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Banking & Finance

Bank Earnings Reflect Economy

Third Quarter Call Reports Now Available

SBJ Staff

11/09/2009 - The third quarter FDIC “Call Reports” on the assets and P&L’s for area’s banks are out, and the numbers are not good.  But, for the most part, they are surviving the downturn and positioning themselves for the upturn, according to area bank leaders.

Of the 16 local and regional banks in the market, only five showed a profit for the July through September 2009 period after increasing their reserves for bad loans, as required by the FDIC and other bank regulatory agencies.

Four banks had operational losses before the reserves, however,  including First Chatham Bank, Atlantic Southern Bank, First National Bank and Woodlands Bank.  The latter three are now operating under Cease and Desist orders that required the banks to raise cash – to increase their cash to debt ratios – and to review their lending procedures.

As one Savannah bank leader who asked not to be identified summarized, “Finally people (local bankers) are recognizing their problems – working through them. And that affects the time that you have to spend on making money.  The time you spend dealing with the problems when you wake up and see them takes away time from other things,” he said.

“There isn’t a bank in town that doesn’t have problems, and they have to spend money on handling problems. You’re not spending money on building business and making money,” he explained.

Some of the banks are taking a very conservative approach on reserves for potential bad loans, to stay off the FDIC watch lists.  The Coastal Bank, which continued to show an operating profit on operations for the third quarter, has set aside a high level of reserves for potentially bad loans, which affected its bottomline profitability in the third quarter. The bank showed a loss of over $7 million due to the reserves.

“We are meeting the (FDIC) definition of well–capitalized,” said Tom Wiley, chairman of the board of The Coastal Bank.   “We have a risk to base ratio of 11.2  percent, and tier one capital of 8.74 percent.  We are not under any regulatory requirement to increase capital;  however, we do intend to raise capital to position ourselves for when this community rebounds, and it will,” said Wiley.

“Keep in mind, these reserves are not losses; these are reserves, a loan-loss reserve,” he stated. It’s an important point to keep in mind when looking at the chart above.

“We basically concluded that it was the right thing to do in the third quarter, to make a fairly significant provision so that we can accelerate the pace of asset liquidations,” he said.

The Coastal Bank sells off its bad or weak loans. “We don’t do auctions. You can’t hide from these loans. It’s better to get rid of them and move on.  In our opinion, the reserves are now adequate to survive any future downtown,” Wiley concluded.

The Coastal Bank’s reserve of $7.587 million is 2.2 percent percent of the bank’s total loans portfolio as of Sept. 30, 2009. 
The leadership team at Beaufort county’s Coastal State’s Bank continues to grow, despite the difficult economy and the need to increase its reserves against potential loan defaults to $5.2 million as of the third quarter.

According to a recent newsletter to shareholders, much of the strong profit picture is coming from new mortgage originations of FHA and VA loans by the bank’s Homeowner Mortgage Enterprises division, headquartered in Columbus, SC. The bank acquired the home mortgage company almost three years ago.

Coastal State’s Bank is now number one in market share on Hilton Head Island, and number two in Beaufort county, a significant achievement for the five-year-old bank.

The chairman and CEO is Randy Dolyniuk; the bank operates four branches in the county; two on Hilton Head Island, one in Bluffton and one at Sun City.

Local banks are facing another operating expense issue. The FDIC is out of money and is about to launch a program that would require banks to pre-pay its FDIC insurance assessments. The FDIC is also authorized to borrow from the U.S. Treasury, but the FDIC board stated after its board meeting last week that U.S. banks have enough cash to pre-pay their assessments, and there was no need to borrow.

But several local bank presidents told the SBJ that it’s about the last thing they need at the moment, as the banks try to insure they have enough cash to sustain the needed cash to debt ratios required by bank examiners.

The FDIC also issues a monthly list of banks evaluated for compliance with the Community Reinvestment Act (CRA). The CRA is a 1977 law intended to encourage insured banks and thrifts to meet local credit needs, including those of low- and moderate-income neighborhoods, consistent with safe and sound operations.

Farmers and Merchants Bank, chartered out of Sylvania, GA, with significant marketshare in the Bulloch county area, was on the November list, and earned a Satisfactory rating. There are four ratings levels: Outstanding; Satisfactory; Needs to Improve; or Substantial Non-compliance.

Bryan Bank & Trust and The Citizens Bank of Swainsboro were both on the October list, also earning Satisfactory ratings. Southeastern Bank also recently earned a Satisfactory.

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