Savannah’s local community bankers have watched their skies slowly brighten for much of 2012.
Two stubborn clouds continued to block out the sun, however.
Loan demand was one; delinquencies the other.
At least one of those clouds is thinning heading into 2013.
Third-quarter earnings reports filed with the Federal Deposit Insurance Corp. revealed the volume of troubled loans is finally abating. Delinquent loans, or those at least 90 days past due, fell 21 percent between Sept. 30, 2011, and the same date this year for the nine Southeast Georgia-based community banks that serve Savannah.
The area’s three largest community banks in terms of deposit share — Coastal Bank, First Chatham Bank and Savannah Bank — saw delinquencies fall in the 30 percent range. Coastal Bank’s improvement was particularly impressive. The bank claimed $13 million in non-performing loans at the end of the third quarter down from a 2010 peak of $33.7 million.
“The trend is the first sign that we might actually be coming out of a recession,” said Brian Foster, president and CEO of First Chatham Bank. “The economists may have said we were out of it, but it never felt like it. A borrower got in trouble, there were no buyers out there.
“You ended up getting behind and eventually going into foreclosure because you couldn’t sell. Now, if you have improved property for sale, there are buyers.”
The resulting stabilization of property values has the community bankers seeing less red on their balance sheets. Stable values positively impact bank reserves, repossession sales and expenses, as well as delinquencies. Quarterly contributions to reserves to cover potential losses — the biggest drags on profitability — are down almost 300 percent from 2010.
Four of the nine banks showed a profit through the first nine months of 2012, and one more, Savannah Bank, would be profitable if not for accounting charges tied to its pending merger with South Carolina Bank & Trust.
Another bank with a year-to-date loss, First Chatham Bank, posted a profit in the third quarter and anticipates another in the current quarter. First Chatham could potentially show a profit for the year after losing more than $20 million in 2010 and 2011.
The signs of recovery are not “headline news,” according to Georgia Southern University banking analyst Ed Sibbald, but do show “progress.”
“We’re seeing gradual improvement in loan portfolio quality,” said Sibbald, director of GSU’s Excellence in Banking and Financial Services program. “After the roughest three years banks have seen in a half-century, the progress is encouraging.”
Loan demand remains weak
Fewer problem loans will arrest community bank decline, but the growth driver — new loans — remain rare.
The loan portfolios of all nine banks shrank in the third quarter versus the third quarter of last year. Six of those banks posted double-digit percentage declines. And the quarter showed little pickup in activity, with only Queensborough National Bank & Trust showing growth from the previous quarter.
“We felt like early in the third quarter we saw a momentum swing, but it chilled in the fall because of the combination of election uncertainty, fiscal uncertainty and the normal holiday distractions,” The Coastal Bank’s Jim LaHaise said. “And it’s been a difficult fourth quarter when it comes to volume. There are not a lot of opportunities and plenty of supply in terms of banks looking to make loans.”
Many business borrowers are too busy deciphering the costs of the Affordable Care Act and the potential tax impact of the so-called fiscal cliff to take on expansion projects, bankers said. Clients are focused on estate planning and accelerating capital gains to protect themselves from end-of-the-year changes.
“Nobody is going to run out and expand and buy things until they know what is going on,” First Chatham’s Foster said. “Uncertainty is what everybody in business fears, and uncertainty in banking makes it hard to do what you do.”
As for real estate-based lending, both borrowers and banks remain cautious. Collateral values may be stable again, but strict regulatory oversight, recessionary fears and a large supply of property continue to contribute to tight credit conditions.
“What borrowers would normally do through loans they are cash flowing right now,” GSU’s Sibbald said. “It’s going to be that way at least until after Washington shakes things out at the end of the year.”
Changes afoot for local banks
Savannah’s community banking landscape is in a shake up as New Year’s Day approaches.
Savannah Bancorp shareholders recently approved the sale of Savannah Bank, Bryan Bank & Trust and Minis and Co. to South Carolina Bank & Trust. The deal already has regulatory approval and will close before the end of the year. Savannah Bank and Bryan Bank will continue to be known by their current names and operate with local management.
The Coastal Bank has a new leader in Jim LaHaise. He succeeds Tom Wiley, who starts a new job as president of Atlanta’s State Bank & Trust on Jan. 1. LaHaise has been Coastal’s chief banking officer since he and Wiley joined the bank in 2007. The duo has been instrumental in guiding the bank through the economic downturn and cleansing the loan portfolio.
First Chatham Bank’s sale of its Small Business Administration lending arm, Quadrant Financial, will close later this month. CertusBank, a Greenville, S.C., bank with two branches in Savannah, is the buyer. The Quadrant sale will improve First Chatham’s capital situation, which remains below “well-capitalized” status as established by banking regulators.
Improving conditions could lead to more changes in 2013. Two out-of-town banks opened loan production offices in Savannah this year, and both have plans for retail branches.
“The one constant in banking right now is change, and anytime there are changes that usually creates opportunities,” First Chatham’s Foster said. “The most important thing for banks going forward is an improving economy that promotes growth and demand.”
FIRMER FOOTING FOR LOCALLY-BASED COMMUNITY BANKS
The nine Southeast Georgia-based community banks that do business in Chatham, Bryan and Effingham counties. The profit/loss statistics are for the first nine months of 2012.
BANK ......................... PROFIT/LOSS ... NOTEWORTHY
Queensborough Bank ........... $3.6 million .... Posted a profit for seventh consecutive quarter.
First Bank Coastal Georgia ... $937,000 ...... Boasts highest capital ratios in group.
The Coastal Bank ............. $911,000 ...... Reduced non-performing assets by 20 percent in quarter.
Carver State Bank ............ $72,000 ....... Did not add to loan loss reserves for fifth time in six quarters.
Southeastern Bank ............ -$1.9 million... Capital ratios remain among highest in area despite losses.
First Chatham Bank ........... -$2.6 million ... Posted first quarterly profit since 2010.
Bryan Bank ................... -$2.7 million ........Has cut portfolio of repossessed properties in half in last year.
The Heritage Bank ............ -$7.2 million ... Cut non-performing assets by 28 percent in last year.
The Savannah Bank ............ -$9 million ...... Accounting issue related to pending merger with S.C. Bank & Trust accounted for nearly all losses.
GROWING PROFITS FOR COMMUNITY BANKS BASED OUTSIDE SOUTHEAST GEORGIA
The eight regional community banks based outside southeast Georgia that do business in Chatham, Bryan and Effingham counties. The profit/loss statistics are for July, August and September of 2012.
BANK .................... PROFIT/LOSS ... NOTEWORTHY
Synovus Bank (Sea Island Bank) ............ $16M ........ Posted fifth straight quarter of profitability
Bank of the Ozarks ...... $20.17M ....... Rare bank to post gains on sale of repossessed properties
First Citizens .......... $16.5M ........ Moved into new branch in Cay Building on Ellis Square
United Community Bank ... $10.6M ......... Transaction account deposits up 9 percent year-over-year
Ameris Bank ............. $2.29M ........... Grew deposits for second time in last three quarters.
HeritageBank of South ... $2.17M ......... Loan growth of 5 percent in the quarter.
Colony Bank ............. $411,000 ...... Sold more than $9 million in reposessed properties in 2012’s first nine months
CertusBank .............. -$10.75M ....... Buying SBA lender Quadrant financial from local community bank First Chatham.
MIXED RESULTS FOR BIG BANKS
The five national and large regional banks that do business in Chatham, Bryan and Effingham counties. The profit/loss statistics are for July, August and September of 2012.
BANK|PROFIT/LOSS|NOTEWORTHY
Wells Fargo|$4.9B|Low interest rates boosted mortgage lending but hurt revenue
SunTrust|$1.07B|Sold $1.9B worth of Coca-Cola stock during the quarter
BB&T|$469M|Expanded in south Florida during quarter with acquisition of 78-branch BankAtlantic
Bank of America|$340M|Small business lending up 27 percent year-over-year
Regions|$301M|Generated a record $106 million in mortgage revenue in quarter