Provides Mid-Quarter Update
BALTIMORE, Dec. 1 /PRNewswire-FirstCall/ -- Provident Bankshares
Corporation (Nasdaq: PBKS), the parent company of Provident Bank, today
announced a major step forward in the company's continuing effort to
transform its balance sheet with the sale of $183 million of
mortgage-backed securities. "The extended term of the flat yield curve
environment has provided the opportunity to accelerate our strategy to
transition the wholesale balance sheet," said Chairman and Chief Executive
Officer Gary Geisel. This sale is consistent with the company's previously
announced plans to gradually reduce the total level of investment
securities held to less than 25% of total assets.
The balance sheet restructuring will improve future financial
performance and reduce the level of lower yielding wholesale assets and
higher rate wholesale liabilities. The ratio of investments-to-assets is
projected to decline to 27% following this trade, down from 30% as of
September 30, 2006.
The resulting sale proceeds will be used to retire higher rate
short-term borrowings and fixed rate term borrowings and, to a lesser
extent, reinvested into higher yielding securities. In conjunction with
downsizing the wholesale assets portfolio, management expects to repurchase
shares of common stock under its existing share repurchase program to
maintain appropriate target capital ratios relative to the smaller balance
sheet.
The restructuring is projected to result in a charge to fourth quarter
2006 earnings of $5.0 million, or $0.15 per share. This realized loss is
expected to have minimal impact on shareholders' equity, as the market
value of the underlying securities had already been reflected in
shareholders' equity. Beginning in 2007, the balance sheet restructuring is
expected to result in incremental benefits in net interest margin, Return
on Assets (ROA), Return on Equity (ROE) and earnings per share (EPS). The
company expects to recover the costs to execute this restructure through
higher earnings per share over the next four and one-half years.
Improvements to financial results are projected to last more than ten
years.
Details of the transaction follow:
- Sold $183 million of Mortgage-Backed Securities, yielding approximately
4.40%
- Extinguished $32 million of term debt, at a rate of approximately 6.00%
- Retired $120 million of short-term borrowings, at a rate of
approximately 5.35%
- Reinvested into $36 million of securities at current market rates
- Restructured $95 million of floating-rate term borrowings, slightly
enhancing the Bank's interest rate risk profile
"The improvement to the Company's net interest margin in 2007 and
beyond that is expected to be produced by this transaction is especially
important given the challenging rate environment," said Chairman and Chief
Executive Officer Gary Geisel.
Management Discussion of Mid-Quarter Trends
Although the restructuring will provide incremental benefits,
management believes that existing challenges will persist into 2007.
Consistent with the industry, the Bank's funding costs are increasing due
to concentrated growth in higher yielding deposit products. The Company is
also experiencing lower than expected growth of deposit service fees, which
is resulting in lower non- interest income than previously projected. It is
anticipated that deposit service fees will continue to grow but at a more
modest rate. As a result of these facts, as well as the restructuring
charge described above, management now believes it is necessary to revise
the earnings per share consensus estimate for 2006 to a range of $2.11 to
$2.13.
Provident continues to benefit from the strong regional economy in
which it operates. Customer relationships are increasing, and overall
deposit levels are stable. Home equity and commercial loan production is
strong, and credit quality continues to be sound.
The Company believes that its plan that was announced at the end of the
third quarter to address the current deposit mix and growth issues is
progressing well and is on schedule. Sales initiatives and new programs
such as Business Benefit Banking and a Remote Deposit Capture pilot program
have been introduced. The Company has also implemented some short-term cost
savings measures and, with the assistance of outside professional
resources, is reviewing all lines of business and internal operating
processes with the objective of achieving improved efficiencies.
"I have full confidence in the management team and the initiatives that
were begun two months ago to address the challenges that Provident and many
others in the industry are facing. This is a work in progress and
represents management's proactive approach to a difficult and challenging
banking environment that we expect to continue well into 2007. We believe
these initiatives will position us well for future success," said Chairman
and Chief Executive Officer Gary Geisel.
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 current branch network of 154 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.
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, 2005, 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: 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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