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Provident Bankshares Corporation
(Name of Registrant as Specified In Its Charter)
Mid-Atlantic Investors
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MID-ATLANTIC INVESTORS
A.S.C. General Partnership
P.O. Box 7574 Tel. 803-749-7888
Columbia, South Carolina 29202 FAX 803-749-7090
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ATTENTION PROVIDENT BANKSHARES INSTITUTIONAL SHAREHOLDERS
March 31, 2000
Dear Fellow Shareholder:
Mid-Atlantic Investors has submitted a "Sell the Bank" shareholder proposal for
vote at the April 19 annual meeting of Provident Bankshares Corporation
shareholders. Mid-Atlantic is writing to ask that your institution support this
proposal by voting FOR the proposal.
Since 1991, Mid-Atlantic Investors has been a catalyst for change in several
under-performing financial institutions such as Provident Bankshares. In each
case, except one, the institutions in which Mid-Atlantic sought change,
shareholders have benefited. The one exception is a $674 million institution
located in Norfolk, Virginia, whose shareholders voted with management three
years ago not to sell the company. Today, that company's stock price is around
$10.25 per share. At the time of that company's annual meeting of shareholders
in 1997, the stock was approximately $14.25 per share.
We have made our proposal because we firmly believe that shareholders will fare
significantly better if there is a merger than if Provident continues its go it
alone approach. One need only look at Provident's stock performance and
Provident's operating performance as measured against the results of other
institutions (see enclosed chart) to see why. We believe a brighter future is
possible through a merger with a better performing company.
A CLOSER LOOK AT THE NUMBERS
Provident's management points to a group of double digit growth numbers to
justify Provident's continued independence and to confirm their strategic plan
to increase shareholder value. Although their numbers are superficially
attractive, we believe that they mask a fundamental lack of growth in those
areas which will most contribute to shareholder value.
From December 31, 1998 to December 31, 1999 total deposits
increased by 11.4% but core deposits increased by less than 1%.
Further, it appears that nearly three-fourths of the overall
growth was from brokered deposits.
Natural loan growth, that is growth excluding acquired loans, was
only 2.5% from 1998 to 1999 and actually declined 3.0% from 1997
to 1999. Most of the loan growth touted by management comes from
acquired loans.
(Over)
<PAGE>
Mid-Atlantic believes that the lack of substantial natural loan growth and core
deposit growth coupled with a high dependence on brokered deposits and acquired
loans demonstrates a failure to grow solid relationships that are the backbone
of the creation of shareholder value.
In the meanwhile, Provident continues to operate with an unreasonably high
efficiency ratio (low is better). In an era when well-managed banks routinely
have efficiency ratios between 50% and 55%, the best Provident can do is 63.4%.
Provident's return on assets is routinely below 1% when many well-managed banks
post returns on assets of 1.5% or more. These statistics do not portend a future
of growth that will allow Provident to match the performance of well-managed
banks in the next several years much less exceed the other banks' performance.
We believe the best action that management of Provident can take for its
shareholders is to look for a well-managed bank as a merger partner. We believe
the best action a fiduciary shareholder can take for its beneficiaries is to
VOTE FOR OUR PROPOSAL to encourage management to find a merger partner.
Naturally, if this shareholder proposal is adopted, Mid-Atlantic doesn't expect
Provident to rush out and take the first offer. We would expect Provident to
secure the services of one of the better respected investment banking firms to
conduct an orderly auction of the company to maximize shareholder value. Our
detailed review of Provident Bankshares and the banking industry indicates that
the best way to create shareholder value and continue to grow the business is an
acquisition by, or a merger with, a third party.
If you need assistance in voting your shares, please call our proxy solicitor,
D. F. King & Co., Inc., at (212) 493-6921.
Thank you for your consideration of this proposal.
Sincerely,
Jerry Shearer
Managing Partner
Enclosure: Performance Chart and Commentary
<PAGE>
PROVIDENT BANKSHARES CORPORATION
COMPARATIVE ANALYSIS
By Mid-Atlantic Investors
The attached chart compares key operating results produced by Provident
with those of eight other financial institutions competing in the Baltimore area
or Maryland. Five of the others (SunTrust, Wachovia, BB&T, BankAmerica and First
Union) are widely regarded as high performance institutions and are
substantially larger than Provident. Mercantile Bankshares is Provident's major
in-town competitor. Fulton Financial and Susquehanna Bankshares are included
because they have been used in the past as being somewhat comparable to
Provident.
KEY OPERATING RATIOS:
Return on Average Assets is a ratio often used to analyze how well an
institution uses the assets at its disposal to earn income for its shareholders.
In our field of nine institutions Provident is dead last in this category.
Return on Average Equity is a ratio often used to analyze how well an
institution earns income using the shareholder's supposed investment in the
institution. Provident is next to last in this category and is 25% less than the
average of the three leaders. Provident managed to not be dead last in this
category by being substantially more leveraged than the worst performer in this
category (average equity to average assets ratio of 5.83% vs. 9.66%).
Net Interest Margin is a measure of the value to the institution of its
interest earning assets which are supported by interest bearing liabilities. It
represents the source of the major portion of income for most financial
institutions. Again Provident is dead last in this category. Together with the
return on average assets ratio, this number indicates that deposit growth is not
as valuable to Provident as it is to the other institutions surveyed.
Efficiency Ratio is a measure of the cost of generating a dollar of
revenue and represents money which is not available to shareholders as profit.
Once more, Provident's performance ranks it dead last in this category.
Average Equity to Average Assets Ratio is a measure of how well
capitalized an institution is. Institutions with lower ratios are more highly
leveraged which can mean more risky. Provident is the least well capitalized
institution in the group. Although high leverage sometimes can create high
returns on equity, that has not been true in Provident's case when compared to
other institutions in our field.
PERCENTAGE GROWTH:
Growth rates compare the rate of change from one year to the next.
While they do show how much something improves (or deteriorates), the true value
of such a change is dependent on the value of the starting point.
Net Income Growth rates for our field of nine institutions show
Provident in the middle of the field but at only 47% of the average growth rate
of the three leaders.
Net Diluted EPS Growth rates also show Provident in the middle of the
field but 53% behind the average growth rate of the three leaders.
STOCK PERFORMANCE:
Although the other data may be used as indicators of how well a company
compares to its competitors, from a shareholder's perspective the only
performance category this is truly important is the stock price. Our chart shows
the value at December 31, 1999 of a $100 investment in the subject institution's
stock made at December 31, 1997, using data from the stock performance graph in
each institution's proxy statement filed with the SEC (at the time the chart was
prepared Susquehanna and Bank America proxy statements were not available). Once
again, Provident's performance ranks it dead last in our group.
<PAGE>
PROVIDENT BANKSHARES CORPORATION
PERFORMANCE COMPARISON WITH OTHER FINANCIAL INSTITUTIONS
(Source: Derived from Company Form 10Ks and Proxy
Statements filed with SEC)
<TABLE>
<CAPTION>
Provident SunTrust Wachovia BB&T Mercantile Fulton Susquehanna First
Bankshares Banks,Inc. Corporation Corporation Bankshares Financial Bankshares BankAmerica Union
---------- ---------- ----------- ----------- ---------- --------- ----------- ----------- -----
1999 KEY OPERATING RATIOS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Return on Average Assets ...... 0.90% 1.48% 1.55% 1.46% 2.07% 1.65% 1.04% 1.34% 1.51%
Return on Average Equity ...... 15.46% 20.83% 18.62% 19.16% 16.23% 15.79% 10.73% 17.70% 21.60%
Net Interest Margin ........... 3.13% 3.88% 3.98% 4.27% 5.17% 4.56% 4.27% 3.47% 3.79%
Efficiency Ratio .............. 63.40% 60.63% 54.70% 52.70% 46.55% 52.70% 62.26% 55.30% 58.32%
Average Equity/Average Assets . 5.83% 8.00% 8.30% 7.63% 12.74% 10.50% 9.66% 8.02% 6.92%
PERCENTAGE GROWTH YEAR/YEAR:
Net Income .................... 13.12% 36.62% 15.68% 12.82% 7.21% 9.85% -3.91% 26.96% 20.58%
Diluted EPS ................... 13.61% 35.86% 17.22% 12.27% 10.29% 10.24% -3.31% 28.57% 22.03%
STOCK PERFORMANCE:
(Value at December 31, 1999
of $100 invested at
December 31, 1997) ........... $ 62.46 $ 99.85 $ 88.89 $ 89.09 $ 86.09 $ 80.47 N/A N/A $89.95
</TABLE>
NOTE: RESULTS THAT EXCEED PROVIDENT'S APPEAR IN BOLD TYPE
