SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File
September 30, 1995 No. 1-8019
P R O V I D E N T B A N C O R P , I N C .
Incorporated under IRS Employer I.D.
the Laws of Ohio No. 31-0982792
One East Fourth Street, Cincinnati, Ohio 45202
Phone: 513-579-2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common
stock, without par value, at October 31, 1995 is 15,646,338.
Please address all correspondence to:
John R. Farrenkopf
Vice President and Chief Financial Officer
Provident Bancorp, Inc.
One East Fourth Street
Cincinnati, Ohio 45202
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, December 31,
1995 1994
ASSETS (Unaudited)
Cash and Noninterest Bearing Deposits $175,801 $172,025
Federal Funds Sold and Reverse Repurchase Agreements 108,150 252,550
Investment Securities:
Held to Maturity (market value - $255,178 and $31,699) 255,286 31,699
Available for Sale (amortized cost - $622,210 and $679,310) 618,664 654,221
Loans (Net of Unearned Income):
Commercial Lending:
Commercial and Financial 2,155,592 1,878,351
Commercial Mortgage 436,704 420,222
Commercial Construction 218,294 172,190
Equipment Lease Financing 107,348 109,743
Consumer Lending:
Instalment 965,827 930,545
Residential 482,362 507,734
Lease Financing 280,239 185,753
Total Loans 4,646,366 4,204,538
Reserve for Possible Loan Losses (55,830) (51,979)
Net Loans 4,590,536 4,152,559
Premises and Equipment 86,731 64,210
Other Assets 120,089 84,227
$5,955,257 $5,411,491
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest Bearing $479,322 $452,458
Interest Bearing 3,572,142 3,616,191
Total Deposits 4,051,464 4,068,649
Short-Term Debt 862,115 521,707
Long-Term Debt 508,035 383,433
Accrued Interest and Other Liabilities 121,208 78,351
Total Liabilities 5,542,822 5,052,140
Shareholders' Equity:
Preferred Stock, 5,000,000 Shares Authorized,
Series B, 371,418 Issued - 37,000
Series C, 371,418 Issued 37,000 -
Common Stock, No Par Value, $.67 Stated Value, 60,000,000
Shares Authorized, 15,654,649 and 15,639,849 Issued 10,437 10,427
Capital Surplus 108,196 107,264
Retained Earnings 251,198 210,355
Reserve for Retirement of Capital Securities 8,500 10,667
Treasury Stock, 18,283 and 4,487 Shares (590) (134)
Unrealized Losses on Marketable Securities
(net of deferred income tax) (2,306) (16,228)
Total Shareholders' Equity 412,435 359,351
$5,955,257 $5,411,491
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Interest Income:
Interest and Fees on Loans:
Taxable $103,998 $80,491 $300,922 $220,244
Exempt From Federal Income Taxes 121 137 388 442
104,119 80,628 301,310 220,686
Interest on Investment Securities:
Taxable 13,701 7,846 35,677 24,825
Exempt From Federal Income Taxes 98 42 293 46
13,799 7,888 35,970 24,871
Interest on Federal Funds Sold and
Reverse Repurchase Agreements 140 421 886 888
Total Interest Income 118,058 88,937 338,166 246,445
Interest Expense:
Interest on Deposits:
Savings and Demand Deposits 5,984 6,439 20,051 18,801
Time Deposits 41,806 26,418 123,994 65,818
Total Interest on Deposits 47,790 32,857 144,045 84,619
Interest on Short-Term Debt 10,783 4,191 26,279 12,014
Interest on Long-Term Debt 7,859 5,336 21,036 14,775
Total Interest Expense 66,432 42,384 191,360 111,408
Net Interest Income 51,626 46,553 146,806 135,037
Provision for Possible Loan Losses 4,000 3,000 9,000 9,000
Net Interest Income After Provision
for Possible Loan Losses 47,626 43,553 137,806 126,037
Other Income:
Service Charges on Deposit Accounts 4,537 3,811 12,219 11,115
Other Service Charges and Fees 4,525 4,171 15,410 11,282
Gain on Sales of Loans 1,426 506 3,858 1,197
Security Gains (Losses) (92) - (92) -
Other 8,329 797 10,971 3,286
Total Other Income 18,725 9,285 42,366 26,880
Other Expense:
Compensation:
Salaries 16,153 13,136 43,041 37,436
Benefits 2,127 1,870 6,865 6,400
Profit Sharing 1,068 850 2,738 2,379
Occupancy 2,334 1,857 6,679 5,735
Equipment Expense 2,296 1,948 6,897 5,772
Deposit Insurance 726 1,894 5,080 5,427
Professional Fees 2,714 1,528 5,651 4,130
Other 8,933 7,212 25,605 20,597
Total Other Expense 36,351 30,295 102,556 87,876
Earnings Before Income Taxes 30,000 22,543 77,616 65,041
Applicable Income Taxes 8,990 7,818 25,131 22,287
Net Earnings $21,010 $14,725 $52,485 $42,754
Net Earnings Per Common Share:
Primary $1.26 $.87 $3.15 $2.52
Fully Diluted 1.13 .80 2.85 2.32
Average Primary Shares 16,162 16,120 16,066 16,074
Average Fully Diluted Shares 18,553 18,458 18,419 18,410
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Nine Months Ended September 30,
1995 1994
Operating Activities:
Net Earnings $52,485 $42,754
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Provision for Possible Loan Losses 9,000 9,000
Provision for Depreciation and Amortization 9,018 6,669
Amortization of Investment Security Premiums (Discounts) (606) 602
Amortization of Unearned Income (16,442) (7,583)
Net Decrease in Trading Securities 125 181
Proceeds from Sale of Loans Held for Sale 85,245 66,850
Origination of Loans Held for Sale (83,528) (4,946)
Realized Gains on Loans Held for Sale (964) (709)
Realized Gains on Sale of Loans (2,894) (488)
Realized Investment Security Losses 92 -
Increase in Interest Receivable (3,690) (6,533)
Increase in Accounts Receivable and Other Assets (29,527) (15,439)
Increase in Interest Payable 15,400 13,018
Increase in Accounts Payable and Other Liabilities 3,823 1,993
Other 15,492 4,151
Net Cash Provided By Operating Activities 53,029 109,520
Investing Activities:
Investment Securities Available for Sale:
Proceeds from Sales 18,654 -
Proceeds from Maturities and Prepayments 142,706 158,427
Purchases (103,825) (149,162)
Investment Securities Held to Maturity:
Proceeds from Sales 416 -
Proceeds from Maturities and Prepayments 20,744 1,615
Purchases (244,755) (13,400)
Net Increase in Loans and Leases (435,102) (635,163)
Proceeds from Sale of Other Real Estate 2,208 3,944
Purchases of Premises and Equipment (29,290) (7,703)
Proceeds from Sales of Premises and Equipment 2,305 2,785
Net Cash Used In Investing Activities (625,939) (638,657)
Financing Activities:
Net Decrease in Demand and Savings Deposits (90,609) (136,098)
Net Increase in Certificates of Deposit 73,424 515,026
Net Increase (Decrease) in Short-Term Debt 340,408 (61,434)
Principal Payments on Long-Term Debt (25,466) (108,466)
Proceeds From Issuance of Long-Term Debt 150,000 211,413
Cash Dividends Paid (13,867) (13,006)
Proceeds from Sale of Common and Treasury Stock 4,505 733
Repurchase of Common Stock (6,109) -
Net Cash Provided By Financing Activities 432,286 408,168
Decrease in Cash and Cash Equivalents (140,624) (120,969)
Cash and Cash Equivalents at Beginning of Period 424,575 539,394
Cash and Cash Equivalents at End of Period $283,951 $418,425
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $175,960 $98,390
Income Taxes 9,000 22,700
Non-Cash Activity:
Additions to Other Real Estate in Settlement of Loans 539 1,592
Transfer of Premises and Equipment to Other Real Estate - 101
Treasury Stock Reissued to Acquire Business 1,750 -
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary for fair presentation. The
results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.
The financial statements presented herein should be read in
conjunction with the financial statements and notes thereto included
in Provident Bancorp, Inc.'s 1994 annual report on Form 10-K filed
with the Securities and Exchange Commission.
Basis of Presentation
The consolidated financial statements include the accounts of
Provident Bancorp, Inc. and its subsidiaries ("Bancorp"), all of which
are wholly owned. All significant intercompany balances and
transactions have been eliminated. Certain reclassifications have been
made to conform to the current year presentation.
The accompanying financial statements have been prepared in accordance
with the instructions to Form 10-Q and therefore do not include all
information and footnotes necessary to be in conformity with generally
accepted accounting principles.
Bancorp adopted Financial Accounting Standards Board("FASB") Statement
No. 114, "Accounting by Creditors for Impairment of a Loan", on
January 1, 1995. Generally, interest income on impaired loans is
computed on the outstanding principal balance. Impaired loans are
generally placed on nonaccrual status when the payment of principal
and/or interest is past due 90 days or more. FASB Statement No. 114 is
not applicable to Bancorp's instalment loans, residential loans,
leases and debt securities. The adoption of FASB Statement No. 114 had
no material impact on Bancorp's financial condition or results of
operations.
Preferred Stock
In the third quarter of 1995, Bancorp exchanged all of the shares of
its Series B Convertible Preferred Stock ("B Preferred") for an
identical number of shares of its Series C Convertible Preferred Stock
("C Preferred"). The terms of the C Preferred are substantially
identical to the B Preferred except that the terms of the C Preferred
permit American Financial Corporation ("American Financial"), its
subsidiaries or affiliates to convert the C Preferred into Bancorp
common stock so long as American Financial, its subsidiaries or
affiliates do not, in the aggregate, beneficially own in excess of
9.9% of Bancorp's voting equity securities.
Stock Options
Pursuant to Bancorp's 1988 Stock Option Plan and 1992 Outside
Director's Stock Option Plan, options to purchase 250,500 shares of
Bancorp common stock were granted during the first nine months of
1995. The options have exercise prices ranging from $29.69 to $40.00.
Off-Balance Sheet Financial Agreements
In the normal course of business, Bancorp uses various financial
instruments with off-balance sheet risk to manage its interest rate
risk and to meet the financing needs of its customers. At September
30, 1995, these off-balance sheet instruments consisted of standby
letters of credit of $93 million, commitments to extend credit of $1.5
billion and interest rate swaps with a notional amount of $1.3
billion.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Summary
Bancorp's net earnings for the third quarter of 1995 were $21.0
million compared to $14.7 million for the third quarter of 1994. Net
interest income increased by $5.1 million, or 11%, over the comparable
period in 1994. Interest income increased by $29.1 million, or 33%,
which more than offset the $24.0 million, or 57%, increase in interest
expense. Other income increased $9.4 million, or 102%, due primarily
to an additional $7.0 million of income from the sale of all of the
deposits and branches of Heritage Savings Bank ("Heritage"). Other
expense increased $6.1 million, or 20%, due primarily to increases in
compensation expense of $3.5 million and professional fees of $1.2
million, of which $800,000 and $700,000, respectively, are a result of
the Heritage transaction.
Net earnings for the first nine months of 1995 were $52.5 million
compared to $42.8 million for the first nine months of 1994. Net
interest income increased by $11.8 million, or 9%, over the comparable
period in 1994. Interest income increased by $91.7 million, or 37%,
which more than offset the $80.0 million, or 72%, increase in interest
expense. Other income increased $15.5 million, or 58%, primarily due
to increases in gains from the sales of loans, mortgage loan servicing
rights and Heritage's deposits and branches. Other expense increased
$14.7 million, or 17%, primarily due to the same reasons stated for
the quarter to quarter comparison.
The following ratios compare returns on average assets and average
equity for the first nine months of 1995 and for the year 1994.
Nine Months Ended Year Ended
September 30, 1995 December 31, 1994
Net Earnings to Average Assets(1) 1.28% 1.24%
Net Earnings to Average Shareholders' Equity(1) 18.35% 16.64%
<FN>
(1)Net earnings for the nine months ended September 30, 1995 have been annualized.
The ratio of operating expense to tax equivalent revenue ("efficiency
ratio") was 56.8% for the first nine months of 1995 compared to 54.2%
for the first nine months of 1994. Tax equivalent revenue includes tax
equivalent net interest income and other income but excludes non-
recurring gains and security gains or losses. The increase in the
efficiency ratio was due primarily to increased operating expense
which grew at a proportionately greater rate than tax equivalent net
interest income.
Asset quality remained strong during the third quarter of 1995. The
ratio of nonperforming loans to total loans was .43% at September 30,
1995, compared to .17% at December 31, 1994 and .18% at September 30,
1994. The ratio of nonperforming assets to total loans and other real
estate owned was .47% at September 30, 1995, compared to .25% at
December 31, 1994 and .33% at September 30, 1994.
Net Interest Income
See Table 1 for net interest income on a tax equivalent basis and
Table 2 for consolidated average balances, rates earned/paid and net
interest margin.
Net interest income on a tax equivalent basis increased approximately
$11.9 million for the first nine months of 1995 over the comparable
period in 1994. This increase resulted from an $18.4 million increase
due to changes in volume more than offsetting the $6.5 million
decrease which was caused by changes in rates. Volume changes are
caused by changes in the average balances of interest earning assets
and interest bearing liabilities. The net interest margin was 3.82%
for the first nine months of 1995 as compared to 4.24% for the
comparable period in 1994. The decrease in the net interest margin
during this period reflects the increase in the average rate paid on
interest bearing liabilities, which increased 160 basis points, more
than offsetting the increase of 106 basis points in the average rate
earned on interest earning assets. An increase in time deposits
combined with an increase in the rate paid on time deposits was the
primary reason for the increase in Bancorp's overall cost of interest
bearing liabilities. An increase in the amount of commercial and
financial loans combined with their repricing were the primary reasons
for the increase in the average rate earned on interest earning
assets. Although interest rates have been relatively level for the
last six months, the rates increased from January 1994 to March 1995.
During the time of rising interest rates, interest bearing liabilities
reacted more quickly than interest earning assets, causing the net
interest margin to decrease. The increase in interest rates that began
in 1994 was the primary reason that interest rate swaps decreased the
net interest margin by 15 basis points during the first nine months of
1995. During the first nine months of 1994, interest rate swaps
increased the net interest margin by 22 basis points.
In preparing the net interest margin tables, nonaccrual loan balances
are included in the average balances for loans. Loan fees are included
in loan revenue as follows: third quarter 1995 - $4.3 million, third
quarter 1994 - $3.9 million, year-to-date 1995 - $13.0 million and
year-to-date 1994 - $11.3 million.
Provision for Possible Loan Losses
During the third quarter of 1995 and 1994, the provision for possible
loan losses was $4 million and $3 million, respectively. The increase
was made to cover an increase in total loans of $251.6 million as of
September 30, 1995 as compared to June 30, 1995. The provision for
possible loan losses was $9 million for the first nine months of 1995
and 1994.
Other Income
Third Quarter 1995 Compared to Third Quarter 1994
Other income increased $9.4 million during the third quarter of 1995.
Service charges on deposit accounts increased due to additional fees
received on corporate deposit accounts and increased fee rates on
nonsufficient funds. Gain on sales of loans increased due to sales of
residential loans and an equipment lease. A gain from the sale of
Heritage's deposits and branches was the primary reason for the
increase in other.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 30, 1994
Other income increased $15.5 million during the first nine months of
1995 when compared to 1994. Other service charges and fees increased
primarily due to a gain from the sale of mortgage loan servicing
rights. The sale of equipment leases was the principal reason for the
increase in gain on sale of loans. Other increased chiefly due to a
gain from the sale of Heritage's deposits and branches.
Other Expense
Third Quarter 1995 Compared to Third Quarter 1994
Other expense increased $6.1 million during the third quarter of 1995
when compared to 1994 reflecting higher expenses associated with
expansion of telemarketing, customer service, lending, and electronic
banking services. Compensation increased as a result of incentive
compensation accruals, expenses related to the sale of Heritage's
branches, and displacement accruals associated with the discontinuance
of mortgage loan servicing. Occupancy expense increased primarily due
to an increase in the amount of office and branch space rented. The
increase in equipment expense was primarily due to increased
depreciation expense relating to the bank's data processing
operations. The decrease in deposit insurance expense reflected a
refund received from the FDIC. Increased professional fees resulted
from the Heritage transaction. Increases in property tax and marketing
expense were the primary reasons for the increase in other.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 30, 1994
Other expense increased $14.7 million during the first nine months of
1995 when compared to 1994. Compensation increased as a result of
merit and promotion increases as well as the reasons given in the
quarterly comparison. Occupancy, equipment expense and professional
fees increased primarily for the same reasons given in the quarterly
comparison. Increases in marketing, postage, and stationery and
supplies expense were the primary reasons for the increase in other.
Financial Condition
Investment Securities and Short-Term Investments
Federal funds sold and reverse repurchase agreements decreased $144.4
million, or 57%, during 1995 as funds were shifted to asset categories
with higher yields. Investment securities increased $188.0 million, or
27%, during 1995 as more funds were invested in investment securities
due to slower loan growth during the first nine months of 1995. During
the third quarter of 1995, Federal Home Loan Bank stock, classified as
held to maturity, was sold. Bancorp was no longer required to hold the
stock due to the sale of Heritage's deposits. The stock was sold at
its cost basis of $416,000 resulting in no gain or loss.
Loans
Total loans increased $441.8 million, or 11%, during 1995. This growth
was primarily due to growth in commercial and financial loans of
$277.2 million. Consumer lease financing also increased by $94.5
million during 1995 as automobile leasing continues to grow.
The following table shows the composition of the commercial and
financial loan category by industry type at September 30, 1995
(dollars in millions):
Amount on
Type Amount % Nonaccrual
Construction $97.8 5 $.7
Manufacturing 460.4 21 2.6
Transportation/Utilities 138.9 6 5.7
Wholesale Trade 215.0 10 .8
Retail Trade 253.9 12 .1
Finance & Insurance 110.9 5 .1
Real Estate Operators/Investment 286.0 13 .8
Service Industries 274.6 13 .5
Automobile Dealers 78.6 4 -
Other(1) 239.5 11 .9
Total $2,155.6 100 $12.2
<FN>
(1) Includes various kinds of loans, such as small business loans and loans with
balances under $100,000.
The composition of the commercial mortgage and construction loan
categories by property type at September 30, 1995 is shown in the
following table (dollars in millions):
Amount on
Type Amount % Nonaccrual
Apartments $94.2 14 $-
Office/Warehouse 140.7 21 .6
Residential Development 96.3 15 .1
Shopping/Retail 154.8 24 -
Land 28.8 4 -
Industrial Plants 17.4 3 -
Hotel/Motel 25.0 4 -
Health Facilities 5.2 1 -
Auto Sales and Service 21.6 3 -
Churches 12.6 2 -
Mobile Home Parks 10.9 2 -
Other Commercial Properties 47.5 7 .9
Total $655.0 100 $1.6
At September 30, 1995, approximately $122.8 million, or 2.6%, of
Bancorp's total loan portfolio was classified as highly leveraged
loans. This is an increase of $5.0 million since December 31, 1994. In
general, Bancorp does not originate highly leveraged loans but
participates in loans originated by larger banks. All of the highly
leveraged loans are current at this time except for one loan with a
balance of $2 million that is on nonaccrual status. Placing this loan
on nonaccrual reduced interest income in the first nine months of 1995
by approximately $241,000. These loans were considered by management
in the determination of the adequacy of the reserve for possible loan
losses. Bancorp also has commitments to lend up to an additional $54.4
million at market rates under this type of transaction to present
borrowers.
Bancorp maintains a reserve for possible loan losses to absorb
potential losses in its loan portfolio. Management's determination of
the adequacy of the reserve is based on reviews of specific loans,
loan loss experience, general economic conditions and other pertinent
factors. Loans deemed uncollectible are charged off and deducted from
the reserve and recoveries on loans previously charged off are added
to the reserve. Management considers the present reserve to be
appropriate and adequate to cover potential losses inherent in the
loan portfolio based on the current economic environment. However,
future economic changes cannot be predicted. Deterioration in general
economic conditions could result in an increase in the risk
characteristics of the loan portfolio and an increase in the provision
for possible loan losses.
The following table shows the progression of the reserve for possible
loan losses (dollars in thousands):
1995 1994
Balance at January 1 $51,979 $40,542
Provision for Possible Loan Losses 9,000 9,000
Loans Charged Off (11,054) (7,954)
Recoveries 5,905 3,524
Balance at September 30 $55,830 $45,112
The primary reason for the increase in recoveries in 1995 was the
partial recovery of a commercial loan charge-off that occurred in
1991. As a percentage of total loans outstanding, the reserve was
1.20% at September 30, 1995, 1.24% at December 31, 1994 and 1.14% at
September 30, 1994.
Table 3 shows a comparison of the major components of nonperforming
assets over the past five quarters along with various asset quality
ratios. Nonperforming assets have increased $11.3 million during 1995.
Nonaccrual loans have increased approximately $8.9 million during the
first nine months of 1995, primarily due to two commercial and
financial loans being put on nonaccrual status during the first
quarter. The increase in renegotiated loans was due to one loan being
restructured during the second quarter of 1995. The decrease in other
real estate owned was due primarily to the sale of commercial
properties. Nonperforming assets as a percentage of loans and total
assets at September 30, 1995 are at a level that is more consistent
with historical averages.
Deposits
Although total deposits as of September 30, 1995 decreased $17.2
million, or 0.4% when compared to December 31, 1994, the average total
deposit balance for the first nine months of 1995 increased $579.3
million, or 17%, over the average total deposit balance for year 1994.
The increase in the average balance is primarily due to an increase in
brokered deposits.
Short-Term Debt
During the first nine months, of 1995, short-term debt increased
$340.4 million, or 65%, primarily due to the $338.0 million increase
in federal funds purchased and repurchase agreements. These borrowings
were used to fund loan growth and investment security purchases.
Long-Term Debt
Long-term debt increased $124.6 million, or 32%, during the first nine
months of 1995. The increase is attributable to two additional
advances totaling $150 million from the Federal Home Loan Bank. The
advances have a variable rate based on the one-month LIBOR rate with
maturity dates in the year 2000. These borrowings were used to fund
loan growth. In addition, principal payments totaling $25.5 million
were made during the first nine months of 1995.
Capital Resources and Adequacy
During the first nine months of 1995, shareholders' equity increased
$53.1 million, or 15%, to $412.4 million. Dividends of $12.1 million
on common stock and $1.8 million on preferred stock were paid in the
first nine months of 1995. Treasury stock increased to $590,000 at
September 30, 1995 as Bancorp purchased 192,222 shares and sold
178,426 shares of its treasury stock during the first nine months of
1995. Of the treasury stock sold, 46,054 was reissued in connection
with the acquisition of Mathematical Investment Management, Inc., a
mutual fund advisor. As a result of the acquisition, $60 million in
mutual fund assets were merged into Bancorp's Riverfront family of
mutual funds. In December, 1994, Bancorp announced that it would
purchase up to 200,000 shares of its common stock to be used for
various company benefit plans and for other corporate purposes. In
May, 1995, Bancorp announced that it would purchase up to an
additional 200,000 shares. As of September 30, 1995, 200,677 shares
remained available to be purchased by Bancorp. Unrealized losses on
marketable securities, net of deferred income taxes, decreased $13.9
million during the first nine months of 1995 as a result of an
improvement in market conditions.
The following table of ratios is important to the analysis of the
adequacy of capital resources.
Nine Months Ended Year Ended
September 30, 1995 December 31, 1994
Average Shareholders' Equity to Average Assets 6.98% 7.43%
Preferred Dividend Payout to Net Earnings 3.43(1) 5.15
Common Dividend Payout to Net Earnings 22.99(1) 25.47
Tier 1 Leverage Ratio 7.13 7.21
Tier 1 Capital to Risk-Weighted Assets 7.62 7.86
Total Risk-Based Capital To Risk-Weighted Assets 12.02 12.85
<FN>
(1)Net earnings and dividend payouts for the nine months ended September 30, 1995 have
been annualized.
In July, 1995, Bancorp announced that the quarterly dividend on its
common stock would increase from $.25 per share to $.275 per share
effective with the dividend paid in the third quarter of 1995. This
dividend rate increase should cause the common dividend payout ratio
to increase in the future.
In the fourth quarter of 1994, Bancorp proceeded with optional
redemption of its Series B preferred stock. Pursuant to the terms of
the Series B preferred stock, the Series B preferred shares were not
redeemed but ceased to accrue dividends at the preferred stock rate of
$8.00 per share. Subsequently, dividends were paid as if the Series B
preferred stock had been converted to Bancorp common stock. The
conversion of Series B preferred stock to Series C preferred stock did
not affect the dividend rate paid on the stock.
Capital expenditures planned by Bancorp for building improvements and
furniture and equipment in 1995 are currently estimated to be
approximately $11 million. Included in this amount are projected
capital expenditures for improvements of the branch banking network
and improvements in telebanking systems. Through September 30, 1995,
approximately $8.6 million of these expenditures have been made.
Management believes that currently available funds and funds provided
by normal operations will be sufficient to meet capital requirements.
Liquidity
Adequate liquidity is necessary to meet the borrowing needs and
deposit withdrawal requirements of customers as well as to satisfy
liabilities, fund operations and support asset growth. Cash flows
generated by new deposits, loan payments and maturities of loans are
sources of liquidity. Other sources include federal funds, investment
securities and access to borrowed funds in the money markets.
Net liquid assets at September 30, 1995 were as follows (dollars in
millions):
Cash and deposits due from banks $175.8
Federal funds sold net(1) (609.2)
Investment securities due within one year 215.1
Loans due within one year 1,589.6
Net liquid assets $1,371.3
<FN>
(1) Federal funds sold and reverse repurchase agreements less federal
funds purchased and repurchase agreements.
Approximately $25.5 million of long-term debt was repaid during the
first nine months of 1995. During the remainder of 1995, approximately
$500,000 of long-term debt is due to be repaid based upon scheduled
principal payments.
The major source of liquidity for Bancorp on a parent-only basis is
dividends paid to it by its subsidiaries. Pursuant to Federal Reserve
and state banking regulations, the maximum amount available for
dividend distribution to Bancorp at September 30, 1995 by its banking
subsidiaries was approximately $86 million. Bancorp has not received
dividends from its subsidiaries during the first nine months of 1995.
At September 30, 1995, the parent had $143.3 million of short-term
commercial paper outstanding. A portion of commercial paper proceeds
was used to fund short-term loans. Contractual lines of credit
totaling $130 million have been obtained by Bancorp to support its
commercial paper borrowings. These lines had not been used at
September 30, 1995. The parent had approximately $117.1 million in
cash and interest earning deposits at September 30, 1995.
Management believes that the repayment of Bancorp's debt can be made
using funds generated by Bancorp and received as dividends from
subsidiaries both in the short-term as well as in the long-term.
Provident Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements Of Earnings
(unaudited)
(In Thousands)
Table 1.
Quarter Ended Nine Months Ended
Sept. Sept. Sept. Sept.
1995 1994 1995 1994
Total Interest Income $118,058 $88,937 $338,166 $246,445
Taxable Equivalent Adjustment 118 97 367 263
Taxable Equivalent Interest Income 118,176 89,034 338,533 246,708
Total Interest Expense 66,432 42,384 191,360 111,408
Net Interest Income 51,744 46,650 147,173 135,300
Provision for Possible Loan Losses 4,000 3,000 9,000 9,000
Taxable Equivalent Net Interest Income After
Provision for Possible Loan Losses 47,744 43,650 138,173 126,300
Noninterest Income 18,725 9,285 42,366 26,880
Noninterest Expense 36,351 30,295 102,556 87,876
Taxable Equivalent Earnings Before Income Taxes 30,118 22,640 77,983 65,304
Applicable Income Taxes 8,990 7,818 25,131 22,287
Taxable Equivalent Adjustment 118 97 367 263
Net Earnings $21,010 $14,725 $52,485 $42,754
Net Earnings Applicable to Common Stock $20,372 $13,982 $50,686 $40,525
Provident Bancorp, Inc. and Subsidiaries
Consolidated Average Balances, Rates and Yields
On a Fully Taxable Equivalent Basis
(unaudited)
(Dollars In Millions)
Table 2.
Quarter Ended Nine Months Ended
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994
Rate Rate Rate Rate
Earned/ Earned/ Earned/ Earned/
Balance Paid Balance Paid Balance Paid Balance Paid
Assets:
Loans (Net of Unearned Income):
Commercial Lending:
Commercial and Financial $2,048 9.76% $1,674 8.92% $1,984 9.97% $1,594 8.38%
Commercial Mortgage 429 9.34 397 8.61 425 9.23 395 8.68
Commercial Construction 209 9.27 158 8.26 197 9.46 152 7.83
Equipment Lease Financing 103 7.47 87 8.12 100 7.61 88 8.01
Consumer Lending:
Instalment 947 9.32 889 8.00 933 8.97 841 7.84
Residential 492 7.95 508 7.70 497 7.98 504 7.89
Lease Financing 262 7.29 68 9.29 229 7.13 30 9.74
Total Loans 4,490 9.21 3,781 8.47 4,365 9.23 3,604 8.20
Reserve for Possible Loan Losses (56) (46) (55) (45)
Net Loans 4,434 9.32 3,735 8.57 4,310 9.35 3,559 8.30
Investment Securities:
Taxable 898 6.06 638 4.88 813 5.87 681 4.88
Tax Exempt 10 5.76 7 3.81 10 5.87 2 4.00
Total Investment Securities 908 6.05 645 4.87 823 5.87 683 4.87
Federal Funds Sold and Reverse
Repurchase Agreements 10 5.77 37 4.53 21 5.73 29 4.11
Total Earning Assets 5,352 8.76 4,417 8.00 5,154 8.78 4,271 7.72
Cash and Noninterest Bearing Deposits 151 149 147 144
Other Assets 181 113 161 109
Total Assets $5,684 $4,679 $5,462 $4,524
Liabilities and Shareholders' Equity:
Deposits:
Demand Deposits $251 1.96 $267 2.17 $257 2.14 $269 2.16
Savings Deposits 640 2.94 735 2.69 656 3.25 771 2.51
Time Deposits 2,666 6.22 2,162 4.85 2,682 6.18 1,906 4.62
Total Deposits 3,557 5.33 3,164 4.12 3,595 5.36 2,946 3.84
Short-Term Debt:
Federal Funds Purchased and
Repurchase Agreements 577 5.88 246 4.46 454 5.92 304 3.70
Commercial Paper 149 5.88 117 4.76 137 5.97 112 4.25
Short-Term Notes Payable 1 5.90 1 4.62 1 5.61 1 3.61
Total Short-Term Debt 727 5.88 364 4.56 592 5.93 417 3.85
Long-Term Debt 489 6.37 378 5.59 418 6.72 407 4.85
Total Interest Bearing Liabilities 4,773 5.52 3,906 4.30 4,605 5.55 3,770 3.95
Noninterest Bearing Deposits 410 358 387 345
Other Liabilities 102 66 89 66
Shareholders' Equity 399 349 381 343
Total Liabilities and Shareholders' Equity $5,684 $4,679 $5,462 $4,524
Net Interest Spread 3.24% 3.69% 3.23% 3.77%
Net Interest Margin 3.84% 4.19% 3.82% 4.24%
Provident Bancorp, Inc. and Subsidiaries
Consolidated Quarterly Nonperforming Assets
(unaudited)
(Dollars In Thousands)
Table 3.
Quarter Ended
Sept. June March Dec. Sept.
1995 1995 1995 1994 1994
Nonaccrual Loans: (1)
Commercial Lending:
Commercial and Financial $12,231 $14,655 $13,173 $2,973 $2,431
Commercial Mortgage 1,521 2,465 1,868 1,869 2,233
Commercial Construction 78 78 78 78 201
Equipment Lease Financing - - - - -
Consumer Lending:
Instalment 30 - - - 31
Residential 1,367 1,388 1,327 1,396 1,182
Lease Financing - - - - -
Total Nonaccrual Loans 15,227 18,586 16,446 6,316 6,078
Renegotiated Loans (2) 4,886 5,721 896 961 978
Total Nonperforming Loans 20,113 24,307 17,342 7,277 7,056
Other Real Estate and Equipment Owned:
Commercial - - 84 714 2,117
Closed bank branches 189 189 189 311 274
Residential 292 265 271 350 455
Multifamily 601 607 740 1,094 1,101
Land 734 724 857 857 2,148
Total 1,816 1,785 2,141 3,326 6,095
Total Nonperforming Assets $21,929 $26,092 $19,483 $10,603 $13,151
Loans 90 Days Past Due Still Accruing (3) $6,309 $4,717 $4,858 $4,673 $4,420
Total Loans 4,646,366 4,394,802 4,285,665 4,204,538 3,960,845
Reserve for Possible Loan Losses 55,830 54,275 53,987 51,979 45,112
Total Assets 5,955,257 5,607,455 5,298,327 5,411,491 5,140,380
Reserve for Possible Loan Losses as a Percent of:
Nonperforming Loans 277.58% 223.29% 311.31% 714.29% 639.34%
Nonperforming Assets 254.59% 208.01% 277.10% 490.23% 343.03%
Total Loans 1.20% 1.23% 1.26% 1.24% 1.14%
Nonperforming Loans as a % of Total Loans .43% .55% .40% .17% .18%
Nonperforming Assets as a Percent of:
Total Loans and Other Real Estate .47% .59% .45% .25% .33%
Total Assets .37% .47% .37% .20% .26%
<FN>
(1) Bancorp generally stops accruing interest on loans when the payment of principal and/or
interest is past due 90 days or more.
(2) Loans renegotiated to provide a reduction or deferral of interest or principal because of a
deterioration in the financial position of the borrower.
(3) Loans in this category represent primarily consumer loans contractually past due 90 days or
more as to interest or principal payments.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
See discussion of Bancorp Series B preferred stock exchanged for
Bancorp Series C preferred stock under Notes to Consolidated Financial
Statements of Item 1 of this form.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed:
Exhibit 3(i) - Articles of Incorporation
Exhibit 4 - Plan of Reorganization Relating to Series C,
Non-Voting Convertible Preferred Stock
Exhibit 27 - Financial Data Schedule
All other items required in Part II of this form have been omitted
since they are not applicable or not required.
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 Bancorp, Inc.
Registrant
Date: November 10, 1995 \s\ John R. Farrenkopf
John R. Farrenkopf
Vice President and
Chief Financial Officer