As was the case with many Bay State institutions, net income was up as delinquent loan rates remained low during the first quarter at Natick-based Middlesex Savings Bank.

Confirming what many in the banking industry already believed, two recent reports indicate that banks took minor hits from the recession but have bounced back higher than before its March 2001 start. And while indicators were strong across the board, Bay State bankers say that local community institutions likely fared even better than their larger, national counterparts.

The Federal Deposit Insurance Corp. has released its first-quarter Preliminary Bank Earnings Report containing results from commercial banks across the country. In general, performance during the first three months of the year was good. Commercial banks earned $21.7 billion in the first quarter – the first time that quarterly earnings exceeded the $20 billion mark. That result was 9.6 percent higher than during the first quarter of 2001, just before the recession officially began.

Additionally, return on assets was high and net interest margins grew to 4.19 percent, up from 3.83 percent.

At the same time, there was a slight decline in delinquencies in the first quarter by about 2 basis points to 4.65 percent, according to a national survey of mortgage bankers, commercial and thrift banks and life insurance companies conducted by the Mortgage Bankers Association of America. That figure was slightly higher than the 4.37 percent delinquency rate from the first quarter last year. If separated into loan categories such as Federal Housing Administration and Veterans Affairs loans, delinquencies also were up slightly. “So in each loan category, delinquency rates are up from a year earlier, not surprising again given the change of employment in the economy,” said Doug Duncan, chief economist at the MBAA.

“With respect to what the relationship is between the delinquency rates and the macro economy – clearly unemployment has taken a significant shift between the first quarter of 2001 and the first quarter of 2002,” said Duncan, adding that the national unemployment rose from 4.23 percent to 5.6 percent. In Massachusetts, the current unemployment rate is 4.7 percent as of the close of April.

“Even if only one of two wage earners in a household, for example, loses their job, it still becomes more difficult to keep payments current,” said Duncan. “That said, we would expect, as the economy turns around, a turnaround in delinquency rates late this year or beginning next year.”

One contributing factor in keeping the delinquency rates low was the interest rate environment, which spurred a refinance wave and shifted the composition of loan portfolios, said Duncan. “On average, that will tend to hold the delinquency rate down as newer loans in a portfolio tend to have lower delinquency rates than older loans in a portfolio and some people will be able to refinance at better terms which improves their prospects for keeping their payments current,” said Duncan.

According to the delinquency report, 619,362 loans were serviced in Massachusetts. Of the total loans, 0.45 percent were 60 days past due and foreclosure proceedings had begun on 0.21 percent of all loans.

‘Good Numbers’

The national figures are roughly in line with local banks, although bankers were quick to point out that community-sized banks fared much better and had less to worry about during the recent recession than national banks lending to multinational corporations.

“We haven’t seen delinquencies creep up at all,” said John P. Clancy Jr., chief financial officer of Lowell-based Enterprise Bank and Trust Co.

Assets, loans and net income continue to grow at the commercial bank. “We’re a pretty fast-growing bank … We’ve been growing 15 percent a year for the last seven or eight years and we’ve actually had a couple of years bigger than that,” Clancy said. The bank has about $650 million in assets and manages more than $1 billion under its trust department.

Deposits rose by 11 percent in the first quarter at Enterprise. Nationally, deposits declined by $39.5 billion for commercial banks in the first quarter, according to the FDIC report.

There were no delinquencies over 60 days at the 14 year-old bank and non- accruing loans were at 0.59 percent.

“I don’t think it’s [delinquencies] really hit the community banks yet – hopefully it won’t,” said Clancy. In general, the small-business owners that Enterprise serves weren’t as hard hit by the recession as corporate America, he said. While they were affected, they generally didn’t face bankruptcy or catastrophic losses. But Enterprise, like many banks, did increase its loan loss reserves shortly after Sept. 11 in anticipation of a further softening of the economy. “Fortunately, we haven’t had to use them [loan loss reserves] yet,” he said.

The FDIC report states that reserves for commercial banks across the country grew by $2.7 billion in the first quarter of 2002 following a $3.9 billion increase in the fourth quarter of 2001. However, the increasing number of non-current loans has kept pace with the additional coverage for losses, the report indicated.

At Middlesex Savings Bank, based in Natick, where the fiscal year ends Oct. 31, the news was generally good, said Chief Financial Officer Paul M. Totino. As of May 31, net income was $16 million, up from $12.8 million the previous year, which was on target for projections. On the loan side, delinquencies continued to be low.

Deposits at Middlesex grew by 24 percent. Totino ascribes that to higher-than-average CD rates, a carryover from the stock market exodus and people jumping ship from the bank mega-mergers that took place in the Boston area during the late 1990s.

“I don’t see any sign of loan delinquencies increasing … Companies that normally made money might be losing some money or lost some money in the last six months and we might see our credit ratings slipping, but it has not translated into delinquent loans,” he said.

Many small, local companies are rebounding, said Totino. Contracts weren’t renewed and business slowed, “but in many cases, in general, they are starting to rebound and they have plans in place. The ones [that] did see a little short-term lack of profitability will return there shortly,” he said.

As of April 2002, commercial loan delinquency rates as a percentage of total loans was 0.56 percent compared to 1.65 percent in April 2001. Delinquency rates for total loans at Middlesex was 0.13 percent as of April 2002, compared to 0.16 for the same month in 2001.

“These are very good numbers for a recession. I think this recession was short in duration and definitely more mild than other recessions. Just based on our bank’s financial condition and all the ratios – we’re in great shape and even better than we were a year ago,” said Totino.