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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

PFGI CAPITAL CORPORATION

One East Fourth Street, Cincinnati, Ohio 45202

Phone: 1-800-851-9521 or 513-345-7102

Securities Registered Pursuant to Section 12(b) of the Act: Income PRIDES, $25 Stated Value

Securities Registered Pursuant to Section 12(g) of the Act: None

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and need not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [ X ]

        All common stock is held by affiliates of the registrant as of December 31, 2003. As of February 27, 2004, 5,940,000 shares of common stock at $.01 per share par value were outstanding. The aggregate market value of the common stock held by non-affiliates of the registrant as of the close of business on June 30, 2003 is 0.

Documents Incorporated by Reference:

        Information Statement for the 2004 Annual Meeting of Shareholders (portions which are incorporated by reference into Part III hereof).

Please address all correspondence to:

Anthony M. Stollings
Chief Financial Officer and Treasurer
PFGI Capital Corporation
One East Fourth Street
Cincinnati, Ohio 45202

PFGI CAPITAL CORPORATION

INDEX TO ANNUAL REPORT

ON FORM 10-K

FORWARD-LOOKING STATEMENTS

This Form 10-K contains certain forward-looking statements that are subject to numerous assumptions, risks or uncertainties. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements may be identified by words such as estimates, anticipates, projects, plans, expects, intends, believes, should and similar expressions and by the context in which they are used. Such statements are based upon current expectations of the company and speak only as of the date made. Actual results could differ materially from those contained in or implied by such forward-looking statements for a variety of factors including: sharp and/or rapid changes in interest rates; prepayments of loans with fixed interest rates resulting in reinvestment of the proceeds in loans with lower interest rates; significant changes in the anticipated economic scenario which could materially change anticipated credit quality trends; adverse economic and other developments in states where loans are concentrated; the possible exchange of Series A Preferred Stock for preferred shares of The Provident Bank at the direction of the Federal Reserve Board or the Ohio Division of Financial Institutions if The Provident Bank becomes undercapitalized; the failure of PFGI Capital Corporation to maintain its status as a REIT for federal income tax purposes; significant changes in accounting, tax, or regulatory practices or requirements; and factors noted in connection with forward-looking statements. Additionally, borrowers of loan participations could suffer unanticipated losses without regard to general economic conditions. The result of these and other factors could cause differences from expectations in the level of defaults, changes in risk characteristics of the loan participation portfolio, and changes in the provision for loan participation losses. PFGI Capital Corporation undertakes no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made.

PFGI CAPITAL CORPORATION

PART I

ITEM 1. BUSINESS

PFGI CAPITAL CORPORATION

General

PFGI Capital Corporation (PFGI Capital), is a Maryland corporation incorporated on May 9, 2002. 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 will not be 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.

In general, the information in this document relative to The Provident Bank (the Bank) and Provident Financial Group, Inc. (Provident) is provided by the Bank and Provident.

PFGI Capital is consolidated as a direct subsidiary of the Bank, as all of PFGI Capital's common stock is owned by the Bank. The Bank, an Ohio state-chartered member bank of the Federal Reserve System, is the primary subsidiary and only banking subsidiary of Provident. The Bank's financial statements and those of Provident's are substantially the same. Copies of Provident's Form 10-K and all other SEC filings by Provident may be obtained, without charge, by contacting Investor Relations at (513) 345-7102 or (800) 851-9521. These reports may also be obtained via the Internet at the web sites of the Bank at http://www.providentbank.com, or the Securities and Exchange Commission (SEC) at http://www.sec.gov.

On February 17, 2004, Provident announced that it had signed a definitive agreement to merge with National City Corporation. National City Corporation is a financial holding company headquartered in Cleveland, Ohio. Under terms of the agreement, Provident shareholders will receive 1.135 shares of National City Corporation common stock for each share of Provident common stock in a tax-free exchange. Subject to regulatory and stockholder approvals, the transaction is expected to close in the second quarter of 2004.

PFGI Capital, the Bank and Provident's executive offices are located at One East Fourth Street, Cincinnati, Ohio 45202. Directors and officers of PFGI Capital are:

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PFGI CAPITAL CORPORATION

The Registrar and Transfer Agent of PFGI Capital is:

In connection with the startup of business, PFGI Capital acquired mortgage assets from the Bank in an aggregate amount of approximately $330 million pursuant to a participation agreement. These assets were comprised of participation interests in commercial mortgage loans, before the allowance for loan losses. Since acquiring these assets, PFGI Capital has met all of the REIT qualification tests for federal income tax purposes.

Although PFGI Capital has the authority to acquire interests in an unlimited number of mortgage assets from unaffiliated third parties, all of PFGI Capital's interests in mortgage and other assets were acquired from the Bank, pursuant to the participation agreement between the Bank and PFGI Capital. The Bank either originated the mortgage assets or acquired them as part of the acquisition of other financial institutions. PFGI Capital may also acquire from time to time a limited amount of additional non-mortgage-related securities. PFGI Capital has no present plans or expectations to purchase mortgage assets or other assets from unaffiliated third parties.

PFGI Capital's participation interests do not entitle PFGI Capital to retain any portion of any late payment charges or penalties, assumption fees or conversion fees collected and retained by the Bank in connection with the loans underlying PFGI Capital's participation interests serviced by the Bank.

General Description of Mortgage Assets and Other Authorized Investments; Investment Policy

In order to qualify as a REIT under the Internal Revenue Code, at least 75% of the total value of PFGI Capital's assets must, broadly speaking, consist of real estate assets, which includes residential mortgage loans and commercial mortgage loans, including participation interests in residential or commercial mortgage loans; mortgage-backed securities eligible to be held by REITs; cash; cash equivalents which includes receivables and government securities; and other real estate assets. PFGI Capital refers to these types of assets as REIT qualifying assets. PFGI Capital may invest up to 25% of the value of its total assets in other types of securities (within the meaning of the Investment Company Act). Under the Investment Company Act, the term "security" is defined broadly to include, among other things, any note, stock, treasury stock, debenture, evidence of indebtedness, or certificate of interest or participation in any profit sharing agreement or a group or index of securities. The Internal Revenue Code also generally requires that the value of any one issuer's securities, other than those securities included in the 75% test, may not exceed 5% by value of the total assets of PFGI Capital. In addition, under the Internal Revenue Code, PFGI Capital generally may not own more than 10% of the voting securities nor more than 10% of the value of the outstanding securities of any one issuer, other than those securities included in the 75% test.

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PFGI CAPITAL CORPORATION

As of December 31, 2003, nearly 100% of PFGI Capital's assets were invested in REIT Qualifying Assets. PFGI Capital does not hold any securities nor does PFGI Capital intend to hold securities in any one issuer that exceed 5% of PFGI Capital's total assets or more than 10% of the voting securities of any one issuer. PFGI Capital's assets consisted of the following at December 31, 2003:

REITs generally are subject to tax at the maximum corporate rate on any income from foreclosure property, other than income that would be qualifying income for purposes of the 75% gross income test, less deductible expenses directly connected with the production of such income. Therefore, prior to foreclosure of any underlying loan acquired by PFGI Capital from the Bank, PFGI Capital currently intends to try to sell the participation interest in the underlying loan back to the Bank. The Bank will then bear all expenses related to the foreclosure after that time.

Commercial Mortgage Loans: PFGI Capital holds participation interests in commercial mortgage loans that are secured by real property such as office buildings; multi-family properties of five units or more; industrial, warehouse and self-storage properties; office and industrial condominiums; retail space; strip shopping centers; mixed use commercial properties; mobile home parks; nursing homes; hotels and motels; churches and farms. Commercial mortgage loans may not be fully amortizing. This means that the loans may have a significant principal balance or “balloon” payment due on maturity. Additionally, apart from the Bank’s commercial mortgage loan origination guidelines, there is no requirement regarding the percentage of any commercial real estate property that must be leased at the time PFGI Capital acquires a participation interest in a commercial mortgage loan secured by such property nor are commercial mortgage loans required to have third party guarantees. Commercial properties, particularly industrial and warehouse properties, generally are subject to relatively greater environmental risks than non-commercial properties. This gives rise to increased costs of compliance with environmental laws and regulations. The Bank may be affected by environmental liabilities related to the underlying real property, which could exceed the value of the real property. Although the Bank has exercised, and will continue to exercise, due diligence to discover potential environmental liabilities prior to PFGI Capital’s acquisition of any participation interests in loans secured by such property, hazardous substances or wastes, contaminants, pollutants, or their sources may be discovered on properties during PFGI Capital’s ownership of the participation interests. There can be no assurance that the Bank would not incur full recourse liability for the entire cost of any removal and clean-up on a property it acquired in foreclosure, that the cost of removal and clean-up would not exceed the value of the property, or that the Bank could recoup any of the costs from any third party. Even though PFGI Capital intends to sell back to the Bank the participation interest in any loan prior to foreclosure, the discovery of these liabilities and any associated costs could have a material adverse effect on the fair value of that loan, and therefore PFGI Capital may not recover any or all of its investment in the underlying loan.

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PFGI CAPITAL CORPORATION

The credit quality of a commercial mortgage loan may depend on, among other factors:

Foreclosures of defaulted commercial mortgage loans generally are subject to a number of complicating factors, including environmental considerations, which are not generally present in foreclosures of residential mortgage loans.

Other Assets: Cash and Due From Banks represent cash received by the Bank from borrowers for the payment of principal and interest on the underlying loans deposited in a demand deposit account of the Bank for PFGI Capital. These funds are available for the purchase of additional participation interests, payment of dividends and other operating expenses of PFGI Capital.

Other assets also include accrued interest on the loans underlying PFGI Capital’s participation interests, which is calculated by the Bank’s loan accounting systems.

Dividend Policy

PFGI Capital expects to distribute annually an aggregate amount of dividends with respect to its outstanding capital shares equal to approximately 100% of its REIT taxable income (as determined before any deduction for dividends paid and excluding any net capital gain). In order to remain qualified as a REIT, PFGI Capital is required to distribute annually at least 90% of such REIT taxable income to its stockholders.

Dividends will be authorized and declared at the discretion of PFGI Capital’s board of directors. Factors that would generally be considered by PFGI Capital’s board of directors in making this determination are PFGI Capital’s distributable funds, financial condition and capital needs, the impact of current and pending legislation and regulations, economic conditions, tax considerations, and PFGI Capital’s continued qualification as a REIT. PFGI Capital currently expects that both PFGI Capital’s cash available for distribution and its REIT taxable income will be in excess of the amounts needed to pay dividends on all outstanding shares of preferred stock, even in the event of a significant drop in interest rate levels because:

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PFGI CAPITAL CORPORATION

Accordingly, PFGI Capital expects that it will, after paying the dividends on all series and classes of preferred stock, pay dividends to the holder of its common stock in an amount sufficient to comply with applicable requirements regarding qualification as a REIT and to ensure that there will be no federal taxable income at the PFGI Capital level.

As an alternative to distributing a cash dividend, PFGI Capital has the option of distributing to its common shareholder, a dividend using a procedure known as a “consent dividend”, as authorized by Section 565 of the Internal Revenue Code. A consent dividend procedure is where a shareholder, on the last day of a REIT’s tax year, agrees to treat as a dividend the amount that the REIT so designates, without any distribution of cash or property actually occurring. The effect of the consent dividend is that the REIT is considered to have paid a dividend on the last day of its tax year, and the shareholder is treated as having received that amount and contributed it back to the REIT. The dollar amount of the consent dividend is included, as if it were distributed, in the calculation to determine that at least 90% of a REIT’s taxable income has been distributed to its shareholders. PFGI Capital, as a REIT, receives a deduction for dividends paid, reducing its taxable income by the amount of the consent dividend, but without the need to have cash available to distribute. For the year ended December 31, 2003 and the period from June 12 to December 31, 2002, PFGI Capital and its common shareholder have agreed to use the consent dividend procedure. As a result, PFGI Capital will have additional funds available for investment purposes and/or for distribution to its preferred shareholders than if PFGI Capital had paid a cash dividend to the common shareholder.

Under certain circumstances, including any determination that the Bank’s relationship with PFGI Capital results in an unsafe and unsound banking practice, the Federal Reserve Board and the Ohio Division of Financial Institutions will have the authority to issue an order that restricts PFGI Capital’s ability to make dividend payments to PFGI Capital’s stockholders, including holders of PFGI Capital Series A preferred stock. The exercise of these powers to restrict dividends on PFGI Capital Series A preferred stock would also have the effect of restricting PFGI Capital’s ability to pay dividends on its common stock and affect its status as a REIT.

Conflict of Interests and Related Policies

The Bank controls 90% of the voting power of PFGI Capital’s outstanding securities. Accordingly, the Bank will continue to have the right to elect all of PFGI Capital’s directors, including PFGI Capital’s independent directors, other than the two additional independent directors to be elected by the holders of PFGI Capital Series A preferred stock if PFGI Capital fails to pay quarterly dividends of $.484375 per share on PFGI Capital Series A preferred stock for at least six consecutive dividend periods. In addition, PFGI Capital’s officers and six of its directors are also officers of the Bank or its affiliates. Because of the nature of PFGI Capital’s relationship with Provident and the Bank, it is likely that conflicts of interest will arise with respect to certain transactions because Provident, the Bank and their affiliates have interests which are not identical to those of PFGI Capital.

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PFGI CAPITAL CORPORATION

The Bank administers PFGI Capital’s day-to-day activities under the terms of a management agreement between PFGI Capital and the Bank. Since the parties to this agreement are affiliated, this agreement was not the result of arms-length negotiations. Any future modification of the management agreement will require the approval of a majority of PFGI Capital’s independent directors. However, since the Bank, through its ownership of all of PFGI Capital’s common stock, controls the election of all of PFGI Capital’s directors, including PFGI Capital’s independent directors, any such modification also would not be the result of arms-length negotiations. Thus, there can be no guarantee that future modifications will be on terms as favorable to PFGI Capital as those that could have been obtained from unaffiliated third parties.

Under the terms of the management agreement between PFGI Capital and the Bank, PFGI Capital pays the Bank a monthly management fee equal to (i) 1/12 multiplied by (ii) .10% multiplied by the average daily outstanding principal balance of the loans of PFGI Capital during each such calendar month. Similarly, PFGI Capital pays the Bank a monthly servicing fee under the term of the participation agreement equal to (i) 1/12 multiplied by (ii) .125% multiplied by the average daily outstanding principal balance of the loans of PFGI Capital during each such calendar month. PFGI Capital and the Bank believe the combined 22.5 annual basis point charge is below current market rates that could be obtained for the management services and the servicing of commercial mortgage loans from independent parties.

Provident, the owner of all the Bank’s common shares, may have investment goals and strategies that differ from those of the holders of shares of PFGI Capital Series A preferred stock. Nevertheless, PFGI Capital’s investment and operating strategies will largely be directed by Provident and the Bank. In addition, neither Provident nor the Bank has a policy addressing treatment of new business opportunities. Thus, new business opportunities identified by Provident or the Bank may be directed to affiliates other than PFGI Capital.

PFGI Capital is dependent on the diligence and skill of the officers and employees of the Bank for the selection and structuring of the loans underlying PFGI Capital’s participation interests and PFGI Capital’s other authorized investments. The Bank will select the amount, type, and price of loan participation interests and other assets which PFGI Capital will acquire from the Bank and its affiliates. PFGI Capital anticipates that it will continue to acquire all or substantially all of its assets from the Bank or its affiliates. To date, all participation interests have been transferred at the Bank’s carrying value, which the parties believe approximates fair value. Carrying value is the principal amount outstanding plus accrued interest. Approximately 92% of the loan participations are adjustable rate loans. All of the loans underlying both the fixed rate and adjustable rate participations are current on principal and interest payments. Neither PFGI Capital nor the Bank has obtained any third-party valuations, nor does PFGI Capital intend to do so in the future. Although PFGI Capital has adopted certain policies to guide the acquisition and disposition of assets, these policies may be revised or exceptions may be approved from time to time at the discretion of the board of directors without a vote of PFGI Capital’s stockholders. Changes in or exceptions made to these policies could permit PFGI Capital to acquire lower quality assets.

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PFGI CAPITAL CORPORATION

PFGI Capital is also dependent on the Bank and others for monitoring and servicing the loans underlying PFGI Capital’s participation interests under the terms of the participation agreement between the Bank and PFGI Capital. Since the parties to this agreement are affiliated, this agreement is not the result of arms-length negotiations. Any future modification of the participation agreement will require the approval of a majority of PFGI Capital’s independent directors. However, since the Bank, through its ownership of all of PFGI Capital’s common stock, controls the election of all of PFGI Capital’s directors, including PFGI Capital’s independent directors, any such modification would not be the result of arms-length negotiation. Conflicts may arise as part of such servicing, particularly with respect to loans that are placed on nonaccrual status. While PFGI Capital believes that the Bank will diligently pursue collection of any non-performing assets, there can be no guarantee that this will be the case. Conflicts of interest between PFGI Capital and the Bank may also arise in connection with making decisions that bear upon the credit arrangements that the Bank may have with a borrower under a loan. The Bank could also seek to exercise its influence over PFGI Capital’s affairs so as to cause the sale of PFGI Capital’s assets and their replacement by lesser quality assets purchased from the Bank or elsewhere. Although these potential conflicts exist, PFGI Capital believes that the Bank will service the assets with a view toward PFGI Capital’s interests.

The requirement in PFGI Capital’s charter that certain of PFGI Capital’s actions be approved by a majority of PFGI Capital’s independent directors is intended to ensure fair dealings between PFGI Capital and the Bank. There can be no assurance, however, that such agreement or transaction will be on terms as favorable to PFGI Capital as could have been obtained from unaffiliated third parties.

There are no provisions in PFGI Capital’s charter limiting any of PFGI Capital’s officers, directors, stockholders, or affiliates from having any direct or indirect pecuniary interest in any asset to be acquired or disposed of by PFGI Capital or in any transaction in which PFGI Capital has an interest or from engaging in acquiring, holding, and managing PFGI Capital’s assets. It is expected that the Bank and its affiliates will have direct interests in transactions with PFGI Capital including, without limitation, the sale of assets to PFGI Capital; however, it is not anticipated that any of PFGI Capital’s officers or directors will have any interests in such assets, other than as borrowers or guarantors of loans underlying PFGI Capital’s participation interests, in which case such loans would be on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the time for comparable transactions with others and would not involve more than the normal risk of collectibility or present other unfavorable features.

Other Management Policies and Programs

General: In administering PFGI Capital’s participation interests and other authorized investments, the Bank has a high degree of autonomy. PFGI Capital, however, adopted certain policies to guide PFGI Capital’s administration with respect to the acquisition and disposition of assets, use of capital and leverage, credit risk management and certain other activities. These policies, which are discussed below, may be amended or revised from time to time at the discretion of PFGI Capital’s board of directors and, in certain circumstances subject to the approval of a majority of PFGI Capital’s independent directors, but without a vote of PFGI Capital’s stockholders, including holders of shares of PFGI Capital’s Series A preferred stock.

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PFGI CAPITAL CORPORATION

Underwriting Standards: In connection with the acquisition of commercial mortgage loan participations by PFGI Capital, the Bank represents to PFGI Capital that substantially all of the mortgage loans underlying the participation interests acquired by PFGI Capital were originated generally in accordance with underwriting policies customarily employed by the Bank during the period in which the commercial mortgage loans were originated. It is the policy of the Bank to make commercial mortgage loans primarily in the geographic areas in which the Bank is doing business, normally a l00-mile radius of Cincinnati, Dayton, Columbus and Cleveland, Ohio; Indianapolis, Indiana; and Pittsburgh, Pennsylvania. However, the Bank may lend in geographic areas beyond these areas, provided the mortgage loans otherwise comply with the Bank’s investment policies. The Bank avoids transactions perceived to have unacceptably high risk, as well as excessive industry, type of collateral and other concentrations. It is the policy of the Bank that no more than two-thirds of the Bank’s commercial mortgage loans cover properties that are not stabilized at any one time.

Some of the loans, however, were acquired by the Bank in connection with the acquisition of other financial institutions. Prior to acquiring any financial institution, the Bank performed due diligence procedures to, among other things, assess the overall quality of the target institution’s loan portfolio. These procedures included the examination of underwriting standards used in the origination of loan products by the target institution, the review of loan documents and the contents of selected loan files, and the verification of the past due status and payment histories of selected borrowers. Through its due diligence procedures, the Bank obtained a sufficient level of comfort pertaining to the underwriting standards used by the target institution and their influence on the quality of the portfolio. Even though the Bank did not and does not warrant those standards, the Bank found them acceptable in comparison to its own underwriting standards in cases where the Bank had made a favorable decision to acquire the institution as a whole.

The underwriting standards imposed by the Bank in connection with the origination of the commercial mortgage loans underlying the participation interests acquired by PFGI Capital include careful consideration of the borrower’s overall creditworthiness and capacity to service debt independent of the income generated from the underlying property. In most instances, cash equity is required in each commercial mortgage loan transaction to reduce debt to a level where the income of the property can comfortably service that debt. In other instances where income from the underlying property does not provide adequate debt service coverage margins, additional collateral is required to offset any perceived deficiency. In the case of properties where the stability of the income stream may be in question, such as construction and development situations, the Bank requires the borrower to have met the pre-leasing and pre-sale standard designated by the Bank for the type of property.

The underwriting procedures and guidelines taken into account by the Bank include such factors as:

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PFGI CAPITAL CORPORATION

Asset Acquisition and Disposition Policies: PFGI Capital adopted the policy of purchasing from the Bank or its affiliates participation interests generally in mortgage loans that:

PFGI Capital’s policy also will allow for investment in assets which are not REIT qualifying assets up to but not exceeding the statutory limitations imposed on organizations that qualify as a REIT. PFGI Capital, under this policy, will have the discretion to purchase other assets to maximize its return to stockholders.

From time to time PFGI Capital acquires participation interests in additional commercial mortgage loans from the Bank or its affiliates on a basis consistent with secondary market standards pursuant to the participation agreement. These acquisitions are made out of proceeds received by PFGI Capital in connection with the repayment or disposition of loan participation interests in PFGI Capital’s portfolio. Although PFGI Capital is permitted to do so, PFGI Capital has no present plans or intentions to purchase loans or loan participation interests from unaffiliated third parties. PFGI Capital currently anticipates that additional participation interests in mortgage loans acquired by PFGI Capital will be of the types described above under the heading “Business: General Description of Mortgage Assets and Other Authorized Investments; Investment Policy,” although PFGI Capital is not precluded from purchasing additional types of loans or loan participation interests.

PFGI Capital may acquire from time to time limited amounts of participation interests in loans that are not commercial mortgage loans, such as residential mortgage loans and equipment loans. PFGI Capital also may from time to time acquire a limited amount of other authorized investments. Although PFGI Capital currently does not intend to acquire any mortgage-backed securities representing interests in or obligations backed by pools of mortgage loans that will be secured by single-family residential or multi-family real estate properties located throughout the United States, PFGI Capital is not restricted from doing so. PFGI Capital does not intend to acquire any interest-only or principal-only mortgage-backed securities. PFGI Capital also will not be precluded from investing in mortgage-backed securities when the Bank is the sponsor or issuer. PFGI Capital does not intend to acquire any mortgage-backed securities that are not backed by pools of commercial real estate properties.

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PFGI Capital currently anticipates that it will not acquire the right to service any loan underlying a participation interest that it acquires in the future and that the Bank will act as servicer of any such additional loans. PFGI Capital anticipates that any future servicing arrangement with the Bank will contain fees and other terms that would be substantially equivalent to or more favorable to PFGI Capital than those that would be contained in servicing arrangements entered into with third parties unaffiliated with PFGI Capital.

PFGI Capital has a policy of not acquiring any participation interest in any mortgage loan that constitutes more than 9% of the total book value of PFGI Capital’s assets at the time of acquisition.

PFGI Capital has a policy of reinvesting the proceeds of PFGI Capital’s assets in other interest-earning assets so that PFGI Capital’s funds from operations over any period of four fiscal quarters will be anticipated to equal or exceed 140% of the amount that would be required to pay full annual dividends on PFGI Capital Series A preferred stock, except as may be necessary to maintain PFGI Capital’s status as a REIT. As of December 31, 2003 this ratio stands at 132% due to the impact of the lower interest rate environment on the adjustable rate mortgage contracts. Management does not believe the shortfall constitutes a significant risk or has a negative impact on its ability to meet its dividend commitments, but is nevertheless, reviewing its options to correct this shortfall. PFGI Capital’s charter provides that PFGI Capital cannot amend or change this policy with respect to the reinvestment of proceeds without the consent or affirmative vote of the holders of at least two thirds of PFGI Capital Series A preferred stock, voting as a separate class.

Credit Risk Management Policies: The Bank represents to PFGI Capital that at least 95% of the participation interests acquired in the future will represent commercial mortgage loans in which the Bank has a first lien position and will be originated by the Bank, one of its affiliates or an unaffiliated third party in the ordinary course of its real estate lending activities based on the underwriting standards generally applied by or substantially similar to those applied by the Bank at the time of origination for its own account. The Bank also represents to PFGI Capital that all loans will be serviced by or through the Bank pursuant to the participation agreement, which requires servicing in conformity with any loan servicing guidelines promulgated by PFGI Capital.

Other Policies: PFGI Capital intends to operate in a manner that will not subject PFGI Capital to regulation under the Investment Company Act. PFGI Capital does not intend to:

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The Investment Company Act exempts entities that, directly or through majority-owned subsidiaries, are “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” PFGI Capital refers to these interests as Qualifying Interests. Under current interpretations by the staff of the SEC, in order to qualify for this exemption, PFGI Capital, among other things, must maintain at least 55% of its total assets in Qualifying Interests and also may be required to maintain an additional 25% of its total assets in Qualifying Interests or other real estate-related assets. The assets that PFGI Capital may acquire, therefore, may be limited by the provisions of the Investment Company Act. PFGI Capital established a policy of limiting authorized investments which are not Qualifying Interests or real estate-related assets to no more than 20% of the value of PFGI Capital’s total assets.

PFGI Capital may, under certain circumstances, purchase PFGI Capital Series A preferred stock and other stock in the open market or otherwise. Except to the extent of any remarketed PFGI Capital Series A preferred stock, PFGI Capital has no present intention of repurchasing any of PFGI Capital’s stock, and any such action would be taken only in conformity with applicable federal and state laws and regulations and the requirements for qualifying as a REIT.

PFGI Capital intends to distribute to its stockholders, in accordance with the Exchange Act, annual reports containing financial statements prepared in accordance with generally accepted accounting principles and certified by PFGI Capital’s independent auditors. PFGI Capital’s charter provides that it will maintain PFGI Capital’s status as a reporting company under the Exchange Act for so long as any of PFGI Capital Series A preferred stock is outstanding and held by unaffiliated stockholders.

PFGI Capital intends to make investments and operate its business in such a manner consistent with the requirements of the Internal Revenue Code to qualify as a REIT and to elect to be treated as a REIT for federal income tax purposes. However, future economic, market, legal, tax or other considerations may cause PFGI Capital’s board of directors, subject to approval by a majority of PFGI Capital’s independent directors, to determine that it is in PFGI Capital’s best interest and the best interest of PFGI Capital’s stockholders to revoke PFGI Capital’s status as a REIT. The Internal Revenue Code prohibits PFGI Capital from electing REIT status for the four taxable years following the year of such revocation.

Servicing

The loans underlying PFGI Capital’s participation interests are serviced by the Bank pursuant to the terms of the participation agreement between the Bank and PFGI Capital.

Under the participation agreement, the Bank has the right in its discretion to give consents, waivers and modifications of the loan documents to the same extent as if the loans were wholly owned by the Bank; provided, however, that the Bank may not do the following without the written consent of PFGI Capital:

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The Bank has the right to accept payment or prepayment of the whole principal sum and accrued interest in accordance with the terms of the loans, waive prepayment charges in accordance with the Bank’s policy for loans in which no participation interest has been granted and accept additional security for the loans. No specific term is specified in the participation agreement. The participation agreement may be terminated by mutual agreement of the parties at any time, without penalty. Due to the relationship between the Bank and PFGI Capital, PFGI Capital does not anticipate that the participation agreement will be terminated by either party in the foreseeable future.

The Bank, in its role as servicer under the terms of the participation agreement, receives a servicing fee designed as a reimbursement for costs incurred to service the underlying loans. PFGI Capital will pay the Bank a monthly servicing fee equal to (i) 1/12 multiplied by (ii) .125% multiplied by the average daily outstanding principal balance of the loans of PFGI Capital during each such calendar month. Based on these formulas, PFGI Capital paid the Bank servicing compensation of $401,000 and $221,000 for the year ended December 31, 2003 and the period from June 12, 2002 (commencement of operations) to December 31, 2002, respectively. The participation agreement does not limit or cap the servicing fees payable to the Bank. Other than the compensation referred to in this paragraph, and the management fee referred to in “Business: Other Management Policies and Programs — Management”, PFGI Capital pays no other compensation to the Bank or its affiliates. The Bank does, however, receive certain non-compensation benefits from its relationship with PFGI Capital.

The participation agreement requires the Bank to service the loans underlying PFGI Capital’s participation interests in a manner substantially similar to work performed by the Bank for transactions on its own behalf. The Bank or its affiliates collect and remit principal and interest payments, maintain perfected collateral positions and submit and pursue insurance claims. The Bank and its affiliates also provide accounting and reporting services required by PFGI Capital for PFGI Capital’s participation interests. PFGI Capital also may direct the Bank to dispose of any mortgage loans at the time the real property securing the mortgage loan becomes classified as a OREO property, the mortgage loan is in default or placed in a non-performing status, or, when any other development occurs that adversely affects the value of the mortgaged property, the borrower’s financial condition or its ability to repay the loan in accordance with its terms, including any renegotiation of loan terms due to the financial deterioration of the borrower. The Bank is required to pay all expenses related to the performance of its duties under the participation agreement, including any payment to its affiliates for servicing the loans. The Bank or its affiliates may institute foreclosure proceedings at the direction of PFGI Capital, exercise any power of sale contained in any mortgage or deed of trust, obtain a deed in lieu of foreclosure or otherwise acquire title to a mortgaged property underlying a mortgage loan by operation of law or otherwise in accordance with the terms of the participation agreement.

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Prior to foreclosure of any commercial mortgage loan underlying PFGI Capital’s participation interests acquired by it from the Bank or its affiliates, PFGI Capital currently intends to try to sell the participation interest in the underlying commercial mortgage loan back to the Bank. The Bank will then bear all expenses related to the foreclosure after that time.

Management

The day-to-day operations of PFGI Capital will be managed pursuant to the terms of the management agreement between the Bank and PFGI Capital. The Bank, in its role as manager under the terms of the management agreement, will receive a management fee designed as a reimbursement for costs incurred to manage PFGI Capital. The Bank is required to pay all expenses related to the performance of its duties under the management agreement, including any payment to its affiliates for managing PFGI Capital. PFGI Capital will pay the Bank a monthly management fee equal to (i) 1/12 multiplied by (ii) .10% multiplied by the average daily outstanding principal balance of the loans of PFGI Capital during each such calendar month. Based on these formulas, PFGI Capital paid the Bank management compensation of approximately $320,000 and $177,000 for the year ended December 31, 2003 and the period from June 12, 2002 (commencement of operations) to December 31, 2002, respectively. No specific term is specified in the management agreement, and the management agreement may be terminated by mutual agreement of the parties at any time, without penalty. Due to the relationship between the Bank and PFGI Capital, PFGI Capital does not anticipate that the management agreement will be terminated by either party in the foreseeable future.

Employees

PFGI Capital has four executive officers. PFGI Capital does not anticipate that PFGI Capital will require any employees because employees of the Bank and its affiliates are servicing the loans and managing the day-to-day operations and affairs of PFGI Capital under the participation and management agreements. All of PFGI Capital’s officers are also officers and/or employees of Provident and/or the Bank. PFGI Capital intends to maintain corporate records and audited financial statements that are separate from those of Provident and the Bank.

Although there are no restrictions or limitations contained in PFGI Capital’s charter or bylaws, PFGI Capital does not anticipate that PFGI Capital’s officers or directors will have any direct or indirect pecuniary interest in any asset to be acquired or disposed of by PFGI Capital or in any transaction in which PFGI Capital has an interest or will engage in acquiring, holding and managing assets, other than as borrowers or guarantors of commercial mortgage loans underlying PFGI Capital’s participation interests, in which case such commercial mortgage loans would be on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transaction with others and would not involve more than the normal risk of collectibility or present other unfavorable features.

Competition

In order to qualify as a REIT under the Internal Revenue Code, PFGI Capital cannot engage in the business of originating loans. PFGI Capital anticipates that it will continue to possess participation interests in mortgage and other loans in addition to those in the current portfolio and that substantially all of these loans will be owned by the Bank, although PFGI Capital may purchase loans from unaffiliated third parties. Accordingly, PFGI Capital does not expect to compete with mortgage conduit programs, investment banking firms, savings and loan associations, banks, thrift and loan associations, finance companies, mortgage bankers or insurance companies in acquiring loans.

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Regulatory Matters

The Bank, an Ohio state-chartered member bank of the Federal Reserve System, and its subsidiaries, including PFGI Capital, are subject to supervision and examination by applicable federal and state banking agencies, including the Federal Reserve, FDIC and the Ohio Division of Financial Institutions. In addition to the impact of federal and state regulation, the Bank is affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy.

Overview of the Prides

PFGI Capital and Provident issued 6,600,000 units of PRIDES to the public for $165,000,000. The proceeds of this issuance were used to purchase commercial mortgage loan participations from the Bank. Each PRIDES is comprised of a unit consisting of:

    (1)        a forward purchase contract pursuant to which (a) the holder will agree to purchase, and Provident will agree to sell, for $25, newly issued shares of Provident common stock on August 17, 2005, the number or fraction of which will be determined by the settlement rate described below, based on an average trading price of Provident common stock for a period preceding that date; and (b) Provident will make unsecured contract adjustment payments to the holder at a rate of 1.25% of the stated amount per year, paid quarterly, subject to Provident’s right to defer these payments, and

    (2)        one share of PFGI Capital Series A preferred stock with a liquidation preference of $25, on which PFGI Capital will pay dividends on a non-cumulative basis at the rate of 7.75%.

Each forward purchase contract obligates the holder to buy, on August 17, 2005, for $25.00, a number of newly issued shares of Provident common stock equal to the settlement rate. The settlement rate will be calculated as follows:

“Applicable market value” is defined as the average of the closing price per share of Provident common stock on each of the twenty consecutive trading days ending on the fifth trading day immediately preceding August 17, 2005.

Holders of PFGI Capital’s Series A preferred stock are entitled to receive, if, when, and as authorized and declared by the board of directors out of legally available assets, non-cumulative cash dividends at the rate of 7.75% per annum of the initial liquidation preference which is $25.00 per share ($1.9375 per share). Dividends on the preferred stock will be payable, if authorized and declared, quarterly in arrears on February 17, May 17, August 17 and November 17 of each year, or if any such day is not a business day, on the next business day. The preferred stock will rank senior to the common stock of PFGI Capital as to dividend rights and rights upon liquidation, winding up or dissolution.

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PFGI CAPITAL CORPORATION

In connection with the settlement of the forward purchase contract, Provident has engaged a remarketing agent to remarket the PFGI Capital preferred stock on behalf of the holders, at which time the PFGI preferred stock will be permanently detached from the forward purchase contract. Once the forward purchase contract is settled, there will be two separate and distinct securities outstanding: PFGI Capital preferred stock and Provident common stock. The proceeds received from the remarketing will be used by the holders of preferred stock to fulfill their commitment under the terms of the forward purchase contract.

Upon a successful remarketing of shares of the PFGI Capital’s preferred stock, the applicable dividend rate on the shares of preferred stock that have been purchased in the remarketing will be reset to the reset rate described below. The dividend rate of shares of preferred stock that are not remarketed will not be reset and will continue to be 7.75%.

The reset rate will be determined by the reset agent as the dividend rate the preferred stock should bear for the preferred stock to have a market value on the fifth business day immediately preceding August 17, 2005 of 100.5% of the aggregate liquidation preference of the preferred stock, plus declared and unpaid dividends, if any.

Each share of PFGI Capital’s preferred stock will be automatically exchanged for one newly issued share of Bank Series A preferred stock upon the occurrence of an exchange event. An exchange event occurs when:

As discussed in other parts of this report, Provident will merge with National City Corporation (National City) subject to regulatory and stockholder approvals. National City will be required to expressly assume Provident’s obligations under the forward purchase contract and certain related agreements. As Provident shareholders will be receiving 1.135 shares of National City Common Stock for each share of Provident Common Stock, the settlement rate of the forward purchase contract will be calculated as follows:

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RISK FACTORS

CHANGE IN THE PRICE OF PROVIDENT COMMON STOCK.

The market value of the shares of Provident common stock that the holder will receive on settlement of a forward purchase contract on August 17, 2005 may be materially different from the effective price per share paid by the holder on settlement as a result of a variety of factors. If the average trading price of Provident common stock on the settlement date is less than $24.42 per share, the holder will, on settlement, be required to purchase shares of common stock at a loss. Accordingly, a holder of PRIDES assumes the entire risk that the market value of Provident common stock may decline.

The aggregate market value of the shares of Provident common stock that the holder will receive upon settlement of a forward purchase contract generally will exceed the stated amount of $25 only if the average closing price per share of Provident common stock over the 20-trading day period preceding settlement equals or exceeds $29.0598, which is referred to as the threshold appreciation price. If the average closing price exceeds $24.42, which is referred to as the reference price, but falls below the threshold appreciation price, the holder will realize no equity appreciation on Provident common stock for the period during which the holder owns the forward purchase contract. Furthermore, if the applicable average closing price exceeds the threshold appreciation price, the value of the shares the holder will receive under the forward purchase contract will be approximately 84% of the value of the shares the holder could have purchased with $25.

U.S FEDERAL INCOME TAX LAWS AND CONSEQUENCES

No statutory, judicial or administrative authority directly addresses the treatment of PRIDES or instruments similar to PRIDES for United States federal income tax purposes. As a result, the United States federal income tax consequences of the purchase, ownership and disposition of the PRIDES (including the timing and the character of a holder’s gain, income or loss with respect to the PRIDES) are unclear.

No assurance can be given that PFGI Capital will be able to operate in such a manner so as to remain qualified as a REIT for United States federal income tax purposes. Qualification as a REIT involves the application of highly technical and complex tax law provisions for which there are only limited judicial or administrative interpretations and involves the satisfaction of various factual requirements not entirely within PFGI Capital’s control. No assurance can be given that new legislation, regulations, administrative interpretations, or court decisions will not significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification in a way that would materially and adversely affect PFGI Capital’s ability to operate. Any such new legislation, regulation, interpretation, or decision could be the basis of a Tax Event that would, with the prior written approval of the Federal Reserve Board and the Ohio Division of Financial Institutions, permit PFGI Capital to redeem PFGI Capital Series A preferred stock.

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PFGI CAPITAL CORPORATION

If PFGI Capital were to fail to qualify as a REIT, the dividends on PFGI Capital’s stock, including PFGI Capital Series A preferred stock, would not be deductible by PFGI Capital for federal income tax purposes and PFGI Capital would be subject to federal income tax in the same manner as a regular, domestic corporation. Thus PFGI Capital (or, in the likely event that PFGI Capital also became part of the consolidated group of which Provident is the parent, such consolidated group) likely would face a greater tax liability and the amount of income available for distribution to holders of PFGI Capital Series A preferred stock would be reduced.

If in any taxable year PFGI Capital fails to qualify as a REIT, unless PFGI Capital is entitled to relief under certain statutory provisions, PFGI Capital would also be disqualified from treatment as a REIT for the four taxable years following the year PFGI Capital’s qualification was lost.

To qualify as a REIT, PFGI Capital will, broadly speaking, be required each year to distribute as dividends to PFGI Capital’s stockholders at least 90% of PFGI Capital’s taxable income, excluding capital gains. Failure to comply with this requirement would result in PFGI Capital being subject to tax at regular corporate rates. In addition, PFGI Capital will be subject to a 4% nondeductible excise tax on the amount by which certain distributions considered as paid by PFGI Capital with respect to any calendar year are less than the sum of:

Although PFGI Capital currently intends to operate in a manner designed to qualify it as a REIT, future economic, market, legal, tax or other considerations may cause PFGI Capital to determine that it is in its best interests and the best interests of holders of PFGI Capital’s common stock and preferred stock to revoke the REIT election. Any such determination by PFGI Capital may be made without stockholder approval but, as long as any share of REIT Series A preferred stock are outstanding, will require the approval of a majority of PFGI Capital’s independent directors.

POTENTIAL DIVIDEND RESTRICTIONS BY BANK REGULATORS

Because PFGI Capital is a direct subsidiary of the Bank, regulatory authorities will have the right to examine PFGI Capital and PFGI Capital’s activities and, under certain circumstances, to impose restrictions on the Bank or PFGI Capital. Such restrictions could impact PFGI Capital’s ability to conduct business pursuant to PFGI Capital’s business plan and could adversely affect PFGI Capital’s financial condition and results of operations.

If the Federal Reserve Board or the Ohio Division of Financial Institutions determines that the Bank’s relationship with PFGI Capital results in an unsafe and unsound banking practice, the Bank’s regulators have the authority to:

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PFGI CAPITAL CORPORATION

Some of these actions by the Federal Reserve Board or the Ohio Division of Financial Institutions would likely result in a failure of PFGI Capital to qualify as a REIT.

Payment of dividends of PFGI Capital’ Series A preferred stock could also be subject to regulatory limitations if the Bank becomes less than “well-capitalized” for purposes of regulations issued by the Federal Reserve Board. Under these regulations, the Bank will be deemed less than “well-capitalized” if it has a total risk-based capital ratio of less than 10.0%; a Tier 1 risk-based capital ratio of less than 6.0%; and a leverage ratio of less than 5.0%. At December 31, 2003 and 2002, the Bank’s total risk-based capital ratio was 12.26% and 11.36%, respectively, its Tier 1 risk-based capital ratio was 9.12% and 8.19%, respectively, and its leverage ratio was 7.00% and 6.77%, respectively. While the Bank intends to maintain its capital ratios in excess of the “well-capitalized” levels under these regulations, there can be no assurance that the Bank will be able to do so. The exercise of the Federal Reserve Board’s power to restrict dividends on PFGI Capital Series A preferred stock would, however, also have the effect of restricting the payment of dividends on PFGI Capital’s common stock and all series and classes of preferred stock. The inability to pay dividends on PFGI Capital’s common stock would prevent PFGI Capital from meeting the statutory requirement in effect for a REIT to distribute 90% of its taxable income and, therefore, would cause PFGI Capital to fail to qualify for the favorable tax treatment accorded to REITs.

If PFGI Capital had to be treated for tax purposes in the same manner as the other consolidated subsidiaries of the Bank, rather than as a REIT, PFGI Capital’s loss of tax benefits would be directly and immediately felt by PFGI Capital’s stockholders.

Early in 2003, Provident restated its operating results for prior periods. The restatement was a result of unintentional errors in the accounting for certain leases. The results of the restatement are reflected for all periods reported upon in Provident’s Form 10-K for the years ended December 31, 2003 and 2002.

Legal and regulatory limitations on the payment of dividends by the Bank could also affect PFGI Capital’s ability to pay dividends to unaffiliated third parties, including the holders of shares of PFGI Capital Series A preferred stock. Regulatory approval is required prior to the Bank’s declaration of any dividends in excess of available retained earnings. The amount of dividends that may be declared without regulatory approval is further limited to the sum of net income for the current year and retained net income for the preceding two years, less any required transfers to surplus or common stock. At December 31, 2003, the Bank could without prior regulatory approval and absent contrary supervisory guidance declare dividends in 2004 of approximately $95.1 million plus an additional amount equal to its net income through the date of declaration in 2004. Since PFGI Capital is a member of the Bank’s consolidated group, payment of common and preferred dividends by the Bank and/or any member of its consolidated group to unaffiliated third parties, including PFGI Capital’s payment of dividends to the holders of shares of PFGI Capital Series A preferred stock, would require regulatory approval if aggregate dividends on a consolidated basis exceed these limitations.

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CONFLICT OF INTERESTS

PFGI Capital has no employees. The Bank performs all of PFGI Capital’s business operations. All of PFGI Capital’s officers and six of PFGI Capital’s directors are also officers of the Bank or its affiliates. PFGI Capital’s common officers with the Bank devote less than 5% of their time to managing PFGI Capital’s business. Three directors are independent directors who are not employed by or otherwise affiliated with PFGI Capital, nor are they officers, directors or other affiliates of Provident or the Bank. The Bank controls 90% of the voting power of PFGI Capital’s outstanding shares. As a result, the Bank has the right to elect all of PFGI Capital’s directors, including PFGI Capital’s independent directors, except for the two additional independent directors to be elected by the holders of PFGI Capital Series A preferred stock if PFGI Capital fails to pay dividends on PFGI Capital Series A preferred stock for at least six consecutive dividend periods. The Bank and its affiliates have interests that are not identical to PFGI Capital’s and, therefore, conflicts of interest may arise with respect to transactions between or among Provident, the Bank and PFGI Capital.

PFGI Capital is dependent on the diligence and skill of the officers and employees of the Bank for the selection and structuring of the loans underlying PFGI Capital’s participation interests and PFGI Capital’s other authorized investments. The Bank will select the amount, type, and price of loan participation interests and other assets that PFGI Capital will acquire from the Bank. Although these purchases are made within the investment policies of PFGI Capital, which are