Community banks on both coasts surged to record profits in the fourth quarter, as improving regional economies set off waves of strong loan demand.
And although their counterparts in the country's midsection didn't see loan demand that robust, earnings were strong for the typical community bank nationwide.
"Right now everything is about as good as things can get," said David Stumpf, senior bank analyst at A.G. Edwards in St. Louis.
While larger banks were reporting unremarkable loan growth in the high single-digits, and a greater reliance on fee income and cost-cutting, many community banks have posted loan portfolio growth of 15% or better.
The smaller banks are taking advantage of improvements in their local economies, which can't make as much impact on the more geographically diverse regional banks, analysts said.
Many analysts said they expect the good times to roll on into 1997 as community banks continue to keep costs in check. But not everyone is impressed by the latest round of record earnings.
Chris Hargrove, president of Professional Bank Services in Louisville, Ky., cautioned that community banks are embarking on a dangerous course as they continue to rack up loans without getting much-needed deposit growth.
"To me, it's one of the most alarming things out there," Mr. Hargrove said. "We're not gaining deposits. I don't know how you can stem the tide."
Smaller banks are also putting more emphasis now on sales, fees, cost- cutting, and technology but remain far behind the big banks in generating noninterest revenue.
"That's something that clearly the bigger banks are excelling at (and) the thing that in general the community banks are going to continue to struggle with, I think," Mr. Stumpf said.
Community bankers in the East continued to cite big-bank mergers as the most important reason for loan growth.
For example, the Big Apple's Jacob Berman thanks Chase Manhattan Bank and Chemical Bank for the 25% jump in fourth-quarter profits at his Commercial Bank of New York.
The chief executive officer said those giants' merger helped $1.2 billion-asset Commercial Bank reach the $7 million mark in net income for the first time, fueled by double-digit growth in loans and deposits.
Mergers "lead to dislocations of account officers, and service usually falters," Mr. Berman said. "We see this trend continuing."
Other banks are just relying on old-fashioned banking and some fees on new services to bring in double-digit earnings increases.
"What I'm seeing so far is excellent," said Robert D. Clore, vice president and community bank analyst at Cowen & Co. in Albany, N.Y. "Most are coming in up 12% to 13%."
Triangle Bancorp, a Raleigh, N.C., company with $971 million of assets, reported record earnings of $11.3 million in the fourth quarter-a 43% increase from the same period the previous year.
CFX Corp., a Keene, N.H., thrift holding company that runs three banks in New Hampshire and Massachusetts, is a prime example of a fourth-quarter success.
The $1.6 billion-asset company reported a 40% increase in earnings per share, a 21% hike in total loans and leases, and an efficiency ratio that improved from 67.21% to 61.82% as it consolidated back-office and administrative functions.
Mark A. Gavin, CFX's chief operating officer, credited loan growth for the earnings increase.
"I don't think you'll see another 40% increase in 1997, but I still expect a healthy increase" this year, he said.
Loan growth helped spark improved earnings at some community banks in the central United States but wasn't as widely cited as in other parts of the country.
"Loan growth remains O.K.," said Mr. Stumpf of A.G. Edwards. "It's not robust in the Midwest, just mid-single-digits."
Among the more successful was State Financial Services Corp., Hales Corners, Wis., which reported net income of $1.1 million, up 16% from the year-earlier period.
While one-third of that growth was due to an August 1995 acquisition, the rest was driven by hardy loan income growth, said chief executive officer Michael J. Falbo.
"Loan demand was strong, from consumer to commercial," Mr. Falbo said, commenting on the bank's 8.8% increase in loans, to a portfolio of $199 million.
The Wisconsin bank's assets grew 5.7%, to $301.2 million, from year to year.
Out in South Dakota, Langford State Bank overcame slack loan demand to rack up net income of $135,000 for 1996, up nearly 50% from the year- earlier period.
Paul Erickson, chief executive of the $12 million-asset bank, attributed the increase to improved interest spreads and higher fee income. Loan demand remained virtually static, as did assets, Mr. Erickson said.
"We're virtually 100% ag, and farmers are sitting on their grain," he said.
Down in Dallas, Founders National Bank boosted net income 32.3%, to $860,000, while assets grew about 20%, to $68 million, said chief executive officer Don Holland.
Founders, which until three years ago had been struggling with bad loans, has been able to get aggressive again, Mr. Holland said.
"We really targeted our customers and worked hard on relationship banking," he said. "We had been hamstrung in years past."
Out west, banks and thrifts also continued to trot out record earnings, driven by the booming Pacific Northwest economy, steady loan growth, controlled expenses, and healthy balance sheets, even in long-struggling Southern California.
"The tone remains decidedly upbeat," said Hans Schroeder, bank analyst at Torrey Pines Securities Inc., Solana Beach, Calif.
Like their East Coast colleagues, western community bankers are attributing some of their good fortune to upheaval caused by last year's major mergers, especially Wells Fargo & Co.'s purchase of First Interstate Bancorp.
"That has created some fallout that has been beneficial to small community banks, particularly in the rural areas of eastern Washington and eastern Oregon," said Gary L. Sirmon, president and chief executive of First Savings Bank of Washington Bancorp, Walla Walla.
First Savings, which bought Inland Empire Bank last August, reported net income of $3.1 million in its third quarter, ended Dec. 31, up 72% from the fiscal third quarter of 1995. The bank earned $6.3 million in the first nine months, ended Dec. 31-up 58%.
InterWest Bancorp, Oak Harbor, Wash., earned $5 million in its first quarter, ended Dec. 31, up 28% from the same period the previous year.
The $1.7 billion-asset company restructured its balance sheet in the quarter to cut back on mortgage-backed securities and investments in favor of higher-yielding loans.
Farther south, Anaheim, Calif.-based SC Bancorp, with $476 million of assets, reported net income of $1.5 million in the fourth quarter, a 53% increase from the same quarter in 1995.
Bank of Commerce in San Diego reported net income of $1 million for the fourth quarter, up 58% from the same period in 1995.
It had a 75% increase in profits, to $3.5 million for 1996, while its Small Business Administration loan portfolio rose 74%, to $133 million. It is the leading SBA bank lender in the nation.