Provident earnings beat estimates

Washington-area push, growth in core business drive 4th-quarter gains

January 16, 2003|By William Patalon III | William Patalon III,SUN STAFF

Baltimore-based Provident Bankshares Corp. reported yesterday fourth-quarter results that slightly exceeded expectations, with the bank benefiting from growth in its core business, as well as from its push into the Washington marketplace.

Provident, the parent of Provident Bank, recorded net income of $13.3 million for the quarter that ended Dec. 31, a 7 percent increase from the $12.4 million recorded for the corresponding period in 2001. Earnings per share on a fully diluted basis were 53 cents, a 10 percent jump from the 48 cents reported for the year-earlier quarter.

The 53 cents in net income bested the 47-cent consensus estimate of six analysts polled by Zacks Investment Research, and also exceeded the forecast of 48 cents made by Collyn Bement Gilbert, an analyst who follows Provident for Ryan Beck & Co. in Bala Cynwyd, Pa.

Core deposits rise

"I think the bank looks fairly strong," Gilbert said.

In recent years, Provident has increased its reliance on internally generated deposits and loans, moving away from the purchased deposits and loans it had used to finance growth during an earlier stretch.

That trend continued during the fourth quarter, Provident said. Core deposits increased by 7 percent, or $170 million, while noncore deposits declined by 45 percent, or $356 million. Core loans jumped by 13 percent, or $204 million, while noncore consumer loans and nationally syndicated loans decreased by 35 percent and 30 percent, respectively, Provident said.

Purchased, or "brokered," deposits, as well as "syndicated" loans can help fuel immediate growth, but often carry slim profit margins with the loans posing unforeseen risks, experts say. Provident's focus on self-generated business is the correct strategy for a bank of its maturity and focus, analysts say.

Asset quality remained strong during the fourth quarter, the bank said. As of Dec. 31, non-performing loans were $21.1 million, down $7.7 million, or 27 percent, from the corresponding point in 2001, Provident said. Net charge-offs declined by 9 percent, and the allowance for loan losses as a ratio of total loans was 1.31 percent at the end of the year, according to Provident.

Still expanding

Expansion remains the watchword inside the bank, Provident officials said yesterday. At year's end, 43 of Provident's 109 branches were in the Washington region, and seven of the bank's nine new branches opened there last year. That strategy will continue this year, with Provident's Washington branch network growing by 10, to 53, said Peter M. Martin, Provident's chairman and chief executive officer.

"It's a very robust market for us," Martin said.

In some Baltimore markets, Provident's market share is as high as 50 percent. That shows "the opportunities we have in Northern Virginia" and the rest of the Washington market, said Gary N. Geisel, Provident's president and chief operating officer, who is scheduled to succeed Martin as CEO in April.

The home-region Baltimore market remains crucial to Provident, Geisel said.

This year, Provident will open four Baltimore-region branches, all of them in supermarket locations - another key part of the bank's growth strategy. Provident sees an advantage in housing many of its new branches inside supermarkets, or other types of retail outlets that feature a captive customer base.

"In-store" branch expansions have caused other banking companies to stumble, but Provident so far seems to be executing on this strategy almost perfectly, analysts say.

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