<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File
September 30, 1996 No. 1-8019
P R O V I D E N T B A N C O R P , I N C .
Incorporated under IRS Employer I.D.
the Laws of Ohio No. 31-0982792
One East Fourth Street, Cincinnati, Ohio 45202
Phone: 513-579-2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common
stock, without par value, outstanding at October 31, 1996 is
26,394,826.
Please address all correspondence to:
John R. Farrenkopf
Vice President and Chief Financial Officer
Provident Bancorp, Inc.
One East Fourth Street
Cincinnati, Ohio 45202
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Cash and Noninterest Bearing Deposits $222,861 $213,594
Federal Funds Sold and Reverse Repurchase Agreements 1,000 -
Investment Securities Available for Sale
(amortized cost - $1,066,201 and $955,994) 1,064,373 959,904
Loans and Leases (Net of Unearned Income):
Commercial Lending:
Commercial and Financial 2,364,495 2,250,542
Mortgage 470,305 448,906
Construction 219,092 266,354
Lease Financing 139,913 128,686
Consumer Lending:
Instalment 952,876 1,000,940
Residential 380,466 466,422
Lease Financing 520,294 334,226
Total Loans and Leases 5,047,441 4,896,076
Reserve for Loan and Lease Losses (63,665) (60,235)
Net Loans and Leases 4,983,776 4,835,841
Premises and Equipment 104,384 90,976
Other Assets 107,526 105,036
$6,483,920 $6,205,351
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest Bearing $493,365 $523,631
Interest Bearing 3,924,778 3,654,920
Total Deposits 4,418,143 4,178,551
Short-Term Debt 770,769 637,240
Long-Term Debt 665,579 820,083
Accrued Interest and Other Liabilities 158,267 136,940
Total Liabilities 6,012,758 5,772,814
Shareholders' Equity:
Preferred Stock, 5,000,000 Shares Authorized,
Series D, 70,272 Issued 7,000 7,000
Common Stock, No Par Value, $.44 Stated Value, 60,000,000
Shares Authorized, 26,377,601 and 26,316,617 Issued 11,730 11,703
Capital Surplus 138,672 137,313
Retained Earnings 308,615 265,017
Reserve for Retirement of Capital Securities 6,333 9,000
Treasury Stock, - Shares and 1,689 Shares - (38)
Unrealized Gains (Losses) on Marketable Securities
(net of deferred income tax) (1,188) 2,542
Total Shareholders' Equity 471,162 432,537
$6,483,920 $6,205,351
</TABLE>
<PAGE>
<TABLE>
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands, Except Per Share Amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans and Leases $113,500 $104,119 $333,678 $301,310
Interest on Investment Securities:
Taxable 17,506 13,701 49,750 35,677
Exempt From Federal Income Taxes 161 98 419 293
17,667 13,799 50,169 35,970
Interest on Federal Funds Sold and
Reverse Repurchase Agreements 100 140 830 886
Total Interest Income 131,267 118,058 384,677 338,166
Interest Expense:
Interest on Deposits:
Savings and Demand Deposits 5,137 5,984 15,526 20,051
Time Deposits 42,702 41,806 126,392 123,994
Total Interest on Deposits 47,839 47,790 141,918 144,045
Interest on Short-Term Debt 11,822 10,783 30,538 26,279
Interest on Long-Term Debt 11,231 7,859 35,733 21,036
Total Interest Expense 70,892 66,432 208,189 191,360
Net Interest Income 60,375 51,626 176,488 146,806
Provision for Loan and Lease Losses 14,000 4,000 37,750 9,000
Net Interest Income After Provision
for Loan and Lease Losses 46,375 47,626 138,738 137,806
Noninterest Income:
Service Charges on Deposit Accounts 5,529 4,537 15,711 12,219
Other Service Charges and Fees 6,771 4,525 23,371 15,410
Gain on Sales of Loans and Leases 16,187 1,426 18,310 3,858
Security Gains (Losses) - (92) 96 (92)
Other 3,037 8,329 15,419 10,971
Total Noninterest Income 31,524 18,725 72,907 42,366
Noninterest Expense:
Compensation:
Salaries 16,588 16,153 46,997 43,041
Benefits 2,864 2,127 8,268 6,865
Profit Sharing 918 1,068 2,829 2,738
Occupancy 2,324 2,334 7,151 6,679
Equipment Expense 2,998 2,296 8,162 6,897
Deposit Insurance 8,889 726 10,663 5,080
Professional Fees 4,019 2,714 8,028 5,651
Marketing 2,367 855 4,226 2,835
Other 10,557 8,078 28,078 22,770
Total Noninterest Expense 51,524 36,351 124,402 102,556
Earnings Before Income Taxes 26,375 30,000 87,243 77,616
Applicable Income Taxes 9,100 8,990 30,043 25,131
Net Earnings $17,275 $21,010 $57,200 $52,485
Net Earnings Per Common Share:
Primary $.63 $.85 $2.09 $2.13
Fully Diluted .62 .76 2.05 1.92
Average Primary Shares 27,221 23,935 27,136 23,832
Average Fully Diluted Shares 27,991 27,486 27,852 27,345
</TABLE>
<PAGE>
<TABLE>
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<CAPTION>
Nine Months Ended September 30,
1996 1995
<S> <C> <C>
Operating Activities:
Net Earnings $57,200 $52,485
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Provision for Loan and Lease Losses 37,750 9,000
Provision for Depreciation and Amortization 12,309 9,018
Amortization of Investment Security Discounts (4,735) (606)
Amortization of Unearned Income (28,139) (16,442)
Net (Increase) Decrease in Trading Securities (534) 125
Proceeds from Sale of Loans Held for Sale 332,956 85,245
Origination of Loans Held for Sale (332,376) (83,528)
Realized Gains on Loans Held for Sale (16,269) (964)
Realized Gains on Sale of Loans and Leases (2,041) (2,894)
Realized Investment Security (Gains) Losses (96) 92
Increase in Interest Receivable (1,186) (3,690)
(Increase) Decrease in Accounts Receivable and Other Assets 447 (29,527)
Increase in Interest Payable 5,410 15,400
Increase in Accounts Payable and Other Liabilities 17,925 19,959
Other 104 (2,379)
Net Cash Provided By Operating Activities 78,725 51,294
Investing Activities:
Investment Securities Available for Sale:
Proceeds from Sales 79,398 18,654
Proceeds from Maturities and Prepayments 571,106 142,706
Purchases (676,135) (103,825)
Investment Securities Held to Maturity:
Proceeds from Sales - 416
Proceeds from Maturities and Prepayments - 20,744
Purchases - (244,755)
Net Increase in Loans and Leases (224,646) (433,367)
Proceeds from Sale of Other Real Estate 6,850 2,208
Purchases of Premises and Equipment (28,866) (29,290)
Proceeds from Sales of Premises and Equipment 240 2,305
Net Cash Used In Investing Activities (272,053) (624,204)
Financing Activities:
Net Decrease in Demand and Savings Deposits (90,992) (90,609)
Net Increase in Certificates of Deposit 330,584 73,424
Net Increase in Short-Term Debt 133,529 340,408
Principal Payments on Long-Term Debt (154,914) (25,466)
Proceeds From Issuance of Long-Term Debt 248 150,000
Cash Dividends Paid (16,289) (13,867)
Proceeds from Sale of Common and Treasury Stock 1,429 4,505
Repurchase of Common Stock - (6,109)
Net Cash Provided By Financing Activities 203,595 432,286
Increase (Decrease) in Cash and Cash Equivalents 10,267 (140,624)
Cash and Cash Equivalents at Beginning of Period 213,594 424,575
Cash and Cash Equivalents at End of Period $223,861 $283,951
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $202,779 $175,960
Income Taxes 13,000 9,000
Non-Cash Activity:
Additions to Other Real Estate in Settlement
of Loans and Leases 8,554 539
Reclassification of Operating Leases to (from) Lease Financing 3,439 (4,225)
Securitization of Residential Loans 64,025 -
Interest Only Strip Created from the Sale of Loans 15,689 -
Treasury Stock Reissued To Acquire Business - 1,750
</TABLE>
<PAGE>
PROVIDENT BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary for fair presentation. The
results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.
The financial statements presented herein should be read in
conjunction with the financial statements and notes thereto included
in Provident Bancorp, Inc.'s 1995 annual report on Form 10-K filed
with the Securities and Exchange Commission.
All data relating to Provident Bancorp's common stock and per share
information has been adjusted for a 3-for-2 common stock split
effective May 24, 1996.
Basis of Presentation
The consolidated financial statements include the accounts of
Provident Bancorp, Inc. and its subsidiaries ("Bancorp"), all of which
are wholly owned. All significant intercompany balances and
transactions have been eliminated. Certain reclassifications have been
made to conform to the current year presentation.
The accompanying financial statements have been prepared in accordance
with the instructions to Form 10-Q and therefore do not include all
information and footnotes necessary to be in conformity with generally
accepted accounting principles.
Bancorp adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" on January 1, 1996. This SFAS
requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever circumstances indicate that the
carrying value may not be recoverable. An impairment loss is recorded
when the sum of the expected future cash flows is less than the
carrying amount of the assets. In this situation, an impairment loss
is recorded in the amount of the difference between the carrying
amount and the present value of the expected future cash flows.
SFAS No. 122, "Accounting for Mortgage Servicing Rights" was also
adopted by Bancorp on January 1, 1996. Under this SFAS, when mortgage
loans are originated or purchased by Bancorp and subsequently sold or
securitized with servicing retained, the cost of the loan shall be
allocated between the loan (without servicing) and the fair value of
the servicing. Prior to this SFAS, no costs of the loan were allocated
to the servicing. Additionally, the SFAS specifies how mortgage
<PAGE>
servicing rights and excess servicing rights should be evaluated for
impairment.
The adoption of SFAS No. 121 and SFAS No. 122 had no material impact
on Bancorp's consolidated financial position or results of operations.
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in
October, 1995. The SFAS encourages, but does not require, adoption of
a fair value-based accounting method for stock-based employee
compensation plans. Bancorp elected to continue its accounting in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees", whereby no compensation expense is recognized for the
granting of stock options. Pro forma disclosures of what net earnings
and earnings per share would have been had the new fair value method
been used will be presented in Bancorp's 1996 annual report on Form
10-K.
Stock Options
In 1996, Bancorp adopted a new stock option plan for the issuance of
300,000 shares of common stock to non-executive officers. The terms of
these options are comparable to the terms of the 1988 Stock Option
Plan.
Pursuant to this plan as well as Bancorp's 1988 Stock Option Plan and
1992 Outside Director's Stock Option Plan, options to purchase 662,950
shares of Bancorp common stock were granted during the first nine
months of 1996. The options have exercise prices ranging from $31.75
to $40.49.
Off-Balance Sheet Financial Agreements
In the normal course of business, Bancorp uses various financial
instruments with off-balance sheet risk to manage its interest rate
risk and to meet the financing needs of its customers. At September
30, 1996, these off-balance sheet instruments consisted of standby
letters of credit of $108.4 million, commitments to extend credit of
$1.8 billion and interest rate swaps with a notional amount of $2.2
billion.
Recent Events
On October 8, 1996, Bancorp announced the signing of a definitive
agreement for the acquisition of South Hillsborough Community Bank
("SHCB"). SHCB, which has $40 million in assets, is a Florida state
chartered bank having three offices in Hillsborough County, Florida.
SHCB will become a wholly owned subsidiary of Bancorp. This
transaction will be accounted for as a purchase, and accordingly, the
assets acquired and liabilities assumed will be recorded at estimated
fair value. SHCB shareholders will receive shares of common stock of
Bancorp having an aggregate value of $7,151,900 as a result of the
merger. This transaction is expected to be consummated in late 1996 or
early 1997.
<PAGE>
Bancorp has approximately $136 million of deposits in Florida as of
September 30 through its telebanking program. With the acquisition of
SHCB, it is Bancorp's intention to continue its expansion in Florida
through additional acquisitions and/or internal growth.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Summary
Bancorp's net earnings for the third quarter of 1996 were $17.3
million compared to $21.0 million for the third quarter of 1995. Net
interest income increased by $8.7 million, or 17%, over the comparable
period in 1995. Interest income increased by $13.2 million, or 11%,
which more than offset the $4.5 million, or 7%, increase in interest
expense. The provision for loan and lease losses increased $10.0
million to cover the growth of total loans and leases and expected net
charge-offs during 1996. Noninterest income increased $12.8 million,
or 68%, primarily due to gain on sales of loans and leases.
Noninterest expense increased $15.2 million, or 42%, primarily as a
result of an increase in deposit insurance caused by a one time
assessment of $8.0 million for the capitalization of the Savings
Association Insurance Fund ("SAIF").
Bancorp's net earnings for the first nine months of 1996 were $57.2
million compared to $52.5 million for the first nine months of 1995.
Net interest income increased by $29.7 million, or 20%, over the
comparable period in 1995. Interest income increased by $46.5 million,
or 14%, which more than offset the $16.8 million, or 9%, increase in
interest expense. The provision for loan and lease losses increased
$28.8 million to cover an increase in the balance of total loans and
leases and expected net charge-offs during 1996. Noninterest income
increased $30.5 million, or 72%, primarily due to the increase in
other service charges and fees and gain on sales of loans and leases.
Noninterest expense increased $21.8 million, or 21%, primarily due to
increases in deposit insurance, professional services and other
expense.
<PAGE>
As noted above, gain on sales of loans and leases made a significant
contribution to Bancorp's net income during the third quarter of 1996.
Of the $16.2 million gain recorded during this period, $14.5 million
was realized from the sale of $204.0 million of residential closed end
non-conforming home equity loans originated by Provident Consumer
Financial Services ("PCFS"), a division of The Provident Bank
("Provident"), Bancorp's lead bank. PCFS's goals include the
origination of $800 million of this product within the next year and
the sale of at least $100 million each quarter, market conditions
permitting. The following is a summary of selected operational data
for PCFS for the past five quarters (in millions):
<TABLE>
<CAPTION>
Quarter Ended
Sept. 1996 June 1996 Mar. 1996 Dec. 1995 Sept. 1995
<S> <C> <C> <C> <C> <C>
Loan Originations $107.0 $75.4 $41.2 $31.1 $.3
Loan Sales 204.0 - - - -
Gain on Sale of Loans 14.5 - - - -
Interest and Fees on Loans 4.2 2.8 1.3 .3 -
</TABLE>
The following ratios compare Bancorp's returns on average assets and
average equity for the first nine months of 1996 and for the year
1995.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
<S> <C> <C>
Net Earnings to Average Assets(1) 1.21% 1.29%
Net Earnings to Average Shareholders' Equity(1) 16.94% 18.37%
<FN>
(1)Net earnings for the nine months ended September 30, 1996 have been annualized.
</TABLE>
The ratio of noninterest expense to tax equivalent revenue
("efficiency ratio") was 46.6% for the first nine months of 1996
compared to 56.8% for the first nine months of 1995. For purposes of
calculating the efficiency ratio, noninterest expense excludes non-
recurring expenses of $8.0 million and $.3 million in 1996 and 1995,
respectively. Tax equivalent revenue includes tax equivalent net
interest income and noninterest income but excludes non-recurring
income of $- and $9.8 million in 1996 and 1995, respectively, and
security gains or losses. The improvement in the efficiency ratio was
due primarily to increased noninterest income which grew at a
proportionately greater rate than noninterest expense.
Nonperforming assets as of September 30, 1996 decreased $16.7 million
compared to December 31, 1995, but increased $9.3 million compared to
September 30, 1995. The ratio of nonperforming loans to total loans
and leases was .47% at September 30, 1996, compared to .86% at
December 31, 1995 and .43% at September 30, 1995. The ratio of
nonperforming assets to total loans, leases and other real estate
owned was .62% at September 30, 1996, compared to .98% at December 31,
1995 and .47% at September 30, 1995.
<PAGE>
Net Interest Income
See Table 1 for net interest income on a tax equivalent basis and
Table 2 for consolidated average balances, average rates and net
interest margin.
Net interest income on a tax equivalent basis increased approximately
$29.7 million for the first nine months of 1996 over the comparable
period in 1995. This increase resulted from a $16.5 million increase
due to changes in volume and a $13.2 million increase which was caused
by changes in rates. Volume changes are caused by changes in the
average balances of interest earning assets and interest bearing
liabilities. The net interest margin was 3.96% for the first nine
months of 1996 as compared to 3.82% for the comparable period in 1995.
The improvement in the net interest margin during this period reflects
the decrease in the average rate paid on interest bearing liabilities
of 32 basis points, more than offsetting the decrease in the average
rate received on interest earning assets of 15 basis points. The
decrease in Bancorp's overall rate on interest bearing liabilities was
due to the decline in the rate paid on deposits and long-term debt,
which more than offset an increase in higher cost liabilities. The
decrease in the average rate earned on interest earning assets was due
to a lower average rate earned on commercial and financial loans which
was partially offset by an increase in the average rate earned on
investment securities. Bancorp's interest bearing liabilities have
reacted more quickly to changing interest rates in the environment
than its interest earning assets, causing the net interest margin to
increase. Interest rate swaps increased the net interest margin by 26
basis points during the first nine months of 1996. During the first
nine months of 1995, interest rate swaps decreased the net interest
margin by 15 basis points.
In preparing the net interest margin tables, nonaccrual loan balances
are included in the average balances for loans and leases. Fees
included in interest and fees on loans and leases are as follows:
third quarter 1996 - $4.0 million, third quarter 1995 - $4.3 million,
year-to-date 1996 - $12.8 million, and year-to-date 1995 - $13.0
million.
Provision for Loan and Lease Losses
For the first nine months of 1996 and 1995, the provision for loan and
lease losses was $37.8 million and $9.0 million, respectively. The
increase in the provision was the result of two factors. Total loans
and leases have increased by $401.1 million, or 9%, over the last
twelve months. Additionally, a higher level of charge-offs and lower
level of recoveries are expected during 1996 compared to 1995.
Noninterest Income
Third Quarter 1996 Compared to Third Quarter 1995
Noninterest income increased $12.8 million during the third quarter of
1996 compared to the same quarter in 1995. Service charges on deposit
<PAGE>
accounts increased primarily as a result of increased fee rates on
demand deposit accounts, nonsufficient funds and ATM usage. The
increase in service charges and fees was primarily due to $2.1 million
of gains and fees related to commercial lending being recognized
during the third quarter of 1996. Gain on sales of loans and leases
increased primarily as a result of $14.5 million in gains on the sale
of residential closed end non-conforming home equity loans discussed
earlier. Other income decreased primarily due to the recording of $7.1
million in gross gain from the sale of Heritage Savings Bank's
("Heritage") deposits and branches in August 1995.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
Noninterest income increased $30.5 million during the first nine
months of 1996 compared to the same period in 1995. Service charges on
deposit accounts and gain on sales of loans and leases increased
primarily for the same reasons given in the quarterly comparison.
Other service charges and fees increased primarily due to $8.8 million
of gains and fees related to commercial lending realized in 1996 which
exceeded the $2.7 million gross gain recognized from the sale of
mortgage loan servicing rights in 1995. The increase in other income
was primarily the result of the receipt of $10.0 million of additional
consideration related to a restructured loan which more than offset
the gain on the sale of Heritage's deposits and branches recorded in
1995.
Noninterest Expense
Third Quarter 1996 Compared to Third Quarter 1995
Noninterest expense increased $15.2 million during the third quarter
of 1996 when compared to 1995. Equipment expense increased primarily
due to the depreciation of expanded telebanking and computer
equipment. The increase in deposit insurance expense was due to a one
time charge for the capitalization of the SAIF. As a result of the
SAIF capitalization charge, future deposit insurance expense is
expected to decline by approximately $2 million annually based on
current deposit levels and announced assessment rates. Professional
fees increased primarily due to a litigation settlement. Marketing
expense increased due to the promotion of the MeritValu Frequent
Shopper Program. Increases in franchise taxes and loan origination
expense were the primary reasons for the increase in other expense.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 30, 1995
Noninterest expense increased $21.8 million during the first nine
months of 1996 when compared to 1995. Compensation expense, primarily
in the area of consumer banking and commercial lending increased as a
result of merit and promotion increases, increases in incentives and
increased personnel. The explanations of other significant changes in
noninterest expense are the same as those given in the quarterly
comparison.
<PAGE>
Financial Condition
Loans and Leases
Total loans and leases increased $151.4 million during 1996. The
increase was primarily due to growth in consumer lease financing and
commercial and financial loans.
The following table shows the composition of the commercial and
financial loan category by industry type at September 30, 1996
(dollars in millions):
<TABLE>
<CAPTION>
Amount on
Type Amount % Nonaccrual
<S> <C> <C> <C>
Construction $86.8 4 $1.5
Manufacturing 498.0 21 3.9
Transportation/Utilities 145.8 6 3.6
Wholesale Trade 229.0 10 1.1
Retail Trade 262.4 11 3.7
Finance & Insurance 84.9 4 .5
Real Estate Operators/Investment 284.0 12 .6
Service Industries 414.8 17 1.2
Automobile Dealers 89.1 4 -
Other(1) 269.7 11 1.9
Total $2,364.5 100 $18.0
<FN>
(1) Includes various kinds of loans, such as small business loans and loans with
balances under $100,000.
</TABLE>
The composition of the commercial mortgage and construction loan
categories by property type at September 30, 1996 is shown in the
following table (dollars in millions):
<TABLE>
<CAPTION>
Amount on
Type Amount % Nonaccrual
<S> <C> <C> <C>
Apartments $96.4 14 $-
Office/Warehouse 145.8 21 -
Residential Development 95.1 14 .1
Shopping/Retail 143.0 21 -
Land 40.7 6 -
Industrial Plants 15.4 2 -
Hotels/Motels 33.4 5 -
Health Facilities 4.5 1 -
Auto Sales and Service 23.7 3 -
Churches 12.0 2 -
Mobile Home Parks 10.6 1 -
Other Commercial Properties 68.8 10 -
Total $689.4 100 $.1
</TABLE>
Bancorp maintains a reserve to absorb potential losses in its loan and
lease portfolio. Management's determination of the adequacy of the
reserve is based on reviews of specific loans and leases, credit loss
experience, general economic conditions and other pertinent factors.
Loans and leases deemed uncollectible are charged off and deducted
from the reserve and recoveries on loans and leases previously charged
off are added to the reserve. Management considers the present reserve
<PAGE>
to be appropriate and adequate to cover potential losses inherent in
the loan and lease portfolio based on the current economic
environment. However, future economic changes cannot be predicted.
Deterioration in general economic conditions could result in an
increase in the risk characteristics of the loan and lease portfolio
and an increase in the provision for loan and lease losses.
The following table shows the progression of the reserve for loan and
lease losses (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Balance at January 1 $60,235 $51,979
Provision for Loan and Lease Losses 37,750 9,000
Loans and Leases Charged Off (37,587) (11,054)
Recoveries 3,267 5,905
Balance at September 30 $63,665 $55,830
</TABLE>
Net charge-offs totaled $34.3 million during the first nine months of
1996 compared to $5.1 million for the same time period in 1995. Net
charge-offs for commercial lending were $18.5 million which was
comprised principally of commercial and financial loans. Net charge-
offs for consumer lending were $15.8 million which consisted primarily
of instalment loans. As a percentage of total loans and leases
outstanding, the reserve was 1.26% at September 30, 1996 compared to
1.23% at December 31, 1995 and 1.20% at September 30, 1995.
Table 3 shows a comparison of the major components of nonperforming
assets over the past five quarters along with various asset quality
ratios. Nonperforming assets have decreased $16.7 million during the
first nine months of 1996. Nonaccrual loans decreased $14.7 million
during the first nine months of 1996. Significant activity within
nonaccrual loans includes the addition of two loans totaling $8.2
million, the charge-off of five loans totaling $11.1 million, the
transfer of two loans to other real estate totaling $6.6 million and
the repayment of one loan for $5.2 million. Renegotiated loans
decreased $4.0 million primarily due to the sale of one loan. Other
real estate increased $2.0 million. Significant activity within other
real estate includes the transfer in of two nonaccrual loans totaling
$6.6 million, as noted above, and the sale of two properties for $4.8
million. At September 30, 1996, nonperforming assets as a percentage
of total loans, leases and other real estate was .62% which compares
favorably to Bancorp's most recent five-year average of .94%.
Deposits
Interest bearing deposits increased $269.9 million, or 7%, from
December 31, 1995 to September 30, 1996. The increase was a result of
the growth in certificates of deposit which has risen $330.6 million
during this time period.
<PAGE>
Short-Term Debt
Short-term debt increased $133.5 million, or 21%, to $770.8 million
during the first three quarters of 1996. The increase was primarily
due to the purchase of term federal funds.
Long-Term Debt
During the first nine months of 1996, long-term debt decreased $154.5
million, or 19%, reflecting the repayment of debt, primarily to the
Federal Home Loan Bank.
During the third quarter of 1996, Provident amended its medium-term
bank notes program to extend its borrowing capacity from $500 million
to $1 billion. Under the revised program, both subordinated and
unsubordinated debt may be issued at fixed and floating interest
rates. The notes under the program are not secured nor are they
insured by the FDIC. No additional borrowings have been made under the
amended bank notes program as of September 30, 1996.
Capital Resources and Adequacy
During the first nine months of 1996, shareholders' equity increased
$38.6 million, or 9%, to $471.2 million. Dividends of $15.9 million on
common stock and $397,000 on preferred stock were paid in the first
nine months of 1996. Unrealized gains on marketable securities, net of
deferred income taxes, decreased $3.7 million during the first nine
months of 1996.
The following table of ratios is important to the analysis of the
adequacy of capital resources.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
<S> <C> <C>
Average Shareholders' Equity to Average Assets 7.15% 7.02%
Preferred Dividend Payout to Net Earnings 0.69 3.39
Common Dividend Payout to Net Earnings 27.78 22.78
Tier 1 Leverage Ratio 7.18 7.13
Tier 1 Capital to Risk-Weighted Assets 7.71 7.52
Total Risk-Based Capital To Risk-Weighted Assets 11.70 11.77
</TABLE>
Bancorp's quarterly dividend on its common stock increased from $.18
per share to $.21 per share effective with the dividend paid in the
second quarter of 1996. This higher dividend rate should cause the
common and preferred dividend payout ratios to increase in the future.
Capital expenditures planned by Bancorp for building improvements and
furniture and equipment in 1996 are currently estimated to be
approximately $16 million. Included in this amount are projected
capital expenditures for improvements of data processing capabilities
and improvement of the branch banking network, with emphasis being
placed on enhancing the branches located in local supermarkets and
placement of additional ATMs. Bancorp also intends to expand and
improve its telephone banking operations. Through September 30, 1996,
approximately $10.3 million of these expenditures have been made.
<PAGE>
Liquidity
Adequate liquidity is necessary to meet the borrowing needs and
deposit withdrawal requirements of customers as well as to satisfy
liabilities, fund operations and support asset growth. Bancorp has a
number of sources to provide for liquidity needs. First, liquidity
needs can be met by the liquid assets on its balance sheet such as
cash and deposits with other banks. Another source is the generation
of new deposits. Bancorp may borrow both short-term and long-term
funds. Bancorp has an additional $687.5 million available for
borrowing under a $1 billion bank notes program. Additional sources of
liquidity include the sale of investment securities and the sale of
commercial and consumer loans and leases.
The major source of liquidity for Bancorp on a parent-only basis ("the
Parent") is dividends paid to it by its subsidiaries. Pursuant to
Federal Reserve and state banking regulations, the maximum amount
available for dividend distribution to the Parent at September 30,
1996 by its banking subsidiaries was approximately $131.9 million. The
Parent has not received dividends from its subsidiaries during the
first nine months of 1996.
At September 30, 1996, the Parent had $128.0 million of short-term
commercial paper outstanding. A portion of commercial paper proceeds
was used to fund short-term loans. Contractual lines of credit
totaling $175 million have been obtained by the Parent to support its
commercial paper borrowings. Also, the Parent has $30 million in
general purpose lines of credit. These lines had not been used at
September 30, 1996. The Parent had approximately $107.7 million in
cash and interest earning deposits at September 30, 1996.
<PAGE>
<TABLE>
Provident Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements Of Earnings
(unaudited)
(In Thousands)
Table 1.
<CAPTION>
Quarter Ended Nine Months Ended
Sept. Sept. Sept. Sept.
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Total Interest Income $131,267 $118,058 $384,677 $338,166
Taxable Equivalent Adjustment 141 118 398 367
Taxable Equivalent Interest Income 131,408 118,176 385,075 338,533
Total Interest Expense 70,892 66,432 208,189 191,360
Net Interest Income 60,516 51,744 176,886 147,173
Provision for Loan and Lease Losses 14,000 4,000 37,750 9,000
Taxable Equivalent Net Interest Income After
Provision for Loan and Lease Losses 46,516 47,744 139,136 138,173
Noninterest Income 31,524 18,725 72,907 42,366
Noninterest Expense 51,524 36,351 124,402 102,556
Taxable Equivalent Earnings Before Income Taxes 26,516 30,118 87,641 77,983
Applicable Income Taxes 9,100 8,990 30,043 25,131
Taxable Equivalent Adjustment 141 118 398 367
Net Earnings $17,275 $21,010 $57,200 $52,485
Net Earnings Applicable to Common Stock $17,137 $20,372 $56,803 $50,686
</TABLE>
<PAGE>
<TABLE>
Provident Bancorp, Inc. and Subsidiaries
Consolidated Average Balances, Rates and Yields
On a Fully Taxable Equivalent Basis
(unaudited)
(Dollars In Millions)
Table 2.
<CAPTION>
Quarter Ended Nine Months Ended
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
Average Avg Average Avg Average Avg Average Avg
Balance Rate Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans and Leases (Net of Unearned Income):
Commercial Lending:
Commercial and Financial $2,281 9.12% $2,048 9.76% $2,252 9.27% $1,984 9.97%
Mortgage 465 8.93 429 9.34 453 9.08 425 9.23
Construction 222 8.82 209 9.27 238 8.95 197 9.46
Lease Financing 143 7.59 103 7.47 132 7.63 100 7.61
Consumer Lending:
Instalment 960 9.60 947 9.32 985 9.40 933 8.97
Residential 490 8.82 492 7.95 477 8.50 497 7.98
Lease Financing 485 7.46 262 7.29 422 7.48 229 7.13
Total Loans and Leases 5,046 8.95 4,490 9.21 4,959 8.99 4,365 9.23
Reserve for Loan and Lease Losses (65) (56) (65) (55)
Net Loans and Leases 4,981 9.07 4,434 9.32 4,894 9.11 4,310 9.35
Investment Securities:
Taxable 1,097 6.35 898 6.06 1,031 6.44 813 5.87
Tax-Exempt 15 6.40 10 5.76 14 6.20 10 5.87
Total Investment Securities 1,112 6.35 908 6.05 1,045 6.44 823 5.87
Federal Funds Sold and Reverse
Repurchase Agreements 7 5.49 10 5.77 21 5.21 21 5.73
Total Earning Assets 6,100 8.57 5,352 8.76 5,960 8.63 5,154 8.78
Cash and Noninterest Bearing Deposits 134 151 143 147
Other Assets 205 181 196 161
Total Assets $6,439 $5,684 $6,299 $5,462
Liabilities and Shareholders' Equity:
Deposits:
Demand Deposits $252 1.93 $251 1.96 $253 1.94 $257 2.14
Savings Deposits 573 2.72 640 2.94 587 2.70 656 3.25
Time Deposits 2,991 5.68 2,666 6.22 2,912 5.80 2,682 6.18
Total Deposits 3,816 4.99 3,557 5.33 3,752 5.05 3,595 5.36
Short-Term Debt:
Federal Funds Purchased and
Repurchase Agreements 740 5.30 577 5.88 619 5.29 454 5.92
Commercial Paper 140 5.53 149 5.88 146 5.49 137 5.97
Short-Term Notes Payable 1 5.33 1 5.90 1 6.22 1 5.61
Total Short-Term Debt 881 5.34 727 5.88 766 5.33 592 5.93
Long-Term Debt 742 6.02 489 6.37 791 6.03 418 6.72
Total Interest Bearing Liabilities 5,439 5.19 4,773 5.52 5,309 5.24 4,605 5.55
Noninterest Bearing Deposits 389 410 399 387
Other Liabilities 146 102 141 89
Shareholders' Equity 465 399 450 381
Total Liabilities and Shareholders' Equity $6,439 $5,684 $6,299 $5,462
Net Interest Spread 3.38% 3.24% 3.39% 3.23%
Net Interest Margin 3.95% 3.84% 3.96% 3.82%
</TABLE>
<PAGE>
<TABLE>
Provident Bancorp, Inc. and Subsidiaries
Consolidated Quarterly Nonperforming Assets
(unaudited)
(Dollars In Thousands)
Table 3.
<CAPTION>
Quarter Ended
Sept. June Mar. Dec. Sept.
1996 1996 1996 1995 1995
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans: (1)
Commercial Lending:
Commercial and Financial $18,024 $14,283 $26,749 $26,190 $12,231
Mortgage 48 300 1,162 6,716 1,521
Construction 71 71 78 78 78
Lease Financing 2,653 2,720 2,664 2,605 -
Consumer Lending:
Instalment - - - 230 30
Residential 2,008 1,489 1,296 1,678 1,367
Lease Financing - - - - -
Total Nonaccrual Loans 22,804 18,863 31,949 37,497 15,227
Renegotiated Loans (2) 787 551 558 4,753 4,886
Total Nonperforming Loans 23,591 19,414 32,507 42,250 20,113
Other Real Estate and Equipment Owned:
Commercial 6,477 7,341 7,460 3,714 -
Closed bank branches - - - 189 189
Residential 480 897 989 468 292
Multifamily - - 588 594 601
Land 660 661 663 663 734
Total 7,617 8,899 9,700 5,628 1,816
Total Nonperforming Assets $31,208 $28,313 $42,207 $47,878 $21,929
Loans 90 Days Past Due Still Accruing $19,989 $25,426 $31,178 $26,578 $6,309
Total Loans and Leases 5,047,441 4,996,007 4,890,021 4,896,076 4,646,366
Reserve for Loan and Lease Losses 63,665 61,169 60,966 60,235 55,830
Total Assets 6,483,920 6,428,464 6,243,786 6,205,351 5,955,257
Reserve for Loan and Lease Losses as a Percent of:
Nonperforming Loans 269.87% 315.08% 187.55% 142.57% 277.58%
Nonperforming Assets 204.00% 216.05% 144.45% 125.81% 254.59%
Total Loans and Leases 1.26% 1.22% 1.25% 1.23% 1.20%
Nonperforming Loans as a % of Total
Loans and Leases .47% .39% .66% .86% .43%
Nonperforming Assets as a Percent of:
Total Loans, Leases and Other Real Estate .62% .57% .86% .98% .47%
Total Assets .48% .44% .68% .77% .37%
<FN>
(1) Bancorp generally stops accruing interest on loans and leases when the payment of principal and/or
interest is past due 90 days or more.
(2) Loans renegotiated to provide a reduction or deferral of interest or principal because of a
deterioration in the financial position of the borrower.
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit filed:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
<TABLE>
<CAPTION>
Date of Report Item 5. Other Events
<S> <C>
September 19, 1996 Sold $153.7 million of closed-end home equity loans
to Lehman ABS Corporation for securitization.
Provident's goal is to originate $800 million of home
equity loans during the next twelve months and sell
approximately $100 million of these originations
per calendar quarter, market conditions permitting.
September 26, 1996 Sold $200 million of closed end non-conforming home
equity loans resulting in $13 - $15 million of
pre-tax income.
Net income for the third quarter of 1996 was projected
to be approximately $22 million due to this
transaction, along with additions to its loan loss
reserve and other expenses incurred during the
quarter.
October 4, 1996 Revised its estimate of net income for the third
quarter of 1996 to $17 million as a result of a
one-time special assessment on Savings Association
Insurance Fund deposits.
</TABLE>
All other items required in Part II of this form have been omitted
since they are not applicable or not required.
<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
Date: November 4, 1996 \s\ John R. Farrenkopf
John R. Farrenkopf
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Provident
Bancorp, Inc.'s 10-Q for September 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 222,861
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,064,373
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 5,047,441
<ALLOWANCE> 63,665
<TOTAL-ASSETS> 6,483,920
<DEPOSITS> 4,418,143
<SHORT-TERM> 770,769
<LIABILITIES-OTHER> 158,267
<LONG-TERM> 665,579
0
7,000
<COMMON> 11,730
<OTHER-SE> 452,432
<TOTAL-LIABILITIES-AND-EQUITY> 6,483,920
<INTEREST-LOAN> 333,678
<INTEREST-INVEST> 50,169
<INTEREST-OTHER> 830
<INTEREST-TOTAL> 384,677
<INTEREST-DEPOSIT> 141,918
<INTEREST-EXPENSE> 208,189
<INTEREST-INCOME-NET> 176,488
<LOAN-LOSSES> 37,750
<SECURITIES-GAINS> 96
<EXPENSE-OTHER> 124,402
<INCOME-PRETAX> 87,243
<INCOME-PRE-EXTRAORDINARY> 57,200
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,200
<EPS-PRIMARY> 2.09<F1>
<EPS-DILUTED> 2.05<F1>
<YIELD-ACTUAL> 3.96
<LOANS-NON> 22,804
<LOANS-PAST> 19,989
<LOANS-TROUBLED> 787
<LOANS-PROBLEM> 35,571
<ALLOWANCE-OPEN> 60,235
<CHARGE-OFFS> 37,587
<RECOVERIES> 3,267
<ALLOWANCE-CLOSE> 63,665
<ALLOWANCE-DOMESTIC> 63,665
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Earnings per share has been adjusted for a 3-for-2 stock split which was
effective May 24, 1996. Financial data schedules prior to the June 30, 1996
10-Q filing have not been restated for this recapitalization.
</FN>
</TABLE>
