Sunday, April 19, 2009
Most area banks profitable in 2008 despite economic crisis
KYLE GREEN The Roanoke Times
HomeTown Bank, launched in Roanoke in 2005, lost money in 2008. President Susan Still said that's typical for a young bank still absorbing startup expenses no longer an issue at established banks. However, HomeTown Bank posted a monthly profit late last year, said Still, who predicted a profitable 2009.
JUSTIN COOK The Roanoke Times
National Bank of Blacksburg's board of directors Jim Gillespie (from left), Jack Lewis and former member Bill Peery chat after the annual shareholders' meeting. The bank earned a record $13.6 million in 2008.
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When analysts drew up a picture of the U.S. economy for 2008, minus signs were everywhere.
Auto sales: Down 18 percent.
Housing sales: Down 13 percent.
Gross domestic product: Off more than 6 percentage points during the fourth quarter.
Wachovia Corp., the most popular bank in the Roanoke Valley, nearly collapsed under billions of bad mortgage debt.
"There for a while, we thought bankers were going to have to go into some kind of protection program," joked James Rakes, president and CEO of National Bank of Blacksburg.
And yet, most community banks in Southwest Virginia finished ahead in 2008.
National Bank of Blacksburg earned a record $13.6 million.
Bank of Floyd, going strong at 133 years old, made nearly $1.5 million.
The Bank of Fincastle, with eight offices or drive-ups, did better than SunTrust Bank, with 1,775 locations, on such key measures as return on equity.
Bank of Botetourt beat Bank of America, the second largest bank in the United States, by a hair on ROE.
StellarOne, the former FNB Corp., long dominant in the New River Valley, booked a profit as well.
These are among the 75 percent of banks that made money during a calendar year with a fourth quarter that turned "atrocious," to quote Davenport & Co. analyst Allan Bach.
More than 7,000 U.S. commercial banks lost a combined $26 billion during the last three months of last year as banks set aside big bucks to cover actual and anticipated loan losses. Past-due loans climbed to nearly 3 percent of all loans. It's usually less than 1 percent.
The first quarter of this year offered more of the same challenges. How bad will be revealed in banks' first quarter financial reports, which began to come out last week, led by an upbeat preliminary report from Wells Fargo & Co., which bought Wachovia.
Banks -- a top provider of credit for homes, cars, credit card purchases and business operation and expansion -- operated 181 main offices and branches in the Roanoke and New River metropolitan statistical areas as of June 30, 2008. They reported deposits of $8 billion within their local offices.
Many of the big, national brands are here. BB&T operates the most branches, with 29, followed by SunTrust, with 28. Seven locally owned institutions are in business.
The difference between profit and loss in 2008 had a lot to do with what role the institution played during events leading up to the 2008 financial crisis.
Local brand, conservative management helped local banks
During this decade, as more consumers moved their savings out of banks and into uninsured investments, banks insured and regulated by a federal system began to lose lending business to an explosion of unregulated lenders.
Many were mortgage companies that lent borrowed funds to subprime, high-risk borrowers who often defaulted or fell behind. Not surprisingly, these nonbank financial institutions received the brunt of the blame for the economic crisis of late 2008 and experienced some of the worst fallout.
Large, regulated banks, which had helped to fund the unregulated lending system, got sucked into the crisis. But "the traditional banking industry as we know it was not involved in a significant way in subprime lending or the funding of entities that did subprime lending," said Leton Harding, executive vice president of Lebanon-based First Bank & Trust Company, a community bank.
Most banks were busy lending to people who could pay them back and made money off it. Profits were not as high as the year before, to be sure.
But several community banks in Southwest Virginia posted high in the charts, demonstrating the impact of a local brand name and conservative management. Harding said his company's solid results continue. He expects first-quarter profit to be about 2.5 percent higher than the same period a year ago.
John Kilby, president and CEO at The Bank of Fincastle, was asked what accounted for the institution's profitable '08. He said he runs the bank conservatively, extending credit to known customers and in familiar economic segments such local housing and small business.
"We're not everything to everybody. We're just not," he said.
One of his more exotic moves was to open a branch in the Bonsack Wal-Mart. Unsatisfied with the results, the bank closed it.
Tiny Farmers & Merchants Bank of Craig County, with a single location and no need for a Web site, also played its cards well.
Among area banks, it posted the smallest percentage of loans in trouble. The rate was a mere 0.06 percent -- versus a regional composite score of 2.72 last year.
HomeTown Bank, launched in Roanoke in 2005, lost money in '08. President Susan Still said that's typical for a young bank still absorbing startup expenses no longer an issue at established banks. For instance, the company placed its first branch in the New River Valley. It operates under the name NewRiver Bank.
Records show HomeTown Bank made headway nonetheless, losing $1.5 million versus nearly $1.7 million in 2007. It posted a monthly profit late last year, said Still, who predicted a profitable 2009.
The list of good-news items continues.
Davenport, a Richmond-based investment firm, named National Bank of Blacksburg the third most-profitable bank among a collection of major Virginia banks that the firm follows.
In a release, the company said: "Management's longtime focus on profitability over growth for the sake of growth and NBB's conservative credit culture served the Company well in 2008's uncertain economic environment."
That conservatism led the bank to lend and lease out less than 70 percent of its deposits. It invests the rest.
In contrast, Valley Bank in Roanoke, which earned $2.2 million last year for its parent company, had outstanding loans and leases at the end of 2008 worth 111 percent of its deposits. It used borrowing and capital reserves to go above and beyond deposits, reflecting a belief that a bank can make more money on loans than traditional investments.
President Ellis Gutshall said that, in the current period of low interest rates, the bank can borrow at less than one-half of 1 percent from the federal Home Loan Bank of Atlanta and lend the money to a customer at a rate of 5.5 percent to 6 percent.
"The spread on that is 5 percent plus," he said.
And that represents a potential contribution to this year's bottom line, the full amount of which bank officials expect to make public early next year.
Health of local banks
The Roanoke Times
