It's hardly news by now that the first half of 1992 was, by almost any measure, a remarkable one for most banks. What hasn't been covered in the business press is how community banks fared during this period.
Based on the results of our semiannual earnings survey, most community banks benefitted from the unusual economic environment of 1992.
Nearly 80% of the 49 respondents--all members of ABA's Community Bankers Council--posted year-to-year gains in pre-tax earnings in the first half. In the Great Lakes states, the Midwest, and the Southwest, the percentage of banks posting gains was higher than the national average, while in the Southeast, the West and the Northeast the percentage was lower.
Despite continuing sluggish commercial loan demand in many parts of the country, 85% of the respondents increased their assets in the first half.
Profitability, as measured by return on assets, rose for 76% of the responding banks. Regionally, the Southeast had the fewest banks with ROA increases (67%) while in the Southwest and West, over 80% saw ROA increase. ("West" includes Colorado, Idaho, Wyoming, and other recovering states as well as sagging California.)
Average ROA for the entire group was 1.44%; it was 1.22% during the first half last year. Three quarters of the respondents also saw ROE rise in the first half--from 14.08% to 16.29%.
Reasons for change. The three most-often cited reasons for the improvement in earnings were: (1) higher net interest margins, (2) reduced chargeoffs/loan recoveries, and (3) higher noninterest income. Higher loan demand was also mentioned by some.
The average net interest margin for the 13 banks that supplied this data was 4.57% for first-half '92 compared to 4.24% for first-half '91, and 8% gain. Seven other banks gave percentage increases in net interest margins without giving the actual margins; the average increase was 17%. A handful of banks noted declines in margins.
Of the banks, noting increased fee income, most cited fees from mortgage originations/refinancings. One Wisconsin banker observed: "Fee income from the sale of home loan mortgages through Freddie Mac [Federal Home Loan Mortgage Corp.] has doubled over last year."
Mortgage lending. Given the surge in mortgage originations due to low rates, we asked the surveyed banks what percent of their loan portfolio comprised residential mortgages as of June 30. The national average was 33% for 1992 compared to 30% in 1991. Although the sample size in some regions was small, it is worth noting that the averages ranged widely in 1992--from 59% for northeastern banks to 13% for western banks.
Nationally, 53% of the respondents saw an increase in the size of their mortgage portfolio; 30% reported a decrease, and 16% had no change year-to-year. In the Southeast, Northeast, Great Lakes states, and Midwest, more banks had increases than decreases in their mortgage portfolios. The opposite was true in the Southwest and West.
A related question asked what percentage of mortgage originations was sold, on average, into the secondary market. The group as a whole has been selling off about one quarter of its mortgage loans in 1992--about the same as the year before.
The range of answers to this question, however, was great. Among the seven Great Lakes banks, for example, the percentages of mortgage originations sold to the secondary market in the first half of 1992 were: 0%, 0%, 1.5%, 2%, 85%, 90%, 95%.
Loan demand/quality. Respondents describing first-half loan demand using such words as "good" or "improving" outnumbered bankers describing demand as "weak" or "declining" by about two to one. Further, bankers reporting loan quality as "good" or "improving" outnumbered those describing it as "of concern" or "satisfactory" by about three to one.
The average loan-to-deposit ratio for the group as a whole was 62% for both first-half '91 and first-half '92. …