Attached files
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
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||
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
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|
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.
1
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.
2
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.
3
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.
4
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.
5
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.
6
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 | ) |
7
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.
|
8
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
|
9
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:
|