A good year for Indiana financial institutions.

• Author: Beck, Bill
• Position: Industry Overview

As banks, S&Ls and insurance companies nationwide struggled, Indiana's financial institutions were keeping shareholders happy.

What recession? That's the question that observers of Indiana's financial institutions probably are asking in the wake of impressive 1991 earnings that have carried over into the first quarter of 1992.

As banks, savings and loans and insurance companies nationwide struggle with declining real-estate values, bad loans and a sour economy, Indiana's financial institutions were generally keeping their shareholders happy with strong performances on the financial balance sheet.

"Despite the recession, Indiana's banks have continued to be very profitable," reports Victor L. Saulsbury, a financial analyst with the Federal Deposit Insurance Corp. In addition, "Indiana's S&Ls were again among the most profitable members of the S&L industry last year. S&Ls in only six other states had a higher average return on assets in 1991." And a healthy number of Indiana insurance companies reported record earnings last year as well as in the first quarter of this year.

Some of the good news is the result of factors that affect the nation as a whole, not just Indiana. "Interest rates have dropped significantly," says Rick Nisbeth, vice president and managing director for corporate finance at Raffensperger, Hughes & Co., an Indianapolis-based investment banking firm. Nisbeth, who follows the banking industry, explains that a bank's assets, or loans, are supported by its liabilities, or deposits. The difference between the interest paid on deposits and that charged on loans is called the spread.

"The spread has significantly increased across the board," Nisbeth points out.

Then, too, Indiana bankers are generally more conservative than their brethren in some other regions of the country, particularly when it comes to making bad real-estate loans, what Nisbeth delicately refers to as "asset quality problems. You certainly wouldn't compare Indiana banks with banks in places like Texas and Oklahoma," Nisbeth says.

John Reed, who follows banks in his job as president of the Capital Markets group of David A. Noyes & Co. in Indianapolis, notes that as far as the nationwide recession goes, "real estate is the softest part of the economy, particularly in regard to commercial banking." But he hastens to note that Indiana has done very well in the commercial real-estate market, and still enjoys fairly high commercial occupancy rates.

Perhaps the...