Community banks across the United States, with the exception of those in the West, saw steady performance in the fourth quarter and in 1995 as a whole.

But with loan growth slowing or remaining stable in most parts of the country, analysts said banks that depend largely on core deposits for their funding - that is, traditional community banks - could lose ground to the regionals in the coming year.

"The era of the big bank will be reestablished, and the little banks will be driven down to niches," said Richard X. Bove, analyst at Raymond James & Associates Inc., St. Petersburg, Fla. "Those using the capital markets will have access to a rich flow of funds, but those with a deposit dependence will be in trouble."

California banks with $3 billion of assets were the only definable geographic group to see substantial increases in their bottom lines last year, analysts said. But that was mostly because 1995 was a recovery year: Many small banks in the Golden State are only now on par with the rest of the country.

In the Southeast, the most dramatic fourth-quarter development wasn't performance but the ever-increasing stock prices of community banks and thrifts, analysts said. Continued takeover speculation was the primary factor.

There and elsewhere, however, net interest margins remained stubbornly stable.

With most of the fourth-quarter earnings now in, American Banker collected observations from analysts and bankers around the country.


California is finally shaking off the effects of the early-1990s recession and starting to catch up to the rest of the region. Nearly all community banks in the state posted strong gains, as the lingering effects of the recession faded into memory.

"Community banks generally were at or above analysts' expectations," said Charlotte Chamberlain, analyst at Wedbush Morgan Securities, Los Angeles. "All the smaller banks are definitely doing better."

Imperial Bank, Inglewood, Vallicorp Holdings Inc., Fresno, and Mid- Penisula Bancorp, Palo Alto, all made solid showings in the period, with earnings well above those of the previous year.

Oregon also enjoyed a strong fourth quarter. Thatcher S. Thompson, analyst at Dain Bosworth Inc., Seattle, said strong net interest margins had helped banks in the Pacific Northwest, particularly Cascade Bancorp, West Coast Bancorp, and Centennial Bancorp.

As for Colorado, "the economy is not falling backward, but it is slowing down," Mr. Thompson said. "Things aren't going bad, but they are slowing from an extraordinarily hot pace, which makes things look worse than they are."


Midwestern community banks and thrifts provided few surprises with their yearend performance, analysts said.

"Everyone was pretty much on track, if not ahead of expectations," said Michael M. Moran, of Detroit-based Roney & Co. Community banks "that have clearly defined and are attacking their market niche will continue to do well."

The reduction in Federal Deposit Insurance Corp. premiums helped institutions such as $3.5 billion-asset Citizens Banking Corp., Flint, Mich., which "came in stronger than just about everybody expected," Mr. Moran said.

Citizens' quicker-than-expected integration of branches it had bought from Banc One Corp. also helped increase earnings 18.5% in the fourth quarter, to $9.7 million, he said.

A Chicago institution analysts are watching because it is considering strategic alternatives, including a sale, is Cole Taylor Financial Group. It had a 33% increase in net income for the year, powered by its auto financing subsidiary.

However, chargeoffs have jumped in its subprime automobile credit company. Both a change in methodology for recognizing losses and rising chargeoffs in consumer loans in general caused the increase, said John E. Snow, an analyst at Rodman & Renshaw, Chicago.


Concerns about credit quality, which have intensified in other parts of the country in recent months, do not seem to apply to the South, at least not yet, analysts said.

Nonperforming assets of about 40 community institutions in the region actually decreased for much of last year - down from 1.40% of total loans to 1.07%, according to Gray Medlin, managing director of Carson Medlin Co., Raleigh, N.C.

Though that ratio was just for the first nine months of 1995, it was likely to have held for the remainder of the year, he said.

"The data (don't) reflect any deteriorating credit quality," he said. "In fact, it appears to have strengthened, but that's not to say there aren't any problems lurking out there."

Mid-America Bancorp of Louisville, Ky., bucked the trend somewhat by earning 12% less for the quarter, due primarily to losses on loans to a local real estate developer.

On the whole, loan growth remained constant or in some cases increased, analysts said, contrary to what many believed would happen a quarter ago. FCNB Corp. of Frederick, Md., for example, reported that its loans grew by 16% for the year, to $353 million.


Tighter margins late in the year put the squeeze on earnings at many northeastern banks, which saw the tail end of the one-time gains that had driven dramatic yearend profits in recent years.

"The one-time special effects are winding down, and we're back to basic blocking and tackling in banking," said John Carusone, president of the Bank Analysis Center in Hartford, Conn. "Certain states are growing faster than others."

Some of the more profitable institutions benefited from reduced deposit insurance premiums, deferred-tax assets, merger-related accretion, additional declines in reserves, or securities gains, analysts said.

But many institutions in the region reported only slight earnings increases - 5% to 15% - while still others were essentially flat by comparison with 1994.

That's because the banks and thrifts have already wrung out any extra benefits they could from lower expenses and reduced provisions for loan losses.

Barbara F. Bronstien, R. Kevin Dietrich, Jonathan D. Epstein, and Christopher Rhoads contributed to this article.

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