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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarterly Period Ended Commission File Number
March 31, 1998 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
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(Address of Principal Executive Offices)
(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, 23,325,222 shares outstanding at May
4, 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--
March 31, 1998 and 1997 and December 31, 1997 3
Consolidated Statement of Income--
Three Months Ended March 31, 1998 and 1997 4
Consolidated Statement of Cash Flows--
Three Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 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 11
PART II - OTHER INFORMATION 12
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 13
EXHIBIT INDEX 14
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.
2
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF CONDITION
Provident Bankshares Corporation and Subsidiaries
March 31, December 31, March 31,
(dollars in thousands) 1998 1997 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and Due From Banks $ 67,057 $ 68,580 $ 73,876
Short-Term Investments 233 350 1,525
Mortgage Loans Held for Sale 118,600 66,925 39,397
Securities Available for Sale 989,372 983,241 1,056,449
Securities Held to Maturity (Market Value
$87,331 at March 31, 1997) - - 87,618
Loans:
Consumer 1,786,782 1,667,094 1,266,110
Commercial Business 300,673 288,289 304,343
Real Estate -- Construction 117,784 125,080 124,922
Real Estate -- Mortgage 583,135 620,605 614,370
- ---------------------------------------------------------------------------------------------------------------
Total Loans 2,788,374 2,701,068 2,309,745
Less: Allowance for Loan Losses 37,769 36,861 30,858
- ---------------------------------------------------------------------------------------------------------------
Net Loans 2,750,605 2,664,207 2,278,887
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Premises and Equipment, Net 37,465 37,402 36,832
Accrued Interest Receivable 32,623 31,032 24,957
Other Assets 28,939 75,002 39,698
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Total Assets $ 4,024,894 $ 3,926,739 $ 3,639,239
===============================================================================================================
LIABILITIES
Deposits:
Noninterest-Bearing $ 215,244 $ 196,178 $ 188,424
Interest-Bearing 2,664,617 2,558,337 2,246,134
- --------------------------------------------------------------------------------------------------------------
Total Deposits 2,879,861 2,754,515 2,434,558
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Short-Term Borrowings 334,307 347,291 607,056
Long-Term Debt 488,297 469,077 325,744
Other Liabilities 42,374 85,674 30,763
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Total Liabilities 3,744,839 3,656,557 3,398,121
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STOCKHOLDERS' EQUITY
Common Stock (Par Value $1.00) Authorized 30,000,000 Shares,
Issued 23,537,844, 23,284,896 and 21,922,126 Shares;
at March 31, 1998, December 31, 1997 and March 31, 1997 23,538 23,285 21,922
Capital Surplus 135,079 131,191 111,387
Retained Earnings 119,885 113,463 117,750
Net Accumulated Other Comprehensive Income 4,043 4,733 (7,451)
Treasury Stock at Cost - 228,066 Shares (2,490) (2,490) (2,490)
- --------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 280,055 270,182 241,118
- --------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 4,024,894 $ 3,926,739 $ 3,639,239
==============================================================================================================
These financial statements should be read in conjunction with the accompanying notes.
</TABLE>
3
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Provident Bankshares Corporation and Subsidiaries
Three Months Ended
March 31,
- -------------------------------------------------------------------------------------
(in thousands, except per share data) 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 56,080 $ 46,652
Interest on Securitites 16,679 17,778
Tax-Advantaged Interest 883 1,948
Interest on Short-Term Investments 54 110
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TOTAL INTEREST INCOME 73,696 66,488
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INTEREST EXPENSE
Interest on Deposits 30,047 23,550
Interest on Short-Term Borrowings 4,610 8,480
Interest on Long-Term Debt 7,299 4,903
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TOTAL INTEREST EXPENSE 41,956 36,933
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NET INTEREST INCOME 31,740 29,555
Less: Provisions for Loan Losses 2,975 834
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 28,765 28,721
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NON-INTEREST INCOME
Service Charges on Deposit Accounts 6,258 5,517
Mortgage Banking Activities 1,584 2,178
Commissions and Fees 1,184 947
Net Securities Gains 1,209 71
Other Non-Interest Income 2,533 1,625
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TOTAL NON-INTEREST INCOME 12,768 10,338
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NON-INTEREST EXPENSE
Salaries and Employee Benefits 14,357 13,747
Occupancy Expense, Net 2,482 2,394
Furniture and Equipment Expense 1,910 1,808
External Processing Fees 3,258 2,898
Other Non-Interest Expense 5,614 5,955
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TOTAL NON-INTEREST EXPENSE 27,621 26,802
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INCOME BEFORE TAXES 13,912 12,257
Income Tax Expense 4,607 4,328
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Net Income $ 9,305 $ 7,929
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PER SHARE AMOUNTS:
Net Income -- Basic $ .40 $ .35
Net Income -- Diluted .38 .34
- -------------------------------------------------------------------------------------
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
Provident Bankshares Corporation and Subsidiaries
Three Months Ended
March 31,
- -----------------------------------------------------------------------------------------------------
(in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 9,305 $ 7,929
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operating Activities:
Depreciation and Amortization 5,237 2,654
Provision for Loan Losses 2,975 834
Provision for Deferred Income Tax Benefit (1,214) (613)
Realized Net Securities Gains (1,209) (71)
Loans Originated or Acquired and Held for Sale (192,134) (71,648)
Proceeds from Sales of Loans 141,068 68,724
Gain on Sales of Loans (609) (569)
Other Operating Activities 2,167 (352)
- -----------------------------------------------------------------------------------------------------
Total Adjustments (43,719) (1,041)
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (34,414) 6,888
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INVESTING ACTIVITIES:
Principal Collections and Maturities of Securities Available for Sale 54,366 36,142
Principal Collections and Maturities of Securities Held to Maturity -- 878
Proceeds on Sales of Securities Available for Sale 139,899 19,328
Purchases of Securities Held to Maturity -- (2,262)
Purchases of Securities Available for Sale (200,965) (154,052)
Loan Originations and Purchases Less Principal Collections (91,611) (61,925)
Purchases of Premises and Equipment (1,755) (1,823)
- -----------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (100,066) (163,714)
- -----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net Increase in Deposits 125,346 148,414
Net Increase (Decrease) in Short-Term Borrowings (12,984) 4,621
Proceeds from Long-Term Debt 50,000 35,000
Payments and Maturities of Long-Term Debt (30,780) (37,773)
Issuance of Common Stock 4,141 2,262
Cash Dividends on Common Stock (2,883) (1,795)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 132,840 150,729
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DECREASE IN CASH AND CASH EQUIVALENTS (1,640) (6,097)
Cash and Cash Equivalents at Beginning of Year 68,930 81,498
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 67,290 $ 75,401
=====================================================================================================
SUPPLEMENTAL DISCLOSURES
- -----------------------------------------------------------------------------------------------------
Interest Paid, Net of Amount Capitalized $ 22,413 $ 17,830
Income Taxes Paid 37 29
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
MARCH 31, 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 three month period ended March 31, 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
<TABLE>
<CAPTION>
The Corporation adopted 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. 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:
March 31,
- -------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
Qualifying Net Income $ 9,305 $ 7,929
Basic EPS Shares 23,176 22,563
Basic EPS .40 .35
- -------------------------------------------------------------------------------------
Dilutive Shares 1,183 798
Diluted EPS Shares 24,359 23,361
Diluted EPS .38 .34
- -------------------------------------------------------------------------------------
</TABLE>
NOTE C - INVESTMENT SECURITIES
The Corporation's investment portfolio is divided among three categories:
securities held to maturity, 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, directly as a separate component of
stockholders' equity as accumulated other comprehensive income and therefore,
has no effect on the financial results of the Corporation's operations.
6
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<TABLE>
<CAPTION>
The aggregate amortized cost and market values of the investment
securities portfolio at March 31 were as follows:
March 31, 1998
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and Government
Agencies and Corporations $ 38,276 $ 40 $ 9 $ 38,307
Mortage-Backed Securities 903,920 7,796 1,397 910,319
Municipal Securities 21,039 464 11 21,492
Other Debt Securities 19,448 12 206 19,254
- ----------------------------------------------------------------------------------------------------------
Total Securities Available for Sale $ 982,683 $ 8,312 $ 1,623 $ 989,372
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and Government
Agencies and Corporations $ 76,363 $ 56 $ 1,490 $ 74,929
Mortage-Backed Securities 943,463 3,528 14,231 932,760
Municipal Securities 18,878 222 396 18,704
Other Debt Securities 30,028 61 33 30,056
- ----------------------------------------------------------------------------------------------------------
Total Securities Available for Sale 1,068,732 3,867 16,150 1,056,449
- ----------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY
U.S. Treasury and Government
Agencies and Corporations 53,119 433 127 53,425
Mortage-Backed Securities 34,499 21 614 33,906
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Total Securities Held to Maturity 87,618 454 741 87,331
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Total Investment Securities Portfolio $1,156,350 $ 4,321 $ 16,891 $1,143,780
- ----------------------------------------------------------------------------------------------------------
</TABLE>
At March 31, 1998 a net unrealized gain of $4.0 million was reflected as
Accumulated Other Comprehensive Income which is reflected separately as a
component of Stockholders' Equity in the Consolidated Statement of Condition as
compared to a net unrealized gain of $4.7 million at December 31, 1997. For
details regarding investment securities at December 31, 1997, refer to Note 3 of
the Consolidated Financial Statements incorporated in the Corporation's 10-K
filed March 19, 1998.
7
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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 March 31, 1998 no valuation allowance was required.
<TABLE>
<CAPTION>
The following is an analysis of servicing asset balance, net of accumulated
amortization, during the period ended March 31, 1998:
March 31,
(in thousands) 1998
- -----------------------------------------------------------------------
<S> <C>
Balance at January 1, 1998 $1,984
Additions 2,011
Amortization 179
Sales of Servicing Assets 8
- -----------------------------------------------------------------------
Balance at March 31, 1998 $3,808
- -----------------------------------------------------------------------
</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. 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 March 31,
- -----------------------------------------------------------------------------------------------------
(in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 9,305 $ 7,929
Other Comprehensive Income:
Unrealized Holding Gains (Losses) During the Period 66 (9,967)
Less: Reclassification Adjustment for Gains Included in Net Income (1,209) (71)
- -----------------------------------------------------------------------------------------------------
Other Comprehensive Income, Before Tax (1,143) (10,038)
Income Tax Benefit Related to Items of Other Comprehensive Income 453 3,960
- -----------------------------------------------------------------------------------------------------
Other Comprehensive Income, After Tax (690) (6,078)
- -----------------------------------------------------------------------------------------------------
Comprehensive Income $ 8,615 $ 1,851
- -----------------------------------------------------------------------------------------------------
</TABLE>
8
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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
March 31, 1998 of $9.3 million or $.40 per share basic and $.38 diluted. This
represented a 17.4% increase in net income over the same period a year ago. Net
income for the quarter ended March 31, 1997 was $7.9 million or $.35 per share
basic or $.34 diluted. The higher earnings in 1998 were mainly due to loan
growth, increased fee income and controlled operating expenses. Average consumer
loans outstanding grew $486 million as total average loans increased 21% to
$2.72 billion. Increase in non-interest income was driven by a 15% increase in
fee based services on higher account volume. Even with higher account volume and
continued investment in business initiatives, operating expenses were controlled
to a 3.1% growth rate. There was a $2.1 million increase in the provision for
loan losses during the quarter with net charge-offs of $2.1 million. The
increase in provision is mainly related to the growth in loans.
NET INTEREST INCOME
Growth in average earning assets offset in part by a higher cost of
liabilities raised tax-equivalent net interest income to $32.0 million for the
first quarter of 1998, a $2.3 million increase over the prior year.
Provident's interest income on earning assets rose $7.3 million from the
first quarter of 1997, the result of a $378 million expansion in average earning
asset balances. Growth in total average earning assets was provided by increases
of $486 million in consumer loans and $12.4 million in commercial construction
loans as well as a $35.6 million increase in mortgage loans held for sale.
Investments decreased $123 million, residential construction $13.4 million, real
estate mortgage loans $11.6 million and commercial business loans $8.2 million.
The yield remained relatively flat at 7.90% versus 7.91%.
Total interest expense for the first quarter of 1998 was $5.0 million
above a year ago, the combined result of an increase of 16 basis points in the
average rate paid and a $308 million increase in the average outstanding balance
of interest-bearing liabilities. Included in this increase were $319 million in
matched maturity brokered deposits, $83 million in money market certificates of
deposit, $36 million in interest-bearing demand/money market deposits and $64
million in individual retirement account deposits. Savings and direct
certificates of deposit declined $8 million and $73 million, respectively.
Borrowed money declined $113 million.
As a result of off-balance sheet transactions undertaken to insulate the
Bank from interest rate risks, interest income increased by $90 thousand and
interest expense increased by $310 thousand, for a total decrease of $220
thousand in net interest income for the quarter ended March 31, 1998. Included
in this net interest income decrease was the amortization of closed positions
which reduced interest income by $54 thousand and increased interest expense by
$611 thousand (a net decrease of $665 thousand) for the current quarter. Without
the amortization of closed positions, off-balance sheet positions increased net
interest income $445 thousand for the current quarter.
The forward yield curve indicates that short-term rates will increase 10
basis points and long-term rates will increase 5 basis points over the next
twelve months. The Corporation's analysis indicates that if management does not
adjust its March 31, 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 $912 thousand over the
next twelve months. This compares to an increase in net interest income of $645
thousand should interest rates remain unchanged. Amortization of closed
positions will reduce
9
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net interest income $1.55 million over the next twelve months. Thus, without
amortization of closed positions, net interest income would increase $2.5
million over the next twelve months if the forward yield curve assumptions occur
and $2.2 million if rates remain unchanged.
PROVISION FOR LOAN LOSSES
The Corporation recorded a $3.0 million provision for loan losses for the
quarter, with net charge-offs of $2.1 million for the first quarter of 1998
compared to $337 thousand 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
March 31, 1998 was $37.8 million, up from $30.9 million a year ago. At March 31,
1998, the allowance represented 1.35% of total loans and 264% of non-performing
loans. Total non-performing loans were $14.3 million at March 31, 1998. 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 as of March 31,
1998 were .51%.
In April 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 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 totaled $12.8 million in the first quarter of 1998
compared to $10.3 million in 1997. This increase was driven by a $1.2 million
net securities gain and $441 thousand gain from the sale of real estate. Deposit
service fees continued their upward trend, increasing 13% over the prior year.
Loan fees increased 98% and other commissions and fees increased 25% all from
increased account volume. Income from Provident Investment Center increased 8%
generating $608 thousand in fee income. Fees from mortgage banking activities
declined $600 thousand as a result of closing several retail sales offices and a
shift in strategy to a more indirect origination business.
NON-INTEREST EXPENSE
First quarter non-interest expense was $27.6 million, compared to $26.8
million for the same period last year. Salaries and benefits increased $610
thousand mainly related to merit increases. Occupancy costs increased $88
thousand over last year and furniture and equipment expense increased $102
thousand. These increases were required by branch network expansion and upgrades
of technology. External processing fees increased $360 thousand due to increased
account volume. All other expenses decreased a total of $341 thousand mainly
associated with a $292 thousand decrease in legal and consulting fees.
INCOME TAXES
Provident recorded income tax expense of $4.6 million on income before
taxes of $13.9 million, an effective tax rate of 33.1%. During the first quarter
of 1997, Provident's tax expense was $4.3 million on pre-tax income of $12.3
million, an effective tax rate of 35.3%. The decrease in the effective tax rate
is primarily due to lower state income tax expense.
10
<PAGE> 11
FINANCIAL CONDITION
Total assets of the Corporation increased $98 million from December 31,
1997 to March 31, 1998 as loan balances increased $87 million. Consumer loans
were up $120 million and commercial business loans were up $12.4 million from
December 31, 1997. Real estate construction loans declined $7.3 million and real
estate mortgage loans $37.5 million. Total deposits ended the quarter at $2.88
billion, an increase of $125 million over the December 31, 1997 level.
Non-interest bearing deposits increased $19.1 million from December 31, 1997
while interest bearing deposits increased $106 million. Borrowings increased
$6.2 million from December 31, 1997 ending the quarter at $823 million.
The primary sources of liquidity at March 31, 1998 were loans held for
sale and investments available for sale, which totaled $1.1 billion. This
represents 30% of total liabilities compared to 29% at December 31, 1997.
At quarter-end, the leverage ratio was 7.05% and total stockholders'
equity represented 10.24% of risk adjusted assets. These ratios exceed the
minimum requirements of the current leverage capital and risk-based capital
standards established by regulatory agencies. In the second quarter of 1998 the
Corporation issued $40 million of 8.29% corporation obligated mandatory
redeemable capital securities which mature in 2028. These securities qualify as
capital for regulatory purposes and will be used for general corporate purposes.
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.
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 March 31, 1998.
11
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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) Bylaws of Provident Bankshares Corporation, as amended.**
(4) Stockholder Protection Rights Agreement.**
(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 March 31, 1998.
* Incorporated by reference from Registrant's Registration Statement on Form
S-3 (File No. 33-73162) filed with the Commission on August 18, 1997.
** Incorporated by reference from Registrant's Form 10-K (File No. 0-16421)
filed with the Commission on February 17, 1995.
12
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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 14, 1998 /s/ Peter M. Martin
------------------------------------
Peter M. Martin
President, Chairman and Chief
Executive Officer
May 14, 1998 /s/ R. Wayne Hall
------------------------------------
R. Wayne Hall
Treasurer
13
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<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Description Sequentially Numbered Page
- ------- ----------- --------------------------
<S> <C> <C>
(11) Statement re: Computation of Per Share Earnings 15
(27) Financial Data Schedule 16
</TABLE>
14
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
March 31,
(in thousands, except per share data) 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Basic:
- -----
Average shares outstanding 23,176 22,563
======== ========
Net Income $ 9,305 $ 7,929
======== ========
Per Share Amount $ .40 $ .35
======== ========
Diluted:
- -------
Average shares outstanding 23,176 22,563
Net effect of dilutive stock options based
on the treasury stock method using the
average market price or quarter end price,
whichever is greater 1,183 798
-------- --------
Total Shares Outstanding 24,359 23,361
======== ========
Net Income $ 9,305 $ 7,929
======== ========
Per Share Amount $ .38 $ .34
-------- --------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 67,057
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 989,372
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,788,374
<ALLOWANCE> 37,769
<TOTAL-ASSETS> 4,024,894
<DEPOSITS> 2,879,861
<SHORT-TERM> 334,307
<LIABILITIES-OTHER> 42,374
<LONG-TERM> 488,297
0
0
<COMMON> 23,538
<OTHER-SE> 256,517
<TOTAL-LIABILITIES-AND-EQUITY> 4,024,894
<INTEREST-LOAN> 56,080
<INTEREST-INVEST> 16,733
<INTEREST-OTHER> 883
<INTEREST-TOTAL> 73,696
<INTEREST-DEPOSIT> 30,047
<INTEREST-EXPENSE> 41,956
<INTEREST-INCOME-NET> 31,740
<LOAN-LOSSES> 2,975
<SECURITIES-GAINS> 1,209
<EXPENSE-OTHER> 16,062
<INCOME-PRETAX> 13,912
<INCOME-PRE-EXTRAORDINARY> 13,912
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,305
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.38
<YIELD-ACTUAL> 3.42
<LOANS-NON> 14,325
<LOANS-PAST> 24,256
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 36,861
<CHARGE-OFFS> 2,305
<RECOVERIES> 238
<ALLOWANCE-CLOSE> 37,769
<ALLOWANCE-DOMESTIC> 37,769
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
