Hours after reporting a $17.6 million first-quarter loss yesterday, Provident Bankshares Corp.'s chief executive was upbeat. In fact, Gary N. Geisel said he was looking forward to an afternoon conference call with industry analysts, who can be unforgiving in the presence of so much red ink.
Geisel noted that a $42.7 million write-down of the bank's mortgage-related investments turned out to be less than the potential $47.7 million forecast in February. The quarterly results also showed the bank isn't taking big losses on bad loans, unlike many of its peers. Deposits increased 3 percent to $4.2 billion in the quarter, and its earnings loss of 56 cents per share wasn't as bad as the 63 cents most analysts had expected.
Take away the big write-down on investments, Geisel said, and "it's really a solid quarter, frankly."
By comparison, the bank reported a profit of $16.1 million, or 50 cents per share, in the year-earlier quarter, when banks had yet to suffer the fallout from a declining housing market. Since then, a less-than-expected loss - like the one Provident reported yesterday - is increasingly considered good news by bank executives and investors.
Provident's shares rose $1.52, or about 14 percent, to close at $12.67 in trading yesterday. The shares remain well below their 52-week high of $35.63 reached May 4, but yesterday's partial rebound was the first good news the bank's investors have seen in several difficult quarters.
The first-quarter results follow a $15.5 million loss in the fourth quarter as troubles in the bank's investment portfolio grew. Just weeks into the first quarter, Provident said it had to write off $48 million in soured mortgage-related securities, which had fallen in value as the credit crisis rippled through the financial industry.
By February, the bank was saying it could be forced to write off nearly $48 million more by quarter's end. The bank handed shareholders more bad news last week by saying it would cut its dividend by two-thirds as part of a companion plan to raise $115 million in capital from investors. The move was aimed at conserving cash and shoring up the bank's balance sheet in light of recent losses.
Geisel acknowledged yesterday that shareholders have not had much to celebrate. Echoing comments he made at Provident's annual meeting Wednesday, Geisel noted that bank stocks are coming off their second-worst year since 1939 when measured against the S&P; 500 index.
"So obviously, people are going to be disappointed with the stock price," he said.
The bank's conference call with analysts was less tense than in recent quarters, when executives faced a high volume of questions about the investment write-downs.
Analysts noted the quality of Provident's loan portfolio, which seems to be holding up better than many other banks. Net loan charge-offs for the quarter were $3.1 million, compared with $6 million at year-end 2007. The bank's allowance for loan losses stood at about $55 million, or 1.3 percent of total loans. That figure was flat with the previous quarter. It reported $30.6 million in bad loans, which was also about even with the number it reported Dec. 31.
Bank officials say the majority of their lending is to borrowers in Maryland, Washington and Virginia, where real estate values have held up better than in much of the country.
"Asset quality was very, very good versus their peers, and stable," said Jeff Davis, an analyst with FTN Midwest Securities, referring to the bank's loan portfolio. He has a neutral rating on the shares and doesn't own any.
Davis said the bleeding may be over in Provident's mortgage-related investment portfolio, barring more catastrophic news in credit markets or a prolonged recession.
"I suspect we're a lot closer to the bottom than maybe the bears want to put things," he said.