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, 1999 No. 1-8019
PROVIDENT FINANCIAL GROUP, INC.
Incorporated under IRS Employer I.D.
the Laws of Ohio No. 31-0982792
One East Fourth Street, Cincinnati, Ohio 45202
Phone: 513-579-2000
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 30, 1999 is 43,426,163.
Please address all correspondence to:
Christopher J. Carey
Executive Vice President and Chief Financial Officer
Provident Financial Group, Inc.
One East Fourth Street
Cincinnati, Ohio 45202
- 1 -
PROVIDENT FINANCIAL GROUP, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets . . . . . . . . . . . . 3
Consolidated Statements of Income . . . . . . . . . 4
Consolidated Statements of Changes in
Shareholders' Equity . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows . . . . . . . 6
Notes to the Consolidated Financial Statements . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK . . . . . . . . . . . . . . . . . 34
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . . . 34
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . 34
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
- 2 -
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1999 1998
(Unaudited)
-------------------------
ASSETS
Cash and Noninterest Bearing Deposits $227,137 $267,441
Federal Funds Sold and Reverse Repurchase Agreements 15,000 60,000
Trading Account Securities 15,404 50,333
Investment Securities Available for Sale
(amortized cost - $1,688,588 and $1,528,008) 1,628,309 1,514,153
Loans and Leases (Net of Unearned Income):
Corporate Lending:
Commercial 3,505,456 3,270,675
Mortgage 415,068 436,127
Construction 466,113 437,563
Lease Financing 320,020 243,722
Consumer Lending:
Instalment 533,225 621,357
Residential - Held for Sale 128,161 190,707
Lease Financing 473,793 423,354
------------------------
Total Loans and Leases 5,841,836 5,623,505
Reserve for Loan and Lease Losses (80,122) (75,907)
------------------------
Net Loans and Leases 5,761,714 5,547,598
Leased Equipment 168,653 167,006
Premises and Equipment 81,480 78,621
Other Assets 594,656 449,835
------------------------
$8,492,353 $8,134,987
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest Bearing $862,771 $669,840
Interest Bearing 4,888,578 4,657,481
------------------------
Total Deposits 5,751,349 5,327,321
Short-Term Debt 781,472 807,503
Long-Term Debt 794,944 934,294
Guaranteed Preferred Beneficial Interests in
Company's Junior Subordinated Debentures 219,972 98,879
Accrued Interest and Other Liabilities 227,572 263,136
------------------------
Total Liabilities 7,775,309 7,431,133
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, 43,412,138 and 43,345,149 Issued 12,825 12,805
Capital Surplus 226,357 224,745
Retained Earnings 540,113 489,751
Treasury Stock, 801,800 and 572,700 Shares (30,070) (21,425)
Accumulated Other Comprehensive Income/(Loss) (39,181) (9,022)
------------------------
Total Shareholders' Equity 717,044 703,854
------------------------
$8,492,353 $8,134,987
========================
See notes to consolidated financial statements.
- 3 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------
1999 1998 1999 1998
-----------------------------------------
Interest Income:
Interest and Fees on Loans and Leases $135,716 $127,346 $267,298 $250,488
Interest on Investment Securities 25,669 27,009 50,257 50,166
Other Interest Income 1,508 944 2,813 1,831
-----------------------------------------
Total Interest Income 162,893 155,299 320,368 302,485
Interest Expense:
Interest on Deposits:
Savings and Demand Deposits 13,099 12,429 26,344 23,227
Time Deposits 42,865 42,811 84,788 86,699
-----------------------------------------
Total Interest on Deposits 55,964 55,240 111,132 109,926
Interest on Short-Term Debt 15,220 18,306 30,126 31,192
Interest on Long-Term Debt 10,822 10,761 23,293 21,533
Interest on Junior Subordinated Debentures 2,226 2,165 4,392 4,331
-----------------------------------------
Total Interest Expense 84,232 86,472 168,943 166,982
-----------------------------------------
Net Interest Income 78,661 68,827 151,425 135,503
Provision for Loan and Lease Losses 8,050 5,000 20,950 10,000
-----------------------------------------
Net Interest Income After Provision
for Loan and Lease Losses 70,611 63,827 130,475 125,503
Noninterest Income:
Service Charges on Deposit Accounts 7,867 6,789 15,131 13,201
Other Service Charges and Fees 17,867 13,843 31,314 28,801
Operating Lease Income 10,334 9,405 19,232 18,459
Gain on Sales of Loans and Leases 20,263 21,023 52,102 34,549
Security Gains 113 2,024 106 5,716
Other 2,473 3,747 5,599 5,810
-----------------------------------------
Total Noninterest Income 58,917 56,831 123,484 106,536
Noninterest Expense:
Salaries, Wages and Benefits 34,417 31,569 69,397 60,906
Depreciation on Operating Lease Equipment 5,578 5,242 10,303 10,524
Occupancy 4,348 4,104 8,556 7,911
Equipment Expense 5,853 4,783 11,155 9,014
Professional Fees 4,985 4,341 8,620 8,314
Charges and Fees 3,437 3,607 7,169 6,001
Other 16,044 17,258 31,759 32,865
-----------------------------------------
Total Noninterest Expense 74,662 70,904 146,959 135,535
-----------------------------------------
Income Before Income Taxes 54,866 49,754 107,000 96,504
Applicable Income Taxes 19,340 17,364 37,719 33,454
-----------------------------------------
Net Income $35,526 $32,390 $69,281 $63,050
=========================================
Per Common Share:
Basic Earnings Per Share $.83 $.75 $1.62 $1.46
Diluted Earnings Per Share .80 .72 1.56 1.40
Cash Dividends Declared .22 .20 .44 .40
See notes to consolidated financial statements.
- 4 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(In Thousands)
Retained
Earnings
Including
Reserve for Accumulated
Retirement Other
Preferred Common Capital of Capital Treasury Comprehensive Comprehensive
Stock Stock Surplus Securities Stock Income/(Loss) Total Income
----------------------------------------------------------------------------------------
Balance at January 1, 1998 $7,000 $12,482 $196,617 $410,107 $- $135 $626,341
Net Income 63,050 63,050 $63,050
Dividends Paid on:
Preferred Stock (395) (395)
Common Stock (17,203) (17,203)
Exercise of Stock Options 262 21,924 22,186
Change in Unrealized
Gains (Losses) on
Marketable Securities (1,826) (1,826) (1,826)
-------------------------------------------------------------------------------------
Balance at June 30, 1998 $7,000 $12,744 $218,541 $455,559 $- ($1,691) $692,153 $61,224
=====================================================================================
Balance at January 1, 1999 $7,000 $12,805 $224,745 $489,751 ($21,425) ($9,022) $703,854
Net Income 69,281 69,281 $69,281
Dividends Paid on:
Preferred Stock (435) (435)
Common Stock (18,484) (18,484)
Exercise of Stock Options 20 1,481 1,501
Purchase of Treasury Stock (8,645) (8,645)
Distribution of Contingent
Shares for Prior Year
Acquisition 131 131
Change in Unrealized
Gains (Losses) on
Marketable Securities (30,159) (30,159) (30,159)
-------------------------------------------------------------------------------------
Balance at June 30, 1999 $7,000 $12,825 $226,357 $540,113 ($30,070) ($39,181) $717,044 $39,122
=====================================================================================
See notes to consolidated financial statements.
- 5 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended June 30,
----------------------------
1999 1998
----------------------------
Operating Activities:
Net Income $69,281 $63,050
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Loan and Lease Losses 20,950 10,000
Amortization of Goodwill 799 869
Other Amortization and Accretion (39,866) (42,339)
Depreciation of Leased Equipment and
Premises and Equipment 19,983 17,713
Realized Investment Security Gains (106) (5,716)
Proceeds from Sale of Loans Held for Sale 1,144,663 575,951
Origination of Loans Held for Sale (1,080,492) (559,619)
Realized Gains on Residential Loans Held for Sale (35,321) (22,038)
Realized Gains on Sale of Other Loans and Leases (16,781) (12,511)
(Increase) Decrease in Trading Account Securities 34,929 (59,794)
Increase in Interest Receivable (5,104) (1,166)
Increase in Receivables Due From Securitization Trusts (133,904) (48,007)
Decrease in Other Assets 93,400 76,109
Increase (Decrease) in Interest Payable (1,906) 163
Decrease in Other Liabilities (52,211) (21,932)
----------------------------
Net Cash Provided By (Used In) Operating Activities 18,314 (29,267)
----------------------------
Investing Activities:
Investment Securities Available for Sale:
Proceeds from Sales 261,460 1,646,600
Proceeds from Maturities and Prepayments 111,995 429,261
Purchases (492,629) (2,191,914)
Proceeds from Sale-Leaseback Transaction 386,839 -
Net Increase in Loans and Leases (696,764) (531,491)
Net Increase in Operating Lease Equipment (11,949) (19,345)
Net Increase in Premises and Equipment (12,540) (17,010)
----------------------------
Net Cash Used In Investing Activities (453,588) (683,899)
----------------------------
Financing Activities:
Net Increase in Deposits of Securitization Trusts 133,904 48,007
Net Increase in Deposits 290,124 37,544
Net Increase (Decrease) in Short-Term Debt (26,031) 629,532
Principal Payments on Long-Term Debt (143,195) (38,245)
Proceeds From Issuance of Long-Term Debt and
Company's Junior Subordinated Debentures 121,100 15,040
Cash Dividends Paid (18,919) (17,598)
Purchase of Treasury Stock (8,645) -
Proceeds from Exercise of Stock Options 1,501 22,186
Net Increase in Other Equity Items 131 -
----------------------------
Net Cash Provided By Financing Activities 349,970 696,466
----------------------------
Decrease in Cash and Cash Equivalents (85,304) (16,700)
Cash and Cash Equivalents at Beginning of Period 327,441 276,241
----------------------------
Cash and Cash Equivalents at End of Period $242,137 $259,541
============================
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $170,850 $166,044
Income Taxes 24,968 22,202
Non-Cash Activity:
Transfer of Loans and Premises and Equipment to
Other Real Estate 1,653 932
Residual Interest in Securitized Assets Created from
the Sale of Loans (net of estimated credit losses) 96,748 42,384
See notes to consolidated financial statements.
- 6 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF 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. 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 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 financial statements presented herein should be read in
conjunction with the financial statements and notes thereto included
in Provident's 1998 annual report on Form 10-K filed with the
Securities and Exchange Commission.
NOTE 2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per common share (in thousands except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------
1999 1998 1999 1998
--------------------------------------
Basic:
Net Income $35,526 $32,390 $69,281 $63,050
Less Preferred Stock Dividends (218) (198) (435) (395)
-------------------------------------
Income Available to Common Shareholders 35,308 32,192 68,846 62,655
Weighted-Average Common Shares Outstanding 42,593 43,018 42,622 42,818
-------------------------------------
Basic Earnings Per Share $0.83 $0.75 $1.62 $1.46
=====================================
Diluted:
Net Income $35,526 $32,390 $69,281 $63,050
Weighted-Average Common Shares Outstanding 42,593 43,018 42,622 42,818
Assumed Conversion of:
Convertible Preferred Stock 988 988 988 988
Dilutive Stock Options (Treasury Stock Method) 861 1,159 820 1,189
-------------------------------------
Dilutive Potential Common Shares 44,442 45,165 44,430 44,995
-------------------------------------
Diluted Earnings Per Share $0.80 $0.72 $1.56 $1.40
=====================================
- 7 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SPECIAL CHARGES AND EXIT COSTS
In connection with its effort to improve upon the efficiency of its
operations, Provident incurred pre-tax special charges and exit costs
of $22 million during the fourth quarter of 1998. These expenses
consisted of a reengineering project, known as the Performance
Optimization Project, which is expected to enable Provident to
undertake new revenue generating initiatives without significantly
increasing expenses, and the discontinuance of operations of its
MeritValu and Free Market Partner business units.
No changes have been made to the original estimated special charges
and exit costs. All activity during 1999 related to cash payments for
severance benefits and professional fees. As of June 30, 1999, a $3.9
million liability balance remained, relating primarily to future
severance payments.
NOTE 4. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR
SUBORDINATED DEBENTURES
During 1996, Provident established Provident Capital Trust I. Capital
Trust I issued $100 million of preferred Capital Securities to the
public and $3.1 million of common to Provident. Proceeds from the
issuance of the capital securities were invested in Provident's 8.60%
Junior Subordinated Debentures, due 2026.
Similarly, Provident formed Provident Capital Trust II during the
second quarter of 1999. Capital Trust II issued $125 million of
preferred Capital Securities to the public and $3.9 million of common
to Provident. Proceeds from the issuance of the capital securities
were invested in Provident's 8.75% Junior Subordinated Debentures, due
2029.
Provident fully guarantees the Capital Securities. The sole assets
(excluding interest receivable on the Debentures, prepaid expenses and
receivables) of Capital Trust I and II are the Debentures.
- 8 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. RESTRICTED ASSETS
Provident formed the subsidiaries listed below to account for and
support the process of transferring, securitizing and/or selling of
vehicle and equipment leases. These subsidiaries are separate legal
entities and each maintains books and records with respect to its
assets and liabilities. The assets of these subsidiaries, which are
included in the consolidated financial statements, are not available
to secure financing or otherwise satisfy claims of creditors of
Provident or any of its other subsidiaries.
The subsidiaries and their total assets as of June 30, 1999 follow (in
thousands):
Subsidiary Total Assets
- -------------------------------------------------------------
Provident Auto Leasing Company $583,578
Provident Auto Rental Corp. 1998-1 20,110
Provident Auto Rental Corp. 1998-2 24,522
Provident Auto Rental Company, LLP 1999-PRU 57,733
Provident Lease Receivables Corporation 29,719
NOTE 6. LINE OF BUSINESS REPORTING
Selected information is included in the following table for
Provident's three major lines of business (in millions):
Total Revenue Net Income Average Assets
---------------------------------------------------
1999 1998 1999 1998 1999 1998
---------------------------------------------------
Three Months Ended June 30:
Corporate Banking $56.4 $61.2 $18.4 $24.1 $4,308 $3,778
Retail Banking 52.3 44.0 8.9 3.5 1,720 1,454
Provident Consumer
Financial Services 27.0 18.4 8.4 4.4 576 442
Other 1.9 2.1 (0.2) 0.4 2,308 2,056
---------------------------------------------------
$137.6 $125.7 $35.5 $32.4 $8,912 $7,730
===================================================
Six Months Ended June 30:
Corporate Banking $114.9 $118.1 $41.4 $46.2 $4,225 $3,794
Retail Banking 99.2 83.8 13.2 6.1 1,660 1,415
Provident Consumer
Financial Services 57.1 33.2 18.2 7.5 600 397
Other 3.7 6.9 (3.5) 3.3 2,311 1,939
---------------------------------------------------
$274.9 $242.0 $69.3 $63.1 $8,796 $7,545
===================================================
Descriptions of these business lines along with variance analyses are
included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Business Lines".
- 9 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Statements
This Form 10-Q contains certain forward-looking statements that are
subject to numerous assumptions, risks or uncertainties. Actual
results could differ materially from those contained in or implied by
such forward-looking statements for a variety of factors including:
sharp and/or rapid changes in interest rates; significant changes in
the anticipated economic scenario which could materially change
anticipated credit quality trends, the ability to generate loans and
leases, the ability to securitize loans and leases and the spreads
realized on securitizations; significant cost, delay in, or inability
to execute strategic initiatives designed to grow revenues and/or
manage expenses; the ability to achieve the cost reductions and
revenue enhancements anticipated from the Performance Optimization
Project; consummation of significant business combinations or
divestitures; unforeseen business risks related to Year 2000 computer
system issues; and significant changes in accounting, tax, or
regulatory practices or requirements and factors noted in connection
with forward looking statements. Forward-looking statements speak only
as of the date made. Provident undertakes no obligations to update any
forward-looking statements to reflect events or circumstances arising
after the date on which they are made.
Results of Operations
Summary
The following table summarizes earnings components, earnings per share
and key financial ratios (dollars in thousands except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------
1999 1998 % Change 1999 1998 % Change
---------------------------------------------------------
Net Interest Income $78,661 $68,827 14% $151,425 $135,503 12%
Noninterest Income 58,917 56,831 4 123,484 106,536 16
Total Revenue 137,578 125,658 9 274,909 242,039 14
Provision for Loan
and Lease Losses 8,050 5,000 61 20,950 10,000 110
Noninterest Expense 74,662 70,904 5 146,959 135,535 8
Net Income 35,526 32,390 10 69,281 63,050 10
Diluted Earnings per Share 0.80 0.72 11 1.56 1.40 11
Return on Average Equity 19.62% 19.22% 19.12% 19.14%
Return on Average Assets 1.59% 1.68% 1.58% 1.67%
Efficiency Ratio 54.30% 57.32% 53.46% 57.31%
- 10 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Earnings per share increased 11% to $.80 during the current quarter,
versus $.72 reported during the same period in 1998. For the six
months ended June 30, 1999, earnings per share was $1.56 compared to
$1.40 reported in 1998. The increase in earnings per share for both
the quarter and the year to date periods was due to strong revenue
growth as well as continued emphasis on expense control.
Total revenue (net interest income plus noninterest income) increased
9% during the second quarter of 1999 over the comparable period in
1998. Net interest income increased by $9.8 million, or 14%, as a
result of strong growth in the lending portfolio. Noninterest income
increased $2.1 million, or 4%, primarily due to additional fees
received in the areas of loan servicing, deposit account, ATM, credit
card and trust which was partially offset by a decrease in security
gains.
Total revenue for the six months ended June 30, 1999 increased 14%
over the same period in 1998. The increase during this period was a
result of increased fees recognized from loan servicing, deposit
account, ATM, credit card and trust, and gains recognized on the sale
of loans and leases which was partially offset by a decrease in
security gains.
Total average assets for the first half of 1999 grew $1.3 billion, or
17%, as compared to the first half of 1998. The increase was primarily
in the lending portfolio, which experienced a growth of approximately
$750 million in average assets during this time period. In addition,
loans and leases, which had been sold with servicing retained,
increased from $1.7 billion at June 30, 1998 to $4.5 billion at June
30, 1999.
Noninterest expense was $74.7 million for the second quarter of 1999
as compared to $70.9 million for the same period in 1998. For the
first six months of 1999 and 1998, noninterest expense was $147.0
million and $135.5 million, respectively. The ratio of noninterest
expense to tax equivalent revenue ("efficiency ratio") was 54.30% for
the second quarter of 1999 compared to 57.32% for the second quarter
of 1998. For the first six months of 1999 and 1998, the efficiency
ratio was 53.46% and 57.31%, respectively. For purposes of calculating
the efficiency ratio, tax equivalent revenue excludes security gains
or losses.
- 11 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The improvement in the 1999 efficiency ratios was a result of higher
revenues and increased control of expenses. During 1998, management
took specific steps to slow the growth of expenses. First, a
reengineering project, referred to as the Performance Optimization
Project ("POP"), was initiated with areas being identified where
productivity could be improved. Implementation of the POP process
began at the end of 1998 with cost savings expected to occur during
1999 and the first half of the year 2000. Second, those business units
where the prospect for future revenue growth did not justify current
operating losses were terminated. Operating expenses (noninterest
expense less unusual and significant expenses) reported in the second
quarter of 1999 increased only $3.8 million, or 5%, from that reported
in the second quarter of 1998. For the six months ended June 30, 1999,
operating expenses increased $11.4 million, or 8%, from the comparable
period in 1998.
Business Lines
The following table summarizes total revenue, net income and average
assets by major lines of business for the three-month and six-month
periods ending June 30, 1999 and 1998 (dollars in millions):
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------
1999 1998 Change 1999 1998 Change
---------------------------------------------------
Total Revenue:
Corporate Banking $56.4 $61.2 -8% $114.9 $118.1 -3%
Retail Banking 52.3 44.0 19 99.2 83.8 18
Provident Consumer
Financial Services 27.0 18.4 47 57.1 33.2 72
Other 1.9 2.1 (10) 3.7 6.9 (46)
--------------- ---------------
$137.6 $125.7 9 $274.9 $242.0 14
=============== ===============
Net Income:
Corporate Banking $18.4 $24.1 -24% $41.4 $46.2 -10%
Retail Banking 8.9 3.5 154 13.2 6.1 116
Provident Consumer
Financial Services 8.4 4.4 91 18.2 7.5 143
Other (0.2) 0.4 (150) (3.5) 3.3 (206)
--------------- ---------------
$35.5 $32.4 10 $69.3 $63.1 10
=============== ===============
Average Assets:
Corporate Banking $4,308 $3,778 14% $4,225 $3,794 11%
Retail Banking 1,720 1,454 18 1,660 1,415 17
Provident Consumer
Financial Services 576 442 30 600 397 51
Other 2,308 2,056 12 2,311 1,939 19
--------------- ---------------
$8,912 $7,730 15 $8,796 $7,545 17
=============== ===============
- 12 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Business line descriptions and fluctuation analysis follows:
- - Corporate Banking provides lending products and services to its
corporate customers. This business line includes the Commercial
Banking, Provident Capital Corp., Commercial Mortgage, Information
Leasing Corporation and Provident Commercial Group business units.
Corporate Banking constitutes 60% of the first six months of 1999
net income for Provident. Net income for the three months ended June
30, 1999 was $18.4 million compared to $24.1 million for same period
in 1998. For the six months ended June 30, 1999, net income
decreased by $4.8 million. Net income decreased as a result of four
activities. Warrant gains recognized during the first half of 1998
exceeded those recognized in 1999 by approximately $12 million.
These warrants had been acquired as part of the lending fee
structure established with customers. In addition, cash gains
recognized from the sale of equipment lease residuals during the
first six months of 1998 exceeded those recognized during 1999 by
$1.5 million. Other explanations for the decrease in net income
include lower equipment leasing revenue resulting from the
securitization and sale of equipment leases in prior periods, and
start-up costs of Provident Capital Funding, a fee based commercial
real estate loan originator for unaffiliated loan syndicators.
Provident Capital Funding began originating loans in June 1999.
Corporate Banking has been able to continue to expand their
business. Average assets for the three-month and six-month periods
ending June 30, 1999 increased 14% and 11%, respectively, over the
comparable periods in 1998. This growth came despite the sale of
equipment leases totaling $326 million during the past 12 months.
The growth in average assets came primarily from the origination of
commercial loans.
- - Retail Banking provides consumer lending, deposit accounts, trust,
brokerage and investment products and services to its customers.
This business line includes both the Consumer Lending and Consumer
Banking business units. Net income for the three-month and six-month
periods ending June 30, 1999 increased 154% and 116%, respectively,
over the comparable periods in 1998. The increased profits during
1999 were driven by a variety of factors. First, auto lease
production grew significantly as Provident expanded regionally.
Average auto lease balances for the six months ended June 30, 1999
increased $185 million, or 39%, compared to the same time period in
1998. Direct and indirect instalment loans and leases experienced a
significant improvement in credit quality. Net charge-offs declined
from .99% of average net loans and leases in the first six months of
1998 to .75% in 1999. Total managed loans and leases for Retail
Banking grew approximately $818 million, or 47%, since June 30,
1998.
- 13 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Retail Banking also benefited from higher levels of deposits during
the current year. Average core deposits for the second quarter of
1999 grew by 10% since the second quarter of 1998 and 22%
(annualized) since the fourth quarter of 1998, with significant
contribution coming from the Florida franchise.
Noninterest income increased $9.9 million during the first half of
1999 as compared to the same period in 1998. During the second
quarter of 1999, credit card loans of $185 million were securitized,
realizing a gain of $3.3 million. Additional factors that
contributed to higher net income in 1999 include higher fees in the
areas of loan servicing, brokerage, fund management and trust.
Combined, these revenues increased approximately $4.1 million during
the first six months of 1999 as compared to the same period in 1998.
- - Provident Consumer Financial Services originates conforming and
nonconforming residential loans to consumers and short-term
financing to mortgage originators and brokers. Net income for
Consumer Financial Services increased $4.0 million during the second
quarter of 1999 as compared to the same quarter in 1998. Net income
through the first six months of 1999 increased $10.7 million as
compared to the same time period in 1998 due primarily to strong
nonconforming loan production in 1999. Due to industry
consolidation, the competitive environment in the nonconforming
mortgage arena has improved, resulting in more rational pricing. The
interest rate environment characterized by moderate rate increases
is favorable for performance of nonconforming loans, as prepayment
speeds slow on existing loans without adversely affecting consumer
demand for the product. Industry consolidation has allowed Provident
to expand its volume during 1999. During the second quarter of 1999,
Consumer Financial Services securitized and sold nonconforming loans
totaling $515 million resulting in the recognition of a $14.4
million gain, a gain to loans sold ratio of 2.79%. During the second
quarter of 1998, $235 million of loans were securitized and sold
resulting in a $10.7 million gain, a gain to loans sold ratio of
4.57%. The lower gain to loans sold ratio from second quarter 1998
to second quarter 1999 was due primarily to more conservative
assumptions and higher funding costs. Revenues also increased due to
growth in loan servicing fees from $1.7 million in the first half of
1998 to $8.4 million in the first half of 1999. Operating expenses
increased during 1999 due primarily to increased staffing associated
with the higher volume of loans being generated and serviced by this
business unit.
Other includes income and expenses not allocated to the primary
business lines, interest on the investment portfolio and gain on the
sale of certain assets, primarily investment securities.
- 14 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the six months ended June 30, 1999, increased
$15.9 million compared to the first six months of 1998. Interest
income rose $17.9 million for the first six months ended June 30, 1999
compared to the first six months of 1998. The increase in interest
income was primarily due to an increase in average earning assets of
$950 million, or 14%. This increase was partially offset by a 59 basis
point decrease in the average yield on earning assets from 8.76% to
8.17%. The largest portion of the increase in average earning assets
from the first half of 1998 to the first half of 1999 occurred in the
average balance of commercial loans. Interest expense for the six
months ended June 30, 1999, increased by $2.0 million from the first
six months of 1998, due principally to a 14% increase in total
interest bearing liabilities partially offset by a 60 basis point
decrease in the rate paid on liabilities. The increase in interest
bearing liabilities was principally due to a $528 million increase in
interest bearing deposits, primarily savings accounts and time
certificates, along with a $158 million increase in average federal
funds purchased and securities sold under agreements to repurchase.
The decrease in the rate paid on interest bearing liabilities was
primarily a function of the declining interest rate environment.
Net Interest Margin
Net interest margin represents net interest income as a percentage of
total interest earning assets. For the second quarter of 1999, the net
interest margin, on a tax-equivalent basis, was 3.94% compared to
3.85% for the same period in 1998. This increase resulted from the
changes in rates and volumes of earning assets and the corresponding
funding sources. The yield on interest earning assets for the second
quarter decreased 47 basis points, while the yield on interest bearing
liabilities decreased 65 basis points. The following table details the
components of the change in net interest income (on a tax-equivalent
basis) by major category of interest earning assets and interest
bearing liabilities for the three-month and six-month periods ended
June 30, 1999 and 1998.
- 15 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended Six Months Ended
---------------------------------------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
---------------------------------------------------------------
Average Average Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
---------------------------------------------------------------
(Dollars in Millions)
Assets:
Loans and Leases:
Corporate Lending:
Commercial $3,411 8.72% $3,049 9.37% $3,355 8.64% $2,949 9.32%
Mortgage 415 8.61 443 9.08 421 8.65 447 9.20
Construction 475 7.95 333 8.92 466 7.98 322 8.91
Lease Financing 264 9.38 352 11.64 266 9.91 348 11.69
--------------------------------------------------------------
Total Corporate Lending 4,565 8.67 4,177 9.50 4,508 8.65 4,066 9.48
Consumer Lending:
Residential 341 10.47 212 7.59 370 9.78 220 8.99
Installment 533 10.05 625 9.62 598 10.07 625 10.12
Lease Financing 762 7.82 486 7.87 654 8.08 470 7.87
--------------------------------------------------------------
Total Consumer Lending 1,636 9.10 1,323 8.65 1,622 9.20 1,315 9.13
--------------------------------------------------------------
Total Loans and Leases 6,201 8.78 5,500 9.29 6,130 8.80 5,381 9.39
Investment Securities 1,704 6.04 1,607 6.75 1,680 6.04 1,516 6.68
Trading Account Securities 84 5.79 58 5.55 79 5.62 47 5.53
Federal Funds Sold and Reverse
Repurchase Agreements 25 4.88 11 5.61 25 4.84 20 5.51
--------------------------------------------------------------
Total Earning Assets 8,014 8.16 7,176 8.63 7,914 8.17 6,964 8.76
Cash and Noninterest
Bearing Deposits 229 188 230 187
Other Assets 669 366 652 395
------ ------ ------ ------
Total Assets $8,912 $7,730 $8,796 $7,546
====== ====== ====== ======
Liabilities and
Shareholders' Equity:
Deposits:
Demand Deposits $283 1.85 $268 2.20 $275 1.85 $269 2.18
Savings Deposits 1,241 3.81 1,023 4.29 1,289 3.73 970 4.22
Time Deposits 3,367 5.11 3,011 5.70 3,258 5.25 3,055 5.72
--------------------------------------------------------------
Total Deposits 4,891 4.59 4,302 5.15 4,822 4.65 4,294 5.16
Short-Term Debt:
Federal Funds Purchased and
Repurchase Agreements 1,066 4.79 1,090 5.56 1,064 4.73 906 5.50
Commercial Paper 206 4.81 221 5.77 218 4.78 226 5.76
Short-Term Notes Payable 1 4.82 2 5.35 1 4.63 2 6.05
--------------------------------------------------------------
Total Short-Term Debt 1,273 4.79 1,313 5.59 1,283 4.73 1,134 5.55
Long-Term Debt 800 5.43 676 6.39 855 5.49 678 6.40
Junior Subordinated Debentures 103 8.68 99 8.79 101 8.78 99 8.84
--------------------------------------------------------------
Total Interest Bearing
Liabilities 7,067 4.78 6,390 5.43 7,061 4.83 6,205 5.43
Noninterest Bearing Deposits 814 534 705 531
Other Liabilities 307 132 305 151
Shareholders' Equity 724 674 725 659
------ ------ ------ ------
Total Liabilities and
Shareholders' Equity $8,912 $7,730 $8,796 $7,546
====== ====== ====== ======
Net Interest Spread 3.38% 3.20% 3.34% 3.33%
===== ===== ===== =====
Net Interest Margin 3.94% 3.85% 3.86% 3.93%
===== ===== ===== =====
- 16 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Provision and Allowance for Loan and Lease Losses
The provision for loan and lease losses was $21.0 million and $10.0
million for the first six months of 1999 and 1998, respectively. The
increase in the provision was the result of growth in the lending
portfolio, higher net charge-offs, and management's decision to raise
the ratio of reserve for loan and lease losses to total loans and
leases.
The following table shows the progression of the reserve for loan and
lease losses and selected reserve ratios (dollars in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------
1999 1998 1999 1998
------------------------------------
Balance at Beginning of Period $80,142 $72,837 $75,907 $71,980
Provision for Loan and Lease Losses 8,050 5,000 20,950 10,000
Loans and Leases Charged Off (11,370) (5,850) (22,365) (12,859)
Recoveries 3,300 3,485 5,630 6,351
-----------------------------------
Balance at End of Period $80,122 $75,472 $80,122 $75,472
===================================
Reserve for Loan and Lease Losses
as a Percent of:
Nonperforming Loans 140.82% 112.44%
Nonperforming Assets 134.40% 107.14%
Total Loans and Leases 1.37% 1.35%
- 17 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following tables present the distribution of net loan charge-offs
by loan type for the three-month and six-month periods ended June 30,
1999 and 1998 (dollars in thousands):
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
---------------------------------------------------------
Pctg of Pctg of Pctg of Pctg of
Average Total Average Total
Net Net Net Net Net Net
Charge- Loans Charge- Charge- Loans Charge-
Offs (annualize Offs Offs (annualize Offs
---------------------------------------------------------
Corporate Lending:
Commercial $4,698 0.55% 58.2% $593 0.08% 25.1%
Mortgage - - - (1,229) (1.11) (52.0)
Construction - - - - - -
Lease Financing 1,293 1.96 16.0 612 0.70 25.9
------ ----- ------ -----
Net Corporate Lending 5,991 0.53 74.2 (24) - (1.0)
Consumer Lending:
Residential 63 0.07 0.8 (33) (0.06) (1.4)
Installment 1,502 1.13 18.6 1,720 1.10 72.7
Lease Financing 514 0.27 6.4 702 0.58 29.7
------ ----- ------ -----
Net Consumer Lending 2,079 0.51 25.8 2,389 0.72 101.0
------ ----- ------ -----
Net Charge-Off's $8,070 0.53 100.0 $2,365 0.17 100.0
====== ===== ====== =====
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
---------------------------------------------------------
Pctg of Pctg of Pctg of Pctg of
Average Total Average Total
Net Net Net Net Net Net
Charge- Loans Charge- Charge- Loans Charge-
Offs (annualize Offs Offs (annualize Offs
---------------------------------------------------------
Corporate Lending:
Commercial $9,142 0.55% 54.7% $1,003 0.07% 15.4%
Mortgage - - - (1,229) (0.55) (18.9)
Construction - - - - - -
Lease Financing 2,657 2.00 15.9 1,033 0.59 15.9
------- ----- ------ -----
Net Corporate Lending 11,799 0.52 70.6 807 0.04 12.4
Consumer Lending:
Residential 202 0.11 1.2 85 0.08 1.3
Installment 3,873 1.29 23.1 3,715 1.19 57.1
Lease Financing 861 0.26 5.1 1,901 0.81 29.2
------- ----- ------ -----
Net Consumer Lending 4,936 0.61 29.4 5,701 0.87 87.6
------- ----- ------ -----
Net Charge-Off's $16,735 0.55 100.0 $6,508 0.25 100.0
======= ===== ====== =====
- 18 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Nonperforming Assets
Nonperforming assets at June 30, 1999 were $59.6 million compared to
$45.3 million and $70.4 million as of December 31, 1998 and June 30,
1998, respectively. The composition of nonperforming assets over the
past five quarters is provided in the following table (dollars in
thousands).
1999 1998
-----------------------------------------------
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------
Nonaccrual Loans:
Corporate Lending:
Commercial $41,828 $33,210 $34,544 $20,719 $42,413
Mortgage 335 335 335 335 335
Construction - - - - -
Lease Financing 6,724 7,162 4,002 10,732 11,862
-----------------------------------------------
Total Corporate Lending 48,887 40,707 38,881 31,786 54,610
Consumer Lending:
Installment - - - - -
Residential 6,446 4,900 3,692 3,674 3,314
Lease Financing - - - - -
-----------------------------------------------
Total Consumer Lending 6,446 4,900 3,692 3,674 3,314
-----------------------------------------------
Total Nonaccrual Loans 55,333 45,607 42,573 35,460 57,924
Renegotiated Loans 1,565 1,577 - 8,950 9,196
-----------------------------------------------
Total Nonperforming Loans 56,898 47,184 42,573 44,410 67,120
Other Real Estate 2,717 2,430 2,735 2,211 3,321
-----------------------------------------------
Total Nonperforming Assets $59,615 $49,614 $45,308 $46,621 $70,441
===============================================
Loans 90 Days Past Due
Still Accruing $23,280 $12,364 $9,219 $13,443 $10,058
Nonperforming Loans to
Total Loans and Leases 0.97% 0.79% 0.76% 0.78% 1.20%
Nonperforming Assets to:
Total Loans, Leases and
Other Real Estate 1.02% 0.84% 0.81% 0.82% 1.26%
Total Assets 0.70% 0.57% 0.56% 0.56% 0.90%
The increase in nonperforming assets since December 31, 1998, has been
primarily the result of adding six corporate loans and leases to
nonaccrual totaling $16.9 million.
- 19 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Noninterest Income
The following table details the components of noninterest income and
their change for the second quarter and first six-month periods of
1999 and 1998 (dollars in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
----------------- Pctg ------------------ Pctg
1999 1998 Change 1999 1998 Change
-----------------------------------------------------
Service Charges on Deposit Accounts $7,867 $6,789 15.9% $15,131 $13,201 14.6%
Other Service Charges and Fees 17,867 13,843 29.1 31,314 28,801 8.7
Operating Lease Income 10,334 9,405 9.9 19,232 18,459 4.2
Gain on Sales of Loans and Leases 20,263 21,023 (3.6) 52,102 34,549 50.8
Security Gains 113 2,024 (94.4) 106 5,716 (98.1)
Other 2,473 3,747 (34.0) 5,599 5,810 (3.6)
----------------- ------------------
Total Noninterest Income $58,917 $56,831 3.7 $123,484 $106,536 15.9
================= ==================
Noninterest income for the three-month and six-month periods ended
June 30, 1999 increased by $2.1 million and $16.9 million,
respectively, over the comparable periods in 1998. Explanations for
significant changes in noninterest income by category follow:
- - Service charges on deposit accounts increased $1.1 million and $1.9
million in the quarterly and six-month comparisons. The increases
for both periods were a result of pricing and volume increases on
corporate and personal demand deposit accounts. Also ATM surcharges
have risen due to the placement of ATMs in Wal-mart and Sam's Club
stores.
- - Other service charges and fees increased $4.0 million and $2.5
million in the quarterly and six-month comparisons. The higher
revenue was primarily due to increases in loan servicing fees, from
the nonconforming, warehouse lending and auto sale-leaseback
securitization transactions, credit card fees and trust fees.
Offsetting these higher fees were reduced stock and warrant gains,
which had been received as part of certain loan fee structures.
- 20 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- - Gain on sales of loans and leases decreased $.8 million during the
second quarter of 1999 as compared to the second quarter of 1998,
but increased $17.6 million during the first half of 1999 as
compared to the first half of 1998. The following table provides
detail of the gain on sales recognized during the second quarter and
first six month periods of 1999 and 1998 (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------
1999 1998 1999 1998
--------------------------------------
Cash Gains -- Lease Terminations:
Equipment Lease Residual Sales $1,019 $4,979 $3,661 $5,209
Auto Lease Sales and Terminations 700 2,765 2,625 3,388
-------------------------------------
1,719 7,744 6,286 8,597
-------------------------------------
Cash Gains -- Loan and Lease Sales:
Equipment Lease Securitization - - 6,914 -
Conforming Residential Whole Loan Sales 576 1,474 1,449 2,108
Nonconforming Residential Whole Loan Sales - 75 141 244
Credit Card Whole Loan Sales - 247 - 3,485
Other Loan Sales 301 744 321 1,525
-------------------------------------
877 2,540 8,825 7,362
-------------------------------------
Non-cash Gains -- Loan and Lease Sales:
Nonconforming Residential Loan
Securitizations 14,372 10,739 33,696 18,590
Credit Card Loan Securitizations 3,295 - 3,295 -
-------------------------------------
17,667 10,739 36,991 18,590
-------------------------------------
$20,263 $21,023 $52,102 $34,549
=====================================
Significant loan and lease sales occurring in 1999 and 1998 follow:
- - During the first six months of 1999, $1.0 billion of
nonconforming residential loans were securitized and sold
resulting in non-cash gains of $33.7 million, a gain to loans
sold ratio of 3.27%. During the first six months of 1998, $435
million of nonconforming residential loans were sold producing
non-cash gains of $18.6 million, a gain to loans sold ratio of
4.27%. The lower gain to loans sold ratio for 1999 was due
primarily to more conservative assumptions and higher funding
costs.
- - Credit card receivables of $185.0 million were securitized and
sold in the second quarter of 1999, generating a non-cash gain of
$3.3 million.
- - Equipment leases totaling $115.0 million were sold during the
first quarter of 1999, resulting in a cash gain of $6.9 million.
- - A cash gain of $3.2 million was recognized on $38.3 million of
credit card whole loan sales during the first quarter of 1998.
- 21 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Nonconforming residential loans, originated or acquired by the
Provident Consumer Financial Services business line, have been
securitized and sold on a quarterly basis since 1996. Major
characteristics of these nonconforming loans include: 60% with "A"
credit grade and 25% with "B" credit grade; 65% with full
documentation and 10% with reduced documentation; 65% have prepayment
penalties; 95% are secured by first mortgages; 90% are owner occupied;
and, on average, have a 78% loan-to-value ratio.
Loan sales through securitizations permit Provident to enhance
operating profits, provide for immediate cash flows to fund additional
loan originations, and provide for future cash flows generated by the
interest payment differentials between interest paid by the borrowers
and remitted to the investors. Total loans securitized and sold were
$515 million and $235 million in the second quarter of 1999 and 1998,
respectively. The methodology used by Provident to calculate gains on
sale of these securities follow:
1) An amortization schedule is created for the loan portfolio based on
each loan's maturity, rate and balance.
2) The amortization schedule is adjusted using a prepayment speed
curve. The prepayment curve estimates the actual timing of principal
payments by mortgage borrowers.
3) The net spread is calculated on the loan portfolio by taking the
cash inflows (loan portfolio yield and prepayment penalties) and
reducing it by the cash outflows (bond yield paid to investors,
servicing fees and other fees). Prepayments reduce the average life
of the portfolio, which in turn reduces the net spread collected by
Provident.
4) The present value of the net spread is calculated by applying a
discount rate indicative of the risk associated with the
transaction.
- In traditional credit enhancement structures, the net spread is
used to create excess collateral as credit support. In these
transactions, cash flow to Provident is delayed until the target
over-collateralization is met and cash is released. This delay in
cash receipts reduces the present value.
- Beginning with the March 1998 securitization, Provident has
provided credit enhancement in the form of a cash reserve
account. Therefore Provident does not experience delays in cash
receipts. The spread is not subordinated to the losses. Losses
are paid directly from the cash reserve account instead of
reducing the net spread. In addition the cash reserve account is
placed in a noninterest bearing checking account at Provident,
whereby no cash outlay is experienced in the funding of the
account.
5) The gain is calculated by taking the present value of the net spread
and reducing it by the present value of the expected credit losses,
underwriting expenses, accounting and legal fees and deferred
expenses paid to originate the loans.
- 22 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The present value of these net cash flows, referred to as retained
interest in securitized assets ("RISA"), are included with investment
securities on the consolidated balance sheets. Components of the RISA
and the underlying assumptions follow:
Nonconforming Prime
Residential Home Equity
---------------------------
Estimated Cash Flows of Underlying Loans,
Net of Payments to Certificate Holders $405,844 $25,667
Less:
Estimated Credit Loss (29,091) (1,761)
Servicing and Insurance Expense (43,238) (3,349)
Discount to Present Value (60,921) (2,618)
-----------------------
Carrying Value of Retained Interest in
Securitized Assets $272,594 $17,939
=======================
Nonconforming Residential Prime Home Equity
-----------------------------------------------------
Second Quarter Weighted Weighted
1999 Average Average
Transaction (All Transactions) (All Transactions)
-----------------------------------------------------
Assumptions Used:
Prepayment Speed (1):
Initial Rate 13.50% 11.60% 11.45%
Peak Rate 35.00% 31.30% 25.65%
Calculated Weighted Average Life
of the Loan Portfolios 2.4 Years 2.8 Years 2.1 Years
Estimated Credit Losses (2):
Annual Basis 1.10% 1.07% 0.20%
Percentage of Original Balance 2.70% 3.15% 0.41%
Discount Rate (3) 12.00% 11.78% 9.58%
<FN>
(1) Provident applies an annual prepayment model that adjusts the monthly speeds to account
for declining loan balances. This approach is a conservative approach and results in
higher assumptions for prepaid cash flow and lower gains when compared with a monthly
unadjusted prepayment curve. Provident uses a prepayment curve that applies a 10%
prepayment rate to new loans (higher for seasoned loans) and ramps up to 35% after 12
months. Provident continues to use the 35% prepayment rate for the remainder of the
portfolio life.
(2) Provident applies a cumulative static pool approach to credit losses. Higher prepayment
speeds and shorter average lives do not alter the cumulative credit loss assumption. As
a result, higher prepayment speeds increase the annualized losses.
(3) Since March 1998, Provident's securitizations have utilized a structure that results in
immediate cash flow to Provident. There is no delay that would cause a mismatch between
the actual timing of cash flows and the discount methodology.
- 23 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management makes estimates and assumptions when recording noncash loan
sale gains. However, management believes it is making conservative
assumptions as to anticipated prepayment speeds and credit losses. No
assurance can be given that the level of loan originations and
acquisitions, along with a favorable interest rate market, will
continue to permit the recognition of such gains on sales of loans in
the future. No assurance can be given that Provident will be able to
securitize and sell such loans at levels previously experienced.
Provident's ability to securitize and sell such loans is mainly
dependent upon outside factors over which Provident has no control,
such as interest levels, the condition of markets for securitized
loans, general market conditions and similar factors.
Noninterest Expense
The following table details the components of noninterest expense and
their change for the second quarter and first six-month periods of
1999 and 1998 (dollars in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ Pctg ------------------ Pctg
1999 1998 Change 1999 1998 Change
------------------------------------------------------
Salaries, Wages and Benefits $34,417 $31,569 9.0% $69,397 $60,906 13.9%
Depreciation on
Operating Lease Equipment 5,578 5,242 6.4 10,303 10,524 (2.1)
Occupancy 4,348 4,104 5.9 8,556 7,911 8.2
Equipment Expense 5,853 4,783 22.4 11,155 9,014 23.8
Professional Fees 4,985 4,341 14.8 8,620 8,314 3.7
Charges and Fees 3,437 3,607 (4.7) 7,169 6,001 19.5
Other 16,044 17,258 (7.0) 31,759 32,865 (3.4)
----------------- ------------------
Total Noninterest Expense $74,662 $70,904 5.3 $146,959 $135,535 8.4
================= ==================
Noninterest expense for the three-month and six-month periods ended
June 30, 1999 increased 5.3% and 8.4%, respectively, over the
comparable periods in 1998. This follows increases of 31.6% and 29.2%
when comparing the three-month and six-month periods ended June 30,
1998 over the comparable periods in 1997. The decline in the growth
rate of noninterest expenses is principally the result of the
Performance Optimization Project and the discontinuing of operations
of the MeritValu and Free Market Partner business units.
Explanations for significant changes in noninterest expense between
the three-month and six-month period in 1999 and 1998 follow:
- 24 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- - Salaries, wages and benefits increased $2.8 million and $8.5 million
in the quarterly and six-month comparisons. The increase for the
quarterly comparison was due primarily to increased staffing of the
Corporate Banking business line combined with increases in
performance based incentives and benefit plan expenses. The increase
noted for the six-month comparison was due primarily for the reasons
stated in the quarterly comparison along with additional staffing
for Provident Consumer Financial Services. Offsetting these staffing
increases were reductions in staffing from retail banking and
discontinued businesses. Total full-time equivalent employees as of
June 30, 1999 and 1998 were 2,546 and 2,541, respectively.
- - Equipment expense increased $1.1 million during the current period
and $2.1 million for the six-month period due to higher depreciation
expense primarily in technology areas, branches, ATMs and Provident
Consumer Financial Services.
- - Professional fees increased $.6 million in the quarterly comparison
due principally to higher legal expenses related to lending
activities, temporary employment fees and fees related to credit
card operations.
- - Charges and fees increased $1.2 million for the first six months of
1999 due primarily to higher loan origination costs and credit card
processing charges.
- - Significant items within other noninterest expense for the second
quarter and first half of 1999 include marketing expense of $2.4
million and $4.3 million, respectively, data processing expense of
$1.3 million and $4.0 million, respectively, and franchise tax
expense of $2.1 million and $3.7 million, respectively.
Financial Condition
Short-Term Investments and Investment Securities
Federal funds sold and reverse repurchase agreements decreased $45.0
million since December 31, 1998. 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.
Trading account securities are purchased with the intention of
recognizing short-term profits. These securities are carried at fair
value with realized and unrealized gains and losses reported in other
noninterest income. Trading account securities decreased from $50.3
million at December 31, 1998 to $15.4 million at June 30, 1999.
- 25 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Securities purchased with the intention of being held for indefinite
periods of time are classified as investment securities available for
sale. These securities increased $114.2 million during 1999 of which
$74.8 million was a result of the change in the RISA balances. A
discussion of RISAs is included in "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Noninterest Income.
Loans and Leases
As of June 30, 1999 total loans and leases were $5.8 billion compared
to $5.6 billion at December 31, 1998. During the first six months of
1999, $1.0 billion of nonconforming residential loans, $386.8 million
of auto leases, $185.0 million of credit card loans and $115.8 million
of corporate lease financings were securitized and sold. As a result
of loans and leases being sold with servicing retained, total managed
loans and leases not reflected on the balance sheet grew from $3.2
billion at December 31, 1998 to $4.5 billion at June 30, 1999.
The following table shows the composition of the commercial loan
category by industry type at June 30, 1999 (dollars in millions):
Amount on
Type Amount % Nonaccrual
- -------------------------------------------------------------
Manufacturing $756.4 22 $14.0
Service Industries 718.5 21 10.5
Real Estate Operators/Investment 387.6 11 0.7
Finance & Insurance 299.2 9 -
Retail Trade 296.7 8 9.7
Wholesale Trade 256.2 7 2.0
Transportation/Utilities 198.3 6 0.7
Construction 141.8 4 0.9
Automobile Dealers 120.2 3 -
Residential Warehouse Lending 9.4 - 1.2
Other 321.2 9 2.1
--------------------------
Total $3,505.5 100 $41.8
==========================
- 26 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The composition of the commercial mortgage and construction loan
categories by property type at June 30, 1999 is shown in the following
table (dollars in millions):
Amount on
Type Amount % Nonaccrual
- -------------------------------------------------------------
Office/Warehouse $191.5 22 $-
Shopping/Retail 183.1 21 0.3
Residential Development 174.4 20 -
Apartments 107.1 12 -
Land 37.0 4 -
Hotels/Motels 27.9 3 -
Auto Sales and Service 27.7 3 -
Churches 14.3 2 -
Industrial Plants 13.7 1 -
Health Facilities 7.0 1 -
Other Commercial Properties 97.5 11 -
------------------------
Total $881.2 100 $0.3
========================
The following table shows the composition of the instalment loan
category by loan type at June 30, 1999 (dollars in millions):
Type Amount %
- -------------------------------------------------
Indirect Instalment $291.4 55
Home Equity 62.6 12
Credit Card 60.2 11
Direct Instalment 55.9 10
Credit Lines 43.4 8
Other Consumer Loans 19.7 4
------------
Total $533.2 100
============
Other Assets
Other assets increased $144.8 million, or 32% since December 31, 1998.
The increase is due primarily to the increase in receivables due from
securitization trusts. Since March 1998, Provident has provided for
credit enhancements to its securitizations in the form of cash reserve
accounts that are funded prior to closing. The cash reserve accounts
are deposited at Provident. Credit losses are paid directly from the
cash reserve accounts. Any remaining funds not used to cover such
losses are returned to Provident at the termination of the
securitization. Receivables due from securitizations, net of expected
losses, were $215.1 million and $106.8 million as of June 30, 1999 and
December 31, 1998, respectively.
- 27 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Deposits
Noninterest bearing deposits increased $192.9 million, or 29%, during
the first six months of 1999. As noted above, the cash reserve
accounts, used as credit enhancements for its securitizations, are
deposited in noninterest bearing checking accounts at Provident. As of
June 30, 1999 and December 31, 1998, these cash reserve accounts
totaled $267.3 million and $131.6 million, respectively.
Interest bearing deposits increased $231.1 million to $4,888.6 million
during the first six months of 1999. Retail certificates of deposit
contributed significantly to this growth.
Borrowed Funds
Short-term debt decreased $26.0 million, or 3%, to $781.5 million
during the first six months of 1999. The decrease was due to a $46.5
million decrease in commercial paper more than offsetting the $20.5
million increase in federal funds purchased and repurchase agreements.
Long-term debt decreased $139.4 million, or 15%, during the first six
months of 1999. The decrease is primarily attributable to the maturity
of a $100 million Federal Home Loan Bank advance.
During the second quarter of 1999, Provident established Provident
Capital Trust II. Capital Trust II issued capital securities of $125
million of preferred stock to the public and $3.9 million of common
stock to Provident. Proceeds from the issuance of the capital
securities were invested in Provident's 8.75% junior subordinated
debentures, due 2029.
Capital Resources and Adequacy
Total shareholders' equity at June 30, 1999 was $717.0 million
compared to $703.9 million at December 31, 1998. The change in the
equity balance primarily relates to net income exceeding dividends by
$50.4 million, treasury stock purchases of $8.6 million and a decrease
in the market value of investment securities classified as available
for sale of $30.2 million (net of deferred income taxes).
The quarterly common dividend rate was increased from $.20 per share
to $.22 per share beginning with the first quarter of 1999. It is
Provident's intention to pay annual dividends of approximately 30% of
net income.
- 28 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In August 1998, Provident announced that it would purchase up to 1
million shares, or approximately 2.3%, of its common stock. The
purchases were to be made from time-to-time in open market or in
privately negotiated transactions at the discretion of management.
Shares purchased pursuant to the buy-back program were used to fund
various company benefit plans and for other corporate purposes. The
buyback plan was subsequently cancelled in August, 1999. Total shares
purchased under the buy-back program were 801,800 shares.
The following table of ratios is important for the analysis of capital
adequacy:
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
------------------------------------
Average Shareholders' Equity to Average Assets 8.13% 8.73%
Dividend Payout to Net Earnings 27.31 30.72
Tier 1 Leverage Ratio 10.32 9.00
Tier 1 Capital to Risk-Weighted Assets 9.75 8.55
Total Risk-Based Capital To Risk-Weighted Assets 11.87 11.15
Capital expenditures planned by Provident for building improvements
and furniture and equipment in 1999 are currently estimated to be
approximately $21 million. Included in this amount are projected
capital expenditures for the purchase of data processing hardware and
software, facility renovations, branch additions/renovations and ATMs.
Through June 30, 1999, approximately $13 million of these expenditures
had been made.
Stock Options
Options to purchase 704,625 shares of Provident Common Stock were
granted during the first six months of 1999. The options have exercise
prices ranging from $34.32 to $44.44.
- 29 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Off-Balance Sheet Managed Assets
Provident generally retains the servicing of the loans and leases it
securitizes and/or sells. As a result, a significant level of assets
is serviced by Provident, which do not appear on its balance sheet.
These off-balance sheet assets were primarily responsible for the
generation of $6.0 million and $1.4 million in loan servicing fees
during the second quarter of 1999 and 1998, respectively. The
following table provides a summary of these managed assets (in
thousands):
June 30
-----------------------
1999 1998
-----------------------
Residential Mortgage Loans $2,444,272 $1,258,975
Auto Leases 985,517 314,068
Warehouse Lending 327,900 -
Home Equity Loans 265,026 173,806
Equipment Leases 253,857 -
Credit Card Lending 185,000 -
-----------------------
$4,461,572 $1,746,849
=======================
Off-Balance Sheet Financial Agreements
In the normal course of business, Provident 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,
1999, these off-balance sheet instruments consisted of standby letters
of credit of $138 million, commitments to extend credit of $2.6
billion and interest rate swaps with a notional amount of $2.8
billion.
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 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, federal funds sold and trading
account securities. Additional sources of liquidity include the sale
of investment securities and the sale of corporate and consumer loans
and leases. Another source for providing liquidity is the generation
of new deposits. Provident may also borrow both short-term and long-
term funds. Provident has an additional $687.5 million available for
borrowing under a $1 billion bank notes program. The $1 billion bank
notes program was increased to $1.5 billion in July 1999.
Approximately $10.5 million of long-term debt is due to be repaid
during the remainder of 1999.
- 30 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The major source of liquidity for Provident 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, 1999 by
its banking subsidiaries was approximately $247.4 million. The Parent
has not received any dividends from its subsidiaries during the first
six months of 1999.
At June 30, 1999 the Parent had not drawn any of its $200 million in
general purpose lines of credit with unaffiliated banks. Additionally
the Parent had approximately $94.2 million in cash, interest earning
deposits and federal funds sold to meet its liquidity needs.
Subsequent Events
On August 3, 1999, Provident announced the signing of a definitive
agreement to acquire OHSL Financial Corp. ("OHSL") and its
subsidiaries in a merger transaction. OHSL has approximately $284
million in assets and operates six full-service banking offices in
Cincinnati, Ohio. This transaction will be accounted for as a
purchase, and accordingly, the assets acquired and liabilities assumed
will be recorded at estimated fair value. Under terms of the
agreement, OHSL shareholders will receive shares of Provident common
stock having an approximate value of $57 million. This transaction is
expected to be consummated during the fourth quarter of 1999.
On August 16, 1999, Provident announced the signing of a definitive
agreement to acquire Fidelity Financial of Ohio, Inc. and its
subsidiaries in a merger transaction. Fidelity Financial has
approximately $808 million in assets and operates fifteen full-service
banking offices in the greater Cincinnati, Ohio area. This transaction
will be accounted for as a pooling-of-interests, and accordingly, the
assets acquired and liabilities assumed will be recorded at their
historical value. Under terms of the agreement, Fidelity Financial
shareholders will receive shares of Provident common stock having an
approximate value of $192 million. This transaction is expected to be
consummated late in the fourth quarter of 1999 or early in the first
quarter of 2000.
Market Risk Management
The responsibility of monitoring and managing market and liquidity
risk is assigned to the Asset Liability Committee ("ALCO"). The main
source of market risk is the risk of loss in the value of financial
instruments that may result from the changes in interest rates. ALCO
is bound to guidelines stated in the relevant policies approved by the
Board of Directors.
- 31 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to the natural balance sheet hedges, ALCO utilizes off-
balance sheet instruments to manage interest rate risk on and off its
balance sheet. Interest rate swaps are the most widely used tools to
manage interest rate risk. Provident has used off-balance sheet tools
effectively for a number of years and believes it has developed the
appropriate expertise and knowledge to achieve a sound interest rate
risk management process.
Provident uses an earnings simulation model to analyze net interest
income sensitivity to movements in interest rates. Given an
instantaneous and permanent change in the pricing of all interest rate
sensitive assets, liabilities and off-balance sheet financial
agreements, net interest income would change by the following over the
next 12-month period: increase 3.74% for a 100 basis point decrease;
increase 7.22% for a 200 basis point decrease; decrease 4.59% for a
100 basis increase; and decrease 9.49% for a 200 basis point increase.
The effects of these interest rate fluctuations are considered worst
case scenarios, as the analysis does not give consideration to any
management of the new interest rate environment. These tests are
performed on a monthly basis and the results, which are in compliance
with policy, are presented to the Board of Directors.
Year 2000 Compliance
The Year 2000 Issue arose because many existing computer programs use
only two digits to identify a year in the date field. These programs
were designed and developed without considering the impact of the
upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results before, during and
after January 1, 2000.
Provident has been actively addressing the Year 2000 issue since 1996
as it could result in an interruption in certain normal business
activities or operations. Such interruptions could materially affect
Provident's results of operations, liquidity and financial condition.
Due to the general uncertainty inherent in the Year 2000 issue,
including third party vendors and customers, Provident is unable to
determine at this time whether Year 2000 failures will significantly
affect Provident's results of operations, liquidity and financial
condition. Steps taken by Provident have significantly reduced the
level of uncertainty about the Year 2000 issues. The total cost of the
Year 2000 project is estimated at $10 million. During 1999, Provident
expensed $2.3 million, and since inception $8.7 million, for the
correction of this problem. The following summarizes its Year 2000
readiness.
- 32 -
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Mainframe Applications: Provident has completed the Year 2000 code
remediation and implemented the changes into production. Additionally,
all third-party upgrades required to ensure Year 2000 compliance have
been installed. Provident has performed future date testing at an
application level throughout the conversion and upgrade process. In
addition, an integrated systems Millennium Verification Test was
executed offsite in the fourth quarter of 1998. Provident has
established a logical partition (LPAR) to allow for continued
production verification tests that include third-party and corporate
customer interfaces.
PC Applications: In early 1997, Provident established a Year 2000 PC
test lab for date simulation verification of PC software applications,
spreadsheets and databases. As of June 30, 1999, Provident
successfully upgraded where necessary, and tested, nearly 200 pieces
of software and all mission critical spreadsheets and databases.
Provident will continue to test all new software purchased and vendor
upgrades received throughout the remainder of 1999.
Environmental/Embedded Systems: Provident has solicited, and received
from vendors, the Year 2000 compliance information on its
environmental and other embedded systems. As of June 30, 1999, testing
and any required upgrades to meet Year 2000 Compliance have been
completed.
Third Party Interdependencies: Provident has solicited, and continues
to monitor, the readiness of all third party interdependencies.
Testing has been completed with all of our interdependencies including
our main interface, the Federal Reserve Bank, to verify our ACH, wire
and daily cash settlement activity.
Vendors/Customers: Letters and questionnaires have been sent out to
significant vendors and borrowers of Provident. Both vendor and
customer responses will be actively monitored and updated throughout
1999.
Contingency Plans: Year 2000 business resumption contingency plans
have been developed and documented. These plans are designed to focus
on Provident's processes for achieving Year 2000 readiness with the
assumption that all business processes, functions and applications
will fail during the Year 2000 date change. These plans define
processes and comprehensive procedures covering company-wide
contingency strategies, financial business center sales and services,
and individual business units necessary to assuring continuity or
resumption of business operations in the event of Year 2000
disruptions. Master listings of external dependencies and interfaces
including corporate customers, vendors, service providers,
infrastructure and information sources are provided for within these
plans.
- 33 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 2 "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Market Risk Management".
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 20, 1999.
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
For Against Abstentions
-------------------------------------
Election of the following directors:
(a)Jack M. Cook 38,683,649 19,460 37,387
(b)Thomas D. Grote, Jr. 38,687,691 19,460 33,345
(c)Robert L. Hoverson 38,685,746 19,441 35,309
(d)Philip R. Myers 38,686,513 19,460 34,523
(e)Joseph A. Pedoto 38,687,945 11,306 41,245
(f)Sidney A. Peerless 38,661,916 18,124 60,456
(g)Joseph A. Steger 38,676,907 19,460 44,129
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed:
Exhibit 27.1 - Financial Data Schedule for June 30, 1999
Exhibit 27.2 - Restated Financial Data Schedule for
June 30, 1998
(b) Reports on Form 8-K:
A Form 8-K was filed June 25, 1999 reporting under Item 5 - Other
Events.
All other items required in Part II of this form have been omitted
since they are not applicable or not required.
- 34 -
SIGNATURE
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, 1999 \s\ Christopher J. Carey
-------------------------------
Christopher J. Carey
Executive Vice President and
Chief Financial Officer