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 December 31, 2004
------------------------------------------------
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)
Delaware 80-0091851
------------------------------- ----------
(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.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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
----------------------- ------------------
$0.01 per share 45,929,738
as of January 31, 2005
1
PROVIDENT BANCORP, INC.
QUARTERLY PERIOD ENDED DECEMBER 31, 2004
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
at December 31, 2004 and September 30, 2004 3
Consolidated Statements of Income for the Three Months
Ended December 31, 2004 and 2003 5
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months Ended December 31, 2004 6
Consolidated Statements of Cash Flows
for the Three Months Ended December 31, 2004 and 2003 7
Consolidated Statements of Comprehensive Income/(Loss) for the
Three Months Ended December 31, 2004 and 2003 9
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 34
Item 4. Controls and Procedures 35
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 35
Item 2. Changes in Securities and Use of Proceeds 36
Item 3. Defaults upon Senior Securities 37
Item 4. Submission of Matters to a Vote of Security Holders 37
Item 5. Other Information 37
Item 6. Exhibits 37
Signature 38
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(Dollars in thousands, except per share data)
Assets December 31, 2004 September 30, 2004
- ------ ----------------- ------------------
Cash and due from banks $ 57,869 $ 107,571
Securities (Note 8):
Available for sale, at fair value (amortized cost of
$884,083 at December 31, 2004 and $534,512 at
September 30, 2004) 880,626 534,297
Held to maturity, at amortized cost (fair value of $68,411
at December 31, 2004 and $70,230 at September 30, 2004) 67,455 69,078
---------- ----------
Total securities 948,081 603,375
---------- ----------
Loans held for sale 2,466 855
Gross loans (Note 6) 1,286,918 997,634
Allowance for loan losses (Note 7) (22,165) (17,353)
---------- ----------
Total loans, net 1,264,753 980,281
---------- ----------
FHLB stock, at cost 19,704 10,247
Accrued interest receivable, net 9,844 6,815
Premises and equipment, net 29,269 16,846
Goodwill (Notes 2, 3 and 4) 157,722 65,260
Core deposit intangible 14,892 5,624
Bank owned life insurance 26,882 13,245
Other assets 21,948 16,032
---------- ----------
Total assets $2,553,430 $1,826,151
========== ==========
(Continued)
3
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION, CONTINUED
(Unaudited)
(Dollars in thousands, except per share and share data)
Liabilities and Stockholders' Equity December 31, 2004 September 30, 2004
- ------------------------------------ ----------------- ------------------
Liabilities:
Deposits (Note 9):
Non-interest bearing $ 366,464 $ 289,360
Interest bearing 1,335,311 950,172
---------- ----------
Total deposits 1,701,775 1,239,532
Borrowings 392,845 214,909
Mortgage escrow funds 9,551 2,526
Other 22,718 19,672
---------- ----------
Total liabilities 2,126,889 1,476,639
---------- ----------
Stockholders' equity:
Preferred stock (par value $0.01 per share; 10,000,000 shares
authorized; none issued or outstanding) -- --
Common stock (par value $0.01 per share; 75,000,000 shares
authorized; 45,917,491 shares and 39,655,167 shares issued;
45,910,884 shares and 39,618,373 shares outstanding at
December 31, 2004 and September 30, 2004, respectively) 459 397
Additional paid-in capital 344,520 269,325
Unallocated common stock held by the employee stock
ownership plan ("ESOP") (1,398,311 shares at December 31, 2004
and 1,445,045 shares at September 30, 2004) (10,635) (10,854)
Treasury stock, at cost (6,607 shares at December 31, 2004 and
36,794 shares at September 30, 2004) (88) (432)
Retained earnings 94,414 91,373
Accumulated other comprehensive income (2,129) (297)
---------- ----------
Total stockholders' equity 426,541 349,512
---------- ----------
Total liabilities and stockholders' equity $2,553,430 $1,826,151
========== ==========
Book value per common share at period end $ 9.29 $ 8.82
See accompanying notes to unaudited consolidated financial statements.
4
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share and per share data)
For the Three Months
Ended December 31,
------------------
2004 2003
---- ----
Interest and dividend income:
Loans $ 19,413 $ 10,530
Securities 8,478 3,765
Other earning assets 121 23
----------- -----------
Total interest and dividend income 28,012 14,318
----------- -----------
Interest expense:
Deposits 3,367 1,557
Borrowings 2,943 1,210
----------- -----------
Total interest expense 6,310 2,767
----------- -----------
Net interest income 21,702 11,551
Provision for loan losses (Note 7) 150 150
----------- -----------
Net interest income after provision for loan losses 21,552 11,401
----------- -----------
Non-interest income:
Deposit fees and service charges 2,535 1,286
Loan fees and late charges 383 177
Gains on sales of securities available for sale 49 930
Gains on sales of loans 59 86
Title insurance fees 358 --
Other 641 324
----------- -----------
Total non-interest income 4,025 2,803
----------- -----------
Non-interest expense:
Compensation and employee benefits 7,834 4,435
Stock-based compensation plans 840 671
Occupancy and office operations 2,148 1,327
Advertising and promotion 1,163 468
Professional fees 668 484
Data and check processing 1,248 744
Stationery and office supplies 255 149
Merger integration costs 380 --
Amortization of intangible assets 1,127 84
ATM/debit card expense 326 153
Other 1,720 1,055
----------- -----------
Total non-interest expense 17,709 9,570
----------- -----------
Income before income tax expense 7,868 4,634
Income tax expense 2,853 1,589
----------- -----------
Net income $ 5,015 $ 3,045
=========== ===========
Weighted average common shares:(1)
Basic 44,322,927 34,301,264
Diluted 44,926,104 34,943,686
Per common share: (Note 11)(1)
Basic $0.11 $0.09
Diluted 0.11 0.09
Dividends declared 0.04 0.03
See accompanying notes to unaudited consolidated financial statements.
- ----------
(1) Common share information for 2003 has been adjusted to reflect the stock
split of 4.4323-to-one in connection with the second-step conversion in January
2004.
5
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004
(Unaudited)
(In thousands, except share and per share data)
Accumulated
Number of Additional Other Total
Shares Common Paid-In Unallocated Treasury Retained Comprehensive Stockholders'
Outstanding Stock Capital ESOP Shares Stock Earnings (Loss) Equity
----------- ----- ------- ----------- ----- -------- ------ ------
Balance at September 30, 2004 39,655,167 $397 $269,325 $(10,854) $(432) $91,373 $ (297) $349,512
Net Income 5,015 5,015
Other comprehensive (loss) (1,832) (1,832)
--------
Total comprehensive (loss) 3,183
Purchase of Warwick Community
Bancorp, Inc. 6,257,892 62 74,532 74,594
Stock option transactions 4,432 15 344 (334) 25
Stock-based compensation 648 219 867
Cash dividends paid ($0.04 per
common share) (1,640) (1,640)
---------- ---- -------- -------- ----- ------- ------- --------
Balance at December 31, 2004 45,917,491 $459 $344,520 $(10,635) $ (88) $94,414 $(2,129) $426,541
========== ==== ======== ======== ===== ======= ======= ========
See accompanying notes to unaudited consolidated financial statements.
6
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Three Months
Ended December 31,
--------------------
2004 2003
---- ----
Cash flows from operating activities:
Net income $ 5,015 $ 3,045
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 150 150
Depreciation and amortization of premises
and equipment 743 473
Amortization of core deposit intangible 1,127 84
Gain on sales of securities available for sale (49) (930)
Gain on sales of loans held for sale (59) (86)
Gain on sales of fixed assets sold -- (46)
Net amortization of premiums and discounts
on securities 1,001 380
ESOP and RRP expense 592 479
Originations of loans held for sale (5,057) (2,502)
Proceeds from sales of loans held for sale 3,505 4,225
Deferred income tax benefit (9,294) (4,080)
Net changes in accrued interest receivable
and payable (187) (353)
Other adjustments (principally net changes
in other assets and other liabilities) (1,519) 3,475
--------- ---------
Net cash (used in) provided by
operating activities (4,032) 4,314
--------- ---------
Cash flows from investing activities:
Purchases of securities:
Available for sale (268,064) (182,930)
Held to maturity (5,219) (1,886)
Proceeds from maturities, calls and other
principal payments on securities:
Available for sale 29,448 35,960
Held to maturity 9,044 7,380
Proceeds from sales of securities available for sale 16,988 29,127
Proceeds from sales of fixed assets -- 358
Loan originations (101,620) (66,829)
Loan principal payments 102,173 65,148
(Purchase) redemption of FHLB stock (1,852) 2,555
Purchase of Warwick Community Bancorp, Inc. 164,491 --
Increase in bank owned life insurance (317) (157)
Purchases of premises and equipment (1,001) (603)
--------- ---------
Net cash used in investing activities (55,929) (111,877)
--------- ---------
(continued)
7
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
(In thousands)
For the Three Months
Ended December 31,
------------------
2004 2003
---- ----
Cash flows from financing activities:
Net increase in transaction and savings deposits $ 10,361 $ 19,022
Net decrease in time deposits (23,548) (18,406)
Receipt of stock subscription funds -- 174,660
Net increase (decrease) in borrowings 18,036 (51,104)
Net increase in mortgage escrow funds 7,025 5,661
Stock option transactions 25 13
Cash dividends paid (1,640) (452)
--------- ---------
Net cash provided by financing activities 10,259 129,394
--------- ---------
Net (decrease) increase in cash and cash equivalents (49,702) 21,831
Cash and cash equivalents at beginning of period 107,571 33,500
--------- ---------
Cash and cash equivalents at end of period $ 57,869 $ 55,331
========= =========
Supplemental information:
Interest payments $ 5,336 $ 2,765
Income tax payments 420 9
Fair value of assets acquired (incl. intangibles) 806,114 --
Fair value of liabilities assumed 658,919 --
---------
Net fair value $ 147,195 --
=========
Cash portion of Warwick Community Bancorp--
purchase transaction 72,601 --
Stock portion of Warwick Community Bancorp
purchase transaction 74,594 --
--------- ---------
Total paid for Warwick Community Bancorp stock $ 147,195 --
=========
Net change in unrealized losses recorded on
securities available for sale (3,242) (2,355)
Change in deferred taxes on unrealized losses
on securities available for sale 1,410 943
See accompanying notes to unaudited consolidated financial statements.
8
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS
(Unaudited)
(Dollars in thousands)
Three Months
Ended December 31,
------------------
2004 2003
---- ----
Net income: $ 5,015 $ 3,045
Other comprehensive loss:
Net unrealized losses on securities
available for sale:
Net unrealized holding losses
arising during the year, net of taxes of
$1,027 and $446 (1,803) (854)
Less reclassification adjustment for
net realized gains included in net income,
net of taxes of $20 and $372 (29) (558)
------- -------
Other comprehensive loss (1,832) (1,412)
------- -------
Total comprehensive income (loss) $ 3,183 $ 1,633
======= =======
See accompanying notes to unaudited consolidated financial statements.
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
1. Basis of Presentation
---------------------
The consolidated financial statements and other financial information
presented in this document as of December 31, 2004, include the accounts of
Provident Bancorp, Inc., a Delaware corporation (the "Company"), Shawangunk
Holding Co., Inc. (an inactive subsidiary), Provident Bank (the "Bank") and
Hardenburgh Abstract Company of Orange County, Inc. ("Hardenburgh"), and each
subsidiary of Provident Bank (Provest Services Corp., Provest Services Corp. I,
Provest Services Corp. II, Provident REIT, Inc., WSB Funding, Inc., Warsave
Development Corp., Provident Municipal Bank and WSB Financial Services, Inc.).
Collectively, these entities are referred to herein as the "Company." Provident
Bancorp, Inc. is a publicly-held company and the parent of Provident Bank.
Provest Services Corp. I holds an investment in a low-income housing partnership
that provides certain favorable tax consequences. Warsave holds an investment in
a rental property that generates rental income. Hardenburgh is a title insurance
agency that generates title insurance fees and commissions. Provest Services
Corp. II and WSB Financial Services have engaged third-party providers to sell
annuities to the customers of Provident Bank. Through December 31, 2004, the
activities of these wholly-owned subsidiaries have had a minor impact on the
Company's consolidated financial condition and results of operations. Provident
REIT, Inc. and WSB Funding, Inc. hold a portion of the Company's real estate
loans and are real estate investment trusts for federal income tax purposes.
Provident Municipal Bank ("PMB") is a limited purpose New York State-chartered
commercial bank, which began operations on April 19, 2002 and is authorized to
accept deposits from municipalities in the Bank's business area.
9
The Company's off-balance sheet activities are limited to loan origination
commitments, lines of credit and letters of credit extended to customers or, in
the case of letters of credit, on behalf of customers in the ordinary course of
its lending activities. The Company does not engage in off-balance sheet
financing transactions or other activities involving the use of special-purpose
entities.
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 three months ended
December 31, 2004 are not necessarily indicative of results to be expected for
other interim periods or the entire fiscal year ending September 30, 2005. The
unaudited consolidated financial statements presented herein should be read in
conjunction with the annual audited financial statements included in the
Company's Form 10-K for the fiscal year ended September 30, 2004.
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 (see Note 7), which is a
critical accounting policy.
Certain prior-year amounts have been reclassified to conform to the
current-year presentation.
Stock-Based Compensation
- ------------------------
The Company applies APB Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option plan.
No stock-based employee compensation cost is reflected in net income pertaining
to stock options, as all options granted under this plan had an exercise price
equal to the market value of the underlying common stock on the date of the
grant. SFAS No. 123, Accounting for Stock-Based Compensation, established
accounting and disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. As allowed by SFAS No.
123, the Company has elected to continue to apply the intrinsic-value-based
method of accounting described above, and has adopted only the disclosure
requirements of SFAS No. 123. The following table illustrates the effect on net
income if the fair-value-based method had been applied to all outstanding awards
in each period.
10
Three Months Ended
December 31,
2004 2003
---- ----
Net income, as reported $5,015 $3,045
Add RRP expense included in reported net
income, net of related tax effects -- 84
Deduct RRP and stock option expense
determined under the fair-value-based
method, net of related tax effects (49) (84)
------ ------
Pro forma net income $4,966 $3,045
====== ======
Earnings per share:
Basic, as reported $ 0.11 $ 0.09
Basic, pro forma 0.11 0.09
Diluted, as reported 0.11 0.09
Diluted, pro forma 0.11 0.09
In December 2004, the FASB Issued Statement of Financial Accounting
Standards No. 123R (Statement 123R), "Share-Based Payments", the provisions of
which become effective for the corporation in fiscal 2006. This Statement
eliminates the alternative to use APB No. 25's intrinsic value method of
accounting that was provided in Statement 123 as originally issued. Statement
123R requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments based on the grant-date fair value of
those awards. While the fair-value-based method prescribed by Statement 123R is
similar to the fair-value-based method disclosed under the provisions of
Statement 123 in most respects, there are some differences. The Company is
currently evaluating the provisions of Statement 123R and has not determined the
impact of adopting this statement at this time.
11
2. Acquisition of Warwick Community Bancorp, Inc.
----------------------------------------------
On October 1, 2004 the Company completed its acquisition of Warwick
Community Bancorp, Inc. ("WSB"), located in Warwick, New York. WSB was the
holding company for The Warwick Savings Bank, headquartered in Warwick, New
York, The Towne Center Bank, headquartered in Lodi, New Jersey and Hardenburgh
Abstract Company of Orange County, Inc. headquartered in Goshen, New York. In
addition, Warwick Commercial Bank was a subsidiary of The Warwick Savings Bank.
On the merger date, WSB had net loans of $284.5 million, total deposits of
$475.1 million and total assets of $703.7 million.
Shareholders of WSB as of the close of business on October 1, 2004
received total merger consideration of approximately $147.2 million, consisting
of approximately 6,257,892 shares of common stock of the Company and
approximately $72.6 million in cash (including cash paid in lieu of fractional
shares).
Goodwill recorded in the WSB acquisition ($91.6 million) is not amortized
to expense, but instead is reviewed for impairment at least annually, with
impairment losses charged to expense, if and when they occur. The core deposit
intangible asset ($9.8 million at December 31, 2004) is recognized apart from
goodwill and amortized to expense over its estimated useful life and evaluated
for impairment.
3. Mutual Holding Company Conversion and Acquisition of E.N.B. Holding
--------------------------------------------------------------------------
Company, Inc.
-------------
On January 14, 2004 the Company completed its stock offering in connection
with the second-step conversion of Provident Bancorp, MHC. As a result of the
conversion, the Company became the stock holding company of the Bank. In the
stock offering, shares representing Provident Bancorp, MHC's ownership interest
in Provident Bancorp., Inc., a federal corporation ("Provident Federal") were
sold to investors. In addition, the Company simultaneously completed its
acquisition of E.N.B. Holding Company, Inc. ("ENB"), located in Ellenville, New
York.
The Company sold 19,573,000 shares of common stock at $10.00 per share to
depositors of the Bank as of June 30, 2002 and September 30, 2003. The new
holding company also issued 400,000 shares of common stock and contributed $1.0
million in cash to the Provident Bank Charitable Foundation. In addition, each
outstanding share of common stock of Provident Federal as of January 14, 2004
has been converted into 4.4323 new shares of the Company's common stock.
Shareholders of ENB as of the close of business on January 14, 2004
received total merger consideration of approximately $76.5 million, consisting
of 3,969,676 shares of common stock of the Company and approximately $36.8
million in cash.
As a result of the above transactions, the Company had 39,608,586 issued
and outstanding shares at January 14, 2004.
Financial statements as of December 31, 2004 reflect the effect of the
conversion of existing shares of common stock, the stock offering and the
acquisition of ENB. Goodwill recorded in the ENB acquisition ($51.8 million) is
not amortized to expense, but instead is reviewed for impairment at least
annually, with impairment losses charged to expense, if and when they occur. The
core deposit intangible asset ($4.4 million at December 31, 2004), is recognized
apart from goodwill and amortized to expense over its estimated useful life and
evaluated for impairment.
12
4. Acquisition of The National Bank of Florida
-------------------------------------------
On April 23, 2002, the Company consummated its acquisition, for cash, of
The National Bank of Florida ("NBF"), which was merged with and into the Bank.
The transaction was valued at approximately $28.1 million. At the acquisition
date, NBF had total assets of approximately $104 million and total deposits of
approximately $88.2 million. Amounts attributable to NBF are included in the
Company's consolidated financial statements from the date of acquisition.
Goodwill recorded in the NBF acquisition ($13.5 million) is not amortized
to expense, but instead is reviewed for impairment at least annually, with
impairment losses charged to expense, if and when they occur. The core deposit
intangible asset ($701,000 at December 31, 2004), is recognized apart from
goodwill and amortized to expense over its estimated useful life and evaluated
for impairment.
5. Critical Accounting Policies
----------------------------
The accounting and reporting policies of the Company are prepared in
accordance with accounting principles generally accepted within the United
States of America and conform to general practices within the banking industry.
Accounting policies considered critical to the Company's financial results
include the allowance for loan losses, accounting for goodwill and the
recognition of interest income. The methodology for determining the allowance
for loan losses is considered by management to be a critical accounting policy
due to the high degree of judgment involved, the subjectivity of the assumptions
utilized and the potential for changes in the economic environment that could
result in changes to the amount of the allowance for loan losses considered
necessary. Accounting for goodwill is considered to be a critical policy because
goodwill must be tested for impairment at least annually using a "two-step"
approach that involves the identification of reporting units and the estimation
of fair values. The estimation of fair values involves a high degree of judgment
and subjectivity in the assumptions utilized. Interest income on loans,
securities and other interest-earning assets is accrued monthly unless
management considers the collection of interest to be doubtful. Loans are placed
on nonaccrual status when payments are contractually past due 90 days or more,
or when management has determined that the borrower is unlikely to meet
contractual principal or interest obligations. At such time, unpaid interest is
reversed by charging interest income. Interest payments received on nonaccrual
loans (including impaired loans) are recognized as income unless future
collections are doubtful. Loans are returned to accrual status when
collectibility is no longer considered doubtful (generally, when all payments
have been brought current). Application of assumptions different than those used
by management could result in material changes in the Company's financial
position or results of operations. Footnote 2 (Summary of Significant Accounting
Policies) of the 2004 Annual Report on Form 10-K provides detail with regard to
the Company's accounting for the allowance for loan losses. There have been no
significant changes in the application of accounting policies since September
30, 2004.
13
6. Loans
-----
Major classifications of loans, excluding loans held for sale, are
summarized below:
December 31, 2004 September 30, 2004
----------------- ------------------
Real estate - residential mortgage $ 443,629 $380,749
Real estate - commercial mortgage 476,024 327,414
Real estate - construction 65,529 54,294
Commercial and industrial 136,123 105,196
Consumer loans 165,613 129,981
---------- --------
Total $1,286,918 $997,634
========== ========
7. 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 the amount that management has determined
to be necessary to absorb probable loan losses inherent in the existing
portfolio. Management's evaluations, which are subject to periodic review by the
Company's regulators, are made using a consistently-applied methodology that
takes into consideration such factors as the Company's past loan loss
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.
Changes in the allowance for loan losses may be necessary in the future based on
changes in economic and real estate market conditions, new 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
Ended December 31,
------------------
2004 2003
---- ----
Balance at beginning of period $17,353 $11,069
Allowance acquired through acquisition 4,880 --
Provision for loan losses 150 150
Charge-offs (266) (12)
Recoveries 48 42
------- -------
Balance at end of period $22,165 $11,249
======= =======
Net charge-offs to average loans outstanding (annualized) 0.07% (0.02)%
14
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).
December 31, 2004 September 30, 2004
----------------- ------------------
Non-accrual loans:
One- to four-family residential mortgage loans $1,882 $1,597
Commercial real estate, commercial business
and construction loans 1,366 962
Consumer loans 142 178
------ ------
Total non-performing loans 3,390 2,737
Real estate owned:
Total non-performing assets $3,390 $2,737
====== ======
Ratios:
Non-performing loans to total loans, net 0.26% 0.27%
Non-performing assets to total assets 0.13% 0.15%
Allowance for loan losses to total
non-performing loans 654% 634%
Allowance for loan losses to total loans 1.72% 1.74%
15
8. Securities
----------
The following is a summary of securities available for sale at December 31, 2004
and September 30, 2004:
Available for Sale Portfolio
December 31, 2004
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
===================================================
Mortgage-backed and SBA Securities
Mortgage-backed securities $549,037 $1,163 $(2,599) $547,601
Collateralized mortgage obligations 22,501 8 (161) 22,348
SBAs and other 152 -- -- 152
-------- ------ ------- --------
Total mortgage-backed and SBA securities 571,690 1,171 (2,760) 570,101
-------- ------ ------- --------
Investment Securities
U.S. Government and federal agency
securities 290,664 158 (2,256) 288,566
State and municipal securities 20,724 133 (142) 20,715
Equity securities 1,005 374 (135) 1,244
-------- ------ ------- --------
Total investment securities 312,393 665 (2,533) 310,525
-------- ------ ------- --------
Total available for sale $884,083 $1,836 $(5,293) $880,626
======== ====== ======= ========
Available for Sale Portfolio
September 30, 2004
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
===================================================
Mortgage-backed and SBA Securities
Mortgage-backed securities $304,578 $1,155 $(1,452) $304,281
Collateralized mortgage obligations 9,711 -- (95) 9,616
SBAs and other 5,948 377 -- 6,325
-------- ------ ------- --------
Total mortgage-backed and SBA securities 320,237 1,532 (1,547) 320,222
-------- ------ ------- --------
Investment Securities
U.S. Government and federal agency
securities 192,788 522 (1,008) 192,302
State and municipal securities 20,482 172 (95) 20,559
Equity securities 1,005 337 (128) 1,214
-------- ------ ------- --------
Total investment securities 214,275 1,031 (1,231) 214,075
-------- ------ ------- --------
Total available for sale $534,512 $2,563 $(2,778) $534,297
======== ====== ======= ========
16
The following is a summary of securities held to maturity at December 31, 2004
and September 30, 2004:
Held to Maturity Portfolio
December 31, 2004
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
===============================================
Mortgage-backed securities
Mortgage-backed securities $33,171 $ 662 $(215) $33,618
Collateralized mortgage obligations 2,571 47 -- 2,618
------- ------ ----- -------
Total mortgage-backed securities 35,742 709 (215) 36,236
------- ------ ----- -------
Investment securities
State and municipal securities 31,406 831 (328) 31,909
Other investments 307 -- (41) 266
------- ------ ----- -------
Total investment securities 31,713 831 (369) 32,175
------- ------ ----- -------
Total held to maturity $67,455 $1,540 $(584) $68,411
======= ====== ===== =======
Held to Maturity Portfolio
September 30, 2004
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
===============================================
Mortgage-backed securities
Mortgage-backed securities $35,402 $ 741 $(266) $35,877
Collateralized mortgage obligations 2,788 55 -- 2,843
Other 685 37 -- 722
------- ------ ----- -------
Total mortgage-backed securities 38,875 833 (266) 39,442
------- ------ ----- -------
Investment securities
State and municipal securities 29,894 922 (293) 30,523
Other 309 -- (44) 265
------- ------ ----- -------
Total investments 30,203 922 (337) 30,788
------- ------ ----- -------
Total held to maturity $69,078 $1,755 $(603) $70,230
======= ====== ===== =======
17
At December 31, 2004 and September 30, 2004, the accumulated unrealized
net loss on securities available for sale (net of tax of $1,150 and $86,
respectively) that was included in accumulated other comprehensive income, a
separate component of stockholders' equity, was ($2,018) and $(186)
respectively. Gross realized gains were $49 and $930 respectively, for the three
months ended December 31, 2004 and 2003.
Securities with a carrying amount of $309,520 and $168,310 were pledged as
collateral for municipal deposits, borrowings and other purposes at December 31,
2004 and September 30, 2004, respectively.
The following table summarizes, for all securities in an unrealized loss
position at December 31, 2004, the aggregate fair value and gross unrealized
loss by length of time those securities have continuously been in an unrealized
loss position:
----------------------------------------------------------------------------
Less than 12 Months 12 months or longer Total
----------------------- ----------------------- ----------------------
Unrealized Unrealized Unrealized
Losses Fair Value Losses Fair Value Losses Fair Value
----------------------------------------------------------------------------
Avaulable for Sale:
Mortgage-backed securities $ (2,187) $430,914 $ (573) $ 35,581 $ (2,760) $466,495
U.S. Government & Agency Securities (2,169) 256,176 (87) 4,934 (2,256) 261,110
Municipal Securities (119) 13,567 (23) 1,259 (142) 14,826
Equity Securities -- -- (135) 865 (135) 865
----------------------------------------------------------------------------
Total available-for-sale: (4,475) 700,657 (818) 42,639 (5,293) 743,296
----------------------------------------------------------------------------
Held to Maturity:
Mortgage-backed securities -- -- (215) 15,082 (215) 15,082
State and municipal securities (328) 7,622 -- -- (328) 7,622
Other securities (41) 266 -- -- (41) 266
----------------------------------------------------------------------------
Total held to maturity: (369) 7,888 (215) 15,082 (584) 22,970
----------------------------------------------------------------------------
Total securities: $ (4,844) $708,545 $ (1,033) $ 57,721 $ (5,877) $766,266
============================================================================
Substantially all of the unrealized losses at December 31, 2004 relate to
investment grade securities and are attributable to changes in market interest
rates subsequent to purchase. There were no securities with unrealized losses
that were individually significant dollar amounts at December 31, 2004. A total
of 249 securities were in a continuous unrealized loss position for less than 12
months, and 18 securities for 12 months longer. For fixed maturities, there are
no securities past due or securities for which the Company currently believes it
is not probable that it will collect all amounts due according to the
contractual terms of the investment. Because the Company has the ability to hold
securities with unrealized losses until a market price recovery (which, for
fixed maturities, may be until maturity) the Company did not consider these
investments to be other-than-temporarily impaired at December 31, 2004. (See
Recent Accounting Standards for discussion of a new accounting pronouncement
that will provide additional guidance with respect to impairment evaluations).
18
9. Deposits
--------
Major classifications of deposits are summarized below:
December 31, 2004 September 30, 2004
----------------- ------------------
Demand deposits:
Retail $ 165,022 $ 122,276
Commercial and municipal 201,442 167,084
NOW 137,024 83,439
---------- ----------
Total transaction accounts 503,488 372,799
Money market 248,118 173,272
Savings 556,031 360,138
Time under $100,000 296,311 239,411
Time over $100,000 97,827 93,912
---------- ----------
Total $1,701,775 $1,239,532
========== ==========
19
10. FHLB and Other Borrowings
-------------------------
The Company's FHLB and other borrowings and weighted average interest
rates are summarized as follows:
December 31, 2004 September 30, 2004
---------------------- ---------------------
Amount Rate Amount Rate
--------- --------- --------- ---------
By type of borrowing:
Advances $ 220,578 3.26% $ 164,947 2.81%
Repurchase agreements 172,267 4.52 49,962 3.49
--------- ---------
Total borrowings $ 392,845 3.73% $ 214,909 2.97%
========= =========
By remaining period to maturity:
Less than one year $ 143,350 3.12% $ 94,961 2.11%
One to two years 56,731 3.52 28,000 3.18
Two to three years 60,310 4.51 18,651 3.65
Three to four years 49,900 4.06 29,443 3.78
Four to five years 16,479 5.46 40,017 3.76
Greater than five years 66,075 4.18 3,837 4.89
--------- ---------
Total borrowings $ 392,845 3.73% $ 214,909 2.97%
========= =========
As a member of the FHLB of New York, the Bank may borrow up to 30% of its
total assets in the form of term and overnight FHLB advances, or approximately
$766,000 and $548,000 at December 31, 2004 and September 30, 2004, respectively.
The Bank's unused FHLB borrowing capacity was approximately $381,000 and
$383,000, respectively, at those dates. FHLB advances are secured by the Bank's
investment in FHLB stock and by a blanket security agreement. This agreement
requires the Bank to maintain as collateral certain qualifying assets (such as
securities and residential mortgage loans) not otherwise pledged. The Bank
satisfied this collateral requirement at December 31, 2004 and September 30,
2004. At December 31, 2004 repurchase agreements included $9,719 which were owed
to other than the FHLB.
11. Earnings Per Common Share
-------------------------
The number of shares used in the computation of both basic and diluted
earnings per share includes all shares issued to Provident Bancorp, MHC for all
periods through January 14, 2004, but excludes unallocated ESOP shares that have
not been released or committed to be released to participants.
The common stock 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 periods.
Prior period share information has been adjusted to reflect the
4.4323-to-one exchange ratio in connection with the second-step conversion
completed January 14, 2004.
20
Basic earnings per common share is computed as follows:
For the Three Months
Ended December 31,
------------------
2004 2003
---- ----
Weighted average common shares
outstanding (basic) 44,323 34,301
------- -------
Net income $ 5,015 $ 3,045
Basic earnings per common share $ 0.11 $ 0.09
Diluted earnings per common share is computed as follows:
For the Three Months
Ended December 31,
------------------
2004 2003
---- ----
Weighted average common shares
outstanding 44,323 34,301
Effect of common stock equivalents 603 643
------- -------
Total diluted shares 44,926 34,944
------- -------
Net income $ 5,015 $ 3,045
Diluted earnings per common share $ 0.11 $ 0.09
12. Pension and Other Post Retirement Plans
---------------------------------------
Net post retirement cost, which is recorded within salaries and employee
benefits expense in the consolidated statements of income, is comprised of the
following:
Other Post
Pension Plans Retirement Plans
------------------- ------------------
Three months ended Three months ended
December 31, December 31,
------------------- ------------------
2004 2003 2004 2003
------------------- ------------------
Service cost $ 337 $ 196 $ 26 $ 22
Interest cost 412 169 37 37
Expected return on plan assets (449) (197) -- --
Unrecognized net transition obligation 2 6 3 3
Amortization of prior service cost (3) (3) 1 (42)
Amortization of gain or loss 105 43 -- 18
------------------- ------------------
Net periodic pension cost $ 404 $ 214 $ 67 $ 38
=================== ==================
The Company previously disclosed in its financial statements for the year
ended September 30, 2004, that it expected to contribute $692 to its pension
plan in 2005. As of December 31, 2004, there
21
were no contributions made. As part of the acquisition of WSB, the Company
assumed the WSB Pension Plan, a defined benefit plan. The WSB plan was frozen on
April 30, 2002. As part of the acquisition of ENB the Company assumed the ENB
Pension Plan, a defined benefit plan. The ENB plan was frozen in connection with
the merger of ENB into the Company.
13. Guarantor's Obligations Under Guarantees
----------------------------------------
Standby letters of credit are commitments issued by the Company on behalf
of its customer/obligor in favor of a beneficiary that specify an amount the
Company can be called upon to pay upon the beneficiary's compliance with the
terms of the letter of credit. These commitments are primarily issued in favor
of local municipalities to support the obligor's completion of real estate
development projects. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
As of December 31, 2004, the Company had $16.4 million in outstanding
letters of credit, of which $5.4 million were secured by cash collateral.
Subsequent Event
- ----------------
On January 25, 2005 the Bank announced that it has executed an agreement
with HSBC Bank USA, National Association ("HSBC") to acquire HSBC's branch
office located in South Fallsburg, New York, and to acquire approximately $3.2
million of loans and assume approximately $30.3 million of deposit liabilities
held at the South Fallsburg branch office. The Bank expects to pay a premium of
approximately $2.2 million for the deposit liabilities.
It is anticipated that the transaction will be completed in the second
calendar quarter of 2005 and is conditioned upon receiving requisite regulatory
approvals.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
- --------------------------
The Company has made, and may continue to make, various forward-looking
statements with respect to earnings, credit quality and other financial and
business matters for 2005 and, in certain instances, subsequent periods. The
Company cautions that these forward-looking statements are subject to numerous
assumptions, risks and uncertainties, and that statements for subsequent periods
are subject to greater uncertainty because of the increased likelihood of
changes in underlying factors and assumptions. Actual results could differ
materially from forward-looking statements.
In addition to those factors previously disclosed by the Company and those
factors identified elsewhere herein, the following factors could cause actual
results to differ materially from such forward-looking statements; pricing
pressures on loan and deposit products; changes in local and national economic
conditions; the extent and timing of actions of the Company's regulators;
customer deposit disintermediation; changes in customers' acceptance of the
Company's products and services; general actions of competitors, other normal
business risks such as credit losses, litigation, increases in the levels of
non-performing assets, revenues following acquisitions if such revenues are
lower than expected, and costs or difficulties related to the integration of
acquired and existing businesses that are greater than expected.
22
The Company's forward-looking statements speak only as of the date on which such
statements are made. The Company assumes no duty to update forward-looking
statements to reflect new, changing or unanticipated events or circumstances.
The Company's significant accounting policies are summarized in Note 2 to
the consolidated financial statements included in its September 30, 2004 Annual
Report on Form 10-K. An accounting policy considered particularly critical to
the Company's financial results is the allowance for loan losses. The
methodology for assessing the appropriateness of the allowance for loan losses
and non-performing loans is considered a critical accounting policy by
management due to the high degree of judgment involved, the subjectivity of the
assumptions utilized, and the potential for changes in the economic environment
that could result in changes in the necessary allowance.
As of January 14, 2004, the Company completed its stock offering and
acquisition of ENB in connection with Provident Bancorp, MHC's mutual-to-stock
conversion. The acquisition was accounted for as a purchase and, accordingly,
amounts attributable to ENB have been included in the Company's consolidated
financial statements from the date of acquisition. See Note 3 to the
accompanying consolidated financial statements included in Item 1 of this
quarterly report.
As discussed in Note 2 to the consolidated financial statements included
in Item 1 of this quarterly report, the Company completed its acquisition of WSB
on October 1, 2004. The acquisition was accounted for as a purchase and,
accordingly, amounts attributable to Warwick have been included in the Company's
consolidated financial statements from the date of acquisition.
Comparison of Financial Condition at December 31, 2004 and September 30, 2004
Total assets as of December 31, 2004 were $2.6 billion, an increase of
$727.3 million, or 39.8%, over assets of $1.8 billion at September 30, 2004. The
increase over September 30, 2004 period was due primarily to (i) the October
2004 acquisition of WSB, whose assets totaled $703.7 million on the merger date
and (ii) internal growth of the company. Goodwill and intangibles increased by
$101.7 million from September 30, 2004 upon the completion of the acquisition.
Net loans (excluding loans held for sale) as of December 31, 2004 were
$1.3 billion, an increase of $284.5 million, or 29.0%, over net loan balances of
$980.3 million at September 30, 2004. Loans acquired from WSB totaled $288.2
million, while allowances for loan losses acquired in connection with WSB were
$4.9 million, or 1.70% of WSB's outstanding loan balances. Inclusive of Warwick
loans acquired, commercial loans increased by $190.8 million, or 39.2%, over
balances at September 30, 2004. Consumer loans increased by $35.6 million, or
27.4%, during the three-month period, while residential loans increased by $62.9
million, or 16.5%. Asset quality continues to be strong. At $3.4 million,
non-performing assets as a percentage of total assets is 0.13%, down from 0.15%
at September 30, 2004.
Total securities increased by $344.7 million, or 57.1%, to $948.1 million
at December 31, 2004 from $603.4 million at September 30, 2004. Investments were
made primarily in mortgage-backed securities, which increased by $246.7 million,
or 68.7%, and in U.S. Government and Federal Agency Securities, which increased
by $97.7 million, or 50.8%.
Total deposits as of December 31, 2004 were $1.7 billion, up $462.2
million, or 37.3%, from September 30, 2004. Deposits acquired from Warwick
totaled $475.1 million. As of December 31, 2004 retail and commercial
transaction accounts were 29.6% of deposits compared to 30.1% at September 30,
2004.
23
Borrowings from the Federal Home Loan Bank of New York (the "FHLB")
increased by $177.9 million during the three-month period to $392.8 million at
December 31, 2004 from $214.9 million at September 30, 2004. Borrowings acquired
from Warwick totaled $160.5 million.
Stockholders' equity increased by $77.0 million to $426.5 million at
December 31, 2004 compared to $349.5 million at September 30, 2004. $74.6
million in new capital was issued for the purchase of Warwick. Net income of
$5.0 million for the three-month period also increased capital. Partially
offsetting the increases were the payments of cash dividends totaling $1.6
million, and net declines in accumulated comprehensive income of $1.9 million.
Tangible capital to assets was 10.75% at December 31, 2004.
During the first three months of fiscal 2005, the Company did not
repurchase shares of its common stock. At December 31, 2004, there were no
shares of common stock held by the Company in connection with a repurchase
program as the treasury shares were cancelled in connection with the second-step
stock conversion. Pursuant to applicable Office of Thrift Supervision
regulations that restrict stock repurchases for one year following the
completion of a mutual stock conversion, the authorization to repurchase shares
of the Company's common stock expired in connection with its second-step
conversion on January 14, 2004. However, at September 30, 2004 the Company held
36,794 shares in treasury relating to the purchase of shares from participants
in the Recognition and Retention Plan ("RRP"), at market value, to fund the
individual participants' applicable tax liability on vested shares. At December
31, 2004, there were 6,607 shares still held in treasury.
On January 27, 2005, the Board of Directors authorized the repurchase of
up to 2,295,000 shares of its common stock. This represents approximately 5.0%
of the currently outstanding shares. Under this authorization, shares of common
stock may be purchased from time-to-time in the open market or in private
negotiated transactions. In addition, the Board of Directors declared a
quarterly cash dividend of $0.04 per share, payable on February 24, 2005 to
holders of record as of February 10, 2005.
Supplemental Reporting of Non-GAAP Results of Operations. The Company is
providing supplemental reporting of its results on a "net operating" basis, from
which the Company excludes the after- tax charge for expenses associated with
merging acquired operations into the Company. Although "net operating income" as
defined by the Company is not a GAAP measure, management believes that this
information helps investors understand the effect of acquisition activity.
Merger integration expenses were $228,000 ($0.01 per diluted share) after tax
for the three months ended December 31, 2004.
Net operating income on this basis for the most recent quarter was $5.2
million, an increase of 72.2% from $3.0 million in the prior year. Net operating
income, as an annualized rate of return on average assets and average
stockholders' equity, was 0.82% and 4.90% respectively, in the quarter ended
December 31, 2004, compared with 1.04% and 10.42% in the quarter ended December
31, 2003.
24
Reconciliation of GAAP and Non-GAAP results of operations: A
reconciliation of diluted earnings per share and net income with diluted net
operating earnings per share and net operating income follows (in thousands,
except per share amounts):
Three months ended December 31,
-------------------------------
2004 2003
---- ----
Diluted cash earnings per share $ 0.11 $ 0.09
Merger integration expenses (1) 0.01 --
------ ------
Diluted net operating earnings $ 0.12 $ 0.09
====== ======
Net income $5,015 $3,045
Merger integration expenses (1) 228 --
------ ------
Net operating income $5,243 $3,045
- -------------------- ====== ======
(1) After related tax effect at 40% marginal rate
Comparison of Operating Results for the Three Months Ended
December 31, 2004 and December 31, 2003
Net Income. For the three months ended December 31, 2004 net income was
$5.0 million, an increase of $2.0 million, or 66.1%, compared to $3.0 million
for the same period in fiscal 2004. Net interest income after provision for loan
losses for the three months ended December 31, 2004 increased by $10.2 million,
or 89.0%, compared to the same period in the prior year. Non-interest income
increased $1.2 million or 43.6% to $4.0 million for the three months ended
December 31, 2004 compared to $2.8 million for the three months ended December
31, 2003. Non-interest expense increased $8.1 million, or 85.0%, to $17.7
million for the three months ended December 31, 2004 compared to $9.6 million
for the same prior-year period.
The relevant performance measures follow:
Three Months Ended
December 31,
2004 2003
---- ----
Per common share:
Basic earnings $ 0.11 $ 0.09
Diluted earnings 0.11 0.09
Dividends declared 0.04 0.03
Return on average (annualized):
Assets 0.79% 1.04%
Equity 4.69% 10.42%
25
The following table sets forth the consolidated average balance sheets for
the Company for the periods indicated. Also set forth is information regarding
weighted average yields on interest-earning assets and weighted average rates
paid on interest-bearing liabilities (dollars in thousands).
Three Months Ended December 31,
-------------------------------
2004 2003
---- ----
Average Average
Outstanding Average Outstanding Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
------- -------- ---------- ------- -------- ----------
Interest earning assets:
Commercial and commercial mortgage
loans (1) $ 662,481 $11,036 6.61% $ 254,295 $ 4,104 6.42%
Consumer loans (1) 160,415 1,883 4.66 79,225 878 4.41
Residential mortgage loans (1) 434,554 6,494 5.93 369,814 5,548 5.97
---------- ------- ---------- -------
Total loans 1,257,450 19,413 6.13 703,334 10,530 5.96
---------- ------- ---------- -------
Securities-taxable 829,407 7,942 3.80 356,580 3,579 3.99
Securities-tax exempt (2) 48,051 683 5.64 20,893 286 5.45
Other earning assets 40,859 213 2.07 12,146 23 0.75
---------- ------- ---------- -------
Total securities and other earning assets 918,317 8,838 3.82 389,619 3,888 3.97
---------- ------- ---------- -------
Total interest-earning assets 2,175,767 28,251 5.15 1,092,953 14,418 5.25
Non-interest-earning assets: 352,433 88,910
---------- ----------
Total assets $2,528,200 $1,181,863
========== ==========
Interest bearing liabilities:
Savings, clubs and escrow $ 559,276 821 0.58% $ 291,402 314 0.43%
Money market accounts 282,034 592 0.83 133,437 177 0.53
NOW checking 142,660 132 0.37 62,797 32 0.20
Certificate accounts 404,069 1,822 1.79 225,304 1,034 1.83
---------- ------- ---------- -------
Total interest-bearing deposits 1,388,039 3,367 0.96 712,940 1,557 0.87
Borrowings 355,492 2,943 3.28 147,571 1,210 3.26
---------- ------- ---------- -------
Total interest-bearing liabilities 1,743,531 6,310 1.44 860,511 2,767 1.28
------- -------
Non-interest-bearing liabilities: 360,154 203,720
---------- ----------
Total liabilities 2,103,685 1,064,231
Stockholders' Equity 424,515 117,632
---------- ----------
Total liabilities and equity 2,528,200 1,181,863
========== ==========
Net interest margin $21,941 4.00% $11,651 4.24%
======= ==== ======= ====
Net interest rate spread 3.72% 3.97%
==== ====
Net earning assets $ 432,236 $ 232,442
========== ==========
Tax equivalent adjustment (2) (239) (100)
======== =======
Net interest income $21,702 $11,551
======== =======
Ratio of average interest-earning assets
to average interest-bearing liabilities 124.79% 127.01%
======= =======
- --------------------------------------------------------------------------------
(1) Includes non-accrual loans.
(2) Tax equivalent adjustment for tax exempt income is based on a 35% federal
rate.
26
The table below details the changes in interest income and interest
expense for the periods indicated due to both changes in average outstanding
balances and changes in average interest rates (in thousands):
Three Months Ended December 31,
2004 vs. 2003
Increase/(Decrease) Due to
---------------------------
Volume (1) Rate (1) Total
---------- -------- -----
Interest-earning assets
Commercial and commercial
mortgage loans $ 6,807 $ 125 $ 6,932
Consumer loans 952 53 1,005
Residential mortgage loans 982 (36) 946
Securities-taxable 4,538 (175) 4,363
Securities-tax exempt (2) 387 10 397
Other earning assets 109 81 190
-------- ----- --------
Total interest income 13,775 58 13,833
-------- ----- --------
Interest-bearing liabilities
Savings 368 139 507
Money market 275 140 415
NOW checking 60 40 100
Certificates of deposit 811 (23) 788
Borrowings 1,725 8 1,733
-------- ----- --------
Total interest expense 3,239 304 3,543
-------- ----- --------
Net interest margin $ 10,536 $(246) $ 10,290
-------- ----- --------
Less tax equivalent adjustment (2) (251) 112 (139)
-------- ----- --------
Net interest income $ 10,285 $(134) $ 10,151
======== ===== ========
- --------------------------------------------------------------------------------
(1) Changes due to increases in both rate and volume have been allocated
proportionately to rate and volume.
(2) Tax equivalent adjustment for tax exempt income is based on a 35% federal
rate.
27
Net Interest Income. Net interest income after provision for loan losses
for the three months ended December 31, 2004 was $21.6 million, compared to
$11.4 million for the three months ended December 31, 2003, an increase of $10.2
million or 89.0%. The increase in interest income was largely due to a $1.1
billion increase in average earning assets to $2.2 billion during the quarter
ended December 31, 2004, as compared to $1.1 billion for the same quarter in the
prior year. The increase is primarily due to the ENB and Warwick acquisitions,
net proceeds from the second-step offering and continued internal growth. The
increase in average earning assets was partially offset by a decline in average
yield of 10 basis points from 5.25% to 5.15%, on a fully taxable equivalent
basis. Interest expense increased by $3.5 million for the quarter compared to
the same quarter in 2003, as average interest-bearing liabilities increased by
$883.0 million and the average cost of interest-bearing liabilities increased 16
basis points. Net interest margin declined by 24 basis points to 4.00%, while
net interest spread declined by 25 basis points to 3.72%, due to the assets
acquired being recorded at current market interest rates.
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 to absorb probable loan losses inherent in the existing
portfolio. The Company recorded $150,000 in loan loss provisions during the
three months ended December 31, 2004 and 2003. Net charge-offs for the three
months ended December 31, 2004 were $218,000 compared to a net recovery of
$30,000 for the same period in 2003.
Non-Interest Income was $4.0 million for the three months ended December
31, 2004 compared to $2.8 million for the three months ended December 31, 2003.
Deposit fees and service charges increased by $1.2 million, or 97.1%, of which
$905,000 was generated from the acquired Warwick and ENB branches, while
$295,000 was due primarily to volume-driven increases in overdraft,
non-sufficient funds, and ATM and debit card fees. Other non-interest income
increased by $317,000, or 97.8%, due to higher earnings on the Company's bank
owned life insurance ("BOLI") investments. Income derived from the Company's new
wholly-owned title subsidiary Hardenburgh Abstract Company of Orange County,
Inc. was $358,000. Gains on the sale of securities were $49,000 for the current
three-month period, compared to $930,000 for the same period last year. During
the three-month period ended December 31, 2004, the Company also recorded gains
on sales of loans totaling $59,000, compared to $86,000 for the same period last
year.
Non-Interest Expense for the three months ended December 31, 2004
increased by $8.1 million, or 85.0%, to $17.7 million, compared to $9.6 million
for the three months ended December 31, 2003. The acquisitions of ENB in January
2004 and Warwick in October 2004 played a major role in the increases in most
categories. Compensation and employee benefits increased by $3.4 million, or
76.6%, to $7.8 million for the period ended December 31, 2004. Of that amount,
$709,000 and $680,000 was attributable to the Warwick and ENB acquisitions,
respectively and the remainder was due to staff additions for future growth and
expansion, as well as normal merit increases. An increase in the cost of
stock-based compensation benefits of $169,000, or 25.2%, occurred during the
current three-month period primarily due to vesting and allocations of stock
under benefit plans at an average common stock price of $12.66 per share for the
three months ended December 31, 2004 compared to $10.26 per share for the three
months ended December 31, 2003. Occupancy and office operations increased by
$821,000, or 61.9%, for the three months ended December 31, 2004, almost all of
which was attributable to the acquired ENB and Warwick properties. Advertising
and promotion increased $695,000, or 148.5%, primarily as a result of the
Warwick merger and the new brand identity campaign the Company has unveiled.
Professional fees increased by $184,000, or 38.0%, due primarily to fees
associated with the Company's compliance with the provisions of Sarbanes-Oxley
Section 404. Amortization of core deposit intangible increased by $1.0 million
as a result of the Warwick and ENB deposits acquired. Stationery and office
supplies increased by $106,000, or 71.1%, due to the doubling of our branches
compared to the prior year. Data and check
28
processing increased $504,000, or 67.7%, primarily due to the higher level of
services related to the accounts acquired in the mergers. Other expenses
increased by $665,000, or 63.0%, due primarily to increases in correspondent
bank expense, postage, telephone expense and insurance premium expense, all
directly related to the increased size of Provident Bank following the mergers.
Further, merger integration expenses were $380,000.
Income Taxes. Income tax expense was $2.9 million for the three months
ended December 31, 2004, compared to $1.6 million expense for the same period in
2003. The effective tax rates were 36.3% and 34.3%, respectively.
Governor Pataki's proposed state budget for fiscal 2005-06 includes a
proposal which would prohibit banks from claiming tax deductions for dividends
received from real estate investment trusts (REITs) that are owned over 50
percent by the taxpayer or members of an affiliated group. Included in the
results for the quarter ending December 31, 2004 is a tax benefit of
approximately $120,000 pertaining to such REITS. If the legislation were to
pass, this tax benefit many not continue for periods beyond December 31, 2004.
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, the proceeds from maturities of securities and
short-term investments, and proceeds from sales of loans originated for sale and
securities available for sale. 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 three-months
ended December 31, 2004 and December 31, 2003, loan originations, excluding
loans originated for sale, totaled $101.6 million and $66.8 million,
respectively, and purchases of securities totaled $273.3 million and $184.8
million, respectively. For the three-month periods ended December 31, 2004 and
2003, these investing activities were funded primarily by principal repayments
on loans, by proceeds from sales and maturities of securities, and by deposit
growth. Loan origination commitments totaled $82.7 million at December 31, 2004.
The Company anticipates that it will have sufficient funds available to meet
current loan commitments. In December 2003 the Company invested $12 million in
BOLI contracts. The Company recorded an additional $13.3 million in BOLI as a
result of the Warwick acquisition. Such investments are illiquid and are
therefore classified as other assets. Earnings from BOLI are derived from the
net increase in cash surrender value of the BOLI contracts and the proceeds from
the payment on the insurance policies, if any.
Deposit flows are generally affected by the level of interest rates, the
interest rates and products offered by local competitors, the appeal of
non-deposit investments, and other factors. Excluding the acquisition of
Warwick, the net decrease in total deposits for the three months ended December
31, 2004
29
was $13.1 million, compared to a $616,000 increase for the three months ended
December 31, 2003. Time deposits decreased $23.5 million for the three months
ended December 31, 2004 compared to $18.4 million in the prior year.
On January 14, 2004 the Company completed its stock offering in connection
with the second-step conversion of Provident Bancorp, MHC. As a result of the
conversion, the Company became the stock holding company of the Bank. In the
stock offering, shares representing Provident Bancorp, MHC's ownership interest
in Provident Federal were sold to investors. In addition, the Company
simultaneously completed its acquisition of E.N.B. Holding Company, Inc.,
located in Ellenville, New York.
The Company sold 19,573,000 shares of common stock at $10.00 per share to
depositors of the Bank as of June 30, 2002 and September 30, 2003. The Company
also issued 400,000 shares of common stock and contributed $1.0 million in cash
to the Provident Bank Charitable Foundation. In addition, each outstanding share
of common stock of the Company as of January 14, 2004 was converted into 4.4323
new shares of the Company's common stock.
Shareholders of ENB as of the close of business on January 14, 2004
received total merger consideration of approximately $76.47 million, consisting
of 3,969,676 shares of common stock of the Company and approximately $36.77
million in cash.
Shareholders of Warwick as of the close of business on October 1, 2004
received total merger consideration of approximately $147.2 million, consisting
of 6,257,892 shares of common stock of the Company and approximately $72.6
million in cash.
The Company monitors its liquidity position on a daily basis. We generally
remain fully invested and utilize additional sources of funds through Federal
Home Loan Bank of New York overnight and term advances, of which $220.6 million
were outstanding at December 31, 2004. The Company has the ability to borrow an
additional $381.0 million under its credit facilities with the Federal Home Loan
Bank of New York.
At December 31, 2004, the Bank exceeded all of its regulatory capital
requirements with a Tier 1 capital (leverage) level of $186.7 million, or 7.8%
of adjusted assets (which is above the required level of $95.3 million, or 4.0%)
and a total risk-based capital level of $206.3 million, or 13.2% of
risk-weighted assets (which is above the required level of $125.2 million, or
8.0). Regulations require leverage and total risk-based capital ratios of 5.0%
and 10.0%, respectively, in order to be classified as well-capitalized. In
performing this calculation, the intangible assets recorded in the NBF, ENB, and
Warwick acquisitions are deducted from capital and from total adjusted assets
for purposes of regulatory capital measures. At December 31, 2004, the Bank
exceeded all capital requirements for well-capitalized classification. These
capital requirements, which are applicable to the Bank only, do not consider
additional capital retained at the holding company level.
30
The following table sets forth the Bank's regulatory capital position at
December 31, 2004 and September 30, 2004, 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)
December 31, 2004
- -----------------
Tangible capital $186,724 7.8% $ 35,728 1.5% $ -- --%
Tier 1 (core) capital 186,724 7.8 95,274 4.0 119,092 5.0
Risk-based capital:
Tier 1 186,724 11.9 93,905 6.0
Total 206,288 13.2 125,207 8.0 156,509 10.0
========
September 30, 2004
- ------------------
Tangible capital $189,486 11.3% $ 25,285 1.5% $ -- --%
Tier 1 (core) capital 189,486 11.3 67,427 4.0 84,284 5.0
Risk-based capital:
Tier 1 189,486 16.6 -- 68,593 6.0
Total 203,776 17.8 91,458 8.0 114,322 10.0
========
Asset/Liability Management
- --------------------------
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive earning
assets and interest-bearing liabilities and capital resources. The Company's
Asset and Liability Committee ("ALCO") of the Board monitors, and the Bank,
through its Management ALCO, controls the rate sensitivity of the balance sheet
while seeking to maintain an appropriate level of net interest income
contribution to the operations of the Company.
The Company's net interest income is affected by fluctuations in market
interest rates as a result of timing differences in the repricing of its assets
and liabilities. These repricing differences are quantified in specific time
intervals and are referred to as interest rate sensitivity gaps. The Company
manages the interest rate risk of current and future earnings to a level that it
considers consistent with its mix of business and seeks to limit such risk
exposure to appropriate percentages of both earnings and the imputed value of
stockholders' equity. The objective in managing interest rate risk is to support
the achievement of business strategies, while controlling earnings variability
and seeking to provide appropriate liquidity. Further, the present and
historical levels of transaction accounts (greater than 20% of total assets)
serve to mitigate the effects of increases in interest rates and reduce the
average cost of total liabilities.
Management monitors interest rate sensitivity primarily through the use of
a model that simulates net interest income under varying interest rate
assumptions. Management also evaluates this
31
sensitivity using a model that estimates the change in Provident Bank's net
portfolio value ("NPV") over a range of interest rate scenarios. NPV is the
present value of expected cash flows from assets, liabilities and off-balance
sheet contracts. Both models assume estimated loan prepayment rates,
reinvestment rates and deposit decay rates that seem most likely based on
historical experience during prior interest rate changes.
The table below sets forth, as of December 31, 2004, the estimated changes
in our NPV and our net interest income that would result from the designated
instantaneous changes in the U.S. Treasury yield curve. Computations of
prospective effects of hypothetical interest rate changes are based on numerous
assumptions including relative levels of market interest rates, loan prepayments
and deposit decay, and should not be relied upon as indicative of actual
results.
NPV Net Interest Income
------------------------------------------- ---------------------------------------------
Estimated Increase (Decrease) Estimated Increase (Decrease)
Change in in NPV Estimated Net in Net Interest Income
Interest Rates Estimated ----------------------------- Interest -----------------------------
(basis points) NPV Amount Percent Income Amount Percent
- -------------- --------- ------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
+300 $ 303,791 $ (75,119) (19.8)% $ 90,633 $ (5) (0.0)%
+200 334,802 (44,108) (11.6) 91,026 388 0.4
+100 366,956 (11,954) (3.2) 91,322 684 0.8
0 378,910 -- -- 90,638 --
-100 400,729 21,819 5.8 88,609 (2,029) (2.2)
-200 394,846 15,936 4.2 83,390 (7,248) (8.0)
The table set forth above indicates that at December 31, 2004, in the
event of an immediate 100 basis point decrease in interest rates, we would be
expected to experience a 5.8% increase in NPV and a 2.2% decrease in net
interest income. In the event of an immediate 200 basis point increase in
interest rates, we would be expected to experience a 11.6% decrease in NPV and a
0.4% increase in net interest income.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV and net interest income
requires making certain assumptions that may or may not reflect the manner in
which actual yields and costs respond to changes in market interest rates. The
NPV and net interest income table presented above assumes that the composition
of our interest-rate sensitive assets and liabilities existing at the beginning
of a period remains constant over the period being measured and, accordingly,
the data does not reflect any actions management may undertake in response to
changes in interest rates. The table also assumes that a particular change in
interest rates is reflected uniformly across the yield curve regardless of the
duration to maturity or the repricing characteristics of specific assets and
liabilities. Accordingly, although the NPV and net interest income table
provides an indication of our sensitivity to interest rate changes at a
particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
our net interest income and will differ from actual results.
32
Recent Accounting Standards
In December 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 46 (revised), Consolidation of Variable Interest
Entities ("FIN 46R"), which addresses how a business enterprise should evaluate
whether it has a controlling financial interest in an entity through means other
than voting rights and, accordingly, should consolidate the variable interest
entity ("VIE"). FIN 46R replaces FASB Interpretation No. 46, which was issued in
January 2003. As a public company that is not a small business issuer (as
defined in applicable SEC regulations), the Company is required to apply FIN 46R
to variable interests generally as of March 31, 2004 and to special-purpose
entities as of December 31, 2003. For any VIE's that must be consolidated under
FIN 46R that were created before January 1, 2004, the assets, liabilities and
noncontrolling interests of the VIE initially would be measured at their
carrying amounts and any difference between the net amount added to the balance
sheet and any previously recognized interest would be recorded as the cumulative
effect of an accounting change. If determining the carrying amounts is not
practicable, fair value at the date FIN 46R first applies may be used to measure
the assets, liabilities and noncontrolling interest of the VIE. The adoption of
FIN 46R did not and is not expected to have a significant effect on the
Company's consolidated financial statements.
In December 2003, the FASB also issued Statement of Financial Accounting
Standards No. 132 (revised), Employers' Disclosures about Pensions and Other
Postretirement Benefits ("SFAS No. 132R"). This standard prescribes employers'
disclosures about pension plans and other postretirement benefit plans, but does
not change the measurement or recognition of those plans. SFAS No. 132R retains
and revises the disclosure requirements contained in the original standard. It
also requires additional disclosures about the assets, obligations, cash flows,
and net periodic benefit cost of defined benefit pension plans and other
postretirement benefit plans. As a public company, the Company was required to
provide substantially all of the revised disclosures beginning with its
September 30, 2004 consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity, and
requires that an issuer classify financial instruments that are considered a
liability (or an asset in some circumstances) when that financial instrument
embodies an obligation of the issuer.
SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. SFAS No. 150 had no impact
on the Company's consolidated statement of financial condition or results of
operations upon implementation during the third quarter of 2003. In November
2003, the FASB also issued a staff position that indefinitely deferred the
effective date of SFAS No. 150 for certain mandatorily redeemable
non-controlling interests. The Company currently believes that the deferral of
the effective date of SFAS No. 150 for certain mandatorily redeemable
non-controlling interests will not have any impact on its consolidated statement
of financial condition or results of operations when implemented.
The issuance of SFAS No. 150 and FIN 46 has also resulted in the Federal
Reserve Board announcing potential future reconsideration of trust preferred
securities as elements of regulatory capital. The Company currently has no
issuances of trust preferred securities.
Effective March 31, 2004, Emerging Issues Task Force Issue No. 03-1 "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" ("EITF 03-1") was issued. EITF 03-1 provides guidance for
determining the meaning of "other-than-temporarily impaired" and its application
to certain debt and equity securities within the scope of Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115") and
33
investments accounted for under the cost method. The guidance requires that
investments which have declined in value due to credit concerns or solely due to
changes in interest rates must be recorded as other-than-temporarily impaired
unless the corporation can assert and demonstrate its intention to hold the
security for a period of time sufficient to allow for a recovery of fair value
up to or beyond the cost of the investment, which might mean maturity. This
Issue also requires disclosures assessing the ability and intent to hold
investments in instances in which an investor determines that an investment with
a fair value less than cost is not other-than-temporarily impaired.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123. This statement provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effects of the method used on reported results.
In December 2004, the FASB Issued Statement of Financial Accounting
Standards No. 123R (Statement 123R), "Share-Based Payments", the provisions of
which become effective for the corporation in fiscal 2006. This Statement
eliminates the alternative to use APB No. 25's intrinsic value method of
accounting that was provided in Statement 123 as originally issued. Statement
123R requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments based on the grant-date fair value of
those awards. While the fair-value-based method prescribed by Statement 123R is
similar to the fair-value-based method disclosed under the provisions of
Statement 123 in most respects, there are some differences. The Company is
currently evaluating the provisions of Statement 123R and has not determined the
impact of adopting this statement at this time.
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. The Bank's interest rate profile has not changed significantly
since September 30, 2004. Although the acquisition of Warwick was completed, the
nature of the assets and liabilities acquired is consistent with the Bank's
previously existing assets. . As a result, the Bank has maintained an overall
relatively neutral sensitivity position. See Item 2 "Asset/liability
Management". However, if rates increase rapidly as a result of an improving
economy, the Bank may have to increase the rates paid on deposits and borrowed
funds quicker than loans and investments reprice, resulting in a negative impact
on interest spreads and net interest income. In addition, the impact of rising
rates could be compounded if deposit customers move funds from savings accounts
back to higher-rate certificate of deposit accounts. Conversely, should market
interest rates continue to fall below today's level the Company's net interest
margin could also be negatively affected, as competitive pressures could keep
the Bank from lowering rates on its deposits, and prepayments and curtailments
on assets may continue. Such movements may cause a decrease in the interest rate
spread and net interest margin. 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.
Quantitative and qualitative disclosure about market risk is presented at
September 30, 2004 in Item 7A in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 14, 2004. The following
is an update of the discussion provided therein.
34
General: The Company's largest component of market risk continues to be
interest rate risk. The Company is not subject to foreign currency exchange or
commodity price risk. At December 31, 2004, neither the Company nor the Bank
owned any trading assets, nor did they utilize hedging transactions such as
interest rate swaps and caps.
Interest Rate Risk Compliance: The Bank continues to monitor the impact of
interest rate volatility upon net interest income and net portfolio value in the
same manner as at September 30, 2004. There have been no changes in the board
approved limits of acceptable variance in net interest income and net portfolio
value change at December 31, 2004 compared to September 30, 2004, and the impact
of possible changes within the Company's models continue to fall within all
board approved limits for potential interest rate volatility.
Item 4. Controls and Procedures
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of
the Company's disclosure controls and procedures (as defined in Rule 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended) (the
"Exchange Act") as of the end of the period covered by this report. Based upon
that evaluation, the Company's management, including the Chief Executive Officer
and Chief Financial Officer, concluded that, as of the end of the period covered
by this report, the Company's disclosure controls and procedures were effective
to ensure that information required to be disclosed in the reports that the
Company files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time frames specified in the SEC's rules and
forms.
There were no significant changes made in the Company's internal controls
over financial reporting or in other factors that could significantly affect the
Company's internal control over financial reporting during the period covered by
this report.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any 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.
35
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
(a) - (d) Not applicable
(e)
Issuer Purchases of Equity Securities
-------------------------------------
Maximum Number (or
Total Number of Shares Approximate Dollar
(or Units) Purchased Value) of Shares (or
Total Number of Average Price as Part of Publicly Units) that may yet be
Shares (or Units) Paid per Share Announced Plans or Purchased Under the
Period Purchased (1) (or Unit) Programs (2) Plans or Programs
October 1 - October 31, 2004 2,932 $ 11.74 -- --
November 1 - November 30, 2004 8,602 11.74 -- --
December 1 - December 31, 2004 28,570 11.84 -- --
------ -------
Total 40,104 $ 11.82 $ -- $ --
====== ======= ==== ====
- ----------
(1) The total number of shares purchased during the periods indicated
represent shares deemed to have been received from employees who exercised
stock options by submitting mature previously acquired common shares in
satisfaction of the exercise price, as is permitted under the Company's
stock option plans.
(2) OTS regulations prohibit the repurchase of common shares for a period of
one year following a second step stock conversion. The Company announced
on January 27, 2005 that it authorized the repurchase 2,295,000 shares, or
approximately 5% of common shares currently outstanding.
36
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holder
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Description
-------------- -----------
31.1 Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
37
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 Bancorp, Inc.
-----------------------
(Registrant)
By: /s/ George Strayton
--------------------
George Strayton
President and Chief Executive Officer
(Duly Authorized Representative)
Date: February 8, 2005
By: /s/ Paul A. Maisch
--------------------
Paul A. Maisch
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Representative)
Date: February 8, 2005
38