Shareholders take Provident Bankshares CEO to task

Provident Bankshares Corp. CEO Gary Geisel spent Wednesday morning on the hot seat.

At Provident's annual meeting, held days after the bank announced a capital-raising plan that included a dividend cut, shareholders voiced their frustration with the bank's recent challenges -- and its decision-making.

Provident, Baltimore's largest independent bank, has taken several writedowns of real-estate related securities since the mortgage crisis hit. Last week, the bank outlined a plan to raise $115 million to shore up its balance sheet after taking those charges.

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Geisel acknowledged the bank's struggles from the beginning of his remarks, calling 2007 "a year to remember, and a year many of us, quite frankly, would like to forget."

Several shareholders told Geisel they were upset they did not get a chance to buy stock as part of Provident's money-raising efforts. Provident's plan included issuing 1.4 million shares of common stock -- much of it at a discount to market price; 51,000 shares of preferred stock; and up to $50 million in debt. The preferred shares will reap a 10 percent dividend rate for three years before they convert to common stock. Provident is also slashing the dividend on its common stock by nearly two-thirds.

The offerings were private placements, meaning Provident offered the stock to select shareholders -- institutional investors and Provident officers and directors -- rather than on the open market. Several shareholders told Geisel they wanted the same opportunity to buy stock at below-market prices or to buy the higher-yielding preferred stock, since they are already loyal shareholders and will see their dividend slashed. More than one shareholder had Provident's news release about the offering in hand, with their own notes about the deal.

Geisel said Provident (NASDAQ: PBKS) chose a private placement because as other banks take earnings hits and writedowns, they were deluging Wall Street with requests for new investment. The bank decided to pull together a small group and raise money quickly rather than doing a more time-consuming public offering, Geisel said. He said the bank was glad it locked in the new investment quickly. Since Provident's announcement, Washington Mutual (NYSE: WM) and Wachovia Corp. (NYSE: WB) have announced plans to raise billions of dollars in new investment, making less money available to other banks.

Geisel also said the Provident officers and directors who bought common stock in the offering did so at market price, although other investors bought shares at a discount.

Provident also emphasized that its core business of making loans and taking deposits remains relatively healthy. The troubles have come with securities held in Provident's investment portfolio backed by mortgages and other real estate-related products. Those securities are not in default, but the market is valuing them at lower rates given the problems in the real estate market, officials have said.

But several shareholders questioned why Provident had invested in the securities in the first place. "Hindsight is 20-20," Geisel said, and today he wishes Provident had not invested in the securities. The bank bought them because they were highly rated at the time and had safeguards against defaults, he said.

And while Geisel said Provident continues to do well at the business of banking, shareholder Charles Duda said during the meeting that deposits have fallen and profit margins have shrunk in recent years. "It's not what I would call a high-performing operation, and I hope you're not deluding yourself into thinking that will carry the day," Duda told Geisel.

Geisel said the bank is doing as well as or better than its peers in a tough market, although not as well as he would like. Provident lost $16 million last year, much of that coming from the real estate writedowns. The bank, with $6.5 billion in assets, has seen its stock fall by about two-thirds in the last year.

"I hear you loud and clear," Geisel said to several shareholders, telling one that if Provident raises more money, Geisel will give him a call about the offering.

After the meeting, Geisel said he thought shareholders' comments were civil, adding that several were less critical of the bank in private conversations with him.

"We need a couple of good quarters behind us," he said. "People just want to say, 'Let's get back to banking.'"