Increased loan loss provisions hurt M&T, Sandy Spring totals

Daily Record, The (Baltimore), Apr 22, 2009 by Danielle Ulman

Increased provisions for loan losses pushed earnings down significantly at Sandy Spring Bancorp and M&T Bancorp, the companies said Tuesday.

Sandy Spring suffered an 87 percent decline compared to the first quarter last year, and M&T's earnings fell 68 percent.

Net income at Olney-based Sandy Spring fell to $1 million, or 6 cents a share, in the first quarter of 2009 down from $8.2 million or 50 cents a share, in the corresponding period of 2008.

Buffalo, N.Y.-based M&T posted net income of $64.2 million, or 49 cents per share, compared to $202.2 million, or $1.82 a share, in the quarter a year earlier.

M&T took a write-down of $20 million on investment securities or 18 cents a share.

Both banks had to provide more money this quarter to cover loan losses than in the quarter a year earlier.

Sandy Spring provided $10.6 million in loan and leases losses related to its residential real estate development portfolio, compared to $2.7 million in the first quarter of 2008.

"Our level of loan loss provisioning continues to be influenced by the ongoing negative economic conditions on both a regional and local basis," said Daniel J. Schrider, president and chief executive, in a statement.

Provisions for losses were down compared to the fourth quarter of 2008, when Sandy Spring reported a net loss of $3.8 million and set aside $17.8 million for loan losses.

Nonperforming assets -- loans that have not been paid over an extended period of time -- totaled $125.8 million at the end of the quarter compared to $72.2 million in the fourth quarter and $46.9 million in the first quarter of 2008.

The bank attributed the increase over the fourth quarter to one commercial loan and four residential real estate development loans that together totaled $46.2 million. In a conference call with analysts, Schrider said the real estate developers had never had trouble paying their loans before this quarter.

"We are all waiting for any sign that [nonperforming assets] will turn in the other direction," he said.

Overall, residential real estate loans made up $89 million of nonperforming assets. The bank said many of its nonperforming loans are in Howard County, with some in Frederick, Montgomery and Anne Arundel.

"The sheer size of the construction exposure, it's big, relative to their tangible capital," said Bryce Rowe, an analyst with Robert W. Baird & Co. in McLean, Va.

"That's certainly problematic when you look at it from an investor standpoint," he said.

But Rowe also said that Sandy Spring is better equipped to absorb additional loan loss provisions because of its strong revenue stream.

At M&T, the provision for credit losses rose to $158 million from $60 million in the first quarter of 2008.

"Our performance for the quarter was dampened by the impairment charges on investment securities and a higher provision for credit losses," said Rene F. Jones, executive vice president and chief financial officer at M&T said in a statement.

Sandy Spring beat analyst estimates that it would earn 4 cents a share; analysts expected M&T to earn a profit of 71 cents per share in the latest quarter, on average. Analyst estimates generally exclude one-time items.

The acquisitions of local competitors Provident Bankshares Corp. and Chevy Chase Bank are expected to have a big effect on Sandy Spring, which will become the state's largest locally owned bank when the Provident deal with M&T closes.

Customers from both banks have already switched to become Sandy Spring customers, Schrider said.

"We're seeing opportunities from both as well as the opportunity to bring in some new talent from those operations," he said.

M&T's expenses associated with its pending acquisition of Provident were $1 million for the quarter, or 1 cent per share.

Shares of Sandy Spring's stock rose 43 cents or 3.08 percent to $14.39. Shares of M&T's stock fell 76 cents or 1.45 percent to $51.75.