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, 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 . ----- ----- (2) 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 FEBRUARY 1, 2002 ---------------- ---------------------- COMMON STOCK, $ 0.01 PAR VALUE 3,727,871 SHARES * * Includes 250,230 shares held by the employee stock ownership plan that have not been released, committed to be released, or allocated to participant accounts; 51,727 shares held by the management recognition plan which have been committed to be released and allocated to participant accounts; and 12,000 stock options which were exercised on January 29, 2002.
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 December 31, 2001 and June 30, 2001..................... 1 Consolidated Statements of Operations for the quarter and six months ended December 31, 2001 and 2000................................................. 2 Consolidated Statements of Stockholders' Equity for the quarter and six months ended December 31, 2001 and 2000................................................. 3 Consolidated Statements of Cash Flows for the quarter and six months ended December 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....................................................... 11 Comparison of Financial Condition at December 31, 2001 and June 30, 2001 ....................................... 11 Comparison of Operating Results for the quarter and six months ended December 31, 2001 and 2000............... 12 Asset Quality................................................. 21 Loan Volume Activities........................................ 23 Liquidity and Capital Resources............................... 23 Shareholders' Equity.......................................... 25 Stock Option Plan and Management Recognition Plan............. 25 Supplemental Information...................................... 25 PART II - OTHER INFORMATION Item 1. Legal Proceedings.................................... 26 Item 2. Changes in Securities................................ 26 Item 3. Defaults upon Senior Securities...................... 26 Item 4. Submission of Matters to Vote of Stockholders........ 26 Item 5. Other Information.................................... 27 Item 6. Exhibits and Reports on Form 8-K..................... 27 SIGNATURES............................................................. 28 1
PROVIDENT FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) Dollars In Thousands DECEMBER 31, JUNE 30, 2001 2001 ============================================================================== ASSETS Cash...................................... $ 25,897 $ 23,839 Overnight deposits........................ 71,000 3,000 - ------------------------------------------------------------------------------ Cash and cash equivalents.............. 96,897 26,839 Investment securities - held to maturity, at amortized cost(fair value $135,831 and $162,498, respectively).................. 135,099 163,332 Investment securities - available for sale at fair value............................ 87,832 41,166 Loans held for investment, net of allowance for loan losses of $5,820 and $6,068, respectively............................. 594,772 697,191 Loans held for sale, at lower of cost or market................................... 4,024 2,175 Receivable from sale of loans............. 93,838 137,286 Accrued interest receivable............... 5,626 7,001 Real estate held for investment, net...... 11,294 11,543 Real estate owned, net.................... 443 224 Federal Home Loan Bank stock.............. 15,533 16,436 Premises and equipment, net............... 8,588 7,563 Prepaid expenses and other assets......... 7,819 6,470 - ------------------------------------------------------------------------------ Total assets......................... $ 1,061,765 $ 1,117,226 ============================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Non-interest-bearing deposits............. $ 27,828 $ 25,031 Interest-bearing deposits................. 670,220 705,010 - ------------------------------------------------------------------------------ Total deposits....................... 698,048 730,041 Borrowings................................ 237,516 265,830 Accounts payable, accrued interest and other liabilities........................ 25,933 24,097 - ------------------------------------------------------------------------------ Total liabilities.................... 961,497 1,019,968 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 5,129,715 and 5,128,215 shares, respectively; outstanding 3,715,871 and 3,810,909 shares, respectively)............................ 51 51 Additional paid-in capital................ 51,756 51,544 Retained earnings......................... 78,381 73,697 Treasury stock at cost (1,413,844 and 1,317,306 shares, respectively).......... (27,311) (24,993) Unearned stock compensation............... (3,363) (3,766) Accumulated other comprehensive income, net of tax.................................. 754 725 - ------------------------------------------------------------------------------ Total stockholders' equity........... 100,268 97,258 - ------------------------------------------------------------------------------ Total liabilities and stockholders' equity.............................. $ 1,061,765 $ 1,117,226 ============================================================================== The accompanying notes are an integral part of these financial statements. 2
PROVIDENT FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Dollars In Thousands, Except Earnings Per Share QUARTER ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, -------------- ---------------- 2001 2000 2001 2000 ============================================================================== Interest income Loans receivable, net............ $ 13,002 $ 16,448 $ 27,555 $ 33,128 Investment securities............ 3,264 3,170 6,635 6,352 FHLB stock....................... 182 563 383 901 Interest-earning deposits........ 354 42 812 61 - ------------------------------------------------------------------------------ Total interest income............ 16,802 20,223 35,385 40,442 Interest expense Savings accounts................. 707 841 1,580 1,525 Demand and NOW accounts.......... 643 914 1,442 1,856 Certificates of deposit.......... 4,908 7,006 10,834 13,765 FHLB advances and other borrowings...................... 3,910 5,076 8,067 10,360 - ------------------------------------------------------------------------------ Total interest expense........... 10,168 13,837 21,923 27,506 - ------------------------------------------------------------------------------ Net interest income................. 6,634 6,386 13,462 12,936 Provision for loan losses........... 126 - 246 - - ------------------------------------------------------------------------------ Net interest income after provision for loan losses.................... 6,508 6,386 13,216 12,936 Non-interest income Loan servicing and other fees.... 483 478 1,040 1,073 Gain on sale of loans, net....... 2,869 1,531 5,129 2,840 Real estate operations, net...... 132 184 291 364 Deposit account fees............. 434 336 803 618 Other............................ 429 500 766 1,006 - ------------------------------------------------------------------------------ Total non-interest income........ 4,347 3,029 8,029 5,901 Non-interest expense Salaries and employee benefits... 4,054 3,666 8,152 7,652 Premises and occupancy........... 524 437 1,087 946 Equipment........................ 589 438 1,115 910 Professional expenses............ 185 122 362 244 Sales and marketing expenses..... 260 274 446 542 Other............................ 982 961 2,051 2,027 - ------------------------------------------------------------------------------ Total non-interest expense....... 6,594 5,898 13,213 12,321 - ------------------------------------------------------------------------------ Income before taxes................. 4,261 3,517 8,032 6,516 Provision for income taxes.......... 1,775 1,482 3,348 2,748 - ------------------------------------------------------------------------------ Net income....................... $ 2,486 $ 2,035 $ 4,684 $ 3,768 ============================================================================== BASIC EARNINGS PER SHARE............ $ 0.72 $ 0.58 $ 1.36 $ 1.07 DILUTED EARNINGS PER SHARE.......... $ 0.70 $ 0.57 $ 1.31 $ 1.05 ============================================================================== The accompanying notes are an integral part of these financial statements. 3
<TABLE> PROVIDENT FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) Dollars In Thousands, Except Shares FOR THE QUARTERS ENDED DECEMBER 31, 2001 AND 2000 Accumulated Common Additional Unearned Other Stock Paid-In Retained Treasury Stock Comprehensive Shares Amount Capital Earnings Stock Compensation Income, net of tax Total ============================================================================================================ <s> <c> <c> <c> <c> <c> <c> <c> <c> Balance at September 30, 2001......... 3,770,709 $ 51 $ 51,660 $ 75,895 $(25,992) $ (3,513) $ 1,341 $ 99,442 Comprehensive income: Net income...... 2,486 2,486 Unrealized holding losses on securities available for sale, net of tax............ (587) (587) -------- Total comprehensive income........... 1,899 Purchase of treasury stock, net....... (54,838) (1,319) (1,319) Release of shares under stock-based compensation plans............ 96 150 246 - ------------------------------------------------------------------------------------------------------------ Balance at December 31, 2001......... 3,715,871 $ 51 $ 51,756 $ 78,381 $(27,311) $ (3,363) $ 754 $100,268 ============================================================================================================ </TABLE> <TABLE> Accumulated Common Additional Unearned Other Stock Paid-In Retained Treasury Stock Comprehensive Shares Amount Capital Earnings Stock Compensation Income, net of tax Total ============================================================================================================ <s> <c> <c> <c> <c> <c> <c> <c> <c> Balance at September 2000............. 3,900,066 $ 51 $ 51,295 $ 66,544 $(23,094) $ (4,381) $ 521 $ 90,936 Comprehensive income: Net income...... 2,035 2,035 Unrealized holding gains on securities available for sale, net of tax............ 235 235 -------- Total comprehensive income........... 2,270 Purchase of treasury stock, net.............. (37,657) (837) (837) Issuance of shares under stock-option plan............. 3,000 46 46 Release of shares under stock- based compen- sation plans..... 59 252 311 - ------------------------------------------------------------------------------------------------------------ Balance at December 31, 2000............. 3,865,409 $ 51 $ 51,400 $ 68,579 $(23,931) $ (4,129) $ 756 $ 92,726 ============================================================================================================ The accompanying notes are an integral part of these financial statements. 4 </TABLE>
<TABLE> PROVIDENT FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) Dollars In Thousands, Except Shares FOR THE SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000 Accumulated Common Additional Unearned Other Stock Paid-In Retained Treasury Stock Comprehensive Shares Amount Capital Earnings Stock Compensation Income, net of tax Total ============================================================================================================ <s> <c> <c> <c> <c> <c> <c> <c> <c> Balance at June 30, 2001........ 3,810,909 $ 51 $ 51,544 $ 73,697 $(24,993) $ (3,766) $ 725 $ 97,258 Comprehensive income: Net income..... 4,684 4,684 Unrealized holding gains on securities available for sale, net of tax........... 29 29 -------- Total comprehen- sive income..... 4,713 Purchase of treasury stock, net............ (96,538) (2,318) (2,318) Issuance of shares under stock-option plan............ 1,500 23 23 Release of shares under stock-based compensation plans........... 189 403 592 - ------------------------------------------------------------------------------------------------------------ Balance at December 31, 2001............ 3,715,871 $ 51 $ 51,756 $ 78,381 $(27,311) $(3,363) $ 754 $100,268 ============================================================================================================ </TABLE> <TABLE> Accumulated Common Additional Unearned Other Stock Paid-In Retained Treasury Stock Comprehensive Shares Amount Capital Earnings Stock Compensation Income, net of tax Total ============================================================================================================ <s> <c> <c> <c> <c> <c> <c> <c> <c> Balance at June 30, 2000........ 3,922,066 $ 51 $ 51,249 $ 64,811 $(22,696) $(4,634) $ 186 $ 88,967 Comprehensive income: Net income..... 3,768 3,768 Unrealized holding gains on securities available for sale, net of tax........... 570 570 -------- Total comprehen- sive income..... 4,338 Purchase of treasury stock, net............. (59,657) (1,235) (1,235) Issuance of shares under stock-option plan............ 3,000 46 46 Release of shares under stock-based compensation plans........... 105 505 610 - ------------------------------------------------------------------------------------------------------------ Balance at December 31, 2000............ 3,865,409 $ 51 $ 51,400 $ 68,579 $(23,931) $(4,129) $ 756 $ 92,726 ============================================================================================================ The accompanying notes are an integral part of these financial statements. 5 </TABLE>
PROVIDENT FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Dollars In Thousands QUARTER ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, --------------------------------------- 2001 2000 2001 2000 ============================================================================== Cash flows from operating activities: Net income........................ $ 2,486 $ 2,035 $ 4,684 $ 3,768 Adjustments to reconcile net...... income to net cash (used for) provided by operating activities: Depreciation and amortization.. 629 464 1,111 969 Provision for loan losses...... 126 - 246 - Provision for real estate losses........................ 22 - 58 - Gain on sale of loans.......... (2,869) (1,531) (5,129) (2,840) Gain on sale of investment securities.................... (133) (213) (133) (213) Increase (decrease) in accounts payable and other liabilities. 1,375 (485) 1,816 (99) (Increase) decrease in prepaid expense and other assets...... (503) (623) 26 (854) Loans originated for sale......... (335,298) (124,351) (604,353) (240,245) Proceeds from sale of loans....... 315,591 121,537 654,786 234,274 Stock based compensation.......... 246 311 592 610 - ------------------------------------------------------------------------------ Net cash (used for) provided by operating activities..... (18,328) (2,856) 53,704 (4,630) Cash flows from investing activities: Net decrease in loans held for investment.................... 42,873 20,891 98,036 41,971 Proceeds from maturity/calls of investment securities held to maturity...................... 84,809 3,000 152,747 3,000 Proceeds from maturity/calls of investment securities available for sale...................... 28,163 - 60,625 - Sales of investment securities available for sale............ 20,027 2,265 20,027 2,265 Purchase of investment securities held to maturity.............. (40,497) - (124,122) - Purchase of investment securities available for sale............ (61,440) (7,948) (127,566) (8,941) Sales (purchase) of Federal Home Loan Bank stock............... 264 (563) 903 (901) Net (acquisitions) sales of real estate........................ (9) 368 149 157 Net purchases of premises and equipment..................... (465) (132) (1,843) (455) - ------------------------------------------------------------------------------ Net cash provided by investing activities.................. 73,725 17,881 78,956 37,096 Cash flows from financing activities: Net (decrease) increase in deposits...................... (9,252) 12,862 (31,993) 9,409 Repayment of Federal Home Loan Bank Advances................. (20,006) (240,602) (30,010) (666,904) Proceeds of Federal Home Loan Bank Advances................. - 217,500 1,696 629,400 Repayment of other borrowings.. - (134) - (266) Treasury stock purchases....... (1,319) (837) (2,318) (1,235) Exercise of stock options...... - 46 23 46 - ------------------------------------------------------------------------------ Net cash used for financing activities.................. (30,577) (11,165) (62,602) (29,550) - ------------------------------------------------------------------------------ Net increase in cash and cash equivalents...................... 24,820 3,860 70,058 2,916 Cash and cash equivalents at beginning of period.............. 72,077 18,021 26,839 18,965 - ------------------------------------------------------------------------------ Cash and cash equivalents at end of period.................... $ 96,897 $ 21,881 $ 96,897 $ 21,881 ============================================================================== Supplemental information: Cash paid for interest......... $ 11,813 $ 14,070 $ 23,407 $ 26,691 Cash paid for income taxes..... 3,000 2,100 5,000 2,600 Real estate acquired in settlement of loans........... 346 316 439 530 ============================================================================== The accompanying notes are an integral part of these financial statements. 6
PROVIDENT FINANCIAL HOLDINGS, INC. SELECTED NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS December 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 of operations for the interim periods presented. All such adjustments are of a normal, recurring nature. The balance sheet data at June 30, 2001 is derived from the audited consolidated financial statements of Provident Financial Holdings, Inc. (the "Corporation"). 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, 2001 (SEC File No. 000-28304) of the Corporation. Certain amounts in the prior periods' financial statements may have been reclassified to conform to the current periods' presentations. 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 the six months ended December 31, 2001 and 2000, respectively. FOR THE QUARTER ENDED FOR THE SIX MONTHS DECEMBER 31, ENDED DECEMBER 31, ----------------------------------------------------- 2001 2000 2001 2000 ============================================================================== Numerator: Net income - numerator for basic earnings per share and diluted earnings per share- income available to common stockholders..$2,485,892 $2,034,665 $4,684,233 $3,767,329 ============================================================================== Denominator: Denominator for basic earnings per share: Weighted-average shares............. 3,428,915 3,505,180 3,440,014 3,509,701 Effect of dilutive securities: Employee stock benefit plans.............. 144,977 71,022 149,400 68,751 - ------------------------------------------------------------------------------ Denominator for diluted earnings per share: Adjusted weighted-average shares and assumed conversions........ 3,573,892 3,576,202 3,589,414 3,578,452 ============================================================================== Basic earnings per share...................$ 0.72 $ 0.58 $ 1.36 $ 1.07 Diluted earnings per share...................$ 0.70 $ 0.57 $ 1.31 $ 1.05 ============================================================================== 7
NOTE 3: OPERATING SEGMENT REPORTS The Corporation has determined that its reportable segments are the operations of Provident Savings Bank, F.S.B. pertaining to traditional banking activities and the operations pertaining to mortgage banking. The following tables set forth condensed income statements and total assets for the Corporation's operating segments for the quarter and six months ended December 31, 2001 and 2000, respectively. FOR THE QUARTER ENDED DECEMBER 31, 2001 -------------------------------------------- TRADITIONAL MORTGAGE CONSOLIDATED BANKING BANKING TOTALS ============================================================================== Net interest income............... $ 5,885 $ 623 $ 6,508 Non-interest income: Loan servicing and other fees.. (134) 617 483 Gain on sale of loans, net..... 139 2,730 2,869 Real estate operations, net.... 197 (65) 132 Deposit account fees........... 434 - 434 Other.......................... 421 8 429 - ------------------------------------------------------------------------------ Total non-interest income.... 1,057 3,290 4,347 Non-interest expense: Salaries and employee benefits. 3,131 923 4,054 Premises and occupancy......... 410 114 524 Operating and administrative expenses...................... 1,292 724 2,016 - ------------------------------------------------------------------------------ Total non-interest expense... 4,833 1,761 6,594 - ------------------------------------------------------------------------------ Income before taxes............... $ 2,109 $ 2,152 $ 4,261 ============================================================================== Total assets, end of period....... $ 961,471 $ 100,294 $ 1,061,765 ============================================================================== FOR THE QUARTER ENDED DECEMBER 31, 2000 ------------------------------------------- TRADITIONAL MORTGAGE CONSOLIDATED BANKING BANKING TOTALS ============================================================================== Net interest income............... $ 6,207 $ 179 $ 6,386 Non-interest income: Loan servicing and other fees.. 204 274 478 (Loss) gain on sale of loans, net........................... (17) 1,548 1,531 Real estate operations, net.... 197 (13) 184 Deposit account fees........... 336 - 336 Other.......................... 498 2 500 - ------------------------------------------------------------------------------ Total non-interest income.... 1,218 1,811 3,029 Non-interest expense: Salaries and employee benefits. 2,764 902 3,666 Premises and occupancy......... 321 116 437 Operating and administrative expenses...................... 1,194 601 1,795 - ------------------------------------------------------------------------------ Total non-interest expense... 4,279 1,619 5,898 - ------------------------------------------------------------------------------ Income before taxes............... $ 3,146 $ 371 $ 3,517 ============================================================================== Total assets, end of period....... $1,066,800 $ 56,699 $ 1,123,499 ============================================================================== 8
FOR THE SIX MONTHS ENDED DECEMBER 31, 2001 ------------------------------------------- TRADITIONAL MORTGAGE CONSOLIDATED BANKING BANKING TOTALS ============================================================================== Net interest income............... $ 12,013 $ 1,203 $ 13,216 Non-interest income: Loan servicing and other fees.. 7 1,033 1,040 Gain on sale of loans, net..... 177 4,952 5,129 Real estate operations, net.... 368 (77) 291 Deposit account fees........... 803 - 803 Other.......................... 758 8 766 - ------------------------------------------------------------------------------ Total non-interest income.... 2,113 5,916 8,029 Non-interest expense: Salaries and employee benefits. 6,250 1,902 8,152 Premises and occupancy......... 850 237 1,087 Operating and administrative expenses...................... 2,611 1,363 3,974 - ------------------------------------------------------------------------------ Total non-interest expense.... 9,711 3,502 13,213 - ------------------------------------------------------------------------------ Income before taxes............... $ 4,415 $ 3,617 $ 8,032 ============================================================================== Total assets, end of period....... $ 961,471 $ 100,294 $ 1,061,765 ============================================================================== FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 ------------------------------------------- TRADITIONAL MORTGAGE CONSOLIDATED BANKING BANKING TOTALS ============================================================================== Net interest income............... $ 12,589 $ 347 $ 12,936 Non-interest income: Loan servicing and other fees.. 354 719 1,073 (Loss) gain on sale of loans, net........................... (32) 2,872 2,840 Real estate operations, net.... 385 (21) 364 Deposit account fees........... 618 - 618 Other.......................... 845 161 1,006 - ------------------------------------------------------------------------------ Total non-interest income.... 2,170 3,731 5,901 Non-interest expense: Salaries and employee benefits. 5,668 1,984 7,652 Premises and occupancy......... 664 282 946 Operating and administrative expenses...................... 2,368 1,355 3,723 - ------------------------------------------------------------------------------ Total non-interest expense... 8,700 3,621 12,321 - ------------------------------------------------------------------------------ Income before taxes............... $ 6,059 $ 457 $ 6,516 ============================================================================== Total assets, end of period....... $ 1,066,800 $ 56,699 $ 1,123,499 ============================================================================== NOTE 4: RECENT ACCOUNTING PRONOUNCEMENT Statement of Financial Accounting Standard ("SFAS") No. 133: - ------------------------------------------------------------ SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," is effective for all fiscal years beginning after June 15, 2000. SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in 9
other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair-value hedge, the changes in fair value of the derivative and the hedged item will be recognized in earnings. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative will be recorded in accumulated other comprehensive income and will be recognized in the income statement when the hedged item affects earnings. SFAS No. 133 defines new requirements for designation and documentation of hedging relationships, as well as ongoing effectiveness assessments, in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value will be recognized in earnings. The Corporation adopted SFAS No. 133 on July 1, 2000. There was no material impact upon adoption. The impact of SFAS No. 133 in fiscal 2002 was a decrease of $42,000 and a decrease of $301,000 in the gain on sale of loans during the second quarter of fiscal 2002 and during the first six months of fiscal 2002, respectively. SFAS No. 140: - ------------- SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinquishments of Liabilities," was issued in September 2000 and revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of the provisions of SFAS No. 125 without reconsideration. SFAS No. 140 is effective for transfers and servicing of financial assets and extinquishments of liabilities occurring after March 31, 2001. The statement is effective for recognition and reclassifications of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of the provisions of SFAS No. 140 did not have a material impact on the results of operations, financial position or cash flows of the Corporation. SFAS No. 141: - ------------- SFAS No. 141, "Business Combinations," requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001; the use of the pooling-of-interest method is no longer allowed. The adoption of this statement had no material impact on the Corporation's financial position, results of operations or cash flows. SFAS No. 142: - ------------- SFAS No. 142, "Goodwill and Other Intangible Assets," requires that, once adopted, amortization of goodwill will cease and as an alternative, the carrying value of goodwill will be evaluated for impairment on an annual basis. Intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001. The adoption of this statement will have no material impact on the Corporation's financial position, results of operations or cash flows. SFAS No. 143: - ------------- SFAS No. 143, "Accounting for Asset Retirement Obligations" requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The associated asset retirement cost would be capitalized as part of the carrying amount of the long-lived asset. The effective date for SFAS No. 143 will be for fiscal years beginning after June 15, 2002. The adoption of this statement is not expected to have a material impact on the Corporation's financial position, results of operations or cash flows. SFAS No. 144: - ------------- SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," replaces SFAS No. 121. SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. It also expands the reporting of discontinued operations to include all components of an entity with operations that 10
can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The adoption of this statement is not expected to have a material impact on the Corporation's financial position, results of operations or cash flows. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Provident Financial Holdings, Inc. ("Provident Financial" or the "Corporation"), 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 December 31, 2001, the Corporation had total assets of $1.1 billion, total deposits of $698.0 million and total stockholders' equity of $100.3 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 traditional banking activities and mortgage banking activities. Traditional banking activities primarily consist of accepting deposits from customers within the communities surrounding the Savings Bank's full service offices and investing these funds in single-family loans, multi-family loans, commercial real estate loans, construction loans, commercial business loans, consumer loans and other real estate loans. In addition, the Savings Bank also offers business checking accounts, other business banking services and services loans for others. Mortgage banking activities consist of the origination and sale of mortgage and consumer loans secured primarily by single-family residences. The Savings Bank's revenues are derived principally from interest on its loan and investment portfolios and fees generated through its traditional banking and mortgage banking activities. There are various risks inherent in the Savings Bank's business. The Savings Bank's business is subject to, among other risks, interest rate changes and prepayment of loans and investments. Management's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operation of the Corporation. 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. COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2001 AND JUNE 30, 2001 Total assets as of December 31, 2001 decreased by $55.5 million to $1.06 billion from $1.12 billion at June 30, 2001. This decrease was primarily due to a decline in both loans held for investment and the receivable from sale of loans. Total loans held for investment decreased $102.4 million, or 15 percent, to $594.8 million at December 31, 2001 from $697.2 million at June 30, 2001. Accelerated loan prepayments driven by the refinance market during the six months ended December 31, 2001 contributed most of the decrease. Total loan prepayments during the six months ended December 31, 2001 were $187.7 million; and total loan originations and purchased loans were $104.2 million, most of which were single-family residential and construction loans. The receivable from the sale of loans decreased by $43.4 million to $93.8 million at December 31, 2001 from $137.3 million at June 30, 2001. The decline in the receivable resulted from the timing difference between loan commitments and loan settlements. These decreases were partially offset by increases in investment securities and overnight deposits. Total investment securities increased $18.4 million to $222.9 million at December 31, 2001 from $204.5 million at June 30, 2001 while total overnight deposits increased $68.0 million to $71.0 million at December 31, 2001 from $3.0 million at June 30, 2001. 11
Total deposits decreased $32.0 million to $698.0 million at December 31, 2001 from $730.0 million at June 30, 2001. This decrease was generally attributable to a decrease in certificates of deposit, and was partially offset by increases in savings and checking accounts. The Corporation continued its focus on building client relationships through checking accounts and fee generating products and services. Total borrowings, which primarily consist of FHLB advances, declined by $28.3 million to $237.5 million at December 31, 2001 from $265.8 million at June 30, 2001. The average maturity of the Corporation's existing FHLB advances was approximately 47 months (26 months, based on call dates) at December 31, 2001 as compared to the average maturity of 46 months (27 months, based on call dates) at June 30, 2001. Total stockholders' equity increased by $3.0 million to $100.3 million during the six months ended December 31, 2001, from $97.3 million at June 30, 2001 as a result of net income and the impact of stock based compensation accruals during the first six months of fiscal 2002. This increase was partially reduced by the Corporation's stock repurchases during the first six months of fiscal 2002. A total of 90,400 shares, with an average price of $24.17 per share, were repurchased during the first six months of fiscal 2002. This resulted in a total of 133,400 shares repurchased, or 69 percent, of 193,000 shares authorized pursuant to the March 2001 Stock Repurchase Plan, with an average cost of $23.48 per share. This Stock Repurchase Plan is authorized until March 2002. The Corporation also repurchased 10,696 shares relating to the Management Recognition Plan ("MRP") and awarded 4,558 shares pursuant to the MRP. COMPARISON OF OPERATING RESULTS FOR THE QUARTER AND THE SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000 The Corporation's net income for the quarter ended December 31, 2001 was $2.5 million, an increase of $451,000, or 22 percent, from $2.0 million during the same quarter in 2000. This increase was primarily attributable to increases in net interest income and non-interest income, and was partly offset by an increase in operating expenses. For the six months ended December 31, 2001 and 2000, the Corporation's net income was $4.7 million and $3.8 million, respectively. The Corporation's net interest income before loan loss provisions increased by $248,000, or 4 percent to $6.6 million for the quarter ended December 31, 2001 from $6.4 million during the comparable period of 2000. This increase resulted from a decrease in the cost of funds, which outpaced the decrease in the yield on earning assets. The net interest margin improved to 2.59 percent in the second quarter of fiscal 2002 from 2.37 percent during the same period of fiscal 2001. For the six months ended December 31, 2001 and 2000, net interest income was $13.5 million and $12.9 million, respectively; and the net interest margin was 2.59 percent and 2.39 percent, respectively. The Corporation's efficiency ratio improved to 60 percent in the second quarter of fiscal 2002 from 63 percent in the same period of fiscal 2001. For the six months ended December 31, 2001 and 2000, the efficiency ratio was 61 percent and 65 percent, respectively. Return on average assets for the quarter ended December 31, 2001 increased to 0.92 percent from 0.72 percent in the same period last year. For the six months ended December 31, 2001 and 2000, the return on average assets was 0.86 percent and 0.67 percent, respectively. Return on average equity for the quarter ended December 31, 2001 increased to 9.95 percent from 9.21 percent in the same period last year. For the six months ended December 31, 2001 and 2000, the return on average equity was 9.45 percent and 8.51 percent, respectively. Diluted earnings per share for the quarter ended December 31, 2001 were $0.70, an increase of 23 percent from $0.57 for the quarter ended December 31, 2000. For the six months ended December 31, 2001 and 2000, the diluted earnings per share were $1.31 and $1.05, respectively. The increase in the diluted earnings per share reflected the effect of the net income recorded during the six months ended December 31, 2001 and the Corporation's stock repurchase program during the last 12 months. INTEREST INCOME. Interest income decreased by $3.4 million, or 17 percent, to $16.8 million for the quarter ended December 31, 2001 from $20.2 million during the same quarter in fiscal 2001. This decrease was 12
primarily the result of a lower average loan balance and a lower average loan yield. The average earning assets during the second quarter of fiscal 2002 were $1.03 billion, a decrease of $50.6 million or 5 percent, from $1.08 billion during the same period last year. The average yield on earning assets during the second quarter of fiscal 2002 was 6.56 percent, 96 basis points lower than the average yield of 7.52 percent during the same period last year. Loan interest income decreased $3.4 million, or 21 percent, to $13.0 million in the quarter ended December 31, 2001 as compared to $16.4 million for the same period in 2000. This decrease was attributable to a lower average loan balance and a lower average loan yield. The average balance of loans outstanding, including the receivable from sale of loans and the loans held for sale, decreased $158.7 million to $694.2 million during the second quarter of fiscal 2002 from $852.9 million during the same quarter of fiscal 2001. The average loan yield during the second quarter of fiscal 2002 was 7.49 percent as compared to 7.71 percent during the same quarter last year. The decline of the average loan balance and the average loan yield were primarily attributable to loan prepayments resulting from the decline in mortgage rates. Interest income from investment securities increased $94,000, or 3 percent, to $3.3 million during the quarter ended December 31, 2001 from $3.2 million during the same quarter in fiscal 2001. This increase was primarily due to an increase in the average balance, which was partly offset by a decrease in the average yield. The average balance of investment securities increased $45.5 million to $247.9 million in the second quarter of fiscal 2002 from $202.4 million in the same quarter of fiscal 2001. The yield on the investment securities portfolio decreased 100 basis points from 6.27 percent during the quarter ending December 31, 2000 to 5.27 percent during the quarter ending December 31, 2001. FHLB stock dividends decreased by $381,000, or 68 percent, to $182,000 in the second quarter of fiscal 2002 from $563,000 in the same period of fiscal 2001. This decrease was attributable to a lower average balance, a lower yield, and the FHLB stock dividend accrual of $270,000 recorded in the second quarter of fiscal 2001, which in prior periods were not recognized until received. The average balance of FHLB stock declined to $15.6 million during the second quarter of fiscal 2002 from $17.9 million during the same period of fiscal 2001. The average yield on FHLB stock, excluding the accrual made in the second quarter of fiscal 2001, decreased by 190 basis points to 4.65 percent during the second quarter of fiscal 2002 from 6.55 percent during the same period last year. Interest income from interest-bearing deposits increased $312,000 to $354,000 in the second quarter of fiscal 2002 from $42,000 in the same period of fiscal 2001. This increase was due mainly to a higher average balance and partially offset by a lower average yield. The average balance of interest-bearing deposits increased to $67.5 million during the second quarter of fiscal 2002 from $2.7 million during the same period of fiscal 2001. The increase in the average balance was primarily attributable to the increase of overnight federal funds investments. The average yield on the interest-bearing deposits decreased 415 basis points to 2.10 percent during the second quarter of fiscal 2002 from 6.25 percent during the same period last year. The decline in the average yield was mainly due to the decline in the federal funds rate during the second quarter of fiscal 2002 as compared to the same period in fiscal 2001. For the six months ended December 31, 2001, total interest income decreased $5.1 million, or 13 percent, to $35.4 million as compared to $40.4 million for the same period in 2000. This decrease was primarily attributable to a decrease of the average balance and the average yield on earning assets. The average earning assets decreased $44.4 million, or 4 percent, to $1.04 billion during the first six months of fiscal 2002 from $1.08 billion during the same period of fiscal 2001. The average yield on earning assets decreased 66 basis points to 6.81 percent during the six months ended December 31, 2001 from 7.47 percent during the same period in 2000. The interest income on loans decreased by $5.6 million, or 17 percent, to $27.6 million during the first six months of fiscal 2002 from $33.1 million during the same period of fiscal 2001. The average loans outstanding decreased $129.9 million, or 15 percent, to $730.3 million during the six months ended December 31, 2001 from $860.2 million during the same period in 2000. The average yield on loans decreased 15 basis points to 7.55 percent during the first six months of fiscal 2002 as compared to 7.70 percent during the same period in fiscal 2001. Interest income from investment securities increased $283,000, or 4 percent, to $6.6 million during the six months ended December 31, 2001 from $6.4 million during the same period in fiscal 2001. This increase 13
was primarily due to an increase in the average balance, which was partly offset by a decrease in the average yield. The average balance of investment securities increased $29.0 million to $232.0 million in the first six months of fiscal 2002 from $203.1 million in the same period of fiscal 2001. The yield on the investment securities decreased 54 basis points from 6.26 percent during the six months ending December 31, 2000 to 5.72 percent during the six months ending December 31, 2001 FHLB stock dividends decreased $518,000, or 57 percent, to $383,000 in the first half of fiscal 2002 from $901,000 in the same period of fiscal 2001. The decrease was attributable to a lower average balance, a lower yield and the FHLB stock dividend accrual of $270,000 recorded in the first half of fiscal 2001. The average balance of FHLB stock declined to $15.8 million during the first half of fiscal 2002 from $17.7 million during the same period of fiscal 2001. The average yield on FHLB stock, excluding the accrual made in the first half of fiscal 2001, decreased by 228 basis points to 4.84 percent during the first half of fiscal 2002 from 7.12 percent during the same period last year. Interest income from interest-bearing deposits increased $751,000 to $812,000 in the first half of fiscal 2002 from $61,000 in the same period of fiscal 2001. This increase was due mainly to a higher average balance, which was partially offset by a lower average yield. The average balance of interest-bearing deposits increased to $60.4 million during the first half of fiscal 2002 from $1.9 million during the same period of fiscal 2001. The increase in the average balance was primarily attributable to the increase of federal funds investments. The average yield on the interest-bearing deposits decreased 359 basis points to 2.69 percent during the first half of fiscal 2002 from 6.28 percent during the same period last year. INTEREST EXPENSE. Interest expense for the quarter ended December 31, 2001 was $10.2 million as compared to $13.8 million for the same period in 2000, a decrease of $3.7 million, or 27 percent. This decrease was primarily attributable to a decrease in both the average balance and the average cost. The average cost of liabilities was 4.23 percent during the quarter ended December 31, 2001, down 125 basis points compared to 5.48 percent during the same period in 2000. The average balance of interest-bearing liabilities declined $50.7 million to $953.2 million during the second quarter of fiscal 2002 from $1.00 billion during the same period last year. Interest expense on deposits for the quarter ended December 31, 2001 was $6.3 million as compared to $8.8 million for the same period in 2000, a decrease of $2.5 million, or 29 percent. Average deposits increased $4.9 million to $705.4 million during the quarter ended December 31, 2001 from $700.5 million during the same period in fiscal 2001. The average cost of deposits decreased to 3.52 percent during the quarter ended December 31, 2001 from 4.98 percent during the same quarter in fiscal 2001, a decline of 146 basis points. Interest expense on borrowings for the quarter ended December 31, 2001 was $3.9 million as compared to $5.1 million for the same period in 2000, a decrease of $1.2 million, or 23 percent. The average borrowings, which are mainly FHLB advances, were $247.8 million during the quarter ended December 31, 2001 as compared to $303.4 million for the same quarter in fiscal 2001, a decrease of $55.6 million, or 18 percent. The average cost of borrowings decreased to 6.26 percent for the quarter ended December 31, 2001 from 6.66 percent in the same quarter in fiscal 2001, a decline of 40 basis points. For the six months ended December 31, 2001, total interest expense decreased $5.6 million, or 20 percent, to $21.9 million as compared to $27.5 million for the same period in 2000. The average cost of interest-bearing liabilities decreased 91 basis points to 4.50 percent during the first six months of fiscal 2002 as compared to 5.41 percent during the same period of fiscal 2001. The average balance of interest-bearing liabilities during the six-month period of fiscal 2002 decreased $46.4 million, or 5 percent, to $965.7 million as compared to $1.01 billion during the same period last year. For the six months ended December 31, 2001, total interest expense on deposits decreased $3.3 million, or 19 percent, to $13.9 million as compared to $17.1 million for the same period in 2000. The average deposits increased $16.0 million, or 2 percent, to $712.5 million as compared to $696.5 million during the same period in 2000. The average cost of deposits decreased 104 basis points to 3.86 percent during the first six months of fiscal 2002 as compared to 4.90 percent during the same period in fiscal 2001. 14
For the six months ended December 31, 2001, total interest expense on borrowings decreased $2.3 million, or 22 percent, to $8.1 million as compared to $10.4 million for the same period in 2000. Average borrowings decreased $62.4 million, or 20 percent, to $253.2 million as compared to $315.6 million during the same period of fiscal 2001. The average cost of borrowings decreased 21 basis points to 6.32 percent during the first six months of fiscal 2002 as compared to 6.53 percent during the same period of fiscal 2001. The following tables depict the average balance sheets for the quarter and six months ended December 31, 2001 and 2000, respectively: AVERAGE BALANCE SHEETS (Dollars in thousands) QUARTER ENDED QUARTER ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 -------------------------- --------------------------- AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST COST BALANCE INTEREST COST ============================================================================== Interest-earning assets: Loans receivable, net (1)............ $ 694,222 $13,002 7.49% $ 852,906 $16,448 7.71% Investment securities......... 247,856 3,264 5.27% 202,374 3,170 6.27% FHLB stock (2)...... 15,640 182 4.65% 17,900 563 12.58% Interest-earning deposits........... 67,519 354 2.10% 2,686 42 6.25% - ------------------------------------------------------------------------------ Total interest- earning assets..... 1,025,237 16,802 6.56% 1,075,866 20,223 7.52% Non-interest earning assets..... 54,126 47,098 - ------------------------------------------------------------------------------ Total assets........ $1,079,363 $1,122,964 ============================================================================== Interest-bearing liabilities: Savings accounts.... 127,406 707 2.20% 93,222 841 3.59% Demand and NOW accounts........... 169,340 643 1.51% 150,124 914 2.42% Certificates of deposit............ 408,627 4,908 4.77% 457,110 7,006 6.10% - ------------------------------------------------------------------------------ Total deposits...... 705,373 6,258 3.52% 700,456 8,761 4.98% FHLB advances....... 247,790 3,910 6.26% 300,259 5,012 6.64% Other borrowings.... - - -% 3,153 64 8.08% - ------------------------------------------------------------------------------ Total borrowings.... 247,790 3,910 6.26% 303,412 5,076 6.66% - ------------------------------------------------------------------------------ Total interest-bearing liabilities........ 953,163 10,168 4.23% 1,003,868 13,837 5.48% Non-interest-bearing liabilities........ 26,297 30,754 - ------------------------------------------------------------------------------ Total liabilities... 979,460 1,034,622 Stockholders' equity............. 99,903 88,342 - ------------------------------------------------------------------------------ Total liabilities and stockholders' equity............. $1,079,363 $1,122,964 ============================================================================== Net interest income. $ 6,634 $ 6,386 ============================================================================== Interest rate spread (3)......... 2.32% 2.04% Net interest margin (4)......... 2.59% 2.37% Ratio of average interest-earning assets to average interest-bearing liabilities........ 107.56% 107.17% Return on average assets............. 0.92% 0.72% Return of average equity............. 9.95% 9.21% ============================================================================== (1) Includes loans held for sale, net, and receivable from sale of loans (2) Income of FHLB stock in fiscal 2001 includes accrual of FHLB dividends, totaling $270,000, which in prior periods were not recognized 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 15
AVERAGE BALANCE SHEETS (Dollars in thousands) SIX MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 -------------------------- --------------------------- AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST COST BALANCE INTEREST COST ============================================================================== Interest-earning assets: Loans receivable, net (1)............ $ 730,251 $27,555 7.55% $ 860,189 $33,128 7.70% Investment securities......... 232,044 6,635 5.72% 203,067 6,352 6.26% FHLB stock (2)...... 15,837 383 4.84% 17,718 901 10.17% Interest-earning deposits........... 60,422 812 2.69% 1,942 61 6.28% - ------------------------------------------------------------------------------ Total interest- earning assets..... 1,038,554 35,385 6.81% 1,082,916 40,442 7.47% Non-interest earning assets..... 53,583 47,439 - ------------------------------------------------------------------------------ Total assets........ $1,092,137 $1,130,355 ============================================================================== Interest-bearing liabilities: Savings accounts.... 124,351 1,580 2.52% 88,774 1,525 3.42% Demand and NOW accounts........... 166,468 1,442 1.72% 151,319 1,856 2.44% Certificates of deposit............ 421,705 10,834 5.10% 456,408 13,765 6.00% - ------------------------------------------------------------------------------ Total deposits...... 712,524 13,856 3.86% 696,501 17,146 4.90% FHLB advances....... 253,222 8,067 6.32% 312,391 10,230 6.51% Other borrowings.... - - -% 3,219 130 8.03% - ------------------------------------------------------------------------------ Total borrowings.... 253,222 8,067 6.32% 315,610 10,360 6.53% - ------------------------------------------------------------------------------ Total interest-bearing liabilities........ 965,746 21,923 4.50% 1,012,111 27,506 5.41% Non-interest-bearing liabilities........ 27,209 29,699 - ------------------------------------------------------------------------------ Total liabilities... 992,955 1,041,810 Stockholders' equity............. 99,182 88,545 - ------------------------------------------------------------------------------ Total liabilities and stockholders' equity............. $1,092,137 $1,130,355 ============================================================================== Net interest income. $13,462 $12,936 ============================================================================== Interest rate spread (3)......... 2.31% 2.06% Net interest margin (4)......... 2.59% 2.39% Ratio of average interest-earning assets to average interest-bearing liabilities........ 107.54% 107.00% Return on average assets............. 0.86% 0.67% Return of average equity............. 9.45% 8.51% ============================================================================== (1) Includes loans held for sale, net, and receivable from sale of loans (2) Income of FHLB stock in fiscal 2001 includes accrual of FHLB dividends, totaling $270,000, which in prior periods were not recognized 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 16
The following table provides the rate/volume variances for the quarter and six months ended December 31, 2001 and 2000, respectively: RATE/VOLUME VARIANCE (Dollars in thousands) QUARTER ENDED DECEMBER 31, 2001 COMPARED TO QUARTER ENDED DECEMBER 31, 2000 INCREASE (DECREASE) DUE TO ------------------------------------------ Rate/ Rate Volume Volume Net ============================================================================== Interest income: Loans receivable (1)......... $ (474) $ (3,060) $ 88 $ (3,446) Investment securities........ (505) 712 (113) 94 FHLB stock (2)............... (355) (71) 45 (381) Interest-bearing deposits.... (28) 1,014 (674) 312 - ------------------------------------------------------------------------------ Total net change in income on interest-earning assets... (1,362) (1,405) (654) (3,421) Interest-bearing liabilities: Savings accounts............. (323) 309 (120) (134) Demand and NOW accounts...... (344) 117 (44) (271) Certificates of deposit...... (1,516) (745) 163 (2,098) FHLB advances................ (274) (878) 50 (1,102) Other borrowings............. (64) (64) 64 (64) - ------------------------------------------------------------------------------ Total net change in expense on interest-bearing liabilities. (2,521) (1,261) 113 (3,669) - ------------------------------------------------------------------------------ Net change in net interest (loss) income................. $ 1,159 $ (144) $ (767) $ 248 ============================================================================== (1) Includes loans held for sale and receivable from sale of loans. For purposes of calculating volume, rate and rate/volume variances, non-accrual loans were included in the weighted average balance outstanding. (2) Income of FHLB stock in fiscal 2001 includes accrual of FHLB dividends, totaling $270,000, which in prior periods were not recognized until received. 17
RATE/VOLUME VARIANCE (Dollars in thousands) SIX MONTHS ENDED DECEMBER 31, 2001 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2000 INCREASE (DECREASE) DUE TO ------------------------------------------- Rate/ Rate Volume Volume Net ============================================================================== Interest income: Loans receivable (1)......... $ (670 $ (5,004) $ 101 $ (5,573) Investment securities........ (545) 906 (78) 283 FHLB stock (2)............... (472) (96) 50 (518) Interest-bearing deposits.... (35) 1,837 (1,051) 751 - ------------------------------------------------------------------------------ Total net change in income on interest-earning assets... (1,722) (2,357) (978) (5,057) Interest-bearing liabilities: Savings accounts............. (397) 613 (161) 55 Demand and NOW accounts...... (545) 186 (55) (414) Certificates of deposit...... (2,040) (1,049) 158 (2,931) FHLB advances................ (278) (1,943) 58 (2,163) Other borrowings............. (130) (130) 130 (130) - ------------------------------------------------------------------------------ Total net change in expense on interest-bearing liabilities. (3,390) (2,323) 130 (5,583) - ------------------------------------------------------------------------------ Net change in net interest (loss) income................ $ 1,668 $ (34) $ (1,108) $ 526 ============================================================================== (1) Includes loans held for sale and receivable from sale of loans. For purposes of calculating volume, rate and rate/volume variances, non-accrual loans were included in the weighted average balance outstanding. (2) Income of FHLB stock in fiscal 2001 includes accrual of FHLB dividends, totaling $270,000, which in prior periods were not recognized until received. PROVISION FOR LOAN AND LEASE LOSSES. A total of $126,000 of loan loss provisions were added during the second quarter of fiscal 2002, as compared to zero during the same period of fiscal 2001. For the six months ended December 31, 2001, a total of $246,000 of loan loss provisions were added as compared to zero during the same period last year. The allowance for loan and lease losses was $5.8 million at December 31, 2001 as compared to $6.8 million for the same period in 2000. The decline in the loan loss reserves was mainly attributable to the charge-offs or partial charge-offs of seven commercial business loans, totaling $570,000. The allowance for loan and lease losses as a percentage of gross loans held for investment improved to 0.97 percent at December 31, 2001 from 0.85 percent at December 31, 2000. Non-performing assets, primarily non-performing loans, as a percentage of total assets declined to 0.16 percent at December 31, 2001 from 0.18 percent last year. Both measures reflect favorable trends, but the ratios improved largely as a result of a reduction in the loan portfolio. The allowance for loan and lease losses declined by slightly over $1.0 million dollars during the prior 12-month period, resulting mainly from higher loan charge-offs. These charge-offs occurred primarily in the commercial loan portfolio. A total of $777,000 of the charge-offs were linked to two business borrowers. Both borrowers have had significant cash flow problems causing the Corporation to re-evaluate their ability to repay their loans. The Corporation has recently negotiated a repayment plan with one borrower that appears to facilitate the full repayment of principal and interest including the amount charged-off. The Corporation is in the process of structuring a similar arrangement with the other borrower. In any event, the Corporation does not anticipate future charge-offs associated with either of these borrowers. The impairment has been fully recognized. 18
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 Corporation's loan portfolio, will not request the Corporation 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 Corporation. 19
The following table is provided to disclose additional details on the Corporation's allowance for loan and lease losses and asset quality: ALLOWANCE FOR LOAN AND LEASE LOSSES (Dollars in thousands) FOR THE QUARTER ENDED FOR SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, --------------------------------------------- 2001 2000 2001 2000 ============================================================================== Allowance at beginning of period.. $ 6,255 $ 6,855 $ 6,068 $ 6,850 Provision for loan and lease losses........................... 126 - 246 - Recoveries: Mortgage loans: Single-family................... 19 18 19 24 Multi-family.................... - - 67 - Commercial...................... 2 - 2 - Construction.................... - - - - Consumer loans.................... - - - - Commercial business lending....... - - - - - ------------------------------------------------------------------------------ Total recoveries................ 21 18 88 24 Charge-offs: Mortgage loans: Single-family................... (9) (49) (9) (49) Multi-family ................... - - - - Commercial...................... - - - - Construction.................... - - - - Consumer loans.................... (3) (1) (3) (2) Commercial business lending....... (570) - (570) - - ------------------------------------------------------------------------------ Total charge-offs............... (582) (50) (582) (51) - ------------------------------------------------------------------------------ Net (charge-offs) recoveries.... (561) (32) (494) (27) - ------------------------------------------------------------------------------ Balance at end of period...... $ 5,820 $ 6,823 $ 5,820 $ 6,823 ============================================================================== Allowance for loan and lease losses as a percentage of gross loans held for investment....... 0.97% 0.85% 0.97% 0.85% Net charge-offs as a percentage of average loans outstanding during the period............... 0.32% 0.02% 0.27% 0.01% Allowance for loan and lease losses as a percentage of non-performing loans at the end of the period........ 457.19% 506.91% 457.19% 506.91% ============================================================================== NON-INTEREST INCOME. Non-interest income increased $1.3 million, or 44 percent, to $4.3 million during the quarter ended December 31, 2001 from $3.0 million during the same period in fiscal 2001. 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 $1.3 million, or 87 percent, to $2.9 million for the quarter ended December 31, 2001 from $1.5 million during the same quarter in fiscal 2001. This increase was primarily due to a higher volume of loans originated for sale, which was partially offset by a lower average loan sale 20
margin, in the second quarter of fiscal 2002 compared to the same quarter of fiscal 2001. Total loans originated for sale during the second quarter of fiscal 2002 increased $210.9 million, or 170 percent, to $335.3 million as compared to $124.4 million in the same period in fiscal 2001. The increase of the loans originated for sale was a result of declines in mortgage rates, which created a refinance market. The average loan sale margin during the second quarter of fiscal 2002 (excluding the adjustments for SFAS No. 133 which reduced income by $42,000) was 0.9 percent as compared to 1.2 percent during the same period of fiscal 2001. For the six months ended December 31, 2001, non-interest income increased $2.1 million, or 36 percent, to $8.0 million from $5.9 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. For the six months ended December 31, 2001, the gain on sale of loans increased $2.3 million, or 81 percent, to $5.1 million from $2.8 million during the same period in fiscal 2001. This increase was primarily due to a higher volume of loans originated for sale, which was partially offset by a lower average loan sale margin, in the first half of fiscal 2002 compared to the same period of fiscal 2001. Total loans originated for sale during the first half of fiscal 2002 increased $364.1 million, or 152 percent, to $604.4 million as compared to $240.2 million in the same period in fiscal 2001. The average loan sale margin during the second quarter of fiscal 2002 (excluding the adjustments for SFAS No. 133 which reduced income by $301,000) was 0.9 percent as compared to 1.2 percent during the same period of fiscal 2001. NON-INTEREST EXPENSE. Non-interest expense increased $696,000, or 12 percent, to $6.6 million during the quarter ended December 31, 2001 from $5.9 million in the same period in fiscal 2001. This increase was primarily attributable to an increase in compensation, equipment and professional expenses related to higher loan production volume and the operating costs of the new branches in Corona and Temecula, California. Despite the increase in non-interest expenses during the second quarter of fiscal 2002, the efficiency ratio improved to 60 percent from 63 percent during the same period last year. This was the result of operating revenue increasing at a more rapid pace than non-interest expense. For the six months ended December 31, 2001, non-interest expense increased $892,000, or 7 percent, to $13.2 million from $12.3 million during the same period last year. This increase was mainly due to an increase in compensation, premises and occupancy, equipment and professional expenses. For the six months ended December 31, 2001, the efficiency ratio improved to 61 percent from 65 percent during the same period last year, the result of operating revenue increasing at a more rapid pace than non-interest expense during this period. INCOME TAXES. Income tax expense was $1.8 million for the quarter ended December 31, 2001 as compared to $1.5 million during the same period in 2000. The effective tax rate for the second quarters ended December 31, 2001 and 2000 was approximately 42 percent. For the six months ended December 31, 2001, income tax expense was $3.3 million as compared to $2.7 million during the same period in 2000. The effective tax rate for the six months ended December 31, 2001 and 2000 was approximately 42 percent. ASSET QUALITY. Non-accrual single-family loans, which consisted of eight properties, remained at approximately $1.3 million at December 31, 2001 as compared to the same period last year. No interest accruals were made for loans, which were past due 90 days or more. Due to the decline in the loan portfolio outstanding, non-accrual and 90 days or more past due loans as a percentage of net loans held for investment increased to 0.21 percent at December 31, 2001 from 0.17 percent at December 31, 2000. In the second quarter of fiscal 2002, the Corporation completed its annual review of the commercial loan portfolio. All areas of concern have been addressed and the Corporation is comfortable that all credit quality issues have been resolved and recognized. The Corporation has no credit quality concerns regarding the remainder of the loan portfolio. Delinquent loans and non-performing assets remain at very low levels by historical standards. Current loan loss reserves are deemed sufficient to address any matter that may arise. 21
The Corporation 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 Corporation measures each impaired loan based on the fair value of its collateral and charges off those loans or portions of loans deemed uncollectible. The following table is provided to disclose details on asset quality (dollars in thousands): AT DECEMBER 31, AT DECEMBER 31, --------------- --------------- 2001 2000 ============================================================================== Loans accounted for on a non-accrual basis: Mortgage loans: Single-family.............................. $ 1,259 $ 1,335 Multi-family .............................. - - Commercial................................. - - Construction .............................. - - Consumer loans............................... 14 11 Commercial business lending.................. - - Other loans.................................. - - - ------------------------------------------------------------------------------ Total...................................... 1,273 1,346 Accruing loans which are contractually past due 90 days or more: Mortgage loans: Single-family.............................. - - Multi-family............................... - - Commercial................................. - - Construction............................... - - Consumer loans............................... - - Commercial business lending.................. - - Other loans.................................. - - - ------------------------------------------------------------------------------ Total...................................... - - Total of non-accrual and 90 days past due loans............................. 1,273 1,346 Real estate owned............................ 443 697 - ------------------------------------------------------------------------------ Total non-performing assets................ $ 1,716 $ 2,043 ============================================================================== Restructured loans........................... $ 1,419 $ 1,471 Non-accrual and 90 days or more past due loans as a percentage of loans held for investment, net............................ 0.21% 0.17% Non-accrual and 90 days or more past due loans as a percentage of total assets...... 0.12% 0.12% Non-performing assets as a percentage of total assets............................... 0.16% 0.18% ============================================================================== 22
The following table is provided to disclose details related to the volume of loans originated, purchased and sold: LOAN VOLUME ACTIVITIES (Dollars in thousands) FOR THE QUARTER ENDED FOR SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, -------------------------------------------- 2001 2000 2001 2000 ============================================================================== Loans originated for sale: Retail originations......... $ 109,581 $ 55,084 $ 204,947 $ 118,710 Wholesale originations...... 225,717 69,267 399,406 121,544 - ------------------------------------------------------------------------------ Total loans originated for sale................ 335,298 124,351 604,353 240,245 Loans sold: Servicing released.......... (312,151) (120,006) (647,586) (231,434) Servicing retained.......... (571) - (2,071) - - ------------------------------------------------------------------------------ Total loans sold.......... (312,722) (120,006) (649,657) (231,434) Loans originated for portfolio: Mortgage loans: Single-family............. 34,735 - 42,939 - Multi-family.............. 1,298 - 2,994 - Commercial................ 2,820 800 6,970 1,250 Construction loans........ 13,712 7,521 28,039 22,297 Consumer.................... 30 - 30 - Commercial business lending. 1,467 369 1,964 2,059 Other loans................. 812 - 1,867 - - ------------------------------------------------------------------------------ Total loans originated for portfolio........... 54,874 8,690 84,803 25,606 Loans purchased for portfolio: Mortgage loans: Single-family............. - - - - Multi-family................ - - 1,590 - Commercial.................. 800 1,645 800 3,490 Construction loans.......... 8,766 851 17,011 1,235 - ------------------------------------------------------------------------------ Total loans purchased..... 9,566 2,496 19,401 4,725 Mortgage loan principal repayments.................. (106,245) (35,631) (199,508) (73,526) Real estate acquired in settlement of loans......... (346) (316) (439) (530) (Increase) decrease in receivable from sale of loans.................... (23,318) (4,287) 43,448 (2,481) (Decrease) increase in other items, net (1).............. (1,198) 4,242 (2,971) 2,139 - ------------------------------------------------------------------------------ Net decrease in loans receivable, net.............$ (44,091) $ (20,461) $ (100,570) $ (35,256) ============================================================================== (1) Includes changes in loans in process, discounts, deferred fees and costs and loan loss reserves. LIQUIDITY AND CAPITAL RESOURCES. The Corporation'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 its total assets, which at December 31, 2001 permitted additional advances of $186.9 million. In addition, the Savings Bank has unsecured lines of $45.0 million with its correspondent bank. 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. 23
The Savings Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. The Savings Bank generally maintains sufficient cash to meet short-term liquidity needs. At December 31, 2001, cash and cash equivalents totaled $96.9 million, or 9 percent of total assets. Depending on market conditions and the pricing of deposit products and FHLB borrowings, the Savings Bank may rely on FHLB borrowings or unsecured lines for its liquidity needs. Based on the OTS Transmittal (TR-249) on April 23, 2001, the OTS repealed the liquidity regulation. Even though the percentage liquidity requirement of 4 percent has been eliminated, the interim rule still requires thrifts to maintain adequate liquidity to assure safe and sound operation. The Savings Bank's average liquidity ratio for the quarter ended December 31, 2001 increased to 39 percent from 10 percent during the same period ending December 31, 2000. This increase was primarily due to the unexpected volume of loan prepayments during recent quarters and the deployment of the cash flows into qualifying liquid investments. The Corporation has been experiencing a large volume of loan prepayments in its loan portfolio; and it has become increasingly difficult to reinvest these cash flows in assets that carry similar or better interest rate risk characteristics. The recent refinance market has been dominated by fixed rate loans and the Corporation has not added long-term fixed rate loans to its portfolio at a time when interest rates are at or near historical lows. Therefore, while the Corporation has taken steps to address the issue of rising liquidity levels, the Corporation finds that a larger percentage of its earning assets are invested at significantly lower rates than the Corporation would like. The Corporation has mitigated the impact of this in several ways. The Corporation has increased the balance of the investment securities portfolio, generated more loans for portfolio from its mortgage banking and major loan divisions, reduced the balance of certificates of deposit and reduced the balance of Federal Home Loan Bank advances. The Corporation will endeavor to reverse this trend during the second half of fiscal 2002. This will be accomplished with prudent interest rate risk management practices. The Corporation is committed to increase the origination of those loans that the Corporation retains in its loan portfolio, to increase the balance of investment securities outstanding and to continue these activities during the accelerated loan prepayment cycle. During the first six months of fiscal 2002, the volume of loans generated for portfolio increased by 244%, to $104.2 million dollars, in comparison to the same period last year and the average balance of our investment securities portfolio grew by 14% or $29.0 million dollars. These are significant improvements but are insufficient in and of themselves to offset the prepayment volumes that the Corporation has experienced. The Corporation will continue to seek increased activity in these areas but must also have a slowdown in loan prepayments to have the desired impact on the balance sheet and income statement. Recently, loan prepayments have declined and the number of portfolio loans generated by the mortgage division has increased. 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 Corporation'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 December 31, 2001 are as follows (dollars in thousands): 24
AMOUNT PERCENT ============================================================================== Tangible capital ........................ $ 85,732 8.17% Requirement.............................. 20,974 2.00% - ------------------------------------------------------------------------------ Excess over requirement.................. $ 64,758 6.17% ============================================================================== Tier 1 (core) capital.................... $ 85,732 8.17% Requirement to be "Well Capitalized"..... $ 52,436 5.00% - ------------------------------------------------------------------------------ Excess over requirement.................. $ 33,296 3.17% ============================================================================== Total risk-based capital................. $ 92,088 16.34% Requirement to be "Well Capitalized"..... $ 56,369 10.00% - ------------------------------------------------------------------------------ Excess over requirement.................. $ 35,719 6.34% ============================================================================== Tier 1 risk-based capital................ $ 85,732 15.21% Requirement to be "Well Capitalized"..... $ 33,821 6.00% - ------------------------------------------------------------------------------ Excess over requirement.................. $ 51,911 9.21% ============================================================================== SHAREHOLDERS' EQUITY. The ability of the Corporation to pay dividends depends primarily on the ability of the Savings Bank to pay dividends to the corporation. The Savings Bank may not declare or pay a cash dividend if the effect thereof would cause its net worth to be reduced below either the amounts required for its liquidation account or the regulatory capital requirements imposed by federal and state regulation. In October 2001, the Savings Bank paid a dividend of paid a paid $1.2 million to the Corporation for the primary purpose of funding the March 2001 Stock Repurchase Plan. For the six months ended December 31, 2001, total cash dividends of $2.4 million were declared and paid by the Savings Bank to the Corporation. STOCK OPTION PLAN AND MANAGEMENT RECOGNITION PLAN. Pursuant to the terms of the Corporation's 1996 Stock Option Plan, the Corporation granted options for 85,500 shares of common stock on October 30, 2001 to certain officers, directors and employees. Pursuant to the Plan, the options vest at a rate of 20 percent per year over a five-year period. Pursuant to the terms of the Corporation's Management Recognition Plan ("MRP"), the Corporation awarded 4,558 restricted shares of common stock on October 30, 2001 to certain officers and directors. Pursuant to the MRP, the restricted shares vest over a period ranging from one to five years and on a yearly pro-rata vesting schedule. SUPPLEMENTAL INFORMATION December 31, June 30, December 31, 2001 2001 2000 ============================================================================== Loans serviced for others (in thousands).......... $ 170,261 $ 203,813 $ 238,140 Book value per share............. $ 26.98 $ 25.52 $ 23.99 ============================================================================== 25
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 Corporation operates, projections of future performance, perceived opportunities in the market, potential future credit experience, and statements regarding the Corporation's mission and vision. These forward looking statements are based upon current management expectations, and may therefore involve risks and uncertainties. The Corporation'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 Corporation's reports filed with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended June 30, 2001. PART II OTHER INFORMATION - --------------------------- Item 1. LEGAL PROCEEDINGS From time to time the Corporation or its subsidiaries are engaged in legal proceedings in the ordinary course of business, none of which are currently considered to have a material impact on the Corporation'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 SHAREHOLDERS The Corporation's Annual Meeting of Stockholders ("Meeting") was held on October 25, 2001, at the Riverside Art Museum at 3425 Mission Inn Avenue, Riverside, California. The results of the vote on the two items presented at the Meeting were as follows: 1. ELECTION OF DIRECTORS There were three nominees: -------------------------- 1. Joseph P. Barr is a Certified Public Accountant in California and Ohio and has been in public accounting for more than 30 years. He is currently a principal with Swenson Accountancy Corp., a regional assurances and business services firm, with which he has been associated since 1996. Mr. Barr also serves on the Audit Committee. 2. Bruce W. Bennett is the President and owner of Community Care and Rehabilitation Center, a skilled nursing facility, with which he has been associated since 1973. He also serves as Chairman of Community Health Corporation and Riverside Community Hospital. Mr. Bennett currently serves as Chairman of the Audit Committee. 3. Debbi H. Guthrie is the President and owner of Roy O. Huffman Roof Company, with which she has been affiliated since 1971. Ms. Guthrie currently serves on the Company's Audit Committee. 26
The results of the vote were the following: FOR WITHHELD --------------------- ---------------------- Number Number of Votes Percentage of Votes Percentage -------- ---------- -------- ----------- Joseph P. Barr......... 3,340,105 97.5 84,145 2.5 Bruce W. Bennett....... 3,339,995 97.5 84,255 2.5 Debbi H. Guthrie....... 3,337,309 97.5 86,941 2.5 2. APPOINTMENT OF AUDITORS Stockholders approved the appointment of the Corporation's auditors, Deloitte & Touche LLP, as independent auditors for the fiscal year ending June 30, 2002 by the following vote: FOR........... 3,387,948 shares or 98.9 percent of total vote AGAINST....... 21,238 shares or 0.6 percent of total vote ABSTAIN....... 15,064 shares or 0.5 percent of total vote Item 5. OTHER INFORMATION None. Item 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits : None. b) Reports on Form 8-K None. 27
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 1, 2002 /s/ Craig G. Blunden ------------------------------------- Craig G. Blunden President and Chief Executive Officer (Principal Executive Officer) February 1, 2002 /s/ Donavon P. Ternes ------------------------------------- Donavon P. Ternes Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 28