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Section 1: 10-Q (FORM 10-Q)

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, 2019
 
[   ] 
   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.  [X]  Yes   [   ]  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  [X]  Yes   [  ]  No

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [  ]

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

Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
 
Name of each exchange on which registered
Common stock, par value $0.01 per share
 
PROV
 
The NASDAQ Stock Market LLC


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.
As of May 3, 2019 there were 7,497,357 shares of the registrant's common stock, $0.01 par value per share, outstanding.

     
     

PROVIDENT FINANCIAL HOLDINGS, INC.
Table of Contents
PART 1  -
FINANCIAL INFORMATION
Page
       
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:
 
       
 
Condensed Consolidated Statements of Financial Condition
 
   
as of March 31, 2019 and June 30, 2018
 
Condensed Consolidated Statements of Operations
 
   
for the Quarters and Nine Months Ended March 31, 2019 and 2018
 
Condensed Consolidated Statements of Comprehensive Income
 
   
for the Quarters and Nine Months Ended March 31, 2019 and 2018
 
Condensed Consolidated Statements of Stockholders' Equity
 
   
for the Quarters and Nine Months Ended March 31, 2019 and 2018
 
Condensed Consolidated Statements of Cash Flows
 
   
for the Nine Months Ended March 31, 2019 and 2018
 
Notes to Unaudited Interim Condensed Consolidated Financial Statements
       
ITEM 2  -
Management's Discussion and Analysis of Financial Condition and Results of Operations:
 
       
 
General
50 
 
Safe-Harbor Statement
51 
 
Critical Accounting Policies
52 
 
Executive Summary and Operating Strategy
53 
 
Off-Balance Sheet Financing Arrangements and Contractual Obligations
55 
 
Comparison of Financial Condition at March 31, 2019 and June 30, 2018
55 
 
Comparison of Operating Results
 
   
for the Quarters and Nine Months Ended March 31, 2019 and 2018
57 
 
Asset Quality
68 
 
Loan Volume Activities
77 
 
Liquidity and Capital Resources
78 
 
Supplemental Information
80 
       
ITEM 3  -
Quantitative and Qualitative Disclosures about Market Risk
80 
       
ITEM 4  -
Controls and Procedures
84 
       
PART II  -
OTHER INFORMATION
 
       
ITEM 1  -
Legal Proceedings
85 
ITEM 1A -
Risk Factors
85 
ITEM 2  -
Unregistered Sales of Equity Securities and Use of Proceeds
85 
ITEM 3  -
Defaults Upon Senior Securities
86 
ITEM 4  -
Mine Safety Disclosures
86 
ITEM 5  -
Other Information
86 
ITEM 6  -
Exhibits
86 
       
SIGNATURES
89 


.
PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Financial Condition
(Unaudited)
In Thousands, Except Share Information
 
   
March 31,
2019
   
June 30,
2018
 
Assets
           
   Cash and cash equivalents
 
$
61,458
   
$
43,301
 
   Investment securities – held to maturity, at cost
   
102,510
     
87,813
 
   Investment securities – available for sale, at fair value
   
6,294
     
7,496
 
   Loans held for investment, net of allowance for loan losses of
 $7,080 and $7,385, respectively; includes $5,239 and $5,234 at fair value, respectively
   
883,554
     
902,685
 
   Loans held for sale, at fair value
   
30,500
     
96,298
 
   Accrued interest receivable
   
3,386
     
3,212
 
   Real estate owned, net
   
     
906
 
   Federal Home Loan Bank ("FHLB") – San Francisco stock
   
8,199
     
8,199
 
   Premises and equipment, net
   
8,395
     
8,696
 
   Prepaid expenses and other assets
   
15,099
     
16,943
 
                 
          Total assets
 
$
1,119,395
   
$
1,175,549
 
                 
Liabilities and Stockholders' Equity
               
                 
Liabilities:
               
   Non interest-bearing deposits
 
$
90,875
   
$
86,174
 
   Interest-bearing deposits
   
786,009
     
821,424
 
          Total deposits
   
876,884
     
907,598
 
                 
   Borrowings
   
101,121
     
126,163
 
   Accounts payable, accrued interest and other liabilities
   
20,181
     
21,331
 
          Total liabilities
   
998,186
     
1,055,092
 
                 
Commitments and Contingencies  (Notes 7 and 11)
               
                 
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;
 18,064,365 and 18,033,115 shares issued; 7,497,357 and
 7,421,426 shares outstanding, respectively)
   
181
     
181
 
   Additional paid-in capital
   
96,114
     
94,957
 
   Retained earnings
   
191,103
     
190,616
 
   Treasury stock at cost (10,567,008 and 10,611,689 shares, respectively)
   
(166,352
)
   
(165,507
)
   Accumulated other comprehensive income, net of tax
   
163
     
210
 
                 
          Total stockholders' equity
   
121,209
     
120,457
 
                 
          Total liabilities and stockholders' equity
 
$
1,119,395
   
$
1,175,549
 
 
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,
   
2019
   
2018
   
2019
    2018  
Interest income:
                     
   Loans receivable, net
 
$
10,011
   
$
9,933
   
$
30,516
   
$
29,825
 
   Investment securities
   
592
     
382
     
1,381
     
958
 
   FHLB – San Francisco stock
   
144
     
144
     
565
     
428
 
   Interest-earning deposits
   
386
     
233
     
1,111
     
591
 
   Total interest income
   
11,133
     
10,692
     
33,573
     
31,802
 
                                 
Interest expense:
                               
   Checking and money market deposits
   
102
     
96
     
327
     
311
 
   Savings deposits
   
139
     
147
     
437
     
445
 
   Time deposits
   
600
     
613
     
1,851
     
1,877
 
   Borrowings
   
680
     
712
     
2,158
     
2,176
 
   Total interest expense
   
1,521
     
1,568
     
4,773
     
4,809
 
                                 
Net interest income
   
9,612
     
9,124
     
28,800
     
26,993
 
Provision (recovery) for loan losses
   
4
     
(505
)
   
(450
)
   
(347
Net interest income, after provision (recovery) for loan losses
   
9,608
     
9,629
     
29,250
     
27,340
 
                                 
Non-interest income:
                               
   Loan servicing and other fees
   
262
     
493
     
863
     
1,173
 
   Gain on sale of loans, net
   
1,719
     
3,597
     
7,114
     
12,761
 
   Deposit account fees
   
471
     
529
     
1,485
     
1,623
 
   Gain (loss) on sale and operations of real estate owned acquired in
     the settlement of loans, net
   
2
     
(19
)
   
(4
)
   
(81
   Card and processing fees
   
373
     
372
     
1,163
     
1,126
 
   Other
   
225
     
238
     
575
     
701
 
   Total non-interest income
   
3,052
     
5,210
     
11,196
     
17,303
 
                                 
Non-interest expense:
                               
   Salaries and employee benefits (1)
   
9,292
     
8,808
     
24,753
     
26,710
 
   Premises and occupancy
   
1,286
     
1,255
     
3,905
     
3,829
 
   Equipment
   
417
     
442
     
1,333
     
1,179
 
   Professional expenses
   
513
     
400
     
1,371
     
1,441
 
   Sales and marketing expenses
   
246
     
213
     
668
     
717
 
   Deposit insurance premiums and regulatory assessments
   
124
     
189
     
461
     
591
 
   Other (2)
   
1,122
     
1,132
     
3,088
     
6,919
 
   Total non-interest expense
   
13,000
     
12,439
     
35,579
     
41,386
 
                                 
Income (loss) before income taxes
   
(340
)
   
2,400
     
4,867
     
3,257
 
Provision (benefit) for income taxes (3)
   
(189
)
   
667
     
1,237
     
2,526
 
   Net income (loss)
 
$
(151
)
 
$
1,733
   
$
3,630
   
$
731
 
                                 
Basic earnings (loss) per share
 
$
(0.02
)
 
$
0.23
   
$
0.49
   
$
0.10
 
Diluted earnings (loss) per share
 
$
(0.02
)
 
$
0.23
   
$
0.48
   
$
0.09
 
Cash dividends per share
 
$
0.14
   
$
0.14
   
$
0.42
   
$
0.42
 
 
.
(1)
Includes $1.5 million of costs associated with staff reductions in mortgage banking operations during the quarter and nine months ended March 31, 2019.
(2)
Includes $3.4 million of litigation settlement expense for the nine months ended March 31, 2018.
(3)
Includes a net tax charge of $1.9 million resulting from the revaluation of net deferred tax assets consistent with the Tax Cuts and Jobs Act for the nine months ended March 31, 2018.
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
In Thousands
 
   
For the Quarters Ended
March 31,
   
For the Nine Months Ended
March 31,
 
   
2019
   
2018
   
2019
   
2018
 
Net income (loss)
 
$
(151
)
 
$
1,733
   
$
3,630
   
$
731
 
                                 
Change in unrealized holding loss on securities available for sale
   
(9
)
   
(35
)
   
(67
)
   
(113
)
Reclassification adjustment for net income (loss) on securities
  available for sale included in net income (loss)
   
     
(2
)
   
     
43
 
Other comprehensive loss, before income taxes
   
(9
)
   
(37
)
   
(67
)
   
(70
)
                                 
Income tax benefit
   
(3
)
   
(13
)
   
(20
)
   
(27
)
Other comprehensive loss
   
(6
)
   
(24
)
   
(47
)
   
(43
)
                                 
Total comprehensive income (loss)
 
$
(157
)
 
$
1,709
   
$
3,583
   
$
688
 
 
 
 
 
 
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)
In Thousands, Except Share Information

For the Quarters Ended March 31, 2019 and 2018:
   
Common
Stock
   
Additional
Paid-In
   
Retained 
    Treasury      
Accumulated
Other
Comprehensive
Income (Loss), 
       
   
Shares
   
Amount
   
Capital
   
Earnings
   
Stock
   
Net of Tax
   
Total
 
Balance at December 31, 2018
   
7,506,855
   
$
181
   
$
95,913
   
$
192,306
   
$
(165,892
)
 
$
169
   
$
122,677
 
                                                         
Net loss
                           
(151
)
                   
(151
)
Other comprehensive loss
                                           
(6
)
   
(6
)
Purchase of treasury stock
   
(23,748
)
                           
(460
)
           
(460
)
Exercise of stock options
   
11,250
             
164
                             
164
 
Distribution of restricted stock
   
3,000
                                             
 
Amortization of restricted stock
                   
29
                             
29
 
Stock options expense
                   
8
                             
8
 
Cash dividends (1)
                           
(1,052
)
                   
(1,052
)
                                                         
Balance at March 31, 2019
   
7,497,357
   
$
181
   
$
96,114
   
$
191,103
   
$
(166,352
)
 
$
163
   
$
121,209
 

(1)
Cash dividends of $0.14 per share were paid in the quarter ended March 31, 2019.
 
   
Common
Stock
    Additional
Paid-In
     
Retained
     Treasury      
Accumulated
Other
Comprehensive
Income (Loss),
       
 
Shares
   
Amount
   
Capital
   
Earnings
   
Stock
   
Net of Tax
   
Total
 
Balance at December 31, 2017
   
7,474,776
   
$
180
   
$
94,011
   
$
189,610
   
$
(163,311
)
 
$
210
   
$
120,700
 
                                                         
Net income
                           
1,733
                     
1,733
 
Other comprehensive loss
                                           
(24
)
   
(24
)
Purchase of treasury stock (1)
   
(80,972
)
                           
(1,475
)
           
(1,475
)
Exercise of stock options
   
56,500
             
416
                             
416
 
Distribution of restricted stock
   
10,500
                                             
--
 
Amortization of restricted stock
                   
167
                             
167
 
Stock options expense
                   
125
                             
125
 
Cash dividends (2)
                           
(1,042
)
                   
(1,042
)
                                                         
Balance at March 31, 2018
   
7,460,804
   
$
180
   
$
94,719
   
$
190,301
   
$
(164,786
)
 
$
186
   
$
120,600
 

(1)
Includes the repurchase of 3,291 shares of distributed restricted stock in settlement of employee withholding tax obligations.
(2)
Cash dividends of $0.14 per share were paid in the quarter ended March 31, 2018.
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
For the Nine Months Ended March 31, 2019 and 2018:
 
   
Common
Stock
   
Additional
Paid-In
    Retained    
Treasury
     
Accumulated
Other
Comprehensive
Income (Loss),
       
   
Shares
   
Amount
   
Capital
   
Earnings
   
Stock
   
Net of Tax
   
Total
 
Balance at June 30, 2018
   
7,421,426
   
$
181
   
$
94,957
   
$
190,616
   
$
(165,507
)
 
$
210
   
$
120,457
 
                                                         
Net income
                           
3,630
                     
3,630
 
Other comprehensive loss
                                           
(47
)
   
(47
)
Purchase of treasury stock (1)
   
(44,819
)
                           
(845
)
           
(845
)
Exercise of stock options
   
31,250
             
390
                             
390
 
Distribution of restricted stock
   
89,500
                                             
 
Amortization of restricted stock
                   
426
                             
426
 
Stock options expense
                   
341
                             
341
 
Cash dividends (2)
                           
(3,143
)
                   
(3,143
)
                                                         
Balance at March 31, 2019
   
7,497,357
   
$
181
   
$
96,114
   
$
191,103
   
$
(166,352
)
 
$
163
   
$
121,209
 

(1)   Includes the repurchase of 21,071 shares of distributed restricted stock in settlement of employee withholding tax obligations.
(2)   Cash dividends of $0.42 per share were paid in the nine months ended March 31, 2019.
 
   
Common
Stock
   
Additional
Paid-In
   
Retained  
    Treasury      
Accumulated
Other
Comprehensive
Income (Loss), 
       
   
Shares
   
Amount
   
Capital
   
Earnings
   
Stock
   
Net of Tax
   
Total
 
Balance at June 30, 2017
   
7,714,052
   
$
180
   
$
93,209
   
$
192,754
   
$
(158,142
)
 
$
229
   
$
128,230
 
                                                         
Net income
                           
731
                     
731
 
Other comprehensive loss
                                           
(43
)
   
(43
)
Purchase of treasury stock (1)
   
(347,498
)
                           
(6,627
)
           
(6,627
)
Exercise of stock options
   
83,750
             
677
                             
677
 
Distribution of restricted stock
   
10,500
                                             
--
 
Amortization of restricted stock
                   
458
                             
458
 
Forfeitures of restricted stock
                   
17
             
(17
)
           
 
Stock options expense
                   
358
                             
358
 
Cash dividends (2)
                           
(3,184
)
                   
(3,184
)
                                                         
Balance at March 31, 2018
   
7,460,804
   
$
180
   
$
94,719
   
$
190,301
   
$
(164,786
)
 
$
186
   
$
120,600
 
(1)   Includes the repurchase of 3,291 shares of distributed restricted stock in settlement of employee withholding tax obligations.
(2)   Cash dividends of $0.42 per share were paid in the nine months ended March 31, 2018.
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
PROVIDENT FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited - In Thousands)
 
   
Nine Months Ended March 31,
 
   
2019
   
2018
 
Cash flows from operating activities:
           
   Net income
 
$
3,630
   
$
731
 
   Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
      Depreciation and amortization
   
2,045
     
2,229
 
      Recovery from the allowance for loan losses
   
(450
)
   
(347
)
      Recovery of losses on real estate owned
   
     
(552
)
      Gain on sale of loans, net
   
(7,114
)
   
(12,761
)
      (Gain) loss on sale of real estate owned, net
   
(9
)
   
564
 
      Stock-based compensation
   
767
     
816
 
      Provision (benefit) for deferred income taxes
   
553
     
(28
)
   (Decrease) increase in accounts payable, accrued interest and other liabilities
   
(320
)
   
3,294
 
   Decrease (increase) in prepaid expenses and other assets
   
446
     
(482
)
   Loans originated for sale
   
(453,444
)
   
(944,349
)
   Proceeds from sale of loans
   
526,090
     
983,504
 
         Net cash provided by operating activities
   
72,194
     
32,619
 
                 
Cash flows from investing activities:
               
   Decrease in loans held for investment, net
   
19,230
     
8,956
 
   Maturity of investment securities held to maturity
   
800
     
200
 
   Principal payments from investment securities held to maturity
   
24,093
     
17,882
 
   Principal payments from investment securities available for sale
   
1,140
     
1,252
 
   Purchase of investment securities held to maturity
   
(40,282
)
   
(54,147
)
   Proceeds from sale of real estate owned
   
915
     
2,223
 
   Purchase of premises and equipment
   
(151
)
   
(2,713
)
         Net cash provided by (used for) investing activities
   
5,745
     
(26,347
)
                 
Cash flows from financing activities:
               
   Decrease in deposits, net
   
(30,714
)
   
(4,022
)
   Repayments of short-term borrowings, net
   
(15,000
)
   
(15,000
)
   Repayments of long-term borrowings
   
(10,042
)
   
(10,050
)
   Proceeds from long-term borrowings
   
     
10,000
 
   Exercise of stock options
   
390
     
677
 
   Withholding taxes on stock based compensation
   
(428
)
   
(318
)
   Cash dividends
   
(3,143
)
   
(3,184
)
   Treasury stock purchases
   
(845
)
   
(6,627
)
         Net cash used for financing activities
   
(59,782
)
   
(28,524
)
                 
Net increase (decrease) in cash and cash equivalents
   
18,157
     
(22,252
)
Cash and cash equivalents at beginning of period
   
43,301
     
72,826
 
Cash and cash equivalents at end of period
 
$
61,458
   
$
50,574
 
Supplemental information:
               
   Cash paid for interest
 
$
4,796
   
$
4,816
 
   Cash paid for income taxes
 
$
1,555
   
$
2,400
 
   Transfer of loans held for sale to held for investment
 
$
1,360
   
$
1,122
 
   Real estate acquired in the settlement of loans
 
$
   
$
1,659
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
PROVIDENT FINANCIAL HOLDINGS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements

March 31, 2019

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 statement of financial condition at June 30, 2018 is 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 United States 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, 2018.  The results of operations for the quarter and nine months ended March 31, 2019 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2019.


Note 2: Accounting Standard Updates ("ASU")

There have been no accounting standard updates or changes in the status of their adoption that are significant to the Corporation as previously disclosed in Note 1 of the Corporation's Annual Report on Form 10-K for the year ended June 30, 2018, other than:

ASU 2014-09:
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, "Revenue from Contracts with Customers," which created FASB Accounting Standards Codification (ASC) Topic 606 ("ASC 606"). ASC 606 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASC 606 was effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. The Corporation adopted ASC 606 on July 1, 2018 using the modified retrospective approach. Therefore, the comparative information has not been adjusted and continues to be reported under superseded ASC 605. There was no cumulative effect adjustment as of July 1, 2018, and there were no material changes to the timing or amount of revenue recognized for the nine months ended March 31, 2019; however, additional disclosures were incorporated in the footnotes upon adoption. The majority of the Company's revenue is comprised of interest income from financial assets, which is explicitly excluded from the scope of ASC 606. The Corporation elected to apply the practical expedient pursuant to ASC 606 and therefore does not disclose information about remaining performance obligations that have an original expected term of one year or less and allows the Corporation to expense costs related to obtaining a contract as incurred when the original amortization period would have been one year or less. See Note 12 for additional discussion.

7

ASU 2018-11
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." This ASU introduces a lessee model that brings most leases on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the new revenue recognition standard, ASC 606, Revenue From Contracts With Customers. The new leases standard represents a wholesale change to lease accounting and will most likely result in significant implementation challenges during the transition period and beyond. This ASU will be effective for annual periods beginning after December 15, 2018 (i.e., calendar periods beginning on January 1, 2019), and interim periods therein, early adoption is permitted. In July 2018, the FASB issued ASU 2018-11, Leases, Targeted Improvements, which allows entities the option of initially applying the new leases standard at the adoption date (such as January 1, 2019, for calendar year- end public business entities) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In January 2019, the FASB issued ASU 2019-01, Codification Improvements. The amendments in this update include the following items: (i) determining the fair value of the underlying asset by lessors that are not manufacturers or dealers; (ii) requiring cash received from lessors from sales-type and direct financing leases to be presented in the cash flow statement within investing activities; and (iii) clarifying interim disclosure requirements. The effective date and transition requirements for the first and second items of this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019 and early adoption is permitted. The effective date and transition requirements for the third item of this ASU are the same as ASU 2016-02. The Corporation plans to adopt these ASUs on July 1, 2019. Management is currently assessing the impact of these ASUs on the Corporation's financial position and results of operations but does not believe that adoption of these ASUs  will have a material impact on its consolidated financial statements.

ASU 2018-13
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies disclosure requirements on fair value measurements to improve their effectiveness. The guidance permits entities to consider materiality when evaluating fair value measurement disclosures and, among other modifications, requires certain new disclosures related to Level 3 fair value measurements. The guidance will be effective beginning January 1, 2020, with early adoption permitted. The guidance only affects disclosures in the notes to the consolidated financial statements and will not affect the Corporation's financial position or results of operations.
 


8
Note 3: Earnings (Loss) Per Share

Basic earnings (loss) per share ("EPS") excludes dilution and is computed by dividing income 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, 2019 and 2018, there were outstanding options to purchase 497,750 shares and 529,000 shares of the Corporation's common stock, respectively. Of those shares, as of March 31, 2019 and 2018, there were 497,750 shares and 26,000 shares, respectively, which were excluded from the diluted EPS computation as their effect was anti-dilutive.  As of March 31, 2019 and 2018, there were outstanding restricted stock awards of 9,000 shares and 98,500 shares, respectively. The outstanding restricted stock had no dilutive effect for the quarter ended March 31, 2019 but they were dilutive for the comparable quarter last year.

The following table provides the basic and diluted EPS computations for the quarters and nine months ended March 31, 2019 and 2018, respectively.
   
For the Quarters Ended
March 31,
   
For the Nine Months Ended
March 31,
 
(In Thousands, Except Earnings Per Share)
 
2019
   
2018
   
2019
   
2018
 
Numerator:
                       
   Net income (loss) – numerator for basic earnings per share 
    and diluted earnings per share - available to common 
    stockholders
 
$
(151
)
 
$
1,733
   
$
3,630
   
$
731
 
                                 
Denominator:
                               
   Denominator for basic earnings per share:
                               
    Weighted-average shares
   
7,507
     
7,457
     
7,481
     
7,573
 
                                 
     Effect of dilutive shares:
                               
Stock options
   
     
97
     
60
     
111
 
Restricted stock
   
     
62
     
14
     
53
 
                                 
  Denominator for diluted earnings per share:
                               
    Adjusted weighted-average shares and assumed
     conversions
   
7,507
     
7,616
     
7,555
     
7,737
 
                                 
Basic earnings (loss) per share
 
$
(0.02
)
 
$
0.23
   
$
0.49
   
$
0.10
 
Diluted earnings (loss) per share
 
$
(0.02
)
 
$
0.23
   
$
0.48
   
$
0.09
 


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 Corporation expects to discontinue the operations of PBM by June 30, 2019.  The Corporation estimates that it will incur costs of approximately $3.6 million to $4.0 million to complete the exit during the remainder of fiscal 2019, which amounts include costs for severance, retention, personnel, premises, occupancy, depreciation, and costs related to termination of data processing and other contractual arrangements.  As of March 31, 2019, the total costs incurred for both the quarter and nine months ended March 31 2019 were approximately $1.6 million, comprised of
 
9
$1.5 million in salaries and employee benefits expenses, $81,000 in premises and occupancy expenses and $13,000 in equipment expenses. There were no costs incurred related to the exit prior to the quarter ended March 31, 2019.

The following tables set forth condensed consolidated statements of operations and total assets for the Corporation's operating segments for the quarters and nine months ended March 31, 2019 and 2018, respectively.
   
For the Quarter Ended March 31, 2019
 
(In Thousands)
 
Provident
Bank
   
Provident
Bank
Mortgage
   
Consolidated
Totals
 
Net interest income
 
$
9,431
   
$
181
   
$
9,612
 
Provision (recovery) for loan losses
   
74
     
(70
)
   
4
 
Net interest income, after provision (recovery) for loan losses
   
9,357
     
251
     
9,608
 
                         
Non-interest income:
                       
     Loan servicing and other fees (1)
   
103
     
159
     
262
 
     Gain (loss) on sale of loans, net (2)
   
(1
)
   
1,720
     
1,719
 
     Deposit account fees
   
471
     
     
471
 
     Gain on sale and operations of real estate owned
        acquired in the settlement of loans, net
   
2
     
     
2
 
Card and processing fees
   
373
     
     
373
 
Other
   
223
     
2
     
225
 
          Total non-interest income
   
1,171
     
1,881
     
3,052
 
                         
Non-interest expense:
                       
     Salaries and employee benefits
   
5,002
     
4,290
     
9,292
 
     Premises and occupancy
   
847
     
439
     
1,286
 
     Operating and administrative expenses
   
1,314
     
1,108
     
2,422
 
          Total non-interest expense
   
7,163
     
5,837
     
13,000
 
Income (loss) before income taxes
   
3,365
     
(3,705
)
   
(340
)
Provision (benefit) for income taxes
   
907
     
(1,096
)
   
(189
)
Net income (loss)
 
$
2,458
   
$
(2,609
)
 
$
(151
)
Total assets, end of period
 
$
1,088,716
   
$
30,679
   
$
1,119,395
 

 
(1)
Includes an inter-company charge of $2 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
(2)
Includes an inter-company charge of $17 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.
10
   
For the Quarter Ended March 31, 2018
 
(In Thousands)
 
Provident
Bank
   
Provident
Bank
Mortgage
   
Consolidated
Totals
 
Net interest income
 
$
8,750
   
$
374
   
$
9,124
 
Recovery from the allowance for loan losses
   
(505
)
   
     
(505
)
Net interest income, after recovery from the allowance for loan losses
   
9,255
     
374
     
9,629
 
                         
Non-interest income:
                       
     Loan servicing and other fees (1)
   
313
     
180
     
493
 
     Gain (loss) on sale of loans, net (2)
   
(1
)
   
3,598
     
3,597
 
     Deposit account fees
   
529
     
     
529
 
     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
   
(19
)
   
     
(19
)
     Card and processing fees
   
372
     
     
372
 
     Other
   
238
     
     
238
 
          Total non-interest income
   
1,432
     
3,778
     
5,210
 
                         
Non-interest expense:
                       
     Salaries and employee benefits
   
4,763
     
4,045
     
8,808
 
     Premises and occupancy
   
842
     
413
     
1,255
 
     Operating and administrative expenses
   
1,050
     
1,326
     
2,376
 
          Total non-interest expense
   
6,655
     
5,784
     
12,439
 
Income (loss) before income taxes
   
4,032
     
(1,632
)
   
2,400
 
Provision (benefit) for income taxes
   
1,252
     
(585
)
   
667
 
Net income (loss)
 
$
2,780
   
$
(1,047
)
 
$
1,733
 
Total assets, end of period
 
$
1,086,437
   
$
90,165
   
$
1,176,602
 


(1)
Includes an inter-company charge of $222 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
(2)
Includes an inter-company charge of $44 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.
 
11
   
For the Nine Months Ended March 31, 2019
 
(In Thousands)
 
Provident
Bank
   
Provident
Bank
Mortgage
   
Consolidated
Totals
 
Net interest income
 
$
27,956
   
$
844
   
$
28,800
 
Provision (recovery) for loan losses
   
(475
)
   
25
     
(450
)
Net interest income, after provision (recovery) for loan losses
   
28,431
     
819
     
29,250
 
                         
Non-interest income:
                       
     Loan servicing and other fees (1)
   
87
     
776
     
863
 
     Gain on sale of loans, net (2)
   
33
     
7,081
     
7,114
 
     Deposit account fees
   
1,485
     
     
1,485
 
     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
   
(4
)
   
     
(4
)
     Card and processing fees
   
1,163
     
     
1,163
 
     Other
   
573
     
2
     
575
 
          Total non-interest income
   
3,337
     
7,859
     
11,196
 
                         
Non-interest expense:
                       
     Salaries and employee benefits
   
14,138
     
10,615
     
24,753
 
     Premises and occupancy
   
2,652
     
1,253
     
3,905
 
     Operating and administrative expenses
   
3,307
     
3,614
     
6,921
 
          Total non-interest expense
   
20,097
     
15,482
     
35,579
 
Income (loss) before income taxes
   
11,671
     
(6,804
)
   
4,867
 
Provision (benefit) for income taxes
   
3,249
     
(2,012
)
   
1,237
 
Net income (loss)
 
$
8,422
   
$
(4,792
)
 
$
3,630
 
Total assets, end of period
 
$
1,088,716
   
$
30,679
   
$
1,119,395
 

(1)
Includes an inter-company charge of $428 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
(2)
Includes an inter-company charge of $37 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.
 
12

   
For the Nine Months Ended March 31, 2018
 
(In Thousands)
 
Provident
Bank
   
Provident
Bank
Mortgage
   
Consolidated
Totals
 
Net interest income
 
$
25,517
   
$
1,476
   
$
26,993
 
Recovery from the allowance for loan losses
   
(347
)
   
     
(347
)
Net interest income, after recovery from the allowance for loan losses
   
25,864
     
1,476
     
27,340
 
                         
Non-interest income:
                       
     Loan servicing and other fees (1)
   
468
     
705
     
1,173
 
     Gain on sale of loans, net (2)
   
21
     
12,740
     
12,761
 
     Deposit account fees
   
1,623
     
     
1,623
 
     Loss on sale and operations of real estate owned
        acquired in the settlement of loans, net
   
(81
)
   
     
(81
)
     Card and processing fees
   
1,126
     
     
1,126
 
     Other
   
701
     
     
701
 
          Total non-interest income
   
3,858
     
13,445
     
17,303
 
                         
Non-interest expense:
                       
     Salaries and employee benefits
   
13,714
     
12,996
     
26,710
 
     Premises and occupancy
   
2,491
     
1,338
     
3,829
 
     Operating and administrative expenses (3)
   
4,490
     
6,357
     
10,847
 
          Total non-interest expense
   
20,695
     
20,691
     
41,386
 
Income (loss) before income taxes
   
9,027
     
(5,770
)
   
3,257
 
Provision (benefit) for income taxes (4)
   
4,595
     
(2,069
)
   
2,526
 
Net income (loss)
 
$
4,432
   
$
(3,701
)
 
$
731
 
Total assets, end of period
 
$
1,086,437
   
$
90,165
   
$
1,176,602
 

(1)
Includes an inter-company charge of $561 credited to PBM by the Bank during the period to compensate PBM for originating loans held for investment.
(2)
Includes an inter-company charge of $182 credited to PBM by the Bank during the period to compensate PBM for servicing fees on loans sold on a servicing retained basis.
(3)
Includes $3.4 million of litigation settlement expense for the first nine months of fiscal 2018, of which $2.1 million was allocated to PBM.
(4)
Includes a net tax charge of $1.9 million resulting from the revaluation of net deferred tax assets consistent with the Tax Cuts and Jobs Act for the nine months ended December 31, 2017.



13
Note 5: Investment Securities

The amortized cost and estimated fair value of investment securities as of March 31, 2019 and June 30, 2018 were as follows:
March 31, 2019
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
(Losses)
   
Estimated
Fair
Value
   
Carrying
Value
 
(In Thousands)
                             
Held to maturity:
                             
  U.S. government sponsored enterprise MBS (1)
 
$
99,193
   
$
728
   
$
(163
)
 
$
99,758
   
$
99,193
 
  U.S. SBA securities (2)
   
2,917
     
     
(19
)
   
2,898
     
2,917
 
  Certificate of deposits
   
400
     
     
     
400
     
400
 
Total investment securities - held to maturity
 
$
102,510
   
$
728
   
$
(182
)
 
$
103,056
   
$
102,510
 
                                         
Available for sale:
                                       
  U.S. government agency MBS
 
$
3,677
   
$
119
   
$
   
$
3,796
   
$
3,796
 
  U.S. government sponsored enterprise MBS
   
2,107
     
91
     
     
2,198
     
2,198
 
  Private issue CMO (3)
   
296
     
4
     
     
300
     
300
 
Total investment securities - available for sale
 
$
6,080
   
$
214
   
$
   
$
6,294
   
$
6,294
 
Total investment securities
 
$
108,590
   
$
942
   
$
(182
)
 
$
109,350
   
$
108,804
 

(1)
Mortgage-Backed Securities ("MBS").
(2)
Small Business Administration ("SBA").
(3)
Collateralized Mortgage Obligations ("CMO").

 
June 30, 2018
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
(Losses)
   
Estimated
Fair
Value
   
Carrying
Value
 
(In Thousands)
                             
Held to maturity:
                             
  U.S. government sponsored enterprise MBS
 
$
84,227
   
$
203
   
$
(762
)
 
$
83,668
   
$
84,227
 
  U.S. SBA securities
   
2,986
     
     
(15
)
   
2,971
     
2,986
 
  Certificate of deposits
   
600
     
     
     
600
     
600
 
Total investment securities - held to maturity
 
$
87,813
   
$
203
   
$
(777
)
 
$
87,239
   
$
87,813
 
                                         
Available for sale:
                                       
  U.S. government agency MBS
 
$
4,234
   
$
150
   
$
   
$
4,384
   
$
4,384
 
  U.S. government sponsored enterprise MBS
   
2,640
     
122
     
     
2,762
     
2,762
 
  Private issue CMO
   
346
     
4
     
     
350
     
350
 
Total investment securities - available for sale
 
$
7,220
   
$
276
   
$
   
$
7,496
   
$
7,496
 
Total investment securities
 
$
95,033
   
$
479
   
$
(777
)
 
$
94,735
   
$
95,309
 
 
In the third quarters of fiscal 2019 and 2018, the Corporation received MBS principal payments of $8.6 million and $7.4 million, respectively, and there were no sales of investment securities during these periods.  The Corporation purchased U.S. government sponsored enterprise MBS totaling $26.2 million and $12.4 million, to be held to maturity, respectively. For the first nine months of fiscal 2019 and 2018, the Corporation received MBS principal payments of $25.2 million and $19.1 million, respectively, and there were no sales of investment securities during these periods.  In the first nine months of fiscal
 
14
2019 and 2018, the Corporation purchased U.S. government sponsored enterprise MBS totaling $39.7 million and $50.9 million, to be held to maturity, respectively. In addition, the Corporation also purchased $3.0 million in U.S. SBA loan pool securities to be held to maturity in the third quarter and first nine months of fiscal 2018.

The Corporation held investments with an unrealized loss position of $182,000 at March 31, 2019 and $777,000 at June 30, 2018.
As of March 31, 2019
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
(In Thousands)
Less Than 12 Months
 
12 Months or More
 
Total
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Description  of Securities
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
 
Held to maturity:
                       
  U.S. government sponsored enterprise MBS
 
$
   
$
   
$
26,758
   
$
163
   
$
26,758
   
$
163
 
  U.S. SBA securities
   
2,892
     
19
     
     
     
2,892
     
19
 
Total investment securities
 
$
2,892
   
$
19
   
$
26,758
   
$
163
   
$
29,650
   
$
182
 

As of June 30, 2018
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
Unrealized Holding
Losses
 
(In Thousands)
Less Than 12 Months
 
12 Months or More
 
Total
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Description  of Securities
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
 
Held to maturity:
                       
  U.S. government sponsored enterprise MBS
 
$
47,045
   
$
762
   
$
   
$
   
$
47,045
   
$
762
 
  U.S. SBA securities
   
2,964
     
15
     
     
     
2,964
     
15
 
Total investment securities
 
$
50,009
   
$
777
   
$
   
$
   
$
50,009
   
$
777
 

The Corporation evaluates individual investment securities quarterly for other-than-temporary declines in market value. At March 31, 2019, $163,000 of the $182,000 unrealized holding losses were 12 months or more; while at June 30, 2018, all of the unrealized holding losses were less than 12 months. The Corporation does not believe that there were any other-than-temporary impairments on the investment securities at March 31, 2019 and 2018; therefore, no impairment losses were recorded for the quarters and nine months ended March 31, 2019 and 2018.
 
 
15
Contractual maturities of investment securities as of March 31, 2019 and June 30, 2018 were as follows:
   
March 31, 2019
   
June 30, 2018
 
(In Thousands)
 
Amortized
Cost
   
Estimated
Fair
Value
   
Amortized
Cost
   
Estimated
Fair
Value
 
                         
Held to maturity:
                       
Due in one year or less
 
$
200
   
$
200
   
$
600
   
$
600
 
Due after one through five years
   
35,345
     
35,259
     
24,961
     
24,569
 
Due after five through ten years
   
38,691
     
39,126
     
22,847
     
22,477
 
Due after ten years
   
28,274
     
28,471
     
39,405
     
39,593
 
Total investment securities - held to maturity
 
$
102,510
   
$
103,056
   
$
87,813
   
$
87,239
 
                                 
Available for sale:
                               
Due in one year or less
 
$
   
$
   
$
   
$
 
Due after one through five years
   
     
     
     
 
Due after five through ten years
   
     
     
     
 
Due after ten years
   
6,080
     
6,294
     
7,220
     
7,496
 
Total investment securities - available for sale
 
$
6,080
   
$
6,294
   
$
7,220
   
$
7,496
 
Total investment securities
 
$
108,590
   
$
109,350
   
$
95,033
   
$
94,735
 

Note 6: Loans Held for Investment

Loans held for investment, net of fair value adjustments, consisted of the following:
(In Thousands)
 
March 31,
2019
   
June 30,
2018
 
Mortgage loans:
           
     Single-family
 
$
314,824
   
$
314,808
 
     Multi-family
   
449,812
     
476,008
 
     Commercial real estate
   
115,355
     
109,726
 
     Construction (1)
   
4,139
     
3,174
 
     Other
   
167
     
167
 
Commercial business loans (2)
   
483
     
500
 
Consumer loans (3)</