<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, 1998 No. 1-8019
P R O V I D E N T F I N A N C I A L G R O U 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 30, 1998 is
42,889,761.
Please address all correspondence to:
John R. Farrenkopf
Vice President and Chief Financial Officer
Provident Financial Group, Inc.
One East Fourth Street
Cincinnati, Ohio 45202
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<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
ASSETS
Cash and Noninterest Bearing Deposits $202,240 $274,521
Federal Funds Sold and Reverse Repurchase Agreements 36,000 1,720
Trading Account Securities 98,761 -
Investment Securities Available for Sale
(amortized cost - $1,600,102 and $1,371,303) 1,608,520 1,371,507
Loans and Leases (Net of Unearned Income):
Commercial Lending:
Commercial and Financial 3,380,275 2,733,556
Mortgage 446,994 469,505
Construction 395,704 305,150
Lease Financing 179,399 340,302
Consumer Lending:
Instalment 734,060 624,340
Residential - Held for Sale 93,934 136,183
Lease Financing 449,156 442,806
Total Loans and Leases 5,679,522 5,051,842
Reserve for Loan and Lease Losses (76,445) (71,980)
Net Loans and Leases 5,603,077 4,979,862
Premises and Equipment 225,766 183,854
Other Assets 506,453 312,195
$8,280,817 $7,123,659
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest Bearing $540,054 $605,166
Interest Bearing 4,562,346 4,091,132
Total Deposits 5,102,400 4,696,298
Short-Term Debt 1,172,458 806,125
Long-Term Debt 890,365 688,157
Guaranteed Preferred Beneficial Interests in
Company's Junior Subordinated Debentures 98,863 98,817
Accrued Interest and Other Liabilities 291,603 197,001
Total Liabilities 7,555,689 6,486,398
Shareholders' Equity:
Preferred Stock, 5,000,000 Shares Authorized,
Series D, 70,272 Issued 7,000 7,000
Common Stock, No Par Value, 110,000,000 Shares
Authorized, 43,324,423 and 42,325,882 Issued 12,773 12,482
Capital Surplus 221,251 196,617
Retained Earnings 489,482 417,360
Reserve for Retirement of Capital Securities - 3,667
Treasury Stock, 253,000 Shares (10,850) -
Unrealized Gain on Marketable Securities
(net of deferred income taxes) 5,472 135
Total Shareholders' Equity 725,128 637,261
$8,280,817 $7,123,659
</TABLE>
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<PAGE>
<TABLE>
PROVIDENT FINANCIAL GROUP, 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,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans and Leases $138,310 $124,683 $388,798 $366,223
Interest on Investment Securities:
Taxable 23,348 21,677 72,371 58,892
Exempt From Federal Income Taxes 37 86 180 213
23,385 21,763 72,551 59,105
Other Interest Income 3,257 66 5,088 706
Total Interest Income 164,952 146,512 466,437 426,034
Interest Expense:
Interest on Deposits:
Savings and Demand Deposits 13,375 7,609 36,602 17,859
Time Deposits 42,538 49,663 129,237 147,342
Total Interest on Deposits 55,913 57,272 165,839 165,201
Interest on Short-Term Debt 22,355 11,234 53,547 26,969
Interest on Long-Term Debt 10,841 10,359 32,374 32,806
Interest on Junior Subordinated Debentures 2,166 2,166 6,497 6,497
Total Interest Expense 91,275 81,031 258,257 231,473
Net Interest Income 73,677 65,481 208,180 194,561
Provision for Loan and Lease Losses 9,500 9,500 19,500 35,500
Net Interest Income After Provision
for Loan and Lease Losses 64,177 55,981 188,680 159,061
Noninterest Income:
Service Charges on Deposit Accounts 6,878 6,331 20,079 18,238
Other Service Charges and Fees 9,346 6,281 38,147 25,887
Operating Lease Income 9,487 6,616 27,946 18,615
Gain on Sales of Loans and Leases 25,807 25,635 60,356 59,343
Security Gains 4,061 1,196 9,777 4,449
Other 1,149 2,158 6,959 9,023
Total Noninterest Income 56,728 48,217 163,264 135,555
Noninterest Expense:
Compensation:
Salaries 26,840 20,827 76,963 59,284
Benefits 3,228 3,160 11,537 9,634
Profit Sharing 1,425 1,709 3,899 4,876
Depreciation on Operating Lease Equipment 5,503 4,601 16,027 12,762
Occupancy 4,628 3,516 12,539 8,862
Equipment Expense 5,755 3,989 14,769 10,874
Professional Fees 4,958 3,660 13,272 10,389
Charges and Fees 4,008 4,023 10,009 10,458
Marketing 2,122 1,694 7,446 5,577
Other 12,488 11,619 40,029 30,965
Total Noninterest Expense 70,955 58,798 206,490 163,681
Earnings Before Income Taxes 49,950 45,400 145,454 130,935
Applicable Income Taxes 17,450 15,898 50,554 45,926
Net Earnings $32,500 $29,502 $94,900 $85,009
Net Earnings Per Common Share:
Basic $.75 $.71 $2.20 $2.07
Diluted .72 .67 2.11 1.95
Average Basic Shares 43,095 41,152 42,912 40,855
Average Diluted Shares 45,033 43,967 45,009 43,519
</TABLE>
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<PAGE>
<TABLE>
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(In Thousands)
<CAPTION>
Reserve for Unrealized
Retirement Gains (Losses)
Preferred Common Capital Retained of Capital Treasury on Marketable Comprehensive
Stock Stock Surplus Earnings Securities Stock Securities Income(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $7,000 $11,973 $160,586 $326,599 $6,667 $- $3,980
Net Earnings 85,009 $85,009
Dividends Paid on:
Preferred Stock (514)
Common Stock (21,196)
Allocation for Retirement
of Capital Securities (833) 833
Retirement of Capital
Securities 4,000 (4,000)
Exercise of Stock Options 108 7,508
Acquisitions 262 15,771 2,701 143
Change in Unrealized
Gains (Losses) on
Marketable Securities 87 87
Other 81 6 87
Balance at September 30, 1997 $7,000 $12,343 $183,946 $395,772 $3,500 $- $4,210 $85,183
Balance at January 1, 1998 $7,000 $12,482 $196,617 $417,360 $3,667 $- $135
Net Earnings 94,900 $94,900
Dividends Paid on:
Preferred Stock (593)
Common Stock (25,852)
Allocation for Retirement
of Capital Securities (333) 333
Retirement of Capital
Securities 4,000 (4,000)
Exercise of Stock Options 291 24,348
Purchase of Treasury Stock (10,850)
Change in Unrealized
Gains (Losses) on
Marketable Securities 5,337 5,337
Realization of Deferred
Tax Benefit 286 286
Balance at September 30, 1998 $7,000 $12,773 $221,251 $489,482 $- ($10,850) $5,472 $100,523
<FN>
(1) Comprehensive income for the three months ended September 30, 1998 and 1977 was $39,949,000 and $32,034,000, respectively.
</TABLE>
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<PAGE>
<TABLE>
PROVIDENT FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<CAPTION>
Nine Months Ended September 30,
1998 1997
<S> <C> <C>
Operating Activities:
Net Earnings $94,900 $85,009
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Provision for Loan and Lease Losses 19,500 35,500
Amortization of Goodwill 1,279 1,231
Amortization of Unearned Income and Other (54,984) (55,961)
Depreciation of Premises and Equipment 28,177 21,272
Realized Investment Security Gains (9,777) (4,449)
Proceeds from Sale of Loans Held for Sale 908,362 943,143
Origination of Loans Held for Sale (901,598) (672,980)
Realized Gains on Residential Loans Held for Sale (31,876) (45,591)
Realized Gains on Sale of Other Loans and Leases (28,480) (13,752)
Increase in Trading Account Securities (98,761) -
Increase in Interest Receivable (5,664) (342)
Increase in Other Assets (189,873) (28,947)
Increase in Interest Payable 9,228 10,264
Increase in Other Liabilities 87,072 16,687
Net Cash Provided By (Used In) Operating Activities (172,495) 291,084
Investing Activities:
Investment Securities Available for Sale:
Proceeds from Sales 3,056,006 1,209,958
Proceeds from Maturities and Prepayments 566,411 105,760
Purchases (3,773,460) (1,529,466)
Proceeds from Sale-Leaseback Transactions 170,600 230,000
Net Increase in Loans and Leases (772,506) (139,749)
Net Increase in Operating Lease Equipment (47,689) (33,856)
Net Increase in Premises and Equipment (22,400) (14,993)
Net Cash and Cash Equivalents Received in Acquisitions - 13,690
Net Cash Used In Investing Activities (823,038) (158,656)
Financing Activities:
Net Increase in Deposits 406,102 209,552
Net Increase (Decrease) in Short-Term Debt 366,333 (64,069)
Principal Payments on Long-Term Debt (43,244) (204,859)
Proceeds From Issuance of Long-Term Debt 240,711 1,764
Cash Dividends Paid (26,445) (21,710)
Purchase of Treasury Stock (10,850) -
Proceeds from Sale of Common Stock 24,639 7,616
Net Increase in Other Equity Items 286 87
Net Cash Provided By (Used In) Financing Activities 957,532 (71,619)
Increase (Decrease) in Cash and Cash Equivalents (38,001) 60,809
Cash and Cash Equivalents at Beginning of Period 276,241 278,747
Cash and Cash Equivalents at End of Period $238,240 $339,556
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $249,030 $221,210
Income Taxes 22,000 25,000
Non-Cash Activity:
Transfer of Loans and Premises and Equipment to
Other Real Estate 1,596 12,543
Interest-Only Securities Created from the
Sale of Residential Loans 67,361 70,969
Common Stock Issued To Acquire Business - 7,152
</TABLE>
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<PAGE>
PROVIDENT FINANCIAL GROUP, 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 Financial Group, Inc.'s 1997 annual report on Form 10-K
filed with the Securities and Exchange Commission.
Basis of Presentation
The consolidated financial statements include the accounts of
Provident Financial Group, Inc. and its subsidiaries, 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.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" establishes standards for the reporting of
comprehensive income and its components. Comprehensive income includes
net income and certain items that are reported directly within a
separate component of stockholders' equity and bypass net income. The
provisions of this SFAS became effective with 1998 interim reporting
and is disclosed within the Consolidated Statements of Changes in
Shareholders' Equity. Implementation of this statement had no impact
on net earnings or shareholders' equity. Prior periods have been
restated to conform to the current presentation.
Guaranteed Preferred Beneficial Interests in Company's Junior
Subordinated Debentures
In 1996, Provident Financial established Provident Capital Trust I.
Capital Trust issued $100 million of preferred Capital Securities to
the public and $3.1 million of common to Provident Financial. Proceeds
from the issuance of the capital securities were invested in Provident
Financial's 8.60% Junior Subordinated Debentures, due 2026. Provident
Financial fully guarantees the Capital Securities. The sole assets
(excluding interest receivable on the Debentures, prepaid expenses and
receivables) of Capital Trust are the Debentures.
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<PAGE>
Restricted Assets
During 1997 and 1998, Provident Financial formed Provident Auto
Leasing Company, Provident Auto Rental Corporation and Provident Lease
Receivables Corporation. Auto Leasing was created to avoid the
administrative difficulty and expense associated with retitling leased
vehicles in connection with the financing or transfer of beneficial
ownership of automobile and light duty trucks subject to leases. Auto
Rental's purpose is limited to the securitization and sale of leased
vehicles to investors under sale-leaseback transactions. Lease
Receivables' function is limited to the sale of equipment leases while
retaining the servicing rights. Auto Leasing, Auto Rental and Lease
Receivables are legal entities and each maintains books and records
with respect to its assets and liabilities. The assets of these
subsidiaries, totaling $329.4 million, are not available to secure
financing or otherwise satisfy claims of creditors of Provident
Financial or any of its other subsidiaries.
In order to optimize after tax yields, leased vehicles have been sold
in sale-leaseback transactions where the vehicle, lease contract and
residual insurance are transferred to Auto Rental, and subsequently,
to a securitization trust. No gain or loss is recognized on these
transactions at the time of sale.
Stock Options
Options to purchase 823,125 shares of Provident Financial Common Stock
were granted during the first nine months of 1998. The options have
exercise prices ranging from $42.44 to $54.47.
Off-Balance Sheet Financial Agreements
In the normal course of business, Provident Financial 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, 1998, these off-balance sheet instruments consisted
of standby letters of credit of $132.4 million, commitments to extend
credit of $2.3 billion and interest rate swaps with a notional amount
of $1.8 billion.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward Looking Statements
Provident Financial publishes forward-looking statements relating to
such matters as anticipated financial performance, business prospects,
new banking and financial service products, Year 2000 issues and
similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. Provident
Financial notes that a variety of factors could cause its actual
results and experiences to differ materially from the anticipated
results or other expectations expressed in its forward-looking
statements. These risks and uncertainties include, without limitation,
changes in interest rates, developments in the economies served by
Provident Financial, changes in anticipated credit quality trends,
changes in accounting, tax or regulatory practices or requirements and
other factors noted in conjunction with forward looking statements.
Forward-looking statements speak only as of the date made. Provident
undertakes no obligations to update any forward-looking statements to
reflect events or circumstances arising after the date on which they
are made.
Results of Operations
Summary
Provident Financial's net earnings for the third quarter of 1998 were
$32.5 million compared to $29.5 million for the third quarter of 1997.
Net interest income increased by $8.2 million, or 13%, over the
comparable period in 1997. The provision for loan and lease losses was
$9.5 million for both periods. Noninterest income increased $8.5
million, or 18%, primarily due to increases in other service charges
and fees, operating lease income and security gains. Noninterest
expense increased $12.2 million, or 21%, primarily as a result of the
continued expansion of Provident Consumer Financial Services, and
expense related to operating leases and data processing.
For the first nine months of 1998, Provident Financial's net earnings
were $94.9 million, an increase of $9.9 million, or 12%, over the 1997
period. Net interest income increased by $13.6 million, or 7%, during
the first three quarters of 1998 compared to the same period of 1997.
The provision for loan and lease losses decreased $16.0 million from
the 1997 period. Noninterest income increased $27.7 million, or 20%,
while noninterest expense increased $42.8 million, or 26%. The reasons
for the increases in noninterest income and expense are the same as
those noted in the quarterly comparisons above.
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<PAGE>
The following ratios compare Provident Financial's annualized returns
on average assets and average equity for the first nine months of 1998
to the year 1997:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998(1) December 31, 1997
<S> <C> <C>
Net Earnings to Average Assets 1.63% 1.67%
Net Earnings to Average Shareholders' Equity 18.39% 20.32%
<FN>
(1) Net earnings for the nine months ended September 30, 1998 have been annualized.
</TABLE>
The ratio of noninterest expense to tax equivalent revenue
("efficiency ratio") was 57.1% for the first nine months of 1998
compared to 50.2% for the first nine months of 1997. For purposes of
calculating the efficiency ratio, tax equivalent revenue excludes
security gains or losses.
The efficiency ratio has deteriorated during 1997 and 1998. As a
result, management is taking initiatives to reduce operating expenses.
Free Market Partners, a database marketing division of The Provident
Bank, is being downsized and integrated into the Bank's retail
division. The MeritValu program is being phased out as the outlook for
profit is not satisfactory. The conforming mortgage division is
changing its focus from national markets to Provident Financial's
regional markets only. Nine supermarket branches which overlapped
traditional branches were closed. In addition, a consulting firm has
been employed to explore other ways to reduce costs, increase fee
income, otherwise enhance earnings through such means as improved
float management, liquidity, compensating balances and working
capital, and to redeploy resources to enhance revenues. As a result of
these and other efforts, third quarter operating expenses were
essentially unchanged from those of the second quarter.
Nonperforming assets as of September 30, 1998 were $46.6 million, a
decrease of $12.6 million compared to December 31, 1997. The ratio of
nonperforming assets to total loans, leases and other real estate
owned was 0.82% at September 30, 1998, compared to 1.17% at December
31, 1997.
Lines of Business
For management reporting purposes, Provident Financial has eight major
lines of business based on its management structure. Financial results
are determined based on an assignment of balance sheet and income
statement items to each business line. Activity-based costing is used
to allocate expenses for centrally provided services. Matched maturity
transfer pricing is used to allocate interest income and expense among
the business lines.
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<PAGE>
The following table presents a summary of net earnings and managed
earning assets by business line for the first nine months of 1998:
<TABLE>
<CAPTION>
Net Provision Non- Non- Managed
Interest for Loan Interest Interest Net Earning
Income Losses Income Expense Earnings Assets
(In Millions)
<S> <C> <C> <C> <C> <C> <C>
Commercial:
Capital Corp $23.9 $.6 $15.0 $4.7 $23.9 $696.2
Commercial Banking 55.4 6.4 4.7 30.1 18.5 2,040.9
Commercial Mortgage 19.9 (.5) .2 2.8 13.0 908.9
Information Leasing 9.3 2.6 23.2 13.6 10.9 266.1
Equipment Leasing 3.5 1.8 20.0 12.9 6.5 497.1
Retail:
Consumer Financial
Services 4.0 .1 35.9 30.5 7.3 1,692.1
Consumer Lending 30.0 12.9 15.2 28.1 5.6 1,827.7
Consumer Banking 44.7 .6 33.8 71.6 5.2 308.0
Other 17.5 (5.0) 15.3 12.2 4.0 1,595.6
$208.2 $19.5 $163.3 $206.5 $94.9 $9,832.6
</TABLE>
A description of the lines of business follows:
Commercial:
Capital Corp is a national provider of capital to support middle
market leveraged financing transactions. Types of financing
provided include senior debt, to support leveraged financings such
as management buyouts, recapitalizations, acquisitions and business
expansions, asset-based financing and mezzanine financing.
Commercial Banking is comprised of five business units: Commercial
Banking, Business Banking, Warehouse Lending, Corporate Services
and International Services. Commercial Banking provides traditional
commercial lending products and services including working capital,
term and asset-based financing. Business Banking provides
specialized credit products and financial services directed to the
needs of small business and their owners. Warehouse Lending
provides short-term financing to mortgage originators and brokers.
Corporate Services provides cash management and group banking
products and services to a broad range of businesses nationwide.
International Services provides letters of credit, purchase and
sale of foreign exchange as well as documentary examination and
negotiation in foreign trade matters.
Commercial Mortgage provides a variety of loans and services to
support the commercial real estate market primarily in Ohio and the
vicinity. Products and services include: land acquisition and
development loans; construction loans for residential and
commercial developments; and long-term loans for multi-family
projects, retail shopping centers, office buildings, warehouses,
light industrial buildings and distribution facilities.
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<PAGE>
Information Leasing is a full service, small ticket equipment
leasing company that focuses on establishing strategic
relationships with high volume, quality equipment vendors and
customers. Information Leasing generates its business through
contractual vendor programs, master lease agreements, informal
vendor relationships, acquiring transactions from other leasing
concerns, and from additional equipment acquisitions from existing
customers.
Equipment Leasing provides lease and loan financing to commercial
and industrial customers nationwide for the acquisition of
equipment. Transactions include term loans, finance leases,
operating leases and other specialized credit facilities. Asset
types include corporate and commercial aircraft, construction,
distribution, manufacturing and mining equipment, as well as
transportation equipment such as trucks, tractors and freight
containers.
Retail:
Consumer Financial Services originates conforming and nonconforming
residential loans. Characteristics of the nonconforming loans
include: 90% are "B" credit grade or better, 65% are full
documentation and 10% are reduced documentation, 65% have
prepayment penalties, 90% to 95% are secured by first mortgages,
90% are owner occupied and, on average, have a 75% to 80% loan-to-
value ratio. Consumer Financial Services has an in-house mortgage
servicing department and a network platform which permits the
processing of nonconforming mortgage transactions on a national
basis. Consumer Financial Services is licensed to operate in all 50
states. Generally, loans originated by Consumer Financial Services
are sold through securitization or whole loan sales.
Consumer Lending provides auto loans and leases, home equity and
credit card lending and other lending services to consumers. These
services are provided through third party financing arrangements,
direct origination programs and retail branch offices. Consumer
Lending distributes credit products to customers in Provident
Financial's core banking markets and through regional direct
marketing programs.
Consumer Banking sells and services consumer and small business
deposits, loans, trust and brokerage services, and investment
products. The physical distribution includes a network of fifty-
seven traditional branches, thirteen in-store branches and
approximately 360 ATM's (after the installation of ATM's in Wal-
mart and Sam's Club stores scheduled to occur during the fourth
quarter) in Ohio and Kentucky markets. Recent initiatives include
deposit product improvements, the introduction of a new indexed
savings account, development and implementation of a comprehensive
distribution plan and the introduction of a new logo, branch
signage and merchandising. The new "Personal Banker" and "Simple
Truth About Banking" concepts were introduced to the market in 1997
and will provide the foundation for future marketing strategies.
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<PAGE>
Other includes the results of Treasury Services and other smaller
lines of business, along with the management of interest rate risk and
the net effect of transfer pricing. Also included are any unallocated
managed earning assets and income and expense of administrative and
support functions that were not allocated to any of the other lines of
business.
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
$13.6 million for the first nine months of 1998 over the comparable
period in 1997. This increase resulted from a $17.3 million increase
due to changes in volume more than offsetting the $3.7 million
decrease 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 3.89%
for the first nine months of 1998 as compared to 4.00% for the
comparable period in 1997. Interest rate swaps increased the net
interest margin by 12 basis points and 19 basis points during the
first nine months of 1998 and 1997, respectively.
In 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 1998 - $6.7 million, third quarter 1997 - $3.1 million, year-
to-date 1998 - $15.1 million, and year-to-date 1997 - $11.3 million.
Provision for Loan and Lease Losses
The provision for loan and lease losses was $9.5 million for both the
third quarter of 1998 and 1997, and $19.5 million and $35.5 million
during the first nine months of 1998 and 1997, respectively. The
decrease in the provision was primarily the result of lower net charge-
offs incurred during the first nine months of 1998 as compared to the
first nine months of 1997.
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<PAGE>
Noninterest Income
Third Quarter 1998 Compared to Third Quarter 1997
Noninterest income increased $8.5 million during the third quarter of
1998 compared to the same quarter in 1997. Service charges on deposit
accounts increased primarily as a result of increased fees received on
corporate demand deposit accounts and ATM usage. The increase in other
service charges and fees included a distribution from a partnership,
in addition to increased revenue from mortgage loan servicing and
brokerage operations. The growth in operating lease income is the
result of the expansion of Equipment Leasing and Information Leasing
lines of business, and the excess rental income received over that
paid on leased vehicles. Detail of gain on sales of loans and leases
is provided below. Security gains were recognized primarily on the
sale of mortgage-backed securities. Other income decreased due
primarily to the receipt of additional consideration in 1997 relating
to a restructured loan, and losses on trading account securities
during 1998.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Noninterest income increased $27.7 million during the first nine
months of 1998 compared to the same period in 1997. Service charges on
deposit accounts, operating lease income, security gains and other
changed for the same reasons given in the quarterly comparison. Other
service charges and fees increased due to the recognition of gains and
fees related to commercial lending, as well as for the reasons
provided in the quarterly comparison.
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<PAGE>
Loan and Lease Sales
Provident Financial securitizes and/or sells a portion of its loans
and leases, while generally retaining the servicing of the loans and
leases. The proceeds from these loan and lease sales permit Provident
Financial to originate a higher volume of loans and leases than would
normally be possible for a bank its size. The following provides
detail of the gain on sales recognized during 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(In Thousands)
<S> <C> <C> <C> <C>
Gain/(Loss) Based on Cash Received:
Equipment Lease Securitization $13,429 $- $13,429 $-
Equipment Lease Residuals 808 257 6,016 667
Auto Lease Sales and Terminations 1,790 950 5,478 2,802
Conforming Residential Loan Sales
Servicing Released 1,153 292 4,443 5,724
Credit Card Whole Loan Sales - - 3,485 -
Other Consumer Loan Sales (58) 230 72 250
Nonconforming Whole Loan Sales 46 83 290 384
Gain/(Loss) Based on Interest-Only
Security Received:
Nonconforming Loan Securitizations 8,639 13,790 27,143 39,483
Open End Home Equity Securitization - 6,706 - 6,706
Closed End Home Equity Securitization - 3,327 - 3,327
$25,807 $25,635 $60,356 $59,343
</TABLE>
Equipment leases were securitized and sold during the third quarter of
1998. The gain recognized was based on cash received, reduced by a
$4.1 million provision for losses and $1.7 million of expenses
incurred from the transaction.
Provident Financial sells its residential loans originated by Consumer
Financial Services. The following is a summary of selected
nonconforming operational data for Consumer Financial Services for the
past five quarters:
<TABLE>
<CAPTION>
Quarter Ended
Sept. 1998 June 1998 Mar. 1998 Dec. 1997 Sept. 1997
(In Millions)
<S> <C> <C> <C> <C> <C>
Loan Originations $286.4 $226.2 $193.4 $266.2 $230.3
Loan Sales 277.5 239.2 207.8 255.2 233.2
Gain on Sale of Loans 8.7 10.8 8.0 10.2 13.8
</TABLE>
- 14 -
<PAGE>
Included in "Investment Securities Available for Sale" are interest-
only securities representing the present value of net cash flows due
Provident Financial from loan securitizations and sales. Components of
the interest-only securities and the underlying assumptions follow
(dollars in thousands):
<TABLE>
<CAPTION>
Closed-End Closed-End Open-End
Nonconforming Conforming Conforming
<S> <C> <C> <C>
Estimated Cash Flows of Underlying Loans,
Net of Payments to Certificate Holders $242,799 $4,685 $8,390
Less:
Off-Balance Sheet Allowance for Loan Losses (37,989) (595) (504)
Servicing Costs and Insurance Premiums (28,956) (813) (1,333)
Discount to Present Value (38,587) (418) (933)
Carrying Value of Residual Interest Securities $137,267 $2,859 $5,620
Assumptions Used (Weighted Average)
Prepayment Speed (initial) 9.50% 15.00% n/a
Prepayment Speed (levels to) 28.40 15.00 n/a
Repayment Rate (overall) n/a n/a 40.00%
Provision for Loan Losses (annual basis) 1.06 0.30 0.15
Provision for Loan Losses (% of original balance) 3.36 0.79 0.30
Discount Rate 11.62 9.36 9.23
</TABLE>
For securitizations prior to 1998, an allowance for loan loss was
funded from future cash flows of the underlying loans, net of interest
payments to the security holders. Beginning in 1998, an allowance for
loan losses is funded at the time of each securitization. The funds
are placed in a deposit account at Provident Bank for the benefit of
the Trust. As of September 30, 1998, the allowance on the 1998
securitizations was $16.0 million.
Noninterest Expense
Third Quarter 1998 Compared to Third Quarter 1997
Noninterest expense increased $12.2 million during the third quarter
of 1998 when compared to 1997. Compensation expense increased
primarily as a result of the expansion of Consumer Financial Services
and the acquisition of the Florida banks. The larger volume of
operating leases originated by Equipment Leasing and Information
Leasing has resulted in the higher depreciation expense of operating
lease equipment. Occupancy expense increased primarily in the Consumer
Financial Services area. Equipment expense increased primarily due to
the purchase of data processing and voice communications equipment.
Professional fees have increased primarily in the area of consumer
lending. Marketing costs increased primarily due to solicitation
efforts for retail products services. Higher data processing and
communications expense were the primary reasons for the increase in
other expense.
- 15 -
<PAGE>
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Noninterest expense increased $42.8 million during the first nine
months of 1998 compared to the same period in 1997. Compensation,
depreciation on operating leases, equipment expense, professional fees
and other expense increased for the same reasons as given in the
quarterly comparison. Occupancy expense increased primarily in the
areas of Consumer Financial Services and Retail. Advertising of
Retail, as well as Consumer Financial Services, resulted in the higher
marketing costs.
Financial Condition
Short-Term Investments and Investment Securities
Federal funds sold and reverse repurchase agreements increased $34.3
million since December 31, 1997. The amount of federal funds sold
changes daily as cash is managed to meet reserve requirements and
customer needs. After funds have been allocated to meet lending and
investment requirements, any remainder is placed in overnight federal
funds.
Beginning in 1998, Provident Financial began purchasing securities
with the intention of recognizing short-term profits. These securities
are carried at fair value with realized and unrealized gains and
losses reported in other noninterest income. As of September 30, 1998
Provident Financial held $98.8 million in trading account securities.
Securities purchased with the intention of being held for indefinite
periods of time are classified as investment securities available for
sale. This category of securities increased $237.0 million during 1998
as more funds were invested in this manner.
Loans and Leases
Total loans and leases increased $627.7 million during 1998 reflecting
commercial loan growth of $646.7 million. Commercial and consumer
lease financing, along with residential loans decreased due to loan
and lease sales or sale-leaseback arrangements. Nonconforming
residential loans and commercial leases securitized during 1998
totaled $710.0 million and $211.3 million, respectively. Auto leases
were removed from the balance sheet via a sale-leaseback transaction
totaling $170.6 million.
- 16 -
<PAGE>
The following table shows the composition of the commercial and
financial loan category by industry type at September 30, 1998
(dollars in millions):
Amount on
Type Amount % Nonaccrual
Manufacturing $673.6 20 $8.3
Service Industries 564.6 17 2.5
Real Estate Operators/Investment 353.6 10 1.2
Residential Warehouse Lending 332.8 10 -
Wholesale Trade 288.3 8 2.0
Retail Trade 270.5 8 2.6
Finance & Insurance 190.6 6 .8
Transportation/Utilities 177.8 5 .9
Construction 127.7 4 .1
Automobile Dealers 85.0 3 -
Other(1) 315.8 9 2.3
Total $3,380.3 100 $20.7
(1) Includes various kinds of loans, such as small business loans
and loans with balances under $100,000.
The composition of the commercial mortgage and construction loan
categories by property type at September 30, 1998 is shown in the
following table (dollars in millions):
Amount on
Type Amount % Nonaccrual
Shopping/Retail $188.4 22 $.3
Residential Development 171.6 20 -
Office/Warehouse 169.4 20 -
Apartments 116.6 14 -
Land 34.5 4 -
Auto Sales and Service 27.0 3 -
Industrial Plants 14.7 2 -
Hotels/Motels 14.7 2 -
Churches 12.5 1 -
Health Facilities 4.0 1 -
Mobile Home Parks .8 - -
Other Commercial Properties 88.5 11 -
Total $842.7 100 $.3
Provident Financial maintains a reserve for loan and lease losses to
absorb potential losses in its 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. The reserve is maintained at a level which
management considers to be adequate to absorb future loan and lease
losses. Reserve adjustments needed for charge-offs or risk
characteristics in the lending portfolio are made through changes to
the provision for loan and lease losses. 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.
- 17 -
<PAGE>
The following table shows the progression of the reserve for loan and
lease losses (in thousands):
1998 1997
Balance at January 1 $71,980 $66,693
Provision for Loan and Lease Losses 19,500 35,500
Acquired Reserves - 1,816
Loans and Leases Charged Off (23,133) (36,544)
Recoveries 8,098 7,777
Balance at September 30 $76,445 $75,242
Net charge-offs totaled $15.0 million during the first nine months of
1998 compared to $28.8 million for the same time period in 1997.
During the first three quarters of 1998, net charge-offs for the
commercial lending portfolio were $7.0 million, consisting primarily
of commercial loans and equipment leases. Net charge-offs for the
consumer lending portfolio were $8.0 million consisting principally of
auto loans and leases and credit card lending. As a percentage of
total loans and leases outstanding, the reserve was 1.35% at September
30, 1998 compared to 1.42% at December 31, 1997.
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 decreased $12.6 million during the first
nine months of 1998. Nonaccrual loans decreased $11.0 million due
primarily to three loans being brought current and one loan being
restructured, which was partially offset by two loans being added.
Renegotiated loans increased $8.6 million due to the loan formerly on
nonaccrual being restructured. Other real estate decreased $10.2
million due primarily to three commercial properties being sold. At
September 30, 1998, nonperforming assets as a percentage of total
loans, leases and other real estate was .82% compared to 1.17% at
December 31, 1997.
Premises and Equipment
Premises and Equipment increased from $183.9 million at December 31,
1997 to $225.8 million at September 30, 1998. The 23% increase was
primarily due to an increase in operating lease equipment by Equipment
Leasing and Information Leasing.
Other Assets
Other assets increased $194.3 million, or 62%, during the first three
quarters of 1998. The increase was due primarily to an increase in
receivables arising from security sales traded but not settled until
early October, and funds advanced to securitization trusts for over-
collateralization, and deposited at Provident Bank.
- 18 -
<PAGE>
Deposits
Deposits increased $406.1 million from December 31, 1997 to September
30, 1998. The increase was a result of increased deposits in retail
and corporate premium index accounts.
Short-Term Debt
Short-term debt increased $366.3 million, or 45%, to $1.2 billion
during the first nine months of 1998. The increase was due primarily
to the purchase of term and overnight federal funds. The amount of
federal funds purchased was used primarily to fund the warehouse
lending lines and to meet reserve requirements and customer needs.
Long-Term Debt
Long-term debt increased $202.2 million, or 29%, during the first
three quarters of 1998. The increase is attributable to two additional
advances totaling $225 million from the Federal Home Loan Bank
("FHLB"). One borrowing of $125 million has a fixed rate of 4.66% and
matures in 2008, while the other borrowing of $100 million has a fixed
rate of 5.39% and matures in 1999. This debt was necessary for
Provident Financial to participate in affordable housing credit real
estate transactions as certain levels of FHLB borrowings are required.
Capital Resources and Adequacy
During the first nine months of 1998, shareholders' equity increased
$87.9 million, or 14%, to $725.1 million. The increase in equity was
primarily the result of net income exceeding dividends paid and the
exercise of stock options. Dividends of $25.9 million on common stock
and $593,000 on preferred stock were paid in the first three quarters
of 1998.
In August 1998, Provident Financial announced that it would purchase
up to 1 million shares, or approximately 2.3%, of its common stock.
The purchases are to be made from time-to-time in open market or in
privately negotiated transactions at the discretion of management.
Shares purchased pursuant to the buy-back program will be used to fund
various company benefit plans and for other corporate purposes. As of
September 30, 1998, Provident Financial had purchased 253,000 shares.
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, 1998 December 31, 1997
<S> <C> <C>
Average Shareholders' Equity to Average Assets 8.88% 8.22%
Preferred Dividend Payout to Net Earnings .62 .62
Common Dividend Payout to Net Earnings 27.24 25.62
Tier 1 Leverage Ratio 9.31 10.13
Tier 1 Capital to Risk-Weighted Assets 9.37 9.81
Total Risk-Based Capital To Risk-Weighted Assets 12.18 13.25
</TABLE>
- 19 -
<PAGE>
Capital expenditures planned by Provident Financial for building
improvements and furniture and equipment in 1998 are currently
estimated to be approximately $27 million. Included in this amount are
projected capital expenditures for the purchase or construction of
computer equipment and software, office building renovations and
branch enhancements. Through September 30, 1998, approximately $23
million of these expenditures have been made.
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. Provident
Financial 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, deposits with other banks, federal funds sold and
trading account securities. Another source is the generation of new
deposits. Provident Financial may borrow both short-term and long-term
funds. Provident Financial 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 Provident Financial 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, 1998 by its banking subsidiaries was approximately $268.5 million.
The Parent has not received any dividends from its subsidiaries during
the first nine months of 1998. An annual dividend of $51 million has
been declared to be paid from The Provident Bank in November, 1998.
At September 30, 1998, the Parent had $231.3 million of short-term
commercial paper outstanding. A portion of commercial paper proceeds
was used to fund investment securities. Contractual lines of credit
totaling $175 million have been obtained by the Parent to support its
commercial paper borrowings. Also, the Parent has $40 million in
general purpose lines of credit. These lines had not been used at
September 30, 1998. The Parent had approximately $140.0 million in
cash, interest earning deposits and federal funds sold at September
30, 1998.
Year 2000 Compliance
The Year 2000 Issue arose because many existing computer programs use
only two digits to identify a year in the date field. These programs
were designed and developed without considering the impact of the
upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results before, during and
after January 1, 2000.
- 20 -
<PAGE>
Provident Financial has been actively addressing the Year 2000 Issue
since 1996 as it could result in an interruption in certain normal
business activities or operations. Such interruptions could materially
affect Provident Financial's results of operations, liquidity and
financial condition. Due to the general uncertainty inherent in the
Year 2000 issue, including third party vendors and customers,
Provident Financial is unable to determine at this time whether Year
2000 failures will significantly affect Provident Financial's results
of operations, liquidity and financial condition. Steps taken by
Provident Financial are expected to significantly reduce the level of
uncertainty about the Year 2000 issues. It is management's estimate
that it will cost a total of $10 million to correct all of its
application systems. Since inception, Provident Financial has expensed
$5.3 million for the correction of this problem. The following
summarizes its Year 2000 readiness.
Mainframe Applications: Provident Financial has completed the Year
2000 code remediation and implemented the changes into production.
Additionally, all third-party upgrades required to ensure Year 2000
compliance have been installed. Though Provident Financial has
performed future date testing at an application level throughout the
conversion and upgrade process, a fully integrated systems Millennium
Verification Test has been scheduled offsite in the fourth quarter of
1998.
PC Applications: Provident Financial has established a Year 2000 PC
test lab for verification of PC software applications, spreadsheets
and databases. Plans call for date simulated testing to be completed
on vendor purchased software, and Provident Financial written
spreadsheets and databases by the end of the first quarter of 1999. As
of September 30, 1998, 42% of the software has been tested to ensure
Year 2000 compliance.
Environmental/Embedded Systems: Provident Financial has solicited, and
received from vendors, the Year 2000 compliance information on its
environmental and other embedded systems. To assist in testing these
systems within the various facilities owned or leased, Provident
Financial has secured the services of an outside provider. This
project is currently on target to meet a June, 1999 deadline.
Third Party Interdependencies: Provident Financial has solicited, and
continues to monitor, the readiness of all third party
interdependencies. Testing has begun with our main interface, the
Federal Reserve Bank, to verify our ACH, wire and daily cash
settlement activity. Remaining Year 2000 compliance testing is
scheduled to be completed during the first quarter of 1999.
Vendors/Customers: Letters and questionnaires have been sent out to
significant vendors and borrowers of Provident Financial. Both vendor
and customer responses are being actively monitored and updated on an
on-going basis.
- 21 -
<PAGE>
Contingency Plans: Year 2000 business resumption contingency plans
have been developed and documented. These plans are designed to focus
on Provident Financial's processes for achieving Year 2000 readiness
with the assumption that all business processes, functions and
applications will fail during the Year 2000 date change. These plans
define processes and comprehensive procedures covering company-wide
contingency strategies, financial business center sales and services,
and individual business units necessary to assuring continuity or
resumption of business operations in the event of Year 2000
disruptions. Master listings of external dependencies and interfaces
including corporate customers, vendors, service providers,
infrastructure and information sources are provided for within these
plans.
- 22 -
<PAGE>
<TABLE>
Provident Financial Group, Inc. and Subsidiaries
Condensed Consolidated Statements Of Earnings
(unaudited)
(In Thousands)
Table 1.
<CAPTION>
Quarter Ended Nine Months Ended
Sept. Sept. Sept. Sept.
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Total Interest Income $164,952 $146,512 $466,437 $426,034
Taxable Equivalent Adjustment 58 89 216 253
Taxable Equivalent Interest Income 165,010 146,601 466,653 426,287
Total Interest Expense 91,275 81,031 258,257 231,473
Net Interest Income 73,735 65,570 208,396 194,814
Provision for Loan and Lease Losses 9,500 9,500 19,500 35,500
Taxable Equivalent Net Interest Income After
Provision for Loan and Lease Losses 64,235 56,070 188,896 159,314
Noninterest Income 56,728 48,217 163,264 135,555
Noninterest Expense 70,955 58,798 206,490 163,681
Taxable Equivalent Earnings Before Income Taxes 50,008 45,489 145,670 131,188
Applicable Income Taxes 17,450 15,898 50,554 45,926
Taxable Equivalent Adjustment 58 89 216 253
Net Earnings $32,500 $29,502 $94,900 $85,009
Net Earnings Applicable to Common Stock $32,303 $29,304 $94,307 $84,495
</TABLE>
- 23 -
<PAGE>
<TABLE>
Provident Financial Group, 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, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
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 $3,290 9.21% $2,607 9.13% $3,064 9.28% $2,494 9.26%
Mortgage 447 10.06 505 9.32 447 9.49 502 9.25
Construction 374 8.77 301 8.83 340 8.86 289 8.80
Lease Financing 378 9.42 276 10.69 358 10.88 255 10.98
Consumer Lending:
Instalment 690 9.91 850 10.25 647 10.05 878 9.92
Residential 206 8.78 169 7.87 215 8.92 265 8.23
Lease Financing 559 8.25 689 7.76 500 8.01 650 7.68
Total Loans and Leases 5,944 9.24 5,397 9.17 5,571 9.34 5,333 9.18
Investment Securities:
Taxable 1,475 6.28 1,287 6.68 1,509 6.41 1,163 6.77
Tax-Exempt 3 8.25 7 7.36 5 7.45 7 6.02
Total Investment Securities 1,478 6.29 1,294 6.69 1,514 6.41 1,170 6.76
Trading Account Securities 93 5.50 - - 63 5.51 - -
Federal Funds Sold and Reverse
Repurchase Agreements 33 5.57 3 5.62 24 5.54 15 6.48
Total Earning Assets 7,548 8.67 6,694 8.69 7,172 8.70 6,518 8.74
Cash and Noninterest Bearing Deposits 193 164 189 147
Other Assets 377 205 388 203
Total Assets $8,118 $7,063 $7,749 $6,868
Liabilities and Shareholders' Equity:
Deposits:
Demand Deposits $259 2.22 $241 2.15 $265 2.19 $241 2.22
Savings Deposits 1,154 4.10 673 3.71 1,032 4.18 577 3.21
Time Deposits 2,948 5.73 3,399 5.80 3,019 5.72 3,431 5.74
Total Deposits 4,361 5.09 4,313 5.27 4,316 5.14 4,249 5.20
Short-Term Debt:
Federal Funds Purchased and
Repurchase Agreements 1,335 5.64 640 5.51 1,048 5.57 503 5.40
Commercial Paper 232 5.76 155 5.97 228 5.76 151 5.81
Short-Term Notes Payable 2 5.55 2 5.24 2 5.88 2 5.43
Total Short-Term Debt 1,569 5.65 797 5.60 1,278 5.60 656 5.50
Long-Term Debt 703 6.12 647 6.35 687 6.30 697 6.30
Junior Subordinated Debentures 99 8.69 99 8.70 99 8.79 99 8.79
Total Interest Bearing Liabilities 6,732 5.38 5,856 5.49 6,380 5.41 5,701 5.43
Noninterest Bearing Deposits 548 460 537 449
Other Liabilities 114 175 144 168
Shareholders' Equity 724 572 688 550
Total Liabilities and Shareholders' Equity $8,118 $7,063 $7,749 $6,868
Net Interest Spread 3.29% 3.20% 3.29% 3.31%
Net Interest Margin 3.88% 3.89% 3.89% 4.00%
</TABLE>
- 24 -
<PAGE>
<TABLE>
Provident Financial Group, Inc. and Subsidiaries
Consolidated Quarterly Nonperforming Assets
(unaudited)
(Dollars In Thousands)
Table 3.
<CAPTION>
Quarter Ended
Sept. June Mar. Dec. Sept.
1998 1998 1998 1997 1997
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans: (1)
Commercial Lending:
Commercial and Financial $20,719 $42,413 $32,746 $37,800 $28,551
Mortgage 335 335 335 335 553
Construction - - - 27 87
Lease Financing 10,732 11,862 7,046 4,798 5,481
Consumer Lending:
Instalment - - - - 14
Residential 3,674 3,314 3,287 3,459 2,239
Lease Financing - - - - -
Total Nonaccrual Loans 35,460 57,924 43,414 46,419 36,925
Renegotiated Loans (2) 8,950 9,196 9,327 377 257
Total Nonperforming Loans 44,410 67,120 52,741 46,796 37,182
Other Real Estate and Equipment Owned:
Commercial 989 2,247 4,330 11,207 11,088
Residential 1,131 983 1,124 1,079 1,662
Land 91 91 92 110 15
Total 2,211 3,321 5,546 12,396 12,765
Total Nonperforming Assets $46,621 $70,441 $58,287 $59,192 $49,947
Loans 90 Days Past Due Still Accruing $13,443 $10,058 $17,109 $9,811 $10,504
Total Loans and Leases 5,679,522 5,588,006 5,265,159 5,051,842 5,105,578
Reserve for Loan and Lease Losses 76,445 75,472 72,837 71,980 75,242
Total Assets 8,280,817 7,801,614 7,699,935 7,123,659 7,079,578
Reserve for Loan and Lease Losses as a Percent of:
Nonperforming Loans 172.13% 112.44% 138.10% 153.82% 202.36%
Nonperforming Assets 163.97% 107.14% 124.96% 121.60% 150.64%
Total Loans and Leases 1.35% 1.35% 1.38% 1.42% 1.47%
Nonperforming Loans as a % of Total
Loans and Leases .78% 1.20% 1.00% .93% .73%
Nonperforming Assets as a Percent of:
Total Loans, Leases and Other Real Estate .82% 1.26% 1.11% 1.17% .98%
Total Assets .56% .90% .76% .83% .71%
<FN>
(1) Provident Financial 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>
- 25 -
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed:
Exhibit 10 - Material Contract
Exhibit 27.1 - Financial Data Schedule for September 30, 1998
Exhibit 27.2 - Restated Financial Data Schedule for
September 30, 1997
All other items required in Part II of this form have been omitted
since they are not applicable or not required.
- 26 -
<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 Financial Group, Inc.
Registrant
Date: November 13, 1998 \s\ John R. Farrenkopf
John R. Farrenkopf
Vice President and
Chief Financial Officer
- 27 -
<PAGE>
August 27, 1998
Mr. Jerry L. Grace
Sr. Vice President/Treasurer
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
Dear Jerry:
As we discussed, your employment as Senior Vice
President/Treasurer of The Provident Bank and/or its parent,
Provident Financial Group, Inc., and all subsidiaries and
affiliated business entities (herein collectively "Provident"),
is ending effective September 18, 1998, on which date you will
retire. You have indicated that you desire to assist us with an
orderly transition.
Your retirement rights to continue to participate in Provident's
group health and insurance program, and your conversion privilege
under the group life insurance plan are described in separate
documents that will be mailed to you.
Given your years of loyal service to Provident, Provident offers
you the following Arrangement. You agree to the following:
1. Through September 18, 1998, you will cooperate in
making an orderly transition and report to me.
2. You will not at any time make any materially derogatory
statement about, or do anything materially injurious
to, Provident.
3. You waive your rights to future re-employment with
Provident.
4. For a period of 104 weeks following your retirement,
you or a business entity controlled by you will not
directly, nor indirectly, hire or recruit any Provident
associates or attempt to influence any associate to end
employment with Provident.
5. You will return to me, before 5:00 p.m. on September
17, 1998, which is 21 days from the date you receive
this letter, the signed originals of this letter and
the attached General Release.
<PAGE>
6. Save and except if this letter becomes a matter of
public record, you will not discuss with anyone, other
than your spouse and immediate family and your personal
legal, tax or financial advisor, the terms of this
Agreement. In fact, we recommend that you consult your
personal attorney before acting on this offer letter.
7. You will hold in strict confidence all information
relating to Provident's current and planned business
operations which is not generally known outside
Provident, and will not disclose any of such
proprietary information to any third party without the
prior written consent of an executive officer of
Provident.
If you comply with the terms set forth in numbered paragraphs 1
through 7, immediately above, Provident agrees that it will:
(a) Pay, as salary continuation and separation, your
current regular salary, in bi-weekly payments to you,
for the next 104 weeks, with all payments subject to
required withholdings;
(b) Have Provident records reflect that you retired
effective September 15, 1998, and, in the future, if
Provident receives an inquiry from a third party
concerning your employment, Provident will provide the
following information: "Mr. Grace served nearly 14
years with Provident, working for his last several
years as Senior Vice President/Treasurer. He retired
from that position and left employment with Provident
on September 18, 1998";
(c) Not contest your claim for unemployment compensation
benefits; and
(d) Honor all of your rights under Provident's employee
retirement benefit plans, as defined under ERISA, or
other laws relating to them.
If you have any questions, please contact me without delay.
Sincerely,
/s/Robert L. Hoverson
Robert L. Hoverson
President and Chief Executive Officer
<PAGE>
ACCEPTANCE OF OFFER
Having read, having been given an opportunity to ask questions
about, and fully understanding the terms and conditions, I accept
the above Arrangement this 27 day of August, 1998.
I understand that this Arrangement will not be effective until
the eighth day after I sign below because, if I choose to do so,
I have seven days after accepting to change my mind and deliver
to Provident written notice of my desire to cancel my acceptance.
Provident, however, will not withdraw or cancel this offer and
agreement during such time.
/s/ Jerry L. Grace
Jerry L. Grace
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
Provident Financial Group, Inc.'s 10-Q for September 30, 1998 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-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 202,240
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 36,000
<TRADING-ASSETS> 98,761
<INVESTMENTS-HELD-FOR-SALE> 1,608,520
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 5,679,522
<ALLOWANCE> 76,445
<TOTAL-ASSETS> 8,280,817
<DEPOSITS> 5,102,400
<SHORT-TERM> 1,172,458
<LIABILITIES-OTHER> 390,466
<LONG-TERM> 890,365
0
7,000
<COMMON> 12,773
<OTHER-SE> 705,355
<TOTAL-LIABILITIES-AND-EQUITY> 8,280,817
<INTEREST-LOAN> 388,798
<INTEREST-INVEST> 72,551
<INTEREST-OTHER> 5,088
<INTEREST-TOTAL> 466,437
<INTEREST-DEPOSIT> 165,839
<INTEREST-EXPENSE> 258,257
<INTEREST-INCOME-NET> 208,180
<LOAN-LOSSES> 19,500
<SECURITIES-GAINS> 9,777
<EXPENSE-OTHER> 206,490
<INCOME-PRETAX> 145,454
<INCOME-PRE-EXTRAORDINARY> 94,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,900
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.11
<YIELD-ACTUAL> 3.89
<LOANS-NON> 35,460
<LOANS-PAST> 13,443
<LOANS-TROUBLED> 8,950
<LOANS-PROBLEM> 28,270
<ALLOWANCE-OPEN> 71,980
<CHARGE-OFFS> 23,133
<RECOVERIES> 8,098
<ALLOWANCE-CLOSE> 76,445
<ALLOWANCE-DOMESTIC> 76,445
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
Provident Financial Group, Inc.'s 10-Q for September 30, 1998 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 192,119
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 147,437
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,372,667
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 5,105,578
<ALLOWANCE> 75,242
<TOTAL-ASSETS> 7,079,578
<DEPOSITS> 4,984,056
<SHORT-TERM> 535,751
<LIABILITIES-OTHER> 293,995
<LONG-TERM> 659,005
0
7,000
<COMMON> 12,343
<OTHER-SE> 587,428
<TOTAL-LIABILITIES-AND-EQUITY> 7,079,578
<INTEREST-LOAN> 366,223
<INTEREST-INVEST> 59,105
<INTEREST-OTHER> 706
<INTEREST-TOTAL> 426,034
<INTEREST-DEPOSIT> 165,201
<INTEREST-EXPENSE> 231,473
<INTEREST-INCOME-NET> 194,561
<LOAN-LOSSES> 35,500
<SECURITIES-GAINS> 4,449
<EXPENSE-OTHER> 163,681
<INCOME-PRETAX> 130,935
<INCOME-PRE-EXTRAORDINARY> 85,009
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,009
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 1.95
<YIELD-ACTUAL> 4.00
<LOANS-NON> 36,925
<LOANS-PAST> 10,504
<LOANS-TROUBLED> 257
<LOANS-PROBLEM> 29,917
<ALLOWANCE-OPEN> 66,693
<CHARGE-OFFS> 36,544
<RECOVERIES> 7,777
<ALLOWANCE-CLOSE> 75,242
<ALLOWANCE-DOMESTIC> 75,242
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
