PROVIDENT BANKSHARES
CORPORATION
--------------------------------
NEWS RELEASE CONTACT
MEDIA: Vicki Cox (410) 277-2063
INVESTMENT COMMUNITY: Cheryl B. Ursida (410) 277-2080
PROVIDENT BANKSHARES CORPORATION TO WRITE-DOWN INVESTMENTS AND
INCREASE LOAN LOSS PROVISION
BALTIMORE, MD: (January 11, 2008) - Provident Bankshares Corporation
(NASDAQ:PBKS), the parent company of Provident Bank, announced today that it has
written down a significant portion of its REIT trust preferred securities
portfolio. In addition, the Company has increased the provision for loan losses
to reflect the inherent increase in loss rates in its real estate loan
portfolios. Unrelated to these items, the newly enacted Maryland state income
tax laws will result in an increase in the value of the Company's deferred tax
assets and a corresponding reduction in tax expense in the fourth quarter of
2007. Subsequent to all of these adjustments, Provident does not expect any
material changes in its capital ratios at December 31, 2007 and will continue to
exceed all regulatory capital requirements and remain "well capitalized." The
Company is scheduled to release its earnings for the fourth quarter on January
17, 2008, and will discuss the results of operations at that time.
The actions described above are summarized in the table that follows and
described further in the paragraphs below.
(dollars in thousands, except per share data)
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FINANCIAL IMPACT ON THE CONSOLIDATED STATEMENTS OF INCOME AND RELATED FINANCIAL RATIOS
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TANGIBLE TOTAL RISK
COMMON TIER 1 BASED
LEVERAGE EQUITY CAPITAL CAPITAL
ACTIVITY NET INCOME EPS RATIO RATIO RATIO RATIO
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Investment Portfolio Write-down $(28,919) $ (0.91) -0.47% -0.47% -0.57% -0.58%
Incremental Loan Loss Provision (3,654) (0.11) -0.06% -0.06% -0.07% 0.04%
State Income Tax 1,269 0.04 0.02% 0.02% 0.03% 0.02%
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$(31,303) $ (0.99) -0.51% -0.51% -0.62% -0.51%
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"Our objective was to take the necessary steps to deal with these issues," said
Gary N. Geisel, Chairman and Chief Executive Officer. "Our actions reflect the
challenges that Provident and banks across the country are facing on two fronts.
First, on a national level, the lack of liquidity of certain bond investments
that are tied to the residential housing market and the resulting accounting
adjustments that are required. And second, on a regional level, anticipating the
impact of the continuing slowdown of the housing sector on our loan portfolio.
We believe the steps we have taken will allow us to focus on the customer and
the business of banking."
INVESTMENT PORTFOLIO ACTIVITY
On December 21, 2007, Fitch Ratings severely downgraded a large segment of the
national pooled REIT trust preferred securities market. In recent weeks, there
has been a significant decline in dealer price quotes for these securities.
Provident has written down eight pooled REIT trust preferred securities and will
take a $28.9 million non-cash after-tax charge to fourth quarter 2007 earnings,
or $0.91 per share. The securities current fair value in aggregate is $18.6
million compared with a current carrying value of $66 million. The securities'
carrying value will be written down to the $18.6 million fair value.
The investments at issue are securitized pools of preferred stock and debt
issued by commercial mortgage and diversified equity REITS, residential mortgage
REITS, homebuilders, and commercial mortgage backed securities. Each of the
eight securities paid their fourth quarter 2007 interest payments as well as all
of their prior payments and are performing in conformance with all of their
contractual terms. However, based on Provident's analysis of the individual
securities' credit risk surrounding the residential mortgage and homebuilding
industries, there is sufficient risk with respect to future interest or
principal payments to result in a write-down.
LOAN LOSS PROVISION ACTIVITY
Weakening in the local residential housing sector continues and the Company's
expectations have been revised that this trend will be more extensive and exist
for a longer period of time than originally anticipated. Consistent with this,
delinquencies increased from 68 to 96 basis points and total non-performing
asset levels increased from 67 to 80 basis points in the fourth quarter of 2007.
These levels were concentrated in the Company's residential construction,
business banking and consumer home-equity lending portfolios. As a result, an
increase of $6 million in the fourth quarter 2007 to the provision for loan
losses was recorded as prudent in view of uncertainty in the local residential
housing market and the potential for a higher level of non-performing assets.
STATE INCOME TAX ACTIVITY
In November 2007, the Maryland State Legislature enacted significant new tax
legislation. The legislation increased the corporate state tax rate from 7.00%
to 8.25%, resulting in a combined federal and state statutory tax rate of 40.28%
beginning on January 1, 2008, compared to 39.55% in 2007. At December 31, 2007,
the Company adjusted the value of its deferred tax assets for the utilization of
the net operating loss carryforwards in future periods and from the change in
the corporate state tax rate. These adjustments resulted in a net increase of
$1.3 million in the value of existing deferred tax assets at December 31, 2007,
with a corresponding reduction in tax expense in the fourth quarter of 2007.
Compliance with the new legislation will increase the estimated effective tax
rate in 2008 by approximately 0.12%.
FORWARD-LOOKING STATEMENTS
THIS PRESS RELEASE, AS WELL AS OTHER WRITTEN COMMUNICATIONS MADE FROM TIME TO
TIME BY PROVIDENT BANKSHARES CORPORATION AND ITS SUBSIDIARIES (THE "COMPANY")
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, REVENUE GROWTH IN RETAIL 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. NO FORWARD-LOOKING STATEMENT
CAN BE GUARANTEED, AND ACTUAL RESULTS MAY DIFFER FROM THOSE PROJECTED. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE ANY FORWARD-LOOKING
STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
FORWARD-LOOKING STATEMENTS IN THIS RELEASE SHOULD BE EVALUATED TOGETHER WITH THE
UNCERTAINTIES THAT AFFECT THE COMPANY'S BUSINESS, PARTICULARLY THOSE MENTIONED
UNDER THE HEADINGS "FORWARD -LOOKING STATEMENTS" AND "ITEM 1A. RISK FACTORS" IN
THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2006, AND ITS REPORTS ON
FORMS 10-Q AND 8-K, WHICH THE COMPANY INCORPORATES BY REFERENCE.