Small banks fairly positive on loans

WASHINGTON (AP) - Smaller banks nationwide were mildly optimistic a few months ago about increasing mortgage lending this year because they have largely avoided the high-risk loan business, a survey released Thursday shows.

When community bankers voiced that hopeful view in October and November, the government had yet to announce extended relief for borrowers facing foreclosure, big banks had yet to report massive mortgage-related declines in profit for the fourth quarter, and the full extent of foreclosures last year — about 1.3 million U.S. homes — wasn”t yet known.

The bankers” optimism may be fading, as the economy’’s slump deepens and mortgage distress increasingly spreads to less costly loans held by borrowers with strong credit. Community banks” performance often mirrors the economic health of the areas in which they do business. When local jobs are cut and homes go unsold, the local bank feels it.

The 7,900 or so community banks in the United States have generally posted strong earnings and growth rates in recent years, though their performance often is tied to their local economy. Often competing with credit unions and regional banks, a number have merged and some have failed in the last few years. They range from institutions with close to $1 billion in assets such as Commerce Bank & Trust Co. in Worcester, Mass., and Lafayette Bank & Trust Co.