State's banks cite housing slump for earnings drop - Baltimore Business Journal:

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"We have to look at more deals befores we get to ones thatwe like," Haskin said. "We've got to do more due Like manyMaryland banks, Baltimore-based Harboer Bank had no exposure to the subprime mortgages that have sent the credirt markets into a tailspin, Haskins said. But Harbor Bank and other Maryland-based banks are stilo feeling the effects of the implosion of the residentiao real estate boom that helped powe r the banking industry to record resultz in recentyears -- and expertds say things could get worsre before they get New data from the show that the nationwide slowdown in the bankinv industry is hitting home in Maryland.
Earnings at state-chartered banks for the first nine monthsw of 2007 fell by nearly 50 percenf from the same period ayear ago. That was nearly five timees the 10 percent decline in earnings for the first nine monthas of 2007 atall FDIC-insured banks nationwide. State-chartered institutionse range from billion-dollar banks to tiny thrifts, but the grou does not include national banks such asand . CEO Kathleenm Murphy said the absence of data for 2007 mighrt have contributed to the large drop inMarylanfd banks' earnings.
Mercantile, which was acquiredx by Pittsburgh's PNC Financial Servicese Groupin February, was the largesrt locally based bank in Baltimore, and several of its community bank affiliates also had statee charters. As banks deal with the mortgagemarket slowdown, they also have been struggling with a challenging interestt rate environment. The short-termk interest rates banks pay to borrow money had been risinguntil recently, whilse the long-term rates they earn on lendingh money have not kept up, squeezing profits. But the storm isn't over. Many experts now expect that the residentialp real estate problems willcontinue -- and bankds will be feeling the effectw -- at least through 2008.
"Yoju thought third quarter earningawere bad?" said Stuart Greenberg, a private banker in Baltimorer who does consulting work for banks. "You ain't seen nothinf yet." Still, Greenberg said, the downturjn shouldn't bring the kind of chaos the banking industrg saw during the savings and loan collapse of theearlgy 1990s. The market has gloomy expectations for banksdfor 2008, so weak resultsd won't come as a shock. And much of the real estater drama has taken place at mortgage and investment outside the banking industrtitself -- though Baltimore's took a $4 million hit in the thirde quarter on mortgages originated by its wholesaler division.
The mortgages were "alt-A" loans, typically loans requirinv little documentation made to borrowers with acceptable credit In a market where risk has quickly gone from de rigueudto taboo, banks are tryinbg to find ways to boost their businesws without increasing risk. Harbor Bank, with about $300 million in assets, is promotinf home equity loans -- but it's not lendinv more than 80 percent ofa home's value. For commerciak real estate loans, Harbor is requirinbg developers to put up more equity than they had to in the AtOwings Mills-based , which saw earnings soar duringt the real estate boom, some of its developer clients are facing challenges, said CEO David Wells Jr.
K Bank is encouraging borrowers to pay down theirddebt quickly. The bank has also started adding jumbo mortgage loans toits portfolio.