Banker Chuck Ledford says a community bank that doesn't get into leasing is selling itself short.

"Leasing is the wave of the future," says Mr. Ledford, who heads the leasing division at Park Meridian Bank, Charlotte, N.C. "Equipment is the heartbeat of everyone in everything."

Still, few community banks do much leasing business.

Of the 10,968 with less than $1 billion of assets on March 31, only 1,259 reported income from leasing in the first quarter. And that income averaged only 0.16% of assets, according to data from Sheshunoff Information Services.

Only 38 small banks had leasing income equal to more than 1% of average assets.

At $63 million-asset Park Meridian, a 1991 start-up, Mr. Ledford built the leasing department from scratch in mid-1992. It leases equipment, including machine tools, printing equipment, computers, and aircraft.

Park's first-quarter leasing income equaled 2.24% of average assets. The percentage was higher at only four independent banks.

Another small bank, Stearns County Bank in Albany, Minn., has gone nationwide with its leasing operation. It leases predominantly agriculture equipment, machine tool and construction equipment, said Scott Powers, vice president of leasing for the $170 million-asset bank.

Stearns County was one of the most prolific small-bank lessors in the country. It contains the leasing department for a five-bank holding company, and sells off many of its leases to its sister banks in Minnesota.

Leasing has several advantages for community banks in addition to high yields, bankers said.

One plus is spreading risk over a larger geographic area, said Lonnie Powers, president of Western Finance and Lease, a subsidiary of $55 million-asset Western State Bank, Devils Lake, N.D.

"The community bank's risk is usually in its own market area," said Mr. Powers, who is not related to Scott Powers in Minnesota. "We're in an ag community. Ag is really susceptible to local weather conditions."

But leasing staff also must learn new markets to avoid increasing risk, said Scott Powers.

However, the niche has its costs, not the least of which are the separate accounting systems required for leases and additional personnel with leasing experience.

Community banks must be able to do enough business to justify these costs, bankers said.

However, there's still plenty of room in the niche, Mr. Ledford said.

"I'm trying to encourage some of the smaller banks around here to get into it," he said.

Stearns County National is parlaying its more than 15 years of experience in leasing into a seminar on leasing for other community bankers, Mr. Powers said. The bank hopes to help others set up leasing departments or sell its own leases to them, he said.

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