SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File
September 30, 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 October 31, 1997 is
41,962,344.
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)
September 30 December 31,
1997 1996
(Unaudited)
ASSETS
Cash and Noninterest Bearing Deposits $ 192,119 $ 208,097
Federal Funds Sold and Reverse Repurchase Agreements 147,437 70,650
Investment Securities Available for Sale
(amortized cost - $1,366,190 and $1,026,784) 1,372,667 1,032,907
Loans and Leases (Net of Unearned Income):
Commercial Lending:
Commercial and Financial 2,745,104 2,404,890
Mortgage 554,822 475,882
Construction 309,984 283,673
Lease Financing 289,504 239,064
Consumer Lending:
Instalment 607,903 924,561
Residential - Held for Sale 109,339 73,545
Residential - Portfolio - 318,070
Lease Financing 488,922 591,763
Total Loans and Leases 5,105,578 5,311,448
Reserve for Loan and Lease Losses (75,242) (66,693)
Net Loans and Leases 5,030,336 5,244,755
Premises and Equipment 175,931 145,641
Other Assets 161,088 127,038
$7,079,578 $6,829,088
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest Bearing $ 512,907 $ 554,262
Interest Bearing 4,471,149 4,042,218
Total Deposits 4,984,056 4,596,480
Short-Term Debt 535,751 599,540
Long-Term Debt 659,005 850,934
Guaranteed Preferred Beneficial Interests in
Provident Financial Group, Inc.'s Fixed Rate
Junior Subordinated Debentures 98,801 98,979
Accrued Interest and Other Liabilities 195,194 166,350
Total Liabilities 6,472,807 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, 41,939,093 and 40,655,916 Issued 12,346 11,973
Capital Surplus 184,285 160,586
Retained Earnings 395,772 326,599
Reserve for Retirement of Capital Securities 3,500 6,667
Treasury Stock, 9,202 shares (342) -
Unrealized Gain on Marketable Securities
(net of deferred income tax) 4,210 3,980
Total Shareholders' Equity 606,771 516,805
$7,079,578 $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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Interest Income:
Interest and Fees on Loans and Leases $124,683 $113,500 $366,223 $333,678
Interest on Investment Securities:
Taxable 21,677 17,506 58,892 49,750
Exempt From Federal Income Taxes 86 161 213 419
21,763 17,667 59,105 50,169
Interest on Federal Funds Sold and
Reverse Repurchase Agreements 66 100 706 830
Total Interest Income 146,512 131,267 426,034 384,677
Interest Expense:
Interest on Deposits:
Savings and Demand Deposits 7,609 5,137 17,859 15,526
Time Deposits 49,663 42,702 147,342 126,392
Total Interest on Deposits 57,272 47,839 165,201 141,918
Interest on Short-Term Debt 11,234 11,822 26,969 30,538
Interest on Long-Term Debt 10,359 11,231 32,806 35,733
Interest on Junior Subordinated Debentures 2,166 - 6,497 -
Total Interest Expense 81,031 70,892 231,473 208,189
Net Interest Income 65,481 60,375 194,561 176,488
Provision for Loan and Lease Losses 9,500 14,000 35,500 37,750
Net Interest Income After Provision
for Loan and Lease Losses 55,981 46,375 159,061 138,738
Noninterest Income:
Service Charges on Deposit Accounts 6,331 5,529 18,238 15,711
Other Service Charges and Fees 6,281 6,771 25,887 23,371
Gain on Sales of Loans and Leases 25,635 16,187 59,343 18,310
Security Gains 1,196 - 4,449 96
Other 4,173 3,037 14,876 15,419
Total Noninterest Income 43,616 31,524 122,793 72,907
Noninterest Expense:
Compensation:
Salaries 20,827 16,588 59,284 46,997
Benefits 3,160 2,864 9,634 8,268
Profit Sharing 1,709 918 4,876 2,829
Occupancy 3,516 2,324 8,862 7,151
Equipment Expense 3,989 2,998 10,874 8,162
Professional Fees 3,660 4,019 10,389 8,028
Charges and Fees 4,023 2,199 10,458 5,716
Deposit Insurance 340 8,889 989 10,663
Other 12,973 10,725 35,553 26,588
Total Noninterest Expense 54,197 51,524 150,919 124,402
Earnings Before Income Taxes 45,400 26,375 130,935 87,243
Applicable Income Taxes 15,898 9,100 45,926 30,043
Net Earnings $ 29,502 $ 17,275 $ 85,009 $ 57,200
Net Earnings Per Common Share:
Primary $ .68 $ .42 $ 1.99 $ 1.40
Fully Diluted .67 .41 1.95 1.37
Average Primary Shares 42,979 40,831 42,529 40,704
Average Fully Diluted Shares 43,967 41,987 43,544 41,778
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PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Nine Months Ended
September 30
1997 1996
Operating Activities:
Net Earnings $ 85,009 $ 57,200
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Provision for Loan and Lease Losses 35,500 37,750
Amortization of Goodwill 1,231 849
Amortization of Unearned Income and Other (55,961) (32,744)
Depreciation of Premises and Equipment 21,272 11,460
Realized Investment Security Gains (4,449) (96)
Proceeds from Sale of Loans Held for Sale 943,143 332,956
Origination of Loans Held for Sale (672,980) (332,376)
Realized Gains on Loans Held for Sale (45,591) (16,269)
Realized Gains on Sale of Other Loans and Leases (13,752) (2,041)
Increase in Interest Receivable (342) (1,186)
(Increase) Decrease in Other Assets (28,947) 6,404
Increase in Interest Payable 10,264 5,410
Increase in Other Liabilities 16,687 17,925
Net Cash Provided By Operating Activities 291,084 85,242
Investing Activities:
Investment Securities Available for Sale:
Proceeds from Sales 1,209,958 79,398
Proceeds from Maturities and Prepayments 105,760 571,106
Purchases (1,529,466) (676,135)
Proceeds from Sale-Leaseback Transactions 230,000 -
Net Increase in Loans and Leases (139,749) (228,085)
Net Increase in Premises and Equipment (48,849) (24,869)
Net Cash and Cash Equivalents Received in Acquisitions 13,694 -
Net Cash Used In Investing Activities (158,652) (278,585)
Financing Activities:
Net Increase in Deposits 209,552 239,592
Net Increase (Decrease) in Short-Term Debt (64,069) 133,529
Principal Payments on Long-Term Debt (204,859) (154,914)
Proceeds From Issuance of Long-Term Debt 1,764 248
Cash Dividends Paid (21,710) (16,289)
Purchase of Treasury Stock (342) -
Proceeds from Sale of Common Stock 7,954 1,429
Net Increase in Other Equity Items 87 15
Net Cash Provided By (Used In) Financing Activities (71,623) 203,610
Increase in Cash and Cash Equivalents 60,809 10,267
Cash and Cash Equivalents at Beginning of Period 278,747 213,594
Cash and Cash Equivalents at End of Period $ 339,556 $223,861
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 221,210 $202,779
Income Taxes 25,000 13,000
Non-Cash Activity:
Transfer of Loans and Premises and Equipment to Other
Real Estate 12,543 8,554
Securitization of Residential Loans - 64,025
Residual Interest Securities Created from the Sale of Loans 70,969 15,689
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.
- 5 -
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 expenses) 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 September 30, 1997 Provident Auto had
total assets of $47.3 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 are 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 743,450 shares of Provident Financial Common Stock
were granted during the first nine months of 1997. The options have
exercise prices ranging from $31.95 to $49.81.
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 September 30, 1997, these off-balance sheet instruments consisted
of standby letters of credit of $119.5 million, commitments to extend
credit of $2.0 billion and interest rate swaps with a notional amount
of $1.7 billion.
Acquisitions
Provident Financial acquired South Hillsborough Community Bank as of
February 12, 1997. South Hillsborough, which had $40 million in assets
at the time of acquisition, is a Florida state chartered bank having
three offices in Hillsborough County, Florida. South Hillsborough's
shareholders received 189,259 shares of Provident Financial Common
Stock having an aggregate value of $7.2 million as a result of the
acquisition. This transaction was accounted for as a purchase, and
accordingly, the assets acquired and liabilities assumed were recorded
at estimated fair value. On June 2, 1997, South Hillsborough Community
Bank's name was changed to Provident Bank of Florida.
On September 12, 1997, Provident Financial completed its previously
announced acquisition of Florida Gulfcoast Bancorp, Inc. Florida
Gulfcoast was the parent of the $166 million Enterprise National Bank
which operates three branches in Sarasota County, Florida.
Shareholders of Florida Gulfcoast received 712,712 shares of Provident
Financial Common Stock having an aggregate value of $34.9 million as a
result of the acquisition. Enterprise was merged into the Provident
Bank of Florida in October. This transaction was accounted for as a
pooling of interests, and accordingly, the assets acquired and
liabilities assumed were recorded at their historic values. Prior
periods' financial information has not been restated due to
immateriality.
- 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 third quarter of 1997 were
$29.5 million compared to $17.3 million for the third quarter of 1996.
Net interest income increased by $5.1 million, or 8%, over the
comparable period in 1996. The provision for loan and lease losses was
$9.5 million, a decrease of $4.5 million from the third quarter in
1996. Noninterest income increased $12.1 million, or 38%, due
primarily to gains recognized on the sale of loans. Noninterest
expense increased $2.7 million, or 5%, primarily as a result of the
national expansion of Provident Consumer, the acquisition of
Information Leasing Corporation and data processing expense associated
with Year 2000 compliance. These additional expenses were partially
offset by a decrease in deposit insurance expense which was due to a
one-time Savings Association Insurance Fund assessment charge of $8.0
million during the third quarter of 1996.
For the first nine months of 1997, Provident Financial's net earnings
were $85.0 million, an increase of $27.8 million, or 49%, over the
same period during 1996. Interest income increased by $41.4 million,
which more than offset the $23.3 million increase in interest expense.
The provision for loan and lease losses decreased $2.3 million, or 6%,
from the same period during 1996. Noninterest income increased $49.9
million, or 68%, while noninterest expense increased $26.5 million, or
21%. The explanations for the increase in noninterest income and
expense are the same as those noted in the above quarterly comparisons
paragraph.
The following ratios compare Provident Financial's annualized returns
on average assets and average equity for the first nine months of 1997
to the year 1996.
Nine Months Ended Year Ended
September 30, 1997 December 31, 1996
Net Earnings to Average Assets(1) 1.65% 1.28%
Net Earnings to Average Shareholders' Equity(1) 20.61% 17.67%
<FN>
(1) Net earnings for the nine months ended September 30, 1997 have been annualized.
The ratio of noninterest expense to tax equivalent revenue
("efficiency ratio") was 48.2% for the first nine months of 1997
compared to 46.6% for the first nine months of 1996. For purposes of
calculating the efficiency ratio, noninterest expense excludes non-
recurring expenses of $8.0 million in 1996. Tax equivalent revenue
includes tax equivalent net interest income and noninterest income but
excludes non-recurring income and security gains or losses.
- 8 -
Nonperforming assets as of September 30, 1997 were $49.9 million, an
increase of $21.5 million compared to December 31, 1996. The increase
was principally the result of placing two loans on nonaccrual during
1997. The ratio of nonperforming loans to total loans and leases was
.73% at September 30, 1997, compared to .41% at December 31, 1996. The
ratio of nonperforming assets to total loans, leases and other real
estate owned was .98% at September 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
$17.9 million for the first nine months of 1997 over the comparable
period in 1996. This increase resulted from a $11.2 million increase
due to changes in volume and a $6.7 million increase 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 4.00% for the first nine months of 1997 as
compared to 3.92% 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 19 basis points.
The increase in Provident Financial's overall rate on interest earning
assets was due primarily to the increase in the rate received on
equipment leases. The increase in the average rate paid on interest
bearing liabilities was due primarily to a higher average rate paid on
Premium Index savings deposits. Interest rate swaps increased the net
interest margin by 19 basis points and 22 basis points during the
first nine months of 1997 and 1996, respectively.
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:
third quarter 1997 - $3.1 million, third quarter 1996 - $4.0 million,
year-to-date 1997 - $11.3 million, and year-to-date 1996 - $12.8
million.
Provision for Loan and Lease Losses
The provision for loan and lease losses was $9.5 million and $14.0
million during the third quarter of 1997 and 1996, respectively, and
$35.5 million and $37.8 million during the first nine months of 1997
and 1996, respectively. The decrease in the third quarter provision
was primarily the result of reduced credit risk in the lending
portfolio attributable to the sale of loans and leased vehicles.
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Noninterest Income
Third Quarter 1997 Compared to Third Quarter 1996
Noninterest income increased $12.1 million during the third 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. Gain on
sales of loans and leases increased primarily as a result of selling
residential and home equity loans. Security gains were recognized
primarily from the sale of mortgage-backed securities. The increase in
other income was due to additional revenues from operating leases
which resulted from the acquisition of Information Leasing as well as
revenue growth in Provident Commercial.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
Noninterest income increased $49.9 million during the first nine
months of 1997 compared to the same period in 1996. Service charges on
deposit accounts, gain on sales of loans and leases and security gains
increased for the same reasons given in the quarterly comparison. The
decrease in other income was due to receipts of additional
consideration related to a restructured loan being higher in 1996 than
in 1997 which was partially offset by additional revenues from
operating leases during 1997.
Since the third quarter of 1996, it has been Provident Financial's
policy to sell its closed-end nonconforming residential loans
originated by Provident Consumer Financial Services. The recognition
of gains on the sale of these loans have made a notable contribution
to the financial performance over this time period. The following is a
summary of selected operational data for Provident Consumer for the
past five quarters (in millions):
Quarter Ended
Sept. 1997 June 1997 Mar. 1997 Dec. 1996 Sept. 1996
Loan Originations $230.3 $213.6 $143.3 $130.2 $111.4
Loan Sales 233.2 233.2 140.1 110.0 204.0
Gain on Sale of Loans 13.8 15.5 10.5 9.5 14.5
Interest and Fees on Loans 5.6 5.2 4.2 2.5 4.2
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Included in "Investment Securities Available for Sale" are residual
interest securities representing the present value of net cash flows
due Provident Financial from loan sales made primarily through
securitized public offerings. Details of the closed-end nonconforming
residential loans sold through securitizations are as follows (in
thousands):
Estimated Cash Flows of Underlying Loans, Net of Payments
to Certificate Holders $157,919
Less:
Off-Balance Sheet Allowance for Loan Losses (35,155)
Servicing Costs and Insurance Premiums (18,043)
Discount to Present Value (27,321)
Carrying Value of Residual Interest Securities $ 77,400
Outstanding Balance of Loans Sold Through Securitizations $794,200
Off Balance Sheet Allowance for Losses as a Percent of
Loans Sold Through Securitizations 4.43%
In addition to the closed-end nonconforming residential loan sales,
Provident Financial sold $169.0 million of open-end conforming home
equity loans and $75.5 million of closed-end conforming home equity
loans during the third quarter of 1997. These sales resulted in gains
of $6.7 million and $3.3 million being recognized, respectively.
Noninterest Expense
Third Quarter 1997 Compared to Third Quarter 1996
Noninterest expense increased $2.7 million during the third quarter of
1997 when compared to 1996. Compensation expense increased primarily
as a result of the expansion of Provident Consumer and the acquisition
of Information Leasing. Occupancy expense increased primarily in the
Provident Consumer and retail distribution areas. Equipment expense
increased primarily due to the depreciation of computer equipment
purchased during the current year. Charges and fees increased
primarily as a result of a provision for non-collection of rental
income covering automobiles involved in the sale-leaseback transaction
discussed earlier. Deposit insurance decreased as a result of a one-
time Savings Association Insurance Fund assessment charge during the
third quarter of 1996. Higher data processing expense related to Year
2000 compliance was the primary reason for the increase in other
expense.
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Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
Noninterest expense increased $26.5 million during the first nine
months of 1997 compared to the same period in 1996. Compensation,
occupancy and equipment expense increased for the same reasons as in
the quarterly comparison. Professional fees increased primarily in the
operations and consumer lending areas. Charges and fees increased from
foreclosed property costs as well as a provision for non-collection of
rental income covering automobiles. Higher marketing costs as well as
data processing expense related to Year 2000 compliance were the
primary reasons for the increase in other expense.
Financial Condition
Short-Term Investments and Investment Securities
Federal funds sold and reverse repurchase agreements increased $76.8
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 $339.8 million during 1997
resulting from the redeployment of proceeds from the sale of
residential and home equity loans.
Loans and Leases
Total loans and leases decreased $205.9 million during 1997. The
decrease was due primarily to the sale of residential and home equity
loans discussed earlier and the sale of leased vehicles discussed
below. These sales were offset partially by the origination of new
loans and leases primarily in the areas of commercial and financial
and residential loans.
In the third quarter of 1997, Provident Financial sold and leased back
$241.7 million of automobiles which had previously been accounted for
as direct finance leases and classified as consumer lease financings
on which interest income was recorded. Future rental income and
expense on the new operating leases will be included in the
noninterest section of the Consolidated Statements of Earnings.
- 12 -
The following table shows the composition of the commercial and
financial loan category by industry type at September 30, 1997
(dollars in millions):
Amount on
Type Amount % Nonaccrual
Construction $ 117.2 4 $ .1
Manufacturing 538.8 20 2.2
Transportation/Utilities 146.0 5 2.2
Wholesale Trade 266.0 10 2.6
Retail Trade 279.6 10 18.5
Finance & Insurance 125.5 4 -
Real Estate Operators/Investment 269.3 10 .8
Service Industries 401.1 15 .9
Automobile Dealers 101.8 4 -
Other(1) 499.8 18 1.3
Total $2,745.1 100 $28.6
(1) Includes various kinds of loans, such as small business loans
and loans with balances under $100,000.
The composition of the commercial mortgage and construction loan
categories by property type at September 30, 1997 is shown in the
following table (dollars in millions):
Amount on
Type Amount % Nonaccrual
Apartments $139.9 16 $.1
Office/Warehouse 185.3 22 .2
Residential Development 107.5 13 -
Shopping/Retail 193.6 22 .3
Land 38.2 4 -
Industrial Plants 14.4 2 -
Hotels/Motels 36.9 4 -
Health Facilities 13.4 2 -
Auto Sales and Service 27.8 3 -
Churches 11.4 1 -
Mobile Home Parks 8.2 1 -
Other Commercial Properties 88.2 10 -
Total $864.8 100 $.6
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 affect 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
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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 (in thousands):
1997 1996
Balance at January 1 $66,693 $60,235
Provision for Loan and Lease Losses 35,500 37,750
Acquired Reserves 1,816 -
Loans and Leases Charged Off (36,544) (37,587)
Recoveries 7,777 3,267
Balance at September 30 $75,242 $63,665
Net charge-offs totaled $28.8 million during the first nine months of
1997 compared to $34.3 million for the same time period in 1996.
During the first three quarters of 1997, net charge-offs for
commercial lending were $9.9 million which resulted primarily from the
charge-off of one commercial loan. Net charge-offs for consumer
lending were $18.9 million which consisted principally of auto loans
and credit cards. As a percentage of total loans and leases
outstanding, the reserve was 1.47% at September 30, 1997 compared to
1.26% at December 31, 1996 and September 30, 1996. The increase in the
ratio reflects the sale of low risk seasoned residential and home
equity loans during the first three quarters of 1997.
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 $21.5 million during the
first nine months of 1997. Nonaccrual loans increased $15.8 million
due primarily to two commercial and financial loans being added. Other
real estate increased $6.2 million due primarily to foreclosing on
three commercial properties. At September 30, 1997, nonperforming
assets as a percentage of total loans, leases and other real estate
was .98% compared to .54% at December 31, 1996 and .79% for Provident
Financial's most recent five-year average.
Premises and Equipment
Premises and equipment increased from $145.6 million at December 31,
1996 to $175.9 million at September 30, 1997. The 21% increase was
primarily due to an increase in leased equipment by Provident
Commercial and Information Leasing.
Short-Term Debt
Short-term debt decreased $63.8 million, or 11%, to $535.8 million
during the first nine months of 1997. The decrease was due to the
reduction in overnight federal funds purchased. 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.
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Long-Term Debt
During the first nine months of 1997, long-term debt decreased $191.9
million, or 23%, reflecting primarily the repayment of Federal Home
Loan Bank debt.
Capital Resources and Adequacy
During the first nine months of 1997, shareholders' equity increased
$90.0 million, or 17%, to $606.8 million. Dividends of $21.2 million
on common stock and $514,000 on preferred stock were paid in the first
three quarters of 1997.
The following table of ratios is important to the analysis of the
adequacy of capital resources.
Nine Months Ended Year Ended
September 30, 1997 December 31, 1996
Average Shareholders' Equity to Average Assets 8.01% 7.23%
Preferred Dividend Payout to Net Earnings .60 .66
Common Dividend Payout to Net Earnings 24.93 26.40
Tier 1 Leverage Ratio 9.50 9.02
Tier 1 Capital to Risk-Weighted Assets 9.77 9.23
Total Risk-Based Capital To Risk-Weighted Assets 13.39 13.05
Provident Financial increased its quarterly common dividend from $.16
per share to $.20 per share during 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 $16 million. Included in this amount are
projected capital expenditures for the purchase or construction of
system applications, data processing equipment, ATMs and branches.
Through September 30, 1997, approximately $11.6 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.
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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 September
30, 1997 by its banking subsidiaries was approximately $188.2 million.
The Parent has not received dividends from its subsidiaries during the
first nine months of 1997.
At September 30, 1997, the Parent had $155.7 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 September 30, 1997. The Parent had approximately
$77.1 million in cash, interest earning deposits and federal funds
sold at September 30, 1997.
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Provident Financial Group, Inc. and Subsidiaries
Condensed Consolidated Statements Of Earnings
(unaudited)
(In Thousands)
Table 1.
Quarter Ended Nine Months Ended
September September September September
1997 1996 1997 1996
Total Interest Income $146,512 $131,267 $426,034 $384,677
Taxable Equivalent Adjustment 89 141 253 398
Taxable Equivalent Interest Income 146,601 131,408 426,287 385,075
Total Interest Expense 81,031 70,892 231,473 208,189
Net Interest Income 65,570 60,516 194,814 176,886
Provision for Loan and Lease Losses 9,500 14,000 35,500 37,750
Taxable Equivalent Net Interest Income After
Provision for Loan and Lease Losses 56,070 46,516 159,314 139,136
Noninterest Income 43,616 31,524 122,793 72,907
Noninterest Expense 54,197 51,524 150,919 124,402
Taxable Equivalent Earnings Before Income Taxes 45,489 26,516 131,188 87,641
Applicable Income Taxes 15,898 9,100 45,926 30,043
Taxable Equivalent Adjustment 89 141 253 398
Net Earnings $ 29,502 $ 17,275 $ 85,009 $ 57,200
Net Earnings Applicable to Common Stock $ 29,304 $ 17,137 $ 84,495 $ 56,803
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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 Nine Months Ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 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 $2,607 9.13% $2,281 9.12% $2,494 9.26% $2,252 9.27%
Mortgage 505 9.32 465 8.93 502 9.25 453 9.08
Construction 301 8.83 222 8.82 289 8.80 238 8.95
Lease Financing 276 10.69 143 7.59 255 10.98 132 7.63
Consumer Lending:
Instalment 850 10.25 960 9.60 878 9.92 985 9.40
Residential 169 7.87 490 8.82 265 8.23 477 8.50
Lease Financing 689 7.76 485 7.46 650 7.68 422 7.48
Total Loans and Leases 5,397 9.17 5,046 8.95 5,333 9.18 4,959 8.99
Investment Securities:
Taxable 1,287 6.68 1,097 6.35 1,163 6.77 1,031 6.44
Tax-Exempt 7 7.36 15 6.40 7 6.02 14 6.20
Total Investment Securities 1,294 6.69 1,112 6.35 1,170 6.76 1,045 6.44
Federal Funds Sold and Reverse
Repurchase Agreements 3 5.62 7 5.49 15 6.48 21 5.21
Total Earning Assets 6,694 8.69 6,165 8.48 6,518 8.74 6,025 8.54
Cash and Noninterest Bearing Deposits 164 134 147 143
Other Assets 205 140 203 131
Total Assets $7,063 $6,439 $6,868 $6,299
Liabilities and Shareholders' Equity:
Deposits:
Demand Deposits $ 241 2.15 $ 252 1.93 $ 241 2.22 $ 253 1.94
Savings Deposits 673 3.71 573 2.72 577 3.21 587 2.70
Time Deposits 3,399 5.80 2,991 5.68 3,431 5.74 2,912 5.80
Total Deposits 4,313 5.27 3,816 4.99 4,249 5.20 3,752 5.05
Short-Term Debt:
Federal Funds Purchased and
Repurchase Agreements 640 5.51 740 5.30 503 5.40 619 5.29
Commercial Paper 155 5.97 140 5.53 151 5.81 146 5.49
Short-Term Notes Payable 2 5.24 1 5.33 2 5.43 1 6.22
Total Short-Term Debt 797 5.60 881 5.34 656 5.50 766 5.33
Long-Term Debt 647 6.35 742 6.02 697 6.30 791 6.03
Junior Subordinated Debentures 99 8.70 - - 99 8.79 - -
Total Interest Bearing Liabilities 5,856 5.49 5,439 5.19 5,701 5.43 5,309 5.24
Noninterest Bearing Deposits 460 389 449 399
Other Liabilities 175 146 168 141
Shareholders' Equity 572 465 550 450
Total Liabilities and Shareholders' Equity $7,063 $6,439 $6,868 $6,299
Net Interest Spread 3.20% 3.29% 3.31% 3.30%
Net Interest Margin 3.89% 3.90% 4.00% 3.92%
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Provident Financial Group, Inc. and Subsidiaries
Consolidated Quarterly Nonperforming Assets
(unaudited)
(Dollars In Thousands)
Table 3.
Quarter Ended
Sept. June Mar. Dec. Sept.
1997 1997 1997 1996 1996
Nonaccrual Loans: (1)
Commercial Lending:
Commercial and Financial $ 28,551 $ 27,230 $ 14,597 $ 14,164 $ 18,024
Mortgage 553 - 103 103 48
Construction 87 27 71 71 71
Lease Financing 5,481 7,292 4,980 3,973 2,653
Consumer Lending:
Instalment 14 - - - -
Residential 2,239 2,028 3,583 2,805 2,008
Lease Financing - - - - -
Total Nonaccrual Loans 36,925 36,577 23,334 21,116 22,804
Renegotiated Loans (2) 257 246 526 786 787
Total Nonperforming Loans 37,182 36,823 23,860 21,902 23,591
Other Real Estate and Equipment Owned:
Commercial 11,088 8,820 5,191 6,102 6,477
Closed bank branches - - - - -
Residential 1,662 3,369 3,752 475 480
Multifamily - - - - -
Land 15 68 1,615 15 660
Total 12,765 12,257 10,558 6,592 7,617
Total Nonperforming Assets $ 49,947 $ 49,080 $ 34,418 $ 28,494 $ 31,208
Loans 90 Days Past Due Still Accruing $ 10,504 $ 20,460 $ 11,848 $ 18,751 $ 19,989
Total Loans and Leases 5,105,578 5,205,897 5,071,712 5,311,448 5,047,441
Reserve for Loan and Lease Losses 75,242 78,296 68,371 66,693 63,665
Total Assets 7,079,578 6,985,162 6,780,351 6,829,088 6,483,920
Reserve for Loan and Lease Losses as a Percent of:
Nonperforming Loans 202.36% 212.63% 286.55% 304.51% 269.87%
Nonperforming Assets 150.64% 159.53% 198.65% 234.06% 204.00%
Total Loans and Leases 1.47% 1.50% 1.35% 1.26% 1.26%
Nonperforming Loans as a % of Total
Loans and Leases .73% .71% .47% .41% .47%
Nonperforming Assets as a Percent of:
Total Loans, Leases and Other Real Estate .98% .94% .68% .54% .62%
Total Assets .71% .70% .51% .42% .48%
<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 6. Exhibits and Reports on Form 8-K
(a) Exhibit filed:
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: November 13, 1997 \s\ John R. Farrenkopf
John R. Farrenkopf
Vice President and
Chief Financial Officer
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