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
March 31, 1998 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 .
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 April 30, 1998 is 43,171,920.
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)
March 31, December 31,
1998 1997
(Unaudited)
ASSETS
Cash and Noninterest Bearing Deposits $215,073 $274,521
Federal Funds Sold and Reverse Repurchase Agreements - 1,720
Investment Securities Available for Sale
(amortized cost - $1,617,351 and $1,371,303) 1,611,115 1,371,507
Loans and Leases (Net of Unearned Income):
Commercial Lending:
Commercial and Financial 2,991,514 2,733,556
Mortgage 430,139 469,505
Construction 326,469 305,150
Lease Financing 343,221 340,302
Consumer Lending:
Instalment 599,815 624,340
Residential - Held for Sale 114,063 136,183
Lease Financing 459,938 442,806
Total Loans and Leases 5,265,159 5,051,842
Reserve for Loan and Lease Losses (72,837) (71,980)
Net Loans and Leases 5,192,322 4,979,862
Premises and Equipment 188,855 183,854
Other Assets 492,630 312,195
$7,699,995 $7,123,659
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest Bearing $595,321 $605,166
Interest Bearing 4,357,983 4,091,132
Total Deposits 4,953,304 4,696,298
Short-Term Debt 1,097,772 806,125
Long-Term Debt 677,498 688,157
Guaranteed Preferred Beneficial Interests in
Company's Junior Subordinated Debentures 98,832 98,817
Accrued Interest and Other Liabilities 200,228 197,001
Total Liabilities 7,027,634 6,486,398
Shareholders' Equity:
Preferred Stock, 5,000,000 Shares Authorized,
Series D, 70,272 Issued 7,000 7,000
Common Stock, No Par Value, 110,000,000 Shares
Authorized, 43,084,407 and 42,325,882 Issued 12,702 12,482
Capital Surplus 213,982 196,617
Retained Earnings 438,897 417,360
Reserve for Retirement of Capital Securities 3,833 3,667
Accumulative Other Comprehensive Income (4,053) 135
Total Shareholders' Equity 672,361 637,261
$7,699,995 $7,123,659
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PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended
March 31,
1998 1997
Interest Income:
Interest and Fees on Loans and Leases $123,142 $119,701
Interest on Investment Securities:
Taxable 22,649 17,314
Exempt From Federal Income Taxes 108 55
22,757 17,369
Interest on Federal Funds Sold and
Reverse Repurchase Agreements 389 216
Total Interest Income 146,288 137,286
Interest Expense:
Interest on Deposits:
Savings and Demand Deposits 10,798 4,789
Time Deposits 43,888 47,044
Total Interest on Deposits 54,686 51,833
Interest on Short-Term Debt 12,520 7,651
Interest on Long-Term Debt 10,772 12,103
Interest on Junior Subordinated Debentures 2,166 2,166
Total Interest Expense 80,144 73,753
Net Interest Income 66,144 63,533
Provision for Loan and Lease Losses 5,000 11,000
Net Interest Income After Provision
for Loan and Lease Losses 61,144 52,533
Noninterest Income:
Service Charges on Deposit Accounts 6,412 5,578
Other Service Charges and Fees 14,958 9,233
Operating Lease Income 9,054 5,594
Gain on Sales of Loans and Leases 13,526 14,908
Security Gains 3,692 2,223
Other 2,195 3,008
Total Noninterest Income 49,837 40,544
Noninterest Expense:
Compensation:
Salaries 23,401 18,729
Benefits 4,648 3,439
Profit Sharing 1,288 1,559
Depreciation on Operating Lease Equipment 5,282 3,752
Occupancy 3,807 2,646
Equipment Expense 4,231 3,267
Professional Fees 3,973 3,048
Charges and Fees 2,394 3,433
Marketing 2,307 2,042
Other 13,300 9,107
Total Noninterest Expense 64,631 51,022
Earnings Before Income Taxes 46,350 42,055
Applicable Income Taxes 15,950 14,748
Net Earnings $30,400 $27,307
Net Earnings Per Common Share:
Basic $.71 $.67
Diluted .68 .63
Average Basic Shares 42,615 40,608
Average Diluted Shares 44,822 43,193
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PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(In Thousands)
Reserve for Accumulative
Retirement Other
Preferred Common Capital Retained of Capital Comprehensive Comprehensive
Stock Stock Surplus Earnings Securities Income Income
Balance at January 1, 1997 $7,000 $11,973 $160,586 $326,599 $6,667 $3,980
Net Earnings 27,307 $27,307
Dividends Paid on:
Preferred Stock (158)
Common Stock (6,522)
Allocation for Retirement
of Capital Securities (333) 333
Exercise of Stock Options 53 3,336
Acquisition 55 7,097
Change in Unrealized
Gains (Losses) on
Marketable Securities (7,304) (7,304)
Balance at March 31, 1997 $7,000 $12,081 $171,019 $346,893 $7,000 ($3,324) $20,003
Balance at January 1, 1998 $7,000 $12,482 $196,617 $417,360 $3,667 $135
Net Earnings 30,400 $30,400
Dividends Paid on:
Preferred Stock (198)
Common Stock (8,559)
Allocation for Retirement
of Capital Securities (166) 166
Exercise of Stock Options 220 17,365
Change in Unrealized
Gains (Losses) on
Marketable Securities (4,188) (4,188)
Other 60
Balance at March 31, 1998 $7,000 $12,702 $213,982 $438,897 $3,833 ($4,053) $26,212
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PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months Ended March 31,
1998 1997
Operating Activities:
Net Earnings $30,400 $27,307
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Provision for Loan and Lease Losses 5,000 11,000
Amortization of Goodwill 461 381
Amortization of Unearned Income and Other (17,989) (17,536)
Depreciation of Premises and Equipment 8,721 6,269
Realized Investment Security Gains (3,692) (2,223)
Proceeds from Sale of Loans Held for Sale 284,142 409,287
Origination of Loans Held for Sale (271,346) (151,873)
Realized Gains on Loans Held for Sale (9,424) (13,729)
Realized Gains on Sale of Other Loans and Leases (4,102) (1,179)
(Increase) Decrease in Interest Receivable (7,984) 18
Increase in Other Assets (172,910) (10,774)
Increase in Interest Payable 17,773 15,420
Increase (Decrease) in Other Liabilities (12,296) 5,231
Net Cash Provided By (Used In) Operating Activities (153,246) 277,599
Investing Activities:
Investment Securities Available for Sale:
Proceeds from Sales 711,677 109,714
Proceeds from Maturities and Prepayments 360,812 34,099
Purchases (1,295,448) (133,429)
Net Increase in Loans and Leases (218,067) (8,653)
Net Increase in Premises and Equipment (13,722) (4,075)
Net Cash and Cash Equivalents Received in Acquisition - 3,918
Net Cash Provided By (Used In) Investing Activities (454,748) 1,574
Financing Activities:
Net Increase in Deposits 257,006 226,307
Net Increase (Decrease) in Short-Term Debt 291,647 (131,883)
Principal Payments on Long-Term Debt (25,755) (183,589)
Proceeds From Issuance of Long-Term Debt 15,040 -
Cash Dividends Paid (8,757) (6,680)
Proceeds from Sale of Common Stock 17,585 3,389
Net Increase in Other Equity Items 60 -
Net Cash Provided By (Used In) Financing Activities 546,826 (92,456)
Increase (Decrease) in Cash and Cash Equivalents (61,168) 186,717
Cash and Cash Equivalents at Beginning of Period 276,241 278,747
Cash and Cash Equivalents at End of Period $215,073 $465,464
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $62,370 $58,333
Income Taxes - -
Non-Cash Activity:
Transfer of Loans and Premises and Equipment to
Other Real Estate 567 4,882
Residual Interest Securities Created from the
Sale of Loans 18,748 13,737
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 Financial Group, Inc.'s 1997 annual report on Form 10-K
filed with the Securities and Exchange Commission.
Basis of Presentation
The consolidated financial statements include the accounts of
Provident 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.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" establishes standards for the reporting of
comprehensive income and its components. Comprehensive income includes
net income and certain items that are reported directly within a
separate component of stockholders' equity and bypass net income. The
provisions of this SFAS became effective with 1998 interim reporting
and is disclosed within the Consolidated Statements of Changes in
Shareholders' Equity. Implementation of this statement had no impact
on net earnings or shareholders' equity. Prior periods have been
restated to conform to the current presentation.
Guaranteed Preferred Beneficial Interests in Company's Junior
Subordinated Debentures
In 1996, Provident Financial established Provident Capital Trust I.
Provident Capital issued $100 million of preferred Capital Securities
to the public and $3.1 million 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, prepaid expenses and
receivables) of Provident Capital are the Debentures.
- 6 -
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 March 31, 1998 Provident Auto had total
assets of $96.9 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.
Stock Options
Options to purchase 244,050 shares of Provident Financial Common Stock
were granted during the first three months of 1998. The options have
exercise prices ranging from $44.12 to $51.62.
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 March 31, 1998, these off-balance sheet instruments consisted of
standby letters of credit of $121.8 million, commitments to extend
credit of $2.1 billion and interest rate swaps with a notional amount
of $1.3 billion.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Summary
Provident Financial's net earnings for the first quarter of 1998 were
$30.4 million compared to $27.3 million for the first quarter of 1997.
Net interest income increased by $2.6 million, or 4%, over the
comparable period in 1997. The provision for loan and lease losses was
$5.0 million, a decrease of $6.0 million from the first quarter in
1997. Noninterest income increased $9.3 million, or 23%, primarily in
the other service charges and fees and operating lease income
categories. Noninterest expense increased $13.6 million, or 27%,
primarily as a result of the continued expansion of Provident Consumer
Financial Services, Information Leasing Corporation and Provident
Commercial Group, and data processing expense associated with Year
2000 compliance.
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The following ratios compare Provident Financial's annualized returns
on average assets and average equity for the first three months of
1998 to the year 1997:
Three Months Ended Year Ended
March 31, 1998(1) December 31, 1997
Net Earnings to Average Assets 1.65% 1.67%
Net Earnings to Average Shareholders' Equity 18.58% 20.32%
<FN>
(1)Net earnings for the three months ended March 31, 1998 have been annualized.
The ratio of noninterest expense to tax equivalent revenue
("efficiency ratio") was 57.5% for the first three months of 1998
compared to 50.1% for the first three months of 1997. 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 March 31, 1998 were $58.3 million, a
decrease of $.9 million compared to December 31, 1997. The ratio of
nonperforming assets to total loans, leases and other real estate
owned was 1.11% at March 31, 1998, compared to 1.17% at December 31,
1997.
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
$2.6 million for the first three months of 1998 over the comparable
period in 1997. This increase resulted from a $2.5 million increase
due to changes in volume and a $.1 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 3.99% for the first three months of 1998 as
compared to 4.04% for the comparable period in 1997. This decrease
reflects the increase in the average rate paid on interest bearing
liabilities of 10 basis points, more than offsetting the increase in
the average rate received on interest earning assets of 9 basis
points. The increase in Provident Financial's overall rate on interest
bearing liabilities was due primarily to the increase in the rate paid
on Premium Index savings deposits. The increase in the average rate
received on interest earning assets was due primarily to higher
average rates received on residential and instalment loans. Interest
rate swaps increased the net interest margin by 13 basis points and 27
basis points during the first three months of 1998 and 1997,
respectively.
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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 during the first
quarter of 1998 and 1997 were $4.2 million and $3.9 million,
respectively.
Provision for Loan and Lease Losses
The provision for loan and lease losses was $5.0 million and $11.0
million during the first quarter of 1998 and 1997, respectively. The
decrease in the provision was primarily the result of lower net charge-
offs incurring during the first three months of 1998 as compared to
the first three months of 1997.
Noninterest Income
Noninterest income increased $9.3 million during the first quarter of
1998 compared to the same quarter in 1997. 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
recognition of gains and fees related to commercial lending resulted
in higher other service charges and fee revenue. The growth in
operating lease income is the result of the expansion of Provident
Commercial and Information Leasing lines of business, and the excess
rental income received over that paid on leased vehicles which were
sold and subsequently leased back. Gain on sales of loans and leases
decreased primarily as a result of a narrowing of interest rate spread
between the average rate received on the underlying loans and the rate
paid to security holders. Partially offsetting the lower gain on
nonconforming residential loan sales was a gain recognized from the
sale of credit card loans. Security gains were recognized primarily
from the sale of mortgage-backed securities. Other income decreased
due to the receipt of additional consideration in 1997 relating to a
restructured loan.
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. 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
Mar. 1998 Dec. 1997 Sept. 1997 June 1997 Mar. 1997
Loan Originations $191.6 $266.2 $230.3 $213.6 $143.3
Loan Sales 207.8 255.2 233.2 233.2 140.1
Gain on Sale of Loans 8.0 10.2 13.8 15.5 10.5
Interest and Fees on Loans 7.0 6.7 5.6 5.2 4.2
Included in "Investment Securities Available for Sale" are residual
interest securities representing the present value of net cash flows
due Provident Financial from loan securitizations and sales.
- 9 -
Components of the residual interest securities and the underlying
assumptions follow (dollars in thousands):
Closed-End Opened-End Closed-End
Nonconforming Conforming Conforming
Estimated Cash Flows of Underlying Loans,
Net of Payments to Certificate Holders $200,203 $10,327 $5,517
Less:
Off-Balance Sheet Allowance for Loan Losses (41,523) (504) (595)
Servicing Costs and Insurance Premiums (23,654) (1,544) (970)
Discount to Present Value (33,352) (1,199) (545)
Carrying Value of Residual Interest Securities $101,674 $7,080 $3,407
Assumptions Used (Weighted Average)
Prepayment Speed (initial) 10.70% 15.00% n/a
Prepayment Speed (ramps up to) 27.00 15.00 n/a
Repayment Rate (overall) n/a n/a 40.00%
Provision for Loan Losses (annual basis) 1.09 0.30 0.15
Provision for Loan Losses (% of original balance) 3.63 0.79 0.30
Discount Rate 11.47 9.36 9.23
The structure for securitizing nonconforming residential loans was
changed for 1998. Prior to 1998 securitizations, the allowance for
loan loss would be funded from future cash flows of the underlying
loans, net of interest payments to the security holders. In 1998, an
allowance for loan losses of $4.3 million was funded at the beginning
of the transaction, separately from the cash flows of the loan
payments.
Noninterest Expense
Noninterest expense increased $13.6 million during the first quarter
of 1998 when compared to 1997. Compensation expense increased
primarily as a result of the expansion of Provident Consumer, the
acquisition of the Florida banks and the continued development of
Value Systems. The larger volume of operating leases originated by
Provident Commercial and Information Leasing has resulted in the
higher depreciation expense of operating lease equipment. Occupancy
expense increased primarily in the Provident Consumer and retail
distribution areas. Equipment expense increased primarily due to the
purchase of data processing and voice communications equipment.
Professional fees have increased primarily in the areas of Value
Systems and Provident Consumer. Charges and fees decreased as a result
of foreclosed property costs incurred during 1997. Higher data
processing expense related to Year 2000 compliance was the primary
reason for the increase in other expense.
Financial Condition
Investment Securities
Investment securities increased $239.6 million during 1998 as more
funds were invested in investment securities.
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Loans and Leases
Total loans and leases increased $213.3 million during 1998.
Commercial loan growth of $258.0 million was the primary reason for
the increase in total loans and leases. Instalment loans decreased
$24.5 million due to the sale of $38.3 million of credit cards and
residential loans decreased $22.1 million due primarily to sales
exceeding originations of nonconforming residential loans by $16.2
million.
The following table shows the composition of the commercial and
financial loan category by industry type at March 31, 1998 (dollars in
millions):
Amount on
Type Amount % Nonaccrual
Manufacturing $621.5 21 $6.2
Service Industries 517.5 17 2.5
Real Estate Operators/Investment 338.9 12 1.2
Wholesale Trade 263.7 9 3.4
Retail Trade 247.0 8 1.3
Finance & Insurance 150.0 5 -
Transportation/Utilities 129.7 4 14.3
Construction 128.9 4 .5
Automobile Dealers 127.2 4 -
Other(1) 467.1 16 3.3
Total $2,991.5 100 $32.7
(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 March 31, 1998 is shown in the
following table (dollars in millions):
Amount on
Type Amount % Nonaccrual
Shopping/Retail $162.8 21 $.3
Office/Warehouse 160.2 21 -
Apartments 123.7 16 -
Residential Development 117.2 15 -
Land 29.9 4 -
Auto Sales and Service 28.4 4 -
Industrial Plants 13.0 2 -
Hotels/Motels 12.4 2 -
Churches 11.8 2 -
Mobile Home Parks 8.4 1 -
Health Facilities 7.6 1 -
Other Commercial Properties 81.2 11 -
Total $756.6 100 $.3
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Provident Financial 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. The reserve is maintained at a level which
management considers to be adequate to absorb future loan and lease
losses. Reserve adjustments needed for charge-offs or risk
characteristics in the lending portfolio are made through changes to
the provision 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.
The following table shows the progression of the reserve for loan and
lease losses (in thousands):
1998 1997
Balance at January 1 $71,980 $66,693
Provision for Loan and Lease Losses 5,000 11,000
Loans and Leases Charged Off (7,009) (11,572)
Recoveries 2,866 2,250
Balance at March 31 $72,837 $68,371
Net charge-offs totaled $4.1 million during the first three months of
1998 compared to $9.3 million for the same time period in 1997. During
the first quarter of 1998, net charge-offs for the commercial lending
portfolio were $.8 million, consisting primarily of commercial loans
and equipment leases. Net charge-offs for the consumer lending
portfolio were $3.3 million consisting principally of auto loans and
leases. As a percentage of total loans and leases outstanding, the
reserve was 1.38% at March 31, 1998 compared to 1.42% and 1.35% at
December 31, 1997 and March 31, 1997, respectively.
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 decreased $.9 million during the first
three months of 1998. Nonaccrual loans decreased $3.0 million due
primarily to one loan being brought current, one loan being
restructured and now being classified as renegotiated, and one loan
being added. Renegotiated loans increased $9.0 million due to the loan
formerly on nonaccrual being restructured. Other real estate decreased
$6.9 million due primarily to two commercial properties being sold. At
March 31, 1998, nonperforming assets as a percentage of total loans,
leases and other real estate was 1.11% compared to 1.17% at December
31, 1997.
Other Assets
Other assets increased $180.4 million, or 58%, to $492.6 million
during the first quarter of 1998. The increase was due primarily to an
increase in receivables arising from security sales traded but not
settled until early April.
- 12 -
Short-Term Debt
Short-term debt increased $291.6 million, or 36%, to $1.1 billion
during the first three months of 1998. The increase was due to the
purchase of term federal funds and an increase in commercial paper
borrowings. 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 purchase of overnight federal funds.
Capital Resources and Adequacy
During the first three months of 1998, shareholders' equity increased
$35.1 million, or 6%, to $672.4 million. The increase in equity was
primarily the result of net income exceeding dividends paid and the
exercise of stock options. Dividends of $8.6 million on common stock
and $198,000 on preferred stock were paid in the first quarter of
1998.
The following table of ratios is important to the analysis of the
adequacy of capital resources.
Three Months Ended Year Ended
March 31, 1998 December 31, 1997
Average Shareholders' Equity to Average Assets 8.89% 8.22%
Preferred Dividend Payout to Net Earnings .65 .62
Common Dividend Payout to Net Earnings 28.15 25.62
Tier 1 Leverage Ratio 10.14 10.13
Tier 1 Capital to Risk-Weighted Assets 9.87 9.81
Total Risk-Based Capital To Risk-Weighted Assets 13.15 13.25
Capital expenditures planned by Provident Financial for building
improvements and furniture and equipment in 1998 are currently
estimated to be approximately $19 million. Included in this amount are
projected capital expenditures for the purchase or construction of
computer equipment and software, office building renovations and
branch enhancements. Through March 31, 1998, approximately $13 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.
- 13 -
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 March 31,
1998 by its banking subsidiaries was approximately $201.5 million. The
Parent has not received any dividends from its subsidiaries during the
first three months of 1998.
At March 31, 1998, the Parent had $259.9 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 March 31, 1998. The Parent had approximately
$151.1 million in cash, interest earning deposits and federal funds
sold at March 31, 1998.
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Provident Financial Group, Inc. and Subsidiaries
Condensed Consolidated Statements Of Earnings
(unaudited)
(In Thousands)
Table 1.
Quarter Ended
March March
1998 1997
Total Interest Income $146,288 $137,286
Taxable Equivalent Adjustment 99 78
Taxable Equivalent Interest Income 146,387 137,364
Total Interest Expense 80,144 73,753
Net Interest Income 66,243 63,611
Provision for Loan and Lease Losses 5,000 11,000
Taxable Equivalent Net Interest Income After
Provision for Loan and Lease Losses 61,243 52,611
Noninterest Income 49,837 40,544
Noninterest Expense 64,631 51,022
Taxable Equivalent Earnings Before Income Taxes 46,449 42,133
Applicable Income Taxes 15,950 14,748
Taxable Equivalent Adjustment 99 78
Net Earnings $30,400 $27,307
Net Earnings Applicable to Common Stock $30,202 $27,149
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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
Mar. 31, 1998 Mar. 31, 1997
Average Avg Average Avg
Balance Rate Balance Rate
Assets:
Loans and Leases (Net of Unearned Income):
Commercial Lending:
Commercial and Financial $2,849 9.26% $2,392 9.21%
Mortgage 452 9.31 481 9.39
Construction 311 8.90 280 8.69
Lease Financing 343 11.75 241 11.07
Consumer Lending:
Instalment 626 10.63 909 9.67
Residential 227 10.31 425 7.98
Lease Financing 454 7.87 615 7.69
Total Loans and Leases 5,262 9.49 5,343 9.09
Investment Securities:
Taxable 1,432 6.41 1,018 6.90
Tax-Exempt 10 6.92 8 4.45
Total Investment Securities 1,442 6.42 1,026 6.88
Federal Funds Sold and Reverse
Repurchase Agreements 29 5.48 15 5.78
Total Earning Assets 6,733 8.82 6,384 8.73
Cash and Noninterest Bearing Deposits 187 169
Other Assets 445 208
Total Assets $7,365 $6,761
Liabilities and Shareholders' Equity:
Deposits:
Demand Deposits $269 2.17 $258 1.97
Savings Deposits 916 4.15 521 2.75
Time Deposits 3,098 5.74 3,375 5.65
Total Deposits 4,283 5.18 4,154 5.06
Short-Term Debt:
Federal Funds Purchased and
Repurchase Agreements 693 5.40 441 5.24
Commercial Paper 231 5.75 142 5.51
Short-Term Notes Payable 2 6.75 1 5.96
Total Short-Term Debt 926 5.49 584 5.31
Long-Term Debt 681 6.41 779 6.30
Junior Subordinated Debentures 99 8.89 99 8.89
Total Interest Bearing Liabilities 5,989 5.43 5,616 5.33
Noninterest Bearing Deposits 528 447
Other Liabilities 194 172
Shareholders' Equity 654 526
Total Liabilities and Shareholders' Equity $7,365 $6,761
Net Interest Spread 3.39% 3.40%
Net Interest Margin 3.99% 4.04%
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Provident Financial Group, Inc. and Subsidiaries
Consolidated Quarterly Nonperforming Assets
(unaudited)
(Dollars In Thousands)
Table 3.
Quarter Ended
Mar. Dec. Sep. June Mar.
1998 1997 1997 1997 1997
Nonaccrual Loans: (1)
Commercial Lending:
Commercial and Financial $32,746 $37,800 $28,551 $27,230 $14,597
Mortgage 335 335 553 - 103
Construction - 27 87 27 71
Lease Financing 7,046 4,798 5,481 7,292 4,980
Consumer Lending:
Instalment - - 14 - -
Residential 3,287 3,459 2,239 2,028 3,583
Lease Financing - - - - -
Total Nonaccrual Loans 43,414 46,419 36,925 36,577 23,334
Renegotiated Loans (2) 9,327 377 257 246 526
Total Nonperforming Loans 52,741 46,796 37,182 36,823 23,860
Other Real Estate and Equipment Owned:
Commercial 4,330 11,207 11,088 8,820 5,191
Closed bank branches - - - - -
Residential 1,124 1,079 1,662 3,369 3,752
Multifamily - - - - -
Land 92 110 15 68 1,615
Total 5,546 12,396 12,765 12,257 10,558
Total Nonperforming Assets $58,287 $59,192 $49,947 $49,080 $34,418
Loans 90 Days Past Due Still Accruing $17,109 $9,811 $10,504 $20,460 $11,848
Total Loans and Leases 5,265,159 5,051,842 5,105,578 5,205,897 5,071,712
Reserve for Loan and Lease Losses 72,837 71,980 75,242 78,296 68,371
Total Assets 7,699,995 7,123,659 7,079,578 6,985,162 6,780,351
Reserve for Loan and Lease Losses as a Percent of:
Nonperforming Loans 138.10% 153.82% 202.36% 212.63% 286.55%
Nonperforming Assets 124.96% 121.60% 150.64% 159.53% 198.65%
Total Loans and Leases 1.38% 1.42% 1.47% 1.50% 1.35%
Nonperforming Loans as a % of Total
Loans and Leases 1.00% .93% .73% .71% .47%
Nonperforming Assets as a Percent of:
Total Loans, Leases and Other Real Estate 1.11% 1.17% .98% .94% .68%
Total Assets .76% .83% .71% .70% .51%
<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) Exhibits filed:
Exhibit 27.1 - Financial Data Schedule for March 31, 1998
Exhibit 27.2 - Restated Financial Data Schedule for
March 31, 1997
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: May 14, 1998 \s\ John R. Farrenkopf
John R. Farrenkopf
Vice President and
Chief Financial Officer
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