Banking on an innovative approach

March 26, 1995|By David Conn | David Conn,Sun Staff Writer

Since a change of command in 1990, Provident Bankshares Corp. has come a long way: from three years of losses in the late 1980s to four years of profits this decade; from an anemic bank with a thrift's balance sheet to one of the more innovative and increasingly attractive takeover prospects in town.

Measured by profits relative to size, its performance still ranks below its peers. But with a revamped branch system (less city, more suburban), and clever marketing -- the "Totally Free" checking account, supermarket branches and a check-cashing venture -- Provident has impressed outsiders and the stock market with its ability to make money in a tough economy.

Like so many other small- to mid-sized banks with assets in the $1 billion-to-$5 billion range -- and most recently Baltimore Bancorp -- strong management has brought $2.3 billion Provident to the point that some believe a takeover is inevitable. In January, the company's board of directors enacted a "poison pill" defense against a hostile takeover.

"You're looking at a company whose future is really in the hands of an acquirer," said Robert A. Bonelli, a Provident investor who runs the Ernst Bank Equity Fund in Califon, N.J. Mr. Bonelli's company and its institutional backers together own more than 100,000 shares.

"We'll sell the stock when we're selling to an acquirer," he said.

Management says it won't turn away any fair offers, but it hopes to stick around. Despite the invasion of the bank snatchers from North Carolina, Virginia, New Jersey and elsewhere, Provident, which employs nearly 2,000, thinks it can succeed on its own.

"We feel there's plenty of opportunities in this marketplace. We offer a broad enough line of services to meet the needs of the customers we're after," said Chairman and Chief Executive Officer Carl Stearn.

"We're big enough to offer the kinds of services our customers need. We're not interested in international business. We don't deal with Fortune 500 companies. . . . We've identified the areas where we feel we can be competitive and serve our customers," Mr. Stearn said.

Certainly the shareholders are pleased. From a low of $2.75 a share in January 1991, Provident's stock hit a peak in the past year of $27.75, before settling back to its closing price Friday of $22.50.

"Carl Stearn has just done an absolutely splendid job, along with [President and Chief Operating Officer] Peter Martin," Mr. Bonelli said of the pair, who came from Equitable Bancorp. a year after it was acquired by MNC Financial Inc.

What Mr. Stearn, now 62, and Mr. Martin, 57, found when they arrived in 1990 was a commercial bank with a striking resemblance to a savings and loan, its structure for the first 101 years after it was founded in 1886.

The company, whose main subsidiary is Provident Bank of Maryland, had lost money in 1987, the year it switched from a mutual thrift to a stock commercial bank, and in 1988 and 1990.

It was still in the dark ages in terms of automation and computerization, according to Mr. Martin. "People in the branches were using rubber stamps," he recalled. "If you wanted a copy of your statement, the platform person would copy it off the screen" by hand.

Loan portfolio

The loan portfolio had an excess of indirect auto lending -- or financing provided by the bank through auto dealers -- "that was troubled, to put it euphemistically," Mr. Martin said.

In an institution with $1.3 billion in assets and less than $800

million in loans, indirect auto loans accounted for almost $150 million. The portfolio also had commercial real estate problems and a paucity of other commercial loans.

"Our efforts the first two or three years were concentrated on the balance sheet to make the institution healthy," Mr. Martin said.

One of the new management's first moves was to sell the company's credit-card operation to MBNA Corp. of Delaware. Mr. Stearn and Mr. Martin also sold the headquarters building at Calvert and Lexington streets, the former home of the Federal Reserve Bank of Baltimore, and leased it back.

With the cash in hand, they subcontracted the data processing functions and invested in a new computer system that for the first time could tell headquarters exactly how well or poorly all the branches were doing on any given day.

They also used some of the money to buy a mortgage company in 1992 from some of their former Equitable colleagues who were looking for capital after the MNC merger. Mortgage originations, just $28 million in 1991, shot up to $750 million in 1993 -- the result of the acquisition and the refinancing boom fanned by low interest rates.

But with that level of growth, "it was not the most efficient mortgage company, as you would expect," Mr. Martin said. Last year, originations dropped to less than $500 million, with more of a focus on purchases than refinancings, largely because higher interest rates dried up the refinancing flood. And this year, Provident switched to a new mortgage- servicing system in an effort to improve efficiency.

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