Net Interest Margin Expands by 49 Basis Points
Operating Expenses Decline by 5%
Strong Capital Ratios Improve and Remain Significantly Above
"Well-Capitalized" Regulatory Thresholds
RIVERSIDE, Calif., Oct. 23, 2008 (GLOBE NEWSWIRE) -- Provident Financial Holdings, Inc. ("Company") (Nasdaq:PROV), the holding company for Provident Savings Bank, F.S.B. ("Bank"), today announced first quarter earnings for the fiscal year ending June 30, 2009.
For the quarter ended September 30, 2008, the Company reported net income of $329,000, or $0.05 per diluted share (on 6.19 million weighted-average shares outstanding), compared to net income of $612,000, or $0.10 per diluted share (on 6.29 million weighted-average shares outstanding), in the comparable period a year ago. The decline in net income for the quarter ended September 30, 2008 was primarily attributable to an increase in the provision for loan losses, partly offset by an increase in net interest income (before the provision for loan losses), an increase in non-interest income and a decrease in operating expenses.
"We are pleased to report positive earnings in an economic environment that many have described as the worst in their careers," said Craig G. Blunden, Chairman, President and Chief Executive Officer of the Company. "We will continue to take the necessary steps to withstand the current operating environment and protect depositors and shareholders alike during these uncertain times."
Return on average assets for the first quarter of fiscal 2009 was 0.08 percent, compared to 0.15 percent for the same period of fiscal 2008. Return on average stockholders' equity for the first quarter of fiscal 2009 was 1.06 percent, compared to 1.91 percent for the comparable period of fiscal 2008.
On a sequential quarter basis, net income for the first quarter of fiscal 2009 increased by $2.10 million, or 119 percent, to $329,000 from a net loss of $(1.75 million) in the fourth quarter of fiscal 2008; and diluted earnings per share increased $0.33, or 118 percent, to $0.05 from a loss of $(0.28) in the fourth quarter of fiscal 2008. Return on average assets increased 51 basis points to 0.08 percent for the first quarter of fiscal 2009 from (0.43) percent in the fourth quarter of fiscal 2008 and return on average equity for the first quarter of fiscal 2009 was 1.06 percent, compared to (5.55) percent for the fourth quarter of fiscal 2008.
Net interest income before provision for loan losses increased by $1.92 million, or 20 percent, to $11.29 million in the first quarter of fiscal 2009 from $9.37 million for the same period in fiscal 2008. Non-interest income increased $1.10 million, or 80 percent, to $2.48 million in the first quarter of fiscal 2009 from $1.38 million in the comparable period of fiscal 2008. Non-interest expense decreased $404,000, or five percent, to $7.36 million in the first quarter of fiscal 2009 from $7.77 million in the comparable period in fiscal 2008.
The average balance of loans outstanding increased by $513,000 to $1.38 billion in the first quarter of fiscal 2009 from $1.37 billion in the same quarter of fiscal 2008, while the average yield decreased by 25 basis points to 6.01 percent in the first quarter of fiscal 2009 from an average yield of 6.26 percent in the same quarter of fiscal 2008. The decrease in the average loan yield was primarily attributable to accrued interest income reversals on non-accrual loans and loan payoffs which had a higher average yield than the average yield of loans held for investment, partly offset by higher interest rates on newly originated loans. Total loans originated for investment in the first quarter of fiscal 2009 were $13.4 million, which consisted primarily of single-family, commercial real estate and multi-family loans. This compares to total loans originated for investment of $91.4 million (including $42.2 million of loans purchased for investment) in the first quarter of fiscal 2008. The outstanding balance of "preferred loans" (multi-family, commercial real estate, construction and commercial business loans) increased by $5.4 million, or one percent, to $550.6 million at September 30, 2008 from $545.2 million at September 30, 2007. Outstanding construction loans declined $16.7 million, or 54 percent, to $14.0 million at September 30, 2008 from $30.7 million at September 30, 2007. The ratio of preferred loans to total loans held for investment increased to 41 percent at September 30, 2008 compared to 39 percent at September 30, 2007. Loan principal payments received in the first quarter of fiscal 2009 were $50.9 million, compared to $72.3 million in the same quarter of fiscal 2008.
Average deposits decreased by $24.9 million to $981.0 million and the average cost of deposits decreased by 81 basis points to 2.85 percent in the first quarter of fiscal 2009, compared to an average balance of $1.01 billion and an average cost of 3.66 percent in the same quarter last year. Transaction account balances (core deposits) decreased by $7.6 million, or two percent, to $328.5 million at September 30, 2008 from $336.1 million at September 30, 2007. The decrease is primarily attributable to a decrease in savings and money market account balances, partly offset by an increase in checking account balances. Time deposits decreased by $48.7 million, or seven percent, to $627.3 million at September 30, 2008 compared to $676.0 million at September 30, 2007. The decrease in time deposits is primarily attributable to the strategic decision to temper the interest rates the Bank pays on time deposits and compete less aggressively with those competitors paying higher than market rates. Also, it should be noted, that the Company does not have any brokered deposits.
The average balance of borrowings, which primarily consists of Federal Home Loan Bank ("FHLB") of San Francisco advances, increased $34.2 million to $478.9 million while the average cost of advances decreased 64 basis points to 3.90 percent in the first quarter of fiscal 2009, compared to an average balance of $444.7 million and an average cost of 4.54 percent in the same quarter of fiscal 2008. The decrease in the average cost of borrowings was primarily the result of maturing long-term advances which had a higher average cost than the average cost of new advances. Additionally, short-term advance interest rates have fallen as a result of Federal Open Market Committee actions.
The net interest margin during the first quarter of fiscal 2009 increased 49 basis points to 2.89 percent from 2.40 percent during the same quarter last year. On a sequential quarter basis, the net interest margin in the first quarter of fiscal 2009 decreased four basis points from 2.93 percent in the fourth quarter of fiscal 2008.
During the first quarter of fiscal 2009, the Company recorded a loan loss provision of $5.73 million, compared to a loan loss provision of $1.52 million during the same period of fiscal 2008. The loan loss provision in the first quarter of fiscal 2009 was primarily attributable to loan classification downgrades in the loans held for investment portfolio, partly offset by a decrease in loans held for investment.
Non-performing assets increased to $44.7 million, or 2.80 percent of total assets, at September 30, 2008, compared to $32.5 million, or 1.99 percent of total assets at June 30, 2008 and $20.6 million, or 1.28 percent of total assets, at September 30, 2007. The non-performing assets at September 30, 2008 were primarily comprised of 93 single-family loans held for investment ($26.0 million), three multi-family loans held for investment ($4.7 million), 10 construction loans held for investment ($2.8 million), 12 single-family loans repurchased from, or unable to sell to investors ($1.6 million) and real estate owned comprised of 34 single-family properties and 14 undeveloped lots acquired in the settlement of loans ($8.9 million). Net charge-offs for the quarter ended September 30, 2008 were $3.11 million or 0.90 percent of average loans receivable, compared to $3.14 million or 0.89 percent of average loans receivable for the quarter ended June 30, 2008 and compared to $765,000 or 0.22 percent of average loans receivable in the comparable quarter last year.
Classified assets at September 30, 2008 were $63.0 million, comprised of $13.7 million in the special mention category, $40.4 million in the substandard category and $8.9 million in real estate owned. Classified assets at June 30, 2008 were $68.6 million, consisting of $29.4 million in the special mention category, $29.8 million in the substandard category and $9.4 million in real estate owned. Classified assets declined at September 30, 2008 from the June 30, 2008 level primarily as a result of a classified construction loan participation ($7.7 million), which was paid-in-full in September 2008.
For the quarter ended September 30, 2008, 10 loans for $5.2 million were modified from their original terms, were re-underwritten at current market interest rates and were identified in our asset quality reports as Restructured Loans. As of September 30, 2008, a total of $15.5 million of loans have been modified: 23 are classified as pass ($8.1 million); two are classified as substandard and remain on accrual status ($268,000); and 17 are classified as substandard on non-accrual status ($7.1 million).
The allowance for loan losses was $22.5 million at September 30, 2008, or 1.67 percent of gross loans held for investment, compared to $19.9 million, or 1.43 percent of gross loans held for investment at June 30, 2008. The allowance for loan losses at September 30, 2008 includes $10.2 million of specific loan loss reserves, compared to $6.5 million of specific loan loss reserves at June 30, 2008. Management believes that the allowance for loan losses is sufficient to absorb potential losses inherent in loans held for investment.
The increase in non-interest income in the first quarter of fiscal 2009 compared to the same period of fiscal 2008 was primarily the result of an increase in the gain on sale of loans and the gain on the sale of investment securities (the common stock of Freddie Mac, Fannie Mae and another company).
The gain on sale of loans increased to $1.19 million for the quarter ended September 30, 2008 from $122,000 in the comparable quarter last year. The increase was due to a higher loan sale volume and a higher average loan sale margin. Total loans sold for the quarter ended September 30, 2008 were $155.3 million, up 60 percent from $96.8 million for the same quarter last year. The average loan sale margin for mortgage banking was 72 basis points for the quarter ended September 30, 2008, compared to 11 basis points in the comparable quarter last year. The gain on sale of loans includes a $752,000 recourse provision on loans sold that are subject to repurchase for the first quarter of fiscal 2009, compared to a $43,000 recourse provision recovery in the comparable quarter last year. The mortgage banking environment remains highly competitive and volatile as a result of the well-publicized deterioration of the single-family real estate market.
The volume of loans originated for sale increased $66.5 million, or 67 percent, to $166.0 million in the first quarter of fiscal 2009 from $99.5 million during the same period last year, the result of better liquidity in the secondary mortgage markets particularly in FHA/VA loan products. Total loan originations (including loans originated for investment, loans purchased for investment and loans originated for sale) were $179.4 million in the first quarter of fiscal 2009, a decrease of $11.5 million, or six percent, from $190.9 million in the same quarter of fiscal 2008. The decrease in total loan originations was primarily attributable to the decline in loan purchases.
Twenty five real estate owned properties were sold for a net loss of $(133,000) in the quarter ended September 30, 2008 compared to four real estate owned properties sold for a net gain of $61,000 in the same quarter last year. As of September 30, 2008, the real estate owned balance was $8.9 million (48 properties), compared to $9.4 million (45 properties) at June 30, 2008.
The decrease in non-interest expense was primarily the result of decreases in compensation and other operating expenses, partly offset by increases in deposit insurance premiums and regulatory assessments. The decrease in compensation expense was the result of fewer mortgage banking personnel in the first quarter of fiscal 2009 compared to the same quarter of fiscal 2008 and lower ESOP expenses compared to the same quarter of fiscal 2008. Total ESOP expenses in the first quarter of fiscal 2009 decreased $338,000, or 71 percent, to $136,000 from $474,000 in the same period of fiscal 2008, resulting from a lower average stock price and fewer shares allocated.
The Company's efficiency ratio improved to 53 percent in the first quarter of fiscal 2009 from 72 percent in the first quarter of fiscal 2008.
