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Provident Bankshares Corporation
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March 27, 2000
Ms. Joanna Sullivan
Editor
The Baltimore Business Journal
111 Market Place, Suite 720
Baltimore, MD 21202
Dear Joanna:
Your editorial "Board should decide fate," in the March 17th issue of the
Baltimore Business Journal, addressed a proposal by Mid-Atlantic Investors, one
of Provident Bankshares' major stockholders, to sell or merge the bank as
quickly as possible.
We strongly agree with your assessment that the Board and our shareholders
should determine the best course of action for Provident's future, but would
like to offer a few comments and clarifications that may be of interest to you
and your readers.
When our shareholders defeated the same Mid-Atlantic proposal last year by a
three-to-one margin, Mid-Atlantic leadership said they would continue to push
for a sale of Provident. Our Board and management are taking Mid- Atlantic's
proposal very seriously, but continue to believe that its adoption would
ultimately be detrimental to the financial interests of our stockholders.
We remain committed to maximizing long-term shareholder value and have developed
and continue to implement business strategies designed to do just that.
Provident Bankshares has posted 25 consecutive quarters of double-digit
increases in core earnings. Our earnings growth exceeded 13% in 1999 and
earnings per share grew 13.60%. 1999 return on equity was strong at 14.6%. We
also continued to improve our operating efficiency while investing in the growth
of our branch network. Provident opened 16 new branches last year, and this
expansion resulted in fee income, deposit, loan and market share growth. In
1999, our Maryland deposit market share increased 22%, significantly more than
any multi-branch bank doing business in the state.
Your editorial states, "We don't fault Shearer, a well-known activist investor,
for wanting Provident to sell. He, like any good investor, wants to make money."
But good investors also realize that making money means knowing when to hold on
to a good investment. And that's a major reason why we oppose the Mid-Atlantic
proposal.
Provident is a larger, stronger and more profitable institution than it was a
year ago. However, due to the overall market condition for bank stocks, our
current share price does not reflect our strong financial performance. The drop
in Provident Bankshares share price since the third quarter of 1999 is
consistent with 75% of all similar bank stocks. This decline across the
financial services sector has been attributed to an anticipated rise in interest
rates, growing investor focus on high-tech stocks and the disappointing
financial results reported by some acquiring banks as they struggle to integrate
their merger partners. In several recent mergers, the stock price of the
acquiring bank actually declined sharply upon the announcement of the merger.
Although the Mid-Atlantic "sell the bank" proposal is non-binding and does not
require the board to take
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any action, we are concerned that its adoption would result in uncertainty
regarding our future and adversely affect our ability to attract and retain
customers and employees.
Your editorial also states that, "A wish to remain independent is not enough for
a board member to ignore his or her fiduciary responsibility." We couldn't agree
more. Provident Board members, who fully understand their fiduciary
responsibilities, are not guided by such "wishes". Our Board regularly reviews
its strategic business focus and considers strategic actions that may be taken
to maximize long-term shareholder value. The Board has been and will continue to
be open to the full range of strategic options available to achieve this. We
have not adopted a "just say no" policy regarding the sale or merger of
Provident.
With shareholder interests in mind, the Board strongly believes that the sale of
Provident Bank now would sacrifice our long-term business strategy in pursuit of
a short-term gain that may or may not be available. Given the current market
conditions for all bank stocks and our excellent growth prospects, we believe
placing a "for sale" sign on Provident is not the best avenue for our
shareholders to realize the intrinsic long-term value of their investments.
Sincerely,
/s/ Peter M. Martin
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Peter M. Martin
Chairman of the Board, President and
Chief Executive Officer
