SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File
December 31, 1996 No. 1-8019
PROVIDENT BANCORP, INC.
Incorporated Under IRS Employer I.D.
the Laws of Ohio No. 31-0982792
One East Fourth Street, Cincinnati, Ohio 45202
Phone: (513) 579-2000
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common
Stock, Without Par
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, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and need not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of February 28, 1997, there were 41,014,646 shares of the
Registrant's Common Stock outstanding. The aggregate market value of
the Common Stock held by non-affiliates at February 28, 1997, was
approximately $673,900,000 (based upon non-affiliated holdings of
18,091,983 shares and a market price of $37.25 per share).
Documents Incorporated by Reference:
Proxy Statement for the 1997 Annual Meeting of Shareholders
(portions which are incorporated by reference into Part III hereof).
Please address all correspondence to:
John R. Farrenkopf
Vice President and Chief Financial Officer
Provident Bancorp, inc.
One East Fourth Street
Cincinnati, Ohio 45202
PROVIDENT BANCORP, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
PART I
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 4
ITEM 3. LEGAL PROCEEDINGS 4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 4
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 5
ITEM 6. SELECTED FINANCIAL DATA 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 6
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 60
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 60
ITEM 11. EXECUTIVE COMPENSATION 60
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 60
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 60
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K 60
SIGNATURES 64
PART I
ITEM 1. BUSINESS
Provident Bancorp, Inc.
Provident Bancorp, Inc. ("Bancorp") is a Cincinnati-based commercial
banking and financial services company which operates primarily in
Ohio and northern Kentucky. Bancorp recently expanded its operations
to provide financial services on a national scale further reducing its
dependence upon a single geographic region. At December 31, 1996,
Bancorp had total assets of $6.8 billion, total deposits of $4.6
billion and total shareholders' equity of $517 million.
Bancorp was incorporated in 1980 for the purpose of acquiring the
Common Stock of The Provident Bank ("Provident") owned by American
Financial Group ("AFG"). At December 31, 1996, Carl H. Lindner,
certain members of his family and certain entities controlled by
and/or established for the benefit of such family members beneficially
owned approximately 43% of AFG's and 58% of Bancorp's outstanding
voting Common Stock. Bancorp's executive offices are located at One
East Fourth Street, Cincinnati, Ohio 45202 and its telephone number is
(513) 579-2000.
Bancorp conducts its banking operations through Provident and The
Provident Bank of Kentucky.
Commercial Banking. Central to Bancorp's long-term strategy is the
concept of relationship banking with commercial customers that
emphasizes attracting new small and middle market customers and cross-
selling additional services to established customers. These services
include cash management, loan, lease, letter of credit, trade
financing and corporate trust activities. Bancorp implements this
strategy by attracting and retaining experienced banking officers and
rewarding them for originating loans and cross-selling additional
services. In addition, Bancorp originates regional and national
corporate loan and lease transactions that are consistent with the
overall relationship lending strategy of Bancorp. At December 31,
1996, Bancorp's total commercial lending portfolio was $3.4 billion.
Consumer Banking. Bancorp offers deposit accounts providing pricing
incentives and various levels of services and benefits depending on
the needs of and balances maintained by the customer. Through these
accounts, Bancorp believes it can more effectively offer additional
banking services such as credit cards, consumer and mortgage loans,
home equity loans, auto loans and leases, retirement accounts and
investment accounts. Bancorp's total consumer lending portfolio was
$1.9 billion as of December 31, 1996.
Retail Distribution. Bancorp's banking subsidiaries have 72 branch
offices: 57 in the greater Cincinnati area (including 9 in northern
Kentucky), 12 in the greater Dayton area, 1 in Columbus, Ohio and 2 in
Cleveland, Ohio. Of the 72 branch offices, 20 are located within food
supermarkets. In addition to the banking centers, Bancorp operates 161
ATMs for customers to perform their banking transactions. Bancorp also
provides a seven day a week, 24 hour a day telephone customer service
center able to respond to customers' questions or instructions.
-1-
Other Operations. Bancorp also provides trust, custodial, asset
management and securities brokerage to its customers.
New Financial Services. In recent years, Bancorp has expanded its
business in both the financial products it offers and the geographical
area it services. The following is a summary of these expansions:
In September 1995, Provident Consumer Financial Services ("PCFS"), a
division of Provident, began originating, on a national basis,
nonconforming consumer closed end home equity loans. Since its
inception through year-end 1996, PCFS has originated $390 million of
these type of loans. During 1996, PCFS securitized and sold $310
million of these mortgages to the secondary market for a pre-tax gain
of $24 million. Bancorp also plans to use PCFS's network of offices
and brokers throughout the United States to expand its business by
originating conforming mortgage loans.
During mid-1996, Bancorp introduced its MeritValu program which is an
on-line, multiple-merchant frequent shopper rewards program which
supports cash, credit card and all other methods of payment by the
consumer. The program allows consumers to earn rebates and spend them
like cash on goods and services at participating merchants, while the
merchants benefit from increased sales and customer data information.
As of year-end 1996, the MeritValu program had 68,000 active
cardholders, supported by 65 retailers in the Cincinnati area. In
February 1997, Bancorp announced an agreement to launch a private
label version of MeritValu through the Chambers of Commerce of Greater
Ft. Lauderdale, Greater Miami and Greater Boca Raton. The three
chambers of commerce represent more than 8,000 businesses in South
Florida and a corresponding employee base of about 350,000.
In December 1996, Bancorp acquired Information Leasing Corporation
("ILC"), and its affiliated lease servicing company. ILC is a full
service, small ticket equipment leasing company which focuses on
establishing strategic relationships with high volume, quality
equipment vendors and customers. ILC, which operates throughout the
United States, generates its business through contractual vendor
programs, master lease agreements, and from small ticket vendor
programs. ILC had over $110 million in assets at the time of
acquisition.
In February 1997, Bancorp purchased South Hillsborough Community Bank
("SHCB"), a $40 million Florida state chartered bank. SHCB has three
offices located in Southeast Hillsborough County, approximately 20
miles south of Tampa. This acquisition will allow Bancorp to expand
its presence in the Florida market.
Miscellaneous
The financial services business is highly competitive. The
subsidiaries of Bancorp compete actively with national and state
banks, savings and loan associations, securities dealers, mortgage
bankers, finance companies and other financial service entities.
Bancorp and its subsidiaries employed approximately 2,100 employees
equating to approximately 1,900 full-time-equivalent employees.
-2-
Supervision and Regulation
Bancorp is registered as a bank holding company, and is subject to the
regulations of the Board of Governors of the Federal Reserve under the
Bank Holding Company Act of 1956, as amended ("BHCA"). Bank holding
companies are required to file periodic reports with and are subject
to examinations by the Federal Reserve. Bancorp is prohibited by the
BHCA from acquiring direct or indirect control of more than 5% of the
outstanding shares of any class of voting stock, or substantially all
of the assets of any bank or merging or consolidating with another
bank holding company, without prior approval of the Federal Reserve.
The BHCA, as amended, authorizes interstate bank acquisitions anywhere
in the country and effective June 1, 1997 will allow interstate
branching by acquisition and consolidation in those states that have
not opted out by that date. As of December 31, 1996, Ohio, Kentucky
and Florida have not opted out of interstate branching.
Additionally, Bancorp is prohibited by the BHCA from engaging in
nonbanking activities, unless such activities are determined by the
Federal Reserve to be closely related to banking. The BHCA does not
place territorial restrictions on the activities of such nonbanking-
related activities.
There are various legal and regulatory limits on the extent to which
Bancorp's subsidiary banks may pay dividends or otherwise supply funds
to Bancorp. In addition, federal and state regulatory agencies also
have the authority to prevent a bank or bank holding company from
paying a dividend or engaging in any other activity that, in the
opinion of the agency, would constitute an unsafe or unsound practice.
See ITEM 7 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Liquidity" and Note P included
in "Notes to Consolidated Financial Statements".
Various requirements and restrictions under federal and state laws
regulate the operations of Bancorp's banking affiliates, requiring the
maintenance of reserves against deposits, limiting the nature of loans
and interest that may be charged thereon, restricting investments and
other activities, and subjecting the banking affiliates to regulation
and examination by the Federal Reserve or state banking authorities
and the FDIC.
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") provides that a holding company's controlled insured
depository institutions can be held liable for any loss incurred by,
or reasonably expected to be incurred by, the FDIC in connection with
the default of an affiliated insured bank or savings association.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") covers a wide range of banking regulatory issues including:
(i) the recapitalization of the Bank Insurance Fund; (ii) deposit
insurance reform, including requiring the FDIC to establish a risk-
based premium assessment system; (iii) substantial new examination,
audit and reporting requirements on insured depository institutions
and (iv) a number of other regulatory and supervisory matters. FDICIA
requires federal bank regulatory authorities to take "prompt
corrective action" with respect to bank organizations that do not meet
minimum capital requirements.
-3-
Bancorp's subsidiary banks are "well capitalized" and are not
prohibited by FDICIA from accepting brokered deposits or offering
interest rates on deposits higher than the prevailing rate in their
markets. As of December 31, 1996, Bancorp's subsidiary banks had
brokered deposits (as defined) of $765.5 million.
The monetary policies of regulatory authorities, including the Federal
Reserve, have a significant effect on the operating results of banks
and bank holding companies. The nature of future monetary policies and
the effect of such policies on the future business and earnings of
Bancorp and its subsidiaries cannot be predicted.
Provident Securities and Investment Company, a Provident subsidiary,
is licensed as a retail securities broker and is subject to regulation
by the Securities and Exchange Commission ("SEC"), state securities
authorities and the National Association of Securities Dealers, Inc.
Provident Investment Advisors, Inc., a Bancorp subsidiary, is a
registered investment advisor, subject to regulation by the SEC and
state securities authorities.
ITEM 2. PROPERTIES
Bancorp and certain of its subsidiaries lease their executive offices
at One East Fourth Street, Cincinnati, Ohio and additional space at
Three East Fourth Street, Cincinnati, Ohio under leases expiring in
2010 from a trust for the benefit of a subsidiary of AFG. Provident
also leases approximately 5,000 square feet of office space from Great
American Insurance Company, a subsidiary of AFG. Provident leases
approximately 123,000 square feet of additional office space in
downtown Cincinnati. Provident owns five buildings in the Queensgate
area of Cincinnati that contain approximately 196,000 square feet, of
which three buildings are used for offices, data processing and
warehouse facilities and two buildings are leased to other parties.
Provident owns twenty-five of its branch locations and leases thirty-
eight. Bancorp owns a 3,000 square foot building in which Provident
Kentucky's main office is located in Alexandria, Kentucky. Bancorp
also owns the 12,000 square foot building in Cold Spring, Kentucky in
which one of Provident Kentucky's branches is located. In addition to
the two branches leased from Bancorp, Provident Kentucky owns two of
its branch locations and leases five. SHCB owns one of it branch
locations and leases two. For information concerning rental
obligations see Note F included in "Notes to Consolidated Financial
Statements" that are included in this report in Part II, Item 8.
ITEM 3. LEGAL PROCEEDINGS
Bancorp and its subsidiaries are not parties to any pending legal
proceedings other than routine litigation incidental to their
business, the results of which will not be material to Bancorp or its
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None in the fourth quarter.
-4-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is traded on the NASDAQ National Market under the
symbol "PRBK". The following table sets forth, for the periods
indicated, the high and low daily closing sales prices as reported on
NASDAQ and the quarterly dividends paid by Bancorp. Disclosures
relating to Bancorp's Common Stock and per common share information
have been adjusted for 3-for-2 common stock splits effective May 24,
1996 and December 19, 1996.
1996 1995
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
High $38.00 $29.25 $25.33 $23.33 $21.56 $18.67 $15.78 $15.67
Low 28.83 22.67 22.11 20.67 17.89 15.22 13.83 13.67
Period End Close 34.00 29.25 23.50 22.44 20.89 18.44 15.39 13.67
Cash Dividends .14 .14 .14 .12 .12 .12 .11 .11
At February 28, 1997, there were approximately 4,300 holders of record
of Bancorp's Common Stock.
In 1996 and 1995 Bancorp paid dividends on its Common Stock of $21.4
million and $16.4 million and on its Preferred Stock of $.5 million
and $2.4 million, respectively. Bancorp increased its quarterly
dividend rate per share from $.14 to $.16 in February 1997. Bancorp
has indicated its intention to pay annual dividends of approximately
30% of recurring net earnings. Recurring net earnings is defined as
net earnings excluding the net after-tax effect of certain amounts
related to acquisitions, security gains or losses and changes in
accounting principles. It is expected that in the next several years,
Bancorp's revenues will consist principally of dividends paid to it by
its subsidiaries and interest generated from lending and investing
activities. A discussion of limitations and restrictions on the
payment of dividends by subsidiaries to Bancorp is contained under
ITEM 7 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Liquidity" and Note P included in "Notes
to Consolidated Financial Statements".
On November 27, 1996, Provident Capital Trust I, a business trust
established by Bancorp, issued $100 million of 8.60% Capital
Securities ("Capital Securities") and invested the proceeds thereof in
8.60% Junior Subordinated Debentures ("Debentures") issued by Bancorp.
Along with the Debentures, Bancorp issued guarantees on the Capital
Securities. These issuances were exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) of that Act. A further
discussion of these transactions is provided in Note H included in
"Notes to Consolidated Financial Statements".
-5-
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data for Bancorp and
subsidiaries for the five years ended December 31, 1996. The summary
should be read in conjunction with the Financial Statements and Notes
to Consolidated Financial Statements included under Item 8 "FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA".
Year Ended December 31,
1996 1995 1994 1993 1992
(In Thousands)
Total Interest Income $520,325 $462,396 $345,829 $286,839 $287,622
Net Interest Income 240,068 202,649 181,958 162,836 145,260
Provision for Loan and
Lease Losses 47,000 14,000 12,000 12,000 14,663
Earnings Before Cumulative
Effect of Changes in
Accounting Principles 81,200 71,860 57,666 51,272 45,764
Net Earnings 81,200 71,860 57,666 51,272 43,618
Total Loans and Leases 5,311,448 4,896,076 4,204,538 3,389,888 2,900,761
Total Assets 6,829,088 6,205,351 5,411,491 4,698,433 3,979,888
Total Deposits 4,596,480 4,178,551 4,068,649 3,231,627 3,130,054
Long-Term Debt 949,913 820,083 383,433 275,527 38,643
Total Shareholders' Equity 516,805 432,537 359,351 335,892 296,465
Additional financial data and a discussion of major variances in
financial operations between the current reporting period and the
previous two periods is included in Item 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the audited
consolidated financial statements. Average balances reported are based
on daily calculations.
From time to time, Bancorp may publish forward-looking statements
relating to such matters as anticipated financial performance,
business prospects, new banking and financial service products and
similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, Bancorp notes that a variety
of factors could cause its actual results and experiences to differ
materially from the anticipated results or other expectations
expressed in its forward-looking statements. These risks and
uncertainties include, without limitation, changes in interest rates,
developments in the economies served by Bancorp, changes in
anticipated credit quality trends and changes in accounting, tax or
regulatory practices or requirements.
-6-
GENERAL
1996
Bancorp reported net earnings for 1996 of $81.2 million, which
represented an increase of $9.3 million (13%) over 1995 net earnings.
Net interest income increased $37.4 million (18%) while the provision
for loan and lease losses increased $33.0 million. The significant
increase in the provision for loan and lease losses was the result of
the high level of net charge-offs and the growth in total loans and
leases experienced during 1996. Noninterest income increased $42.0
million (74%) primarily due to increases in gain on sales of loans and
leases and other service charges and fees. Noninterest expense
increased $29.5 million (21%) because of increases in compensation,
professional services, deposit insurance and other expense.
Average net loans and leases increased by $555.6 million (13%) in 1996
over the prior year. The majority of the increase was within
commercial and financial loans and consumer lease financing which
increased $254.3 million (13%) and $208.3 million (84%), respectively.
Asset quality ratios improved in 1996, with nonperforming assets
decreasing to .42% of total assets compared to .77% in 1995. Both
collections and charge-offs of loans were responsible for the
decrease. The ratio of net charge-offs to average loans was .85% for
1996 compared to .13% for 1995. A recovery of $5.8 million relating to
one borrower which had been charged off in 1991 contributed to the
lower ratio experienced in 1995. While management expects some
improvement in the net charge-offs to average loans ratio in 1997,
management does not think it will approach the ratio realized for
1995.
As noted above, gain on sales of loans and leases made a significant
contribution to Bancorp's net income during 1996. Of the $31.0 million
gain recorded during the year, $24.3 million was realized from the
sale of $312.4 million of residential closed end non-conforming home
equity loans originated by PCFS. PCFS's goals include the origination
of $800 million of this product within the next year and the sale of
at least $100 million each quarter. However, management notes that
this is a forward-looking statement and there is no assurance that
originations or sales of this magnitude can be made or that they will
generate a net profit at the same rate as realized in 1996.
1995
Bancorp reported net earnings for 1995 of $71.9 million, an increase
of $14.2 million (25%) over 1994 net earnings. Net interest income
increased $20.7 million (11%) while the provision for loan and lease
losses increased $2.0 million (17%). Noninterest income increased
$20.5 million (56%) primarily due to increases in gains from the sales
of loans and leases, mortgage loan servicing rights and Heritage
Savings Bank's ("Heritage") deposits and branches. Noninterest expense
increased $19.5 million (16%) because of increases in compensation and
other expense.
-7-
Average net loans and leases increased by $723.5 million (20%) in 1995
compared to 1994. This increase consisted principally of growth in
commercial and financial loans of $379.9 million (23%), consumer lease
financing of $191.5 million (331%) and instalment loans of $83.1
million (10%). Asset quality was not as strong during 1995 as during
1994. The ratio of nonperforming assets to total assets was .77% and
.20% as of December 31, 1995 and 1994, respectively. This compares to
.76% for the average of the past five years. Net charge-offs as a
percentage of average net loans and leases was .13% in 1995 in
contrast to .02% for 1994. For the past five years, the average has
been .36%. The lower ratios experienced in 1995 and 1994 resulted
primarily from the recovery of $11.7 million, which was recognized
equally during 1995 and 1994, relating to one borrower.
NET INTEREST INCOME
Net interest income equals the difference between interest earned on
loans, leases and investments and interest incurred on deposits and
other borrowed funds. Net interest income is affected by changes in
both interest rates and the amounts of interest earning assets and
interest bearing liabilities outstanding.
Net interest income represents the principal source of income for
Bancorp. In 1996, 1995 and 1994, net interest income on a taxable
equivalent basis was $240.6 million, $203.1 million and $182.3
million, respectively, which represented approximately 71%, 78% and
83%, respectively, of the net revenues (net interest income plus
noninterest income) of Bancorp.
Net interest margin represents net interest income as a percentage of
total interest earning assets. For 1996, the net interest margin, on a
fully taxable equivalent basis, was 3.96%, compared to 3.82% in 1995
and 4.10% in 1994. The improvement in net interest margin from 1995 to
1996 reflects the average rate paid on interest bearing liabilities,
which decreased 29 basis points, more than offsetting the decrease on
interest earning assets, which decreased 13 basis points. The decrease
in the overall cost of interest bearing liabilities was primarily due
to the decline in the rate paid on time deposits, which more than
offset an increase in higher cost liabilities. The decrease in the
average rate earned on interest earning assets was principally due to
a lower average rate earned on commercial and financial loans which
was partially offset by an increase in higher yield assets. Bancorp
enters into interest rate swap transactions to manage the impact of
interest rate moves and interest rate risk. During 1996, interest rate
swaps increased the net interest margin by 23 basis points.
The decline in the net interest margin from 1994 to 1995 reflects the
average rate paid on interest bearing liabilities, which increased 132
basis points, more than offsetting the increase on interest earning
assets, which increased 92 basis points. The increase in the overall
cost of interest bearing liabilities was primarily due to an increase
in the average balance of time deposits along with higher interest
rates paid on time deposits. The increase in interest earning assets
was principally due to an increase in the average balance of
commercial and financial loans along with higher rates received on
commercial and financial loans and instalment loans. During 1995,
interest rate swaps decreased the net interest margin by 10 basis
points.
-8-
Table 1 provides an analysis of net interest income and illustrates
the interest income earned and interest expense charged for each major
component of interest earning assets and interest bearing liabilities.
The net interest spread is the difference between the average yield
earned on assets and the average rate incurred on liabilities. For
comparative purposes, the table has been adjusted to reflect tax-
exempt income on a fully taxable equivalent basis assuming an income
tax rate of 35%.
TABLE 1: Net Interest Income, Average Balances and Rates
Year Ended December 31,
1996 1995 1994
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
(Dollars in Millions)
ASSETS
Interest Earning Assets:
Loans and Leases (Net of
Unearned Income):
Commercial Lending:
Commercial and Financial $2,286.2 $212.0 9.27% $2,031.9 $202.1 9.95% $1,652.0 $142.8 8.64%
Mortgage 457.6 41.5 9.07 428.7 39.2 9.15 400.1 34.7 8.68
Construction 242.1 21.5 8.89 207.3 19.5 9.40 154.8 12.6 8.13
Lease Financing 141.5 11.4 8.02 103.1 7.8 7.54 88.0 6.9 7.81
Consumer Lending:
Instalment 972.9 92.4 9.50 945.6 86.0 9.10 862.5 68.6 7.95
Residential 460.3 39.0 8.47 487.9 39.2 8.03 504.1 39.8 7.89
Lease Financing 457.7 34.3 7.49 249.4 17.8 7.15 57.9 5.1 8.81
Total Loans and Leases 5,018.3 452.1 9.01 4,453.9 411.6 9.24 3,719.4 310.5 8.35
Investment Securities:
Taxable 1,027.6 67.0 6.52 835.2 49.6 5.94 681.0 33.4 4.91
Tax-Exempt 14.3 .9 6.10 10.3 .6 5.79 4.3 .2 4.71
Total Investment Securities 1,041.9 67.9 6.52 845.5 50.2 5.94 685.3 33.6 4.90
Federal Funds Sold and Reverse
Repurchase Agreements 17.9 .9 5.25 18.2 1.0 5.75 42.9 2.1 4.87
Total Earning Assets 6,078.1 520.9 8.57% 5,317.6 462.8 8.70% 4,447.6 346.2 7.78%
Cash and Noninterest
Bearing Deposits 140.8 146.1 145.2
Other Assets 136.3 112.0 70.7
Total Assets $6,355.2 $5,575.7 $4,663.5
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Deposits:
Demand Deposits $253.5 4.9 1.93% $255.4 5.3 2.08% $267.4 5.8 2.17%
Savings Deposits 578.1 15.7 2.71 645.7 20.2 3.13 755.1 19.6 2.60
Time Deposits 2,989.5 172.3 5.76 2,702.5 166.9 6.17 2,026.9 98.8 4.87
Total Deposits 3,821.1 192.9 5.05 3,603.6 192.4 5.34 3,049.4 124.2 4.07
Short-Term Debt:
Federal Funds Purchased
and Repurchase Agreements 610.0 32.2 5.27 489.9 28.6 5.85 328.8 13.7 4.16
Commercial Paper 143.6 7.9 5.49 141.5 8.4 5.93 116.6 5.4 4.59
Short-Term Notes Payable 1.7 .1 5.29 1.5 .1 5.57 1.5 .1 3.84
Total Short-Term Debt 755.3 40.2 5.31 632.9 37.1 5.86 446.9 19.2 4.27
Long-Term Debt 775.3 47.2 6.09 457.8 30.2 6.60 399.7 20.5 5.14
Total Interest Bearing Liabilities 5,351.7 280.3 5.24% 4,694.3 259.7 5.53% 3,896.0 163.9 4.21%
Non-Interest Bearing Deposits 398.8 391.9 353.1
Other Liabilities 145.2 98.4 67.8
Shareholders' Equity 459.5 391.1 346.6
Total Liabilities and
Shareholders' Equity $6,355.2 $5,575.7 $4,663.5
Net Interest Income $240.6 $203.1 $182.3
Net Interest Margin 3.96% 3.82% 4.10%
Net Interest Spread 3.33% 3.17% 3.57%
-9-
Interest free funds (interest earning assets less interest bearing
liabilities) increased $103.1 million (17%) in 1996 and increased
$71.8 million (13%) in 1995. Such funds, consisting primarily of
demand deposits and shareholders' equity, supported 12% of total
interest earning assets in each of the last three years. In preparing
the net interest margin table, nonaccrual loan balances are included
in the average balances for loans and leases. Loan fees are included
in loan and lease income as follows: 1996 - $17.4 million, 1995 -
$18.2 million and 1994 - $15.4 million.
Table 2 shows the changes in net interest income on a tax equivalent
basis resulting from changes in volume and changes in rates. Changes
not solely due to volume or rate have been allocated proportionately.
TABLE 2: Net Interest Income Changes Due to Volume and Rates
Year Ended December 31,
1996 Changes from 1995 Changes from
1995 Due to 1994 Due to
Volume Rate Volume Rate
(In Thousands)
Interest Earned On:
Loans and Leases:
Commercial Lending:
Commercial and Financial $24,184 $(14,295) $35,834 $23,462
Mortgage 2,632 (345) 2,560 1,934
Construction 3,138 (1,093) 4,724 2,167
Lease Financing 3,055 522 1,146 (245)
Consumer Lending:
Instalment 2,523 3,843 6,989 10,430
Residential (2,277) 2,088 (1,293) 664
Lease Financing 15,559 884 13,857 (1,132)
Net Loans and Leases 48,814 (8,396) 63,817 37,280
Investment Securities:
Taxable 12,212 5,175 8,393 7,829
Tax-Exempt 238 33 341 56
Federal Funds Sold (14) (90) (1,370) 324
Total 61,250 (3,278) 71,181 45,489
Interest Paid On:
Demand Deposits (39) (376) (255) (240)
Savings Deposits (1,990) (2,513) (3,083) 3,666
Time Deposits 16,996 (11,536) 37,815 30,258
Total Deposits 14,967 (14,425) 34,477 33,684
Short-Term Debt:
Federal Funds Purchased 6,529 (3,008) 8,188 6,779
Commercial Paper 123 (634) 1,284 1,751
Short-Term Notes Payable 11 (4) - 25
Total Short-Term Debt 6,663 (3,646) 9,472 8,555
Long-Term Debt 19,491 (2,540) 3,275 6,413
Total 41,121 (20,611) 47,224 48,652
Net Interest Income $20,129 $17,333 $23,957 $(3,163)
-10-
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses was $47.0 million, $14.0
million and $12.0 million in 1996, 1995 and 1994, respectively. The
increase of $33 million in 1996 over 1995 is due to the increase in
net charge-offs from 1995 to 1996 of $36.2 million and the growth in
total loans and leases of $415.4 million (8%) during 1996. The
provision for loan and lease losses increased $2.0 million (17%) from
1994 to 1995 due to increases in total loans and leases of $691.5
million (16%) and nonperforming loans of $35.0 million. The ratio of
the loan loss reserve as a percentage of total loans and leases has
remained consistent over the last three years. The ratio was 1.26% at
year-end 1996 compared to 1.23% at year-end 1995 and 1.24% at year-end
1994.
NONINTEREST INCOME
Table 3 details the components of noninterest income and their change
since 1994:
TABLE 3: Noninterest Income
Percentage
Increase (Decrease)
1996 1995 1994 1996/95 1995/94
(In Thousands)
Service Charges on Deposit Accounts $21,537 $17,114 $14,891 25.8% 14.9%
Other Service Charges and Fees 29,328 20,800 15,308 41.0 35.9
Gain on Sales of Loans and Leases 30,955 6,584 1,584 370.2 315.7
Security Gains (Losses) 96 (86) - 211.6 (100.0)
Other 17,000 12,537 4,682 35.6 167.8
$98,916 $56,949 $36,465 73.7% 56.2%
Noninterest income increased $42.0 million (74%) in 1996 compared to
1995. Service charges on deposit accounts increased primarily due to
increased fee rates on corporate and consumer deposit accounts,
nonsufficient funds and ATM usage. The increase in other service
charges and fees resulted from the recognition of gains and fees
related to commercial lending. Gain on sales of loans and leases
increased as a result of the sale of residential closed end non-
conforming home equity loans by PCFS. Other income increased primarily
as a result of the receipt of additional consideration related to a
loan that had been restructured as further discussed under "Credit
Risk Management".
Noninterest income increased $20.5 million (56%) in 1995 compared to
1994. Service charges on deposit accounts increased due to higher
rates on corporate deposit accounts, nonsufficient funds, and ATM
fees. Other service charges and fees increased primarily due to a gain
on 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 and leases. Other income increased chiefly due to a gain from
the sale of Heritage's deposits and branches.
-11-
NONINTEREST EXPENSE
Table 4 details the components of noninterest expense and their change
since 1994:
TABLE 4: Noninterest Expense
Percentage
Increase (Decrease)
1996 1995 1994 1996/95 1995/94
(In Thousands)
Salaries and Employee Benefits $79,830 $69,810 $62,074 14.4% 12.5%
Occupancy 9,673 8,931 7,724 8.3 15.6
Professional Services 11,463 7,335 5,733 56.3 27.9
Deposit Insurance 10,824 6,168 6,525 75.5 (5.5)
Equipment Expense 11,348 9,242 7,996 22.8 15.6
Charges and Fees 8,583 7,329 5,213 17.1 40.6
Franchise Taxes 5,759 4,038 4,295 42.6 (6.0)
Other 30,461 25,579 19,326 19.1 32.4
$167,941 $138,432 $118,886 21.3% 16.4%
Noninterest expense increased $29.5 million (21.3%) for 1996 compared
to 1995. Salaries and employee benefits, primarily in the areas of
commercial and consumer lending, securities brokerage, and information
delivery, increased as a result of merit and promotion increases,
increases in incentives and increased personnel. Professional services
increased primarily due to increases in management consulting,
residential loan subservicing and legal expenses. The increase in
deposit insurance expense was due to the one time assessment of $8.2
million for the capitalization of the Savings Association Insurance
Fund. Equipment expense increased primarily due to the depreciation of
expanded telebanking and computer equipment. Increases in loan
origination expense and credit card processing were the primary
reasons for the increase in charges and fees. Franchise taxes
increased primarily due to the increase in net worth of Bancorp and
adjustments made to estimates during 1995 and 1996. Marketing expense,
primarily for the MeritValu Frequent Shopper Program, was the primary
reason for the increase in other expense.
Noninterest expense increased $19.5 million (16%) for 1995 compared to
1994. Salaries and employee benefits increased as a result of merit
and promotion increases, expenses related to the sale of Heritage's
branches, and increased personnel in lending, telebanking and
electronic delivery systems. Occupancy expense increased primarily due
to increased rent expense from additional supermarket branches, ATMs
and space for telebanking. Increased professional fees resulted from
the Heritage transaction. The increase in equipment expense was
primarily due to increased depreciation expense relating to Bancorp's
data processing operations. Charges and fees increased due to costs
associated with obtaining credit card applications. Increases in
marketing, recruiting and insurance expense were the primary reasons
for the increase in other expense.
-12-
INCOME TAXES
The effective tax rates for 1996, 1995 and 1994 were 34.5%, 32.9% and
34.1%, respectively. The decrease in the effective rate for 1995
reflects the reversal of tax-exempt negative goodwill associated with
the sale of Heritage's deposits and branches and the increase in the
level of tax-exempt interest income.
INVESTMENT SECURITIES
Investment securities represented approximately 17% of average earning
assets in 1996, compared to 16% in 1995 and 15% in 1994. The amortized
cost and market value of investment securities at the dates indicated
are summarized in Table 5:
TABLE 5: Investment Securities
Amortized Cost at December 31,
1996 1995 1994
(In Thousands)
Held to Maturity:
U.S. Treasury and Federal Agency Debentures $- $- $842
State and Political Subdivisions - - -
Mortgage-Backed Securities - - -
Asset-Backed Securities - - -
Other Securities - - 30,857
Total Held to Maturity - - 31,699
Available for Sale:
U.S. Treasury and Federal Agency Debentures 83,307 191,445 148,991
State and Political Subdivisions 5,270 - -
Mortgage-Backed Securities 659,144 629,902 493,524
Asset-Backed Securities 200,071 60,000 178
Other Securities 78,992 74,647 36,617
Total Available for Sale 1,026,784 955,994 679,310
Total Securities $1,026,784 $955,994 $711,009
Market Value at December 31,
1996 1995 1994
(In Thousands)
Held to Maturity:
U.S. Treasury and Federal Agency Debentures $- $- $842
State and Political Subdivisions - - -
Mortgage-Backed Securities - - -
Asset-Backed Securities - - -
Other Securities - - 30,857
Total Held to Maturity - - 31,699
Available for Sale:
U.S. Treasury and Federal Agency Debentures 83,741 191,460 145,337
State and Political Subdivisions 5,270 - -
Mortgage-Backed Securities 663,025 633,714 475,028
Asset-Backed Securities 200,160 59,892 176
Other Securities 80,711 74,838 33,680
Total Available for Sale 1,032,907 959,904 654,221
Total Securities $1,032,907 $959,904 $685,920
-13-
Table 6 shows the December 31, 1996, maturities and weighted average
yields for investment securities. Yields on equity securities which
comprise the fixed rate, due after 10 years classification of other
securities have been omitted from the table. A 35% tax rate was used
in computing the tax equivalent yield adjustment. The yields shown are
calculated based on original cost and effective yields weighted for
the scheduled maturity of each security. Mortgage-backed and asset-
backed securities are assigned to maturity categories based on their
estimated average lives.
TABLE 6: Investment Securities Yields and Maturities
Fixed Rate Floating Rate
Weighted
Weighted Average
Average Yield On
Amortized Yield To Amortized Current
Cost Maturity Cost Coupon Rates
(In Thousands)
U.S. Treasury and Federal Agency
Debentures:
Due in one year or less $22,103 5.72% $450 4.06%
Due after 1 through 5 years 60,754 6.18 - -
Due after 5 through 10 years - - - -
Due after 10 years - - - -
Total $82,857 6.06% $450 4.06%
State and Political Subdivisions:
Due in one year or less $- -% $- -%
Due after 1 through 5 years 5,270 6.15 - -
Due after 5 through 10 years - - - -
Due after 10 years - - - -
Total $5,270 6.15% $- -%
Mortgage-Backed Securities:
Due in one year or less $44,576 7.16% $6,750 6.16%
Due after 1 through 5 years 209,409 6.94 329,326 6.51
Due after 5 through 10 years 9,308 7.44 42,957 6.33
Due after 10 years 1,612 10.49 15,206 6.32
Total $264,905 7.01% $394,239 6.48%
Asset-Backed Securities:
Due in one year or less $- -% $- -%
Due after 1 through 5 years - - 200,071 5.72
Due after 5 through 10 years - - - -
Due after 10 years - - - -
Total $- -% $200,071 5.72%
Other Securities:
Due in one year or less $- -% $250 7.76%
Due after 1 through 5 years 1 11.37 445 7.89
Due after 5 through 10 years - - 300 6.70
Due after 10 years 77,996 - - -
Total $77,997 11.37% $995 7.50%
Bancorp executes interest rate swaps to convert floating rate
investment securities to a fixed rate. At December 31, 1996, Bancorp
had $500 million in fixed receive swaps of which $200 million are
callable by the counterparty. The weighted average pay rate and
receive rate on the $500 million interest rate swaps were 5.67% and
6.35%, respectively, as of year-end.
-14-
LOANS AND LEASES
Average net loans and leases were approximately 81% and 83% of total
average earning assets in 1996 and 1995, respectively. Average net
loans and leases increased $555.6 million (13%) in 1996 over 1995.
Increases in commercial and financial loans of $254.3 million (13%)
and consumer lease financing of $208.3 million (84%) were the primary
reasons for the increase in loans and leases. Additionally,
significant loan origination activity is not fully reflected in the
average or ending loan balances due to the sale and securitization of
residential loans during 1996. Bancorp does not have a material
exposure to foreign loans, energy loans or agricultural loans. Table 7
shows loans and leases outstanding at period end by type of loan:
TABLE 7: Loan and Lease Portfolio Composition
December 31,
1996 1995 1994 1993 1992
$ % $ % $ % $ % $ %
(Dollars in Millions)
Commercial Lending:
Commercial and Financial 2,405 45.8 2,251 46.5 1,878 45.2 1,487 44.4 1,219 42.5
Mortgage 476 9.1 449 9.3 420 10.1 398 11.9 263 9.2
Construction 284 5.4 266 5.5 172 4.2 140 4.2 130 4.5
Lease Financing 239 4.6 129 2.7 110 2.6 101 3.0 63 2.2
Consumer Lending:
Instalment 924 17.6 1,001 20.7 931 22.4 764 22.8 597 20.9
Residential 392 7.5 466 9.6 508 12.2 500 14.9 629 21.9
Lease Financing 592 11.3 334 6.9 186 4.5 - - - -
Total Loans and Leases 5,312 4,896 4,205 3,390 2,901
Reserve for Loan and
Lease Losses (67) (1.3) (60) (1.2) (52) (1.2) (41) (1.2) (35) (1.2)
5,245 100.0 4,836 100.0 4,153 100.0 3,349 100.0 2,866 100.0
Table 8 shows the composition of the commercial and financial loan
category by industry type at December 31, 1996:
TABLE 8: Commercial and Financial Loans
Amount on
Type Amount % Nonaccrual
(Dollars in Millions)
Construction $81.4 3 $1.2
Manufacturing 527.3 22 3.7
Transportation / Utilities 173.5 7 3.5
Wholesale Trade 190.0 8 2.2
Retail Trade 235.3 10 .6
Finance & Insurance 106.4 4 .5
Real Estate Operators / Investment 300.4 12 .6
Service Industries 379.5 16 .3
Automobile Dealers 110.3 5 -
Other (1) 300.8 13 1.6
$2,404.9 100 $14.2
(1) Includes various kinds of loans, such as small business loans and
loans with balances under $100,000.
-15-
Table 9 shows the composition of commercial mortgage and construction
loans by loan and property type at December 31, 1996:
TABLE 9: Commercial Mortgage and Construction Loans
Owner Operator Investor Developer Owner Occupied Amount on
Type Mortgage Const. Mortgage Const. Mortgage Const. Total Nonaccrual
(In Millions)
Apartments $- $- $68.0 $34.0 $3.0 $- $105.0 $-
Office / Warehouse - - 84.9 42.0 26.9 2.8 156.6 -
Residential Development - - 3.8 80.5 13.7 5.8 103.8 .2
Shopping Centers - - 123.1 42.0 13.0 - 178.1 -
Land - - 24.0 20.2 0.3 - 44.5 -
Industrial Plants - - 7.5 - 2.3 5.5 15.3 -
Hotel / Motel / Restaurants 14.2 18.0 0.9 0.6 - - 33.7 -
Healthcare Facilities 4.2 - 0.3 - - - 4.5 -
Auto Sales & Service - - 11.9 4.8 7.0 - 23.7 -
Churches - - 3.1 1.4 7.9 - 12.4 -
Mobile Home Parks - - 5.9 2.0 - - 7.9 -
Other Commercial Properties - - 42.6 24.1 7.4 - 74.1 -
$18.4 $18.0 $376.0 $251.6 $81.5 $14.1 $759.6 $.2
At December 31, 1996 and 1995, the amount of first mortgage
residential loans that were considered available for sale was
immaterial.
Loans outstanding at December 31, 1996, are presented in Table 10 by
maturity, based on remaining scheduled repayments of principal:
TABLE 10: Loan Maturities
After 1
Within but Through After
1 Year 5 Years 5 Years Total
(In Thousands)
Commercial and Financial $1,145,871 $888,353 $370,666 $2,404,890
Commercial Construction 28,528 2,747 252,398 283,673
Residential Construction 179 284 8,591 9,054
Total $1,174,578 $891,384 $631,655 $2,697,617
Loans Due After One Year:
At predetermined interest rates $426,304
At floating interest rates 1,096,735
CREDIT RISK MANAGEMENT
Bancorp maintains a reserve for loan and lease losses to absorb
potential losses in its 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. If, as a result of charge-offs or increases in the
risk characteristics of the lending portfolio, the reserve is below
the level considered by management to be adequate to absorb future
loan and lease losses, the provision for loan and lease losses is
increased. 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.
-16-
Table 11 shows selected information relating to Bancorp's loans,
leases and reserves for loan and lease losses:
TABLE 11: Reserve For Loan and Lease Losses
December 31,
1996 1995 1994 1993 1992
(Dollars in Thousands)
Daily Average Net Loans
and Leases Outstanding $4,952,841 $4,397,275 $3,673,803 $3,056,470 $2,790,168
Reserve for Loan and Lease
Losses at Beginning of Period $60,235 $51,979 $40,542 $35,144 $30,821
Provision Charged to Expense 47,000 14,000 12,000 12,000 14,663
Acquired Reserves 1,373 - - 737 -
Other - - - - 238
Loans and Leases Charged Off:
Commercial Lending:
Commercial and Financial 17,236 5,096 2,979 3,535 3,414
Mortgage 1,945 94 904 752 4,284
Construction - - - - -
Lease Financing - - - - -
Consumer Lending:
Instalment 24,342 8,232 5,564 4,549 4,226
Residential 199 127 125 102 560
Lease Financing 3,087 647 - - -
Total Charge-Offs 46,809 14,196 9,572 8,938 12,484
Recoveries:
Commercial Lending:
Commercial and Financial 619 6,238 6,614 44 373
Mortgage 333 121 552 165 70
Construction - - - - -
Lease Financing 14 - - - -
Consumer Lending:
Instalment 3,490 1,994 1,806 1,345 1,430
Residential 36 13 37 45 33
Lease Financing 402 86 - - -
Total Recoveries 4,894 8,452 9,009 1,599 1,906
Net Loans and Leases
Charged Off 41,915 5,744 563 7,339 10,578
Reserve for Loan and Lease
Losses at End of Period $66,693 $60,235 $51,979 $40,542 $35,144
Net Charge-Offs to Average
Net Loans and Leases .85% .13% .02% .24% .38%
Loans and leases are charged off against the reserve when they are
determined to be uncollectible. Instalment and commercial and
financial loans account for most of the increase in net charge-offs
during 1996. Instalment charge-offs increased primarily in indirect
auto loans, where inadequate risk adjusted yields are resulting in a
declining portfolio, and in the credit card portfolio. Six commercial
and financial loans, primarily in the retail segment, totaled $15.1
million in charge-offs. The increase in net charge-offs in 1995 is
primarily due to increases in charge-offs of $2.7 million and $2.1
million in instalment and commercial and financial loans,
respectively. The high level of recoveries in 1995 and 1994 resulted
from recoveries of $5.8 million and $5.9 million, respectively, of a
commercial loan that was charged off in 1991.
-17-
In 1993, Provident and a commercial customer entered into an agreement
in which Provident granted certain concessions on its loans and agreed
not to exercise certain rights available to it under the loan
documents. In return, the customer issued to Provident 346,718 shares
of its common stock, representing 5% of its issued and outstanding
common stock, and 74,659 shares of Series B non-voting convertible
preferred stock that is convertible into 746,590 shares of its common
stock. Although these shares were not registered under the Securities
Act of 1933, Provident could require the registration by the customer.
In 1995, Provident and the commercial customer amended the agreement
whereby certain loan maturity dates were extended and additional funds
were made available for future borrowing. In consideration, the
customer removed certain restrictions from the selling of these shares
and issued a stock warrant for the purchase of an additional 200,000
shares of common stock at the quoted market price as of the date the
warrant was issued. Provident sold 375,000 shares and 225,000 shares
of common stock during 1996 and 1995, respectively. The proceeds
received from the sales resulted in $6.6 million being recorded as
other noninterest income during 1996 and $3.1 million and $0.4 million
being recorded as loan loss recoveries and interest income,
respectively, during 1995. As of December 31, 1996, Bancorp owns
493,308 shares of common stock and common stock equivalents, along
with the stock warrant. The stock and stock warrant are recorded at a
nominal amount on Bancorp's balance sheet.
Table 12 shows the dollar amount of the reserve for loan and lease
losses using management's estimate by principal loan and lease
category:
TABLE 12: Allocation of Reserve For Loan and Lease Losses
December 31,
1996 1995 1994 1993 1992
(In Thousands)
Commercial Lending:
Commercial and Financial $28,053 $26,280 $22,031 $17,379 $15,575
Mortgage 3,993 3,774 3,493 2,993 2,279
Construction 4,969 4,824 3,886 3,522 3,915
Lease Financing 4,004 1,543 1,355 889 783
41,019 36,421 30,765 24,783 22,552
Consumer Lending:
Instalment 17,616 18,683 17,821 14,664 11,180
Residential 718 958 1,071 1,095 1,412
Lease Financing 7,340 4,173 2,322 - -
25,674 23,814 21,214 15,759 12,592
$66,693 $60,235 $51,979 $40,542 $35,144
Management considers the present allowance to be appropriate and
adequate to cover losses inherent in the loan and lease portfolio
based on the current economic environment. However, future economic
changes cannot be predicted. Deterioration in economic conditions
could result in an increase in the risk characteristics of the loan
and lease portfolio and an increase in the provision for loan and
lease losses.
-18-
Table 13 presents a summary of various indicators of credit quality:
TABLE 13: Credit Quality
December 31,
1996 1995 1994 1993 1992
$ % $ % $ % $ % $ %
(Dollars In Thousands)
Nonperforming Assets
Nonaccrual Loans (1):
Commercial Lending:
Commercial & Financial 14,164 49.7 26,190 54.7 2,973 28.0 10,740 39.7 11,289 27.7
Mortgage 103 .4 6,716 14.0 1,869 17.6 3,861 14.3 6,459 15.9
Construction 71 .2 78 .2 78 .7 554 2.0 454 1.1
Lease Financing 3,973 13.9 2,605 5.4 - - - - - -
18,311 64.2 35,589 74.3 4,920 46.3 15,155 56.0 18,202 44.7
Consumer Lending:
Instalment - - 230 .5 - - 276 1.0 782 1.9
Residential 2,805 9.8 1,678 3.5 1,396 13.2 2,344 8.7 6,277 15.4
Lease Financing - - - - - - - - - -
2,805 9.8 1,908 4.0 1,396 13.2 2,620 9.7 7,059 17.3
Total Nonaccrual Loans 21,116 74.0 37,497 78.3 6,316 59.5 17,775 65.7 25,261 62.0
Renegotiated Loans (2) 786 2.8 4,753 9.9 961 9.1 408 1.5 125 .3
Total Nonperforming
Loans 21,902 76.8 42,250 88.2 7,277 68.6 18,183 67.2 25,386 62.3
Other Real Estate and
Equipment Owned:
Commercial 6,102 21.4 3,714 7.8 714 6.8 3,679 13.6 9,175 22.5
Closed Bank Branches - - 189 .4 311 2.9 348 1.3 1,111 2.7
Residential 475 1.7 468 1.0 350 3.3 2,140 7.9 2,151 5.3
Multifamily - - 594 1.2 1,094 10.3 676 2.5 786 2.0
Land 15 .1 663 1.4 857 8.1 2,019 7.5 2,113 5.2
6,592 23.2 5,628 11.8 3,326 31.4 8,862 32.8 15,336 37.7
Nonperforming Assets 28,494 100.0 47,878 100.0 10,603 100.0 27,045 100.0 40,722 100.0
Loans 90 Days Past Due -
Still Accruing 18,751 26,578 4,673 2,715 1,476
Loan and Lease Loss
Reserve as a Percent of:
Total Loans and Leases 1.26 1.23 1.24 1.20 1.21
Nonperforming Loans 304.51 142.57 714.29 222.97 138.44
Nonperforming Assets 234.06 125.81 490.23 149.91 86.30
Nonperforming Loans as a
Percent of Total Loans
and Leases .41 .86 .17 .54 .88
Nonperforming Assets as a
Percent of:
Total Loans, Leases and
Other Real Estate and
Equipment .54 .98 .25 .80 1.40
Total Assets .42 .77 .20 .58 1.02
<FN>
(1) Bancorp generally stops accruing interest on loans and leases 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.
Nonperforming assets decreased $19.4 million during 1996. Nonaccrual
loans decreased $16.4 million during 1996. Significant activity within
nonaccrual loans included the addition of three loans totaling $9.6
million, the charge-off of five loans totaling $11.1 million, the
transfer of two loans to other real estate and equipment totaling $6.6
million and two loans being brought current and removed from
nonaccrual status for $8.2 million. Renegotiated loans decreased $4.0
million primarily due to the sale of one loan.
-19-
Nonperforming assets increased $37.3 million during 1995. Nonaccrual
loans increased $31.2 million during 1995, primarily due to four loans
being placed on nonaccrual status. Renegotiated loans increased
principally due to one loan being restructured. Other real estate and
equipment owned increased primarily due to property on an operating
lease being reclassified due to the bankruptcy of the lessee.
When a loan is placed on nonaccrual status or is renegotiated, the
recognition of interest income differs from what would have been
recognized had the loan retained its original terms. The gross amount
of interest income recognized during 1996 with respect to these loans
was $499,000 compared to $2,323,000 that would have been recognized
had the loans remained current in accordance with their original
terms.
Of the $21.1 million in nonaccrual loans at December 31, 1996,
management estimates approximately $3.9 million of potential loss. The
loss estimate is based, in part, upon information from Provident's
credit watch and impaired loan lists ("lists"), and loss exposure
reports. The lists are prepared quarterly following detailed
discussions between lending officers, the credit and loan review
departments and senior management. The lists include nonperforming
loans along with loans and leases that were classified by bank
examiners. The lists also include loans and leases where potential
borrower problems may raise concern about the ability of the borrower
to comply with the present loan repayment terms. These loans and
leases, while not nonperforming or necessarily expected to result in
losses, are considered in need of closer monitoring. The loss exposure
report is prepared monthly and updates loan and lease balance
information and loss estimates from the previous lists. The loss
exposure report also includes other real estate owned balances and any
loss exposure involving other real estate.
The year-end 1996 lists and loss exposure reports included
approximately $37.6 million of loans and leases that were current, but
which due to the possible credit problems of such borrowers that were
known by management or other factors, were considered to be in need of
closer monitoring. Through an ongoing monitoring process, the value of
the collateral securing these loans and leases is analyzed each
quarter to determine loss potential. A review of pertinent loan and
lease information, including borrower financial statements and
collateral appraisals, determined that loans and leases with an
aggregate principal amount of approximately $14.2 million had some
loss potential. The loss potential was estimated to be approximately
$7.0 million. In determining this estimate, collateral values are
carefully examined on an ongoing basis. Management considers the
present reserve for loan and lease losses of $66.7 million to be
appropriate and adequate to cover the estimated losses in the lending
portfolio.
-20-
DEPOSITS
Average total interest bearing deposits increased 6% during 1996 to
$3.8 billion after increasing 18% during 1995 to $3.6 billion.
Increases in brokered deposits and public fund time deposits were the
primary reasons for the increase in interest bearing deposits. For
1996 and 1995, average total interest bearing deposits represented 71%
and 77%, respectively, of average interest bearing liabilities.
Bancorp does not have a material amount of foreign deposits. Table 14
presents a summary of period end deposit balances:
TABLE 14: Deposits
December 31,
1996 1995 1994
(In Millions)
Noninterest Bearing $554 $524 $452
Interest Bearing Demand Deposits 273 263 273
Savings Deposits 559 625 712
Certificates of Deposit Less than $100,000 1,792 1,575 1,530
Certificates of Deposit of $100,000 or More 1,418 1,192 1,102
$4,596 $4,179 $4,069
At December 31, 1996, the maturities of deposits of $100,000 or more
are as follows (In Millions):
3 months or less $327
Over 3 through 6 months 325
Over 6 through 12 months 119
Over 12 months 647
Total $1,418
Included in Certificates of Deposit ("CD's") of $100,000 or more at
December 31, 1996, 1995 and 1994 are brokered deposits of $765
million, $752 million and $694 million, respectively.
In 1995, Bancorp began issuing brokered CD's with embedded call
options combined with interest rate swaps with matching call dates as
part of its CD program. Bancorp has the right to redeem the CD's on
specific dates prior to their stated maturity while the interest rate
swaps are callable at the option of the swap counterparty. The terms
and conditions of the call options embedded in the interest rate swaps
match those of the CD's, offsetting any option risk exposure to
Bancorp. At December 31, 1996, Bancorp had $356 million of callable
CD's.
BORROWED FUNDS
Borrowed funds are an important source of funds to support earning
assets. In 1996, average short-term debt increased $122.4 million
(19%), while average long-term debt increased $317.5 million (69%).
The increase in the average balance for federal funds purchased and
repurchase agreements was the primary reason for the increase in
average short-term debt in 1996. The issuance of $300 million in
medium-term bank notes in December 1995 was the primary reason for the
increase in average long-term debt in 1996.
-21-
In November 1996, Provident Capital Trust I (the "Trust") was formed
for the purpose of issuing $100 million of preferred capital
securities ("Capital Securities"). The Capital Securities, which
qualify as Tier 1 capital for bank regulatory purposes, have a stated
rate of 8.6% and mature on December 1, 2026. The proceeds from the
Capital Securities became part of Bancorp's general funds for use in
its business. For financial reporting purposes, the accounts of the
Trust are included in the consolidated financial statements of
Bancorp, with the Capital Securities being classified as long-term
debt and its related distributions classified as interest on long-term
debt.
In 1995, average short-term debt increased $186.0 million (42%), while
average long-term debt increased $58.1 million (15%). The increased
use of federal funds purchased and repurchase agreements was the
primary reason for the increase in average short-term debt in 1995.
The increase in long-term debt is attributable to borrowings on Medium-
Term Bank Notes of $312.5 million and advances from the Federal Home
Loan Bank ("FHLB") of $150 million. The medium-term borrowings have
stated fixed rates, however, they have been converted to variable one-
month London Interbank Offered Rate ("LIBOR") funds through the use of
interest rate swaps. The FHLB advances have a variable rate based on
the one-month LIBOR rate. The proceeds from the additional debt became
part of Provident's general funds for use in its business.
CAPITAL RESOURCES
Total stockholders' equity at December 31, 1996 and 1995 was $516.8
million and $432.5 million, respectively. The increase in the
stockholders' equity during 1996 was primarily the result of net
income exceeding dividends paid for the year.
The following table reflects various measures of capital and its
performance for the past three years:
TABLE 15: Return on Equity and Assets
1996 1995 1994
Net Earnings to Average Assets 1.28% 1.29% 1.24%
Net Earnings to Average Total Equity 17.67 18.37 16.64
Average Total Equity to Average Assets 7.23 7.02 7.43
Common Dividend Payout to Net Earnings 26.40 22.78 25.47
Preferred Dividend Payout to Net Earnings .66 3.39 5.15
Cash dividend payout is continually reviewed by management. Bancorp
has indicated its intention to pay annual dividends of approximately
30% of recurring net earnings. Recurring net earnings is defined as
net earnings excluding the net after-tax effect of certain amounts
related to acquisitions, security gains or losses and changes in
accounting principles. Bancorp declared two common dividend rate
increases during 1996. In April 1996, the quarterly dividend rate was
increased from $.122 to $.140 per share beginning with second quarter
dividend payments. In December 1996, Bancorp announced the quarterly
dividend rate will be raised to $.160 per share beginning with
dividend payments made in 1997. Bancorp also increased the common
dividend rate during 1994 and 1995 by $.013 and $.011, respectively.
-22-
Over the past two years, the preferred dividend payout to net earnings
ratio has decreased significantly due to two events. First, Bancorp
elected in the fourth quarter of 1994 to change the preferred dividend
rate to a rate equivalent to that paid on its Common Stock, as
permitted by the terms of the preferred stock. Second, fewer shares of
the preferred stock are outstanding as 301,146 shares were converted
into 4,234,865 shares of Common Stock in December 1995. As of December
31, 1996, 70,272 shares of D Preferred remain outstanding which is
convertible into 988,200 shares of Common Stock.
Bancorp's capital expenditure program in recent years has included
expansion and improvement in the branch, ATM, and telebanking
networks, and improvements to data processing capabilities of Bancorp.
Capital expenditures for 1997 are estimated to be approximately $9
million and include the purchase or construction of system
applications, data processing equipment, ATMs and branches. 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. Bancorp has a
number of sources to provide for liquidity needs. First, liquidity
needs can be met by the liquid assets on its balance sheet such as
cash and deposits with other banks. Additional sources of liquidity
include the sale of investment securities classified as available for
sale and the sale of commercial and consumer loans and leases.
Provident sold $469.3 million of residential mortgage loans during
1996. Another source for providing liquidity is the generation of new
deposits. Total deposits increased by 10% during 1996 to $4.6 billion.
Bancorp may borrow both short-term and long-term funds. Bancorp
obtained $228.4 million in long-term borrowings during 1996 and has an
additional $688.1 million available for borrowing under a medium-term
bank note program. Approximately $67.1 million of long-term debt is
due to be repaid during 1997.
Although no significant capital expenditures are expected for Bancorp
on a parent-only basis (the "Parent") during 1997, the Parent still
has liquidity needs. The Parent's primary liquidity needs will be the
payment of dividends to its preferred and common shareholders, funds
for activity within commercial paper and interest payments on long-
term debt. The major source of liquidity for the Parent is dividends
paid to it by its subsidiaries. The Parent received dividends of $25
million in 1996, $23 million in 1995 and $26 million in 1994 from its
subsidiaries. The maximum amount available for dividends that may be
paid in 1997 to the Parent by Provident without approval is
approximately $96.1 million, plus 1997 net earnings. Dividends of
approximately $3.8 million plus 1997 net earnings may be paid in 1997
by Provident Kentucky. Management believes that amounts available from
the banking subsidiaries will be sufficient to meet the Parent's
liquidity requirements in 1997. Under the Federal Deposit Insurance
Corp. Improvement Act of 1991 ("FDICIA"), an insured depository
institution, such as Bancorp's banking subsidiaries, would be
prohibited from making capital distributions, including the payment of
dividends, if, after making such distribution, the institution would
-23-
become "undercapitalized" (as such term is defined in the statute). A
discussion of restrictions on transfer of funds from subsidiaries to
Bancorp is presented in Note P, included in "Notes to Consolidated
Financial Statements".
Additional sources of liquidity to the Parent include loan payments
and sales of investment securities. At December 31, 1996, the Parent
had $175 million and $40 million in lines of credit with unaffiliated
banks to support commercial paper borrowings of $139.7 million and
other general obligations, respectively. As of February 28, 1997,
these lines had not been used.
OFF-BALANCE SHEET FINANCIAL AGREEMENTS
Bancorp employs derivatives, such as interest rate swaps, interest
rate caps, financial futures and forward contracts primarily to manage
the interest rate risk inherent in Bancorp's core businesses.
Bancorp uses interest rate swaps as its primary off-balance sheet
financial instrument. At December 31, 1996, approximately $2.1 billion
in interest rate swaps held by Bancorp essentially convert a fixed
rate of interest into a shorter repricing frequency. Approximately
$1.6 billion are pay variable receive fixed swaps used to convert the
interest rate sensitivity of long-term fixed rate deposit and debt
liabilities to a floating interest rate based on LIBOR. Bancorp also
employs $500 million of this type of swap in association with floating
rate collateralized mortgage obligations ("CMO's") and asset backed
securities to create a synthetic fixed rate investment portfolio with
a reduced prepayment risk profile.
Interest rate swaps in which Bancorp pays a fixed rate of interest in
exchange for receiving a floating interest rate of LIBOR or prime rate
are used to manage the interest rate risk associated with long-term
fixed rate commercial and residential real estate mortgage loans.
Bancorp had $32 million of pay fixed receive variable rate swaps at
December 31, 1996.
Bancorp manages the credit risk in these transactions through its
counterparty credit policy, which limits transacting business only
with counterparties classified as investment grade by the rating
agencies of Moody's and Standard & Poor's. Generally, Bancorp requires
bilateral collateral agreements as a technique to reduce credit risk.
These bilateral collateral agreements have threshold credit limits
above which investment securities must be pledged as collateral for
the mark-to-market. At December 31, 1996, Bancorp pledged investment
securities with a carrying value of $4.4 million as collateral to two
of its counterparties to cover the mark-to-market. As a second credit
risk measure, Bancorp utilizes bilateral netting of interest payments.
The frequency and timing of the interest payments are matched between
counterparties, thereby reducing the credit exposure.
At December 31, 1996, there were no past due amounts on any interest
rate swap. Bancorp has never experienced a credit loss related to an
off-balance sheet position, and does not reserve for credit losses on
these transactions.
-24-
The following table shows the composition of interest rate swap
agreements as of December 31, 1996:
TABLE 16: Interest Rate Swap Agreement Maturities
1997 1998 1999 2000 Thereafter Total
(Dollars in Millions)
Pay fixed receive variable
Notional Amount $12 $- $1 $8 $11 $32
Average Receive Rate 5.54% - 5.56% 7.20% 8.25% 6.83%
Average Pay Rate 6.54% - 7.86% 6.91% 8.59% 7.36%
Pay variable receive fixed
Notional Amount $622 $160 $301 $398 $621 $2,102
Average Receive Rate 6.02% 5.56% 6.71% 6.08% 6.82% 6.33%
Average Pay Rate 5.64% 5.61% 5.63% 5.63% 5.59% 5.62%
Totals
Notional Amount $634 $160 $302 $406 $632 $2,134
Average Receive Rate 6.01% 5.56% 6.70% 6.10% 6.85% 6.34%
Average Pay Rate 5.66% 5.61% 5.64% 5.65% 5.64% 5.65%
The changes in interest rate swap agreements for the years ended
December 31 were as follows:
1996 1995
(In Millions)
Beginning Notional Amount $1,802 $1,556
New Contracts 729 1,004
Matured / Terminated Contracts (397) (758)
Ending Notional Amount $2,134 $1,802
Bancorp uses financial futures contracts and forward contracts to
manage interest rate risk in a manner similar to interest rate swap
agreements. At December 31, 1996, Bancorp had no outstanding positions
in financial futures contracts or forward contracts.
Bancorp maintains a portfolio of interest rate caps sold to corporate
customers at their request to manage the interest rate risk associated
with their borrowings. Bancorp offsets the interest rate risk of
customer cap transactions by purchasing an offsetting position in
interest rate caps of matching terms. Bancorp executes these
transactions as a customer convenience and does not consider itself to
be a dealer in these financial instruments. At December 31, 1996,
Bancorp's positions in matched customer interest rate caps were $146.8
million in notional principal amount.
Interest rate swaps increased the net interest margin by 23 basis
points in 1996, decreased the net interest margin by 10 basis points
in 1995, and increased the net interest margin by 13 basis points in
1994.
INTEREST RATE SENSITIVITY
Recognizing that interest rate risk is inherent in its core business
activities and understanding that fluctuating interest rates may cause
volatility in its net interest income, Bancorp actively engages in the
interest rate risk management process. At December 31, 1996, Bancorp's
interest rate sensitivity position was within established guidelines.
-25-
Bancorp develops forecasts and assumptions as to deposit growth and
mix, loan growth and mix, deposit and loan pricing spreads, early
repayment of assets and early redemption of liabilities. The resulting
impact on net interest income is then evaluated, given potential
changes in interest rate risk.
Bancorp actively manages and makes modifications to its balance sheet
through product structuring, product pricing, and promotional
offerings to achieve its targeted interest rate risk management
objectives. If management believes additional modifications to
Bancorp's sensitivities are warranted, off-balance sheet financial
agreements such as interest rate swaps, interest rate caps and futures
contracts are employed. At December 31, 1996, Bancorp had positions in
interest rate swaps and interest rate caps and had no positions in
futures contracts. A summary of the interest rate swap positions may
be found in Note M of the "Notes to Consolidated Financial
Statements".
Bancorp employs several analytical techniques in the assessment of
interest rate risk, including gap analysis, simulation analysis,
duration analysis, and market value of portfolio equity analysis.
Bancorp relies most heavily on simulation analysis as it's primary
analytical technique.
Bancorp simulates net interest income over a variety of interest rate
scenarios including "shock" analysis of +/- 100 basis points and +/-
200 basis points. These shock scenarios assume an instantaneous and
permanent change in the pricing of all interest rate sensitive assets
and liabilities and do not give consideration to any management of the
shock by Bancorp. As a result, these shock scenarios are considered
worst case scenarios through which Bancorp can quantify its maximum
exposures. Bancorp also simulates net interest income through a market
driven forecast using forward yield curves implied by the financial
futures markets. Bancorp develops most of its strategies and tactics
using the forward yield curve as the base interest rate scenario.
Table 17 provides a summary of Bancorp's gap analysis, which measures
the difference between interest sensitive assets and liabilities
repricing in the same time period. For this analysis, cash flow of
assets and liabilities are segregated by their stated or forecasted
repricing intervals. The forecasted repricing includes assumptions of
early loan repayments, specifically in the areas of instalment and
residential mortgage loan receivables. These prepayment assumptions
are based on industry average prepayment rates for these loan
products. Similarly, assumptions are made to the anticipated repricing
and maturity characteristics of liability products with managed
interest rates such as NOW and money market accounts. Adjustments are
then made for the impact of off-balance sheet derivatives. Bancorp
manages its gap through a targeted 12 month cumulative time horizon.
At December 31, 1996, management assessed its gap position as a
liability sensitivity of approximately 12% through the 12 month
cumulative period. A liability sensitivity implies potential margin
compression in a rising rate environment, and potential margin
expansion in a falling rate environment.
-26-
TABLE 17: Interest Rate Sensitivity
Repricing Time Periods
Within 4 - 12 1 - 5 Over 5
3 Months Months Years Years Total
(Dollars in Millions)
Interest Earning Assets:
Loans and Leases $2,773 $659 $1,586 $293 $5,311
Investments Securities 612 59 198 164 1,033
Federal Funds Sold and Reverse
Repurchase Agreements 71 - - - 71
Total Interest Earning Assets 3,456 718 1,784 457 6,415
Interest Bearing Liabilities:
Deposits 1,173 1,524 1,010 335 4,042
Short-Term Debt 600 - - - 600
Long-Term Debt 177 32 385 356 950
Total Interest Bearing Liabilities 1,950 1,556 1,395 691 5,592
Interest Rate Swaps (1,880) 419 948 513 -
Interest Sensitivity Gap $(374) $(419) $1,337 $279 $823
Cumulative Interest Sensitivity Gap $(793) $544 $823
Cumulative Gap as a Percent of
Earning Assets (12%) 8% 13%
IMPACT OF INFLATION AND CHANGING PRICES
The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from capital intensive
companies that have a significant investment in fixed assets or
inventories. However, inflation does have an important impact in the
banking industry. During periods of inflation, monetary assets lose
value, while monetary liabilities gain value. This results in the need
to increase equity capital at higher than normal rates in order to
maintain an appropriate equity to assets ratio. Inflation can also
have a significant effect on noninterest expenses, which tend to rise
during periods of general inflation. Inflation has not had a material
effect on Bancorp in the recent past.
Bancorp's ability to react to changes in interest rates has a
significant impact on financial results. As discussed previously,
management attempts to increase or decrease interest rate sensitivity
in order to protect against wide interest rate fluctuations.
-27-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors 29
Financial Statements:
Provident Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets 30
Consolidated Statements of Earnings 31
Consolidated Statements of Changes in Shareholders' Equity 32
Consolidated Statements of Cash Flows 33
Notes to Consolidated Financial Statements 34
Supplementary Data:
Quarterly Consolidated Results of Operations (unaudited) 59
-28-
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Provident Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of
Provident Bancorp, Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of earnings, changes in
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the management of Provident Bancorp, Inc. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Provident Bancorp, Inc. and subsidiaries at
December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Cincinnati, Ohio
January 13, 1997
-29-
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
December 31,
1996 1995
ASSETS
Cash and Noninterest Bearing Deposits $208,097 $213,594
Federal Funds Sold and Reverse Repurchase
Agreements 70,650 -
Investment Securities Available for Sale
(amortized cost - $1,026,784 and $955,994) 1,032,907 959,904
Loans and Leases (Net of Unearned Income):
Commercial Lending:
Commercial and Financial 2,404,890 2,250,542
Mortgage 475,882 448,906
Construction 283,673 266,354
Lease Financing 239,064 128,686
Consumer Lending:
Instalment 924,561 1,000,940
Residential 391,615 466,422
Lease Financing 591,763 334,226
Total Loans and Leases 5,311,448 4,896,076
Reserve for Loan and Lease Losses (66,693) (60,235)
Net Loans and Leases 5,244,755 4,835,841
Premises and Equipment 145,641 90,976
Other Assets 127,038 105,036
$6,829,088 $6,205,351
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest Bearing $554,262 $523,631
Interest Bearing 4,042,218 3,654,920
Total Deposits 4,596,480 4,178,551
Short-Term Debt 599,540 637,240
Long-Term Debt 949,913 820,083
Accrued Interest and Other Liabilities 166,350 136,940
Total Liabilities 6,312,283 5,772,814
Shareholders' Equity:
Preferred Stock, 5,000,000 Shares Authorized:
Series D, 70,272 Issued 7,000 7,000
Common Stock, No Par Value, $.30 Stated Value:
60,000,000 Shares Authorized, 40,655,916 and
39,474,925 Issued 11,973 11,703
Capital Surplus 160,586 137,313
Retained Earnings 326,599 265,017
Reserve for Retirement of Capital Securities 6,667 9,000
Treasury Stock, 2,534 Shares in 1995 - (38)
Unrealized Gain on Marketable Securities
(net of deferred income tax) 3,980 2,542
Total Shareholders' Equity 516,805 432,537
$6,829,088 $6,205,351
See notes to consolidated financial statements.
-30-
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands, Except Per Share Data)
Year Ended December 31,
1996 1995 1994
Interest Income:
Interest and Fees On Loans and Leases $451,805 $411,336 $310,203
Interest on Investment Securities:
Taxable 67,013 49,626 33,404
Exempt from Federal Income Taxes 566 389 131
67,579 50,015 33,535
Interest on Federal Funds Sold and Reverse
Repurchase Agreements 941 1,045 2,091
Total Interest Income 520,325 462,396 345,829
Interest Expense:
Interest on Deposits:
Savings and Demand Deposits 20,598 25,516 25,428
Time Deposits 172,341 166,881 98,808
192,939 192,397 124,236
Interest on Short-Term Debt 40,130 37,113 19,086
Interest on Long-Term Debt 47,188 30,237 20,549
Total Interest Expense 280,257 259,747 163,871
Net Interest Income 240,068 202,649 181,958
Provision for Loan and Lease Losses (47,000) (14,000) (12,000)
Net Interest Income After Provision for
Loan and Lease Losses 193,068 188,649 169,958
Noninterest Income:
Service Charges on Deposit Accounts 21,537 17,114 14,891
Other Service Charges and Fees 29,328 20,800 15,308
Gain on Sales of Loans and Leases 30,955 6,584 1,584
Security Gains (Losses) 96 (86) -
Other 17,000 12,537 4,682
Total Noninterest Income 98,916 56,949 36,465
Noninterest Expenses:
Compensation:
Salaries 65,448 56,773 50,529
Benefits 10,544 9,180 8,324
Profit Sharing 3,838 3,857 3,221
Occupancy 9,673 8,931 7,724
Professional Services 11,463 7,335 5,733
Deposit Insurance 10,824 6,168 6,525
Equipment Expense 11,348 9,242 7,996
Charges and Fees 8,583 7,329 5,213
Franchise Taxes 5,759 4,038 4,295
Other 30,461 25,579 19,326
Total Noninterest Expenses 167,941 138,432 118,886
Earnings Before Income Taxes 124,043 107,166 87,537
Applicable Income Taxes 42,843 35,306 29,871
Net Earnings $81,200 $71,860 $57,666
Net Earnings Per Common Share:
Primary $1.97 $1.93 $1.53
Fully Diluted 1.94 1.75 1.40
Average Primary Shares 40,873 35,919 35,822
Average Fully Diluted Shares 41,941 41,141 41,075
See notes to consolidated financial statements.
-31-
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands, Except Per Share Data)
Reserve for Unrealized
Retirement Gains (Losses)
Preferred Common Capital Retained of Capital Treasury On Marketable
Stock Stock Surplus Earnings Securities Stock Securities
Balance at January 1, 1994 $37,000 $10,406 $107,625 $169,339 $11,667 $- $(145)
Net Earnings 57,666
Cash Dividends Declared on
Common Stock, $.42 Per Share (14,687)
Cash Dividends Declared on
8% Preferred Stock (2,971)
Allocation for Retirement of
Capital Securities (3,000) 3,000
Retirement of Capital
Securities 4,000 (4,000)
Exercise of Stock Options 21 717
Adjustment for Decrease in
Value of Marketable Securities (16,083)
Purchase of Treasury Stock (211)
Sale of Treasury Stock 11 77
Adjustment to Value of
Restricted Shares (981)
Other (97) (3)
Balance at December 31, 1994 37,000 10,427 107,264 210,355 10,667 (134) (16,228)
Net Earnings 71,860
Cash Dividends Declared on
Common Stock, $.47 Per Share (16,372)
Cash Dividends Declared on
Preferred Stock, $6.56
Per Share (2,437)
Allocation for Retirement of
Capital Securities (2,333) 2,333
Retirement of Capital
Securities 4,000 (4,000)
Exercise of Stock Options 15 845
Adjustment for Increase in
Value of Marketable Securities 18,770
Purchase of Treasury Stock (6,109)
Sale of Treasury Stock (361) 4,761
Conversion of Preferred Stock
to Common Stock (30,000) 1,261 28,739
Reissuance of Treasury Stock
Pursuant to Acquisition 306 1,444
Adjustment to Value of
Restricted Shares 388
Other 77 (1)
Balance at December 31, 1995 7,000 11,703 137,313 265,017 9,000 (38) 2,542
Net Earnings 81,200
Cash Dividends Declared on
Common Stock, $.54 Per Share (21,434)
Cash Dividends Declared on
Preferred Stock, $7.63
Per Share (536)
Allocation for Retirement of
Capital Securities (1,667) 1,667
Retirement of Capital
Securities 4,000 (4,000)
Exercise of Stock Options 43 1,776
Adjustment for Increase in
Value of Marketable Securities 1,438
Sale of Treasury Stock 21 38
Shares Issued in Acquisitions 228 21,522
Other (1) (25) (2)
Balance at December 31, 1996 $7,000 $11,973 $160,586 $326,599 $6,667 $- $3,980
See notes to consolidated financial statements.
-32-
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Year Ended December 31,
1996 1995 1994
Operating Activities:
Net Earnings $81,200 $71,860 $57,666
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Provision for Loan and Lease Losses 47,000 14,000 12,000
Provision for Depreciation of Fixed Assets 16,201 12,023 7,974
Amortization of Goodwill 1,187 626 618
Amortization of Investment Security Premiums (Discounts) (5,028) (1,474) 694
Amortization of Unearned Income (41,267) (23,257) (11,370)
Net (Increase) Decrease in Trading Securities (633) 125 171
Proceeds From Sale of Loans Held for Sale 467,894 156,309 82,122
Origination of Loans Held for Sale (469,489) (152,982) (20,095)
Realized Gains on Loans Held for Sale (26,465) (2,410) (832)
Realized Gains on Sale of Loans and Leases (4,490) (4,174) (752)
Realized Investment Security (Gains) Losses (96) 86 -
Increase in Interest Receivable (2,348) (5,650) (9,679)
(Increase) Decrease in Accounts Receivable 6,427 (8,101) (2,646)
Increase in Other Assets (6,601) (857) (12,462)
Increase (Decrease) in Interest Payable (1,563) 8,795 17,618
Deferred Income Taxes 18,918 28,769 5,428
Increase (Decrease) in Taxes Payable 7,120 (5,313) (4,525)
Increase (Decrease) in Accounts Payable and Other Liabilities (310) 16,401 3,440
Other 443 (2,642) (311)
Net Cash Provided by Operating Activities 88,100 102,134 125,059
Investing Activities:
Investment Securities Available for Sale:
Proceeds from Sales 79,398 34,316 116
Proceeds from Maturities and Prepayments 625,698 227,117 174,684
Purchases (678,794) (289,376) (172,434)
Investment Securities Held to Maturity:
Proceeds from Sales - 416 -
Proceeds from Maturities and Prepayment s - 28,611 1,615
Purchases - (244,755) (13,801)
Net Increase in Loans and Leases (382,318) (674,349) (866,705)
Acquisition of Business (Net of Cash Acquired) 971 (185) -
Proceeds from Sale of Other Real Estate 7,925 2,479 7,393
Purchases of Premises and Equipment (64,345) (42,149) (33,631)
Proceeds from Sales of Premises and Equipment 760 2,442 3,735
Net Cash Used in Investing Activities (410,705) (955,433) (899,028)
Financing Activities:
Net Decrease in Demand and Savings Deposits (25,098) (26,047) (93,845)
Net Increase in Certificates of Deposit 442,868 135,949 930,867
Net Increase (Decrease) in Short-Term Debt (49,519) 115,533 (268,629)
Principal Payments on Long-Term Debt (188,841) (25,637) (109,567)
Proceeds from Issuance of Long-Term Debt 228,440 462,178 217,367
Cash Dividends Paid (21,970) (18,809) (17,658)
Repurchase of Common Stock - (6,109) (211)
Proceeds from Sale of Common Stock 1,878 5,260 826
Net Cash Provided by Financing Activities 387,758 642,318 659,150
Increase (Decrease) in Cash and Cash Equivalents 65,153 (210,981) (114,819)
Cash and Cash Equivalents at Beginning of Period 213,594 424,575 539,394
Cash and Cash Equivalents at End of Period $278,747 $213,594 $424,575
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $281,820 $250,952 $146,253
Income Taxes 18,000 11,000 26,700
Non-Cash Activity:
Additions to Other Real Estate in Settlement of Loans 8,906 706 2,196
Transfer of Premises and Equipment to Other Real Estate - 3,714 223
Common Stock Issued to Acquire Business 21,750 1,750 -
Reclassification of Investment Securities from Held to Maturity
to Available for Sale - 247,385 -
Reclassification of Operating Leases to (from) Lease Financing 7,460 (2,873) -
Securitization of Residential Loans 64,025 - -
Residual Interest Securities Created from the Sale of Loans 27,900 - -
See notes to consolidated financial statements.
-33-
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND ACQUISITIONS Provident Bancorp, Inc ("Bancorp")
was incorporated in February, 1980 for the purpose of acquiring and
holding the Common Stock of The Provident Bank ("Provident") owned by
American Financial Group ("AFG"). The acquisition of Provident in
October, 1980 was accounted for as a pooling-of-interests.
Bancorp is Cincinnati-based and operates primarily throughout Ohio and
northern Kentucky. It owns two banking subsidiaries that provide
financial services to its customers on a national basis.
All data relating to Bancorp's Common Stock and per common share
information has been adjusted for 3-for-2 common stock splits
effective May 24, 1996 and December 19, 1996.
In December 1996, Bancorp acquired Information Leasing Corporation
("ILC"), an equipment leasing company, and Procurement Alternatives
Corporation ("PAC"), ILC's affiliated lease servicing company.
Combined, ILC and PAC had over $110 million in assets at the time of
acquisition. As consideration for the purchase, Bancorp issued 776,786
shares of its Common Stock at the date of purchase plus an additional
258,929 shares of Common Stock and $2,000,000 if certain financial
objectives are met over the next four fiscal years. Using the purchase
method to account for the acquisition, $16.2 million of goodwill was
recorded. In September 1995, Bancorp purchased Mathematical Investment
Management, Inc. ("MIM"), a mutual fund advisor, for 103,622 shares of
Bancorp Common Stock. The $60 million in mutual fund assets advised by
MIM were merged into Riverfront Funds, Inc. ("Riverfront"), a
proprietary family of mutual funds. The purchase method was used to
account for the MIM acquisition resulting in $1.9 million of goodwill
being recorded. Pro-forma results of operations as though ILC, PAC and
MIM had occurred at the beginning of the period are not provided due
to the immaterial effects it would have on Bancorp's financial
statements taken as a whole.
B. ACCOUNTING POLICIES The following is a summary of significant
accounting policies:
BASIS OF PRESENTATION The consolidated financial statements include
the accounts of Bancorp and its subsidiaries, all of which are wholly
owned. Bancorp's investments in partnerships (included in "Other
Assets") are carried at the lower of cost or net realizable value and
are adjusted for changes in equity. Certain estimates are required to
be made by management in the preparation of the consolidated financial
statements. All significant intercompany balances and transactions
have been eliminated. Certain reclassifications have been made to
conform to the current year presentation.
STATEMENT 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.
-34-
INVESTMENT SECURITIES Bancorp adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", effective January 1, 1994.
Securities classified as held to maturity are those securities that
Bancorp has the intent and ability to hold to maturity, subject to
continued credit worthiness of the issuer. Accordingly, these
securities are stated at amortized cost.
Securities classified as available for sale are intended to be held
for indefinite periods of time and include those securities that
Bancorp may employ as part of asset/liability management strategy or
that may be sold in response to changes in interest rates,
prepayments, regulatory capital requirements or similar factors.
Certain interest rate swaps have been entered into that relate to
securities classified as available for sale. These securities and
interest rate swaps are stated at fair value with unrealized gains and
losses excluded from earnings and reported as a separate component of
shareholders' equity, net of taxes.
Securities purchased with the intention of recognizing short-term
profits are placed in the trading account and are carried at market
value. The specific identification method is the method used for
determining gains and losses from securities transactions.
LOANS 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 when 120 days to 150 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. Bancorp generally recognizes income on impaired
loans on a cash basis.
LEASE OPERATIONS 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 which yields
a level rate of return in relation to Bancorp'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 when 120 days to 150 days past due.
-35-
LOAN AND LEASE LOSS RESERVE The reserve for loan and lease losses is
maintained to absorb potential 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.
Bancorp adopted SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures", effective
January 1, 1995. Bancorp considers a nonperforming loan, except
consumer loans, to be an impaired loan where it is probable that all
amounts due will not be collected according to the contractual terms
of the loan agreement. Bancorp measures the value of an impaired loan
based on the present value of expected future cash flows discounted at
the loan's effective interest 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. The adoption of this SFAS had no
material impact on Bancorp's consolidated financial condition or
results of operations.
LOAN SALES Bancorp classifies loans that are intended to be sold
within a short period of time as available for sale. Such loans are
carried at the lower of aggregate cost or market value. In 1996
Bancorp began selling non-conforming residential loans. These sales
have been primarily through securitized public offerings. Under these
types of sales, gains or losses are determined based on the calculated
present value of future cash flows of the underlying loans, net of
interest payments to security holders, loan loss assumptions and
normal servicing revenue. These net cash flows, which are represented
by residual interest securities, are included in "Investment
Securities Available for Sale".
In 1995, Bancorp sold its rights to service conforming residential
loans for others. Prior to 1995, Bancorp generally retained the right
to service residential loans that it sold. Gains and losses on loan
sales are included in "Noninterest Income". Such gains and losses are
determined by the difference between the sale proceeds and the
carrying value of loans sold. These gains and losses are adjusted,
where appropriate, by the present value of the difference between
estimated future net servicing revenues and normal servicing revenues
and by any other item as provided for in the sales agreement. The
resulting excess servicing fees are deferred and amortized as an
adjustment to service fee income over the estimated life of the
related loans using the interest method.
SFAS No. 122, "Accounting for Mortgage Servicing Rights" was adopted
by Bancorp on January 1, 1996. Under this SFAS, when mortgage loans
are originated or purchased by an institution and subsequently sold or
securitized with servicing retained, the cost of the loan shall be
allocated between the loan (without servicing) and the fair value of
the servicing. Prior to this SFAS, no costs of the loan were allocated
-36-
to the servicing. The adoption of this SFAS had no material impact on
Bancorp's consolidated financial position or results of operations.
PREMISES AND EQUIPMENT 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.
Bancorp adopted SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" on January
1, 1996. This SFAS requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
circumstances indicate that the carrying value 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. The
adoption of SFAS 121 had no material impact on Bancorp's consolidated
financial position or results of operations.
OTHER REAL ESTATE OWNED Real estate owned is recorded at the lower of
cost or fair value and is included in "Other Assets". Bancorp's policy
is to include in the cost of real estate owned the unpaid balance of
applicable loans, costs of foreclosure, unpaid taxes and subsequent
major repairs. However, in no case is the carrying value of real
estate owned greater than net realizable value. Real estate taxes are
capitalized on real estate held for development. Other costs are
expensed as incurred.
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 bank acquisitions is amortized over varying periods not exceeding
25 years. Goodwill related to nonbank acquisitions is amortized over
varying periods not exceeding 40 years.
RESERVE FOR RETIREMENT OF CAPITAL SECURITIES The Capital Notes of
Provident included in "Long-Term Debt" are designated as "Capital
Securities" under Ohio law. In accordance with the terms of the Notes,
Provident has classified a portion of its retained earnings as
"Reserve for Retirement of Capital Securities" in amounts designed to
replace the Notes with capital at the time those Notes are repaid.
BENEFIT PLANS SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued in October, 1995. The SFAS encourages, but does not
require, adoption of a fair value-based accounting method for stock-
based employee compensation plans. Bancorp 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. Pro forma disclosures of
what net earnings and earnings per share would have been had the new
fair value method been used is presented in Note J of the Notes to
Consolidated Financial Statements.
INCOME TAXES Bancorp 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 Bancorp amounts
determined to be currently payable.
-37-
OFF-BALANCE SHEET FINANCIAL AGREEMENTS Bancorp employs derivatives
such as interest rate swaps, interest rate caps, financial futures and
forward contracts to manage the interest sensitivity of certain on-
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-
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 "Other
Liabilities", as applicable. At December 31, 1996, these unamortized
amounts were immaterial. Futures and forwards 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
expensed 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.
EARNINGS PER COMMON SHARE Primary earnings per common share are
computed by dividing net earnings, less the dividend requirement on
preferred stock, by the weighted average number of common stock
equivalents outstanding during the year. Fully diluted net earnings
per common share are computed by dividing net earnings by the weighted
average number of common stock equivalents, including the additional
common stock outstanding as a result of the assumed conversion of the
Series D Preferred Stock as of the first day of the year for which
earnings per share data is shown.
NEW ACCOUNTING STANDARD SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities"
becomes effective January 1, 1997. This SFAS provides accounting and
reporting standards for transfers and servicing of financial assets
and extinguishment of liabilities occurring after December 31, 1996
and does not permit earlier or retroactive application. These
standards are based on a financial-components approach that focuses on
control. Under this approach, after a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when
extinguished. Also, this SFAS provides standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. The adoption of SFAS No. 125 is not expected to
have a material impact on Bancorp's financial position or results of
operations.
-38-
C. INVESTMENT SECURITIES The amortized cost and estimated market
values of securities available for sale at December 31 were as
follows:
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(In Thousands)
U.S. Treasury and Federal Agency
Debentures $83,307 $498 $(64) $83,741
State and Political Subdivisions 5,270 - - 5,270
Mortgage-Backed Securities 659,144 5,571 (1,690) 663,025
Asset-Backed Securities 200,071 413 (324) 200,160
Other Securities 78,992 3,149 (1,430) 80,711
Total $1,026,784 $9,631 $(3,508) $1,032,907
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(In Thousands)
U.S. Treasury and Federal Agency
Debentures $191,445 $166 $(151) $191,460
Mortgage-Backed Securities 629,902 5,026 (1,214) 633,714
Asset-Backed Securities 60,000 25 (133) 59,892
Other Securities 74,647 916 (725) 74,838
$955,994 $6,133 $(2,223) $959,904
Investment securities with a carrying value of approximately $476.1
million and $562.9 million at December 31, 1996, and 1995,
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 1996, 1995 and 1994 gross gains of $96,000, $18,000 and $- and
gross losses of $-, $104,000 and $-, respectively, were realized on
the sale of securities Available for Sale. In 1995, FHLB stock,
classified as Held to Maturity, was sold. Bancorp was no longer
required to hold the stock due to the sale of deposits of Heritage
Savings Bank. The stock was sold at its cost basis of $416,000
resulting in no gain or loss. No other sales of securities classified
as Held to Maturity occurred in 1996, 1995 or 1994.
During December, 1995, Bancorp reallocated securities that had been
identified as Held to Maturity to the classification Available for
Sale. The Financial Accounting Standards Board, in its special report,
A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities, which was issued on
November 15, 1995, permitted this one time reallocation. On the date
of transfer, these securities had an amortized cost of $247.4 million
and an unrealized gain of $375,000. The transfer was made to allow for
greater flexibility in the future use of these securities. No other
transfers were made among the security categories of Held to Maturity,
Available for Sale and Trading categories during 1996, 1995 and 1994.
-39-
Mortgage-backed and asset-backed securities are shown below based on
their estimated average lives at December 31, 1996. 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.
Available for Sale
Amortized Estimated
Cost Market Value
(In Thousands)
Due in one year or less $74,129 $73,623
Due after 1 through 5 years 805,276 810,460
Due after 5 through 10 years 52,565 52,580
Due after 10 years 94,814 96,244
Total $1,026,784 $1,032,907
D. LEASE FINANCING Bancorp's leasing operations consists of
commercial lease financing and consumer lease financing. During 1996,
commercial lease financing increased significantly due to the
acquisition of ILC. At the acquisition date, ILC had approximately $95
million of net investments in finance leases. Commercial lease
financing includes the leasing of transportation equipment,
manufacturing equipment, data processing and office equipment. The
majority of the leases are classified as direct financing leases, with
expiration dates over the next 1 to 9 years. Rentals receivable at
December 31, 1996 and 1995 include $12.5 million and $12.6 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 $47.4
million and $37.8 million in total at December 31, 1996 and 1995,
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 5 years. This type of credit was initiated in 1994 and is
principally directed toward individuals.
The components of the net investment in lease financing at December 31
were as follows:
1996 1995
Commercial Consumer Commercial Consumer
(In Thousands)
Rentals Receivable $211,350 $387,067 $102,371 $229,153
Leases in Process 1,104 7,701 58 6,773
Estimated Residual Value of
Leased Assets 81,011 306,034 57,849 158,670
293,465 700,802 160,278 394,596
Less: Unearned Income (54,401) (109,039) (31,592) (60,370)
Net Investment in Lease Financing $239,064 $591,763 $128,686 $334,226
-40-
The following is a schedule by year of future minimum lease payments
to be received for the next five years as of December 31, 1996:
Commercial Consumer
(In Thousands)
1997 $72,611 $114,758
1998 57,923 105,384
1999 33,252 87,021
2000 20,569 57,407
2001 14,010 22,497
Thereafter 12,985 -
Total $211,350 $387,067
E. RESERVE FOR LOAN AND LEASE LOSSES The changes in the loan and
lease loss reserve for the years ended December 31 were as follows:
1996 1995 1994
(In Thousands)
Balance at Beginning of Period $60,235 $51,979 $40,542
Provision for Loan and Lease Losses
Charged to Earnings 47,000 14,000 12,000
Acquired Reserves 1,373 - -
Recoveries Credited to the Reserve 4,894 8,452 9,009
113,502 74,431 61,551
Losses Charged to the Reserve (46,809) (14,196) (9,572)
Balance at End of Period $66,693 $60,235 $51,979
The following table shows Bancorp's investment in impaired loans as
calculated under SFAS No. 114 as amended by SFAS No. 118:
1996 1995
(In Thousands)
Impaired Loans Requiring a Valuation Allowance of
$2.2 Million in 1996 and $12.8 Million in 1995 $5,159 $33,129
Impaired Loans Not Requiring a Valuation Allowance 5,484 3,697
Total Impaired Loans $10,643 $36,826
Average Balance of Impaired Loans for the Year $16,428 $7,813
The valuation allowance recorded on impaired loans is included in the
reserve for loan losses.
Loans and leases on nonaccrual status at December 31, 1996, 1995 and
1994 were $21.1 million, $37.5 million and $6.3 million, respectively.
Loans renegotiated to provide a reduction or deferral of interest or
principal were $786,000, $4,753,000 and $961,000 at December 31, 1996,
1995 and 1994, respectively.
-41-
F. PREMISES AND EQUIPMENT The following is a summary of premises and
equipment at December 31:
1996 1995
(In Thousands)
Land $7,381 $7,342
Buildings 21,266 21,068
Leasehold Improvements 6,650 6,136
Furniture and Fixtures 70,887 58,474
Revenue Equipment 112,418 51,885
218,602 144,905
Less Depreciation and Amortization (72,961) (53,929)
Total $145,641 $90,976
The future gross minimum rentals under noncancelable leases for the
rental of premises and equipment for 1997 and subsequent years are as
follows:
Premises Equipment
(In Thousands)
1997 $5,382 $263
1998 5,257 241
1999 5,080 170
2000 4,684 37
2001 4,360 -
Thereafter 19,018 -
Total $43,781 $711
Rent expense for all bank premises and equipment leases was
$6,596,000, $5,692,000 and $4,329,000 in 1996, 1995 and 1994,
respectively.
G. SHORT-TERM DEBT Short-term debt was as follows at December 31:
1996 1995 1994
(Dollars in Thousands)
Year End Balance:
Federal Funds Purchased and Repurchase
Agreements $458,375 $490,419 $379,391
Commercial Paper 139,665 145,321 140,816
U.S. Treasury Demand Notes 1,500 1,500 1,500
Weighted Average Interest Rate at Year End:
Federal Funds Purchased and Repurchase
Agreements 5.96% 5.60% 5.54%
Commercial Paper 5.17 5.60 5.45
U.S. Treasury Demand Notes 5.15 5.15 5.25
Maximum Amount Outstanding at Any Month End:
Federal Funds Purchased and Repurchase
Agreements $713,830 $717,349 $611,442
Commercial Paper 143,867 150,503 140,816
U.S. Treasury Demand Notes 1,500 1,500 1,500
At December 31, 1996, Bancorp had $175 million in lines of credit with
unaffiliated banks to support commercial paper borrowings. As of
January 13, 1997, these lines had not been used.
-42-
H. LONG-TERM DEBT Long-term debt consisted of the following at
December 31:
Stated Effective Maturity December 31,
Description Rate (1) Rate (2) Date 1996 1995
(In Thousands)
Bancorp:
Miscellaneous Notes Payable (3) Various Various Various $2,458 $3,046
Subsidiaries:
Guaranteed Preferred Beneficial
Interests in Fixed Rate Junior
Subordinated Debentures 8.60% 8.67% 2026 98,979 -
$1 Billion Bank Notes Program:
Fixed Rate Senior Notes 6.13 6.10 2000 299,426 299,293
Fixed Rate Senior Notes n/a n/a 1996 - 49,993
Fixed Rate Senior Notes (4) 7.17 5.60 2005 12,500 12,500
Notes Payable to Federal
Home Loan Bank:
LIBOR Based Notes 5.56 5.56 2000 50,000 150,000
LIBOR Based Notes 5.38 5.38 2013 117,195 117,195
Fixed Rate Notes (5) Various Various Various 1,356 1,501
Subordinated Notes:
Fixed Rate Notes 6.38 6.12 2004 99,542 99,477
Fixed Rate Notes 7.13 6.52 2003 74,931 74,919
Fixed Rate Capital Notes 9.00 9.16 1998 8,000 12,000
Debt Secured by Equipment Leases:
Fixed Rate Notes 5.74 5.74 2004 104,213 -
Fixed Rate Notes 5.84 5.84 2004 24,999 -
Fixed Rate Notes (6) Various Various Various 56,214 -
Fixed Rate Notes 16.00 16.00 1998 100 159
947,455 817,037
Total $949,913 $820,083
<FN>
(1) Stated rate reflects interest rate on notes as of December 31, 1996.
(2) Effective rate reflects interest rate paid as of December 31, 1996 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 note rate.
(3) Interest rates vary from 0% to 9.50% and maturity dates which vary up to 2002.
(4) Provident has an option to call this debt in year 2000. Interest rate swaps of an
equal amount have been matched against this debt and have identical call provisions
except that the swaps are callable by the swap counterparty, not Provident.
(5) Interest rates vary from 8.75% to 9.50% and maturity dates which vary up to 2005.
(6) Interest rates vary from 6.12% to 17.10% and maturity dates which vary up to 2002.
In November 1996, Bancorp established Provident Capital Trust I (the
"Trust"). The Trust exists for the sole purpose of selling $100
million of 8.60% Capital Securities ("Capital Securities") to outside
investors and investing the proceeds thereof in 8.60% Junior
Subordinated Debentures (the "Debentures") issued by Bancorp. Proceeds
from the sale of the Debentures were used for general corporate
purposes. The Capital Securities qualify as Tier 1 capital for bank
regulatory purposes.
-43-
Both the Capital Securities and Debentures call for semi-annual
dividend/interest payments commencing June 1, 1997. Bancorp has the
right to defer payment of interest on the Debentures at any time for a
period not exceeding ten consecutive semi-annual periods. If interest
payments on the Debentures are deferred, distributions on the Capital
Securities will also be deferred. The Capital Securities are
mandatorily redeemable upon the maturity of the Debentures on December
1, 2026 or upon earlier redemption as provided by the Indenture.
Bancorp has the right to redeem the Debentures, in whole or in part,
on or after December 1, 2006 at a premium, declining ratably to par on
December 1, 2016. Bancorp has guaranteed the payment of distributions
and payments on liquidation of the Trust or redemption of the Capital
Securities, but only to the extent of funds held by the Trust.
Under Provident's amended $1 Billion Bank Notes program, notes can be
issued with either fixed or floating rates. The notes are not secured
nor insured by the FDIC. Subordinated notes qualify as Tier 2 capital
while senior notes do not. Provident repaid $50 million in maturing
senior debt during 1996. At December 31, 1996, $687.5 million was
available under this program.
Of the $312.5 million issued under the $1 Billion Bank Notes program,
Bancorp issued $12.5 million with a callable debt structure. The notes
have a final maturity of 2005, but have a call option exercisable by
Bancorp in 2000. These notes are hedged with an interest rate swap
with a call option, exercisable by the swap counterparty, which
matches that of the notes, which was executed to reduce Bancorp's
overall funding cost and to modify the interest rate sensitivity of
the notes. Under the terms of this transaction, if the swap
counterparty exercises the call option on the interest rate swap in
2000, Bancorp may, at its discretion, exercise its call option to
redeem the notes at the same time, or if the market offers a similarly
attractive funding cost, Bancorp may execute another interest rate
swap to hedge the notes for the remaining five years to maturity.
Because the terms of the call options are matching, any options risk
to Bancorp has been neutralized.
The notes payable to the FHLB are collateralized under a blanket
agreement by investment securities and residential loans receivable
with a book value of $260.4 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 January, 1994 by Provident.
They are subordinated to the claims of depositors and other creditors
of Provident and are not insured by the FDIC. The 7.13% Subordinated
Notes, which also qualify as Tier 2 capital, were issued in March 1993
by Provident. The 9% Fixed Rate Capital Notes are designated as
"Capital Securities" under Ohio law and, in accordance with the terms
of the Notes, Provident classifies a portion of its undivided profits
as "Reserve for Retirement of Capital Securities".
-44-
Bancorp borrowed $130.0 million through a sale-leaseback transaction
with various investors during 1996. The borrowings are secured by auto
leases within the consumer lease financing portfolio. The debt calls
for principal payments throughout the life of the borrowing with final
principal payments due in the year 2004.
As discussed in Note A, Bancorp purchased ILC, an equipment leasing
company during 1996. ILC financed their leases by borrowing funds from
various institutions of which $56.2 million was outstanding at
December 31, 1996. Payment requirements on the debt matches the
rentals receivable on the equipment lease payments. The weighted
average interest rate on all of ILC borrowings were 7.79% with an
average maturity date of 1999.
As of December 31, 1996, scheduled principal payments on long-term
debt for the following five years were as follows:
1997 1998 1999 2000 2001
(In Thousands)
Provident Bancorp, Inc. $724 $601 $588 $270 $206
Subsidiaries 40,436 33,411 18,755 315,383 16,391
I. INCOME TAXES The composition of income tax expense follows:
1996 1995 1994
(In Thousands)
Current:
State $37 $74 $51
U.S. 23,888 6,463 24,392
23,925 6,537 24,443
Deferred 18,918 28,769 5,428
Total $42,843 $35,306 $29,871
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.
-45-
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 Bancorp's deferred tax liabilities
and assets as of December 31 are as follows:
1996 1995 1994
(In Thousands)
Deferred Tax Liabilities:
Excess Lease and Partnership Income $98,222 $63,204 $31,453
Recapture of Excess Reserve for Bad Debts 1,175 4,035 5,993
Unrealized Gain on Investment Securities 2,715 1,692 -
Other - Net 8,232 6,498 6,359
Total Deferred Tax Liabilities 110,344 75,429 43,805
Deferred Tax Assets:
Provision for Loan and Lease Losses 20,973 20,456 18,525
Deferred Compensation 3,464 2,053 1,172
Loan Fees Deferred for Books Recognized
Currently for Tax - 487 1,654
Postretirement Obligation 1,205 1,170 1,153
Unrealized Loss On Investment Securities 572 323 8,738
Alternative Minimum Tax Credit 10,687 - -
Other - Net 7,792 4,982 5,481
Total Deferred Tax Assets 44,693 29,471 36,723
Net Deferred Tax Liabilities $65,651 $45,958 $7,082
J. BENEFIT PLANS Bancorp 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").
Bancorp 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
Bancorp. All fund assets are allocated to the participants. Bancorp's
contributions are discretionary by the directors of Bancorp. The
contributions made by Bancorp are charged against earnings in the year
for which they are declared. In 1996, 1995 and 1994 Bancorp
contributed $3,472,000, $3,274,000 and $2,825,000, respectively, to
the ESOP.
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. Bancorp 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
Bancorp is charged against earnings as the employees' contributions
are made. Bancorp incurred expense of $505,000, $456,000 and $396,000
for this retirement plan for 1996, 1995 and 1994, respectively.
-46-
Bancorp'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 Bancorp pays the entire cost,
however, Bancorp'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 Bancorp shall be the responsibility of the retiree.
Bancorp 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
Bancorp'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. Bancorp incurred expense of
$168,000, $132,000 and $91,000 for the ESPP for 1996, 1995 and 1994,
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 Bancorp shareholders through the
investment of deferred compensation in Bancorp 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 Stock Account or a Self-Directed Account. Bancorp will
credit the Provident Stock Account with an amount dependent upon
Bancorp's pre-tax earnings per share, for each share of Bancorp Common
Stock in the account. The calculated credit is charged against
earnings by Bancorp annually. Under the DCP, Bancorp expensed
approximately $1,925,000, $995,000 and $400,000 in 1996, 1995 and
1994, respectively.
Bancorp has two Employee Stock Option Plans, an Advisory Director's
Stock Option Plan and an Outside Directors' Stock Option Plan. The
1988 and 1996 Employee Stock Option Plans made 3,909,375 and 450,000
options available for grant, respectively. These plans authorize the
issuance of options to purchase Common Stock for officers and key
employees. The options are to be granted, with exercise prices from
95% to 110% of market value, at date of grant. Options become
exercisable beginning one year from date of grant generally at the
rate of 20% per year. During 1992, the Advisory Directors' Stock
Option Plan and Outside Directors' Stock Option Plan were approved.
These plans authorized the issuance of 371,250 and 168,750 options,
respectively. The terms of these options are comparable to the terms
of the Employee Stock Option Plans.
-47-
The following table summarizes option activity for the three years
ended December 31, 1996:
Weighted
Average Number of Options
Exercise Options Available
Price Outstanding for Grant
At January 1, 1994 $8.78 2,737,064 558,263
Authorized - - 1,125,000
Granted 13.78 204,750 (204,750)
Exercised 8.29 (70,763) -
Canceled 11.48 (9,000) 9,000
At December 31, 1994 9.14 2,862,051 1,487,513
Authorized - - -
Granted 15.18 585,000 (585,000)
Exercised 8.38 (148,552) -
Canceled 10.39 (41,963) 41,963
At December 31, 1995 10.25 3,256,536 944,476
Authorized - - 450,000
Granted 24.81 1,175,967 (1,175,967)
Exercised 9.53 (174,357) -
Canceled 15.84 (36,982) 36,982
At December 31, 1996 14.28 4,221,164 255,491
At December 31, 1996, 1995 and 1994, there were 2,138,571, 1,845,346
and 1,580,839, options exercisable respectively, having a weighted
average option price per share of $9.15, $8.71 and $8.28,
respectively. The following table summarizes information about stock
options outstanding at December 31, 1996:
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
$ 7.26 - $10.45 2,082,134 4.0 $8.32 1,796,568 $8.23
$11.09 - $17.95 997,230 7.9 14.39 342,003 13.93
$21.17 - $35.04 1,141,800 9.4 25.06 - n/a
-48-
For purposes of providing the pro forma disclosures required under
SFAS No. 123, the fair value of stock options granted in 1995 and 1996
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 which 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 Bancorp'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 1996 and 1995 respectively: risk-free interest rates
of 6.55% and 6.55%; dividend yields of 3.75% and 5.00%; volatility
factors of the expected market price of Bancorp's Common Stock of .228
and .234 and an expected life of the option of 9 years. Based on these
assumptions, the weighted-average exercise price and weighted-average
fair value of options granted in 1996 and 1995 are as follows:
1996 1995
Weighted Average Weighted Average
Exercise Fair Exercise Fair
Price Value Price Value
Options Granted During their Respective Years Where:
Stock Price Greater Than Exercise Price $25.97 $7.32 $15.14 $3.25
Stock Price Equal to Exercise Price 23.11 5.60 15.22 2.92
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, Bancorp's net income
and earnings per share would not have been materially different from
amounts reported.
K. PREFERRED STOCK In 1991, Bancorp issued 371,418 shares of series
B Non-Voting Convertible Preferred Stock ("B Preferred") to AFG as
partial consideration for the acquisition of Hunter Savings
Association. Pursuant to the terms of the B Preferred, Bancorp, during
the fourth quarter of 1994, elected to change the dividend rate from
$8.00 per share to a rate equivalent to that paid on its Common Stock.
In 1995, Bancorp exchanged the B Preferred for an identical number of
Series C Preferred Stock ("C Preferred") and later exchanged the C
Preferred for the same number of Series D Preferred Stock ("D
Preferred"). The terms of the D Preferred are substantially identical
to the B Preferred except that the terms of the D Preferred permit
AFG, its subsidiaries or affiliates to convert the D Preferred into
Bancorp Common Stock regardless of their percentage of ownership of
Bancorp's voting equity securities. In December 1995, 301,146 shares
of the D Preferred were converted into 4,234,865 shares of Common
Stock. As of December 31, 1996, 70,272 shares of D Preferred remain
outstanding. These shares have a stated value and liquidation value of
-49-
$100 per share and a conversion ratio of 14.0625 shares of Bancorp's
Common Stock for each share of convertible preferred stock.
L. REGULATORY CAPITAL REQUIREMENTS Bancorp 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 Bancorp's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, Bancorp 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 Bancorp 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, 1996,
Bancorp and its banking subsidiaries meet all capital requirements to
which it is subject.
As of December 31, 1996, Bancorp and its banking subsidiaries' capital
ratios were categorized as well capitalized for regulatory purposes.
To be categorized as well capitalized, Bancorp 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.
1996 1995
Amount Ratio Amount Ratio
(Dollars in Thousands)
Tier 1 Capital (to Average Assets):
Provident Bancorp (Consolidated) $585,609 9.02% $420,433 7.13%
The Provident Bank 417,420 6.65 357,208 6.31
The Provident Bank of Kentucky 25,759 10.76 23,614 9.59
Tier 1 Capital (to Risk-Weighted Assets):
Provident Bancorp (Consolidated) 585,609 9.23 420,433 7.52
The Provident Bank 417,420 6.81 357,208 6.69
The Provident Bank of Kentucky 25,759 13.11 23,614 11.01
Total Risk-Based Capital (to Risk-Weighted Assets):
Provident Bancorp (Consolidated) 827,574 13.05 658,068 11.77
The Provident Bank 658,811 10.75 593,806 11.11
The Provident Bank of Kentucky 27,705 14.10 25,880 12.07
-50-
M. OFF-BALANCE SHEET FINANCIAL AGREEMENTS Bancorp 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 and caps
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 consolidated balance sheet.
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 Bancorp'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 Bancorp under the terms of the interest rate swap
agreement. Notional principal amounts express the volume of the
transactions, but Bancorp's potential exposure to credit risk is
limited only to the flow of interest payments. Bancorp manages its
credit risk in these transactions through counterparty credit
policies. At December 31, 1996, Bancorp had bilateral collateral
agreements in place with its counterparties, against which Bancorp has
pledged investment securities with a carrying value of $4.4 million as
collateral.
Summary information with respect to the interest rate swap portfolio
used to manage Bancorp's interest rate sensitivity follows:
December 31, 1996 December 31,
Weighted Average 1995
Notional Unrealized Unrealized Receive Pay Life Notional
Amount Gross Gains Gross Losses Rate Rate (Years) Amount
(Dollars in Millions)
Pay Variable Receive Fixed $2,102 $7.3 $(21.9) 6.33% 5.62% 4.15 $1,769
Pay Fixed Receive Variable 32 .3 (.1) 6.83 7.36 4.56 33
$2,134 $7.6 $(22.0) $1,802
The expected notional maturities of Bancorp's interest rate swap
portfolio at December 31, 1996 are as follows:
After 1 After 3
1 Year Through 3 Through 5 After 5
or Less Years Years Years
(In Millions)
Pay Variable Receive Fixed $622 $461 $496 $523
Pay Fixed Receive Variable 12 1 8 11
-51-
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. Bancorp evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by Bancorp upon extension of
credit is based on management's credit evaluation of the counter-
party. 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.
Bancorp's commitments to extend credit which are not reflected in the
balance sheet at December 31 are as follows:
1996 1995
(In Millions)
Commitments to Extend Credit $1,699 $1,641
Standby Letters of Credit 116 94
N. TRANSACTIONS WITH AFFILIATES At December 31, 1996, Carl H.
Lindner, certain members of his family and certain entities
controlled by and/or established for the benefit of such family
members beneficially owned approximately 43% of AFG's and 58% of
Bancorp's outstanding voting common stock. Bancorp leases its home
office space and other office space from a trust, for the benefit of a
subsidiary of AFG. During 1995, the lease agreements were rewritten
and extended to the year 2010, with Bancorp receiving $1.2 million
which represented the net present value of the difference between
payments of the old and current lease agreements. Bancorp is
amortizing the amount received against rent expense until September
1997, which was the expiration of the old lease agreements. Bancorp
also leased one of its branch locations and seventy-three ATM
locations from principal shareholders and their affiliates. Rentals
charged by AFG and affiliates for the years ended December 31, 1996,
1995 and 1994 amounted to $2,296,000, $1,397,000 and $1,233,000,
respectively. Rentals of $218,000 were charged by principal
shareholders and their affiliates during 1996 for branch and ATM
locations.
-52-
Bancorp offers shares of The Riverfront Funds, Inc. ("Riverfront"), a
proprietary family of mutual funds, to customers. Riverfront is a
registered investment company with six portfolios, each having a
different investment objective. Provident manages the portfolios and
performs other related services, such as shareholder services and
acting as fund accountant and custodian. Riverfront is offered to
customers of Provident, including personal trust, employee benefit,
agency and custodial clients, as well as individual investors. At
December 31, 1996, Riverfront had total assets of $361.4 million.
Approximately $34.1 million of the amount was held by Bancorp and
$144.5 million was held by Provident's trust department. During 1996,
1995 and 1994, Bancorp recorded approximately $1,150,000, $950,000 and
$390,000 of income net of related expenses, respectively, from
management fees of Riverfront.
Bancorp has had certain transactions with various executive officers,
directors and principal holders of equity securities of Bancorp and
its subsidiaries and entities in which these individuals are principal
owners. Various loans and auto leases have been made as well as the
sale of commercial paper and repurchase agreements to these persons.
Such loans to these persons aggregated approximately $38.9 million and
$28.8 million at December 31, 1996, and 1995, respectively. None of
these loans were held by the parent company. During 1996, new loans
aggregating $21.8 million were made to such parties and loans
aggregating $11.7 million were repaid. All of the loans were made at
market interest rates and, in the opinion of management, all amounts
are fully collectible. At December 31, 1996, and 1995, Bancorp's
commercial paper amounting to $4.0 million and $6.0 million,
respectively, was held by these persons. Additionally, repurchase
agreements in the amount of $16.8 million and $6.5 million had been
sold to these persons at December 31, 1996, and 1995, respectively.
All of these transactions were at market interest rates.
-53-
O. 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 Bancorp'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 Bancorp. What is
presented below is a point-in-time valuation which 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.
1996 1995
Carrying Fair Carrying Fair
Value Value Value Value
(In Thousands)
Financial Assets:
Cash and Cash Equivalents $278,747 $278,747 $213,594 $213,594
Trading Account Assets (Included in
Other Assets) 633 633 - -
Investment Securities 1,032,907 1,032,907 959,904 959,904
Loans (Excluding Lease Financing) 4,480,621 4,502,759 4,433,164 4,450,213
Less: Reserve for Loan Losses (55,349) - (54,519) -
Net Loans 4,425,272 4,502,759 4,378,645 4,450,213
Financial Liabilities:
Deposits 4,596,480 4,607,983 4,178,551 4,180,884
Short-Term Debt 599,540 599,540 637,240 637,240
Long-Term Debt (Excluding Lease
Financing Debt) 764,387 759,694 819,924 822,617
Off-Balance Sheet Financial Instruments:
Commitments to Extend Credit - - - -
Standby Letters of Credit 58 58 42 42
Interest Rate Swaps:
Asset Based:
Loans - 231 - (350)
Liability Based:
Deposits - (3,308) - 25,490
Long-Term Debt - (11,531) - 6,283
The following methods and assumptions were used by Bancorp 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.
-54-
Investment securities (including mortgage-backed securities):
Fair values for investment securities, which also are the
amounts carried in the balance sheet, 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.
Trading account assets: Fair values for Bancorp's trading
account assets, which also are the amounts recognized in the
balance sheet, 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.
Loans receivable: 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 (e.g., commercial real estate, commercial and
financial loans, construction loans, and other business
loans) are estimated using discounted cash flow analyses,
using interest rates currently being offered for loans, with
similar terms to borrowers of similar credit quality.
Off-balance sheet financial instruments: The amounts shown
under carrying value represent fees receivable arising from
the related unrecognized financial instruments. Fair values
for Bancorp's lending commitments and standby letters of
credit are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms
of the agreements and the counterparties' credit standing.
Fair value for interest rate swaps is based upon current
market quotes.
Deposit liabilities: The fair values disclosed for demand
deposits (e.g., interest and noninterest checking, passbook
savings, and certain types of money market accounts) are, by
definition, equal to the amount payable on demand at the
reporting date (i.e., 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.
-55-
Long-term debt: The fair values of Bancorp's long-term
borrowings that are traded in the markets are calculated
using their market prices. The fair values of Bancorp's other
long-term borrowings (other than deposits) are estimated
using discounted cash flow analyses, based on Bancorp's
current incremental borrowing rates for similar types of
borrowing arrangements.
P. ADDITIONAL INFORMATION
RESTRICTIONS ON CASH AND NONINTEREST BEARING DEPOSITS Federal Reserve
Board regulations require that Provident and Provident Bank of
Kentucky ("Provident Kentucky") maintain certain minimum reserve
balances. The average amount of those reserve balances for the year
ended December 31, 1996, was approximately $41.1 million.
INVESTMENT IN PARTNERSHIPS Bancorp's share of partnerships was
carried at approximately $15.4 million and $12.6 million at December
31, 1996, and 1995, respectively, which includes equity in net
earnings (losses) of $536,000, $601,000 and $(344,000) in the years
1996, 1995 and 1994, respectively.
OTHER REAL ESTATE OWNED At December 31, 1996, and 1995, the carrying
value of other real estate and equipment owned was $6.6 million and
$5.6 million, respectively.
-56-
PARENT COMPANY FINANCIAL INFORMATION Parent Company only condensed
financial information for Provident Bancorp, Inc. is as follows:
BALANCE SHEETS (PARENT ONLY)
(In Thousands)
December 31,
1996 1995
ASSETS
Cash and Cash Equivalents $239,469 $149,031
Investment Securities Available for Sale 14,676 12,208
Loans (net of reserve for loan losses of $1,295 and $1,295) 10,772 19,642
Investment in Subsidiaries:
Banking 471,879 392,757
Non-Banking 5,017 2,135
Premises and Equipment 1,567 1,677
Other Assets 22,297 19,598
$765,677 $597,048
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts Payable to Banking Subsidiaries $984 $14,027
Accounts Payable and Accrued Expenses 3,693 2,117
Commercial Paper 139,665 145,321
Long-Term Debt 104,530 3,046
Total Liabilities 248,872 164,511
Shareholders' Equity 516,805 432,537
$765,677 $597,048
STATEMENTS OF EARNINGS (PARENT ONLY)
(In Thousands)
Year Ended December 31,
1996 1995 1994
Income:
Dividends from Banking Subsidiaries $25,000 $23,000 $26,000
Interest Income from Banking Subsidiaries 6,538 6,358 2,917
Other Interest Income 1,625 2,373 2,824
Noninterest Income 763 811 (203)
33,926 32,542 31,538
Expenses:
Interest Expense 8,833 8,686 5,990
Salaries and Employee Benefits 56 410 463
General and Administrative 3,068 3,212 2,403
11,957 12,308 8,856
Earnings Before Taxes and Equity in Undistributed
Net Earnings of Subsidiaries 21,969 20,234 22,682
Applicable Income Tax Credits 1,675 1,774 1,191
Earnings Before Equity in Undistributed Net Earnings
of Subsidiaries 23,644 22,008 23,873
Equity in Undistributed Net Earnings of Subsidiaries 57,556 49,852 33,793
Net Earnings $81,200 $71,860 $57,666
-57-
STATEMENTS OF CASH FLOWS (PARENT ONLY)
(In Thousands)
Year Ended December 31,
1996 1995 1994
Operating Activities:
Net Earnings $81,200 $71,860 $57,666
Adjustment to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Provision for Depreciation and Amortization 528 406 360
Net Earnings from Subsidiaries (82,556) (72,852) (59,793)
Cash Dividends Received From Subsidiaries 25,000 23,000 26,000
Proceeds From Sale of Loans Held for Sale 32,581 - -
Origination of Loans Held for Sale (32,491) - -
Realized Gains on Loans Held for Sale (90) - -
(Increase) Decrease in Interest Receivable 64 (27) (19)
(Increase) Decrease in Accounts Receivable
and Other Assets (8,713) 1,837 2,653
Increase in Interest Payable 675 80 357
Deferred Income Taxes (2,811) (1,092) 752
Increase (Decrease) in Taxes Payable 7,731 (4,362) (1,365)
Increase (Decrease) in Accounts Payable
and Other Liabilities (11,959) 14,709 (8,706)
Other (42) 415 (1,015)
Net Cash Provided by Operating Activities 9,117 33,974 16,890
Investing Activities:
Investment Securities Available for Sale:
Proceeds from Sales - - 25
Proceeds from Maturities and Prepayments 1,700 - -
Purchases (1,892) (31) (10,000)
Investment Securities Held to Maturity:
Proceeds from Maturities and Prepayments - 1,700 1,600
Purchases - (1,652) (1,663)
Net Decrease in Loans 8,870 10,989 32,861
Purchase of Subsidiary (Net of Cash Acquired) - (185) -
Proceeds from Sale of Premises and Equipment - 70 90
Purchases of Premises and Equipment - (57) (118)
Net Cash Provided by Investment Activities 8,678 10,834 22,795
Financing Activities:
Net Increase (Decrease) in Short-Term Borrowings (5,656) 4,505 23,800
Principal Payments on Long-Term Debt (836) (5,598) (5,345)
Proceeds from Issuance of Long-Term Debt 102,320 404 2,221
Proceeds from Sale of Common Stock 1,878 5,260 826
Purchase of Treasury Stock - (6,109) (211)
Cash Dividends Paid (21,970) (18,809) (17,658)
Contribution to Subsidiaries (3,093) - -
Net Cash Provided by (Used in) Financing
Activities 72,643 (20,347) 3,633
Increase in Cash and Cash Equivalents 90,438 24,461 43,318
Cash and Cash Equivalents at Beginning of Year 149,031 124,570 81,252
Cash and Cash Equivalents at End of Year $239,469 $149,031 $124,570
-58-
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 1997 by Provident to its parent
without approval is approximately $96.1 million, plus 1997 net
earnings. Dividends of approximately $3.8 million plus 1997 net
earnings may be paid in 1997 by Provident Kentucky to its parent.
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 $68.7 million
to any single affiliate, and $137.3 million to all affiliates combined
of which $59.3 million was loaned at December 31, 1996.
SUPPLEMENTARY DATA
Quarterly Consolidated Results of Operations - (Unaudited)
The following are quarterly consolidated results of operations for the
two years ended December 31, 1996.
1996 1995
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(In Thousands Except Per Share Data)
Total Interest Income $135,648 $131,267 $127,612 $125,798 $124,230 $118,058 $114,144 $105,964
Total Interest Expense 72,068 70,892 68,963 68,334 68,387 66,432 65,080 59,848
Net Interest Income 63,580 60,375 58,649 57,464 55,843 51,626 49,064 46,116
Provision for Loan and Lease Losses (9,250) (14,000) (13,750) (10,000) (5,000) (4,000) (3,000) (2,000)
Net Interest Income After
Provision for Loan and Lease
Losses 54,330 46,375 44,899 47,464 50,843 47,626 46,064 44,116
Service Charges on Deposit Account 5,826 5,529 5,317 4,865 4,895 4,537 3,911 3,771
Other Service Charges and Fees 5,957 6,771 7,373 9,227 5,390 4,525 7,100 3,785
Gain on Sale of Loans and Leases 12,645 16,187 1,149 974 2,726 1,426 630 1,802
Security Gains (Losses) - - 96 - 6 (92) - -
Other 1,581 3,037 8,640 3,742 1,566 8,329 1,205 1,437
Total Noninterest Income 26,009 31,524 22,575 18,808 14,583 18,725 12,846 10,795
Compensation 21,736 20,370 18,298 19,426 17,166 19,348 16,752 16,544
Occupancy 2,522 2,324 2,454 2,373 2,252 2,334 2,198 2,147
Professional Services 3,435 4,019 2,183 1,826 1,684 2,714 1,566 1,371
Deposit Insurance 161 8,889 887 887 1,088 726 2,177 2,177
Equipment Expense 3,186 2,998 2,805 2,359 2,345 2,296 2,298 2,303
Charges and Fees 2,867 2,199 2,044 1,473 3,128 1,523 1,300 1,378
Other 9,632 10,725 7,935 7,928 8,213 7,410 7,572 6,422
Total Noninterest Expense 43,539 51,524 36,606 36,272 35,876 36,351 33,863 32,342
Earnings Before Income Taxes 36,800 26,375 30,868 30,000 29,550 30,000 25,047 22,569
Applicable Income Taxes 12,800 9,100 10,618 10,325 10,175 8,990 8,572 7,569
Net Earnings $24,000 $17,275 $20,250 $19,675 $19,375 $21,010 $16,475 $15,000
Net Earnings Per Common Share:
Primary $.58 $.42 $.49 $.48 $.51 $.57 $.45 $.40
Fully Diluted .57 .41 .49 .47 .47 .51 .40 .37
Cash Dividends .14 .14 .14 .12 .12 .12 .11 .11
Fully Tax Equivalent Margin:
Net Interest Income $63,580 $60,375 $58,649 $57,464 $55,843 $51,626 $49,064 $46,116
Tax Equivalent Adjustment 128 141 142 115 116 118 127 122
Tax Equivalent Net
Interest Income $63,708 $60,516 $58,791 $57,579 $55,959 $51,744 $49,191 $46,238
-59-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
The following items are incorporated by reference to Bancorp's
definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A within 120 days after the close of Bancorp's fiscal
year ending December 31, 1996:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K
(a) 1. See Index to Financial Statements on page 28 for a list of
all financial statements filed as a part of this report.
2. Schedules to the consolidated financial statements
required by Article 9 of Regulation S-X have been omitted as
they are not required, not applicable or the information
required thereby is set forth in the related financial
statements.
3. Exhibits:
Number Exhibit Description Filing Status
3.1 Articles of Incorporation Filed herewith.
3.2 Amended Code of Regulations Incorporated by reference to
Annex I to Provident Bancorp,
Inc.'s Proxy Statement for
the 1994 Annual Meeting of
Shareholders.
4.1 Instruments defining the Bancorp has no outstanding
rights of security holders issue of indebtedness
exceeding 10% of the assets
of Bancorp and Consolidated
Subsidiaries. A copy of the
instruments defining the
rights of security holders
will be furnished to the
Commission upon request.
-60-
Number Exhibit Description Filing Status
4.2 Plan of Reorganization Incorporated by reference to
relating to Series D, Form 10-K for 1995.
Non-Voting Convertible
Preferred Stock
10.1 Restated Agreement and Plan Incorporated by reference to
of Reorganization, as Form S-2 (File No. 33-44641).
amended through May 8, 1992,
between Provident Bancorp,
Inc. and Merit Savings
Association
10.2 Restated Agreement and Plan Incorporated by reference to
of Reorganization, as Form S-2 (File No. 33-44641).
amended through May 11,
1992, between Provident
Bancorp, Inc. and Peoples
Federal Savings Association
of Bellevue
10.3 Third Restated Agreement Incorporated by reference to
and Plan of Reorganization, Form S-2 (File No. 33-44641).
as amended through April
30, 1992, between Provident
Bancorp, Inc. and Suburban
Federal Savings and Loan
Association of Covington
10.4 Agreement and Plan of Incorporated by reference to
Reorganization between Form S-3 (File No. 33-69666).
Provident Bancorp, Inc.
and Heritage Savings Bank
10.5 Second Restated Agreement Incorporated by reference to
and Plan of Reorganization, Form S-2 (File No. 33-44641).
as amended through May 6,
1992, between Provident
Bancorp, Inc. and Thrift
Savings and Loan Company
10.6 Junior Subordinated Incorporated by reference to
Indenture, dated as of Exhibit 4.1 on Form 8-K dated
November 27, 1996, between November 27, 1996.
Bancorp and the Bank of
New York, as Indenture
Trustee.
10.7 Amended and Restated Incorporated by reference to
Declaration of Trust of Exhibit 4.3 on Form 8-K dated
Provident Capital Trust I, November 27, 1996.
dated as of November 27,
1996.
-61-
Number Exhibit Description Filing Status
10.8 Form of Guarantee Agreement Incorporated by reference to
to be entered into by registration statement number
Bancorp and The Bank of New 333-20769.
York, as Guarantee Trustee.
Management Compensatory
Agreements
10.9 Provident Bancorp, Inc. Incorporated by reference to
1990 Employee Stock Post-Effective Amendment No.
Purchase Plan 1 to Form S-8 (File No.
33-34904).
10.10 Provident Bancorp, Inc. Incorporated by reference to
Retirement Plan (As amended) Form S-8 (File No. 33-90792).
10.11 Provident Bancorp, Inc. Incorporated by reference to
1988 Stock Option Plan (As Form S-8 (File No. 33-34906),
amended) Form S-8 (File No. 33-43102)
and Form S-8 (File No.
33-84094).
10.12 Provident Bancorp, Inc. Incorporated by reference to
1992 Advisory Directors' Form 8-K filed October 22,
Stock Option Plan (As 1992, and Form S-8 (File No.
amended) 33-62707).
10.13 Provident Bancorp, Inc. Incorporated by reference to
1992 Outside Directors' Form S-8 (File No. 33-51230).
Stock Option Plan
10.14 Provident Bancorp, Inc. Incorporated by reference to
Restricted Stock Plan Form S-2 (File No. 33-44641).
10.15 Provident Bancorp, Inc. Incorporated by reference to
Deferred Compensation Plan Form S-8 (File No. 33-61576)
and Form 8-K filed March 28,
1995.
21 Subsidiaries of Provident Filed herewith.
Bancorp, Inc.
23 Consent of Independent Filed herewith.
Auditors
27 Financial Data Schedule Filed herewith.
-62-
(b) Reports on Form 8-K:
Date of Report Item 5. Other Events
October 3, 1996 Revised its estimate of net income for the
third quarter of 1996 to $17 million as a
result of a one-time special assessment on
Savings Association Insurance Fund deposits.
November 27, 1996 Provident Capital Trust I, a Delaware statutory
business issued $100 million of its 8.60%
capital securities. Bancorp owns all of the
beneficial ownership interests represented by
the common securities of the Trust. The sole
purpose of the Trust is to issue the capital and
common securities of the Trust and invest the
proceeds in 8.60% junior subordinated debentures
issued by Bancorp. The capital securities mature
in 2026 and are callable in ten years at a
premium of 104.30 that declines ratably over the
next ten years. The capital securities qualify
as Tier I Regulatory Capital.
-63-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, Provident Bancorp, Inc. has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Provident Bancorp, Inc.
/s/Allen L. Davis
Allen L. Davis
President
March 20, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of Provident Bancorp, Inc. and in the capacities and on the
dates indicated.
Signature Capacity Date
/s/Allen L. Davis Director and President March 20, 1997
Allen L. Davis (Principal Executive Officer)
/s/Philip R. Myers Director March 20, 1997
Philip R. Myers
/s/Sidney A. Peerless Director March 20, 1997
Sidney A. Peerless
/s/Joseph A. Pedoto Director March 20, 1997
Joseph A. Pedoto
/s/John R. Farrenkopf Vice President and March 20, 1997
John R. Farrenkopf Chief Financial and Accounting
Officer (Principal Financial
Officer and Principal
Accounting Officer)
-64-