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 March 31, 2000
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)
(914) 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 8,160,000 as of
April 30, 2000
<PAGE>
PROVIDENT BANCORP, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 2000
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition at
March 31, 2000 and September 30, 1999 3-4
Consolidated Statements of Income for the Three Months
And Six Months Ended March 31, 2000 and 1999 5
Consolidated Statement of Changes in Stockholders' Equity
For the Six Months Ended March 31, 2000 6
Consolidated Statements of Cash Flows for the Six Months
Ended March 31, 2000 and 1999 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 21-22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Provident Bancorp, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(In thousands, except share data)
March 31, September 30,
Assets 2000 1999
- ------ --------- ---------
<S> <C> <C>
Cash and due from banks ....................................... $ 15,580 $ 11,838
Securities:
Available for sale, at fair value (amortized cost of
$171,018 at March 31, 2000 and $150,792 at
September 30, 1999) .................................. 166,206 148,387
Held to maturity, at amortized cost (fair value of $55,151
at March 31, 2000 and $56,479 at September 30, 1999) . 56,078 56,782
Total securities .................................... 222,284 205,169
--------- ---------
Loans:
One- to four-family residential mortgage loans ........... 343,230 344,731
Commercial real estate, commercial business
and construction loans ............................... 168,949 160,297
Consumer loans ........................................... 68,293 67,695
Allowance for loan losses ................................ (6,954) (6,202)
Total loans, net ..................................... 573,518 566,521
--------- ---------
Accrued interest receivable, net .............................. 5,030 5,656
Federal Home Loan Bank stock, at cost ......................... 7,023 6,176
Premises and equipment, net ................................... 9,137 8,232
Other assets .................................................. 11,621 10,926
--------- ---------
Total assets ......................................... $ 844,193 $ 814,518
========= =========
</TABLE>
3
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<TABLE>
<CAPTION>
Provident Bancorp, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION, cONTINUED
(Unaudited)
(In thousands, except share data)
Liabilities and Stockholders' Equity March 31,2000 September 30, 1999
- ------------------------------------ ------------- ------------------
<S> <C> <C>
Liabilities:
Deposits:
Retail demand and NOW deposits ..................... $ 93,406 $ 82,830
Commercial demand deposits ......................... 25,396 24,147
Savings and money market deposits .................. 242,827 241,842
Certificates of deposit ............................ 243,812 237,821
--------- ---------
Total deposits ..................................... 605,441 586,640
Borrowings ............................................. 129,446 117,753
Mortgage escrow funds .................................. 9,822 10,489
Other .................................................. 13,158 9,337
--------- ---------
Total liabilities .................................. 757,867 724,219
--------- ---------
Stockholders' equity (Note 1):
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 .................................. 36,307 36,262
Unallocated common stock held by the employee stock ownership
plan ("ESOP") ........................................... (2,914) (3,102)
Stock awards under recognition and retention
plan ("RRP") ............................................ (2,890) --
Treasury stock, at cost (120,000 shares) ................... (1,922) --
Retained earnings ........................................... 59,804 57,754
Accumulated other comprehensive loss,
net of tax benefit of $1,925 at March 31, 2000
and $962 at September 30, 1999 (Note 4) .................. (2,887) (1,443)
--------- ---------
Total stockholders' equity ......................... 86,326 90,299
--------- ---------
Total liabilities and stockholders' equity ......... $ 844,193 $ 814,518
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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<TABLE>
<CAPTION>
PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
For the Three Months For the Six Months
Ended March 31, Ended March 31,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans ......................................... $11,032 $ 9,690 $22,048 $19,203
Securities .................................... 3,367 2,811 6,511 5,714
Other earning assets .......................... 123 62 261 154
------- ------- ------- -------
Total interest and dividend income ........ 14,522 12,563 28,820 25,071
------- ------- ------- -------
Interest expense:
Deposits ...................................... 4,453 4,267 8,897 8,928
Borrowings .................................... 1,870 742 3,620 1,414
------- ------- ------- -------
Total interest expense .................... 6,323 5,009 12,517 10,342
------- ------- ------- -------
Net interest income ................................ 8,199 7,554 16,303 14,729
Provision for loan losses .......................... 450 360 900 720
------- ------- ------- -------
Net interest income after provision for loan losses 7,749 7,194 15,403 14,009
------- ------- ------- -------
Non-interest income:
Loan servicing ................................ 104 132 272 248
Banking service fees and other income ......... 690 633 1,369 1,330
------- ------- ------- -------
Total non-interest income ................. 794 765 1,641 1,578
------- ------- ------- -------
Non-interest expense:
Compensation and employee benefits ............ 3,458 3,027 6,468 5,960
Occupancy and office operations ............... 916 838 1,862 1,678
Advertising and promotion ..................... 270 389 509 678
Data processing ............................... 374 222 774 526
Amortization of branch purchase premiums ...... 430 430 860 860
Other ......................................... 1,175 1,726 2,537 3,404
------- ------- ------- -------
Total non-interest expense ................ 6,623 6,632 13,010 13,106
------- ------- ------- -------
Income before income tax expense ................... 1,920 1,327 4,034 2,481
Income tax expense ................................. 691 492 1,407 919
------- ------- ------- -------
Net income ......................................... $ 1,229 $ 835 $ 2,627 $ 1,562
======= ======= ======= =======
Basic and diluted earnings per common share (Note 5) $ 0.16 $ 0.10 $ 0.33
======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2000
(Unaudited)
(In thousands, except share and per share data)
Accumulated
Additional Unallocated RRP Other
Common Paid-In ESOP Stock Treasury Retained Comprehensive
Stock Capital Shares Awards Stock Earnings Loss Total
----- ------- ------ ------ ----- -------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1999 $828 $36,262 $(3,102) $ -- $ -- $57,754 $(1,443) $90,299
Net income for the six-month
period 2,627 2,627
Treasury stock purchases
(120,000 shares) (1,922) (1,922)
ESOP shares allocated or released
for allocation (15,456 shares) 45 188 233
Award of RRP shares (2,995) (2,995)
Vesting of RRPshares 105 105
Change in net unrealized loss on
securities available for sale,
net of taxes of $964 (1,444) (1,444)
Cash dividends ($0.08 per share) (577) (577)
----- --------- --------- --------- ----------- ----------- ---------- ----------
Balance at March 31, 2000 $828 $36,307 $(2,914) $(2,890) $(1,922) $59,804 $(2,887) $86,326
===== ========= ========== ========== ============ ========== =========== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the Six Months
(In thousands) Ended March 31,
-----------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................ $ 2,627 $ 1,562
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises
and equipment ................................... 782 744
Net amortization of premiums and discounts
on securities ................................... 67 104
ESOP and RRP expense .............................. 338 458
Provision for loan losses ......................... 900 720
Amortization of branch purchase premiums .......... 860 860
Proceeds from sales of loans held for sale ........ 836 14,060
Originations of loans held for sale ............... (361) (12,155)
Deferred income tax benefit ....................... (653) (240)
Net changes in accrued interest receivable
and payable ..................................... 1,606 191
Net increase in other assets ...................... (165) (176)
Net increase (decrease) in other liabilities ...... 906 (536)
Other adjustments, net ............................ 91 (657)
--------- ---------
Net cash provided by operating activities .... 7,834 4,935
--------- ---------
Cash flows from investing activities:
Purchases of securities:
Securities available for sale ..................... (35,746) (38,604)
Securities held to maturity ....................... (4,710) --
Proceeds from maturities, calls and principal payments:
Securities available for sale ..................... 10,462 27,217
Securities held to maturity ....................... 5,395 32,081
Proceeds from sales of securities available for sale .. 5,017 --
Loan originations ..................................... (58,733) (121,886)
Loan repayments ....................................... 50,221 54,431
Purchases of Federal Home Loan Bank stock ............. (847) (252)
Proceeds from sale of real estate owned ............... 268 213
Purchases of premises and equipment ................... (1,687) (1,456)
--------- ---------
Net cash used in investing activities ........ (30,360) (48,256)
--------- ---------
</TABLE>
7
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<TABLE>
<CAPTION>
PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
(In thousands)
For the Six Months
Ended March 31,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits ........................ $ 18,801 $ 4,710
Net increase in borrowings ...................... 11,693 3,651
Net increase (decrease) in mortgage escrow funds (667) 4,587
Proceeds from stock subscriptions ............... -- 37,101
Treasury shares purchased ....................... (1,922) --
Shares purchased by ESOP ........................ -- (3,760)
Shares purchased for RRP awards ................. (1,060) --
Initial capitalization of Provident Bancorp, MHC -- (100)
Cash dividends .................................. (577) --
-------- --------
Net cash provided by financing activities ... 26,268 46,189
-------- --------
Net increase in cash and cash equivalents ............ 3,742 2,868
Cash and cash equivalents at beginning of period ..... 11,838 7,572
Cash and cash equivalents at end of period ........... $ 15,580 $ 10,440
======== ========
Supplemental information:
Interest paid ................................... $ 11,538 $ 10,502
Income taxes paid ............................... 774 1,446
Transfers of loans to real estate owned ......... 87 311
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE>
PROVIDENT BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Reorganization and Offering
- ------------------------------------
On January 7, 1999, Provident Bank (the "Bank") completed its
reorganization into a mutual holding company structure. Provident Bancorp, Inc.,
the Bank's holding company (the "Company"), issued a total of 8,280,000 common
shares, consisting of 3,864,000 shares sold to the public and 4,416,000 shares
issued to Provident Bancorp, MHC. The Company raised net proceeds of $37.1
million (gross proceeds of $38.6 million less offering costs of $1.5 million)
from the sale of shares to the public. The Bank's Employee Stock Ownership Plan
("ESOP") subsequently purchased 8% of the shares issued to the public, or
309,120 shares, in the open market.
2. Basis of Presentation
The results of operations and financial condition for the periods and
as of dates subsequent to the reorganization in January 1999 are reported on a
consolidated basis for the Company and the Bank (collectively, the "Company").
Earlier financial information pertains to the Bank only.
The financial statements included herein have been prepared by
management without audit. In the opinion of management, the unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial position and results of
operations as of the dates and for the periods presented. Certain information
and footnote disclosures normally included in conformity with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The Company believes that
the disclosures are adequate to make the information presented not misleading;
however, the results for the period ended March 31, 2000 are not necessarily
indicative of results to be expected for the entire fiscal year ending September
30, 2000.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. 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 3.
The unaudited financial statements presented herein should be read in
conjunction with the annual audited financial statements for the fiscal year
ended September 30, 1999, included in the Company's 1999 Annual Report.
9
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3. 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
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 as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months
March 31, Ended March 31,
--------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $6,592 $5,353 $6,202 $4,906
Provision for loan losses 450 360 900 720
Charge-offs (106) (132) (173) (177)
Recoveries 18 50 25 182
------ ------ ------ ------
Balance at end of period $6,954 $5,631 $6,954 $5,631
====== ====== ====== ======
</TABLE>
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).
10
<PAGE>
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
---- ----
(Dollars in thousands)
<S> <C> <C>
Non-accrual loans:
One- to four- family residential mortgage loans ... $2,126 $2,839
Commercial real estate, commercial business
and construction loans .......................... 1,400 1,368
Consumer loans .................................... 354 429
------ ------
Total non-performing loans ...................... 3,880 $4,636
Real estate owned:
One- to four-family residential ................... 179 403
------ ------
Total non-performing assets ............................ $4,059 $5,039
====== ======
Ratios:
Non-performing loans to total loans ............... 0.68% 0.82%
Non-performing assets to total assets ............. 0.48 0.62
Allowance for loan losses to total
non-performing loans ............................ 179.23 133.78
Allowance for loan losses to total loans .......... 1.20 1.08
====== ======
</TABLE>
4. Comprehensive Income
- -----------------------------
The Company's total comprehensive income was $1.2 million and $822,000
for the six months ended March 31, 2000 and 1999, respectively. The difference
between the Company's net income and total comprehensive income equals the net
increase in the after-tax net unrealized loss on securities available for sale
of $1.4 million and $740,000 for the six months ended March 31, 2000 and 1999,
respectively. Accumulated other comprehensive loss in the consolidated
statements of financial condition represents the after-tax net unrealized loss
on securities available for sale as of March 31, 2000 and September 30, 1999.
5. Earnings Per Common Share
- ----------------------------------
The Company completed the reorganization and offering on January 7,
1999. As a result, earnings per share ("EPS") data is presented herein only for
periods subsequent to that date. Weighted average common shares of 7,878,595 and
7,924,721 were used in calculating basic and diluted earnings per share for the
three and six months ended March 31, 2000, respectively, which includes all
shares issued to the mutual holding company but excludes unvested shares awarded
under the recognition and retention plan ("RRP") and unallocated ESOP shares
that have not been released or committed to be released to participants.
Unvested RRP shares and stock options
11
<PAGE>
issued in February 2000 had anti-dilutive effect on EPS and therefore are not
included in the EPS calculation for both the three and six months ended March
31, 2000.
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.
Comparison of Financial Condition at March 31, 2000 and September 30, 1999
Total assets increased to $844.2 million at March 31, 2000 from $814.5
million at September 30, 1999, an increase of $29.7 million or 3.6%. In
addition, cash levels increased to $15.6 million at March 31, 2000, from $11.8
million at September 30, 1999, an increase of $3.7 million. Asset growth was
primarily attributable to increases in the securities portfolio and in loans
receivable.
The total securities portfolio increased by $17.1 million to $222.3
million at March 31, 2000 from $205.2 million at September 30, 1999. This net
increase reflects a $17.8 million increase in available-for-sale securities
offset by a $704,000 decrease in securities held to maturity.
Net loans receivable at March 31, 2000 of $573.5 million increased by
$7.0 million compared to September 30, 1999, led by increases in the commercial
loan portfolio of $8.7 million and adjustable rate residential mortgages of $1.9
million. These increases were partially offset by a decrease of $3.4 million in
fixed rate residential mortgages.
Total deposits increased by $18.8 million to $605.4 million at March
31, 2000 from $586.6 million at September 30, 1999, primarily due to the
increase in retail and commercial transaction account (demand and NOW) balances,
which increased by $11.8 million, or 11.1%, to $118.8 million at March 31, 2000.
Total savings account and money market account balances
12
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increased by $985,000 to $242.8 million at March 3, 2000 from $241.8 million at
September 30, 1999. During the same time period, total certificates of deposit
increased $6.0 million to $243.8 million at March 31, 2000 from $237.8 million
at September 30, 1999. Borrowings (primarily Federal Home Loan Bank advances)
increased $11.6 million during the six month period to $129.4 million at March
31, 2000 from $117.8 million at September 30, 1999.
Stockholders' equity decreased by $4.0 million to $86.3 million at
March 31, 2000 compared to $90.3 million at September 30, 1999. Rising interest
rates during the fiscal year-to-date period resulted in a $1.4 million decrease
in stockholders' equity from higher net unrealized losses on the available for
sale securities portfolio. In addition, cash dividends of $577,000 were paid,
and capital was further reduced by treasury stock purchases of $1.9 million
associated with the Company's previously announced stock repurchase program and
by stock grants of $2.9 million under the RRP. Net income of $2.6 million for
the six-month period partially offset these decreases.
The RRP was approved by the Company's shareholders in February 2000 and
provides for awards of common stock to certain employees and directors. A total
of 193,200 shares were awarded under the RRP and the grant-date fair value of
these shares ($3.0 million) was charged to stockholders' equity. The awards vest
at a rate of 20% on each of five annual vesting dates, beginning with September
30, 2000. The Company's liability for RRP awards not yet funded through stock
purchases was $1.9 million as of March 31, 2000.
Comparison of Operating Results for the
Three Months Ended March 31, 2000 and March 31, 1999
Net Income. For the three months ended March 31, 2000, net income was
$1.2 million or $0.16 per common share, an increase of $394,000 or 47.2% from
net income of $835,000 for the three months ended March 31, 1999. Excluding
special pre-tax charges of $522,000 for expenses related to the conversion of
computer systems, after-tax net income would have been approximately $1.2
million for the three months ended March 31, 1999.
Interest Income. Interest income for the three months ended March 31,
2000 was $14.5 million, $2.0 million or 15.6% higher than interest income for
the three months ended March 31, 1999, primarily due to higher average loan
balances, as well as the acquisition over time of higher yielding securities and
the upward adjustment of rates earned on variable rate loans. The $2.0 million
increase in total interest income was due to a $1.3 million or 13.9% increase in
interest on loans to $11.0 million from $9.7 million for the three months ended
March 31, 1999. The higher total interest income also reflected a $617,000 or
21.5% increase in interest income on securities and other earning assets to $3.5
million for the three months ended March 31, 2000 from $2.9 million for the
three months ended March 31, 1999. The increase in income from loans was
attributable to a $54.3 million increase in average loan balances to $569.6
million from $515.3 million, accompanied by a 14 basis point increase in average
yield to 7.77% from 7.63%. The increase in average loan balances reflects a
$28.4 million, or 21.1%, increase in the average commercial loan portfolio, as
well as a $25.8 million, or 6.8%, increase in the average balance
13
<PAGE>
of residential mortgages and consumer loans. The $617,000 increase in income
from securities and other earning assets was attributable to a $32.4 million
increase in the average balance of these assets to $224.0 million in 2000 from
$191.6 million in 1999, as well as a 19 basis point increase in the average
yield to 6.27% from 6.08%.
Interest Expense. Interest expense for the three months ended March 31,
2000 was $6.3 million, $1.3 million or 26.2% higher than the same period last
year due primarily to the continuing rise in overall interest rates and to
higher balances in wholesale borrowings, which carry higher interest rates than
the Bank's core deposits. Average interest-bearing liabilities for the three
months ended March 31, 2000 increased by $89.4 million, or 15.4% to $669.4
million, from an average of $580.0 million for the three months ended March 31,
1999. The average rate paid on total interest-bearing liabilities in the 2000
period was 3.80%, compared to 3.50% in the 1999 period. Interest expense on
deposits increased by $186,000 resulting from an increase in average interest
bearing deposits to $537.9 million for the three-month period ended March 31,
2000 from $525.5 million for the three-month period ended March 31, 1999,
accompanied by higher average yields paid on those deposits which increased by 4
basis points to 3.33% from 3.29%. The increase in deposit interest expense was
accompanied by higher interest expense on borrowings from the Federal Home Loan
Bank ("FHLB"). The average balance of FHLB borrowings increased by $76.8 million
to $131.4 million for the 2000 period, from $54.6 million in 1999, while the
average rate paid on these borrowings increased 20 basis points to 5.72% from
5.52%.
Net Interest Income. For the three months ended March 31, 2000, net
interest income was $8.2 million compared to $7.6 million for the three months
ended March 31, 1999, an increase of $645,000 or 8.5% which was caused by a $2.0
million increase in interest income partially offset by a $1.3 million increase
in interest expense. The increase in net interest income was primarily
attributable to an $87.1 million increase in total earning assets to $794.0
million from $706.9 million, partially offset by a $2.7 million decline in net
earning assets (interest-earning assets less interest-bearing liabilities). The
Company's net interest margin declined 14 basis points to 4.14% from 4.28%. and
the net interest rate spread declined 15 basis points 3.56% from 3.71%.
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 appropriate level
of the allowance for loan losses, management considers 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. For example, the loan loss allowance and provision
take into account the continuing growth in the commercial loan portfolio.
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 $450,000 and $360,000 in loan loss provisions during the
three months ended March 31, 2000 and 1999, respectively.
14
<PAGE>
Non-Interest Income. Non-interest income is composed primarily of fee
income for bank services, and also includes gains and losses from the sale of
loans and securities. Total non-interest income increased by $29,000 or 3.8%, to
$794,000 for the three months ended March 31, 2000 from $765,000 for the three
months ended March 31, 1999, reflecting increased fees collected on loans and
ATM usage by non-Provident Bank customers. These increases were partially offset
by a decrease in income from loan servicing.
Non-Interest Expense. For the three months ended March 31, 2000,
non-interest expense was $6.6 million, equal to total expense for the three
months ended March 31, 1999. However, the components were somewhat different.
Non-recurring expenses of approximately $522,000 were incurred in the three
months ended March 31, 1999 in connection with the conversion to a new computer
system. The absence of these costs in the three months ended March 31, 2000 was
offset by current period costs associated with the opening of two new branches,
establishment of a trust division which began operations on March 10, 2000, and
the Company's final preparations for Year 2000.
Income Taxes. Income tax expense was $691,000 for the three months
ended March 31, 2000 compared to $492,000 for the same period in 1999. The
effective tax rates were 36.0% and 37.1%, respectively.
Comparison of Operating Results for the
Six Months Ended March 31, 2000 and March 31, 1999
Net Income. For the six months ended March 31, 2000, net income was
$2.6 million or $0.33 per common share, an increase of $1.1 million or 68.2%
from net income of $1.6 million for the six months ended March 31, 1999.
Excluding special pre-tax charges of $1.1 million for expenses related to the
conversion of computer systems and $371,000 for the establishment of the
Employee Stock Ownership Plan ("ESOP"), after-tax net income would have been
approximately $2.5 million for the six months ended March 31, 1999.
Interest Income. Interest income for the six months ended March 31,
2000 grew by $3.7 million over the same period last year, to $28.8 million,
primarily due to increased loan volume, as well as the acquisition over time of
higher yielding securities and the upward adjustment of rates earned on variable
rate loans. Average interest-earning assets for the six months ended March 31,
2000 were $787.5 million, or $96.7 million higher than average interest-earning
assets in the six months ended March 31, 1999 of $690.8 million, an increase of
14.0 %. Average loan balances grew by $71.7 million, while average balances of
securities and other earning assets increased by $25.0 million.
The increase in interest income was primarily due to a $2.8 million or
14.8% increase in income from loans to $22.0 million for the six months ended
March 31, 2000, from $19.2 million for the six months ended March 31, 1999. The
higher total interest income also reflected a $904,000 or 15.4% increase in
income from securities and other earning assets, to $6.8 million for the six
months ended March 31, 2000, from $5.9 million for the six months ended March
31,
15
<PAGE>
1999. The increase in income from loans was attributable to a $71.7 million
increase in the average loan balance to $569.2 million from $497.5 million,
while average yields remained substantially unchanged from the prior six-month
period. The increase in average loan balances reflects a $34.5 million, or
27.1%, increase in the average commercial loan portfolio, as well as a $37.2
million, or 10.1%, increase in the average balance of residential mortgages and
consumer loans. The $904,000 increase in income from securities and other
earning assets was attributable to a $25.1 million increase in the average
balance of these assets to $218.4 million in 2000 from $193.3 million in 1999,
as well as an 11 basis point increase in the average yield to 6.20% from 6.09%.
Interest Expense. Interest expense for the six months ended March 31,
2000 was $12.5 million, $2.2 million higher than the same period during the
previous fiscal year, due primarily to higher balances in wholesale borrowings,
which carry higher interest rates than the Bank's core deposits, and the
continuing rise in overall interest rates.
The average rate paid on total interest-bearing liabilities in the 2000
period was 3.76%, compared to 3.57% in the 1999 period. Average total
interest-bearing liabilities also increased to $665.5 million for the period
ended March 31, 2000, compared to an average of $580.9 million for the prior
period, an increase of $84.6 million, or 14.6%. Interest expense on deposits
decreased by $31,000, despite an increase in average interest-bearing deposits
to $538.2 million for the six-month period ended March 31, 2000 from $530.2
million for the six-month period ended March 31, 1999, due to lower average
yields on those deposits, which declined by 7 basis points to 3.31%, from 3.38%.
The slight reduction in deposit interest expense was more than offset by higher
interest expense on borrowings from the FHLB. The average balance of FHLB
borrowings increased by $76.6 million to $127.3 million for the 2000 period,
from $50.7 million in 1999, while the average rate paid on these borrowings
increased 10 basis points to 5.69% from 5.59%.
Net Interest Income. Net interest income for the six months ended March
31, 2000 was $16.3 million, compared to $14.7 million for the six months ended
March 31, 1999, an increase of $1.6 million or 10.8%. This increase in net
interest income was primarily attributable to a $12.1 million increase in net
earning assets (interest-earning assets less interest-bearing liabilities),
partially offset by a 15 basis point decrease in the net interest rate spread to
3.56% from 3.71%. The Company's net interest margin declined to 4.14% in the six
months ended March 31, 2000 from 4.28% in the six months ended March 31, 1999.
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 provision for loan losses was
$900,000 for the current six months, compared to $720,000 for the same six
months in the prior year.
Non-Interest Income. Non-interest income for the six months ended March
31, 2000 was $1.6 million, an increase of $63,000 over non-interest income for
the six months ended March
16
<PAGE>
31, 1999. Within this category, bank service fees and other income increased
$39,000 and loan servicing income increased $24,000.
Non-Interest Expenses. Non-interest expenses for the six months ended
March 31, 2000 were $13.0 million, or $96,000 less than expenses for the six
months ended March 31, 1999. Although the total expenses for the respective
six-month periods were comparable, the components were different. During the
six-month period last year, expenses of $1.1 million were incurred in connection
with the conversion of computer systems, and ESOP expense of $371,000 was
recognized for shares allocated to employees for the full plan year ended
December 31, 1998. The absence of these costs in the six months ended March 31,
2000 was substantially offset by current period expenses associated with opening
two new branches, establishment of a trust division which began operations on
March 10, 2000, and the Company's final preparations for Year 2000.
Income Taxes. Income tax expense was $1.4 million for the six months
ended March 31, 2000 compared to $919,000 for the same period in 1999. The
effective tax rates were 34.9% and 37.0%, respectively.
Year 2000 Considerations
The following information constitutes a "Year 2000 Readiness
Disclosure" under the Year 2000 Information and Readiness Act.
The Company, like all companies that utilize computer technology, faced
the significant challenge in recent years of ensuring that its computer systems
would be able to process time-sensitive data accurately beyond the Year 1999
(referred to as the "Year 2000 issue"). Although no guaranty can be given that
all internal systems and/or third parties will not have some
as-yet-to-be-identified problem due to the Year 2000 issue, as of this date, it
appears the date change occurred without incident.
Monitoring and managing the Year 2000 issue resulted, and may result,
in additional direct and indirect costs for the Company. Direct costs have
included charges by third-party software vendors for product enhancements, costs
involved in testing software products for Year 2000 compliance and rental of
equipment such as generators. Indirect costs have principally consisted of the
time devoted by existing employees in monitoring software vendor progress,
testing enhanced software products, and implementing contingency plans, and the
implied cost of maintaining higher than usual liquidity over the year end. The
Company's direct and indirect costs of addressing the Year 2000 issue have been
charged to expense as incurred, except for costs incurred in the purchase of new
software or hardware, which were capitalized. As of May 1, 2000, based on
knowledge as of the preparation date of this report, total direct and indirect
Year 2000 costs are estimated to have been approximately $200,000.
17
<PAGE>
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 proceeds from maturities of securities and short-term
investments and the sale of fixed-rate loans in the secondary mortgage market.
While maturities and scheduled amortization of loans and securities, and
proceeds from borrowings, are predictable sources of funds, other funding
sources such as deposit inflows, mortgage prepayments and mortgage loan sales
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 six months
ended March 31, 2000, loan originations totaled $58.7 million or $63.2 million
less than the $121.9 million originated during the six months ended March 31,
1999 when lower interest rates encouraged extensive refinancing activity.
Purchases of securities totaled $40.5 million and $38.6 million for the six
months ended March 31, 2000 and 1999, respectively. In fiscal 2000, these
investing activities were funded primarily by wholesale borrowings, by deposit
growth and principal repayments on loans and securities. During the six months
ended March 31, 1999, customary funding was supplemented by the stock offering
funds, which were received during the quarter ended December 31, 1998. Loan
origination commitments totaled $24.8 million at March 31, 2000. The Company
anticipates that it will have sufficient funds available to meet current loan
commitments.
The level of interest rates generally affects deposit flows, the
interest rates and products offered by local competitors, and other factors. The
net increase in total deposits for the six months ended March 31, 2000 was $18.8
million, compared to $4.7 million for the six months ended March 31, 1999.
The Company monitors its liquidity position on a daily basis. Excess
short-term liquidity, if any, is usually invested in overnight federal funds.
The Company generally remains fully invested and utilizes additional sources of
funds through FHLB advances, which amounted to $129.4 million at March 31, 2000.
At March 31, 2000, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $77.5 million, or 9.3% of adjusted
assets (which is above the required level of $33.5 million, or 4.0%) and a
risk-based capital level of $83.6 million, or 16.7% of risk-weighted assets
(which is above the required level of $40.1 million, or 8.0%). These capital
18
<PAGE>
requirements, which are applicable to the Bank only, do not consider additional
capital retained at the holding company level.
19
<PAGE>
The following table sets forth the Bank's regulatory capital position
at March 31, 2000 and September 30, 1999, compared to OTS requirements.
<TABLE>
<CAPTION>
OTS Requirements
----------------------------------------------
Minimum Capital For Classification
Bank Actual Adequacy as Well Capitalized
-------------------- -------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
March 31, 2000
Tangible capital $77,493 9.3% $12,546 1.5% $ -- -- %
Tier 1 (core) capital 77,493 9.3 33,456 4.0 41,821 5.0
Risk-based capital:
Tier 1 77,493 15.5 -- -- 30,062 6.0
Total 83,553 16.7 40,083 8.0 50,104 10.0
September 30, 1999
Tangible capital $76,894 9.6% $12,069 1.5% $ -- -- %
Tier 1 (core) capital 76,894 9.6 32,184 4.0 40,230 5.0
Risk-based capital:
Tier 1 76,894 15.9 -- -- 28,986 6.0
Total 82,935 17.2 38,648 8.0 48,310 10.0
</TABLE>
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 the assets and liabilities are sensitive to changes in
interest rates. There have been no material changes in the Company's interest
rate risk position since September 30, 1999. 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.
20
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any pending legal proceedings other than
as disclosed in previous filings and other than routine legal proceedings
occurring in the ordinary course of business. Management believes aggregate
amounts involved to be immaterial to the Company's consolidated financial
condition and operations.
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
On February 22, 2000, the Company held its annual meeting of
stockholders for the purpose of the election of four Directors to three year
terms and one Director to a two year term, the approval of the Bank's 2000 Stock
Option Plan and 2000 Recognition and Retention Plan, and the ratification of the
appointment of KPMG LLP as the Company's independent auditors for the fiscal
year ending September 30, 2000.
21
<PAGE>
The number of votes cast at the meeting as to each matter acted upon
was as follows:
VOTES VOTES
FOR WITHHELD
--------- --------------
1. Election of Directors:
Judith Hershaft 7,197,406 28,422
Thomas F. Jauntig, Jr. 7,197,906 27,922
Donald T. McNelis 7,198,406 27,422
Richard A. Nozell 7,198,516 27,132
Burt Steinberg 7,197,406 27,542
VOTES VOTES VOTES BROKER
FOR AGAINST ABSTAINING NON-VOTES
----------- ---------- ------------ ---------
2. Approval of the
Bank's 2000 6,329,723 212,297 29,701 654,107
Stock Option Plan
3. Approval of the
Bank's 2000 6,398,589 130,928 42,235 654,107
Recognition and
Retention Plan
4. Ratification of the
Appointment of 7,181,097 25,043 19,688 --
KPMG LLP as
the Company's
Independent Auditors
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27-Financial Data Schedule
(submitted only with filing in electronic format)
b) Reports on Form 8-K
None
22
<PAGE>
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: May 9, 2000
23
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 15,580
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 166,206
<INVESTMENTS-CARRYING> 56,078
<INVESTMENTS-MARKET> 55,151
<LOANS> 573,518
<ALLOWANCE> 6,954
<TOTAL-ASSETS> 844,193
<DEPOSITS> 605,441
<SHORT-TERM> 129,446
<LIABILITIES-OTHER> 13,158
<LONG-TERM> 0
828
0
<COMMON> 0
<OTHER-SE> 85,498
<TOTAL-LIABILITIES-AND-EQUITY> 844,193
<INTEREST-LOAN> 22,048
<INTEREST-INVEST> 6,511
<INTEREST-OTHER> 261
<INTEREST-TOTAL> 28,820
<INTEREST-DEPOSIT> 8,897
<INTEREST-EXPENSE> 12,517
<INTEREST-INCOME-NET> 16,303
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,010
<INCOME-PRETAX> 4,034
<INCOME-PRE-EXTRAORDINARY> 4,034
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,627
<EPS-BASIC> 0.33
<EPS-DILUTED> 0.33
<YIELD-ACTUAL> 0
<LOANS-NON> 3,880
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,202
<CHARGE-OFFS> 173
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 6,954
<ALLOWANCE-DOMESTIC> 6,954
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
