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, 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 OCTOBER 31, 1997
--------------- ----------------------
COMMON STOCK, $.01 PAR VALUE 4,836,215 SHARES *
*Includes 365,201 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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TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements. The Consolidated Financial Statements of
Provident Financial Holdings, Inc. filed as part of the report are
as follows:
Consolidated Statements of Financial Condition
as of September 30, 1997 and June 30, 1997.......................... 1
Consolidated Statements of Operations
for the quarters ended September 30, 1997 and 1996.................. 2
Consolidated Statements of Changes in Stockholder's Equity
for the quarters ended September 30, 1997 and 1996.................. 3
Consolidated Statements of Cash Flows
for the quarters ended September 30, 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
Summary............................................................ 6
Financial Condition................................................ 7
Results of Operations.............................................. 7
Asset Quality...................................................... 11
Liquidity and Capital Resources.................................... 13
Year 2000 Issues................................................... 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
1
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PROVIDENT FINANCIAL HOLDINGS, INC
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
DOLLARS IN THOUSANDS
SEPTEMBER 30, JUNE 30,
1997 1997
ASSETS -------- --------
Cash $ 11,349 $ 10,411
Overnight Deposits -- 9,700
Investment securities-held to maturity 34,544 33,645
(market value $34,893 and $34,425)
Investment securities-available for sale at fair value 770 761
Loans held for investment 542,859 517,147
Loans held for sale 27,315 19,984
Accrued interest receivable 3,645 3,378
Real estate available for sale 5,641 5,676
Federal Home Loan Bank stock - at cost 4,953 4,879
Premises and equipment, net 7,010 6,825
Prepaid expenses and other assets 2,548 3,094
-------- --------
TOTAL ASSETS $640,634 $615,500
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest bearing deposits $ 3,043 $ 2,335
Interest-bearing deposits 519,994 506,424
Borrowings 18,828 6,828
Accounts Payable and Other Liabilities 13,357 14,466
-------- --------
TOTAL LIABILITIES 555,222 530,053
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 4,836,215 at
September 30, 1997 and 4,920,215 at June 30, 1997) 51 51
Additional paid-in capital 49,904 49,842
Retained earnings 43,537 42,070
Treasury stock at cost (4,928) (3,291)
Unearned ESOP shares (3,652) (3,290)
Unrealized gain on securities, net of tax 500 495
-------- --------
TOTAL STOCKHOLDERS' EQUITY 85,412 85,447
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $640,634 $615,500
======== ========
2
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PROVIDENT FINANCIAL HOLDINGS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE
QUARTER ENDED
SEPTEMBER 30,
1997 1996
------- -------
Interest Income
Loans $10,755 $ 9,495
Investment securities 665 1,069
------- -------
Total interest income 11,420 10,564
Interest Expense
Deposits 6,269 5,557
Borrowings 198 120
------- -------
Total interest expense 6,467 5,677
------- -------
Net Interest Income 4,953 4,887
Provision for Loan Losses 300 254
------- -------
Net Interest Income after Provision for Loan Losses 4,653 4,633
Non-Interest Income
Loan Servicing and Other Fees 800 630
Gains from Sales of Loans 1,060 1,050
Other 446 319
------- -------
Total non-interest income 2,306 1,999
Non-interest Expenses
Salaries and employee benefits 2,857 3,098
Premises and occupancy 533 519
SAIF Insurance premiums -- 3,544
Telephone 114 107
Other 1,019 1,267
------- -------
Total Operating and Administrative Expenses 4,523 8,535
Real Estate Operations, net (88) (20)
------- -------
Total non-interest expenses 4,435 8,515
Income (Loss) Before Taxes 2,524 (1,883)
Provision (Benefit) for Income Taxes 1,057 (767)
------- -------
Net Income (Loss) $ 1,467 $(1,116)
======= =======
Earnings Per Share $ 0.32 $ (0.24)
======= =======
Weighted Average Shares Outstanding 4,594,121 4,729,981
========= =========
3
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PROVIDENT FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
DOLLARS IN THOUSANDS
FOR THE QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996
Unrealized
Gain on
Additional Unearned Securities
Common Paid-in Retained ESOP Available
Shares Stock Capital Earnings Shares For Sale Total
-------- ----- ------- -------- -------- --------- -------
<S> <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 7 70 77
Unrealized gain on securities
available for sale, net of taxes $99 99
Net loss (1,116) (1,116)
-------- ----- ------- -------- -------- --------- -------
Balance at September 30, 1996 5,125,215 $51 $49,749 $39,013 $(3,882) $99 $85,030
========= ===== ======= ======== ======== ========= =======
Unrealized
Gain on
Additional 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 1,467 1,467
Treasury Stock (84,000) (1,637) (1,637)
Release of ESOP shares 62 68 130
Unrealized gain on securities
available for sale, net of taxes 5 5
-------- ----- ------- -------- -------- --------- ------- -------
Balance at September 30, 1997 4,836,215 $51 $49,904 $43,537 $(4,928) $(3,652) $500 $85,412
========= ===== ======= ======== ======== ========= ======= =======
4
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PROVIDENT FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
DOLLARS IN THOUSANDS
Quarter ended September 30,
1997 1996
Cash flows from operating activities: -------- --------
Net income (loss) $ 1,467 $(1,116)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 253 284
Amortization of loan fees (93) (11)
Amortization of unearned ESOP shares 130 --
Provision for loan losses 300 254
Provision for losses on real estate 18 46
Gain on sale of loans (1,060) (1,050)
Increase in accounts payable and other liabilities (1,104) 1,857
Increase in prepaid expenses and other assets 205 (614)
Loans originated for sale (106,792) (82,852)
Proceeds from sale of loans 100,521 108,827
-------- --------
Net cash provided by (used for) operating activities (6,155) 25,625
Cash flows from financing activities:
Net increase (decrease) in NOW, passbook and
money market deposits 28,667 139
Net increase (decrease) in term deposits (14,389) (3,888)
Repayment of Federal Home Loan Bank Advances -- (1,750)
Proceeds from Federal Home Loan Bank Advances 12,000 --
Net cash used for financing activities 26,278 (5,499)
Cash flows from investing activities:
Net (increase) decrease in loans receivable (28,153) (1,980)
Maturity of investment securities held-to-maturity 21,690 76,613
Purchases of investment securities held-to-maturity (22,598) (113,251)
Proceeds from disposal of real estate 2,242 1,662
Purchases of premises and equipment, net of
proceeds from sales (429) (199)
Treasury stock purchases (1,637) --
Other -- 77
------- -------
Net cash (used for) provided by investing activities (28,885) (37,078)
------- -------
Net (decrease) increase in cash and cash equivalents (8,762) (16,952)
Cash and cash equivalents at beginning of period 20,111 30,831
------- -------
Cash and cash equivalents at end of period $11,349 $13,879
======= =======
Supplemental information:
Cash paid for interest 6,862 5,641
Cash paid for income taxes 923 0
Real estate acquired in settlement of loans 2,525 2,113
5
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PROVIDENT FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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, 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
Earnings per share are based on the weighted average number of shares
outstanding plus, when applicable, the dilutive effect of stock options. Shares
repurchased by the Company are excluded from shares outstanding for these
calculations. The weighted average number of shares used for the quarters ended
September 30, 1997 and 1996 were 4,594,121 and 4,729,981, respectively.
6
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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. The Savings Bank incurred a one-time assessment to recapitalize
the Savings Association Insurance Fund (" SAIF") during the first quarter of
fiscal 1997. 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.
SUMMARY
The Company reported net income of $1.47 million, or $0.32 per share, for the
first quarter of fiscal 1998. This compares to a net operating loss of ($1.12)
million, or ($0.24) per share, for the same period last year. The prior period
loss resulted from the one-time SAIF recapitalization assessment. Excluding this
assessment, fiscal 1997 first quarter income would have been $764,000, or $0.16
per share.
Return on assets for the quarter ended September 30, 1997 was 0.93% as compared
to (0.76%) for the same period last year. Return on equity for the quarter ended
September 30, 1997 was 6.90% as compared to (5.18%) for the same period last
year.
FINANCIAL CONDITION
Total assets increased by $25.1 million, or 4.1%, from $615.5 million at June
30, 1997 to $640.6 million at September 30, 1997. Total deposits funded $14.3
million of this increase while Federal Home Loan Bank ("FHLB") advances provided
the remaining financing. The Company plans to continue utilizing borrowings from
FHLB to fund its loan growth objectives. Loans held for investment increased by
$25.7 million, or 5.0%, during the first quarter as the Company continued to
portfolio intermediate-term adjustable rate loans from its current mortgage
production. The Company anticipates that its portfolio loans will continue to
grow through its retail and wholesale operations, loan purchases and
correspondent lending.
7
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RESULTS OF OPERATIONS
INTEREST INCOME. Interest income increased by $887,000 during the first quarter
of fiscal 1198 as a result of growth in earning assets. Average earning assets
increased by $40.3 million, or 7.1%, during the quarter. The yield on loans
narrowed with a general decline in interest rates. The yields on investments
increased as the duration of the portfolio was lengthened by the purchase of
longer-term securities.
INTEREST EXPENSE. Interest expense increased by $784,000 during the first
quarter of fiscal 1998 on a combination of greater volume and higher interest
rates. The Company began in the fall of 1996 to pursue a more aggressive retail
deposit pricing strategy. The objective of this strategy was to attract new
deposit relationships to the Savins Bank which, in turn, would lead to
developing a greater non-interest bearing deposit base and generate additional
non-interest income through the use of additional services. The growth in
non-interest bearing deposits has been slow; however, the Company believes that
increasing non-interest bearing sources of deposits is critical to its long-term
objectives.
The following tables provide additional comparative data on the Company's
average balances and rate/volume changes:
8
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Quarter Ended Quarter Ended
9/30/97 9/30/96
Average Average
------------------------ ------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------ ------- -------- ------
Interest-earning assets:
Loans receivable, net (1) $560,545 $10,754 7.67% $485,860 $ 9,495 7.82%
Investment securities 31,347 463 5.91 52,288 723 5.54
FHLB stock 4,934 74 6.02 4,640 69 5.94
Interest-earning deposits 9,627 128 5.33 23,323 277 4.74
------- -------- ------ ------- -------- ------
Total interest-earning
assets 606,453 11,420 7.53 566,111 10,564 7.47
Non-interest-earning assets 25,756 21,991
------- -------
Total assets $632,208 $588,102
======= =======
Interest-bearing liabilities:
Passbook accounts 45,579 311 2.71 51,102 386 3.02
Demand and NOW accounts 114,478 914 3.17 108,792 968 3.56
Certificate accounts 356,464 5,044 5.61 317,683 4,203 5.29
------- -------- ------ ------- -------- ------
Total deposits 516,522 6,269 4.82 477,577 5,557 4.65
FHLB advances 13,687 198 5.75 7,901 120 6.05
Other borrowings -- -- 11 0 0.00
Total interest-bearing ------- -------- ------ ------- -------- ------
liabilities 530,208 6,467 4.84 485,489 5,677 4.68
Non-interest-bearing ------- -------- ------ ------- -------- ------
liabilities 16,911 16,372
------- -------
Total liabilities 547,119 501,861
------- -------
Retained earnings 85,089 86,241
------- -------
Total liabilities and
retained earnings $632,208 $588,102
======= =======
Net interest income $4,953 $4,887
Interest rate spread (2) 2.69% 2.79%
Net interest margin (3) 3.27% 3.45%
Ratio of average interest-earning
assets to average interest-bearing
liabilities 114.38% 116.61%
Return on Assets 0.93% (0.76%)
Return on Equity 6.90% (5.18%)
(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
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RATE/VOLUME VARIANCE
Quarter Ended September 30, 1997 compared to Quarter Ended September 30, 1996
Increase (Decrease) Due to
--------------------------
Rate/
Rate Volume Volume Net
------ ------ ------ ------
Interest income:
Loans receivable (1) $(143) $1,455 $(22) $1,290
Investment securities 49 (290) (19) (260)
FHLB stock 1 4 -- 5
Interest-bearing deposits 34 (162) (20) (148)
------ ------ ------ ------
Total net change in income
on interest-earning assets (59) 1007 (61) 887
Interest-bearing liabilities:
Passbook accounts (37) (41) 4 (74)
Demand and NOW accounts (99) 50 (5) (54)
Certificate accounts 290 509 35 834
FHLB advances (5) 87 (4) 78
Other borrowings -- -- -- --
------ ------ ------ ------
Total net change in expense on
interest-bearing liabilities 149 605 30 784
------ ------ ------ ------
Net change in net interest
income $ (208) $ 402 $ (91) $ 103
====== ====== ====== ======
(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, 1997, the
Company's provision for loan losses was $300,000 as compared to $254,000 for the
quarter ended September 30, 1996. At September 30, 1997, loan loss reserves as a
percentage of gross loans receivable was 1.02%, compared to 1.13% at September
30, 1996. 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 8 basis points of average loans
during the quarter, down from 40 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.
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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, 1997 September 30, 1996
------------------ ------------------
Allowance at beginning of period $ 5,465 $ 5,452
Provision for loan losses 300 254
Recoveries:
Mortgage Loans:
One-to-four family 11 1
Multifamily 39 8
Commercial - 38
Construction - -
Consumer loans 14 -
Other Loans - -
----- -----
Total recoveries 64 47
Charge-offs:
Mortgage Loans:
One-to-four family (25) (117)
Multifamily (2) (102)
Commercial (102) (309)
Construction - -
Consumer loans (46) -
Commercial Business Lending - -
Other Loans - -
--------- --------
Total charge-offs (175) (528)
--------- --------
Net charge-offs (111) (481)
--------- --------
Balance at end of period $ 5,654 $ 5,225
===== =====
Allowance for loan losses as a percentage
of gross loans outstanding at the end
of the period 1.02% 1.13%
Net charge-offs as a percentage of average
loans outstanding during the period (0.08%) (0.40%)
Allowance for loan losses as a percentage
of nonperforming loans at the end of
the period 158.33% 157.43%
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ASSET QUALITY. The following tables are provided to disclose additional details
on asset quality (dollars in thousands):
At September 30, At September 30,
1997 1996
Loans accounted for on a non-accrual basis: --------------- ---------------
Mortgage Loans:
One-to-four family $ 3,369 $ 2,840
Multifamily 0 411
Commercial 0 0
Construction 0 0
Consumer Loans 65 68
Commercial Business Lending 0 0
Other Loans 0 0
-------- --------
Total 3,434 3,319
Accruing loans which are contractually past due 90 days or more:
Mortgage Loans:
One-to-four family 137 0
Multifamily 0 0
Commercial 0 0
Construction 0 0
Consumer loans 0 0
Other Loans 0 0
------- -------
Total 137 0
------- -------
Total of nonaccrual and 90 days past due loans 3,571 3,319
Real estate owned 2,607 3,053
------- -------
Total nonperforming assets $6,178 $6,372
===== =====
Restructured loans $3,955 $4,939
Nonaccrual and 90 days or more past due loans
as a percentage of portfolio loans
receivable, net 0.66% 0.73%
Nonaccrual and 90 days or more past due loans
as a percentage of total assets 0.56% 0.57%
Nonperforming assets as a percentage of
total assets 0.96% 1.10%
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 by $307,000, or 15.4%, from
$2.0 million in the first quarter of fiscal 1997 to $2.3 million in the first
quarter of fiscal 1998. This increase was primarily due an increase in other
loan fees and service charges. During the quarter ended September 30, 1997,
loans sold aggregated $99.5 million as compared to $106.8 million for the
similar period last year. The overwhelming majority of sold loans continue to be
on a servicing released basis.
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NON-INTEREST EXPENSES. Non-interest expenses decreased by $4.1 million during
the quarter to $4.4 million from $8.5 million in 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 in the quarter ended
September 30, 1996.
INCOME TAXES. Income tax expense was $1.1 million for the quarter versus a
benefit of $767,000 for the same quarter of 1996. The resulting effective tax
rates for the quarters ended September 30, 1997 and 1996 were 41.9% and (40.7%).
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,
-------------
1997 1996
------ ------
Loans originated for Sale
Retail originations $ 38,518 $33,373
Wholesale originations 69,577 49,479
------ ------
Total loans originated for sale 108,075 82,852
Loans sold:
Servicing released 99,462 105,215
Servicing retained 0 1,539
--------- ---------
Total loans sold 99,462 106,754
Loans originated for Portfolio:
Mortgage loans:
One-to-four family 44,758 10,082
Multifamily 0 292
Commercial 250 0
Construction loans 3,974 409
Consumer 2,010 1,491
Commercial Business Lending 692 0
Other loans 0 0
---------- ---------
Total loans originated for Portfolio 51,684 12,274
Loans purchased:
Mortgage loans:
One-to-four family 428 219
Commercial 0 0
-------- --------
Total loans purchased 428 219
Mortgage loan principal repayments 25,661 13,405
Real estate acquired in
settlement of loans 2,647 2,113
Increase (decrease) in other items, net (1) 625 1,701
------- -------
Net (decrease) increase in loans
receivable, net $33,042 $(25,226)
======= =======
(1) Includes changes in accrued interest, loans in process, discounts and loan
loss reserves.
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 amounting to 30% of total assets.
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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, 1997, the
Savings Bank originated a total of $159.8 million in loans. This activity was
funded primarily by loan sales, retail deposits and FHLB advances. For the
quarter ended September 30, 1997 loans sales aggregated $99.5 million and loan
principal repayments totaled $25.7 million. FHLB advances increased by $12
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, 1997
and 1996 was 6.96% and 7.72%, 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, 1997 are as follows:
Amount Percent
------- --------
Tangible Capital $59,743 9.59%
Requirement 9,342 1.50
--------- -------
Excess over requirement $50,401 8.09%
======= =======
Core Capital $59,743 9.59%
Requirement 18,684 3.00
-------- -----
Excess over requirement $41,059 6.59%
======= ======
Risk Based Capital $94,432 15.08%
Requirement to Be "Well Capitalized" 34,752 8.00
------- ------
Excess over requirement $59,860 7.08%
======= =======
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 the information system issues in Year 2000, management has
recently engaged a consulting firm to assess the Company's Year 2000 compliance
and recommend corrective actions. The total cost of making the Company's
information systems Year 2000 compliant cannot be estimated at this time.
Management believes, at minimum, the Company will need to make a capital
investment in additional software and equipment to address Year 2000 concerns.
14
<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.
15
<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.
November 10, 1997 /s/ Craig G. Blunden
---------------------
Craig G. Blunden
President and Chief Executive Officer
(Principal Executive Officer)
November 10, 1997 /s/ Brian M. Riley
-------------------
Brian M. Riley
Chief Financial Officer
(Principal Financial and Accounting
Officer)
16
<PAGE>
<PAGE>
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