Proposal to sell bank is rejected

Provident stockholders say no to move by S. Carolina financier

Finance

April 22, 1999|By Jay Hancock | Jay Hancock,SUN STAFF

Shareholders of Provident Bankshares Corp. rejected a proposal yesterday to put the Baltimore-based banking company up for auction, but investor Jerry Shearer says he's convinced that Provident can't thrive on its own, and he plans to continue pressure for a sale.

"A rogue wave is coming in the banking industry, and it is going to roll over Provident," South Carolina financier Shearer told shareholders at the bank's annual meeting yesterday.

"This is why the company needs to be sold now, before it's too late and its earnings capacity has been diminished."

Shearer's firm, Mid-Atlantic Investors, asked Provident shareholders to approve a nonbinding resolution urging a sale. The proposal was "overwhelmingly defeated," said Peter M. Martin, the bank's chairman and chief executive.

Martin couldn't be more exact, he said, because a precise ballot count won't be available for several days.

Provident's stock fell by 84.38 cents per share yesterday to $27.0625.

Shearer blamed his defeat at least partly on his proposal's absence from Provident's proxy ballot, which he called "anti-democratic." For its part, Provident said he missed the deadline.

In either case, he's apparently not disappearing. "Mid-Atlantic will be back, when the rules of the game swing more in our favor," Shearer said at Provident's downtown headquarters. "Unfortunately, this was not a true referendum."

Shearer "has a tendency to not go away, from what I've heard," said Vernon C. Plack, a banking analyst with Scott & Stringfellow, a Richmond, Va.-based investment company.

Mid-Atlantic, which has built a reputation for taking profitable stakes in banks likely to be bought by bigger rivals, owns about 2.5 percent of Provident's shares.

Shearer's advance and Provident's balk spotlight an important industry riddle. Is there a profitable place in the future for relatively small community banks such as Provident? Or will the world be ruled by lower-cost giants such as First Union and Citigroup?

Shearer believes that bigger is better, and if Provident doesn't sell now in a hot bank-merger market, he said, it is doomed to a future of flat earnings and threatened market share.

Provident managers, on the other hand, think that they can thrive by knowing their home turf and growing select slices of business.

The bank continues to add supermarket-based branches, with another expansion announcement due as early as this week. It has more than 60 total branches. It plans to introduce a new Internet banking service next week. And it has started an equipment-leasing unit.

"We've increased our market share from 3 percent of deposits to 5 percent," Martin said. "There aren't that many banks that are increasing market share."

Provident's stock has outperformed those of its banking peers in the past five years, although it has dipped from a high of $36 last year. The bank had $4.87 billion in assets at the end of March.

Also yesterday, Provident said its profit for the quarter that ended March 31 rose 11 percent to $10.3 million, compared with the corresponding period in 1998. At the same time, it raised its quarterly cash dividend to 15 cents per share, from 14.5 cents previously, and it declared a stock dividend of 5 percent.

The earnings increase was fueled by strength in mortgage lending, fee income and commercial lending, said David West, who follows Provident for investment house Davenport & Co. in Richmond.

The earnings, which came to 41 cents per share, also an 11 percent increase, were in line with analysts' expectations, West said.

"They are moving in the right direction, but I can understand where Mr. Shearer's coming from, too," he said. "They've still got a long way to go to get their profitability to where I think it should be."

Pub Date: 4/22/99

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