FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended . . . . . . . . SEPTEMBER 30, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to _______________ Commission File Number 0-28304 PROVIDENT FINANCIAL HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 33-0704889 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3756 Central Avenue Riverside, California 92506 (Address of principal executive offices and zip code) (909) 686-6060 (Registrant's telephone number, including area code) ------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title of class: As of OCTOBER 31, 1997 --------------- ---------------------- COMMON STOCK, $.01 PAR VALUE 4,836,215 SHARES * *Includes 365,201 shares held by employee stock ownership plan that have not been released, committed to be released, or allocated to participant accounts.
TABLE OF CONTENTS PART 1 - FINANCIAL INFORMATION ITEM 1 - Financial Statements. The Consolidated Financial Statements of Provident Financial Holdings, Inc. filed as part of the report are as follows: Consolidated Statements of Financial Condition as of September 30, 1997 and June 30, 1997.......................... 1 Consolidated Statements of Operations for the quarters ended September 30, 1997 and 1996.................. 2 Consolidated Statements of Changes in Stockholder's Equity for the quarters ended September 30, 1997 and 1996.................. 3 Consolidated Statements of Cash Flows for the quarters ended September 30, 1997 and 1996.................. 4 Selected Notes to Consolidated Financial Statements................. 5 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operation General............................................................ 6 Summary............................................................ 6 Financial Condition................................................ 7 Results of Operations.............................................. 7 Asset Quality...................................................... 11 Liquidity and Capital Resources.................................... 13 Year 2000 Issues................................................... 13 PART II - OTHER INFORMATION Item 1. Legal Proceedings...................................... 14 Item 2. Changes in Securities.................................. 14 Item 3. Defaults upon Senior Securities........................ 14 Item 4. Submission of Matters to a Vote of Stockholders........ 14 Item 5. Other Information...................................... 14 Item 6. Exhibits and Reports on Form 8-K....................... 14 SIGNATURES............................................................... 15 EXHIBIT 27 - FINANCIAL DATA SCHEDULE..................................... 16 1
PROVIDENT FINANCIAL HOLDINGS, INC CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) DOLLARS IN THOUSANDS SEPTEMBER 30, JUNE 30, 1997 1997 ASSETS -------- -------- Cash $ 11,349 $ 10,411 Overnight Deposits -- 9,700 Investment securities-held to maturity 34,544 33,645 (market value $34,893 and $34,425) Investment securities-available for sale at fair value 770 761 Loans held for investment 542,859 517,147 Loans held for sale 27,315 19,984 Accrued interest receivable 3,645 3,378 Real estate available for sale 5,641 5,676 Federal Home Loan Bank stock - at cost 4,953 4,879 Premises and equipment, net 7,010 6,825 Prepaid expenses and other assets 2,548 3,094 -------- -------- TOTAL ASSETS $640,634 $615,500 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Non-interest bearing deposits $ 3,043 $ 2,335 Interest-bearing deposits 519,994 506,424 Borrowings 18,828 6,828 Accounts Payable and Other Liabilities 13,357 14,466 -------- -------- TOTAL LIABILITIES 555,222 530,053 Preferred stock, $.01 par value; authorized 2,000,000 shares; none issued and outstanding Common stock, $.01 par value; authorized 15,000,000 shares; issued 5,125,215; outstanding 4,836,215 at September 30, 1997 and 4,920,215 at June 30, 1997) 51 51 Additional paid-in capital 49,904 49,842 Retained earnings 43,537 42,070 Treasury stock at cost (4,928) (3,291) Unearned ESOP shares (3,652) (3,290) Unrealized gain on securities, net of tax 500 495 -------- -------- TOTAL STOCKHOLDERS' EQUITY 85,412 85,447 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $640,634 $615,500 ======== ======== 2
PROVIDENT FINANCIAL HOLDINGS, INC CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE QUARTER ENDED SEPTEMBER 30, 1997 1996 ------- ------- Interest Income Loans $10,755 $ 9,495 Investment securities 665 1,069 ------- ------- Total interest income 11,420 10,564 Interest Expense Deposits 6,269 5,557 Borrowings 198 120 ------- ------- Total interest expense 6,467 5,677 ------- ------- Net Interest Income 4,953 4,887 Provision for Loan Losses 300 254 ------- ------- Net Interest Income after Provision for Loan Losses 4,653 4,633 Non-Interest Income Loan Servicing and Other Fees 800 630 Gains from Sales of Loans 1,060 1,050 Other 446 319 ------- ------- Total non-interest income 2,306 1,999 Non-interest Expenses Salaries and employee benefits 2,857 3,098 Premises and occupancy 533 519 SAIF Insurance premiums -- 3,544 Telephone 114 107 Other 1,019 1,267 ------- ------- Total Operating and Administrative Expenses 4,523 8,535 Real Estate Operations, net (88) (20) ------- ------- Total non-interest expenses 4,435 8,515 Income (Loss) Before Taxes 2,524 (1,883) Provision (Benefit) for Income Taxes 1,057 (767) ------- ------- Net Income (Loss) $ 1,467 $(1,116) ======= ======= Earnings Per Share $ 0.32 $ (0.24) ======= ======= Weighted Average Shares Outstanding 4,594,121 4,729,981 ========= ========= 3 PAGE
<TABLE> PROVIDENT FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) DOLLARS IN THOUSANDS FOR THE QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996 Unrealized Gain on Additional Unearned Securities Common Paid-in Retained ESOP Available Shares Stock Capital Earnings Shares For Sale Total -------- ----- ------- -------- -------- --------- ------- <S> <C> <C> <C> <C> <C> <C> <C> Balance at June 30, 1996 5,125,215 $51 $49,742 $40,129 $ (3,952) -- $85,970 Release of ESOP shares 7 70 77 Unrealized gain on securities available for sale, net of taxes $99 99 Net loss (1,116) (1,116) -------- ----- ------- -------- -------- --------- ------- Balance at September 30, 1996 5,125,215 $51 $49,749 $39,013 $(3,882) $99 $85,030 ========= ===== ======= ======== ======== ========= ======= Unrealized Gain on Additional Unearned Securities Common Paid-in Retained Treasury ESOP Available Shares Stock Capital Earnings Stock Shares For Sale Total -------- ----- ------- -------- -------- --------- ------- ------- Balance at June 30, 1997 4,920,215 $51 $49,842 $42,070 $(3,291) $(3,720) $495 $85,447 Net income 1,467 1,467 Treasury Stock (84,000) (1,637) (1,637) Release of ESOP shares 62 68 130 Unrealized gain on securities available for sale, net of taxes 5 5 -------- ----- ------- -------- -------- --------- ------- ------- Balance at September 30, 1997 4,836,215 $51 $49,904 $43,537 $(4,928) $(3,652) $500 $85,412 ========= ===== ======= ======== ======== ========= ======= ======= 4 </TABLE>
PROVIDENT FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) DOLLARS IN THOUSANDS Quarter ended September 30, 1997 1996 Cash flows from operating activities: -------- -------- Net income (loss) $ 1,467 $(1,116) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 253 284 Amortization of loan fees (93) (11) Amortization of unearned ESOP shares 130 -- Provision for loan losses 300 254 Provision for losses on real estate 18 46 Gain on sale of loans (1,060) (1,050) Increase in accounts payable and other liabilities (1,104) 1,857 Increase in prepaid expenses and other assets 205 (614) Loans originated for sale (106,792) (82,852) Proceeds from sale of loans 100,521 108,827 -------- -------- Net cash provided by (used for) operating activities (6,155) 25,625 Cash flows from financing activities: Net increase (decrease) in NOW, passbook and money market deposits 28,667 139 Net increase (decrease) in term deposits (14,389) (3,888) Repayment of Federal Home Loan Bank Advances -- (1,750) Proceeds from Federal Home Loan Bank Advances 12,000 -- Net cash used for financing activities 26,278 (5,499) Cash flows from investing activities: Net (increase) decrease in loans receivable (28,153) (1,980) Maturity of investment securities held-to-maturity 21,690 76,613 Purchases of investment securities held-to-maturity (22,598) (113,251) Proceeds from disposal of real estate 2,242 1,662 Purchases of premises and equipment, net of proceeds from sales (429) (199) Treasury stock purchases (1,637) -- Other -- 77 ------- ------- Net cash (used for) provided by investing activities (28,885) (37,078) ------- ------- Net (decrease) increase in cash and cash equivalents (8,762) (16,952) Cash and cash equivalents at beginning of period 20,111 30,831 ------- ------- Cash and cash equivalents at end of period $11,349 $13,879 ======= ======= Supplemental information: Cash paid for interest 6,862 5,641 Cash paid for income taxes 923 0 Real estate acquired in settlement of loans 2,525 2,113 5
PROVIDENT FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 NOTE 1: BASIS OF PRESENTATION The unaudited consolidated financial statements included herein reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The balance sheet data at June 30, 1997 is derived from audited financial statements of Provident Financial Holdings, Inc. (the Company). Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended June 30, 1997 (File No. 0-28304) of the Company. Certain amounts in the prior period's financial statements may have been reclassified to conform to the current period's presentation. NOTE 2: EARNINGS PER SHARE Earnings per share are based on the weighted average number of shares outstanding plus, when applicable, the dilutive effect of stock options. Shares repurchased by the Company are excluded from shares outstanding for these calculations. The weighted average number of shares used for the quarters ended September 30, 1997 and 1996 were 4,594,121 and 4,729,981, respectively. 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Provident Financial Holdings, Inc. (the Company) is a Delaware corporation which was organized in January, 1996 for the purpose of becoming the holding company for Provident Savings Bank, F.S.B. (the Savings Bank) upon the latter's conversion from a federal mutual to a federal stock savings bank (Conversion). The conversion was completed on June 27, 1996. The Company operates primarily in one business segment - attracting customer deposits to originate loans secured primarily by mortgages on residential real estate. The segment includes ancillary activities related to real estate lending such as mortgage banking and real estate development. The Savings Bank is a federally chartered savings bank founded in 1956 whose deposits are insured by the FDIC under the Savings Association Insurance Fund (SAIF). The Savings Bank conducts business from its main office in Riverside, California and its eight branch offices. Through the operations of its Profed Mortgage Division (Profed), the Savings Bank has expanded its retail lending market to include a larger portion of Southern California and Southern Nevada. Profed operates four offices within the Savings Bank's retail branch facilities and five free-standing loan production offices, two of which include wholesale loan departments. Management's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Selected Notes to Consolidated Financial Statements. The operating results of the Company depend primarily on its net interest income, its non-interest income (principally from mortgage banking activities) and its non-interest expense. Net interest income is the difference between the income the Company receives on its loan and investment portfolio and its cost of funds, which consist of interest paid on deposits and borrowings. Non-interest income is comprised of income from mortgage banking activities, gain on the occasional sale of assets and miscellaneous fees and income. The contribution of mortgage banking activities to the Company's results of operations is highly dependent on the demand for loans by borrowers and investors, and therefore the amount of gain on sale of loans may vary significantly from period to period as a result of changes in market interest rates and the local and national economy. The Company's profitability is also affected by the level of non-interest expense. Non-interest expenses include compensation and benefits, occupancy and equipment expenses, deposit insurance premiums, data servicing expenses, and other operating costs. The Savings Bank incurred a one-time assessment to recapitalize the Savings Association Insurance Fund (" SAIF") during the first quarter of fiscal 1997. Non-interest expenses related to mortgage banking activities include compensation and benefits, occupancy and equipment expenses, telephone and other operating costs, all of which are related to the volume of loans originated. The Company's results of operations may be adversely affected during periods of reduced loan demand to the extent that non-interest expenses associated with mortgage banking activities are not reduced commensurate with the decrease in loan originations. SUMMARY The Company reported net income of $1.47 million, or $0.32 per share, for the first quarter of fiscal 1998. This compares to a net operating loss of ($1.12) million, or ($0.24) per share, for the same period last year. The prior period loss resulted from the one-time SAIF recapitalization assessment. Excluding this assessment, fiscal 1997 first quarter income would have been $764,000, or $0.16 per share. Return on assets for the quarter ended September 30, 1997 was 0.93% as compared to (0.76%) for the same period last year. Return on equity for the quarter ended September 30, 1997 was 6.90% as compared to (5.18%) for the same period last year. FINANCIAL CONDITION Total assets increased by $25.1 million, or 4.1%, from $615.5 million at June 30, 1997 to $640.6 million at September 30, 1997. Total deposits funded $14.3 million of this increase while Federal Home Loan Bank ("FHLB") advances provided the remaining financing. The Company plans to continue utilizing borrowings from FHLB to fund its loan growth objectives. Loans held for investment increased by $25.7 million, or 5.0%, during the first quarter as the Company continued to portfolio intermediate-term adjustable rate loans from its current mortgage production. The Company anticipates that its portfolio loans will continue to grow through its retail and wholesale operations, loan purchases and correspondent lending. 7
RESULTS OF OPERATIONS INTEREST INCOME. Interest income increased by $887,000 during the first quarter of fiscal 1198 as a result of growth in earning assets. Average earning assets increased by $40.3 million, or 7.1%, during the quarter. The yield on loans narrowed with a general decline in interest rates. The yields on investments increased as the duration of the portfolio was lengthened by the purchase of longer-term securities. INTEREST EXPENSE. Interest expense increased by $784,000 during the first quarter of fiscal 1998 on a combination of greater volume and higher interest rates. The Company began in the fall of 1996 to pursue a more aggressive retail deposit pricing strategy. The objective of this strategy was to attract new deposit relationships to the Savins Bank which, in turn, would lead to developing a greater non-interest bearing deposit base and generate additional non-interest income through the use of additional services. The growth in non-interest bearing deposits has been slow; however, the Company believes that increasing non-interest bearing sources of deposits is critical to its long-term objectives. The following tables provide additional comparative data on the Company's average balances and rate/volume changes: 8
Quarter Ended Quarter Ended 9/30/97 9/30/96 Average Average ------------------------ ------------------------ Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost ------- -------- ------ ------- -------- ------ Interest-earning assets: Loans receivable, net (1) $560,545 $10,754 7.67% $485,860 $ 9,495 7.82% Investment securities 31,347 463 5.91 52,288 723 5.54 FHLB stock 4,934 74 6.02 4,640 69 5.94 Interest-earning deposits 9,627 128 5.33 23,323 277 4.74 ------- -------- ------ ------- -------- ------ Total interest-earning assets 606,453 11,420 7.53 566,111 10,564 7.47 Non-interest-earning assets 25,756 21,991 ------- ------- Total assets $632,208 $588,102 ======= ======= Interest-bearing liabilities: Passbook accounts 45,579 311 2.71 51,102 386 3.02 Demand and NOW accounts 114,478 914 3.17 108,792 968 3.56 Certificate accounts 356,464 5,044 5.61 317,683 4,203 5.29 ------- -------- ------ ------- -------- ------ Total deposits 516,522 6,269 4.82 477,577 5,557 4.65 FHLB advances 13,687 198 5.75 7,901 120 6.05 Other borrowings -- -- 11 0 0.00 Total interest-bearing ------- -------- ------ ------- -------- ------ liabilities 530,208 6,467 4.84 485,489 5,677 4.68 Non-interest-bearing ------- -------- ------ ------- -------- ------ liabilities 16,911 16,372 ------- ------- Total liabilities 547,119 501,861 ------- ------- Retained earnings 85,089 86,241 ------- ------- Total liabilities and retained earnings $632,208 $588,102 ======= ======= Net interest income $4,953 $4,887 Interest rate spread (2) 2.69% 2.79% Net interest margin (3) 3.27% 3.45% Ratio of average interest-earning assets to average interest-bearing liabilities 114.38% 116.61% Return on Assets 0.93% (0.76%) Return on Equity 6.90% (5.18%) (1) Includes loans available for sale (2) Represents difference between weighted average yield on all interest-earning assets and weighted average rate on all interest-bearing liabilities (3) Represents net interest income before provision for loan losses as a percentage of average interest-earning assets. 9
RATE/VOLUME VARIANCE Quarter Ended September 30, 1997 compared to Quarter Ended September 30, 1996 Increase (Decrease) Due to -------------------------- Rate/ Rate Volume Volume Net ------ ------ ------ ------ Interest income: Loans receivable (1) $(143) $1,455 $(22) $1,290 Investment securities 49 (290) (19) (260) FHLB stock 1 4 -- 5 Interest-bearing deposits 34 (162) (20) (148) ------ ------ ------ ------ Total net change in income on interest-earning assets (59) 1007 (61) 887 Interest-bearing liabilities: Passbook accounts (37) (41) 4 (74) Demand and NOW accounts (99) 50 (5) (54) Certificate accounts 290 509 35 834 FHLB advances (5) 87 (4) 78 Other borrowings -- -- -- -- ------ ------ ------ ------ Total net change in expense on interest-bearing liabilities 149 605 30 784 ------ ------ ------ ------ Net change in net interest income $ (208) $ 402 $ (91) $ 103 ====== ====== ====== ====== (1) Includes loans available for sale. For purposes of calculating volume, rate and rate/volume variances, nonaccrual loans were included in the weighted average balance outstanding. PROVISION FOR LOAN LOSSES. For the quarter ended September 30, 1997, the Company's provision for loan losses was $300,000 as compared to $254,000 for the quarter ended September 30, 1996. At September 30, 1997, loan loss reserves as a percentage of gross loans receivable was 1.02%, compared to 1.13% at September 30, 1996. With the recent improvement in the Southern California economy and its housing market, the Company intends to allow its loan loss reserve to decrease below 1% of gross loans. Net charge-offs fell to 8 basis points of average loans during the quarter, down from 40 basis points in the same period last year. The allowance for loan losses is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loan portfolio and upon management's continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, current and anticipated economic conditions, detailed analysis of individual loans for which full collectibility may not be assured, and determination of the realizable value of the collateral securing the loans. Provisions for losses are charged against operations on a monthly basis as necessary to maintain the allowance at appropriate levels. Management believes that the amount maintained in the allowance will be adequate to absorb losses inherent in the portfolio. Although management believes it uses the best information available to make such determinations, there can be no assurance that regulators, in reviewing the Company's loan portfolio, will not request the Company to increase significantly its allowance for loan losses. Future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected due to economic, operating, regulatory, and other conditions beyond the control of the Company. 10
The following tables are provided to disclose additional detail on the Company's allowance for loan losses and asset quality (dollars in thousands): For the Quarter Ended, September 30, 1997 September 30, 1996 ------------------ ------------------ Allowance at beginning of period $ 5,465 $ 5,452 Provision for loan losses 300 254 Recoveries: Mortgage Loans: One-to-four family 11 1 Multifamily 39 8 Commercial - 38 Construction - - Consumer loans 14 - Other Loans - - ----- ----- Total recoveries 64 47 Charge-offs: Mortgage Loans: One-to-four family (25) (117) Multifamily (2) (102) Commercial (102) (309) Construction - - Consumer loans (46) - Commercial Business Lending - - Other Loans - - --------- -------- Total charge-offs (175) (528) --------- -------- Net charge-offs (111) (481) --------- -------- Balance at end of period $ 5,654 $ 5,225 ===== ===== Allowance for loan losses as a percentage of gross loans outstanding at the end of the period 1.02% 1.13% Net charge-offs as a percentage of average loans outstanding during the period (0.08%) (0.40%) Allowance for loan losses as a percentage of nonperforming loans at the end of the period 158.33% 157.43% 11
ASSET QUALITY. The following tables are provided to disclose additional details on asset quality (dollars in thousands): At September 30, At September 30, 1997 1996 Loans accounted for on a non-accrual basis: --------------- --------------- Mortgage Loans: One-to-four family $ 3,369 $ 2,840 Multifamily 0 411 Commercial 0 0 Construction 0 0 Consumer Loans 65 68 Commercial Business Lending 0 0 Other Loans 0 0 -------- -------- Total 3,434 3,319 Accruing loans which are contractually past due 90 days or more: Mortgage Loans: One-to-four family 137 0 Multifamily 0 0 Commercial 0 0 Construction 0 0 Consumer loans 0 0 Other Loans 0 0 ------- ------- Total 137 0 ------- ------- Total of nonaccrual and 90 days past due loans 3,571 3,319 Real estate owned 2,607 3,053 ------- ------- Total nonperforming assets $6,178 $6,372 ===== ===== Restructured loans $3,955 $4,939 Nonaccrual and 90 days or more past due loans as a percentage of portfolio loans receivable, net 0.66% 0.73% Nonaccrual and 90 days or more past due loans as a percentage of total assets 0.56% 0.57% Nonperforming assets as a percentage of total assets 0.96% 1.10% The Company addresses loans individually and identifies impairment when the accrual of interest has been discontinued, loans have been restructured or management has serious doubts about the future collectibility of principal and interest, even though the loans are currently performing. Factors considered in determining impairment include, but are not limited to, expected future cash flows, the financial condition of the borrower and current economic conditions. The Company measures each impaired loan based on the fair value of its collateral and charges off those loans or portions of loans deemed uncollectible. NON-INTEREST INCOME. Non-interest income increased by $307,000, or 15.4%, from $2.0 million in the first quarter of fiscal 1997 to $2.3 million in the first quarter of fiscal 1998. This increase was primarily due an increase in other loan fees and service charges. During the quarter ended September 30, 1997, loans sold aggregated $99.5 million as compared to $106.8 million for the similar period last year. The overwhelming majority of sold loans continue to be on a servicing released basis. 12
NON-INTEREST EXPENSES. Non-interest expenses decreased by $4.1 million during the quarter to $4.4 million from $8.5 million in the same period last year. As previously discussed, the one-time special assessment to recapitalize the SAIF increased deposit insurance premiums by $3.2 million in the quarter ended September 30, 1996. INCOME TAXES. Income tax expense was $1.1 million for the quarter versus a benefit of $767,000 for the same quarter of 1996. The resulting effective tax rates for the quarters ended September 30, 1997 and 1996 were 41.9% and (40.7%). LOAN ORIGINATION VOLUMES. The following table is provided to disclose additional detail related to the volume of loans originated (dollars in thousands): For the Quarter Ended September 30, ------------- 1997 1996 ------ ------ Loans originated for Sale Retail originations $ 38,518 $33,373 Wholesale originations 69,577 49,479 ------ ------ Total loans originated for sale 108,075 82,852 Loans sold: Servicing released 99,462 105,215 Servicing retained 0 1,539 --------- --------- Total loans sold 99,462 106,754 Loans originated for Portfolio: Mortgage loans: One-to-four family 44,758 10,082 Multifamily 0 292 Commercial 250 0 Construction loans 3,974 409 Consumer 2,010 1,491 Commercial Business Lending 692 0 Other loans 0 0 ---------- --------- Total loans originated for Portfolio 51,684 12,274 Loans purchased: Mortgage loans: One-to-four family 428 219 Commercial 0 0 -------- -------- Total loans purchased 428 219 Mortgage loan principal repayments 25,661 13,405 Real estate acquired in settlement of loans 2,647 2,113 Increase (decrease) in other items, net (1) 625 1,701 ------- ------- Net (decrease) increase in loans receivable, net $33,042 $(25,226) ======= ======= (1) Includes changes in accrued interest, loans in process, discounts and loan loss reserves. LIQUIDITY AND CAPITAL RESOURCES. The Company's primary source of funds are deposits, proceeds from loan principal and interest payments and sales of loans, the maturity of and interest income on investment securities, and FHLB advances. The Savings Bank has a credit line available with the Federal Home Loan Bank of San Francisco amounting to 30% of total assets. 13
While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows, loan sales, and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition. The primary investing activity of the Company is the origination of mortgage loans through the Savings Bank. During the quarter ended September 30, 1997, the Savings Bank originated a total of $159.8 million in loans. This activity was funded primarily by loan sales, retail deposits and FHLB advances. For the quarter ended September 30, 1997 loans sales aggregated $99.5 million and loan principal repayments totaled $25.7 million. FHLB advances increased by $12 million. By regulation, the Savings Bank must maintain liquidity of 5% of deposits and short-term borrowings. Liquidity is measured by cash and readily marketable securities which are not committed, pledged, or required to liquidate specific liabilities. The Savings Bank's average liquidity ratio for September 30, 1997 and 1996 was 6.96% and 7.72%, respectively. The Savings Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective actions, the Savings Bank must meet certain specific capital guidelines that involve quantitative measures of the Savings Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Savings Bank's capital amounts and classifications are also subject to qualitative judgements by the regulators about components, risk-weightings, and other factors. The Savings Bank's actual and required capital amounts and ratios as of September 30, 1997 are as follows: Amount Percent ------- -------- Tangible Capital $59,743 9.59% Requirement 9,342 1.50 --------- ------- Excess over requirement $50,401 8.09% ======= ======= Core Capital $59,743 9.59% Requirement 18,684 3.00 -------- ----- Excess over requirement $41,059 6.59% ======= ====== Risk Based Capital $94,432 15.08% Requirement to Be "Well Capitalized" 34,752 8.00 ------- ------ Excess over requirement $59,860 7.08% ======= ======= Management believes that under current regulations, the Company will continue to meet its minimum capital requirements in the foreseeable future. YEAR 2000 ISSUES In preparation for the information system issues in Year 2000, management has recently engaged a consulting firm to assess the Company's Year 2000 compliance and recommend corrective actions. The total cost of making the Company's information systems Year 2000 compliant cannot be estimated at this time. Management believes, at minimum, the Company will need to make a capital investment in additional software and equipment to address Year 2000 concerns. 14
PART II - FINANCIAL INFORMATION - ------------------------------- ITEM 1. LEGAL PROCEEDINGS From time to time the Company or its subsidiaries are engaged in legal proceedings in the ordinary course of business, none of which are considered to have a material impact on the Company's financial position or results of operations. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS Not Applicable. ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27 - Financial data schedule b) Reports on form 8-k None. 15
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Provident Financial Holdings, Inc. November 10, 1997 /s/ Craig G. Blunden --------------------- Craig G. Blunden President and Chief Executive Officer (Principal Executive Officer) November 10, 1997 /s/ Brian M. Riley ------------------- Brian M. Riley Chief Financial Officer (Principal Financial and Accounting Officer) 16