Provident Bankshares Corp., one of the largest banks in Maryland, said yesterday that earnings for the year would fall short of analyst forecasts after the bank took a hit from a balance-sheet restructuring, while paying higher interest on certain accounts and collecting less in banking fees.
Analysts surveyed by Thomson Financial had expected the Baltimore bank to earn $2.38 per share for the year, but the company now says it will earn $2.11 to $2.13 per share. Results for 2006 and for the fourth quarter, which ends in December, will be released early next year.
The dimming earnings picture led shares to fall $1.37, or 3.7 percent, to $35.50 yesterday. The drop made it one of the 10 worst-performing banking stocks on the Nasdaq stock market.
Gary N. Geisel, chairman and chief executive at Provident, said investors likely were reacting to the bank's slowing revenues. He attributed the decline to changes in consumer banking, in which customers are moving into higher-rate money market accounts and certificates of deposits, writing fewer checks and using debit cards less frequently.
"While the stock is certainly off from yesterday's close," Geisel said, "I would say the challenges we're facing here are the same challenges faced by most banks."
Geisel characterized the balance-sheet restructuring as good news. Under the restructuring, Provident sold $183 million in mortgage-backed securities and used the proceeds to retire debt and reinvest in higher-yielding securities. The bank also plans to repurchase company stock.
The effort is part of a long-term plan to reduce the portfolio of wholesale mortgages and investments and concentrate on home-equity and commercial lending.
The restructuring is projected to result in a $5 million charge in the fourth quarter, reducing earnings per share by 15 cents. The bank expects to recover the costs through higher earnings over the next 4 1/2 years.
Other banks including BB&T; Corp. and Wells Fargo & Co. have undertaken similar changes to their securities and loan portfolios in recent months as the Federal Reserve has raised short-term interest rates and long-term rates have dropped, reducing what banks earn on loans.
Geisel also said the bank hired Sheshunoff Management Services LP, a consultant to financial institutions, to find ways the bank can operate more efficiently and hold down costs. He said it's likely the bank would eliminate positions over time through attrition or otherwise, though that doesn't necessarily mean employees would be cut.
Provident is the second-largest Maryland-based bank and the eighth-largest by deposit share.