Banks pad reserves in early '94

June 04, 1994|By David Conn | David Conn,Sun Staff Writer

Maryland's state-chartered banks shored up their financial reserves in the first quarter of this year, but the price was a small drop in profitability, according to a state report.

The 70 mostly smaller banks and trust companies that are regulated primarily by the state managed a first-quarter return on assets of 0.93 percent, the Maryland Bank Commissioner reported this week, despite a rise in interest rates that generally benefited financial institutions. Return on assets -- or net income divided by assets -- is a ratio that measures profitability without .. regard to the size of an institution.

In the first quarter of 1993, state banks' average return on assets was 1.0 percent, the industry norm.

The state's banks, including Mercantile-Safe Deposit & Trust Co., Provident Bank of Maryland and the Bank of Baltimore, generated $54 million in profits during the quarter, down from $58 million a year ago. And that came despite the loss of the First American Bank of Maryland, which was acquired by First Union Corp. and became a nationally chartered bank. Last year First American contributed a $1.7 million loss to the state's total.

But the state-chartered banks balanced the slight drop in profits with a healthy increase in equity capital, which is the cushion of money that financial institutions must keep reserved to protect stockholders and the federal deposit insurer against possible losses, or collapse.

In the three months that ended March 30, the companies had $2.1 billion in capital, or 8.9 percent of assets, up from $1.9 billion in capital a year ago, or 8.4 percent of assets.

That, in turn, decreased the banks' return on equity, which measures how well a company has managed its investors' money. Return on equity fell to 10.5 percent during the quarter, from 12.0 percent a year ago. Both numbers were in the range of industry averages.

"If the interest rates hadn't risen, they wouldn't have done nearly as well," said Arnold Danielson, a Rockville banking consultant.

The bank commissioner's report also affords a closer look at Maryland banks owned by larger out-of-state companies, which report subsidiaries' results separately from the parent companies' earnings.

Mellon Bank (MD), for instance, reported a $622,000 loss in the quarter, after a fourth-quarter loss of $1.5 million. A year ago the company had a gain of $110,000.

Signet Bank/Maryland's profits fell 33 percent, to $4.8 million from $7.2 million a year ago.

"If you pulled out Mellon and Signet, the numbers look pretty good," Mr. Danielson noted.

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