Investment Portfolio Write-down Less Than Anticipated
BALTIMORE, April 17 /PRNewswire-FirstCall/ -- Provident Bankshares
Corporation (Nasdaq: PBKS), the parent company of Provident Bank, today
reported a net loss of $17.6 million, or $(0.56) per diluted share, for the
quarter ending March 31, 2008. These results were consistent with
expectations outlined by the Company in a February 2008 press release in
which Provident anticipated that first quarter 2008 results would be
affected by write-downs in its investment portfolio. Consistent with this
previous disclosure, the Company's results in the first quarter of 2008
were affected by a $42.7 million write-down, which was less than
anticipated.
The financial impact to pre-tax income, net income and diluted earnings
per share is summarized in the following table:
Pre-tax Net
Income Income
Three months ended March 31, 2008: (000s) (000s) EPS
Totals -- GAAP $(24,680) $(17,622) $(0.56)
Add back investment portfolio
write-down 42,655 30,362 $0.96
Adjusted Totals -- Non GAAP $17,975 $12,740 $0.40
Three months ended March 31, 2007 $22,984 $16,114 $0.50
First quarter 2008 was characterized by several positive events,
including the raising of capital, stable loan quality, and profitable core
banking operations. While the Bank experienced margin pressure from rising
funding costs, it had continued success in controlling operating expenses.
Capital Program
On April 11, 2008, Provident announced a multi-tiered plan to
strengthen the Company's capital base, including the issuance of $65
million in equity securities and a $50 million subordinated debt offering,
for a total of $115 million of new capital in second quarter 2008. Also
included in the plan is a realignment of the dividend payment, discussed
below, that will further increase capital by approximately $29 million
annually. The equity raised in the private placement and the equity
preserved from the dividend realignment will increase the Company's
tangible equity base and improve its tangible equity to assets and total
regulatory capital ratios. The issuance of the subordinated debt will
further increase the Company's total regulatory capital ratio. Supplemental
Table 1 in this release provides detail on the capital program.
At its annual meeting today, the Board of Directors declared a
quarterly cash dividend of $0.11 per share, a 66% reduction from the prior
quarterly dividend. The reduced dividend brings Provident's dividend yield
in line with that of its peer banks, and is the least costly source for
gathering additional capital for the Company. The quarterly cash dividend
will be paid on May 9, 2008 to stockholders of record at the close of
business on April 28, 2008.
"These initiatives provide us the capital to bolster our balance sheet
in this challenging operating environment. At the same time, these steps
will provide a financial foundation from which to manage and grow our
banking franchise," said Gary N. Geisel, Chairman and CEO.
Investment Portfolio
On February 27, Provident announced a write-down projected to be as
high as $47.7 million for the first quarter of 2008 due to "other than
temporary impairment" in its investment portfolio. Following its March 31,
2008 credit review, Provident wrote down the values of certain securities
by $42.7 million by reducing their carrying values to current market values
at that date. The $42.7 million was comprised of $19.5 million in the REIT
trust preferred securities portfolio and $23.2 million in the non-agency
mortgage-backed securities portfolio. Originally $105 million, the REIT
trust preferred securities portfolio was written down by $47.5 million in
December 2007, and has been written down an additional $19.4 million due to
further credit impairment of certain home builders and mortgage REITs that
represent the collateral for these securities. Subsequent to all
write-downs, the REIT trust preferred securities portfolio stands at $38.1
million. This quarter's write-downs to the Bank's $132.6 million non-agency
mortgage-backed securities portfolio resulted from elevated delinquency and
foreclosure levels of the national residential mortgages which
collateralize these pooled securities. Management deemed the write-downs
necessary in light of these portfolios' current performance and market
values at March 31, 2008. Supplemental Tables 2-7 in this release provide
detail on the investment portfolio at March 31, 2008.
Loan Portfolio Quality
Recent economic data has shown that the Mid-Atlantic region, while
sluggish, remains one of the better performing markets in the nation in
terms of preserving real estate values and lower delinquency levels. New
housing inventories are down in both Maryland and Virginia. Unemployment
levels in February 2008, not seasonally adjusted, continue to be below the
national average (5.2 %) in the Baltimore (3.9 %), Washington D.C. (3.3 %)
and Richmond (3.9%) metropolitan areas.
Historically, Provident's lending standards have been conservative and
focused on its geographic footprint. The real estate underlying 100% of the
Bank's commercial construction portfolio, 94% of the residential
construction portfolio, and over 95% of the Bank's home equity portfolio
are concentrated within the Washington D.C./Virginia/Maryland region.
Provident has continued its long-standing practice of detailed monthly
reviews of its loan portfolios. The first quarter of 2008 did not reveal
any significant deterioration in credit quality in the Bank's loan
portfolios from the fourth quarter of 2007, shown in the table below.
Credit Quality Measure 03/31/2008 12/31/2007
Quarterly net loan charge-offs (000s) $3,134 $6,002
Quarterly net loan charge-offs to average loans 0.30% 0.58%
Allowance for loan losses to total loans 1.31% 1.31%
Non-performing loans (000s) $30,621 $31,248
Non-performing loans to total loans 0.73% 0.74%
Total delinquent loans to total loans 0.96% 0.96%
First Quarter Results
Provident's loan portfolio continued to show balanced growth among its
core products in the first quarter of 2008. During the same timeframe,
total average deposits at Provident increased 3%, to $4.2 billion. However,
the composition of the deposit portfolio continues to shift with the
changing dynamics of deposit gathering industry-wide that reflect customer
preferences. Year over year average money market and certificate of deposit
balances grew 16%, while lower cost average savings and demand deposit
account balances declined 13%. In response to increased customer interest
in online banking, Provident has proactively taken steps to enhance its
online presence. The Bank has significantly expanded its online deposit
account capabilities, including the introduction of mobile banking services
in March 2008, and has seen growth in average online account balances in
first quarter 2008.
Earnings in the first quarter of 2008 were impacted by an 8% decrease
in net interest income compared to first quarter of 2007. Asset yields were
negatively impacted by the 300 basis point decline in benchmark interest
rates during the past twelve months. Neither deposit nor borrowing costs
declined as rapidly as benchmark interest rates due to aggressive
competition for deposits throughout the industry and due to a number of
steps Provident has taken to re-position its non-customer funding sources
in light of the currently volatile market for funds.
Non-interest income, excluding total gains (losses), declined 3%
compared to first quarter 2007. The non-interest income decline was offset
by a 6% improvement in non-interest expense as a result of Provident's 2007
actions to improve its operating efficiency and expense control.
Outlook for the Future
"The steps we took this quarter will enable Provident to adjust to
changing market conditions while we strengthen the franchise and grow
revenue. I remain pleased with our core bank performance and our position
as a competitive force in the region," said Gary N. Geisel, Chairman and
CEO. "Although we expect the economic slowdown to continue for the
remainder of 2008, we feel positioned to maintain a steady course."
About Provident Bankshares Corporation
Provident Bankshares Corporation is the holding company for Provident
Bank, currently the largest independent commercial bank headquartered in
Maryland. With $6.4 billion in assets, Provident serves individuals and
businesses in the key metropolitan areas of Baltimore, Washington and
Richmond through a network of 142 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. Visit
Provident on the web at http://www.provbank.com.
Webcast Information
Provident Bankshares Corporation's first quarter earnings
teleconference will be webcast at 2 p.m. ET on April 17, 2008. The
conference call will include a discussion of the Company's first quarter
2008 results of operations and may include forward-looking information. The
conference call will be simultaneously webcast at http://www.provbank.com
and archived through April 24, 2008. To listen to the conference call,
please go to the Company's website to register, download and install any
necessary software. When in the Company's website, follow these links:
-- About Provident
-- Investor Relations
-- Upcoming Events
-- Provident Bankshares Corporation First Quarter 2008 Results Audio
Webcast
An audio replay of the teleconference will be available through April
24, 2008 by dialing 1-888-286-8010, passcode 41483459; the international
dial-in number is 617-801-6888.
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,
determined using U.S. generally accepted accounting principles ("GAAP"),
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; impairment charges with
respect to investment securities; 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, 2007, and its reports on Forms 10-Q and 8-K, which the Company
incorporates by reference.
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.
Table 1
April 2008 Capital Program
Equivalent
Common Amount
Source Shares ($000)
Common Shares Issued Price
Private placement $9.50 1,350,000 $12,825
Provident directors and officers 10.80 (market) 72,110 779
Total Common $9.57 1,422,110 13,604
Preferred Shares Issued
(51,215 shares, 10%, 3 yr mandatory
conversion at $10.50 fixed price)
Private placement 4,877,619 51,215
Total New Capital Issuance 6,299,729 64,819
Dividend Reduction to $0.44 per Share 28,700
Total Additional Equity Capital 93,519
Subordinated Debt Offering 50,000
Total New Capital $143,519
Table 2
Investment Portfolio Composition
March 31, 2008, Book Values
($000)
Description % $ Amount
U.S. Treasury and agency mortgage-backed 40% $608,186
Pooled trust preferred 34 527,289
General obligation municipals 10 161,650
Non-agency mortgage-backed 7 106,897
Corporate bonds 9 143,131
Total * 100% $1,547,153
* Excludes FAS 115 mark to market adjustments
Table 3
Pooled Trust Preferred Portfolio
March 31, 2008, Book Values
($000)
Description % $ Amount
Banks 78% $410,213
REITs 7 38,111
Insurance 15 78,965
Total 100% $527,289
Table 4
REIT Trust Preferred Securities
March 31, 2008, Book Values
($000)
Description % $ Amount
Senior securities
(AAA S&P / A+ to BBB+ Fitch) 65% $24,996
Mezzanine securities
(AA S&P / BBB+ Fitch) 11 4,005
(A to BBB- S&P / BBB to B Fitch) 24 9,110
Total 100% $38,111
Table 5
REIT Trust Preferred Securities
Credit Composition at March 31, 2008
($000)
Senior
Mezzanine Securities Securities Total
Other Than AAA: S&P
Temporarily AA: S&P A+ to BBB+:
Impaired BBB+: Fitch Fitch
REIT trust preferred
securities $9,110 $4,005 $24,996 $38,111
Credit Quality:
Defaults and
Credit Support
Current default level 11.7% 10.0% 10.9%
Average credit
support level*
For interest payments 25% 37% 40%
For principal payments 35% 46% 56%
* Credit support level represents the % of issues in default required
before the security suffers permanent loss of interest or principal
payments.
Table 6
Non-Agency MBS Portfolio Characteristics
At March 31, 2008
AAA AA Total
Balance ($000) $65,986 $40,911 $106,897
Percent of portfolio 62% 38% 100%
# of issues 13 16 29
Average:
FICO 733 726
LTV 64% 71%
Loan size $514,000 $371,000
Delinquency 60+ day 1.53% 4.52%
Table 7
Non-Agency Mortgage Backed Securities
At March 31, 2008
($000)
Potential
Book 60+ Days Losses
Value Delinquency (45% severity)
Impaired Non-Agency MBS
AA-rated mezzanine securities $7,179 7.36% 3.31%
Remaining AA-rated
Mezzanine Non-Agency MBS
2005 origination $4,647 6.03% 2.71%
2006 origination 15,401 1.22% 0.55%
2007 origination 13,684 1.42% 0.64%
$33,732 1.96% 0.88%
AAA-rated Non-Agency MBS
AAA-rated mezzanine securities $65,986 1.53% 0.69%
Total Non-Agency MBS Portfolio $106,897
Potential
Credit Remaining
Support Support FICO LTV
Impaired Non-Agency MBS
AA-rated mezzanine securities 3.32% 0.01% 713 71%
Remaining AA-rated
Mezzanine Non-Agency MBS
2005 origination 4.81% 2.09% 715 72%
2006 origination 2.01% 1.46% 743 71%
2007 origination 2.67% 2.04% 740 70%
2.66% 1.78% 738 71%
AAA-rated Non-Agency MBS
AAA-rated mezzanine
securities 4.60% 3.91% 733 64%
PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
FINANCIAL SUMMARY
(dollars in thousands, except per share data)
Three Months Ended
March 31,
2008 2007 % Change
SUMMARY NON-GAAP INCOME STATEMENTS:
Net interest income $44,989 $48,935 (8.1)%
Provision for loan losses 3,114 1,052 -
Non-interest income (loss) (15,124) 29,869 (150.6)
Impairment on investment securities (42,655) - -
Net gains (losses) (191) 1,203 (115.9)
Non-interest income, excluding total
gains (losses) 27,722 28,666 (3.3)
Total revenue, excluding total gains
(losses) 72,711 77,601 (6.3)
Non-interest expense 51,431 54,768 (6.1)
Restructuring activities 74 867 (91.5)
Non-interest expense, excluding
restructuring 51,357 53,901 (4.7)
Income tax expense (benefit) (7,058) 6,870 (202.7)
Net income (loss) (17,622) 16,114 (209.4)
SHARE DATA:
Basic earnings (loss) per share $(0.56) $0.50 (212.0)%
Diluted earnings (loss) per share (0.56) 0.50 (212.0)
Cash dividends paid per share 0.325 0.305 6.6
Book value per share 16.31 19.72 (17.3)
Weighted average shares - basic 31,536,920 32,196,432 (2.0)
Weighted average shares - diluted 31,536,920 32,496,168 (3.0)
Common shares outstanding 31,737,501 32,243,534 (1.6)
SELECTED RATIOS:
Return on average assets (1.08)% 1.05 %
Return on average equity (12.73) 10.37
Return on average common equity (11.43) 10.21
Net yield on average earning assets
(t/e basis) 3.17 3.62
Efficiency ratio (excludes
restructuring activities) 69.72 68.88
Leverage ratio 7.45 8.71
Tier I risk-based capital ratio 9.23 10.95
Total risk-based capital ratio 10.33 11.92
Tangible common equity ratio 5.48 6.55
END OF PERIOD BALANCES:
Investment securities portfolio $1,413,925 $1,638,183 (13.7)%
Total loans 4,202,677 3,890,421 8.0
Assets 6,403,916 6,234,692 2.7
Deposits 4,370,627 4,282,400 2.1
Stockholders' equity 517,549 635,797 (18.6)
Common stockholders' equity 596,430 653,583 (8.7)
AVERAGE BALANCES:
Investment securities portfolio $1,579,843 $1,663,335 (5.0)%
Loans:
Originated and acquired residential
mortgage 290,093 325,377 (10.8)
Home equity 1,085,752 996,519 9.0
Other consumer 382,925 400,949 (4.5)
Commercial real estate 1,534,473 1,407,691 9.0
Commercial business 936,933 740,810 26.5
Total loans 4,230,176 3,871,346 9.3
Earning assets 5,822,547 5,549,736 4.9
Assets 6,511,329 6,234,498 4.4
Deposits:
Noninterest-bearing 643,161 724,805 (11.3)
Interest-bearing 3,589,587 3,370,707 6.5
Total deposits 4,232,748 4,095,512 3.4
Stockholders' equity 556,631 629,971 (11.6)
Common stockholders' equity 619,909 639,836 (3.1)
Three Months Ended
December 31,
2007 % Change
SUMMARY NON-GAAP INCOME STATEMENTS:
Net interest income $45,912 (2.0)%
Provision for loan losses 10,027 (68.9)
Non-interest income (loss) (16,338) (7.4)
Impairment on investment securities (47,488) (10.2)
Net gains (losses) 405 (147.2)
Non-interest income, excluding total
gains (losses) 30,745 (9.8)
Total revenue, excluding total gains
(losses) 76,657 (5.1)
Non-interest expense 51,008 0.8
Restructuring activities 78 (5.1)
Non-interest expense, excluding
restructuring 50,930 0.8
Income tax expense (benefit) (15,987) (55.9)
Net income (loss) (15,474) 13.9
SHARE DATA:
Basic earnings (loss) per share $(0.49) 14.3 %
Diluted earnings (loss) per share (0.49) 14.3
Cash dividends paid per share 0.320 1.6
Book value per share 17.58 (7.2)
Weighted average shares - basic 31,635,109 (0.3)
Weighted average shares - diluted 31,773,779 (0.7)
Common shares outstanding 31,621,956 0.4
SELECTED RATIOS:
Return on average assets (0.95)%
Return on average equity (10.16)
Return on average common equity (9.49)
Net yield on average earning assets
(t/e basis) 3.24
Efficiency ratio (excludes
restructuring activities) 65.68
Leverage ratio 7.89
Tier I risk-based capital ratio 9.59
Total risk-based capital ratio 10.85
Tangible common equity ratio 5.86
END OF PERIOD BALANCES:
Investment securities portfolio $1,468,564 (3.7)%
Total loans 4,215,326 (0.3)
Assets 6,465,046 (0.9)
Deposits 4,179,520 4.6
Stockholders' equity 555,771 (6.9)
Common stockholders' equity 623,948 (4.4)
AVERAGE BALANCES:
Investment securities portfolio $1,612,245 (2.0)%
Loans:
Originated and acquired residential
mortgage 297,801 (2.6)
Home equity 1,074,345 1.1
Other consumer 381,306 0.4
Commercial real estate 1,504,025 2.0
Commercial business 843,727 11.0
Total loans 4,101,204 3.1
Earning assets 5,725,165 1.7
Assets 6,405,737 1.6
Deposits:
Noninterest-bearing 660,576 (2.6)
Interest-bearing 3,484,415 3.0
Total deposits 4,144,991 2.1
Stockholders' equity 604,364 (7.9)
Common stockholders' equity 646,935 (4.2)
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
Investment Community, Cheryl B. Ursida, +1-410-277-2080, both of
Provident Bankshares
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