More Massachusetts banks are likely to have good news to share this earnings season, thanks in large part to low deposit interest rates that have kept earnings expenses low, and allowed more banks to ramp up lending in 2010.

While some institutions are still working to contain soured loans – and seeing profits suffer as a result – the other end of the spectrum is populated by banks with a brisk first half of 2010. Bankers’ anecdotes, along with the latest FDIC data from the first quarter of this year, indicate that some institutions have plenty of breathing room at the moment, and are using it to make more loans.

Historically, banks with a return on assets (ROA) of more than 1 percent were considered to be in good shape, according to Suzanne Moot, owner of Milton-based consultancy M&M Consulting, although in today’s banking environment “any positive number is a good number.”

Return on assets is determined by dividing net income by total assets.

Healthy Returns

In the first quarter of this year, 44 Massachusetts-based retail banking institutions had an ROA of 1 percent or more, according to FDIC data.

Still, more Massachusetts banks are stretching far above the 1 percent mark. A total of 16 community banks had an ROA of 1.5 percent or higher in the first quarter, compared to just four banks for the same period in 2009, and only three in 2008.

These institutions, such as Arlington’s Leader Bank – literally the leader in this case, as its 1.98 percent ROA makes it the top retail bank by that standard in Massachusetts – have done well in the current economic environment, Moot said, while other banks are struggling to get their expenses in check.

Elizabeth Jones, CEO of Everett Cooperative Bank, has often touted the bank’s emphasis on “running lean” which has aided its profits. But this year in particular, she credits her bank’s standing to a major drop in deposit interest rates. Everett Cooperative had an ROA of 1.92 percent for the first quarter 2010, during which time interest expenses dropped substantially for deposits, while income from loans remained steady.

Jones’ own figures for the first six months of 2010 show that interest income dropped about $760,000 for the $272 million-asset bank, compared to the same time in 2009. Profitability was up 35 percent for the first half of 2010 versus the first half of 2009. Jones said her bank, as most banks commonly would, put the added income to work by ramping up lending, especially in commercial loans.

But every bank has to be careful, she said. While interest expenses took a dive for deposits this year, interest rates will eventually go up, and bring expenses with them.

Compliance and operating costs will also continue to rise – Everett Cooperative spent $100,000 more on expenses in the first half of 2010 compared to 2009. Those costs aren’t going away, Jones said, and will no doubt eat into profits in coming years, leading inevitably to further consolidation in the industry.

Sushil Tuli, president of Leader Bank, credited both the low deposit interest rates and a still-booming refinance business, which took off in 2009 and has carried into this year, as keys to his bank’s success thus far in 2010.

Tuli, like Jones, said Leader was ramping up its lending as a result. FDIC data from Leader Bank in the first quarter of 2010 show that the bank increased overall lending from $240.9 million in the first quarter of 2009 to $270.7 million for the same period in 2010, with commercial real estate loans rising from $48.3 million to $60 million.

A Note Of Caution

While some banks had the financial freedom to increase lending, many who turned in an unprofitable first quarter blamed loan delinquencies.

Twenty banks were unprofitable during that time: Some, Moot said, because their expenses were too high compared to their earnings. Others – such as Nuvo Bank and Trust Co. of Springfield, which opened in 2008, or First Commons Bank of Newton Center, which opened in 2009 – are new institutions that, like any new business, can’t always be expected to pull in profits in the first few years.

But eight of the 20 made substantial increases to their loan loss provisions, indicating they are shoring up reserves to cover losses. That, too, is in keeping with the current economic environment, said Kenneth F. Ehrlich, head of the banking and financial services department of Boston law firm Nutter, McClennen & Fish.

Although most banks are seeing healthy margins at the moment, a few bankers still have troubled portfolios thanks to the major upheaval of the past few years, he said. But the lack of both new jobs and solid economic growth has also kept many loans in the danger zone, and created anxiety for those lenders. While some bankers are breathing easier, others are also trying to keep the ship afloat.

“That’s going to persist for some time,” he said.