|It's not all gloom and doom (January 27, 2009)|
Upset by the industry’s portrayal on news programs, community bankers sound off on exactly what’s happening in their towns.
Posted on January 27, 2009
Media’s broad portrayal of banks and economy irks bankers. But everybody’s challenged to some degree in 2009
ABA Banking Journal Roundtable Panelists
Rheo A. Brouillard, President and CEO, Savings Institute Bank and Trust Co. Willimantic, Conn., $833.8 million-assets
Gregory Patton, President and CEO, Sierra Vista Bank, Folsom, Calif., $55.6 million-assets
Gregg Vandaveer, President and CEO, Sooner State Bank, Tuttle, Okla., $130 million-assets
Gary L. Fox, President and CEO, Bartow County Bank, Cartersville, Ga., $427.4 million-assets
Jon J. Prescott, President and CEO, Katahdin Trust Co., Houlton, Maine, $465.3 million-assets
Barry Williams, President and CEO, First State Bank, New Braunfels, Texas, $243.5 million-assets
George R. Marx, President and CEO, Copiah Bank, N.A., Hazlehurst, Miss., $128.5 million-assets
Myron D. Rozell, President, First State Bank of Mapleton, Mapleton, Iowa, $39.6 million-assets
Ron Wiser, President and CEO, Bank of the Southwest, Roswell, N.M., $142.8 million-assets
There’s a wide spectrum between boom and absolute bust. And it’s the steady drumbeat of media gloom that irks and worries—insidious and infectious.
“Perception becomes reality,” said another participant, Barry Williams, president and CEO at First State Bank, New Braunfels, Texas. Williams points out that while his market, between San Antonio and Austin, has had some issues, business conditions have been relatively decent. While the residential market hasn’t been doing well, some contractors continue to do business and prices of homes have only moderately fallen. The bank tightened up, and “we’ve enjoyed a fair amount of success lately,” said Williams.
But you would think things were much worse, said Williams, based on attitudes.
“There’s so much negativity, even in our area, where there’s not that many bad things happening,” said Williams. “What we’re beginning to see is this: When you keep hearing how bad things are supposed to be, you begin believing that things are bad. And it has some real impact, then. We’re beginning to see this have some influence on opinions and thought processes. I’m beginning to believe it too.”
Williams noted that 2007 was the bank’s best year ever, and, due to margin compression, 2008 was off. “We don’t have any bad loans,” he said in December, but the compression was going to see the bank finishing the year down 20%-25% in net income. For 2009, he expected a flat year, to be met by basic “blocking and tackling.”
Some of the same “mental flu” has been seen in other areas, too, where there isn’t the obvious causes seen, say, in Atlanta.
“The Oklahoma economy is doing really well right now,” said Gregg Vandaveer, president and CEO, president and CEO at Sooner State Bank, Tuttle. “It was doing even better a couple of months ago, when oil was $100 a barrel, but it’s still holding on pretty well.” While real estate prices have fallen a bit, they had never rocketed up in better times, either, said Vandaveer, so there’s been less pain.
Yet customers watching national media don’t get it. “Little old ladies in Oklahoma sit and watch the markets tank, and they come in and say to us, ‘I’ve got $20,000 in my account here. Is my money safe?’,” said Vandaveer, annoyed.
In Maine, Jon J. Prescott, president and CEO of Katahdin Trust Co., Houlton, has seen negativity weigh in.
Lobstering and logging are both troubled, and the bank is involved in both industries. The tasty crustaceans have been pulling weak prices of late, and some mills have been shutting down. But Katahdin Trust, $465.3 million-assets, would actually have made 2008 a record year for earnings, had it not been for investments in mortgage GSE preferred stock, which chopped results about in half.
“But our 2009 budget’s coming together,” said Prescott, “and we show that we will probably eclipse where we would have been this year,” absent the securities loss. There’s more to Maine than lobsters and logs.
“The recession doesn’t seem to be affecting our market as much as it could be,” said Prescott, “but the attitude of our customers, all the local people, is extremely poor. It creates an atmosphere of negativity. There is a lot of fear out there.”
In rural Connecticut, Rheo A. Brouillard, president and CEO of Savings Institute Bank and Trust Co., Willimantic, said his area’s health is belied by headlines about foreclosures in other parts of the state and New England.
“If you take a close look at the foreclosures in our market, it’s the large institutions, the Citigroups, the Deutsche Banks, not the community banks, doing it,” said Brouillard. “We’re not facing those issues.” He said his markets enjoy some stability due to several large employers, though some of them are having trouble, too. In some areas, home prices are rising.
“In fact,” adds Brouillard, “2008 would have been our best year in a long time,” and that in the context of substantial investments in new branches. Fannie and Freddie preferred investments killed the otherwise rosy picture.
Here was the trend in other areas represented in the roundtable:
Mississippi. “Our economy has held up rather well,” said George Marx, president and CEO, Copiah Bank N.A. Some area sawmills have had major layoffs and that was causing the bank to pay more attention to cash flow analysis with borrowers. “Some of our customers are getting pinched, because of their job situations,” said Marx.
One positive for Copiah Bank: In the course of preparing for a Comptroller’s exam, Marx and his staff confirmed that construction lending for “spec” projects was at minimal, and containable, levels.
“A good thing was that we had no more than two [spec loans] to any one builder, and no more than two in any one subdivision,” said Marx. “So it turns out that our exposure was very low, and so far we have not had any loss on construction loans.”
Iowa. “New lending is slightly more conservative than how it had been, especially in terms of loan-to-value ratios,” said Myron D. Rozell. “And we are looking more deeply at cash flows, to determine not only what they are, but how much our borrowers depend on those cash flows.”
Rozell, president at First State Bank of Mapleton, Iowa, said that strong farm income over much of the last few years—excepting the last few months of 2008—had helped in both loan demand and deposit generation.
“Overall, we’re marketing more, and making people aware that we do have money available to lend,” said Rozell, “and to tell them that we are not one of the subprime lenders. We, ourselves, are trying to keep a longer-term perspective.”
New Mexico. Bank of the Southwest is based in Roswell. Ron Wiser, president and CEO, said his markets “have been fairly resistant to what’s been happening in the national markets.” He credits this to the strength of the government, oil and gas, and agriculture sectors.
Outlook: Challenge, with some optimism
Georgia’s Gary Fox spoke for many participants: “I think 2009 is going to be a challenging year. Hopefully, we’ll work our way through things, and towards the end of 2009, we’ll all be feeling a little better.”
Most see 2009 as a year to survive, but a few remain optimistic that 2009 will, in their locales, be a time to thrive. Savings banker Rheo Brouillard, for instance, points to Trust, a good income producer.
“Once I get expenses in line,” he said, “I’ll be purring along pretty well.” BJ
Ax or scalpel? Cost-cutting tips from the roundtable
The first items to go will be those things you almost forgot your bank was spending on. None of the roundtable members were going in for slashing and burning yet, instead seeking small things and pursuing incremental efforts.
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