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EX-32.1 - EXHIBIT 32.1 - PROVIDENT FINANCIAL HOLDINGS INCex321.htm
EX-31.1 - EXHIBIT 31.1 - PROVIDENT FINANCIAL HOLDINGS INCex311.htm
EX-32.2 - EXHIBIT 32.2 - PROVIDENT FINANCIAL HOLDINGS INCex322.htm
EX-31.2 - EXHIBIT 31.2 - PROVIDENT FINANCIAL HOLDINGS INCex312.htm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

(Mark One)

[  X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
For the quarterly period ended …………………………………….....  March 31, 2011

[     ]
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 000-28304
 
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)

(951) 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.  Yes    X     .    No       .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   X   .    No      .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer     [   ]                         Accelerated filer [   ]
Non-accelerated filer       [   ]                    Smaller reporting company [ X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      .     No   X  .

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of class:                                          As of May 3, 2011

Common stock, $ 0.01 par value, per share                                                     11,418,654 shares


 
 

 

PROVIDENT FINANCIAL HOLDINGS, INC.
Table of Contents

PART 1  -
FINANCIAL INFORMATION
 
       
  ITEM 1  -
Financial Statements.  The Unaudited Interim Condensed Consolidated Financial Statements of Provident Financial Holdings, Inc. filed as a part of the report are as follows:
 
     
Page
 
Condensed Consolidated Statements of Financial Condition
 
   
as of March 31, 2011 and June 30, 2010
1
 
Condensed Consolidated Statements of Operations
 
   
for the Quarters and Nine Months Ended March 31, 2011 and 2010
2
 
Condensed Consolidated Statements of Stockholders’ Equity
 
   
for the Quarters and Nine Months Ended March 31, 2011 and 2010
3
 
Condensed Consolidated Statements of Cash Flows
 
   
for the Nine Months Ended March 31, 2011 and 2010
5
 
Notes to Unaudited Interim Condensed Consolidated Financial Statements
6
       
  ITEM 2  -
Management’s Discussion and Analysis of Financial Condition and Results of
 
   
Operations:
 
       
 
General
  28
 
Safe-Harbor Statement
   29
 
Critical Accounting Policies
30
 
Executive Summary and Operating Strategy
32
 
Off-Balance Sheet Financing Arrangements and Contractual Obligations
33
 
Comparison of Financial Condition at March 31, 2011 and June 30, 2010
33
 
Comparison of Operating Results
 
   
for the Quarters and Nine Months Ended March 31, 2011 and 2010
35
 
Asset Quality
44
 
Loan Volume Activities
53
 
Liquidity and Capital Resources
54
 
Commitments and Derivative Financial Instruments
55
 
Supplemental Information
55
       
  ITEM 3  -
Quantitative and Qualitative Disclosures about Market Risk
56
       
  ITEM 4  -
Controls and Procedures
58
       
PART II  -
OTHER INFORMATION
 
       
  ITEM 1  -
Legal Proceedings
58
  ITEM 1A -
Risk Factors
58
  ITEM 2  -
Unregistered Sales of Equity Securities and Use of Proceeds
58
  ITEM 3  -
Defaults Upon Senior Securities
59
  ITEM 4  -
(Removed and Reserved)
59
  ITEM 5  -
Other Information
59
  ITEM 6  -
Exhibits
59
       
SIGNATURES
61
   


 
 

 

PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Financial Condition
(Unaudited)
Dollars in Thousands

   
March 31,
   
June 30,
 
   
2011
   
2010
 
Assets
           
     Cash and cash equivalents
  $ 175,357     $ 96,201  
     Investment securities – available for sale, at fair value
    27,132       35,003  
     Loans held for investment, net of allowance for loan losses of
               
          $34,478 and $43,501, respectively
    913,396       1,006,260  
     Loans held for sale, at fair value
    146,559       170,255  
     Accrued interest receivable
    3,778       4,643  
     Real estate owned, net
    10,659       14,667  
     Federal Home Loan Bank (“FHLB”) – San Francisco stock
    28,185       31,795  
     Premises and equipment, net
    4,616       5,841  
     Prepaid expenses and other assets
    29,349       34,736  
                 
               Total assets
  $ 1,339,031     $ 1,399,401  
                 
Liabilities and Stockholders’ Equity
               
                 
Commitments and Contingencies
               
                 
Liabilities:
               
     Non interest-bearing deposits
  $ 42,433     $ 52,230  
     Interest-bearing deposits
    904,502       880,703  
               Total deposits
    946,935       932,933  
                 
     Borrowings
    231,611       309,647  
     Accounts payable, accrued interest and other liabilities
    20,908       29,077  
               Total liabilities
    1,199,454       1,271,657  
                 
Stockholders’ equity:
               
     Preferred stock, $.01 par value (2,000,000 shares authorized;
          none issued and outstanding)
               
    -       -  
     Common stock, $.01 par value (40,000,000 shares authorized;
               
          17,610,865 shares issued; 11,418,654 and 11,406,654 shares outstanding, respectively)      176        176
     Additional paid-in capital
    86,520       85,663  
     Retained earnings
    146,159       135,383  
     Treasury stock at cost (6,192,211 and 6,204,211 shares,
          respectively)
               
    (93,942 )     (93,942 )
     Unearned stock compensation
    -       (203 )
     Accumulated other comprehensive income, net of tax
    664       667  
                 
               Total stockholders’ equity
    139,577       127,744  
                 
               Total liabilities and stockholders’ equity
  $ 1,339,031     $ 1,399,401  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 


PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
In Thousands, Except Per Share Information
 
 
Quarter Ended
March 31,
 
Nine Months Ended
March 31,
   
 
2011
 
2010
 
2011
 
2010
Interest income:
                     
     Loans receivable, net
$ 13,715
   
$ 16,101
   
$ 44,164
   
$ 51,375
 
     Investment securities
185
   
311
   
643
   
1,869
 
     FHLB – San Francisco stock
22
   
22
   
88
   
91
 
     Interest-earning deposits
104
   
71
   
234
   
191
 
     Total interest income
14,026
   
16,505
   
45,129
   
53,526
 
                       
Interest expense:
                     
     Checking and money market deposits
225
   
376
   
801
   
1,066
 
     Savings deposits
257
   
468
   
884
   
1,492
 
     Time deposits
1,930
   
2,738
   
6,165
   
9,838
 
     Borrowings
2,442
   
3,330
   
8,587
   
11,854
 
     Total interest expense
4,854
   
6,912
   
16,437
   
24,250
 
                       
Net interest income, before provision for loan losses
9,172
   
9,593
   
28,692
   
29,276
 
Provision for loan losses
2,693
   
2,322
   
4,618
   
21,843
 
Net interest income, after provision for loan losses
6,479
   
7,271
   
24,074
   
7,433
 
                       
Non-interest income:
                     
     Loan servicing and other fees
298
   
219
   
697
   
637
 
     Gain on sale of loans, net
6,680
   
1,431
   
25,459
   
9,804
 
     Deposit account fees
633
   
667
   
1,933
   
2,135
 
     Gain on sale of investment securities, net
-
   
-
   
-
   
2,290
 
     (Loss) gain on sale and operations of real estate owned acquired in the settlement of loans, net
 
(550
 
)
 
 
58
   
 
(1,608
 
)
 
 
247
 
     Other
1,603
   
502
   
2,615
   
1,458
 
     Total non-interest income
8,664
   
2,877
   
29,096
   
16,571
 
                       
Non-interest expense:
                     
     Salaries and employee benefits
7,170
   
6,065
   
22,112
   
16,848
 
     Premises and occupancy
786
   
740
   
2,410
   
2,282
 
     Equipment
394
   
334
   
1,097
   
1,025
 
     Professional expenses
356
   
424
   
1,157
   
1,177
 
     Sales and marketing expenses
202
   
174
   
496
   
434
 
     Deposit insurance premiums and regulatory
       assessments
 
695
   
 
636
   
 
2,040
   
 
2,309
 
     Other
1,409
   
1,175
   
4,252
   
3,595
 
     Total non-interest expense
11,012
   
9,548
   
33,564
   
27,670
 
                       
Income (loss) before income taxes
4,131
   
600
   
19,606
   
(3,666
)
Provision (benefit) for income taxes
1,796
   
229
   
8,487
   
(1,579
)
     Net income (loss)
$   2,335
   
$      371
   
$ 11,119
   
$  (2,087
)
                       
Basic earnings (loss) per share
$ 0.20
   
$ 0.03
   
$ 0.98
   
$ (0.26
)
Diluted earnings (loss) per share
$ 0.20
   
$ 0.03
   
$ 0.98
   
$ (0.26
)
Cash dividends per share
$ 0.01
   
$ 0.01
   
$ 0.03
   
$  0.03
 


The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
Dollars in Thousands
For the Quarters Ended March 31, 2011 and 2010


 
 
 
Common
Stock
 
 
Additional Paid-In
 
 
 
Retained
 
 
 
Treasury
 
 
Unearned Stock
Accumulated
Other
Comprehensive
Income,
 
 
Shares
 
Amount
Capital
Earnings
Stock
Compensation
Net of Tax
Total
Balance at January 1, 2011
11,407,454
 
$ 176
$ 86,146
 
$ 143,939
 
$ (93,942
)
$ (68
)
$   540
 
$ 136,791
 
                               
Comprehensive income:
                             
   Net income
         
2,335
             
2,335
 
   Change in unrealized holding gain on
      securities available for sale, net of
      reclassification of $0 of  net gain
      included in net income
                     
 
 
 
124
 
 
 
 
124
 
Total comprehensive income
                         
2,459
 
                               
Distribution of restricted stock
11,200
                           
Amortization of restricted stock
     
172
                 
172
 
Stock options expense
     
149
                 
149
 
Allocations of contribution to ESOP (1)
     
53
         
68
     
121
 
Cash dividends
         
(115
)
           
(115
)
                               
Balance at March 31, 2011
11,418,654
 
$ 176
$ 86,520
 
$ 146,159
 
$ (93,942
)
$      -
 
$   664
 
$ 139,577
 

(1)  
Employee Stock Ownership Plan (“ESOP”).


 
 
 
Common
Stock
 
 
Additional Paid-In
 
 
 
Retained
 
 
 
Treasury
 
 
Unearned Stock
Accumulated
Other
Comprehensive
Income,
 
 
Shares
 
Amount
Capital
Earnings
Stock
Compensation
Net of Tax
Total
Balance at January 1, 2010
11,395,454
 
$ 176
$ 85,111
 
$ 132,038
 
$ (93,942
)
$ (338
)
$     587
 
$ 123,632
 
                               
Comprehensive income:
                             
   Net income
         
371
             
371
 
   Change in unrealized holding gain on
      investment securities available for
      sale, net of reclassification of
      $0 of net gain included in net
      income
                       37   37   
Total comprehensive income
                         
408
 
                               
Common stock issuance, net of expenses
     
(26
)
               
(26
)
Distribution of restricted stock
11,200
                           
Amortization of restricted stock
     
235
                 
235
 
Stock options expense
     
186
                 
186
 
Allocations of contribution to ESOP
     
(18
)
       
67
     
49
 
Cash dividends
         
(114
)
           
(114
)
                               
Balance at March 31, 2010
11,406,654
 
$ 176
$ 85,488
 
$ 132,295
 
$ (93,942
)
$ (271
)
$     624
 
$ 124,370
 

 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

 
 

 

PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
Dollars in Thousands
For the Nine Months Ended March 31, 2011 and 2010

 
 
 
Common
Stock
 
 
Additional Paid-In
 
 
 
Retained
 
 
 
Treasury
 
 
Unearned Stock
Accumulated
Other
Comprehensive
Income (Loss),
 
 
Shares
 
Amount
Capital
Earnings
Stock
Compensation
Net of Tax
Total
Balance at July 1, 2010
11,406,654
 
$ 176
$ 85,663
 
$ 135,383
 
$ (93,942
)
$ ( 203
)
$  667
 
$ 127,744
 
                               
Comprehensive income:
                             
   Net income
         
11,119
             
11,119
 
   Change in unrealized holding loss on
      investment securities available for
      sale, net of reclassification of $0
      of net gain included in net income
                       (3 ) (3 )
Total comprehensive income
                         
11,116
 
                               
Distribution of restricted stock
12,000
                           
Amortization of restricted stock
     
374
                 
374
 
Stock options expense
     
380
                 
380
 
Allocations of contribution to ESOP
     
103
         
203
     
306
 
Cash dividends
         
(343
)
           
(343
)
                               
Balance at March 31, 2011
11,418,654
 
$ 176
$ 86,520
 
$ 146,159
 
$ (93,942
)
$         -
 
$   664
 
$ 139,577
 



 
 
 
Common
Stock
 
 
Additional Paid-In
 
 
 
Retained
 
 
 
Treasury
 
 
Unearned Stock
Accumulated
Other
Comprehensive
Income (Loss),
 
 
Shares
 
Amount
Capital
Earnings
Stock
Compensation
Net of Tax
Total
Balance at July 1, 2009
6,219,654
 
$ 124
$ 72,709
 
$ 134,620
 
$ (93,942
)
$ ( 473
)
$ 1,872
 
$ 114,910
 
                               
Comprehensive loss:
                             
   Net loss
         
(2,087
)
           
(2,087
)
   Change in unrealized holding loss on
      investment securities available for
      sale, net of reclassification of $1.3
      million of net gain included in net
      loss
                       (1,248 ) (1,248
Total comprehensive loss
                         
(3,335
)
                               
Common stock issuance, net of expenses
5,175,000
 
52
11,881
                 
11,933
 
Distribution of restricted stock
12,000
                           
Amortization of restricted stock
     
446
                 
446
 
Stock options expense
     
413
                 
413
 
Allocations of contribution to ESOP
     
39
         
202
     
241
 
Cash dividends
         
(238
)
           
(238
)
                               
Balance at March 31, 2010
11,406,654
 
$ 176
$ 85,488
 
$ 132,295
 
$ (93,942
)
$ (271
)
$     624
 
$ 124,370
 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 

 
 

 


PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited - In Thousands)
       
   
Nine Months Ended
March 31,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
   Net income (loss)
  $ 11,119     $ (2,087 )
   Adjustments to reconcile net income (loss) to net cash provided by
               
    operating activities:
               
       Depreciation and amortization
    1,027       1,214  
       Provision for loan losses
    4,618       21,843  
       (Recovery) provision for losses on real estate owned
    (28 )     419  
       Gain on sale of loans, net
    (25,459 )     (9,804 )
       Gain on sale of investment securities, net
    -       (2,290 )
       Loss (gain) on sale of real estate owned, net
    187       (2,042 )
       Gain on sale of premises and equipment, net
    (1,080 )     -  
       Stock-based compensation
    754       859  
       ESOP expense
    304       238  
       Decrease in current and deferred income taxes
    2,203       1,249  
       Increase in cash surrender value of the bank owned life insurance
    (150 )     (149 )
   Decrease in accounts payable and other liabilities
    (1,197 )     (1,371 )
   Decrease (increase) in prepaid expenses and other assets
    2,906       (7,722 )
   Loans originated for sale
    (1,693,902 )     (1,315,799 )
   Proceeds from sale of loans
    1,738,148       1,323,764  
Net cash provided by operating activities
    39,450       8,322  
                 
Cash flows from investing activities:
               
   Decrease in loans held for investment, net
    61,950       78,743  
   Maturity and call of investment securities available for sale
    3,250       2,000  
   Principal payments from investment securities available for sale
    4,610       19,106  
   Proceeds from sale of investment securities available for sale
    -       67,778  
   Redemption of FHLB – San Francisco stock
    3,610       -  
   Purchase of bank owned life insurance
    -       (2,000 )
   Proceeds from sale of real estate owned
    28,963       32,118  
   Proceeds from sale of premises and equipment
    2,189       -  
   Purchase of premises and equipment
    (491 )     (288 )
Net cash provided by investing activities
    104,081       197,457  
                 
Cash flows from financing activities:
               
   Increase (decrease) in deposits, net
    14,002       (41,328 )
   Proceeds from long-term borrowings
    30,000       -  
   Repayments of long-term borrowings
    (108,036 )     (147,034 )
   ESOP loan payment
    2       3  
   Cash dividends
    (343 )     (238 )
   Proceeds from issuance of common stock
    -       11,933  
Net cash used for financing activities
    (64,375 )     (176,664 )
                 
Net increase in cash and cash equivalents
    79,156       29,115  
Cash and cash equivalents at beginning of period
    96,201       56,903  
Cash and cash equivalents at end of period
  $ 175,357     $ 86,018  
Supplemental information:
               
  Cash paid for interest
  $ 17,007     $ 24,723  
  Cash paid for income taxes
  $ 6,280     $ 2,040  
  Transfer of loans held for sale to held for investment
  $ 163     $ -  
  Real estate acquired in the settlement of loans
  $ 36,146     $ 45,051  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 


PROVIDENT FINANCIAL HOLDINGS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011


Note 1: Basis of Presentation

The unaudited interim condensed 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 condensed consolidated statements of financial condition at June 30, 2010 are derived from the audited consolidated financial statements of Provident Financial Holdings, Inc. and its wholly-owned subsidiary, Provident Savings Bank, F.S.B. (the “Bank”) (collectively, 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 (“GAAP”) have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) with respect to interim financial reporting.  It is recommended that these unaudited interim condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended June 30, 2010.  The results of operations for the quarter and nine months ended March 31, 2011 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2011.


Note 2: Accounting Standard Updates (“ASU”)

Financial Accounting Standards Board (“FASB”) ASU 2010-20:
In July 2010, the FASB issued ASU 2010-20, “Receivables (Topic 310): Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.”  This ASU requires additional disclosures that facilitate financial statement users’ evaluation of the nature of the credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses and the changes and reasons for those changes in the allowance for credit losses. The ASU makes changes to existing disclosure requirements and includes additional disclosure requirements about financing receivables, including credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables, the aging of past due financing receivables at the end of the reporting period by class of financing receivables, and the nature and extent of troubled debt restructurings (“TDR”) that occurred during the period by class of financing receivables and their effect on the allowance for credit losses. These disclosures as of the end of a reporting period are originally scheduled to be effective for interim and annual reporting periods ending on or after December 15, 2010; however, it is currently deferred until the first interim or annual period beginning on after June 15, 2011 (per ASU 2011-02, dated April 2011).  The Corporation does not expect ASU 2010-20 to have a material effect on its condensed consolidated financial statements.


Note 3: Earnings (Loss) Per Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income or loss available to common shareholders 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.

As of March 31, 2011 and 2010, there were outstanding options to purchase 837,700 shares and 905,200 shares of the Corporation’s common stock, respectively, of which 656,700 shares and 905,200 shares, respectively, were excluded from the diluted EPS computation as their effect was anti-dilutive.  As of March 31, 2011 and 2010, there were outstanding unvested restricted stock of 112,300 shares and 124,300 shares, respectively, of which 12,800 shares and 124,300 shares, respectively, were excluded from the diluted EPS computation as their effect was anti-dilutive.


 

 

 
The following table provides the basic and diluted EPS computations for the quarters and nine months ended March 31, 2011 and 2010, respectively.
 
   
For the Quarter
Ended
March 31,
   
 For the Nine Months
Ended
March 31,
 
 (In Thousands, Except Earnings (Loss) Per Share)  
2011
   
2010
   
2011
   
2010
 
Numerator:
                       
     Net income (loss) – numerator for basic earnings
        (loss) per share and diluted earnings (loss)
        per share - available to common stockholders
  $ 2,335     $ 371     $ 11,119     $ (2,087 )
                                 
Denominator:
                               
     Denominator for basic earnings (loss) per share:        
                               
      Weighted-average shares       11,399        11,326        11,379        8,115
                                 
     Effect of dilutive securities
    36       -       15       -  
                                 
     Denominator for diluted earnings (loss) per share:
                               
         Adjusted weighted-average shares
         and assumed conversions
    11,435       11,326       11,394       8,115  
                                 
Basic earnings (loss) per share
  $ 0.20     $ 0.03     $ 0.98     $ (0.26 )
Diluted earnings (loss) per share
  $ 0.20     $ 0.03     $ 0.98     $ (0.26 )

 

 

 

 

Note 4: Operating Segment Reports

The Corporation operates in two business segments: community banking through the Bank and mortgage banking through Provident Bank Mortgage (“PBM”), a division of the Bank.

The following tables set forth condensed consolidated statements of operations and total assets for the Corporation’s operating segments for the quarters ended March 31, 2011 and 2010, respectively (in thousands).


 
For the Quarter Ended March 31, 2011
   
Provident
 
 
Provident
Bank
Consolidated
 
Bank
Mortgage
Totals
Net interest income, before provision for loan losses
$        8,266
 
$        906
 
$        9,172
 
Provision for loan losses
1,080
 
1,613
 
2,693
 
Net interest income (expense), after provision for
  loan losses
 
7,186
 
 
(707
 
)
 
6,479
 
             
Non-interest income:
           
     Loan servicing and other fees (1)
283
 
15
 
298
 
     Gain on sale of loans, net
4
 
6,676
 
6,680
 
     Deposit account fees
633
 
-
 
633
 
     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
 
(501
 
)
 
(49
 
)
 
(550
 
)
     Other
1,603
 
-
 
1,603
 
          Total non-interest income
2,022
 
6,642
 
8,664
 
             
Non-interest expense:
           
     Salaries and employee benefits
3,636
 
3,534
 
7,170
 
     Premises and occupancy
546
 
240
 
786
 
     Operating and administrative expenses
1,586
 
1,470
 
3,056
 
          Total non-interest expense
5,768
 
5,244
 
11,012
 
Income before income taxes
3,440
 
691
 
4,131
 
Provision for income taxes
1,505
 
291
 
1,796
 
Net income
$        1,935
 
$        400
 
$        2,335
 
Total assets, end of period
$ 1,194,594
 
$ 144,437
 
$ 1,339,031
 

(1)  
Includes an inter-company charge of $4 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
 
 
 
 

 

 



 
For the Quarter Ended March 31, 2010
   
Provident
 
 
Provident
Bank
Consolidated
 
Bank
Mortgage
Totals
Net interest income, before provision for loan losses
$ 8,909
 
$     684
 
$ 9,593
 
Provision for loan losses
2,059
 
263
 
2,322
 
Net interest income, after provision for loan losses
6,850
 
421
 
7,271
 
             
Non-interest income:
           
     Loan servicing and other fees
207
 
12
 
219
 
     (Loss) gain on sale of loans, net
(15
)
1,446
 
1,431
 
     Deposit account fees
667
 
-
 
667
 
     Gain on sale and operations of real estate
        owned acquired in the settlement of loans, net
 
25
 
 
33
 
 
58
 
     Other
502
 
-
 
502
 
          Total non-interest income
1,386
 
1,491
 
2,877
 
             
Non-interest expense:
           
     Salaries and employee benefits
3,581
 
2,484
 
6,065
 
     Premises and occupancy
569
 
171
 
740
 
     Operating and administrative expenses
1,574
 
1,169
 
2,743
 
          Total non-interest expense
5,724
 
3,824
 
9,548
 
Income (loss) before income taxes
2,512
 
(1,912
)
600
 
Provision (benefit) for income taxes
1,033
 
(804
)
229
 
Net income (loss)
$ 1,479
 
$ (1,108
)
$    371
 
Total assets, end of period
$ 1,250,341
 
$ 154,979
 
$ 1,405,320
 

 

 
 

 

The following tables set forth condensed consolidated statements of operations and total assets for the Corporation’s operating segments for the nine months ended March 31, 2011 and 2010, respectively (in thousands).


 
For the Nine Months Ended March 31, 2011
   
Provident
 
 
Provident
Bank
Consolidated
 
Bank
Mortgage
Totals
Net interest income, before provision for loan losses
$      25,590
 
$     3,102
 
$      28,692
 
Provision for loan losses
2,273
 
2,345
 
4,618
 
Net interest income, after provision for loan losses
23,317
 
757
 
24,074
 
             
Non-interest income:
           
     Loan servicing and other fees (1)
657
 
40
 
697
 
     (Loss) gain on sale of loans, net
(117
)
25,576
 
25,459
 
     Deposit account fees
1,933
 
-
 
1,933
 
     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
 
(1,522
 
)
 
(86
 
)
 
(1,608
 
)
     Other
2,613
 
2
 
2,615
 
          Total non-interest income
3,564
 
25,532
 
29,096
 
             
Non-interest expense:
           
     Salaries and employee benefits
10,112
 
12,000
 
22,112
 
     Premises and occupancy
1,702
 
708
 
2,410
 
     Operating and administrative expenses
4,796
 
4,246
 
9,042
 
          Total non-interest expense
16,610
 
16,954
 
33,564
 
Income before taxes
10,271
 
9,335
 
19,606
 
Provision for income taxes
4,562
 
3,925
 
8,487
 
Net income
$        5,709
 
$     5,410
 
$      11,119
 
Total assets, end of period
$ 1,194,594
 
$ 144,437
 
$ 1,339,031
 

(1)  
 Includes an inter-company charge of $4 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
 

 
 
10 

 


 
For the Nine Months Ended March 31, 2010
   
Provident
 
 
Provident
Bank
Consolidated
 
Bank
Mortgage
Totals
Net interest income, before provision for loan losses
$ 26,986
 
$  2,290
 
$  29,276
 
Provision for loan losses
21,261
 
582
 
21,843
 
Net interest income, after provision for loan losses
5,725
 
1,708
 
7,433
 
             
Non-interest income:
           
     Loan servicing and other fees (1)
596
 
41
 
637
 
     (Loss) gain on sale of loans, net
(5
)
9,809
 
9,804
 
     Deposit account fees
2,135
 
-
 
2,135
 
     Gain on sale of investment securities, net
2,290
 
-
 
2,290
 
     Gain on sale and operations of real estate owned
        acquired in the settlement of loans, net
 
208
 
 
39
 
 
247
 
     Other
1,458
 
-
 
1,458
 
          Total non-interest income
6,682
 
9,889
 
16,571
 
             
Non-interest expense:
           
     Salaries and employee benefits
9,559
 
7,289
 
16,848
 
     Premises and occupancy
1,767
 
515
 
2,282
 
     Operating and administrative expenses
5,204
 
3,336
 
8,540
 
          Total non-interest expense
16,530
 
11,140
 
27,670
 
(Loss) income before taxes
(4,123
)
457
 
(3,666
)
(Benefit) provision for income taxes
(1,771
)
192
 
(1,579
)
Net (loss) income
$ (2,352
)
$     265
 
$  (2,087
)
Total assets, end of period
$ 1,250,341
 
$ 154,979
 
$ 1,405,320
 

(1)  
  Includes an inter-company charge of $1 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.


Note 5: Investment Securities

The amortized cost and estimated fair value of investment securities as of March 31, 2011 and June 30, 2010 were as follows:

 
 
March 31, 2011
 
Amortized
Cost
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Estimated
Fair
Value
 
Carrying
Value
(In Thousands)
                 
Available for sale
                 
 
U.S. government agency MBS (1)
$ 14,522
 
$ 528
 
$     -
 
$ 15,050
 
$ 15,050
 
U.S. government sponsored
  enterprise MBS
 
10,266
 
 
450
 
 
-
 
 
10,716
 
 
10,716
 
Private issue CMO (2)
1,433
 
-
 
(67
)
1,366
 
1,366
Total investment securities
$ 26,221
 
$ 978
 
$ (67
)
$ 27,132
 
$ 27,132

(1)  
Mortgage-backed securities (“MBS”).
(2)  
Collateralized Mortgage Obligations (“CMO”).


 
11 

 


 
 
June 30, 2010
 
Amortized
Cost
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Estimated
Fair
Value
 
Carrying
Value
(In Thousands)
                 
Available for sale
                 
 
U.S. government sponsored
  enterprise debt securities
 
$   3,250
 
 
$   67
 
 
$     -
 
 
$   3,317
 
 
$   3,317
 
U.S. government agency MBS
17,291
 
424
 
-
 
17,715
 
17,715
 
U.S. government sponsored
  enterprise MBS
 
11,957
 
 
499
 
 
-
 
 
12,456
 
 
12,456
 
Private issue CMO
1,599
 
-
 
(84
)
1,515
 
1,515
Total investment securities
$ 34,097
 
$ 990
 
$ (84
)
$ 35,003
 
$ 35,003

The Bank evaluates individual investment securities quarterly for other-than-temporary declines in market value.  The Bank does not believe that there are any other-than-temporary impairments at March 31, 2011 and June 30, 2010; therefore, no impairment losses have been recorded for the quarter and nine months ended March 31, 2011.
 
Contractual maturities of investment securities as of March 31, 2011 and June 30, 2010 were as follows:

   
March 31, 2011
   
June 30, 2010
 
         
Estimated
         
Estimated
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
(In Thousands)  
Cost
   
Value
   
Cost
   
Value
 
Available for sale
                       
Due in one year or less
  $ -     $ -     $ -     $ -  
Due after one through five years
    -       -       3,250       3,317  
Due after five through ten years
    -       -       -       -  
Due after ten years
    26,221       27,132       30,847       31,686  
Total investment securities
  $ 26,221     $ 27,132     $ 34,097     $ 35,003  


Note 6: Loans Held for Investment
 
Loans held for investment consisted of the following:

 
March 31,
2011
 
June 30,
2010
 
Mortgage loans:
       
 
Single-family
$ 513,263
 
$    583,126
 
 
Multi-family
     319,229
 
343,551
 
 
Commercial real estate
104,354
 
110,310
 
 
Construction
400
 
400
 
 
Other
       1,531
 
1,532
 
Commercial business loans
5,515
 
6,620
 
Consumer loans
735
 
857
 
 
Total loans held for investment, gross
945,027
 
1,046,396
 
         
Deferred loan costs, net
2,847
 
3,365
 
Allowance for loan losses
(34,478
)
(43,501
)
 
Total loans held for investment, net
$ 913,396
 
$ 1,006,260
 

As of March 31, 2011, the Bank had $53.4 million in mortgage loans that are subject to negative amortization, consisting of $34.2 million in multi-family loans, $11.6 million in commercial real estate loans and $7.6 million in single-family loans.  This compares to $60.9 million of negative amortization mortgage loans at June 30, 2010, consisting of $38.4 million in multi-family loans, $12.9 million in commercial real estate loans and $9.6 million in single-family loans.  Negative amortization involves a greater risk to the Bank because the loan principal balance
 
 
 
 
12

 
 
may increase by a range of 110% to 115% of the original loan amount during the period of negative amortization and because the loan payment may increase beyond the means of the borrower when loan principal amortization is required.  Also, the Bank has originated interest-only ARM loans, which typically have a fixed interest rate for the first two to five years coupled with an interest only payment, followed by a periodic adjustable rate and a fully amortizing loan payment.  As of March 31, 2011 and June 30, 2010, the interest-only ARM loans were $263.3 million and $317.6 million, or 27.8% and 30.3% of loans held for investment, respectively.

The following table sets forth information at March 31, 2011 regarding the dollar amount of loans held for investment that are contractually repricing during the periods indicated, segregated between adjustable rate loans and fixed rate loans.  Fixed-rate loans comprised 5% of loans held for investment at March 31, 2011, as compared to 4% at June 30, 2010.  Adjustable rate loans having no stated repricing dates but reprice when the index they are tied to reprices (e.g. prime rate index) and checking account overdrafts are reported as repricing within one year.  The table does not include any estimate of prepayments which may cause the Bank’s actual repricing experience to differ materially from that shown below.

   
Adjustable Rate
   
     
After
After
After
   
     
One Year
3 Years
5 Years
   
   
Within
Through
Through
Through
Fixed
 
(In Thousands)
One Year
3 Years
5 Years
10 Years
Rate
Total
Mortgage loans:
           
 
Single-family
 $ 417,327
 $   87,871
 $   2,889
 $      635
$   4,541
 $ 513,263
 
Multi-family
187,885
84,932
 8,716
 22,305
15,391
319,229
 
Commercial real estate
59,623
18,711
1,825
 2,277
21,918
104,354
 
Construction
400
-
-
 -
-
400
 
Other
1,292
 -
 -
 -
239
1,531
Commercial business loans
2,459
 -
 -
 -
3,056
5,515
Consumer loans
676
 -
 -
 -
59
735
 
Total loans held for investment, gross
 $ 669,662
 $ 191,514
 $ 13,430
 $ 25,217
$ 45,204
$ 945,027

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 loans held for investment and upon management’s continuing analysis of the factors underlying the quality of the loans held for investment.  These factors include changes in the size and composition of the loans held for investment, actual loan loss experience, current economic conditions, detailed analysis of individual loans for which full collectability may not be assured, and determination of the realizable value of the collateral securing the loans.  Provisions for loan losses are charged against operations on a monthly basis, as necessary, to maintain the allowance at appropriate levels.  Although management believes it uses the best information available to make such determinations, there can be no assurance that regulators, in reviewing the Bank’s loans held for investment, will not request that the Bank significantly increase 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 as a result of economic, operating, regulatory, and other conditions beyond the control of the Bank.


 
13 

 

The following table is provided to disclose additional details on the Corporation’s allowance for loan losses:

   
For the Quarter Ended
   
For the Nine Months Ended
 
   
March 31,
   
March 31,
 
(Dollars in Thousands)
 
2011
   
2010
   
2011
   
2010
 
Allowance at beginning of period
  $ 36,925     $ 55,364     $ 43,501     $ 45,445  
                                 
Provision for loan losses
    2,693       2,322       4,618       21,843  
                                 
Recoveries:
                               
Mortgage loans:
                               
Single-family
    -       149       1       442  
Construction
    -       -       -       47  
Consumer loans
    1       -       1       -  
     Total recoveries
    1       149       2       489  
                                 
Charge-offs:
                               
Mortgage loans:
                               
Single-family
    (4,937 )     (6,522 )     (13,427 )     (16,215 )
Multi-family
    (201 )     (205 )     (204 )     (450 )
Commercial real estate
    -       (254 )     -       (254 )
Consumer loans
    (3 )     (5 )     (12 )     (9 )
     Total charge-offs
    (5,141 )     (6,986 )     (13,643 )     (16,928 )
                                 
     Net charge-offs
    (5,140 )     (6,837 )     (13,641 )     (16,439 )
          Balance at end of period
  $ 34,478     $ 50,849     $ 34,478     $ 50,849  
                                 
Allowance for loan losses as a
     percentage of gross loans held for
     investment
                               
    3.64 %     4.69 %     3.64 %     4.69 %
                                 
Net charge-offs as a percentage of
     average loans outstanding during
     the period (annualized)
                               
    1.94 %     2.35 %     1.62 %     1.79 %
                                 
Allowance for loan losses as a
     percentage of non-performing loans
     at the end of the period
                               
    73.91 %     68.86 %     73.91 %     68.86 %

 

 
 
14 

 



The following tables identify the Corporation’s total recorded investment in non-performing loans by type, net of specific allowances for loan losses, at March 31, 2011 and June 30, 2010:

 
 
 
(In Thousands)
March 31, 2011
 
Recorded
Investment
Allowance
For Loan
Losses
 
Net
Investment
Mortgage loans:
         
 
Single-family:
         
   
With a related allowance
 $ 51,380
 
 $ (14,704
)
 $ 36,676
   
Without a related allowance
669
 
-
 
 669
 
Total single-family loans
52,049
 
 (14,704
)
37,345
 
 
Multi-family:
         
   
With a related allowance
5,290
 
 (1,396
)
 3,894
   
Without a related allowance
1,032
 
-
 
 1,032
 
Total multi-family loans
6,322
 
(1,396
)
4,926
           
 
Commercial real estate:
         
   
With a related allowance
2,441
 
 (54
)
 2,387
   
    Without a related allowance
393
 
-
 
393
 
Total commercial real estate loans
2,834
 
(54
)
2,780
           
 
Construction:
         
   
With a related allowance
400
 
(150
)
250
 
Total construction loans
400
 
(150
)
250
           
 
Other:
         
   
With a related allowance
1,530
 
(327
)
1,203
 
Total other loans
1,530
 
(327
)
1,203
           
Commercial business loans:
         
   
With a related allowance
350
 
(347
)
3
   
Without a related allowance
142
 
-
 
142
 
Total commercial business loans
492
 
 (347
)
145
Total non-performing loans
 $ 63,627
 
 $ (16,978
)
 $ 46,649


 
15 

 


 
 
 
(In Thousands)
June 30, 2010
 
Recorded
Investment
Allowance
For Loan
Losses
 
Net
Investment
Mortgage loans:
         
 
Single-family:
         
   
With a related allowance
$ 61,184
 
 $ (15,348
)
$ 45,836
   
Without a related allowance
3,815
 
-
 
3,815
 
Total single-family loans
64,999
 
 (15,348
)
49,651
 
 
Multi-family:
         
   
With a related allowance
7,196
 
 (1,665
)
5,531
   
    Without a related allowance
955
 
-
 
955
 
Total multi-family loans
8,151
 
(1,665
)
6,486
           
 
Commercial real estate:
         
   
With a related allowance
1,501
 
 (436
)
1,065
   
    Without a related allowance
663
 
-
 
663
 
Total commercial real estate loans
2,164
 
(436
)
1,728
           
 
Construction:
         
   
With a related allowance
400
 
(50
)
350
 
Total construction loans
400
 
(50
)
350
           
Commercial business loans:
         
   
With a related allowance
750
 
(326
)
424
   
Without a related allowance
143
 
-
 
143
 
Total commercial business loans
893
 
 (326
)
567
           
Consumer loans:
         
   
Without a related allowance
1
 
-
 
1
 
Total consumer loans
1
 
-
 
1
Total non-performing loans
 $ 76,608
 
 $ (17,825
)
 $ 58,783

At March 31, 2011 and June 30, 2010, there were no commitments to lend additional funds to those borrowers whose loans were classified as impaired.

The following table describes the aging analysis (length of time on non-performing status) of non-performing loans, net of allowance, as of March 31, 2011:

 
(In Thousands)
3 Months
or Less
Over 3 to
6 Months
Over 6 to
12 Months
Over 12
Months
 
Total
Mortgage loans:
         
 
Single-family
$ 12,158
$   9,867
$ 4,803
$ 10,517
$ 37,345
 
Multi-family
1,032
-
-
3,894
4,926
 
Commercial real estate
1,293
-
375
1,112
2,780
 
Construction
-
-
-
250
250
 
Other
972
231
-
-
1,203
Commercial business loans
-
3
-
142
145
 
Total
$ 15,455
$ 10,101
$ 5,178
$ 15,915
$ 46,649

During the quarters ended March 31, 2011 and 2010, the Corporation’s average investment in non-performing loans was $47.8 million and $81.5 million, respectively.  Interest income of $1.7 million and $1.9 million was recognized, based on cash receipts, on non-performing loans during the quarters ended March 31, 2011 and 2010, respectively.  The Corporation records interest on non-performing loans utilizing the cash basis method of accounting during the periods when the loans are on non-performing status.  Foregone interest income, which would have been recorded
 
 
 
 
16

 
 
had the non-performing loans been current in accordance with their original terms, amounted to $381,000 and $708,000 for the quarters ended March 31, 2011 and 2010, respectively, and was not included in the results of operations.

For the nine months ended March 31, 2011 and 2010, the Corporation’s average net investment in non-performing loans was $52.8 million and $82.1 million, respectively.  Interest income of $5.2 million and $4.8 million was recognized, based on cash receipts, during the nine months ended March 31, 2011 and 2010, respectively.  The foregone interest income amounted to $1.0 million and $3.3 million and was not included in the results of operations for the nine months ended March 31, 2011 and 2010, respectively.

For the quarter ended March 31, 2011, eleven loans for $5.6 million were modified from their original terms, were re-underwritten and were identified in the Corporation’s asset quality reports as restructured loans.  For the nine months ended March 31, 2011, 53 loans which totaled $24.7 million were modified from their original terms, were re-underwritten and were identified in the Corporation’s asset quality reports as troubled debt restructuring or restructured loans.  As of March 31, 2011, the net outstanding balance of the 103 restructured loans was $44.8 million:  38 were classified as pass and remain on accrual status ($18.1 million); eight were classified as special mention and remain on accrual status ($3.4 million); 56 were classified as substandard ($23.3 million, all are on non-accrual status); and one was classified as loss and fully reserved on non-accrual status.

The Corporation upgrades restructured single-family loans to the pass category if the borrower has demonstrated satisfactory contractual payments for at least six consecutive months; and if the borrower has demonstrated satisfactory contractual payments beyond 12 consecutive months, the loan is no longer categorized as a restructured loan.  In addition to the payment history described above, higher yielding multi-family, commercial real estate, construction and commercial business loans (which are sometimes referred to in this report as “preferred loans”) must also demonstrate a combination of the following characteristics to be upgraded, such as: satisfactory cash flow, satisfactory guarantor support, and additional collateral support, among others.

To qualify for restructuring, a borrower must provide evidence of their creditworthiness such as, current financial statements, their most recent income tax returns, current paystubs, current W-2s, and most recent bank statements, among other documents, which are then verified by the Bank.  The Bank re-underwrites the loan with the borrower’s updated financial information, new credit report, current loan balance, new interest rate, remaining loan term, updated property value and modified payment schedule, among other considerations, to determine if the borrower qualifies.


 
17 

 

The following table shows the restructured loans by type, net of specific valuation allowances for loan losses, at March 31, 2011 and June 30, 2010:

 
 
 
(In Thousands)
March 31, 2011
 
Recorded
Investment
Allowance
For Loan
Losses
 
Net
Investment
Mortgage loans:
         
 
Single-family:
         
   
With a related allowance
 $ 21,251
 
 $ (4,066
)
$ 17,185
   
Without a related allowance
19,929