Amending of Reports Due to Revised Derivative Accounting Treatment
BALTIMORE, Nov. 15 /PRNewswire-FirstCall/ -- 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 http://www.provbank.com.
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.
Three months Three months
Year Ended ended ended
(dollars in thousands, except per December 31, March 31, June 30,
share data) 2004 2005 2005
Net Income $60,325 $18,108 $18,438
Impact of restated items, net:
Premium/Fee Amortization 197 (16) (177)
Change in market value of
derivatives 1,458 (2,342) 2,412
Salaries and employee benefits - - (696)
Total increase (decrease) in Net Income 1,655 (2,358) 1,539
Total restated Net Income $61,980 $15,750 $19,977
Basic earnings per share
As reported $1.99 $0.55 $0.56
As restated $2.05 $0.48 $0.61
Diluted earnings per share
As reported $1.95 $0.54 $0.55
As restated $2.00 $0.47 $0.60
Interest Expense on deposits
As reported $36,953 $10,188 $11,812
As restated $41,235 $11,328 $12,756
Interest Expense on long-term debt
As reported $41,686 $10,266 $9,887
As restated $40,546 $10,670 $10,305
Salaries and employee benefits
As reported $90,024 $22,698 $24,588
As restated $90,024 $22,698 $25,719
Non-Interest Income - Swap Interest
As reported $- $- $-
As restated $3,469 $1,579 $1,074
Non-Interest Income - Swaps FMV
Adjustments
As reported $- $- $-
As restated $2,432 $(3,820) $3,921
Total stockholders' equity
As reported $617,439 $613,379 $626,546
As restated $618,423 $611,537 $627,339
Three months ended Nine months ended
(dollars in thousands, except per September 30, September 30,
share data) 2005 2005
Net Income $20,036 $56,582
Impact of restated items, net:
Premium/Fee Amortization (171) (364)
Change in market value of
derivatives (1,988) (1,918)
Salaries and employee benefits 376 (320)
Total increase (decrease) in Net Income (1,783) (2,602)
Total restated Net Income $18,253 $53,980
Basic earnings per share
As reported $0.61 $1.72
As restated $0.55 $1.64
Diluted earnings per share
As reported $0.60 $1.68
As restated $0.54 $1.60
Interest Expense on deposits
As reported $13,041 $35,041
As restated $13,553 $37,637
Interest Expense on long-term debt
As reported $9,568 $29,721
As restated $9,940 $30,915
Salaries and employee benefits
As reported $26,715 $74,001
As restated $26,109 $74,526
Non-Interest Income - Swap Interest
As reported $- $-
As restated $608 $3,261
Non-Interest Income - Swaps FMV
Adjustments
As reported $- $-
As restated $(3,207) $(3,106)
Total stockholders' equity
As reported $629,491 $629,491
As restated $627,972 $627,972
SOURCE Provident Bankshares Corporation
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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: Melissa P. Kelly, +1-410-277-2080, both of
Provident Bankshares Corporation
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