BY BY JEFF McKINNEY
The Cincinnati Enquirer
Provident Financial Group Inc. is launching a cost-cutting program to help sustain the brisk revenue and earnings growth that the Cincinnati bank has enjoyed for years.
At the same time, the parent of Provident Bank plans to repurchase up to 1 million, or about 2.3 percent, of the company's almost 43.2 million outstanding shares, from time to time on the open market.
Provident's initiatives are aimed at getting rid of excess capital, which could help boost returns for stockholders by reducing shares outstanding, as well as addressing Wall Street's concerns about rising expenses at Cincinnati's third-largest bank.
Joe Duwan, a respected banking analyst at Keefe Bruyette Woods in New York, raised his rating this week on Provident stock to "attractive" from "market performer" after executives told him that the bank would implement what Provident is calling a re-engineering project to improve its cost-efficiency ratio. The ratio represents the percentage of revenue paid as expense.
"While Provident's revenue growth has been above average, we had been concerned with the rapid growth in Provident's non-interest expense base," Mr. Duwan wrote in a report Tuesday.
Mr. Duwan said Provident's efficiency ratio rose to 57.6 percent in the second quarter from 48 percent in the same quarter in 1997. He said certain recent initiatives at the company are being re-examined with the goal to eliminate losses or improve profitability.
For example, Mr. Duwan said, Provident's MeritValu multi-merchant frequent shopper program is losing 15 cents a share -- estimated at $6.5 million -- after taxes annually.
He said the company's goal is to trim the efficiency ratio to 50 percent. The industry average is about 55 percent.
Robert Hoverson, named Provident's president and chief executive in April, told The Cincinnati Enquirer Wednesday that the company's Performance Optimization Project is about maintaining strong revenue growth, while improving the bank's operating efficiencies. Mr. Hoverson said every Provident employee -- more than 2,600 primarily in the Tristate -- will revisit all of the bank's operations and examine how money is spent.
Mr. Hoverson didn't say whether the initiative will include exiting or selling any business lines, but he noted that the project will touch every area of the bank.
"We've been growing revenues aggressively for the past few years, but our efficiency ratio has slipped," Mr. Hoverson said. "We need to continue to aggressively grow revenues while slowing the rate of expense growth in a careful and controlled manner."
