WASHINGTON, D. C. 20549
| For The Quarterly Period Ended | Commission File |
| September 30, 2003 | 1-08019-01 |
| Incorporated Under | IRS Employer I.D. |
| The Laws of Maryland | No. 04-3659419 |
One East Fourth Street, Cincinnati,
Ohio 45202
Phone: 513-579-2000
Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check
whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par
Value = 5,940,000
Series A Preferred Stock, $25.00 Stated Value = 6,600,000
(As of October 31,
2003)
(1)
PFGI CAPITAL CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
| PART 1. FINANCIAL INFORMATION | |
ITEM 1. FINANCIAL STATEMENTS | |
Balance Sheets |
3 |
| Statements of Income | 4 |
| Statements of Changes in Shareholders' Equity | 5 |
| Statements of Cash Flows | 6 |
| Notes to Financial Statements | 7 |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF | |
| FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 15 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES | |
| ABOUT MARKET RISK | 23 |
ITEM 4. CONTROLS AND PROCEDURES |
24 |
PART II. OTHER INFORMATION | |
ITEM 1. LEGAL PROCEEDINGS |
25 |
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K |
25 |
SIGNATURE |
26 |
(2)
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PFGI CAPITAL
CORPORATION
BALANCE SHEETS
| (Dollars In Thousands) |
September 30, 2003 (unaudited) |
December 31, 2002 | ||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Commercial Mortgage Loan Participations | $ | 322,288 | $ | 325,005 | ||||
| Reserve for Loan Participation Losses | (3,223 | ) | (3,250 | ) | ||||
| Net Commercial Mortgage Loan Participations | 319,065 | 321,755 | ||||||
| Cash and Due From Banks | 9,601 | 5,357 | ||||||
| Interest Receivable | 1,056 | 1,107 | ||||||
| Accounts Receivable - The Provident Bank | 784 | 279 | ||||||
| Other Assets | 22 | 17 | ||||||
| TOTAL ASSETS | $ | 330,528 | $ | 328,515 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Liabilities: | ||||||||
| Other Liabilities | $ | 3 | $ | -- | ||||
| Shareholders' Equity: | ||||||||
| Series A Preferred Stock, $25 Stated Value, | ||||||||
| 6,600,000 Shares Authorized, Issued and Outstanding | 165,000 | 165,000 | ||||||
| Common Stock, $.01 Par Value, 5,940,000 Shares | ||||||||
| Authorized, Issued and Outstanding | 59 | 59 | ||||||
| Capital Surplus | 159,380 | 159,380 | ||||||
| Retained Earnings | 6,086 | 4,076 | ||||||
| Total Shareholders' Equity | 330,525 | 328,515 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 330,528 | $ | 328,515 | ||||
| See notes to financial statements | ||||||||
(3)
PFGI CAPITAL CORPORATION
STATEMENTS OF INCOME
(Unaudited)
| (In Thousands, | Three Months Ended September 30, |
Nine Months Ended September 30, |
Period From June 12, 2002 to September | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Except Per Share Data) |
2003 |
2002 |
2003 |
30, 2002 | ||||||||||
| Interest Income: | ||||||||||||||
| Interest on | ||||||||||||||
| Loan Participations | $ | 3,867 | $ | 4,802 | $ | 12,151 | $ | 5,690 | ||||||
| Interest on Cash Deposit | 34 | 44 | 97 | 44 | ||||||||||
| Total Interest Income | 3,901 | 4,846 | 12,248 | 5,734 | ||||||||||
| Provision for | ||||||||||||||
| Loan Participation Losses | -- | -- | -- | -- | ||||||||||
| Net Interest Income After | ||||||||||||||
| Provision for Loan | ||||||||||||||
| Participation Losses | 3,901 | 4,846 | 12,248 | 5,734 | ||||||||||
| Noninterest Expense: | ||||||||||||||
| Loan Servicing Fees | 100 | 91 | 301 | 122 | ||||||||||
| Management Fees | 80 | 73 | 240 | 98 | ||||||||||
| Other Noninterest Expense | 30 | 33 | 106 | 33 | ||||||||||
| 210 | 197 | 647 | 253 | |||||||||||
| Income Before Income Taxes | 3,691 | 4,649 | 11,601 | 5,481 | ||||||||||
| Income Taxes | -- | -- | -- | -- | ||||||||||
| Net Income | $ | 3,691 | $ | 4,649 | $ | 11,601 | $ | 5,481 | ||||||
| Preferred Stock Dividends | $ | 3,197 | $ | -- | $ | 9,591 | $ | -- | ||||||
| Net Income Available to | ||||||||||||||
| Common Shares | $ | 494 | $ | 4,649 | $ | 2,010 | $ | 5,481 | ||||||
| Per Common Share: | ||||||||||||||
| Basic | $ | 0.08 | $ | 0.78 | $ | 0.34 | $ | 0.92 | ||||||
| Diluted | $ | 0.08 | $ | 0.78 | $ | 0.34 | $ | 0.92 | ||||||
| Dividends | $ | -- | $ | -- | $ | -- | $ | -- | ||||||
See notes to financial statements.
(4)
PFGI CAPITAL CORPORATION
STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
(Unaudited)
| (In Thousands) |
Preferred Stock |
Common Stock |
Capital Surplus |
Retained Earnings |
Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at June 12, 2002 | $ | -- | $ | - | $ | -- | $ | -- | $ | -- | |||||||
| Issuance of Common Stock | 59 | 164,941 | 165,000 | ||||||||||||||
| Issuance of Preferred Stock | 165,000 | 165,000 | |||||||||||||||
| Offering Costs of Preferred Stock | (5,552 | ) | (5,552 | ) | |||||||||||||
| Net Income | 5,481 | 5,481 | |||||||||||||||
| Balance at September 30, 2002 | $ | 165,000 | $ | 59 | $ | 159,389 | $ | 5,481 | $ | 329,929 | |||||||
Balance at January 1, 2003 | $ | 165,000 | $ | 59 | $ | 159,380 | $ | 4,076 | $ | 328,515 | |||||||
| Net Income | 11,601 | 11,601 | |||||||||||||||
| Dividends Paid on Preferred Stock | (9,591 | ) | (9,591 | ) | |||||||||||||
| Balance at September 30, 2003 | $ | 165,000 | $ | 59 | $ | 159,380 | $ | 6,086 | $ | 330,525 | |||||||
| See notes to financial statements | |||||||||||||||||
(5)
PFGI CAPITAL
CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
| (In Thousands) |
Nine Months Ended September 30, 2003 |
Period From June 12, 2002 to September 30, 2002 | ||||||
|---|---|---|---|---|---|---|---|---|
| Operating Activities: | ||||||||
| Net Income | $ | 11,601 | $ | 5,481 | ||||
| Adjustments to Reconcile Net Income to | ||||||||
| Net Cash Provided by Operating Activities: | ||||||||
| (Increase) Decrease in Interest Receivable | 51 | (1,114 | ) | |||||
| Increase in Accounts Receivable and Other Assets | (510 | ) | (94 | ) | ||||
| Increase in Other Liabilities | 3 | 7 | ||||||
| Net Cash Provided By (Used In) | ||||||||
| Operating Activities | 11,145 | 4,280 | ||||||
| Investing Activities: | ||||||||
| Net (Increase) Decrease in Loan Participations | 2,690 | (161,974 | ) | |||||
| Financing Activities: | ||||||||
| Proceeds from Issuance of Preferred Stock | -- | 165,000 | ||||||
| Offering Costs of Preferred Stock | -- | (5,552 | ) | |||||
| Dividends Paid to Preferred Shareholders | (9,591 | ) | -- | |||||
| Net Cash Provided By (Used In) | ||||||||
| Financing Activities | (9,591 | ) | 159,448 | |||||
| Increase in Cash and Cash Equivalents | 4,244 | 1,754 | ||||||
| Cash at Beginning of Period | 5,357 | -- | ||||||
| Cash and Cash Equivalents at End of Period | $ | 9,601 | $ | 1,754 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash Paid for: | ||||||||
| Interest | $ | -- | $ | -- | ||||
| Income Taxes | -- | -- | ||||||
| Non-Cash Activity: | ||||||||
| Exchange of Common Stock for Loan Participations | -- | 165,000 | ||||||
See notes to financial statements | ||||||||
(6)
PFGI CAPITAL CORPORATION
NOTES TO FINANCIAL
STATEMENTS
NOTE 1. ORGANIZATION
PFGI Capital Corporation (PFGI Capital) is a Maryland corporation incorporated on May 9, 2002. All of PFGI Capital’s Common Stock is owned by The Provident Bank (the Bank). The principal business objective of PFGI Capital is to acquire, hold, and manage commercial mortgage loan assets and other authorized investments that will generate net income for distribution to PFGI Capital’s stockholders. As such, management views its financial condition and results of operations as one business segment. PFGI Capital has elected to be treated as a real estate investment trust (REIT) for federal income tax purposes. As a REIT, PFGI Capital generally is not liable for federal income tax to the extent that it distributes its income to its stockholders and continues to meet a number of other requirements.
The Bank, an Ohio state-chartered member bank of the Federal Reserve System, is the main subsidiary of Provident Financial Group, Inc. (Provident) and provides full-service retail and commercial banking services. PFGI Capital, the Bank and Provident’s executive offices are located at One East Fourth Street, Cincinnati, Ohio 45202, and its Investors Relations telephone number is (513)345-7102 or (800)851-9521.
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited financial statements reflect all adjustments, consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the financial position, the results of operations, changes in shareholders’ equity and cash flows for the periods presented. These financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission pertaining to Form 10-Q and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from those estimates.
The financial statements and notes thereto appearing in PFGI Capital’s 2002 annual report on Form 10-K, which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements.
(7)
PFGI CAPITAL CORPORATION
NOTES TO FINANCIAL
STATEMENTS
NOTE 3. LOAN PARTICIPATIONS AND RESERVE FOR LOAN PARTICIPATION LOSSES
Participations in loans are generally purchased from the Bank at the Bank’s carrying value, which approximates fair value. Carrying value is the principal amount outstanding plus accrued interest. A reserve for loan participation losses is transferred from the Bank to PFGI Capital at the time participations are transferred. Loans sold back to the Bank are accompanied by a transfer of the reserve for those loans from PFGI Capital to the Bank. The reserve for loan participation losses reflects management’s judgment as to the level considered appropriate to absorb inherent losses in the loan participation portfolio. PFGI Capital did not have any nonperforming assets or impaired loans during the first nine months of 2003 or for the period from June 12, 2002 to September 30, 2002.
The following table sets forth an analysis of the reserve for loan participation losses for the periods indicated:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
Period From June 12, 2002 to September | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In Thousands) |
2003 |
2002 |
2003 |
30, 2002 | ||||||||||
| Balance at Beginning of Per | $ | 3,249 | $ | 2,992 | $ | 3,250 | $ | -- | ||||||
| Transferred Reserves, Net | (26 | ) | 706 | (27 | ) | 3,698 | ||||||||
| Provision for Loan Losses | -- | -- | -- | -- | ||||||||||
| Loans Charged Off | -- | -- | -- | -- | ||||||||||
| Recoveries | -- | -- | -- | -- | ||||||||||
| Balance at End of Period | $ | 3,223 | $ | 3,698 | $ | 3,223 | $ | 3,698 | ||||||
NOTE 4. EARNINGS PER COMMON SHARE
Basic earnings per common share is the amount of earnings for the period available to each share of Common Stock outstanding during the reporting period. Diluted earnings per common share is the amount of earnings available to each share of Common Stock outstanding during the reporting period adjusted for the potential issuance of common shares for stock options, convertible debt, etc. The earnings available to each share of Common Stock has been reduced by any Series A Preferred Stock dividend. PFGI Capital has no stock options or convertible debt or other potential equity instruments and therefore basic and diluted earnings per share are calculated on the same basis. The Bank owns all of the issued and outstanding Common Stock of PFGI Capital.
(8)
PFGI CAPITAL CORPORATION
NOTES TO FINANCIAL
STATEMENTS
The following table sets forth the computation of basic and diluted earnings per common share for the periods indicated:
| (In Thousands, | Three Months Ended September 30, |
Nine Months Ended September 30, |
Period From June 12, 2002 to September | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Except Per Share Data) |
2003 |
2002 |
2003 |
30, 2002 | ||||||||||
| Net Income | $ | 3,691 | $ | 4,649 | $ | 11,601 | $ | 5,481 | ||||||
| Less Preferred Stock Dividends | (3,197 | ) | -- | (9,591 | ) | -- | ||||||||
| Income Available to | ||||||||||||||
| Common Shareholder | $ | 494 | $ | 4,649 | $ | 2,010 | $ | 5,481 | ||||||
| Weighted-Average | ||||||||||||||
| Common Shares Outstanding | 5,940 | 5,940 | 5,940 | 5,940 | ||||||||||
| Basic and Diluted | ||||||||||||||
| Earnings Per Share | $ | 0.08 | $ | 0.78 | $ | 0.34 | $ | 0.92 | ||||||
NOTE 5. REGISTRATION AND ISSUANCE OF PRIDES
Provident and PFGI Capital registered 6,000,000 PRIDES pursuant to a Registration Statement filed with the Securities and Exchange Commission which was declared effective on June 6, 2002. In addition, the managing underwriter, Merrill Lynch & Co., was permitted to purchase up to an additional 600,000 PRIDES to cover over-allotments. Provident and PFGI Capital sold the 6,000,000 original PRIDES effective June 12, 2002 and the 600,000 over-allotment PRIDES effective July 2, 2002. The offering was subsequently terminated as all registered PRIDES had been sold.
Gross proceeds from the sale of PRIDES were $165 million. The underwriting discount and expenses incurred from the issuance of the PRIDES totaled $6,542,000 of which 85%, or $5,561,000, was allocated to PFGI Capital. The remaining 15% was allocated to Provident as its share of the PRIDES transaction.
PFGI Capital used all of the net proceeds it received from the sale of the PRIDES for the purchase of participation interests in commercial mortgage loans from the Bank. The Bank used the proceeds from the sale of the participation i