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, 2001 -------------- [ ] 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 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 May 14, 2001 ---------------- ------------------ Common stock, $ 0.01 par value 3,832,909 shares * * Includes 270,519 shares held by the employee stock ownership plan that have not been released, committed to be released, or allocated to participant accounts; and 84,404 shares held by the management recognition plan which have been committed to be released and allocated to participant accounts.
PROVIDENT FINANCIAL HOLDINGS, INC. Table of Contents PART 1 - FINANCIAL INFORMATION ITEM 1 - Financial Statements. The Unaudited Interim 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, 2001 and June 30, 2000........................... 1 Consolidated Statements of Income for the quarter and nine months ended March 31, 2001 and 2000.... 2 Consolidated Statements of Changes in Stockholders' Equity for the quarter and nine months ended March 31, 2001 and 2000.... 3 Consolidated Statements of Cash Flows for the quarter and nine months ended March 31, 2001 and 2000.... 5 Selected Notes to Unaudited Interim Consolidated Financial Statements ............................................ 6 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations General ......................................................... 9 Comparison of Financial Condition at March 31, 2001 and June 30, 2000 ............................................... 10 Comparison of Operating Results for the quarter and nine months ended March 31, 2001 and 2000.... 10 Loan Volume Activities .......................................... 20 Liquidity and Capital Resources.................................. 21 Supplemental Information ........................................ 22 PART II - OTHER INFORMATION Item 1. Legal Proceedings ...................................... 22 Item 2. Changes in Securities .................................. 22 Item 3. Defaults upon Senior Securities ........................ 22 Item 4. Submission of Matters to Vote of Stockholders ......... 23 Item 5. Other Information ...................................... 23 Item 6. Exhibits and Reports on Form 8-K ....................... 23 SIGNATURES ............................................................... 24
PROVIDENT FINANCIAL HOLDINGS, INC. Consolidated Statements of Financial Condition (Unaudited) Dollars in Thousands March 31, June 30, 2001 2000 -------------- ------------ Assets Cash ..................................... $ 21,662 $ 18,965 Investment securities - held to maturity (market value $129,877 and $166,059, respectively)................. 130,304 175,234 Investment securities - available for sale at fair market value ............... 64,980 24,382 Loans held for investment, net............ 770,357 824,862 Loans held for sale, net.................. 119,445 52,049 Accrued interest receivable ............. 7,489 7,391 Real estate held for investment, net ..... 11,888 12,380 Real estate owned, net.................... 1,075 1,047 Federal Home Loan Bank stock.............. 16,158 17,287 Premises and equipment, net............... 7,122 7,525 Prepaid expenses and other assets......... 7,413 6,682 ----------- ----------- Total assets.......................... $ 1,157,893 $ 1,147,804 =========== =========== Liabilities and Stockholders' Equity Liabilities: Non-interest-bearing deposits............. $ 21,449 $ 18,666 Interest bearing deposits ................ 701,929 677,792 ----------- ----------- Total deposits........................ 723,378 696,458 Borrowings................................ 315,460 341,668 Accounts payable, accrued interest and other liabilities.................... 23,781 20,711 ----------- ----------- Total liabilities..................... 1,062,619 1,058,837 Stockholders' equity: 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 5,128,215 shares; outstanding 3,853,909 and 3,922,066 shares, respectively........... 51 51 Additional paid-in capital................ 51,466 51,249 Retained earnings......................... 70,919 64,811 Treasury stock at cost (1,274,306 and 1,203,149 shares, respectively).......... (24,045) (22,696) Unearned stock compensation............... (4,007) (4,634) Accumulated other comprehensive income, net of tax............................... 890 186 ----------- ----------- Total stockholders' equity............ 95,274 88,967 ----------- ----------- Total liabilities and stockholders' equity.............................. $ 1,157,893 $ 1,147,804 =========== =========== The accompanying notes are an integral part of these financial statements. 1
PROVIDENT FINANCIAL HOLDINGS, INC. Consolidated Statements of Income (Unaudited) Dollars in Thousands, Except Earnings Per Share Quarter Ended Nine Months Ended March 31, March 31, ---------------------- --------------------- 2001 2000 2001 2000 ---------- ---------- ---------- --------- Interest income Loans receivable, net........ $ 16,688 $ 17,266 $ 49,816 $ 47,068 Investment securities........ 3,471 3,415 10,722 10,039 Interest-earning deposits.... 39 22 102 34 ---------- ---------- ---------- --------- Total interest income........ 20,198 20,703 60,640 57,141 Interest expense Savings accounts............. 893 627 2,418 1,772 Demand and NOW accounts...... 923 973 2,779 3,024 Certificates of deposit...... 6,923 6,184 20,688 17,599 Federal Home Loan Bank advances and other borrowings.................. 4,845 5,579 15,205 12,975 ---------- ---------- ---------- --------- Total interest expense....... 13,584 13,363 41,090 35,370 ---------- ---------- ---------- --------- Net interest income........... 6,614 7,340 19,550 21,771 Provision for loan and lease losses................. - 175 - 175 ---------- ---------- ---------- --------- Net interest income after provision for loan and lease losses................. 6,614 7,165 19,550 21,596 Non-interest income Loan servicing and other fees....................... 485 588 1,558 1,928 Gain on sale of loans, net.. 1,928 268 4,768 1,714 Real estate operations, net. 170 192 534 253 Other....................... 696 521 2,320 1,744 ---------- ---------- ---------- --------- Total non-interest income... 3,279 1,569 9,180 5,639 Non-interest expense Salaries and employee benefits................... 3,670 3,580 11,322 10,944 Premises and occupancy...... 466 524 1,412 1,524 Equipment................... 411 596 1,321 1,674 Professional expenses....... 135 107 379 589 Sales and marketing expenses................... 234 237 776 863 Other ..................... 1,017 980 3,044 2,940 ---------- ---------- ---------- --------- Total non-interest expense.. 5,933 6,024 18,254 18,534 Income before taxes........... 3,960 2,710 10,476 8,701 Provision for income taxes.... 1,620 1,128 4,368 3,661 ---------- ---------- ---------- --------- Net income.................. $ 2,340 $ 1,582 $ 6,108 $ 5,040 ========== ========== ========== ========= Basic earnings per share... $ 0.67 $ 0.45 $ 1.74 $ 1.37 Diluted earnings per share. $ 0.65 $ 0.45 $ 1.70 $ 1.35 The accompanying notes are an integral part of these financial statements. 2
<TABLE> PROVIDENT FINANCIAL HOLDINGS, INC. Consolidated Statements of Changes in Stockholders' Equity (Unaudited) Dollars in Thousands, Except Shares For the Quarters Ended March 31, 2001 and 2000 Common Accumulated Stock Additional Unearned Other ---------------- Paid-In Retained Treasury Stock Comprehensive Shares Amount Capital Earnings Stock Compensation Income Total - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Balance at December 31, 2000..... 3,865,409 $ 51 $ 51,400 $ 68,579 $(23,931) $(4,129) $ 756 $ 92,726 Comprehensive income: Net income........... 2,340 2,340 Unrealized holding gains on securities available for sale, net of tax.......... 134 134 ------- Total comprehensive income................ 2,474 Purchase of treasury stock, net............ (11,500) (114) (114) Release of shares under stock-based compensation plans.... 66 122 188 - ----------------------------------------------------------------------------------------------------------- Balance at March 31, 2001........ 3,853,909 $ 51 $ 51,466 $ 70,919 $(24,045) $(4,007) $ 890 $ 95,274 =========================================================================================================== The accompanying notes are an integral part of these financial statements. </TABLE> <TABLE> Common Accumulated Stock Additional Unearned Other ---------------- Paid-In Retained Treasury Stock Comprehensive Shares Amount Capital Earnings Stock Compensation Income Total - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Balance at December 31, 2000..... 3,988,566 $ 51 $ 51,187 $ 61,013 $(21,699) $(5,139) $ 263 $ 85,676 Comprehensive income: Net income........... 1,582 1,582 Unrealized holding gains on Securities available for sale, net of tax.......... (130) (130) -------- Total comprehensive income................ 1,452 Purchase of treasury stock........ (45,500) (688) (688) Release of shares under stock-based compensation plans.... 33 253 286 - ------------------------------------------------------------------------------------------------------------ Balance at March 31, 2000........ 3,943,066 $ 51 $ 51,220 $ 62,595 $(22,387) $(4,886) $ 133 $ 86,726 ============================================================================================================ The accompanying notes are an integral part of these financial statements. 3 </TABLE>
<TABLE> PROVIDENT FINANCIAL HOLDINGS, INC. Consolidated Statements of Changes in Stockholders' Equity (Unaudited) Dollars in Thousands, Except Shares For the Nine Months Ended March 31, 2001 and 2000 Common Accumulated Stock Additional Unearned Other ---------------- Paid-In Retained Treasury Stock Comprehensive Shares Amount Capital Earnings Stock Compensation Income Total - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Balance at June 30, 2000..........3,988,566 $ 51 $ 51,249 $ 64,811 $(22,696) $(4,634) $ 186 $ 88,967 Comprehensive income: Net income............ 6,108 6,108 Unrealized holding gains on Securities available for sale, net of tax. ......... 704 704 -------- Total comprehensive income................. 6,812 Purchase of treasury stock, net............. (71,157) (1,349) (1,349) Issuance of shares under stock Option compensation plan...... 3,000 46 46 Release of shares under stock-based compensation plans..... 171 627 798 - ------------------------------------------------------------------------------------------------------------ Balance at March 31, 2001.........3,853,909 $ 51 $ 51,466 $ 70,919 $(24,045) $(4,007) $ 890 $ 95,274 ============================================================================================================ The accompanying notes are an integral part of these financial statements. </TABLE> <TABLE> Common Accumulated Stock Additional Unearned Other ---------------- Paid-In Retained Treasury Stock Comprehensive Shares Amount Capital Earnings Stock Compensation Income Total - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Balance at June 30, 1999......... 4,385,785 $ 51 $ 51,069 $ 57,555 $(14,089) $(5,644) $ 744 $ 89,686 Comprehensive income: Net income........... 5,040 5,040 Unrealized holding gains on Securities available for sale, net of tax.......... (611) (611) -------- Total comprehensive income................ 4,429 Purchase of treasury stock ................ (442,719) (8,298) (8,298) Release of shares under stock-based compensation plans.... 151 758 909 - ----------------------------------------------------------------------------------------------------------- Balance at March 31, 200......... 3,943,066 $ 51 $ 51,220 $ 62,595 $(22,387) $(4,886) $ 133 $ 86,726 =========================================================================================================== The accompanying notes are an integral part of these financial statements. 4 </TABLE>
PROVIDENT FINANCIAL HOLDINGS, INC. Consolidated Statements of Financial Condition (Unaudited) Dollars in Thousands Quarter Ended Nine Months Ended March 31, June 30, 2001 2000 2001 2000 -------- -------- -------- -------- Cash flows from operating activities: Net Income ....................... $ 2,340 $ 1,582 $ 6,108 $ 5,040 Adjustments to reconcile net income to net cash (used for) provided by operating activities: Depreciation and amortization... 453 708 1,422 1,627 Provision for real estate losses - 175 - 175 Gain on sale of loans........... (1,928) (268) (4,768) (1,714) Net gains on sale of investment securities..................... (21) - (234) (38) Increase (decrease) in accounts payable and other liabilities.. 2,679 (5,784) 2,580 (2,903) Decrease (increase) in prepaid expense and other assets....... 24 86 (830) 7,731 Loans originated for sale......... (217,962) (92,112) (458,207) (293,138) Proceeds from sale of loans....... 147,069 130,924 381,343 283,024 Stock based compensation.......... 188 286 844 909 -------- -------- -------- -------- Net cash (used for) provided by operating activities .................... (67,158) 35,597 (71,742) 713 Cash flows from investing activities: Net decrease (increase) in loan receivables .............. 27,416 (16,965) 69,387 (170,316) Maturity of investment securities held-to-maturity.... 66,500 2,600 69,500 6,650 Purchase of investment securities held-to-maturity.... (7,500) (3,000) (7,500) (3,000) Purchase of investment securities available for sale.. (53,541) - (62,482) (23,280) Sales of investment securities available for sale............. 3,988 - 6,253 2,292 Purchase (redemption) of Federal Home Loan Bank Stock... 2,030 (238) 1,129 (9,870) Net (purchase) sales of real estate ................... (674) 148 (517) (12,601) Purchases of premises and equipment ................. (238) (126) (693) (730) Maturity of overnight Federal Funds ................. 2,000 - - - -------- -------- -------- -------- Net cash provided by (used for) investing activities .......... 39,981 (17,581) 75,077 (210,855) Cash flows from financing activities: Net increase in deposits ....... 17,511 2,255 26,920 75,613 Repayment of Federal Home Loan Bank Advances ....... (193,402)(2,334,102) (860,306)(10,315,129) Proceeds of Federal Home Loan Bank Advances............. 205,100 2,297,099 834,500 10,448,963 (Repayment) proceeds of other borrowings............ (137) 3,459 (403) 3,459 Treasury stock purchases........ (114) (688) (1,349) (8,298) -------- -------- -------- ---------- Net cash provided by (used for) financing activities..................... 28,958 (31,977) (638) 204,608 -------- -------- -------- ---------- Net increase (decrease) in cash and cash equivalents... 1,781 (13,961) 2,697 (5,534) Cash and cash equivalents at beginning of period ............. 19,881 28,156 18,965 19,729 -------- -------- -------- ---------- Cash and cash equivalents at end of period ................... $ 21,662 $ 14,195 $ 21,662 $ 14,195 ========================================== Supplemental Information: Cash paid for interest.......... $ 13,186 $ 13,047 $ 39,877 $ 36,690 Cash paid for income taxes...... 290 537 2,332 2,521 Real estate acquired in settlement of loans............ 452 111 982 1,144 The accompanying notes are an integral part of these financial statements. 5
PROVIDENT FINANCIAL HOLDINGS, INC. SELECTED NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 Note 1: Basis of Presentation The unaudited interim 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, 2000 is derived from audited consolidated financial statements of Provident Financial Holdings, Inc. (the "Company"). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that these unaudited interim consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended June 30, 2000 (File No. 000-28304) 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 Basic earnings per share ("EPS") excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the entity. The following tables provide the basic and diluted EPS computations for the quarter and nine months ended March 31, 2001 and 2000, respectively. For the Quarter Ended For the Nine Months Ended March 31, March 31, ---------------------- ------------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Numerator: Net income - numerator for basic earnings per share and diluted earnings per share-income available to common stockholders... $2,340,498 $1,582,107 $6,107,826 $5,040,312 ========== ========== ========== ========== Denominator: Denominator for basic earnings per share: Weighted-average shares.. 3,498,986 3,551,289 3,505,747 3,682,328 Effect of dilutive securities: Employee stock benefit plans................... 89,521 - 83,046 62,168 ---------- ---------- ---------- ---------- Denominator for diluted earnings per share: Adjusted weighted-average shares and assumed conversions............. 3,588,507 3,551,289 3,588,793 3,744,496 ========== ========== ========== ========== Basic earnings per share... $ 0.67 $ 0.45 $ 1.74 $ 1.37 Diluted earnings per share. $ 0.65 $ 0.45 $ 1.70 $ 1.35 6
Note 3: Operating Segment Reports The Company has determined that its reportable segments are the operations pertaining to mortgage banking and the operations of Provident Savings Bank, F.S.B. ("Savings Bank") pertaining to consumer and commercial banking. The following tables set forth condensed income statements and total assets for the Company's operating segments for the quarter and nine months ended March 31, 2001 and 2000, respectively. For the Quarter Ended March 31, 2001 ---------------------------------------- Savings Mortgage Consolidated Bank Banking Totals - ----------------------------------------------------------------------------- Net interest income................ $ 6,296 $ 318 $ 6,614 Non-interest income: Loan servicing and other fees.... 248 237 485 (Loss) gain on sale of loans, net............................ (16) 1,944 1,928 Real estate operations, net ..... 157 13 170 Other............................ 694 2 696 - ----------------------------------------------------------------------------- Total non-interest income ..... 1,083 2,196 3,279 Non-interest expense: Salaries and employee benefits... 2,839 831 3,670 Premises and occupancy .......... 344 122 466 Operating and administrative expenses ....................... 1,154 643 1,797 - ----------------------------------------------------------------------------- Total non-interest expense .... 4,337 1,596 5,933 - ----------------------------------------------------------------------------- Income before taxes ...............$ 3,042 $ 918 $ 3,960 ============================================================================= Total assets, end of period .......$ 1,025,360 $ 132,533 $1,157,893 ============================================================================= For the Quarter Ended March 31, 2000 ---------------------------------------- Savings Mortgage Consolidated Bank Banking Totals - ----------------------------------------------------------------------------- Net interest income ............... $ 6,958 $ 207 $ 7,165 Non-interest income: Loan servicing and other fees (1)....................... (116) 704 588 Gain on sale of loans, net ...... 84 184 268 Real estate operations, net ..... 188 4 192 Other ........................... 519 2 521 - ----------------------------------------------------------------------------- Total non-interest income ..... 675 894 1,569 Non-interest expense: Salaries and employee benefits .. 2,806 774 3,580 Premises and occupancy .......... 337 187 524 Operating and administrative expenses........................ 1,464 456 1,920 - ----------------------------------------------------------------------------- Total non-interest expense .... 4,607 1,417 6,024 - ----------------------------------------------------------------------------- Income (loss) before taxes ........ $ 3,026 $ (316) $ 2,710 ============================================================================= Total assets, end of period ........$1,094,638 $ 71,188 $1,165,826 ============================================================================= Note: (1) Inter-company fees paid to Mortgage Banking for loans originated for portfolio. During the 3rd quarter of fiscal 2000, Mortgage Banking originated loans for portfolio of approximately $17.9 million. 7
For the Nine Months Ended March 31, 2001 ---------------------------------------- Savings Mortgage Consolidated Bank Banking Totals - ----------------------------------------------------------------------------- Net interest income ............... $ 18,885 $ 665 $ 19,550 Non-interest income: Loan servicing and other fees.... 602 956 1,558 (Loss) gain on sale of loans, net............................ (48) 4,816 4,768 Real estate operations, net...... 542 (8) 534 Other ........................... 2,157 163 2,320 - ----------------------------------------------------------------------------- Total non-interest income ..... 3,253 5,927 9,180 Non-interest expense: Salaries and employee benefits... 8,507 2,815 11,322 Premises and occupancy .......... 1,008 404 1,412 Operating and administrative expenses ....................... 3,522 1,998 5,520 - ----------------------------------------------------------------------------- Total non-interest expense..... 13,037 5,217 18,254 - ----------------------------------------------------------------------------- Income before taxes ............... $ 9,101 $ 1,375 $ 10,476 ============================================================================= Total assets, end of period ....... $1,025,360 $ 132,533 $1,157,893 ============================================================================= For the Nine Months Ended March 31, 2000 ---------------------------------------- Savings Mortgage Consolidated Bank Banking Totals - ----------------------------------------------------------------------------- Net interest income ............... $ 21,110 $ 486 $ 21,596 Non-interest income: Loan servicing and other fees(1)........................ (1,649) 3,577 1,928 Gain on sale of loans, net ...... 46 1,668 1,714 Real estate operations, net ..... 244 9 253 Other ........................... 1,742 2 1,744 - ----------------------------------------------------------------------------- Total non-interest income ..... 383 5,256 5,639 Non-interest expense: Salaries and employee benefits .. 8,107 2,837 10,944 Premises and occupancy .......... 992 532 1,524 Operating and administrative expenses ....................... 4,039 2,027 6,066 - ----------------------------------------------------------------------------- Total non-interest expense .... 13,138 5,396 18,534 - ----------------------------------------------------------------------------- Income before taxes ............... $ 8,355 $ 346 $ 8,701 ============================================================================= Total assets, end of period ...... $1,094,638 $ 71,188 $1,165,826 ============================================================================= Note: (1) Inter-company fees paid to Mortgage Banking for loans originated for portfolio. For the year to date fiscal 2000, Mortgage Banking originated loans for portfolio of approximately $193.9 million. 8
Note 4: Recent Accounting Pronouncement The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Financial Instruments and Hedging Activities", as amended by SFAS No. 137 and 138, on July 1, 2000. This statement establishes new accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. There was no significant impact on the overall financial statements upon adoption. This statement continues to evolve as the Derivatives Implementation Group ("DIG"), a task force formed by the Emerging Issues Task Force ("EITF"), makes additional interpretations. The DIG's interpretations are not considered authoritative until cleared by the Financial Accounting Standards Board ("FASB"). It is possible that the DIG's ongoing efforts to interpret this statement could have an impact on the Company's present accounting treatment. For example, upon adoption of SFAS No. 133, the Company accounted for loan commitments on loans classified as held for sale as outside the scope of SFAS No. 133. In December 2000, the DIG released a tentative conclusion that loan commitments on loans that will be classified as held for sale are derivatives pursuant SFAS No. 133. The FASB has not cleared this interpretation, therefore the Company has not adopted the DIG's tentative conclusion. However, at some future date, the Company may elect to adopt or be required to adopt the DIG conclusion. The Company has not determined if the adoption of this interpretation will have a material impact on the Company's statement of operations. ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations General Provident Financial Holdings, Inc. ("Provident Financial" or the "Company"), a Delaware corporation, was organized in January 1996 for the purpose of becoming the holding company for Provident Savings Bank, F.S.B. ("Savings Bank") upon the Savings Bank's conversion from a federal mutual to a federal stock savings bank ("Conversion"). The Conversion was completed on June 27, 1996. At March 31, 2001, the Company had total assets of $1.2 billion, total deposits of $723.4 million and total stockholders' equity of $95.3 million. Provident Financial has not engaged in any significant activity other than holding the stock of the Savings Bank. Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Savings Bank and its subsidiaries. The Savings Bank, founded in 1956, is federally chartered and headquartered in Riverside, California. The Savings Bank is regulated by the Office of Thrift Supervision ("OTS"), its primary federal regulator, and the Federal Deposit Insurance Corporation ("FDIC"), the insurer of its deposits. The Savings Bank's deposits are federally insured up to applicable limits by the FDIC (under the Savings Association Insurance Fund ("SAIF")). The Savings Bank has been a member of the Federal Home Loan Bank ("FHLB") system since 1956. The Savings Bank's business consists of consumer and commercial banking operations and mortgage banking activities. The savings and loan operations primarily consist of accepting deposits from customers within the communities surrounding the Savings Bank's full service offices and investing these funds in commercial real estate, construction, business, consumer loans and, to a lesser extent, one-to-four family, multi-family and other loans. In addition, the Savings Bank also facilitates business checking accounts and other business banking services, including the servicing of loans for others. Mortgage banking activities consist of the origination and sale of mortgage and consumer loans secured primarily by one-to-four-family residences. The Savings Bank's revenues are derived principally from interest on its loan and investment portfolio and fees generated through its traditional banking and mortgage banking activities. 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 Unaudited Interim Consolidated Financial Statements and accompanying Selected Notes to Unaudited Interim Consolidated Financial Statements. 9
Comparison of Financial Condition at March 31, 2001 and June 30, 2000 Total assets as of March 31, 2001 increased by $10.1 million to $1.16 billion from $1.15 billion at June 30, 2000. This increase was primarily due to an increase of $67.4 million, or 129 percent, in loans held for sale to $119.4 million at March 31, 2001 from $52.0 million at June 30, 2000. This increase was partially offset by a decrease of $54.5 million in loans held to maturity to $770.4 million at March 31, 2001 from $824.9 million at June 30, 2000. In January 2001, mortgage rates began to decline triggering a significant increase in the refinance market. As a result, the balance of loans held for sale increased substantially, while the balance of loans held to maturity decreased at a similar pace. Total deposits increased to $723.4 million at March 31, 2001 from $696.5 million at June 30, 2000. This increase was attributable mainly to the increase in savings and transactional accounts. The Company continued its focus on building client relationships through checking accounts and other banking products and services. The increase in total deposits was used to replace a portion of the FHLB advances which matured during the period. Total borrowings, which primarily consist of FHLB advances, declined by $26.2 million to $315.5 million at March 31, 2001 from $341.7 million at June 30, 2000. The average maturity of the Company's existing FHLB advances has been extended from 10.3 months at June 30, 2000 to 19.2 months at March 31, 2001. The Company's decision to extend the average maturity of the borrowings has improved the maturity gap between its assets and liabilities, which further decreases the Company's susceptibility to future interest rate fluctuations. Total stockholders' equity increased by $6.3 million during the nine months ended March 31, 2001, resulting mainly from net income for the nine months, quarterly ESOP accruals and an increase in unrealized gains on securities available for sale. This increase was partially reduced by the Company's stock repurchases during the nine months of fiscal 2001. A total of 68,975 shares, with an average price of $18.76 per share, were repurchased during the nine months of fiscal 2001. This resulted in a total of 89,975 shares, or 46 percent, of 197,000 shares repurchased pursuant to the March 2000 stock repurchase authorization, with an average cost of $17.83 per share. This stock repurchase authorization expired on March 8, 2001. On March 22, 2001, the Board of Directors approved the March 2001 stock repurchase program which authorized the repurchase of up to five percent of the outstanding shares or approximately 193,000 shares over a one year period. As of May 14, 2001, 21,000 shares had been repurchased with an average price of $21.39. Comparison of Operating Results for the Quarters and Nine Months Ended March 31, 2001 and 2000 The Company's net income for the quarter ended March 31, 2001 was $2.3 million, an increase of $758,000, or 48 percent, from $1.6 million during the same quarter in 2000. This increase was primarily attributable to an increase in the gain on sale of loans, which was partly offset by the decline in net interest income. For the nine months ended March 31, 2001 and 2000, the Company's net income was $ 6.1 million and $5.0 million, respectively. The Company's net interest income before loan and lease losses decreased by $726,000, or 10 percent to $6.6 million for the quarter ended March 31, 2001 from $7.3 million during the comparable period of 2000. This decrease resulted from an increase in the cost of funds, which outpaced the increase in yield on earning assets. The net interest margin narrowed to 2.44 percent in the third quarter of fiscal 2001 from 2.57 percent during the same period of fiscal 2000. For the nine months ended March 31, 2001 and 2000, net interest income was $19.6 million and $21.8 million, respectively; and the net interest margin was 2.41 percent and 2.74 percent, respectively. The Company's efficiency ratio improved to 60 percent in the third quarter of fiscal 2001 from 69 percent in the same period of fiscal 2000. For the nine months ended March 31, 2001 and 2000, the efficiency ratio was 64 percent and 68 percent, respectively. 10
Return on average assets for the quarters ended March 31, 2001 and 2000 was 0.83 percent and 0.53 percent, respectively. For the nine months ended March 31, 2001 and 2000, the return on average assets was 0.72 percent and 0.61 percent, respectively. Return on average equity for the quarters ended March 31, 2001 and 2000 was 10.61 percent and 7.38 percent, respectively. For the nine months ended March 31, 2001 and 2000, the return on average equity was 9.21 percent and 7.77 percent, respectively. Diluted earnings per share for the quarter ended March 31, 2001 was $0.65, an increase of 44 percent from $0.45 for the quarter ended March 31, 2000. For the nine months ended March 31, 2001 and 2000, the diluted earnings per share were $1.70 and $1.35, respectively. The increase in the diluted earnings per share reflects the effect of the Company's stock repurchase program during fiscal years 2001 and 2000 and a $1.1 million increase in net income for the nine months ended March 31, 2001 as compared to the same period in 2000. Interest Income. Interest income decreased by $505,000, or 3 percent, to $20.2 million for the quarter ended March 31, 2001 from $20.7 million during the same quarter in 2000. This decrease was primarily the result of a lower average loan balance, which was partially offset by a higher average loan yield. The average earning assets during the third quarter of fiscal 2001 were $1.08 billion, down $59.5 million or 5 percent, from $1.14 billion during the same period last year. The average yield on earning assets during the third quarter of fiscal 2001 was 7.46 percent, 21 basis points higher than the average yield of 7.25 percent during the same period last year. Loan interest income decreased by $578,000, or 3 percent, to $16.7 million in the quarter ended March 31, 2001 as compared to $17.3 million for the same period in 2000. This decrease was attributable to a lower average loan balance, which was partially offset by an increase in the average loan yield. The average loans outstanding, including those available for sale, decreased by $56.8 million to $860.1 million during the third quarter of fiscal 2001 from $916.8 million during the same quarter of fiscal 2000. The decrease of the loan average balance was primarily attributable to loan prepayments due to a decline in mortgage rates which began in January 2001. The average loan yield during the third quarter of fiscal 2001 was 7.76 percent as compared to 7.53 percent during the same quarter last year. The increase in the average loan yield was the result of the lagging impact of the increase of market interest rates during the period from May 1999 through December 2000. The interest income from investment securities, including Federal Home Loan Bank ("FHLB") stock and interest-earning deposits, increased by $73,000, or 2 percent to $3.5 million during the quarter ended March 31, 2001 from $3.4 million during the same quarter in 2000. This increase was primarily due to an increase in FHLB dividends ($33,000) resulting from a higher yield, an increase in interest income for overnight deposits ($32,000) and the recognition of additional interest on investment securities which were called and had remaining discounts ($22,000). The average balance of investment securities remained virtually unchanged at $203.8 million, while the average balance of FHLB stock declined to $16.5 million during the third quarter of fiscal 2001 from $20.5 million during the same period of fiscal 2000. The average yield on investment securities increased by 3 basis points to 6.28% during the third quarter of fiscal 2001 from 6.25% during the same period last year. The average yield on FHLB stock increased by 195 basis points to 6.59% during the third quarter of fiscal 2001 from 4.64% during the same period last year. For the nine months ended March 31, 2001, total interest income increased by $3.5 million, or 6 percent, to $60.6 million as compared to $57.1 million for the same period in 2000. This increase was attributable to an increase of the average earning-asset yield and the FHLB stock dividend accrual of $271,000, which in the prior period, was not recognized until received. The average yield on earning assets increased by 28 basis points to 7.47 percent during the nine months ended March 31, 2001 from 7.19 percent during the same period in 2000. The average earning assets increased by $23.8 million, or 2 percent, to $1.08 billion during the nine months of fiscal 2001 from $1.06 billion during the same period of fiscal 2000. The interest income on loans increased by $2.7 million, or 6 percent, to $49.8 million during the nine months of fiscal 2001 from $47.1 million during the same period of fiscal 2000. The average loans outstanding increased by $21.4 million, or 3 percent, to $860.2 million during the nine months ended March 31, 2001 from $838.8 million during the same period in 2000. The average yield on loans increased 11
by 24 basis points to 7.72 percent during the nine months of fiscal 2001 as compared to 7.48 percent during the same period in fiscal 2000. The interest income on investment securities, including FHLB stock and other interest-earning deposits, increased by $751,000, or 7 percent, to $10.8 million during the nine months of fiscal 2001 from $10.1 million during the same period of fiscal 2000. This increase was primarily due to an increase in average investment balances and a change in the income recognition of the FHLB stock dividend as previously described. The average balance of investment securities decreased to $203.3 million during the nine months of fiscal 2001 from $203.9 million during the same period of fiscal 2000. The average yield on investment securities remained at 6.26 percent during the nine-month period in fiscal 2001 as compared to the same period last year. The average balance of FHLB stock increased to $17.3 million during the nine months of fiscal 2001 from $16.6 million during the same period of fiscal 2000. The average yield on FHLB stock increased to 9.03 percent during the nine-month period in fiscal 2001 as compared to 4.14 percent during the same period last year. Excluding the additional FHLB dividend accrual, the current year-to-date yield of FHLB stock would have been 6.95 percent. Interest Expense. Interest expense for the quarter ended March 31, 2001 was $13.6 million as compared to $13.4 million for the same period in 2000, an increase of $221,000, or 2 percent. This increase was primarily attributable to an increase in average balance and average cost of deposits, which was partially offset by a higher average cost of borrowings over a lower average balance. The average cost of liabilities was 5.44 percent during the quarter ended March 31, 2001, up 46 basis points compared to 4.98 percent during the same period in 2000. The average balance of interest-bearing liabilities declined by $65.7 million to $1.01 billion during the third quarter of fiscal 2001 from $1.08 billion during the same period last year. Interest expense on deposits for the quarter ended March 31, 2001 was $8.7 million as compared to $7.8 million for the same period in 2000, an increase of $955,000, or 12 percent. Average deposits increased by $7.9 million to $710.8 million during the quarter ended March 31, 2001 from $702.9 million during the same period in 2000. The average cost of deposits increased to 4.99 percent during the quarter ended March 31, 2001 from 4.45 percent during the same quarter in 2000. The increase in the average cost on deposits was due to the lagging impact of rising market interest rates mentioned earlier. Interest expense on borrowings for the quarter ended March 31, 2001 was $4.8 million as compared to $5.6 million for the same period in 2000, a decrease of $734,000, or 13 percent. The average borrowings, which are mainly FHLB advances, were $302.0 million during the quarter ended March 31, 2001 as compared to $375.7 million for the same quarter in 2000, a decrease of $73.6 million. The average cost on the borrowings increased to 6.51 percent for the quarter ended March 31, 2001 from 5.97 percent in the same quarter in 2000. The increase in the average cost on borrowings was due to the lagging impact of rising market interest rates and the replacement of short-term borrowings with long-term borrowings. As of March 31, 2001, the average maturity of FHLB borrowings was at 19.2 months as compared to 8.0 months at March 31, 2000. For the nine months ended March 31, 2001, total interest expense increased by $5.7 million, or 16 percent, to $41.1 million as compared to $35.4 million for the same period in 2000. The average cost of interest-bearing liabilities increased by 70 basis points to 5.42 percent during the nine months of fiscal 2001 as compared to 4.72 percent during the same period of fiscal 2000. The average balance of interest-bearing liabilities during the nine-month period of fiscal 2001 increased by $18.0 million, or 2 percent, to $1.01 billion as compared to $994.3 million during the same period last year. For the nine months ended March 31, 2001, total interest expense on deposits increased by $3.5 million, or 16 percent, to $25.9 million as compared to $22.4 million for the same period in 2000. The average deposits increased by $14.7 million, or 2 percent, to $701.3 million as compared to $686.6 million during the same period in 2000. The average cost of deposits increased by 60 basis points to 4.93 percent during the nine months of fiscal 2001 as compared to 4.33 percent during the same period in fiscal 2000. For the nine months ended March 31, 2001, total interest expense on borrowings increased by $2.2 million, or 17 percent, to $15.2 million as compared to $13.0 million for the same period in 2000. Average borrowings increased by $3.4 million, or 1 percent, to $311.1 million as compared to $307.7 million during 12
the same period of fiscal 2000. The average cost of borrowings increased by 92 basis points to 6.52 percent during the nine months of fiscal 2001 as compared to 5.60 percent during the same period of fiscal 2000. The following tables depict the average balance sheets for the quarter and nine months ended March 31, 2001 and 2000, respectively: <TABLE> Average Balance Sheets (dollars in thousands) Quarter Ended Quarter Ended March 31, 2001 March 31, 2000 ------------------------------------ ----------------------------------- Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost ------------ ----------- ------ ------------ ----------- ------ <S> <C> <C> <C> <C> <C> <C> Interest-earning assets: Loans receivable, net (1).. $ 860,059 $ 16,688 7.76% $ 916,825 $ 17,266 7.53% Investment securities ..... 203,840 3,200 6.28% 203,453 3,177 6.25% FHLB stock................. 16,453 271 6.59% 20,517 238 4.64% Interest-earning deposits.. 2,587 39 6.03% 1,659 22 5.30% ------------ ----------- ------ ------------ ----------- ------ Total interest-earning assets ................... 1,082,939 20,198 7.46% 1,142,454 20,703 7.25% Non-interest earning assets.................... 49,902 47,424 ------------ ------------ Total assets............... $ 1,132,841 $ 1,189,878 ============ ============ Interest-bearing liabilities: Savings accounts .......... 101,236 893 3.58% 85,172 627 2.96% Demand and NOW accounts.... 151,779 923 2.47% 152,008 973 2.57% Certificates of deposit.... 457,830 6,923 6.13% 465,746 6,184 5.34% ------------ ----------- ------ ------------ ----------- ------ Total Deposits ............ 710,845 8,739 4.99% 702,926 7,784 4.45% FHLB advances.............. 299,015 4,784 6.49% 372,097 5,507 5.95% Other borrowings........... 3,018 61 8.20% 3,581 72 8.09% ------------ ----------- ------ ------------ ----------- ------ Total borrowings........... 302,033 4,845 6.51% 375,678 5,579 5.97% ------------ ----------- ------ ------------ ----------- ------ Total interest-bearing liabilities............... 1,012,878 13,584 5.44% 1,078,604 13,363 4.98% Non-interest-bearing liabilities............... 31,774 25,572 ------------ ------------ Total liabilities.......... 1,044,652 1,104,176 Stockholders' equity....... 88,189 85,702 ------------ ------------ Total liabilities and stockholders' equity...... $ 1,132,841 $ 1,189,878 ============ ----------- ============ ----------- Net interest income........ $ 6,614 $ 7,340 =========== =========== Interest rate spread (2)... 2.02% 2.27% Net interest margin (3).... 2.44% 2.57% Ratio of average interest- earning assets to average interest-bearing liabilities............... 106.92% 105.92% Return on average assets... 0.83% 0.53% Return of average equity... 10.61% 7.38% (1) Includes loans held for sale, net (2) Represents the 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 and lease losses as a percentage of average interest-earning assets </TABLE> 13
<TABLE> Average Balance Sheets (dollars in thousands) Nine Months Ended Nine Months Ended March 31, 2001 March 31, 2000 ------------------------------------ ----------------------------------- Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost ------------ ----------- ------ ------------ ----------- ------ <S> <C> <C> <C> <C> <C> <C> Interest-earning assets: Loans receivable, net (1)...$ 860,146 $ 49,816 7.72% $ 838,786 $ 47,068 7.48% Investment securities....... 203,324 9,550 6.26% 202,860 9,523 6.26% FHLB stock (2).............. 17,297 1,172 9.03% 16,600 516 4.14% Interest-earning deposits... 2,157 102 6.31% 878 34 5.16% ------------ ----------- ------ ------------ ----------- ------ Total interest-earning assets ................... 1,082,924 60,640 7.47% 1,059,124 57,141 7.19% Non-interest earning assets ................... 48,405 46,715 ------------ ------------ Total assets ............. $ 1,131,329 $ 1,105,839 ============ ============ Interest-bearing liabilities: Savings accounts........... 92,928 2,418 3.47% 84,773 1,772 2.77% Demand and NOW accounts ... 151,473 2,779 2.45% 149,857 3,024 2.68% Certificates of deposit.... 456,881 20,688 6.04% 451,974 17,599 5.17% ------------ ----------- ------ ------------ ----------- ------ Total Deposits ............ 701,282 25,885 4.93% 686,604 22,395 4.33% FHLB advances.............. 307,932 15,013 6.51% 306,141 12,878 5.58% Other borrowings........... 3,152 192 8.13% 1,575 97 8.17% ------------ ----------- ------ ------------ ----------- ------ Total borrowings........... 311,084 15,205 6.52% 307,716 12,975 5.60% ------------ ----------- ------ ------------ ----------- ------ Total interest-bearing liabilities............... 1,012,366 41,090 5.42% 994,320 35,370 4.72% Non-interest-bearing liabilities............... 30,536 25,010 ------------ ------------ Total liabilities ......... 1,042,902 1,019,330 Stockholders' equity....... 88,427 86,509 ------------ ------------ Total liabilities and stockholders' equity...... $ 1,131,329 $ 1,105,839 ============ ------------ ============ ----------- Net interest income........ $ 19,550 $ 21,771 ============ =========== Interest rate spread (3)... 2.05% 2.47% Net interest margin (4).... 2.41% 2.74% Ratio of average interest- earning assets to average interest-bearing liabilities .............. 106.97% 106.52% Return on average assets... 0.72% 0.61% Return of average equity .. 9.21% 7.77% (1) Includes loans held for sale, net (2) Includes accruals of FHLB dividends in fiscal 2001 ($271,000) which was not recognized in the prior year until received (3) Represents the difference between weighted average yield on all interest-earning assets and weighted average rate on all interest-bearing liabilities (4) Represents net interest income before provision for loan and lease losses as a percentage of average interest-earning assets </TABLE> 14
The following table provides the rate/volume variances for the quarter and nine months ended March 31, 2001 and 2000 respectively: Rate/Volume Variance (dollars in thousands) Quarter Ended March 31, 2001 Compared to Quarter Ended March 31, 2000 Increase (Decrease) Due to - ----------------------------------------------------------------------------- Rate/ Rate Volume Volume Net -------- -------- ------- -------- Interest income: Loans receivable (1)..............$ 523 $ (1,069) $ (32) $ (578) Investment securities............. 16 6 - 22 FHLB stock........................ 100 (47) (20) 33 Interest-bearing deposits......... 4 12 2 18 -------- -------- ------- -------- Total net change in income on interest-earning assets........ 643 (1,098) (50) (505) Interest-bearing liabilities: Savings accounts.................. 124 117 24 265 Demand and NOW accounts........... (49) (1) - (50) Certificates of deposit........... 859 (104) (15) 740 FHLB advances..................... 447 (1,073) (97) (723) Other borrowings.................. - (11) - (11) -------- -------- ------- -------- Total net change in expense on interest-bearing liabilities ...... 1,381 (1,072) (88) 221 -------- -------- ------- -------- Net change in net interest (loss) income......................$ (738) $ (26) $ 38 $ (726) ======== ======== ======= ======== (1) Includes loans held for sale. For purposes of calculating volume, rate and rate/volume variances, non accrual loans were included in the weighted average balance outstanding. 15
Nine Months Ended March 31, 2001 Compared to Nine Months Ended March 31, 2000 Increase (Decrease) Due to - ----------------------------------------------------------------------------- Rate/ Rate Volume Volume Net -------- -------- ------- -------- Interest income: Loans receivable (1)..............$ 1,511 $ 1,199 $ 38 $ 2,748 Investment securities ............ 5 22 - 27 FHLB stock........................ 608 22 26 656 Interest-bearing deposits......... 7 50 11 68 -------- -------- ------- -------- Total net change in income on interest-earning assets........ 2,131 1,293 75 3,499 Interest-bearing liabilities: Savings accounts ................. 433 170 43 646 Demand and NOW accounts........... (274) 32 (3) (245) Certificates of deposit........... 2,867 190 32 3,089 FHLB advances..................... 1,593 476 66 2,135 Other borrowings.................. (1) 97 (1) 95 -------- -------- ------- -------- Total net change in expense on interest-bearing liabilities...... 4,618 965 137 5,720 -------- -------- ------- -------- Net change in net interest (loss) income.....................$ (2,487) $ 328 $ (62) $ (2,221) ======== ======== ======= ======== (1) Includes loans held for sale. For purposes of calculating volume, rate and rate/volume variances, non accrual loans Were included in the weighted average balance outstanding. Provision for Loan and Lease Losses. No loan and lease loss provisions were added during the third quarter of fiscal 2001 as compared to $175,000 during the same period of fiscal 2000. The allowance for loan and lease losses was $6.7 million at March 31, 2001 as compared to $6.9 million for the same period in 2000. The allowance as a percent of gross loans held for investment at March 31, 2001 was 0.86 percent as compared to 0.81 percent at March 31, 2000. The allowance for loan and lease 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 and lease loss experience, current 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 and lease losses. Future adjustments to the allowance for loan and lease 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. 16
The following table is provided to disclose additional details on the Company's allowance for loan and lease losses and asset quality: Allowance for Loan and Lease Losses (dollars in thousands) For the Quarter Ended For the Nine Months Ended March 31 March 31 ----------------------- ------------------------ 2001 2000 2001 2000 --------- ----------- ---------- ---------- Allowance at beginning of period ............... $ 6,823 $ 6,727 $ 6,850 $ 6,727 Provision for loan and lease losses ........... - 175 - 175 Recoveries: Mortgage loans: One-to-four family ..... - 24 - - Multifamily ........... - - - - Commercial ............. - - - - Construction ........... - - - - Consumer loans ........... - - - - Commercial business lending ................. - - - - --------- ----------- ---------- ---------- Total recoveries........ - - 24 - Charge-offs: Mortgage loans: One-to-four family ..... (106) - (155) - Multifamily ........... - (5) - (5) Commercial ............. - - - - Construction ........... - - - - Consumer loans ........... (1) - (3) - Commercial business lending.................. - (5) - (5) --------- ----------- ---------- ---------- Total charge-offs ...... (107) (10) (158) (10) --------- ----------- ---------- ---------- Net (charge-offs) recoveries............. (107) (10) (134) (10) --------- ----------- ---------- ---------- Balance at end of period............... $ 6,716 $ 6,892 $ 6,716 $ 6,892 ========= =========== ========== ========== Allowance for loan and lease losses as a per- centage of gross loans held for investment..... 0.86% 0.81% 0.86% 0.81% Net charge-offs as a per- centage of average loans outstanding during the period.................. 0.05% - 0.02% - Allowance for loan and lease losses as a per- centage of non-performing loans at the end of the period.............. 332.31% 357.47% 332.31% 357.47% 17
Asset Quality. The following table is provided to disclose additional details on asset quality (dollars in thousands): At March 31, At March 31, 2001 2000 ----------- ----------- Loans accounted for on a non-accrual basis: Mortgage loans: One-to-four family........................... $ 1,628 $ 1,759 Multi-family................................. - - Commercial................................... 302 63 Construction................................. - - Consumer loans................................. 91 104 Commercial business lending ................... - - Other loans.................................... - - ----------- ----------- Total........................................ 2,021 1,926 Accruing loans which are contractually past due 90 days or more: Mortgage loans: One-to-four family .......................... - - Multifamily.................................. - - Commercial................................... - - Construction................................. - - Consumer loans ................................ - - Commercial business lending.................... - - Other loans.................................... - - ----------- ----------- Total........................................ - - Total of non-accrual and 90 days past due loans............................... 2,021 1,926 Real estate owned.............................. 1,075 1,734 ----------- ----------- Total non-performing assets ................... $ 3,096 $ 3,660 =========== =========== Restructured loans............................. $ 1,467 $ 1,487 Non-accrual and 90 days or more past due loans as a percentage of loans held for investment, net.............................. 0.26% 0.23% Non-accrual and 90 days or more past due loans as a percentage of total assets.............. 0.17% 0.17% Non-performing assets as a percentage of total assets ................................ 0.27% 0.31% 18
The Company reviews significant 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, financial condition of the borrower and the 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 $1.7 million, or 109 percent, to $3.3 million during the quarter ended March 31, 2001 from $1.6 million during the same period in 2000. The increase in non-interest income was primarily attributable to an increase in gains from the sale of loans. The gain on sale of loans increased by $1.7 million, or 619 percent, to $1.9 million for the quarter ended March 31, 2001 from $268,000 during the same quarter in 2000. This increase was primarily due to a higher volume of loans originated for sale and higher loan sale margins in the third quarter of fiscal 2001 compared to the same quarter of fiscal 2000. Total loans originated for sale during the third quarter of fiscal 2001 increased by $125.9 million, or 136 percent, to $218.0 million as compared to $92.1 million in the same period in fiscal 2000. The increase of the loans originated for sale was a result of recent declines in mortgage rates which sparked the refinance market which began in January 2001. The average loan sale margin during the third quarter of fiscal 2001 was approximately 0.88 percent as compared to 0.29 percent during the same period of fiscal 2000. The gain on sale of loans in the third quarter of fiscal 2000 was affected by the sale of portfolio first trust deed loans as part of the interest rate risk mitigation action taken by Management. The estimated loss from this action was approximately $500,000, which accounted for approximately 0.54 percent of the 0.59 percent difference between the current quarter's loan sale margin in comparison to the same period last year. For the nine months ended March 31, 2001, non-interest income increased by $3.5 million, or 63 percent, to $9.2 million from $5.6 million during the same period in 2000. The increase in non-interest income was primarily attributable to an increase in the gains on sale of loans and the gains on sale of investment securities. Non-Interest Expenses. Non-interest expense decreased by $91,000 to $5.9 million during the quarter ended March 31, 2001 from $6.0 million in the same period in 2000. This decrease was primarily attributable to a decrease in premises and occupancy expense resulting from mortgage lending offices which were closed, sold or consolidated during the first quarter and a decrease in equipment expenses associated with lower equipment depreciation expense. These cost savings were partially offset by an increase in salaries and benefits. Non-interest expenses as a percentage of average assets increased to 2.09 percent during the third quarter of fiscal 2001 from 2.03 percent during the same period of fiscal 2000. For the nine months ended March 31, 2001, non-interest expense decreased by $280,000 to $18.3 million from $18.5 million during the same period last year. This decrease was mainly due to the decrease of premises and occupancy, equipment, professional and marketing expenses. These cost savings were partially offset by an increase in salary and employee benefits and other operation and administrative costs. Non-interest expense as a percentage of average assets improved to 2.15 percent during the nine months of fiscal 2001 from 2.23 percent during the same period of fiscal 2000. Income taxes. Income tax expense was $1.6 million for the quarter ended March 31, 2001 as compared to $1.1 million during the same period in 2000. The effective tax rate for the third quarter ended March 31, 2001 and 2000 was 41 percent and 42 percent, respectively. For the nine months ended March 31, 2001, income tax expense was $4.4 million as compared to $3.7 million during the same period in 2000. The effective tax rate for the nine months ended March 31, 2001 and 2000 was 42 percent. 19
The following table is provided to disclose additional details related to the volume of loans originated, purchased and sold: Loan Volume Activities (dollars in thousands) For the For the Quarter Ended Nine Months Ended March 31, March 31, ---------------------- ----------------------- 2001 2000 2001 2000 --------- ---------- ---------- ---------- Loans originated for sale: Retail originations ...... $ 81,794 $ 49,874 $ 200,495 $ 173,590 Wholesale originations.... 136,168 42,238 257,712 119,548 --------- ---------- ---------- ---------- Total loans originated for sale................ 217,962 92,112 458,207 293,138 Loans sold: Servicing released........ 145,141 130,656 376,575 280,035 Servicing retained........ - - - 1,275 --------- ---------- ---------- ---------- Total loans sold.......... 145,141 130,656 376,575 281,310 Loans originated for portfolio: Mortgage loans: One-to-four family........ - 17,947 - 193,873 Multifamily .............. - - - 2,100 Commercial................ - 450 1,250 3,063 Construction loans........ 13,070 11,477 35,367 38,292 Consumer .................. 120 4,791 120 13,209 Commercial business lending................... 2,977 624 5,036 6,441 Other loans................ 205 203 205 875 --------- ---------- ---------- ---------- Total loans originated for portfolio............... 16,372 35,492 41,978 257,853 Loans purchased for portfolio: Mortgage loans: Multifamily .............. 3,212 - 3,212 - Commercial ............... 1,825 789 5,315 5,914 Construction loans ....... 10,520 703 11,755 703 --------- ---------- ---------- ---------- Total loans purchased..... 15,557 1,492 20,282 6,617 Mortgage loan principal repayments ................ 50,942 22,663 122,500 95,618 Real estate acquired in settlement of loans ...... 982 111 1,726 1,144 (Decrease) increase in other items, net(1)........ (7,069) 3,271 (6,775) 5,597 --------- ---------- ---------- ---------- Net increase (decrease) in loans receivable, net..... $ 45,757 $ (21,063) $ 12,891 $ 185,133 ========= ========== ========== ========== (1) Includes changes in loans in process, discounts, deferred fees and costs and loan and lease loss reserves. 20
Liquidity and Capital Resources. The Company's primary sources of funding include deposits, proceeds from loan principal and interest payments, 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 FHLB of San Francisco equal to 40 percent of total assets, which, on March 31, 2001 permitted additional advances of $137.0 million, in addition to having unsecured lines of $75 million with its correspondent banks. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows, loan sales, and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition. By regulation, the Savings Bank must maintain minimum liquidity equal to 4 percent of deposits and short-term borrowings. Liquidity is measured by cash and readily marketable securities which are not committed, pledged, or required as collateral for specific liabilities. The Savings Bank's average liquidity ratios for the third quarter of fiscal 2001 and 2000 were 21 percent and 9 percent, respectively. The substantial improvement of the Savings Bank's quarterly average liquidity was attributable mainly to an adjustment made in the calculation on the unused portion of the pledged investment securities. The Savings Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum 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 action, 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 judgments by the regulators about components, risk-weightings, and other factors. The Savings Bank's actual and required capital amounts and ratios as of March 31, 2001 are as follows (dollars in thousands): Amount Percent ------- ------- Tangible capital ...................... $ 81,332 7.12% Requirement............................ 17,144 1.50% --------- ----- Excess over requirement ............... $ 64,188 5.62% ========= ===== Tier 1 (core) capital ................. $ 81,332 7.12% Requirement to be "Well Capitalized"... $ 57,146 5.00% --------- ----- Excess over requirement................ $ 24,186 2.12% ========= ===== Total risk-based capital............... $ 88,580 14.08% Requirement to be "Well Capitalized"... 62,909 10.00% --------- ----- Excess over requirement................ $ 25,671 4.08% ========= ===== Tier 1 risk-based capital.............. $ 81,332 12.93% Requirement to be "Well Capitalized"... $ 37,745 6.00% --------- ----- Excess over requirement................ $ 43,587 6.93% ========= ===== 21
Supplemental Information March 31, 2001 June 30, 2000 March 31, 2000 ----------------- ------------- ---------------- Loans serviced for others (in thousands)..... $ 223,271 $ 261,183 $ 286,708 Book value per share ...... $ 24.72 $ 22.68 $ 21.99 Forward Looking Statement Certain matters discussed in this Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market, potential future credit experience, and statements regarding the Company's mission and vision. These forward-looking statements are based upon current management expectations, and may therefore involve risks and uncertainties. The Company's actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward looking statements due to a wide range of factors including, but not limited to, the general business environment, interest rates, competitive conditions between banks and non-bank financial services providers, local and national economic conditions, regulatory changes and other risks detailed in the Company's reports filed with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended June 30, 2000. 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. 22
Item 4. Submission of Matters to a Vote of Shareholders Not applicable. Item 5. Other Information The construction of two branches located in Temecula and Corona, California is in progress. The Temecula and Corona branches have been approved by the Office of Thrift Supervision and are projected to open in July 2001. The estimated capital expenditure budget for Temecula (owned facility) and Corona (leased facility) is $1.52 million and $410,000, respectively. The lease commitment for Corona is approximately $318,000 over five years. The estimated break-even period for the branches is thirty months. Item 6. Exhibits and Reports on Form 8-K a) Exhibits: None. b) Reports on Form 8-K Two Form 8-Ks were filed with the Securities and Exchange Commission as follows: 1) On March 5, 2001: Regarding an increase in size of the Board of Directors from six to seven and its appointment of Mr. Joseph P. Barr as the new board member. 2) On March 22, 2001: Regarding an authorization of a stock repurchase program, up to 5 percent or approximately 193,000 shares, over a one year period. 23
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 14, 2001 /s/ Craig G. Blunden ------------------------------------- Craig G. Blunden President and Chief Executive Officer (Principal Executive Officer) May 14, 2001 /s/ Donavon P. Ternes ------------------------------------- Donavon P. Ternes Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 24