- The Washington Times - Monday, July 21, 2003

Provident Bankshares Corp. basically held steady on Nasdaq over the past week as the Baltimore banking company reported solid second-quarter growth from its expansion into the Washington area.

The parent company of Provident Bank posted a 17 percent jump in profits for the quarter ended June 30 to $12.2 million (49 cents per diluted share) from $10.4 million (40 cents) a year earlier. Diluted earnings per share reflect the value of convertible warrants and stock options.

Gary Geisel, chairman and chief executive officer, credited the earnings growth to increased loans and deposits from branches in the Washington area. Provident Bank has 114 branches in Maryland, Virginia and Pennsylvania, with 45 in the Washington suburbs. There are no branches in the District.

The company plans to add another five branches this year. “Our Washington-area branches — especially the ones in the Shoppers Food Warehouse supermarkets — have done a good job of bringing in commercial and individual customers,” Mr. Geisel said.

Provident posted a 6 percent drop in total loans in the second quarter to $2.51 billion from $2.66 billion and 4 percent dip in deposits to $3.21 billion from $3.33 billion a year earlier.

While total loans and deposits fell, core loans — those originated by Provident to participants in the bank’s main market area — rose $182 million. Core deposits, which includes all deposits except brokered ones, climbed $152 million for the quarter.

Shares of the Provident Bank parent company closed yesterday at $26.90, down 9 cents from its closing price of $26.99 Friday.

Several analysts remained cautious of Provident’s value in the stock market, with most advising investors to hold their stock.

“Provident is making progress, but I’m a little wary on how they’re building the asset side of their balance sheet,” said Faye Elliott-Gurney, vice president for equity research at New York investment firm Keefe, Bruyette & Woods Inc. Ms. Elliott-Gurney does not own any Provident stock.

Ms. Elliott-Gurney said she was most concerned about Provident’s “high concentration” in marine, or boat, loans. Marine loans make up 17 percent of Provident’s total loan portfolio.

“Marine loans are subject to prepayments like home mortgages and have a lower return rate than commercial loans,” she said.

Cary Morris, an equity analyst at BB&T; Capital Markets, said he would “wait and see how well their branch-expansion system pans out,” before changing his hold rating on Provident. Mr. Morris owns 100 shares of Provident stock.

Matt Peake, an analyst with Richmond brokerage firm Davenport & Co., said Provident should execute “a couple more profitable quarters like this latest one” to upgrade his neutral rating.

While Mr. Peake does not own any stock, Davenport owns about 130,000 shares.

“It’s a good company in the long term, but it still hasn’t completed its transition to its core business,” Mr. Peake said. Provident has spent the last decade changing its focus from purchasing nationally syndicated loans from large banks to giving out commercial, real estate and marine loans.

Todd Hagerman, a bank analyst with global equity research firm Fox-Pitt Kelton Inc., added Provident still acts like a “thrift bank” or a bank that makes home mortgages from consumer deposits.

“They really need to demonstrate to me a more commercial banking business model and a diversified loan product,” to raise his rating of underperforming similar small-cap banks in the market, said Mr. Hagerman, who does not own any stock.

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