:
Loans
receivable,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
net (1) $500,755 $9,467 7.56% $505,308 $9,847 7.79% $490,480 $28,471 7.74% $505,873 $29,839 7.86%
Invest-
ment
securities 61,536 875 5.69 22,847 360 6.34 58,509 2,484 5.66 21,816 1,110 6.81
FHLB stock 4,784 76 6.39 4,513 57 5.14 4,712 219 6.20 4,458 167 5.025
Interest-
earning
deposits 10,037 125 5.00 9,643 103 4.34 15,226 556 4.87 11,405 313 3.682
------- ------ ------ ------ ------- ------ ------- ------
Total
interest-
earning
assets 577,112 10,543 7.31 542,311 10,367 7.65 568,927 31,730 7.44 543,552 31,429 7.71
------- ------ ------- ------ ------- ------ ------- ------
Non-
interest-
earning
assets 25,770 20,029 24,998 20,817
------- -------- ------- -------
Total
assets $602,882 $562,340 $593,925 $564,369
======== ======== ======== ========
Interest-
bearing
liabilities:
Passbook
accounts 47,333 310 2.66 53,47 375 2.84 50,664 1,048 2.75 52,156 1,328 3.39
Demand
and NOW
accounts 110,890 885 3.24 111,933 1,026 3.72 110,291 2,822 3.41 112,480 3,313 3.92
Certificate
accounts 336,846 4,604 5.54 325,962 4,532 5.64 323,693 13,200 5.43 326,604 13,688 5.58
------- ------ -------- ------ -------- ------- -------- -------
Total
deposits 495,069 5,799 4.75 491,374 5,933 4.90 484,648 17,070 4.69 491,240 18,329 4.97
FHLB
advances 6,828 98 5.82 18,828 288 6.20 7,188 317 5.88 21,828 1,007 6.15
Other
borrowings 0 0 0.00 0 0 0 697 3 .49
------- ----- ------- ----- ------- ------ ------ -----
Total
interest-
bearing
lia-
bilities 501,897 5,897 4.77 510,202 6,221 4.94 491,836 17,387 4.71 513,765 19,339 5.01
Non-
interest-
bearing
lia-
bilities 15,063 13,484 16,290 12,473
-------- -------- -------- -------
Total
lia-
bilities 516,960 523,686 508,126 526,238
-------- -------- -------- --------
Retained
earnings 85,922 38,654 85,799 38,131
-------- -------- -------- --------
Total
liabilities
and
retained
earnings $602,882 $562,340 $593,925 $564,369
======== ======== ======== ========
Net
interest
income $4,646 $4,146 $14,343 $12,090
====== ====== ======= =======
Interest
rate
spread (2) 2.54% 2.71% 2.73% 2.70%
Net
interest
margin (3) 3.22% 3.06% 3.36% 2.97%
Ratio of
average
interest-
earning
assets to
average
interest-
bearing
liabilities 114.99% 106.29% 115.67% 105.80%
- ---------------
(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.
-9-
</TABLE>
<PAGE>
<PAGE>
Three Months Ended March 31, 1997
Compared to
Three Months Ended March 31, 1996
Increase (Decrease) Due to
Rate/
Rate Volume Volume Net
Interest income:
Loans receivable (1) $(294) $ (89) $ 3 $(380)
Investment securities (37) 615 (63) 515
FHLB stock 15 3 1 19
Interest-bearing deposits 17 4 1 22
----- ----- ---- -----
Total net change in
income on interest-
earning assets (299) 533 (58) 176
----- ----- ---- -----
Interest-bearing liabilities:
Passbook accounts (25) (43) 3 (65)
Demand and NOW accounts (132) (10) 1 (141)
Certificate accounts (78) 153 (3) 72
FHLB advances (18) (183) 11 (190)
Other borrowings - - - -
----- ----- ---- -----
Total net change in
expense on interest-
bearing liabilities (253) (83) 12 (324)
Net change in net interest ----- ----- ---- -----
income $(46) $616 $ (70) $500
==== ==== ===== ====
(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.
Nine Months Ended March 31, 1997
Compared to
Nine Months Ended March 31, 1996
Increase (Decrease) Due to
Rate/
Rate Volume Volume Net
Interest income:
Loans receivable (1) $(468) $ (914) $ 14 $(1,368)
Investment securities (188) 1,877 (315) 1,374
FHLB stock 40 10 2 52
Interest-bearing deposits 102 107 34 243
----- ------ ----- -------
Total net change in
income on interest-
earning assets (514) 1,080 (265) 301
Interest-bearing liabilities:
Passbook accounts (249) (38) 7 (280)
Demand and NOW accounts (435) (64) 8 (491)
Certificate accounts (369) (122) 3 (488)
FHLB advances (44) (675) 29 (690)
Other borrowings (3) (3) 3 (3)
Total net change in
expense on interest-
bearing liabilities (1,100) (902) 50 (1,952)
Net change in net interest ----- ------ ----- ------
income $ 586 $1,982 $ (315) $2,253
===== ====== ====== ======
-10-
<PAGE>
PROVISION FOR LOAN LOSSES. The provisions for loan losses were $250,000 for
the quarter and $954,000 for the nine months ended March 31, 1997, which were
down from $900,000 for the quarter and $1.8 million for the nine
months,respectively, for the quarter ended March 31, 1996. The loss provision
as a percentage of gross loans was 1.12% at March 31, 1996 and the ratio
continued to grow throughout calendar 1996, reaching its peak at 1.18% at
December 31, 1996 and then declining to 1.07% at March 31, 1997. During the
nine months ended March 31, 1997 the net charge-offs were ($1.1) million
compared to ($1.7)million in the nine months ended March 31, 1996 while the
net charge-offs as a percentage of average loans outstanding improved by 14
basis points to (0.30%)at March 31, 1997 from (0.44%) at March 31, 1996. The
allowance for loan losses ended at $5.3 million at March 31, 1997 compared to
$5.2 million at March 31,1996. 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.
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, 1997 March 31, 1996
--------------- --------------
Allowance at beginning
of period $ 5,452 $ 5,085
Provision for loan losses 954 1,840
Recoveries:
Mortgage Loans:
One-to-four family 11 5
Multifamily 51 253
Commercial 38 250
Construction - -
Consumer loans - -
Other Loans - -
-------- ------
Total recoveries 100 508
Charge-offs:
Mortgage Loans:
One-to-four family (285) (190)
Multifamily (610) (999)
Commercial (309) (1,001)
Construction - -
Consumer loans - -
Other Loans (2) -
-------- ------
Total charge-offs (1,206) (2,190)
-------- ------
Net charge-offs (1,106) (1,682)
-------- ------
Balance at end of
period $ 5,300 $ 5,243
======= =======
Allowance for loan losses
as a percentage of gross
loans outstanding at the
end of the period 1.07% 1.12%
Net charge-offs as a
percentage of average
loans outstanding during
the period (0.30%) (0.44%)
Allowance for loan losses
as a percentage of
nonperforming loans at the
end of the period 102.40% 134.78%
-11-
<PAGE>
<PAGE>
ASSET QUALITY. The following tables are provided to disclose additional
details on asset quality (dollars in thousands):
At March 31, 1997 At June 30, 1996
Loans accounted for on a
non-accrual basis:
Mortgage Loans:
One-to-four family $ 3,140 $ 3,511
Multifamily 1,240 798
Commercial 508 -
Construction - -
Consumer Loans 144 108
Other Loans - -
------- -------
Total 5,032 4,417
Accruing loans which are
contractually past due 90
days or more:
Mortgage Loans:
One-to-four family 144 -
Multifamily - -
Commercial - -
Construction - -
Consumer loans - -
Other Loans - -
------- -------
Total 144 -
------- -------
Total of nonaccrual and 90
days past due loans 5,176 4,417
Real estate owned 1,905 2,711
------- -------
Total nonperforming assets $ 7,081 $ 7,128
======= =======
Restructured loans $ 4,935 $ 4,905
======= =======
Nonaccrual and 90 days or more
past due loans as a percentage
of portfolio loans receivable,
net 1.06% 0.98%
Nonaccrual and 90 days or more
past due loans as a percentage
of total assets 0.85% 0.76%
Nonperforming assets as a
percentage of total assets 1.16% 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
cashflows, 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. The total for impaired loans at March 31, 1997 was $10.8
million.
NON-INTEREST INCOME. Non-interest income decreased $1.7 million or 50.1% from
$3.3 million in the third fiscal quarter of 1996 to $1.6 million in the third
fiscal quarter of 1997. For the nine month period ending March 31, 1997,
non-interest income decreased $1.3 million, or 18.1%, to $5.8 million,
compared to the same period in 1996. This decrease is attributable to
$1million in proceeds from an insurance policy included in the quarter ending
March 31, 1996 and a reduction in the gain on sales of loans. Other
non-interest income includes the $1 million in proceeds from a life insurance
policy upon the passing of the former Chief Executive Officer. This policy was
designated as reimbursement of previously expensed retirement benefits. Gains
from sales of loans declined by $797,000, or 55.0%, to $651,000 in the quarter
ended March 31, 1997 and by $573,000, or 16.9%, to $2.8 million during the
nine months ended March 31, 1997. The decline in gains from sales of loans is
due primarily to a reduction in loan sale volume, as the loans sold total was
down by $39.7 million, or 33.5%, to $78.8 million in the quarter ended March
31, 1997 and by $44.8 million, or 14.4%, to $267.3 million in the nine months
ended March 31, 1997.
-12-
<PAGE>
<PAGE>
NON-INTEREST EXPENSES. Non-interest expenses declined in the three months
ended March 31, 1997 by $979,000, or 19.5%, to $4.0 million compared to the
same period in 1996. The reduction was due to improvements in salaries and
employee benefits during the period which declined by 16.6% from $2.9 million
in the March 31, 1996 quarter to $2.4 million in the March 31, 1997 quarter.
In addition, the rate on the SAIF premiums since the special assessment in
September, 1996 has been reduced from 26 basis points to 6.5 basis points
which, along with a credit resulting from the recapitalization of the SAIF,
lowered the expense for the third fiscal quarter of 1997 to $17,000 compared
to $327,000 for the same period in 1996. Real estate operations improved to a
gain of $90,000 during the quarter ended March 31, 1997 compared to a loss of
$56,000 one year ago because of lower loss provisions and expenses and higher
gains on sales of foreclosed property. Non-interest expenses for the nine
months ended March 31, 1997 increased by $3.6 million, or 25.7%, to $17.8
million in large part because of the $3.2 million SAIF assessment paid in
September, 1996. Salaries and employee benefits increased during the nine
month period ended March 31, 1997 by $458,000, or 5.7%, to $8.6 million from
the same period in 1996. This increase is mainly attributable to increased
staffing in order to increase the level of loan production as well as
additional expenses related to the Employee Stock Ownership Program. Other
non-interest expense rose from $3.1 million in the nine months ended March 31,
1996 to $3.5 in the same period in fiscal 1997. This increase from the
amortization of option fees and various other expenses associated with loan
originations.
INCOME TAXES. The income tax expense was $850,000 for the quarter ended March
31, 1997 (resulting in an effective tax rate of 42.6%) compared to a tax
provision of $104,000 for the quarter ended March 31, 1996 ( resulting in an
effective tax rate of 6.8%). For the first nine months of fiscal 1997, the tax
expense was $642,000 (resulting in an effective tax rate of 44.3%) while the
expense for the similar period in fiscal 1996 was $947,000 (resulting in an
effective tax rate of 29.3%). The effective tax rates for the quarter and nine
months ended March 31, 1996 were low because the $1,000,000 insurance proceeds
received in the 1996 March quarter was not taxable and because of an
adjustment made during the period to bring the provision in line with the
results of a tax liability analysis.
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 End For the Nine Months
March 31, Ended March 31,
1997 1996 1997 1996
------ ------ ------ ------
Loans originated for Sale
Retail origination $27,363 $43,107 $ 95,187 $117,022
Wholesale originations 41,044 76,636 142,781 217,326
------ ------ ------ ------
Total loans originated for sale 68,407 119,743 237,968 334,348
Loans sold:
Servicing released 78,790 115,045 265,762 305,060
Servicing retained 0 3,470 1,539 7,008
------ ------ ------ ------
Total loans sold 78,790 118,515 267,301 312,068
Loans originated for Portfolio:
Mortgage loans:
One-to-four family 38,271 6,652 71,725 17,917
Multifamily 202 490 916 4,296
Commercial 0 0 0 0
Construction loans 16 93 667 5,890
Consumer 1,854 773 4,928 1,914
Other loans 0 0 232 104
------ ------ ------ ------
Total loans originated for Portfolio 40,495 8,008 78,468 30,121
Loans purchased:
Mortgage loans:
One-to-four family 571 574 1,991 868
Commercial 0 0 0 0
------ ------ ------ ------
Total loans purchased 571 574 1,991 868
Mortgage loan principal repayments 17,370 19,431 42,864 46,479
Real estate acquired in settlement
of loans 778 924 5,039 2,108
Increase(decrease) in other items,net(1) 2,111 272 3,916 (3,642)
Net (decrease) increase in ------ ------ ------ ------
loans receivable, net $14,646 $(10,273) $7,139 $1,040
======= ======== ====== ======
(1) Includes changes in accrued interest, loans in process, discounts and loan
loss reserves.
-13-
<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 March 31, 1997
permitted additional advances up to $169.7 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, 1997, the
Savings Bank originated a total of $108.9 million in loans, while loan sales
and amortization aggregated $96.2 million. Net deposits increased $15.8
million, while cash, overnight deposits, and investment securities increased
by $4.8 million in the quarter ended March 31, 1997. During the nine months
ended March 31, 1997, the Savings Bank originated a total of $316.4 million in
loans. This activity was funded primarily by loan sales and repayments on
loans and securities. For the nine months ended March 31, 1997, loan sales
aggregated $267.3 million and loan principal repayments totaled $42.9 million.
FHLB advances decreased $1.8 million, for the nine month period and net
deposits increased $23.1 million. Investment securities and overnight deposits
increased by a net of $16.1 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 March 31, 1996 and
1997 were 7.46% 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 December 31, 1996 are as
follows:
Amount Percent
Tangible Capital $57,375 9.83%
Requirement 8,757 1.50
------- ----
Excess over requirement $48,618 8.33%
======= ====
Core Capital $57,375 9.83%
Requirement 17,514 3.00
------- ----
Excess over requirement $39,861 6.83%
======= ====
Risk Based Capital $61,885 17.19%
Requirement to Be "Well 28,801 8.00
Capitalized" ------- -----
Excess over requirement $33,084 9.19%
======= =====
Management believes that under current regulations, the Company will continue
to meet its minimum capital requirements in the foreseeable future.
-14-
<PAGE>
<PAGE>
SUPPLEMENTAL INFORMATION
March 31, 1997 June 30, 1996 March 31, 1996
Loans Serviced for Others $551,342 $601,097 $609,271
Book Value per Share 1 $17.06 $16.77 N/A
- --------
1 Based on total number of shares outstanding, including shares held by the
employee stock ownership plan.
-15-
<PAGE>
<PAGE>
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.
-16-
<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.
May 13, 1997 /s/Craig G. Blunden
--------------------------------------
Craig G. Blunden
President and Chief Executive Officer
(Principal Executive Officer)
May 13, 1997 /s/Wenzel D. Likness
--------------------------------------
Wenzel D. Likness
Acting Chief Financial Officer
-17-
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 8799
<INT-BEARING-DEPOSITS> 470
<FED-FUNDS-SOLD> 15400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 50986
<INVESTMENTS-MARKET> 50829
<LOANS> 514995
<ALLOWANCE> 5300
<TOTAL-ASSETS> 608705
<DEPOSITS> 502476
<SHORT-TERM> 0
<LIABILITIES-OTHER> 12824
<LONG-TERM> 6828
0
0
<COMMON> 51
<OTHER-SE> 86526
<TOTAL-LIABILITIES-AND-EQUITY> 608705
<INTEREST-LOAN> 28471
<INTEREST-INVEST> 3259
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 31730
<INTEREST-DEPOSIT> 17070
<INTEREST-EXPENSE> 17387
<INTEREST-INCOME-NET> 14343
<LOAN-LOSSES> 954
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 17769
<INCOME-PRETAX> 1449
<INCOME-PRE-EXTRAORDINARY> 807
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 807
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
<YIELD-ACTUAL> 3.36
<LOANS-NON> 5032
<LOANS-PAST> 144
<LOANS-TROUBLED> 4935
<LOANS-PROBLEM> 10789
<ALLOWANCE-OPEN> 5452
<CHARGE-OFFS> 1206
<RECOVERIES> 100
<ALLOWANCE-CLOSE> 5300
<ALLOWANCE-DOMESTIC> 5300
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
