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.......................DECEMBER 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 JANUARY 30, 1997
--------------- ----------------------
COMMON STOCK, $.01 PAR VALUE 4,692,715 SHARES *
*Includes 358,438 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 December 31, 1997 and June 30, 1997............................. 1
Consolidated Statements of Operations
for the quarter and six months ended December 31, 1997 and 1996........2
Consolidated Statement of Changes in Stockholder's Equity
for the six months ended December 31, 1997 and 1996....................3
Consolidated Statements of Cash Flows
for the quarter and six months ended December 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 December 31 and June 30, 1997.....6
Comparison of Operating Results for the Quarter and Six Months ended
December 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
December 31, June 30,
1997 1997
ASSETS
Cash $ 12,965 $ 10,411
Overnight Deposits 9,700
Investment Securities-held to maturity
(market value $60,713 and $34,425) 60,426 33,645
Investment securities-available for sale
at fair value 919 761
Loans held for investment 589,163 517,147
Loans held for sale 32,386 19,984
Accrued interest receivable 4,229 3,378
Real estate available for sale 6,539 5,676
Federal Home Loan Bank stock - at cost 5,033 4,879
Premises and equipment, net 7,100 6,825
Prepaid expenses and other assets 4,936 3,094
-------- --------
TOTAL ASSETS $723,696 $615,500
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest bearing deposits $ 4,050 $ 2,335
Interest-bearing deposits 529,819 506,424
Borrowings 92,613 6,828
Accounts Payable and Other Liabilities 13,439 14,466
-------- --------
TOTAL LIABILITIES 639,921 530,053
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 4,692,715 at December 31, 1997
and 4,920,215 at June 30, 1997 51 51
Additional paid-in capital 49,976 49,842
Retained earnings 44,690 42,070
Treasury stock at cost (7,888) (3,291)
Unearned ESOP shares (3,584) (3,720)
Unrealized gain on securities, net of tax 530 495
-------- --------
TOTAL STOCKHOLDERS' EQUITY 83,775 85,447
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $723,696 $615,500
======== ========
1
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PROVIDENT FINANCIAL HOLDINGS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
Interest Income
Loans $11,365 $ 9,509 $22,119 $19,004
Investment Securities 845 1,113 1,511 2,183
------- ------- ------- -------
Total Interest Income 12,210 10,622 23,630 21,187
Interest Income
Deposits 6,456 5,714 12,725 11,271
Borrowings 713 99 911 219
------- ------- ------- -------
Total Interest Expense 7,169 5,813 13,636 11,490
Net Interest Income 5,041 4,809 9,994 9,697
Provision for Loan Losses 450 450 750 704
Net Interest Income after
Provision for Loan Losses 4,591 4,359 9,244 8,993
Non-Interest Income
Loan Servicing and Other Fees 807 782 1,607 1,412
Gains from Sales of Loans 1,058 1,127 2,118 2,177
Other 373 273 819 592
------- ------ ------- -------
Total non-interest income 2,238 2,182 4,544 4,181
Non-interest Expenses
Salaries and employee benefits 3,069 3,061 5,926 6,159
Premises and occupancy 525 502 1,058 1,021
SAIF Insurance premiums 0 314 0 3,858
Telephone 90 93 204 200
Other 1,155 1,132 2,174 2,400
------- ------ ------- -------
Total Operating and 4,839 5,102 9,362 13,638
Administrative Expenses
Real Estate Operations, net (20) 102 (108) 83
------- ------ ------- -------
Total non-interest expenses 4,819 5,204 9,254 13,721
Income (Loss) Before Taxes 2,010 1,337 4,534 (547)
Provision (Benefit) for
Income Taxes 857 559 1,914 (208)
------- ------ ------- -------
Net Income (Loss) $ 1,153 $ 778 $ 2,620 $ (339)
======= ====== ======= =======
Earnings (Loss) Per Share $ 0.26 $ 0.16 $ 0.59 $ (0.07)
======= ====== ======= =======
Weighted Average Shares
Outstanding 4,387,305 4,737,021 4,435,957 4,733,520
========= ========= ========= =========
Earnings (Loss) Per Share $ 0.25 $ 0.16 $ 0.58 $ 0.07
Assuming Dilution ======= ====== ======= =======
Weighted Average Diluted
Shares 4,475,997 4,737,021 4,596,323 4,733,520
========= ========= ========= =========
Return on Assets 0.68% 0.53% 0.80% (0.11%)
Return on Equity 5.47% 3.64% 6.19% (0.79%)
2
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<TABLE>
PROVIDENT FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
DOLLARS IN THOUSANDS
FOR THE SIX MONTHS ENDED DECEMBER 31, 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 $40,130 $(3,952) $85,971
Release of ESOP shares 17 105 122
Unrealized gain on
securities available for
sale, net of taxes $404 404
Net loss (339) (339)
---------------------------------------------------------------------------------
Balance at
December 31, 1996 5,125,215 $51 $49,759 $39,791 $(3,847) $404 $86,158
=================================================================================
</TABLE>
<TABLE>
Unrealized
Gain on
Additional Unearned Securities
Common Paid-in Retained Treasury ESOP Available
Shares Stock Capital Earnings Stock Shares For Sale Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
Balance at June 30, 1997 4,920,215 $51 $49,842 $42,070 $(3,291) $(3,720) $495 $85,447
Net Income 2,620 2,620
Treasury Stock (227,500) (4,597) (4,597)
Release of ESOP shares 134 136 270
Unrealized gain on
securities available for
sale, net of taxes 35 35
---------------------------------------------------------------------------------
Balance at
December 31, 1997 4,692,715 $51 $49,976 $44,690 $(7,888) $(3,584) $530 $83,775
=================================================================================
3
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PROVIDENT FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
DOLLARS IN THOUSANDS
FOR THE QUARTER AND SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
DOLLARS IN THOUSANDS THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
Cash flows from operating
activities:
Net income (loss) $ 1,153 $ 778 $2,620 ($339)
Adjustments to reconcile net
income (loss) to
Net cash provided by operating
activities:
Depreciation and amortization 257 264 510 548
Amortization of loan fees (189) 16 (282) 5
Amortization of Unearned ESOP
Shares 140 0 270 0
Provision for loan losses 450 450 750 704
Provision for losses on real
estate 0 162 18 208
Gain on sale of loans (1,058) (1,127) (2,118) (2,177)
Increase in accounts payable
and other liabilities 77 (1,263) (1,027) 594
Increase in prepaid expenses
and other assets (3,052) (605) (2,847) (1,219)
Loans originated for sale (103,711) (86,709) (210,503) (169,561)
Proceeds from sale of loans 99,698 79,018 200,219 187,845
-------- ------- -------- --------
Net cash provided by operating (6,235) (9,016) (12,390) 16,608
Activities
Cash flows from financing
activities:
Net increase (decrease) in
NOW, passbook and money
market deposits (25,482) 15,672 3,185 15,811
Net increase (decrease) in
term deposits 36,314 (4,609) 21,925 (8,497)
Repayment of Federal Home
Loan Bank advances 0 0 0 (1,750)
Proceeds from Federal Home
Loan Bank Advances 73,785 0 85,785 0
Net cash provided by -------- ------- -------- --------
financing activities 84,617 11,063 110,895 5,564
Cash flows from investing
activities:
Net (increase) decrease in
loans receivable (47,915) (11,385) (76,068) (13,365)
Maturity of investment
securities held-to-maturity 8,836 66,832 30,526 143,445
Purchases of investment
securities held-to-maturity (34,867) (59,666) (57,465) (172,917)
Proceeds from disposal of
real estate 469 2,334 2,711 3,996
Purchases of premises and
equipment, net of
proceeds from sales (364) (250) (793) (449)
Treasury stock purchases (2,960) 0 (4,597) 0
Other 35 451 35 529
-------- ------- -------- -------
Net cash provided by
investing activities (76,766) (1,684) (105,651) (38,761)
-------- ------- -------- -------
Net (decrease) increase in
cash and cash equivalents 1,616 363 (7,146) (16,589)
Cash and cash equivalents at
beginning of period 11,349 13,879 20,111 30,831
-------- ------- -------- -------
Cash and cash equivalents
at end of period $ 12,965 $14,242 $12,965 $14,242
======== ======= ======= =======
Supplemental information:
Cash paid for interest $ 7,118 $ 5,662 $13,980 $11,303
Cash paid for income taxes 1,555 0 2,478 0
Real estate acquired in
settlement of loans 1,067 2,148 3,592 4,261
4
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PROVIDENT FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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, 1997 is derived from audited financial statements of Provident Financial
Holdings, Inc. (The Company). Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. It is
suggested that these consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Annual Report on Form 10-K for the year ended June 30, 1997 (File No. 0-28304)
of the Company. Certain amounts in the prior period's financial statements
may have been reclassified to conform to the current period's presentation.
NOTE 2: EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board Issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per Share. Statement
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary restated, to conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted earnings
per share:
For the Three Months ended For the Six Months ended
December 31, December 31,
-------------------------- ------------------------
1997 1996 1997 1996
-------------------------- ------------------------
Numerator:
Net income - Numerator
for basic earnings
per share and diluted
earnings per share-
income available to
common stockholders $1,153,000 $ 778,00 $2,620,000 $ (339,000)
========== ========== ========== ==========
Denominator:
Denominator for basic
earnings per share-
weighted-average shares 4,387,305 4,737,021 4,435,957 4,733,520
Effect of dilutive
securities:
Employee stock benefit
plans 88,692 0 160,366 0
---------- ---------- ---------- ----------
Denominator for diluted
earnings per share-
adjusted weighted-
average shares and
assumed conversions 4,475,997 4,737,021 4,596,323 4,733,520
========== ========== ========== ==========
Basic earnings
per share $ 0.26 $ 0.16 $ 0.59 $ (0.07)
Diluted earnings
per share $ 0.25 $ 0.16 $ 0.58 $ (0.07)
5
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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 nine branch
offices. Through the operations of its Profed Mortgage Division (Profed), the
Savings Bank has expanded its retail lending market to include a larger
portion of Southern California and Southern Nevada. Profed operates three
offices within the Savings Bank's retail branch facilities and seven
free-standing loan production offices, one of which includes a wholesale loan
department.
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this
section should be read in conjunction with the Consolidated Financial
Statements and accompanying Selected Notes to Consolidated Financial
Statements.
The operating results of the Company depend primarily on its net interest
income, its non-interest income (principally from mortgage banking activities)
and its non-interest expense. Net interest income is the difference between
the income the Company receives on its loan and investment 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 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 DECEMBER 31 AND JUNE 30, 1997
Total assets increased by $108.2 million, or 17.6% from $615.5 million at June
30, 1997 to $723.7 million at December 31, 1997. This increase was chiefly
the result of an $84.4 million, or 15.7% increase in Loans Receivable-net,
from $537.1 at June 30, 1997 to $621.5 at December 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 $25.1 million, 4.9%, to $533.9 million at December 31, 1997 from
$508.8 million at June 30, 1997. Federal Home Loan Bank (FHLB) advances
provided the remaining financing with an increase of $85.8 million (1256.4%)
from June 30, 1997. The company plans to continue utilizing borrowing from
FHLB to fund its loan growth objectives.
Investment Securities-held to maturity increased $26.8 million, or 79.6%, to
$60.4 million at December 31, 1997 from $33.6 million at June 30, 1997.
Loans Receivable-held for sale increased $12.4 million, 62.1%, from $20.0
million at June 30, 1997, to $32.4 million at December 31, 1997. This increase
was the result of increased loan demand in the Company's lending territory and
management's decision to retain a higher percentage of new loans generated.
6
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COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED DECEMBER
31, 1997 AND 1996
The company's net earnings for the three months ended December 31, 1997 and
1996 were $1.2 million and $778,000, respectively, while for the six months
ended December 31, 1997 and 1996 the Company recorded net earnings of $2.6
million and a net loss of $339,000, respectively. The six month period in 1996
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 $1.6 million for the six months ended December 31,
1996. Earnings per share were $0.26 per share for the quarter ended December
31, 1997 and $0.59 per share for the six months ended December 31, 1997.
Year-to-year operating results were primarily affected by an increase in net
interest income tempered in part by decreases in other operating and
administrative expenses.
The Company's net interest margin decreased to 3.09% for the quarter ended
December 31, 1997 compared to 3.42% for the quarter ended December 31, 1996
due to interest rate compression. Net interest income increased $232,000 for
the 1997 quarter, or 4.8%, and $251,000 for the 1997 six month period, or
2.8%, compared to the same periods in 1996 due to the increase in interest
earning assets.
INTEREST INCOME. Interest income increased by $1.6 million (15.0%) to $12.2
million for the quarter ended December 31, 1997 from $10.6 million for the
similar quarter last year. However, the average yield on interest earning
assets declined to 7.49% for the quarter ended December 31, 1997 from 7.55%
for the similar period last year. The average balance of investment
securities, interest-bearing deposits and FHLB stock decreased $26.4 million,
or 33.1%, for the quarter ended December 31, 1997 and interest income from
these investments decreased by $268,000 compared to the same period last year.
The average rate on investment securities rose by 54 basis points to 6.33% for
the 1997 quarter compared to 5.79% for the 1996 quarter.
Loan interest income increased by $1.9 million or 19.5%, to $11.4 million in
the quarter ended December 31, 1997 compared to $9.5 million for the quarter
ended December 31, 1996. The majority of this decline is attributable to an
increase in the level of loans receivable-net, including loans held for sale.
Beginning in the quarter ended December 31, 1996, management has undertaken a
program to increase the level of portfolio loans. The recent softening of
long-term interest rates is reflected in the 28 basis point decline in yield
to 7.59% for the quarter ended December 31, 1997 from 7.87% in the same period
last year.
For the six months ended December 31, 1997, interest income rose by $2.4
million, or 11.5%, to $23.6 million from $21.2 million for the six months
ended December 31, 1996. Average loans receivable, including those held for
sale, increased to $579.6 million for the six months ended December 31, 1997
compared to $485.4 million for the six months ended December 31,1996, while
the yield declined to 7.63% from 7.83%, respectively. The average balance of
investment securities, interest-bearing deposits, and FHLB stock decreased by
$29.8 million, or 37.5%, to $49.7 million in order to grow the loan portfolio.
The interest income from those investments decreased $672,000,or 30.8%, to
$1.5 million in the six months ended December 31, 1997. The average yield on
investment securities held to maturity increased 52 basis points to 6.16% in
the six months ended December 31, 1997 compared to 5.64% for the six months
ended December 31, 1996, due to a lengthening of the term of new investments.
7
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INTEREST EXPENSE. Interest expense for the quarter ended December 31, 1997 was
$7.2 million compared to $5.8 million for the comparable period in 1996, an
increase of $1.4 million, or 23.3%. Interest expense for the six months ended
December 31, 1997 totaled $13.6 million compared to $11.5 for the similar
period one year ago, an increase of $2.1 million, or 18.7%. These increases
are attributable to an increase in average interest-bearing liabilities,
particularly FHLB advances. Average deposits increased $50.4 million, or
10.5%, during the quarter compared to the prior year and $42.7 million, or
8.9%, for the semi-annual period while the rate paid on deposits increased
from 4.77% during the quarter ended December 31, 1996 to 4.83% during the
similar quarter in 1997 and from 4.70% to 4.83% during the two semi-annual
periods. FHLB advances averaged $7.0 million during the quarter ended December
31, 1996 compared to $48.5 million for the quarter ended December 31, 1997 and
$7.4 million compared to $31.1 million during the respective six month
periods. The volume increase on FHLB advances resulted in a $608,000, or
614.1%, increase in related interest expense for the quarter compared to the
prior year and a $686,000, or 314.2%, increase for the six month period. The
average rate paid on these advances increased from 5.65% for the quarter ended
December 31, 1996 to 5.78% in the same quarter in 1997 and declined from 5.96%
for the six months ended December 31, 1996 to 5.77% for the same period in
1997.
8
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<TABLE>
Three Months Ended Three Months Ended
12/31/97 12/31/96
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ------- --------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(1)....... $598,667 $11,365 7.59% $483,268 $9,509 7.87%
Investment securities.......... 46,510 736 6.33 61,166 885 5.79
FHLB Stock..................... 5,011 80 6.38 4,696 74 6.29
Interest-bearing deposits...... 1,875 29 6.15 13,969 154 4.41
-------- ------- ----- -------- ------ -----
Total interest-earning assets.. 652,063 12,210 7.49 563,099 10,622 7.55
Non-interest earning assets.... 28,312 26,927
-------- --------
Total Assets $680,375 $590,026
======== ========
Interest-bearing liabilities:
Passbook accounts.............. $ 45,341 361 3.16 $53,554 351 2.62
Demand and NOW accounts........ 111,908 879 3.11 111,228 969 3.48
Certificate accounts........... 373,053 5,216 5.54 315,169 4,394 5.58
-------- ------- ----- -------- ------ -----
Total Deposits 530,302 6,456 4.83 479,951 5,714 4.76
FHLB Advances.................. 48,498 707 5.78 7,007 99 5.65
Other borrowings............... 217 6 10.71 0 0 0
-------- ------- ----- -------- ------ -----
Total interest-bearing
liabilities 579,017 7,169 4.91 486,958 5,813 4.77
Non-interest bearing liabilities 17,020 17,659
-------- --------
Total liabilities 596,037 504,617
-------- --------
Retained Earnings.............. 84,338 85,409
-------- --------
Total liabilities and
retained earnings.. $680,375 $590,026
======== ========
Net interest income............ $5,041 $4,809
====== ======
Interest rate spread(2)........ 2.58% 2.78%
Net interest margin(3)......... 3.09% 3.42%
Ratio of average interest-earning
assets to average interest-
bearing liabilities........... 112.62% 115.64%
Return on Assets............... 0.68% 0.53%
Return on Equity............... 5.47% 3.64%
</TABLE>
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<TABLE>
Six Months Ended Six Months Ended
12/31/97 12/31/96
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ------- --------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(1)....... $579,648 $22,119 7.63% $485,423 $19,004 7.83%
Investment securities.......... 38,935 1,200 6.16 57,076 1,609 5.64
FHLB Stock..................... 4,972 154 6.20 4,677 143 6.10
Interest-bearing deposits...... 5,751 157 5.46 17,731 431 4.86
-------- ------- ----- -------- ------ -----
Total interest-earning assets.. 629,306 23,630 7.51 564,907 21,187 7.50
Non-interest earning assets.... 25,922 24,686
-------- --------
Total Assets $655,228 $589,593
======== ========
Interest-bearing liabilities:
Passbook accounts.............. $45,460 672 2.93 $52,327 737 2.82
Demand and NOW accounts........ 113,515 1793 3.13 110,012 1,937 3.52
Certificate accounts........... 363,249 10,260 5.60 317,222 8,597 5.42
-------- ------- ----- -------- ------ -----
Total Deposits 522,224 12,725 4.83 479,561 11,271 4.70
FHLB Advances.................. 31,128 905 5.76 7,365 219 5.96
Other borrowings............... 222 6 5.24 0 0 0
-------- ------- ----- -------- ------ -----
Total interest-bearing
liabilities 553,574 13,636 4.88 486,926 11,490 4.72
Non-interest bearing liabilities 16,952 16,924
-------- --------
Total liabilities 570,526 503,850
-------- --------
Retained Earnings.............. 84,702 85,743
-------- --------
Total liabilities and
retained earnings.. $655,228 $589,593
======== ========
Net interest income............ $9,994 $9,697
====== ======
Interest rate spread(2)........ 2.63% 2.78%
Net interest margin(3)......... 3.18% 3.43%
Ratio of average interest-earning
assets to average interest-
bearing liabilities........... 113.68% 116.02%
Return on Assets............... 0.80% (0.11%)
Return on Equity............... 6.19% (0.79%)
(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 December 31, 1997
Compared to Three Months Ended December 31, 1996
Increase (Decrease) Due to:
--------------------------
Rate/
Rate Volume Volume Net
Interest income:
Loans receivable (1) $ 90 $(561) $ 6) $ (477)
Investment securities 2 486 3 491
FHLB stock 11 3 1 15
Interest-bearing deposits 10 29 3 42
---- ----- ----- ------
Total net change in change
on interest-earning assets 113 (43) 1 71
Interest-bearing liabilities:
Passbook accounts (166) 12 (4) (158)
Demand and NOW accounts (158) (20) 3 (175)
Certificate accounts 14 (238) (1) (225)
FHLB advances (27) (204) 18 (213)
Other borrowings 0 0 0 0
Total net change in expense ----- ----- ----- ------
on interest-bearing
liabilities (337) (450) 16 (771)
----- ----- ----- ------
Net change in net interest income $ 450 $ 407 $ (15) $ 842
===== ===== ===== ======
(1) Includes loans available for sale. For purposes of calculating volume,
rate and rate/volume variances, non-accrual loans were included in the
weighted average balance outstanding.
Six Months Ended December 31, 1997
Compared to Six Months Ended December 31, 1996
Increase (Decrease) Due to
--------------------------
Rate/
Rate Volume Volume Net
Interest income:
Loans receivable (1) $ (58) $(438) $ 3 $(493)
Investment securities (77) 636 (130) 429
FHLB stock 13 3 0 16
Interest-bearing deposits 40 51 19 110
----- ----- ----- -----
Total net change in change
on interest-earning assets (82) 252 (108) 62
Interest-bearing liabilities:
Passbook accounts (110) 8 (2) (104)
Demand and NOW accounts (138) (32) 4 (166)
Certificate accounts (102) (144) 3 (243)
FHLB advances (10) (244) 7 (247)
Other borrowings (10) (10) 10 (10)
----- ----- ----- -----
Total net change in expense
on interest-bearing
liabilities (370) (422) 22 (770)
----- ----- ----- -----
Net change in net interest income $ 288 $ 674 $(130) $ 832
===== ===== ===== =====
(1) Includes loans available for sale. For purposes of calculating volume,
rate and rate/volume variances, non-accrual loans were included in the
weighted average balance outstanding.
10
<PAGE>
<PAGE>
PROVISION FOR LOAN LOSSES. For the six months ended December 31, 1997, the
Company's provision for loan losses was $750,000 compared to $704,000 for the
quarter ended December 31, 1997. At December 31, 1997, loan loss reserves as a
percentage of gross loans receivable was 1.00% compared to 1.18% at December
31, 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 6 basis points of
average loans during the six months, down from 12 basis points in the same
period last year.
The allowance for loan losses is maintained at a level sufficient to provide
for estimated losses based on evaluating known and inherent risks in the loan
portfolio and upon management's continuing analysis of the factors underlying
the quality of the loan portfolio. These factors include changes in the size
and composition of the loan portfolio, actual loan loss experience, current
and anticipated economic conditions, detailed analysis of individual loans for
which full collectibility may not be assured, and determination of the
realizable value of the collateral securing the loans. Provisions for losses
are charged against operations on a monthly basis as necessary to maintain the
allowance at appropriate levels. Management believes that the amount
maintained in the allowance will be adequate to absorb losses inherent in the
portfolio. Although management believes it uses the best information available
to make such determinations, there can be no assurance that regulators, in
reviewing the Company's loan portfolio, will not request the Company to
increase significantly its allowance for loan losses. Future adjustments to
the allowance for loan losses may be necessary and results of operations could
be significantly and adversely affected due to economic, operating,
regulatory, and other conditions beyond the control of the Company.
The following tables are provided to disclose additional detail on the
Company's allowance for loan losses and asset quality (dollars in thousands):
For the Six Months Ended
December 31, 1997 December 31, 1996
----------------- -----------------
Allowance at beginning of period $5,465 $5,452
Provision for loan losses 750 704
Recoveries:
Mortgage Loans:
One-to-four family 11 1
Multi-family 191 14
Commercial - 38
Construction - -
Consumer loans 14 -
Commercial Business Lending - -
Other loans - -
--------- ---------
Total recoveries 216 53
Charge-offs:
Mortgage Loans:
One-to-four family 59 236
Multi-family 2 102
Commercial 253 309
Construction - -
Consumer loans 64 0
Commercial business lending - -
Other loans - -
-------- -------
Total charge-offs 378 647
Net charge-offs 162 594
-------- -------
Balance at end of period $6,053 $5,562
Allowance for loan losses as a
percentage of gross loans
outstanding at the end of the period 1.00% 1.18%
Net charge-offs as a percentage of
average loans Outstanding during
the period .06% 0.12%
Allowance for loan losses as a
percentage of non-performing
loans at the end of the period 127.59% 142.21%
11
<PAGE>
<PAGE>
ASSET QUALITY. The following tables are provided to disclose additional
details on asset quality (dollars in thousands):
At December 31, 1997 At June 30, 1997
-------------------- ----------------
Loans accounted for on a non-accrual
basis:
Mortgage Loans:
One-to-four family $2,720 $3,667
Multi-family 0 1,176
Commercial 1,405 979
Construction 0 0
Consumer Loans 69 150
Commercial business lending 0 0
Other loans 0 0
--------- ----------
Total 4,194 5,972
Accruing loans which are contractually
past due 90 days or more:
Mortgage Loans:
One-to-four family 122 268
Multi-family 0 0
Commercial 0 0
Construction 0 0
Consumer Loans 0 9
Commercial Business Lending 428 0
Other Loans 0 0
---------- ----------
Total 550 277
Total of nonaccrual and 90 days past
due loans 4,744 6,249
Real estate owned 3,511 2,636
---------- ----------
Total non-performing assets $8,255 $8,885
========== ==========
Restructured loans $2,506 $4,910
========== ==========
Non-accrual and 90 days or more past due
loans as a percentage of portfolio loans
receivable, net 0.81% 1.21%
Non-accrual and 90 days or more past due
loans as a percentage of total assets 0.66% 1.02%
total assets
Non-performing assets as a percentage of
total assets 1.14% 1.44%
The Company addresses loans individually and identifies impairment when the
accrual of interest has been discontinued, loans have been restructured or
management has serious doubts about the future collectibility of principal and
interest, even though the loans are currently performing. Factors considered
in determining impairment include, but are not limited to, expected future
cash flows, the financial condition of the borrower and current economic
conditions. The Company measures each impaired loan based on the fair value of
its collateral and charges off those loans or portions of loans deemed
uncollectible.
12
<PAGE>
<PAGE>
NON-INTEREST INCOME. Non-interest income remained a constant $2.2 million in
the second fiscal quarter of 1997 compared to the second fiscal quarter of
1996. For the semi-annual period ending December 31, 1997, non-interest income
increased $363,000, or 8.7%, to $4.5 million, compared to the same period in
1996. The majority of this increase in the quarterly and six month period was
a result of increases in Loan Servicing and Other Fees. A portion of this
increase is attributable to broker loan fees as a result of the acquisition of
Pacific Sunbelt Mortgage in October of 1996. Gains from the sales of loans
declined by $69,000, or 6.1%, to $1.1 million in the quarter ended December
31, 1997. This decline was in spite of an increase of $19.0 million in the
aggregate amount of loans sold in the quarter ended December 31, 1997 compared
to the same quarter one year earlier, and is an indication of the recent
compression of interest rates.
NON-INTEREST EXPENSES. Non-interest expenses decreased by $385,000 during the
quarter to $4.8 million from $5.2 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 six months ended
December 31, 1996.
INCOME TAXES. Income tax expense was $857,000 for the quarter versus $559,000
for the same quarter of 1996, while the six month numbers were $1.9 million
for fiscal 1998 and a benefit of $208,000 for fiscal 1997. The resulting
effective tax rates for the quarters ended December 31, 1997 and 1996 were
42.6% and 41.8% and the six month ratios were 42.2% and (38.0%) respectively.
LOAN ORIGINATION VOLUMES. The following table is provided to disclose
additional detail related to the volume of loans originated (dollars in
thousands):
For the Quarter Ended For the Six Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
Loans originated for sale
Retail originations $ 72,279 $37,285 $131,407 $ 71,216
Wholesale originations 36,167 49,424 85,114 98,345
-------- ------- -------- --------
Total loans
originated for
sale 108,446 86,709 216,521 169,561
Loans sold:
Servicing released 100,758 81,757 200,220 186,972
Servicing retained 0 0 0 1,539
-------- ------- -------- --------
Total loans sold 100,758 81,757 200,220 188,511
Loans originated for
portfolio;
Mortgage loans:
One-to-four family 52,734 23,372 97,492 33,454
Multi-family 420 422 420 714
Commercial 0 0 250 0
Construction loans 4,176 90 8,150 499
Consumer 631 1,583 2,641 3,074
Commercial business
lending 348 0 1,040 0
Other loans 78 232 78 232
-------- ------- -------- --------
Total loans
originated
for portfolio 58,387 25,699 110,071 37,973
Loans purchased:
Mortgage loans:
One-to-four family 18,410 1,201 18,838 1,420
Commercial 0 0 0 0
------- ------- -------- --------
Total loans purchased 18,410 1,201 18,838 1,420
Mortgage loan principal
repayments 30,256 14,724 55,917 25,494
Real estate acquired in
settlement of loans 2,220 2,148 4,867 4,261
Increase (decrease) in
other items, net (1) (634) 2,739 (9) 1,805
-------- ------- -------- --------
Net (decrease) increase
in loans receivable,
net $ 51,375 $17,719 $ 84,417 $ (7,507)
======== ======= ======== ========
- ----------------------
(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 December 31, 1997
permitted additional advances up to $95.7 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 December 31, 1997, the
Savings Bank originated a total of $185 million in loans. This activity was
funded primarily by loan sales, retail deposits and FHLB advances. For the
quarter ended December 31, 1997 loans sales aggregated $100.8 million and loan
principal repayments totaled $30.3 million along with $200.2 million in loan
sales and $55.9 million in repayments in the fiscal period to date. FHLB
advances increased by $41.5 million.
By regulation, the Savings Bank must maintain liquidity of 4% of deposits and
short-term borrowings. Liquidity is measured by cash and readily marketable
securities which are not committed, pledged, or required to liquidate specific
liabilities. The Savings Bank's average liquidity ratios for December 31, 1997
and 1996 were 10.6% and 11.6%, 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, 199 are as
follows:
Amount Percent
Tangible capital $60,858 8.63%
Requirement 10,576 1.50%
------- ------
Excess over requirement 50,282 7.13%
Core capital 60,858 8.63%
Requirement 21,152 3.00%
------- ------
Excess over requirement 39,706 5.63%
Risk based capital 66,682 14.32%
Requirement to be "Well
Capitalized" 37,257 8.00%
------- ------
Excess over requirement $29,425 6.32%
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>
SUPPLEMENTAL INFORMATION
December 31, 1997 June 30, 1997 December 31, 1996
----------------- ------------- -----------------
Loans serviced for others $504,018 $530,318 $568,561
Book value per share $17.85 $17.37 $16.81
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.
February 11, 1998 /s/ Craig G. Blunden
--------------------------------------
Craig G. Blunden
President and Chief Executive Officer
(Principal Executive Officer)
February 11, 1998 /s/ Brian M. Riley
-------------------------------------
Brian M. Riley
Chief Financial Officer
(Principal Financial and Accounting
Officer)
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 12965
<INT-BEARING-DEPOSITS> 529819
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 60426
<INVESTMENTS-MARKET> 60713
<LOANS> 627602
<ALLOWANCE> 6053
<TOTAL-ASSETS> 723696
<DEPOSITS> 533869
<SHORT-TERM> 92613
<LIABILITIES-OTHER> 13439
<LONG-TERM> 0
0
0
<COMMON> 51
<OTHER-SE> 83724
<TOTAL-LIABILITIES-AND-EQUITY> 723696
<INTEREST-LOAN> 22119
<INTEREST-INVEST> 1511
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 23630
<INTEREST-DEPOSIT> 12725
<INTEREST-EXPENSE> 13636
<INTEREST-INCOME-NET> 9994
<LOAN-LOSSES> 750
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9254
<INCOME-PRETAX> 4534
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2620
<EPS-PRIMARY> .59
<EPS-DILUTED> .58
<YIELD-ACTUAL> 3.18
<LOANS-NON> 4194
<LOANS-PAST> 550
<LOANS-TROUBLED> 2506
<LOANS-PROBLEM> 13062
<ALLOWANCE-OPEN> 5465
<CHARGE-OFFS> 378
<RECOVERIES> 216
<ALLOWANCE-CLOSE> 6053
<ALLOWANCE-DOMESTIC> 6053
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
