Provident Bank's earnings gain 9.2%

Shareholders approve buying Southern Financial

Metro D.C. expansion is planned

April 22, 2004|By Paul Adams | Paul Adams,SUN STAFF

Provident Bankshares Corp., Baltimore's second-largest independent bank, reported a 9.2 percent increase in first-quarter profit yesterday and won shareholder approval for its $330 million acquisition of Southern Financial Bancorp Inc. in Warrenton, Va.

Provident, which held its annual stockholders meeting in Baltimore yesterday, reported net income of $12.9 million, or 51 cents per share, for the quarter that ended March 31 as it increased lending and continued its push into Washington and Northern Virginia. The bank earned $11.8 million, or 47 cents per share, in the first quarter last year.

Gary N. Geisel, Provident's chairman and chief executive, said the acquisition of Southern Financial will help the bank achieve its goal of focusing on its core market and balancing its portfolio with consumer and commercial loans. The bank's shares closed up 75 cents to $29.58 in trading yesterday.

"I think it's going to be a transforming moment for this bank," he said.

The deal will add $1.5 billion in assets. It also marks a continuing shift away from the bank's Baltimore roots toward a greater regional presence.

When the merger is complete, Geisel said, Provident will add 33 branches to the 53 it has in metropolitan Washington. The bank has 65 branches in the Baltimore area, the source of most of its customers. In time, the bank envisions about 60 percent of its business coming from Washington and Northern Virginia.

"That market is growing more rapidly," Geisel said. "It has some demographics that are slightly more attractive than this one."

The bank plans to open five branches this year, four of them in metropolitan Washington and one in Baltimore.

In the first quarter, the bank's core loans grew by $345 million, or 20 percent. Core deposits increased $103 million, or 4 percent.

"It was the kind of quarter we have been waiting to see," said Collyn Bement Gilbert, an analyst with Ryan Beck & Co. LLC in Philadelphia. "Loan and deposit growth exceeded our expectations."

After the acquisition of Southern Financial is complete, the bank will shrink its investment portfolio by reducing mortgage-backed securities by $420 million and Federal Home Loan Bank and other borrowings by an equal amount. The bank estimates that those moves will reduce pretax earnings for the year by $10 million, or 22 cents per share.

The change will help the bank restore some of the capital it will spend on the acquisition and help it reach its goal of reducing its non-core wholesale business, which has a lower profit margin.

Despite the effect on earnings, Geisel said, the bank expects to meet earnings projections of 53 cents per share in the third quarter and 56 cents in the fourth, in line with analysts' expectations.

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