Although the biggest banks are pulling back from go-go consumer lending, community banks are staying the course.
The industry as a whole, led by the largest consumer lenders, started beating a retreat from consumer loans in the first quarter. But community banks did just the opposite: They continued their slow, steady growth in the sector.
The main reason, according to analysts and bankers, is that community banks didn't go all out into consumer lending in recent years as many big banks did, so they're more at ease keeping the tap running.
Also, smaller banks don't rely as much on broad-band credit scoring and out-of-market lending, so their comfort level is higher.
"The primary niche for small community banks is small commercial loans," said Smith & Crowley principal and analyst Don Crowley. "Sure they have had an increase in consumer loans, but comparatively it's still quite small. It's not something they're worried about like large lenders."
Mr. Crowley, however, believes that the rise in consumer credit delinquencies is "a problem" for big consumer lenders.
Then again, "maybe banks have learned their lesson from real estate," another analyst said.
Domestic consumer loans continued to rise at independent community banks in the first quarter from the previous quarter, though not as fast as they had risen throughout 1995, according to a portfolio analysis by American Banker using numbers from Sheshunoff Information Services.
By contrast, however, the banking industry's total consumer loan levels - including credit card and other consumer debt - began declining in the first quarter, with total outstanding loans falling by almost 2% from fourth quarter 1995. The 20 biggest consumer lenders had a 5% drop in consumer loan outstandings for the period.
Like all banks, the smaller ones have hitched a ride on consumer loan demand, one of the few areas of dependable loan growth in recent years. In addition, underwriting technology allows lenders to reach more - and more marginal - borrowers.
Since the beginning of 1994, the nation's 9,500 independent community banks (those with less than $3 billion of assets, not including credit card banks and those owned by large holding companies) have increased consumer loans by 34% to $116 billion.
However, the preponderance of bank consumer debt - almost $400 billion - is held by the largest 100 banks and credit card banks, which have increased their portfolios much faster. Recent worries about consumer credit quality have caused jitters on Wall Street and in the regulatory agencies, as the first-quarter drop in consumer loans shows.
One California banker, whose huge subprime auto-loan portfolio grew steadily in the first quarter, said he's "satisfied and happy" about his loans.
"We've experienced some increase in delinquency in the first part of this year, but it's coming down," said John Escano, a senior vice president at $627 million-asset Fireside Thrift Co. in Newark, Calif., whose statewide auto-loan portfolio increased 3% in the first quarter to $578 million. "We've slowed down a little bit. Everybody in the world is getting into subprime lending."
He said Fireside, which doesn't score its credits, slowed its growth because "we were growing a little too fast, and the delinquency situation worried us some."
William Reid, chief executive of Mechanics Bank in Richmond, Calif., said he hasn't changed any underwriting standards on his $225 million consumer portfolio (made up of mostly auto loans, but with some installment and credit card debt). It grew 6% in the first quarter from the previous quarter.
His biggest concern is his credit card portfolio, which has declined somewhat to $11 million.
"With the deteriorating characteristics of consumer credit, that's the only red flag that we are seeing," he said.
