MNC Financial Inc., enjoying lower interest rates and a slowly improving portfolio of troubled assets, reported yesterday a second-quarter profit of $2 million, based largely on sales of securities.
The state's largest banking company, parent of Maryland National Bank and American Security Bank in Washington, D.C., managed to exceed the estimates of several analysts, who had predicted the company would lose money in the quarter, according to Zacks Investment Research.
For the three months ended June 30, MNC said it earned $1.99 million, less than a penny a share, compared with a loss of $82.3 million, or 96 cents a share, in last year's second quarter. In this year's first quarter, the Baltimore-based company earned $1.1 million, also less than a penny a share.
"It's getting better," said Elisabeth Albert Hayes, an analyst with Chapin Davis in Baltimore. "The theory is, it takes a lot to turn around a big ship. And this is a big ship with a very big anchor," she said, referring to the company's large portfolio of troubled assets, primarily delinquent loans and repossessed properties.
MNC's loan portfolio did improve compared with the first quarter. Non-performing assets fell by $227 million, to $1.39 billion. That reduction came despite an additional $122 million in loans classified as non-performing during the quarter, compared with $135 million in new non-performing loans in the first quarter.
MNC moved to protect against possible future losses from troubled assets by adding another $41.9 million to its loan loss reserves, a move that reduced earnings, but not by as much as the $46.4 million added to reserves in the first quarter.
Still, the company reported a smaller amount of one-time gains from securities sales in the second quarter: $36 million, compared with $41 million in the first quarter.
"Our second quarter performance reflects continuing improvement in asset quality and core earnings power," president and chief executive officer Frank P. Bramble said. The banking company defines core earnings as those that exclude taxes, gains on the sale of securities and the costs associated with loan loss provisions and real estate that the company owns.
However, Ms. Hayes argued that real estate-owned costs, almost $46 million in the second quarter, represented an ongoing cost of a bank's normal operations and should be included when calculating core profits. But she and others found hope in the company's ability to reduce other expenses, such as salaries and benefits, equipment and other overhead.
"MNC's expenses have been kind of out of control compared to the size of the company," said John Bailey, an analyst with Ferris, Baker Watts in Washington, "and this quarter shows they're trying to do something about it."
He also noted that interest income rose to $75 million from $69 million in the first quarter. And the company retains a substantial amount of unrealized gains in its securities portfolio, a direct result of the sharp drop in interest rates during the last quarter. "That's the main component in the increase in operating earnings," Mr. Bailey warned.
MNC Financial Inc.
Three months ended 6/30/92
.... Income... ... ... ... Share
'92..1,994,000... ... ... 0.00
'91.(82,289,000)... ... (0.96)
% change -- .. .. .. ... .. --
Six months ended 6/30/92
... ...Income... ... ... ... Share
'92.. .3,087,000... ... ... 0.00
'91.. .71,698,000... .. ... 0.78
% change 95.7... ... ... ... --
Balances as of 6/30/92
... ...Assets... ... ... ... Deposits
'92... 16,597,159,000... ...12,306,329,000
'91... 19,118,220,000... ...15,305,032,000
% change 13.2... ... ... ... ..19.6