Magazine article American Banker

Northeast's Banks Rack Up Strong Profits, but Margins Tightening

Magazine article American Banker

Northeast's Banks Rack Up Strong Profits, but Margins Tightening

Article excerpt

Community banks in the Northeast are reporting another quarter of strong earnings, but analysts are raising a red flag over tighter interest margins that could take a toll on bottom lines.

With pressure mounting on banks to raise deposit rates to keep them more in line with last year's interest rate hikes - most institutions have delayed raising rates - banks are paying more for their funds. That's tightened the spread between the interest banks earn on loans and the yields they pay out on deposits, which is reflected in lower interest income.

"The banks are finally running into margin problems," said Gerard Cassidy, bank analyst at Tucker Anthony's Hancock Institutional Equity Services. "Their spreads are narrowing because the deposit rates that they're paying are increasing at a time when their asset yields are flattening out and have started to decline."

The result is either an actual drop or slower growth in net interest income at some institutions, though net income is still increasing.

"The profit picture is up but at a declining rate because of the margin squeezes that are beginning to be felt," said John Carusone, president of the Bank Analysis Center in Hartford, Conn.

At Greater New York Savings Bank, for example, the net interest margin dropped to 2.93% for the second quarter of 1995 from 3.23% for the same period last year. That led to a decline in net interest income, to $18 million in the second quarter from $19 million in the second quarter of 1994.

Grove Bank in Boston also reported that its net interest margin had dropped, to 2.62% in the second quarter from 3. …

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