First Chatham Bank’s Brian Foster foresaw a big first quarter profit for his community bank.
A healing real estate market and the sale of a successful small business lending subsidiary all but guaranteed good returns for the much maligned locally based financial institution.
What Foster didn’t envision was what can only be characterized as a widespread comeback across the local banking landscape.
All eight southeast Georgia based community banks posted a profit in the quarter that ended March 31, the first time all of them finished in the black since the recession decimated the sector. Three banks, including First Chatham, elected not to add money to their loan loss reserves in the quarter, known as a provision for loan loss, reflecting growing confidence in the real estate recovery.
“We’ve been saying it was coming for about a year, and I think we’re there,” Foster said. “We’ve reached the bottom in terms of values, and with values coming back fast, it’s driving us all back fast.”
Bankers across the area attest to the turn in real estate values. Many of the losses absorbed between 2009 and mid-2012 were tied to property declines, as banks adjusted their balance sheets to reflect new appraisals and losses on sales of repossessions.
Banks have been getting book value or better on sales since the first of the year. The Coastal Bank, the other large Savannah-based community bank, recorded a gain on the sale of more than $3 million in repossessed properties in the quarter.
The return surprised the bank’s CEO, Jim LaHaise.
“We anticipated a longer hold period on the assets we moved, and much of those were residential lots in West Chatham, Bryan and Effingham counties,” LaHaise said. “The comeback of the housing market facilitated that, and we see that continuing.”
Another drain on earnings, charge-offs, were down 65 percent year over year in the first quarter. Charge-offs are loan amounts deemed uncollectable and taken as a loss, usually due to changes in property values.
First Chatham was the only community bank to record significant charge-offs in the quarter — $1.46 million — and Foster anticipates few charge-offs in the near-term.
“Anywhere there were deficiencies, we went ahead and wrote them down,” Foster said. “We figured it was a good time to do so given our earnings. That’s one of the reasons why we feel so confident going forward.”
Tempering that confidence sector-wide is the lingering slump in loan demand.
First Chatham’s Foster noted a slight pickup in small business activity, particularly in refinancing, and The Coastal Bank is seeing gains in residential mortgages, but all eight locally based community banks saw loans fall even as repossessions and charge-offs dropped.
The situation is distressing for community banks, according to Georgia Southern University banking analyst Ed Sibbald. With the first quarter gains tied to a drop in losses, growth will prove difficult without an influx of new business.
“The banks are going to have to keep running lean until loan demand picks up significantly,” said Sibbald, director of GSU's Excellence in Banking and Financial Services program. “Fee income is flat. They can’t cut expenses any more. Margins are terrible.
“For all the positives, the future remains uncertain.”
In the meantime, local community bankers are focusing on the near-term. Five of the eight banks grew their local deposit base year over year in the first quarter, and leaders acknowledge they are picking up customers from regional banks that acquired local banks during the banking crisis.
First Bank of Coastal Georgia in Bryan County saw a $15 million bump in deposits in one quarter.
First Chatham is among the most proactive. The bank that lost nearly $18 million between 2009 and 2012 completed a sale of its Small Business Administration lending arm, Quadrant Financial, in the first quarter. The sale contributed to a $1.5 million quarterly profit, and the bank will issue and sell new preferred stock in the coming months to boost capital.
An earnings boon is pending for First Chatham as well. Regulators required the bank to place more than $3 million in taxes in its reserves in 2011, funds that will be credited back to the bank once it demonstrates “consistency” in its earnings.
“We’re well on the way to claiming that,” Foster said “Everything in our plan is right on target right now. Clearly, we’re feeling the best we’ve felt in a long time.”
BREAKOUT
THE COASTAL BANK
Earnings: $503,000
Behind the balance sheet: Coastal saw a $328,000 gain on sale of repossessed properties in the quarter, underscoring the healing real estate market.
FIRST CHATHAM BANK
Earnings: $1.495 million
Behind the balance sheet: First Chatham halved its delinquent loans over the last five quarters and is at a 13-quarter low.
THE SAVANNAH BANK*
Earnings: $10.6 million
Behind the balance sheet: Parent company acquired a Charleston bank during the quarter and now has a presence stretching along the coast from Myrtle Beach to Richmond Hill.
* Numbers are for bank's parent company, South Carolina Bank & Trust;
SEA ISLAND BANK*
Earnings: $14.8 million
Behind the balance sheet: State banking regulators suspended increased oversight of parent company, Synovus Bank, underscoring the bank’s improvement..
* Numbers are for bank's parent company, Synovus Bank
HERITAGE BANK OF THE SOUTH*
Earnings: $4.04 million
Behind the balance sheet: Heritage saw a 15 percent jump in its core deposits in the quarter, with its Effingham County branches accounting for some of that growth.
* 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 ............ $9,000 ...... Delinquent loans more than doubled in first quarter
First Bank Coastal Georgia ... $326,000 ...... Cut its percentage on construction loans in half in 2012
Heritage Bank ................ $814,000 ...... First profitable quarter since first quarter 2010
Queensborough Bank ........... $1,22M ........ Only local community bank to grow assets in each of the last three quarters
S Bank ....................... $116,000 ...... Increased its percentage of construction loans as activity picked up in Effingham County and West Chatham.
Southeastern Bank ............ $135,000 ........ Fee income up 174 percent compared to first quarter 2012
COMMUNITY BANKS BASED OUTSIDE SOUTHEAST GEORGIA
BANK ......................... PROFIT/LOSS ... NOTEWORTHY
Ameris Bank .................. $5.64M ........ Delinquent loans fell 41 percent year over year
United Community Bank ........ $11.8M ....... Mortgage business dropped, particularly in refinancing, which hurt fee income.
Colony Bank .................. $567,000 ......... Fee income rose company-wide as the bank continued to see success in the mortgage market.
First Citizens ............... $12.2M ........ First Citizens added three loan officers in the quarter and saw a “drastic” increase in consumer and commercial loan volume.
Bank Ozarks .................. $21.4M ........ Posted gain on sale of repossessed properties for the fifth straight quarter.
CertusBank ................... -$8.7M ....... Completed acquisition of Quadrant Financial, an SBA-lending arm, from First Chatham Bank.
NATIONAL/REGIONAL BANKS
Wells Fargo|$5.2B|Well Fargo did 22 lines of credit or loans worth roughly $500,000 for Savannah businesses in the quarter.
SunTrust|$340M|Closed 40 branches in the quarter, although none in Savannah area.
Bank of America|$2.6B|Cut expenses by $1 billion from first quarter 2013, mainly via layoffs at locations across the country.
BB&T|$210M|Delinquent loans and repossessions fell by a combined 8 percent in the quarter.
Regions|$327M|Announced plans to repurchase $350 million in common shares.