<PAGE> 1
________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
DECEMBER 31, 1995 0-16421
_________________
PROVIDENT BANKSHARES CORPORATION
________________________________
(Exact name of Registrant as specified in its charter)
MARYLAND 52-1518642
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
114 EAST LEXINGTON STREET
BALTIMORE, MARYLAND 21202
(Address of principal executive offices) (zip code)
(410) 281-7000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class
None
Name of each exchange on which registered
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $1.00 per share
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes /X/ No / /
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of January 31, 1996 was $227,013,566.
At January 31, 1996, the Registrant had 7,957,818 shares of $1.00 par value
common stock outstanding.
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
PART I. Page
____
Item 1. Business 3
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of
Security Holders 4
PART II.
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 4
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 52
PART III.
Item 10. Directors and Executive Officers of the
Registrant 52
Item 11. Executive Compensation 52
Item 12. Security Ownership of Certain Beneficial
Owners and Management 52
Item 13. Certain Relationships and Related
Transactions 52
PART IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 52
Signatures 53
<PAGE> 3
PART I
ITEM 1. BUSINESS
Provident Bankshares Corporation ("the Corporation"), a Maryland corporation,
was organized in 1987 by the management of Provident Bank of Maryland ("the
Bank"), and registered as a bank holding company under the Bank Holding Company
Act of 1956. Through a reorganization dated December 22, 1987, the Corporation
became the sole stockholder of the Bank. The reorganization allowed the Bank to
convert from a Maryland chartered mutual savings bank, the form in which it had
operated since 1886, to a Maryland chartered stock commercial bank. At December
31, 1995, the Bank was the second largest commercial bank chartered under the
laws of the State of Maryland in terms of assets.
For the discussion regarding lending and investment activities as well as
sources of funds of the Corporation, see pages 15 through 22.
MORTGAGE BANKING ACTIVITIES
Provident Mortgage Corp. ("PMC"), a subsidiary of the Bank, was formed in 1992
in conjunction with the acquisition of Consolidated Mortgage Corporation,
("CMC") which occurred during July 1992. The purpose of PMC is to offer a broad
range of mortgage lending products to consumers and thereby enhance the
Corporation's mortgage banking operations.
BANKING SERVICES ACTIVITIES
Provident Investment Center Inc. ("PIC"), a subsidiary of the Bank, was formed
in 1993 to provide consumers a competitive range of banking products, such as
purchased annuities and mutual funds.
INSURANCE ACTIVITIES
BankSure Insurance Corporation ("BankSure"), a subsidiary of the Bank, was
formed by the Bank in 1985 for the purpose of offering insurance products to its
loan customers and thereby enhancing the Bank's lending product lines.
REAL ESTATE ACTIVITIES
The Bank owns approximately 49,000 square feet of real estate adjacent to the
Corporation's headquarters building. Management plans to utilize this real
estate to meet future space requirements of the Corporation.
EMPLOYEES
At December 31, 1995, the Corporation and its subsidiaries had 1,141 employees.
The Corporation currently maintains what management considers to be a
comprehensive, competitive employee benefits program. Employees are not
represented by a collective bargaining unit and management considers its
relationship with its employees to be good.
COMPETITION
The Corporation encounters substantial competition in all areas of its business.
There are four commercial banks based in Maryland with assets in excess of $1
billion. The Bank also faces competition from savings and loan associations,
savings banks, mortgage banking companies, credit unions, insurance companies,
consumer finance companies, money market and mutual funds and various other
financial services firms.
Current federal law allows acquisitions of bank holding companies
nationwide. Further, Maryland law in some instances allows aquisitions among
banks in Maryland with banks in other states, provided that the other
jurisdiction has approved reciprocal interstate banking legislation. As a
consequence of these developments, competition in the Bank's principal market
may increase, and a consolidation of financial institutions in Maryland may
occur.
REGULATION
The Corporation is registered as a bank holding company, under the Bank Holding
Company Act of 1956. As such, the Corporation is subject to regulation and
examination by the Federal Reserve Board, and is required to file periodic
reports and any additional information that the Federal Reserve Board may
require. The Bank Holding Company Act imposes certain restrictions upon the
Corporation regarding the acquisition of substantially all of the assets of or
direct or indirect ownership or control of any bank of which it is not already
the majority owner; or, with certain exceptions, of any company engaged in
non-banking activities.
<PAGE> 4
The Bank is subject to supervision, regulation and examination by the Bank
Commissioner of the State of Maryland and the Federal Deposit Insurance
Corporation. Asset growth, deposits, reserves, investments, loans, consumer law
compliance, issuance of securities, payment of dividends, establishment of
branches, mergers and consolidations, changes in control, electronic funds
transfer, management practices and other aspects of operations are subject to
regulation by the appropriate federal and state supervisory authorities. The
Bank is also subject to various regulatory requirements of the Federal Reserve
Board applicable to FDIC insured depository institutions.
MONETARY POLICY
The Corporation and the Bank are affected by fiscal and monetary policies of the
federal government, including those of the Federal Reserve Board, which
regulates the national money supply in order to mitigate recessionary and
inflationary pressures. Among the techniques available to the Federal Reserve
Board are engaging in open market transactions of U.S. Government securities,
changing the discount rate and changing reserve requirements against bank
deposits. These techniques are used in varying combinations to influence the
overall growth of bank loans, investments and deposits. Their use may also
affect interest rates charged on loans and paid on deposits. The effect of
governmental policies on the earnings of the Corporation and the Bank cannot be
predicted.
ITEM 2. PROPERTIES
In December 1990, the Bank sold its corporate headquarters located at 114 East
Lexington Street, Baltimore, Maryland, and simultaneously leased back these
facilities for an initial twelve year lease term.
The Bank has 44 offices located throughout the Baltimore metropolitan area.
The Bank owns 6 and leases 38 of its offices. Most of these leases provide for
the payment of property taxes and other costs by the Bank and include one or
more renewal options ranging from five to ten years. Some of the leases also
contain a purchase option.
In 1993, the Bank renewed a long-term agreement to lease a one-story
building large enough to consolidate operations and support functions. The Bank
currently leases all of the building's 80,000 square feet of space.
ITEM 3. LEGAL PROCEEDINGS
Refer to Note 12 of Item 8. -- "Financial Statements and Supplementary Data"
on page 43.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of Provident Bankshares Corporation is traded over-the-counter
and is quoted in the NASDAQ Stock Market. Such over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions. The NASDAQ
symbol is PBKS. The trading range of Provident's common stock for the years 1995
and 1994 is shown in the table of Consolidated Quarterly Results of Operations,
Market Prices and Dividends contained on page 13 of Management's Discussion and
Analysis (Item 7). At January 31, 1996, there were approximately 2,493 holders
of record of the Corporation's common stock.
For the year 1995, the Corporation declared and paid dividends of $.58 per
share of common stock outstanding. See Note 10 of Notes to Consolidated
Financial Statements of Provident Bankshares Corporation and Subsidiaries for a
discussion of the effect of the liquidation account of the Bank on the ability
of the Corporation to pay dividends. Certain provisions of Maryland banking law
impose limitations on the amount of dividends payable by the Corporation, but
none is as restrictive as the liquidation account.
<PAGE> 5
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
____________________________________________________________________________________________________________________
(dollars in thousands, except per share data) 1995 1994 1993 1992 1991
====================================================================================================================
<S> <C> <C> <C> <C> <C>
Interest Income (tax-equivalent) $ 180,560 $ 134,639 $ 118,166 $ 116,722 $ 127,140
Interest Expense 96,866 62,027 53,757 62,041 82,349
____________________________________________________________________________________________________________________
Net Interest Income (tax-equivalent) 83,694 72,612 64,409 54,681 44,791
Provision for Loan Losses 1,545 500 1,516 9,150 20,340
____________________________________________________________________________________________________________________
Net Interest Income After Provision for Loan Losses 82,149 72,112 62,893 45,531 24,451
Non-Interest Income 31,976 26,699 24,161 13,876 11,797
Net Securities Gains (Losses) (2,729) 571 2,951 3,768 16,146
Non-Interest Expense 83,115 79,286 75,751 57,746 50,778
____________________________________________________________________________________________________________________
Income Before Taxes and Cumulative Effect of
Change in Accounting Principle 28,281 20,096 14,254 5,429 1,616
Income Tax Expense (Benefit) (tax-equivalent) 10,256 7,566 5,390 1,210 (1,287)
Cumulative Effect of Change in Accounting
for Purchased Mortgage Servicing Rights -- -- 733 -- --
____________________________________________________________________________________________________________________
Net Income $ 18,025 $ 12,530 $ 8,131 $ 4,219 $ 2,903
====================================================================================================================
Per Share Amounts:
Net Income Before Cumulative Effect of
Change in Accounting Principle $ 2.20 $ 1.72 $ 1.28 $ .63 $ .45
Cumulative Effect of Change in Accounting
for Purchased Mortgage Servicing Rights -- -- .10 -- --
____________________________________________________________________________________________________________________
Net Income -- Primary $ 2.20 $ 1.72 $ 1.18 $ .63 $ .45
Net Incom -- Fully Diluted 2.20 1.72 1.17 .62 .45
====================================================================================================================
Cash Dividends Paid $ .58 $ .40 $ .28 $ .19 $ .14
====================================================================================================================
Tax-Equivalent Adjustment $ 754 $ 417 $ 317 $ 353 $ 574
====================================================================================================================
Total Assets $2,562,961 $2,283,762 $1,843,968 $1,633,963 $1,546,467
Total Stockholders' Equity 184,408 150,322 133,945 116,217 112,180
Stockholders' Equity to Assets 7.20% 6.58% 7.26% 7.11% 7.25%
Return on Average Assets .75 .66 .48 .27 .19
Return on Average Equity 10.77 9.16 6.71 3.71 2.61
Average Equity to Average Assets 7.00 7.21 7.10 7.25 7.31
Dividend Payout Ratio 26.36 23.26 23.73 30.16 31.11
Note: Tax-advantaged income has been adjusted to a tax-equivalent basis using the combined statutory federal and
state income tax rate in effect of 39.55% in 1995 and 1994, 38.62% in 1993, 34.50% in 1992 and 38.62% in 1991.
</TABLE>
<PAGE> 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL REVIEW
The principal objective of this Financial Review is to provide an overview of
the financial condition and results of operations of Provident Bankshares
Corporation and its subsidiaries for the three years ended December 31, 1995,
1994 and 1993. The outlook for the Corporation based upon current trends and
actions taken during the year is also included. This discussion and tabular
presentations should be read in conjunction with the accompanying financial
statements and notes.
Provident Bankshares Corporation ("the Corporation"), through its
wholly-owned subsidiary, Provident Bank of Maryland ("the Bank"), offers
consumer and commercial banking services throughout central Maryland. The Bank
offers related financial services through its wholly-owned subsidiaries,
including mortgages through Provident Mortgage Corp. (PMC), and mutual funds and
annuities through Provident Investment Center (PIC).
The Corporation recorded significantly improved operating results in 1995,
as earnings totaled $18 million or $2.20 per share, a 44% increase over the
$12.5 million or $1.72 (adjusted for 5% stock dividend) per share earned in
1994. The growth in net earnings was attributable to an $11.1 million rise in
tax-equivalent net interest income and a $4.4 million increase in retail service
charges. These increases more than offset a $3.8 million increase in operating
expenses. These variances are discussed in more detail beginning on the
following pages.
FINANCIAL TRENDS
[The following tables are representative of graphs shown on page 6 of the
Annual Report.]
<TABLE>
<CAPTION>
RETURN OF AVERAGE ASSETS RETURN ON AVERAGE EQUITY
<S> <C> <C> <C>
1991 .19% 1991 2.61%
1992 .27& 1992 3.71%
1993 .48% 1993 6.71%
1994 .66% 1994 9.16%
1995 .75% 1995 10.77%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ASSETS (in billions) AVERAGE EQUITY (in millions)
<S> <C> <C> <C>
1991 $1.52 1991 $111.1
1992 $1.57 1992 $113.8
1993 $1.71 1993 $121.2
1994 $1.90 1994 $136.8
1995 $2.39 1995 $167.3
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (in millions) EARNINGS AND CASH DIVIDENDS PER
SHARE (in dollars)
<S> <C> <C> <C> <C>
1991 $ 2.903 1991 $ .14 $ .45
1992 $ 4.219 1992 $ .19 $ .62
1993 $ 8.131 1993 $ .28 $1.17
1994 $12.530 1994 $ .40 $1.72
1995 $18.025 1995 $ .58 $2.20
Cash Dividends Earnings
Per Share Per Share
</TABLE>
<PAGE> 7
RESULTS OF OPERATIONS
_____________________
NET INTEREST INCOME
The Corporation's principal source of revenue is net interest income, the
difference between interest income on earning assets and interest expense on
deposits and borrowings. Interest income, for purposes of analysis, is presented
on a tax-equivalent basis to recognize associated tax benefits as this
presentation provides a basis for comparison of yields with taxable earning
assets. The discussion on net interest income should be read in conjunction with
the "Analysis of Changes in Net Interest Income" and "Consolidated Average
Balances -- Income and Expense and Yields and Rates" on pages 9 and 10.
Tax-equivalent net interest income for 1995 increased $11.1 million or
15.3% from 1994 as average earning assets grew $480 million over the prior year.
Net interest margin dropped by 35 basis points primarily caused by the
leveraging through investment security purchases of additional capital raised
during the fourth quarter of 1994. These margins are lower than is traditionally
earned through the generation of loan balances.
Provident's interest income increased $45.9 million or 34% during the year
primarily due to the growth in average earning assets and a 45 basis point
increase in yield. The rise in yield was mainly due to a higher interest rate
environment. The increase in average earning assets resulted from a $176 million
increase in the loan portfolios and a $321 million increase in the investment
portfolio offset in part by a $21 million decrease in mortgage loans held for
sale. Consumer loan growth accounted for the majority of the increase in average
loans during 1995. The commercial business portfolio also experienced growth.
Interest income earned on the loan portfolio increased $21.7 million reflecting
higher loan outstandings and a 58 basis point increase in yield. Average
investments increased $325 million during the period due to the leveraging
described above. The yield on investments and loans held for sale rose 44 basis
points and 68 basis points, respectively. Interest lost from non-accruing loans
was $302 thousand compared to $384 thousand in 1994.
Interest expense increased $34.8 million from 1994 resulting in an 87 basis
point increase in overall cost of funds and a $441 million growth in average
interest bearing liabilities. The rise in cost of funds was caused by the
general increase in interest rates during the year for borrowed funds and term
deposits. The average rate paid on borrowed funds increased 115 basis points
during 1995. This represented a $20.8 million increase in interest expense.
The increase in average interest bearing liabilities reflects a $271
million rise in borrowed funds and a $169 million increase in interest bearing
deposits. Non-interest bearing demand deposit accounts grew by $16 million or
16%.
Future growth in net interest income will depend upon consumer and
commercial loan demand and the general level of interest rates. Please refer to
the section entitled "Interest Sensitivity Management" on page 23 for further
discussion of the impact of current trends on net interest income in 1995.
<PAGE> 8
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1995/1994 1994/1993
_______________________________________________ _____________________________________________
VARIANCE DUE TO CHANGE IN Variance Due To Change In
______________________________ ______________________________
(in thousands) NET INCREASE/ AVERAGE AVERAGE AVERAGE Net Increase/ Average Average Average
(tax-equivalent basis) (DECREASE) RATE VOLUME RATE/VOLUME (Decrease) Rate Volume Rate/Volume
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME FROM:
Loans:
Consumer $13,371 $ 2,138 $10,616 $ 617 $ 5,021 $(1,088) $ 6,326 $ (217)
Commercial Business 4,360 1,500 2,566 294 2,221 1,217 903 101
Real Estate -- Construction 1,508 1,324 149 35 910 1,378 (362) (106)
Real Estate -- Mortgage 2,446 1,873 546 27 18,151 (1,160) 20,477 (1,166)
Mortgage Loans Held for Sale (1,044) 542 (1,443) (143) (1,488) 109 (1,572) (25)
Federal Funds Sold and Securities
Purchased Under Resale Agreements (18) -- (18) -- 8 2 5 1
Other Short-Term Investments 243 1 232 10 17 -- 17 --
U.S. Treasury and Government
Agencies and Corporations 217 38 177 2 (648) (281) (399) 32
Corporate Securities (1,414) -- (1,414) -- (5,217) 2,131 (5,561) (1,787)
Mortgage-Backed Securities 17,517 1,869 14,748 900 (2,770) (1,064) (1,762) 56
Municipal Securities 475 22 419 34 268 -- 268 --
Other Debt Securities 8,260 -- 8,260 -- -- -- -- --
____________________________________________________________________________________________________________________________________
Total Interest Income 45,921 8,202 35,553 2,166 16,473 3,343 12,769 361
____________________________________________________________________________________________________________________________________
INTEREST EXPENSE ON:
Interest-Bearing Demand Deposits 382 46 330 6 604 (156) 829 (69)
Money Market Deposits 429 687 (218) (40) (129) 2 (131) --
Savings Deposits (3,084) (2,656) (504) 76 (224) (1,281) 1,139 (82)
Certificates of Deposit 15,594 5,024 7,553 3,017 189 (66) 256 (1)
Individual Retirement Accounts 729 567 147 15 (293) (159) (138) 4
Short-Term Borrowings 15,078 3,474 9,106 2,498 2,252 3,156 (694) (210)
Long-Term Debt 5,711 1,324 3,716 671 5,871 386 4,341 1,144
____________________________________________________________________________________________________________________________________
Total Interest Expense 34,839 14,347 16,643 3,849 8,270 2,126 5,910 234
____________________________________________________________________________________________________________________________________
Net Interest Income $11,082 $(6,145) $18,910 $(1,683) $ 8,203 $ 1,217 $ 6,859 $ 127
====================================================================================================================================
The table above analyzes the reasons for the changes from year-to-year in the principal elements that comprise net interest
income. The calculation of rate, volume and rate/volume variances is based upon a procedure established for banks by the
Securities and Exchange Commission. Rate, volume and rate/volume variances presented for each component will not sum to the
variances presented on totals of interest income and interest expense because of shifts from year-to-year in the relative mix of
interest-earning assets and interest-bearing liabilities.
</TABLE>
<PAGE> 9
CONSOLIDATED AVERAGE BALANCES, INCOME AND EXPENSE AND YIELDS AND RATES
Provident Bankshares Corporation and Subsidiaries
<TABLE>
<CAPTION>
1995 1994 1993
_____________________________ _____________________________ _____________________________
(dollars in thousands) AVERAGE YIELD/ INCOME/ Average Yield/ Income/ Average Yield/ Income/
(tax-equivalent basis) BALANCE RATE EXPENSE Balance Rate Expense Balance Rate Balance
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans:
Consumer $ 611,956 8.19% $ 50,145 $ 474,869 7.74% $ 36,774 $ 395,976 8.02% $ 31,753
Commercial Business <F2> 182,571 9.55 17,434 152,624 8.57 13,074 140,903 7.70 10,853
Real Estate -- Construction 62,224 11.45 7,122 60,613 9.26 5,614 65,673 7.16 4,704
Real Estate -- Mortgage 526,790 7.78 40,968 519,423 7.42 38,522 259,037 7.86 20,371
__________ ________ __________ ________ __________ ________
Total Loans <F1> 1,383,541 8.36 115,669 1,207,529 7.78 93,984 861,589 7.86 67,681
__________ ________ __________ ________ __________ ________
Mortgage Loans Held for Sale 58,697 7.53 4,420 79,757 6.85 5,464 103,075 6.74 6,952
Interest-Bearing Deposits with Banks -- -- -- -- -- -- -- -- --
Federal Funds Sold and Securities
Purchased Under Resale Agreements -- -- -- 565 3.19 18 367 2.72 10
Other Short-Term Investments 4,742 5.48 260 323 5.26 17 -- -- --
U.S. Treasury and Government
Agencies and Corporations 43,751 6.98 3,054 41,182 6.89 2,837 46,514 7.49 3,485
Corporate Securities -- -- -- 19,961 7.08 1,414 123,692 5.36 6,631
Mortgage-Backed Securities 689,907 6.98 48,154 465,719 6.58 30,637 491,656 6.79 33,407
Municipal Securities 8,634 8.61 743 3,371 7.95 268 -- -- --
Other Debt Securities 109,308 7.56 8,260 -- -- -- -- -- --
__________ ________ __________ ________ __________ ________
Total Investment Securities <F2> <F3> 851,600 7.07 60,211 530,233 6.63 35,156 661,862 6.58 43,523
__________ ________ __________ ________ __________ ________
Trading Account Securities -- -- -- -- -- -- 14,188 -- --
__________ ________ __________ ________ __________ ________
Total Interest-Earning Assets 2,298,580 7.85 180,560 1,818,407 7.40 134,639 1,641,081 7.20 118,166
__________ ________ __________ ________ __________ ________
Less:Allowance for Loan Losses (20,908) (20,770) (20,568)
Cash and Due From Banks 41,120 35,538 28,231
Other Assets 70,202 63,225 57,902
__________ __________ __________
Total Assets $2,388,994 $1,896,400 $1,706,646
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Demand Deposits $ 121,134 2.36 2,855 106,860 2.31 2,473 $ 74,010 2.53 1,869
Money Market Deposits 116,066 3.63 4,210 123,158 3.07 3,781 127,415 3.07 3,910
Savings Deposits 575,196 2.51 14,457 592,213 2.96 17,541 556,526 3.19 17,765
Certificates of Deposit 469,763 6.00 28,173 293,519 4.29 12,579 287,579 4.31 12,390
Individual Retirement Accounts 106,370 6.00 6,384 103,671 5.45 5,655 106,136 5.60 5,948
Short-Term Borrowings 464,094 5.98 27,741 269,968 4.69 12,663 289,237 3.60 10,411
Long-Term Debt 230,022 5.67 13,046 152,666 4.80 7,335 38,500 3.80 1,464
__________ ________ __________ ________ __________ ________
Total Interest-Bearing Liabilities 2,082,645 4.65 96,866 1,642,055 3.78 62,027 1,479,403 3.63 53,757
__________ ________ __________ ________ __________ ________
Noninterest-Bearing Demand Deposits 116,151 100,191 88,340
Other Liabilities 22,866 17,342 17,680
Stockholders' Equity 167,332 136,812 121,223
__________ __________ __________
Total Liabilities and Stockholders'
Equity $2,388,994 $1,896,400 $1,706,646
========== ========== ==========
Net Interest-Earning Assets $ 215,935 $ 176,352 $ 161,678
========== ========== ==========
Net Interest Income (tax-equivalent) 83,694 72,612 64,409
Less: Tax-Equivalent Adjustment (754) (417) (317)
________ ________ ________
Net Interest Income $ 82,940 $ 72,195 $ 64,092
======== ======== ========
Net Yield on Interest-Earning
Assets (tax-equivalent) 3.64% 3.99% 3.92%
<FN>
<F1> Average loan balances include non-accrual loans.
<F2> Tax-advantaged income has been adjusted to a tax-equivalent basis using the combined statutory federal and state income tax
rate in effect of 39.55% in 1995 and 1994, 38.62% in 1993, 34.50% in 1992 and 38.62% in 1991.
<F3> Includes all securities in the investment portfolio for 1995 through 1992.
</FN>
</TABLE>
<PAGE> 10
CONSOLIDATED AVERAGE BALANCES, INCOME AND EXPENSE AND YIELDS AND RATES
(continued)
Provident Bankshares Corporation and Subsidiaries
<TABLE>
<CAPTION>
1992 1991
________________________________________________________________________________________________________________________
(dollars in thousands) Average Yield/ Income/ Average Yield/ Income/
(tax-equivalent basis) Balance Rate Expense Balance Rate Expense
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans:
Consumer $ 265,114 9.65% $ 25,585 $ 207,018 10.89% $ 22,548
Commercial Business <F2> 132,771 7.97 10,577 159,373 9.16 14,591
Real Estate Construction 81,050 6.73 5,458 93,585 7.62 7,133
Real Estate Mortgage 166,846 8.83 14,729 239,943 9.43 22,619
__________ ________ __________ ________
Total Loans <F1> 645,781 8.73 56,349 699,919 9.56 66,891
__________ ________ __________ ________
Mortgage Loans Held for Sale 35,338 7.30 2,580 2,984 9.38 280
Interest-Bearing Deposits with Banks -- -- -- 1,297 8.40 109
Federal Funds Sold and Securities
Purchased Under Resale Agreements 5,348 3.70 198 3,089 6.15 190
Other Short-Term Investments 1,371 4.45 61 -- -- --
U.S. Treasury and Government
Agencies and Corporations 48,130 7.49 3,603 84,841 8.15 6,915
Corporate Securities 148,978 6.73 10,027 8,444 7.44 628
Mortgage-Backed Securities 597,150 7.35 43,904 599,505 8.70 52,127
Municipal Securities -- -- -- -- -- --
Other Debt Securities -- -- -- -- -- --
__________ ________ __________ ________
Total Investment Securities <F2> <F3> 794,258 7.24 57,534 692,790 8.62 59,670
__________ ________ __________ ________
Trading Account Securities 30,057 -- -- 61,041 -- --
__________ ________ __________ ________
Total Interest-Earning Assets 1,512,153 7.72 116,722 1,461,120 8.70 127,140
Less:Allowance for Loan Losses (19,171) (14,926)
Cash and Due From Banks 20,170 20,670
Other Assets 57,565 53,225
__________ __________
Total Assets $1,570,717 $1,520,089
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
INTEREST-BEARING LIABILITIES:
Demand Deposits $ 50,997 3.45 1,757 $ 41,933 5.29 2,217
Money Market Deposits 135,677 3.75 5,093 146,836 5.62 8,246
Savings Deposits 503,223 4.09 20,563 426,607 5.04 21,519
Certificates of Deposit 321,708 5.33 17,152 380,102 7.21 27,397
Individual Retirement Accounts 106,229 6.46 6,858 105,637 7.62 8,049
Short-Term Borrowings 246,813 4.23 10,434 225,876 6.49 14,667
Long-Term Debt 2,513 7.32 184 3,299 7.70 254
__________ ________ __________ ________
Total Interest-Bearing Liabilities 1,367,160 4.54 62,041 1,330,290 6.19 82,349
__________ ________ __________ ________
Noninterest-Bearing Demand Deposits 78,123 66,745
Other Liabilities 11,619 11,985
Stockholders Equity 113,815 111,069
__________ __________
Total Liabilities and Stockholders'
Equity $1,570,717 $1,520,089
========== ==========
Net Interest-Earning Assets $ 144,993 $ 130,830
========== ==========
Net Interest Income (tax-equivalent) 54,681 44,791
Less: Tax-Equivalent Adjustment (353) (574)
________ ________
Net Interest Income $ 54,328 $ 44,217
======== ========
Net Yield on Interest-Earning
Assets (tax-equivalent) 3.62% 3.07%
<FN>
<F1> Average loan balances include non-accrual loans.
<F2> Tax-advantaged income has been adjusted to a tax-equivalent basis using the combined statutory federal and state income
tax rate in effect of 39.55% in 1995 and 1994, 38.62% in 1993, 34.50% in 1992 and 38.62% in 1991.
<F3> Includes all securities in the investment portfolio for 1995 through 1992.
</FN>
</TABLE>
<PAGE> 11
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $1 million to $1.5 million in 1995. The
increase was the result of loan growth in the consumer loan and commercial loan
portfolios as total average loans outstanding grew by $176 million. The
corporation continues to emphasize quality underwriting as well as aggressive
management of prior charge-offs and potential problem loans.
Net charge-offs were $976 thousand in 1995 compared to $58 thousand in
1994. Net charge-offs as a percentage of average loans was .07% in 1995.
Non-accrual and past due loans ended the year at $14.1 million, $8.5 million of
which is residential mortgage loans. Seventy-three percent of the non-performing
residential mortgage loans are guaranteed or insured by government agencies.
A further discussion of the allowance for loan losses, net charge-offs and
non-performing assets appears on pages 18 and 19.
NON-INTEREST INCOME
Non-interest income is principally derived from fee-based services, mortgage
banking activities and gains on investment securities sales. In 1995,
non-interest income also included interest income of $5.8 million derived from
federal income tax refunds. This interest income allowed the Corporation to
defer planned sales of mortgage servicing rights to future periods and to
reposition part of the investment portfolio. Total non-interest income increased
7.2% to $29.2 million. Excluding net securities gains (losses), interest income
from federal income tax refund and gains for mortgage servicing rights,
non-interest income increased $3.6 million or 18%. The table below presents a
comparative analysis of the major components of non-interest income.
Deposit service charges rose 55% over the prior year due to a 63% or $3.6
million increase in retail demand deposit service fees. Average interest-bearing
demand deposits grew $14.3 million or 13% over last year while average
noninterest-bearing deposits increased $16 million or 16%. These increases are
the result of continued promotion and sales efforts of new retail deposit
products developed in 1993.
Income from mortgage banking activities fell $4.9 million, $4.1 million due
to lower gains on the sale of mortgage servicing rights. The remaining decline
is due to lower origination fee income as mortgage originations during the year
declined $88 million to $417 million. This drop in originations reflects an
overall decline in the mortgage industry.
During 1993, Provident Bank of Maryland started Provident Investment Center
with the purpose of offering annuities and mutual funds through an affiliation
with a securities broker-dealer. For the year 1995, income associated with these
products decreased by $900 thousand to $1.1 million. This decline is believed to
be associated with customer preference for certificates of deposit versus
annuities as rates for these products were more attractive in 1995.
NON-INTEREST INCOME
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993 1992 1991
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Service Charges on Deposit Accounts $12,590 $ 8,146 $ 5,683 $ 3,738 $ 3,189
Mortgage Banking Activities 9,053 13,926 9,943 5,308 1,772
Commissions and Fees 2,101 2,922 1,446 509 543
Trading Account Profits -- -- 416 1,265 3,526
Credit Card Fees -- -- 426 939 1,082
Other Loan Fees 732 667 680 648 782
Interest Income on Tax Refund 5,796 -- -- -- --
Gain on Sale of Credit Card Portfolio -- -- 4,389 -- --
Other Non-Interest Income 1,704 1,038 1,178 1,469 903
_______________________________________________________________________________________________________
Subtotal 31,976 26,699 24,161 13,876 11,797
Net Securities Gains (Losses) (2,729) 571 2,951 3,768 16,146
_______________________________________________________________________________________________________
Total Non-Interest Income $29,247 $27,270 $27,112 $17,644 $27,943
=======================================================================================================
</TABLE>
<PAGE> 12
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993 1992 1991
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Salaries and Employee Benefits $43,302 $43,638 $43,444 $30,146 $26,014
Occupancy Expense, Net 7,685 7,257 6,947 5,784 5,754
Furniture and Equipment 5,334 4,574 4,053 3,298 3,944
External Processing Fees 7,553 6,349 4,823 4,735 2,804
Advertising and Promotion 5,301 4,726 4,371 1,966 1,479
Communication and Postage 2,692 2,337 1,716 1,433 1,483
Printing and Supplies 1,837 1,410 1,390 919 926
Regulatory Fees 1,830 3,038 2,892 2,820 2,563
Professional Services 1,852 1,884 1,712 2,012 2,132
Other Non-Interest Expense 5,729 4,073 4,403 4,633 3,679
_______________________________________________________________________________________________________
Total Non-Interest Expense $83,115 $79,286 $75,751 $57,746 $50,778
=======================================================================================================
</TABLE>
NON-INTEREST EXPENSE
Non-interest expense is composed primarily of costs associated with employees'
salaries and benefits, bank facilities, external data processing and regulatory
fees. Provident's non-interest expense of $83.1 million represented a 4.8%
increase, compared to a 4.7% increase in 1994.
Salaries and benefits declined $336 thousand during the year. Compensation
and payroll taxes increased $712 thousand while health insurance and pension
expense declined $897 thousand and $267 thousand, respectively. The rise in
compensation and associated payroll taxes is attributable to merit increases,
new supermarket branches and staffing our new Fast'N Friendly Check Cashing
centers. The lower pension cost is due to improved investment yield on plan
assets. Improved health care claim experience led to the decline in health
insurance expense. Full time equivalent employees ended the year at 1,141
compared to 955 for the prior year.
Occupancy costs grew $428 thousand or 5.9% over last year. Much of this
increase is due to additional mortgage and supermarket branches as well as
additional space requirements at our headquarters and operations buildings.
Total furniture and equipment expense increased $760 thousand due to upgrading
of technology in the bank's office automation and branch platform systems.
External processing increased $1.2 million or 19%, as new branch locations
were added. Other expenses increased by $1.8 million mainly associated with
settlement of a lawsuit in connection with termination of an acquisition and
write-off of personal computer equipment not compatible with a newly installed
local area network system. In addition, advertising costs increased $575
thousand or 12% compared to the prior year. This increase was attributable to
promotion of retail products.
INCOME TAXES
Provident recorded income tax expense of $9.5 million on pre-tax income of $27.5
million for an effective tax rate of 34.5%. This compares with a 36.3% effective
tax rate for 1994. The reduction in the effective tax rate was caused by
favorable resolution of state tax issues and the recognition of deferred tax
items at a higher rate as the current marginal federal rate is higher than when
the items were originally deferred.
FOURTH QUARTER RESULTS
Provident recorded net income of $5.1 million or $.61 per share in the fourth
quarter of 1995, an increase of $1.5 million or 41% over the $3.6 million or
$.45 per share recorded in the same period last year. The higher earnings are
principally due to a 15.4% increase in net interest income and higher
non-interest income. Higher operating expenses and loan loss provision partially
offset these increases.
Tax-equivalent net interest income in the fourth quarter rose $3 million to
$22.2 million as the net interest margin declined 9 basis points to 3.64% and
average earning assets grew $373 million to $2.4 billion. The decrease in the
net interest margin primarily reflected a lower interest rate environment as
well as the leveraging of additional capital through investment security
purchases. This resulted in lower margins than is traditionally earned through
the generation of loan balances.
<PAGE> 13
The Corporation recorded a provision for loan losses of $1.0 million during
the quarter to provide for loan growth in the portfolio.
Non-interest income increased 34 percent to $9.0 million. The increase is
derived from fee based services as a result of higher account volumes and higher
mortgage banking income. Fee income from retail fees increased $1.4 million and
mortgage banking income increased $746 thousand. Mortgage banking income rose
because of higher gains from the sale of mortgage servicing rights. Non-interest
income was also higher by $493 thousand due to the recognition of interest
income from a federal income tax refund.
Non-interest expense increased $2.2 million to $22.1 million because of
higher compensation, advertising and promotion, and external processing expense.
Compensation expense was higher due to expenses associated with the decision to
outsource our mortgage processing operations and temporary help used to prepare
mortgage files for securitization. Advertising increased $462 thousand as a
result of promotions of bank products and services during the fourth quarter of
1995. External processing costs rose $459 thousand due to increased account
volume. In addition to the above, the Corporation wrote off $336 thousand of
fixed assets associated with an upgrade of technology to a local area network.
The following table presents quarterly trend data for 1995 and 1994.
CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS, MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
1995 1994
________________________________________ ________________________________________
FOURTH THIRD SECOND FIRST Fourth Third Second First
(in thousands, except per share data) QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $47,950 $45,802 $44,366 $41,688 $38,686 $33,702 $31,445 $30,389
Interest Expense 25,991 25,061 23,894 21,920 19,664 15,118 13,781 13,464
_____________________________________________________________________________________________________________________________
Net Interest Income 21,959 20,741 20,472 19,768 19,022 18,584 17,664 16,925
Provision for Loan Losses 1,000 300 245 -- 500 -- -- --
_____________________________________________________________________________________________________________________________
Net Interest Income After Provision
for Loan Losses 20,959 20,441 20,227 19,768 18,522 18,584 17,664 16,925
Non-Interest Income 9,018 7,680 9,684 5,594 6,199 7,645 6,782 6,073
Net Securities Gains (Losses) 28 19 (2,776) -- 554 (891) 308 600
Non-Interest Expense 22,050 20,500 20,785 19,780 19,855 19,882 20,140 19,409
_____________________________________________________________________________________________________________________________
Income Before Taxes 7,955 7,640 6,350 5,582 5,420 5,456 4,614 4,189
Income Tax Expense 2,855 2,830 1,945 1,872 1,810 2,046 1,709 1,584
_____________________________________________________________________________________________________________________________
Net Income $ 5,100 $ 4,810 $ 4,405 $ 3,710 $ 3,610 $ 3,410 $ 2,905 $ 2,605
=============================================================================================================================
Per Share Amounts:
Net Income $ .61 $ .58 $ .54 $ .48 $ .45 $ .48 $ .41 $ .38
Market Prices: High 33.75 31.38 26.38 25.00 21.33 24.05 25.72 22.38
Low 29.50 26.75 22.38 22.13 19.77 22.27 20.00 17.63
Cash Dividends Declared .16 .15 .14 .13 .11 .10 .10 .09
=============================================================================================================================
</TABLE>
<PAGE> 14
FINANCIAL CONDITION
___________________
SOURCE AND USE OF FUNDS
DEPOSITS
The following table presents information concerning the Bank's average deposits
and rates for the respective years.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
____________________________________________________________________________________________________________________________________
AVERAGE AVERAGE Average Average Average Average Average Average Average Average
(dollars in thousands) BALANCE RATE Balance Rate Balance Rate Balance Rate Balance Rate
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Noninterest-Bearing Demand $ 116,151 --% $ 100,191 --% $ 88,340 --% $ 78,123 --% $ 66,745 --%
Interest-Bearing Demand 121,134 2.36 106,860 2.31 74,010 2.53 50,997 3.45 41,933 5.29
Money Market Deposits 116,066 3.63 123,158 3.07 127,415 3.07 135,677 3.75 146,836 5.62
Savings 575,196 2.51 592,213 2.96 556,526 3.19 503,223 4.09 426,607 5.04
Time:
Certificates of Deposit 469,763 6.00 293,519 4.29 287,579 4.31 321,708 5.33 380,102 7.21
Individual Retirement Accounts 106,370 6.00 103,671 5.45 106,136 5.60 106,229 6.46 105,637 7.62
____________________________________________________________________________________________________________________________________
Total Average Balance/Rate $1,504,680 3.73% $1,319,612 3.18% $1,240,006 3.38% $1,195,957 4.30% $1,167,860 5.77%
========== ========== ========== ========== ==========
Total Year-End Balance $1,569,339 $1,448,577 $1,282,921 $1,215,766 $1,171,539
========== ========== ========== ========== ==========
</TABLE>
The table below presents information at December 31, 1995, with respect to the
maturity of Certificates of Deposit of $100,000 or more.
<TABLE>
<CAPTION>
Maturities
_________________________________________________________________________________________________
Over Three Over Six
Three Months Months to Months to Over 12
(dollars in thousands) or Less Six Months 12 Months Months Total
=================================================================================================
<S> <C> <C> <C> <C> <C>
Balance $11,902 $7,631 $5,305 $15,244 $40,082
Percent of Total 29.7% 19.0% 13.3% 38.0% 100.0%
</TABLE>
<PAGE> 15
DEPOSITS (in billions)
[The following table is representative of the graph shown on the top of page 15
of the Annual Report.]
<TABLE>
<CAPTION>
<S> <C>
1991 $1.17
1992 $1.22
1993 $1.28
1994 $1.45
1995 $1.57
</TABLE>
A major portion of Provident's funding comes from core deposits which consist of
consumer and commercial transaction accounts and consumer savings and time
deposits. These deposits are generated through the Bank's 44 branch banking
locations. At December 31, 1995, core deposits represented 85% of total deposits
and 56% of total liabilities. Provident's future funding growth is expected to
be generated from deposit growth through strategies outlined below.
The branch network strategy includes traditional full service branch
locations supplemented with supermarket branches. Provident Bank of Maryland as
of December 31, 1995, had 34 traditional branch locations and 10 supermarket
branches. The Corporation has an agreement with Super Rite Corporation to
operate branches in their Metro and Basic supermarkets in the Baltimore
Metropolitan area. As of December 31, 1995, Provident operated 10 supermarket
branches with 6 more planned for 1996. Provident will selectively look for
additional branch opportunities complementary to existing locations when the
cost of entry is reasonable. Provident continues to attract increased commercial
and retail deposits. Average retail demand deposit balances were up $29.2
million or 20% compared to 1994. During 1995, the Bank opened three Fast'N
Friendly Check Cashing centers with the purpose of offering alternative banking
services. The Corporation has four new centers planned for 1996.
The table on page 14 presents the average deposit balances and rates paid
for the five years ended December 31, 1995. As this table indicates, Provident
has a stable base of consumer savings deposits. During 1995, average deposits
grew $185 million or 14% compared to 1994. Demand deposits increased $30.2
million or 14.6%. This growth reflects Provident's emphasis on full banking
relationships with its retail and commercial customers. Average time deposits
increased $178.9 million or 45%, $130.3 million dollars of which is attributable
to brokered deposits. Brokered deposits are utilized as a cheaper source of
funds compared to other available sources of borrowed money. Savings and money
market deposits declined $24.1 million as customers shifted their funds to
higher priced products such as time deposits.
CREDIT RISK MANAGEMENT
Much of the fundamental business of Provident is based upon understanding,
measuring and controlling credit risk. Credit risk entails both general risk,
which is inherent in the process of lending, and risk specific to individual
borrowers. Each consumer and residential lending product has a generally
predictable level of credit loss. For example, loans with generally low credit
loss experience include home mortgage and home equity loans. Loans with medium
credit loss experience are primarily secured products such as auto and marine
loans. The category with high credit loss experience includes unsecured products
such as personal revolving credit. In commercial lending, losses as a percentage
of outstanding loans can vary widely from period to period and are particularly
sensitive to changing economic conditions. The evaluation of specific risk is a
basic function of underwriting and loan administration, involving analysis of
the borrower's ability to service debt as well as the value of pledged
collateral.
Policies and procedures have been developed which specify the appropriate
credit approval and monitoring for the various types of credit offered. The Bank
employs prudent lending practices and adheres to regulatory requirements
including loan to value ratios and legal lending limits. These procedures are
modified periodically in order to reflect changing conditions and new products.
The Bank's lending and loan administration staffs are charged with reviewing the
loan portfolio and identifying changes in the economy or in a borrower's
circumstances which may affect the ability to repay debt or the value of pledged
collateral. In order to assess and monitor the degree of risk in the loan
portfolio, credit risk identification and review processes are utilized. Credit
risk analysis assigns a grade to each commercial loan based upon an assessment
of the borrower's financial capacity to service the debt and the presence and
value of collateral for the loan. An independent loan review function tests risk
assessment and determines the adequacy of the allowance for loan losses.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 114/118 -- "Accounting by Creditors for
Impairment of a Loan" which became effective for the Corporation in 1995. This
statement requires creditors to evaluate the collectibility of contractually due
principal and interest on commercial credits to assess the need for providing
for losses. The Corporation's credit procedures require monitoring of commercial
credits to determine the collectibility of such credits. If a loan is identified
as impaired, it will be placed on non-accrual status and recorded according to
the provisions of the SFAS No. 114/118. As of December 31, 1995, the Corporation
had $140 thousand in commercial loans which were in non-accrual status and
therefore considered to be impaired.
<PAGE> 16
LOANS
The following table sets forth information concerning the Bank's loan portfolio
by type of loan at December 31.
<TABLE>
<CAPTION>
(dollars in thousands) 1995 % 1994 % 1993 % 1992 % 1991 %
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer $ 778,467 58.4% $ 484,360 38.1% $ 471,846 41.2% $340,846 48.0% $202,900 33.1%
Commercial Business 205,876 15.5 178,668 14.0 133,773 11.7 139,181 19.6 138,405 22.6
Real Estate -- Construction:
Residential 65,868 4.9 49,464 3.9 42,001 3.7 26,903 3.8 38,553 6.3
Commercial 12,028 .9 7,792 .6 17,318 1.5 44,085 6.2 54,033 8.8
Real Estate -- Mortgage:
Residential 123,037 9.2 417,501 32.8 357,888 31.2 63,854 8.9 88,056 14.3
Commercial 147,512 11.1 134,517 10.6 122,388 10.7 95,687 13.5 91,487 14.9
____________________________________________________________________________________________________________________________________
Total Loans $1,332,788 100.0% $1,272,302 100.0% $1,145,214 100.0% $710,556 100.0% $613,434 100.0%
====================================================================================================================================
</TABLE>
LOANS (in billions)
[The following table is representative of the graph shown on the middle of
page 16 of the Annual Report.]
<TABLE>
<CAPTION>
<S> <C>
1991 $ .61
1992 $ .71
1993 $1.15
1994 $1.27
1995 $1.33
</TABLE>
Provident offers a diversified mix of residential and commercial real estate,
business and consumer loans. As shown in the table above, the mix of loans
outstanding has shifted to more consumer orientation over the past five years.
Growth in 1995 was experienced in all categories except residential mortgage
where $281 million were securitized.
Provident's residential mortgage lending includes the origination, sale and
servicing of fixed and variable rate mortgage loans. Loans are originated
through the loan production offices of Provident Mortgage Corp. The first half
of 1995 experienced a continued slow down in mortgage origination activity with
improved activity during the second half of the year as rates decreased.
Originations totaled $417 million in 1995 compared to $505 million in 1994. In
1996, originations are projected to exceed 1995's production as the mortgage
environment is expected to be better than 1995. The residential real estate
mortgage loan balance at December 31, 1995 was $123 million compared to $417.5
million at the end of the prior year. This decline was the result of
securitizing $281 million and transferring these assets to the investment
portfolio. The securitization improved liquidity and the risk profile. (See page
22.)
The servicing of residential mortgage loans may be retained or sold. During
1995, $301 million of servicing was sold contributing $2.5 million to the total
mortgage banking revenues. The mortgage servicing portfolio ended the year at $1
billion. The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 122 -- "Accounting for Mortgage Servicing Rights" --
which becomes effective for the Corporation in 1996. This statement requires
mortgage banking enterprises that acquire mortgage servicing rights through
either the purchase or origination of mortgage loans, and sells or securitizes
those loans with servicing retained, to allocate the cost of the mortgage loans
to the mortgage servicing rights and the loans. This statement is not expected
to have any material affect on the results of the Corporation as it is the
intent of the Corporation to sell all mortgage loans and servicing rights
shortly after originating each loan.
Provident offers a wide range of loans to consumers including installment
loans, home equity loans, and personal lines of credit. In addition, the Bank
may purchase portfolios of quality consumer loans from other financial
institutions. All purchased portfolios go through a thorough due diligence
process prior to a purchase commitment. Provident's portfolio of acquired loans
increased $29 million on average, ending the year at $283.2 million, and is
predominately comprised of second mortgages.
<PAGE> 17
Consumer credit originated by Provident ended the year with a balance of
$495.3 million, an increase of 68%. The majority of the increase is the result
of a new line of business started during the first quarter of 1995. The Bank
makes automobile loans through a network of auto dealerships in Maryland,
Delaware, Pennsylvania and Virginia. The Bank originated $169 million of auto
loans during 1995 through this network. It is the Bank's intention to begin
securitizing and selling these loans during 1996 to limit the concentration of
this product as well as fund continued demand. Marine loan balances grew $20
million during 1995 totaling $134.7 million at year-end, and were produced
primarily through correspondent brokers. Home equity lines of credit increased
$11 million during the year and totaled $136.4 million at the end of 1995. The
growth in home equity loans is attributable to a competitive line of products
that has been well received in the market.
Provident's focus in commercial real estate lending has been on financing
commercial and residential construction, as well as on intermediate-term
commercial mortgages. Properties securing the loans include office buildings,
shopping centers, apartment complexes, warehouses, residential building lots and
developments. Commercial real estate mortgage loans increased $13 million or
9.7% and commercial construction loans increased $4.2 million or 54%.
Residential construction loans increased $16.4 million or 33% to end the year at
$65.9 million.
Provident's commercial loan portfolio consists of general business loans,
including asset-based loans, primarily to small and medium sized businesses in
the central Maryland region. The Bank stresses the importance of asset quality
as well as the development of new marketing programs. Outstandings for the
commercial loan portfolio were $205.9 million, an increase of $27.2 million from
December 31, 1994. Provident has minimal exposure to highly leveraged
transactions. HLTs totaled $18.8 million as of year-end, and all are performing
in accordance with their contractual terms.
NON-PERFORMING AND PAST DUE LOANS
(as a percentage of period end loans)
[The following table is representative of the graph shown at the top of page 17
of the Annual Report.]
<TABLE>
<CAPTION>
<S> <C> <C>
1991 5.05% 3.17%
1992 2.01% 2.82%
1993 .61% 1.79%
1994 .57% 1.64%
1995 1.06% 1.61%
Past Due and Non-Performing Loans Allowance for Loan Losses
</TABLE>
Non-performing assets include loans on which interest is no longer accrued,
loans that are 90 days or more past due as of December 31 and still accruing
interest because they are well secured and in the process of collection, and
real estate and other assets that have been acquired through foreclosure or
repossession. Information with respect to non-performing assets and past due
loans is presented on page 18 for the years indicated. As shown in the table,
total non-performing assets and past due loans increased $7.0 million ending the
year at $14.8 million, compared to $7.8 million at December 31, 1994, mainly in
the consumer and residential loan portfolios. Non-performing consumer loans
increased $3.6 million as a result of a $294 million or 61% growth in the
consumer loan portfolio. (See the discussion under LOANS.) Of the $8.5 million
in non-performing residential mortgage loans, 73% or $6.2 million are guaranteed
or insured by an agency of United States government and no significant loss is
anticipated. Non-performing commercial business loans decreased $1 million to
$60 thousand despite $27.2 million in loan growth.
The ratio of total non-performing and past due loans to year-end loans grew
to 1.06% from .57% at the end of 1994. Part of the increase is attributable to
the securitization of $281 million of mortgage loans, thereby reducing the
amount of outstanding loans.
Presented below is interest income that would have been recorded on all
non-accrual loans if such loans had been paid in accordance with their original
terms and the interest income on such loans that was actually collected for the
year.
<TABLE>
<CAPTION>
Year Ended
(in thousands) December 31, 1995
______________________________________________________________________
<S> <C>
Gross interest income that would have been
recorded had such loans been paid in
accordance with original terms $680
Interest income actually recorded 378
</TABLE>
<PAGE> 18
NON-PERFORMING ASSETS AND PAST DUE LOANS
<TABLE>
<CAPTION>
December 31,
_______________________________________________________________________________________________________
(dollars in thousands) 1995 1994 1993 1992 1991
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans:
Consumer $ 4,868 $1,528 $1,284 $ 1,513 $ 2,274
Commercial Business 60 1,096 137 2,887 6,106
Real Estate -- Construction:
Residential -- -- -- -- 2,904
Commercial 80 -- -- 5,817 13,499
Real Estate -- Mortgage:
Residential 3,470 3,883 2,911 674 1,197
Commercial -- -- -- 2,318 2,125
________________________________________________________________________________________________________
Total Non-Accrual Loans 8,478 6,507 4,332 13,209 28,105
________________________________________________________________________________________________________
Renegotiated Commercial Mortgage -- -- 2,198 -- --
________________________________________________________________________________________________________
Past Due Loans:
Consumer 559 270 121 864 1,663
Commercial Business -- -- -- -- 716
Real Estate -- Construction:
Residential -- -- -- -- --
Commercial -- -- -- -- 350
Real Estate -- Mortgage:
Residential 5,072 424 368 214 114
Commercial -- -- -- -- --
________________________________________________________________________________________________________
Total Past Due Loans 5,631 694 489 1,078 2,843
________________________________________________________________________________________________________
Total Non-Performing and Past Due Loans $14,109 $7,201 $7,019 $14,287 $30,948
========================================================================================================
Other Non-Performing Assets:
Consumer $ -- $ -- $ -- $ 33 $ 47
Commercial Business -- -- -- 400 348
Real Estate -- Construction:
Residential 526 -- 542 337 --
Commercial 150 459 -- 340 --
Real Estate -- Mortgage:
Residential 3 116 66 -- 181
Commercial -- -- -- 300 2,700
________________________________________________________________________________________________________
Total Other Non-Performing Assets $ 679 $ 575 $ 608 $ 1,410 $ 3,276
========================================================================================================
Total Non-Performing Assets and Past Due Loans $14,788 $7,776 $7,627 $15,697 $34,224
========================================================================================================
Ratios:
Total Non-Performing and Past Due
Loans to Year-End Loans 1.06% .57% .61% 2.01% 5.05%
Total Non-Performing Assets and
Past Due Loans to Year-End Assets .58 .34 .41 .96 2.21
_________________________________________________________________________________________________________
</TABLE>
<PAGE> 19
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(dollars in thousands) 1995 1994 1993 1992 1991
================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year $ 20,893 $ 20,451 $ 20,049 $ 19,449 $ 13,800
Provision for Loan Losses 1,545 500 1,516 9,150 20,340
Loans Charged-Off:
Consumer 1,562 1,410 2,981 4,713 6,096
Commercial Business 312 17 293 4,204 4,070
Real Estate -- Construction:
Residential 33 -- -- 700 --
Commercial -- -- -- 959 6,243
Real Estate -- Mortgage:
Residential 73 53 15 5 --
Commercial -- 565 1,000 321 762
________________________________________________________________________________________________________________
Total Charge-Offs 1,980 2,045 4,289 10,902 17,171
________________________________________________________________________________________________________________
Recoveries:
Consumer 917 1,225 1,556 1,536 1,956
Commercial Business 72 376 1,214 670 298
Real Estate -- Construction:
Residential -- -- 96 16 226
Commercial -- 385 277 125 --
Real Estate -- Mortgage:
Residential 13 1 -- 5 --
Commercial 2 -- 32 -- --
_________________________________________________________________________________________________________________
Total Recoveries 1,004 1,987 3,175 2,352 2,480
_________________________________________________________________________________________________________________
Net Loans Charged-Off 976 58 1,114 8,550 14,691
_________________________________________________________________________________________________________________
Balance at End of Year $ 21,462 $ 20,893 $ 20,451 $ 20,049 $ 19,449
=================================================================================================================
Balances:
Loans -- Year-End $1,332,788 $1,272,302 $1,145,214 $710,556 $613,434
Loans -- Average 1,383,541 1,207,529 861,589 645,781 699,919
Ratios:
Net Loans Charged-Off to
Average Loans .07% --% .13% 1.32% 2.10%
_________________________________________________________________________________________________________________
</TABLE>
Provident maintains an allowance for loan losses which is available to absorb
potential losses. The allowance is reduced by actual credit losses and is
increased by the provision for loan losses and recoveries of previous losses.
Determination of the adequacy of the allowance, which is performed quarterly, is
accomplished by assigning specific reserves to individually identified problem
credits and general reserves, based on historic and anticipated loss experience,
to all other loans.
The continued emphasis on loan quality and close monitoring of potential
problem credits has resulted in a strong credit portfolio. As a result, the loan
loss provision and net charge-offs remained at very acceptable levels throughout
1995.
Senior managers meet at least monthly to review the credit quality of the
loan portfolios and at least quarterly with Executive Management to review the
adequacy of the allowance for loan losses. The allowance is determined by
management's evaluation of the composition and risk characteristics of the loan
portfolio. Based upon the evaluation of credit risk, provisions, in the form of
charges to operations, are made to bring the allowance up to a level management
believes is adequate.
An analysis of the loan portfolio was performed at December 31, 1995, and
expected losses have been provided for in the allowance for loan losses. During
1995 the loan loss allowance increased $569 thousand to $21.5 million at
year-end. The allowance as a percentage of total loans decreased from 1.64% to
1.61%, primarily from the growth in loans during the year. The allowance for
loan losses as a percentage of non-accrual and past due loans was 152% at
December 31, 1995, compared to 290% the prior year. This decrease is
attributable to the increase in non-performing and past due loans as discussed
on page 17. The portion of the allowance which is allocated to non-performing
loans is determined by estimating the potential loss on each credit after giving
consideration to the value of underlying collateral.
<PAGE> 20
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31,
___________________________________________________________________________________________________________
(dollars in thousands) 1995 1994 1993 1992 1991
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Consumer $ 1,860 $ 602 $ 1,600 $ 4,119 $ 3,697
Commercial Business 1,913 2,199 2,321 1,716 4,254
Real Estate -- Construction:
Residential 984 790 630 364 764
Commercial 199 1,077 1,204 1,697 2,571
Real Estate -- Mortgage:
Residential 519 492 557 64 150
Commercial 1,420 1,433 1,286 1,007 1,087
Unallocated 14,567 14,300 12,853 11,082 6,926
___________________________________________________________________________________________________________
Total Allowance for Loan Losses $21,462 $20,893 $20,451 $20,049 $19,449
===========================================================================================================
Allowance for Loan Losses to Year-End Loans 1.61% 1.64% 1.79% 2.82% 3.17%
___________________________________________________________________________________________________________
</TABLE>
Provident maintains a loan classification and review system to identify
those loans with a higher than normal risk of uncollectibility. Estimated
potential losses from internally criticized loans have been provided for in
determining the allowance for loan losses.
The table above reflects the allocation of the allowance for loan losses to
the various loan categories as required by the Securities and Exchange
Commission. The entire allowance for loan losses is available to absorb losses
from any type of loan.
INVESTMENT SECURITIES PORTFOLIO
The following table sets forth information concerning the Bank's investment
securities portfolio at December 31.
<TABLE>
<CAPTION>
(dollars in thousands) 1995 % 1994 % 1993 % 1992 % 1991 %
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Held to Maturity
U.S. Treasury and Government
Agencies and Corporations $ 13,397 1.2% $ 10,613 1.2% $ 8,679 1.8% $ 46,971 6.1% $ 59,655 7.8%
Corporate Notes -- -- -- -- -- -- 56,929 7.5 149,090 19.6
Mortgage-Backed Securities 18,023 1.8 423,992 49.3 20,279 4.3 558,862 73.1 554,227 72.6
Municipal Securities -- -- 7,186 .8 -- -- -- -- -- --
____________________________________________________________________________________________________________________________________
Total Securities Held to Maturity 31,420 3.0 441,791 51.3 28,958 6.1 662,762 86.7 762,972 100.0
____________________________________________________________________________________________________________________________________
Securities Available for Sale
U.S. Treasury and Government
Agencies and Corporations 27,275 2.6 33,156 3.8 39,783 8.5 4,999 .6 -- --
Corporate Notes -- -- -- -- 54,907 11.7 67,243 8.8 -- --
Mortgage-Backed Securities 902,368 86.0 285,796 33.2 345,677 73.7 29,750 3.9 -- --
Municipal Securities 11,981 1.1 -- -- -- -- -- -- -- --
Other Debt Securities 76,073 7.3 100,531 11.7 -- -- -- -- -- --
____________________________________________________________________________________________________________________________________
Total Securities Available
for sale 1,017,697 97.0 419,483 48.7 440,367 93.9 101,992 13.3 -- --
____________________________________________________________________________________________________________________________________
Total Investment
Securities Portfolio $1,049,117 100.0% $861,274 100.0% $469,325 100.0% $764,754 100.0% $762,972 100.0%
====================================================================================================================================
Total Portfolio Yield 7.0% 6.8% 6.7% 6.9% 7.9%
____________________________________________________________________________________________________________________________________
</TABLE>
<PAGE> 21
Provident's investment activities include management of the $1.05 billion
investment securities portfolio. The investment securities portfolio includes
mortgage-backed securities, U.S. Government securities, municipals and other
debt securities. In addition to investment securities, the Corporation invests
in federal funds sold, reverse repos, mortgage loans held for sale and other
short-term investments (referred to in total as the investment portfolio). The
strategies employed in the management of these portfolios depend upon the
liquidity, interest sensitivity and capital objectives and requirements of the
Corporation. The Treasury Division executes these strategies.
During 1995, Provident continued to enjoy a strong capital position, a high
degree of liquidity, and a substantial level of core deposits. Management's
principal objectives for the investment portfolio during 1995 were to maintain
an appropriate level of quality, to insure sufficient liquidity in various
interest rate environments while maximizing yield and to increase net income by
utilizing excess capital. To successfully achieve these objectives, the
Corporation employs off balance sheet and on balance sheet strategies. Total
investment securities increased $188 million during 1995 as a result of
securitizing $281 million of first mortgage loans while leveraging additional
capital raised through the Corporation's dividend reinvestment plan. This
increase was offset by funding needs for loan growth.
The Corporation applies the provisions of Statement of Financial Accounting
Standards No. 115 which requires investment securities to be segregated into
three categories: 1) held to maturity, 2) trading, and 3) available for sale.
Based on the provisions of the standard, all securities in the available for
sale category must be measured at fair market value. The resulting gain or loss
is excluded from revenue but is shown as a change in shareholders' equity.
Trading securities must be measured at fair value and changes included in income
for the period. Securities designated as held to maturity are carried at
amortized cost. During 1995, the Financial Accounting Standards Board issued a
special report on SFAS No. 115, which provided an opportunity to reclassify
securities among trading account securities, securities available for sale and
securities held to maturity. The permitted reclassification resulting from this
one-time assessment does not call into question the intent of the Corporation's
future investment classifications. On December 31, 1995, the Corporation
transferred $400 million of securities from Held to Maturity to Securities
Available for Sale. This transfer was the result of management's intention to
maximize its flexibility to take advantage of future business opportunities.
These securities were transferred at fair value and the respective holding
gains/losses were recognized as a separate component of stockholder's equity. As
of December 31, 1995, $1.02 billion of the Corporation's $1.05 billion
investment securities portfolio was classified as available for sale. At
December 31, 1995, the available for sale portfolio included net unrealized
gains of approximately $11.1 million, compared to net unrealized losses of $5.1
million at December 31, 1994.
In addition to unrealized gains and losses, Provident realized $836
thousand in gains and $3.5 million in losses from the sale of securities from
the available for sale portfolio in 1995. These sales were the result of
management's continuous monitoring of the investment securities portfolio in
terms of both credit quality and interest sensitivity.
As of December 31, 1995, the Corporation had no investments classified as
trading securities.
<PAGE> 22
LIQUIDITY AND SENSITIVITY TO INTEREST RATES
___________________________________________
MATURITIES OF INVESTMENT SECURITIES PORTFOLIO
The following table presents the maturities of the Bank's investment securities
portfolio at December 31, 1995.
<TABLE>
<CAPTION>
Unrealized
In One Year After One Year After Five Years Over Gain
or Less Through Five Years Through Ten Years Ten Years (Loss)
____________________________________________________________________________________________________________________________________
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Total Yield
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
U.S. Treasury and Government
Agencies and Corporations $ -- --% $ -- --% $ -- --% $ 13,397 7.3% $ -- $ 13,397 7.3%
Corporate Notes -- -- -- -- -- -- -- -- -- -- --
Mortgage-Backed Securities -- -- 10,082 6.0 7,941 6.5 -- -- -- 18,023 6.2
Municipal Securities -- -- -- -- -- -- -- -- -- -- --
____________________________________________________________________________________________________________________________________
Total Securities Held to Maturity -- -- 10,082 6.0 7,941 6.5 13,397 7.3 -- 31,420 6.7
____________________________________________________________________________________________________________________________________
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and Government
Agencies and Corporations -- -- 27,211 8.5 -- -- -- -- 64 27,275 8.5
Municipal Securities -- -- 452 8.9 6,902 8.4 4,198 8.5 429 11,981 8.4
Mortgage-Backed Securities 177,628 6.9 435,590 6.9 194,639 6.9 83,891 6.9 10,620 902,368 6.9
Other Debt Securities -- -- 11,658 8.1 17,750 8.0 46,722 7.6 (57) 76,073 7.8
____________________________________________________________________________________________________________________________________
Total Securities Available
for Sale 177,628 6.9 474,911 8.4 219,291 7.7 134,811 6.9 11,056 1,017,697 7.0
____________________________________________________________________________________________________________________________________
Total Investment
Securities Portfolio $177,628 6.9% $484,993 7.9% $227,232 7.1% $148,208 6.9% $11,056 $1,049,117 7.0%
====================================================================================================================================
</TABLE>
LIQUIDITY
An important component of the Bank's asset/liability structure is the level of
liquidity available to meet the needs of customers and creditors. Traditional
sources of bank liquidity include deposit growth, loan repayments, maturities of
investment securities and money market investments, asset sales, borrowings and
interest received.
Provident's Asset/Liability Management Committee has established general
guidelines for the maintenance of prudent levels of liquidity. The Committee
continually monitors the amount and source of available liquidity, the time
required to obtain it and its cost. Management believes the Bank has sufficient
liquidity to meet funding needs in the foreseeable future.
The primary sources of liquidity at December 31, 1995, were loans held for
sale, securities available for sale and held to maturity securities maturing
within one year, which totaled $1.10 billion. This represents 46% of total
liabilities compared to 24% at December 31, 1994. Maturities of investment
securities, as the table above indicates, is expected to generate $178 million
in funds in 1996 and $663 million, or 63%, of the portfolio within the next five
years. Another source of liquidity is scheduled loan repayments within one year,
which totaled $465 million or 35% of loans as the table on page 23 indicates.
Core deposits are valuable in assessing liquidity needs because they tend
to be stable with little net short or intermediate-term withdrawal demands by
customers. At year-end, core deposits represented $1.3 billion, or 56%, of total
liabilities.
An important element in liquidity management is the availability of
borrowed funds. At December 31, 1995, short-term borrowings totaled $518
million, or 22%, of liabilities in contrast to $479 million, or 22%, of
liabilities at December 31, 1994. This increase was used to fund growth in
earning assets. The average maturity of short-term borrowings at the end of the
current year was 2 months. These borrowings are fully collateralized by US
government or mortgage-backed securities owned by the Bank. Long-term borrowings
consisted of variable and fixed-rate advances from the Federal Home Loan Bank
and totaled $268 million as of December 31, 1995. It is anticipated that
Provident will continue to have access to the repurchase market and fed fund
lines as well as short and long-term variable and fixed-rate funds from the
Federal Home Loan Bank.
<PAGE> 23
LOAN MATURITIES AND RATE SENSITIVITY
The following table presents loan maturities and sensitivity at December 31,
1995.
<TABLE>
<CAPTION>
After One Year
In One Year Through After Five
(dollars in thousands) or Less Five Years Years Total Percent
========================================================================================================
<S> <C> <C> <C> <C> <C>
Consumer $289,820 $282,902 $205,745 $ 778,467 58.4%
Commercial Business 38,335 143,732 23,809 205,876 15.5
Real Estate -- Construction:
Residential 49,685 16,183 -- 65,868 4.9
Commercial 3,882 4,342 3,804 12,028 .9
Real Estate -- Mortgage:
Residential 55,795 6,430 60,812 123,037 9.2
Commercial 27,249 70,087 50,176 147,512 11.1
________________________________________________________________________________________________________
Total Loans $464,766 $523,676 $344,346 $1,332,788 100.0%
========================================================================================================
Rate Sensitivity:
Fixed Rate $100,009 $344,737 $291,177 $ 735,923 55.2%
Variable or Adjustable Rate 364,757 178,939 53,169 596,865 44.8
________________________________________________________________________________________________________
Total Loans $464,766 $523,676 $344,346 $1,332,788 100.0%
========================================================================================================
</TABLE>
INTEREST SENSITIVITY MANAGEMENT
The nature of the banking business, which involves paying interest on deposits
at varying rates and terms and charging interest on loans at other rates and
terms, creates interest rate risk. As a result, earnings are subject to
fluctuations which arise due to changes in the level and directions of interest
rates. Management's objective is to minimize this risk.
Measuring and managing interest rate risk is a dynamic process which is
performed regularly as an important component of management's analysis of the
impact of changes in asset and liability portfolios. Control of Provident's
interest sensitivity position is accomplished through the structuring of the
investment and funding portfolios, securitizing loans for possible sale, the use
of variable rate loan products and off-balance sheet derivatives.
Management does not try to anticipate changes in interest rates. Its
principal objective is to maintain interest margins in periods of both rising
and falling rates. Traditional interest sensitivity gap analyses alone do not
adequately measure an institution's exposure to changes in interest rates
because gap models are not sensitive to changes in the relationship between
interest rates charged or paid and do not incorporate balance sheet trends and
management actions. Each of these factors can affect an institution's earnings.
Accordingly, in addition to performing gap analysis, management also evaluates
the impact of differing interest rates on net interest income using an earnings
simulation model. The model incorporates the factors not captured by gap
analysis by projecting income over a twelve month horizon under a variety of
interest rate scenarios.
As of December 31, 1995, Provident's interest sensitive liabilities
exceeded interest sensitive assets within a one year period by $370 million or
14% of assets. The Bank's savings products are structured to give management the
ability to reset the rates paid on a monthly basis. This causes the Bank to
become more liability sensitive. If interest rates rise, the rate paid on
savings deposits may follow, and the Corporation's net interest margin may
decline. Management continues to take steps to protect the Bank from possible
increases in interest rates. In 1995 these steps included lengthening the
maturities on purchased funds and certificates of deposits and shortening asset
maturities with straight forward interest rate swaps and caps. Management
monitors the interest rate environment and employs appropriate off balance
strategies to address potential changes in interest rates. These strategies
lower the net interest margin but are designed to maintain an acceptable margin
in a rising rate environment. During 1995, off-balance sheet strategies had the
effect of lowering interest income by $1.9 million and decreasing interest
expense by $2.8 million. The current forward yield curve indicates that
short-term rates will decrease by 75 basis points and long term rates are
expected to decline 15 basis points over the next twelve months. The
Corporation's analysis indicates that if management does not adjust its December
31, 1995 off-balance sheet positions and the current forward yield curve
assumptions become reality, off-balance sheet positions will decrease net
interest income by $1.6 million for the year 1996.
<PAGE> 24
STOCKHOLDERS' EQUITY
It is necessary for banks to maintain a sufficient level of capital in order to
sustain growth, absorb unforeseen losses and meet regulatory requirements. In
addition, the current economic and regulatory climate places an increased
emphasis on capital strength. In this environment, Provident continues to
maintain a strong capital position. At December 31, 1995, total stockholders'
equity was $184 million, a $34 million increase over the prior year. In addition
to the ordinary adjustments to stockholders' equity of net income and dividends
paid, additional capital was raised through the dividend reinvestment plan of
$3.3 million and capital increased by $15.3 million during 1995 as a result of
appreciation in securities classified as available for sale. During the second
quarter of 1995, the Corporation issued a 5% stock dividend and all earnings per
share figures have been adjusted for this dividend.
Provident exceeds all regulatory capital requirements as of December 31,
1995. The standards used by federal bank regulators to evaluate capital adequacy
are the risk-based capital and leverage ratio guidelines. Equity for regulatory
purposes does not include market value adjustments for available for sale
securities. Risk-based capital ratios measure core and total stockholders'
equity against risk-weighted assets. Provident's core capital is equal to its
common stock, capital surplus and retained earnings less treasury stock. The
calculation of Provident's total stockholders' equity, for these purposes, is
equal to the above plus the allowance for loan losses subject to certain
limitations. Risk-weighted assets are determined by applying a weighting to
asset categories and certain off-balance sheet commitments based on the level of
credit risk inherent in the assets. At December 31, 1995, Provident's total
capital ratio was 10.57% compared to the minimum regulatory guideline of 8%. In
addition, core common stockholders' equity (Tier 1 Capital) must be at least 4%
of risk-weighted assets. At year-end, Provident's Tier 1 Capital ratio was
9.43%. This ratio declined from 1994 as a result of significant favorable loan
growth.
The leverage ratio represents core capital, as defined above, divided by
average total assets. Guidelines for the leverage ratio require the ratio of
core stockholders' equity to average total assets to be 100 to 200 basis points
above a 3% minimum, depending on risk profiles and other factors. Provident's
leverage ratio of 7.08% at December 31, 1995, was well in excess of this
requirement.
CAPITAL COMPONENTS AND RATIOS
<TABLE>
<CAPTION>
December 31,
________________________________________________________________
(dollars in thousands) 1995 1994
================================================================
<S> <C> <C>
QUALIFYING CAPITAL
Tier I Capital $ 177,499 $ 158,683
Total Capital 198,961 177,804
Risk-Adjusted Ratio Assets 1,882,559 1,527,865
Leverage Ratio Assets 2,505,608 2,131,203
RATIOS
Leverage Capital 7.08% 7.45%
Tier I Capital 9.43 10.39
Total Capital 10.57 11.64
</TABLE>
<PAGE> 25
FINANCIAL REVIEW 1994/1993
__________________________
For the year ended December 31, 1994, Provident recorded net income of $12.5
million or $1.72 per share on a fully diluted basis, compared to $8.1 million or
$1.17 per share reported in 1993. The per share amounts have been adjusted for a
5% stock dividend issued in 1995. This improvement in earnings was attributable
to an $8.2 million rise in tax equivalent net interest income and a reduction of
$1.0 million in the provision for loan losses. In addition, non-interest income,
net of securities gains and the 1993 sale of the credit card portfolio,
increased 35% or $6.9 million. These increases more than offset a $3.5 million
increase in operating expense.
Net interest income on a tax-equivalent basis for 1994 increased $8.2
million or 13% from 1993, the result of a 7 basis point increase in net interest
margin and a $177 million increase in average interest earning assets. The
increase in net interest margin was primarily a function of deposit rate
increases lagging behind the changes in prime rate as well as an $11.9 million
increase in non-interest-bearing liabilities.
The provision for loan losses was $500 thousand in 1994 compared with $1.5
million in 1993. This decrease was the result of continued emphasis on quality
underwriting and aggressive management of prior charge-offs and potential
problem loans during the year.
Non-interest income increased $158 thousand to $27.3 million in 1994.
Excluding net securities gains and the 1993 sale of the credit card portfolio,
non-interest income increased $6.9 million or 35%. Deposit service charges rose
43% over the prior year due to a 62% or $2.3 million increase in retail demand
deposit service fees. Income from mortgage banking activities rose $4.0 million
or 40% due mainly to a $6.5 million increase from the sales of mortgage
servicing rights offset in part by a decline of $1.5 million in origination fee
income. Income from sales of annuities and mutual funds through an affiliation
with a securities broker-dealer increased $1.2 million to $2.0 million for 1994.
Trading account profits decreased $416 thousand as there was no trading activity
during 1994.
Provident's non-interest expense rose 4.7% in 1994 over 1993. The 1993
operating expenses included $2 million in costs for the employee stock ownership
plan (ESOP), most of which was related to the early payoff of the ESOP
indebtedness. Net of the charges, 1994 operating expenses increased $5.6 million
or 7.5%. Salaries and benefits net of the ESOP charges rose $2.2 million or 5.4%
during the year. Compensation and payroll taxes account for $1.6 million of the
increase and pension expense rose $542 thousand. Occupancy costs grew $310
thousand or 4.5% over 1993. The decision to close one branch accounted for $681
thousand of the expenses in 1993. Net of this charge, occupancy expenses
increased $991 thousand or 15.8% caused mainly by the opening of additional
mortgage and supermarket branches. Advertising costs increased $355 thousand or
8.1% largely due to promotion of new as well as existing consumer loan products.
Provident recorded an income tax expense of $7.1 million in 1994 based on
pre-tax income of $19.7 million, which represented an effective tax rate of
36.3%. This compares with a 36.2% effective tax rate for 1993.
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENT OF INCOME
Provident Bankshares Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31,
________________________________________________________________________________________________________________
(in thousands, except per share data) 1995 1994 1993
================================================================================================================
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $118,745 $ 98,464 $ 73,576
Interest on Investment Securities 59,188 34,888 43,523
Tax-Advantaged Interest 1,613 835 740
Interest on Short-Term Investments 260 35 10
________________________________________________________________________________________________________________
TOTAL INTEREST INCOME 179,806 134,222 117,849
________________________________________________________________________________________________________________
INTEREST EXPENSE
Interest on Deposits 56,079 42,029 41,882
Interest on Short-Term Borrowings 27,741 12,663 10,411
Interest on Long-Term Debt 13,046 7,335 1,464
________________________________________________________________________________________________________________
TOTAL INTEREST EXPENSE 96,866 62,027 53,757
________________________________________________________________________________________________________________
NET INTEREST INCOME 82,940 72,195 64,092
Less: Provision for Loan Losses 1,545 500 1,516
________________________________________________________________________________________________________________
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 81,395 71,695 62,576
________________________________________________________________________________________________________________
NON-INTEREST INCOME
Service Charges on Deposit Accounts 12,590 8,146 5,683
Mortgage Banking Activities 9,053 13,926 9,943
Commissions and Fees 2,101 2,922 1,446
Trading Account Profits -- -- 416
Net Securities Gains (Losses) (2,729) 571 2,951
Other Non-Interest Income 8,232 1,705 6,673
________________________________________________________________________________________________________________
TOTAL NON-INTEREST INCOME 29,247 27,270 27,112
________________________________________________________________________________________________________________
NON-INTEREST EXPENSE
Salaries and Employee Benefits 43,302 43,638 43,444
Occupancy Expense, Net 7,685 7,257 6,947
Furniture and Equipment Expense 5,334 4,574 4,053
External Processing Fees 7,553 6,349 4,823
Other Non-Interest Expense 19,241 17,468 16,484
________________________________________________________________________________________________________________
TOTAL NON-INTEREST EXPENSE 83,115 79,286 75,751
________________________________________________________________________________________________________________
INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 27,527 19,679 13,937
Income Tax Expense 9,502 7,149 5,073
________________________________________________________________________________________________________________
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 18,025 12,530 8,864
Cumulative Effect of Change in Accounting for Purchased
Mortgage Servicing Rights -- -- 733
________________________________________________________________________________________________________________
NET INCOME $ 18,025 $ 12,530 $ 8,131
================================================================================================================
PER SHARE AMOUNTS:
Income Before Cumulative Effect of Change in Accounting Principle $ 2.20 $ 1.72 $ 1.28
Cumulative Effect of Change in Accounting for Purchased
Mortgage Servicing Rights -- -- .10
________________________________________________________________________________________________________________
Net Income -- Primary $ 2.20 $ 1.72 $ 1.18
________________________________________________________________________________________________________________
Net Income -- Fully Diluted $ 2.20 $ 1.72 $ 1.17
================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 27
CONSOLIDATED STATEMENT OF CONDITION
Provident Bankshares Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31,
_______________________________________________________________________________________________________
(dollars in thousands) 1995 1994
=======================================================================================================
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 49,891 $ 43,632
Short-Term Investments 2,710 3,742
Mortgage Loans Held for Sale 86,326 45,546
Securities Available for Sale 1,017,697 419,483
Securities Held to Maturity 31,420 441,791
Loans:
Consumer 778,467 484,360
Commercial Business 205,876 178,668
Real Estate -- Construction 77,896 57,256
Real Estate -- Mortgage 270,549 552,018
_______________________________________________________________________________________________________
Total Loans 1,332,788 1,272,302
Less: Allowance for Loan Losses 21,462 20,893
_______________________________________________________________________________________________________
Net Loans 1,311,326 1,251,409
_______________________________________________________________________________________________________
Premises and Equipment, Net 33,059 29,579
Accrued Interest Receivable 16,778 14,601
Other Assets 13,754 33,979
_______________________________________________________________________________________________________
TOTAL ASSETS $2,562,961 $2,283,762
=======================================================================================================
LIABILITIES
Deposits:
Noninterest-Bearing $ 132,479 $ 105,195
Interest-Bearing 1,436,860 1,343,382
_______________________________________________________________________________________________________
TOTAL DEPOSITS 1,569,339 1,448,577
_______________________________________________________________________________________________________
Short-Term Borrowings 517,641 479,250
Long-Term Debt 267,865 187,200
Other Liabilities 23,708 18,413
_______________________________________________________________________________________________________
TOTAL LIABILITIES 2,378,553 2,133,440
_______________________________________________________________________________________________________
STOCKHOLDERS' EQUITY
Common Stock (Par Value $1.00) Authorized 30,000,000 Shares,
Issued 1995 - 8,125,403 Shares; 1994 - 7,513,907 Shares 8,125 7,514
Capital Surplus 78,951 66,220
Retained Earnings 93,031 87,577
Unrealized Gain (Loss) on Debt Securities 6,791 (8,499)
Treasury Stock at Cost (1995 and 1994 - 228,066 Shares) (2,490) (2,490)
_______________________________________________________________________________________________________
TOTAL STOCKHOLDERS' EQUITY 184,408 150,322
_______________________________________________________________________________________________________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,562,961 $2,283,762
=======================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 28
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
Provident Bankshares Corporation and Subsidiaries
<TABLE>
<CAPTION>
Guarantee of Unrealized Treasury Total
Common Capital ESOP Retained Gain (Loss) on Stock Stockholders'
(dollars in thousands, except per share data) Stock Surplus Indebtedness Earnings Debt Securities at Cost Equity
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $6,361 $43,086 $(2,218) $71,478 $ -- $(2,490) $116,217
Net Income -- 1993 -- -- -- 8,131 -- -- 8,131
Dividends Declared ($.28 per share) -- -- -- (1,798) -- -- (1,798)
Exercise of Stock Options (103,127 shares) 104 1,104 -- -- -- -- 1,208
ESOP Indebtedness Serviced in 1993 -- -- 2,218 -- -- -- 2,218
Unrealized Gain on Debt Securities -- -- -- -- 7,969 -- 7,969
____________________________________________________________________________________________________________________________________
Balance at December 31, 1993 6,465 44,190 -- 77,811 7,969 (2,490) 133,945
Net Income -- 1994 -- -- 12,530 -- -- 12,530
Dividends Declared ($.40 per share) -- -- -- (2,764) -- -- (2,764)
Private Offering of Common
Stock (650,000 shares) 650 13,410 -- -- -- -- 14,060
Exercise of Stock Options (25,018 shares) 25 377 -- -- -- -- 402
Common Stock Issued under Dividend
Reinvestment Plan (374,290 shares) 374 8,243 -- -- -- -- 8,617
Unrealized Loss on Debt Securities -- -- -- -- (16,468) -- (16,468)
____________________________________________________________________________________________________________________________________
Balance at December 31, 1994 7,514 66,220 -- 87,577 (8,499) (2,490) 150,322
NET INCOME -- 1995 -- -- -- 18,025 -- -- 18,025
DIVIDENDS DECLARED ($.58 PER SHARE) -- -- -- (4,293) -- -- (4,293)
ADJUSTMENT FOR PRIVATE OFFERING -- 114 -- -- -- -- 114
EXERCISE OF STOCK OPTIONS (114,445 SHARES) 114 1,576 -- -- -- -- 1,690
COMMON STOCK ISSUED UNDER
DIVIDEND REINVESTMENT PLAN (127,074 SHARES) 127 3,133 -- -- -- -- 3,260
UNREALIZED GAIN ON DEBT SECURITIES -- -- -- -- 15,290 -- 15,290
STOCK DIVIDEND (369,977 SHARES) 370 7,908 -- (8,278) -- -- --
____________________________________________________________________________________________________________________________________
BALANCE AT DECEMBER 31, 1995 $8,125 $78,951 $ -- $93,031 $ 6,791 $(2,490) $184,408
====================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 29
CONSOLIDATED STATEMENT OF CASH FLOWS
Provident Bankshares Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31,
______________________________________________________________________________________________________________________
(in thousands) 1995 1994 1993
======================================================================================================================
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 18,025 $ 12,530 $ 8,131
Adjustments to Reconcile Net Income to Net Cash Provided (Used)
by Operating Activities:
Depreciation and Amortization 5,410 4,418 5,063
Provision for Loan Losses 1,545 500 1,516
Provision for Deferred Income Tax (Benefit) 8,068 2,682 (685)
Realized Net Securities (Gains) Losses 2,729 (571) (2,951)
Proceeds from Trading Account Activities -- -- 95,617
Purchases of Trading Account Securities -- -- (95,201)
Trading Account Profits -- -- (416)
Gain on Sale of Credit Card Portfolio -- -- (4,389)
Mortgage Loans Originated or Acquired and Held for Sale (383,657) (411,870) (484,869)
Proceeds from Sales of Mortgage Loans 343,172 523,975 420,633
Gains on Sales of Mortgage Loans (295) (655) (2,014)
Cumulative Effect of Change in Accounting for
Purchase Mortgage Servicing Rights -- -- 733
Other Operating Activities 3,937 (17,311) 871
______________________________________________________________________________________________________________________
Total Adjustments (19,091) 101,168 (66,092)
______________________________________________________________________________________________________________________
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,066) 113,698 (57,961)
______________________________________________________________________________________________________________________
INVESTING ACTIVITIES:
Principal Collections and Maturities of Securities Available for Sale 99,713 87,067 387,455
Principal Collections and Maturities of Securities Held to Maturity 56,112 4,667 --
Proceeds on Sales of Securities Available for Sale 203,026 201,918 346,432
Purchases of Securities Held to Maturity (22,249) (157,544) (422,323)
Purchases of Securities Available for Sale (221,347) (554,525) --
Sale of Credit Card Receivables Held for Investment -- -- 22,776
Loan Originations and Purchases Less Principal Collections (341,448) (126,451) (453,643)
Purchases of Premises and Equipment (8,103) (6,306) (6,443)
______________________________________________________________________________________________________________________
NET CASH USED BY INVESTING ACTIVITIES (234,296) (551,174) (125,746)
______________________________________________________________________________________________________________________
FINANCING ACTIVITIES:
Net Increase in Deposits 120,762 165,656 67,155
Net Increase in Short-Term Borrowings 38,391 172,671 23,889
Proceeds from Long-Term Debt 95,750 83,700 103,500
Payments and Maturities of Long-Term Debt (15,085) -- --
Issuance of Common Stock 5,064 23,079 1,208
Cash Dividends on Common Stock (4,293) (2,764) (1,798)
______________________________________________________________________________________________________________________
NET CASH PROVIDED BY FINANCING ACTIVITIES 240,589 442,342 193,954
______________________________________________________________________________________________________________________
INCREASE IN CASH AND CASH EQUIVALENTS 5,227 4,866 10,247
Cash and Cash Equivalents at Beginning of Year 47,374 42,508 32,261
______________________________________________________________________________________________________________________
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 52,601 $ 47,374 $ 42,508
======================================================================================================================
SUPPLEMENTAL DISCLOSURES
______________________________________________________________________________________________________________________
Transfer of Securities Held to Maturity to Securities Available for Sale $ 385,221 $ -- $ --
Transfer of Securities Available for Sale to Securities Held to Maturity -- 268,671 --
Mortgage Loans Securitized in Investment Portfolio 281,246 -- --
Interest Paid, Net of Amount Capitalized 55,621 21,796 15,788
Income Taxes Paid (Received) (2,860) 4,285 4,930
Reduction in ESOP Note Guarantee -- -- 2,218
Stock Dividend 8,278 -- --
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Provident Bankshares Corporation and Subsidiaries
NOTE 1 -- SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The following summary of significant accounting policies of Provident Bankshares
Corporation and its subsidiaries (the "Corporation") is presented to assist the
reader in understanding the financial and other data presented in this report.
The accounting and reporting policies of the Corporation are in accordance
with generally accepted accounting principles and conform to general practice
within the banking industry. Certain prior years' amounts in the Consolidated
Financial Statements have been reclassified to conform with the presentation
used for the current year.
CONSOLIDATION POLICIES
The Consolidated Financial Statements include the accounts of Provident
Bankshares Corporation and its wholly owned subsidiary, Provident Bank of
Maryland (the "Bank") and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
INVESTMENT SECURITIES
The Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115") effective December 31, 1993. Under SFAS No. 115,
the Corporation divides the investment portfolio among three categories:
securities held to maturity, securities available for sale and trading account
securities (refer to section below, "Trading Account Securities"). Debt
securities that the Corporation has the intent and ability to hold to maturity
are included in securities held to maturity and, accordingly, are carried at
cost adjusted for amortization of premiums and accretion of discounts using the
interest method. Securities available for sale are securities the Corporation
does not have the intent and ability to hold to maturity nor does it intend to
trade actively as part of any trading account activity. Available for sale
securities are reported at fair value with any unrealized appreciation or
depreciation in value reported directly as a separate component of stockholders'
equity as unrealized gain (loss) on debt securities which is reflected net of
applicable taxes, and therefore, have had no effect on the reported earnings of
the Corporation. Prior to December 31, 1993, securities available for sale
(previously noted as Securities Held for Sale) were carried at the lower of
aggregate cost or market value. This classification did not result in any
charges to operations during its application.
Gains and losses from sales of securities available for sale are recognized
by the specific identification method.
TRADING ACCOUNT SECURITIES
Trading account securities are carried at market value. Realized and unrealized
gains and losses are included in trading account profits.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Interest on loans is accrued at the contractual rate and credited to income
based upon the principal amount outstanding. It is the policy of management to
discontinue the accrual of interest and reverse previously accrued but unpaid
interest when the quality of the credit has deteriorated to the extent that
collectibility of all interest and/or principal cannot be reasonably expected or
when it is 90 days past due unless it is well secured and in the process of
collection.
The Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 114/118 "Accounting by Creditors for Impairment of a Loan ("SFAS
No. 114/118") on January 1, 1995. Under SFAS No. 114/118, the Corporation
considers a loan impaired when, based on available information, it is probable
that the Corporation will be unable to collect principal and interest when due
in accordance with the contractual terms of the loan agreement. The measurement
of impaired loans may be based on the present value of expected future cash
flows discounted at the historical effective interest rate or based on the fair
value of the underlying collateral. Impairment criteria are applied to the loan
portfolio exclusive of smaller balance homogeneous loans such as residential
mortgage and consumer loans which are evaluated collectively for impairment. The
allowance for loan losses includes reserves for these loans. Collections of
interest and principal on loans in nonaccrual status and considered impaired are
generally applied as a reduction to the outstanding principal. Once future
collectibility has been established, interest income may be recognized on a cash
basis.
The Corporation defers and amortizes loan origination fees and related
costs over the life of the loan using the interest method. Net amortization of
fees and costs are recognized in interest income as a yield adjustment and are,
accordingly, reported as Interest and Fees on Loans in the Consolidated
Statement of Income.
<PAGE> 31
The Corporation's allowance for loan losses is based upon management's
continuing review and evaluation of the loan portfolio and is intended to
maintain an allowance adequate to absorb potential losses on loans outstanding.
The level of the allowance is based on an evaluation of the risk characteristics
of the loan portfolio and considers such factors as past and expected future
loan loss experience, the financial condition of the borrower, current economic
conditions and other relevant factors.
Adjustments to the allowance due to changes in measurement of impaired
loans are incorporated in the provision for loan losses. The adoption of SFAS
No. 114/118 has not resulted in any additional provision for loan losses for the
year ended December 31, 1995.
PREMISES AND EQUIPMENT
Premises, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives of the
assets or, for leasehold improvements, the lives of the related leases, if
shorter.
STOCKHOLDERS' EQUITY
During 1995, the Corporation declared a five percent stock dividend on the
Corporation's common stock to stockholders of record on May 1, 1995, payable on
May 12, 1995. The stock dividend resulted in the distribution of 369,977 common
shares with a par value of $1.00 per share. Accordingly, $370 thousand and $7.9
million was transferred from retained earnings to common stock and capital
surplus, respectively. Earnings and dividends per share amounts and stock option
data in the financial statements and accompanying notes have been restated to
reflect the impact of the stock dividend.
INCOME TAXES
The Corporation uses the liability method to determine deferred tax amounts and
the related income tax expense or benefit. Using this method, deferred taxes are
calculated by applying enacted statutory tax rates to temporary differences
consisting of items of income and expense that are accounted for in financial
reporting periods which differ from income tax reporting periods. The resultant
deferred tax assets and liabilities represent future taxes to be recovered or
remitted when the related assets and liabilities are recovered or settled. The
deferred tax assets are reduced by a valuation allowance for that portion of the
tax deferred assets which are unlikely to be realized.
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation uses a variety of derivative financial instruments as part of
its interest rate risk management strategy, (See Note 12). The Corporation does
not hold or issue derivative financial instruments for trading purposes. The
derivative products used are interest rate swaps and caps or floors, used
separately or in combination to suit the hedge objective and are classified as
hedges. To qualify as a hedge, 1) the asset or liability to be hedged exposes
the Corporation to interest rate risk, 2) the derivatives act to move the
Corporation to a rate insensitive position should interest rates change, and 3)
the derivative is designed and is effective as a hedge of a balance sheet item.
Interest rate swaps are agreements between two parties which agree to
exchange fixed and floating rates on a notional principal amount without the
actual exchange of principal for a specified period of time. The notional
amounts are not reflected on the Consolidated Statement of Condition because
they are merely a unit of measure to determine the effect of the swap. Income
and expense on interest rate swaps associated with designated balance sheet
items is recognized using the accrual method over the life of the agreement(s)
as an adjustment to the income or expense on the designated balance sheet item.
Premiums associated with interest rate floor/cap/corridor arrangements are
reflected in the Consolidated Statement of Condition and amortized over their
life using the straight-line method and included as an adjustment to interest
income/expense associated with the balance sheet item. Payments due to or from
counterparties under these agreements are accrued as an adjustment to interest
income or expense associated with the designated balance sheet item.
The Corporation continually monitors each derivative position to ensure the
proper relationship between the designated balance sheet item hedged and the
derivative position. Any significant divergence between this relationship which
results in interest income or expense exceeding projected parameters results in
the hedge being marked-to-market with the resultant gain or loss included in
earnings. Terminated derivative positions with the designated assets or
liabilities retained have the resulting gain or loss deferred and amortized over
the estimated remaining life of the hedge.
Interest rate swaps used to hedge available for sale debt securities have
their fair value included in stockholders' equity which is consistent with the
fair value treatment of the available for sale securities. Interest accruals
associated with the swap are included as an adjustment to interest income on the
associated securities. Derivative products terminated prior to the sale of the
related security have the respective gain or loss amortized over the life of the
swap as long as the Corporation retains the security. Upon sale of the security,
the deferred gain or loss on the derivative is reflected in income at the time
of sale.
Derivatives associated with liquidated hedged assets or liabilities are
marked-to-market and have subsequent changes in their fair value reflected in
earnings as the derivative is considered speculative in nature.
<PAGE> 32
PENSION PLAN
The Corporation has a defined benefit pension plan which covers substantially
all employees. The cost of this noncontributory pension plan was computed and
accrued using the projected unit credit method.
Prior service cost is amortized on a straight-line method over the average
remaining service period of employees expected to receive benefits under the
plan.
EARNINGS PER SHARE
Primary and fully diluted net income per common share are based upon the
weighted average number of common shares outstanding and common stock
equivalents for each year, as applicable.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash equivalents are composed of cash and
due from banks and short-term investments.
NOTE 2 -- RESTRICTIONS ON CASH AND DUE FROM BANKS
The Federal Reserve requires banks to maintain cash reserves against certain
categories of deposit liabilities. Such reserves averaged approximately $16.5
million and $14.2 million during the years ended December 31, 1995 and 1994,
respectively.
In order to cover the costs of services provided by correspondent banks,
the Corporation maintains compensating balance arrangements at these
correspondent banks or elects to pay a fee in lieu of such arrangements. During
1995 and 1994, the Corporation maintained average compensating balances of
approximately $2.4 million and $2.1 million, respectively. In addition, the
Corporation paid fees totaling $317 thousand in 1995 and $285 thousand in 1994
in lieu of maintaining compensating balances.
NOTE 3 -- INVESTMENT SECURITIES
The aggregate amortized cost and market values of the investment securities
portfolio at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
______________________________________________ ____________________________________________
GROSS GROSS Gross Gross
AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market
(in thousands) COST GAINS LOSSES VALUE Cost Gains Losses Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
U.S. Treasury and Government
Agencies and Corporations $ 13,397 $ 34 $ -- $ 13,431 $ 10,613 $ 19 $ -- $ 10,632
Mortgage-Backed Securities 18,023 -- 436 17,587 423,992 397 13,055 411,334
Municipal Securities -- -- -- -- 7,186 2 474 6,714
____________________________________________________________________________________________________________________________________
Total Securities Held to Maturity 31,420 34 436 31,018 441,791 418 13,529 428,680
____________________________________________________________________________________________________________________________________
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and Government
Agencies and Corporations 27,211 819 755 27,275 33,658 462 964 33,156
Mortgage-Backed Securities 891,748 13,519 2,899 902,368 290,298 1,024 5,526 285,796
Municipal Securities 11,552 433 4 11,981 -- -- -- --
Other Debt Securities 76,130 1,392 1,449 76,073 100,672 15 156 100,531
____________________________________________________________________________________________________________________________________
Total Securities Available
for Sale 1,006,641 16,163 5,107 1,017,697 424,628 1,501 6,646 419,483
____________________________________________________________________________________________________________________________________
Total Investment Portfolio $1,038,061 $16,197 $ 5,543 $1,048,715 $866,419 $1,919 $20,175 $848,163
====================================================================================================================================
</TABLE>
The aggregate amortized cost and market values of the investment securities
portfolio by contractual maturity at December 31, 1995 and 1994, are shown
below. Expected maturities on mortgage-backed securities may differ from the
contractual maturities as borrowers have the right to prepay the obligation
without prepayment penalties.
<PAGE> 33
<TABLE>
<CAPTION>
1995 1994
_____________________________ ____________________________
AMORTIZED MARKET Amortized Market
(in thousands) COST VALUE Cost Value
==========================================================================================================
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
In One Year or Less $ -- $ -- $ -- $ --
After One Year Through Five Years -- -- 155 153
After Five Years Through Ten Years -- -- 3,833 3,675
Over Ten Years 13,397 13,431 13,811 13,518
Mortgage-Backed Securities 18,023 17,587 423,992 411,334
__________________________________________________________________________________________________________
Total Securities Held to Maturity 31,420 31,018 441,791 428,680
__________________________________________________________________________________________________________
SECURITIES AVAILABLE FOR SALE
In One Year or Less -- -- -- --
After One Year Through Five Years 39,322 39,358 28,536 27,976
After Five Years Through Ten Years 24,651 24,685 5,122 5,180
Over Ten Years 50,920 51,286 100,672 100,531
Mortgage-Backed Securities 891,748 902,368 290,298 285,796
__________________________________________________________________________________________________________
Total Securities Available for Sale 1,006,641 1,017,697 424,628 419,483
__________________________________________________________________________________________________________
Total Investment Portfolio $1,038,061 $1,048,715 $866,419 $848,163
==========================================================================================================
</TABLE>
Proceeds from sales of securities available for sale during 1995 were
$203.0 million resulting in the realization of gross gains of $800 thousand and
gross losses of $3.5 million on such sales. For 1994, sales of securities
yielded proceeds of $201.9 million which resulted in gross realized gains of
$2.0 million and gross losses of $1.4 million.
During 1995, the Financial Accounting Standards Board issued a special
report on SFAS No. 115 which provided an opportunity to reclassify from
securities held to maturity to securities available for sale. The permitted
reclassification resulting from this one-time assessment does not call into
question the intent of the Corporation's future investment classifications. On
December 31, 1995, the Corporation transferred $385.2 million of securities from
Securities Held to Maturity to Securities Available for Sale. The transfer was
the result of management's intention to maximize its flexibility to take
advantage of future business opportunities. These securities were transferred at
fair value and the respective holding gains/(losses) were recognized as a
separate component of stockholders' equity.
At December 31, 1995, a net unrealized gain of $6.8 million on the
securities portfolio was reflected as a separate component of stockholders'
equity in the Consolidated Statement of Condition as compared to a net
unrealized loss of $8.5 million at December 31, 1994. The December 31, 1994,
amount includes a $3.1 million unrealized loss attributable to the securities
available for sale. The remaining $5.4 million unrealized loss was attributable
to securities transferred to the securities held to maturity classification from
the securities available for sale caption during 1994. The transfer occurred as
a result of lower liquidity needs caused by declining credit demand. The
securities were transferred at their fair value at the date of transfer. The
unrealized loss was amortized over the remaining life of the securities using
the level yield method. This amortization expense was offset by the amortization
of the related discount on these securities created at the time of transfer and
results in no net charge to earnings. The $5.4 million portion of the 1994
unrealized loss was reversed in 1995 due to the aforementioned transfer of
securities from held to maturity to available for sale during 1995.
The aggregate book and estimated market values of investment securities
which exceed ten percent of capital at December 31, 1995, are indicated below.
<TABLE>
<CAPTION>
Estimated
Book Market
(in thousands) Value Value
===============================================================
<S> <C> <C>
Issuer:
ASSET BACKED SECURITIES
_______________________
The Money Store, Inc. $46,724 $47,854
===============================================================
</TABLE>
Securities with a book value of $525.0 million and $505.5 million at
December 31, 1995 and 1994, respectively, were pledged as collateral for public
funds, certain short-term borrowings and for other purposes required by law.
<PAGE> 34
NOTE 4 -- ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses for the three years
ended December 31 is presented below:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Balance at Beginning of the Year $20,893 $20,451 $20,049
Provision for Loan Losses 1,545 500 1,516
Loans Charged-Off (1,980) (2,045) (4,289)
Less: Recoveries of Loans
Previously Charged-Off 1,004 1,987 3,175
________________________________________________________________________________
Net Loans Charged-Off (976) (58) (1,114)
________________________________________________________________________________
Balance at End of the Year $21,462 $20,893 $20,451
================================================================================
</TABLE>
At December 31, 1995, 1994 and 1993, the recorded investment in loans which
are in non-accrual status and therefore considered impaired totaled $140
thousand, $1.1 million and $137 thousand, respectively. There was no additional
allowance required for these loans under the provisions of SFAS No. 114/118.
Interest income of $378 thousand, $35 thousand and $203 thousand was recognized
on these loans in 1995, 1994 and 1993, respectively. Had these loans performed
in accordance with their original terms, interest income of $680 thousand in
1995, $294 thousand in 1994 and $417 thousand in 1993 would have been recorded.
For the year ended December 31, 1995, the average recorded investment in
impaired loans was approximately $757 thousand.
NOTE 5 -- PREMISES AND EQUIPMENT
Real estate and equipment holdings at December 31 are presented in the table
below. Real estate owned and used by the Corporation consists of six branches
and other facilities in the metropolitan Baltimore area which are used primarily
for the operations of the Bank.
<TABLE>
<CAPTION>
(in thousands) 1995 1994
=======================================================================
<S> <C> <C>
Land $ 229 $ 252
Buildings and Leasehold Improvements 17,126 15,311
Furniture and Equipment 29,340 27,292
Property Held for Future Expansion 7,107 7,107
_______________________________________________________________________
Premises and Equipment 53,802 49,962
Less: Accumulated Depreciation
and Amortization 20,743 20,383
_______________________________________________________________________
Net Premises and Equipment $33,059 $29,579
=======================================================================
</TABLE>
Property Held for Future Expansion represents approximately 49,000 square
feet of real estate adjacent to the Corporation's headquarters building which is
currently being used for employee and public parking. Following an assessment of
occupancy requirements, management determined that this property would be
necessary to meet the Corporation's growing office and parking requirements.
In December 1990, the Corporation entered into a sale and leaseback
agreement whereby its headquarters building was sold to an unrelated third party
which then leased the building back to the Corporation. In association with the
sale, the Corporation financed $6.0 million of this arrangement with a market
rate note which has recourse to other assets of the acquiror. The twelve year
lease has two renewal options of five years each and contains an escalation
clause which acts to increase rental payments throughout the lease term up to
specified limits.
<PAGE> 35
The associated gain of $2.6 million from the sale has been deferred and will be
recognized in proportion to the gross rental expense incurred over the term of
the lease. The associated lease payments and sublease rental income are included
in the table below.
The Corporation also maintains non-cancelable operating leases associated
with Bank premises. Most of these leases provide for the payment of property
taxes and other costs by the Bank and include one or more renewal options
ranging up to ten years. Some of the leases also contain purchase options at
market value. Annual rental commitments under all long-term non-cancelable
operating lease agreements consisted of the following at December 31, 1995.
<TABLE>
<CAPTION>
Real
Property Sublease Equipment
(in thousands) Leases Income Leases Total
================================================================================
<C> <C> <C> <C> <C>
1996 $ 4,645 $31 $303 $ 4,917
1997 4,311 11 142 4,442
1998 3,925 6 76 3,995
1999 3,295 -- -- 3,295
2000 2,803 -- -- 2,803
2001 and Thereafter 5,428 -- -- 5,428
________________________________________________________________________________
Total $24,407 $48 $521 $24,880
================================================================================
</TABLE>
Rental expense for premises and equipment was $5.0 million in 1995, $4.8 million
in 1994 and $4.5 million in 1993.
NOTE 6 -- MORTGAGE BANKING ACTIVITIES
The Corporation engages in sales of mortgage loans, which are originated
internally or purchased from third parties. Mortgage loans held for sale are
carried at the aggregate lower of cost or market value. Gains or losses on sales
of these mortgage loans are recorded as a component of Non-Interest Income in
the Consolidated Statement of Income.
Unpaid principal balances of loans serviced for others not included in the
accompanying Consolidated Statement of Condition were $813.0 million and $465.9
million at December 31, 1995 and 1994, respectively.
Acquisition costs of purchased mortgage servicing rights are capitalized
and subsequently amortized over the estimated period of and in proportion to net
servicing revenue. The following is an analysis of purchased and excess mortgage
servicing rights for the years ended December 31, 1995, 1994, and 1993,
respectively.
<TABLE>
<CAPTION>
Purchased Mortgage Excess Mortgage
(in thousands) Servicing Rights Servicing Rights
================================================================================
<S> <C> <C>
Balance, January 1, 1993 $ 3,294 $ 839
Additions -- 354
Amortization (2,114) (205)
Sales of Servicing Rights -- (3)
________________________________________________________________________________
Balance, December 31, 1993 1,180 985
Additions -- 122
Amortization (431) (177)
Sales of Servicing Rights -- (243)
________________________________________________________________________________
Balance, December 31, 1994 749 687
ADDITIONS -- 93
AMORTIZATION (189) (108)
SALES OF SERVICING RIGHTS (15) (334)
________________________________________________________________________________
BALANCE, DECEMBER 31, 1995 $ 545 $ 338
================================================================================
</TABLE>
Relative to purchased mortgage servicing rights, effective January 1, 1993,
the Corporation altered its accounting practices to recognize the value of these
rights at the lower of cost or discounted estimated future net servicing
revenue. Prior to this date these assets were valued at the lower of cost or
undiscounted estimated future net servicing revenue. The Corporation believes
this change is preferable as it recognizes the changes in value associated with
unanticipated prepayment of mortgages related to such rights on a more timely
basis and is consistent with the required method for regulatory purposes. The
cumulative effect of this change for the period prior to January 1, 1993, was
$733 thousand after an income tax benefit of $461 thousand and is shown
separately in 1993.
<PAGE> 36
NOTE 7 -- SHORT-TERM BORROWINGS
At December 31, the detail of short-term borrowings were as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
================================================================================
<S> <C> <C>
Federal Funds Purchased $ 68,237 $ 46,845
Securities Sold Under Repurchase
Agreements 447,014 405,247
Federal Home Loan Bank Advances -- 25,000
Other 2,390 2,158
________________________________________________________________________________
Total $517,641 $479,250
================================================================================
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Balance at December 31 $517,641 $479,250 $306,579
Average Balance During
the Year 464,094 269,968 289,237
Maximum Month-End Balance 524,066 490,145 312,425
Weighted Average Rate
During the Year 5.98% 4.69% 3.60%
Weighted Average Rate
at December 31 5.75% 6.01% 3.49%
________________________________________________________________________________
</TABLE>
Securities sold under repurchase agreements at December 31, 1995, are detailed
below by due date:
<TABLE>
<CAPTION>
(in thousands) Overnight Less than 30 days 30-90 days Over 90 days Demand Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Mortgage-Backed Securities:
Securities Sold:
Carrying Value $ -- $188,374 $262,289 $10,401 $ -- $461,064
Market Value -- 192,758 266,574 10,413 -- 469,745
Repurchase Borrowings -- 183,004 254,306 9,704 -- 447,014
Average Borrowing Interest Rate --% 5.85% 5.78% 5.70% --% 5.81%
____________________________________________________________________________________________________________________________________
</TABLE>
<PAGE> 37
NOTE 8 -- LONG-TERM DEBT
Long-term debt consisted of Federal Home Loan Bank Advances of $267.9 million
and $187.2 million at December 31, 1995 and 1994, respectively. The principal
maturities of long-term debt at December 31, 1995, are presented below.
<TABLE>
<CAPTION>
(in thousands)
__________________________________
<S> <C>
1996 $140,500
1997 38,750
1998 57,000
1999 19,615
2000 12,000
__________________________________
Total $267,865
==================================
</TABLE>
The Federal Home Loan Bank Advances to the Bank mature in varying amounts
through 2000. These advances are composed of $177.1 million fixed rate advances
with an average interest rate of 5.75% and $90.8 million variable rate advances
with an average rate of 5.67%. These advances in addition to those included in
short-term borrowings are collateralized by investment securities and certain
real estate loans with carrying values of $281.4 million and $142.0 million,
respectively, at December 31, 1995.
During 1993, the Bank paid off the debt associated with the Employee Stock
Ownership Plan ("ESOP") thereby eliminating the guarantee requirement for the
Corporation.
<PAGE> 38
NOTE 9 -- INCOME TAXES
The components of income tax expense and the sources of deferred income taxes
for the three years ended December 31 are presented below.
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Current Income Tax Expense (Benefit):
Federal $ (59) $4,559 $4,928
State 1,492 (92) 830
________________________________________________________________________________
Total Current 1,433 4,467 5,758
Deferred Income Tax Expense (Benefit) 8,069 2,682 (685)
________________________________________________________________________________
Income Tax Expense Before
Impact of Change in Accounting
Principle 9,502 7,149 5,073
Income Tax Benefit Attributable to
Change in Accounting Principle -- -- (461)
________________________________________________________________________________
Total Income Tax Expense $9,502 $7,149 $4,612
================================================================================
</TABLE>
Tax expense (benefit) associated with investment securities gains/(losses)
was $(1.1) million in 1995, $223 thousand in 1994 and $1.2 million in 1993.
During 1988, the Corporation sold its entire portfolio of adjustable rate
preferred stocks which resulted in approximately a $12.4 million capital loss
for financial reporting and income tax purposes. As a result of the tax rules
applicable to capital losses, no corresponding tax benefit was recorded in 1988.
During the period 1990 through 1993, the Corporation utilized all of the
approximately $12.4 million of the capital loss carryforward.
The primary sources of temporary differences that give rise to significant
portions of the deferred tax asset and liability at December 31, 1995, are
presented below.
<TABLE>
<CAPTION>
Deferred Deferred
(in thousands) Assets Liabilities
===============================================================================
<S> <C> <C>
Loan Loss Reserve Recapture $ -- $ 9,774
Reserve for Loan Loss 7,512 --
Write-down of Property Held for Sale 717 --
Employee Benefits 2,850 --
Deferred Gain on Sale/Leaseback 586 --
Deferred State Tax Receivable 1,673 --
Depreciation -- 545
Deferred Federal Tax Liability for
State Receivable -- 586
Deferred Tax Liability on Unrealized
Gains in Debt Securities -- 4,266
Deferred Tax Liability on
Security Transactions -- 2,318
All Other 394 1,554
_______________________________________________________________________________
Total $13,732 $19,043
===============================================================================
</TABLE>
<PAGE> 39
At December 31, 1995 and 1994, no valuation allowance was required with
respect to deferred tax assets.
The combined federal and state effective tax rate for each year is
different than the statutory federal income tax rate. The reasons for these
differences are set forth below:
<TABLE>
<CAPTION>
1995 1994 1993
================================================================================
<S> <C> <C> <C>
Statutory Federal Income Tax Rate 35.0% 35.0% 34.2%
Increases (Decreases) in Tax Rates
Resulting From:
State and Local Income Taxes, Net
of Federal Income Tax Benefit 3.7 2.8 3.9
Tax-Advantaged Income (1.7) (1.5) (2.0)
Resolution of State Tax Issue (1.5) -- --
Federal Benefit Due to Change
in Deferred Tax Rate (.9) -- --
Disallowed Interest Expense .1 .1 .2
Utilization of Capital
Loss Carryforward -- -- (1.1)
Employee Benefits (.1) (.5) (.3)
Other (.1) .4 1.3
________________________________________________________________________________
Total Combined Effective Tax Rate 34.5% 36.3% 36.2%
================================================================================
</TABLE>
NOTE 10 -- STOCKHOLDERS' EQUITY
The Corporation has a Stock Option Plan (the "Option Plan") which covers a
maximum of 890 thousand shares of common stock that have been reserved for
issuance under the Option Plan. The Option Plan provides for the granting of
nonqualified stock options to certain key employees and directors of Bankshares
and the Bank, as designated by the Board of Directors and have a maximum
duration of ten years. Options are granted under the Option Plan at an exercise
price not less than the fair market value of the underlying shares of common
stock on the date of the grant and therefore have no associated expense. At
December 31, 1995 and 1994, 366,555 and 27,906 shares were available for the
granting of options under the Option Plan, respectively.
The following table presents share data related to options.
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
________________________________________________________________________________
Common Weighted Avg. Common Weighted Avg.
Shares Option Price Shares Option Price
================================================================================
<S> <C> <C> <C> <C>
Outstanding,
January 1, 1995 685,798 $ 8.65 625,423 $ 7.56
Vesting
Increment -- -- 60,900 19.88
Granted 31,300 26.68 15,650 26.68
Exercised (117,975) 7.37 (117,975) 7.37
Cancelled or
Expired (1,050) 19.88 (1,575) 19.88
________________________________________________________________________________
Outstanding,
December 31,
1995 598,073 $ 9.82 582,423 $ 9.37
================================================================================
</TABLE>
At the time of the Corporation's reorganization, a liquidation account was
established by the Bank for the benefit of all eligible deposit account holders
as of December 31, 1986 who maintain their accounts in the Bank subsequent to
the Reorganization. The liquidation account provides these deposit account
holders with an interest in the retained earnings of the Bank prior to any
distribution to stockholders in the sole event of a complete liquidation. The
deposit account holders' interest in the liquidation account decreases as the
related deposit account decreases and will never increase. The liquidation
account does not restrict the use or application of stockholders' equity of the
Bank except that the Bank may not declare or pay a cash dividend on, or
repurchase any of its capital stock if, as the result of such dividend or
repurchase, the Bank's stockholders' equity would be less than the amount then
required for the liquidation account. At December 31, 1995, the balance of the
liquidation account was $14.3 million.
<PAGE> 40
NOTE 11 -- EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Corporation's non-contributory defined benefit pension plan covers
substantially all full-time employees with at least one year of service and
provides monthly benefits upon retirement to participants based on average
career earnings and length of service. The Corporation's policy is to contribute
amounts to the plan sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974, as amended, plus
such additional amounts as the Corporation deems appropriate.
The following table sets forth the defined benefit plan's funded status at
January 1:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
================================================================================
<S> <C> <C> <C>
Actuarial Present Value of Benefit
Obligations:
Accumulated Benefit Obligation,
Including Vested Benefits of
$13,692 - 1996; $11,486 - 1995;
$13,189 - 1994 $(15,783) $(12,733) $(14,412)
================================================================================
Projected Benefit Obligation for
Service Rendered to Date $(17,776) $(14,069) $(15,931)
Plan Assets at Fair Value 16,789 13,076 13,790
________________________________________________________________________________
Plan Assets in Excess of (Less than)
Projected Benefit Obligation (987) (993) (2,141)
Unrecognized Net (Gain) Loss from
Past Experience Different from
that Assumed (1,194) (147) 2,083
Unrecognized Net Asset Arising at
Transition at January 1, 1987 (781) (899) (1,017)
Unrecognized Prior Service Cost (54) (153) (53)
________________________________________________________________________________
Accrued Pension Cost Included in
Other Liabilities $ (3,016) $ (2,192) $ (1,128)
================================================================================
</TABLE>
The actuarially estimated net pension cost for the year ended December 31
includes the following components:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Service Cost -- Benefits Earned
During the Year $ 974 $ 1,192 $ 743
Interest Cost on Projected Benefit
Obligation 1,252 1,175 1,050
Actual Return on Plan Assets (4,377) 131 (1,184)
Net Amortization and Deferral
of (Gain) Loss 2,975 (1,434) (108)
________________________________________________________________________________
Net Pension Cost Included in
Employee Benefits Expense $ 824 $ 1,064 $ 501
================================================================================
</TABLE>
<PAGE> 41
The Corporation revises the rates applied in the determination of the
actuarial present value of the projected benefit obligation to reflect the
anticipated performance of the plan and changes in compensation levels.
<TABLE>
<CAPTION>
1996 1995 1994
==============================================================================
<S> <C> <C> <C>
Rates Used in Determining
Actuarial Present Value of Projected
Benefit Obligation:
Weighted Average Discount Rate 8.0% 9.0% 7.5%
Expected Rate of Increase in
Future Compensation Levels 4.0% 5.0% 5.0%
Expected Long-Term Rate of Return
on Plan Assets 10.0% 10.0% 9.0%
==============================================================================
</TABLE>
Plan assets are primarily comprised of equity securities, and short-term
and long-term debt securities. The unrecognized net asset arising at transition
is being amortized over 15.6 years. The plan held no shares of the Corporation's
common stock at December 31, 1995, 1994 and 1993.
RETIREMENT SAVINGS PLAN
The Retirement Savings Plan is a defined contribution plan which is qualified
under Section 401(a) of the Internal Revenue Code of 1986. The plan generally
allows all employees who complete 500 hours of employment during a six month
period and elect to participate, to receive matching funds from the Corporation
for pre-tax retirement contributions made by the employee. The annual
contribution to this plan is at the discretion of and determined by the Board of
Directors of the Corporation. Contributions to this plan amounted to $441
thousand, $403 thousand and $369 thousand for the years ended December 31, 1995,
1994 and 1993, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The Employee Stock Ownership Plan ("ESOP") is a defined contribution plan which
is qualified under Section 401(a) of the Internal Revenue Code of 1986. This
plan covered all employees 21 years of age or older and employed as of December
31, 1993.
Under the Plan, the ESOP purchased 457 thousand shares of the Corporation's
common stock with borrowed funds (see Note 8). A portion of the common stock was
held in the ESOP and released to the participants' accounts each year, based
upon the reduction in the ESOP indebtedness during the year. The amount of
released common stock was allocated to each participant's account based upon
their salary in the respective year. The Bank incurred compensation expense
based on cash contributed to the ESOP, the purpose of which was to service the
related debt which was retired during 1993.
Presented below is data for 1993 with respect to the ESOP.
<TABLE>
<CAPTION>
(in thousands) 1993
=========================================================
<S> <C>
Shares held by ESOP at December 31 --
Compensation Expense $2,027
Interest Expense 72
Dividends Applied to Service ESOP Debt 24
_________________________________________________________
</TABLE>
The ESOP was terminated during 1995 and benefits were distributed to
participants.
<PAGE> 42
POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Corporation provides certain
health care and life insurance benefits to retired employees. Substantially all
employees of the Corporation that reach retirement age may become eligible for
these benefits, generally contingent upon the completion of twenty years of
service. The health care plan is contributory where the retiree is responsible
for all premiums in excess of the Corporation's contribution. The Corporation's
contribution is capped at a growth rate of 4% per year. The cost of life
insurance benefits provided to the retiree is borne by the Corporation. At
December 31, 1995 and 1994, this plan is unfunded.
As of January 1, 1993, the Corporation adopted the provisions of Statement
of Financial Accounting Standards No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS No. 106"). Under the
prospective transition approach, the transition obligation is amortized over a
twenty-year period.
The following tables set forth the plan's funded status reconciled with
amounts reported in the Corporation's financial statements at December 31:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
================================================================================
<S> <C> <C>
Actuarial Present Value of Benefit
Obligations (APBO):
Accumulated Postretirement Benefit Obligation:
Retirees $ (680) $(678)
Fully Eligible Active Plan Participants (90) (77)
Other Active Plan Participants (309) (237)
________________________________________________________________________________
Total (APBO) (1,079) (992)
Plan Assets at Fair Value -- --
________________________________________________________________________________
Accumulated Postretirement Benefit
Obligation in Excess of Plan Assets (1,079) (992)
Unrecognized Net Gain (181) (236)
Less: Unrecognized Transition Obligation 919 972
________________________________________________________________________________
Accrued Postretirement Benefit Liability $ (341) $(256)
================================================================================
</TABLE>
The actuarially estimated net postretirement benefit cost for the year
ended December 31:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
===============================================================================
<S> <C> <C>
Service Cost-Benefits Earned During Year $ 42 $ 48
Interest Cost on Projected Benefit Obligation 85 79
Amortization of Transition Obligation 53 54
Amortization of Unrecognized Gain (8) --
_______________________________________________________________________________
Net Postretirement Benefit Cost Included in
Employee Benefit Expense $172 $181
_______________________________________________________________________________
Discount Rate Used in Determining the
Actual Present Value of Accumulated
Postretirement Benefit Obligation 8.0% 9.0%
===============================================================================
</TABLE>
<PAGE> 43
NOTE 12 -- OFF-BALANCE SHEET RISK
In the normal course of business, the Bank offers various financial products to
its customers to meet their credit and liquidity needs. These instruments
involve, to varying degrees, the elements of credit and market risk which may
exceed any amount recognized in the financial statements. Risks that are
inherent in normal banking services also exist in some of these financial
instruments. Contract amounts of the instruments indicate the maximum exposure
the Bank has in each class of financial instruments discussed in the following
paragraphs. These commitments and contingencies are not reflected in the
accompanying financial statements. Unless noted otherwise, the Bank does not
require collateral or other securities to support financial instruments with
credit risk.
Subject to its normal credit standards and risk monitoring procedures, the
Bank makes contractual commitments to extend credit. Commitments to extend
credit in the form of consumer, commercial real estate and commercial business
loans amounted to $273.3 million and $246.9 million at December 31, 1995 and
1994, respectively. Commitments typically have fixed expiration dates or other
termination clauses. The total of commitments does not necessarily represent
future cash requirements as many commitments may expire without being exercised.
Collateral and amounts thereof are obtained, if necessary, based upon
management's evaluation of each borrower's financial condition. Required
collateral may be in the form of cash, accounts receivable, inventory, property,
plant and equipment and income generating commercial properties and residential
properties.
The Bank is obligated under various recourse provisions related to sales of
residential mortgage loans. The maximum potential recourse obligation was $ 21.5
million and $30.3 million at December 31, 1995 and 1994, respectively. No losses
have been incurred under these recourse provisions.
Conditional commitments are issued by the Bank in the form of performance
stand-by letters of credit which guarantee the performance of a customer to a
third party. These letters of credit are typically included in the amount of
funds committed by the Bank to complete associated construction projects. At
December 31, commitments under outstanding performance stand-by letters of
credit aggregated $ 18.5 million in 1995 and $ 13.2 million in 1994. The credit
risk of issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers.
The Bank enters into agreements for the delivery of securitized mortgage
pools at a future date at a specified price or yield. The inability of
counterparties to meet the terms of these contracts and movements in the value
of securities and interest rates imposes risk on the Bank. Forward contracts
aggregated $ 110.1 million and $80.1 million at December 31, 1995 and 1994,
respectively, however management does not feel that any significant amounts are
at risk with regard to these contracts.
The Bank enters into various derivative financial instruments to manage its
interest rate risk exposure (see Note 1). The two major types used are interest
rate swaps and interest rate floor/cap/corridor arrangements. These derivative
financial instruments use notional amounts to represent a unit of measure but
not the amount subject to accounting loss, which is much smaller. Risks in these
transactions involve nonperformance by counterparties under the terms of the
contract (counterparty credit risk) and, for interest rate swaps, the
possibility that interest rate movements or general market volatility could
result in losses on open off-balance sheet positions (market risk). Credit risk
is controlled by dealing with well-established brokers which are highly rated by
independent sources. Market risk on interest rate swaps is minimized by using
these instruments as hedges, actively managing interest rate risk and by
continually monitoring these positions. Market risk associated with the interest
rate floor/cap/corridor arrangements only exist when premiums are amortized into
interest expense without receiving any compensation from third parties.
Unamortized premiums paid and outstanding for floor/cap/corridor arrangements
were $ 1.9 million at December 31, 1995, and $3.1 million at December 31, 1994.
<PAGE> 44
Notional amounts of interest rate swaps and interest rate floor/cap/
corridor arrangements are detailed below by amounts outstanding, average
interest rates/fees and market values at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Average Interest Rate/Fee
Notional Maturity ____________________________________________________ Market
(dollars in thousands) Amount Date Paid Received Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1995
____
Interest Rate Swaps
___________________
$ 25,000 1996 4.30% 3 month LIBOR (5.94%) $ 183
25,000 1996 4.50% 3 month LIBOR (5.94%) 238
22,000 1997 6.19% 3 month LIBOR (5.88%) (292)
15,000 1998 6.96% 3 month LIBOR (5.69%) (543)
20,000 1998 5.29% 3 month LIBOR (5.63%) (24)
12,250 1999 6.84% 3 month LIBOR (5.94%) (321)
5,000 2000 7.91% 3 month LIBOR (5.81%) (478)
15,000 2000 7.08% 3 month LIBOR (5.69%) (901)
9,000 2000 7.19% 3 month LIBOR (5.95%) (579)
7,000 2000 6.56% 3 month LIBOR (5.87%) (289)
Interest Rate Floor/Cap/Corridor Arrangements
_____________________________________________
$ 50,000 Corridor 1996 $573 3 month LIBOR (5.81%)> 4%, capped at 6% $ 165
40,000 Corridor 1996 472 3 month LIBOR (5.69%)> 4%, capped at 6% 221
50,000 Corridor 1997 850 3 month LIBOR (5.88%)> 4%, capped at 6% 516
50,000 Corridor 1997 760 3 month LIBOR (5.69%)> 4%, capped at 6% 557
50,000 Corridor 1998 315 3 month LIBOR (5.57%)> 6.625%, capped at 8.625% 141
100,000 Corridor 1999 768 3 month LIBOR (5.57%)> 6.625%, capped at 8.625% 410
100,000 Floor 1997 390 4 year Treasury Notes (5.32%), 1,437
Strike Price of 6.8%
100,000 Floor 1999 780 4 year Treasury Notes (5.32%), 2,814
Strike Price of 6.8%
____________________________________________________________________________________________________________________________________
1994
____
Interest Rate Swaps
___________________
$ 50,000 1996 4.40% 3 month LIBOR (5.63%) $2,556
34,000 1996 7.21% 3 month LIBOR (5.94%) 335
54,000 1997 7.46% 3 month LIBOR (5.83%) 602
22,000 1998 7.63% 3 month LIBOR (5.81%) 319
13,000 1999 7.71% 3 month LIBOR (5.71%) 171
5,000 2000 7.91% 3 month LIBOR (5.81%) 19
6,000 2001 8.03% 3 month LIBOR (5.94%) (16)
Interest Rate Floor/Cap/Corridor Arrangements
_____________________________________________
$100,000 Corridor 1995 $2,750 3 month LIBOR (6.38%)> 4%, capped at 6% $ 732
90,000 Corridor 1996 1,375 3 month LIBOR (6.47%)> 4%, capped at 6% 2,289
100,000 Corridor 1997 1,375 3 month LIBOR (6.44%)> 4%, capped at 6% 3,097
100,000 Floor 1997 390 4 year Treasury Notes (7.77%), 213
Strike Price of 6.8%
100,000 Floor 1999 780 4 year Treasury Notes (7.77%), 516
Strike Price of 6.8%
____________________________________________________________________________________________________________________________________
</TABLE>
For the year ended December 31, 1995, $73.0 million of the interest rate
swaps hedged the exposure that the securities available for sale had to
declining market values as a result of increasing interest rates. The remaining
$82.3 million in swaps was utilized to hedge the interest rate risk inherent in
short-term borrowings. The interest rate corridors protect the net interest
margin from the impact of increases in savings deposit rates during periods of
rising interest rates. The interest rate floors were purchased to hedge the
impact of loan repricing on net interest income in future years.
<PAGE> 45
The following is an analysis of the activity with regards to interest rate
swaps and interest rate floor/cap/corridor arrangements for the years ended
December 31, 1995, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
Notional Amount
__________________________________
Interest Rate
Interest Rate Floor/Cap/Corridor
(in thousands) Swaps Arrangements
================================================================================
<S> <C> <C>
Balance at January 1, 1993 $ 166,000 $ --
New Contracts -- 240,000
Expired Contracts -- (50,000)
Terminated Contracts -- --
________________________________________________________________________________
Balance at December 31, 1993 166,000 190,000
New Contracts 629,000 390,000
Expired Contracts (126,000) --
Terminated Contracts (485,000) (90,000)
________________________________________________________________________________
Balance at December 31, 1994 184,000 490,000
NEW CONTRACTS 134,500 150,000
EXPIRED CONTRACTS (1,750) (100,000)
TERMINATED CONTRACTS (161,500) --
________________________________________________________________________________
BALANCE AT DECEMBER 31, 1995 $ 155,250 $ 540,000
================================================================================
</TABLE>
At December 31, 1995, the Corporation had deferred gains of $3.1 million
and deferred losses of $10.7 million related to terminated contracts. These
deferred gains and losses will be amortized over 1.3 and 2.5 years,
respectively. The Corporation had deferred gains of $6.6 million and deferred
losses of $13.8 million related to terminated contracts which were amortized as
a yield adjustment over 2.3 and 3.9 years, respectively, at December 31, 1994.
The notional maturities of the interest rate swaps and interest rate
floor/cap/corridor arrangements at December 31, 1995, are presented below.
<TABLE>
<CAPTION>
Notional Amount
________________________________________
Interest Rate
Interest Rate Floor/Cap/Corridor
(in thousands) Swaps Arrangements
================================================================================
<C> <C> <C>
1996 $ 50,000 $ 90,000
1997 22,000 200,000
1998 35,000 50,000
1999 12,250 200,000
2000 36,000 --
________________________________________________________________________________
Total $155,250 $540,000
================================================================================
</TABLE>
In addition to the previously mentioned commitments and contingencies,
there are various legal proceedings against the Bank. Management believes that
the aggregate liabilities, if any, arising from such actions would not have a
material adverse effect on the consolidated financial position of the
Corporation.
<PAGE> 46
NOTE 13 -- CONCENTRATIONS OF CREDIT RISK
The Corporation's investment portfolio contains mortgage-backed securities
amounting to $920.4 million and $709.8 million at December 31, 1995 and 1994,
respectively. The underlying collateral for these securities is in the form of
pools of mortgages on residential properties. The majority of the securities are
either directly or indirectly guaranteed by U.S. Government agencies or
corporations. Management is of the opinion that credit risk is minimal.
Construction and mortgage loan receivables from real estate developers
represent $217.7 million and $190.5 million of the total loan portfolio at
December 31, 1995 and 1994, respectively. Substantially all loans are
collateralized by real property or other assets. These loans are expected to be
repaid from the proceeds received by the borrowers from the retail sales or
rentals of these properties to third parties.
NOTE 14 -- OTHER NON-INTEREST INCOME AND EXPENSE
The components of other non-interest income and other non-interest expense for
the three years ended December 31 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Other Non-Interest Income:
Credit Card Fees $ -- $ -- $ 426
Other Loan Fees 732 667 680
Gain on Sale of Credit Card Portfolio -- -- 4,389
Interest Income on Tax Refund 5,796 -- --
Other Non-Interest Income 1,704 1,038 1,178
________________________________________________________________________________
Total Other Non-Interest Income $ 8,232 $ 1,705 $ 6,673
================================================================================
Other Non-Interest Expense:
Advertising and Promotion $ 5,301 $ 4,726 $ 4,371
Communication and Postage 2,692 2,337 1,716
Printing and Supplies 1,837 1,410 1,390
Regulatory Fees 1,830 3,038 2,892
Professional Services 1,852 1,884 1,712
Other Non-Interest Expense 5,729 4,073 4,403
________________________________________________________________________________
Total Other Non-Interest Expense $19,241 $17,468 $16,484
================================================================================
</TABLE>
NOTE 15 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
During 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 107 "Disclosure about Fair Value of Financial
Instruments." This statement requires all entities to disclose the fair value of
recognized and unrecognized financial instruments on a prospective basis, where
practicable, in an effort to provide financial statement users with information
in making rational investment and credit decisions.
To estimate the fair value of each class of financial instrument, the
Corporation applied the following methods using the indicated assumptions:
CASH AND DUE FROM BANKS AND
SHORT-TERM INVESTMENTS
Carrying amount of those investments is used to estimate fair value.
MORTGAGE LOANS HELD FOR SALE
Fair value for mortgage loans held for trading or sale was determined using
forward contract commitment pricing for the majority of these loans. Loans not
specifically allocated to a forward commitment have been priced using quoted
prices for commitments into which these mortgages would be placed in the future.
<PAGE> 47
SECURITIES AVAILABLE FOR SALE AND
SECURITIES HELD TO MATURITY
The fair values of the securities are based on quoted market prices or dealer
quotes for those investments.
LOANS
Fair value of loans which have homogeneous characteristics, such as residential
mortgages and installment loans, was estimated using discounted cash flows. All
other loans were valued using discount rates which reflected credit risks of the
borrower, types of collateral and remaining maturities.
DEPOSIT LIABILITIES
Fair value of demand deposits, savings accounts and money market deposits is the
amount payable on demand at the reporting date. The fair value of certificates
of deposit is estimated using the rates currently offered for deposits of
similar remaining maturities.
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Rates currently available to the Corporation for borrowings and debt with
similar terms and remaining maturities are used to estimate fair value of the
existing debt.
INTEREST RATE ARRANGEMENTS
The fair value of interest rate swaps and floor/cap/corridor arrangements, which
the Corporation uses for hedging purposes, is the estimated amount the
Corporation would receive or pay to terminate the arrangements at the reporting
date, taking into account the current interest rates and the current credit
worthiness of the counterparties.
COMMITMENTS TO EXTEND CREDIT
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the credit worthiness of the borrowers. Fixed-rate loan
commitments also take into account the difference between current levels of
interest rates and committed rates.
The estimated fair values of the Corporation's financial instruments at December
31 are as follows:
<TABLE>
<CAPTION>
1995 1994
_______________________________________________________________________________________________________________
CARRYING FAIR Carrying Fair
(in thousands) AMOUNT VALUE Amount Value
===============================================================================================================
<S> <C> <C> <C> <C>
Assets:
Cash and Due from Banks $ 49,891 $ 49,891 $ 43,632 $ 43,632
Short-Term Investments 2,710 2,710 3,742 3,742
Mortgage Loans Held for Sale 86,326 86,267 45,546 45,356
Securities Available for Sale 1,017,697 1,017,697 419,483 419,483
Securities Held to Maturity 31,420 31,018 441,791 428,680
Loans, Net of Allowance 1,311,326 1,335,702 1,251,409 1,234,704
Liabilities:
Deposits $1,569,339 $1,576,254 $1,448,577 $ 1,441,617
Short-Term Borrowings 517,641 517,807 479,250 479,341
Long-Term Debt 267,865 269,479 187,200 182,986
Recognized Derivative Financial Instruments:
Interest Rate Floors $ 784 $ 4,251 $ 1,085 $ 729
Interest Rate Corridors 1,867 2,010 2,007 6,118
Unrecognized Financial Instruments:
Interest Rate Swaps $ -- $ (3,006) $ -- $ 3,986
Commitments to Extend Credit -- 868 -- 155
===============================================================================================================
</TABLE>
<PAGE> 48
NOTE 16 -- PARENT COMPANY FINANCIAL INFORMATION
The condensed statements of income, financial condition and cash flows for
Provident Bankshares Corporation (parent only) are presented below.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
________________________________________________________________________________
(in thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Investment Income on Securities $ -- $ -- $ 72
Interest Income From Bank
Subsidiary 71 219 55
Net Securities Gains -- -- 201
Dividend Income From Bank
Subsidiary 4,410 2,730 1,740
________________________________________________________________________________
Total Income 4,481 2,949 2,068
________________________________________________________________________________
Operating Expenses 527 820 155
________________________________________________________________________________
Income Before Income Taxes
and Equity in Undistributed
Income of Bank Subsidiary 3,954 2,129 1,913
Income Tax Benefit (158) (140) (9)
________________________________________________________________________________
4,112 2,269 1,922
Equity in Undistributed Income
of Bank Subsidiary 13,913 10,261 6,209
________________________________________________________________________________
Net Income $ 18,025 $12,530 $ 8,131
================================================================================
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CONDITION
December 31,
_______________________________________________________________________________
(in thousands) 1995 1994
================================================================================
<S> <C> <C>
ASSETS
Interest-Bearing Deposit with Bank Subsidiary $ 1,156 $ 740
Investment in Bank Subsidiary 182,768 149,764
Other Assets 489 217
________________________________________________________________________________
Total Assets $184,413 $150,721
================================================================================
LIABILITIES
Other Liabilities $ 5 $ 399
________________________________________________________________________________
Total Liabilities 5 399
________________________________________________________________________________
STOCKHOLDERS' EQUITY
Common Stock 8,125 7,514
Capital Surplus 78,951 66,220
Retained Earnings 93,031 87,577
Unrealized Gain (Loss) on Debt Securities
of Bank Subsidiary 6,791 (8,499)
Treasury Stock at Cost (2,490) (2,490)
________________________________________________________________________________
Total Stockholders' Equity 184,408 150,322
________________________________________________________________________________
Total Liabilities and Stockholders' Equity $184,413 $150,721
================================================================================
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Year Ended December 31,
________________________________________________________________________________
(in thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Operating Activities:
Net Income $ 18,025 $ 12,530 $ 8,131
Adjustments to Reconcile Net Income
to Net Cash Provided (Used) by
Operating Activities:
Equity in Undistributed Income
from Bank Subsidiary (13,913) (10,261) (6,209)
Realized Investment
Securities Gain -- -- (201)
Other Operating Activities (667) 131 (11)
________________________________________________________________________________
Total Adjustments (14,580) (10,130) (6,421)
________________________________________________________________________________
Net Cash Provided by Operating
Activities 3,445 2,400 1,710
________________________________________________________________________________
Investing Activities:
Proceeds from Sales of Securities
Available for Sale -- -- 2,339
Investment in Bank Subsidiary (3,800) (22,900) (3,000)
________________________________________________________________________________
Net Cash Used by Investing
Activities (3,800) (22,900) (661)
________________________________________________________________________________
Financing Activities:
Issuance of Common Stock 5,064 23,079 1,208
Cash Dividends on Common Stock (4,293) (2,764) (1,798)
________________________________________________________________________________
Net Cash Provided (Used) by
Financing Activities 771 20,315 (590)
________________________________________________________________________________
Increase (Decrease) in Cash and Cash
Equivalents 416 (185) 459
Cash and Cash Equivalents at
Beginning of Year 740 925 466
________________________________________________________________________________
Cash and Cash Equivalents
at End of Year $ 1,156 $ 740 $ 925
================================================================================
Supplemental Disclosures
________________________________________________________________________________
Income Taxes Paid (Refund) $ (209) $ 60 $ 21
Reduction of ESOP Note Guarantee -- -- 2,218
Stock Dividend 8,278 -- --
</TABLE>
<PAGE> 50
REPORT OF COOPERS & LYBRAND L.L.P.,
INDEPENDENT ACCOUNTANTS
To the Board of Directors
Provident Bankshares Corporation
Baltimore, Maryland
We have audited the accompanying consolidated statement of condition of
Provident Bankshares Corporation and subsidiaries (Corporation) as of December
31, 1995, and 1994, and the related consolidated statement of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Provident
Bankshares Corporation and subsidiaries as of December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 1 and Note 6 to the consolidated financial statements,
the Corporation changed its method of accounting for certain debt securities at
December 31, 1993, and purchased mortgage servicing rights in the year ended
December 31, 1993.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Baltimore, Maryland
January 18, 1996
<PAGE> 51
FINANCIAL REPORTING RESPONSIBILITY
CONSOLIDATED FINANCIAL STATEMENTS
Provident Bankshares Corporation (the "Corporation") is responsible for the
preparation, integrity and fair presentation of its published consolidated
financial statements as of December 31, 1995, and the year then ended. The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and, as such, include amounts, some of
which are based on judgements and estimates of management.
INTERNAL CONTROL STRUCTURE OVER FINANCIAL REPORTING
Management maintains a system of internal control over financial reporting,
including controls over safeguarding of assets against unauthorized acquisition,
use or disposition which is designed to provide reasonable assurance to the
Corporation's management and board of directors regarding the preparation of
reliable published financial statements and such asset safeguarding. The system
contains self-monitoring mechanisms, and actions are taken to correct
deficiencies as they are identified. This system encompasses activities that
control the preparation of the Corporation's Annual Report/10-K financial
statements prepared in accordance with generally accepted accounting principles.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even an effective internal control
system can provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, the effectiveness of an
internal control system may vary over time.
Management assessed its internal control structure over financial reporting
as of December 31, 1995. This assessment was based on criteria for effective
internal control over financial reporting described in "Internal
Control--Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management
believes that Provident Bankshares Corporation maintained an effective internal
control structure over financial reporting as of December 31, 1995.
COMPLIANCE WITH LAWS AND REGULATIONS
Management is also responsible for compliance with the federal and state
laws and regulations concerning dividend restrictions and federal laws and
regulations concerning loans to insiders designated by the FDIC as safety and
soundness laws and regulations.
Management assessed its compliance with the designated laws and regulations
relating to safety and soundness. Based on this assessment, management believes
that Provident Bank of Maryland, the wholly owned subsidiary of Provident
Bankshares Corporation complied, in all significant respects, with the
designated laws and regulations related to safety and soundness for the year
ended December 31, 1995.
<PAGE> 52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The text and tables under "Election of Directors" in the Corporation's 1996
Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The text and tables under "Compensation of Officers and Directors" in the
Corporation's 1996 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEIFCIAL OWNERS AND MANAGEMENT
The text and tables under "Voting Securities and Principal Holders Thereof" and
"Election of Directors" in the Corporation's 1996 Proxy Statement are
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The text under "Certain Transactions with Management" in the Corporation's 1996
Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL SATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(a) (1) The Consolidated Financial Statements of Provident
Bankshares Corporation and Subsidiaries are included in
Item 8.
(a) (2) Financial statement schedules--none applicable
or required.
(a) (3) Exhibits
The following is an index of the exhibits included in this report:
(3.1) Articles of Incorporation of Provident
Bankshares Corporation.<F1>
(3.2) By-Laws of Provident Bankshares Corporation,
as amended.<F2>
(4.1) Stockholder Protection Right Agreement.<F2>
(10.1) 1994 Supplemental Executive Incentive Plan
of Provident Bank of Maryland.<F2>
(10.2) Supplemental Executive Retirement Income
Plan of Provident Bank of Maryland.<F3>
(10.3) Amended and restated Stock Option and
Appreciation Rights Plan of Provident
Bankshares Corporation.<F4>
(10.4) Form of Change in Control Agreement between
Provident Bankshares Corporation and Certain
Executive Officers.<F5>
(10.5) Form of Change in Control Agreement between
Provident Bank of Maryland and Certain
Executive Officers.<F5>
(11) Statement re: Computation of Per Share
Earnings.<F5>
(21) Subsidiaries of Provident Bankshares
Corporation.<F5>
(23) Consent of Independent Auditors.<F5>
(24) Power of Attorney.<F5>
(27) Financial Data Schedule.<F5>
(b) No reports on Form 8-K were filed by the Corporation in
the last quarter of 1995.
<FN>
<F1> Incorporated by reference from Registrant's Registration
Statement on Form S-3 (File No. 33-73162) filed with the
Commission on August 18, 1994.
<F2> Incorporated by reference from the Registrant's 1994 Annual
Report on Form 10-K (File No. 0-16421) filed with the
Commission on February 17, 1995.
<F3> Incorporated by reference from Registrant's 1993 Form 10-K (File
No. 0-16421) filed with the Commission on March 14, 1994.
<F4> Incorporated by reference from the Registrant's definitive 1995
Proxy Statement for the Annual Meeting of Stockholders held on
April 19, 1995.
<F5> Filed herewith.
</FN>
</TABLE>
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
PROVIDENT BANKSHARES
CORPORATION
(Registrant)
January 30, 1996 BY /s/Carl W. Stearn
______________________________________________
Carl W. Stearn
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacity and on the
dates indicated.
Principal Executive Officer:
January 30, 1996 BY /s/Carl W. Stearn
______________________________________________
Carl W. Stearn
Chairman of the Board and
Chief Executive Officer
Principal Financial Officer:
January 30, 1996 BY /s/James R. Wallis
______________________________________________
James R. Wallis
Chief Financial Officer
Principal Accounting Officer:
January 30, 1996 BY /s/R. Wayne Hall
______________________________________________
R. Wayne Hall
Treasurer
A Majority of the Board of Directors*
Robert B. Barnhill, Jr., Melvin A. Bilal,
Dr. Calvin W. Burnett, Charles W. Cole, Jr.,
M. Jenkins Cromwell, Jr., Pierce B. Dunn,
Clivie C. Haley, Jr., Mark K. Joseph,
Norman J. Louden, Peter M. Martin,
Ronald L. Mason, Sr., Sister Rosemarie Nassif,
C. William Pacy, Francis G. Riggs,
Sheila K. Riggs, Carl W. Stearn,
Thomas J.S. Waxter, Jr.
January 30, 1996 *BY /s/R. Wayne Hall
_____________________________________________
R. Wayne Hall
Attorney-in-fact
<PAGE> 1
EXHIBIT 10.4 -- EXECUTIVE PROVIDENT BANKSHARES CORPORATION CHANGE IN CONTROL
AGREEMENT
<PAGE> 2
PROVIDENT BANKSHARES CORPORATION
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of ___________ , 1995, by and between
Provident Bankshares Corporation (the "Holding Company"), a corporation
organized under the laws of the State of Maryland, with its office at 114 East
Lexington Street, Baltimore, Maryland and ____________________ ("Executive").
The term "Bank" refers to Provident Bank of Maryland, the wholly-owned
subsidiary of the Holding Company or any successor thereto.
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and its affiliates and wishes to
protect his position therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Holding
Company or an affiliate thereof.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
_________________
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the date of execution of this
Agreement, the term of this Agreement shall be extended for one day each day
until such time as the board of directors of the Holding Company (the "Board")
or Executive elects not to extend the term of the Agreement by giving written
notice to the other party in accordance with Section 4 of this Agreement, in
which case the term of this Agreement shall be fixed and shall end on the third
anniversary of the date of such written notice.
2. CHANGE IN CONTROL.
_________________
(a) Upon the occurrence of a Change in Control of the Holding Company or the
Bank (as herein defined) followed by the Termination of Executive's employment
at any time during the term of this Agreement, other than for Cause, as defined
in Section 2(c) hereof, the provisions of Section 3 shall apply. "Termination"
shall mean (i) Executive's dismissal by the Company or the Bank other than for
Cause (as defined herein) or (ii) Executive's voluntary termination of
employment following any demotion, change of title, office or significant
authority, scope of authority or scope of responsibility, reduction in his
annual compensation or benefits, or relocation of his principal place of
employment by more than 20 miles from its location immediately prior to the
Change in Control. If Executive remains employed with the
1
<PAGE> 2
Holding Company or the Bank following a Change in Control and prior to an event
of Termination, Executive may voluntarily resign from employment for any reason
after one year following the occurrence of the Change in Control and receive a
reduced benefit, in accordance with the provisions of Section 3(b); provided
that such resignation from employment occurs within the term of this Agreement.
Notwithstanding the above, if Executive terminates employment upon an event of
"Termination" as set forth above, Executive shall receive full Termination
Benefits provided by this Agreement.
(b) For purposes of this Agreement, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Holding Company within the meaning of the Change in
Bank Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. ss. 303.4(a) with respect to
the Bank, and the Board of Governors of the Federal Reserve System ("FRB") at 12
C.F.R. ss. 225.41(b) with respect to the Holding Company, as in effect on the
date hereof; or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Bank or the Holding Company representing 10% or
more of the Bank's or the Holding Company's outstanding securities except for
any securities of the Bank purchased by the Holding Company or any securities of
the Bank or the Holding Company purchased by any employee benefit plan of the
Bank or the Holding Company, or (B) individuals who constitute the Board on the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided that any person becoming a director subsequent to
the date hereof whose election was approved by a vote of at least 75% of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity, or (D) a solicitation
of stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Bank with one
or more corporations, a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company, or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or Holding Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of a material loss to the Holding
Company or one of its affiliates caused
2
<PAGE> 3
by the Executive's willful, intentional and continued failure to substantially
perform stated duties (other than such failure resulting from incapacity due to
physical or mental illness), personal dishonesty, willful violation of any law,
rule, regulation (other than traffic violations or similar offenses) or final
cease and desist order. For purposes of this Section, no act, or the failure to
act, on Executive's part shall be "willful" unless done, or omitted to be done,
not in good faith and without reasonable belief that the action or omission was
in the best interest of the Holding Company or its affiliates. Notwithstanding
the foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than 75% of the members of the
Board at a meeting of the Board called and held for that purpose, finding that
in the good faith opinion of the Board, Executive was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. Executive shall not have the right to receive compensation or other
benefits for any period after the Date of Termination for Cause.
3. TERMINATION BENEFITS.
____________________
(a) Upon the occurrence of a Change in Control (as defined in Section 2)
followed by the Termination of Executive's employment at any time during the
term of this Agreement, other than for Cause (as defined in Section 2(c)), the
Holding Company shall be obligated to pay Executive, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, subject to certain conditions set forth herein, as severance pay or
liquidated damages, or both, a sum equal to 2.99 times Executive's average
annual taxable compensation for the five preceding taxable years that Executive
has been employed with the Company or the Bank as reported on Form W-2 with the
Internal Revenue Service ("IRS") or such lesser number of years in the event
that Executive shall have been employed with the Holding Company or the Bank for
less than five years. At the election of Executive such payment may be paid in a
lump sum or in equal monthly installments during the thirty-six (36) months
following Executive's Termination. In the event that no election is made,
payment to Executive will be made on a lump sum basis.
(b) If Executive resigns from employment with the Holding Company or the Bank
after one year following a Change in Control, and prior to an event of
Termination as defined in Section 2(a), Executive shall receive severance
benefits equal to six times Executive's current monthly taxable compensation;
provided that such resignation from employment occurs within the term of this
Agreement. In addition, the Holding Company shall cause to be continued life,
medical and disability coverage substantially identical to the coverage
maintained by the Bank for Executive prior to his severance, except to the
extent such coverage may be changed in its application to all Bank employees on
a nondiscriminatory basis. Such coverage shall cease upon the earlier of six (6)
full calendar months following Executive's resignation or the date Executive
secures comparable employment by an employer other than the Holding Company or
the Bank. Notwithstanding the above, if Executive terminates employment upon an
event of "Termination" as defined in Section 2(a), Executive shall receive full
Termination Benefits provided by this Agreement.
3
<PAGE> 4
(c) Upon the occurrence of a Change in Control of the Bank or the Holding
Company followed at any time during the term of this Agreement by Executive's
Termination of employment, other than for Termination for Cause, the Holding
Company shall cause to be continued life, medical and disability coverage
substantially identical to the coverage maintained by the Bank for Executive
prior to his severance, except to the extent such coverage may be changed in its
application to all Bank employees on a nondiscriminatory basis. Such coverage
shall cease upon earlier of the expiration of thirty-six (36) full calendar
months following the Date of Termination or the date Executive secures
comparable employment by an employer other than the Holding Company or the Bank.
(d) Nothing in this Agreement will deprive Executive of the right to receive
benefits due to him under or contributed by the Holding Company on his behalf
pursuant to any retirement, incentive, profit sharing, bonus, performance,
disability or other employee benefit plan maintained by the Holding Company or
its subsidiaries pursuant to the terms and conditions of such plan on the
Executive's behalf unless such benefits are otherwise paid to Executive under a
separate provision of this Agreement.
(e) As of the effective date of this Agreement, and annually as of the last
business day of December or soon thereafter, Executive shall make the election
referred to in Section 3(a) hereof with respect to whether the amounts payable
under said Section 3(a) shall be paid in a lump sum or on a monthly basis. Such
election shall be irrevocable for the year for which such election is made and
shall continue in effect until Executive has made his next annual election.
(f) Notwithstanding the paragraphs of Section 3, in the event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), or any successor thereof, (the "Termination Benefits")
would be deemed to include an "excess parachute payment" under
Section 280G of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G and the
Non-Triggering Amount would be greater than the aggregate value of
the Termination Benefits (excluding such reduction) minus the amount
of tax required to be paid by the Executive thereon by Section 4999
of the Code,
then the Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction hereby among the Termination Benefits shall be
determined by the Executive.
4
<PAGE> 5
4. NOTICE OF TERMINATION.
_____________________
(a) Any purported termination by the Holding Company, or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated.
(b) Subject to Section 4(c), "Date of Termination" shall mean the date
specified in the Notice of Termination which shall be immediately upon receipt
of such Notice in the case of Termination for Cause and which shall not be less
than thirty (30) days from the date such Notice of Termination is given in all
other cases.
(c) If, within thirty (30) days after any Notice of Termination is given, the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to his current annual
salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section 4(c) are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce any other amounts
due under this Agreement.
5. SOURCE OF PAYMENTS.
__________________
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company. Further, the Holding Company guarantees such payment and provision of
all amounts and benefits due to Executive under the Bank Agreement dated
_________, 1995 and, if such amount and benefits due from the Bank are not
timely paid or provided by the Bank, such amounts and benefits shall be paid and
provided by the Holding Company.
5
<PAGE> 6
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
_____________________________________________________
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Holding Company and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of the Holding Company or any of its affiliates or shall impose on
the Holding Company or any of its affiliates any obligation to employ or retain
Executive in its employ for any period.
7. NO ATTACHMENT.
_____________
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Holding Company and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
_______________________
(a) This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. EFFECT OF ACTION UNDER BANK AGREEMENT.
_____________________________________
To the extent that payments and benefits are paid to or received by Executive
under the Change-in-Control Agreement between Executive and the Bank dated
________, 1995 (the "Bank Agreement"), the amount of such payments and benefits
paid by the Bank will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement; provided, however, that
any benefits which are based upon compensation paid to
6
<PAGE> 7
Executive for services provided solely to the Holding Company or subsidiaries
other than the Bank, shall continue to be paid to Executive under this Agreement
notwithstanding any benefit paid to Executive under the Bank Agreement.
10. SEVERABILITY.
____________
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
___________________________
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
12. GOVERNING LAW.
_____________
The validity, interpretation, performance, and enforcement of this Agreement
shall be governed by the laws of the State of Maryland.
13. ARBITRATION.
___________
Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration, conducted before a panel of three
arbitrators sitting in a location selected by Executive within fifty (50) miles
from the location of the Holding Company, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
14. PAYMENT OF COSTS AND LEGAL FEES.
_______________________________
All reasonable costs and legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Holding Company if Executive is successful pursuant to
a legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
_______________
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance
7
<PAGE> 8
policy at its expense, or in lieu thereof, shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Maryland law and as provided in the Holding Company's articles of incorporation
and bylaws against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Holding
Company (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
16. SUCCESSOR TO THE HOLDING COMPANY.
________________________________
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
17. SIGNATURES.
__________
IN WITNESS WHEREOF, Provident Bankshares Corporation has caused this
Agreement to be executed by its duly authorized officer, and Executive has
signed this Agreement, on the ___ day of _________________, 1995.
ATTEST: PROVIDENT BANKSHARES CORPORATION
__________________________ By:_______________________________
Secretary
Seal
WITNESS:
___________________________ __________________________________
Executive
8
<PAGE> 1
EHIBIT 10.5 -- EXECUTIVE PROVIDENT BANK OF MARYLAND CHANGE IN CONTROL AGREEMENT
<PAGE> 2
PROVIDENT BANK OF MARYLAND
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of ______________, 1995 by and
between Provident Bank of Maryland (the "Bank"), a Maryland chartered trust
company, with its principal administrative office at 114 East Lexington Street,
Baltimore, Maryland, _____________ ("Executive"), and Provident Bankshares
Corporation (the "Holding Company"), a corporation organized under the laws of
the State of Maryland which is the holding company of the Bank.
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to protect Executive's position therewith for the
period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Bank.
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
_________________
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the date of execution of this
Agreement, the term of this Agreement shall be extended for one day each day
until such time as the board of directors of the Bank (the "Board") or Executive
elects not to extend the term of the Agreement by giving written notice to the
other party in accordance with Section 4 of this Agreement, in which case the
term of this Agreement shall be fixed and shall end on the third anniversary of
the date of such written notice.
2. CHANGE IN CONTROL.
_________________
(a) Upon the occurrence of a Change in Control of the Bank or the
Holding Company (as herein defined) followed by the Termination of Executive's
employment at any time during the term of this Agreement, other than for Cause,
as defined in Section 2(c) hereof, the provisions of Section 3 shall apply.
"Termination" shall mean (i) Executive's dismissal by the Company or the Bank
other than for Cause (as defined herein) or (ii) Executive's voluntary
termination of employment following any demotion, change of title, office or
significant authority, scope of authority or scope of responsibility, reduction
in his annual compensation or benefits, or relocation of his principal place of
employment by more than 20 miles from its location immediately prior to the
Change in Control. If Executive remains employed with the Holding Company or the
Bank following a Change in Control and
1
<PAGE> 2
prior to an event of Termination, Executive may voluntarily resign from
employment for any reason after one year following the occurrence of the Change
in Control and receive a reduced benefit, in accordance with the provisions of
Section 3(b); provided that such resignation from employment occurs within the
term of this Agreement. Notwithstanding the above, if Executive terminates
employment upon an event of "Termination" as set forth above, Executive shall
receive full Termination Benefits provided by this Agreement.
(b) For purposes of this Plan, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Holding Company within the meaning of the Change in
Bank Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. ss. 303.4(a) with respect to
the Bank, and the Board of Governors of the Federal Reserve System ("FRB") at 12
C.F.R. ss. 225.41(b) with respect to the Holding Company, as in effect on the
date hereof; or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Bank or the Holding Company representing 10% or
more of the Bank's or the Holding Company's outstanding securities except for
any securities of the Bank purchased by the Holding Company or any securities of
the Bank or the Holding Company purchased by any employee benefit plan of the
Bank or the Holding Company, or (B) individuals who constitute the Board on the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided that any person becoming a director subsequent to
the date hereof whose election was approved by a vote of at least 75% of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity, or (D) a solicitation
of stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Bank with one
or more corporations, a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company, or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or Holding Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of a material loss to the Holding
Company or the Bank caused by the Executive's willful, intentional and continued
failure to substantially perform stated duties
2
<PAGE> 3
(other than such failure resulting from incapacity due to physical or mental
illness), personal dishonesty, willful violation of any law, rule, regulation
(other than traffic violations or similar offenses) or final cease and desist
order. For purposes of this Section, no act, or the failure to act, on
Executive's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Holding Company or the Bank. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a copy of a resolution duly adopted by
the affirmative vote of not less than 75% of the members of the Board at a
meeting of the Board called and held for that purpose, finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause.
3. TERMINATION BENEFITS.
____________________
(a) Upon the occurrence of a Change in Control (as defined in Section 2)
followed by the Termination of the Executive's employment at any time during the
term of this Agreement, other than for Cause (as defined in Section 2(c)), the
Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, subject to
certain conditions set forth herein, as severance pay or liquidated damages, or
both, a sum equal to 2.99 times Executive's average annual taxable compensation
for the five most recent taxable years that Executive has been employed by the
Bank as reported on Form W-2 with the Internal Revenue Service ("IRS") or such
lesser number of years in the event that Executive shall have been employed by
the Bank for less than five years. At the election of Executive such payment may
be made in a lump sum or paid in equal monthly installments during the
thirty-six (36) months following Executive's Termination. In the event that no
election is made, payment to Executive will be made on a lump sum basis.
(b) If Executive resigns from employment with the Holding Company or the
Bank after one year following a Change in Control, and prior to an event of
Termination as defined in Section 2(a), Executive shall receive severance
benefits equal to six times Executive's current monthly taxable compensation;
provided that such resignation from employment occurs within the term of this
Agreement. In addition, the Bank shall cause to be continued life, medical and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his severance, except to the extent such coverage
may be changed in its application to all Bank employees on a nondiscriminatory
basis. Such coverage shall cease upon the earlier of six (6) full calendar
months following Executive's resignation or the date Executive secures
comparable employment by an employer other than the Holding Company or the Bank.
Notwithstanding the above, if Executive terminates employment upon an event of
"Termination" as defined in Section 2(a), Executive shall receive full
Termination Benefits provided by this Agreement.
3
<PAGE> 4
(c) Upon the occurrence of a Change in Control of the Bank or the
Holding Company followed at any time during the term of this Agreement by
Executive's Termination of employment, other than for Termination for Cause, the
Bank shall cause to be continued life, medical and disability coverage
substantially identical to the coverage maintained by the Bank for Executive
prior to his severance, except to the extent such coverage may be changed in its
application to all Bank employees on a nondiscriminatory basis. Such coverage
shall cease upon the earlier of the expiration of thirty-six (36) full calendar
months from the Date of Termination or the date Executive secures comparable
employment by an employer other than the Holding Company or the Bank.
(d) Nothing in this Agreement will deprive Executive of the right to
receive benefits due him under or contributed by the Bank or Holding Company on
his behalf pursuant to any retirement, incentive, profit sharing, bonus,
performance, disability or other employee benefit plan maintained by the Holding
Company or its subsidiaries pursuant to the terms and conditions of such plans
on the Executive's behalf unless such benefits are otherwise paid to the
Executive under a separate provision of this Agreement.
(e) As of the effective date of this Agreement, and annually as of the
last business day of December or soon thereafter, Executive shall make the
election referred to in Section 3(a) hereof with respect to whether the amounts
payable under said Section 3(a) shall be paid in a lump sum or on a monthly
basis. Such election shall be irrevocable for the year for which such election
is made and shall continue in effect until the Executive has made his next
annual election.
(f) Notwithstanding the paragraphs of Section 3, in the event that:
(i) the aggregate payments or benefits to be made or
afforded to Executive, which are deemed to be
parachute payments as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the
"Code"), or any successor thereof, (the "Termination
Benefits") would be deemed to include an "excess
parachute payment" under Section 280G of the Code;
and
(ii) if such Termination Benefits were reduced to an
amount (the "Non- Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount
equal to three (3) times Executive's "base amount,"
as determined in accordance with said Section 280G
and the Non- Triggering Amount would be greater than
the aggregate value of the Termination Benefits
(excluding such reduction) minus the amount of tax
required to be paid by the Executive thereon by
Section 4999 of the Code,
then the Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction hereby among the Termination Benefits shall be
determined by the Executive.
4
<PAGE> 5
4. NOTICE OF TERMINATION.
_____________________
(a) Any purported Termination by the Bank or by Executive in connection
with a Change in Control shall be communicated by Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(b) Subject to Section 4(c), "Date of Termination" shall mean the date
specified in the Notice of Termination which shall be immediately upon receipt
of such Notice in the case of Termination for Cause and shall not be less than
thirty (30) days from the date such Notice of Termination is given in all other
cases.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to his annual salary) and continue
him as a participant in all compensation, benefit and insurance plans in which
he was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section 4(c) are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
5. SOURCE OF PAYMENTS.
__________________
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank.
Further, the Holding Company guarantees such payment and provision of all
amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid or provided by the Holding Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
_____________________________________________________
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Bank and Executive, except
that this Agreement
5
<PAGE> 6
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of Bank or shall impose on the Bank any obligation to
employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
_____________
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank, the Holding Company and their respective successors and
assigns.
8. MODIFICATION AND WAIVER.
_______________________
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. SEVERABILITY.
____________
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
6
<PAGE> 7
10. HEADINGS FOR REFERENCE ONLY.
___________________________
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
11. GOVERNING LAW.
_____________
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Maryland.
12. ARBITRATION.
___________
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank's main office, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
13. PAYMENT OF COSTS AND LEGAL FEES.
_______________________________
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank (which payments are guaranteed by the
Holding Company pursuant to Section 5 hereof) if Executive is successful
pursuant to a legal judgment, arbitration or settlement.
14. INDEMNIFICATION.
_______________
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Maryland law and as provided in the Bank's articles of
incorporation and bylaws against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Bank or the Holding Company (whether or not he continues to be
a director or officer at the time of incurring such expenses or liabilities),
such expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements.
7
<PAGE> 8
15. SUCCESSOR TO THE BANK
_____________________
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
16. SIGNATURES.
__________
IN WITNESS WHEREOF, Provident Bank and Provident Bankshares Corporation
have caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the ___ day of _____, 1995.
ATTEST: PROVIDENT BANK OF MARYLAND
_____________________ By:______________________________
Secretary
SEAL
ATTEST: PROVIDENT BANKSHARES CORPORATION
(Guarantor)
___________________________ By:______________________________
Secretary
SEAL
WITNESS:
___________________________ _________________________________
Executive
8
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
_________________________________________________________________________________________
Twelve Months Ended
December 31
(in thousands, except per share data) 1995 1994 1993
_________________________________________________________________________________________
Primary:
_______
<S> <C> <C> <C>
Actual shares outstanding 7,897 7,656 6,607
Average shares outstanding 7,804 6,902 6,571
Net effect of dilutive stock options
based on the treasury stock method
using the average market price 381 396 330
_________ _________ _________
Total Shares Outstanding 8,185 7,298 6,901
========= ========= =========
Net Income $ 18,025 $ 12,530 $ 8,131
==========================================
Per Share Amount $ 2.20 $ 1.72 $ 1.18
==========================================
Fully Diluted:
_____________
Actual shares outstanding 7,897 7,656 6,607
Average shares outstanding 7,804 6,902 6,572
Net effect of dilutive stock options based
on the treasury stock method using the
average market price or quarter end price,
whichever is greater 399 396 364
_________ _________ _________
Total Shares Outstanding 8,203 7,298 6,936
========= ========= =========
Net Income $ 18,025 $ 12,530 $ 8,131
==========================================
Per Share Amount $ 2.20 $ 1.72 $ 1.17
==========================================
Note: Amounts for 1994 and 1993 have been restated for the 5% stock dividend paid during 1995.
</TABLE>
<PAGE> 1
EXHIBIT 21
__________
Subsidiaries of Provident Bankshares Corporation
________________________________________________
Provident Bank of Maryland
Provident Mortgage Corp.
Provident Financial Services, Inc.
Provident Investment Center, Inc.
Banksure Insurance Corporation
PB Investment Corporation
Provident Lease Corp., Inc.
Lexington Properties Management, Inc.
LPM Sub 1, Inc.
LPM Sub 2, Inc.
LPM Sub 3, Inc.
LPM Sub 4, Inc.
LPM Sub 5, Inc.
LPM Sub 6, Inc.
LPM Sub 7, Inc.
LPM Sub 8, Inc.
LPM Sub 9, Inc.
LPM Sub 10, Inc.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement
Number 33-19352 on Form S-8 dated December 29, 1987, Registration Statement
Number 33-22552 on Form S-8 dated June 15, 1988, Registration Statement Number
33-37502 on Form S-8 dated October 31, 1990, Registration Statement Number
33-51462 on Form S-8 dated August 31, 1992, and Registration Statement Number
33-73162 on Form S-3 dated March 7, 1994 and amended thereto August 18, 1994 and
Registration Statement Number 33-62859 on Form S-3 dated September 22, 1995 of
our report dated January 18, 1996, on our audits of the consolidated financial
statements of Provident Bankshares Corporation as of December 31, 1995 and 1994
and for the years ended December 31, 1995, 1994 and 1993, which report is
included in this Form 10-K.
/s/ Coopers & Lybrand L.L.P
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 8, 1996
<PAGE> 1
PROVIDENT BANKSHARES CORPORATION
Power of Attorney
_________________
Each of the undersigned persons, in his or her capacity as an
officer or director, or both, of Provident Bankshares Corporation (the
"Company"), hereby appoints Carl W. Stearn, James R. Wallis, and R.
Wayne Hall, and each of them, with full power of substitution and
resubstitution and with full power in each to act without the others,
his or her attorney-in-fact and agent for the following purposes:
1. To sign for him or her, in his or her name and in his or her
capacity as an officer or director, or both, of the Company, an Annual
Report on Form 10-K for the Company pursuant to Section 13 of the
Securities Exchange Act of 1934, and any amendments thereto (such
report, together with all exhibits and documents therein and all such
amendments, the "Form 10-K").
2. To file or cause to be filed the Form 10-K with the
Securities and Exchange Commission;
3. To take all such other action as any such attorney-in-fact,
or his substitute, may deem necessary or desirable in connection with
Form 10-K.
<PAGE> 2
This power of attorney shall continue in full force and effect
unitl revoked by the undersigned in a writing filed with the Secretary
of the Company.
/s/ Carl W. Stearn December 20, 1995
____________________________
Carl W. Stearn
/s/ Peter M. Martin December 20, 1995
____________________________
Peter M. Martin
/s/ James R. Wallis December 20, 1995
____________________________
James R. Wallis
____________________________ December 20, 1995
R. Wayne Hall
/s/ Robert B. Barnhill, Jr. December 20, 1995
____________________________
Robert B. Barnhill, Jr.
/s/ Melvin A. Bilal December 20, 1995
____________________________
Melvin A. Bilal
/s/ Dr. Calvin W. Burnett December 20, 1995
____________________________
Dr. Calvin W. Burnett
<PAGE> 3
/s/ Charles W. Cole December 20, 1995
____________________________
Charles W. Cole
/s/ M. Jenkins Cromwell, Jr. December 20, 1995
____________________________
M. Jenkins Cromwell, Jr.
/s/ Pierce B. Dunn December 20, 1995
____________________________
Pierce B. Dunn
/s/ Clivie C. Haley, Jr. December 20, 1995
____________________________
Clivie C. Haley, Jr.
/s/ Mark K. Joseph December 20, 1995
____________________________
Mark K. Joseph
/s/ Norman J. Louden December 20, 1995
____________________________
Norman J. Louden
/s/ Ronald L. Mason, Sr. December 20, 1995
____________________________
Ronald L. Mason, Sr.
/s/ Sister Rosemarie Nassif December 20, 1995
____________________________
Sister Rosemarie Nassif
/s/ C. William Pacy December 20, 1995
____________________________
C. William Pacy
<PAGE> 4
/s/ Francis G. Riggs December 20, 1995
____________________________
Francis G. Riggs
/s/ Shelia K. Riggs December 20, 1995
____________________________
Shelia K. Riggs
/s/ Thomas J.S. Waxter, Jr. December 20, 1995
____________________________
Thomas J.S. Waxter, Jr.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This legend contains summary information extracted from the Form 10-K and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000818969
<NAME> PROVIDENT BANKSHARES CORPORATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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<TOTAL-ASSETS> 2,562,961
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0
0
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<SECURITIES-GAINS> (2,729)
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<INCOME-PRETAX> 27,527
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</TABLE>
