COMMUNITY BANKS EARNED a record $3.2 billion in the first quarter of 1993, up 20% from the same time a year earlier, according to the Federal Deposit Insurance Corp.
Analysts attributed the leap in profits to high interest rate margins, reduced provisions for loan losses, and gains on sales of securities.
The first-quarter earnings for 10, 954 banks with assets less than $1 billion marked the strongest performance by the group since the FDIC began requiring all banks to file quarterly data in 1983. A year ago, 11,437 community banks earned $2.67 billion.
The banner year didn't surprise industry watchers, but some don't think community banks can keep it up.
"The high earnings of 1992 are not sustainable," said David C. Cates, chairman of Ferguson & Co., a bank and thrift research firm with offices in Washington, D.C., and Texas. "It is a temporary process ... based on the yield curve and based on the sharp reduction of the loan-loss provision."
Even regulatory number crunchers agree that it doesn't take a genius to make money nowadays.
"It's a hard environment to lose money in if you are a bank," said Ross Waldrop, senior financial analyst with the FDIC's division of research and statistics.
The FDIC divides banks into four categories: banks with assets less than $100 million; those with assets from $100 million to $1 billion; those with assets from $1 billion to $10 billion; and banks with assets greater than $10 billion.
Banks with assets less than $100 million weighed in with a 1.28% return on average assets - the highest among the groups. Banks with assets ranging from $100 million to $1 billion posted a 1.26% ROA.
Higher Net Interest Margins
Mr. Cates said, "Unless you get behind the numbers, it is very hard to say what is the future."
Although interest margins have been trending downward, they are still higher than a year ago. Net interest margin for banks with assets less than $100 million was 4.72%, compared with 4.62% a year ago.
Banks with assets from $100 million to $1 billion had a net interest margin of 4.78%, compared with last year's 4.62%.
Reduction in Provisions
Meantime, the smallest banks benefited from a 25% decline in their provision for loan losses.
Banks with assets from $100 million to $1 billion showed a 1 3.7% decline, and the 52 banks with assets greater than $10 billion dropped the most - 31%.
Mr. Cates said profits won't vanish as interest rates nudge upward. Many have won business from savings and loans that have failed. But he says community banks that can't sustain at least a 1.2% ROA should consider selling out.
