Bad loans reduce Provident's earnings

$13 million set-aside leaves 15.9% decline

Banking

July 20, 2000|By Bill Atkinson | Bill Atkinson,SUN STAFF

Provident Bankshares Corp., which has struggled with souring health care loans, said yesterday that second-quarter profit fell 15.9 percent after the company set aside $13 million for problem loans.

The company made $9.2 million in the quarter that ended June 30, or 35 cents per diluted share, compared with $10.99 million, or 40 cents per diluted share, in the corresponding period a year earlier.

Shares of Provident fell 25 cents to close at $14.125.

Provident's recent problems stem from $30 million in loans to two large nursing home operators, Sparks-based Integrated Health Services Inc. and Genesis Health Ventures of Pennsylvania. Both companies recently filed to reorganize under Chapter 11 bankruptcy.

The $13 million addition to its provision for loan losses, which was disclosed to the public last week, was made to address the expected write-down of a significant portion of a $15 million delinquent loan to Integrated Health and the sale of the $15 million loan made to Genesis.

Provident lost $5 million on the sale of the Genesis loan, but offset it by taking $7.8 million in gains from the sale of securities. Provident's health care loans represent 2.1 percent of its loan portfolio.

Peter M. Martin, chairman and chief executive of the Baltimore-based banking company, said the bank would not have to set aside any more money to cover the two loans.

"The decisive actions we took this quarter relative to our health care portfolio will enable us to improve our financial performance during the next six months," he said.

Martin said the delinquent health care loans have drawn much attention and "that we want to get beyond that."

Claus W. Hirsch, a bank analyst at Corinthian Partners in New York, said Provident "took the right medicine" in dealing with the health care loans.

"It is always unfortunate when you have a loan loss," Hirsch said. "I don't think they were doing wild things; they weren't way over-expanding in terms of putting too many loans on the books. What is happening in the health care business certainly isn't limited to them."

Provident's income in the first half of the year slipped 2 percent to $20.9 million, or 77 cents per diluted share, compared with $21.3 million, or 77 cents per diluted share in the first half of 1999.

Martin said he was pleased that assets, loans and deposits all rose in the quarter and first half of the year. Assets jumped 11.9 percent at quarter's end to $5.5 billion; loans rose 8.5 percent to $3.5 billion and deposits were up 9.8 percent to $3.9 billion compared with corresponding figures a year earlier.

He said the company has restructured operations to focus on its core banking business. Provident, for example, stopped buying loans from automobile dealers in the quarter because the business is too competitive. "It is just a low margin business," Martin said.

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