Evolution on the balance sheet means more commercial loans

Alan Tubbs is president and CEO of Ohnward Bancshares, Inc., of Maquoketa, Iowa. Ohnward Bancshares, Inc. is a bank holding company for four community bank charters in traditionally agricultural communities in eastern Iowa. The markets are characterized by relatively slow population and economic growth. There are 16 locations in communities ranging in population from a few hundred people up to 7,000 people, with the exception of a recently acquired small bank in a community of approximately 30,000 people. Total holding company assets are $570 million, of which only $60 million has come through acquisition. Following is an abbreviated version of a paper Tubbs presented in May at the 41st annual conference on Bank Structure and Competition at the Federal Reserve Bank of Chicago.

Over the last few years, consumer loans on the books of our banks have shown declining proportions. Consumer loans (which include consumer installment, 1-to-4 family residential mortgages, and home equity lines of credit) declined from nearly 43 percent of total outstanding loans in 1998 to just over 22 percent today.

While consumer loans decreased in the overall loan mix, the decline was offset almost dollar for dollar with increases in commercial and commercial real estate loans - that is, loans to small business, while in these rural markets, agricultural loans remained a constant and relatively large 35 percent of total loans.

While the decreasing proportions of consumer loans held by Ohnward banks is more dramatic than for most community banks, it can be seen in "Table 2" that these same trends hold true for community banks of a size less than $500 million total assets. For these banks, consumer lending dropped from approximately 46 percent of total loans to 36 percent of total loans. This was, again, true for both categories of 1-to-4 family residential loans and installment loans.

Indeed, the same trends in nearly the same proportions are true in larger community banks with sizes ranging from $500 million total assets to $10 billion. Only the largest banks, those with assets greater than $10 billion, recorded increasing proportions of consumer loans. These are banks among whose ranks specialize in credit card lending, and many have strongly promoted home equity lines of credit in recent years. And, their mortgage companies appear to be holding a greater proportion of 1-to-4 family home financing on their books.