|
Banks strong despite financial crisis
Bath, Highland institutions have money to lend, deposits are up
BY MIKE BOLLINGER AND JAMES JACENICH • STAFF WRITERS
 | | First and Citizens Bank president Vernon Wooddell (left) and Benny Williams, CEO of First National Bank, talk about the health of the banking industry in Highland and Bath. |
|
WARM SPRINGS and MONTEREY — As experts and pundits warn about national and global economic woes,
Inside banks in Bath and Highland have changed little about their conservative operations — and have remained unscathed.
Bankers in this area say your money is still safe with them,
and they are loaning as usual.
Inside With the continuing fallout from poor lending in the housing market, larger financial institutions are taking record hits. But smaller institutions like Blue Grass Valley Bank and First and Citizens Bank in are confident they can weather the storm.
First and Citizens president Vernon Wooddell says his bank is "still the safest place for (customers') money in spite of the fact that we are living through what some have termed the worst financial crisis since the Great Depression."
No customer of a bank insured by the Federal Deposit Insurance Corporation has ever lost money on insured deposits since the FDIC was created by Congress in 1933. The current level on insured deposits is $100,000, but the Emergency Economic Stability Act of 2008, signed into law last Friday, temporarily raises the limit to $250,000 through Dec. 31, 2009.
"(First and Citizens Bank is) well-capitalized and positioned for what appears to be a long, rough ride ahead before financial normalcy is restored," says Wooddell.
Lexington-based BB&T executive Neal Lineberry says BB&T is also strong. "We have not been involved in any non-underwriting lending and thus have not been touched by the sub-prime mess."
Benny Williams, CEO of First National Bank, echoes those remarks. "This is the best year I have ever had since I have been in banking. We do not have any foreclosed property on the books dating back to Dec. 30. We have been in business 120 years and have gone through a depression and three wars," he said.
Lineberry and Williams said there has been no rush of customers withdrawing money in the face of the national situation. "Because of the kudos we have gotten in the financial media, we have actually seen an increase in business," Lineberry said. "We are regarded as one of the 10 strongest banks in America right now."
Williams said he believes the increase in FDIC coverage will help. "The government is trying to make the statement that financial institutions are stable and people should put money in banks," he said.
Wooddell says smaller institutions like First and Citizens were more conservative, and that explains why they remain strong.
"First and Citizens (is) a common-sense lender and did not lend money recklessly and irresponsibly as many financial entities had done in recent years," he said, adding that F&C had not invested in Freddie Mac or Fannie Mae preferred stock.
"There is no credit crunch at First and Citizens Bank, and money is available to qualified borrowers for home, automobiles, and business start-up or expansion," he stressed.
Blue Grass Valley Bank cashier Tony Crane says his bank, too, is in good shape and ready to make loans.
"Most of your small community banks are wellcapitalized," says Crane. "We have a strong capitalization ratio."
The ratio is based on risk-based capital and assets. Risk is based on several factors, but is roughly a measure of a bank's ability to pay its debts. Risk factors in all the things that make the economy run, like property prices, employment, store and factory sales and agricultural business production and profit. All of these affect the number of loan applications, and the number of those approved. Fewer people taking out loans means less business for the bank.
The same is true of investments in banks, whether in the form of deposits or stock. If people aren't willing to put their money in a bank, that institution will not survive, which leads to commonly held fears about the public losing faith in banks' ability to safeguard their money.
Local bankers want to assure current and potential customers they are still a good place to take their banking business, and they have the numbers to back up that assertion.
"We are at 15 percent of risk-based assets," says Crane. Regulatory requirements set the standard for a well-capitalized bank at 10 percent.
First and Citizens has about a 17 percent ratio between capital and risk-based assets, based on an actual amount of $10,151,000 and a total of $103,538,135 in assets, according to the bank's financial statements as of Dec. 31, 2007. Of First and Citizens' assets, $75,156,774 took the form of loans. Liabilities amounted to $90,592,832 for retained earnings in 2007 of $12,315,455.
For BGVB, total assets amounted to $33,878,405 and total liabilities were $30,198,493 for the same time period. Net loans at BGVB were $27,890,716.
"The biggest effect is customer concern," says Crane. He wants both investors and customers of the bank to know their money is being handled properly. "It's the same as always (for loans)," says Crane. "We look at a borrower's ability to pay and evaluate the loan based on bank policy. We are still doing the same loans we have always done. We haven't changed our interest rate since April."
Crane says the overnight rate fluctuations that get the most attention nationally, have little to do with the long-term rates the bank offers. "Each month we have a meeting," says Crane. We look at rates, what we pay on deposits, what does it cost us to get money, and what is going on in the marketplace. Small banks stay on the neutral side. They don't borrow money that changes (rates) every month … We don't offer fixed-rate loans, that limits our risks and (potential) losses down the road."
Blue Grass Valley Bank received a unqualified opinion from its auditors last year, the highest rating allowed.
First National has some smaller loans on its books, but packages mortgages and sells them soon after origination. "We do the conventional 15-, 20- or 30-year fixed rate mortgages, and once we originate them, they are gone. That way if one goes bad, it doesn't come back on the bank."
BB&T, on the other hand, typically holds most of its mortgages. Lineberry said some are sold, but the bank retains the servicing rights to them. "The loans we do are underwritten conservatively. We don't change through the good times, and we don't change through the bad times," he said.
Both Williams and Lineberry said their banks have money to lend. "It is business as usual. Our capital is strong, and we are seeing an increase in our customer service ratings," Lineberry said.
Williams said credit scores have become more important when First National is looking to originate and sell mortgages. He said in the recent past, a credit score of 620 or above was desired, but now 650 to 675 is needed. "We are still lending on homes. We are still going along. The industry is trending back to the traditional 20 percent down payment, 80 percent loan. Some people got into this off-the-wall stuff like 30-year loans with the first 10 years interest-only, and when property values went down, they were back at square one. That's just not good banking," Williams said.
Part of the national problem, he says, has been caused by "creative financing." He said many home loans simply should have not been made. "Some of these lenders took people living from paycheck to paycheck and did this financing just to put them in a house and collect the fees up front. It is ridiculous," he said.
Lineberry said BB&T is doing well not only with conforming home loans — those under $417,000 — but also with non-conforming loans above that amount.
Both Lineberry and Williams said deposits are doing well and are actually increasing. First National's loans are up 3 percent for the first six months of 2008 over the same period last year, and deposits are up 5 percent.
First National has shown earnings of $1.124 million for that time period, a 5 percent increase over 2007. The bank has paid dividends of 66 cents per share for fiscal year 2005, 69 cents for 2006, and 72 cents for 2007. First National has total assets of $229 million. It has five branches, three in West Virginia and two in Virginia, in Covington and Hot Springs.
First National has paid dividends of 17 cents per share for each of the first three quarters of this year. In the past three years, the fourth-quarter dividend has been larger than that for the first three.
BB&T shares are up more than 95 percent since mid-July while the Standard & Poor 500 has dropped 9 percent.
BB&T has approximately 1,500 branches in Alabama, Florida, Georgia, Kentucky, Indiana, Maryland, North Carolina, South Carolina, Tennessee, Virginia, Washington, D.C. and West Virginia. It is the largest mortgage lender in North Carolina and West Virginia, and the 14th largest financial holding company in the country.
BB&T currently has assets of $136.5 billion. For the first six months of 2008, BB&T has a net income of $856 million, down 2.6 percent from the first six months of 2007. Loan growth was up 9.1 percent for the second quarter of this year. BB&T has paid dividends of 46 cents per share on Feb. 1 and May 1 and 47 cents per share on Aug. 1. A dividend of 47 cents is also slated to be paid on Nov. 3.
When asked what people should do during this trying time, Lineberry was short and to the point. "Find yourself a strong financial partner," he said.
Williams said people should talk someone familiar with how to set up accounts that will stay within FDIC guidelines. First Citizens, he said, is part of a consortium of community banks and can use that group to set up accounts that will remain under the amount needed to be covered by the FDIC.
"I think most community banks will be able to find the right avenues for people. Community banks as a whole are very sound," Williams said.
Wooddell says he understands that customers watching the news and reading the papers are worried about their own banks, and encourages customers to call him with any questions or concerns regarding safety and soundness issues.
Crane, too, welcomes the opportunity to speak to his customers about their concerns.
For more information on the FDIC and links to information about your bank, visit www.fdic.gov.
| 
)