The number of community banks losing money continues to rise even as the banking industry reports record profits.

Veribanc Inc., a Wakefield, Mass., bank research and rating agency, said in a report this week that 6.3% of the nation's more than 9,000 commercial banks suffered losses in the first quarter, up from 5.8% in the same period of 1999 and 4.3% in 1998. And nearly all of these 571 institutions are community banks, with less than $500 million of assets, said Warren Heller, research director at Veribanc. Mr. Heller said that about one-third of these banks are start-ups, which often take several years to become profitable. Indeed, the state with the most money-losing banks, Florida, has many new banks.

But competition from larger banks and nonbank lenders -- as well as a rise in loan delinquencies -- is also squeezing small banks' margins, said Mr. Heller.

More than one in five of Florida's 259 banks lost money in the first quarter, according to the report, which is based on data from the Federal Reserve Board. Only Nevada, where seven of the 29 banks failed to turn a profit, had a higher percentage.

Rounding out the bottom five were New Jersey, where 19.2% of 102 banks lost money, Washington, 16.8%, and Arizona, 16.3%

The number of problem business loans also is rising, according to Veribanc's analysis of the Fed data. The volume of problem business loans -- defined as those at least 90 days past due -- reached $13.9 billion in the first quarter, or 1.4% of all business loans. That was up from 1.3% the year earlier.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.