Midlantic Corp. reported Wednesday that it earned $7.8 million in the second quarter, its first quarterly profit in two years.

Meanwhile, BayBanks Inc. reported its second-quarter profit had increased nearly fivefold, to $6.5 million.

Midlantic's share price was unchanged at $16.25, but trading volume by 3 p.m. was heavy, at nearly 1 million shares. BayBanks rose 50 cents, to $33.

MIDLANTIC CORP.

The Edison N.J.-based banking company made significant progress in reducing its nonperforming assets. This category declined 7.7%, to $1.62 billion and, more importantly, fell more than did chargeoffs and writedowns of foreclosed real estate.

Still, analysts said much work remains to be done before Midlantic is considered healthy again.

The company, which has $16.4 billion in assets but will have only $14.1 billion when pending asset sales are completed, lost $29 million in the first quarter and $415 million in the year-ago period.

Loss Provision Too Low?

"You have to give them credit for reporting a profit," said Gerard Cassidy, an analyst at Tucker Anthony Inc., Portland, Maine. "However, they are far from out of the woods."

Mr. Cassidy and others pointed out that the company's provision for loan losses, $26 million, was the least it had been in more than two years. They questioned whether such a low level would be sustainable.

Midlantic is struggling to repair its loan portfolio, which was badly damaged by years of overzealous real estate lending in the 1980s. The company has been selling assets to generate cash and announced last quarter that it would reduce its staff by 28%.

BAYBANKS INC.

Its nonperforming assets remain a very high 13% of loans and foreclosed real estate, and after pending asset sales are completed, that ratio will approach 17%, Mr. Cassidy said.

Higher interest and fee income drove operating earnings higher at the Boston-based holding company.

Interest income, at $105.5 million, was 3% greater than in the first quarter and 6% greater than in the 1991 second quarter. Fee income, at $44.9 million, was up 7% from the first quarter and 10% from the year before.

However, net income was less than in the first quarter because BayBanks only took $400,000 in securities gains, compared to $35.4 million in the first quarter.

Nonperforming assets declined for the fifth straight quarter, by 6%, to $562.3 million.

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