Consumer and Commercial Business Results Drive Growth
Provident Shareholders Approve Strategic Merger with
Southern Financial Bancorp
BALTIMORE, April 21 /PRNewswire-FirstCall/ -- Provident Bankshares
Corporation (Nasdaq: PBKS), the parent company of Provident Bank, today
reported $12.9 million in net income or $0.51 per diluted share, for the first
quarter of 2004. Also today, Provident's shareholders approved the Company's
merger with Southern Financial Bancorp, Inc.
The Company continued to focus on key strategies to grow its regional
banking business and continue expansion into the Virginia and Washington
metropolitan regions, while maintaining strong asset quality. Successful
execution of these strategies drove total average core loans for the quarter
up $345 million, or 20%, over last year. Asset quality remained high, with net
loan charge-offs declining 33%, to 23 basis points, and non-performing loans
declining 13%, to $18.9 million, from the same quarter last year.
Core deposit growth was also solid with average demand and money market
deposit balances increasing 16% and 8%, respectively.
First Quarter Financial Highlights
-- Diluted earnings per share was $0.51, an 8.5% increase from the $0.47
posted in the first quarter 2003
-- Net income was $12.9 million for the quarter, up from $11.8 million
reported in the same quarter last year
-- Return on average equity was 15.62%, up from 15.02% in the first
quarter 2003
-- Return on average assets was 0.99%, up from 0.98% in the first
quarter 2003
-- Average core loans increased $345 million, or 20%, from the 2003
first quarter
-- Average core deposits increased $103 million, or 4%, from the 2003
first quarter
-- Non-interest income (excluding net gains) grew 7% from the comparable
period in 2003
-- Asset quality remained strong as net charge-offs as a percentage of
average loans declined 33% to 23 basis points from 38 basis points
last year, and non-performing loans declined $2.7 million, or 13%,
from one year ago
-- Capital ratios remained strong, with the leverage ratio at 8.56% and
total risk-based capital at 15.38%
First Quarter Results
Provident Bankshares reported net income for the quarter ending March 31,
2004 of $12.9 million, an increase of 9.2% over the first quarter of 2003.
This represents earnings of $0.51 per diluted share, an increase of 8.5% over
the 2003 first quarter.
Return on average equity was 15.62% for the first quarter 2004, up from
15.02% in the same quarter a year ago. Return on average assets was 0.99%, up
from 0.98% for the comparable period last year.
The net interest margin on a tax equivalent basis was 3.19%, compared to
3.18% for the first quarter 2003.
Average core loans increased 20% over the first quarter of 2003, driven by
strong loan demand in both the commercial and consumer business segments.
Average core commercial real estate loans grew $129 million, or 23%, while
core commercial and industrial loans grew $44 million, or 13%. Average core
consumer loans rose $172 million, or 20%, despite the high level of
refinancing activity that took place in the home equity and marine loan
portfolios.
Average core deposits grew by $103 million, or 4%, over last year. Demand
and money market deposit growth was particularly strong at $137 million and
$33 million, respectively.
Core loans include all loans except purchased loans, participations
outside the Bank's defined market area, and Provident-originated loans from
discontinued product lines. Provident's core deposits include all deposits
except brokered deposits.
Non-interest income, excluding net gains, grew to $22.8 million, up from
$21.3 million in the first quarter 2003. Provident also continued to post
solid fee income growth. Total deposit service fees increased $1.2 million,
or 7%, over the 2003 first quarter, driven by growth in commercial and
consumer deposit accounts and transaction volume.
Total non-performing loans at March 31, 2004 were $18.9 million, down $2.7
million, or 13%, from the same quarter last year. Net charge-offs declined
33%, from $2.4 million to $1.6 million, and the allowance for loan losses, at
1.28% of period-end loans, was approximately 200% of non-performing loans.
Substantially all of the non-performing loans have been reduced to their
recoverable value and are secured by residential real estate.
Capital ratios remained sound. The leverage ratio increased to 8.56%,
compared to 7.51% in the first quarter of 2003. Total risk-based capital
increased to 15.38%, up from 13.23% at first quarter end 2003.
Southern Financial Bancorp Inc. Merger
Maryland law requires the affirmative vote of at least two-thirds of the
Company's outstanding shares to approve a proposed merger. Provident
shareholders today provided that approval for the Company's proposed merger
with Southern Financial Bancorp. Southern Financial's shareholders meeting to
vote on the transaction will take place on April 29, 2004.
On November 3, 2003 Provident Bankshares Corporation and Southern
Financial Bancorp, Inc. announced a strategic merger which will strengthen
Provident's commercial banking market position in Virginia and metropolitan
Washington, and provide the opportunity to expand the Company's consumer
banking presence into central and eastern Virginia. Management is considering
strategic alternatives related to the Norfolk/Tidewater area branches.
Transition and integration activities are in process and on schedule, as are
the necessary SEC and regulatory filings and notices. The transaction is
expected to close on April 30, 2004.
Second Quarter Capital Recovery and Optimization Plan
During the past three years, the transition of Provident's balance sheet
to core assets and liabilities has emphasized a reduction in non-core loans
and non-core deposits. Post-acquisition, the Company will decrease the size
of the investment portfolio in relation to total assets, in addition to
planned reductions in non-core loans. Management believes the consolidation
of Provident's and Southern's balance sheets provides the opportunity to
achieve this reduction in non-core balances more quickly and efficiently. The
objective of the balance sheet transition is to improve the Company's
financial fundamentals; specifically, improvement in return on assets, net
interest margin and capital ratios.
After the merger, and contingent upon its completion, management will
accomplish the balance sheet consolidation by reducing mortgage-backed
securities by $420 million and Federal Home Loan Bank and other borrowings by
$420 million. As a result, pre-tax earnings for the full year 2004 are
expected to be reduced by $10 million, or $0.22 per share after-tax. Of the
$10 million, $8.3 million, or $0.18 per share after-tax, will be a result of
losses on the debt and security transactions and $1.7 million will be a result
of lower net interest income. The attached table presents a summary of the
quarterly and annual impact of this activity for 2004 and 2005.
Dividend Declared
Provident Bankshares announced today that its Board of Directors has
declared a quarterly cash dividend of $0.25 per share. This is the forty-
second consecutive quarterly dividend increase. The quarterly cash dividend
will be paid on May 14, 2004 to stockholders of record at the close of
business on May 3, 2004.
Management Comment
Commenting on the Company's first quarter performance, Chairman and CEO
Gary N. Geisel said, "I am pleased to announce that Provident Bankshares
Corporation shareholders today approved our merger with Southern Financial
Bancorp. We believe the combined Provident-Southern franchise will become a
regional banking powerhouse that can respond equally well to the needs of both
consumer and commercial customers. As a larger, more geographically diverse
organization, Provident will continue to provide the products and services of
our largest competitors, while delivering the level of service found in only
the best community banks.
This merger presents very exciting growth opportunities for us, but we
also just completed another strong and balanced quarter at Provident Bank. We
saw steady growth in our core loan and deposit balances, in our consumer and
commercial business lines and in our Baltimore and Washington metropolitan
markets. Provident's financial accomplishments continue to be the result of
the consistent execution of our fundamental business strategies."
Key Business Strategies Continue to Drive Results
Continued commitment to its key business strategies enabled Provident to
post positive results in the first quarter, despite economic and geopolitical
uncertainty. The Bank is well positioned for solid performance throughout
2004.
Provident's key business strategies are:
* Broaden presence and customer base in the Virginia and Washington
metropolitan markets
Provident continued to increase its production from these key
expansion areas. Average commercial and consumer deposits grew by 31%
and 3%, respectively. Consumer transaction account balances increased
from $121 million in the first quarter of last year to $151 million in
the current quarter. This represents growth of 25%. Provident grew its
number of transaction accounts in these markets by over 3,000
accounts, or 12%, over the first quarter of last year. Average money
market deposits grew 8% while time deposits (primarily certificates of
deposit) declined 14%.
In the current quarter, Provident achieved 72% growth in average core
consumer loan balances over the first quarter of 2003 in the
Washington market, evidencing its ability to capture consumer loan
demand in this market.
* Grow commercial business in Maryland and Virginia
Strong commercial deposit growth occurred with transaction account
balances growing 19%, and money market balances growing 36%. Average
core commercial loan demand remained strong with Provident growing its
average core commercial portfolio by 19%.
* Focus resources on growth in core business lines
Core banking operations continued to drive Provident's positive
results. Average core loans now comprise 74% of total loans, up $345
million, or 20%, over the first quarter 2003.
Average core consumer loan balances increased $172 million, or 20%,
over the 2003 first quarter. Provident's expertise in marine and home
equity lending resulted in average marine loan and home equity
balances increasing 8% and 39%, respectively, over the same quarter
last year.
Average core commercial loans increased 19%, or $173 million, from the
2003 first quarter and the average non-core commercial loan portfolio
continued to decrease, averaging $28 million for the quarter, down 44%
from the same quarter in 2003.
Despite a decrease in core certificate of deposit balances of 15%,
average core deposit balances continued their steady growth,
increasing $103 million, or 4%, driven by a 16% increase in demand
deposit balances. Non-core deposits (brokered deposits) posted a
significant decline of $179 million, or 45%. Average core deposits
now represent 93% of total deposits, up from 87% in the first quarter
2003.
* Improve financial fundamentals
Return on average assets was 0.99%, up from 0.98% in the first quarter
2003, and return on equity was 15.62%, up from 15.02% for the first
quarter last year. The leverage ratio was 8.56% and total risk-based
capital was 15.38%.
Asset quality remained strong, with non-performing loans decreasing
$2.7 million to $18.9 million at March 31, 2004. Net charge-offs also
decreased to $1.6 million, a 33% decline from the first quarter last
year. The current allowance for loans represents 5.6 times the
quarter's annualized charge-off rate to average loans.
Outlook for the Future
Commenting on the future for Provident Bankshares, Chairman and CEO Gary
N. Geisel added, "We are excited about our ability with the Southern Financial
merger to accelerate the transition to a balance sheet that is more reflective
of our core strategies, as well as the improvement to financial fundamentals
that will follow. We will be holding the total balance sheet relatively flat
as we grow core loans and reduce non-core assets."
Provident Bankshares Corporation is the holding company for Provident
Bank, the second largest independent commercial bank headquartered in
Maryland. With $5.3 billion in assets, Provident serves individuals and
businesses in the dynamic Baltimore-Washington corridor through a network of
118 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
http://www.provbank.com.
Special Note: Provident Bankshares Corporation's first quarter earnings
teleconference will be webcast at 10:00 a.m. (EDT) on Thursday, April 22,
2004. The webcast can be accessed on the Provident website at
http://www.provbank.com. The webcast will include discussions of the most recent
quarter's results of operations and may include forward-looking information
such as guidance on future results. A replay of the webcast will be available
until April 30, 2004. An audio replay of the webcast will also be available
until 11:59 p.m. April 29, 2004 at 1-800-428-6051, passcode ID 346317.
Supplemental financial information will be posted on the Provident website
today and on Thursday, April 22 in conjunction with the webcast and can be
accessed by selecting the link to Corporate Information and Investor Relations
and then selecting the link to Financial Reports.
Provident Bankshares Corporation and Southern Financial Bancorp, Inc. have
filed a joint proxy statement/prospectus and other relevant documents
concerning the merger with the United States Securities and Exchange
Commission (the "SEC").
WE URGE INVESTORS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY
OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SEC, BECAUSE THEY CONTAIN
IMPORTANT INFORMATION.
Investors are able to obtain these documents free of charge at the SEC's
web site (http://www.sec.gov). In addition, documents filed with the SEC by
Provident Bankshares Corporation will be available free of charge from the
Investor Relations Department at Provident Bankshares Corporation, 114 East
Lexington Street, Baltimore, Maryland 21202. Documents filed with the SEC by
Southern Financial Bancorp, Inc. will be available free of charge from the
Investor Relations Department at Southern Financial Bancorp, Inc., 37 East
Main Street, Warrenton, Virginia 20186.
The directors, executive officers, and certain other members of management
of Provident Bankshares Corporation and Southern Financial Bancorp, Inc. may
be soliciting proxies in favor of the merger from the companies' respective
shareholders. For information about these directors, executive officers, and
members of management, shareholders are asked to refer to the most recent
proxy statements issued by the respective companies, which are available on
their web sites and at the addresses provided in the preceding paragraph.
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 2003 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 with respect to earnings growth; 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:
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; and other economic, competitive,
governmental, regulatory and technological factors affecting the Company's
operations, pricing, products and services. The forward-looking statements 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.
TABLES FOLLOW
PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
FINANCIAL SUMMARY
(dollars in thousands, except per share data)
Three Months Ended Three Months Ended
March 31, December 31,
2004 2003 % Change 2003 % Change
SUMMARY OF OPERATIONS:
Net income $12,875 $11,785 9.2% $14,167 (9.1)%
Net interest income 38,723 35,627 8.7 38,417 0.8
Provision for
loan losses 2,174 1,760 23.5 1,975 10.1
Non-interest income 23,583 22,591 4.4 24,799 (4.9)
Net gains 816 1,247 (34.6) 520 56.9
Non-interest income
(excluding net gains) 22,767 21,344 6.7 24,279 (6.2)
Non-interest expense 40,827 39,050 4.6 39,767 2.7
Income tax expense 6,430 5,623 14.4 7,307 (12.0)
SHARE DATA:
Basic earnings
per share $0.52 $0.48 8.3% $0.58 (10.3)%
Diluted earnings
per share 0.51 0.47 8.5 0.56 (8.9)
Cash dividends paid
per share 0.245 0.225 8.9 0.24 2.1
Book value per share 13.91 13.27 4.8 13.22 5.2
Weighted average
shares - basic 24,664,213 24,384,142 1.1 24,530,346 0.5
Weighted average
shares - diluted 25,350,116 25,053,638 1.2 25,227,584 0.5
Common shares
outstanding 24,759,037 24,408,774 1.4 24,562,273 0.8
END OF PERIOD BALANCES:
Investment securities
portfolio $2,127,047 $2,229,246 (4.6)% $2,086,510 1.9%
Total loans 2,829,936 2,462,022 14.9 2,784,546 1.6
Assets 5,268,743 5,013,492 5.1 5,207,848 1.2
Deposits 3,202,318 3,273,017 (2.2) 3,079,549 4.0
Stockholders'
equity 344,470 323,988 6.3 324,765 6.1
Common stockholders'
equity 342,511 307,862 11.3 331,354 3.4
AVERAGE BALANCES:
Investment securities
portfolio $2,093,314 $2,049,951 2.1% $2,028,690 3.2%
Loans:
Core consumer 1,017,510 845,072 20.4 983,533 3.5
Core commercial
business 386,264 342,097 12.9 352,016 9.7
Core commercial
real estate 689,700 561,085 22.9 667,482 3.3
Total core
loans 2,093,474 1,748,254 19.7 2,003,031 4.5
Non-core consumer 688,572 701,449 (1.8) 702,248 (1.9)
National syndicated
loans 28,008 49,845 (43.8) 26,183 7.0
Total non-core
loans* 716,580 751,294 (4.6) 728,431 (1.6)
Total loans 2,810,054 2,499,548 12.4 2,731,462 2.9
Earning assets 4,909,109 4,560,447 7.6 4,769,095 2.9
Assets 5,230,786 4,883,827 7.1 5,097,202 2.6
Core deposits 2,852,347 2,749,150 3.8 2,825,439 1.0
Non-core deposits
(brokered
deposits) 218,863 398,018 (45.0) 235,371 (7.0)
Total deposits 3,071,210 3,147,168 (2.4) 3,060,810 0.3
Stockholders'
equity 331,538 318,157 4.2 311,838 6.3
Common stockholders'
equity 332,423 302,380 9.9 321,249 3.5
SELECTED RATIOS:
Return on average
assets 0.99% 0.98% 1.10%
Return on average
equity 15.62 15.02 18.02
Return on average
common equity 15.58 15.81 17.50
Net yield on average
earning assets
(t/e basis) 3.19 3.18 3.21
Efficiency ratio 66.18 68.33 63.27
Leverage ratio 8.56 7.51 8.49
Tier I risk-based
capital ratio 13.47 12.15 13.28
Total risk-based
capital ratio 15.38 13.23 15.32
* Includes purchased loans, syndicated loans outside the Bank's normal
lending area and loans from discontinued product lines.
PROVIDENT BANKSHARES/SOUTHERN FINANCIAL BANCORP MERGER
CAPITAL RECOVERY AND OPTIMIZATION PLAN
Pro-forma Changes and Amounts
(dollars in thousands,
except per share data) 2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year
Average asset/
funding
reduction $- $(241,642) $(460,624) $(529,359) $(308,929)
Average
earning
assets $4,909,109 $5,578,609 $5,938,801 $6,047,219 $5,620,481
Investments/avg.
earning assets 43% 38% 38% 37% 39%
Wholesale
funding/avg.
earning assets 41% 37% 38% 40% 39%
PRO-FORMA CHANGES
Leverage ratio 0.25% 0.46% 0.52% 0.52%
Tangible capital ratio 0.20% 0.26% 0.24% 0.24%
Net interest income $(119) $(726) $(845) $(1,690)
Provision for loan losses $ - $ - $ - $ -
Non-interest income $(8,264) $(50) $(50) $(8,364)
Pre-tax income $(8,383) $(776) $(895) $(10,054)
Earnings per share $(0.18) $(0.02) $(0.02) $(0.22)
Return on assets -0.33% 0.05% 0.06% -0.06%
Return on common equity -4.49% -0.22% -0.24% -1.23%
Net interest margin 0.13% 0.21% 0.24% 0.15%
2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year
Average asset/
funding
reduction $(527,266) $(526,516) $(531,340) $(526,821) $(527,994)
Average
earning
assets $6,088,564 $6,079,906 $6,087,235 $6,118,579 $6,093,636
Investments/avg.
earning assets 36% 35% 34% 32% 34%
Wholesale
funding/avg.
earning assets 39% 37% 36% 35% 37%
PRO-FORMA CHANGES
Leverage ratio 0.48% 0.49% 0.49% 0.49% 0.49%
Tangible capital
ratio 0.31% 0.23% 0.33% 0.20% 0.20%
Net interest
income $(975) $(973) $(963) $(954) $(3,864)
Provision for
loan losses $(8) $(332) $(315) $(298) $(953)
Non-interest
income $(50) $(50) $(50) $(50) $(200)
Pre-tax
income $(1,017) $(691) $(698) $(706) $(3,111)
Earnings
per share $(0.02) $(0.01) $(0.01) $(0.01) $(0.06)
Return on
assets 0.04% 0.06% 0.06% 0.07% 0.06%
Return on
common equity -0.30% -0.13% -0.12% -0.10% -0.16%
Net interest
margin 0.23% 0.23% 0.24% 0.24% 0.23%
SOURCE Provident Bankshares Corporation
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Related links:
http://www.provbank.com
Company News On-Call:
http://www.prnewswire.com/comp/721938.html
CONTACT:
Media - Lillian Kilroy, +1-410-277-2833, or
Investment Community - Dennis Starliper, +1-410-277-2889, both of
Provident Bankshares Corporation
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