Provident Bankshares Corp. of Baltimore, aiming to shore up its capital position, said it would seek to raise $115 million through offerings of equity and subordinated debt.
It also lowered its annual dividend payment by $29 million and said it was retaining an advisory firm to review its investment policies.
The offerings, expected to be completed this week, will include the issuance of $65 million of equity securities and a $50 million subordinated debt offering. The dividend reduction will lower its annual payout by 84 cents, to 44 cents a share.
The $6.2 billion-asset Provident, the largest commercial banking company based in Maryland, said in January that it took a fourth-quarter writedown of $47.5 million in its investment securities. In February it said it would likely take a $47.7 million charge in the first quarter on its securities.
Analysts said that even though Provident remains well capitalized by regulatory standards, the capital increase was necessary.
Matthew Schultheis, an analyst at Ferris, Baker Watts Inc., said Provident had only $23.8 million of excess capital. "For a bank their size with some of the issues that they have regarding credit quality exposure to home equity construction and bank trust-preferred debt, this may not be the best time to be running lean."
John Pancari, an analyst at JPMorgan Securities Inc., said the fact that Provident also hired an independent advisory firm to review investment policies and risk controls for the investment portfolio could indicate it expects to record additional writedowns.
Also, credit quality could deteriorate in the company's home equity portfolio, which makes up about 25% of its overall loan portfolio, Mr. Pancari said.
Gary Geisel, its chief executive officer, said in a press release, "This initiative provides us the capital to bolster our balance sheet in this challenging and uncertain operating environment, at the same time providing a financial foundation to support the growth expectation of our business franchise."
The company said the capital offering would increase its pro forma tangible equity-to-assets ratio 129 basis points, to 5.11%, and the pro forma total regulatory capital ratio 160 basis points, to 11.77%. The issuance of the subordinated debt would further increase the total regulatory capital ratio to 12.69%.
Gary B. Townsend, the president and CEO of Hill-Townsend Capital LLC, said that Provident's offerings would be dilutive to current investors — an outcome that had "the earmarks of regulatory suasion."
The announcement "is very carefully worded," Mr. Townsend said. "You don't dilute your shareholders to this degree until there is a real necessary cause."
Still, Provident's shares rose 4% by late Friday afternoon, to $10.87. Collyn Bement Gilbert, an analyst at Stifel, Nicolaus & Co. Inc., said the stock may have risen because the announcement took away some "uncertainty."
