Small Banks Top the Giants in Profit Gains

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Community banks are on a roll.

A review of third-quarter earnings reports suggests that they're performing considerably better than their bigger rivals. In fact, many have racked up eye-popping profit gains.

The nation's smallest banks have steadily gained customers from larger banks undergoing mergers, according to bankers and analysts. As a result, many small banks have outpaced the rest of the industry in loan growth.

And lacking the credit card exposure of their larger competitors, small banks have been spared the writedowns that have dampened earnings at many of the nation's biggest institutions.

"We had good, strong loan demand this quarter," said Donald R. Mengedoth, chief executive of Community First Bankshares in Fargo, N.D., whose upper Midwest and Mountain States loan portfolio grew by 11.4% in the last year.

Reports from smaller banks have been "across-the-board excellent," said Steven J. Didion, analyst at Hoefer & Arnett in San Francisco. "We've been seeing …