Provident Bankshares Corp. reported yesterday that second-quarter net income remained flat as the bank's home equity and real estate construction loan portfolios grew, but it recorded a loss on derivatives, or financial instruments used to hedge risk.
The bank, which ranks as the second-largest independent bank in Maryland, reported earnings of $20 million, or 60 cents per share, matching the results from the second quarter of 2005 and meeting Wall Street expectations, according to a survey of analysts by Thomson Financial.
"It's a continuation of our same old song," said Dennis Starliper, chief financial officer at the bank. "We are continually improving our financial fundamentals and continuing to grow earnings on a foundation of lower risk."
Provident improved its net interest margin to a 12-year high of 3.7 percent. The financial measure is key in the banking industry and represents the spread between what a bank earns from loans and other investments and the interest a bank pays out. At the same time, the bank reduced its provision for loan losses, or an allowance set aside for bad loans, by more than 60 percent.
Home equity loans grew 23 percent to $946 million, and commercial real estate loans rose 20 percent to $1.3 billion. Meanwhile, originated and acquired residential mortgages fell 33 percent to $403 million. Provident has been reducing its wholesale mortgages acquired from brokers across the country. As for mortgages that the bank writes, Starliper said, "It has declined from a very robust market to a good strong market."
The biggest swing in Provident's financial statement came on the line for derivatives. Last year the bank decided it had used the wrong accounting method for interest-rate swaps. The change resulted in the bank marking down a $554,000 valuation loss this past quarter compared with a $3.9 million valuation gain a year ago.
Deposits rose 3 percent to $4.2 billion, driven by commercial clients in Washington and central Virginia. Total assets ended the quarter at $6.4 billion.
Provident also announced yesterday that its board boosted the quarterly cash dividend to 29.5 cents per share. The dividend will be paid Aug. 11 to shareholders as of July 31.
Provident's shares fell 44 cents, or 1.2 percent, to $35.79 in trading yesterday on the Nasdaq Stock Market.