SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to __________
Commission File Number: 0-25233
PROVIDENT BANCORP, INC.
-----------------------
(Exact Name of Registrant as Specified in its Charter)
Federal 06-1537499
- ------------------------------------------- ----------
(State or Other Jurisdiction of (IRS Employer ID No.)
Incorporation or Organization)
400 Rella Boulevard, Montebello, New York 10901
- ------------------------------------------- -----
(Address of Principal Executive Office) ( Zip Code)
(845) 369-8040
--------------
(Registrant's Telephone Number including area code)
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 twelve 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.
(1) Yes [ X ] No [ ]
(2) 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.
Classes of Common Stock Shares Outstanding
----------------------- ------------------
$0.10 per share 8,054,080 as of
July 31, 2001
PROVIDENT BANCORP, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 2001
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements (Unaudited) PAGE
-----
Consolidated Statements of Financial Condition at
June 30, 2001 and September 30, 2000 3-4
Consolidated Statements of Income for the Three Months and
Nine Months Ended June 30, 2001 and 2000 5
Consolidated Statement of Changes in Stockholders' Equity
for the Nine Months Ended June 30, 2001 6
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 2001 and 2000 7-8
Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-20
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 20
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Provident Bancorp, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(Dollars in thousands, except per share data)
Assets June 30, 2001 September 30, 2000
- ------ ------------- -----------------
Cash and due from banks $ 16,880 $ 12,785
Federal funds sold 700 --
Securities:
Available for sale, at fair value (amortized cost of
$161,260 at June 30, 2001 and $163,057 at
September 30, 2000) 165,291 162,157
Held to maturity, at amortized cost (fair value of $76,765
at June 30, 2001 and $48,374 at September 30, 2000) 75,983 48,586
--------- ---------
Total securities 241,274 210,743
--------- ---------
Loans:
One- to four-family residential mortgage loans 350,952 343,871
Commercial real estate, commercial business
and construction loans 179,492 182,070
Consumer loans 74,816 71,534
--------- ---------
Total loans 605,260 597,475
Allowance for loan losses (Note 2) (8,785) (7,653)
--------- ---------
Total loans, net 596,475 589,822
--------- ---------
Accrued interest receivable, net 4,847 5,495
Federal Home Loan Bank stock, at cost 7,066 7,023
Premises and equipment, net 9,068 8,952
Deferred income taxes 4,680 6,033
Other assets 3,042 3,933
--------- ---------
Total assets $ 884,032 $ 844,786
========= =========
-3-
Provident Bancorp, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION, cONTINUED
(Unaudited)
(Dollars in thousands, except per share data)
Liabilities and Stockholders' Equity June 30,2001 September 30, 2000
- ------------------------------------ ------------- -----------------
Liabilities:
Deposits:
Retail demand and NOW deposits $ 100,179 $ 92,945
Commercial demand deposits 30,501 28,324
Savings and money market deposits 267,645 238,319
Certificates of deposit 253,413 249,388
--------- ---------
Total deposits 651,738 608,976
Borrowings 109,265 127,571
Mortgage escrow funds 13,819 5,971
Other 10,027 11,282
--------- ---------
Total liabilities 784,849 753,800
--------- ---------
Stockholders' equity:
Preferred stock (par value $0.10 per share; 10,000,000 shares
authorized; none issued or outstanding) -- --
Common stock (par value $0.10 per share; 10,000,000 shares
authorized; 8,280,000 shares issued) 828 828
Additional paid-in capital 36,473 36,356
Unallocated common stock held by the employee stock ownership
plan ("ESOP") (2,444) (2,726)
Stock awards under recognition and retention plan ("RRP") (1,876) (2,306)
Treasury stock, at cost (225,920 shares at June 30, 2001 and
202,200 shares at September 30, 2000) (3,630) (3,203)
Retained earnings 67,573 62,577
Accumulated other comprehensive income (loss),
net of taxes (Note 4) 2,259 (540)
--------- ---------
Total stockholders' equity 99,183 90,986
--------- ---------
Total liabilities and stockholders' equity $ 884,032 $ 844,786
========= =========
See accompanying notes to unaudited consolidated financial statements.
-4-
PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
------------------- -------------------
2001 2000 2001 2000
------- ------- ------- -------
Interest and dividend income:
Loans $11,474 $11,197 $35,050 $33,245
Securities 3,521 3,450 10,372 9,930
Other earning assets 160 164 463 456
------- ------- ------- -------
Total interest and dividend income 15,155 14,811 45,885 43,631
------- ------- ------- -------
Interest expense:
Deposits 4,792 4,783 15,068 13,680
Borrowings 1,620 1,859 5,325 5,479
------- ------- ------- -------
Total interest expense 6,412 6,642 20,393 19,159
------- ------- ------- -------
Net interest income 8,743 8,169 25,492 24,472
Provision for loan losses (Note 2) 360 450 1,080 1,350
------- ------- ------- -------
Net interest income after provision for loan losses 8,383 7,719 24,412 23,122
------- ------- ------- -------
Non-interest income:
Banking service fees 843 729 2,444 2,038
Loan servicing fees 59 65 169 199
Net on sales of securities available for sale 383 1 532 9
Other income 192 48 406 238
------- ------- ------- -------
Total non-interest income 1,477 843 3,551 2,484
------- ------- ------- -------
Non-interest expense:
Compensation and employee benefits 3,670 3,477 10,354 9,945
Occupancy and office operations 1,076 944 3,111 2,807
Advertising and promotion 387 400 1,137 909
Data processing 376 377 1,125 1,151
Amortization of branch purchase premiums 65 430 359 1,290
Other 1,090 737 3,444 3,272
------- ------- ------- -------
Total non-interest expense 6,664 6,365 19,530 19,374
------- ------- ------- -------
Income before income tax expense 3,196 2,197 8,433 6,232
Income tax expense 1,092 681 2,890 2,088
------- ------- ------- -------
Net income $ 2,104 $ 1,516 $ 5,543 $ 4,144
======= ======= ======= =======
Basic and diluted earnings per common share (Note 5) $ 0.27 $ 0.20 $ 0.72 0.53
======= ======= ======= =======
See accompanying notes to unaudited consolidated financial statements.
-5-
PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 2001
(Unaudited)
(Dollars in thousands, except per share data)
Common Accumulated
Additional Unallocated Stock Other Total
Common Paid-In ESOP Awards Treasury Retained Comprehensive Stockholders'
Stock Capital Shares Under RRP Stock Earnings Income (Loss) Equity
----- ------- ------ --------- ----- -------- ------------- ------
Balance at September 30, 2000 $828 $36,356 $(2,726) $(2,306) $(3,203) $62,577 $(540) $90,986
Net income for nine-month period 5,543 5,543
Cash dividends paid ($0.15 per share) (547) (547)
Treasury stock purchases, net
(23,720 shares) (427)
(427)
ESOP shares allocated or committed
to be released for allocation
(23,184 shares) 117 282 399
Vesting of RRP shares 430 430
Change in net unrealized gain (loss)
on securities available for sale,
net of taxes of $(1,854) 2,955 2,955
Net unrealized loss on securities
transferred from available for sale to
held to maturity, net of taxes of $58
(88) (88)
Unrealized loss on cash flow hedges,
net of taxes of $46 (68) (68)
---- ------- ------- ------- ------- ------- ----- -------
Balance at June 30, 2001 $828 $36,473 $(2,444) $(1,876) $(3,630) $67,573 $2,259 $99,183
See accompanying notes to unaudited consolidated financial statements.
-6-
PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the Nine Months
(In thousands) Ended June 30,
------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net income $ 5,543 $ 4,144
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,080 1,350
Depreciation and amortization of premises
and equipment 1,311 1,202
Amortization of branch purchase premiums 359 1,290
Net on sales of securities available for sale (532) (9)
Net amortization of premiums and discounts
on securities 73 76
ESOP and RRP expense 829 754
Originations of loans held for sale -- (361)
Proceeds from sales of loans held for sale -- 836
Deferred income tax benefit (513) (653)
Net changes in accrued interest receivable
and payable 62 2,152
Net changes in other assets and liabilities 73 550
--------- ---------
Net cash provided by operating activities 8,285 11,331
--------- ---------
Cash flows from investing activities:
Purchases of securities:
Available for sale (47,780) (35,746)
Held to maturity (30,366) (4,710)
Proceeds from maturities, calls and principal payments on securities:
Available for sale 21,304 13,200
Held to maturity 14,788 9,252
Proceeds from sales of securities available for sale 16,761 5,992
Loan originations (104,509) (100,857)
Loan principal payments 96,298 81,864
Purchases of Federal Home Loan Bank stock (43) (847)
Proceeds from sales of real estate owned 154 350
Purchases of premises and equipment (1,427) (1,993)
--------- ---------
Net cash used in investing activities (34,820) (33,495)
--------- ---------
-7-
PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
(In thousands)
For the Nine Months
Ended June 30,
2001 2000
-------- --------
Cash flows from financing activities:
Net increase in deposits $ 42,762 $ 31,120
Net decrease in borrowings (18,306) (4,142)
Net increase in mortgage escrow funds 7,848 4,357
Treasury shares purchased, net (427) (3,061)
Shares purchased for RRP awards -- (1,645)
Cash dividends paid (547) (903)
-------- --------
Net cash provided by financing activities 31,330 25,726
-------- --------
Net increase in cash and cash equivalents 4,795 3,562
Cash and cash equivalents at beginning of period 12,785 11,838
Cash and cash equivalents at end of period $ 17,580 $ 15,400
======== ========
Supplemental information:
Interest payments $ 20,979 $ 17,981
Income tax payments 2,344 1,352
Transfer of securities from available for sale
to held to maturity 12,013 --
Transfer of loans to real estate owned 172 154
======== ========
See accompanying notes to unaudited consolidated financial statements.
-8-
PROVIDENT BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
----------------------
The consolidated financial statements include the accounts of Provident
Bancorp, Inc. and Provident Bank (collectively, the "Company"). Provident
Bancorp, Inc. is a majority-owned subsidiary of Provident Bancorp, MHC, a mutual
holding company. The consolidated financial statements have been prepared by
management without audit, but, in the opinion of management, include all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the Company's financial position and results of operations as of
the dates and for the periods presented. Although certain information and
footnote disclosures have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission applicable to quarterly
reports on Form 10-Q, the Company believes that the disclosures are adequate to
make the information presented not misleading. The results of operations for the
period ended June 30, 2001 are not necessarily indicative of results to be
expected for other interim periods or the entire fiscal year ending September
30, 2001.
The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, income and expense. Actual results could differ significantly from
these estimates. A material estimate that is particularly susceptible to
near-term change is the allowance for loan losses, which is discussed in Note 2.
The unaudited financial statements presented herein should be read in
conjunction with the annual audited financial statements for the fiscal year
ended September 30, 2000.
2. Allowance for Loan Losses and Non-Performing Assets
---------------------------------------------------
The allowance for loan losses is established through provisions for
losses charged to earnings. Loan losses are charged against the allowance when
management believes that the collection of principal is unlikely. Recoveries of
loans previously charged-off are credited to the allowance when realized.
The allowance for loan losses is an amount that management believes
will be adequate to absorb probable losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of the loans.
Management's evaluations, which are subject to periodic review by the Company's
regulators, take into consideration such factors as the Company's past loan loss
-9-
experience, changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans and collateral values, and
current economic conditions that may affect the borrowers' ability to pay.
Future adjustments to the allowance for loan losses may be necessary based on
changes in economic and real estate market conditions, further information
obtained regarding known problem loans, regulatory examinations, the
identification of additional problem loans, and other factors.
Activity in the allowance for loan losses for the periods indicated is
summarized below:
Three Months Nine Months
Ended June 30, Ended June 30,
-------------------- --------------------
2001 2000 2001 2000
------- ------- ------- -------
(In thousands)
Balance at beginning of period $ 8,452 $ 6,954 $ 7,653 $ 6,202
Provision for loan losses 360 450 1,080 1,350
Charge-offs (45) (134) (119) (307)
Recoveries 18 23 171 48
------- ------- ------- -------
Balance at end of period $ 8,785 $ 7,293 $ 8,785 $ 7,293
======= ======= ======= =======
The following table sets forth the amounts and categories of the
Company's non-performing assets at the dates indicated. At both dates, the
Company had no troubled debt restructurings (loans for which a portion of
interest or principal has been forgiven and loans modified at interest rates
materially less than current market rates).
June 30, September 30,
2001 2000
------ ------
(Dollars in thousands)
Non-accrual loans:
One- to four- family residential mortgage loans $2,124 $2,496
Commercial real estate, commercial business
and construction loans 275 1,176
Consumer loans 418 359
------ ------
Total non-performing loans 2,817 4,031
Real estate owned:
One- to four-family residential 172 154
------ ------
Total non-performing assets $2,989 $4,185
====== ======
Ratios:
Non-performing loans to total loans 0.46% 0.67%
Non-performing assets to total assets 0.34 0.50
Allowance for loan losses to total
non-performing loans 311.86 189.85
Allowance for loan losses to total loans, net 1.47% 1.30%
====== ======
-10-
3. Derivative Instruments and Hedging Activities
---------------------------------------------
The Company's derivative instruments are limited to two interest rate
cap agreements with total notional amounts of $50.0 million at both June 30,
2001 and September 30, 2000. The contractual terms of the agreements end in
March 2003 and April 2003. These agreements were entered into to reduce the
Company's interest rate risk from repricings on a portion of its certificate of
deposit accounts and borrowings. The counterparties to the agreements are
obligated to make payments to the Company, based on the notional amounts, to the
extent that the three-month LIBOR rate exceeds specified levels during the term
of the agreements. These specified rate levels are 8.25% and 6.50% for interest
rate cap agreements with notional amounts of $30.0 million and $20.0 million,
respectively. As previously reported, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended, effective October 1, 2000. Based on the nature
and limited extent of the Company's use of derivative instruments, SFAS No. 133
has had an insignificant effect on the consolidated financial statements through
June 30, 2001.
4. Comprehensive Income
--------------------
Comprehensive income represents the sum of net income and items of
"other comprehensive income or loss" that are reported directly in stockholders
equity, such as the change during the period in the after-tax net unrealized
gain or loss on securities available for sale and on certain derivatives. The
Company's total comprehensive income was $8.3 million and $3.2 million for the
nine months ended June 30, 2001 and 2000, respectively, and $2.1 million and
$2.0 million for the three months ended June 30, 2001 and 2000, respectively.
Accumulated other comprehensive income in the consolidated statement of
financial condition at June 30, 2001 represents the after-tax net unrealized
gain on securities available for sale of $2.3 million and the after-tax loss on
cash flow hedges of $(68,000).
5. Earnings Per Common Share
-------------------------
The shares for both basic and diluted earnings per share include all
shares issued to the mutual holding company, but exclude unallocated ESOP shares
that have not been released or committed to be released to participants. RRP
shares are not included in outstanding shares until they become vested.
Weighted average common shares used in calculating basic earnings per
share for the three months ended June 30, 2001 and 2000 were 7,656,424 and
7,651,482, respectively. Weighted
-11-
average common shares used in calculating basic earnings per share for the nine
months ended June 30, 2001 and 2000 were 7,661,627 and 7,823,427, respectively.
Diluted earnings per share was computed based on 7,734,407 shares for the three
months ended June 30, 2001 (including 77,983 common-equivalent shares) and
7,703,575 shares for the nine months ended June 30, 2001 (including 41,948
common-equivalent shares). For both the three and nine months ended June 30,
2000, there were no common-equivalent shares. The common equivalent shares are
incremental shares (computed using the treasury stock method) that would have
been outstanding if all potentially dilutive stock options and unvested RRP
shares were exercised or became vested during the period.
6. Recent Accounting Standards
---------------------------
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Tangible
Assets. Among other things, SFAS No. 141 requires use of the purchase method to
account for all business combinations; use of the pooling-of-interest method is
not permitted for business combinations initiated after June 30, 2001. SFAS No.
142 requires that goodwill no longer be amortized to expense, but instead be
reviewed for impairment, with impairment losses charged to expense when they
occur. Amortization of goodwill (including goodwill recorded in prior
acquisitions) ceases upon adoption of SFAS No. 142, which for the Company will
be on October 1, 2002. SFAS No. 142 also requires acquisition-related intangible
assets other than goodwill to continue to be amortized to expense over their
estimated useful lives. The Company had no goodwill or other acquisition-related
intangible assets at June 30, 2001; accordingly, adoption of these standards is
not presently expected to have a significant effect on the Company's
consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This quarterly report on Form 10-Q contains forward-looking statements.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believe", "anticipates", "plans", "expects" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the Company's actual results
to differ materially from those contemplated by such forward-looking statements.
These important factors include, without limitation, the Company's continued
ability to originate quality loans, fluctuations in interest rates, real estate
conditions in the Company's lending areas, general and local economic
conditions, the Company's continued ability to attract and retain deposits, the
Company's ability to control costs, and the effect of new accounting
pronouncements and changing regulatory requirements. The Company undertakes no
obligation to publicly release the results of any revisions to those
forward-looking statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
-12-
Comparison of Financial Condition at June 30, 2001 and September 30, 2000
Total assets at June 30, 2001 were $884.0 million, up $39.2 million or
4.6% from $844.8 million at September 30, 2000. Cash levels increased to $17.6
million at June 30, 2001, from $12.8 million at September 30, 2000, an increase
of $4.8 million, or 37.5%, due in part to increased deposits at the Federal
Reserve Bank of New York for reserve requirements and higher correspondent bank
balances to cover activity levels. Comparative cash levels are also impacted by
the seasonally low balances held at September 30 due to high real estate tax
payment activity on that date by depositors and in Bank managed tax escrow
accounts held for residential loan customers.
Net loans at June 30, 2001 were $596.5 million, an increase of $6.7
million, or 1.1%, from $589.8 million at September 30, 2000. Residential and
consumer loans continued to grow during the nine-month period, posting increases
of $7.1 million, or 2.1%, and $3.3 million, or 4.6%, respectively. Commercial
loans at June 30, 2001 were $179.5 million, as a slowdown in market demand
during the nine-month period resulted in a decrease of $2.6 million, or 1.4%,
from $182.1 million at September 30, 2000. Asset quality continues to be strong,
with non-performing assets at 0.34% of total assets, compared to 0.50% at
September 30, 2000. The allowance for loan losses increased by $1.1 million to
$8.8 million at June 30, 2001 from $7.7 million at September 30, 2000.
The total securities portfolio increased by $30.5 million, or 14.5%, to
$241.3 million at June 30, 2001 from $210.7 million at September 30, 2000. This
increase reflects a $3.1 million increase in securities available for sale and a
$27.4 million increase in securities held to maturity. During the second fiscal
quarter, the Company transferred securities with a fair value of $12.0 million
from its available-for-sale portfolio to its held-to-maturity portfolio, based
on an evaluation of the respective portfolios and the Company's investment
policy and strategies. The securities were assigned a new cost basis in the
held-to-maturity portfolio equal to their fair value at the transfer date. The
net unrealized loss of $146,000 at the transfer date and the related discounts
will be amortized as offsetting yield adjustments over the terms of the
securities.
Total deposits increased by $42.7 million, or 7.0%, to $651.7 million
at June 30, 2001 from $609.0 million at September 30, 2000, primarily due to an
increase in passbook and money market accounts, which increased by $23.7 million
and accounted for 55.5% of the total deposit growth. During the nine months
ended June 30, 2001, deposits also increased in all other categories. Retail
demand and NOW deposits posted an increase of $7.2 million, or 7.8%, while
commercial demand accounts added $2.2 million, a 7.7% growth rate. During the
same time period, total certificates of deposit grew by $4.0 million, or 1.6%,
to $253.4 million at June 30, 2001 from $249.4 million at September 30, 2000.
These deposit increases are due in part to improved marketing efforts, coupled
with new product offerings and the opening of a new branch. As a result of the
deposit increase, the
-13-
Company was able to reduce borrowings from the Federal Home Loan Bank of New
York (the "FHLB") by $18.3 million during the nine-month period to $109.3
million at June 30, 2001 from $127.6 million at September 30, 2000.
Stockholders' equity increased by $8.2 million to $99.2 million at June
30, 2001 compared to $91.0 million at September 30, 2000. Net income contributed
a $5.5 million increase in equity for the nine-month period. In addition, a net
increase in equity of $2.8 million resulted from the $3.0 million after-tax net
unrealized gains on securities available for sale, net of the $68,000 net
after-tax decline in market value of two interest rate cap agreements (required
by the Company's adoption of SFAS No. 133), both due to the decline in interest
rates during the period. Stockholders' equity rose by an additional $829,000 as
a result of allocation commitments of ESOP shares and amortization of common
stock awards under the RRP. These increases in stockholders' equity were
partially offset by $547,000 paid out in cash dividends and by $427,000 due to
the Company's repurchase of treasury shares under its previously announced
repurchase programs, which authorized the repurchase of up to 376,740 shares. A
total of 229,200 shares have been repurchased under these programs through June
30, 2001. From the total repurchased, 3,280 shares have been reissued in
connection with the exercise of employee stock options.
Comparison of Operating Results for the Three Months Ended
June 30, 2001 and June 30, 2000
Net Income. For the three months ended June 30, 2001, net income was
$2.1 million, an increase of $588,000 or 38.8% from net income of $1.5 million
for the three months ended June 30, 2000. Basic and diluted earnings per common
share for the current quarter increased to $0.27 per share, compared to $0.20
per share for the same period last year.
Interest Income. Total interest income grew by $344,000, or 2.3%, over
the prior period, primarily due to increased loan and securities volumes, net of
lower average yields on both asset classes attributable to the decline in
overall market rates. Interest income was $15.2 million for the three months
ended June 30, 2001 compared to $14.8 million for the three months ended June
30, 2000.
Average interest-earning assets for the three months ended June 30,
2001 were $837.3 million, an increase of $36.1 million, or 4.5%, over average
interest-earning assets of $801.2 million for the three months ended June 30,
2000. Average rates earned on securities and other earning assets fell by 47
basis points to 6.01% from 6.48%. Interest rates earned on loans were almost
unchanged, at 7.78%, compared to 7.79% for the prior year period. Average loan
balances grew by $15.0 million, while average balances of securities and other
earning assets increased by $21.0 million.
Interest income on loans increased by $277,000, or 2.5%. The increased
income was attributable to an increase in average loan balances, net of a minor
decrease in the average yield to
-14-
7.78% from 7.79%. Average loan balances grew by $15.0 million, or 2.6%, to
$591.8 million for the three months ended June 30, 2001, from $576.8 million for
the three months ended June 30, 2000. The increase in average loan balances
reflects a $3.9 million, or 2.3%, increase in the average balance of the
commercial loan portfolio, as well as an average increase of $11.1 million, or
2.7%, in the remaining portfolio categories.
Interest income on securities and other earning assets for the three
months ended June 30, 2001 was $3.7 million, an increase of $67,000, or 1.9%,
over the prior period. The slightly higher interest income reflects an increase
in the average balances of securities and other earning assets of $21.0 million,
or 9.4%, to $245.5 million for the quarter ended June 30, 2001 from $224.5
million for the quarter ended June 30, 2000, net of a decrease of 47 basis
points in the average yield to 6.01% from 6.48%. The short duration of the
Company's investment portfolios and the acquisition of assets during a period of
declining rates contributed to the decline in average yields.
Interest Expense. Total interest expense fell by $230,000, to $6.4
million for the three months ended June 30, 2001, a decrease of 3.5%, primarily
due to lower rates paid on savings and money market accounts and borrowings, net
of the impact of higher average balances and rates paid on certificates of
deposit. The average rate paid on total interest-bearing liabilities in the
current three-month period was 3.70%, compared to 3.95% for the same period last
year. Average rates paid on savings and money market accounts fell by 31 basis
points, to 1.84% from 2.15%, and average rates paid on NOW accounts fell by 41
basis points, to an average of 0.48% from 0.89%. Partially offsetting these
savings, the average rates paid on time deposit accounts increased by 14 basis
points, to 5.50% compared to 5.36% for the three months ended June 30, 2000.
Most of the Company's time deposits have a relatively short maturity, and
management expects that they will continue to reprice to lower rates over the
coming months. The average rates paid on borrowings fell by 43 basis points to
5.84% from 6.27% for the prior period. Overall, the average balance of
interest-bearing liabilities increased by $19.3 million to $695.7 million for
the current three-month period, from $676.4 million during the same period last
year, with most of the growth occurring in savings and money market accounts.
Net Interest Income. For the three months ended June 30, 2001 and 2000,
net interest income was $8.7 million and $8.2 million, respectively. The
Company's net interest margin was 4.19% for the current quarterly period, an
increase of 9 basis points, or 2.2% compared to the year ago period. The
$574,000 increase in net interest income was primarily attributable to a $16.8
million, or 13.4%, increase in average net earning assets (interest-earning
assets less interest-bearing liabilities), combined with a 7 basis point
increase in the net interest rate spread to 3.56% from 3.49%.
Provision for Loan Losses. The Company records provisions for loan
losses, which are charged to earnings, in order to maintain the allowance for
loan losses at a level which is considered appropriate to absorb probable loan
losses inherent in the existing portfolio. In determining the
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appropriate level of the allowance for loan losses, management considers past
and anticipated loss experience, evaluations of real estate collateral, current
and anticipated economic conditions, volume and type of lending, and the levels
of non-performing and other classified loans. The amount of the allowance for
loan losses is based on estimates, and the ultimate losses may vary from such
estimates. Management assesses the allowance for loan losses on a quarterly
basis and makes provisions for loan losses in order to maintain the adequacy of
the allowance. The Company recorded $360,000 and $450,000 in loan loss
provisions during the three months ended June 30, 2001 and 2000, respectively.
Non-Interest Income. Non-interest income is composed primarily of fee
income for bank services, and also includes loan servicing fees and gains and
losses from the sale of loans and securities. Total non-interest income
increased by $634,000, or 75.2%, to $1.5 million for the three months ended June
30, 2001 from $843,000 for the three months ended June 30, 2000. The increase
includes a $114,000 increase in fees collected on the higher volume of deposit
accounts and a $382,000 increase in gains on sales of available-for-sale
securities.
Non-Interest Expense. Non-interest expenses increased by $299,000 to
$6.7 million for the three months ended June 30, 2001 from $6.4 million for the
three months ended June 30, 2000. Expenses in the prior-year quarter were lower
primarily due to the reversal in that quarter of $278,000 in accruals made in
fiscal 1999 for operational losses that did not materialize. The current quarter
expenses reflect increases in compensation and employee benefits of $193,000, or
5.6%, and in occupancy and office operations of $132,000, or 14.0%. Compensation
increased as a result of staff additions and annual merit increases, and
additional occupancy costs were attributable to the opening of the Company's new
branch in Bardonia, New York. These increases in the current period were
partially offset by a decrease of $365,000 in the amortization of branch
purchase and deposit premiums, relative to the prior year period. The premiums
associated with branch purchases in 1996 became fully amortized in the current
fiscal year.
Income Taxes. Income tax expense was $1.1 million for the three months
ended June 30, 2001 compared to $681,000 for the same period in 2000. The
effective tax rates were 34.2% and 31.0%, respectively.
Comparison of Operating Results for the Nine Months Ended
June 30, 2001 and June 30, 2000
Net Income. Net income for the nine months ended June 30, 2001 was $5.5
million, compared to net income of $4.1 million for the nine months ended June
30, 2000, an increase of $1.4 million, or 33.8%. Basic and diluted earnings per
share increased to $0.72 for the nine-month period compared to $0.53 for the
same period last year.
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Interest Income. Total interest income grew to $45.9 million, an
increase of $2.3 million, or 5.2%, over the prior period. The increase was
primarily due to a $29.6 million increase in average earning assets to $821.7
million from $792.1 million, combined with an 11 basis point increase in the
average earning assets yield, which increased to 7.47% from 7.36%.
Interest income on loans increased by $1.8 million, or 5.4%, to $35.0
million from $33.2 million. The average yield on loans increased by 19 basis
points to 7.96% from 7.77%, and average loan balances increased by $16.9
million, or 3.0% compared to the prior year period. The increase in average loan
balances occurred in both the residential and consumer loan portfolios, which
grew $8.6 million2.1%, to $416.4 million. There was a similar increase of $8.3
million or 5.1% in the average balance of the commercial loan portfolio, which
increased to $172.2 million from $163.9 million. The average yield on the
commercial loan portfolio improved by 13 basis points to 8.75%, and the average
yield on residential and consumer loans increased by 21 basis points to 7.63%
for the nine months ended June 30, 2001.
Interest income on securities and other earning assets for the nine
months ended June 30, 2001 was $10.8 million, an increase of $449,000, or 4.3%,
over the comparable period last year. The average balance of these assets
increased by $12.7 million, or 5.8%, but earned an average yield of 6.21%, or 8
basis points lower than the average yield for the nine-month period ended June
30, 2000.
Interest Expense. Total interest expense for the current nine-month
period rose by $1.2 million, or 6.4%, to $20.4 million compared to $19.2 million
for the same period last year. The increase was primarily due to an increase of
$23.3 million, or 4.3%, in average interest-bearing deposits, as well as higher
rates paid on certificates of deposit and wholesale borrowings. The average rate
paid on total interest-bearing liabilities in the current nine-month period was
3.98%, compared to 3.82% for the same period last year. Average total
interest-bearing liabilities also increased to $684.7 million for the nine-month
period ended June 30, 2001, compared to an average of $669.1 million for the
prior period, an increase of $15.6 million, or 2.3%.
Interest expense on deposits increased by $1.4 million, or 10.1%, to
$15.1 million for the nine-month period ended June 30, 2001. The increase is
attributable to both volume and net rate increases. Average certificates of
deposit balances increased $11.5 million, or 4.8%, during the current
year-to-date period versus the same period last year, and the average rate paid
was 56 basis points higher, averaging 5.68% for the current nine-month period
compared to 5.12% for the same period last year. The combined rate/volume
increase impacted interest expense by an additional $1.5 million, or 16.0%. A
$6.4 million, or 2.5%, increase in average savings and money market accounts and
a $5.5 million increase in NOW account balances in the current nine-month period
resulted in a net $93,000 decline in interest paid for these deposit categories,
as rates fell by 7 and 21 basis points, respectively.
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The cost to borrow funds from the FHLB decreased. Although the average
rate paid on total borrowings for the nine-month period ended June 30, 2001
increased 22 basis points to 6.09% from 5.87% for the same period last year, the
higher rates were more than offset by a decline in the average amount borrowed
of $7.7 million, or 6.2%, resulting in a net $154,000 decrease in interest
expense on borrowings.
Net Interest Income. For the nine months ended June 30, 2001 and 2000,
net interest income was $25.5 million and $24.5 million, respectively. The $1.0
million increase in net interest income was primarily attributable to a $14.1
million, or 11.4%, increase in average net earning assets (interest-earning
assets less interest-bearing liabilities), as well as a 5 basis point decrease
in the net interest rate spread to 3.48% from 3.53%. The Company's net interest
margin of 4.15% for the nine months ended June 30, 2001 was 2 basis points
higher than the margin of 4.13% for the nine months ended June 30, 2000.
Provision for Loan Losses. The Company records provisions for loan
losses, which are charged to earnings, in order to maintain the allowance for
loan losses at a level which is considered appropriate to absorb probable loan
losses inherent in the existing portfolio. The Company recorded $1.1 million and
$1.4 million in loan loss provisions during the nine months ended June 30, 2001
and 2000, respectively.
Non-Interest Income. Non-interest income for the nine months ended June
30, 2001 was $3.6 million compared to $2.5 million for the nine months ended
June 30, 2000, an increase of $1.1 million, or 42.9%. This increase was
attributable in large part to an increase of $406,000, or 19.9%, in deposit fees
and charges. The Company also recorded gains on sales of securities of $532,000
for the current year, compared to only $9,000 of such gains for the same period
a year ago. Fees on commercial loans, earnings from mutual fund sales and
investment advisory services and other miscellaneous fees increased by $168,000
versus the prior nine-month period.
Non-Interest Expense. For the nine months ended June 30, 200,
non-interest expense was $19.5 million, $156,000 more than non-interest expense
for the nine months ended June 30, 2000. Compensation and benefits expense
increased by $409,000, and office occupancy increased by $304,000, both related
partially to the opening of the new branch in Bardonia. Compensation expense
also grew due to normal annual merit increases and staff additions. Also,
advertising and promotion expenses increased by $228,000, or 25.1%, related to
the opening of the new branch and support for the Bank's new product lines.
These increases were largely offset by the decrease of $931,000 in the
amortization of branch purchase and deposit premiums, as the premiums associated
with branch purchases in 1996 became fully amortized in the current fiscal year.
In addition, other expenses in the current nine-month period were higher by
$172,000, or 5.3%, primarily because expenses in the prior year were reduced by
the reversal of $278,000 in accruals made in fiscal 1999 for operational losses
that did not materialize.
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Income Taxes. Income tax expense was $2.9 million for the nine
months ended June 30, 2001 compared to $2.1 million for the same period in 2000.
The effective tax rates were 34.3% and 33.5%, respectively.
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Liquidity and Capital Resources
The objective of the Company's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
Company's ability to meet deposit withdrawals on demand or at contractual
maturity, to repay borrowings as they mature, and to fund new loans and
investments as opportunities arise.
The Company's primary sources of funds are deposits, proceeds from
principal and interest payments on loans and securities, and, to a lesser
extent, wholesale borrowings and the proceeds from maturities of securities and
short-term investments. Maturities and scheduled amortization of loans and
securities, as well as proceeds from borrowings, are predictable sources of
funds. Other funding sources however, such as deposit inflows and mortgage
prepayments are greatly influenced by market interest rates, economic conditions
and competition.
The Company's primary investing activities are the origination of both
residential one- to four-family and commercial mortgage loans, and the purchase
of investment securities and mortgage-backed securities. During the nine months
ended June 30, 2001 and June 30, 2000, loan originations totaled $104.5 million
and $100.9 million, respectively, and purchases of securities totaled $78.1
million and $40.5 million, respectively. For the nine-month period ended June
30, 2001, these investing activities were funded primarily by proceeds from
sales and maturities of securities, by deposit growth and by principal
repayments on loans and securities. Loan origination commitments totaled $37.5
million at June 30, 2001. The Company anticipates that it will have sufficient
funds available to meet current loan commitments.
Deposit flows are generally affected by the level of interest rates,
the interest rates and products offered by local competitors, and other factors,
such as perceived safety or risk of alternative investments. The net increase in
total deposits for the nine months ended June 30, 2001 was $42.8 million,
compared to $31.1 million for the nine months ended June 30, 2000.
The Company monitors its liquidity position on a daily basis. Excess
short-term liquidity, if any, is usually invested in overnight federal funds
sold. At June 30, 2001, federal funds sold amounted to $0.7 million. The Company
generally remains fully invested and utilizes additional sources of funds
through FHLB advances, which amounted to $109.3 million at June 30, 2001.
At June 30, 2001, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $86.3 million, or 9.9% of adjusted
assets (which is above the required level of $35.0 million, or 4.0%) and a total
risk-based capital level of $92.9 million, or 17.8% of risk-weighted assets
(which is above the required level of $41.8 million, or 8.0%). In order to be
classified as well-capitalized, the regulatory requirements call for leverage
and total risk-based capital ratios of 5.0% and 10.0%, respectively. At June 30,
2001, the Bank exceeded all capital requirements for well-
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capitalized classification. These capital requirements, which are applicable to
the Bank only, do not consider additional capital retained at the holding
company level.
The following table sets forth the Bank's regulatory capital position
at June 30, 2001 and September 30, 2000, compared to OTS requirements.
OTS Requirements
-------------------------------------------------
Minimum Capital For Classification
Bank Actual Adequacy as Well Capitalized
------------------- -------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
June 30, 2001
- -------------
Tangible capital $86,339 9.9% $13,110 1.5% $ -- -- %
Tier 1 (core) capital 86,339 9.9 34,959 4.0 43,699 5.0
Risk-based capital:
Tier 1 86,339 16.5 -- -- 31,348 6.0
Total 92,897 17.8 41,798 8.0 52,247 10.0
September 30, 2000
Tangible capital $80,097 9.6% $12,526 1.5% $ -- -- %
Tier 1 (core) capital 80,097 9.6 33,402 4.0 41,752 5.0
Risk-based capital:
Tier 1 80,097 15.6 -- -- 30,738 6.0
Total 86,497 16.9 40,985 8.0 51,231 10.0
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's most significant form of market risk is interest rate
risk, as the majority of its assets and liabilities are sensitive to changes in
interest rates. Despite market fluctuations, there have been no material changes
in the Company's interest rate risk position since September 30, 2000. Other
types of market risk, such as foreign exchange rate risk and commodity price
risk, do not arise in the normal course of the Company's business activities.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any other pending legal proceedings
other than routine legal proceedings occurring in the ordinary course of
business, which, in the aggregate, involved amounts which are believed to be
immaterial to the consolidated financial condition and operations of the
Company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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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 Bancorp, Inc.
(Registrant)
By: /s/ Katherine A. Dering
-----------------------
Katherine A. Dering
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer
and duly authorized representative)
Date: August 13, 2001
-----------------
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