BALTIMORE, Jan. 11 /PRNewswire-FirstCall/ -- 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)
Financial impact on the consolidated statements of income and related
financial ratios
Total
Tangible Risk
Common Tier 1 Based
Leverage Equity Capital Capital
Activity Net Income EPS Ratio Ratio Ratio Ratio
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%
$(31,303) $(0.99) -0.51% -0.51% -0.62% -0.51%
"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.
SOURCE Provident Bankshares Corporation
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Related links:
http://www.provbank.com/
http://www.prnewswire.com/comp/721938.html /
CONTACT:
Media, Vicki Cox, +1-410-277-2063, or
Investors, Cheryl B. Ursida, +1-410-277-2080, both of Provident
Bankshares Corporation
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