The 75 state-chartered banks in Maryland turned in an encouraging performance during the first half of the year, earning 19 percent more money than in the same period last year.
Maryland's bank commissioner reported that the state-chartered banks earned a profit of $88 million for the period, compared with $73.8 million during the first half of 1991.
The gain was even more impressive when contrasted with the last half of 1991, when Maryland-chartered banks lost $120.2 million.
The biggest winner during the period was Mercantile Bankshares Corp.'s main subsidiary, Mercantile-Safe Deposit & Trust Co., which earned $13.3 million. First American Bank of Maryland, a unit of Washington-based First American Corp., was the worst performer, with a $3.4 million loss during the period.
The overall improvement came from favorable interest rates, cuts in salaries and benefits and a drastic drop in the provision to cover potential loan losses, an expense that is deducted from earnings.
Still, earnings for the state-chartered banks, which exclude nationally chartered companies such as Maryland National Bank and the First National Bank of Maryland, were well below industry averages. And analysts do not expect rapid increases in the next few years.
"Core earnings, generally speaking, ought to be in line with growth in the general economy, and right now that's lackluster," said John Heffern, a bank analyst at Alex. Brown Inc.
If anything, Maryland's banks have been in a period of no-growth for the past year, as the costs related to soured loans have eroded their earnings and capital, the cushion needed to protect deposits and their federal insurer against risk.
At the end of June, the state-chartered banks had total assets of $23.4 billion, down almost $4 billion from a year earlier. But assets would have grown slightly if NationsBank of Maryland, with $4.1 billion in assets last year, hadn't converted from a state to a national charter.
State-chartered banks are regulated by the Maryland bank commissioner. Nationally chartered banks report to the federal Office of the Comptroller of the Currency. Both types of banks also are regulated by the Federal Deposit Insurance Corp.
In the first half of this year, the Maryland banks deducted $67.5 million from earnings to cover potential loan losses, compared with $108.1 million a year ago, and $320.1 million in the second half of last year, during the peak of their real estate-related loan problems.
At the same time, the rapid fall in interest rates increased banks' net interest margin, the difference between what they pay for money and what they earn by lending it to customers. But that source of profit is growing more slowly because rates are falling more slowly.
"Their real need now is to get out and make loans, but the loan demand has not picked up," said Bank Commissioner Margie Muller.
Earnings power, though improving, was still anemic compared with the rest of the industry. Maryland-chartered banks earned a profit of only 0.76 percent a year on their assets during the first half, compared with 0.88 percent for all banks.