Quality Community Banks Continue to Experience Loan Growth

 Of the 6,586 U.S. banks identified as community banks, 1,906 (29%) quality community banks experienced loan growth over the past year ending June 30, 2011. IDC Financial Publishing, Inc. (IDC) separately rates loan performance based on adequacy of capital and loan loss reserves to cover problem loans, operating earnings ability to cover expected charge-offs, yield on loans compared to expected loan charge-offs and cost of funds, and finally, the growth and level of problem loans.  The rank scale ranges from 1 (the lowest) to 300 (the highest).

 Community banks rated superior experienced, on average, 7% year-to-year loan growth ending the second quarter of 2011.  Excellent rated institutions grew at 4%, while average rated banks expanded loans at an 11% annual pace.

 Well-managed banks (superior, excellent, and average) normally grow at 10-15% rates in periods of economic expansion.  In the current period of no growth in jobs, small business, or housing, median growth for all banks is a negative 2%.  Yet, the well managed and highly rated community banks continue to grow their loan portfolios.  The below average, lowest ratio, and rank of 1 (one) community banks shrank their loan portfolios in order to shore up capital ratios and deal with their high level of problem loans.

For more information on IDC loan ranks, please view a sample report of IDC’s Loan Performance Digest.

 This article is authored by John E. Rickmeier, CFA.  Mr. Rickmeier has over 30 years of experience in evaluating depository institutions.  As CEO of IDC Financial Publishing since its founding in 1984, Mr. Rickmeier and his analytical team currently evaluate and rank quarterly over 16,000 banks, thrifts, and credit unions.  IDC ratings of financial institutions have become the standard in evaluating the safety and soundness of institutions issuing brokered certificates of deposit.  IDC ratings are also used by the Federal Reserve banks, Fannie Mae, Freddie Mac, Ginnie Mae, insurance and credit card companies, state and municipal governments, financial firms specializing in brokered certificates of deposit, individuals and institutions investing in certificates of deposit, and individuals concerned about their bank safety rating.