<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD
COMMISSION FILE NUMBER 0-16421
PROVIDENT BANKSHARES CORPORATION
--------------------------------
(Exact Name of Registrant as Specified in its Charter)
Maryland 52-1518642
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification
Number)
114 East Lexington Street, Baltimore, Maryland 21202
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(Address of Principal Executive Offices)
Not Applicable
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(Former Name, former Address and Former Fiscal Year if
Changed Since Last Report)
(410) 277-7000
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(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, 24,267,762 shares outstanding at
November 9, 1998.
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PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Condition
September 30, 1998 and 1997 and December 31, 1997 3
Consolidated Statement of Income - Unaudited
Three and Nine Months Ended September 30, 1998 and 1997 4
Consolidated Statement of Cash Flows - Unaudited
Nine Months Ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements - Unaudited 6
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
PART II - OTHER INFORMATION 13
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
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
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Statements contained in this Form 10-Q which are not historical facts are
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risk and uncertainties which could cause actual results to differ materially
from those projected. Such risk and uncertainties include potential changes in
interest rates, competitive factors in the financial services industry, general
economic conditions, the effect of new legislation and other risks detailed in
documents filed by the Company with the SEC from time to time.
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2
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF CONDITION
Provident Bankshares Corporation and Subsidiaries
September 30, December 31, September 30,
(dollars in thousands) 1998 1997 1997
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<S> <C> <C> <C>
ASSETS
Cash and Due From Banks $ 65,151 $ 68,580 $ 60,792
Short-Term Investments 10,067 350 2,526
Mortgage Loans Held for Sale 141,015 66,925 35,074
Securities Available for Sale 1,321,821 983,241 944,124
Loans:
Consumer 2,170,054 1,667,094 1,555,096
Commercial Business 354,848 288,289 282,332
Real Estate -- Construction 136,828 125,080 131,101
Real Estate -- Mortgage 464,036 620,605 631,693
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Total Loans 3,125,766 2,701,068 2,600,222
Less: Allowance for Loan Losses 39,943 36,861 35,197
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Net Loans 3,085,823 2,664,207 2,565,025
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Premises and Equipment, Net 40,460 37,402 37,165
Accrued Interest Receivable 41,214 31,032 28,292
Other Assets 89,211 75,002 27,452
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Total Assets $ 4,794,762 $ 3,926,739 $ 3,700,450
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LIABILITIES
Deposits:
Noninterest-Bearing $ 210,501 $ 196,178 $ 176,390
Interest-Bearing 3,025,800 2,558,337 2,479,522
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Total Deposits 3,236,301 2,754,515 2,655,912
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Short-Term Borrowings 421,703 347,291 373,283
Long-Term Debt 757,274 469,077 374,105
Other Liabilities 48,040 85,674 37,977
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Total Liabilities 4,463,318 3,656,557 3,441,277
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Corporation-Obligated Mandatorily Redeemable Capital Securities 39,238 - -
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STOCKHOLDERS' EQUITY
Common Stock (Par Value $1.00) Authorized 100,000,000 Shares,
Issued 24,786,977, 23,284,896 and 22,908,750 Shares;
at September 30, 1998, December 31, 1997 and September 30, 1997 24,787 23,285 22,909
Capital Surplus 171,879 131,191 126,615
Retained Earnings 96,791 113,463 107,191
Net Accumulated Other Comprehensive Income 7,780 4,733 4,948
Treasury Stock at Cost - 489,566 Shares at September 30, 1998 and
228,066 Shares at December 31, 1997 and September 30, 1997 (9,031) (2,490) (2,490)
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Total Stockholders' Equity 292,206 270,182 259,173
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Total Liabilities and Stockholders' Equity $ 4,794,762 $ 3,926,739 $ 3,700,450
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These financial statements should be read in conjunction with the accompanying notes.
</TABLE>
3
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME - UNAUDITED
Provident Bankshares Corporation and Subsidiaries
Three Months Ended Nine Months Ended
September 30, September 30,
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(in thousands, except per share data) 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 59,132 $ 53,469 $ 171,955 $ 149,331
Interest on Securities 23,695 16,192 60,164 51,892
Tax-Advantaged Interest 600 1,737 2,179 5,608
Interest on Short-Term Investments 51 77 160 238
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Total Interest Income 83,478 71,475 234,458 207,069
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INTEREST EXPENSE
Interest on Deposits 33,262 27,612 94,462 76,286
Interest on Short-Term Borrowings 5,648 7,156 14,460 24,230
Interest on Long-Term Debt 11,917 5,144 28,955 14,952
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Total Interest Expense 50,827 39,912 137,877 115,468
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Net Interest Income 32,651 31,563 96,581 91,601
Less: Provision for Loan Losses 2,195 4,330 8,244 7,217
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Net Interest Income after Provision for Loan Losses 30,456 27,233 88,337 84,384
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NON-INTEREST INCOME
Service Charges on Deposit Accounts 7,560 6,384 21,197 17,952
Mortgage Banking Activities 3,078 1,469 8,657 5,649
Commissions and Fees 1,000 920 3,247 2,848
Net Securities Gains 1,587 230 3,521 568
Other Non-Interest Income 2,722 1,706 8,084 4,895
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Total Non-Interest Income 15,947 10,709 44,706 31,912
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NON-INTEREST EXPENSE
Salaries and Employee Benefits 15,867 13,663 45,454 41,313
Occupancy Expense, Net 2,660 2,541 7,673 7,383
Furniture and Equipment Expense 2,033 1,881 5,874 5,498
External Processing Fees 3,612 3,299 10,419 9,198
Merger Related Expenses -- 10,047 -- 10,047
Capital Securities Expense 839 -- 1,529 --
Other Non-Interest Expense 6,608 5,603 18,952 17,306
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Total Non-Interest Expense 31,619 37,034 89,901 90,745
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Income Before Taxes 14,784 908 43,142 25,551
Income Tax Expense 4,884 882 14,212 9,602
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Net Income $ 9,900 $ 26 $ 28,930 $ 15,949
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Per Share Amounts:
Net Income -- Basic $ 0.40 $ 0.00 $ 1.18 $ 0.67
Net Income -- Diluted 0.39 0.00 1.13 0.65
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These financial statements should be read in conjunction with the accompanying notes.
</TABLE>
4
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
Provident Bankshares Corporation and Subsidiaries
Nine Months Ended
September 30,
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(in thousands) 1998 1997
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<S> <C> <C>
Operating Activities:
Net Income $ 28,930 $ 15,949
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operating Activities:
Depreciation and Amortization 19,217 5,825
Provision for Loan Losses 8,244 7,217
Provision for Deferred Income Tax Benefit (2,697) (3,808)
Realized Net Securities Gains (3,521) (568)
Loans Originated or Acquired and Held for Sale (656,909) (245,172)
Proceeds from Sales of Loans 587,680 247,514
Gain on Sales of Loans (4,861) (2,060)
Other Operating Activities (11,760) 11,024
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Total Adjustments (64,607) 19,972
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Net Cash Provided (Used) by Operating Activities (35,677) 35,921
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Investing Activities:
Principal Collections and Maturities of Securities Available for Sale 179,178 120,037
Principal Collections and Maturities of Securities Held to Maturity -- 13,130
Proceeds on Sales of Securities Available for Sale 446,403 210,249
Purchases of Securities Held to Maturity -- (15,259)
Purchases of Securities Available for Sale (1,010,444) (208,233)
Loan Originations and Purchases Less Principal Collections (438,702) (353,013)
Purchases of Premises and Equipment (8,201) (5,321)
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Net Cash Used by Investing Activities (831,766) (238,410)
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Financing Activities:
Net Increase in Deposits 481,786 369,768
Net Increase (Decrease) in Short-Term Borrowings 74,412 (229,152)
Proceeds from Long-Term Debt 475,380 97,000
Payments and Maturities of Long-Term Debt (187,183) (51,412)
Proceeds from Capital Securities 39,289 --
Issuance of Common Stock 5,840 3,871
Purchase of Treasury Stock (6,541) --
Cash Dividends on Common Stock (9,252) (5,766)
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Net Cash Provided by Financing Activities 873,731 184,309
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Increase (Decrease) in Cash and Cash Equivalents 6,288 (18,180)
Cash and Cash Equivalents at Beginning of Year 68,930 81,498
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Cash and Cash Equivalents at End of Period $ 75,218 $ 63,318
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Supplemental Disclosures
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Interest Paid, Net of Amount Capitalized $ 80,212 $ 56,737
Income Taxes Paid 12,426 11,101
Stock Dividend 36,350 14,606
Transfer of Securities Held to Maturity to Securities Available for Sale -- 88,318
These financial statements should be read in conjunction with the accompanying notes.
</TABLE>
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1998
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 nine month period ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. For further information, refer to the consolidated financial statements
and notes thereto included in the Provident Bankshares Corporation's ("the
Corporation") Annual Report on Form 10-K for the year ended December 31, 1997 as
filed with the Securities and Exchange Commission on March 19, 1998.
NOTE B - PER SHARE INFORMATION
The Corporation adopted Statement of Financial Accounting Standards No.
128 - "Earnings Per Share" ("SFAS No. 128") on December 31, 1997. SFAS No. 128
required the Corporation to change its method of computing, presenting and
disclosing earnings per share information. All prior period data presented has
been restated to conform to the provisions of SFAS No. 128. The following table
presents a summary of per share data and amounts for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
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(dollars in thousands, except per share data) 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Qualifying Net Income $ 9,900 $ 26 $ 28,930 $ 15,949
Basic EPS Shares 24,486 23,812 24,439 23,746
Basic EPS $ 0.40 $ 0.00 $ 1.18 $ 0.67
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Dilutive Shares 936 981 1,057 784
Diluted EPS Shares 25,422 24,793 25,496 24,530
Diluted EPS $ 0.39 $ 0.00 $ 1.13 $ 0.65
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</TABLE>
6
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NOTE C - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
The aggregate amortized cost and market values of the investment
securities portfolio at September 30, were as follows:
Gross Gross
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
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<S> <C> <C> <C> <C>
September 30, 1998
Securities Available for Sale
U.S. Treasury and Government
Agencies and Corporations $ 45,957 $ 43 $ -- $ 46,000
Mortgage-Backed Securities 1,127,701 15,107 155 1,142,653
Municipal Securities 26,791 981 -- 27,772
Other Debt Securities 108,502 101 3,207 105,396
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Total Securities Available for Sale $ 1,308,951 $ 16,232 $ 3,362 $ 1,321,821
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September 30, 1997
Securities Available for Sale
U.S. Treasury and Government
Agencies and Corporations $ 54,291 $ 35 $ 165 $ 54,161
Mortgage-Backed Securities 836,364 9,976 1,961 844,379
Municipal Securities 18,872 430 9 19,293
Other Debt Securities 26,414 -- 123 26,291
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Total Securities Available for Sale 935,941 10,441 2,258 944,124
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</TABLE>
At September 30, 1998 a net unrealized gain of $7.8 million was reflected
as Accumulated Other Comprehensive Income which is reflected separately as a
component of Stockholders' Equity in the Consolidated Statement of Condition and
therefore has no effect on the financial results of the Corporation's
operations. This compares to a net unrealized gain of $4.9 million at September
30, 1997. For details regarding investment securities at December 31, 1997,
refer to Notes 1 and 3 of the Consolidated Financial Statements incorporated in
the Corporation's 10-K filed March 19, 1998.
NOTE D - SERVICING ASSETS
Effective January 1, 1997, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 125 - "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). 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 September 30, 1998 no valuation allowance was required.
7
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<TABLE>
<CAPTION>
The following is an analysis of servicing asset balance, net of
accumulated amortization, during the period ended September 30, 1998:
September 30,
(in thousands) 1998
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<S> <C>
Balance at January 1, 1998 $ 1,984
Additions 10,304
Amortization 280
Sales of Servicing Assets 10,235
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Balance at September 30, 1998 $ 1,773
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</TABLE>
NOTE E - CONTINGENT LIABILITIES
In April 1997, a judgment stemming from a lawsuit alleging that Provident
Bank of Maryland ("Provident" or the "Bank") had failed to fully honor a letter
of credit was entered against Provident in the amount of $5.2 million, exclusive
of post-judgment interest. This decision reversed an earlier court holding in
favor of Provident. The Bank has appealed 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 - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS No. 130"). SFAS No. 130 establishes requirements for the
disclosure of comprehensive income in interim financial statements.
Comprehensive income is defined as net income plus transactions and other
occurrences which are the result of nonowner changes in equity. For the
Corporation, nonowner equity changes are comprised of unrealized gains or losses
on debt securities that will be accumulated with net income in determining
comprehensive income. This statement does not impact the historical financial
results of the Corporation's operations and is effective for years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. Adoption of this standard
did not have an impact on the Corporation's results of operations. Presented
below is a reconcilement of net income to comprehensive income indicating the
components of other comprehensive income.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
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(in thousands) 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net Income $ 9,900 $ 26 $ 28,930 $ 15,949
Other Comprehensive Income:
Unrealized Holding Gains (Losses) During the Period 7,386 7,470 8,561 10,996
Less: Reclassification Adjustment for Gains Included in
Net Income (1,587) (230) (3,521) (568)
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Other Comprehensive Income, Before Tax 5,799 7,240 5,040 10,428
Income Tax (Benefit) Related to Items of Other Comprehensive Income 2,293 2,861 1,993 4,124
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Other Comprehensive Income, After Tax 3,506 4,379 3,047 6,304
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Comprehensive Income $ 13,406 $ 4,405 $ 31,977 $ 22,253
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</TABLE>
8
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NOTE G - FUTURE ACCOUNTING DISCLOSURE REQUIREMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities." The statement
becomes effective for fiscal years beginning after June 15, 1999 and will not be
applied retroactively. The statement establishes accounting and reporting
standards for derivative instruments and hedging activity. Under the standard,
all derivatives must be measured at fair value and recognized as either assets
or liabilities in the financial statements.
The accounting for changes in fair value (gains and losses) of a
derivative is dependent on the intended use of the derivative and its
designation. Derivatives may be used to: 1) hedge exposure to change the fair
value of a recognized asset or liability or a firm commitment, referred to as a
fair value hedge, 2) hedge exposure to variable cash flow of forecasted
transactions, referred to as a cash flow hedge, 3) hedge foreign currency
exposure.
The Corporation only engages in fair value and cash flow hedges. In both
types of hedges, the effective portions of the hedges, although included in
earnings, do not affect corporate net income. Ineffective portions of hedges are
reported in and affect net earnings immediately. Derivatives not designed as a
hedging instrument have the changes in their fair value recognized in earnings
in the period of change. Management is currently assessing the potential impact
of SFAS No. 133 on future corporate operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW
EARNINGS SUMMARY
Provident Bankshares Corporation recorded net income for the quarter
ended September 30, 1998 of $9.9 million or $.40 per share basic and $.39
diluted. Net income for the quarter ended September 30, 1997 excluding merger
related expenses was $8.7 million or $.37 per share basic and $.35 diluted.
Reported earnings for the third quarter of 1997 were $26 thousand. The higher
earnings in 1998 were mainly due to loan growth and increased fee income.
Average consumer loans outstanding grew $479 million as total average loans
increased 14.3% to $2.91 billion. Non-interest income growth was driven by a
18.4% increase in fee based services on higher account volume and mortgage
banking business. Operating expenses net of capital securities and merger
related expenses increased 14.1 percent from the third quarter of 1997. This
increase is associated with continued network expansion, upgrading of branch
technology and increased mortgage banking business. There was a $2.2 million
provision for loan losses during the quarter with net charge-offs of $983
thousand.
NET INTEREST INCOME
Growth in average earning assets offset in part by a higher cost of
liabilities raised tax-equivalent net interest income to $32.9 million for the
third quarter of 1998, a $1.1 million increase over the prior year. The net
interest margin for the quarter declined 61 basis points from the same quarter
last year. The primary factors were declining interest rates and a flattened
treasury yield curve which compressed spreads and increased prepayments on
mortgages. In addition, leveraging the proceeds of the trust preferred capital
securities issued in the second quarter decreased the spread while increasing
earnings per share.
9
<PAGE> 10
Provident's interest income rose $12.0 million from the third quarter of
1997, the result of a $890 million expansion in average earning asset balances.
Growth in total average earning assets was provided by increases of $479 million
in consumer loans, $458 million in securities, $69 million in mortgage loans
held for sale and $39 million in commercial business loans. Real estate
mortgages decreased $117 million partly due to a $52 million sale during the
second quarter of loans susceptible to prepayments. The yield declined 53 basis
points to 7.45% versus 7.98% the prior year.
Total interest expense for the third quarter of 1998 was $10.9 million
above a year ago, the combined result of an increase of 11 basis points in the
average rate paid and a $792 million increase in the average outstanding balance
of interest-bearing liabilities. Included in this increase were $370 million in
matched maturity brokered deposits, $74 million in interest bearing demand/money
market deposits and $62 million in individual retirement account deposits.
Savings and direct certificates of deposit declined $1.5 million and $81
million, respectively. Borrowed money increased $361 million.
As a result of off-balance sheet transactions undertaken to insulate the
bank from interest rate risks, interest income increased by $184 thousand and
interest expense decreased by $79 thousand, for a total increase of $263
thousand in net interest income for the quarter ending September 30, 1998.
Included in this net interest income increase was the amortization of closed
positions which reduced net interest income by $565 thousand for the current
quarter. Without the amortization of closed positions, off-balance sheet
positions increased net interest income $829 thousand for the current quarter.
The forward yield curve indicates that short-term rates will decrease by
100 basis points and long-term rates will decrease by 10 basis points over the
next twelve months. The Corporation's analysis indicates that if management does
not adjust its September 30, 1998 off-balance sheet positions and the forward
yield curve assumptions occur, off-balance sheet positions, including
amortization of closed positions, would increase net interest income by $5.1
million over the next twelve months. This compares to an increase of $3.8
million should interest rates remain unchanged. Amortization of closed positions
will reduce net interest income by $743 thousand over the next twelve months.
Thus, without amortization of closed positions, net interest income would
increase $5.8 million over the next twelve months if the forward yield curve
assumptions occur and $4.5 million if rates remain unchanged.
PROVISION FOR LOAN LOSSES
The Corporation recorded a $2.2 million provision for loan losses for
the quarter, with net charge-offs of $983 thousand for the third quarter of
1998, compared to net charge-offs of $1.2 million for the same period of 1997.
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 September 30, 1998 was $39.9 million, up from the
$35.2 million a year ago. At September 30, 1998, the allowance represented 1.28%
of total loans and 258% of non-performing loans. Total non-performing loans were
$15.5 million at September 30, 1998. Non-performing loans as a percent of loans
outstanding as of September 30, 1998 were .50%.
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, exclusive of
post-judgment interest. This decision reversed an earlier court holding in favor
of Provident. The Bank has appealed 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.
NON-INTEREST INCOME
Non-interest income, exclusive of securities gains, totaled $14.4
million in the third quarter of 1998 compared to $10.5 million in 1997. This
increase was driven by a $1.6 million increase in mortgage banking activities, a
$1.2 million increase in deposit service fees and a $554 thousand growth in loan
fees. Mortgage banking income was strengthened by increased originations of $273
million during the third quarter of 1998, compared to $90 million in 1997. Sales
of mortgage loans resulted in $1.6 million in gains for the third quarter of
1998 as compared to $581 thousand for the same period in 1997.
Net gains on sale of securities were $1.6 million for the quarter
compared to $230 thousand in 1997.
10
<PAGE> 11
NON-INTEREST EXPENSE
Third quarter non-interest expense was $31.6 million, compared to $37.0
million for the same period last year, which included $10.0 million for merger
related expenses. Salaries and benefits increased $2.2 million mainly related to
merit increases and incentives associated with increased mortgage originations.
Occupancy costs increased $119 thousand over last year and furniture and
equipment expense increased $152 thousand. These increases were required by
branch network expansion and upgrades of technology. External processing fees
increased $313 thousand due to increased account volume. During the second
quarter of 1998, $40 million of trust preferred capital securities were issued
resulting in $839 thousand in related expenses for the quarter. All other
expenses increased a total of $1.0 million mainly associated with a $305
thousand increase in communication expenses, $297 thousand increase in
consulting fees, $204 thousand in personnel expenses and $186 thousand in
marketing expenses.
INCOME TAXES
Provident recorded income tax expense of $4.9 million on income before
taxes of $14.8 million, an effective tax rate of 33.0%. During the third quarter
of 1997, Provident's tax expense was $882 thousand on pre-tax income of $908
thousand, the result of non-deductible merger related expenses.
FINANCIAL REVIEW FOR NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
For the nine months ending September 30, 1998, net income was $28.9
million or $1.18 per share basic and $1.13 diluted. Net income for the nine
months ended September 30, 1997, excluding merger related expenses of $10.0
million, was $24.5 million or $1.03 per share basic and $1.00 diluted. Reported
earnings for the third quarter of 1997 were $15.9 million or $.67 per share
basic and $.65 diluted. This improvement in earnings was attributable to a $5.1
million rise in tax equivalent net-interest income and a $12.8 million increase
in non-interest income. These increases more than offset a $9.2 million increase
in operating expense and a $1.0 million increase in the provision for loan
losses.
The $5.1 million increase in tax-equivalent net interest income for 1998
was the result of a $608 million increase in average earning assets over the
prior year. Net interest margin dropped by 35 basis points caused by a decline
of 27 basis points in yields and a 12 basis point increase in costs on
interest-bearing liabilities.
The provision for loan losses increased $1.0 million to $8.2 million in
1998. The increase was the result of overall loan growth in the loan portfolios
of $526 million from September 30, 1997.
Non-interest income, excluding net securities gains (losses), increased
31% to $41.2 million. Deposit service charges rose $3.2 million over the prior
year to $21.2 million, mortgage banking activities were up $3.0 million to $8.7
million, and commissions and fees were up 14% to $3.2 million. Net securities
gains were $3.5 million in 1998 and $568 thousand in 1997.
Provident's non-interest expense, excluding capital securities and
merger related expenses, rose 9.5% in 1998 over 1997. Salaries and employee
benefits increased $4.1 million attributable to merit increases, new branches,
and incentives associated with increased mortgage originations. Occupancy costs
grew $290 thousand or 3.9% over 1997. Total furniture and equipment expense
increased $376 thousand due to upgrading of technology in the bank's office
automation and branch platform systems. External processing increased $1.2
million due to increased account volumes. All other expenses increased $1.6
million, most of which is associated with increased marketing, advertising and
promotional expenses.
Provident recorded an income tax expense of $14.2 million in 1998 based
on pre-tax income of $43.1 million, which represented an effective tax rate of
32.9%. This compares with a 37.6% effective tax rate for 1997. The change is
mainly associated with non-deductible merger expenses experienced with the
merger of First Citizens Financial Corporation during the third quarter of 1997.
11
<PAGE> 12
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs using two digits
rather than four to define the applicable year. Any of the Corporation's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions.
The Corporation utilizes a third party processor for the majority of its
data processing requirements. Provident is working with this servicer as well as
with all of the Corporation's other significant suppliers of data processing
software and hardware to neutralize the Year 2000 Issue. In addition, many
non-Year 2000 projects have had the effect of eliminating potential problems.
The Corporation is utilizing both internal and external resources to
reprogram, or replace, and test the software and hardware for Year 2000
modifications. As part of the testing, dates greater than December 31, 1999 are
entered into systems. No adverse events have been noted during the testing. The
Corporation plans to complete the Year 2000 project by June 30, 1999. The total
cost of the Year 2000 project is not expected to exceed $1.0 million and is not
expected to have a material effect on the results of operations. As of September
30, 1998, the Corporation has incurred approximately $275,000 related to the
Year 2000 project. Funding of the Year 2000 project costs will come from normal
operating cash flow. Expense associated with the Year 2000 Issue will directly
reduce otherwise reported net income of the Corporation in the period incurred.
The Corporation is also in the process of assessing the Year 2000
readiness of significant customers. This assessment utilizes a due diligence
approach to develop general risk control guidelines to assist in identifying
material customers, evaluating their preparedness, assessing Year 2000 customer
risk and implementing controls to manage the risk.
The Corporation is developing contingency plans for the processes that
may not process information reliably and accurately after December 31, 1999.
Based on preliminary planning during the development of the contingency plan,
management believes that the Corporation will be able to continue to operate in
the Year 2000 even if some systems fail. We believe that the Corporation will be
able to operate until normal operations can be restored. These plans include the
capability to process off-line and transport the data to our third party
processor by the most effective and efficient means available. These procedures
could require changing schedules and hiring of temporary staff, which would
increase the cost of the operations. Because of a concerted effort between the
Corporation and the third party processor, the most reasonably likely worst case
Year 2000 scenarios foreseeable at this time would be a temporary malfunction
that could be corrected quickly.
The costs of the project and the date on which the Corporation plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ from those plans.
12
<PAGE> 13
FINANCIAL CONDITION
Total assets of the Corporation increased $868 million from December 31,
1997 to September 30, 1998 as investments increased $339 million and loan
balances increased $425 million. Consumer loans were up $503 million and
commercial business loans were up $67 million from December 31, 1997. Real
estate construction loans increased $12 million and real estate mortgage loans
declined $157 million. The sale of mortgage loans contributed to the decline.
Total deposits ended the quarter at $3.2 billion, an increase of $482 million
over the December 31, 1997 level. Non-interest bearing deposits increased $14
million from December 31, 1997 while interest bearing deposits increased $467
million. Borrowings increased $363 million from December 31, 1997 ending the
quarter at $1.18 billion. In April 1998, the Corporation issued $40 million of
trust preferred capital securities, which were outstanding as of September 30,
1998. A subsidiary trust of the Corporation issued these capital securities, and
the Corporation received the proceeds by issuing junior subordinated debentures
to the trust. These capital securities are considered tier 1 capital for
regulatory purposes.
The primary source of liquidity at September 30, 1998 were loans held
for sale and investments available for sale, which totaled $1.46 billion. This
represents 33% of total liabilities compared to 29% at December 31, 1997.
At quarter-end, the leverage ratio was 7.06% and total stockholders'
equity represented 10.18% of risk adjusted assets. These ratios exceed the
minimum requirements of the current leverage capital and risk-based capital
standards established by regulatory agencies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding market risk at December 31, 1997, see
"Interest Sensitivity Management" and Note 13 to the Consolidated Financial
Statements in the Corporation's Form 10-K filed with the Commission on March 19,
1998. The market risk of the Corporation has not experienced any significant
changes as of September 30, 1998. Additionally, refer to "Net Interest Income"
in Item 2 - Management's Discussion and Analysis of Results of Operations and
Financial Condition for additional quantitative and qualitative discussions
about market risk at September 30, 1998.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - 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:
(3.2) Provident Bankshares Corporation Second Amended and
Restated Bylaws
(11) Statement re: Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during
the quarter ended September 30, 1998.
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
November 13, 1998 /s/ Peter M. Martin
-------------------
Peter M. Martin
President, Chairman and Chief Executive
Officer
November 13, 1998 /s/ R. Wayne Hall
-----------------
R. Wayne Hall
Treasurer
14
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Description Sequentially Numbered Page
- ------- ----------- --------------------------
<S> <C> <C>
(3.2) Provident Bankshares Corporation Second Amended and Restated Bylaws 16
(11) Statement re: Computation of Per Share Earnings 31
(27) Financial Data Schedule 32
</TABLE>
15
<PAGE> 1
PROVIDENT BANKSHARES CORPORATION
SECOND AMENDED AND RESTATED BYLAWS
----------------------------------
ARTICLE I - OFFICES
-------------------
The principal office of the Corporation in Maryland shall be located at
114 East Lexington Street, Baltimore, Maryland 21202. The Corporation may have
such other offices, either within or without the State of Maryland as the Board
of Directors may designate or as the business of the Corporation may from time
to time require.
ARTICLE II - STOCKHOLDERS
-------------------------
Section 1 - ANNUAL MEETING
--------------
The annual meeting of the stockholders of the Corporation shall be held at
such time during April of each year as the Board of Directors shall, in their
discretion, fix. The business to be transacted at the annual meting shall
include the election of directors, consideration of the report of the President,
and any other business properly brought before the meeting in accordance with
Section 7(b).
Section 2 - SPECIAL MEETINGS
----------------
A special meeting of the stockholders may be called at any time for any
purpose or purposes by the Chairman of the Board, the President, or by a
majority of the Board of Directors and a special meeting of stockholders shall
be called by the Secretary of the Corporation upon the request in writing of the
holders of a majority of all shares outstanding and entitled to vote on the
business to be transacted at such meeting. Notwithstanding the first sentence of
this Section 2, the Secretary of the Corporation shall not be obligated to call
a special meeting of the stockholders requested by stockholders for the purpose
of taking any action that is non-binding or advisory in nature.
Section 3 - PLACE OF MEETING
----------------
The Board of Directors may designate any place, either within or without
the State of Maryland as the place of meeting for any annual or special meeting
of stockholders. If no designation is made, or if a special meeting be otherwise
called, the place of the meeting shall be the principal office of the
Corporation in Maryland.
Section 4 - NOTICE OF MEETING; WAIVER OF NOTICE
-----------------------------------
Not less than ten (10) days or more than ninety (90) days before the date
of every stockholders meeting, the Secretary shall give to each stockholder
entitled to vote at such meeting, written or printed notice stating the place,
date and hour of the meeting and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, either by mail or by presenting it
1
<PAGE> 2
to him personally or by leaving it at his residence or usual place of business.
Notwithstanding the foregoing provisions, a written waiver of notice, signed by
the person entitled to notice, whether before or after the time stated therein,
shall be equivalent to notice. Attendance of a person entitled to notice at a
meeting, in person or by proxy, shall constitute a waiver of notice of such
meeting, except when such person attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5 - QUORUM
------
At any meeting of stockholders, a majority of the shares entitled to vote
at the meeting, present in person or by proxy, shall constitute a quorum. The
affirmative vote of a majority of the shares present at a meeting of
stockholders, duly called and at which a quorum is present, shall be sufficient
to take or to authorize action upon any matter which may properly come before
the meeting unless more than a majority of votes is required by statute or by
the Certificate of Incorporation of the Corporation.
In the absence of a quorum a majority of the shares represented in person
or by proxy may adjourn the meeting from time to time not exceeding a total of
thirty (30) days without further notice other than that by announcement at such
meeting. At such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting
originally called. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 6 - ORGANIZATION
------------
The Chairman of the Board of the Corporation or, in his absence, the
President of the Corporation, or in his absence such person as the Board of
Directors may have designated or, in the absence of such a person, such person
as may be chosen by the holders of a majority of the shares entitled to vote who
are present, in person or by proxy, shall call to order any meeting of the
stockholders and act as chairman of the meeting. In the absence of the Secretary
of the Corporation, the secretary of the meeting shall be such person as the
chairman appoints.
Section 7 - CONDUCT OF BUSINESS
-------------------
(a) The chairman of any meeting of stockholders shall determine the order
of business and the procedures at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The date and time of the opening and closing of the polls for each matter upon
which the stockholders will vote at the meeting shall be announced at the
meeting.
(b) At any annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board of Directors or (ii)
2
<PAGE> 3
by any stockholder of the Corporation who is entitled to vote with respect
thereto and who complies with the notice procedures set forth in this Section
7(b). For business to be properly brought before an annual meeting by a
stockholder, the business must relate to a proper subject matter for stockholder
action and the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered or mailed to and received at the principal executive office of the
Corporation not less than one hundred-twenty (120) days prior to the date of the
annual meeting; provided, however, that in the event that less than one
hundred-thirty (130) days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be received not later than the close of business on the 10th day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. A stockholder's notice to the Secretary shall
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the Corporation's capital stock that are beneficially owned by such
stockholder, (iv) a statement disclosing (I) whether such stockholder is acting
with or on behalf of any other person and (II) if applicable, the identity of
such person, and (v) any material interest of such stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
brought before or conducted at an annual meeting except in accordance with the
provisions of this Section 7(b). The Chairman of the Board or other person
presiding over the annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 7(b) and, if he should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in these Bylaws shall be eligible for election as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders at which directors are to be elected only (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of the
Corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section 7(c). Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made by timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered or mailed
to and received at the principal executive office of the Corporation not less
than one hundred-twenty (120) days prior to the date of the meeting; provided,
however, that in the event that less than one hundred-thirty (130) days' notice
or prior disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (i) as to each person whom such stockholder
proposes to nominate for election or re-elections as a Director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including such person's written consent to being named in the proxy statement
3
<PAGE> 4
as a nominee and to serving as a Director if elected); and (ii) as to the
stockholder giving the notice (x) the name and address, as they appear on the
Corporation's books, of such stockholder, (y) the class and number of shares of
the Corporation's Capital Stock that are beneficially owned by such stockholder,
and (z) a statement disclosing (I) whether such stockholder or any nominee
thereof is acting with or on behalf of any other person and (II) if applicable,
the identity of such person.
Section 8 - VOTING
------
Unless the Certificate of Incorporation provides for a greater or lesser
number of votes per share or limits or denies voting rights, each outstanding
share of stock, regardless of class, is entitled to one (1) vote on each matter
submitted to a vote at a meeting of stockholders.
Section 9 - PROXIES
-------
At all meetings of stockholders, a stockholder may vote the shares owned
of record by him either in person or by proxy executed in writing by the
stockholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven (11) months from the date of its
execution, unless otherwise provided in the proxy.
Section 10 - RESERVED
--------
Section 11 - CONDUCT OF VOTING
-----------------
At all meetings of stockholders, unless the voting is conducted by
inspectors, the proxies and ballots shall be received, and all questions
touching the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman of the
meeting. If demanded by stockholders, present in person or by proxy, entitled to
cast ten percent (10%) in number of votes entitled to be cast, or if ordered by
the chairman, the voting shall be conducted by two inspectors, in which event
the proxies and ballots shall be received, and all questions touching the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes, shall be decided by such inspectors. Unless so demanded or
ordered, voting need not be conducted by inspectors. The stockholders at any
meeting may choose an inspector or inspectors to act at such meeting, and in
default or such election the chairman of the meeting may appoint an inspector or
inspectors. No candidate for election as a director at a meeting shall serve as
an inspector thereat.
ARTICLE III - DIRECTORS
-----------------------
Section 1 - GENERAL POWERS
--------------
The business and affairs of the Corporation shall be managed by its Board
of Directors. The Board of Directors may exercise all the powers of the
Corporation, except those conferred on or reserved to the stockholders by
statute or by the Certificate of Incorporation or the Bylaws. The Board may
adopt such rules and regulations for the conduct of their meetings and the
management
4
<PAGE> 5
of the Corporation as they may deem proper, and which are not inconsistent with
these Bylaws and with the Maryland General Corporation Law.
Section 2 - NUMBER
------
The number of directors of the Corporation shall be at least three (3);
provided, however, that a majority of the entire Board of Directors may be
- -------- -------
resolution set the number of directors at such number as it may determine, but
such action shall not affect the tenure of office of any director. Each director
shall hold office until his successor is elected and qualified or until his
earlier resignation or removal.
Section 3 - ELECTION AND TENURE
-------------------
(a) The directors shall be divided into three (3) classes, as nearly equal
in number as possible, with the term of office of the first class to expire at
the 1991 annual meeting of stockholders, the term of office of the second class
to expire at the 1992 annual meeting of stockholders, and the term of office of
the third class to expire at the 1993 annual meeting of stockholders. At each
annual meeting of stockholders beginning in 1991, successors to the class of
directors whose term expires at that annual meeting shall be elected for a term
of three (3) years.
(b) Notwithstanding the provisions of Article III, Section 3(a) above, the
term of office of a director of the Corporation shall expire upon the date of
the annual meeting of stockholders immediately following the date on which the
director reaches sixty-eight (68) years of age, and upon the date of such annual
meeting of stockholders such individual shall cease to be a director of the
Corporation. The vacancy created by such expiration shall be filled in
accordance with Article III, Section 4.
Section 4 - VACANCIES
---------
Subject to the rights of the holders of any class or series of preferred
stock then outstanding, any vacancy in the Board of Directors, including one
occurring because of an increase in the authorized number of directors, shall be
filled by a majority vote of the remaining directors at any regular or special
meeting of the Board of Directors, but if a vacancy exists at the time of any
annual meeting of stockholders, such vacancy shall be filled by majority vote of
the shares entitled to vote at such meeting. An individual chosen to fill a
vacancy created by the death, removal, resignation or expiration of the term of
a director shall hold office for the remainder of the departed director's term
and until his successor is elected and qualified, or until his earlier
resignation or removal. An individual chosen to fill a vacancy created by an
increase in the authorized number of directors of the Corporation shall hold
office for such term as the Board of Directors shall specify in accordance with
Article III, Section 3(a), and in any event until his successor is elected and
qualified or until his earlier resignation or removal.
5
<PAGE> 6
Section 5 - REGULAR MEETINGS
----------------
The Board of Directors shall meet for the purposes of organization, the
election of officers and the transaction of other business after the close of
each meeting of stockholders at which a Board of Directors shall have been
elected. Other regular meetings of the Board of Directors shall be held at such
times and such places, either within or without the State of Maryland, as may be
designated from time to time by the Chief Executive Officer or by the Board of
Directors.
Section 6 - SPECIAL MEETINGS
----------------
Special meetings of the Board of Directors may be called by the Chairman
of the Board or by the Chief Executive Officer, or by a majority of the Board of
Directors in writing. The person or persons authorized to call special meetings
of the Board of Directors may fix any place, either within or without the State
of Maryland, as the place for holding the special meeting of the Board of
Directors called by them.
Section 7 - NOTICE
------
The Secretary shall give notice to each director of the time and place of
every regular or special meeting of the Board of Directors. Notice is given to a
director when it is delivered personally to him, left at his residence or usual
place of business, or sent by telephone or telegraph, at least 24 hours before
the time of the meeting, or in the alternative, when it is mailed to his address
as it appears on the records of the Corporation, at least 72 hours before the
time of the meeting. Any director may waive notice of any meeting either before
or after the holding thereof by written waiver filed with the records of the
meeting. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need by specified in the
notice or waiver of notice of such meeting.
Section 8 - TELEPHONIC MEETINGS
-------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 8 shall constitute presence in person at such meeting.
Section 9 - QUORUM
------
A majority of the total number of directors shall constitute a quorum for
the transaction of business, but if less than such quorum is present at a
meeting, a majority of the directors present may adjourn the meeting without
further notice from time to time until a quorum shall attend. At any
6
<PAGE> 7
such adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 10 - MANNER OF ACTING
----------------
The vote of the majority of the directors present at a meeting at which a
quorum is present shall be the action of the Board of Directors unless the
concurrence of a greater proportion is required for such action by the
Certificate of Incorporation.
Section 11 - INFORMAL ACTION
---------------
Any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if a
written consent to such action is signed by all members of the Board of
Directors or the committee, as the case may be, and such written consent if
filed with the minutes of the proceedings of the Board of Directors.
Section 12 - REMOVAL OF DIRECTORS
--------------------
Any or all of the directors may be removed, at any time, but then only for
cause and then only by the affirmative vote of the holders of at least 80% of
the shares then entitled to vote at any election of directors.
Section 13 - RESIGNATION
-----------
A director may resign at any time by giving written notice to the Board,
the President or the Secretary of the Corporation. Unless otherwise specified in
the notice, the resignation shall take effect upon receipt thereof by the Board
or such officer, and the acceptance of the resignation shall not be necessary to
make it effective.
Section 14 - COMPENSATION
------------
By resolution of the Board of Directors, a fixed sum and expenses, if any,
for attendance at each regular or special meeting of the Board of Directors or
of committees thereof, and other compensation for their services as such or on
such committees, may be paid to directors, as may compensation for such other
services as a director may render to the Corporation.
Section 15 - COMMITTEES
----------
The Board of Directors may, by resolution passed by a majority of the
entire Board, designate an executive committee, a nominating committee, an audit
committee, a compensation and human resources committee or other committees,
each committee to consist of two or more directors of the Corporation. The Board
may designate one or more directors as alternate members of any meeting of any
committee, who may replace any absent or disqualified member at any meeting of
any committee. A majority of the total number of committee members shall
constitute a quorum for the
7
<PAGE> 8
conduct of a committee's business and affairs, and the vote of a majority of the
members constituting said quorum shall be the act of that committee. In the
absence or disqualification of a member of a committee, the member or members
remaining and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the Board
of Directors to act as a member at the committee meeting in place of the absent
or disqualified committee member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; provided, however, that any such committee shall
have no power or authority with reference to (i) amending the Certificate of
Incorporation, (ii) adopting an agreement of merger or consolidation under Title
3 of the Maryland General Corporation Law, (iii) recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, (iv) recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, (v) declaring
dividends or distributions on stock, (vi) issuing stock other than as provided
by the Maryland General Corporation Law, or (vii) amending the Bylaws of the
Corporation.
ARTICLE IV - OFFICERS
---------------------
Section 1 - EXECUTIVE AND OTHER OFFICERS
----------------------------
The Corporation shall have a President, who shall be a director of the
Corporation, a Secretary and a Treasurer. It may also have a Chairman of the
Board, who shall be a director of the Corporation and shall be an executive
officer if he is designated as the chief executive officer of the Corporation.
The Board of Directors may designate who shall serve as chief executive officer,
having general supervision of the business and affairs of the Corporation, and
as chief operating officer, having supervision of the operations of the
Corporation; in the absence of a designation the President shall serve as chief
executive officer and chief operating officer. The Corporation may have one or
more Executive Vice-Presidents, one or more Assistant Vice-Presidents, one or
more Assistant Secretaries and one or more Assistant Treasurers. A person may
hold more than one office in the Corporation but may not serve concurrently as
Post President and Vice-President of the Corporation.
Section 2 - CHAIRMAN OF THE BOARD
---------------------
The Chairman of the Board, of one be elected, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such duties and powers as are from time
to time assigned to him by the Board of Directors.
8
<PAGE> 9
Section 3 - PRESIDENT
---------
In the absence of the Chairman of the Board, the President shall preside
at all meetings of the stockholders and of the Board of Directors at which he
shall be present; he may sign and execute, in the name of the Corporation, all
authorized deeds, mortgages, bonds, contracts or other instruments, except in
cases in which the signing and execution thereof shall have been expressly
delegated to some other office or agent of the Corporation; and, in general, he
shall perform all duties usually performed by a president of a corporation and
such other duties as may from time to time be assigned to him by the Board of
Directors or by the chief executive officer of the Corporation.
Section 4 - EXECUTIVE VICE-PRESIDENTS
-------------------------
The Executive Vice-President or Executive Vice-Presidents, at the request
of the chief executive officer or the President or in the President's absence or
during his inability to act, shall perform the duties and exercise the functions
of the President, and when so acting shall have the powers of the President. If
there be more than one Executive Vice-President, the Board of Directors may
determine which one or more of the Executive Vice-Presidents shall perform any
of such duties or exercise any of such functions, or if such determination is
not made by the Board of Directors, the chief executive officer may make such
determination; otherwise any of the Executive Vice- Presidents may perform any
of such duties or exercise any of such functions. The Executive Vice- President
or Executive Vice-Presidents shall have such other powers and perform such other
duties, and have such additional descriptive designations in their titles (if
any), as may be assigned by the Board of Directors or the Chief Executive
Officer.
Section 5 - VICE-PRESIDENTS
---------------
In the absence of the Chairman of the Board, the chief executive officer
and the chief operating officer (if designated), all Executive Vice-Presidents,
and all Senior Vice-Presidents (if such office then exists), such Vice President
as may be designated from time to time by the Board of Directors shall be vested
with the powers of the President and shall perform his duties. In addition
thereto, all Vice Presidents shall perform such duties as may be assigned to
them by the Board of Directors, the Chairman of the Board, the chief executive
officer or the President.
Section 6 - SECRETARY
---------
The Secretary shall keep the minutes of the meetings of the stockholders,
of the Board of Directors and of any committees, in books provided for the
purpose; he shall see that all notices are duly given in accordance with the
provisions of the Bylaws or as required by law; he shall be custodian of the
records of the Corporation; he shall witness all documents on behalf of the
Corporation, the execution of which is duly authorized, see that the corporate
seal is affixed where such document is required to be under its seal, and, when
so affixed, may attest the same; and, in general, he shall perform all duties
incident to the office of a secretary of a corporation, and such other duties as
may from time to time be assigned to him by the Board of Directors or the
President.
9
<PAGE> 10
Section 7 - TREASURER
---------
The Treasurer shall have charge of and be responsible for all funds,
securities, receipts and disbursements of the Corporation, and shall deposit, or
cause to be deposited, in the name of the Corporation, all monies or other
valuable effects in such banks, trust companies or other depositories as shall,
from time to time, be selected by the Board of Directors. In general, he shall
perform all the duties incident to the office of a treasurer of a corporation,
and such other duties as may from time to time be assigned to him by the Board
of Directors, the chief executive officer or the President.
Section 8 - ASSISTANT OFFICERS
------------------
The Assistant Vice-Presidents shall have such duties as may from time to
time be assigned to them by the Board of Directors or the President. The
Assistant Secretaries shall have such duties as may from time to time be
assigned to them by the Board of Directors or the Secretary. The Assistant
Treasurers shall have such duties as may from time to time be assigned to them
by the Board of Directors or the Treasurer.
Section 9 - SUBORDINATE OFFICERS
--------------------
The Corporation may have such subordinate officers as the Board of
Directors may from time to time deem desirable. Each such officer shall hold
office for such period and perform such duties as the Board of Directors, the
President or the committee or officer designated pursuant to Article IV, Section
11 may prescribe.
Section 10 - COMPENSATION
------------
The Board of Directors shall have power to fix the salaries and other
compensation and remuneration, of whatever kind, of all officers of the
Corporation. It may authorize any committee or officer, upon whom the power of
appointing subordinate officers may have been conferred, to fix the salaries,
compensation and remuneration of such subordinate officers.
Section 11 - ELECTION, TENURE AND REMOVAL OF OFFICERS
----------------------------------------
The Board of Directors shall elect the officers. The Board of Directors
may from time to time authorize any committee or officer to appoint subordinate
officers. An officer serves for one year and until his successor is elected and
qualified. If the Board of Directors in its judgment finds that the best
interests of the Corporation will be served, it may remove any officer or agent
of the Corporation. The removal of an officer or agent does not prejudice any of
his contract rights. The Board of Directors (or any committee or officer
authorized by the Board of Directors) may fill a vacancy which occurs in any
office for the unexpired portion of the term of that office.
10
<PAGE> 11
ARTICLE V - STOCK
-----------------
Section 1 - CERTIFICATES FOR STOCK
----------------------
Each stockholder shall be entitled to certificates which represent and
certify the shares of stock he holds in the Corporation. Each stock certificate
shall include on its face the name of the Corporation, the name of the
stockholder and the class of stock and number of shares represented by the
certificate and be in such form, not inconsistent with law or with the
Certificate of Incorporation, as shall be approved by the Board of Directors or
any officer or officers designated for such purpose by resolution of the Board
of Directors. Each stock certificate shall be signed by the President, an
Executive Vice-President or the Chairman of the Board, and countersigned by the
Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer.
Each certificate shall be sealed with the actual corporate seal or a facsimile
of it or in any other form and the signatures on each certificate may be either
manual or facsimile signatures. A certificate is valid and may be issued whether
or not an officer who signed it is still an officer of the Corporation when it
is issued.
Section 2 - TRANSFERS
---------
The Board of Directors shall have power and authority to make such rules
and regulations as it may deem expedient concerning the issue, transfer and
registration of certificates of stock, and may appoint transfer agents and
registrars thereof. The duties of transfer agent and registrar may be combined.
Section 3 - RECORD DATE AND CLOSING OF TRANSFER BOOKS
-----------------------------------------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
Section 4 - STOCK LEDGER
------------
The Corporation shall maintain a stock ledger which contains the name and
address of each stockholder and the number of shares of stock of each class
registered in the name of each stockholder. The stock ledger may be in written
form or in any other form which can be converted within a reasonable time into
written form for visual inspection. The original or a duplicate of the stock
ledger shall be kept at the offices of a transfer agent for the particular class
of stock, within or without the State of Maryland, or, if none, at the principal
office or the principal executive offices of the Corporation in the State of
Maryland.
11
<PAGE> 12
Section 5 - CERTIFICATION OF BENEFICIAL OWNERS
----------------------------------
The Board of Directors may adopt by resolution a procedure by which a
stockholder of the Corporation may certify in writing to the Corporation that
any shares of stock registered in the name of the stockholder are held for the
account of a specified person other than the stockholder. The resolution shall
set forth the class of stockholders who may certify; the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board considers necessary or desirable. On receipt of a certification which
complies with the procedure adopted by the Board in accordance with this
Section, the person specified in the certification is, for the purpose set forth
in the certification, the holder of record of the specified stock in place of
the stockholder who makes the certification.
Section 6 - LOST, STOLEN OR DESTROYED STOCK CERTIFICATES
--------------------------------------------
The Board of Directors of the Corporation may determine the conditions for
issuing a new stock certificate in place of one which is purportedly alleged to
have been lost, stolen or destroyed, or the Board of Directors may delegate such
power to any officer or officers of the Corporation. In its discretion, the
Board of Directors or such officer or officers may refuse to issue such new
certificate except upon the order of a court having jurisdiction in the
premises.
ARTICLE VI - FINANCE
--------------------
Section 1 - CHECKS, DRAFTS, ETC.
--------------------
All checks, drafts and orders for the payment of money, notes and other
evidences of indebtedness, issued in the name of the Corporation, shall, unless
otherwise provided by resolution of the Board of Directors, be signed by the
President, an Executive Vice-President or a Vice- President and countersigned by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary.
Section 2 - ANNUAL STATEMENT OF AFFAIRS
---------------------------
There shall be prepared annually a full and correct statement of the
affairs of the Corporation, to include a balance sheet and a financial statement
of operations for the preceding fiscal year. The statement of affairs shall be
submitted at the annual meeting of the stockholders and, within twenty (20) days
after the meeting, placed on file at the Corporation's principal office. Such
statement shall be prepared or caused to be prepared by such executive officer
of the Corporation as may be designated in an additional or supplementary bylaw
adopted by the Board of Directors. If no other executive officer is so
designated, it shall be the duty of the President to prepare or cause to be
prepared such statement.
12
<PAGE> 13
Section 3 - FISCAL YEAR
-----------
The fiscal year of the Corporation shall commence on the first day of
January and end on the last day of December in each year.
ARTICLE VII - SUNDRY PROVISIONS
-------------------------------
Section 1 - BOOKS AND RECORDS
-----------------
The Corporation shall keep correct and complete books and records of its
accounts and transactions and minutes of the proceedings of its stockholders and
Board of Directors and of any executive or other committee when exercising any
of the powers of the Board of Directors. The books and records of the
Corporation may be in written form or in any other form which can be converted
within a reasonable time into written form for visual inspection. Minutes shall
be recorded in written form but may be maintained in the form of a reproduction.
Section 2 - CORPORATE SEAL
--------------
The Board of Directors shall provide a suitable seal, bearing the name of
the Corporation, which shall be in the charge of the Secretary. The Board of
Directors may authorize one or more duplicate seals and provide for the custody
thereof.
Section 3 - BONDS
-----
The Board of Directors may require any officer, agent or employee of the
Corporation to give a bond to the Corporation, conditioned upon the faithful
discharge of his duties, with one or more sureties and in such amount as may be
satisfactory to the Board of Directors.
Section 4 - VOTING UPON SHARES IN OTHER CORPORATIONS
----------------------------------------
Stock of other corporations or associations, registered in the name of the
Corporation, may be voted by the Chief Executive Officer, the President, an
Executive Vice-President or a proxy appointed by any of them. The Board of
Directors, however, may by resolution appoint some other person to vote such
shares, in which case such person shall be entitled to vote such shares upon the
production of a certified copy of such resolution.
Section 5 - MAIL
----
Any notice or other document which is required by these Bylaws to be
mailed shall be deposited in the United States mails, postage prepaid.
13
<PAGE> 14
Section 6 - EXECUTION OF DOCUMENTS
----------------------
A person who holds more than one office in the Corporation may not act in
more than one capacity to execute, acknowledge, or verify an instrument required
by law to be executed, acknowledged or verified by more than one officer.
Section 7 - AMENDMENT OF BYLAWS
-------------------
The Board of Directors shall have the power and authority to amend, alter
or repeal these Bylaws or any provision thereof, and may from time to time make
additional Bylaws.
ARTICLE VIII - INDEMNIFICATION
------------------------------
Section 1 - RIGHT TO INDEMNIFICATION
------------------------
Each person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of the
fact that he, or a person of whom he is the legal representative, is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise (including service with respect to employee benefit plans), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Maryland General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said Law permitted the Corporation to provide prior
to such amendment) against all expenses, liability and loss (including
attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith; provided, however, that the Corporation shall indemnify
any such person seeking indemnity in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. Such right to
indemnification under this Section shall be a contract right and shall include
the right of an officer or director to be paid by the Corporation expenses
incurred in defending any civil or criminal action, suit or proceeding in
advance of the final disposition of any such action, suit or proceeding, upon
the receipt by the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise.
Section 2 - RIGHT OF CLAIMANT TO BRING SUIT
-------------------------------
If a claim for indemnification or advancement of expenses under Section 1
is not paid in full by the Corporation within ninety (90) days after a written
claim for such has been received by the
14
<PAGE> 15
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Maryland General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Nether the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to make a determination prior to
the commencement of such action that indemnification of the claimant is proper
in the circumstances because he meets the applicable standard of conduct set
forth in the Maryland General Corporation Law, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant did not meet such applicable standard of
conduct, shall be a defense to the action or cerate a presumption that claimant
has not met the applicable standard of conduct.
Section 3 - NON-EXCLUSIVITY OF RIGHTS
-------------------------
The rights conferred on any person by Sections 1 and 2 of this Article
VIII shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
Section 4 - INSURANCE
---------
The Corporation may maintain insurance, at its expense, to protect itself
and any such director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
Maryland General Corporation Law.
IN WITNESS WHEREOF, these bylaws are hereby certified as the duly adopted
Bylaws of the Corporation.
---------------------------------
Secretary
15
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Nine Months Ended
September 30 September 30
(in thousands, except per share data) 1998 1997 1998 1997
- ------------------------------------------------------------------------------ ------------------------------
Basic:
- -----
<S> <C> <C> <C> <C>
Average shares outstanding 24,486 23,812 24,439 23,746
============ ============= ============= ============
Net Income $ 9,900 $ 26 $28,930 $15,949
============ ============= ============= ============
Per Share Amount $ 0.40 $ 0.00 $ 1.18 $ 0.67
============ ============= ============= ============
Diluted:
- -------
Average shares outstanding 24,486 23,812 24,439 23,746
Net effect of dilutive stock options based
on the treasury stock method using the
average market price or quarter end price,
whichever is greater 936 981 1,057 784
------------ ------------- ------------- ------------
Total Shares Outstanding 25,422 24,793 25,496 24,530
============ ============= ============= ============
Net Income $ 9,900 $ 26 $28,930 $15,949
============ ============= ============= ============
Per Share Amount $ 0.39 $ 0.00 $ 1.13 $ 0.65
------------ ------------- ------------- ------------
</TABLE>
<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
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 65,151
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,321,821
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,125,766
<ALLOWANCE> 39,943
<TOTAL-ASSETS> 4,794,762
<DEPOSITS> 3,236,301
<SHORT-TERM> 421,703
<LIABILITIES-OTHER> 48,040
<LONG-TERM> 757,274
39,238
0
<COMMON> 24,787
<OTHER-SE> 267,419
<TOTAL-LIABILITIES-AND-EQUITY> 4,794,762
<INTEREST-LOAN> 171,955
<INTEREST-INVEST> 60,164
<INTEREST-OTHER> 2,339
<INTEREST-TOTAL> 234,458
<INTEREST-DEPOSIT> 94,462
<INTEREST-EXPENSE> 137,877
<INTEREST-INCOME-NET> 96,581
<LOAN-LOSSES> 8,244
<SECURITIES-GAINS> 3,521
<EXPENSE-OTHER> 48,716
<INCOME-PRETAX> 43,142
<INCOME-PRE-EXTRAORDINARY> 43,142
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,930
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 3.17
<LOANS-NON> 15,477
<LOANS-PAST> 24,001
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 36,861
<CHARGE-OFFS> 6,024
<RECOVERIES> 862
<ALLOWANCE-CLOSE> 39,943
<ALLOWANCE-DOMESTIC> 39,943
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
