Lending Pushes Profits to Records on Coasts: Banks in Heartland Post Strong Earnings Though Loan Growth Lags a Bit

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Community banks on both coasts surged to record profits in the fourth quarter, as improving regional economies set off waves of strong loan demand.

And although their counterparts in the country's midsection didn't see loan demand that robust, earnings were strong for the typical community bank nationwide.

"Right now everything is about as good as things can get," said David Stumpf, senior bank analyst at A.G. Edwards in St. Louis.

While larger banks were reporting unremarkable loan growth in the high single-digits, and a greater reliance on fee income and cost-cutting, many community banks have posted loan portfolio growth of 15% or better.

The smaller banks are taking advantage of improvements in their local economies, which can't make as much impact on the more geographically diverse regional banks, analysts said.

Many analysts said they expect the good times to roll on into 1997 as community banks continue to keep costs in check. But not everyone is impressed by the latest round of record earnings.

Chris Hargrove, president of Professional Bank Services in Louisville, Ky., cautioned that community banks are embarking on a dangerous course as they continue to rack up loans without getting much-needed deposit growth.

"To me, it's one of the most alarming things out there," Mr. Hargrove said. "We're not gaining deposits. I don't know how you can stem the tide."

Smaller banks are also putting more emphasis now on sales, fees, cost cutting, and technology but remain far behind the big banks in generating noninterest revenue.

"That's something that clearly the bigger banks are excelling at (and) the thing that in general the community banks are going to continue to struggle with, I think," Mr. Stumpf said.

East Coast

Community bankers in the East continued to cite big-bank mergers as the most important reason for loan growth.

For example, the Big Apple's Jacob Berman thanks Chase Manhattan Bank and Chemical Bank for the 25% jump in fourth-quarter profits at his Commercial Bank of New York.

The chief executive officer said those giants' merger helped $1.2 billion-asset Commercial Bank reach the $7 million mark in net income for the first time, fueled by double-digit growth in loans and deposits.

Mergers "lead to dislocations of account officers, and service usually falters," Mr. Berman said. "We see this trend continuing."

Other banks are just relying on old-fashioned banking and some fees on new services to bring in double-digit earnings increases.

"What I'm seeing so far is excellent," said Robert D. Clore, vice president and community bank analyst at Cowen & Co. in Albany, N.Y. "Most are coming in up 12% to 13%."

Triangle Bancorp, a Raleigh, N.C., company with $971 million of assets, reported record earnings of $11.3 million in the fourth quarter-a 43% increase from the same period the previous year.

CFX Corp., a Keene, N.H., thrift holding company that runs three banks in New Hampshire and Massachusetts, is a prime example of a fourth-quarter success.

The $1.6 billion-asset company reported a 40% increase in earnings per share, a 21% hike in total loans and leases, and an efficiency ratio that improved from 67.21% to 61.82% as it consolidated back-office and administrative functions.

Mark A. Gavin, CFX's chief operating officer, credited loan growth for the earnings increase.

"I don't think you'll see another 40% increase in 1997, but I still expect a healthy increase" this year, he said.

Midwest

Loan growth helped spark improved earnings at some community banks in the central United States but wasn't as widely cited as in other parts of the country. …