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CONTACT:
Media: Lillian Kilroy (410) 277-2833
Investment Community: Ellen Grossman (410) 277-2889
PROVIDENT BANKSHARES CORPORATION REPORTS
2001 SECOND QUARTER EARNINGS
CORE BANKING BUSINESS CONTINUES STRONG PERFORMANCE
COMPANY ADDRESSES PREVIOUSLY ANNOUNCED ACQUIRED LOAN PORTFOLIO LOSSES
BALTIMORE (August 6, 2001) - Provident Bankshares Corporation (NASDAQ:PBKS), the
parent company of Provident Bank, today reported operating results for the
quarter ending June 30, 2001. The Company's core banking businesses continued to
produce strong growth and performance. During the quarter, core deposits,
in-market originated loans and fee income categories all posted double-digit
increases. Provident also took action to deal with the losses identified by the
Company's previously announced review of its acquired second mortgage loan
portfolio.
ACQUIRED LOAN PORTFOLIO
In its Press Release on July 16, the Company reported that it was conducting an
internal review of its $1.6 billion acquired second mortgage loan portfolio. The
review, when completed, discovered previously unidentified losses in that
portfolio of $13.8 million ($8.9 million after tax) through June 30, 2001. At
that time, the Company also reported that it was working with its independent
public accountants to determine the appropriate accounting treatment for its
findings. Presented below is a summary of these findings and the impact by
accounting period:
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PRIOR PERIOD RESTATEMENTS
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First Second
Quarter Quarter
(dollars in thousands) 1999 2000 2001 2001 Total
---- ---- ---- ---- -----
<s> <c> <c> <c> <c> <c>
Increase to the provision for loan
losses - $ 6,000 $ 1,000 $ 2,845 $ 9,845
Reversal of accrued but
uncollected interest and
write-off of loan purchase premiums for
acquired second mortgages - 1,854 (389) 561 2,026
Increase in the existing recourse
reserve for securities resulting from
securitization of acquired second
mortgages - - - 1,886 1,886
-------- --------- -------- --------- ---------
Total decrease in pre-tax income $ 7,854 $ 611 $ 5,292 $ 13,757
========= ======== ======== =========
Total decrease in after-tax income $ 5,105 $ 400 $ 3,440 $ 8,945
========= ======== ======== =========
Charge-offs $ 3,335 $ 4,951 $ 2,239 $ 2,180 $ 12,705
======== ========= ======== ======== =========
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The Company will amend and refile certain 2000 financial statement filings on
Forms 10-K and 10-Q, as well as its first quarter 2001 financial statements on
Form 10-Q. Presented below is a summary of selected financial data:
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MARCH 31,
(dollars in thousands, except per share data) 1999 2000 2001
---- ---- ----
<s> <c> <c> <c>
Net Income
As Reported $ 44,810 $ 10,565
As Restated $ 39,705 $ 10,165
Earnings Per Share - Basic (1)
As Reported $ 1.63 $ 0.40
As Restated $ 1.44 $ 0.39
Earnings Per Share - Diluted (1)
As Reported $ 1.60 $ 0.39
As Restated $ 1.41 $ 0.37
Loan Charge-offs
As Reported $ 14,557 $ 24,249 $ 5,391
As Restated $ 17,892 $ 29,200 $ 7,630
Reserve for Loan Losses-Period End
As Reported $ 39,780 $ 40,660 $ 42,832
As Restated $ 36,445 $ 38,374 $ 39,307
Reserve for Loans/Period End Loans
As Reported 1.25% 1.21% 1.29%
As Restated 1.15% 1.14% 1.19%
(1) Earnings per share give effect to the 5% stock dividend paid in May, 2001
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SECOND QUARTER RESULTS
The following results reflect the revised financial information as stated above.
Net income for the quarter ended June 30, 2001 was $8.0 million or $.30 per
share on a diluted basis. This is a net income decrease of 11.3% from the $9.1
million, or $.32 per diluted share, in the 2000 comparable quarter.
Return on average common equity was 11.16% for second quarter 2001, compared to
11.50% for the same quarter last year. Return on average assets was .63% for the
quarter, compared to .67% for the comparable period one year ago.
Stockholders' equity at June 30, 2001 was $286 million. The leverage ratio was
6.90% and book value per share was $11.13.
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SOLID SECOND QUARTER RESULTS FROM CORE BUSINESS OPERATIONS
Banking operations continued to show solid revenue growth driven by Provident's
strength in attracting and retaining customers, acquiring core deposits and
loans and generating fee income.
Average core loans and deposits showed strong growth during the second quarter.
Average core loans increased $309 million or 10% compared to second quarter
2000. Led by a 15% increase in non-interest bearing demand deposits, average
core deposits increased 12% from same quarter last year.
The Company continued to shrink the wholesale segment of its balance sheet
during the quarter. Investment securities, as well as syndicated and acquired
loans, were reduced along with their wholesale funding source, brokered
deposits. Provident securitized approximately $239 million of acquired second
mortgages. The resulting FNMA securities were then transferred to the Company's
investment portfolio. Brokered deposits have been reduced by $298 million from
the same quarter last year.
As a result, average loans were down $269 million and average deposits were down
$87 million from the same quarter last year. This de-leveraging activity is
consistent with Provident's strategic focus on asset growth from core banking
sources.
Net interest income for the 2001 second quarter was down $3.3 million or 8.6%
from one year ago. The net interest margin for the quarter was 2.89%, down from
2.90% in the same quarter last year.
Asset quality within the commercial and real estate portfolios remains solid. At
June 30, 2001, total non-performing loans were $28.1 million, up from $27.5
million or 2.3% from the same quarter last year. During the quarter, Provident
wrote down its last remaining non-performing health care credit. The Company has
obtained a contract of sale on the nursing home related to this loan and expects
to exit the credit without any additional losses.
Non-interest income from banking operations was up 14.6% and comprised 36% of
Provident's total revenue for the quarter (net of securities gains). This
increase was driven by Provident's strong retail and commercial checking account
growth, with income from retail deposit fees up 22.1%, commercial deposit
service fees up more than 52% and assessed cash management fees up 45% from one
year ago. Total non-interest income (excluding securities gains) was up $2.4
million or 14.6% for the second quarter of 2001. There were $1.6 million in
securities gains during the 2001 second quarter compared with $7.8 million in
the same period a year ago.
Excluding the $1.9 million increase to the existing recourse reserve,
non-interest expense was $36.7 million in the second quarter of 2001, up just
3.5% from the same quarter last year. These results reflect the Company's
continued focus on operating expense control and anticipated expense reductions
from lines of business exited last year.
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SIX MONTH RESULTS
For the six months ended June 30, 2001, net income totaled $18.2 million, down
from $20.2 million for the 2000 period. Diluted earnings per share were $.67,
down from the $.72 for the same six months last year. Revenues from core
business operations continued strong growth, with an 18.4% increase in core
non-interest income from the same six-month period last year.
DIVIDEND DECLARED
Provident Bankshares also announced today that its Board of Directors has
declared a quarterly cash dividend of $0.195 per share. This quarterly cash
dividend will be paid on August 23, 2001 to stockholders of record at the close
of business on August 16, 2001.
CORE BUSINESS UNITS CONTINUE ON TRACK WITH STRONG REVENUE MOMENTUM
Provident posted strong consumer loan volume in the second quarter of 2001.
The Bank booked over $128 million in new consumer loans and lines during
the second quarter of 2001, a 133% increase over second quarter 2000.
Application volume was up 67% compared to second quarter 2000. A retooled
home equity product line generated over $52 million in loans and lines
during the quarter, an 89% increase over the same quarter last year.
Commercial loans also showed strong increases in second quarter 2001.
Commercial loans were up 11.8% over second quarter 2000. Commercial real
estate loans grew $105 million or 25% over second quarter 2000. This growth
was in loans to home and apartment builders, and in commercial projects
such as office buildings, flex-space and regional shopping centers.
Core deposits grew 12% from the second quarter of 2000, with non-interest
bearing demand deposits up by 15%.
An enhanced business checking product line was introduced in April to
complement Provident's new Small Business Center. During the quarter, the
Bank opened over 1,900 new business checking accounts. This reflects a 51%
increase in new account production over the same period last year.
Provident's expansion branches helped fuel the growth of core deposits in
the second quarter of 2001. The Company opened more than 20,000 retail
checking accounts during the quarter, with expansion branches accounting
for 43% of this growth.
Fee income was also up 20.9%, fueled by deposit service fees that grew by
22.2% compared to second quarter 2000. Commercial deposit fees increased
52.4% and assessed cash management fees rose 45% over the second quarter of
last year. Loan fees were up 35% compared to the same period last year.
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MANAGEMENT COMMENT
Commenting on the Company's performance, Provident Bankshares Chairman and Chief
Executive Officer Peter M. Martin said, "The acquired loan portfolio losses were
a disappointing setback - especially when contrasted against the strong
performance of our core business operations. That said, we have addressed the
issue and taken appropriate action."
"Provident management remains focused on growing core product businesses,
sustaining revenue momentum from retail and commercial units and controlling the
operating expense growth rate. Continued positive results from these strategies
and the success of our network expansion efforts will provide momentum toward
our planned fourth quarter financial targets."
Provident Bankshares Corporation is the holding company for Provident Bank, the
second largest independent commercial bank headquartered in Maryland. With $5.2
billion in assets, Provident serves individuals and businesses in the dynamic
Baltimore-Washington corridor through a network of 99 offices in Maryland,
Northern Virginia, and southern York County, PA. Provident Bank also offers
related financial services through wholly owned subsidiaries. Mutual funds,
annuities and insurance products are available through Provident Investment
Center and leases through Court Square Leasing and Provident Lease Corp. Visit
Provident on the web at www.provbank.com.
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SPECIAL NOTE: Provident Bankshares Corporation's Second Quarter Earnings
Teleconference will be webcast at 10:00 a.m. on Tuesday, August 7, 2001. Log on
to www.provbank.com. The webcast will include discussions of the most recent
----------------
quarter's results of operations and may include forward-looking information such
as guidance on future results.
##
STATEMENTS CONTAINED IN THIS PRESS RELEASE THAT ARE NOT HISTORICAL FACTS ARE
FORWARD-LOOKING STATEMENTS, AS THE TERM IS DEFINED IN THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE CURRENTLY ANTICIPATED DUE TO A NUMBER OF FACTORS, WHICH INCLUDE, BUT
ARE NOT LIMITED TO, FACTORS DISCUSSED IN DOCUMENTS FILED BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME.
TABLE FOLLOWS
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PROVIDENT BANKSHARES CORPORATION
FINANCIAL SUMMARY
(DOLLARS IN THOUSANDS,EXCEPT PER SHARE DATA) Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------- ------------------------------------
(TAX-EQUIVALENT BASIS) 2001 2000 % Change 2001 2000 % Change
--------- ---------- --------------- --------- ---------- -------------
<s> <c> <c> <c> <c> <c> <c>
SUMMARY OF OPERATIONS
Interest Income $ 89,067 $ 101,791 (12.5)% $ 187,216 $ 199,274 (6.1)%
Interest Expense 54,313 63,760 (14.8) 114,967 122,339 (6.0)
--------- ---------- ----------- -----------
Net Interest Income 34,754 38,031 (8.6) 72,249 76,935 (6.1)
Provision for Loan Losses 4,895 13,035 (62.4) 13,070 17,335 (24.6)
--------- ---------- ----------- -----------
Net Interest Income after Provision
for Loan Losses 29,859 24,996 19.5 59,179 59,600 (0.7)
Non-Interest Income 20,638 24,379 (15.3) 44,175 38,748 14.0
Non-Interest Expense 38,577 35,459 8.8 74,455 69,504 7.1
--------- ---------- ----------- -----------
Income Before Income Taxes 11,920 13,916 (14.3) 28,899 28,844 0.2
Income Tax Expense 3,640 4,610 (21.0) 9,039 8,932 1.2
Less: Tax-Equivalent Adjustment 245 246 (0.4) 500 487 2.7
--------- ---------- ----------- -----------
Income Before Extraordinary Item and Cumulative
Effect of Change in Accounting Principle 8,035 9,060 (11.3) 19,360 19,425 (0.3)
Extraordinary Item -- Gain on Debt Extinguishment,
Net -- -- -- -- 770 --
Cumulative Effect of Change in Accounting
Principle, Net* -- -- -- (1,160) -- --
--------- ---------- ----------- -----------
Net Income $ 8,035 $ 9,060 (11.3) $ 18,200 $ 20,195 (9.9)
========= ========== =========== ===========
PER SHARE
Basic
Income Before Extraordinary Item and Cumulative
Effect of Change in Accounting Principle $ 0.31 $ 0.33 $ 0.74 $ 0.70
Net Income 0.31 0.33 0.70 0.73
Diluted
Income Before Extraordinary Item and Cumulative
Effect of Change in Accounting Principle 0.30 0.32 0.71 0.69
Net Income 0.30 0.32 0.67 0.72
Cash Dividends Paid 0.181 0.154 0.357 0.304
Stockholders' Equity 11.13 10.38
Market Value (closing sales price as
reported on the NASDAQ Stock Market) 24.94 12.86
Common Shares Outstanding 25,672,753 25,540,913
Weighted Average Shares -- Basic 25,545,605 27,482,988 25,989,507 27,628,756
Weighted Average Shares -- Diluted 26,507,162 28,007,570 26,990,150 28,167,973
PROFITABILITY RATIOS**
Return on Average Assets 0.63 % 0.67 % 0.74% 0.77%
Return on Average Equity 11.41 13.75 13.44 15.19
Return on Average Common Equity 11.16 11.50 13.15 12.80
Net Yield on Average Earning Assets (t/e basis) 2.89 2.90 2.92 2.99
CAPITAL RATIOS AT JUNE 30
Leverage Ratio 6.90% 7.00%
Risk-Based Capital Ratios:
Tier I Capital Ratio 9.22 9.18
Total Capital Ratio 10.14 10.17
ASSET QUALITY
Non-Performing Loans $ 28,107 $ 27,470 2.3%
Loans Past Due 90 Days or More 11,193 17,074 (34.4)
Allowance for Loan Losses 35,310 41,102 (14.1)
Net Charge-offs $ 8,202 $ 8,502 (3.5)% 15,444 12,678 21.8
Non-Performing Loans to Loans 0.95% 0.78%
Allowance for Loan Losses to Loans 1.19 1.17
Net Charge-Offs to Average Loans 1.03% 0.99% 0.95 0.76
Allowance for Loan Losses to
Non-Performing Loans 125.63 149.63
AVERAGE BALANCES
Investment Securities Portfolio $1,634,303 $1,798,740 (9.1)% $ 1,699,597 $ 1,768,563 (3.9)%
Loans 3,178,995 3,448,400 (7.8) 3,279,912 3,360,220 (2.4)
Earning Assets 4,826,416 5,285,569 (8.7) 4,992,670 5,171,248 (3.5)
Assets 5,125,315 5,458,710 (6.1) 5,250,682 5,343,065 (1.7)
Deposits 3,690,825 3,777,830 (2.3) 3,766,297 3,784,804 (0.5)
Stockholders' Equity 282,418 264,974 6.6 290,426 267,354 8.6
Common Equity 288,814 316,804 (8.8) 296,830 317,239 (6.4)
SELECTED FINANCIAL DATA AT PERIOD END
Investment Securities Portfolio $ 1,803,242 $ 1,711,987 5.3 %
Loans 2,971,093 3,504,739 (15.2)
Earning Assets 4,786,825 5,233,377 (8.5)
Assets 5,170,670 5,482,191 (5.7)
Deposits 3,580,802 3,920,356 (8.7)
Stockholders' Equity 285,755 265,103 7.8
Common Equity 293,003 312,269 (6.2)
* Effective January 1, 2001, the Corporation adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
** Exclusive of cumulative effect of change in accounting principle
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