SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File
June 30, 1997 No. 1-8019
P R O V I D E N T F I N A N C I A L G R O U P , I N C .
(Known as Provident Bancorp, Inc. until June 2, 1997)
Incorporated under IRS Employer I.D.
the Laws of Ohio No. 31-0982792
One East Fourth Street, Cincinnati, Ohio 45202
Phone: 513-579-2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common
stock, without par value, outstanding at July 31, 1997 is 41,180,819.
Please address all correspondence to:
John R. Farrenkopf
Vice President and Chief Financial Officer
Provident Financial Group, Inc.
One East Fourth Street
Cincinnati, Ohio 45202
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1997 1996
(Unaudited)
ASSETS
Cash and Noninterest Bearing Deposits $229,217 $208,097
Federal Funds Sold and Reverse Repurchase Agreements 551 70,650
Investment Securities Available for Sale
(amortized cost - $1,330,782 and $1,026,784) 1,333,264 1,032,907
Loans and Leases (Net of Unearned Income):
Commercial Lending:
Commercial and Financial 2,509,071 2,404,890
Mortgage 506,957 475,882
Construction 293,543 283,673
Lease Financing 269,756 239,064
Consumer Lending:
Instalment 870,476 924,561
Residential - Held for Sale 89,142 73,545
Residential - Portfolio - 318,070
Lease Financing 666,952 591,763
Total Loans and Leases 5,205,897 5,311,448
Reserve for Loan and Lease Losses (78,296) (66,693)
Net Loans and Leases 5,127,601 5,244,755
Premises and Equipment 154,647 145,641
Other Assets 139,755 127,038
$6,985,035 $6,829,088
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest Bearing $532,427 $554,262
Interest Bearing 4,173,045 4,042,218
Total Deposits 4,705,472 4,596,480
Short-Term Debt 787,312 599,540
Long-Term Debt 648,336 850,934
Guaranteed Preferred Beneficial Interests in
Provident Financial Group, Inc.'s Fixed Rate
Junior Subordinated Debentures 98,785 98,979
Accrued Interest and Other Liabilities 176,027 166,350
Total Liabilities 6,415,932 6,312,283
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, 110,000,000
Shares Authorized, 41,138,639 and 40,655,916 Issued 12,113 11,973
Capital Surplus 173,303 160,586
Retained Earnings 372,083 326,599
Reserve for Retirement of Capital Securities 3,333 6,667
Treasury Stock, 9,202 shares (342) -
Unrealized Gain on Marketable Securities
(net of deferred income tax) 1,613 3,980
Total Shareholders' Equity 569,103 516,805
$6,985,035 $6,829,088
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PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Interest Income:
Interest and Fees on Loans and Leases $121,839 $109,778 $241,540 $220,178
Interest on Investment Securities:
Taxable 19,901 17,227 37,215 32,244
Exempt From Federal Income Taxes 72 155 127 258
19,973 17,382 37,342 32,502
Interest on Federal Funds Sold and
Reverse Repurchase Agreements 424 452 640 730
Total Interest Income 142,236 127,612 279,522 253,410
Interest Expense:
Interest on Deposits:
Savings and Demand Deposits 5,461 5,127 10,250 10,389
Time Deposits 50,635 42,030 97,679 83,690
Total Interest on Deposits 56,096 47,157 107,929 94,079
Interest on Short-Term Debt 8,084 9,735 15,735 18,716
Interest on Long-Term Debt 10,359 12,071 22,478 24,502
Interest on Junior Subordinated Debentures 2,150 - 4,300 -
Total Interest Expense 76,689 68,963 150,442 137,297
Net Interest Income 65,547 58,649 129,080 116,113
Provision for Loan and Lease Losses 15,000 13,750 26,000 23,750
Net Interest Income After Provision
for Loan and Lease Losses 50,547 44,899 103,080 92,363
Noninterest Income:
Service Charges on Deposit Accounts 6,329 5,317 11,907 10,182
Other Service Charges and Fees 10,373 7,373 19,606 16,600
Gain on Sales of Loans and Leases 18,800 1,149 33,708 2,123
Security Gains (Losses) 1,030 96 3,253 96
Other 5,853 8,640 10,703 12,382
Total Noninterest Income 42,385 22,575 79,177 41,383
Noninterest Expense:
Compensation:
Salaries 19,728 14,767 38,457 30,409
Benefits 3,035 2,596 6,474 5,404
Profit Sharing 1,608 935 3,167 1,911
Occupancy 2,700 2,454 5,346 4,827
Equipment Expense 3,618 2,805 6,885 5,164
Professional Fees 3,681 2,183 6,729 4,009
Charges and Fees 3,002 2,044 6,435 3,517
Other 12,080 8,822 23,229 17,637
Total Noninterest Expense 49,452 36,606 96,722 72,878
Earnings Before Income Taxes 43,480 30,868 85,535 60,868
Applicable Income Taxes 15,280 10,618 30,028 20,943
Net Earnings $28,200 $20,250 $55,507 $39,925
Net Earnings Per Common Share:
Primary $.66 $.49 $1.30 $.98
Fully Diluted .65 .49 1.28 .96
Average Primary Shares 42,398 40,690 42,302 40,640
Average Fully Diluted Shares 43,462 41,688 43,330 41,674
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PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Six Months Ended June 30,
1997 1996
Operating Activities:
Net Earnings $55,507 $39,925
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Provision for Loan and Lease Losses 26,000 23,750
Amortization of Goodwill 814 566
Amortization of Unearned Income and Other (36,362) (20,795)
Depreciation of Premises and Equipment 13,520 7,381
Realized Investment Security Gains (3,253) (96)
Proceeds from Sale of Loans Held for Sale 677,833 93,083
Origination of Loans Held for Sale (379,470) (91,965)
Realized Gains on Loans Held for Sale (31,427) (1,118)
Realized Gains on Sale of Other Loans and Leases (2,281) (1,005)
Increase in Interest Receivable (372) (3,687)
(Increase) Decrease in Other Assets (9,663) 1,439
Increase (Decrease) in Interest Payable 512 (3,019)
Increase in Other Liabilities 10,259 4,581
Net Cash Provided By Operating Activities 321,617 49,040
Investing Activities:
Investment Securities Available for Sale:
Proceeds from Sales 795,684 79,398
Proceeds from Maturities and Prepayments 61,567 357,494
Purchases (1,107,893) (536,827)
Net Increase in Loans and Leases (154,121) (169,495)
Net Increase in Premises and Equipment (21,800) (16,082)
Net Cash and Cash Equivalents Received in Acquisition 7,410 -
Net Cash Used In Investing Activities (419,153) (285,512)
Financing Activities:
Net Increase in Deposits 71,487 70,058
Net Increase in Short-Term Debt 187,772 182,283
Principal Payments on Long-Term Debt (202,708) (54,716)
Proceeds From Issuance of Long-Term Debt - 248
Cash Dividends Paid (13,366) (10,617)
Purchase of Treasury Stock (342) -
Proceeds from Sale of Common Stock 5,705 625
Net Increase in Other Equity Items 9 16
Net Cash Provided By Financing Activities 48,557 187,897
Decrease in Cash and Cash Equivalents (48,979) (48,575)
Cash and Cash Equivalents at Beginning of Period 278,747 213,594
Cash and Cash Equivalents at End of Period $229,768 $165,019
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $149,929 $140,316
Income Taxes 15,000 5,000
Non-Cash Activity:
Transfer of Loans and Premises and Equipment to
Other Real Estate 9,388 8,080
Securitization of Residential Loans - 64,025
Residual Interest Securities Created from the
Sale of Residential Loans 37,072 -
Common Stock Issued To Acquire Business 7,152 -
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PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary for fair presentation. The
results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.
The financial statements presented herein should be read in
conjunction with the financial statements and notes thereto included
in Provident Bancorp, Inc.'s 1996 annual report on Form 10-K filed
with the Securities and Exchange Commission.
Effective June 2, 1997, Provident Bancorp, Inc. changed its name to
Provident Financial Group, Inc. The name change is in response to new
products and services being offered.
All data relating to Provident Financial'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.
Basis of Presentation
The consolidated financial statements include the accounts of
Provident Financial Group, Inc. and its subsidiaries, all of which are
wholly owned. All significant intercompany balances and transactions
have been eliminated. Certain reclassifications have been made to
conform to the current year presentation.
The accompanying financial statements have been prepared in accordance
with the instructions to Form 10-Q and therefore do not include all
information and footnotes necessary to be in conformity with generally
accepted accounting principles.
Provident Financial adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" as amended by
Statement No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125, an amendment of FASB Statement
No. 125" on January 1, 1997. This Statement provides standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. Under this Statement, a company
would remove from the balance sheet those assets it no longer controls
and liabilities it has satisfied. The adoption of SFAS No. 125 had no
material impact on Provident Financial's financial position or results
of operations.
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Statement No. 128, "Earnings per Share" establishes revised standards
for computing and presenting earnings per share. It replaces the
presentation of primary and fully diluted earnings per share with a
presentation of basic and diluted earnings per share. Basic earnings
per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock that then shared in the earnings of the entity. This
Statement is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Provident Financial's
pro forma basic and diluted earnings per share would not have differed
materially from primary and fully diluted earnings per share.
Guaranteed Preferred Beneficial Interests in Provident Financial
Group, Inc.'s Fixed Rate Junior Subordinated Debentures
In November 1996, Provident Financial established Provident Capital
Trust I. Provident Capital issued Capital Securities of $100 million
of preferred to the public and $3,093,000 of common to Provident
Financial. Proceeds from the issuance of the capital securities were
invested in Provident Financial's 8.60% Junior Subordinated
Debentures, due 2026. Taken together, Provident Financial's
obligations under the Guarantee, the Declaration, the Indenture and
the Debentures provide a full and unconditional guarantee of the
Capital Securities. The sole assets (excluding interest receivable on
the Debentures and prepaid franchise tax) of Provident Capital are the
Debentures.
Provident Auto Leasing Company
In January 1997, Provident Financial formed Provident Auto Leasing
Company, a Delaware business trust, as a subsidiary of Provident
Commercial Group, Inc. Provident Auto was created to avoid the
administrative difficulty and expense associated with retitling leased
vehicles in connection with the financing or transfer of beneficial
ownership of automobile and light duty trucks subject to leases.
Provident Auto is a separate legal entity from Provident Commercial
and each maintains separate books and records with respect to its
assets and liabilities. As of June 30, 1997 Provident Auto had total
assets of $76.6 million. These assets are not available to creditors
of Provident Commercial to secure any indebtedness of Provident
Commercial, or otherwise to satisfy the claims of such creditors
against Provident Commercial.
- 6 -
Stock Options
During the second quarter of 1997, Provident Financial adopted a new
stock option plan under which 4,000,000 common shares would be
reserved for issuance. The plan provides that all options are to be
granted with exercise prices of not less than 95% of market value at
the time of grant. Options may be granted for varying periods of up to
ten years. Options may be granted either as Incentive Stock Options
designed to provide certain tax benefits under the Internal Revenue
Code or as Non-Qualified Options without such benefits.
Options to purchase 665,950 shares of Provident Financial Common Stock
were granted during the first six months of 1997. The options have
exercise prices ranging from $31.95 to $42.13.
Off-Balance Sheet Financial Agreements
In the normal course of business, Provident Financial uses various
financial instruments with off-balance sheet risk to manage its
interest rate risk and to meet the financing needs of its customers.
At June 30, 1997, these off-balance sheet instruments consisted of
standby letters of credit of $131.8 million, commitments to extend
credit of $2.0 billion and interest rate swaps with a notional amount
of $1.9 billion.
Acquisitions
On February 12, 1997, Provident Financial completed its previously
announced acquisition of South Hillsborough Community Bank. South
Hillsborough, which had $40 million in assets at the time of merger,
is a Florida state chartered bank having three offices in Hillsborough
County, Florida. This transaction was accounted for as a purchase, and
accordingly, the assets acquired and liabilities assumed were recorded
at estimated fair value. South Hillsborough's shareholders received
189,259 shares of Provident Financial Common Stock having an aggregate
value of $7,151,900 as a result of the merger. During the second
quarter, South Hillsborough Community Bank's name was changed to
Provident Bank of Florida.
On May 22, 1997, Provident Financial announced the signing of a
definitive agreement for the acquisition of Florida Gulfcoast Bancorp,
Inc. Florida Gulfcoast is the parent of the $163 million Enterprise
National Bank which operates three branches in Sarasota County,
Florida. This transaction will be accounted for as a pooling of
interest, and accordingly, the assets acquired and liabilities assumed
will be recorded at their historical value. Shareholders of Florida
Gulfcoast will receive shares of Provident Financial Common Stock
having an aggregate value of $34.9 million as a result of the merger.
Florida Gulfcoast will be merged into the Provident Bank of Florida.
The acquisition is expected to be completed during the third quarter
of 1997.
- 7 -
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Summary
Provident Financial's net earnings for the second quarter of 1997 were
$28.2 million compared to $20.3 million for the second quarter of
1996. Net interest income increased by $6.9 million, or 12%, over the
comparable period in 1996. Interest income increased by $14.6 million,
which more than offset the $7.7 million increase in interest expense.
The provision for loan and lease losses was $15.0 million, an increase
of $1.3 million, or 9%, from the second quarter in 1996. Noninterest
income increased $19.8 million, or 88%, due primarily to gains
recognized on the sale of loans and leases. Noninterest expense
increased $12.8 million, or 35%, primarily as a result of the national
expansion of Provident Consumer Financial Services, the acquisition of
Information Leasing Corporation, the continued development of the
MeritValu division and the continued redirection of its retail banking
functions.
For the first six months of 1997, Provident Financial's net earnings
were $55.5 million, an increase of $15.6 million, or 39%, over the
same period during 1996. Net interest income increased by $13.0
million, or 11%, over the comparable period in 1996. Interest income
increased by $26.1 million, which more than offset the $13.1 million
increase in interest expense. The provision for loan and lease losses
increased $2.3, or 9%, from the same period during 1996. Noninterest
income increased $37.8 million, or 91%, while noninterest expense
increased $23.8 million, or 33%. The explanations for the increase in
noninterest income and expense are the same as those noted in the
above quarterly comparisons paragraph.
The recognition of gains on the sale of loans and leases made a
significant contribution to Provident Financial's net income during
the first two quarters of 1997. Of the $33.7 million gain recorded
during this period, $26.0 million was realized from the sale of
residential closed-end nonconforming home equity loans originated by
Provident Consumer. The following is a summary of selected operational
data for Provident Consumer for the past five quarters (in million):
Quarter Ended
June 1997 Mar. 1997 Dec. 1996 Sept. 1996 June 1996
Loan Originations $213.6 $143.3 $130.2 $111.4 $76.7
Loan Sales 233.2 140.1 110.0 204.0 -
Gain on Sale of Loans 15.5 10.5 9.5 14.5 -
Interest and Fees on Loans 5.2 4.2 2.5 4.2 2.8
- 8 -
The following ratios compare Provident Financial's returns on average
assets and average equity for the first six months of 1997 and for the
year 1996.
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
Net Earnings to Average Assets(1) 1.64% 1.28%
Net Earnings to Average Shareholders' Equity(1) 20.60% 17.67%
<FN>
(1)Net earnings for the six months ended June 30, 1997 have been annualized.
The ratio of noninterest expense to tax equivalent revenue
("efficiency ratio") was 47.1% for the first six months of 1997
compared to 46.2% for the first six months of 1996. For purposes of
calculating the efficiency ratio, noninterest expense excludes non-
recurring expenses. Tax equivalent revenue includes tax equivalent net
interest income and noninterest income but excludes non-recurring
income, and security gains or losses.
Nonperforming assets as of June 30, 1997 were $49.1 million, an
increase of $20.6 million compared to December 31, 1996. The increase
was principally the result of placing one loan on nonaccrual during
the second quarter. The ratio of nonperforming loans to total loans
and leases was .71% at June 30, 1997, compared to .41% at December 31,
1996. The ratio of nonperforming assets to total loans, leases and
other real estate owned was .94% at June 30, 1997, compared to .54% at
December 31, 1996.
Net Interest Income
See Table 1 for net interest income on a tax equivalent basis and
Table 2 for consolidated average balances, average rates and net
interest margin.
Net interest income on a tax equivalent basis increased approximately
$12.9 million for the first six months of 1997 over the comparable
period in 1996. This increase resulted from a $7.4 million increase
due to changes in volume and a $5.5 million increase which was caused
by changes in rates. Volume changes are caused by changes in the
average balances of interest earning assets and interest bearing
liabilities. The net interest margin was 4.05% for the first six
months of 1997 as compared to 3.93% for the comparable period in 1996.
This improvement reflects the increase in the average rate received on
interest earning assets of 20 basis points, more than offsetting the
increase in the average rate paid on interest bearing liabilities of
12 basis points. The increase in Provident Financial's overall rate on
interest earning assets was due to the increase in the rate received
on equipment leases. The increase in the average rate paid on interest
bearing liabilities was due to a higher average rate paid on demand
deposits and long-term debt. Interest rate swaps increased the net
interest margin by 22 basis points and 21 basis points during the
first six months of 1997 and 1996, respectively.
- 9 -
In preparing the net interest margin tables, nonaccrual loan balances
are included in the average balances for loans and leases. Fees
included in interest and fees on loans and leases are as follows:
second quarter 1997 - $3.9 million, second quarter 1996 - $3.8
million, year-to-date 1997 - $8.2 million, and year-to-date 1996 -
$8.8 million.
Noninterest Income
Second Quarter 1997 Compared to Second Quarter 1996
Noninterest income increased $19.8 million during the second quarter
of 1997 compared to the same quarter in 1996. Service charges on
deposit accounts increased primarily as a result of increased fees
received on corporate and personal demand deposit accounts and ATM
usage. The increase in other service charges and fees was principally
the result of gains and fees related to commercial lending. Gain on
sales of loans and leases increased primarily as a result of $15.5
million in gains on the sale of non-conforming home equity loans by
Provident Consumer. Security gains of $1.0 million were recognized
primarily from the sale of mortgage-backed securities. The decrease in
other income was due to receipts of additional consideration related
to a restructured loan being higher in 1996 than in 1997. This
decrease was partially offset by additional revenues from operating
leases which resulted from the acquisition of Information Leasing
Corporation.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30,
1996
Noninterest income increased $37.8 million during the first six months
of 1997 compared to the same period in 1996. Service charges on
deposits accounts, other service charges and fees, gain on sales of
loans and leases and security gains increased while other income
decreased for the same reasons given in the quarterly comparison.
Noninterest Expense
Second Quarter 1997 Compared to Second Quarter 1996
Noninterest expense increased $12.8 million during the second quarter
of 1997 when compared to 1996. Compensation expense increased
primarily as a result of the acquisition of Information Leasing and
the expansion of Provident Consumer. Equipment expense increased due
primarily to the depreciation of computer equipment purchased during
the current year. Professional fees increased primarily in the
MeritValu and consumer lending areas. Charges and fees increased
primarily as a result of increased loan originations and foreclosed
property costs. Higher marketing costs were the primary reason for the
increase in other expense.
- 10 -
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30,
1996
Noninterest expense increased $23.8 million during the first six
months of 1997 compared to the same period in 1996. Compensation,
equipment expense, professional fees, charges and fees and other
expenses increased for the same reasons as given in the quarterly
comparison.
Financial Condition
Short-Term Investments and Investment Securities
Federal funds sold and reverse repurchase agreements decreased $70.1
million since December 31, 1996. The amount of federal funds sold
changes daily as cash is managed to meet reserve requirements and
customer needs. After funds have been allocated to meet lending and
investment requirements, any remainder is placed in overnight federal
funds. Investment securities increased $300.4 million during 1997
resulting from the redeployment of proceeds from the sale of
residential mortgage loans.
Loans and Leases
Total loans and leases decreased $105.6 million during 1997. The
decrease was due primarily to the sale of $683.5 million in
residential loans during the first half of 1997 which was offset
partially by the origination of new loans and leases primarily in the
areas of commercial and financial, residential and consumer lease
financing.
The following table shows the composition of the commercial and
financial loan category by industry type at June 30, 1997 (dollars in
millions):
Amount on
Type Amount % Nonaccrual
Construction $105.7 4 $.1
Manufacturing 534.8 21 2.2
Transportation/Utilities 142.5 6 .1
Wholesale Trade 231.0 9 2.8
Retail Trade 263.7 11 17.6
Finance & Insurance 134.8 5 .5
Real Estate Operators/Investment 304.1 12 .7
Service Industries 370.3 15 .8
Automobile Dealers 118.3 5 -
Other(1) 303.9 12 2.4
Total $2,509.1 100 $27.2
(1) Includes various kinds of loans, such as small business loans
and loans with balances under $100,000.
- 11 -
The composition of the commercial mortgage and construction loan
categories by property type at June 30, 1997 is shown in the following
table (dollars in millions):
Amount on
Type Amount % Nonaccrual
Apartments $126.9 16 $-
Office/Warehouse 165.8 21 -
Residential Development 94.6 12 -
Shopping/Retail 192.6 24 -
Land 42.2 5 -
Industrial Plants 15.5 2 -
Hotels/Motels 30.2 4 -
Health Facilities 4.4 1 -
Auto Sales and Service 26.0 3 -
Churches 11.7 1 -
Mobile Home Parks 7.8 1 -
Other Commercial Properties 82.8 10 -
Total $800.5 100 $-
Provident Financial maintains a reserve to absorb potential losses in
its loan and lease 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. 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. Management considers
the present reserve to be appropriate and adequate to cover potential
losses inherent in the loan and lease portfolio based on the current
economic environment. The foregoing is a forward looking statement.
Actual results could vary materially because of a number factors
including a deterioration in general economic conditions which could
adversely effect borrowers. In addition, borrowers could suffer
unanticipated losses without regard to general economic conditions.
The result of these and other factors could cause an increase in the
risk characteristics of the loan and lease portfolio and an increase
in the provision for loan and lease losses.
The following table shows the progression of the reserve for loan and
lease losses (dollars in thousands):
1997 1996
Balance at January 1 $66,693 $60,235
Provision for Loan and Lease Losses 26,000 23,750
Acquired Reserves 334 -
Loans and Leases Charged Off (20,532) (24,807)
Recoveries 5,801 1,991
Balance at June 30 $78,296 $61,169
- 12 -
Net charge-offs totaled $14.7 million during the first six months of
1997 compared to $22.8 million for the same time period in 1996.
During the first half of 1997, net charge-offs for commercial lending
were $1.2 million which resulted primarily from the charge-off of one
commercial mortgage loan. Net charge-offs for consumer lending were
$13.5 million which consisted principally of auto loans and credit
cards. As a percentage of total loans and leases outstanding, the
reserve was 1.50% at June 30, 1997 compared to 1.26% at December 31,
1996 and 1.22% at June 30, 1996. The increase in the ratio reflects
the sale of low risk seasoned residential loans during the first half
of 1997 as well as an additional reserve to offset an anticipated loss
related to a single credit recently placed on nonaccrual.
Table 3 shows a comparison of the major components of nonperforming
assets over the past five quarters along with various asset quality
ratios. Nonperforming assets have increased $20.6 million during the
first six months of 1997. Nonaccrual loans increased $15.5 million due
primarily to the one credit being added as noted in the previous
paragraph. Other real estate increased $5.7 million due primarily to
foreclosing on two commercial properties. At June 30, 1997,
nonperforming assets as a percentage of total loans, leases and other
real estate was .94% compared to .54% at December 31, 1996 and .85%
for Provident Financial's most recent five-year average.
Short-Term Debt
Short-term debt increased $187.8 million, or 31%, to $787.3 million
during the first six months of 1997. The increase was due to the
purchase of overnight federal funds. The amount of federal funds
purchased changes daily as cash is managed to meet reserve
requirements and customer needs. After funds have been allocated to
meet lending and investment requirements, any shortage is offset by
the purchased of overnight federal funds.
Long-Term Debt
During the first six months of 1997, long-term debt decreased $202.6
million, or 24%, reflecting the repayment of debt, primarily to the
Federal Home Loan Bank.
Capital Resources and Adequacy
During the first six months of 1997, shareholders' equity increased
$52.3 million, or 10%, to $569.1 million. Dividends of $13.0 million
on common stock and $316,000 on preferred stock were paid in the first
half of 1997. Unrealized gains/losses on marketable securities, net of
deferred income taxes, decreased $2.4 million during the first half of
1997.
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The following table of ratios is important to the analysis of the
adequacy of capital resources.
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
Average Shareholders' Equity to Average Assets 7.96% 7.23%
Preferred Dividend Payout to Net Earnings .57 .66
Common Dividend Payout to Net Earnings 23.51 26.40
Tier 1 Leverage Ratio 9.48 9.02
Tier 1 Capital to Risk-Weighted Assets 9.46 9.23
Total Risk-Based Capital To Risk-Weighted Assets 13.21 13.05
Provident Financial announced that it was increasing its quarterly
common dividend from $.16 per share to $.20 per share effective with
the dividend to be paid in the third quarter of 1997. This higher
dividend rate should cause the preferred dividend payout ratio, as
well as the common dividend payout ratio, to increase in the future,
as the preferred dividend rate is based on a rate equivalent to that
paid on its common stock.
Capital expenditures planned by Provident Financial for building
improvements and furniture and equipment in 1997 are currently
estimated to be approximately $14 million. Included in this amount are
projected capital expenditures for the purchase or construction of
system applications, data processing equipment, ATMs and branches.
Through June 30, 1997, approximately $9.4 million of these
expenditures have been made.
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. Provident
Financial 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, deposits with other banks and federal funds sold.
Another source is the generation of new deposits. Provident Financial
may borrow both short-term and long-term funds. Provident Financial
has an additional $687.5 million available for borrowing under a $1
billion bank notes program. Additional sources of liquidity include
the sale of investment securities and the sale of commercial and
consumer loans and leases.
The major source of liquidity for Provident Financial on a parent-only
basis ("the Parent") is dividends paid to it by its subsidiaries.
Pursuant to Federal Reserve and state banking regulations, the maximum
amount available for dividend distribution to the Parent at June 30,
1997 by its banking subsidiaries was approximately $157.4 million. The
Parent has not received dividends from its subsidiaries during the
first six months of 1997.
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At June 30, 1997, the Parent had $152.6 million of short-term
commercial paper outstanding. A portion of commercial paper proceeds
was used to fund investment securities and short-term loans.
Contractual lines of credit totaling $175 million have been obtained
by the Parent to support its commercial paper borrowings. Also, the
Parent has $40 million in general purpose lines of credit. These lines
had not been used at June 30, 1997. The Parent had approximately $63.6
million in cash and interest earning deposits at June 30, 1997.
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Provident Financial Group, Inc. and Subsidiaries
Condensed Consolidated Statements Of Earnings
(unaudited)
(In Thousands)
Table 1.
Quarter Ended Six Months Ended
June June June June
1997 1996 1997 1996
Total Interest Income $142,236 $127,612 $279,522 $253,410
Taxable Equivalent Adjustment 86 142 164 257
Taxable Equivalent Interest Income 142,322 127,754 279,686 253,667
Total Interest Expense 76,689 68,963 150,442 137,297
Net Interest Income 65,633 58,791 129,244 116,370
Provision for Loan and Lease Losses 15,000 13,750 26,000 23,750
Taxable Equivalent Net Interest Income After
Provision for Loan and Lease Losses 50,633 45,041 103,244 92,620
Noninterest Income 42,385 22,575 79,177 41,383
Noninterest Expense 49,452 36,606 96,722 72,878
Taxable Equivalent Earnings Before Income Taxes 43,566 31,010 85,699 61,125
Applicable Income Taxes 15,280 10,618 30,028 20,943
Taxable Equivalent Adjustment 86 142 164 257
Net Earnings $28,200 $20,250 $55,507 $39,925
Net Earnings Applicable to Common Stock $28,042 $20,112 $55,191 $39,666
- 16 -
Provident Financial Group, Inc. and Subsidiaries
Consolidated Average Balances, Rates and Yields
On a Fully Taxable Equivalent Basis
(unaudited)
(Dollars In Millions)
Table 2.
Quarter Ended Six Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
Average Avg Average Avg Average Avg Average Avg
Balance Rate Balance Rate Balance Rate Balance Rate
Assets:
Loans and Leases (Net of Unearned Income):
Commercial Lending:
Commercial and Financial $2,479 9.47% $2,249 9.11% $2,437 9.34% $2,237 9.35%
Mortgage 511 9.18 452 9.37 500 9.22 447 9.15
Construction 286 8.89 231 8.92 283 8.79 247 9.01
Lease Financing 248 11.22 128 8.00 245 11.15 126 7.65
Consumer Lending:
Instalment 877 9.86 991 9.27 893 9.76 997 9.30
Residential 204 9.09 465 8.63 314 8.33 470 8.33
Lease Financing 647 7.57 421 7.53 631 7.63 390 7.50
Total Loans and Leases 5,252 9.31 4,937 8.95 5,303 9.19 4,914 9.02
Investment Securities:
Taxable 1,176 6.79 1,060 6.54 1,101 6.82 998 6.50
Tax-Exempt 7 6.36 16 6.17 7 5.36 13 6.09
Total Investment Securities 1,183 6.78 1,076 6.53 1,108 6.81 1,011 6.49
Federal Funds Sold and Reverse
Repurchase Agreements 22 5.79 35 5.18 21 5.79 28 5.18
Total Earning Assets 6,457 8.84 6,048 8.50 6,432 8.77 5,953 8.57
Cash and Noninterest Bearing Deposits 106 157 138 148
Other Assets 193 130 202 128
Total Assets $6,756 $6,335 $6,772 $6,229
Liabilities and Shareholders' Equity:
Deposits:
Demand Deposits $298 2.86 $253 1.94 $273 2.64 $253 1.94
Savings Deposits 500 2.67 588 2.68 497 2.71 594 2.69
Time Deposits 3,505 5.79 2,928 5.77 3,448 5.71 2,872 5.86
Total Deposits 4,303 5.23 3,769 5.03 4,218 5.16 3,719 5.09
Short-Term Debt:
Federal Funds Purchased and
Repurchase Agreements 427 5.39 596 5.23 435 5.31 558 5.28
Commercial Paper 156 5.91 145 5.45 149 5.72 148 5.47
Short-Term Notes Payable 1 5.09 1 6.46 1 5.52 1 6.68
Total Short-Term Debt 584 5.53 742 5.27 585 5.42 707 5.32
Long-Term Debt 665 6.24 812 5.98 722 6.27 816 6.04
Junior Subordinated Debentures 99 8.80 - - 99 8.84 - -
Total Interest Bearing Liabilities 5,651 5.44 5,323 5.21 5,624 5.39 5,242 5.27
Noninterest Bearing Deposits 396 413 443 405
Other Liabilities 157 148 166 139
Shareholders' Equity 552 451 539 443
Total Liabilities and Shareholders' Equity $6,756 $6,335 $6,772 $6,229
Net Interest Spread 3.40% 3.29% 3.38% 3.30%
Net Interest Margin 4.08% 3.91% 4.05% 3.93%
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Provident Financial Group, Inc. and Subsidiaries
Consolidated Quarterly Nonperforming Assets
(unaudited)
(Dollars In Thousands)
Table 3.
Quarter Ended
June Mar. Dec. Sept. June
1997 1997 1996 1996 1996
Nonaccrual Loans: (1)
Commercial Lending:
Commercial and Financial $27,230 $14,597 $14,164 $18,024 $14,283
Mortgage - 103 103 48 300
Construction 27 71 71 71 71
Lease Financing 7,292 4,980 3,973 2,653 2,720
Consumer Lending:
Instalment - - - - -
Residential 2,028 3,583 2,805 2,008 1,489
Lease Financing - - - - -
Total Nonaccrual Loans 36,577 23,334 21,116 22,804 18,863
Renegotiated Loans (2) 246 526 786 787 551
Total Nonperforming Loans 36,823 23,860 21,902 23,591 19,414
Other Real Estate and Equipment Owned:
Commercial 8,820 5,191 6,102 6,477 7,341
Closed bank branches - - - - -
Residential 3,369 3,752 475 480 897
Multifamily - - - - -
Land 68 1,615 15 660 661
Total 12,257 10,558 6,592 7,617 8,899
Total Nonperforming Assets $49,080 $34,418 $28,494 $31,208 $28,313
Loans 90 Days Past Due Still Accruing $20,460 $11,848 $18,751 $19,989 $25,426
Total Loans and Leases 5,205,897 5,071,712 5,311,448 5,047,441 4,996,007
Reserve for Loan and Lease Losses 78,296 68,371 66,693 63,665 61,169
Total Assets 6,985,162 6,780,351 6,829,088 6,483,920 6,428,464
Reserve for Loan and Lease Losses as a Percent of:
Nonperforming Loans 212.63% 286.55% 304.51% 269.87% 315.08%
Nonperforming Assets 159.53% 198.65% 234.06% 204.00% 216.05%
Total Loans and Leases 1.50% 1.35% 1.26% 1.26% 1.22%
Nonperforming Loans as a % of Total
Loans and Leases .71% .47% .41% .47% .39%
Nonperforming Assets as a Percent of:
Total Loans, Leases and Other Real Estate .94% .68% .54% .62% .57%
Total Assets .70% .51% .42% .48% .44%
<FN>
(1) Provident Financial 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.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Registrant's annual meeting of shareholders was held on May 15, 1997.
Proxies were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934 and the following matters were voted upon and
approved by the shareholders as indicated below.
Votes Votes Broker
For Against Abstentions Non-Votes
Amendments of the Articles of
Incorporation:
(a)To change the name of the Company
to Provident Financial Group, Inc. 37,511,993 89,455 118,586 -
(b)To increase the number of common
shares authorized from 60 million
to 110 million shares 36,911,713 711,913 96,408 -
Adoption of a Stock Option Plan 32,188,382 3,176,283 559,286 1,796,083
Election of the following directors:
(a)Jack M. Cook 37,573,032 17,238 129,764 -
(b)Allen L. Davis 37,573,804 17,455 128,775 -
(c)Thomas D. Grote, Jr. 37,574,577 17,455 128,002 -
(d)Philip R. Myers 37,587,009 17,455 115,570 -
(e)Joseph A. Pedoto 37,574,113 17,455 128,466 -
(f)Sidney A. Peerless 37,562,461 17,304 140,269 -
(g)Joseph A. Steger 37,569,176 17,017 133,841 -
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit filed:
Exhibit 3(i) - Amendment to Articles of Incorporation
Exhibit 27 - Financial Data Schedule
All other items required in Part II of this form have been omitted
since they are not applicable or not required.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Provident Financial Group, Inc.
Registrant
Date: August 13, 1997 \s\ John R. Farrenkopf
John R. Farrenkopf
Vice President and
Chief Financial Officer
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