[PROVIDENT BANKSHARES CORPORATION LETTERHEAD]
NEWS RELEASE
Provident Bank Restates Earnings
Amending of Reports Due to Revised Derivative Accounting Treatment
BALTIMORE: (November 15, 2005) - Provident Bankshares Corporation (NASDAQ:
PBKS), the parent company of Provident Bank, has revised the previously released
financial results for the quarter ended September 30, 2005 and is restating its
financial statements for the quarters ended June 30, 2005 and March 31, 2005,
and for the year ended December 31, 2004. This action is the result of a just
completed review related to the accounting treatment that the Company has
applied to certain derivative instruments that are covered under Financial
Accounting Standards (FAS) 133, "Accounting for Derivative Instruments and
Hedging Activities."
Since 2003, Provident has entered into various interest rate swaps to hedge the
interest rate risk inherent in some of its brokered CDs, borrowings and Junior
Subordinated Debentures. Since inception of the hedging program, Provident has
applied the "short-cut method" of hedge accounting under FAS 133 to account for
the swaps. Provident, in consultation with its independent accountants KPMG LLP,
has determined that these swaps did not qualify for the short-cut method.
"The changes to our financial statements regarding the interest rate swaps have
no economic impact," said Provident Bankshares Chairman and Chief Executive
Officer Gary Geisel. "This issue is strictly related to accounting documentation
or complex and evolving interpretations, not the underlying value, management or
effectiveness of these swaps. Due to the non-cash nature of this issue,
fundamental operating results for 2005 are on track as the impact of this issue
is both non-cash and non-economic. We remain confident in, and committed to, our
key strategies, our customers and our markets."
The changes in the fair value of the interest rate swaps between reporting
periods should have been reported as gains or losses in the income statement
since these swaps did not qualify for hedge accounting. Provident has
re-designated these interest rate swaps as hedges utilizing the "long haul"
method of effectiveness testing, and as a result, will apply hedge accounting
treatment for these swaps for future periods.
Unrelated to the above, Provident will revise its accounting relative to an
executive severance agreement applicable to the quarter ended June 30, 2005.
Given these issues, the Company's previously issued financial statements for the
quarters ended June 30, 2005 and March 31, 2005 and for the year ended December
31, 2004 must be restated to reflect the required accounting treatment.
Provident's restated financial statements for the year ended December 31, 2004
and for the nine months ended September 30, 2005 will reflect a cumulative
negative adjustment to net income after tax of $947 thousand to correct the
accounting treatment associated with both the interest rate swaps and the
executive severance agreement. For 2004, Provident will record a non-cash
increase in net income of $1.7 million. Net income for the first quarter of 2005
is reduced by $2.4 million. For the second quarter of 2005, net income is
increased by $1.5 million. Net income for the quarter ended September 30, 2005
is reduced by $1.8 million. Details about the aforementioned are provided on the
attached table. Provident currently expects to record a non-cash charge of
approximately $1.6 million (after tax) in the fourth quarter of 2005 related to
the interest rate swaps thereby bringing the annual net income negative impact
of these changes for 2005 to approximately $4.2 million.
On November 7, 2005, management of Provident, in consultation with KPMG,
determined that the accounting adjustments described above were necessary to its
Form 10-Q for the period ended September 30, 2005. Therefore, rather than file
its Form 10-Q on the ordinary filing date of November 9, 2005, Provident filed a
Form 12b-25 Notification of Late Filing on November 10 to allow it until
November 14, 2005 to properly make these accounting adjustments and file the
Form 10-Q. The Company then expected and was scheduled to file its Form 10-Q for
the period ended September 30, 2005 on November 14, 2005. However, shortly
before the filing deadline, KPMG advised management that a certain accounting
treatment previously determined necessary by them should not be applied. This
fact was communicated to management in a time frame insufficient to allow for a
timely filing. The Company intends to file its Form 10-Q in the very near
future.
Provident will file amended Quarterly Reports on Form 10-Q for the periods ended
June 30, 2005, March 31, 2005, and an amended Annual Report on Form 10-K for the
year ended December 31, 2004, to reflect the accounting adjustments described
herein and include the restated financial statements for each period covered by
each such interim and annual report.
ABOUT PROVIDENT BANKSHARES CORPORATION
Provident Bankshares Corporation is the holding company for Provident Bank, the
second largest independent commercial bank headquartered in Maryland. With $6.4
billion in assets, Provident serves individuals and businesses in the key urban
areas of Baltimore, Washington and Richmond through a network of 151 offices in
Maryland, Virginia, and southern York County, PA. Provident Bank also offers
related financial services through wholly owned subsidiaries. Securities
brokerage, investment management and related insurance services 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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THIS PRESS RELEASE, AS WELL AS OTHER WRITTEN COMMUNICATIONS MADE FROM TIME TO
TIME BY PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES (THE "COMPANY")
(INCLUDING, WITHOUT LIMITATION, THE COMPANY'S 2004 ANNUAL REPORT TO
STOCKHOLDERS) AND ORAL COMMUNICATIONS MADE FROM TIME TO TIME BY AUTHORIZED
OFFICERS OF THE COMPANY, MAY CONTAIN STATEMENTS RELATING TO THE FUTURE RESULTS
OF THE COMPANY (INCLUDING CERTAIN PROJECTIONS AND BUSINESS TRENDS) THAT ARE
CONSIDERED "FORWARD-LOOKING STATEMENTS" AS DEFINED IN THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE PSLRA). SUCH FORWARD-LOOKING STATEMENTS MAY
BE IDENTIFIED BY THE USE OF SUCH WORDS AS "BELIEVE," "EXPECT," "ANTICIPATE,"
"SHOULD," "PLANNED," "ESTIMATED," "INTEND" AND "POTENTIAL." EXAMPLES OF
FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, POSSIBLE OR ASSUMED
ESTIMATES WITH RESPECT TO THE FINANCIAL CONDITION, EXPECTED OR ANTICIPATED
REVENUE, AND RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY, INCLUDING
EARNINGS GROWTH DETERMINED BY USING U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP"); REVENUE GROWTH IN CONSUMER BANKING, LENDING AND OTHER
AREAS; ORIGINATION VOLUME IN THE COMPANY'S CONSUMER, COMMERCIAL AND OTHER
LENDING BUSINESSES; ASSET QUALITY AND LEVELS OF NON-PERFORMING ASSETS; CURRENT
AND FUTURE CAPITAL MANAGEMENT PROGRAMS; NON-INTEREST INCOME LEVELS, INCLUDING
FEES FROM SERVICES AND PRODUCT SALES; TANGIBLE CAPITAL GENERATION; MARKET SHARE;
EXPENSE LEVELS; AND OTHER BUSINESS OPERATIONS AND STRATEGIES. FOR THESE
STATEMENTS, THE COMPANY CLAIMS THE PROTECTION OF THE SAFE HARBOR FOR
FORWARD-LOOKING STATEMENTS CONTAINED IN THE PSLRA.
THE COMPANY CAUTIONS YOU THAT A NUMBER OF IMPORTANT FACTORS COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED IN ANY
FORWARD-LOOKING STATEMENT. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO: THE
FACTORS IDENTIFIED IN THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 2004 UNDER THE HEADINGS "FORWARD-LOOKING STATEMENTS" AND "RISK FACTORS";
PREVAILING ECONOMIC AND GEOPOLITICAL CONDITIONS; CHANGES IN INTEREST RATES, LOAN
DEMAND, REAL ESTATE VALUES AND COMPETITION, WHICH CAN MATERIALLY AFFECT, AMONG
OTHER THINGS, CONSUMER BANKING REVENUES, REVENUES FROM SALES ON NON-DEPOSIT
INVESTMENT PRODUCTS, ORIGINATION LEVELS IN THE COMPANY'S LENDING BUSINESSES AND
THE LEVEL OF DEFAULTS, LOSSES AND PREPAYMENTS ON LOANS MADE BY THE COMPANY,
WHETHER HELD IN PORTFOLIO OR SOLD IN THE SECONDARY MARKETS; CHANGES IN
ACCOUNTING PRINCIPLES, POLICIES, AND GUIDELINES; CHANGES IN ANY APPLICABLE LAW,
RULE, REGULATION OR PRACTICE WITH RESPECT TO TAX OR LEGAL ISSUES; RISKS AND
UNCERTAINTIES RELATED TO ACQUISITIONS AND RELATED INTEGRATION AND RESTRUCTURING
ACTIVITIES; CONDITIONS IN THE SECURITIES MARKETS OR THE BANKING INDUSTRY;
CHANGES IN THE QUALITY OR COMPOSITION OF THE INVESTMENT PORTFOLIO; LITIGATION
LIABILITIES, INCLUDING COSTS, EXPENSES, SETTLEMENTS AND JUDGMENTS; OR THE
OUTCOME OF OTHER MATTERS BEFORE REGULATORY AGENCIES, WHETHER PENDING OR
COMMENCING IN THE FUTURE; AND OTHER ECONOMIC, COMPETITIVE, GOVERNMENTAL,
REGULATORY AND TECHNOLOGICAL FACTORS AFFECTING THE COMPANY'S OPERATIONS,
PRICING, PRODUCTS AND SERVICES. ADDITIONALLY, THE TIMING AND OCCURRENCE OR
NON-OCCURRENCE OF EVENTS MAY BE SUBJECT TO CIRCUMSTANCES BEYOND THE COMPANY'S
CONTROL. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS WHICH ARE MADE AS OF THE DATE OF THIS REPORT, AND,
EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW OR REGULATION, THE COMPANY ASSUMES
NO OBLIGATION TO UPDATE THE FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS
WHY ACTUAL RESULTS COULD DIFFER FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS.
IN THE EVENT THAT ANY NON-GAAP FINANCIAL INFORMATION IS DESCRIBED IN ANY WRITTEN
COMMUNICATION, INCLUDING THIS PRESS RELEASE, OR IN OUR TELECONFERENCE, PLEASE
REFER TO THE SUPPLEMENTAL FINANCIAL TABLES INCLUDED WITH THIS RELEASE AND ON OUR
WEBSITE FOR THE GAAP RECONCILIATION OF THIS INFORMATION.
Year Three months Three months Three months Nine months
Ended ended ended ended ended
(dollars in thousands, except per share data) December 31, March 31, June 30, September 30, September 30,
-----------------------------------------------------------------------------------
2004 2005 2005 2005 2005
-------------- ------------- ------------- -------------- ---------------
Net Income $ 60,325 $ 18,108 $ 18,438 $ 20,036 $ 56,582
Impact of restated items, net:
Premium/Fee Amortization 197 (16) (177) (171) (364)
Change in market value of derivatives 1,458 (2,342) 2,412 (1,988) (1,918)
Salaries and employee benefits - - (696) 376 (320)
-------------- ------------- ------------ -------------- ---------------
Total increase (decrease) in Net Income 1,655 (2,358) 1,539 (1,783) (2,602)
-------------- ------------- ------------ -------------- ---------------
Total restated Net Income $ 61,980 $ 15,750 $ 19,977 $ 18,253 $ 53,980
============== ============= ============ ============== ===============
Basic earnings per share
As reported $ 1.99 $ 0.55 $ 0.56 $ 0.61 $ 1.72
As restated $ 2.05 $ 0.48 $ 0.61 $ 0.55 $ 1.64
Diluted earnings per share
As reported $ 1.95 $ 0.54 $ 0.55 $ 0.60 $ 1.68
As restated $ 2.00 $ 0.47 $ 0.60 $ 0.54 $ 1.60
Interest Expense on deposits
As reported $ 36,953 $ 10,188 $ 11,812 $ 13,041 $ 35,041
As restated $ 41,235 $ 11,328 $ 12,756 $ 13,553 $ 37,637
Interest Expense on long-term debt
As reported $ 41,686 $ 10,266 $ 9,887 $ 9,568 $ 29,721
As restated $ 40,546 $ 10,670 $ 10,305 $ 9,940 $ 30,915
Salaries and employee benefits
As reported $ 90,024 $ 22,698 $ 24,588 $ 26,715 $ 74,001
As restated $ 90,024 $ 22,698 $ 25,719 $ 26,109 $ 74,526
Non-Interest Income - Swap Interest
As reported $ - $ - $ - $ - $ -
As restated $ 3,469 $ 1,579 $ 1,074 $ 608 $ 3,261
Non-Interest Income - Swaps FMV Adjustments
As reported $ - $ - $ - $ - $ -
As restated $ 2,432 $ (3,820) $ 3,921 $ (3,207) $ (3,106)
Total stockholders' equity
As reported $ 617,439 $ 613,379 $ 626,546 $ 629,491 $ 629,491
As restated $ 618,423 $ 611,537 $ 627,339 $ 627,972 $ 627,972