Provident Bankshares Corp. reported yesterday a 41 percent increase in first-quarter profit as the bank benefited from its acquisition of Southern Financial Bancorp and as commercial loans rose.
The Baltimore-based bank had net income of $18.1 million in the first three months of this year, up from $12.9 million in the year-earlier period. Its earnings of 54 cents per diluted share fell one penny short of Wall Street estimates compiled by Thomson Financial.
Provident's stock price slid in morning trading, later recovering to close at $30.96, up 1.7 percent, on the New York Stock Exchange.
Nationally, banks are using acquisitions to add revenue and reduce costs by combining operations. Wachovia Corp., which bought SouthTrust Corp. in November, and Bank of America Corp., which purchased FleetBoston in April, have reported record first-quarter earnings in recent weeks.
Provident, Maryland's second-largest independently owned banking company, acquired Southern Financial of Warrenton, Va., last year and added 30 branches to its coverage area, which extends from York County, Pa., to Richmond, Va.
Kevin G. Byrnes, Provident's president and chief operating officer, said the bank has been buoyed by a robust economy in the region that includes Baltimore and Washington. Average deposits increased $695 million, or 23 percent, in the first quarter, and average loans increased $733 million, or 26 percent.
Provident's commercial real estate and business loans jumped 45 percent and 72 percent, respectively. That growth reflected a general pickup in commercial lending at banks, which is a positive sign for economic recovery nationwide, said Mark Batty, a financial-services analyst for PNC Advisors.
"Companies are becoming less cautious and more optimistic about potential growth opportunities out there," Batty said. "They could be using the money to finance expansion plans or acquisitions, or to boost production."
On the consumer side, Provident said home equity loans rose 40 percent as many consumers turned to those loans rather than refinancing their mortgages. Rising interest rates make refinancing less attractive, and high home values allow customers to tap into equity that can be used to buy cars, renovate homes and pay college tuition bills.
Still, investors were troubled by news in the earnings report that Provident is collecting less revenue from overdraft fees that are charged when a customer bounces a check, said Steven Alexopoulos, an analyst with Sandler O'Neill & Partners. Those deposit fees grew 4 percent, far less than the double-digit increases in the past.
Byrnes explained that more people are using credit and debit cards, which require approval before a sale goes through, meaning they can't overdraw their account.
The dent in Provident's share price faded by yesterday afternoon, when several banking stocks were on the rise, said Alexopoulos, whose firm provides financial services to Provident but doesn't own its stock.