Exhibit 99.1
Provident Financial Group Announces Change in Securitization Structure
Resulting in the Discontinuation of Gain-on-Sale Accounting
Cincinnati, August 22, 2000 - Provident Financial Group, Inc. today
announced that effective with third quarter financial results the
company will change the structure of its securitizations in order to
discontinue the use of gain-on-sale accounting. Going forward,
Provident will account for the securitizations of loans as secured
financings.
Provident's President and Chief Executive Officer, Robert L. Hoverson
commented, "While the performance of our residual assets has been
excellent, other companies utilizing securitization structures
requiring gain-on-sale accounting have experienced problems and
consequently, the market has penalized all companies using gain-on-sale
accounting. Although gain-on-sale accounting is in compliance with
Generally Accepted Accounting Principles (GAAP), the investment
community has clearly signaled its dissatisfaction with this accounting
method and we believe this sentiment has been factored into our stock
price. Additionally, the newly proposed regulatory guidelines regarding
securitization activity discourages the use of gain-on-sale accounting
by limiting the amount of residual assets that can be included as part
of our regulatory capital.
With this change, we move away from gain-on-sale accounting and shift
the focus of our investors where it rightly belongs - on Provident's
ability to build our franchise and to profitably manage assets. This
change is in the best interests of our shareholders and by removing
what has become an impediment to a higher valuation for the company it
will position Provident for a higher share price."
Provident's Executive Vice President and Chief Financial Officer,
Christopher J. Carey, added, "This change has little to do with the
true economics of our businesses - which continue to be strong. We are
only changing the structure of our securitizations to secured financing
transactions. It does not affect the total profit we recognize over the
life of a loan, but rather impacts the timing of income recognition.
Secured financing transactions cause reported earnings from securitized
loans to be lower in the initial periods and higher in later periods,
as interest is earned on the loans. As a result, moving away from
transaction structures that use gain-on-sale accounting will
temporarily cause Provident's earnings to be lower over the next
several quarters. However, this change will not impact our overall cash
flow. Additionally, we anticipate that within eighteen months, earnings
will start reaching previously reported results.
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For full year 2000, we now expect operating earnings to be
approximately $2.65 per share compared with our current estimate of
$3.60 per share which was based on gain-on-sale accounting. Close to
$0.52 of this reduction in earnings is due to the discontinuation of
gain-on-sale accounting and $0.30 is due to a higher loan loss
provision, partially offset by higher interest income, for the loans
that will now be financed on-balance sheet during the third and fourth
quarters. The reduction also includes the impact of $5.0 million in
higher credit losses, or $0.06 per share, which will place our total
net charge-off ratio at approximately 66 basis points (bps) for the
year, which is about 6 bps above our historical range of 50-60 bps. The
additional charge-offs are primarily from our commercial lending
business. During the fourth quarter of this year and in 2001, we fully
expect to return to the low end of our historical charge-off range.
Provident will not be required to raise capital beyond its current
capital plan in order to remain well capitalized under the recently
proposed regulatory guidelines. Nevertheless, to maintain higher
internal targets the company has plans to execute a risk transfer
transaction of approximately $100 million. Costs associated with this
transaction reduce earnings by approximately $0.07 per share on an
annual basis. For the full year 2001, our targeted earnings per share
is within the $3.20 to $3.30 range. Our long-term objective for
earnings per share growth remains unchanged at 12 to 15 percent
annually and we expect to exceed that range in both 2002 and 2003."
"We intend to continue utilizing the asset-backed securities markets
as a significant source of funding. Our asset-backed securities
expertise provides us with financial flexibility and funding
diversification and is a competitive strength for the company." said
Hoverson.
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Safe Harbor Statement
This news release contains certain forward-looking statements that are
subject to numerous assumptions, risks or uncertainties. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. Actual results could differ materially from
those contained in or implied by such forward-looking statements for a
variety of factors including: sharp and/or rapid changes in interest
rates; significant changes in the anticipated economic scenario which
could materially change anticipated credit quality trends, the ability
to generate loans and leases, the ability to securitize loans and
leases and the spreads realized on securitizations; significant cost,
delay in, or inability to execute strategic initiatives designed to
grow revenues and/or manage expenses; consummation of significant
business combinations or divestitures; and significant changes in
accounting, tax, or regulatory practices or requirements and factors
noted in connection with forward looking statements. In addition,
borrowers could suffer unanticipated losses without regard to general
economic conditions. The result of these and other factors could cause
a difference from expectations of the level of defaults and a change in
the risk characteristics of the loan and lease portfolio and a change
in the provision for loan and lease losses. 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.
About Provident Financial Group, Inc.
Provident Financial Group, Inc., (Nasdaq: PFGI) a Cincinnati-based
commercial banking and financial services company with $11.4 billion in
on-balance sheet assets and $18.3 billion in managed assets, provides
full-service national and regional commercial and retail banking
operations through The Provident Bank and the Provident Bank of
Florida. Additional company information is available at
http://www.provident-financial.com.
Conference Call
Provident will host a conference call to discuss the contents of this
news release at 11:00 a.m. EDT Wednesday, August 23, 2000. To
participate, call 888-849-9216. A presentation will also be available
approximately one hour prior to the start of the call at the Investor
Relations area of Provident's corporate website at the address noted
above. Additionally, a replay of the call will be available from 1:00
p.m. EDT Wednesday, August 23, 2000 until 11:59 p.m. EDT Wednesday,
August 30, 2000 by calling 800-633-8284 (replay code 161 07 378).
For further information, please contact:
Christopher J. Carey
Executive Vice President & Chief Financial Officer
513-639-4644 or 800-851-9521
e-mail: [email protected]
