PBKS Provident Bankshares (MM)

Balance Sheet Remains Strong with Healthy Capital and Liquidity Positions BALTIMORE, Oct. 27 /PRNewswire-FirstCall/ -- Provident Bankshares Corporation (NASDAQ:PBKS), the parent company of Provident Bank, today reported financial results for the third quarter of 2008. The Company recorded a net loss of $5.4 million, or ($0.21) per diluted share, for the third quarter of 2008, compared with net income of $16.0 million, or $0.50 per diluted share, for the same period of the prior year. The decline in earnings per share is primarily due to a $24.6 million pre-tax non-cash accounting charge for other than temporary impairment ("OTTI") of certain investment securities. "The turmoil in the financial markets resulted in a further decline in the value of certain securities in our investment portfolio during the third quarter," said Gary N. Geisel, Chairman and CEO of Provident Bankshares. "The stability of our core banking operations, as well as the capital we raised earlier this year, has enabled Provident to withstand the lower values recorded in our securities portfolio without it having a material impact on the health of our Bank. In addition, we were pleased to be recently informed by the U.S. Treasury that Provident has been granted preliminary approval to participate in its new TARP Capital Purchase Program. Our participation will be subject to the execution of the Program's required procedures and approval by Provident's Board of Directors." "In the current environment, our top priority is maintaining the strength of our balance sheet. We were successful in this regard during the third quarter as both loans and deposits increased over the prior quarter, while our capital levels and liquidity position remained healthy. We did see an increase in non-performing loans during the quarter, primarily related to weakness in the performance of the residential construction industry which management had expected. We believe any losses that materialize will be manageable," said Mr. Geisel. Regional Economic Highlights While economic conditions in Provident's regional markets weakened during the third quarter of 2008, they continued to be stronger than national averages. Unemployment rates for August 2008 were 4.8% in Baltimore, 5.0% in the Richmond area, and 4.1% for the Washington-Arlington-Alexandria area. These levels were well below the national unemployment rate of 6.1%. Average unsold housing inventories in the Baltimore-Washington region declined slightly during the third quarter of 2008. Income Statement The Company's net interest income for the third quarter of 2008 was $43.8 million, compared with $47.8 million in the same period of the prior year. Despite an increase in average total earning assets from the prior year, net interest income declined due to a 36 basis point reduction in net interest margin. On a sequential quarter basis, the net interest margin declined to 3.09% in the third quarter of 2008 from 3.28% in the second quarter of 2008. This decline was primarily the result of management's proactive decision to enhance the Company's longer-term liquidity position by adding brokered certificates of deposit with longer durations. During the third quarter of 2008, the Company utilized the increased liquidity provided by the increase in brokered certificates of deposit to reduce its reliance on short-term borrowings. Non-interest income was $4.6 million in the third quarter of 2008, compared to $35.3 million in the same period of the prior year. Excluding the $24.6 million OTTI charge, non-interest income was $29.1 million in the third quarter of 2008. In addition to the OTTI charge, the year-over-year decline in non-interest income was primarily attributable to a one-time gain of $4.9 million in 2007 relating to the sale of deposits and facilities of six branches in the third quarter of 2007. Adjusted for this gain and the OTTI charge, year-over-year non-interest income declined $2.2 million, primarily due to a decrease in transaction based deposit fees. Non-interest expense remained relatively flat, increasing slightly to $53.2 million in the third quarter of 2008, compared to $52.7 million in the same period of the prior year. Balance Sheet Total average loans remained flat at $4.2 billion in the third quarter of 2008, compared with the second quarter of 2008. Growth in the commercial business and commercial mortgage loan portfolios was offset by a decline in residential real estate construction loans. Total average deposits were $4.5 billion in the third quarter of 2008, an increase from $4.3 billion in the second quarter of 2008. The increase was primarily attributable to higher balances of brokered certificates of deposit, offset by the seasonal declines in the other deposit categories. In each of the past three years, the Company has experienced declines in most deposit categories from the second quarter to the third quarter. Investment Portfolio During the third quarter of 2008, the Company recorded other-than- temporary-impairment of $24.6 million pre-tax, or $(0.45) per diluted share. This impairment occurred primarily as a result of continued weakness in the residential real estate markets and the resulting decline in expected future cash flows for the affected investments. The table below reflects the write- downs by the associated portfolio type and their current balances as of September 30, 2008. (dollars in thousands) Third Quarter Fair Amortized 2008 Portfolio Value Cost Write-downs Pooled Trups - REITs $15,092 $22,671 $(619) Non-agency mortgage backed securities 67,773 77,037 (19,790) Pooled Trups - Banks and Insurance 238,125 404,087 (4,161) Totals $320,990 $503,795 $(24,570) A detailed breakdown of the investment portfolio is included in the financial tables at the end of this press release. Asset Quality and Capital Ratios In the third quarter of 2008, the Company recorded a provision for loan losses of $6.6 million. The level of provision reflects an increase in net charge-offs and non-performing loans given the weakened economic conditions. Total non-performing loans as a percentage of total loans was 0.95% at September 30, 2008, an increase from 0.59% at June 30, 2008. The increase is primarily due to two residential construction loans totaling approximately $15.8 million that were placed on non-performing status during the third quarter. Non-performing loans in the other loan portfolios either remained stable or increased modestly from the prior quarter, consistent with the decline in general economic conditions. Loan delinquencies greater than 90 days as a percentage of total loans were 0.27% at September 30, 2008, compared to 0.17% at June 30, 2008. Net charge-offs as a percentage of average loans were 0.48% for the third quarter of 2008, an increase from 0.33% in the second quarter of 2008. The increase in net charge-offs was primarily attributable to higher net charge-offs in the home equity and commercial business portfolios. The increase in non- performing loans and loan delinquencies was in line with management's previously communicated expectations. Total allowance for loan losses to total loans was 1.40% at September 30, 2008, an increase from 1.38% at June 30, 2008. Total allowance for loan losses to non-performing loans was 148% at September 30, 2008, a decline from 236% at June 30, 2008. The Company believes that the decline in the total allowance to non-performing loans ratio is acceptable, given the strong collateral underlying the loans that were placed on non-performing status during the third quarter of 2008, which results in minimal reserves required against these loans. Capital At September 30, 2008, all of the Company's regulatory capital ratios exceeded the guidelines required to be considered a "well capitalized institution" as established by the Company's primary banking regulators. These levels are considered to be at least 5.00% for the leverage ratio and 10.00% for the total capital ratio. At September 30, 2008, the Company's leverage ratio was 8.39% and the total capital ratio was 12.29%. US government agencies have initiated a number of actions designed to provide or improve stability to the financial system. One such action is the US Treasury's Troubled Asset Relief Program Capital Purchase Program. Provident's capital levels are well above the minimum required for regulatory status as a "well capitalized" institution. This program offers all qualifying banks the opportunity to issue and sell preferred stock, along with warrants to purchase common stock to the US Treasury on what appears to be attractive terms. While Provident has been granted preliminary approval by the US Treasury to participate, the Company has not finalized its decision at this time. Outlook Mr. Geisel commented on the outlook for Provident Bankshares, "For the next few quarters, we expect modest loan growth, stable non-interest income, a further decline in our net interest margin, and a flat or downward trend in our expense levels. We also believe that continued economic weakness will most likely result in elevated credit costs. Given our strong capital ratios, stable deposit base and significant reserve levels, we believe we are well positioned from a capital and liquidity standpoint to effectively manage through this challenging period." Dividend Declared Provident Bankshares previously announced that on October 15, 2008, its Board of Directors declared a quarterly cash dividend of $0.11 per share. The quarterly cash dividend will be paid on November 7, 2008, to common stockholders of record at the close of business on October 27, 2008. The Board of Directors also declared a quarterly dividend of $25.00 per share on its convertible preferred stock. This dividend will be paid on November 3, 2008, to preferred stockholders of record at the close of business on October 27, 2008. About Provident Bankshares Corporation Provident Bankshares Corporation is the holding company for Provident Bank, 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 current branch network of 142 offices in Maryland, Virginia, and southern York County, Pennsylvania. Provident Bank also offers related financial services through wholly owned subsidiaries. Securities brokerage, investment management and related insurance services are available through Provident Investment Company and leases through Court Square Leasing. Visit Provident on the Web at http://www.provbank.com/. Webcast Information Provident Bankshares Corporation's third quarter earnings teleconference will be webcast at 2 p.m. ET on October 27, 2008. The conference call will include a discussion of the Company's third 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 November 10, 2008. To listen to the conference call, please go to the Company's website and follow these links: -- About Provident -- Investor Relations -- Upcoming Events -- Provident Bankshares Corporation Third Quarter 2008 Results Audio Webcast An audio replay of the teleconference will be available October 27, 2008 at 4:00 p.m. through November 10, 2008 by dialing 1-888-286-8010, passcode 60402016; the international dial-in number is 617-801-6888. The Company has posted additional supplemental financial tables on its website at http://www.provbank.com/ in the Investor Relations section. 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, 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. TABLES FOLLOW PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES FINANCIAL SUMMARY (dollars in thousands, except per share data) Three Months Ended Three Months Ended September 30, June 30, % % 2008 2007 Change 2008 Change SUMMARY NON-GAAP INCOME STATEMENTS: Net interest income $43,832 $47,837 (8.4)% $46,003 (4.7)% Provision for loan losses 6,571 7,494 (12.3) 6,400 2.7 Non-interest income 4,553 35,303 (87.1) 16,317 (72.1) Impairment on investment securities (24,570) - - (20,748) 18.4 Net gains 947 4,902 (80.7) 8,151 (88.4) Non-interest income, excluding total gains 28,176 30,401 (7.3) 28,914 (2.6) Total revenue, excluding total gains 72,008 78,238 (8.0) 74,917 (3.9) Non-interest expense 53,193 52,685 1.0 50,373 5.6 Restructuring activities 5 111 (95.5) (34) (114.7) Non-interest expense, excluding restructuring 53,188 52,574 1.2 50,407 5.5 Income tax expense (benefit) (5,987) 6,993 (185.6) (4,677) 28.0 Net income (loss) (5,392) 15,968 (133.8) 10,224 (152.7) Beneficial conversion feature - preferred stock - - - 1,463 - Dividends - preferred stock 1,523 - - - - Net income (loss) available to common stockholders (6,915) 15,968 (143.3) 8,761 (178.9) SHARE DATA: Basic earnings (loss) per share $(0.21) $0.50 (142.0)% $0.27 (177.8)% Diluted earnings (loss) per share (0.21) 0.50 (142.0) 0.27 (177.8) Cash dividends paid per common share 0.110 0.315 (65.1) 0.110 - Cash dividends paid per preferred share 29.72 - - - - Book value per common share 14.73 19.10 (22.9) 15.73 (6.4) Weighted average shares - basic 32,993,033 31,931,837 3.3 32,789,883 0.6 Weighted average shares - diluted 32,993,033 32,091,566 2.8 32,894,508 0.3 Common shares outstanding 33,338,972 31,974,520 4.3 33,172,640 0.5 SELECTED RATIOS: Return on average assets (0.34)% 1.01% 0.65% Return on average equity (3.78) 10.27 7.21 Return on average common equity (4.50) 9.82 5.77 Net yield on average earning assets (t/e basis) 3.09 3.45 3.28 Efficiency ratio (excludes restructuring activities) 73.05 66.50 66.57 Leverage ratio 8.39 8.74 8.67 Tier I risk-based capital ratio 10.13 10.76 10.59 Total risk-based capital ratio 12.29 11.82 12.75 Tangible common equity ratio 5.65 6.50 5.81 END OF PERIOD BALANCES: Investment securities portfolio $1,328,223 $1,559,599 (14.8)% $1,380,946 (3.8)% Total loans 4,264,201 4,047,715 5.3 4,202,407 1.5 Assets 6,410,476 6,364,010 0.7 6,382,055 0.4 Deposits 4,595,393 4,206,741 9.2 4,360,480 5.4 Stockholders' equity 542,464 610,721 (11.2) 573,166 (5.4) Common stockholders' equity 604,793 657,286 (8.0) 615,004 (1.7) AVERAGE BALANCES: Investment securities portfolio $1,511,735 $1,609,766 (6.1)% $1,535,106 (1.5)% Loans: Originated and acquired residential mortgage 262,372 298,019 (12.0) 274,357 (4.4) Home equity 1,117,718 1,050,442 6.4 1,089,914 2.6 Other consumer 382,691 386,750 (1.0) 383,194 (0.1) Commercial real estate 1,510,880 1,434,997 5.3 1,533,109 (1.4) Commercial business 946,563 803,537 17.8 917,765 3.1 Total loans 4,220,224 3,973,745 6.2 4,198,339 0.5 Earning assets 5,740,574 5,596,734 2.6 5,746,389 (0.1) Assets 6,444,096 6,279,353 2.6 6,436,068 0.1 Deposits: Noninterest- bearing 653,428 709,492 (7.9) 665,638 (1.8) Interest-bearing 3,821,708 3,375,739 13.2 3,642,386 4.9 Total deposits 4,475,136 4,085,231 9.5 4,308,024 3.9 Stockholders' equity 567,377 617,043 (8.0) 570,245 (0.5) Common stockholders' equity 611,396 644,896 (5.2) 610,430 0.2 PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES FINANCIAL SUMMARY (dollars in thousands, except per share data) Nine Months Ended September 30, 2008 2007 % Change SUMMARY NON-GAAP INCOME STATEMENTS: Net interest income $134,824 $145,320 (7.2)% Provision for loan losses 16,085 13,338 20.6 Non-interest income 5,746 96,257 (94.0) Impairment on investment securities (87,973) - - Net gains 8,907 6,525 36.5 Non-interest income, excluding total gains 84,812 89,732 (5.5) Total revenue, excluding total gains 219,636 235,052 (6.6) Non-interest expense 154,997 160,081 (3.2) Restructuring activities 45 1,459 (96.9) Non-interest expense, excluding restructuring 154,952 158,622 (2.3) Income tax expense (benefit) (17,722) 20,554 (186.2) Net income (loss) (12,790) 47,604 (126.9) Beneficial conversion feature - preferred stock 1,463 - - Dividends - preferred stock 1,523 - - Net income (loss) available to common stockholders (15,776) 47,604 (133.1) SHARE DATA: Basic earnings (loss) per share $(0.49) $1.48 (133.1)% Diluted earnings (loss) per share (0.49) 1.48 (133.1) Cash dividends paid per common share 0.545 0.930 (41.4) Cash dividends paid per preferred share 29.72 - - Book value per common share 14.73 19.10 (22.9) Weighted average shares - basic 32,442,812 32,063,333 1.2 Weighted average shares - diluted 32,442,812 32,259,491 0.6 Common shares outstanding 33,338,972 31,974,520 4.3 SELECTED RATIOS: Return on average assets (0.27)% 1.02% Return on average equity (3.03) 10.14 Return on average common equity (3.43) 9.90 Net yield on average earning assets (t/e basis) 3.18 3.55 Efficiency ratio (excludes restructuring activities) 69.74 66.88 Leverage ratio 8.39 8.74 Tier I risk-based capital ratio 10.13 10.76 Total risk-based capital ratio 12.29 11.82 Tangible common equity ratio 5.65 6.50 END OF PERIOD BALANCES: Investment securities portfolio $1,328,223 $1,559,599 (14.8)% Total loans 4,264,201 4,047,715 5.3 Assets 6,410,476 6,364,010 0.7 Deposits 4,595,393 4,206,741 9.2 Stockholders' equity 542,464 610,721 (11.2) Common stockholders' equity 604,793 657,286 (8.0) AVERAGE BALANCES: Investment securities portfolio $1,542,116 $1,627,388 (5.2)% Loans: Originated and acquired residential mortgage 275,559 311,406 (11.5) Home equity 1,098,104 1,020,822 7.6 Other consumer 382,700 394,051 (2.9) Commercial real estate 1,526,098 1,416,920 7.7 Commercial business 933,800 773,392 20.7 Total loans 4,216,261 3,916,591 7.7 Earning assets 5,769,729 5,558,459 3.8 Assets 6,463,759 6,243,179 3.5 Deposits: Noninterest-bearing 654,073 725,771 (9.9) Interest-bearing 3,685,061 3,390,757 8.7 Total deposits 4,339,134 4,116,528 5.4 Stockholders' equity 564,760 627,408 (10.0) Common stockholders' equity 613,902 643,008 (4.5) Investment Securities Portfolio September 30, 2008 Unrealized ($ in thousands) Gains/(Losses) Par Fair Amortized Recognized Cumulative Value Value Cost in OCI OTTI Available For Sale Treasuries $7,000 $6,947 $6,936 $11 $- Sovereign 400 400 400 - - FHLB Stock $38,369 $38,369 $38,369 $- $- Agency MBS/ARM 623,101 626,085 628,662 (2,577) - Municipals AAA 73,425 71,213 73,759 (2,546) - AA 58,655 56,162 58,894 (2,732) - A 18,690 17,886 18,755 (869) - Total 150,770 145,261 151,408 (6,147) - Pooled Trups - Banks & Insurance AAA 74,717 43,085 74,722 (31,637) - AA 41,899 19,463 41,912 (22,449) - A 20,673 10,277 20,687 (10,410) - Total 137,289 72,825 137,321 (64,496) - Pooled Trups - REITs AA 15,000 4,905 11,340 (6,435) (3,653) A 14,000 2,678 4,096 (1,418) (9,908) BBB 14,000 2,674 2,436 238 (11,610) BB 42,760 3,913 3,521 392 (38,479) B 20,671 922 1,278 (356) (18,714) Total 106,431 15,092 22,671 (7,579) (82,364) Non-Agency MBS AAA 59,708 51,589 57,337 (5,748) (2,085) AA 12,453 5,392 8,328 (2,936) (3,796) A 20,290 5,273 5,273 - (15,110) BBB 6,729 3,156 3,156 - (3,574) BB 9,445 889 1,367 (478) (8,095) B 7,859 689 703 (14) (7,181) CCC 9,815 785 873 (88) (9,095) Total 126,299 67,773 77,037 (9,264) (48,936) Single Issuer Bank Trups A 38,750 30,332 36,403 (6,071) - BBB 17,003 13,333 16,641 (3,308) - Total 55,753 43,665 53,044 (9,379) - Total Available For Sale $1,245,412 $1,016,417 $1,115,848 $(99,431) $(131,300) Held-To-Maturity Pooled Trups - Banks & Insurance AA 10,000 4,485 9,727 (273) - A 238,093 115,323 183,712 (51,238) (3,143) BBB 97,608 45,492 73,327 (23,263) (1,018) Total 345,701 165,300 266,766 (74,774) (4,161) Single Issuer Bank Trups AA 3,498 2,198 3,002 - - A 34,000 29,305 34,393 38 - BBB 2,100 2,164 1,957 - - BB 5,000 3,630 5,098 - - NR (Not Rated) 700 736 590 - - Total 45,298 38,033 45,040 38 - Total Held-To- Maturity $390,999 $203,333 $311,806 $(74,736) $(4,161) Total Investment Portfolio $1,636,411 $1,219,750 $1,427,654 $(174,167) $(135,461) DATASOURCE: Provident Bankshares Corporation CONTACT: Media: Vicki Cox, +1-410-277-2063; Investment Community: Dennis Starliper, +1-410-277-2080, both of Provident Bankshares Corporation Web site: http://www.provbank.com/ Company News On-Call: http://www.prnewswire.com/comp/721938.html

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