Although stable interest margins and loan growth generated solid second-quarter earnings for many midwest community banks, margin erosion in the second half of the year could slow things down.

John E. Snow, an analyst in the Chicago office of Rodman & Renshaw Inc., still expects growth of 3% to 8% in the banks' net earnings for 1995, but said interest margins and loan growth will shrink.

"We've got a very nice start to the year overall," he said. "I wouldn't look for any dramatic strength in the second half."

Net income at Michigan Financial Corp., Marquette, was up 6% for the first six months to nearly $3.8 million. The company attributed the gain primarily to an increase in the net interest margin - to 5.49% from 5.26% a year earlier.

"I would expect that there is going to be some margin tightening, particularly if the Fed drops rates another one or two times," said Kenneth F. Beck, chief financial officer. "If that were the only variable we were dealing with, we'd expect slightly lower earnings."

For the second quarter, observers report no surprises - pleasant or no - in performance released so far.

"Nobody has blown away estimates, nobody has fallen way short," said Joseph A. Stieven, an analyst with Stifel, Nicolaus & Co., St. Louis.

Many Midwest community banks have experienced double-digit loan growth, particularly in commercial and industrial lending, he said.

Low loan-loss provisions and good credit quality also boosted earnings, analysts said. In addition, net interest margins appeared stable in the first half, in contrast to community banks in other parts of the country - especially in the Northeast and Southeast- where margins are under pressure.

"The fear has been that the cost of deposits would pinch margins, but I think they're living through it," said Jeffrey L. Davis, an analyst at Natcity Investments Inc., Indianapolis, who has seen an improvement of about a penny a share over the first quarter.

While many institutions so far have hit the mark, analysts noted some exceptions.

Chicago's Standard Financial Inc., surpassed Mr. Snow's earnings-per- share estimate of $0.24, reaching $0.26 with increased loan growth.

Mr. Snow said his main disappointment is Premier Financial Services, Freeport, Ill. It reported earnings per share of 17 cents, a penny less than he had estimated - due to slower loan growth. "Maybe I was just being too optimistic," he said.

Mark Twain Bancshares, St. Louis, was "exceptionally strong," Mr. Stieven said. It maintained margins and reduced expenses and loan loss provisions. The company earned 70 cents a share for the quarter, surpassing his estimate by 2 cents.

Ross Demmerle, an analyst at Cleveland's McDonald & Company Securities Inc., said that while few community thrifts have reported as yet, "The feeling I've been getting is some of these thrifts have been experiencing some contractions in their net interest margin."

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