Provident sees $5.4 million loss over portfolio devaluation

October 28, 2008|By Eileen Ambrose | Eileen Ambrose,eileen.ambrose@baltsun.com

Provident Bankshares Corp. reported yesterday a $5.4 million loss in the third quarter, primarily because of further declines in the value of its investment portfolio.

Additionally, Maryland's largest independent bank said it was invited last week by the government to participate in the Treasury Department's program to invest in bank securities. Provident could receive up to $150 million under the program, although it hasn't decided whether to participate, said Gary N. Geisel, the corporation's chairman and chief executive.

The Baltimore-based bank holding company blamed the quarterly loss of 21 cents per share on a $24.6 million pre-tax, noncash charge it took on investments in real estate securities and securities made up of debt issued by banks and insurance companies.

In the third quarter last year, Provident earned $16 million, or 50 cents per share.

"Clearly, we are disappointed that the negative trends in the securities portfolio continue to significantly affect our bottom line," Geisel told analysts in a conference call yesterday. Many of the securities are still generating income, although accounting rules require a write-down when the portfolio's value drops, he said.

Provident also took a charge of $20.8 million on its investment portfolio in the second quarter. Most of that charge occurred after the company had released its second quarter earnings, forcing the company to restate that report.

"I can't guarantee we won't see anymore write downs," Geisel said in a telephone interview yesterday, adding that the value of the investments is determined by market forces beyond his control. He said he expects any additional losses will be manageable because of the steps Provident has taken.

Provident's stock closed up 11 cents to $8.10 per share yesterday, on a day the overall market sustained further losses.

Nonperforming loans in the third quarter increased to 0.95 percent of total loans, up from 0.59 percent in the second quarter. The increase came largely from two residential construction loans worth a total of about $15.8 million, the company said. Still, Provident has fewer bad loans than a number of competitors - at crosstown rival First Mariner, for example, about 4.4 percent of loans are in default or nearly so.

Total deposits grew to nearly $4.5 billion in the third quarter, up about 4 percent from the previous quarter, mostly from increased sales of brokered certificates of deposit.

Provident has long offered brokered CDs, but increased the sale of them in the third quarter to raise more money as an alternative to short-term borrowing, Geisel said. Brokered CDs will bolster liquidity during the current credit crunch, he said, although banks have to pay higher interest rates to sell them.

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