Signet Banking Corp. closed the books on a tough 1990 yesterday, announcing that it added $58.1 million to loan-loss reserves during the fourth quarter, slashing the company's quarterly profit by 79 percent.
Signet, the Richmond-based parent of Signet Bank/Maryland, with 90 branches in the state, said it earned $6.8 million, or 26 cents a share in the quarter. That was down from $32.7 million, or $1.22 a share, in the fourth quarter of 1989.
The numbers for the year were little better. Signet said it earned $41.4 million, or $1.56 a share, in all of 1990. That was a 66 percent drop from 1989, when Signet earned 123.3 million, or $4.55 a share.
Once again in the fourth quarter, the culprit was real estate loans. "The banking industry, particularly in the Middle Atlantic area, is continuing to experience weakness in real estate and commercial markets," Signet Chairman Robert M. Freeman said in a statement.
"The problems in the real estate area in particular reflect a combination of overbuilding, a slowdown in the national and regional economies, falling real estate values and reduced availability of permanent financing."
Permanent financing usually means long-term mortgages from banks, insurance companies or institutional investors that real estate developers obtain when a building is finished. They typically use the money to pay off short-term construction loans from banks such as Signet.
Signet, like many other bank holding companies in the Baltimore-Washington area, has among the nation's highest ratios of real estate loans to total loans. But its problems have not been as severe as those faced by MNC Financial Inc., parent of Maryland National Bank and the state's largest banking company.
Signet officials have said that they slowed down their real estate construction lending earlier in the economic cycle than did MNC and thus were caught with fewer vulnerable loans.
But Signet said yesterday that its road will get harder in months to come. The company said it expects a slow recovery in the service sector, the primary user of office space in Signet's service area. And that will mean more loans being paid late or not at all.
"Non-performing assets are expected to continue to rise during the first three quarters of 1991, which may cause earnings to continue in ranges similar to recent quarters," the company said. "Quarterly dividends will continue to be viewed carefully in light of earnings, capital levels and the status of non-performing assets."
The company said, however, that its capital position is the strongest in its history and exceeds federal requirements by a large margin.