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, 1999
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 8,225,000 as of
December 31, 1999
<PAGE>
PROVIDENT BANCORP, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED DECEMBER 31, 1999
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition at
December 31, 1999 and September 30, 1999 3-4
Consolidated Statements of Income for the
Three Months Ended December 31, 1999 and 1998 5
Consolidated Statement of Changes in Stockholders' Equity
For the Three Months Ended December 31, 1999 6
Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 1999 and 1998 7-8
Notes to Consolidated Financial Statements 9-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
---- ----
Assets
<S> <C> <C>
Cash and due from banks $ 20,993 $ 11,838
Securities:
Available for sale, at fair value (amortized cost of $156,185 at
December 31, 1999 and $150,792 at September 30, 1999) 152,242 148,387
Held to maturity, at amortized cost (fair value of $52,890 at 53,756 56,782
December 31, 1999 and $56,479 at September 30, 1999)
---------------- -------------
Total securities 205,998 205,169
Loans:
One- to four-family residential mortgage loans 343,153 344,731
Commercial real estate, commercial business and
construction loans 168,417 160,297
Consumer loans 67,417 67,695
Allowance for loan losses (6,592) (6,202)
--------------- ---------------
Total loans, net 572,395 566,521
--------------- ---------------
Accrued interest receivable, net 4,402 5,656
Federal Home Loan Bank stock, at cost 6,525 6,176
Premises and equipment, net 9,028 8,232
Other assets 11,089 10,926
--------------- ---------------
Total assets $ 830,430 $ 814,518
=============== ==============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION, CONTINUED
(Unaudited)
(In thousands, except share data)
December 31, September 30,
Liabilities and Stockholders' Equity 1999 1999
---- ----
Liabilities:
Deposits:
<S> <C> <C>
Retail demand and NOW deposits $88,399 $82,830
Commercial demand deposits 24,147
23,483
Savings and money market deposits 241,986 241,842
Certificates of deposit 237,624 237,821
Total deposits 591,492 586,640
Borrowings 125,481 117,753
Mortgage escrow funds 13,617 10,489
Other 10,132 9,337
---------- ----------
Total liabilities 740,722 724,219
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 36,283 36,262
Unallocated common stock held by employee stock ownership
plan ("ESOP") (3,008) (3,102)
Treasury stock, at cost (55,000 shares) (891) --
Retained earnings 58,904 57,754
Accumulated other comprehensive loss, net of tax benefit of $1,604
at December 31, 1999 and $961 at September 30, 1999 (Note 3) (2,408) (1,443)
----------- ------------
Total stockholders' equity 89,708 90,299
----------- ------------
Total liabilities and stockholders' equity $ 830,430 $ 814,518
=========== ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Three Months
(In thousands, except per share data) Ended December 31,
1999 1998
---- ----
Interest and dividend income:
<S> <C> <C>
Loans 11,016 9,513
Securities 3,145 2,903
Other earning assets 137 92
--------- ---------
Total interest and dividend income 14,298 12,508
--------- ---------
Interest expense:
Deposits 4,444 4,661
Borrowings 1,750 672
--------- ---------
Total interest expense 6,194 5,333
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Net interest income 8,104 7,175
Provision for loan losses 450 360
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Net interest income after 7,654 6,815
--------- ---------
provision for loan losses
Non-interest income:
Loan servicing 168 115
Banking service fees and other income 679 697
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Total non-interest income 847 812
--------- ---------
Non-interest expense:
Compensation and employee benefits 3,010 2,933
Occupancy and office operations 946 840
Advertising and promotion 239 289
Data processing 399 304
Amortization of branch purchase premiums 430 430
Other 1,364 1,676
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Total non-interest expense 6,388 6,472
--------- ---------
Income before income tax expense 2,113 1,155
Income tax expense 715 427
--------- ---------
Net income $ 1,398 $ 728
========= =========
Basic earnings per common share (Note 4) $ 0.17
</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 THREE MONTHS ENDED DECEMBER 31, 1999
(Unaudited)
(In thousands, except share data)
Accumulated
Additional Unallocated Other
Preferred Common Paid-In ESOP Treasury Retained Comprehensive
Stock Stock Capital Shares 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 three-month
period -- -- -- -- -- 1,398 -- 1,398
Treasury stock purchases
(55,000 shares) -- -- -- -- (891) -- -- (891)
ESOP shares allocated or
released for allocation (7,728
shares) -- -- 21 94 -- -- -- 115
Change in net unrealized loss on
securities available for sale, net
of taxes of $643 -- -- -- -- -- -- (965) (965)
Cash dividends ($0.03 per share) -- -- -- -- -- (248) -- (248)
-------- ------ --------- ------- ------ ------- ------- -------
Balance at December 31, 1999 $ -- $ 828 $ 36,283 $(3,008) $ (891) $58,904 $(2,408) $89,708
======== ====== ========= ======= ====== ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the Three Months
(In thousands) Ended December 31,
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,398 $ 728
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and
equipment 389 366
Net amortization of premiums and discounts on
securities 53 80
ESOP expense 115 371
Provision for loan losses 450 360
Amortization of branch purchase premiums 430 430
Proceeds from sales of loans held for sale 824 9,097
Originations of loans held for sale (361) (9,042)
Deferred income tax (benefit) expense (447) 176
Net changes in accrued interest receivable
and payable 1,676 (13)
Net decrease (increase) in other assets 582 (580)
Net increase (decrease) in other liabilities 373 (892)
Other adjustments, net 34 2
-------- ------
Net cash provided by operating activities 5,516 1,083
Cash flows from investing activities:
Purchases of securities available for sale (18,583) (28,530)
Proceeds from maturities, calls and principal payments:
Securities available for sale 8,077 15,183
Securities held to maturity 3,010 6,753
Proceeds from sales of securities available
for sale 5,008 --
Loan originations (31,470) (76,615)
Loan repayments 24,562 38,520
Purchases of Federal Home Loan Bank stock (349) --
Purchases of premises and equipment (1,185) (395)
-------- ------
Net cash used in investing activities (10,930) (45,084)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROVIDENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
(In thousands)
For the Three Months
Ended December 31,
1999 1998
------ ------
Cash flows from financing activities:
<S> <C> <C>
Net increase in deposits $4,852 $21,952
Net increase (decrease) in borrowings 7,728 (19,317)
Net increase in mortgage escrow funds 3,128 5,963
Proceeds from stock subscriptions -- 8,036
Treasury shares purchased 891) --
Cash dividends (248) --
------- -------
Net cash provided by financing 14,569 66,634
------- -------
activities
Net increase in cash and cash equivalents 9,155 22,633
Cash and cash equivalents at beginning of period 11,838 7,572
------- -------
Cash and cash equivalents at end of period $20,993 $30,205
======= =======
Supplemental information:
Interest paid $ 5,774 $ 4,962
Income taxes paid 412 746
Transfers of loans to real estate owned 87 --
------- -------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<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
approximately 309,120 shares. The ESOP completed its purchase of 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 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 December 31, 1999 are not necessarily
indicative of results to be expected for the entire fiscal year ending September
30, 2000.
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.
<PAGE>
3. Comprehensive Income
- -------------------------
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income", which establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses). In accordance with the provisions of SFAS No. 130,
the Company's total comprehensive income was $433,000 and $357,000 for the three
months ended December 31, 1999 and 1998, respectively. The difference between
the Company's net income and total comprehensive income for these periods equals
the change in the after-tax net unrealized loss on securities available for sale
during the applicable periods. 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 December 31, 1999 and
September 30, 1999.
4. Earnings Per Common Share
- ------------------------------
The Company completed the reorganization and offering on January 7, 1999.
As a result, earnings per share data is presented herein only for the three
months ended December 31, 1999. Weighted average common shares of 8,024,511 were
used in calculating basic earnings per share for the quarter ended December 31,
1999, which includes all shares issued to the mutual holding company but
excludes unallocated ESOP shares that have not been released or committed to be
released to participants. The Company had no potentially dilutive securities at
December 31, 1999 and, accordingly, diluted earnings per share is not
applicable.
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.
<PAGE>
Comparison of Financial Condition at December 31, 1999 and September 30, 1999
Total assets increased to $830.4 million at December 31, 1999 from $ 814.5
million at September 30, 1999, an increase of $15.9 million, or 2.0%. Cash
levels increased to $21.0 million at December 31, 1999, from $11.8 million at
September 30, 1999, an increase of $9.2 million, primarily due to efforts to
maintain high liquidity levels over the calendar year end. Subsequent to the
date change, cash levels were brought back to customary levels. Asset growth was
also attributable to an increase in loans receivable.
Net loans receivable increased by $5.9 million in the three months ended
December 31, 1999 to $572.4 million from $566.5 million at September 30, 1999,
led by an increase of $8.1 million in the commercial loan portfolio. The
increase in the commercial loan portfolio was attributable to increases in
commercial mortgage loans of $3.3 million, construction loans of $1.6 million
and commercial business loans of $3.3 million. Partially offsetting these
increases were decreases of $1.6 million in residential mortgage loans and
278,000 in consumer loans. The allowance for loan losses increased by $390,000
to $6.6 million at December 31, 1999 from $ 6.2 million at September 30, 1999.
The total securities portfolio increased by $829,000 to $206.0 million at
December 31, 1999 from $205.2 million at September 30, 1999. This net increase
reflects a $3.9 million increase in available-for-sale securities and a $3.0
million decrease in securities held to maturity.
Total deposits increased by $4.9 million to $591.5 million at December 31,
1999 from $586.6 million at September 30, 1999, primarily due to the increase in
total transaction account (demand and NOW) balances, which increased by $4.9
million, or 4.6%, to $111.9 million at December 31, 1999. Total savings account
and money market account balances increased by $144,000, to $242.0 million at
December 31, 1999 from $241.8 million at September 30, 1999. During the same
time period, total certificates of deposit decreased $197,000 to $237.6 million
at December 31, 1999 from $237.8 million at September 30, 1999. Borrowings
(Federal Home Loan Bank advances) increased $7.7 million during the three month
period to $125.5 million at December 31, 1999 from $117.8 million at September
30, 1999.
Stockholders' equity decreased by $591,000 to $89.7 million at December 31,
1999 compared to $90.3 million at September 30, 1999. Rising interest rates
during the period resulted in a $965,000 decrease in stockholders' equity from
higher net unrealized losses on the available for sale securities portfolio. In
addition, cash dividends of $248,000 were paid, and treasury stock purchases
associated with the Company's previously announced stock buy-back program
totaled $891,000 for the three-month period. Net income of $1.4 million for the
three-month period partially offset these decreases in equity.
<PAGE>
Comparison of Operating Results for the Three Months Ended December 31, 1999 and
December 31, 1998
Net Income. For the three months ended December 31, 1999, net income was
$1.4 million or $0.17 per common share, an increase of $670,000 or 92.0% from
net income of $728,000 for the three months ended December 31, 1998. Excluding
special charges of $592,000 for expenses related to the conversion of computer
systems and $371,000 for the establishment of the Employee Stock Ownership Plan
("ESOP"), net income after taxes would have been approximately $1.3 million for
the three months ended December 31, 1998.
Interest Income. Total interest income grew by $1.8 million, or 14.3%, over
the prior period, primarily due to increased loan volume, the acquisition over
time of higher yielding securities and the upward adjustment of variable rate
loans. Interest income was $14.3 million for the three months ended December 31,
1999 compared to $12.5 million for the three months ended December 31, 1998. The
increase was primarily due to a $1.5 million or 15.8% increase in income from
loans to $11.0 million for the three months ended December 31, 1999, from $9.5
million for the three months ended December 31, 1998. The higher total interest
income also reflected a $287,000 or 9.6% increase in income from securities and
other earning assets, to $3.3 million for the three months ended December 31,
1999, from $3.0 million for the three months ended December 31, 1998. The
increase in income from loans was attributable to an $88.7 million increase in
the average loan balance to $568.8 million from $480.1 million, partially offset
by an 18 basis point decrease in the average yield to 7.68% from 7.86%. The
increase in average loan balances reflects a $48.3 million, or 13.4%, increase
in the average balance of residential mortgage loans, as well as a $40.4
million, or 33.6%, increase in the average commercial loan portfolio. The
$287,000 increase in income from securities and other earning assets was
attributable to a $17.8 million increase in the average balance of these assets
to $212.8 million in 1999 from $195.0 million in 1998, as well as a 3 basis
point increase in the average yield to 6.12% from 6.09%.
Interest Expense. Total interest expense increased by $861,000, to $6.2
million for the three months ended December 31, 1999, from $5.3 million for the
three months ended December 31, 1998, an increase of 16.1%. This increase was
primarily due to higher balances in wholesale borrowings, which carry higher
interest rates than the Bank's core deposits. The average rate paid on total
interest-bearing liabilities in the 1999 period was 3.71%, compared to 3.64% in
the 1998 period. Average total interest-bearing liabilities also increased to
$661.7 million for the period ended December 31, 1999, compared to an average of
$580.9 million for the prior period, an increase of $80.8 million, or 13.9%.
Interest expense on deposits decreased by $217,000, despite an increase in
average interest bearing deposits to $538.5 million for the three-month period
ended December 31, 1999 from $534.0 million for the three-month period ended
December 31, 1998, due to lower average yields on those deposits, which declined
to 3.27%, from 3.46%, a decrease of 19 basis points. The reduction in deposit
interest expense was more than offset by higher interest expense on borrowings
from the Federal Home Loan Bank ("FHLB"). The average balance of FHLB borrowings
increased by $76.4 million to $123.2 million for the 1999
<PAGE>
period, from $46.8 million in 1998, while the average rate paid on these
borrowings decreased 6 basic points to 5.63% from 5.69%.
Net Interest Income. For the three months ended December 31, 1999 and 1998,
net interest income was $8.1 million and $7.2 million, respectively. The
$929,000 increase in net interest income was primarily attributable to a $25.6
million increase in net earning assets (interest-earning assets less
interest-bearing liabilities), partially offset by a 17 basis point decrease in
the net interest rate spread to 3.54% from 3.71%. The Company's net interest
margin declined to 4.11% in the three months ended December 31, 1999 from 4.22%
in the three months ended December 31, 1998.
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 past and anticipated loss
experience, evaluations of real estate collateral, current and anticipated
economic conditions, volume and type of lending, and the levels of
non-performing and other classified loans. 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 December 31, 1999
and 1998, respectively.
Activity in the allowance for loan losses is summarized as follows for the
quarters ended December 31:
1999 1998
---- ----
(Dollars in thousands)
Balance at beginning of period $ 6,202 $ 4,906
Provision for losses 450 360
Charge-offs (67) (45)
Recoveries
7 132
---------- --------
Balance at end of period $ 6,592 $ 5,353
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.
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).
<PAGE>
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
---- ----
(Dollars in thousands)
Non-accrual loans:
<S> <C> <C>
One-to-four family residential mortgage loans $ 2,176 $2,839
Commercial real estate, commercial business and
construction loans 1,409 1,368
Consumer loans 370 429
--------- -------
Total non-performing loans 3,955 4,636
Real estate owned:
One- to four-family residential 490 403
--------- -------
Total non-performing assets $ 4,445 $ 5,039
========= =======
Ratios:
Non-performing loans to total loans 0.69% 0.82%
Non-performing assets to total assets 0.54 0.62
Allowance for loan losses to total non-performing
loans 166.7 133.8
Allowance for loan losses to total loans 1.14 % 1.08%
========= =======
</TABLE>
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 $35,000 or 4.3%, to
$847,000 for the three months ended December 31, 1999 from $812,000 for the
three months ended December 31, 1998. The increase reflected primarily increased
fees collected on loans and implementation of a surcharge on ATM usage by
non-Provident Bank customers. These increases were partially offset by a
decrease in the gain on sale of loans, as residential loan volumes fell due to
higher interest rates.
Non-Interest Expenses. Non-interest expenses declined by $84,000, to $6.4
million for the three months ended December 31, 1999 from $6.5 million for the
three months ended December 31, 1998. Although the total expenses for the two
quarters were comparable, the components were somewhat different. Non-recurring
expenses of approximately $592,000 were incurred in the three months ended
December 31, 1998 in connection with the conversion to a new computer system.
Also during the prior period, 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 three months ended December 31, 1999 was
substantially offset by current period expenses associated with opening two new
branches, establishment of a trust division, and the Company's preparation for
the Year 2000 issue.
<PAGE>
Income Taxes. Income tax expense was $715,000 for the three months ended
December 31, 1999 compared to $427,000 for the same period in 1998. The
effective tax rates were 33.8% 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 over the past year 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"). Beginning more than two years before the
date change, the Company conducted comprehensive reviews of its computer systems
to identify systems that could be affected by the Year 2000 issue, and developed
an implementation plan to modify or replace the affected systems and test them
for Year 2000 readiness. The Company's plan included actions to identify Year
2000 issues attributable to its own systems as well as those of third parties
who supply products and services to the Company, or who have material business
relationships with the Company. 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 February 8, 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 $191,000.
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.
<PAGE>
The Company's primary sources of funds are deposits, proceeds from
principal and interest payments on loans and securities, and to a lesser extent,
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 three months
ended December 31, 1999 and 1998, loan originations totaled $31.5 million and
$76.6 million, respectively, and purchases of securities totaled $18.6 million
and $28.5 million, respectively. In 1999, these investing activities were funded
primarily by wholesale borrowings, by deposit growth and principal repayments on
loans and securities. During the quarter ended December 31, 1998, customary
funding was supplemented by the stock offering funds, which were received during
that three-month period. Loan origination commitments totaled $12.8 million at
December 31, 1999. 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 three months ended December 31, 1999 was $4.9
million, compared to $22.0 million for the three months ended December 31, 1998.
The Company monitors its liquidity position on a daily basis. Excess
short-term liquidity, if any, is usually invested in overnight federal funds
sold. The Company generally remains fully invested and utilizes additional
sources of funds through FHLB advances, which amounted to $125.5 million at
December 31, 1999.
At December 31, 1999, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $78.7 million, or 9.6% of adjusted
assets (which is above the required level of $32.9 million, or 4.0%) and a
risk-based capital level of $84.9 million, or 17.3% of risk-weighted assets
(which is above the required level of $39.2 million, or 8.0%). These capital
requirements, which are applicable to the Bank only, do not consider additional
capital retained at the holding company level.
<PAGE>
The following table sets forth the Bank's regulatory capital position at
December 31, 1999 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)
December 31, 1999
- -----------------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $ 78,723 9.6% $12,338 1.5% $ - -%
Tier 1 (core) capital 78,723 9.6 32,901 4.0 41,126 5.0
Risk-based capital:
Tier 1 78,723 16.1 - - 29,437 6.0
Total 84,861 17.3 39,250 8.0 49,063 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.
<PAGE>
Part II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
The Bank is a defendant in a lawsuit, Patrick Gawrysiak a/k/a Patrick Gray
v. Provident Bank, brought by a prospective purchaser of a real estate owned
property, alleging breach of contract, negligence, consumer fraud and civil
conspiracy. The plaintiff brought the lawsuit in the Superior Court of New
Jersey, Bergen County Law Division, and is seeking compensatory damages of
$500,000, exemplary damages of $1.0 million, "nominal" damages of $1.0 million
and punitive damages of $1.0 million. The Bank retained counsel and vigorously
contested the claim. On September 24, 1999, the Bank's motion for summary
judgment was granted dismissing the lawsuit for lack of personal jurisdiction
over the Bank. Plaintiff has appealed that decision. Management continues to
believe the claim is baseless and has retained counsel to vigorously contest the
plaintiff's appeal.
The Company is not involved in any other pending legal proceedings other
than routine legal proceedings occurring in the ordinary course of business
which, in the aggregate, involved amounts which are believed by management to be
immaterial to the 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
None
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)
<PAGE>
Reports on Form 8-K
None
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: February 11, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Sep-30-2000
<PERIOD-END> Dec-31-1999
<CASH> 18,793
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 152,242
<INVESTMENTS-CARRYING> 53,756
<INVESTMENTS-MARKET> 52,890
<LOANS> 572,395
<ALLOWANCE> 6,592
<TOTAL-ASSETS> 830,430
<DEPOSITS> 591,492
<SHORT-TERM> 50,000
<LIABILITIES-OTHER> 23,749
<LONG-TERM> 75,481
<COMMON> 828
0
0
<OTHER-SE> 88,880
<TOTAL-LIABILITIES-AND-EQUITY> 830,430
<INTEREST-LOAN> 11,016
<INTEREST-INVEST> 3,145
<INTEREST-OTHER> 137
<INTEREST-TOTAL> 14,298
<INTEREST-DEPOSIT> 4,444
<INTEREST-EXPENSE> 6,194
<INTEREST-INCOME-NET> 8,104
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,388
<INCOME-PRETAX> 2,113
<INCOME-PRE-EXTRAORDINARY> 2,113
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,398
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.17
<YIELD-ACTUAL> 4.11
<LOANS-NON> 3,955
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,202
<CHARGE-OFFS> 67
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 6,592
<ALLOWANCE-DOMESTIC> 6,592
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
