-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HQKO7DLDa4LJX2cOJYIRCL4VM9gL/Icao8u9iKe6vmOHGHsnLTJtBpko1wq3Cszm U8e+hhc48TuygQWDDe30Wg== 0000914317-05-000469.txt : 20050208 0000914317-05-000469.hdr.sgml : 20050208 20050208140130 ACCESSION NUMBER: 0000914317-05-000469 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050208 DATE AS OF CHANGE: 20050208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVIDENT BANCORP INC/NY/ CENTRAL INDEX KEY: 0001070154 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 800091851 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25233 FILM NUMBER: 05583273 BUSINESS ADDRESS: STREET 1: 400 RELLA BLVD CITY: MONTEBELLO STATE: NY ZIP: 10901 BUSINESS PHONE: 8453698040 10-Q 1 form10q-65781_provident.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q --------- |X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2004 ------------------------------------------------ OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ ------------------------------------------------------- Commission File Number: 0-25233 PROVIDENT BANCORP, INC. ----------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 80-0091851 ------------------------------- ---------- (State or Other Jurisdiction of (IRS Employer ID No.) Incorporation or Organization) 400 Rella Boulevard, Montebello, New York 10901 ----------------------------------------- ----- (Address of Principal Executive Office) (Zip Code) (845) 369-8040 -------------- (Registrant's Telephone Number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Classes of Common Stock Shares Outstanding ----------------------- ------------------ $0.01 per share 45,929,738 as of January 31, 2005 1 PROVIDENT BANCORP, INC. QUARTERLY PERIOD ENDED DECEMBER 31, 2004 PART I. FINANCIAL INFORMATION --------------------- Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition at December 31, 2004 and September 30, 2004 3 Consolidated Statements of Income for the Three Months Ended December 31, 2004 and 2003 5 Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended December 31, 2004 6 Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2004 and 2003 7 Consolidated Statements of Comprehensive Income/(Loss) for the Three Months Ended December 31, 2004 and 2003 9 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 22 Item 3. Quantitative and Qualitative Disclosures about Market Risk 34 Item 4. Controls and Procedures 35 PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings 35 Item 2. Changes in Securities and Use of Proceeds 36 Item 3. Defaults upon Senior Securities 37 Item 4. Submission of Matters to a Vote of Security Holders 37 Item 5. Other Information 37 Item 6. Exhibits 37 Signature 38 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements PROVIDENT BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) (Dollars in thousands, except per share data)
Assets December 31, 2004 September 30, 2004 - ------ ----------------- ------------------ Cash and due from banks $ 57,869 $ 107,571 Securities (Note 8): Available for sale, at fair value (amortized cost of $884,083 at December 31, 2004 and $534,512 at September 30, 2004) 880,626 534,297 Held to maturity, at amortized cost (fair value of $68,411 at December 31, 2004 and $70,230 at September 30, 2004) 67,455 69,078 ---------- ---------- Total securities 948,081 603,375 ---------- ---------- Loans held for sale 2,466 855 Gross loans (Note 6) 1,286,918 997,634 Allowance for loan losses (Note 7) (22,165) (17,353) ---------- ---------- Total loans, net 1,264,753 980,281 ---------- ---------- FHLB stock, at cost 19,704 10,247 Accrued interest receivable, net 9,844 6,815 Premises and equipment, net 29,269 16,846 Goodwill (Notes 2, 3 and 4) 157,722 65,260 Core deposit intangible 14,892 5,624 Bank owned life insurance 26,882 13,245 Other assets 21,948 16,032 ---------- ---------- Total assets $2,553,430 $1,826,151 ========== ==========
(Continued) 3 PROVIDENT BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION, CONTINUED (Unaudited) (Dollars in thousands, except per share and share data)
Liabilities and Stockholders' Equity December 31, 2004 September 30, 2004 - ------------------------------------ ----------------- ------------------ Liabilities: Deposits (Note 9): Non-interest bearing $ 366,464 $ 289,360 Interest bearing 1,335,311 950,172 ---------- ---------- Total deposits 1,701,775 1,239,532 Borrowings 392,845 214,909 Mortgage escrow funds 9,551 2,526 Other 22,718 19,672 ---------- ---------- Total liabilities 2,126,889 1,476,639 ---------- ---------- Stockholders' equity: Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding) -- -- Common stock (par value $0.01 per share; 75,000,000 shares authorized; 45,917,491 shares and 39,655,167 shares issued; 45,910,884 shares and 39,618,373 shares outstanding at December 31, 2004 and September 30, 2004, respectively) 459 397 Additional paid-in capital 344,520 269,325 Unallocated common stock held by the employee stock ownership plan ("ESOP") (1,398,311 shares at December 31, 2004 and 1,445,045 shares at September 30, 2004) (10,635) (10,854) Treasury stock, at cost (6,607 shares at December 31, 2004 and 36,794 shares at September 30, 2004) (88) (432) Retained earnings 94,414 91,373 Accumulated other comprehensive income (2,129) (297) ---------- ---------- Total stockholders' equity 426,541 349,512 ---------- ---------- Total liabilities and stockholders' equity $2,553,430 $1,826,151 ========== ========== Book value per common share at period end $ 9.29 $ 8.82
See accompanying notes to unaudited consolidated financial statements. 4 PROVIDENT BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except share and per share data)
For the Three Months Ended December 31, ------------------ 2004 2003 ---- ---- Interest and dividend income: Loans $ 19,413 $ 10,530 Securities 8,478 3,765 Other earning assets 121 23 ----------- ----------- Total interest and dividend income 28,012 14,318 ----------- ----------- Interest expense: Deposits 3,367 1,557 Borrowings 2,943 1,210 ----------- ----------- Total interest expense 6,310 2,767 ----------- ----------- Net interest income 21,702 11,551 Provision for loan losses (Note 7) 150 150 ----------- ----------- Net interest income after provision for loan losses 21,552 11,401 ----------- ----------- Non-interest income: Deposit fees and service charges 2,535 1,286 Loan fees and late charges 383 177 Gains on sales of securities available for sale 49 930 Gains on sales of loans 59 86 Title insurance fees 358 -- Other 641 324 ----------- ----------- Total non-interest income 4,025 2,803 ----------- ----------- Non-interest expense: Compensation and employee benefits 7,834 4,435 Stock-based compensation plans 840 671 Occupancy and office operations 2,148 1,327 Advertising and promotion 1,163 468 Professional fees 668 484 Data and check processing 1,248 744 Stationery and office supplies 255 149 Merger integration costs 380 -- Amortization of intangible assets 1,127 84 ATM/debit card expense 326 153 Other 1,720 1,055 ----------- ----------- Total non-interest expense 17,709 9,570 ----------- ----------- Income before income tax expense 7,868 4,634 Income tax expense 2,853 1,589 ----------- ----------- Net income $ 5,015 $ 3,045 =========== =========== Weighted average common shares:(1) Basic 44,322,927 34,301,264 Diluted 44,926,104 34,943,686 Per common share: (Note 11)(1) Basic $0.11 $0.09 Diluted 0.11 0.09 Dividends declared 0.04 0.03
See accompanying notes to unaudited consolidated financial statements. - ---------- (1) Common share information for 2003 has been adjusted to reflect the stock split of 4.4323-to-one in connection with the second-step conversion in January 2004. 5 PROVIDENT BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 (Unaudited) (In thousands, except share and per share data)
Accumulated Number of Additional Other Total Shares Common Paid-In Unallocated Treasury Retained Comprehensive Stockholders' Outstanding Stock Capital ESOP Shares Stock Earnings (Loss) Equity ----------- ----- ------- ----------- ----- -------- ------ ------ Balance at September 30, 2004 39,655,167 $397 $269,325 $(10,854) $(432) $91,373 $ (297) $349,512 Net Income 5,015 5,015 Other comprehensive (loss) (1,832) (1,832) -------- Total comprehensive (loss) 3,183 Purchase of Warwick Community Bancorp, Inc. 6,257,892 62 74,532 74,594 Stock option transactions 4,432 15 344 (334) 25 Stock-based compensation 648 219 867 Cash dividends paid ($0.04 per common share) (1,640) (1,640) ---------- ---- -------- -------- ----- ------- ------- -------- Balance at December 31, 2004 45,917,491 $459 $344,520 $(10,635) $ (88) $94,414 $(2,129) $426,541 ========== ==== ======== ======== ===== ======= ======= ========
See accompanying notes to unaudited consolidated financial statements. 6 PROVIDENT BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) For the Three Months Ended December 31, -------------------- 2004 2003 ---- ---- Cash flows from operating activities: Net income $ 5,015 $ 3,045 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 150 150 Depreciation and amortization of premises and equipment 743 473 Amortization of core deposit intangible 1,127 84 Gain on sales of securities available for sale (49) (930) Gain on sales of loans held for sale (59) (86) Gain on sales of fixed assets sold -- (46) Net amortization of premiums and discounts on securities 1,001 380 ESOP and RRP expense 592 479 Originations of loans held for sale (5,057) (2,502) Proceeds from sales of loans held for sale 3,505 4,225 Deferred income tax benefit (9,294) (4,080) Net changes in accrued interest receivable and payable (187) (353) Other adjustments (principally net changes in other assets and other liabilities) (1,519) 3,475 --------- --------- Net cash (used in) provided by operating activities (4,032) 4,314 --------- --------- Cash flows from investing activities: Purchases of securities: Available for sale (268,064) (182,930) Held to maturity (5,219) (1,886) Proceeds from maturities, calls and other principal payments on securities: Available for sale 29,448 35,960 Held to maturity 9,044 7,380 Proceeds from sales of securities available for sale 16,988 29,127 Proceeds from sales of fixed assets -- 358 Loan originations (101,620) (66,829) Loan principal payments 102,173 65,148 (Purchase) redemption of FHLB stock (1,852) 2,555 Purchase of Warwick Community Bancorp, Inc. 164,491 -- Increase in bank owned life insurance (317) (157) Purchases of premises and equipment (1,001) (603) --------- --------- Net cash used in investing activities (55,929) (111,877) --------- --------- (continued) 7 PROVIDENT BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (Unaudited) (In thousands) For the Three Months Ended December 31, ------------------ 2004 2003 ---- ---- Cash flows from financing activities: Net increase in transaction and savings deposits $ 10,361 $ 19,022 Net decrease in time deposits (23,548) (18,406) Receipt of stock subscription funds -- 174,660 Net increase (decrease) in borrowings 18,036 (51,104) Net increase in mortgage escrow funds 7,025 5,661 Stock option transactions 25 13 Cash dividends paid (1,640) (452) --------- --------- Net cash provided by financing activities 10,259 129,394 --------- --------- Net (decrease) increase in cash and cash equivalents (49,702) 21,831 Cash and cash equivalents at beginning of period 107,571 33,500 --------- --------- Cash and cash equivalents at end of period $ 57,869 $ 55,331 ========= ========= Supplemental information: Interest payments $ 5,336 $ 2,765 Income tax payments 420 9 Fair value of assets acquired (incl. intangibles) 806,114 -- Fair value of liabilities assumed 658,919 -- --------- Net fair value $ 147,195 -- ========= Cash portion of Warwick Community Bancorp-- purchase transaction 72,601 -- Stock portion of Warwick Community Bancorp purchase transaction 74,594 -- --------- --------- Total paid for Warwick Community Bancorp stock $ 147,195 -- ========= Net change in unrealized losses recorded on securities available for sale (3,242) (2,355) Change in deferred taxes on unrealized losses on securities available for sale 1,410 943 See accompanying notes to unaudited consolidated financial statements. 8 PROVIDENT BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS (Unaudited) (Dollars in thousands) Three Months Ended December 31, ------------------ 2004 2003 ---- ---- Net income: $ 5,015 $ 3,045 Other comprehensive loss: Net unrealized losses on securities available for sale: Net unrealized holding losses arising during the year, net of taxes of $1,027 and $446 (1,803) (854) Less reclassification adjustment for net realized gains included in net income, net of taxes of $20 and $372 (29) (558) ------- ------- Other comprehensive loss (1,832) (1,412) ------- ------- Total comprehensive income (loss) $ 3,183 $ 1,633 ======= ======= See accompanying notes to unaudited consolidated financial statements. PROVIDENT BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) 1. Basis of Presentation --------------------- The consolidated financial statements and other financial information presented in this document as of December 31, 2004, include the accounts of Provident Bancorp, Inc., a Delaware corporation (the "Company"), Shawangunk Holding Co., Inc. (an inactive subsidiary), Provident Bank (the "Bank") and Hardenburgh Abstract Company of Orange County, Inc. ("Hardenburgh"), and each subsidiary of Provident Bank (Provest Services Corp., Provest Services Corp. I, Provest Services Corp. II, Provident REIT, Inc., WSB Funding, Inc., Warsave Development Corp., Provident Municipal Bank and WSB Financial Services, Inc.). Collectively, these entities are referred to herein as the "Company." Provident Bancorp, Inc. is a publicly-held company and the parent of Provident Bank. Provest Services Corp. I holds an investment in a low-income housing partnership that provides certain favorable tax consequences. Warsave holds an investment in a rental property that generates rental income. Hardenburgh is a title insurance agency that generates title insurance fees and commissions. Provest Services Corp. II and WSB Financial Services have engaged third-party providers to sell annuities to the customers of Provident Bank. Through December 31, 2004, the activities of these wholly-owned subsidiaries have had a minor impact on the Company's consolidated financial condition and results of operations. Provident REIT, Inc. and WSB Funding, Inc. hold a portion of the Company's real estate loans and are real estate investment trusts for federal income tax purposes. Provident Municipal Bank ("PMB") is a limited purpose New York State-chartered commercial bank, which began operations on April 19, 2002 and is authorized to accept deposits from municipalities in the Bank's business area. 9 The Company's off-balance sheet activities are limited to loan origination commitments, lines of credit and letters of credit extended to customers or, in the case of letters of credit, on behalf of customers in the ordinary course of its lending activities. The Company does not engage in off-balance sheet financing transactions or other activities involving the use of special-purpose entities. The consolidated financial statements have been prepared by management without audit, but, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company's financial position and results of operations as of the dates and for the periods presented. Although certain information and footnote disclosures have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the Company believes that the disclosures are adequate to make the information presented not misleading. The results of operations for the three months ended December 31, 2004 are not necessarily indicative of results to be expected for other interim periods or the entire fiscal year ending September 30, 2005. The unaudited consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company's Form 10-K for the fiscal year ended September 30, 2004. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense. Actual results could differ significantly from these estimates. A material estimate that is particularly susceptible to near-term change is the allowance for loan losses (see Note 7), which is a critical accounting policy. Certain prior-year amounts have been reclassified to conform to the current-year presentation. Stock-Based Compensation - ------------------------ The Company applies APB Opinion 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock option plan. No stock-based employee compensation cost is reflected in net income pertaining to stock options, as all options granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of the grant. SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123. The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding awards in each period. 10 Three Months Ended December 31, 2004 2003 ---- ---- Net income, as reported $5,015 $3,045 Add RRP expense included in reported net income, net of related tax effects -- 84 Deduct RRP and stock option expense determined under the fair-value-based method, net of related tax effects (49) (84) ------ ------ Pro forma net income $4,966 $3,045 ====== ====== Earnings per share: Basic, as reported $ 0.11 $ 0.09 Basic, pro forma 0.11 0.09 Diluted, as reported 0.11 0.09 Diluted, pro forma 0.11 0.09 In December 2004, the FASB Issued Statement of Financial Accounting Standards No. 123R (Statement 123R), "Share-Based Payments", the provisions of which become effective for the corporation in fiscal 2006. This Statement eliminates the alternative to use APB No. 25's intrinsic value method of accounting that was provided in Statement 123 as originally issued. Statement 123R requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. While the fair-value-based method prescribed by Statement 123R is similar to the fair-value-based method disclosed under the provisions of Statement 123 in most respects, there are some differences. The Company is currently evaluating the provisions of Statement 123R and has not determined the impact of adopting this statement at this time. 11 2. Acquisition of Warwick Community Bancorp, Inc. ---------------------------------------------- On October 1, 2004 the Company completed its acquisition of Warwick Community Bancorp, Inc. ("WSB"), located in Warwick, New York. WSB was the holding company for The Warwick Savings Bank, headquartered in Warwick, New York, The Towne Center Bank, headquartered in Lodi, New Jersey and Hardenburgh Abstract Company of Orange County, Inc. headquartered in Goshen, New York. In addition, Warwick Commercial Bank was a subsidiary of The Warwick Savings Bank. On the merger date, WSB had net loans of $284.5 million, total deposits of $475.1 million and total assets of $703.7 million. Shareholders of WSB as of the close of business on October 1, 2004 received total merger consideration of approximately $147.2 million, consisting of approximately 6,257,892 shares of common stock of the Company and approximately $72.6 million in cash (including cash paid in lieu of fractional shares). Goodwill recorded in the WSB acquisition ($91.6 million) is not amortized to expense, but instead is reviewed for impairment at least annually, with impairment losses charged to expense, if and when they occur. The core deposit intangible asset ($9.8 million at December 31, 2004) is recognized apart from goodwill and amortized to expense over its estimated useful life and evaluated for impairment. 3. Mutual Holding Company Conversion and Acquisition of E.N.B. Holding -------------------------------------------------------------------------- Company, Inc. ------------- On January 14, 2004 the Company completed its stock offering in connection with the second-step conversion of Provident Bancorp, MHC. As a result of the conversion, the Company became the stock holding company of the Bank. In the stock offering, shares representing Provident Bancorp, MHC's ownership interest in Provident Bancorp., Inc., a federal corporation ("Provident Federal") were sold to investors. In addition, the Company simultaneously completed its acquisition of E.N.B. Holding Company, Inc. ("ENB"), located in Ellenville, New York. The Company sold 19,573,000 shares of common stock at $10.00 per share to depositors of the Bank as of June 30, 2002 and September 30, 2003. The new holding company also issued 400,000 shares of common stock and contributed $1.0 million in cash to the Provident Bank Charitable Foundation. In addition, each outstanding share of common stock of Provident Federal as of January 14, 2004 has been converted into 4.4323 new shares of the Company's common stock. Shareholders of ENB as of the close of business on January 14, 2004 received total merger consideration of approximately $76.5 million, consisting of 3,969,676 shares of common stock of the Company and approximately $36.8 million in cash. As a result of the above transactions, the Company had 39,608,586 issued and outstanding shares at January 14, 2004. Financial statements as of December 31, 2004 reflect the effect of the conversion of existing shares of common stock, the stock offering and the acquisition of ENB. Goodwill recorded in the ENB acquisition ($51.8 million) is not amortized to expense, but instead is reviewed for impairment at least annually, with impairment losses charged to expense, if and when they occur. The core deposit intangible asset ($4.4 million at December 31, 2004), is recognized apart from goodwill and amortized to expense over its estimated useful life and evaluated for impairment. 12 4. Acquisition of The National Bank of Florida ------------------------------------------- On April 23, 2002, the Company consummated its acquisition, for cash, of The National Bank of Florida ("NBF"), which was merged with and into the Bank. The transaction was valued at approximately $28.1 million. At the acquisition date, NBF had total assets of approximately $104 million and total deposits of approximately $88.2 million. Amounts attributable to NBF are included in the Company's consolidated financial statements from the date of acquisition. Goodwill recorded in the NBF acquisition ($13.5 million) is not amortized to expense, but instead is reviewed for impairment at least annually, with impairment losses charged to expense, if and when they occur. The core deposit intangible asset ($701,000 at December 31, 2004), is recognized apart from goodwill and amortized to expense over its estimated useful life and evaluated for impairment. 5. Critical Accounting Policies ---------------------------- The accounting and reporting policies of the Company are prepared in accordance with accounting principles generally accepted within the United States of America and conform to general practices within the banking industry. Accounting policies considered critical to the Company's financial results include the allowance for loan losses, accounting for goodwill and the recognition of interest income. The methodology for determining the allowance for loan losses is considered by management to be a critical accounting policy due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the allowance for loan losses considered necessary. Accounting for goodwill is considered to be a critical policy because goodwill must be tested for impairment at least annually using a "two-step" approach that involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions utilized. Interest income on loans, securities and other interest-earning assets is accrued monthly unless management considers the collection of interest to be doubtful. Loans are placed on nonaccrual status when payments are contractually past due 90 days or more, or when management has determined that the borrower is unlikely to meet contractual principal or interest obligations. At such time, unpaid interest is reversed by charging interest income. Interest payments received on nonaccrual loans (including impaired loans) are recognized as income unless future collections are doubtful. Loans are returned to accrual status when collectibility is no longer considered doubtful (generally, when all payments have been brought current). Application of assumptions different than those used by management could result in material changes in the Company's financial position or results of operations. Footnote 2 (Summary of Significant Accounting Policies) of the 2004 Annual Report on Form 10-K provides detail with regard to the Company's accounting for the allowance for loan losses. There have been no significant changes in the application of accounting policies since September 30, 2004. 13 6. Loans ----- Major classifications of loans, excluding loans held for sale, are summarized below: December 31, 2004 September 30, 2004 ----------------- ------------------ Real estate - residential mortgage $ 443,629 $380,749 Real estate - commercial mortgage 476,024 327,414 Real estate - construction 65,529 54,294 Commercial and industrial 136,123 105,196 Consumer loans 165,613 129,981 ---------- -------- Total $1,286,918 $997,634 ========== ======== 7. Allowance for Loan Losses and Non-Performing Assets --------------------------------------------------- The allowance for loan losses is established through provisions for losses charged to earnings. Loan losses are charged against the allowance when management believes that the collection of principal is unlikely. Recoveries of loans previously charged-off are credited to the allowance when realized. The allowance for loan losses is the amount that management has determined to be necessary to absorb probable loan losses inherent in the existing portfolio. Management's evaluations, which are subject to periodic review by the Company's regulators, are made using a consistently-applied methodology that takes into consideration such factors as the Company's past loan loss experience, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and collateral values, and current economic conditions that may affect the borrowers' ability to pay. Changes in the allowance for loan losses may be necessary in the future based on changes in economic and real estate market conditions, new information obtained regarding known problem loans, regulatory examinations, the identification of additional problem loans, and other factors. Activity in the allowance for loan losses for the periods indicated is summarized below: Three Months Ended December 31, ------------------ 2004 2003 ---- ---- Balance at beginning of period $17,353 $11,069 Allowance acquired through acquisition 4,880 -- Provision for loan losses 150 150 Charge-offs (266) (12) Recoveries 48 42 ------- ------- Balance at end of period $22,165 $11,249 ======= ======= Net charge-offs to average loans outstanding (annualized) 0.07% (0.02)% 14 The following table sets forth the amounts and categories of the Company's non-performing assets at the dates indicated. At both dates, the Company had no troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates).
December 31, 2004 September 30, 2004 ----------------- ------------------ Non-accrual loans: One- to four-family residential mortgage loans $1,882 $1,597 Commercial real estate, commercial business and construction loans 1,366 962 Consumer loans 142 178 ------ ------ Total non-performing loans 3,390 2,737 Real estate owned: Total non-performing assets $3,390 $2,737 ====== ====== Ratios: Non-performing loans to total loans, net 0.26% 0.27% Non-performing assets to total assets 0.13% 0.15% Allowance for loan losses to total non-performing loans 654% 634% Allowance for loan losses to total loans 1.72% 1.74%
15 8. Securities ---------- The following is a summary of securities available for sale at December 31, 2004 and September 30, 2004:
Available for Sale Portfolio December 31, 2004 --------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value =================================================== Mortgage-backed and SBA Securities Mortgage-backed securities $549,037 $1,163 $(2,599) $547,601 Collateralized mortgage obligations 22,501 8 (161) 22,348 SBAs and other 152 -- -- 152 -------- ------ ------- -------- Total mortgage-backed and SBA securities 571,690 1,171 (2,760) 570,101 -------- ------ ------- -------- Investment Securities U.S. Government and federal agency securities 290,664 158 (2,256) 288,566 State and municipal securities 20,724 133 (142) 20,715 Equity securities 1,005 374 (135) 1,244 -------- ------ ------- -------- Total investment securities 312,393 665 (2,533) 310,525 -------- ------ ------- -------- Total available for sale $884,083 $1,836 $(5,293) $880,626 ======== ====== ======= ======== Available for Sale Portfolio September 30, 2004 --------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value =================================================== Mortgage-backed and SBA Securities Mortgage-backed securities $304,578 $1,155 $(1,452) $304,281 Collateralized mortgage obligations 9,711 -- (95) 9,616 SBAs and other 5,948 377 -- 6,325 -------- ------ ------- -------- Total mortgage-backed and SBA securities 320,237 1,532 (1,547) 320,222 -------- ------ ------- -------- Investment Securities U.S. Government and federal agency securities 192,788 522 (1,008) 192,302 State and municipal securities 20,482 172 (95) 20,559 Equity securities 1,005 337 (128) 1,214 -------- ------ ------- -------- Total investment securities 214,275 1,031 (1,231) 214,075 -------- ------ ------- -------- Total available for sale $534,512 $2,563 $(2,778) $534,297 ======== ====== ======= ========
16 The following is a summary of securities held to maturity at December 31, 2004 and September 30, 2004:
Held to Maturity Portfolio December 31, 2004 ----------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value =============================================== Mortgage-backed securities Mortgage-backed securities $33,171 $ 662 $(215) $33,618 Collateralized mortgage obligations 2,571 47 -- 2,618 ------- ------ ----- ------- Total mortgage-backed securities 35,742 709 (215) 36,236 ------- ------ ----- ------- Investment securities State and municipal securities 31,406 831 (328) 31,909 Other investments 307 -- (41) 266 ------- ------ ----- ------- Total investment securities 31,713 831 (369) 32,175 ------- ------ ----- ------- Total held to maturity $67,455 $1,540 $(584) $68,411 ======= ====== ===== ======= Held to Maturity Portfolio September 30, 2004 ----------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value =============================================== Mortgage-backed securities Mortgage-backed securities $35,402 $ 741 $(266) $35,877 Collateralized mortgage obligations 2,788 55 -- 2,843 Other 685 37 -- 722 ------- ------ ----- ------- Total mortgage-backed securities 38,875 833 (266) 39,442 ------- ------ ----- ------- Investment securities State and municipal securities 29,894 922 (293) 30,523 Other 309 -- (44) 265 ------- ------ ----- ------- Total investments 30,203 922 (337) 30,788 ------- ------ ----- ------- Total held to maturity $69,078 $1,755 $(603) $70,230 ======= ====== ===== =======
17 At December 31, 2004 and September 30, 2004, the accumulated unrealized net loss on securities available for sale (net of tax of $1,150 and $86, respectively) that was included in accumulated other comprehensive income, a separate component of stockholders' equity, was ($2,018) and $(186) respectively. Gross realized gains were $49 and $930 respectively, for the three months ended December 31, 2004 and 2003. Securities with a carrying amount of $309,520 and $168,310 were pledged as collateral for municipal deposits, borrowings and other purposes at December 31, 2004 and September 30, 2004, respectively. The following table summarizes, for all securities in an unrealized loss position at December 31, 2004, the aggregate fair value and gross unrealized loss by length of time those securities have continuously been in an unrealized loss position:
---------------------------------------------------------------------------- Less than 12 Months 12 months or longer Total ----------------------- ----------------------- ---------------------- Unrealized Unrealized Unrealized Losses Fair Value Losses Fair Value Losses Fair Value ---------------------------------------------------------------------------- Avaulable for Sale: Mortgage-backed securities $ (2,187) $430,914 $ (573) $ 35,581 $ (2,760) $466,495 U.S. Government & Agency Securities (2,169) 256,176 (87) 4,934 (2,256) 261,110 Municipal Securities (119) 13,567 (23) 1,259 (142) 14,826 Equity Securities -- -- (135) 865 (135) 865 ---------------------------------------------------------------------------- Total available-for-sale: (4,475) 700,657 (818) 42,639 (5,293) 743,296 ---------------------------------------------------------------------------- Held to Maturity: Mortgage-backed securities -- -- (215) 15,082 (215) 15,082 State and municipal securities (328) 7,622 -- -- (328) 7,622 Other securities (41) 266 -- -- (41) 266 ---------------------------------------------------------------------------- Total held to maturity: (369) 7,888 (215) 15,082 (584) 22,970 ---------------------------------------------------------------------------- Total securities: $ (4,844) $708,545 $ (1,033) $ 57,721 $ (5,877) $766,266 ============================================================================
Substantially all of the unrealized losses at December 31, 2004 relate to investment grade securities and are attributable to changes in market interest rates subsequent to purchase. There were no securities with unrealized losses that were individually significant dollar amounts at December 31, 2004. A total of 249 securities were in a continuous unrealized loss position for less than 12 months, and 18 securities for 12 months longer. For fixed maturities, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the investment. Because the Company has the ability to hold securities with unrealized losses until a market price recovery (which, for fixed maturities, may be until maturity) the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2004. (See Recent Accounting Standards for discussion of a new accounting pronouncement that will provide additional guidance with respect to impairment evaluations). 18 9. Deposits -------- Major classifications of deposits are summarized below: December 31, 2004 September 30, 2004 ----------------- ------------------ Demand deposits: Retail $ 165,022 $ 122,276 Commercial and municipal 201,442 167,084 NOW 137,024 83,439 ---------- ---------- Total transaction accounts 503,488 372,799 Money market 248,118 173,272 Savings 556,031 360,138 Time under $100,000 296,311 239,411 Time over $100,000 97,827 93,912 ---------- ---------- Total $1,701,775 $1,239,532 ========== ========== 19 10. FHLB and Other Borrowings ------------------------- The Company's FHLB and other borrowings and weighted average interest rates are summarized as follows:
December 31, 2004 September 30, 2004 ---------------------- --------------------- Amount Rate Amount Rate --------- --------- --------- --------- By type of borrowing: Advances $ 220,578 3.26% $ 164,947 2.81% Repurchase agreements 172,267 4.52 49,962 3.49 --------- --------- Total borrowings $ 392,845 3.73% $ 214,909 2.97% ========= ========= By remaining period to maturity: Less than one year $ 143,350 3.12% $ 94,961 2.11% One to two years 56,731 3.52 28,000 3.18 Two to three years 60,310 4.51 18,651 3.65 Three to four years 49,900 4.06 29,443 3.78 Four to five years 16,479 5.46 40,017 3.76 Greater than five years 66,075 4.18 3,837 4.89 --------- --------- Total borrowings $ 392,845 3.73% $ 214,909 2.97% ========= =========
As a member of the FHLB of New York, the Bank may borrow up to 30% of its total assets in the form of term and overnight FHLB advances, or approximately $766,000 and $548,000 at December 31, 2004 and September 30, 2004, respectively. The Bank's unused FHLB borrowing capacity was approximately $381,000 and $383,000, respectively, at those dates. FHLB advances are secured by the Bank's investment in FHLB stock and by a blanket security agreement. This agreement requires the Bank to maintain as collateral certain qualifying assets (such as securities and residential mortgage loans) not otherwise pledged. The Bank satisfied this collateral requirement at December 31, 2004 and September 30, 2004. At December 31, 2004 repurchase agreements included $9,719 which were owed to other than the FHLB. 11. Earnings Per Common Share ------------------------- The number of shares used in the computation of both basic and diluted earnings per share includes all shares issued to Provident Bancorp, MHC for all periods through January 14, 2004, but excludes unallocated ESOP shares that have not been released or committed to be released to participants. The common stock equivalent shares are incremental shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive stock options and unvested RRP shares were exercised or became vested during the periods. Prior period share information has been adjusted to reflect the 4.4323-to-one exchange ratio in connection with the second-step conversion completed January 14, 2004. 20 Basic earnings per common share is computed as follows: For the Three Months Ended December 31, ------------------ 2004 2003 ---- ---- Weighted average common shares outstanding (basic) 44,323 34,301 ------- ------- Net income $ 5,015 $ 3,045 Basic earnings per common share $ 0.11 $ 0.09 Diluted earnings per common share is computed as follows: For the Three Months Ended December 31, ------------------ 2004 2003 ---- ---- Weighted average common shares outstanding 44,323 34,301 Effect of common stock equivalents 603 643 ------- ------- Total diluted shares 44,926 34,944 ------- ------- Net income $ 5,015 $ 3,045 Diluted earnings per common share $ 0.11 $ 0.09 12. Pension and Other Post Retirement Plans --------------------------------------- Net post retirement cost, which is recorded within salaries and employee benefits expense in the consolidated statements of income, is comprised of the following:
Other Post Pension Plans Retirement Plans ------------------- ------------------ Three months ended Three months ended December 31, December 31, ------------------- ------------------ 2004 2003 2004 2003 ------------------- ------------------ Service cost $ 337 $ 196 $ 26 $ 22 Interest cost 412 169 37 37 Expected return on plan assets (449) (197) -- -- Unrecognized net transition obligation 2 6 3 3 Amortization of prior service cost (3) (3) 1 (42) Amortization of gain or loss 105 43 -- 18 ------------------- ------------------ Net periodic pension cost $ 404 $ 214 $ 67 $ 38 =================== ==================
The Company previously disclosed in its financial statements for the year ended September 30, 2004, that it expected to contribute $692 to its pension plan in 2005. As of December 31, 2004, there 21 were no contributions made. As part of the acquisition of WSB, the Company assumed the WSB Pension Plan, a defined benefit plan. The WSB plan was frozen on April 30, 2002. As part of the acquisition of ENB the Company assumed the ENB Pension Plan, a defined benefit plan. The ENB plan was frozen in connection with the merger of ENB into the Company. 13. Guarantor's Obligations Under Guarantees ---------------------------------------- Standby letters of credit are commitments issued by the Company on behalf of its customer/obligor in favor of a beneficiary that specify an amount the Company can be called upon to pay upon the beneficiary's compliance with the terms of the letter of credit. These commitments are primarily issued in favor of local municipalities to support the obligor's completion of real estate development projects. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of December 31, 2004, the Company had $16.4 million in outstanding letters of credit, of which $5.4 million were secured by cash collateral. Subsequent Event - ---------------- On January 25, 2005 the Bank announced that it has executed an agreement with HSBC Bank USA, National Association ("HSBC") to acquire HSBC's branch office located in South Fallsburg, New York, and to acquire approximately $3.2 million of loans and assume approximately $30.3 million of deposit liabilities held at the South Fallsburg branch office. The Bank expects to pay a premium of approximately $2.2 million for the deposit liabilities. It is anticipated that the transaction will be completed in the second calendar quarter of 2005 and is conditioned upon receiving requisite regulatory approvals. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements - -------------------------- The Company has made, and may continue to make, various forward-looking statements with respect to earnings, credit quality and other financial and business matters for 2005 and, in certain instances, subsequent periods. The Company cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, and that statements for subsequent periods are subject to greater uncertainty because of the increased likelihood of changes in underlying factors and assumptions. Actual results could differ materially from forward-looking statements. In addition to those factors previously disclosed by the Company and those factors identified elsewhere herein, the following factors could cause actual results to differ materially from such forward-looking statements; pricing pressures on loan and deposit products; changes in local and national economic conditions; the extent and timing of actions of the Company's regulators; customer deposit disintermediation; changes in customers' acceptance of the Company's products and services; general actions of competitors, other normal business risks such as credit losses, litigation, increases in the levels of non-performing assets, revenues following acquisitions if such revenues are lower than expected, and costs or difficulties related to the integration of acquired and existing businesses that are greater than expected. 22 The Company's forward-looking statements speak only as of the date on which such statements are made. The Company assumes no duty to update forward-looking statements to reflect new, changing or unanticipated events or circumstances. The Company's significant accounting policies are summarized in Note 2 to the consolidated financial statements included in its September 30, 2004 Annual Report on Form 10-K. An accounting policy considered particularly critical to the Company's financial results is the allowance for loan losses. The methodology for assessing the appropriateness of the allowance for loan losses and non-performing loans is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions utilized, and the potential for changes in the economic environment that could result in changes in the necessary allowance. As of January 14, 2004, the Company completed its stock offering and acquisition of ENB in connection with Provident Bancorp, MHC's mutual-to-stock conversion. The acquisition was accounted for as a purchase and, accordingly, amounts attributable to ENB have been included in the Company's consolidated financial statements from the date of acquisition. See Note 3 to the accompanying consolidated financial statements included in Item 1 of this quarterly report. As discussed in Note 2 to the consolidated financial statements included in Item 1 of this quarterly report, the Company completed its acquisition of WSB on October 1, 2004. The acquisition was accounted for as a purchase and, accordingly, amounts attributable to Warwick have been included in the Company's consolidated financial statements from the date of acquisition. Comparison of Financial Condition at December 31, 2004 and September 30, 2004 Total assets as of December 31, 2004 were $2.6 billion, an increase of $727.3 million, or 39.8%, over assets of $1.8 billion at September 30, 2004. The increase over September 30, 2004 period was due primarily to (i) the October 2004 acquisition of WSB, whose assets totaled $703.7 million on the merger date and (ii) internal growth of the company. Goodwill and intangibles increased by $101.7 million from September 30, 2004 upon the completion of the acquisition. Net loans (excluding loans held for sale) as of December 31, 2004 were $1.3 billion, an increase of $284.5 million, or 29.0%, over net loan balances of $980.3 million at September 30, 2004. Loans acquired from WSB totaled $288.2 million, while allowances for loan losses acquired in connection with WSB were $4.9 million, or 1.70% of WSB's outstanding loan balances. Inclusive of Warwick loans acquired, commercial loans increased by $190.8 million, or 39.2%, over balances at September 30, 2004. Consumer loans increased by $35.6 million, or 27.4%, during the three-month period, while residential loans increased by $62.9 million, or 16.5%. Asset quality continues to be strong. At $3.4 million, non-performing assets as a percentage of total assets is 0.13%, down from 0.15% at September 30, 2004. Total securities increased by $344.7 million, or 57.1%, to $948.1 million at December 31, 2004 from $603.4 million at September 30, 2004. Investments were made primarily in mortgage-backed securities, which increased by $246.7 million, or 68.7%, and in U.S. Government and Federal Agency Securities, which increased by $97.7 million, or 50.8%. Total deposits as of December 31, 2004 were $1.7 billion, up $462.2 million, or 37.3%, from September 30, 2004. Deposits acquired from Warwick totaled $475.1 million. As of December 31, 2004 retail and commercial transaction accounts were 29.6% of deposits compared to 30.1% at September 30, 2004. 23 Borrowings from the Federal Home Loan Bank of New York (the "FHLB") increased by $177.9 million during the three-month period to $392.8 million at December 31, 2004 from $214.9 million at September 30, 2004. Borrowings acquired from Warwick totaled $160.5 million. Stockholders' equity increased by $77.0 million to $426.5 million at December 31, 2004 compared to $349.5 million at September 30, 2004. $74.6 million in new capital was issued for the purchase of Warwick. Net income of $5.0 million for the three-month period also increased capital. Partially offsetting the increases were the payments of cash dividends totaling $1.6 million, and net declines in accumulated comprehensive income of $1.9 million. Tangible capital to assets was 10.75% at December 31, 2004. During the first three months of fiscal 2005, the Company did not repurchase shares of its common stock. At December 31, 2004, there were no shares of common stock held by the Company in connection with a repurchase program as the treasury shares were cancelled in connection with the second-step stock conversion. Pursuant to applicable Office of Thrift Supervision regulations that restrict stock repurchases for one year following the completion of a mutual stock conversion, the authorization to repurchase shares of the Company's common stock expired in connection with its second-step conversion on January 14, 2004. However, at September 30, 2004 the Company held 36,794 shares in treasury relating to the purchase of shares from participants in the Recognition and Retention Plan ("RRP"), at market value, to fund the individual participants' applicable tax liability on vested shares. At December 31, 2004, there were 6,607 shares still held in treasury. On January 27, 2005, the Board of Directors authorized the repurchase of up to 2,295,000 shares of its common stock. This represents approximately 5.0% of the currently outstanding shares. Under this authorization, shares of common stock may be purchased from time-to-time in the open market or in private negotiated transactions. In addition, the Board of Directors declared a quarterly cash dividend of $0.04 per share, payable on February 24, 2005 to holders of record as of February 10, 2005. Supplemental Reporting of Non-GAAP Results of Operations. The Company is providing supplemental reporting of its results on a "net operating" basis, from which the Company excludes the after- tax charge for expenses associated with merging acquired operations into the Company. Although "net operating income" as defined by the Company is not a GAAP measure, management believes that this information helps investors understand the effect of acquisition activity. Merger integration expenses were $228,000 ($0.01 per diluted share) after tax for the three months ended December 31, 2004. Net operating income on this basis for the most recent quarter was $5.2 million, an increase of 72.2% from $3.0 million in the prior year. Net operating income, as an annualized rate of return on average assets and average stockholders' equity, was 0.82% and 4.90% respectively, in the quarter ended December 31, 2004, compared with 1.04% and 10.42% in the quarter ended December 31, 2003. 24 Reconciliation of GAAP and Non-GAAP results of operations: A reconciliation of diluted earnings per share and net income with diluted net operating earnings per share and net operating income follows (in thousands, except per share amounts): Three months ended December 31, ------------------------------- 2004 2003 ---- ---- Diluted cash earnings per share $ 0.11 $ 0.09 Merger integration expenses (1) 0.01 -- ------ ------ Diluted net operating earnings $ 0.12 $ 0.09 ====== ====== Net income $5,015 $3,045 Merger integration expenses (1) 228 -- ------ ------ Net operating income $5,243 $3,045 - -------------------- ====== ====== (1) After related tax effect at 40% marginal rate Comparison of Operating Results for the Three Months Ended December 31, 2004 and December 31, 2003 Net Income. For the three months ended December 31, 2004 net income was $5.0 million, an increase of $2.0 million, or 66.1%, compared to $3.0 million for the same period in fiscal 2004. Net interest income after provision for loan losses for the three months ended December 31, 2004 increased by $10.2 million, or 89.0%, compared to the same period in the prior year. Non-interest income increased $1.2 million or 43.6% to $4.0 million for the three months ended December 31, 2004 compared to $2.8 million for the three months ended December 31, 2003. Non-interest expense increased $8.1 million, or 85.0%, to $17.7 million for the three months ended December 31, 2004 compared to $9.6 million for the same prior-year period. The relevant performance measures follow: Three Months Ended December 31, 2004 2003 ---- ---- Per common share: Basic earnings $ 0.11 $ 0.09 Diluted earnings 0.11 0.09 Dividends declared 0.04 0.03 Return on average (annualized): Assets 0.79% 1.04% Equity 4.69% 10.42% 25 The following table sets forth the consolidated average balance sheets for the Company for the periods indicated. Also set forth is information regarding weighted average yields on interest-earning assets and weighted average rates paid on interest-bearing liabilities (dollars in thousands).
Three Months Ended December 31, ------------------------------- 2004 2003 ---- ---- Average Average Outstanding Average Outstanding Average Balance Interest Yield/Rate Balance Interest Yield/Rate ------- -------- ---------- ------- -------- ---------- Interest earning assets: Commercial and commercial mortgage loans (1) $ 662,481 $11,036 6.61% $ 254,295 $ 4,104 6.42% Consumer loans (1) 160,415 1,883 4.66 79,225 878 4.41 Residential mortgage loans (1) 434,554 6,494 5.93 369,814 5,548 5.97 ---------- ------- ---------- ------- Total loans 1,257,450 19,413 6.13 703,334 10,530 5.96 ---------- ------- ---------- ------- Securities-taxable 829,407 7,942 3.80 356,580 3,579 3.99 Securities-tax exempt (2) 48,051 683 5.64 20,893 286 5.45 Other earning assets 40,859 213 2.07 12,146 23 0.75 ---------- ------- ---------- ------- Total securities and other earning assets 918,317 8,838 3.82 389,619 3,888 3.97 ---------- ------- ---------- ------- Total interest-earning assets 2,175,767 28,251 5.15 1,092,953 14,418 5.25 Non-interest-earning assets: 352,433 88,910 ---------- ---------- Total assets $2,528,200 $1,181,863 ========== ========== Interest bearing liabilities: Savings, clubs and escrow $ 559,276 821 0.58% $ 291,402 314 0.43% Money market accounts 282,034 592 0.83 133,437 177 0.53 NOW checking 142,660 132 0.37 62,797 32 0.20 Certificate accounts 404,069 1,822 1.79 225,304 1,034 1.83 ---------- ------- ---------- ------- Total interest-bearing deposits 1,388,039 3,367 0.96 712,940 1,557 0.87 Borrowings 355,492 2,943 3.28 147,571 1,210 3.26 ---------- ------- ---------- ------- Total interest-bearing liabilities 1,743,531 6,310 1.44 860,511 2,767 1.28 ------- ------- Non-interest-bearing liabilities: 360,154 203,720 ---------- ---------- Total liabilities 2,103,685 1,064,231 Stockholders' Equity 424,515 117,632 ---------- ---------- Total liabilities and equity 2,528,200 1,181,863 ========== ========== Net interest margin $21,941 4.00% $11,651 4.24% ======= ==== ======= ==== Net interest rate spread 3.72% 3.97% ==== ==== Net earning assets $ 432,236 $ 232,442 ========== ========== Tax equivalent adjustment (2) (239) (100) ======== ======= Net interest income $21,702 $11,551 ======== ======= Ratio of average interest-earning assets to average interest-bearing liabilities 124.79% 127.01% ======= =======
- -------------------------------------------------------------------------------- (1) Includes non-accrual loans. (2) Tax equivalent adjustment for tax exempt income is based on a 35% federal rate. 26 The table below details the changes in interest income and interest expense for the periods indicated due to both changes in average outstanding balances and changes in average interest rates (in thousands): Three Months Ended December 31, 2004 vs. 2003 Increase/(Decrease) Due to --------------------------- Volume (1) Rate (1) Total ---------- -------- ----- Interest-earning assets Commercial and commercial mortgage loans $ 6,807 $ 125 $ 6,932 Consumer loans 952 53 1,005 Residential mortgage loans 982 (36) 946 Securities-taxable 4,538 (175) 4,363 Securities-tax exempt (2) 387 10 397 Other earning assets 109 81 190 -------- ----- -------- Total interest income 13,775 58 13,833 -------- ----- -------- Interest-bearing liabilities Savings 368 139 507 Money market 275 140 415 NOW checking 60 40 100 Certificates of deposit 811 (23) 788 Borrowings 1,725 8 1,733 -------- ----- -------- Total interest expense 3,239 304 3,543 -------- ----- -------- Net interest margin $ 10,536 $(246) $ 10,290 -------- ----- -------- Less tax equivalent adjustment (2) (251) 112 (139) -------- ----- -------- Net interest income $ 10,285 $(134) $ 10,151 ======== ===== ======== - -------------------------------------------------------------------------------- (1) Changes due to increases in both rate and volume have been allocated proportionately to rate and volume. (2) Tax equivalent adjustment for tax exempt income is based on a 35% federal rate. 27 Net Interest Income. Net interest income after provision for loan losses for the three months ended December 31, 2004 was $21.6 million, compared to $11.4 million for the three months ended December 31, 2003, an increase of $10.2 million or 89.0%. The increase in interest income was largely due to a $1.1 billion increase in average earning assets to $2.2 billion during the quarter ended December 31, 2004, as compared to $1.1 billion for the same quarter in the prior year. The increase is primarily due to the ENB and Warwick acquisitions, net proceeds from the second-step offering and continued internal growth. The increase in average earning assets was partially offset by a decline in average yield of 10 basis points from 5.25% to 5.15%, on a fully taxable equivalent basis. Interest expense increased by $3.5 million for the quarter compared to the same quarter in 2003, as average interest-bearing liabilities increased by $883.0 million and the average cost of interest-bearing liabilities increased 16 basis points. Net interest margin declined by 24 basis points to 4.00%, while net interest spread declined by 25 basis points to 3.72%, due to the assets acquired being recorded at current market interest rates. Provision for Loan Losses. The Company records provisions for loan losses, which are charged to earnings, in order to maintain the allowance for loan losses at a level to absorb probable loan losses inherent in the existing portfolio. The Company recorded $150,000 in loan loss provisions during the three months ended December 31, 2004 and 2003. Net charge-offs for the three months ended December 31, 2004 were $218,000 compared to a net recovery of $30,000 for the same period in 2003. Non-Interest Income was $4.0 million for the three months ended December 31, 2004 compared to $2.8 million for the three months ended December 31, 2003. Deposit fees and service charges increased by $1.2 million, or 97.1%, of which $905,000 was generated from the acquired Warwick and ENB branches, while $295,000 was due primarily to volume-driven increases in overdraft, non-sufficient funds, and ATM and debit card fees. Other non-interest income increased by $317,000, or 97.8%, due to higher earnings on the Company's bank owned life insurance ("BOLI") investments. Income derived from the Company's new wholly-owned title subsidiary Hardenburgh Abstract Company of Orange County, Inc. was $358,000. Gains on the sale of securities were $49,000 for the current three-month period, compared to $930,000 for the same period last year. During the three-month period ended December 31, 2004, the Company also recorded gains on sales of loans totaling $59,000, compared to $86,000 for the same period last year. Non-Interest Expense for the three months ended December 31, 2004 increased by $8.1 million, or 85.0%, to $17.7 million, compared to $9.6 million for the three months ended December 31, 2003. The acquisitions of ENB in January 2004 and Warwick in October 2004 played a major role in the increases in most categories. Compensation and employee benefits increased by $3.4 million, or 76.6%, to $7.8 million for the period ended December 31, 2004. Of that amount, $709,000 and $680,000 was attributable to the Warwick and ENB acquisitions, respectively and the remainder was due to staff additions for future growth and expansion, as well as normal merit increases. An increase in the cost of stock-based compensation benefits of $169,000, or 25.2%, occurred during the current three-month period primarily due to vesting and allocations of stock under benefit plans at an average common stock price of $12.66 per share for the three months ended December 31, 2004 compared to $10.26 per share for the three months ended December 31, 2003. Occupancy and office operations increased by $821,000, or 61.9%, for the three months ended December 31, 2004, almost all of which was attributable to the acquired ENB and Warwick properties. Advertising and promotion increased $695,000, or 148.5%, primarily as a result of the Warwick merger and the new brand identity campaign the Company has unveiled. Professional fees increased by $184,000, or 38.0%, due primarily to fees associated with the Company's compliance with the provisions of Sarbanes-Oxley Section 404. Amortization of core deposit intangible increased by $1.0 million as a result of the Warwick and ENB deposits acquired. Stationery and office supplies increased by $106,000, or 71.1%, due to the doubling of our branches compared to the prior year. Data and check 28 processing increased $504,000, or 67.7%, primarily due to the higher level of services related to the accounts acquired in the mergers. Other expenses increased by $665,000, or 63.0%, due primarily to increases in correspondent bank expense, postage, telephone expense and insurance premium expense, all directly related to the increased size of Provident Bank following the mergers. Further, merger integration expenses were $380,000. Income Taxes. Income tax expense was $2.9 million for the three months ended December 31, 2004, compared to $1.6 million expense for the same period in 2003. The effective tax rates were 36.3% and 34.3%, respectively. Governor Pataki's proposed state budget for fiscal 2005-06 includes a proposal which would prohibit banks from claiming tax deductions for dividends received from real estate investment trusts (REITs) that are owned over 50 percent by the taxpayer or members of an affiliated group. Included in the results for the quarter ending December 31, 2004 is a tax benefit of approximately $120,000 pertaining to such REITS. If the legislation were to pass, this tax benefit many not continue for periods beyond December 31, 2004. Liquidity and Capital Resources - ------------------------------- The objective of the Company's liquidity management is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for expansion. Liquidity management addresses the Company's ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise. The Company's primary sources of funds are deposits, proceeds from principal and interest payments on loans and securities, and, to a lesser extent, wholesale borrowings, the proceeds from maturities of securities and short-term investments, and proceeds from sales of loans originated for sale and securities available for sale. Maturities and scheduled amortization of loans and securities, as well as proceeds from borrowings, are predictable sources of funds. Other funding sources, however, such as deposit inflows and mortgage prepayments are greatly influenced by market interest rates, economic conditions and competition. The Company's primary investing activities are the origination of both residential one- to four-family and commercial mortgage loans, and the purchase of investment securities and mortgage-backed securities. During the three-months ended December 31, 2004 and December 31, 2003, loan originations, excluding loans originated for sale, totaled $101.6 million and $66.8 million, respectively, and purchases of securities totaled $273.3 million and $184.8 million, respectively. For the three-month periods ended December 31, 2004 and 2003, these investing activities were funded primarily by principal repayments on loans, by proceeds from sales and maturities of securities, and by deposit growth. Loan origination commitments totaled $82.7 million at December 31, 2004. The Company anticipates that it will have sufficient funds available to meet current loan commitments. In December 2003 the Company invested $12 million in BOLI contracts. The Company recorded an additional $13.3 million in BOLI as a result of the Warwick acquisition. Such investments are illiquid and are therefore classified as other assets. Earnings from BOLI are derived from the net increase in cash surrender value of the BOLI contracts and the proceeds from the payment on the insurance policies, if any. Deposit flows are generally affected by the level of interest rates, the interest rates and products offered by local competitors, the appeal of non-deposit investments, and other factors. Excluding the acquisition of Warwick, the net decrease in total deposits for the three months ended December 31, 2004 29 was $13.1 million, compared to a $616,000 increase for the three months ended December 31, 2003. Time deposits decreased $23.5 million for the three months ended December 31, 2004 compared to $18.4 million in the prior year. On January 14, 2004 the Company completed its stock offering in connection with the second-step conversion of Provident Bancorp, MHC. As a result of the conversion, the Company became the stock holding company of the Bank. In the stock offering, shares representing Provident Bancorp, MHC's ownership interest in Provident Federal were sold to investors. In addition, the Company simultaneously completed its acquisition of E.N.B. Holding Company, Inc., located in Ellenville, New York. The Company sold 19,573,000 shares of common stock at $10.00 per share to depositors of the Bank as of June 30, 2002 and September 30, 2003. The Company also issued 400,000 shares of common stock and contributed $1.0 million in cash to the Provident Bank Charitable Foundation. In addition, each outstanding share of common stock of the Company as of January 14, 2004 was converted into 4.4323 new shares of the Company's common stock. Shareholders of ENB as of the close of business on January 14, 2004 received total merger consideration of approximately $76.47 million, consisting of 3,969,676 shares of common stock of the Company and approximately $36.77 million in cash. Shareholders of Warwick as of the close of business on October 1, 2004 received total merger consideration of approximately $147.2 million, consisting of 6,257,892 shares of common stock of the Company and approximately $72.6 million in cash. The Company monitors its liquidity position on a daily basis. We generally remain fully invested and utilize additional sources of funds through Federal Home Loan Bank of New York overnight and term advances, of which $220.6 million were outstanding at December 31, 2004. The Company has the ability to borrow an additional $381.0 million under its credit facilities with the Federal Home Loan Bank of New York. At December 31, 2004, the Bank exceeded all of its regulatory capital requirements with a Tier 1 capital (leverage) level of $186.7 million, or 7.8% of adjusted assets (which is above the required level of $95.3 million, or 4.0%) and a total risk-based capital level of $206.3 million, or 13.2% of risk-weighted assets (which is above the required level of $125.2 million, or 8.0). Regulations require leverage and total risk-based capital ratios of 5.0% and 10.0%, respectively, in order to be classified as well-capitalized. In performing this calculation, the intangible assets recorded in the NBF, ENB, and Warwick acquisitions are deducted from capital and from total adjusted assets for purposes of regulatory capital measures. At December 31, 2004, the Bank exceeded all capital requirements for well-capitalized classification. These capital requirements, which are applicable to the Bank only, do not consider additional capital retained at the holding company level. 30 The following table sets forth the Bank's regulatory capital position at December 31, 2004 and September 30, 2004, compared to OTS requirements.
OTS Requirements ------------------------------------------ Minimum Capital For Classification Bank Actual Adequacy as Well Capitalized ---------------- ----------------- ------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (Dollars in thousands) December 31, 2004 - ----------------- Tangible capital $186,724 7.8% $ 35,728 1.5% $ -- --% Tier 1 (core) capital 186,724 7.8 95,274 4.0 119,092 5.0 Risk-based capital: Tier 1 186,724 11.9 93,905 6.0 Total 206,288 13.2 125,207 8.0 156,509 10.0 ======== September 30, 2004 - ------------------ Tangible capital $189,486 11.3% $ 25,285 1.5% $ -- --% Tier 1 (core) capital 189,486 11.3 67,427 4.0 84,284 5.0 Risk-based capital: Tier 1 189,486 16.6 -- 68,593 6.0 Total 203,776 17.8 91,458 8.0 114,322 10.0 ========
Asset/Liability Management - -------------------------- The primary functions of asset/liability management are to assure adequate liquidity and maintain an appropriate balance between interest-sensitive earning assets and interest-bearing liabilities and capital resources. The Company's Asset and Liability Committee ("ALCO") of the Board monitors, and the Bank, through its Management ALCO, controls the rate sensitivity of the balance sheet while seeking to maintain an appropriate level of net interest income contribution to the operations of the Company. The Company's net interest income is affected by fluctuations in market interest rates as a result of timing differences in the repricing of its assets and liabilities. These repricing differences are quantified in specific time intervals and are referred to as interest rate sensitivity gaps. The Company manages the interest rate risk of current and future earnings to a level that it considers consistent with its mix of business and seeks to limit such risk exposure to appropriate percentages of both earnings and the imputed value of stockholders' equity. The objective in managing interest rate risk is to support the achievement of business strategies, while controlling earnings variability and seeking to provide appropriate liquidity. Further, the present and historical levels of transaction accounts (greater than 20% of total assets) serve to mitigate the effects of increases in interest rates and reduce the average cost of total liabilities. Management monitors interest rate sensitivity primarily through the use of a model that simulates net interest income under varying interest rate assumptions. Management also evaluates this 31 sensitivity using a model that estimates the change in Provident Bank's net portfolio value ("NPV") over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. Both models assume estimated loan prepayment rates, reinvestment rates and deposit decay rates that seem most likely based on historical experience during prior interest rate changes. The table below sets forth, as of December 31, 2004, the estimated changes in our NPV and our net interest income that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.
NPV Net Interest Income ------------------------------------------- --------------------------------------------- Estimated Increase (Decrease) Estimated Increase (Decrease) Change in in NPV Estimated Net in Net Interest Income Interest Rates Estimated ----------------------------- Interest ----------------------------- (basis points) NPV Amount Percent Income Amount Percent - -------------- --------- ------------- ------------- ------------- ------------- ------------- (Dollars in thousands) +300 $ 303,791 $ (75,119) (19.8)% $ 90,633 $ (5) (0.0)% +200 334,802 (44,108) (11.6) 91,026 388 0.4 +100 366,956 (11,954) (3.2) 91,322 684 0.8 0 378,910 -- -- 90,638 -- -100 400,729 21,819 5.8 88,609 (2,029) (2.2) -200 394,846 15,936 4.2 83,390 (7,248) (8.0)
The table set forth above indicates that at December 31, 2004, in the event of an immediate 100 basis point decrease in interest rates, we would be expected to experience a 5.8% increase in NPV and a 2.2% decrease in net interest income. In the event of an immediate 200 basis point increase in interest rates, we would be expected to experience a 11.6% decrease in NPV and a 0.4% increase in net interest income. Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV and net interest income requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The NPV and net interest income table presented above assumes that the composition of our interest-rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions management may undertake in response to changes in interest rates. The table also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing characteristics of specific assets and liabilities. Accordingly, although the NPV and net interest income table provides an indication of our sensitivity to interest rate changes at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results. 32 Recent Accounting Standards In December 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46 (revised), Consolidation of Variable Interest Entities ("FIN 46R"), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and, accordingly, should consolidate the variable interest entity ("VIE"). FIN 46R replaces FASB Interpretation No. 46, which was issued in January 2003. As a public company that is not a small business issuer (as defined in applicable SEC regulations), the Company is required to apply FIN 46R to variable interests generally as of March 31, 2004 and to special-purpose entities as of December 31, 2003. For any VIE's that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts and any difference between the net amount added to the balance sheet and any previously recognized interest would be recorded as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. The adoption of FIN 46R did not and is not expected to have a significant effect on the Company's consolidated financial statements. In December 2003, the FASB also issued Statement of Financial Accounting Standards No. 132 (revised), Employers' Disclosures about Pensions and Other Postretirement Benefits ("SFAS No. 132R"). This standard prescribes employers' disclosures about pension plans and other postretirement benefit plans, but does not change the measurement or recognition of those plans. SFAS No. 132R retains and revises the disclosure requirements contained in the original standard. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. As a public company, the Company was required to provide substantially all of the revised disclosures beginning with its September 30, 2004 consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity, and requires that an issuer classify financial instruments that are considered a liability (or an asset in some circumstances) when that financial instrument embodies an obligation of the issuer. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 had no impact on the Company's consolidated statement of financial condition or results of operations upon implementation during the third quarter of 2003. In November 2003, the FASB also issued a staff position that indefinitely deferred the effective date of SFAS No. 150 for certain mandatorily redeemable non-controlling interests. The Company currently believes that the deferral of the effective date of SFAS No. 150 for certain mandatorily redeemable non-controlling interests will not have any impact on its consolidated statement of financial condition or results of operations when implemented. The issuance of SFAS No. 150 and FIN 46 has also resulted in the Federal Reserve Board announcing potential future reconsideration of trust preferred securities as elements of regulatory capital. The Company currently has no issuances of trust preferred securities. Effective March 31, 2004, Emerging Issues Task Force Issue No. 03-1 "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" ("EITF 03-1") was issued. EITF 03-1 provides guidance for determining the meaning of "other-than-temporarily impaired" and its application to certain debt and equity securities within the scope of Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115") and 33 investments accounted for under the cost method. The guidance requires that investments which have declined in value due to credit concerns or solely due to changes in interest rates must be recorded as other-than-temporarily impaired unless the corporation can assert and demonstrate its intention to hold the security for a period of time sufficient to allow for a recovery of fair value up to or beyond the cost of the investment, which might mean maturity. This Issue also requires disclosures assessing the ability and intent to hold investments in instances in which an investor determines that an investment with a fair value less than cost is not other-than-temporarily impaired. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123. This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effects of the method used on reported results. In December 2004, the FASB Issued Statement of Financial Accounting Standards No. 123R (Statement 123R), "Share-Based Payments", the provisions of which become effective for the corporation in fiscal 2006. This Statement eliminates the alternative to use APB No. 25's intrinsic value method of accounting that was provided in Statement 123 as originally issued. Statement 123R requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. While the fair-value-based method prescribed by Statement 123R is similar to the fair-value-based method disclosed under the provisions of Statement 123 in most respects, there are some differences. The Company is currently evaluating the provisions of Statement 123R and has not determined the impact of adopting this statement at this time. Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's most significant form of market risk is interest rate risk, as the majority of its assets and liabilities are sensitive to changes in interest rates. The Bank's interest rate profile has not changed significantly since September 30, 2004. Although the acquisition of Warwick was completed, the nature of the assets and liabilities acquired is consistent with the Bank's previously existing assets. . As a result, the Bank has maintained an overall relatively neutral sensitivity position. See Item 2 "Asset/liability Management". However, if rates increase rapidly as a result of an improving economy, the Bank may have to increase the rates paid on deposits and borrowed funds quicker than loans and investments reprice, resulting in a negative impact on interest spreads and net interest income. In addition, the impact of rising rates could be compounded if deposit customers move funds from savings accounts back to higher-rate certificate of deposit accounts. Conversely, should market interest rates continue to fall below today's level the Company's net interest margin could also be negatively affected, as competitive pressures could keep the Bank from lowering rates on its deposits, and prepayments and curtailments on assets may continue. Such movements may cause a decrease in the interest rate spread and net interest margin. Other types of market risk, such as foreign exchange rate risk and commodity price risk, do not arise in the normal course of the Company's business activities. Quantitative and qualitative disclosure about market risk is presented at September 30, 2004 in Item 7A in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 14, 2004. The following is an update of the discussion provided therein. 34 General: The Company's largest component of market risk continues to be interest rate risk. The Company is not subject to foreign currency exchange or commodity price risk. At December 31, 2004, neither the Company nor the Bank owned any trading assets, nor did they utilize hedging transactions such as interest rate swaps and caps. Interest Rate Risk Compliance: The Bank continues to monitor the impact of interest rate volatility upon net interest income and net portfolio value in the same manner as at September 30, 2004. There have been no changes in the board approved limits of acceptable variance in net interest income and net portfolio value change at December 31, 2004 compared to September 30, 2004, and the impact of possible changes within the Company's models continue to fall within all board approved limits for potential interest rate volatility. Item 4. Controls and Procedures The Company's management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) (the "Exchange Act") as of the end of the period covered by this report. Based upon that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time frames specified in the SEC's rules and forms. There were no significant changes made in the Company's internal controls over financial reporting or in other factors that could significantly affect the Company's internal control over financial reporting during the period covered by this report. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which, in the aggregate, involved amounts which are believed to be immaterial to the consolidated financial condition and operations of the Company. 35 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities (a) - (d) Not applicable (e) Issuer Purchases of Equity Securities -------------------------------------
Maximum Number (or Total Number of Shares Approximate Dollar (or Units) Purchased Value) of Shares (or Total Number of Average Price as Part of Publicly Units) that may yet be Shares (or Units) Paid per Share Announced Plans or Purchased Under the Period Purchased (1) (or Unit) Programs (2) Plans or Programs October 1 - October 31, 2004 2,932 $ 11.74 -- -- November 1 - November 30, 2004 8,602 11.74 -- -- December 1 - December 31, 2004 28,570 11.84 -- -- ------ ------- Total 40,104 $ 11.82 $ -- $ -- ====== ======= ==== ====
- ---------- (1) The total number of shares purchased during the periods indicated represent shares deemed to have been received from employees who exercised stock options by submitting mature previously acquired common shares in satisfaction of the exercise price, as is permitted under the Company's stock option plans. (2) OTS regulations prohibit the repurchase of common shares for a period of one year following a second step stock conversion. The Company announced on January 27, 2005 that it authorized the repurchase 2,295,000 shares, or approximately 5% of common shares currently outstanding. 36 Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holder None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Number Description -------------- ----------- 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 37 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Provident Bancorp, Inc. ----------------------- (Registrant) By: /s/ George Strayton -------------------- George Strayton President and Chief Executive Officer (Duly Authorized Representative) Date: February 8, 2005 By: /s/ Paul A. Maisch -------------------- Paul A. Maisch Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Representative) Date: February 8, 2005 38 EX-31.1 2 ex31-1.txt Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, George Strayton, President and Chief Executive Officer, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Provident Bancorp, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 8, 2005 /s/ George Strayton ------------------- George Strayton President and Chief Executive Officer 39 EX-31.2 3 ex31-2.txt Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Paul A. Maisch, Senior Vice President and Chief Financial Officer, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Provident Bancorp, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 8, 2005 /s/ Paul A. Maisch ------------------ Paul A. Maisch Senior Vice President and Chief Financial Officer 40 EX-32.1 4 ex32-1.txt Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 --------------------------------------------------------- George Strayton, Chief Executive Officer and Paul A. Maisch, Chief Financial Officer of Provident Bancorp, Inc. (the "Company") each certify in his capacity as an officer of the Company that he has reviewed the quarterly report on Form 10-Q for the quarter ended December 31, 2004 and that to the best of his knowledge: (1) the report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to Provident Bancorp, Inc. and will be retained by Provident Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. /s/ George Strayton ------------------- Date: February 8, 2005 George Strayton Chief Executive Officer /s/ Paul A. Maisch ------------------ Date: February 8, 2005 Paul A. Maisch Chief Financial Officer 41 -----END PRIVACY-ENHANCED MESSAGE-----