Let the relatively good times roll for Savannah’s banks.
Just don’t expect the bankers themselves to lead that rallying cry.
For the first time in four years, all eight locally based community banks were in the black through the first half of the year. Of the other banks that do business in town, from the megabanks to the regionals, only one lost money in 2013’s first two quarters.
Yet look beyond the profit-loss numbers, and the reasons for concern are obvious.
Net loans continue to sag. Even with charge-offs, or loans deemed uncollectable and taken as losses, dropping by an average of 70 percent over the last year, banks are failing to find enough new business to maintain their portfolios.
The dip in charge-offs has driven profits this year. Banks are no longer using revenues to replenish their loan loss reserves, instead claiming those funds as profits. Once the charge-offs bottom out, though, the profits level off.
“The banking turnaround that took hold last year has continued, but it is going to flatten out without loan growth,” said Ed Sibbald, director of Georgia Southern University’s Excellence in Banking and Financial Services program. “You hear bankers talk about a strong loan pipeline, but we’re not seeing growth.”
The Coastal Bank, based in Savannah, and Bryan County’s Southeastern Bank are the only locally based community institutions to grow their portfolios in the first half of the year – and that growth was marginal.
Many businesses are using cash or revenues to fund expansions and other purchases rather than borrowing.
First Chatham Bank President Brian Foster noted several of his bank’s customers have paid off loans early “because they had extra cash and they didn’t see needing it for anything” in the near term.
The president of Savannah Bank, a division of regional banking power South Carolina Bank & Trust, is seeing a similar trend.
“When you’re getting less than half-a-percent return on deposits because interest rates are so low, it makes sense to use cash,” Holden Hayes said. “The patient bankers will be the ones who do well. You may not be ready to make the loan today, but you better be ready to make ones tomorrow.”
Hayes and his peers talk of strong “pipelines” of loan business. Customers are exploring lending options but are “hesitant to pull the trigger,” according to Sea Island Bank President Darron Burnette.
Confidence is the key, bankers said. The slow economic recovery and uncertainty about changes in Federal Reserve leadership, another debt showdown in Congress and the costs of the Affordable Care Act give borrowers pause.
“The more people hear that things are improving and that type of thing, the more movement we’ll get,” Burnette said.
Homebuilders and commercial developers are showing increasing interest in borrowing. That activity is both encouraging and distressing to bankers – encouraging in that it reflects a strengthening economy, distressing in that construction loans were the biggest source of losses for banks during the downturn.
Five of the eight local community banks increased the percentage of construction loans in their loan portfolios in the past year. For many, though, the construction loans are tied to lots they repossessed during the economic downturn.
“We’ll do construction loans if they are quality, particularly if they take out some of the lots on our books,” First Chatham’s Foster said. “Everybody just has to work to control expenses and quality. Somebody told me once he never saw a bank going broke making quality loans.”
Savannah’s economic rebound, underscored by this summer’s housing surge, is encouraging to local community bankers. Expansions at companies like LMI Aerospace and new projects such as the Outlet Mall of Georgia and Medient Studios bode well, they said.
“This time next year we should be feeling some of the effects of those things,” The Coastal Bank President Jim LaHaise said. “For being a bounce-along economy ours feels pretty good.”