SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 8-K
Current Report
Pursuant to Section 13 or 15(D) of
The Securities Exchange Act of 1934
October 30, 2000
(Date of Report - Date of Earliest Event Reported)
Provident Financial Group, Inc.
(Exact Name of Registrant as Specified in Charter)
Ohio
(State or Other Jurisdiction of Incorporation)
1-8019
(Commission File Number)
31-0982792
(IRS Employer Identification Number)
One East Fourth Street, Cincinnati, Ohio 45202
(Address of Principal Executive Offices) (Zip Code)
1-800-851-9521 or 513-345-7102
(Registrant's Telephone Number, Including Area Code)
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
The following supplemental consolidated financial
statements and accompanying notes of Provident Financial
Group, Inc. have been restated to include the accounts
and operations of Fidelity Financial of Ohio, Inc. for
all periods presented.
(c) Exhibits filed:
Exhibit 23.1 - Consent of Experts and Counsel
Exhibit 27.1 - FDS for December 31, 1999
Exhibit 27.2 - FDS for December 31, 1998
Exhibit 27.3 - FDS for December 31, 1997
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX TO SUPPLEMENTAL FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors .................. 2
Supplemental Financial Statements:
Provident Financial Group, Inc. and Subsidiaries
Supplemental Consolidated Balance Sheets ....................... 4
Supplemental Consolidated Statements of Income ................. 5
Supplemental Consolidated Statements of Changes
in Shareholders' Equity ...................................... 6
Supplemental Consolidated Statements of Cash Flows ............. 7
Notes to Supplemental Consolidated Financial Statements ....... 8
Supplementary Data:
Quarterly Supplemental Consolidated Results
of Operations (unaudited) ........................................32
1
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Provident Financial Group, Inc.
We have audited the accompanying supplemental consolidated balance
sheets of Provident Financial Group, Inc., and subsidiaries (formed as
a result of the consolidation of Provident Financial Group, Inc. and
Fidelity Financial of Ohio, Inc.) as of December 31, 1999 and 1998, and
the related supplemental consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1999. The supplemental consolidated financial
statements give retroactive effect to the merger of Provident Financial
Group, Inc. and Fidelity Financial of Ohio, Inc. on February 4, 2000,
which has been accounted for using the pooling of interests method as
described in Note 1. These supplemental consolidated financial
statements are the responsibility of the management of Provident
Financial Group, Inc. Our responsibility is to express an opinion on
these supplemental financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Generally accepted accounting principles proscribe giving effect to
consummated business combinations accounting for by the pooling of
interests method in financial statements that do not include the date
of consummation. These supplemental consolidated financial statements
do not extend through the dates of consummation; however, they will
become the historical consolidated financial statements of Provident
Financial Group, Inc. and subsidiaries after financial statements
covering the dates of consummation of the business combination are
issued.
2
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
In our opinion, the supplemental consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Provident Financial Group, Inc., and
subsidiaries at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, after giving retroactive
effect to the merger with Fidelity Financial of Ohio, Inc. as described
in Note 1, in conformity with accounting principles generally accepted
in the United States of America.
/s/ ERNST & YOUNG LLP
Cincinnati, Ohio
October 30, 2000
3
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------
(Dollars in Thousands) 1999 1998
- -------------------------------------------------------------------------------------
ASSETS
Cash and Due from Banks ............................ $ 292,134 $ 272,826
Federal Funds Sold and Reverse Repurchase Agreements 84,009 82,144
Trading Account Securities ......................... - 50,333
Investment Securities Available for Sale
(amortized cost - $2,187,778 and $1,611,941) ...... 2,111,037 1,598,083
Loans and Leases:
Corporate Lending:
Commercial ..................................... 3,990,923 3,277,940
Mortgage ....................................... 576,570 546,525
Construction ................................... 559,797 450,552
Lease Financing ................................ 391,529 243,722
Consumer Lending:
Instalment ..................................... 476,508 650,089
Residential - Held for Sale .................... 653,679 710,326
Lease Financing ................................ 361,907 423,354
------------ ------------
Total Loans and Leases ....................... 7,010,913 6,302,508
Reserve for Loan and Lease Losses .............. (94,045) (78,867)
------------ ------------
Net Loans and Leases ......................... 6,916,868 6,223,641
Leased Equipment ................................... 171,258 167,006
Premises and Equipment ............................. 100,099 91,497
Receivables from Securitization Trusts ............. 355,222 104,896
Other Assets ....................................... 507,299 359,225
------------ ------------
$ 10,537,926 $ 8,949,651
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest Bearing ............................ $ 1,185,245 $ 679,297
Interest Bearing ............................... 6,044,743 5,277,182
------------ ------------
Total Deposits ............................... 7,229,988 5,956,479
Short-Term Debt .................................. 977,835 807,503
Long-Term Debt ................................... 950,821 1,013,046
Guaranteed Preferred Beneficial Interests in
Company's Junior Subordinated Debentures ........ 220,069 98,879
Accrued Interest and Other Liabilities ........... 232,991 271,590
------------ ------------
Total Liabilities ............................ 9,611,704 8,147,497
Shareholders' Equity:
Preferred Stock, 5,000,000 Shares Authorized:
Series D, 70,272 Issued ......................... 7,000 7,000
Common Stock, No Par Value, 110,000,000 Shares
Authorized, 48,619,073 and 47,829,827 Issued .... 14,410 14,150
Capital Surplus .................................. 308,237 276,796
Retained Earnings ................................ 646,472 534,657
Treasury Stock, 0 and 572,700 Shares ............. - (21,425)
Accumulated Other Comprehensive Loss ............. (49,897) (9,024)
------------ ------------
Total Shareholders' Equity ................... 926,222 802,154
------------ ------------
$ 10,537,926 $ 8,949,651
============ ============
See notes to supplemental consolidated financial statements.
4
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
-----------------------------------
(In Thousands, Except Per Share Data) 1999 1998 1997
- ---------------------------------------------------------------------------------
Interest Income:
Interest and Fees On Loans and Leases .... $ 616,233 $ 578,867 $ 545,030
Interest on Investment Securities ........ 109,894 105,421 84,464
Other Interest Income .................... 4,588 9,663 2,152
--------- --------- ---------
Total Interest Income .................. 730,715 693,951 631,646
Interest Expense:
Interest on Deposits:
Savings and Demand Deposits ............. 59,057 53,917 30,870
Time Deposits ........................... 209,743 199,128 222,585
--------- --------- ---------
Total Interest on Deposits ............. 268,800 253,045 253,455
Interest on Short-Term Debt .............. 59,729 70,958 35,640
Interest on Long-Term Debt ............... 52,354 50,237 46,753
Interest on Junior Subordinated Debentures 13,200 8,662 8,662
--------- --------- ---------
Total Interest Expense .................. 394,083 382,902 344,510
--------- --------- ---------
Net Interest Income .................... 336,632 311,049 287,136
Provision for Loan and Lease Losses ....... (48,417) (31,597) (45,119)
--------- --------- ---------
Net Interest Income After Provision for
Loan and Lease Losses ................... 288,215 279,452 242,017
Noninterest Income:
Service Charges on Deposit Accounts ...... 32,724 28,369 25,856
Other Service Charges and Fees ........... 70,678 44,172 29,371
Operating Lease Income ................... 40,902 37,481 26,207
Warrant Gains ............................ 9,147 15,354 12,782
Gain on Sales of Loans and Leases ........ 98,869 63,969 54,354
Security Gains ........................... 71 13,044 9,980
Other .................................... 20,273 23,103 16,349
--------- --------- ---------
Total Noninterest Income ................ 272,664 225,492 174,899
Noninterest Expenses:
Salaries, Wages and Benefits ............. 153,397 131,779 108,717
Depreciation on Operating Lease Equipment 23,076 21,662 17,667
Occupancy ................................ 18,951 18,468 14,326
Professional Fees ........................ 20,163 19,737 16,178
Equipment Expense ........................ 24,614 21,820 16,395
Charges and Fees ......................... 15,679 14,896 13,206
Special Charges and Exit Costs ........... 4,200 22,005 -
Other .................................... 66,910 66,949 54,663
--------- --------- ---------
Total Noninterest Expenses .............. 326,990 317,316 241,152
--------- --------- ---------
Income Before Income Taxes ................ 233,889 187,628 175,764
Applicable Income Taxes ................... 82,940 65,201 61,049
--------- --------- ---------
Net Income .............................. $ 150,949 $ 122,427 $ 114,715
========= ========= =========
Basic Earnings Per Common Share ........... $ 3.18 $ 2.57 $ 2.51
Diluted Earnings Per Common Share ......... 3.08 2.48 2.38
See notes to supplemental consolidated financial statements.
5
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Other
(In Thousands, Preferred Common Capital Retained Treasury Comprehensive
Except Per Share Data) Stock Stock Surplus Earnings Stock Income/(Loss) Total
- --------------------------------------------------------------------------------------------------------------
Balance at January 1, 1997 . $7,000 $13,318 $211,949 $ 370,812 $ - $ 4,220 $ 607,299
Net Income ................. 114,715 114,715
Change in Unrealized
Gains (Losses) on
Marketable Securities ..... (3,946) (3,946)
---------
Comprehensive Income ....... 110,769
Cash Dividends Declared
on Common Stock,
$.72 Per Share ............ (37,427) (37,427)
Cash Dividends Declared
on Preferred Stock,
$10.13 Per Share .......... (712) (712)
Exercise of Stock Options .. 223 15,928 16,151
Acquisitions ............... 286 20,105 2,702 143 23,236
Other ...................... (404) 9 (395)
------ ------- -------- --------- ------- -------- ---------
Balance at December 31, 1997 7,000 13,827 247,578 450,099 - 417 718,921
Net Income ................. 122,427 122,427
Change in Unrealized
Gains (Losses) on
Marketable Securities ..... (9,441) (9,441)
---------
Comprehensive Income ....... 112,986
Cash Dividends Declared
on Common Stock,
$.80 Per Share ............ (37,079) (37,079)
Cash Dividends Declared
on Preferred Stock,
$11.25 Per Share .......... (790) (790)
Principal Payments on Loans/
Amortization of Expense
Related to Employee Stock
Benefit Plans ............. 397 397
Exercise of Stock Options .. 298 25,693 25,991
Purchase of Treasury Stock . (21,425) (21,425)
Distribution of Contingent
Shares for Prior Year
Acquisition ............... 25 3,128 3,153
------ ------- -------- --------- ------- -------- ---------
Balance at December 31, 1998 7,000 14,150 276,796 534,657 (21,425) (9,024) 802,154
Net Income ................. 150,949 150,949
Change in Unrealized
Gains (Losses) on
Marketable Securities ..... (40,873) (40,873)
---------
Comprehensive Income ....... 110,076
Cash Dividends Declared
on Common Stock,
$.88 Per Share ............ (40,100) (40,100)
Cash Dividends Declared
on Preferred Stock,
$12.38 Per Share .......... (870) (870)
Principal Payments on Loans/
Amortization of Expense
Related to Employee Stock
Benefit Plans ............. 918 57 975
Exercise of Stock Options .. 68 4,619 4,687
Purchase of Treasury Stock . (8,645) (8,645)
Acquisition ................ 169 22,191 1,779 30,070 54,209
Distribution of Contingent
Shares for Prior Year
Acquisition ............... 23 3,232 3,255
Deferred Compensation Tax
Adjustment ................ 481 481
------ ------- -------- --------- ------- -------- ---------
Balance at December 31, 1999 $7,000 $14,410 $308,237 $ 646,472 $ - $(49,897) $ 926,222
====== ======= ======== ========= ======= ======== =========
See notes to supplemental consolidated financial statements.
6
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
Operating Activities:
Net Income ........................................... $ 150,949 $ 122,427 $ 114,715
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Loan and Lease Losses ................ 48,417 31,597 45,119
Amortization of Goodwill ........................... 2,371 2,489 2,517
Other Amortization and Accretion ................... (18,925) (10,043) (2,508)
Depreciation of Leased Equipment
and Premises and Equipment ........................ 44,119 39,678 30,731
Realized Investment Security Gains ................. (71) (13,044) (9,980)
Proceeds From Sale of Loans Held for Sale .......... 2,483,213 1,384,836 1,189,857
Origination of Loans Held for Sale ................. (2,460,853) (1,468,591) (952,060)
Realized Gains on Residential Loans Held for Sale .. (75,389) (41,704) (43,716)
(Increase) Decrease in Trading Account Securities .. 15,737 (15,737) -
(Increase) Decrease in Interest Receivable ......... (18,460) (10,153) 547
Increase in Other Assets ........................... (48,084) (32,465) (148,552)
Increase (Decrease) in Interest Payable ............ (2,640) 3,456 (275)
Deferred Income Taxes .............................. 17,935 (825) 18,501
Increase (Decrease) in Other Liabilities ........... (43,962) 66,534 1,909
----------- ----------- -----------
Net Cash Provided by Operating Activities ......... 94,357 58,455 246,805
----------- ----------- -----------
Investing Activities:
Investment Securities Available for Sale:
Proceeds from Sales ................................. 427,275 4,101,350 2,320,083
Proceeds from Maturities and Prepayments ............ 259,415 737,624 147,904
Purchases ........................................... (814,706) (4,846,791) (2,663,913)
Increase in Receivables Due From Securitization Trusts (250,326) (104,896) -
Proceeds from Sale-Leaseback Transactions ............ 858,815 351,185 330,000
Net Increase in Loans and Leases ..................... (1,735,628) (923,422) (307,719)
Net Increase in Operating Lease Equipment ............ (27,327) (76,273) (34,918)
Net Increase in Premises and Equipment ............... (27,140) (23,402) (31,361)
Acquisitions ......................................... 791 - 13,632
----------- ----------- -----------
Net Cash Used in Investing Activities ............... (1,308,831) (784,625) (226,292)
----------- ----------- -----------
Financing Activities:
Net Increase in Deposits of Securitization Trusts .... 294,843 131,623 -
Net Increase (Decrease) in Deposits .................. 787,862 467,784 (54,344)
Net Increase (Decrease) in Short-Term Debt ........... 204,928 (34,718) 207,805
Principal Payments on Long-Term Debt ................. (232,974) (101,508) (284,953)
Proceeds from Issuance of Long-Term Debt and
Company's Junior Subordinated Debentures ............ 225,435 344,973 141,790
Cash Dividends Paid .................................. (40,970) (37,869) (38,139)
Purchase of Treasury Stock ........................... (8,645) (21,425) -
Proceeds from Exercise of Stock Options .............. 4,687 25,991 16,151
Net Increase in Other Equity Items ................... 481 - (395)
----------- ----------- -----------
Net Cash Provided by (Used In) Financing Activities . 1,235,647 774,851 (12,085)
----------- ----------- -----------
Increase in Cash and Cash Equivalents .............. 21,173 48,681 8,428
Cash and Cash Equivalents at Beginning of Period ...... 354,970 306,289 297,861
----------- ----------- -----------
Cash and Cash Equivalents at End of Period ......... $ 376,143 $ 354,970 $ 306,289
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest ............................................ $ 396,093 $ 379,536 $ 345,071
Income Taxes ........................................ 47,120 39,901 29,961
Non-Cash Activity:
Transfer of Loans and Premises and Equipment
to Other Real Estate ............................... 5,470 3,474 13,121
Common and Treasury Stock Issued in Acquisitions .... 54,209 - 20,391
Residual Interest in Securitized Assets
Created from the Sale of Loans ..................... 220,566 137,319 106,269
See notes to supplemental consolidated financial statements.
7
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. - ORGANIZATION AND ACQUISITIONS: Provident is a
Cincinnati-based bank holding company which owns and operates two
banking subsidiaries, The Provident Bank and Provident Bank of Florida.
(The Provident Bank of Kentucky was merged into The Provident Bank on
March 23, 1998.) While Provident banking subsidiaries are located in
Ohio, northern Kentucky and southwest Florida, it provides services to
customers on a national basis.
In February, 2000, Provident acquired Fidelity Financial of Ohio, Inc.,
a holding company for Centennial Bank for approximately 4.6 million
shares of Provident Common Stock having an aggregate value of $151.7
million. Centennial operated fifteen banking centers in the greater
Cincinnati metropolitan area and held deposits of approximately $590
million. The merger was accounted for as a pooling-of-interests. The
supplemental consolidated financial statements and accompanying notes
have been restated to include the accounts and operations of Fidelity
Financial for all periods presented. The supplemental consolidated
financial statements will become the historical consolidated financial
statements of Provident after financial statements covering the date of
consummation of the transaction are issued.
In December 1999, Provident purchased OHSL Financial Corp., the parent
of Oak Hills Savings and Loan Company, F.A., for approximately 1.4
million shares of Provident Common Stock having an aggregate value of
$54.2 million. Oak Hills, which had six branches located in Cincinnati,
was merged with The Provident Bank. The acquisition was accounted for
as a purchase transaction with $29.6 million of goodwill being
recorded. Pro-forma results of operations as though the OHSL
acquisition had occurred at the beginning of the period are not
provided due to the immaterial effects it would have on Provident's
supplemental financial statements taken as a whole.
NOTE 2. - ACCOUNTING POLICIES: The following is a summary of
significant accounting policies:
BASIS OF PRESENTATION: The supplemental consolidated financial
statements include the accounts of Provident and its subsidiaries, all
of which are wholly owned. Certain estimates are required to be made by
management in the preparation of the supplemental consolidated
financial statements. Actual results may differ from those estimates.
All significant intercompany balances and transactions have been
eliminated. Certain reclassifications have been made to conform to the
current year presentation.
STATEMENTS OF CASH FLOWS: For cash flow purposes, cash equivalents
include amounts due from banks and federal funds sold and reverse
repurchase agreements. Generally, federal funds sold and reverse
repurchase agreements are purchased and sold for one-day periods.
SECURITIES: Securities are classified as available for sale or trading.
Securities classified as available for sale are intended to be held for
indefinite periods of time. These securities are stated at fair value
with unrealized gains and losses (net of taxes) reported as a separate
component of shareholders' equity.
8
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Securities purchased with the intention of selling them in the near
term are classified as trading. These securities are carried at fair
value with unrealized gains and losses included in "Noninterest
Income". The specific identification method is used for determining
gains and losses from securities transactions.
LOANS AND LEASES: Loans are generally stated at the principal amount
outstanding, net of unearned income. Loans that are intended to be sold
within a short period of time are classified as held for sale. Loans
held for sale are reported at the lower of aggregate cost or market
value. Interest on loans is computed on the outstanding principal
balance. The portion of loan fees which exceeds the direct costs to
originate the loan is deferred and recognized as interest income over
the actual lives of the related loans using the interest method. Any
premium or discount applicable to specific loans purchased is amortized
over the remaining lives of such loans using the interest method. Loans
are generally placed on nonaccrual status when the payment of principal
and/or interest is past due 90 days or more. However, instalment loans
are not placed on nonaccrual status because they are charged off in the
month the loans reach 120 days past due. In addition, loans that are
well secured and in the process of collection are not placed on
nonaccrual status. When a loan is placed on nonaccrual status, any
interest income previously recognized that has not been received is
reversed. Future interest income is recorded only when a payment is
received. Provident generally recognizes income on impaired loans on a
cash basis.
Unearned income on direct financing leases is amortized over the terms
of the leases resulting in an approximate level rate of return on the
net investment in the leases. Income from leveraged lease transactions
is recognized using a method that yields a level rate of return in
relation to Provident's net investment in the lease. The investment
includes the sum of the aggregate rentals receivable and the estimated
residual value of leased equipment less unearned income and third party
debt on leveraged leases. Commercial leases are generally placed on
nonaccrual status when payments are past due 90 days or more while
consumer leases are generally charged off in the month the leases reach
120 days past due.
LOAN AND LEASE LOSS RESERVE: The reserve for loan and lease losses is
maintained to absorb losses in the lending portfolio. Management's
determination of the adequacy of the reserve is based on reviews of
specific loans and leases, credit loss experience, general economic
conditions and other pertinent factors. The reserve is increased by
charges to earnings, as provisions for loan and lease losses. Loans and
leases deemed uncollectible are charged off and deducted from the
reserve and recoveries on loans and leases previously charged off are
added to the reserve.
Provident considers a commercial nonperforming loan to be an impaired
loan when it is probable that all amounts due will not be collected
according to the contractual terms of the loan agreement. Provident
measures the value of an impaired loan based on the present value of
expected future cash flows discounted at the loan's effective interest
9
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
rate or, if more practical, at the loan's observable market price, or
the fair value of the collateral if the loan is collateral dependent.
LOAN SECURITIZATIONS: Provident actively sells nonconforming
residential loans, home equity loans, credit cards and leases as
securities to investors. As required by SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", gains or losses for nonconforming residential loans, home
equity loans and credit card securitizations are determined based on a
present value calculation of future cash flows of the underlying loans,
net of interest payments to security holders, loan loss and prepayment
assumptions and servicing revenue. These net cash flows, which are
represented by a retained interest in securitized assets, are included
in "Investment Securities Available for Sale".
Gains and losses on the securitization of equipment leases are
determined based on the difference between the sale proceeds and the
carrying value of loans sold net of its allocated loan loss reserve.
LEASED EQUIPMENT AND PREMISES AND EQUIPMENT: Leased equipment and
premises and equipment are stated at cost less depreciation and
amortization that are computed principally on the straight-line method
over the estimated useful lives of the assets. Leased equipment and
premises and equipment are reviewed for impairment whenever
circumstances indicate that the carrying value of the assets may not be
recoverable. An impairment loss is recorded when the sum of the
expected future cash flows is less than the carrying amount of the
assets.
OTHER REAL ESTATE: Other real estate acquired through partial or total
satisfaction of loans is recorded at the lower of cost or fair value
and is included in "Other Assets". Provident's policy is to include the
unpaid balance of applicable loans in the cost of other real estate.
However, in no case is the carrying value of real estate owned greater
than fair value.
INTANGIBLES: The excess of the purchase price over net identifiable
tangible and intangible assets acquired in a purchase business
combination (goodwill) is included in other assets. Goodwill related to
acquisitions is amortized over varying periods not exceeding 25 years.
STOCK-BASED COMPENSATION: SFAS No. 123, "Accounting for Stock-Based
Compensation" encourages, but does not require, adoption of a fair
value-based accounting method for stock-based employee compensation
plans. Provident elected to continue its accounting in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees", whereby
no compensation expense is recognized for the granting of stock
options.
INCOME TAXES: Provident files a consolidated federal income tax return
that includes all of its subsidiaries. Subsidiaries provide for income
taxes on a separate-return basis and remit to Provident amounts
determined to be currently payable.
10
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DERIVATIVE FINANCIAL INSTRUMENTS: Provident employs derivatives such as
interest rate swaps, interest rate caps, financial futures and forward
contracts to manage the interest sensitivity of certain on and
off-balance sheet assets and liabilities. The net interest income or
expense on interest rate swaps is accrued and recognized as an
adjustment to the interest income or expense of the associated on and
off-balance sheet asset or liability. Realized gains and losses on
interest rate swap transactions used to manage interest rate risk that
are terminated prior to maturity are deferred and amortized as a yield
adjustment over the remaining original life of the agreement. Deferred
gains and losses are recorded in "Other Assets" and "Accrued Interest
and Other Liabilities", as applicable. At December 31, 1999, these
unamortized amounts were immaterial. Futures and forward contracts are
also used to manage exposure to changes in interest rates. Realized
gains and losses on futures and forward contracts used for risk
management are deferred. These deferred items are either amortized to
interest income or expense over the life of the assets and liabilities
they are associated with, or are recognized as a component of income in
the period of disposition of the assets and liabilities.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of
FASB Statement No. 133" becomes effective for fiscal years beginning
after June 15, 2000. This SFAS establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that derivatives be recognized as either assets or liabilities
in the balance sheet and that those instruments be measured at fair
value. The accounting for the gain or loss resulting from the change in
fair value depends on the intended use of the derivative. For a
derivative used to hedge changes in fair value of a recognized asset or
liability, or an unrecognized firm commitment, the gain or loss on the
derivative will be recognized in earnings together with the offsetting
loss or gain on the hedged item. This results in earnings recognition
only to the extent that the hedge is ineffective in achieving
offsetting changes in fair value. For derivative instruments not
accounted for as hedges, changes in fair value are required to be
recognized in earnings.
Generally, Provident uses its derivatives as hedging instruments.
Management believes that its hedges are highly effective and that the
adoption of this SFAS will not have a material impact on Provident's
financial position or the results of its operations.
COMPREHENSIVE INCOME: SFAS No. 130, "Reporting Comprehensive Income"
establishes standards for the reporting of comprehensive income and its
components. Comprehensive income includes net income and certain items
that are reported directly within a separate component of stockholders'
equity and bypass net income. The provisions of this SFAS became
effective in 1998 and are disclosed within the Supplemental
Consolidated Statements of Changes in Shareholders' Equity.
Implementation of this statement had no impact on net income or
shareholders' equity.
11
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVESTMENT SECURITIES: The amortized cost and estimated market
values of securities available for sale at December 31 were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------
1999:
U.S. Treasury and Federal Agency
Debentures ................... $ 240,991 $ - $ (7,843) $ 233,148
State and Political Subdivisions 1,897 - (17) 1,880
Mortgage-Backed Securities ..... 1,470,270 17 (61,720) 1,408,567
Asset-Backed Securities ........ 104,700 1 (4,948) 99,753
Other Securities ............... 369,920 10 (2,241) 367,689
----------- ------ --------- -----------
$ 2,187,778 $ 28 $(76,769) $ 2,111,037
=========== ====== ======== ===========
1998:
U.S. Treasury and Federal Agency
Debentures ................... $ 159,741 $ 46 $ (1,445) $ 158,342
State and Political Subdivisions 2,014 - (19) 1,995
Mortgage-Backed Securities ..... 1,125,574 1,061 (11,200) 1,115,435
Asset-Backed Securities ........ 247,311 319 (1,775) 245,855
Other Securities ............... 77,301 32 (877) 76,456
----------- ------ --------- -----------
$ 1,611,941 $1,458 $(15,316) $ 1,598,083
=========== ====== ======== ===========
Investment securities with a carrying value of approximately $776.6
million and $690.2 million at December 31, 1999 and 1998, respectively,
were pledged as collateral to secure public and trust deposits,
repurchase agreements, Federal Home Loan Bank ("FHLB") advances,
interest rate swap agreements and for other purposes.
In 1999, 1998 and 1997 gross gains of $.5 million, $14.5 million and
$12.8 million and gross losses of $.4 million, $1.5 million and $2.8,
respectively, were realized on the sale of securities available for
sale.
Mortgage-backed and asset-backed securities are shown below based on
their estimated average lives at December 31, 1999. All other
securities are shown by contractual maturity. Expected maturities will
differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties.
Amortized Estimated
(In Thousands) Cost Market Value
- ---------------------------------------------------------
Due in one year or less .... $ 498,193 $ 497,637
Due after 1 through 5 years 1,015,358 980,672
Due after 5 through 10 years 551,364 512,961
Due after 10 years ......... 122,863 119,767
---------- ----------
Total ................... $2,187,778 $2,111,037
========== ==========
12
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Included in investment securities are the retained interest in
securitized assets representing the present value of net cash flows due
to Provident from loan securitizations and sales. Components of the
retained interest in securitized assets and the underlying assumptions
follow:
Nonconforming Prime
(In Thousands) Residential Home Equity
- -----------------------------------------------------------------------------------
Estimated Cash Flows of Underlying Loans, Net of
Payments to Certificate Holders ....................... $ 497,560 $ 32,270
Less:
Estimated Credit Loss ................................. (19,904) (711)
Servicing and Insurance Expense ....................... (54,918) (4,569)
Discount to Present Value ............................. (66,538) (3,235)
--------- ---------
Carrying Value of Retained Interest in Securitized Assets $ 356,200 $ 23,755
========= =========
1999 Weighted Average of
--------------- All Securitizations
Securitizations ---------------------------
Nonconforming Nonconforming Prime
Residential Residential Home Equity
---------------------------------------------
Assumptions Used:
Prepayment Speed:
Initial Rate ................. 13.41% 12.04% 10.00%
Peak Rate .................... 35.00% 32.30% 30.00%
Calculated Weighted Average
Life of the Loan Portfolios 2.4 Years 2.7 Years 2.1 Years
Estimated Credit Losses:
Annual Basis ................. 1.10% 1.08% 0.19%
Percentage of Original Balance 2.70% 2.97% 0.41%
Discount Rate ................. 12.00% 11.85% 10.27%
Estimated credit losses for pre-1998 securitizations are contained
within the RISA. Since the beginning of 1998, Provident has provided
for credit enhancements to its securitizations in the form of cash
reserve accounts that are funded at closing. Credit losses are absorbed
directly against these cash reserves. The remaining funds not used to
cover such losses are returned to Provident over the term of the
securitization. The balances of "Receivables from Securitization
Trusts" on the Supplemental Consolidated Balance Sheets represent
management's estimate of the cash reserves to be returned to Provident.
13
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LEASING: Provident originates leases which are classified as
either finance leases or operating leases, based on the terms of the
lease arrangement. When a lease is classified as a finance lease, the
future lease payments, net of unearned income, and the estimated
residual value of the leased property at the end of the lease term is
recorded as an asset under "Loans and Leases". The amortization of the
unearned income is recorded as interest income. When a lease is
classified as an operating lease, the leased property, net of
depreciation, is recorded as "Leased Equipment". The rental income is
recorded as noninterest income while the depreciation on the leased
property is recorded as noninterest expense.
Commercial lease financing includes the leasing of transportation,
manufacturing, construction, communication, data processing and office
equipment. The majority of the leases are classified as direct
financing leases, with expiration dates over the next 1 to 10 years.
Rental receivable at December 31, 1999 and 1998 include $41.4 million
and $20.9 million, respectively, for leveraged leases, which is net of
principal and interest on the nonrecourse debt. The residual values on
the leveraged leases that were entered into are estimated to be
approximately $81.6 million and $50.6 million in total at December 31,
1999 and 1998, respectively.
Consumer lease financing is the leasing of automobiles. The leases are
classified as direct financing leases, with expiration dates over the
next 1 to 7 years.
The components of the net investment in lease financing at December 31
were as follows:
1999 1998
----------------------- -----------------------
(In Thousands) Commercial Consumer Commercial Consumer
- --------------------------------------------------------------------------------------
Rentals Receivable ................ $ 318,054 $ 183,718 $ 172,251 $ 194,378
Leases in Process ................. 48,798 12,947 37,509 33,804
Estimated Residual Value of
Leased Assets ................... 115,295 234,741 97,982 239,826
--------- --------- --------- ---------
482,147 431,406 307,742 468,008
Less: Unearned Income ............ (90,618) (69,499) (64,020) (44,654)
--------- --------- --------- ---------
Net Investment in Lease Financing $ 391,529 $ 361,907 $ 243,722 $ 423,354
========= ========= ========= =========
The following is a schedule by year of future minimum lease payments to
be received for the next five years as of December 31, 1999:
(In Thousands) Commercial Consumer
- ---------------------------------------
2000 ........... $ 88,772 $ 61,374
2001 ........... 58,603 46,180
2002 ........... 53,070 34,005
2003 ........... 36,985 24,924
2004 ........... 26,639 13,530
Thereafter ..... 53,985 3,705
-------- --------
Total .......... $318,054 $183,718
======== ========
14
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Operating leases consist of the leasing of transportation equipment,
manufacturing equipment, data processing and office equipment to
commercial clients. Terms of the leases range from 1 to 10 years. At
the expiration of an operating lease, the leased property is generally
sold or another lease agreement is initiated. Accumulated depreciation
of the operating lease equipment was $53.2 million and $45.6 million as
of December 31, 1999 and 1998, respectively. The future gross minimum
rentals, by year, under noncancelable leases for the rental of leased
equipment are $33.3 million for 2000; $29.5 million for 2001; $25.7
million for 2002; $19.8 million for 2003; $15.2 million for 2004 and
$15.9 million thereafter.
In addition to the leases discussed above, Provident sold $858.8
million and $351.2 million of vehicles, which had been classified as
finance leases, to institutional investors under sale-leaseback
transactions during 1999 and 1998, respectively. Under terms of these
transactions, Provident continues to collect rental payments from its
original lessees. Provident, as lessee in the sale-leaseback
transactions, is accounting for the leaseback of these vehicles as
operating leases. Differences between the rentals received from the
original lessees and the rentals paid to the investors are recorded as
noninterest income.
NOTE 5 - RESERVE FOR LOAN AND LEASE LOSSES: The changes in the loan and
lease loss reserve for the years ended December 31 were as follows:
(In Thousands) 1999 1998 1997
- -------------------------------------------------------------------------
Balance at Beginning of Period .... $ 78,867 $ 74,615 $ 68,961
Provision for Loan and Lease Losses
Charged to Earnings ............. 48,417 31,597 45,119
Acquired Reserves ................. 1,263 - 1,814
Recoveries Credited to the Reserve 12,788 9,845 10,128
--------- --------- ---------
141,335 116,057 126,022
Losses Charged to the Reserve ..... (47,290) (37,190) (51,407)
--------- --------- ---------
Balance at End of Period ........ $ 94,045 $ 78,867 $ 74,615
========= ========= =========
The following table shows Provident's investment in impaired loans as
defined under SFAS No. 114 as amended by SFAS No. 118:
(In Thousands) 1999 1998
- ----------------------------------------------------------------------
Impaired Loans Requiring a Valuation Allowance of
$13.3 Million in 1999 and $10.7 Million in 1998 . $30,469 $19,292
Impaired Loans Not Requiring a Valuation Allowance 2,000 2,000
------- -------
Total Impaired Loans .......................... $32,469 $21,292
======= =======
Average Balance of Impaired Loans for the Year ... $30,990 $17,158
The valuation allowance recorded on impaired loans is included in the
reserve for loan losses.
15
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Loans and leases on nonaccrual status at December 31, 1999, 1998 and
1997 were $55.7 million, $45.0 million and $47.4 million, respectively.
Loans renegotiated to provide a reduction or deferral of interest or
principal were $1,541,000, $371,000 and $830,000 at December 31, 1999,
1998 and 1997, respectively.
NOTE 6 - PREMISES AND EQUIPMENT: The following is a summary of premises
and equipment at December 31:
(In Thousands) 1999 1998
- -----------------------------------------------------------
Land ............................. $ 12,290 $ 12,105
Buildings ........................ 38,537 33,952
Leasehold Improvements ........... 14,061 12,736
Furniture and Fixtures ........... 137,306 122,296
--------- ---------
202,194 181,089
Less Depreciation and Amortization (102,095) (89,592)
--------- ---------
Total .......................... $ 100,099 $ 91,497
========= =========
Rent expense for all bank premises and equipment leases was $12.9
million, $11.6 million and $8.7 million in 1999, 1998 and 1997,
respectively. The future gross minimum rentals, by year, under
noncancelable leases for the rental of premises and equipment are $11.6
million in 2000, $10.6 million in 2001, $9.8 million in 2002, $9.4
million in 2003, $8.2 million in 2004 and $29.6 million thereafter.
NOTE 7 - SHORT-TERM DEBT: Short-term debt was as follows:
(Dollars in Thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------
Year End Balance:
Federal Funds Purchased and Repurchase Agreements $ 774,551 $ 560,712 $ 602,588
Commercial Paper ................................ 201,784 245,291 202,018
U.S. Treasury Demand Notes ...................... 1,500 1,500 1,519
Weighted Average Interest Rate at Year End:
Federal Funds Purchased and Repurchase Agreements 4.35% 4.44% 5.68%
Commercial Paper ................................ 5.09 4.50 5.33
U.S. Treasury Demand Notes ...................... 4.52 4.18 5.25
Maximum Amount Outstanding at Any Month End:
Federal Funds Purchased and Repurchase Agreements $1,261,003 $1,627,934 $ 687,374
Commercial Paper ................................ 229,058 259,925 202,018
U.S. Treasury Demand Notes ...................... 1,500 1,500 2,746
At December 31, 1999, Provident had $200 million in general purpose
lines of credit with unaffiliated banks. As of January 18, 2000, these
lines had not been used.
16
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LONG-TERM DEBT: Long-term debt consisted of the following:
December 31,
Stated Effective Maturity -----------------------
(Dollars in Thousands) Rate(1) Rate (2) Date 1999 1998
- ---------------------------------------------------------------------------------------------
Provident Financial Group (Parent):
Miscellaneous Notes Payable ...... Various Various Various $ 1,759 $ 2,617
Subsidiaries:
$1.5 Billion Bank Notes Program:
Fixed Rate Senior Notes ........ 6.13% 6.95% 2000 299,861 299,716
Fixed Rate Senior Notes ........ 7.17 6.19 2005 12,500 12,500
Notes Payable to
Federal Home Loan Bank:
Fixed Rate Notes ............... 5.51 5.51 2008 134,000 144,000
Fixed Rate Notes ............... 6.07 6.07 2000 19,500 16,500
Fixed Rate Notes ............... 5.71 5.71 2001 12,000 12,000
Fixed Rate Notes ............... 5.85 5.85 2007 8,000 2,000
Fixed Rate Notes ............... 5.42 5.42 1999 - 108,500
LIBOR Based Notes .............. 5.23 5.23 1999 - 11,000
Fixed Rate Notes ............... Various Various Various 41,915 23,003
Floating Rate Notes ............ Various Various 2000 68,000 -
Subordinated Notes:
Fixed Rate Notes ............... 6.38 6.52 2004 99,737 99,672
Fixed Rate Notes ............... 7.13 7.09 2003 74,964 74,953
Debt Secured by Auto Leases:
Fixed Rate Notes ............... 5.74 5.72 2004 77,270 87,033
Fixed Rate Notes ............... 5.35 5.35 2006 35,109 45,000
Fixed Rate Notes ............... 5.77 5.77 2005 24,398 26,412
Fixed Rate Notes ............... 5.84 5.83 2004 19,291 21,259
Fixed Rate Notes ............... 6.62 6.62 2005 12,538 13,923
Debt Secured by Equipment Leases:
Fixed Rate Notes ............... Various Various Various 9,979 12,958
---------- ----------
949,062 1,010,429
---------- ----------
Total ....................... $ 950,821 $1,013,046
========== ==========
(1) Stated rate reflects interest rate on notes as of December 31, 1999.
(2) Effective rate reflects interest rate paid as of December 31, 1999 after adjustments
for notes issued at discount or premium, capitalized fees associated with the issuance
of the debt and interest rate swap agreements entered to alter the payment
characteristics.
Under Provident Bank's amended $1.5 Billion Bank Notes program, notes
can be issued with either fixed or floating rates. The Bank Notes
program was increased from $1.0 billion to $1.5 billion in July 1999.
The notes are not secured nor does the FDIC insure them. Subordinated
notes qualify as Tier 2 capital while senior notes do not. At December
31, 1999, $1.2 billion was available under this program.
The notes payable to the Federal Home Loan Bank are collateralized by
investment securities and residential loans with a book value of $421.4
million. They are subordinated to the claims of depositors and other
creditors of Provident and are not insured by the FDIC.
The 6.38% Subordinated Notes, which qualify as Tier 2 capital, were
issued through an underwritten offering in 1994 by Provident Bank. They
are subordinated to the claims of depositors and other creditors of
Provident Bank and are not insured by the FDIC. The 7.13% Subordinated
Notes, which also qualify as Tier 2 capital, were issued in 1993 by
Provident Bank.
17
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Provident borrowed $222.7 million through on-balance sheet
sale-leaseback transactions with various investors. Auto leases within
the consumer lease financing portfolio secure the borrowings. The debt
calls for principal payments throughout the life of the borrowings. As
of December 31, 1999, $168.6 million remains outstanding.
As of December 31, 1999, scheduled principal payments on long-term debt
for the following five years were as follows:
(In Thousands) 2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------------
Provident Financial Group, Inc. $ 520 $ 450 $ 309 $ 307 $ 172
Subsidiaries .................. 408,140 37,084 29,964 102,397 55,650
NOTE 9 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR
SUBORDINATED DEBENTURES: Wholly-owned subsidiary trusts of Provident
have issued $225 million of preferred securities and, in turn,
purchased $225 million of newly-authorized Provident junior
subordinated debentures. The debentures provide interest and principal
payments to fund the trusts' obligations. Provident fully and
unconditionally guarantees the preferred securities. The preferred
securities qualify as Tier 1 capital for bank regulatory purposes. The
sole assets of the trusts are the debentures. The junior subordinated
debentures consisted of the following at December 31:
December 31,
Stated Effective Maturity -------------------
(Dollars in Thousands) Rate Rate(1) Date 1999 1998
- -----------------------------------------------------------------------------
November 1996 Issuance 8.60% 8.67% 12/01/26 $ 98,941 $ 98,879
June 1999 Issuance ... 8.75% 7.45% 06/30/29 121,128 -
-------- --------
Total .......... $220,069 $ 98,879
======== ========
(1) Effective rate reflects interest rate paid as of December 31, 1999 after
adjustments for notes issued at discount or premium, capitalized fees
associated with the issuance of the debt and interest rate swap agreements
entered to alter the payment characteristics.
NOTE 10 - INCOME TAXES: The composition of income tax expense follows:
(In Thousands) 1999 1998 1997
- ------------------------------------------------
Current:
Federal .... $ 63,034 $ 65,274 $ 42,173
State ...... 1,971 752 375
-------- -------- --------
65,005 66,026 42,548
Deferred ..... 17,935 (825) 18,501
-------- -------- --------
Total .... $ 82,940 $ 65,201 $ 61,049
======== ======== ========
The effective tax rate differs from the statutory rate applicable to
corporations as a result of permanent differences between accounting
and taxable income. None of these differences were material.
18
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of Provident's deferred tax
liabilities and assets as of December 31 are as follows:
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
Deferred Tax Liabilities:
Excess Lease and Partnership Income .... $123,799 $119,315 $115,197
Securitizations ........................ 12,908 - -
Deferred Loan Costs .................... 7,852 6,462 1,415
Other - Net ............................ 13,034 10,381 15,545
------- ------- -------
Total Deferred Tax Liabilities ....... 157,593 136,158 132,157
------- ------- -------
Deferred Tax Assets:
Provision for Loan and Lease Losses .... 41,072 32,766 28,250
Unrealized Loss on Investment Securities 26,843 4,850 -
Deferred Compensation .................. 5,600 5,141 5,255
Securitizations ........................ - 5,988 1,334
Other - Net ............................ 10,477 9,755 13,769
------- ------- -------
Total Deferred Tax Assets ............ 83,992 58,500 48,608
------- ------- -------
Net Deferred Tax Liabilities ....... $ 73,601 $ 77,658 $ 83,549
======== ======== ========
NOTE 11 - BENEFIT PLANS: Provident has a Retirement Plan for the
benefit of its employees. Included under this plan is an Employee Stock
Ownership Plan ("ESOP") and a Personal Investment Election Plan ("PIE
Plan"). Provident also maintains a Life and Health Plan for Retired
Employees ("LH Plan"), an Employee Stock Purchase Plan ("ESPP"), a
Deferred Compensation Plan ("DCP") and stock option plans.
The ESOP covers all employees who are qualified as to age and length of
service. It is a trusteed plan with the entire cost borne by Provident.
All fund assets are allocated to the participants. Provident's
contributions are discretionary by the directors of Provident.
Provident incurred expense of $9.2 million, $6.6 million and $6.4
million in 1999, 1998 and 1997, respectively.
The PIE Plan, a tax deferred retirement plan, covers all employees who
are qualified as to age and length of service. Employees who wish to
participate in the PIE Plan may contribute from 1% to 8% of their
pre-tax salaries (to a maximum prescribed by the Internal Revenue
Service) to the plan as voluntary contributions. Provident will make a
matching contribution equal to 25% of the pre-tax voluntary
contributions made by the employees during the plan year. The
contribution made by Provident is charged against earnings as the
employees' contributions are made. Provident incurred expense of $1.2
million, $1.0 million and $0.8 million for this retirement plan for
1999, 1998 and 1997, respectively.
19
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Provident's LH Plan provides medical coverage as well as life insurance
benefits to eligible retirees. The LH Plan is contributory until the
retiree reaches age 62 after which time Provident pays the entire cost,
however, Provident's responsibility for the payment of premiums is
limited to a maximum of two times the monthly premium costs as of the
effective date of the LH Plan. Monthly premiums exceeding the maximum
amount payable by Provident shall be the responsibility of the retiree.
Provident may amend or terminate the LH Plan at any time, without the
consent of the retirees.
The ESPP provides eligible employees with an opportunity to purchase
Provident's Common Stock through payroll deduction in an amount up to
10% of their compensation, at a price equal to eighty-five percent of
the fair market price on either the first or the last business day of
each calendar month, whichever is lower. Provident incurred expense of
$357,000, $266,000 and $219,000 for the ESPP for 1999, 1998 and 1997,
respectively.
The DCP permits participants, selected by the Compensation Committee of
the Board of Directors, to defer compensation in a manner that aligns
their interests with those of Provident shareholders through the
investment of deferred compensation in Provident Common Stock. The DCP
allows participants to postpone the receipt of 5% to 50% of
compensation until retirement. Amounts deferred are invested in a
Provident Bank Stock Account or a Self-Directed Account. Provident will
credit the Provident Bank Stock Account with an amount dependent upon
Provident's pre-tax earnings per share, for each share of Provident
Common Stock in the account. The calculated credit is charged against
earnings by Provident annually. Under the DCP, Provident expensed
approximately $1.2 million, $1.4 million and $2.6 million in 1999, 1998
and 1997, respectively.
Provident has three Employee Stock Option Plans, an Advisory Directors'
Stock Option Plan and an Outside Directors' Stock Option Plan. The
Employee Stock Option Plans made 8.4 million options available for
grant. These plans authorize the issuance of options to purchase Common
Stock for officers and employees. The options are to be granted, with
exercise prices at the approximate market value, as of the date of
grant. Options become exercisable beginning one year from date of grant
generally at the rate of 20% per year. The Advisory Directors' Stock
Option Plan and Outside Directors' Stock Option Plan authorized the
issuance of 427,500 and 168,750 options, respectively. The terms of
these options are comparable to the terms of the Employee Stock Option
Plans.
20
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes option activity for the three years
ended December 31, 1999:
1999 1998 1997
--------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Number of Exercise Number of Exercise Number of
Price Options Price Options Price Options
- ----------------------------------------------------------------------------------------
Outstanding at
Beginning of Year $27.52 3,747,888 $20.38 4,351,399 $14.15 4,322,617
Acquired ....... 9.16 12,616 - - - -
Granted ........ 37.78 761,285 46.81 875,509 39.00 939,232
Exercised ...... 14.46 (219,682) 13.46 (1,099,689) 8.95 (792,267)
Canceled ....... 27.37 (96,994) 30.97 (379,331) 17.31 (118,183)
--------- --------- ---------
Outstanding at
End of Year ..... $30.00 4,205,113 $27.52 3,747,888 $20.38 4,351,399
========= ========= =========
At December 31, 1999, 1998 and 1997, there were 2,159,150, 1,830,112
and 2,196,564 options exercisable, respectively, having a weighted
average option price per share of $22.04, $17.94 and $11.96,
respectively. The following table summarizes information about stock
options outstanding at December 31, 1999:
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life in Years Price Exercisable Price
- ----------------------------------------------------------------------------------
$ 7.95 - $11.19 624,886 2.5 $ 8.88 624,886 $ 8.88
$12.00 - $17.95 609,386 5.0 14.51 532,548 14.41
$21.79 - $33.63 796,791 6.6 25.60 484,521 25.30
$34.32 - $54.47 2,174,050 8.4 42.03 517,195 42.76
For purposes of providing the pro forma disclosures required under SFAS
No. 123, the fair value of stock options granted in 1999, 1998 and 1997
was estimated at the date of grant using a Black-Scholes option pricing
model. The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because Provident's stock options have
characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can materially
affect the fair value estimate, management believes that the
Black-Scholes model may not necessarily provide a reliable single
measure of the fair value of its stock options.
The following weighted-average assumptions were used in the option
pricing model for 1999, 1998 and 1997 respectively: risk-free interest
rates of 5.36%, 5.46% and 6.47%; dividend yields of 3.50%, 3.00% and
3.00%; volatility factors of the expected market price of Provident's
Common Stock of .244, .234 and .232 and an expected life of the option
of 7, 7 and 8 years. Based on these assumptions, the weighted-average
fair value of options granted in 1999, 1998 and 1997 was $9.17, $12.05
and $11.51, respectively.
21
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
No compensation cost has been recognized for stock option grants. Had
compensation cost been determined for stock option awards based on the
fair values at grant dates as discussed above, Provident's net income
and earnings per share would have been as follows:
Year Ended December 31,
------------------------------------
(In Thousands, Except Per Share Data) 1999 1998 1997
- ----------------------------------------------------------------------------
Pro-forma Net Income ........ $146,142 $119,350 $112,564
Pro-forma Earnings Per Share:
Basic ..................... 3.08 2.51 2.46
Diluted ................... 2.98 2.42 2.33
NOTE 12 - PREFERRED STOCK: In 1991, Provident issued 371,418 shares of
Non-Voting Convertible Preferred Stock to American Financial Group as
partial consideration for the acquisition of Hunter Savings
Association. During 1995, 301,146 shares of the Preferred Stock were
converted into 4,234,865 shares of Common Stock. As of December 31,
1999 and 1998, 70,272 shares of Preferred Stock remain outstanding.
These shares have a stated value and liquidation value of $100 per
share and a conversion ratio of 14.0625 shares of Provident's Common
Stock for each share of Convertible Preferred Stock.
NOTE 13 - EARNINGS PER SHARE: The following table sets forth the
computation of basic and diluted earnings per share:
Year Ended December 31,
-----------------------------------
(In Thousands Except Per Share Data) 1999 1998 1997
- ----------------------------------------------------------------------------------------
Basic:
Net Income ..................................... $ 150,949 $ 122,427 $ 114,715
Less Preferred Stock Dividends ................. (870) (790) (712)
--------- --------- ---------
Income Available to Common Shareholders ....... 150,079 121,637 114,003
Weighted-Average Common Shares Outstanding ..... 47,187 47,288 45,466
--------- --------- ---------
Basic Earnings Per Share ....................... $ 3.18 $ 2.57 $ 2.51
========= ========= =========
Diluted:
Net Income ..................................... $ 150,949 $ 122,427 $ 114,715
Weighted-Average Common Shares Outstanding ..... 47,187 47,288 45,466
Assumed Conversion of:
Convertible Preferred Stock .................. 988 988 988
Dilutive Stock Options (Treasury Stock Method) 843 1,090 1,758
--------- --------- ---------
Dilutive Potential Common Shares ............... 49,018 49,366 48,212
--------- --------- ---------
Diluted Earnings Per Share ..................... $ 3.08 $ 2.48 $ 2.38
========= ========= =========
22
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - REGULATORY CAPITAL REQUIREMENTS: Provident and its banking
subsidiaries are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on Provident's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Provident and its banking
subsidiaries must meet specific capital guidelines that involve
quantitative measures of its assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting
practices. Capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require Provident and its banking subsidiaries to maintain
minimum ratios of 4.00% for Tier 1 capital to average assets, 4.00% for
Tier 1 capital to risk-weighted assets, and 8.00% for total risk-based
capital to risk-weighted assets. As of December 31, 1999, Provident and
its banking subsidiaries meet all capital requirements to which it is
subject.
As of December 31, 1999, Provident and its banking subsidiaries'
capital ratios were categorized as well capitalized for regulatory
purposes. To be categorized as well capitalized, Provident and its
banking subsidiaries must maintain minimum ratios of 5.00% for Tier 1
capital to average assets, 6.00% for Tier 1 capital to risk-weighted
assets, and 10.00% for total risk-based capital to risk-weighted
assets. There have been no subsequent conditions or events which
management believes have changed the institutions' status.
1999 1998
--------------------- -------------------
(Dollars in Thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------
Tier 1 Capital (to Average Assets):
Provident (Consolidated) ............. $1,112,059 10.87% $ 862,312 9.13%
The Provident Bank ................... 901,962 9.40 706,607 8.06
Provident Bank of Florida ............ 46,749 9.72 18,254 6.67
Tier 1 Capital (to Risk-Weighted Assets):
Provident (Consolidated) ............. 1,112,059 9.97 862,312 9.03
The Provident Bank ................... 901,962 8.42 706,607 7.87
Provident Bank of Florida ............ 46,749 10.49 18,254 7.25
Total Risk-Based Capital
(to Risk-Weighted Assets):
Provident (Consolidated) ............. 1,330,872 11.93 1,100,813 11.53
The Provident Bank ................... 1,219,127 11.38 944,402 10.52
Provident Bank of Florida ............ 60,749 13.63 29,153 11.58
23
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - LINE OF BUSINESS REPORTING: Provident's three major business
lines, referred to as Commercial Banking, Retail Banking and Mortgage
Banking, are based on the products and services offered, and its
management structure. Commercial Banking offers a full range of
commercial lending and financial products and services to corporate
businesses. Retail Banking provides consumer lending, deposit accounts,
trust, brokerage and investment products and services to consumers and
small businesses. Mortgage Banking originates and services conforming
and nonconforming residential loans to consumers and provides
short-term financing to mortgage originators and brokers.
Financial results are determined based on an assignment of balance
sheet and income statement items to each business line. Equity
allocations are made based on various risk measurements of the business
line. A cash flow-matched funds transfer pricing process is used to
allocate interest income and expense among the business lines.
Provision for loan and lease losses are charged to business lines based
on the size and composition of its lending portfolio. Activity-based
costing is used to allocate expenses for centrally provided services.
Selected financial information is included in the following table for
Provident's three major lines of business for the past three years.
Corporate Center represents income and expenses not allocated to the
major business lines, interest and gain/loss on the sale of investment
securities, and any nonrecurring business revenues and expenses. Prior
period numbers have been restated to conform with the current business
line reporting structure and current methodology of allocating revenue
and expense between business lines.
(In Millions) 1999 1998 1997
- -----------------------------------------------------------
Total Revenue:
Commercial Banking ........... $260.4 $251.7 $215.4
Retail Banking ............... 223.3 187.2 165.8
Mortgage Banking ............. 124.7 75.6 55.1
Corporate Center ............. .9 22.0 25.7
------ ------ ------
$609.3 $536.5 $462.0
====== ====== ======
Net Income:
Commercial Banking ........... $ 79.3 $ 91.5 $ 77.3
Retail Banking ............... 34.3 18.6 17.0
Mortgage Banking ............. 39.0 14.6 15.5
Corporate Center ............. 1.0 12.0 4.9
Special Charges and Exit Costs (2.7) (14.3) -
------ ------ ------
$150.9 $122.4 $114.7
====== ====== ======
Average Assets:
Commercial Banking ........... $4,553 $3,961 $3,816
Retail Banking ............... 1,746 1,655 1,627
Mortgage Banking ............. 647 540 296
Corporate Center ............. 2,924 2,606 1,967
------ ------ ------
$9,870 $8,762 $7,706
====== ====== ======
24
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - OFF-BALANCE SHEET FINANCIAL AGREEMENTS: Provident uses
financial instruments with off-balance sheet risk to manage its
interest rate risk and to meet the financing needs of its customers.
These financial instruments include derivatives such as interest rate
swaps, interest rate caps and forward contracts along with commitments
to extend credit and standby letters of credit. These instruments may
involve credit and interest rate risk in excess of the amount
recognized in the supplemental consolidated balance sheet.
Interest Rate Swaps: Interest rate swap agreements involve the exchange
of interest payment obligations without the exchange of the underlying
principal amounts. Such interest rate swap transactions, which are a
part of Provident's asset/liability management program, are structured
to modify interest rate risk of specified assets and/or liabilities
resulting from interest rate fluctuations. Interest rate swap
agreements have a credit risk component based on the ability of a
counterparty to meet the obligations to Provident under the terms of
the interest rate swap agreement. Notional principal amounts express
the volume of the transactions, but Provident's potential exposure to
credit risk is limited only to the market value of the swap
transactions. Provident manages its credit risk in these transactions
through counterparty credit policies. At December 31, 1999, Provident
had bilateral collateral agreements in place with its counterparties,
against which Provident has pledged investment securities with a
carrying value of $139.4 million as collateral.
Summary information with respect to the interest rate swap portfolio
used to manage Provident's interest rate sensitivity follows:
December 31, 1999
------------------------------------------------------------- December
Weighted Average 31, 1998
Unrealized Unrealized ------------------------ -------- ---------
Notional Gross Gross Receive Pay Life Notional
(Dollars in Millions) Amount Gains Losses Rate Rate (Years) Amount
- -----------------------------------------------------------------------------------------------------
Pay Variable/Receive Fixed $2,612 $ .2 $(153.2) 6.05% 5.74% 11.34 $1,747
Pay Fixed/Receive Variable 1,860 16.7 - 6.36 6.19 4.40 49
------ ----- ------- ------
$4,472 $16.9 $(153.2) $1,796
====== ===== ======= ======
The expected notional maturities of Provident's interest rate swap
portfolio at December 31, 1999 are as follows:
After 1 After 5 After 10
1 Year Through 5 Through 10 Through 15 After 15
(In Millions) or Less Years Years Years Years
- -------------------------------------------------------------------------------------
Pay Variable/Receive Fixed $339 $659 $170 $624 $820
Pay Fixed/Receive Variable 839 105 916 - -
25
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Credit Commitments and Standby Letters of Credit: Since many of the
commitments to extend credit are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash requirements. Provident evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained if deemed
necessary by Provident upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property, plant,
and equipment, and income-producing commercial properties.
Standby letters of credit are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. Collateral is obtained based on
management's credit assessment of the customer.
Provident's commitments to extend credit which are not reflected in the
balance sheet at December 31 are as follows:
(In Millions) 1999 1998
- ----------------------------------------------
Commitments to Extend Credit $2,068 $2,093
Standby Letters of Credit .. 131 128
NOTE 17 - TRANSACTIONS WITH AFFILIATES: At December 31, 1999, Carl H.
Lindner, members of his immediate family and trusts for their benefit,
owned 47% of American Financial Group's Common Stock. This group, along
with Carl H. Lindner's siblings and their families and entities
controlled by them, or established for their benefit, owned 53% of
Provident's Common Stock. Provident leases its home office space and
other office space from a trust, for the benefit of a subsidiary of
American Financial Group. Rentals charged by American Financial Group
and affiliates for the years ended December 31, 1999, 1998 and 1997
amounted to $2.5 million, $2.3 million and $2.0 million, respectively.
Provident also leased one of its branch locations and approximately 200
ATM locations from principal shareholders and their affiliates. Rentals
of $969,000, $302,000 and $217,000 were charged by principal
shareholders and their affiliates during 1999, 1998 and 1997,
respectively, for ATM and branch locations.
During 1998, a partner of Keating, Muething & Klekamp ("KMK") became
the trustee of a trust for the benefit of the family of Mr. Lindner.
This trust held approximately 5% of Provident's Common Stock. During
1999 and 1998, legal services paid by and on behalf of Provident to KMK
were $2.9 million and $3.2 million, respectively.
Provident has had certain transactions with various executive officers,
directors and principal holders of equity securities of Provident and
its subsidiaries and entities in which these individuals are principal
owners. Various loans and leases have been made as well as the sale of
commercial paper and repurchase agreements to these persons. Such loans
and leases to these persons aggregated approximately $61.0 million and
$47.8 million at December 31, 1999 and 1998, respectively. During 1999,
new loans and leases aggregating $17.6 million were made to such
26
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
parties and loans and leases aggregating $4.4 million were repaid. All
of the loans and leases were made at market interest rates and, in the
opinion of management, all amounts are fully collectible. At December
31, 1999 and 1998, these persons held Provident's commercial paper
amounting to $20.0 million and $19.4 million, respectively.
Additionally, repurchase agreements in the amount of $4.8 million and
$37.8 million had been sold to these persons at December 31, 1999 and
1998, respectively. All of these transactions were at market interest
rates.
NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS: Carrying values and
estimated fair values for certain financial instruments as of December
31 are shown in the following table. In cases where quoted market
prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Because no secondary market
exists for many of Provident's assets and liabilities, the derived fair
values are calculated estimates, and the fair values provided herein do
not necessarily represent the actual values which may be realized in
the disposition of these instruments. The aggregate fair value amounts
presented do not represent the underlying value of Provident. What is
presented below is a point-in-time valuation that is affected, in part,
by unrealized gains and losses resulting from management's
implementation of its program to manage overall interest rate risk. It
is not management's intention to immediately dispose of a significant
portion of its financial instruments. As a result, the following fair
value information should not be interpreted as a forecast of future
earnings and cash flows.
1999 1998
-------------------------- --------------------------
Carrying Fair Carrying Fair
(In Thousands) Value Value Value Value
- ----------------------------------------------------------------------------------------------
Financial Assets:
Cash and Cash Equivalents ....... $ 376,143 $ 376,143 $ 354,970 $ 354,970
Trading Account Securities ...... - - 50,333 50,333
Investment Securities ........... 2,111,037 2,111,037 1,598,083 1,598,083
Loans (Excluding Lease Financing) 6,257,477 6,165,636 5,635,432 5,700,045
Less: Reserve for Loan Losses ... (86,823) - (72,405) -
----------- ----------- ----------- -----------
Net Loans ..................... 6,170,654 6,165,636 5,563,027 5,700,045
Financial Liabilities:
Deposits ........................ 7,229,988 7,052,155 5,956,479 6,073,584
Short-Term Debt ................. 977,835 977,835 807,503 807,503
Long-Term Debt (Excluding Lease
Financing Debt) and Junior
Subordinated Debentures ....... 992,305 964,017 905,340 898,077
Off-Balance Sheet
Financial Instruments:
Interest Rate Swaps ............. - (136,320) - 16,126
27
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The following methods and assumptions were used by Provident in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
balance sheet for cash and short-term instruments approximate those
assets' fair values.
Trading account securities and investment securities: Fair values
for trading account securities and investment securities are based
on quoted market prices, where available. If quoted market prices
are not available, fair values are based on quoted market prices of
comparable instruments. Retained interest in securitized assets is
valued using discounted cash flow techniques. Significant
assumptions used in the valuation are presented in Note 3.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for certain residential mortgage loans and
other consumer loans are based on quoted market prices of similar
loans sold in conjunction with securitization transactions, adjusted
for differences in loan characteristics. The fair values for other
loans are estimated using discounted cash flow analyses and interest
rates currently being offered for loans with similar terms to
borrowers of similar credit quality.
Deposits: The fair values disclosed for demand deposits are equal to
their carrying amounts. The carrying amounts for variable-rate,
fixed-term money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
Short-term debt: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term
borrowings approximate their fair values.
Long-term debt and junior subordinated debentures: The fair values
of long-term borrowings that are traded in the markets are equal to
their quoted market prices. The fair values of other long-term
borrowings (other than deposits) are estimated using discounted cash
flow analyses, based on Provident's current incremental borrowing
rates for similar types of borrowing arrangements.
Off-balance sheet financial instruments: Fair value for interest
rate swaps is based upon current market quotes.
28
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - ADDITIONAL INFORMATION:
LEGAL CONTINGENCIES: Provident is subject to litigation in the ordinary
course of business. Management does not expect such litigation will
have a material adverse effect on Provident's financial position.
RESTRICTIONS ON CASH AND NONINTEREST BEARING DEPOSITS: Federal Reserve
Board regulations require that The Provident Bank and Provident Bank of
Florida maintain certain minimum reserve balances. The average amount
of those reserve balances for the year ended December 31, 1999, was
approximately $63.6 million.
OTHER REAL ESTATE OWNED: At December 31, 1999 and 1998, the carrying
value of other real estate and equipment owned was $3.9 million and
$2.8 million, respectively.
RESTRICTED ASSETS: Provident formed the subsidiaries listed below to
account for and support the process of transferring, securitizing
and/or selling of vehicle and equipment leases. These subsidiaries are
separate legal entities and each maintains books and records with
respect to its assets and liabilities. The assets of these
subsidiaries, which are included in the supplemental consolidated
financial statements, are not available to secure financing or
otherwise satisfy claims of creditors of Provident or any of its other
subsidiaries.
The subsidiaries and their total assets as of December 31, 1999 and
1998 follow:
December 31,
-------------------
Subsidiary 1999 1998
- -----------------------------------------------------------------
Provident Auto Leasing Company ............ $447,388 $469,114
Provident Auto Rental Corp. 1998-1 ........ 30,851 46,424
Provident Auto Rental Corp. 1998-2 ........ 27,745 -
Provident Auto Rental LLC 1999-1 .......... 180,485 -
Provident Auto Rental Company, LLC 1999-PRU 89,207 -
Provident Lease Receivables Corporation ... 74,768 26,957
The above amounts include items which are eliminated in the
Supplemental Consolidated Financial Statements.
RESTRICTIONS ON TRANSFER OF FUNDS FROM SUBSIDIARIES TO PARENT: The
transfer of funds by the banking subsidiaries to the parent as
dividends, loans or advances is subject to various laws and regulations
that limit the amount of such transfers that can be made without
regulatory approval. The maximum amount available for dividend
distribution that may be paid in 2000 by The Provident Bank and
Provident Bank of Florida to its parent without approval is
approximately $167.5 million, plus 2000 net income. Pursuant to Federal
Reserve and State regulations, the maximum amount available to be
loaned to affiliates (as defined), including their Parent, by the
banking subsidiaries, was approximately $128.0 million to any single
affiliate, and $256.0 million to all affiliates combined of which $28.5
million was loaned at December 31, 1999.
29
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL INFORMATION: Parent Company only condensed
financial information for Provident Financial Group, Inc. is as
follows:
SUPPLEMENTAL BALANCE SHEETS (PARENT ONLY)
December 31,
-----------------------
(In Thousands) 1999 1998
- -------------------------------------------------------------------------
ASSETS
Cash and Cash Equivalents ................... $ 153,530 $ 193,470
Investment Securities Available for Sale .... 186,147 148,545
Investment in Subsidiaries:
Banking ................................... 984,690 765,759
Non-Banking ............................... 7,755 3,710
Premises and Equipment ...................... 1,437 1,468
Accounts Receivable from Banking Subsidiaries 28,448 45,616
Other Assets ................................ 36,694 31,093
---------- ----------
$1,398,701 $1,189,661
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts Payable and Accrued Expenses ..... $ 41,908 $ 37,627
Commercial Paper .......................... 201,784 245,291
Long-Term Debt ............................ 1,759 2,617
Junior Subordinated Debentures ............ 227,028 101,972
---------- ----------
Total Liabilities ....................... 472,479 387,507
Shareholders' Equity .......................... 926,222 802,154
---------- ----------
$1,398,701 $1,189,661
========== ==========
SUPPLEMENTAL STATEMENTS OF INCOME (PARENT ONLY)
Year Ended December 31,
---------------------------------
(In Thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------
Income:
Dividends from Banking Subsidiaries ............ $ 60,000 $ 51,000 $ -
Interest Income from Banking Subsidiaries ...... 8,869 4,899 5,605
Other Interest Income .......................... 5,504 10,097 7,364
Noninterest Income ............................. 1,976 1,748 4,157
--------- --------- ---------
76,349 67,744 17,126
Expenses:
Interest Expense ............................... 24,934 22,088 18,219
Noninterest Expense ............................ 3,030 4,684 4,542
--------- --------- ---------
27,964 26,772 22,761
--------- --------- ---------
Income Before Taxes and Equity in Undistributed
Net Income of Subsidiaries ..................... 48,385 40,972 (5,635)
Applicable Income Tax Credits .................... 4,439 4,157 2,494
--------- --------- ---------
Income Before Equity in Undistributed Net Income
of Subsidiaries ................................ 52,824 45,129 (3,141)
Equity in Undistributed Net Income of Subsidiaries 98,125 77,298 117,856
--------- --------- ---------
Net Income ....................................... $ 150,949 $ 122,427 $ 114,715
========= ========= =========
30
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL STATEMENTS OF CASH FLOWS (PARENT ONLY)
Year Ended December 31,
-----------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------
Operating Activities:
Net Income ..................................... $ 150,949 $ 122,427 $ 114,715
Adjustment to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Net Income from Subsidiaries ................. (158,125) (128,298) (117,856)
Cash Dividends Received From Subsidiaries .... 60,000 51,000 -
Amortization of Goodwill and Other ........... 799 690 396
Depreciation of Premises and Equipment ....... 31 36 54
Realized Investment Security (Gains) Losses .. (63) 29 (1,068)
Proceeds From Sale of Loans Held for Sale .... - 1,831 41,123
Origination of Loans Held for Sale ........... - - (41,943)
Realized (Gains) Losses on Loans Held for Sale - 2 (58)
Increase in Interest Receivable .............. (1,913) (48) (396)
(Increase) Decrease in Other Assets .......... 18,321 (26,305) (10,365)
Decrease in Interest Payable ................. (129) (27) (1)
Increase in Other Liabilities ................ 4,410 26,823 7,767
--------- --------- ---------
Net Cash Provided by (Used In) Operating
Activities ................................. 74,280 48,160 (7,632)
--------- --------- ---------
Investing Activities:
Investment Securities Available for Sale:
Proceeds from Sales ........................... 115,829 10,202 11,571
Proceeds from Maturities and Prepayments ...... 17,996 43,252 20,329
Purchases ..................................... (171,683) (34,603) (187,386)
Net Decrease in Premises and Equipment ......... - - 9
--------- --------- ---------
Net Cash Provided by (Used In) Investing
Activities ................................... (37,858) 18,851 (155,477)
--------- --------- ---------
Financing Activities:
Net Increase (Decrease) in Short-Term Debt ..... (43,507) 43,273 62,353
Principal Payments on Long-Term Debt ........... (914) (788) (545)
Proceeds from Issuance of Long-Term Debt and
Junior Subordinated Debentures ................ 124,984 1,492 -
Cash Dividends Paid ............................ (40,970) (37,869) (38,139)
Purchase of Treasury Stock ..................... (8,645) (21,425) -
Proceeds from Exercise of Stock Options ........ 4,687 25,991 16,151
Contribution to Subsidiaries ................... (112,478) - -
Net Increase (Decrease) in Other Equity Items .. 481 - (395)
--------- --------- ---------
Net Cash Provided by (Used In) Financing
Activities ................................... (76,362) 10,674 39,425
--------- --------- ---------
Increase (Decrease) in Cash and
Cash Equivalents ............................... (39,940) 77,685 (123,684)
Cash and Cash Equivalents at Beginning of Year .. 193,470 115,785 239,469
--------- --------- ---------
Cash and Cash Equivalents at End of Year ....... $ 153,530 $ 193,470 $ 115,785
========= ========= =========
31
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTARY DATA
Quarterly Supplemental Consolidated Results of Operations - (Unaudited)
The following are quarterly supplemental consolidated results of
operations for the two years ended December 31, 1999.
Fourth Third Second First
(In Thousands Except Per Share Data) Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------
1999:
Total Interest Income .............. $ 196,860 $ 184,887 $ 177,064 $ 171,904
Total Interest Expense ............. (109,163) (100,065) (92,130) (92,725)
--------- --------- --------- ---------
Net Interest Income ............... 87,697 84,822 84,934 79,179
Provision for Loan and Lease Losses (10,807) (16,485) (8,150) (12,975)
--------- --------- --------- ---------
Net Interest Income After Provision
for Loan and Lease Losses ........ 76,890 68,337 76,784 66,204
Noninterest Income ................. 72,047 76,214 59,345 65,058
Noninterest Expense ................ (84,520) (83,978) (78,133) (80,359)
--------- --------- --------- ---------
Income Before Income Taxes ........ 64,417 60,573 57,996 50,903
Applicable Income Taxes ............ (22,803) (21,337) (20,432) (18,368)
--------- --------- --------- ---------
Net Income ........................ $ 41,614 $ 39,236 $ 37,564 $ 32,535
========= ========= ========= =========
Net Earnings Per Common Share:
Basic ............................. $ .87 $ .83 $ .79 $ .69
Diluted ........................... .84 .80 .77 .67
Cash Dividends .................... .22 .22 .22 .22
1998:
Total Interest Income .............. $ 180,225 $ 180,790 $ 170,492 $ 162,444
Total Interest Expense ............. (97,483) (100,270) (95,495) (89,654)
--------- --------- --------- ---------
Net Interest Income ............... 82,742 80,520 74,997 72,790
Provision for Loan and Lease Losses (11,775) (9,575) (5,152) (5,095)
--------- --------- --------- ---------
Net Interest Income After Provision
for Loan and Lease Losses ........ 70,967 70,945 69,845 67,695
Noninterest Income ................. 60,334 57,374 57,372 50,412
Noninterest Expense ................ (99,588) (74,771) (74,534) (68,423)
--------- --------- --------- ---------
Income Before Income Taxes ........ 31,713 53,548 52,683 49,684
Applicable Income Taxes ............ (10,954) (18,707) (18,403) (17,137)
--------- --------- --------- ---------
Net Income ........................ $ 20,759 $ 34,841 $ 34,280 $ 32,547
========= ========= ========= =========
Net Earnings Per Common Share:
Basic ............................. $ .43 $ .73 $ .72 $ .69
Diluted ........................... .42 .70 .69 .66
Cash Dividends .................... .20 .20 .20 .20
Quarterly earnings per share numbers do not add to the year-to-date
amounts due to rounding.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Provident Financial Group, Inc.
Date: October 30, 2000 /s/ Christopher J. Carey
Christopher J. Carey
Executive Vice President and
