Stung by the bankruptcies of two large nursing home corporations, Provident Bankshares Corp. warned yesterday that second-quarter profit will be lower than expected, missing analysts' estimates.
The Baltimore-based banking company said it made a $13 million addition to its provision for loan losses in the second quarter, which ended June 30, to absorb the expected write-down of a large portion of a $15 million delinquent health care loan. The provision, which boosts the company's reserve for bad loans to $47 million, also helps Provident absorb a loss of about $5 million on the sale of a second troubled health care loan.
Provident, which is to release earnings Wednesday, expects to report 35 cents per share for the quarter that ended June 30, 6 cents less than Wall Street estimates. Its shares fell 25 cents yesterday to close at $13.75.
"This is a positive step to wipe away a cloud that seems to be over our [loan] portfolio," said Peter M. Martin, chairman and chief executive of Provident, the second-largest independently owned bank in the state with $5.2 billion in assets. "We needed to address this problem."
The two loans, which totaled $30 million, were made to Integrated Health Services Inc. and Genesis Health Ventures, according to analysts.
Martin declined to reveal the names of the companies to which it lent the money.
Integrated, a Sparks-based firm that ran more than 1,700 nursing homes and rehabilitation centers nationwide, filed for bankruptcy protection in February. Four months later, Pennsylvania-based Genesis, which runs about 50 nursing homes with 8,000 beds in Maryland, filed to reorganize.
Martin said that with the $13 million increase, Provident's reserves are sufficient to cover the $15 million loan to Integrated, which is still on the company's books.
The $15 million loan to Genesis, however, was sold at the end of the second quarter through an investment banker, Martin said. He said the company will reinvest the proceeds from the sale, which total about $10 million. The company lost about $5 million on the sale.
Analysts were not surprised by Provident's announcement because many of the country's biggest banks have been slammed by souring nursing home loans.
At one time these were sound loans that banks wanted on their books. But sweeping changes designed to cut Medicare payments as part of the Balanced Budget Act of 1997, pushed many of the country's largest nursing home chains into bankruptcy.
"We expected something along these lines," said Adam Bark- strom, a bank analyst at Legg Mason Inc., a Baltimore-based brokerage and money management company. "We are happy to see the Genesis health care loan off the books. The big question is, what is the condition of the remaining health care portfolio?"
Provident has about $70 million in health care loans. That amount represents about 2 percent of the company's total loan portfolio, which was $3.5 billion as of June 30.
The company has been setting aside millions of dollars in recent months to cover the problem loans. In the first quarter, it added $4.3 million to its loan-loss reserves, up from $2 million in the corresponding quarter last year.
Martin said the company will continue to make health care loans despite the recent problems.
"Baltimore is a big hospital town, we have some very successful companies that have not been affected," he said. "All we are doing is cleaning up a couple of credits that got caught in the middle."