Maryland banks spared worst of bad-loan blues

Write-offs down 1% here while leaping nationally

Uncollectible is unprofitable

State's lenders evidently were prudent in late '90s

April 29, 2002|By William Patalon III | William Patalon III,SUN STAFF

While bank write-offs for bad loans nationwide soared 55 percent in 2001, Maryland lenders saw their charge-offs decrease by 1 percent, according to a new study by Weiss Ratings Inc.

"Banks in Maryland, as a whole, just haven't had the asset-quality woes we've seen nationwide," said David A. Proko, a financial analyst for Weiss, an independent research operation based in Palm Beach Gardens, Fla.

Write-offs, known as "charge-offs" in banking circles, are an admission that a loan has become uncollectible. Charge-offs often rise most steeply after an economic downturn is under way, when troubled commercial and consumer customers are increasingly unable to make payments on their debt obligations.

In jumping what Weiss Ratings called "an alarming" 55 percent, charge-offs nationwide reached a record $38.8 billion in 2001, the most recent complete set of figures available. Last year's total exceeded the previous record of $37.7 billion, which was set 10 years ago during the U.S. savings-and-loan crisis.

Among Maryland lenders, charge-offs dropped from $95.1 million in 2000 to $95 million last year, Proko said.

Loan write-offs aren't the only measure of the banking industry's health. Experts such as Proko say it's also important to look at "nonperforming" loans, essentially lending agreements on which a customer has fallen behind. Because these loans have yet to be deemed uncollectible - and written off - they are considered a "lagging" indicator of the banking sector's health, according to Proko. Nationwide, the dollar value of nonperforming loans jumped 28 percent to $62.5 billion. In Maryland, nonperforming loans rose 9.8 percent to $446.2 million.

According to Proko, these figures suggest that Maryland lenders took on less risk than banks elsewhere during the economic boom of the late 1990s.

"The risks obviously weren't there" for most Maryland lenders, Proko said.

When their charge-offs and nonperforming loans were viewed individually, Baltimore-area banks had mixed results, however.

Area banks with decreasing charge-offs include Allfirst Financial Inc. (down 15.6 percent to $28.18 million), Columbia Bankshares Corp. (down 78 percent to $536,000) and Provident Bankshares Corp. (down 6.41 percent to $21.01 million).

In terms of increases, the biggest gainer was Mercantile Bankshares Corp. (up 513.6 percent to $8.39 million), which has announced plans to divest most of its problem-plagued leasing business.

In the area of nonperforming loans, local banks with increases included Mercantile (up 24.7 percent to $22.61 million) and Allfirst Financial (up 7.38 percent to $121.7 million). Banks with decreases included Provident (down 32.36 percent to $39.66 million).

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