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Thursday, Aug. 27, 1998
Texas banks may face falling profit margins
Increased competition is lowering net interest margins
Associated Press
AUSTIN -- Texas banks, with three years of record profits under their belts, might see some tighter times ahead.
While earnings were good for the state's 855 banks in the first quarter of this year, their net interest margins fell, according to Austin-based bank research company Sheshunoff Information Services Inc. Net interest margins are the difference between what banks charge for loans and what they pay for deposits.
(In general, lower net interest margins result from lower interest rates which stems from stronger competition, said Bill Dodge, president of Pacific Southwest Bank in Corpus Christi.
(``In the last two years, and this is true in Corpus Christi, the marketplace has become much, much more competitive,'' Dodge said.)
Fee income and interest typically are the sources of most bank profits. The declining interest income could point to lower profits in the future, said Bob Colvin, Sheshunoff's managing director of community banking.
``This indication of weakness may point to more difficult times ahead,'' he said.
The net interest margin at Texas banks dropped from 4.43 percent to 4.03 percent in the first quarter of 1998 from the fourth quarter of 1997, according to Sheshunoff.
Colvin said the margin is the lowest in the past five years. It continues a steady quarterly decline since the second quarter of last year, when Texas banks reported their third straight record earnings at $2.8 billion.
``The net interest margin has declined since. While it was steady most of last year in the 4.40 percent to 4.50 percent range, it looks as if we have moved to another range,'' Colvin said.
The 40-basis-point decline was even greater than the decline of 33 basis points for all banks in the nation in the first quarter.
(Not all banks have see net interest margin slip.
(Mike Carrell, president of Frost Bank-Corpus Christi region, said Frost ``hasn't had to sacrifice net interest margin to push loan-to-deposit ratios.''
(Frost has maintained its net interest spread by not pursuing loans or lowering rates as some other banks have, Carrell said. That's partly because it depends more than many other banks on fee income from its financial services management department.)
Rates on loans and long-term investment rates have inched downward as deposit rates stayed steady, said Hartland Bank Chairman David Hartman, partly as the result of heightened competition between banks.
As mergers and acquisitions give larger banks in Texas a larger share of the market, pricing policies will have a depressing effect on the rest of the banking industry, said Steve Scurlock, senior vice president of the Independent Bankers Association of Texas.
``We've been hearing from our community banks that some of the larger banks are doing some fairly aggressive pricing on some lending,'' Scurlock said. ``I guess they feel like they can make up for a loss in spread, or net interest margin, by volume.''Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web