Provident ends loss streak

The Baltimore Sun

Shares of Provident Bankshares Corp. gained 27 percent yesterday after the bank reported a $15.1 million second-quarter profit, snapping a six-month streak of losses linked to its real estate-related investment portfolio.

The gain came as the largest independent Baltimore-based bank said its loan delinquencies were steady to slightly lower, bucking an industrywide trend toward rising defaults in the face of a difficult economy. A number of major banks reported lower earnings this week as a result of bad loans and real estate write-offs.

Provident's profit amounts to 41 cents per share, down 2.7 percent from net income of $15.5 million, or 48 cents per share, reported in the year-earlier quarter. However, the year-ago earnings were hurt by an unusual $3.5 million write-off related to a commercial loan that went bad.

Likewise, the current quarter's results were affected by a number of one-time gains and losses that muddy year-over-year comparisons. The bank raised its provision for loan losses by $1.6 million, and saw a $2.5 million decline in net interest income. It also took a charge of $4.1 million related to investment securities.

However, those declines were offset by a $2.3 million gain in noninterest expenses and an $8.7 million profit on the sale of shares in MasterCard during the quarter.

The bank's shares closed up $1.63 to $7.70 per share - still far below a 52-week high of $33.50 reached last August. The earnings were better than Wall Street expected: The average analyst estimate was for 30 cents per share, according to Thomson Financial.

"We'd be happy with this quarter in a normal environment," said Gary N. Geisel, Provident's chairman and chief executive, referring to the difficulties banks are facing nationwide. He said the results look especially good given the wider troubles in the financial industry.

Several of the bank's capital ratios - key indicators of its financial health - improved during the quarter. The bank's tangible capital ratio - which strips out "intangible" assets, such as goodwill - rose to 5.03 percent from 4.20 percent. The ratio measures tangible capital compared to the bank's total assets. The bank cut its dividend in April and launched a plan to raise $115 million in capital from investors to help shore up the balance sheet.

The bank's core capital ratio improved to 10.68 percent from 9.23 percent in the first quarter. Regulators use the core capital ratio to measure a bank's ability to absorb losses from bad loans. Provident had a core capital ratio of 11.06 percent in the year-earlier quarter.

The number of nonperforming loans as a percentage of total loans decreased to 0.59 percent from 0.73 percent in the first quarter. Loans more than 90 days past due as a percentage of total loans fell slightly to 0.17 percent from 0.20 percent.

Average total loans grew $294.8 million, or 7.6 percent, to $4.2 billion over the year-earlier quarter. The increase was due primarily to an increase in commercial business loans, the bank said.

"Our loan quality is really holding up," Geisel said.

The improved results contrast with the bad news the bank reported in its portfolio of real estate investments early this year. Weeks into the first quarter, the bank said it would write off $48 million in soured mortgage-related securities, which lost value as the global credit crisis took its toll on the financial industry. That was followed by further write-offs, sending the bank's shares tumbling. The shares have lost 64 percent of their value since the start of the year.

Geisel said yesterday that the bank could see further losses in the portfolio if the credit crisis worsens. But he said such losses, if any, won't be near to the scale of what was reported previously.

"We feel like anything we have to deal with there is going to be very manageable," he said.

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