The community banking crisis is winding down.
Business for the small banks is far from ramping up, however.
Even as all eight locally based community banks showed improvement in 2012 — five of them posted year-end profits — loan demand continues to weaken and fee income remains in a downward spiral.
Total loans dipped on a year-over-year basis, even with a drop in failed loans that had undercut loan portfolios throughout the recession and the early days of the recovery. The pace of new loans has not kept up with the pace of payoffs or charge-offs, which are the loans banks deem uncollectable, take as a loss and remove from their portfolios.
And the fewer loans, the less interest income for the banks.
As for fees, non-interest income fell by 12 percent for the group. New regulatory guidelines and a competitive service environment have contributed to the drop.
“If you’re a banker and you’ve cleaned up all your problems and you’re ready to get on with business, you have to be asking yourself, where are the profits going to come from?” said Ed Sibbald, the director of Georgia Southern University’s Center for Excellence in Financial Services. “You’re not going to make it up with fees, and most can’t cut their expenses any more than they already have.”
Most bankers will trade the horrors of the previous four years for the revenue issues. Delinquent loans dropped 38 percent in 2012 and repossessions were down 10 percent as the economic recovery built and real estate values stabilized.
The fall in troubled borrowers boosted bank balance sheets. Funds banks set aside each quarter to protect against potential loan losses — known as provision for loan loss — had been the biggest drag on bank profitability. With fewer troubled loans, banks took smaller provisions.
Hence, The Coastal Bank posted its first annual profit since 2008. First Chatham Bank, meanwhile, cut its losses from $8.5 million in 2011 to $2.5 million in 2012 and finished the year with back-to-back profitable quarters. The bank closed on its sale of its national Small Business Administration loan arm in January, promising another good return in the current quarter.
A boon for First Chatham, and for Coastal Bank and the other locally based community institutions, is the narrowing of their peers, First Chatham President Brian Foster said.
Savannah Bank and Bryan Bank & Trust in December became the latest local community banks to be acquired by a larger out-of-market bank, joining Darby (Ameris), Citizens Bank of Effingham (HeritageBank of the South) and Atlantic Southern (CertusBank).
“We feel pretty good about being one of the few real local banks any more, and we are getting a good response from people wanting to stay with a local bank,” Foster said.
Now on solid footing, community banks need new loan business to build positive momentum. Many of the community bankers are optimistic even in the face of current trends. Business picked up late last year after the election only to drop off as the fiscal cliff crisis neared.
Interest among borrowers is strengthening again, said Holden Hayes, president of The Savannah Bank.
“Improvement and liquidity in the real estate market will drive so many other factors,” said Hayes, whose bank was acquired by South Carolina Bank & Trust in December. “You are seeing movement in sectors like mortgages and multifamily, and that’s where it will start.”
Few, if any, bankers anticipate a rapid rebound, however. Small business owners and local real estate investors remain cautious due in large part to uncertainty over the impact of the Affordable Care Act, better known as Obamacare, and other government and tax issues.
Loan growth among those customers will be “slow and steady,” said United Community Bank’s local market president, Gene Gibson.
“We are seeing good loan activity, but it’s not in new loans or expansion-type deals, but in stuff like refinancing,” Gibson said. “We won’t see a surge in loan growth and productivity any time soon, but we’re fairly optimistic long term.”
THE COASTAL BANK
Earnings: $922,000
Behind the balance sheet: Coastal’s delinquent loans dropped from $20.8 million to $8.9 million in 2012, helping bank post first annual profit since 2008.
FIRST CHATHAM BANK
Earnings: -$2.54 million
Behind the balance sheet: Improving real estate values should minimize losses from the sale of $31 million in foreclosed property currently on First Chatham’s books.
THE SAVANNAH BANK*
Earnings: $30 million
Behind the balance sheet: Bryan Bank & Trust’s two branches were rebranded as The Savannah Bank as part of both banks being acquired by South Carolina Bank & Trust.
* Numbers are for bank’s parent company, South Carolina Bank & Trust;
SEA ISLAND BANK*
Earnings: $775 million
Behind the balance sheet: Parent company, Synovus Bank, predicts repayment of its $968 million TARP loan by end of 2013.
* Numbers are for bank’s parent company, Synovus Bank
HERITAGE BANK OF THE SOUTH*
Earnings: $7.42 million
Behind the balance sheet: Heritage was one of only two banks in the market to post a gain ($94,000) on its sale of repossessed properties in 2012.
* Bank is based out of market, with only four of 18 branches here; numbers are for bank overall
LOCALLY BASED COMMUNITY BANKS
Bank|Profit/Loss|Noteworthy
Carver State Bank|$160,000|Grew deposits by 4 percent for the year
First Bank Coastal Georgia|$981,000|Cut its percentage on construction loans in half in 2012
Heritage Bank|-$10.26M|Capital ratios remain the poorest in the region
Queensborough Bank|$4.36M|Increase fee revenue by 16.5 percent in 2012
S Bank|$320,000|Posted first annual profit since 2007
Southeastern Bank|-$4.1M|Cut delinquent loans by 45 percent for the year
COMMUNITY BANKS BASED OUTSIDE SOUTHEAST GEORGIA
Bank|Profit/Loss|Noteworthy
Ameris Bank|$16.2M|Repaid $24 million of $52 million in TARP funds during quarter
United Community Bank|$37.9M|Repossessed properties dropped to lowest level since 2007
Colony Bank|$1.2M|Grew loans in Savannah market from $60 million to $93 million
First Citizens|$53.8M|Local branch relocated to Cay Building on Ellis Square during quarter
Bank Ozarks|$80.6M|Turning focus toward growth and expansion in North Carolina
CertusBank|-$19.7M|Completed acquisition of Quadrant Financial, an SBA-lending arm, from First Chatham Bank