<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended Commission File Number
March 31, 1997 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
Incorporation or Organization) Identification
Number)
114 East Lexington Street; Baltimore, Maryland 21202
----------------------------------------------------
(Address of Principal Executive Offices)
(410) 281-7000
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, par value $1.00 per share, 8,591,092 shares outstanding at May 2,
1997.
<PAGE> 2
PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Condition--
March 31, 1997 and 1996 and December 31, 1996 3
Consolidated Statement of Income--
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows--
Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 9
PART II - OTHER INFORMATION 13
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 14
EXHIBIT INDEX 15
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF CONDITION
Provident Bankshares Corporation and Subsidiaries
<TABLE>
<CAPTION>
March 31, December 31, March 31,
- ----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and Due From Banks $ 57,182 $ 54,153 $ 52,956
Short-Term Investments 1,455 11,003 4,859
Mortgage Loans Held for Sale 37,699 32,228 68,810
Securities Available for Sale 969,485 882,905 953,060
Securities Held to Maturity (Market Value $31,346, $29,676
and $32,825 at March 31, 1997, December 31, 1996
and March 31, 1996, respectively) 31,878 30,202 33,359
Loans:
Consumer 1,152,674 1,100,702 866,025
Commercial Business 258,218 250,395 215,381
Real Estate -- Construction 101,748 99,473 88,192
Real Estate -- Mortgage 280,609 288,176 273,479
- ----------------------------------------------------------------------------------------------------------------------------
Total Loans 1,793,249 1,738,746 1,443,077
Less: Allowance for Loan Losses 25,335 24,828 21,556
- ----------------------------------------------------------------------------------------------------------------------------
Net Loans 1,767,914 1,713,918 1,421,521
- ----------------------------------------------------------------------------------------------------------------------------
Premises and Equipment, Net 33,327 33,031 33,037
Accrued Interest Receivable 20,684 19,637 17,174
Investment Securities Sold Not Delivered -- -- 53,830
Other Assets 26,017 21,762 24,930
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,945,641 $2,798,839 $ 2,663,536
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-Bearing $ 164,403 $ 150,360 $ 141,847
Interest-Bearing 1,740,512 1,615,865 1,505,227
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,904,915 1,766,225 1,647,074
- ----------------------------------------------------------------------------------------------------------------------------
Short-Term Borrowings 552,271 553,979 500,637
Long-Term Debt 263,444 256,217 252,812
Investment Securities Purchased Not Received -- -- 59,397
Other Liabilities 26,262 25,237 22,305
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,746,892 2,601,658 2,482,225
- ----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock (Par Value $1.00) Authorized 30,000,000 Shares,
Issued 8,818,658, 8,705,395 and 8,243,556 Shares at March 31, 1997,
December 31, 1996 and March 31, 1996, respectively 8,818 8,705 8,244
Capital Surplus 97,136 95,005 81,485
Retained Earnings 101,969 97,249 96,983
Net Unrealized Loss on Debt Securities (6,684) (1,288) (2,911)
Treasury Stock at Cost - 228,066 Shares (2,490) (2,490) (2,490)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 198,749 197,181 181,311
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,945,641 $2,798,839 $ 2,663,536
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
CONSOLIDATED STATEMENT OF INCOME
Provident Bankshares Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- --------------------------------------------------------------------------------------------
(in thousands, except per share data) 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 36,272 $ 29,461
Interest on Securities 16,740 16,746
Tax-Advantaged Interest 464 752
Interest on Short-Term Investments 107 37
- --------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 53,583 46,996
- --------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits 17,559 15,069
Interest on Short-Term Borrowings 7,700 6,501
Interest on Long-Term Debt 4,007 3,736
- --------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 29,266 25,306
- --------------------------------------------------------------------------------------------
NET INTEREST INCOME 24,317 21,690
Less: Provision for Loan Losses 834 5,400
- --------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 23,483 16,290
- --------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service Charges on Deposit Accounts 5,231 3,615
Mortgage Banking Activities 2,004 3,300
Commissions and Fees 861 753
Net Securities Gains 71 5,070
Other Non-Interest Income 1,417 1,104
- --------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 9,584 13,842
- --------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 11,794 12,123
Occupancy Expense, Net 2,092 2,015
Furniture and Equipment Expense 1,646 1,502
External Processing Fees 2,665 2,288
Other Non-Interest Expense 4,940 3,955
- --------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 23,137 21,883
- --------------------------------------------------------------------------------------------
INCOME BEFORE TAXES 9,930 8,249
Income Tax Expense 3,415 2,944
- --------------------------------------------------------------------------------------------
NET INCOME $ 6,515 $ 5,305
============================================================================================
PER SHARE AMOUNTS:
Net Income -- Primary $ 0.73 $ 0.61
Net Income -- Fully Diluted $ 0.73 $ 0.61
============================================================================================
</TABLE>
4
<PAGE> 5
CONSOLIDATED STATEMENT OF CASH FLOWS
Provident Bankshares Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended March 31,
=======================================================================================================================
(in thousands) 1997 1996
=======================================================================================================================
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 6,515 $ 5,305
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operating Activities:
Depreciation and Amortization 1,668 1,485
Provision for Loan Losses 834 5,400
Provision for Deferred Income Tax Benefit (613) (293)
Realized Net Securities Gains (71) (5,070)
Loans Originated or Acquired and Held for Sale (67,687) (166,970)
Proceeds from Sales of Loans 62,692 185,056
Gain on Sales of Loans (476) (570)
Other Operating Activities (523) (2,824)
- -----------------------------------------------------------------------------------------------------------------------
Total Adjustments (4,176) 16,214
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,339 21,519
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Principal Collections and Maturities of Securities Available for Sale 29,971 54,077
Principal Collections and Maturities of Securities Held to Maturity 22 1,545
Proceeds on Sales of Securities Available for Sale 18,621 165,949
Purchases of Securities Held to Maturity (1,712) (3,500)
Purchases of Securities Available for Sale (144,277) (166,446)
Loan Originations and Purchases Less Principal Collections (54,498) (113,679)
Purchases of Premises and Equipment (1,643) (1,229)
=======================================================================================================================
NET CASH USED BY INVESTING ACTIVITIES (153,516) (63,283)
=======================================================================================================================
FINANCING ACTIVITIES:
Net Increase in Deposits 138,690 77,735
Net Decrease in Short-Term Borrowings (1,708) (17,004)
Proceeds from Long-Term Debt 35,000 25,000
Payments and Maturities of Long-Term Debt (27,773) (40,053)
Issuance of Common Stock 2,244 2,653
Cash Dividends on Common Stock (1,795) (1,353)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 144,658 46,978
=======================================================================================================================
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,519) 5,214
Cash and Cash Equivalents at Beginning of Year 65,156 52,601
=======================================================================================================================
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 58,637 $ 57,815
=======================================================================================================================
SUPPLEMENTAL DISCLOSURES
- -----------------------------------------------------------------------------------------------------------------------
Interest Paid, Net of Amount Capitalized $ 157,747 $ 14,648
Income Taxes Paid 29 2,060
</TABLE>
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
MARCH 31, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. For further information, refer to the consolidated financial statements
and notes thereto included in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1996 as filed with the Securities and Exchange
Commission on March 7, 1997.
NOTE B - PER SHARE INFORMATION
Net income per share is based on the number of weighted average common
shares outstanding for the three month period ended March 31, 1997 (8,891,452
shares) which includes common stock equivalents resulting from outstanding stock
options. For the three month period ended March 31, 1997 dividends of $.21 per
common share were declared and paid. The results for 1996 have been given
retroactive treatment to the beginning of the year for the May 10, 1996 stock
dividend. With the restatement for the stock dividend in the second quarter
1996, the first quarter restated earnings per share were $.61 for the three
month period ended March 31, 1996.
The Corporation will adopt Statement of Financial Accounting Standards
No. 128 - "Earnings Per Share" ("SFAS No. 128") on December 31, 1997. SFAS
No. 128 requires the Corporation to change its method of computing, presenting
and disclosing earnings per share information. Upon adoption, all prior period
data presented will be restated to conform to the provisions of SFAS No. 128.
Adoption of this standard is not expected to have a material impact on the
Corporation's financial statements.
NOTE C - INVESTMENT SECURITIES
Effective December 31, 1993 the Corporation adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). Under SFAS No. 115, the investment
portfolio is divided among three categories: investment securities, securities
available for sale and 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 reported at fair value with any unrealized
appreciation or depreciation in value reported, net of applicable taxes,
6
<PAGE> 7
directly as a separate component of stockholders' equity as an unrealized
gain or loss on debt securities and therefore, has no effect on the reported
earnings of the Corporation.
The aggregate amortized cost and market values of the investment
securities portfolio at March 31 were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
(in thousands) COST GAINS LOSSES VALUE
=================================================================================================================
<S> <C> <C> <C> <C>
SECURITITES AVAILABLE FOR SALE
U.S. Treasury and Government
Agencies and Corporations $ 5,001 $ 3 $ -- $ 5,004
Mortgage-Backed Securities 926,635 3,195 14,109 915,721
Municipal Securities 18,878 222 396 18,704
Other Debt Securities 30,028 61 33 30,056
- -----------------------------------------------------------------------------------------------------------------
Total Securities Available for Sale 980,542 3,481 14,538 969,485
- -----------------------------------------------------------------------------------------------------------------
SECURITITES HELD TO MATURITY
U.S. Treasury and Government
Agencies and Corporations 16,026 43 -- 16,069
Mortgage-Backed Securities 15,852 -- 575 15,277
- -----------------------------------------------------------------------------------------------------------------
Total Securities Held to Maturity 31,878 43 575 31,346
- -----------------------------------------------------------------------------------------------------------------
Total Investment Securities Portfolio $ 1,012,420 $ 3,524 $ 15,113 $ 1,000,831
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, 1996
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITITES AVAILABLE FOR SALE
U.S. Treasury and Government
Agencies and Corporations $ 27,187 $ 499 $ 458 $ 27,228
Mortgage-Backed Securities 861,635 4,968 10,074 856,529
Municipal Securities 11,551 296 119 11,728
Other Debt Securities 57,593 773 791 57,575
- ----------------------------------------------------------------------------------------------------------------
Total Securities Available for Sale 957,966 6,536 11,442 953,060
- ----------------------------------------------------------------------------------------------------------------
SECURITITES HELD TO MATURITY
U.S. Treasury and Government
Agencies and Corporations 15,391 35 -- 15,426
Mortgage-Backed Securities 17,968 -- 569 17,399
- ----------------------------------------------------------------------------------------------------------------
Total Securities Held to Maturity 33,359 35 569 32,825
- ----------------------------------------------------------------------------------------------------------------
Total Investment Securities Portfolio $ 991,325 $ 6,571 $ 12,011 $ 985,885
================================================================================================================
</TABLE>
At March 31, 1997 a net unrealized loss of $6.7 million was reflected as a
separate component of Stockholders' Equity in the Consolidated Statement of
Condition as compared to a net unrealized loss of $1.3 million on Securities
Available for Sale at December 31, 1996. For details regarding investment
securities at December 31, 1996, refer to Note 3 of the Consolidated Financial
Statements incorporated in the Corporation's 10-K filed March 7, 1997.
7
<PAGE> 8
NOTE D - SERVICING ASSETS
Effective January 1, 1997, the Corporation adopted the provisions of Statement
of Accounting Standards No. 125 - "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125"). This new
Statement supersedes SFAS No. 122 - "Accounting for Mortgage Servicing Rights",
which was adopted on January 1 of the prior year. The adoption of SFAS No. 125
has had no significant impact on the earnings or financial condition of the
Corporation. SFAS No. 125 requires the Corporation to carry any retained
interest in a transferred asset on the Statement of Condition as a servicing
asset. In the case of the Corporation, the servicing assets represent the fair
value of the servicing contracts associated with the purchase or origination
and subsequent securitization of the mortgage loans. Servicing assets are
amortized in proportion to and over the period of estimated net servicing
income. Servicing assets are evaluated periodically for impairment based on
their fair value and impairment, if any, is recognized through a valuation
allowance and a charge to operations. At March 31, 1997 no valuation allowance
was required.
The following is an analysis of servicing asset balance, net of accumulated
amortization, for the quarter ended March 31, 1997:
<TABLE>
<CAPTION>
March 31,
(in thousands) 1997
- -------------------------------------------------------------------
<S> <C>
Balance at January 1, 1997 $2,085
Additions 209
Amortization 57
Sales of Servicing Assets --
- -------------------------------------------------------------------
Balance at March 31, 1997 $2,237
===================================================================
</TABLE>
NOTE E - CONTINGENT LIABILITIES
In April of 1997, a judgment stemming from a lawsuit alleging that
Provident Bank of Maryland had failed to fully honor a letter of credit was
entered against Provident in the amount of $5.2 million. This decision reversed
an earlier court holding in favor of Provident. The Bank plans to appeal the
decision. Management, in consultation with legal counsel, is of the opinion
that there exists a significant possibility that the award will be reversed or
substantially altered at the appellate level. The ultimate outcome of the case
will not have a material adverse effect on the Corporation's financial
statements.
NOTE F - PENDING ACQUISITION
On March 10, 1997, the Corporation and First Citizens Financial Corporation, a
$694 million savings bank holding company, entered into a definitive merger
agreement whereby each First Citizens share will be converted into .73 shares
of Provident common stock, subject to adjustments and certain circumstances.
Upon shareholder and various regulatory approvals, First Citizens Financial
Corporation will be merged into Provident Bankshares Corporation using the
pooling-of-interest accounting method. The transaction is expected to be
finalized in the third quarter of 1997.
8
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW
EARNINGS SUMMARY
Provident recorded a 23% increase in net income over the same period a year
ago. Net income for the quarter ended March 31, 1997 was $6.5 million or $.73
per share, compared to $5.3 million or $.61 per share for the first quarter of
the prior year. The higher earnings in 1997 were mainly due to loan growth and
increased fee income. Consumer loans outstanding grew $287 million as total
loans increased 24% to $1.79 billion. Non-interest income, net of security
gains, increased 8% over the first quarter of 1996, driven by fee based services
on higher account volume. Higher account volume and continued investment in
business initiatives contributed to a 5.7% increase in operating expenses. There
was a $834 thousand provision for loan losses during the quarter with net
charge-offs of $327 thousand.
NET INTEREST INCOME
Resulting from growth in average earning assets, tax-equivalent net
interest income rose to $24.5 million for the first quarter of 1997, a $2.7
million increase over the prior year. Income growth was also influenced by a 2
basis point increase in net interest margin.
Provident's interest income on earning assets rose $6.6 million from the
first quarter of 1996, the result of a $303 million expansion in average earning
asset balances and an 18 basis point rise in yield. Growth in total average
earning assets was provided by increases of $299 million in consumer loans, $40
million in commercial business loans, $20 million in real estate construction
and $9 million in commercial mortgage loans. Investments decreased $41 million
to support the previously discussed loan growth. The increase in the yield was
mainly attributable to the shift from lower yielding investments to higher
yielding loans.
Total interest expense was $4.0 million above a year ago, the combined
result of an increase of 18 basis points in the average rate paid and a $267
million increase in the average outstanding balance of interest-bearing
liabilities. Included in this increase were $163 million in matched maturity
brokered deposits, $27
9
<PAGE> 10
million in interest bearing demand/money market deposits, $11 million in savings
and $74 million of borrowings.
As a result of off-balance sheet transactions undertaken to insulate the
bank from interest rate risks, net interest income has been decreased by $913
thousand for the quarter ending March 31, 1997. The amortization of closed
positions accounted for $741 thousand of the net interest income reduction. The
remainder of the reduction, $172 thousand, reflects the impact of off-balance
sheet positions used in our on going interest rate risk management.
The forward yield curve indicates that short-term rates will increase by 83
basis points and long-term rates will increase 20 basis points over the next
twelve months. The Corporation's analysis indicates that if management does not
adjust its March 31, 1997 off-balance sheet positions and the forward yield
curve assumptions occur, off-balance sheet positions would decrease net interest
income by $4.9 million over the next twelve months. This compares to a decrease
in net interest income of $5.9 million should interest rates remain unchanged.
Included in the forgoing is the amortization of closed positions which will
reduce net interest income $3.1 million over the next twelve months.
PROVISION FOR LOAN LOSSES
The Corporation recorded an $834 thousand provision for loan losses for the
quarter. Net charge-offs were $327 thousand compared to net charge-offs of $5.3
million for the first quarter of 1996. The Corporation continues to emphasize
loan quality and closely monitors potential problem credits. 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 for loan losses at March 31, 1997 was
$25.3 million, up from the $21.6 million a year ago. At March 31, 1997, the
allowance represented 1.41% of total loans and 369% of non-performing loans.
Total non-performing loans were $6.9 million at March 31, 1997. Beginning in
1997, the Corporation no longer places consumer loans in non-accrual status to
better conform to standard industry practice. Consumer loans and any uncollected
accrued interest are generally charged-off at 120 days past due. Non-performing
loans as a percent of loans outstanding at March 31, 1997 were .38%.
10
<PAGE> 11
In April of 1997, a judgment stemming from a lawsuit alleging that
Provident Bank of Maryland had failed to fully honor a letter of credit was
entered against Provident in the amount of $5.2 million. This decision reversed
an earlier court holding in favor of Provident. The Bank plans to appeal the
decision. Management, in consultation with legal counsel, is of the opinion that
there exists a significant possibility that the award will be reversed or
substantially altered at the appeallate level. The ultimate outcome of the case
will not have a material adverse effect on the Corporation's financial
statements.
NON-INTEREST INCOME
Non-interest income totaled $9.6 million in the first quarter of 1997
compared to $13.8 million in 1996. Net of security gains, non-interest income
increased $741 thousand. This increase was driven by a rise in fee based
services caused by higher account volume. Mortgage banking income declined by
$1.3 million due to lower originations associated with the decision to divest
five mortgage origination offices in Pennsylvania and New Jersey. Mortgage
originations were $64.6 million for the first quarter of 1997 compared to $102.0
million for the first quarter of 1996. Deposit service fees continued their
upward trend, increasing 45% over the prior year following an 18% rise in the
number of retail demand deposit accounts from the first quarter of 1996 and a
change in the fee structure. Commercial deposit fees increased 31% and
commercial loan fees increased 32%, reflecting an increase in loan originations.
NON-INTEREST EXPENSE
First quarter non-interest expense of $23.1 million was 5.7% or $1.3
million higher than a year ago. Salaries and benefits declined $329 thousand
mainly related to lower mortgage banking business.
Occupancy costs increased $77 thousand or 3.8% over last year and furniture
and equipment expense increased $144 thousand. These increases were required by
branch network expansion and upgrades of technology.
External processing fees increased $377 thousand due to increased account
volume. All other expenses increased a total of $985 thousand mainly associated
with a $281 thousand increase in advertising and promotion expense, $227
thousand increase in professional services and a $186 thousand charge for
closing certain mortgage origination offices.
11
<PAGE> 12
INCOME TAXES
Provident recorded income tax expense of $3.4 million on income before
taxes of $9.9 million, an effective tax rate of 34.4%. During the first quarter
of 1996, Provident's tax expense was $2.9 million on pre-tax income of $8.2
million, an effective tax rate of 35.7%. The decrease in the effective tax rate
is primarily due to lower state income tax expense.
FINANCIAL CONDITION
Total assets of the Corporation increased $147 million from December 31,
1996 to March 31, 1997 as loan balances increased $54.5 million and securities
available for sale increased $86.6 million. Consumer loans were up $52 million,
commercial business loans $7.8 million and real estate construction loans $2.3
million. Real estate mortgage loans declined $7.6 million. Total deposits ended
the quarter at $1.9 billion, an increase of $138.7 million over the December 31,
1996 level. Non-interest bearing deposits increased $14.0 million from December
31, 1996 while interest bearing deposits increased $124.6 million. Borrowings
increased $5.5 million from December 31, 1996 ending the quarter at $816
million.
The primary source of liquidity at March 31, 1997 were loans held for sale
and investments available for sale, which totaled $1.0 billion. This represents
37% of total liabilities compared to 35% at December 31, 1996.
At quarter-end, the leverage ratio was 7.20% and total stockholders' equity
represented 10.65% of risk adjusted assets. These ratios exceed the minimum
requirements of the current leverage capital and risk-based capital standards
established by regulatory agencies.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - See Part I, Note E - Contingent Liabilities
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed as part of this report are listed below:
(3.1) Articles of Incorporation of Provident Bankshares
Corporation.*
(3.2) By-laws of Provident Bankshares Corporation, as
amended.**
(11) Statement re: Computation of Per Share Earnings.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
A Form 8-K was filed during the quarter regarding the pending
merger with First Citizens Financial Corporation.
* Incorporated by reference from Registrant's Registration Statement on Form
S-3 (File No. 33-73162) filed with the Commission on August 18, 1994.
** Incorporated by reference from Registrant's 1994 Annual Report on Form 10-K
(File No. 0-16421) filed with the Commission on February 17, 1995.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements 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
May 13, 1997 /s/ Peter M. Martin
-------------------
Peter M. Martin
President and Chief Operating Officer
May 13, 1997 /s/ R. Wayne Hall
-----------------
R. Wayne Hall
Treasurer
14
<PAGE> 15
EXHIBIT INDEX
Exhibit Description
- ------- -----------
(11) Statement re: Computation of
Per Share Earnings
(27) Financial Data Schedule
15
<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Three Months Ended
March 31
(in thousands, except per share data) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Primary:
- --------
Actual shares outstanding 8,591 8,015
===== =====
Average shares outstanding 8,567 8,370
Net effect of dilutive stock options
based on the treasury stock method
using the average market price 324 347
-------- --------
Total Shares Outstanding 8,891 8,717
===== =====
Net Income $ 6,515 $ 5,305
===== =====
Net Income Per Share $ 0.73 $ 0.61
==== ====
Fully Diluted:
- --------------
Actual shares outstanding 8,591 8,015
===== =====
Average shares outstanding 8,567 8,370
Net effect of dilutive stock options based
on the treasury stock method using the
average market price or quarter end price,
whichever is greater 324 366
-------- --------
Total Shares Outstanding 8,891 8,736
===== =====
Net Income $ 6,515 $ 5,305
===== =====
Net Income Per Share $ 0.73 $ 0.61
==== ====
</TABLE>
EPS amounts for 1996 have been restated for the 5% stock dividend in the second
quarter of 1996.
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000818969
<NAME> PROVIDENT BANKSHARES CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 57,182
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 969,485
<INVESTMENTS-CARRYING> 31,878
<INVESTMENTS-MARKET> 31,346
<LOANS> 1,793,249
<ALLOWANCE> 25,335
<TOTAL-ASSETS> 2,945,641
<DEPOSITS> 1,904,915
<SHORT-TERM> 552,271
<LIABILITIES-OTHER> 26,262
<LONG-TERM> 263,444
0
0
<COMMON> 8,818
<OTHER-SE> 189,931
<TOTAL-LIABILITIES-AND-EQUITY> 2,945,641
<INTEREST-LOAN> 36,272
<INTEREST-INVEST> 17,311
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 53,583
<INTEREST-DEPOSIT> 17,559
<INTEREST-EXPENSE> 29,266
<INTEREST-INCOME-NET> 24,317
<LOAN-LOSSES> 834
<SECURITIES-GAINS> 71
<EXPENSE-OTHER> 13,624
<INCOME-PRETAX> 9,930
<INCOME-PRE-EXTRAORDINARY> 9,930
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,515
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
<YIELD-ACTUAL> 3.61
<LOANS-NON> 6,865
<LOANS-PAST> 17,850
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 24,828
<CHARGE-OFFS> 939
<RECOVERIES> 612
<ALLOWANCE-CLOSE> 25,335
<ALLOWANCE-DOMESTIC> 25,335
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
