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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
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COMMISSION FILE NUMBER 0-16421
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PROVIDENT BANKSHARES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MARYLAND 52-1518642
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
114 EAST LEXINGTON STREET, BALTIMORE, MARYLAND 21202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(410) 277-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |X| No |_|
At May 6, 2005, the Registrant had 32,962,067 shares of $1.00 par value common
stock outstanding.
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Explanatory Note
This amendment is being filed to correct a typographical error in the Corporation's Form 10-Q for the period ended March 31, 2005
(filed with the Securities and Exchange Commission on May 10, 2005) regarding the amount of "Income Taxes Paid" by the Corporation
during the period ended March 31, 2005 as reflected in the Consolidated Statements of Cash Flows. Income Taxes Paid during this
period was approximately $28,000.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
March 31, December 31, March 31,
2005 2004 2004
(dollars in thousands, except share amounts) -------------- --------------- --------------
(Unaudited) (Unaudited)
ASSETS:
Cash and due from banks $ 155,562 $ 124,664 $ 116,006
Short-term investments 5,347 9,658 1,903
Mortgage loans held for sale 4,441 6,520 5,456
Securities available for sale 2,031,290 2,186,395 2,127,047
Securities held to maturity 114,091 114,671 -
Loans 3,546,286 3,559,880 2,829,936
Less allowance for loan losses 45,639 46,169 36,126
-------------- --------------- --------------
Net loans 3,500,647 3,513,711 2,793,810
-------------- --------------- --------------
Premises and equipment, net 63,379 63,413 49,481
Accrued interest receivable 29,627 28,669 25,202
Goodwill 255,973 256,241 7,692
Intangible assets 12,167 12,649 1,138
Other assets 256,305 255,569 141,008
-------------- --------------- --------------
Total assets $ 6,428,829 $ 6,572,160 $ 5,268,743
============== =============== ==============
LIABILITIES:
Deposits:
Noninterest-bearing $ 884,840 $ 811,917 $ 646,765
Interest-bearing 3,047,348 2,970,083 2,555,553
-------------- --------------- --------------
Total deposits 3,932,188 3,782,000 3,202,318
-------------- --------------- --------------
Short-term borrowings 719,228 917,893 555,637
Long-term debt 1,124,530 1,205,548 1,136,121
Accrued expenses and other liabilities 39,504 49,280 30,197
-------------- --------------- --------------
Total liabilities 5,815,450 5,954,721 4,924,273
-------------- --------------- --------------
STOCKHOLDERS' EQUITY:
Common stock (par value $1.00) authorized 100,000,000 shares;
issued 40,966,829, 40,870,602, and 32,410,354 shares at March 31,
2005, December 31, 2004 and March 31, 2004, respectively 40,967 40,871 32,410
Additional paid-in capital 554,244 552,671 303,049
Retained earnings 191,929 182,414 160,385
Net accumulated other comprehensive income (loss) (11,461) (964) 1,959
Treasury stock at cost - 7,904,541, 7,768,217 and 7,651,317
shares at March 31, 2005, December 31, 2004 and
March 31, 2004, respectively (162,300) (157,553) (153,333)
-------------- --------------- --------------
Total stockholders' equity 613,379 617,439 344,470
-------------- --------------- --------------
Total liabilities and stockholders' equity $ 6,428,829 $ 6,572,160 $ 5,268,743
============== =============== ==============
The accompanying notes are an integral part of these statements.
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PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
Three Months Ended
March 31
-------------------------------
2005 2004
(dollars in thousands, except per share data) -------------- --------------
INTEREST INCOME:
Loans, including fees $ 50,565 $ 36,985
Investment securities 24,321 22,534
Tax-advantaged loans and securities 319 342
Short-term investments 43 2
-------------- --------------
Total interest income 75,248 59,863
-------------- --------------
INTEREST EXPENSE:
Deposits 10,188 8,614
Short-term borrowings 4,473 1,578
Long-term debt 10,266 10,948
-------------- --------------
Total interest expense 24,927 21,140
-------------- --------------
Net interest income 50,321 38,723
Less provision for loan losses 1,575 2,391
-------------- --------------
Net interest income, after provision for loan losses 48,746 36,332
-------------- --------------
NON-INTEREST INCOME:
Service charges on deposit accounts 19,349 18,531
Commissions and fees 1,210 1,224
Net gains (losses) (776) 816
Other non-interest income 5,502 3,012
-------------- --------------
Total non-interest income 25,285 23,583
-------------- --------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 22,698 20,421
Occupancy expense, net 5,274 4,050
Furniture and equipment expense 3,464 3,144
External processing fees 5,197 5,302
Merger expenses - 184
Other non-interest expense 10,841 7,509
-------------- --------------
Total non-interest expense 47,474 40,610
-------------- --------------
Income before income taxes 26,557 19,305
Income tax expense 8,449 6,430
-------------- --------------
Net income $ 18,108 $ 12,875
============== ==============
NET INCOME PER SHARE AMOUNTS:
Basic $ 0.55 $ 0.52
Diluted 0.54 0.51
The accompanying notes are an integral part of these statements.
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PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Three Months Ended
March 31,
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(in thousands) 2005 2004
-------------- ---------------
OPERATING ACTIVITIES:
Net income $ 18,108 $ 12,875
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6,543 7,246
Provision for loan losses 1,575 2,391
Provision for deferred income tax (benefit) 171 (917)
Net (gains) losses 776 (816)
Originated loans held for sale (15,880) (12,497)
Proceeds from sales of loans held for sale 18,097 12,111
Net decrease in accrued interest receivable and other assets 4,611 2,339
Net increase (decrease) in accrued expenses and other liabilities (1,534) 7,825
-------------- ---------------
Total adjustments 14,359 17,682
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Net cash provided by operating activities 32,467 30,557
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INVESTING ACTIVITIES:
Principal collections and maturities of securities available for sale 83,480 92,899
Proceeds from sales of securities available for sale 129,900 113,042
Purchases of securities available for sale (87,235) (227,720)
Loan principal collections less originations and purchases 11,206 (48,307)
Purchases of premises and equipment (3,007) (2,532)
-------------- ---------------
Net cash provided (used) by investing activities 134,344 (72,618)
-------------- ---------------
FINANCING ACTIVITIES:
Net increase in deposits 150,315 122,769
Net decrease in short-term borrowings (198,665) (72,224)
Proceeds from long-term debt 30,000 -
Payments and maturities of long-term debt (110,203) (17,042)
Proceeds from issuance of stock 1,669 4,317
Purchase of treasury stock (4,747) -
Cash dividends paid on common stock (8,593) (6,035)
-------------- ---------------
Net cash provided (used) by financing activities (140,224) 31,785
-------------- ---------------
Increase (decrease) in cash and cash equivalents 26,587 (10,276)
Cash and cash equivalents at beginning of period 134,322 128,185
-------------- ---------------
Cash and cash equivalents at end of period $ 160,909 $ 117,909
============== ===============
SUPPLEMENTAL DISCLOSURES:
Interest paid, net of amount credited to deposit accounts $ 18,338 $ 15,518
Income taxes paid 28 96
The accompanying notes are an integral part of these statements.
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PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2005
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Provident Bankshares Corporation ("the Corporation"), a Maryland corporation, is
the bank holding company for Provident Bank ("the Bank"); a Maryland chartered
stock commercial bank. The Bank serves individuals and businesses through a
network of banking offices and ATMs in Maryland, Virginia, and southern York
County, Pennsylvania. Related financial services are offered through its wholly
owned subsidiaries. Securities brokerage, investment management and related
insurance services are available through Provident Investment Company and leases
through Court Square Leasing and Provident Lease Corporation.
The accounting and reporting policies of the Corporation conform with U.S.
generally accepted accounting principles ("GAAP") and prevailing practices
within the banking industry for interim financial information and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required for complete financial statements and prevailing practices within
the banking industry. The following summary of significant accounting policies
of the Corporation is presented to assist the reader in understanding the
financial and other data presented in this report. Operating results for the
three month period ended March 31, 2005 are not necessarily indicative of the
results that may be expected for any future quarters or for the year ending
December 31, 2005. For further information, refer to the consolidated financial
statements and notes thereto included in the Corporation's Annual Report on Form
10-K for the year ended December 31, 2004 as filed with the Securities and
Exchange Commission ("SEC").
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The unaudited Consolidated Financial Statements include the accounts of the
Corporation and its wholly owned subsidiary, Provident Bank and its
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in consolidation. Results of operations from purchased companies are
included from the date of merger. Assets and liabilities of purchased companies
are stated at estimated fair values at the date of merger.
Certain prior years' amounts in the unaudited Consolidated Financial Statements
have been reclassified to conform to the presentation used for the current
period. These reclassifications have no effect on stockholders' equity or net
income as previously reported.
USE OF ESTIMATES
The consolidated financial statements of the Corporation are prepared in
accordance with GAAP. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities for the reporting periods. Management bases its estimates
on historical experience and various other factors and assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Management evaluates estimates
on an on-going basis, including those related to the allowance for loan losses,
non-accrual loans, other real estate owned, goodwill and intangible assets,
other than temporary impairment of investment securities, pension and
post-retirement benefits, asset prepayment rates, stock-based compensation,
derivative positions, recourse liabilities, litigation and income taxes.
Management believes the following critical accounting policies affect its more
significant judgments and estimates used in preparation of its consolidated
financial statements: allowance for loan losses, other than temporary impairment
of investment securities, goodwill and intangible assets, asset prepayment rates
and income taxes. Each estimate and its financial impact, to the extent
significant to financial results, is discussed in the unaudited Consolidated
Financial Statements. It is at least reasonably possible that each of the
Corporation's estimates could change in the near term or that actual results may
differ from these estimates under different assumptions or conditions, resulting
in a change that could be material to the unaudited Consolidated Financial
Statements.
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STOCK-BASED COMPENSATION
The Corporation may grant employees and/or directors stock-based compensation in
the form of stock options or restricted stock priced at the fair market value on
the grant date.
The Corporation recognized pre-tax compensation expense of $46 thousand relating
to restricted stock grants for the three months ended March 31, 2005. The
Corporation uses the intrinsic value method of accounting for stock options
granted to employees and accordingly does not recognize compensation expense for
its stock options in the Consolidated Statements of Income.
The following table illustrates the pro forma effect on net income and earnings
per share if the Corporation had applied the fair value provisions of SFAS No.
123 "Accounting for Stock-Based Compensation" ("SFAS No. 123") to stock-based
compensation for the periods indicated.
Three Months Ended
March 31,
----------------------------------
(in thousands, except per share data) 2005 2004
--------------- ---------------
NET INCOME:
Net income as reported $ 18,108 $ 12,875
Addition for total stock-based compensation expense determined
under fair value based method for restricted stock awards, net of tax 30 -
Deduction for total stock-based compensation expense determined
under fair value based method for all awards, net of tax (508) (250)
--------------- ---------------
Pro forma net income $ 17,630 $ 12,625
=============== ===============
BASIC EARNINGS PER SHARE:
As reported $ 0.55 $ 0.52
Pro forma 0.53 0.51
DILUTED EARNINGS PER SHARE:
As reported $ 0.54 $ 0.51
Pro forma 0.52 0.50
Stock options granted in February, 2005 have an eight year life and vest over a
four period. Options granted in 2004 have a ten year life and vest over a three
year period. These pro forma amounts may not be representative of future expense
since the estimated fair value of stock options is amortized to expense over the
various vesting periods and additional options may be granted in future periods.
The weighted average fair value of all of the options granted during the periods
indicated have been estimated using the Black-Scholes option-pricing model with
the following assumptions:
Three Months Ended
March 31,
---------------------------------
2005 2004
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Dividend yield 3.49% 3.33%
Weighted average risk-free interest rate 4.29% 3.20%
Weighted average expected volatility 23.59% 25.86%
Weighted average expected life in years 5.50 7.00
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Effective April 1, 2005, the Board of Directors approved the acceleration, by
one year, of the vesting of all the currently outstanding options granted prior
to 2005 to purchase the Corporation's common stock, including those options held
by certain members of senior management. Under recently issued accounting
pronouncement as discussed below, the Corporation will be required to recognize
compensation expense related to stock options as they vest, which will reduce
net income. The acceleration of the vesting of options to purchase 766,575
shares of the Corporation's common stock will result in an aggregate
compensation expense of $135,000 over the modified vesting periods (i.e. 2006).
The amount that would have been expensed for the unvested options granted prior
to 2005 had the Corporation not accelerated the vesting in this manner would
have been approximately $600,000 over the original vesting periods (i.e. 2006
and 2007). The other terms of each of the option grants will remain unchanged.
CHANGES IN ACCOUNTING PRINCIPLES
In December 2003, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position 03-3, "Accounting for Certain Loans or Debt Securities
Acquired in a Transfer" ("SOP 03-3"). SOP 03-3 is effective for loans acquired
in fiscal years beginning after December 15, 2004. The SOP addresses accounting
for differences between contractual cash flows and cash flows expected to be
collected from an investor's initial investment in loans or debt securities
acquired in a transfer if those differences are attributable, at least in part,
to credit quality. The SOP does not apply to loans originated by the Bank. The
Corporation did not acquire any assets in the first quarter of 2005 that where
within the scope of SOP 03-3.
In December 2004, the FASB issued SFAS No. 123R (a revision of SFAS No. 123)
"Accounting for Stock-Based Compensation" ("SFAS No. 123R") effective for
interim and annual periods beginning after June 15, In April 2005, the SEC
deferred the effective date of the provisions of SFAS No. 123R until the
beginning of the first annual period beginning after June 15, 2005. SFAS No.
123R requires companies to recognize the grant-date fair value of stock options
and other equity-based compensation issued to employees as a cost of employee
services in the Consolidated Statements of Income. The cost will be recognized
over the period during which an employee is required to provide service in
exchange for the award (usually the vesting period). As of the required
effective date, the Corporation intends to use the modified prospective method
as defined in SFAS No. 123R. Under this method, awards that are granted,
modified or settled after the date of adoption should be measured and accounted
for in accordance with SFAS No. 123R. Unvested awards that were granted prior to
the effective date should be valued in accordance with SFAS No. 123R.
Compensation expense must be recognized in the Consolidated Statements of Income
subsequent to the effective date of SFAS No. 123R.
NOTE 2--BUSINESS COMBINATION
On April 30, 2004, the Corporation acquired 100 percent of the outstanding
common shares of Southern Financial Bancorp, Inc. ("Southern Financial"),
headquartered in Warrenton, Virginia, which was the holding company for Southern
Financial Bank. Southern Financial had previously completed the acquisition of
Essex Bancorp, Inc., based in Norfolk, Virginia. Southern Financial operated 33
banking offices in the northern Virginia counties of Fairfax, Loudoun and Prince
William; as well as Richmond, Charlottesville and the Tidewater areas.
Southern Financial was merged with and into the Corporation. Southern Financial
shareholders received 1.0875 shares of the Corporation's common stock and
$11.125 in cash for each Southern Financial share outstanding. As a result,
Southern Financial's shareholders received 8.2 million shares of the
Corporation's common stock amounting to $251.2 million and $83.8 million in
cash, for an aggregate purchase price of $335.1 million. The cash portion of the
purchase price was substantially funded by $71 million in trust preferred
securities which were issued in the fourth quarter of 2003. The value of the
shares issued was based on the average market closing price of the Corporation's
common stock from October 29, 2003 through November 6, 2003.
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The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed for Southern Financial at the merger date. A significant
portion of the purchase price allocation has been finalized. Certain assets and
liabilities are still pending analysis and valuation. Adjustments to the initial
allocation of the purchase price were due to final settlement of asset
dispositions, evaluation of tax matters and settlement of contingencies. Pending
valuation matters will not affect operating results of the Corporation.
April 30,
(in thousands) 2004
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ASSETS:
Cash $ 47,142
Short-term investments 64,544
Investment securities 564,964
Net loans 664,489
Other assets 72,201
Goodwill 248,296
Deposit-based intangible 12,829
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Total assets acquired $ 1,674,465
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LIABILITIES:
Deposits $ 1,022,271
Borrowings 300,308
Other liabilities 16,796
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Total liabilities assumed 1,339,375
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Net assets acquired $ 335,090
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The merger with Southern Financial resulted in the recognition of $261.1 million
of intangible assets, of which $12.8 million was allocated to a deposit-based
intangible. The remaining intangible was allocated to goodwill.
The results of operations from Southern Financial have been included in the
Consolidated Financial Statements since the date of merger.
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NOTE 3--INVESTMENT SECURITIES
The following table presents the aggregate amortized cost and fair values of the
investment securities portfolio as of the dates indicated:
Gross Gross
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
-------------- ------------- ------------- -------------
MARCH 31, 2005
Securities available for sale:
U.S. Treasury and government agencies and corporations $ 102,781 $ - $ 2,754 $ 100,027
Mortgage-backed securities 1,473,870 2,910 23,663 1,453,117
Municipal securities 12,568 302 - 12,870
Other debt securities 463,857 1,925 506 465,276
-------------- ------------- ------------- -------------
Total securities available for sale 2,053,076 5,137 26,923 2,031,290
-------------- ------------- ------------- -------------
Securities held to maturity:
Other debt securities 114,091 383 1,421 113,053
-------------- ------------- ------------- -------------
Total securities held to maturity 114,091 383 1,421 113,053
-------------- ------------- ------------- -------------
Total investment securities $ 2,167,167 $ 5,520 $ 28,344 $ 2,144,343
============== ============= ============= =============
DECEMBER 31, 2004
Securities available for sale:
U.S. Treasury and government agencies and corporations $ 118,018 $ - $ 3,637 $ 114,381
Mortgage-backed securities 1,647,047 10,754 11,523 1,646,278
Municipal securities 13,608 434 - 14,042
Other debt securities 411,169 1,020 495 411,694
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Total securities available for sale 2,189,842 12,208 15,655 2,186,395
-------------- ------------- ------------- -------------
Securities held to maturity:
Other debt securities 114,671 482 686 114,467
-------------- ------------- ------------- -------------
Total securities held to maturity 114,671 482 686 114,467
-------------- ------------- ------------- -------------
Total investment securities $ 2,304,513 $ 12,690 $ 16,341 $ 2,300,862
============== ============= ============= =============
MARCH 31, 2004
Securities available for sale:
U.S. Treasury and government agencies and corporations $ 115,270 $ 1 $ 3,184 $ 112,087
Mortgage-backed securities 1,712,373 14,534 7,605 1,719,302
Municipal securities 16,412 851 - 17,263
Other debt securities 267,164 11,396 165 278,395
-------------- ------------- ------------- -------------
Total securities available for sale $ 2,111,219 $ 26,782 $ 10,954 $ 2,127,047
============== ============= ============= =============
At March 31, 2005, a net unrealized after-tax loss of $14.2 million on the
securities portfolio was reflected in net accumulated other comprehensive income
(loss). This compared to net unrealized after-tax gains of $10.3 million and
$2.2 million at March 31, 2004 and December 31, 2004, respectively.
During the third quarter of 2004, the Corporation transferred $108 million in
securities available for sale to securities held to maturity. The unrealized
gains of $7.4 million associated with these securities included in net
accumulated other comprehensive income at the date of transfer will continue to
be reflected in stockholders' equity and be reflected as a premium. The premium
and amount reflected in net accumulated other comprehensive income are amortized
over the
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remaining life of the securities using the interest method. These amortization
amounts will offset with no net income impact on the Corporation.
Management reviews the investment portfolio on a periodic basis to determine the
cause of declines in the fair value of each security. Thorough evaluations of
the causes of the unrealized losses are performed to determine whether the
impairment is temporary or other than temporary in nature. Considerations such
as recoverability of invested amount over a reasonable period of time, the
length of time the security is in a loss position and receipt of amounts
contractually due, for example, are applied in determining other than temporary
impairment. At March 31, 2005, the unrealized losses contained within the
Corporation's investment portfolio were considered temporary because the
declines in fair value were due to changes in market interest rates, not in
estimated cash flows.
For further details regarding investment securities at December 31, 2004, refer
to Notes 1 and 4 of the Consolidated Financial Statements in the Corporation's
Form 10-K as of and for the year ended December 31, 2004.
NOTE 4--LOANS
A summary of loans outstanding as of the dates indicated is shown in the table
below.
March 31, December 31, March 31,
(in thousands) 2005 2004 2004
--------------- -------------- ---------------
Residential real estate:
Originated residential mortgage $ 90,355 $ 100,909 $ 71,854
Home equity 745,996 705,126 536,244
Acquired residential 536,597 560,040 598,517
Other consumer:
Marine 431,381 436,262 461,200
Other 35,482 42,121 40,766
--------------- -------------- ---------------
Total consumer 1,839,811 1,844,458 1,708,581
--------------- -------------- ---------------
Commercial real estate:
Commercial mortgage 483,256 483,636 322,605
Residential construction 264,906 242,246 171,864
Commercial construction 282,092 279,347 219,287
Commercial business 676,221 710,193 407,599
--------------- -------------- ---------------
Total commercial 1,706,475 1,715,422 1,121,355
--------------- -------------- ---------------
Total loans $ 3,546,286 $ 3,559,880 $ 2,829,936
=============== ============== ===============
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NOTE 5 - ALLOWANCE FOR LOAN LOSSES
The following table reflects the activity in the allowance for loan losses for
the periods indicated:
Three Months Ended
March 31,
--------------------------------
(in thousands) 2005 2004
-------------- ---------------
Balance at beginning of period $ 46,169 $ 35,539
Provision for loan losses 1,575 2,391
Less loans charged-off, net of recoveries:
Originated residential mortgage and home equity 12 9
Acquired residential 628 1,236
Marine and other consumer (10) 252
Commercial business 1,475 307
-------------- ---------------
Net charge-offs 2,105 1,804
-------------- ---------------
Balance at end of period $ 45,639 $ 36,126
============== ===============
NOTE 6--INTANGIBLE ASSETS
The table below presents an analysis of the goodwill and deposit-based
intangible activity for the three months ended March 31, 2005.
Accumulated Net
(in thousands) Goodwill Amortization Goodwill
----------------- ---------------- ---------------
Balance at December 31, 2004 $ 256,863 $ (622) $ 256,241
Adjustment of intangible related to 2004 merger (268) - (268)
----------------- ---------------- ---------------
Balance at March 31, 2005 $ 256,595 $ (622) $ 255,973
================= ================ ===============
Deposit-based Accumulated
(in thousands) Intangible Amortization Total
----------------- ---------------- ---------------
Balance at December 31, 2004 $ 15,429 $ (2,780) $ 12,649
Amortization expense - (482) (482)
----------------- ---------------- ---------------
Balance at March 31, 2005 $ 15,429 $ (3,262) $ 12,167
================= ================ ===============
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NOTE 7--DEPOSITS
The table below presents a summary of deposits as of the dates indicated:
March 31, December 31, March 31,
(in thousands) 2005 2004 2004
------------- ------------- -------------
Interest-bearing deposits:
Interest-bearing demand $ 523,308 $ 531,622 $ 482,620
Money market 580,038 525,744 465,678
Savings 760,165 743,937 731,248
Direct time certificates of deposit 793,000 812,904 665,001
Brokered certificates of deposit 390,837 355,876 211,006
------------- ------------- -------------
Total interest-bearing deposits 3,047,348 2,970,083 2,555,553
Noninterest-bearing deposits 884,840 811,917 646,765
------------- ------------- -------------
Total deposits $ 3,932,188 $ 3,782,000 $ 3,202,318
============= ============= =============
NOTE 8--SHORT-TERM BORROWINGS
The table below presents a summary of short-term borrowings as of the dates
indicated:
March 31, December 31, March 31,
(in thousands) 2005 2004 2004
------------- ------------ -------------
Securities sold under repurchase agreements $ 412,071 $ 396,263 $ 273,561
Federal funds purchased 140,000 329,500 140,000
Federal Home Loan Bank advances - variable rate 165,000 190,000 140,000
Other short-term borrowings 2,157 2,130 2,076
------------- ------------ -------------
Total short-term borrowings $ 719,228 $ 917,893 $ 555,637
============= ============ =============
NOTE 9--LONG-TERM DEBT
The table below presents a summary of long-term debt as of the dates indicated:
March 31, December 31, March 31,
(in thousands) 2005 2004 2004
-------------- -------------- --------------
Federal Home Loan Bank advances - fixed rate $ 163,228 $ 169,833 $ 127,038
Federal Home Loan Bank advances - variable rate 800,000 834,555 810,000
Trust preferred securities 141,302 173,035 145,725
Term repurchase agreements 20,000 28,125 53,358
-------------- -------------- --------------
Total long-term debt $ 1,124,530 $ 1,205,548 $ 1,136,121
============== ============== ==============
On March 31, 2005, the Corporation redeemed $30.0 million in aggregate principal
amount of 10% trust preferred securities of Provident Trust II. The trust
preferred securities had a final stated maturity of March 31, 2030, but were
callable at par beginning on March 31, 2005.
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NOTE 10--DERIVATIVE FINANCIAL INSTRUMENTS
Fair value hedges that meet the criteria for effectiveness have changes in the
fair value of the derivative and the designated hedged item recognized in
earnings. At and during all periods presented, the derivatives designated as
fair value hedges were determined to be effective. Accordingly, the designated
hedges and the associated hedged items were marked to fair value by an equal and
offsetting amount of $6.4 million and $7.6 million for the three months ended
March 31, 2005 and 2004, respectively. Cash flow hedges have the effective
portion of changes in the fair value of the derivative recorded in accumulated
other comprehensive income (loss). At March 31, 2005 and 2004, the Corporation
recorded a cumulative decline in the fair value of derivatives of $55 thousand
and $8.3 million, respectively, net of taxes, in accumulated other comprehensive
income (loss) to reflect the effective portion of cash flow hedges. Amounts
recorded in accumulated other comprehensive income (loss) are recognized into
earnings concurrent with the impact of the hedged item on earnings. For the
three months ended March 31, 2005 and 2004, the Corporation had no ineffective
hedges.
The table below presents the Corporation's open derivative positions as of the
dates indicated:
(in thousands) Notional Credit Risk Market
Derivative Type Hedge Objective Amount Amount Risk
- ------------------------------ ------------------------- --------------- --------------- --------------
March 31, 2005
Interest rate swaps:
Pay fixed/receive variable Borrowing cost $ 125,000 $ 2,324 $ 2,224
Pay fixed/receive variable Loan rate risk 55,985 1,255 1,255
Receive fixed/pay variable Borrowing cost 368,500 5,347 (1,313)
Interest rate caps/corridors Borrowing cost 300,000 3,008 3,008
--------------- --------------- --------------
$ 849,485 $ 11,934 $ 5,174
=============== =============== ==============
DECEMBER 31, 2004
Interest rate swaps:
Pay fixed/receive variable Borrowing cost $ 245,000 $ 1,527 $ 1,527
Pay fixed/receive variable Loan rate risk 59,776 - (167)
Receive fixed/pay variable Borrowing cost 357,500 5,506 3,655
Interest rate caps/corridors Borrowing cost 300,000 2,778 2,778
--------------- --------------- --------------
$ 962,276 $ 9,811 $ 7,793
=============== =============== ==============
MARCH 31, 2004
Interest rate swaps:
Pay fixed/receive variable Borrowing cost $ 510,000 $ - $ (8,087)
Pay fixed/receive variable Loan rate risk 47,438 - (956)
Receive fixed/pay variable Borrowing cost 70,000 8,597 8,597
Interest rate caps/corridors Borrowing cost 400,000 4,215 4,215
--------------- --------------- --------------
$ 1,027,438 $ 12,812 $ 3,769
=============== =============== ==============
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NOTE 11--OFF BALANCE SHEET RISK
Commitments to extend credit in the form of consumer, commercial real estate and
business loans at the date indicated were as follows:
March 31,
(in thousands) 2005
--------------
Commercial business and real estate $ 773,919
Consumer revolving credit 544,030
Residential mortgage credit 23,756
Performance standby letters of credit 103,035
Commercial letters of credit 1,262
--------------
Total loan commitments $ 1,446,002
==============
Historically, many of the commitments expire without being fully drawn;
therefore, the total commitment amounts do not necessarily represent future cash
requirements.
NOTE 12--NET GAINS (LOSSES)
Net gains (losses) include the following components for the periods indicated:
Three Months Ended
March 31,
------------------------------
(in thousands) 2005 2004
------------- -------------
Net gains (losses):
Securities sales $ (876) $ 954
Asset sales 151 (138)
Debt extinguishment (51) -
------------- -------------
Net gains (losses) $ (776) $ 816
============= =============
NOTE 13--EARNINGS PER SHARE
The following table presents a summary of per share data and amounts for the
periods indicated.
Three Months Ended
March 31,
-----------------------------
(in thousands, except per share data) 2005 2004
------------- -------------
Qualifying net income $ 18,108 $ 12,875
Basic EPS shares 33,029 24,664
Basic EPS $ 0.55 $ 0.52
Dilutive shares 691 686
Diluted EPS shares 33,720 25,350
Diluted EPS $ 0.54 $ 0.51
Antidilutive shares 2 205
14
15
NOTE 14--COMPREHENSIVE INCOME
Presented below is a reconciliation of net income to comprehensive income
including the components of other comprehensive income (loss) for the periods
indicated:
Three Months Ended
March 31,
-------------------------------
(in thousands) 2005 2004
-------------- --------------
Net income $ 18,108 $ 12,875
Other comprehensive income (loss):
Net unrealized gains (losses) on derivatives 2,654 (7,343)
Net unrealized holding gains (losses) on debt securities (19,561) 21,447
Less reclassification adjustment for gains (losses)
realized in net income (757) 954
-------------- --------------
Other comprehensive income (loss) before tax (16,150) 13,150
Related income tax expense (benefit) (5,653) 4,602
-------------- --------------
Other comprehensive income (loss) after tax (10,497) 8,548
-------------- --------------
Comprehensive income $ 7,611 $ 21,423
============== ==============
NOTE 15--EMPLOYEE BENEFIT PLANS
The actuarially estimated net benefit cost includes the following components for
the periods indicated:
Qualified Non-qualified
Pension Plan Postretirement Benefits Pension Plan
-------------------------- ------------------------ ------------------------
Three Months Ended Three Months Ended Three Months Ended
March 31, March 31, March 31,
-------------------------- ------------------------ ------------------------
(in thousands) 2005 2004 2005 2004 2005 2004
---------- ----------- ---------- ------------ ----------- -----------
Service cost - benefits earned during the period $ 304 $ 293 $ 39 $ 26 $ 75 $ 33
Interest cost on projected benefit obligation 387 374 27 18 209 91
Expected return on plan assets (445) (430) - - - -
Net amortization and deferral of loss 50 48 13 9 88 38
--------- ------------- ---------- ------------ ---------- -----------
Subtotal 296 285 79 53 372 162
Reversal of liability - - (1,641) - - -
--------- ------------- ---------- ------------ ---------- -----------
Net pension cost included in employee
benefits expense $ 296 $ 285 $ (1,562) $ 53 $ 372 $ 162
========= ============= ========== ============ ========== ===========
On March 31, 2005, the Corporation announced that the pension plan will be
frozen for new entrants. Employees who are already participants in the plan will
not be affected by this change. Also on March 31, 2005, the Corporation
communicated to retirees currently receiving postretirement benefits that these
benefits will be eliminated and no longer offered, effective January 1, 2006.
This action resulted in the reversal of the actuarially determined liability of
$1.6 million at March 31, 2005.
No contributions were made to the qualified pension plan in the three months
ended March 31, 2005 and 2004, respectively. The minimum required contribution
in 2005 for the qualified plan is estimated to be zero. The maximum contribution
amount for the qualified plan is the maximum deductible contribution under the
Internal Revenue Code, which is dependent on several factors including proposed
legislation that will affect the interest rate used to determine the current
liability. In addition, the decision to contribute the maximum amount is
dependent on other factors including the actual investment performance of plan
assets. Given these uncertainties, the Corporation is not able to reliably
estimate the maximum deductible contribution or the amount that will be
contributed in 2005 to the qualified plan. For the unfunded non-qualified
pension and postretirement benefit plans, the Corporation will contribute the
minimum required amount in 2005, which is equal to the benefits paid under the
plans.
15
16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
The exhibits and financial statements filed as a part of this report are as
follows:
(2.0) Agreement and Plan of Reorganization between Provident Bankshares
Corporation and Southern Financial Bancorp, Inc. (1)
(3.1) Articles of Amendment to the Articles of Incorporation of Provident
Bankshares Corporation (2)
(3.2) Fifth Amended and Restated By-Laws of Provident Bankshares
Corporation (3)
(10.1) Form of Change in Control Agreement between Provident Bankshares
Corporation and Gary N. Geisel, Kevin G. Byrnes, Richard J. Oppitz
and Dennis A. Starliper (previously filed)
(11.0) Statement re: Computation of Per Share Earnings (4)
(31.1) Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
(31.2) Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
(32.1) Section 1350 Certification of Chief Executive Officer
(32.2) Section 1350 Certification of Chief Financial Officer
(1) Incorporated by reference from Registrant's Form 8-K (File No. 0-16421)
filed with the Commission on November 4, 2003.
(2) Incorporated by reference from Registrant's Registration Statement on
Form S-8 (File No. 33-58881) filed with the Commission on July 10, 1998.
(3) Incorporated by reference from Registrant's Annual Report on Form 10-K
(File No. 0-16421) for the year ended December 31, 2004, filed with the
Commission on March 16, 2005.
(4) Included in Note 13 to the Unaudited Consolidated Financial Statements on
page 15 hereof.
16
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Principal Executive Officer:
May 13, 2005 By /s/ GARY N. GEISEL
---------------------------------
Gary N. Geisel
Chairman of the Board
and Chief Executive Officer
Principal Financial Officer:
May 13, 2005 By /s/ DENNIS A. STARLIPER
---------------------------------
Dennis A. Starliper
Executive Vice President and
Chief Financial Officer
17
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------------ -----------------------------------------------------------------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer