Provident Bankshares Announces First Quarter Results

Investment Portfolio Write-down Less Than Anticipated

BALTIMORE, April 17 /PRNewswire-FirstCall/ -- Provident Bankshares
Corporation (Nasdaq: PBKS), the parent company of Provident Bank, today
reported a net loss of $17.6 million, or $(0.56) per diluted share, for the
quarter ending March 31, 2008. These results were consistent with expectations
outlined by the Company in a February 2008 press release in which Provident
anticipated that first quarter 2008 results would be affected by write-downs
in its investment portfolio. Consistent with this previous disclosure, the
Company's results in the first quarter of 2008 were affected by a $42.7
million write-down, which was less than anticipated.
The financial impact to pre-tax income, net income and diluted earnings
per share is summarized in the following table:

Pre-tax Net
Income Income
Three months ended March 31, 2008: (000s) (000s) EPS
Totals -- GAAP $(24,680) $(17,622) $(0.56)
Add back investment portfolio
write-down 42,655 30,362 $0.96
Adjusted Totals -- Non GAAP $17,975 $12,740 $0.40

Three months ended March 31, 2007 $22,984 $16,114 $0.50

First quarter 2008 was characterized by several positive events, including
the raising of capital, stable loan quality, and profitable core banking
operations. While the Bank experienced margin pressure from rising funding
costs, it had continued success in controlling operating expenses.
Capital Program
On April 11, 2008, Provident announced a multi-tiered plan to strengthen
the Company's capital base, including the issuance of $65 million in equity
securities and a $50 million subordinated debt offering, for a total of $115
million of new capital in second quarter 2008. Also included in the plan is a
realignment of the dividend payment, discussed below, that will further
increase capital by approximately $29 million annually. The equity raised in
the private placement and the equity preserved from the dividend realignment
will increase the Company's tangible equity base and improve its tangible
equity to assets and total regulatory capital ratios. The issuance of the
subordinated debt will further increase the Company's total regulatory capital
ratio. Supplemental Table 1 in this release provides detail on the capital
program.
At its annual meeting today, the Board of Directors declared a quarterly
cash dividend of $0.11 per share, a 66% reduction from the prior quarterly
dividend. The reduced dividend brings Provident's dividend yield in line with
that of its peer banks, and is the least costly source for gathering
additional capital for the Company. The quarterly cash dividend will be paid
on May 9, 2008 to stockholders of record at the close of business on April 28,
2008.
"These initiatives provide us the capital to bolster our balance sheet in
this challenging operating environment. At the same time, these steps will
provide a financial foundation from which to manage and grow our banking
franchise," said Gary N. Geisel, Chairman and CEO.
Investment Portfolio
On February 27, Provident announced a write-down projected to be as high
as $47.7 million for the first quarter of 2008 due to "other than temporary
impairment" in its investment portfolio. Following its March 31, 2008 credit
review, Provident wrote down the values of certain securities by $42.7 million
by reducing their carrying values to current market values at that date. The
$42.7 million was comprised of $19.5 million in the REIT trust preferred
securities portfolio and $23.2 million in the non-agency mortgage-backed
securities portfolio. Originally $105 million, the REIT trust preferred
securities portfolio was written down by $47.5 million in December 2007, and
has been written down an additional $19.4 million due to further credit
impairment of certain home builders and mortgage REITs that represent the
collateral for these securities. Subsequent to all write-downs, the REIT trust
preferred securities portfolio stands at $38.1 million. This quarter's
write-downs to the Bank's $132.6 million non-agency mortgage-backed securities
portfolio resulted from elevated delinquency and foreclosure levels of the
national residential mortgages which collateralize these pooled securities.
Management deemed the write-downs necessary in light of these portfolios'
current performance and market values at March 31, 2008. Supplemental Tables
2-7 in this release provide detail on the investment portfolio at March 31,
2008.
Loan Portfolio Quality
Recent economic data has shown that the Mid-Atlantic region, while
sluggish, remains one of the better performing markets in the nation in terms
of preserving real estate values and lower delinquency levels. New housing
inventories are down in both Maryland and Virginia. Unemployment levels in
February 2008, not seasonally adjusted, continue to be below the national
average (5.2 %) in the Baltimore (3.9 %), Washington D.C. (3.3 %) and Richmond
(3.9%) metropolitan areas.
Historically, Provident's lending standards have been conservative and
focused on its geographic footprint. The real estate underlying 100% of the
Bank's commercial construction portfolio, 94% of the residential construction
portfolio, and over 95% of the Bank's home equity portfolio are concentrated
within the Washington D.C./Virginia/Maryland region.
Provident has continued its long-standing practice of detailed monthly
reviews of its loan portfolios. The first quarter of 2008 did not reveal any
significant deterioration in credit quality in the Bank's loan portfolios from
the fourth quarter of 2007, shown in the table below.

Credit Quality Measure 03/31/2008 12/31/2007
Quarterly net loan charge-offs (000s) $3,134 $6,002
Quarterly net loan charge-offs to average loans 0.30% 0.58%
Allowance for loan losses to total loans 1.31% 1.31%
Non-performing loans (000s) $30,621 $31,248
Non-performing loans to total loans 0.73% 0.74%
Total delinquent loans to total loans 0.96% 0.96%

First Quarter Results
Provident's loan portfolio continued to show balanced growth among its
core products in the first quarter of 2008. During the same timeframe, total
average deposits at Provident increased 3%, to $4.2 billion. However, the
composition of the deposit portfolio continues to shift with the changing
dynamics of deposit gathering industry-wide that reflect customer preferences.
Year over year average money market and certificate of deposit balances grew
16%, while lower cost average savings and demand deposit account balances
declined 13%. In response to increased customer interest in online banking,
Provident has proactively taken steps to enhance its online presence. The Bank
has significantly expanded its online deposit account capabilities, including
the introduction of mobile banking services in March 2008, and has seen growth
in average online account balances in first quarter 2008.
Earnings in the first quarter of 2008 were impacted by an 8% decrease in
net interest income compared to first quarter of 2007. Asset yields were
negatively impacted by the 300 basis point decline in benchmark interest rates
during the past twelve months. Neither deposit nor borrowing costs declined as
rapidly as benchmark interest rates due to aggressive competition for deposits
throughout the industry and due to a number of steps Provident has taken to
re-position its non-customer funding sources in light of the currently
volatile market for funds.
Non-interest income, excluding total gains (losses), declined 3% compared
to first quarter 2007. The non-interest income decline was offset by a 6%
improvement in non-interest expense as a result of Provident's 2007 actions to
improve its operating efficiency and expense control.
Outlook for the Future
"The steps we took this quarter will enable Provident to adjust to
changing market conditions while we strengthen the franchise and grow revenue.
I remain pleased with our core bank performance and our position as a
competitive force in the region," said Gary N. Geisel, Chairman and CEO.
"Although we expect the economic slowdown to continue for the remainder of
2008, we feel positioned to maintain a steady course."
About Provident Bankshares Corporation
Provident Bankshares Corporation is the holding company for Provident
Bank, currently the largest independent commercial bank headquartered in
Maryland. With $6.4 billion in assets, Provident serves individuals and
businesses in the key metropolitan areas of Baltimore, Washington and Richmond
through a network of 142 offices in Maryland, Virginia, and southern York
County, PA. Provident Bank also offers related financial services through
wholly owned subsidiaries. Securities brokerage, investment management and
related insurance services are available through Provident Investment Center
and leases through Court Square Leasing. Visit Provident on the web at
http://www.provbank.com.
Webcast Information
Provident Bankshares Corporation's first quarter earnings teleconference
will be webcast at 2 p.m. ET on April 17, 2008. The conference call will
include a discussion of the Company's first quarter 2008 results of operations
and may include forward-looking information. The conference call will be
simultaneously webcast at http://www.provbank.com and archived through April
24, 2008. To listen to the conference call, please go to the Company's website
to register, download and install any necessary software. When in the
Company's website, follow these links:
-- About Provident
-- Investor Relations
-- Upcoming Events
-- Provident Bankshares Corporation First Quarter 2008 Results Audio
Webcast

An audio replay of the teleconference will be available through April 24,
2008 by dialing 1-888-286-8010, passcode 41483459; the international dial-in
number is 617-801-6888.
Forward-looking Statements
This press release, as well as other written communications made from time
to time by Provident Bankshares Corporation and its subsidiaries (the
"Company") and oral communications made from time to time by authorized
officers of the Company, may contain statements relating to the future results
of the Company (including certain projections and business trends) that are
considered "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "PSLRA"). Such forward-looking statements
may be identified by the use of such words as "believe," "expect,"
"anticipate," "should," "planned," "estimated," "intend" and "potential."
Examples of forward-looking statements include, but are not limited to,
possible or assumed estimates with respect to the financial condition,
expected or anticipated revenue, and results of operations and business of the
Company, including earnings growth, determined using U.S. generally accepted
accounting principles ("GAAP"), revenue growth in retail banking, lending and
other areas; origination volume in the Company's consumer, commercial and
other lending businesses; asset quality and levels of non-performing assets;
impairment charges with respect to investment securities; current and future
capital management programs; non-interest income levels, including fees from
services and product sales; tangible capital generation; market share; expense
levels; and other business operations and strategies. For these statements,
the Company claims the protection of the safe harbor for forward-looking
statements contained in the PSLRA. No forward-looking statement can be
guaranteed, and actual results may differ from those projected. The Company
undertakes no obligation to publicly update any forward-looking statement,
whether as a result of new information, future events or otherwise.
Forward-looking statements in this release should be evaluated together with
the uncertainties that affect the Company's business, particularly those
mentioned under the headings "Forward -Looking Statements" and "Item 1A. Risk
Factors" in the Company's Form 10-K for the year ended December 31, 2007, and
its reports on Forms 10-Q and 8-K, which the Company incorporates by
reference.
In the event that any non-GAAP financial information is described in any
written communication, including this press release, or in our teleconference,
please refer to the supplemental financial tables included with this release
and on our website for the GAAP reconciliation of this information.

Table 1
April 2008 Capital Program

Equivalent
Common Amount
Source Shares ($000)

Common Shares Issued Price
Private placement $9.50 1,350,000 $12,825
Provident directors and officers 10.80 (market) 72,110 779
Total Common $9.57 1,422,110 13,604

Preferred Shares Issued
(51,215 shares, 10%, 3 yr mandatory
conversion at $10.50 fixed price)
Private placement 4,877,619 51,215
Total New Capital Issuance 6,299,729 64,819

Dividend Reduction to $0.44 per Share 28,700
Total Additional Equity Capital 93,519

Subordinated Debt Offering 50,000

Total New Capital $143,519

Table 2
Investment Portfolio Composition
March 31, 2008, Book Values
($000)

Description % $ Amount

U.S. Treasury and agency mortgage-backed 40% $608,186
Pooled trust preferred 34 527,289
General obligation municipals 10 161,650
Non-agency mortgage-backed 7 106,897
Corporate bonds 9 143,131
Total * 100% $1,547,153

* Excludes FAS 115 mark to market adjustments

Table 3
Pooled Trust Preferred Portfolio
March 31, 2008, Book Values
($000)

Description % $ Amount

Banks 78% $410,213
REITs 7 38,111
Insurance 15 78,965
Total 100% $527,289

Table 4
REIT Trust Preferred Securities
March 31, 2008, Book Values
($000)

Description % $ Amount

Senior securities
(AAA S&P / A+ to BBB+ Fitch) 65% $24,996

Mezzanine securities
(AA S&P / BBB+ Fitch) 11 4,005
(A to BBB- S&P / BBB to B Fitch) 24 9,110
Total 100% $38,111

Table 5
REIT Trust Preferred Securities
Credit Composition at March 31, 2008
($000)

Senior
Mezzanine Securities Securities Total

Other Than AAA: S&P
Temporarily AA: S&P A+ to BBB+:
Impaired BBB+: Fitch Fitch

REIT trust preferred
securities $9,110 $4,005 $24,996 $38,111

Credit Quality:
Defaults and
Credit Support

Current default level 11.7% 10.0% 10.9%

Average credit
support level*
For interest payments 25% 37% 40%
For principal payments 35% 46% 56%

* Credit support level represents the % of issues in default required
before the security suffers permanent loss of interest or principal
payments.

Table 6
Non-Agency MBS Portfolio Characteristics
At March 31, 2008

AAA AA Total
Balance ($000) $65,986 $40,911 $106,897
Percent of portfolio 62% 38% 100%
# of issues 13 16 29

Average:
FICO 733 726
LTV 64% 71%
Loan size $514,000 $371,000
Delinquency 60+ day 1.53% 4.52%

Table 7
Non-Agency Mortgage Backed Securities
At March 31, 2008
($000)

Potential
Book 60+ Days Losses
Value Delinquency (45% severity)
Impaired Non-Agency MBS
AA-rated mezzanine securities $7,179 7.36% 3.31%

Remaining AA-rated
Mezzanine Non-Agency MBS
2005 origination $4,647 6.03% 2.71%
2006 origination 15,401 1.22% 0.55%
2007 origination 13,684 1.42% 0.64%
$33,732 1.96% 0.88%

AAA-rated Non-Agency MBS
AAA-rated mezzanine securities $65,986 1.53% 0.69%

Total Non-Agency MBS Portfolio $106,897

Potential
Credit Remaining
Support Support FICO LTV
Impaired Non-Agency MBS
AA-rated mezzanine securities 3.32% 0.01% 713 71%

Remaining AA-rated
Mezzanine Non-Agency MBS
2005 origination 4.81% 2.09% 715 72%
2006 origination 2.01% 1.46% 743 71%
2007 origination 2.67% 2.04% 740 70%
2.66% 1.78% 738 71%

AAA-rated Non-Agency MBS
AAA-rated mezzanine
securities 4.60% 3.91% 733 64%

PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
FINANCIAL SUMMARY
(dollars in thousands, except per share data)

Three Months Ended
March 31,
2008 2007 % Change
SUMMARY NON-GAAP INCOME STATEMENTS:
Net interest income $44,989 $48,935 (8.1)%
Provision for loan losses 3,114 1,052 -
Non-interest income (loss) (15,124) 29,869 (150.6)
Impairment on investment securities (42,655) - -
Net gains (losses) (191) 1,203 (115.9)
Non-interest income, excluding total
gains (losses) 27,722 28,666 (3.3)
Total revenue, excluding total gains
(losses) 72,711 77,601 (6.3)
Non-interest expense 51,431 54,768 (6.1)
Restructuring activities 74 867 (91.5)
Non-interest expense, excluding
restructuring 51,357 53,901 (4.7)
Income tax expense (benefit) (7,058) 6,870 (202.7)
Net income (loss) (17,622) 16,114 (209.4)

SHARE DATA:
Basic earnings (loss) per share $(0.56) $0.50 (212.0)%
Diluted earnings (loss) per share (0.56) 0.50 (212.0)
Cash dividends paid per share 0.325 0.305 6.6
Book value per share 16.31 19.72 (17.3)
Weighted average shares - basic 31,536,920 32,196,432 (2.0)
Weighted average shares - diluted 31,536,920 32,496,168 (3.0)
Common shares outstanding 31,737,501 32,243,534 (1.6)

SELECTED RATIOS:
Return on average assets (1.08)% 1.05 %
Return on average equity (12.73) 10.37
Return on average common equity (11.43) 10.21
Net yield on average earning assets
(t/e basis) 3.17 3.62
Efficiency ratio (excludes
restructuring activities) 69.72 68.88
Leverage ratio 7.45 8.71
Tier I risk-based capital ratio 9.23 10.95
Total risk-based capital ratio 10.33 11.92
Tangible common equity ratio 5.48 6.55

END OF PERIOD BALANCES:
Investment securities portfolio $1,413,925 $1,638,183 (13.7)%
Total loans 4,202,677 3,890,421 8.0
Assets 6,403,916 6,234,692 2.7
Deposits 4,370,627 4,282,400 2.1
Stockholders' equity 517,549 635,797 (18.6)
Common stockholders' equity 596,430 653,583 (8.7)

AVERAGE BALANCES:
Investment securities portfolio $1,579,843 $1,663,335 (5.0)%
Loans:
Originated and acquired residential
mortgage 290,093 325,377 (10.8)
Home equity 1,085,752 996,519 9.0
Other consumer 382,925 400,949 (4.5)
Commercial real estate 1,534,473 1,407,691 9.0
Commercial business 936,933 740,810 26.5
Total loans 4,230,176 3,871,346 9.3
Earning assets 5,822,547 5,549,736 4.9
Assets 6,511,329 6,234,498 4.4
Deposits:
Noninterest-bearing 643,161 724,805 (11.3)
Interest-bearing 3,589,587 3,370,707 6.5
Total deposits 4,232,748 4,095,512 3.4
Stockholders' equity 556,631 629,971 (11.6)
Common stockholders' equity 619,909 639,836 (3.1)

Three Months Ended
December 31,
2007 % Change
SUMMARY NON-GAAP INCOME STATEMENTS:
Net interest income $45,912 (2.0)%
Provision for loan losses 10,027 (68.9)
Non-interest income (loss) (16,338) (7.4)
Impairment on investment securities (47,488) (10.2)
Net gains (losses) 405 (147.2)
Non-interest income, excluding total
gains (losses) 30,745 (9.8)
Total revenue, excluding total gains
(losses) 76,657 (5.1)
Non-interest expense 51,008 0.8
Restructuring activities 78 (5.1)
Non-interest expense, excluding
restructuring 50,930 0.8
Income tax expense (benefit) (15,987) (55.9)
Net income (loss) (15,474) 13.9

SHARE DATA:
Basic earnings (loss) per share $(0.49) 14.3 %
Diluted earnings (loss) per share (0.49) 14.3
Cash dividends paid per share 0.320 1.6
Book value per share 17.58 (7.2)
Weighted average shares - basic 31,635,109 (0.3)
Weighted average shares - diluted 31,773,779 (0.7)
Common shares outstanding 31,621,956 0.4

SELECTED RATIOS:
Return on average assets (0.95)%
Return on average equity (10.16)
Return on average common equity (9.49)
Net yield on average earning assets
(t/e basis) 3.24
Efficiency ratio (excludes
restructuring activities) 65.68
Leverage ratio 7.89
Tier I risk-based capital ratio 9.59
Total risk-based capital ratio 10.85
Tangible common equity ratio 5.86

END OF PERIOD BALANCES:
Investment securities portfolio $1,468,564 (3.7)%
Total loans 4,215,326 (0.3)
Assets 6,465,046 (0.9)
Deposits 4,179,520 4.6
Stockholders' equity 555,771 (6.9)
Common stockholders' equity 623,948 (4.4)

AVERAGE BALANCES:
Investment securities portfolio $1,612,245 (2.0)%
Loans:
Originated and acquired residential
mortgage 297,801 (2.6)
Home equity 1,074,345 1.1
Other consumer 381,306 0.4
Commercial real estate 1,504,025 2.0
Commercial business 843,727 11.0
Total loans 4,101,204 3.1
Earning assets 5,725,165 1.7
Assets 6,405,737 1.6
Deposits:
Noninterest-bearing 660,576 (2.6)
Interest-bearing 3,484,415 3.0
Total deposits 4,144,991 2.1
Stockholders' equity 604,364 (7.9)
Common stockholders' equity 646,935 (4.2)

SOURCE Provident Bankshares Corporation

Media, Vicki Cox, +1-410-277-2063, or Investment Community, Cheryl B. Ursida,
+1-410-277-2080, both of Provident Bankshares