Provident Bankshares Corp., Maryland's largest independent bank, said yesterday that net income fell nearly 12 percent in the first quarter because of a tough interest rate environment and changes in consumer banking habits.
Net income for the three months that ended March 31 was $16.1 million, or 50 cents per diluted share, compared with $18.3 million, or 55 cents per diluted share a year ago. The latest results met the estimate of analysts surveyed by Thomson Financial.
Provident stock fell 14 cents to close at $33.07 yesterday on the Nasdaq stock market.
Baltimore-based bank executives attributed the earnings decline to lower net interest margin, the difference between interest earned from loans and other investments and interest paid out. Industrywide, that key performance measure is shrinking.
Provident executives also pointed to a shift in which customers are moving balances from lower-yielding savings and checking accounts into higher-rate money market accounts and certificates of deposit.
"As with other financial institutions, year-over-year [results] isn't as robust as it was in 2006," Kevin G. Byrnes, Provident's president and chief operating officer, said in an interview. But "we met the expectations of Wall Street."
Year-over-year net interest margin fell to 3.62 percent from 3.72 percent.
But Byrnes said Provident's balance-sheet restructuring in December is slowly showing favorable results with first-quarter net interest margin increasing from the fourth quarter.
"I think we're holding up very well against our competing peer groups," he said.
Under the restructuring, Provident sold mortgage-backed securities and used the proceeds to retire debt and reinvest in higher-yielding securities. 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 bank's loan portfolio rose nearly 5 percent from a year ago, to $3.9 billion, with increases in commercial real estate and home equity balances.
Deposits grew 3 percent to about $4.3 billion during the same period. Total assets dipped 2 percent to $6.2 billion.