Provident Bankshares Corporation

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Provident Bankshares Corporation

114 East Lexington Street
Baltimore, Maryland 21202
U.S.A.
Telephone: (410) 277-7000
Fax: (410) 277-7189
Web site: http://www.provbank.com

Public Company
Incorporated: 1987
Employees: 1,934
Total Assets: $6.4 billion (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: PBKS
NAIC: 522110 Commercial Banking

A public company listed on the NASDAQ, Provident Bankshares Corporation is the holding company for Baltimore-based Provident Bank of Maryland, the second largest independent commercial bank making its headquarters in the state. With more than $6.4 billion in assets and 155 branch offices, about half of which are located in supermarkets and superstores such as Wal-Mart, Provident does business in the Baltimore and Washington metropolitan area as well as central Virginia and southern Pennsylvania. Provident offers personal bank services, including checking, savings, consumer loans, mortgage, and credit cards. In addition it serves the banking needs of small businesses, providing a full range of products and services. Through subsidiaries it also offers such financial services as the brokerage of stocks and bonds, mutual funds, and annuities; inheritance planning; retirement and college planning; and the sale of life insurance, homeowners and automobile insurance, and business insurance.

SEAFARING HERITAGE

Located on a natural harbor of the Chesapeake Bay, Baltimore was established in 1729 to serve as a port for Maryland's farmers. Along with Philadelphia and New York City, Baltimore was one of the leading seaports of the young United States, and although the building of the Erie Canal in the 1820s elevated New York harbor above all others in the country, Baltimore remained very much a prominent seafaring town in the 1880s when Provident Bank began to take shape in the city. It was the sea that provided the rationale for the bank and an ex-sailor who founded the institution. In 1882 a former Portuguese sailor named John Marshall, known for his honesty and employed as a janitor in Baltimore's Friends Gospel Mission, began to keep the money of friends under his watch while they were away at sea. Banks were plentiful enough, but at the time they were clustered in the city's business center, far from the docks where the sailors lived and departed on their voyages. Moreover, the banks were only open from 10 a.m. to 1 p.m., and sailors were not known to keep banker's hours. Also, banks had very little interest in catering to small savers.

Because Marshall was reliable, the demand for his help escalated. After two years he decided it was time to make the service more formal and he enlisted the help of the Mission's two volunteer managers: foundry owner John R. Cary and attorney James Carey, Jr. They set up shop in the Mission's reading room every Saturday night to collect the savings of the men, which totaled just $11.55 in change the first night. On Monday morning one of them would deposit the funds in one of Baltimore's regular banks. Cary and Carey soon decided to take the idea one step further and with the help of area businessmen turned Marshall's favor for friends into a bank, one that catered to small savers in their own communities. In 1886 they received a charter from the Maryland Legislature for the Provident Savings Bank of Baltimore, which began doing business in March 1886. Instead of drawing from the usual well of bank names—marine, farmer, merchant, or manufacturer—the founders chose "provident," the name meant to suggest "foresee, provide for, make provision for the future" as well as divine guidance.

By June 1886 Provident had branches in a half dozen communities, located where people lived and worked, and open during the same hours as the nearby markets where the people shopped. Not only did Provident welcome small savers, it encouraged people to save by implementing a savings stamp system. They bought stamps for as little as five cents that could be pasted to a card, and once filled in the card was transferred to a passbook. Adding to the convenience, the stamps were sold in scores of neighborhood drugstores. By the end of the 1800s Provident boasted $1.3 million in deposits, a remarkable amount given the small sums of money that were collected to reach that total.

Provident was also well established enough by this time to open a main office, located at the corner of Howard and Franklin Streets in Baltimore, and soon it was looking for even larger accommodations. In 1903 the central office was moved to the corner of Howard and Saratoga Streets, on the site of the former Saratoga Hotel. Because it was located far from most of the other banks in the city, the new building was spared when the Great Baltimore Fire of February 1904 devastated the commercial business district, including the destruction of 20 banks.

Provident grew steadily as a community mutual savings bank throughout the 20th century, dedicated to serving the needs of the working men and people who were both its customers and owners. Unlike a number of Baltimore banks that failed in the wake of the stock market crash of 1929, which ushered in the Great Depression of the 1930s, Provident hung on despite depositor runs. With their savings not insured, many depositors panicked and lined up to withdraw their money from banks, often leading to the collapse of the institutions. Moreover, in 1933 when Maryland's governor asked banks to limit payouts to just 5 percent of a passbook's face value, Provident's President Charles C. Duke refused and continued to make depositors' funds fully available. To prevent these devastating and destabilizing bank runs, the United States established the Federal Deposit Insurance Corporation, and Provident was quick to become a member.

POSTWAR ECONOMY BOOSTING PROVIDENT

The United States did not completely emerge from the Depression until the country's entry into World War II in late 1941 and the economy was stimulated by military spending. Following the war and a brief recession, the economy surged, spurred on by the houses and automobiles bought by the returning servicemen who married and gave birth to the baby boom generation. Provident's prosperity kept pace, as the bank became more active in granting loans to home builders and mortgages to the people who bought the houses that sprung up in a myriad of new Baltimore suburbs, including Towson, Catonsville, Gardenville, Hamilton, Parkville, and Arbutus. Provident expanded beyond savings accounts in the late 1960s when it added personal checking. Then, in 1978 it began offering certificates of deposit. The bank also promoted itself more actively during this time, hiring as its spokesperson Vince Bagli, a local television sportscaster who was also part of the duo that announced the games of the popular Baltimore Colts football team.

COMPANY PERSPECTIVES

Provident Bank is the second largest independent commercial bank headquartered in Maryland, with over $6.4 billion in assets. Provident serves individuals and businesses in Greater Baltimore, Greater Washington and Central Virginia through a network of more than 150 branch offices.

The stage was set for a transformation at Provident, brought on by banking deregulation in the 1980s that allowed banks to break into new markets. Consolidation followed, as independent banks in Maryland were swallowed by larger players. To compete, Provident expanded its operation, changing from a savings bank to a commercial bank, necessitating a name change in 1983 to Provident Bank of Maryland. By 1986 Provident had $1 billion in assets, $91.9 million in capital, and 33 branches in the Baltimore metropolitan area. It was still a mutual bank, the last in Maryland, but that would change in 1987 when it converted to stock ownership. To effect this change, Provident Bankshares Corporation was incorporated in Maryland. It then made shares available to depositors and borrowers, followed by an initial public offering of stock, the proceeds used to acquire Provident Bank.

Provident began expanding what it had to offer as the bank grew modestly during its first decade as a public company. Leading the bank, starting in 1990, were a pair of veterans of Baltimore's Equitable Bank: Carl W. Stearn, who took over as chief executive and chairman of the board, and Peter M. Martin, serving as president. Prior to the conversion, in 1985, Provident had launched a subsidiary, BankSure Insurance Corporation, to offer insurance products to loan customers, but with Stearn and Martin on board the bank upgraded its network and underlying infrastructure to prepare the ground for further growth. In 1992 Provident Mortgage Corp. was established to acquire a residential mortgage company, Consolidated Mortgage Corporation, a transaction completed in July of that year that increased the range of mortgage lending products Provident had to offer. Next, in 1993, the Provident Investment Center Inc. subsidiary was created to offer such products as annuities and mutual funds.

Provident grew its assets from $1.3 billion when Stearn and Martin assumed the helm to more than $2.5 billion in 1995. Net income also kept pace, increasing from a loss of $3.9 million in 1990 to earnings of more than $18 million in 1995. By this point, the bank operated 44 branches in the Baltimore metropolitan area, including several supermarket outlets under the Fast 'n Friendly name. Although Provident was doing well it faced a challenging future because a number of large national banks were entering the Maryland market and acquiring local institutions. Furthermore, other companies were offering traditional banking products, making competition even fiercer. In order to survive Provident had to take a more aggressive approach to growth, both in terms of the products and services it had to offer and geographic reach.

In 1997 Provident took its first steps outside of the Baltimore area, entering the nearby Washington, D.C., market through the acquisition of Gaithersburg, Maryland-based First Citizens Financial Corp., a $690 million in assets institution whose subsidiary Citizens Saving Bank maintained 15 branches in the affluent Washington, D.C., suburbs located in Maryland's Montgomery and Frederick counties. Also in 1997 Provident moved into southern Pennsylvania, in York County, through the expansion of its in-store branch network, the bank's first venture beyond the Maryland borders. All told, five new in-store branches opened, including a pair in Wal-Mart stores. Moreover, Provident hired a commercial real estate officer to work out of northern Virginia, and Provident Mortgage Corporation opened a Chicago office to develop business in the Midwest.

In April 1998 Stearn retired and Martin became Provident's chairman, CEO, and president. He took over an institution with more than $3.9 billion in assets and well positioned for further growth. While it increased net income to $39 million and assets to nearly $4.7 billion in 1998, Provident had to contend with a shareholder activist named Jerry Shearer, the managing partner of Columbia, South Carolina-based Mid-Atlantic Investors, who urged the sale of the bank and went so far as to write a letter to Provident shareholders criticizing the bank's financial performance and the salaries of top executives. It was not the first time that Shearer had attempted to pressure a bank into a sale. A former bank teller who spent 20 years working in a variety of capacities at First National Bank of Charleston, Shearer formed Mid-Atlantic with partner Jerry Zucker in 1991 to specifically target undervalued banks, buying a small stake and then clamoring for their sale if specific performance goals were not met. Zucker's proposal to sell Provident was presented to shareholders at the annual meeting held in April 1999. The proposal was defeated by a three to one margin. Undeterred, Shearer tried again the following year, and this time his effort received even less support.

KEY DATES

1882:: John Marshall begins collecting savings of seafarers.
1886:: Provident Savings Bank of Baltimore is chartered.
1983:: Name changes to Provident Bank of Maryland.
1987:: Provident Bankshares is formed to take bank public.
1997:: First Citizens Financial Corp. is acquired.
2004:: Southern Financial Bancorp is acquired.

As management tangled with Shearer, Provident continued to expand as the century came to a close. In 1999 the bank established a retail Internet banking system and expanded its branch network to 83. Assets also topped the $5 billion mark and net income improved to $44.1 million. The bank continued to grow in 2000, adding five traditional branches and another ten in-store operations. In addition to 98 total branches, Provident finished the year with 165 ATMs. Provident also acquired Harbor Federal Bancorp, Inc., and nine Harbor Federal Savings Bank branches in 2000, adding assets of about $250 million. Four of the offices were consolidated with nearby Provident operations and closed.

Provident opened its 100th office in 2001, located in northern Virginia and the Washington metropolitan area, which was becoming a key area for expansion. Nearly half of the bank's branches were found in this core market. At the same time, Provident continued to have success in growing its main business lines: deposits, non-interest income, and commercial and residential real estate loans.

ACQUISITION OF SOUTHERN FINANCIAL BANCORP: 2002

Martin retired at the end of 2002, replaced by another former Equitable Bank executive who came to work for Provident, Gary N. Giesel, who became chairman and CEO. He took charge of a $5 billion bank with 109 branches, generating net income of $48.3 million. In 2003 Provident opened seven more branches, and late in the year Giesel engineered an acquisition to add another 33 offices and $1.5 billion in assets. In a deal completed in April 2004, Provident paid $330 million in cash and stock for Warrenton, Virginia-based Southern Financial Bancorp, the holding company for Southern Financial Bank. Not only did Provident add branches in the Virginia suburbs of Washington, it moved into central and eastern Virginia. Two offices located in southeast Virginia and one in North Carolina were sold a month later.

As it increased in size and added to its footprint in core markets, Provident launched an advertising campaign in 2005 to promote the Provident name, elements including television, radio, and print ads. They essentially made the pitch that Provident offered big bank services and small bank friendliness. Positioning itself as the "right size" bank for its market appeared to pay off as Provident continued to survive in a difficult environment and prosper as an independent bank.

Ed Dinger

PRINCIPAL SUBSIDIARIES

Provident Mortgage Corp.; Provident Financial Services, Inc.; Provident Investment Center, Inc.; Provident Insurance Corporation; BankSure Insurance Company.